SIGB.L Regulatory News (SIGB)

18 April 2018

Sherborne Investors (Guernsey) B Limited

Annual Report and Consolidated Financial Statements

For the year ended 31 December 2017

Company Summary

Chairman's Statement

During the period the Company continued to pursue its investment strategy through its shareholding in Electra Private Equity PLC ("Electra").

At 31 December 2017, the net asset value attributable to shareholders of the Company was £82.4 million (2016: £487.5 million) or 26.20 pence per share (2016: 154.99 pence per share) (see note 12). The Company's net asset value was based on the closing price of 935.5 pence as at 31 December 2017 for the shares of Electra. As at the year-end SIGB, LP held approximately 29.90% of Electra through ordinary shares. The ownership level remains the same as at the date of this letter.

Electra has realised a significant number of its investments during the past 24 months, resulting in the accumulation of excess cash balances. Electra distributed £1.7 billion of this excess to shareholders through dividends in May, July, and December 2017. Following receipt of the distributions from Electra, the Company paid three dividends to its shareholders totalling 143.5 pence per share. I am pleased to report that these three dividends returned £451 million to shareholders during 2017.

On 1 June 2017, Electra's internal executive management assumed responsibilities from the former outsourced investment manager. Phase II of Electra's Strategic Review commenced at this date and was announced in October 2017. Electra announced that it would no longer participate in private equity. Going forward, the company would institute an optimised capital allocation policy measuring prospective returns on shareholders' capital versus returns of capital to shareholders.

On 7 December 2017, Electra announced its fiscal 2017 results noting that its 30 September 2017 net asset value per share was 1,074 pence per share, after the payment of the dividend on 1 December. Cash and assets sold but not yet closed represented 30% of net asset value. Electra also noted that, before the deduction of marketability discounts, the comparable net asset value was 1,683 pence per share.

During the year the Company repaid the remaining £20 million outstanding principal balance on the revolving loan facility with HSBC Bank plc (the "Facility"). Subsequently the Company cancelled the Facility and as a result has no borrowings.

Pursuant to its existing authority, the Investment Manager may sell, short or otherwise dispose of all or a part of such shares held in Electra or purchase additional securities at any time.

Details of Related Party Transactions are contained in Note 15 of the Notes to the Condensed Consolidated Financial Statements.

We are grateful for your continued support and will keep you informed of the status of our investment as it develops.

Board of Directors

Talmai Morgan (65) (Chairman)

Appointed to the Board 8 November 2012

Mr Morgan has been a non-executive director of a number of publicly listed investment companies since 2005. He is also currently Chairman of NB Private Equity Partners Limited as well as Sherborne Investors (Guernsey) C Limited. He also sits on the board of John Laing Infrastructure Fund Limited. From January 1999 to June 2004, Mr Morgan was Director of Fiduciary Services and Enforcement at the Guernsey Financial Services Commission where he was responsible for the design and implementation of Guernsey's law relating to the regulation of fiduciaries, administration businesses and company directors. He was also particularly involved in Working Groups of the Financial Action Task Force and the Offshore Group of Banking Supervisors. Prior to 1999, Mr Morgan held positions at Barings and the Bank of Bermuda. Mr. Morgan qualified as a Barrister in 1976 and holds an M.A. in Economics and Law from the University of Cambridge.

Trevor Ash (71) (Director)

Appointed to the Board 8 November 2012

Mr Ash has been a non-executive director of a number of investment entities since 1999, including funds managed by Rothschild, Insight, Cazenove, Merrill Lynch and Thames River Capital. He is also non-executive director of Sherborne Investors (Guernsey) C Limited. He was formerly Chairman of JPEL Private Equity Limited. Prior to 1999, Mr Ash spent 27 years with the Rothschild Group in various capacities, most recently as Managing Director of Rothschild Asset Management (CI) Limited and as a non-executive director of Rothschild Asset Management Limited in London. Mr Ash is a fellow of the Chartered Institute for Securities & Investment.

Christopher Legge (62) (Audit Committee Chairman)

Appointed to the Board 10 May 2013

Mr Legge is a Chartered Accountant having started his career at Pannell Kerr Forster (PKF), before moving to Ernst & Young in 1983, where he became a partner in 1986 and managing partner Guernsey in 1998. Since leaving Ernst & Young in 2003 he has taken on a number of non-executive directorships. He is also currently non-executive director of Third Point Offshore Investors Limited, Ashmore Global Opportunities Limited, NB Distressed Debt Investment Fund Limited, TwentyFour Select Monthly Income Fund Limited, John Laing Environmental Assets Group Limited and Sherborne Investors (Guernsey) C Limited. Mr Legge is an FCA and holds a BA (Hons) in Economics from the University of Manchester.

Directors' Strategic Report

The Directors present their annual report on the affairs of the Company and its subsidiary (together, the "Group"), together with the audited consolidated financial statements, for the year ended 31 December 2017.

Principal activities and investing policy

Sherborne Investors (Guernsey) B Limited (the ''Company") is a Guernsey domiciled company incorporated on 8 November 2012 with limited liability. The Company's shares were admitted to trading on the SFS on 7 May 2013.

The Company is a limited partner in SIGB, LP (the "Investment Partnership"), a limited partnership registered in Guernsey on 6 November 2012. The Company aims to provide investors with capital growth through its investment in the Investment Partnership, to which it originally committed £200 million and subsequently increased its commitment by £100 million following a placing on 26 February 2015, representing substantially all of the Company's assets.

The Group's investment policy is to invest in one Selected Target Company ("STC") at a time. The Company will effect the investment policy indirectly through the Investment Partnership, which seeks to invest in a STC which is publicly quoted, most likely on a UK stock exchange, which it considers to be undervalued as a result of operational deficiencies and which it believes can be rectified by the Investment Manager's active involvement, thereby increasing the value of the investment (a "Turnaround"). The investment will thus not be passive. The Group will not seek to reduce risk through diversification. If, after acquiring a shareholding, the share price of the STC rises to a level at which further investment and the effort of a Turnaround is, in the Investment Manager's opinion, no longer justified or otherwise no longer presents a viable Turnaround opportunity, the Investment Partnership intends to sell (and distribute the proceeds to the Company) or distribute in kind the holding to the limited partners, rather than seeking to join the Board of Directors or otherwise to engage with the STC. In these circumstances, the Company intends to distribute any realised net profits received from the Investment Partnership to the Shareholders. In such event, an amount equal to the Company's capital contribution for the initial STC (less any losses on the sale) may be recalled by the Investment Partnership and invested into a new STC. This process may be repeated until a Turnaround has been effected.

The investment in the STC may be in shares but can also be in warrants, convertibles, derivatives and any other equity, debt or other securities. The holding period for the investment in the STC is neither fixed nor predictable, but the Company expects that a typical holding period would be greater than one year.

The Company's investment may be made on-market or off-market.

In December 2013, the Company's Board of Directors approved a stake building investment in Electra Private Equity PLC ("Electra") as proposed by SIGB, LP's investment manager, Sherborne Investors Management (Guernsey) LLC.

The Investment Manager continues to believe that implementation of an operational and strategic review of Electra will identify opportunities to enhance the value of the Company's shares. Accordingly, the Company continues to maintain its investment strategy with respect to Electra.

The Group intends that the holding in the STC shall not reach such a level as to require the Group to make a bid for the entire STC and, therefore, the Group will not have control over the STC.

At 17 April 2018, SIGB, LP held approximately 29.90% of Electra's outstanding shares.

Risk Management

The Directors are responsible for supervising the overall management of the Company, whilst the day-to-day management of the Company's assets has been delegated to the Investment Manager. Portfolio exposure has been limited by the guidelines which are detailed within the Principal Activities and Investment Policy section of the annual report. In its role as a third-party fund administration services provider, the Ipes Group, of which Ipes (Guernsey) Limited is a part, produces an annual AAF 01/06 Assurance Report on the internal control procedures in place within the Ipes Group, and this is subject to review by the Audit Committee and the Board.

The principal risks facing the Company relate to the Company's investment activities and these risks include the following:

· performance risk;

· market risk; and

· relationship risk

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

The Board can confirm that the principal risks of the Company, including those which would threaten its business model, future performance, solvency or liquidity have been robustly assessed for the year ended 31 December 2017.

· Performance risk - The Board is responsible for approving the Investment Manager's recommended investment in a STC and monitoring the performance of the Investment Manager. An inappropriate strategy or poor execution of strategy may lead to underperformance. To manage that risk the Investment Manager will typically have several potential target companies under review at any one time in various stages of analysis. The Investment Manager's recommendation of a STC includes an assessment of the capital appreciation potential of the proposed investment, assuming certain operating improvements and capital realignment are successfully implemented. The Company intends that its holding in the STC will be less than 30% of the outstanding shares, so that it is not required to make a bid for the entire company. Accordingly, the Company will not control the STC. The Investment Manager's involvement in the turnaround of the STC requires the support of other independent shareholders. The Board receives and reviews regular reports of the Investment Partnership's ownership interest in the STC, and STC board representation and other information that impacts its turnaround strategy.

· Market risk - Market risk arises from uncertainty about the future operating performance and market response to the Company's investment in the STC. The Company's investment approach is to invest in only one company at a time. Such investment concentration may subject the Company to greater market fluctuation and loss than might result from a diversified investment portfolio. The market's valuation of the STC is also subject to fluctuations in overall market prices as well as fluctuations in the industry sectors in which the STC operates. The Investment Manager does not typically hedge against overall market or sector fluctuations. The Company also may use a limited amount of short-term leverage to acquire a portion of its ownership interest in the STC which will amplify the results of the STC. In addition to interest and dividend income received from the STC, the source of debt repayment could come from the proceeds realised from the sale of a portion of the STC. The Group's market risk is managed by the Investment Manager in accordance with policies and procedures in place as disclosed in the Group's prospectus.

· Relationship risk - Neither the Company nor the Investment Partnership has a physical presence (employees and/or premises). The Company and Investment Partnership are heavily dependent on the Investment Manager for the selection of an appropriate STC and for the day-to-day management and operation of the STC's business and the execution of its Turnaround.

As the nominated appointees now serve on the Board of Directors of the STC, there is a risk that the nominated appointees may not be re-elected. Operational risk is reviewed by the Board at each Board meeting. The Board also monitors the Group's investment performance and activities since the last Board meeting to ensure that the Investment Manager adheres to the agreed investment policy and approved investment guidelines. Further, at each Board meeting, the Board receives reports from the Company Secretary and Administrator in respect of compliance matters and duties performed by it on behalf of the Company.

Other risks faced by the Company are described in detail within the Company's Offering Document.

The Board have considered the Company's solvency and liquidity risk and full disclosure of this is made in Note 16 of the Consolidated Financial Statements and in the viability statement below.

Viability Statement

In accordance with provision C.2.2 of the UK Corporate Governance Code, the Directors have assessed the viability of the Company over the period ending 31 December 2020. The Directors have determined that the three year period to 31 December 2020 is the maximum period over which to provide its viability statement in order to keep in line with its investment strategy. The holding period for the investment in the STC is neither fixed nor predictable, but the Company expects that a typical holding period would be sufficient to execute the Investment Manager's Turnaround Strategy.

The Directors have identified the following factors as potential contributors to ongoing viability:

· The principal risks documented in the Directors' Strategic Report as set out above;

· The liquidity of the Company's portfolio; and

· The ongoing relevance of the Company's investment objective in the current environment.

The Company, through its investment in the Investment Partnership, is fully invested in listed equity securities of the STC or cash. The STC established an annual recurring dividend equal to 3% of its Net Asset Value. Projected dividends to be received by the Investment Partnership would be more than adequate to cover all operating costs of the Company for the three year period ended 31 December 2020. Were the STC to significantly reduce the annual dividend (by as much as nearly 40%), the Company's pro rata share would still be sufficient to cover such costs. At the date of this report there are no borrowings outstanding as the Facility was fully repaid on 11 May 2017 and subsequently cancelled.

Electra announced the outcome of its Strategic Review Phase II in October 2017 and is now in the implementation phase of the strategy. Accordingly, the Company continues to maintain its investment strategy with respect to Electra. 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 2020.

Subsequent events

Details of events that have occurred after the date of the Consolidated Statement of Financial Position are provided in Note 14 to the Consolidated Financial Statements.

Dividend policy

The Company's dividend policy, subject to the discretion of the Directors who reserve the right to retain amounts for Minimum Capital Requirements, is to pay dividends to Shareholders following receipt of any distributions from the Investment Partnership, subject always to compliance with the solvency test prescribed by the Companies (Guernsey) Law, 2008, as amended (the "Companies Law"). This will be dependent on the frequency with which the STC pays dividends to its shareholders (of which the Investment Partnership may be one) as well as the extent such dividends are first required to be used to repay outstanding indebtedness.

Dividend

On 5 April 2017, a dividend of 87.0 pence per share was declared by the Company and was paid on 19 May 2017 to shareholders of record on 18 April 2017 which equated to £273,656,115.

On 5 June 2017, the Company declared a dividend of 30.0 pence per share paid on 28 July 2017 to shareholders of record on 23 June 2017 which equated to £94,364,177.

On 6 November 2017, the Company declared a dividend of 26.5 pence per share paid on 15 December 2017 to shareholders of record on 17 November 2017 which equated to £83,355,024.

Total dividends during the year were therefore £451,375,316 or 92.59% of 31 December 2016 NAV.

Business review

A review of the Company's business during the year and an indication of likely future developments are contained in the Chairman's Statement.

Capital

Details of the Company's capital are provided in Note 11 to the Consolidated Financial Statements. All shares carry equal voting rights.

Substantial interests

As at 31 March 2018, the Company had received notification of the following material shareholdings of greater than 5 per cent:

The Directors currently hold no shares in the Company.

Independent Auditor

A resolution to re-appoint the auditors to the Company will be proposed at the Annual General Meeting of the Company on 22 May 2018. Deloitte LLP have indicated their willingness to continue as auditors.

Directors' Remuneration Report

Remuneration Policy & Components

The Board endeavours to ensure the Remuneration Policy reflects and supports the Company's strategic aims and objectives throughout the period under review. It has been agreed that, due to the small size and structure of the Company, a separate Remuneration Committee would be inefficient; therefore the Board is responsible for discussions regarding remuneration. No external remuneration consultants were appointed during the period under review.

As per the Company's Articles of Association, all Directors are entitled to such remuneration as is stated in the Company's Prospectus or as the Company may by ordinary resolution determine; the aggregate overall limit was previously set at £120,000. An increase in Director fees of £15,000 (£5,000 per Director) became effective from 1 April 2017. As a result of the increase, a resolution to approve an increase of the aggregate overall limit to £150,000 was proposed and approved by the Shareholders of the Company at the Annual General Meeting held on 24 May 2017. Subject to this revised limit, it remains 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. Base fees are set out below.

As outlined in the Articles of Association, the Directors may also be paid for all reasonable travelling, hotel and other out-of-pocket expenses properly incurred in the attendance of Board or Committee meetings, General meetings, or meetings with shareholders of the Company or otherwise in the discharge of their duties; and all reasonable expenses properly incurred by them seeking independent professional advice on any matter that concerns them in the furtherance of their duties as Directors of the Company, such expenses having been immaterial during 2017.

No Director has any entitlement to pensions, paid bonuses or performance fees, granted share options or has been invited to participate in long-term incentive plans. No loans have been extended to a Director by the Company and neither have any loans to a Director been guaranteed by the Company.

None of the Directors have a service contract with the Company. Each of the Directors has entered into a letter of appointment with the Company, subject to election at the first Annual General Meeting, or as determined in line with the Company's Articles, and re-election at subsequent Annual General Meetings in accordance with the Company's Articles and all due regulations and provisions. The Directors do not have any interests in contractual arrangements with the Company or its investment during the year under review, or subsequently. Each appointment can be terminated in accordance with the Company's Articles and without compensation. No notice period is stated in the Articles and is terminable at will of both parties.

Directors' and Officers' liability insurance cover is maintained by the Company but is not considered a benefit in kind nor does it constitute part of the Directors' Remuneration. The Company's Articles indemnify each Director, Secretary, agent and officer of the Company, former or present, out of assets of the Company in relation to charges, losses, liabilities, damages and expenses 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 fraud, wilful misconduct or negligence.

Corporate Governance Report

As an unregulated Guernsey incorporated company quoted on the SFS, the Company is not required to comply with the UK Corporate Governance Code or the GFSC Finance Sector Code of Corporate Governance. The Directors, however, place great importance on ensuring that high standards of corporate governance are maintained. Accordingly, the Directors take appropriate measures to ensure that the Company operates with due consideration to any codes of corporate governance which the Board deems appropriate, having regard to the Company's size and the nature of its business. 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 UK Corporate Governance Code dated April 2016 (the "Code"), which sets out guidance in the form of principles and provisions for companies to follow good corporate governance practice. Further information on the Code can be obtained from www.frc.org.uk.

Except as disclosed within the report, the Board is of the view that throughout the year ended 31 December 2017, the Company complied with the recommendations of the Code and the provisions of the Code. Key issues affecting the Company's corporate governance responsibilities, how they are addressed by the Board and application of the Code are presented below.

Section A: Leadership

The Chairman is responsible for the leadership of the Board and ensuring its effectiveness on all aspects of its role.

Board Responsibilities

The Board ensures that the Company's contracts of engagement with the Investment Manager, Administrator and other service providers are operating satisfactorily so as to ensure the safe and accurate management and administration of the Company's affairs and business and that they are competitive and reasonable for Shareholders. Terms of Reference that contain a formal schedule of matters reserved for the Board of Directors and its duly authorised Committee for decision has been approved and can be reviewed at the Company's registered office.

Management of the Investment Partnership is the responsibility of Sherborne Investors (Guernsey) GP, LLC, the 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. Through its majority interest in the Investment Partnership, the Company and therefore the Board, has the ability to approve proposed investments and to remove the General Partner. The performance of the Investment Manager is subject to regular review by the Board.

Other matters for the Board include review of the Company's overall strategy and business plans; approval of the Company's half-yearly and annual Financial Statements; review and approval of any alteration to the Group's accounting policies or practices and valuation of investments; approval of any alteration to the Company's capital structure; approval of dividend policy; appointments to the Board and constitution of Board Committees; and performance review of key service providers.

The Company holds appropriate Directors' and Officers' Liability Insurance cover in respect of any legal action taken against the Board.

Board Composition

The Board consists of three non-executive members. For further information relating to the Board, please refer to Board of Directors. Due to the size and structure of the Company, the appointment of a senior independent director is not deemed appropriate at this time.

Board Committees

The Board has established an Audit Committee composed of all members of the Board, all of whom are independent. The Chairman of the Board is included as a Committee member to enable a full understanding of the issues facing the Company, but is not appointed as its Chair. The Committee, its membership and its terms of reference are kept under regular review by the Board.

The Audit Committee meets at least twice a year and is responsible for ensuring that the financial performance of the Company is properly reported on and monitored, including reviews of the annual and interim accounts, results announcements, internal control systems and procedures and accounting policies.

The Audit Committee considers the scope and effectiveness of the Company's external audit. The Company's auditor, Deloitte LLP may also provide additional non-audit services to the Company, which in the Audit Committee's opinion, will not compromise the independence of Deloitte LLP's audit team. Further information is provided in the Report of the Audit Committee.

Board and Committee Meeting Attendance

The Board met four times during the year. Individual attendance at Board and Audit Committee meetings is set out below.

Division of Responsibilities

There are no executive Directors appointed to the Board. The non-executive Directors responsibilities are clearly defined within the Schedule of Matters reserved to the Board. All day-to-day functions are outsourced to external service providers.

The Chairman

Appointed to the position of Chairman of the Board on 7 May 2013, Mr Morgan is responsible for leading the Board in all areas, including determination of strategy, organising the Board's business and ensuring the effectiveness of the Board and individual Directors. He also endeavours to produce an open culture of debate within the Board.

Role of the 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, they are able to ascertain the integrity of financial information and confirm that all financial controls and risk management systems are robust. In addition, a non-executive Director may provide a written statement outlining any concerns to the Chairman upon resignation.

See the statements on Board and Committee responsibilities for further information.

Section B: Effectiveness

The Board considers that its balance of skills, experience and knowledge, provides for a sound base from which the interest of investors will be served to a high standard.

Board Composition & Independence

For the purposes of assessing compliance with the Code, the Board considers the Directors are independent of the Investment Manager and free from any business or other relationship that could materially interfere with the exercise of their independent judgment.

Composition of the Board is explained in Section A of the Corporate Governance Report.

Talmai Morgan, Trevor Ash and Christopher Legge are directors of Sherborne Investors (Guernsey) C Limited, a company with similar investment objectives and the same Investment Manager as the Company. As Sherborne Investors (Guernsey) C Limited has a different STC, it is the Board's view that this does not affect their independence.

Board Appointments Process

Appointment Process

There is currently no Nominations Committee for the Company as it is deemed that the size, composition and structure of the Company would mean the process would be inefficient and counter-productive.

The Board has chosen not to adopt a definitive policy with quantitative targets for board diversity. The Board believes that the current mix of skills, experience, knowledge and age of the Directors is appropriate to the requirements of the Company. In accordance with the Code, any Director who has served on the Board for longer than six years will be subject to rigorous review to ensure the need for progressive refreshing of the Board is complied with.

Commitment

Chairman's Commitment

Prior to the Chairman's appointment, discussions were undertaken to ensure the Chairman was sufficiently aware of the time needed for his role, and agreed to upon signature of his appointment letter. Other significant commitments of the Chairman were disclosed prior to appointment to the Board, and any changes declared as and when they arise. These commitments, and their subsequent impact, can be identified in his biography.

Non-executive Directors' Commitments

The terms and conditions of appointment for non-executive Directors are outlined in their letters of appointment, and are available for inspection by any person at the Company's registered office during normal business hours and at the AGM for fifteen minutes prior to and during the meeting. As with the Chairman, significant appointments are declared prior to appointment, any changes reported as and when appropriate.

Development

The Board believes that the Company's Directors should develop their skills and knowledge through participation at relevant courses. The Chairman is responsible for reviewing and discussing the training and development of each Director according to identified needs. Upon appointment, all Directors participate in discussions with the Chairman and other Directors to understand the responsibilities of the Directors, in addition to the Company's business and procedures. The Company also provides regular opportunities for the Directors to obtain a thorough understanding of the Company's business by regularly meeting members of the senior management team from the Investment Manager and other service providers, both in person and by phone.

Information and Support

Information provided to the Board

Reports and papers, containing relevant, concise and clear information, are provided to the Board and Committees in a timely manner to enable review and consideration prior to both scheduled and ad-hoc specific meetings. This ensures that Directors are capable of contributing to, and validating, the development of Company strategy and management. The regular reports also provide information that enables scrutiny of the Company's Investment Manager's and other service providers' performance. When required, the Board has sought further clarification of matters with the Investment Manager and other service providers, both in terms of further reports and via in-depth discussions, in order to make a more informed decision for the Company.

Company Secretary

Under the direction of the Chairman, the Company Secretary facilitates the flow of information between the Board, Committees, Investment Manager and other service providers' through the development of comprehensive meeting packs, agendas and other media.

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 on all governance matters through the Chairman. The Articles and schedule of matters reserved for the Board indicate the appointment and resignation of the Company Secretary is an item reserved for the full Board. A review of the performance of the Company Secretary is undertaken by the Board on a regular basis.

Evaluation

Board and Director Evaluation

Using a pre-determined template based on the Code's provisions as a basis for review, the Board undertakes an evaluation of its performance and that of the Audit Committee. This was last completed in January 2018. Additionally, an evaluation focusing on individual commitment, performance and contribution of each Director is conducted. The Chairman will meet with each Director to fully understand their views of the Company's strengths and to identify potential weaknesses. If appropriate, new members would be proposed to resolve the perceived issues, or a resignation sought. Due to the size and structure of the Board the evaluation of the Chairman of the Board and Audit Committee is dealt with within the Board and Audit evaluations.

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

New Directors would receive an induction from the Investment Manager. All Directors receive other relevant training as necessary.

Re-election and Board Tenure

The Board has considered the need for a policy regarding tenure of office; however, the Board believes that any decisions regarding tenure should consider the Company's investment objective and the average length of seeking to achieve that, the need for continuity and maintenance of knowledge and experience and to balance this against the need to periodically refresh Board composition and have a balance of skills, experience, age and length of service.

Each Director is required to be elected by shareholders at the first Annual General Meeting following his initial appointment to the Board. The Board recommends the on-going re-election of each Director and supporting biographies, including length of service, are disclosed.

Section C: Accountability

The Directors' Responsibility Statement confirms that the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group as a whole, whilst the Chairman's Statement includes a fair view of the development and performance of the business and the position of the Group.

Financial and Business Reporting

Financial and Business Information

An explanation of the Directors' roles and responsibilities in preparing the Annual Report and Accounts for the year ending 31 December 2017 is provided in the Report of the Directors and Statement of Directors' Responsibilities.

Further information enabling shareholders to assess the Company's performance, business model and strategy can be sourced in the Chairman's Statement and the Directors' Strategic Report.

In respect of the UK Criminal Finances Act 2017 which has introduced a new corporate criminal offence ("CCO") of "failing to take reasonable steps to prevent the facilitation of tax evasion", the Board confirms it is committed to zero tolerance towards the criminal facilitation of tax evasion.

Going concern

The Consolidated Financial Statements have been prepared on the going concern basis. The revolving loan facility with HSBC Bank plc (the "Facility") was fully repaid on 11 May 2017. There are sufficient cash reserves as at 31 December 2017 and the Directors are of the opinion that the Group has adequate resources to continue its operational activities for the foreseeable future. The Board is therefore of the opinion that the going concern basis should be adopted in the preparation of the Consolidated Financial Statements. Further detail can be found in the Viability Statement.

Investment Manager

After careful consideration of Sherborne Investment Management (Guernsey) LLC's ("SIMG") performance, primarily in terms of advice, managing the portfolio and communicating effectively with shareholders, the Board agreed that it would be in the best interests of the Company that SIMG continue on the current agreed contractual terms.

The management agreement shall terminate upon the dissolution of the Partnership, unless earlier terminated, (i) automatically upon the removal of the General Partner as contemplated by Section 10.b of the Partnership Agreement, or (ii) voluntarily by the Manager, upon 180 days prior written notice to the General Partner and the Partnership.

Risk Management and Risk Control

The Board is required to annually review the effectiveness of the Company's key internal controls such as financial, operational and compliance controls and risk management. The Board has documented the controls to be reviewed and will review their effectiveness on an ongoing basis. The controls are designed to ensure that the risk of failure to achieve business objectives is managed rather than eliminated, and are intended to provide reasonable, rather than absolute, assurance against material misstatement or loss. Through regular meetings and meetings of the Audit Committee, the Board seeks to maintain full and effective control over all strategic, financial, regulatory and operational issues. The Board maintains an organisational and committee structure with clearly defined lines of responsibility and delegation of authorities.

The Company's system of internal control includes inter alia the overall control exercise, procedures for the identification and evaluation of business risk, the control procedures themselves and the review of these internal controls by the Audit Committee on behalf of the Board. Each of these elements that make up the Company's system of internal control is explained in further detail as follows:

(i) Control environment

The Company is ultimately dependent upon the quality and integrity of the staff and management of both its Investment Manager, Sherborne Investors Management (Guernsey) LLC, and Administration & Company Secretarial service provider, Ipes (Guernsey) Limited. In each case, qualified and able individuals have been selected at all levels. The staff of both the Investment Manager and Administrator are aware of the internal controls relevant to their activities and are also collectively accountable for the operation of those controls. Appropriate segregation and delegation of duties is in place. The Audit Committee undertakes a review of the Company's financial controls on a regular basis.

In its role as a third-party fund administration services provider, the Ipes Group, of which Ipes (Guernsey) Limited is a part, produces an annual AAF 01/06 Assurance Report on the internal control procedures in place within the Group, which is subject to review by the Audit Committee and the Board.

(ii) Identification and evaluation of business risks

Another key business risk is the performance of the Company's investment. This is managed by the Investment Manager, who undertakes regular analysis and reporting of business risks in relation to the target company, who then propose appropriate courses of action to the Board for their review.

(iii) Key procedures

In addition to the above, the Board's key procedures involve a comprehensive system for reporting financial results to the Board regularly. A review of controls is conducted by the Audit Committee annually, and a twice-yearly review of investment valuations by the Board, including reports on the underlying investment performance.

Due to the size and nature of the Company and the outsourcing of key services to the Administrator and Investment Manager, the Company does not have an internal audit function. It is the view of the Board that the controls in relation to the operating, accounting, compliance and IT risks performed robustly throughout the year. In addition, all have been in full compliance with the various policies and external regulations, including:

§ Investment policy, as outlined in the IPO documentation

§ Personal Account Dealing

§ Whistleblowing Policy

§ Anti-Bribery Policy

§ Applicable Financial Conduct Authority Regulations

§ Treatment and handling of confidential information

§ Conflicts of interest

§ Compliance policies

§ Market Abuse Regulation

The Company has delegated the provision of all services to external service providers whose work is overseen by the Board. Each year a short questionnaire is circulated to all external service providers requesting thorough details in regards to controls, personnel and information technology, amongst others. This is in order to provide additional detail when reviewing the performance pursuant to their terms of engagement.

There were no protected disclosures made pursuant to the whistleblowing policy of service providers in relation to the Company, during the year ended 31 December 2017.

In summary, 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.

Audit Committee and Auditors

Audit Committee Responsibilities

The Audit Committee is intended to assist the Board in discharging its responsibilities for the integrity of the Company's financial statements, as well as aid the assessment of the Company's internal control effectiveness and objectivity of external auditors. Further information on the Committee's responsibilities is given in the Report of the Audit Committee.

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 sufficient assurance that a sound system of risk management and internal control, which safeguards shareholders' investment and the Group and Company's assets, is maintained. An internal audit function specific to the Group is therefore considered unnecessary, as explained within the Corporate Governance Report.

Section D: Remuneration

Level and Components of Remuneration

Directors are paid in accordance with agreed principles covering various functions. Further information can be sourced in the Directors' Remuneration Report.

Procedures

The Company has a formal remuneration policy, outlined in the Directors' Remuneration Report.

Section E: Relations with Shareholders

Dialogue with Shareholders

The Directors place a great deal of importance on communication with shareholders. The Investment Manager and Broker aim to meet with large shareholders at least annually. The Board also receives reports from the Brokers on shareholder issues. The Annual Report and Financial Statements are widely distributed to other parties who have an interest in the Company's performance, and are available on the Company's website.

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

Alternative Investment Fund Management Directive ("AIFMD")

The AIFMD, which was introduced as from 22 July 2014, aims to harmonise the regulation of Alternative Investment Fund Managers ("AIFMs") and imposes obligations on managers who manage or distribute Alternative Investment Funds ("AIFs") in the EU or who market shares in such funds to EU investors.

After seeking professional regulatory and legal advice, the Company was established in Guernsey as a Non-EU AIF, appointing Sherborne Investors Management (Guernsey) LLC to act as the Non-EU AIFM.

The marketing of shares in AIFs that are established outside the EU (such as the Company) to investors in any EU member state is prohibited unless certain conditions are met. Certain of these conditions are outside the Company's control as they are dependent on the regulators of the relevant third country (in this case Guernsey) and the relevant EU member state entering into regulatory co-operation agreements with one another.

Currently, the National Private Placement Regime ("NPPR") provides a mechanism to market Non-EU AIFs that are not allowed to be marketed under the AIFMD domestic marketing regimes. The Board has previously utilised NPPR in order to market the Company, specifically in the UK. Eligible AIFMs will be able to continue to use NPPR until at least 2018.

Any regulatory changes arising from implementation of AIFMD (or otherwise) that limit the Company's ability to market future issues of its shares may materially adversely affect the Company's ability to carry out its investment policy successfully and to achieve its investment objective, which in turn may adversely affect the Company's business, financial condition, results of operations, NAV and/or the market price of the Ordinary Shares.

The Board, in conjunction with the Company's advisers, will continue to monitor the development of AIFMD and its impact on the Company.

Foreign Account Tax Compliance Act ("FATCA") and The OECD Common Reporting Standards ("CRS")

FATCA became effective on 1 January 2013 and is being gradually implemented internationally. The legislation is aimed at determining the ownership of US assets in foreign accounts and improving US Tax compliance with respect to those assets.

More than 90 jurisdictions, including 33 member countries of the Organisation for Economic Co-operation and Development ("OECD") and the G20 members, have committed to implement the Common Reporting Standard for automatic exchange of tax information ("CRS"). Building on the model created by FATCA, the CRS creates a global standard for the annual automatic exchange of financial account information between the relevant tax authorities.

The Board in conjunction with the Company's service providers and advisers have ensured the Company's compliance with FATCA and CRS's requirements to the extent relevant to the Company.

Constructive Use of the AGM

The Notice of AGM is sent out at least 20 working days in advance of the meeting. All shareholders will have the opportunity to put questions to the Board or Manager, either formally at the Company's Annual General Meeting on 22 May 2018, informally following the meeting, or in writing at any time during the year via the Company Secretary. The Company Secretary is available to answer general shareholder queries at any time throughout the year.

Report of the Audit Committee

The Board is supported by the Audit Committee, which comprised all the Directors during the year; including the Chairman of the Board to enable a greater understanding of the issues facing the Company. The Board has considered the composition of the Committee and is satisfied that there are sufficient recent relevant skills and experience, in particular with the Chairman of the Audit Committee, Mr Chris Legge, having a background as a chartered accountant. The Board is also satisfied that the Committee as a whole has competence relevant to the sector in which the Company operates.

Role and Responsibilities

The primary role and responsibilities of the Audit Committee are outlined in the Committee's Terms of Reference, available at the registered office, including:

§ Monitoring the integrity of the financial statements of the Company and any formal announcement relating to the Company's financial performance, consideration of the viability statement and reviewing significant financial reporting judgements contained within said statements and announcements;

§ Reviewing the Company's internal financial controls, and the Company's internal control and risk management systems;

§ Monitoring the need for an internal audit function annually;

§ Monitoring and reviewing the scope, independence, objectivity and effectiveness of the external auditors, taking into consideration relevant regulatory and professional requirements;

§ Making recommendations to the Board in relation to the appointment, re-appointment and removal of the external auditors and approving their remuneration and terms of engagement, which in turn can be placed to the shareholders for their approval at the Annual General Meeting;

§ Development and implementation of the Company's policy on the provision of non-audit services by the external auditors, as appropriate;

§ Reviewing the arrangements in place to enable Directors and staff of service providers to, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters insofar as they may affect the Company;

§ Providing advice to the Board on whether the annual financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy; and

§ Reporting to the Board on how the Committee discharged all relevant responsibilities, undertaken by myself at each Board meeting.

Financial Reporting

The Primary role of the Audit Committee in relation to the financial reporting is to review with the Administrator, Investment Adviser and the Auditor the appropriateness of the Annual Report and Audited Consolidated Financial Statements and Interim Condensed Consolidated Financial Statements, concentrating on, amongst other matters:

§ The quality and acceptability 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 have been applied or there has been discussion with the Auditor;

§ Whether the Annual Report and Audited Consolidated Financial Statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for the shareholders to assess the Company's performance, business model and strategy; and

§ Any correspondence from regulators in relation to the Company's financial reporting.

To aid its review, the audit committee considers reports from the Administrator and Investment Adviser and also reports from the Auditor on the outcomes of their half-year review and annual audit. The audit committee supports Deloitte LLP in displaying the necessary professional scepticism their role requires.

The Committee met three times during the year under review; individual attendance of Directors is outlined in the Corporate Governance Report. The main matters discussed at those meetings were:

§ Review of auditor independence;

§ Review and approval of the annual audit plan of the external auditors;

§ Discussion and approval of the fee for the external audit;

§ Detailed review of the Half Year Report and Accounts and Annual Report and Consolidated Financial Statements and recommendation for approval by the Board;

§ Discussion of reports from the external auditors following their interim review and annual audit;

§ Assessment of the effectiveness of the external audit process as described below;

§ Review of the Company's key risks and internal controls; and

§ Consideration of the 2016 UK Corporate Governance Code, Guidance on Audit Committees and other regulatory guidelines, and the subsequent impact upon the Company.

The Committee has also reviewed and considered the whistleblowing policies in place for the Investment Manager and Administrator, and is satisfied the relevant staff can raise concerns in confidence about possible improprieties in matters of financial reporting or other matters insofar as they may affect the Company.

Annual General Meeting

The Audit Committee Chairman, or other members of the Audit Committee appointed for the purpose, shall attend each Annual General Meeting of the Company, prepared to respond to any shareholder questions on the Audit Committee's activities.

Internal Audit

The Audit Committee considers at least once a year whether or not there is a need for an internal audit function. Currently, the Audit committee does not consider there to be a need for an internal audit function, given that there are no employees in the Group and all outsourced functions are with parties / administrators who have their own internal controls and procedures. This is evidenced by the internal control reports provided by the providers, which give sufficient assurance that a sound system of internal control is maintained.

Significant Risks in Relation to the Financial Statements

Throughout the year, the Audit Committee identified a number of significant issues and areas of key audit risks in respect of the Annual Report and Financial Statements. The Committee reviewed the external audit plan at an early stage and concluded that the appropriate areas of audit risk relevant to the Company had been identified and that suitable audit procedures had been put in place to obtain reasonable assurance that the financial statements as a whole would be free of material misstatements. The below table sets out the key areas of risk identified and how the Committee addressed the issues.

Auditor Tenure and Objectivity

The Company's current auditors, Deloitte LLP, have acted in this capacity since the Company's inaugural meeting on 9 November 2012. The Committee reviews the auditor's performance on a regular basis to ensure the Company receives an optimal service. Subject to annual appointment by shareholder approval at the Annual General Meeting, the appointment of the auditor is formally reviewed by the Committee on an annual basis. The Auditors are required to rotate the audit partner regularly every 5 years, and the current partner has been in place since 2014. 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. In line with the FRC's suggestions on audit tendering, this will be considered further when the audit partner rotates, therefore will be discussed during 2019.

Deloitte LLP regularly updates the Committee on the rotation of audit partners, staff, level of fees in proportion to overall fee income of the Company, details of any relationships between the auditor, the Company and any target company, and also provides overall confirmation from the auditors' of their independence and objectivity.

In addition to the annual audit remuneration, £14,600 non-audit fees were paid to the Auditor in relation to the Interim review and a further £27,000 for Tax compliance services.

The Audit Committee undertook a formal review of the external auditor for the year ended 31 December 2017, with no issues arising. As a result of their review, the Committee is satisfied that Deloitte LLP is independent of the Company, the Investment Manager and other service providers and recommends the continuing appointment of the auditors to the Board. There are currently no plans for retendering the audit.

Conclusions in Respect of the Financial Statements

The production and the audit of the Company's Annual Report and Financial Statements is a comprehensive process requiring input from a number of different contributors. In order to reach a conclusion on whether the Company's financial statements are fair, balanced and understandable, the Board has requested that the Committee advise on whether it considers that the Annual Report and Financial Statements fulfils these requirements. In outlining their advice, the Committee has considered the following:

· The comprehensive documentation that is in place outlining the controls in place for the production of the Annual Report, including the verification processes in place to confirm the factual content;

· The detailed reviews undertaken at various stages of the production process by the Investment Manager, Administrator and the Committee that are intended to ensure consistency and overall balance; and

· The controls enforced by the Investment Manager, Administrator and other third party service providers to ensure complete and accurate financial records and security of the Company's assets.

As a result of the work performed during the year, the Audit Committee has concluded it has acted in accordance with its terms of reference and ensured the independence and objectivity of the external auditor. The Annual Report for the year ended 31 December 2017, 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 has reported on these findings to the Board. The Board's conclusions in this respect are set out in the Statement of Directors' Responsibilities.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the Financial Statements in accordance with applicable law and regulations.

The Companies (Guernsey) Law, 2008 requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. Under company law the directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing these financial statements, International Accounting Standard 1 ("IAS1") requires that directors:

· properly select and apply accounting policies;

· 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 IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance; and

· make an assessment of the Group's ability to continue as a going concern.

The Directors confirm that they have complied with the above requirements in preparing the Consolidated Financial Statements. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements 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 are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole;

· the Chairman's Statement, Directors' Strategic Report and Corporate Governance Statement include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

· the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.

In accordance with section 249 of the Companies (Guernsey) Law, 2008, each of the Directors confirms that, to the best of their knowledge:

· There is no relevant audit information of which the Company's auditors are unaware;

· All Directors have taken the necessary steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of said information.

Report on other legal and regulatory requirements

Consolidated Statement of Comprehensive Income

All revenue and expenses are derived from continuing operations.

The accompanying notes form an integral part of these consolidated financial statements.

Consolidated Statement of Financial Position

As at 31 December 2017

The Consolidated Financial Statements were approved by the Board of Directors for issue on 17 April 2018.

Consolidated Statement of Changes in Equity

For the year ended 31 December 2017

Consolidated Statement of Cash Flows

Notes to the Consolidated Financial Statements

For the year ended 31 December 2017

1. Summary of significant accounting policies

Reporting entity

Sherborne Investors (Guernsey) B Limited (the ''Company") is a closed-ended investment company with limited liability formed under The Companies (Guernsey) Law, 2008. The Company was incorporated and registered in Guernsey on 8 November 2012. The Company commenced dealings on the London Stock Exchange's AIM market on 29 November 2012 and moved from AIM to the London Stock Exchange's Specialist Fund Segment ("SFS") on 7 May 2013. The Company's registered office is 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey, Channel Islands, GY1 2HL. The "Group" is defined as the Company and its subsidiary, SIGB, LP.

Basis of preparation

The Consolidated Financial Statements of the Group 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 (the "IASB") and International Accounting Standards and Standing Interpretations Committee interpretations approved by the International Accounting Standards Committee (the ''IASC'') that remain in effect, together with applicable legal and regulatory requirements of Guernsey law. The Directors of the Company have taken the exemption in Section 244 of The Companies (Guernsey) Law, 2008 (as amended) and have therefore elected to only prepare Consolidated Financial Statements for the year.

These Consolidated Financial Statements have been prepared on the historical cost basis, as modified by the measurement at fair value of investments.

Going concern

Under the UK Corporate Governance Code and applicable regulations, the Directors are required to satisfy themselves that it is reasonable to assume that the Company is a going concern.

The Board is of the opinion that the going concern basis should be adopted in the preparation of the Consolidated Financial Statements. Further detail can be found in the Viability Statement.

The Directors 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 cash balances as of the reporting date as well as taking forecasts of future cash flows into consideration and are of the opinion that the Group has adequate resources to continue its operational activities for the foreseeable future.

After making enquiries of the Investment Manager and the Administrator, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing these Consolidated Financial Statements. Please see the Corporate Governance section.

Critical accounting judgments and key sources of estimation uncertainty

The preparation of the Group's Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and contingencies at the date of the Group's Consolidated Financial Statements and revenue and expenses during the reported year. Actual results could differ from those estimated.

There are no significant estimates utilised for the preparation of the Group's Consolidated Financial Statements as at 31 December 2017 due to the nature of the activities that have occurred in this year, together with the sole investment held by the Group being quoted on the London Stock Exchange. Fair value of financial assets held through profit or loss is therefore based on the quoted closing bid price at 31 December 2017.

Adoption of new and revised standards

(i) Amendments early adopted by the Company:

There were no standards, amendments and interpretations adopted early by the Company.

(ii) Standards, amendments and interpretations in issue but not yet effective:

IFRS 9: Financial Instruments ('IFRS 9') with regards to recognition and measurement is the only standard effective for the Company as of 1 January 2018 which may have a significant impact on the financial instruments held by the Company. However, it is the opinion of the Directors that the treatment as at fair value through profit and loss will remain the applicable method of recognition and hence there is no expected impact on the NAV.

There is however expected to be additional disclosure included in future financial statements of the Company to comply with requirements of IFRS 9, which will likely include the judgements applied by management in the classification and subsequent recognition of the financial instruments held by the Company.

IFRS 15: Revenue from Contracts with Customers ('IFRS 15'). The Directors have assessed the requirements of IFRS 15 and have determined that there will be no material impact expected on the recognition and measurement of income in the financial statements as a result of the implementation of IFRS 15. This is because the Company has not been established to earn revenue as IFRS 15 applies to but rather to generate capital and other gains from the management and disposal of its investments into financial instruments.

a. Basis of consolidation

The Consolidated Financial Statements incorporate the financial statements of the Company and an entity controlled by the Company (its subsidiary). Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

Non-controlling interests in the net assets of the consolidated subsidiary are identified separately from the Group's equity therein. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the non-controlling entities' share of changes in equity since the date of the combination. Losses applicable to the non-controlling entities in excess of their interest in the subsidiary's equity are allocated against their interests to the extent that this would create a negative balance.

Where necessary, adjustments are made to the financial statements of the subsidiary to bring the accounting policies used into line with those used by the Group.

All intra-group transactions, balances and expenses are eliminated on consolidation.

The Company owns 95.55% (2016: 95.55%) of the capital interest in SIGB, LP. Whilst the general partner of SIGB, LP, Sherborne Investors (Guernsey) GP, LLC, a company registered in Delaware, USA, is responsible for directing the day to day operations of SIGB, LP, the Company, through its majority interest in SIGB, LP, has the ability to approve the proposed investment of SIGB, LP and to remove the general partner. Hence, the Company has consolidated SIGB, LP in its financial statements.

b. Non-controlling interest

The interest of non-controlling parties in the subsidiary is measured at the minority's proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

c. Functional currency

Items included in the Consolidated Financial Statements of the Group are measured using the currency of the primary economic environment in which the entity operates ("the functional currency"). The Consolidated Financial Statements are presented in Pound Sterling ("£"), which is the Group's functional and presentational currency. Transactions in currencies other than £ are translated at the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the date of the Consolidated Statement of Financial Position are retranslated into £ at the rate of exchange ruling at that date. Exchange differences are reported in the Consolidated Statement of Comprehensive Income.

d. Financial assets at fair value through profit or loss

Investments, including equity and loan investments in associates, are designated at fair value through profit or loss in accordance with International Accounting Standard 39 ("IAS 39") ''Financial Instruments: Recognition and Measurement'', as the Company is an investment company whose business is investing in financial assets with a view to profiting from their total return in the form of interest and changes in fair value. Despite the large holding, under International Accounting Standard 28 ("IAS 28") "Investments in Associates", the fund can hold the investment in Electra shares at fair value through profit or loss rather than as an associate as SIGB LP is a closed-ended fund.

Investments in voting shares, convertible bonds and derivative contracts are initially recognised at cost. The investments in voting shares and derivative contracts and convertibles are subsequently re-measured at fair value, as determined by the Directors. Unrealised gains or losses arising from the revaluation of investments in voting shares and derivative contracts and convertibles are taken directly to the Consolidated Statement of Comprehensive Income.

In determining fair value in accordance with IFRS 13 "Fair Value Measurement" ("IFRS 13"), investments measured and reported at fair value are classified and disclosed in one of the following categories within the fair value hierarchy:

Level I - An unadjusted quoted price for identical assets and liabilities in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. As required by IFRS 13, the Group will not adjust the quoted price for these investments, even in situations where it holds a large position and a sale could reasonably impact the quoted price.

Level II - Inputs are other than unadjusted quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies.

Level III - Inputs are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgement or estimation.

The investments held by the Group at the year end are classified as meeting the definition of Level I (2016: Level I). On disposal of shares or conversion of bonds, cost of investments are allocated on a FIFO basis.

e. Revenue recognition

Dividend income is recognised when the Group's right to receive payment has been established. Tax suffered on dividend income for which no relief is available is treated as an expense.

Interest receivable from short-term deposits and investment income are recognised on an accruals basis. Where receipt of investment income is not likely until the maturity or realisation of an investment then the investment income is accounted for as an increase in the fair value of the investment.

f. Expenses

All expenses are accounted for on an accruals basis. Expenses are charged through the Consolidated Statement of Comprehensive Income.

g. Finance cost

Finance costs include interest on bank loan and amortised transaction costs. Finance cost is recognised using the effective interest method.

h. Prepaid expenses and trade receivables

Trade and other receivables are initially recognised at fair value. A provision for impairment of trade receivables is established when there is objective evidence the Group will not be able to collect all amounts due according to the original terms of the receivables.

i. Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, call and current balances with banks and similar institutions, which are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value. This definition is also used for the Consolidated Statement of Cash Flows.

j. Trade and other payables

Trade and other payables are initially recognised at fair value and subsequently, where necessary, re-measured at amortised cost using the effective interest method.

k. Financial instruments

Financial assets and liabilities are recognised in the Group's Consolidated Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument.

l. Segmental reporting

As the Group invests in one Investee Company, there is no segregation between industry, currency or geographical location. No further disclosures have been made in conjunction with IFRS 8 Operating Segments as it is deemed not to be applicable.

m. Incentive allocation

The incentive allocation is accounted for on an accruals basis and the calculation is disclosed in Note 15. It was calculated as £22,246,775 at 31 December 2017 (£31,305,111 at 31 December 2016). The incentive is payable to Non-Controlling Interest and therefore recognised in the Consolidated Statement of Changes in Equity rather than recognised as an expense in the Consolidated Statement of Comprehensive Income.

2. Comprehensive income

The consolidated comprehensive income has been arrived at after charging:

In addition to the audit and half-yearly review related remuneration above, a further £27,000 was paid to the Auditor (2016: £28,658) for Tax compliance services.

3. Tax on ordinary activities

The Company has been granted exemption from income tax in Guernsey under the Income Tax (Exempt Bodies) (Bailiwick of Guernsey) Ordinance 1989, and is liable to pay an annual fee (currently £1,200) under the provisions of the Ordinance. As such it will not be liable to income tax in Guernsey other than on Guernsey source income (excluding deposit interest on funds deposited with a Guernsey bank). No withholding tax is applicable to distributions to Shareholders by the Company.

The Investment Partnership will not itself be subject to taxation in Guernsey. No withholding tax is applicable to distributions to partners of the Investment Partnership.

Income which is wholly derived from the business operations conducted on behalf of the Investment Partnership with, and investments made in, persons or companies who are not resident in Guernsey will not be regarded as Guernsey source income. Such income will not therefore be liable to Guernsey tax in the hands of non-Guernsey resident limited partners.

Dividend income is shown gross of any withholding tax.

4. Earnings per share

The calculation of basic and diluted earnings per share is based on the return on ordinary activities less total comprehensive income attributable to the Non-Controlling Interest and on there being 314,547,259 (2016: 314,547,259) weighted average number of shares in issue during the year.

5. Financial assets at fair value through profit or loss

The Board of Directors approved an investment in Electra Private Equity plc ("Electra") which was proposed by SIGB, LP's Investment Manager, Sherborne Investors Management (Guernsey) LLC, in December 2013. Electra is a London Stock Exchange listed investment trust focused on private equity investments.

As at 31 December 2017, the Group held 11,446,086 shares of Electra (31 December 2016: 11,426,086). In accordance with the Company's investment policy, the Investment Manager does not intend to effect a purchase of shares such that it would be required to make a mandatory bid for the entire share capital of Electra.

6. Dividend Income

On 24 March 2017, Electra declared a Special dividend of 2,612 pence per share, paid on 5 May 2017 to shareholders of record on 7 April 2017 which equated to £298,449,366.

On 25 May 2017, Electra declared a second Special dividend of 914 pence per share, paid on 14 July 2017 to shareholders of record on 9 June 2017 which equated to £104,434,426.

On 23 October 2017, Electra declared a third Special dividend of 914 pence per share, paid on 1 December 2017 to shareholders of record on 3 November 2017 which equated to £104,617,226.

7. Prepaid Expenses

8. Cash and cash equivalents

Cash and cash equivalents comprises cash held by the Group and short term deposits held with various banking institutions. The carrying amount of these assets approximates their fair value.

9. Trade and other payables

10. Loan payable

At the date of this report there is no facility repayable as the loan was fully repaid on 11 May 2017. The rate of interest per annum on the loan was LIBOR rates plus 4%. The weighted average effective interest rate for the year was 4.39% per annum.

The Facility Agreement had the following main covenants:

i. Any dividend received from Electra shall be applied in prepayment of the Loan and accrued interest up to the amount of the dividend.

ii. Any disposal proceeds from the sale of Electra shares, debt instruments or relevant derivatives shall be applied in the prepayment of the Loan and accrued interest up to the amount of the disposal proceeds.

iii. Any partnership capital injections in SIGB, LP shall be applied in the prepayment of the Loan and accrued interest up to the amount of the capital injections.

iv. SIGB, LP was also required to maintain a Loan to Value (LTV) ratio below 50%. An LTV ratio of 50% or higher would entitle the bank to require full or partial prepayment to restore the required LTV ratio. The LTV ratio is the percentage of the Loan, any accrued interest and fees to the value of SIGB, LP's investment in Electra.

The Loan to Value ratio was regularly monitored by the Board to ensure that covenants are maintained in accordance with the Facility Agreement. The outstanding borrowings were repaid on 27 February 2017 (£5 million), 11 May 2017 (£15 million) and then the Facility was cancelled.

11. Share capital and share premium

12. Net asset value per share attributable to the Company

13. Dividends

On 5 April 2017, a dividend of 87.0 pence per share was declared by the Company and was paid on 19 May 2017 to shareholders of record on 18 April 2017 which equated to £273,656,115.

On 5 June 2017, the Company declared a dividend of 30.0 pence per share paid on 28 July 2017 to shareholders of record on 23 June 2017 which equated to £94,364,177.

On 6 November 2017, the Company declared a dividend of 26.5 pence per share paid on 15 December 2017 to shareholders of record on 17 November 2017 which equated to £83,355,024.

Total dividends during the year were therefore £451,375,316 or 92.59% of 31 December 2016 NAV.

14. Subsequent Events

Since 31 December 2017, the share price of Electra has decreased from 935.5 pence to 833.0 pence as at 16 April 2018. If this share price was used to value the Electra shares at 31 December 2017, it would have resulted in a decrease in the closing fair value from £107,078,135 to £95,345,897.

15. Related party transactions

The Investment Partnership and its General Partner, Sherborne Investors (Guernsey) GP, LLC, have engaged Sherborne Investors Management (Guernsey) LLC to serve as Investment Manager who is responsible for identifying the Selected Target Company, subject to approval by the Board of Directors of the Company, as well as day to day management activities of the Investment Partnership. The Investment Manager is entitled to receive from the Investment Partnership a monthly management fee equal to one-twelfth of 1% of the net asset value of the Investment Partnership, less cash and cash equivalents and certain other adjustments. At the year end, management fees of £3,679,993 (2016: £4,368,592) had been paid by the Partnership. No balance was outstanding at the year end.

The sole member of Sherborne Investors (Guernsey) GP, LLC is Sherborne Investors LP (the non-controlling interest), which also serves as the Special Limited Partner of the Investment Partnership. The Special Limited Partner is entitled to receive an incentive allocation once aggregate distributions to Partners of the Investment Partnership, of which one is the Company, exceed a certain level of capital contributions to the Investment Partnership, excluding amounts contributed attributable to management fees.

Sherborne Strategic Fund D, LLC ("SSFD"), an affiliate of the General Partner to the Investment Partnership, subscribed as a limited partner for £15 million of SIGB, LP on 20 May 2015, thereby acquiring a 4.43% capital interest. The interest was acquired at the net asset value ("NAV") of SIGB, LP on 20 May 2015. Management and incentive fees have been accrued based on the capital interest of the new limited partner since the date of its admission. For Turnaround investments, the incentive allocation is computed at 10% of the distributions to all Partners in excess of 110%, increasing to 20% of the distributions to all Partners in excess of 150% and increasing to 25% of the distributions to all Partners in excess of 200% of capital contributions, excluding amounts contributed attributable to management fees.

If after acquiring a shareholding, the share price of the Selected Target Company rises to a level at which further investment and the effort of a Turnaround is, in the Investment Manager's opinion, no longer justified or otherwise no longer presents a viable Turnaround opportunity, the Investment Partnership intends to sell (and distribute the proceeds to the Company) or distribute in kind the holding to the limited partners (in each case after deductions for any costs and expenses and for the Investment Partnership's Minimum Capital Requirements and subject to applicable law and regulation), rather than seeking to join the Board of Directors or otherwise engage with Selected Target company (a "Stake Building Investment").

For Stake Building Investments, the incentive allocation is computed at 20% of net returns on the investment of the Investment Partnership, such amount to be payable after each partner in the Investment Partnership has had distributed to it an amount equal to its aggregate capital contribution to the Investment Partnership in respect to the Stake Building Investment (excluding any capital contributions attributable to Management Fees). The Special Limited Partner may waive or defer all or any part of any incentive allocation otherwise due.

At 31 December 2017, the incentive allocation has been computed based on a Turnaround investment basis and amounts to £23,213,316 (2016: £32,320,735) of which £966,541 (2016: £1,015,624) relates to SSFD. The amount paid in the year was £24,297,226 (2016: £Nil) of which £659,979 (2016: £Nil) relates to SSFD.

Sherborne Investors LP and SSFD also earned their share of the Total Comprehensive Income for the year of £2,855,382 (2016: £6,047,282).

Each of the Directors (other than the Chairman) receives a fee payable by the Company currently at a rate of £35,000 per annum. The Chairman of the Audit Committee receives £5,000 per annum in addition to such fee. The Chairman receives a fee payable by the Company currently at the rate of £50,000 per annum.

Individually and collectively, the Directors of the Company hold no shares of the Company as at 31 December 2017.

Sherborne Investors GP, LLC has granted to the Company a non-exclusive licence to use the name "Sherborne Investors" in the UK and the Channel Islands in the corporate name of the Company and in connection with the conduct of the Company's business affairs. The Company may not sub-licence or assign its rights under the Trademark Licence Agreement. Sherborne Investors GP, LLC receives a fee of £20,000 per annum for the use of the licenced name.

16. Financial risk factors

The Group's investment objective is to realise capital growth from investment in the Selected Target Company, identified by the Investment Manager with the aim of generating significant capital return for Shareholders. Consistent with that objective, the Group's financial instruments mainly comprise an investment in a Selected Target Company. In addition, the Group holds cash and cash equivalents as well as having trade and other receivables and trade and other payables that arise directly from its operations.

Liquidity risk

The Group's cash and cash equivalents are placed in demand deposits and short-term money market instruments with a range of financial institutions. The listed investment in Electra could be partially redeemed relatively quickly (within 3 months) should the Group need to meet obligations or ongoing expenses as and when they fall due.

The following table details the liquidity analysis for financial liabilities at the date of the Consolidated Statement of Financial Position:

Credit risk

The Company is exposed to credit risk in respect of its cash and cash equivalents and derivative contracts, arising from possible default of the relevant counterparty, with a maximum exposure equal to the carrying value of those assets. The credit risk on liquid funds is mitigated through the Group depositing cash and cash equivalents across several banks. The credit risk associated with derivative contracts is monitored by reviewing the credit rating for counterparty. The Group is exposed to credit risk in respect of its trade receivables and other receivable balances with a maximum exposure equal to the carrying value of those assets. UBS Financial Services Inc. currently has a stand alone credit rating of A- with Standard & Poor's (2016: Credit Suisse Securities (USA) LLC A- with Standard & Poor's).

Market price risk

Market price risk arises as a result of the Group's exposure to the future values of the share price of the Selected Target Company. It represents the potential loss that the Group may suffer through investing in the Selected Target Company.

As at 31 December 2017 a +/-20% change in the price of Electra would positively or negatively affect the Group's net assets, income and consolidated comprehensive income for the year, by £21,415,627 (2016: £109,164,826).

Interest rate risk

The Group is subject to risks associated with changes in interest rates in respect of interest earned on its cash and cash equivalents and interest paid on its loan payable. The Group seeks to mitigate this risk by monitoring the placement of cash balances on an on-going basis in order to maximize the interest rates obtained.

Interest rate risk

As at 31 December 2017, the total interest sensitivity gap for interest bearing items was a surplus of £2,531,740 (2016: deficit £15,147,783).

As at 31 December 2017, interest rates reported by the Bank of England were 0.50% (2016: 0.25%) which would equate to net income of £12,659 (2016: net expense £37,869) per annum if interest bearing assets and liabilities remained constant. If interest rates were to fluctuate by 0.25%, this would have a positive or negative effect of £6,330 (2016: £37,869) on the Group's annual income.

Capital risk management

The capital structure of the Company consists of proceeds raised from the issue of Ordinary Shares. As at 31 December 2017, the Group is not subject to any external capital requirement.

The Directors believe that at the date of the Consolidated Statement of Financial Position there were no other material risks associated with the management of the Company's capital.