Annual Financial Report December 2017

11th April, 2018

 

Marwyn Value Investors Limited

(the "Company")

 

Audited Annual Results 2017

 

Marwyn Value Investors Limited announces its results for the year ended 31 December 2017

 

2017 has seen encouraging development and progress in the Company's underlying holdings, strengthening the Board's belief that the Company is well placed to deliver significant investment returns to shareholders.

 

Performance

 

·     For the year ended 31 December 2017, the Net Asset Value ("NAV") per ordinary share increased by 2.0%,         representing a 5.8% NAV total return including distributions to shareholders, compared with a total return of 13.1% for the FTSE All-Share over the same period. The increase in NAV per ordinary share over the period is primarily attributable to increases in the share prices of Zegona Communications plc ("Zegona") and BCA Marketplace plc ("BCA") along with the receipt of cash resulting from Zegona's tender offer. The NAV total return to realisation shareholders over the year was 4.8%, due to an appreciation of the NAV per realisation share,

 

·      The Company's strategy has delivered a 203.3% NAV total return to ordinary shareholders since inception in March 2006 to 31 December 2017¹, compared with a total return of 116.4% for the FTSE All-Share Index over the same period. The NAV total return attributable to realisation shareholders since inception on 30 November 2016 to 31 December 2017 is 3.2%.

 

Highlights

 

Distributions to shareholders

 

·     Pursuant to the ordinary distribution policy, quarterly interim dividends of 2.064p per ordinary share were paid in January, April, July, October 2017 and January 2018, with a further quarterly interim dividend expected in April 2018 and on an ongoing basis in January, April, July and October of each year. This represents an annual yield of 6.6%² and to the date of this report, a total of £41.3 million has been returned to ordinary shareholders since the implementation of the policy, representing 46.5% of the market capitalisation of the Company's ordinary shares².

 

·     In October 2017, following receipt of funds from the Zegona tender offer, the Company completed a return of capital totalling c. £3.8 million, representing 26% of the market capitalisation of the realisation shares in issue at that point. The return was effected by way of a redemption of 1,588,413 realisation shares which were subsequently cancelled.

Portfolio Companies

 

·      Zegona completed the first full cycle of it's 'Buy-Fix-Sell' strategy following the sale of its first platform acquisition, Telecable de Asturias S.A ("Telecable"), to Euskaltel S.A. ("Euskaltel"). £139.7 million of cash resulting from the sale was returned to Zegona's shareholders by way of a tender offer, of which £26.0 million was attributable to the Company's ordinary shareholders and £3.8 million was attributable to and returned to the Company's realisation shareholders.

 

·     BCA transferred its ordinary shares from a standard to a premium listing in October, demonstrating the continued progression of the company since its acquisition in 2015. The BCA Board believe this will potentially improve trading liquidity, provide BCA with an enhanced corporate profile and improve protection for investors due to the associated higher standards of corporate governance and reporting.

 

·      We invested in a new acquisition vehicle, Wilmcote Holdings plc ("Wilmcote") which completed its IPO in August. Wilmcote has been established alongside CEO Adrian Whitfield (formerly CEO of Synthomer plc) with the objective to create value for its investors through the acquisition and subsequent development of target businesses in the downstream and specialty chemicals sector. Wilmcote's directors believe the sector offers opportunities for capitalising on attractive structural trends and consolidation in fragmented markets. They see potential for significant value creation through the implementation of operational improvements in the acquired businesses, ultimately transitioning them to being customer-led and application-centric.

 

·      Safe Harbour Holdings plc ("Safe Harbour") established alongside CEO Rodrigo Mascarenhas (formerly of Bunzl plc, a FTSE 100 company) is in the process of evaluating various platform acquisition opportunities that fit its investment criteria for assets engaged in B2B distribution and/or business services. Safe Harbour completed its IPO in March 2018 raising a further £22.7 million of equity funding with backing from a number of high profile institutional investors.

 

·    Since the admission of Gloo Networks plc ("Gloo") to AIM in August 2015, Gloo has evaluated and completed comprehensive diligence efforts on a number of businesses in Europe and the US. While the businesses Gloo has engaged with have demonstrated excellent qualities, it has yet to complete its first platform acquisition. In March 2018, Gloo announced that it is continuing to review acquisition opportunities following recent discussions with a potential target, but was no longer considering a reverse takeover or issue of additional shares in respect of that opportunity.

 

·      Le Chameau Group plc ("LCG") appointed David Robinson as its chief executive officer in July. David recently spent eight years as President of Speedo International, leading the transformation of that business to become a global brand leader. LCG's management, led by David, believe there is an opportunity to leverage Le Chameau's unique heritage in the premium rubber boot market to extend the product into other product categories. We believe that despite the disruption caused by recent business changes, Le Chameau can deliver on its potential.

Third party close of Marwyn Value Investors II LP

 

·      Marwyn Value Investors II LP ("MVI II LP"), in which the Company's ordinary shares are indirectly invested, held its first third-party fund close alongside MVI II Co-Invest LP, a stapled co-investment vehicle, on 11 May 2017, securing commitments of £41 million from limited partners who acquired interests in MVI II LP's portfolio at net asset value and are expected to invest alongside the Company in future investment opportunities.

 

·      The additional capital raised from MVI II LP's third-party close augments the Company's capital to invest in upcoming opportunities, allowing ordinary shareholders to benefit from the increased diversification of the portfolio and the ability to deploy capital in follow-on investments into these holdings, as well as consider new opportunities.

Chairman, Robert Ware, commented: "We believe the progress of the existing portfolio companies, alongside the successful IPO of both Wilmcote and Safe Harbour demonstrate the continued appeal of Marwyn's unique model of backing sector-leading management teams pursuing acquisition-led growth strategies. The successful raising of capital into MVI II LP has increased both our ability to maintain our cornerstone holdings in follow-on investments for current portfolio companies and also seed new investment vehicles as opportunities arise. We are excited at the quality of management leading our portfolio companies and by the range of compelling investment opportunities being pursued. We anticipate a busy and exciting year ahead."

 

¹  The inception to date movement is based on the combined weighted average NAV of Marwyn Value Investors I, II and B shares prior to their amalgamation, using the conversion ratio published on 17 April 2008.

² Based on the market capitalisation of the Company as at close of business on 10 April 2018, being the practically available date prior to this announcement

 

Company enquiries:

Louisa Bonney / Scott Danks Axio Capital Solutions Limited Telephone: 01534 761240   PR enquiries: Alex Child-Villiers / Will Barker Temple Bar Advisory Telephone: 020 7002 1080

Cautionary Statement

 

This announcement contains forward-looking statements which are made in good faith based on the information available at the time of its approval. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the Company's control that could cause the actual results, performance or achievement of the Company to be materially different from those expressed or implied by these forward-looking statements.

 

The Company's audited Annual Results for the period ended 31 December 2017 can be found on our website at www.marwynvalue.com Neither the content of the Company's website (or any other website) nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into, or forms part of, this announcement.

 

MARWYN VALUE INVESTORS LIMITED

AUDITED ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2017

 

 

I am pleased to present to shareholders the audited annual report and financial statements of Marwyn Value Investors Limited (the "Company") (LSE: MVI and MVIR) for the year ended 31 December 2017.

 

Progress over the period

2017 has seen encouraging development and progress in the Company's underlying holdings, strengthening the Board's belief that the Company is well placed to deliver significant investment returns to shareholders.

 

Zegona Communications plc ("Zegona") completed the first full cycle of it's 'Buy-Fix-Sell' strategy and delivered on its promise to promptly and efficiently return capital to its shareholders following the sale of its first platform acquisition, Telecable de Asturias S.A ("Telecable"), to Euskaltel S.A. ("Euskaltel"). The sale represented an implied value for Telecable at completion that corresponded to an implied Zegona share price of £1.88 per share and a 34% total return to Zegona shareholders. £139.7 million of cash resulting from the sale was returned to Zegona's shareholders by way of a tender offer, of which £26.0 million was attributable to the Company's ordinary shareholders and £3.8 million was attributable to and returned to the Company's realisation shareholders.

 

We invested in a new acquisition vehicle, Wilmcote Holdings plc ("Wilmcote"). Wilmcote has been established alongside CEO Adrian Whitfield (formerly CEO of Synthomer plc) with the objective to create value for its investors through the acquisition and subsequent development of target businesses in the downstream and specialty chemicals sector. Wilmcote's directors believe the sector offers opportunities for capitalising on attractive structural trends and consolidation in fragmented markets. They see potential for significant value creation through the implementation of operational improvements in the acquired businesses, ultimately transitioning them to being customer-led and application-centric. Wilmcote completed its IPO in August.

 

We have invested further into BCA Marketplace plc ("BCA"). BCA transferred its ordinary shares from a standard to a premium listing in October, demonstrating the continued progression of the company since its acquisition in 2015. The BCA Board believe this will potentially improve trading liquidity, provide BCA with an enhanced corporate profile and improve protection for investors due to the associated higher standards of corporate governance and reporting.

 

Since the admission of Gloo Networks plc ("Gloo") to AIM in August 2015, Gloo has evaluated and completed comprehensive diligence efforts on a number of businesses in Europe and the US. While the businesses Gloo has engaged with have demonstrated excellent qualities, it has yet to complete its first platform acquisition. In March 2018, Gloo announced that it is continuing to review acquisition opportunities following recent discussions with a potential target, but was no longer considering a reverse takeover or issue of additional shares in respect of that opportunity.

 

Safe Harbour Holdings plc ("Safe Harbour") established alongside CEO Rodrigo Mascarenhas (formerly of Bunzl plc, a FTSE 100 company) is in the process of evaluating various platform acquisition opportunities that fit its investment criteria for assets engaged in B2B distribution and/or business services. Safe Harbour completed its IPO in March 2018 raising a further £22.7 million of equity funding with backing from a number of high profile institutional investors.

 

Le Chameau Group plc ("LCG") appointed David Robinson as its chief executive officer in July. David recently spent eight years as President of Speedo International, leading the transformation of that business to become a global brand leader. LCG's management, led by David, believe there is an opportunity to leverage Le Chameau's unique heritage in the premium rubber boot market to extend the product into other product categories. We believe that despite the disruption caused by recent business changes, Le Chameau can deliver on its potential.

 

A detailed review of the performance of the underlying investment assets (the "Portfolio Companies") is set out in the Report of the Manager.

 

In May, Marwyn Value Investors II LP ("MVI II LP"), (the private equity fund structure through which the majority of the investment in assets attributable to the Company's ordinary shareholders are made) completed its first third-party fund close. The additional capital raised augments the Company's capital to invest in the expected upcoming investment opportunities in the platform acquisitions of Gloo, Safe Harbour and Wilmcote and any further acquisition made by Zegona. Ordinary shareholders will benefit from the ability to participate in these follow-on investments, as well as the potential for future diversification of the portfolio.

 

Further detail regarding the MVI II LP third party close is set out on page 4.

 

Ordinary Distribution Policy

Pursuant to the distribution policy approved by shareholders at the December 2015 general meeting (the "Ordinary Distribution Policy"), quarterly interim dividends of 2.064p per ordinary share were paid in January, April, July, October 2017 and January 2018, with a further quarterly interim dividend expected in April 2018 and on an ongoing basis in January, April, July and October of each year. To the date of this report, a total of £41.3 million has been returned to ordinary shareholders since the implementation of the Ordinary Distribution Policy.

 

Returns to investors

Ordinary shares

The net asset value ("NAV") total return to ordinary shareholders, assuming reinvestment of dividends, over the year to 31 December 2017 was 5.8% comprising an increase in NAV per ordinary share of 2.0% and the total dividends paid to ordinary shareholders in 2017 of 8.256p per ordinary share.

 

Further information regarding these distributions is contained in Note 9 of these annual financial statements.

 

Realisation shares

The NAV total return to realisation shareholders over the year was 4.8%, due to an appreciation of the NAV per realisation share.

 

In October 2017, following receipt of funds from the Zegona tender offer, the Company completed a return of capital totalling c. £3.8 million, representing 26% of the market capitalisation of the realisation shares in issue at that point. The return was effected by way of a redemption of 1,588,413 realisation shares which were subsequently cancelled.

 

Discount

Marwyn Asset Management Limited (the "Manager"), together with the Board and Marwyn Investment Management LLP (the "Investment Adviser"), continues to monitor the discount of the share price to the Company's NAV per share on a regular basis for both share classes. We are committed to explore, and where appropriate pursue, opportunities to reduce the discount. In addition to maintaining a regular and predictable quarterly dividend stream and the payment of 50% of net gains on asset disposals (to the extent not already paid through dividends), we have also focussed on attracting prestigious management teams, with our two most recent vehicles, Safe Harbour and Wilmcote, led by ex-Bunzl plc (FTSE 100) and Synthomer plc (FTSE 250) management respectively. We believe high-quality management is one of the critical success factors in any of our investments, and sourcing and providing capital to teams such as these will generate long term value for the Company's shareholders.

 

We continue to believe that the deployment of the Company's cash reserves in opportunities within the existing portfolio and, for ordinary shareholders, future management platforms, should lead to an improvement in both the liquidity of the shares and a narrowing of the discount to the NAV. Three of the six current portfolio companies are early-stage acquisition vehicles seeking their first platform acquisition and Zegona is reviewing options for future M&A. We expect that these companies will require further investment and in order for Marwyn to retain its influence in these businesses, we believe the Company's resources are best placed supporting these high-calibre management teams to create value and to support future portfolio company fundraisings to finance accretive M&A.

 

Furthermore, we believe that the distribution of proceeds on the sale of investments attributable to realisation shareholders, as those investments are realised in line with the Investment Policy, will serve to reduce the discount of the realisation shares.

 

The policy on share buy-backs is reviewed regularly by the Board in consultation with the Manager.

 

As at 31 December 2017, the share price discount to NAV of the ordinary shares was 25.5%, compared to a discount of 32.2% as at 31 December 2016.

 

As at 31 December 2017, the share price discount to NAV of the realisation shares was 23.7%, compared to a discount of 32.9% as at 31 December 2016.

 

We note that the discount of both the ordinary shares and realisation shares has increased in early 2018, but remain convinced that the best use of capital is in the attractive investment opportunities expected as part of Gloo, Wilmcote, Safe Harbour or Zegona acquisitions in the coming year.

 

Outlook

The Board believes that the Company continues to offer a unique and attractive proposition for investing in actively managed investment opportunities and acquisition-led growth strategies in carefully selected industries. The successful raising of capital into MVI II LP has increased both our ability to maintain our cornerstone holdings in follow-on investments for current Portfolio Companies and also seed new investment vehicles as opportunities arise.

 

We are excited at the quality of management leading our Portfolio Companies and by the range of compelling investment opportunities being pursued.

 

We anticipate a busy and exciting year ahead.

 

 

 

Robert Ware

Chairman

10 April 2018

 

 

Fund Structure

The Company is a feeder fund which has invested all of its available capital into limited partnership interests in Marwyn Value Investors LP (the "Master Fund").

 

The Master Fund has invested in a second master fund, MVI II LP, a private equity fund structure through which the majority of the Master Fund's investments attributable to ordinary shareholders are made. Assets attributable to the realisation shareholders (the "realisation pool") are held directly by the Master Fund. A look-through breakdown of the NAV attributable to the ordinary and realisation shareholders along with ownership of the assets is detailed in the Report of the Manager on page 8.

 

The Company is traded on the Specialist Fund Segment of the Main Market of the London Stock Exchange (the "SFS").

 

Investment objective

The investment objective of the Company is to maximise total returns primarily through the capital appreciation of its investments.

 

Investment strategy

Overview

Marwyn's strategy is to identify, support, invest in and work alongside experienced operational management teams in mid-cap businesses headquartered in the UK, Europe or the Americas, often with global operations (target enterprise value at entry of £150 million to £1.5 billion).

 

Marwyn's approach brings private equity-style investment principles to bear in primarily public equity environments. Marwyn acquires equity stakes typically as a cornerstone investor and draws upon capital from a high calibre universe of co-investors which augments purchasing power when pursuing acquisitions and provides an independent validation of Marwyn's investment thesis.

 

Management

Marwyn seeks experienced corporate managers with strong track records of creating shareholder value and frequently works closely with them on-site for 6-12 months prior to an initial acquisition. The managers leverage their extensive industry networks and expertise in the identification of proprietary acquisition opportunities and in assembling a preeminent management team around them. Working together with management, Marwyn refines the strategy, identifies targets and conducts due diligence.

 

Marwyn's relatively long term investment horizon and day-to-day collaborative involvement with management both before and after the initial acquisition significantly enhances strategic alignment.

 

Marwyn has an established track record in being able to source and incentivise market leading, proven management teams. Building strong relationships with leading management teams increases the likelihood of high quality deal flow and a successful "buy-and-build" strategy within the sector in which the relevant management team is operating. In order to develop relationships with management teams, Marwyn provides them with a support base within Marwyn's offices, access to Marwyn's infrastructure, investor, advisory and commercial relationships and Marwyn's capital markets expertise. In Marwyn's experience, management teams are frequently attracted to working in the public markets with support from experienced investors.

 

Sector focus

Marwyn has a sector-agnostic approach to investing, typically targeting sectors where structural and/or regulatory change are driving a shift in value that may be exploited. Frequently, returns and speed of execution are amplified through deploying acquisitive "buy-and-build" growth strategies in fragmented markets, where potential exists for revenue and/or cost synergy.

 

Public markets

Marwyn believes that one of the key advantages of operating in the public markets is access to a quick and efficient source of capital at all stages of an investment's life cycle. The enhanced liquidity also facilitates both smooth changes in ownership and Marwyn's "buy-and-build" strategy as asset vendors are able to participate in future upside through rolling their stake into tradable securities.

 

Additionally, Marwyn believes listed platforms hold greater appeal for distinguished portfolio executives than traditional private equity structures. This is because public structures provide a management-led franchise with greater autonomy and prestige, access to blue-chip institutional relationships and access to pools of equity and debt capital without investment horizon constraints.

 

Investment policy

There are no investment restrictions applicable to the Company or the Master Fund.

 

MVI II LP has the following investment restrictions:

·      no investment can exceed 30% of the partners' aggregate commitments at the time of investment;

·    it cannot engage in derivative trading except to hedge or enhance an investment in an existing or prospective Portfolio Company;

·      it cannot invest in any blind-pool investment fund; and

·    it may only recycle distributed capital, up to an amount equal to 100% of the partners' aggregate commitments, which may only be used to acquire assets, and not pay fees.

 

The Master Fund and MVI II LP invest either directly or indirectly into the Portfolio Companies. The Master Fund and MVI II LP (during its 'Investment Period', being five years from final close) are permitted to make follow-on investments into the Portfolio Companies and, in the case of capital relating to the Company's ordinary shares, to invest in new Portfolio Companies.

 

The Master Fund also has an express power to use cash to acquire the Company's shares at a discount to their NAV for cancellation. Any such acquisitions and cancellations will be NAV enhancing for the continuing holders of ordinary shares. The use of such power is reviewed by the Manager and the Board as detailed in the Report of the Chairman on page 2.

 

The assets attributable to the realisation pool are managed with a view to maximising investment returns, realising investments and making distributions to the holders of realisation shares as realisations are made. The realisation pool is permitted to invest cash allocated to it upon its creation in follow-on investments into existing Portfolio Companies made within three years of the creation of the realisation pool. Unlike the investment policy in respect of the assets relating to ordinary shareholders, cash generated on the sale of an investment in the realisation pool may not be re-invested and are, subject to amounts held back for reasonable working capital requirements, distributed to realisation shareholders.

 

The Company's sole investments are in four classes of the Master Fund, Class F and Class G (collectively the "ordinary interests") and Class R(F)1 and Class R(G)1 (collectively the "realisation interests").

 

The realisation interests remain invested only in those underlying Portfolio Companies which were held at the time of creation of the interests and re-designation of ordinary shares in the Company to realisation shares in November 2016.

 

The ordinary interests are invested in those same assets plus any investment in new Portfolio Companies following the Realisation Class Offer. As at 31 December 2017, the only Portfolio Company invested in by the ordinary interests but not the realisation interests is Wilmcote, which was invested in subsequent to the creation of the realisation interests. A breakdown of the NAV of both the ordinary interests and realisation interests is included on page 8 of these annual financial statements.

 

The investment in LCG attributable to ordinary share interests is held directly and exclusively by the Master Fund. All of the Portfolio Company interests attributable to the realisation interests are held directly and exclusively by the Master Fund.

 

Third-party close of MVI II LP

MVI II LP completed its first third-party fund close alongside MVI II Co-Invest LP, a stapled co-investment vehicle, on 11 May 2017, securing commitments of £41 million from limited partners who acquired interests in MVI II LP's portfolio at NAV and are expected to invest alongside the Company in future investment opportunities. Further third-party closes at NAV are anticipated by the Manager on or before the final closing date of 31 December 2018.

 

The Master Fund sold interests in MVI II LP to the new third party investors at the market value of the assets (the "Equalisation Process"). As a result of the Equalisation Process, the ordinary shares' portfolio of assets on a look-through basis reduced by £23 million in aggregate, and the cash balance attributable to the ordinary shares increased by the same amount. There was no net effect on NAV as a result of the Equalisation Process.

 

The sale of the Master Fund's interests in MVI II LP pursuant to the Equalisation Process crystallised a profit of £3.0 million for the Master Fund. At the date of equalisation, the Company had returned £10.2 million in dividends to ordinary shareholders since the Company's most recent sale and in accordance with the Company's ordinary share distribution policy was not required to pay a special dividend following this profitable realisation event.

 

As noted previously, realisation shareholders are not exposed to any investments directly or indirectly held by MVI II LP, as their assets are held within a separate realisation pool by the Master Fund.

 

The Manager

Marwyn Asset Management Limited is the manager of the Company, the Master Fund, MVI II LP, its stapled co-investment vehicle, MVI II Co-Invest LP and MVI II DCI I LP, a discretionary co-investment vehicle. The Manager is advised by Marwyn Investment Management.

 

The Management Agreement governing the Company's investments allows for the investment strategies that the Manager may employ to be in any securities, instruments, obligations, guarantees, derivative instrument or property of any nature in which the relevant vehicle is empowered to invest and as contemplated by its investment policy.

 

The Company does not pay a management fee or incentive allocation to the Manager in respect of the Company's investment in the Master Fund. The valuation of the Company's investment in the Master Fund takes into account the management fee and incentive allocation payable by the Master Fund that is applicable to the classes of partnership interests in which the Company invests. Furthermore, the Company does not pay any management fee or incentive allocation in relation to the Master Fund's investment into MVI II LP.

 

Performance summary

Ordinary Shares

The NAV per ordinary share of the Company increased during the year by 4.14p to £2.1482, an increase of 1.96%, with the payment of quarterly dividends of 2.064p per ordinary share totalling 8.256p per ordinary share in the year, generating a NAV total return over the period of 5.8%.  As at 31 December 2017, the discount of the share price to NAV per share was 25.5%, a reduced discount over the year from 32.2% as at 31 December 2016.

 

	NAV Total Return1	FTSE All-Share
Year (to 31 December 2017)	5.8%	13.1%
Since inception  (1 March 2006 to 31 December 2017)	203.3%	116.4%

 

Realisation Shares

The NAV per realisation share of the Company increased during the year by 10.23p to £2.2267, an increase of 4.8%.  As at 31 December 2017, the discount of the share price to NAV per share was 23.7%, a reduced discount over the year from 32.9% as at 31 December 2016.

 

	NAV Total Return	FTSE All-Share
Year (to 31 December 2017)	4.8%	13.1%
Since inception (30 November2016 to 31 December 2017)	3.2%	18.8%

 

The increase in NAV per ordinary share and realisation share over the period is primarily attributable to increases in the share prices of Zegona and BCA along with the receipt of cash resulting from the Zegona tender offer.

 

1 Total return assumes the reinvestment of dividends paid to shareholders into the Company at NAV and is calculated on a cum-income basis

 

 

DISCLAIMER

The report of the Manager ("Manager's Report") is issued by Marwyn Asset Management Limited which has been registered as a fund service business provider under the Financial Services (Jersey) Law 1998 by the Jersey Financial Services Commission (the "Commission"), in connection with the Master Fund, MVI II LP, MVI II Co-Invest LP, MVI II DCI I LP and the Company. The Commission is protected by the Financial Services (Jersey) Law 1998 against liability arising from the discharge of its function under that law.

 

This Manager's Report does not constitute a prospectus or offering document relating to the Master Fund, MVI II LP, MVI II Co-Invest LP, MVI II DCI I LP or the Company, nor does it constitute or form part of any offer or invitation to purchase, sell or subscribe for, or any solicitation of any such offer to purchase, sell or subscribe for, any securities in the Master Fund, MVI II LP or the Company (an "Investment") nor shall this Manager's Report or any part of it, or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefor.

 

Persons who wish to make an Investment are reminded that any such Investment should only be made on the basis of the information contained in materials provided for that purpose for your consideration and not on the information contained in this Manager's Report. No reliance may be placed, for any purposes whatsoever, on the information contained in this Manager's Report or on its completeness and this Manager's Report should not be considered a recommendation by Marwyn Investment Management LLP, the Manager or any member of the Marwyn group or any of their respective advisers or affiliates, the Master Fund, MVI II LP, MVI II Co-Invest LP, MVI II DCI I LP  or the Company (the "Relevant Entities") in relation to an Investment.

 

No representation or warranty, express or implied, is given by or on behalf of the Relevant Entities or any of their respective directors, partners, officers, employees, advisers or any other persons as to the accuracy, fairness or sufficiency of the information or opinions contained in this Manager's Report and none of the information contained in this Manager's Report has been independently verified by the Relevant Entities or any other person. Save in the case of fraud, no liability is accepted for any errors, omissions or inaccuracies in such information or opinions.

 

The distribution of this document in certain jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

 

This Manager's Report includes "forward-looking statements" which includes all statements other than statements of historical facts, including, without limitation, those regarding the Master Fund's and the Company's financial position, business strategy, plans and objectives of management for future operations and any statements preceded by, followed by or that include forward-looking terminology such as the words "targets", "believes", "estimates", "expects", "aims", "intends", "can", "may", "anticipates", "would", "should", "could" or similar expressions or the negative thereof. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the control of the Master Fund, MVI II LP or the Company that could cause the actual results, performance or achievements of the Master Fund, MVI II LP or the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the present and future business strategies of the Master Fund, MVI II LP and the Company and the environment in which the Master Fund, MVI II LP or the Company will operate in the future.

 

These forward-looking statements speak only as at the date of this Manager's Report.

 

Investing in the Company involves certain risks, as detailed in these financial statements, and as described more fully in the prospectus published by the Company on 19 October 2016.

 

The Manager presents its 2017 annual report to the shareholders of the Company.

 

The review that follows refers to the underlying Portfolio Companies in which the Company is indirectly invested.

 

What we invest in

One of the founding principles of the investment strategy is to identify, support, invest in and work alongside experienced operational management teams to manage, build and grow small and mid cap businesses with a target enterprise value of £150 million to £1.5 billion headquartered in the UK, Europe or the Americas.

 

Our approach brings private equity-style investment principles to bear primarily in public equity environments. Marwyn funds typically act as the lead cornerstone investor and draw on capital from high-calibre co-investors which, we believe, augments purchasing power when pursuing acquisitions and provides an independent validation of our investment thesis.

 

We believe that this unique combination of private equity and public market disciplines allows the team to effectively unlock difficult-to-acquire assets with embedded value and identify synergistic M&A opportunities to drive value for investors across market cycles. We believe our active value investment approach is differentiated through our relationship with management teams and our experience and successful track record of extracting value in the public market environment with an event-driven approach.

 

How we invest

When evaluating opportunities, we seek to understand (i) the major drivers for the sector (both positive and negative), (ii) the assets under consideration for acquisition and (iii) how our buy-and-build strategy will improve value creation. Our review of a sector typically begins with discussions with potential management teams, including their investment thesis for the sector, with this information being cross referenced in meetings with companies across the sector for general information purposes.

 

Our process of canvassing specific industries has historically been robust, often taking longer than six months working with management. We aim to avoid competitive auction processes with over 90% of deals to date completed outside of competitive processes.

 

We have developed a methodical approach to sourcing, executing and exiting investments, using the following process:

·     partner with experienced industry-leading management teams;

·     alongside management, focus on fragmented sectors which can benefit from consolidation or sectors where structural and/or regulatory change is driving a shift in value;

·     actively support the development of each business; and

·     exit investments at an attractive multiple to original invested capital.

Performance

To 31 December 2017, our investee companies have together delivered an aggregate gross cash multiple on Marwyn's invested capital of 2.6x, with the investee companies drawing c.£2.7 billion of capital from Marwyn and third party co-investors.

 

For the year ended 31 December 2017, the NAV per ordinary share increased by 2.0%, representing a 5.8% NAV total return assuming dividend reinvestment, compared with a FTSE All-Share total return of 13.1% over the same period. The NAV per realisation share over the period increased by 4.8%. As noted in the Performance Summary on page 5, the increases in NAV per ordinary share and per realisation share over the period are primarily attributable to an increase in the share prices of Zegona and BCA along with the receipt of cash resulting from the Zegona tender offer.

 

We are confident in the ability of our existing Portfolio Company management teams to deliver attractive returns for the Company's shareholders into the future and will seek teams of the same high caliber for any future acquisition vehicles.

 

Investments

We believe that the Company remains a compelling investment opportunity, providing investors with access to exceptional management talent in growing businesses alongside a clearly defined and disciplined distribution policy.

 

We believe that the current Portfolio Companies offer significant potential for growth. Zegona has demonstrated the success of its 'Buy-Fix-Sell' strategy, completing the sale of its first platform acquisition, Telecable, and returning significant cash to shareholders. Zegona is well positioned to provide further shareholder value through its investment in Euskaltel and through future acquisition opportunities.

 

BCA continues to deliver positive news, reporting a year-on-year adjusted EBITDA increase of 37.7%. The transfer of BCA's ordinary shares to a premium listing on the Official List of the UK Listing Authority demonstrates the BCA board's ambition and commitment to the highest standards of corporate governance, along with the expectation of increased liquidity and an enhanced profile from inclusion in the FSTE 250 Index.

 

Gloo continues to progress potential acquisition targets, whilst LCG has undergone significant structural and operational reform alongside the appointment of David Robinson as CEO, positioning the company for growth of its core products leveraging a well-known and trusted brand.

 

The Company's two newest Portfolio Company investments, Wilmcote and Safe Harbour, have identified a range of potential platform acquisition targets. Wilmcote and Safe Harbour have both completed their IPO and admitted to AIM in August 2017 and March 2018 respectively.

 

 

The successful third-party close in MVI II LP provides incremental capital, enabling participation in attractive follow-on investments in the current portfolio and cornerstone investments in vehicles launched by new management teams. Further capital may be raised up to the fund closing date of 31 December 2018 and co-investment opportunities in Portfolio Company acquisitions will be available.

 

Given the early-stage of the current portfolio, we are confident that further opportunities to invest in the current portfolio exist as they complete platform acquisitions or continue to execute their management strategies. It is also anticipated that the underlying portfolio will grow from the current six investments to seven or eight companies, providing opportunities to deploy further investment capital.

 

Allocation of Marwyn Value Investors Limited NAV by company

Based upon the Company's investments in the Master Fund (directly) and MVI II LP (indirectly), a detailed breakdown of the Company's total NAV is shown below as at 31 December 2017 and 16 March 2018:

 

Allocation of NAV by company at 31 December 2017

Ordinary shares

Based upon the Company's indirect investments in the Portfolio Companies through its interest in the Master Fund and MVI II LP, the Company's total NAV attributable to ordinary shareholders is broken down across the following companies and percentages as at 31 December 2017:

 

Company	Ticker	Focus	% of NAV	Held by
Zegona Communications plc	ZEG LN	TMT	21.4%	MVI II LP
BCA Marketplace plc	BCA LN	Automotive	34.3%	MVI II LP
Wilmcote Holdings plc	WCH LN	Downstream & Specialty Chemicals	8.4%	MVI II LP
Safe Harbour Holdings plc	SHH LN	B2B Distribution & Business Services	4.7%	MVI II LP
Gloo Networks plc	GLOO LN	Media & Consumer Brands	4.1%	MVI II LP
Le Chameau Group plc		Luxury Goods	13.3%	Master Fund
Other assets			30.4%
Liabilities			(16.6)%
Net assets			100.0%

 

Realisation shares

Based upon the Company's indirect investments in the Portfolio Companies through its interest in the Master Fund, the Company's total NAV attributable to realisation shareholders is broken down across the following companies in the following percentages as at 31 December 2017:

 

Company	Ticker	Focus	% of NAV	Held by
Zegona Communications plc	ZEG LN	TMT	30.9%	Master Fund
BCA Marketplace plc	BCA LN	Automotive	29.6%	Master Fund
Safe Harbour Holdings plc	SHH LN	B2B Distribution & Business Services	6.8%	Master Fund
Gloo Networks plc	GLOO LN	Media & Consumer Brands	5.9%	Master Fund
Le Chameau Group plc		Luxury Goods	15.8%	Master Fund
Other assets			29.6%
Liabilities			(18.6)%
Net assets			100.0%

 

Allocation of NAV by company at 16 March 2018

Ordinary shares

Based upon the Company's indirect investments in the Portfolio Companies through its interest in the Master Fund and MVI II LP, the Company's total NAV attributable to ordinary shareholders is broken down across the following companies and percentages as at 16 March 2018:

 

Company	Ticker	Focus	% of NAV	Held by
Zegona Communications plc	ZEG LN	TMT	20.0%	MVI II LP
BCA Marketplace plc	BCA LN	Automotive	29.0%	MVI II LP
Wilmcote Holdings plc	WCH LN	Downstream & Specialty Chemicals	9.3%	MVI II LP
Safe Harbour Holdings plc	SHH LN	B2B Distribution & Business Services	5.5%	MVI II LP
Gloo Networks plc	GLOO LN	Media & Consumer Brands	4.5%	MVI II LP
Le Chameau Group plc		Luxury Goods	14.9%	Master Fund
Other assets			32.0%
Liabilities			(15.2)%
Net assets			100.0%

 

Realisation shares

Based upon the Company's indirect investments in the Portfolio Companies through its interest in the Master Fund, the Company's total NAV attributable to realisation shareholders is broken down across the following companies and percentages as at 16 March 2018:

 

Company	Ticker	Focus	% of NAV	Held by
Zegona Communications plc	ZEG LN	TMT	28.9%	Master Fund
BCA Marketplace plc	BCA LN	Automotive	25.0%	Master Fund
Safe Harbour Holdings plc	SHH LN	B2B Distribution & Business Services	7.9%	Master Fund
Gloo Networks plc	GLOO LN	Media & Consumer Brands	6.5%	Master Fund
Le Chameau Group plc		Luxury Goods	17.9%	Master Fund
Other assets			30.0%
Liabilities			(16.2)%
Net assets			100.0%

 

INVESTMENTS

 

Company:	Zegona Communications plc ("Zegona")
Sector:	TMT
Listing:	Standard Segment of the LSE Main Market
Ticker:	ZEG-LN
Website:	www.zegona.com
Marwyn Fund % ownership:	25.8% (as at 31-Dec-17)
Share classes attributable to:	Ordinary and Realisation

 

Zegona is an acquisition vehicle formed by Eamonn O'Hare (Chairman and CEO) and Robert Samuelson (COO) with our support and that of other leading investors to acquire businesses with an enterprise value of between £1 billion and £3 billion in the European TMT sector.

 

Marwyn principal, Mark Brangstrup Watts is a non-executive director of Zegona as well as being a non-executive director of the Manager and a managing partner of the Investment Adviser.

 

Zegona strategy:

Zegona was established to execute a 'Buy-Fix-Sell' strategy in the European TMT sector, focusing on network-based communications and entertainment opportunities. Zegona's investments target strategically sound businesses that require active change to realise full value, creating significant long-term returns through fundamental business improvements. Zegona's strategic objective is to create a concentrated portfolio of sizeable assets with enterprise values in the range of £1 billion to £3 billion. Zegona's directors believe the current dynamics of the European TMT sector, with the rapid growth of data consumption, convergence of services and consolidation of operators, will create multiple investment opportunities and the potential to realise attractive returns.

 

Progress over the period:

In May 2017, Zegona announced the sale of Telecable, the leading "quad-play" telecommunications operator in Asturias, Spain, to Euskaltel for a total value of up to €701 million², comprising an Enterprise Value of €686 million plus a contingent payment of up to €15 million of deferred consideration related to tax assets acquired.

 

On 26 July 2017, the sale was completed. Zegona received cash consideration of €176.7 million³ with further deferred payments of up to €15 million, and 26.8 million shares in Euskaltel, which represents approximately 15% ownership of the combined group.

 

The acquisition of Telecable establishes Euskaltel as the leading integrated telecoms operator in northern Spain. At the time of the acquisition,  Euskaltel projected substantial synergies from the combination, with a net present value of €245 million (equivalent to €1.37 per Euskaltel share. In February 2018, Euskaltel released its 2017 full year results, reporting €622.2 million of revenues €306.9 million adjusted EBITDA and €198.1 million adjusted operating cash flow⁴).

 

Pursuant to the sale of Telecable, Zegona returned c.£140 million (substantially all of the cash proceeds) to shareholders via a share repurchase at £2 per share. The Manager accepted the tender offer in full on behalf of the Master Fund and MVI II LP. The process completed in October 2017 and funds managed by the Manager received aggregate gross proceeds of c.£36.1 million of which c.£26.0 million was attributable to the Company's ordinary shareholders and c.£3.8 million was attributable to the Company's realisation shareholders.

 

Robert Samuelson, Zegona's COO, was appointed to the Euskaltel board and its committees, including the newly created Strategy Committee with effect from 26 July 2017.

 

Following completion of the tender offer, Zegona confirmed that the dividend per share had been adjusted to take into account the new number of shares in issue, the dividend per share amount was increased from 5.0p to 7.8p, equivalent to a total dividend of £9.8 million. An interim dividend of 3.9p per share was paid to shareholders on 10 November 2017.

 

On 29 March 2018, Zegona announced its results for 2017, reporting a profit for the year of €41.8 million driven by the sale of Telecable and highlighting the opportunity for further shareholder value creation through the approximately 15% ownership in Euskaltel.

 

Performance:

During the year to 31 December 2017, Zegona's share price increased from 121.0 at 31 December 2016 to 139.0p, an increase of 14.88%.

 

² Total value calculated assuming Euskaltel share price of €9.50 per share and 1 month Euskaltel volume weighted average price €9.43. Valuation difference between €9.50 per share and 1 month Euskaltel volume weighted average price is €1.9m.

 

³ Reduced from €186.5m, as announced in May 2017 (which had assumed net debt of €245m as at end June 2017), after customary adjustments.  

⁴ All as defined in the Euskaltel FY2017 results presentation published 28 February 2018.

 

Company:	BCA Marketplace plc ("BCA")
Sector:	Automotive
Listing:	Premium Segment of the LSE Main Market
Ticker:	BCA-LN
Website:	www.bcamarketplaceplc.com
% ownership:	4.5% (as at 31-Dec-17)
Share classes attributable to:	Ordinary and Realisation

 

In November 2014, Avril Palmer-Baunack (Executive Chairman) and Marwyn, launched an acquisition vehicle, Haversham Holdings plc ("Haversham"), to pursue targets in the UK & European automotive services market.

 

In April 2015, Haversham acquired the BCA Group for an enterprise value of £1.3 billion and the company was renamed BCA Marketplace plc. BCA's shares are listed on the premium segment on the Official List of the UK Listing Authority.

 

BCA is a managed services provider to the UK and European automotive sector, delivering a range of services throughout the life cycle of a vehicle. The company owns and operates Europe's largest automotive exchange network, providing vehicle remarketing and buying services across the UK and Europe, with 51 auction centres, 200+ WeBuyAnyCar sites and 19 other locations. The BCA directors consider that this provides the business with a unique physical infrastructure and market position in the automotive services sector.

 

BCA's management team has considerable experience and extensive relationships within the European automotive market.

 

BCA strategy:

The directors are seeking to maintain and strengthen BCA's position as the operator of Europe's largest used vehicle marketplace, as well as broadening their range of services to the UK and European automotive sector.  To achieve this goal, BCA will focus on achieving volume growth, increasing the range and penetration of its services across the value-chain and improving efficiency.

 

Progress over the period:

On 6 February 2017, BCA announced that it had agreed a £500 million multi-currency financing including a £250 million term loan and £250 million revolving credit facility, replacing the previous facilities.

 

On 28 July 2017, BCA released its results for the 12 months ended 2 April 2017, reporting strong results and strategic progress for the group. Revenue increased from £1.2 billion to £2.0 billion, driven by growth in outsourced remarketing contracts, performance in webuyanycar.com and acquisitions. The reported adjusted EBITDA⁵ of £135.6 million represented a 37.7% increase from the prior year. Operational highlights included UK vehicle remarketing volume of 956,000 units (+7.7%), international vehicle remarketing volume of 347,000 units (+4.2%) and webuyanycar sold units of 194,000 (+12.8%).

 

BCA announced the transfer of its ordinary shares from a standard listing to a premium listing on the Official List of the UK Listing Authority on 16 October 2017. The BCA board believes this further improves protection for investors from the higher standards of corporate governance and reporting, giving investors access to potential increased liquidity from inclusion in the FTSE 250 Index and an enhanced corporate profile.

 

On 28 November 2017, BCA released its unaudited interim results for the six months ended 1 October 2017, with £1,171.6 million of revenue mainly driven by the growth in webuyanycar.com, the run rate effect of outsourced remarketing contracts and acquisitions. Adjusted EBITDA⁵ of £75.8 million, was an increase of 17.5% on the prior period. BCA also announced an increase to its interim dividend per share to 2.6p which was paid to shareholders on 31 January 2018.

 

On 19 December 2017, BCA announced that following vesting of its long term incentive scheme, all participants had notified BCA of the exercise of their entitlements in full. In accordance with the scheme, the Board of BCA agreed to settle these entitlements through the allotment of 24,009,071 new ordinary shares in BCA at a price of 209.55 pence per share, being the average volume weighted share price in the 30 business days leading up to the exercise notification. On 27 December 2017, 24,009,071 ordinary shares in BCA were allotted and subsequently admitted to trading.

 

It was announced on 27 December 2017 that Marwyn principals James Corsellis and Mark Brangstrup Watts had resigned from the Board of BCA with immediate effect.

 

Over the year, an additional 15 million ordinary shares of BCA were acquired by MVI II LP, increasing the Marwyn Funds beneficial ownership to 4.5% of the issued share capital as at 31 December 2017.

 

Performance:

During the year to December 2017, BCA's share price increased from 186.5p at 31 December 2016 to 204.2p, an increase of 9.49%.

 

⁵ Earnings before interest, taxation, depreciation and amortisation adjusted for significant and non-recurring items

Company:	Gloo Networks plc ("Gloo")
Sector:	Media & Consumer Brands
Listing:	LSE AIM
Ticker:	GLOO LN
Website:	www.gloonetworks.com
Marwyn Fund % ownership:	34.9% (as at 31-Dec-17)
Share classes attributable to:	Ordinary and Realisation

 

Gloo Networks plc, led by Rebecca Miskin (Chief Executive Officer) is a digital transformation company that was established to create shareholder value from the ongoing structural changes in the media and consumer brand sectors driven by changing trends in mobile, social and data.

 

Gloo was admitted to trading on the AIM market of the London Stock Exchange on 11 August 2015. Gloo successfully raised £30 million with the support of leading institutional investors, funding general working capital and due diligence on potential target acquisitions.

 

Gloo received strong support from shareholders in its continuation vote at its Annual General Meeting held on 21 September 2017 as required under AIM Rule 8.

 

Gloo strategy:

Gloo's strategy is to apply its expertise in technology and data analytics to the trusted consumer brands that it intends to acquire, and enhance their business models in order to increase profitability and unlock value.

 

The ongoing digital and technological disruption of media and consumer brands remains a fundamental dynamic driving potential acquisition opportunities and verifying Gloo's core investment hypothesis. Gloo will continue to adopt a disciplined and rigorous approach to assessing acquisition opportunities and remains well positioned to secure a suitable platform acquisition.

 

Arnaud de Puyfontaine, Chief Executive Officer at Vivendi, serves as Non-Executive Chairman of the Company. Mark Brangstrup Watts and James Corsellis are Executive Directors of the Company.

 

Rebecca has 23 years of international business experience. She joined Gloo from Hearst Magazines UK, the publisher of Cosmopolitan, Elle and Men's Health, where she worked between 2010 and 2014 acting as Digital Strategy Director and Change Agent.

 

Arnaud is Chief Executive of Vivendi, owner of Universal Music and Canal+, and a non-executive director of Schibsted.

 

Mark Brangstrup Watts and James Corsellis are non-executive directors of Gloo, as well as being non-executive directors of the Manager and managing partners of the Investment Adviser.

 

Progress over the period:

Gloo has evaluated and completed comprehensive diligence efforts on a number of businesses in Europe and the US. Key criteria for a platform acquisition include, amongst others, scale, predictability and cash flow generation.

 

Gloo's industry relationships have opened a range of investment opportunities. The company will continue to adopt a disciplined and rigorous approach to assessing acquisition opportunities and remains well positioned to secure a suitable platform acquisition from opportunities currently under review.

 

On 13 December 2017, Gloo released its interim report for the six months to 30 September 2017 and confirmed a loss of £1.8 million in the period, reflecting operating expenses and diligence costs incurred in the continuation of its stated investment strategy. As at 30 September 2017, Gloo held over £21.3 million in cash.

 

On 28 March 2018, Gloo announced that it is continuing to review acquisition opportunities following recent discussions with a potential target. However, Gloo is no longer considering a reverse takeover or the issue of additional shares on AIM in respect of that opportunity, After the payment of transaction expenses, Gloo's cash balance is expected to be in the range of £12 million to £14 million, or 47 pence to 55 pence per share, as at 31 March 2018.

 

Performance:

During the year to 31 December 2017, Gloo's share price decreased from 113.5p at 31 December 2016 to 96.5p, a decrease of 14.98%.

 

Company:	Le Chameau Group plc (formerly Marwyn Management Partners plc) ("LCG")
Sector:	Luxury Goods
Listing:	Unquoted
Marwyn Fund % ownership:	93.4% (as at 31-Dec-17)
Share classes attributable to:	Ordinary and Realisation

 

LCG is the majority shareholder in Le Chameau, the French premium rubber boot company. The Master Fund is LCG's largest shareholder with a 93.4% stake.

 

Founded in 1927, Le Chameau has more than 90 years of heritage in the manufacturing of premium rubber boots. The business's range of boots is manufactured at its factory in Casablanca which has been operational since 1949. The handmade production process is critical to the quality of the product and differentiates the brand from its competitors.

 

In the last two years Le Chameau has invested in operational improvements across a number of key business functions, including manufacturing, IT, personnel, logistics and distribution. Furthermore, the business has recently recruited a new chief executive officer with a background in business transformation and leading a global consumer brand. Given this investment in the business, in addition to the growth in sales during the period, the directors believe Le Chameau is well-placed to capitalise on significant growth opportunities in 2018 and beyond. 

 

Mark Brangstrup Watts and James Corsellis are non-executive directors of LCG, as well as being non-executive directors of the Manager and managing partners of the Investment Adviser. Robert Ware, the Chairman of the Company, is also the Chairman of LCG.

 

LCG Strategy:

Le Chameau is considered well-positioned to continue the recent like-for-like growth of its core premium boot product in its existing and new markets. The new management team also believe there is an opportunity to leverage the business's unique heritage and leadership in premium rubber boots to extend the product offering into other product categories such as clothing and accessories.

 

Progress over the period:

On 4 July 2017, the Company announced the appointment of David Robinson OBE as the new chief executive officer of the operating subsidiaries of LCG. David is an experienced executive who has recently spent eight years as President of Speedo International in which he led the transformation of the business to a global brand leader achieving material growth in sales and profitability during his tenure. David's experience in leading a direct-to-consumer brand with a strong digital presence and with proprietary manufacturing operations makes him a strong fit with Le Chameau.

 

The business was able to achieve revenue growth during the period of 18% on a like-for-like basis, after removing the contribution from discontinued product lines, whilst on an absolute basis revenue grew 4%. The UK e-commerce ("B2C") platform originally launched in Q4 2016 continued to perform strongly, contributing over 20% of the UK's total sales during the period. The US B2C website was launched in June 2017, and the management team is particularly enthused by the opportunity in the US market. The potential target audience in the US is significant, with an estimated 14 million hunters, 6 million anglers and 6 million hikers in the top 20% income percentile. Early indications are that both UK and US B2C margins are at a level which places LCG in a strong relative position compared to its premium outdoor peer group.

 

In April and October 2017, the Master Fund extended the loan facility agreement with LCG, originally entered into in 2016, to £21.2 million in order to fund a number of business transformation initiatives.

 

Performance:

While the business is considered to be well-positioned for growth, the recent business changes have been more disruptive than anticipated resulting in material exceptional costs and revenue growing at a lower rate than forecast, reducing overall profitability. As such, during the year ended 31 December 2017, the carrying value of Marwyn's stake in the debt and equity of LCG was written down by £9.4 million. The carrying value as at 31 December 2017 was £23.2 million.

 

Company:	Wilmcote Holdings plc ("Wilmcote")
Sector:	Downstream and Specialty Chemicals
Listing:	LSE AIM
Ticker:	WCH LN
Website:	www.wilmcoteplc.com
Marwyn Fund % ownership:	60.4% (as at 31-Dec-17)
Share classes attributable to:	Ordinary

 

Wilmcote Holdings plc was established in March 2017 with the objective of creating value through the acquisition and subsequent development of target businesses in the downstream and specialty chemicals sector.

 

The Company is led by Adrian Whitfield in his role as Chief Executive Officer (''CEO''). Adrian was previously CEO of Synthomer plc (the FTSE-250 listed specialty polymer operator formerly known as Yule Catto). Adrian has since been joined in the Wilmcote team by Chris Carlisle as Corporate Development Director, a highly experienced chemicals investment banker.

Mark Brangstrup Watts and James Corsellis are executive directors of Wilmcote, as well as being non-executive directors of the Manager and managing partners of the Investment Adviser.

Wilmcote strategy:

Wilmcote intends to acquire a platform trading asset with an enterprise value in the region of £500 million to £2 billion. Strong opportunities for growth have been identified in this sector, which is expected to be driven primarily by the demands of the end-markets it serves.

The opportunity exists to create significant shareholder value through a well-executed buy-and-build strategy in the sector.

This is supported by, among other things: (i) a large and mature addressable market; (ii) economies of scale; (iii) high levels of fragmentation and (iv) a constantly evolving customer preference and regulatory environment.

Within this sector, Wilmcote intends to acquire an established operator of scale that leads or is in a position to become a leader in specific attractive niches, headquartered in the UK, Europe or North America. In addition, Wilmcote may subsequently invest in businesses located in global emerging markets in light of geographical shifts in the industry towards new and emerging markets.

Progress over the period:

On 17 August 2017, Wilmcote was admitted to trading on the AIM Market of the London Stock Exchange, raising a further £15 million with backing from institutional investors in addition to the initial £10 million invested by Marwyn's funds. Marwyn funds invested £5.1 million of the IPO capital, resulting in the Marwyn Funds owning 60.4% of the listed company.

 

Wilmcote has identified a number of potential acquisition opportunities and discussions are progressing well. 

 

Performance:

Wilmcote's share price increased from 120.0p at 17 August 2017, the date of the IPO, to 132.5p as at 31 December 2017, an increase of 10.42%.

 

Company:	Safe Harbour Holdings plc ("Safe Harbour")
Sector:	B2B Distribution & Business Services
Listing:	LSE AIM
Ticker:	SHH LN
Website:	www.safeharbourplc.com
Marwyn Fund % ownership:	100% (as at 31-Dec-17), 30.6% following IPO on 15-Mar-18
Share classes attributable to:	Ordinary and Realisation

 

Safe Harbour is an AIM-listed company established with the objective of creating value for its investors through the acquisition and subsequent development of assets engaged in B2B distribution and/or business services.

Safe Harbour is led by Rodrigo Mascarenhas with 17 years of international business experience. He joined the Company from his role as Business Area Head and Managing Director for LATAM (Latin America, Spain & Israel) of Bunzl plc, the FTSE-100 UK distribution conglomerate. Rodrigo is supported by Avril Palmer-Baunack (Non-Executive Chairman).

Mark Brangstrup Watts and James Corsellis are executive directors of Safe Harbour, as well as being non-executive directors of the Manager and managing partners of the Investment Adviser.

Safe Harbour strategy:

Safe Harbour intends to acquire and operate businesses initially with an enterprise value in the range of £250 million to £1.5 billion. The target acquisition(s) will be market-leading B2B distribution and/or business services assets of scale with defensible competitive advantage.

Leveraging Rodrigo's track record of successful buy-and-build strategies, Safe Harbour will seek to drive growth through operational enhancements and accretive M&A in fragmented markets, focusing on sectors supported by tailwinds of structural change.

Progress over the period:

In March 2018, Safe Harbour announced and completed its admission to AIM on the London Stock Exchange, raising a further £22.7 million at £1.20 per share with backing from institutional investors in addition to the initial £10 million invested by Marwyn's funds.

 

 

The directors submit their Annual Report and the audited financial statements for the year ended 31 December 2017.

 

Directors and their interests

The directors of the Company who served during the year and subsequent to the date of this report were:

 

Robert Ware

Ronald Hobbs

Louisa Bonney

Martin Adams

 

Robert Ware (Non-Executive Chairman)

Committee membership:

Audit Committee - Member

Nomination Committee - Chairman

Remuneration Committee - Member

 

Length of service: 12 years

Date of appointment: 3 October 2006

Last re-elected to the Board: 20 June 2017 at the Annual General Meeting

 

Robert served first as corporate development director and then as deputy chief executive of MEPC between June 1997 and June 2003. MEPC was the fourth largest property company quoted on the LSE until September 2000, when Leconport Estates, a company jointly owned by clients of Hermes Pensions Management Limited and GE Real Estate, took the company private. During his tenure at MEPC, Robert and the team realised over £6 billion of international properties and invested over £2 billion, mainly in the UK. Prior to joining MEPC, Robert served as a director of Development Securities plc between 1988 and 1994.

 

Robert is currently chief executive officer of The Conygar Investment Company PLC, an AIM quoted property investment and development company formed in 2003 by Robert and members of the ex-MEPC team. Robert is also the Chairman of the Terra Catalyst Fund, Le Chameau Group plc and a non-executive director at Tarsus Group plc.

 

Whilst the Company is not required to comply with the UK Corporate Governance Code, in recognition of Robert's long tenure on the Board, Robert will stand for re-election at each Annual General Meeting of the Company.

 

Ronald Hobbs (Non-Executive Director)

Committee membership:

Audit Committee - Chairman

Nomination Committee - Member

Remuneration Committee - Member

 

Length of service: 4 years

Date of appointment: 2 January 2014

Last re-elected to the Board: 20 June 2017 at the Annual General Meeting 

Ronald Hobbs, a qualified accountant, has over 25 years of private equity experience, having been managing director and senior partner with UBS AG, London and Paris in their European Private Equity Division as well as Vice President at Citicorp Venture Capital, London. Since 2009, Ronald has been a partner in Monceau Capital, a privately owned turn-around fund focused on under-performing activities in France.

 

Louisa Bonney (Non-Executive Director)

Committee membership:

Audit Committee - Member

Nomination Committee - Member

Remuneration Committee - Member

 

Length of service: 4 years

Date of appointment: 2 January 2014

Last re-elected to the Board: 5 September 2016 at the Annual General Meeting 

 

Louisa Bonney qualified as a chartered accountant with Ernst & Young and has worked in the finance industry in Jersey for over 19 years. Her experience includes working with large multi-jurisdictional structures with private equity, real estate and private wealth. Louisa is the managing director of Axio Capital Solutions Limited ("Axio"), a provider of fund and corporate administration services in Jersey, which is the Company's administrator.

 

Louisa is also an executive director of the Manager as well as a non-executive director of Marwyn Capital Management Limited, Marwyn General Partner Limited (the general partner of the Master Fund), Marwyn General Partner II Limited (the general partner of MVI II LP) and other Marwyn group companies.

 

Martin Adams (Non-Executive Director)

Committee membership:

Audit Committee - Member

Nomination Committee - Member

Remuneration Committee - Chairman

 

Length of service: 3 years

Date of appointment: 8 May 2015

Last re-elected to the Board: 3 November 2015 at the Annual General Meeting 

 

Martin is the founder and Managing Director of Vietnam Fund Management Company group (VFMC), which previously managed The Vietnam Fund Limited - the first institutional private equity fund to specialise in Vietnam - and Beta Viet Nam Fund Limited. Martin is also currently the Chairman of Kubera Cross-Border Fund Limited, Eastern European Property Fund Limited and Trading Emissions plc and is a non-executive director of Aberdeen Latin American Income Fund Limited, Metage Funds Limited, Terra Catalyst Fund, Vietnam Phoenix Fund Limited and VinaCapital Vietnam Opportunity Fund Limited. Prior to establishing VFMC, Martin worked for the Lloyds Bank Group in the United Kingdom, the Netherlands, Portugal and Hong Kong.

 

Martin will stand for re-election at the forthcoming Annual General Meeting of the Company.

 

Directors' interests

The directors' interests in the Ordinary Shares of the Company were as follows as at 31 December 2017 and 31 December 2016 and to the date of approval of these financial statements:

 

	Ordinary Shares 2017	Ordinary Shares 2016
Robert Ware	500,000	500,000
Ronald Hobbs	150,000	139,329
Martin Adams	40,000	40,000
Louisa Bonney	Nil	Nil

 

The directors' interests in the Realisation Shares of the Company were nil as at 31 December 2017 (2016: Nil) and to the date of the approval of these financial statements.

 

The Board has put in place significant measures to ensure that the EU Market Abuse Regulation ("MAR"), is adhered to. 

 

Status and activities

Marwyn Value Investors Limited is a closed-ended investment company registered by way of continuation in the Cayman Islands (registered number MC-228005).  The rights of shareholders are governed by Cayman law and the Company's Articles of Association ("Articles"). These rights may differ from the rights and duties owed to shareholders in a UK incorporated company.

 

The Company was admitted to trading as a closed-ended investment company on the SFS on 8 December 2008.

 

The investment objective is to maximise total returns, primarily through the capital appreciation of its investment in the Master Fund.  The Master Fund was launched in March 2006. It is an open-ended fund domiciled in the Cayman Islands. MVI II LP was launched in December 2015. It is an expert-fund pursuant to the Jersey Funds Law and the Expert Fund Guide and domiciled in Jersey, Channel Islands.

 

The investment policy allows follow-on investment in existing Portfolio Companies and, only in so far as it relates to the ordinary shares, permits investment in new Portfolio Companies.  As detailed in the Report of the Manager, during the year a new investment in Wilmcote and further investment in BCA have been made along with an extension of the loan facility with LCG.

 

A review of the performance of, and the outlook for, the portfolio is provided in the Report of the Manager.

 

An analysis of the Company's exposure to financial risk and the policies adopted in its efforts to mitigate such risks are disclosed in Note 13 to the financial statements.

 

Results

The results attributable to the shareholders for the year are shown in the Statement of Comprehensive Income.

 

Share capital

As at 31 December 2017, the Company had 70,771,826 ordinary shares in issue (31 December 2016: 70,771,826) and 6,931,793 realisation shares in issue (2016: 8,520,206). The Company has made no acquisitions of its own shares during the year.

 

Capital returns and dividends

As detailed in the Report of the Chairman, pursuant to the revised progressive distribution policy adopted in December 2015, for holders of ordinary shares, quarterly interim dividends of 2.064p per ordinary share made in January, April, July and October 2017. It is the intention that minimum payments will continue to be made on an ongoing basis in January, April, July and October of each year.

 

In October 2017, a return of capital totalling £3,813,160 was made by the Company. Following a redemption of the Company's interests in Class R(F) and Class R(G) of the Master Fund to the value of £3,813,160, the distribution to realisation shareholders was effected by way of a redemption of 1,588,413 realisation shares which were subsequently cancelled.

 

Directors' remuneration 

The emoluments of the individual directors for the year were as follows:

	2017 £	2016 £
Robert Ware	45,000	45,000
Ronald Hobbs	40,000	40,000
Martin Adams	40,000	40,000
Louisa Bonney*	40,000	40,000
	165,000	165,000

*Payable to Axio

 

Directors' fees are paid directly from the Master Fund.  The above fees do not include reimbursed expenditure.

 

Fund Manager

The Manager is entitled to a management fee, payable by the Company in arrears, equal to 1/12^th of 2% per month of the NAV from the Company where such investment is not in the Master Fund.  As the Company's investments are all through the Master Fund, the Company does not pay a management fee to the Manager.

 

The Manager receives a management fee from the Master Fund, payable in arrears, equal to 1/12th of 2% of the NAV before management fees and incentive allocations in respect of Class F, Class G, Class R(F)1 and Class R(G)1 interests of the Master Fund into which the Company invests.  If the realisation pool remains in existence after 2 years, the management fee will be calculated by reference to NAV before management fees and incentive allocation less the aggregate value of cash and near cash investments attributable to the realisation share interests. The Manager may, at its discretion, pay from the management fee to any person to which it has delegated any of the functions it is permitted to delegate such as the Investment Adviser.  MUFG Alternative Fund Services (Ireland) Limited, the administrator to the Master Fund, calculates the management fee payable to the Manager by the Master Fund.  The Manager is also entitled to reimbursement of certain expenses incurred by it in connection with its duties. The Company does not pay any management fee or carried interest charge as a result of its indirect investment in MVI II LP through the Master Fund.

 

As detailed in Note 14 to the financial statements, incentive allocations are payable by the Master Fund in respect of interests in Class F, Class G, Class R(F)1 and Class R(G)1 into which the Company invests. 

 

Incentive allocation

The incentive allocations are payable on returns generated by the Master Fund and are deducted from the Gross Asset Value of the Master Fund in deriving the NAV. The NAV is used to calculate the value of the Company's holding in the Master Fund.

 

The incentive allocations to be borne by the Class F, Class G, Class R(F)1 and Class R(G)1 interests in the Master Fund will only be payable on further returns being made.

 

Following the return to realisation shareholders as detailed in Note 14(a), the 'initial incentive allocation' in respect of Class R(F) of £296,229 was crystallised and paid.

 

During the year ended 31 December 2017, the total uncrystallised incentive allocations relating to the ordinary and realisation shares increased by £1,696,685 (for the year ended 31 December 2016, the allocation decreased by £2,530,876). The total incentive allocation accrued as at 31 December 2017 amounted to £25,704,949 (2016: £24,008,264). Four of the directors of the Manager are incentivised through the incentive allocation and three are beneficially interested in investment advisory fee payable by the Master Fund.

 

Investors can assess remuneration and incentives by reference to the disclosure of the basis of calculation of the incentive allocations which was made in the Circular dated 19 October 2016 (the "Circular") in relation to the Company's investment in Class F, Class R(F)1, Class G and Class R(G)1 interests of the Master Fund. These documents are available on the Company's website. Disclosure of the amount of investment advisory fee is contained in Note 14.

 

Substantial shareholdings

At 31 December 2017 the following interests in 3% or more of the issued ordinary shares had been notified to the Company.

 

	Number of ordinary shares	Percentage of ordinary share capital
Invesco Asset Management	31,671,415	44.75
Lazard Asset Management LLC	6,434,815	9.09
Insight Investment Management	3,802,046	5.37
GLG Partners LP	3,668,123	5.18
Barclays Funds Investments Limited	3,409,090	4.82
At 31 December 2017 the following interests in 3% or more of the issued realisation shares had been notified to the Company.
	Number of realisation shares	Percentage of realisation share capital
Fidelity International Limited (FIL)	4,964,478	71.62
Third Point LLC	1,370,501	19.77
CG Asset Management	442,227	6.38

 

Future prospects

The Board continues to believe that there is long-term value in the Master Fund and MVI II LP, with the majority of underlying equity investments being early stage with significant potential follow-on investment opportunities.  Additional details regarding these investments are contained in the Report of the Manager.

 

Auditors

The Audit Committee does not have any reason to believe that PricewaterhouseCoopers LLP ("PwC") did not conduct an effective audit.

 

PwC has expressed its willingness to continue to act as auditor to the Company and a resolution for its re-appointment will be proposed at the forthcoming Annual General Meeting. Audit fees for the year ended 31 December 2017 for the Company total £16,630. Non-audit fees paid to PwC for the Company for the same period totaled £12,500. All Company related expenses are paid by the Master Fund and allocated to the relevant Master Fund class interest as described in Note 3.8.

 

Annual General Meeting

The notice of the Annual General Meeting will be forwarded to shareholders under separate cover.

 

Corporate governance

As a company registered in the Cayman Islands and under the rules of the SFS, the Company is not required to comply with the UK Corporate Governance Code published by the Financial Reporting Council.

 

The directors however recognise the importance of maintaining sound corporate governance and so seek to ensure that the Company adopts policies and procedures which reflect those principles of good corporate governance as are appropriate to the Company's size. Full details are included in the latest Company prospectus available on the Company's website.

 

The Company is a member of the AIC and therefore the Board has considered the principles and recommendations of the AIC Code of Corporate Governance ("AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies ("AIC Guide").

 

The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations that are of specific relevance to the Company. The AIC Code together with the AIC Guide are available on the AIC's website (http://www.theaic.co.uk/).

 

The Board considers that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Corporate Governance Code), provides better information to shareholders.

 

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

 

The UK Corporate Governance Code includes provisions relating to:

-              the role of the chief executive

-              executive directors' remuneration

-              the need for an internal audit function

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

 

The Board

The Chairman, Robert Ware, is not considered to be independent due to his having interests in, and having other directorships within, the Marwyn group and LCG.  The Board does not consider it necessary to have an independent Chairman as it believes that Robert's high level and range of business knowledge, financial experience and integrity enables him to provide clear and effective leadership and, in conjunction with his fellow directors, proper stewardship of the Company.

 

Louisa Bonney is not considered to be independent due to her having interests in, and having other directorships within, the Marwyn group.  Notwithstanding such interests, the Board believes Louisa's skills and her position within Marwyn are of benefit to the Board, and as such do not consider that it is necessary for her to be independent. Ronald Hobbs and Martin Adams are considered to be independent in terms of their respective directorships, however they have a beneficial interest in the Company as detailed on page 17.

 

Given the size and composition of the Board it is not currently felt necessary to appoint a senior independent director however this position is reviewed on an annual basis by the Nomination Committee.

 

The Board has adopted a policy on tenure which requires the Nomination Committee to annually consider the appropriateness of the tenure of the Chairman and each director.  One-third, or the nearest number to one-third, of the directors shall retire and offer themselves for re-appointment at each annual general meeting in accordance with the Articles.  Each director is required to offer themselves for re-election at least every three years. As mentioned on page 16, given Robert Ware's tenure on the board, he will retire and offer himself for re-election at each Annual General Meeting of the Company. Martin Adams will also offer himself for re-election at the forthcoming Annual General Meeting of the Company.

The Chairman regularly meets with representatives of the Manager and is in regular communication with his fellow directors.  In addition, the Board maintains open and frequent communication with the Manager and the administrator throughout the year so that any ad hoc items for the Board's consideration are able to be considered in a timely manner by all members of the Board.

 

The Board normally meets on a quarterly basis to consider among other things, the investment performance and associated matters such as marketing and investor relations, risk and portfolio management, the suitability of the investment policy, performance of the share price as well as NAV performance and any discount between the share price and the NAV, the shareholder profile of the Company and the performance and cost of service providers, to ensure control is maintained over the Company's affairs.  Regular ad hoc informal meetings are also held with the Manager principally to review the performance of the investments.

 

During the financial year ended 31 December 2017, the Board met a total of four times during the year, for formal quarterly meetings and several times informally.  In addition, the Audit Committee, met 3 times during the year, with the Nomination Committee and the Remuneration Committee each meeting twice.

 

Attendance record:

The number held has been shown for each individual to reflect the number of meetings held over the year or since the date of their appointment.

 

	Formal Board Meetings		Audit  Committee		Nomination Committee		Remuneration Committee
Director:	Held	Attended	Held	Attended	Held	Attended	Held	Attended
Robert Ware	4	3	3	2	2	2	2	2
Louisa Bonney	4	4	3	3	2	2	2	2
Ronald Hobbs	4	4	3	3	2	2	2	2
Martin Adams	4	4	3	3	2	2	2	2

 

Board committees

The Company uses a number of committees to control its operations.  Each committee has formal written terms of reference, which clearly define their responsibilities.  The terms of reference are available to access on the Company's website www.marwynvalue.com.

 

Audit Committee

The Audit Committee comprises of all the directors of the Company and meets at least twice a year. Ronald Hobbs is Chairman of the Audit Committee.  The terms of reference of the Audit Committee are reviewed and reassessed for their adequacy on an annual basis.  The Audit Committee provides a forum through which the Company's auditor has access to and can report to the Board.

 

The Company's auditor provides certain tax services to the Company. However audit independence regulations do not currently restrict the services which are provided under the terms of the separate engagement entered into. 

 

The Audit Committee performs the following functions:

·      selection of the statutory auditor and making recommendations relating to the appointment of the statutory auditor to the Board;

·     monitoring the financial reporting process and submitting recommendations or proposals to the board in order to ensure the integrity of that process;

·      monitoring the statutory audit of the Company's annual financial statements and the performance of the Company's auditor, taking into account any findings and conclusions by the Financial Reporting Council under article 26 (6) of Regulation 538/2014 (the "Audit Regulation");

·     reviewing and monitoring auditor independence in accordance with paragraphs 2(3), 2(4), 3 to 8 and 10 to 12 of Schedule 1 to the Statutory Auditors and Third Country Auditors Regulations 2016 (SI 2016/649) and article 6 of the Audit Regulation, and in particular the appropriateness of the provision of non-audit services to the issuer in accordance with article 5 of the Audit Regulation;

·      informing the Board of the outcome of the statutory audit and explaining how the statutory audit contributed to the integrity of the financial reporting process what role the Audit Committee played in that process; and

·      keep under review the adequacy and effectiveness of the Company's internal financial controls and internal control and risk management systems

 

Nomination Committee

The Nomination Committee comprises of all the directors of the Company and meets at least twice a year.  Robert Ware is Chairman of the Nomination Committee.  The terms of reference of the Nomination Committee are reviewed and reassessed for their adequacy on an annual basis.  Members of the Nomination Committee do not participate in the review of their own position, and further, Robert Ware will not chair a meeting of the Nomination Committee when it is dealing with the matter of succession to the chairmanship of the Board.

 

The function of the Nomination Committee is to consider the appointment and re-appointment of directors.  When considering the appointment and re-appointment of directors, the Nomination Committee and the Board consider whether the Board and its committees have a balance of skills, experience, length of service, knowledge of the Company, its diversity, how the Board works together and any other factors relevant to the effectiveness of the Board including if the director or candidate being reviewed has sufficient time to devote to the Company to carry out their duties effectively.

 

The Board and the Nomination Committee does not take into account the gender of a director or candidate as they do not believe it affects a director's performance.

 

The Board also believes that due to the specialist nature of the Company it is not appropriate at this time to use an external search consultancy or open advertising.  This position is reviewed by the Board prior to any new appointments.

 

Formal induction training is not given to new directors.  However all new directors meet with the Chairman, and any members of the Nomination Committee as applicable, prior to appointment in order to discuss the Company, the Manager, the responsibilities of a director of the Company and investment company industry matters. 

 

Any new directors will meet with the full Board at the earliest opportunity following their appointment.  In addition, all directors have full access to the administrator and the Manager.

 

All directors are re-elected at the next Annual General Meeting following their appointment and thereafter retire by rotation (with one third of the directors being required to retire by rotation each year) subject also to the requirement that all directors are required to offer themselves for re-election at least every three years.

 

Remuneration Committee

The Remuneration Committee comprises of all the directors of the Company and meets at least twice a year. Martin Adams is Chairman of the Remuneration Committee.  The terms of reference of the Remuneration Committee are reviewed and reassessed for their adequacy on an annual basis.  Members of the Remuneration Committee do not participate in the review of their own remuneration.

 

The Company's remuneration policy is to set remuneration at a level to attract individuals of a calibre appropriate to the Company's future development.

 

Management Engagement Committee

The Board considers its size to be such that it would be unnecessarily burdensome to establish a separate management engagement committee.  The review of the performance of, and contractual arrangements with, the Manager is undertaken by the Board. However only directors independent of the Manager are involved with this review.

 

Relations with shareholders

The directors are always available for communication with shareholders and all shareholders have the opportunity, and are encouraged, to attend and vote at the Annual General Meetings of the Company during which the Board and the Manager will be available to discuss issues affecting the Company.  The Board is regularly informed of shareholders' views via regular updates from the Manager and Broker as to meetings and other communications they may have had with shareholders.

 

Statement of going concern

Due to the Master Fund meeting the Company's expenses, the directors consider that there is no mismatch between the Company's assets and liabilities. For this reason, they continue to adopt a going concern basis in preparing the financial statements.

 

Internal control

The Board is responsible for establishing and maintaining the Company's system of internal quality control and risk management and reviewing its effectiveness.  Internal control systems are designed to meet the particular needs of the Company and the particular risks to which it is exposed. 

 

The procedures are designed to manage rather than eliminate risk and by their nature can only provide reasonable but not absolute assurance against material misstatement or loss.  The key procedures which have been established to provide effective internal controls are as follows:

·      The duties of managing the investments and accounting are segregated

·      MUFG Alternative Fund Services (Ireland) Limited, a company independent of the Manager and the Board, provide administrative and accounting services to the Master Fund

·   Custodian services are provided by an independent party to the Master Fund and are segregated from the administrative and accounting services provided

·      The Board reviews financial information produced by the Manager and Axio on a regular basis

·      The Manager and Axio are regulated entities and are subject to an annual audit by an independent auditor.  This is confirmed to the Board on an annual basis

·      Assets attributable to the realisation shares are segregated from those attributable to the ordinary shares

 

The Company does not have an internal audit function as all of the Company's management functions are delegated to third parties and it is therefore felt that there is no need for the Company to have an internal audit function.

 

The Audit Committee has reviewed the Company's risk management and control systems and believes that the controls are satisfactory given the nature and size of the Company.

Financial Risk Profile

The Company's financial instruments comprise investments, cash and various items such as payables and receivables that arise directly from the Company's operations.  The main purpose of these instruments is the investment of shareholders' funds.  The main risks are detailed in Note 13 to the financial statements and pages 44 to 48.

 

Directors' Responsibilities

The directors are responsible for preparing the financial statements in accordance with applicable law and International Financial Reporting Standards as adopted by the European Union ("IFRS").

 

The directors are required to prepare financial statements for each financial period which give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period and to confirm that the Reports contained in these Financial Statements includes a fair review of the performance of the business and the position of the Company. 

 

In preparing these financial statements the directors are required to:

·        select suitable accounting policies and apply them consistently;

·        make judgements and estimates which are reasonable and prudent;

·      state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

·        prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

 

The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with Cayman law.  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.

 

Each of the directors, whose names and functions are listed on page 16, confirms that, to the best of their knowledge:

·     these financial statements, which have been prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and loss of the Company; and

·       the Reports contained in these financial statements includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

 

By order of the Board

 

 

 

 

Robert Ware                            Louisa Bonney

Chairman                                              Director

10 April 2018                                         10 April 2018

 

 

Independent auditors' report to the directors of Marwyn Value Investors Limited

 

Report on the audit of the financial statements

In our opinion, Marwyn Value Investors Limited's (the "Fund" or "Company") financial statements:

·      give a true and fair view of the state of the company's affairs as at 31 December 2017 and of its profit and cash flows for the year then ended; and

·      have been properly prepared in accordance with IFRSs as adopted by the European Union.

We have audited the financial statements, included within the Annual Report and Accounts (the "Annual Report"), which comprise: the statement of financial position as at 31 December 2017; the statement of comprehensive income, the statement of cash flows, the statement of changes in net assets attributable to equity holders of the Company for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

Context

Marwyn Value Investors Limited (the "Fund") is an Investment Company listed on the Specialist Fund Segment of the London Stock Exchange. The Fund is a feeder fund which has invested all of its available capital into limited partnership interests in Marwyn Value Investors LP (the "Master Fund"). The performance of the Fund is inherently linked to the performance of the Master Fund, and the investments held by the Master Fund. We have tailored the scope of our audit taking into account the purpose of the Fund and its relationship and transactions with the Master Fund. In some cases this has required us to audit information made available by the Master Fund.

Overview

	·      Overall materiality: £1,674,000 (2016: £1,672,000), based on 1% of net assets.
	·      The net asset value of the Fund is directly linked to the valuation of the underlying investments held by the Master Fund. ·      We obtain evidence over the net asset value of the Fund by performing procedures over the underlying investments held by the Master Fund. ·      The Master Fund, which is managed by Marwyn Asset Management Limited, holds a portfolio of investments which is composed of 7.08% listed equity securities, 0.72% of unlisted equity securities, 15.65% of internally modelled equity and debt securities, and a 76.55% investment in a related fund, Marwyn Value Investors II LP. ·      The investment, Marwyn Value Investors II LP ("MVI II") is managed by Marwyn Asset Management Limited, and it invests in a portfolio of investments which is composed of 93.55% listed equity securities and 6.45% unlisted equity securities.
	·      Valuation of the investment in the Master Fund. ·      Distribution Income from the Master Fund.

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that represented a risk of material misstatement due to fraud.

Key audit matters

Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.

Key audit matter	How our audit addressed the key audit matter
Valuation of the investment in the Master Fund The Fund has invested all of its available capital in limited partnership interests of the Master Fund. Changes in the valuation of the Master Fund directly impact the net assets of the Fund. The valuation of the Master Fund is determined by the fair value of its underlying investments as of the reporting date.   Valuation of the Fund's investment in the Master Fund is also impacted by allocations of gains, losses, and charging of expenses in accordance with the Master Fund's governing agreements.	We have tested cash investments into the Master Fund and distributions received, where we have agreed the cash movements to the bank statements, agreements, and notices. No material misstatements were identified which required reporting to those charged with governance.   The valuation of the investment in the Master Fund is primarily determined by the valuation of the investments held by the Master Fund itself. We gained an understanding of management's valuation process over those investments, including an assessment of the design of relevant controls, and performed the following procedures: ·      We tested the valuation of the listed equity investments by agreeing prices used in the valuation to independent third party sources. All prices used by management were within a tolerable range of our independently obtained pricing, no material misstatements were identified which required reporting to those charged with governance.   ·      For unlisted investments we obtained support for the valuations by testing internal models and compared to recent transaction values. We tested the valuation of internally modelled positions, using valuation specialists, through review of the model compared to industry norms, evaluation of significant assumptions to observable market or standard industry assumptions, and agreed key inputs to the model to supporting documentation. This included an assessment of management's significant assumptions for bias. Based on the procedures performed managements significant assumptions and conclusions were found to be reasonable, with no material misstatements were identified which required reporting to those charged with governance.   ·      We tested the valuation of investments in MVI II by agreeing the recorded net asset value to the audited financial statements of MVI II. In addition, we performed additional valuation procedures through agreeing prices used in the valuation of the listed investments to independent third party sources. Through performance of these procedures, no material misstatements were identified which required reporting to those charged with governance. We compared the valuation of unlisted positions recent transaction values. No inconsistencies were noted. We tested a sample of monthly allocation of gains and losses for completeness and accuracy. Further, we obtained the audited financial statements of the Master Fund and analysed the allocation of performance for reasonableness. No material misstatements were identified which required reporting to those charged with governance.
Distribution Income from the Master Fund Distribution Income relates to quarterly distributions received from the Master Fund in accordance with the Fund's "Dividends and distributions" policy. We focused on the accuracy and completeness of distribution income recognition and its presentation in the Statement of Comprehensive Income. This is because incomplete or inaccurate income could have a material impact on the Company's net asset value.	We assessed the accounting policy for recognition of distribution income for compliance with IFRS as adopted by the EU. We found that the accounting policies implemented were in accordance with accounting standards. We tested the accuracy and completeness of distribution income by: ·    agreeing the amounts recognised to notices provided by the Master Fund; ·  agreeing recorded cash received to bank statements; · reviewing minutes of general partner meetings for the Master Fund to verify occurrence and completeness of distribution activity; and ·  agreed to total amount of distribution income received and/or accrued to the amount of distributions per the Master Fund's audited financial statements. No material misstatements were identified by our testing which required reporting to those charged with governance.

  

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry in which it operates.

We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)").

We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.

The risks of material misstatement that had the greatest effect on our audit, including the allocation of our resources and effort, are identified as a "Key audit matter" in the table above. We have also set out how we tailored our audit to address these specific areas in order to provide and opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.

As the Fund invests materially all of its assets into the Master Fund, in scoping our audit approach we obtained evidence over the net asset value by performing procedures over the underlying investments held by the Master Fund. The nature and scope of our procedures performed was dictated by the types of underlying investments held by Master Fund. The Master Fund's investment portfolio is directly invested in listed equity securities representing 7.08% of the net assets, 0.72% of unlisted equity securities, 15.65% of net assets is invested in internally modelled equity and debt securities, and an investment in a related fund, Marwyn Value Investors II LP, which represents 76.55% of net assets. Marwyn Value Investors II LP (MVI II), managed by Marywn Asset Management Limited, is invested in a portfolio of investments which is composed of 93.55% listed equity securities and 6.45% unlisted equity securities.

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Overall materiality	£1,674,000 (2016: £1,672,000).
How we determined it	1% of net assets.
Rationale for benchmark applied	We believe that net assets is the primary measure used by the shareholders in assessing the performance of the entity, and is a generally accepted auditing benchmark for funds.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £246,150 (2016: £243,450) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which ISAs (UK) require us to report to you when:

·      the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

·      the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company's ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the company's ability to continue as a going concern.

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Directors' Responsibilities set out on page 20, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

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

Auditors' responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report.

Use of this report

This report, including the opinion, has been prepared for and only for the company's directors as a body for the audit of your financial statements for the year ended 31 December 2017 as required by the Company's governing documents agreement dated 19 November 2013 in accordance with our engagement letter dated 30 November 2017 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come, including without limitation under any contractual obligations of the company, save where expressly agreed by our prior consent in writing.

 

 

 

PricewaterhouseCoopers LLP

Chartered Accountants

London

10 April 2018

 

 

For the year ended 31 December 2017

	Notes	Year ended 31 December 2017 £				Year ended 31 December 2016 £
INCOME		Revenue	Capital	Total		Revenue	Capital	Total
Finance income		25	-	25		183	-	183
Distribution income		5,842,922	-	5,842,922		9,592,921	-	9,592,921
Net profit / (loss) on financial assets at fair value through profit or loss	6	-	4,073,561	4,073,561		-	(22,434,279)	(22,434,279)
TOTAL NET INCOME / (LOSS)		5,842,947	4,073,561	9,916,508		9,593,104	(22,434,279)	(12,841,175)
EXPENSES
Finance cost and bank charges		25	-	25		183	-	183
TOTAL OPERATING EXPENSES		25	-	25		183	-	183
PROFIT / (LOSS) FOR THE YEAR		5,842,922	4,073,561	9,916,483		9,592,921	(22,434,279)	(12,841,358)
TOTAL COMPREHENSIVE INCOME / (EXPENSE)		5,842,922	4,073,561	9,916,483		9,592,921	(22,434,279)	(12,841,358)
RETURNS PER SHARE
Attributable to holders of ordinary shares		5,842,922	2,925,493	8,768,415		9,592,921	(22,158,502)	(12,565,581)
Weighted average ordinary shares in issue for the year ended 31 December	11	70,771,826	70,771,826	70,771,826		78,570,375	78,570,375	78,570,375
Return per ordinary share - basic and diluted		8.26p	4.13p	12.39p		12.21p	(28.20)p	(15.99)p
Attributable to holders of  realisation shares		-	1,148,068	1,148,068		-	(275,777)	(275,777)
Weighted average realisation shares in issue for the year ended 31 December	11	-	8,250,393	8,250,393		721,657	721,657	721,657
Return per realisation share - basic and diluted		-	13.92p	13.92p		-	(38.21)p	(38.21)p

 

 

Notes 1 to 18 on pages 33 to 43 form an integral part of these financial statements.

 

 

As at 31 December 2017

	Notes	31 December 2017		31 December 2016
		£		£
NON CURRENT ASSETS
Financial assets at fair value through profit or loss	6	167,464,632		167,204,231
CURRENT ASSETS
Distributions receivable	9	1,460,730		1,460,730
Cash and cash equivalents	7	127,557		127,582
TOTAL ASSETS		169,052,919		168,792,543
CURRENT LIABILITIES
Loan payable	8	(125,000)		(125,000)
Accruals		(2,557)		(2,582)
Dividends payable	9	(1,460,730)		(1,460,730)
TOTAL LIABILITIES		(1,588,287)		(1,588,312)
NET ASSETS ATTRIBUTABLE TO EQUITY HOLDERS		167,464,632		167,204,231
CAPITAL AND RESERVES ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY
Share capital	11	94		95
Share premium	11	84,185,977		85,906,903
Special distributable reserve	12	26,346,979		26,346,979
Exchange reserve	12	54,386		54,386
Capital reserve	12	47,148,102		46,759,205
Revenue reserve	12	9,729,094		8,136,663
TOTAL EQUITY		167,464,632		167,204,231
Net assets attributable to ordinary shares		152,029,498		149,104,006
Ordinary shares in issue at 31 December	10	70,771,826		70,771,826
Net assets per ordinary share		214.82p		210.68p
Net assets attributable to realisation shares		15,435,134		18,100,225
Realisation shares in issue at 31 December		6,931,793		8,520,206
Net assets per realisation share		222.67p		212.44p

 

The financial statements on pages 29 to 43 were approved by the Board of Directors and authorised for issue on 10 April 2018. They were signed on its behalf by:

 

                                                                                                                                                                                                                 

Robert Ware                                                                                 Louisa Bonney

 

Notes 1 to 18 on pages 33 to 43 form an integral part of these financial statements.

 

 

For the year ended 31 December 2017

	Notes	31 December 2017 £		31 December 2016 £
Cash flows from operating activities
Interest received		-		183
Bank charges paid		(25)		(25)
Cash received on redemption of Class R(F) and Class R(G) interests in the Master Fund	6	3,813,160		-
Distributions received on Class F and Class G interests in the Master Fund	9	5,842,922		8,132,191
Net cash inflow from operating activities	10	9,656,057		8,132,349
Cash flows from financial activities
Cash paid to realisation shareholders on redemption of realisation shares	11	(3,813,160)		-
Dividends paid to ordinary shareholders		(5,842,922)		(8,132,191)
Net cash outflow from financing activities		(9,656,082)		(8,132,191)
Net (decrease)/increase in cash and cash equivalents		(25)		158
Cash and cash equivalents at the beginning of the year		127,582		127, 424
Cash and cash equivalents at the end of the year		127,557		127,582

 

 

Notes 1 to 18 on pages 33 to 43 form an integral part of these financial statements.