TIDMTI1
RNS Number : 3958Y
Trian Investors 1 Limited
09 September 2020
9 September 2020
TRIAN INVESTORS 1 LIMITED
(the "Company")
Interim Results
Interim Report and Unaudited Condensed Financial Statements for
the period from 1 January 2020 to 30 June 2020
The Company announces its results for the six month period ended
30 June 2020. Further information is available on the Company's
website www.trianinvestors1.com .
For further information, please contact:
Ocorian Administration (Guernsey) Limited
(Administrator and Company Secretary)
+44 (0)1481 742 742
Mariana Enevoldsen
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 were admitted to trading on the
Specialist Fund Segment of the London Stock Exchange ("SFS") on 27
September 2018 ("Admission").
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"). Trian's investment strategy is to act
as a highly engaged shareowner at the companies in which it
invests, combining concentrated public equity ownership with
operational expertise.
In accordance with its investment policy, the Company has made a
substantial minority investment through the Investment Partnership,
in the amount of approximately GBP250 million, in Ferguson Plc
("Ferguson"), where Trian believes it has developed a compelling
set of operational and strategic initiatives that will help
generate significant shareholder value.
Chairman's Statement
For the period from 1 January 2020 to 30 June 2020
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 2020 to 30 June 2020.
In July 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,
valued at approximately GBP736 million at the time. The Company
through the Investment Partnership invested approximately GBP250
million in Ferguson at an average cost basis of GBP52.85 per
share.
Since that time, the Company has remained invested in Ferguson
and the Board has been pleased with the results of the investment
to date. As described further in the Investment Manager's Report,
Ferguson's business has performed resiliently despite the economic
disruption caused by the coronavirus ("COVID-19"). After Ferguson's
share price declined significantly in March to a low of GBP40.86,
it rebounded to trade at GBP66.12 as at 30 June 2020 compared with
the price of GBP68.50 at 31 December 2019. This share price
movement was reflected in the Company's net asset value ("NAV"),
which dropped to 115.66 pence per Ordinary Share as at 30 June 2020
compared with 121.34 pence at 31 December 2019.
As at 31 August 2020, the Company's NAV had risen to 127.02
pence per Ordinary Share driven by the increase in Ferguson's share
price to GBP73.76.
Trian has kept the Board informed about its engagement with
Ferguson's management team and board of directors, and it continues
to believe that Ferguson represents an attractive investment
opportunity. Furthermore, Trian is encouraged by Ferguson's
decision to pursue an additional listing in the United States, as
well as the company's stated intention to transition to a U.S.
primary listing in due course.
On 12 February 2020, the Board declared a dividend of 0.52 pence
per share to be paid to the Company's shareholders of record on 21
February 2020, and announced a GBP3,000,000 share repurchase (which
was completed on 24 February 2020 and 25 February 2020). On 15
April 2020, Ferguson announced that it would withdraw its interim
dividend due for payment on 30 April 2020. The Board and Trian
believe that Ferguson's balance sheet and liquidity position
remains strong, and that the company's decision to withdraw its
dividend was made out of an abundance of caution. When announcing
the withdrawal, Ferguson stated that it would review this decision
later in the financial year as trading conditions become clearer,
and we expect Ferguson to provide further guidance regarding its
dividend policy in subsequent trading updates. If Ferguson resumes
dividend payments in the future, the Board expects to continue
paying dividends to the Company's shareholders, subject to the
Company's continued investment in Ferguson. In accordance with the
revision to the Company's dividend policy announced on 12 February
2020, the Company and the Investment Partnership have the
flexibility to use a portion of any dividend payments received from
Ferguson in the future for other purposes, such as repurchases of
Company shares or hedging activities designed to mitigate foreign
currency risk.
The principal risks and uncertainties of the Company are
unchanged from 31 December 2019, and further details may be found
in the Report of the Directors within the Annual Report and Audited
Financial Statements of the Company for the period ended 31
December 2019. 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 Ferguson
investment and COVID-19, but currently expects them to remain
substantially the same.
The Board is grateful for your support and we will continue to
keep you informed of developments at the Company as
appropriate.
Yours sincerely,
Chris Sherwell
Chairman
8 September 2020
Investment Manager's Report
For the period from 1 January 2020 to 30 June 2020
Dear Shareholder,
In April 2019, we recommended that the Company invest in
Ferguson, the largest U.S. distributor of plumbing supplies, pipes,
valves and fittings and fire and fabrication products and one of
the largest U.S. distributors of industrial and heating,
ventilation and cooling (HVAC) products. As detailed further in the
Investment Manager's Report included in the Company's Annual Report
for the period ended 31 December 2019 (the "2019 Annual Report"),
we believe that Ferguson possesses an underappreciated and
attractive U.S. business. Among other attractive attributes,
Ferguson benefits from an extensive network of branches and
showrooms, which allow the company to offer greater convenience and
availability to its customers than competitors. We also believe
that Ferguson will benefit from continued reinvestment in growth
initiatives such as e-commerce, and we take comfort that
approximately 60% of Ferguson's sales are oriented towards repair,
maintenance, and improvement (RMI) activity, which is less cyclical
than new construction.
Recent Trading Results
The economic disruption and the government imposed lockdowns
precipitated by COVID-19 created uncertainty about Ferguson's
business prospects in March and April, and Ferguson issued a
trading update on 15 April 2020 which indicated that its results
had begun to worsen as lockdowns took effect. However, Ferguson's
recent trading updates have reported better than expected results
and have reaffirmed our belief in the resilience of the company's
business model.
On 13 May 2020, Ferguson released its third quarter trading
update for the three months ending 30 April 2020, which indicated
that April results were better than some analysts had initially
feared, with U.S. sales declining only -9.3% during the month year
over year.
More recently, on 24 July 2020, Ferguson released a trading
update for the period of 1 May 2020 through 21 July 2020, ahead of
the company's planned fiscal year 2020 earnings release in
September. The trading update highlighted improvement in Ferguson's
U.S. business over this roughly three-month period and noted that
revenue trends were sequentially improving each month since April.
For the period from 1 May 2020 through 21 July 2020, U.S. revenue
(which accounts for approximately 88% of the company's overall
revenue) declined only -0.6% year over year, a significant
improvement over April's revenue decline of -9.3%. Revenue within
Ferguson's Blended Branch business declined -4.6% during this same
period on account of showrooms being at less than full capacity,
but revenue grew within Ferguson's Waterworks and HVAC businesses,
1.8% and 12.7%, respectively. Ferguson's e-commerce businesses
continue to perform strongly, growing 30.4% during this period.
Ferguson's results indicate that the residential market (accounting
for approximately 50% of Ferguson's overall revenue) has been more
resilient than initially expected. Furthermore, the significant
growth within Ferguson's e-commerce business speaks to the strength
of the company's digital tools. Ferguson's management team has
previously noted that having best-in-class digital tools is highly
important to Ferguson's franchise strength, as COVID-19 will likely
transform the way customers order and receive products going
forward. We believe that Ferguson's continuing investment in its
technology, including its market-leading online platforms
(Build.com and Ferguson.com), will prove to be a significant
competitive advantage in the coming years.
Value Creation at Ferguson
Since announcing our investment in Ferguson in July 2019, Trian
has constructively engaged with Ferguson's management team and
board of directors, and it has developed a productive relationship
with Ferguson's Group CEO, Kevin Murphy. Furthermore, Ferguson has
announced a number of initiatives that we believe will create
long-term value, and the company continues to make progress towards
executing on these plans.
After first announcing its intention to demerge its UK business
in September 2019, in May 2020 Ferguson reaffirmed its commitment
to the transaction and continues to move forward with the demerger
process, although timing of the transaction will depend on
stabilisation of market conditions.
In addition, after completing an extensive shareholder
consultation earlier this year, on 15 April 2020, Ferguson
announced its intention to relocate the company's primary listing
to the United States and proposed a two-step process for doing so .
As an initial step, Ferguson will pursue an additional listing of
its shares on a U.S. stock exchange (in addition to the company's
primary listing on the London Stock Exchange) . Ferguson believes
that the additional U.S. listing will facilitate increased share
ownership by domestic U.S. funds, and in connection with the
additional listing, Ferguson's Executive Team plans to undertake
extensive additional investor marketing in the U.S. to enhance
understanding and awareness of Ferguson's business amongst these
investors. At the same time, Ferguson believes that the additional
listing will provide for an appropriate transition period that will
enable Ferguson shareholders with mandates that could restrict
their long-term ownership of Ferguson to sell their holdings in an
orderly fashion.
The additional listing was approved by Ferguson shareholders at
a General Meeting held on 29 July 2020 with overwhelming support
(99.5 per cent of votes cast at the meeting were in favour of the
proposal) and is expected to take effect in the first half of
calendar year 2021. Once the additional listing takes effect,
Ferguson intends to seek shareholder approval for a primary listing
on a U.S. exchange in due course.
Trian's Perspective on Ferguson's Investment Prospects
Trian continues to believe that Ferguson remains an attractive
investment opportunity. Despite the disruption caused by COVID-19,
we were encouraged to see that Ferguson's financial results were
better than expected during April through July, and we are
optimistic that RMI activity can remain resilient during the
pandemic. We also believe that Ferguson is better positioned than
many of its competitors to take advantage of shifting customer
behaviour, given the presence of its market leading online
platforms. Finally, Ferguson has a strong balance sheet (Ferguson
expects the ratio of net debt to last twelve months EBITDA to be
below 1.0x as at 31 July 2020), as well as a flexible cost
structure that should allow it to maintain profitability and cash
flow even if it encounters weakness in certain end markets.
We are encouraged by Ferguson's decision to seek an additional
listing in the U.S., as well as its stated intention to transition
to a primary U.S. listing in due course. As we've previously
stated, 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.). And while
Ferguson's valuation has improved since we initially made our
investment, we note that the company's shares remain undervalued as
compared with its US-listed speciality distribution peers. Finally,
given Ferguson's strong liquidity position and competitive
advantages, we believe that it will have numerous opportunities to
increase market share as COVID-19 subsides (through both
acquisitions and organic growth) in an industry which remains
highly fragmented.
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, and the continuing impact of the COVID-19 outbreak
on Ferguson's operations and end markets. Please also refer to the
Company's Prospectus dated 21 September 2018 (the "Prospectus") and
the section titled "Principal risks and uncertainties" in the
Company's 2019 Annual Report for further information on the risks
associated with an investment in the Company.
Concluding Thoughts
We look forward to continuing our constructive engagement with
Ferguson and working with its management team and board of
directors to create long-term value. We appreciate your ongoing
support and will continue to work diligently towards fulfilling the
investment objectives of the Company.
Yours sincerely,
Trian Investors Management, LLC
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 4.2.10R.
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 reviewing the ongoing cash flows and the level of cash
balances as at the reporting date as well as taking forecasts of
future cash flows into consideration and 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.
On behalf of the Board
Chris Sherwell
Chairman
8 September 2020
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 2020 which comprises the Unaudited
Condensed Statement of Comprehensive Income, the Unaudited
Condensed Statement of Financial Position, the Unaudited Condensed
Statement of Changes in Equity, the Unaudited Condensed Cash
Flow Statement 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 are prepared in accordance with IFRSs as adopted
by the European Union. The condensed set of financial statements
included in this half-yearly financial report have been prepared
in accordance with the accounting policies the company intends
to use in preparing its next annual financial statements.
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 2020 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted
by the European Union 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
8 September 2020
Unaudited Condensed Statement of Financial Position
As at 30 June 2020
30 June 2020 30 June 2019 31 December
2019
(unaudited) (unaudited) (audited)
Notes GBP'000 GBP'000 GBP'000
Non-current assets
Investment in Midco 5, 6 308,014 276,047 326,228
-------------- -------------- --------------
Total non-current
assets 308,014 276,047 326,228
Current assets
Cash and cash equivalents 1,742 2,453 2,057
Receivables and prepayments 7 56 23 96
-------------- -------------- --------------
Total current assets 1,798 2,476 2,153
Current liabilities
Trade and other payables 8 44 104 60
-------------- -------------- --------------
Total liabilities 44 104 60
-------------- -------------- --------------
Net assets 309,768 278,419 328,321
============== ============== ==============
Equity
Share capital 9 262,876 265,876 265,876
Retained earnings 46,892 12,543 62,445
-------------- --------------
Total equity 309,768 278,419 328,321
============== ==============
Number of ordinary
shares in issue 267,825,147 270,585,977 270,585,977
NAV per share (pence) 10 115.66 102.89 121.34
The Unaudited Condensed Interim Financial Statements were
approved by the Board and authorised for issue on 8 September
2020.
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 2020 to 30 June 2020
1 January
1 January 1 January 2019 to
2020 to 30 2019 to 30 31 December
Notes June 2020 June 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Income
Unrealised (loss)/gain
on investment in Midco 5 (15,214) 12,047 62,228
Dividends received from
Midco 5 1,407 - -
(13,807) 12,047 62,228
Expenses
Administration fees 14 86 69 128
Directors' fees 13 70 70 140
Auditor fees and non-audit
fees 15 20 15 39
Trademark licence fees 14 23 35 40
Other operating expenses 143 103 232
-------------- -------------- --------------
Total expenses 342 292 579
Operating (loss)/profit (14,149) 11,755 61,649
-------------- -------------- --------------
Finance income and expense
Interest income 3 542 550
-------------- -------------- --------------
Net (loss)/profit (14,146) 12,297 62,199
-------------- -------------- --------------
Total comprehensive (loss)/income (14,146) 12,297 62,199
============== ============== ==============
Basic (loss)/earnings
per share (pence) 11 (5.26) 4.54 22.99
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 2020 to 30 June 2020
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 16 - (1,407) (1,407)
-------------- ---------- ---------
(3,000) (1,407) (4,407)
-------------- ---------- ---------
As at 30 June 2020 262,876 46,892 309,768
============== ========== =========
For the period from 1 January 2019 to 30 June 2019
Notes Share capital Retained Total
earnings
GBP'000 GBP'000 GBP'000
As at 1 January 2019 265,876 246 266,122
Profit for the period - 12,297 12,297
Total comprehensive
income - 12,297 12,297
As at 30 June 2019 265,876 12,543 278,419
============== ========== ========
For the year from 1 January 2019 to 31 December 2019
Notes Share capital Retained Total
earnings
GBP'000 GBP'000 GBP'000
As at 1 January 2019 265,876 246 266,122
Profit for the year - 62,199 62,199
Total comprehensive
income - 62,199 62,199
As at 31 December 2019 265,876 62,445 328,321
============== ========== ========
The notes form an integral part of these financial
statements
Unaudited Condensed Statement of Cash Flows
For the period from 1 January 2020 to 30 June 2020
1 January
2019 to 31
December 2019
1 January 1 January (audited)
2020 to 2019 to 30
30 June June 2019
2020
(unaudited) (unaudited)
Notes GBP'000 GBP'000 GBP'000
Operating activities
(Loss)/profit before
tax (14,146) 12,297 62,199
Adjustments to reconcile
(loss)/profit before
tax to net cash flows:
Unrealised loss/(gain)
on investment 15,214 (12,047)
Dividends received (1,407) - (62,228)
Interest income (3) (542) -
Movement in receivables
and prepayments 40 (550)
142
69
Movement in trade and
other payables (16) (106) (150)
-------------- -------------- ---------------
Net cash flows from
operating activities (318) (256) (660)
Investing activities
Dividends received 1,407 - -
Investment into Midco - (264,000) (264,000)
Capital distribution 3,000 - -
from Midco
Finance income 3 542 550
-------------- -------------- ---------------
Net cash flows from
investing activities 4,410 (263,458) (263,450)
Financing activities
Shares repurchased 9 (3,000) - -
Dividend paid 16 (1,407) - -
-------------- -------------- ---------------
Net cash flows from (4,407) - -
financing activities
Net movement in cash
and cash equivalents (315) (263,714) (264,110)
Opening cash and cash
equivalents 2,057 266,167 266,167
Closing cash and cash
equivalents 1,742 2,453 2,057
============== ============== ===============
The notes on form an integral part of these financial
statements
Notes to the Unaudited Condensed Interim Financial
Statements
For the period from 1 January 2020 to 30 June 2020
1. Corporate information
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
SFS.
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 have been 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 have been 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 have been prepared
in accordance with IAS 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 2019.
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 current period but did not have a material impact on the
Company:
- IFRS 3: Business Combinations amendments
- IFRS 7: Financial Instruments Disclosures amendments
- IFRS 9: Financial Instruments amendments
- IAS 1: Presentation of Financial Statements amendment
- IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors amendment
- IAS 39: Financial Instruments: Recognition and Measurement amendment
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 IFRS standards and
interpretations that have been issued, but are not yet effective.
None of these standards or interpretations are likely to have a
material effect on the Company, as the Company does not expect to
carry out any transactions that fall within their scope.
Segment reporting
The Directors are of the opinion that the Company is currently
engaged in a single segment of business, being the investment in a
single target company ("Target Company"), Ferguson.
Treasury shares
The Company has the ability to repurchase shares and hold them
in Treasury. Shares that are repurchased and held in Treasury are
removed from the share capital reserve.
3. Significant accounting judgements, estimates and assumptions
The preparation of the financial statements requires the
Directors to make estimates and assumptions that affect the amounts
reported for assets and liabilities as at the statement of
financial position date and the amounts reported for revenue and
expenses during the 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 investment.
i) 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 active market in Ferguson Ordinary Shares
and accordingly they consider the quoted share price to be the
appropriate basis for the valuation of this investment.
ii) 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 a Target Company for capital appreciation and it
will measure performance (of the Target Company) on a fair value
basis. The Company has made an investment in a single Target
Company, Ferguson, through its wholly owned subsidiary, Trian
Investors 1 Midco Limited ("Midco"), which in turn holds 99.83 per
cent of the commitment in the Investment Partnership. 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.
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 2020 1 Jan to 30 Jun 2019 1 Jan to 31 Dec 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Cost
Brought forward 264,000 - -
Investment - 264,000 264,000
Capital distribution (3,000) - -
--------------------- ---------------------
Carried forward 261,000 264,000 264,000
--------------------- --------------------- ---------------------
Fair value adjustment through profit or loss
Brought forward 62,228 - -
Fair value movement (15,214) 12,047 62,228
Carried forward 47,014 12,047 62,228
--------------------- --------------------- ---------------------
Fair value 308,014 276,047 326,228
===================== ===================== =====================
As at 30 June 2020, the Company held 264,000,000 Ordinary Shares
in Midco, representing 100 per cent of the share capital, which
were subscribed for at 100 pence per share (30 June 2019:
264,000,000 ; 31 December 2019: 264,000,000 ), and Midco has
contributed GBP264,000,000 to the Investment Partnership (30 June
2019: GBP 264,000,000 ; 31 December 2019: GBP 264,000,000 ). As at
30 June 2020, Midco held 99.83 per cent of the commitment in the
Investment Partnership (30 June 2019: 99.83 per cent; 31 December
2019: 99.83 per cent). During the period from 1 January 2020 to 30
June 2020 the 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 (period
to 30 June 2019: GBPnil ; year to 31 December 2019: GBPnil ).
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, including the incentive allocation
("Incentive Allocation") allocable from the Investment Partnership
to Trian Investors 1 SLP, L.P. 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 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 Company's Prospectus
dated 21 September 2018 (the "Prospectus"). 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 Pounds Sterling and expired on 16 June 2020. In March 2020,
the Investment Partnership entered into an additional currency call
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.
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 2020 30 Jun 2019 31 Dec 2019
(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 62,685 14,893 73,924
-------------- ------------------ --------------
Total value of investment in Ferguson 312,251 264,459 323,490
-------------- ------------------ --------------
Foreign exchange option 1,326 3,008 2,984
Cash and cash equivalents 7,334 11,598 15,324
Other net liabilities (22) (7) (13)
Incentive Allocation payable (12,875) (3,011) (15,557)
-------------- ------------------ --------------
Total net asset value 308,014 276,047 326,228
============== ================== ==============
1 Jan - 30 Jun 1 Jan - 30 Jun Jun 1 Jan - 31 Dec
2020 2019 2019
(unaudited) (unaudited) (audited)
Summary income statement GBP'000 GBP'000 GBP'000
Unrealised (loss)/gain on investment in Ferguson (11,240) 14,893 73,924
Unrealised (loss)/gain on foreign exchange option (859) 148 124
Realised loss on foreign exchange option (2,860) - -
Ferguson dividend income - - 5,311
Interest income 12 145 182
Management fee expense (1,488) (121) (1,590)
Other operating expense (54) (7) (166)
Incentive Allocation payable 2,682 (3,011) (15,557)
(Loss)/profit (13,807) 12,047 62,228
============== ================== ==============
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 2020 is GBP308,014,000 (30
June 2019: GBP276,047,000; 31 December 2019: GBP326,228,000). 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 2020 is GBP312,251,000 (30 June 2019: GBP264,459,000; 31
December 2019: GBP323,490,000), and the amount that is classified
within Level 2, consisting of the Investment Partnership's
investment in a currency option, as at 30 June 2020 is GBP1,326,000
(30 June 2019: GBP3,008,000; 31 December 2019: GBP2,984,000).
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 2020 - 30 Jun 2020 1 Jan 2019 - 30 Jun 2019 1 Jan 2019 - 31 Dec 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Opening fair value at beginning of the
period/year 326,228 - -
Purchases at cost - 264,000 264,000
Capital distribution (3,000) - -
Movement in fair value (15,214) 12,047 62,228
------------------------
Closing fair value at the end of the
period/year 308,014 276,047 326,228
======================== ======================== ========================
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.
Valuations are determined in accordance with IFRS principles or
as otherwise determined by the Board.
In accordance with the Investment Partnership Agreement dated 21
September 2018 (the "Investment Partnership Agreement"), for the
purposes of calculating the net asset value of the Investment
Partnership, its assets will be valued on the following basis:
The shares in Ferguson are listed on the Main Market of the
London Stock Exchange and are valued at the last sales price
published by the exchange.
The valuation of the currency option is performed by utilising
an external data source which uses proprietary software and
valuation models to perform the fair value calculation. The
valuation model used to value the currency option is the
Black-Scholes model.
The Company approves the valuations performed by the Investment
Manager and, at each reporting date, monitors the range of
reasonably possible changes in significant observable inputs.
7. Receivables and prepayments
30 Jun 2020 30 Jun 2019 31 Dec 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Other prepaid expenses 46 23 89
Receivable from Investment
Partnership 10 - 7
------------- -------------
56 23 96
The carrying value of receivables and prepayments approximates
their fair value.
8. Trade and other payables
30 Jun 2020 30 Jun 2019 31 Dec 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Administration fees 10 48 20
Audit fees 12 8 24
Non-audit fees 17 16 7
Trademark licence fees - 18 -
Other professional fees 5 14 9
------------- ------------- ------------
44 104 60
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 regularly reviews the Company's NAV, 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. The Company used GBP3,000,000 to repurchase
Shares in February 2020, and on 12 February 2020 the Company
announced an update to its dividend policy that will allow it more
flexibility to use Target Company dividends for Share repurchases,
among other uses.
The Company has the ability to hold its own Shares in Treasury.
The Shares repurchased by the Company in February 2020 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.
Ordinary shares of no par value
No.
Issued and fully paid:
As at 1 January 2020 270 ,585,977
Repurchased on 24 February 2020 (2,170,000)
Repurchased on 25 February 2020 (590,830)
------------------
As at 30 June 2020 267,825,147
------------------
Issued and fully paid:
As at 1 January 2019 270 ,585,977
------------------
As at 30 June 2019 270 ,585,977
------------------
Issued and fully paid:
As at 1 January 2019 270 ,585,977
------------------
As at 31 December 2019 270 ,585,977
------------------
The Company's authorised share capital as at 30 June 2020, 30
June 2019 and 31 December 2019 is 300,000,000 Ordinary shares.
As at 30 June 2020, 2,760,830 shares were held in Treasury (30
June 2019: nil; 31 December 2019: nil).
GBP'000
Issued and fully paid:
As at 1 January 2020 265,876
Repurchased on 24 February 2020 (2,358)
Repurchased on 25 February 2020 (642)
As at 30 June 2020 262,876
------------------
Issued and fully paid:
As at 1 January 2019 265,876
------------------
As at 30 June 2019 265,876
------------------
Issued and fully paid:
As at 1 January 2019 265,876
------------------
As at 31 December 2019 265,876
------------------
10. Net Asset Value per Share
30 Jun 2020 30 Jun 2019 31 Dec 2019
(unaudited) (unaudited) (audited)
IFRS Net Assets (GBP'000) 309,768 278,419 328,321
------------ ------------ ------------
Number of Ordinary Shares
in issue 267,825,147 270,585,977 270,585,977
IFRS NAV per Share (pence) 115.66 102.89 121.34
The IFRS NAV per Share is arrived at by dividing the IFRS Net
Assets by the number of Ordinary Shares in issue.
11. (Loss)/earnings per share
1 Jan 2020 to 1 Jan 2019 1 Jan 2019 to
30 Jun 2020 to 30 Jun 2019 31 Dec 2019
(unaudited) (unaudited) (audited)
(Loss)/profit
for the period/year
(GBP'000) (14,146) 12,297 62,199
Weighted average
number of Ordinary
Shares in issue 268,693,049 270,585,977 270,585,977
(Loss)/earnings
per share (pence) (5.26) 4.54 22.99
The comparative earnings per share is based on the profit of the
Company for the period and on the weighted average number of
Ordinary Shares for that period. The earnings per share disclosed
are not annualised.
There were no dilutive potential Ordinary Shares in issue as at
30 June 2020, 30 June 2019 or 31 December 2019.
12. Financial risk management
Financial risk management objectives
The Company's activities expose it to various types of financial
risk, principally market risk, liquidity risk and credit 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 the Target Company 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, the 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.
The Company is exposed to credit risk through its balances with
banks and its holdings of money market funds which are classified
as cash equivalents for the purposes of these financial statements.
The table below shows the Company'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 30 Jun 31 Dec
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
1,742 2,382 2,057
Bank of New York
Mellon UK AA- - 23 -
JP Morgan UK AAA - 25 -
Goldman Sachs UK AAA - 23 -
BlackRock UK AAA
------------ ------------ ----------
1,742 2,453 2,057
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 30 Jun 31 Dec
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Bank of New York
Mellon UK AA- 7,334 11,598 15,324
------------ ------------ ----------
7,334 11,598 15,324
Liquidity risk
Liquidity risk is the risk that an entity will encounter
difficulty in meeting obligations associated with financial
liabilities that are settled by delivering cash or another
financial asset. The Company maintains a prudent approach to
liquidity management by maintaining sufficient cash reserves to
meet foreseeable working capital requirements.
As at 30 June 2020, 30 June 2019 and 31 December 2019, the
Company had no financial liabilities other than trade and other
payables. The Company had sufficient cash reserves to meet these
obligations. The following table details these obligations:
30 June 2020 On demand 0-4 months Total
(unaudited) GBP'000 GBP'000 GBP'000
Trade and other
payables - 44 44
- 44 44
------------------------------ ----------- --------
30 June 2019 On demand 0-4 months Total
(unaudited) GBP'000 GBP'000 GBP'000
Trade and other
payables - 104 104
----------- ----------- --------
- 104 104
------------------------------ ----------- --------
31 December 2019 On demand 0-4 months Total
(audited) GBP'000 GBP'000 GBP'000
Trade and other
payables - 60 60
- 60 60
------------------------------ ----------- --------
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 the share price of Ferguson. It represents
the potential loss the Company may suffer through investing in
Ferguson. If the price of Ferguson moved by 10% as at 30 June 2020
the effect on the net asset value of the Company would be an
increase or decrease of GBP24,980,000 (30 June 2019: GBP21,157,000;
31 December 2019: GBP25,879,000).
Currency Risk
As at 30 June 2020, the Company had exposure to currency risk
through its investment through the Investment Partnership in
Ferguson, which receives the vast majority of its revenue in U.S.
Dollars. In June 2019, the Company through the Investment
Partnership entered into a currency hedge, in the form of an option
to purchase GBP125,000,000 for US$165,875,000, to offset a portion
of the U.S. Dollar exposure resulting from the Company's investment
in Ferguson. The option expired on 16 June 2020. In March 2020, the
Company through the Investment Partnership entered into an
additional 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. There is no assurance
that this hedging transaction will be effective at managing
currency exposure.
Interest rate risk
The Company is subject to risks associated with changes in
interest earned on its cash and cash equivalents which it seeks to
mitigate by monitoring the placement of cash balances on an
on-going basis in order to maximise the interest rates
obtained.
As at 30 June 2020, the total interest sensitivity gap for
interest bearing items at Company level was a surplus of
GBP1,742,000 (30 June 2019: GBP2,453,000; 31 December 2019:
GBP2,057,000). The following table summarises the Company's
interest bearing assets:
30 June 2020 Interest bearing
(unaudited) On demand 0-4 months Non-interest Total
bearing
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ------------- --------
Financial Assets
Investment at
fair value through
profit or loss - - 308,014 308,014
Cash and cash
equivalents 1,742 - - 1,742
Receivables - - 10 10
Total Financial
Assets 1,742 - 308,024 309,766
--------------------- ---------- ----------- ------------- --------
Liabilities
Trade and other
payables - - (44) (44)
Total Liabilities - - (44) (44)
--------------------- ---------- ----------- ------------- --------
30 June 2019 Interest bearing
(unaudited) On demand 0-4 months Non-interest Total
bearing
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ------------- ----------
Financial Assets
Investment at
fair value through
profit or loss - - 276,047 276,047
Cash and cash
equivalents 2,453 - - 2,453
Receivables - - - -
Total Financial
Assets 2,453 - 276,047 278,500
--------------------- ---------- ----------- ------------- ----------
Liabilities
Trade and other
payables - - (104) (104)
--------------------- ---------- ----------- ------------- ----------
Total Liabilities - - (104) (104)
--------------------- ---------- ----------- ------------- ----------
31 December 2019 Interest bearing
(audited) On demand 0-4 months Non-interest Total
bearing
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ------------- ----------
Financial Assets
Investment at
fair value through
profit or loss - - 326,228 326,228
Cash and cash
equivalents 2,057 - - 2,057
Receivables - - 7 7
Total Financial
Assets 2,057 - 326,235 328,292
--------------------- ---------- ----------- ------------- ----------
Liabilities
Trade and other
payables - - (60) (60)
--------------------- ---------- ----------- ------------- ----------
Total Liabilities - - (60) (60)
--------------------- ---------- ----------- ------------- ----------
As at 30 June 2020, interest rates reported by the Bank of
England of 0.1 per cent (30 June 2019: 0.75 per cent; 31 December
2019: 0.75 per cent) would equate to net income of GBP2,000 (30
June 2019: GBP18,000; 31 December 2019: GBP15,000) per annum if
interest bearing assets and liabilities remained constant. If
interest rates were to fluctuate by 0.25 per cent, this would have
a positive or negative effect of GBP4,000 (30 June 2019: GBP6,000;
31 December 2019: GBP5,000) on the Company's annual income.
As at 30 June 2020, the total interest sensitivity gap for
interest bearing items at the Investment Partnership level was a
surplus of GBP7,334,000 (30 June 2019: GBP11,598,000; 31 December
2019: GBP15,324,000). The following table summarises the Investment
Partnership's interest bearing assets:
30 June 2020 Interest bearing
(unaudited) On demand 0-4 months Non-interest Total
bearing
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ------------- ---------
Financial Assets
Investment in
Ferguson - - 312,251 312,251
Foreign exchange
option - - 1,326 1,326
Cash and cash
equivalents 7,334 - - 7,334
Total Financial
Assets 7,334 - 313,577 320,911
---------------------- ---------- ----------- ------------- ---------
Liabilities
Trade and other
payables - - (22) (22)
Incentive Allocation
payable - - (12,875) (12,875)
---------------------- ---------- ----------- ------------- ---------
Total Liabilities - - (12,897) (12,897)
---------------------- ---------- ----------- ------------- ---------
30 June 2019 Interest bearing
(unaudited) On demand 0-4 months Non-interest Total
bearing
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ------------- ----------
Financial Assets
Investment in
Ferguson - - 264,459 264,459
Foreign exchange
option - - 3,008 3,008
Cash and cash
equivalents 11,598 11,598
Total Financial
Assets 11,598 - 267,467 279,065
---------------------- ---------- ----------- ------------- ----------
Liabilities
Trade and other
payables - - (7) (7)
Incentive Allocation
payable - - (3,011) (3,011)
---------------------- ---------- ----------- ------------- ----------
Total Liabilities - - (3,018) (3,018)
---------------------- ---------- ----------- ------------- ----------
31 December 2019 Interest bearing
(audited) On demand 0-4 months Non-interest Total
bearing
GBP'000 GBP'000 GBP'000 GBP'000
---------- ----------- ------------- -----------
Financial Assets
Investment in
Ferguson - - 323,490 323,490
Foreign exchange
option - - 2,984 2,984
Cash and cash
equivalents 15,324 - - 15,324
Total Financial
Assets 15,324 - 326,474 341,798
---------------------- ---------- ----------- ------------- -----------
Liabilities
Trade and other
payables - - (13) (13)
Incentive Allocation
payable - - (15,557) (15,557)
---------------------- ---------- ----------- ------------- -----------
Total Liabilities - - (15,570) (15,570)
---------------------- ---------- ----------- ------------- -----------
As at 30 June 2020, interest rates reported by the Bank of
England of 0.1 per cent (30 June 2019: 0.75 per cent; 31 December
2019: 0.75 per cent) would equate to net income of GBP7,000 (30
June 2019: GBP87,000; 31 December 2019: GBP115,000) per annum if
interest bearing assets and liabilities remained constant. If
interest rates were to fluctuate by 0.25 per cent, this would have
a positive or negative effect of GBP18,000 (30 June 2019:
GBP29,000; 31 December 2019: GBP38,000) on the Company's annual
income.
13. 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 only 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 2020
amounted to GBP70,000 (period to 30 June 2019: GBP70,000; year to
31 December 2019: GBP140,000), of which GBPnil was outstanding at
the period end (period to 30 June 2019: GBPnil; year to 31 December
2019: GBPnil).
The Directors received dividends on their shares during the
period to 30 June 2020 that amounted to a total of GBP1,000 (period
to 30 June 2019: GBPnil; year to 31 December 2019: GBPnil).
Intergroup balances
As at 30 June 2020 the Investment Partnership owed GBP10,000 to
the Company (30 June 2019: GBPnil; 31 December 2019: GBP7,000) in
relation to custodian fee expenses paid on its behalf.
14. 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 2020 fees of GBP23,000 were paid by the
Company in relation to the licence (period ending 30 June 2019:
GBP35,000; year ending 31 December 2019: GBP40,000).
Administration Agreement
On 19 September 2018, the Company and Ocorian Administration
(Guernsey) Limited ("Ocorian") (formerly Estera International Fund
Managers (Guernsey) Limited) entered into an administration
agreement. Under the terms of the agreement the Company (alongside
the Investment Partnership) is charged a fixed administration fee
of GBP97,000 per annum payable monthly in arrears, compliance
officer services of GBP6,000 per annum, MLRO services of GBP3,000
per annum and data protection services of GBP2,000 per annum. For
the six month period ended 30 June 2020 aggregate fees of GBP86,000
were paid to Ocorian (period ended 30 June 2019: GBP69,000; year to
31 December 2019: GBP128,000).
Management Agreement
On 19 September 2018, the Investment Partnership and the
Investment Manager entered into a management agreement. The
Investment Manager is entitled to management fees in consideration
of its work equal to one twelfth of 1 per cent of the adjusted net
asset value of the Investment Partnership, calculated as of the
last business day of the preceding month. The management fee is
payable in advance to the Investment Manager on the first business
day of each calendar month. For the six month period ended 30 June
2020 management fees of GBP1,488,000 were paid to the Investment
Manager (period ended 30 June 2019 GBP121,000; year ended 31
December 2019: GBP1,590,000).
Investment Partnership Agreement
Under the terms of the Investment Partnership Agreement, Trian
Investors 1 SLP, L.P., the special limited partner of the
Investment Partnership, is entitled to receive an incentive
allocation based on the investment performance of the Investment
Partnership. 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 Prospectus. As at 30 June 2020, there was
an incentive allocation accrual of GBP12,875,000 (as at 30 June
2019: GBP3,011,000; as at 31 December 2019: GBP15,557,000).
15. Auditor remuneration
The auditors' remuneration relating to services to the Company
for the period was:
1 Jan 2020 1 Jan 2019 1 Jan 2019
to 30 Jun to 30 Jun to 31 Dec
2020 2019 2019
(unaudited) (unaudited) (audited)
GBP'000 GBP'000 GBP'000
Audit fees 12 12 24
Non-audit fees 16 16 16
--------------
28 28 40
Differences between the figures in the above table and the
Statement of Comprehensive Income are due to accruals.
In addition the fee for the audit of the Investment Partnership
of GBP6,000 (period to 30 June 2019: GBP6,000; year to 31 December
2019: GBP12,000) and a fee of GBP7,000 for non-audit services
(period to 30 June 2019: GBPnil; year to 31 December 2019: GBPnil)
are payable by the Investment Partnership.
16. Dividends
On 25 February 2020, the Company paid out a dividend to
shareholders of 0.52 pence per share amounting to a total of
GBP1,407,000 (period to 30 June 2019: GBPnil; year to 31 December
2019: GBPnil).
17. Subsequent events
The Company's net asset value as at 31 August 2020 was
GBP340,187,000, or 127.02 pence per Ordinary Share, which is a
9.82% increase compared to 30 June 2020.
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
Please note that the Investment Manager's Report is for general
informational purposes only, is not complete, and does not
constitute any advice or recommendation to invest in Trian
Investors 1 Limited (the "Company") or Ferguson plc ("Ferguson") or
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 recognizes 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 unrealized values reflected in the Investment Manager's Report
will be realized. 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 Invest 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 this meeting
or 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.
General Information
Directors Registered Office
Chris Sherwell (Chairman) PO Box 286, Floor 2
Mark Thompson (Chairman of the Trafalgar 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
(formerly Estera International As to English law and US Securities
Fund Managers (Guernsey) Limited) law
PO Box 286, Floor 2 Norton Rose Fulbright LLP
Trafalgar Court 3 More London Riverside
Les Banques London SE1 2AQ
St Peter Port United Kingdom
Guernsey, GY1 4LY
Independent Auditor
Advocates to the Company Deloitte LLP
As to Guernsey law Regency Court
Ogier (Guernsey) LLP Glategny Esplanade
Redwood House St Peter Port
St Julian's Avenue Guernsey, GY1 3HW
St Peter Port
Guernsey Custodian to the Investment
GY1 1WA Partnership
The Bank of New York Mellon
Registrar - London Branch
Link Market Services (Guernsey) One Canada Square
Limited London E14 5AL
Mont Crevelt House United Kingdom
Bulwer Avenue
St Sampson Identifiers
Guernsey, GY2 4LH ISIN: GG00BF52MW15
SEDOL: BF52MW1
Ticker: TI1
LEI: 213800UQPHIQI5SPNG39
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