TIDMESO TIDMEC.P TIDMEO.P
RNS Number : 1915S
EPE Special Opportunities PLC
22 September 2014
22 September 2014
EPE Special Opportunities plc
Interim Results for the six months ended 31 July 2014
The Board of EPE Special Opportunities plc are pleased to
announce the Company's Interim Results for the six months ended 31
July 2014.
Highlights:
-- The Net Asset Value (NAV) at 31 July 2014 amounted to 135.44
pence per share, an increase of 0.05 per cent on the NAV per share
of 135.37 as at 31 January 2014;
-- The share price for the Company as at 31 July 2014 was 112.50
pence, representing an increase of 29.3 per cent on the share price
of 87.00 pence as at 31 January 2014;
-- The Company successfully exited Bighead Holdings Limited to
management on 19 February 2014 at a premium of 31.4% to its
prevailing holding value, generating a total return to ESO 1 LP
since September 2010 of 3.6x Money Multiple and a 51.7% IRR;
-- Nexus continued to trade ahead of budget in the first half of
the year and is continuing to increase sales and margins, notably
buoyed by accelerating sales of its new LED lighting range. Nexus
is well positioned to both source and manufacture LED products from
China, delivering the same quality and value proposition it brings
to wiring accessories;
-- Whittard has delivered steady financial performance in the
year to date. The first half proved challenging as Whittard's
premium positioning adopted in 2014 traded against the lower margin
and more volume orientated strategy of H1 2013. The business
continues to show encouraging growth in web activities, both at the
sales and gross margin level, compared to the previous year;
-- The rest of the portfolio has also performed satisfactorily,
with a number of portfolio companies achieving their budgets at the
half year point;
-- New investment opportunities are being pursued in light of
positive economic conditions. All new investments will be made via
ESO 2 LP, in which the Company is the sole investor;
-- Mr. Geoffrey Vero, Chairman, commented: "The Board are
satisfied with the overall performance of the portfolio and the
progress of the Company in the last six months, most notably at
Nexus. We are optimistic that the Company's portfolio will continue
to perform and that the Company will continue to explore
opportunities to acquire high quality assets at attractive prices
to further diversify the current portfolio."
Enquiries:
EPIC Private Equity LLP
+44 (0) 20 7269 8865 Alex Leslie
Numis Securities Ltd
+44 (0) 20 7260 1000 Nominated Advisor Stuart Skinner / Hugh Jonathan
Corporate Broker Charles Farquhar
IOMA Fund and Investment
Management Limited
+44 (0) 1624 681250 Philip Scales
Cardew Group
+44 (0) 20 7930 0777 Richard Spiegelberg / Georgina Hall
Biographies of the Directors
Geoffrey Vero FCA Clive Spears
Geoffrey Vero qualified as a Clive Spears retired from the
chartered accountant with Ernst Royal Bank of Scotland International
& Young and then worked for Limited in December 2003 as
Savills, chartered surveyors, Deputy Director of Jersey after
and The Diners Club Limited. 32 years of service. His main
He has been active in venture activities prior to retirement
capital since 1985, initially included Product Development,
with Lazard Development Capital Corporate Finance, Trust and
Limited and then from 1987 to Offshore Company Services and
2002 as a director of Causeway he was Head of Joint Venture
Capital Limited which became Fund Administration with Rawlinson
ABN Amro Capital Limited. In & Hunter. Mr Spears is an Associate
2002, he set up The Vero Consultancy of the Chartered Institute
specialising in corporate advisory of Bankers and a Member of
services and recovery situations. the Chartered Institute for
He has considerable experience Securities & Investment. He
in evaluating investment opportunities has accumulated a well spread
and dealing with corporate recovery. portfolio of directorships
While at Causeway Capital, Mr centring on private equity,
Vero was a Founder Director infrastructure and corporate
of Causeway Invoice Discounting debt. His appointments currently
Company Limited, which was subsequently include being Chairman of Nordic
sold to NM Rothschild. He is Capital Limited and sitting
also a non-executive director on the board of Jersey Finance
of Numis Corporation plc and Limited.
Chairman of Albion Development
VCT plc.
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Robert Quayle Nicholas Wilson
Robert Quayle qualified as an Nicholas Wilson has over 35
English solicitor at Linklaters years of experience in hedge
& Paines in 1974 after reading funds, derivatives and global
law at Selwyn College, Cambridge. asset management. He has run
He subsequently practiced in offshore branch operations
London and the Isle of Man as for Mees Pierson Derivatives
a partner in Travers Smith Braithwaite. Limited, ADM Investor Services
He served as Clerk of Tynwald International Limited and several
(the Isle of Man's parliament) other London based financial
for periods totalling 12 years services companies. He is Chairman
and holds a number of public of Qatar Investment Fund Plc,
and private appointments, and a premium listed company, and,
is active in the voluntary sector. until recently, was chairman
Mr. Quayle is Chairman of the of Alternative Investment Strategies
Isle of Man Steam Packet Company Limited, the longest running
Limited, AXA Isle of Man Limited, quoted fund of hedge funds
W.H. Ireland (IOM) Limited and and a FTSE all share constituent.
a number of other companies In addition, he sits on the
in the financial services, manufacturing boards of several other public
and distribution sectors. companies. He is resident in
the Isle of Man.
--------------------------------------
Profile of Investment Advisor
EPIC Private Equity LLP ("EPE" or the "Investment Advisor") was
founded in June 2001 and is independently owned by its Partners.
EPE focuses on niche investment opportunities throughout the UK
with a focus on special situations, distressed, growth and buyout
transactions.
Giles Brand is a Partner and Robert Fulford is an Investment
the founder of EPE. He is currently Director of EPE. He previously
a non-executive director of a worked at Barclaycard Consumer
number of portfolio companies: Europe before joining EPE. Whilst
Whittard, Nexus Industries and at Barclaycard, Robert was the
Pharmacy2U. Before joining EPE, Senior Manager for Strategic
Giles was a founding Director Insight and was responsible for
of EPIC Investment Partners, identifying, analysing and responding
a fund management business which to competitive forces. Prior
at sale to Syndicate Asset Management to Barclaycard, Robert spent
plc had US$5bn under management four years as a strategy consultant
and spent five years working at Oliver Wyman Financial Services,
in Mergers and Acquisitions at where he worked with a range
Baring Brothers in Paris and of major retail banking and institutional
London. Giles read History at clients in the UK, mainland Europe,
Bristol University. Middle East and Africa, specialising
in strategy and risk modelling.
He manages the Company's investments
in Nexus Industries and Whittard
of Chelsea, where he is currently
a non-executive director. Robert
read Engineering at Cambridge
University.
James Henderson is an Investment Daniel Roddick is Head of Investor
Director of EPE. He previously Relations and Placement at EPE.
worked in the Investment Banking He has over ten years' experience
division at Deutsche Bank before in corporate finance, private
joining EPE. Whilst at Deutsche equity and strategy consulting;
Bank he worked on a number of most recently as a consultant
M&A transactions and IPOs in and trusted advisor to a number
the energy, property, retail of London-based private equity
and gaming sectors, as well as firms. Prior to EPE, Daniel was
providing corporate broking advice a Vice President at Campbell
to mandated clients. He manages Lutyens where he led the marketing
the Company's investments in of funds across the Nordic region
Indicia and Pharmacy2U. He is and assisted in raising private
currently a non-executive director equity funds and on the sale
of Indicia, an integrated marketing and restructuring of private
services provider and digital equity assets. Before Campbell
marketing agency. James read Lutyens, he was at McKinsey &
Modern History at Oxford University Co., working across London, Munich
and Medicine at Nottingham University. and Amsterdam in the Corporate
Finance and Strategy Practice.
Daniel read Engineering, Economics
and Management at Oxford University
and is a CFA charter holder.
-------------------------------------------
Alex Leslie is an Investment
Director of EPE. He previously
worked in Healthcare Investment
Banking at Piper Jaffray before
joining EPE. Whilst at Piper
Jaffray he worked on a number
of M&A transactions and equity
fundraisings within the Biotechnology,
Specialty Pharmaceutical and
Medical Technology sectors. He
manages the Company's investment
in Process Components where he
is currently a non-executive
director. Alex read Human Biological
and Social Sciences at Oxford
University and obtained an MPhil
in Management from the Judge
Business School at Cambridge
University.
Chairman's Statement
In the six months to July 2014, the UK enjoyed its best economic
performance in six years, with an annualised GDP growth rate of
c.3.2%, and GDP levels have now surpassed the 2008 peak. Growth has
been driven by consumption of services as well as the construction
sector, suggesting an improved economic environment across various
sectors. Other macroeconomic indicators have also been positive,
with the unemployment rate dropping to 6.4% in the second quarter
and inflation decreasing to 1.6% at the end of the period, and seem
to support the theory that more stable, long term growth could have
returned. Despite outperforming its neighbours and economic
partners, the UK remains heavily tied to the outlook of
international markets, where the recovery is also well under way,
albeit more timidly. Overall, we are optimistic that it appears
that the recovery has picked up pace in the first half of 2014, and
we expect it to continue to do so for the remainder of the
year.
EPE Special Opportunities plc ("ESO" or the "Company") did not
complete any new acquisitions in the period. Improving economic
conditions may however yield investment opportunities and the
Company continues to actively source deals.
The period proved encouraging for the portfolio, most notably
the Company's largest investment, Nexus Industries. Over the course
of 2014, Nexus once more traded ahead of budget and is continuing
to increase sales and margins, notably buoyed by accelerating sales
of its new LED lighting range. Nexus is budgeting organic sales and
EBITDA growth for the remainder of the year and expects to finish
the financial year ahead of budget, a performance which could be
further supplemented by its bolt-on acquisition strategy. Whittard
of Chelsea, under a new CEO, has seen significant investment for
growth in order to support its premium repositioning strategy and
deliver growth across the business. The first half proved
challenging as Whittard's premium positioning adopted in 2014
traded against the lower margin and more volume orientated strategy
of H12013. Your Board is optimistic that the improving economic
conditions will support the continued progression of the Company's
portfolio.
On 19 February 2014, the Company exited its investment in
Bighead Holdings Limited to management, generating a total return
to ESO Investments 1 LP ("ESO 1 LP") since September 2010 of 3.6x
Money Multiple and a 51.7% IRR.
The Board and the Investment Advisor are currently investigating
the possibility of raising additional funds for the Company by way
of senior debt, mezzanine finance or bonds. Should the Company
decide to raise funds by way of debt or debt-like instruments, it
would anticipate that those instruments and any existing
Convertible Loan Notes in aggregate would be more than 3.0x covered
by the Gross Assets of the Company. Any new funds raised would be
used, inter alia, to retire existing Convertible Loan Notes
("CLNs") in light of the December 2015 end date (extendable to
December 2016 at the Company's behest), buy-in minorities in the
existing investments, and support new investments.
The 31 July 2014 Net Asset Value ("NAV") of 135.44 pence per
share represents an increase of 0.05% on the NAV per share of
135.37 pence as at 31 January 2014. The share price as at 31 July
2014 for the Company was 112.50 pence, representing an increase of
29.3% on the share price of 87.00 as at 31 January 2014.
I would like to extend my thanks to the Investment Advisor, EPE,
as well as my fellow Directors and the Company's professional
advisors, for their concerted efforts over the last six months. I
look forward to once again updating you at the end of the financial
year.
Geoffrey Vero
Chairman
19 September 2014
Investment Advisor's Report
In the six month period since 31 January 2014, the Investment
Advisor has focused on maintaining and creating value from within
the existing portfolios held by the Company. The Investment Advisor
continues to undertake revenue improvement and cost saving measures
in investee companies to increase the value of the current
portfolio. At the same time, the Investment Advisor has endeavoured
to find new opportunities by way of platform or bolt-on investment
opportunities. All new investments will be made via ESO Investments
2 LP ("ESO 2 LP"), in which the Company is the sole investor.
During the first half of 2014, the UK economy saw growth pick up
pace markedly, which has benefited the portfolio. Inflation stood
at 1.6% in July 2014 versus 2.0% in December 2013, and the
unemployment rate fell to 6.4% in the second quarter, down from
7.1% in December. GDP growth was driven by the services and
construction sector, with the former in particular generally
perceived as a sign of positive growth expectations.
The portfolio has performed satisfactorily since January 2014.
Nexus finished the period to 31 July 2014 ahead of budget,
bolstered by strong demand for the LED lighting ranges, as well as
solid performance in the retail channel. Development of LED
lighting ranges is a major focus for the business. The gathering
momentum behind the lighting technology switch to LED provides
Nexus with an opportunity to enter and build market share in the
category at a point of disruptive transition as traditional
solutions are superseded. Nexus is well positioned to both source
and manufacture LED products in China, delivering the same quality
and value proposition it brings to wiring accessories. Whilst a
nascent strategy, indications are positive for LED lighting
sales.
Whittard of Chelsea delivered a steady performance in 2014 to
date. The first half proved challenging as Whittard's premium
positioning adopted in 2014 traded against the lower margin and
more volume orientated strategy of H1 2013. The business continues
to show encouraging growth in web, both at the sales and gross
margin level, compared to the previous year. Together, Nexus and
Whittard represent 50.5% of the Company's Gross Asset Value
("GAV").
Indicia underperformed against budget in the half year due to
underperformance in existing clients, which has been offset by a
strong start to the year in new business, securing seven new major
client wins, including Majestic and AXA UK.
Process Components finished the year to June 2014 behind sales
budget but on budget at EBITDA level and both sales and EBITDA were
significantly ahead of June 2013 results, in large part due to a
reversal of underperformance in the US via a repositioning of the
sales infrastructure. Growth continues to be driven by investment
in sales, marketing and product development.
On 19 February 2014, the Company disposed its investment in
Bighead Holdings Limited to Management, generating a total return
to ESO 1 LP since September 2010 of 3.6x Money Multiple and a 51.7%
IRR. Such disposal has had a positive impact on the Company as it
was completed at a 31.4% premium to Bighead's prevailing December
2013 holding value.
The exit of Bighead above its prevailing holding value, provided
continued validation of the Company's NAV approach. These exits
follow the disposals of Palatinate at a 31.4% premium to NAV in
June 2013, Pinnacle Regeneration Group at a 5.7% premium to NAV in
June 2011, and Ryness at a 40.3% premium to NAV in May 2011.
Company highlights
The NAV per share as at 31 July 2014 for the Company was 135.44
pence, calculated on the basis of 27.5 million ordinary shares
(versus 30.0 million at issue), representing an increase of 0.05%
on the NAV per share of 135.37 pence as at 31 January 2014. The
share price as at 31 July 2014 for the Company was 112.50 pence,
representing an increase of 29.3% on the share price of 87.00 pence
as at 31 January 2014.
Based on the latest NAV, as set out above, Gross Asset Cover for
the outstanding CLNs of GBP6.0 million is now 7.2x. Net cash now
stands at GBP3.1 million with CLN interest coverage of 20.1x per
annum. Overall liquidity allowing for facilities available in the
structure is GBP10.7 million.
Third party debt in the current portfolio stands at 1.8x EBITDA,
whilst arithmetic average Net Debt to EBITDA across the portfolio
is 2.0x. The portfolio remains conservatively valued with a
weighted average Enterprise Value equating to an EBITDA multiple of
6.4x with 40.6% of the portfolio's GAV comprised of yielding loans
(excludes two assets which represent 0.8% or GBP0.4 million of the
Portfolio GAV). By comparison, listed European Private Equity
competitors' average Enterprise Value to EBITDA multiple is 9.5x
(sources: Latest Report and Accounts for 3i, Better Capital,
Dunedin Enterprise, Electra Private Equity, HgCapital Trust,
Graphite and Oakley Capital Investments).
Investment highlights from the inception of the Company to date
include:
-- Deployed GBP65 million of capital;
-- Returned over GBP58 million to the Company in capital and income;
-- The current portfolio, as at 31 July 2014, has a gross 3.5x
money multiple and 30.8% IRR (Internal Rate of Return.
ESO plc NAV per share and share price performance versus various
alternative indices
Performance Summary Six One Three Five
As at 31 July 2014 Months Year Years Years
ESO plc Share Price 29% 58% 181% 350%
ESO plc NAV Per Share 0% 24% 66% 87%
Listed European PE Index* 0% 6% 36% 59%
FTSE All-Share Index 3% 2% 18% 52%
AIM All-Share Index (10%) 7% (11%) 42%
--------------------------- -------- ------ ------- -------
* Listed European PE Index constituents: 3i, Better Capital,
Dunedin Enterprise, Electra Private Equity, HgCapital Trust,
Graphite and Oakley Capital Investments. The Index has been
constructed by weighting the daily share price of each constituent
by its market capitalisation as at 31 July 2014.
Recent developments
-- June 2013: sale of Palatinate at 2.4x Money Multiple and 43% IRR.
-- July 2013: passed Continuation Vote to extend life of Company
to December 2020, five year votes thereafter.
-- January 2014: Mark Dunhill, former TM Lewin International
Director, appointed new CEO of Whittard.
-- February 2014: sale of Bighead at 3.6x Money Multiple and 52% IRR.
Current portfolio diversification
The current portfolio is diversified by sector and instrument as
follows:
Sector diversification %
Engineering, Manufacturing and
Distribution 60.0%
Retail / FMCG 25.5%
Business Services 12.3%
Healthcare 2.2%
Total 100.0%
Instrument diversification %
Mezzanine Loans 10.1%
Shareholder Loans 19.5%
Equity 48.0%
Cash 22.4%
Total 100.0%
Current portfolio: ESO 1 LP
Nexus Industries
Nexus Industries ("Nexus") is a manufacturer and distributor of
electrical accessories in the UK, operating under the brand names
Masterplug and British General, supplying both the retail and
wholesale markets. The development of the Luceco LED lighting
ranges is a major focus for the business. The gathering momentum
behind the lighting technology switch to LED provides Nexus with an
opportunity to enter and build market share in the category at a
point of disruptive transition as traditional solutions are
superseded. Nexus is differentiated by its positioning as a Chinese
manufacturer, where the Company has built a 250,000 square foot
wholly-owned production facility in Jiaxing, with British product
quality, brand and service standards supplying into a global
market.
Indicia
Indicia is a marketing services agency focussed on customer
engagement, which uses data to help brands understand and
communicate more successfully with their customers. Indicia was
created through the acquisition and consolidation of three separate
businesses.
Whittard of Chelsea
Whittard of Chelsea ("Whittard" or the "Company") is a retailer
of specialty tea, coffee and hot chocolate. A 'quintessentially
British' brand, it was established in 1886 and commands both strong
brand recognition and customer loyalty in the UK and abroad. The
main channel for the Company is the portfolio of 55 stores across
the UK. These stores are positioned in prime locations on the high
street, in tourist centres and outlets, with sales generated from
both gifting and regular self-purchases. The Investment Advisor has
focussed on developing the Whittard of Chelsea brand by growing the
online, wholesale and franchise channels. The strategy has driven a
turnaround in profitability since the date of investment.
Pharmacy2U
Pharmacy2U is an online pharmacy business, delivering National
Health Service and private prescriptions direct to the home using
an innovative technology developed in conjunction with the NHS, the
Electronic Prescription Service.
Current portfolio: ESO Investments (PC) LLP ("ESO (PC) LLP")
Process Components
Process Components is an engineering parts and equipment
supplier to the powder processing industries, primarily food,
agriculture and pharmaceuticals. Customers are blue chip global
manufacturers, and the business has been growing its international
supply operations.
Outlook
The Investment Advisor is focussed on consolidation with a view
to preserving and creating value in its core investments, as well
as on making new investments to increase portfolio diversification
and generate attractive returns for shareholders. The Investment
Advisor expects to achieve continued cost savings and revenue
improvement measures in portfolio companies, especially those in
manufacturing and consumer focussed sectors. New investment
opportunities are being pursued as positive economic signs
continue. All new investments will be made via ESO 2 LP, in which
the Company is the sole investor.
Strategic Report
Objectives and opportunities
The Company is an investment company and has been quoted on the
Alternative Investment Market ("AIM") since September 2003. Its
objective is to provide long-term return on equity for its
shareholders by way of investment in a portfolio of private equity
assets. This includes the pursuit of private equity investment
opportunities as well as the use of share and CLN buybacks where
appropriate. Since September 2010, the Company has retired GBP7.4
million of par value CLNs and ordinary shares at a cost of GBP5.0
million.
The Investment Advisor to the Company is EPE, which was founded
in June 2001 and is an independent investment manager wholly owned
by its Partners. Since 2001, EPE has made 45 investments. EPE
manages the Company's investments in accordance with guidelines
determined by the Directors and as specified in the limited
partnership and in management and investment guideline agreements.
EPE was appointed as the Investment Advisor in September 2003.
Investment policy
The Investment Advisor believes that the current economic
environment continues to create a wide range of investment
opportunities in UK small and medium sized enterprises ("SMEs"). As
a result, the Investment Advisor continues to use proprietary deal
sourcing approaches to identify these opportunities, as well as
engaging actively with the wider restructuring and advisory
community to communicate the Company's investment strategy. The
Company seeks to target growth and buyout opportunities, as well as
special situations and distressed transactions, making investments
where it believes pricing to be attractive and the potential for
value creation strong. The Company will continue to target the
following types of investments:
-- Growth, Buyout and Pre-IPO opportunities: leveraging the
Investment Advisor's investment experience, contacts and ability.
The Company is particularly focussed on making investments in
sectors where the opportunity exists to create a unique asset via
the consolidation of a number of smaller companies, taking
advantage of the lack of liquidity in the SME market and the
attraction to secondary buyers of larger operations.
-- Special Situations: investment opportunities where the
Investment Advisor believes that assets are undervalued due to
specific, event-driven circumstances and where asset-backing may be
available and the opportunity exists for recovery and significant
upside. Target companies may or may not be distressed as a result
of the situation. The Investment Advisor will aim to use its
restructuring and refinancing expertise to resolve the situation
and achieve a controlling position in the target company. The
Company seeks to acquire distressed debt, undervalued equity or the
assets of target businesses in solvent or insolvent situations.
-- Private Investment in Public Equities (PIPEs): the Company
may consider making investments in a number of smaller quoted
companies, primarily ones whose shares are admitted to AIM. The
Company will either seek to acquire and de-list the target company
or make an investment in the ordinary equity of a quoted target
company. The Company may offer ordinary shares in the Company as
all or part of the consideration for such investments.
-- Secondary portfolios / LP positions (Secondary or Primary) /
EPE Funds: the Company is able, through EPE's Placement business,
to invest as a limited partner in various Private Equity funds on
substantially improved terms. On occasion, the Company will seek to
take advantage of these commitments. The EPE skill-set and
experience is well suited to the requirements of co-investing in
funds.
The Company will consider most industry sectors, including
consumer, retail, manufacturing, financial services, healthcare,
support services and media industries. The Company partners with
management and entrepreneurs to maximise value by combining
financial and operational expertise in each investment.
The Company will seek to invest between GBP2 million and GBP10
million in a range of debt and equity instruments with a view to
generating returns through both yield (c.5 to 15% per annum) and
capital gain. Whilst in general the Company aims to take
controlling equity positions, it may seek to develop companies as a
minority investor.
Occasionally the Board may authorise investments of less than
GBP2 million. For investments larger than GBP10 million, the
Company may seek co-investment from third parties or additional
public market fundraisings.
The Company looks to invest in businesses with strong
fundamentals, including defensible competitive advantage,
opportunity for strong future cashflow and dynamic management
teams.
Current and future development
A detailed review of the year and outlook is contained in the
Chairman's Statement and the Investment Advisor's Report.
The Board regularly reviews the development and strategic
direction of the Company. The Board's main focus continues to be on
the Company's long term investment return. It is believed that the
Company has foundations in place to build a successful and durable
investment vehicle given its supportive shareholder base, with EPE
executives owning 26.6% of the Company (excluding awards made under
the Joint Share Ownership Plan), and the provision of equity
funding until at least December 2020, with five year extensions
thereafter, via the passing of the Continuation Vote in July
2013.
The Board and the Investment Advisor are investigating the
possibility of raising additional funds for the Company to be used,
inter alia, to retire existing Convertible Loan Notes in light of
the December 2015 end date (extendable to December 2016 at the
Company's behest), buy-in minorities in the existing investments,
investment behind key assets such as Nexus, Whittard and Process
Components and support new investments.
The Board believes that the current investment strategy remains
effective in the light of existing market conditions.
Performance
A detailed review of performance is contained in the Chairman's
Statement and the Investment Advisor's Report. A number of key
indicators are considered by the Board and the Investment Advisor
in assessing the progress and performance of the Company. These are
well established industry measures and are as follows:
-- Return on equity over the long term
-- Movement in NAV per ordinary share
-- Movement in share price
Further details of these key performance indicators can be found
in the Investment Advisor's Report.
Risk management
All risks associated with the Company are the responsibility of
the Board, which reviews and manages these either directly or
through EPE. The main risks which the Company faces are as
follows:
Macroeconomic risks
The performance of the Company's underlying portfolio of assets
as well as the Company's ability to exit these assets is materially
influenced by the macroeconomic conditions, including the current
business environment and market conditions, the availability of
debt finance, the level of interest rates, as well as the number of
active buyers. Considerable effort continues to be taken by the
Investment Advisor to position the portfolio companies to cope and
take advantage of the changing macroeconomic climate.
Share price volatility and liquidity
The market price of the shares could be subject to significant
fluctuations due to a change in investor sentiment regarding the
Company or the industry in which the Company operates or in
response to specific facts and events, including positive or
negative variations in the Company's interim or full year operating
results and business developments of the Company and/or
competitors. The market price of the shares may not reflect the
underlying value of the Group and, from time to time, the market
price of the shares will trade at a discount to NAV.
Long term strategic risks
The Company is subject to the risk that share price performance
and long-term strategy fail to meet the expectations of its
shareholders. The Board monitors share price to NAV per share
discount, and considers the most effective methodologies to keep
this at a minimum. These methodologies include the share buyback
policy. Directors will continue to seek shareholder authority on an
annual basis to enable them to purchase shares for cancellation
when they believe it will be in the best interests of shareholders.
Since September 2010, the Company has retired c.GBP7.4 million of
par value CLNs and ordinary shares at a cost of GBP5.0 million. In
addition, the Board regularly reviews the Objectives and Investment
Policy in light of prevailing investor sentiment to ensure the
Company remains attractive to its shareholders.
Investment risks
The Company operates in a very competitive market. Changes in
the number of market participants, the availability of investable
assets, the pricing of investable assets, or in the ability of EPE
to access and execute deals could have a significant effect on the
Company's competitive position and on the sustainability of
returns.
Adequate sourcing and execution of deals is primarily dependent
on the ability of EPE to attract and retain key investment
executives with the requisite skills and experience.
Adequate performance of portfolio assets once acquired is
primarily dependent on macroeconomic conditions, conditions within
each asset's market and the ability of the respective management
teams of each asset to execute their business strategy. Any one of
these factors could have an impact on the valuation of a portfolio
company and upon the Company's ability to make a profitable exit
from the investment within the desired timeframe.
The Company may at certain times hold a relatively concentrated
investment portfolio. The Company could be subject to significant
losses if it, for example, holds a large position in a particular
investment that declines in value. Such losses could have a
material adverse effect on the performance of and returns achieved
by the Company.
A rigorous process is put in place by EPE for managing the
relationship with each portfolio company. This includes regular
asset reviews, an assessment of concentration of the investment
portfolio at any given period and board representation by one or
more EPE executives. The Board reviews both the performance of EPE
and its incentive arrangements on a regular basis to ensure that
both are appropriate to the objectives of the Company.
Gearing risks
Gearing can cause both gains and losses in the asset value of
the Company to be magnified. Gearing can also have serious
operational impacts on the Company if a breach of its banking
covenants occurs. Secondary risks relate to whether the cost of
gearing is too high and whether the length of the gearing is
appropriate. The Board regularly monitors the headroom available
under banking covenants and reviews the impact of the various forms
of gearing and their cost to the Company. The Company uses gearing
directly via its CLNs and an overdraft facility at ESO 1 LP, and
indirectly via gearing in individual portfolio assets.
Foreign exchange risk
The base currency of the Company is Sterling. Certain of the
Company's assets may be invested in investee companies which may
have operations in countries whose currency is not Sterling and
securities and other investments which are denominated in other
currencies. Accordingly, the Company will necessarily be subject to
foreign exchange risks and the value of its assets may be affected
unfavourably by fluctuations in currency rates.
Valuation risks and methodology
The Investment Advisor determines asset values using BVCA and
IPEV guidelines and other valuation methods with reference to the
valuation principles of IFRS 13: Fair Value Measurement. This
determination is subject to many assumptions and requires
considerable judgment. As all investments are unquoted, the
valuation principles adopted are classified as Level 3 in the IFRS
13 fair value hierarchy. BVCA and IPEV guidelines recommend the use
of comparable quoted company metrics and comparable transaction
metrics to determine an appropriate enterprise value, to which a
marketability discount is applied given the illiquid nature of
private equity investments. The Investment Advisor also seeks to
confirm value using discounted cash flow and other methods of
valuation, and by applying a range approach. The Investment Advisor
adopts a conservative approach to valuation with reference to the
aforementioned methodology having regard for on-going volatile
market conditions.
The Company announces an estimated net asset value per ordinary
share on a monthly basis following a review of the valuation of the
Company's investments.
Operational risks
The Company's investment management and administration are
provided or arranged for the Company by EPE. The Company is
therefore exposed to internal and external operational risks at
EPE, including regulatory, legal, information technology, human
resources and deficiencies in internal controls. The Company
monitors the provision of services by EPE to ensure they meet the
Company's business objectives.
Sources of funds
The Company considers a number of sources for funds. These
include its own cash resources as well as third party funds. Own
cash resources originate via income from ESO 1 LP and ESO (PC) LLP
and capital from asset realisations and refinancings. The focus on
utilising these cash resources allows the Company to minimise
dilution from public market fundraisings and provides sufficient
capital for small share buybacks and the execution of one to two
new investment opportunities per annum.
The Company's own cash resources may be supplemented by
additional third party funding. One route of third party funding
includes the provision of co-investment capital alongside the
Company in ESO 2 LP, either as private investment capital directly
into ESO 2 LP or on a deal by deal basis. The Company may also seek
opportunistic public market fundraisings, in particular when
considering transformational investment opportunities such as the
acquisition of the EPIC plc private equity portfolio in 2010.
Alternatively, third party debt funding may be sourced, comprising
zero dividend preference shares, preference shares, senior and
mezzanine debt, such as the GBP10 million of CLNs raised in 2010 to
part-fund the EPIC plc portfolio acquisition.
Geoffrey Vero
Chairman
19 September 2014
Review report by KPMG Audit LLC to EPE Special Opportunities
plc
Introduction
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly report for the six
months ended 31 July 2014, which comprises the consolidated
statement of comprehensive income, the consolidated statement of
assets and liabilities, the consolidated statement of changes in
equity, the consolidated statement of cash flows and the related
explanatory notes. We have read the other information contained in
the half-yearly report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the condensed set of financial statements.
This report is made solely to the Company in accordance with the
terms of our engagement. Our review has been undertaken so that we
might state to the Company those matters we are required to state
to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the half-yearly report in accordance with the AIM
Rules.
The annual financial statements of the Group are prepared in
accordance with IFRSs, as adopted by the EU. The condensed set of
financial statements included in this half-yearly report has been
prepared in accordance with IAS 34 Interim Financial Reporting.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of consolidated financial statements in the
half-yearly report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of consolidated
financial statements in the half-yearly report for the six months
ended 31 July 2014 is not prepared, in all material respects, in
accordance with IAS 34 and the AIM Rules.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
19 September 2014
Consolidated Statement of Comprehensive Income
For the six months ended 31 July 2014
1 Feb 1 Feb
2013 to 2013
1 Feb 2014 to 31 Jul 31 Jul to 31
2014 2013 Jan 2014
Revenue Capital Total Total Total
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
------------- ------------- ------------- ------------- ------------
Note GBP GBP GBP GBP GBP
----------------------------------- ------------- ------------- ------------- ------------- ------------
Income
Interest income 7,723 - 7,723 1,680 11,033
----------------------------------- ------------- ------------- ------------- ------------- ------------
Total income 7,723 - 7,723 1,680 11,033
----------------------------------- ------------- ------------- ------------- ------------- ------------
Expenses
5 Investment advisor's fees (369,973) - (369,973) (266,165) (594,952)
Administration fees (38,890) - (38,890) (34,150) (74,967)
Directors' fees (62,000) - (62,000) (62,000) (124,000)
Directors' and Officers' insurance (2,069) - (2,069) (2,062) (5,728)
Professional fees (18,878) - (18,878) (17,388) (107,468)
Board meeting and travel expenses (5,129) - (5,129) (6,207) (15,227)
Auditors' remuneration (26,946) - (26,946) (19,766) (31,766)
Bank charges (442) - (442) (349) (938)
Irrecoverable VAT (103,992) - (103,992) (97,382) (205,162)
Share based payment expense (105,374) - (105,374) (72,453) (145,520)
Sundry expenses (14,426) - (14,426) (14,817) (40,287)
Listing fees (8,840) - (8,840) (9,589) (22,258)
Nominated advisor and broker
fees (24,725) - (24,725) (32,147) (60,449)
Total expenses (781,684) - (781,684) (634,475) (1,428,722)
----------------------------------- ------------- ------------- ------------- ------------- ------------
Net income/(expense) (773,961) - (773,961) (632,795) (1,417,689)
----------------------------------- ------------- ------------- ------------- ------------- ------------
Gains on investments
Share of profit of equity
6 accounted investees - 920,685 920,685 2,375,921 10,454,358
Deconsolidation of subsidiary - - - (9,003) (9,003)
Gain for the period/year on
investments - 920,685 920,685 2,366,918 10,445,355
----------------------------------- ------------- ------------- ------------- ------------- ------------
Finance charges
Interest on convertible loan
12 note instruments (242,081) - (242,081) (241,222) (483,303)
Profit/(loss) for the period/year
before taxation (1,016,042) 920,685 (95,357) 1,492,901 8,544,363
Taxation - - - - -
------------- -------------
Profit/(loss) for the period/year (1,016,042) 920,685 (95,357) 1,492,901 8,544,363
----------------------------------- ------------- ------------- ------------- ------------- ------------
Other comprehensive income - - - - -
----------------------------------- ------------- ------------- ------------- ------------- ------------
Total comprehensive income/(loss)
for the period/year (1,016,042) 920,685 (95,357) 1,492,901 8,544,363
----------------------------------- ------------- ------------- ------------- ------------- ------------
Basic earnings/(loss) per
10 ordinary share (pence) (3.69) 3.35 (0.34) 5.31 30.62
----------------------------------- ------------- ------------- ------------- ------------- ------------
Diluted earnings/(loss) per
10 ordinary share (pence) (3.69) 3.21 (0.34) 5.19 29.51
----------------------------------- ------------- ------------- ------------- ------------- ------------
The total column of this statement represents the Group's
Consolidated Statement of Comprehensive Income, prepared in
accordance with IFRS. The supplementary revenue return and capital
return columns are both prepared under Board approved guidelines in
relation to the allocation between revenue and capital. All items
in the above statement derive from continuing activities.
The notes form an integral part of these financial
statements
Consolidated Statement of Financial Position
As at 31 July 2014
31 July 31 January 31 July
2014 2014 2013
(unaudited) (audited) (unaudited)
Note GBP GBP
---------------------------------- --------------- ------------ ---------------
Non-current assets
Investment in equity accounted
6 investees 32,477,270 34,050,939 25,972,474
6, Loans to equity accounted investees
8 and related companies 722,499 1,298,017 1,495,027
33,199,769 35,348,956 27,467,501
---------------------------------- --------------- ------------ ---------------
Current assets
Cash and cash equivalents 9,629,208 7,862,252 8,824,502
Trade and other receivables 504,281 77,822 98,696
10,133,489 7,940,074 8,923,198
---------------------------------- --------------- ------------ ---------------
Current liabilities
Trade and other payables (52,817) (42,518) (44,985)
---------------------------------- --------------- ------------ ---------------
(52,817) (42,518) (44,985)
----------------------------------
Net current assets 10,080,672 7,897,556 8,878,213
---------------------------------- --------------- ------------ ---------------
Non-current liabilities
12 Convertible loan note instruments (6,020,732) (6,005,994) (5,991,256)
(6,020,732) (6,005,994) (5,991,256)
---------------------------------- --------------- ------------ ---------------
Net assets 37,259,709 37,240,518 30,354,458
---------------------------------- --------------- ------------ ---------------
Equity
9 Share capital 1,534,411 1,534,411 1,540,146
Share premium 1,815,385 1,815,385 1,815,385
Capital reserve 7,100,148 6,179,463 (1,898,974)
Revenue reserve 26,809,765 27,711,259 28,897,901
Capital redemption reserve - - -
Total equity 37,259,709 37,240,518 30,354,458
---------------------------------- --------------- ------------ ---------------
11 Net asset value per share (pence) 135.44 135.37 109.15
---------------------------------- --------------- ------------ ---------------
The notes form an integral part of these financial
statements
Consolidated Statement of Changes in Equity
For the six months ended 31 July 2014
Six months ended 31 July 2014
(Unaudited)
Share Share Capital Capital Revenue Total
capital premium redemption reserve reserve
reserve
GBP GBP GBP GBP GBP GBP
------------------------ ---------- ---------- ------------ ---------- ------------ -----------
Balance at 1 February
2014 1,534,411 1,815,385 - 6,179,463 27,711,259 37,240,518
Total comprehensive
income for the period - - - 920,685 (1,016,042) (95,357)
------------------------ ---------- ---------- ------------ ---------- ------------ -----------
Contributions by
and distributions
to owners
Share based payment
charge - - - - 105,374 105,374
Cash received from
JSOP participants - - - - 9,174 9,174
Total transactions
with owners - - - - 114,548 114,548
------------------------ ---------- ---------- ------------ ---------- ------------ -----------
Balance at 31 July
2014 1,534,411 1,815,385 - 7,100,148 26,809,765 37,259,709
------------------------ ---------- ---------- ------------ ---------- ------------ -----------
Year ended 31 January 2014
Share Share Capital Capital Revenue Total
capital premium redemption reserve reserve
reserve
GBP GBP GBP GBP GBP GBP
----------------------- ---------- ---------- ------------ ------------ ------------ -----------
Balance at 1 February
2013 1,540,146 1,815,385 4,437 (4,265,892) 29,950,543 29,044,619
Total comprehensive
income for the year - - - 10,445,355 (1,900,992) 8,544,363
----------------------- ---------- ---------- ------------ ------------ ------------ -----------
Contributions by
and distributions
to owners
Cancelled ordinary
shares (5,735) - - - 5,735 -
Removal of capital
redemption reserve - - (4,437) - 4,437 -
Share based payment
charge - - - - 145,520 145,520
Cash received from
JSOP participants - - - - 31,511 31,511
Purchase of treasury
shares - - - - (525,495) (525,495)
Total transactions
with owners (5,735) - (4,437) - (338,292) (348,464)
----------------------- ---------- ---------- ------------ ------------ ------------ -----------
Balance at 31 January
2014 1,534,411 1,815,385 - 6,179,463 27,711,259 37,240,518
----------------------- ---------- ---------- ------------ ------------ ------------ -----------
Six months ended 31 July 2013
(Unaudited)
Share Share Capital Capital Revenue Total
capital premium redemption reserve reserve
reserve
GBP GBP GBP GBP GBP GBP
------------------------ ---------- ---------- ------------ ------------ ----------- -----------
Balance at 1 February
2013 1,540,146 1,815,385 4,437 (4,265,892) 29,950,543 29,044,619
Total comprehensive
income for the period - - - 2,366,918 (874,017) 1,492,901
------------------------ ---------- ---------- ------------ ------------ ----------- -----------
Contributions by
and distributions
to owners
Share based payment
charge - - - - 47,453 47,453
Cash received from
JSOP participants - - - - 17,599 17,599
Purchase of treasury
shares - - - - (248,114) (248,114)
Removal of capital
redemption reserve - - (4,437) - 4,437 -
Total transactions
with owners - - (4,437) - (178,625) (183,062)
------------------------ ---------- ---------- ------------ ------------ ----------- -----------
Balance at 31 July
2013 1,540,146 1,815,385 - (1,898,974) 28,897,901 30,354,458
------------------------ ---------- ---------- ------------ ------------ ----------- -----------
The notes form an integral part of these financial
statements
Consolidated Statement of Cash Flows
For the six months ended 31 July 2014
1 Feb 2014 1 Feb 2013 1 Feb 2013
to 31 Jul to 31 Jul to 31 Jan
2014 2013 2014
(unaudited) (unaudited) (audited)
GBP GBP GBP
--------------------------------------- -------------- -------------- ------------
Operating activities
Interest income received 7,723 1,680 11,033
Expenses paid (1,094,993) (643,389) (1,323,823)
Net cash used in operating activities (1,087,270) (641,709) (1,312,790)
-------------------------------------------- -------------- -------------- ------------
Investing activities
Loan repayments from investee
companies 578,038 80,000 572,644
Net receipts from associate and
related companies 2,494,357 5,433,000 5,140,000
Deconsolidation of ERPC II Limited - (6,706) (6,706)
Net cash generated from investing
activities 3,072,395 5,506,294 5,705,938
-------------------------------------------- -------------- -------------- ------------
Financing activities
Convertible loan note interest
paid (227,343) (227,343) (454,687)
Purchase of treasury shares - (248,114) (525,495)
Share ownership scheme participation 9,174 17,599 31,511
Net cash used in financing activities (218,169) (457,858) (948,671)
-------------------------------------------- -------------- -------------- ------------
Increase in cash and cash equivalents 1,766,956 4,406,727 3,444,477
Cash and cash equivalents at
start of period/year 7,862,252 4,417,775 4,417,775
-------------------------------------------- -------------- -------------- ------------
Cash and cash equivalents at
end of period/year 9,629,208 8,824,502 7,862,252
-------------------------------------------- -------------- -------------- ------------
The notes form an integral part of these financial
statements
Notes to the Unaudited Interim Financial Statements
For the six months ended 31 July 2014
1 The Company
The Company was incorporated with limited liability in the Isle
of Man on 25 July 2003. The Company then re-registered under the
Isle of Man Companies Act 2006, with registration number 008597V.
The Company's ordinary shares are listed on the Alternative
Investment Market ("AIM") and the ICAP Securities and Derivatives
Exchange ("ICAP").
The interim consolidated financial statements as at and for the
six months ended 31 July 2014 comprise the Company and its
subsidiaries (together "the Group"). The interim consolidated
financial statements are unaudited.
The consolidated financial statements of the Group as at and for
the year ended 31 January 2014 are available upon request from the
Company's registered office at IOMA House, Hope Street, Douglas,
Isle of Man, IM1 1AP, or at www.epicpe.com.
The Company has two wholly owned subsidiary companies. EPIC
Reconstruction Property Company (IOM) Limited, a company
incorporated on 29 October 2005 in the Isle of Man and Corvina
Limited, a company incorporated on 16 November 2012 in the Isle of
Man.
The Company also has interests in two partnerships that are
accounted for as associates. The partnerships comprise one limited
liability partnership, ESO Investments (PC) LLP, and one limited
partnership, ESO Investments 1 LP. The Company also has an interest
in a third partnership, ESO Investments 2 LP, through which new
investments will be made. As at 31 July 2014, ESO Investments 2 LP
had made no investments.
Following the approval of the Share Matching Plan at the Annual
General Meeting on 20 July 2012, the Company established an
employee benefit trust located in the Isle of Man to administer the
scheme.
2 Statement of compliance
These interim consolidated and company financial statements have
been prepared in accordance with IAS 34 Interim Financial
Reporting.
The interim consolidated financial statements do not include all
of the information required for full annual financial statements,
and should be read in conjunction with the consolidated financial
statements of the Group as at and for the year ended 31 January
2014.
The interim consolidated financial statements were approved by
the Board of Directors on 19 September 2014.
3 Significant accounting policies
The accounting policies applied by the Group in these interim
consolidated financial statements are the same as those applied by
the Group as at and for the year ended 31 January 2014.
Subsidiaries
The Company holds interests in ESO Investments 1 LP, ESO
Investments 2 LP and ESO Investments (PC) LLP, which are managed
and controlled by EPIC Private Equity LLP for the benefit of the
Company and the other members. The Company has the power to appoint
members to the investment committee of ESO Investments 1 LP, ESO
Investments 2 LP and ESO Investments (PC) LLP but does not have the
ability to direct the activities of ESO Investments 1 LP, ESO
Investments 2 LP and ESO Investments (PC) LLP. The Directors
consider that ESO Investments 1 LP, ESO Investments 2 LP and ESO
Investments (PC) LLP do not meet the definition of subsidiaries.
These entities are instead treated as associates.
4 Financial risk management
The Group financial risk management objectives and policies are
consistent with those disclosed in the consolidated financial
statements as at and for the year ended 31 January 2014.
5 Investment advisory fees
The investment advisory fee payable to EPIC Private Equity LLP
was, until 31 August 2010, calculated at 2% of the Group's Net
Asset Value ("NAV"), with a minimum of GBP325,000 payable per
annum. On 31 August 2010, the Investment Advisor agreed to waive
the fee from the Company for a period of two years in return for a
priority profit share paid from ESO Investments 1 LP. Consequently
the payment of fees has resumed at a rate of 2% per annum of the
Company's NAV (including its share of the Fund) plus VAT. The
charge for the current period was GBP369,973 (period ended 31 July
2013: GBP266,165, year ended 31 January 2014: GBP594,952).
6 Non-current assets
31 July 31 July 31 January
2014 2013 2014
------------------------------------- ----------- ----------- -----------
Group Group Group
GBP GBP GBP
------------------------------------- ----------- ----------- -----------
Financial assets
Investments in equity accounted
investees 32,477,270 25,972,474 34,050,939
Loans to equity accounted investees
and related companies 722,499 1,495,027 1,298,017
33,199,769 27,467,501 35,348,956
------------------------------------- ----------- ----------- -----------
The Investment Advisor has applied appropriate valuation methods
with reference to BVCA and IPEV guidelines and other valuation
methods with reference to the valuation principles of IFRS 13. As
all investments are unquoted, the valuation principles adopted are
classified as Level 3 in the IFRS 13 fair value hierarchy. The
investment advisor has also applied these methods with regard to
the underlying investments held by the equity accounted
investees.
Investment in equity accounted investees
Investments in equity accounted investees comprise the
investment in ESO Investments 1 LP and ESO Investments (PC) LLP
(formerly ESO Investments 2 LLP) which are stated at cost plus the
share of profit and loss to date. The equity accounted investees
have accounted for their equity investments at fair value.
During the period, the Company received GBP2,494,357 (year ended
31 January 2014: GBP5,140,000) from ESO Investments 1 LP.
Fair value hierarchy - Financial instruments measured at fair
value
The table below analyses the underlying investments held by the
equity accounted investees measured at fair value at the reporting
date by the level in the fair value hierarchy into which the fair
value measurement is categorised. Debt securities are also
included, as although stated at amortised cost, the Investment
Advisor assesses the fair value of the total investment, which
includes debt and equity. The amounts are based on the values
recognised in the statement of financial position. All fair value
measurements below are recurring. There are no other financial
assets or liabilities carried at fair value.
Summary of financial information of equity accounted investees
as at 31 July 2014 is as follows:
31 July
2014 31 January 2014
------------------ ---------------- ---------------- ------------ ---------------- ------------------------------
ESO Investments ESO Investments ESO Investments ESO Investments
(PC) LLP 1 LP Total (PC) LLP 1 LP Total
------------------ ---------------- ---------------- ------------ ---------------- ---------------- ------------
GBP GBP GBP GBP GBP GBP
Non-current
assets 5,077,936 43,737,943 48,815,879 5,100,000 47,428,504 52,528,504
Current assets 289,556 5,800,007 6,089,563 100 3,324,791 3,324,891
Total assets 5,367,492 49,537,950 54,905,442 5,100,100 50,753,295 55,853,395
------------------ ---------------- ---------------- ------------ ---------------- ---------------- ------------
Current
liabilities - (2,964,474) (2,964,474) (285,962) (1,015,559) (1,301,521)
Total liabilities - (2,964,474) (2,964,474) (285,962) (1,015,559) (1,301,521)
------------------ ---------------- ---------------- ------------ ---------------- ---------------- ------------
Group's share
of net assets 4,345,788 28,131,482 32,477,270 3,899,128 30,151,811 34,050,939
------------------ ---------------- ---------------- ------------ ---------------- ---------------- ------------
Income 55,974 616,439 672,413 80,000 1,753,679 1,833,679
Gains on
investments 500,000 465,859 965,859 799,644 15,004,508 15,804,152
Expenses (2,520) (112,261) (114,781) (14,633) (222,538) (237,171)
Profit 553,454 970,037 1,523,491 865,011 16,535,649 17,400,660
------------------ ---------------- ---------------- ------------ ---------------- ---------------- ------------
Group's share
of profit 446,659 474,026 920,685 701,927 9,752,431 10,454,358
------------------ ---------------- ---------------- ------------ ---------------- ---------------- ------------
In total, ESO 1 LP has now distributed GBP24.0 million: GBP15.1
million to ESO plc and GBP8.9 million to ESD. At the current
portfolio valuation the ESD minority interest equates to GBP11.4
million via the waterfall, which, together with GBP8.9 million of
distributions received to date by ESD, equates to a GBP20.2 million
total, or 2.0x money multiple.
To date ESD have received distributions representing a 0.9x
realised money multiple. Further distributions will therefore
continue to be apportioned between the limited partners in the
ratio 63% ESO : 37% ESD. This will continue until ESO 1 LP has
reached GBP43.9 million of distributions (representing GBP20.0
million of new distributions) and GBP15.0 million to ESD (1.5x
money multiple), at which point the value will be apportioned 75%
ESO : 25% ESD.
At the current portfolio valuation ESD has achieved the 2.0x
investment hurdle. Further increases in the value of the portfolio
will therefore continue to be apportioned between the limited
partners in the ratio 82% ESO : 18% ESD.
7 Financial assets and liabilities
Fair values of financial instruments
The fair values of financial assets and financial liabilities
that are traded in an active market are based on quoted market
prices. For all other financial instruments, the Group determines
fair values using other valuation techniques, based on the BVCA and
IPEV rules.
For financial instruments that trade infrequently and have
little price transparency, fair value is less objective, and
requires varying degrees of judgement depending on liquidity,
uncertainty of market factors, pricing assumptions and other risks
affecting the specific instrument.
The Group measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements:
-- Level 1: Inputs that are quoted market prices (unadjusted) in
active markets for identical instruments;
-- Level 2: Inputs other than quoted prices included within
Level 1 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category includes
instruments valued using; quoted market prices in active markets
for similar instruments; quoted prices for identical or similar
instruments in markets that are considered less than active; or
other valuation techniques in which all significant inputs are
directly or indirectly observable from market data;
-- Level 3: Inputs that are unobservable. This category includes
all instruments for which the valuation technique includes inputs
not based on observable data and the unobservable inputs have a
significant effect on the instrument's valuation. This category
includes instruments that are valued based on quoted prices for
similar instruments but for which significant unobservable
adjustments or assumptions are required to reflect differences
between the instruments. All of the Group's underlying investments
held by equity accounted investees are deemed as level 3 in the
fair value hierarchy.
Various valuation techniques may be applied in determining the
fair value of investments held as level 3 in the fair value
hierarchy. The objective of valuation techniques is to arrive at a
fair value measurement that reflects the price that would be
received to sell the asset or paid to transfer the liability in an
orderly transaction between market participants at the measurement
date.
Valuation models that employ significant unobservable inputs
require a higher degree of management judgement and estimation in
the determination of fair value. Management judgement and
estimation are usually required for the selection of the
appropriate valuation model to be used. As discussed below, the
Investment Advisor has selected to use the EBITDA multiple
valuation model in arriving at the fair value of investments held
as level 3 in the fair value hierarchy.
Valuation framework
The Group has developed a valuation framework with respect to
the measurement of fair values. The valuation of investments is
performed by the Investment Advisor, who determines fair values
using the BVCA and IPEV guidelines. The following approach is
used:
-- 'Fair value' is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date in the
principal or, in its absence, the most advantageous market to which
the Group has access at that date. The fair value of a liability
reflects its non-performance risk;
-- The EBITDA multiple valuation model is used, based on
budgeted EBITDA for the next financial year;
-- Loans made are stated at amortised cost but impairment tested
based on the enterprise value derived from the valuation.
Fair value hierarchy - Financial instruments measured at fair
value
The table below analyses the underlying investments held by the
equity accounted investees measured at fair value at the reporting
date by the level in the fair value hierarchy into which the fair
value measurement is categorised. Debt securities are also
included, as although stated at amortised cost, the Investment
Advisor assesses the fair value of the total investment, which
includes debt and equity. The amounts are based on the values
recognised in the statement of financial position. All fair value
measurements below are recurring. There are no other financial
assets or liabilities carried at fair value.
Level 3 Total
31 July 2014 GBP GBP
---------------------------------------- ----------- -----------
Financial assets at fair value through
profit or loss
Unlisted private equity investments 28,975,434 28,975,434
Debt securities, unlisted 20,785,383 20,785,383
Total investments 49,760,818 49,760,818
---------------------------------------- ----------- -----------
Significant unobservable inputs used in measuring fair value
The table below sets out information about significant
unobservable inputs used at 31 July 2014 in measuring financial
instruments categorised as Level 3 in the fair value hierarchy.
Description Fair value at 31 July 2014 Valuation technique
GBP
Unlisted private equity investments 28,975,434 EBITDA multiple
--------------------------- --------------------
Significant unobservable inputs are developed as follow:
-- EBITDA multiple: Represents amounts that market participants
would use when pricing the investments. EBITDA multiples are
selected from comparable public companies based on geographic
location, industry, size, target markets and other factors that
management considers to be reasonable. The traded multiples for the
comparable companies are determined by dividing the enterprise
value of the company by its EBITDA and further discounted for
considerations such as the lack of marketability and other
differences between the comparable peer group and specific
company.
-- The EBITDA multiple is applied to the budgeted EBITDA for the next financial year.
IFRS 13 requires disclosure, by class of financial instrument,
if the effect of changing one or more inputs to reasonably possible
alternative assumptions would result in a significant change to the
fair value measurement. The information used in determination of
the fair value of Level 3 investments is chosen with reference to
the specific underlying circumstances and position of the investee
company. On that basis, the Board believe that the impact of
changing one or more of the inputs to reasonably possible
alternative assumptions would not change the fair value
significantly.
8 Loans to/(from) equity accounted investees and related companies
31 July 2014 31 July 2013 31 January
2014
Group Group Group
GBP GBP GBP
-------------------------- ------------- ------------- -----------
ESO Investments 1 LP 512,055 512,055 512,055
EPIC Structured Finance
Limited 500,000 500,000 500,000
ESO Investments (PC) LLP (289,556) 482,972 285,962
722,499 1,495,027 1,298,017
-------------------------- ------------- ------------- -----------
The loans to equity accounted investees and related companies
are unsecured, interest free and not subject to any fixed repayment
terms.
9 Share capital
31 July 2014 31 July 2013 31 January 2014
------------------------ ------------------------ ------------------------
Number GBP Number GBP Number GBP
--------------------- ------------ ---------- ------------ ---------- ------------ ----------
Authorised share
capital
Ordinary shares
of 5p each 33,000,000 1,650,000 33,000,000 1,650,000 33,000,000 1,650,000
--------------------- ------------ ---------- ------------ ---------- ------------ ----------
Called up, allotted
and fully paid
Ordinary shares
of 5p each 30,688,222 1,534,411 30,802,911 1,540,146 30,688,222 1,534,411
Ordinary shares
of 5p each held
in treasury (3,178,030) - (2,992,719) - (3,178,030) -
27,510,192 1,534,411 27,810,192 1,540,146 27,510,192 1,534,411
--------------------- ------------ ---------- ------------ ---------- ------------ ----------
10 Basic and diluted earnings per ordinary share
The basic earnings per share is calculated by dividing the
profit for the period attributable to ordinary shareholders by the
weighted average number of shares outstanding during the period of
27,510,192 (six month period ended 31 July 2013: 28,119,630 after
share consolidation, year ended 31 January 2014: 27,900,351).
The diluted earnings per share is calculated by dividing the
profit for the period attributable to ordinary shareholders by the
weighted average number of shares outstanding during the period, as
adjusted for the effects of all dilutive potential ordinary shares
of 28,700,472 (six month period ended 31 July 2013: 28,778,809
after share consolidation, year ended 31 January 2014:
28,953,683).
11 Net asset value per share (pence)
The net asset value per share is based on the net assets at the
period end of GBP37,259,709 divided by 27,510,192 ordinary shares
in issue at the end of the period (31 July 2013: GBP30,354,458 and
27,810,192 ordinary shares, 31 January 2014: GBP37,240,518 and
27,510,192 ordinary shares).
The diluted net asset value per share of 129.82 pence, is based
on the net assets of the Group and the Company at the year-end of
GBP37,259,709 divided by the shares in issue at the end of the
year, as adjusted for the effects of dilutive potential ordinary
shares, of 28,700,472, after excluding treasury shares (31 July
2013: GBP30,354,458 and 28,469,371 ordinary shares, 31 January
2014: GBP37,240,518 and 28,563,524 ordinary shares).
12 Non-current liabilities
31 July 2014 31 July 2013 31 January
2014
Group Group Group
GBP GBP GBP
----------------------------------- ------------- ------------- -----------
Convertible loan note instruments 6,020,732 5,991,256 6,005,994
6,020,732 5,991,256 6,005,994
----------------------------------- ------------- ------------- -----------
Convertible loan note instruments were issued on 31 August 2010
to The Equity Partnership Investment Company plc. The notes carry
interest at 7.5% per annum and are convertible at the option of the
holder at a price of 170 pence per ordinary share. The convertible
shares fall under the definition of compound financial instruments
within IAS 32 Financial Instruments: Presentation. The Directors
are required to assess the element
of liability contained with the compound instrument. The
Directors consider that the instrument has no equity element.
Issue costs of GBP129,696 have been offset against the value of
the convertible loan note instruments and are being amortised over
the life of the instrument at an effective interest rate of 0.24%
per annum.
The convertible loan notes are repayable on 31 December 2015
unless the shareholders of the Company pass a resolution on or
before 30 September 2015 for the continuation of the Company beyond
31 December 2016, in which case the final repayment date shall be
31 December 2016, but each noteholder has the right to require the
redemption of some or all of their notes on 31 December 2015 by
providing the Company with written notice up to the close of
business on 30 November 2015.
13 Financial commitments and guarantees
Under the terms of the limited partnership agreement the Company
is committed to provide a maximum of GBP2.0 million additional
investment to ESO Investments 1 LP. To date no draw downs have been
made.
14 Subsequent events
There were no significant subsequent events.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR GGURGBUPCGMB
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