Menhaden Resource Efficiency PLC

(the “Company”)

Final Results for the Year Ended 31 December 2022

The Company’s Annual Report for the year ended 31 December 2022, which includes the notice of the Company’s forthcoming annual general meeting, will be posted to shareholders on 5 April 2023.

Copies may be obtained by writing to the Company Secretary, Frostrow Capital LLP at 25 Southampton Buildings, London WC2A 1AL, or from the Company’s website – www.menhaden.com – where up to date information on the Company, including daily NAVs, share prices and fact sheets, can also be found.

A copy of the Annual Report has been submitted to the National Storage Mechanism and will shortly be available in full, unedited text for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

Frostrow Capital LLP

Company Secretary

020 3709 8733

29 March 2023

Strategic Report

Company Performance

As at 31 December 2022		For the year ended 31 December 2022
129.8p		(16.5)%
NAV per share		NAV per share (total return)*
(2021: 155.7p)		(2021: 17.3%)
89.0p		(20.3)%
Share price		Share price (total return)*
(2021: 112.0p)		(2021: 13.1%)
31.4%		1.8%
Share price discount to NAV per share*		Total ongoing charges*
(2021: 28.1%)		(2021: 1.8%)

This report contains terminology that may be unfamiliar to some readers. The Glossary provides definitions for frequently used terms.

*Alternative performance measures (“APMs”)

Chairman’s Statement

Introduction

This is our eighth annual report since the launch of the Company in July 2015. It covers the year ended 31 December 2022. With the Russian invasion of Ukraine and lingering global economic impacts from the pandemic, this year has been especially challenging. It saw very significant market volatility, including in the UK, and a marked rotation away from risk assets into more defensive areas.

The year started with a backdrop of increasing inflation stemming from governments’ and central banks’ responses to Covid-19 on top of past quantitative easing (“QE”). This was subsequently amplified by global supply chain disruption, oil and gas price rises and the dislocations associated with the introduction of sanctions on Russia. This inevitably led to central banks trying to tame inflation with interest rate increases and reductions in QE and was accompanied by a switch in market sentiment away from tech and growth stocks.

In 2022 world equity markets lost almost 20% in US dollar terms. Virtually all UK listed investment trusts’ share price discounts to NAV widened over the year and closed-ended investment vehicles collectively recorded their worst calendar year performance since 2008.

Financial Performance

The Company’s net asset value (“NAV”) per share total return* for the year was -16.5% (2021: +17.3%). This compares to the Company’s longer-term performance benchmark, RPI+3%, which returned 13.7% (2021: 10.5%). The share price discount* to the NAV per share widened to 31.4% (2021: 28.1%) resulting in the share price total return* for the year being -20.3% (2021: +13.1%).

*Alternative Performance Measure (see Glossary)

The Company has a sizable allocation to the digitisation (decarbonisation) theme and hence a large exposure to tech stocks, which were particularly hard hit by the global economic headwinds. The principal contributor to the Company’s negative return was the underperformance of Alphabet, which was the largest position in the portfolio. Other negative contributors were Charter Communications, which was sold during the year, Amazon and Microsoft.

Shareholders will be aware that the Portfolio Manager may use currency forward contracts to reduce the volatility in returns related to currency movements arising from the portfolio’s non-sterling denominated investments. As explained in the Portfolio Manager’s review, for much of the year, the Company hedged approximately 50% of the Company’s US dollar and euro exposures. As sterling weakened against the dollar and euro during the year, these hedges produced losses which partially offset the currency gains seen in the Company’s non-sterling investments.

Positive performance came from the portfolio constituents in more defensive areas, such as infrastructure: Canadian National and Canadian Pacific Railways, and private investments John Laing and TCI Real Estate performed well. The largest positive contributor was X-ELIO, the Spanish solar energy developer.

Looking over a longer period, the Company’s compound NAV performance over the last five years was +7.3% per annum (2021: +12.9% per annum), compared with 5.3% per annum (2021: 3.5% per annum) compound return on our benchmark of RPI+3%. Exceeding our benchmark is our long-term goal and we expect the Company to lead or lag it during shorter timeframes. Notwithstanding this, our 2022 performance is disappointing.

Our Portfolio Manager remains upbeat about the portfolio’s quality and prospects and we are hopeful that by continuing to focus on business quality and maintaining a consistent risk profile, over the long term we will return to the benchmark beating trajectory we previously delivered.

Our Portfolio Manager has provided a full description of the development and financial performance of the portfolio over the year in their review.

Environmental Performance

As in past years, we have integrated the Company’s Environmental Impact Report within the annual report.

This year, disclosures from eight of the companies held in the portfolio showed, for the Company’s share of these companies, a 21.2% uplift from 2021 in renewable energy generation with 146 MWh generated.

Our Portfolio Manager continued its engagement programme during the year, seeking to move portfolio companies forward on environmental reporting and target setting. It identified where improvements should be encouraged using platforms such as the Climate Disclosure Project (“CDP”), Science Based Targets initiative (“SBTi”) and MSCI. The Board is pleased to see that over half of the portfolio’s listed holdings now have near-term emissions reduction targets independently validated by SBTi, meaning they have a clearly defined pathway to reduce their greenhouse gas (“GHG”) emissions in line with the goals of the Paris Agreement.

Whilst some sectors in which the Company’s portfolio is invested, such as transport and infrastructure, are associated with high emissions, our Portfolio Manager chooses to invest in certain companies therein that are using innovative, best practice solutions to become more climate friendly. For instance, rail transportation is the most energy efficient method for moving freight and in 2022 our Portfolio Manager added to the Company’s existing portfolio holdings in Canadian Pacific Railway and Canadian National Railway, and reinvested in Union Pacific, one of America’s largest rail freight providers and a leader in sustainable transportation.

E-commerce has been a key driver of decarbonisation and our Portfolio Manager initiated a new position in Amazon during the year. Amazon has become viewed as an essential utility for consumers and businesses. Importantly, the company’s e-commerce and cloud computing businesses both generate significantly fewer carbon emissions than their legacy predecessors. Amazon has an ambition to reach 100% renewable energy usage across its business by 2025 and by the end of 2021 used 85% renewable energy. However, we recognise that Amazon needs to improve transparency and disclosures and that packaging waste is an issue. Our Portfolio Manager will engage on these matters.

The Company’s Environmental Impact Report is also made available as a separate document on our website www.menhaden.com, which version includes methodological detail that is not included within this annual report.

Board Developments

The Board announced in January 2023 the appointment of Soraya Chabarek as a non-executive Director, with effect from 1 March 2023. She brings leadership experience in asset management and broad exposure to fund strategies including global macro, equities, emerging markets, credit and convertibles. I am confident she will be an asset to the Board and that with her experience she will greatly assist the Board’s engagement with the Portfolio Manager on their investment strategy. In making this appointment the Board took due consideration of its balance of skills, experience, knowledge and diversity and we recommend that shareholders support her election at the forthcoming Annual General Meeting (“AGM”).

At the same time as the Board announced Soraya’s appointment it was also announced that I would be stepping aside from the role of Chairman of the Board in May, although I will continue to serve as a non-executive Director for the time being. I am pleased to announce that Howard Pearce will succeed me as Chairman and that Barbara Donoghue will become Chair of the Audit Committee, with effect from 16 May 2023.

Duncan Budge will retire from the Board at the conclusion of this year’s AGM. I would like to take this opportunity to thank him for his invaluable contribution to the Board since the Company’s launch.

The Board’s planned refreshment process will continue and we anticipate the next rotation will occur in 2024. Establishing an annual cycle in this way should ensure an orderly Board succession in the future.

Share Price Discount to NAV

The Company’s share price discount continues to be a matter that the Board monitors closely. As noted above, at the year-end, the discount to the NAV per share at which the Company’s shares trade had widened to 31.4% (2021: 28.1%) and it widened further subsequently.

The Board’s aim is for the Company to eventually be in a position to grow through the issuance of new shares and the Board is, accordingly, asking shareholders to renew the Directors’ share issuance authorities at this year’s AGM. Enlarging the capital base would reduce the annual ongoing charges and enhance the secondary market liquidity of the Company’s shares, which the Board believes is in the interests of all shareholders. However, the Company can only issue new shares at a price representing a premium to the NAV per share and therefore the Board remains focused on improving the Company’s share rating through investment performance and an effective marketing strategy.

Share Buybacks

Subsequent to the year end, with the discount widening further, the Board decided it would be in shareholders’ interest to instigate a modest programme of share buy backs. Doing so signals to the market the Board’s confidence in the value of the Company’s portfolio and also takes advantage of the accretion to NAV that buying back shares at a discount achieves. It is hoped that, together with the ongoing marketing strategy and the efforts of the Portfolio Manager to generate strong portfolio performance, this will influence investor sentiment and help to reduce the discount to the NAV per share at which the shares trade. To the date of this annual report 825,000 shares have been bought back at an average price of 94.25 pence per share.

The Board has not previously favoured share buy backs as a solution to the wide discount. The early indications are that the buybacks to date have provided some additional liquidity in the recent volatile market conditions. However, the Board will continue to monitor closely the impact of any future action bearing in mind market conditions, the Company’s available liquid resources and the potential conflict between value additive share buybacks and the availability of attractive portfolio investment opportunities. Buybacks will remain at the discretion of the Board.

The Board is asking shareholders to renew the authority to repurchase the Company’s shares in the market at the forthcoming AGM.

Annual General Meeting

The Company’s eighth AGM will be held at the offices of Frostrow Capital LLP, 25 Southampton Buildings, London WC2A 1AL on Wednesday, 21 June 2023 at 12 noon. The Notice convening the AGM together with explanations of the proposed resolutions can be found on pages 91 to 97 of the Annual Report.

The Board strongly encourages shareholders to register their votes online in advance of the meeting by visiting www.signalshares.com and following the instructions on the site. Appointing a proxy online will not restrict shareholders from attending the meeting in person should they wish to do so and will ensure their votes are counted if they are not able to attend. Shareholders are encouraged to consult the Company’s website at www.menhaden.com for any late changes to the arrangements. Shareholders are invited to send any questions they may have to the Company Secretary by email to [email protected] ahead of the meeting.

Dividend

The Company’s dividend policy is that the Company will only pay dividends sufficient for it to maintain investment trust status. The revenue return for the year to 31 December 2022 means that a dividend must be paid to meet this requirement. Consequently, the Board is recommending to shareholders that a final dividend of 0.4p per share be declared in respect of the year ended 31 December 2022 and a corresponding resolution has been included in the Notice of Meeting for the AGM. If this resolution is passed, the dividend will be paid on 30 June 2023 to shareholders on the register on 2 June 2023. The shares will be marked ex-dividend on 1 June 2023.

Outlook

With no end in sight for the war in Ukraine and continued inflation, high interest rates and global supply chain disruption, there will likely be further market volatility in 2023.

Alphabet, Microsoft and Amazon have all announced cost cutting moves and we believe there is further scope for efficiency savings. With respect to inflation, pricing power is a key attribute that our Portfolio Manager looks for in investment propositions and our infrastructure investments, which make up some 37% of the portfolio, have natural defensive characteristics. In addition, our current share price discount provides an attractive entry point for new investors.

The Board continues to believe in the validity of the premise that the world and all businesses need to be more resource efficient, and so the Company’s resource efficiency theme ought to provide long-term benefits for the portfolio and the Company.

Sir Ian Cheshire

Chairman

28 March 2023

Portfolio

Investments held as at 31 December 2022

		Fair	% of
Investment	Country	Value £’000	Total Net Assets
Alphabet	United States	22,369	21.5
Microsoft	United States	11,563	11.1
X-ELIO*1	Spain	10,672	10.3
Canadian Pacific Railway	Canada	10,045	9.7
Safran	France	8,921	8.6
Canadian National Railway	Canada	7,308	7.0
VINCI	France	6,617	6.4
John Laing Group*2	UK	4,646	4.5
Amazon	United States	3,979	3.8
Ocean Wilsons Holdings	Bermuda	3,204	3.1
Ten Largest Investments		89,324	86.0
TCI Real Estate*	United States	1,546	1.5
Union Pacific	United States	929	0.9
Waste Management	United States	822	0.8
ASML Holding	Netherlands	536	0.5
KLA	United States	407	0.4
Lam Research	United States	245	0.2
Total Investments		93,809	90.3
Net Current Assets (including cash)		10,022	9.7
Total Net Assets	103,831		100.0

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

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

^* Unquoted

Business Description	Investment Theme
Delivers a range of internet-based products and services for users and advertisers, powered by renewable energy, with the group being the largest corporate buyer of renewable power worldwide	Digitisation
Provides cloud infrastructure and software services which deliver energy efficiency savings for customers versus legacy solutions	Digitisation
Develops and operates solar energy assets	Clean energy
Owns and operates fuel-efficient freight railways in Canada and the USA	Sustainable infrastructure and transportation
Designs, manufactures and services next generation aircraft engines which offer significant fuel efficiency savings	Industrial emissions reduction
Operates rail freight services across North America, which represent the most environmentally friendly way to transport freight over land	Sustainable infrastructure and transportation
Builds and operates energy efficient critical infrastructure assets	Sustainable infrastructure and transportation
Portfolio of mostly renewable rail and social infrastructure assets	Sustainable infrastructure and transportation
An energy efficient ecommerce and cloud computing business aiming to use only renewable energy by 2030	Digitisation
Operates ports and provides (lower climate impact) maritime services in Brazil	Sustainable infrastructure and transportation
Invests in energy-efficient real estate projects	Sustainable infrastructure and transportation
Provides fuel-efficient rail freight services across the USA	Sustainable infrastructure and transportation
Provides waste management and environmental services in North America	Water and waste management
Develops, manufactures and services advanced lithography systems used to produce more energy efficient semiconductor chips	Digitisation
Develops, manufactures and services inspection and metrology equipment used to increase the efficiency of semiconductor manufacturing	Digitisation
Develops, manufactures and services etching and deposition equipment used to produce more energy efficient semiconductor chips	Digitisation

Portfolio Manager’s Review

During 2022, the Company’s NAV per share decreased from 155.7p to 129.8p. This represents a total return of -16.5% and compares to the benchmark return of 13.7%. The Company’s share price traded at a 31.4% discount to NAV as at 31 December 2022, having widened from 28.1% at the end of 2021. The contributions to the -16.5% NAV per share total return over the period are summarised below:

	31 December 2022	Contribution
Asset Category	% of NAV	%
Public Equities	74.1	(12.9)
Private Investments	16.2	3.4
Cash	5.9	–
Foreign Exchange Forwards	4.0	(6.4)
Performance Fee and Other Debtors and Creditors	(0.2)	1.2
Dividend Paid		(0.1)
Expenses		(1.8)
Net Assets	100.0
Net Return		(16.6)
Reinvested Dividend		0.1
Total Return		(16.5)

The spectre of inflation dominated the narrative throughout the year, with the Federal Reserve and other central banks progressively tightening financial conditions. Rising interest rates and higher prices result in a decline in consumers’ discretionary incomes, raising fears that the global economy may be on its way into a recession. Equity markets anticipated this slowdown and declined significantly, with major indices trading around bear market territory.

The portfolio continues to have a high weighting in quoted equities, with Alphabet and Microsoft remaining the largest positions. The publicly listed infrastructure holdings (including the North American railroads, Ocean Wilsons and VINCI) performed relatively well in the period. The essential nature of their services, combined with a lack of alternatives and the relevant regulatory frameworks, enable these companies to raise prices with inflation. Within the private portfolio, the value of John Laing was marked up in line with the latest manager’s valuation, TCI Real Estate Partners Fund III returned the capital from two loans, which were repaid, and a £2 million distribution was received from X?ELIO.

Investment performance benefited from the depreciation of sterling, although this was partly offset by our currency forward contract hedges. Performance suffered from short lived sterling volatility in late September when two currency forward contracts matured, realising a significant loss.  Subsequently, there were significant unrealised gains on the hedging program at the year end.

Key investment decisions during the period included the exit from Charter Communications and redeploying most of the proceeds by adding to Canadian National Railway, reopening a position in Union Pacific and initiating a new position in Amazon. After the year end, we opted to reduce our position in Alphabet and reinitiate a position in European aircraft manufacturer, Airbus, which we have owned previously.

Our private investment activity was limited, with no new transactions in the period. However, we were pleased to make a new commitment to the next vintage of the TCI Real Estate Partners strategy in March, following the year end.

Quoted Equities

The portfolio of quoted equities represented 74.1% of NAV at 31 December 2022, and delivered a total return of -17.3% over the period, detracting 12.9% from the NAV.

		Contribution
Investment	Returns %	to NAV %
Canadian Pacific	4.1	1.3
Safran	8.5	0.9
Canadian National	(3.6)	0.6
VINCI SA	3.1	0.5
Waste Management Inc	(8.1)	–
Ocean Wilsons Holdings	1.4	–
KLA Corp	(24.8)	–
Union Pacific	(22.0)	(0.1)
LAM Research Corp	(55.2)	(0.2)
ASML Holding	(38.1)	(0.2)
Microsoft Corp	(29.6)	(2.3)
Charter Communications	(16.4)	(2.4)
Amazon	(49.8)	(2.6)
Alphabet	(40.4)	(8.5)

Note: Percentage increase/decrease for individual holdings is calculated on their local currency and based over the holding period if bought or sold during the year.

The Canadian railroads, Canadian Pacific Railway and Canadian National Railway, were two of the portfolio’s best performers, with both companies’ strong competitive positions enabling them to raise prices in order to counter significant inflationary cost pressures. We also opted to reopen a small position in US freight railroad peer, UnionPacific, in April. Rail remains the most environmentally friendly way of transporting freight over land, with current locomotives four times more fuel efficient than trucking on a per unit basis.

Canadian Pacific Railway expects to complete its acquisition of Kansas City Southern in the first quarter of 2023. CEO Keith Creel and the management team appear to be increasingly confident about their ability to drive meaningful synergies from the combined entity, with significant opportunities to grow volumes by converting road freight to new rail services between Mexico, Texas and the Upper Midwest. Once the transaction is completed, we expect Canadian Pacific Railway to be the fastest growing of all the North American railroads.

Canadian National Railway CEO, Tracy Robinson, has been at the helm for over one year now and appears to be making progress in her turnaround efforts. She is focused on improving profitability by raising asset utilisation through improving the velocity of containers on the company’s network. We continue to believe that her frequently repeated commitment to capital efficient growth should help to drive good returns for shareholders in the coming years.

French aircraft engine manufacturer, Safran, continues to lead the way towards the decarbonisation of the aviation sector and recently had its emission reduction targets independently approved by the Science Based Targets initiative (SBTi). These include targets to reduce Scope 1 and 2 emissions by 50% by 2030 and reduce Scope 3 emissions by 42.5% by 2035 (vs 2018). Scope 1 emissions are released directly by a business, Scope 2 emissions are indirectly released from energy purchased by a business and Scope 3 are a consequence of the business’ activities, including the use of its products by customers. Safran benefited from the commercial aviation industry’s accelerating recovery through the year, with China’s reopening in January 2023 set to provide a further boost. Flight cycles are the key driver of the company’s financial performance, with most of its profits coming from aftermarket sales of spare parts.

French infrastructure group, VINCI, proved resilient. The company has a strong track record of building and operating critical infrastructure assets around the world and is currently transforming its business, with the aim of achieving a 40% reduction in carbon emissions by 2030. We believe the company is extremely well placed for an inflationary environment, with its infrastructure concessions being government authorised monopolies, which benefit from inflation-linked pricing power. The management team continues to deploy capital in a measured way, with an increasing focus on share repurchases. Recent investments include bolt on acquisitions to the company’s Energies business and stakes in airport concessions in Mexico and Cape Verde.

We believe Waste Management possesses many of the same characteristics as the Company’s listed infrastructure holdings, with the shares performing similarly. The company provides an essential service and benefits from a high proportion of annuity-like revenue streams, with the cost of its services representing a very small portion (circa 0.5%) of customers’ total expenses. Whilst the management team has used pricing to mitigate inflationary pressures on costs, it is increasingly focused on leveraging automation in order to manage operating expenses. The company is currently aiming to reduce its labour requirements by 5,000-7,000 roles, equivalent to more than 10% of headcount, over the coming years. The company is also continuing its strategy of increasingly harnessing the methane gas emitted from its landfill facilities by transforming it into renewable natural gas, with 11 of 17 planned new facilities expected to be onstream in 2024.

Holding company, Ocean Wilsons, held its value in difficult markets. The company comprises of a controlling interest in Brazilian port operator, Wilson Sons, and a diversified investment portfolio. Wilson Sons’ asset base enjoys high barriers to entry and substantial operating leverage to growth in Brazil’s international trade shipping sector. Shipping has the lowest climate impact of any freight method, on a per unit basis, producing between 10-40 grams of CO² per metric ton of freight per km of transportation, which is around half that even of rail freight. We were pleased to see Wilson Sons update its capital allocation strategy, with the announcement of a new share repurchase facility, which should be fully used by mid-2023. Ocean Wilsons enables us to obtain exposure to Wilson Sons at a discount of approximately 80%, based on the current investment portfolio valuation. This represents a markedly asymmetric risk-reward profile, whilst providing a dividend yield of circa 6%.

Semiconductor capital equipment companies, ASML, LamResearch and KLA, struggled due to fears of the full impact of an economic slowdown and potential industry overcapacity. Whilst it is very difficult to accurately predict the short term, we believe the fundamental drivers of semiconductor demand are very clear: cloud computing, artificial intelligence, 5G, the Internet of Things (“IoT”) and the digitisation of the automotive industry. Each company dominates its respective niche in the value chain and plays a critical role in helping the wider industry both maximise semiconductor production from finite resources and develop and produce more advanced and energy efficient chips. We still expect them all to have very bright futures and have been pleased to see their management teams taking advantage of the lower share prices by accelerating their respective share buyback programs.

Shares in Microsoft fell significantly over the year, with the company navigating a weak PC market and Cloud growth expected to slow in 2023. Despite the negative share price performance, we remain optimistic about the company’s prospects. The group remains the key technology partner for all enterprises and its software products are ubiquitous. The company still expects to grow revenues at a double digit rate in its 2023 financial year, driven by its Azure Cloud business and Office 365, which now has approximately 350 million paying users. The management team is also seeking to improve future profitability with workforce reductions of 10,000 employees (circa 5% of total). Longer term, CEO Satya Nadella expects IT spending to increase from 5% to 10% of GDP over the current decade, which we believe will enable the company to generate robust earnings growth going forwards. Importantly, Microsoft aims to operate on carbon-free energy everywhere, at all times, by 2030. Furthermore, the company wants to be carbon negative in the same timeframe and to have removed all carbon dioxide it has emitted since its founding by 2050.

Alphabet remains the Company’s largest holding and was the most significant detractor to investment performance. We continue to believe the shares offer exceptional value relative to the company’s core earnings power for a business of such quality. In our view the shares fell during the year primarily on weaker consumer discretionary spending, which negatively affected both the company and the wider digital advertising industry. Fundamentally, advertising remains a cyclical industry and Google is now so large that it cannot offset slower market growth through market share gains. We believe that growth rates will reaccelerate once we exit this economic slowdown. We also believe that the company has significant scope to improve profitability, with headcount more than doubling to circa 187,000 over the last five years and an average employee salary significantly above peers. In our view the recent decision to cut 12,000 jobs is the right way forward, but more can and should be done.

We continue to believe that the ongoing growth of digital advertising, successful scaling of the Google Cloud business and improving capital allocation will continue to drive significant earnings growth in the years ahead. Importantly, Alphabet continues to work towards its sustainability targets. The company has pledged to operate on carbon-free energy everywhere, at all times, by 2030 and to replenish 120% of the water it consumes across its datacentres and offices.

After the year end, we opted to reduce our position in Alphabet in February. Whilst we believe that Alphabet is well positioned to counter the rising competition in Search, following Microsoft’s launch of its new Bing search engine, we realise that the range of outcomes has widened. We opted to realise some profit on our original position, thereby resulting in a reduction in the overall investment position by approximately one half.

We fully exited our position in Charter Communications in April before the company reported its first quarter results, with most of the sales executed at the start of that month. We had thought that the company’s aggressively priced bundled broadband and mobile product would help it to continue to raise penetration across its footprint. Whilst this may prove correct in time, the company is undeniably facing increasing competition from new fibre rollouts and wireless carriers have enjoyed notable early success in their fixed wireless efforts. Consequently, we believed the range of outcomes had widened and decided to pursue other opportunities that we believed offered a better balance of risk and reward. The shares declined by 27% from the date of our exit to year end.

We chose to redeploy most of the proceeds by incrementally adding to our holding in Canadian National Railway, reopening a small position in US freight railroad, Union Pacific, as mentioned above, and initiating a new position in Amazon. In our view Amazon has effectively become an essential utility, on which consumers and businesses are increasingly dependent. Importantly, the company’s ecommerce and cloud computing businesses both generate significantly fewer carbon emissions than their legacy predecessors. A recent Oliver Wyman led study concluded that ecommerce generated 40-65% fewer emissions than physical retail stores and a study by 451 Research showed that AWS’s infrastructure was 3.6 times more energy efficient than the median enterprise data centre in the United States. Furthermore, Amazon is aiming to only use renewable energy by 2030 and then operate on a net zero carbon basis by 2040.

With the benefit of hindsight, we could have chosen a better moment to initiate our position. The company was facing a softening ecommerce outlook and higher costs (including labour, fuel and freight). These cost pressures appear to be easing and Amazon also recently announced plans to reduce its corporate headcount by 18,000 (circa 6% of the corporate total). We believe these measures should help the retail business’ operating margin to recover. This, combined with Amazon Web Services growth and falling capital intensity should underpin strong free cash flow growth and hopefully good returns going forwards. Fortunately, the size of the position means that the decline in NAV was limited to 2.6% in the period.

Following the year end and the reduction of our Alphabet holding, we chose to start a new position in Airbus, the European aircraft manufacturer. Whilst China’s reopening removed the last hurdle to air travel’s full recovery, the industry’s need to decarbonise and airlines’ fleet renewal requirements remain unchanged. By upgrading the global fleet to Airbus’ latest generation aircraft offer, the industry could reduce carbon emissions by 20-30%. Furthermore, Airbus’ aircraft are currently certified to operate on 50% sustainable aviation fuel (“SAF”), with a target to reach 100% by the end of the decade. SAF offers the opportunity to reduce emissions by up to 85%, according to the company. Airbus recently received approval from the Science Based Targets initiative (SBTi) for its greenhouse gas emissions near-term reduction targets, which include plans to reduce Scope 1 & 2 emissions by 63% by 2030 and reduce Scope 3 emissions by 46% by 2035. We previously held the company’s shares but exited in April 2021, believing that the post Covid recovery would take significantly longer than implied by the price.

Private Investments

The portfolio of private investments represented 16.2% of the Company’s total NAV as at 31 December 2022, and delivered total return of +33.2% over the period, adding 3.4% to our NAV.

		Contribution
Investment	Returns %	to NAV %
X-ELIO	12.9	2.0
John Laing	26.5	0.8
TCI Real Estate	17.6	0.4
CGE Investments	–	0.2

Note: Percentage increase/decrease for individual holdings is calculated on their local currency and based over the holding period if bought or sold during the year.

Spanish solar developer, X-ELIO, continues to execute on its development pipeline with several notable milestones this year. The company completed the Blue Grass Solar Farm development in Australia, started several new projects in Spain and was awarded 15MW in Japan’s first feed-in-premium auction (renewable energy source producers receive a premium on top of the market price of their electricity production). We also received a £2 million cash distribution from the company at the end of the year, which reduced the value of our holding to 10.3% of our NAV at the year end.

John Laing continues to operate its portfolio of infrastructure assets and deploy capital in a conservative fashion. The company works to mitigate the environmental impact of its operations on an asset by asset basis and is seeking to achieve a net zero transition for its direct operations by 2050 or before. The valuation was marked up in line with the manager’s latest valuation, with the uplift being primarily driven by gains on currency translation. KKR continues to overhaul the company’s management team, with a search currently underway for a new CEO. New investments included follow on deals in Brigid (UK retirement accommodation) and two electric bus concessions in Bogotá, Colombia. John Laing raised an additional £1.1 billion of equity towards the end of the year in order to fund the purchase of three Irish infrastructure assets from AMP Capital. We opted to not participate because we believed other opportunities offered a better balance between risk and reward.

TCI Real Estate Partners Fund III currently comprises three loans to separate real estate developments in the United States that possess strong resource efficiency credentials. They are first mortgages and have low loan-to-value ratios (<60%). Whilst the fund did not manage to commit the level of capital we originally hoped, investment returns have remained in line with expectations. During the year two outstanding loans (Four Seasons, New Orleans and Four Seasons, Nashville) were fully repaid. The Fund has continued to draw down from its remaining commitment (circa US$4.5 million) in line with the schedules of its existing loans. We expect the last loan to be repaid in 2026.

Foreign Exchange (“FX”) Hedges

The sole aim of using currency forward contracts is to reduce the volatility in returns arising from currency movements associated with the portfolio’s non-sterling denominated investments.  We typically use simple currency forward contracts with three to six month terms to hedge approximately one half of the Company’s US dollar and euro exposures.  These instruments are rolled on maturity and the nominal value of the hedging program may be adjusted as required.

Whilst our portfolio benefitted from sterling depreciation over the year, as our euro and US dollar assets increased in sterling terms, the impact was partly offset by our currency forward hedges. The Company suffered from sterling volatility in late September, following the new UK government’s mini-budget, when we had to settle two maturing currency forward contracts at a significant loss of £8.7 million. In total, the Company paid £12.5 million on currency forward contracts during the year. With the nominal value of the currency forward contracts having increased to over 50% of euro and US dollar exposures, given the fall in the portfolio value, we opted to reduce the nominal amount of the new currency forward contracts in order to revert to hedging approximately half of the currency exposure. Following the rally in sterling, the current currency forward contracts had an unrealised gain of £4.2 million at the year end and this, further improved to £4.8 million as at the approval date of this Annual Report. The next settlement date for the current currency forward contracts is 31 March 2023.

Outlook

The Federal Reserve appears committed to tighter financial conditions and higher interest rates in order to curb inflation, although the pace of hikes has slowed markedly. Demand appears to be weakening, with corporates attempting to right size their businesses and announcing layoffs. We do not attempt to try and forecast the depth of any possible recession. We focus on investments which require us to make as few predictions as possible. We believe our criteria of resource efficiency, quality and value should leave the portfolio well placed to generate persistently superior returns for the consistent risk profile we have adopted and which is set out in this report. The presence of better opportunities within public markets has limited our private investment activity over the past few years. We believe that the change in financial conditions may be starting to change this situation and we continue to search diligently for suitable private investments. We will only make private investments when they offer a more attractive balance between risk and reward compared to public markets. In this vein, we were pleased to make a new commitment (US$25 million) to the TCI Real Estate Partners (TCI REP) Fund IV in March, after the year end. This fund will follow the same strategy as TCI REP Fund III, which we previously invested in, and we would expect our maximum cash exposure to be around 70% of the commitment.

Following this year’s negative returns, the Company’s net asset value has now compounded at 7.3% annually, after fees, over the last five years. Whilst we are not satisfied with this level of performance, we are optimistic that the current valuations within the portfolio offer the opportunity for improved returns going forwards. We expect the elevated cash balance, following the reduction of our position in Alphabet, to reduce as we gradually deploy it into investments in the coming months.

	NAV
	per share
	pence
31 December 2017	92.1
31 December 2022	131.1*
Annualised Net Return	7.3%

* adjusted for cumulative dividend reinvestments.

Menhaden Capital Management LLP

Portfolio Manager

28 March 2023

Business Review

The Strategic Report has been prepared to provide information to enable 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 listed on the premium segment of the Official List and traded on the main market of the London Stock Exchange.

The purpose of the Company is to provide a vehicle for investors to gain exposure to a portfolio of companies that are demonstrably delivering or benefiting significantly from the efficient use of energy or resources irrespective of their size, location or stage of development, through a single investment.

The Company is an Alternative Investment Fund (“AIF”) under the UK’s Alternative Investment Fund Managers Regulations (“UK AIFMD”) and Frostrow Capital LLP (“Frostrow”) is the appointed 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 third party service providers. As a result, the Company has no executive directors, employees or internal operations.

The Board is responsible for all aspects of the Company’s affairs, including setting the parameters for asset allocation, monitoring the investment strategy and the review of investment performance and policy. It also has responsibility for all strategic policy issues, including share issuance and buy backs, share price and discount/premium monitoring, corporate governance matters, investor relations, dividends and gearing.

Further information on the Board’s role and the topics it discusses with the AIFM and the Portfolio Manager is provided in the Corporate Governance Statement beginning on page 43 of the Annual Report.

Investment Strategy

The implementation of the Company’s investment objective has been delegated to Frostrow 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 on page 11 and in their review beginning on page 14 of the Annual Report.

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.

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

Dividend Policy

The Company complies with the United Kingdom’s investment trust rules regarding distributable income which require investment trusts to retain no more than 15% of their income from shares and securities each year. The Company’s dividend policy is that the Company will only pay dividends sufficient for it to maintain investment trust status.

The Board

Biographical details of the Directors are set out on pages 36 and 37 of the Annual Report and information on the workings of the Board and its Committees is set out in the Corporate Governance Statement.

Duncan Budge will step down from the Board and all other Directors will seek re-election by shareholders at the Annual General Meeting to be held on 21 June 2023.

Principal Service Providers

The principal service providers to the Company are Frostrow, 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 of 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 UK 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.

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 £100 million, 0.20% per annum of the net assets in excess of £100 million and up to £500 million, and 0.175% per annum of the net assets in excess of £500 million.

The AIFM Agreement is terminable on six months’ notice given by either party.

Portfolio Manager

MCM is responsible for the management of the Company’s portfolio of investments under a delegation 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% per annum of the Company’s net assets up to £100 million and 1.00% of the Company’s net assets in excess of £100 million.

The Portfolio Management Agreement is terminable on six months’ notice given by any of the three parties.

Performance Fee

MCM is also entitled to a performance fee which is dependent on the level of the long-term performance of the Company.

The performance fee is calculated for discrete three year performance periods. In respect of a given 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 (an annualised compound return)* on the gross proceeds of the IPO (adjusted for any subsequent share issues and repurchases) of 5% per annum; and (b) a high-water mark (the highest net asset value that the Company has reached on which a performance fee has been paid)*. 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.

*see Glossary for further details

Depositary

The Company has appointed J.P. Morgan Europe Limited as its Depositary in accordance with UK 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, UK 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 0.0175% of the net assets of the Company up to £150 million, 0.015% of the net assets in excess of £150 million and up to £300 million, 0.01% of the net assets in excess of £300 million and up to £500 million and 0.005% 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 December 2022, following which it made a recommendation for continuation 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 terms of the AIFM Agreement and the Portfolio Management Agreement, in particular the level and method of remuneration, the notice period and the comparable arrangements of a group of the Company’s peers;

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

•         the quality of service provided by the Portfolio Manager in the management of the portfolio; and the level of performance of the portfolio in absolute terms and by reference to RPI+3% and other relevant indices.

Position, Performance and Future Developments

The Statement of Financial Position shows the Company’s financial position at the year end. Performance in the year relative to the Company’s key performance indicators is set out below and further outlined, together with investment activity and strategy, market background and the future outlook, in the Chairman’s Statement and the Portfolio Manager’s Review.

The Portfolio Manager believes that companies which 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 investment strategy in the coming year will remain largely unchanged.

Key Performance Indicators (“KPIs”)

The Board of Directors reviews performance against the following KPIs. They comprise both specific financial and shareholder-related measures. The results for the year are summarised in the Chairman’s Statement.

The KPIs for the Company are:

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

•             Share price total return;

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

•             Ongoing charges ratio.

These are all Alternative Performance Measures. Please refer to the Glossary for definitions of these terms and an explanation of how they are calculated.

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. The Board monitors the Company’s NAV total return against its benchmark and peers in the AIC Global Sector and the AIC Environmental Sector. The Company’s NAV per share total return over the year to 31 December 2022 was -16.5% (2021: +17.3%). To reflect the Company’s total return investment strategy, the Board uses RPI+3% as its primary long-term financial performance benchmark. RPI+3% over the year was 13.7% (2021: 10.5%).

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

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 measure reflects the return to the investor on last traded market prices, assuming any dividends paid are reinvested. The Company’s share price total return over the year to 31 December 2022 was -20.3% (2021: +13.1%).

Share pricediscount/premium to NAV per share

The share price discount/premium to the 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. At 31 December 2022 the discount stood at 31.4% (2021: 28.1%). The Chairman’s Statement addresses the discount and the approach of the Board. The discount remained stubbornly wide throughout the year.

Ongoing charges ratio

Ongoing charges represent the costs that shareholders can reasonably expect to pay from one year to the next, under normal circumstances. The Board continues to be conscious of expenses and works hard to maintain a sensible balance between good quality services and costs. The Board therefore considers the ongoing charges ratio to be a KPI and reviews the figure both in absolute terms and in comparison to the Company’s peers. The ongoing charges ratio for the year to 31 December 2022 was 1.8% (2021: 1.8%).

Risk Management

In fulfilling its oversight and risk management responsibilities, the Board maintains a framework of the key risks that may 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 emerging and 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:

•             Corporate Risks

•             Investment Risks

•             Operational Risks

•             Financial Risks

•             Legal and Regulatory Risks

•             Geopolitical and other Macro Risks

The following sections detail the risks the Board considers to be the most significant to the Company under these headings. Geopolitical and other Macro Risk is a new addition to the principal risk headings this year, although elements of it were previously recognised. The other risks are broadly unchanged from the prior year. The risks from climate change and Paris Accord undertakings are taken into consideration but are not considered to be key risks, tending to be offset by the Company’s positioning as a beneficiary of related resource efficiency policies.

Principal Risks and Uncertainties	Management and Mitigation
Corporate Risks The share price may differ materially from the NAV per share i.e. the shares may trade at a material discount to the NAV per share. A widening discount affects shareholder returns and satisfaction and, as such, could influence the outcome of the next continuation vote or, in extremis, precipitate the requisitioning of a general meeting to wind-up the Company.	At each meeting, the Board: •         reviews the Company’s investment objective in relation to the market, economic conditions and the operation of the Company’s peers; •         discusses the Company’s future development and strategy; •         reviews an analysis of the shareholder register and reports on investor sentiment from the Company’s corporate stockbroker and AIFM; •         reviews the level of the share price discount to the NAV per share and, in consultation with its advisers, considers ways in which share price performance may be enhanced; and •         reviews the Company’s promotional activities and distribution strategy, which have been delegated to Frostrow, to ensure the Company is promoted to current and potential investors.
Investment Risks The implementation of the investment strategy adopted by the Portfolio Manager may be unsuccessful and result in underperformance against the Company’s principal performance comparators and peer companies. The portfolio may be affected by market risk, that is volatile market movements (in both equity and foreign exchange markets) in the sectors and regions in which it invests. The Company is also exposed to concentration risk, which is the potentially higher volatility arising from its relatively concentrated portfolio, and sector-specific risks such as global energy and commodity prices or withdrawal of government subsidies for renewable energy. The departure of a key member of the portfolio management team may affect the Company’s performance.	The Board regularly reviews the Company’s investment mandate and MCM’s long-term investment strategy in relation to market and economic conditions, and the performance of the Company’s peers. The Portfolio Manager provides an explanation of stock selection decisions and an overall rationale for the make?up of the portfolio, including the resource-efficiency credentials of the portfolio holdings. MCM discuss current and potential investment holdings with the Board on a regular basis. As part of its review of the going concern and longer-term viability of the Company, the Board also considers the sensitivity of the Company to changes in market prices and foreign exchange rates (see note 17 to the financial statements), an analysis of how the portfolio would perform during a market crisis, and the ability of the Company to liquidate its portfolio if the need arose. Further details are included in the Going Concern and Viability Statements. Whilst market risk can be reduced through diversification, prospects for this are limited by the requirement to comply with the Company’s resource efficiency theme and its concentrated portfolio strategy. To manage concentration risk, the Board has appointed the AIFM and the Portfolio Manager to manage the portfolio within the remit of the investment objective and policy. The investment policy limits ensure a reasonable amount of portfolio diversification, reducing the risks associated with individual stocks and markets. The Portfolio Manager’s approach to investment risk is set out on page 11 of the Annual Report. Compliance with the investment restrictions is monitored daily by the AIFM and reported to the Board on a monthly basis. While market risk cannot be eliminated through diversification, it can be potentially reduced through hedging. The Board sets the Company’s policy on hedging, which is detailed within the Investment Objective and Policy. The Company does not speculatively seek to manage currency, but during the year under review hedged approximately 50% of the portfolio’s US dollar and euro exposures. Details of the foreign exchange forwards used for this purpose are set out in the Portfolio Manager’s Review. The Portfolio Manager reports to the Board on developments at MCM at each Board meeting. All investment decisions are made by an Investment Committee, reducing reliance on a single individual.
Operational Risks As an externally managed investment trust, the Company is reliant on the systems of its service providers for dealing, trade processing, administrative services, financial and other functions. If such systems were to fail or be disrupted (including as a result of cyber crime or a pandemic) this could lead to a failure to comply with applicable laws, regulations and governance requirements and/or to a financial loss.	The Board continuously monitors the performance of all the principal service providers with a formal evaluation process being undertaken each year. The Audit Committee reviews internal controls reports and key policies put in place by its principal service providers. This includes reports on service providers’ cyber security measures and disaster recovery procedures. Both Frostrow and MCM provide a quarterly compliance report to the Audit Committee, which details their compliance with applicable laws and regulations. The Audit Committee maintains the Company’s risk matrix which details the risks to which the Company is exposed, the approach to managing those risks, the key controls relied upon and the frequency of their operation. Further details are set out in the Audit Committee Report.
Financial Risks The Company is exposed to liquidity risk and credit risk arising from the use of counterparties. If a counterparty were to fail it could adversely affect the Company through either delay in settlement or loss of assets. The most significant counterparty to which the Company is exposed is the Depositary, which is responsible for the safekeeping of the Company’s custodial assets.	The Company’s assets include liquid securities which can be sold to meet funding requirements, if necessary. Further information on financial instruments and risk can be found in note 17 to the financial statements. The Board reviews the services provided by the Depositary and the internal controls report of the Custodian to ensure that the security of the Company’s custodial assets is maintained. The Portfolio Manager is responsible for undertaking reviews of the credit worthiness of the counterparties that it uses. The Board reviews the Portfolio Manager’s approved list of counterparties and the Company’s use of those counterparties. Appropriate due diligence is undertaken to verify the existence and ownership of unquoted (non-custodial) assets.
Legal and Regulatory Risks The regulatory or political environment in which the Company operates could change to the extent that it affects the Company’s viability.	The Board monitors regulatory developments but relies on the services of its external advisers to ensure compliance with applicable law and regulations. The Board has appointed a specialist investment trust company secretary who provides industry and regulatory updates at each Board meeting.
Geopolitical and other Macro Risks Portfolio constituents may be affected by regional events or politics. The most prominent recent example is the war in Ukraine and related sanctions.	The Board has no control over such macro events. The vast majority of the Company’s investments, both quoted and unquoted, are in developed markets which are expected to be more stable. The Company has no investments located in or significantly exposed to Russia or Ukraine, but the Board will continue to monitor developments closely.

Longer Term Viability Statement

In accordance with the UK Corporate Governance Code, the Directors have carefully assessed the Company’s position and prospects as well as the principal risks 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 Board has chosen a five year horizon in view of the long?term outlook adopted by the Portfolio Manager when making investment decisions.

To make this assessment and in reaching this conclusion, the Audit Committee has considered the Company’s financial position and its ability to liquidate its portfolio and meet its liabilities as they fall due:

•         The portfolio is principally comprised of investments traded on major international stock exchanges. Based on the Company’s latest available financial positions, it is estimated that 78.1% of the current portfolio could be liquidated within seven days and there is no expectation that the nature of the investments held within the portfolio will be materially different in future;

•         The expenses of the Company 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 its non-executive Directors. Consequently it does not have redundancy or other employment related liabilities or responsibilities.

The Audit Committee, as well as considering the potential impact of the Company’s principal risks and various severe but plausible downside scenarios, has also made the following assumptions in assessing the Company’s longer-term viability:

•         There will continue to be demand for investment trusts;

•         The Board and the Portfolio Manager will continue to adopt a long-term view when making investments, and anticipated holding periods will be at least five years;

•         The Company invests principally in the securities of listed companies traded on major international stock exchanges to which investors will wish to continue to have exposure;

•         The closed ended nature of the Company means that, unlike open ended funds, it does not need to realise investments when shareholders wish to sell their shares;

•         Regulation will not increase to a level that makes running the Company uneconomical; and

•         The performance of the Company will be satisfactory.

As part of its review the Board considered the impact of a significant and prolonged decline in the Company’s performance and prospects. This included a range of plausible downside scenarios such as reviewing the effects of substantial falls in investment values and the impact on the Company’s ongoing charges.

Company Promotion

The Company has appointed Frostrow to promote the Company’s shares to professional investors in the UK and Ireland. As investment company specialists, the Frostrow team provides a continuous, proactive marketing, distribution and investor relations service that aims to grow the Company by encouraging demand for the shares.

Frostrow actively engages with professional investors, typically discretionary wealth managers, some institutions and a range of execution-only platforms. Regular engagement helps to attract new investors and retain existing shareholders, and over time results in a stable share register made up of diverse, long-term holders. Frostrow, in turn, provides the Board with up-to-date and accurate information on the latest shareholder and market developments.

Frostrow arranges and manages a continuous programme of one-to-one meetings with professional investors around the UK. These include regular meetings with ‘gate keepers’, the senior points of contact responsible for their respective organisations’ research output and recommended lists. The programme of regular meetings also includes autonomous decision makers within large multi-office groups, as well as small independent organisations. Some of these meetings involve MCM, but most of the meetings do not, which means the Company is being actively promoted while MCM focuses on managing the portfolio. The Chairman is also available to engage with shareholders.

The Company also benefits from involvement in the regular professional investor seminars run by Frostrow in major centres, notably London and Edinburgh, which are focused on buyers of investment companies.

The creation and dissemination of information on the Company is also overseen by Frostrow. Frostrow produces all key corporate documents, monthly factsheets, annual reports and manages the Company’s website www.menhaden.com. All Company information and invitations to investor events, including updates from MCM on the portfolio and market developments, are regularly emailed to a growing database, overseen by Frostrow, consisting of professional investors across the UK and Ireland.

Frostrow maintains close contact with all the relevant investment trust broker analysts, particularly those from Numis Securities Limited, the Company’s corporate broker, but also others who publish and distribute research on the Company to their respective professional investor clients.

Board’s Duty to Promote the Success of the Company (s172)

The Directors have a statutory duty to promote the success of the Company for the benefit of its members as a whole, whilst also having regard to certain broader matters. These include taking into consideration the likely consequences of any decision in the long-term; the need to foster the Company’s business relationships with its Portfolio Manager and other service providers; the impact of the Company’s operations on the community and the environment; the desire for the Company to maintain a reputation for high standards of business conduct; and the need to act fairly between members of the Company (s172 Companies Act 2006).

Stakeholder group	How the Board engaged with the Company’s stakeholders
Investors	The Board’s key mechanisms of engagement with investors include:
	The AIFM and the Portfolio Manager, on behalf of the Board, complete a programme of investor relations throughout the year, reporting to the Board on the feedback received. The Company’s broker also reports to the Board on investor sentiment and industry issues. In addition, the Chairman has been available to engage with the Company’s shareholders where required.
Portfolio Manager	The Board met regularly with the Portfolio Manager throughout the year, both formally at quarterly Board meetings and informally, as needed. The Board discussed the Company’s overall performance, including against the benchmark and the KPIs, as well as developments in individual portfolio companies and wider macroeconomic developments. The Board also received monthly performance and compliance reports.
Service Providers	The Board met regularly with the AIFM, representatives of which attend every quarterly Board meeting to provide updates on risk management, accounting, administration and corporate governance matters. The Management Engagement Committee reviewed the performance of all the Company’s service providers, receiving feedback from Frostrow in their capacity as AIFM and Company Secretary. The AIFM, which is responsible for the day-to-day operational management of the Company, meets and interacts with the other service providers including the Depositary, Custodian, and Registrar, on behalf of the Board, on a daily basis. This can be through email, one-to-one meetings and/or regular written reporting. The Audit Committee met with Mazars LLP to review the audit plan, the outcome of the annual audit and to assess the quality and effectiveness of the audit process.
Portfolio companies	The Portfolio Manager, on behalf of the Board, engaged with a number of portfolio companies on a range of issues. Environmental issues were a key topic of engagement. The Board received a quarterly update on the Portfolio Manager’s engagement activities.

The Board seeks to comply with these and the following table sets out how the Directors have had regard to the views of the Company’s stakeholders in their decision-making.

Key areas of engagement	Main decisions and actions taken
	The Board and the Portfolio Manager provided updates via RNS, the Company’s website and the usual financial reports and monthly fact sheets. The Board continued to monitor share price movements closely, both in absolute terms and in relation to the Company’s peer group. The actions the Board has taken to address the share price discount to the NAV per share are described in the Chairman’s Statement.
	The Board concluded that it was in the interests of shareholders for MCM to continue in their role as Portfolio Manager on the same terms and conditions. Further information is provided under Evaluation of the AIFM and the Portfolio Manager. The Audit Committee concluded that the Portfolio Manager’s internal controls were satisfactory. See the Audit Committee Report  for further information.
	The Board concluded that it was in the interests of shareholders for Frostrow to continue in their role as AIFM on the same terms and conditions. See Evaluation of the AIFM and the Portfolio Manager for further details. The Board approved the Audit Committee’s recommendation that it would be in the interests of shareholders for Mazars to be re-appointed as the Company’s auditor for a further year. See the Audit Committee Report and the Notice of AGM for further information.
Environmental reporting and target setting.	The Board worked with the Portfolio Manager to produce the Company’s annual environmental impact statement, which outlines the impact the Company’s investments have delivered, or intend to deliver. The report outlines the subjects on which the Portfolio Manager, with the support of the Board, engaged with portfolio companies. The report is contained within the Strategic Report and is published as a separate document on www.menhaden.com

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 that are demonstrably delivering or benefiting significantly from the efficient use of energy or resources. The Board is responsible for oversight of the Portfolio Manager and consequently for the risks and opportunities that derive from their management of the Company’s portfolio, including any considered to be climate related. The Company’s resource efficiency mandate is consistent with the drive towards net zero so the Company is well placed to benefit as investor focus evolves. The Company 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 itself does not have any employee or direct human rights issues, nor does it have any direct, material environmental impact. The Company therefore has no environmental, human rights, social or community policies.

The Company notes the Task Force on Climate-Related Financial Disclosures (“TCFD”) recommendations. As noted above, the Company is an investment trust with no employees, internal operations or property and, as such, it is exempt from the Listing Rules requirement to report against the TCFD framework. The Company recognises risks from climate change regulation, such as potential impacts on investee companies, portfolio construction, marketing and reputation. It also recognises the opportunity provided by the alignment of its investment objective and policy with the net zero agenda.

The Board believes that the integration of financially material environmental, social and governance (“ESG”) factors into investment decision-making can reduce risk and enhance returns. The Portfolio Manager uses CDP ratings data as a basis for engagement with investee companies on ESG issues, including any considered to be climate related. More detail is included in the Company’s Environmental Impact Statement.

The ongoing engagement and dialogue with investee companies, including through proxy voting, are key parts of an asset stewardship role.

The Directors encourage the Portfolio Manager 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 was a signatory to the Financial Reporting Council 2012 UK Stewardship Code. Whilst MCM is not a formal signatory to the 2020 Stewardship Code, it adheres to the 12 principles as closely as possible.

As an investment trust, 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.

Anti-Bribery and Corruption Policy

The Board has adopted a zero-tolerance approach to instances of bribery and corruption. Accordingly it expressly prohibits anyone performing services or 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 for themselves or 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

In response to the implementation of the Criminal Finances Act 2017, the Board has 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.

This Strategic Report has been approved by the Board.

Sir Ian Cheshire

Chairman

28 March 2023

Governance

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. The maintenance and integrity of this website, is the responsibility of Frostrow. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website. Visitors to the website 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 2022; 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 Guidance 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

28 March 2023

Financial Statements

Income Statement

		For the year ended 31 December 2022			For the year ended 31 December 2021
	Notes	Revenue £’000	Capital £’000	Total £’000	Revenue £’000	Capital £’000	Total £’000
(Losses)/gains on investments held at fair value through profit or loss	8	–	(21,413)	(21,413)	–	21,124	21,124
Income from investments held at fair value through profit or loss	2	1,309	–	1,309	1,156	–	1,156
Investment management fees and performance fee provisions	3	(323)	387	64	(338)	(3,028)	(3,366)
Other expenses	4	(404)	–	(404)	(450)	–	(450)
Net income/(loss) before taxation		582	(21,026)	(20,444)	368	18,096	18,464
Taxation	5	(96)	–	(96)	(65)	–	(65)
Net income/(loss) after taxation		486	(21,026)	(20,540)	303	18,096	18,399
Income/(loss) per ordinary share – basic and diluted (pence)	6	0.6	(26.3)	(25.7)	0.4	22.6	23.0

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 AIC.

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 2022

		Ordinary
		share	Special	Capital	Revenue
		capital	reserve	reserve	reserve	Total
	Notes	£’000	£’000	£’000	£’000	£’000
At 31 December 2021		800	77,371	45,996	364	124,531
Net (loss)/income after taxation		–	–	(21,026)	486	(20,540)
Dividends paid	7	–	–		(160)	(160)
At 31 December 2022		800	77,371	24,970	690	103,831

For the year ended 31 December 2021

		Ordinary
		share	Special	Capital	Revenue
		capital	reserve	reserve	reserve	Total
	Notes	£’000	£’000	£’000	£’000	£’000
At 31 December 2020		800	77,371	27,900	61	106,132
Net income after taxation		–	–	18,096	303	18,399
At 31 December 2021		800	77,371	45,996	364	124,531

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

Statement of Financial Position

		As at	As at
		31 December	31 December
		2022	2021
	Notes	£’000	£’000
Fixed assets
Investments	8	93,809	125,615
Current assets
Debtors	10	104	218
Derivative financial instruments	9	4,200	–
Cash		6,061	878
		10,365	1,096
Current liabilities
Creditors	11	(343)	(404)
Derivative financial instruments	9	–	(99)
Net current assets		10,022	593
Non-current liabilities
Performance fee provisions	12	–	(1,677)
Net assets		103,831	124,531
Capital and reserves
Ordinary share capital	13	800	800
Special reserve		77,371	77,371
Capital reserve	18	24,970	45,996
Revenue reserve		690	364
Total shareholders’ funds		103,831	124,531
Net asset value per share – basic and diluted (pence)	14	129.8	155.7

The financial statements were approved by the Board of Directors and authorised for issue on 28 March 2023 and were signed on its behalf by:

Sir Ian Cheshire

Chairman

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

Menhaden Resource Efficiency 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
		2022	2021
	Notes	£’000	£’000
Net cash outflow from operating activities	15	(751)	(1,108)
Cash flows from investing activities
Purchases of investments		(10,321)	(20,492)
Sales of investments		28,903	20,163
Settlement of derivatives	9	(12,488)	902
Net cash inflow from investing activities		6,094	573
Cash flows from financing activities
Dividends paid	7	(160)	–
Net cash outflow from financing activities		(160)	–
Increase/(decrease) in cash and cash equivalents		5,183	(535)
Cash and cash equivalents at start of the year		878	1,413
Cash and cash equivalents at the end of the year		6,061	878

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

Notes to the Financial Statements

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” (the “SORP”), and the historical cost convention, as modified by the valuation of investments at fair value through profit or loss. The Board has considered a detailed assessment of the Company’s ability to meet its liabilities as they fall due, including stress and liquidity tests which modelled the effects of substantial falls in markets and significant reductions in market liquidity, on the Company’s financial position and cash flows. Further information on the assumptions used in the stress scenarios is provided in the Audit Committee report. The results of the tests showed that the Company would have sufficient cash, or the ability to liquidate a sufficient proportion of its listed holdings, to meet its liabilities as they fall due. Based on the information available to the Directors at the time of this report, including the results of the stress tests, the Company’s cash balances, and the liquidity of the Company’s listed investments, the Directors are satisfied that the Company has adequate financial resources to continue in operation for at least the next 12 months and that, accordingly, it is appropriate to adopt the going concern basis in preparing these financial statements.

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 – fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities;

•         Level 2 – fair values measured using valuation techniques for all inputs significant to the measurement other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices);

•         Level 3 – fair values measured using valuation techniques for which any significant input to the valuation is not based on observable market data (unobservable inputs).

Details in respect of the fair value of the Company’s financial assets and liabilities are disclosed in note 17 to the Financial Statements.

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. Refer to 1(d) for details on how expenses are allocated to revenue and capital.

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 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. £16,864,000 or 18.0% (2021: £15,776,000 or 12.6%) of the Company’s portfolio is comprised of unquoted investments. These are all valued in line with accounting policy 1(b) below. Under the accounting policy the reported net asset value or price of recent transactions methodologies have been adopted in valuing those investments, as set out in Note 17.

As the Company has judged that it is appropriate to use reported NAVs in valuing unquoted investments as set out in note 17 (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 to be 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. 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, set out in Note 17, 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.

Segmental Analysis

The Board is of the opinion that the Company is engaged in a single segment of business, namely investing in accordance with the Company’s Investment Objective, and consequently no segmental analysis is provided.

(b)     Financial Instruments

The Company has chosen to adopt Sections 11 and 12 of FRS 102 in respect of financial instruments.

Basic financial assets:

The Company’s basic financial assets include cash at bank and debtors. These financial assets are initially recognised at fair value and subsequently measured at amortised costs using the effective interest method.

Investment held at fair value through profit or loss:

Investments are initially measured at fair value, being the transaction price less associated transaction costs, and are subsequently remeasured at fair value as at the reporting dates.

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 under the capital column in the Income Statement as ‘gains or losses on investments’. 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

Fair value is determined 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, or there has been a transaction in an investment, the Company may use the transaction price 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, in line with the IPEVCA Guidelines, and in the absence of transactions in the investments, 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 and any other factors relevant to the value of the unquoted investment.

Derivatives

Derivatives comprise foreign currency forwards used to hedge the Company’s foreign currency exposure. The forwards comprise sterling receivable and a foreign currency deliverable. Derivatives are classified as financial assets or financial liabilities at fair value through profit or loss, initially recognised at fair value on the date derivative contracts are entered into and are subsequently remeasured at their fair value as at the reporting date. Changes in the fair value of derivative contracts are recognised as capital income or expense in the Income Statement.

(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 gross of 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 substantively 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 Statement of Financial Position.

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)     Share Capital

Ordinary shares issued by the Company are recognised at the proceeds or fair value received with the excess of the amount received over nominal value being credited to the share premium account. Direct issue costs net of tax are deducted from equity.

(i)       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 Company’s accounting policy on expenses in 1(d).

Any gains in the fair value of investments that are not readily convertible to cash are treated as unrealised gains in the capital reserve. The amounts within capital reserve less unrealised gains are available for distribution.

(j)       Special Reserve

The special reserve arose following court approval in 2016 to cancel the share premium account. This reserve is distributable and can be used to fund share repurchases.

(k)          Revenue Reserve

The revenue reserve represents the surplus of accumulated revenue profits being the excess of income derived from holding investments less the costs associated with running the Company. This reserve may be distributed by way of dividends, when positive.

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

	2022	2021
	£’000	£’000
Income from investments
Unquoted distributions	419	550
Dividends from quoted investments	883	606
	1,302	1,156
Bank interest	7	–
Total income	1,309	1,156

3.        INVESTMENT MANAGEMENT FEES AND PERFORMANCE FEE PROVISIONS

	2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
AIFM fee	50	198	248	52	208	260
Portfolio management fee	273	1,092	1,365	286	1,143	1,429
Performance fee provisions	–	(1,677)	(1,677)	–	1,677	1,677
	323	(387)	(64)	338	3,028	3,366

4.        OTHER EXPENSES

	2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Directors’ remuneration	186	–	186	176	–	176
Employers NIC on directors’ remuneration	18	–	18	18	–	18
Auditor’s remuneration for the audit of the Company’s financial statements	41	–	41	44	–	44
Registrar fee	18	–	18	17	–	17
Broker retainer	30	–	30	30	–	30
Custody and depositary fees	47	–	47	47	–	47
Other expenses	64	–	64	118	–	118
Total expenses	404	–	404	450	–	450

The Company has no employees and details of the amounts paid to Directors are included in the Directors’ Remuneration Report beginning on page 54 of the Annual Report.

5.        TAXATION ON NET RETURN

(a)      Analysis of charge in period

	2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
UK corporation tax	–	–	–	–	–	–
Overseas witholding taxation	96	–	96	65	–	65

(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 25% (2021: 19%). The difference is explained below.

	2022			2021
	Revenue	Capital	Total	Revenue	Capital	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Net income/(loss) before taxation	582	(21,026)	(20,444)	368	18,096	18,464
Corporation tax at 19% (2021: 19%)	110	(3,995)	(3,885)	70	3,438	3,508
Non-taxable gains on investments held at fair value through profit or loss	–	4,068	4,068	–	(4,013)	(4,013)
Overseas withholding taxation	96	–	96	65	–	65
Non-taxable overseas dividends	(247)	–	(247)	(220)	–	(220)
Excess management expenses*	137	(73)	64	150	575	725
Tax charge for the year	96	–	96	65	–	65

* Excess management expenses are expenses that are not relieved in full against income generated by the Company.

(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 UK Government announced in the 2021 budget that from 1 April 2023, the rate of corporation tax in the United Kingdom would increase from 19% to 25% for companies with taxable profits between £50,000 and £250,000, but with a marginal relief applying as profits increase. The Company has not recognised a deferred tax asset of £3,042,000 (25% tax rate) (2021: £2,950,000, 25% tax rate) as a result of excess management expenses. It is not anticipated that these excess expenses will be utilised in the foreseeable future.

6.        INCOME/(LOSS) PER SHARE

The capital, revenue and total return per ordinary share are based on the net income/(loss) shown in the Income Statement and the weighted average number of ordinary shares in issue 80,000,001 (2021: 80,000,001).

There are no dilutive instruments issued by the Company.

7.        DIVIDENDS PAID

Under UK GAAP, final dividends are not recognised until they are approved by shareholders and interim dividends are not recognised until they are paid. They are also debited directly from reserves. Amounts recognised as distributable in these financial statements were as follows:

	2022	2021
	£’000	£’000
2021 final dividend of 0.2p per share	160	–

In respect of the year ended 31 December 2022, a final dividend of 0.4p per share or £320,000 (2021: 0.2p per share or £160,000) in total has been recommended to shareholders and, if the resolution is passed at the AGM, will be reflected in the Annual Report for the year ending 31 December 2023. Details of the ex-dividend and payment dates are provided in the Chairman’s Statement.

The Board’s current policy is to only pay dividends out of revenue reserves if the need arises in order to maintain investment trust status. The amount of revenue reserve available for distribution as at 31 December 2022 is £690,000 (2021: £364,000). The Company generated a revenue profit in the year ended 31 December 2022 of £486,000 (2021: £303,000).

8.        INVESTMENTS

	2022			2021
	Quoted	Unquoted		Quoted	Unquoted
	Investments	Investments	Total	Investments	Investments	Total
	£’000	£’000	£’000	£’000	£’000	£’000
Opening balance
Cost at 1 January	68,965	17,901	86,866	60,672	18,758	79,430
Investment holdings gains/(losses) at 1 January	40,874	(2,125)	38,749	22,963	642	23,605
Valuation at 1 January	109,839	15,776	125,615	83,635	19,400	103,035
Movement in the year:
Purchases at cost	9,669	652	10,321	15,503	4,989	20,492
Sales – proceeds received	(13,197)	(3,218)	(16,415)	(11,579)	(9,486)	(21,065)
Net movement in investment holdings (losses)/gains	(29,366)	3,654	(25,712)	22,280	873	23,153
Valuation at 31 December	76,945	16,864	93,809	109,839	15,776	125,615
Closing balance
Cost at 31 December	58,985	9,132	68,117	68,965	17,901	86,866
Investment holding gains/(losses) at 31 December	17,960	7,732	25,692	40,874	(2,125)	38,749
Valuation at 31 December	76,945	16,864	93,809	109,839	15,776	125,615

The Company received £16,415,000 (2021: £21,065,000), net of the £12,488,000 payment (2021: £902,000 receipt) on currency forward contracts (Note 9) from investments sold in the year. The book cost of these investments was £29,070,000 (2021: £13,056,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.

Gains on investments

	2022	2021
	£’000	£’000
Net movement in investment holding (losses)/gains in the year	(25,712)	23,153
Net movement in derivative holding gains/(losses) in the year	4,299	(2,029)
(Losses)/gains on investments	(21,413)	21,124

Total unrealised gains, including transfers, during the year were £13,057,000 (2021: £15,144,000).

Purchase transaction costs were £3,000 (2021: £28,000). These comprise mainly commission and stamp duty. Sales transaction costs were £3,000 (2021: £5,000). These comprise mainly commission.

9.        DERIVATIVES

	2022	2021
	£’000	£’000
Fair value of FX forwards	4,200	(99)

FX forwards are currently used to hedge the Company’s exposure to the euro and US dollar. See note 17(ii) for further details. The Company paid £12,488,000 (2021: received £902,000) on FX forwards closed during the year. The FX forwards are revalued over time and any gains or losses (both realised and unrealised) are included in gains/(losses) on investments in the capital column of the Income Statement.

The current currency forward contracts had an unrealised gain of £4,200,000 at the year end and the unrealised gains further improved to £4.8 million as at the approval date of this Annual Report. The next settlement date for the current currency forwards contract is 31 March 2023.

10.     DEBTORS

	2022	2021
	£’000	£’000
VAT recoverable	3	2
Withholding tax recoverable	68	49
Prepayments and accrued income	33	167
	104	218

11.     CREDITORS

	2022	2021
	£’000	£’000
Other creditors and accruals	343	404
	343	404

12.     PERFORMANCE FEE PROVISIONS

Performance fee provisions are recognised when a present obligation arises from past events, it is probable that the obligation will materialise and it is possible for a reliable estimate to be made, but the timing of settlement or the exact amount is uncertain.

As at 31 December 2022, no performance fee is expected to be payable in relation to the Portfolio Manager’s cumulative performance during 2021 and 2022, being the first two years of the thee-year performance period that commenced on 1 January 2021. The £1,677,000 performance fee provisions provided for on 31 December 2021 have been fully reversed during the year ended 31 December 2022. This represents the Directors’ best estimate of the obligation based on the NAV as at 31 December 2022 and has been charged to the capital column of the Income Statement.

If crystalised, settlement of performance fee provisions will take place following approval of the annual results for the year ended 31 December 2023. Incremental changes to the provision will be recognised in each subsequent period until crystallisation.

Full details of the performance fee arrangement can be found in the Performance Fee section in the Strategic Report.

13.     SHARE CAPITAL

	2022	2021
	£’000	£’000
Issued and fully paid:
80,000,001 ordinary shares of 1p per share	800	800

There is a single class of ordinary shares. The voting rights of the ordinary shares on a poll are one vote for each share held. 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

14.     NET ASSET VALUE PER SHARE

	2022	2021
Net asset value per share	129.8p	155.7p

The net asset value per share is based on the assets attributable to equity shareholders of £103,831,000 (2021: £124,531,000) and on the number of ordinary shares in issue at the year end of 80,000,001.

There are no dilutive instruments issued by the Company.

15.          RECONCILIATION OF NET CASH OUTFLOW FROM OPERATING ACTIVITIES

	2022	2021
	£’000	£’000
(Losses)/gains before taxation	(20,444)	18,464
Losses/(gains) made on investments	21,413	(21,124)
	969	(2,660)
Decrease/(increase) in other debtors	133	(134)
(Decrease)/increase in creditors, accruals and performance fee provisions	(1,738)	1,730
Net taxation suffered on investment income	(115)	(44)
Net cash outflow from operating activities	(751)	(1,108)

16.          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. All material related party transactions have been disclosed in note 3. Details of the remuneration of the Directors can be found in note 4 and in the Directors’ Remuneration Report within the Annual Report. Details of the Directors’ interests in the capital of the Company can be found on in the Directors’ Remuneration Report.

The balance outstanding to Frostrow at the year end was £20,000 (2021: £23,000). No balances were due to the Directors (2021: nil).

17.     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 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 Portfolio Manager, co-ordinates the Company’s risk management.

(i)       Other price risk

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

The Board manages these risks through the use of investment limits and guidelines, and monitors the risks through monthly compliance reports from Frostrow, with reports from Frostrow and the Portfolio Manager also presented at each Board meeting. In addition, Frostrow monitors 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 and £57,000 respectively (2021: £66,000 and £81,000 respectively); the capital return would have increased/decreased by £18,199,000 and £19,009,000 respectively (2021: £24,450,000 and £24,389,000 respectively); and, the return on equity would have increased/decreased by £18,152,000 and £18,953,000 respectively (2021: £24,384,000 and £24,309,000 respectively). 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 monitored in conjunction with other price risk as described above. The Portfolio Manager uses foreign currency forwards to hedge the foreign currency risk. As at 31 December 2022, approximately 50% of the Company’s euro and US dollar exposures were hedged.

Foreign currency exposure

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

	2022				2021
			Current				Current
	Investments	Derivatives*	assets	Net	Investments	Derivatives	assets	Net
	£’000	£’000	£’000	£’000	£’000	£’000	£’000	£’000
U.S. dollar	69,885	(37,329)	2,003	34,560	102,158	(48,015)	1	54,144
Euro	16,074	(6,680)	68	9,462	15,806	(8,400)	49	7,455
Other	–	–	44	44	–	–	38	38
	85,959	(44,009)	2,115	44,066	117,964	(56,415)	88	61,637

* 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 on the Company’s net currency exposures after hedging.

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 Statement of Financial Position date.

	2022					2021
	USD	EUR	Other	Impact on NAV		USD	EUR	Other	Impact on NAV
	£’000	£’000	£’000	£’000	%	£’000	£’000	£’000	£’000	%
Sterling depreciates	3,840	1,051	5	4,896	5%	6,016	828	4	6,848	5%
Sterling appreciates	(3,142)	(860)	(4)	(4,006)	(4%)	(4,922)	(678)	(3)	(5,603)	(4%)

(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; and

• 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.

	2022		2021
	Fixed	Floating	Fixed	Floating
	rate	rate	rate	rate
	£’000	£’000	£’000	£’000
Cash	–	6,061	–	878
	–	6,061	–	878

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 2022 and the net assets would increase/decrease by £61,000 (2021: £9,000).

(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, as set out in note 19. These commitments can be drawn down on 3 or 10 days notice. Having reviewed the nature of the investment and the track record of the underlying mandate for the most significant commitment, to TCI Real Estate Fund III Limited, the Board consider that it will be drawn down gradually over the life of the investment and as such poses a low risk to the liquidity of the Company. Frostrow and/or 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 of, and plan accordingly for any 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 at least 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

	2022	2021
	£’000	£’000
Derivative financial instruments	4,200	224
Current assets:
Other receivables	104	218
Cash	6,061	878

(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
At 31 December 2022	£’000	£’000	£’000	£’000
Investments	76,945	–	16,864	93,809
Derivatives	–	4,200	–	4,200
	Level 1	Level 2	Level 3	Total
At 31 December 2021	£’000	£’000	£’000	£’000
Investments	109,839	–	15,776	125,615
Derivatives	–	(99)	–	(99)

Level 3 investments at 31 December 2022

	Cost ‘000	Value £’000	Ownership	Valuation basis
Helios Co-Invest LP1	US$4,458	10,672	4.73%	NAV
KKR Aqueduct Co-Invest LP2	£4,000	4,646	1.15%	NAV
TCI Real Estate Partners Fund III Ltd	US$1,715	1,546	1.18%	NAV

1 Described as X-ELIO in the portfolio statement

2 Described as John Laing in the portfolio statement

Level 3 investments at 31 December 2021

	Cost ‘000	Value £’000	Ownership	Valuation  basis
Helios Co-Invest LP1	US$6,084	10,174	4.73%	NAV
KKR Aqueduct Co-Invest LP2	£4,000	4,000	1.23%	Price of recent transactions
TCI Real Estate Partners Fund III Ltd	US$2,169	1,602	1.18%	NAV
WCP Growth Fund LP	£7,447	–	10.30%	Discount to adjusted NAV

1         Described as X-ELIO in the portfolio statement

2         Described as John Laing in the portfolio statement

During the year, the Company realised a gain of £1,023,000 (2021: £996,000) on Helios Co-Invest LP after receiving a distribution of £2,003,000 (2021: £2,034,000) in relation to the disposal of a portfolio of X-ELIO’s operating assets in Mexico (2021: Spain). Helios Co-Invest LP remained the largest unquoted investment of the Company as at 31 December 2022.

The Company’s co-investment with KKR in John Laing was completed in December 2021 with an initial investment of £4 million. It is expected that the development pipeline of infrastructure assets developed by John Laing will provide the Company with opportunities to commit additional capital over time.

WCP Growth Fund LP has been dissolved during the year and no distributions were received by the Company.

If a 25% discount to NAV was applied to the NAV of the level 3 investments as at 31 December 2022, the impact would have been a decrease of £4,154,000 (2021: £3,512,000) in net assets and the net 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 comprises the equity share capital (ordinary shares), 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;
• whether 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;
• whether to issue new equity shares; and,
• the extent to which revenue in excess of that required for distributions should be retained.

18.     CAPITAL RESERVE

	2022 Capital Reserve			2021 Capital Reserve
	Other £’000	Investment Holding Gains £’000	Total £’000	Other £’000	Investment Holding (Losses) /Gains £’000	Total £’000
At 1 January	7,347	38,649	45,996	2,366	25,534	27,900
Net (losses)/gains on investments	(12,655)	(8,758)	(21,413)	8,009	13,115	21,124
Expenses charged to capital	387	–	387	(3,028)	–	(3,028)
At 31 December	(4,921)	29,891	24,970	7,347	38,649	45,996

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.

19.     FINANCIAL COMMITMENT

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

	Sterling	Local currency	Notice of
	Commitment	Commitment	drawdown
Helios Co-Invest LP	£52,000	US$62,000	3 business days
TCI Real Estate Partners Fund III Limited	£2,855,000	US$3,434,000	10 business days

20.     THE COMPANY

The Company is a public limited company (PLC) incorporated in England and Wales. Its principal activity is that of an investment trust company within the meaning of sections 1158/1159 of the Corporation Tax Act 2010 and its registered office and principal place of business is 25 Southampton Buildings, London, WC2A 1AL.

21.     POST BALANCE SHEET EVENT

As shown in the portfolio listing above, the Company has a co-investment with KKR in X-ELIO, held through Helios Co?Invest LP (“Helios”). As at 31 December 2022, the Company had a 4.73% holding in Helios (Note 17), which translates into an effective holding of 0.97% in X-ELIO. On 21 March 2023, KKR announced that it had reached an agreement to sell its 50% stake in X-ELIO to Brookfield Renewable, which owns the remaining 50%.

As at the approval date of this Annual Report, the exact deal terms are yet to be confirmed but once finalised the impact will be reflected in the Company’s daily NAV announcements to the stock exchange.

Glossary

Alternative Investment Fund Managers Regulations (“UK AIFMD”)

Agreed by the European Parliament and the Council of the European Union and transposed into UK legislation, the UK 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-water mark 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 on which a performance fee has been paid. Its initial level was set at 100p on the launch of the Company.

Leverage

For the purposes of the UK AIFMD, 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 using gross and commitment methods. 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 (as detailed in the UK AIFMD) 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 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 principally by the relationship between the demand for and supply of the shares.

NAV Total Return (APM)

The theoretical total return on shareholders’ funds per share, 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.

	31 December 2022	31 December 2021
Opening NAV	155.7p	132.7p
(Decrease)/increase in NAV	(25.9)p	23.0p
Closing NAV	129.8p	155.7p
% (decrease)/increase in NAV	(16.6%)	17.3%
Impact of dividend reinvested	0.1%	-
NAV total (loss)/return	(16.5%)	17.3%

Share Price Total Return (APM)

The return to the investor, on a last traded price to a last traded price basis, assuming that all dividends paid were reinvested, without transaction costs, into the shares of the Company at the time the shares were quoted ex-dividend.

	31 December 2022	31 December 2021
Opening share price	112.0p	99.0p
(Decrease)/increase in share price	(23.0)p	13.0p
Closing share price	89.0p	112.0p
% (decrease)/increase in share price	(20.5%)	13.1%
Impact of dividend reinvested	0.2%	-
Share price total (loss)/return	(20.3%)	13.1%

Ongoing Charges (APM)

Ongoing charges are calculated by taking the Company’s annualised operating expenses and expressing them as a percentage of the average daily net asset value of the Company over the year. The costs of buying and selling investments are excluded, as are interest costs, taxation, costs of buying back or issuing shares and other non-recurring costs. These items are excluded because if included, they could distort the understanding of the Company’s performance for the year and the comparability between periods.

	31 December 2022 £’000	31 December 2021 £’000
Total Expenses	2,018	2,138
Average NAVs	111,560	117,721
Ongoing charge ratio	1.8%	1.8%

The figures and financial information for 2021 are extracted from the published Annual Report for the year ended 31 December 2021 and do not constitute the statutory accounts for that year. The Annual Report for the year ended 31 December 2021 has been delivered to the Registrar of Companies and included the Independent Auditor’s Report which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

The figures and financial information for 2022 are extracted from the Annual Report and financial statements for the year ended 31 December 2022 and do not constitute the statutory accounts for the year.  The Annual Report for the year ended 31 December 2022 includes the Independent Auditor’s Report which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.  The Annual Report and financial statements have not yet been delivered to the Registrar of Companies.

ANNOUNCEMENT ENDS

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.