Trian Investors 1 Annual Report 2019

FY2019 Annual Report · Trian Investors 1
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Trian Investors 1 Limited

Annual Report and Audited Financial Statements
For the year ended 31 December 2019

Registered number: 65419

Contents

Annual Report and Audited Financial Statements

Overview of the Company

Chairman’s Statement

Investment Manager’s Report

Report of the Directors

Corporate Governance Statement

Directors’ Responsibility Statement

Report of the Audit Committee

Independent Auditor’s Report

Financial Statements

Statement of Financial Position

Statement of Comprehensive Income

Statement of Changes in Equity

Statement of Cash Flows

Notes to the Financial Statements

Investment Manager’s Report Disclosure Statements and Disclaimers

General Information

2

3

4

7

12

19

21

24

30

31

32

33

34

48

50

1

Trian Investors 1 Limited

Overview of the Company

Trian Investors 1 Limited (the “Company”) is a Guernsey-domiciled limited company incorporated on 24 August
2018. The Ordinary Shares of the Company were admitted to trading on the Specialist Fund Segment of the
London Stock Exchange (“SFS”) on 27 September 2018 (“Admission”).

The investment objective of the Company, through its investment in Trian Investors 1, L.P. (Incorporated) (the
“Investment Partnership”), is to generate signiﬁcant capital appreciation through the investment activity of
Trian Investors Management, LLC (the “Investment Manager”) and its parent, Trian Fund Management, L.P.
(collectively, “Trian”). Trian’s investment strategy is to act as a highly engaged shareowner at the companies in
which it invests, combining concentrated public equity ownership with operational expertise.

In accordance with its investment policy, the Company has made a substantial minority investment through
the Investment Partnership, in the amount of approximately £250 million, in Ferguson Plc (“Ferguson”), where
Trian believes it has developed a compelling set of operational and strategic initiatives that will help generate
signiﬁcant shareholder value.

2

Annual Report and Audited Financial Statements

Chairman’s Statement
For the year ended 31 December 2019

Dear Shareholder,

On behalf of the Board of Directors (the “Board”), I am pleased to present to you the Annual Report of the
Company covering the period from 1 January 2019 to 31 December 2019.

On 12 June 2019, the Board announced that funds managed by Trian, including the Investment Partnership
through which the Company invests, had acquired a 5.98% interest in shares of Ferguson, valued at
approximately £736 million at that time. The Company, through the Investment Partnership,
invested
approximately £250 million in Ferguson at an average cost basis of £52.85 per share.

The initial results of the Company’s investment were favourable. Ferguson’s shares appreciated in value, and
the Company’s net asset value increased in turn. By year-end the Company’s net asset value per Ordinary
Share was 121.34 pence, approximately 23% higher than the 31 December 2018 ﬁgure of 98.35 pence per
Ordinary Share.

Since the year-end, Ferguson’s shares, as well as most global equities, have been signiﬁcantly impacted by the
economic consequences resulting from the coronavirus (COVID-19) outbreak, with Ferguson’s share price
falling by approximately 35% from its 31 December 2019 level as at 3 April 2020 (see note 18 to the ﬁnancial
statements). Trian has kept the Board informed about its engagement with Ferguson’s management team
and board of directors and, as described in the Investment Manager’s Report on page 4, it continues to believe
that Ferguson represents an attractive investment opportunity. Speciﬁcally, Trian believes that Ferguson has
signiﬁcant scale advantages over its competitors, and a balance sheet and cash ﬂow proﬁle which should
allow it to withstand the current economic disruption and generate attractive returns over a long-term holding
period. Trian also believes that the strategic initiatives being pursued by Ferguson can generate signiﬁcant
value when macroeconomic conditions stabilise in the future.

Subject to the Company receiving distributions from the Investment Partnership, the Board is committed to
returning cash to shareholders over time through dividends and share repurchases, and on 12 February 2020 the
Board announced a dividend of 0.52 pence per share. Subject to its continued investment in Ferguson and
receipt via the Investment Partnership of sufficient dividend income, the Board intends to declare an additional
dividend of not less than 0.52 pence per share in the third quarter of the calendar year 2020. The Board intends
to review the Company’s dividend policy for future years if Ferguson modiﬁes its own dividend program. In
respect of share repurchases, the Board announced on 12 February 2020 its intention to use approximately
£3,000,000 to repurchase Ordinary Shares. The Company completed the share repurchases on 25 February,
which resulted in the total number of Ordinary Shares in issue (excluding treasury shares) being reduced by
2,760,830.

The Board is grateful for your continued support and we will continue to keep you informed of developments
at the Company as appropriate.

Yours sincerely,

Chris Sherwell
Chairman

6 April 2020

3

Trian Investors 1 Limited

Investment Manager’s Report
For the year ended 31 December 2019

Dear Shareholder,

In April 2019, we recommended that the Company invest in Ferguson, the largest U.S. distributor of plumbing
supplies, pipes, valves and ﬁttings and ﬁre and fabrication products and one of the largest U.S. distributors of
industrial and heating, ventilation and cooling (HVAC) products. We believe that Ferguson possesses an
underappreciated and attractive U.S. business:1

⚫ Ferguson’s organic sales growth has averaged 7.5% over the last ﬁve years, which is 3%-4% better than the

market, while the company has delivered improving operating margins and returns on capital.

⚫ Ferguson’s U.S. business primarily sells to commercial and residential trade customers, who we believe
place signiﬁcant value on the convenience and availability provided by Ferguson versus competitors.

⚫ Most of Ferguson’s US sales originate or are distributed from branches or showrooms (its “blended-branch”
business), which in our view helps to insulate Ferguson from Amazon and other e-commerce competitors.

⚫ Approximately 60% of Ferguson’s sales are oriented towards repair, maintenance and improvement activity,

which is less cyclical than new construction.

⚫ As a leading player in a highly fragmented sector, we believe that Ferguson has the ability to be a prudent
consolidator in the industry and signiﬁcantly enhance its market share over time. The company completed
15 acquisitions last ﬁscal year alone.

⚫ We believe that Ferguson will beneﬁt from continued reinvestment in growth initiatives such as
e-commerce (which currently constitutes approximately 25% of Ferguson’s overall business based on
revenues).

At the time we invested in Ferguson, we believed that the company was mispriced and misunderstood for a
number of reasons. First, we believed that Ferguson’s North American business (which constituted 95% of 2019
ﬁscal year earnings before interest, taxes, depreciation and amortization (EBITDA) at the time we invested) was
structurally more attractive than its much smaller United Kingdom business (constituting 5% of 2019 ﬁscal year
EBITDA), but the company was not valued accordingly. We also felt that Ferguson was under-owned by U.S.
institutions, who we believed should be the natural owners of the company, and that it received minimal U.S.
research coverage. Furthermore, despite having a market structure and growth proﬁle similar to U.S. specialty
distributors, such as Pool Corp., Watsco, SiteOne Landscape Supply, and Beacon Rooﬁng Supply, investors and
analysts rarely compared Ferguson to this peer group, and instead typically compared Ferguson to building
materials and U.S. broadline distributors with lower valuations.

One of our Partners, Brian Baldwin, shared our views on why Ferguson possesses an attractive but
underappreciated underlying U.S. business at the Sohn Conference in London held on 14 November 2019, and
we encourage you to review our presentation from that conference, which is available at
www.trianinvestors1.com.

Value Creation at Ferguson
Since announcing our investment in Ferguson in June 2019, Trian has constructively engaged with Ferguson’s
management team and board of directors. We’ve developed productive relationships with both John Martin,
Ferguson’s former Group CEO, and Kevin Murphy, who succeeded Mr. Martin as Group CEO in November 2019,
and have met with them and other members of Ferguson’s senior management team on several occasions.
We have also had constructive meetings with both Gareth Davis, Ferguson’s former Chairman, and Geoff
Drabble, who succeeded Mr. Davis as Chairman at Ferguson’s 2019 Annual General Meeting.

1 All data contained in this Investment Manager’s Report is based on FactSet and publicly available information from Ferguson’s
investor presentations and regulatory ﬁlings. Please see “Investment Manager’s Report Disclosure

periodic reports,
Statements and Disclaimers” on page 48 for important information regarding this Investment Manager’s Report.

4

Annual Report and Audited Financial Statements

Investment Manager’s Report
(continued)

Since our investment was announced, we believe that Ferguson has undertaken a number of actions that
should help to create long-term value. On 3 September 2019, Ferguson announced its intention to demerge
its UK operations subject to shareholder approval, creating a company wholly focused on its attractive North
American markets. Ferguson expects the UK demerger to be completed in 2020, at which time Ferguson’s
Group CEO and operational management team will be based in North America and the entirety of its revenues
In addition, on 4 February 2020, Ferguson released a statement
and proﬁts will be generated there.
acknowledging that “the U.S. is the natural long-term listing location for Ferguson” and that the “Board believes
that it would now be beneﬁcial to have direct access to the substantial incremental pool of capital in the U.S.”
As such, Ferguson announced that it was proposing to seek shareholder approval for either an additional or
primary listing of Ferguson’s shares on a major United States stock exchange. Ferguson noted that it would
undertake a period of consultation with its institutional shareholders on these two listing structure options,
and that the Ferguson board of directors expects to make a further announcement, likely in the spring of
2020, following the conclusion of the consultation.

Ferguson has also continued to complete bolt-on acquisitions to expand its market share. For example, in
December 2018, Ferguson announced the acquisitions of Blackman Plumbing Supply, one of the U.S. Northeast’s
largest distributors of plumbing supplies, and Wallwork Bros, Inc., a leading supplier of HVAC and Waterworks
products and solutions in the Northeast, in order to expand its presence in the New York metropolitan area.

Finally, on 4 February 2020, Ferguson announced its intention to buy back up to $500 million of its shares over
the next twelve months (after recently completing another $500 million buy back in December 2019). Ferguson
noted that its capital allocation priorities remain unchanged: It will continue to remain focused on achieving
organic growth that exceeds underlying market growth, funding ordinary dividends through the cycle (with
the aim of increasing dividends in line with long-term underlying earnings growth) and investing in bolt-on
acquisitions. Ferguson also stated that its balance sheet remains strong and that it will continue to target net
debt in the range of 1x to 2x EBITDA.

Trian’s Perspective on Ferguson’s Investment Prospects
On 17 March 2020, Ferguson reported its ﬁnancial performance for the ﬁrst half of its 2020 ﬁscal year (the six
months ending 31 January 2020). The results at its U.S. business were strong, highlighted by 5% sales growth
on a year-over-year basis (3% on an organic basis, 13% on a 2-year organic basis) and 6% underlying trading
proﬁt growth (excluding the accounting impact resulting from the implementation of International Financial
Reporting Standard (IFRS) 16). These results were encouraging given U.S. category growth was ﬂat, which
suggests Ferguson continues to take market share and is demonstrating strong cost discipline. On a
consolidated basis, Ferguson grew sales organically 1% (2% excluding the UK), underlying trading proﬁt 3%, and
headline earnings per share 2%. (Earnings per share growth was negatively impacted by an increase in
Ferguson’s tax rate resulting from Swiss tax reform.) Ferguson continues to deploy capital in a shareholder
friendly manner: it announced that it is raising its interim dividend per share by 7% and that it had invested
$141 million in acquisitions in the ﬁrst half of ﬁscal year 2020 and completed nearly $100 million of its recently
announced $500 million share repurchase program. Ferguson also noted that the demerger process for its
UK business remains on track to be completed in calendar year 2020 and that it will update shareholders on
its listing structure later in the spring.

Like most businesses, Ferguson’s near-term performance will be signiﬁcantly impacted by COVID-19 and the
economic disruption resulting from the spread of the virus. The majority of Ferguson’s sales are driven by
residential and commercial remodelling spend, which is sensitive to the underlying economic environment in
the U.S. Furthermore, we expect Ferguson’s operations to be affected by ongoing disruptions relating to social
distancing and other virus-spreading prevention strategies. In particular, Ferguson’s showroom network and
branches are currently closed to walk-in trade (although most branches remain operational for curbside
pick-up or delivery). In the announcement made on 17 March 2020, Ferguson noted that due to the dynamic
situation unfolding around COVID-19, it is too early to understand the virus’s impact on current trading. With
that said, Trian believes that its long-term investment thesis regarding Ferguson remains intact. Ferguson still
possesses an attractive underlying business, and it operates as the largest player in a fragmented, growing
industry, which we believe should allow it to sustain long-term market share gains. The company’s balance

5

Trian Investors 1 Limited

Investment Manager’s Report
(continued)

sheet remains strong at 1.6x lease-adjusted leverage, which we believe should help Ferguson maintain liquidity
in a downturn and enable it to continue to invest to strengthen its business for the future. Moreover, we
believe that Ferguson’s cash ﬂow proﬁle is resilient, with a large variable cost base and counter-cyclical net
working capital requirements that should free up cash in a recessionary scenario.

We also believe that there are opportunities for continued value creation at Ferguson. We are pleased with
Ferguson’s decision to demerge its UK operations and its announcement that the company will consult with
shareholders regarding U.S. listing options. We believe that the demerger should allow management to better
focus on Ferguson’s stronger North American business and help the company earn higher returns on capital,
and that a transfer of its listing to the United States, if completed, could result in numerous beneﬁts to
Ferguson, including higher ownership among U.S. institutions, increased U.S. research coverage, comparison
to a more appropriate set of peers, and increased employee engagement (as most of Ferguson’s employees
are based in the U.S.).

As always, there are risks to our investment outlook,
including management’s ability to execute on its
operational plans and Ferguson’s signiﬁcant exposure to residential repair and remodelling activity in North
America, as well as the duration and severity of the COVID-19 outbreak and its impact on the global economy
and Ferguson’s operations. Please also refer to the Company’s Prospectus dated 21 September 2018 (the
“Prospectus”) and the section titled “Principal risks and uncertainties” in the “Report of the Directors” on page 8
for further information on the risks associated with an investment in the Company.

Ferguson’s Foreign Currency Exposure
Although Ferguson shares are currently traded in Pounds Sterling, Ferguson receives the vast majority of its
revenues and proﬁts in U.S. Dollars and therefore, from the perspective of a Pound Sterling investor, the
Company’s Ferguson investment may be adversely affected by the appreciation of Pounds Sterling against the
U.S. Dollar. In order to mitigate this risk, the Company through the Investment Partnership entered into a
currency hedge in June 2019,
in the form of an option to purchase £125,000,000 Pounds Sterling for
US$165,875,000, to offset a portion of the Company’s U.S. Dollar exposure resulting from its investment in
Ferguson. This option expires in June 2020. In addition, the Company through the Investment Partnership
recently took advantage of attractive pricing of option premiums following a sharp decline of Pounds Sterling
in March 2020, and entered into a second option to purchase £125,000,000 Pounds Sterling for US$165,875,000,
expiring in March 2021. Trian believes that Ferguson will continue to have signiﬁcant U.S. Dollar exposure for
the foreseeable future, and the second option is designed to hedge a portion of Ferguson’s U.S. Dollar exposure
for an additional nine months. However, there is no assurance that either option will be effective at managing
the Company’s currency exposure.

Concluding Thoughts
Despite the current economic disruption caused by COVID-19, we believe that Ferguson is positioned to
withstand a market downturn and continue to believe it will generate attractive returns over a long-term
holding period. We look forward to further constructive engagement with Ferguson and working with its
management team and board of directors to help create additional long-term value. We appreciate your
ongoing support and will continue to work diligently towards fulﬁlling the investment objective of the Company.

Yours sincerely,

Trian Investors Management, LLC

6

Report of the Directors

Annual Report and Audited Financial Statements

The Directors present their annual report on the affairs of the Company, together with the audited Financial
Statements, covering the year ended 31 December 2019 (the “Year”). The comparative period was from
24 August 2018 to 31 December 2018.

Incorporation
The Company was incorporated in Guernsey under the Companies (Guernsey) Law, 2008 as amended (the
“Companies Law”) on 24 August 2018.

Principal activities and investment policy
The Company is a Guernsey domiciled limited company. The ordinary shares of the Company were admitted
to trading on the SFS on 27 September 2018.

The Company, via its wholly-owned subsidiary Trian Investors 1 Midco Limited (“Midco”), holds an approximate
99.8 per cent interest in the Investment Partnership.

As described in the Chairman’s Statement contained on page 3, the Company has made a substantial minority
investment through the Investment Partnership, in the amount of approximately £250 million, in Ferguson,
where Trian believes it has developed a compelling set of operational and strategic initiatives that will help
generate signiﬁcant shareholder value. The Company’s investment, through the Investment Partnership, has
been made alongside other investment funds and vehicles managed by Trian (the “Trian Funds”), and
collectively the Investment Partnership and the Trian Funds held a 6.12 per cent aggregate interest in the
shares of Ferguson as at 31 December 2019.

The Company’s intention since inception has been to invest in only one company at a time (the “Target
Company”) through the Investment Partnership, subject to certain exceptions described in the Prospectus.
Thus, the Company will not seek to reduce risk through diversiﬁcation.

The Investment Partnership may engage in hedging transactions, both for investment purposes and for risk
management purposes. Similarly, the Company and the Investment Partnership are permitted to undertake
borrowings, subject to certain limitations described in the Prospectus. As further described in the Investment
Manager’s Report contained on pages 4 through 6, the Investment Partnership has entered into a currency
hedge to offset a portion of the U.S. Dollar exposure resulting from its investment in Ferguson.

Business review
A review of the Company’s business and an indication of its likely future development is provided in the
Chairman’s Statement on page 3 and the Investment Manager’s Report on pages 4 through 6.

Dividend policy
As noted in the Prospectus, the Company’s original dividend policy was to pay dividends to shareholders
following receipt of any distributions from the Investment Partnership, subject always to compliance with the
statutory solvency test prescribed by the Companies Law and the right of Directors to retain amounts at the
Company for working capital purposes (the “Minimum Capital Requirements”). However, on 12 February 2020,
the Company announced an update to its dividend policy to allow the Company and the Investment
Partnership to retain a portion of dividends from the Target Company and use those dividends for other
purposes, such as repurchases of Company ordinary shares or hedging activities designed to mitigate foreign
currency risk. The Board instructed Numis Securities Limited and Jefferies International Limited (collectively,
the “Corporate Brokers”) to consult with shareholders of the Company on this update to the dividend policy,
and the shareholders with whom the Corporate Brokers have spoken have been supportive of the update.

In the event that the Company receives an in specie distribution of shares in Ferguson from the Investment
Partnership, the Company may, but is not obligated to, distribute those shares in specie to shareholders,
subject to compliance with the statutory solvency test prescribed by the Companies Law.

No distributions or dividends were declared or paid during the Year or during the period ended 31 December
2018. Subsequent to the Year end a dividend of 0.52 pence per share was declared on 12 February 2020 to be
paid to the Company’s Shareholders of record at 21 February 2020, amounting to a total payment of £1,407,000.

7

Trian Investors 1 Limited

Report of the Directors
(continued)

Share capital
As at 31 December 2019 and 31 December 2018, the Company had issued 270,585,977 ordinary shares of no
par value (the “Shares”), all of which carry equal voting rights. Details of the Company’s share capital are
provided in note 8 to the Financial Statements.

Shareholdings of Directors and key persons
Directors who held office during the Year and held interests in the Company as at 31 December 2019 and
31 December 2018 were:

Directors
Chris Sherwell
Mark Thompson
Simon Holden

31 December 2019

31 December 2018

Ordinary
Shares

Percentage
holding

Ordinary
Shares

Percentage
holding

50,000
20,000
35,000

105,000

0.02%
0.01%
0.01%

0.04%

50,000
20,000
15,000

85,000

0.02%
0.01%
0.01%

0.04%

All Directors were appointed on 24 August 2018. All shares held by Chris Sherwell and Mark Thompson were
acquired so on 27 September 2018. Simon Holden acquired 15,000 shares on 27 September 2018 and a further
20,000 shares on 25 November 2019.

Signiﬁcant shareholdings
As at 31 December 2019, the Company has received notiﬁcation of the following material shareholdings greater
than 5 per cent of the Shares in issue:

Invesco Ltd.
Trian Investors 1 Subscriber, LLC
Jefferies Financial Group Inc.
Janus Henderson Group Plc
Kames Capital
Reuben Brothers
FIL Limited
Pelham Capital Ltd
Legal & General Investment Management

31 December 2019

Ordinary
Shares

Percentage
holding

50,000,000
38,211,600
34,176,145
25,939,495
21,220,567
19,000,000
18,400,723
15,209,125
15,202,672

18.48
14.12
12.63
9.59
7.84
7.02
6.80
5.62
5.62

All of the above information is based on notiﬁcations received by the Company made by shareholders pursuant
to the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority (“DTRs”). Since the
time each notiﬁcation was received by the Company, the number of Shares held by the relevant shareholder
may have increased or decreased without triggering any obligation to provide further notiﬁcation to
the Company.

Principal risks and uncertainties
The Directors are responsible for ultimate oversight and exercising supervisory control over the Company,
with day to day functions, including company secretarial and administration services, being carried out by
Ocorian Administration (Guernsey) Limited (referred to herein as the “Company Secretary” or “Administrator”).

Each Director is aware of the risks inherent in the Company’s business and understands the importance of
identifying, evaluating and monitoring these risks. The Board considers the process for identifying, evaluating
and managing any signiﬁcant risks faced by the Company on an on-going basis and arranges for these risks
to be reported and discussed at Board meetings. It ensures that effective controls are in place to mitigate
these risks and that a satisfactory compliance regime exists to ensure all applicable local and international
laws and regulations are upheld.

8

Annual Report and Audited Financial Statements

Report of the Directors
(continued)

The principal risks facing the Company include those risks relating to the Company’s dependence on the
Investment Manager, risks connected to the Company’s operations and risks relating to the valuation of the
Company’s Shares.

An explanation of each of these principal risks and how they are managed is set out below.

⚫ Dependence on Investment Manager. Neither the Company nor the Investment Partnership has any
employees or owns any facilities. As a result, the ability of the Company to achieve its investment objective
depends heavily on the expertise and experience of Trian and its ability to pursue its investment strategies.
Trian also manages funds and investment vehicles in addition to the Investment Partnership, which could
give rise to certain conﬂicts of interest. The Board actively monitors the performance of the Investment
Manager, with assistance from the Company’s other service providers, and retains the ability to appoint a
replacement in certain limited circumstances. The Board regularly engages with the Investment Manager
during and between Board meetings, and when appropriate, seeks further clariﬁcation of matters from the
Investment Manager in order to make informed decisions. The Board and Trian also each monitor conﬂicts
of interest, and Trian maintains trade allocation procedures that are designed to allocate investment
opportunities on a fair and equitable basis, as disclosed in the Prospectus.

⚫ Operations of the Company. The Company is subject to various forms of operational risk, including the risk
of fraud, valuation errors, accounting discrepancies, inadequate cash management and regulatory issues.
These issues are actively reviewed by the Board at quarterly Board meetings and between meetings, including
by monitoring the Company’s recent investment performance and operational activities to ensure that the
Investment Manager and the Company’s other service providers are adhering to established practices and
procedures. In addition, the Board receives reports from the Company Secretary and Administrator at
meetings of the Board in respect of compliance matters and the duties performed by them on behalf of the
Company, as well as reports on market activity from the Company’s Corporate Brokers. The Company is also
subject to operational risk resulting from exogenous events such as the coronavirus (COVID-19) outbreak;
however, both the Investment Manager and the Company Secretary and Administrator have established
business continuity plans and other policies and procedures that are designed to allow each party to continue
to provide services to the Company while taking appropriate safety precautions.

⚫ Valuation of the Shares. In some circumstances, the Company’s Share price may trade at a discount (or
premium) to the underlying market value of the Company’s investments. This discount level (or premium) is
expected to ﬂuctuate from time to time. The Board intends to regularly review Net Asset Value and Share
price performance in the context of market conditions. Any discount (or premium) will also be monitored by
the Investment Manager and the Corporate Brokers, who intend to maintain an ongoing dialogue with the
Board about potential strategies to address any signiﬁcant discount that may emerge, including share
repurchases and role of any foreign exchange hedging. Please see the Chairman’s Statement on page 3 for
a discussion of recent share repurchases that have been undertaken by the Company.

The principal risks of the Company are mitigated and managed by the Board through continual review, policy
setting and quarterly review of the Company’s risk matrix to ensure that procedures are in place with the
intention of minimising the impact of the foregoing risks. In addition, the Board believes that the Investment
Manager, along with the Company’s other service providers, have the right skills and experience to help the
Company manage these risks. The Board can conﬁrm that the principal risks of the Company, including those
which could threaten its business model, future performance, solvency or liquidity, have been robustly
assessed through the Year.

The Company’s principal risk factors are more fully discussed in the Prospectus, available on the Company’s
website (www.trianinvestors1.com) and should be reviewed by shareholders. In addition, the Company’s
ﬁnancial risks and management of those risks are discussed in note 12 to the Financial Statements.

9

Trian Investors 1 Limited

Report of the Directors
(continued)

Furthermore, as at the date of this report, the COVID-19 pandemic is causing signiﬁcant economic disruption
in most of the world’s leading economies. Looking beyond short-term disruption, it is extremely difficult to
predict the medium and long-term consequences resulting from COVID-19 on the global economy and
Ferguson’s operations, as the extent and duration of any disruption is currently very unclear. Even if the
immediate disruption subsides it is unclear whether the impact of the disruption could precipitate a lengthy
economic slowdown or recession, or whether COVID-19 may remain active in the population as a seasonal
illness occurring annually and whether any vaccines may eventually be developed and approved for
widespread public use. The potential for this disruption may have a material adverse effect on Ferguson’s
ﬁnancial condition, business, prospects and results of operations and consequently on its share price which
in turn may have a material adverse effect on the Company’s net asset value and/or the Company’s own
share price.

Viability statement
In accordance with provisions 30 and 31 of the UK Corporate Governance Code issued in July 2018 (the “Code”),
the Directors have assessed the going concern status and viability of the Company over the three-year period
ending 31 December 2022.

The holding period for Company and Investment Partnership investments is not ﬁxed, but the Company and
the Investment Partnership expect that a typical holding period would be greater than one year. As of the
date of the Prospectus, the average holding period of the ten portfolio company investments previously
realised by Trian Management, where it beneﬁcially owned greater than 5 per cent of all outstanding company
shares, was 3.9 years (although this ﬁgure should not be taken as being indicative of the holding period for
any investment by the Company or the Investment Partnership). As such, the Directors have determined that
the three-year period to 31 December 2022 is the appropriate period over which to provide its
viability statement.

In considering the viability of the Company over the three-year period, the Directors have assessed the
principal risks and the procedures adopted to mitigate those risks documented in the Report of the Directors
as set out above. The strategy of the Company is to maintain sufficient cash at both Company and Limited
Partnership level to meet foreseeable expenses over the next three years. Before making distributions to
shareholders the Directors take account of anticipated cash requirements of the Company. Should additional
liquidity needs arise through reduced dividend income from Ferguson, additional expenses or otherwise the
Directors believe that the investment in Ferguson is sufficiently liquid to generate cash at short notice.

Based on the foregoing, the Directors have a reasonable expectation that the Company will be able to continue
in operation and meet its obligations as and when they fall due over the three-year period to 31 December 2022.

AIFM directive
The Directors have considered the impact of the EU Alternative Investment Fund Managers Directive
(2011/61/EU) (“AIFMD”) on the Company and its operations. The Company is a non-EU domiciled Alternative
Investment Fund and the Investment Manager has been appointed as the Company’s non-EU Alternative
Investment Fund Manager (“non-EU AIFM”). As the Company is managed by a non-EU AIFM, only a limited
number of provisions of AIFMD apply. The Investment Manager has notiﬁed the UK Financial Conduct Authority
in accordance with regulation 59 of the UK Alternative Investment Fund Managers Regulations 2013 in order
to permit the marketing of the Company and the Shares in the UK, but the Company does not currently intend
to market the Shares in any other European Economic Area (“EEA”) member state.

Subsequent events
See note 18 to the Financial Statements for details of subsequent events.

10

Annual Report and Audited Financial Statements

Report of the Directors
(continued)

Annual General Meeting
The Annual General Meeting (“AGM”) of the Company will be held later in the year but no later than 27
September 2020, being 15 months from the date of the Company’s last AGM. Details of the resolutions to be
proposed, together with explanations, as well as the actual date, time and location of the meeting, will be sent
to shareholders in due course.

By order of the Board

Chris Sherwell
Chairman

6 April 2020

11

Trian Investors 1 Limited

Corporate Governance Statement

As an unregulated Guernsey incorporated company quoted on the SFS, the Company is not required to comply
with the Code or the GFSC Finance Sector Code of Corporate Governance (the “GFSC Code”). Nevertheless,
the Directors place great importance on ensuring that high standards of corporate governance are maintained.
Accordingly, the Directors have taken appropriate measures to ensure that the Company operates with due
consideration to any codes of corporate governance that the Board deems appropriate. The Board perceives
that good corporate governance practice is necessary for delivering sustainable value, enhancing business
integrity and maintaining shareholder conﬁdence in the Company. To further these aims, the Board has decided
to voluntarily comply with the Code, which sets out guidance in the form of principles and provisions for
companies to follow to ensure good corporate governance practice. Further information on the Code can be
obtained from www.frc.org.uk.

Certain provisions of the Code, including provisions relating to the responsibilities of the chief executive,
executive directors’ remuneration and the responsibilities of the Board to employees and its workforce, are
not relevant to the Company as it has no executive directors or employees. The Company’s day-to-day
management and administrative functions are outsourced to the Investment Manager and other third parties.
The Company does not report further in respect of these provisions.

Except as disclosed within these Financial Statements, the Board is of the view that the Company complies
with the principles and provisions of the Code. Key issues affecting the Company’s corporate governance
responsibilities, how they are addressed by the Board and the application of the Code are presented below.

SECTION 1: BOARD LEADERSHIP AND COMPANY PURPOSE
Board responsibilities
The Directors are responsible for ensuring compliance with the Company’s investment objective and
investment policy and have overall responsibility for the Company’s activities, including review of overall
investment performance. The Board has approved a formal schedule of Matters Reserved for the Board which
includes, amongst others: review of the Company’s overall strategy and business plans; approval of any
proposed amendments to the Company’s investment objective or policies; approval of the Company’s half-
yearly and annual ﬁnancial statements; review and approval of any alteration to the Company’s accounting
policies or practices or any proposal to change the Company’s accounting reference date; declaration of any
dividends or other distributions by the Company; approval of any material announcements or communications;
approval of changes in Board composition; appointment or termination of any of the Company’s service
providers; the issue of any share capital of the Company and the exercise by the Company of its borrowing
powers; and any proposed repurchase or redemption of the Company’s shares by the Company. In addition,
the Board will undertake annual reviews (and performed such a review in 2019) of the Company’s service
providers to ensure that the Company’s contracts of engagement with the Investment Manager, Administrator
and Company Secretary, Corporate Brokers and other service providers are operating satisfactorily and that
they are competitive and reasonable for the Company’s shareholders, as well as to ensure the accurate
In particular, the Board is
management and administration of the Company’s affairs and businesses.
responsible for reviewing and overseeing the performance of the Investment Manager and to monitor any
conﬂicts of interests that may arise. In addition, and if applicable, a non-executive Director may provide a
written statement outlining any concerns regarding the operation of the Board or the management of the
Company to the Chairman upon resignation. Furthermore, any concerns of such a nature that cannot be
resolved would be recorded in the relevant Board meeting minutes.

Management of the Investment Partnership is the responsibility of Trian Investors 1 General Partner, LLC, the
general partner of the Investment Partnership (the “Managing General Partner”), which has delegated
investment decisions and day-to-day management of the Investment Partnership to the Investment Manager
under the terms of an investment management agreement. Given that the Company currently has the majority
interest in the Investment Partnership, the Company and therefore the Board have the ability to approve any
proposed Target Company and to remove the Managing General Partner and Investment Manager in certain
limited circumstances.

12

Annual Report and Audited Financial Statements

Corporate Governance Statement
(continued)

With regard to the Directors’ duty to promote the success of the Company, the Board’s key focus is overseeing
the Investment Manager’s selection and holding of a suitable Target Company that the Investment Manager
anticipates will deliver the Company’s investment objective for its shareholders and wider stakeholders. The
performance of the Investment Manager is subject to regular review by the Board. Due to the nature of the
Company and its activities, the Board does not consider its operations to negatively impact either the
community or the environment. As previously noted, the Company has no employees.

Relations with shareholders
The Directors place a great deal of importance on communication with the Company’s shareholders.
Representatives of the Investment Manager met with many of the Company’s shareholders in 2019 to discuss
Company activities, and the Company expects that the Investment Manager and/or the Corporate Brokers
will continue to meet with shareholders on a periodic basis at appropriate times to discuss Company activities.
The Board also receives regular updates from the Corporate Brokers at each meeting, as well as periodic
updates between meetings, relating to shareholder feedback and activity and other matters. The Company’s
ﬁnancial statements will be widely distributed to other parties who have an interest in the Company’s
performance and will be available on the Company’s website (www.trianinvestors1.com).

All Directors, and in particular, the Chairman and the Audit Committee Chairman, are available for discussions
with shareholders as and when required.

SECTION 2: DIVISION OF RESPONSBILITIES
Board composition
The Board consists of three non-executive members, each of whom has served as a Director since the
incorporation of the Company on 24 August 2018.

Chris Sherwell (Chairman), aged 72 years.
Mr Sherwell has worked in the offshore ﬁnance industry based in Guernsey for 25 years. Since 2004 he has
acted as a Non-Executive Director of a variety of listed investment funds and companies. Prior to January 2004,
Mr Sherwell was Managing Director of Schroders’ offshore investment and private banking operations in the
Channel Islands. He was previously Investment Director from 1993-2000 and also served on the boards of
various Schroder group companies and funds during his period there. Prior to Schroders he worked at Smith
New Court as a research analyst specialising in asset allocation for Asian markets. Mr Sherwell is a Rhodes
Scholar with degrees in science (B.Sc.(General) (London), Chemistry and Physics through the University College
of Rhodesia) and in economics and politics (MA (Oxon) and M Phil (Oxon) from the University of Oxford). He
has worked as a university lecturer and was for ﬁfteen years a journalist, 13 of them for the Financial Times.
He holds the Institute of Directors Diploma in Company Direction and is a member of the Guernsey fund
services interest group GIFA and of the NED Forum.

Mark Thompson, aged 57 years.
Mr Thompson is a Guernsey resident with over 25 years of experience in the offshore ﬁnance industry. He
worked for KPMG for 31 years in London, Hong Kong and Guernsey where his roles included Audit Partner,
Head of Audit and Senior Partner of KPMG in the Channel Islands and he has audited and advised the boards
of a variety of listed investment companies. Mr Thompson is a non-executive director of Rocq Capital Holdings
Limited, Queen Street Mutual Company PCC Limited and Utmost Worldwide Limited, a Chartered Accountant
(ICAEW), Chartered Director (IoD) and a former chairman of the Guernsey Branch of the Institute of Directors.
He holds an MA in mathematics from the University of Oxford.

13

Trian Investors 1 Limited

Corporate Governance Statement
(continued)

Simon Holden, aged 44 years.
Mr Holden is a resident of Guernsey with extensive private equity investment and portfolio company operation
experience, having worked with Candover Investments and Terra Firma Capital Partners. Mr Holden left Terra
Firma in late 2015 and currently serves as a FTSE 250 non-executive director to the Boards of HICL
Infrastructure Plc. (Chair of the Risk Committee), Hipgnosis Songs Fund Limited (Chair of Nomination &
Remuneration Committees), Merian Chrysalis Investment Company Limited (Chair of Management
Engagement Committee) and JPMorgan Global Core Real Assets Limited (Senior Independent Director).
Mr Holden is also a director of unlisted private equity funds with Permira, Blue Water Energy and LCatterton
and holds a number of trading company board roles in both the private sector and public sectors. Mr Holden
graduated from the University of Cambridge with an MEng and MA (Cantab) in Manufacturing Engineering,
holds both the Dip IoD (Institute of Directors Diploma in Company Direction) and IMC (CFA) and is an active
member of various ﬁnancial services interest groups.

Independence
For the purposes of assessing compliance with the Code, the Board considers all of the Directors to be
independent of the Investment Manager and free from any business or other relationship that could materially
interfere with the exercise of their independent judgment. In particular, none of the Directors has any current
or historical employment with the Investment Manager, nor do they have any current directorships in any
other entities for which the Investment Manager or its key personnel provide services.

Commitment of each Director
Prior to the appointment of each of the non-executive Directors, discussions were undertaken with each
individual to ensure that each was sufficiently aware of the time needed for his role. Each Director has
conﬁrmed in his appointment letter that he is able to devote sufficient time to his duties. Upon appointment,
each Director notiﬁed the Board of signiﬁcant outside commitments and interests, including those which may
create a conﬂict situation, and agreed to notify the Board of any subsequent acceptance of, or entry into, a
signiﬁcant commitment or interest which amounts to a conﬂict situation.

Division of responsibilities
The Board is comprised wholly of non-executive Directors. The non-executive Directors’ responsibilities are
described above in Section 1 of this Corporate Governance Statement and are set out in greater detail within the
Schedule of Matters reserved for the Board. All day-to-day functions are outsourced to external service providers.

The Chairman
Chris Sherwell was appointed as Chairman of the Board on 24 August 2018. As Chairman, Mr. Sherwell leads
the Board and is responsible for its overall performance in directing the Company, including by organising the
Board’s business and ensuring the effectiveness of the Board and individual Directors. He endeavours to
produce an open culture of debate within the Board.

Role of non-executive Directors
The Board is composed entirely of non-executive Directors, who meet as required without the presence of the
Investment Manager and service providers to scrutinise the achievement of agreed goals and objectives, and
monitor performance. Through the Audit Committee, and the leadership of Mark Thompson, the Directors
ensure the integrity of ﬁnancial information and conﬁrm that all ﬁnancial controls and risk management
systems are robust.

Due to the size and structure of the Board, the appointment of a senior independent director is not deemed
necessary.

14

Annual Report and Audited Financial Statements

Corporate Governance Statement
(continued)

Company Secretary
In conjunction with the Chairman, the Company Secretary facilitates the ﬂow of information between the
Board, the Committees, the Investment Manager and other service providers through the development of
comprehensive meeting packs, agendas and other reports. Prior to each Board meeting, the Company
Secretary distributes a Board and Committee meeting pack, which contains relevant, concise and clear
information. When required, the Board has sought further clariﬁcation of matters directly with the Investment
Manager and other service providers, both in terms of further reports and via in-depth discussions.

Full access to the advice and services of the Company Secretary is available to the Board; in turn, the Company
Secretary is responsible for advising the Board on governance matters. The appointment and resignation of
the Company Secretary is a matter for the whole Board pursuant to the Schedule of Matters reserved for the
Board. A review of the performance of the Company Secretary is undertaken by the Board on a regular basis
and forms a part of the annual service provider review process.

Board meetings
The Board meets on at least a quarterly basis. The dates for each scheduled meeting are planned and agreed
up to a year in advance. Meetings will be convened as and when required to consider any urgent matters
arising. In addition to formal Board and/or committee meetings and, to the extent practicable and appropriate,
the Directors maintain close contact with each other, the Administrator and the Investment Manager, by email
and conference calls, for the purpose of keeping themselves informed about the Company’s activities.

The Board met seven times during the Year and the Audit Committee met three times during the Year.
Subsequent to the Year-end and prior to the date of this Annual Report, the Board met a further three times.

Name

Chris Sherwell
Mark Thompson
Simon Holden

Scheduled
board
meeting
(max 4)

Committee
of the
board
meeting
(max 1)

Other
board
meeting
(max 3)

Audit
Committee
meeting
(max 3)

4
4
4

1
1
1

3
3
3

3
3
3

SECTION 3: COMPOSITION, SUCCESSION AND EVALUATION
Board composition
The Board is responsible for reviewing its structure, size and composition, for considering succession planning
and for identifying and approving candidates to ﬁll Board vacancies. The Board believes that, as a whole, its
current members represent an appropriate balance of skills, experience and knowledge.

The Board remains open to the appointment of additional directors with relevant expertise that may enhance
the Company’s fulﬁlment of its investment objective. The Board also believes that diversity of background,
experience and approach amongst Board members is of great importance and it is the Company’s policy to
give careful consideration to issues of Board balance and diversity when making any new appointments.

Due to the size of the Board, and the fact that it is comprised wholly of non-executive Directors, the Board
does not believe it necessary to establish a separate nomination committee and this function will be fulﬁlled
by the Board as a whole.

Director re-election
Each Director shall stand for re-election by the Company’s shareholders at the upcoming annual general
meeting. The Board intends to set out in the papers accompanying the resolution to elect each director why
their contribution is, and continues to be, important to the Company’s long-term sustainable success.

15

Trian Investors 1 Limited

Corporate Governance Statement
(continued)

Board succession
The Board intends to arrange for appropriate succession arrangements in due course that will comply with
the principles and the provisions of the Code.

Director and Board evaluation
Using a pre-determined template based on the Code’s provisions as a basis for review, the Board undertakes
an annual evaluation of its performance and that of the Audit Committee. The ﬁrst evaluation was completed
in 2019. Additionally, an evaluation focusing on the individual commitment, performance and contribution of
each Director was conducted in 2019 and the Board expects it will be conducted on an annual basis going
forward. The Chairman met with each Director to fully understand their views of the Company’s strengths and
to identify potential weaknesses. Due to the size and structure of the Board the evaluation of the Chairman
of the Board and Audit Committee is dealt with as part of the annual Board evaluations.

Given the Company’s size and the structure of the Board, no external facilitator or independent third party is
expected to be used in the performance evaluation.

SECTION 4: AUDIT, RISK AND INTERNAL CONTROL
Internal control and ﬁnancing reporting
The Board acknowledges that it is responsible for establishing and maintaining the Company’s systems of
internal control and for maintaining their effectiveness. Internal control systems are designed to manage
rather than eliminate the risk of failure to achieve business objectives, and only provide reasonable rather
than absolute assurance against material misstatements or losses.

The Board has delegated the day-to-day operations of the Company to the Administrator and Investment
Manager; however the Board retains accountability for all delegated functions. The Board clearly deﬁnes the
duties and responsibilities of all service providers and advisers, and appointments are only made after due
and careful consideration.

The Administrator maintains a system of internal control over its activities. The Board receives reports from
the Company Secretary and Administrator in respect of compliance matters and other duties performed on
behalf of the Company.

The Board considers that the Company’s existing internal controls, coupled with the analysis of risks inherent
in the business models of the Company and its subsidiaries, continue to provide appropriate tools for the
Company to monitor, evaluate and mitigate its risks.

Going concern status and continued viability
The Financial Statements have been prepared on the going concern basis. The net current asset position as
at 31 December, 2019 was £328.3 million. After making suitable enquiries, and given the nature of the Company,
its liquid investments and its sufficient cash reserves, the Directors are satisﬁed that the Company is able to
continue for the foreseeable future, and at least twelve months from the date of approval of the Financial
Statements, and it is appropriate to continue to adopt the going concern basis in preparing the Company’s
ﬁnancial statements. This conclusion also takes into account the Board’s assessment of the risks arising from
COVID-19 as set out in the Investment Manager’s Report and the Report of the Directors.

Furthermore, as set forth on pages 7 to 11 of the Report of the Directors, the Board has conducted a robust
assessment of the principal risks facing the Company and the Directors have a reasonable expectation that
the Company will be able to continue in operation and meet its obligations as and when they fall due over
the three year period to 31 December 2022.

16

Annual Report and Audited Financial Statements

Corporate Governance Statement
(continued)

Preparation of Annual Report
An explanation of the Directors’ roles and responsibilities in preparing the Annual Report and Financial
Statements for the Year is provided in the Directors’ Responsibility Statement on pages 19 to 20. Further
information enabling shareholders to assess the Company’s performance, business model and strategy can
be located in the Chairman’s Statement on page 3, the Investment Manager’s Report on pages 4 to 6, and the
Report of Directors on pages 7 to 11.

Audit Committee
The Board has established an Audit Committee with formally delegated duties and responsibilities
documented within its terms of reference. The Audit Committee is responsible for assisting the Board in
discharging its responsibilities for the integrity of the Company’s ﬁnancial statements, as well as aiding the
assessment of the Company’s internal control effectiveness and the objectivity of the Company’s external
auditors. The Audit Committee is composed of all of the members of the Board, all of whom are independent
non-executive Directors. Due to the size and structure of the Board and the Company, the Chairman of the
Board has been included as a member of the Audit Committee to give him a fuller understanding of the issues
facing the Company and to maximise the effectiveness of the Committee. However, Mr. Sherwell is not
appointed as the Committee’s Chair, and the Committee is instead chaired by Mark Thompson, who has
extensive expertise in accounting and audit processes. Further information on the Audit Committee is provided
in the Report of the Audit Committee on pages 21 to 23.

The Board has reviewed the need for an internal audit function and has decided that the systems and
procedures employed by the Administrator and Investment Manager, including their own internal controls and
procedures, provide a sound system of risk management and internal control which safeguards shareholders’
investment and the Company’s assets, and as such no internal audit function is deemed necessary.

SECTION 5: REMUNERATION OF DIRECTORS
The Board endeavours to ensure the Company’s Remuneration Policy reﬂects and supports the Company’s
strategic aims and objectives. It has been agreed that, due to the size of the Board and the fact that it is
comprised wholly of non-executive Directors, a separate Remuneration Committee would be inefficient.
Therefore the Board as a whole is responsible for discussions regarding remuneration. No external
remuneration consultants were appointed during the Year.

In accordance with the Company’s Articles of Incorporation (the “Articles”), the aggregate amount of fees paid
to Directors may not exceed the annual equivalent of £400,000 per annum. Subject to this limit, it is the
Company’s policy to determine the level of Directors’ fees, having regard for the level of fees payable to non-
executive Directors in the industry generally, the role that individual Directors fulﬁl in respect of responsibilities
related to the Board and Audit Committee and the time dedicated by each Director to the Company’s affairs.

Each of the Directors is currently entitled to a fee payable by the Company at the rate of £40,000 per annum.
The Chairman currently receives an additional fee of £15,000 per annum and the Chairman of the Audit
Committee currently receives an additional fee of £5,000 per annum.

As outlined in the Prospectus, all of the Directors are also entitled to be reimbursed for all reasonable
expenses properly incurred by them in attending general meetings, Board or committee meetings or otherwise
in connection with the performance of their duties.

None of the Directors has a service contract with the Company. Each of the Directors has entered into a letter
of appointment with the Company that states that his appointment and any subsequent termination or
retirement shall be subject to the Articles. Each Director’s appointment letter provides that upon the
termination of a Director’s appointment, that Director must resign in writing and all records remain the
property of the Company. Each Director’s appointment can be terminated in accordance with the Articles
and without compensation. There is no notice period speciﬁed in the Articles for the removal of Directors.

17

Trian Investors 1 Limited

Corporate Governance Statement
(continued)

Directors’ and officers’ liability insurance cover is maintained by the Company but it is not considered a beneﬁt
in kind nor does it constitute part of the Directors’ remuneration. In addition, the Company’s Articles indemnify
each Director, former or present, out of assets and proﬁts of the Company in relation to actions, expenses and
liabilities incurred during the course of their duties, in so far as the law allows and provided that such
indemnity is not available in circumstances of negligence, default, breach of duty or breach of trust in relation
to the Company.

By order of the Board

Chris Sherwell
Chairman

6 April 2020

18

Directors’ Responsibility Statement

Annual Report and Audited Financial Statements

Each of the Directors, whose names are set out on pages 13 to 14 in the Corporate Governance Statement of
the Annual Report, conﬁrms that, to the best of his knowledge and belief:

⚫

⚫

⚫

the Financial Statements, prepared in accordance with International Financial Reporting Standards (“IFRS”)
as adopted by the European Union, give a true and fair view of the assets, liabilities, ﬁnancial position and
proﬁt or loss of the Company;

the Annual Report, including the Chairman’s Statement, Investment Manager’s Report, Report of the
Directors, Corporate Governance Statement and Report of the Audit Committee, includes a fair review of
the development and performance of the business and the position of the Company, together with a
description of the principal risks and uncertainties that they face; and

the Annual Report, taken as a whole, is fair, balanced and understandable and provides information
necessary for shareholders to assess the Company’s performance, business model and strategy.

The Directors are responsible for preparing the Annual Report in accordance with applicable laws and
regulations. The Companies (Guernsey) Law, 2008 requires the Directors to prepare ﬁnancial statements for
each ﬁnancial year in accordance with IFRS. 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 ﬁnancial
performance and cash ﬂows of the Company for that period. In preparing these Financial Statements, the
Directors are required to:

⚫

select suitable accounting policies and apply them consistently;

⚫ make judgements that are reasonable and prudent;

⚫ present information, including accounting policies, in a manner that provides relevant, reliable, comparable

and understandable information;

⚫ provide additional disclosures when compliance with the speciﬁc requirements in IFRS is insufficient to
enable users to understand the impact of particular transactions, other events and conditions on the
Company’s ﬁnancial position and performance;

⚫

state that the Company has complied with IFRS, subject to any material departures disclosed and
explained in the Company’s ﬁnancial statements;

⚫ make an assessment of the Company’s ability to continue as a going concern; and

⚫ prepare the Company’s ﬁnancial statements on a going concern basis unless it is inappropriate to presume

that the Company will continue in business.

The Directors conﬁrm they have complied with the above requirements in preparing the Company’s Financial
Statements.

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 which enable them to ensure that the ﬁnancial statements comply with the Companies
(Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors conﬁrm that, so far as they are aware, there is no material information relevant to the audit of
which the Company’s auditor is unaware. The Directors also conﬁrm that they have taken all steps they ought
to have taken as Directors to make themselves aware of any material information relevant to the audit and
to establish that the Company’s auditors are aware of that information.

19

Trian Investors 1 Limited

Directors’ Responsibility Statement
(continued)

The Directors are responsible for the maintenance and integrity of the corporate and ﬁnancial information
included on the Company’s website (www.trianinvestors1.com). The work carried out by the external auditor
does not involve considerations of these matters and, accordingly, the external auditor accepts no
responsibility for any changes that may have occurred to the ﬁnancial statements after they were initially
presented on the website. Legislation in Guernsey governing the preparation and dissemination of ﬁnancial
statements may differ from legislation in other jurisdictions.

For Trian Investors 1 Limited

Chris Sherwell
Chairman

6 April 2020

20

Report of the Audit Committee

Annual Report and Audited Financial Statements

Composition
The Audit Committee (the “Committee”) comprises the three members of the board with Mr Thompson as the
Chairman. The Board is satisﬁed that the Committee has recent and relevant skills and ﬁnancial experience
to fulﬁl its responsibilities and that its members have signiﬁcant business experience relevant to the asset
management industry. Further details on the experience and qualiﬁcations of members of the Committee can
be found on pages 13 and 14.

Meetings
The Committee meets no less than twice a year. It met three times in the year ended 31 December 2019 and
twice since the year end through to the date of this report and all Directors were in attendance. The external
auditor has attended all three meetings to discuss the audit and interim review approach and audit and
interim review ﬁndings. In addition the Directors met with the external auditor outside of an Audit Committee
meeting to discuss any issues arising from the audit and the application of accounting policies.

Principal duties
The principal duties of the Committee as set out in its terms of reference are:

⚫

⚫

⚫

⚫

⚫

to monitor the integrity of the ﬁnancial reporting of the Company including its annual and half yearly reports
and any other information relating to its ﬁnancial performance;

to monitor and review the adequacy and effectiveness of Company’s internal controls and risk
management systems;

to keep under review the scope, results, quality and effectiveness of the audit and the independence and
objectivity of the auditor;

to make recommendations to the Board regarding the appointment, reappointment, replacement,
remuneration and terms of reference of the external auditor; and

to review the whistleblowing arrangements in place to enable directors and staff of service providers to,
in conﬁdence, raise concerns about possible wrongdoing in ﬁnancial reporting or other matters insofar as
they may affect the Company.

The Committee shall meet the external auditor at least once a year, without the Investment Manager or
Administrator being present, to discuss their remit and any issues arising from the audit.

The Committee’s terms of reference include all matters indicated by DTR 7.1 and the Code and are available
on the Company’s website.

Financial reporting
The primary role of the Committee in relation to ﬁnancial reporting is to review with the Administrator and the
Investment Manager the appropriateness of annual reports and interim reports, concentrating on, amongst
other matters:

⚫

⚫

the appropriateness of accounting policies and practices;

the clarity of the disclosures and compliance with ﬁnancial reporting standards and relevant ﬁnancial and
governance reporting requirements;

⚫ material areas in which signiﬁcant judgements and estimates have been applied or there has been

discussion with any external consultant or the external auditor;

⚫ whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information

necessary for shareholders to assess the Company’s performance, business model and strategy; and

⚫

any correspondence from regulators in relation to the Company’s ﬁnancial reporting.

21

Trian Investors 1 Limited

Report of the Audit Committee
(continued)

To aid its review, the Committee considers reports from the Investment Manager and also reports from the
external auditor on the outcomes of their audit. The Committee supports Deloitte LLP in displaying the
necessary professional scepticism their role requires.

Signiﬁcant matters in relation to the ﬁnancial statements
The Committee determined that the key risk of misstatement in connection with the ﬁnancial statements was
the fair value of the underlying investment in the Investment Partnership held through the Company’s
subsidiary Midco. The basis for this judgement is explained in note 3.

The Committee believes a signiﬁcant ﬁnancial reporting risk could arise from the valuation of the investment
in Ferguson. The Committee receives valuations from the Investment Manager on a regular basis which are
reviewed to ensure they are in line with reporting standards. The shares of Ferguson are listed on the main
market of the London Stock Exchange and there is a liquid market in the shares. Accordingly, the Committee
considers the quoted share price is the appropriate basis for valuation of this investment.

The Committee believes a further ﬁnancial reporting risk could arise from the disclosures relating to the use
of currency options to hedge a portion of the U.S. Dollar exposure arising from the investment in Ferguson and
its underlying operations which are now principally U.S.-centric. The Committee has reviewed the disclosures
in note 12 on page 44 and has concluded that these disclosures properly reﬂect the use of the currency option.

During the period when the ﬁnancial statements were being ﬁnalised it became apparent that the ﬁnancial
performance of the Company could be signiﬁcantly impacted by the coronavirus (COVID-19) outbreak. The
Committee has reviewed the disclosures throughout the Annual Report and in note 18 in particular and has
concluded that these give proper disclosure to the risks arising from the outbreak.

Risk management
The Company’s risk assessment process and the way in which signiﬁcant business risks are identiﬁed and
managed is a key area of focus for the Committee. The work of the Committee was driven primarily by the
Company’s assessment of its principal risks and uncertainties as set out on pages 8 to 10 of the Report of the
Directors. The Committee receives reports from the Investment Manager and Administrator on the Company’s
risk evaluation process and reviews changes to signiﬁcant risks identiﬁed.

Internal audit
The Committee does not consider there to be a need for an internal audit function, given that there are no
employees in the Company and all outsourced functions are with parties who have their own internal controls
and procedures. The Committee will reconsider the need for an internal audit function at least once a year.

External auditor
Deloitte LLP has been appointed as the Company’s external auditor. The lead audit partner is David Becker
and under normal audit partner rotation arrangements he will be replaced after no more than ﬁve years
following the year end to 31 December 2022. The Companies Law requires the reappointment of the external
auditor to be subject to shareholders’ approval at the Annual General Meeting. There are no contractual
obligations restricting the choice of external auditor and the Company will consider putting the audit services
contract out to tender at least every ten years.

The objectivity of the external auditor is reviewed by the Committee which also reviews the terms under
which the external auditor may be appointed to perform non-audit services. In order to safeguard external
auditor independence and objectivity, the Committee ensures that any non-audit services provided by the
external auditor do not conﬂict with its statutory audit responsibilities. Non-audit services provided by the
auditor will generally only cover reviews of interim ﬁnancial statements and/or capital raising work. Any
non-audit services conducted by the auditor outside of these areas will require the consent of the Committee
before being initiated.

The only non-audit service undertaken by Deloitte during the year was the independent review of the interim
ﬁnancial statements. A summary of the external auditor’s remuneration for audit and non-audit services is
shown in note 10 on page 42. The audit fee for the year ending 31 December 2019 is estimated at £24,000
and the ﬁnal fee for the review of the interim ﬁnancial statements for the six month period to 30 June 2019
was £16,000.

22

Annual Report and Audited Financial Statements

Report of the Audit Committee
(continued)

To fulﬁl its responsibility regarding the independence of the external auditor, the Committee considered:

⚫

⚫

the audit personnel in the audit plan for the year ending 31 December 2019;

a report from the external auditor describing its arrangements to identify, report and manage any conﬂicts
of interest; and

⚫

the extent of non-audit services provided by the external auditor.

To assess the effectiveness of the external auditor, the Committee reviewed:

⚫

⚫

⚫

the external auditor’s fulﬁlment of the agreed audit plan and variations from it;

reports highlighting the major issues that arose during the course of the audit; and

feedback from the Investment Manager and Administrator evaluating the performance of the audit team.

Conclusions and recommendation
The Committee is satisﬁed with Deloitte LLP’s effectiveness and independence as external auditor having
considered the degree of diligence and professional scepticism demonstrated by them. As such, the
Committee has not considered it necessary this year to conduct a tender process for the appointment of its
external auditor. Having carried out the review described above, and having satisﬁed itself that the external
auditor remains independent and effective, the Committee has recommended to the Board that Deloitte LLP
be reappointed as external auditor for the year ending 31 December 2020.

The Committee has advised the Board that it considers that the Annual Report and Financial Statements to
be fair, balanced and understandable and provides the information necessary for shareholders to assess the
Company’s performance, business model and strategy. In reaching this conclusion the Committee has
considered the following:

⚫

⚫

⚫

its own assessment of the signiﬁcant risks, judgements and estimates pertaining to the ﬁnancial statements;

the controls of the Investment Manager and the Administrator to ensure complete and accurate ﬁnancial
records and security of the Company’s assets; and

a conﬁrmation from the external auditor that they identiﬁed no material misstatements in the course of
their work.

A member of the Committee will attend each Annual General Meeting to respond to any questions in respect
of the Audit Committee.

On behalf of the Audit Committee,

Mark Thompson
Audit Committee Chairman

6 April 2020

23

Trian Investors 1 Limited

Independent Auditor’s Report
TO THE MEMBERS OF TRIAN INVESTORS 1 LIMITED

Report on the audit of the ﬁnancial statements

1. Opinion

In our opinion the ﬁnancial statements of Trian Investors 1 Limited (the ‘Company’):

(cid:1)

(cid:1)

(cid:1)

give a true and fair view of the state of the Company’s affairs as at 31 December 2019 and of its proﬁt
for the year then ended;

have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as
issued by the International Accounting Standards Board (IASB); and

have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

We have audited the ﬁnancial statements which comprise:

(cid:1)

(cid:1)

(cid:1)

(cid:1)

(cid:1)

the statement of ﬁnancial position;

the statement of comprehensive income;

the statement of changes in equity;

the cash ﬂow statement; and

the related notes 1 to 18.

The ﬁnancial reporting framework that has been applied in their preparation is applicable law and IFRSs as
issued by the IASB.

2. Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable
law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the
audit of the ﬁnancial statements section of our report.

We are independent of the Company in accordance with the ethical requirements that are relevant to our audit
of the ﬁnancial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard
as applied to listed entities, and we have fulﬁlled our other ethical responsibilities in accordance with these
requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.

3. Summary of our audit approach

Key audit matters

The key audit matter that we identiﬁed in the current year was:

(cid:1)

Valuation of Investment.

Within this report, key audit matters are identiﬁed as follows:

Newly identiﬁed

Materiality

Scoping

Signiﬁcant changes
in our approach

The materiality that we used in the current year was £3,280,000 which was
determined on the basis of 1% of Net Asset Value (“NAV”).

Audit work was performed in response to risk of material misstatement identiﬁed
by the audit team.

Valuation of investment is a new key audit matter identiﬁed during the current year
following substantial minority investment
through Trian Investors 1, L.P
(Incorporated) (the “Investment Partnership”), in Ferguson PLC. We did not consider
management override of controls as a key audit matter in the current year as last
year was the ﬁrst year the entity was incorporated.

There are no other signiﬁcant changes in our approach.

24

Annual Report and Audited Financial Statements

Independent Auditor’s Report
(continued)

4. Conclusions relating to going concern, principal risks and viability statement

Going concern is the basis of
preparation of the ﬁnancial
statements that assumes an
entity will remain in
operation for a period of at
least 12 months from the
date of approval of the
ﬁnancial statements.

We conﬁrm that we have
nothing material to report, add
or draw attention to in respect
of these matters.

Viability means the ability of
the Company to continue
over the time horizon
considered appropriate by
the directors.

We conﬁrm that we have
nothing material to report, add
or draw attention to in respect
of these matters.

4.1. Going concern
We have reviewed the directors’ statement in note 2 to the ﬁnancial
statements about whether they considered it appropriate to adopt the
going concern basis of accounting in preparing the ﬁnancial statements
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. We state whether we have
anything material to add or draw attention to in relation to that statement
that would be required by Listing Rule 9.8.6R(3) if the company had a
premium listing and report if the statement is materially inconsistent with
our knowledge obtained in the audit.

4.2. Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether
they were consistent with the knowledge we obtained in the course of the
audit, including the knowledge obtained in the evaluation of the directors’
assessment of the Company’s ability to continue as a going concern, we
are required to state whether we have anything material to add or draw
attention to in relation to:

(cid:1) the disclosures on pages 34-47 that describe the principal risks,
procedures to identify emerging risks, and an explanation of how these
are being managed or mitigated;

(cid:1) the directors’ conﬁrmation on page 9 that they have carried out a robust
assessment of the principal and emerging risks facing the Company,
including those that would threaten its business model, future
performance, solvency or liquidity; or

(cid:1) the directors’ explanation page 10 as to how they have assessed the
prospects of the Company, over what period they have done so and why
they consider that period to be appropriate, and their 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 their assessment,
including any related disclosures
drawing attention to any necessary qualiﬁcations or assumptions.

We also report whether the directors’ statement relating to the prospects
of the group that would be required by Listing Rule 9.8.6R (3) if the group
had a premium listing is materially inconsistent with our knowledge
obtained in the audit.

25

Trian Investors 1 Limited

Independent Auditor’s Report
(continued)

5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most signiﬁcance in our
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) that we identiﬁed. These matters included 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 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.

5.1. Valuation of Investments

Key audit matter
description

How the scope of our
audit responded to the
key audit matter

The Company’s investment as at 31 December 2019 valued at £326,228k (2018:
NIL) comprised an unlisted investment in Trian Investors 1 L.P Incorporated
(“Investment Partnership”) held through its wholly owned subsidiary, Trian Investors
1 Midco Limited (“Midco”). Midco holds 99.83% of the Investment Partnership. The
Invesment Partnership has an investment in Ferguson Plc (“Ferguson”), a publicly
listed Company. Details of the investment are disclosed in the Chairman’s
statement and in note 5 to the ﬁnancial statements, and the accounting policies
relating to the investment are disclosed in note 1 to the ﬁnancial statements.

The key audit mater is associated with the valuation of the Investment in Ferguson.
As the Company has a large holding in Ferguson this means that a small
adjustment in the share price may have a signiﬁcant impact on the valuation of this
investment. We also deem the fair value of the Investment in Ferguson to be a Key
Performance Indicator and as such management may be incentivised to adjust
the share price to achieve a desired outcome.

The risk of material misstatement exists that the Company’s investment is not
accurately valued based on relevant information that is representative of its value
and that it may not be representative of its value in accordance with IFRS 13 – Fair
Value Measurement (‘IFRS 13’).

We have perfomed the following proceedures to test the valuation of investments;

We have obtained an understanding of controls around the reconciliation of
investments held and the year end valuation of investments. This included
obtaining an understanding of relevant controls of the administrator, Ocorian
(Guernsey) Limited (formerly Estera Administration (Guernsey) Limited);

We have assessed the valuation policy and methodology adopted by management
in order to assess compliance to IFRS 13;

We considered the liquidity of the investment in Ferguson in order to assess
whether there is a sufficiently active market to allow for use of an unadjusted level
1 price;

We have obtained the independent conﬁrmation of the investment holdings
31 December 2019 and transactions during the year from the Company’s custodian,
and reconciled to the number of equity shares held at year-end; and

We obtained independent pricing information from reliable external sources and
recalculated the fair value of investments at year-end.

We have assessed the subsequent impact of the coronavirus (COVID-19) outbreak
on the ﬁnancial performance of the investment in Ferguson and have reviewed
the ﬁnancial statements to assess whether the post year end disclosures are in
accordance with IFRS.

Key observations

Based on the work performed, we concluded that the valuation of investments is
appropriate.

26

Annual Report and Audited Financial Statements

Independent Auditor’s Report
(continued)

6. Our application of materiality
6.1. Materiality
We deﬁne materiality as the magnitude of misstatement in the ﬁnancial statements that makes it probable
that the economic decisions of a reasonably knowledgeable person would be changed or inﬂuenced. We use
materiality both in planning the scope of our audit work and in evaluating the results of our work.

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

Materiality

£3,280,000 (2018: £2,600,000)

Basis for determining materiality

1% of NAV (2018: 1% of NAV)

Rationale for the benchmark applied

The Company is an investment entity and as such the holders of
equity will use NAV as the Key Performance Indicator (“KPI”). As such
we have used NAV as the benchmark.

NAV £328m

Materiality £3.3m

NAV

Materiality

Clearly trivial 
£0.16m

6.2. Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the materiality for the ﬁnancial statements as a whole.
Performance materiality was set at 70% of materiality for the 2019 audit (2018: 70%).
In determining
performance materiality, we considered factors including:-our risk assessment, including our assessment of
the Company’s overall control environment and that we did not consider it appropriate to rely on controls; and
our past experience of the audit, which has indicated a low number of corrected and uncorrected
misstatements identiﬁed in prior periods.

6.3. Error reporting threshold
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess
of £164,000 (2018: £130,000), as well as differences below that threshold that, in our view, warranted reporting
on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identiﬁed when
assessing the overall presentation of the ﬁnancial statements.

7. An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the Company and its environment, including internal
control and assessing the risks of material misstatement. Our audit scope included obtaining an understanding
of the relevant controls in the business processes at the administrator as they maintain the books and records
of the entity.

Audit work to respond to the risks of material misstatement was performed directly by the engagement team.

27

Trian Investors 1 Limited

Independent Auditor’s Report
(continued)

8. Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the ﬁnancial statements and our auditor’s report thereon.

Our opinion on the ﬁnancial statements does not cover the other information and we do not express any
form of assurance conclusion 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 such material inconsistencies or apparent material misstatements, we are required to determine
whether there is a material misstatement in 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.

In this context, matters that we are speciﬁcally required to report to you as uncorrected material
misstatements of the other information include where we conclude that:

(cid:1) Fair, balanced and understandable – the statement given by the directors that they consider the annual
report and ﬁnancial statements 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, is materially inconsistent with our knowledge obtained in the audit; or

(cid:1) Audit committee reporting – the section describing the work of the audit committee does not

appropriately address matters communicated by us to the audit committee; or

(cid:1) Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
directors’ statement that would be required if the company had a premium listing relating to the company’s
compliance with the UK Corporate Governance Code containing provisions speciﬁed for review by the
auditor in accordance with Listing Rule 9.8.10R (2) do not properly disclose a departure from a relevant
provision of the UK Corporate Governance Code.

We have nothing to report in respect of these matters.

9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the
preparation of the ﬁnancial statements and for being satisﬁed that they give a true and fair view, and for such
internal control as the directors 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.

10. Auditor’s 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 auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to inﬂuence the economic decisions of users taken on the basis of these ﬁnancial statements.

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

28

Annual Report and Audited Financial Statements

Independent Auditor’s Report
(continued)

Report on other legal and regulatory requirements

11. Matters on which we are required to report by exception
11.1. Adequacy of explanations received and accounting records
Under the Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:

(cid:1) we have not received all the information and explanations we require for our audit; or

(cid:1) proper accounting records have not been kept; or

(cid:1) the ﬁnancial statements are not in agreement with the accounting records.

We have nothing to report in respect of these matters.

12. Use of our report
This report is made solely to the Company’s members, as a body, in accordance with Section 262 of the
Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them in an auditor’s report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other
than the Company and the Company’s members as a body, for our audit work, for this report, or for the
opinions we have formed.

David Becker
For and on behalf of Deloitte LLP
Recognised Auditor
St Peter Port, Guernsey

6 April 2020

29

Trian Investors 1 Limited

Statement of Financial Position
As at 31 December 2019

Non-current assets
Investment in Midco

Total non-current assets

Current assets
Cash and cash equivalents
Receivables and prepayments

Total current assets

Current liabilities
Trade and other payables

Total liabilities

Net assets

Equity
Share capital
Retained earnings

Total equity

Number of Ordinary shares in issue

NAV per share (pence)

31 December
2019
£’000

31 December
2018
£’000

Notes

5

326,228

326,228

—

—

2
7

2,057
96

2,153

60

60

266,167
165

266,332

210

210

328,321

266,122

8

265,876
62,445

265,876
246

328,321

266,122

270,585,977 270,585,977

9

121.34

98.35

The ﬁnancial statements on pages 30 to 47 were approved by the Board and authorised for issue on
6 April 2020.

Chris Sherwell
Director

Mark Thompson
Director

The notes on pages 34 to 47 form an integral part of the ﬁnancial statements.

30

Annual Report and Audited Financial Statements

Statement of Comprehensive Income
For the year ended 31 December 2019

31 December
2019
£’000

Notes

24 August
2018 to
31 December
2018
£’000

Income
Unrealised gain on investment in Midco

Expenses
Administration fees
Directors’ fees
Audit and non-audit fees
Trademark licence fees
Other operating expenses

Total Expenses

Operating proﬁt/(loss)

Finance income and expense
Interest income

Net proﬁt

Total comprehensive income

Basic earnings per share (pence)

All activities derive from continuing operations.

5

15
14
10
15

2

11

62,228

62,228

128
140
39
40
232

579

61,649

550

62,199

62,199

22.99

The notes on pages 34 to 47 form an integral part of the ﬁnancial statements.

—

—

27
50
25
19
68

189

(189)

435

246

246

0.09

31

Trian Investors 1 Limited

Statement of Changes in Equity
For the year ended 31 December 2019

As at 1 January 2019
Proﬁt for the year

Total comprehensive income

As at 31 December 2019

Notes

Share
capital
£’000

265,876
—

—

Retained
earnings
£’000

246
62,199

62,199

Total
£’000

266,122
62,199

62,199

265,876

62,445

328,321

Notes

Share
capital
£’000

Retained
earnings
£’000

Total
£’000

—
246

246

270,586
(4,710)

—
246

246

—
—

246

266,122

As at 24 August 2018
Proﬁt for the period

Total comprehensive income

Issue of share capital
Transaction costs on issue of Ordinary shares

As at 31 December 2018

—
—

—

8
8

270,586
(4,710)

265,876

The notes on pages 34 to 47 form an integral part of the ﬁnancial statements.

32

Annual Report and Audited Financial Statements

Statement of Cash Flows
For the year ended 31 December 2019

Operating activities
Proﬁt before tax
Adjustments to reconcile proﬁt before tax to net cash ﬂows:

Unrealised gain on investment
Interest income
Movement in receivables and prepayments
Movement in trade and other payables

Net cash ﬂows from operating activities

Investing activities
Investment into Midco
Finance income

Net cash ﬂows from investing activities

Financing activities
Proceeds from issue of Ordinary shares
Transaction costs on issue of Ordinary shares

Net cash ﬂows from ﬁnancing activities
Net movement in cash and cash equivalents
Opening cash and cash equivalents

Closing cash and cash equivalents

31 December
2019
£’000

24 August
2018 to
31 December
2018
£’000

62,199

(62,228)
(550)
69
(150)

(660)

(264,000)
550

(263,450)

—
—

—
(264,110)
266,167

246

—
(435)
(165)
210

(144)

—
435

435

270,586
(4,710)

265,876
266,167
—

2,057

266,167

The notes on pages 34 to 47 form an integral part of the ﬁnancial statements.

33

Trian Investors 1 Limited

Notes to the Financial Statements
For the year ended 31 December 2019

1. Corporate information
Trian Investors 1 Limited (the “Company”) is incorporated in and controlled from Guernsey as a company
limited by shares with registered number 65419. The Ordinary Shares of the Company (the “Shares”) are
admitted to the Specialist Fund Segment of the London Stock Exchange (the “SFS”).

2. Accounting policies
The principal accounting policies applied in the preparation of these ﬁnancial statements are set out below.

Basis of preparation
The ﬁnancial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as adopted by the European Union, which comprise standards and interpretations approved by the
International Accounting Standards Board and International Financial Reporting Interpretations Committee
and the Companies (Guernsey) Law, 2008. The ﬁnancial statements have been prepared on a historical cost
basis as amended from time to time by the fair valuing of certain ﬁnancial assets and liabilities. The ﬁnancial
statements cover the year ended 31 December 2019.

The preparation of ﬁnancial statements in accordance with IFRS requires the Directors to make critical
accounting estimates and judgements. The areas involving a higher degree of judgement or complexity are
disclosed in note 3.

Going concern
The Directors monitor the capital and liquidity requirements of the Company on a regular basis. They have
undertaken a rigorous review of the Company’s ability to continue as a going concern including reviewing the
ongoing cash ﬂows and the level of liquid investments and cash balances as at the reporting date, as well as
taking forecasts of future cash ﬂows into consideration and are of the opinion that the Company has adequate
resources to continue its operational activities for the foreseeable future. The Directors are of the opinion that
the impact of the coronavirus (COVID-19) outbreak does not impact the Company’s ability to continue as a
going concern despite the resulting uncertainty.

Based on these sources of information and their own judgement, the Directors believe it is appropriate to
prepare the ﬁnancial statements of the Company on a going concern basis.

New and amended standards and interpretations applied
IFRS 16: Leases was applied in the current period but did not have a material impact as the Company does
not have any lease contracts. The Company applied the following standards and updates in the current period:

– IFRIC 23: Uncertainty over Income Tax Treatment

– Annual improvements to IFRS Standards 2015-2017 Cycle

– Amendments to IAS 19: Employee Beneﬁts

– Amendments to IAS 28: Investments in Associates

– Amendments to IFRS 9: Financial Instruments

New and amended standards and interpretations not applied
The following new and amended standards and interpretations in issue are applicable to the Company but
are not yet effective or have not been adopted by the European Union and therefore, have not been adopted
by the Company:

– IFRS 17: Insurance Contracts (effective 1 January 2021)

The Company has considered the IFRS standard that has been issued, but is not yet effective. This standard
will not have a material effect on the Company as the Company does not have any material insurance
contracts or write any insurance contracts.

34

Annual Report and Audited Financial Statements

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

2. Accounting policies (continued)
Accounting for subsidiaries
As explained in note 3, the Company is an investment entity and accordingly accounts for its investments in
subsidiaries as investments at fair value through proﬁt and loss.

Segment reporting
The Directors are of the opinion that the Company is currently engaged in a single segment of business, being
the investment in a single target company (“Target Company”), Ferguson plc (“Ferguson”).

Revenue recognition
All income is accounted for on an accruals basis and recognised in the Statement of Comprehensive Income.

Expenses
Expenses are accounted for on an accruals basis. Expenses borne by subsidiaries are reﬂected in the
Statement of Comprehensive Income through the revaluation of the investments.

All costs associated with the issue of Shares are netted off against share capital in the Statement of Changes
in Equity.

Dividends to shareholders
Dividends are accounted for in the period in which they are declared and approved by the Board.

Financial instruments
The classiﬁcation of ﬁnancial assets at initial recognition depends on the purpose for which each ﬁnancial
asset was acquired and its characteristics.

The Company’s only signiﬁcant ﬁnancial assets comprise cash and cash equivalents and investments in
subsidiaries held at fair value through proﬁt and loss. The investments in subsidiaries are initially recognised
at cost.

Cash and cash equivalents
Cash at bank and short-term deposits which are held to maturity are carried at cost. Cash and cash
equivalents consist of cash in hand, short-term deposits in banks and investments in money market funds
with an original maturity of three months or less.

Receivables and prepayments
Receivables are initially recognised at fair value. An allowance for impairment is measured under the general
approach under IFRS 9. At initial recognition, an impairment allowance is required for expected credit losses
resulting from default events that are possible within the next 12 months. In the event of a signiﬁcant increase
in credit risk, an allowance is required for expected credit losses resulting from all possible default events over
the expected life of the ﬁnancial instrument.

Payables and accruals
Payables and accruals are recognised initially at fair value plus transaction costs and are subsequently
measured at amortised cost using the effective interest rate method.

Investments at fair value through proﬁt and loss
i. Classiﬁcation

As explained in more detail in note 3 the Company is an investment entity and accordingly accounts for
its investment in subsidiaries as investments at fair value through proﬁt and loss.

35

Trian Investors 1 Limited

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

2. Accounting policies (continued)
ii. Recognition

Purchases and sales of investments are recognised on the trade date – the date on which the Company
commits to purchase or sell the investment.

iii. Measurement

Investments treated as “investments at fair value through proﬁt or loss” will initially be recognised at the
fair value of consideration given. They will subsequently be measured at fair value, being the amount for
which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction.
All transaction costs are expensed in the Statement of Comprehensive Income.

Realised and unrealised gains or losses will be recognised in the Statement of Comprehensive Income.

iv. Fair value estimation

The level in the fair value hierarchy within which the ﬁnancial assets or ﬁnancial liabilities are categorised
is determined on the basis of the lowest level input that is signiﬁcant to the fair value measurement.

Financial assets and ﬁnancial liabilities are classiﬁed in their entirety into only one of three levels.

The fair value hierarchy has the following levels:

– Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

– Level 2 – inputs other than quoted prices included within Level 1 that are observable for the assets or

liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

– Level 3 – inputs for the assets or liabilities that are not based on observable market data (unobservable

inputs).

Functional currency
Items included in the ﬁnancial statements are measured using Pounds Sterling which is the currency of the
primary economic environment in which the Company operates.

At each statement of ﬁnancial position date, monetary assets and liabilities that are denominated in foreign
currencies are translated at the rates prevailing at that date. Non-monetary items carried at fair value that are
denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was
determined. Transactions denominated in foreign currencies are translated into Pounds Sterling at the rate of
exchange presiding at the date of the transaction. Exchange differences are recognised in the Statement of
Comprehensive Income in the period in which they arise.

3. Signiﬁcant accounting judgements, estimates and assumptions
The preparation of the ﬁnancial statements requires the Directors to make estimates and assumptions that
affect the amounts reported for assets and liabilities as at the statement of ﬁnancial position date and the
amounts reported for revenue and expenses during the year. The nature of the estimation means that actual
outcomes could differ from those estimates. Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in
any future periods affected.

The Directors also need to make judgements (other than those involving estimates) that have a signiﬁcant impact
on the application of accounting standards. The following critical judgements apply to the Company’s investment.

Investment entity exemption:

i)
The Directors have considered whether the Company meets the deﬁnition of an investment entity as
stipulated in the provisions of IFRS 10. Entities that meet the deﬁnition of an investment entity within IFRS 10
are required to measure their subsidiaries, other than those that provide investment services to the Company
and do not themselves meet the deﬁnition of an investment entity, at fair value through proﬁt or loss rather
than consolidate them.

36

Annual Report and Audited Financial Statements

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

3. Signiﬁcant accounting judgements, estimates and assumptions (continued)
When entities are formed in connection with each other, the criteria for qualiﬁcation as an investment entity
is applied to the structure as a whole rather than for the entity in isolation.

ii) Use of last sales price published by the exchange:
The Directors believe a further key judgement arises in the valuation of the investment in Ferguson held
through the Investment Partnership. The shares of Ferguson are listed on the main market of the London
Stock Exchange and the judgement relates to whether the market is sufficiently liquid for the last sales price
published by the exchange to be a fair value in accordance with IFRS principles. The Directors have assessed
that there is a sufficiently active market in the shares and accordingly they consider the quoted share price
is the appropriate basis for the valuation of this investment.

The criteria which deﬁne an investment entity are, as follows:

⚫ An entity that obtains funds from one or more investors for the purpose of providing those investors with

investment services;

⚫ An entity that commits to its investors that its business purpose is to invest funds solely for returns from

capital appreciation, investment income or both; and

⚫ An entity that measures and evaluates the performance of substantially all of its investments on a fair

value basis.

The Company’s purpose is to invest through Trian Investors 1, L.P. (Incorporated) (the “Investment Partnership”)
in a Target Company for capital appreciation and it will measure performance (of the Target Company) on a
fair value basis. The Company has made an investment in a Single Target Company, Ferguson, through its
wholly owned subsidiary, Trian Investors 1 Midco Limited (“Midco”), which in turn holds 99.83 per cent of the
commitment in the Investment Partnership. The Board has assessed whether the Company has all the
elements of control as prescribed by IFRS 10 in relation to the Company’s investment in the Investment
Partnership and has concluded that the Company does have control of the Investment Partnership. Midco and
the Investment Partnership are therefore both classiﬁed as subsidiaries of the Company. The Board has also
assessed that the Company meets the criteria of an investment entity and therefore the subsidiaries are
recorded at fair value through proﬁt and loss rather than consolidated. The Board’s determination that the
Company is classiﬁed as an investment entity involves a degree of judgement due to the complexity within
the wider structure of the Company, Midco and the Investment Partnership.

Income tax

4.
The Company is exempt from taxation in Guernsey under the provisions of the Income Tax (Exempt Bodies)
(Guernsey) Ordinance, 2008 and is charged an annual exemption fee of £1,200.

37

Trian Investors 1 Limited

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

5.

Investment at fair value through proﬁt or loss

Cost
Brought forward
Investment on 24 April 2019

Carried forward

Fair value adjustment through proﬁt or loss
Brought forward
Fair value movement during year

Carried forward

Fair value as at 31 December 2019

31 December
2019
£’000

—
264,000

264,000

—
62,228

62,228

326,228

As at 31 December 2019, the Company held 264,000,000 ordinary shares in Midco, representing 100 per cent
of the share capital (31 December 2018: 1 Ordinary Share), which were subscribed for at 100 pence per share,
and Midco has contributed £264,000,000 to the Investment Partnership. As at 31 December 2019, Midco holds
99.83 per cent of the commitment in the Investment Partnership.

Investments at fair value through proﬁt or loss comprise Midco’s pro rata portion of the fair value of the
Investment Partnership’s investment in Ferguson, currency option, cash and working capital balance, including
the incentive allocation (“Incentive Allocation”) allocable from the Investment Partnership to Trian Investors 1
SLP, L.P. The Investment Partnership’s investment in Ferguson is currently treated as a “Stake Building
Investment”. If the investment continues to be a “Stake Building Investment” until realisation, the Incentive
Allocation will be equal to 20 per cent of net returns on the investment, payable after the Investment
Partnership has distributed to its partners an amount equal to the aggregate capital contributions made in
respect of the investment (excluding any capital contributions attributable to management fees). The
Investment Partnership’s investment in Ferguson, unless otherwise agreed with the Company, will cease to
be considered a “Stake Building Investment”, and will instead be considered an “Engaged Investment”, if and
when Trian Investors Management, LLC (the “Investment Manager”) obtains representation on Ferguson’s
board of directors, through one or more partners of Trian Fund Management, L.P. (“Trian Management”). If the
investment becomes an “Engaged Investment”, the Incentive Allocation will be equal to 10 per cent to 25 per
cent of the Investment Partnership’s net returns on the investment (excluding any capital contributions
attributable to management fees), as set forth in greater detail in the Company’s Prospectus dated
21 September 2018 (the “Prospectus”). In addition, the Investment Partnership has invested in a £125,000,000
currency call option to offset a portion of the Investment Partnership’s U.S. Dollar exposure arising from its
investment in Ferguson, which receives the vast majority of its revenues in U.S. Dollars. The option offers
protection against a weakening in the U.S. Dollar against Pounds Sterling and matures in June 2020. The
Investment Partnership invested in an additional option in March 2020, which is described further in
note 12 below.

The accounting for the Investment Partnership is prepared under IFRS.

38

Annual Report and Audited Financial Statements

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

Investment at fair value through proﬁt or loss (continued)

5.
Summary ﬁnancial information for Midco’s pro rata share of the Investment Partnership

Net asset value
Investment in Ferguson at cost
Unrealised gain on investment in Ferguson

Total value of investment in Ferguson

Foreign exchange option
Cash and cash equivalents
Other net liabilities
Incentive Allocation payable

Total net asset value

Summary income statement

Unrealised gain on investment in Ferguson
Unrealised gain on foreign exchange option
Ferguson dividend income
Interest income
Management fee expense
Other operating expense
Incentive Allocation payable

Proﬁt for the year

31 December
2019
£’000

249,566
73,924

323,490

2,984
15,324
(13)
(15,557)

326,228

Year to
31 December
2019
£’000

73,924
124
5,311
182
(1,590)
(166)
(15,557)

62,228

6. Fair value
IFRS 13 ‘Fair Value Measurement’ requires disclosure of fair value measurement by level.

The level in the fair value hierarchy within which the ﬁnancial assets or ﬁnancial liabilities are categorised is
determined on the basis of the lowest level input that is signiﬁcant to the fair value measurement.

Financial assets and ﬁnancial liabilities are classiﬁed in their entirety into only one of the three levels.

The only ﬁnancial instruments carried at fair value are the investments which are fair valued at each reporting date.

The Company holds 99.83 per cent of the commitment in the Investment Partnership through Midco, a wholly
owned subsidiary. Midco’s investment in the Investment Partnership has been classiﬁed within Level 2 as the
Investment Partnership primarily invests in quoted securities which are classiﬁed within Level 1. The amount
of Midco’s investment in the Investment Partnership classiﬁed under Level 2 as at 31 December 2019 is
£326,228,000 (31 December 2018: £nil). The amount of Midco’s pro rata portion of the Investment Partnership’s
investments that is classiﬁed within Level 1, consisting of the Investment Partnership’s investment in Ferguson
ordinary shares, is £323,490,000, and the amount that is classiﬁed within Level 2, consisting of the Investment
Partnership’s investment in a currency option, is £2,984,000, in each case as at 31 December 2019.

39

Trian Investors 1 Limited

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

6. Fair value (continued)
Transfers during the year
A reconciliation of fair value measurements in Level 2 is set out in the following table. Due to the nature of
the investments, they are always expected to be classiﬁed under Level 2.

Opening fair value at beginning of the year/period
Purchases at cost
Movement in fair value

Closing fair value at the end of the year/period

31 December
2019
£’000

31 December
2018
£’000

—
264,000
62,228

326,228

—
—
—

—

Valuation techniques
The value of Midco’s investment in the Investment Partnership is based on the value of Midco’s limited partner
capital account within the Investment Partnership. This is based on the components within the Investment
Partnership, principally the value of the underlying investee company, the currency option, cash and the
Incentive Allocation. Any ﬂuctuation in the value of the underlying investee company will directly impact on
the value of Midco’s investment in the Investment Partnership while taking into account the impact of the
Incentive Allocation.

Valuations are determined in accordance with a pricing policy agreed between the Directors and the
Investment Manager from time to time. Calculations will be made in accordance with IFRS principles or as
otherwise determined by the Board.

In accordance with the Investment Partnership Agreement dated 21 September 2018 (the “Investment
Partnership Agreement”), for the purposes of calculating the net asset value of the Investment Partnership,
its assets will be valued on the following basis:

The shares in Ferguson are listed on the main market of the London Stock Exchange and are valued at the last
sales price published by the principal securities exchange on which they are traded on the date of determination.

The valuation of the currency option is performed by utilising an external data source which uses proprietary
software and valuation models to perform the fair value calculation. The valuation model used to value the
foreign exchange option is the Black-Scholes model.

The Company approves the valuations performed by the Investment Manager and monitors the range of
reasonably possible changes in signiﬁcant observable inputs at each reporting date.

7. Receivables and prepayments

Accrued interest receivable
Other prepaid expenses
Receivable from Investment Partnership

31 December
2019
£’000

31 December
2018
£’000

—
89
7

96

91
74
—

165

The carrying value of receivables and prepayments approximates their fair value.

40

Annual Report and Audited Financial Statements

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

8. Share capital and capital management
Capital risk management
The Company’s objective for capital risk management is to safeguard the Company’s ability to continue as a
going concern and to provide returns for shareholders. The Company considers its capital to consist of the
shares issued and retained earnings.

The Board regularly reviews the Company’s net asset value (“NAV”), as calculated in accordance with IFRS, and
the Company’s Share price (as well as its discount or premium to NAV per Share) in the context of market
conditions, with input from the Investment Manager and its Corporate Brokers. As described in the Chairman’s
Statement on page 3, the Company used approximately £3,000,000 to repurchase Shares in February 2020,
and on 12 February 2020 the Company announced an update to its dividend policy that will allow it more
ﬂexibility to use Target Company dividends for Share repurchases, among other uses.

The Company has the ability to hold its own Shares in treasury. The Shares repurchased by the Company in
February 2020 are currently being held in treasury, and the Company may use this ability again from time to
time in the future. The Company’s Articles of Incorporation and the Companies Law do not limit the number
of Shares held in treasury provided that at least one share of any class is held by a person other than the
Company.

Ordinary shares of no par value

Issued and fully paid:
Founder member share on 24 August 2018
Founder member share redeemed on 27 September 2018
Shares issued on 27 September 2018

Shares as at 31 December 2018

As at 1 January 2019

As at 31 December 2019

No.

1
(1)
270,585,977

270,585,977

270,585,977

270,585,977

The Company’s authorised share capital is unlimited as at 31 December 2019 and 31 December 2018.

Issued and fully paid:
Founder member share on 24 August 2018
Founder member share redeemed on 27 September 2018
Shares issued on 27 September 2018
Share issue costs

As at 31 December 2018
As at 1 January 2019

As at 31 December 2019

£’000

—
—
270,586
(4,710)

265,876
265,876

265,876

41

Trian Investors 1 Limited

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

9. Net Asset Value per Share

IFRS Net Assets (£’000)

Number of Shares in issue
IFRS NAV per Share (pence)

31 December
2019

31 December
2018

328,321

266,122

270,585,977 270,585,977
98.35

121.34

The IFRS NAV per Share is arrived at by dividing the IFRS Net Assets by the number of Shares in issue.

10. Auditors’ remuneration
The auditors’ remuneration relating to services to the Company for the year was:

Audit fees
Non-audit fees

Year to
31 December
2019
£’000

Period from
24 August
2018 to
31 December
2018
£’000

24
16

40

25
124

149

Differences between the ﬁgures in the above table and the Statement of Comprehensive Income are due to
accruals. All prior period non-audit fees paid to Deloitte LLP related to costs associated with the issue of
Shares and were netted off against share capital in the Statement of Changes in Equity.

In addition the fee for the audit of the Investment Partnership of £12,000 (2018: £nil) is payable by the
Investment Partnership.

11. Earnings per share

Proﬁt for the year/period (£’000)

Weighted average number of Shares in issue
Earnings per Share (pence)

Year to
31 December
2019

Period from
24 August
2018 to
31 December
2018

62,199

246

270,585,977 270,585,977
0.09

22.99

The comparative earnings per Share is based on the proﬁt of the Company for the period and on the weighted
average number of Shares for that period. The earnings per Share disclosed are not annualised.

There were no dilutive potential Shares in issue as at 31 December 2019 or 31 December 2018.

12. Financial risk management
Financial risk management objectives
The Company’s activities expose it to various types of ﬁnancial risk, principally market risk, liquidity risk and
credit risk. The Board has overall responsibility for the Company’s risk management and sets policies to
manage those risks at an acceptable level.

Financial risk factors
The Company’s investment objective is to realise capital growth from its investment in the Target Company
with the aim of generating signiﬁcant capital return for shareholders. At present the Company’s only signiﬁcant
ﬁnancial assets are those held through the Investment Partnership, via Midco, in Ferguson, currency options
and cash and cash equivalents held at both levels.

42

Annual Report and Audited Financial Statements

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

12. Financial risk management (continued)
Credit risk
Credit risk is the risk that one party to a ﬁnancial instrument will cause a ﬁnancial loss for the other party by
failing to discharge an obligation. The Company manages its credit risk by scrutinising the ﬁnancial standing
of counterparties with which it enters into transactions, using external credit ratings where available. Credit
risk is reviewed periodically to identify balances that may have become impaired or uncollectable.

The Company is exposed to credit risk through its balances with banks and its holdings of money market funds
which are classiﬁed as cash equivalents for the purposes of these ﬁnancial statements. The table below
shows the Company’s material cash balances and the short-term issuer credit rating or money-market fund
credit rating as at the period end date:

Bank of New York Mellon
JP Morgan
Goldman Sachs
BlackRock

Location

Rating

UK
UK
UK
UK

AA-
AAA
AAA
AAA

Company

Investment Partnership

31 December
2019
£’000

31 December
2018
£’000

31 December
2019
£’000

31 December
2018
£’000

2,057
—
—
—

2,057

100,051
54,818
54,818
56,480

266,167

15,351
—
—
—

15,351

—
—
—
—

—

Liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with ﬁnancial
liabilities that are settled by delivering cash or another ﬁnancial asset. The Company maintains a prudent
approach to liquidity management by maintaining sufficient cash reserves to meet foreseeable working capital
requirements.

As at 31 December 2019 and 31 December 2018, the Company had no ﬁnancial liabilities other than trade and
other payables. The Company had sufficient cash reserves to meet these obligations. The following table
details these obligations:

31 December 2019

Trade and other payables

31 December 2018

Trade and other payables

On demand
£’000

0-4 months
£’000

—

—

60

60

On demand
£’000

0-4 months
£’000

—

—

210

210

Total
£’000

60

60

Total
£’000

210

210

Market risk
Market risk is the risk that the fair value or future cash ﬂows of a ﬁnancial instrument will ﬂuctuate as a result
of market price changes. The Company is exposed to market price risk, currency risk and interest rate risk.

43

Trian Investors 1 Limited

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

12. Financial risk management (continued)
Market price risk
Market price risk arises as a result of the Company’s exposure to the future values of the share price of
Ferguson. It represents the potential loss the Company may suffer through investing in Ferguson. If the Share
price of Ferguson moved by 10 per cent the effect on the net asset value of the Company would be an increase
or decrease of £25,879,000 (31 December 2018: £ nil). A change of 10 per cent reﬂected a reasonable change
in the share price of Ferguson based upon the three months prior to year-end. Please see note 18 for post year
end information.

Currency Risk
As at 31 December 2019, the Company had exposure to currency risk through its investment through the
Investment Partnership in Ferguson, which receives the vast majority of its revenue in U.S. Dollars. In June 2019,
the Company through the Investment Partnership entered into a currency hedge, in the form of an option to
purchase £125,000,000 for US$165,875,000, to offset a portion of the U.S. Dollar exposure resulting from the
Company’s investment in Ferguson. The option expires in June 2020. In March 2020, the Company through the
Investment Partnership entered into an additional option, expiring in March 2021, to purchase £125,000,000
for US$165,875,000, in order to hedge the Company’s currency exposure for a further nine months. There is
no assurance that either hedging transaction will be effective at managing currency exposure.

Interest rate risk
The Company is subject to risks associated with changes in interest earned on its cash and cash equivalents
which it seeks to mitigate by monitoring the placement of cash balances on an on-going basis in order to
maximise the interest rates obtained.

As at 31 December 2019, the total interest sensitivity gap for interest bearing items at Company level was a
surplus of £2,057,000 (31 December 2018: £266,167,000). The following table summarises the Company’s
interest-bearing assets:

31 December 2019

Financial Assets
Investment at fair value through proﬁt or loss
Cash and cash equivalents
Receivables

Total Financial Assets

Liabilities
Trade and other payables

Total Liabilities

Interest bearing

On demand
£’000

0-4 months
£’000

Non-interest
bearing
£’000

Total
£’000

—
2,057
—

2,057

—

—

—
—
—

—

—

—

326,228
—
7

326,228
2,057
7

326,235

328,292

(60)

(60)

(60)

(60)

44

Annual Report and Audited Financial Statements

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

12. Financial risk management (continued)
31 December 2018

Financial Assets
Cash and cash equivalents
Receivables

Total Financial Assets

Liabilities
Trade and other payables

Total Liabilities

Interest bearing

On demand
£’000

0-4 months
£’000

Non-interest
bearing
£’000

Total
£’000

266,167
—

266,167

—

—

—
—

—

—

—

—
91

91

266,167
91

266,258

(210)

(210)

(210)

(210)

As at 31 December 2019, interest rates reported by the Bank of England of 0.75 per cent would equate to net
income of £15,000 (31 December 2018: £1,996,000) per annum if interest bearing assets and liabilities remained
constant. If interest rates were to ﬂuctuate by 0.25 per cent, this would have a positive or negative effect of
£5,000 (31 December 2018: £665,000) on the Company’s annual income. On 19 March 2020, the Bank of
England reduced interest rates to 0.1%. If this interest rate remains in place for an extended period of time it
would have a negative effect of £13,000 on the Company’s annual net income.

As at 31 December 2019, the total interest sensitivity gap for interest bearing items at the Investment
Partnership level was a surplus of £15,324,000 (31 December 2018: £nil). The following table summarises the
Investment Partnership’s interest bearing assets:

31 December 2019

Financial Assets
Investment in Ferguson
Foreign exchange option
Cash and cash equivalents

Total Financial Assets

Liabilities
Trade and other payables
Incentive Allocation payable

Total Liabilities

Interest bearing

On demand
£’000

0-4 months
£’000

Non-interest
bearing
£’000

Total
£’000

—
—
15,324

15,324

—
—

—

—
—
—

—

—
—

—

323,490
2,984
—

323,490
2,984
15,324

326,474

341,798

(13)
(15,557)

(13)
(15,557)

(15,570)

(15,570)

As at 31 December 2019, interest rates reported by the Bank of England of 0.75 per cent would equate to net
income of £115,000 (31 December 2018: £nil) per annum if interest bearing assets and liabilities remained
constant. If interest rates were to ﬂuctuate by 0.25 per cent, this would have a positive or negative effect of
£38,000 (31 December 2018: £nil) on the Company’s annual income.

13. Commitments and contingencies
The Directors are not aware of any contingent liabilities as at 31 December 2019 or 31 December 2018.

45

Trian Investors 1 Limited

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

14. Related parties
Key management personnel
The Directors are considered to be the Key Management Personnel of the Company. They are all non-executive
and receive only an annual fee denominated in Pounds Sterling.

The Chairman receives an annual fee of £55,000, the Chairman of the Audit Committee receives £45,000, and
the other non-executive Director receives £40,000.

Directors’ fees and expenses for the year ended 31 December 2019 amounted to £140,000 (period to
31 December 2018: £50,000), of which £nil (31 December 2018: £nil) was outstanding at the year end.

Directors’ shareholdings are disclosed in the Report of the Directors. The Directors received no dividends on
their shares during the year ended 31 December 2019 (period to 31 December 2018: nil).

Intergroup balances
As at 31 December 2019 the Investment Partnership owed £7,000 to the Company (31 December 2018: nil) in
relation to custodian fee expenses paid on its behalf.

15. Signiﬁcant agreements
Trademark fees
Trian Management has granted to the Company, Midco and the Investment Partnership a non-exclusive licence
to use the name, logo and graphic identity “Trian” in the UK and the Channel Islands in the corporate name
of these entities and in connection with the conduct of their business affairs, and the Company is using the
name, logo and graphic identity “Trian” within the Annual Report and these Financial Statements pursuant to
such licence. Trian Management receives a fee of £70,000 per annum split between the Company, Midco and
the Investment Partnership for the use of the licensed name, logo and graphic identity. For the year ended
31 December 2019 fees of £40,000 (period ended 31 December 2018: £19,000) were paid by the Company in
relation to the licence.

Administration Agreement
On 19 September 2018, the Company and Ocorian Administration (Guernsey) Limited (formerly Estera
International Fund Managers (Guernsey) Limited) entered into an administration agreement. Under the terms
of the agreement the Company (alongside the Investment Partnership) is charged a ﬁxed administration fee
of £95,000 per annum from 27 September 2018 payable quarterly in arrears, compliance officer services of
£6,000 per annum, MLRO services of £3,000 per annum and data protection officer services of £2,000 per
annum. For the year ended 31 December 2019 aggregate fees of £128,000 were paid to Ocorian (period ended
31 December 2018: £27,000).

Management Agreement
On 19 September 2018, the Investment Partnership and the Investment Manager entered into a management
agreement. The Investment Manager is entitled to management fees in consideration of its work equal to one
twelfth of 1 per cent of the adjusted net asset value of the Investment Partnership, calculated as of the last
business day of the preceding month. The management fee is payable in advance to the Investment Manager
on the ﬁrst business day of each calendar month. For the year ended 31 December 2019 management fees
of £1,590,000 were paid to the Investment Manager by the Investment Partnership (period ended 31 December
2018: £nil).

Investment Partnership Agreement
Under the terms of the Investment Partnership Agreement, Trian Investors 1 SLP, L.P., the special limited
partner of the Investment Partnership, is entitled to receive an incentive allocation based on the investment
performance of the Investment Partnership. The incentive allocation may be between 0 to 25 per cent of the
net returns of the Investment Partnership. The calculation of the incentive allocation is described in more detail
in note 5 above and the Prospectus. As at 31 December 2019, there was an incentive allocation accrual of
£15,557,000 in the Investment Partnership (period ended 31 December 2018: £nil).

46

Annual Report and Audited Financial Statements

Notes to the Financial Statements
For the year ended 31 December 2019 (continued)

16. Subsidiaries
Midco was incorporated on 10 September 2018 and the Investment Partnership was registered on
13 September 2018. The Company holds 264,000,000 ordinary shares in Midco, representing 100 per cent of
the share capital, which in turn holds 99.83 per cent of the commitment in the Investment Partnership.

17. Ultimate beneﬁcial owner
There was no ultimate beneﬁcial owner of the Company as at the date of signing.

18. Subsequent events
On 25 February 2020 the Company paid a dividend of 0.52 pence per share, amounting to a total payment of
£1,407,000.

On 26 February 2020 the Company repurchased 2,760,830 Shares for a total consideration of £3,000,000.

As of 29 February 2020 the net asset value of the Company was £317,358,000 or 118.49 pence per share.

The impact of the coronavirus (COVID-19) outbreak on the ﬁnancial performance of the Company’s investment
in Ferguson will depend on future developments, including the duration and spread of the outbreak and
related measures and restrictions. These developments and the impact of COVID-19 on the ﬁnancial markets
and the overall economy are highly uncertain and cannot be predicted. If the ﬁnancial markets and/or the
overall economy are impacted for an extended period, the Company’s investment results may be materially
adversely affected.

As at 3 April 2020 the share price of Ferguson had fallen by approximately 35% from its 31 December 2019 level.
Had this fall occurred at 31 December 2019 the effect on the net asset value of the Company as at that date
would have been be a decrease of £97,783,000 (30%).

On 6 April 2020 the administrator and company secretary changed its name to Ocorian Administration
(Guernsey) Limited.

47

Trian Investors 1 Limited

Investment Manager’s Report Disclosure Statements
and Disclaimers

General Considerations
Please note that the Investment Manager’s Report contained on pages 4 to 6 is for general informational
purposes only, is not complete, and does not constitute any advice or recommendation to invest in Trian
Investors 1 Limited (the “Company”) or Ferguson plc (“Ferguson”) or enter into or conclude any other
transaction. The Investment Manager’s Report should not be construed as legal, tax, investment, ﬁnancial or
other advice. It does not have regard to the speciﬁc investment objective, ﬁnancial situation, suitability, or the
particular need of any speciﬁc person who may receive the Investment Manager’s Report and should not be
taken as advice on the merits of any investment decision. The views expressed in the Investment Manager’s
Report represent the opinions of Trian Investors Management, LLC (the “Investment Manager”) and its parent,
Trian Fund Management, L.P. (collectively, “Trian”) and are based on publicly available information with respect
to Ferguson and the other companies referred to therein. Trian recognizes that there may be conﬁdential
information in the possession of Ferguson and the other companies discussed in the Investment Manager’s
Report that could lead such companies to disagree with Trian’s conclusions. Trian does not endorse third-party
estimates or research which are used in the Investment Manager’s Report solely for illustrative purposes.

Select ﬁgures presented in the Investment Manager’s Report, including investment values, have not been
calculated using generally accepted accounting principles (“GAAP”) or International Financing Reporting
Standards (“IFRS”) and have not been audited by independent accountants. Such ﬁgures may vary from GAAP
or IFRS accounting in material respects and there can be no assurance that the unrealized values reﬂected
in the Investment Manager’s Report will be realized. Nothing in the Investment Manager’s Report is intended
to be a prediction of the future trading price or market value of securities of Ferguson or the Company. There
is no assurance or guarantee with respect to the prices at which any securities of Ferguson or the Company
will trade, and such securities may not trade at prices that may be implied in the Investment Manager’s Report.
The estimates, projections, pro forma information and potential impact of Trian’s analyses set forth in the
Investment Manager’s Report are based on assumptions that Trian believes to be reasonable as of the date
of the Investment Manager’s Report, but there can be no assurance or guarantee that actual results or
performance of Ferguson or the Company will not differ, and such differences may be material. The Investment
Manager’s Report does not recommend the purchase or sale of any security.

The Investment Manager’s Report is based upon information reasonably available to Trian as of the date of the
Report. Furthermore, the information, which includes information and data used and derived or obtained from
ﬁlings made with regulatory authorities and from other public ﬁlings and third party reports, has been obtained
from sources that Trian believes to be reliable; however, these sources cannot be guaranteed as to their
accuracy or completeness. No representation, warranty or undertaking, express or implied, is given as to the
accuracy or completeness of the information contained in the Invest Manager’s Report, by Trian or any of its
affiliates or its or their respective partners, members, or employees, and no liability is accepted by such persons
for the accuracy or completeness of any such information. Trian reserves the right to change any of its opinions
expressed in the Investment Manager’s Report at any time as it deems appropriate. Trian disclaims any
obligation to update the data, information or opinions contained in the Investment Manager’s Report.

48

Annual Report and Audited Financial Statements

Investment Manager’s Report Disclosure Statements
and Disclaimers
(continued)

Forward Looking Statements
The Investment Manager’s Report contains forward-looking statements. All statements contained in the
Investment Manager’s Report that are not clearly historical in nature or that necessarily depend on future
events are forward-looking, and the words “anticipate,” “believe,” “expect,” “estimate,” “plan” and similar
expressions are generally intended to identify forward-looking statements. The statements contained in the
Investment Manager’s Report that are not historical facts are based on current expectations, speak only as of
the date of this meeting or Investment Manager’s Report and involve risks, uncertainties and other factors that
may cause actual results, performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such statements. Assumptions relating to the foregoing
involve judgments with respect to, among other things, future economic, competitive and market conditions
and future business decisions, all of which are difficult or impossible to predict accurately and many of which
are beyond the control of Trian. Although Trian believes that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no
assurance that the forward-looking statements included in the Investment Manager’s Report will prove to be
accurate. In light of the signiﬁcant uncertainties inherent in the forward-looking statements included in the
Investment Manager’s Report, the inclusion of such information should not be regarded as a representation
as to future results or that the objectives and plans expressed or implied by such forward-looking statements
will be achieved. Trian will not undertake and speciﬁcally declines any obligation to disclose the results of any
revisions that may be made to any forward-looking statements in the Investment Manager’s Report to reﬂect
events or circumstances after the date of such statements or to reﬂect the occurrence of anticipated or
unanticipated events.

Not an Offer to Sell or a Solicitation of an Offer to Buy
Under no circumstances is the Investment Manager’s Report intended to be, nor should it be construed as,
an offer to sell or a solicitation of an offer to buy any security. The funds managed by Trian are in the business
of trading -- buying and selling -- securities. It is possible that there will be developments in the future that
cause one or more of such funds from time to time to either purchase or sell shares of Ferguson in open
market transactions or otherwise or trade in options, puts, calls, contracts for difference or other derivative
instruments relating to such shares. Consequently, Trian’s beneﬁcial ownership of Ferguson’s shares may vary
over time depending on various factors, with or without regard to Trian’s views of Ferguson’s business,
prospects or valuation (including the market price of Ferguson’s ordinary shares), including without limitation,
other investment opportunities available to Trian, concentration of positions in the portfolios managed by
Trian, conditions in the securities markets and general economic and industry conditions. Trian also reserves
the right to take any actions with respect to any investments in Ferguson as it may deem appropriate,
including, but not limited to, communicating with the management of Ferguson, the board of directors of
Ferguson, other investors and shareholders, members, stakeholders, industry participants, and/or interested
or relevant parties about Ferguson or seeking representation on the board of directors of Ferguson, and to
change its intentions with respect to any investments made in Ferguson at any time.

49

Trian Investors 1 Limited

General Information

Directors
Chris Sherwell (Chairman)
Mark Thompson
Simon Holden

Website: www.trianinvestors1.com

Managing General Partner
Trian Investors 1 General Partner, LLC
280 Park Avenue, 41st Floor
New York, NY 10017
United States

Corporate Brokers
Numis Securities Limited
The London Stock Exchange Building
10 Paternoster Square
London EC4M 7LT
United Kingdom

Administrator and Company Secretary
Ocorian Administration (Guernsey) Limited
(formerly Estera International Fund Managers
(Guernsey) Limited)
PO Box 286, Floor 2, Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 4LY

Advocates to the Company
As to Guernsey law
Ogier (Guernsey) LLP
Redwood House
St Julian’s Avenue
St Peter Port
Guernsey, GY1 1WA

Registrar
Link Market Services (Guernsey) Limited
Mont Crevelt House
Bulwer Avenue
St Sampson
Guernsey, GY2 4LH

Registered Office
PO Box 286, Floor 2, Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 4LY

50

Investment Partnership
Trian Investors 1, L.P. (Incorporated)
PO Box 286, Floor 2, Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 4LY

Investment Manager
Trian Investors Management, LLC
280 Park Avenue, 41st Floor
New York, NY 10017
United States

Corporate Brokers
Jefferies International Limited
100 Bishopsgate
London EC2N 4JL
United Kingdom

Solicitors to the Company
As to English law and US Securities law
Norton Rose Fulbright LLP
3 More London Riverside
London SE1 2AQ
United Kingdom

Independent auditor
Deloitte LLP
Regency Court
Glategny Esplanade
St Peter Port
Guernsey, GY1 3HW

Custodian to the Investment Partnership
The Bank of New York Mellon – London Branch
One Canada Square
London E14 5AL
United Kingdom

GG00BF52MW15

Identiﬁers
ISIN:
SEDOL: BF52MW1
Ticker:
LEI:

TI1
213800UQPHIQI5SPNG39

Registered Office
PO Box 286,
Floor 2, Trafalgar Court
Les Banques
St Peter Port
Guernsey, GY1 4LY

Website: www.trianinvestors1.com