TIDMTI1
RNS Number : 2909T
Trian Investors 1 Limited
17 March 2023
17 March 2023
TRIAN INVESTORS 1 LIMITED
(the "Company")
Full Year Results
Annual Report and Financial Statements for the year ended 31
December 2022
The Company announces its Annual Report and Financial Statements
for the year ended 31 December 2022.
A copy of the Annual Report and Financial Statements has been
submitted to the National Storage Mechanism and will shortly be
available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism . The Annual
Report and Financial Statements will also shortly be available on
the Company's website at www.trianinvestors1.com where further
information on the Company can also be found.
For further information, please contact:
Ocorian Administration (Guernsey) Limited
(Administrator and Company Secretary)
+44 (0)1481 742 742
Chezi Hanford
Overview of the Company
Trian Investors 1 Limited (the "Company") is a Guernsey
domiciled limited company incorporated on 24 August 2018. The
ordinary shares of the Company (the "Shares") were admitted to
trading on the Specialist Fund Segment of the London Stock Exchange
("SFS") on 27 September 2018 ("Admission"). The Company registered
with the Guernsey Financial Services Commission as a registered
collective investment scheme on 16 June 2021.
The investment objective of the Company, through its investment
in Trian Investors 1, L.P. (Incorporated) (the "Investment
Partnership"), is to generate significant capital appreciation
through the investment activity of Trian Investors Management, LLC
(the "Investment Manager") and its parent, Trian Fund Management,
L.P. (collectively, "Trian").
On 2 September 2022 the Board announced that the Company will,
by no later than 30 June 2023, compulsorily redeem no less than 95
per cent. of each shareholder's holding in the Company and then
proceed to wind the Company up. On 30 January and 13 March the
Company redeemed a total of 249,633,016 Ordinary Shares (over 99%
of the Ordinary Shares in issue at 2 September 2022) and made
in-specie distributions of the Company's investments. The Board
will now commence a process to wind-up the Company with any
residual net assets to be returned to shareholders in cash through
that process.
Chairman's Statement
For the year ended 31 December 2022
Dear Shareholder,
On behalf of the Board of Directors (the "Board"), I am pleased
to present the Company's Annual Report covering the year ended 31
December 2022.
The Board started 2022 seeking to implement the new investment
policy, approved at the 2021 Annual General Meeting. To this end it
approved a new investment position, Unilever plc ("Unilever") , and
investigated actions to address the share price discount arising
from the lack of liquidity in the Company's shares. Although the
Company's investments have continued to perform well, it became
apparent during the year, and particularly after the Extraordinary
General Meeting in August 2022, that it would be difficult to
reconcile the conflicting short- and long-term aspirations of
different investor groups. The Board, in consultation the
Investment Manager, concluded that it would further the best
interests of shareholders as a whole to wind the Company up during
the course of 2023 by way of an in-specie distribution of the
shares in the Company's two investment positions. This plan was
announced through proposals published on 2 September 2022. Since
that date the Board has been working with its advisers to prepare
for, and then execute, a smooth and orderly redemption process, and
one that provides all investors with the option to retain their
exposure to the Company's underlying investments if they choose to
do so.
The steps thus taken so far in January and March 2023 have
resulted in the Company now having redeemed over 99% of its shares
via in-specie distributions of shares in Ferguson and Unilever
respectively. The remaining net assets of the Company will be
distributed to shareholders through a liquidation process, the
details of which will be announced shortly.
Investment performance
The Investment Manager's Report provides further detail on the
performance of the Company's investments in Ferguson plc
("Ferguson") and Unilever during 2022. As described in the Report,
despite Ferguson's strong operational performance, that company
generated a negative 18.0% total shareholder return ("TSR")(1)
during 2022 coinciding with challenging equity market conditions
and technical headwinds relating to Ferguson transitioning its
primary listing from London to New York. However, those technical
headwinds have reversed in recent months, and the company's share
price has appreciated materially. The investment in Unilever has
performed well throughout the year, and Unilever generated a 21.9%
TSR from 30 March 2022 (the date on which the Unilever shares were
first acquired) through 31 December 2022.
(1) Ferguson's total shareholder return calculated based on the
company's shares traded on the London Stock Exchange.
Overall, the net asset value ("NAV") per share of the Company
declined by 16.7% during 2022. However, over the period from the
Company's launch in September 2018 through 31 December 2022, the
Company's NAV per share has increased by 80.7%, compared with the
FTSE 100's TSR of 15.6 % during the same period.
The announcement of plans to distribute assets to shareholders
and wind up the Company in 2023 has had a material impact on the
share price which rose by 21.0% in 2022. The discount to NAV
reduced from 34.0% at the start of the year to 4.3% at 31 December
2022.
It is worth reflecting on the Investment Manager's investment
objective of pursuing opportunities for outsize returns from its
activity as a highly engaged shareholder. This strategy necessarily
involves strong due diligence to form it's convictions, a higher
degree of execution risk and an uncertain journey as regards the
precise timing of those investment objectives being fully realised.
To that end, the Company must be seen as having achieved a very
successful and significant return for its investors within a time
period consistent with the investment proposition articulated in
the Company's original prospectus. Based on the prices of the
shares at the date they were distributed, shareholders have already
received shares worth approximately GBP18,753 for each GBP10,000
originally invested in September 2018. The Investment Manager
should be commended for having identified and productively engaged
with both our two successful investments.
Board and Advisers
In the Interim Report for the period from 1 January 2022 to 30
June 2022, I noted the appointment of Anita Rival to the board in
April and that Robert Legget replaced Chris Sherwell in August.
Simon Holden has been a director since the launch of the
Company.
As this is the last Annual Report before shareholders are asked
to vote on the liquidation of the Company, I would like to thank
all of my fellow directors as well as the former Chairman for their
hard work and support on the Board. I am proud to have been a
director and believe we have achieved a very positive outcome for
all our investors, regardless of the conflicting objectives
expressed to us in strong terms over the years.
I should also like to acknowledge the support of the Company's
advisers. Many of the individuals working for the organisations
listed at the back of this Annual Report have been with us since
the launch of the Company and their guidance has been
invaluable.
Yours sincerely,
Mark Thompson
Chairman
16 March 2023
Investment Manager's Report
For the year ended 31 December 2022
Dear Shareholder,
We first invested in Ferguson in May 2019 and Unilever in March
2022 on behalf of the Company, and each investment has
significantly outperformed the FTSE 100 during the Company's
holding period. As a result of the attractive returns generated by
these investments, the Company has grown its NAV from its initial
public offering ("IPO") through 31 December 2022 by +80.7%, a
return significantly greater than the total shareholder return
generated by the FTSE 100 (+15.6%) over the same time period.
We are pleased with the results of the Company's Ferguson and
Unilever investments; however, we acknowledge that a significant
portion of the shareholder base has expressed a desire to exit
their shareholdings at or around NAV. As a result, following the
Extraordinary General Meeting held on 5 August 2022, in conjunction
with the Company's Board, we worked with the Company's advisers to
formulate proposals to achieve the objectives of shareholders as a
whole. Following consultation with major shareholders, the Company
announced that it would, by no later than 30 June 2023,
compulsorily redeem no less than 95% of each shareholder's holding
in the Company, such redemption to be satisfied by a distribution
of the underlying assets of the Investment Partnership (including
an in specie distribution of shares) at a value equivalent to the
Board's estimate of the then prevailing NAV (the "Redemption"). We
believe that the Redemption provides the Company's shareholders
with a number of benefits. In particular, the former discount of
holding Ferguson and Unilever shares through the Company will be
eliminated, and the Redemption will allow each shareholder to be
able to determine the most opportune time to realise its exposure,
or to remain invested, in Ferguson and Unilever shares after they
are distributed from the Company.
Ferguson
On 10 March 2022, Ferguson announced that the special resolution
to enable a U.S. primary listing on the New York Stock Exchange
("NYSE") was passed with 95.49% support from the votes cast, which
enabled Ferguson to move its primary listing to the NYSE on 12 May
2022. Prior to 12 May 2022, Ferguson was primarily traded on the
London Stock Exchange, despite the fact that 100% of Ferguson's
business is based in North America.
In our most recent Investment Manager's Report (contained in the
Interim Report for the period from 1 January 2022 to 30 June 2022),
we noted that many of Ferguson's legacy institutional shareholders
who are restricted from owning U.S. listed securities were required
to sell Ferguson shares following the delisting. In addition,
Ferguson's removal from major UK-based indexes (e.g., the FTSE
100), resulted in significant sell pressure from UK index funds.
However, we predicted that technical conditions would reverse and
provide a substantial tailwind in the latter part of 2022 and 2023.
This thesis has begun to play out. In December 2022, each of
Vanguard CRSP and the S&P Total Market Index announced that
Ferguson would be included as a constituent, adding significant
direct purchasing demand from index funds. Ferguson is also now
eligible for S&P 500 Index inclusion and we believe that the
company will be added to the index in the future. Finally,
Ferguson's trading volume has significantly increased in recent
months, and the majority of Ferguson's shares are now traded in the
U.S.
Ferguson's operational performance has also continued to be
strong. On December 6, 2022, Ferguson reported its FY 2022 first
quarter results-highlighted by year-over-year sales growth of 16.6%
(with 12.7% organic growth), solid gross margin delivery of 30.5%
during the quarter and an adjusted operating margin of 10.9% during
the quarter, all above Wall Street analyst consensus expectations
coming into the earnings announcement. The company continues to
maintain a strong balance sheet, with net debt to adjusted EBITDA
of 1.0x as of quarter-end, and it completed shares repurchases of
$366 million during this quarter.
Although the Investment Manager continues to believe that
Ferguson offers attractive growth prospects, in light of the
upcoming 30 June 2023 redemption deadline and recent improvements
in Ferguson's trading volume, on 6 January 2023, the Investment
Partnership distributed all of its Ferguson shares to its partners,
including the Company, and on 9 January 2023, the Board announced
that the Company's Ferguson shares would be distributed to Company
shareholders through a compulsory partial redemption of ordinary
shares. As of the close of business on 30 January 2023, the date on
which the distribution was completed, these Ferguson shares traded
at GBP113.45, nearly double the average cost at which these shares
were purchased in 2019.
Unilever
As we noted in our most recent Investment Manager's Report,
Trian believes that Unilever is one of the best-positioned consumer
companies in the world and benefits from an unrivalled global
distribution network. Nelson Peltz, Chief Executive Officer and a
Founding Partner of the Investment Manager, joined the board of
directors of Unilever on 20 July 2022 and has worked constructively
with the company's other directors since that time.
On 30 January 2023, Unilever announced the appointment of Hein
Schumacher as its new Chief Executive Officer, effective 1 July
2023, following an extensive global search process. Hein is
currently CEO of the global dairy and nutrition business Royal
FrieslandCampina N.V., and prior to Royal FrieslandCampina he
worked at the H.J. Heinz Company for over a decade. Nelson first
met Hein when he served as a director at Heinz from 2006 to 2013
and was impressed by his leadership skills and business acumen.
Nelson strongly supports his appointment as Unilever's next CEO and
looks forward to working closely with him to drive significant
sustainable stakeholder value.
On 9 February 2023, Unilever announced its 2022 full-year
results, highlighted by strong year-over-year underlying sales
growth of 9.0%. For the full year underlying operating profit was
GBP9.7 billion and underlying operating margin was 16.1% in line
with guidance. Full year earnings per share of EUR2.57 was slightly
ahead of Wall Street analyst consensus expectations
Shortly following Unilever's earnings announcement, on 16
February 2023, the Investment Partnership distributed all of its
Unilever shares to its partners, in light of the upcoming 30 June
2023 redemption deadline. The Board distributed the Unilever shares
to Company shareholders via an in specie distribution. As of 13
March 2023, these Unilever shares were distributed, they were
valued at GBP40.56, which significantly exceeds the average cost at
which they were acquired by the Company (GBP35.55) only twelve
months prior.
Conclusion
The Investment Manager has been very pleased with the
performance of its investments in Unilever and Ferguson and is
proud of the strong returns that the Company has generated for its
shareholders. For every GBP10,000 invested in the Company's initial
public offering in September 2018, shareholders received 151 shares
of Ferguson (worth approximately GBP17,131 on 30 January 2023, the
date that Ferguson shares were distributed by the Company) and
received 40 shares of Unilever (worth approximately GBP1,622 on 13
March 2023, the date that Unilever shares were distributed by the
Company), as well as an expected additional cash distribution in
connection with the winding-up of the Company. In total,
shareholders who participated in the Company's IPO and continued to
hold their investment have recognised a return of 87.5% (based on
the value of the liquid securities which they have received), far
exceeding the performance of the FTSE 100 (+18.1%) from the date of
the Company's IPO through 13 March 2023.
The Investment Manager thanks shareholders for investing
profitably in the Company's strategy and for their engagement and
support throughout the Company's lifespan.
Yours sincerely,
Trian Investors Management, LLC
Report of the Directors
The Directors present their annual report on the affairs of the
Company, together with the audited Financial Statements, covering
the year ended 31 December 2022 (the "Year").
Incorporation
The Company was incorporated in Guernsey under the Companies
(Guernsey) Law, 2008 as amended (the "Companies Law") on 24 August
2018.
Principal activities and investment policy
The Company is a Guernsey domiciled limited company. The
ordinary shares of the Company were admitted to trading on the SFS
on 27 September 2018.
The investment objective of the Company, through its investment
in the Investment Partnership, is to generate significant capital
appreciation through the investment activity of Trian.
The Company registered with the Guernsey Financial Services
Commission on 16 June 2021 as a registered collective investment
scheme.
The Company holds an approximate 99.83 per cent interest in the
Investment Partnership through which it made investments.
In June 2019, the Company announced that it had made a
substantial minority investment through the Investment Partnership,
at an initial cost of approximately GBP250 million, in Ferguson.
The Company's investment, through the Investment Partnership, was
made alongside other investment funds and vehicles managed by Trian
(the "Trian Funds"), and collectively the Investment Partnership
and the Trian Funds held a 5.35 per cent aggregate interest in the
shares of Ferguson as at 31 December 2022.
In March 2022, the Company, through the Investment Partnership,
purchased 1.06 million shares in Unilever which it acquired for
US$50 million (GBP37.7 million) by utilising a US$100 million
revolving credit facility with Bank of America. Collectively the
Investment Partnership and Trian Funds held 1.54 per cent aggregate
interest in the shares of Unilever as at 31 December 2022.
Following the requisitioned Extraordinary General Meeting and
further discussions with shareholders on 2 September 2022 the Board
announced that the Company will, by no later than 30 June 2023,
compulsorily redeem no less than 95 per cent. of each shareholder's
holding in the Company and then proceed to wind the company up. On
27 January and 13 March the Company redeemed a total of 249,633,016
Ordinary Shares (over 99% of the Ordinary Shares in issue at 2
September 2022) and made in-specie distributions of the Company's
investments. The Board will now commence a process to wind-up the
Company with any residual net assets to be returned to shareholders
in cash through that process.
Dividend policy and share capital
No dividend was declared or paid in the year to 31 December 2022
(31 December 2021: no dividend was declared or paid). No future
dividends will be paid as all future redemptions made will be of a
capital nature.
During the year to 31 December 2022 the Company repurchased a
total of 1,300,000 Share for a total consideration of GBP1,736,500.
All Shares held in treasury were cancelled subsequent to the year
end.
As at 31 December 2022, the Company had 251,019,064 (31 December
2021: 252,319,064) Shares in issue, net of Shares held in treasury.
Following the redemptions on 30 January 2023 and on 13 March 2023,
the Company had a total of 1,386,048 Shares in issue. All Shares
carry equal voting rights. Details of the Company's share capital
are provided in Note 9 to the Financial Statements.
Shareholdings of Directors and key persons
Directors who held office during the Year and held interests in
the Company were as follows:
31 December 2022 31 December 2021
Ordinary Percentage Ordinary Percentage
Shares holding Shares holding
Directors
Mark Thompson 20,000 0.01 20,000 0.01
Simon Holden 55,000 0.02 55,000 0.02
Anita Rival - - N/A N/A
Robert Legget - - N/A N/A
Chris Sherwell N/A N/A 77,775 0.03
----------- ------------- ----------- -------------
75,000 0.03 152,775 0.06
----------- ------------- ----------- -------------
Significant shareholdings
As at 9 January 2023, the Company had received notification of
the following material shareholdings greater than 5 per cent of the
Shares in issue:
9 January 2023
Ordinary Shares Percentage
holding
Trian Investors 1 Subscriber 69,879,957 27.84
Invesco 41,000,000 16.33
Jefferies International (PB) 34,676,145 13.81
Janus Henderson Investors 32,090,569 12.78
Aegon Asset Management UK 17,019,716 6.78
------------------ -------------
194,666,387 77.54
------------------ -------------
All of the above information is based on notifications received
by the Company made by shareholders pursuant to the Disclosure
Guidance and Transparency Rules of the Financial Conduct Authority
("DTRs"), except for information relating to Trian Subscriber,
which is based on information provided by the Investment Manager.
Since the time each notification was received by the Company, the
number of Shares held by the relevant shareholder may have
increased or decreased without triggering any obligation to provide
further notification to the Company.
Principal risks and uncertainties
The Directors are responsible for ultimate oversight and
exercising supervisory control over the Company, with day-to-day
functions, including company secretarial and administration
services, being carried out by Ocorian Administration (Guernsey)
Limited (referred to herein as the "Company Secretary" or
"Administrator").
Each Director is aware of the risks inherent in the Company's
business and understands the importance of identifying, evaluating
and monitoring these risks. The Board considers the process for
identifying, evaluating and managing any significant risks faced by
the Company on an on-going basis and arranges for these risks to be
reported and discussed at Board meetings. It ensures that effective
controls are in place to mitigate these risks and that a
satisfactory compliance regime exists to ensure all applicable
local and international laws and regulations are upheld.
The principal risks facing the Company include those risks
relating to the Company's dependence on the Investment Manager,
risks connected to the Company's operations, risks relating to the
valuation of the Company's Shares and gearing risk through the use
of borrowings by the Investment Partnership.
An explanation of each of these principal risks and how they are
managed is set out below.
-- Dependence on the Investment Manager . Neither the Company
nor the Investment Partnership has any employees or owns any
facilities. As a result, the ability of the Company to achieve its
investment objective depends heavily on the expertise and
experience of Trian and its ability to pursue its investment
strategies. Trian also manages funds and investment vehicles in
addition to the Investment Partnership, and its affiliate, Trian
Subscriber, is the largest shareholder of the Company, each of
which could give rise to certain potential conflicts of interest or
the appearance of potential conflicts of interest. The Board
actively monitors the performance of the Investment Manager, with
assistance from the Company's other service providers, and retains
the ability to appoint a replacement in certain limited
circumstances. The Board also regularly engages with the Investment
Manager during and between Board meetings, and when appropriate,
seeks further clarification of matters from the Investment Manager
in order to make informed decisions. In addition, the Board
routinely discusses matters relating to the Investment Manager
without any representatives of the Investment Manager present in
those discussions. The Board and Trian each regularly monitor
potential conflicts of interest and the appearance of potential
conflicts of interest, and Trian maintains trade allocation
procedures that are designed to allocate investment opportunities
on a fair and equitable basis, as disclosed in the Prospectus.
Since 31 December 2022 all underlying material assets have been
distributed to shareholders so the risk of dependence on the
Investment Manager is low.
-- Operations of the Company . The Company is subject to various
forms of operational risk, including the risk of fraud, valuation
errors, accounting discrepancies, inadequate cash management and
regulatory issues. These issues are actively reviewed by the Board
at quarterly Board meetings and between meetings, including by
monitoring the Company's recent investment performance and
operational activities to ensure that the Investment Manager and
the Company's other service providers are adhering to established
practices and procedures. In addition, the Board receives reports
from the Company Secretary and Administrator at meetings of the
Board in respect of compliance matters and the duties performed by
them on behalf of the Company, as well as reports on market
activity from Numis Securities Limited, the Company's Corporate
Broker, ('Corporate Broker'). The Investment Manager and the
Company Secretary and Administrator have established business
continuity plans and other policies and procedures that are
designed to allow each party to continue to provide services to the
Company while taking appropriate safety precautions. Following the
distribution of the underlying investments, the focus is on the
forthcoming liquidation of the Company.
-- Valuation of the Shares. The Company's Share price may trade
at a discount (or premium) to the underlying market value of the
Company's investments. This discount level (or premium) is expected
to fluctuate from time to time. The Board reviews net asset value
("NAV") and Share price performance on a monthly basis in the
context of market conditions. Any discount (or premium) is also
monitored by the Investment Manager and the Corporate Broker, who
maintain an ongoing dialogue with the Board about potential
strategies to address any significant discount that may emerge,
including Share repurchases. As of the date of signing the Annual
Report, over 99% of the Shares originally in issue have been
redeemed and the liquidation of the Company is imminent so the
valuation risk is low.
-- Gearing risk. The use of borrowings exposes the Company and
the Investment Partnership to a variety of risks associated with
borrowing, including adverse economic consequences resulting from
rising interest rates or deteriorations in the condition of the
Company's investments. To the extent that the Investment
Partnership incurs a substantial level of indebtedness, this could
also reduce the financial flexibility and cash available to the
Company and the Investment Partnership and subject the Investment
Partnership to the risk of margin calls. Prior to agreeing to the
terms of any borrowing facility and/or borrowing under such a
facility, the Investment Manager comprehensively considers the
potential debt servicing costs associated with the borrowing or
potential borrowings and all relevant financial and operating
covenants and other restrictions. The Investment Manager also
regularly monitored compliance with the covenants contained in any
credit facility where borrowings were outstanding and provided
regular updates to the Board. As at 31 December 2022 there was no
borrowing and there is no expectation that the Company will enter
into further borrowing arrangements.
-- Execution risk. The 95% minimum redemption of the underlying
assets of the Investment Partnership and subsequent move into
administration of the Company exposed the Company to execution
risk. The responsibility for overall management of the process is
with the Board but the Corporate Broker is responsible for the
planning and execution along with other third party professionals,
the Investment Manager and the Company Secretarial team of the
Administrator. As of the date of signing the Annual Report, all
underlying material assets have been distributed to shareholders so
the execution risk is low.
The principal risks of the Company are mitigated and managed by
the Board through continual review, policy setting and quarterly
review of the Company's risk matrix to ensure that procedures are
in place with the intention of minimising the impact of the
foregoing risks. In addition, the Board believes that the
Investment Manager, along with the Company's other service
providers, have the right skills and experience to help the Company
manage these risks. The Board can confirm that the principal risks
of the Company, including those which could threaten its business
model, future performance, solvency or liquidity, have been
robustly assessed through the Year.
The Company's principal risk factors are more fully discussed in
the Prospectus, available on the Company's website (
www.trianinvestors1.com ) and should be reviewed by shareholders.
In addition, the Company's financial risks and management of those
risks are discussed in Note 13 to the Financial Statements.
Viability statement
The annual financial statements have been prepared on a basis
other than going concern as the Company has redeemed over 99% of
its Ordinary Shares in 2023 and the Directors plan to commence a
process to wind up the Company imminently.
Having conducted a robust analysis, including a review of cash
flow projections, the Directors remain satisfied that the Company
can meet its liabilities as they fall due until the Company enters
a solvent voluntary liquidation.
AIFM directive
The Directors have considered the impact of the EU Alternative
Investment Fund Managers Directive (2011/61/EU) ("EU AIFMD") and of
the UK version of the EU AIFMD which is part of UK law by virtue of
the European Union (Withdrawal) Act 2018, as amended ("UK AIFMD")
on the Company and its operations. The Company is a non-EU / non-UK
domiciled Alternative Investment Fund and the Investment Manager
has been appointed as the Company's non-EU / non-UK Alternative
Investment Fund Manager ("non-EU AIFM"). As the Company is managed
by a non-EU / non-UK AIFM, only a limited number of provisions of
the EU AIFMD and the UK AIFMD apply. The Investment Manager has
notified the UK Financial Conduct Authority in accordance with
regulation 59 of the UK Alternative Investment Fund Managers
Regulations 2013 in order to permit the marketing of the Company
and the Shares in the UK, but the Company does not currently intend
to market the Shares in any member state of the European Economic
Area ("EEA").
Subsequent events
See Note 22 to the Financial Statements for details of
subsequent events.
External auditor
See Report of the Audit Committee for details of the external
auditor.
Extraordinary General Meeting
The total costs associated with the requisitioned Extraordinary
General Meeting held on 5 August 2022 and subsequent discussions
with shareholders amounted to GBP570,000, see Note 18.
Annual General Meeting
It is currently proposed that the Annual General Meeting ("AGM")
of the Company will be held on 26 April 2023 in Guernsey. Details
of the resolutions to be proposed at the AGM, together with
explanations, will appear in the Notice of Meeting to be
distributed to shareholders in due course.
By order of the Board
Mark Thompson
Chairman
16 March 2023
Corporate Governance Statement
The Company has chosen to comply with the UK Corporate
Governance Code issued in July 2018 (the "Code") and is required to
comply with the GFSC Finance Sector Code of Corporate Governance
(the "GFSC Code"). The Directors place great importance on ensuring
that high standards of corporate governance are maintained.
Accordingly, the Directors have taken appropriate measures to
ensure that the Company operates with due consideration to any
codes of corporate governance that the Board deems appropriate. The
Board perceives that good corporate governance practice is
necessary for delivering sustainable value, enhancing business
integrity and maintaining shareholder confidence in the Company. To
further these aims, the Board has decided to voluntarily comply
with the Code, which sets out guidance in the form of principles
and provisions for companies to follow to ensure good corporate
governance practice. A Company that is compliant with the Code is
also deemed to be in compliance with the GFSC Code. Further
information on the Code can be obtained from www.frc.org.uk.
Certain provisions of the Code, namely P,Q,R 32-41, which
include provisions relating to the responsibilities of the chief
executive, executive directors' remuneration and the
responsibilities of the Board to employees and its workforce, are
not relevant to the Company as it has no executive directors or
employees. The Company's day-to-day management and administrative
functions are outsourced to the Investment Manager and other third
parties. The Company does not report further in respect of these
provisions.
Except as disclosed within these Financial Statements, the Board
is of the view that the Company complies with the principles and
provisions of the Code. Key issues affecting the Company's
corporate governance responsibilities, how they are addressed by
the Board and the application of the Code are presented below.
SECTION 1: BOARD LEADERSHIP AND COMPANY PURPOSE
Board responsibilities
The Directors are responsible for ensuring compliance with the
Company's investment objective and investment policy and have
overall responsibility for the Company's activities, including
review of overall investment performance. The Board has approved a
formal schedule of matters reserved for the Board (the "Schedule of
Reserved Matters") which includes, amongst others:
-- review of the Company's overall strategy and business plans;
-- approval of any proposed amendments to the Company's investment objective or policies;
-- approval of the Company's half-yearly and annual financial statements;
-- review and approval of any alteration to the Company's
accounting policies or practices or any proposal to change the
Company's accounting reference date;
-- declaration of any dividends or other distributions by the Company;
-- approval of any material announcements or communications;
-- approval of changes in Board composition;
-- appointment or termination of any of the Company's service providers;
-- the issue of any share capital of the Company and the
exercise by the Company of its borrowing powers; and
-- any proposed repurchase or redemption of the Company's Shares by the Company.
In addition, t he Board will undertake annual reviews (and
performed such a review in 2022) of the Company's service providers
to ensure that the Company's contracts of engagement with the
Investment Manager, Administrator and Company Secretary, Corporate
Broker and other service providers are operating satisfactorily and
that they are competitive and reasonable for the Company's
shareholders, as well as to ensure the accurate management and
administration of the Company's affairs and businesses. In
particular, the Board is responsible for reviewing and overseeing
the performance of the Investment Manager and to monitor any
potential conflicts of interests that may arise. In addition, and
if applicable, a non-executive Director may provide a written
statement outlining any concerns regarding the operation of the
Board or the management of the Company to the Chairman upon
resignation. Furthermore, any concerns of such a nature that cannot
be resolved would be recorded in the relevant Board meeting
minutes.
Management of the Investment Partnership is the responsibility
of Trian Investors 1 General Partner, LLC, the general partner of
the Investment Partnership (the "Managing General Partner"), which
has delegated investment decisions and day-to-day management of the
Investment Partnership to the Investment Manager under the terms of
an investment management agreement. Given that the Company
currently has the majority interest in the Investment Partnership,
the Company and therefore the Board have the ability to approve any
proposed Target Company, approve distributions and to remove the
Managing General Partner and Investment Manager in certain limited
circumstances.
Relations with shareholders
The Directors place a great deal of importance on communication
with the Company's shareholders. Representatives of the Investment
Manager, as well as the Board, spoke with many of the Company's
shareholders in 2022 to discuss the Company's activities. The Board
also receives regular updates from the Corporate Broker at each
meeting, as well as periodic updates between meetings, relating to
shareholder feedback and activity and other matters. All Directors
were available throughout the year, and will continue to be
available, for discussions with shareholders as and when
required.
With regard to the Directors' duty to promote the success of the
Company, the Board's key focus was overseeing the Investment
Manager's selection and holding of one or more suitable Target
Companies that the Investment Manager anticipates will deliver the
Company's investment objective for its shareholders and wider
stakeholders. The performance of the Investment Manager is subject
to regular review by the Board. Due to the nature of the Company
and its activities, the Board does not consider its operations to
negatively impact either the community or the environment. As
previously noted, the Company has no employees.
As noted above, as a result of the requisitioned Extraordinary
General Meeting ("EGM") held on 5 August 2022 and subsequent
discussions with shareholders, the Company has redeemed more than
99 per cent of each shareholder's holding in the Company and the
Board will now commence a process to wind-up the Company.
SECTION 2: DIVISION OF RESPONSIBILITIES
Board composition
The Board consists of four non-executive members as detailed
below .
Mark Thompson
Mark Thompson is a Guernsey resident with over 25 years of
experience in the offshore finance industry. He worked for KPMG for
31 years in London, Hong Kong and Guernsey where his roles included
Audit Partner, Head of Audit and Senior Partner of KPMG in the
Channel Islands and he has audited and advised the boards of a
variety of listed investment companies. Mark Thompson is a
non-executive director of Rocq Capital Holdings Limited, Queen
Street Mutual Company PCC Limited and Utmost Worldwide Limited, a
Chartered Accountant (ICAEW), Chartered Director (IoD) and a former
chairman of the Guernsey Branch of the Institute of Directors. He
has been appointed to the States of Guernsey Committee for
Employment and Social Security as a non-voting member. He holds an
MA in mathematics from the University of Oxford.
Simon Holden
Simon Holden, is a Chartered Director (CDir) accredited by the
Institute of Directors and adds extensive private equity investment
and corporate operations experience to the Company's board, having
worked with Candover Investments and Terra Firma Capital Partners
until 2015.
Simon Holden currently serves as a Board director to FTSE-250
listed investment companies HICL Infrastructure Plc. (Chair of the
Risk Committee), Hipgnosis Songs Fund Limited (Chair of
Remuneration Committee) and Chrysalis Investments Ltd. (Chair of
Risk Committee) as well as JPMorgan Global Core Real Assets Limited
(Senior Independent Director, Chair of Market & Risk).
Simon Holden serves on the General Partner boards of Permira,
Blue Water Energy and LCatterton private equity funds as well as
pro-bono Business Advisor roles to two States of Guernsey Trading
Assets including its hydrocarbon supply ships and Guernsey Ports'
airport and harbour infrastructure across the Bailiwick.
Simon Holden graduated from the University of Cambridge with an
MEng and MA (Cantab) in Manufacturing Engineering, is a Guernsey
resident and an active member of various financial services
interest groups.
Anita Rival (appointed on 14 April 2022)
Anita Rival has over 25 years of experience in the asset
management industry, acting as a board member, adviser and
portfolio manager at a range of different asset managers and
publicly traded funds . She has been a member of the board of
directors of Golub Capital BDC, Inc. since 2011 and the board of
directors of Golub Capital BDC 3, Inc. since 2017, and she was
formerly a member of the board of directors of Golub Capital
Investment Corporation from 2014 to 2019. Ms. Rival became a
trustee of Baron Investment Funds Trust in May 2013, an independent
director for Impala Asset Management in January 2014 and an outside
advisor to Value Act Capital in 2014. From April 2011 through May
2012, she served as an independent advisor to Magnetar Capital, a
multi-strategy hedge fund.
From 1999 until her retirement in February 2009, Ms. Rival was a
Partner and Portfolio Manager at Harris Alternatives, LLC, and its
predecessor, Harris Associates, L.P. As a Portfolio Manager at
Harris Alternatives, LLC, Ms. Rival managed all aspects of a $14
billion fund of hedge funds, including asset selection, risk
assessment and allocation across investment strategies. Prior to
Harris Alternatives, LLC, Ms. Rival held senior level positions at
several large asset management/investment banking institutions,
including Banker's Trust, Global Asset Management and Merrill Lynch
Capital Markets. Ms. Rival received her B.A. in 1985 from Harvard
University.
Robert Legget (appointed on 5 August 2022)
Robert Legget is a Scottish chartered accountant and holds an
MBA.
Robert co-founded Progressive Value Management Limited ("PVML")
in April 2000 after leaving Quayle Munro Holdings PLC, an
independent Edinburgh-based investment bank, where he had been a
main board director.
From 1986 until 1991 Robert was responsible for Quayle Munro's
management of East of Scotland Industrial Investments PLC, an
investment company which specialised in making direct unquoted
investments. From 1991 he was a corporate finance director of
Quayle Munro's merchant banking subsidiary, responsible for certain
merger and acquisition and private equity transactions. His
responsibilities included the controlled realisation of the
investments of a number of venture capital funds for the benefit of
the investors in such funds, predominantly institutions.
PVML specialises in creating value and liquidity for
institutional investors from their illiquid underperforming
holdings. Since its foundation, PVML has launched, managed and
successfully wound up seven workout funds. In addition to the
workout fund model, PVML has obtained segregated mandates from
institutions to deal with individual holdings or portfolios of
quoted investments, and also with LP positions in Private Equity
Partnerships.
Robert is the Senior Independent Director of Sureserve Group Plc
and was previously a non-executive director of F&C Private
Equity Trust plc (now CT Private Equity Trust plc). He has been
involved in the management of Advance Value Realisation Company
Limited, Second Advance Value Realisation Company Limited, Third
Advance Value Realisation Company Limited, Advance AIM Value
Realisation Company Limited and Brookwell Limited (A Shares, B
Shares and D Shares) as well as the management of Lupus Capital plc
during a reorganisation of that company. Robert is also Senior
Independent Director of Downing Strategic Micro-Cap Investment
Trust Plc and R & Q Insurance Holdings Limited.
Independence
For the purposes of assessing compliance with the Code, the
Board considers all of the current Directors to be independent of
the Investment Manager and free from any business or other
relationship that could materially interfere with the exercise of
their independent judgment. In particular, none of the Directors
has any current or historical employment with the Investment
Manager, nor do they have any current directorships in any other
entities for which the Investment Manager or its key personnel
provide services.
Commitment of each Director
Prior to the appointment of each of the non-executive Directors,
discussions were undertaken with each individual to ensure that
each was sufficiently aware of the time needed for his/her role.
Each Director has confirmed, or will confirm, in his or her
appointment letter that he or she is able to devote sufficient time
to his/her duties. Upon appointment, each Director notified the
Board of significant outside commitments and interests, including
those which may create a conflict situation, and agreed to notify
the Board of any subsequent acceptance of, or entry into, a
significant commitment or interest which amounts to a conflict
situation.
Division of responsibilities
The Directors' responsibilities are described above in Section 1
of this Corporate Governance Statement and are set out in greater
detail within the Schedule of Reserved Matters. All day-to-day
functions, including investment management, administrative,
brokerage and registrar services, are outsourced to external
service providers. The Board also has access to engage external
legal advice.
The Chairman
Chris Sherwell was appointed as Chairman of the Board on 24
August 2018. At the requisition EGM, Chris Sherwell was removed as
a Director and on 15 August 2022 Mark Thompson was appointed as
Chairman. As Chairman, Mark Thompson leads the Board and is
responsible for its overall performance in directing the Company,
including by organising the Board's business and ensuring the
effectiveness of the Board and individual Directors. He endeavours
to produce an open culture of debate within the Board.
Role of non-executive Directors
The Board meets as required without the presence of the
Investment Manager and service providers to scrutinise the
achievement of agreed goals and objectives, and monitor
performance. Through the Audit Committee the Directors ensure the
integrity of financial information and confirm that all financial
controls and risk management systems are robust. Robert Legget
replaced Mark Thompson as Chairman of the Audit Committee on 15
August 2022.
Robert Legget has been appointed as the senior independent
director.
Company Secretary
In conjunction with the Chairman, the Company Secretary
facilitates the flow of information between the Board, the
Committees, the Investment Manager and other service providers
through the development of comprehensive meeting packs, agendas and
other reports. Prior to each Board meeting, the Company Secretary
distributes a Board and Committee meeting pack, which contains
relevant, concise and clear information. When required, the Board
has sought further clarification of matters directly with the
Investment Manager and other service providers, both in terms of
further reports and via in-depth discussions.
Full access to the advice and services of the Company Secretary
is available to the Board; in turn, the Company Secretary is
responsible for advising the Board on governance matters. The
appointment and resignation of the Company Secretary is a matter
for the whole Board pursuant to the Schedule of Reserved Matters. A
review of the performance of the Company Secretary is undertaken by
the Board on a regular basis and forms a part of the annual service
provider review process.
Board meetings
The Board meets on at least a quarterly basis in person or by
videoconference or teleconference. The dates for each scheduled
meeting are planned and agreed up to a year in advance. Meetings
are convened as and when required to consider any urgent matters
arising. In addition to formal Board and/or committee meetings and,
to the extent practicable and appropriate, the Directors maintain
close contact with each other, the Administrator and the Investment
Manager, by email and conference calls, for the purpose of keeping
themselves informed about the Company's activities.
The Board met 12 times during the Year and the Audit Committee
met three times during the Year. Subsequent to the Year-end and
prior to the date of this Annual Report, the Board met five further
times.
Other
Name Scheduled board meeting board meeting Audit Committee meeting
------------------------ ---------------- ------------------------
Mark Thompson 4/4 8/8 3/3
Simon Holden 3/4 8/8 2/3
Anita Rival 3/3 5/6 2/2
Robert Legget 2/2 4/4 2/2
Chris Sherwell 2/2 4/4 1/1
SECTION 3: COMPOSITION, SUCCESSION AND EVALUATION
Board composition
The Board is responsible for reviewing its structure, size and
composition, for considering succession planning and for
identifying and approving candidates to fill Board vacancies. The
Board believes that, as a whole, its current members represent an
appropriate balance of skills, experience and knowledge.
As part of the Board's commitment to strong corporate
governance, the Directors regularly review Board composition to
ensure that it remains effective and appropriate. At the
requisitioned Extraordinary General Meeting of the Company on 5
August 2022, Chris Sherwell was removed as Director and Robert
Legget was appointed as Director.
The Board believes that diversity of background, experience and
approach amongst Board members is of great importance and
recognises the value of diversity and inclusion. It is the
Company's policy to give careful consideration to issues of Board
balance and diversity when making any new appointments. The Company
currently has concentrated investment exposure and, as such, the
Board exercises decisions on a narrower range of matters than a
setting in which diversity and inclusion would better reflect the
wider scope of business affairs attended to.
Due to the size of the Board, and the fact that it is comprised
wholly of non-executive Directors, the Board does not believe it
necessary to establish a separate nomination committee and this
function is fulfilled by the Board as a whole.
Director re-election
Each Director shall stand for re-election by the Company's
shareholders at the upcoming annual general meeting. The Board
intends to set out in the papers accompanying the resolution to
elect each director why their contribution is, and continues to be,
important to the Company's sustainable success, notwithstanding the
imminent liquidation of the Company.
Board succession
The aim of the Company's succession plan was:
-- to preserve continuity by phasing the retirement of the
original Directors so that they do not all retire simultaneously;
and
-- to ensure the Board's skills and experience are regularly
refreshed and the benefits of a diverse Board are further enhanced,
in terms of age, gender and diversity of background.
In furtherance of the Company's succession planning Anita Rival
was appointed as an additional Director with effect from 14 April
2022. At the requisitioned Extraordinary General Meeting of the
Company on 5 August 2022, Chris Sherwell was removed as Director
and Robert Legget was appointed as Director. The Company's near
term liquidation means that succession plans are only likely to
impact the first half of 2023.
Director and Board evaluation
Using a pre-determined template based on the Code's provisions
as a basis for review, the Board undertakes an annual evaluation of
its performance and that of the Audit Committee. Additionally, an
evaluation focusing on the individual commitment, performance and
contribution of each Director has been conducted on an annual
basis. The Chairman met with each Director to fully understand
their views of the Company's strengths and to identify potential
weaknesses. Due to the size and structure of the Board, the
evaluation of the Chairman of the Board and Audit Committee is
dealt with as part of the annual Board evaluations.
Given the Company's size and the structure of the Board, no
external facilitator or independent third party is expected to be
used in the performance evaluation.
SECTION 4: AUDIT, RISK AND INTERNAL CONTROL
Internal control and financial reporting
The Board acknowledges that it is responsible for establishing
and maintaining the Company's systems of internal control and for
maintaining their effectiveness. Internal control systems are
designed to manage, rather than eliminate, the risk of failure to
achieve business objectives, and only provide reasonable rather
than absolute assurance against material misstatements or
losses.
The Board has delegated the day-to-day operations of the Company
to the Administrator and Investment Manager; however, the Board
retains accountability for all delegated functions. The Board
clearly defines the duties and responsibilities of all service
providers and advisers, and appointments are only made after due
and careful consideration.
The Administrator maintains a system of internal control over
its activities. The Board receives reports from the Company
Secretary and Administrator in respect of compliance matters and
other duties performed on behalf of the Company.
The Board considers that the Company's existing internal
controls, coupled with the analysis of risks inherent in the
business models of the Company and its subsidiaries, continue to
provide appropriate tools for the Company to monitor, evaluate and
mitigate its risks.
Going concern status
The annual audited financial statements have been prepared on a
basis other than going concern as the Company has redeemed over 99%
of its Ordinary Shares in 2023 and the Directors plan to commence a
process to wind up the Company imminently.
Having conducted a robust analysis, including a review of cash
flow projections, the Directors remain satisfied that the Company
can meet its liabilities as they fall due until the Company enters
a solvent liquidation.
Based on these sources of information and their own judgement,
the Directors believe it is appropriate to prepare the financial
statements of the Company on a basis other than a going
concern.
The directors believe there are no significant differences than
had the financial statements been prepared on a going concern
basis.
Preparation of Annual Report
An explanation of the Directors' roles and responsibilities in
preparing the Annual Report and Financial Statements for the Year
is provided in the Directors' Responsibility Statement. Further
information enabling shareholders to assess the Company's
performance, business model and strategy can be located in the
Chairman's Statement, the Investment Manager's Report, and the
Report of Directors.
Audit Committee
The Board has established an Audit Committee with formally
delegated duties and responsibilities documented within its terms
of reference. The Audit Committee is responsible for assisting the
Board in discharging its responsibilities for the integrity of the
Company's financial statements, as well as aiding the assessment of
the Company's internal control effectiveness and the objectivity of
the Company's external auditors. The Audit Committee is composed of
all of the members of the Board, all of whom are independent
non-executive Directors. Due to the size and structure of the Board
and the Company, the Chairman of the Board has been included as a
member of the Audit Committee to give him a fuller understanding of
the issues facing the Company and to maximise the effectiveness of
the Committee. However, Mark Thompson is not appointed as the
Committee's Chair, and the Committee is instead chaired by Robert
Legget as from 15 August 2022. Further information on the Audit
Committee is provided in the Report of the Audit Committee.
The Board has reviewed the need for an internal audit function
and has decided that the systems and procedures employed by the
Administrator and Investment Manager, including their own internal
controls and procedures, provide a sound system of risk management
and internal control which safeguards shareholders' investment and
the Company's assets, and as such no internal audit function is
deemed necessary.
SECTION 5: REMUNERATION OF DIRECTORS
The Board endeavours to ensure the Company's Remuneration Policy
reflects and supports the Company's strategic aims and objectives.
It has been agreed that, due to the size of the Board and the fact
that it is comprised wholly of non-executive Directors, a separate
Remuneration Committee would be inefficient. Therefore, the Board
as a whole is responsible for discussions regarding remuneration.
No external remuneration consultants were appointed during the
Year.
In accordance with the Company's Articles of Incorporation (the
"Articles"), the aggregate amount of fees paid to Directors may not
exceed the annual equivalent of GBP400,000 per annum. Subject to
this limit, it is the Company's policy to determine the level of
Directors' fees, having regard for the level of fees payable to
non-executive Directors in the industry generally, the role that
individual Directors fulfil in respect of responsibilities related
to the Board and Audit Committee and the time dedicated by each
Director to the Company's affairs.
The composition of Director remuneration for the year ended 31
December 2022 is detailed below:
Fees in relation
to additional
meetings and
Fees in relation time spent
to EGM on redemption
Director announcement Total
fees
GBP GBP GBP GBP
Director
Mark Thompson 55,350 20,000 20,000 95,350
Simon Holden 46,543 20,000 5,000 71,543
Anita Rival 35,099 20,000 5,000 60,099
Robert Legget 18,192 - - 18,192
Chris Sherwell 32,837 20,000 - 52,837
----------- ------------------- ------------------- --------
188,021 80,000 30,000 298,021
----------- ------------------- ------------------- --------
The total Director remuneration for the year to 31 December 2021
was GBP185,000 of which GBP140,000 related to Director fees and
GBP45,000 in relation to the additional work involved in the
Company's change in investment policy.
Up until 2 September 2022 each of the Directors was entitled to
a fee payable by the Company at the rate of GBP40,000 per annum.
The Chairman received an additional fee of GBP15,000 per annum and
the Chairman of the Audit Committee received an additional fee of
GBP5,000 per annum. With effect from 2 September 2022 these fees
increased by GBP20,000 pa for each director to reflect the
additional time commitment and the impact of inflation since 2018
when the fees were originally agreed and held flat since. These
one-off payments were approved by a majority of the Board with
Robert Legget dissenting on governance grounds. Accordingly he
requested that his remuneration remain at GBP45,000 per annum.
Further to this, each of the Directors in office up to 5 August
2022 received an additional fee of GBP20,000 in relation to the
extensive programme of engagement with all shareholders and review
of Company strategy required of the Board to consider and respond
to the resolutions put forward at the Extraordinary General
Meeting. In addition, Mark Thompson was awarded a further
additional fee of GBP20,000 and each other director a fee of
GBP5,000 in respect of the additional meetings and time spent
leading up to the announcement on 2 September 2022 of the proposals
to wind up the Company. These one-off payments were approved by a
majority of the board with Robert Legget dissenting on governance
grounds. He declined to accept the second one-off payment of
GBP5,000.
As outlined in the Prospectus, all of the Directors are also
entitled to be reimbursed for all reasonable expenses properly
incurred by them in attending general meetings, Board or committee
meetings or otherwise in connection with the performance of their
duties.
None of the Directors has a service contract with the Company.
Each of the Directors has entered into a letter of appointment with
the Company that states that his appointment and any subsequent
termination or retirement shall be subject to the Articles. Each
Director's appointment letter provides that upon the termination of
a Director's appointment, that Director must resign in writing and
all records remain the property of the Company. Each Director's
appointment can be terminated in accordance with the Articles and
without compensation. There is no notice period specified in the
Articles for the removal of Directors.
Directors' and officers' liability insurance coverage is
maintained by the Company but it is not considered a benefit in
kind nor does it constitute part of the Directors' remuneration. In
addition, the Company's Articles indemnify each Director, former or
present, out of the assets and profits of the Company in relation
to actions, expenses and liabilities incurred during the course of
their duties, in so far as the law allows and provided that such
indemnity is not available in circumstances of negligence, default,
breach of duty or breach of trust in relation to the Company.
By order of the Board
Mark Thompson
Chairman
16 March 2023
Directors' Responsibility Statement
Each of the Directors, whose names are set out in the Corporate
Governance Statement of the Annual Report, confirms that, to the
best of his knowledge and belief:
-- the Financial Statements, prepared in accordance with
International Financial Reporting Standards (IFRSs) as issued by
the International Accounting Standards Board (IASB), give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Company;
-- the Annual Report, including the Chairman's Statement,
Investment Manager's Report, Report of the Directors, Corporate
Governance Statement and Report of the Audit Committee, includes a
fair review of the development and performance of the business and
the position of the Company, together with a description of the
principal risks and uncertainties that they face; and
-- the Annual Report, taken as a whole, is fair, balanced, and
understandable and provides information necessary for shareholders
to assess the Company's performance, business model and
strategy.
The Directors are responsible for preparing the Annual Report in
accordance with applicable laws and regulations. The Companies Law
requires the Directors to prepare financial statements for each
financial year in accordance with IFRS. The Directors must not
approve the Financial Statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Company and of the financial performance and cash flows of the
Company for that period. In preparing these Financial Statements,
the Directors are required to:
-- select suitable accounting policies and apply them consistently;
-- make judgements that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS is insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company's financial position and performance;
-- state that the Company has complied with IFRS, subject to any
material departures disclosed and explained in the Company's
financial statements;
-- make an assessment of the Company's ability to continue as a going concern; and
-- prepare the Company's financial statements on a going concern
basis unless it is inappropriate to presume that the Company will
continue in business.
The Directors confirm they have complied with the above
requirements in preparing the Company's Financial Statements.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy, at any time,
the financial position of the Company and which enable them to
ensure that the financial statements comply with the Companies
(Guernsey) Law 2008 and the Protection of Investors (Bailiwick of
Guernsey) Law 2020. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors confirm that, so far as they are aware, there is
no material information relevant to the audit of which the
Company's auditor is unaware. The Directors also confirm that they
have taken all steps they ought to have taken as Directors to make
themselves aware of any material information relevant to the audit
and to establish that the Company's auditors are aware of that
information.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website ( www.trianinvestors1.com ). The work carried out
by the external auditor does not involve considerations of these
matters and, accordingly, the external auditor accepts no
responsibility for any changes that may have occurred to the
financial statements after they were initially presented on the
website. Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
For Trian Investors 1 Limited
Mark Thompson
Chairman
16 March 2023
Report of the Audit Committee
Composition
The Audit Committee (the "Committee") comprises the four members
of the board with Robert Legget as the Chairman. The Board is
satisfied that the Committee has recent and relevant skills and
financial experience to fulfil its responsibilities and that its
members have significant business experience relevant to the asset
management industry. Further details on the experience and
qualifications of members of the Committee can be found in the
Corporate Governance Statement.
Meetings
The Committee meets no less than twice a year. It met four times
during the Year and once since the Year end through to the date of
this report. The external auditor has attended all four meetings to
discuss the audit and interim review approach and audit and interim
review findings. In addition, the Directors met with the external
auditor outside of an Audit Committee meeting to discuss any issues
arising from the audit and the application of accounting
policies.
Principal duties
The principal duties of the Committee as set out in its terms of
reference are:
-- to monitor the integrity of the financial reporting of the
Company including its annual and half yearly reports and any other
information relating to its financial performance;
-- to monitor and review the adequacy and effectiveness of
Company's internal controls and risk management systems;
-- to keep under review the scope, results, quality and
effectiveness of the audit and the independence and objectivity of
the auditor;
-- to make recommendations to the Board regarding the
appointment, reappointment, replacement, remuneration and terms of
reference of the external auditor; and
-- to review the whistleblowing arrangements in place to enable
directors and staff of service providers to, in confidence, raise
concerns about possible wrongdoing in financial reporting or other
matters insofar as they may affect the Company.
The Committee meets the external auditor at least once a year,
without the Investment Manager or Administrator being present, to
discuss their remit and any issues arising from the audit.
The Committee's terms of reference include all matters indicated
by DTR 7.1 and the Code and are available on the Company's
website.
The Committee is satisfied that the whistleblowing policies in
place for the Investment Manager and Administrator enable staff to
raise concerns in confidence about possible improprieties in
matters of financial reporting or other matters insofar as they may
affect the Company.
Financial reporting
The primary role of the Committee in relation to financial
reporting is to review with the Administrator and the Investment
Manager the appropriateness of annual reports and interim reports,
concentrating on, amongst other matters:
-- the appropriateness of accounting policies and practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- material areas in which significant judgements and estimates
have been applied or there has been discussion with any external
consultant or the external auditor;
-- whether the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's performance, business
model and strategy; and
-- any correspondence from regulators in relation to the Company's financial reporting.
To aid its review, the Committee considers reports from the
Investment Manager and also reports from the external auditor on
the outcomes of their audit. The Committee supports Deloitte LLP in
displaying the necessary professional scepticism their role
requires.
Significant matters in relation to the financial statements
The Committee determined that the key risk of misstatement in
connection with the financial statements was the fair value of the
underlying investment in the Investment Partnership held through
the Company's subsidiary Midco. The basis for this judgement is
explained in Note 3.
The Committee believes a financial reporting risk could arise
from the valuation of the Investment Partnership's investments in
Ferguson and Unilever which the Company held through Midco. The
Committee receives valuations from the Investment Manager on a
regular basis which are reviewed to ensure they are in line with
reporting standards. The ordinary shares of Ferguson are listed on
the New York Stock Exchange, its primary listing, and the ordinary
shares of Unilever have a primary listing on the Main Market of the
London Stock Exchange and the Directors must determine whether the
market is sufficiently liquid for the last sales price published by
the exchange to be a fair value in accordance with IFRS principles.
The Directors have assessed that there is a sufficiently liquid
market in the exchanges for the investments held through the
Investment Partnerships and accordingly they consider the quoted
share price to be the appropriate basis for the valuation of the
investments.
The valuation of these investments also directly impacts the
calculation of the Management fee and incentive allocation borne at
Investment Partnership level. The incentive allocation fees are
calculated separately for each investment and the methodology is
different due to Trian having a seat on the Unilever board but not
the Ferguson board.
It was agreed with the Investment Manager that upon compulsory
redemption it would receive its final management fee payment in
lieu of notice calculated, through to 31 December 2023. The 6
months of management fees relating to the expected post-redemption
period through to 31 December 2023 is being accrued for evenly over
the period from 2 September 2022 to 30 June 2023. This treatment
has been revised in 2023 as a result of the distribution of assets
by the Investment Partnership at which time full provision was made
for future management fees.
The Committee believe a further financial reporting risk could
arise from the distributions that have been made to investors
subsequent to the year end. The distributions are based upon
valuations of the underlying investments as noted above and then
calculated by the Investment Manager with further verification from
the Administrator and then approval from the Board.
A further potential financial reporting risk relates to the wind
down costs reported by the Company ahead of the liquidation to take
place in 2023. The wind down costs are based upon estimates
provided by the Broker with further input from the Investment
Manager and review from the Board to ensure that all potential
expenses are captured.
Risk management
The Company's risk assessment process and the way in which
significant business risks are identified and managed is a key area
of focus for the Committee. The work of the Committee was driven
primarily by the Company's assessment of its principal risks and
uncertainties as set out in the Report of the Directors. The
Committee receives reports from the Investment Manager and
Administrator on the Company's risk evaluation process and reviews
changes to significant risks identified.
Internal audit
The Committee does not consider there to be a need for an
internal audit function, given that there are no employees in the
Company and all outsourced functions are with parties who have
their own internal controls and procedures. The Committee will
reconsider the need for an internal audit function at least once a
year.
External auditor
Deloitte LLP has been appointed as the Company's external
auditor. The lead audit partner is David Becker and under normal
audit partner rotation arrangements he would normally be replaced
after no more than five years, with the final year being the year
ended 31 December 2022. The Companies Law requires the
reappointment of the external auditor to be subject to
shareholders' approval at the Annual General Meeting,
notwithstanding that the Company is expected to be put into
liquidation shortly thereafter. There are no contractual
obligations restricting the choice of external auditor.
The objectivity of the external auditor is reviewed by the
Committee which also reviews the terms under which the external
auditor may be appointed to perform non-audit services. In order to
safeguard external auditor independence and objectivity, the
Committee ensures that any non-audit services provided by the
external auditor do not conflict with its statutory audit
responsibilities. Non-audit services provided by the auditor will
generally only cover reviews of interim financial statements and/or
capital raising work. Any non-audit services conducted by the
auditor will require the consent of the Committee before being
initiated.
The only non-audit services undertaken by Deloitte LLP during
the Year was the independent review of the interim financial
statements and the passive foreign investment company ("PFIC") tax
review. A summary of the external auditor's remuneration for audit
and non-audit services is shown in Note 11. The audit fee for the
Year is estimated at GBP 45,400, the final fee for the review of
the interim financial statements for the six month period to 30
June 2022 was GBP19,500.
To fulfil its responsibility regarding the independence of the
external auditor, the Committee considered:
-- the audit personnel in the audit plan for the Year;
-- a report from the external auditor describing its
arrangements to identify, report and manage any conflicts of
interest; and
-- the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external auditor, the
Committee reviewed:
-- the external auditor's fulfilment of the agreed audit plan and variations from it;
-- reports highlighting the major issues that arose during the course of the audit; and
-- feedback from the Investment Manager and Administrator
evaluating the performance of the audit team.
Conclusions and recommendation
The Committee is satisfied with Deloitte LLP's effectiveness and
independence as external auditor having considered the degree of
diligence and professional scepticism demonstrated by them.
The Committee has advised the Board that it considers that the
Annual Report and Financial Statements to be fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy. In reaching this conclusion the Committee has
considered the following:
-- its own assessment of the significant risks, judgements and
estimates pertaining to the financial statements;
-- the controls of the Investment Manager and the Administrator
to ensure complete and accurate financial records and security of
the Company's assets; and
-- a confirmation from the external auditor that they identified
no material misstatements in the course of their work.
A member of the Committee will attend each Annual General
Meeting to respond to any questions in respect of the Audit
Committee.
On behalf of the Audit Committee,
Robert Legget
Audit Committee Chairman
16 March 2023
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF TRIAN INVESTORS 1
LIMITED
Report on the audit of the financial statements
1. Opinion
In our opinion the financial statements of Trian Investors 1
Limited (the 'Company'):
-- give a true and fair view of the state of the Company's
affairs as at 31 December 2022 and of its loss for the year then
ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards (IFRSs) as issued International
Accounting Standards Board (IASB); and
-- have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008 and the Protection of Investors
(Bailiwick of Guernsey) Law, 2020.
We have audited the financial statements which comprise:
-- the statement of financial position;
-- the statement of comprehensive income;
-- the statement of changes in equity;
-- the statement of cash flows; and
-- the related notes 1 to 22.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRSs as issued by IASB.
2. Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
auditor's responsibilities for the audit of the financial
statements section of our report.
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements in the UK, including the Financial Reporting Council's
(the 'FRC's') Ethical Standard as applied to listed entities, and
we have fulfilled our other ethical responsibilities in accordance
with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
3. Emphasis of matter - Financial statements prepared other than
on a going concern basis
We draw attention to note 2 in the financial statements, which
indicates that the financial statements have been prepared on a
basis other than that of a going concern. Our opinion is not
modified in respect of this matter.
4. Summary of our audit approach
Key audit matters The key audit matter that we identified in the current
year was:
* Valuation of Investments
Within this report, key audit matters are identified
as follows: Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk
----------------------------------- ---------------------------------------------------------------------------------
Materiality The materiality that we used for the financial statements was GBP4,535,000 which
was determined
on the basis of 1% of Net Asset Value ("NAV").
----------------------------------- ---------------------------------------------------------------------------------
Scoping The audit work to respond to the risk of material misstatement identified was
performed directly
by the audit engagement team.
----------------------------------- ---------------------------------------------------------------------------------
Significant changes in our approach The financial statements have been prepared on a basis other than going concern
as the Company
has redeemed over 99% of its ordinary shares in 2023. The directors plan to
commence a process
to wind up the Company imminently. We have therefore included an emphasis of the
matter paragraph
in 3 above.
----------------------------------- ---------------------------------------------------------------------------------
5. Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these
matters.
5.1. Valuation of investments
Key audit matter The Company holds investments valued at GBP454m (2021:
description GBP544m) through Trian Investors 1 LP incorporated,
its investment partnership. As of 31 December 2022,
the Investment Partnership held investments in listed
entities Unilever Plc and Ferguson Plc valued at
GBP44m and GBP462m respectively. Details of the investments
are disclosed in note 5 to the financial statements
and the accounting policies are disclosed in note
2 to the financial statements.
The key audit matter is associated with the valuation
of the Investment in the Investment Partnership.
The listed investments make up the majority (99%)
of the Investment Partnership's assets and any misstatement
could significantly impact the valuation of the investments
and net asset value ("NAV") of the Investment Partnership
which in turn impacts the value of the Company's
investment. We also deem the fair value of the investments
to be a key performance indicator and as such management
may be incentivised to adjust the share price to
achieve the desired outcome.
The Company's administrator is Ocorian (Guernsey)
Limited who carries out the day-to-day functions
including the financial reporting process.
The risk of material misstatement exists that the
Company's investments are not accurately valued based
on relevant information that is representative of
its value and that it may not be representative of
its value in accordance with IFRS 13 -Fair Value
Measurement ('IFRS 13').
As disclosed in note 5, the Company's investment
in the Investment Partnership includes a deduction
for the incentive allocation (performance fee) which
is due to the Special Limited Partner (SLP). In the
current year, the investment in Unilever became an
engaged investment which changes the way the incentive
for this investment is calculated.
There is a risk that the incentive allocation has
not been properly calculated in accordance with the
Limited Partnership Agreement ("LPA") or the side
agreement dated 1 September 2022.
The investment partnership pays a management fee
to the investment manager which is included in the
fair value movement (expense) of its NAV (at the
hands of the Midco). As part of the Redemption proposals,
it was agreed with the Investment Manager that it
will receive its final management fee payment in
lieu of notice calculated, through to 31 December
2023. The 6 months of management fee relating to
the expected post-redemption period through to 31
December 2023 is being accrued for evenly over the
period from 2 September 2022 to 30 June 2023. There
is a risk that the accounting for changes in the
management agreement are not in line with IFRS requirements.
----------------------- ------------------------------------------------------------------
How the scope We have performed the following procedures to test
of our audit responded the valuation of investments:
to the key audit * We have tested the controls around the valuation of
matter investments. This included assessing of relevant
controls of the administrator, Ocorian (Guernsey)
Limited;
* We recalculated the fair value of the investments in
Ferguson and Unilever, based on the period end
holding and the pricing information obtained from
their primary listings i.e. New York Stock Exchange
and London Stock Exchange respectively;
* We obtained confirmation of ownership of the Ferguson
and Unilever shares by independently obtaining the
holding report from the custodian, The Bank of New
York Mellon London Branch;
* We agreed movements in the cost of investments to
bank statements and other supporting documentation as
appropriate on a sample basis, and recalculated any
gain/loss on the sale of shares;
* In order to determine whether use of an unadjusted
Level 1 price is appropriate in the books of the LP,
we considered whether the market for shares in
Ferguson and Unilever meet the definition of an
active market under IFRS 13. This includes the
evaluation of the volume of trading and liquidity of
the shares;
* The incentive allocation payable was recomputed based
on the terms of the Limited Partnership Agreement and
side agreement.
* We recomputed the management fee in line with
investment management agreement and side agreement;
and
* We challenged the judgement and recognition criteria
adopted in accounting for the changes in the
management fee contract.
----------------------- ------------------------------------------------------------------
Key observations Based on the work performed, we concluded that the
Valuation of Investments is appropriate.
----------------------- ------------------------------------------------------------------
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the
financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or
influenced. We use materiality both in planning the scope of our
audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality
for the financial statements as a whole as follows:
Materiality GBP4,535,000 (2021: GBP5,470,000)
----------------------------------- ---------------------------------------------------------------------------------
Basis for determining materiality 1% of NAV (2021: 1% of NAV)
----------------------------------- ---------------------------------------------------------------------------------
Rationale for the benchmark applied The Company is an investment entity and as such the holders of equity will use
NAV as the
Key Performance Indicator ("KPI"). Therefore, we have used NAV as the benchmark.
----------------------------------- ---------------------------------------------------------------------------------
6.2. Performance materiality
We set performance materiality at a level lower than materiality
to reduce the probability that, in aggregate, uncorrected and
undetected misstatements exceed the materiality for the financial
statements as a whole.
Performance materiality 70% (2021: 70%) of materiality
--------------------------------------------------- -----------------------------------------------------------------
Basis and rationale for determining performance In determining the performance materiality, we considered
materiality factors including:
* Our risk assessment, including our assessment of the
Company' overall control environment and that we did
not consider it appropriate to reply on controls; and
* Our past experience of the audit, which has indicated
a low number of corrected and uncorrected
misstatements identified in prior periods.
--------------------------------------------------- -----------------------------------------------------------------
6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the
Committee all audit differences in excess of GBP226,000 (2021:
GBP273,000), as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial
statements.
7. An overview of the scope of our audit
7.1. Identification and scoping
Our audit was scoped by obtaining an understanding of the
Company and its environment, including internal control and
assessing the risks of material misstatement. Our audit scope
included obtaining an understanding of the relevant controls in the
business processes at the administrator as they maintain the books
and records of the entity.
Audit work to respond to the risk of material misstatement was
performed directly by the engagement team.
7.2. Our consideration of the control environment
Our approach was principally designed to inform our risk
assessment. As such, in assessing the control environment, we also
considered the control environment of the administrator, to whom
the board has delegated certain functions of the Company. We
obtained an understanding of the relevant controls in the business
processes at the administrator, we have however not adopted a
control reliance approach.
7.3. Our consideration of climate-related risks
As part of our audit, we made enquiries of the management to
understand the process they have adopted to assess the potential
impact of climate change on the financial statements. As disclosed
in note 3, management considers that the impact of climate change
does not give rise to a material impact on financial statements as
all investments were distributed post year-end. We used our
knowledge of the Company to evaluate management's assessment and
relevant disclosures in the financial statements. We have also read
the Annual Report to consider whether the disclosures in relation
to climate change made in the other information within the Annual
Report are materiality consistent with the financial statements and
our knowledge obtained in our audit.
8. Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information contained within the annual report.
Our opinion on the financial statements does not cover the other
information and we do not express any form of assurance conclusion
thereon.
Our responsibility is to read the other information and, in
doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be
materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether this
gives rise to a material misstatement in the financial statements
themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we
are required to report that fact.
We have nothing to report in this regard.
9. Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company's ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
10. Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the FRC's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms
part of our auditor's report.
11. Extent to which the audit was considered capable of
detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
11.1. Identifying and assessing potential risks related to
irregularities
In identifying and assessing risks of material misstatement in
respect of irregularities, including fraud and non-compliance with
laws and regulations, we considered the following:
-- the nature of the industry and sector, control environment
and business performance including the design of the Company's
remuneration policies, key drivers for directors' remuneration,
bonus levels and performance targets;
-- results of our enquiries of the directors and the audit
committee about their own identification and assessment of the
risks of irregularities, including those that are specific to the
Company's sector;
-- any matters we identified having obtained and reviewed the
Company's documentation of their policies and procedures relating
to:
o identifying, evaluating and complying with laws and
regulations and whether they were aware of any instances of
non-compliance;
o detecting and responding to the risks of fraud and whether
they have knowledge of any actual, suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud
or non-compliance with laws and regulations;
-- the matters discussed among the audit engagement team and
relevant internal specialists, including financial instruments
specialists regarding how and where fraud might occur in the
financial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities
and incentives that may exist within the organisation for fraud and
identified the greatest potential for fraud in the Valuation of
Investments. In common with all audits under ISAs (UK), we are also
required to perform specific procedures to respond to the risk of
management override.
We also obtained an understanding of the legal and regulatory
framework that the Company operates in, focusing on provisions of
those laws and regulations that had a direct effect on the
determination of material amounts and disclosures in the financial
statements. The key laws and regulations we considered in this
context included the Companies (Guernsey) Law, 2008, Listing Rules,
the Protection of Investor (Bailiwick of Guernsey) Law 2020 and
relevant tax regulations.
In addition, we considered provisions of other laws and
regulations that do not have a direct effect on the financial
statements but compliance with which may be fundamental to the
Company's ability to operate or to avoid a material penalty.
11.2. Audit response to risks identified
As a result of performing the above, we identified Valuation of
Investments as a key audit matter related to the potential risk of
fraud. The key audit matters section of our report explains the
matter in more detail and also describes the specific procedures we
performed in response to that key audit matter.
In addition to the above, our procedures to respond to risks
identified included the following:
-- reviewing the financial statement disclosures and testing to
supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect
on the financial statements;
-- enquiring of management and the audit committee concerning
actual and potential litigation and claims;
-- performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
-- reading minutes of meetings of those charged with governance,
reviewing correspondence with the Guernsey Financial Services
Commission;
-- in addressing the risk of fraud through management override
of controls, testing the appropriateness of journal entries and
other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any significant transactions
that are unusual or outside the normal course of business.
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
internal specialists, and remained alert to any indications of
fraud or non-compliance with laws and regulations throughout the
audit.
Report on other legal and regulatory requirements
12. Corporate Governance Statement
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements and our knowledge obtained during the audit:
-- the directors' statement with regards to the appropriateness
of adopting a basis other than going concern basis of
accounting;
-- the directors' explanation as to its assessment of the
company's prospects, the period this assessment covers and why the
period is appropriate;
-- the directors' statement on fair, balanced and understandable;
-- the board's confirmation that it has carried out a robust
assessment of the emerging and principal risks;
-- the section of the annual report that describes the review of
effectiveness of risk management and internal control systems;
and
-- the section describing the work of the audit committee.
13. Matters on which we are required to report by exception
13.1. Adequacy of explanations received and accounting records
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- we have not received all the information and explanations we require for our audit; or
-- proper accounting records have not been kept; or
-- the financial statements are not in agreement with the accounting records.
We have nothing to report in respect of these matters.
14. Use of our report
This report is made solely to the Company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
David Becker
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey
16 March 2023
Statement of Financial Position
As at 31 December 2022
31 Dec 2022 31 Dec 2021
Notes GBP'000 GBP'000
Non-current assets
Investment in Midco 5 - 544,060
-------------- --------------
Total non-current assets - 544,060
Current assets
Investment in Midco 5 453,856 -
Cash and cash equivalents 2 409 3,509
Receivables and prepayments 7 90 137
-------------- --------------
Total current assets 454,355 3,646
Current liabilities
Trade and other payables 8 836 687
-------------- --------------
Total liabilities 836 687
-------------- --------------
Net assets 453,519 547,019
============== ==============
Equity
Share capital 9 241,513 243,252
Retained earnings 212,006 303,767
--------------
Total equity 453,519 547,019
==============
Number of ordinary shares
in issue 9 251,019,064 252,319,064
NAV per share (pence) 10 180.67 216.80
The notes below form an integral part of the financial
statements.
The financial statements were approved by the Board and
authorised for issue on 16 March 2023.
Mark Thompson Robert Legget
Director Director
Statement of Comprehensive Income
For the year ended 31 December 2022
31 Dec 2022 31 Dec 2021
Notes GBP'000 GBP'000
Income
Unrealised (loss)/gain on
investment in Midco 5 (89,705) 165,412
(89,705) 165,412
Expenses
Administration fees 17 184 143
Directors' fees 16 298 185
Audit and non-audit fees 11 67 52
Trademark licence fees 17 47 47
Winddown costs 14 695 -
Other operating expenses 774 328
-------------- --------------
Total Expenses 2,065 755
Operating (loss)/profit (91,770) 164,657
-------------- --------------
Finance income and expense
Interest income 2 9 -
-------------- --------------
Net (loss)/profit (91,761) 164,657
-------------- --------------
Total comprehensive (loss)/income (91,761) 164,657
============== ==============
Basic and diluted (loss)/earnings
per share (pence) 12 (36.53) 63.87
All activities derive from discontinued operations.
The notes below form an integral part of the financial
statements.
Statement of Changes in Equity
For the year ended 31 December 2022
Notes Share capital Retained Total
earnings
GBP'000 GBP'000 GBP'000
As at 1 January 2022 243,252 303,767 547,019
Loss for the year - (91,761) (91,761)
Total comprehensive
loss - (91,761) (91,761)
Share repurchases 9 (1,739) - (1,739)
-------------- ---------- ---------
(1,739) - (1,739)
-------------- ---------- ---------
As at 31 December 2022 241,513 212,006 453,519
============== ========== =========
Notes Share capital Retained Total
earnings
GBP'000 GBP'000 GBP'000
As at 1 January 2021 259,095 139,110 398,205
Profit for the year - 164,657 164,657
Total comprehensive
income - 164,657 164,657
Share repurchases 9 (15,843) - (15,843)
-------------- ---------- ---------
(15,843) - (15,843)
-------------- ---------- ---------
As at 31 December 2021 243,252 303,767 547,019
============== ========== =========
The notes below form an integral part of the financial
statements.
Statement of Cash Flows
For the year ended 31 December 2022
Notes 31 Dec 2022 31 Dec 2021
GBP'000 GBP'000
Operating activities
Profit before tax (91,761) 164,657
Adjustments to reconcile profit
before tax to net cash flows:
Unrealised loss/(gain) on
investment 5 89,705 (165,412)
Interest income (9) -
Movement in receivables and
prepayments 7 47 (87)
Movement in trade and other
payables 8 149 628
-------------- --------------
Net cash flows used in operating
activities (1,869) (214)
Investing activities
Share redemption by Midco 5 499 17,875
Finance income 9 -
-------------- --------------
Net cash flows from investing
activities 508 17,875
Financing activities
Share repurchase 9 (1,739) (15,843)
Net cash flows used in financing
activities (1,739) (15,843)
Net movement in cash and cash
equivalents (3,100) 1,818
Opening cash and cash equivalents 3,509 1,691
Closing cash and cash equivalents 409 3,509
============== ==============
The notes below form an integral part of the financial
statements.
Notes to the Financial Statements
For the year ended 31 December 2022
1. Corporate information
Trian Investors 1 Limited (the "Company") is incorporated in and
controlled from Guernsey as a company limited by shares with
registered number 65419. The ordinary shares of no par value in the
capital of the Company (the "Shares") are admitted to the
Specialist Fund Segment of the London Stock Exchange (the
"SFS").
The Company is registered with the Guernsey Financial Services
Commission as a registered collective investment scheme and is
regulated under the Protection of Investors (Bailiwick of Guernsey)
Law 2020.
2. Accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below.
Basis of preparation
The annual financial statements have been prepared in accordance
with International Financial Reporting Standards ("IFRS") as issued
by the International Accounting Standards Board (IASB) , the
Companies (Guernsey) Law , 2008 and the Protection of Investors
(Bailiwick of Guernsey) Law, 2020. The financial statements have
been prepared on a historical cost basis as amended from time to
time by the fair valuing of certain financial assets and
liabilities. The financial statements cover the year ended 31
December 2022.
Going concern
The annual audited financial statements have been prepared on a
basis other than going concern as the Company has redeemed over 99%
of its Ordinary Shares in 2023 and the Directors plan to commence a
process to wind up the Company imminently.
Having conducted a robust analysis, including a review of cash
flow projections, the Directors remain satisfied that the Company
can meet its liabilities as they fall due until the Company enters
a solvent liquidation.
Based on these sources of information and their own judgement,
the Directors believe it is appropriate to prepare the financial
statements of the Company on a basis other than going concern.
The Directors believe there are no material differences than had
the financial statements been prepared on a going concern
basis.
Refer to Note 22 for an update on the Redemption process
subsequent to 31 December 2022.
Estimates and judgements
The preparation of financial statements in accordance with IFRS
requires the Directors to make critical accounting estimates and
judgements. The areas involving a higher degree of judgement or
complexity are disclosed in Note 3 .
New and amended standards and interpretations applied
The following accounting standards and updates were applicable
in the current period but did not have a material impact on the
Company:
- Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16
Interest Rate Benchmark Reform - Phase 2
New and amended standards and interpretations not applied
The following new and amended standards and interpretations in
issue are applicable to the Company but are not yet effective and
therefore, have not been adopted by the Company:
- IFRS 17: Insurance Contracts (effective 1 January 2023)
- Amendments to IAS 17: Insurance Contracts (effective 1 January 2023)
- Amendments to IAS 8: Accounting Policies, Changes in
Accounting Estimates and Errors (effective 1 January 2023)
- Amendments to IAS 12: Income Taxes (effective 1 January 2023)
- Amendments to IAS 1: Presentation of Financial Statements (effective 1 January 2023)
IFRS 17 Insurance Contracts
IFRS 17 establishes the principles for the recognition,
measurement, presentation and disclosure of insurance contracts
within the scope of the standard. The objective of IFRS 17 is to
ensure that an entity provides relevant information that faithfully
represents those contracts. This information gives a basis for
users of financial statements to assess the effect that insurance
contracts have on the entity's financial position, financial
performance and cash flows.
The Company has considered the IFRS standard that has been
issued, but is not yet effective. This standard will not have a
material effect on the Company as the Company does not have any
material insurance contracts or write any insurance contracts.
Accounting for subsidiaries
As explained in Note 3, the Company is an investment entity and
accordingly accounts for its investments in subsidiaries as
investments at fair value through profit and loss.
Segment reporting
The Directors are of the opinion that the Company is currently
engaged in a single segment of business, being the investment
through Trian Investors 1 Midco Limited ("Midco") into Trian
Investors 1, L.P. (Incorporated) (the "Investment Partnership")
.
Revenue recognition
All income is accounted for on an accruals basis and recognised
in the Statement of Comprehensive Income.
Expenses
Expenses are accounted for on an accruals basis. Expenses borne
by subsidiaries are reflected in the Statement of Comprehensive
Income through the revaluation of the investments.
All costs associated with the issue of Shares are netted off
against share capital in the Statement of Changes in Equity. Costs
associated with the repurchase of shares are recognised in the
Statement of Comprehensive Income.
Dividends to shareholders
Dividends are accounted for in the period in which they are paid
by the Company and are recognised when approved by the Board.
Financial instruments
The classification of financial assets at initial recognition
depends on the purpose for which each financial asset was acquired
and its characteristics.
The Company's only significant financial assets comprise cash
and cash equivalents and investments in subsidiaries held at fair
value through profit and loss. The investments in subsidiaries are
initially recognised at fair value of consideration.
Cash and cash equivalents
Cash at bank and short-term deposits which are held to maturity
are carried at amortised cost. Cash and cash equivalents consist of
cash in hand, short-term deposits in banks and investments in money
market funds with an original maturity of three months or less.
Investments at fair value through profit and loss
i. Classification
As explained in more detail in Note 3 the Company is an
investment entity and accordingly accounts for its investment in
subsidiaries as investments at fair value through profit and
loss.
ii. Recognition
Purchases and sales of investments are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment.
iii. Measurement
Investments treated as "investments at fair value through profit
or loss" are initially recognised at the fair value of
consideration given. They will subsequently be measured at fair
value. All transaction costs are expensed in the Statement of
Comprehensive Income.
Realised and unrealised gains or losses are recognised in the
Statement of Comprehensive Income.
iv. Fair value estimation
The level in the fair value hierarchy within which the financial
assets or financial liabilities are categorised is determined on
the basis of the lowest level input that is significant to the fair
value measurement.
Financial assets and financial liabilities are classified in
their entirety into only one of three levels.
The fair value hierarchy has the following levels:
- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the assets or liabilities, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices).
- Level 3 - inputs for the assets or liabilities that are not
based on observable market data (unobservable inputs).
Payables
Trade and other payables are recognised at amortised cost.
Functional currency
Items included in the financial statements are measured using
Pounds Sterling which is the currency of the primary economic
environment in which the Company operates.
At each statement of financial position date, monetary assets
and liabilities that are denominated in foreign currencies are
translated at the rates prevailing at that date. Non-monetary items
carried at fair value that are denominated in foreign currencies
are translated at the rates prevailing at the date when the fair
value was determined. Transactions denominated in foreign
currencies are translated into Pounds Sterling at the rate of
exchange presiding at the date of the transaction. Exchange
differences are recognised in the Statement of Comprehensive Income
in the period in which they arise.
Treasury shares
The Company has the ability to repurchase Shares and hold them
in treasury. Shares that are repurchased and held in treasury are
removed from the share capital reserve.
3. Significant accounting judgements, estimates and assumptions
The preparation of the financial statements requires the
Directors to make estimates and assumptions that affect the amounts
reported for assets and liabilities as at the statement of
financial position date and the amounts reported for revenue and
expenses during the year. The nature of the estimation means that
actual outcomes could differ from those estimates. Estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions
to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
The Directors also need to make judgements (other than those
involving estimates) that have a significant impact on the
application of accounting standards. The following critical
judgements apply to the Company's investment.
i) Investment entity exemption:
The Directors have considered whether the Company meets the
definition of an investment entity as stipulated in the provisions
of IFRS 10. Entities that meet the definition of an investment
entity within IFRS 10 are required to measure their subsidiaries,
other than those that provide investment services to the Company
and do not themselves meet the definition of an investment entity,
at fair value through profit or loss rather than consolidate
them.
The Company's purpose is to make investments through the
Investment Partnership for capital appreciation and it will measure
performance of its investments on a fair value basis. The Company
holds 99.83 per cent of the commitment in the Investment
Partnership through its wholly owned subsidiary, Midco. Midco was
incorporated in Guernsey and its principal place of business is
Guernsey. The Board has assessed whether the Company has all the
elements of control as prescribed by IFRS 10 in relation to the
Company's investment in the Investment Partnership and has
concluded that the Company does have control of the Investment
Partnership. Midco and the Investment Partnership are therefore
both classified as subsidiaries of the Company. The Board has also
assessed that the Company meets the criteria of an investment
entity and therefore the subsidiaries are recorded at fair value
through profit and loss rather than being consolidated. The Board's
determination that the Company is classified as an investment
entity involves a degree of judgement due to the complexity of the
wider structure encompassing the Company, Midco and the Investment
Partnership.
ii) Use of last sales price published by the exchange:
The Directors believe that a key judgement relates to the
valuation of the investments in Ferguson plc ("Ferguson") and
Unilever plc ("Unilever") held through the Investment Partnership.
The ordinary shares of Ferguson are listed on the New York Stock
Exchange, its primary listing, and the ordinary shares of Unilever
have a primary listing on the Main Market of the London Stock
Exchange and the Directors must determine whether the market is
sufficiently liquid for the last sales price published by the
exchange to be a fair value in accordance with IFRS principles. The
Directors have assessed that there is a sufficiently liquid market
in the exchanges for the investments held through the Investment
Partnerships and accordingly they consider the quoted share price
to be the appropriate basis for the valuation of the
investments.
ii i) Management fee accounting:
The Directors believe that a key judgement relates to the
accounting treatment of the management fee by the Investment
Partnership following the announcement that a compulsory redemption
would be completed before 30 June 2023 with the management fee
calculated through to 31 December 2023 (see Note 5). It was agreed
that the management fee up until the expected redemption date would
continue to be accrued monthly. The 6 months of management fee
relating to the expected post-redemption period through to 31
December 2023 would be accrued for evenly over the period from 2
September 2022 to 30 June 2023. This treatment has been revised in
2023 as a result of the distribution of assets by the Investment
Partnership at which time full provision was made for future
management fees.
iv) Climate risk:
The Board considers that the impact of climate change does not
give rise to a material impact on the financial statements as all
investments were distributed post year end.
There are no key sources of estimation uncertainty.
4. Income tax
The Company is exempt from taxation in Guernsey under the
provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance,
2008 and is charged an annual exemption fee of GBP1,200.
5. Investment in Midco (at fair value through profit or loss)
The Company owns 100% of the share capital of its subsidiary
Midco. Midco holds 99.83 per cent of the commitment in the
Investment Partnership and has no other assets or liabilities. This
investment is valued based on its share of the net assets of the
Investment Partnership.
Movements in the cost and carrying value of this investment in
Midco during the year were:
31 Dec 2022 31 Dec 2021
GBP'000 GBP'000
Cost
Brought forward 239,125 257,000
Share redemption (499) (17,875)
------------
Carried forward 238,626 239,125
------------ ------------
Fair value adjustment through profit or loss
Brought forward 304,935 139,523
Fair value movement during year (89,705) 165,412
Carried forward 215,230 304,935
------------ ------------
Fair value as at 31 December 453,856 544,060
============ ============
As explained in Note 2 and Note 3 the investment in Midco and
its interest in the Investment Partnership is shown in the
Company's balance sheet as a single investment carried at fair
value because the Company is defined as an investment company under
the provisions of IFRS10. The following tables provide an analysis
of the assets and liabilities and the income statement of the
Investment Partnership.
Summary financial information of the Investment Partnership
31 December 31 December
2022 2021
Non-current assets GBP'000 GBP'000
Investments in Ferguson 462,099 619,957
Investments in Unilever 44,300 -
Cash and cash equivalents 3,965 3,727
Foreign exchange option at
fair value - 66
Other current assets and
liabilities 1,799 359
------------
Net assets 512,163 624,109
------------ ------------
Attributable to:
General Partner and Special
Limited Partner (including
incentive allocation) 58,307 80,049
The Company 453,856 544,060
------------ ------------
Net assets 512,163 624,109
------------ ------------
Year ended 31 Year ended
December 2022 31 December
2021
Income GBP'000 GBP'000
Unrealised (loss)/gain on
investments (132,575) 199,682
Realised gain on investments 18,844 -
Dividend income 14,201 14,470
Loss on foreign exchange
options (227) (1,101)
Interest income 23 -
Total income (99,734) 213,051
Expenses
Management fees 5,819 4,606
Finance costs 925 -
Other expenses 315 125
Foreign exchange loss 4,653 34
Total expenses 11,712 4,765
(Loss)/profit for the year (111,446) 208,286
(Loss)/profit attributable
to General Partner and Special
Limited Partner (183) 369
(Decrease)/increase in incentive
allocation for the year (21,558) 42,505
Net (loss)/gain attributable
to the Company (89,705) 165,412
================ ==============
The financial statements for the Investment Partnership are
prepared under IFRS.
Foreign exchange option
For the period between March 2020 and February 2022 the
Investment Partnership entered into currency call options to offset
a portion of the Investment Partnership's U.S. Dollar exposure
arising from its investment in Ferguson, which receives the vast
majority of its revenues in U.S. Dollars . In light of the approval
of the Company's revised Investment Policy in July 2021, the
Investment Manager determined that it was no longer necessary to
continue hedging currency exposure when the last option expired in
February 2022.
Incentive allocation
The Investment Partnership's investment in Ferguson is treated
as a "Stake Building Investment". As such, the incentive allocation
is equal to 20 per cent of net returns on the investment, payable
after the Investment Partnership has distributed to its partners an
amount equal to the aggregate capital contributions made in respect
of the investment (excluding any capital contributions attributable
to management fees).
The Investment Partnership's investment in Unilever was treated
as a "Stake Building Investment" until the appointment of Nelson
Peltz, a partner of Trian Management, to the Unilever board of
directors on 20 July 2022, upon which time it was treated as an
"Engaged Investment". The incentive allocation may be up to 25 per
cent of the Investment Partnership's net returns on the investment
(excluding any capital contributions attributable to management
fees) following disposal of a Target Company, as set forth in
greater detail in the LPA.
As part of the Redemption proposals, it was agreed with Trian
SLP that it would continue to be entitled to receive the incentive
allocation which will be determined based on the performance of the
Investment Partnership to the date of distribution of its
underlying investments; and with Trian SLP that its incentive
allocation may (at Trian SLP's election) be settled through an
in-specie distribution of the Investment Partnership's underlying
assets rather than in cash or through a further issue of the
Company's shares. See Note 22 for details of the redemptions
subsequent to year end.
As at 31 December 2022, there was an incentive allocation
accrual of GBP57,392,000 (31 December 2021: GBP78,950,000). The
incentive allocation will be solely borne by the Company through
Midco and is treated as fair value movement through profit and loss
in the Statement of Comprehensive Income.
Management fee
The Investment Manager is entitled to management fees in
consideration of its work equal to one twelfth of 1 per cent of the
adjusted net asset value of the Investment Partnership, calculated
as of the last business day of the preceding month. The management
fee is solely borne by the Company through Midco and is treated as
fair value movement through profit and loss in the Statement of
Comprehensive Income.
As part of the Redemption proposals, it was also agreed with the
Investment Manager that it would receive its final management fee
payment in lieu of notice calculated, through to 31 December 2023.
The 6 months of management fees relating to the expected
post-redemption period through to 31 December 2023 is being accrued
for evenly over the period from 2 September 2022 to 30 June 2023.
As at 31 December 2022 a management fee provision of GBP940,000 (31
December 2021: GBPnil) had been accrued. Subsequent to the year
end, following the distribution of the Investment Partnership's
investments in Ferguson and Unilever, full provision for the
management fee due to 31 December 2023 has been accrued (see Note
22).
For the year ended 31 December 2022 management fees of
GBP5,819,000 were incurred by the Investment Partnership (year
ended 31 December 2021: GBP4,606,000).
Credit Facility and Unilever investment
On 29 March 2022 the facility previously held with UBS Bank USA
was terminated and replaced with a US$100 million revolving credit
facility with Bank of America, N.A., London Branch ("Bank of
America") (the "BoA Credit Facility") having a three year term,
which permitted the Investment Partnership to borrow an aggregate
amount of up to $100 million at an interest rate equal to a fixed
rate plus 1.35% per annum. The portion of the $100 million BoA
Credit Facility commitment which is not drawn was subject to a
commitment fee of 0.40% per annum. In connection with establishing
the facility, the Investment Partnership pledged the entirety of
the listed investments held in Ferguson and Unilever as collateral
under the new facility. During April 2022, $50 million
(GBP37,661,679) of the credit facility was utilised to purchase
1,059,295 ordinary shares in Unilever. During August 2022, 352,819
ordinary shares in Ferguson were sold for total proceeds of
GBP37,488,850 which were used to pay down the facility and the
interest and commitment fees incurred on it.
On 9 December 2022 the BoA Credit Facility outstanding balance
was fully paid and the facility was terminated. As at 31 December
2022 total outstanding borrowing under this credit facility
amounted to GBPnil (31 December 2021: GBPnil).
6. Fair value
IFRS 13 "Fair value measurement" requires the Group to establish
a fair value hierarchy that prioritises the inputs to valuation
techniques used to measure fair value. The hierarchy gives the
highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements).
The only financial instruments carried at fair value is the
investment in Midco which is fair valued at each reporting
date.
The Company's investment in Midco has been classified as level 2
as its valuation has been derived from the value of the assets and
liabilities in the Investment Partnership. A reconciliation of the
movement in Level 2 investments is set out in the table in Note 5.
Due to the nature of the investments, they are always expected to
be classified under Level 2. There were no transfers between levels
during the years to 31 December 2022 and 31 December 2021.
In the accounts of the Investment Partnership the financial
instruments carried at fair value are:
31 December 2022 31 December
2021
GBP'000 GBP'000
Listed investments (level
1) 506,399 619,957
Foreign exchange option (level
2) - 66
Valuation techniques
The value of the Company's investment in Midco is based on the
value of Midco's limited partner capital account within the
Investment Partnership. This is based on the assets and liabilities
of the Investment Partnership, principally the value of the
underlying investments, the loan, the currency options and cash.
Any fluctuation in the value of the underlying investments will
directly impact on the value of Midco's investment in the
Investment Partnership while taking into account the impact of the
incentive allocation.
Valuations are determined in accordance with a pricing policy
agreed between the Directors and the Investment Manager from time
to time. Calculations will be made in accordance with IFRS
principles or as otherwise determined by the Board.
In accordance with the LPA, for the purposes of calculating the
NAV of the Investment Partnership, its assets will be valued on the
following basis:
-- Listed investments are valued at the last sales price
published by the principal exchange on which they are listed.
-- The valuation of the currency options was performed by
utilising an external data source which used proprietary software
and a valuation model to perform the fair value calculation. The
valuation model used is the Black-Scholes model.
The Board approves the valuations performed by the Investment
Manager and monitors the range of reasonably possible changes in
significant observable inputs at each reporting date.
7. Receivables and prepayments
31 Dec 2022 31 Dec 2021
GBP'000 GBP'000
Other prepaid expenses 90 137
90 137
The carrying value of receivables and prepayments approximates
their fair value.
8. Trade and other payables
31 Dec 2022 31 Dec 2021
GBP'000 GBP'000
Administration fees 65 10
Audit fees 8 26
Owed to Broker - 286
Owed to Investment Partnership - 358
Winddown costs 695 -
Other professional fees 68 7
------------ ------------
836 687
The carrying value of trade payables and other payables
approximates their fair value.
9. Share capital and capital management
Capital risk management
The Company's objective for capital risk management is to
realise returns through the compulsory redemption by 30 June 2023
and the subsequent liquidation. The Company considers its capital
to consist of the shares issued and retained earnings.
The Board reviews the Company's NAV monthly, as calculated in
accordance with IFRS, and the Company's Share price (as well as its
discount or premium to NAV per Share) in the context of market
conditions, with input from the Investment Manager and its
Corporate Broker. As shown in the tables below, the Company
repurchased a total of 19,566,913 shares at a discount to NAV since
February 2020. Share repurchases are subject to the Company's
discretion based on market and economic conditions, the price and
trading volume of the Company's Shares and other factors.
Subsequent to the year end all Shares held in treasury were
cancelled.
No dividend was declared or paid in the year to 31 December 2022
and in the year to 31 December 2021.
Ordinary shares of no par value
Net Shares outstanding 31 Dec 2022 31 Dec 2021
Shares issued 270 ,585,977 270 ,585,977
Shares held in Treasury (19,566,913) (18,266,913)
-------------- -------------
Net number of Shares outstanding 251,019,064 252,319,064
--------------
The Company's authorised share capital as at 31 December 2022
and 31 December 2021 is 300,000,000 Shares.
GBP'000
Issued and fully paid:
As at 1 January 2022 243,252
Repurchased during the year (1,739)
As at 31 December 2022 241,513
-------------
As at 1 January 2021 259,095
Repurchased during the year (15,843)
-------------
As at 31 December 2021 243,252
-------------
10. Net Asset Value per Share
31 Dec 2022 31 Dec 2021
IFRS Net Assets (GBP'000) 453,519 547,019
------------ ------------
Number of Shares in issue 251,019,064 252,319,064
IFRS NAV per Share (pence) 180.67 216.80
The IFRS NAV per Share is arrived at by dividing the IFRS Net
Assets by the number of Shares in issue net of treasury shares.
11. Auditor's remuneration
The auditor's remuneration relating to services to the Company
for the year was:
Year to Year to
31 Dec 2022 31 Dec 2021
GBP'000 GBP'000
Audit fees 39 30
Non-audit fees 28 22
------------ ------------
67 52
In addition the fee for the audit of the Investment Partnership
of GBP20,000 (2021: GBP15,000) is payable by the Investment
Partnership.
12. Earnings per share
Year to Year to
31 Dec 2022 31 Dec 2021
(Loss)/profit for the
year (GBP'000) (91,761) 164,657
Weighted average number
of Shares in issue 251,195,365 257,815,475
Basic and Diluted (loss)/earnings
per Share (pence) (36.53) 63.87
There were no dilutive potential Shares in issue as at 31
December 2022 or 31 December 2021.
13. Financial risk management
Financial risk management objectives
The Company's activities expose it to various types of financial
risk, principally market risk and credit risk. The Company has
minimal exposure to liquidity risk. The Board has overall
responsibility for the Company's risk management and sets policies
to manage those risks at an acceptable level.
In light of the distribution in-specie of the Company's
underlying investments and the proposed winding up of the Company,
the only material financial risk factors relate to the balances
held with banks.
Credit risk
Credit risk is the risk that one party to a financial instrument
will cause a financial loss for the other party by failing to
discharge an obligation. The Company manages its credit risk by
scrutinising the financial standing of counterparties with which it
enters into transactions, using external credit ratings where
available. Credit risk is reviewed periodically to identify
balances that may have become impaired or uncollectable.
The Company is exposed to credit risk through its balances with
banks. The credit risk on receivables is considered to be minimal.
The table below shows the Company's and Investment Partnership's
credit exposures:
Company Investment Partnership
Location Rating 31 December 31 December 31 December 31 December
2022 2021 2022 2021
GBP'000 GBP'000 GBP'000 GBP'000
Counterparty
1 UK AA+ 409 3,509 3,965 3,727
Counterparty
2 USA AA- - - - 66
409 3,509 3,965 3,793
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate as a result of market
price changes. The Company is no longer exposed to market price
risk, currency risk and interest rate risk following the
distribution of the underlying investments from the Investment
Partnership and distribution to the shareholders subsequent to the
year end.
Market price risk
Market price risk arises as a result of the Company's exposure
to the future values of its listed investments. By way of example,
if the price of its listed investments moved by 15% as at 31
December 2022, the effect on the NAV of the Company would be an
increase or decrease of GBP61,225,000 (31 December 2021:
GBP74,266,000 based on 15 per cent movement). A change of 15 per
cent reflected a reasonable change in the share price of the listed
investments based upon the period ended 31 December 2022.
Subsequent to the year end, the investments in Ferguson and
Unilever were distributed to shareholders, so therefore there is no
ongoing market price risk.
Currency Risk
As at 31 December 2022, the Company had exposure to currency
risk as a result of its investment in Ferguson through the
Investment Partnership, which has its primary listing in New York
and its price quoted in U.S. Dollars. The Company also had exposure
to currency risk as a result of its investment in Unilever through
the Investment Partnership, which is a global company operating in
numerous markets and in several currencies. As at 31 December 2022,
the Investment Partnership held assets of GBP468,060,000
(US$563,029,000) denominated in U.S. Dollars. The Board consider
that a 5% movement in market currency rates is reasonably possible,
based on historic market analysis and current market conditions.
Had the exchange rate between Pound Sterling and U.S. Dollar
strengthened/weakened by 5% with all other variables held constant,
the increase/decrease in the net assets of the Investment
Partnership would amount to approximately GBP23,403,000 (US$
28,151,000). Any foreign exchange gain/loss on the investment in
Ferguson is disclosed as investment gain/loss whereas any foreign
exchange gain/loss on the credit facility is disclosed as foreign
exchange gain/loss in the summary financial information of the
Limited Partnership in Note 5. Subsequent to the year end the
investment in Ferguson was distributed to shareholders. Following
the distribution, no investment or cash is held in U.S. Dollars at
either the Company or Investment Partnership, therefore there is no
ongoing currency risk.
Interest rate risk
During the year ended 31 December 2022, the Company, through the
Investment Partnership, held a BoA Credit Facility with Bank of
America allowing an aggregate amount of up to $100 million to be
borrowed at an interest rate equal to 1.35% per annum plus the
federal funds rate and was therefore subject to interest rate
movements set by the U.S. Federal Reserve interest rate policies.
The facility was fully repaid prior to 31 December 2022 and both
the Company and the Investment Partnership earn immaterial amounts
of interest income on cash and cash equivalents held, therefore the
Company has no ongoing interest rate risk.
14. Commitments and contingencies
As at 31 December 2022 a wind down cost provision of GBP695,000
has been accrued for (31 December 2021: GBPnil) as detailed
below:
Year to
31 Dec 2022
GBP'000
Broker fees 150
Legal fees 100
Registrar fees 16
Administration fees 5
Insurance fees 147
Printer fees 3
Contingency provision 224
Liquidator fees 50
------------
695
------------
In addition, the Company has a commitment to pay management fees
through to 31 December 2023 (see Note 22).
15. Financial Instruments
31 December 2022 31 December 2021
GBP'000 GBP'000
Financial assets at fair
value through profit or loss
Investment in Midco 453,856 544,060
----------------- -----------------
453,856 544,060
----------------- -----------------
Financial assets measured
at amortised cost
Cash and cash equivalents 409 3,509
409 3,509
----------------- -----------------
Financial liabilities measured
at amortised cost
Trade and other payables 836 687
----------------- -----------------
836 687
----------------- -----------------
16. Related parties
Key management personnel
The Directors are considered to be the Key Management Personnel
of the Company. They are all non-executive. Directors' fees for the
year ended 31 December 2022 amounted to GBP298,000 and are detailed
in the Corporate Governance Statement (year to 31 December 2021:
GBP185,000).
Directors' shareholdings are disclosed in the Report of the
Directors. No dividends were paid on their shares during the year
ended 31 December 2022 (year to 31 December 2021: GBPnil).
Trian Subscriber
Trian Subscriber, a company owned by the Investment Manager's
partners and certain of their affiliates, held voting power over
27.84% of the Company's outstanding Shares as at 31 December 2022
(31 December 2021: 28.55%).
Management fee
Under the management agreement between the Investment
Partnership and the Investment Manager, the Investment Manager is
entitled to management fees in consideration of its work equal to
one twelfth of 1 per cent of the adjusted net asset value of the
Investment Partnership. This is detailed in Note 17.
Incentive allocation
Under the terms of the LPA, Trian Investors 1 SLP, L.P., the
special limited partner of the Investment Partnership, is entitled
to receive an incentive allocation based on the investment
performance of the Investment Partnership. This is detailed in
notes 5 and 17.
Intergroup balances
As at 31 December 2022 the Company owed GBPnil to the Investment
Partnership (31 December 2021: GBP358,000).
17. Significant agreements
Trademark fees
Trian Management has granted to the Company, Midco and the
Investment Partnership a non-exclusive licence to use the name,
logo and graphic identity "Trian" in the UK and the Channel Islands
in the corporate name of these entities and in connection with the
conduct of their business affairs, and the Company is using the
name, logo and graphic identity "Trian" within the Annual Report
and these Financial Statements pursuant to such licence. Trian
Management receives a fee of GBP70,000 per annum split between the
Company, Midco and the Investment Partnership for the use of the
licensed name, logo and graphic identity. During the year ended 31
December 2022 fees of GBP47,000 (year ended 31 December 2021:
GBP47,000) were paid by the Company in relation to the licence. The
Company is not expected to be charged any further trademark
fees.
Administration Agreement
On 21 September 2018, the Company and Ocorian Administration
(Guernsey) Limited entered into an administration agreement. Under
the terms of the agreement the Company (alongside the Investment
Partnership) is charged a fixed administration fee of GBP97,000 per
annum from 27 September 2018 payable monthly in arrears,
administration fees for Midco of GBP5,000 per annum, net asset
value preparation fees of GBP10,000 per annum, compliance officer
services of GBP6,000 per annum, money laundering reporting officer
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 year ended 31
December 2022 aggregate fees of GBP184,000 were paid to Ocorian
(year ended 31 December 2021: GBP143,000).
Management Agreement
The management agreement between the Investment Partnership and
the Investment Manager was amended and restated on 19 July 2021 and
made effective as of 14 June 2021. No revisions were made to the
manner in which management fees are calculated.
The Investment Manager is entitled to management fees in
consideration of its work equal to one twelfth of 1 per cent of the
adjusted net asset value of the Investment Partnership, calculated
as of the last business day of the preceding month. The management
fee is payable in advance to the Investment Manager on the first
business day of each calendar month. The management fee is solely
borne by the Company through Midco.
As part of the redemption proposals it was agreed with the
Investment Manager that upon compulsory redemption it will receive
its final management fee payment in lieu of notice calculated,
through to 31 December 2023. Management fees incurred and accrued
are detailed in Note 5 and Note 22.
LPA and Calculation of incentive allocation
Under the terms of the LPA, Trian SLP is entitled to receive an
incentive allocation based on the investment performance of the
Investment Partnership.
As part of the Redemption proposals, it has been agreed with
Trian SLP that it will continue to be entitled to receive the
incentive allocation which will be determined based on the
performance of the Investment Partnership up to the date of
distribution of its underlying investments; and with Trian SLP that
its incentive allocation may (at Trian SLP's election) be settled
through an in-specie distribution of the Investment Partnership's
underlying assets rather than in cash or through a further issue of
the Company's shares. The incentive allocation incurred and accrued
is detailed in Note 5 and Note 22.
18. Extraordinary General Meeting costs
Year to
31 Dec 2022
GBP'000
Broker fees 70
Director fees 80
Legal fees 329
Communications advisor fees 42
Administration fees 43
Printer fees 6
570
--------------------
The costs associated with the requisitioned Extraordinary
General Meeting are included within Directors' fees, Administration
fees and other operating costs in the Statement of Comprehensive
Income.
The total costs associated with the requisitioned Extraordinary
General Meeting held on 5 August 2022 with shareholders amounted to
GBP570,000 as split out in the table below:
19. Subsidiaries
Midco was incorporated on 10 September 2018 in Guernsey and the
Investment Partnership was registered on 13 September 2018 in
Guernsey. The Company holds 241,626,523 ordinary shares in Midco,
representing 100 per cent of the share capital, which in turn holds
99.83 per cent of the commitment in the Investment Partnership .
Subsequent to the year end Midco assigned its entire partnership
interest in the Investment Partnership to the Company (see Note
22).
20. Ultimate beneficial owner
There was no ultimate beneficial owner of the Company as at the
date of signing.
21. Dividends
No dividends have been declared or paid in the year to 31
December 2022 (year to 31 December 2021: GBPnil).
22. Subsequent events
On 6 January 2023 the Investment Manager effected an in-specie
distribution of Ferguson ordinary shares from the Limited
Partnership. This distribution resulted in the Special Limited
Partner receiving an incentive allocation with respect to the
Ferguson investment, which it elected to receive in the form of
Ferguson shares. This resulted in 4,377,875 Ferguson ordinary
shares being distributed from the Investment Partnership as
follows: 3,795,799 shares to the Company, through Midco, 580,822 to
Trian SLP (including 574,479 shares of incentive allocation) and
1,254 to the Managing General Partner. The total value of the
Ferguson shares transferred based on the closing trading price of
Ferguson shares on 6 January 2023 was GBP442,205,144 to the
Company, GBP67,664,935 to Trian SLP (including GBP66,925,985 of
incentive allocation) and GBP36,895 to the Managing General
Partner. The Company redeemed 219,572,492 shares in Midco in
consideration for the Ferguson distribution.
On 18 January 2023, the 19,566,913 Ordinary Shares held in
treasury were cancelled.
On 30 January 2023 the Company distributed the Ferguson shares
in-specie (the "Share Distribution") to investors as consideration
for a partial redemption of the Ordinary Shares. The Share
Distribution was applied pro rata to an investor's holding of
Ordinary Shares on 27 January 2023 (the "Record Date") at a ratio
of 0.0151215566 Ferguson ordinary shares for each Ordinary Share in
issue as at the Record Date.
Ferguson ordinary shares being distributed represented
approximately 90.7 per cent. of the Company's net asset value as of
6 January 2023 and therefore 90.7 per cent. of each investor's
holding of Ordinary Shares was compulsorily redeemed as at this
date. In total 227,556,727 Ordinary Shares were redeemed. All
Ordinary Shares redeemed have been cancelled with effect from the
Record Date.
On 16 February 2023, the Company redeemed all but two of the
issued ordinary shares of Midco, with the consideration for such
redemption being the assignment of Midco's entire partnership
interest in the Investment Partnership to the Company.
Further, on 16 February 2023, subsequent to the assignment of
partnership interests in the Investment Partnership, the Investment
Manager effected an in-specie distribution of Unilever ordinary
shares from the Investment Partnership. This resulted in 1,012,346
Unilever ordinary shares being distributed from the Investment
Partnership as follows: 1,010,640 shares to the Company, 1,285 to
Trian SLP and 421 to the Managing General Partner. The total value
of the Unilever shares transferred based on the closing trading
price of Unilever shares as of 16 February 2023 was GBP42,760,178
to the Company, GBP54,368 to Trian SLP and GBP17,813 to the
Managing General Partner. No incentive allocation was payable on
this distribution.
Following the distribution of Ferguson and Unilever shares by
the Investment Partnership the management fee payable in respect of
the period to 31 December 2023 has been fully accrued. The total
management fee payable in respect of 2023 is GBP5,480,828.
On 13 March 2023 the Company distributed the Unilever shares
in-specie (the "Second Share Distribution") to investors as
consideration for a partial redemption of the Ordinary Shares. The
Second Share Distribution was applied pro rata to an investor's
holding of Ordinary Shares on 10 March 2023 (the "Second Record
Date") at a ratio of 0.0430749929 Unilever shares for each Ordinary
Share in issue as at the Second Record Date. As at 16 February 2023
the Unilever ordinary shares being distributed represented
approximately 94.1 per cent. of the Company's net asset value and
therefore 94.1 per cent. of each investor's holding of Ordinary
Shares was compulsorily redeemed. In total 22,076,289 Ordinary
Shares were redeemed. All Ordinary Shares redeemed have been
cancelled with effect from the Second Record Date.
In total 249,633,016 Ordinary Shares have been redeemed in 2023
comprising over 99% of the shares in issue and over 99% of the net
asset value at 2 September 2022. 1,386,048 Ordinary Shares remain
in issue.
The Company's NAV as at 13 March 2023 (after accruing for all
management fees and winding up costs) was GBP2.99 million, or
215.65 pence per Ordinary Share.
Investment Manager's Report Disclosure Statements and
Disclaimers
General Considerations
Please note that the Investment Manager's Report is for general
informational purposes only, is not complete, and does not
constitute any advice or recommendation to invest in Trian
Investors 1 Limited (the "Company") or Ferguson plc ("Ferguson") or
Unilever plc ('Unilever') or enter into or conclude any other
transaction. The Investment Manager's Report should not be
construed as legal, tax, investment, financial or other advice. It
does not have regard to the specific investment objective,
financial situation, suitability, or the particular need of any
specific person who may receive the Investment Manager's Report and
should not be taken as advice on the merits of any investment
decision. The views expressed in the Investment Manager's Report
represent the opinions of Trian Investors Management, LLC (the
"Investment Manager") and its parent, Trian Fund Management, L.P.
(collectively, "Trian") and are based on publicly available
information with respect to Ferguson, Unilever and the other
companies referred to therein. Trian recognises that there may be
confidential information in the possession of Ferguson, Unilever
and the other companies discussed in the Investment Manager's
Report that could lead such companies to disagree with Trian's
conclusions. Trian does not endorse third-party estimates or
research which are used in the Investment Manager's Report solely
for illustrative purposes.
Select figures presented in the Investment Manager's Report,
including investment values, have not been calculated using
generally accepted accounting principles ("GAAP") or International
Financing Reporting Standards ("IFRS") and have not been audited by
independent accountants. Such figures may vary from GAAP or IFRS
accounting in material respects and there can be no assurance that
the unrealised values reflected in the Investment Manager's Report
will be realised. Nothing in the Investment Manager's Report is
intended to be a prediction of the future trading price or market
value of securities of Ferguson, Unilever or the Company. There is
no assurance or guarantee with respect to the prices at which any
securities of Ferguson, Unilever or the Company will trade, and
such securities may not trade at prices that may be implied in the
Investment Manager's Report. The estimates, projections, pro forma
information and potential impact of Trian's analyses set forth in
the Investment Manager's Report are based on assumptions that Trian
believes to be reasonable as of the date of the Investment
Manager's Report, but there can be no assurance or guarantee that
actual results or performance of Ferguson, Unilever or the Company
will not differ, and such differences may be material. The
Investment Manager's Report does not recommend the purchase or sale
of any security.
The Investment Manager's Report is based upon information
reasonably available to Trian as of the date of the Report.
Furthermore, the information, which includes information and data
used and derived or obtained from filings made with regulatory
authorities and from other public filings and third party reports,
has been obtained from sources that Trian believes to be reliable;
however, these sources cannot be guaranteed as to their accuracy or
completeness. No representation, warranty or undertaking, express
or implied, is given as to the accuracy or completeness of the
information contained in the Investment Manager's Report, by Trian
or any of its affiliates or its or their respective partners,
members, or employees, and no liability is accepted by such persons
for the accuracy or completeness of any such information. Trian
reserves the right to change any of its opinions expressed in the
Investment Manager's Report at any time as it deems appropriate.
Trian disclaims any obligation to update the data, information or
opinions contained in the Investment Manager's Report.
Forward Looking Statements
The Investment Manager's Report contains forward-looking
statements. All statements contained in the Investment Manager's
Report that are not clearly historical in nature or that
necessarily depend on future events are forward-looking, and the
words "anticipate", "believe," "expect", "estimate", "plan" and
similar expressions are generally intended to identify
forward-looking statements. The statements contained in the
Investment Manager's Report that are not historical facts are based
on current expectations, speak only as of the date of the
Investment Manager's Report and involve risks, uncertainties and
other factors that may cause actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by such
statements. Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive
and market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of which
are beyond the control of Trian. Although Trian believes that the
assumptions underlying the forward-looking statements are
reasonable, any of the assumptions could be inaccurate and,
therefore, there can be no assurance that the forward-looking
statements included in the Investment Manager's Report will prove
to be accurate. In light of the significant uncertainties inherent
in the forward-looking statements included in the Investment
Manager's Report, the inclusion of such information should not be
regarded as a representation as to future results or that the
objectives and plans expressed or implied by such forward-looking
statements will be achieved. Trian will not undertake and
specifically declines any obligation to disclose the results of any
revisions that may be made to any forward-looking statements in the
Investment Manager's Report to reflect events or circumstances
after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events.
Not an Offer to Sell or a Solicitation of an Offer to Buy
Under no circumstances is the Investment Manager's Report
intended to be, nor should it be construed as, an offer to sell or
a solicitation of an offer to buy any security. The funds managed
by Trian are in the business of trading -- buying and selling --
securities. It is possible that there will be developments in the
future that cause one or more of such funds from time to time to
either purchase or sell shares of Ferguson or Unilever in open
market transactions or otherwise or trade in options, puts, calls,
contracts for difference or other derivative instruments relating
to such shares. Consequently, Trian's beneficial ownership of
Ferguson's or Unilever's shares may vary over time depending on
various factors, with or without regard to Trian's views of
Ferguson's or Unilever's business, prospects or valuation
(including the market price of Ferguson's or Unilever's ordinary
shares), including without limitation, other investment
opportunities available to Trian, concentration of positions in the
portfolios managed by Trian, conditions in the securities markets
and general economic and industry conditions. Trian also reserves
the right to take any actions with respect to any investments in
Ferguson or Unilever as it may deem appropriate, including, but not
limited to, communicating with the management of Ferguson or
Unilever, the board of directors of Ferguson or Unilever, other
investors and shareholders, members, stakeholders, industry
participants, and/or interested or relevant parties about Ferguson
or Unilever or seeking representation on the board of directors of
Ferguson or Unilever, and to change its intentions with respect to
any investments made in Ferguson or Unilever at any time.
General Information
Directors Registered Office
Mark Thompson (Chairman) PO Box 286, Floor 2, Trafalgar
Robert Legget (Senior Independent Court
Director and Chairman of the Les Banques
Audit Committee) (appointed St Peter Port
5 August 2022) Guernsey, GY1 4LY
Simon Holden
Anita Rival (appointed 14 April Investment Partnership
2022) Trian Investors 1, L.P. (Incorporated)
PO Box 286, Floor 2, Trafalgar
Court
Website: www.trianinvestors1.com Les Banques
St Peter Port
Guernsey, GY1 4LY
Investment Manager
Managing General Partner Trian Investors Management,
Trian Investors 1 General Partner, LLC
LLC 280 Park Avenue, 41st Floor
280 Park Avenue, 41st Floor New York, NY 10017
New York, NY 10017 United States
United States
Solicitors to the Company
Corporate Broker As to English law and US Securities
Numis Securities Limited law
The London Stock Exchange Building Norton Rose Fulbright LLP
10 Paternoster Square 3 More London Riverside
London EC4M 7LT London SE1 2AQ
United Kingdom United Kingdom
Administrator and Independent auditor
Company Secretary Deloitte LLP
Ocorian Administration (Guernsey) Regency Court
Limited Glategny Esplanade
PO Box 286, Floor 2, Trafalgar St Peter Port
Court Guernsey, GY1 3HW
Les Banques
St Peter Port Custodian to the Investment
Guernsey, GY1 4LY Partnership
The Bank of New York Mellon
Advocates to the Company - London Branch
As to Guernsey law One Canada Square
Ogier (Guernsey) LLP London E14 5AL
Redwood House United Kingdom
St Julian's Avenue
St Peter Port Identifiers
Guernsey ISIN: GG00BQKR7233
GY1 1WA SEDOL: BKQN9F0
Ticker: TI1
Registrar LEI: 213800UQPHIQI5SPNG39
Link Market Services (Guernsey)
Limited
Mont Crevelt House
Bulwer Avenue
St Sampson
Guernsey, GY2 4LH
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