TIDMTI1
RNS Number : 9066K
Trian Investors 1 Limited
07 September 2021
7 September 2021
TRIAN INVESTORS 1 LIMITED
(the "Company")
Interim Results
Interim Report and Unaudited Condensed Financial Statements for
the period from 1 January 2021 to 30 June 2021
The Company announces its results for the six month period ended
30 June 2021
For further information, please contact:
Ocorian Administration (Guernsey) Limited
(Administrator and Company Secretary)
+44 (0)1481 742 742
Ian Smith
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").
The Company expects to make substantial investments, through its
investment in the Investment Partnership, in one or more high
quality, but undervalued and/or underperforming, United Kingdom or
United States companies where the Investment Manager believes it
has developed a compelling set of operational and strategic
initiatives that will help generate shareholder value. Investments
in companies may be made on-market or off-market, in publicly
listed or private companies.
Chairman's Statement
For the period from 1 January 2021 to 30 June 2021
Dear Shareholder,
On behalf of the Board of Directors (the "Board"), I am pleased
to present to you the Interim Report of the Company covering the
period from 1 January 2021 to 30 June 2021 ("Period").
The Company's underlying investment in Ferguson plc ("Ferguson")
continued to generate attractive returns during the Period, driven
by strong operational execution at Ferguson's main US businesses,
as well as further improvement in the market's valuation of its
shares. In addition, Ferguson made continued progress on its
strategic initiatives-the company sold its UK heating and plumbing
and distribution business and distributed the proceeds to
shareholders, completed an additional U.S. listing of its shares,
and stated its intention to transition to a U.S. primary listing in
due course.
As at 30 June 2021, Ferguson's share price was trading at
GBP100.50 (compared to GBP88.84 as at 31 December 2020), which
resulted in a corresponding increase in the Company's net asset
value ("NAV"), to 170.42 pence per Share (compared to 150.57 pence
per Share as at 31 December 2020). Between 8 May 2019, when the
Company initially made its investment in Ferguson, and 30 June
2021, Ferguson generated a total shareholder return of 95.22% (as
compared to 4.74 % for the FTSE 100 over the same time period) (1)
.
On 14 June 2021, the Company announced that shareholders had
approved amendments to the Company's existing investment policy to
allow the Company to invest in one or more U.K. or U.S. target
companies at the same time and to acquire minority, majority or
controlling interests in any listed or unlisted target company. In
tandem, the Company also revised its existing policies and
guidelines on recycling sale proceeds and return of capital so that
all net proceeds, including net profits, generated from dividends
as well as the sale of any investment in a target company may be
reinvested following disposal.
Between 17 May 2021 and 8 June 2021, the Company used
approximately GBP14.2 million (US$20.0 million) to repurchase
Shares in the open market to provide immediate liquidity to the
Company's shareholders. When combined with the repurchases that
took place in 2020, the Company has used approximately GBP21.1
million (US$29.2 million) to repurchase 17,166,913 Shares in
aggregate (representing over 6% of the Shares in issue at the time
of the Company's initial public offering).
Separately, the Investment Manager informed the Company that
Trian Investors 1 Subscriber, LLC ("Trian Subscriber"), a company
owned by Trian's partners and affiliates, purchased 8,245,000 of
the Company's Shares in the open market between 17 June 2021 and 12
July 2021 following the completion of the Company repurchases. In
addition, in order to promote further alignment with shareholders,
Trian Investors 1 SLP, L.P., a limited partnership owned by Trian's
partners, agreed to 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.
The Board and Investment Manager believe that these revisions to
the Company's investment policy and to the Company's related
policies and guidelines will better position Trian to execute its
highly engaged investment strategy and to compound shareholders'
capital over time by reinvesting investment profits.
Regarding the feedback received from certain of the Company's
shareholders relating to the amended investment policy, the Board
established an engagement programme immediately following the 2021
annual general meeting ("AGM") to understand their specific
circumstances and voting position. An update on the views received
from shareholders and actions taken is reported separately
below.
The Board is grateful for the support it has received and will
continue to keep Shareholders informed of developments at the
Company as appropriate.
Yours sincerely,
Chris Sherwell
Chairman
6 September 2021
1 Total shareholder return figures from FactSet.
Investment Manager's Report
For the period from 1 January 2021 to 30 June 2021
Dear Shareholder,
Background
In June 2019, the Board announced that funds managed by Trian,
including the Investment Partnership through which the Company
invests, had acquired a 5.98% interest in shares of Ferguson.(1)
The Investment Manager recommended that the Company invest in
Ferguson because we believed that it possessed an underappreciated
U.S. business, benefiting from an attractive long-term organic
growth profile underpinned by exposure to repair, maintenance, and
improvement (RMI) activity, a strong balance sheet and attractive
financial profile (including stable gross margins and high returns
on invested capital), and significant scale advantages compared
with its competitors. Since announcing its Ferguson investment,
Trian has constructively engaged with Ferguson's board of directors
and management team regarding various operational and strategic
initiatives that Trian believed could generate value, and Trian has
developed productive relationships with Ferguson's Chief Executive
Officer and its Chairman.
Since 8 May 2019, when the Company initially made its investment
in Ferguson, through 30 June 2021, Ferguson has generated a total
shareholder return of 95.22% (as compared to 4.74% for the FTSE 100
over the same time period).
Ferguson's Recent Trading Results
On 16 March 2021, Ferguson released its financial results for
the half year ending on 31 January 2021 ("H1 2021"). Ferguson
reported solid results, highlighted by organic sales growth of 3.3%
at its U.S. business (which contributed approximately 95% of the
company's consolidated ongoing underlying trading profit) versus
the prior year period. During H1 2021, Ferguson's end markets were
broadly flat compared to the prior year period, implying that
Ferguson gained market share. Despite a difficult operating
environment, the company was also able to grow ongoing underlying
trading profit by 12.2% (representing approximately 60 basis points
of operating margin expansion) versus the prior year period, driven
by stable gross margin trends and operating expense discipline.
In addition, Ferguson announced several initiatives relating to
capital allocation. First, it
announced that on 11 May 2021 shareholders would receive an
interim dividend of 72.9 cents per share representing implied
year-over-year dividend growth of 5%, as well as a special dividend
of 180 cents per share, representing proceeds from the disposition
of Wolseley UK (discussed further below). Second, Ferguson
announced further M&A activity in connection with the
recommencement of the company's M&A program in September
2020-during H1 2021, Ferguson completed four bolt-on acquisitions
of companies with total annualised revenues of approximately $215
million. Finally, Ferguson announced a resumption of share
1 All data contained in this Investment Manager's Report is
based on FactSet and publicly available information from Ferguson's
periodic reports, investor presentations and regulatory filings.
Please see "Investment Manager's Report Disclosure Statements and
Disclaimers" for important information regarding this Investment
Manager's Report.
repurchases, with the company stating that it intended to
repurchase $400 million of its shares over the next 12 months.
On 19 May 2021, Ferguson announced its earnings results for the
three months ended 30 April 2021 ("Q3 2021"). Ferguson brought
forward its Q3 earnings announcement because the company delivered
strong revenue and profit growth ahead of expectations. During Q3
2021, Ferguson reported 20.1% year-over-year US organic revenue
growth, as compared to 1% year-over-year organic revenue growth
during the prior-year quarter. We believe that Ferguson's organic
sales growth exceeded market growth during Q3 2021, resulting in
increased market share. In addition, Ferguson reported gross
margins of 30.9%, which were 110 basis points ahead of gross
margins during the prior-year quarter, and which reflected
Ferguson's ability to successfully pass through price during a
period of acute inflation. Overall, Ferguson generated underlying
trading profit of $560 million during Q3 2021, which significantly
exceeded Wall Street analyst consensus expectations ($431 million)
coming into the quarter. We were impressed with Ferguson's
operational execution, including its ability to expand gross
margins, manage expenses in an inflationary environment, and build
inventory in order to maintain customer service levels. Ferguson
also announced that it had completed $140 million of the $400
million share repurchase announced on 16 March 2021, while
continuing to maintain a strong liquidity position - Ferguson's net
debt to adjusted earnings before interest, taxes, depreciation and
amortisation stood at only 0.8x as at quarter-end (pro forma for
the special dividend and share repurchases described above).
In the Ferguson earnings release, Ferguson's Chief Executive
Officer, Kevin Murphy, noted that revenue picked up strongly
through the quarter continuing into early May. As a result of the
momentum in the business and better than expected Q3 2021 results,
Ferguson revised its outlook for fiscal year 2021 trading profit to
be in the range of $2.0 - $2.1 billion (as compared with the Wall
Street analyst consensus expectation of $1.86 billion coming into
the quarter).
Update on Ferguson's Strategic Initiatives
After first announcing its intention to separate Wolseley UK,
Ferguson's UK-based distribution business, in September 2019, the
company announced on 4 January 2021 that it would sell Wolseley UK
to a private equity firm for approximately GBP308 million. The sale
was completed on 1 February 2021 and Ferguson returned
substantially all of the net cash proceeds of the sale by way of a
special dividend of 180 cents per share, which was paid on 11 May
2021.
In addition, the additional U.S. listing of Ferguson's shares
was approved by Ferguson
shareholders at a general meeting held on 29 July 2020 with
overwhelming support (99.5% of votes cast at the meeting were in
favor of the proposal), and Ferguson's shares began trading on the
New York Stock Exchange on 8 March 2021. Ferguson has retained its
primary listing on the London Stock Exchange and inclusion in the
FTSE 100 index, and the company's shares continue to trade on both
exchanges under the ticker symbol: FERG. Ferguson's board of
directors believes that over time the additional U.S. listing will
facilitate increased share ownership by domestic U.S. funds, and in
connection with the additional listing, Ferguson's management team
has undertaken extensive additional investor marketing in the U.S.
to enhance understanding and awareness of Ferguson's business
amongst these investors.
On 8 March 2021, the date on which Ferguson's additional listing
became effective, Ferguson's board reiterated its belief that the
natural long term listing location for Ferguson is in the U.S. and
that, after a period of transition, the company intends to hold a
shareholder vote on a proposal to change its primary listing to the
U.S. On 16 March 2021, Ferguson also announced that the company
will change to U.S GAAP reporting from 1 August 2021 in connection
with a potential relisting and to aid comparability with other U.S.
peers.
Finally, on 16 April 2021, Ferguson announced the appointment of
Kelly Baker to the Ferguson Board of Directors. Ms. Baker is a US
citizen who is currently Executive Vice President, Chief Human
Resources Officer of Pentair plc. In the announcement of her
appointment, Geoff Drabble, Chairman of Ferguson, commented on Ms.
Baker's significant experience at numerous US publicly listed
businesses.
Trian's Perspective on Ferguson's Investment Prospects
The Investment Manager was pleased to see Ferguson report Q3
2021 operating results that were significantly ahead of analyst
expectations and was impressed with Ferguson's operational
execution during the quarter. We believe that Ferguson gained
market share during Q3 2021 and that Ferguson will continue to grow
faster than its underlying markets, given its omni-channel sales
capabilities, product breadth and scale advantages, and focus on
pursuing bolt-on acquisitions.
Recent macroeconomic conditions have also been favourable to
Ferguson. Ferguson's management noted in its most recent earnings
release that US market demand accelerated through the quarter,
which we believe reflects the continued strength of the U.S.
residential market as well as acceleration in the commercial and
industrial end-markets which Ferguson serves.
Ferguson reaffirmed its intention to pursue a full US relisting
in March 2021, and as previously noted, we believe that a relisting
would result in numerous benefits to Ferguson ( including higher
ownership among U.S. institutions, increased U.S. research
coverage, comparison to a more appropriate set of peers, and
increased employee engagement (as most of Ferguson's employees are
based in the U.S.)).
Trian continues to believe that Ferguson represents an
attractive investment opportunity, given the quality of its
business and management team, the current strength of its
underlying markets, and the relative valuation discount to its
US-listed peers. However, Ferguson's valuation has significantly
improved since the Company initially made its investment. When the
Company announced its investment in Ferguson in June 2019,
Ferguson's shares were trading at approximately 14x on a price to
next-twelve-month earnings per share ("NTM P/E ratio") metric,
representing a 43% discount to the average valuation of its U.S.
listed peers.2 As at 31 August 2021, Ferguson's shares were trading
at a NTM P/E ratio between 20-21x, representing a 32% discount to
the average valuation of its U.S. listed peers.
2 The Investment Manager consider Ferguson's US listed peers to
include Watsco, Inc., SiteOne Landscape Supply, Inc., Pool
Corporation, The Home Depot, Inc., Lowe's Companies, Inc. and Core
& Main, Inc.
As always, there are risks to our investment outlook, including
management's ability to execute on its operational plans, the
possibility that Ferguson shareholders may not approve a U.S.
primary listing, the impact of changing interest rates on
macroeconomic conditions, the possibility that Ferguson could
encounter operational challenges on account of higher inflation,
and the possibility that an increase in COVID-19 cases in the U.S.,
including COVID-19 cases arising from the spread of the "Delta
variant" or other variants, could impact Ferguson's operations and
end markets.
Concluding Thoughts
The Investment Manager believes that Ferguson remains an
attractive investment. However, the Investment Manager intends to
continue to evaluate the Company's Ferguson investment, taking into
consideration the significant improvement to its valuation
described above, compared to other investment opportunities
available to the Company.
As Trian continues to evaluate other potential investment
opportunities for the Company to pursue, the Investment Manager
believes that the recent revisions to the Company's investment
policy and the Company's related policies and guidelines will
better position Trian to execute its highly engaged investment
strategy with respect to new opportunities and to compound
shareholders' capital over time by reinvesting profits. In
addition, Trian's Founding Partners have a long history of using
publicly traded companies to enter into strategic transactions with
operating businesses, and in light of the increased flexibility
provided by the Company's revised investment policy, Trian intends
to continue to explore M&A opportunities which could help
position the Company to become a larger, more widely-held and
higher-profile public company over time.
The Investment Manager has a high degree of conviction in the
Company's trajectory, especially in light of the recent revisions
to the Company's policies and guidelines, which is why Trian's
partners and their affiliates recently invested significantly more
of their capital into Shares of the Company through Trian
Subscriber.
We appreciate your ongoing support and will continue to work
diligently towards generating long-term value for shareholders.
Yours sincerely,
Trian Investors Management, LLC
6 September 2021
Update on Engagement with Shareholders
At the Company's AGM held on 14 June 2021, shareholders voted by
a majority of 52% to 48% in favour of amendments to the Company's
investment policy which are designed to enhance the Company's
ability to generate long-term shareholder value.
Though pleased that the ordinary resolution passed in accordance
with the Board's recommendation, the Directors took note of the
narrow vote margin. Prior to the AGM, the Directors met with
several shareholders to understand their view on the proposed
changes to the investment policy. Recognising their responsibility
to follow up after the AGM, they promptly contacted shareholders
representing over 50% of outstanding Shares, including all large
shareholders who indicated that they had voted against approval of
the amended investment policy. Through one of the Company's
corporate brokers, meetings were set up with the Board and the
Investment Manager at which a variety of topics were discussed with
those shareholders who accepted the invitation to meet, including
those shareholders' reasoning for their voting decisions and any
policies they believed that the Company should adopt in the future,
including with respect to the use of Target Company dividends.
In sum, most shareholders who voted against the proposed
investment policy amendments expressed concerns about liquidity and
the fact that the Company's Shares were trading at a significant
discount to NAV. They also focused on the revisions to the
Company's policies under which all or part of the profits from the
single investment in Ferguson may no longer be returned but could
instead be recycled and retained for the purpose of making new
investments. As previously noted, the Board and the Investment
Manager believe that the revised investment policy will enhance the
Company's ability to become a larger, more widely-held and
higher-profile public company, and they emphasised their viewpoint
in discussions with shareholders.
The Directors and the Investment Manager have since discussed
the feedback received from shareholders in detail and have
considered further how best to implement the new investment policy.
The Board understands the expectations of those shareholders who
had anticipated some return of their capital and voted against the
revised investment policy, but it must also recognise the interests
of the majority of shareholders who voted in favour of the
revisions and who supported the proposition that the revisions can
help generate more attractive returns over time than would be the
case under the Company's original investment policy.
In this context the Board also notes that, when it approved the
amendments to the investment policy, it considered Trian SLP's
commitment to receive future incentive allocations in the form of
Shares to be valued at NAV. The Board believes that these proposed
issuances of Shares will provide a greater pool of capital for use
by the Company and further alignment between the Investment Manager
and the Company's shareholders.
While the Investment Manager continues to evaluate potential
investment opportunities, the Board remains highly committed to
monitoring the Company's trading activity and seeking to improve
the liquidity and the trading price of the Company's Shares in
relation to NAV. Furthermore, in light of the feedback received
from shareholders, the Company currently expects to use ordinary
dividends received from Ferguson that are not needed for working
capital or other corporate purposes to fund Share repurchases. The
Investment Manager meanwhile believes that the Company will have
capacity to complete additional Share repurchases
opportunistically, although the potential benefits of such capital
returns will need to be balanced against the potential negative
impact on the Company's ability to implement its highly engaged
investment strategy.
Longer term, the Board intends to work with the Investment
Manager to pursue the Company's overriding objective which - to
reiterate - is to compound shareholder capital and use the
Company's enhanced investment flexibility to build the Company into
a larger, more widely-held and higher-profile public company over
time. The Board believes that Trian's Founding Partners' long
history of completing strategic transactions in operating
businesses, and the Investment Manager's commitment to exploring
M&A opportunities that can benefit the Company, should give
shareholders additional comfort that the goals set out ahead of the
AGM can be accomplished. Accordingly, the Board and the Investment
Manager both look forward to continuing an open dialogue with
shareholders.
On behalf of the Board
Chris Sherwell
Chairman
6 September 2021
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' as adopted
by the European Union;
-- The interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and their impact on the condensed
financial statements and description of principal risks and
uncertainties for the remaining six months of the year);
-- The interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties
transactions and changes therein); and
-- The condensed set of financial statements, which has been
prepared in accordance with the applicable set of accounting
standards, gives a true and fair view of the assets, liabilities,
financial position and profit or loss of the issuer 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. 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
Under the UK Corporate Governance Code and applicable
regulations, the Directors are required to satisfy themselves that
it is reasonable to assume that the Company is a going concern.
The Directors monitor the capital and liquidity requirements of
the Company on a regular basis. They have undertaken a rigorous
review of the Company's ability to continue as a going concern,
including by reviewing the Company's ongoing cash flows and level
of liquid investments and cash balances as at the reporting date,
as well as forecasting future cash flows, and they are of the
opinion that the Company has adequate resources to continue its
operational activities for at least twelve months. The Directors
are of the opinion that the COVID-19 outbreak should not impact the
Company's ability to continue as a going concern despite the
resulting uncertainty it has created.
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 going concern basis.
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 period
ended 31 December 2020. In addition, the principal risks associated
with the implementation of the Company's amended investment policy
are described in the Notice of the 2021 AGM published on 17 May
2021. 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 investments
and the COVID-19 pandemic, but currently expects them to remain
substantially the same.
On behalf of the Board
Chris Sherwell
Chairman
6 September 2021
Independent Auditor's Review Report
INDEPENT REVIEW REPORT TO TRIAN INVESTORS 1 LIMITED
We have been engaged by the company to review the condensed
set of financial statements in the half-yearly financial report
for the six months ended 30 June 2021 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. We have read the other information
contained in the half-yearly financial report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of
financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of,
and has been approved by, 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.
As disclosed in note 2, the annual financial statements of
the Company will be prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European
Union. The condensed set of financial statements included in
this half-yearly financial report has been prepared in accordance
with International Accounting Standard 34, "Interim Financial
Reporting".
Our responsibility
Our responsibility is to express to the Company a conclusion
on the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard
on Review Engagements (UK and Ireland) 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. 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.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended
30 June 2021 is not prepared, in all material respects, in
accordance with United Kingdom adopted International Accounting
Standard 34 and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
Use of our report
This report is made solely to the Company in accordance with
International Standard on Review Engagements (UK and Ireland)
2410 "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial
Reporting Council. 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
6 September 2021
Unaudited Condensed Statement of Financial Position
As at 30 June 2021
30 June 2021 30 June 2020 31 December
2020
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
Non-current assets
Investment in Midco 5, 6 430,799 308,014 396,523
-------------- -------------- --------------
Total non-current
assets 430,799 308,014 396,523
Current assets
Cash and cash equivalents 1,163 1,742 1,691
Receivables and
prepayments 7 51 56 50
-------------- -------------- --------------
Total current assets 1,214 1,798 1,741
Current liabilities
Trade and other
payables 8 129 44 59
-------------- -------------- --------------
Total liabilities 129 44 59
-------------- -------------- --------------
Net assets 431,884 309,768 398,205
============== ============== ==============
Equity
Share capital 9 244,745 262,876 259,095
Retained earnings 187,139 46,892 139,110
-------------- --------------
Total equity 431,884 309,768 398,205
============== ==============
Number of Ordinary
Shares in issue 9 253,419,064 267,825,147 264,467,091
NAV per share (pence) 10 170.42 115.66 150.57
The Unaudited Condensed Interim Financial Statements were
approved by the Board and authorised for issue on 6 September
2021.
The notes form an integral part of these financial
statements.
Chris Sherwell Mark Thompson
Director Director
Unaudited Condensed Statement of Comprehensive Income
For the period from 1 January 2021 to 30 June 2021
1 January
1 January 1 January 2020 to
2021 to 30 2020 to 30 31 December
Notes June 2021 June 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Income
Unrealised gain/(loss)
on investment in Midco 5 48,451 (15,214) 77,295
Dividends received from
Midco 5 - 1,407 1,407
48,451 (13,807) 78,702
Expenses
Administration fees 15 76 86 147
Directors' fees 14 70 70 140
Audit and non-audit fees 16 30 20 34
Trademark licence fees 15 23 23 47
Other operating expenses 223 143 265
-------------- -------------- --------------
Total expenses 422 342 633
Operating profit/(loss) 48,029 (14,149) 78,069
-------------- -------------- --------------
Finance income and expense
Interest income - 3 3
-------------- -------------- --------------
Net profit/(loss) 48,029 (14,146) 78,072
-------------- -------------- --------------
Total comprehensive income/(loss) 48,029 (14,146) 78,072
============== ============== ==============
Basic earnings/(loss)
per share (pence) 11 18.31 (5.26) 29.12
All activities derive from continuing operations.
The notes form an integral part of these financial
statements.
Unaudited Condensed Statement of Changes in Equity
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 buyback 9 (14,350) - (14,350)
-------------- ---------- ---------
(14,350) - (14,350)
-------------- ---------- ---------
As at 30 June 2021 244,745 187,139 431,884
============== ========== =========
Notes Share capital Retained Total
earnings
GBP'000 GBP'000 GBP'000
As at 1 January 2020 265,876 62,445 328,321
Loss for the period - (14,146) (14,146)
Total comprehensive
loss - (14,146) (14,146)
Share buyback 9 (3,000) - (3,000)
Dividend paid 17 - (1,407) (1,407)
-------------- ---------- ---------
(3,000) (1,407) (4,407)
-------------- ---------- ---------
As at 30 June 2020 262,876 46,892 309,768
============== ========== =========
Notes Share capital Retained Total
earnings
GBP'000 GBP'000 GBP'000
As at 1 January 2020 265,876 62,445 328,321
Profit for the year - 78,072 78,072
Total comprehensive
income - 78,072 78,072
Share buyback 9 (6,781) - (6,781)
Dividend paid 17 - (1,407) (1,407)
-------------- ---------- --------
(6,781) (1,407) (8,188)
-------------- ---------- --------
As at 31 December 2020 259,095 139,110 398,205
============== ========== ========
The notes form an integral part of these financial
statements.
Unaudited Condensed Statement of Cash Flows
For the period from 1 January 2021 to 30 June 2021
1 January
2020 to 31
December 2020
1 January 1 January (audited)
2021 to 2020 to 30
30 June June 2020
2021
(unaudited) (unaudited)
Notes GBP'000 GBP'000 GBP'000
Operating activities
Net profit/(loss) before
tax 48,029 (14,146) 78,072
Adjustments to reconcile
profit/(loss) before
tax to net cash flows:
Unrealised (gain)/loss
on investment (48,451) 15,214
Dividends received - (1,407) (77,295)
Interest income - (3) (1,407)
Movement in receivables
and prepayments (1) 40 (3)
46
Movement in trade and
other payables 70 (16) (1)
-------------- -------------- ---------------
Net cash flows from
operating activities (353) (318) (588)
Investing activities
Dividends received 5 - 1,407 1,407
Capital distribution
from Midco 5 - 3,000 3,000
Share redemption from
Midco 5 14,175 - 4,000
Finance income - 3 3
-------------- -------------- ---------------
Net cash flows from
investing activities 14,175 4,410 8,410
Financing activities
Shares repurchase 9 (14,350) (3,000) (6,781)
Dividend paid 17 - (1,407) (1,407)
-------------- -------------- ---------------
Net cash flows from
financing activities (14,350) (4,407) (8,188)
Net movement in cash
and cash equivalents (528) (315) (366)
Opening cash and cash
equivalents 1,691 2,057 2,057
Closing cash and cash
equivalents 1,163 1,742 1,691
============== ============== ===============
The notes form an integral part of these financial
statements
Notes to the Unaudited Condensed Interim Financial
Statements
For the period from 1 January 2021 to 30 June 2021
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 the Company (the
"Shares") are admitted to the Specialist Fund Segment of the London
Stock Exchange (the "SFS").
On 14 June 2021, shareholders approved amendments to the
Company's existing investment policy to allow the Company to invest
in one or more U.K. or U.S. target companies at the same time and
to acquire minority, majority or controlling interests in any
listed or unlisted target company ("Target Company"). In tandem,
the Company also revised its existing policies and guidelines on
recycling sale proceeds and return of capital so that all net
proceeds, including net profits, generated from dividends as well
as the sale of any investment in a Target Company, may be
reinvested following disposal.
In light of the Company's ability to invest in more than one
Target Company at a time following the approval of the Company's
revised investment policy, the Company registered with the Guernsey
Financial Services Commission on 16 June 2021 as a registered
collective investment scheme.
2. Accounting policies
The principal accounting policies applied in the preparation of
these Unaudited Condensed Interim Financial Statements are set out
below.
Basis of preparation
The annual financial statements will be prepared in accordance
with International Financial Reporting Standards ("IFRS"), as
adopted by the European Union, which comprise standards and
interpretations approved by the International Accounting Standards
Board and International Financial Reporting Interpretations
Committee and in accordance with the Companies (Guernsey) Law,
2008. 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 included in this
half-yearly report have been prepared in accordance with European
Union adopted 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 2020.
Going concern
The Directors monitor the capital and liquidity requirements of
the Company on a regular basis. They have undertaken a rigorous
review of the Company's ability to continue as a going concern,
including by reviewing the Company's ongoing cash flows and level
of liquid investments and cash balances as at the reporting date,
as well as forecasting future cash flows, and they are of the
opinion that the Company has adequate resources to continue its
operational activities for at least twelve months. The Directors
are of the opinion that the COVID-19 outbreak should not impact the
Company's ability to continue as a going concern despite the
resulting uncertainty it has created.
Based on these sources of information and their own judgement,
the Directors believe it is appropriate to prepare the interim
financial statements of the Company on a going concern basis.
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 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 or
have not been adopted by the European Union and therefore, have not
been adopted by the Company:
- IFRS 17: Insurance Contracts (effective 1 January 2023)
The Company has considered the impact of IFRS 17 and concluded
it is not likely to have a material effect on the Company, as the
Company does not expect to carry out any transactions that fall
within its scope.
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. 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 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. There are no key
sources of estimation uncertainty.
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.
When entities are formed in connection with each other, the
criteria for qualification as an investment entity is applied to
the structure as a whole rather than for the entity in
isolation.
The criteria which define an investment entity are as
follows:
-- An entity that obtains funds from one or more investors for
the purpose of providing those investors with investment
services;
-- An entity that commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both; and
-- An entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Company's purpose is to invest through the Investment
Partnership in one or more Target Companies for capital
appreciation and it will measure performance (of the Target
Companies) on a fair value basis. To date, the Company has only
made a single investment in a Target Company, Ferguson plc
("Ferguson"), through its wholly owned subsidiary, Midco, which in
turn holds 99.83 per cent of the commitment in the Investment
Partnership. 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 investment in Ferguson held through the Investment
Partnership. The Ordinary Shares of Ferguson are listed 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 Ferguson Ordinary Shares
and accordingly they consider the quoted share price to be the
appropriate basis for the valuation of this investment.
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
1 Jan to 30 Jun 2021 1 Jan to 30 Jun 2020 1 Jan to 31 Dec 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Cost
Brought forward 257,000 264,000 264,000
Capital distribution - (3,000) (3,000)
Share redemption (14,175) - (4,000)
--------------------- ---------------------
Carried forward 242,825 261,000 257,000
--------------------- --------------------- ---------------------
Fair value adjustment through profit or loss
Brought forward 139,523 62,228 62,228
Fair value movement 48,451 (15,214) 77,295
Carried forward 187,974 47,014 139,523
--------------------- --------------------- ---------------------
Fair value 430,799 308,014 396,523
===================== ===================== =====================
As at 30 June 2021, the Company held 245,825,000 Ordinary Shares
in Midco, representing 100 per cent of the share capital, which
were subscribed for at 100 pence per share (30 June 2020:
264,000,000 ; 31 December 2020: 260,000,000 ), and Midco has
contributed GBP264,000,000 to the Investment Partnership (30 June
2020: GBP 264,000,000 ; 31 December 2020: GBP 264,000,000 ). As at
30 June 2021, Midco held 99.83 per cent of the commitment in the
Investment Partnership (30 June 2020: 99.83 per cent; 31 December
2020: 99.83 per cent). During the period from 1 January 2021 to 30
June 2021 the Company received cash from Midco of GBP14,175,000,
all of which comprised a share redemption, which it used, with cash
received from Midco in the prior year, to conduct GBP14,350,000 of
share repurchases (period to 30 June 2020: Company received cash
from Midco of GBP4,407,000, comprising of a GBP1,407,000 dividend
and a GBP3,000,000 capital distribution, which it used to declare a
GBP1,407,000 dividend to shareholders and to conduct a GBP3,000,000
share repurchase; year to 31 December 2020: Company received cash
from Midco of GBP8,407,000, comprising a GBP1,407,000 dividend, a
capital distribution of GBP3,000,000 and a GBP4,000,000 share
redemption, which it used to declare a GBP1,407,000 dividend to
shareholders and to conduct GBP6,781,000 of share repurchases).
Investments at fair value through profit or loss comprise
Midco's pro rata portion of the fair value of the Investment
Partnership's investment in Ferguson, currency option, cash and
working capital balance, less accrued incentive allocation
("Incentive Allocation") payable from the Investment Partnership to
Trian Investors 1 SLP, L.P., the special limited partner of the
Investment Partnership ("Trian SLP").
The Investment Partnership's investment in Ferguson is currently
treated as a "Stake Building Investment". If the investment
continues to be a "Stake Building Investment" until realisation,
the 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), as set forth in greater detail in the
Investment Partnership's Amended and Restated Limited Partnership
Agreement made effective as of 14 June 2021 (the "LPA"). As at 30
June 2021, there was an incentive allocation accrual of
GBP49,085,000 (as at 30 June 2020: GBP12,875,000; as at 31 December
2020: GBP36,445,000).
In addition, the Investment Partnership invested in a
GBP125,000,000 currency call option 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. The option offered protection against a
weakening in the U.S. Dollar against Pound Sterling and expired on
16 June 2020. In March 2020, the Investment Partnership entered
into an additional currency call option (the "March 2020 Option"),
expiring in March 2021, to purchase GBP125,000,000 for
US$165,875,000, in order to hedge the Company's currency exposure
for a further nine months as well as a three month overlap on the
original currency call option.
In February 2021, following a strengthening of Pounds Sterling
against the U.S. Dollar, the Company through the Investment
Partnership took advantage of attractive pricing conditions and
sold the March 2020 Option for GBP5,200,000. Simultaneously, the
Company through the Investment Partnership entered into a new
option (the "February 2021 Option") , which expires in February
2022, to purchase GBP125,000,000 for US$181,250,000, for a premium
of GBP1,743,750. Taken together, these two transactions were
designed to allow the Company to recognise cash proceeds of
GBP3,456,250 on a net basis, while still providing it with
protection against significant further appreciation of Pounds
Sterling against the U.S. Dollar until February 2022.
The accounting for the Investment Partnership is prepared under
IFRS.
Summary financial information for Midco's pro rata share of the
Investment Partnership
30 Jun 2021 30 Jun 2020 31 Dec 2020
(unaudited) (unaudited) (audited)
Net asset value GBP'000 GBP'000 GBP'000
Investment in Ferguson at cost 249,566 249,566 249,566
Unrealised gain on investment in Ferguson 225,044 62,685 169,979
------------------- ----------------------- -------------------
Total value of investment in Ferguson 474,610 312,251 419,545
------------------- ----------------------- -------------------
Foreign exchange option 777 1,326 4,616
Cash and cash equivalents 4,521 7,334 8,816
Other net liabilities (24) (22) (9)
Incentive Allocation payable (49,085) (12,875) (36,445)
------------------- ----------------------- -------------------
Total net asset value 430,799 308,014 396,523
=================== ======================= ===================
1 Jan - 30 Jun 2019 1 Jan - 30 Jun Jun 2019 1 Jan - 31 Dec 2019
2021 2020 2020
(unaudited) (unaudited) (audited)
Summary income statement GBP'000 GBP'000 GBP'000
2019 2019 2019 2019
Unrealised gain/(loss) on investment in Ferguson 55,064 (11,240) 96,055
Unrealised (loss)/gain on foreign exchange option (3,517) (859) 2,430
Realised gain/(loss) on foreign exchange option 3,129 (2,860) (2,860)
Ferguson dividend income 8,600 - 7,312
Interest income - 12 12
Management fee expense (2,107) (1,488) (3,261)
Other operating expense (78) (54) (98)
Incentive Allocation (payable)/receivable (12,640) 2,682 (20,888)
Profit/(loss) 48,451 (13,807) 78,702
=================== ======================= ===================
6. Fair value
IFRS 13 'Fair Value Measurement' requires disclosure of fair
value measurement by level.
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 the three levels.
The only financial instruments carried at fair value are the
investments which are fair valued at each reporting date.
The Company holds 99.83 per cent of the commitment in the
Investment Partnership through Midco, a wholly owned subsidiary.
Midco's investment in the Investment Partnership has been
classified within Level 2 as the Investment Partnership primarily
invests in quoted securities which are classified within Level 1.
The amount of Midco's investment in the Investment Partnership
classified under Level 2 as at 30 June 2021 is GBP430,799,000 (30
June 2020: GBP308,014,000; 31 December 2020: GBP396,523,000). The
amount of Midco's pro rata portion of the Investment Partnership's
investments that is classified within Level 1, consisting of the
Investment Partnership's investment in Ferguson Ordinary Shares, as
at 30 June 2021 is GBP474,610,000 (30 June 2020: GBP312,251,000; 31
December 2020: GBP419,545,000). The amount that is classified
within Level 2, consisting of the Investment Partnership's
investment in a currency option, as at 30 June 2021 is GBP777,000
(30 June 2020: GBP1,326,000; 31 December 2020: GBP4,616,000).
Transfers during the period
A reconciliation of fair value measurements in Level 2 is set
out in the following table. Due to the nature of the investments,
they are always expected to be classified under Level 2.
1 Jan 2021 - 30 Jun 2021 1 Jan 2020 - 30 Jun 2020 1 Jan 2020 - 31 Dec 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Opening fair value at beginning of the
period/year 396,523 326,228 326,228
Capital distribution - (3,000) (3,000)
Share redemption (14,175) - (4,000)
Movement in fair value 48,451 (15,214) 77,295
------------------------
Closing fair value at the end of the
period/year 430,799 308,014 396,523
======================== ======================== ========================
Valuation techniques
The value of Midco's investment in the Investment Partnership is
based on the value of Midco's limited partner capital account
within the Investment Partnership. This is based on the components
within the Investment Partnership, principally the value of the
underlying investee company, the currency option, cash and the
Incentive Allocation. Any fluctuation in the value of the
underlying investee company will directly impact the value of
Midco's investment in the Investment Partnership and will also
impact the value 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:
-- The shares in Ferguson were listed on the Main Market of the
London Stock Exchange throughout the year and are valued at the
last sales price published by the exchange.
-- The valuation of the February 2021 Option is performed by
utilising an external data source which uses proprietary software
and a valuation model to perform the fair value calculation. The
valuation model used to value the February 2021 Option 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 2021 30 Jun 2020 31 Dec 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Other prepaid expenses 51 46 50
Receivable from Investment
Partnership - 10 -
------------- -------------
51 56 50
The carrying value of receivables and prepayments approximates
their fair value.
8. Trade and other payables
30 Jun 2021 30 Jun 2020 31 Dec 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Administration fees 31 10 10
Audit fees 13 12 26
Non-audit fees 17 17 -
Director fees 8 - -
Other professional fees 60 5 23
------------- ------------- ------------
129 44 59
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
safeguard the Company's ability to continue as a going concern and
to provide returns for shareholders. 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 explained in note 5 and shown in the tables
below, the Company has repurchased a total of 17,166,913 shares at
a discount to NAV in the period from February 2020. In addition,
the Company currently expects to continue to use ordinary dividends
received from Ferguson that are not needed for working capital or
other corporate purposes to fund share repurchases. 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.
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 and the
Companies 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 2021 30 Jun 2020 31 Dec 2020
Shares issued 270 ,585,977 270 ,585,977 270 ,585,977
Shares held in Treasury (17,166,913) (2,760,830) (6,118,886)
--- --------------------- ------------- --------------------
Net number of shares outstanding 253,419,064 267,825,147 264,467,091
--- --------------------- ------------- --------------------
The Company's authorised share capital as at 30 June 2021, 30 June 2020 and 31 December 2020
is 300,000,000 Ordinary Shares. As at 30 June 2021, 17,166,913 shares were held in Treasury
(30 June 2020: 2,760,830; 31 December 2020: 6,118,886).
GBP'000
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 2020 265,876
Repurchased during the period (3,000)
As at 30 June 2020 262,876
--------------------
Issued and fully paid:
As at 1 January 2020 265,876
Repurchased during the year (6,781)
As at 31 December 2020 259,095
--------------------
10. Net Asset Value per Share
30 Jun 2021 30 Jun 2020 31 Dec 2020
(unaudited) (unaudited) (audited)
IFRS Net Assets
(GBP'000) 431,884 309,768 398,205
------------ ------------ ------------
Number of Ordinary
Shares in issue 253,419,064 267,825,147 264,467,091
IFRS NAV per Share
(pence) 170.42 115.66 150.57
The IFRS net asset value ("NAV") per Share is arrived at by
dividing the IFRS Net Assets by the number of Ordinary Shares in
issue.
11. Earnings/(loss) per share
1 Jan 2021 to 1 Jan 2020 to 1 Jan 2020
30 Jun 2021 30 Jun 2020 to 31 Dec 2020
(unaudited) (unaudited) (audited)
Profit/(loss)
for the period/year
(GBP'000) 48,029 (14,146) 78,072
Weighted average
number of Ordinary
Shares in issue 262,361,275 268,693,049 268,093,698
Earnings/(loss)
per share (pence) 18.31 (5.26) 29.12
There were no dilutive potential Ordinary Shares in issue as at
30 June 2021, 30 June 2020 or 31 December 2020.
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 present
the Company's only significant financial assets are those held
through the Investment Partnership, via Midco, consisting of
Ordinary Share of Ferguson, a currency call option 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 table below shows
the Company's material cash balances and foreign currency option
held and the short-term issuer credit rating as at the year end
date:
Location Rating 30 Jun 30 Jun 31 Dec
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Bank of New York
Mellon UK AA- 1,163 1,742 1,691
------------ ------------ ----------
1,163 1,742 1,691
The table below shows the Investment Partnership's material cash
balances and the short-term issuer credit rating or money-market
fund credit rating as at the period end date:
Location Rating 30 Jun 2021 30 Jun 31 Dec 2020
2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
4,529 7,347 8,832
778 1,329 4,623
UK AA-
Bank of New
York Mellon
UBS AG - Stamford USA AA-
------------ ------------ ------------
5,307 8,676 13,455
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 and
currency risk. The Company has no significant exposure to interest
rate risk.
Market price risk
Market price risk arises as a result of the Company's exposure
to the future values of shareholdings in Target Companies;
currently solely Ferguson. It represents the potential loss the
Company may suffer through investing in a Target Company. By way of
example, if the price of Ferguson moved by 30% as at 30 June 2021,
the effect on the NAV of the Company would be an increase or
decrease of GBP113,906,000 (30 June 2020: GBP24,980,000 based on
[10 per cent movement]; 31 December 2020: GBP100,691,000 based on
30 per cent movement). A change of 30 per cent reflected a
reasonable change in the share price of Ferguson based upon the
period ended 30 June 2021. Please see note 18 for post year end
information.
Currency Risk
As at 30 June 2021, the Company had exposure to currency risk as
a result of its investment in Ferguson through the Investment
Partnership, which receives the vast majority of its revenue in
U.S. Dollars. At 30 June 2021 the Company through the Investment
Partnership held an option, which expires in February 2022, to
purchase GBP125,000,000 for US$181,250,000 (at 30 June 2020 and 31
December 2020 it held a currency option, expiring in March 2021, to
purchase GBP125,000,000 for US$165,875,000.). The option is
designed to provide the Company with protection against significant
appreciation of Pounds Sterling against the U.S. Dollar. However,
there is no assurance that the currency call option will be
effective at managing the Company's currency exposure.
13. Financial Instruments
30 June 2021 31 December
2020
(unaudited) 30 June 2020 (audited)
(unaudited)
GBP'000 GBP'000 GBP'000
Financial assets at fair
value through profit or
loss
Investment in Midco 430,799 308,014 396,523
------------- -------------- ------------
430,799 308,014 396,523
------------- -------------- ------------
Financial assets measured
at amortised cost
Cash and cash equivalents 1,163 1,742 1,691
Receivables - 10 -
------------- -------------- ------------
1,163 1,752 1,691
------------- -------------- ------------
Financial liabilities measured
at amortised cost
Trade and other payables 129 44 59
------------- -------------- ------------
129 44 59
------------- -------------- ------------
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
non-executive Director receives GBP40,000.
Directors' fees and expenses for the period to 30 June 2021
amounted to GBP70,000 (six month period to 30 June 2020: GBP70,000;
year to 31 December 2020: GBP140,000), of which GBP8,000 was
outstanding at the period end (six month period to 30 June 2020:
GBPnil; year to 31 December 2020: GBPnil).
The Directors did not receive dividends on their shares during
the period to 30 June 2021 (six month period to 30 June 2020: total
dividends paid to Directors of GBP1,000; year to 31 December 2020:
total dividends paid to Directors of GBP1,000).
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 2021 the Investment Partnership owed GBPnil to the
Company (30 June 2020: GBP10,000; 31 December 2020: GBPnil) in
relation to custodian fee expenses paid on its behalf.
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 2021, fees of GBP23,000 were paid by the
Company in relation to the licence (six month period ending 30 June
2020: GBP23,000; year ending 31 December 2020: 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 2021, aggregate
fees of GBP76,000 were paid to Ocorian (six month period ended 30
June 2020: GBP86,000; year to 31 December 2020: GBP147,000).
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 described, 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. For the six month period ended 30 June
2021, management fees of GBP2,107,000 were paid to the Investment
Manager (six month period ended 30 June 2020: GBP1,488,000; year
ended 31 December 2020: GBP3,261,000).
LPA and Calculation of Incentive Allocation
The LPA was amended and restated on 19 July 2021 and made
effective as of 14 June 2021, 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, as well as 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. In addition, the LPA was amended and restated to
provide that should the Company realise losses on any future
investment, Trian SLP will not receive any incentive allocation on
investment returns until the Company recovers such realised losses.
The Company is considering the accounting treatment of share-based
payments to be adopted post-approval of the new LPA on 19 July
2021.
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 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 and the LPA. As at 30 June 2021, there was
an incentive allocation accrual of GBP49,085,000 (as at 30 June
2020: GBP12,875,000; as at 31 December 2020: GBP36,445,000).
UBS Credit Facility
In March 2021, the Investment Partnership entered into a
revolving credit facility (the "Credit Facility") with UBS Bank USA
("UBS"), which permits the Investment Partnership to borrow an
aggregate amount of up to $70 million at an interest rate equal to
one month LIBOR plus 1.75%. There are no commitment or closing fees
associated with the facility. In connection with establishing the
facility, the Investment Partnership transferred its shares of
Ferguson to a securities account operated by UBS Financial Services
Inc. and a portion of the shares are pledged as collateral under
the facility, with the remaining shares subject to a negative
covenant restricting their sales or disposal while the Credit
Facility remains outstanding. UBS may elect to demand repayment of
any outstanding borrowing under the Credit Facility, or terminate
the Credit Facility, upon 60 days' notice. The Investment
Partnership may elect to terminate the Credit Facility at any time
so long as no borrowing is outstanding.
No borrowings under the Credit Facility were made during the
period from 1 January 2021 to 30 June 2021.
16. Auditor remuneration
The auditor's remuneration relating to services to the Company
for the period was:
1 Jan 2021 1 Jan 2020 1 Jan 2020
to 30 Jun to 30 Jun to 31 Dec
2021 2020 2020
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Audit fees 13 12 26
Non-audit fees 17 16 17
--------------
30 28 43
Differences between the figures in the above table and the
Statement of Comprehensive Income are due to accruals. During the
six month period to 30 June 2020 non-audit fees of GBP8,000 were
recorded in the Statement of Comprehensive Income and during the
year to 31 December 2021 non-audit fees of GBP9,000 were recorded
in the Statement of Comprehensive Income.
In addition, the fee for the audit of the Investment Partnership
of GBP7,000 (period to 30 June 2020: GBP6,000; year to 31 December
2020: GBP13,000) and the fee for investor tax reporting of GBPnil
(period to 30 June 2020: GBP7,000; year to 31 December 2020:
GBP4,100) is payable by the Investment Partnership.
17. Dividends
The Company did not pay out a dividend to shareholders during
the six month period to 30 June 2021 (period to 30 June 2020: total
dividends of GBP1,407,000 paid; year to 31 December 2020: total
dividends of GBP1,407,000 paid).
18. Subsequent events
The Company's NAV as at 31 August 2021 is GBP447,884,000, or
176.74 pence per Ordinary Share, which is a 3.7% increase compared
to 30 June 2021.
In the opinion of the Directors there have been no events after
the reporting date that require disclosure in these interim
financial statements.
Investment Manager's Report Disclosure Statements and
Disclaimers
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") or Ferguson
plc ("Ferguson") 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 and the other companies referred to therein. Trian
recognises that there may be confidential information in the
possession of Ferguson 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 or the Company. There is no
assurance or guarantee with respect to the prices at which any
securities of Ferguson 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 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 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 shares may vary over time depending on various factors,
with or without regard to Trian's views of Ferguson's business,
prospects or valuation (including the market price of Ferguson'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 as it may deem appropriate, including, but not limited to,
communicating with the management of Ferguson, the board of
directors of Ferguson, other investors and shareholders, members,
stakeholders, industry participants, and/or interested or relevant
parties about Ferguson or seeking representation on the board of
directors of Ferguson, and to change its intentions with respect to
any investments made in Ferguson at any time.
Directors Registered Office
Chris Sherwell (Chairman) PO Box 286, Floor 2, Trafalgar
Mark Thompson (Chairman of the Court
Audit Committee) Les Banques
Simon Holden St Peter Port
Guernsey, GY1 4LY
Website: www.trianinvestors1.com Investment Partnership
Trian Investors 1, L.P. (Incorporated)
PO Box 286, Floor 2, Trafalgar
Court
Les Banques
Managing General Partner St Peter Port
Trian Investors 1 General Partner, Guernsey, GY1 4LY
LLC
280 Park Avenue, 41st Floor Investment Manager
New York, NY 10017 Trian Investors Management,
United States LLC
280 Park Avenue, 41st Floor
Corporate Brokers New York, NY 10017
Numis Securities Limited United States
The London Stock Exchange Building
10 Paternoster Square Corporate Brokers
London EC4M 7LT Jefferies International Limited
United Kingdom Vintners Place
68 Upper Thames Street
Administrator and London EC4V 3BJ
Company Secretary United Kingdom
Ocorian Administration (Guernsey)
Limited Solicitors to the Company
PO Box 286, Floor 2 As to English law and US Securities
Trafalgar Court law
Les Banques Norton Rose Fulbright LLP
St Peter Port 3 More London Riverside
Guernsey, GY1 4LY London SE1 2AQ
United Kingdom
Advocates to the Company
As to Guernsey law Independent Auditor
Ogier (Guernsey) LLP Deloitte LLP
Redwood House Regency Court
St Julian's Avenue Glategny Esplanade
St Peter Port St Peter Port
Guernsey Guernsey, GY1 3HW
GY1 1WA
Custodian to the Investment
Registrar Partnership
Link Market Services (Guernsey) The Bank of New York Mellon
Limited - London Branch
Mont Crevelt House One Canada Square
Bulwer Avenue London E14 5AL
St Sampson United Kingdom
Guernsey, GY2 4LH
Identifiers
ISIN: GG00BF52MW15
SEDOL: BF52MW1
Ticker: TI1
LEI: 213800UQPHIQI5SPNG39
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END
IR KQLFBFKLBBBK
(END) Dow Jones Newswires
September 07, 2021 02:00 ET (06:00 GMT)
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