Menhaden Capital Plc – Annual Financial Report

Menhaden Capital PLC
(the “Company”)

LEI: 2138004NTCUZTHFWXS17

Audited results for the year ended 31 December 2017

The Annual Report will be posted to shareholders on 3 April 2018.

Copies may be obtained from the Company Secretary: Frostrow Capital LLP at 25 Southampton Buildings, London WC2A 1AL.

A copy of the Annual Report will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/nsm

The Annual Report will also be available on the Company’s website - www.menhaden.com where up to date information on the Company, including monthly NAVs, share prices and fact sheets, can also be found.

Frostrow Capital LLP, Company Secretary – 0203 709 8734

23 March 2018

Strategic Report

Company Performance

NAV per share1	92.1p
Share price1	68.5p
Share price discount to NAV per share1	25.6%
NAV per share (total return)2	7.8%
Share price (total return)2	3.2%
Total ongoing charges2	2.1%

The MSCI World Total Return Index (in sterling) returned 11.8% (2016: +28.2%).

1          As at 31 December 2017.

2          For the year ended 31 December 2017.

Investment Themes

Theme	Description
Clean energy production	Companies producing power from clean sources such as solar or wind
Resource and energy efficiency	Companies focused on improving energy efficiency (e.g. in buildings or manufacturing processes) or creating emissions reduction products or services
Sustainable transport	Companies in the transport sector focused on helping to reduce harmful air emissions/distance travelled
Water and waste management	Companies with products or services that enable reductions in usage/volumes and/or smarter ways to manage water and waste

Chairman’s Statement

I present our third annual report since the launch of the Company in July 2015. This report covers the year ended 31 December 2017.

Performance

The Company’s net asset value (“NAV”) per share total return for the year was +7.8% (2016: +1.8%) and the share price total return was +3.2% (2016: -13.8%).

While the Company does not have a formal benchmark and our Portfolio Manager does not invest by reference to an index, during the year the MSCI World Total Return Index (in sterling) increased by 11.8% (2016: +28.2%). By way of additional comparison, the WilderHill New Energy Global Innovation Index (in sterling) rose by 17.5% (2016: +11.5%) and the AIC Environmental Sector rose by 11.3% (2016: +21%).

Our Portfolio Manager has provided a full description of the development and performance of the portfolio over the second full year of your Company’s operation in the Portfolio Manager’s Review.

The Board has been encouraged by the steady improvements in NAV performance this year, which reflect the refinement of the Portfolio Manager’s investment strategy and the work they have done to re-position the portfolio. The Board will continue to keep the ongoing development of the portfolio under close review.

Share Price Discount

At the year-end, the discount to NAV per share at which the Company’s shares trade had widened slightly to 25.6% (2016: 22.2%). This is a matter that the Board considers at each Board meeting. As reported previously, the Board has decided that share buybacks are not in the interests of shareholders at the current time, as this would reduce the size of the Company, increase the ongoing charges ratio and reduce the liquidity of the Company’s shares. Instead, and in addition to actively reviewing the Portfolio Manager’s performance, the Board and the AIFM will continue to focus on the Company’s marketing and distribution strategy over the coming year. A summary of the promotional activities undertaken by the AIFM can be found later in this report.

Management Developments

During the year, and as announced in the Company’s half-year report, Menhaden Capital Management LLP (the “Portfolio Manager”) became authorised by the Financial Conduct Authority to perform portfolio management activities. Accordingly Frostrow (our AIFM) has, with the Board’s consent, formally delegated portfolio management responsibilities to the Portfolio Manager.

The Board has previously confirmed its commitment to reporting on the Company’s environmental impact. This year we have integrated the Company’s impact reporting within this annual report. The relevant section is contained in the Strategic Report and will also be made available as a separate document, which will include the methodological detail, on the website www.menhaden.com.

Dividend

The Company complies with the United Kingdom’s investment trust rules regarding distributable income and the Company’s dividend policy is that the Company will pay a dividend as a minimum to maintain investment trust status.

The Board has not recommended a final dividend for the year.

The Board remains cognisant of the undertaking in the Company’s prospectus to target a dividend yield of 2% per annum of the average NAV. The target implementation date for the dividend was 31 December 2017. However, as I reported in the Company’s half-year report for the six months ended 30 June 2017, it would not have been possible to pay such a dividend without paying a significant portion out of capital and the Board does not believe that this would be appropriate under current circumstances. The Board will continue to keep the dividend target under close review.

Outlook

As we look forward, our Portfolio Manager is optimistic about the global outlook for environmental solutions in general and the opportunities for the companies in your portfolio in particular. As such they will continue to focus on selecting stocks whose strong prospects will be crucial in the long term.

The Board supports the Portfolio Manager’s investment strategy and believes that it should provide positive returns for the long-term investor.

Annual General Meeting

The Company’s third Annual General Meeting (“AGM”) will again be held at the offices of Herbert Smith Freehills, Exchange House, Primrose Street, London EC4A 2EG on Tuesday, 22 May 2018 at 12 noon.

This year we have introduced electronic proxy voting so that shareholders can cast their votes online. Instructions for how you can vote electronically are set out later in this report. It is our intention to cease sending out paper proxy forms in 2019 although any shareholders who wish to continue voting in this way will be able to request a paper form from the Company Secretary.

The AGM provides shareholders with an opportunity to meet the Directors and to receive a presentation from our Portfolio Manager. I hope as many shareholders as possible will attend and I look forward to meeting you then, together with my Board colleagues. Any shareholders who are unable to attend or who wish to discuss any matters with the Board are invited to contact me through the Company Secretary.

Sir Ian Cheshire
Chairman
23 March 2018

Investment Objective and Policy

Investment Objective

The Company’s investment objective is to generate long-term shareholder returns, predominantly in the form of capital growth, by investing in businesses and opportunities, delivering or benefitting from the efficient use of energy and resources irrespective of their size, location or stage of development.

Whilst the Company pursues an active, non-benchmarked total return strategy, the Company is cognisant of the positioning of its portfolio against the MSCI World Total Return Index (in sterling). Accordingly, the Portfolio Manager will take notice of the returns of that index with a view to outperforming it over the long term.

Investment Strategy

The implementation of the Company’s investment objective has been delegated to Frostrow Capital LLP (“Frostrow” or the “AIFM”) by the Board. Frostrow has, in turn and jointly with the Company, appointed Menhaden Capital Management LLP as the Portfolio Manager.

Details of the Portfolio Manager’s approach are set out in the Investment Process section and in their review.

While the Board’s strategy is to allow flexibility in managing the investments, in order to manage investment risk it has imposed various investment, gearing and derivative guidelines and limits, within which Frostrow and the Portfolio Manager are required to manage the investments, as set out below.

Any material changes to the investment objective or policy require approval from shareholders.

Investment Policy

The Company’s investment objective is pursued through constructing a conviction-driven portfolio consisting primarily of direct listed and unlisted holdings across asset classes and geographies.

Asset Allocation

The Company invests, either directly or through external funds, in a portfolio that is comprised of three main allocations:

•         listed equity;

•         yield assets; and

•         special situations.

The flexibility to invest across asset classes affords the Company two main benefits:

•         it enables construction of a portfolio based on an assessment of market cycles; and

•         it enables investment in all opportunities which benefit from the investment theme.

It is expected that the portfolio will comprise approximately 20 to 25 positions. Typically, the portfolio will not comprise fewer than 20 positions or more than 50 positions. For these purposes an investment in an external fund is treated as one position.

Geographic Focus

Although the portfolio is predominantly focused on investments in developed markets, if opportunities that present an attractive risk and reward profile are available in emerging markets then these may also be pursued.

While many of the companies forming the portfolio are headquartered in the UK, USA or Europe, it should be noted that many of those companies are global in nature, so their reporting currency may not reflect their actual geographic or currency exposures.

Investment Restrictions

Subject at all times to any applicable investment restrictions contained in the Listing Rules from time to time, the Portfolio Manager will not make an investment if it would cause the Company to breach any of the following limits at the point of investment:

•         no more than 20% of the Company’s gross assets may be invested, directly or indirectly through external funds, in the securities of any single entity; and

•         no more than 20% of the Company’s gross assets may be invested in a single external fund.

Hedging

The Company may enter into any hedging or other derivative arrangements which the Portfolio Manager may from time to time consider appropriate for the purpose of efficient portfolio management, and the Company may for this purpose leverage through the use of options, futures, options on futures, swaps and other synthetic or derivative financial instruments.

The Portfolio Manager does not expect to engage in currency hedging on a regular basis. However, given that a proportion of the Company’s assets are denominated in currencies other than sterling, the Company is subject to foreign exchange risks which could adversely affect the net asset value. Accordingly, the Portfolio Manager may occasionally, within such parameters as are approved by the AIFM and in accordance with the Company’s investment policy, seek to hedge the Company’s exposure to non-sterling assets.

During the final quarter of the year, the Portfolio Manager employed foreign exchange forwards to hedge 50% of the Company’s US dollar and euro exposures.

Cash Management

There is no restriction on the amount of cash or cash equivalent instruments that the Company may hold and there may be times when it is appropriate for the Company to have a significant cash position instead of being fully or near fully invested.

Borrowing Limits

The Company may incur indebtedness for working capital and investment purposes, up to a maximum of 20% of the net asset value at the time of incurrence. The decision on whether to incur indebtedness may be taken by the Portfolio Manager within such parameters as are approved by the AIFM and the Board from time to time. There will be no limitations on indebtedness being incurred at the level of the Company’s underlying investments (and measures of indebtedness for these purposes accordingly exclude debt in place at the underlying investment level).

At the date of this report, the Company had no borrowings.

In addition, under the AIFMD rules, the Company is required to set maximum leverage limits. Leverage is defined under the AIFMD as any method by which the total exposure of an AIF is increased.

The Board and the AIFM have set the maximum leverage limits of 200% on a gross basis and 120% on a commitment basis. Further explanation is provided in the Glossary.

As at 31 December 2017, the Company employed leverage through the use of foreign currency forwards, resulting in leverage of 118.2% under the gross method and 97.3% under the commitment method.

Other Investment Restrictions

The Company will at all times invest and manage its assets with the objective of spreading risk and in accordance with its published investment policy.

The Listing Rules currently restrict the Company from investing more than 10% of its total assets in other listed closed-ended investment funds, save that this restriction does not apply to investments in closed-ended investment funds which themselves have published investment policies to invest no more than 15% of their total assets in other listed closed-ended investment funds. The Company will comply with this investment restriction (or any variant thereof) for so long as such restriction remains applicable.

At the date of this report, the Company was not invested in any closed-ended investment funds.

In the event of any material breach of the investment restrictions applicable to the Company, shareholders will be informed of the actions to be taken by the AIFM through an announcement to the Stock Exchange.

Portfolio

Investments held as at 31 December 2017

Investment	Country/ region	Fair Value £’000	% of Total Net Assets		Business Description	Theme
X-ELIO1	Spain*	11,675	15.8		Develops and operates solar energy products	Clean energy production
Airbus	France	6,705	9.1		Designs and manufactures aircraft	Sustainable transport
Safran	France	5,799	7.9		Supplies systems and equipment for aerospace, defence & security	Sustainable transport
Volkswagen	Germany	5,553	7.5		Designs and manufactures cars and light commercial vehicles, including electric vehicles	Sustainable transport
Infigen Energy	Australia	4,436	6.0		Develops, owns and operates renewable energy generation assets	Clean energy production
Alpina Partners Fund	UK*	3,620	4.9		Growth capital fund managed by specialist environmental private equity firm	Resource and energy efficiency
Calvin Capital2	UK*	3,500	4.7		Invests in utility infrastructure assets	Resource and energy efficiency
Senvion	Germany	3,482	4.7		Manufactures wind turbines	Clean energy production
Brookfield Renewable Energy	Canada	3,316	4.5		Open-ended fund investing in hydroelectric and wind facilities	Clean energy production
TerraForm Power	United States	2,890	3.9		Operates contracted renewable energy assets	Clean energy production
Top Ten investments		50,976	69.0
Atlantica Yield	United States	2,417	3.3		Owns and manages contracted renewable energy assets	Clean energy production
Air Products & Chemicals	United States	2,377	3.2		Sells gases and chemicals for industrial uses	Resource and energy efficiency
Adient	United States	2,263	3.1		Manufacturer of lightweight automotive seating components	Sustainable transport
FirstGroup	UK	2,103	2.9		Operates transport services in the UK, Ireland, Canada and United States	Sustainable transport
WCP Growth Fund	UK*	1,062	1.5		Growth capital fund managed by specialist environmental PE firm, Alpina Partners	Resource and energy efficiency
Perfin Apollo	Brazil*	680	0.9		Builds and operates energy transmissions lines in Brazil	Resource and energy efficiency
Sanepar	Brazil	652	0.9		Provides treated water supply, sewage collection and treatment and solid waste management services	Water and waste management
Copasa	Brazil	361	0.5		Water utility company	Water and waste management
Terra Santa Agro	Brazil	286	0.4		Substainable agricultural production and land development	Resource and energy efficiency
Atlantica Yield – Bonds	United States	156	0.2		Owns and manages contracted renewable energy assets	Clean energy production
Total investments		63,333	85.9
Net Current Assets		10,359	14.1
Total Net assets		73,692	100.0

¹ Investment made through Helios Co-Invest L.P.

² Investment made through KKR Evergreen Co-Invest L.P.

* Unquoted

Portfolio Manager’s Review

Investment & Business Review

Menhaden Capital PLC launched in an initial public offering on the main market of the London Stock Exchange on 31 July 2015. Our aim is to create a portfolio that applies a patient yet opportunistic investment approach to a series of global energy and resources-linked megatrends – ‘the green industrial shift’. Our portfolio is concentrated, generally comprising around 20 positions.

Performance

During 2017, the Company’s NAV per share increased from 85.4p to 92.1p. This represents an increase of 7.8% for the year. The Company’s share price traded at a 25.6% discount to NAV as at 31 December 2017.

The contribution to the 7.8% NAV per share gain over the period is summarised below:

Asset Category	31 December 2017 NAV %	Contribution %
Quoted Equities	44.8	5.1
Private Investments	27.8	2.6
Yield Investments	13.3	1.5
Liquidity	13.5	–
Foreign exchange forwards	0.6	0.7
Gross return		9.9
Expenses	–	(2.1)
Net Assets	100.0%	7.8

After a difficult start, our recovery continues to make progress. Luciano Suana, as lead portfolio manager, has brought a relentless focus on value. As such, we have continued to rotate our portfolio in favour of holdings that reflect that focus. We assess all opportunities through a value lens, with the aim of identifying investments with low downside risk, backed by identifiable assets and cash flows, which we can acquire at attractive valuations. We remain conviction investors and as such our portfolio is concentrated, currently comprising just 19 positions. This strategy is working out. Our NAV per share rose from 76.2p at the low point in Q1 2016, to 92.1p at the year-end, an increase of over 20% (in part due to the weakening of sterling during that period).

We have maintained a material cash position during the course of the year, ranging between 10 and 15%. This cash is largely ear-marked to cover our commitments to both the Alpina Partners Fund and to Perfin-Apollo, which is building electricity transmission infrastructure in Brazil. Moreover, given valuations generally, we are treading carefully as to our total equity market exposure. For the first time we have made use of currency foreign exchange hedges – hedging out half of our euro and US dollar exposure against sterling in the last quarter of the year.

Quoted Equity

The Quoted Equity portfolio’s contribution to the gain was 5.1% for the year and accounted for 44.8% of the portfolio as at 31 December 2017.

During Q1 we sold our position in Acuity Brands, a provider of LED lighting solutions, which had posted double digit volume growth for 14 consecutive quarters ending in November 2016. At the 2016 year-end Acuity was trading at 16x forward EBITDA estimates and was starting to show signs of slowing growth. At this point we felt the risk of loss far outweighed the expectation of gain and so we divested the position. In the same vein we have now sold the other positions in the portfolio which we felt did not fit our value focus, comprising Borgwarner, Johnson Matthey, Rockwell Automation, Roper Technologies, Shimano, Stericycle and Wabtec. Meanwhile we continue to hold industrial gases manufacturer, Air Products, which supplies gases which help different industrial sectors to use energy and resources more efficiently, and with lower emissions.

We added four new public equity positions during 2017. The first of these is Infigen, Australia’s leading wind energy developer and operator. Infigen has raised significant new capital for financing a series of large new projects, and for increasing the flexibility of its balance sheet. During 2017 significant debate has taken place in Australia about the country’s future energy model and a consensus has been reached that renewable energy must play a big role in the country’s electricity generation mix, not least to achieve Australia’s stated emissions reductions targets. In our view the current share price offers good value in respect of Infigen’s portfolio of installed wind assets. Moreover, the company is well placed to generate strong development returns from its pipeline of 1,000 MW of new wind assets. Despite positive updates from Infigen for production and revenue the position declined 10.6% during the year, costing us 0.8% of NAV. We believe the weakness in the share price is related to uncertainty around the refinancing of its debt and concerns over Government policy as well as the large investments being made generally in large-scale renewable energy.

Our second new position is Adient, one of the world’s largest automotive seating suppliers, which was spun out of Johnson Controls (JCI) late last year. Adient’s innovative weight-optimised components contribute to reduced fuel consumption. JCI investors viewed Adient as a low quality, cyclical business which resulted in heavy early selling of the stock. We like Adient because of its strong position in a rational, oligopolistic market, its significant barriers to entry, and the fact that the company has a clear path to improving operating performance (Adient’s operating costs are approximately 2% higher than its nearest competitor).

The third new position is Senvion, a mid-sized German wind turbine manufacturer. Senvion has a particularly strong position in turbines suited to high wind speed locations and we believe that the company is well positioned for growth given the strength of its new management team – largely drawn from the German automotive industry, and given the business is freed from constraints placed upon it under previous ownership. Senvion has significant cost cutting opportunities and is trading at a healthy discount to its peers. Despite a solid order intake during the course of 2017, the value of our holding has declined by 13.6%, costing us 0.8% of NAV. We believe this is as a result of recent negative sentiment surrounding the wind sector generally. Regulatory uncertainty in Germany, the rapidly declining power price curve and increased competition as the technology matures have all contributed to this. Having met with members of Senvion’s new management team, our confidence in the company’s competitive positioning and the ongoing execution plan remains strong.

Finally, we have initiated a small position in a Brazilian agriculture business, Terra Santa Agro, which owns and operates high quality arable land in Brazil’s Mato Grosso state. Terra Santa Agro’s share price trades at a significant discount to NAV. The group maintains a keen focus on improving efficiency with recent investments increasing harvest capacity by 33%. Moreover, Terra Santa operates to the highest standards of sustainability with 50% of its land reserved for nature.

Our three biggest equity positions were also the leading contributors during the year. We continued to add to the position in Airbus, which was 9.1% of NAV at the end of the year. Airbus was the biggest contributor, gaining 40.3% and adding 2.8% to NAV. While Airbus delivered 718 commercial aircraft in 2017, compared to Boeing’s total of 763, the European group has a substantially lower market value. We believe that the market is starting to recognise this disparity. Aviation is an industry we believe is only going to grow, and so fuel efficiency is key. In recent years Airbus has achieved dramatic fuel efficiency gains – in part delivered in partnership with key engine supplier, Safran (another Menhaden portfolio company).

We invested in Volkswagen after we became confident in its new management team and changes to its governance structure and vehicle emission testing practices. The Volkswagen position added 1.9% to NAV in the year and we added to it over the year such that it represented 7.5% of NAV at the year-end. Much of the gain arose during Q4 after the company lifted its revenue and profit targets to 2020 and gave investors a firm commitment to raising its dividend ratios. Volkswagen has continued to ramp up its ambition to be a world leading manufacturer of electric vehicles, stating in its 2017 interim report that the Company’s ‘development activities up to 2025 will focus on more than 30 new electric vehicle models’. The Company’s impact report for 2017 goes into greater detail on Volkswagen’s electric vehicle business and ambitions as well our monitoring of its governance and vehicle environmental performance and contributions to reducing global vehicle emissions.

Following additional purchases during the year Safran, a leader in the development and manufacture of increasingly fuel-efficient aviation engines, now represents 7.9% of our portfolio and gained 19.4% during the year, adding 1.4% to NAV. We maintain our high conviction in Safran due to the high visibility of the company’s revenues and earnings during the coming five years.

Yield

The Yield portfolio’s contribution to the overall NAV gain was 1.5% for the year and accounted for 13.3% of the portfolio as at 31 December 2017.

The sale of Terraform Global to Brookfield Renewable Energy Partners took place at the very end of 2017, resulting in us receiving proceeds of circa £1.4 million. It is for this reason, as well as the partial sale of Terraform Power (also to Brookfield), that our allocation to Yield investments was lower than target at year-end.Abengoa’s debt restructuring plan was approved during the summer and creditors injected over €1 billion into the company to enable it to continue operations and complete some late stage projects. We subscribed just over €1 million to the Company’s portion of this capital injection, which was well collateralised by a stake in Atlantica Yield. After the restructuring the bonds increased in value, adding 0.5% to our NAV and we decided to exit the position in the second half of the year as we felt the bonds no longer offered a material upside.

Meanwhile, during the course of the year we added to our position in Atlantica Yield, taking that position to 3.3% of total NAV by the year end. Our thesis has always been that a high quality new sponsor would take the place of Abengoa as sponsor of Atlantica Yield. So we were delighted by the announcement that Canadian utility Algonquin has acquired a 25% stake in Atlantica at a price of US$24.25/share. Atlantica added 0.2% to our NAV during the course of the year, and now trades on a dividend yield of approximately 5%.

This transaction is similar to the acquisition by Brookfield Renewable Energy Partners (another of our portfolio companies) of 51% of Terraform Power earlier this year– which resulted in a return of £2,062,000 of cash to us. Terraform Power remains listed whilst Brookfield, as new sponsor, provides the resources to expand the operating portfolio. We hold Brookfield in high esteem and believe their expertise in asset management will enable Terraform Power to grow in a sustainable, profitable manner. Brookfield itself was a strong performer during the year; the position was ahead by 14.2%, adding 0.6% to our NAV.

During the course of the year we bought and then sold a position in Spanish electricity transmission monopoly, Red Electrica. We sold this position because of uncertainty over the ongoing troubles arising in Spain as a result of the Catalonia independence issue. This position added 0.6% to NAV during 2017.

Private Investments

The Private Equity portfolio’s contribution to the gain was 2.6% for the year and accounted for 27.8% of the portfolio as at 31 December 2017.

During Q1 we completed a £3.5 million investment in Calvin Capital, one of the largest independent electricity meter providers in the UK, alongside the infrastructure arm of global investment firm KKR. Calvin provides us with a differentiated opportunity to enter a core segment of the UK residential utility space through an established platform offering potentially strong downside protection and cash yield through the existing portfolio of meters, as well as growth potential through a large contracted pipeline of upcoming meter installations and further growth opportunities in a legislated smart meter rollout programme in the UK. Calvin’s business model is to purchase electricity meters on behalf of energy suppliers, fund and pay for their installation and manage the billing process throughout their expected operating life of over 20 years. That investment has had a good first year. Calvin has achieved growth in its portfolio of smart meters, has won a significant new contract in Australia and is performing significantly ahead of plan on both revenue and profitability. Calvin’s senior management team continues to develop its strategy for adjacent sectors, including electric vehicle charging stations, batteries and LED lighting. This position is held at cost.

Since closing our investment in X-ELIO in December 2015 (our largest position at 15.8% of NAV at the end of 2017) the Company has hit a number of milestones. X-Elio has delivered the commercial operation of a new 25 MW solar power plant in Japan, a 58 MW plant in Chile and is currently constructing 117 MW of new capacity in Japan. In addition, the operating performance of X-ELIO’s operating assets came in ahead of expectations in 2016 and again in 2017. As a result, the holding value of this position was marked up again by 10% at the end of the third quarter. Moreover, we received a distribution of cash from X-ELIO during Q4, representing circa 3.9% of the cost of the investment. We remain confident in our original thesis and see X-ELIO as well positioned to benefit from the global shift towards solar photo voltaic (“PV”), as a result of the company’s footprint across the key global solar markets and a fully integrated business model centred around developing, constructing and managing solar PV plants.

In Q2 we completed our third direct private equity investment in Perfin Apollo 12, with a total commitment of approximately £4.4 million. Of this approximately £750,000 had been drawn down by the year end, representing approximately 0.9% of our NAV. Perfin is an investment vehicle focused on the development of Brazilian electricity transmission assets, alongside one of the largest public transmission companies in Brazil, Alupar. Brazil is the second largest producer of hydroelectric power in the world, trailing only China, and the country depends on hydroelectricity for more than 75% of its electric power supply. Perfin Apollo 12 participated in the latest round of government auctions for transmission licences and will hold 49% of the equity of each individual transmission asset with Alupar holding the rest. The expected returns for the transmission assets in Brazilian Reals are inflation plus 10-12%. Perfin Apollo 12 also holds a put option that allows it to sell the assets back to Alupar, regardless of performance, at inflation plus 5% per annum, nine years after deployment.

The Alpina Partners Fund, a private equity fund, added 2.1% to NAV during the year. This performance was driven by three factors: the Fund successfully sold one of its portfolio holdings; the NAV of the Fund increased during the year; and the discount to NAV, reflected in the sale of half our stake in the Fund in March (we had divested over concerns that, once fully invested, the position could have represented nearly 15% of our NAV), was fully unwound in the Company’s year end valuation.

Our holding in the WCP Growth Fund declined further, costing us 1.9% of NAV. Holdings in remaining portfolio companies which are likely to require further equity financing were written down on the basis that the fund may be diluted in future financing rounds. This position now represents just 1.4% of our NAV.

Conclusion

We are delighted that both Jessica Kaur and Edward Pybus have joined our team as research analysts. Previously, Jessica was an Associate Director at UBS in the Research division, where she was a covering analyst in the UK mid-cap team. Edward was an Analyst at Exane BNP Paribas in the Research division, where he was a member of the Oil & Gas team and covered European integrated oil companies.

The investment case for our energy and resource efficiency mandate continues to strengthen. Governments around the world, notably including China, are intensifying their focus on energy and resource efficiency. Businesses, which were often ahead of governments in this regard, are increasing the rate of change of their business models. This transition is greatly helped by lowering costs: for example, solar and wind are increasingly competitive with conventional power in many jurisdictions, and the lifetime costs of electric vehicles are starting to be competitive with internal combustion engine vehicles.

Our team is now complete, our processes are working well, our portfolio is solid, and so, as we enter 2018, we remain confident in our ability to generate excellent long-term risk-adjusted returns from these themes.

Menhaden Capital Management LLP

Portfolio Manager

23 March 2018

Investment Committee

Menhaden Capital Management LLP has been appointed as the Company’s Portfolio Manager. The Portfolio Manager’s Investment Committee makes all investment and disinvestment decisions in respect of the Company.

Graham Thomas

Graham Thomas is the non-executive chairman of the Investment Committee. Before founding Menhaden Capital Management LLP with Ben Goldsmith, Graham chaired RIT Capital Partners plc’s Executive Committee. Prior to this, Graham was the head of the Standard Bank Group’s US$3 billion Principal Investment Management division, which was established in 2008 under his leadership. He joined Standard Bank from MidOcean Partners in London, where he was a founding partner. Before MidOcean Partners, he was an Executive Director in the Investment Banking Division of Goldman Sachs & Co.

Graham is currently CEO of private equity firm, Stage Capital, and on the investment committee of Apis Partners. He is a Rhodes Scholar with degrees from Oxford and the University of Cape Town.

Ben Goldsmith

Ben is the Chief Executive Officer of Menhaden Capital Management LLP. Before co-founding Menhaden Capital Management LLP, Ben co-founded the WHEB group, one of Europe’s leading energy and resource-focused fund investment businesses. Ben is a director of Cavamont Holdings, the Goldsmith family’s investment holding vehicle. Ben also chairs the UK Conservative Environment Network, a group which has a preference for decentralised, market-orientated solutions to environmental and resource issues.

Luciano Suana

Luciano is an investment manager at Menhaden Capital Management LLP. Before joining Menhaden Capital Management LLP, Luciano was a Director of Barclays Capital in the Capital Markets division where he ran the credit trading operations for Brazil out of São Paulo. Before Barclays, Luciano was a Director of Dresdner Kleinwort in London. There he focused mainly on Infrastructure, Utilities and Real Estate assets as head of the Illiquids Credit group.

Luciano holds a Licenciatura in business administration from Universitat Autònoma de Barcelona and was granted the Premio Extraordinario de Fin de Carrera for outstanding academic performance.

Investment Process

Investment Process

The portfolio management team, which has day to day responsibility for managing the portfolio, is led by Luciano Suana, and comprises Ben Goldsmith, Edward Pybus and Jessica Kaur.

The portfolio management team presents investment opportunities to the Investment Committee, which is chaired by Graham Thomas.

Thematically, the team seeks to invest in opportunities, publicly traded or private, which either deliver or benefit from the more efficient use of energy and resources. All investment opportunities are assessed through a value lens, with the aim of acquiring investments with low downside risk, backed by identifiable assets and cash flows, at attractive valuations. The team seeks to invest with a long-term perspective, and with high conviction. Consequently, the portfolio comprises around 20 positions and the team aims for portfolio turnover to be low.

When identifying suitable investment opportunities, the portfolio management team is cognisant of the UK Stewardship Code and the UN Principles of Responsible Investment.

Investment Committee

The Investment Committee meets weekly in order to consider the investment opportunities presented by the portfolio management team. All investment decisions must be made with the unanimous consent of all members of the Investment Committee unless one of the members has a potential conflict of interest, in which case that member will excuse himself from that particular decision.

Strategic Advisory Group

The Investment Committee is supplemented by a Strategic Advisory Group, which assists the Committee in implementing the Company’s investment objective and policy. The Strategic Advisory Group does not have a formal mandate or responsibilities, but meets with the Investment Committee from time to time to discuss the macroeconomic environment, factors affecting the broad investment theme of the Company, market conditions and portfolio construction.

Investment Network

The portfolio manangement team has access to a proprietary investment network, which includes a group of investment managers of external funds and, from time to time, external experts and advisers. The portfolio management team believe that this is of benefit to the investment process and helps to source opportunities that they believe would not otherwise be available to the Company.

Business Review

The Strategic Report has been prepared solely to provide information to shareholders to assess how the Directors have performed their duty to promote the success of the Company.

The Strategic Report contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them up to the date of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information.

Business Model

The Company is an externally managed investment trust and its shares are premium listed on the Official List and traded on the main market of the London Stock Exchange.

The Company is an Alternative Investment Fund (“AIF”) under the European Union’s Alternative Investment Fund Managers Directive (“AIFMD”) and has appointed Frostrow Capital LLP as its Alternative Investment Fund Manager (“AIFM”).

As an externally managed investment trust, all of the Company’s day-to-day management and administrative functions are outsourced to service providers. As a result, the Company has no executive directors, employees or internal operations.

The Board

Details of the Board of Directors of the Company are set out later in this report.

All Directors will seek re-election by shareholders at the Annual General Meeting to be held on 22 May 2018.

Board Focus and Responsibilities

With the day-to-day management of the Company outsourced to service providers, the Board’s primary focus at each Board meeting is reviewing the investment performance and associated matters such as future outlook and strategy, gearing, asset allocation, investor relations, marketing and industry issues.

In line with its primary focus, the Board retains responsibility for all the key elements of the Company’s strategy and business model, including:

•         continuous review of the investment objective and policy, incorporating the investment guidelines and limits;

•         review of the maximum levels of gearing and leverage the Company may employ;

•         review of performance against the Company’s KPIs and peer group;

•         review of the performance and continuing appointment of service providers; and

•         maintenance of an effective system of oversight, risk management and corporate governance.

The investment objective and policy, including the related limits and guidelines, are set out above, along with the details of the leverage and gearing levels allowed.

Details of the principal KPIs and further information on the principal service providers, their performance and continuing appointment, along with details of the principal risks and how they are managed, follow within this Business Review.

The Corporate Governance Statement, on pages 36 to 39, includes a statement of compliance with corporate governance codes and best practice. The Audit Committee Report contains an outline of the internal control and risk management framework within which the Board operates.

Key Performance Indicators (“KPIs”)

The Board monitors the following KPIs, details of which can be found above:

•         Net asset value (“NAV”) per share total return;

•         Share price total return;

•         Discount/premium of share price to NAV per share;

•         Ongoing charges ratio; and

•         Performance against the MSCI World Total Return Index (in sterling) and the Company’s peer group.

NAV per share total return

The Directors regard the Company’s NAV per share total return as being the overall measure of value delivered to shareholders over the long-term. This reflects both the net asset value growth of the Company and any dividends paid to shareholders.

Share price total return

The Directors regard the Company’s share price total return to be a key indicator of performance and monitor this closely. This reflects the return to the investor on mid-market prices, assuming any dividends paid are reinvested.

Share price discount/premium to NAV per share

The share price discount/premium to NAV per share is considered a key indicator of performance as it impacts the share price total return and can provide an indication of how investors view the Company’s performance and its investment objective.

Ongoing charges ratio

The Board is conscious of expenses and aims to ensure there is a balance between good quality services and costs.

The ongoing charge ratio reflects the costs incurred directly by the Company and is calculated in accordance with the AIC guidance on ongoing charges.

MSCI World Total Return Index

Whilst the Company pursues an active, non-benchmarked total return strategy, the Board considers the NAV per share total return performance against the MSCI World Total Return Index measured on a net total return, sterling-adjusted basis.

The Board also monitors the Company’s NAV return against its peer group and other relevant indices such as the Widerhill New Energy Global Innovation Index (in sterling) and the AIC Environmental Sector. Details are given in the Chairman’s Statement.

A full description of performance during the period under review and the portfolio is contained in the Portfolio Manager’s Review.

Principal Service Providers

The principal service providers to the Company are Frostrow Capital LLP (“Frostrow” or the “AIFM”), Menhaden Capital Management LLP (“MCM” or the “Portfolio Manager”) and J.P. Morgan Europe Limited (the “Depositary”). Details of their key responsibilities and their contractual arrangements with the Company follow.

AIFM

The Board has appointed Frostrow as the designated AIFM for the Company on the terms and subject to the conditions of the alternative investment fund management agreement between the Company and Frostrow (the “AIFM Agreement”). The AIFM Agreement assigns to Frostrow overall responsibility to manage the Company, subject to the supervision, review and control of the Board, and ensures that the relationship between the Company and Frostrow is compliant with the requirements of the AIFMD. Frostrow, under the terms of the AIFM Agreement provides, inter alia, the following services:

•         risk management services;

•         marketing and shareholder services;

•         administrative and secretarial services;

•         advice and guidance in respect of corporate governance requirements;

•         maintenance of the Company’s accounting records;

•         preparation and dispatch of the annual and half yearly reports and monthly factsheets; and

•         ensuring compliance with applicable tax, legal and regulatory requirements.

The notice period on the AIFM Agreement is six months and termination can be initiated by either party.

AIFM Fee

Under the terms of the AIFM Agreement, Frostrow receives a periodic fee equal to 0.225% per annum of the Company’s net assets up to £150 million, 0.220% per annum of the net assets in excess of £150 million and up to £500 million, and 0.175% per annum of the net assets in excess of £500 million.

Portfolio Manager

Under the AIFM Agreement, MCM as delegate of the AIFM is responsible for the management of the Company’s portfolio of investments under an agreement between MCM, the Company and Frostrow (the “Portfolio Management Agreement”). Under the terms of the Portfolio Management Agreement, MCM provides, inter alia, the following services:

•         seeking out and evaluating investment opportunities;

•         recommending the manner by which cash should be invested, divested, retained or realised;

•         advising on how rights conferred by the investments should be exercised;

•         analysing the performance of investments made; and

•         advising the Company in relation to trends, market movements and other matters which may affect the investment objective and policy of the Company.

Portfolio Management Fee

MCM receives a periodic fee equal to 1.25% of the Company’s net assets up to £150 million and 1.00% of the Company’s net assets in excess of £150 million.

Performance Fee

Dependent on the level of the long-term performance of the Company, MCM is entitled to a performance fee.

In respect of a given three year performance period, a performance fee may be payable equal to 10% of the amount, if any, by which the Company’s adjusted NAV at the end of that performance period exceeds the higher of (a) a compounding hurdle on the gross proceeds of the IPO of 5% per annum; and (b) a high watermark*. The performance fee is subject to a cap in each performance period of an amount equal to the aggregate of 1.5% of the weighted average NAV in each year (or part year, as applicable) of that performance period.

Depositary

The Company has appointed J.P.Morgan Europe Limited as its Depositary in accordance with the AIFMD on the terms and subject to the conditions of an agreement between the Company, Frostrow and the Depositary (the “Depositary Agreement”). The Depositary provides the following services, inter alia, under its agreement with the Company:

•         safekeeping and custody of the Company’s custodial investments and cash;

•         processing of transactions; and

•         foreign exchange services.

The Depositary must take reasonable care to ensure that the Company is managed in accordance with the Financial Conduct Authority’s Investment Funds Sourcebook, the AIFMD and the Company’s Articles of Association.

Under the terms of the Depositary Agreement, the Depositary is entitled to receive an annual fee of the higher of £40,000 or 0.175% of the net assets of the Company up to £150 million, 0.15% of the net assets in excess of £150 million and up to £300 million, 0.1% of the net assets in excess of £300 million and up to £500 million and 0.05% of the net assets in excess of £500 million. In addition, the Depositary is entitled to a variable custody fee which depends on the type and location of the custodial assets of the Company.

The Depositary has delegated the custody and safekeeping of the Company’s assets to JPMorgan Chase Bank N.A., London branch (the “Custodian”).

The notice period on the Depositary Agreement is 90 days if terminated by the Company and 120 days if terminated by the Depositary.

Evaluation of the AIFM and the Portfolio Manager

The performance of the AIFM and the Portfolio Manager is reviewed continuously by the Board and the Company’s Management Engagement Committee (the “MEC”) with a formal evaluation process being undertaken each year. As part of this process, the Board monitors the services provided by the AIFM and the Portfolio Manager and receives regular reports from them. The MEC reviewed the appropriateness of the appointment of the AIFM and the Portfolio Manager in November 2017 with a recommendation being made to the Board.

The Board believes the continuing appointment of the AIFM and the Portfolio Manager, under the terms described above, is in the interests of shareholders as a whole. In coming to this decision, the MEC and the Board took into consideration, inter alia, the following:

•         the quality of the service provided and the quality and depth of experience of the company management, company secretarial, administrative and marketing team that the AIFM allocates to the management of the Company; and

•         the quality of service provided by the Portfolio Manager to the management of the portfolio; and the level of performance in the portfolio in absolute terms and by reference to the MSCI World Total Return Index and other relevant indices.

Principal Risks and Uncertainties

In fulfilling its oversight and risk management responsibilities the Board maintains a framework of key risks which affect the Company and the related internal controls designed to enable the Directors to manage/mitigate these risks as appropriate. The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

The principal risks can be categorised under the following broad headings:

•         investment risk;

•         financial risk;

•         operational risks (including accounting, cyber security, compliance and regulatory risks); and

•         shareholder relations and share price performance risk.

Further information on the internal controls and the risk management framework can be found below. The following sections detail the risks the Board considers to be the most significant to the Company under these headings.

Investment Risk

The Board recognises that investment risk is the most significant risk to which the Company is exposed through investing in quoted and unquoted securities, both in the UK and overseas, as a result of which it has exposure to the risk of changes in asset prices and foreign exchange rates. Investment risk is comprised of two main aspects: market risk and concentration risk.

Market risk is the risk that the value of investments will change due to the overall performance of financial markets or macro-economic factors. It cannot be eliminated through diversification, though it can be hedged against. The Company’s policy on hedging is set out on in the Investment Policy.

Concentration risk is the risk that the value of an investment or a small number of similar investments changes due to factors specific to them or the sector in which they operate. This type of risk can be reduced by diversification of the portfolio. The Board have set diversification requirements, relating to both individual investments and asset allocation, within which the investment portfolio is managed, but investors should be aware that the Company expects to invest in a relatively concentrated portfolio of securities. The Company is therefore exposed to the potentially higher volatility arising from a concentrated portfolio and risks specific to the sectors in which it invests, such as global energy and commodity prices or withdrawal of government subsidies for renewable energy.

To manage investment risk the Board has appointed the AIFM and the Portfolio Manager to manage the Company within the remit of the investment objective and policy. Compliance with the investment objective and policy is monitored daily by the AIFM and reported to the Board on a monthly basis.

Regular reports are received from the AIFM and the Portfolio Manager on stock selection and asset allocation, and they report at each Board meeting on the portfolio and performance of the Company, including the rationale for stock selection decisions, the make-up of the portfolio, potential new holdings and the investment strategy.

Financial Risk

In addition to market and concentration risk, discussed above, the Company is exposed to credit risk arising from the use of counterparties. If a counterparty were to fail, the Company could be adversely affected through either delay in settlement or loss of assets.

The most significant counterparty to which the Company is exposed is J.P. Morgan Europe Limited, the Depositary, which is responsible for the safekeeping of the Company’s custodial assets.

Credit risk is managed by the Board through:

•         reviewing the arrangements with, and services provided by, the Depositary to ensure that the security of the Company’s custodial assets is being maintained;

•         reviewing Frostrow’s approved list of counterparties, the Company’s use of those counterparties and the Portfolio Manager’s process for monitoring and adding to the approved counterparty list; and

•         monitoring of counterparties, including reviewing their internal control reports and credit ratings, as appropriate.

Further information on the use of financial instruments and their risks, including credit risk, can be found in note 14 to the financial statements.

Details of the work undertaken in regard to verifying ownership and the valuation of unquoted (non-custodial) assets is set out in the Audit Committee Report.

Operational Risk

The Company is an externally managed investment trust and as such has no employees or systems of its own. The Company is therefore dependent on its service providers, particularly the AIFM and the Portfolio Manager. It is exposed to the risk associated with the departure of a key member of the AIFM or Portfolio Manager, for whom there could be no guarantee of a suitable replacement being found, and a disruption to, or a failure of, its service providers’ systems, which could lead to a failure to comply with applicable law and regulations resulting in reputational damage and/or financial loss to the Company.

To manage these risks the Board:

•         monitors on a regular basis the performance of the AIFM and the Portfolio Manager, including developments within their teams;

•         receives a monthly compliance report from Frostrow, which includes, inter alia, details of compliance with applicable laws and regulations;

•         reviews internal control reports and key policies, including measures taken to combat cyber security issues and the disaster recovery procedures of its service providers;

•         maintains a risk matrix with details of risks to which the Company is exposed, the controls relied on to manage those risks and the frequency of the controls operation; and

•         receives updates on pending changes to the regulatory and legal environment and progress towards the Company’s compliance with such changes.

The Board has considered whether the UK’s exit from the European Union (“Brexit”) poses a unique risk to the Company. The Board believes that Brexit is unlikely to affect the Company’s business model or how the Company’s shares are sold but will continue to monitor regulatory and tax-related developments.

Shareholder Relations and Share Price Performance Risk

The Company is also exposed to the risk, particularly if the investment strategy and approach are unsuccessful, that the Company may underperform resulting in the Company becoming unattractive to investors and a widening of the share price discount to NAV per share.

In managing this risk the Board:

•         reviews the Company’s investment objective in relation to the market, economic conditions and the operation of the Company’s peers;

•         discusses at each Board meeting the Company’s future development and strategy;

•         reviews an analysis of the shareholder register and reports from the Company’s corporate stockbroker at each Board meeting; and

•         actively seeks to promote the Company to current and potential investors.

Company promotional activities have been delegated to Frostrow, who report to the Board at each Board meeting on these activities.

Viability Statement

The Directors have carefully assessed the Company’s current position and prospects as described in the Chairman’s Statement and the Portfolio Manager’s Review, as well as the Principal Risks and Uncertainties and have formed a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five financial years.

The particular factors the Directors have considered in assessing the prospects of the Company, its ability to liquidate its portfolio, and in selecting a suitable period in making this assessment are as follows:

•         the Board and the Portfolio Manager will continue to adopt a long-term view when making investments. When making a new investment the anticipated holding period can be five years or more.

•         the portfolio includes investments traded on major international stock exchanges and there is a spread of investments by size of company. It is estimated that 47% of the portfolio could be liquidated, in normal market conditions, within seven trading days;

•         the Company’s expenses are predictable and modest in comparison with the assets and there are no capital commitments foreseen which would alter that position; and

•         the Company has no employees, only non-executive Directors, and consequently does not have employment related liabilities or responsibilities.

The Company is intended to operate over the long-term; however due to the limitations and uncertainties inherent in predicting market conditions the Directors have determined that five years is the longest period for which it is reasonable to make this assessment.

In carrying out their assessment, the Directors made the following assumptions:

•         investors will wish to continue to have exposure to the type of companies that the Company invests in, namely those companies that deliver or benefit from the efficient use of energy and resources;

•         the performance of the Company will be satisfactory; and

•         the threats to the Company’s solvency or liquidity incorporated in the Principal Risks will be managed or mitigated as outlined elsewhere in this report.

Based on the results of this review, the Directors have formed a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five financial years.

Company Promotion

The aim of the Company’s promotional activities is to encourage demand for the Company’s shares. The Company has appointed Frostrow to provide marketing services in the belief that a well-marketed company is more likely to grow over time, is more likely to have a diverse and stable shareholder register and be more likely to trade at a superior rating to its peers.

Frostrow looks to promote the Company in the following ways:

Engaging regularly with institutional investors, discretionary wealth managers and a range of execution-only platforms:

Frostrow regularly meets with institutional investors, discretionary wealth managers and execution-only platform providers;

Making Company information more accessible:

Frostrow works to raise the profile of the Company by targeting key groups within the investment community, holding annual investment seminars, overseeing PR output and managing the Company’s website and wider digital offering, including webcasts and social media. Frostrow also manages the investor database and produces all key corporate documents, distributes monthly factsheets, annual reports and updates from the Portfolio Manager on portfolio and market developments; and

Monitoring market activity, acting as a link between the Company, shareholders and other stakeholders:

Frostrow maintains regular contact with sector broker analysts and other research and data providers, and provides the Board with up-to-date and accurate information on the latest shareholder and market developments.

In addition the Board has appointed Kepler Partners LLP to produce and distribute market research on the Company.

Board Diversity

The Board strongly supports the principle of boardroom diversity, of which gender is one important aspect, and the recommendations of Lord Davies’ review. The Board’s aim is to have a broad range of approaches, backgrounds, skills and experience represented on the Board and to make appointments on merit against objective criteria, including diversity. The Board currently comprises one woman and three men, meeting Lord Davies’ original recommendation.

Social, Human Rights and Environmental Matters

The Company is an externally-managed investment trust within the AIC Environmental Sector and invests in companies and markets which deliver or benefit from the more efficient use of energy or resources. It does not have any employees or premises, nor does it undertake any manufacturing or other operations. All its functions are outsourced to third party service providers and therefore the Company does not have any employee or direct human rights issues, nor does it have any direct, material environmental impact.

As an investment company, the Company does not provide goods or services in the normal course of business and does not have customers. Accordingly, the Company falls outside the scope of the Modern Slavery Act 2015. The Company’s suppliers are typically professional advisers and the Company’s supply chains are considered to be low risk in this regard.

The Board believes that the integration of financially material environmental, social and governance (“ESG”) issues into investment decision-making can reduce risk and enhance returns. In addition, the on-going engagement and dialogue with investee companies, including through proxy voting, are key parts of an asset stewardship role. Accordingly, the Directors require the Portfolio Manager to use its best endeavours to ensure the Company’s investments adhere to best practice in the management of ESG issues, and encourage them to have due regard to the UN Global Compact and UN Principles of Responsible Investment. The Portfolio Manager’s statement of compliance with the Financial Reporting Council UK Stewardship Code is available at www.frc.org.uk. The Board has reviewed this statement as well as the proxy voting decisions made on the Company’s behalf.

The Company produces an annual impact report setting out the environmental purpose of the Company and the impact it has, or intends to deliver. The report is published as a separate document on www.menhaden.com.

Performance and Future Developments

An outline of performance, investment activity and strategy, market background during the year and the future outlook, is provided in the Chairman’s Statement and the Portfolio Manager’s Review.

The Portfolio Manager believes that companies that supply products and services that help to conserve scarce resources, reduce negative environmental impacts and improve resource efficiency are likely to enjoy faster growing end markets. The Directors continue to believe that environmental and resource-efficiency solutions together with the Portfolio Manager’s investment strategy should provide good returns for the long-term investor.

It is expected that the Company’s strategy will remain unchanged in the coming year.

A continuation vote will be put to shareholders at the AGM to be held in 2020 and every five years thereafter.

This Strategic Report has been signed for and on behalf of the Board.

Sir Ian Cheshire

Chairman

23 March 2018

Impact Report  

Measuring Menhaden’s positive impact

As a publicly-listed investment trust, Menhaden’s core aim is to generate long-term profits for shareholders by investing in opportunities that deliver, or benefit from, the efficient use of energy and resources. As part of this approach the Board strongly believes that the communication of the environmental metrics of the portfolio, alongside the Company’s financial performance, is of significant value to shareholders.

That is why Menhaden attempts to quantify, to the extent possible, the positive impacts of its listed portfolio companies. Each year it analyses avoided resource consumption (electricity, fuel, water and waste) and the greenhouse gas emissions avoided due to the listed companies’ products and services. The biggest private holding, X-ELIO, is also included in the analysis.

Impact measurement is an emerging field and while the quantifications are best estimates, they show that Menhaden’s share of its portfolio holdings last year helped generate over 69,000 megawatt hours of clean electricity and saved over 40,000 tonnes of greenhouse gases from being emitted into the atmosphere¹ ( ¹ All figures are based on the selected environmental savings reported by our investee companies, proportionate to Menhaden’s ownership stake, as of 31/12/17. They are best estimates based on the methodology in the technical annex available on the website. For a full explanation of our impact methodology please see Appendix www.menhaden.com). That is equivalent to providing the electricity for over 18,000 UK homes or taking over 27,000 cars off the road.

The environmental impact of our portfolio companies in 2017²

•         Total greenhouse gas emissions saved: +40,000 tCO2e

•         Water saved: +91,000 m3

•         Clean electricity generated: +69,000 MWh

•         Waste saved from landfill: 260 tonnes

(² All figures are based on the selected environmental savings reported by our investee companies, proportionate to Menhaden’s ownership stake, as of 31/12/17. They are best estimates based on the methodology in the technical annex available on the website. For a full explanation of our impact methodology please see Appendix www.menhaden.com )

From small start-ups to mass market

By using a fundamental, research-oriented approach the Portfolio Manager aims to find the innovation, products and services that offer the long-term solutions required for the transition to a low carbon economy. The Company recognises that some of our holdings, by the nature of their business, do intrinsically have some negative environmental impacts too, but the Portfolio Manager invests where the current and potential future sustainability impacts of their products or services justify an investment.

For example, the Company is invested in large clean energy entities such as X-ELIO, a global leader in photovoltaic energy development, and Australian wind and solar developer Infigen Energy. It also invests in Calvin Capital, an asset investment company helping the UK’s largest energy suppliers to meet the UK Government’s commitment to install 53 million smart meters by 2020. The technology is projected to save £16.7bn through reduced energy use³ (³ http://www.bbc.co.uk/news/business-42655965).

The Company has also looked at areas such as fuel efficiency in the transport sector, leading it to invest in holdings such as aircraft component manufacturer Safran, whose innovative ‘LEAP’ engine delivers a 15% reduction in fuel consumption compared to current standard engines. For similar reasons, Menhaden also currently holds German automaker Volkswagen (VW).

VW attracted negative sentiment because of the way it historically undertook tests and reported on its diesel vehicle emissions; however, this was under its previous management up to 2015. Since then, its fundamental U-turn has been significant and a new leadership team has put impressive focus and resources into new technologies, vowing to spend €20bn on electrification and planning to unveil more than 30 new all-electric car models by 2025⁴ (⁴ https://www.ft.com/content/a12ec7e2-fa01-11e7-9b32-d7d59aace167).

Climate-related improvements this year have been noted by the Carbon Disclosure Project, which moved VW up five places to sixth in a ranking of global automakers’ climate performance⁵( ⁵ https:// www.cdp.net/en/articles/media/low-carbon-and-high-tech-put-auto-sector-in-flux), and the asset owner backed Transition Pathway Initiative which ranked VW in the top level for its quality of its management framework on climate change⁶ (⁶ http://www.lse.ac.uk/ GranthamInstitute/tpi/8-of-the-top-20-car-manufacturers-align-to-the-transition-to-low-carbon-econom).   As a mass volume car maker, by practicing a high standard of corporate governance, product innovation, and by meeting or exceeding environmental regulatory standards in respect of vehicle manufacturing, emissions and disposals, Volkswagen can further reduce its environmental footprint and deliver significant positive environmental impact. The Portfolio Manager and the Board will keep their progress under constant review to ensure there is no return to previous poor practice, in which case the holding will be reassessed.

Menhaden portfolio impacts around the world

Menhaden takes a diversified multi-regional approach to investing, so the positive sustainability impacts of portfolio companies and their supply chains are felt across the world.

1. Portugal

Senvion is a wind turbine maker whose 172 MW Ancora wind farm uses local sources for blades, nacelles and hubs and delivers enough clean electricity to power 125,000 homes⁷ ( ⁷ http://www. senvion.com/global/en/company/references-case-studies/ancora-wind-farms-portugal/). 

 It is helping Portugal move to 100% renewable energy – a feat achieved for 107 hours in May 2016 when the country ran exclusively on renewable energy⁸ (⁸ https://energytransition.org/2016/06/ portugal-moving-to-100-renewables/).

2. UK

Leading transport operator First Group is investing in its low carbon bus fleet, experimenting with electric, bio-methane and hydrogen fuel cell buses, and hybrid electric/diesel trains. It was awarded Low Carbon Vehicle Operator of the Year in the UK⁹ (⁹ https://www.firstgroup.com/about-us/news/first-bus-wins-prestigious-prize-low-carbon-champions-awards).

3. France

French multinational Safran designed the LEAP engine for commercial jets in partnership with General Electric. The engine delivers a 15% reduction in fuel consumption and CO² emissions compared to current standard engines and provides a 50% cut in nitrogen oxides¹⁰ (¹⁰ https:// www.safran-aircraft-engines.com/commercial-engines/single-aisle-commercial-jets/leap/leap).

4. Japan

Solar provider X-ELIO currently has 76 MW in operation and a further 115 MW under construction¹¹ (¹¹ https://www.energynews.es/english/renewable-capacity-in-japan-is-growing-at-an-average-annual-rate-of-29-since-2012/ ).  It is part of a wider trend that has seen the share of energy generated by renewable sources in Japan jump from 9% in 2011, to over 15% in 2016¹² ( ¹² https:// www.japantimes.co.jp/news/2017/10/14/business/balance-power-shift-toward-renewable-energy-appears-picking-steam/#.Wmikl2V0PeQ ).

5. Taiwan

Airbus reduced its CO² emissions by 14% in absolute terms in the decade to 2016 and has set a clear target to improve fleet fuel efficiency by 1.5% per year between now and 2020¹³ (¹³ http://www. airbus.com/company/responsibility-sustainability/minimising-environmental-impact.html.html ),  including introducing biofuels to some planes operated by China Airlines, headquartered in Taiwan¹⁴ (¹⁴ http://www.airbus.com/newsroom/press-releases/en/2017/11/china-airlines-takes-delivery-of-a350-xwb-powered-with-biofuel-m.html ).

6. China

Auto maker Volkswagen will invest nearly $12bn by 2025 in developing five electric car models for the Chinese market¹⁵ (¹⁵ https://www.wsj.com/articles/volkswagen-plans-12-billion-electric-car-blitz-in-china-1510820168). China is the largest vehicle market in the world and has aggressive targets for new energy models such as electric vehicles¹⁶ ( ¹⁶ https://www.cdp.net/en/articles/ media/low-carbon-and-high-tech-put-auto-sector-in-flux).

7. Australia

Infigen provides over 500MW of renewable energy. It possesses a minimal supply chain with 74% of products and services procured in Australia, while its Sydney office is powered by 100% renewable energy¹⁷ ( ¹⁷ http://s3-ap-southeast-2.amazonaws.com/infigen/wp-content/uploads/2016/ 10/ 24101556/ESG-Report-2016.pdf ).

8. Brazil

Sanepar has achieved universal water access for the citizens of southern Brazil’s Paraná state and has provided more than 3,000,000 water connections in the country¹⁸ (¹⁸ http://www. globallegalchronicle.com/companhia-de-saneamento-do-parana-sanepars-315-million-follow-on-equity-offering/ ).

9. Canada

Brookfield Renewable Partners owns and operates one of the world’s largest renewable power portfolios, including more than 215 hydroelectric facilities. It has over 10,700 MW of installed capacity¹⁹ (¹⁹ https://renewableops.brookfield.com ).

10. USA

NASDAQ-listed Atlantica Yield²⁰ (²⁰ https://www.atlanticayield.com/export/sites/yield/content/ galleries/downloads/news /20180117-Atlantica-Yield-joins-UN-Global-Compact.pdf ) was the first public US yieldco to join the UN Global Compact and their assets generate over 1,400 MW of renewable energy²¹ (²¹ https://www.atlanticayield.com/ web/en/company-overview/overview/).

11. South Africa

Terraform Global owns three solar plants in South Africa, which provide a total generating capacity of over 66 MW²² (²² TerraForm Power & TerraForm Global Overview 2016 ).

The Portfolio Manager currently organises the Company’s portfolio around four investment themes: i) clean energy production; ii) sustainable transport; iii) resource and energy efficiency; and iv) water and waste management.

Clean energy

Clean energy has the biggest share of the Company’s portfolio compared with the other three themes, with over a third of holdings invested in this area. In total the seven clean energy companies in Menhaden’s portfolio generated approximately 49 million MWh of electricity in 2017.

These include investments such as X-ELIO, a global leader in renewable energy which currently has 41 solar plants in operation across 12 countries and has built more 650 MW in solar photovoltaic plants²³ (²³ https://www.x-elio.com/en/who-we-are/ ).

As renewable electricity production is significantly less water-intensive than traditional types of generation (such as a coal-fired plant), we also estimate Menhaden’s share of these portfolio companies helped save over 90,000m³ water in 2017.

Sustainable transport

Planes and cars remain fundamental to the global economy and Menhaden is invested in transport companies with best-in-class approaches to fuel efficiency. For example, the Portfolio Manager has selected Airbus rather than a more fuel intensive rival such as Boeing to support fuel efficiency in the emissions-intensive aviation industry²⁴ (²⁴ http://www.airbus.com/company/responsibility-sustainability/minimising-environmental-impact.html ).

By providing fuel efficient alternatives we calculate that Menhaden’s share in its portfolio companies has helped save over four million litres of fuel in 2017.

Resource and energy efficiency

From factories to freight systems this theme covers a wide range of companies that improve energy efficiency or create emissions reduction products or services. One of Menhaden’s new allocations in 2017 was in Brazilian agribusiness company, Terra Santa Agro, whose use of natural byproducts from the production process of animal food helped create significant energy savings²⁵ ( ²⁵ http:// www.terrasantaagro.com/conteudo_eni.asp?idioma=1&conta=46&tipo=61556 ).

Menhaden’s portfolio-wide CO² and other greenhouse gas emission savings in this field were over 40,000 tons of carbon emissions avoided in 2017, equivalent of taking over 27,000 cars off the road.

Waste & water management

This theme covers companies generating positive impacts from products or services that enable reductions in usage or volumes of water and waste, or finding smarter ways to manage water and waste. In 2017, two new additions to this theme were Brazilian water companies Copasa and Sanepar – both of which also use renewable energy widely in their operations.

Menhaden’s share in its listed equity portfolio helps save over 90,000m³ of water and prevented around 260 tonnes of waste from being sent to landfill.

Investing in better water supplies

According to the UN two thirds of the world’s population currently live in areas experiencing some significant water scarcity. This affects millions of people and businesses even in a water-abundant country like Brazil²⁶ (²⁶ UN World Water Development Report for 2017 ).

Yet water demand is also predicted to increase significantly over the coming decades, and this creates both a sustainable development requirement and a sound financial case for investment in high-quality water supply infrastructure.

This is why two notable additions to the Menhaden portfolio this year have been Brazilian firms Sanepar and Copasa, which specialise in the provision of services in water supply, sewage and solid waste. Both companies also use clean energy extensively. Copasa has an energy re-use process, and Sanepar purchases and uses electricity from renewable energy sources.

Sanepar, for example, has this year begun work to transform water infrastructure in the city of Ponta Grossa in Southern Brazil, including construction of a new reservoir. The investment will increase access to safe drinking water and will benefit over 150,000 people²⁷ (  ²⁷ https://subscriber. bnamericas.com/en/news/brazils-sanepar-launches-water-improvement-works?position= 1&aut=true&idioma=en ).  Projects like this helped Sanepar record net income in excess of R$600m (US$190m) in 2017²⁸ (²⁸ http://www.4-traders.com/COMPANHIA-DE-SANEAMENTO-P-6496420/ financials/).

Menhaden’s contribution to the SDGs

The UN Sustainable Development Goals (SDGs) offer a global framework for measuring progress towards all aspects of sustainability. There is a strong business case for getting behind them too, with research showing that achieving the SDGs could create economic opportunities worth US$12 trillion a year by 2030²⁹ ( ²⁹ http://businesscommission.org/news/release-sustainable-business-can-unlock-at-least-us-12-trillion-in-new-market-value-and-repair-economic-system ).

This year therefore, we piloted some analysis with sustainability analysts, Impact Cubed, to see which SDGs Menhaden’s portfolio companies offered the most contribution to. Their analysis found it was the following eight goals:

•         Clean water and sanitation

•         Affordable and clean energy

•         Responsible consumption and production

•         Climate action

•         Life below water

•         Life on land

•         Peace, justice and strong institutions

•         Partnerships for the goals

Governance

Board of Directors

Sir Ian Cheshire (Chairman)

Sir Ian Cheshire was the Group Chief Executive of Kingfisher plc from January 2008 until February 2015. Prior to that he was Chief Executive of B&Q Plc from June 2005. Before joining Kingfisher in 1998 he worked for a number of retail businesses including Sears plc where he was Group Commercial Director.

Sir Ian is the Chairman of Barclays UK, the ring-fenced retail bank, Chairman of Debenhams plc and Government lead non-executive director. He is a non-executive director of Barclays PLC and Barclays Bank PLC.

In addition, Sir Ian is Chair of the RSA Commission on food, farming and the countryside and President of the Business Disability Forum.

Sir Ian was knighted in the 2014 New Year Honours for services to Business, Sustainability and the Environment.

Duncan Budge

Duncan Budge is Chairman of Dunedin Enterprise Investment Trust plc, Artemis Alpha Trust plc, and a non-executive director of Lazard World Trust Fund (SICAF), Lowland Investment Company plc, Biopharma Credit plc and Asset Value Investors Ltd.

He was previously a director of J. Rothschild Capital Management from 1988 to 2012 and a director and chief operating officer of RIT Capital Partners plc from 1995 to 2011. Between 1979 and 1985 he was with Lazard Brothers & Co. Ltd.

Emma Howard Boyd

Emma Howard Boyd has spent her career working in financial services, initially in corporate finance, and then in fund management, specialising in sustainable investment and corporate governance.

Emma currently serves on various boards and advisory committees including the Environment Agency (Chair), the Environment Agency Pension Fund (Chair of Investment Committee), ShareAction (Chair of Trustees), the Aldersgate Group, the 30% Club and the Executive Board of The Prince’s Accounting for Sustainability Project. She is an ex-officio board member of the Department for Environment, Food and Rural Affairs.

Previously a Director of Stewardship at Jupiter Asset Management, Emma was integral to the development of their reputation in the corporate governance and sustainability fields. This work included research and analysis on companies’ environmental, social and governance performance, engaging with companies at board level and public policy engagement.

Howard Pearce

Howard Pearce is the founder of HowESG Ltd, a specialist environmental, asset stewardship, and corporate governance consultancy business. His non-executive roles include independent Chair of the Bank of Montreal Global Asset Management (EMEA) Responsible Investment Advisory Council, independent Chair of the Boards of the Avon and Wiltshire Pension Funds, and Non-Executive Director of Response Global Media Limited, the publishers of responsible-investor.com (ESG and sustainable finance).

Previously he was a Board member and Chair of the Audit Committee of Cowes Harbour Commission, and a Trustee and Chair of the Investment and Audit Committees of the NHS ‘Above and Beyond’ charity. Between 2003 and 2013 Howard was the Head of the Environment Agency pension fund and a member of its Pensions and Investment Committee. Under his leadership, the fund won over 30 awards in the UK, Europe and globally for its financially and environmentally responsible investment, best practice fund governance, public reporting and e-communications. Prior to this, Howard held senior executive roles in the environment, water, leisure and e-publishing sectors.

Meeting Attendance

The number of scheduled meetings of the Board and its committees held during the year and each Director’s attendance, is shown below:

Type and number of meetings held in 2017	Board (4)	Audit Committee (3)	Management Engagement Committee (1)
Sir Ian Cheshire	4	N/A	1
Duncan Budge	4	3	1
Emma Howard Boyd	3	2	1
Howard Pearce	4	3	1

In addition to the above, a number of ad hoc Board and committee meetings were held to consider matters such as the approval of regulatory announcements.

Directors’ Interests

The Directors’ beneficial interests in the Company’s shares, together with those of their families, are set out below.

	Ordinary Shares of 1p each
	31 December	31 December
	2017	2016
Sir Ian Cheshire	115,000	115,000
Duncan Budge	10,000	10,000
Emma Howard Boyd	18,000	18,000
Howard Pearce	15,000	8,000
Total	158,000	151,000

No changes have been notified to the date of this report.

Directors’ Report

The Directors present their annual report on the affairs of the Company together with the audited financial statements and the Independent Auditors’ Report for the year ended 31 December 2017. Disclosures relating to performance, future developments and risk management can be found within the Strategic Report.

Business and Status of the Company

The Company is registered as a public limited company in England and Wales (registered number 09242421) and is an investment company within the terms of Section 833 of the Companies Act 2006 (the “Act”). Its shares are traded on the main market of the London Stock Exchange, which is a regulated market as defined in Section 1173 of the Act.

The Company has received approval from HM Revenue & Customs as an authorised investment trust under Sections 1158 and 1159 of the Corporation Tax Act 2010. This approval is subject to there being no subsequent enquiry under corporation tax self-assessment. In the opinion of the Directors, the Company continues to direct its affairs so as to qualify for such approval.

Continuation of the Company

In accordance with the Company’s Articles of Association, shareholders will have an opportunity to vote on the continuation of the Company at the 2020 Annual General Meeting and every five years thereafter.

Results and Dividends

The results attributable to shareholders for the year are shown on page 55. No dividends were declared during the year and the Directors have not recommended a final dividend for the year. Information on the Company’s dividend policy is detailed in the Chairman’s Statement.

Alternative Performance Measures

The Financial Statements (on pages 55 to 73) set out the required statutory reporting measures of the Company’s financial performance. In addition, the Board assesses the Company’s performance against a range of criteria which are viewed as particularly relevant for investment trusts, which are summarised on page 2 and explained in greater detail in the Strategic Report, under the heading ‘Key Performance Indicators’ on page 16.

Substantial Interests in Share Capital

The Company was aware of the following substantial interests in the voting rights of the Company as at 28 February 2018, the latest practicable date before publication of the Annual Report.

	28 February 2018			31 December 2017
	Number	% of	Number		% of
	of	issued	of		issued
	Ordinary	share	Ordinary		share
Shareholder	Shares	capital	Shares		capital
Cavenham Private Equity and Directs	12,500,000	15.6	12,500,000		15.6
Generali Versicherung	6,000,000	7.5	6,000,000		7.5
Kendall Family Investments	5,000,000	6.3	5,000,000		6.3
Aachen Muenchener Versicherung	4,000,000	5.0	4,000,000		5.0
UBS Wealth Management	3,327,293	4.2	3,472,293		4.3
Ravenscroft	3,242,500	4.1	3,327,500		4.2
Santino Global Assets	3,000,000	3.8	3,000,000		3.8
Laxey Partners	2,798,000	3.5	2,798,000		3.5
Rathbones	2,750,520	3.4	2,777,020		3.5

As at 31 December 2017 and to the date of this report, the Company had 80,000,001 Ordinary Shares in issue.

Capital Structure

The Company’s capital structure at the end of the year under review and to the date of this report was comprised of 80,000,001 Ordinary Shares of 1p nominal value each.

The voting rights of the Ordinary Shares on a poll are one vote for each share held.

No shares were issued or repurchased during the year and to the date of this report.

There are no:

•         restrictions on transfer of, or in respect of the voting or dividend rights of, the Company’s Ordinary Shares;

•         agreements, known to the Company, between holders of securities regarding the transfer of Ordinary Shares; or

•         special rights with regard to control of the Company attaching to the Ordinary Shares.

At the end of the year under review and to the date of this report, the Directors had Shareholder authority to issue a further 919,999,999 Ordinary Shares and to repurchase no more than 14.99% of the Company’s issued share capital per annum. These authorities will expire on 1 July 2020 unless previously revoked, varied or renewed by the Company in a general meeting.

Going Concern

The content of the investment portfolio, trading activity, the Company’s cash balances and revenue forecasts, and the trends and factors likely to affect the Company’s performance are reviewed and discussed at each Board meeting. The Directors, having made relevant enquiries, are satisfied that it is appropriate to continue to adopt the going concern basis in preparing the financial statements as a significant proportion of the Company’s holdings are readily realisable and, accordingly, the Company has adequate financial resources to continue in operation for at least the next 12 months.

Beneficial Owners of Shares – Information Rights

Beneficial owners of shares who have been nominated by the registered holder of those shares to receive information rights under section 146 of the Companies Act 2006 are required to direct all communications to the registered holder of their shares rather than to the Company’s registrar or to the Company directly.

Greenhouse Gas Emissions

As the Board has engaged external firms to undertake the investment management, corporate secretarial and custodial activities of the Company, the Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions-producing sources under the Companies Act 2006 (Strategic Report and Directors’ Reports) Regulations 2013.

The Company produces an annual impact report which is included within the Annual Report and also published separately on www.menhaden.com. The impact report provides further detail on the environmental purpose and impact of the Company.

Directors’ & Officers’ Liability Insurance Cover

Directors’ and officers’ liability insurance cover was maintained by the Company during the year ended 31 December 2017. It is intended that this policy will continue for the year ending 31 December 2018 and subsequent years.

Directors’ Indemnities

During the year under review and to the date of this report, indemnities were in force between the Company and each of its Directors under which the Company has agreed to indemnify each Director, to the extent permitted by law, in respect of certain liabilities incurred as a result of carrying out his or her role as a Director of the Company. The Directors are also indemnified against the costs of defending criminal or civil proceedings or any claim by the Company or a regulator as they are incurred provided that where the defence is unsuccessful the Director must repay those defence costs to the Company. The indemnities are qualifying third party indemnity provisions for the purposes of the Companies Act 2006.

A copy of each deed of indemnity is available for inspection at the Company’s registered office during normal business hours and will be available for inspection at the Annual General Meeting.

Other Statutory Information

The following information is disclosed in accordance with the Companies Act 2006:

•         the rules on the appointment and replacement of directors are set out in the Company’s articles of association (the “Articles”). Any change to the Articles would be governed by the Companies Act 2006.

•         subject to the provisions of the Companies Act 2006, to the Articles, and to any directions given by special resolution, the business of the Company shall be managed by the Directors who may exercise all the powers of the Company. The powers shall not be limited by any special powers given to the Directors by the Articles and a meeting of the Directors at which a quorum is present may exercise all the powers exercisable by the Directors. The Directors’ powers to issue and buy back shares, in force at the end of the year, are set out above.

•         there are no agreements:

(i)       to which the Company is a party that might affect its control following a takeover bid; and/or

(ii)      between the Company and its directors concerning compensation for loss of office.

Listing Rule 9.8.4

Listing Rule 9.8.4 requires the Company to include certain information in a single identifiable section of the Annual Report or a cross reference table indicating where the information is set out. The Directors confirm that there are no disclosures to be made in this regard.

Common Reporting Standard (CRS)

CRS is a global standard for the automatic exchange of information commissioned by the Organisation for Economic Cooperation and Development and incorporated into UK law by the International Tax Compliance Regulations 2015. CRS requires the Company to provide certain additional details to HMRC in relation to certain shareholders. The reporting obligation began in 2016 and is an annual requirement. The Company’s registrar, Link Asset Services, has been engaged to collate such information and file the reports with HMRC on behalf of the Company.

Political Donations

The Company has not and does not intend to make any political donations.

Whistleblowing Policy

As the Company has neither executive directors nor employees, a formal whistleblowing policy has not been adopted. However, the Board has agreed a procedure by means of which any directors or employees of external service providers can bring to the attention of the Chairman matters of concern to them.

Disclosure of Information to Auditors

The Directors at the time of approving the Directors’ Report are listed above. Each Director in office at the date of this report confirms that:

•         to the best of each Director’s knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s Auditors are unaware; and

•         each Director has taken all the steps a director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company’s Auditors are aware of that information.

This information is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.

Annual General Meeting

The Company’s Annual General Meeting (“AGM”) will be held at the offices of Herbert Smith Freehills LLP, Exchange House, Primrose Street, London EC2A 2EG on Tuesday, 22 May 2018 at 12 noon.

The Board considers that the proposed resolutions are in the best interests of the shareholders as a whole. Accordingly, the Board unanimously recommends to the shareholders that they vote in favour of the resolutions to be proposed at the forthcoming AGM, as the Directors intend to do in respect of their own beneficial holdings.

By order of the Board

Frostrow Capital LLP

Company Secretary

23 March 2018

Statement of Directors’ Responsibilities

Company law in the United Kingdom requires the Directors to prepare financial statements for each financial year. The Directors are responsible for preparing the financial statements in accordance with applicable law and regulations. In preparing these financial statements, the Directors have:

•         selected suitable accounting policies and applied them consistently;

•         made judgements and estimates that are reasonable and prudent;

•         followed applicable UK accounting standards; and

•         prepared the financial statements on a going concern basis.

The Directors are responsible for keeping adequate accounting records which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for ensuring that the Directors’ Report and other information included in the Annual Report is prepared in accordance with company law in the United Kingdom. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the FCA.

The financial statements are published on the Company’s website www.menhaden.com and via Frostrow’s website www.frostrow.com. The maintenance and integrity of these websites, so far as it relates to the Company, is the responsibility of Frostrow. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of these websites and, accordingly, the Auditors accept no responsibility for any changes that have occurred to the financial statements since they were initially presented on these websites. Visitors to the websites need to be aware that legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

Responsibility Statement of the Directors in respect of the Annual Report

The Directors, whose details can be found above, confirm to the best of their knowledge that:

•         the financial statements within this Annual Report, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and the return for the year ended 31 December 2017; and

•         the Chairman’s Statement, Strategic Report and the Directors’ Report include a fair review of the information required by 4.1.8R to 4.1.11R of the FCA’s Disclosure and Transparency Rules.

The Directors consider that the Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary to assess the Company’s position, performance, business model and strategy.

On behalf of the Board

Sir Ian Cheshire

Chairman

23 March 2018

Corporate Governance Statement

The Board has considered the principles and recommendations of the AIC Code of Corporate Governance (the “AIC Code”) by reference to the AIC Corporate Governance Guide for Investment Companies (the “AIC Guide”). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code (the “UK Code”), as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.

The Board considers that reporting against the principles and recommendations of the AIC Code will provide better information to shareholders and the Financial Reporting Council has confirmed that by following the AIC Code and the AIC Guide, boards of investment companies will meet their obligations in relation to the UK Corporate Governance Code and paragraph 9.8.6 of the UK Listing Rules.

The AIC Code and the AIC Guide can be viewed on the AIC’s website www.theaic.co.uk and the UK Code can be viewed on the Financial Reporting Council website www.frc.org.uk.

Statement of Compliance

The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Corporate Governance Code, except as set out below:

The UK Corporate Governance Code includes certain provisions relating to:

•         the role of the chief executive;

•         executive directors’ remuneration; and

•         the need for an internal audit function.

For the reasons set out in the AIC Guide, and as explained in the UK Corporate Governance Code, the Board considers these provisions are not relevant to the position of the Company as it is an externally managed investment company. In particular, all of the Company’s day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. Therefore the Company has not reported further in respect of these provisions.

The Board and Committees

Responsibility for effective governance lies with the Board. The governance framework of the Company reflects the fact that as an externally managed investment company, it has no employees and outsources portfolio management services to Menhaden Capital Management LLP and risk management, company management, company secretarial, administrative and marketing services to Frostrow Capital LLP.

The Board

Chairman – Sir Ian Cheshire

Three additional non-executive Directors, all considered independent.

Key roles and responsibilities:

–     to provide leadership and set strategy within a framework of prudent effective controls which enable risk to be assessed and managed;

–     to ensure that a robust corporate governance framework is implemented; and

• to challenge constructively and scrutinise performance of all outsourced activities.

Management Engagement Committee

Chairman – Sir Ian Cheshire

All Directors

Key roles and responsibilities:

• to review regularly the contracts, the performance and the remuneration of the Company’s principal service providers.

Audit Committee

Chairman – Howard Pearce

Duncan Budge, Emma Howard Boyd

Key roles and responsibilities:

–     to review the Company’s financial reports;

–     to oversee the risk and control environment; and

• to review the performance of the Company’s external Auditors.

Copies of the full terms of reference, which clearly define the responsibilities of each committee can be obtained from the Company Secretary, will be available for inspection at the Annual General Meeting, and can be found on the Company’s website at www.menhaden.com.

The Directors have decided that, given the size of the Board, it is unnecessary to form separate remuneration and nomination committees; the duties that would fall to those committees are carried out by the Board as a whole.

Board of Directors

Directors’ Independence

The Board consists of four non-executive Directors, each of whom is independent of Frostrow and Menhaden Capital Management LLP (“MCM”). No member of the Board has been an employee of the Company, Frostrow, MCM or any of its service providers. Accordingly, the Board considers that all the Directors are independent and there are no relationships or circumstances which are likely to affect or could appear to affect their judgement.

Board Evaluation

During the course of 2017 the performance of the Board, its committees and individual Directors (including each Director’s independence) was evaluated through a formal assessment process led by the Chairman.

The Chairman is satisfied that the structure and operation of the Board continues to be effective and relevant and that there is a satisfactory mix of skills, experience, length of service and knowledge of the Company.

All Directors will submit themselves for annual re-election by shareholders. Following the evaluation process, the Board recommends that shareholders vote in favour of their re-election at the Annual General Meeting.

Policy on Director Tenure

The Board subscribes to the view expressed within the AIC Code that long-serving directors should not be prevented from forming part of an independent majority. It does not consider that a directors’ tenure necessarily reduces his/her ability to act independently. The Board’s policy on tenure is that continuity and experience are considered to add significantly to the strength of the Board and, as such, no limit on the overall length of service of any of the Directors, including the Chairman, has been imposed. In view of its non-executive nature, the Board considers that it is not appropriate for the Directors to be appointed for a specified term, although new Directors will be appointed with the expectation that they will serve for a minimum of three years, subject to shareholder approval.

Appointments to the Board

The rules governing the appointment and replacement of directors are set out in the Company’s Articles of Association. Where the Board appoints a new director during the year, that director will stand for election by shareholders at the next Annual General Meeting. When considering new appointments, the Board will seek to add persons with complementary skills or skills and experience which fill any gaps in the Board’s knowledge and who can devote sufficient time to the Company to carry out their duties effectively. The Company is committed to ensuring that any vacancies arising are filled by the most qualified candidates. The Board recognises the value of diversity in the composition of the Board and accordingly, the Board will ensure that a diverse group of candidates is considered should any vacancies arise.

Subject to there being no conflict of interest, all Directors are entitled to vote on candidates for the appointment of new Directors and on the recommendation for shareholders’ approval for the Directors seeking re-election at the Annual General Meeting. The Chairman will not chair the meeting when the Board is dealing with the appointment of his successor.

Induction/Development

New appointees to the Board will be provided with a full induction programme. The programme will cover the Company’s investment strategy, policies and practices. New directors will also be given key information on the Company’s regulatory and statutory requirements as they arise including information on the role of the Board, matters reserved for its decision, the terms of reference for the Board committees, the Company’s corporate governance practices and procedures and the latest financial information. Directors are encouraged to participate in training courses where appropriate.

Conflicts of Interest

In line with the Companies Act 2006, the Board has the power to authorise any potential conflicts of interest that may arise and impose such limits or conditions as it thinks fit. A register of interests and potential conflicts is maintained and is reviewed at every Board meeting to ensure all details are kept up to date. It was resolved at each Board meeting during the year under review that there were no direct or indirect interests of a Director that conflicted with the interests of the Company. Appropriate authorisation will be sought prior to the appointment of any new director or if any new conflicts or potential conflicts arise.

Exercise of Voting Powers

The Board has delegated authority to MCM (as Portfolio Manager) to vote the shares owned by the Company that are held on its behalf by its Custodian.

The Board has instructed that the Portfolio Manager submit votes for such shares wherever possible and practicable. The Portfolio Manager may refer to the Board on any matters of a contentious nature.

Further details of the Company’s voting record can be found in the Portfolio Manager’s Stewardship Report on the Company’s website www.menhaden.com.

Anti-Bribery and Corruption Policy

The Board has adopted a zero tolerance approach to instances of bribery and corruption. Accordingly it expressly prohibits any Director or associated persons when acting on behalf of the Company from accepting, soliciting, paying, offering or promising to pay or authorise any payment, public or private, in the United Kingdom or abroad to secure any improper benefit from themselves or for the Company.

The Board applies the same standards to its service providers in their activities for the Company.

A copy of the Company’s Anti Bribery and Corruption Policy can be found on its website at www.menhaden.com. The policy is reviewed regularly by the Audit Committee.

Prevention of the Facilitation of Tax Evasion

During the year and in response to the implementation of the Criminal Finances Act 2017, the Board adopted a zero-tolerance approach to the criminal facilitation of tax evasion. A copy of the Company’s policy on preventing the facilitation of tax evasion can be found on the Company’s website www.menhaden.com. The policy is reviewed annually by the Audit Committee.

Independent Professional Advice

The Board has formalised arrangements under which the Directors, in the furtherance of their duties, may seek independent professional advice at the Company’s expense.

The Company has also arranged Directors’ and Officers’ Liability Insurance which provides cover for legal expenses under certain circumstances. This was in force for the entire period under review and up to the date of this report.

Company Secretary

The Directors have access to the advice and services of a Company Secretary through its appointed representative which is responsible to the Board for ensuring that the Board procedures are followed and that the Company complies with applicable rules and regulations. The Company Secretary is also responsible for ensuring good information flows between all parties.

Board Meetings and Relations with the Investment Manager

The Board is responsible for strategy and reviews the continued appropriateness of the Company’s investment objective, strategy and investment restrictions at each meeting. The Board meets regularly throughout the year and representatives from Frostrow and MCM are in attendance at each Board meeting to address questions on specific matters and to seek approval for specific transactions which the AIFM is required to refer to the Board. The Chairman encourages open debate to foster a supportive and co-operative approach for all participants.

The primary focus at regular Board meetings is the review of key investment and financial data, revenue and expenses projections, analyses of asset allocation, transactions and performance comparisons, share price and net asset value performance, marketing and shareholder communication strategies, the risks associated with pursuing the investment strategy, peer group information and industry issues.

The Board reviews the discount or premium to net asset value per share of the Company’s share price at each Board meeting and considers the effectiveness of the Company’s marketing and communication strategies, as well as any recommendations on share buybacks and issuance.

The Board has reviewed the Portfolio Manager’s Statement of Compliance with the UK Stewardship Code, which is available on the FRC website www.frc.org.uk.

Shareholder Communications

Shareholder Relations

Representatives of Frostrow and MCM regularly meet with institutional shareholders and private client asset managers to discuss strategy, to understand their issues and concerns and, if applicable, to discuss corporate governance issues. The results of such meetings are reported at the following Board meeting.

An analysis of the Company’s shareholder register is provided to the Directors at each Board meeting. The Board receives marketing reports from Frostrow. The Board reviews and considers the marketing plans on a regular basis. Reports from the Company’s broker are submitted to the Board on investor sentiment and industry issues.

Shareholder Communications

The Company aims to provide shareholders with a full understanding of the Company’s investment objective, policy and activities, its performance and the principal investment risks by means of informative annual and half yearly reports. This is supplemented by the monthly publication through the London Stock Exchange, of the net asset value of the Company’s shares.

The Company’s website (www.menhaden.com) is regularly updated with monthly fact sheets and provides useful information about the Company, including the Company’s financial reports and announcements.

All substantive communications regarding any major corporate issues are discussed by the Board taking into account representations from the AIFM, the Portfolio Manager, the Auditor, legal advisers and the Corporate Stockbroker.

The Board supports the principle that the AGM be used to communicate with all investors. It is the intention that the full Board will attend the AGM under the chairmanship of the Chairman of the Board. All shareholders are encouraged to attend the AGM, where they are given the opportunity to question the Chairman, the Board and representatives of the AIFM and the Portfolio Manager. The Portfolio Manager will make a presentation to shareholders covering the investment performance and strategy of the Company at the forthcoming AGM. Details of proxy votes received in respect of each resolution will be made available to shareholders at the meeting and will also be published on the Company’s website, www.menhaden.com.

The Directors welcome the views of all shareholders and place considerable importance on communications with them. Shareholders wishing to communicate with the Chairman, or any other member of the Board, may do so by writing to the Company Secretary at the offices of Frostrow.

Significant Holdings and Voting Rights

Details of the substantial interests in the Company’s Shares, the voting rights of the shares and the Directors’ authorities to issue and repurchase the Company’s shares, are set out in the Directors’ Report.

Nominee Share Code

Where the Company’s shares are held via a nominee company name, the Company undertakes:

•         to provide the nominee company with multiple copies of shareholder communications, so long as an indication of quantities has been provided in advance; and

•         to allow investors holding shares through a nominee company to attend general meetings, provided the correct authority from the nominee company is available.

Nominee companies are encouraged to provide the necessary authority to underlying shareholders to attend the Company’s general meeting.

By order of the Board

Frostrow Capital LLP

Company Secretary

23 March 2018

Audit Committee Report

Statement from the Chairman

I am pleased to present the Audit Committee report for the year ended 31 December 2017. The Committee met three times during the year under review.

The role of the Committee is to ensure that shareholder interests are properly protected in relation to the application of financial reporting and internal control principles and to assess the effectiveness of the audit. The Committee’s role and responsibilities are set out in full in its terms of reference which are available on request from the Company Secretary and can be seen on the Company’s website (www.menhaden.com). A summary of the Committee’s main responsibilities and how it has fulfilled them is set out below.

Composition

The Audit Committee comprises Howard Pearce (Chairman of the Committee), Duncan Budge and Emma Howard Boyd whose biographies are set out above. The Committee considers that each member has recent and relevant experience in accounting, auditing or financial reporting and that the Committee as a whole has experience relevant to the investment trust industry.

Responsibilities

The Committee’s main responsibilities during the year under review were:

1.        To review the Company’s annual and half-year reports. In particular, the Audit Committee has considered whether the annual report was fair, balanced and understandable, allowing shareholders to easily assess the Company’s strategy, business model, financial position and performance. This review also included scrutiny of the valuation of investments, accounting policies and other significant reporting matters.

2.        To review the risk management and internal control processes of the Company and its key service providers. Further details are provided in the Internal Controls and Risk Management section.

3.        To recommend the appointment of the external Auditors, agreeing the scope of their work and their remuneration, and reviewing their independence. During the year the nature and scope of the third audit together with the audit plan were considered by the Committee. The Committee concluded that the appropriate areas of audit risk relevant to the Company had been identified and that there were suitable audit procedures in place to obtain reasonable assurance that the financial statements as a whole would be free of material misstatements.

4.        To consider any non-audit work to be carried out by the Auditors. The Audit Committee will consider the extent and nature of any non-audit work performed by the Auditors and seek assurance that such work does not impinge on their independence and is a cost effective way to operate.

5.        To consider the need for an internal audit function. Since the Company delegates its day to day operations to third parties and has no employees, the Committee determined that there is no requirement for such a function. The Committee considers the need for such a function on an annual basis.

Meetings and Business

The following matters were dealt with at the Committee’s meetings:

March 2017

•         Review of the Committee’s terms of reference;

•         Review of the Company’s annual results;

•         Approval of the Annual Report and Impact Report;

•         Review of risk management, internal controls and compliance;

•         Review of the outcome and effectiveness of the audit and any matters arising; and

•         Review of the need for an internal audit function.

September 2017

•         Review of the Company’s non-audit services policy;

•         Review of the Company’s half yearly results;

•         Approval of the Half Yearly Report and financial statements;

•         Review of risk management, internal controls and compliance;

•         Review and approval of formal audit tender guidelines; and

•         Review of the Company’s anti bribery and corruption policy and the measures put in place by the Company’s service providers.

November 2017

•         Review of the Auditors’ plan and terms of engagement for the 2018 audit; and

•         Review of risks, internal controls and compliance.

Performance Evaluation

The Committee reviewed the results of the annual evaluation of its performance at the November 2017 Board meeting. As part of the evaluation, the Committee reviewed the following:

•         the composition of the Committee;

•         the performance of the Committee Chairman;

•         how the Committee had monitored compliance with corporate governance regulations;

•         how the Committee had considered the quality and appropriateness of financial accounting and reporting;

•         the Committee’s review of significant risks and internal controls; and

•         the Committee’s assessment of the independence, competence and effectiveness of the Company’s eternal auditors.

It was concluded that the Committee was performing satisfactorily and there were no formal recommendations made to the Board.

Internal Controls and Risk Management

The Board has overall responsibility for risk management and for the review of the internal controls of the Company, undertaken in the context of its investment objective.

A summary of the principal risks facing the Company is provided in the Strategic Report.

The review covers the key business, operational, compliance and financial risks facing the Company. In arriving at its judgement of what risks the Company faces, the Board has considered the Company’s operations in light of the following factors:

•         the nature of the Company, with all management functions outsourced to third party service providers;

•         the nature and extent of risks which it regards as acceptable for the Company to bear within its overall investment objective;

•         the threat of such risks becoming a reality; and

•         the Company’s ability to reduce the incidence and impact of risk on its performance.

Against this background, a risk matrix has been developed which covers all key risks that the Company faces, the likelihood of their occurrence and their potential impact, how these risks are monitored and mitigating controls in place.

The Board has delegated to the Audit Committee responsibility for the review and maintenance of the risk matrix and it reviews, in detail, the risk matrix each time it meets, bearing in mind any changes to the Company, its environment or service providers since the last review. Any significant changes to the risk matrix are discussed with the whole Board. There were no changes to the Company’s risk management processes during the year and no significant failings or weaknesses were identified from the Committee’s most recent risk review.

The Committee reviews internal controls reports from its principal service providers on an annual basis. The Committee is satisfied that appropriate systems have been in place for the year under review and up to the date of approval of this report.

Significant Reporting Matters

The Committee considered the significant issues in respect of the Annual Report including the financial statements. The table below sets out the key areas of risk identified and also explains how these were addressed.

Significant risk		How the risk was addressed
Valuation, existence and ownership of investments, in particular unquoted investments		The valuation of investments is undertaken in accordance with the accounting policies in note 1 to the financial statements. Controls are in place to ensure that valuations are appropriate and existence is verified through reconciliations with the Depositary. The Committee discussed with Frostrow and the Investment Committee the process by which the unquoted investments are valued, and ownership documented, including the reconciliation process with the Depositary. They also reviewed the valuation of the unquoted investments as at 31 December 2017, including the level of any discounts to net asset value applied to the unquoted valuations, to ensure that they were carried out in accordance with the accounting policy set out in note 1(b). Having reviewed the valuations, the Committee confirmed that they were satisfied that the investments had been valued correctly.
Risk of revenue being misstated due to the improper recognition of revenue.		The Committee took steps to gain an understanding of the processes in place to record investment income and transactions. In addition, the Committee reviewed the treatment of fixed income returns on debt securities.

Financial Statements

The Board has asked the Committee to confirm that in its opinion the Board can make the required statement that the Annual Report taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s position, performance, business model and strategy. The Committee has given this confirmation on the basis of its review of the whole document, underpinned by involvement in the planning for its preparation and review of the processes to assure the accuracy of factual content.

The Committee is satisfied that it is appropriate for the Board to prepare the financial statements on the going concern basis.

The Audit Committee also reviewed the financial position and principal risks of the Company in connection with the Board’s statement on the longer-term viability of the Company, which is set out in the Strategic Report.

External Auditors

In addition to the reviews undertaken at Committee meetings, I met with Grant Thornton UK LLP (“Grant Thornton”) on 26 February 2018 to discuss the outcome of the audit and the draft Annual Report. The Committee also met with Grant Thornton without Frostrow or the Portfolio Manager being present to discuss the outcome of the audit on 7 March 2018.

In order to fulfil the Committee’s responsibility regarding the independence of the Auditors, the Committee reviewed:

•         the senior audit personnel in the audit plan for the year;

•         the Auditors’ arrangements concerning any conflicts of interest; and

•         the statement by the Auditors that they remain independent within the meaning of the regulations and their professional standards.

In order to consider the effectiveness of the audit process, we reviewed:

•         the Auditors’ execution and fulfilment of the agreed audit plan and the audit partner’s leadership of the audit team;

•         the quality of the report arising from the audit itself and the communications from the Auditors; and

•         feedback from Frostrow on the conduct of the audit.

The Committee is satisfied with the Auditors’ independence and the effectiveness of the audit process, together with the degree of diligence and professional scepticism brought to bear.

Non-Audit Services

The Auditor did not carry out any non-audit work during the year. The Audit Committee will monitor the level of non-audit work carried out by the Auditor, if any, and seeks assurances from the Auditor that they maintain suitable policies and procedures ensuring independence, and monitors compliance with the relevant regulatory requirements on an annual basis.

The Company operates on the basis whereby the provision of non-audit services by the Auditor is only permissible where no conflicts of interest arise, the service is not expressly prohibited by audit legislation, where the independence of the Auditor is not likely to be impinged by undertaking the work and the quality and the objectivity of both the non-audit work and audit work will not be compromised. In particular, non-audit services may be provided by the Auditor if they are inconsequential or would have no direct effect on the Company’s financial statements and the audit firm would not place significant reliance on the work for the purposes of the statutory audit.

Auditors’ Reappointment

Grant Thornton have been the appointed external Auditors since the Company launched in 2015. Grant Thornton carried out the audit for the period ending 31 December 2015 and the years ended 31 December 2016 and 2017, and were considered independent by the Board.

Marcus Swales has been the audit partner for the past two years, taking over from Julian Bartlett who oversaw the first audit.

As a public company listed on the London Stock Exchange, the Company is subject to the mandatory auditor rotation requirements of the European Union. The Company will put the external audit out to tender at least every 10 years and change auditor at least every 20 years. The Committee will, however, continue to consider annually the need to go to tender for audit quality or independence reasons and during the year the Audit Committee adopted formal audit tender guidelines to govern the audit tender process.

The Committee conducted a review of the performance of the Auditors during the audit period and concluded that performance was satisfactory and there were no grounds for change.

Grant Thornton have indicated their willingness to continue to act as Auditors to the Company for the forthcoming year and a resolution for their re-appointment will be proposed at the Annual General Meeting.

Howard Pearce

Chairman of the Audit Committee

23 March 2018

Directors’ Remuneration Report

Statement from the Chairman

I am pleased to present the Directors’ Remuneration Report to Shareholders. An ordinary resolution for the approval of this report will be put to shareholders at the Company’s forthcoming Annual General Meeting. The law requires the Company’s Auditors to audit certain disclosures provided in this report. Where disclosures have been audited, they are indicated as such and the Auditors’ opinion is included in their report to shareholders.

The Board considers the framework for the remuneration of the Directors on an annual basis. It reviews the ongoing appropriateness of the Company’s remuneration policy and the individual remuneration of the Directors by reference to the activities and particular complexities of the Company and in comparison with other companies of a similar structure and size. This is in-line with the AIC Code.

The Board as a whole considered the level of Directors’ fees at their meeting in November 2017 and determined that it was appropriate to maintain them at their current levels for 2018.

The Directors are remunerated exclusively by fixed fees in cash and do not receive bonus payments or pension contributions from the Company, hold options to acquire shares in the Company, or other benefits.

All Directors are entitled to the reimbursement of reasonable out of pocket expenses incurred by them in order to perform their duties as directors of the Company.

No advice from remuneration consultants was received during the period under review.

As noted in the Strategic Report, all of the Directors are non-executive and therefore there is no Chief Executive Officer. The Company does not have employees. Therefore there is no CEO or employee information to disclose.

Single total figure of remuneration (audited)

	Date of		2017			2016
	appointment		Taxable			Taxable
Director	to the Board	Fees	expenses1	Total	Fees	expenses1	Total
Sir Ian Cheshire	3 October 2014	50,000	–	50,000	50,000	–	50,000
Duncan Budge	3 October 2014	40,000	–	40,000	40,000	–	40,000
Emma Howard Boyd	3 October 2014	40,000	–	40,000	40,000	–	40,000
Howard Pearce	3 October 2014	40,000	2,558	42,558	40,000	3,744	43,744
TOTAL		170,000	2,558	172,558	170,000	3,744	173,744

¹ Under revised HMRC guidance, travel expenses and other out of pocket expenses are considered taxable benefits for UK-based directors. The expenses in this column comprise out of pocket travel expenses together with the associated tax liability incurred by the Directors in the performance of their duties.

No payments have been made to any former directors. It is the Company’s policy not to pay compensation upon leaving office for whatever reason. None of the fees referred to in the above table were paid to any third party in respect of the services provided by any of the Directors.

Directors’ Interests in the Company’s Shares (audited)

	Ordinary Shares	Ordinary Shares
	of 1p each	of 1p each
	as at	as at
	31 Dec 2017	31 Dec 2016
Sir Ian Cheshire	115,000	115,000
Duncan Bridge	10,000	10,000
Emma Howard Boyd	18,000	18,000
Howard Pearce	15,000	8,000
Total	158,000	151,000

No changes have been notified to the date of this report.

The Company does not have share options or a share scheme, and does not operate a pension scheme. None of the Directors are required to own shares in the Company.

Performance

A graph in the annual report shows the total shareholder return of the Company since its launch on 31 July 2015 against the total return of the MSCI World Total Return Index.

This report is required to include a table showing actual expenditure by the Company on remuneration and distributions to shareholders for the current and prior year. However, as the Directors have not yet declared or recommended payment of a dividend, and as the Company has not repurchased any of its shares, there is no such information to include.

Statement of Voting at the AGM

At the Annual General Meeting held in May 2017 the results in respect of the resolution to approve the Directors’ Remuneration Report were as follows:

Votes cast	Votes cast	Votes
for	against	withheld
33,122,809	0	0*
100%	0%

* Votes withheld are not votes by law and are therefore not counted in the calculation of votes for or against a resolution.

The results in respect of the resolution to approve the Director’s Remmuneration Policy (at the AGM held in May 2016) were as follows:

Votes cast	Votes cast	Votes
for	against	withheld
33,122,809	0	0*
100%	0%

* Votes withheld are not votes by law and are therefore not counted in the calculation of votes for or against a resolution.

By order of the Board

Sir Ian Cheshire

Chairman

23 March 2018

Directors’ Remuneration Policy

The Company’s remuneration policy is that the remuneration of each Director should be commensurate with the duties, responsibilities and time commitment of each respective role and consistent with the requirement to attract and retain directors of appropriate quality and experience. The remuneration should also be comparable to that of investment trusts of similar size and structure.

Directors are remunerated in the form of fixed fees payable monthly in arrears. There are no long or short-term incentive schemes, share option schemes or pension arrangements and the fees are not specifically related to the Directors’ performance, either individually or collectively.

The Directors’ remuneration is determined within the limits set out in the Company’s Articles of Association. The present limit is £500,000 in aggregate per annum.

It is the Board’s intention that the remuneration policy will be considered by shareholders at the annual general meeting at least once every three years. If, however, the remuneration policy is varied, shareholder approval will be sought at the AGM following such variation. The Board will formally review the remuneration policy at least once a year to ensure that it remains appropriate.

This policy was last approved by Shareholders at the AGM held in 2016. Accordingly, an ordinary resolution for the approval of this policy will next be considered by shareholders at the Annual General Meeting to be held in 2019. It is intended that this policy will remain in place for the following financial year and subsequent financial periods.

No communications have been received from shareholders regarding Directors’ remuneration. The Board will consider any comments received from shareholders on the remuneration policy.

This policy, together with the Directors’ letters of appointment, may be inspected at the Company’s registered office.

The current and projected Directors’ fees for 2017 and 2018 are shown in the table below. The Company does not have any employees.

Directors’ Fees Current and Projected

		Total
	Fees (£)	Fees (£)
	2018	2017
Sir Ian Cheshire	50,000	50,000
Duncan Budge	40,000	40,000
Howard Pearce	40,000	40,000
Emma Howard Boyd	40,000	40,000
	170,000	170,000

Any new director appointed to the Board will, under current remuneration levels, receive a fee of £25,000 per annum. Directors who serve on the Audit Committee receive an additional fee of £15,000 per annum. The Chairman receives an additional fee of £25,000 per annum.

All Directors are non-executive, appointed under the terms of letters of appointment and none has a service contract. The terms of their appointment provide that Directors shall retire and be subject to election at the first annual general meeting after their appointment and to re-election every three years thereafter. The terms also provide that a Director may be removed without notice and that compensation will not be due on leaving office.

Independent Auditor’s Report to the Members of Menhaden Capital PLC

Our opinion on the financial statements is unmodified

We have audited the financial statements of Menhaden Capital PLC (the ‘Company’) for the year ended 31 December 2017 which comprise the Income Statement, the Statement of Changes in Equity, the Statement of Financial Position, the Statement of Cash Flows and Notes to the Financial Statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’ (United Kingdom Generally Accepted Accounting Practice).

In our opinion, the financial statements:

•         give a true and fair view of the state of the Company’s affairs as at 31 December 2017 and of its net return for the year then ended;

•         have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

•         have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the ‘Auditor’s responsibilities for the audit of the financial statements’ section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Who we are reporting to

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Conclusions relating to principal risks, going concern and viability statement

We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs (UK) require us to report to you whether we have anything material to add or draw attention to:

•         the disclosures in the annual report that describe the principal risks and explain how they are being managed or mitigated;

•         the directors’ confirmation, set out in the annual report, that they have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity;

•         the directors’ statement, set out in the financial statements, about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors’ identification of any material uncertainties to the Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;

•         whether the directors’ statement relating to going concern required under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit; or

•         the directors’ explanation, set out in the annual report, as to how they have assessed the prospects of the Company, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Overview of our audit approach

•         Overall materiality £724,000, which represents approximately 1% of the Company's net assets

•         Key audit matters were identified as valuation, existence and ownership of quoted and unquoted investments, and completeness and occurrence of investment income

•         Our audit approach was a risk based substantive audit focused on investments at the year end and investment income recognised during the year. There was no change in our approach from prior year

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key Audit Matter: Valuation, existence and ownership of unquoted and quoted investments

The Company’s investement objective is to generate long-term shareholders returns, mainly in the form of capital growth.

This objective is pursued through a portfolio comprising of quoted and unquoted holdings.

As at the year end, the Company holds a small number of significant holdings in unquoted investments and number of quoted investments.

The investment portfolio at the year end had a carrying value of £64m, of which £43m of investments were listed on recognised stock exchanges, and £0.5m were held in the form of derivative financial instruments.

As different valuation approaches are applied to the different types of investments, there are risks that the investment valuation recorded in the Statement of Financial Position may be misstated. Also, there is a risk that investments recorded might not, exist or might not be owned by the Company.

We therefore identified valuation, existence and ownership of investments as a significant risk, which was one of the most significant assessed risks of material misstatement.

How the matter was addressed in the audit:

Unquoted investments

Our audit work included, but was not restricted to:

•         understanding management’s process to value unquoted investments through discussions with the management and examination of control reports on third party administrators and assessing whether the accounting policy for unquoted investments is in accordance with the requirements of United Kingdom Generally Accepted Accounting Practice and the Statement of Recommended Practice (‘SORP’) issued by Association of Investment Companies (‘AIC’);

•         considering whether the techniques applied for valuing unquoted investments were in accordance with published guidance, principally the International Private Equity and Venture Capital Valuation Guidelines. This was done through obtaining and reviewing the investment valuation policies of the private equity funds, review of the fund’s latest available audited financial statements, review of the fund’s latest quarterly reports and discussion with the fund’s management where applicable;

•         agreeing the valuation of unquoted investments to year end fair values as reported in valuation statements received directly from the investee funds; and

•         substantively testing a sample of additions and disposals of unquoted investments during the year by agreeing such transactions to bank statements and notifications from the investee funds.

Quoted investments

Our audit work included, but was not restricted to:

•         understanding management’s process to value quoted investments through discussions with the management and examination of control reports on third party administrators and assessing whether the accounting policy for quoted investments is in accordance with the requirements of United Kingdom Generally Accepted Accounting Practice and the SORP issued by the AIC;

•          agreeing the valuation of quoted investments to an independent source of market prices and nominal holdings to confirmation from the custodian in order to obtain comfort over existence and ownership of investments; and •          substantively testing a sample of additions and disposals of quoted investments during the year by agreeing such transactions to list of trade confirmations and bank statements as applicable. The Company's accounting policy on investments is shown in note 1(b) to the financial statements and related disclosures are included in note 7. The Audit Committee identified valuation and ownership of the Company’s investments as a significant issue in its report on page 37, where the Committee also described the action that it has taken to address this issue. Key observations Our testing did not identify any material misstatements in the valuation of the Company’s investment portfolio as at the year end nor were any issues noted with regards to the existence or the Company’s ownership of the underlying investments at the year end.

Key Audit Matter: Completeness and occurrence of investment income

The Company aims to provide long-term shareholder returns by investing in businesses and opportunities delivering or benefiting from the efficient use of energy and resources. Income from investments is a significant, material item in the income statement. The Company measures performance on a total return basis and investment income is one of the significant components of this performance measure in the Income Statement.

Under International Standard on Auditing (UK) 240 ‘The auditor’s responsibilities relating to fraud in an audit of financial statements’, there is a presumed risk of fraud in revenue recognition.

We therefore identified completeness and occurrence of investment income as a significant risk, which was one of the most significant assessed risks of material misstatement.

How the matter was addressed in the audit:

Our audit work included, but was not restricted to:

•         assessing whether the Company’s accounting policy for revenue recognition is in accordance with the requirements of United Kingdom Generally Accepted Accounting Practice and the AIC SORP and testing its consistent application on revenue recognised during the year;

•         substantively testing income transactions to assess if they were recognised in accordance with the policy;

•         for investments held during the year, obtaining the ex-dividend dates and rates for dividends declared during the year from an independent source and agreeing the expected dividend entitlements to those recognised in the Income Statement and agreeing dividend income recognised by the Company to an independent source. For unquoted investment this was achieved by obtaining distribution notices issued during the year directly from the investee funds; and

•         assessing the categorisation of corporate actions and special dividends to identify whether the treatment is correct.

The Company's accounting policy on income, including its recognition, is shown in note 1(c) to the financial statements and related disclosures are included in note 2. The Audit Committee identified recognition of income as a significant issue in its report, where the Committee also described the action that it has taken to address this issue.

Key observations

Our testing did not identify any material misstatements in the amount of revenue recognised during the year

Our application of materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our work and in evaluating the results of that work.

We determined materiality for the audit of the financial statements as a whole to be £724,000, which is approximately 1% of the Company's net assets. This benchmark is considered the most appropriate because net assets, which primarily comprise the Company’s investment portfolio, are considered to be the key driver of the Company’s total return performance and form a part of the net asset value calculation.

Materiality for the current year is higher than the level that we determined for the year ended 31 December 2016 to reflect the increased value of the Company’s net assets, including its investment portfolio, at the year end.

We use a different level of materiality, performance materiality, to drive the extent of our testing and this was set at 75% of financial statement materiality.

We also determine a lower level of specific materiality for certain areas such as investment income and related party transactions, being the management fee and directors’ remuneration.

We determined the threshold at which we will communicate misstatements to the audit committee to be £36,200. In addition we will communicate misstatements below that threshold that, in our view, warrant reporting on qualitative grounds.

An overview of the scope of our audit

Our audit approach was a risk-based approach founded on a thorough understanding of the Company's business, its environment and risk profile and in particular included:

•         obtaining an understanding of relevant internal controls at both the Company and third-party service providers. This included obtaining and reading internal controls reports prepared by the third-party service providers on the description, design, and operating effectiveness of the internal controls at the investment manager, custodian and administrator; and

•         performing substantive audit procedures on specific transactions, which included journal entries and individual material balances and disclosures, the extent of which was based on various factors such as our overall assessment of the control environment and our evaluation of the design and implementation of controls that address significant audit risk.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:

•         Fair, balanced and understandable – the statement given by the directors that they consider the annual report and financial statements taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

•         Audit committee reporting – the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit committee is materially inconsistent with our knowledge obtained in the audit; or

•         Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the directors’ statement required under the Listing Rules relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R (2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.

Our opinions on other matters prescribed by the Companies Act 2006 are unmodified

In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

•         the information given in the strategic report and the report of the directors for the financial year for which the financial statements are prepared is consistent with the financial statements; and

•         the strategic report and the report of the directors have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report under the Companies Act 2006

In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report or the report of the directors.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:

•         adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

•         the financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or

•         certain disclosures of directors’ remuneration specified by law are not made; or

•         we have not received all the information and explanations we require for our audit.

Responsibilities of directors for the financial statements

As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

We are responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error. Owing to the inherent limitations of an audit, there is an unavoidable risk that material misstatements of the financial statements may not be detected, even though the audit is properly planned and performed in accordance with the ISAs (UK). Our audit approach is a risk-based approach and is explained more fully in the ‘An overview of the scope of our audit’ section of our audit report.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters which we are required to address

We were appointed by the members on 23 May 2016. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 3 years.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Company and we remain independent of the Company in conducting our audit.

Our audit opinion is consistent with the additional report to the audit committee.

Marcus Swales

Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
23 March 2018

Income Statement

		For the year ended 31 December 2017			For the year ended 31 December 2016
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£’000	£’000	£’000	£’000	£’000	£’000
Gains on investments at fair value through profit or loss	7	–	6,189	6,189	–	2,075	2,075
Income from investments	2	828	–	828	532	–	532
AIFM and Portfolio management fees	3	(209)	(837)	(1,046)	(191)	(777)	(968)
Other expenses	4	(454)	(60)	(514)	(428)	–	(428)
Net return/(loss) before taxation		165	5,292	5,457	(87)	1,298	1,211
Taxation on net return	5	(48)	–	(48)	(43)	–	(43)
Net return/(loss) after taxation		117	5,292	5,409	(130)	1,298	1,168
Return/(loss) per share	6	0.1p	6.6p	6.7p	(0.1)p	1.6p	1.5p

The “Total” column of this statement is the Income Statement of the Company. The “Revenue” and “Capital” columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations.

The Company has no recognised gains and losses other than those shown above and therefore no separate Statement of Total Comprehensive Income has been presented.

The accompanying notes are an integral part of these financial statements.

Statement of Changes in Equity

For the year ended 31 December 2017

	Ordinary	Share
	share	premium	Special	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£’000	£’000	£’000	£’000	£’000	£’000
At 31 December 2016	800	–	77,371	(9,831)	(57)	68,283
Net return after taxation	–	–	–	5,292	117	5,409
At 31 December 2017	800	–	77,371	(4,539)	60	73,692
For the year ended 31 December 2016
	Ordinary	Share
	share	premium	Special	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£’000	£’000	£’000	£’000	£’000	£’000
At 31 December 2015	800	77,371	–	(11,129)	73	67,115
Cancellation of Share premium account	–	(77,371)	77,371	–	–	–
Net return/(loss) after taxation	–	–	–	1,298	(130)	1,168
At 31 December 2016	800	–	77,371	(9,831)	(57)	68,283

The accompanying notes are an integral part of these financial statements.

Statement of Financial Position

		As at	As at
		31 December	31 December
		2017	2016
	Notes	£000	£000
Fixed assets
Investments at fair value through profit or loss	7	63,333	52,547
Current assets
Debtors	8	85	65
Derivative financial instruments at fair value through profit or loss	7	454	–
Cash		9,987	15,872
		10,526	15,937
Current liabilities
Creditors: amounts falling due within one year	9	(167)	(201)
Net current assets		10,359	15,736
Total net assets		73,692	68,283
Capital and reserves
Ordinary share capital	10	800	800
Special reserve		77,371	77,371
Capital reserve	15	(4,539)	(9,831)
Revenue reserve		60	(57)
Total shareholders’ funds		73,692	68,283
Net asset value per share	11	92.1p	85.4p

The financial statements were approved by the Board of Directors and authorised for issue on

23 March 2018 and were signed on its behalf by:

Sir Ian Cheshire
Chairman

The accompanying notes are an integral part of these financial statements.

Menhaden Capital PLC – Company Registration Number 09242421 (Registered in England and Wales)

Statement of Cash Flows

		For the	For the
		year ended	year ended
		31 December	31 December
		2017	2016
	Notes	£000	£000
Net cash outflow from operating activities	12	(885)	(739)
Investing activities
Purchases of investments		(27,891)	(23,438)
Sales of investments		22,891	36,678
Net cash (outflow)/inflow from investing activities		(5,000)	13,240
(Decrease)/increase in cash and cash equivalents		(5,885)	12,501
Cash and cash equivalents at beginning of the year		15,872	3,371
Cash and cash equivalents at end of the year		9,987	15,872

The accompanying notes are an integral part of these financial statements.

Notes to the Financial Statements

For the year ended 31 December 2017

1.            ACCOUNTING POLICIES

The principal accounting policies, all of which have been applied consistently throughout the year in the preparation of these financial statements, are set out below:

(a)          Basis of Preparation

The financial statements have been prepared in accordance with United Kingdom company law, FRS 102 ‘The Financial Reporting Standard applicable in the UK and Ireland’, the Statement of Recommended Practice ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ issued in November 2014 and updated in January 2017 (the ‘SORP’), the historical cost convention, as modified by the valuation of investments at fair value through profit or loss and on a going concern basis.

The Company’s financial statements are presented in sterling, being the functional and presentational currency of the Company. All values are rounded to the nearest thousand pounds (£’000) except where otherwise indicated.

Fair value measurements are categorised into a fair value hierarchy based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

•         Level 1 – Quoted prices in active markets;

•         Level 2 – Inputs other than quoted prices included within Level 1 that are observable (ie developed using market data), either directly or indirectly.

•         Level 3 – Inputs are unobservable (ie for which market data is unavailable)

Presentation of the Income Statement

In order to reflect better the activities of an investment trust company and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The net revenue return is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Sections 1158 and 1159 of the Corporation Tax Act 2010.

Critical Accounting Judgements and Key Sources of Estimation Uncertainty

Critical accounting judgements and key sources of estimation uncertainty used in preparing the financial information are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable. The resulting estimates will, by definition, seldom equal the related actual results.

The critical judgement and key estimates, and assumptions, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities relate to the valuation of the Company’s unquoted (Level 3) investments. 31.1% (2016: 30.3%) of the Company’s portfolio is comprised of unquoted investments. These are all valued in line with accounting policy 1(b). Under the accounting policy the reported net asset value methodology has been adopted in valuing those investments.

Key sources of estimation uncertainty

As the Company has judged that it is appropriate to use reported NAVs in valuing the unquoted investments as set out in Note 14 (vi), the Company does not have any key assumptions concerning the future, or other key sources of estimation uncertainty in the reporting period, which may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Whilst the Board considers the methodologies and assumptions adopted in the valuation of unquoted investments are supportable, reasonable and robust, because of the inherent uncertainty of valuation, the values used may differ significantly from the values that would have been used had a ready market for the investment existed and the differences could be significant. These values may need to be revised as circumstances change and material adjustments may still arise as a result of a reappraisal of the unquoted investments fair value within the next year.

In using a figure of 25% in the disclosures in relation to unquoted investments the Directors had regard to the nature of the investments, the wide range of possible outcomes, and public information on secondary market transactions in private equity funds.

(b)          Investments Held at Fair Value Through Profit or Loss

All investments are measured on initial recognition and at subsequent reporting dates at fair value in accordance with FRS 102 Section 11: Basic Financial Instruments and Section 12: Other Financial Instruments Issues.

Purchases and sales of quoted investments are recognised on the trade date where a contract exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional.

Changes in the fair value of investments and gains and losses on disposal are recognised in the Income Statement as ‘gains or losses on investments’. Also included within this caption are transaction costs in relation to the purchase or sale of investments, including the difference between the purchase price of an investment and its price at the time of purchase. The fair value of the different types of investment held by the Company is determined as follows:

•         Quoted Investments

Fair value is deemed to be bid, or last trade, price depending on the convention of the exchange on which it is quoted.

•         Unquoted Investments

Unquoted investments are fair valued using recognised valuation methodologies in accordance with the International Private Equity and Venture Capital Association valuation guidelines (IPEVCA Guidelines).

Where an investment has been made recently the Company may use cost as the best indicator of fair value. In such a case changes or events subsequent to the relevant transaction date would be assessed to ascertain if they imply a change in the investment’s fair value.

The Company’s unquoted investments comprise of limited partnerships or other entities set up by third parties to invest in a wider range of investments, or to participate in a larger investment opportunity than would be feasible for an individual investor, and to share the costs and benefits of such investment.

For these investments and in line with the IPEVCA Guidelines, the fair value estimate is based on the attributable proportion of the reported net asset value of the unquoted investment derived from the fair value of underlying investments. Valuation reports, provided by the manager or general partner of the unquoted investments are used to calculate fair value where there is evidence that the valuation is derived using fair value principles that are consistent with the Company’s accounting policies and valuation methods. Such valuation reports may be adjusted to take account of changes or events to the reporting date, or other facts and circumstances which might impact the underlying value.

If a decision to sell an unquoted investment or portion thereof has been made then the fair value would be the expected sales price where this is known or can be reliably estimated.

Where a portion of an unquoted investment has been sold the level of any discount, implicit in the sale price, will be reviewed at each measurement date for that unquoted investment taking account of the performance of the unquoted investment, as well as any other factors relevant to the value of the unquoted investment.

(c)           Investment Income

Dividends receivable are recognised on the ex-dividend date. Where no ex-dividend date is quoted, dividends are recognised when the Company’s right to receive payment is established. UK dividends are shown net of tax credits and foreign dividends are grossed up at the appropriate rate of withholding tax.

Fixed returns on non-equity shares and debt securities are recognised on a time apportionment basis so as to reflect the effective yield when it is probable that economic benefit will flow to the Company. Where income accruals previously recognised, but not received, are no longer considered to be reasonably expected to be received, due to doubt over their receipt, then these amounts are reversed through expenses.

Income distributions from limited partnership funds are recognised when the right to the distribution is established.

(d)          Expenses

All expenses are accounted for on an accruals basis. Expenses are charged through the revenue column of the Income Statement except as follows:

•         expenses which are incidental to the acquisition or disposal of an investment, are charged to the capital column of the Income Statement; and

•         expenses are charged to the capital column of the Income Statement where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect the portfolio management and AIFM fees have been charged to the Income Statement in line with the Board’s expected long-term split of returns, in the form of capital gains and income, from the Company’s portfolio. As a result 20% of the portfolio management and AIFM fees are charged to the revenue column of the Income Statement and 80% are charged to the capital column of the Income Statement.

Any performance fee accrued or paid is charged in full to the capital column of the Income Statement.

(e)          Taxation

The tax effect of different items of expenditure is allocated between capital and revenue using the marginal basis. Deferred taxation is provided on all timing differences that have originated but not been reversed by the Statement of Financial Position date other than those differences regarded as permanent. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the reversal of timing differences can be deducted. Any liability to deferred tax is provided for at the rate of tax enacted or substantially enacted.

(f)           Foreign Currency

Transactions recorded in overseas currencies during the year are translated into sterling at the exchange rate ruling on the date of the transaction. Assets and liabilities denominated in overseas currencies are translated into sterling at the exchange rates ruling at the date of the balance sheet. Non-monetary items that are measured at historical cost are translated using the historical exchange rate at the date of the transaction.

Any gains or losses on the translation of foreign currency balances, whether realised or unrealised, are taken to the capital or the revenue column of the Income Statement, depending on whether the gain or loss is of a capital or revenue nature.

(g)          Cash and Cash Equivalents

Cash and cash equivalents are defined as cash and demand deposits readily convertible to known amounts of cash and subject to insignificant risk of changes in value.

(h)          Capital Reserves

The following are transferred to this reserve: gains and losses on the realisation of investments; changes in the fair values of investments; and, expenses, together with the related taxation effect, charged to capital in accordance with the Expenses Policy.

Any gains in the fair value of investments that are not readily convertible to cash are treated as unrealised gains in the capital reserve.

(i)           Cost of share issues

Costs of share issuance have been offset against the proceeds of the relevant share issue and dealt with in the share premium account.

(j)           Special Reserve

During 2016, in order to enable the Company to make share repurchases out of distributable reserves and to increase the distributable reserves available to facilitate the payment of future dividends, following the approval of the Court, the share premium account was cancelled and the balance of the account was transferred to the Special Reserve.

2.            INCOME FROM INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS

	2017	2016
	£’000	£’000
Income from investments
UK listed dividends	125	96
Overseas dividends	589	426
Fixed interest income	114	10
	828	532
Total income comprises:
Dividends	714	522
Interest	114	10
	828	532

3.            AIFM AND PORTFOLIO MANAGEMENT FEES

	2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
AIFM fee	32	128	160	27	110	137
Portfolio management fee	177	709	886	164	667	831
	209	837	1,046	191	777	968
4.            OTHER EXPENSES
	2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Directors’ remuneration	170	–	170	170	–	170
Employers NIC on directors’ remuneration	18	–	18	18	–	18
Auditors’ remuneration for the audit of the Company’s financial statements	32	–	32	32	–	32
Registrar fees	21	–	21	13	–	13
Broker fees	30	–	30	30	–	30
Legal and professional costs	56	53	109	57	–	57
Listing fees	12	–	12	18	–	18
Depositary fees	50	–	50	44	–	44
Marketing costs	–	–	–	13	–	13
Other costs	65	7	72	33	–	33
Total expenses	454	60	514	428	–	428

Details of the amounts paid to Directors are included in the Directors’ Remuneration Report.

5.            TAXATION ON NET RETURN

(a)          Analysis of charge in period

	2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Corporation tax
Overseas taxation	48	–	48	43	–	43

(b)          Factors affecting current tax charge for the year

Approved investment trusts are exempt from tax on capital gains made within the Company.

The tax charged for the period is lower than the standard rate of corporation tax in the UK of 19.25%. The difference is explained below.

	2017			2016
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Net return/(loss) before taxation	165	5,292	5,457	(87)	1,298	1,211
Corporation tax at 19.25% (2016: 20.00%)	32	1,015	1,031	(17)	260	243
Non-taxable gains on investments	–	(1,191)	(1,191)	–	(415)	(415)
Overseas withholding taxation	48	–	48	43	–	43
Non taxable overseas dividends	(113)	–	(113)	(83)	–	(83)
Non taxable UK dividends	(24)	–	(24)	(19)	–	(19)
Excess management expenses	105	172	277	119	155	274
Total tax charge	48	–	48	43	–	43

(c)           Provision for deferred tax

No provision for deferred taxation has been made in the current period. The Company has not provided for deferred tax on capital profits and losses arising on the revaluation or disposal of investments, as it is exempt from tax on these items because of its status as an investment trust company.

The Company has not recognised a deferred tax asset of £585,000 (17% tax rate) (2016: £333,000, 17%) as a result of excess management expenses. It is not anticipated that these excess expenses will be utilised in the foreseeable future. The reduction in the standard rate of corporation tax was substantially enacted on 13 September 2016 and will be effective on 1 April 2020.

6.            RETURN/(LOSS) PER SHARE

	2017	2016
	£’000	£’000
The return per share is based on the following figures:
Revenue return/(loss)	117	(130)
Capital return	5,292	1,298
	5,409	1,168
Weighted average number of shares in issue during the period	80,000,001	80,000,001
Revenue return/(loss) per ordinary share	0.1p	(0.1)p
Capital return per ordinary share	6.6p	1.6p
	6.7p	1.5p

The calculation of the total, revenue and capital returns/(losses) per Ordinary Share is carried out in accordance with IAS 33 Earnings per share.

7.            INVESTMENTS

		2017				2016
			Derivative
	Quoted	Unquoted	Financial		Quoted	Unquoted
	Investments	Investments	Instruments*	Total	Investments	Investments	Total
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
Opening balance
Cost at 1 January	38,630	20,386	–	59,016	52,953	20,985	73,938
Investment holding losses at 1 January	(2,024)	(4,445)	–	(6,469)	(7,417)	(2,812)	(10,229)
Valuation at 1 January	36,606	15,941	–	52,547	45,536	18,173	63,709
Movement in the period:
Purchases at cost	22,311	5,631	–	27,942	21,741	1,700	23,441
Sales –  proceeds	(20,130)	(2,761)	–	(22,891)	(34,110)	(2,568)	(36,678)
–  (losses)/gains on sales	(3,186)	(476)	–	(3,662)	(1,954)	269	(1,685)
Net movement in investment holdings gains/(losses)	7,195	2,202	454	9,851	5,393	(1,633)	3,760
Valuation at 31 December	42,796	20,537	454	63,787	36,606	15,941	52,547
Closing balance
Cost at 31 December	37,625	22,780	–	60,405	38,630	20,386	59,016
Investment holding gains/(losses) at 31 December	5,171	(2,243)	454	3,382	(2,024)	(4,445)	(6,469)
Valuation at 31 December	42,796	20,537	454	63,787	36,606	15,941	52,547

* Derivative financial instruments comprise foreign exchange forwards. Further details are included in note 14.

	2017	2016
	£’000	£’000
Losses based on historical cost – sales	(3,662)	(1,685)
Movement in investment holding gains in the year	9,851	3,760
Gains on investments	6,189	2,075

Purchase transaction costs were £23,000 (2016: £9,000). These comprise mainly commission and stamp duty.

Sales transaction costs were £30,000 (2016: £48,000). These comprise mainly commission.

8.            DEBTORS

	2017	2016
	£’000	£’000
VAT recoverable	20	–
Withholding tax recoverable	33	6
Prepayments and accrued income	32	59
	85	65
9.            CREDITORS
	2017	2016
	£’000	£’000
Amounts falling due within one year
Other creditors and accruals	167	201
10.          SHARE CAPITAL
	2017	2016
	£’000	£’000
Issued and fully paid:
Ordinary shares of 1p	800	800
11.          NET ASSET VALUE PER SHARE
	2017	2016
Net asset value per share	92.1p	85.4p

Net asset value per share

The net asset value per share is based on the assets attributable to equity shareholders of £73,692,000 (2016: £68,283,000) and on the number of Ordinary Shares in issue at the year end of 80,000,001.

12.          RECONCILIATION OF NET CASH OUTFLOW FROM OPERATING ACTIVITIES

	2017	2016
	£’000	£’000
Gains before finance costs and taxation	5,457	1,211
Deduct: Gains made on investments	(6,189)	(2,075)
	(732)	(864)
Decrease in other debtors	7	145
(Decrease)/increase in creditors and accruals	(34)	32
Effective interest rate amortisation	(51)	(3)
Net taxation suffered on investment income	(75)	(49)
Net cash outflow from operating activities	(885)	(739)

13.          RELATED PARTIES

The following are considered to be related parties:

•         Frostrow Capital LLP

•         The Directors of the Company

Details of the relationship between the Company and the Company’s AIFM are disclosed in the Strategic Report. Details of fees paid to Frostrow by the Company can be found in note 3 to the financial statements. All material related party transactions have been disclosed in note 3. Details of the remuneration of all Directors can be found in note 4. Details of the Directors’ interests in the capital of the Company can be found in the Directors’ Remuneration Report.

Ben Goldsmith, a member of the Porfolio Manager, holds a minority membership interest in Alpina Partners LLP (formerly WHEB Capital Partners LLP), the investment manager of the WCP Growth Fund LP and the Alpina Partners Fund LP. He also has a small carried interest participation in each of these funds.

14.          FINANCIAL INSTRUMENTS

Risk management policies and procedures

The Company’s financial instruments comprise securities and other investments, cash balances and certain debtors and creditors that arise directly from its operations.

As an investment trust, the Company invests in equities and other investments for the long term so as to achieve its investment objective.  In pursuing its investment objective, the Company is exposed to a variety of risks that could result in a reduction in the Company’s net assets.

The main risks that the Company faces arising from its use of financial instruments are:

(i)       market risk (including foreign currency risk, interest rate risk and other price risk)

(ii)      liquidity risk

(iii)     credit risk

These risks, with the exception of liquidity risk, and the Directors’ approach to the management of them, are set out in the Strategic Report. The AIFM, in close co-operation with the Board and the Menhaden Team, co-ordinates the Company’s risk management.

(i)           Other price risk

In pursuance of the Company’s Investment Objective the Company’s portfolio is exposed to the risk of fluctuations in market prices and foreign exchange rates.

The Board manage these risks through the use of investment limits and guidelines, and monitor the risks through monthly compliance reports from Frostrow, with reports from Frostrow and the Menhaden Team also presented at each Board meeting. In addition, Frostrow monitor the exposure of the Company and compliance with the investment limits and guidelines on a daily basis.

Other price risk sensitivity

Other price risk may affect the value of the quoted investments.

If market prices at the date of the Statement of Financial Position had been 25% higher or lower while all other variables had remained constant: the revenue return would have decreased/increased by £46,000 (2016: £39,000); the capital return would have increased/decreased by £15,341,000 (2016: £12,982,000); and, the return on equity would have increased/decreased by £15,295,000 (2016: £12,943,000). The calculations are based on the portfolio as at the respective dates of the Statement of Financial Position and are not representative of the year as a whole.

(ii)          Foreign currency risk

A significant proportion of the Company’s portfolio positions are denominated in currencies other than sterling (the Company’s functional currency, and the currency in which it reports its results). As a result, movements in exchange rates can significantly affect the sterling value of those items.

Foreign currency risk is managed and maintained in conjunction with other price risk as described above.

Foreign currency exposure

The fair values of the Company’s assets and liabilities that are denominated in foreign currencies are shown below:

	2017				2016
			Current			Current
	Investments	Derivatives*	assets	Net	Investments	assets	Net
	£’000	£’000	£’000	£’000	£’000	£’000	£’000
U.S. dollar	25,093	(12,921)	13	12,185	33,160	15	33,175
Euro	25,159	(12,884)	33	12,308	12,987	4	12,991
Other	6,415	–	–	6,415	914	3	917
	56,667	(25,805)	46	30,908	47,061	22	47,083

* Derivatives comprise foreign currency forwards used to partially hedge the Company’s exposure to overseas currencies.

Foreign currency sensitivity

The following table details the sensitivity of the Company’s net return for the year and shareholders’ funds to a 10% increase and decrease in sterling against the relevant currency.

These percentages have been determined based on market volatility in exchange rates over the period since launch. The sensitivity analysis is based on the Company’s significant foreign currency exposures at each Balance Sheet date.

	2017			2016
	USD	EUR	Other	USD	EUR	Other
	£’000	£’000	£’000	£’000	£’000	£’000
Sterling depreciates	1,511	1,278	702	3,635	1,427	100
Sterling appreciates	(1,236)	(1,045)	(575)	(2,974)	(1,163)	(82)

(iii)         Interest rate risk

Interest rate changes may affect:

–         the level of income receivable from floating and fixed rate securities and cash at bank and on deposit;

–         the fair value of investments in fixed interest securities.

Interest rate exposure

The exposure of financial assets and liabilities to fixed and floating interest rates, is shown below.

At 31 December 2017, the Company held 0.3% (2016: 0.9%) of the portfolio in debt instruments. The exposure is shown in the table below:

	2017		2016
	Fixed	Floating	Fixed	Floating
	rate	rate	rate	rate
	£’000	£’000	£’000	£’000
Quoted debt investments	156	–	165	–
Cash	–	9,987	–	15,872
	156	9,987	165	15,872

Interest rate sensitivity

If interest rates had been 1% higher or lower and all other variables were held constant, the Company’s net return for the year ended 31 December 2016 and the net assets would increase/decrease by £100,000 (2016: £157,000).

(iv)         Liquidity risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

The main liquidity requirements the Company may face are its commitments to the investments in limited partnership funds.  These commitments can be drawn down on 3 or 10 days notice, although it is considered unlikely that they would all be drawn at once. Frostrow and the Portfolio Manager are in regular contact with the managers of the limited partnership funds, as a part of which they would be made aware, and plan accordingly, of any material drawdowns under those commitments.

The Company’s assets comprise quoted securities (equity shares, fixed income and fund investments), cash, and unquoted limited partnership funds and investments. Whilst the unquoted investments are illiquid, short-term flexibility is achieved through the quoted securities, which are liquid, and cash which is available on demand.

The liquidity of the quoted securities is monitored on a monthly basis to ensure that there is sufficient liquidity to meet the company’s liabilities and any forthcoming drawdowns.

(v)          Credit risk

Credit risk is the risk of failure of a counterparty to discharge its obligations resulting in the Company suffering a financial loss. The quoted debt investments are managed as part of an investment portfolio, and their credit risk is considered in the context of their overall investment risk.

Credit risk exposure

	2017	2016
	£’000	£’000
Quoted debt investments	156	479
Derivative financial instruments	454	–
Current assets:
Other receivables (amounts due from brokers, dividends and interest receivable)	65	67
Cash	9,987	15,681

(vi)         Hierarchy of investments

The Company’s investments are valued within a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurements as described in the accounting policies.

	Level 1	Level 2	Level 3	Total
As of 31 December 2017	£’000	£’000	£’000	£’000
Investments	42,640	156	20,537	63,333
Derivatives	–	454	–	454
	Level 1	Level 2	Level 3	Total
As of 31 December 2016	£’000	£’000	£’000	£’000
Investments	36,292	314	15,941	52,547
Level 3 investments as of 31 December 2017
		Value		Valuation
	Cost	£	Ownership	basis
Alpina Partners Fund LP	€3,529,000	3,620,000	4.70%	NAV
KKR Evergreen Co-Invest LP 1	£3,518,000	3,500,000	1.25%	NAV
Perfin Apollo FIP	BRL3,054,000	680,000	5.80%	NAV
Helios Co-Invest LP 2	$12,562,000	11,675,000	6.00%	NAV
WCP Growth Fund LP	£7,742,000	1,062,000	10.30%	Discount to NAV

¹ Described as Calvin Capital in the portfolio statement

² Described as X-Elio in the portfolio statement

During 2017 the WCP Growth Fund LP (WCP Fund) was written down by £1,346,000 and the Alpina Partners Fund LP (Alpina Fund) was written up by £1,352,000. In addition, the WCP Fund made net capital distributions of £561,000 during the year and the Alpina Fund made net drawdowns of £547,000. Helios Co-Invest LP’s (Helios) fair value increased by £967,000 and it made a capital distribution of £363,000.

As set out below, the Company sold half its stake in the Alpina Fund for £1,205,000 during the year. The cost of the stake sold was €2,428,000 and its previous carrying value (adjusted for distributions and drawdowns prior to the sale) was £1,182,000.

If a 25% discount to NAV was applied to the NAV of the level 3 investments as at 31 December 2017, or the discount already applied was increased by 25%, the impact would have been a decrease of £5,134,000 in net assets and the net return for the year.

Level 3 investments as of 31 December 2016

		Value
	Cost	£	Ownership	Valuation basis
Alpina Partners Fund LP	€5,335,000	2,806,000	9.40%	Sales price
Helios Co-Invest LP	$12,562,000	10,167,000	6.00%	NAV
WCP Growth Fund LP	£8,303,000	2,968,000	10.30%	NAV

During 2016 the WCP Fund was written down by £2,390,000 and the Alpina Fund was written down by £528,000. In addition, the WCP Fund made net distributions of £2,495,000 during the year. The value of Helios increased by £1,889,000 due to the depreciation of sterling during 2016.

If a 25% discount to NAV was applied to the NAV of Helios Co Invest LP and the WCP Fund as at 31 December 2016 the impact would have been a decrease of £3,284,000 in net assets and the net return for the year.

The Company agreed a sale for half the Alpina Fund interest in March 2017 and, in accordance with the Company's accounting policy the expected sales price was used to value the holding as at 31 December 2016. If the net asset basis had been used to value the interest being retained by the Company, the impact would have been an increase of £1,186,000 in net assets and the return for the year.

(vii)        Capital management policies and procedures

The Company’s capital management objectives are to ensure that it will be able to continue as a going concern and to maximise the income and capital return to its equity shareholders through an appropriate level of gearing.

The Board’s policy is to limit gearing to a maximum of 20% of the Company’s net assets. Currently the Company does not have any gearing and there are no facilities in place.

The capital structure of the Company consists of the equity share capital, retained earnings and other reserves as disclosed on the Statement of Financial Position.

The Board, with the assistance of the AIFM and the Portfolio Manager, monitors and reviews the broad structure of the Company’s capital on an ongoing basis. This includes a review of:

–         the planned level of gearing, which takes into account the Portfolio Manager’s view of the market;

–         the need to buy back equity shares, either for cancellation or to hold in treasury, in light of any share price discount to net asset value per share;

–         the need for new issues of equity shares; and,

–         the extent to which revenue in excess of that which is required to be distributed should be retained.

15.          CAPITAL RESERVE

	2017			2016
	Capital Reserves			Capital Reserves
		Investment
		Holding			Investment
		(Losses)			Holding
	Other	/Gains	Total	Other	Losses	Total
	£’000	£’000	£’000	£’000	£’000	£’000
At 1 January	(3,362)	(6,469)	(9,831)	(900)	(10,229)	(11,129)
Net gains on investments	(3,662)	9,851	6,189	(1,685)	3,760	2,075
Expenses charged to capital	(897)	–	(897)	(777)	–	(777)
At 31 December	(7,921)	3,382	(4,539)	(3,362)	(6,469)	(9,831)

Sums within the Total Capital Reserve less unrealised gains (those on investments not readily convertible to cash) are available for distribution. In addition the Revenue Reserve is available for distribution.

16.          FINANCIAL COMMITMENT

The Company has made commitments to provide additional funds to the following investments:

		Notice of
	Commitment	drawdown
Alpina Partners Fund LP	€2,693,000	10 business days
KKR Evergreen Co-Invest LP	£175,000	10 business days
Perfin Apollo	BRL18,000,000	10 days
WCP Growth Fund LP	£338,000	10 business days
Helios Co-Invest LP	$62,000	3 business days

17.          THE COMPANY

The Company is a public limited company (PLC) incorporated in England and Wales, with registered office at One Wood Street, London, EC2V 7WS. The Company’s principal place of business is 25 Southampton Buildings, London, WC2A 1AL.

Further Information

Shareholder Information

Financial Calendar

31 December                                       Financial Year End

March/April                                          Final Results Announced

May                                                         Annual General Meeting

30 June                                                  Half Year End

September                                           Half Year End Results Announced

Annual General Meeting

The Annual General Meeting of Menhaden Capital PLC will be held at the offices of Herbert Smith Freehills LLP, Exchange House, Primrose Street, London EC2A 2EG on Tuesday, 22 May 2018 at 12 noon.

Share Prices

The Company’s Ordinary Shares are listed on the London Stock Exchange under ‘Investment Companies’. The price is given daily in the Financial Times and other newspapers.

Change of Address

Communications with shareholders are mailed to the address held on the share register. In the event of a change of address or other amendment this should be notified to the Company’s Registrars, Link Asset Services, under the signature of the registered holder.

Net Asset Value

The net asset value of the Company’s shares can be obtained on the Company’s website at www.menhaden.com and is published monthly via the London Stock Exchange.

AIFMD Disclosures

The Company’s AIFM, Frostrow Capital LLP and the Company are required to make certain disclosures available to investors in accordance with the Alternative Investment Fund Managers Directive (“AIFMD”).

Those disclosures that are required to be made pre-investment are included within an Investor Disclosure Document which can be found on the Company’s website www.menhaden.com.

The periodic disclosures to investors are made below:

•         Information on the investment strategy, sector investment focus and principal stock exposures are included in the Strategic Report.

•         None of the Company’s assets are subject to special arrangements arising from their illiquid nature.

•         There are no new arrangements for managing the liquidity of the Company or any material changes to the liquidity management systems and procedures employed by Frostrow.

•         The Strategic Report and note 14 to the Financial Statements set out the risk profile and risk management systems in place. There have been no changes to the risk management systems in place during the year under review and no breaches of the risk limits set, with no breach expected.

•         The maximum level of leverage has not changed in the period under review: the maximum permitted levels are 200% on a gross basis and 120% on a commitment basis (see Glossary on page 76 for further details). Gross leverage was 118.2% (2016: nil) and commitment leverage was 97.3% (2016: nil).

•         No right of re-use of collateral or any guarantee granted under the leveraging arrangement has arisen during the period.

•         Following completion of an assessment of the application of the proportionality principle to the FCA’s AIFM Remuneration Code, the AIFM has disapplied the pay-out process rules with respect to it and any of its delegates. This is because the AIFM considers that it carries out non-complex activities and is operating on a small scale.

Note: These disclosures are not audited by the Company’s statutory auditor.

Glossary

Alternative Investment Fund Managers Directive (AIFMD)

Agreed by the European Parliament and the Council of the European Union and transposed into UK legislation, the AIFMD classifies certain investment vehicles, including investment companies, as Alternative Investment Funds (AIFs) and requires them to appoint an Alternative Investment Fund Manager (AIFM) and depositary to manage and oversee the operations of the investment vehicle. The Board of the Company retains responsibility for strategy, operations and compliance and the Directors retain a fiduciary duty to shareholders.

Compounding Hurdle

The payment of a performance fee is conditional on the Company’s NAV being above the high watermark and the return on the gross proceeds from the IPO of the Company exceeding an annualised compound return of 5%.

Discount or Premium

A description of the difference between the share price and the net asset value per share. The size of the discount or premium is calculated by subtracting the share price from the net asset value per share and is usually expressed as a percentage (%) of the net asset value per share. If the share price is higher than the net asset value per share the result is a premium. If the share price is lower than the net asset value per share, the shares are trading at a discount.

Gearing

In simple terms gearing is borrowing. An investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on shareholders’ funds is called ‘gearing’. If the Company’s assets grow, shareholders’ funds grow proportionately more because the debt remains the same. But if the value of the Company’s assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

Gearing represents borrowings at par less cash and cash equivalents expressed as a percentage of shareholders’ funds.

Potential gearing is the company’s borrowings expressed as a percentage of shareholders’ funds.

High Watermark

The high watermark is the highest net asset value that the Company has reached. Its initial level was set at 100p on the launch of the Company.

Leverage

For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the Company’s exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company’s exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company’s positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

Net Asset Value (NAV)

The value of the Company’s assets, principally investments made in other companies and cash being held, minus any liabilities. The NAV per share is also described as ‘shareholders’ funds’ per share. The NAV is often expressed in pence per share after being divided by the number of shares which are in issue. The NAV per share is unlikely to be the same as the share price which is the price at which the Company’s shares can be bought or sold by an investor. The share price is determined by the relationship between the demand and supply of the shares.

NAV Total Return

The theoretical total return on shareholders’ funds per share, including an assumed £100 original investment at the beginning of the period specified, reflecting the change in NAV assuming that any dividends paid to shareholders were reinvested at NAV at the time the shares were quoted ex-dividend. A way of measuring investment management performance of investment trusts which is not affected by movements in the Share price discount/premium.

Share Price Total Return

Return to the investor on mid-market prices assuming that all dividends paid were reinvested, usually expressed as a percentage.

Ongoing Charges

Ongoing charges are calculated by taking the Company’s annualised ongoing charges, excluding finance costs, taxation, performance fees and exceptional items, and expressing them as a percentage of the average daily net asset value of the Company over the year.

	31 December	31 December
	2017	2016
	£’000	£’000
Total Operating Expenses	1,560	1,396
Deduct: Non-recurring items	(2)	(34)
Investment due diligence costs	(103)	–
Adjusted Operating Expenses	1,453	1,362
Average Net Assets during the year	70,680	65,754
Ongoing Charges	2.1%	2.1%

Notice of the Annual General Meeting

Notice is hereby given that the Annual General Meeting of Menhaden Capital PLC will be held at the offices of Herbert Smith Freehills LLP, Exchange House, Primrose Street, London EC2A 2EG on Tuesday, 22 May 2018 at 12 noon for the following purposes:

Ordinary Business

To consider and, if thought fit, pass the following as ordinary resolutions:

1.        To receive and accept the Annual Report for the year ended 31 December 2017.

2.        To re-elect Sir Ian Cheshire as a Director of the Company.

3.        To re-elect Duncan Budge as a Director of the Company.

4.        To re-elect Emma Howard Boyd as a Director of the Company.

5.        To re-elect Howard Pearce as a Director of the Company.

6.        To re-appoint Grant Thornton UK LLP as the Company’s Auditors and to authorise the Audit Committee to determine their remuneration.

7.        To receive and approve the Directors’ Remuneration Report for the year ended 31 December 2017.

Special Business

To consider and, if thought fit, pass the following resolution as a special resolution:

General Meetings

8.        THAT the Directors be authorised to call general meetings (other than the Annual General Meeting of the Company) on not less than 14 clear days’ notice, such authority to expire on the conclusion of the next Annual General Meeting of the Company or if earlier, on the expiry 15 months from the date of the passing of the resolution.

By order of the Board            
Registered Office:
One Wood Street
 London EC2V 7WS

Frostrow Capital LLP
Company Secretary
23 March 2018

Notes

1.        Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the meeting. A shareholder may appoint more than one proxy in relation to the meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. A proxy form which may be used to make such appointment and give proxy instructions accompanies this notice. Members can also vote via the share portal at www.signalshares.com     

2.        A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolutions. If no voting indication is given, a proxy may vote or abstain from voting at his/her discretion. A proxy may vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the meeting.

3.        To be valid any proxy form or other instrument appointing a proxy must be completed and signed and received by post or (during normal business hours only) by hand at Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF no later than 12 noon on 18 May 2018.

4.        In the case of a member which is a company, the instrument appointing a proxy must be executed under its seal or signed on its behalf by a duly authorised officer or attorney or other person authorised to sign. Any power of attorney or other authority under which the instrument is signed (or a certified copy of it) must be included with the instrument.

5.        The return of a completed proxy form, other such instrument or any CREST Proxy Instruction (as described below) will not prevent a shareholder attending the meeting and voting in person if he/she wishes to do so.

6.        Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a “Nominated Person”) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or have someone else appointed) as a proxy for the meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights.

7.        The statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 1 and 3 above does not apply to Nominated Persons. The rights described in these paragraphs can only be exercised by shareholders of the Company.

8.        Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, only shareholders registered on the register of members of the Company (the “Register of Members”) at close of business on Friday, 18 May 2018 (or, in the event of any adjournment, on the date which is two days before the time of the adjourned meeting) will be entitled to attend and vote or be represented at the meeting in respect of shares registered in their name at that time. Changes to the Register of Members after that time will be disregarded in determining the rights of any person to attend and vote at the meeting.

9.        As at 22 March 2018 (being the last business day prior to the publication of this notice) the Company’s issued share capital consists of 80,000,001 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 22 March 2018 are 80,000,001.

10.      CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.

11.      In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with the specifications of Euroclear UK and Ireland Limited (“CRESTCo”), and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID RA10) no later than 48 hours before the time appointed for holding the meeting, excluding non-business days. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.

12.      CREST members and, where applicable, their CREST sponsors, or voting service providers should note that CRESTCo does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.

13.      The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.

14.      In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Register of Members in respect of the joint holding (the first named being the most senior).

15.      Members who wish to change their proxy instructions should submit a new proxy appointment using the methods set out above. Note that the cut-off time for receipt of proxy appointments (see above) also applies in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded.

16.      Members who have appointed a proxy using the hard-copy proxy form and who wish to change the instructions using another hard-copy form, should contact Link Asset Services on 0871 664 0300 (calls cost 12p per minute plus network extras). Lines are open 9.00 a.m. to 5.30 p.m. Monday to Friday.

17.      If a member submits more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence.

18.      In order to revoke a proxy instruction, members will need to inform the Company. Members should send a signed hard copy notice clearly stating their intention to revoke a proxy appointment to Link Asset Services, PXS1, 34 Beckenham Road, Beckenham, Kent BR3 4ZF.

In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certified copy of such power of attorney) must be included with the revocation notice. If a member attempts to revoke their proxy appointment but the revocation is received after the time for receipt of proxy appointments then, subject to paragraph 4, the proxy appointment will remain valid.

Explanatory Notes to the Resolutions

Resolution 1 – To receive the Annual Report

The Annual Report for the year ended 31 December 2017 will be presented to the Annual General Meeting (AGM). These financial statements accompany this Notice of Meeting and shareholders will be given an opportunity at the meeting to ask questions.

Resolutions 2 to 5 – Re-election of Directors

Resolutions 2 to 5 deal with the re-election of each Director. Biographies of each of the Directors can be found above.

Resolution 6 – Re-appointment of Auditors and the determination of their remuneration

Resolution 6 relates to the re-appointment of Grant Thornton UK LLP as the Company’s independent Auditors to hold office until the next AGM of the Company and also authorises the Audit Committee to set their remuneration. Following the implementation of the Competition and Markets Authority order on Statutory Audit Services, only the Audit Committee may negotiate and agree the terms of the Auditors’ service agreement.

Resolution 7 – Directors’ Remuneration

It is mandatory for all listed companies to put their report on Directors’ remuneration to a shareholder vote every year and their report on the Directors’ remuneration policy to a shareholder vote every three years. The remuneration policy will next be put to shareholders at the AGM in 2019.

The Directors’ Remuneration Report and the Remuneration Policy are set out in full in the Annual Report.

Resolution 8 – General Meetings

Special Resolution No. 8 seeks shareholder approval for the Company to hold General Meetings (other than the AGM) on 14 clear days’ notice.

The Company will only use this shorter notice period where it is merited by the purpose of the meeting and will endeavour to give at least 14 working days’ notice if possible, in line with the recommendations of the UK Corporate Governance Code.

Recommendation

The Board considers that the resolutions relating to the above items are in the best interests of shareholders as a whole. Accordingly, the Board unanimously recommends to the shareholders that they vote in favour of the above resolutions to be proposed at the forthcoming AGM as the Directors intend to do in respect of their own beneficial holdings totalling 158,000 shares.

Disclaimer: Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this announcement.

END