TIDMMHN
Menhaden Resource Efficiency PLC
Half Year Report
for the six months ended 30 June 2023
.
Financial Highlights
Menhaden Resource Ef?ciency PLC (the "Company") is an investment trust. Its
shares are listed on the premium segment of the Of?cial List and traded on the
main market of the London Stock Exchange.
The Company's investment objective is to generate long-term shareholder returns,
predominantly in the form of capital growth, by investing in businesses and
opportunities that are demonstrably delivering or bene?ting signi?cantly from
the ef?cient use of energy and resources irrespective of their size, location or
stage of development.
Performance As at As at
30 June 2023 31 December 2022
Total net assets £119,675,000 £103,831,000
Net asset value ("NAV") per share 151.4p 129.8p
Share price 96.5p 89.0p
Share price discount to the NAV per share^ 36.3% 31.4%
Total returns Six months to Year to
30 June 2023 31 December 2022
NAV per share^ 16.9% (16.5%)
Share price^ 8.8% (20.3%)
RPI + 3% 5.9% 13.7%
Six months to Year to
30 June 2023 31 December 2022
Annualised ongoing charges ratio^ 1.8% 1.8%
^ Alternative Performance Measure. Please refer to the Glossary on page 21 for
de?nitions of these terms and the basis of their calculation.
.
Strategic Context
Over the ?rst six months of 2023 the level of investment in both the global
quoted and private capital markets was subdued. The main reasons include post
pandemic concerns, the dislocating impact of the Ukraine war on global energy
and other resource supply chains, in?ationary pressures and rising central bank
interest rates, and incidence of extreme weather events in North America,
Europe, and Asia.
At the same time the global demand for energy and resources continues to rise.
The World Meteorological Association has stated that 2023 is set to be the
hottest year ever recorded and the International Monetary Fund reported that
?nancial markets are under-pricing climate related risks. The need for
businesses to progressively reduce their use of fossil fuels and greenhouse gas
emissions has never been so critical.
Consequently, our investment thesis to invest in high quality businesses that
both enjoy strong market positions and are demonstrably delivering or
signi?cantly bene?tting from the ef?cient use of energy and resources is now
even more relevant and so should be bene?cial for long-term shareholders.
Financial Performance
The performance of our investment portfolio has been encouraging. Between 31
December 2022 and 30 June 2023 the Company's total net assets increased from
£103.8 million to £119.7 million. The NAV per share increased from 129.8p at 31
December 2022 to 151.4p at 30 June 2023, giving an NAV per share total return of
16.9%. The Company's share price over the same period rose from 89.0p per share
to 96.5p, giving a share price total return of 8.8%.
These metrics compare with a return over the six months of our primary
performance comparator, RPI+3% per annum, of 5.9%. At the end of June the share
price stood at a 36.3% discount to the NAV per share. Such share price discounts
are currently re?ected across much of the investment trust sector and does not
re?ect our NAV per share CAGR performance of 12.5%, 10.5% and 10.3 % over 1, 3
and 5 years.
Notable contributors to our performance included private equity clean energy
developer X-ELIO, which is expected to realise 2.2 times invested capital
following its proposed acquisition by Brook?eld Renewable, expected to conclude
by the end of 2023. Taken together, our three largest digitalisation
(decarbonisation) themed public equities (Microsoft, Alphabet and Amazon)
contributed 9.2% to NAV. The two largest detractors were two sustainable
infrastructure and transport companies, Union Paci?c and Canadian National
Railway, which reduced our NAV by 0.3%.
The most signi?cant changes to the portfolio in the period included investment
pro?ts being taken from reducing, by around half, the holding in Alphabet and re
-investment in Airbus (because of its focus on manufacturing more ef?cient
engines powered by sustainable aviation fuel). We also made a new large US$25
million private equity commitment into TCI Real Estate Partners Fund IV (because
of its focus on developing best in class energy ef?cient buildings).
Environmental Performance
Our Portfolio Manager actively monitors the energy and resource ef?ciency of our
investments in line with the carbon disclosure project and the Science Based
Targets initiative.
The focus of engagement with all quoted investee companies has been on their
alignment with the Paris Agreement to reduce global warming, deforestation and
biodiversity loss. The aim of this engagement is to encourage them to adopt and
use best practice environmental solutions and de?ne pathways to reduce their GHG
emissions and preserve tropical rain forests, together with associated
biodiversity. Some positive responses were received, which were welcomed. Where
a weak or no response was received further follow-up engagement is planned.
Our Portfolio Manager supported AGM resolutions seeking greater disclosures by
KLA of their Net Zero targets and the Canadian National Railway climate action
plan.
Share Price Discount
We had not previously favoured share buy backs for mitigation of the share price
discount and remain of the view that share buybacks are not usually in the best
interest of shareholders as they reduce the size of the Company and increase the
ongoing charges ratio. However, after a step-down in the share price in January
2023 the Board decided it would trial a very modest programme of share buybacks.
We considered that this might reduce the volatility of the share price, take
advantage of the accretion to NAV that buying back shares at a discount achieves
and provide a signal to the market of our con?dence in the value of the
Company's portfolio. Some 975,000 shares were bought back between February and
April 2023 at an average price of 94.35 pence per share. The exercise did
provide some additional liquidity in the volatile market conditions, was
accretive to our shareholders and the cost of execution was modest.
We will continue to monitor closely the discount to NAV at which the Company's
shares trade. Any future action will be dependent on market conditions, the
Company's available liquid resources and the potential con?ict between accretive
share buybacks and the availability of attractive portfolio investment
opportunities. Buybacks will remain at the discretion of the Board.
As the Company can only issue new shares when the share price is at a premium to
NAV it remains the Board's goal to improve the share price through enhanced
investment performance and by having effective marketing strategies and
informative communications to potential new investors.
Dividend
In line with previous practice the Board has not declared an interim dividend in
respect of this half year. As shareholders will be aware a dividend of 0.4p per
share was recommended in respect of the year to 31 December 2022 and, following
shareholder approval in June 2023, was paid in July 2023.
Income generation is not part of the Company's investment objective and
shareholders are reminded that the Company's dividend policy is that the Company
will only pay dividends suf?cient to maintain investment trust status. If that
threshold is crossed once again for the current ?nancial year, to 31 December
2023, the Directors will recommend to shareholders, for approval at the next
AGM, a dividend suf?cient to achieve compliance with the investment trust status
requirements.
Outlook
Whilst ?nancial markets have generally been resilient overall so far in 2023,
and the Board hopes for an upturn for both quoted equities and private
investment opportunities, we cannot ignore background macro factors, including:
the continuing war in Ukraine; tension between the USA and China over trade;
in?ationary pressures and high interest rates, which may persist for some time;
nor the potential for further energy and resource price volatility; and climate
change impacts.
However, the Board considers the Company's portfolio to be well placed for
further capital growth because of its quality and the defensive and in?ation
resistant properties of many of the holdings. Moreover, the Board continues to
remain convinced of the validity of the premise that the world and all
businesses need to be more energy and resource ef?cient and the Company's
investment thesis should accordingly provide long-term bene?ts for our
investors.
Further Information
Our Portfolio Manager's report, starting on page 8 provides further details
about our investments and their contribution to the Company's performance during
the period. The Company's most recent 2022 annual environmental impact report
and monthly factsheets can be found on our website www.menhaden.com. Our 2023
annual report and environmental impact report will be published in mid 2024.
Howard Pearce
Chairman
14 September 2023
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Investment Themes
Theme Description
Clean energy Companies involved in the production and
transmission of power from clean sources such as
solar or wind.
Industrial emissions Companies focused on improving energy efficiency
reduction (e.g. in buildings or manufacturing processes) or
creating emissions reduction products or services.
Sustainable Companies in the infrastructure and transport
infrastructure and sectors helping to reduce harmful emissions.
transportation
Water and waste Companies with products or services that enable
management reductions in usage/volumes and/or smarter ways to
manage water and waste.
Digitalisation Companies that facilitate reduced resource
consumption through digital technology.
Reporting Companies providing the means for environmental
reporting and evaluation.
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Portfolio as at 30 June 2023
Investment Country Fair Value % of net assets
£'000
Airbus France 14,875 12.4
X-ELIO*1 Spain 13,588 11.4
Alphabet United States 13,181 11.0
Microsoft United States 13,115 11.0
Safran France 10,587 8.8
Canadian Pacific Kanas City Canada 10,291 8.6
VINCI France 9,595 8.0
Canadian National Railway Canada 8,953 7.5
Amazon.com United States 5,841 4.9
John Laing Group*2 UK 4,396 3.7
Ten largest investments 104,422 87.3
Ocean Wilsons Bermuda 3,456 2.9
TCI Real Estate Partners Fund III* United States 1,676 1.4
Union Pacific United States 869 0.7
Waste Management United States 859 0.7
ASML Netherlands 683 0.6
KLA United States 496 0.4
LAM Research United States 354 0.3
Total investments 112,815 94.3
Net current assets (including cash) 6,860 5.7
Total net assets 119,675 100.0
1 Investment made through Helios Co-Invest LP
2 Investment made through KKR Aqueduct Co-Invest LP
* Unquoted
Investment Business Theme
Description
Airbus Designs and Sustainable
manufactures infrastructure and
aircraft with transportation
the most fuel
-efficient
engines in the
industry
X-ELIO Develops and Clean energy
operates solar
energy assets
Alphabet Delivers a Digitalisation
range of
internet-based
products and
services for
users and
advertisers,
which are
powered by
renewable
energy with the
group being the
largest
corporate buyer
of renewable
power worldwide
Microsoft Provides cloud Digitalisation
infrastructure
and software
services which
deliver energy
efficiency
savings for
customers
versus legacy
solutions
Safran Designs, Industrial emissions
manufactures reduction
and services
next generation
aircraft
engines which
offer
significant
fuel efficiency
savings
Canadian Pacific Owns and Sustainable
Kanas City operates fuel infrastructure and
-efficient transportation
freight
railways in
Canada and the
USA
VINCI Builds and Sustainable
operates energy infrastructure and
efficient transportation
critical
infrastructure
assets
Canadian Operates rail Sustainable
National Railway freight infrastructure and
services across transportation
North America,
which represent
the most
environmentally
friendly way to
transport
freight over
land
Amazon.com An energy Digitalisation
efficient
ecommerce and
cloud computing
business aiming
to use only
renewable
energy by 2030
John Laing Group Portfolio of Sustainable
mostly infrastructure and
renewable rail transportation
and social
infrastructure
assets
Ocean Wilsons Operates ports Sustainable
and provides infrastructure and
lower climate transportation
impact maritime
services in
Brazil
TCI Real Estate Invests in Sustainable
Partners Fund energy infrastructure and
III -efficient real transportation
estate projects
Union Pacific Provides fuel Sustainable
-efficient rail infrastructure and
freight transportation
services across
the USA
Waste Management Provides waste Water and waste
management and management
environmental
services in
North America
ASML Develops, Digitalisation
manufactures
and services
advanced
lithography
systems used to
produce more
energy
efficient
semiconductor
chips
KLA Develops, Digitalisation
manufactures
and services
inspection and
metrology
equipment used
to increase the
efficiency of
semiconductor
manufacturing
LAM Research Develops, Digitalisation
manufactures
and services
etching and
deposition
equipment used
to produce more
energy
efficient
semiconductor
chips
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Portfolio Manager's Review
Performance
During the ?rst half of 2023, the Company's NAV per share increased from 129.8p
to 151.4p. This represents a total return of 16.9% and compares to the benchmark
return of 5.9%. The Company's share price traded at a 36.3% discount to NAV as
at 30 June 2023. The contributions to the NAV per share total return over the
period are summarised below:
Asset Category 30 June Return
2023 Contribution
NAV % %
Public Equities 77.8 13.1
Private Investments 16.4 2.7
Cash 5.3 -
Foreign exchange forwards 1.1 2.1
Dividend Paid (0.3)
Expenses (including accruals) (0.6) (1.8)
Net Assets 100.0
Net Return 15.8
Reinvested dividend 0.3
Impact of share repurchases 0.8
Total Return 16.9
Net Assets 100.0
The easing of in?ation and hope for a soft landing in the higher interest rate
environment have buoyed equity markets this year. The consumer remains resilient
so far and dislocations in the United States regional banking sector seem to
have been successfully contained. We continue to actively look for attractive
private opportunities with better risk-reward pro?les than those in our quoted
portfolio. There is some evidence of increasing deal ?ow and a more sensible
approach to pricing which will satisfy our requirements. The global move towards
Net Zero by 2050 continues to gain momentum. More and more companies from all
sectors of the economy are establishing frameworks to reduce their greenhouse
gas (GHG) emissions. We believe our thesis of investing in businesses bene?tting
from the ef?cient use of energy and resources remains more relevant than ever.
In the current environment, the portfolio continues to prioritise quoted
equities, which represented 77.8% of the NAV at the period end. Our quoted
equities span a number of energy and resource ef?ciency themes, namely: clean
energy; digitalisation; industrial emissions reduction; sustainable
infrastructure and transport; water and waste management. These all offer
secular growth and their industry structures provide the incumbents with
formidable competitive positions. Commitments to deliver the more ef?cient use
of energy and resources are now widely recognised as adding to the shareholder
value of those companies.
Investment performance was led by our biggest digitalisation holdings
(Microsoft, Alphabet and Amazon), in a reversal of their poor performance in
2022. Within the private portfolio, KKR agreed a deal to sell its 50% stake in
Spanish solar developer, X-ELIO, to joint venture partner, Brook?eld Renewable.
We expect the transaction to complete in the second half of this year and
deliver a compounded rate of return of 13% over 8 years in US dollars. This will
be our fourth successful exit from a private investment, which, in aggregate,
will have realised gains of approximately £21 million.
Investment performance was negatively affected by the appreciation of sterling,
although this was partly offset by our forward currency contract hedges. We
realised net cash proceeds of £5.2 million from our currency hedging over the
period.
Key investment decisions during the period included the reduction of our
Alphabet position by one half and the partial redeployment of the proceeds into
a new position in Airbus in February. We continued to increase the size of the
position over the subsequent months. We regularly monitor valuation and adjust
positions accordingly where appropriate. We opted to take some pro?ts on our
Microsoft holding in June, following very strong performance. We then added the
proceeds, and some excess cash, to our Airbus, Canadian National Railway and
VINCI holdings.
Our private investment activity was limited, with no new transactions in the
period. However, we were pleased to make a new commitment to the fourth vintage
of the TCI Real Estate Partners strategy in March. This fund will follow the
same strategy, and offer similar environmental bene?ts, as the TCI Real Estate
Partners Fund III into which we made a US$15 million commitment in 2018. The
fund helps to ?nance developments which are best in class in terms of energy
ef?ciency and environmental standards.
The Company's share price has continued to trade at a signi?cant discount to its
net asset value. Following a widening of the discount in January, the Board of
Directors authorised the deployment of up to £1 million for a share buyback
program. 975,000 shares (1.2% of the total issued) costing a total of £929,000
were purchased between mid-February to early April.
We maintain a proactive stance on stewardship. We carefully assess shareholder
resolutions and engage with portfolio companies on environmental issues, while
remaining mindful of our size. We seek to promote energy transition plans to
progress towards net zero targets and greater disclosure of greenhouse gas
emission reduction and mitigation strategies. During the period we voted against
the recommendation of Amazon's management to support a resolution requesting
disclosure on how the company is protecting the retirement plan's bene?ciaries
from climate risk.
Public Equities
Quoted public equities represented 77.8% of total NAV at 30 June 2023, and
delivered a total return of 16.9% over the period, adding 13.0% to the NAV per
share.
Investment Increase/ Contribution
(Decrease) % to NAV %
Microsoft 42.0 3.9
Alphabet 35.7 3.5
Amazon 55.2 1.8
Safran 22.7 1.7
VINCI 14.0 0.8
Airbus 5.3 0.5
Ocean Wilsons 3.2 0.4
ASML 31.6 0.1
Canadian Paci?c Kansas City 8.3 0.1
LAM Research 53.0 0.1
KLA 28.6 0.1
Waste Management 10.5 -
Union Paci?c (1.2) (0.1)
Canadian National Railway 1.8 (0.2)
Note: Percentage increase/(decrease) for individual holdings is calculated on
their local currency and based over the holding period if bought or sold during
the year.
Microsoft remains the key technology partner for all enterprises and its
software products are ubiquitous. Customers can depend on Microsoft to ensure
their technology infrastructure is fully sustainable, with the company aiming to
operate on carbon-free energy everywhere, at all times, by 2030. Microsoft is
also set to be one of the prime bene?ciaries of Arti?cial Intelligence. The new
Copilot products will enable customers to harness the power of Generative AI.
The rate of adoption may be gradual, but we believe that the productivity gains
from it will support signi?cant future revenue growth. The core pro?t drivers,
Of?ce 365 Commercial and the Azure Cloud business are performing well. Of?ce 365
now has more than 380 million users and continues to grow. Azure is still
gaining market share. Percentage revenue growth has remained in the high 20s on
a year-over-year basis, even as customers have focused on optimising workloads
to reduce costs. Positively, the weaker PC market should cease to be a headwind
going forwards. With the shares up more than 40% year-to-date in US dollars, we
opted to take some pro?ts in June and reduced our position by 2.0% of NAV.
Alphabet continues to step up its response to the competitive threat posed by
Open AI/Microsoft and ChatGPT. Management is focused on using Generative AI to
enhance Google's products and services for both users and advertisers. The
launch of a new beta search experience in the US (as part of "Search Labs")
provides an AI powered snapshot of key information to consider, then suggested
next steps and has chat capabilities. The tempo of iterative product development
appears to be increasing. We welcome the new sense of urgency. The company
continues to push forward on its sustainability agenda with aims to achieve net
-zero emissions, run on 24/7 carbon-free energy and to replenish more water than
it consumes. Progress is also being made on costs, with headcount now falling
and operating margins improving. The company should be able to accelerate
revenue growth once the economy improves.
We opted to reduce our position materially in February due to concerns stemming
from heightened competition in Search, following Microsoft's launch of its new
Bing search engine. Whilst we thought that Alphabet was well positioned to fend
off this new challenge, we realised that the level of risk and range of outcomes
had widened. We sold approximately one half of our position, leaving it equal to
the pro?t we made on our original holding. We have been happy to maintain the
position since then but do continue to monitor the various anti-trust actions
against the company.
The turnaround at Amazon is gaining momentum. Pro?tability and free cash ?ow
generation have in?ected. The Retail business' operating margins have bene?ted
from lower fuel prices, falling freight rates and the switch to a regional
ful?lment model in the US. The latter translates into shorter delivery distances
and faster delivery speeds. Amazon Web Services' growth rate is also picking up
following a softer Cloud environment focused on workload optimisations. CEO
Jassy has always been adamant on the future for AWS, outlining how 90% of IT
spend is still on-premises. We were disappointed to see that Amazon recently
failed to meet the Science Based Targets initiative's (SBTi) deadline to submit
their emissions reduction targets for validation. We intend to raise this matter
during our engagement with the company.
French aircraft engine manufacturer, Safran, has continued to pro?t from the
commercial aviation industry's resurgence. The reopening of China in January
removed the last major obstacle to a full recovery. We believe air travel
remains a secular growth story, with most people still never having travelled on
a plane.
Flight cycles are the key driver of the company's ?nancial performance, with
most of its pro?ts coming from aftermarket sales of spare parts. Safran
continues to lead the way towards the decarbonisation of the aviation sector. We
were pleased to see that its emission reduction targets were independently
approved by the SBTi. These include targets to reduce Scope 1 and 2 emissions by
50% by 2030 and reduce Scope 3 emissions by 42.5% by 2035 (versus 2018).
Holding company, Ocean Wilsons, owns a controlling interest in publicly listed
Brazilian port operator, Wilson Sons, alongside a diversi?ed investment
portfolio. Wilson Sons' asset base enjoys high barriers to entry and substantial
operating leverage for growth in Brazil's international trade shipping sector.
Shipping has the lowest climate impact of any freight method, on a per unit
basis, producing between 10-40 grams of CO2 per metric ton of freight per
kilometre of transportation, which is around half that even of rail freight.
Ocean Wilsons recently con?rmed that it is undertaking a strategic review of its
investment in Wilson Sons. We believe that the company could unlock signi?cant
value, with the shares trading at more than a 50% discount to NAV at the period
end.
French infrastructure group, VINCI, bene?ted from the recovery of its Airports
business and the good performance of its Energies and Cobra contracting
businesses. Traf?c at the former is now above 90% of 2019 levels. The management
team continues to make progress on its targets to reduce Scope 1 and 2 emissions
by 40% and Scope 3 emissions by 20% by 2030. This includes the company's
construction business increasing the use of low carbon concrete for 90% of its
needs. The recent completion of the Belmonte solar farm in Brazil marks VINCI's
?rst foray into renewable power generation. The company is currently waiting for
the publication of the French government's opinion on the possibility of
changing taxes levied on motorway concessions in the country.
Our North American railroad holdings, Canadian National Railway, Canadian Paci?c
Kansas City and Union Paci?c, are currently facing a slowing economy. We view
the headwinds as only cyclical in nature. Rail retains a signi?cant cost
advantage over trucks on longer haul routes and no one is building railroads
today. Rail remains the most environmentally friendly way of transporting
freight over land, with current locomotives four times more fuel ef?cient than
trucking on a per unit basis.
We opted to add incrementally to our position in Canadian National Railway in
June. We believed the shares offered good value compared to the company's
midterm organic growth pro?le. Canadian Paci?c ?nally completed its merger with
Kansas City Southern in April. Canadian Paci?c Kansas City has multiple
opportunities to grow volumes, including by converting truck traf?c to rail. We
consider the published earnings per share guidance to be overly conservative. We
believe new Union Paci?c CEO, Jim Vena, should be able to help the company ful?l
its potential and deliver meaningful improvements in operations and pro?ts.
Signs are emerging that the semiconductor industry is ?nding a bottom to its
current cycle. A return to growth should translate into higher capital spending.
This should bene?t our semiconductor capital equipment companies, ASML, Lam
Research and KLA. Each company dominates its respective niche in the value chain
and plays a critical role in helping the wider industry both maximise
semiconductor production from ?nite resources and develop and produce more
advanced and energy ef?cient chips. We believe the fundamental drivers of
semiconductor demand remain as clear as ever: cloud computing, arti?cial
intelligence, 5G, the Internet of Things (IoT) and the digitalisation of the
automotive industry. Semiconductor manufacturers' capital intensity also
continues to increase. We expect all these companies to have very bright
futures.
Solid waste pricing is moderating as in?ation eases, but Waste Management
continues to drive forwards on its sustainability agenda. Growth investments in
new automated recycling facilities and renewable natural gas plants at land?ll
sites should help to drive double digit earnings growth going forward. The
company provides essential services and bene?ts from a high proportion of
annuity-like revenue streams, with the cost of its services representing a very
small portion (circa 0.5%) of customers' total expenses.
We opened a new position in aircraft manufacturer, Airbus, in February and
increased its size over the subsequent months to 12.4% of NAV at the period end.
We previously held the company's shares but exited in April 2021, believing that
the post Covid recovery would take signi?cantly longer than implied by the
price. Now commercial aviation's recovery from the global reaction to the Covid
pandemic is nearly complete and the secular growth of air travel appears set to
resume. Fleet renewal requirements and the need for the global aviation sector
to accelerate their decarbonisation are key drivers. By upgrading to Airbus'
latest generation aircraft, customers can reduce carbon emissions by 20-30%.
Airbus' aircraft are also certi?ed to operate on 50% sustainable aviation fuel
(SAF), with a target to reach 100% by the end of the decade.
Airbus' A320 program is the most successful aircraft family ever. Production is
sold out until 2029. Deliveries should increase from a target of 720 this year
to more than 1,000 in the coming years and underpin signi?cant earnings growth.
We were also pleased to see the company receive approval from the SBTi for its
greenhouse gas emissions near-term reduction targets. These include plans to
reduce scope 1 and 2 emissions by 63% by 2030 and reduce scope 3 emissions by
46% by 2035.
Private Investments
Our portfolio of private investments represented 16.4% of the total NAV as at 30
June 2023, and delivered a total return of 16.6% during the period, adding 2.7%
to the NAV per share.
Investment Increase/ Contribution
(Decrease) % to NAV %
X-ELIO 52.0 2.8
John Laing (2.5) (0.1)
TCI Real Estate Partners Fund III 4.5 -
Note: Percentage increase/(decrease) for individual holdings is calculated on
their local currency and based over the holding period if bought or sold during
the year.
KKR agreed a deal to sell its 50% stake in Spanish solar energy developer, X
-ELIO, to joint venture partner, Brook?eld Renewable in March. We marked up our
valuation to align with the sale price. We expect the transaction to complete in
the second half of this year and deliver a return of 2.2 times invested capital
in US dollars, equivalent to an IRR of 13% over 8 years.
TCI Real Estate Partners Fund III currently comprises three loans to separate
real estate developments in the United States. They are ?rst mortgages and have
low loan-to-value ratios (less than 60%). These developments are best in class
in terms of energy ef?ciency and environmental standards. Buildings contribute
more than 30% of GHG emissions in the United States and raising their ef?ciency
levels is vital to reducing emissions. Whilst the Fund did not manage to commit
the level of capital we originally hoped, investment returns have remained in
line with expectations. The Fund has continued to draw down from its remaining
commitment (circa US$3.2 million) in line with the schedules of its existing
loans. We expect the last loan to be repaid in 2026.
John Laing is an active manager of public-private partnerships and similar
concession-based assets. The company makes both green and brown?eld investments.
Environmental impacts are managed on an asset by asset basis and the ?rm is
seeking to achieve a net zero transition for its direct operations by 2050 or
before. We marked down our valuation to align with the manager's latest
valuation, with the downgrade being primarily driven by losses on currency
translation. KKR's overhaul of the company's operations continues, with the
appointment of Andrew Truscott as CEO in March. Recent investments include the
acquisition of a majority stake in National Road RV555, Norway's largest PPP,
and the purchase of three Irish infrastructure assets from AMP Capital. The
latter consisting of Valley Healthcare, a portfolio of primary care centres, the
Convention Centre Dublin and Towercom, a mobile tower operator.
We were pleased to ?nalise a new US$25 million commitment to the TCI Real Estate
Partners Fund IV. This fund will follow the same strategy, and offer similar
environmental bene?ts, as the TCI Real Estate Partners Fund III. The coronavirus
epidemic provided a stress test for Fund III. We were very pleased that while
certain developments were affected by construction delays, return expectations
on the loans remained unchanged. Each loan has several elements of downside
protection such as credit seniority, loan-to-value ratios of up to 65% and
completion and carry guarantees. The strategy has only ever recorded one loss
out of 37 loans. The manager believes that stress is starting to permeate real
estate credit markets and that the emerging conditions should underpin strong
demand for its differentiated ?nancing. Furthermore, the rise in interest rates
has increased the relative attractiveness of their traditionally premium rates.
The manager is targeting gross returns of 11-14%. We believe this level of
return represents an exceptional balance between risk and reward. We expect the
fund to start drawing down this year. We expect our net invested amount, on a
cost basis, to peak at approximately 70% of the total commitment in mid-2026.
FX Hedges
The aim of our currency hedging policy, to date, has been to address volatility
inherent in the portfolio's exposure to both the US dollar and the euro. While
in this period we realised proceeds of £5.2 million, we continue to keep the
policy under review.
Outlook
We continue to focus on what we can control. Our preference remains for
investments which require us to make as few predictions as possible. We believe
our criteria of investing in energy and resource ef?ciency businesses offering
quality and value should leave the portfolio well placed to generate superior
risk adjusted returns over time in most market conditions.
Private investment opportunities are becoming more interesting, with higher
expected returns. We believe that the balance between risk and reward on
proposed transactions is improving but we will take a considered approach to
committing capital. We continue to evaluate new transactions with a critical
lens. We will only make private investments when they offer a more attractive
balance between risk and reward compared to public markets. We believe the next
vintage of TCI Real Estate Partners' strategy met this criteria and were very
happy to make a substantial commitment (US$25 million) in March. We expect to
earn comparable returns to equity markets, whilst incurring substantially less
risk due to our more senior position in the capital structure.
Following the strong year to date returns, the Company's net asset value per
share has now compounded at over 10%, after fees, for the ?ve years ended 30
June 2023. Share price performance continues to trail net asset value returns.
We believe the two should converge in time. We remain optimistic on both our
energy and resource ef?ciency investment thesis and our current portfolio's
prospects.
Performance 30/06/22 - 30/06/20 - 30/06/18 - 30/06/16 - 31/07/15 -
CAGR % 30/06/23 30/06/23 30/06/23 30/06/23 30/06/23
1Yr 3Yr 5Yr 7Yr Inception
NAV per share 12.5% 10.5% 10.3% 9.6% 5.8%
Share Price (2.4%) 4.9% 6.6% 6.8% (0.2%)
RPI+3% 11.2% 9.8% 7.6% 7.1% 6.9%
Note: Figures are adjusted for cumulative dividend reinvestments
Menhaden Capital Management LLP
Portfolio Manager
14 September 2023
.
Regulatory Disclosures
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Company are explained in
detail in the Company's Annual Report for the year ended 31 December 2022 (the
"Annual Report"). The Board believes that the Company's principal risks and
uncertainties have not changed materially since the date of the Annual Report
and are not expected to change materially for the remaining six months of the
Company's ?nancial year.
Related Parties Transactions
During the ?rst six months of the current ?nancial year, no transactions with
related parties have taken place which have materially affected the ?nancial
position or the performance of the Company.
Going Concern
The Directors believe, having considered the Company's investment objective,
risk management policies, capital management policies and procedures, the nature
of the portfolio and the expenditure projections, that the Company has adequate
resources, an appropriate ?nancial structure and suitable management
arrangements in place to continue in operational existence for the foreseeable
future and, more speci?cally, that there are no material uncertainties
pertaining to the Company that would prevent its ability to continue in such
operational existence for at least twelve months from the date of the approval
of this half year report. For these reasons, the Directors consider it is
appropriate to continue to adopt the going concern basis in preparing the
?nancial statements.
.
Directors' Responsibilities Statement
The Board con?rms that, to the best of the Directors' knowledge:
(i)the condensed set of ?nancial statements contained within the half year
report has been prepared in accordance with FRS 104 `Interim Financial
Reporting' and gives a true and fair view of the assets, liabilities, ?nancial
position and return of the Company; and
(ii) the interim management report includes a fair review of the information
required by sections 4.2.7R and 4.2.8R of the UK Listing Authority Disclosure
Guidance and Transparency Rules.
In order to provide these con?rmations, and in preparing these ?nancial
statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether applicable UK Accounting Standards have been followed, subject
to any material departures disclosed and explained in the ?nancial statements;
and
· prepare the ?nancial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business;
and the Directors con?rm that they have done so.
This half year report contains certain forward-looking statements. These
statements are made by the Directors in good faith based on the information
available to them up to the date of this report and such statements should be
treated with caution due to the inherent uncertainties, including both economic
and business risk factors, underlying any such forward-looking information.
Howard Pearce
Chairman
14 September 2023
.
Condensed Income Statement
Six months Six months
to 30 June to 30 June
2023 2022
(unaudited) (unaudited)
Note Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) - 17,492 17,492 - (17,838) (17,838)
on investments
at
fair value
through profit
or loss
Income from 5 1,129 - 1,129 761 - 761
investments
Management and 6,9 (161) (1,079) (1,240) (164) 1,021 857
performance fees
Other expenses (193) - (193) (221) - (221)
Net 775 16,413 17,188 376 (16,817) (16,441)
returns/(losses)
before
taxation
Taxation (99) - (99) (57) - (57)
Net 676 16,413 17,089 319 (16,817) (16,498)
returns/(losses)
after
taxation
Basic and 7 0.8p 20.7p 21.5p 0.4p (21.0)p (20.6)p
diluted
returns/(losses)
per share
The total column of this statement is the profit and loss account of the
Company. The supplementary revenue and capital columns are prepared under
guidance issued by the Association of Investment Companies' Statement of
Recommended Practice.
All revenue and capital items in the above statement derive from continuing
operations.
There are no recognised gains or losses other than those shown above and
therefore no Statement of Total Comprehensive Income has been presented.
.
Condensed Statement of Changes in Equity
Called Special Capital Capital Revenue Total
up reserve redemption reserve reserve £'000
share £'000 Reserve £'000 £'000
capital £'000
£'000
Six months
to 30 June
2023
(unaudited)
Balance at 800 77,371 - 24,970 690 103,831
31 December
2022
Net returns - - - 16,413 676 17,089
after
taxation
Repurchase (10) (929) 10 - - (929)
of ordinary
shares for
cancellation
Dividends - - - - (316) (316)
paid
Balance at 790 76,442 10 41,383 1,050 119,675
30 June 2023
Six months
to 30 June
2022
(unaudited)
Balance at 800 77,371 - 45,996 364 124,531
31 December
2021
Net - - - (16,817) 319 (16,498)
(losses)/retu
rns
after
taxation
Dividends - - - - (160) (160)
paid
Balance at 800 77,371 - 29,179 523 107,873
30 June 2022
.
Condensed Statement of Financial Position
Note As at As at
30 June 2023 31 December 2022
(unaudited) (audited)
£'000 £'000
Fixed assets
Investments at fair 8 112,815 93,809
value through pro?t or
loss
Current assets
Debtors 76 104
Derivative ?nancial 8 1,259 4,200
instruments
Cash 6,249 6,061
7,584 10,365
Current liabilities
Creditors: amounts (291) (343)
falling due within one
year
Performance fee 9 (433) -
provisions
Net current assets 6,860 10,022
Net assets 119,675 103,831
Capital and reserves
Called up share capital 790 800
Special reserve 76,442 77,371
Capital redemption 10 -
reserve
Capital reserve 41,383 24,970
Revenue reserve 1,050 690
Total shareholders' 119,675 103,831
funds
Net asset value per 151.4p 129.8p
share
.
Condensed Cash Flow Statement
Six months to Six months to
30 June 2023 30 June 2022
(unaudited) (unaudited)
£'000 £'000
Net cash inflow/(outflow) 6 (299)
from operating activities
Investing activities
Purchases of investments (18,982) (10,049)
Sales of investments 15,172 20,017
Settlement of derivatives 5,237 (3,618)
Net cash inflow from 1,427 6,350
investing activities
Financing activities
Dividends paid (316) (160)
Repurchase of ordinary (929) -
shares for cancellation
Net cash outflow from (1,245) (160)
financing activities
Increase in cash and cash 188 5,891
equivalents
Cash and cash equivalents 6,061 878
at beginning of period
Cash and cash equivalents 6,249 6,769
at end of period
.
Notes to the Financial Statements
1FINANCIAL STATEMENTS
The condensed ?nancial statements contained in this interim ?nancial report do
not constitute statutory accounts as de?ned in s434 of the Companies Act 2006.
The ?nancial information for the six months to 30 June 2023 and 30 June 2022 has
not been audited or reviewed by the Company's external auditor.
The information for the year ended 31 December 2022 has been extracted from the
latest published audited ?nancial statements. Those statutory ?nancial
statements have been ?led with the Registrar of Companies and included the
report of the auditor, which was unquali?ed and did not contain a statement
under Sections 498(2) or (3) of the Companies Act 2006.
No statutory accounts in respect of any period after 31 December 2022 have been
reported on by the Company's auditor or delivered to the Registrar of Companies.
Earnings for the ?rst six months should not be taken as a guide to the results
for the full year.
2ACCOUNTING POLICIES
These condensed ?nancial statements have been prepared on a going concern basis
in accordance with the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority, FRS 104 `Interim Financial Reporting', the April
2021 Statement of Recommended Practice `Financial Statements of Investment Trust
Companies and Venture Capital Trusts' and using the same accounting policies as
set out in the Company's Annual Report for the year ended 31 December 2022.
3GOING CONCERN
After making enquiries, and having reviewed the investments, Statement of
Financial Position and projected income and expenditure for the next 12 months,
the Directors have a reasonable expectation that the Company has adequate
resources to continue in operation for the foreseeable future. The Directors
have therefore adopted the going concern basis in preparing these ?nancial
statements.
4PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks facing the Company together with an explanation of these
risks and how they are managed is contained in the Strategic Report and note 17
of the Company's Annual Report for the year ended 31 December 2022.
5INCOME
Six months to Six months to
30 June 2023 30 June 2022
(unaudited) (unaudited)
£'000 £'000
Income from investments
Overseas dividends 1,103 761
Total income from investments 1,103 761
Other income
Interest income 26 -
Total income 1,129 761
6AIFM AND PORTFOLIO MANAGEMENT FEES
Six months Six months
to 30 June to 30 June
2023 2022
(unaudited) (unaudited)
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
AIFM fee 25 99 124 25 101 126
Portfolio 136 546 682 139 555 694
management fee
Provision for - 434 434 - (1,677) (1,677)
performance
fee
161 1,079 1,240 164 (1,021) (857)
7RETURNS/(LOSSES) PER SHARE
The revenue and capital returns/(losses) per share are based on the weighted
average number of Ordinary shares in issue during the six months to 30 June
2023, 79,375,968, and 30 June 2022, 80,000,001. The calculation of the total,
revenue and capital returns/(losses) per share is carried out in accordance with
IAS 33, "Earnings per Share".
There are no dilutive instruments in the Company and so basic and diluted
returns/(losses) are the same.
8FAIR VALUE HIERARCHY
The methods of fair value measurement are classi?ed into a hierarchy based on
reliability of the information used to determine the valuation.
Level 1-Quoted prices in active markets.
Level 2-Inputs other than quoted prices included within Level 1 that are
observable (i.e. developed using market data), either directly or indirectly.
Level 3-Inputs are unobservable (i.e. for which market data is unavailable).
The table below sets out the Company's fair value hierarchy investments as at 30
June 2023.
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
As at 30 June 2023 (unaudited)
Investments 93,155 - 19,660 112,815
Derivatives - 1,259 - 1,259
As at 31 December 2022 (audited)
Investments 76,945 - 16,864 93,809
Derivatives - 4,200 - 4,200
9PROVISIONS
Provisions are recognised when a present obligation arises from past events, it
is probable that the obligation will materialise and it is possible for a
reliable estimate to be made, but the timing of settlement or the exact amount
is uncertain.
Full details of the performance fee arrangement can be found in the Company's
Annual Report for the year ended 31 December 2022.
.
Glossary of Terms
Alternative Performance Measures ("APMs") Measures not speci?cally de?ned under
the International Financial Reporting Standards but which are viewed as
particularly relevant for investment trusts and which the
Board of Directors uses to assess the Company's performance. De?nitions of the
terms used and the basis of calculation are set out in this Glossary.
Discount/Premium (APM)
A description of the difference between the share price and the net asset value
per share. The size of the discount or premium is calculated by subtracting the
share price from the net asset value per share and is usually expressed as a
percentage (%) of the net asset value per share. If the share price is higher
than the net asset value per share the result is a premium. If the share price
is lower than the net asset value per share the shares are trading at a
discount.
Net Asset Value ("NAV") Per Share
The value of the Company's assets, principally investments made in other
companies and cash held, minus any liabilities. The NAV is also described as
"shareholders' funds". The NAV is often expressed in pence per share after being
divided by the number of shares that have been issued. The NAV per share is
unlikely to be the same as the share price, which is the price at which the
Company's shares can be bought or sold by an investor. The share price is
determined by the relationship between the demand for and supply of the shares.
NAV Total Return (APM)
The theoretical total return on shareholders' funds per share, re?ecting the
change in NAV assuming that dividends paid to shareholders were reinvested at
NAV at the time the shares were quoted ex-dividend. A way of measuring
investment management performance of investment trusts which is not affected by
movements in the share price.
30 June 31 December
2023 2022
(unaudited) (audited)
Opening NAV 129.8p 155.7p
Increase/(decrease) in NAV 21.7p (25.9)p
Closing NAV 151.4p 129.8p
% Increase/(decrease) in NAV 16.6% (16.6)%
Impact of dividend reinvested 0.3% 0.1%
NAV Total Return 16.9% (16.5)%
Share Price Total Return (APM)
Share price total return to a shareholder, on a last traded price to a last
traded price basis, assuming that all dividends received were reinvested,
without transaction costs, into the shares of the Company at the time the shares
were quoted ex-dividend.
30 June 31 December
2023 2022
(unaudited) (audited)
Opening share price 89.0p 112.0p
Increase/(decrease) in share price 7.5p (23.0)p
Closing share price 96.5p 89.0p
% Increase/(decrease) in share price 8.4% (20.5)%
Impact of reinvested dividends 0.4% 0.2%
Share Price Total Return 8.8% (20.3)%
Ongoing Charges (APM)
Ongoing charges are calculated by taking the Company's annualised operating
expenses excluding ?nance costs, taxation and exceptional items, and expressing
them as a percentage of the average daily net asset value of the Company over
the period. The costs of buying and selling investments and performance fees are
excluded, as are interest costs, taxation, costs of buying back or issuing
shares and other non-recurring costs. These items are excluded because if
included, they could distort the understanding of the Company's performance for
the period and the comparability between periods.
30 June 31 December
2023 2022
(unaudited) (audited)
£'000 £'000
Total operating expenses 1,000 2,018
Total operating expenses (annualised) 2,000 2,018
Average NAV during the period/year 112,658 111,560
Ongoing Charges 1.8% 1.8%
This information was brought to you by Cision http://news.cision.com
END
(END) Dow Jones Newswires
September 15, 2023 02:00 ET (06:00 GMT)
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