Half-year Report

RNS Number : 5417J

Sherborne Investors (Guernsey)C Ltd

20 August 2019

 

SHERBORNE INVESTORS (GUERNSEY) C LIMITED 

Interim Report and Unaudited Condensed Consolidated Financial Statements

For the period from 1 January 2019 to 30 June 2019

Company Summary

The Company	Sherborne Investors (Guernsey) C Limited (the "Company") is a Guernsey domiciled limited liability 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 SIGC, LP (Incorporated) (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 (the "Investment Manager") to provide investment management services to the Investment Partnership.

Chairman's Statement

During the period the Company continued to pursue its investment strategy through its shareholding in Barclays PLC ("Barclays").  Three funds (the "Funds") managed by affiliates of Sherborne Investors Management (Guernsey) LLC (the "Investment Manager"), of which SIGC, LP (Incorporated) is one, most recently disclosed on 10 May 2019 an ownership interest of 5.48% of the voting rights of Barclays.

As at 30 June 2019, the net asset value ("NAV") attributable to shareholders of the Company was £469.9 million (31 December 2018: £468.7 million) or 67.13 pence per share (31 December 2018: 66.96 pence per share) based on the closing price of 149.80 pence for Barclays' shares. As at 16 August 2019 Barclays' share price declined to 139.82 pence and therefore NAV per share attributable to shareholders of the Company is now approximately 64.4 pence per share.

During the period we began reporting estimated month end NAV and NAV per share of the Company which we will continue for the duration of the Barclays investment.

On 4 February 2019 the Funds submitted a resolution to Barclays to elect Edward Bramson, a partner in Sherborne Investors Management LP, to the board of Barclays at its Annual General Meeting on 2 May 2019.  The resolution was voted on by shareholders at the meeting and was not passed.

The Investment Manager has advised the Board that it believes that addressing the issues it has discussed with Barclays' board could increase 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, relationship risk and operational risk. These are unchanged from 31 December 2018, and further details may be found in the Directors' Strategic Report within the Annual Report and Audited Consolidated Financial Statements of the Company for the year ended 31 December 2018. 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.

Details of related party transactions during the period are included in note 12 of the Condensed Consolidated Financial Statements.

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' as adopted in the European Union;

•       The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and their impact on the condensed financial statements and description of principal risks and uncertainties for the remaining six months of the year);

•       The interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein); and

•       The condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.10R.

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 2019 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 Financial Reporting Council.  Our work has been undertaken so that we might state to the Company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

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 Group 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 Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months to 30 June 2019 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 2019 to 30 June 2019

			1 January 2019 to				1 January 2018 to				1 January 2018  to
			30 June 2019				30 June 2018				31 December 2018
												(audited)
	Notes		£		£		£	£			£	£
Income	1(e)
Unrealised gain/(loss) on financial assets at fair value through profit or loss	1(d), 5				1,184,206			(71,335,064)				(208,982,908)
Realised loss on investments	5				-			(13,818,011)				(13,818,011)
Dividend income	6				3,488,732			1,727,848				3,908,306
Interest income					24,550			294,064				309,399
					4,697,488			(83,131,163)				(218,583,214)
Expenses	1(f)
Management fees		12		2,117,179			2,625,201			5,077,000
Professional fees				1,079,496			399,227			927,028
Directors' fees		2, 12		80,000			80,000			160,000
Administrative fees				77,878			133,640			210,878
Trading and custodian fees				-			2,060,765			2,060,765
Other fees				152,074			163,251			188,363
					(3,506,627)			(5,462,084)				(8,624,034)
Comprehensive income/(loss)					1,190,861			(88,593,247)				(227,207,248)
Comprehensive income/(loss) attributable to:
Shareholders					1,190,147			(88,564,712)				(227,151,537)
Non-controlling interest (NCI)	1(b)				714			(28,535)				(55,711)
Weighted average number of shares outstanding	4				700,000,000			700,000,000				700,000,000
Basic and diluted  earnings  per share attributable to shareholders (excluding NCI)					0.17p			(12.65)p				(32.45)p
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 2019

		30 June 2019			30 June 2018				31 December 2018
									(audited)
	Notes	£	£		£		£		£	£
Non-Current Assets
Financial assets at fair value through profit or loss	5		441,571,407				578,035,045			440,387,201
			441,571,407				578,035,045			440,387,201
Current Assets
Cash and cash equivalents	1(h), 8	8,545,306			29,432,960				28,521,320
Treasury gilts	1(m)	20,011,139			-				-
Prepaid expenses	7	38,220			67,142				21,768
		28,594,665			29,500,102				28,543,088
Current Liabilities
Trade and other payables	9	(151,688)		(97,623)				(106,766)
		(151,688)			(97,623)				(106,766)
Net Current Assets			28,442,977			29,402,479				28,436,322
Net Assets			470,014,384			607,437,524				468,823,523
Capital and Reserves
Called up share capital and share premium	10		688,939,403			688,939,403				688,939,403
Retained reserves			(219,019,408)			(81,622,730)				(220,209,555)
Equity attributable to the Company			469,919,995			607,316,673				468,729,848
Non-controlling interest (NCI)	1(b)		94,389			120,851				93,675
Total Equity			470,014,384			607,437,524				468,823,523
NAV Per Share (excluding NCI)	11		67.13p			86.76p				66.96p

The Condensed Consolidated Financial Statements were approved by the Board of Directors for issue on 19 August 2019.            

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 2019 to 30 June 2019

		Share Capital and Share Premium	Retained Reserves	Non- Controlling Interest	Total Equity
	Notes	£	£	£	£
Balance at 1 January 2019		688,939,403	(220,209,555)	93,675	468,823,523
Comprehensive income		-	1,190,147	714	1,190,861
Balance at 30 June 2019		688,939,403	(219,019,408)	94,389	470,014,384

		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
Comprehensive loss		-	(88,576,077)	(17,170)	(88,593,247)
Incentive allocation reversal	1(l),12	-	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 1 January 2018		688,939,403	6,941,982	91,386	695,972,771
Contributions		-	-	58,000	58,000
Comprehensive loss		-	(227,162,902)	(44,346)	(227,207,248)
Incentive allocation reversal	1(l),12	-	11,365	(11,365)	-
Balance at 31 December 2018 (audited)		688,939,403	(220,209,555)	93,675	468,823,523

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.

Condensed Consolidated Statement of Cash Flows (Unaudited)

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

For the period from 1 January 2019 to 30 June 2019

	Notes		1 January 2019 to 30 June 2019 £		1 January 2018 to 30 June 2018 £	1 January 2018 to 31 December 2018 (audited) £
Net cash flow from/(used in) operating activities    See below			10,577		(5,560,319)	(6,487,294)
Investing activities
Purchase of investments	5		-		(877,074,819)	(953,804,267)
Purchase of Treasury gilts	1(m)		(20,001,441)		-	-
Interest income			14,850		294,064	309,399
Proceeds from disposal of investments	5		-		499,118,015	575,847,463
Net cash flows used in investing activities			(19,986,591)		(377,662,740)	(377,647,405)
Financing activities
Contributions from non-controlling interest			-		58,000	58,000
Net cash flows from financing activities			-		58,000	58,000
Net movement in cash and cash equivalents			(19,976,014)		(383,165,059)	(384,076,699)
Opening cash and cash equivalents			28,521,320		412,598,019	412,598,019
Closing cash and cash equivalents			8,545,306		29,432,960	28,521,320
Net cash flow from/(used in) operating activities
Comprehensive income/(loss)			1,190,861		(88,593,247)	(227,207,248)
Realised loss on investments		5	-		13,818,011	13,818,011
Unrealised (gain)/loss on financial assets at fair value through profit or loss		5	(1,184,206)		71,335,064	208,982,908
Scrip dividend		5	-		(1,727,848)	(1,727,848)
Movement in prepaid expenses		7	(16,450)		(23,932)	21,442
Movement in trade and other payables		9	44,922		(74,303)	(65,160)
Interest income			(24,550)		(294,064)	(309,399)
Net cash flow from/(used) in operating activities			10,577		(5,560,319)	(6,487,294)

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 2019 to 30 June 2019

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 (as amended). The Company was incorporated and registered in Guernsey on 25 May 2017. The Company commenced dealings on the London Stock Exchange's Specialist Fund Segment ("SFS") on 12 July 2017. 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 annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted in the European Union. The financial information for the year ended 31 December 2018, as included in this Interim Report, is derived from the financial statements delivered to the Listing Authority and does not constitute statutory accounts as defined by The Companies (Guernsey) Law, 2008 (as amended). The Auditor reported in the statutory financial statements for the year ended 31 December 2018: their report was unqualified; did not draw attention to any matters by way of emphasis; and did not contain a statement under Section 263(2) or 263(3) of The Companies (Guernsey) Law, 2008 (as amended).

The unaudited Condensed Consolidated Financial Statements of the Group have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting' ("IAS 34") as adopted in the European Union, together with applicable legal and regulatory requirements of Guernsey Law. 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 Condensed 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. The accounting policies adopted are consistent with those of the previous financial year and corresponding interim period, with the exception of note 1(m) following the acquisition of Treasury gilts in the period ended 30 June 2019.

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 Group'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.

i) Source of estimation uncertainty: Investments at fair value through profit or loss

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 2019. The fair value of other financial assets are based on the net asset value ("NAV") of the investment. The main contribution to their NAV is the quoted closing price on the London Stock Exchange at 30 June 2019.

ii) Critical accounting judgement: Incentive allocation

As more fully described in note 12, 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 ("STC") is ultimately characterised (i.e. as a Turnaround or Stake Building Investment).

iii) Critical accounting judgement: Consolidation of entities

The Group holds majority interest in other financial assets, as described in note 5, however does not have the ability to exercise control over these assets. They are therefore not consolidated and are held at fair value through profit or loss.

Adoption of new and revised standards

(i) New standards adopted as at 1 January 2019:

All new standards effective from 1 January 2019 have been adopted and do not have a material impact on the financial statements.

(ii) Standards, amendments and interpretations 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 17	Insurance Contracts		1 January 2021

The future adoption of this standard is not expected to have a material impact on the financial statements.

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 the minority's 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 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. 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, convertible bonds and derivative contracts are initially recognised at cost. The investments in voting shares, convertible bonds 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, convertible bonds 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 2019. 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 as well as through derivative instruments and so the main contribution to their net asset value is the quoted closing price at 30 June 2019.

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 for identical assets and liabilities 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 judgement 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.

Investment income and interest receivable from short-term deposits and Treasury gilts are recognised on an accrual 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 accrual 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 and subsequently, where necessary, re-measured at amortised cost using the effective interest method. 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. The Group only holds trade receivables with no financing component and which have maturities of less than 12 months at amortised cost and has therefore applied the simplified approach to expected credit loss.

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 accrual basis and the calculation is disclosed in note 12. The incentive allocation is payable to the non-controlling interest 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.

m. Treasury gilts

Treasury gilts are initially recognised at fair value and subsequently, re-measured at amortised cost using the effective interest method.

2. Comprehensive income/(loss)

The comprehensive income/(loss) has been arrived at after charging:

	1 January 2019 to 30 June 2019	1 January 2018 to 30 June 2018	1 January 2018 to 31 December 2018
	£	£	£
Directors' fees	80,000	80,000	160,000
Auditor's remuneration - Audit Auditors' remuneration - Interim review	16,166 21,801	10,535 -	24,291 16,300

In addition to the audit related remuneration above, a further £14,600 was due to the Auditor in relation to tax compliance services (period ended 30 June 2018: £12,610 and year ended 31 December 2018: £28,019).

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 (30 June 2018: 700,000,000 and 31 December 2018: 700,000,000). The earnings per share for the period ended 30 June 2019 amounted to a surplus of 0.17 pence per share (period ended 30 June 2018: a deficit of 12.65 pence per share and year ended 31 December 2018: deficit of 32.45 pence per share).

Date		Shares		Days in issue		Weighted Average Shares
1 January 2019		700,000,000				700,000,000
30 June 2019		700,000,000		181		700,000,000

5. Financial assets at fair value through profit or loss

	As at 30 June 2019	As at 30 June 2018	As at 31 December 2018
	£	£	£
Opening fair value	440,387,201	307,930,107	307,930,107
Purchases of investments	-	852,648,180	965,538,700
Scrip dividend	-	1,727,848	1,727,848
Disposal of investments	-	(499,118,015)	(612,008,535)
Unrealised gain/(loss) on financial assets at fair value through profit or loss	1,184,206	(71,335,064)	(208,982,908)
Realised loss on investments	-	(13,818,011)	(13,818,011)
Closing fair value	441,571,407	578,035,045	440,387,201

The Board of Directors approved Barclays PLC ("Barclays"), a London Stock Exchange listed bank holding company, as the STC in 2018 and as at 30 June 2019, 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.

The Group also holds non-controlling interests in Whistle Investors LLC and Whistle Investors II LLC (together the "Whistle entities"). The Whistle entities were organised to invest in the STC. Whistle Investors II LLC invests directly into Barclays. Whistle Investors LLC's investment into Barclays includes derivatives valued using unobservable inputs derived from the underlying investment. The Level II and Level III investments disclosed in the financial statements are solely comprised of the Groups interest in Whistle Investors II LLC and Whistle Investors LLC, respectively. The value of those investments equates to the Group's maximum exposure to loss from the Whistle entities.

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 2019	£	£	£	£
Financial assets at fair value through profit and loss	130,653,027	80,859,350	230,059,030	441,571,407

	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 2018	£	£	£	£
Financial assets at fair value through profit and loss	131,280,999	86,288,245	222,817,957	440,387,201

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

	As at 30 June 2019	As at 30 June 2018	As at 31 December 2018
	£	£	£
Opening fair value	222,817,957	-	-
Purchases at cost	6,774,352	279,260,269	392,150,789
Proceeds from disposal	-	(29,146,450)	(29,146,450)
Movement in fair value	466,721	(60,029,460)	(140,186,382)
Closing fair value	230,059,030	190,084,359	222,817,957

6. Dividend income

On 21 February 2019, Barclays declared a dividend of 4.0 pence per share, paid on 5 April 2019 to shareholders of record on 1 March 2019. The Group received a cash dividend of £3,488,732 (period ended 30 June 2018: £1,727,848 and year ended 31 December 2018: £3,908,306).

7. Prepaid expenses

	As at 30 June 2019	As at 30 June 2018	As at 31 December 2018
	£	£	£
Other prepaid expenses	38,220	67,142	21,768
	38,220	67,142	21,768

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 2019	As at 30 June 2018	As at 31 December 2018
	£	£	£
Professional fees payable	76,426	14,734	44,177
Administration fees payable	37,295	64,045	36,509
Audit fees payable	37,967	18,844	26,080
Total	151,688	97,623	106,766

10. Consolidated share capital and share premium

	As at 30 June 2019	As at 30 June 2018	As at 31 December 2018
Authorised share capital	No.	No.	No.
Ordinary Shares of no par value	Unlimited	Unlimited	Unlimited
Issued and fully paid	No.	No.	No.
Ordinary Shares of no par value	700,000,000	700,000,000	700,000,000

	As at 30 June 2019	As at 30 June 2018	As at 31 December 2018
Share premium account	£	£	£
Share premium account upon issue	700,000,000	700,000,000	700,000,000
Less: Costs of issue	(11,060,597)	(11,060,597)	(11,060,597)
Closing balance	688,939,403	688,939,403	688,939,403

11. Net asset value per share attributable to the Company

                                                                                                                                               Basic and Diluted

		No. of Shares	Pence per Share
	30 June 2019	700,000,000	67.13
	30 June 2018	700,000,000	86.76
	31 December 2018	700,000,000	66.96

12. 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 STC, 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 £2,117,179 (period ended 30 June 2018: £2,625,201 and year ended 31 December 2018: £5,077,000) had been paid by the Investment Partnership. No balance was outstanding at the period end (period ended 30 June 2018: £nil and year ended 31 December 2018: £nil).

Through to 26 December 2018, the sole member of Sherborne Investors (Guernsey) GP, LLC was Sherborne Investors LP, who also served as the Special Limited Partner of the Investment Partnership. Effective on 27 December 2018 the Special Limited Partner interest was transferred from Sherborne Investors LP to Sherborne Investors Limited, a wholly owned subsidiary of Sherborne Investors LP (Sherborne Investors (Guernsey) GP, LLC and Sherborne Investors Limited are the Non-controlling interests). 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 general partner is appointed chairman of, or accepts an executive role at, the STC.

If, after acquiring a shareholding, the share price of the STC 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 STC (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 2019, the incentive allocation has been computed based on a Stake Building Investment basis and amounts to £nil (30 June 2018: £nil and December 2018: £nil) 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 in the Company as at 30 June 2019 (30 June 2018: nil and 31 December 2018: nil).

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 licenced name.

13. Financial risk factors    

The Group's investment objective is to realise capital growth from investment in the STC, 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 STC. 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 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. Treasury gilts held could also be realised relatively quickly should additional cash resources be required.

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 2019	Less than 1 month	1 - 12 months	Total
	£	£	£
Trade and other payables	(40,445)	(111,243)	(151,688)
	(40,445)	(111,243)	(151,688)

As at 30 June 2018	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 2018	Less than 1 month	1 - 12 months	Total
	£	£	£
Trade and other payables	(36,967)	(69,799)	(106,766)
	(36,967)	(69,799)	(106,766)

Credit risk

The Company is exposed to credit risk in respect of its cash and cash equivalents, Treasury gilts 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 Treasury gilts and derivative contracts is monitored by reviewing the credit rating for the 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 (30 June 2018: A- with Standard & Poor's and 31 December 2018: 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 STC Company. It represents the potential loss that the Group may suffer through investing in the STC. Further information can be found in the Annual Report and Audited Consolidated Financial Statements of the Company for the year ended 31 December 2018.

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.  The weighted average interest rate on the Treasury gilts is 2.75%.

As at 30 June 2019	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	8,545,306	-	-	-	8,545,306
Financial assets at fair value through profit or loss	-	-	-	441,571,407	441,571,407
Treasury gilts	9,928,349	9,888,592	-	194,198	20,001,139
Prepaid expenses	-	-	-	38,220	38,220
Total Assets	18,473,655	9,888,592	-	441,803,825	470,166,072
Liabilities
Trade and other payables	-	-	-	(151,688)	(151,688)
Total Liabilities	-	-	-	(151,688)	(151,688)

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
Financial assets 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
Trade and other payables	-	-	-	(97,623)	(97,623)
Total Liabilities	-	-	-	(97,623)	(97,623)

As at 31 December 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	28,521,320	-	-	-	28,521,320
Financial assets at fair value through profit or loss	-	-	-	440,387,201	440,387,201
Prepaid expenses	-	-	-	21,768	21,768
Total Assets	28,521,320	-	-	440,408,969	468,930,289
Liabilities
Trade and other payables	-	-	-	(106,766)	(106,766)
Total Liabilities	-	-	-	(106,766)	(106,766)

As at 30 June 2019, the total interest sensitivity gap for interest bearing items was a surplus of £28,362,247 (30 June 2018: surplus of £29,432,960 and 31 December 2018: surplus of £28,521,320).

As at 30 June 2019, interest rates reported by the Bank of England were 0.75% which would equate to income of £212,717 (period ended 30 June 2018: £147,165 and year ended 31 December 2018: £213,910) 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 £70,906 (period ended 30 June 2018: £73,582 and year ended 31 December 2018: £71,303) 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 2019, 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.

14. Distributions

No distributions were paid by the Group to Non-controlling interests during the period (period ended 30 June 2018: £nil and year ended 31 December 2018: £nil).

15. Subsequent events

Since 30 June 2019, the share price of Barclays has decreased from 149.80 pence to 139.82 pence as at 16 August 2019. If this share price was used to value the investment at 30 June 2019, it would have resulted in a decrease in the closing fair value from £441.6 million to £416.5 million. The Investment Manager advises the Company that the current estimated NAV is approximately £450.8 million, or 64.4 pence per share.

 

END

 

 

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