Annual Financial Report

Menhaden Resource Efficiency PLC

(the “Company”)

Final Results for the Year Ended 31 December 2023

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

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

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

Frostrow Capital LLP

Company Secretary

020 3709 8733

19 April 2024

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Strategic Report

Company Performance

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

*Alternative performance measures (“APMs”)

**Subject to shareholder approval

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Chairman’s Statement

Introduction

After becoming Chair in May 2023, I am pleased to present our ninth annual report since our launch in July 2015. It covers the calendar year ended 31 December 2023. By way of reminder, the Company aims to generate long term shareholder returns, predominantly in the form of capital growth, by investing in businesses and opportunities that are demonstrably delivering or benefitting significantly from the efficient use of energy and natural resources, irrespective of their size, location or stage of development. We are a high conviction long term patient capital investment.

Financial performance

Short term

The overall performance in 2023 has been encouraging, and it was pleasing to be short listed for specialist investment company of 2023 by ‘Investment Week’.

The Company’s total net asset value (“NAV”) increased 21.9% from £103.8 million to £126.7 million, and the Company’s share price increased 13.2% from 89.0p per share to 100.8p.

The NAV per share increased by 16.6% from 129.8p to 160.3p in 2023 giving a NAV per share total return* of 23.8% (2022: -16.5%). This is a 15.6% outperformance over the Company’s performance benchmark, RPI+3% (compound), which returned 8.4%, and a 15.0% outperformance over the AIC environmental sector which returned 8.8%.

Although the Company’s share price discount to NAV increased to -37.2% (2022: -31.4%), the share price total return* was a respectable 13.6% (compared to 2022: -0.3%). Notwithstanding this, the Board continues to try to reduce the discount and actions it is taking are outlined below.

*Alternative Performance Measure (see Glossary)

Longer term

In line with our aim to generate long term shareholder returns, predominantly in the form of capital growth, the Company’s compound NAV performance over the last 5 years of 12.3% per annum in 2023 (2022: 7.3% per annum) outperformed by 5.6%, the compound return for our RPI +3% benchmark of 6.7% per annum (2022: 5.3% per annum).

Moreover, the Company’s NAV performance has been ranked 1st in the AIC environmental sector over the last 1, 3, and 5 years. The Company aims, wherever it can to reduce on-going charges, and over the last 5 years they have reduced by nearly 20% from 2.1% to 1.7% in 2023 (2022:1.8%). A small shareholder dividend has been paid annually since 2018, the exception being 2020 during the global pandemic.

Further information and performance metrics that describe the development of the Company over the last 9 years between 2015 and 2023 is presented on page 89.

Investment strategy

2023 saw the global demand for energy and resources continue to rise. The World Meteorological Association stated that 2023 was the hottest year ever recorded and the International Monetary Fund reported that financial markets were underpricing climate related risk. The need for businesses to progressively reduce their use of fossil fuels and greenhouse gas emissions has never been so critical as part of the green industrial shift mega trend.

We have continued to invest in a concentrated portfolio of high quality largely global businesses, the majority of which have a key role in enabling the transition to a lower-carbon future. 2023 saw a moderate reweighting towards sustainable infrastructure and transportation, leading to a commensurate decrease towards our digitalisation, industrial emissions reduction, water and waste management, and clean energy themes.

Our public equity investments, comprising 77.2% of our portfolio, performed well during the year delivering a total return of 29.0%, and adding 21.6% to the NAV per share. The largest contributions came from our digitalisation themed investments (Alphabet, Microsoft, Amazon) and sustainable transport companies (VINCI, Safran and Airbus). The weakest contributors were our investments in North American railway companies.

Our unique private equity co-investments, which at the end of 2023 comprised 9.7% of our portfolio, also performed well in 2023 delivering a total return of 32.3%, adding 2.9% to the NAV per share. We made a successful exit from our largest ever co-investment (£9.1 million) in a clean energy developer, X-ELIO with Kohlberg Kravis Roberts (KKR). It delivered a 2.6x return (in sterling terms) following its acquisition in November 2023 by Brookfield Renewables. Following on from our US$15 million commitment to The Children’s Investment Trust (TCI) Real Estate Partners Fund III, which finances the development of best in class energy efficient buildings, during 2023 we made a further US$25 million commitment to TCI Real Estate Partners Fund IV.

In addition to the investments, our net assets as at 31 December 2023 predominantly comprised 1.5% FX hedge and 11.8% cash. In early 2024 FX hedging was discontinued and a proportion of the cash proceeds deployed to increase our public equity positions. In March 2024 we have made a new US$17.5 million clean energy co-investment commitment with KKR in Avantus (a USA solar and energy storage developer), further increasing our strategic asset allocation to private equity. Further details and commentary about the performance and development of the Company’s investment portfolio can be found in the Portfolio Manager’s report (pages 15 to 19).

Environmental performance

In 2023, the energy use disclosures from our listed equities reported a 7% uplift in the renewable energy they generated and 36% increase in renewable energy consumed, so reducing emissions from their use of fossil fuel energy. Some 75% of our listed equities have committed to, or set science-based targets for emissions reductions in line with the goals of the Paris global climate agreement.

Whilst some companies in which the Company’s portfolio is invested, such as in transport infrastructure, use fossil fuels, our Portfolio Manager only invests in those that are using innovative, best practice technological solutions to significantly reduce their emissions and become more climate friendly. For example, Airbus is global leader in decarbonising and improving the efficiency of aircraft with a target that 50% will use sustainable aviation fuel by 2030.

E-commerce is also a key driver of decarbonisation and companies like Microsoft and Amazon are essential utilities for millions of businesses and consumers. Microsoft is committed to be carbon negative by 2030. Amazon has an ambition to reach 100% renewable energy usage across its business by 2025 and at the end of 2022 used 85% renewable energy.

The Company is a supporter of the UN Sustainable Development Goals (SDGs) and a snapshot of how our portfolio companies contribute to seven key goals can be found within the Company’s Environmental Impact Report on pages 20 to 24. It is also made available as a separate document on our website www.menhaden.com, including methodological details that are not included within this annual report.

Share price discount to NAV per share

At the end of 2023 the shares of over 90% of the London Stock Exchange listed investment company sector were trading at a discount, including this Company. It is the Board’s view that this metric is not necessarily a fair reflection of the value of our assets and overall financial performance.

However, the Company’s share price discount continues to be a metric that concerns the Board and which it monitors extremely closely. The Board has not previously favoured share buy backs as a means for mitigation of the share price discount. It remains our view that share buybacks are not usually in the best long-term interest of shareholders taken a whole 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 undertake a modest programme of share buybacks. We considered that this might reduce the volatility of the share price at that time, take advantage of the accretion to NAV that buying back shares at a discount achieves, and provide a signal to the market of our confidence in the inherent value of the Company’s portfolio. 975,000 shares (1.2% of total issuance) were bought back between February and April 2023. While this provided some additional share liquidity in the volatile market conditions at that time, the buybacks resulted in no discernible short-term or longer-term impact on the discount. For small investment companies, there is scant published evidence that share buybacks can deliver any sustainable discount reduction.

During late 2023 the Board approved an enhanced marketing and communications plan which is being implemented by our AIFM and Portfolio Manager with the aim to influence investor sentiment and develop new demand for our shares to try and reduce the discount. The efficacy of these actions, which together with the relentless efforts of the Portfolio Manager to continue to generate strong investment returns should help to narrow the share price discount over time, will be continuously assessed during 2024.

While further buybacks to help stabilise a falling share price are not ruled out, any future decision will be dependent on the prevailing market conditions, the Company’s available liquid resources, and the potential conflict between accretive share buybacks and the availability of more attractive portfolio investment opportunities offering a greater return on capital.

Additionally, in the course of the Board’s considerations of the impact of any such further action, the Company, in consultation with the Takeover Panel, identified that in the context of any such buybacks Ben Goldsmith, the CEO of the Portfolio Manager (Menhaden Capital Management LLP), together with persons who are, or may be presumed to be, acting in concert with him, hold a significant percentage of the voting rights of the Company (27.9% of the Company’s issued share capital as at 31 March 2024). Under Rule 37 of the Takeover Code, any increase in the percentage of shares carrying voting rights held by a shareholder or group of persons acting in concert with that shareholder resulting from the purchase by a company of its own shares will be treated as an acquisition for the purpose of Rule 9 of the Takeover Code.

The identification of this concert party and the level of its aggregate interests in the Company’s shares is likely to have the effect of limiting any share buybacks. The Company and the members of the concert party are keen to avoid inadvertently triggering Rule 9.1(a) of the Takeover Code, which requires a mandatory offer to be made for the entire issued share capital of the Company in the event that any person acquires an interest (taken together with shares in which other persons deemed to be acting in concert are interested) of 30% or more of the voting rights of the Company.

The Board has instructed the Company Secretary to monitor the interests and dealings of the members of the concert party and has requested that the Portfolio Manager keep the Board and the Company Secretary updated with the details of any changes to the composition of the concert party and its interests in the Company in order for the Board to be informed of the concert party’s position prior to considering any future share buybacks.

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

It remains our aim for the Company to be in a position to enlarge its capital base through the issuance of new shares. This would reduce the annual ongoing charges and enhance the secondary market liquidity of the Company’s shares, which the Board believes is in the best interest of all shareholders. As the Company can only issue new shares when the share price is at a premium to NAV, our fundamental aim is to improve the share price through enhanced investment performance supported by effective marketing strategies and informative communications to potential new investors who are attracted by our investment thesis and track record.

Shareholder dividend

While income generation, via the payment of annual shareholder dividends, is not one of our primary investment aims, such payments are an important shareholder benefit. The Company’s dividend policy is to pay a dividend sufficient for it to maintain compliance with its investment trust legal status. The revenue return for the year to 31 December 2023 of £894,000 means that the legal threshold requiring a dividend payment has been exceeded and so, subject to shareholder approval, a dividend will be paid for 2023, as it has been four times previously. The Board is recommending to shareholders that a final dividend of 0.9p per share (0.4p in 2022) be declared in respect of the year ended 31 December 2023 and a corresponding resolution has been included in the Notice of Meeting for the AGM. If this resolution is passed, the dividend will be paid on 5 July 2024 to shareholders on the register on 7 June 2024. The shares will be marked ex-dividend on 6 June 2024.

Board developments

There have been a number of changes to the Board during 2023. In May 2023 Ian Cheshire stepped down as Chair and became an independent non-executive Director and Barbara Donoghue became Chair of the Audit Committee. Later, in December, Barbara succeeded Ian Cheshire as Chair of the Management Engagement Committee and was also appointed as Senior Independent Director. Following a competitive recruitment process, I am delighted that Soraya Charabak joined the Board in March 2023. Duncan Budge retired from the Board at our last AGM. We are exceedingly grateful for his valuable contributions to our Board and Committee meetings.

Strategic outlook

Looking ahead further, continued geo-political tensions and economic uncertainties, with potential disruption to global supply chains, are quite likely. For example, arising from the continuing conflicts in the Ukraine and Gaza; tensions between America and China over trade; and volatility in the price of energy and natural resources. Also the impact of climate change, and increasing incidence of extreme weather events, has increasing financially material consequences. All these macro-factors have significant impacts on millions of people, financial markets and on investor sentiment.

Notwithstanding these challenges, the Board considers the Company’s unique strategy and high conviction portfolio to be well placed for further capital growth because of the high quality and the defensive and inflation resistant properties of our investment holdings. Moreover, the Board remains convinced all businesses must respond to climate change by navigating the energy transition from fossil fuels to more renewable sources and the need to be ever more energy and resource efficient becomes even more critical to their on-going sustainability and success. Accordingly, the Company’s investment thesis should continue to provide long-term benefits for our investors. The next five-yearly continuation vote for the Company will be in July 2025.

Annual General Meeting

The Company’s AGM will be held at the offices of Frostrow Capital LLP, 25 Southampton Buildings, London WC2A 1AL on Thursday, 27 June 2024 at 11.30 a.m. The Notice convening the AGM together with explanations of the proposed resolutions can be found on pages 94 to 99 of the Annual Report. The Board considers that all the resolutions are in the best interests of the Company and the shareholders taken as a whole and unanimously recommend they be approved.

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

Howard Pearce

Chairman

19 April 2024

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Portfolio

Investments held as at 31 December 2023

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

* Unquoted

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Portfolio Manager’s Review

Performance

During 2023, the Company’s NAV per share increased from 129.8p to 160.3p. Together with the 0.4p per share dividend paid in the year, this represents a total return of 23.8% and compares to the benchmark (RPI+3%) return of 8.4%. Importantly, this level of performance has been achieved with no change in our appetite for, and attitude towards, risk. The contributions to the NAV per share total return over the period are summarised below:

The drive for resource efficiency continues to accelerate, with the US and China restarting a joint effort to tackle climate change in November 2023 and then nearly every country in the world agreeing to transition away from fossil fuels at the COP28 summit in December 2023. More than 100 countries also signed pledges to triple global renewable power capacity by 2030 and double the annual rate of energy efficiency improvements every year to 2030. Our approach of pairing this theme with a strict focus on quality and valuation was once again fundamental to generating good investment returns. This preference for businesses which benefit from barriers to entry, and which trade at reasonable valuations has led us to invest primarily within the sustainable infrastructure and transportation and digitalisation themes, and has mainly been expressed in quoted equities where the return relative to risk has been more favourable.

Investment performance was led by the portfolio’s digitalisation holdings (Microsoft, Alphabet and Amazon), in a reversal of their poor performance in 2022. Safran, VINCI and Airbus performed strongly following the aviation industry’s post Covid resurgence. Within the private portfolio, KKR agreed a deal to sell its 50% stake (in which the Company participated) in Spanish solar developer, X-ELIO, to joint venture partner, Brookfield Renewable. The transaction completed in November and crystallized an aggregate return on invested capital of 2.15x in US dollars, equivalent to an IRR of ~13% over 8 years. This was our fourth successful exit from a private investment since inception. In aggregate, these have generated realised gains of approximately £21 million (and 2.0x cost).

Key portfolio decisions during the period included the reduction of the Alphabet position by one half, due to concerns over rising competition, and the partial redeployment of the proceeds into re-establishing a position in Airbus in February 2023. Airbus has the leading narrow body aircraft franchise and in our view is best placed to help airlines meet their growing needs for fleet renewals and decarbonisation. We continued to increase the size of the Airbus position over the subsequent months. We always monitor valuations and adjust positions accordingly where appropriate. In this vein, we opted to take some profits on the Microsoft holding in June, following very strong performance. We then added the proceeds, and some excess cash, to the portfolio’s Airbus, Canadian National Railway and VINCI holdings. We believed these investments offered similar returns premised on less demanding valuations.

Within the Company’s private portfolio, we made a US$25 million commitment to the fourth vintage of the TCI Real Estate Partners strategy in March 2023. This fund will follow the same strategy, and offer similar environmental benefits, as the TCI Real Estate Partners Fund III. The Fund helps to finance developments which are best in class in terms of energy efficiency and environmental standards. The first drawdown was called in October 2023, which was funded from cash on hand and by partial sales of quoted equity holdings.

Following the year end and the settlement of outstanding currency hedges, we decided to cease partly hedging US dollar and Euro currency exposures due to changes in the outlook for currencies and a new requirement to cash collateralise forward exposures on a daily basis.

In February 2023, following a widening of the discount of the price at which the Company’s shares traded relative to their NAV, the Board of Directors authorised the deployment of up to £1 million for a share buyback programme. 975,000 shares (1.2% of the total issued) were purchased between mid-February to early April at a cost of £920,000.

We maintain a proactive stance on stewardship. We carefully assess shareholder resolutions and engage with portfolio companies on environmental issues. 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 both Amazon’s and Microsoft’s management on resolutions requesting disclosure on how the company is protecting the retirement plan’s beneficiaries from climate risk.

Quoted Equities

Quoted equities represented 77.2% of total NAV at 31 December 2023, and delivered a total return of 29.0% over the period, adding 21.6% to the NAV per share.

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.

Alphabet is the market leader in search. The company’s market share (>90%) has not materially changed following the launch of Open AI’s ChatGPT and the proliferation of large language models. Ecommerce still represents only a fraction of total retail sales and we believe Google’s Search business can continue to generate healthy revenue growth going forward. The company continues to drive 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 management continuing to restructure business units and reduce headcount. Core operating margins are improving. Alphabet remains focused on using Generative AI to enhance Google’s products and services for both users and advertisers and launched its Gemini AI model in December 2023, followed by full release in February 2024.

That said, we reduced the position materially in February 2023 in the face of rising 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 believed that the range of outcomes had widened and associated risk increased. We sold approximately one half of the position. We also continue to monitor the various anti-trust actions against the company. The evidentiary phase of the US Department of Justice’s antitrust trial against Google concluded during 2023 and closing arguments are set for May 2024.

Microsoft is the key technology partner for enterprise and its software products are ubiquitous. More than 95% of Fortune 500 companies are customers of the Azure cloud business and four out of every five use Office 365. Microsoft strives to ensure their technology infrastructure is fully sustainable, aiming to operate on carbon-free energy everywhere, at all times, by 2030. Azure continues to gain share, with growth rates materially outpacing both Amazon Web Services and Google Cloud. Microsoft’s CFO expects the growth rate to remain in the high 20s for the first half of 2024. Office 365 is approaching 500 million users across Commercial and Consumer platforms and continues to grow. The company fully launched its Microsoft 365 Copilot product at the start of November. Whilst the rate of adoption may be gradual, we believe that the end productivity gains will support significant future revenue growth. We opted to take some profits in June, with the shares then up more than 40% year-to-date in US dollars, and reduced the position by 2.0% of NAV.

French aircraft engine manufacturer Safran continues to lead the way towards the decarbonisation of the aviation sector. The company has committed to reduce absolute Scope 1 and 2 emissions (see page 20) by 50% by 2030 and reduce Scope 3 emissions by 42.5% per available seat kilometre by 2035 (versus 2018). These targets were independently approved by the SBTi in January 2023. Renewal of the existing fleet with the latest generation of aircraft powered by Safran’s LEAP engine should reduce the carbon emissions per passenger mile by 1-2% per year over the next 15 years. Safran and GE also launched the RISE (Revolutionary Innovation for Sustainable Engines) programme in 2021. This engine programme targets further fuel efficiency improvements of more than 20% and full compatibility with sustainable aviation fuels. The commercial launch is scheduled for the mid-2030s.

Safran has profited from the commercial aviation industry’s resurgence. Flight cycles are the key driver of the company’s financial performance, with most of its earnings coming from aftermarket sales of spare parts. We believe air travel remains a secular growth story, with most people still never having travelled on a plane. Growing aftermarket volumes should be augmented by a benign pricing environment, following difficulties encountered by engine manufacturer rivals, Pratt & Whitney and Rolls Royce.

Amazon aims to reach net zero carbon emissions by 2040. Progress so far includes the company’s carbon intensity falling 7% from 2021 to 2022 and 90% of electricity consumed attributable to renewable energy sources, with a path to 100% by 2025. Profitability and free cash flow generation have meaningfully recovered and we expect both to continue growing well. The retail business’ operating margins are benefiting from the switch to a regional fulfilment model in the US. This translates into shorter delivery distances and faster delivery speeds. New robotics initiatives could further boost productivity in the coming years. Amazon Web Services’ growth rate is picking up following a softer Cloud environment focused on workload optimisations. CEO Jassy is still keen to highlight the remaining opportunity, with 90% of IT spend still on-premises. Capital investment is also moderating, following the expansion of the fulfilment network.

French infrastructure group, VINCI, aims to reduce Scope 1 and 2 emissions by 40% and Scope 3 emissions by 20% by 2030. These are notable goals for a construction company and include increasing the use of low carbon concrete for 90% of its needs. The airports segment has recovered strongly in 2023. Traffic is now above 95% of 2019 levels but there are considerable differences between regions. Neither France nor the UK, two of the most important countries, have yet returned to 2019 levels. VINCI’s management team continues to deploy capital in a measured way and outlined plans to build and operate a portfolio of renewable energy assets through its Cobra IS business unit at its Investor Day in December 2023. The team is aiming to have 5 GW of capacity in operation or under construction by 2025 and 12 GW by 2030. The company started operating its first renewable energy asset last year, with the commissioning of the Brazilian Belmonte solar farm (0.6 GW) in July 2023.

We renewed a position in aircraft manufacturer Airbus in February and repeatedly increased its size over the next six months. This was the portfolio’s largest holding at 12.5% of NAV at the year end. The company’s shares had previously been held in the portfolio but we exited in April 2021, believing that the post-Covid recovery would take significantly longer than implied by the price. Now commercial aviation’s recovery 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 certified to operate on 50% sustainable aviation fuel (SAF), with a target to reach 100% by the end of the decade. Airbus plans to reduce scope 1 and 2 emissions by 63% by 2030 and reduce scope 3 emissions by 46% by 2035.

Their management team remains focused on ramping A320 production. This programme is sold out until 2029. Personnel hiring ahead of current manufacturing needs and the building of certain key inventories should help to ensure a successful ramp up. Engine deliveries remain a bottleneck but both CFM (Safran and GE) and Pratt & Whitney have reaffirmed their commitments for 2024. Deliveries of aircraft should increase from 735 in 2023 to more than 1,000 annually in the coming years and underpin significant earnings growth. This profile is well supported by the current backlog of nearly 8,600 aircraft.

Holding company, Ocean Wilsons, comprises a controlling interest in publicly listed Brazilian port operator, Wilson Sons, and a diversified investment portfolio. 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. Wilson Sons’ asset base enjoys high barriers to entry and substantial operating leverage for growth in Brazil’s international trade shipping sector. Following a strategic review in June, Ocean Wilsons confirmed the receipt of several indicative non-binding offers for its investment in Wilson Sons. The company could unlock significant value, with the shares trading at more than a 50% discount to NAV.

The semiconductor industry appears to have passed the bottom of its sales cycle. Whilst the profile of any recovery is uncertain, a return to growth should translate into higher capital spending. This should benefit the semiconductor capital equipment companies in the portfolio, 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 finite resources and develop and produce more advanced and energy efficient chips. We believe the fundamental drivers of semiconductor demand remain as clear as ever: cloud computing, artificial 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.

The Company’s North American railroad holdings, Canadian National Railway, Canadian Pacific Kansas City and Union Pacific, have contended with a slowing economy and a period of inventory destocking in 2023. We view these headwinds as only cyclical in nature. Rail retains a significant 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 efficient than trucking on a per unit basis. Furthermore, these companies continue to evaluate and trial new technologies to move beyond the internal combustion engine.

We opted to add incrementally to the portfolio’s position in Canadian National Railway in June. We believed the shares offered good value compared to the company’s midterm organic growth profile. Canadian Pacific finally completed its merger with Kansas City Southern in April 2023. The combined entity has multiple opportunities to grow volumes, including by converting truck traffic to rail. We believe the company can outperform its published earnings per share guidance. New Union Pacific CEO, Jim Vena, has embarked upon a programme of decentralisation as he aims for the company to grow faster than the economy with industry leading margins.

Waste Management provides essential services and benefits from a high proportion of annuity-like revenue streams, with the cost of its services representing a very small portion (circa 0.5%) of customers’ total expenses. Solid waste pricing has now moved ahead of cost inflation and the company should be able to regain some of the lost ground over the past two years. Progress is also being made on the automation programme to reduce labour requirements by 5,000-7,000 roles, equivalent to more than 10% of headcount. Growth investments in new automated recycling facilities and renewable natural gas plants at landfill sites continue, although certain of the latter projects have been hampered by interconnection and permission issues. We believe these will ultimately be resolved and underpin sustained double digit earnings growth going forward.

Private Investments

The Company’s portfolio of private investments represented 9.7% of the total NAV as at 31 December 2023, and delivered a total return of 32.3% over the period, adding 2.9% to the NAV per share.

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. Excludes distributions received.

As noted above, KKR completed the sale of its 50% stake (incorporating the Company’s co-investment) in Spanish solar energy developer, X-ELIO, in November. This crystallised an aggregate return on invested capital of 2.6x in Sterling terms, equivalent to an IRR of ~16% over 8 years. The increase and contribution to NAV in the table above represent percentages for the period until X-ELIO's disposal in November.

The remaining investments in TCI Real Estate Partners Fund III are three loans to separate real estate developments in the United States. They are first mortgages and have low loan-to-value ratios (less than 60%). These developments are best in class in terms of energy efficiency and environmental standards. Buildings contribute more than 30% of GHG emissions in the United States and raising their efficiency 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 two loans to be repaid this year and the last one to be repaid in 2026.

We finalised a new US$25 million commitment to the TCI Real Estate Partners Fund IV in March 2023. This fund will follow the same strategy, and offer similar environmental benefits, 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 financing. 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. The fund made its first drawdown in October 2023, which was funded from cash on hand and by partial sales of quoted equity holdings. We expect the Company’s net invested amount, on a cost basis, to peak at approximately 70% of the total commitment in mid-2026. This will significantly increase the portfolio’s exposure to real estate and the sustainable infrastructure and transportation theme.

John Laing is an active manager of public-private partnerships and similar concession-based assets. The company makes both green and brownfield investments. The management team launched a new sustainability strategy in August 2023 and is aiming to reach net zero by 2050, with an interim target for 70% of assets to align with net zero by 2030. John Laing completed its largest ever investment with the purchase of three Irish infrastructure assets from AMP Capital in 2023. These consisted of Valley Healthcare, a portfolio of primary care centres, the Convention Centre Dublin and Towercom, a mobile tower operator. Then the purchase of equity interests in four UK Public-Private Partnerships and a stake in the Hornsea II offshore transmission assets from HICL Infrastructure PLC was agreed in September 2023. Finally, the sale of the Clarence Correctional Centre in Australia, which was planned as part of KKR’s acquisition, was also agreed.

FX Hedges

We first hedged currency exposure in November 2017, after a prolonged phase of Sterling weakness. This had benefitted the portfolio, which was heavily weighted to assets denominated in US dollars and Euros. We sought to protect some of these gains by hedging approximately half of the portfolio’s currency exposures. With the benefit of hindsight, we can see our concerns that these Sterling currency gains might be substantially given back were unfounded. Following the settlement of the outstanding currency forward contracts in early January 2024 we have ceased to hedge the Company’s currency exposures, due to a new requirement to cash collateralise the forward exposures on a daily basis (whereas in the past these were only cash settled, or paid out, on expiry). Since inception, the cumulative net losses from our hedging strategy amounted to £5.3 million. It should be noted that, as a hedge, this loss has been more than offset by the currency gains on non-Sterling holdings.

Outlook

We keep focusing on what we can control. Our preference remains for investments that require us to make as few predictions as possible. We believe our criteria of investing in energy and resource efficiency businesses offering quality and value results in a portfolio well placed to generate superior returns over time relative to the level of risk taken, in most market conditions.

The completion of the sale of X-ELIO meant we finished the year with a high cash balance. Following the year end, we deployed a portion of the cash, equivalent to 5.8% of NAV, across the portfolio’s existing quoted equity holdings in January. Since then, we were pleased to agree a new co-investment with KKR in a solar developer in the United States, Avantus, in March. This company has one of the largest development pipelines across California and the Southwest. We believe the deal is highly opportunistic and at an attractive valuation. As always, we only make private investments when they offer a more attractive balance between risk and reward compared to public markets. We believe this transaction met this criterion and we expect it to produce returns significantly in excess of public equity markets. Our initial US$17.5 million investment equates to ~10% of the Company’s NAV and was funded from cash on hand and the partial sales of existing quoted equities. We expect this transaction and further drawdowns on our commitment to TCI Real Estate Partners Fund IV to significantly increase the portfolio’s allocation to private investments.

Following the strong performance in 2023, the Company’s net asset value per share has now compounded at over 12.3%, after fees, for the five years ended 31 December 2023 compared to our benchmark RPI+3% return of 6.7%. Share price performance continues to trail the Company’s net asset value returns, resulting in a widening discount to net asset value. We believe this is primarily due to the size of the Company and a corresponding lack of liquidity in the shares. We intend to keep our relentless focus on investment performance to deliver growth, and a reduction in the discount, as both the performance and growth are recognised by the market. With all members of the Portfolio Manager owning significant equity stakes in the Company, our interests are in full alignment with shareholders. Below is a summary of the Company's compound annual growth rate on total return basis:

Menhaden Capital Management LLP

Portfolio Manager

19 April 2024

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Business Review

The Strategic Report on pages 2 to 36 has been prepared to provide information to enable shareholders to assess how the Directors have performed their duty to promote the success of the Company.

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

Business Model

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

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

investment.

The Company is an Alternative Investment Fund (“AIF”) under the UK’s Alternative Investment Fund Managers Regulations (“UK AIFMD”) and Frostrow Capital LLP (“Frostrow”) is the appointed Alternative Investment Fund Manager (“AIFM”).

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

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

Further information on the Board’s role and the topics it discusses with the AIFM and the Portfolio Manager is provided in the Corporate Governance Statement beginning on page 44.

Investment Strategy

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

Details of the Portfolio Manager’s approach are set out in the Investment Process section on page 11 and in their review beginning on page 15.

While the Board’s strategy is to allow flexibility in managing the investments, in order to manage investment risk it has imposed various investment, gearing and derivative guidelines and limits, within which Frostrow and the Portfolio Manager are required to manage the investments, as set out on pages 8 and 9.

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

Dividend Policy

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

The Board

Biographical details of the Directors are set out on pages 37 and 38 and information on the workings of the Board and its Committees is set out in the Corporate Governance Statement on pages 44 to 50.

All of the Directors will seek re-election by shareholders at the Annual General Meeting to be held on 27 June 2024.

Principal Service Providers

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

AIFM

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

• risk management services;

• marketing and shareholder services;

• administrative and secretarial services;

• advice and guidance in respect of corporate governance requirements;

• maintenance of the Company’s accounting records;

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

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

AIFM Fee

Under the terms of the AIFM Agreement, Frostrow receives a periodic fee equal to 0.225% per annum of the Company’s net assets up to £100 million, 0.20% per annum of the net assets in excess of £100 million and up to £500 million, and 0.175% per annum of the net assets in excess of £500 million.

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

Portfolio Manager

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

• seeking out and evaluating investment opportunities;

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

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

• analysing the performance of investments made; and

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

Portfolio Management Fee

MCM receives a periodic fee equal to 1.25% per annum of the Company’s net assets up to £100 million and 1.00% of the Company’s net assets in excess of £100 million.

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

Performance Fee

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

The performance fee is calculated for discrete three year performance periods. In respect of a given performance period, a performance fee may be payable equal to 10% of the amount, if any, by which the Company’s adjusted NAV at the end of that performance period exceeds the higher of (a) a compounding hurdle (an annualised compound return)* on the gross proceeds of the IPO (adjusted for any subsequent share issues and repurchases) of 5% per annum; and (b) a high-water mark (the highest net asset value that the Company has reached on which a performance fee has been paid)*. The performance fee is subject to a cap in each performance period of an amount equal to the aggregate of 1.5% of the weighted average NAV in each year (or part year, as applicable) of that performance period.

*see Glossary for further details

Depositary

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

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

• processing of transactions; and

• foreign exchange services.

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

Under the terms of the Depositary Agreement, the Depositary is entitled to receive an annual fee of the higher of £40,000 or 0.0175% of the net assets of the Company up to £150 million, 0.015% of the net assets in excess of £150 million and up to £300 million, 0.01% of the net assets in excess of £300 million and up to £500 million and 0.005% of the net assets in excess of £500 million. In addition, the Depositary is entitled to a variable custody fee which depends on the type and location of the custodial assets of the Company.

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

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

Evaluation of the AIFM and the Portfolio Manager

The performance of the AIFM and the Portfolio Manager is reviewed continuously by the Board and the Company’s Management Engagement Committee (the “MEC”), with a formal evaluation process being undertaken each year. As part of this process, the Board monitors the services provided by the AIFM and the Portfolio Manager and receives regular reports from them. The MEC reviewed the appropriateness of the appointment of the AIFM and the Portfolio Manager in December 2023, following which it made a recommendation for continuation to the Board.

The Board believes the continuing appointment of the AIFM and the Portfolio Manager, under the terms described on page 26, is in the interests of shareholders as a whole. In coming to this decision, the MEC and the Board took into consideration, inter alia, the following:

• the terms of the AIFM Agreement and the Portfolio Management Agreement, in particular the level and method of remuneration, the notice period and the comparable arrangements of a group of the Company’s peers;

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

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

Foreign Exchange Exposure

As explained in the Portfolio Manager's Review on page 19, the Portfolio Manager has sought to reduce the volatility in returns caused by currency movements in respect of the portfolio’s non-sterling denominated investments through the use of currency forward contracts. For much of the year approximately 50% of the Company’s US dollar and euro exposures were hedged in this manner using 3-month contracts. However, following a review near the year end it was concluded that the combination of exchange rate volatility and the relatively short forward contract periods not matching the longer term nature of the portfolio created a non-correlated risk of crystallising currency losses on the rollover of the contracts. Additionally, it has become necessary for the Company to lodge cash collateral for such contracts, making them less economic, and the decision has been taken to discontinue such hedging transactions for the foreseeable future.

Position, Performance and Future Developments

The Statement of Financial Position on page 70 shows the Company’s financial position at the year end. Performance in the year relative to the Company’s key performance indicators is set out below and further outlined, together with investment activity and strategy, market background and the future outlook, in the Chairman’s Statement beginning on page 4 and the Portfolio Manager’s Review on pages 15 to 19.

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

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

Key Performance Indicators (“KPIs”)

The Board of Directors reviews performance against the following KPIs. They comprise both specific financial and shareholder-related measures. The results for the year are summarised in the Chairman’s Statement beginning on page 4.

The KPIs for the Company are:

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

• Share price total return;

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

• Ongoing charges ratio.

These are all Alternative Performance Measures. Please refer to the Glossary beginning on page 90 for definitions of these terms and an explanation of how they are calculated.

NAV per share total return

The Directors regard the Company’s NAV per share total return as being the overall measure of value delivered to shareholders over the long term. This reflects both the net asset value growth of the Company and any dividends paid to shareholders. The Board monitors the Company’s NAV total return against its benchmark and peers in the AIC Global Sector and the AIC Environmental Sector. The Company’s NAV per share total return over the year to 31 December 2023 was 23.8% (2022: -16.5%). To reflect the Company’s total return investment strategy, the Board uses RPI+3% as its primary long-term financial performance benchmark. RPI+3% over the year was 8.4% (2022: 16.4%).

A full description of the portfolio and performance during the year under review is contained in the Portfolio Manager’s Review commencing on page 15 of this report.

Share price total return

The Directors regard the Company’s share price total return to be a key indicator of performance and monitor this closely. This measure reflects the return to the investor on last traded market prices, assuming any dividends paid are reinvested. The Company’s share price total return over the year to 31 December 2023 was 13.6% (2022: -20.3%).

Share price discount/premium to NAV per share

The share price discount/premium to the NAV per share is considered a key indicator of performance as it impacts the share price total return and can provide an indication of how investors view the Company’s performance and its investment objective. At 31 December 2023 the discount stood at 37.2% (2022: 31.4%). The Chairman’s Statement beginning on page 4, addresses the discount and the approach of the Board. The discount continued to remain disappointingly wide throughout the year.

Ongoing charges ratio

Ongoing charges represent the costs that shareholders can reasonably expect to pay from one year to the next, under normal circumstances. The Board continues to be conscious of expenses and works hard to maintain a sensible balance between good quality services and costs. The Board therefore considers the ongoing charges ratio to be a KPI and reviews the figure both in absolute terms and in comparison to the Company’s peers. The ongoing charges ratio for the year to 31 December 2023 was 1.7% (2022: 1.8%).

Risk Management

In fulfilling its oversight and risk management responsibilities, the Board maintains a framework of the key risks that may affect the Company and the related internal controls designed to enable the Directors to manage/mitigate these risks as appropriate. The key risks are registered in the Company's risk matrix, which the Audit Committee has been delegated to maintain and review at regular intervals. The risk matrix covers all key risks the Directors believe the Company faces, the likelihood of their occurrence and their potential impact, how these risks are monitored and the mitigating controls in place. The Directors have carried out a robust assessment of the emerging and principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity.

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

• Legal and Regulatory Risks

• Investment Risks

• Geopolitical and other Macro Risks

• Corporate Risks

• Operational Risks

• Financial Risks

The following sections detail the risks the Board considers to be the most significant to the Company under these headings.

The main change from last year is an acceptance, and hence reduced risk rating, that investment risks are largely inherent in the investment strategy, and investing generally, and that these have been mitigated so far as practical.

It is considered that potential impacts from regulation, including on portfolio companies, related to climate change and Paris Accord undertakings are tangible and this is recognised below, albeit that the Company’s resource efficiency theme ought to position it as a beneficiary of related policies.

Longer Term Viability Statement

In accordance with the UK Corporate Governance Code, the Directors have carefully assessed the Company’s position and prospects as well as the principal risks and have formed a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five financial years. The Board has chosen a five year horizon in view of the long-term outlook adopted by the Portfolio Manager when making investment decisions.

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

• The portfolio is principally comprised of investments traded on major international stock exchanges. Based on the Company’s latest available financial positions, it is estimated that 86% of the current portfolio could be liquidated within seven days and there is no expectation that the nature of the investments held within the portfolio will be materially different in future;

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

• The Company has no employees, only its nonexecutive Directors. Consequently it does not have redundancy or other employment related liabilities or responsibilities.

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

• There will continue to be demand for investment trusts;

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

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

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

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

• The performance of the Company will be satisfactory.

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

Company Promotion

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

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

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

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

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

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

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

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

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

Social, Human Rights and Environmental Matters

The Company is an externally managed investment trust within the AIC Environmental Sector and invests in companies and markets that are demonstrably delivering or benefiting significantly from the efficient use of energy or resources. The Board is responsible for oversight of the Portfolio Manager and consequently for the risks and opportunities that derive from their management of the Company’s portfolio, including any considered to be climate related. The Company’s resource efficiency mandate is consistent with the drive towards net zero so the Company is well placed to benefit as investor focus evolves. The Company does not have any employees or premises, nor does it undertake any manufacturing or other operations. All its functions are outsourced to third party service providers and therefore the Company itself does not have any employee or direct human rights issues, nor does it have any direct, material environmental impact. The Company therefore has no environmental, human rights, social or community policies.

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

The Board believes that the integration of financially material environmental, social and governance (“ESG”) factors into investment decision-making can reduce risk and enhance returns. The Portfolio Manager uses CDP ratings data as a basis for engagement with investee companies on ESG issues, including any considered to be climate related. More detail is included in the Company’s Environmental Impact Statement set out on pages 20 to 24.

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

The Directors encourage the Portfolio Manager to ensure the Company’s investments adhere to best practice in the management of ESG issues and encourage them to have due regard to the UN Global Compact and UN Principles of Responsible Investment. The Portfolio Manager was a signatory to the Financial Reporting Council 2012 UK Stewardship Code. Whilst MCM is not a formal signatory to the 2020 Stewardship Code, it adheres to the 12 principles as closely as possible.

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

Anti-Bribery and Corruption Policy

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

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

Prevention of the Facilitation of Tax Evasion

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

This Strategic Report on pages 2 to 36 has been approved by the Board.

Howard Pearce

Chairman

19 April 2024

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Governance

Statement of Directors’ Responsibilities

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

• selected suitable accounting policies and applied them consistently;

• made judgements and estimates that are reasonable and prudent;

• followed applicable UK accounting standards; and

• prepared the financial statements on a going concern basis.

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

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

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

Responsibility Statement of the Directors in respect of the Annual Report

The Directors, whose details can be found on pages 37 and 38, confirm to the best of their knowledge that:

• the financial statements within this Annual Report, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and the return for the year ended 31 December 2023; and

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

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

On behalf of the Board

Howard Pearce

Chairman

19 April 2024

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Financial Statements

Income Statement

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

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

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

The accompanying notes on pages 72 to 87 are an integral part of these financial statements.

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Statement of Changes in Equity

For the year ended 31 December 2023

For the year ended 31 December 2022

The accompanying notes on pages 72 to 87 are an integral part of these financial statements.

.

Statement of Financial Position

The financial statements on pages 68 to 87 were approved by the Board of Directors and authorised for issue on 19 April 2024 and were signed on its behalf by:

Howard Pearce

Chairman

The accompanying notes on pages 72 to 87 are an integral part of these financial statements.

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

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Statement of Cash Flows

The accompanying notes on pages 72 to 87 are an integral part of these financial statements.

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Notes to the Financial Statements

1. ACCOUNTING POLICIES

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

(a) Basis of Preparation

The financial statements have been prepared in accordance with United Kingdom company law, FRS 102 ‘The Financial Reporting Standard applicable in the UK and Ireland’, the Statement of Recommended Practice “Financial Statements of Investment Trust Companies and Venture Capital Trusts” (the “SORP”), and the historical cost convention, as modified by the valuation of investments at fair value through profit or loss. The Board has considered a detailed assessment of the Company’s ability to meet its liabilities as they fall due, including stress and liquidity tests which modelled the effects of substantial falls in markets and significant reductions in market liquidity, on the Company’s financial position and cash flows. Further information on the assumptions used in the stress scenarios is provided in the Audit Committee report on pages 53 and 54. The results of the tests showed that the Company would have sufficient cash, or the ability to liquidate a sufficient proportion of its listed holdings, to meet its liabilities as they fall due. Based on the information available to the Directors at the time of this report, including the results of the stress tests, the Company’s cash balances, and the liquidity of the Company’s listed investments, the Directors are satisfied that the Company has adequate financial resources to continue in operation for at least the next 12 months and that, accordingly, it is appropriate to adopt the going concern basis in preparing these financial statements.

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

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

• Level 1 – fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities;

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

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

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

Presentation of the Income Statement

In order to reflect better the activities of an investment trust company and in accordance with the SORP, supplementary information which analyses the Income Statement between items of a revenue and capital nature has been presented alongside the Income Statement. The net revenue return is the measure the Directors believe appropriate in assessing the Company’s compliance with certain requirements set out in Sections 1158 and 1159 of the Corporation Tax Act 2010. Refer to 1(d) for details on how expenses are allocated to revenue and capital.

Critical Accounting Judgements and Key Sources of Estimation Uncertainty

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

The key estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities relate to the valuation of the Company’s unquoted (Level 3) investments. £12,260,000 or 11.1% (2022: £16,864,000 or 18.0%) of the Company’s portfolio is comprised of unquoted investments. These are all valued in line with accounting policy 1(b) below. Under the accounting policy the reported net asset value or price of recent transactions methodologies have been adopted in valuing those investments, as set out on page 86.

As the Company has judged that it is appropriate to use reported NAVs in valuing unquoted investments as set out in note 17 (vi), the Company does not have any key assumptions concerning the future, or other key sources of estimation uncertainty in the reporting period, which may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Whilst the Board considers the methodologies and assumptions adopted in the valuation of unquoted investments to be supportable, reasonable and robust, because of the inherent uncertainty of valuation, the values used may differ significantly from the values that would have been used had a ready market for the investment existed. These values may need to be revised as circumstances change and material adjustments may still arise as a result of a reappraisal of the unquoted investments’ fair value within the next year. As set out on page 86, a 25% discount to NAV has been employed by the Company as a sensitivity test for the impact of the inherent valuation risk associated with its unquoted investments.

Segmental Analysis

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

(b) Financial Instruments

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

Basic financial assets:

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

Investment held at fair value through profit or loss:

Investments are initially measured and subsequently remeasured at fair value as at the reporting dates.

Purchases and sales of quoted investments are recognised on the trade date where a contract exists whose terms require delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are recognised when the contract for acquisition or sale becomes unconditional. Transaction costs associated with purchases and sales of investments are charged in the capital column in the Company’s Income Statement.

Changes in the fair value of investments and gains and losses on disposal are recognised under the capital column in the Income Statement as ‘gains or losses on investments’. The fair value of the different types of investment held by the Company is determined as follows:

• Quoted Investments

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

• Unquoted Investments

Fair value is determined using recognised valuation methodologies in accordance with the International Private Equity and Venture Capital Association valuation guidelines (“IPEVCA Guidelines”).

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

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

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

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

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

Derivatives

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

(c) Investment Income

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

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

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

(d) Expenses

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

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

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

Performance fee provisions are recognised when a present obligation arises from past events, it is probable that the obligation will materialise and it is possible for a reliable estimate to be made, but the timing of settlement or the exact amount is uncertain. Any performance fee accrued or paid is charged in full to the capital column of the Income Statement.

(e) Taxation

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

(f) Foreign Currency

Transactions recorded in overseas currencies during the year are translated into sterling at the exchange rate ruling on the date of the transaction. Assets and liabilities denominated in overseas currencies are translated into sterling at the exchange rates ruling at the date of the Statement of Financial Position.

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

(g) Cash and Cash Equivalents

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

(h) Share Capital

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

(i) Capital Reserves

The following are transferred to this reserve: gains and losses on the realisation of investments; changes in the fair values of investments; and expenses, together with the related taxation effect, charged to capital in accordance with the Company’s accounting policy on expenses in 1(d).

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

(j) Special Reserve

The special reserve arose following court approval in 2016 to cancel the share premium account. This reserve is distributable.

(k) Revenue Reserve

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

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

3. INVESTMENT AND PORTFOLIO MANAGEMENT FEES

4. OTHER EXPENSES

The Company has no employees and details of the amounts paid to Directors are included in the Directors’ Remuneration Report beginning on page 56 of the Annual Report. Other expenses balance for the year ended 31 December 2023 includes non-recurring credits of £39,000 relating to historic periods.

5. TAXATION ON NET RETURN

(a) Analysis of charge in period

(b) Factors affecting current tax charge for the year

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

The tax charged for the period is lower than the standard rate of corporation tax in the UK of 23.25% (2022: 19%). The difference is explained below.

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

(c) Provision for deferred tax

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

The UK Government announced in the 2021 budget that from 1 April 2023, the rate of corporation tax in the United Kingdom would increase from 19% to 25% for companies with taxable profits between £50,000 and £250,000, but with a marginal relief applying as profits increase. The Company has not recognised a deferred tax asset of £3,725,000 (25% tax rate) (2022: £3,042,000, 25% tax rate) as a result of unutilised excess management expenses of £14,900,000 (2022: £12,168,000). It is not anticipated that these excess expenses will be utilised in the foreseeable future.

6. INCOME/(LOSS) PER SHARE

The capital, revenue and total return per ordinary share are based on the net income/(loss) shown in the Income Statement on page 68 and the weighted average number of ordinary shares in issue 79,199,042 (2022: 80,000,001).

No dilutive instruments have been issued by the Company.

7. DIVIDENDS PAID

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

In respect of the year ended 31 December 2023, a final dividend of 0.9p per share or £711,000 (2022: 0.4p per share or £316,100) in total has been recommended to shareholders and, if the resolution is passed at the AGM, will be reflected in the Annual Report for the year ending 31 December 2024. Details of the ex-dividend and payment dates are shown on page 39.

The Board’s current policy is to only pay dividends out of revenue reserves. The amount of revenue reserve available for distribution as at 31 December 2023 is £1,268,000 (2022: £690,000). The Company generated a revenue profit in the year ended 31 December 2023 of £894,000 (2022: £486,000).

8. INVESTMENTS

Proceeds from investments sold during the year were £34,551,000 (2022: £16,415,000), of which £867,000 were receivable as at 31 December 2023 (2022: £nil). The book cost of these investments was £17,390,000 (2022: £29,070,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments.The Company also received £4,497,000 (2022: paid £12,488,000) in cash on currency forward contracts (Note 9) expired during the period.

Net movement in investment holding gains/(losses) on investments

Total unrealised gains, including transfers, during the year were £5,984,000 (2022: £13,057,000).

Purchase transaction costs were £27,000 (2022: £3,000). These comprise mainly commission and stamp duty. Sales transaction costs were £5,000 (2022: £3,000). These comprise mainly commission.

9. DERIVATIVES

Forward contracts were used during the year to hedge the Company’s exposure to the euro and US dollar. See note 17(ii) for further details. The Company received £4,497,000 (2022: paid £12,488,000) on contracts closed during the year. The forward contracts are revalued over time and any gains or losses (both realised and unrealised) are included in gains/(losses) on investments in the capital column of the Income Statement.

The currency forward contracts expired post year end and the Company received £1,614,000 in cash on expiry. As disclosed in the Portfolio Manager's Review and the Business Review in the Strategic Report, the Company has discontinued hedging activities since the year end.

10. DEBTORS

11. CREDITORS

12. PERFORMANCE FEE PROVISIONS

The three-year performance period that commenced on 1 January 2021 ended on 31 December 2023 and £829,000 has been charged in the Income Statement with a corresponding payable balance in the Statement of Financial Position. Settlement of performance fee provisions will take place following approval of the annual results for the year ended 31 December 2023, in April 2024.

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

13. SHARE CAPITAL

There is a single class of shares in issue, being ordinary shares. The voting rights of the ordinary shares on a poll are one vote for each share held. There are no:

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

• agreements, known to the Company, between holders of securities regarding the transfer of ordinary shares;

or

• special rights with regard to control of the Company attaching to the ordinary shares

The Company repurchased 975,000 ordinary shares during the year ended 31 December 2023 (2022: none) and all repurchased ordinary shares were subsequently cancelled. The nominal amount of £9,750 related to these cancelled shares was credited to the capital redemption reserve.

14. NET ASSET VALUE PER SHARE

The net asset value per share is based on the assets attributable to equity shareholders of £126,679,000 (2022: £103,831,000) and on the number of ordinary shares in issue at the year end of 79,025,001.

No dilutive instruments have been issued by the Company.

15. RECONCILIATION OF NET CASH OUTFLOW FROM OPERATING ACTIVITIES

16. RELATED PARTIES

The following are considered to be related parties:

• Frostrow Capital LLP; and

• The Directors of the Company

Details of the relationship between the Company and the Company’s AIFM are disclosed in the Strategic Report on page 27. Details of fees paid to Frostrow by the Company can be found in note 3 on page 76. All material related party transactions have been disclosed in note 3 on page 76. Details of the remuneration of the Directors can be found in note 4 and in the Directors’ Remuneration Report starting on page 56. Details of the Directors’ interests in the capital of the Company can be found on page 57.

The balance outstanding to Frostrow at the year end was £24,000 (2022: £20,000). No balances were due to the Directors (2022: nil).

17. FINANCIAL INSTRUMENTS

Risk management policies and procedures

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

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

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

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

(ii) liquidity risk

(iii) credit risk

These risks and the Directors’ approach to the management of them, are set out in the Strategic Report on pages 29 to 31. The AIFM, in close co-operation with the Board and the Portfolio Manager, co-ordinates the Company’s risk management.

(i) Other price risk

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

The Board manages these risks through the use of investment limits and guidelines as set out on pages 8 and 9, and monitors the risks through monthly compliance reports from Frostrow, with reports from Frostrow and the Portfolio Manager also presented at each Board meeting. In addition, Frostrow monitors the exposure of the Company and compliance with the investment limits and guidelines on a daily basis.

Other price risk sensitivity

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

If market prices at the date of the Statement of Financial Position had been 25% higher or lower while all other variables had remained constant: the revenue return would have decreased/increased by £59,000 and £72,000 respectively (2022: decreased/increased by £46,000 and £81,000 respectively); the capital return would have increased/decreased by £21,763,000 and £23,324,000 respectively (2022: increased/decreased by £18,199,000 and £19,009,000 respectively); and, the return on equity would have increased/decreased by £21,704,000 and £23,252,000 respectively (2022: increased/decreased by £18,152,000 and £18,953,000 respectively). The calculations are based on the portfolio as at the respective dates of the Statement of Financial Position and are not representative of the year as a whole.

(ii) Foreign currency risk

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

Foreign currency risk is monitored in conjunction with other price risk as described above. The Portfolio Manager used foreign currency forwards to hedge some of the foreign currency risk historically, but as disclosed in the Manager’s Review and the Business Review in the Strategic Report hedging activities ceased post the year ended 31 December 2023.

Foreign currency exposure

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

* Derivatives comprise foreign currency forward contracts used to partially hedge the Company’s exposure to the euro and US dollar. As at 31 December 2023, the fair value of the US dollar forward contract was £1,827,000 (2022: £4,096,000) and of the Euro forward contract was £90,000 (2022: £103,000).

Foreign currency sensitivity

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

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

(iii) Interest rate risk

Interest rate changes may affect:

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

- the fair value of investments in fixed interest securities.

Interest rate exposure

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

Interest rate sensitivity

If interest rates had been 1% higher or lower and all other variables were held constant, the Company’s net return for the year ended 31 December 2023 and the net assets would increase/decrease by £149,000 (2022: £61,000).

(iv) Liquidity risk

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

The main liquidity requirements the Company may face are its commitments to the investments in limited partnership funds, as set out in note 19 on page 87. These commitments can be drawn down on 3 or 10 days notice. Having reviewed the nature of the investment and the track record of the underlying mandate for the most significant commitment, to TCI Real Estate Fund III Limited and TCI Real Estate Fund IV Limited, the Board expects that it will be drawn down gradually over the life of the investment and as such poses a low risk to the liquidity of the Company. Frostrow and/or the Portfolio Manager are in regular contact with the managers of the limited partnership funds, as a part of which they would be made aware of, and plan accordingly for any drawdowns under those commitments.

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

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

(v) Credit risk

Credit risk is the risk of failure of a counterparty to discharge its obligations resulting in the Company suffering a financial loss. The Company’s investments are held by J.P. Morgan Europe Limited(“the Depositary”), which is a large and reputable international banking institution. The Depositary is liable for the loss of any financial assets under its custody, and in accordance with its agreement with the Company, is required to segregate such assets from its own assets.

Credit risk exposure

(vi) Hierarchy of investments

The Company’s investments are valued within a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurements as described in the accounting policies beginning on page 72.

Level 3 investments at 31 December 2023

1 Described as John Laing in the portfolio statement

Level 3 investments at 31 December 2022

1 Described as John Laing in the portfolio statement

2 Described as X-ELIO in the portfolio statement

In November 2023, the Company received a final distribution of US$16.9 million (£13.8 million) from its investment in Helios Co-Invest LP, following the disposal of the partnership’s remaining holding in X-ELIO.

Unquoted investment valuations are provided by the underlying investment managers, who follow industry recognised guidelines and a stringent valuation process, which includes independent review by third parties. The Company is satisfied that the valuations received represent fair value of the investments it holds, but retains the discretion to make adjustments if there are indicators that suggest otherwise.

If a 25% discount to NAV was applied to the NAV of the level 3 investments as at 31 December 2023, the impact would have been a decrease of £2,191,000 (2022: £4,154,000) in net assets and the net return for the year.

(vii) Capital management policies and procedures

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

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

The capital structure of the Company comprises the equity share capital (ordinary shares), retained earnings and other reserves as disclosed on the Statement of Financial Position on page 70.

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

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

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

- whether to issue new equity shares; and,

- the extent to which revenue in excess of that required for distributions should be retained.

18. CAPITAL RESERVE

Realised capital reserve and revenue reserve are available for distribution. Unrealised gains, which are not readily

convertible to cash are not considered distributable.

19. FINANCIAL COMMITMENT

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

20. THE COMPANY

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

21. POST BALANCE SHEET EVENT

As disclosed in the Portfolio Manager’s Review on page 19, in January 2024 the Company ceased to hedge its currency exposures. There are no other post balance sheet events which would require adjustment of or disclosure in the financial statements.

.

Glossary

Alternative Investment Fund Managers Regulations (“UK AIFMD”)

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

Compounding Hurdle

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

Discount or Premium

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

Gearing

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

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

High Watermark

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

Leverage

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

Net Asset Value (“NAV”)

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

NAV Total Return (APM)

Total return on shareholders’ funds per share, reflecting the change in NAV assuming that any dividends paid to shareholders were reinvested at NAV at the time the shares were quoted ex-dividend. A way of measuring investment management performance of investment trusts which is not affected by movements in the share price.

Share Price Total Return (APM)

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

Ongoing Charges Ratio (APM)

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

.

The figures and financial information for 2022 are extracted from the published Annual Report for the year ended 31 December 2022 and do not constitute the statutory accounts for that year. The Annual Report for the year ended 31 December 2022 has been delivered to the Registrar of Companies and included the Independent Auditor’s Report, which was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006.

The figures and financial information for 2023 are extracted from the Annual Report and financial statements for the year ended 31 December 2023 and do not constitute the statutory accounts for the year. The Annual Report for the year ended 31 December 2023 includes the Independent Auditor’s Report, which is unqualified and does not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006. The Annual Report and financial statements have not yet been delivered to the Registrar of Companies.

ANNOUNCEMENT ENDS

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