Half-year Report

RNS Number : 1269X

Sherborne Investors (Guernsey)C Ltd

08 August 2018

 

SHERBORNE INVESTORS (GUERNSEY) C LIMITED

Interim Report and Unaudited Condensed Consolidated Financial Statements

For the period from 1 January 2018 to 30 June 2018

Company Summary

The Company	The Company is a Guernsey domiciled limited company and its shares are admitted to trading on the London Stock Exchange's Specialist Fund Segment ("SFS"). The Company was incorporated on 25 May 2017. The Company commenced dealings on the SFS on 12 July 2017.
Investment Objective	To realise capital growth from investment in a target company identified by the Investment Manager, with the aim of generating a significant capital return for Shareholders.
Investment Policy	To invest, through its investment in the Investment Partnership, in a company which is publicly quoted which it considers to be undervalued as a result of operational deficiencies and which it believes can be rectified by the Investment Manager's active involvement, thereby increasing the value of the investment. The Company will only invest in one target company at a time.
Investment Manager	The General Partner and the Investment Partnership have appointed Sherborne Investors Management (Guernsey) LLC to provide investment management services to the Investment Partnership.

Chairman's Statement

Following the Board's approval of Barclays PLC ("Barclays") as the New Selected Target Company, on 19 March 2018 Barclays released to the market a notification of interest stating that three funds (the "Funds") managed by affiliates of Sherborne Investors Management (Guernsey) LLC (the "Investment Manager"), of which SIGC, LP (Incorporated) is one, had purchased 5.16% of the voting rights of Barclays. Subsequently, on 25 April 2018 an updated notification of interest was released stating that the Funds increased their holdings to 5.41% of the voting rights of Barclays.

During the first half of 2018 shares of the major UK banks experienced a decline in value. Barclays' shares achieved a positive return for most of the period, during which the Funds were acquiring their shareholding, but its shares declined 11.3% between the announcement of its first quarter results on 26 April and 30 June. As at 30 June 2018, the net asset value attributable to shareholders of the Company was £607.3 million (December 2017: £695.9 million) or 86.76 pence per share (December 2017: 99.41 pence per share) based on the closing price of 189.00 pence for Barclays' shares. As at the date of this statement Barclays' share price is approximately the same as at 30 June and therefore net asset value per share attributable to shareholders of the Company remains materially unchanged.

The Investment Manager has advised the Board that it is engaging with Barclays concerning the issues of, inter alia, capital allocation, quality of earnings, capital adequacy, cost structure, and the search process for and mandate of a new chairman. The Investment Manager believes that addressing these matters could improve Barclays' financial strength and its long-term competitive position, leading to an increase in shareholder value in line with the Investment Manager's customary return objectives. The Investment Manager's present intention is to continue its dialogue with Barclays for as long as it appears to be appropriate to do so.

The principal risks and uncertainties of the Company are in relation to performance risk, market risk, and relationship risk. These are unchanged from 31 December 2017, and further details may be found in the Directors' Strategic Report within the Annual Report and Consolidated Financial Statements of the Company for the year ended 31 December 2017.

The Directors will continue to assess the principal risks and uncertainties relating to the Company for the remaining six months of the year but expect these to remain unchanged.

The Company intends to continue to pursue its strategy as set out in its prospectus.

We are grateful for your continued support and will keep you informed of the status of our investment as it develops.

Responsibility statement

We confirm that to the best of our knowledge:

•               The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting'; and

•               The Interim Report, comprising the Chairman's Statement, meets the requirements of an interim management report and includes a fair review of information required by:

o  DTR 4.2.7R of the UK Disclosure and Transparency Rules, being an indication of important events that have occurred during the period from 1 January 2018 to 30 June 2018 and their impact on the Condensed Consolidated Financial Statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

o  DTR 4.2.8R of the UK Disclosure and Transparency Rules, being related party transactions that have taken place in the period from 1 January 2018 to 30 June 2018 and that have materially affected the financial position or performance of the Company during that period, and any material changes in the related party transactions disclosed in the last Annual Report.

Going Concern

Under the UK Corporate Governance Code and applicable regulations, the Directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern.

The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern including reviewing the on-going cash flows and the level of cash balances as of the reporting date as well as taking forecasts of future cash flows into consideration.

After making enquiries of the Investment Manager and the Administrator, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing these unaudited Condensed Consolidated Financial Statements.

Independent Auditor's Review Report to the Members of Sherborne Investors (Guernsey) C Limited

 

We have been engaged by Sherborne Investors (Guernsey) C Limited (the "Company") to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and related notes 1 to 15. We have read the other information contained in the interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 1, the annual financial statements of the Company are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this interim financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months to 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Condensed Consolidated Statement of Comprehensive Income (Unaudited)

For the period from 1 January 2018 to 30 June 2018

								1 January 2018 to				25 May 2017  to
								30 June 2018				31 December 2017
														(audited)
		Notes						£	£			£		£
Income		1(e)
Unrealised (loss)/gain on investments held at fair value through profit or loss		1(d), 5							(71,335,064)					675,470
Realised (loss)/gain on investments and derivative contracts		5							(13,818,011)					8,449,909
Dividend income		7							1,727,848					844,134
Bank interest income									294,064					299,378
									(83,131,163)					10,268,891
Expenses		1(f)
Management fees								2,625,201			96,831
Trading and custodian fees								2,060,765			1,002,433
Professional fees								399,227			67,179
Other fees								163,251			124,466
Administrative fees								133,640			158,548
Directors' fees								80,000			96,264
									(5,462,084)				(1,545,721)
Consolidated comprehensive (loss)/income for the period									(88,593,247)				8,723,170
(Loss)/income attributable to:
Shareholders									(88,564,712)				6,941,982
Non-controlling interest		1(b), 14							(28,535)				1,781,188
Weighted average number of shares outstanding		4							700,000,000				700,000,000
Basic and diluted  earnings  per share attributable to shareholders (excluding NCI)		4							(12.65)p				0.99p
All revenue and expenses are derived from continuing operations.

Although not required by IAS 34 - 'Interim Financial Reporting', the comparative figures for the preceding year and the related notes have been included on a voluntary basis.

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Financial Position (Unaudited)

As at 30 June 2018

					30 June 2018		31 December 2017
							(audited)
	Notes				£	£	£		£
Non-current Assets
Financial assets at fair value through profit or loss	5					578,035,045			307,930,107
						578,035,045			307,930,107
Current Assets
Prepaid expenses	6				67,142		43,210
Cash and cash equivalents	1(h), 8, 15				29,432,960		412,598,019
					29,500,102		412,641,229
Current Liabilities
Trade and other payables	9				(97,623)		(171,926)
Pending trades					-		(24,426,639)
					(97,623)		(24,598,565)
Net Current Assets						29,402,479		388,042,664
Net Assets						607,437,524		695,972,771
Capital and Reserves
Called up share capital and share premium	10					688,939,403		688,939,403
Retained reserves						(81,622,730)		6,941,982
Equity attributable to the Company						607,316,673		695,881,385
Non-controlling interest (NCI)	1(b), 14					120,851		91,386
Total Equity						607,437,524		695,972,771
NAV Per Share (excluding NCI)	11					86.76p		99.41p

The Condensed Consolidated Financial Statements were approved by the Board of Directors for issue on 7 August 2018.

Although not required by IAS 34 - 'Interim Financial Reporting', the comparative figures for the interim period and the related notes have been included on a voluntary basis.

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Changes in Equity (Unaudited)

For the period from 1 January 2018 to 30 June 2018

		Share Capital and Share Premium	Retained Reserves	Non- Controlling Interest	Total Equity
	Notes	£	£	£	£
Balance at 1 January 2018		688,939,403	6,941,982	91,386	695,972,771
Contributions		-	-	58,000	58,000
Total comprehensive loss for the period		-	(88,576,077)	(17,170)	(88,593,247)
Incentive allocation	1(l)	-	11,365	(11,365)	-
Balance at 30 June 2018		688,939,403	(81,622,730)	120,851	607,437,524

		Share Capital and Share Premium	Retained Reserves	Non- Controlling Interest	Total Equity
	Notes	£	£	£	£
Balance at 25 May 2017		-	-	-	-
Proceeds of share issue	10	688,939,403	-	-	688,939,403
Contributions		-	-	120,000	120,000
Total comprehensive income for the period		-	8,721,390	1,780	8,723,170
Incentive allocation	1(l)	-	(1,779,408)	1,779,408	-
Distribution	12	-	-	(1,809,802)	(1,809,802)
Balance at 31 December 2017		688,939,403	6,941,982	91,386	695,972,771

Although not required by IAS 34 - 'Interim Financial Reporting', the comparative figures for the preceding year and the related notes have been included on a voluntary basis.

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

Condensed Consolidated Statement of Cash Flows (Unaudited)

For the period from 1 January 2018 to 30 June 2018

	Notes				1 January 2018 to 30 June 2018                              £	25 May 2017 to 31 December 2017   (audited) £
Net cash flow used in operating activities					(5,560,319)	(572,871)
Investing activities
Purchase of investments	5				(877,074,819)	(366,177,113)
Bank interest income					294,064	299,378
Proceeds from disposal of investments	5				499,118,015	91,799,024
Net cash flows used in investing activities					(377,662,740)	(274,078,711)
Financing activities
Contributions from non-controlling interest					58,000	120,000
Distributions paid to non-controlling interest	12				-	(1,809,802)
Issue of share premium	10				-	700,000,000
Cost of share issue	10				-	(11,060,597)
Net cash flows from financing activities					58,000	687,249,601
Net movement in cash and cash equivalents					(383,165,059)	412,598,019
Cash and cash equivalents at beginning of period					412,598,019	-
Cash and cash equivalents at period end					29,432,960	412,598,019
Net cash flow used in operating activities
Total consolidated comprehensive (loss)/income for the period		47			(88,593,247)	8,723,170
Realised loss/(gain) on investments and derivative contracts		5			13,818,011	(8,449,909)
Fair value movement on financial assets		5			71,335,064	(675,470)
Scrip dividend		5			(1,727,848)	-
Movement in prepaid expenses and income receivable					(23,932)	(43,210)
Movement in trade and other payables					(74,303)	171,926
Bank interest income					(294,064)	(299,378)
Net cash flow used in operating activities					(5,560,319)	(572,871)

Although not required by IAS 34 - 'Interim Financial Reporting', the comparative figures for the preceding year and the related notes have been included on a voluntary basis.

The accompanying notes form an integral part of these Condensed Consolidated Financial Statements.

Notes to the Condensed Consolidated Financial Statements

For the period from 1 January 2018 to 30 June 2018

1. Summary of significant accounting policies

Reporting entity

Sherborne Investors (Guernsey) C Limited (the "Company") is a closed-ended investment company with limited liability formed under The Companies (Guernsey) Law, 2008. The Company was incorporated and registered in Guernsey on 25 May 2017. The Company deals on the London Stock Exchange's Specialist Fund Segment ("SFS"). The Company's registered office is 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey GY1 2HL. The "Group" is defined as the Company and its subsidiaries, SIGC, LP (Incorporated) and SIGC Midco Limited.

Basis of preparation

The unaudited Condensed Consolidated Financial Statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and in accordance with International Accounting Standard 34, 'Interim Financial Reporting' ("IAS 34"), together with applicable legal and regulatory requirements of Guernsey law. The same accounting policies have been applied as in the last audited accounts. The Directors of the Company have taken the exemption in Section 244 of The Companies (Guernsey) Law, 2008 (as amended) and have therefore elected to only prepare Consolidated Financial Statements for the period.

These Condensed Consolidated Financial Statements have been prepared on the historical cost basis, as modified by the measurement at fair value of investments.

Going concern

Under the UK Corporate Governance Code and applicable regulations, the Directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern. 

The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern including reviewing the ongoing cash flows and the level of cash balances as of the reporting date as well as taking forecasts of future cash flows into consideration and are of the opinion that the Group has adequate resources to continue its operational activities for the foreseeable future.

After making enquiries of the Investment Manager and the Administrator, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing these unaudited Condensed Consolidated Financial Statements.

Critical accounting judgments and key sources of estimation uncertainty

The preparation of the Group's Condensed Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies at the date of the Group's Condensed Consolidated Financial Statements and revenue and expenses during the reported period. Actual results could differ from those estimated.

As more fully described in Note 14, the Special Limited Partner is entitled to receive an incentive allocation once aggregate distributions to Partners of the Investment Partnership exceed a certain level. The basis of the incentive calculation differs depending on how the investment in the Selected Target Company is ultimately characterised (i.e., as a Turnaround or Stake Building Investment).

The Group's investments are measured at fair value for financial reporting purposes. Fair value of financial assets quoted on the London Stock Exchange are based on the quoted closing price at 30 June 2018. The fair value of other financial assets are based on the net asset value of the investment. The other investments invest in financial assets quoted on the London Stock Exchange and so the main contribution to their net asset value is the quoted closing price at 30 June 2018.

Adoption of new and revised standards

(i) New standards adopted as at 1 January 2018:

IFRS 9 'Financial Instruments - Classification and Measurement' ("IFRS 9") replaces IAS 39 'Financial Instruments: Recognition and Measurement'. It makes major changes to the previous guidance on the classification and measurement of financial assets and introduces an 'expected credit loss' model for the impairment of financial assets. Under IFRS 9, the classification of assets is driven by the business model in which the financial asset is managed and the contractual nature of the cash flows arising from the investment. The Company invests in financial assets with a view to profiting from their total return in the form of interest and changes in fair value, and so these investments are classified as fair value through profit or loss.

IFRS 15 'Revenue from Contracts with Customers' ("IFRS 15") replaces IAS 18 'Revenue' and several revenue-related Interpretations. There are no changes to the recognition of income by the Company as a result of the new Standard.

(ii) Amendments early adopted by the Company:

There were no standards, amendments and interpretations adopted early by the Company.

(iii) Standards, amendments and interpretations that are in issue but not yet effective:

New standards		Effective date
IFRS 16	Leases		1 January 2019
IFRS 17	Insurance Contracts		1 January 2021

Unless stated otherwise, the Directors do not consider the adoption of new and revised Accounting Standards and Interpretations to have a material impact.

a. Basis of consolidation

The Condensed Consolidated Financial Statements incorporate the financial statements of the Company and two entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. Investments where a majority interest is held but control is not achieved are held at fair value through profit or loss.

Non-controlling interests in the net assets of the consolidated subsidiaries are identified separately from the Group's equity therein.  Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling entities' share of changes in equity since the date of the combination.  Losses applicable to the non-controlling entities in excess of their interest in the subsidiaries equity are allocated against their interests to the extent that this would create a negative balance.

Where necessary, adjustments are made to the financial statements of the subsidiary to bring the accounting policies used into line with those used by the Group.

All intra-group transactions, balances and expenses are eliminated on consolidation.

The Company, via SIGC Midco Limited, a 100% owned subsidiary, owns 99.98% of the capital interest in SIGC, LP (Incorporated). Whilst the General Partner of SIGC, LP (Incorporated), Sherborne Investors (Guernsey) GP, LLC, a company registered in Delaware, USA, is responsible for directing the day to day operations of SIGC, LP (Incorporated), the Company, through its majority interest in SIGC, LP (Incorporated), has the ability to approve the proposed investment of SIGC, LP (Incorporated) and to remove the General Partner. Hence, the Company has consolidated SIGC, LP (Incorporated) and SIGC Midco Limited in its financial statements.

b. Non-controlling interest

The interest of non-controlling parties in the subsidiary is measured at their proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

c. Functional currency

Items included in the Condensed Consolidated Financial Statements of the Group are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The Condensed Consolidated Financial Statements are presented in Pound Sterling (£), which is the Group's functional and presentational currency. Transactions in currencies other than £ are translated at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the date of the Condensed Consolidated Statement of Financial position are retranslated into sterling at the rate of exchange ruling at that date. Exchange differences are reported in the Condensed Consolidated Statement of Comprehensive Income.

d. Financial assets at fair value through profit or loss

Investments, including equity and loan investments in associates, are designated as fair value through profit or loss in accordance with IFRS 9, as the Company is an investment company whose business is investing in financial assets with a view to profiting from their total return in the form of interest and changes in fair value. Despite the large holding, under International Accounting Standard 28 'Investments in Associates' ("IAS 28"), the fund can hold its investments at fair value through profit or loss rather than as an associate as SIGC, LP (incorporated) is a closed-ended fund.

Investments in voting shares and derivative contracts are initially recognised at cost. The investments in voting shares and derivative contracts are subsequently re-measured at fair value, as determined by the Directors. Unrealised gains or losses arising from the revaluation of investments in voting shares and derivative contracts are taken directly to the Condensed Consolidated Statement of Comprehensive Income.

The Group's investments are measured at fair value for financial reporting purposes. Fair value of financial assets quoted on the London Stock Exchange are based on the quoted closing price at 30 June 2018. The fair value of other financial assets are based on the net asset value of the investment. The other investments invest in financial assets quoted on the London Stock Exchange and so the main contribution to their net asset value is the quoted closing price at 30 June 2018.

In determining fair value in accordance with IFRS 13 'Fair value Measurement' ("IFRS 13"), investments measured and reported at fair value are classified and disclosed in one of the following categories within the fair value hierarchy:

Level I - An unadjusted quoted price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. As required by IFRS 13, the Group will not adjust the quoted price for these investments, even in situations where it holds a large position and a sale could reasonably impact the quoted price.

Level II - Inputs are other than unadjusted quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies.

Level III - Inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgment or estimation.

The Group's investments are summarised by Level in Note 5. On disposal of shares or conversion of bonds, cost of investments are allocated on a first in, first out basis.

e. Revenue recognition

Dividend income is recognised when the Group's right to receive payment has been established. Tax suffered on dividend income for which no relief is available is treated as an expense.

Interest receivable from short-term deposits and investment income are recognised on an accruals basis. Where receipt of investment income is not likely until the maturity or realisation of an investment then the investment income is accounted for as an increase in the fair value of the investment.

f. Expenses

All expenses are accounted for on an accruals basis. Expenses are charged through the Condensed Consolidated Statement of Comprehensive Income.

g. Prepaid expenses and trade receivables

Trade and other receivables are initially recognised at fair value. A provision for impairment of trade receivables  is established when there is objective evidence the Group will not be able to collect all amounts due according to the original terms of the receivables.

h. Cash and cash equivalents

Cash and cash equivalents comprises cash in hand, call and current balances with banks and similar institutions, which are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. This definition is also used for the Condensed Consolidated Statement of Cash Flows.    

i. Trade and other payables

Trade and other payables are initially recognised at fair value and subsequently, where necessary, re-measured at amortised cost using the effective interest method.

j. Financial instruments

Financial instruments and financial liabilities are recognised in the Group's Condensed Consolidated Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

k. Segmental reporting

As the Group invests in one investee company, there is no segregation between industry, currency or geographical location. No further disclosures have been made in conjunction with IFRS 8 Operating Segments as it is deemed not to be applicable.

l. Incentive allocation

The incentive allocation is accounted for on an accruals basis and the calculation is disclosed in Note 14. The incentive is payable to non-controlling interests and therefore recognised in the Condensed Consolidated Statement of Changes in Equity rather than recognised as an expense in the Condensed Consolidated Statement of Comprehensive Income.

2. Comprehensive income

The consolidated comprehensive income has been arrived at after charging:

		1 January 2018 to 30 June 2018	25 May 2017 to 31 December 2017
		£	£
Directors' fees		80,000	96,264
Auditor's remuneration - Audit		10,535	29,610

In addition to the audit related remuneration above, a further £12,610 was due to the Auditor in relation to tax compliance services (31 December 2017: £Nil), and a further £14,600 will be due to the Auditor in relation to the interim review (31 December 2017: £Nil).

3. Tax on ordinary activities

The Company has been granted exemption from income tax in Guernsey under the Income Tax (Exempt Bodies) (Bailiwick of Guernsey) Ordinance 1989, and is liable to pay an annual fee (currently £1,200) under the provisions of the Ordinance. As such it will not be liable to income tax in Guernsey other than on Guernsey source income (excluding deposit interest on funds deposited with a Guernsey bank). No withholding tax is applicable to distributions to Shareholders by the Company.

The Investment Partnership will not itself be subject to taxation in Guernsey. No withholding tax is applicable to distributions to partners of the Investment Partnership.

Income which is wholly derived from the business operations conducted on behalf of the Investment Partnership with, and investments made in, persons or companies who are not resident in Guernsey will not be regarded as Guernsey source income.  Such income will not therefore be liable to Guernsey tax in the hands of non-Guernsey resident limited partners.

Dividend income is shown gross of any withholding tax.

4. Earnings per share

The calculation of basic and diluted gain per share is based on the return on ordinary activities less total comprehensive income attributable to the non-controlling interest and on there being 700,000,000 weighted average shares in issue during the period. The earnings per share as at 30 June 2018 amounted to a deficit of 12.65 pence (31 December 2017: surplus of 0.99 pence).

Date		Shares		Days in issue		Weighted         Average Shares
1 January 2018		700,000,000		181		700,000,000
30 June 2018		700,000,000				700,000,000

5. Financial assets at fair value through profit or loss

		As at 30 June 2018	As at 31 December 2017
		£	£
Opening fair value at the beginning of the period		307,930,107	-
Purchases at cost		852,648,180	390,603,752
Scrip dividend received		1,727,848	-
Proceeds from disposal		(499,118,015)	(91,799,024)
Movement in fair value		(71,335,064)	675,470
Realised (loss)/gain on investments and derivative contracts		(13,818,011)	8,449,909
Closing fair value at the end of the period		578,035,045	307,930,107

The Board of Directors approved Barclays, a London Stock Exchange listed bank holding company, as the new Selected Target Company and as at 30 June 2018, the Group held 87,218,309 shares of Barclays. The investment in Barclays is classified as meeting the definition of Level I in the fair value hierarchy. As at 31 December 2017, the investments held related to Contract for Differences in Barclays and were considered Level II investments.

The Group also holds non-controlling interests in Whistle Investors LLC and Whistle Investors II LLC. Whistle Investors II LLC invests directly into Barclays, with the investment in Whistle Investors II LLC therefore being considered a Level II investment. Whistle Investors LLC's investment into Barclays includes derivatives valued using unobservable inputs derived from the underlying investment and as such the investment in Whistle Investors LLC is classified as a Level III investment in the fair value hierarchy.

The following tables summarise by level within the fair value hierarchy the Group's financial assets and liabilities at fair value as follows:

	Level I	Level II	Level III	Total
30 June 2018	£	£	£	£
Financial assets at fair value through profit and loss	164,842,604	223,108,082	190,084,359	578,035,045

	Level I	Level II	Level III	Total
31 December 2017	£	£	£	£
Financial assets at fair value through profit and loss	-	307,930,107	-	307,930,107

A reconciliation of fair value measurements in Level III is set out in the following table:

		As at 30 June 2018	As at 31 December 2017
		£	£
Opening fair value at the beginning of the period		-	-
Purchases at cost		279,260,269	-
Proceeds from disposal		(29,146,450)	-
Movement in fair value		(60,029,460)	-
Closing fair value at the end of the period		190,084,359	-

6. Prepaid Expenses

		As at 30 June 2018	As at 31 December 2017
		£	£
Other prepaid expenses		67,142	43,210
		67,142	43,210

7. Dividend Income

On 22 February 2018, Barclays declared a dividend of 2.0 pence per share, paid on 5 April 2018 to shareholders of record on 2 March 2018. As a member of the Barclays PLC Scrip Dividend Programme, the Group received 825,891 shares in lieu of cash, which equates to £1,727,848.

8. Cash and cash equivalents

Cash and cash equivalents comprises cash held by the Group and short term deposits held with various banking institutions. The carrying amount of these assets approximates their fair value.

9. Trade and other payables

		As at 30 June 2018	As at 31 December 2017
		£	£
Professional fees payable		14,734	78,635
Administration fees payable		64,045	67,172
Audit fees payable		18,844	26,119
		97,623	171,926

10. Share capital and share premium

		As at 30 June 2018	As at 31 December 2017
		Consolidated	Consolidated
Authorised share capital		No.	No.
Ordinary Shares of no par value		Unlimited	Unlimited
Issued and fully paid		No.	No.
Ordinary Shares of no par value		700,000,000	700,000,000

		As at 30 June 2018	As at 31 December 2017
		Consolidated	Consolidated
Share premium account		£	£
Share premium account upon issue		700,000,000	700,000,000
Less: Costs of issue		(11,060,597)	(11,060,597)
Balance at the end of the period		688,939,403	688,939,403

11. Net asset value per share attributable to the Company

		No. of Shares	Consolidated Pence per Share
	30 June 2018
	Ordinary Shares
	Basic and diluted	700,000,000	86.76
	31 December 2017
	Ordinary Shares
	Basic and diluted	700,000,000	99.41

12. Dividends and distributions

No Dividends were paid by the Company during the period (2017: £Nil). No distributions were paid by the Group to non-controlling interests during the period (2017: £1,809,802).

13. Subsequent events

Since 30 June 2018, the share price of Barclays has decreased from 189.00 pence to 188.56 pence as at 6 August 2018.

14. Related party transactions

The Investment Partnership and its General Partner, Sherborne Investors (Guernsey) GP, LLC, have engaged Sherborne Investors Management (Guernsey) LLC to serve as Investment Manager who is responsible for identifying the Selected Target Company, subject to approval by the Board of Directors of the Company, as well as day to day management activities of the Investment Partnership. The Investment Manager is entitled to receive from the Investment Partnership a monthly management fee equal to one-twelfth of 1% of the net asset value of the Investment Partnership, less cash and cash equivalents and certain other adjustments. During the period, management fees of £2,625,201 (31 December 2017: £96,831) had been paid by the Investment Partnership. No balance was outstanding at the period end.

The sole member of Sherborne Investors (Guernsey) GP, LLC is Sherborne Investors LP (the non-controlling interest), which also serves as the Special Limited Partner of the Investment Partnership. The Special Limited Partner is entitled to receive an incentive allocation once aggregate distributions to Partners of the Investment Partnership, of which one is the Company, exceed a certain level of capital contributions to the Investment Partnership, excluding amounts contributed attributable to management fees.

For Turnaround Investments, the incentive allocation is computed at 10% of the distributions to all Partners in excess of 110%, increasing to 20% of the distributions to all Partners in excess of 150% and increasing to 25% of the distributions to all Partners in excess of 200% of capital contributions, excluding amounts contributed attributable to management fees. An investment is considered a Turnaround investment when a member of the Managing Partner is appointed chairman of, or accepts an executive role at, the Selected Target Company.

If, after acquiring a shareholding, the share price of the Selected Target Company rises to a level at which further investment and the effort of a Turnaround is, in the Investment Manager's opinion, no longer justified or otherwise no longer presents a viable Turnaround opportunity, the Investment Partnership intends to sell (and distribute the proceeds to the Company) or distribute in kind the holding to the limited partners (in each case after deductions for any costs and expenses and for the Investment Partnership's Minimum Capital Requirements and subject to applicable law and regulation), rather than seeking to join the Board of Directors or otherwise engage with the Selected Target Company (a "Stake Building Investment").

For Stake Building Investments, the incentive allocation is computed at 20% of net returns on the investment of the Investment Partnership, such amount to be payable after each partner in the Investment Partnership has had distributed to it an amount equal to its aggregate capital contribution to the Investment Partnership in respect to the Stake Building Investment (excluding any capital contributions attributable to Management Fees). The Special Limited Partner may waive or defer all or any part of any incentive allocation otherwise due.

At 30 June 2018, the incentive allocation has been computed based on a Stake Building Investment basis and amounts to £Nil (31 December 2017: £11,365) in relation to the investment in Barclays.

Each of the Directors (other than the Chairman) receives a fee payable by the Company currently at a rate of £35,000 per annum. The Chairman of the Audit Committee receives £5,000 per annum in addition to such fee. The Chairman receives a fee payable by the Company currently at the rate of £50,000 per annum.

Individually and collectively, the Directors of the Company hold no shares of the Company as at 30 June 2018.

Sherborne Investors GP, LLC has granted to the Company a non-exclusive licence to use the name "Sherborne Investors" in the UK and the Channel Islands in the corporate name of the Company and in connection with the conduct of the Company's business affairs. The Company may not sub-licence or assign its rights under the Trademark Licence Agreement. Sherborne Investors GP, LLC receives a fee of £70,000 per annum for the use of the licensed name.

15. Financial risk factors

The Group's investment objective is to realise capital growth from investment in the Selected Target Company, identified by the Investment Manager with the aim of generating significant capital return for Shareholders. Consistent with that objective, the Group's financial instruments mainly comprise of an investment in, or linked to, a Selected Target Company. In addition, the Group holds cash and cash equivalents as well as having trade and other receivables and trade and other payables that arise directly from its operations.

Liquidity risk

The Group's cash and cash equivalents are placed in demand deposits and short-term money market instruments with a range of financial institutions. The listed investment in Barclays could be redeemed relatively quickly (within 3 months) should the Group need to meet obligations or pay ongoing expenses as and when they fall due. The following table details the liquidity analysis for financial liabilities at the date of the Condensed Consolidated Statement of Financial Position:

As at 30 June 2018 Consolidated	Less than 1 month	1 - 12 months	Total
	£	£	£
Trade and other payables	(64,734)	(32,889)	(97,623)
	(64,734)	(32,889)	(97,623)

As at 31 December 2017 Consolidated	Less than 1 month	1 - 12 months	Total
	£	£	£
Trade and other payables	(125,807)	(46,119)	(171,926)
	(125,807)	(46,119)	(171,926)

Credit risk

The Company is exposed to credit risk in respect of its cash and cash equivalents and derivative contracts, arising from possible default of the relevant counterparty, with a maximum exposure equal to the carrying value of those assets. The credit risk on liquid funds is mitigated through the Group depositing cash and cash equivalents across several banks. The credit risk associated with derivative contracts is monitored by reviewing the credit rating for counterparty. The Group is exposed to credit risk in respect of its trade receivables and other receivable balances with a maximum exposure equal to the carrying value of those assets. UBS Financial Services Inc. currently has a stand alone credit rating of A- with Standard & Poor's (31 December 2017: A- with Standard & Poor's).

Market price risk

Market price risk arises as a result of the Group's exposure to the future values of the share price of the Selected Target Company. It represents the potential loss that the Group may suffer through investing in the Selected Target Company.

Interest rate risk

The Group is subject to risks associated with changes in interest rates in respect of interest earned on its cash and cash equivalents. The Group seeks to mitigate this risk by monitoring the placement of cash balances on an ongoing basis in order to maximise the interest rates obtained.

As at 30 June 2018	Interest bearing
	Less than 1 month	1 month to 3 months	3 months to 1 year	Non- interest bearing	Total
	£	£	£	£	£
Assets
Cash and cash equivalents	29,432,960	-	-	-	29,432,960
Investments held at fair value through profit or loss	-	-	-	578,035,045	578,035,045
Prepaid expenses	-	-	-	67,142	67,142
Total Assets	29,432,960	-	-	578,102,187	601,535,147
Liabilities
Other payables	-	-	-	(97,623)	(97,623)
Total Liabilities	-	-	-	(97,623)	(97,623)

As at 31 December 2017	Interest bearing
	Less than 1 month	1 month to 3 months	3 months to 1 year	Non- interest bearing	Total
	£	£	£	£	£
Assets
Cash and cash equivalents	391,651,981	-	-	20,946,038	412,598,019
Investments held at fair value through profit or loss	-	-	-	307,930,107	307,930,107
Prepaid expenses	-	-	-	43,210	43,210
Total Assets	391,651,981	-	-	328,919,355	720,571,336
Liabilities
Other payables	-	-	-	(171,926)	(171,926)
Total Liabilities	-	-	-	(171,926)	(171,926)

As at 30 June 2018, the total interest sensitivity gap for interest bearing items was a surplus of £29,432,960 (31 December 2017: £391,651,981).

As at 30 June 2018, interest rates reported by the Bank of England were 0.5% which would equate to income of £147,165 (31 December 2017: £1,958,260) per annum if interest bearing assets remained constant.  If interest rates were to fluctuate by 25 basis points, this would have a positive or negative effect of £73,582 (31 December 2017: £979,130) on the Group's annual income.

Capital risk management

The capital structure of the Company consists of proceeds raised from the issue of Ordinary Shares. As at 30 June 2018, the Group is not subject to any external capital requirement.

The Board of Directors believe that at the date of the Condensed Consolidated Statement of Financial Position there were no material risks associated with the management of the Company's capital.

 

END

 

 

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