GABELLI MERGER PLUS+ TRUST PLC
(the Company)
Financial Results for the year ended 30 June 2023
19th October 2023
LEI: 5493006X09N8HK0V1U37
The Company today, are pleased to announce their financial results for the year ended 30 June 2023. A copy of the full Annual Report & Accounts will be published and mailed to shareholders on 26th October together with the Notice of Annual General Meeting. Further information with further instruction will be posted via RNS on the same day.
Gabelli Merger Plus+ Trust Plc's primary investment objective is to seek to generate total return consisting of capital appreciation and current income for the long term.
Financial Highlights
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Performance | As at 30 June 2023 | As at 30 June 2022 |
| Net asset value per share (cum income)1,2 | $10.22 | $9.35 |
| Net asset value per share (ex income)3 | $10.52 | $9.78 |
| Dividends per share paid during the year2,4 | $0.12 | $0.48 |
| Share price | $9.00 | $9.00 |
| Discount to Net Asset Value 5,6 | (11.94)% | (3.74)% |
|
Total returns | Year ended 30 June 2023 | Year ended 30 June 2022 |
| Net asset value per share6,7 | 10.54% | (1.37)% |
| U.S. 3-month Treasury Bill Index | 3.80% | 1.69% |
| Share price6,8 | 1.33% | 29.06% |
|
Income | Year ended Year ended 30 June 2023 30 June 2022 |
| Revenue return per share | $0.39 ($0.09) |
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Ongoing charges6,9 | Year ended Year ended 30 June 2023 30 June 2022 |
| Annualised ongoing charges | 2.17% 1.67% |
Source: Portfolio Manager (Gabelli Funds, LLC), verified by the Administrator (State Street Bank and Trust Company).
1 Net Asset Value (NAV) includes balance sheet adjustments resulting from the Company now being a close company. Such adjustments include deferred tax assets as per Note 8 and Note 9, pages 55 to 57.
2 Cum-income net asset value includes all income, less the value of any dividends paid together with the value of any dividends which have been declared and marked ex dividend but not yet paid. Where the cum-income NAV is lower than the ex-income NAV, this reflects the revenue deficit.
3 Ex-Income NAV: Ex-income net asset value is the Cum-income NAV excluding net income (net income being all income, less the value of any dividends paid together with the value of any dividends which have been declared and marked ex-dividend but not yet paid).
4 The dividend paid during the year ended 30 June 2023 was the fourth interim dividend for the year ended 30 June 2022. Following the Tranche Two Tender Offer the Board has continued to review and assess the Company's distribution policy. The Company paid the first interim dividend for the fiscal year ended 30 June 2023 on 8 September 2023.
5 The amount by which the market price per share is lower than the cum-income NAV per share, expressed as a percentage of the cum-income NAV per share. Figures are inclusive of income and dividends paid, in line with the Association of Investment Companies (the "AIC") guidance.
6 These key performance indicators are alternative performance measures. Further information regarding the use of alternative performance measures can be found on page 12 and in the glossary on page 68.
7 Net Asset Value per ordinary share, total return represents the theoretical return on NAV per ordinary share, assuming that dividends paid to shareholders were reinvested at the NAV per ordinary share at the close of business on the day shares were quoted ex-dividend.
8 Share Price Total Return represents the theoretical return to a shareholder, on a closing market price basis, assuming that all dividends received were reinvested, without transaction costs, into the ordinary shares of the Company at the close of business on the day the shares were quoted ex-dividend.
9 Ongoing Charges are operating expenses incurred in the running of the Company, whether charged to revenue or capital, but excluding financing costs. These are expressed as a percentage of the average net asset value during the period and this is calculated in accordance with guidance issued by the Association of Investment Companies.
Chairman's Statement
We share this Annual Report to Shareholders, encompassing the period from July 2022 through June 2023, and note certain developments post financial year end. Gabelli Merger Plus+ Trust Plc (the "Company") operates globally in the highly specialised investment discipline of value investing utilising the Gabelli Private Market Value with a CatalystTM methodology. The objectives are to compound and preserve wealth over time, while remaining non-correlated to the broad equity and fixed income markets. The investment programme is global, with an emphasis on Private Market Value.
The Company's primary objective is to seek to generate total return, consisting of capital appreciation and current income for the long term. The Company will seek a secondary objective of the protection of capital, uncorrelated to equity and fixed income markets. The Fund utilises the Gabelli Private Market Value (PMV) with a CatalystTM investment methodology, and has built a diversified portfolio using PMV catalyst event merger arbitrage strategies to create an optimal risk/reward profile. The Company's activities encompass a broad spectrum of special situation event driven opportunities with an emphasis on PMV discount opportunities inclusive of announced merger transactions. Value appreciation is derived through the narrowing of PMV discount spreads as a function of their catalyst. The value spread is a function of three primary elements: the risk free rate, the risk premium associated with the fundamentals, and the time value of money. The dynamic interplay across these components is evaluated within every investment by the Portfolio Manager. Position sizing will vary according to a probabilistic assessment of the risk and may include minority or majority controlling operating interests through the market cycle with an effort to generate long term shareholder returns.
The manager has broad investment flexibility to implement the investment policy. The inherent risk in all PMV with a CatalystTM investing is a broken deal rather than the standard deviation or price variance of the market price movements over the deal timeline.
Gabelli Funds LLC, the Portfolio Manager, employs an active approach to analysing the fundamentals of a merger investment and has a long history of implementing such a programme. At its core, this differentiated investment approach utilises the Gabelli analytical methodology to manage risk amongst other inputs and
factors. Further details are available on the Portfolio Manager's website at www. gabelli.com.
The Board is always receptive to feedback and is available should you have any questions or comments via the Portfolio Manager's Investor Relations group directly. We thank you, our shareholders, for your confidence in entrusting a portion of your assets to our team.
The Investment Environment
We as a society may have moved past COVID, but its aftereffects are still felt. Uncertainty surrounding the current state of the global macroeconomic environment, taxed supply chains coupled with inflationary pressures and rising interest rates against the backdrop of war has plagued the pace of global deal making. This adds an element of uncertainty to capital allocation decisions. Political, corporate and individual actors still need to sort through a variety of issues. Economic and market conditions may worsen before they improve, and there may be volatility in currency markets as Central Banks adjust interest rate policies. The risks to equity market corrections and a structural financial crisis have increased as the US banking system is stressed with a changing yield curve. The Company is positioned to pursue opportunities for the long term in this potentially generationally changing market environment.
Performance
The Company's net asset value (NAV) plus dividends paid delivered a total return to shareholders during the year under review of 10.54% in U.S. dollars. This performance compared to the equivalent 13-week U.S. Treasury Bill which yielded 5.32% as of
30 June 2023, and also relative to the IQ Merger Arbitrage ETF, S&P Merger Arbitrage Index, and Credit Suisse Merger Arbitrage Liquid Index, which returned
-0.80%, -3.46%, and 5.67%, respectively. The share price total return with dividends reinvested was 1.33%. The performance for shareholders at IPO through the end of the fiscal year was 31.77% with dividends reinvested, versus a return of 24.64% for the Credit Suisse Merger Arbitrage Liquid Index.
The company may take advantage of market dislocations and establish controlling and operating positions in businesses and may also invest occasionally in other forms of relative value investing, such as such as share class arbitrage and holdco arbitrage. The Company's portfolio today is largely
focused on the Catalyst events where the terms are known and transparent to the market and the holdings are liquid.
Dividends
In order to allow the Shareholders to realise a predictable, but not assured, level of cash flow and some liquidity periodically on their investment, the Company has adopted a "managed dividend policy". This policy seeks to pay Shareholders a quarterly dividend in relation to the Net Asset Value of the Company at the time, which may be changed at any time by the Board. Between inception and 30 June 2023, the Company returned $2.39 per share to shareholders, consistent with its dividend policy. Additionally, the Company paid the first interim dividend in respect of the year ended 30 June 2023 on 8 September 2023, in the amount of
$0.12 per Ordinary Share. Dividends are paid only when declared by the Board subject to the Board's assessment of the Company's financial position and only if the Company has sufficient income and distributable reserves to make the dividend payment, and the level of dividend may vary over time. As such, the portfolio's managed distribution of capital through the payment of quarterly dividends is under review as we enter the new Fiscal Year.
Organisational Matters
The company completed its Fifth year since listing on the London Stock Exchange's Special Fund Market segment which set forth certain actions in accordance with its shareholder Loyalty Programme, including completing a Fifth Anniversary Tender Offer, resulting in the single participator Associated Capital Group, Inc., controlling over 90% of the shares in issue. The Company notified shareholders via an RNS announcement on 19 October 2022 that the Board of Directors determined that the Company now operates as a Close Company for the purposes of taxation and no longer avails itself of investment trust status, as per Section 1158 of the Corporation Tax Act 2010. Net Asset Value (NAV) includes balance sheet adjustments resulting from the Company now being a close company. Such adjustments include deferred tax assets.
This report includes the Fifth Anniversary Tender Offer for Qualifying Registered Shares via two tranches beginning in September 2022 and ending February 2023. Shareholders whose shares were registered in the Loyalty Programme for five years were eligible to participate in the Company's tender offer. The Company
purchased 3,387,414 shares, resulting in 6,850,792 shares in issue at 30 June 2023 versus 10,238,206 shares in issue in July 2022. The Board of Directors acknowledges that the largest shareholder, Associated Capital Group, Inc., the legal and beneficial owner of 6,210,619 shares at the time of this writing, elected not to tender and has expressed its view that the Company should continue. Associated Capital Group, Inc. also agreed to subscribe for Special Voting Loyalty Shares, which will increase its voting interest when issued, with issuance pending. As a result, the Company will operate as a Close investment company, and therefore will be subject to UK corporate taxes, and thus no longer avail itself to investment trust status. The Board of Directors will assess shareholder considerations and undertake the analysis of options for the continuing Company, including operational and structural alternatives oriented towards expense and tax savings, as it progresses. Finally, in accordance with the charter, remaining registered Loyalty Programme Five year shareholders are eligible to receive an additional vote per individual share held. The Loyalty Programme has been implemented in accordance with the offering prospectus. The Board expects a tender offer to be implemented in 2024, in the range of approximately 5% of the Ordinary Shares not owned by Associated Capital Group, Inc. Any such offer is under further review and analysis.
The company is expected to implement its investment policy to also include the acquisition of shares for control which may require of the Company to operate such investments to enhance its objective of total returns for the long term while also seeking to enhance current income. As such in a subsequent event, the Board has appointed executive management to help efficiently implement the company's growth plans. In context, in 2022 shareholders authorised the allotment of additional Ordinary Shares which can be utilised for acquisitions to further expand and develop shareholder value in accordance with the investment programme.
The Company has elected continued adherence to the AIC's SORP. Although no longer a trust, the Company has elected to continue to prepare the financial statements on a basis compliant with the recommendations of the SORP. The SORP is issued by the AIC and it sets out recommendations, intended to represent current best practice, on the form and
contents of the financial statements of Investment Companies. Investment Companies include investment trust companies that have been, currently are, or are directing its affairs so as to enable it to obtain or retain approval under Section 1158 of the Corporation Tax Act 2010. Although the Company no longer meets the requirements of Section 1158 of the Corporation Tax Act 2010 to be an investment trust, it continues to conduct its affairs as an investment company.
Final Thoughts
We reiterate today's post World War II order is facing intense challenges, yet this Company has performed consistently and non-correlated to the broader indices since inception. It has endured COVID-19, the onset of inflation and higher interest rates, and a fragile regulatory environment lead by the geo-political wrangling between the US and China. The list continues, as will the Gabelli Merger Plus+ Trust Plc in the United Kingdom.
John Birch Marc Gabelli
Co-Chairman Co-Chairman 19 October 2023
The Search For Value - Gabelli Merger Plus+ Investment Methodology
Process in Action
Gabelli Funds approach the global marketplace in a similar fashion; we invest like owners. Our clients own businesses through the fractional interest of a share. We are not index benchmarked, and construct portfolios agnostic of market capitalisation and index weightings. We seek long term capital appreciation for our clients relative to inflation over the long term, regardless of market cycles. We have invested this way since 1977.
The Gabelli Merger Plus portfolio offers access to companies that have been identified to have substantial disconnects between market price and our estimate of the business value (PMV), and where catalyst events exist that may narrow these discounts for the benefit of GMP shareholders. We thus establish a "Margin of Safety" for our investors by identifying differences between our estimate of PMV and the stock market price. The process seeks to identify businesses undergoing some form of strategic change, typically with strong organic cash flow characteristics, balance sheets reorganizational opportunities, and strategic operational flexibility accelerated with the prospect of management capital allocation actions.
Catalyst merger events can come in many forms including, but not limited to, corporate restructurings (such as demergers and asset sales), operational improvements, regulatory or managerial changes, special situations (such as liquidations), and mergers and acquisitions. Corporate mergers provide valuable insights into corporate capital allocation decisions and therefore help in our assessment of long term valuations. Our proprietary research data bases track thousands of announced deals globally and utilises that compounded knowledge in the continued refinement of Private Market Valuations. PMV's will change over time, and while our analysis is long term, it is through this consistent process of bottom up stock selection and the implementation of disciplined portfolio construction that we expect to create value for our shareholders annually.
In this process, we do sector-by-sector analysis, assessing the PMV of a business, and identifying the catalyst in place to realise returns. A company's PMV is not constant, and changes as a function of many variables. Our analysis emphasizes balance sheets, cash flows, and the long term defendable position of a corporation. We achieve returns through investing in businesses utilising our proprietary Private
Market Value ("PMV") with a Catalyst™ methodology. We PMV is the value that we believe an informed buyer would be willing to pay to acquire an entire company in a private transaction. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information. Further, PMV's are enhanced through the analysis of announced corporate mergers and acquisition activity. Mergers offer tangible insights into the long term capital allocation decisions of global corporations. We focus on the balance sheet, earnings, free cash flow, and the management, the stewards of corporates assets, of prospective companies. The judgement gained from our comprehensive, accumulated knowledge across a variety of sectors is deployed for investors in a portfolio. Our analysts typically forecast model company operations 5 years into the future. Unlike Wall Street's earnings momentum players, we do not try to forecast earnings with accounting precision and then trade stocks based on quarterly expectations and realities. We simply try to position ourselves in front of long-term earnings trends. Throughout our research process, the focus is on free cash flow: earnings before interest, taxes, depreciation and amortization ("EBITDA") minus the capital expendituresnecessary to grow the business. We believe free cash
flow is the best barometer of a business' value. Deteriorating or rising free cash flow often foreshadows net earnings changes. We also look at earnings per share trends. In addition, we analyse on and off balance sheet assets and liabilities such as property, plant and equipment, inventories, receivables, and legal, environmental and health care issues. We want to know everything and anything that will add to, or detract from, our valuation models. This method of analysis involves looking at businesses as a function of their assets and earnings power. We examine businesses as if we were owners of those businesses, and we believe that we can do that in a rational way by looking at industries on a global basis. Our investment professionals visit with hundreds of companies each year. Our work is proprietary, bottom up, and involves the full utilisation of public resources.
Our analysts follow industries on a global basis, and narrow the universe of potential investment candidates to a short list of the most attractive companies. All publicly available company material is reviewed, including annual and quarterly reports, 10-Ks, 10-Qs, and proxy statements.
Each analyst develops an operational understanding of their industry, effectively becoming an expert in that industry. The analysts hone this expertise by continually visiting companies and their senior managements, and by talking to competitors, suppliers and customers. They also develop and maintain government and trade sources to derive an overall understanding of their industry. In addition, our firm hosts a number of industry seminars, where the top executives of the leading firms share their insights with the investment community.
The objective of this process is to identify companies that trade at significant differences to their intrinsic or private market values.
We continually visit the management of hundreds of companies and integrate their input with our knowledge base. Our goal is to understand management's motivations and expectations. Given our approach, we want to know who our partners are and if they are working to enhance shareholder value. This process, coupled with our financial analysis, helps us select the most attractive investment candidates for our portfolios.
We employ a three-dimensional approach to valuation:
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• Free cash flow
• Private market value
The first step is to analyse the income statement and cash flow. Cash flow is viewed as a barometer of financial health, and often foreshadows earnings trends. We attempt to forecast the direction and growth rates of the earnings and cash flow streams.
The second step is to examine the balance sheet. The corporate balance sheet is recast, assessing real-world values of inventories, property, plant and equipment and stated book value.
To these two analytical processes, dynamic forecasting and static asset and liability valuation, we add our assessment of the PMV of the business. In other words, what would this company be worth to an informed business person attempting to create or purchase a business with similar characteristics?
Catalyst: Identification of a mispriced situation, however, does not necessarily guarantee a rewarding investment. The next step is to determine events in businesses undergoing some form of strategic change that will help narrow the spread between a stock's public market price and our determination of its PMV. We call these events catalysts. Catalysts include industry events such as consolidation, changes in the regulatory or accounting environment, new technologies, or be indigenous to the company itself such as financial engineering, demergers, acquisitions or sales.
Results: After we have identified and selected stocks that qualify as candidates based on these fundamental and conceptual considerations, our objective is to structure a diversified portfolio. This has been a proven long-term method for creating wealth, risk adjusted, in the stock market.
Investment Objective and Policy
Investment objective
The Company's primary investment objective is to seek to generate total return, consisting of capital appreciation and current income for the long term. The Company will seek a secondary objective of the protection of capital, uncorrelated to equity and fixed income markets.
Investment policy
The Company will seek to meet its long term investment objective by utilising the Gabelli Private Market Value (PMV) with a CatalystTM, investment methodology, maintaining a diversified portfolio of event merger arbitrage strategies to seek to create an optimal risk/ reward profile for the portfolio. The company invests for the long term as owners with an emphasis on cash generating, franchise companies, selling at a significant discount to our appraisal of their Private Market Value. We define Private Market Value (PMV) as the value an informed industrialist would pay to purchase assets with similar characteristics in a privately negotiated transaction.
"Event Driven Merger Arbitrage" is a highly specialised active investment approach designed principally to profit from the differences between PMV estimates and public market price with returns realised through the price achieved through corporate catalyst events. Catalysts are utilised to earn returns independent of the broad markets' direction. This includes corporate events such as, but not limited to, management changes, announced mergers, acquisitions, takeovers, tender offers, leveraged buyouts, restructurings, demergers and other types of reorganisations and corporate actions ("deals").
The Company will invest and operate globally although it is expected to have an emphasis on predominantly equity securities issued by companies in the United States of any market capitalisation. The Company is permitted to use a variety of investment strategies and instruments, including but not limited to: minority or majority controlling operating interests in equity; convertible and non-convertible debt securities; asset-backed and mortgage-backed securities; fixed interest securities; preferred stock, non- convertible preferred stock, depositary receipts; shares or units of UCIs or UCITS as an investment or by management contract; rights qualifying as transferable securities; when issued, delayed delivery transferable securities; forward contracts; swaps; recently issued transferable securities; repurchase agreements, money market instruments and warrants.
The Company may invest part of its net assets in cash and cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with banks or other counterparties having at least a single A (or equivalent) credit rating from an internationally recognised rating agency or government and other public securities, if the Portfolio Manager believes that it would be in the best interests of the Company and its Shareholders. This may be the case, for example, if the Portfolio Manager believes that adverse market conditions justify a temporary defensive position. Any cash or surplus assets may also be temporarily invested in such instruments pending investment in accordance with the Company's investment policy.
The Company may take both long and short positions in equity and debt securities. For shorting purposes, the Company may use indices, individual stocks, or fixed income securities. The Company is a long-term investor and does not seek to generate short-term returns or profits from trading or hedging. While taking a long-term view, the Company will realise opportunities from hedging or for shorter-term gains when appropriate.
The Company may utilise financial derivative instruments to create both long and synthetic covered short positions with the aim of maximising positive returns. The Company may use strategies and techniques consisting of options, futures contracts, and currency transactions and may enter into total rate of return, credit default, or other types of swaps and related derivatives for various purposes, including to gain economic exposure to an asset or group of assets that may be difficult or impractical to acquire.
The Company may also use derivatives for efficient portfolio management purposes including, without limitation, hedging and risk management and leverage.
The Company has broad and flexible investment authority and, accordingly, it may at any time have investments in other related or unrelated areas. Strategies and financial instruments utilised by the Company may include, but are not limited to: (i) purchasing or writing options (listed or unlisted) of any and all types including options on equity securities, stock market and commodity indices, debt securities, futures contracts, future contracts on commodities and currencies; (ii) trading in commodity futures contracts, commodity option contracts and other commodity interests including physical commodities; (iii) borrowing money from brokerage firms and banks on a demand basis to buy and sell short investments in excess of capital; (iv) entering into agreements to acquire operating businesses including managing assets for third parties and (v) entering into swap agreements (of any and all types including commodity swaps, interest rate swaps and currency swaps), forward contracts, currencies, foreign exchange contracts, warrants, credit default swaps, synthetic derivatives (for example, CDX), collateralised debt obligations tranches, and other structured or synthetic debt obligations, partnership interests or interests in other investment companies and any other financial instruments of any and all types which exist now or are hereafter created.
No material change will be made without shareholder approval.
Portfolio Manager's Review
Methodology and Market Opportunity
In this context, let us outline the investment landscape during the year to 30 June 2023 and the environment ahead. We are especially enthusiastic about the opportunities to grow client wealth in the decades to come, and we highlight below several factors that should help drive results. These include:
• Increased market volatility, which enhances our ability to establish positions for the prospect of improved returns;
• A robust market for corporate deal making as conditions continue to provide an accommodative market for mergers and acquisitions;
• A rising interest rate environment, providing attractive merger spread opportunities;
• The Fund's experienced investment team, which pursues opportunities globally through the disciplined application of the Gabelli investment methodology.
Global Deal Activity1
Global deal merger and acquisition activity ("M&A") totaled $3.6 trillion during 2022, a year-over-year decrease of 37% (30% decrease if SPACs are excluded). Deal activity began to slow down in the second half of the year, as the third quarter was the first in two years that did not surpass $1 trillion in announced deal activity. The total number of deals
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1 Thomson Reuters M&A Review - Second Half 2022 and First Half 2023
worldwide decreased only 17% compared to 2021. Mega deals-those greater than
$10 billion-totaled $787 billion, while deals with values between $1 billion and
$5 billion accounted for $1.0 trillion during the year, down 31% and 44% year over year, respectively.
Cross border M&A activity totaled $1.1 trillion for the calendar year, a decrease of 46% from last year's all-time high. Private equity deals decreased 36% year over year; however, these buyouts accounted for a record 20% of total deal activity.
During the first half of 2023, global M&A activity totaled $1.3 trillion, a year-over- year decrease of 37%, the slowest first half since the COVID pandemic. Deal activity did start to pick up in the second quarter, increasing 33% sequentially. Additionally, the number of deals in the first half was only down 9% compared to last year. This dichotomy was driven by the lack of mega deals-those greater than $10 billion-which totaled $259 billion, down 53% year over year.
Cross border M&A activity totaled $494 billion through June, a decrease of 25%. Private equity deals decreased 49% year over year; however, these buyouts accounted for 21% of total deal activity.
While deals involving United States- based targets declined 40% in the first half, they still accounted for 43% of global deal activity. European M&A tallied $263 billion of transactions over the same period, a decrease of 49%. Asia Pacific targets totaled $294 billion in the first half of 2023, a 35% decrease year over year.
In the first half, the Healthcare sector was the biggest contributor to merger activity, totalling $188 billion and accounting for 14% of total announced deal volume. The Energy and Power and Technology sectors were also large contributors, each accounting for 14% of M&A activity.
Portfolio in Review
Marked by stubborn inflation, conflict in Europe, and the Federal Reserve's war on inflation, 2022 was a difficult year for risk assets, marked. Higher interest rates and the prospect of a recession spared neither stocks nor bonds, as the S&P 500 and investment grade bonds were down 18% and 13%, respectively. As we have noted in the past, our merger arbitrage portfolios generate returns from taking idiosyncratic deal risk and not market risk, and thus were able to earn a positive return for our clients, despite the volatile markets. Uncertainty in the boardroom, elevated borrowing costs, and a bid-ask divide- that often persists until market participants can digest a sharp decline in asset values- all contributed to a 30% decline in M&A volumes (ex-SPACs) in 2022. However, despite the sharp decline from record 2021 levels, volumes only declined mid-single digits from more normalized 2018 and 2019 levels. The fourth quarter did enjoy an uptick in announced M&A with a healthy
$800 billion in deal activity. We expect
M&A to remain fairly robust on a historical basis. In terms of merger arbitrage spreads, they remain wide and attractive compared to recent history. There are three main reasons for this: (1) market volatility; (2) perceived regulatory risk; and
(3) interest rates. Deals close in all market environments, and volatility provides
us with an opportunity, as it is often indiscriminate. Mispriced risk allows us to add to our highest conviction positions at lower prices-the benefits of which will be apparent as these transactions progress towards closing. Regarding regulatory risk, the aggressive policy reform rhetoric we have written about in the past has translated in some cases into aggressive action. Some deals were able to close in spite of regulatory action (Change Healthcare) and some were able to find alternative, less problematic suitors (Aerojet Rocketdyne). We feel as though this regulatory regime has created unique investment opportunities and an attractive risk/reward. Lastly, the merger arbitrage strategy is a beneficiary of rising rates, as the risk free rate is one of the components of a deal spread. As rates rise, nominal spreads should widen, all things being equal. With the 3 month U.S. Treasury bill yielding well over 5%, this should continue to create a more compelling spread environment going forward. We continue to find attractive investment opportunities in newly announced and pipeline deals. We remain focused on investing in highly strategic, well-financed deals with an added focus on near-term catalysts, and are upbeat about our prospects to generate absolute returns.
U.S. capital markets rebounded significantly in the first half of 2023 despite headwinds. The S&P 500 finished the first half up 16.8% against the backdrop of a debt ceiling drama, a U.S. banking crisis, geopolitical uncertainty, and a Fed that has so far been unwavering in its commitment to fight inflation.
M&A volumes did not prove as resilient, as economic uncertainty and combative regulators contributed to a 37% year- over-year decline in the first half. Despite this sharp decrease in dollar volumes, the number of transactions was only down 9% compared to last year. Deals are still getting done-albeit, smaller in size. The second quarter did begin to show some green shoots, as volumes totaled $750 billion, a 33% sequential improvement. We expect this momentum to continue as the year progresses.
The aggressive policy stance of regulators has persisted in 2023, but companies are adapting and showing a willingness to fight back when case law supports their cause. Regulators' efforts to bring cases with more novel theories of harm thus far have not translated into much success in court. While this has created volatility in certain arbitrage spreads, it has provided
unique investment opportunities with an attractive risk/reward.
A company's PMV is not constant, and changes as a function of many variables. Our analysis emphasizes balance sheets, cash flows, and the long term defendable position of a corporation. We achieve returns through investing in businesses utilising our proprietary Private Market Value ("PMV") with a Catalyst™ methodology. We PMV is the value that we believe an informed buyer would be willing to pay to acquire an entire company in a private transaction. Our team arrives at a PMV valuation by a rigorous assessment of fundamentals from publicly available information. Further, PMV's are enhanced through the analysis of announced corporate mergers and acquisition activity. Mergers offer tangible insights into the long term capital allocation decisions of global corporations. We highlight several investments across sectors which have offered insights to the corporate allocation process below.
Notable contributors to performance include:
Defense Infrastructure
The strategic rational around US defense spending as a long term investment continues, notably in the race to develop hypersonic weapons capabilities as seen in Aerojet Rocketdyne Holdings, Inc. (AJRD-NYSE) agreement to be acquired by L3Harris Technologies, Inc. (LHX- NYSE). Aerojet Rocketdyne Holdings, Inc. (AJRDNYSE), which designs and manufactures specialised power and propulsion systems for space and defense applications, agreed to be acquired by L3Harris Technologies for $58 cash per share, or about $5 billion. In December 2020, Aerojet agreed to be acquired by Lockheed Martin for $51 cash per share, but that deal was terminated in February 2022 after the U.S. Fair Trade Commission sued to block the transaction, claiming that Lockheed would be able to raise the prices the U.S. government pays for rocket engines, and potentially deliver a lower quality product Portfolio Manager's review continued Half-Yearly Financial Report (Unaudited) for the six months ended 31 December 2022 11 to Lockheed's rival defense contractors that utilise Aerojet's propulsion systems. We believe the acquisition by L3Harris provides fewer antitrust risks than the Lockheed transaction did. L3Harris primarily produces electronics and communications systems, so there is no horizontal overlap with Aerojet's business
and no benefit from bundling the two companies' products. An important distinction from the Lockheed deal is that there is also no vertical integration, as Aerojet does not supply L3Harris with any products used in L3's programs, and Aerojet will become a new business unit for L3 as a merchant supplier of engines to prime contractors. We believe shares of Aerojet Rocketdyne were inexpensive after the deal with Lockheed Martin was called off and certain shareholders were forced to sell their position. At the time, shares traded at less than 10x EBITDA, a significant discount to its historical valuation, and Tony Bancroft, Gabelli's defense analyst, thought other buyers for Aerojet would emerge and that shares were worth more than $60 in a takeover. We expect the L3Harris deal to close in mid-2023.
Food Distribution
The attributes of consumer food distribution benefits through scale synergies and as such our investment in Albertsons Companies, Inc. (ACI- NYSE) entered a new stage as they agreed to be acquired by The Kroger Co. (KR-NYSE). Albertsons operates food and drug retail stores in the U.S. under banners such as Albertsons, Safeway, Vons, Tom Thumb, ACME and more. Under terms of the agreement Albertsons' shareholders will receive $34.10 cash per share (inclusive of a special dividend and potential spin-off), valuing the transaction at approximately
$25 billion.
Biotech Pharma
Undervalued and fairly unique and well positioned business in our portfolio continued to attract suitors and as such Dechra Pharmaceuticals plc (DPH LN-London) agreed to be acquired by EQT and Abu Dhabi Investment Authority. Dechra is a global veterinary pharmaceuticals and products business. Under terms of the agreement, Dechra shareholders will receive £38.75 cash per share, valuing the transaction at approximately £4.8 billion
Gaming and Entertainment Fundamentals for the online gaming industry continued to accelerate as Activision Blizzard Inc. (ATVI- NASDAQ) agreed to be acquired by Microsoft Corp. (MSFT-NASDAQ). Activision Blizzard develops and publishes interactive entertainment content and services. Under the terms of the agreement Activision shareholders will receive
$95.00 cash per share, valuing the transaction at approximately $74 billion.
Portfolio Manager's Review continued
Financial Services
Access to the US financial investor is increasingly becoming a valuable asset and as such Focus Financial Partners, Inc. (FOCS-NASDAQ) received an offer to be acquired by Clayton, Dubilier & Rice, LLC. Focus provides wealth management, investment advice, financial and tax planning, consulting, tax return preparation, and family office services to ultra-high and high net worth individuals, families, and business entities. Under terms of the offer, Focus shareholders will receive $53.00 cash per share, valuing the transaction at approximately $7 billion.
Biotech Pharma
The rationale for buy vs. build where developer costs are always increasing led to Horizon Therapeutics plc (HZNP- NASDAQ) agreeing to be acquired by Amgen, Inc. (AMGN-NASDAQ). Horizon is a biotechnology company that focuses on the discovery, development, and commercialization of medicines for rare, autoimmune, and severe inflammatory diseases. Under terms of the agreement, Horizon shareholders will receive $116.50 cash per share, valuing the transaction at approximately $28 billion.
Energy Infrastructure
US energy PNM Resources, Inc. (PNM- NYSE) agreed to be acquired by Avangrid, Inc. (AGR-NYSE). PNM Resources engages in the energy and energy-related businesses in the U.S. Under terms of the agreement, PNM shareholders will receive $50.30 cash per share, valuing the transaction at approximately $8 billion.
Infrastructure and Engineering
Our analysis and understanding of PMV multiples benefit when our portfolio holdings are subject to bidding wars. CIRCOR International, Inc. (CIR-NYSE), which designs, manufactures, and distributes flow and motion control products globally, was the subject of a bidding war. Under terms of the original agreement, dated June 5, 2023, CIRCOR shareholders would have received $49.00 cash per share, for approximately $1.4 billion. Later, on June 27, 2023, CIRCOR agreed to be acquired by KKR under improved terms of $51.00 cash per share, after CIRCOR received an unsolicited bid of $52.65 cash per share from an unnamed third party. Subsequently, on June 28, 2023, Arcline Investment Management LP was revealed as the unnamed third party
with an all-cash proposal to buy CIRCOR for $57.00 cash per share. In response, on June 29, 2023, CIRCOR entered into an agreement to be acquired by KKR for $56.00 cash per share, valuing the transaction at approximately $1.6 billion. CIRCOR accepted KKR's lower price due to more certain financing and a better antitrust profile.
 |
Portfolio Summary
Largest Portfolio Security holdings (excluding cash and cash equivalents)
|
Security1 |
Offsetting position2 | As at | 30 | June 2023 | ||
| % of total portfolio6 (gross) |
Market value4 $000 | Offsetting market value5 $000 | % of total portfolio3 (net) | |||
| Horizon Therapeutics plc | 5.4 | 3,425 | | 5.4 | ||
| Activision Blizzard Inc | 4.4 | 2,770 | | 4.4 | ||
| IVERIC Bio Inc | 4.3 | 2,722 | | 4.3 | ||
| PNM Resources Inc | 4.3 | 2,692 | | 4.3 | ||
| Univar Solutions Inc | 3.9 | 2,477 | | 3.9 | ||
| National Instruments Corp | 3.9 | 2,448 | | 3.9 | ||
| Aerojet Rocketdyne Holdings | | | | | ||
| Inc | 3.6 | 2,251 | | 3.6 | ||
| Tegna Inc | 2.9 | 1,821 | | 2.9 | ||
| Albertsons Companies Inc | 2.7 | 1,733 | | 2.7 | ||
| Focus Financial Partners LLC | 2.7 | 1,728 | | 2.7 | ||
| VMWare Inc | Broadcom Inc | 2.7 | 1,724 | (1,074) | 1.0 | |
| Tower Semiconductor Ltd | | 2.1 | 1,358 | | 2.1 | |
| Seagen Inc | | 2.1 | 1,299 | | 2.1 | |
| Radius Global Infrastructure | | 2.0 | 1,293 | | 2.0 | |
| Lennar Corp Class B | Lennar Corp Class A | 1.9 | 1,221 | (1,081) | 0.2 | |
| Uni-Select Inc | | 1.9 | 1,172 | | 1.9 | |
| Triton International Ltd | Brookfield Infrastructure | 1.7 | 1,064 | (113) | 1.5 | |
| Liberty Media Corp | | 1.5 | 981 | | 1.5 | |
| NuVasive Inc | Globus Medial Inc | 1.5 | 978 | (898) | 0.1 | |
| VectivBio Holding AG | | 1.5 | 943 | | 1.5 | |
| Sub-total | 57.0 | 36,100 | (3,166) | 52.0 | ||
| Other holdings7 | 43.0 | 33,712 | (3,340) | 48.0 | ||
| Total holdings | 100.0 | 69,812 | (6,506) | 100.0 | ||
1 Long position.
2 Offsetting position taken, based on the acquirer of the security when acquirer stock is being offered in whole, or in part, to finance the transaction. Lennar Corp is a share class arbitrage.
3 Represents the total position value (market value plus the offsetting market value) as a percentage of the total portfolio value.
4 Market value of the long position.
5 Market value of the offsetting position.
6 Represents the market value as a percentage of the total portfolio value.
7 Including derivatives and equity short positions and excluding U.S. Treasuries.
Strategy
Our Key Performance Indicators ("KPIs") The Company's strategy is to generate returns for its shareholders by pursuing its investment objective while mitigating shareholder risk, by investing in a diversified spread of equity investments. Through a process of bottom-up stock selection and the implementation of disciplined portfolio construction, we aim to create value for the Company's shareholders.
The largest holdings in the Company's portfolio are listed on page 11.
Gearing Policy
At the sole discretion of the Portfolio Manager, the Company may use leverage as part of its investment programme. It is anticipated that the Company will structurally gear and use tactical leverage or portfolio borrowings in an amount (calculated at the time of investment) of around 2 times of the Net Asset Value, subject to maximum gearing of 2.5 times the Net Asset Value. Please refer to page 69 in the Glossary for further discussion of gearing.
Leverage
Leverage is calculated using two methods:
i) Gross method and ii) Commitment method. For further details please see the Glossary on page 69.
Business Model
Please see the Methodology in Action on page 5.
Board Diversity
Please see the "Board Diversity" section on page 26.
Key Performance Indicators ("KPIs")
The Board recognises that it is share price performance that is most important to the Company's shareholders. Fundamental to share price performance is the performance of the Company's net asset
value. The central priority is to generate returns for the Company's shareholders through net asset value and share price total return, and discount management.
For the year ended 30 June 2023, the Company's KPIs, as monitored closely by the Board at each meeting, are listed below:
| Net Asset Value Total Return Year ended 30 June 20231 | Share Price Total Return Year ended 30 June 20232 | Discount to Net Asset Value Year ended 30 June 20233 |
| 10.54% | 1.33% | (11.94)% |
| (30 June 2022: (1.34)%) | (30 June 2022: 29.06%) | (30 June 2022: (3.74)%) |
The above table sets out the key KPIs for the Company. These KPIs fall within the definition of 'Alternative Performance Measures' (APMs) under guidance issued by the European Securities and Markets Authority (ESMA). Information explaining how these are calculated is set out in the Glossary. These KPIs including APMs have been carefully selected by the Board on discussion with the Portfolio Manager, to give the most appropriate overview of performance in the financial year to shareholders and other stakeholders.
| Performance measured against various indices | The Company does not use a benchmark. However, at each meeting the Board reviews and compares portfolio performance in the context of the performance of the ETF MNA and Credit Suisse Merger Arb Liquid Indices.
Information on the Company's performance is given in the Chairman's Statement and the Portfolio Manager's Review. |
| Share Price Total Return | The Company's primary investment objective is to seek to generate total return consisting of capital appreciation and current income for the long term.
In order to allow the Shareholders to realise a predictable, but not assured, level of cash flow and some liquidity periodically on their investment, the Company has adopted a "managed dividend policy". This policy seeks to pay Shareholders a quarterly dividend in relation to the Net Asset Value of the Company at the time, which may be changed at any time by the Board. Between inception and 30 June 2023, the Company returned $2.39 per share to shareholders, consistent with its dividend policy. Dividends are paid only when declared by the Board subject to the Board's assessment of the Company's financial position and only if the Company has sufficient income and distributable reserves to make the dividend payment, and the level of dividend may vary over time. As such, the portfolio's managed distribution of capital through the payment of quarterly dividends is under review as we enter the new Fiscal Year. Additional information can be found in the Glossary on page 71. |
1 Net Asset Value per ordinary share, total return represents the theoretical return on NAV per ordinary share, assuming that dividends paid to shareholders were reinvested at the NAV per ordinary share at the close of business on the day shares were quoted ex-dividend.
2 Share Price Total Return represents the theoretical return to a shareholder, on a closing market price basis, assuming that all dividends received were reinvested, without transaction costs, into the ordinary shares of the Company at the close of business on the day the shares were quoted ex-dividend.
3 The amount by which the market price per share is lower than the cum-income NAV per share, expressed as a percentage of the cum-income NAV per share. Figures are inclusive of income and dividends paid, in line with the Association of Investment Companies ("AIC") guidance.
| Share price discount to net asset value (NAV) per share | The NAV per share is published on a daily basis on the London Stock Exchange and The International Stock Exchange. The NAV is calculated in accordance with the Association of Investment Companies (AIC) formula.
At each Board meeting, the Board monitors the level of the Company's discount to NAV, the changes thereto and the reason for such changes. The Directors recognise the importance to investors that the shares should not trade at a significant discount to NAV. Accordingly, the Board would consider implementing a share buy back programme to ensure that the share price does not trade at a significant discount to the NAV.
In the year under review, the Company's shares traded at a discount of (3.74)% as of 30 June 2022 and at a discount of (11.94)% as of 30 June 2023. |
Performance is assessed on a total return basis for the NAV and share price.
| Dividend History | | |||
| | Rate ($) | Ex dividend date | Record date | Payment date |
| Fourth interim 2022 | $0.12 | 6 April 2023 | 11 April 2023 | 25 April 2023 |
| Third interim 2022 | 0.12 | 18 April 2022 | 19 April 2022 | 28 April 2022 |
| Second interim 2022 | 0.12 | 20 January 2022 | 21 January 2022 | 03 February 2022 |
| First interim 2022 | 0.12 | 18 November 2021 | 19 November 2021 | 03 December 2021 |
| Total | 0.36 | | | |
The Company paid the fourth interim dividend for the fiscal year ended 30 June 2022 on 25 April 2023. Following the Tranche Two Tender Offer the Board has continued to review and assess the Company's distribution policy. The Company paid the first interim dividend for the fiscal year ended 30 June 2023 on 8 September 2023.
Principal Risks
The Company continues to have exposure to a variety of risks and uncertainties, and the Audit & Risk Committee has focused attention on identifying and mitigating key risks likely to crystallise in the current economic environment. The Board continues to prioritise a robust system of controls to minimise exposure to global macro events in particular, which remains highlighted as a generic risk as in recent Annual Reports.
The Directors confirm that they have carried out a further robust assessment of the principal risks facing the Company during the year, including those that would threaten its investment objective, business
model, future performance, solvency or liquidity. The Company maintains a risk register which sets out the risks facing the Company, the likelihood and potential impact of each risk and the controls established for mitigation. The risk register is reviewed by the Audit & Risk Committee on a regular basis throughout the financial year and was specifically refreshed in 2023 to introduce more stringent risk ratings for each risk and to reflect the impact of related mitigating controls.
The core principle risks set out in the 2023 Annual Report remain largely unchanged, however there are some risks that have emerged which are set out in the following
table with an explanation of how they are mitigated. On review during the year, the Board re-rated several principal risks and considered the adequacy of mitigating controls in place across the Company's operations and those of its key third party providers. The Audit & Risk Committee has also specifically considered the risks associated with the Portfolio Manager's use of Contracts for Difference within the investment strategy which on review, were felt to continue to be appropriate. The risk narrative in the table below includes a summary of the actions taken to position the Company to withstand the related effects for markets and investments:
| Risk | Mitigation |
| Investment Portfolio Risks | |
| Decline in the U.S. equity markets.
Excessive Portfolio Concentration
Deal Failure Risk
Counterparty Risk | By investing in a diversified portfolio and adhering to a carefully monitored series of investment restrictions, enabled by automated pre-trade compliance features and daily review of trade tickets. These strictures mandate that no single security purchase can, at the time of investment, account for more than 15% of the gross assets of the Company. The Board meets the portfolio management team quarterly at the Board meetings to review the risk factors and their effects on the portfolio, and a thorough analysis of the investment strategy is undertaken.
The increased scrutiny by U.S. and UK anti-trust authorities on M&A cross border transactions represents an additional source of deal failure risk which the Investment Manager can mitigate via appropriate portfolio diversification and careful stock picking.
The Board and the Portfolio Manager regularly monitor the Company's exposure to its counterparties. This oversight is intended to minimize the likelihood of loss to the Company resulting from a counterparty's failure to meet its obligations. |
| Global Macro Events Risks | |
| Sharp Interest Rate Changes | The Portfolio Manager monitors the interest rate environment and how those changes would potentially impact the Company's investment strategy. |
| Operational Risks | |
| Outsourcing The operational functions of the Company are outsourced to third parties. Systems disruptions, control failures, fraud or inadequate disaster recovery provisions at key service providers could adversely impact the Company. |
All third party service providers report to the Board on a regular basis and their reports and representations are reviewed by the Board, the AIF Manager and the Portfolio Manager. |
| A state-backed cyberattack could also result in widespread disruption across the financial industry. | Whilst the Board takes all reasonable endeavours to safeguard the Company from a cyberattack on this scale, complete mitigation of this external risk cannot be guaranteed; however the Board, together with its' service providers remain vigilant to the likelihood of such an event in the current climate and have improved the company's readiness to reduce disruptions to the company's activities, in the event of such threat. |
| Fraud and cybersecurity vulnerability could increase for key service providers. Such events are external to the management and beyond the control of the Company. | The Board relies on assurances from the Company's key third-party providers that they have appropriate and adequate cybersecurity policies in place to mitigate the risk of a cyberattack. The Board keep these policies under review by receiving regular presentations from the Heads of cybersecurity of its service providers, who describe in detail the efforts they take to secure the company's data and to mitigate the risks of loss or potential damages that could result from such attacks. |
| Risk | Mitigation |
| Unforeseen global events such as geopolitical crisis, war, act of terrorism or outbreak of pandemics could lead to dramatically increased market instability and Company share price volatility a decline in cross-border M&A activity. | Global economic, geopolitical, and financial conditions are constantly monitored. Diversification of Company assets is incorporated into the investment strategy and, if disruptive events occur, the Manager is prepared to adopt a temporary defensive position and invest some or all of the Company's portfolio in cash or cash equivalents, money market instruments, bonds, commercial paper, or other debt obligations with banks or other counterparties, with appropriate ratings as determined by an internationally recognised rating agency and approved by the Board. Another option is the investment in "government and public securities" as defined for the purposes of the Financial Conduct Authority Handbook.
The Manager continues to carefully manage the Company's investments to protect shareholders' interests and to position the Company to benefit from future performance of markets in line with its key investment principles. |
| Equity Market Volatility | |
| Equity Market Volatility, which may cause a widening of bid-ask spreads and a wider price discount to NAV. | To address a discount, the Board may consider using share buybacks, through which shares would be repurchased when trading at a discount from NAV, up to a maximum percentage of 14.99% of the issued share capital. The Company has continued its shareholder engagement programmes to increase its visibility and interaction with existing and potential investors. |
| Financial Risks | |
| Comprise: (i) share price risk (comprising interest rate risk, currency risk and other price related risks); (ii) liquidity risk; (iii) credit risk and (iv) Derivative risk. | Further details of these risks are disclosed in Note 12 to the financial statements together with a summary of the policies for managing these risks. |
| Tax Risks | |
| The Company is no longer eligible to avail itself of Investment Trust Status as per Section 1158 of the Corporation Tax Act 2010 and is consequentially exposed to UK corporation tax payments. | The Company has engaged reputable, external tax consultants with whom the management team consults with on a regular basis and from whom the Board now receives periodic updates to ensure the Company remains compliant with any tax-related payments and disclosures. |
| Corporate Governance and Regulatory Compliance Risks | |
| Damage to the Company's reputation through inadequate corporate governance arrangements. | The Board complies with good governance practices in accordance with the Association of Investments Companies'' ("AIC") Code of Corporate Governance guidelines which endorse the UK Corporate Governance Code. The Board and its Committees actively perform self-assessments of compliance through the annual effectiveness evaluations and receive regular advice from by the Company Secretary in relation to any regulatory changes within the corporate governance landscape that may impact the company. |
| Failure to comply with legal and regulatory requirements. | The Company receives and responds to guidance from both its external and internal advisors on compliance with the Listing Rules, the Financial Conduct Authority's Disclosure and Transparency Rules, UK Companies Act 2006, and other applicable regulations. |
| Emerging Risks | Mitigation |
| Geopolitical Risks | |
| Geopolitical risks have risen with Russia's invasion of Ukraine. The impact of sanctions and the rise in commodity prices are likely to be primary influences on markets. Rising commodity prices and further disruption to supply chains shall exacerbate inflationary pressure and may also create a negative impact on global growth, with Europe at particular risk. | The Board is keeping these evolving risks and market pressures under constant review and will continue to monitor the volatility around investee company valuations and implications for the Company's likely future dividend income stream. |
Viability & Going Concern Statement
In accordance with the provisions of the UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months referred to in the 'Going Concern' guidelines.
The Board conducted this review focusing on a period of five years. This period was selected as it is aligned with the Company's investment objective of generating total return, consisting of capital appreciation and current income for the long term. In making this assessment the Board also considered the Company's principal risks.
Investment Companies in the UK operate in a well established and robust regulatory environment and the Directors have assumed that:
• Investors will continue to want to invest in closed-end investment companies because the fixed capitalisation structure is suited to pursuing the Portfolio Manager's proprietary long-term PMV with a CatalystTM investment strategy;
• The Company's remit of investing globally with an emphasis on securities traded in the U.S., and predominantly equity securities issued by companies of any market capitalisation will continue to be attractive to investors.
• The UK's well established investment and robust regulatory environment will continue as such and will remain an attractive global domicile for the Company's remit.
• The recent period of UK political instability as reflected in the Sterling exchange rate relative to the US Dollar, the interplay of parliamentary politics with the Bank of England, and the regulatory unravelling of Brexit relative to the European Union, will pass in the medium term and return to a period of marketplace stability and instill domicile confidence for global investors.
As with all investment vehicles, there is a risk that the performance of individual investments will vary and that capital may be lost, but this is not regarded as a threat to the viability of the Company.
Operationally, the Company retains title to all assets, and cash and securities are held with a custodian bank approved by the Portfolio Manager and the Board.
The nature of the Company's investments means that solvency and liquidity risks are low because:
• The Company's portfolio is invested in readily realisable, listed securities;
• The closed-end nature of the Company means that, unlike an open-ended fund, it does not need to liquidate positions when shareholders wish to sell their shares; and
• The expenses of the Company are predictable and modest in comparison with the assets and there are no capital commitments currently foreseen which would alter that position.
• The taxation of the Company as a close investment company is predictable and modest in comparison with the return profile of the investment programme and as a result of regular consultation with shareholders, an effort to undertake the mitigation of such close status taxation, such as a re-domiciliation, is not expected in the next 12 months.
• The Company conducted and completed the Fifth Anniversary Tender Offer, as set out in the circular published on 19 August 2022. The Company purchased 3,387,414 shares, resulting in 6,850,792 shares in issue at 30 June 2023 versus 10,238,206 shares in issue in July 2022. The Board believes that the Company retains sufficient scale to continue to operate its Investment Programme.
The Board has closely monitored the impact of the war in Ukraine. Those impacts and related continuing uncertainty have short and potentially medium term implications for the Company's investment strategy. The Board is continuing to monitor the implications of the Company no longer having investment trust status and its implications on the Company's investment return profile over the longer term. In context, the Board continuously monitors the Company's investment portfolio, liquidity and gearing, along with levels of market activity, to appropriately minimise and mitigate consequential risks to capital and future income such as geopolitical risks, financial risks etc. The risks are discussed in more detail in the Chairman's Statement and on pages 14 to 15.
Taking these factors into account, the Directors confirm that they have a reasonable expectation that the Company will continue to operate and meet its expenses.
The Company's portfolio consists primarily of U.S. investments. Accordingly, the Company believes that the post "Brexit" arrangements introduced by the U.K. government and market U.K. government and market regulators will not materially affect the prospects for the Company, but the Board and Portfolio Manager will continue to keep developments under review.
This Viability & Going Concern Statement, the Strategic Report for the year ended 30 June 2023 (on pages 2 to 16 of this document) and the s172 statement (on pages 26 to 29) have been approved by the Board and signed on its behalf by:
John Birch Marc Gabelli
Co-Chairman Co-Chairman 19 October 2023
Directors' Report
The Directors present the annual report and accounts of the Company for the year ended 30 June 2023. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the UK international accounting standards and have been prepared in accordance with the requirements of the Companies Act 2006.
The Company
The Company was incorporated in England and Wales on 28 April 2017 with registered number 10747219. The Company is registered as an investment company as defined by Section 833 of the Companies Act 2006 (the "Companies Act") and operates as such.
The Company was admitted to the Specialist Fund Segment of the Main Market of the London Stock Exchange and trading on the Official List of the International Stock Exchange on 19 July 2017.
The Company's Listing Sponsor on the International Stock Exchange is Ocorian Administration (Guernsey) Limited. The Company also operates an additional market quote for its ordinary shares on the London Stock Exchange, denominated in sterling.
Investors should look to the Circular dated 19 August 2022 for information about the Company, the Loyalty Programme, and the Tender Offer.
The Company has elected continued adherence to the AIC's SORP. Although no longer a trust, the Company has elected to continue to prepare the financial statements on a basis compliant with the recommendations of the SORP. The SORP is issued by the AIC and it sets out recommendations, intended to represent current best practice, on the form and contents of the financial statements of Investment Companies. Investment Companies include investment trust companies that have been, currently are, or are directing its affairs so as to enable it to obtain or retain approval under Section 1158 of the Corporation Tax Act 2010. Although the Company no longer meets the requirements of Section 1158 of the Corporation Tax Act 2010 to be an investment trust, it continues to conduct its affairs as an investment company.
Going concern
The Board have closely monitored the impact of the ongoing COVID-19 pandemic, Brexit uncertainty, and the war in Ukraine. Those impacts and related continuing uncertainty have short- and potentially medium-term implications for the Company's investment strategy. Additionally, the Board is monitoring the period ahead on the basis of the Company no longer having investment trust status and its implications on the Company's investment return profile over the longer term. In context, the Board continuously monitors the Company's investment portfolio, liquidity and gearing, along with levels of market activity, to appropriately minimise and mitigate consequential risks to capital and future income such as geopolitical risks, financial risks etc. Taking these factors into account, the Directors confirm that they have a reasonable expectation that the Company will continue to operate and meet its expenses as they fall due. For these reasons, the Directors consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts as at 30 June 2023.
This Going Concern statement should be read in conjunction with the Company's Viability & Going Concern Statement which can be found on page 16.
Directors
The Directors of the Company in office at the date of this report and their biographies are set out on pages 17 and 18. Details of Directors' interests in the shares of the Company are set out in the Directors' Remuneration Report.
Directors' retirements are subject to the Company's Articles of Association (the "Articles"). The Articles provide that the directors may appoint a person who is willing to act as a director and any director so appointed is required to retire at the next AGM after his or her appointment and is eligible for reappointment. All directors who held office at the time of the two preceding AGMs and who did not retire by rotation at either of them are also required to retire by rotation and are eligible for reappointment. In addition, each Director considered to be non-independent will retire and being eligible offer themselves for re-election on an annual basis.
The Board has agreed to follow the recommendations of the U.K. and AIC Corporate Governance Codes and ask all Directors of the Company to offer themselves for re-election annually. Therefore, all the Directors will retire at the forthcoming AGM and, being eligible will offer themselves for re-election.
Having considered the Directors' performance as part of the annual Board evaluation process the Board believes that it continues to be effective and that each of the Directors brings an appropriate level of knowledge, experience, business, financial and asset management skills. The Board therefore recommends that shareholders vote in favour of each Director's proposed election at the AGM.
Mr. Gabelli, as a Director and President of the Gabelli Group ("GGCP, Inc."), the parent company of both Gabelli Funds, LLC (the "Portfolio Manager") and Associated Capital Group, the Company's largest shareholder, is deemed to be interested in the Company's Portfolio Management Agreement, as is Mr. Birch, who serves on the Boards of other funds in the Gabelli/GAMCO group of companies.
There were no other contracts subsisting during the year under review, or up to the date of this report, in which a Director of the Company is, or was, materially interested and which is, or was, significant in relation to the Company's business.
None of the Directors have a service contract with the Company. The terms of their appointment was provided to them in writing. No Director is entitled to compensation for loss of office on the takeover of the Company. The powers of the Directors are set out in the Corporate Governance Statement.
Directors' conflicts of interest
Directors have a duty to avoid situations in which they have, or could have, a direct or indirect interest that conflicts, or may potentially conflict, with the Company's interests. This is in addition to the continuing duty that Directors owe the Company to disclose to the Board any transaction or arrangement under consideration by the Company in which they are interested.
Directors are required to disclose any conflicts and potential conflicts of interest upon appointment. A schedule of these is maintained by the Company Secretary and provided at each quarterly Board meeting. Directors are responsible for keeping these disclosures up to date and in particular to notify any new potential conflicts of interest, or changes to existing situations, to the Company Secretary.
In accordance with the Companies Act 2006 and the Company's Articles, the Directors can authorise such conflicts or potential conflicts of interest. In deciding whether to authorise any conflict, the Directors must consider their general duties under the Companies Act 2006, and their overriding obligation to act in a way they consider, in good faith, will be most likely to promote the Company's success.
In addition, the Directors are able to impose limits or conditions when giving authorisation to a conflict, or potential conflict of interest, if they think this is appropriate. The authorisation of any conflict matter, and the terms of any authorisation, may be reviewed by the Board at any time.
The Board believes that the procedures established to deal with conflicts of interest operated effectively during the year under review.
Directors' Indemnities
In accordance with the provisions of the Companies Act, the Company's Articles allow for Directors and officers of the Company to be indemnified out of the assets of the Company against all costs, losses, and liabilities incurred for negligence, default, breach of duty or trust in relation to the Company's affairs and activities. The Articles also provide that, subject to the provisions of the Companies Act 2006, the Board may purchase and maintain insurance for the benefit of Directors and officers of the Company against any liability which may incur in relation to anything done or omitted to be done, or alleged to be done or omitted to be done, as a Director or officer. The Company has taken out Directors' and Officers' Liability insurance, which covers the Directors and officers of the Company.
Share Capital
Full details of the Company's issued share capital are given in Note 11 to the Financial Statements on page 58. Details of the voting rights in the Company's shares as at the date of this report are also given in Note 6 to the Notice of Annual General Meeting on page 75.
The ordinary shares carry the right to receive dividends and have one voting right per share. Voting rights may increase to certain Loyalty Programme qualifying shareholders in the subsequent period commencing calendar year end 2023 (see "Loyalty Programme"). There are no restrictions on the voting rights of the ordinary shares or any shares which carry specific rights with regard to the control of the Company.
No shares were issued during the year under review, or up to close of business on 30 June 2023.
At the year end and at the date of this report there were accordingly 3,483,374 ordinary shares held in treasury (33.7% of the issued share capital).
In September 2022, concurrent with the Fifth Anniversary Tender Offer, the Board of Directors of the Company were authorised to allot Ordinary Shares of the Company up to an aggregate nominal value of $511,910.30, with such authority to expire on the fifth anniversary of the date of the passing of the resolution. In addition, at the November 2022 AGM, the Board of Directors was authorised to allot relevant securities in the Company up to a maximum aggregate nominal amount of $71,822 (being ten percent of the total number of voting rights of the Company at the latest practicable date prior to the publication of the Notice of AGM), with such authority to apply until the conclusion of
this year's AGM. The resolutions for the 2023 AGM include authorisation to the Company to allot equity securities up to an aggregate nominal value of $45,672, that can be utilised for acquisitions by the company. These transactions may result in the acquisition of other operating businesses to further expand and develop shareholder value in accordance with the investment programme.
Share Repurchase
The Company has authority to buy back shares in the market and may cancel or hold ordinary shares acquired by way of market purchase in treasury.
The Directors will consider repurchasing shares in the market under an extension of the programme if they believe it to be in shareholders' interests. It is the Board's intention that any shares bought back by the Company will be held in treasury and will only be sold at prices at or above the prevailing NAV per share ensuring a positive overall effect for shareholders when shares are bought back at a discount and then sold at a price at or above the NAV per share.
The current authorities to buy back and sell shares from treasury and to issue shares will expire at the conclusion of the 2023 Annual General Meeting. The Directors are proposing that these authorities be renewed at the forthcoming Annual General Meeting.
The Board expects a tender offer to be implemented in 2024, in the range of approximately 5% of the Ordinary Shares not owned by Associated Capital Group, Inc. Any such offer is under further review and analysis.
Close Company
As a result of the Fifth Anniversary Tender Offer, the Company has been operating as an Investment Company with close company status. The Board has not adjusted the Company's investment policy (as detailed in the Charter), as a result of close status. The Board is examining alternatives to reduce costs on an ongoing basis and will seek to undertake a comprehensive review during the 2023-2024 period.
Loyalty Programme
The Company has implemented a loyalty programme to incentivise long-term share ownership. The loyalty programme is open to all shareholders, who are entered in the Loyalty Register, a separate register to allow a shareholder to increase its voting power after holding shares for a continuous period of at least five years. Each shareholder so registered will be entitled to subscribe for one special voting loyalty share in respect of each ordinary share held. These shares can also be used as a form of consideration when entering into one or more agreements to acquire operating businesses in accordance with the Investment Policy, and subject to approval by shareholders at the AGM, the articles will be updated to reflect this dynamic.
Each ordinary shareholder and holder of special voting loyalty shares has the right to receive notice of, to attend, to speak at, and vote at general meetings of the Company. Each ordinary shareholder and holder of special voting loyalty shares who is present in person or by proxy at general meetings has one vote, whether on a show of hands or on a poll, in respect of each ordinary and special voting loyalty share held. At any general meeting ordinary shares and any special voting loyalty shares in the capital of the Company in issue would vote effectively one class.
During the year, the Company authorised the issuance of Special Voting Loyalty Shares in accordance with the terms specified in the Loyalty Programme, with Associated Capital Group Inc. agreeing to subscribe for Special Voting Loyalty Shares, which will increase its voting interest when issued, with issuance pending.
The ordinary shares carry the right to receive dividends. The special voting loyalty shares are not entitled to participate in any dividend or distribution made or declared by the Company except for a fixed annual dividend equal to 0.00001% of their nominal value. On a winding up of the Company holders of special voting loyalty shares would be entitled to be repaid the capital paid up thereon pari passu with the repayment of the nominal amount of the ordinary shares. The special voting loyalty shares are not transferrable without the prior written consent of the Company. These shares can also be used as a form of consideration when entering into one or more agreements to acquire operating businesses in accordance with the Investment Policy, and subject to approval by shareholders at the AGM, the articles will be updated to reflect this dynamic.
There are no restrictions on the transfer of ordinary shares or on the exercise of voting rights attached to them, which are governed by the Company's Articles and relevant legislation.
There are no shares which carry specific rights with regard to the control of the Company.
Activities and Business Review
A review of the business and details of research activities can be found within the Strategy section of this Annual Report.
Alternative Investment Fund Managers
As an investment company that is managed and marketed in the United Kingdom, the Company is an Alternative Investment Fund ("AIF") falling within the scope of, and subject to the requirements of, the Alternative Investment Fund Managers Directive ("AIFMD"). The Company had appointed Carne Global Fund Managers (Ireland) Limited ("Carne") as its Alternative Investment Fund Manager ("AIFM") pursuant to the AIFMD. As a result of the United Kingdom's departure from the European Union, the Company assigned Gabelli Funds LLC, a US SEC registered investment advisor as the AIFM in accordance with such exemptions, effective 14 February 2023.
Carne was responsible for the portfolio management and risk management functions of the Company until the point Gabelli Funds LLC was appointed AIFM (on 13 February 2023). Carne continues to provide the Company AIFM support services and monitor risks. The Carne Agreement may be terminated by either party giving not less than 90 days' written notice.
Carne was entitled to receive from the Company such annual fees, accrued and payable at such times, as may be agreed in writing between itself and the Company from time to time. The fees are to be payable monthly and subject to a minimum monthly fee of ¤2,500. During the year under review the AIFM fees paid to Carne were $50,865 (2022: $48,062). Regulatory disclosures including the Key Investor Information Document are provided on the website. Gabelli Funds, LLC does not earn a fee for its role as AIFM; it earned $653,934 in portfolio management fees during the year ended 30 June 2023 (2022: $841,642). Disclosures on on Remuneration as required under AIFMD can also be found on page 77.
Portfolio management and administration
Gabelli Funds, LLC ("Gabelli") was appointed as Portfolio Manager with effect from 15 June 2017 under a Portfolio Management Agreement (the "Agreement") with the Company under which portfolio management functions were delegated to Gabelli. Gabelli receives a management fee, payable monthly within 10 business days calculated at the rate of 0.85% of NAV accrued daily and calculated on each business day.
Gabelli is entitled to earn a performance fee under the Agreement in respect of each performance period, ending 30 June each year. For the year under review Gabelli was entitled to a performance fee of 20% of any outperformance of the net asset value total return, capped at 3% of the average NAV. For the year ended 30 June 2023 no performance fee was paid (2022: nil).
Appointment of the Manager
The arrangements for the provision of portfolio management and other services to the Company is considered by the Board on an ongoing basis and a formal review is conducted annually.
During the year, the Board considered the performance of Gabelli as Portfolio Manager by reference to the investment process, portfolio performance and how it had fulfilled its obligations under the terms of the Portfolio Management Agreement.
It is the opinion of the Board that the continuing appointment of Gabelli as Portfolio Manager, on the terms disclosed is in shareholders' interests as a whole. Among the reasons for this view is the depth, experience and investment process of Gabelli.
Facilitating Retail Investments
The Company conducts its affairs so that its shares can be recommended by independent financial advisers to ordinary retail investors in accordance with the FCA's rules in relation to non- mainstream pooled investments and intends to continue to do so for the foreseeable future.
The shares are excluded from the FCA's restrictions which apply to non-mainstream pooled investments because they are shares in an investment trust.
Other third party service providers Depositary and Custodian The Company appointed State Street Trustees Limited as its Depositary under a Depositary Agreement dated 30 June 2017 between Carne, Gabelli and the Company. The main role of the Depositary under the AIFMD is to act as a central custodian with additional duties to monitor the operations of the Company, including cash flows and to ensure that the Company's assets are valued appropriately. The Depositary receives a fee payable at 0.025% per annum of the gross assets of the Company.
Under the Depositary Agreement, custody services in respect of the Company's assets have been delegated to State Street Bank and Trust Company. The Custodian receives a custody fee payable by the Company at rates depending on the number of trades and the location of securities held subject to a minimum annual fee payable of not less than $31,250. Custody fees of $51,569 were paid during the year under review (2022: $41,736).
The depositary agreement is subject to 90 days' written notice of termination by any party.
Registrar
Computershare Investor Services Plc (the "Registrar") has been appointed as the Company's registrar pursuant to the Registrar Services Agreement. The Registrar is responsible for maintaining the Company's register of shareholders and also provides services in respect of the payment of dividends, provision of shareholder documentation and compliance with the Common Reporting Standard. Fees of $17,973 was paid to the Registrar during the year under review (2022: $13,000). Fees in respect of corporate actions will be agreed at the time of the corporate action.
Other Service Providers
Kin Company Secretarial Limited was appointed as Company Secretary in October 2021 and has the responsibility for overseeing the Governance arrangements of the Company and assisting the Company fulfil its regulatory compliance obligations. State Street Bank and Trust Company ("the Administrator") is responsible for the day-to-day administration of the Company including the maintenance of the Company's financial records and the calculation of the daily NAV. Kin Company Secretarial has worked with the Administrator to perform the functions of Company Secretary for the 2022/2023 financial year.
The Kin Company Secretarial agreement has no minimum term and is terminable by Kin or the Company on not less than one month's notice. Fees of $100,252 were paid for Company Secretarial services during the year under review (2022: $84,466).
Related Party Transactions
Carne Global Fund Managers (Ireland) Limited is a related party to the Company as it is considered to have had significant influence over the Company while it served as AIFM. AIFM fees and AIFM service fees of $50,865 were paid to Carne during the year ended 30 June 2023 (2022: $48,062).
Gabelli Funds, LLC is a related party to the Company as it is considered to have significant influence over the Company. Gabelli Funds, LLC does not earn a fee for its role as AIFM; it earned
$653,934 in portfolio management fees during the year ended 30 June 2023 (2022: $841,642).
Further details of related party transactions are provided in note · to the financial statements.
Substantial shareholders
As at 30 June 2023, the Company had been advised by the following shareholder of its interests of 3% or more in the Company's ordinary issued share capital:
% of
Results
The Company generated a revenue gain for the year ended 30 June 2023 of $2,996,000 (2022: $(943,000)).
Disclosure of Information under Listing Rule 9.8.4
The disclosures required by Listing Rule 9.8.4, where relevant to the Company, are discussed in more detail on page 67.
Dividends and dividend policy
In order to allow the Shareholders to realise a predictable, but not assured, level of cash flow and some liquidity periodically on their investment, the Company has adopted a "managed dividend policy". This policy seeks to pay Shareholders a quarterly dividend in relation to the Net Asset Value of the Company at the time, which may be changed at any time by the Board. Between inception and 30 June 2023, the Company returned $2.39 per share to shareholders, consistent with its dividend policy. Dividends are paid only when declared by the Board subject to the Board's assessment of the Company's financial position and only if the Company has sufficient income and distributable reserves to make the dividend payment, and the level of dividend may vary over time. As such, the portfolio's managed distribution of capital through the payment of quarterly dividends is under review as we enter the new Fiscal Year. The Company declared and paid the final interim dividend of US$0.12 per ordinary share for the financial year ending 30 June 2022, on 25 April 2023.
Exercise of Voting Rights in Investee Companies
The exercise of voting rights attached to the Company's portfolio has been delegated to the Portfolio Manager.
Articles of Association
The Company's Articles can only be amended by special resolution at a general meeting of the shareholders. Amendments will be proposed at the AGM that are deemed immaterial. The articles are available upon request, on the company website, and will be provided for at the AGM.
Change of Control
There are no agreements the Company is party to that might be affected by a change in Control of the Company. There are no agreements between the Company and its Directors for compensation for loss of office that occurs as a result of a takeover bid.
Gabelli approach to voting at shareholder meetings
During the year, the Manager voted on approximately 1,089 proposals at approximately 245 shareholder meetings on behalf of the Company. At these meetings, the Manager voted in favour of the majority of resolutions, but voted against the recommendations of management on approximately 52
Shareholder
Holding
resolutions.
Associated Capital Group Inc 90.73%
Future developments
The Chairman's Statement and Portfolio Manager's report within this Annual Report contain details of likely future developments.
Financial instruments
The financial risk management and internal control processes and policies, and exposure to the risks associated with financial instruments can be found in Note · to the financial statements.
Most of the votes against were in respect of resolutions relating to super dilutive stock option plans, which were deemed by the Investment Manager not to be in the best interests of shareholders.
Streamlined Energy and Carbon Reporting
The Company is categorised as a lower energy user under the HMRC Environmental Reporting Guidelines March 2019 and is therefore not required to make the detailed disclosures of energy and carbon information set out within the guidelines. The Company's energy and carbon information is therefore not disclosed in this report.
Greenhouse Gas Emissions
The Company has no greenhouse gas emissions to report from its operations, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013.
Modern Slavery Act 2015 (the "MSA")
The Company is an investment company and has no employees and does not provide goods and services in the normal course of business. Accordingly, the Directors consider that the Company is not required to make a slavery and human trafficking statement under the MSA.
Employees, Social, Human Rights and Environmental Matters The Company is an investment company and has no employees and accordingly it has no direct social, human rights or environmental impact from its operations. In carrying on its investment activities and relationship with suppliers the Company aims to conduct itself responsibly, ethically and fairly.
Board Diversity
As a close - end Investment Company, the Company falls within scope of LR 9.8.6 R (9) and LR 14.3.33 R (1) which require companies in-scope to disclose against the following Diversity targets.
(i) at least 40% of the individuals on its board of directors are women
(ii) at least one of the following senior positions on its board of directors is held by a woman:
(A) the chair
(B) the chief executive
(C) the senior independent director
(D) the chief financial officer
(iii) at least one individual on its board of directors is from a minority ethnic background
As at 30 June 2023, the Company has not met the above targets, further details of which are set out in the Corporate Governance Report on page 26.
Political donations
No political contributions or donations were made during the financial period ended 30 June 2023.
Annual General Meeting
The following information to be discussed at the forthcoming Annual General Meeting is important and requires your immediate attention. If you are in any doubt about the action you should take, you should seek advice from your stockbroker, bank manager, solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act 2000 (as amended).
If you have sold or transferred all of your ordinary shares in the Company, you should pass this document, together with any other accompanying documents, including the form of proxy, at once to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for onward transmission to the purchaser or transferee.
The Directors currently anticipate that this year's Annual General Meeting will be open to shareholders, but reserve the right to change arrangements for the meeting at short notice. Therefore shareholders are strongly encouraged to vote by proxy and to appoint the Chairman as their proxy. The following resolutions will be proposed to the AGM. Resolutions 13 and 14 are proposed to the meeting as special business of the meeting as ordinary resolutions. Resolutions 15-20 are proposed as special resolutions. Ordinary resolutions require a simple majority vote (above 50%) to be passed, whereas Special resolutions require at least a 75% majority vote to be passed.
Resolution 14
In accordance with the Investment Policy and as opportunities present themselves the Company may take majority and minority positions which may require management of such investments. The Articles will be adjusted accordingly in the resolution so that any such positions might be taken utilising shares including Special Voting Loyalty Shares so that an issuance and/or allotment could occur to parties that were not prior shareholders nor members of the Loyalty Programme.
Resolution 15 Authority to Allot shares
The Directors may only allot shares for cash if authorised to do so by shareholders in a general meeting. Resolution 15 seeks authority for the Directors to allot shares for cash up to an aggregate nominal amount of US$13,701 which represents 20% of the current issued share capital. The authority will expire at the conclusion of the 2024 Annual General Meeting unless renewed prior to that date.
Resolution 19 Authority to buy back shares
Resolution 19 seeks to renew the authority previously granted to Directors to enable the Company to purchase up to 685,079 ordinary shares being 10% of the issued share capital (excluding Treasury Shares).
The Directors will only consider repurchasing shares in the market if they believe it to be in shareholders' interests and as a means of correcting any imbalance between supply and demand for the Company's shares. Under the Listing Rules of the Financial Conduct Authority ("FCA"), the maximum price which can be paid is the higher of
(i) 5% above the average market value of the ordinary shares for the five business days immediately preceding the date on which the purchase is made and (ii) the higher of the price quoted for (a) the last independent trade of, and (b) the highest current independent bid for, any number of ordinary shares on the trading venue where the purchase is carried out.
In making purchases, the Company will deal only with member firms of the London Stock Exchange. The authority will expire at the conclusion of the 2023 Annual General Meeting unless renewed prior to that date.
Resolution 20 General Meetings on 14 clear days' notice Resolution 20 seeks shareholder authority to call general meetings other than an AGM on 14 clear days' notice. The approval will be effective until the Company's next AGM, when it is intended that a similar resolution will be proposed. The Board will utilise this authority to provide flexibility when merited and would not use it as a matter of routine.
Recommendation
Your Board recommends all resolutions to shareholders as being in the best interests of the Company and its shareholders as a whole. The Directors therefore unanimously recommend that shareholders vote in favour of each resolution, as they intend to do in respect of their own beneficial holdings.
Directors' statement as to the disclosure of information to the auditors
In accordance with the requirement and definitions under section
418 of the Companies Act 2006, the Directors at the date of approval of this report confirm that:
• so far as they are aware, there is no relevant audit information of which the Company's auditors are unaware; and
• each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.
Appointment of independent auditors
PricewaterhouseCoopers LLP, the independent external auditors of the Company, were appointed in 2017. Resolutions to reappoint PricewaterhouseCoopers LLP as the Company's auditors, and to authorise the Audit & Risk Committee to determine their remuneration will be proposed at the forthcoming AGM.
The Directors' Report was approved by the Board on 19 October 2023.
John Birch Marc Gabelli
Co-Chairman Co-Chairman 19 October 2023
Corporate Governance Report
This Report sets out the role and activities of the Board and explains how the Company is governed.
Governance
Applicable Corporate Governance Code and compliance in the year under review
As a company admitted to trading on the Specialist Fund Segment, the Board has considered the principles and provisions of the Association of Investment Companies' Code of Corporate Governance (the 'AIC Code'). The AIC Code addresses the Principles and Provisions set out in the 2018 version of the Financial Reporting Council's UK Corporate Governance Code (the 'UK Code'), as well as setting out additional provisions on issues that are of specific relevance to the Company as an investment company listed on the London Stock Exchange and in compliance with the FCA's Listing Rules.
The Board considers that reporting against the principles and provisions of the AIC Code, which has been endorsed by the Financial Reporting Council, provides more relevant information to shareholders.
The Board of Directors also recognise the critical importance of effective corporate governance to investors, potential investors and the Company's stakeholders, and the directors therefore give priority to high standards of corporate governance.
The Board confirms that it complies with the recommendations of the AIC Code and the relevant provisions of the UK Code except as follows:
Summary of AIC Code Provision Compliance Performance in year
Director and Board independence and independence from the Manager
x A formal policy and procedure ensure Board independence and the independence of the investment Manager.
The Chair should be independent on appointment
x Although the Chairman is not deemed independent for the purposes of the AIC Code, given his qualifications and investment experience, and the significant commitment being made by the Gabelli Group to the Company, the Board believes that his appointment as Chairman is in the best interests of the Company and the shareholders as a whole.
Appoint a Senior Independent Director ('SID')
x The Board does not deem it necessary to appoint a SID given the nature of its activities as a listed investment Company. The key responsibilities of the SID under the UK Code are completed by the Non-executive Directors. The performance of the Chairman is appraised annually by the Non-executive Directors.
Monitor risk management and internal control systems
Identification of remuneration consultant in the Annual Report
x The Company has delegated its operational management to third party service providers, the Board therefore receives reports from those parties to satisfy itself that an appropriate controls environment is maintained. These reports extend to any relevant instances of whistleblowing at each of the service providers.
x The Remuneration Committee does not deem it necessary to appoint a remuneration consultant.
The AIC Code is available on the AIC website (www.theaic.co.uk). It includes an explanation of how the AIC Code adapts the Principles and Provisions set out in the UK Code to make them relevant for investment companies. The UK Code is available from the Financial Reporting Council's website at frc.org.uk.
The Board
Overview of the Board
The Board consists of six non-executive Directors. All Directors have a wide range of other interests and are not dependent on the Company itself. Their biographical details, which are set out in detail on pages 17 and 18, demonstrate a breadth of investment, commercial and professional experience with an international perspective.
The Board has a formal schedule of matters specifically reserved for its decision, which are categorised under various headings, including strategy and management, internal controls and risk management, strategy and policy considerations, transactions, and finance.
The provision of the UK Code which relates to the combination of the roles of the chairman and chief executive does not apply as the Company has no executive directors.
The Board meets quarterly to review investment performance, financial reports, discuss strategy and has the overriding responsibility for assessing and reviewing the company's risk appetite. Board or Committee meetings are also held on an ad hoc basis and as required to consider any other material issues as they arise.
Representatives of the Portfolio Manager and Company Secretary attend each meeting. The Board, the AIFM, the Portfolio Manager, the Company Secretary and other key services providers operate in a cooperative and constructive relationship to ensure timely and relevant information flows to the board.
Chairman
The Board is satisfied that other than his relationship with the Portfolio Manager, the Chairman, Marc Gabelli, does not have any appointments or interests which may create a conflict of interest with the Company's activities or interests.
Table B: Ethnic Diversity Disclosures
Number
Number of senior positions on
the board and its Committees
The Nomination Committee reviewed the performance of the Chairman during the year and is comfortable that he continues
of Board Members
Percentage of the Board
(CEO, CFO, SID
and Chair(s))
to have sufficient time to commit to his duties, and that he performs effectively in the role. The Board therefore recommends shareholders vote to re-elect the Chairman at the 2023 Annual General Meeting.
Board Diversity
White British/White American or other White Minority Groups
5 83.33% 4
| When recruiting a new Director, the Board's policy is to appoint individuals on merit. The Board believes diversity is important in bringing an appropriate range of skills, knowledge and experience to the Board and gives that consideration when recruiting new Directors. | Mixed/ Multiple Ethnic Groups | 0 | 0.00% | 0 |
| | Asian/ | 1 | 16.67% | 0 |
As at 30 June 2023 there were 6 male Directors, of multiple nationalities and ethnicities, and no female Directors on the Board. Whilst all future board appointments will be made on merit, the Directors have committed to keep the Board's gender diversity under review with a view to complying with the FCA's approved targets on Board Diversity and in improving the ratio over time.
In accordance with LR 14.3.33, as at 30 June 2023 (the reference date) the Board has not met the FCA's specified targets on Board Diversity relating to gender or ethnicity.
In accordance with LR 14.3.33 a, whilst the Company is supportive of the new measures which aim to improve the representation of women and ethnic minority groups at board level, the Board also acknowledges the size of the current Board and believes it remains appropriate to serve the size and stature of the company at this time. The Nominations Committee, however, is supportive of ensuring a more diverse pool of Board Level candidates are assessed for any future Board-Level appointments.
The Board's Diversity Policy can be found on the company's website: https://www.gabelli.co.uk/investment-products/ gabelli-merger-plus/gmp-documents/
The tables below set out the numerical data on the ethnic background and the gender identity of the Board or Directors. The Company do not have an Executive Management team or any Executive Directors on the Board and therefore have not reported against that target which is non-applicable.
| |||||||||||||||||||||||||||
Asian/British Asian/ American
Role of the Board
The Board is collectively responsible for the long-term success of the Company and is accountable to shareholders and the Company's wider stakeholders for the performance and governance of the Company. It is also ultimately responsible for setting and executing the Company's strategic aims, its purpose, culture and values. The authority of the Board in these areas is subject to the Articles and to such approval of the shareholders in a general meeting as may be required from time to time.
The Board also ensures that the necessary resources are in place to enable the Company's objectives to be met in accordance with the Company's investment objective, and that shareholder value is maximised within a framework of proper controls.
The Directors exercise the powers conferred by the Company's Articles of Association and UK Company Law to manage the Company's interest for the benefit of shareholders and stakeholders.
As an investment company the Company's day to day responsibilities are delegated to third party service providers. The Company has no employees and the Directors are non-executive with the Portfolio Manager represented by the Chairman.
Stakeholder Interests (s.172 statement)
The Companies (Miscellaneous Reporting) Regulations 2018 require directors to explain more fully how they have discharged their duties under Section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This enhanced disclosure covers how the Board has engaged with and understands the views of stakeholders and how stakeholders' needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board's decisions.
As the Company is an externally managed investment company and does not have any employees or customers, the Board considers the main stakeholders in the Company to be the shareholders and other key service providers. The reasons for
this determination, and the Board's overarching approach to engagement with these stakeholders, are set out in the table below.
 |
Stakeholder Activity or mitigation in the year
Shareholders • The Company operates a Loyalty Programme to reward shareholders who retain their shares for at least five years. Further information regarding the Programme can be found on pages 20 and 21;
• As a listed investment Company, the Board operates policies designed to safeguard the value of shareholders' investment, in particular the Board may initiate a buyback programme whenever the Company's share price represents a discount of 7.5% or more;
• Shareholders' rights are also protected under the Company's Articles of Association which require any proposal that may materially change those rights to be subject to prior approval by a majority of shareholders in general meeting; and
• Shareholders are given opportunities to attend meetings with the Board and to also attend, ask questions and vote at the Annual General Meeting of the Company.
 |
Service Providers The Board regularly evaluates the performance of its key panel of third-party professional
service providers. The appraisals involve an opportunity for those third parties to provide 360° feedback.
|
Social & Environment Whilst the Company's key investment objective targets outperformance through exposure
to corporate transactions in the United States, the Investment Manager, Gabelli Funds, LLC operates a suite of investment policies designed to take account of Environmental, Social, and Governance ('ESG') themes across its investment strategies. These policies ensure that exposure to ESG risks is minimised for the Company's stakeholders.
|
Other Stakeholders • The Board seeks to maintain the highest levels of corporate governance through
compliance with the principles and provisions of both the AIC Code and, to the maximum extent practicable, the UK Code; and
• The Board is committed to responding promptly and transparently to any reputational or regulatory matter that might arise affecting the Company, its future prospects or its investment activities.
|
Purpose, Values and Culture
The Board takes its responsibilities under the AIC Code seriously and has accordingly sought to identify and promote each of: a corporate purpose, distinct values and a culture for the Company.
However, as a listed investment Company, which has appointed third party service providers to operate its day to day business, the chosen purpose, values and culture are necessarily focused on the approach and activities of the Board of Directors.
Nevertheless, the Board prioritises the Company's primary investment objective, together with its proprietary Private Market Value with a Catalyst methodology, in defining its PMV with a Catalyst purpose. The Company's values and culture primarily reflect those of its experienced, independent and diverse individual board members, combined with the approach and professionalism of its appointed third party service providers.
The Board regularly monitors both the performance of the Company against its investment objective and proprietary methodology; and its individual directors and service providers to ensure continuing strong performance and integration with the Board's values and culture.
Employees, Social, Human Rights and Environmental Matters As an investment vehicle the Company has no employees and accordingly it has no direct social or community impact and limited environmental impact from its operations. However, the Company believes that it is in shareholders' interests to consider human rights issues, together with environmental, social and governance factors when selecting and retaining investments.
Directors' Appointment, Retirement and Succession
The rules concerning the appointment, retirement and rotation of Directors are set out in the Directors' Report. The Board believes that it has a reasonable balance of skills and experience. It recognises the value of the progressive refreshing of, and succession planning for, company boards, including for the Chairman. The Board's tenure and succession policy seeks to ensure that it maintains the balance of skills and experience required.
Directors must be able to demonstrate their commitment, in terms of time, to the Company. The Board is of the view that length of service does not itself impair a Director's ability to act independently or exercise good judgement, rather, a long serving Director can continue to offer valuable perspectives and experience.
When Directors are appointed they go through an induction programme organised by the Portfolio Manager to familiarise them with the specifics of the portfolio. Directors are also provided with key information on the Company's policies, regulatory and statutory requirements and internal controls on a regular basis.
Committees of the Board
The Board has established an Audit & Risk Committee, Nomination Committee, Remuneration Committee, Management Engagement Committee and a Conflicts Committee. Each Committee has defined terms of reference and duties.
Audit & Risk Committee
The Audit & Risk Committee is chaired by Marco Bianconi. Further details are provided in the report of the Audit & Risk Committee on pages 30 to 32.
Nomination Committee
The Nomination Committee is chaired by the Chairman of the Board (who would not chair the Committee when the Chairman's successor was being considered) and consists of Marc Gabelli, John Birch and Yuji Sugimoto. The Nomination Committee is responsible for reviewing Board succession, the policy on directors' tenure, the performance of the Board and its Committees and the appointment of new Directors. When voting on candidates for the appointment of new directors, only independent directors will vote.
Remuneration Committee
The Remuneration Committee is chaired by James Wedderburn and consists of John Birch and Marco Bianconi. The Remuneration Committee is responsible for setting the Directors' remuneration in conjunction with the Chairman and will take into consideration the Company's peer group and the potential to appoint external remuneration consultants when making decisions.
Management Engagement Committee
The Management Engagement Committee is chaired by John Birch and consists of John Birch and Yuji Sugimoto. The Management Engagement Committee is responsible for ensuring that the provisions of the Portfolio Management Agreement remain competitive and in the best interest of shareholders and to review the performance of the Manager, Portfolio Manager and other third party service providers to the Company. Details of the management arrangements are set out on page 21.
Conflicts Committee
The Conflicts Committee is chaired by John Birch and consists of Marco Bianconi and Yuji Sugimoto. The Conflicts Committee is responsible for considering the potential conflicts of interest that may arise in relation to the operation of the Company with regard to the Directors, the AIF Manager, the Portfolio Manager and other service providers of the Company.
Attendance at scheduled meetings
The table below sets out the number of Board and Committee meetings held during the year under review to 30 June 2023 and the number of meetings attended by each Director.
The Audit & Risk Committee will meet at least once per quarter and all other Committees at least once a year and additionally as required.
Audit
& Risk Rem M.E Nom Conficts
| Director | Board | Co. | Co. | Co. | Co. | Co. |
| Marc Gabelli | 4/4 | n/a | n/a | n/a | 1/1 | n/a |
| Marco Bianconi | 4/4 | 7/7 | 1/1 | n/a | n/a | 1/1 |
| John Birch | 4/4 | n/a | 1/1 | 1/1 | 1/1 | 1/1 |
| John Newlands | 4/4 | 7/7 | n/a | n/a | n/a | n/a |
| James Wedderburn | 4/4 | 7/7 | 1/1 | n/a | n/a | n/a |
| Yuji Sugimoto | 4/4 | n/a | n/a | 1/1 | 1/1 | 1/1 |
Board Evaluation
The Board undertook an annual self-evaluation of its performance, that of its committees and individual Directors, including the Chairman. The reviews were led by the Chairman, in the case of the Board, and the Chair of each committee otherwise.
Each Chair, assisted by the Company Secretary, determined the scope and format for the review, which generally confirmed the directors' view that the Board and its governance continued to function well with some issues identified for further consideration. Further details of the annual self-assessment of the Audit & Risk Committee are set out in the Audit & Risk Committee report on pages 30 to 32.
There were no significant actions arising from the evaluation process and it was agreed that the composition of the Board, at that time, reflected a suitable mix of skills and experience, and that the Board as a whole, the individual Directors and its committees were performing in accordance with the provisions of the AIC Code other than where explained in this Report. The Board determined to keep the composition of the Board under review to align with the FCA's specific targets on Board Diversity.
Risk Management Directors' liability insurance
During the year the Company has renewed and maintained appropriate Directors & Officers' insurance on behalf of the Board.
Internal controls
The Board has overall responsibility for the Company's systems of internal controls and for reviewing their effectiveness. In common with the majority of investment Companies, the Board has determined that the most efficient and effective management of the Company is achieved by the Directors determining the investment strategy, and the Portfolio Manager being responsible for the day-to-day investment management decisions on behalf of the Company.
Accounting, company secretarial and custodial services have also been delegated to third party service providers who specialise in these areas and can provide, because of their size and specialisation, economies of scale, segregation of duties, and all that is required to provide proper systems of internal control within a regulated environment.
As the Company has no employees and its operational functions are undertaken by third parties, the Audit & Risk Committee does not consider it necessary for the Company to establish its own internal audit function. Instead, the Audit & Risk Committee examines internal control reports received from its principal service providers to satisfy itself as to the controls in place.
The internal controls aim to ensure that assets of the Company are safeguarded, proper accounting records are maintained, and the financial information used within the business and for publication is reliable. The need for an internal audit function is reviewed annually by the Committee.
The system therefore manages rather than eliminates risk of failure to achieve the Company's business objectives and provides reasonable, but not absolute assurance against material misstatement or loss.
Shareholder Engagement and General Meetings
The primary medium by which the Company communicates with its shareholders is through the Annual and Half Yearly Reports which aim to provide shareholders with a clear understanding of the Company's activities and results in the relevant financial period. This information is supplemented by the daily calculation and publication of the NAV per share to a regulatory information service.
The Annual and other General Meetings provide an opportunity for shareholders to engage with the Board of Directors, and the individual directors and the Investment Manager regularly communicate with significant shareholders to discuss company updates and other key events.
Key Stakeholder Outcomes
On 8 September 2022, following the Company's extraordinary general meeting, the Company was authorised to buy back Ordinary Shares in the Company.
Additionally, the results of the 2022 EGM authorised the Company to allot up to 51 million ordinary shares via a special share issuance resolution which was passed by a 75% majority vote. Accordingly, this provides the company with the flexibility required to scale the business and return value to shareholders in the long term.
All shareholders are ordinarily encouraged to attend and vote at the Company's Annual General Meeting. Shareholders are strongly encouraged to vote by proxy and to appoint the Chairman as their proxy if they are unable to attend in person. The Board and representatives of the Portfolio Manager are similarly usually available at the Annual General Meeting to discuss issues affecting the Company. They will be happy to answer any questions provided in writing prior to the meeting this year.
The Notice of Annual General Meeting is set out on pages 73 and 74 and details the business of the meeting. Any item not of an entirely routine nature is explained in the Directors' Report on pages 19 to 24. The Notice of Annual General Meeting and any related papers are sent to shareholders at least 21 clear days before the meeting.
Substantial Shareholdings
A summary of the significant shareholders that have been notified to the Board as at the date of this report can be found on page 22.
Anti-Bribery Policy
The Company has zero tolerance towards bribery and is committed to carrying out business fairly, honestly and openly.
The Board takes its responsibility to prevent bribery seriously and its service providers are contacted to regularly confirm their anti- bribery policies and controls.
Criminal Finances Act 2017
The Board has a zero tolerance approach to the facilitation of tax evasion.
By order of the Board
John Birch Marc Gabelli
Co-Chairman Co-Chairman 19 October 2023
Report of the Audit & Risk Committee
Chair of the
Audit & Risk Committee Marco Bianconi
Members Marco Bianconi John Newlands
James Wedderburn
As Chair of the Audit & Risk Committee, I am pleased to present the Report of the Audit & Risk Committee for the year ended 30 June 2023.
Role of the Committee
The Company has established a separately chaired Audit & Risk Committee (the "Committee") to ensure that the interests of shareholders are properly protected in relation to financial reporting, internal controls and risk mitigation.
The Committee meets on a quarterly basis in preparation for the publication of both the annual and half yearly results, and otherwise as necessary.
• A review of the effectiveness of the external audit process, including the scope, execution, level of materiality, together with the independence, objectivity and efficiency of the external auditors and the quality of the audit engagement team;
• A review and approval of the external audit plan together with the annual audit fee;
• A review of the risks associated with the loss of Investment Trust status resulting from the tender offer in October 2022 and of the most appropriate financial statements structure for the Company. In fact, as a result of the completed Fifth Anniversary Tender Offer, the Company is now considered a "close company" from a UK tax perspective, being subject to UK corporation tax. The Company has elected continued adherence to the AIC's SORP and continued to prepare its financial statements on a basis compliant with the recommendations of the SORP,
• A review of the appropriateness of the Company's accounting policies;
• Receiving from the Company's main third-party service providers reassurance on the adequacy and effectiveness of their internal controls processes and risk management systems. This initiative included a review of the key technology risks facing the company and its main service providers,
The Committee's terms of reference are available from the Company's website at https://www.gabelli.co.uk/docs/pdfs/gmp_ actr.pdf.
Composition of the Committee
The Committee consisted of three Directors during the year under review whose biographies are on pages 17 and 18 and the Committee composition was therefore unchanged.
The Committee as a whole has competence relevant to investment companies and is able to discharge its responsibilities effectively, with each Director having appropriate financial experience and as such contributing strongly to the Committee's operation.
The Company's Auditors are invited to attend meetings of the Committee on a regular basis. Representatives of the Portfolio Manager and other external advisors, including the Administrator, may also be invited to attend if deemed necessary by the Audit & Risk Committee.
Committee Responsibilities
The key responsibilities of the Audit & Risk Committee are to ensure the integrity, clarity and completeness of the Company's financial statements, evaluate the robustness of the systems of internal controls, monitor the quality, effectiveness and objectivity of the external audit process and monitor the key risks facing the Company.
During the year the principal activities of the Committee included:
• A comprehensive review of the half yearly report and annual report and accounts, having considered the disclosures made therein in relation to internal controls, risk management, viability, going concern, related parties, whether the report is fair, balanced and understandable and whether it provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy;
including, but not limited to policies, practices and safeguards, cybersecurity and fraud, identification, assessment, monitoring, mitigation and the overall management of those risks,
• A review of the adequacy and security of the company's arrangements with its contractors and external parties to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters. The Committee considered that the arrangements remained appropriate and proportionate.
 |
Significant Issues and Audit Risk
During the year, the Audit & Risk Committee also considered a number of significant issues and areas of key audit risk in respect of the Annual Report and Accounts. The Committee reviewed the external audit plan at an early stage and concluded that the
appropriate areas of audit risk relevant to the Company had been put in place to obtain a reasonable assurance that the financial statements as a whole would be free of material misstatement.
The following table sets out the key areas of risk identified and explains how these were addressed.
 |
Significant issue How the issue was addressed
|
Valuation and existence of investments The AIFM performs the valuation of the Company's assets in accordance with its responsibilities under the AIFMD rules. Ownership of listed investments is verified by reconciliation to the Custodian's records. Ownership of CFDs is verified by reconciliation to the counterparty's records.
|
Recognition of income Income received is accounted for in line with the Company's accounting policies, as set out on page 50.
 |
Maintaining internal controls The Committee receives regular reports on internal controls from the Administrator and the Investment Manager and has access to the relevant personnel of both State Street and Gabelli Funds who have a responsibility for risk management and internal audit.
|
Performance fee The performance fee calculation is prepared by the Administrator and reviewed by the Manager and the Committee before recommendation to the Board, all with reference to the portfolio management agreement.
|
Resource Risk The Company has no employees and its day to day activities are delegated to third party suppliers. The Board monitors the performance of third-party suppliers on an ongoing basis.
|
External audit
The Committee conducted a review of PricewaterhouseCoopers LLP's independence and audit process effectiveness as part of its review of the financial reporting for the year ended 30 June 2023 and separately completed a market benchmarking exercise in respect of the external audit service. In considering the effectiveness, the Committee reviewed the audit plan, the level of materiality, key financial reporting risks, and the auditors' findings.
The Committee also considered the execution of the audit against the plan, as well as the auditors reporting to the Committee in respect of the financial statements for the year. Based on this, the Committee was satisfied with the quality of the external audit process,with appropriate focus and challenge on the key audit risks.
The Committee advises the Board on the appointment of the external auditors and on their remuneration. It keeps under review the cost effectiveness and the independence and objectivity of the external auditors, mindful of controls in place to ensure the latter. To this end, the Committee has implemented a policy on the engagement of the external auditors to supply non-audit services.
The Committee was satisfied that the objectivity and independence of the auditors was not impaired as no non- audit services were undertaken during the year. Accordingly,
the Committee recommended to the Board that shareholder approval be sought at the forthcoming AGM for the appointment of PricewaterhouseCoopers LLP as the Company's auditors for the ensuing financial year, and for the Committee to determine the auditors' remuneration.
Audit Tendering
PricewaterhouseCoopers LLP was appointed as auditors with effect from the Company's launch in July 2017. The Company is required to put the external audit out to tender at least every ten years, and at least every twenty years to change the auditors. The Company will be required to put the audit out to tender, at the latest following the 2027 year end.
The Audit & Risk Committee will consider annually the need to tender as a consequence of audit quality or independence. There are no contractual obligations that restrict the Company's choice of auditors.
During the year ended 30 June 2023 £0 was paid to the auditors for non-audit services (2022: £0). The auditors are required to rotate the Company's Lead Engagement Partner every five years. Kevin Rollo was appointed as the Audit Engagement Partner in 2021 and has successfully overseen the engagement with the support of a strengthened audit team for the financial year under review.
Internal Audit function
As the Company has no employees and its operational functions are undertaken by third parties, the Committee does not consider it necessary for the Company to establish its own internal audit function. Instead, the Committee examines internal control reports received from its principal service providers to satisfy itself as to the controls in place.
The internal controls aim to ensure that assets of the Company are safeguarded, proper accounting records are maintained, and the financial information used within the business and for publication is reliable. The need for an internal audit function is reviewed annually by the Committee.
Whistleblowing, anti-bribery and corruption
The Company has no employees; therefore no policies relating to whistleblowing, anti-bribery, or corruption are considered necessary. Notwithstanding this, the Company seeks at all times to conduct its business with the highest standards of integrity and honesty. Gabelli Funds, LLC is committed to complying with all applicable legal and regulatory requirements relating to accounting and auditing controls and procedures. Staff members of Gabelli Funds, LLC are encouraged to report complaints and concerns regarding accounting or auditing matters through available channels described in the Portfolio Manager's Whistleblower Policy.
Marco Bianconi
Chair of the Audit & Risk Committee
19 October 2023
Directors' Remuneration Report
The Board presents the Directors' Remuneration Report which has been prepared in accordance with the requirements of Sections 420-422 of the Companies Act 2006 and Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013. The law requires the Company's auditors to audit certain of the disclosures provided. Where disclosures have been audited this is indicated.
Statement from the Chairman
This Report describes how the Board has applied the principles relating to Directors' remuneration. The Company's Remuneration Policy was originally approved by shareholders at the AGM in 2018 and shareholders approved a version of the Remuneration Policy with minor further updates at the AGMs in 2019 and in 2020, in accordance with section 439A of the Companies Act 2006. Accordingly, the Company's Remuneration policy will be put to Shareholders for approval at this year's Annual General
Meeting ('AGM') to be held on 30 November 2023. Further information on this resolution is contained with the notice of AGM.
Director's Remuneration Policy
In 2020, the Remuneration Policy was updated to increase the overall aggregate limit on fees payable to Directors from
$150,000 to $180,000. The Company does not propose an increase to the aggregate limit to Non-Executive Director's fees this year and as such will only be seeking shareholder approval for the current limit of $180,000, which the Company deemed to be at an appropriate level at this time.
Remuneration Committee
The Company has established a Remuneration Committee which meets at least once a year. Further details of the membership are provided in the Corporate Governance Report on page 28.
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Policy Table
Fixed fee element Remuneration consists of a fixed fee each year and the Directors of the Company are
entitled to such rates of annual fees as the Board at its discretion determines.
|
Discretionary element In accordance with the Company's Articles of Association, if a Director is requested
to perform extra or special services, they will be entitled to receive such additional remuneration as the Board considers appropriate.
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Expenses In accordance with the Company's Articles of Association the Directors are also entitled to be reimbursed for out-of-pocket expenses and any other reasonable expenses incurred in the proper performance of their duties.
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Purpose and link to strategy Directors' fees are set to:
• be sufficient to attract and retain individuals of a high calibre with suitable knowledge and experience to promote the long-term success of the Company;
• reflect the time spent by the Directors working on the Company's behalf and representing the Company;
• reflect the responsibilities borne by the Directors;
• recognise the greater time commitment and responsibility required for the positions of Chairman of the Board and the Chairman of the Audit & Risk Committee through appropriate fee supplements for each role.
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Operation Fees payable to the Directors will be reviewed annually. A number of factors will be considered to ensure that the fees are set at an appropriate level. These will include the average rate of inflation during the period since the last fee increase, the level of Directors' remuneration for other Investment Companies of a similar size and complexity of the Directors' responsibilities.
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Maximum The total remuneration paid to the non-executive Directors is subject to an annual aggregate limit of $180,000 in accordance with the Company's Articles of Association, following approval by shareholders at the AGM in 2020. Any further changes to this limit will require Shareholder approval by ordinary resolution.
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The Company has no employees to consult in drawing up the policy. There are no performance related elements to the Directors' fees and the Company have no Executive Directors.
To ensure fees are set at an appropriate level, the Company Secretary provides a comparison of the Directors' remuneration with other investment trusts of a similar size and/or mandate, as well as taking into account any data published by the
Association of Investment Companies. This comparison, together with consideration of any alteration in non-executive Directors' responsibilities, is used to review whether any change in remuneration is necessary. The review of fees is performed on an annual basis.
Remuneration Fees per annum US$
Director of the Board 30,000
Additional fee for the Chairman of the Board 1,000* Additional fee for the Chairman of the Audit
& Risk Committee 5,000
Additional fee for the members of the Audit
& Risk Committee 1,000
* On 6 October 2023 John Birch was appointed as Co-Chairman of the Board.
Following a review in September 2022, the Committee agreed that the Directors' fee would not increase for the year ending 30 June 2023.
Any remuneration arrangements for new directors will be determined by the Committee in accordance with the Remuneration Policy, and would also be expected to mirror the above fee structure.
The additional fees shown in the table above paid to the Chairman of the Board (albeit Mr Gabelli waived his fee) and the Chairman and members of the Audit & Risk Committee during the year ended 30 June 2023 will also remain unchanged for the year ending 30 June 2024.
Consideration of Shareholders' Views
Shareholders' approval for the remuneration report and the Company's Remuneration Policy will be sought at the 2023 AGM. Shareholders will have the opportunity to express their views and raise any queries on the policy either at or in advance of this meeting.
At the previous AGM held on 30 November 2022, the Director's Remuneration Report received 100% votes in favour of the resolution.
Details of voting on the Remuneration Report and the Remuneration Policy at the 2023 AGM will be released via RNS announcement following the meeting and will be provided in the annual report for the year ending 30 June 2024.
Director's Remuneration Implementation Report (audited) Single Total Figure of Remuneration
The single total remuneration figure for each Director who served during the year to 30 June 2023 is set out below with prior year comparison. As the Company has no employees the table below sets out the total remuneration costs paid by the Company. Mr Gabelli waived the entitlement to his fees as Chairman. Mr Gabelli devotes a portion of his time employed by Gabelli to serve as Chairman of the Company. An apportionment of his remuneration on a time served basis from employment by an affiliate of the Portfolio Manager would materially equate to the fees received by the other Directors of the Company for similar qualifying services.
Directors' notice periods and payment for loss of office Directors' appointments may be terminated without notice. In this event, the Director will only be entitled to fees accrued at the date of termination, together with reimbursement of any expenses properly incurred to that date.
None of the Directors are entitled to post-employment benefits or termination benefits.
No discretionary payments were made during the year to 30 June 2023.
The fees paid to Directors on an annual basis during the year to 30 June 2023 are as follows:
| | Year Fees | to | 30 June 2023 Total Change over prior year % | Year Fees | to | 30 June Total | 2022 Change over prior year % | Year Fees | to | 30 June Shares1 | 2021 Total |
Change over prior year % | |
| Marc Gabelli | - | - | - | - | - | - | - | - | - | - | |||
| Marco Bianconi | 35,000 | 35,000 | - | 35,000 | 35,000 | (3.2)% | 25,000 | 11,167 | 36,167 | 24.0% | |||
| John Birch* | 30,000 | 30,000 | - | 30,000 | 30,000 | (3.7)% | 20,000 | 11,167 | 31,167 | 29.0% | |||
| John Newlands | 31,000 | 31,000 | - | 31,000 | 31,000 | (3.6)% | 21,000 | 11,167 | 32,167 | 21.1% | |||
| Yuji Sugimoto | 30,000 | 30,000 | - | 30,000 | 30,000 | (3.7)% | 20,000 | 11,167 | 31,167 | 28.9% | |||
| James Wedderburn | 31,000 | 31,000 | - | 31,000 | 31,000 | (3.6)% | 21,000 | 11,167 | 32,167 | 27.8% | |||
| Total | 157,000 | 157,000 | - | 157,000 | 157,000 | | 107,000 | 55,835 | 162,835 | | |||
* On 6 October 2023 John Birch was appointed as Co-Chairman of the Board.
1 Represents the fee supplement originally to be paid in shares, on a pro rata basis for the period 1 January to 30 June 2020 following shareholder approval in 2019. Owing to complexities surrounding the share issuance scheme approved at the 2019 Annual General Meeting, and following legal advice, the incremental compensation was paid in cash, in the amount of $10,000 per annum, per Director. The amount presented for the year ended 30 June 2021 includes cash payments equivalent to and in lieu of dividends that would have been paid between 1 January 2020 and 30 June 2021, in the amount of $1,167 per Director.
Directors' Interests
The interests of the Directors (including their connected persons), who are not required to purchase shares, in the Company's share capital are as follows:
| | Ordinary shares of $0.01 | |
|
Directors | As at 30 June 2023 | As at 30 June 2022 |
| Marc Gabelli | 20,100 | 20,100 |
| Marco Bianconi | 1,200 | 1,200 |
| John Birch | 1,000 | 1,000 |
| John Newlands | - | - |
| Yuji Sugimoto | - | - |
| James Wedderburn | 1,500 | 1,500 |
| Total | 23,800 | 23,800 |
None of the Directors has been granted, or exercised, any options or rights to subscribe for the Ordinary Shares of the Company.
Company Performance
A graph showing the Company's NAV performance measured by total shareholder return compared with the Credit Suisse Merger Arb Liquid Index, the S&P Merger Arb Index, the 13 week US Treasury Bills, and the IQ Merger Arbitrage ETF (MNA), since launch, can be found on page 13.
Relative Importance of Spend on Pay
The table below shows the Directors' remuneration (2022:
$157,000 and 2021: $162,835) in comparison with Portfolio management fees paid, dividends paid to shareholders and the Company's annual revenues.
Statement by the Chairman of the Board
The Directors confirm that the Directors' Remuneration Report set out above provides a fair and reasonable summary for the financial year ended 30 June 2023 of:
a) the major decisions on Directors' remuneration;
b) any substantial changes relating to Directors' remuneration made during the period; and
c) the context in which those changes occurred and the decisions which have been taken.
The Directors' Remuneration Report was approved by the Board on 20 September 2023 and is signed on its behalf by:
John Birch Marc Gabelli
Co-Chairman Co-Chairman 19 October 2023
|
Directors' remuneration as a % of |
$000 |
2023 % |
| Directors' remuneration | 157 | |
| Dividends to Shareholders | 822 | 19.1 |
| Portfolio management fees | 654 | 24.0 |
| Revenues | 1,012 | 15.5 |
Statement of Directors' Responsibilities in respect of the Financial Statements
We share this Report to Shareholders, encompassing the year ended 30 June 2023, and note certain developments post calendar year end. This period included several important changes for the Gabelli Merger Plus+ Trust Plc (the "Company"), which include:
• NAV increase of 10.54% against a volatile market backdrop.
• Fifth Anniversary Tender Offer implemented in accordance with the Loyalty Programme. The Company purchased 3,387,414 shares, resulting in 6,850,792 shares in issue at 30 June 2023 versus 10,238,206 shares in issue in July 2022.
• The Company has elected continued adherence to the AIC's SORP. Although no longer a trust, the Company has elected to continue to prepare the financial statements on a basis compliant with the recommendations of the SORP. The SORP is issued by the AIC and it sets out recommendations, intended to represent current best practice, on the form and contents of the financial statements of Investment Companies. Investment Companies include investment trust companies that have been, currently are, or are directing its affairs so as to enable it to obtain or retain approval under Section 1158 of the Corporation Tax Act 2010. Although the Company no longer meets the requirements of Section 1158 of the Corporation Tax Act 2010 to be an investment trust, it continues to conduct its affairs as an investment company.
• Confirmation of the Investment Policy in accordance with the original offering prospectus.
• The allowance to issue Special Voting Loyalty Shares at the AGM for qualifying shareholders under the terms of the Loyalty Programme. During the year, the Company authorised the issuance of Special Voting Loyalty Shares in accordance with the terms specified in the Loyalty Programme, with Associated Capital Group Inc. agreeing to subscribe for Special Voting Loyalty Shares, which will increase its voting interest when issued, with issuance pending.
Gabelli Merger Plus+ Trust Plc ("GMP") seeks to achieve long- term total return from capital appreciation and income utilizing the Gabelli Private Market Value with a CatalystTM methodology, primarily investing in the securities of businesses undergoing some form of strategic change where there are substantial disconnects between market price and business value, and, where catalysts exist that may narrow these discounts for the benefit of shareholders. GMP objectives, operating within this highly specialised value based catalyst event driven merger arbitrage discipline, are to compound and preserve shareholder wealth over time while remaining non-correlated to the broad equity and fixed income markets.
The GMP investment process begins by focusing on a company's balance sheet and underlying fundamentals, looking for changes in market positions and analyzing the company's ability to generate free cash flow relative to competition. The process continues with the calculation of corporate replacement and intrinsic values while accounting for sector wide industrial synergies in the context of profitability and growth. The manager attempts to understand what an informed industrialist would pay for a business in its entirety through a negotiated acquisition process. This element serves as the foundation in determining what is deemed a business's Private Market Value ("PMV"). Lastly, the manager builds a diversified portfolio of companies in the public market that are selling at discounts to their PMVs,
with a catalyst in place to generate returns. The investment programme is global, encompassing a broad spectrum of value based special situations and event driven opportunities, with an analytical emphasis on announced merger transactions. As market price dislocations continue, it is expected this programme will include minority and also majority controlling stakes in businesses. Controlling stakes may require the management of operating businesses on behalf of the company's shareholders in an effort to deliver the company's objectives in accordance with investment policy. Over the long term GMP strives to achieve superior risk-adjusted annual returns above inflation for shareholders.
On behalf of the Board of Directors, we thank investors for entrusting a portion of their assets with the Gabelli Merger Plus+ Trust ("GMP"). We appreciate your confidence in the Gabelli long-term oriented investment method.
The Portfolio Manager's Review on pages 8 to 11 provides details of the important events that have occurred during the period and their impact on the financial statements.
Company Considerations
Investors should note the difference between book and accounting value. Deferred tax assets ("DTA") can be used to offset certain taxes as applicable in the United Kingdom. And as such based on a continuing level of activity the DTA are expected to be utilised over the foreseeable future resulting in the company not paying UK tax for this year.
As a result of Associated Capital Group Inc's ownership of 90.7% of shares in issue, the Company is a consolidated subsidiary for Associated Capital Group Inc.'s financial reporting purposes. As such, activities of the Company and of Associated Capital Group Inc. could be deemed related parties for purposes of this disclosure.
Investors should note that as a close company with Associated Capital Group Inc. controlling greater than 90% of shares and 95% of voting shares that Associated Capital Group Inc. may be able to ensure the passage of shareholder resolutions.
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Company fall into the following broad categories: investment portfolio; global macro events; operational; market and share price; financial; corporate governance and regulatory compliance; taxation; emerging and geopolitical risks. The global macro event category includes specific market and operational risks associated with the ongoing war in Ukraine and the aftermath of the global COVID-19 pandemic, which continue to cause uncertainty and disruption across global economies and markets. Information on each of these identified risk areas, including mitigating actions taken by the Company, was provided on pages 14 to 15 in the Strategic Report in the Company's Annual Report and Accounts for the year ended 30 June 2023.
The Directors together with the Manager will continue to monitor business continuity and resilience processes with the objective of mitigating any potential for ongoing impact of COVID-19 and the conflict in Ukraine.
Related Party Disclosure and Transactions
During the financial year, other than fees payable by the Company in the ordinary course of business, there have been no material transactions with related parties which have materially affected the financial position or the performance of the Company.
As a result of Associated Capital Group Inc's ownership in excess of 90% of shares in issue, the Company is a consolidated subsidiary for Associated Capital Group Inc.'s financial reporting purposes. As such, activities of the Company and of Associated Capital Group Inc. could be deemed related parties for purposes of this disclosure.
Significant Events
In the year ended 30 June 2023 the Company conducted and completed the Fifth Anniversary Tender Offer, as set out in the circular published on 19 August 2022, and purchased 3,387,414 shares, resulting in 6,850,792 shares in issue at 30 June 2023 versus 10,238,206 shares in issue in July 2022. The Company determined that the post tender remaining Shareholder base has resulted in the Company being deemed a close company for the purposes of taxation, and the company no longer avails itself of investment trust status. The Company is committed to delivering its investment programme for the long term and Directors, together with management are in the process of examining alternatives to minimise taxes, costs and expenses for its Shareholders.
Going Concern
The Board have closely monitored the impact of the ongoing COVID-19 pandemic, Brexit uncertainty, and the war in Ukraine. Those impacts and related continuing uncertainty have short- and potentially medium-term implications for the Company's investment strategy. Additionally, the Board is monitoring the period ahead on the basis of the Company no longer having investment trust status and its implications on the Company's investment return profile over the longer term. In context, the Board continuously monitors the Company's investment portfolio, liquidity and gearing, along with levels of market activity, to appropriately minimise and mitigate consequential risks to capital and future income such as geopolitical risks, financial risks etc. Taking these factors into account, the Directors confirm that they have a reasonable expectation that the Company will continue to operate and meet its expenses as they fall due. For these reasons, the Directors consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts as at 30 June 2023.
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company Law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with UK- adopted international accounting standards in conformity with the requirements of the Companies Act 2006. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable UK-adopted international accounting standards in conformity with the requirements of the Companies Act 2006 have been followed, subject to any material departures disclosed and explained in the financial statements;
•
make judgements and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are 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 keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Directors' confirmations
The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
In the case of each Director in office at the date the Director's Report is approved:
• so far as the Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and
• they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.
The annual financial report was approved by the Board on
19 October 2023 and the above responsibility statement was signed on its behalf by the Chairman.
By order of the Board
John Birch Marc Gabelli
Co-Chairman Co-Chairman 19 October 2023
Independent auditors' report to the members of Gabelli Merger Plus+ Trust Plc
Report on the audit of the financial statements
Opinion
In our opinion, Gabelli Merger Plus+ Trust plc's financial statements:
• give a true and fair view of the state of the company's affairs as at 30 June 2023 and of its result and cash flows for the year then ended;
• have been properly prepared in accordance with UK-adopted international accounting standards; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts (the "Annual Report"), which comprise: the Statement of Financial Position as at 30 June 2023; the Statement of Comprehensive Income, the Statement of Changes in Equity, and the Statement of Cash Flows for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided.
We have provided no non-audit services to the company in the period under audit.
Our audit approach Overview
Audit scope
• The company is a standalone Investment trust company and engages Gabelli Funds, LLC (the "Manager") to manage its assets.
• We conducted our audit of the Financial Statements using information from State Street Global Services (the "Administrator") to whom the Manager has, with the consent of the Directors, delegated the provision of certain administrative functions.
• We tailored the scope of our audit taking into account the types of investments within the company, the involvement of the third parties referred to above, the accounting processes and controls, and the industry in which the company operates.
• We obtained an understanding of the control environment in place at both the Manager and the Administrator, and adopted a fully substantive testing approach using reports obtained from the administrator.
Key audit matters
• Valuation and existence of investments.
• Income from investments.
• Taxation.
Materiality
• Overall materiality: $664,931 (2022: $958,410) based on 1% of net assets.
• Performance materiality: $498,698 (2022: $718,808).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
Taxation is a new key audit matter this year. Assessment of the appropriateness of the going concern basis of preparation of the financial statements, which was a key audit matter last year, is no longer included because of the fact that the conditions that existing in the prior year in relation to the Tender Offers and upcoming Continuation Vote have now passed and are not recurring this year. Otherwise, the key audit matters below are consistent with last year.
Key audit matter How our audit addressed the key audit matter
Valuation and existence of investments
Refer to Accounting Policies, note 2 (g) and Notes to the financial statements, Note 3. The company's investments have decreased to US$55m.The investment portfolio at year end consisted of listed equity investments and derivatives (contracts for difference). We focused on the valuation and existence of investments because investments represent the principal element of the net asset value as disclosed in the Statement of Financial Position in the financial statements. We also focused on the accounting policy for the valuation of investments as set out in the accounting standards as incorrect application could indicate a misstatement in the valuation of investments.
• We assessed the accounting policy for the valuation of investments for compliance with accounting standards and the AIC SORP and performed testing to check that investments are accounted for in accordance with this stated accounting policy.
• We tested the valuation of the listed equity investments by agreeing the prices used in the valuation to independent third party sources.
• We tested the existence of the investment portfolio by agreeing listed equity investment holdings to an independent custodian confirmation.
• For derivatives, we tested a sample of the valuation of these investments using valuation techniques as indicated by our investment specialists.
• We tested existence of derivatives by using broker statements obtained through the administrator.
• No material issues were identified.
Income from investments
Income from investments refers to dividend income and net capital gains from investments. Refer to Accounting Policies, Note 2(e) and 2(g). The company's dividend income for the year is US$1m. Realised gains on investments for the year is US$4.7m and unrealised gains on investments is US$0.7m. We focused on the accuracy, occurrence and completeness of dividend income, and existence of net capital gains as incomplete or inaccurate income could have a material impact on the company's net asset value and dividend cover. We also focused on the accounting policy for income recognition and its presentation in the Statement of Comprehensive Income as set out in the requirements of The Association of Investment Companies Statement of Recommended Practice (the "AIC SORP") as incorrect application could indicate a misstatement in income recognition.
• We assessed the accounting policies implemented were in accordance with accounting standards and the AIC SORP, and that income has been accounted for in accordance with the stated accounting policy.
• We tested the accuracy of dividend receipts by agreeing the dividend rates from investments to independent market data. To test for occurrence, we confirmed that a sample of dividends recorded had occurred in the market. To test for completeness, we tested that the appropriate dividends had been received in the year by reference to independent data of dividends declared for all listed investments during the year.
• We also tested the allocation and presentation of dividend income between the revenue and capital return columns of the Income Statement in line with the requirements set out in the AIC SORP by confirming reasons behind dividend distributions.
• The gains/losses on investments held at fair value comprise realised and unrealised gains/losses. For unrealised gains and losses, we tested the valuation of the portfolio at the year end (on a sample basis for derivatives), together with testing the reconciliation of opening and closing investments. For realised gains/losses, we tested a sample of disposals by agreeing the proceeds to bank statements and we re-performed the calculation of a sample of realised gains/ losses.
• No material issues were identified.
Key audit matter How our audit addressed the key audit matter
Taxation
The Company under its previous status as an Investment Trust Company was able to benefit from a tax exemption under s1158 of the Corporation Tax Act (2010). However, due to the significant uptake by shareholders of the 5th Anniversary Tender offer and resulting loss of ITC status, the Company is no longer afforded this exemption. As a result, tax considerations which the Company was previously exempt from are now due to be borne in the current period. Refer Accounting Policies, note 2 (n) and Notes to the financial statements, Note 8.
We have performed testing over the taxation paid by the Company and the effect of the loss of s1158 exemption status on the deferred tax asset. Additionally, as part of our testing, we have assessed the appropriateness of the recognition of the deferred tax asset. We have found no issues in relation to this testing.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry in which it operates.
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain.
The impact of climate risk on our audit
In planning our audit, we made enquiries of the Directors and Manager to understand the extent of the potential impact of climate change risk on the Company's financial statements.
In conducting our audit, we made enquiries of the Directors and Manager to understand the extent of the potential impact of the climate change risk on the Company's financial statements. Both concluded that the impact on the measurement and disclosures within the financial statements is not material because the Company's investment portfolio is primarily made up of Level 1 quoted securities which are valued at fair value based on market prices. We found this to be consistent with our understanding of the Company's investment activities.
We also considered the consistency of the climate change disclosures included in the Strategic Report with the financial statements and our knowledge from our audit.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
| Overall company materiality $664,931 (2022: $958,410). |
| How we determined it 1% of net assets |
| Rationale for benchmark applied We believe that net assets is the primary measure used by shareholders in assessing the performance of the company and is a generally accepted auditing benchmark for investment trust audits. |
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2022: 75%) of overall materiality, amounting to $498,698 (2022:
$718,808) for the company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $33,247 (2022:
$47,921) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors' assessment of the company's ability to continue to adopt the going concern basis of accounting included:
• Evaluating the Directors' assessment of potential operational impacts of the results of the recent Tender offer and the upcoming Continuation vote, considering their consistency with other available information and our understanding of the business and assessed the potential impact on the financial statements;
• Reviewing the Directors' assessment of the Company's financial position in the context of its ability to meet future expected operating expenses, their assessment of liquidity as well as their review of the operational resilience of the Company and oversight of key third-party service providers;
• Assessing the implications of potential significant reductions in Net Asset Value as a result of market performance on the ongoing ability of the Company to operate;
• Evaluating the legally binding confirmation from the majority shareholder regarding their intention and ability to continue to support the Company; and
• Assessing the impact of the loss of Investment Trust Company status and the continued operations of the Company.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the company's ability to continue as a going concern.
In relation to the directors' reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic report and Director's Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below.
Strategic report and Director's Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Director's Report for the year ended 30 June 2023 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Director's Report.
Directors' Remuneration
In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors' statements in relation to going concern, longer-term viability and that part of the corporate governance statement relating to the company's compliance with the provisions of the UK Corporate Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to:
• The directors' confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an explanation of how these are being managed or mitigated;
• The directors' statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the company's ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;
• The directors' explanation as to their assessment of the company's prospects, the period this assessment covers and why the period is appropriate; and
• The directors' statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
Our review of the directors' statement regarding the longer-term viability of the company was substantially less in scope than an audit and only consisted of making inquiries and considering the directors' process supporting their statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our knowledge and understanding of the company and its environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
• The directors' statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for the members to assess the company's position, performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors' statement relating to the company's compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
Auditors' responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the company and industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of the Corporation Tax Act 2010, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting of inappropriate journal entries to increase income or to overstate the value of investments and increase the net asset value of the company. Audit procedures performed by the engagement team included:
• Discussions with the Directors, the Manager and the Administrator, including consideration of known or suspected instances of non-compliance with laws and regulation and fraud;
• Evaluation of the controls implemented by the Manager and the Administrator designed to prevent and detect irregularities;
• Assessment of the company's compliance with the Corporation Tax Act 2010, including recalculation of numerical aspects of the tax expense; and
• Identifying and testing journal entries, in particular a sample of journals posted as part of the financial year end close process.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non- compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: www.frc.org. uk/auditorsresponsibilities. This description forms part of our auditors' report.
Use of this report
This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or
• certain disclosures of directors' remuneration specified by law are not made; or
• the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 1 July 2017 to audit the financial statements for the year ended 30 June 2018 and subsequent financial periods. The period of total uninterrupted engagement is 6 years, covering the years ended 30 June 2018 to 30 June 2023.
Kevin Rollo (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London
19 October 2023
Statement of Comprehensive Income
for the year ended 30 June 2023
|
Income |
Notes | Year ended 30 June 2023 | | Year ended 30 June 2022 |
| Revenue Capital $000 $000 | Total $000 | Revenue Capital Total $000 $000 $000 | ||
| Investment income | 5 | 1,012 - | 1,012 | 1,076 - 1,076 |
| Total investment income | 1,012 - | 1,012 | 1,076 - 1,076 | |
|
Gains/(losses) on investments | | | | |
| Net realised and unrealised gains/(losses) on | | | | |
| investments 3, 13 | - 4,707 | 4,707 | - (460) (460) | |
| Net realised and unrealised currency gains on | | | | |
| investments | - 114 | 114 | - 490 490 | |
| Net gains on investments | - 4,821 | 4,821 | - 30 30 | |
| Total income and gains on investments | 1,012 4,821 | 5,833 | 1,076 30 1,106 | |
|
Expenses | | | | |
| Portfolio management fee | 6 | (654) - | (654) | (842) - (842) |
| Performance fee | 6, 14 | - - | - | - - - |
| Other expenses | 6 | (807) (501) | (1,308) | (1,127) (124) (1,251) |
| Total expenses | (1,461) (501) | (1,962) | (1,969) (124) (2,093) | |
| Net return on ordinary activities before finance costs and taxation |
(449) 4,320 |
3,871 |
(893) (94) (987) | |
| Interest expense and similar charges | (26) - | (26) | (1) - (1) | |
| Profit/(loss) before taxation | (475) 4,320 | 3,845 | (894) (94) (988) | |
| Taxation on ordinary activities | 8 | 3,471 - | 3,471 | (49) - (49) |
| Profit/(loss) for the year | 2,996 4,320 | 7,316 | (943) (94) (1,037) | |
| Earnings/(loss) per share (basic and diluted) | 9 | $0.39 $0.55 | $0.94 | ($0.09) ($0.01) ($0.10) |
The total column of this statement represents the Statement of Comprehensive Income prepared in accordance with UK International Accounting Standards (UK IAS). The supplementary revenue return and capital return columns are both prepared under guidance issued by the Association of Investment Companies. All items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the year ended 30 June 2023.
The Company does not have any income or expense that is not included in net profit for the year. Accordingly, the net profit for the period is also the total comprehensive income for the year, as defined in UK IAS.
The notes on pages 49 to 66 form part of these financial statements.
Statement of Changes in Equity
for the year ended 30 June 2023
|
Year ended 30 June 2023 Note | Year ended | 30 June 2023 | |||
| Called up Share Capital $000 | Special Distributable Reserve* $000 |
Capital Reserve $000 |
Revenue Reserve* $000 |
Total $000 | |
| Balance as at 1 July 2022 | 103 | 79,062 | 20,965 | (4,356) | 95,774 |
| Ordinary shares bought back into treasury | - | (32,245) | - | - | (32,245) |
| Profit/(loss) for the period after tax on ordinary activities | - | - | 4,320 | 2,996 | 7,316 |
| Dividends paid 7 | - | (822) | - | - | (822) |
| Balance as at 30 June 2023 | 103 | 45,995 | 25,285 | (1,360) | 70,023 |
|
Year ended 30 June 2022 |
Note | Year ended 30 June 2022 | ||||
| Called up Share Capital $000 | Special Distributable Reserve* $000 |
Capital Reserve $000 |
Revenue Reserve* $000 |
Total $000 | ||
| Balance as at 1 July 2021 | 103 | 83,976 | 21,059 | (3,413) | 101,725 | |
| Loss for the period after tax on ordinary activities | - | - | (94) | (943) | (1,037) | |
| Dividends paid 7 | - | (4,914) | - | - | (4,914) | |
| Balance as at 30 June 2022 | 103 | 79,062 | 20,965 | (4,356) | 95,774 | |
* The Revenue Reserve and Special Distributable Reserve are distributable. The amount of the Revenue Reserve and Special Distributable Reserve that is distributable is not necessarily the full amount of the reserves as disclosed within these financial statements. As at 30 June 2023, the net amount of reserves that are distributable are $44,635,000 (2022: $74,706,000).
Statement of Financial Position
as at 30 June 2023
|
Note | As at 30 June | 2023 | As at 30 June | 2022 |
| $000 | $000 | $000 | $000 | |
| Non-current assets | | | | |
| Investments held at fair value through profit or loss 3 | | 56,514 | | 92,381 |
|
Current assets | | | | |
| Cash and cash equivalents 10 | 9,555 | | 5,911 | |
| Receivable for investment sold | 1,800 | | 423 | |
| Other receivables 15 | 73 | | 66 | |
| Deferred tax asset 8 | 3,530 | | - | |
| | 14,958 | | 6,400 | |
| Current liabilities | | | | |
| Portfolio management fee payable | (46) | | (61) | |
| Payable for investment purchased | (571) | | (1,875) | |
| Other payables 15 | (349) | | (212) | |
| Bank overdrafts | | (106) | | (391) |
| Net current assets | | 13,886 | | 3,861 |
|
Non-current liabilities | | |||
| Investments at fair value through profit or loss 3 | (325) (416) | |||
| Offering fees payable | (52) (52) | |||
|
Net assets | |
70,023 | |
95,774 |
|
Share capital and reserves | | | | |
| Called-up share capital 11 | 103 | | 103 | |
| Special distributable reserve* | 44,635 | | 79,062 | |
| Capital reserve | 25,285 | | 20,965 | |
| Revenue reserve* | (1,360) | | (4,356) | |
| Total shareholders' funds | | 70,023 | | 95,774 |
| Net asset value per ordinary share | | $10.22 | | $9.35 |
* The Revenue Reserve and Special Distributable Reserve are distributable. The amount of the Revenue Reserve and Special Distributable Reserve that is distributable is not necessarily the full amount of the reserves as disclosed within these financial statements. As at 30 June 2023, the net amount of reserves that are distributable are $44,635,000 (2022: $74,706,000).
Signed by:
Statement of Cash Flows
for the year ended 30 June 2023
| | Year end 30 June | ed 2023 | Year ended 30 June 2022 | |
| $000 | $000 | $000 | $000 | |
| Cash flows from operating activities | | | | |
| Profit/(loss) before tax | | 3,845 | | (988) |
|
Adjustments for: | | | | |
| Gains on investments | (4,821) | | (30) | |
|
Cash flows from operating activities | | | | |
| Purchases of investments1 | (140,570) | | (202,678) | |
| Sales of investments1 | 178,372 | | 204,122 | |
| Increase in receivables2 | (7) | | 81 | |
| Increase/(decrease) in payables | 148 | | (2,918) | |
| Foreign withholding taxes on dividends | (59) | | (49) | |
| Net cash flows from operating activities | 36,908 (2,460) | |||
|
Cash flows from financing activities | | | | |
| Shares bought back for cash | (32,245) | | - | |
| Dividends paid | (822) | | (4,914) | |
| Interest paid | (26) | | (1) | |
| Net cash flows from financing activities | (33,093) (4,915) | |||
|
Net increase/(decrease) in cash and cash equivalents |
3,815 (7,375) | |||
| Cash and cash equivalents at the start of the period | | 5,520 | | 12,405 |
| Effect of foreign exchange rates | | 114 | | 490 |
| Cash and cash equivalents at the end of the period | | 9,4493 | | 5,520 |
1 Receipts from the sale of, and payments to acquire, investment securities, have been classified as components of cash flows from operating activities because they form part of the Company's dealing operations.
2 2022 increase/(decrease) in receivables line has been adjusted to be consistent with the classifications applied in 2023.
3 As at 30 June 2023, $3,942,151 (2022: $5,843,979) was held as collateral at UBS Securities LLC for Contracts for Difference, and was restricted.
Gabelli Merger Plus+ Trust Plc is registered in England and Wales under Company number 10747219.
The financial statements on pages 45 to 48 were approved by the Board of Directors on 19 October 2023 and signed on its behalf by
John Birch Marc Gabelli
Co-Chairman Co-Chairman 19 October 2023
Notes to the Financial Statements
1 General Information
Gabelli Merger Plus+ Trust Plc (the "Company") is a closed-ended public limited company incorporated in the United Kingdom on 28 April 2017 with registered number 10747219.
2 Accounting policies
(a) Basis of preparation - The financial statements of Gabelli Merger Plus+ Trust Plc have been prepared in accordance with the UK adopted International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative financial instruments) at fair value through profit or loss.
The principal accounting policies adopted by the Company are set out below. Where presentational guidance set out in the Statement of Recommended Practice ('SORP') for investment trusts issued by the Association of Investment Companies ('AIC') in October 2019 is consistent with the requirements of IFRS, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.
For the accounting period ended 30 June 2022, the Company met the requirements to be an investment trust under sections 1158 and 1159 of the Corporation Tax Act of 2010. However, as a result of the Tranche One Tender Offer completed in the third quarter of 2022, the Company subsequently became a close company due to becoming controlled by a single participator, Associated Capital Group, Inc.
Although no longer a trust, the Company has elected to continue to prepare the financial statements on a basis compliant with the recommendations of the SORP. The SORP is issued by the AIC and it sets out recommendations, intended to represent current best practice, on the form and contents of the financial statements of Investment Companies. Investment Companies include investment trust companies that have been, currently are, or are directing its affairs so as to enable it to obtain or retain approval under Section 1158 of the Corporation Tax Act 2010. Although the Company no longer meets the requirements of Section 1158 of the Corporation Tax Act 2010 to be an investment trust, it continues to conduct its affairs as an investment company. Further, management of the Company also believes that consistency in presentation will be beneficial to individuals reviewing the Company's financial statements.
(b) Presentation of Statement of Comprehensive Income - To better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income.
(c) Going concern - The Directors, have taken account of the continuing market regulatory changes affecting investee companies, investment valuations and the war in Ukraine. Those impacts and related continuing uncertainty have short- and potentially medium-term implications for the Company's investment strategy. Additionally, the Board is monitoring the period ahead on the basis of the Company no longer having investment trust status and its implications on the Company's investment return profile over the longer term. In context, the Board continuously monitors the Company's investment portfolio, liquidity, and gearing, along with levels of market activity, to appropriately minimise and mitigate consequential risks to capital and future income such as geopolitical risks and financial risks. Taking these factors into account, the Directors confirm that they have a reasonable expectation that the Company will continue to operate and meet its expenses as they fall due. For these reasons, the Directors consider there is reasonable evidence to continue to adopt the going concern basis in preparing the accounts as at 30 June 2023.
In forming this position, the Directors consulted with shareholders utilizing the tender offer process, considered the Company's investment objectives, risk management policies, capital management policies and procedures, the nature of the portfolio and expenditure projections in detail. These items are discussed in more detail in the Directors' Report on pages 19 to 24 and the Chairman's Statement on pages 3 and 4.
(d) Statement of estimation uncertainty - In the application of the Company's accounting policies, the Investment Manager is required to make judgements, estimates, and assumptions about carrying values of assets and liabilities that are not always readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may vary from these estimates. There have been no significant judgements, estimates, or assumptions for the period.
2 Accounting policies (continued)
(e) Income recognition - Revenue from investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex-dividend, or where no ex-dividend date is quoted, when the Company's right to receive payment is established. Franked investment income is stated net of the relevant tax credit. Other income includes any taxes deducted at source.
Special dividends are credited to capital or revenue, according to the circumstances. Scrip dividends are treated as unfranked investment income; any excess in value of the shares received over the amount of the cash dividend is recognised as a capital item in the Statement of Comprehensive Income.
Interest income is accounted for on an accrual basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount.
(f) Expenses - The management fees are allocated to revenue in the Statement of Comprehensive Income. Interest receivable and payable and management expenses are treated on an accruals basis. Other expenses are charged to revenue except where they directly relate to the acquisition or disposal of an investment, in which case, they are added to the cost of the investment or deducted from the sale proceeds. Starting with the year ended 30 June 2023, transaction and finance charges related to contracts for difference are charged to capital.
The formation and initial expenses of the Company are allocated to capital.
(g) Investments - Investments have been designated upon initial recognition at fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at fair value. Subsequent to initial recognition, investments are valued at fair value. Movements in the fair value of investments and gains/losses on the sale of investments are taken to the Statement of Comprehensive Income as capital items.
The Company's investments are classified as held at fair value through profit or loss in accordance with applicable International Financial Standards.
Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Company becomes a party to the contractual provisions of the instrument. The Company shall offset financial assets and financial liabilities if it has a legally enforceable right to set off the recognised amounts and interests and intends to settle on a net basis. Financial assets and liabilities are derecognised when the Company settles its obligations relating to the instrument.
Contracts for Difference (CFDs)
CFDs are recognised in the Statement of Financial Position at the accumulated unrealised gain or loss as an asset or liability, respectively. This represents the difference between the nominal book cost and market value of each position held. Movements in the unrealised gains/losses are taken to the Statement of Comprehensive Income as capital items.
(h) Cash and cash equivalents - The Company may invest part of its net assets in cash and cash equivalents, money market instruments, bonds, commercial papers or other debt obligations with banks or other counterparties, having at least a single-A (or equivalent) credit rating from an internationally recognised rating agency or government and other public securities, if the Portfolio Manager believes that it would be in the best interests of the Company and its shareholders. This may be the case, for example, where the Portfolio Manager believes that adverse market conditions justify a temporary defensive position. Any cash or surplus assets may also be temporarily invested in such instruments pending investment in accordance with the Company's investment policy. Cash balances are marked to market based on the prevailing exchange rate as of the valuation date. US Treasuries are valued at their amortised cost.
(i) Transaction costs - Transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Statement of Comprehensive Income.
(j) Foreign currency - Foreign currencies are translated at the rates of exchange ruling on the period end date. Revenue received/ receivable and expenses paid/payable in foreign currencies are translated at the rates of exchange ruling at the transaction date.
(k) Fair value - All financial assets and liabilities are recognised in the financial statements at fair value.
(l) Dividends payable - Interim and final dividends are recognised in the period in which they are declared.
(m) Capital reserve - Capital distributions received, realised gains or losses on investments that are readily convertible to cash, and capital expenses are transferred to the capital reserve. Share buybacks are funded through the capital reserve, with details of buybacks disclosed in note 11.
(n) Taxation - The tax effect of different items of income/gains and expenditure/losses is allocated between revenue and capital on the same basis as the particular item to which it relates, under the marginal method, using the Company's effective rate of tax. Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the period end date where transactions of events that result in an obligation to pay more or a right to pay less tax in future have occurred at the period end date measured on an undiscounted basis and based on enacted tax rates. 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 future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods.
GMP has historically been authorized as an Investment Trust under Sections 1158 and 1159 Corporation Tax Act 2010 and the Investment Trust (Approved Company) (Tax) Regulations 2011 (S.I.2011/2999).
Following a share buy-back offer from 19 August 2022 to 22 September 2022, GMP became a close company due to becoming controlled by a single participator, Associated Capital Group Inc. This constituted a "serious" breach of the Investment Trust rules.
Accordingly, GMP notified HMRC of this development in December 2022 and requested confirmation that GMP's authorization as an Investment Trust should be withdrawn from the commencement of the current accounting period (being 1 July 2022).
The primary benefit associated with the Investment Trust regime is that capital gains income realized by a qualifying Investment Trust company is exempt from UK Corporation Tax. Therefore, loss of Investment Trust status for a UK company can have potentially significant consequences for its tax profile moving forwards, as it would be subject to tax on any capital gains realized thereafter at the main rate of UK Corporation Tax (currently 19%, but rising to 25% with effect from 1 April 2023).
At the year ended 30 June 2023, after offset against income taxable on receipt, there was a deferred tax asset ("DTA") of
$3,530,045 (2022: Unrecognised Potential DTA $2,354,232) in relation to surplus tax reliefs.
After the loss of its Investment Trust Status it is now possible for GMP to utilise this DTA in order to shelter capital gains from UK Corporation Tax. In order for the DTA to remain available, GMP must maintain its investment business moving forwards. GMP's activities are such that it will have an investment business for UK tax purposes.
In particular, the Investment Trust rules require that "substantially all of the business of the Investment Trust company consists of investing its funds in shares, land or other assets with the aim of spreading investment risk and giving members of the company the benefit of the results of the management of its funds". This may be considered analogous to having an investment business.
Therefore, given (i) GMP previously received approval from HMRC that this requirement was met, and (ii) the activity of the company is not intended to change, GMP will continue having an investment business and will meet the conditions to carry forward and use its excess management expenses in current and future periods. As such GMP has now included the DTA in the financial statements.
(o) Functional and presentation currency - The functional and presentation currency of the Company is the U.S. dollar.
3 Investments at fair value through profit or loss
The financial assets measured at fair value through profit or loss in the financial statements are grouped into the fair value hierarchy as follows:
| | As at 30 June 2023 | |||
| Level 1 $000 | Level 2 $000 | Level 3 $000 | Total $000 | |
| Financial assets at fair value through profit or loss | | | | |
| Equities | 55,219 | 903 | - | 56,122 |
| Contingent value rights | - | 257 | - | 257 |
| Derivatives | - | 135 | - | 135 |
| Gross fair value | | | | 56,514 |
| Derivatives | - | (326) | - | (326) |
| Net fair value | 55,219 | 969 | - | 56,188 |
| | As at 30 June 2022 | |||
| Level 1 $000 | Level 2 $000 | Level 3 $000 | Total $000 | |
| Financial assets at fair value through profit or loss | | | | |
| Quoted equities | 89,577 | 1,782 | - | 91,359 |
| Contingent value rights | - | 132 | 5 | 137 |
| Derivatives | - | 885 | - | 885 |
| Gross fair value | | | | 92,381 |
| Derivatives | - | (416) | - | (416) |
| Net fair value | 89,577 | 2,383 | 5 | 91,965 |
Analysis of changes in market value and book cost of portfolio investments in year
| | Year ended 30 June 2023 $000 | Year ended 30 June 2022 $000 |
| Opening book cost | 99,687 | 93,078 |
| Opening investment holding losses | (7,722) | (1,461) |
| Opening market value | 91,965 | 91,617 |
| Additions at cost | 139,266 | 202,731 |
| Disposals proceeds received | (179,749) (201,923) | |
| Gains/(losses) on investments | 4,707 (460) | |
| Market value of investments | 56,189 | 91,965 |
|
Closing book cost |
63,218 |
99,687 |
| Closing investment holding losses | (7,029) (7,722) | |
| Closing market value | 56,189 | 91,965 |
The company received $179,749,000 (2022: $201,923,000) from investments sold in the year. The book cost of these investments when they were purchased was $175,735,000 (2022: $196,122,000). Further explanation of the disposal proceeds received in the year can be found in the Net realised and unrealised gains/(losses) on investments section on page 53.
Fair value hierarchy
IFRS 13 requires the Company to classify its financial instruments held at fair value using a hierarchy that reflects the significance of the inputs used in the valuation methodologies. These are as follows:
• Level 1 - quoted prices in active markets for identical investments;
• Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rates, prepayments, credit risk, etc.); and
• Level 3 - significant unobservable inputs.
Valuation process and techniques for Level 3 valuations
The investments in contingent value rights are reviewed regularly to ensure that the initial classification remains correct given each asset's characteristics and the Company's investment policies. The contingent value rights are initially recognised using the transaction price as the best evidence of fair value at acquisition, and are subsequently measured at fair value. At 30 June 2023, the quantitative inputs used to value the level 3 contingent value rights were the last sale price and the merger price for each.
Level 2 financial assets at fair value through profit or loss
The investments in contracts for difference are marked at the price of the underlying equity. Contingent value rights in Level 2 are marked using broker quotes.
Level 3 financial assets at fair value through profit or loss
| | Year ended 30 June 2023 $000 | Year ended 30 June 2022 $000 |
| Opening valuation | 5 - | |
| Assets acquired during the year | - - | |
| Assets disposed during the year | (5) - | |
| Total profit or loss included in net profit on investments in the Statement | | |
| of Comprehensive Income | - 5 | |
| Closing valuation | - | 5 |
Net realised gains/(losses) and unrealised gains/(losses) on investments
| | Year ended 30 June 2023 $000 | Year ended 30 June 2022 $000 |
| Realised gains on investments | 4,014 5,801 | |
| Movement in unrealised on investments | 693 (6,261) | |
| Net realised gains/(losses) and unrealised gains/(losses) on investments | 4,707 (460) | |
4 Transactions costs
During the year commissions and other expenses were incurred in acquiring within gains in the Statement of Comprehensive Income. The total costs were as follows:
| | Year ended 30 June 2023 $000 | Year ended 30 June 2022 $000 |
| Purchases | 54 | 68 |
| Sales | 34 | 33 |
| Total | 88 | 101 |
5 Income
| | Year ended 30 June 2023 $000 | Year ended 30 June 2022 $000 |
| Income from investments | | |
| Overseas equities | 423 | 530 |
| Income on short-term investments1 | 387 | 3 |
| Other income | 202 | 543 |
| Total income | 1,012 | 1,076 |
1 Income on short-term investments represents the return on cash and cash equivalents, primarily U.S. Treasury Bills. Further information can be found in Note 10 on page 57.
6 Expenses
| | Year ended Year ended 30 June 2023 30 June 2022 $000 $000 |
| Revenue expenses | |
| Portfolio Management Fee | (654) (842) |
| Directors' Remuneration | (157) (157) |
| Audit Fees - PwC1 | (145) (70) |
| Legal Fees2 | (122) (110) |
| Company Secretary Fees2 | (100) (94) |
| Administration Fees - State Street | (55) (44) |
| Custodian/Depositary Fees - State Street | (52) (42) |
| Former AIFM - Carne | (51) (60) |
| Other | (34) (17) |
| Printing | (28) (4) |
| Registrar - Computershare | (18) (33) |
| Regulatory Filing Fees - AIFMD | (14) (13) |
| Directors' Expenses | (11) (13) |
| Ongoing LSE and UKLA Fees | (10) (15) |
| LSE RNS fees | (10) (14) |
| Contracts for Difference | - (429) |
| Dividend Expense on Securities Sold Short | - (8) |
| Marketing expenses | - (4) |
| Total revenue expenses | (1,461) (1,969) |
|
Capital expenses | |
| Contracts for Difference3 | (317) - |
| Transaction costs on derivatives | (92) (73) |
| Transaction Charges - State Street | (92) (51) |
| Total capital expenses | (501) (124) |
1 Audit fees for the year ended 30 June 2023 include $34,808 related to the prior fiscal year.
2 Legal Fees and Company Secretary Fees include approximately $39,000 and $4,000 of tender offer related fees that will not recur.
3 Beginning with the year ended 30 June 2023 expenses related to Contracts for Difference are treated as capital expenses. In prior years these expenses were treated as revenue expenses.
Portfolio Management Fee
Under the terms of the Portfolio Management Agreement, the Portfolio Manager will be entitled to a management fee ("Management Fee"), together with reimbursement of reasonable expenses incurred by it in the performance of its duties under the Portfolio Management Agreement, other than the salaries of its employees and general overhead expenses attributable to the provision of the services under the Portfolio Management Agreement. The Management Fee shall be accrued daily and calculated on each Business Day at a rate equivalent to 0.85% of NAV per annum.
AIFM fees
The Company previously appointed Carne Global Fund Managers (Ireland) Limited ("Carne") as its former Alternative Investment Fund Manager pursuant to the AIFMD. Carne is entitled to receive from the Company such annual fees, accrued and payable at such times, as may be agreed in writing between itself and the Company from time to time. The fees are payable monthly and subject to a minimum monthly fee of ¤2,500. The Company appointed Gabelli Funds, LLC to serve as AIFM effective 14 February 2023. Gabelli Funds, LLC does not earn a fee for its role as AIFM; it earned $653,934 in portfolio management fees during the year ended 30 June 2023 (2022: $841,642).
7 Equity dividends
| | Year ended Year ended 30 June 2023 30 June 2022 $000 $000 |
| Dividends paid | 822 4,914 |
During the year ended 30 June 2023 dividends paid per share totaled $0.12 (30 June 2022: $0.48 per share). More detailed information can also be found in the Dividend History table on page 13.
8 Taxation on ordinary activities Deferred Tax Assets
At 30 June 2023 the Company has excess expenses of $7,284,611 carried forward. This sum, which is net of the amount set against current period provides, had arisen due to the cumulative deductible expenses having exceeded taxable income over the life of the Company when it was authorized as an Investment Trust for tax purposes. Now that it is no longer a trust and therefore subject to capital gains tax, the Company believes it is more likely than not that it will have sufficient taxable profits against which these expenses can be offset. Therefore, a deferred tax asset of $1,821,153 has now been recognized. Provided the Company continues to maintain its current investment profile, it is likely that this deferred tax asset will be utilised to offset future taxable income subject to the normal corporate tax loss restriction rules for carried forward losses which restrict their use for any particular period to £5 million plus 50% of profits in excess of that initial £5 million. The Company has also recognised a deferred tax asset of $1,709,699 on the unrealised losses on the value of its equity investments. At 30 June 2023 total deferred tax assets recognised was $3,530,045, or $0.52 per Ordinary Share.
|
Analysis of the charge in the year | Year | ended | 30 | June 2023 | |
| Revenue $000 | Capital $000 | Total $000 | |||
| Deferred tax asset Current tax expense Irrecoverable overseas tax | 3,530 - (59) | - - - | 3,530 - (59) | ||
| Total | 3,471 | - | 3,471 | ||
|
Analysis of the charge in the year | Year | ended | 30 | June 2022 | |
| Revenue $000 | Capital $000 | Total $000 | |||
| Irrecoverable overseas tax | (49) | - | (49) | ||
| Total | (49) | - | (49) | ||
8 Taxation on ordinary activities (continued)
|
Factors affecting the tax charge for the year | Year ended 30 June 2023 |
| Revenue Capital Total $000 $000 $000 | |
| (Loss)/profit before taxation | (475) 4,320 3,845 |
| UK Corporation tax at effective rate of 20.5% Effects of: Non taxable overseas dividends Losses on investments held at fair value through profit or loss Deferred tax benefit Current tax expense Irrecoverable overseas tax Expenses not deductible for tax purposes Losses on foreign currencies Movement in excess management expenses | 97 (886) (789)
- - - - - - 3,530 - 3,530 - - - (59) - (59) - - - - - - - - - |
| Total | 3,471 - 3,471 |
| | |
| Total tax charge for the year | 3,568 (886) 2,682 |
|
Factors affecting the tax charge for the year | Year | ended | 30 | June 2022 | |
| Revenue $000 | Capital $000 | Total $000 | |||
| Loss before taxation | (894) | (94) | (988) | ||
| UK Corporation tax at effective rate of 19% | 170 | 18 | 188 | ||
| Effects of: | | | | ||
| Non taxable overseas dividends | 98 | - | 98 | ||
| Gains on investments held at fair value through profit or loss | - | (87) | (87) | ||
| Irrecoverable overseas tax | (49) | - | (49) | ||
| Expenses not deductible for tax purposes | (1) | (10) | (11) | ||
| Losses on foreign currencies | - | 93 | 93 | ||
| Movement in excess management expenses | (352) | (18) | (370) | ||
| Movement in deferred tax rate on excess management expenses | 85 | 4 | 89 | ||
| Total | (219) | (18) | (237) | ||
| | | ||||
| Total tax charge for the year | (49) | - | (49) | ||
At the year end after offset against income taxable on receipt, there is a deferred tax asset of $3,530,281 (2022: Unrecognised Potential DTA $2,354,232) in relation to surplus tax reliefs.
Note: the difference between book and accounting value. Deferred tax assets ("DTA") can be used to offset certain taxes as applicable in the United Kingdom. As such based on a continuing level of activity the Company's DTA are expected to be utilised over the foreseeable future resulting in the company not paying UK tax for this year.
9 Earnings per share
Earnings per ordinary share is calculated with reference to the following amounts:
| | Year ended Year ended 30 June 2023 30 June 2022 |
| Revenue return
Revenue return attributable to ordinary shareholders ($000) |
2,996 (943) |
| Weighted average number of shares in issue during year Total revenue return per ordinary share | 7,797,333 10,238,206 $0.39 ($0.09) |
|
Capital return Capital return attributable to ordinary shareholders ($000) |
4,320 (94) |
| Weighted average number of shares in issue during year Total capital return per ordinary share | 7,797,333 10,238,206 $0.55 ($0.01) |
|
Total return per ordinary share |
$0.94 ($0.10) |
|
Net asset value per share | As at 30 June 2023 | As at 30 June 2022 |
| Net assets attributable to shareholders ($000) | 70,023 | 95,774 |
| Number of shares in issue at year end | 6,850,792 | 10,238,206 |
| Net asset value per share | $10.22 | $9.35 |
The Company continues to report according to SORP standards as provided by the AIC. As such, the net asset value per share is provided in accordance with IFRS standards inclusive of the Deferred Tax Asset of $0.52 per share, or $3.53 million, as a result of the Company having Close status and no longer availing itself of Section Investment Trust status under Section 1158 of the Corporation Tax Act 2010. Furthermore, net asset value cum-income, which includes the Revenue Reserves, is for illustrative purposes.
10 Cash and cash equivalents
| | As at 30 June 2023 $000 | As at 30 June 2022 $000 |
| Cash | 6,090 | 5,911 |
| U.S. Treasuries | 3,465 | - |
| Total | 9,555 | 5,911 |
The Board and Investment Manager oversee investments held in cash and cash equivalents in accordance with the Investment Policy.
11 Called up share capital
| | As at 30 June 2023 $000 | As at 30 June 2022 $000 |
| Allotted, called up and fully paid: 6,850,792 (2022: 10,238,206) Ordinary shares of $ 0.01 each - equity |
68 |
102 |
| Treasury shares: 3,483,374 (2022: 95,960) Ordinary shares of $ 0.01 each - equity |
35 |
1 |
| Total shares | 103 | 103 |
In September 2022, concurrent with the Fifth Anniversary Tender Offer, the Board of Directors of the Company were authorised to allot Ordinary Shares of the Company up to an aggregate nominal value of $511,910.30, with such authority to expire on the fifth anniversary of the date of the passing of the resolution. In addition, at the November 2022 AGM, the Board of Directors was authorised to allot relevant securities in the Company up to a maximum aggregate nominal amount of $71,822 (being ten percent of the total number of voting rights of the Company at the latest practicable date prior to the publication of the Notice of AGM), with such authority to apply until the conclusion of this year's AGM. The resolutions for the 2023 AGM include authorisation to the Company to allot equity securities up to an aggregate nominal value of $45,672, that can be utilised for acquisitions by the company. These transactions may result in the acquisition of other operating businesses to further expand and develop shareholder value in accordance with the investment programme.
12 Financial risk management
The Company's financial instruments comprise securities and other investments, cash balances, receivables, and payables that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and receivables for accrued income. The Company also has the ability to enter into derivative transactions in the form of forward foreign currency contracts, futures, and options, for the purpose of managing currency and market risks arising from the Company's activities.
The main risks the Company faces from its financial instruments are (i) market price risk (comprising interest rate risk, currency risk, and other price risk), (ii) liquidity risk, and (iii) credit risk.
The Board regularly reviews, and agrees upon, policies for managing each of these risks. The Portfolio Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short term receivables and payables, other than for currency disclosures.
(i) Market price risk
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk, and other price risk.
Interest rate risk
Interest rate movements may affect the level of income receivable and payable on cash deposits.
The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions.
Interest risk profile
The interest rate risk profile of the portfolio of financial assets and liabilities at the year-end date was as follows:
| | As at 30 June | 2023 | ||
| Interest rate % | Local currency 000 | Foreign exchange rate | US Dollar equivalent $000 | |
| Assets: | | | | |
| US dollar | 1.52 | 9,469 | 1.00 | 9,469 |
| Australian dollar | 0.42 | (53) | 1.50 | (35) |
| Canadian dollar | 0.48 | 99 | 1.32 | 75 |
| Danish krone | 0.00 | (1) | 6.82 | - |
| Euro currency | 0.60 | (5) | 0.92 | (6) |
| GBP Sterling | 0.51 | (44) | 0.79 | (56) |
| Hong Kong dollar | 0.00 | 1 | 7.84 | * |
| New Zealand dollar | 0.15 | 3 | 1.63 | 2 |
| Total | 9,449 | |||
* Less than $500.
| | As at 30 June | 2022 | ||
| Interest rate % | Local currency 000 | Foreign exchange rate | US Dollar equivalent $000 | |
| Assets: | | | | |
| US dollar | 0.24 | 5,585 | 1.00 | 5,585 |
| Australian dollar | 0.12 | (48) | 1.45 | (33) |
| Canadian dollar | 0.15 | 15 | 1.29 | 12 |
| Euro currency | (0.75) | (8) | 0.96 | (8) |
| GBP Sterling | 0.12 | (24) | 0.82 | (29) |
| Hong Kong dollar | 0.00 | 1 | 7.85 | * |
| New Zealand dollar | 0.10 | 5 | 1.61 | 3 |
| Norwegian krone | 0.00 | (5) | 9.88 | (1) |
| South African rand | 0.00 | (13) | 16.38 | (1) |
| Swedish krona | (0.75) | (80) | 10.25 | (8) |
| Total | 5,520 | |||
* Less than $500.
Interest rate sensitivity
The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the year-end date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.
If interest rates had been 10 (2022: 10) basis points higher or lower and all other variables were held constant, the Company's profit or loss for the reporting year to 30 June 2023 would increase/decrease by $9,000 (2022: $6,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances.
Currency risk
The Company's investment portfolio is invested predominantly in foreign securities and the year end can be significantly affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investments with foreign currency borrowings.
The revenue account is subject to currency fluctuation arising from overseas income.
12 Financial risk management (continued)
Currency risk exposure by currency of denomination:
| | As | at 30 June 2023 | |
| Net Investments $000 | Net monetary assets $000 | Total currency exposure $000 | |
| Australian dollar | 226 | 465 | 691 |
| Canadian dollar | 1,645 | (1,664) | (19) |
| Danish krone | - | (7) | (7) |
| Euro currency | - | (30) | (30) |
| GBP Sterling | 371 | 1,208 | 1,579 |
| Hong Kong dollar | - | (1) | (1) |
| Japanese yen | - | (1) | (1) |
| New Zealand dollar | - | 2 | 2 |
| Norwegian krone | - | (10) | (10) |
| Polish zloty | - | 1 | 1 |
| Swedish krona | - | (7) | (7) |
| Swiss franc | - | 6 | 6 |
| Total non US Investments | 2,242 | (38) | 2,204 |
| US dollar | 57,602 | 10,217 | 67,819 |
| Total | 59,844 | 10,179 | 70,023 |
| | As | at 30 June 2022 | |
| Net Investments $000 | Net monetary assets $000 | Total currency exposure $000 | |
| Australian dollar | - | (55) | (55) |
| Canadian dollar | 5,295 | (5,222) | 73 |
| Euro currency | 98 | (55) | 43 |
| GBP Sterling | 937 | (805) | 132 |
| Hong Kong dollar | - | 2 | 2 |
| New Zealand dollar | - | 3 | 3 |
| South African rand | - | (7) | (7) |
| Swedish krona | - | 108 | 108 |
| Swiss franc | 2,442 | - | 2,442 |
| Total non US Investments | 8,772 | (6,031) | 2,741 |
| US dollar | 82,724 | 10,309 | 93,033 |
| Total | 91,496 | 4,278 | 95,774 |
Currency sensitivity
The following table details the Company's sensitivity to a 10% increase and decrease in US dollars against the relevant foreign currencies and the resultant impact that any such increase or decrease would have on net return before tax and equity shareholders' funds. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the year end for a 10% change in foreign currency rates.
| | As at As at 30 June 2023 30 June 2022 $000 $000 |
| Australian dollar | 69 (6) |
| Canadian dollar | (2) 8 |
| Danish krone | (1) - |
| Euro currency | (3) 5 |
| GBP Sterling | 158 13 |
| Norwegian krone | (1) - |
| South African rand | - (1) |
| Swedish krona | (1) 11 |
| Swiss franc | 1 244 |
The relevant US dollar exchange rates as at 30 June 2023 were: Australian dollar (1: 1.5023); Canadian dollar (1: 1.3233); Danish krone (1: 0.9166); Euro currency
(1: 6.8249); GBP Sterling (1: 0.7866); Norwegian krone (1: 10.7136); Swedish krona (1: 10.8013); Swiss franc (1: 0.8947).
Other price risk
Other price risks, i.e., changes in market prices other than those arising from interest rate or currency risk, may affect the value of the quoted investments.
The Investment Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on a recognised stock exchange.
Other price risk sensitivity
If market prices at the year-end date had been 15% higher or lower while all other variables remained constant, the return attributable to ordinary shareholders for the year ended 30 June 2023 would have increased/decreased by $8,428,000. The calculations are based on the portfolio valuations as at the year-end date, and are not representative of the year as a whole.
(ii) Liquidity risk
This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. All creditors are payable within 3 months.
Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary.
(iii) Credit risk
This is the risk of failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
| The table below shows the counterparty risk as at the Balance Sheet date: | | ||
| | Derivative exposure: CFDs |
Collateral posted |
Net exposure |
| | $000 | $000 | $000 |
| Counterparty | | | |
| UBS Securities, LLC | 191 | (4,053) | (3,862) |
| Total | 191 | (4,053) | (3,862) |
Net exposure represents the mark-to-market value of derivative contracts less any cash collateral held. Negative exposure represents the Fund's exposure to that counterparty. Positive amounts are not an exposure to the Fund.
12 Financial risk management (continued)
The risk is managed as follows:
• Investment transactions are carried out mainly with brokers whose credit ratings are reviewed periodically by the Portfolio Manager.
• Most transactions are made delivery versus payment on recognised exchanges.
• Cash is held at State Street Bank and Trust which has a credit rating by Standard and Poor's on short-term deposits of A-1+ and long-term deposits AA-.
The maximum credit risk exposure as at 30 June 2023 was $14,958,000 (2022: $6,400,000). This was due to cash and receivables as per note (10) 'Cash & cash equivalents', note (15) 'Total other receivables' and Statement of Financial Position Receivable for investment sold.
Capital management policies and procedures
The Company's capital management objectives are:
• to ensure that the Company will be able to continue as a going concern; and
• to maximise the revenue and capital return to its equity shareholders through an appropriate balance of equity capital and debt.
The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. The Board considers the Company's capital requirements in the context of both the Special Distributable and Revenue reserves being treated as distributable, as permitted by current accounting standards for listed investment companies. The distributable reserves can be used to fund dividends and share repurchase programmes. This review includes the nature and planned level of gearing, which takes account of the Portfolio Manager's views on the market and the extent to which revenue in excess of that which is required to be distributed under the investment trust rules should be retained.
The analysis of shareholders' funds is as follows:
| | As at 30 June 2023 $000 | As at 30 June 2022 $000 |
| Called-up share capital | 103 | 103 |
| Special distributable reserve1 | (45,995) | 79,062 |
| Capital reserve | 25,602 | 20,965 |
| Revenue reserve* | (1,677) (4,356) | |
| Total shareholders' funds | 70,023 | 95,774 |
1 The Revenue Reserve and Special Distributable Reserve are distributable. The amount of the Revenue Reserve and Special Distributable Reserve that is distributable is not necessarily the full amount of the reserves as disclosed within these financial statements. As at 30 June 2023, the net amount of reserves that are distributable are $45,995,000 (2022: $74,706,000).
Alternative Investment Fund Managers' ('AIFM') Directive
In accordance with the Alternative Investment Fund Managers' Directive ("AIFMD"), the Company has appointed Gabelli Funds, LLC as its Alternative Investment Fund Manager (the "AIFM"), effective 14 February 2023, to provide portfolio management and risk management services to the Company in accordance with the investment management agreement.
Leverage
Leverage is calculated using two methods: i) Gross method and ii) Commitment method. For further details please see the Glossary on page 69.
The Company's maximum leverage levels at 30 June 2023 are shown below:
|
Leverage Exposure | Gross method | Commitment method |
| Maximum permitted limit | 500% | 250% |
| Actual | 115% | 131% |
The leverage limits are set by the AIFM and approved by the Board and are in line with the maximum leverage levels permitted in the Company's Articles of Association. The AIFM is also required to comply with the gearing parameters set by the Board in relation to borrowings.
13 Derivatives risk
The Company's investment policy may involve the use of derivatives (including, without limitation, forward foreign exchange contracts, equity contracts for difference swap agreements ("CFDs"), securities sold short and/or structured financial instruments). The Company may use both exchange-traded and over-the-counter derivatives as part of its investment activity. The cost of investing utilising derivatives may be higher than investing in securities (whether directly or through nominees) as the Company will have to bear the additional costs of purchasing and holding such derivatives, which could have a material adverse effect on the Company's returns. The low initial margin deposits normally required to establish a position in such instruments permit a high degree of leverage. As a result, depending on the type of instrument, a relatively small movement in the price of a contract may result in a profit or a loss which is high in proportion to the amount of funds actually placed as initial margin and may result in unquantifiable further losses exceeding any margin deposited. In addition, daily limits on price fluctuations and speculative position limits on exchanges may prevent prompt liquidation of positions resulting in potentially greater losses.
The use of derivatives may expose the Company to a higher degree of risk. These risks may include credit risk with regard to counterparties with whom the Company trades, the risk of settlement default, lack of liquidity of the derivative, imperfect tracking between the change in value of the derivative and the change in value of the underlying asset that the Company is seeking to track and greater transaction costs than investing in the underlying assets directly. Additional risks associated with investing in derivatives may include a counterparty breaching its obligations to provide collateral, or, due to operational issues (such as time gaps between the calculation of risk exposure to a counterparty's provision of additional collateral or substitutions of collateral or the sale of collateral in the event of a default by a counterparty), there may be instances where credit exposure to its counterparty under a derivative contract is not fully collateralised. The use of derivatives may also expose the Company to legal risk, which is the risk of loss due to the unexpected application of a law or regulation, or because a court declares a contract not legally enforceable.
The use of CFDs is a highly specialised activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In a CFD, a set of future cash flows is exchanged between two counterparties. One of these cash flow streams will typically be based on a reference interest rate combined with the performance of a notional value of shares of a stock. The other will be based on the performance of the shares of a stock. Depending on the general state of short-term interest rates and the returns on the Company's portfolio securities at the time a CFD transaction reaches its scheduled termination date, there is a risk that the Company will not be able to obtain a replacement transaction or that terms of the replacement will not be as favourable as on the expiring transaction. At 30 June 2023 the Company held CFDs, as shown in the following table.
| | As at | |||
| 30 June 2023 | ||||
| Unrealised | ||||
| Security name | Trade currency | Shares (000) | Nominal ($000) | gain/(loss) $000 |
| ADVA Optical Networking SE | USD | 1 | 30 | 1 |
| Allfunds Group plc | EUR | 4 | 30 | (4) |
| Alliance Aviation Service | AUD | 60 | 111 | 7 |
| Arlington Asset Investment Corp | USD | 34 | 151 | 7 |
| Black Knight Inc | USD | 3 | 188 | 10 |
| Broadcom Inc | USD | (1) | (1,054) | (20) |
| Brookfield Infrastructure Partners | USD | (2) | (117) | 4 |
| Chevron Corp | USD | (3) | (436) | 1 |
| Chr. Hansen A/S | DKK | 6 | 406 | (28) |
| Curtis Banks Group plc | GBP | 16 | 64 | ** |
| Dechra Pharmaceuticals plc | GBP | 34 | 1,546 | 15 |
| Disruptive Capital GP | GBP | 1 | 8 | (8) |
| Egetis Therapeutics AB | SEK | 68 | 34 | (7) |
| Ellington Financial Inc | USD | (13) | (172) | (3) |
| Emis Group plc | GBP | 20 | 336 | 1 |
| Entain plc | GBP | 25 | 387 | 18 |
| Essential Metals Ltd | AUD | 248 | 74 | (4) |
| Extra Space Storage Inc | USD | (2) | (286) | (6) |
| Fox Corp | USD | (3) | (115) | (2) |
| 13 Derivatives risk (continued) | | | | As at |
| | | | | 30 June 2023 |
| | | | | Unrealised |
| Security name | Trade currency | Shares (000) | Nominal ($000) | gain/(loss) $000 |
| Genkyotex SA | EUR | 7 | ** | ** |
| Globus Medical Inc | USD | (15) | (850) | (48) |
| Grifols SA | USD | (12) | (149) | (11) |
| Heico Corp | USD | (2) | (369) | (27) |
| Intercontinental Exchange Inc | USD | * | (41) | (2) |
| Iveco Group NV | EUR | 3 | 27 | 2 |
| John Wood Group plc | GBP | 23 | 38 | 1 |
| Lennar Corp | USD | (9) | (1,000) | (80) |
| Link Admin | AUD | 20 | 27 | (3) |
| Livent Corp | USD | (7) | (204) | ** |
| Lookers plc | GBP | 274 | 409 | 3 |
| Magellan Midstream Partners | USD | 6 | 338 | 17 |
| Majorel Group Luxembourg SA | EUR | 26 | 808 | (4) |
| Maxlinear Inc | USD | (1) | (34) | (1) |
| Meltwater Holding NV | NOK | 113 | 201 | (10) |
| Network International Holdings plc | GBP | 254 | 1,227 | 1 |
| Newcrest Mining Ltd | USD | 37 | 666 | (9) |
| Newmont Corp | USD | (13) | (551) | ** |
| Novozymes A/S | DKK | (8) | (413) | 25 |
| Numis Corporation plc | GBP | 35 | 147 | ** |
| ONEOK Inc | USD | (4) | (229) | (5) |
| Orange Belgium SA | EUR | 5 | 81 | (3) |
| Ordina NV | EUR | 34 | 210 | 1 |
| Origin Energy Ltd | AUD | 248 | 1,416 | (2) |
| PDC Energy Inc | USD | 5 | 324 | (3) |
| PEXA Group Ltd | AUD | 3 | 24 | 1 |
| Praemium Ltd | AUD | 121 | 49 | 6 |
| Ramsay Health Care Ltd | AUD | 1 | 24 | (1) |
| Randall & Quilter Investment Holdings Ltd | GBP | 32 | 18 | 3 |
| Regency Centers Corp | USD | (5) | (301) | (6) |
| Rovio Entertainment Oyj | EUR | 108 | 1,065 | (4) |
| Siltronic AG | EUR | 2 | 183 | (19) |
| SimCorp A/S | DKK | 9 | 949 | (3) |
| Softwareone Holding AG | CHF | 1 | 25 | ** |
| SOHO China Ltd | HKD | 437 | 66 | (1) |
| Spear Investment Group | EUR | 39 | 9 | ** |
| Spire Healthcare plc | GBP | 29 | 78 | 1 |
| STS Holding SA | PLN | 25 | 145 | 1 |
| Telecom Italia | EUR | 285 | 76 | 4 |
| Telenet Group Holding NV | EUR | 21 | 467 | 3 |
|
Security name |
Trade currency |
Shares (000) |
Nominal ($000) | As at 30 June 2023 Unrealised gain/(loss) $000 |
| Toshiba Corp | JPY | 28 | 914 | (1) |
| Vivendi SE | EUR | 4 | 34 | 1 |
| Total unrealised loss on derivatives | (191) | |||
* Fewer than 500 shares.
** Less than $500.
14 Performance fee
Subject to the satisfaction of the Performance Conditions, the Portfolio Manager shall be entitled under the Portfolio Management Agreement, in respect of each Performance Period, to receive 20% of the Total Return relating to such Performance Period, provided that such amount shall not exceed 3% of the Average NAV.
Performance Conditions
The Portfolio Manager's entitlement to a Performance fee in respect of any Performance Period shall be conditional on the Closing NAV per Share in respect of the Performance Period (adjusted for any changes to the NAV per Share through dividend payments, Share repurchases (howsoever effected) and Share issuances since Admission) being in excess of the Performance Hurdle and High Water Mark. The Performance Hurdle is equal to the Starting NAV per Share increased by two times the rate of return on 13 week Treasury Bills published by the US Department of the Treasury over the Performance Period, less the Starting NAV per Share; multiplied by the weighted average of the number of Shares in issue (excluding any Shares held in treasury) at the end of each day during the Performance Period. For the year ended 30 June 2023, no Performance fee was paid. As at 30 June 2023, no amount was outstanding to the Portfolio Manager in respect of the performance fee, reflecting the performance period matching the Company's financial year (2022: $nil).
15 Other Assets and Liabilities
The categories of other receivables and other payables include:
| | As at 30 June 2023 $000 | As at 30 June 2022 $000 |
| Other receivables | | |
| FX currency purchased | 3 | - |
| FX currency sold | - | 12 |
| All other receivables* | 70 | 54 |
| Total other receivables | 73 | 66 |
|
Other payables | | |
| FX currency sold | 6 | - |
| Custodian fees | 15 | 7 |
| Accounting fees | 26 | 17 |
| Audit fees | 86 | 70 |
| All other payables | 216 | 118 |
| Total other payables | 349 | 212 |
* As at 30 June 2023, all other receivables included prepaid expenses and dividend and swap income.
16 Related party disclosure: Directors
Each of the Directors is entitled to receive a fee from the Company at such rate as may be determined in accordance with the Articles of Incorporation. The Directors' remuneration is $30,000 per annum for each Director, other than:
• the Chairman, who will receive an additional $1,000 per annum *;
• the Chairman of the Audit & Risk Committee, who will receive an additional $5,000 per annum; and
• the Members of the Audit & Risk Committee, who will receive an additional $1,000 per annum.
Each of the Directors is also entitled to be paid all reasonable expenses properly incurred by them in connection with the performance of their duties. These expenses will include those associated with attending general meetings, Board or committee meetings and legal fees. The Board may determine that additional remuneration may be paid, from time to time, to any one or more Directors in the event such Director or Directors are requested by the Board to perform extra or special services on behalf of the Company.
Carne Global Fund Managers (Ireland) Limited, was considered a related party to the Company as it was considered to have significant influence over the Company while in its role as AIFM. During the financial year ended 30 June 2023, Carne earned fees of US$39,926, of which US$12,708 was payable at year end. Carne Global Financial Services Limited, the parent Company of the AIFM, earned fees amounting to US$12,173 during the financial year ended 30 June 2023 in respect of other fund governance services to the Company, of which US$5,458 was payable at year end. The related party transactions with the Directors are set out on pages 36 and 37 and on page 22.
Related parties disclosure: other
The Portfolio management fee for the period ended 30 June 2023 paid by the Company to the Portfolio Manager is presented in the Statement of Comprehensive Income. Details of the Portfolio Management fee paid during the period is disclosed in Note 6. Details of Performance fee paid during the year are disclosed in Note 14.
As at 30 June 2023, Associated Capital Group Inc., an affiliate of the AIFM and Portfolio Manager, held 6,210,619 Ordinary Shares in the Company. Associated Capital Group Inc. also agreed to subscribe for Special Voting Loyalty Shares, which will increase its voting interest when issued, with issuance pending.
Investors should note that as a close company with Associated Capital Group Inc. controlling greater than 90% of shares and greater than 90% of voting shares Associated Capital Group Inc. may be able to ensure the passage of shareholder resolutions.
Further details of related parties and transactions, including with the Company's AIFM Gabelli Funds, LLC, are disclosed in the Directors' Report on page 22.
Connected party transactions
All connected party transactions are carried out at arm's length. There were no such transactions during the year ended 30 June 2023.
17 Contingent Liabilities and Commitments
As at 30 June 2023, the Company had no contingent liabilities or commitments (30 June 2022: nil).
18 Historical Share and NAV information
| | 30 June 2023 | 30 June 2022 | 30 June 2021 |
| Total Shares1 | 6,850,792 | 10,238,206 | 10,238,206 |
| Total NAV ($000) | 70,023 | 95,774 | 101,725 |
| NAV per share | $10.22 | $9.35 | $9.94 |
1 Data excludes 3,484,374 shares held in treasury as of 30 June 2023.
* Mr Gabelli has waived his fees since appointment as Chairman.
19 Significant events
Events arising in Ukraine, as a result of military action being undertaken by Russia, may impact on securities directly or indirectly related to companies domiciled in Russia and/or listed on exchanges located in Russia ("Russian Securities"). As at 30 June 2023, the Company did not have direct exposure to Russian securities. The Directors are monitoring developments related to this military action, including economic sanctions and actions of foreign governments.
The Company appointed Gabelli Funds, LLC to serve as AIFM effective 14 February 2023.
20 Post balance sheet events
The Company paid the first interim dividend for the fiscal year ended 30 June 2023 on 8 September 2023. On 5 October 2023 the Company named John Birch as non-executive Co-Chairman.
Regulatory Disclosures
Information to be disclosed in accordance with Listing Rule 9.8.4
The disclosures below are made in compliance with the requirements of Listing Rule 9.8.4.
9.8.4 (1) The Company has not capitalised any interest in the year under review.
9.8.4 (2) The Company has not published any unaudited financial information in a class 1 circular or prospectus or any profit forecast or profit estimate.
9.8.4 (4) The Company does not have any long term incentive schemes in operation.
9.8.4 (5) and (6) The Chairman Mr Gabelli has waived or agreed to waive any current or future emoluments from the Company.
9.8.4 (7) During the year to 30 June 2023, the Company has not issued shares.
9.8.4 (8) and 9.8.4 (9) are not applicable.
9.8.4 (10) As President of the Portfolio Manager's parent company, GGCP, and an employee of the Portfolio Manager, Mr Gabelli is/ was deemed to be interested in the Company's portfolio management agreement. There were no other contracts of significance subsisting during the year under review to which the Company is a party and in which a Director of the Company is or was materially interested; or between the Company and a controlling shareholder.
9.8.4 (11) This provision is not applicable to the Company.
9.8.4 (12) and (13) There were no arrangements under which a shareholder has waived or agreed to waive any dividends or future dividends.
9.8.4 (14) This provision is not applicable to the Company.
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