Menhaden Resource Efficiency PLC

Half Year Report and Company Update

LEI: 2138004NTCUZTHFWXS17

16 September 2024

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Company Update

The Company publishes below its Half Year Report to 30 June 2024, within which the Board announces that it proposes to carry out, together with its advisers, a formal review of the options available to it in order to address the issues facing the Company prior to its continuation vote in 2025. Further details are provided below in the Chairman’s Statement of the Half Year Report.

For further information, please contact:

Paul Griggs

Frostrow Capital LLP (Company Secretary)

Tel: 0203 170 8733

David Benda / Matt Goss

Deutsche Numis

Tel: 0207 260 1000

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Half Year Report

for the six months ended 30 June 2024

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Financial Highlights

Menhaden Resource Efficiency PLC (the “Company”) is an investment trust. Its shares are listed on the premium segment of the Official List and traded on the main market of the London Stock Exchange.

The Company’s investment objective is to generate long-term shareholder returns, predominantly in the form of capital growth, by investing in businesses and opportunities that are demonstrably delivering or benefiting significantly from the efficient use of energy and resources irrespective of their size, location or stage of development.

We are a high conviction long term patient capital investment.

Performance

As at 30 June 2024

As at 31 December 2023

Total net assets

£135,156,000

£126,679,000

Net asset value (“NAV”) per share

171.0p

160.3p

Share price

102.5p

100.8p

Share price discount to the NAV per share^

40.1%

37.2%

Total returns

Six months to 30 June 2024

Year to 31 December 2023

NAV per share^

7.2%

23.8%

Share price^

2.6%

13.6%

RPI + 3%

3.7%

8.4%

Six months to 30 June 2024

Year to 31 December 2023

Annualised ongoing charges ratio^

1.7%

1.7%

^ Alternative Performance Measure. Please refer to the Glossary on page 21 for definitions of these terms and the basis of their calculation.

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Menhaden resource efficiency was founded in 2015 on the belief that, with insatiable demand for higher living standards on a finite planet, some companies enabling the cleaner and more efficient delivery of basic societal needs and key infrastructure, such as energy, water, digital services, mass transportation, or mitigating environmental risks like pollution and climate change, will grow earnings faster than the global economy over the long term. 

The global demand for energy and other resources continues to rise in the developed and developing world. The International Monetary Fund believes that financial markets are underpricing climate related risks and the World Meteorological Association believes that 2024 could be the hottest year ever recorded. Accordingly, the need for numerous business sectors to progressively reduce their use of fossil fuels and greenhouse gas emissions by 2050 in line with the Paris Agreement has never been so critical. 

Consequently, our investment thesis to invest in high quality businesses that both enjoy strong market positions and are demonstrably delivering or significantly benefitting from the efficient use of energy and resources is now even more relevant. 

Our aim is to provide shareholders with exposure to this investment opportunity. The Company invests in a well-researched concentrated portfolio of companies providing solutions to today’s societal needs. The Board believes this approach can deliver superior risk-adjusted returns over the long-term.

The performance of our investment portfolio has been encouraging over the first half of 2024. Between 31 December 2023 and 30 June 2024 the Company’s total net assets increased from £126.7 million to £135.2 million. The NAV per share increased from 160.3p at 31 December 2023 to 171.0p at 30 June 2024, giving an NAV per share total return of 7.2%. The Company’s share price over the same period rose from 100.8p per share to 102.5p, giving a share price total return of 2.6%. These metrics compare with a return over the six months of our primary performance comparator RPI+3% per annum, of 3.7%. Regrettably our share price performance remains below our RPI+3% benchmark over the last three years and since inception. 

Safran, which develops and manufactures more fuel efficient engines for aircraft, and the portfolio’s digital technology stocks, led by Alphabet, made the greatest positive contributions to performance in the period. VINCI and Airbus were the largest detractors. 

The most significant changes to the portfolio in the period were completion of the new US$17.5 million co-investment with KKR in Avantus, one of the leading solar and storage developers in the United States, as discussed in our last annual report, and contributions in accordance with our capital commitment to TCI Real Estate Partners Fund IV, which has a focus on developing best in class energy efficient buildings. These investments represented 10.2% and 6.7%, respectively, of net assets at 30 June 2024. Partial sales of our technology and aviation focused quoted equities were undertaken to help fund these, locking in some gains.

Our Portfolio Manager actively monitors the energy and resource efficiency of our investments in line with the carbon disclosure project and the Science Based Targets initiative. The focus of our Portfolio Manager’s engagement with our quoted investee companies has been on their alignment with the Paris Agreement to reduce global warming, deforestation and biodiversity loss. The aim is to encourage them to adopt and use best practice environmental solutions and define pathways to reduce their GHG emissions and preserve tropical rain forests, together with associated biodiversity. Some positive progress is being made, which is welcomed. Further corporate engagement is planned where little or no progress is being made. At the end of 2023, the FCA introduced new Sustainability Disclosure Regulations. The Board is working with our AIFM, Frostrow Capital, and our Portfolio Manager on the implementation of the anti-green washing rules, which came into effect on 31 May 2024, and is assessing the appropriateness (or otherwise) of applying a sustainability label for the Company from 2 December 2024.

For a number of reasons significant share price discounts are currently reflected across the majority of the UK investment trust sector. Accordingly, the share price discount to the Company’s NAV per share continues to be a metric that concerns the Board, which it monitors extremely closely. At the end of June our share price stood at a 40.1% discount to the NAV per share. The Board’s actions to help mitigate this share price discount are described below.

We have not previously favoured share buy backs for mitigation of the share price discount and remain of the view that share buybacks are not usually in the best interest of shareholders as they reduce the size of the Company and increase the ongoing charges ratio. However, the Board does recognize that buybacks are accretive to NAV per share, may help to temper share price volatility and send a signal to the market about our confidence in the underlying value of the assets in the investment portfolio. 

Thus during 2023 we undertook a modest programme of share buybacks. While this exercise resulted in no discernible effect on the discount at the time, with the discount continuing to widen the Board took the decision in June 2024 to recommence the programme. This continues to be in effect and the Board hopes that it might help to stabilise the share price. The financial efficacy of the programme will be reviewed in 2025. Alongside this we are continuing our marketing and communication efforts to try stimulate demand by informing potential investors of the inherent value in the Company’s assets and shares. Plus our Portfolio Manager’s total focus in maintaining and improving our investment return and share price performance.

The Company was established with an unlimited life, however, the Company’s Articles of Association provide that a continuation resolution be put to shareholders as an ordinary resolution at the annual general meeting of the Company every five years, with the next continuation vote due to be put to shareholders at the AGM to be held in July 2025.

The Board is conscious of the challenges facing the listed investment company sector, many of which are also faced by the Company at this time. Notwithstanding its good net asset value performance, at its current size the Company’s secondary market liquidity is relatively low and it has been unable to attract attention and demand from investors, which has led to the Company’s shares trading at a material discount to the Company’s net asset value per share.

In this context the Board is proposing to undertake, together with its advisers, a formal review of the options available to it in order to address the issues facing the Company. The Board will update shareholders once it has an outcome from its review ahead of the forthcoming AGM.

In line with previous practice