JZ CAPITAL
PARTNERS LIMITED (the "Company" or "JZCP")
(a closed-end investment company
incorporated with limited liability under the laws of Guernsey with
registered number 48761)
ANNUAL RESULTS FOR
THE TWELVE-MONTH PERIOD ENDED
28 FEBRUARY 2018
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section
1.1)
22 May
2018
JZ Capital Partners, the London
listed fund that invests in US and European micro-cap companies and
US real estate, announces its annual results for the twelve-month
period ended 28 February 2018.
Results and Portfolio Highlights
· NAV of $837.6 million (FYE 28/02/17: $848.8 million)
· NAV per share of $9.98 (FYE 28/02/17: $10.12)
· Total investments of
$96.5 million, including: Felix
Storch, ABTB (Taco Bell franchises) and properties in Brooklyn, New York and South Florida.
· Realisation proceeds of
$133.7 million, primarily through the
sale of Factor Energia, Fidor Bank, K2 Towers and
Neilsen-Kellerman.
· As of 28
February 2018, the portfolio comprised:
o US micro-cap: 21 businesses including four
‘verticals’ and 12 co-investments, across nine industries.
o European micro-cap: 17 companies across six
industries and seven countries.
o US real estate: 59 properties across five
major assemblages in New York and
South Florida all in various
stages of (re)/development.
· JZCP made two significant
post-period realisations (March
2018), both above net asset value: Paragon Water Systems and
Bolder Healthcare Solutions.
· Current and post-period
realisations provide approximately $250
million[1] (including escrows and distributions) in gross
proceeds to JZCP.
Outlook
· Balance sheet remains strong
with a healthy pipeline of realisation and investment opportunities
over the next 12 months.
· Renewed focus on rebalancing the
Company’s debt maturity profile over the course of the next fiscal
year.
· Discussions underway with
potential institutional joint venture partners to deleverage the
real estate portfolio.
David Zalaznick, JZCP’s
Founder and Investment Adviser, said: “We have made
significant progress in realising portfolio assets, at or above
NAV.
The positive uplifts to NAV from realisations over the past year
were offset by pre-development and carrying costs in our real
estate portfolio. However we are exploring partnerships with
several institutional investors to reduce the impact of these costs
going forward.
Our goal in the coming year is to continue to realise
investments and use the proceeds to buy back stock, make new
investments and pay down debt.”
David Macfarlane, Chairman of
JZCP, said: “The Board is delighted with the level of
investment and realisation activity during the period. The Company
continues to make excellent progress in building a diversified
portfolio of assets, both by geography and asset type. We look
ahead to the rest of the year with continued confidence.”
Presentation details:
There will be an audiocast presentation for investors and
analysts at 2pm UK (BST) /
9am US (EDT) on 22 May 2018. The presentation can be accessed
via https://bit.ly/2rNx2bm and by dialing +44
(0)330 336 9411 (UK) or +1 323-794-2094
(US) with the participant access
code 9762398.
A playback facility will be available two hours after the
conference call concludes. This facility may be accessed via the
following dial in details, using the same participant access code
as above: +44 (0) 207 660 0134 (UK) or +1
719-457-0820 (US).
For further information:
Ed Berry / Kit
Dunford
+44 (0) 20 3727 1046 / 1143
FTI Consulting
David Zalaznick
+1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Paul
Ford
+44 (0) 1481 745383
JZ Capital Partners
About JZ Capital Partners
JZ Capital Partners (“JZCP”) is one of the oldest closed-end
investment companies listed on the London Stock Exchange. It seeks
to provide shareholders with a return by investing selectively in
US and European microcap companies and US real estate. JZCP
receives investment advice from Jordan/Zalaznick Advisers, Inc.
(“JZAI”) which is led by David
Zalaznick and Jay Jordan.
They have worked together for more than 35 years and are supported
by teams of investment professionals in New York, Chicago, London and Madrid. JZAI’s experts work with the existing
management of micro-cap companies to help build better businesses,
create value and deliver strong returns for investors. For more
information please visit www.jzcp.com.
Chairman's Statement
I am pleased to report the results of JZ Capital Partners
(“JZCP” or the “Company”) for the twelve-month period ended
28 February 2018.
Performance
The Company’s performance over the last twelve months was set
against a backdrop of renewed business confidence and improving
global growth outlook, whilst the year was also marked by a series
of natural disasters, continued geopolitical tensions, and deep
political divisions in many countries.
Global GDP growth experienced its broadest cyclical upswing
since the start of the decade, boosted by a recovery in investment,
global trade growth and higher employment levels.
Meanwhile, the US economy continued to gain momentum in 2017,
delivering annual net growth of 2.7%, driven primarily by an uptick
in consumer confidence, strong corporate profits and a booming
stock market – currently the second-longest bull market in
history.
In Europe, the economy ended
2017 with its strongest growth in almost seven years, boosted by an
increase in service sector and manufacturing activity, and also
reflects years of monetary stimulus employed by the ECB aimed at
staving off deflation.
Within this market environment, the Board is pleased to announce
that JZCP has made excellent progress in realising a series of
investments (some post-period) at or above NAV. On a combined
basis, these realisations have returned gross proceeds to JZCP of
approximately $250.0 million and have
contributed a combined net 55 cents
in uplift to NAV during the fiscal year ended 28 February
2018.
Despite the uplifts from realisations over the past year, JZCP’s
net asset value ("NAV") per share declined 1.4% from $10.12 to $9.98;
the positive underlying performance of the US and European
micro-cap portfolio was offset principally by the pre-development
and carrying costs in our real estate portfolio.
Portfolio Update
It has been an active investment period for the Company, putting
$96.5 million to work across our
three major asset classes – whilst realising $133.7 million, primarily through the sale of
Factor Energia (“Factor”), K2 Towers and Fidor Bank.
At the end of the period, the Company’s portfolio consisted of
38 US and European micro-cap businesses across nine industries and
five primary real estate ‘assemblages’ (59 total properties)
located in Brooklyn, New York and
South Florida. The portfolio
continues to become more diversified geographically across
Western Europe with investments in
Spain, Italy, Portugal, Luxembourg, Scandinavia and the UK.
US and European Micro-cap
The Board is pleased with the positive performance of the US
micro-cap portfolio, which has delivered a net valuation increase
of 91 cents per share during the
period. This was primarily due to net accrued income (23 cents), increased earnings at Felix Storch
(17 cents) and our water vertical
(4 cents), and the successful
realisations of the Healthcare Revenue Cycle Management vertical
(44 cents), K2 Towers (11 cents) and Nielsen
Kellerman (2 cents).
The portfolio was valued at 8.3x EBITDA, after applying an
average 25% marketability discount to public comparables.
JZCP continues to implement its disciplined and value-oriented
investment approach targeting high quality micro- cap companies in
Western Europe, which now consists
of 17 companies across six industries and seven countries. JZCP
now, principally invests in the European micro-cap sector through
its 18.8% ownership of JZI Fund III, L.P. (“Fund III”). The
portfolio continues to perform well and has seen a valuation
increase of 2 cents per share.
Europe continues to be a
fertile ground for originating attractive investment opportunities
and during the period, the Company invested in four new businesses
through Fund III: Treee, Italy’s first nationwide recycler of
electric and electronic goods; Eliantus, a build-up of solar plants
in Spain; Bluemint, a build-up of
cell tower land leases in Portugal; and Luxida, a buy-and-build of
electricity distribution businesses in Spain.
Real Estate
The Company continues to make significant progress in building a
diversified portfolio of retail, office and residential properties
in Brooklyn, New York and
South Florida.
As of 28 February 2018, JZCP, in
partnership with its long-term real estate partner, RedSky Capital,
had invested approximately $388.5
million in 59 properties, all currently in various stages of
development and re-development.
Whilst the real estate portfolio is performing in line with
expectations, it produced a net decrease of 60 cents per share, primarily due to operating
expenses and debt service at the property level. The Company’s
ongoing discussions with a number of institutional joint venture
partners will look to address the impact of these costs on JZCP’s
NAV. The Company will update the market accordingly when those
discussions conclude.
Realisations
The Company generated realisations totalling $133.7 million, primarily through the sale of two
US micro-cap companies and two European micro-cap companies.
The Company realised its investment in Factor, a Spanish
electricity supplier to SMEs, for a gross multiple of capital
invested of 9.2x and a gross IRR of 42.3%. In addition, the Company
received proceeds of $28.7 million from the sale of K2 Towers, a
national acquirer of wireless communication towers based in the
US.
Post-period
As previously announced, the Board and the Investment Manager
consider that the ability to buy back Ordinary Shares and ZDPs is
beneficial to shareholders. As part of this, the Company commenced
its share buyback programme in April
2018.
Furthermore, the Board is delighted with two significant
post-period realisations significantly above net asset value, in
March 2018. JZCP expects to receive
gross proceeds of $110.0 million from
the sale of Bolder Healthcare Solutions, representing a 4.5% uplift
to NAV. The Company also expects to receive gross proceeds of
$16.2 million from the sale of
Paragon Water Systems, representing a gross multiple of invested
capital of approximately 1.8x and a gross internal rate of return
of approximately 18.4%.
Board
Patrick Firth has served as
Chairman of JZCP’s Audit Committee since the incorporation of the
Company in 2008. Patrick therefore intends to retire as Chairman of
the Audit Committee and as a Director. The Board is grateful to him
for the substantial contribution that he has made to the Company
and wishes him well. The process for appointing Patrick’s successor
is underway and he has kindly agreed to continue on the board for a
sufficient period to ensure a smooth transition to his successor.
The Board is also reviewing the wider issues of board refreshment
and succession.
Outlook
We are pleased with the strong performance of the underlying
portfolio and the level of realisation activity during the
period.
The Company remains focused on unlocking liquidity from its
mature investments, refinancings and partnerships, and redeploying
capital into investment opportunities in Western Europe and the US and the Company’s
share buyback programme. We also intend to refocus our efforts on
rebalancing the Company’s debt maturity profile and paying down
existing debt over the course of the next fiscal year.
The Board remains confident that the Company is well-positioned
to tackle the ongoing discount to NAV through positive investment
performance, further successful realisations and the ability of the
Company to buy back shares.
David Macfarlane
Chairman
21 May 2018
Investment Adviser's Report
Dear Fellow Shareholders,
Our primary goal during the past fiscal year has been to achieve
liquidity through realisations and refinancings. Once achieved, we
plan to use the proceeds to make new investments, buy back stock or
repay company debt. Importantly, with each successive realisation
at or above net asset value (“NAV”), we hope to prove to the market
that JZCP’s NAV is solid.
Over the past six months, we have realised five investments at
or above NAV: Factor Energia, K2 Towers, Nielsen-Kellerman, Paragon
(post-period) and Bolder Healthcare (post-period). On a combined
basis, these realisations have returned gross proceeds to JZCP of
approximately $250.0
million1 (including escrows and interim
distributions) and have contributed a combined net 55 cents in uplift to NAV during the fiscal year
ended 28 February 2018.
Post year end, we have begun to buy back our stock at a
significant discount to NAV and plan to continue doing so as it
represents an excellent investment opportunity for the Company. We
also intend to pay down a portion of JZCP’s existing debt over the
coming fiscal year.
Even though we had significant uplifts from realisations over
the past year, JZCP’s NAV per share fell 1.4%, from $10.12 at 28 February 2017 to $9.98 at 28 February
2018, primarily due to pre-development and carrying costs at
our real estate portfolio. We are in the process of discussing
joint venture partnerships with a number of institutional investors
which will reduce this drag on NAV as well as provide liquidity
from our real estate portfolio. We hope to have further news
regarding this in the coming months. Unless otherwise stated,
figures included in this report refer to the twelve-month period
ended 28 February 2018.
We have had a very busy year in each of our major asset classes
- US and European micro-cap and US real estate - which continue to
perform well. During the period, JZCP invested a total of
$96.5 million, including new
investments in Felix Storch and ABTB (Taco Bell franchises) and
follow-on investments in Avante Health Solutions, Peaceable Street
Capital and properties in Brooklyn, New
York and South Florida. We
are very excited about these investments, a number of which are
featured in the Investment Review section of this annual
report.
As of 28 February 2018, our US
micro-cap portfolio consisted of 21 businesses, which includes four
‘verticals’ and 12 co-investments, across nine industries; this
portfolio was valued at 8.3x EBITDA, after applying an average 25%
marketability discount to public comparables. The average
underlying leverage senior to JZCP’s position in our US micro-cap
portfolio is 3.5x EBITDA. Consistent with our value-oriented
investment strategy, we have acquired our current US micro-cap
portfolio at an average 6.1x EBITDA; we paid 4.1x EBITDA on average
for US micro-cap acquisitions made during the period.
Our European micro-cap portfolio consisted of 17 companies
across six industries and seven countries. The European micro-cap
portfolio has low leverage senior to JZCP’s position, of under 2.0x
EBITDA.
Our US real estate portfolio consists of 59 properties and can
be grouped primarily into five major ‘assemblages’, located in the
Williamsburg, Greenpoint and Downtown/Fulton Mall neighbourhoods of
Brooklyn, New York, and the
Wynwood and Design District neighbourhoods of Miami, Florida. Our assemblages are comprised
of adjacent or concentrated groupings of properties that can be
developed, financed and/or sold together at a higher valuation than
on a stand-alone basis.
1 Factor Energia total gross proceeds of approximately €69.7
million ($85.0 million) (including
interim distributions and future expected proceeds all multiplied
by a theoretical, illustrative exchange rate of $1.22 to €1.00, which is current as of
25 April 2018 per Oanda.com). K2 Towers total expected gross
proceeds of approximately $31.3
million. Nielsen-Kellerman total gross proceeds of
approximately $8.6 million. Paragon
(post-period) expected total gross proceeds of $16.2 million. Bolder Healthcare Solutions
(post-period) expected total gross proceeds of approximately
$110.0 million.
Net Asset Value ("NAV")
JZCP’s NAV per share fell 1.4% during the period, from
$10.12 at 28
February 2017 to $9.98 at
28 February 2018.
NAV bridge
|
|
|
|
|
|
|
|
|
|
$10.12 |
Change in NAV due to capital gains
and accrued income |
|
|
|
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|
|
+ US Micro-cap |
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|
|
|
|
|
|
|
|
0.91 |
+ European Micro-cap |
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|
|
|
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|
0.02 |
- Real Estate |
|
|
|
|
|
|
|
|
|
(0.60) |
- Other Investments |
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|
|
|
|
|
|
|
(0.08) |
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|
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|
|
|
|
|
|
|
|
Other increases/(decreases) in
NAV |
|
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|
|
|
|
|
|
|
|
+ Change in CULS market price |
|
|
|
|
|
|
|
|
|
0.03 |
+ Foreign exchange
effect2 |
|
|
|
|
|
|
|
|
|
0.08 |
- Finance costs |
|
|
|
|
|
|
|
|
|
(0.21) |
- Expenses and taxation3 |
|
|
|
|
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|
|
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|
(0.29) |
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|
$9.98 |
2 Includes FX gains of 22 cents
relating to currency translation of investments and FX losses of
7 cents relating to the translation
of CULS.
3 Includes an incentive fee provided for on capital gains
of 4 cents.
The US micro-cap portfolio performed well during the period,
delivering a net increase of 91
cents. This was primarily due to net accrued income of
23 cents, increased earnings at
co-investment Felix Storch (17 cents)
and writing our Healthcare Revenue Cycle Management vertical, K2
Towers and Nielsen Kellerman
investments up to their sale values (44
cents, 11 cents and
2 cents, respectively). Also
contributing to the positive portfolio performance were increases
at our logistics vertical (1 cent),
water vertical (4 cents) and
co-investment business Avante (2
cents). We also received 2 cents of escrow payments
during the period.
Offsetting these increases were declines at our Industrial
Services Solutions (“ISS”) vertical (13
cents) and Nationwide, our school photography business
(2 cents).
The European micro-cap portfolio continued its positive
trajectory, posting a net increase of 2
cents, primarily due to accrued income of 8 cents, write-ups at JZI Fund III, LP (“Fund
III”) portfolio companies Collingwood and S.A.C (4 cents combined) and a net positive carried
interest adjustment of 2 cents. These
gains were offset by write-downs at Factor Energia (6 cents) and Oro Direct (6
cents).
The real estate portfolio experienced a net decrease of
60 cents, primarily due to operating
expenses, including significant pre-development costs, and debt
service at the property level.
Returns
The chart below summarises cumulative total shareholder returns
and total NAV returns for the most recent three-month, one-year,
three-year and five-year periods.
|
28.2.2018 |
30.11.2017 |
28.2.2017 |
28.2.2015 |
28.2.2013 |
Share price (in GBP) |
£4.51 |
£5.09 |
£5.38 |
£4.09 |
£5.02 |
NAV per share (in USD) |
$9.98 |
$9.91 |
$10.12 |
$10.85 |
$9.69 |
NAV to market price discount |
38% |
31% |
34% |
42% |
21% |
|
|
3
month return |
1
year return |
3
year return |
5
year return |
Dividends paid (in USD) |
|
$0.00 |
$0.00 |
$0.64 |
$1.245 |
Total Shareholders'
return4 |
|
-11.3% |
-16.2% |
20.7% |
8.2% |
Total NAV return per
share4 |
|
0.7% |
-1.4% |
-2.0% |
16.7% |
4Total returns are cumulative and assume that
dividends were reinvested.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography,
with 38 US and European micro-cap investments across nine
industries and five primary real estate ‘assemblages’ (59 total
properties) located in Brooklyn, New
York and South Florida. The
portfolio continues to become more diversified geographically
across Western Europe with
investments in Spain, Italy, Portugal, Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP’s assets and liabilities at
28 February 2018 as compared to
28 February 2017. An explanation of
the changes in the portfolio follows:
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
US micro-cap portfolio |
|
|
|
488,258 |
|
423,137 |
|
|
European micro-cap portfolio |
|
|
|
103,457 |
|
154,277 |
|
|
Real estate portfolio |
|
|
|
463,391 |
|
468,599 |
|
|
Other investments |
|
|
|
15,302 |
|
23,167 |
|
|
|
|
|
|
|
|
|
|
|
Total Private Investments |
|
|
|
1,070,408 |
|
1,069,180 |
|
|
|
|
|
|
|
|
|
|
|
Treasury bills |
|
|
|
49,975 |
|
- |
|
|
Cash and cash
equivalents6 |
|
|
|
33,987 |
|
29,063 |
|
|
|
|
|
|
|
|
|
|
|
Total Listed Investments and
Cash |
|
|
|
83,962 |
|
29,063 |
|
|
|
|
|
|
|
|
|
|
|
Other assets |
|
|
|
2,158 |
|
520 |
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
|
1,156,528 |
|
1,098,763 |
|
|
|
|
|
|
|
|
|
|
|
Zero Dividend Preferred shares |
|
|
|
62,843 |
|
53,935 |
|
|
Convertible Unsecured Loan Stock |
|
|
|
59,970 |
|
57,063 |
|
|
Loans payable |
|
|
|
150,125 |
|
97,396 |
|
|
Investment Adviser's incentive fee |
|
|
|
41,606 |
|
37,293 |
|
|
Investment Adviser's base fee |
|
|
|
2,225 |
|
2,026 |
|
|
Other payables |
|
|
|
2,186 |
|
2,206 |
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
|
318,955 |
|
249,919 |
|
|
|
|
|
|
|
|
|
|
|
Total Net Assets |
|
|
|
837,573 |
|
848,844 |
As previously announced, in April
2017 JZCP increased its loan facility with Guggenheim
Partners from approximately $100 million to $150 million. The entire $150 million facility may be repaid, in whole or
in part, at any time, without any prepayment penalties.
6 Cash and cash equivalents includes cash held of $9.0 million and $25.0
million being receivables from the sale of Treasury Bills
(received 1 March 2018).
US Micro-Cap Portfolio
As you know from previous reports, our US portfolio is grouped
into industry ‘verticals’ and co-investments. Our ‘verticals’
strategy focuses on consolidating businesses under industry
executives who can add value via organic growth and cross company
synergies. Our co-investments strategy allows for greater
diversification of our portfolio by investing in larger companies
alongside well known private equity groups.
New US investments -
verticals |
|
|
Vertical |
# Acquisitions |
|
JZCP Investment
($ millions) |
|
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|
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|
Technical Solutions |
|
|
2 |
|
|
|
1.2 |
|
|
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|
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|
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|
|
|
|
2 |
|
|
|
1.2 |
|
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|
|
New US investments - co-investments |
|
|
Vertical |
New/Follow-on |
|
JZCP Investment
($ millions) |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
ABTB (Taco Bell franchises) |
|
|
New |
|
|
|
8.8 |
|
|
K2 Towers II |
|
|
New |
|
|
|
4.2 |
|
|
Peaceable Street Capital |
|
|
Follow-on |
|
|
|
3.0 |
|
|
Sloan LED |
|
|
Follow-on |
|
|
|
1.1 |
|
|
New Vitality |
|
|
Follow-on |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17.2 |
|
|
Portfolio Company |
New/Follow-on |
|
JZCP Investment
($ millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Felix Storch |
|
|
New |
|
|
|
12.0 |
|
|
Avante Health Solutions (f/k/a Jordan
Health Products) |
Follow-on |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16.5 |
European micro-cap portfolio
The European micro-cap portfolio continued its positive
trajectory over the past year (net increase of 2 cents), highlighted by the sale of Factor
Energia (“Factor”) for an approximate gross multiple of invested
capital of 9.2x and an approximate gross IRR of 42.3% in
euro-denominated terms. JZCP expects to receive total gross
proceeds (before carry) from Factor of approximately €69.7 million
(including deferred payments and interim distributions received
over the course of the investment). Although inconsistent with the
exceptional returns described above, we wrote down Factor by
6 cents over the year to approximate
its sale value as the transaction became formalised.
JZCP currently invests in the European micro-cap sector through
its approximately 18.8% ownership of JZI Fund III, L.P. (“Fund
III”). As of 28 February 2018, Fund
III held 12 investments: five in Spain, two in Scandinavia, two in Italy and one each in the UK, Portugal and Luxembourg. JZCP held direct loans to a
further four companies in Spain:
Ombuds, Docout, Xacom and Toro Finance.
JZAI has offices in London and
Madrid and an outstanding team
with over fifteen years of experience investing together in
European micro-cap deals.
Recent Events
During the period, JZCP acquired stakes in four new businesses
via its ownership in Fund III: (i) Treee, Italy’s first nationwide
recycler of electric and electronic goods, (ii) Eliantus, a
build-up of solar plants in Spain,
(iii) Bluemint, a build-up of cell tower land leases in
Portugal, and (iv) Luxida, a
buy-and-build of electricity distribution businesses in
Spain.
Additionally, as part of Factor’s acquisition (described above)
by a public-sector asset manager, on behalf of a major Canadian
pension fund, Fund III agreed to invest €20 million alongside the
majority owner and Factor management, representing approximately
25% of the business’ fully diluted equity ownership.
JZCP also made follow-on investments in My Lender, a consumer
lending business in Finland, and
Alianzas en Aceros, a steel transformation company in Spain, both of which are owned by Fund
III.
In March and December 2017, JZCP
received proceeds totalling $23.5
million from the sale of portfolio company Fidor Bank to
Groupe BPCE, the second largest banking group in France. The transaction had closed in
December 2016. JZCP invested a total
of $13.8 million in the business.
In July 2017, JZCP received
proceeds totalling $1.5 million from
the refinancing of Petrocorner, a build-up of petrol stations in
Spain, and a distribution on loan
notes from Collingwood, a niche motor insurance business in the
UK.
Real Estate Portfolio
We are very excited with the progress of our first ground-up
development in South Florida, CUBE
Wynwd (the “CUBE”), a development project in Miami’s Wynwood
neighbourhood totalling 90,000 square feet and featuring seven
stories of office space geared towards tech and media businesses
and ground floor retail space.
JZCP anticipates excellent returns from the CUBE, underpinned by
(i) having acquired the land at a significant discount to market
comparables and (ii) having pre-leased approximately 30% of the
building to Spaces, a full service, creative co-working environment
with a unique entrepreneurial spirit. We are experiencing strong
interest from potential tenants to lease the remaining available
space at the CUBE and we expect to deliver the project to our
anchor tenant in the first quarter of 2019.
Wynwood, where we own four additional development sites and one
cash flowing retail property, is an exciting neighbourhood that can
be described as the “Williamsburg of Miami”. The vibrant atmosphere
is attracting tech and other businesses to office spaces in the
neighbourhood where their employees would like to work. We have
significantly progressed development plans for our other sites in
the neighbourhood and look forward to reporting further on our
progress in Wynwood over the coming year.
As of 28 February 2018, JZCP had
approximately $388.5 million invested
in a portfolio of retail, office and residential properties in
Brooklyn, New York, and
South Florida which is valued at
$463.4 million as of that date. We
have made these investments alongside our long-term real estate
partner, RedSky Capital, a team with significant experience in the
sector.
Since we began investing with RedSky in April 2012, we have acquired a total of 59
properties, all currently in various stages of development and
re-development.
The real estate portfolio had a net decrease of 60 cents, primarily due to operating expenses and
debt service at the property level.
Real estate investments during the
period |
|
|
|
|
|
JZCP Investment
($ millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Follow-ons & expenses |
|
|
|
|
|
47.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47.2 |
Other investments
Our asset management business in the US, Spruceview Capital
Partners, addresses the growing demand from corporate pensions,
endowments, family offices and foundations for fiduciary management
services through an Outsourced Chief Investment Officer (“OCIO”)
model. Spruceview has a robust pipeline of opportunities and has
recently added another international pension OCIO client in the
second quarter of 2018.
Spruceview continues to provide investment oversight to the
pension fund of a Canadian subsidiary of an international packaged
foods company, a European private credit fund-of-funds, and
portfolios for family office clients.
As previously reported, Richard
Sabo, former Chief Investment Officer of Global Pension and
Retirement Plans at JPMorgan and a member of that firm’s executive
committee, is leading a team of 14 investment, business
development, legal and operations professionals.
Realisations
|
|
|
|
|
|
|
Proceeds |
|
|
Investment |
|
|
Portfolio |
|
$
millions |
|
|
Factor Energia - Sale |
|
|
Europe |
|
54.7 |
|
|
K2 Towers - Sale |
|
|
U.S. |
|
28.7 |
|
|
Fidor - Sale |
|
|
Europe |
|
23.5 |
|
|
Nielsen-Kellerman - Sale |
|
|
U.S. |
|
8.6 |
|
|
Avante Health Solutions (f/k/a Jordan
Health Products)-Recapitalisation |
|
U.S. |
|
7.6 |
|
|
Bright Spruce Fund - Liquidation |
|
|
Other |
|
4.7 |
|
|
JZ Realty - Flatbush Sale &
Esperante Distribution |
Real Estate |
|
2.5 |
|
|
Escrows |
|
|
U.S. |
|
1.9 |
|
|
JZI Fund III - Petrocorner &
Collingwood Distribution |
Europe |
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133.7 |
As previously mentioned, JZCP made two post-period realisations
(March 2018), both significantly
above NAV: Paragon Water Systems (“Paragon”) and Bolder Healthcare
Solutions (“BHS”).
Paragon Water Systems
In March 2018, Paragon was
acquired by Culligan Water, the
world leader in residential, office, commercial and industrial
water treatment.
Founded in 1988 and headquartered in Tampa, Florida, Paragon develops and produces
“point-of-use” water filtration products for leading global
Original Equipment Manufacturer (“OEM”) clients, big brand
suppliers to specialty and big box retailers, direct sales
organisations and companies with national or international water
filtration dealership networks.
JZCP expects to realise approximately $16.2 million in gross proceeds (including
escrows) from the sale, representing an increase of approximately
$3.7 million, or 29.6% on the
carrying value of Paragon of approximately $12.5 million as of 31
January 2018. This transaction represents a gross multiple
of invested capital (“MOIC”) of approximately 1.8x and a gross
internal rate of return (“IRR”) of approximately 18.4%.
Bolder Healthcare Solutions
In March 2018, BHS was acquired by
a subsidiary of Cognizant, one of the world's leading professional
services companies.
Headquartered in Louisville,
Kentucky, BHS offers a full suite of healthcare revenue
cycle management services to the hospital and physician marketplace
in the United States. BHS was
formed through a co-investment partnership between JZCP and the
Edgewater Funds.
JZCP will realise approximately $110.0
million in gross proceeds from this sale (including
escrows), which represents an increase in NAV of approximately
$37.1 million, or 4.5% of NAV, as of
January 31, 2018.
Outlook
We hope to build on the significant momentum we have achieved
during the period, following the successful realisations of Factor
Energia, K2 Towers, Nielsen-Kellerman, Paragon (post-period) and
Bolder Healthcare (post period). With regards to our real estate
portfolio, we are in the process of discussing joint venture
partnerships with a number of institutional investors, which will
provide JZCP liquidity for a portion of its investment as well as
reduce the drag on NAV due to pre-development carrying costs for
the properties.
Our goal is to re-deploy the liquidity unlocked from
realisations, refinancings and partnerships into making new
investments and buying back our stock at a significant discount. In
addition, we hope to pay down a portion of the Company’s existing
debt over the coming fiscal year.
Our continued objective is to validate JZCP’s NAV and we are
confident that further realisations will enhance this
validation.
We are also pleased to have initiated our share buyback
programme in April 2018, and fully
intend to continue repurchasing our own shares following the
“closed period”. While JZCP’s ordinary shares were down by 16.2%
for the year, they have rebounded since 28
February 2018 by approximately 7% in value.
We remain committed to pursuing our value-added investment
strategy and are pleased with the current composition of JZCP’s
portfolio, which we believe is well-balanced by geography and asset
type.
As always, we thank you for your continued support in our
investment strategy. Please feel free to contact us with any
ideas that might be beneficial to JZCP.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
21 May 2018
Investment Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 February 2018 |
|
|
|
Cost(1) |
|
Value |
|
Percentage of Portfolio |
|
|
US$'000 |
|
US$'000 |
|
|
% |
|
|
|
|
|
|
|
|
US Micro-cap portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Micro-cap
(Verticals) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Services
Solutions(4) |
|
|
|
|
|
|
|
INDUSTRIAL SERVICES SOLUTIONS
(“ISS”)
A combination of twenty seven acquired businesses in the industrial
maintenance, repair and service industry |
|
|
|
|
|
|
|
Total Industrial Services Solutions
valuation |
|
33,174 |
|
77,885 |
|
|
7.0 |
|
|
|
|
|
|
|
|
Healthcare Revenue Cycle
Management(4) |
|
|
|
|
|
|
|
BOLDER HEALTHCARE SOLUTIONS |
|
|
|
|
|
|
|
BHS HOSPITAL SERVICES
Provider of outsourced revenue cycle management solutions to
hospitals. BHS Hospital Services, which owns Bolder
Outreach Services (formerly known as Monti Eligibility & Denial
Solutions), Receivables
Outsourcing and Avectus Healthcare
Solutions is a subsidiary of Bolder Healthcare
Solutions |
|
|
|
|
|
|
0.0 |
BHS PHYSICIAN SERVICES
Provider of outsourced revenue cycle management solutions to
physician groups. BHS Physician Services, which
owns Bodhi Tree Group and PPM
Information Solutions is a subsidiary of Bolder
Healthcare Solutions |
|
|
|
|
|
|
0.0 |
Total Healthcare Revenue Cycle
Management vertical valuation |
30,327 |
|
108,026 |
|
|
9.6 |
|
|
|
|
|
|
|
|
Testing Services
Holdings(4) |
|
|
|
|
|
|
|
TECHNICAL SOLUTIONS AND SERVICES
Sells, rents and services safety & testing
equipment and sells protective & safety apparel to a variety of
industries. Technical Solutions and Services is a subsidiary of
Testing Services Holdings |
|
|
|
|
|
|
|
Total Technical Solutions and
Services Vertical valuation |
|
12,854 |
|
12,425 |
|
|
1.1 |
|
|
|
|
|
|
|
|
Water Services(4) |
|
|
|
|
|
|
|
WATERLINE RENEWAL TECHNOLOGIES
Environmental infrastructure company that provides technology to
facilitate repair of underground pipes and other infrastructure.
TWH Infrastructure Industries, Inc., which owns LMK
Enterprises, Perma-Liner Industries
and APMCS is a subsidiary of Triwater
Holdings |
|
|
|
|
|
|
|
WATER TREATMENT SYSTEMS
Provider of water treatment supplies and services. TWH Water
Treatment Industries, Inc., which owns Nashville Chemical
& Equipment, Klenzoid Canada Company/Eldon
Water and Chemco, is a subsidiary of Triwater
Holdings |
|
|
|
|
|
|
|
WATER FILTRATION SYSTEMS
Supplier of parts and filters for point-of-use filtration systems,
which owns Paragon Water Systems, is a subsidiary
of Triwater Holdings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Water Services Vertical
valuation |
|
24,730 |
|
39,126 |
|
|
3.5 |
Total US Micro-cap
(Verticals) |
|
101,085 |
|
237,462 |
|
|
21.2 |
|
|
|
|
|
|
|
|
US Micro-cap
(Co-investments) |
|
|
|
|
|
|
|
ABTB
Acquirer of franchises within the fast-casual eateries and
quick-service restaurants sector |
|
8,760 |
|
8,760 |
|
|
0.8 |
GEORGE INDUSTRIES
Manufacturer of highly engineered, complex and high tolerance
products for the aerospace, transportation, military and other
industrial markets |
|
12,639 |
|
12,637 |
|
|
1.1 |
IGLOO(4
Designer, manufacturer and marketer of coolers and outdoor
products |
|
6,040 |
|
6,040 |
|
|
0.5 |
K2 TOWERS II
Acquirer of wireless communication towers |
|
4,211 |
|
4,211 |
|
|
0.4 |
NEW VITALITY(4)
Direct-to-consumer provider of nutritional supplements and personal
care products |
|
3,622 |
|
3,994 |
|
|
0.4 |
ORIZON(4)
Manufacturer of high precision machine parts and tools for
aerospace and defence industries |
|
15,843 |
|
15,843 |
|
|
1.4 |
PEACEABLE STREET CAPITAL
Specialty finance platform focused on commercial real estate
|
|
28,041 |
|
27,673 |
|
|
2.5 |
SALTER LABS(4
Developer and manufacturer of respiratory medical products and
equipment for the homecare, hospital, and sleep disorder
markets |
|
16,762 |
|
21,529 |
|
|
1.9 |
SLOAN LED(4),(6)
Designer and manufacturer of LED lights and lighting systems |
|
6,030 |
|
3,044 |
|
|
0.3 |
SUZO HAPP GROUP(4)
Designer, manufacturer and distributor of components for the global
gaming, amusement and industrial markets |
|
2,572 |
|
11,700 |
|
|
1.0 |
TIERPOINT(4)
Provider of cloud computing and collocation data centre
services |
|
44,313 |
|
46,813 |
|
|
4.2 |
VITALYST(4)
Provider of outsourced IT support and training services |
|
9,020 |
|
8,192 |
|
|
0.7 |
Total US Micro-cap
(Co-investments) |
|
157,853 |
|
170,436 |
|
|
15.2 |
|
|
|
|
|
|
|
|
US Micro-cap (Other) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FELIX STORCH
Supplier of specialty, professional, commercial, and medical
refrigerators and freezers, and cooking appliances |
|
12,000 |
|
27,342 |
|
|
2.4 |
HEALTHCARE PRODUCTS
HOLDINGS(1),(3)
Designer and manufacturer of motorised vehicles |
|
17,636 |
|
- |
|
|
- |
AVANTE HEALTH SOLUTIONS
Provider of new and professionally refurbished healthcare
equipment |
|
30,641 |
|
33,133 |
|
|
3.0 |
NATIONWIDE STUDIOS
Processer of digital photos for preschoolers |
|
23,599 |
|
10,024 |
|
|
0.9 |
PRIORITY EXPRESS
Provider of same day express courier services to various companies
located in north-eastern USA. Priority Express is a subsidiary of
US Logistics |
|
13,200 |
|
9,861 |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total US Micro-cap
(Other) |
|
97,076 |
|
80,360 |
|
|
7.2 |
|
|
|
|
|
|
|
|
Total US Micro-cap portfolio |
|
356,014 |
|
488,258 |
|
|
43.6 |
|
|
|
|
|
|
|
|
European Micro-cap portfolio |
|
|
|
|
|
|
|
EUROMICROCAP FUND 2010, L.P.
Invested in European Micro-cap entities |
|
- |
|
33 |
|
|
- |
EUROMICROCAP FUND-C, L.P.
Invested in European Micro-cap entities |
|
- |
|
3,784 |
|
|
0.3 |
JZI FUND III, L.P.
At 28 February 2018, was invested in twelve companies in the
European micro-cap sector: Petrocorner, Fincontinuo, S.A.C,
Collingwood, My Lender, Alianzas en Aceros, ERSI, Treee, Eliantus,
Factor Energia, Bluemint and Luxida |
|
30,987 |
|
42,291 |
|
|
3.8 |
|
|
|
|
|
|
|
|
Direct Investments |
|
|
|
|
|
|
|
DOCOUT
Provider of digitalisation, document processing and storage
services |
|
2,777 |
|
4,010 |
|
|
0.3 |
OMBUDS
Provider of personal security, asset protection and facilities
management services |
|
17,198 |
|
26,764 |
|
|
2.4 |
TORO FINANCE
Provides short term receivables finance to the suppliers of major
Spanish companies |
|
21,619 |
|
22,498 |
|
|
2.0 |
XACOM
Supplier of telecom products and technologies |
|
2,055 |
|
4,077 |
|
|
0.4 |
Total European Micro-cap
portfolio |
|
74,636 |
|
103,457 |
|
|
9.2 |
|
|
|
|
|
|
|
|
Real Estate portfolio |
|
|
|
|
|
|
|
JZCP REALTY(2)
Facilitates JZCP's investment in US real estate |
|
388,509 |
|
463,391 |
|
|
41.4 |
Total Real Estate portfolio |
|
388,509 |
|
463,391 |
|
|
41.4 |
|
|
|
|
|
|
|
|
Other investments |
|
|
|
|
|
|
|
BSM ENGENHARIA
Brazilian-based provider of supply chain logistics, infrastructure
services and equipment rental |
|
6,115 |
|
459 |
|
|
- |
JZ INTERNATIONAL(3)
Fund of European LBO investments |
|
- |
|
750 |
|
|
0.1 |
SPRUCEVIEW CAPITAL
Asset management company focusing primarily on managing
endowments and pension funds |
|
25,010 |
|
14,093 |
|
|
1.3 |
Total Other investments |
|
31,125 |
|
15,302 |
|
|
1.4 |
|
|
|
|
|
|
|
|
LISTED INVESTMENTS |
|
|
|
|
|
|
|
US TREASURY BILLS 15.3.2018 |
|
49,845 |
|
49,975 |
|
|
4.4 |
|
|
|
|
|
|
|
|
Total Listed investments |
|
49,845 |
|
49,975 |
|
|
4.4 |
|
|
|
|
|
|
|
|
Total - portfolio |
|
900,129 |
|
1,120,383 |
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Original book cost incurred by JZEP/JZCP adjusted for subsequent transactions. The book cost represents cash outflows and excludes PIK investments.
(2) JZCP owns 100% of the shares and voting
rights of JZCP Realty Ltd.
(3)
Legacy Investments. Legacy investments are excluded from the calculation of capital and income incentive fees.
(4)
Co-investment with Fund A, a
Related Party (Note 24).
(5)
Jordan Health Products was rebranded as Avante.
(6) Sloan LED was previously named Illumination Investments, Llc in
the February 2017 investment
portfolio.
Board of Directors
David Macfarlane (Chairman)1
Mr Macfarlane was appointed to the Board of JZCP in April 2008 as Chairman and a non-executive
Director. Until 2002 he was a Senior Corporate Partner at Ashurst.
He was a non-executive director of the Platinum Investment Trust
Plc from 2002 until January 2007.
Patrick Firth2
Mr Firth was appointed to the Board of JZCP in April 2008. He is also a director of a number of
offshore funds and management companies, including ICG-Longbow
Senior Secured UK Property Debt Investments Limited, Riverstone
Energy Limited and NextEnergy Solar Fund Limited. He is Chairman of
GLI Finance Limited. He is a member of the Institute of Chartered
Accountants in England and
Wales and The Chartered Institute
for Securities and Investment. He is a resident of Guernsey.
James
Jordan
Mr Jordan is a private investor who was appointed to the Board
of JZCP in 2008. He is a director of the First Eagle family of
mutual funds, and of Alpha Andromeda Investment Trust Company, S.A.
Until 30 June 2005, he was the
managing director of Arnhold and S. Bleichroeder Advisers, LLC, a
privately owned investment bank and asset management firm; and
until 25 July 2013, he was a
non-executive director of Leucadia National Corporation. He is an
Overseer of the Gennadius Library of the American School of
Classical Studies in Athens and is
a Director of Pro Natura de Yucatan.
Tanja Tibaldi
Ms Tibaldi was appointed to the Board of JZCP in April 2008. She was on the board of JZ Equity
Partners Plc from January 2005 until
the company's liquidation on 1 July
2008. She was managing director at Fairway Investment
Partners, a Swiss asset management company where she was
responsible for the Group's marketing and co- managed two fund of
funds. Previously she was an executive at the Swiss Stock Exchange
and currently serves on the board of several private companies.
Christopher Waldron
Mr Waldron was appointed to the Board of JZCP in 2013. He has
more than thirty years’ experience as an asset manager and director
of investment funds. He is Chairman of UK Mortgages Limited, Ranger
Direct Lending PLC and Crystal Amber Fund Limited. He began his
career with James Capel and
subsequently held investment management positions with Bank of
Bermuda, the Jardine Matheson
Group and Fortis prior to joining the Edmond de Rothschild Group in
Guernsey as Investment Director in 1999. He was appointed Managing
Director of the Edmond de Rothschild companies in Guernsey in 2008,
a position he held until 2013, when he stepped down to concentrate
on non-executive work and investment consultancy. He is a member of
the States of Guernsey’s Investment and Bond Management
Sub-Committee and a Fellow of the Chartered Institute for
Securities and Investment.
1Chairman of the nominations committee of which all Directors
are members.
2Chairman of the Audit Committee of which all Directors are
members.
Report of the Directors
The Directors present their annual report together with the
audited financial statements of JZ Capital Partners ("JZCP" or the
"Company") for the year ended 28 February
2018.
Principal Activities
JZ Capital Partners Limited is a closed-ended investment company
with limited liability which was incorporated in Guernsey on
14 April 2008 under the Companies
(Guernsey) Law, 1994. The Company is subject to the Companies
(Guernsey) Law, 2008. The Company's Capital consists of Ordinary
shares, Zero Dividend Preference ("ZDP") shares and Convertible
Unsecured Loan Stock ("CULS"). The Company's Ordinary shares, ZDP
Shares and CULS are traded on the London Stock Exchange's
Specialist Fund Segment.
The Company’s Investment Policy is to target predominantly
private investments, seeking to back exceptional management teams
to deliver on attractive investment propositions. In executing
strategy, the Company takes a long term view. The Company seeks to
invest directly in its target investments, although it may also
invest through other collective investment vehicles. The Company
may also invest in listed investments, whether arising on the
listing of its private investments or directly.
The Company is focused on investing in the following areas:
(a) small or micro-cap buyouts in the form of
debt and equity and preferred stock in both the US and Europe; and
(b) real estate interests.
The Investment Adviser takes a dynamic approach to asset
allocation and, though it doesn’t expect to, in the event that the
Company were to invest 100% of gross assets in one area, the
Company will, nevertheless always seek to maintain a broad spread
of investment risk. Exposures are monitored and managed by the
Investment Adviser under the supervision of the Board.
The Investment Adviser is able to invest globally but with a
particular focus on opportunities in the
United States and Europe.
Business Review
The total loss attributable to Ordinary shareholders for the
year ended 28 February 2018 was
$11,271,000 (year ended 28 February 2017: profit of $22,697,000). The revenue return for the year was
$11,913,000 (year ended
28 February 2017: $5,612,000), after charging directors fees and
administrative expenses of $3,085,000
(year ended 28 February 2017:$2,550,000) and Investment Adviser's base fee of
$16,912,000 (year ended 28 February 2017: $16,865,000). The net asset value ("NAV") of the
Company at the year-end was $837,573,000 (28 February
2017: $848,844,000) equal to
$9.98 (28
February 2017: $10.12) per
Ordinary share.
For the year ended 28 February
2018, the Company had $16,542,000 of cash outflows resulting from
operating activities (year ended 28 February
2017: outflows of $9,239,000).
A review of the Company's activities and performance is detailed
in the Chairman's Statement and the Investment Adviser's Report.
The valuation of the unlisted investments are detailed in the
Investment Portfolio section.
Dividends
During 2017, the dividend policy of distributing approximately
3% of the Company's net assets in the form of dividends was
discontinued. Shareholder approval was received to adopt a new
strategy where purchases by the Company of its Ordinary Shares may
be undertaken when opportunities in the market permit, and as the
Company’s cash resources allow.
Directors
The Directors listed below are all independent and
non-executive, they have served on the Board throughout the year
and were in office at the end of the year and subsequent to the
date of this report. The biographical details of the Directors are
shown in the Board of Directors section.
David Macfarlane (Chairman)
Patrick Firth
James Jordan
Tanja Tibaldi
Christopher Waldron
Annual General Meeting
The Company's Annual General Meeting is due to be held on
26 June 2018.
Stated Capital, Purchase of own Shares
and Convertible Unsecured Loan Stock "CULS"
Details of the ZDP shares and the Ordinary shares can be found
in Notes 16 and 19. During the year the Company did not buy back
any of its own shares. Post year end, the Company repurchased
188,685 of its own shares. Details of the CULS can be found in Note
15.
The beneficial interests of the Directors in the Ordinary shares
of the Company are shown below:
|
|
Number of Ordinary shares at 1 March 2017 |
Purchased in year |
Sold
in year |
Number of Ordinary shares at
28 February 2018 |
|
|
|
|
David Macfarlane |
74,800 |
17,500 |
(17,500) |
74,800 |
Patrick Firth |
5,440 |
- |
- |
5,440 |
James Jordan |
40,800 |
- |
- |
40,800 |
Tanja Tibaldi |
2,720 |
- |
- |
2,720 |
Christopher Waldron |
4,000 |
- |
- |
4,000 |
|
|
127,760 |
17,500 |
(17,500) |
127,760 |
The beneficial interests of the Directors in the CULS of the
Company are shown below (no change from 28
February 2017 position):
|
|
|
Number of CULS
of £10 nominal value at
28 February 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David Macfarlane |
|
|
|
734 |
Patrick Firth |
|
|
|
734 |
Tanja Tibaldi |
|
|
|
367 |
|
|
|
|
|
1,835 |
None of the Directors held any interest in the Zero Dividend
Preference shares during the year. There have been no changes in
the Directors' interests of any share class between 28 February 2018 and the date of this report.
Substantial Shareholders
As at 21 May 2018, the Company has been notified in
accordance with the Disclosure and Transparency Rules of the
following interests of 5% or more of the total Ordinary share
capital of the Company (and save as set out below the Company is
unaware of any significant changes to the below holdings at the
date of signing this report). The number and percentage of Ordinary
shares relate to the number informed by shareholders on the
relevant notification rather than the current share register.
|
|
|
|
As at 21 May 2018 |
|
|
|
|
|
Ordinary |
|
% of
Ordinary |
|
|
|
|
|
shares |
|
shares |
Edgewater Growth Capital Partners
L.P.1 |
|
|
|
|
18,335,944 |
|
21.9% |
David W. Zalaznick1 |
|
|
|
|
10,550,294 |
|
12.6% |
John W. Jordan II &
Affiliates1 |
|
|
|
|
10,550,294 |
|
12.6% |
Leucadia Financial Corporation |
|
|
|
|
8,021,552 |
|
9.6% |
Abrams Capital Management L.P. |
|
|
|
|
7,744,366 |
|
9.3% |
Finepoint Capital L.P. |
|
|
|
|
4,413,067 |
|
5.3% |
Arnhold, LLC2 |
|
|
Company not notified2 |
|
5.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The percentage of Ordinary shares shown above represents the
ownership of voting rights at the year end, before weighting for
votes on Directors.
It is the responsibility of the shareholders to notify the
Company of any change to their shareholdings when it reaches 5% of
shares in issue and any subsequent change when the shareholding
increases or decreases by a further 5% (up to 30% of shares in
issue i.e. 10%, 15%, 20%, 25% and 30%) and thereafter 50% and
75%.
1 The notifiable interests set out
in the table above for each of Edgewater Growth Capital Partners
L.P., David W. Zalaznick, and
John (Jay) W. Jordan II and
Affiliates do not reflect the number of Ordinary shares bought back
from each of those shareholders pursuant to certain share buy backs
of Ordinary shares undertaken by the Company as announced on
4 April 2018 and 18 April 2018. Each of those shareholders had
Ordinary shares repurchased from them by the Company in proportion
to their then current shareholdings of Ordinary shares at the time
and as such, as at 21 May 2018 and so
far as the Company is aware, Edgewater Growth Capital Partners L.P.
holds 18,294,711 Ordinary shares (being 21.9% of the issued
Ordinary shares), David W. Zalaznick
holds 10,526,568 Ordinary shares (being 12.6% of the issued
Ordinary shares), and John (Jay) W. Jordan
II and Affiliates holds 10,526,568 Ordinary shares (being
12.6% of the issued Ordinary shares).
2 On 6
February 2018, First Eagle Investment Management notified a
change of major shareholding in the Company's securities and
specifically that the accounts through which it held Ordinary
shares and that related to its previously reported notifiable
interest had ceased to be managed by it. Subsequently on
14 March 2018, Arnhold LLC notified a
change of major shareholding in the Company's securities and
specifically that it had assumed management of accounts holding
Ordinary shares which were previously managed by First Eagle
Investment Management. The notifiable interest of Arnhold LLC was
notified as 5.45% of the issued Ordinary shares of the Company; the
total number of Ordinary shares the subject of the notifiable
interest was not notified. The notifiable interest relating to
Arnhold LLC set out in the table above has been revised upwards to
5.5% on account of rounding and the reduction in the total number
of Ordinary shares in issue by virtue of the Company having
undertaken certain share buy backs of Ordinary shares announced on
4 April 2018 and 18 April 2018 (and on the assumption that Arnhold
LLC did not have any Ordinary shares repurchased from them as part
of those share buy backs).
Ongoing Charges
Ongoing charges for the years ended 28
February 2018 and 28 February
2017 have been prepared in accordance with the Association
of Investment Companies ("AIC") recommended methodology. The
ongoing charges ratio represents annualised recurring operational
expenses as a percentage of the average net asset value. The
Ongoing charges for the year ended 28 February 2018 were 2.35%
(28 February 2017: 2.26%) excluding
incentive fees of 0.52% (28 February
2017: 1.45%).
Principal Risks and Uncertainties
The Company's Board believes the principal risks and
uncertainties that relate to an investment in JZCP are as
follows:
NAV Factors
(i) Macroeconomic
Risks
The Company's performance, and underlying NAV, is influenced by
economic factors that affect the demand for products or services
supplied by investee companies and the valuation of Real Estate
interests held. Economic factors will also influence the Company's
ability to invest and realise investments and the level of realised
returns. Approximately 9% of the Company's investments are
denominated in non-US dollar currencies, primarily the euro. Also
the Company has issued debt denominated in non-US dollar
currencies, primarily sterling. Fluctuations to these exchange
rates will affect the NAV of the Company.
(ii) Underlying
Investment Performance
The Company is reliant on the Investment Adviser to source and
execute suitable investment opportunities. The Investment Adviser
provides to the Board an explanation of all investment decisions
and also quarterly investment reports and valuation proposals of
investee companies. The Board reviews investment performance
quarterly and investment decisions are checked to ensure they are
consistent with the agreed long term investment strategy.
Portfolio Liquidity
The Company invests predominantly in unquoted companies.
Therefore this potential illiquidity means there can be no
assurance investments will be realised at their latest valuation.
The Board considers this illiquidity when planning to meet its
future obligations, whether committed investments or the repayment
of debt facilities or the future repayment of CULS and ZDP shares.
On a quarterly basis, the Board receives from the Investment
Adviser and reviews a working capital model produced by the
Investment Adviser which highlights the Company's projected
liquidity and financial commitments.
Share Price Trading at Discount to NAV
JZCP's share price is subject to market sentiment and will also
reflect any periods of illiquidity when it may be difficult for
shareholders to realise shares without having a negative impact on
share price. The Directors review the share price in relation to
Net Asset Value on a regular basis and determine whether to take
any action to manage the discount. The Directors with the support
of the Investment Adviser work with brokers to maintain interest in
the Company’s shares through market contact and research
reports.
Operational and Personnel
Although the Company has no direct employees, the Company
considers what dependence there is on key individuals within the
Investment Adviser and service providers that are key to the
Company meeting its operational and control requirements.
The Board considers the principal risks and uncertainties above
are consistent with the prior year and the Company's exposure to
these risks is neither greater nor any less than in May 2017.
Viability Statement
In accordance with the UK Corporate Governance Code (the "UK
Code") the Board has assessed the expectations that the Company
will be able to continue in operation and meet ongoing debt
obligations. In order to make the assessment the Board has carried
out a robust review of the Company's principal risks and
uncertainties, as noted above, to which the Company is exposed and
that potentially threaten future performance and liquidity and has
assessed the Company's current position and prospects as detailed
in the Chairman's statement and Investment Adviser's report. The
period covered by the viability statement is the next three
financial years to 28 February
2021.
The Board believes that a viability assessment of three years
aligns with the Company's review of working capital models provided
by the Investment Adviser which detail expected investment activity
and estimated liquidity over a three year period. The Board also
considers the underlying investment portfolio, which consists
primarily of unlisted micro-cap businesses and real estate
investments which are not publicly traded. Micro-cap investments
are held for the medium term, typically a period of 3 to 5 years
and it is anticipated real estate developments will take a similar
time frame to realise returns.
The Board will continue to review the period of assessment on an
annual basis and may in future years extend the period if it is
considered appropriate.
Factors considered whilst reviewing the Company's future
prospects and viability, include:
(i) Financing obligations
The Company has obligations to repay loan debt in June 2021, the balance outstanding to Guggenheim
Partners at 28 February 2018 was
$150.1 million (28 February 2017: $97.4
million). It is expected the debt facility will be repaid
from the proceeds of realisations and refinancing of investments.
The Company will potentially redeem CULS in July 2021 amounting to £38.9 million, assuming
holders of CULS do not convert their holdings to equity. JZCP is
due to redeem £57.6 million of ZDP shares on 1 October 2022, again it is expected the
redemption of both CULS and ZDPs will be met from the proceeds of
realisations and refinancing of investments. At 28 February 2018, the Company had outstanding
investment commitments of $73.7
million (28 February 2017:
$76.8 million). The Board will
continue to consider the Company's position in meeting debt
obligations and commitments falling outside the three year review
and will continue to consider appropriate gearing levels to enable
the financing of debt and ongoing investment/operating
activities.
(ii) Investment performance and
liquidity
The Board reviews, on a quarterly basis, the valuation and
prospects of all underlying investee companies. The Board is
confident that the diversity of the portfolio and ability of the
Investment Adviser to select suitable investment opportunities will
negate the risk of a significant fall in NAV, similar to the one
the Company suffered during the financial crisis of 2008 which saw
a reduction in NAV for the 7 month period ended 28 February 2009 of approximately 30%. Whilst a
similar fall in NAV would not directly threaten the Company's
viability the Board is mindful that in a similar financial
environment, the Company will be exposed to a possible lack of
liquidity due to the difficulty in realising investments and the
possibility of investments defaulting on interest obligations to
the Company. JZCP has had realisations from unlisted investments
over the last 3 financial years that have averaged cash inflows of
$159 million per annum and has
invested an average of $178 million
per annum over the same period in unlisted investments. The Board's
current view is that whilst a reduction in realisations may curtail
scope of future investment opportunities, cash inflows will be
sufficient to enable the Company to meets its investment and
operational obligations.
(iii) Mitigation of risk as
outlined in the Principal Risks and Uncertainties.
The Board is confident the performance of the Company over the
period of review will be robust and the investment strategy will
deliver returns and liquidity. Therefore the Board has been able to
form a reasonable expectation that the Company will continue in
operation and meet its liabilities as they fall due over the next
three financial years.
Going Concern
The Board considers that the Company has adequate financial
resources, in view of its cash balances and cash equivalents and
liquid investments and the income streams deriving from its
investments and believes that the Company is well placed to manage
its business risks successfully to continue in operational
existence for a period of at least 12 months from signing of the
financial statements and that it is appropriate to prepare the
financial statements on the going concern basis.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable Guernsey Law
and generally accepted accounting principles. Guernsey Company Law
requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the state of
affairs of the Company as at the end of the financial year and of
the profit or loss for that year. They are also responsible for
ensuring that the Annual Report, Financial Statements, and Company
comply with the provisions of the Disclosure and Transparency Rules
of the UK Listing Authority which, with regard to corporate
governance, require the Company to disclose how it has applied the
principles, and complied with the provisions, of the corporate
governance code applicable to the Company.
In preparing Financial Statements the Directors are required
to:
select suitable accounting
policies and apply them consistently;
make judgements and
estimates that are reasonable and prudent;
state whether applicable
accounting standards have been followed, subject to any material
departures disclosed and explained in the Financial Statements;
prepare the Financial
Statements on the going concern basis unless it is inappropriate to
presume that the Company will continue in business;
confirm that there is no
relevant audit information of which the Company’s Auditor is
unaware; and
confirm that they have
taken all reasonable steps which they ought to have taken as
Directors to make themselves aware of any relevant audit
information and to establish that the Company’s Auditor is aware of
that information.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Financial Statements have been properly prepared in accordance
with the Companies (Guernsey) Law, 2008 and International Financial
Reporting Standards as adopted by the European Union (“IFRS”). They
are also responsible for safeguarding the assets of the Company and
hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors confirm that they have complied with these
requirements in preparing the Financial Statements.
Responsibility Statement of the Directors in
respect of the Financial Statements
The Directors confirm that to the best of their knowledge:
the Financial Statements have been prepared in accordance
with IFRS and give a true and fair view of the asset, liabilities
and financial position, and profit or loss of the Company;
the Annual Report includes a fair review of the
development and performance of the business and position of the
Company together with the description of the principal risks and
uncertainties that the Company faces, as required by the Disclosure
and Transparency Rules of the UK Listing Authority; and
the Directors confirm that the Annual Report and
Financial Statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Company’s performance and strategy.
Directors’ Statement
So far as each of the Directors is aware, there is no relevant
audit information of which the Company's auditor is unaware, and
each Director has taken all the steps they ought to have taken as a
Director to make themselves aware of any relevant audit information
and to establish that the Company's auditor is aware of that
information.
Approved by the Board of Directors and agreed on behalf of the
Board on 21 May 2018.
David
Macfarlane
Chairman
Patrick Firth
Director
Corporate Governance
Introduction
The Board of JZ Capital Partners Limited has considered the
principles and recommendations of the AIC Code of Corporate
Governance published in July 2016
(the "AIC Code"). The AIC Code addresses all the principles set out
in the UK Corporate Governance Code (the "UK Code"), as well as
setting out additional principles and recommendations on issues
that are of specific relevance to JZ Capital Partners Limited. The
AIC Code can be found at www.theaic.co.uk and the UK Code
can be found at. www.frc.org.uk.
The Company is a member of the Association of Investment
Companies (the "AIC") and by complying with the AIC Code of
Corporate Governance ("AIC Code") is deemed to comply with both the
UK and Guernsey Codes of Corporate Governance.
The Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates the UK Corporate Governance Code), will provide
better information to shareholders. To ensure ongoing compliance
with these principles the Board receives and reviews a report from
the Corporate Secretary, at each quarterly meeting, identifying how
the Company is in compliance and identifying any changes that might
be necessary.
Throughout the accounting period the Company has complied with
the recommendations of the AIC Code and thus the relevant
provisions of the UK Corporate Governance Code, except as set out
below.
The UK Corporate Governance code includes provisions relating
to:
- the role of the chief executive
- executive directors remuneration
- the need for an internal audit function
- appointment of a senior independent director
- whistle blowing policy
The Board considers these provisions are not relevant to the
position of JZ Capital Partners Limited, being an externally
managed investment company. The Company has therefore not reported
further in respect of these provisions. The Directors are
non-executive and the Company does not have employees, hence no
whistle blowing policy is required. However the Directors have
satisfied themselves that the Company's service providers have
appropriate whistle blowing policies and procedures and have
received confirmation from the service providers that nothing has
arisen under those policies and procedures which should be brought
to the attention of the Board. There have been no other instances
of non-compliance, other than those noted above.
Guernsey Code of Corporate Governance
The Guernsey Financial Services Commission’s (GFSC) “Finance
Sector Code of Corporate Governance” (Guernsey Code) came into
effect on 1 January 2012. The
introduction to the Guernsey Code states that companies which
report against the UK Corporate Governance Code or the AIC’s Code
of Corporate Governance are deemed to meet the Guernsey Code.
The Board
Corporate Governance of JZCP is monitored by the Board which at
the end of the year comprised five Directors, all of whom are
non-executive. Biographical details of the Board members at the
date of signing these Financial Statements are shown on Board of
Directors section and their interests in the shares of JZCP are
shown in the Report of the Directors. The Directors' biographies
highlight their wide range of relevant financial and sector
experience.
Directors' Independence
The Board considers the Directors are free from any business or
other relationship that could materially interfere with the
exercise of their independent judgement. However, the Board notes
the Financial Reporting Council’s consultation document, “Proposed
Revisions to the UK Corporate Governance Code”. If accepted, the
proposals will apply to accounting periods beginning on or after
1 January 2019. The proposed changes
include a statement that on reaching a term of nine years a
director will be deemed to be non-independent. The Board awaits the
final FRC report, but notes and agrees with the AIC’s response to
the proposed revisions, in particular its recommendation that
length of service should be an indicator to consider when assessing
independence, not a threshold.
Proceedings of the Board
The Directors have overall responsibility for the Company's
activities and the determination of its investment policy and
strategy. The Company has entered into an investment advisory and
management agreement with its Investment Adviser, JZAI, pursuant to
which, subject to the overall supervision of the Directors, the
Investment Adviser acts as the investment manager to the Company
and manages the investment and reinvestment of the assets of the
Company in pursuit of the investment objective of the Company and
in accordance with the investment policies and investment
guidelines from time to time of the Company and any investment
limits and restrictions notified by the Directors (following
consultation with the Investment Adviser). Within its strategic
responsibilities the Board regularly considers corporate strategy
as well as dividend policy, the policy on share buy backs and
corporate governance issues.
The Directors meet at least quarterly to direct and supervise
the Company’s affairs. This includes reviewing the investment
strategy, risk profile, gearing strategy and performance of the
Company and the performance of the Company’s functionaries, and
monitoring compliance with the Company's objectives.
The Directors visit the Investment Adviser at least annually for
a comprehensive review of the portfolio, its valuation
methodology and general strategy. The Directors deem it appropriate
to review the valuations of the investment portfolio on a quarterly
basis. The schedule of Board and Committee meetings is shown on
Corporate Governance.
Continuing terms of Investment Adviser
agreement
In the opinion of the Directors, the continuing appointment of
the Investment Adviser on the terms agreed continues to be in the
interests of Shareholders. In reaching its conclusion the Board
considers the Investment Adviser's performance and expertise and is
confident in the Investment Adviser's ability to source excellent
future investment opportunities.
Supply of information
The Chairman ensures that all Directors are properly briefed on
issues arising at Board meetings. The Company's advisers provide
the Board with appropriate and timely information in order that the
Board may reach proper decisions. Directors can, if necessary,
obtain independent professional advice at the Company's
expense.
Directors' training
The Board is provided with information concerning changes to the
regulatory or statutory regimes as they may affect the Company, and
are offered the opportunity to attend courses or seminars on such
changes, or other relevant matters. An induction programme is
available for any future Director appointments.
Chairman and senior independent Director
The Chairman is a non-executive Director, together with the rest
of the Board. There is no executive Director position within the
Company. Day-to-day management of the Company's affairs has been
delegated to third party service providers. The Board has
considered whether a senior independent Director should be
appointed. However, as the Board comprises entirely of non-
executive Directors, the appointment of a senior independent
Director for the time being, is not considered necessary. Any of
the non-executive Directors are available to shareholders if they
have concerns which cannot be resolved through discussion with the
Chairman.
Board diversity
The Board has also given careful consideration to the
recommendations of the Davies Report on women on boards and as
recommended in that report has reviewed its composition and
believes that it has available an appropriate range of skills and
experience. In order to extend its diversity, the Board is
committed to implementing the recommendations of the Davies Report,
if possible within the timescales proposed in the Davies Report,
and to that end will ensure that women candidates are considered
when appointments to the Board are under consideration – as indeed
has always been its practice.
Re-election of Directors
Each Director having served longer than nine years is subject to
annual re-election. Each Director who has served less than nine
years retires from office at the third annual general meeting after
appointment or (as the case may be) the general meeting at which he
was last appointed and is eligible for reappointment.
The Letters of Appointment of the non-executive Directors
suggest that it is appropriate for Directors to retire and be
nominated for re-election after three years of service. Subject to
the recommendation of the General Meeting David Macfarlane,
James Jordan and Tanja Tibaldi are seeking re-election to the
Board at the 2018 Annual General Meeting ("AGM") because they have
served more than nine years.
As discussed in the Chairman's statement Patrick Firth intends to retire as a director
and as Chairman of the audit committee. However, Patrick will seek
re-election to the board at the 2018 AGM, in order to ensure a
smooth transition to his successor.
The Board's evaluation
The Board, Audit Committee, and Nomination Committee undertake
an evaluation of their own performance and that of individual
Directors on an annual basis. In order to review their
effectiveness, the Board and its Committees carry out a process of
formal self-appraisal. The Board and Committees consider how they
function as a whole and also review the individual performance of
its members. This process is conducted by the respective Chairman
reviewing each member’s performance, contribution and their
commitment to the Company. The Board as a whole reviews the
performance of the Chairman. Each Board member is also required to
submit details of training they have undertaken on an annual basis.
Currently, no third party evaluation of the Directors effectiveness
is undertaken. The results of the evaluation process concluded the
Board was functioning effectively and the Board and its committees
provided a suitable mix of skills and experience.
Board Committees
In accordance with the AIC Code, the Board has established an
Audit Committee and a Nomination Committee, in each case with
formally delegated duties and responsibilities within written terms
of reference. The identity of each of the chairmen of the
committees referred to below are reviewed on an annual basis. The
Board has decided that the entire Board should fulfil the role of
the Audit and Nomination committees. The terms of reference of the
committees are kept under review and can be viewed on the Company's
website www.jzcp.com.
Nomination Committee
In accordance with the Code, the Company has established a
Nomination Committee. The main role of the committee is to propose
candidates for election to the Board of Directors, including the
Chairman. The Nomination Committee takes into consideration the
Code’s rules on independence of the Board in relation to the
Company, its senior management and major shareholders. The
Nomination Committee is chaired by David
Macfarlane, and each of the other Directors is also a
member. The members of the committee are independent of the
Investment Adviser. The Nomination Committee has responsibility for
considering the size, structure and composition of the Board,
retirements and appointments of additional and replacement
Directors and making appropriate recommendations to the Board.
Due to the nature of the Company being a listed investment
company investing in private equity with an international
shareholder base, the Company needs Directors with a broad range of
financial experience. For this reason, Directors believe that it is
appropriate to use their own contacts, as well as external
consultants to identify suitable candidates.
The final decision with regard to appointments always rests with
the Board and all such appointments are subject to confirmation by
shareholders.
Audit Committee
The Audit Committee is chaired by Patrick Firth. All the other Directors are
members. Members of the Committee are independent of the Company’s
external auditors and the Investment Adviser. All members have the
necessary financial and sector experience to contribute effectively
to the Committee. The Audit Committee meets at least twice a year
and meets the external auditors at least twice a year. The Audit
Committee is responsible for overseeing the Company’s relationship
with the external auditors, including making recommendations to the
Board on the appointment of the external auditors and their
remuneration. The Committee also considers the nature, scope and
results of the auditors’ work and reviews, and develops and
implements policies on the supply of any non-audit services that
are to be provided by the external auditors.
A report of the Audit Committee detailing responsibilities and
activities is presented in the Audit Committee Report.
Management Engagement Committee
To date, the recommended functions of a Management Engagement
Committee have been exercised by the full board, each member of
which is unassociated with the Investment Adviser. However, the
Board now believes it appropriate to establish a Management
Engagement Committee, whose responsibilities will include reviewing
the performance and contractual arrangements of the Company’s
service providers. The new Committee will be chaired by
Chris Waldron and will comprise the
entire board.
Remuneration Committee
In view of its non-executive and independent nature, the Board
considers that it is not appropriate for there to be a separate
Remuneration Committee as prescribed by the AIC Code. The process
for agreeing the non-executive Directors' fees is set out in the
Directors' Remuneration Report.
Board and Committee meeting attendance
The number of formal meetings of the Board and its committees
held during the year and the attendance of individual Directors at
these meetings was as follows:
Number of meetings
|
|
|
|
|
Board
Main Main |
AGM |
Ad Hoc
Meetings |
Audit
Committee |
Total number of
meetings |
5 |
1 |
2 |
3 |
David Macfarlane |
5 |
1 |
2 |
3 |
Patrick Firth |
4 |
1 |
1 |
3 |
James Jordan |
5 |
1 |
1 |
3 |
Tanja Tibaldi |
5 |
1 |
2 |
3 |
Christopher Waldron |
5 |
1 |
2 |
3 |
The main Board meetings are held to agree the Company's
valuation of its investments, agree the Company's financial
statements and discuss and agree other strategic issues. Other
meetings are held when required to agree board decisions on ad-hoc
issues.
UK Criminal Finances Act 2017
In respect of the UK Criminal Finances Act 2017 which has
introduced a new Corporate Criminal Offence of 'failing to take
reasonable steps to prevent the facilitation of tax evasion', the
Board confirms that it is committed to zero tolerance towards the
criminal facilitation of tax evasion.
The Board also keeps under review developments involving other
social and environmental issues, such as Modern Slavery and General
Data Protection Regulation, and will report on those to the extent
they are considered relevant to the Company's operations.
Internal Controls
The Board is ultimately responsible for establishing and
maintaining the Company’s system of internal financial and
operating control and for maintaining and reviewing its
effectiveness. The Company's risk matrix continues to be the core
element of the Company's risk management process in establishing
the Company's system of internal financial and reporting control.
The risk matrix is prepared and maintained by the Board which
initially identifies the risks facing the Company and then
collectively assesses the likelihood of each risk, the impact of
those risks and the strength of the controls operating over each
risk. The system of internal financial and operating control is
designed to manage rather than to eliminate the risk of failure to
achieve business objectives and by their nature can only provide
reasonable and not absolute assurance against misstatement and
loss.
These controls aim to ensure that assets of the Company are
safeguarded, proper accounting records are maintained and the
financial information for publication is reliable. The Board
confirms that there is an ongoing process for identifying,
evaluating and managing the principal risks faced by the
Company.
This process has been in place for the year under review and up
to the date of approval of this Annual Report and Financial
Statements and is reviewed by the Board and is in accordance with
the Internal controls: Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting.
The Board has evaluated the systems of internal controls of the
Company. In particular, it has prepared a process for identifying
and evaluating the principal risks affecting the Company and the
policies by which these risks are managed.
The Board has delegated the day to day responsibilities for the
management of the Company’s investment portfolio, the provision of
depositary services and administration, registrar and corporate
secretarial functions including the independent calculation of the
Company's NAV and the production of the Annual Report and
Consolidated Financial Statements which are independently
audited.
Formal contractual agreements have been put in place between the
Company and providers of these services.
Even though the Board has delegated responsibility for
these functions, it retains accountability for these functions and
is responsible for the systems of internal control. At each
quarterly board meeting, compliance reports are provided by the
Administrator, Company Secretary and Portfolio Manager. The Board
also receives confirmation from the Administrator of its
accreditation under its Service Organisation Controls 1 report.
The Company’s risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit
Committee at its quarterly meetings and annually by the Board.
The Board believes that the Company has adequate and effective
systems in place to identify, mitigate and manage the risks to
which it is exposed.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act
(“FATCA”), the Company registered with the US Internal Revenue
Services (“IRS”) as a Guernsey reporting Foreign Financial
Institution (“FFI”), received a Global Intermediary Identification
Number CAVBUD.999999.SL.831, and can be found on the IRS FFI
list.
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and Development
(“OECD”), which has been adopted by Guernsey and which came into
effect on 1 January 2016. The CRS
replaced the intergovernmental agreement between the UK and
Guernsey to improve international tax compliance that had
previously applied.
The Board will take necessary actions to ensure that the Company
is compliant with Guernsey regulations and guidance in this
regard.
Relations with Shareholders
The Directors believe that the maintenance of good relations
with both institutional and retail shareholders is important for
the long term prospects of the Company. It therefore seeks active
engagement with investors, bearing in mind the duties regarding
equal treatment of shareholders and the dissemination of inside
information. The Board receives feedback on shareholder views from
its Corporate Broker and Investment Adviser, and is circulated with
Broker reports on the Company.
The Directors believe that the Annual General Meeting, a meeting
for all shareholders, is the key point in the year when the Board
of Directors accounts to all shareholders for the performance of
the Company. It therefore encourages all shareholders to attend,
and all Directors are present unless unusual circumstances
prevail.
The Directors believe that the Company policy of reporting to
shareholders as soon as possible after the Company's year-end and
the holding of the Annual General Meeting at the earliest
opportunity is valuable.
The Company also provides an Interim Report and Accounts in
accordance with IAS 34 and Interim Management statements for the
quarterly periods.
Directors' Remuneration Report
The Company's policy in regard to Directors' remuneration is to
ensure that the Company maintains a competitive fee structure in
order to recruit, retain and motivate non-executive Directors of
excellent quality in the overall interests of shareholders.
Remuneration policy
The Directors do not consider it necessary for the Company to
establish a separate Remuneration Committee. All of the matters
recommended by the Code that would be delegated to such a committee
are considered by the Board as a whole.
It is the responsibility of the Board as a whole to determine
and approve the Directors' fees, following a recommendation from
the Chairman who will have given the matter proper consideration,
having regard to the level of fees payable to non- executive
Directors in the industry generally, the role that individual
Directors fulfil in respect of Board and Committee responsibilities
and the time committed to the Company's affairs. The Chairman's
remuneration is decided separately and is approved by the Board as
a whole.
The Company's Articles state that Directors' remuneration
payable in any accounting year shall not exceed in the aggregate an
annual sum of US$650,000. Each
Director is also entitled to reimbursement of their reasonable
expenses. There are no commission or profit sharing arrangements
between the Company and the Directors. Similarly, none of the
Directors is entitled to pension, retirement or similar benefits.
No element of the Directors' remuneration is performance
related.
The remuneration policy set out above is the one applied for the
year ended 28 February 2018 and is
not expected to change in the foreseeable future.
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of the Directors.
Remuneration for services
|
Fees for services to the Company for the year to 28
February 2018 |
|
Fees for services to the Company for the year to 28
February 2017 |
|
|
US$ |
|
|
US$ |
David Macfarlane (Chairman) |
|
160,000 |
|
|
160,000 |
Patrick Firth |
|
70,000 |
|
|
70,000 |
James Jordan |
|
60,000 |
|
|
60,000 |
Tanja Tibaldi |
|
60,000 |
|
|
60,000 |
Christopher Waldron |
|
65,000 |
|
|
65,000 |
|
|
415,000 |
|
|
415,000 |
|
|
|
|
|
|
The amounts payable to Directors as shown above were for
services as non-executive Directors. No Director has a service
contract with the Company, nor is any such contracts proposed.
Directors' Term of Appointment
Each Director having served longer than nine years is subject to
annual re-election. Each Director who has served less than nine
years retires from office at the third annual general meeting after
appointment or (as the case may be) the general meeting at which he
was last appointed and is eligible for reappointment.
The Directors were appointed as non-executive Directors by
letters issued in April 2008 and
October 2013 which state that their
appointment and any subsequent termination or retirement shall be
subject to three-months’ notice from either party in accordance
with the Articles. Each Director’s appointment letter provides
that, upon the termination of his/her appointment, that he/she must
resign in writing and all records remain the property of the
Company. The Directors’ appointments can be terminated in
accordance with the Articles and without compensation. There is no
notice period specified in the Articles for the removal of
Directors. The Articles provide that the office of director shall
be terminated by, among other things: (a) written resignation; (b)
unauthorised absences from board meetings for six months or more;
(c) unanimous written request of the other directors; and (d) an
ordinary resolution of the Company.
Signed on behalf of the Board of Directors on 21 May 2018 by:
David Macfarlane
Chairman
Patrick Firth
Director
Audit Committee Report
Dear Shareholder,
We present the Audit Committee's Report, setting out the
responsibilities of the Audit Committee and its key activities in
2017/2018. The Audit Committee has reviewed the Company's financial
reporting, the independence and effectiveness of the external
auditor and the internal control and risk management systems of the
Company's service providers. In order to assist the Audit Committee
in discharging these responsibilities, regular reports are received
and reviewed from the Investment Manager, Administrator and
external auditor.
A member of the Audit Committee will continue to be available at
each Annual General Meeting to respond
to any shareholder questions on the activities of the
Audit Committee.
Responsibilities
The terms of reference of the Audit Committee include the
requirement to:
monitor the integrity of the published Financial Statements of
the Company
review and report to the Board on the significant issues and
judgements made in the preparation of the Company's published
Financial Statements, (having regard to matters communicated by the
external Auditors) and other financial information
monitor and review the quality and effectiveness of the external
Auditors and their independence
consider and make recommendations to the Board on the
appointment, reappointment, replacement and remuneration of the
Company's external Auditor
advise the Board that the annual report and accounts, taken as a
whole, is fair, balanced and understandable
review and consider the Company's Principal risks and
uncertainties
consider the long term viability of the Company
review the Company's procedures for prevention, detection and
reporting of fraud, bribery and corruption
monitor and review the internal control and risk management
systems of the service providers
consider and make representations to the Board regarding
Directors' remuneration
The Audit Committee's full terms of reference can be viewed on
the Company's website www.jzcp.com
Key Activities of the Audit Committee
The following sections discuss the assessments made by the Audit
Committee during the year:
Financial
Reporting:
The Audit Committee's review of the Annual Financial Statements
focused on the following significant areas:
Valuation of Investments:
The fair value of the Company’s unlisted securities at
28 February 2018 was $1,070,408,000 accounting for 93% of the
Company's assets. The Committee has concentrated on ensuring the
Investment Manager has applied appropriate valuation methodologies
to these investments in producing the net asset value of the
Company.
Members of the Audit Committee meet the Investment Adviser at
least annually to discuss the valuation process. The Committee
gains comfort in the valuations produced by reviewing the
methodologies used. The valuations were challenged and
approved by the Audit Committee in a recent visit to the Investment
Adviser. The Audit Committee has thus satisfied itself that the
valuation techniques are appropriate and accurate.
Ownership of Investments
The Audit Committee considered the ownership of the investments
held by the Company as at 28 February
2018 to be substantiated by the periodic reconciliation of
records held by the Custodian to the Company's portfolio and by
confirmations provided by Lawyers, Custodian and Administrator.
Following a review of the presentations and reports from the
Administrator and consulting where necessary with the external
auditor, the Audit Committee is satisfied that the Company duly
owns its investments which are correctly stated in the Annual
Report and Financial Statements.
NAV-Based Fees
The Board has identified that there is a risk that management
and incentive fees which are calculated based on the NAV of the
Company could potentially be misstated if there were to be an error
in the calculation of the NAV. However, as each monthly NAV
calculation is approved by the Investment Adviser and the year end
NAV has been audited, the Board are satisfied that the fees have
been correctly calculated as stated in the Annual Report and
Financial Statements.
Risk
Management:
The Audit Committee continued to consider the process for
managing the risk of the Company and its service providers. Risk
management procedures for the Company, as detailed in the Company's
risk assessment matrix, were reviewed and approved by the Audit
Committee. There were no issues noted during the year.
Fraud, Bribery and
Corruption:
The Audit Committee continues to monitor the fraud, bribery and
corruption policies of the Company. The Board receives a
confirmation from all service providers that there have been no
instances of fraud or bribery.
The External Auditor
Ernst & Young LLP have acted as external auditor since the
Company's inception in April 2008.
This is the last year of Christopher
Matthews' five year tenure as audit partner.
Appointment of External Auditor
The Audit Committee will commence a tendering process for the
audit of the Company. The process is scheduled to be completed
during 2018 with the outcome intended to be put to shareholders for
approval at next year's annual general meeting. In order to
facilitate a smooth transition and give a potential new auditor the
necessary time to adequately plan their audit process, the Audit
Committee has recommended, to the Board, that a resolution be put
to the 2018 Annual General Meeting for the reappointment of Ernst
& Young LLP for the audit for the year ended 28 February 2019. The Board has accepted this
recommendation.
Independence,
objectivity and fees:
The independence and objectivity of the external auditor is
reviewed by the Audit Committee which also reviews the terms under
which the external auditor is appointed to perform non-audit
services. The Audit Committee has established pre- approval
policies and procedures for the engagement of the auditor to
provide non-audit and assurance services. The audit committee
ensures the appointment does not create a scenario which:
places the external auditor in a position to audit their own
work
creates a mutuality of interest
results in the external auditor developing close relationships
with service providers of the Company
results in the external auditor functioning as a manager or
employee of the Company
puts the external auditor in the role of advocate of the
Company
As a general rule, the Company does not utilise external
auditors for internal audit purposes, secondments or valuation
advice. Services which are in the nature of audit, such as tax
compliance, private letter rulings, accounting advice, quarterly
reviews and disclosure advice are normally permitted but will be
pre-approved by the Audit Committee.
The following table summarises the remuneration paid by JZCP to
Ernst & Young LLP and to other Ernst & Young LLP member
firms for audit and other services during the years ended
28 February 2018 and 28 February 2017.
|
|
|
|
|
|
|
|
|
$
Equivalent |
|
|
|
$
Equivalent |
|
|
|
|
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2018 |
|
28.2.2017 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ernst & Young LLP |
|
|
|
|
|
|
|
|
|
|
|
- Annual audit |
|
|
|
|
£218,000 |
|
$298,000 |
|
£211,500 |
|
$263,000 |
- Auditor's interim review |
|
|
|
£41,000 |
|
$55,000 |
|
£40,000 |
|
$51,000 |
Other Ernst & Young LLP
affiliates |
|
|
|
|
|
|
|
|
- Passive Foreign Investment
Company tax services |
- |
|
$65,000 |
|
- |
|
$67,600 |
In line with the policies and procedures above, the Audit
Committee does not consider that the provision of non-audit
services, which comprises determining whether the Company is a
passive foreign investment company as defined by the U.S. Internal
Revenue Code, to be a threat to the objectivity and independence of
the external auditor.
Performance and effectiveness:
During the year, when considering the effectiveness of the
external auditor, the Audit Committee has taken into account the
following factors:
· the audit plan presented to them
before each audit;
· the post audit report including
variations from the original plan;
· changes in audit personnel;
· the external auditor's own internal
procedures to identify threats to independence; and
· feedback received from both the
Investment Adviser and Administrator.
The Audit Committee reviewed and challenged the audit plan and
the post audit report of the external
auditor and concluded that audit risks had been
sufficiently identified and were sufficiently addressed. The Audit
Committee considered reports from the external auditor on their
procedures to identify threats to independence and concluded
that the procedures were sufficient to identify
potential threats to independence.
There were no significant adverse findings from this
evaluation.
The Audit Committee has examined the scope and results of the
audit, its cost effectiveness and the independence and objectivity
of the external auditor and considers Ernst & Young LLP,
as external auditor, to be
independent of the Company.
Internal control and risk management systems
Additional work performed by the Audit Committee in the areas of
internal control and risk management are disclosed in the Corporate
Governance section.
The Audit Committee has also reviewed the need for an internal
audit function. The Audit Committee has decided that the systems
and procedures employed by the Investment Adviser and the
Administrator, including the Administrator's internal audit
function, provide sufficient assurance that a sound system of
internal control, which safeguards the Company’s
assets, is maintained. An internal audit function specific to the
Company is therefore considered unnecessary.
In finalising the Annual Report and Accounts for recommendation
to the Board for approval, the Audit Committee has satisfied itself
that the Annual Report and Accounts taken as a whole are fair,
balanced and understandable.
The Audit Committee Report was approved by the Board on
21 May 2018 and signed on its behalf
by:
Patrick Firth
Chairman, Audit Committee
Independent Auditor's Report
Opinion
We have audited the financial statements of JZ Capital Partners
Limited (the ‘Company’) for the year ended 28 February 2018, which comprise the Statement of
Comprehensive Income, the Statement of Financial Position, the
Statement of Changes in Equity, the Statement of Cash Flows and the
related notes 1 to 33, including a summary of significant
accounting policies. The financial reporting framework that has
been applied in their preparation is applicable law and
International Financial Reporting Standards as adopted by the
European Union (‘IFRS’).
In our opinion, the financial statements:
give a true and fair
view of the state of the Company’s affairs as at 28 February 2018 and of its loss for the year
then ended;
have been properly
prepared in accordance with IFRS; and
have been properly
prepared in accordance with the requirements of the Companies
(Guernsey) Law, 2008.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities under those standards are further described in the
“Auditor’s responsibilities for the audit of the financial
statements” section of our report below. We are independent of the
Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK,
including the FRC’s Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Use of our report
This report is made solely to the Company’s members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company’s members those matters we are required to state to
them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Conclusions relating to principal risks, going concern and
viability statement
We have nothing to report in respect of the following
information in the annual report, in relation to which the ISAs(UK)
require us to report to you whether we have anything material to
add or draw attention to:
the disclosures in the
annual report set out on Report of the Directors that describe the
principal risks and explain how they are being managed or
mitigated;
the directors’ confirmation
set out on Report of the Directors in the annual report that they
have carried out a robust assessment of the principal risks facing
the entity, including those that would threaten its business model,
future performance, solvency or
the directors’ statement
set out on Report of the Directors in the annual report and on
Notes to the Financial Statement about whether they considered it
appropriate to adopt the going concern basis of accounting in
preparing them, and their identification of any material
uncertainties to the entity’s ability to continue to do so over a
period of at least twelve months from the date of approval of the
financial statements;
whether the directors’
statement in relation to going concern is materially inconsistent
with our knowledge obtained in the audit; or
the directors’ explanation
set out in the Report of the Directors in the annual report as to
how they have assessed the prospects of the entity, over what
period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a
reasonable expectation that the entity will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Overview of our audit approach
Key audit matters |
|
|
Valuation of unquoted investments. |
|
|
|
Existence and ownership of real estate
investments. |
|
|
|
Calculation of management and incentive
fees. |
|
|
|
|
|
|
Audit scope |
|
|
We performed an audit of the complete
financial statements of the Company for the year ended 28 February
2018. |
|
|
|
|
|
|
Materiality |
|
|
Overall materiality of $16.8 million
(2017: $17.0 million), which represents 2% (2017: 2%) of total
equity. |
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had
the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our
audit of the financial statements as a whole, and in our opinion
thereon, and we do not provide a separate opinion on these
matters.
Risk |
Our response to the risk |
What we concluded to the Audit
Committee |
|
Valuation of unquoted investments (2018: $1.07
billion; 2017: $1.07
billion)
96% (2017: 100%) of the carrying value of investments relates to
the Company’s holdings in unquoted investments, which are valued
using different valuation techniques, as described in note 5 to the
financial statements.
The valuation is subjective, with a high level of judgement and
estimation linked to the determination of the values with limited
market information available.
As a result, there is a risk of an inappropriate valuation model
being applied, together with the risk of inappropriate inputs to
the model/calculation being selected. The valuation of the unquoted
investments is the key driver of the Company’s net asset value and
total return. Incorrect valuation could have a significant impact
on the net asset value of the Company and therefore
The return generated for shareholders.
Refer to the Audit Committee Report;
Accounting policies in Note 2, 5 and 3, and Note 12 to the
Financial Statements |
We documented our understanding of the processes, policies
and methodologies used by management for valuing unquoted
investments and performed walkthrough tests to confirm our
understanding of the systems and controls implemented;
We performed the following substantive investment valuation
procedures on a sample of unquoted investments held by the
Company:
o agreeing the valuation per the financial statements back to the
models used by management;
o determining and challenging the appropriateness of the valuation
techniques applied to unquoted investments and determining whether
they were in accordance with IFRS and International Private Equity
and Venture Capital Association (IPEVCA) guidelines;
o testing all the significant inputs to the models to independent
sources and evaluating whether all key terms of the unquoted
investments had been considered in the application of the
models;
o testing the mathematical accuracy of the calculations;
o testing qualitative factors such as the key assumptions made by
management and other information provided by the Investment Advisor
that supports the EBITDA multiples used to value unquoted
investments, and specifically the comparable multiples used which
were based on a basket of similar listed companies and any
liquidity adjustments thereafter; and
o agreeing the proposed values per the valuation decks received
from the Investment Advisor to the investment portfolio report
prepared by the Administrator. |
We confirmed that there were no material matters arising
from our audit work on the inputs used and the judgments made by
management that we wished to bring to the attention of the
Committee.
We confirmed that there were no material instances of use of
inappropriate policies or methodologies and that the valuation of
unquoted investments was not materially misstated. |
|
|
We engaged our own internal valuation experts in relation
to the valuation of a sample of investments in real estate assets
to:
o assist us in determining whether the methodologies used to
value real estate assets were consistent with methods usually used
by market participants for these types of real estate investments;
and
o use their knowledge of the market to assess and corroborate
management's market related judgements and valuation inputs (i.e.
discount rates, rental per square foot, selling price per square
foot, recent relevant transaction data and buildable area) by
reference to comparable transactions, and independently compiled
databases/indices. |
|
Existence and ownership of real estate
investments (2018: $463 million; 2017: $469 million)
Risk that real estate investments presented in the financial
statements do not exist or the Company does not have title of
ownership. Due to the significance of the carrying value of real
estate investments, there is a risk that if the Company did not
have good title, the carrying value of these investments could be
materially overstated.
Our risk is specifically in respect of real estate investments due
to the complexity of their ownership structure, the increase in
relative significance of their carrying value as a percentage of
the total investment portfolio and the fact that we have not
historically identified issues with title to other investments held
by the company for which holding structures are less complex.
Refer to the Audit Committee; Accounting policies in Note 2 and 3,
and Note 12 to the Financial Statements. |
We documented our understanding of the processes,
used by management in respect of the existence of real estate
investments and performed walkthrough tests to confirm our
understanding of the systems and controls implemented.
Performance of substantive audit procedures over real estate
investments existence including:
o obtaining independent confirmations from all underlying
investee companies through the holding structure and confirmed that
the company has title to all real estate investments;
o obtaining copies of the deeds and mortgage bond documents
(where applicable) for a sample of properties; and
o obtaining contracts/ agreements for all new investments
entered into during the year to support the initial recognition and
associated terms and conditions. |
We confirmed that there were no matters
identified during our audit work on existence and ownership of real
estate investments that we wanted to bring to the attention of the
audit committee. |
Calculation of management and
incentive fees (2018: $21 million; 2017: $ 29 million)
Risk that losses may be incurred as a result of intentional or
inadvertent misstatement of management and incentive fees, or as a
result of errors in processing financial information.
Refer to the Audit Committee Report; Accounting policies in Note 2
and Note 10 to the Financial Statements. |
We have performed specific audit
procedures over the fair value of the investments on which the
management and incentive fees are based, as noted above; and
We re-performed the management and incentive fee
calculations for mathematical accuracy and consistency with the
terms of the investment advisory agreement. |
We confirmed that there were no matters
identified during our audit work on the calculation of management
and incentive fees that we wanted to bring to the attention of the
audit committee. |
|
|
|
|
|
|
|
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit
scope. Taken together, this enables us to form an opinion on
the financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
Materiality is the magnitude of omissions or misstatements that,
individually or in the aggregate, could reasonably be expected to
influence the economic decisions of the users of the financial
statements. Materiality provides a basis for determining the nature
and extent of our audit procedures.
We determined materiality for the Company to be $16.8 million (2017: $17.0
million), which is 2% (2017: 2%) of total equity. We believe
that total equity provides us with an appropriate basis for audit
materiality as it is a key published performance measure and is a
key metric used by management in assessing and reporting on overall
performance.
During the course of our audit, we reassessed initial
materiality and noted no matters leading us to amend the basis of
materiality (2% of total equity). However, the materiality amount
was adjusted to reflect total equity at year end rather than total
equity at the audit planning stage.
Performance materiality
Performance materiality is the application of materiality at the
individual account or balance level. It is set at an amount to
reduce to an appropriately low level the probability that the
aggregate of uncorrected and undetected misstatements exceeds
materiality.
On the basis of our risk assessments, together with our
assessment of the Company’s overall control
environment, our judgement was that performance materiality
was 75% (2017: 75%) of our planning materiality, namely
$12.6 million (2017: $12.7 million). We have set performance
materiality at this percentage because we have considered the
likelihood of misstatements to be low. We have considered both
quantitative and qualitative factors when determining the expected
level of detected misstatements and setting the performance
materiality at this level.
Reporting threshold
The reporting threshold is an amount below which identified
misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of $0.84 million (2017: $0.85
million), which is set at 5% of planning materiality, as
well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Other information
The other information comprises the information included in the
annual report other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other
information.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
Fair, balanced and understandable set out
on Report of the Directors – the statement given by the
directors that they consider the annual report and financial
statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess
the Company’s performance, business model and strategy, is
materially inconsistent with our knowledge obtained in the audit;
or
Audit committee reporting set out
on Audit Committee Report – the section describing the
work of the audit committee does not appropriately address matters
communicated by us to the audit is materially inconsistent with our
knowledge obtained in the audit; or
Directors’ statement of
compliance with the UK Corporate Governance Code set out on Report
of the Directors – the parts of the directors’ statement
relating to the Company’s compliance with the UK Corporate
Governance Code containing provisions specified for review by the
auditor in accordance with Listing Rule 9.8.10R(2) do not properly
disclose a departure from a relevant provision of the UK Corporate
Governance Code.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies (Guernsey) Law, 2008 requires us to
report to you if, in our opinion:
proper accounting
records have not been kept by the Company; or
the financial
statements are not in agreement with the Company’s accounting
records and returns; or
we have not received
all the information and explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor’s report.
Christopher James Matthews, FCA
for and on behalf of Ernst & Young
LLP
Guernsey, Channel Islands
21 May 2018
1. The
maintenance and integrity of the Company’s web site is the
responsibility of the Directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the web site.
2.
Legislation in Guernsey governing the preparation and dissemination
of financial statements may differ from legislation in other
jurisdictions.
Statement of Comprehensive Income
|
|
Year Ended 28 February 2018 |
|
Year Ended 28 February 2017 |
|
|
Revenue |
|
Capital |
|
|
|
Revenue |
|
Capital |
|
|
|
|
Return |
|
Return |
|
Total |
|
Return |
|
Return |
|
Total |
|
Note |
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on investments at fair value
through profit or loss |
6 |
- |
|
6,140 |
|
6,140 |
|
- |
|
28,699 |
|
28,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/gain on financial liabilities at
fair value through profit or Loss |
15 |
- |
|
(2,907) |
|
(2,907) |
|
- |
|
2,510 |
|
2,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net write back of impairments on loans
and receivables |
7 |
- |
|
- |
|
- |
|
- |
|
2,374 |
|
2,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Realisations from investments held in
escrow accounts |
28 |
- |
|
1,922 |
|
1,922 |
|
- |
|
5,942 |
|
5,942 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net foreign currency exchange
(loss)/gain |
- |
|
(6,457) |
|
(6,457) |
|
- |
|
4,728 |
|
4,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
8 |
31,751 |
|
- |
|
31,751 |
|
25,699 |
|
- |
|
25,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank and deposit interest |
|
128 |
|
- |
|
128 |
|
41 |
|
- |
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,879 |
|
(1,302) |
|
30,577 |
|
25,740 |
|
44,253 |
|
69,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Investment Adviser's base fee |
10 |
(16,912) |
|
- |
|
(16,912) |
|
(16,865) |
|
- |
|
(16,865) |
Investment Adviser's incentive fee |
10 |
- |
|
(4,313) |
|
(4,313) |
|
- |
|
(12,404) |
|
(12,404) |
Administrative expenses |
10 |
(2,670) |
|
- |
|
(2,670) |
|
(2,135) |
|
- |
|
(2,135) |
Directors' remuneration |
10 |
(415) |
|
- |
|
(415) |
|
(415) |
|
- |
|
(415) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,997) |
|
(4,313) |
|
(24,310) |
|
(19,415) |
|
(12,404) |
|
(31,819) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit |
|
11,882 |
|
(5,615) |
|
6,267 |
|
6,325 |
|
31,849 |
|
38,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
9 |
- |
|
(17,569) |
|
(17,569) |
|
- |
|
(14,764) |
|
(14,764) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) before
Taxation |
|
11,882 |
|
(23,184) |
|
(11,302) |
|
6,325 |
|
17,085 |
|
23,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Withholding taxes |
11 |
31 |
|
- |
|
31 |
|
(713) |
|
- |
|
(713) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) for the Year |
|
11,913 |
|
(23,184) |
|
(11,271) |
|
5,612 |
|
17,085 |
|
22,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of Ordinary
shares in issue during the year |
25 |
|
|
|
83,907,516 |
|
|
|
|
83,907,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings/(loss) per Ordinary
share |
25 |
14.20c |
|
(27.63)c |
|
(13.43)c |
|
6.69c |
|
20.36c |
|
27.05c |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings/(loss) per Ordinary
share |
25 |
14.20c |
|
(27.63)c |
|
(13.43)c |
|
6.21c |
|
19.67c |
|
25.88c |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All items in the above statement are derived from continuing
operations.
The profit/(loss) for the year is attributable to the Ordinary
shareholders of the Company.
The format of the Statement of Comprehensive Income follows the
recommendations of the AIC Statement of Recommended Practice.
The "Total" column of this statement represents the Company's
statement of comprehensive income, prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union.
There was no comprehensive income other than the profit/(loss)
for the year.
The accompanying notes form an integral part of the audited
financial statements.
Statement of Financial
Position
As at 28
February 2018
|
|
|
28
February |
|
28
February |
|
|
|
2018 |
|
2017 |
|
Note |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
Assets |
|
|
|
|
|
Investments at fair value through profit
or loss |
12 |
|
1,120,383 |
|
1,069,180 |
Securities sold receivable |
13 |
|
24,987 |
|
- |
Other receivables |
14 |
|
2,158 |
|
520 |
Cash at bank |
|
|
9,000 |
|
29,063 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
1,156,528 |
|
1,098,763 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Convertible Unsecured Loan Stock |
15 |
|
59,970 |
|
57,063 |
Zero Dividend Preference (2022)
shares |
16 |
|
62,843 |
|
53,935 |
Loans payable |
17 |
|
150,125 |
|
97,396 |
Investment Adviser's incentive fee |
10 |
|
41,606 |
|
37,293 |
Investment Adviser's base fee |
10 |
|
2,225 |
|
2,026 |
Other payables |
18 |
|
2,186 |
|
2,206 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
318,955 |
|
249,919 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Stated capital |
19 |
|
265,685 |
|
265,685 |
Other reserve |
21 |
|
353,528 |
|
353,528 |
Capital reserve |
21 |
|
150,687 |
|
173,871 |
Revenue reserve |
21 |
|
67,673 |
|
55,760 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
837,573 |
|
848,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity |
|
|
1,156,528 |
|
1,098,763 |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Ordinary shares in issue at
year end |
19 |
|
83,907,516 |
|
83,907,516 |
|
|
|
|
|
|
Net Asset Value per Ordinary
share |
27 |
|
$9.98 |
|
$10.12 |
These audited financial statements were approved by the Board of
Directors and authorised for issue on 21 May
2018. They were signed on its behalf by:
David Macfarlane
Chairman
Patrick Firth
Director
The accompanying notes form an integral part of the audited
financial statements.
Statement of Changes in
Equity
For the Year Ended 28 February 2018
|
|
|
|
Stated |
|
Other |
|
Capital Reserve |
|
Revenue |
|
|
|
|
|
|
Capital |
|
Reserve |
|
Realised |
|
Unrealised |
|
Reserve |
|
Total |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
Balance as at 1 March 2017 |
|
|
|
265,685 |
|
353,528 |
|
28,034 |
|
145,837 |
|
55,760 |
|
848,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) for the year |
|
|
|
- |
|
- |
|
42,743 |
|
(65,927) |
|
11,913 |
|
(11,271) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 28 February 2018 |
|
|
|
265,685 |
|
353,528 |
|
70,777 |
|
79,910 |
|
67,673 |
|
837,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparative for the Year ended 28
February 2017
|
|
|
|
Stated |
|
Other |
|
Capital Reserve |
|
Revenue |
|
|
|
|
|
|
Capital |
|
Reserve |
|
Realised |
|
Unrealised |
|
Reserve |
|
Total |
|
|
Note |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1 March 2016 |
|
|
|
265,685 |
|
353,528 |
|
59,560 |
|
97,226 |
|
75,740 |
|
851,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year |
|
|
|
- |
|
- |
|
3,018 |
|
14,067 |
|
5,612 |
|
22,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior year ZDP (2016) finance costs and
currency gains now realised |
- |
|
- |
|
(34,544) |
|
34,544 |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
30 |
|
- |
|
- |
|
- |
|
- |
|
(25,592) |
|
(25,592) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 28 February 2017 |
|
|
|
265,685 |
|
353,528 |
|
28,034 |
|
145,837 |
|
55,760 |
|
848,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of the audited
financial statements.
Statement of Cash Flows
For the Year Ended 28 February 2018
|
|
|
|
28
February |
|
28
February |
|
|
|
|
2018 |
|
2017 |
|
|
Note |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash outflow from operating
activities |
29 |
|
(16,542) |
|
(9,239) |
Cash outflow for investments (direct
investments and capital calls) |
12 |
|
(177,806) |
|
(156,505) |
Cash inflow from repayment and disposal
of investments |
12 |
|
138,593 |
|
183,210 |
Cash inflow from the repayment of loans
and receivables |
12 |
|
- |
|
3,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (outflow)/inflow before
financing activities |
|
|
(55,755) |
|
20,580 |
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loan facilities |
17 |
|
50,000 |
|
9,512 |
Loan issue costs paid |
17 |
|
(1,840) |
|
- |
Finance costs paid |
15,17 |
|
(12,772) |
|
(10,395) |
Redemption of Zero Dividend Preference
(2016) shares |
|
|
- |
|
(47,863) |
Repayment of loan facility |
|
|
- |
|
(9,512) |
Dividends paid to shareholders |
30 |
|
- |
|
(25,592) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow/(outflow) from financing
activities |
|
|
35,388 |
|
(83,850) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash
equivalents |
|
|
(20,367) |
|
(63,270) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Cash Flow to
Movements in Cash and Cash Equivalents |
|
|
|
Cash at bank at 1 March |
|
|
29,063 |
|
91,937 |
Decrease in cash and cash equivalents as
above |
|
|
(20,367) |
|
(63,270) |
Unrealised foreign exchange movements on
cash at bank |
|
|
304 |
|
396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank at year end |
|
|
9,000 |
|
29,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Cash Outflows/Inflows from Investments and
Realisations to numbers presented in the Chairman's Statement,
Investment Adviser's Report and Note 12 of the financial
statements
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
28
February 2018 |
|
28
February 2017 |
|
|
|
|
US$'000 |
|
US$'000 |
Investments |
|
|
|
|
|
Cash outflow for investments (direct
investments and capital calls) |
|
|
177,806 |
|
156,505 |
Deposits paid during prior year invested
in current year |
|
|
- |
|
3,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in year (direct investments
and capital calls) - note 12 |
|
|
177,806 |
|
159,523 |
|
|
|
|
|
|
|
Adjusted to reconcile to totals
quoted |
|
|
|
|
|
Investment in treasury bills |
|
|
(74,767) |
|
|
Investment in short term loans to Euro
micro-cap companies (repaid in year) |
|
(6,571) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment for the year |
|
|
96,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realisations |
|
|
|
|
|
Cash inflow from repayment and disposal
of investments |
|
|
138,593 |
|
183,210 |
Proceeds received post year end from
realisation of treasury bills |
|
|
24,987 |
|
- |
Cash inflow from the repayment of loans
and receivables |
|
|
- |
|
3,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from Investments Realised -
note 12 |
|
|
163,580 |
|
186,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted to reconcile to totals
quoted |
|
|
|
|
|
Escrow receipts |
|
|
1,922 |
|
|
Proceeds from repayment of treasury
bills |
|
|
(24,987) |
|
|
Repayment of short term loans to Euro
micro-cap companies |
|
|
(7,104) |
|
|
Distribution of income |
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total realisations for the year |
|
|
133,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of the audited
financial statements.
Notes to the Financial Statements
1. General Information
JZ Capital Partners Limited ("JZCP" or the "Company") is a
Guernsey domiciled closed-ended investment company which was
incorporated in Guernsey on 14 April
2008 under the Companies (Guernsey) Law, 1994. The Company
is now subject to the Companies (Guernsey) Law, 2008. The Company
is classified as an authorised fund under the Protection of
Investors (Bailiwick of Guernsey) Law 1987. The Company's Capital
consists of Ordinary shares, Zero Dividend Preference ("ZDP")
shares and Convertible Unsecured Loan Stock ("CULS"). The Company's
shares trade on the London Stock Exchange's Specialist Fund Segment
("SFS").
The Company’s Investment Policy is to target predominantly
private investments, seeking to back management teams to deliver on
attractive investment propositions. In executing its strategy, the
Company takes a long term view. The Company seeks to invest
directly in its target investments, although it may also invest
through other collective investment vehicles. The Company may also
invest in listed investments, whether arising on the listing of its
private investments or directly. The Investment Adviser is able to
invest globally but with a particular focus on opportunities in
the United States and Europe.
The Company is currently mainly focused on investing in the
following areas:
(a) small or micro-cap
buyouts in the form of debt and equity and preferred stock in both
the US and Europe; and
(b) real estate
interests.
The Investment Adviser takes a dynamic approach to asset
allocation and, though it doesn’t expect to, in the event that the
Company were to invest 100% of gross assets in one area, the
Company will, nevertheless, always seek to maintain a broad spread
of investment risk. Exposures are monitored and managed by the
Investment Adviser under the supervision of the Board.
The Company has no direct employees. For its services the
Investment Adviser receives a management fee and is also entitled
to performance related fees (Note 10). The Company has no ownership
interest in the Investment Adviser. During the year under review
the Company was administered by Northern Trust International Fund
Administration Services (Guernsey) Limited.
The financial statements are presented in US$'000 except where
otherwise indicated.
2. Significant Accounting Policies
The accounting policies adopted in the preparation of these
audited annual financial statements have been consistently applied
during the year, unless otherwise stated.
Statement of Compliance
The financial statements have been prepared in accordance with
the International Financial Reporting Standards as adopted by the
European Union ("IFRS"), which comprise standards and
interpretations approved by the International Accounting Standards
Board ("IASB") together with applicable legal and regulatory
requirements of Guernsey Law, and the SFS.
Basis of Preparation
The financial statements have been prepared under the historical
cost basis, modified by the revaluation of financial instruments
designated at fair value through profit or loss ("FVTPL") upon
initial recognition. The principal accounting policies adopted are
set out below. The preparation of financial statements in
conformity with IFRS requires the Company to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. The
presentation of the financial statements and certain disclosures
follows the guidance as outlined in the Association of Investment
Companies ("AIC") Statement of Recommended Practice ("SORP").
Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the
previous financial year, except that the Company has adopted the
following:
(i)
Standards, amendments and
interpretations effective during the year
Amendment to IAS 7 – Statement of Cash Flows – amendments as a
result of the Disclosure initiative (“IAS 7”). The amendments are
intended to clarify IAS 7 to improve information provided to users
of financial statements about an entity's financing activities. The
financial statements now include a reconciliation of changes in
financing liabilities arising from both cash flow and non-cash flow
items (note 29).
(ii)
Standards, amendments and interpretations that are not
effective and are expected to have a material impact on the
financial position or performance of the Company
IFRS 9 replaces IAS 39 - Financial
Instruments: Recognition and Measurement.
Nature and scope of new or amended
pronouncement
IFRS 9 "Financial Instruments" replaces IAS 39 "Financial
Instruments: Recognitions and Measurement" and is effective for an
annual reporting periods beginning on or after 1 January 2018. It specifies how an entity should
classify and measure financial assets and liabilities, hedging, and
a new expected credit losses model for calculating impairment of
financial assets. The standard also contains the new hedge
accounting rules. The Company intends to adopt the standard once it
becomes mandatory.
Classification Financial Assets and
of Financial Liabilities
IFRS 9 contains three principal classification categories for
financial assets measured at amortised cost, fair value through
other comprehensive income and fair value through profit or loss.
IFRS 9 classification is generally based on the business model in
which a financial asset is managed and its contractual cash
flows.
Based on the Company's initial assessment, this standard is not
expected to have a material impact on the classification of
financial assets and financial liabilities of the Company. This is
because:
a) Other financial
instruments currently measured at fair value through profit or loss
under IAS 39 are designated into this category because they are
managed on a fair value basis in accordance with a documented
investment strategy. These investments are not expected to meet the
SPPI criterion (solely payments of principal and interest) and
accordingly, these financial instruments will be mandatorily
measured at fair value through profit or loss under IFRS 9; and
b) Financial assets
currently measured at amortised cost are: cash and cash
equivalents, securities sold receivable and other receivables.
These instruments meet the solely payments of principal and
interest criterion and are held in a held-to collect business
model. Accordingly, they will continue to be measured at amortised
cost under IFRS 9.
c) Financial
liabilities currently valued at amortised cost are loans payable,
other payables and ZDPs and will continued to be measured at
amortised cost. CULs are measured at FVTPL currently and will
continued to be under IFRS 9 as the conversion feature will be
considered an embedded derivative.
d) The Company is
required to consider the change in the fair value of Financial
liabilities valued at FVTPL, due to any change in the Company's
credit risk profile and allocate the fair value movement through
Other Comprehensive Income.
Impairment of Financial Assets
IFRS 9 replaced the "incurred loss" model in IAS 39 with an
"expected credit loss" model. The new impairment model also applies
to certain loan commitments and financial guarantee contracts but
not to equity investments. Under IFRS 9, credit losses are
recognised earlier than under IAS 39.
Based on the Company's initial assessment, changes to the
impairment model are not expected to have a material impact on the
financial assets of the Company. This is because:
a) the majority of the
financial assets are measured at fair value through profit or loss
and the impairment requirements do not apply to such instruments;
and
b) the financial
assets at amortised cost are short-term (i.e. no longer than 12
months) and/or assets considered to be of high credit quality;
accordingly, the expected credit losses on such assets are expected
to be small.
Hedge Accounting
The Company does not apply hedge accounting; therefore, IFRS 9
hedge accounting-related changes do not have an impact on the
financial statements of the Company.
There are certain other current standards, amendments and
interpretations that are not materially relevant to the Company's
operations.
Functional and presentational currency
Items included in the financial statements of the Company are
measured in the currency of the primary economic environment in
which the Company operates (the "functional currency"). The
functional currency of the Company as determined in accordance with
IFRS is the US Dollar because this is the currency that best
reflects the economic substance of the underlying events and
circumstances of the Company. The financial statements are
presented in US Dollars, as the Company has chosen the US Dollar as
its presentation currency.
Foreign exchange
Monetary assets and liabilities denominated in foreign currency
are translated into the functional currency at the rate of exchange
ruling at the end of the reporting period date. Transactions in
foreign currencies during the course of the period are translated
at the rate of exchange ruling at the date of the transaction.
Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation at reporting period end
exchange rates of monetary assets and liabilities that are
denominated in foreign currencies are recognised in the Statement
of Comprehensive Income. Foreign exchange gains and losses on
financial assets and financial liabilities at fair value through
profit or loss are recognised together with other changes in the
fair value. Net foreign exchange gains or losses on monetary
financial assets and liabilities other than those classified as at
fair value through profit or loss are included in the line item
'Net foreign currency exchange gain/(loss)'.
Financial assets and liabilities at fair value through profit or
loss ("FVTPL")
(i) Classification
The Company classifies its investments within its micro-cap,
real estate and other investments portfolios as financial assets at
fair value through profit or loss. These financial assets are
designated by the Board of Directors as at fair value through
profit or loss at inception.
Financial assets designated at fair value through profit or loss
at inception are those that are managed and their performance
evaluated on a fair value basis in accordance with the Company's
investment strategy as documented in its prospectus.
Financial liabilities may be designated at fair value through
profit or loss rather than stated at amortised cost, when the board
have considered the appropriate accounting treatment for the
specific liability.
(ii)
Recognition/derecognition
Purchases and sales of investments are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment. Investments are derecognised when the rights to
receive cash flows from the investments have expired or the Company
has transferred substantially all risks and rewards of
ownership.
Financial assets and liabilities at fair value through profit or
loss are initially recognised at fair value. Transaction costs are
expensed in the Statement of Comprehensive Income. Subsequent to
initial recognition, all financial assets and liabilities at fair
value through profit or loss are measured at fair value. Gains and
losses arising from changes in the fair value of the 'financial
assets or financial liabilities at fair value through profit or
loss' category are presented in the Statement of Comprehensive
Income in the year in which they arise.
Realised surpluses and deficits on the partial sale of
investments are arrived at by deducting the average cost of such
investments from the sales proceeds.
(iii) Fair value
estimation
The fair value of financial instruments traded in active markets
(such as publicly traded securities) is based on quoted market
prices at the Statement of Financial Position date. The quoted
market price used for financial assets held by the Company is the
bid price.
Unquoted preferred shares, micro cap loans, unquoted equities
and equity related securities investments are typically valued by
reference to their enterprise value, which is generally calculated
by applying an appropriate multiple to the last twelve months'
earnings before interest, tax, depreciation and amortisation
("EBITDA"). In determining the multiple, the Directors consider
inter alia, where practical, the multiples used in recent
transactions in comparable unquoted companies, previous valuation
multiples used and where appropriate, multiples of comparable
publicly traded companies. In accordance with the International
Private Equity and Venture Capital Association ("IPEVCA") valuation
guidelines, a marketability discount is applied which reflects the
discount that in the opinion of the Directors, market participants
would apply in a transaction in the investment in question.
The valuation techniques to derive the fair value of real estate
interests and other investments are detailed in note 5.
Cash on deposit and cash and cash equivalents
Cash on deposit comprises bank deposits with an original
maturity of three months or more. Cash and cash equivalents
comprise bank balances and cash held by the Company, including
short-term bank deposits with a maturity of three months or less.
Cash also includes amounts held in interest-bearing overnight
accounts.
Securities sold receivable
Securities sold receivables do not carry any interest and are
short-term in nature and are accordingly stated at their nominal
value as reduced by appropriate allowances for estimated
irrecoverable amounts.
Other receivables and payables
Other receivables do not carry any interest and are short-term
in nature and are accordingly stated at their nominal value as
reduced by appropriate allowances for estimated irrecoverable
amounts. Other payables are not interest-bearing and are stated at
their nominal value.
Financial liabilities and equity
Financial liabilities and equity are classified according to the
substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in
the assets of the Company after deducting all of its liabilities.
Financial liabilities, other than CULS (see overleaf) and
equity are recorded at the amount of
proceeds received, net of issue costs. Ordinary Shares are
classified as equity in accordance with IAS 32 – “Financial
Instruments: Presentation” as these instruments include no
contractual obligation to deliver cash and the redemption mechanism
is not mandatory.
Zero Dividend Preference ("ZDP") shares
In accordance with International Accounting Standard 32 -
'Financial Instruments: Presentation', ZDP shares have been
disclosed as a financial liability as the shares are redeemable at
a fixed date and holders are entitled to a fixed return. ZDP shares
are recorded at amortised cost using the effective interest rate
method.
Convertible Unsecured Loan Stock
The Convertible Unsecured Loan Stock (“CULS”) issued by the
Company is denominated in a currency (GBP) other than the Company's
functional currency and hence fails the 'fixed-for-fixed'
criteria for equity classification. Rather
than account for the host debt and embedded conversion
element separately, the Company elects to account for the CULS in
its entirety in accordance with the IAS 39 'Fair Value Option'. The
CULS' fair value is deemed to be the listed offer price at the year
end. CULS is translated at the exchange rate at the reporting date
and both differences in fair value due to the listed offer price
and exchange rates are recognised in the Statement of Comprehensive
Income.
Income
Interest income for all interest bearing financial instruments
is included on an accruals basis using the effective interest
method. Dividend income is recognised when the Company's right to
receive payment is established. When there is reasonable doubt that
income due to be received will actually be received, such income is
not accrued until it is clear that its receipt is probable. Where
following an accrual of income, receipt becomes doubtful, the
accrual is either fully or partly written off until the reasonable
doubt is removed.
Expenses
Investment Adviser's basic fees are allocated to revenue. The
Company also provides for a Capital Gains Incentive fee based on
net realised and unrealised investments gains.
Expenses which are deemed to be incurred wholly in connection
with the maintenance or enhancement of the value of the investments
are charged to realised capital reserve. All other expenses are
accounted for on an accruals basis and are presented as revenue
items.
Finance costs
Finance costs are interest expenses in respect of the ZDP
shares, loans payable and CULS, and are recognised in the Statement
of Comprehensive Income using the effective interest rate
method.
Escrow accounts
Where investments are disposed of, the consideration given may
include contractual terms requiring that a percentage of the
consideration is held in an escrow account pending resolution of
any indemnifiable claims that may arise and as such the value of
these escrow amounts is not immediately known. The Company records
gains realised on investments held in escrow in the Statement of
Comprehensive Income following confirmation that any such
indemnifiable claims have been resolved and none is expected in the
future.
Taxation
The company has been granted Guernsey tax exempt status in
accordance with The Income Tax (Exempt Bodies) (Guernsey) Ordinance
1989 (as amended). However, in some jurisdictions, investment
income and capital gains are subject to withholding tax deducted at
the source of the income. The Company presents the withholding tax
separately from the gross investment income in the Statement of
Comprehensive Income.
3. Estimates and Judgements
The following are the key judgements and other key sources of
estimation uncertainty at the end of the reporting year, that have
a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial
year:
Estimates
Fair Value of Investments at Fair
Value Through Profit or Loss ("FVTPL")
Certain investments are classified as FVTPL, and valued
accordingly, as disclosed in note 2. The key source
of estimation uncertainty is on the valuation of unquoted
equities, equity-related securities and real estate
investments.
In reaching its valuation of the unquoted equities,
equity-related securities and real estate investments the key
estimates the Board has to make are those relating to the
multiples, discount factors and real estate valuation factors (note
5) used in the valuation models.
Judgements
Assessment as an Investment
Entity
Entities that meet the definition of an investment entity within
IFRS 10 are required to measure their subsidiaries at fair value
through profit or loss rather than consolidate them. The criteria
which define an investment entity are as follows:
• An entity that
obtains funds from one or more investors for the purpose of
providing those investors with investment services;
• An entity that
commits to its investors that its business purpose is to
invest funds solely for returns from capital
appreciation, investment income or both; and
• An entity that measures
and evaluates the performance of substantially all of its
investments on a fair value basis.
The Company has a wide range of investors; through its
Investment Adviser management services it enables investors to
access private equity, real estate and similar investments.
The Company’s objective to provide “significant capital
appreciation” is consistent with that of an investment entity. The
Company has clearly defined exit strategies for each of its
investment classes, these strategies are again consistent with an
investment entity.
In determining the fair value of unlisted investments JZCP
follows the principles of IPEVCA valuation guidelines. The
Valuation Guidelines have been prepared with the goal that Fair
Value measurements derived when using these Valuation Guidelines
are compliant with IFRS. The Board of JZCP evaluates the
performance of unlisted investments quarterly on a fair value
basis. Listed investments are recorded at Fair Value in accordance
with IFRS being the last traded market price where this price falls
within the bid-ask spread.
The Board has also concluded that the Company meets the
additional characteristics of an investment entity, in that it has
more than one investment; the investments are predominantly in the
form of equities and similar securities and it has more than one
investor.
Investment in Associates
An associate is an entity over which the Company has significant
influence. An entity is regarded as a subsidiary only if the
Company has control over its strategic, operating and financial
policies and intends to hold the investment on a long-term basis
for the purpose of securing a contribution to the Company’s
activities.
In accordance with the exemption within IAS 28 Investments in
Associates and Joint Ventures, the Company does not account for its
investment in EuroMicrocap Fund 2010, L.P., EuroMicrocap Fund-C,
L.P. JZI Fund III GP, L.P., Spruceview Capital Partners, LLC and
Orangewood Partners Platform LLC using the equity method. Instead,
the Company has elected to measure its investment in its associates
at fair value through profit or loss.
The Directors have determined that although the Company has over
50% economic interest in EuroMicrocap Fund 2010, L.P., EuroMicrocap
Fund-C, L.P. JZI Fund III GP, L.P. and Orangewood Partners Platform
LLC, it does not have the power to govern the financial and
operating policies of the entities, but does have significant
influence over the strategic, operating and financial policies.
Going Concern
A fundamental principle of the preparation of financial
statements in accordance with IFRS is the judgement that an entity
will continue in existence as a going concern for a period of at
least 12 months from signing of the financial statements, which
contemplates continuity of operations and the realisation of assets
and settlement of liabilities occurring in the ordinary course of
business.
The Directors consider the Company has adequate financial
resources, in view of its holding in cash and cash equivalents and
the income streams deriving from its investments and believe that
the Company is well placed to manage its business risks
successfully to continue in operational existence for a period of
at least 12 months from signing of the financial statements and
that it is appropriate to prepare the financial statements on the
going concern basis.
4. Segment Information
The Investment Manager is responsible for allocating resources
available to the Company in accordance with the overall business
strategies as set out in the Investment Guidelines of the Company.
The Company is organised into the following segments:
• Portfolio of US micro-cap investments
• Portfolio of European micro-cap investments |
|
|
• Portfolio of Real estate
investments |
|
• Portfolio of Other investments |
|
The investment objective of each segment is to achieve
consistent medium-term returns from the investments in each segment
while safeguarding capital by investing in a diversified
portfolio.
Investments in treasury bills and corporate bonds are not
considered as part of the investment strategy and are therefore
excluded from this segmental analysis.
Segmental Profit/(Loss)
For the year ended 28 February 2018 |
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue |
|
|
|
|
|
|
|
24,426 |
|
6,829 |
|
301 |
|
- |
|
31,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmental revenue |
|
|
|
|
24,426 |
|
6,829 |
|
301 |
|
- |
|
31,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realisations from investments held in
Escrow |
1,922 |
|
- |
|
- |
|
- |
|
1,922 |
|
Net gain/(loss) on investments at
FVTPL |
50,549 |
|
12,990 |
|
(50,210) |
|
(7,189) |
|
6,140 |
|
Investment Adviser's base fee |
|
(6,594) |
|
(2,295) |
|
(7,057) |
|
(254) |
|
(16,200) |
|
Investment Adviser's capital incentive
fee1 |
(14,530) |
|
(1,111) |
|
9,982 |
|
1,360 |
|
(4,299) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmental operating
profit/(loss) |
|
55,773 |
|
16,413 |
|
(46,984) |
|
(6,083) |
|
19,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended 28 February 2017 |
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue |
|
|
|
|
|
|
|
|
20,485 |
|
4,580 |
|
322 |
|
301 |
|
25,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmental revenue |
|
|
20,485 |
|
4,580 |
|
322 |
|
301 |
|
25,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realisations from investments held in
Escrow |
5,942 |
|
- |
|
- |
|
- |
|
5,942 |
|
Net gain/(loss) on investments at
FVTPL |
|
|
5,263 |
|
1,102 |
|
21,236 |
|
(783) |
|
26,818 |
|
Write back of Impairments on loans and
receivables |
- |
|
- |
|
- |
|
2,374 |
|
2,374 |
|
Investment Adviser's base fee |
|
|
|
|
|
|
|
|
(6,250) |
|
(2,423) |
|
(6,418) |
|
(607) |
|
(15,698) |
|
Investment Adviser's capital incentive
fee1 |
(7,882) |
|
264 |
|
(4,247) |
|
(135) |
|
(12,000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmental operating profit |
|
|
|
17,558 |
|
3,523 |
|
10,893 |
|
1,150 |
|
33,124 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1The capital incentive fee is allocated across segments where a
realised or unrealised gain or loss has occurred. Segments with
realised or unrealised losses are allocated a credit pro rata to
the size of the loss and segments with realised or unrealised gains
are allocated a charge pro rata to the size of the gain.
Certain income and expenditure is not considered part of the
performance of an individual segment. This includes net foreign
exchange gains, interest on cash, finance costs, management fees,
custodian and administration fees, directors’ fees and other
general expenses.
The following table provides reconciliation between total
segmental operating profit and operating profit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segmental Operating
Profit |
|
|
|
|
|
|
|
19,119 |
|
33,124 |
(Loss)/gain on financial liabilities at
fair value through profit or loss |
|
|
|
(2,907) |
|
2,510 |
Net foreign exchange (loss)/gains |
|
|
|
|
|
|
|
(6,457) |
|
4,728 |
Interest on treasury notes and corporate
bonds |
|
|
|
|
|
|
|
195 |
|
11 |
Interest on cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128 |
|
41 |
Fees payable to investment adviser based
on non-segmental assets |
|
|
|
(726) |
|
(1,571) |
Expenses not attributable to
segments |
|
|
|
|
|
(3,085) |
|
(2,550) |
Net gain on listed investments |
|
|
|
- |
|
1,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit |
|
|
|
|
|
|
|
|
|
|
|
6,267 |
|
38,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation between total
segmental revenue and Company revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Total segmental revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,556 |
|
25,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-segmental revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on treasury gilts and corporate
bonds |
|
|
|
|
|
|
|
|
|
|
|
195 |
|
11 |
Bank and deposit interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
128 |
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,879 |
|
25,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmental Net Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 28 February 2018 |
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
Segmental assets |
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
488,258 |
|
103,457 |
|
463,391 |
|
15,302 |
|
1,070,408 |
|
|
Other receivables |
|
|
|
|
|
- |
|
- |
|
2,090 |
|
- |
|
2,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmental assets |
488,258 |
|
103,457 |
|
465,481 |
|
15,302 |
|
1,072,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmental liabilities |
|
|
|
|
|
|
|
|
|
|
|
Payables and accrued expenses |
(34,274) |
|
493 |
|
(15,973) |
|
4,777 |
|
(44,977) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmental liabilities |
(34,274) |
|
493 |
|
(15,973) |
|
4,777 |
|
(44,977) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmental net assets |
453,984 |
|
103,950 |
|
449,508 |
|
20,079 |
|
1,027,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 28 February 2017 |
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
Segmental assets |
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
423,137 |
|
154,277 |
|
468,599 |
|
23,167 |
|
1,069,180 |
|
Other receivables |
|
|
|
|
|
- |
|
- |
|
495 |
|
- |
|
495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmental assets |
423,137 |
|
154,277 |
|
469,094 |
|
23,167 |
|
1,069,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmental liabilities |
|
|
|
|
|
|
|
|
|
|
Payables and accrued expenses |
(19,666) |
|
1,646 |
|
(25,796) |
|
3,398 |
|
(40,418) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmental liabilities |
(19,666) |
|
1,646 |
|
(25,796) |
|
3,398 |
|
(40,418) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segmental net assets |
403,471 |
|
155,923 |
|
443,298 |
|
26,565 |
|
1,029,257 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other receivables and prepayments are not considered to be part
of individual segment assets. Certain liabilities are not
considered to be part of the net assets of an individual segment.
These include custodian and administration fees payable, directors’
fees payable and other payables and accrued expenses.
The following table provides a reconciliation between total
segmental assets/liabilities and total assets/liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segmental Assets |
|
|
|
|
|
|
|
|
|
1,072,498 |
|
1,069,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Segmental Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000 |
|
29,063 |
|
Treasury bills |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,975 |
|
- |
|
Securities sold receivable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,987 |
|
- |
|
Other receivables |
|
|
|
|
|
68 |
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,156,528 |
|
1,098,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Segmental Liabilities |
|
|
|
|
|
|
|
|
|
(44,977) |
|
(40,418) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Segmental Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Zero Dividend Preference (2022)
shares |
|
|
|
|
|
(62,843) |
|
(53,935) |
|
Convertible Unsecured Loan Stock |
|
|
|
|
|
(59,970) |
|
(57,063) |
|
Loans payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150,125) |
|
(97,396) |
|
Other payables |
|
|
|
|
|
(1,040) |
|
(1,107) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
|
|
|
|
|
|
|
(318,955) |
|
(249,919) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Assets |
|
|
|
|
|
|
|
|
|
837,573 |
|
848,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Fair Value of Financial
Instruments
The Company classifies fair value measurements of its financial
instruments at Fair Value Through Profit or Loss ("FVTPL") using a
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The financial assets valued at
FVTPL are analysed in a fair value hierarchy based on the following
levels:
Level 1
Quoted prices (unadjusted) in active markets for identical
assets or liabilities.
Level 2
Those involving inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices). For example, investments which are valued based on quotes
from brokers (intermediary market participants) are generally
indicative of Level 2 when the quotes are executable and do not
contain any waiver notices indicating that they are not necessarily
tradable. Another example would be derivatives such as interest
rate swaps or forward currency contracts where inputs are
observable and therefore may also fall into Level 2. At the year
end, the Company had assessed it held no assets or liabilities
valued at FVTPL that were using inputs that would be classified as
Level 2 within the valuation method.
Level 3
Those involving inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
Investments in JZCP's portfolio valued using unobservable inputs
such as multiples, capitalisation rates, discount rates fall within
Level 3.
Differentiating between Level 2 and Level 3 fair value
measurements i.e., assessing whether inputs are observable and
whether the unobservable inputs are significant, may require
judgement and a careful analysis of the inputs used to measure fair
value including consideration of factors specific to the asset or
liability.
The following table shows financial instruments recognised at
fair value, analysed between those whose fair value is based
on:
Financial assets at 28 February
2018
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Micro-cap |
|
|
|
|
|
|
|
- |
|
- |
|
488,258 |
|
488,258 |
European Micro-cap |
|
|
|
|
|
|
|
- |
|
- |
|
103,457 |
|
103,457 |
Real Estate |
|
|
|
|
|
|
|
- |
|
- |
|
463,391 |
|
463,391 |
Other Investments |
|
|
|
|
|
|
|
- |
|
- |
|
15,302 |
|
15,302 |
Listed Investments |
|
|
|
|
|
|
|
49,975 |
|
- |
|
- |
|
49,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,975 |
|
- |
|
1,070,408 |
|
1,120,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at 28 February 2017
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Micro-cap |
|
|
|
|
|
|
|
- |
|
- |
|
423,137 |
|
423,137 |
European Micro-cap |
|
|
|
|
- |
|
- |
|
154,277 |
|
154,277 |
Real Estate |
|
|
|
|
|
|
|
- |
|
- |
|
468,599 |
|
468,599 |
Other Investments |
|
|
|
|
- |
|
- |
|
23,167 |
|
23,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
- |
|
1,069,180 |
|
1,069,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities designated at fair value through profit or
loss at inception
Financial liabilities at 28 February
2018
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Subordinated Unsecured Loan
Stock |
|
|
|
59,970 |
|
- |
|
- |
|
59,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,970 |
|
- |
|
- |
|
59,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at 28 February
2017
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Subordinated Unsecured Loan
Stock |
|
|
|
57,063 |
|
- |
|
- |
|
57,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,063 |
|
- |
|
- |
|
57,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers between levels
There were no transfers between the levels of hierarchy of
financial assets and liabilities recognised at fair value within
the year ended 28 February 2018 and
the year ended 28 February 2017.
Valuation techniques
In valuing investments in accordance with IFRS, the Board follow
the principles as detailed in the IPEVCA guidelines.
When fair values of listed equity and debt securities at the
reporting date are based on quoted market prices or binding dealer
price quotations (bid prices for long positions), without any
deduction for transaction costs, the instruments are included
within Level 1 of the hierarchy.
The fair value of bank debt which is derived from unobservable
data is classified as Level 3. Investments for which there are no
active markets are valued according to one of the following
methods:
Real Estate
JZCP makes its Real Estate investments through a wholly-owned
subsidiary, which in turn owns interests in various residential,
commercial, and development real estate properties. The net asset
value of the subsidiary is used for the measurement of fair value.
The underlying fair value of JZCP’s Real Estate holdings, however,
is represented by the properties themselves. The Company's
Investment Adviser and Board review the fair value methods and
measurement of the underlying properties on a quarterly basis.
Where available, the Company will use third party appraisals on the
subject property, to assist the fair value measurement of the
underlying property. Third-party appraisals are prepared in
accordance with the Appraisal and Valuation Standards (6th edition)
issued by the Royal Institution of Chartered
Surveyors. Fair value techniques used in the underlying valuations
are:
- Use of comparable market values per square
foot of properties in recent transactions in the vicinity in which
the property is located, and in similar condition, of the relevant
property, multiplied by the property’s square footage.
- Discounted Cash Flow ("DCF") analysis, using
the relevant rental stream, less expenses, for future periods,
discounted at a Market Capitalization ("MC") rate, or interest
rate.
- Relevant rental stream less expenses divided
by the market capitalization rate; this method approximates the
enterprise value construct used for non-real estate assets.
For each of the above techniques third party debt is deducted to
arrive at fair value.
Due to the inherent uncertainties of real estate valuation, the
values reflected in the financial statements may differ
significantly from the values that would be determined by
negotiation between parties in a sales transaction and those
differences could be material.
Unquoted preferred
shares, micro-cap loans, unquoted equities and equity related
securities
Unquoted preferred shares, micro-cap loans, unquoted equities
and equity related securities investments are classified in the
Statement of Financial Position as Investments at fair value
through profit or loss. These investments are typically valued by
reference to their enterprise value, which is generally calculated
by applying an appropriate multiple to the last twelve months'
earnings before interest, tax, depreciation and amortisation
("EBITDA"). In determining the multiple, the Board consider inter
alia, where practical, the multiples used in recent transactions in
comparable unquoted companies, previous valuation multiples used
and where appropriate, multiples of comparable publicly traded
companies. In accordance with IPEVCA guidelines, a marketability
discount is applied which reflects the discount that in the opinion
of the Board, market participants would apply in a transaction in
the investment in question.
In respect of unquoted preferred shares and micro-cap loans the
Company values these investments by reference to the attributable
enterprise value as the exit strategy in respect to these
investments would be a one tranche disposal together with the
equity component. The fair value of the investment is determined by
reference to the attributable enterprise value (this is calculated
by a multiple of EBITDA reduced by senior debt and marketability
discount) covering the aggregate of the unquoted equity, unquoted
preferred shares and debt instruments invested in the underlying
company. The increase of the fair value of the aggregate investment
is reflected through the unquoted equity component of the
investment and a decrease in the fair value is reflected across all
financial instruments invested in an underlying company.
Other
Investments
Other investments at year end, comprise of mainly the Company's
investment in the asset management business - Spruceview Capital
Partners ("Spruceview"). Spruceview is valued at impaired cost,
which the Board currently considers an appropriate measure of fair
value. As there are no unobservable inputs in the valuation of
Spruceview no sensitivity analysis is provided in the current
year.
New
Investments
The fair value of a new investment, classified at Level 3, is
deemed to approximate to cost for the first year the investment is
held, unless there is an event or evidence which indicates a
requirement for an adjustment.
Quantitative information of significant unobservable inputs and
sensitivity analysis to significant changes in unobservable inputs
within Level 3 hierarchy
The significant unobservable inputs used in fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity as at 28 February 2018 and 28
February 2017 are shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
28.2.2018 |
|
Valuation |
|
Unobservable |
Range (weighted average) |
Sensitivity |
|
Effect on Fair Value |
|
|
|
US$'000 |
|
Technique |
|
input |
used 1 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap investments |
488,258 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
6.0x -
12.6x (8.3x) |
|
0.5x / -0.5x |
|
(32,783) |
|
33,044 |
|
|
|
|
|
|
Discount
to Average Multiple |
|
15% - 35%
(25%) |
|
+5% / -5% |
|
(43,208) |
|
45,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European micro-cap investments |
|
103,457 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
5.5x - 12.6x (8.1x) |
0.5x / -0.5x |
|
(3,324) |
|
3,324 |
|
|
|
|
|
|
|
Discount to Average Multiple |
13% - 45% (30%) |
|
+5% / -5% |
|
(2,833) |
|
2,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 2 |
|
463,391 |
|
Comparable Sales |
|
Market
Value Per Square Foot |
|
$314 -
$3,106 per sq ft |
|
-5% /+5% |
|
(14,057) |
|
12,708 |
|
|
|
|
DCF
Model/Income Approach |
|
Discount
Rate |
|
5.5% -
7.5% |
+25bps /-25bps |
(1,729) |
|
2,345 |
|
|
|
|
|
Cap Rate/
Income Approach |
|
Capitalisation Rate |
|
3.25 -
5.5% |
+25bps /-25bps |
(9,527) |
|
9,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
28.2.2017 |
|
Valuation |
|
Unobservable |
Range (weighted average) |
Sensitivity |
|
Effect on Fair Value |
|
|
US$'000 |
|
Technique |
|
input |
used 1 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap investments |
423,137 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
6.0x -
18.7x (8.3x) |
|
0.5x /
-0.5x |
|
(37,665) |
|
36,186 |
|
|
|
|
|
|
Discount
to Average Multiple |
|
10% - 35%
(26%) |
|
+5% /
-5% |
|
(50,801) |
|
49,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European micro-cap investments |
|
154,277 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
6.2x - 11.3.6x (8.6x) |
0.5x /
-0.5x |
|
(3,511) |
|
3,511 |
|
|
|
|
|
|
Discount
to Average Multiple |
6% - 41% (8%) |
|
+5% /
-5% |
|
(4,512) |
|
4,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate 2 |
|
468,599 |
|
Comparable Sales |
|
Market
Value Per Square Foot |
|
$286 -
$3,106 per sq ft |
|
-5%
/+5% |
|
(13,706) |
|
14,786 |
|
|
|
|
DCF
Model/Income Approach |
|
Discount
Rate |
|
6.25% -
6.75% |
+25bps /-25bps |
(1,228) |
|
1,515 |
|
|
|
|
Cap Rate/
Income Approach |
|
Capitalisation Rate |
|
4% -
5% |
+25bps /-25bps |
(8,357) |
|
9,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 The sensitivity analysis refers to a percentage amount added
or deducted from the average input and the effect this has on the
fair value.
2 The Fair Value of JZCP's investment in financial interests in
Real Estate, is measured as JZCP's percentage interest in the value
of the underlying properties. The Board consider the discount rate
used, applied to the DCF, when valuing the properties as the most
significant unobservable input affecting the measurement of fair
value.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and the end of the reporting year.
Year ended 28 February 2018 |
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 March 2017 |
|
|
|
|
423,137 |
|
154,277 |
|
468,599 |
|
23,167 |
|
1,069,180 |
Investments in year including capital
calls |
36,592 |
|
15,220 |
|
47,227 |
|
4,000 |
|
103,039 |
Payment In Kind ("PIK") |
|
|
22,287 |
|
43 |
|
- |
|
69 |
|
22,399 |
Proceeds from investments realised |
(44,911) |
|
(86,777) |
|
(2,225) |
|
(4,745) |
|
(138,658) |
Net gains/(losses) on investments |
50,549 |
|
12,990 |
|
(50,210) |
|
(7,189) |
|
6,140 |
Movement in accrued interest |
604 |
|
7,704 |
|
- |
|
- |
|
8,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 28 February 2018 |
|
|
|
|
488,258 |
|
103,457 |
|
463,391 |
|
15,302 |
|
1,070,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 28 February 2017 |
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 March 2016 |
|
|
|
|
386,173 |
|
168,797 |
|
366,158 |
|
63,570 |
|
984,698 |
Investments in year including capital
calls |
62,778 |
|
2,739 |
|
89,506 |
|
4,500 |
|
159,523 |
Payment In Kind ("PIK") |
|
|
17,793 |
|
- |
|
- |
|
118 |
|
17,911 |
Proceeds from investments realised |
(46,996) |
|
(21,906) |
|
(8,301) |
|
(45,484) |
|
(122,687) |
Net gains/(losses) on investments |
5,263 |
|
1,102 |
|
21,236 |
|
(784) |
|
26,817 |
Transfer (from)/to segment |
(1,245) |
|
- |
|
- |
|
1,245 |
|
- |
Movement in accrued interest |
(629) |
|
3,545 |
|
- |
|
2 |
|
2,918 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 28 February 2017 |
|
|
|
|
423,137 |
|
154,277 |
|
468,599 |
|
23,167 |
|
1,069,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of Zero Dividend Preference ("ZDP") shares
The fair value of the ZDP shares is deemed to be their quoted
market price. As at 28 February 2018
the ask price for the ZDP (2022) shares was £4.38 (28 February 2017: £4.22) the total fair value of
the ZDP shares was $71,863,000
(28 February 2017: $62,532,000) which is $9,020,000 (28 February
2017: $8,597,000) higher than
the liability recorded in the Statement of Financial Position.
ZDP shares are recorded at amortised cost and would fall in to
the Level 1 hierarchy if valued at FVTPL.
6. Net Gain on Investments at Fair
Value Through Profit or Loss
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
(Loss)/gain on investments held in
investment portfolio at year end |
|
|
|
|
|
|
Net movement in unrealised gains in
year |
|
|
|
|
|
|
|
(48,554) |
|
16,069 |
Net unrealised gains in prior years now
realised |
|
|
|
|
|
|
|
45,718 |
|
11,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net movement in unrealised gains on
investments held at the year end |
|
|
|
(2,836) |
|
27,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on investments realised in
year |
|
|
|
|
|
|
|
|
|
|
Proceeds from investments realised |
|
|
|
|
|
|
|
163,580 |
|
183,210 |
Cost of investments realised |
|
|
|
|
|
|
|
|
|
(108,886) |
|
(170,580) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realised gains |
|
|
|
|
|
|
|
54,694 |
|
12,630 |
Net unrealised gains in prior years now
realised |
|
|
|
|
|
|
|
(45,718) |
|
(11,908) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains in the year on investments
realised |
|
|
|
|
|
|
|
8,976 |
|
722 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on investments in the year |
|
|
|
|
|
|
|
6,140 |
|
28,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Write Back of Impairments on
Loans and Receivables
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loans repaid |
|
|
|
|
|
|
|
|
|
|
|
- |
|
3,114 |
Cost of loans repaid |
|
|
|
|
|
|
|
|
|
|
|
- |
|
(2,976) |
Write back of impairments recognised in
earlier years |
|
|
|
|
|
|
- |
|
2,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write back of impairments on loans and
receivables |
|
|
|
|
|
|
- |
|
2,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Investment Income
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from investments classified as
FVTPL |
|
|
|
|
|
31,751 |
|
25,599 |
Income from investments classified as
loans and receivables |
|
|
|
- |
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,751 |
|
25,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income for the year ended 28 February
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
Loan note |
|
Other |
|
|
|
|
|
|
|
|
Dividends |
|
PIK |
|
Cash |
|
Interest |
|
Total |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap portfolio |
|
|
|
|
|
22,686 |
|
328 |
|
1,412 |
|
- |
|
24,426 |
European micro-cap portfolio |
|
|
|
|
|
- |
|
5,950 |
|
879 |
|
- |
|
6,829 |
Real estate |
|
|
|
|
|
- |
|
- |
|
- |
|
301 |
|
301 |
Treasury Bills |
|
|
|
- |
|
- |
|
- |
|
195 |
|
195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,686 |
|
6,278 |
|
2,291 |
|
496 |
|
31,751 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income for the year ended 28 February
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
Loan note |
|
Other |
|
|
|
|
|
|
|
|
Dividends |
|
PIK |
|
Cash |
|
Interest |
|
Total |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap portfolio |
|
|
|
|
|
16,464 |
|
940 |
|
2,993 |
|
88 |
|
20,485 |
European micro-cap portfolio |
|
|
|
|
|
- |
|
3,841 |
|
739 |
|
- |
|
4,580 |
Real estate |
|
|
|
|
|
- |
|
- |
|
- |
|
322 |
|
322 |
Other investments |
|
|
|
|
|
120 |
|
- |
|
181 |
|
- |
|
301 |
Corporate bonds |
|
|
|
- |
|
- |
|
11 |
|
- |
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,584 |
|
4,781 |
|
3,924 |
|
410 |
|
25,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Finance Costs
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
CULS finance costs paid (Note 15) |
|
|
3,022 |
|
3,190 |
ZDP (2022) shares (Note 16) |
|
|
2,996 |
|
2,853 |
Loan interest (Note 17) |
|
|
|
|
|
|
|
|
11,551 |
|
7,545 |
ZDP (2016) shares (Note 16) |
|
|
- |
|
1,180 |
Margin loan interest |
|
|
|
- |
|
70 |
Refund of issue costs |
|
|
|
|
|
|
|
|
- |
|
(74) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,569 |
|
14,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Expenses
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Investment Adviser's base fee |
|
|
|
|
|
|
16,912 |
|
16,865 |
Investment Adviser's incentive fee |
|
|
|
|
|
|
4,313 |
|
12,404 |
Directors' remuneration |
|
|
|
|
|
|
415 |
|
415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,640 |
|
29,684 |
Administrative expenses: |
|
|
|
|
|
|
|
|
|
Legal fees |
|
|
|
|
|
|
1,216 |
|
584 |
Other professional fees |
|
|
|
|
|
|
352 |
|
349 |
Accounting, secretarial and
administration fees |
|
|
|
|
|
|
350 |
|
350 |
Auditors' remuneration |
|
|
|
|
|
|
281 |
|
322 |
Auditors' remuneration - non-audit
fees |
|
|
|
|
|
|
127 |
|
111 |
Custodian fees |
|
|
|
|
|
|
48 |
|
43 |
Other expenses |
|
|
|
|
|
|
296 |
|
376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,670 |
|
2,135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
|
|
|
|
24,310 |
|
31,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administration Fees
Northern Trust International Fund Administration Services
(Guernsey) Limited was appointed as Administrator to the Company on
1 September 2012. The Administrator
is entitled to an annual fee of $350,000 (28 February
2017: $350,000) payable
quarterly in arrears. Fees payable to the Administrator are subject
to an annual fee review.
Directors' remuneration
For the years ended 28 February
2018 and 28 February 2017, the
Chairman was entitled to a fee of $160,000 per annum and the Chairman of the Audit
Committee was entitled to a fee of US$70,000 per annum, all other directors are
entitled to a fee of US$60,000 with
one director receiving an additional $5,000 for extra responsibilities. For the year
ended 28 February 2018 total
Directors' fees included in the Statement of Comprehensive Income
were $415,000 (year ended
28 February 2017: US$415,000), of this amount $69,000 was outstanding at the year end
(28 February 2017: $68,000).
Investment Advisory and Performance
fees
The Company entered into the amended and restated investment
advisory and management agreement with Jordan/Zalaznick Advisers,
Inc. (the "Investment Adviser") on 23
December 2010 (the ”Advisory Agreement”).
Pursuant to the Advisory Agreement, the Investment Adviser is
entitled to a base management fee and to an incentive fee. The base
management fee is an amount equal to 1.5 per cent. per annum of the
average total assets under management of the Company less excluded
assets as defined under the terms of the Advisory Agreement. The
base management fee is payable quarterly in arrears; the agreement
provides that payments in advance on account of the base management
fee will be made.
For the year ended 28 February
2018, total investment advisory and management expenses,
based on the average total assets of the Company, were included in
the Statement of Comprehensive Income of $16,912,000 (year ended 28
February 2017: $16,865,000).
Of this amount $2,225,000
(28 February 2017: $2,026,000) was due and payable at the year
end.
The incentive fee has two parts. The first part is calculated by
reference to the net investment income of the Company ("Income
Incentive fee") and is payable quarterly in arrears provided that
the net investment income for the quarter exceeds 2 per cent of the
average of the net asset value of the Company for that quarter (the
"hurdle") (8 per cent. annualised). The fee is an amount equal to
(a) 100 per cent of that proportion of the net investment income
for the quarter as exceeds the hurdle, up to an amount equal to a
hurdle of 2.5%, and (b) 20 per cent. of the net investment income
of the Company above a hurdle of 2.5% in any quarter. Investments
categorised as legacy investments and other assets identified by
the Company as being excluded are excluded from the calculation of
the fee. A true-up calculation is also prepared at the end of each
financial year to determine if further fees are payable to the
Investment Adviser or if any amounts are recoverable from future
income incentive fees.
For the years ended 28 February
2018 and 28 February 2017
there was no income incentive fee.
The second part of the incentive fee is calculated by reference
to the net realised capital gains ("Capital Gains Incentive fee")
of the Company and is equal to: (a) 20 per cent. of the realised
capital gains of the Company for each financial year less all
realised capital losses of the Company for the year less (b) the
aggregate of all previous capital gains incentive fees paid by the
Company to the Investment Adviser. The capital gains incentive is
payable in arrears within 90 days of the fiscal year end.
Investments categorised as legacy investments and assets of the
EuroMicrocap Fund 2010, LP, EuroMicrocap-C Fund, L.P. and JZI Fund
III, L.P. are excluded from the calculation of the fee.
For the purpose of calculating incentive fees cumulative
preferred dividends received on the disposal of an investment are
treated as a capital return rather than a receipt of income.
At 28 February 2018, JZCP had
cumulative net realised capital gains of $4,981,000 (28 February
2017: cumulative net realised losses of $9,572,000). Therefore, at 28 February 2018 a capital gains incentive fee
("CGIF") of $996,000 (28 February 2017: $nil) was payable to the
Investment Adviser. Cumulative net realised capital losses are
offset against the unrealised provision for capital gains until a
net realised gain provision arises.
The Company also provides for a CGIF based on unrealised gains,
calculated on the same basis as that of the fee on realised
gains/losses. For the year ended 28 February
2018 a provision of $40,610,000 (2017: $37,293,000) has been included.
|
|
|
|
Provision At |
|
Provision At |
|
Paid
In Year |
Charge to Income Statement |
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
28.2.2018 |
|
28.2.2018 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Provision for CGIF on unrealised
investments |
|
|
|
40,610 |
|
37,293 |
|
n/a |
|
3,317 |
CGIF on realised investments |
|
|
|
996 |
|
- |
|
- |
|
996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,606 |
|
37,293 |
|
- |
|
4,313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision At |
|
Provision At |
|
Paid In Year |
Charge to Income Statement |
|
|
|
|
28.2.2017 |
|
28.2.2016 |
|
28.2.2017 |
|
28.2.2017 |
|
|
|
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
Provision for CGIF on unrealised
investments |
|
|
|
37,293 |
|
24,889 |
|
n/a |
|
12,404 |
CGIF on realised investments |
|
|
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,293 |
|
24,889 |
|
- |
|
12,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Advisory Agreement may be terminated by the Company or the
Investment Adviser upon not less than two and one- half years’
(i.e. 913 days’) prior notice (or such lesser period as may be
agreed by the Company and Investment Adviser).
Custodian Fees
HSBC Bank (USA) N.A, (the
"Custodian") was appointed on 12 May
2008 under a custodian agreement. The Custodian is entitled
to receive an annual fee of $2,000
and a transaction fee of $50 per
transaction. For the year ended 28 February
2018, total Custodian expenses of $48,000 (28 February
2017: $43,000) were included
in the Statement of Comprehensive Income of which $10,000 (28 February
2017: $8,000) was outstanding
at the year end and is included within Other Payables.
Auditors' Remuneration
During the year ended 28 February
2018, the Company incurred fees for audit services of
$281,000
(28 February 2017:$322,000). Fees are
also payable to Ernst & Young for non-audit services (reporting
accountant services, interim review and taxation services in
relation to the Company's status as a Passive Foreign Investment
Company).
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
Audit fees |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Audit fees - 2018: £218,000 |
|
|
298 |
|
- |
Audit fees - 2017: £211,500 (2016:
£163,000) |
|
|
(17) |
|
262 |
2016 - Additional fees charged not
accrued at 29.2.2016 (£40,000) |
|
|
- |
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total audit fees |
|
|
|
|
|
|
281 |
|
322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-audit fees paid to Ernst &
Young |
|
|
|
US$
'000 |
|
US$
'000 |
Interim Review - Invoiced in sterling
2018: £41,000 (2017: £40,000) |
|
|
55 |
|
51 |
Taxation services - 2017 |
|
|
|
|
|
|
65 |
|
- |
Taxation services - 2016 |
|
|
|
|
|
|
7 |
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-audit fees |
|
|
|
|
|
|
127 |
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11. Taxation
The Company has been granted Guernsey tax exempt status in
accordance with The Income Tax (Exempt Bodies) (Guernsey) Ordinance
1989 (as amended) in exchange for a £1,200 annual fee.
During the year, taxes of $202,000
were withheld from the proceeds of a distribution from Company's
investment in Avante. An amount of $233,000 was returned to Company in relation to
an amount provided for in a prior year. During the year ended
28 February 2017, taxes of
$713,000 were withheld from the
proceeds from the refinancing of the Company's investment in
Triwater Holdings.
12. Investments
Category of financial
instruments |
|
|
|
|
Listed |
|
Unlisted |
|
Carrying Value |
|
|
|
|
|
28.2.2018 |
|
28.2.2018 |
|
28.2.2018 |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Investments at fair value through profit
or loss |
|
|
|
|
49,975 |
|
1,070,408 |
|
1,120,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,975 |
|
1,070,408 |
|
1,120,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Listed |
|
Unlisted |
|
Total |
|
|
|
|
|
28.2.2018 |
|
28.2.2018 |
|
28.2.2018 |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Book cost at 1 March 2017 |
|
|
|
|
- |
|
897,856 |
|
897,856 |
Investments in year including capital
calls |
|
|
|
|
74,767 |
|
103,039 |
|
177,806 |
Payment in kind ("PIK") |
|
|
|
|
- |
|
22,399 |
|
22,399 |
Proceeds from investments realised |
|
|
|
|
(24,922) |
|
(138,658) |
|
(163,580) |
Net realised gain |
|
|
|
|
- |
|
54,694 |
|
54,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book cost at 28 February 2018 |
|
|
|
|
49,845 |
|
939,330 |
|
989,175 |
Unrealised gain at 28 February 2018 |
|
|
|
|
- |
|
108,914 |
|
108,914 |
Accrued interest at 28 February
2018 |
|
|
|
|
130 |
|
22,164 |
|
22,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at 28 February 2018 |
|
|
|
|
49,975 |
|
1,070,408 |
|
1,120,383 |
|
|
|
|
|
|
|
|
|
|
Comparative reconciliation for the year ended 28 February 2017
Category of financial
instruments |
|
|
|
|
Listed |
|
Unlisted |
|
Carrying Value |
|
|
|
|
|
28.2.2017 |
|
28.2.2017 |
|
28.2.2017 |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Investments at fair value through profit
or loss |
|
|
|
|
- |
|
1,069,180 |
|
1,069,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
1,069,180 |
|
1,069,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Listed |
|
Unlisted |
|
Total |
|
|
|
|
|
28.2.2017 |
|
28.2.2017 |
|
28.2.2017 |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Book cost at 1 March 2016 |
|
|
|
|
61,971 |
|
832,007 |
|
893,978 |
Investments in year including capital
calls |
|
|
|
|
- |
|
159,523 |
|
159,523 |
Payment in kind ("PIK") |
|
|
|
|
- |
|
17,911 |
|
17,911 |
Proceeds from investments realised |
|
|
|
|
(60,523) |
|
(125,801) |
|
(186,324) |
Net realised (loss)/gain |
|
|
|
|
(1,448) |
|
14,216 |
|
12,768 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book cost at 28 February 2017 |
|
|
|
|
- |
|
897,856 |
|
897,856 |
Unrealised gain at 28 February 2017 |
|
|
|
|
- |
|
157,468 |
|
157,468 |
Accrued interest at 28 February
2017 |
|
|
|
|
- |
|
13,856 |
|
13,856 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at 28 February 2017 |
|
|
|
|
- |
|
1,069,180 |
|
1,069,180 |
|
|
|
|
|
|
|
|
|
|
The above book cost is the cost to
JZCP equating to the transfer value as at 1
July 2008 upon the liquidation of JZEP and adjusted for
subsequent transactions.
The cost of PIK investments is deemed
to be interest not received in cash but settled by the issue of
further securities when that interest has been recognised in the
Statement of Comprehensive Income.
Investment in Associates
An associate is an entity over which the Company has significant
influence. An entity is regarded as a subsidiary only if the
Company has control over its strategic, operating and financial
policies and intends to hold the investment on a long-term basis
for the purpose of securing a contribution to the Company’s
activities. The Company has elected for an exemption for 'equity
accounting' for associates and instead classifies its associates as
Investments at fair value through profit or loss.
.Entity |
Place of incorporation |
|
% Interest |
|
28.2.2018 US$'000 |
|
28.2.2017 US$'000 |
|
|
|
|
|
|
|
|
|
|
|
JZI Fund III GP, L.P. (has 18.75%
partnership interest in JZI Fund III, L.P.) |
|
|
|
Cayman |
|
75% |
|
42,291 |
|
26,779 |
Orangewood Partners Platform
LLC1 |
|
|
|
Delaware |
|
79% |
|
53,281 |
|
56,731 |
Spruceview Capital Partners, LLC |
|
|
|
Delaware |
|
49% |
|
14,093 |
|
16,093 |
EuroMicrocap Fund-C, L.P. ("EMC-C") |
|
|
|
Cayman |
|
75% |
|
3,784 |
|
61,482 |
EuroMicrocap Fund 2010, L.P. ("EMC
2010") |
Cayman |
|
75% |
|
33 |
|
21,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in associates at fair
value |
|
|
|
113,482 |
|
182,518 |
|
|
|
|
|
|
|
|
|
|
|
1Invests in K2 Towers II, George Industries, Peaceable Street
Capital and ABTB.
The principal activity of all the EuroMicrocap Fund 2010, L.P.,
EuroMicrocap Fund-C, L.P. and Orangewood Partners Platform LLC is
the acquisition of micro-cap companies. The principal activity of
Spruceview Capital Partners, LLC is that of an asset management
company. There are no significant restrictions on the ability of
associates to transfer funds to the Company in the form of
dividends or repayment of loans or advances.
The Company's maximum exposure to losses from the associates
(shown below) equates to the carrying value plus outstanding
commitments:
Entity |
|
|
|
|
28.2.2018 US$'000 |
|
28.2.2017 US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JZI Fund III GP, L.P. |
|
|
99,489 |
|
83,189 |
Orangewood Partners Platform
LLC1 |
|
|
53,281 |
|
56,731 |
Spruceview Capital Partners, LLC |
|
|
19,083 |
|
24,929 |
EuroMicrocap Fund-C, L.P.
("EMC-C")2 |
|
|
3,784 |
|
61,482 |
EuroMicrocap Fund 2010, L.P. ("EMC
2010")2 |
|
|
33 |
|
21,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175,670 |
|
247,764 |
1Invests in K2 Towers II, George Industries, Peaceable Street
Capital and ABTB.
2Reduction in carrying value due to the realisation of
underlying investments and subsequent distribution of proceeds.
Investment in Subsidiaries
The principal place of business for subsidiaries is the
USA. The Company meets the
definition of an Investment Entity in accordance with IFRS 10.
Therefore, it does not consolidate its subsidiaries but rather
recognises them as investments at fair value through profit or
loss.
Entity |
Place of incorporation |
|
% Interest |
|
28.2.2018 US$'000 |
|
28.2.2017 US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JZCP Realty Fund Ltd |
|
Cayman |
|
100% |
|
463,391 |
|
468,599 |
JZBC, Inc. (Invests in Spruceview
Capital Partners, LLC) |
Delaware |
|
99% |
|
14,093 |
|
16,093 |
JZCP Bright Spruce Ltd (Liquidated
during year) |
Cayman |
|
100% |
|
- |
|
4,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries at fair
value |
|
|
|
477,484 |
|
489,192 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There are no significant restrictions on the ability of
subsidiaries to transfer funds to the Company. The Company has no
contractual commitments to provide any financial or other support
to its unconsolidated subsidiaries.
JZ Realty Ltd has a 100% interest in the following Delaware incorporated entities: JZCP Loan 1
Corp, JZCP Loan Fulton Corp, JZCP Loan Flatbush Corp, JZCP Loan
Flatbush Portfolio Corp, JZCP Loan Metropolitan Corp, JZCP Loan
Greenpoint Corp, JZCP Loan Florida Corp, JZCP Loan Design Corp and
JZCP Loan Esperante Corp.
JZ Realty Ltd has a 99% interest in the following Delaware incorporated entities: JZ REIT Fund
1, LLC, JZCP Loan Fulton Corp, JZ REIT Fund Fulton, LLC, JZ REIT
Fund Flatbush, LLC, JZ REIT Fund Flatbush Portfolio, LLC, JZ REIT
Fund Metropolitan, LLC, JZ REIT Fund Greenpoint, LLC, JZ REIT Fund
Florida LLC, JZ REIT Fund Design LLC and JZ REIT Fund Esperante
LLC.
13. Securities sold
receivable
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
US Treasury Bills 15.3.2018 |
|
|
|
|
|
|
24,987 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,987 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the sale of US Treasury Bills were received by
JZCP on 1 March 2018.
14. Other Receivables
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
Deposits paid on behalf of JZCP
Realty |
|
|
|
|
|
1,595 |
|
- |
Accrued interest due from JZCP
Realty |
|
|
|
|
|
495 |
|
495 |
Other receivables and prepayments |
|
|
|
|
|
68 |
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,158 |
|
520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15. Convertible Subordinated Unsecured Loan Stock ("CULS")
On 30 July 2014, JZCP issued
£38,861,140 6% CULS. Holders of CULS may convert the whole or part
(being an integral multiple of £10 in nominal amount) of their CULS
into Ordinary Shares. Conversion Rights may be exercised at any
time during the period from 30 September
2014 to 10 business days prior to the Maturity date being
the 30 July 2021. The initial
conversion price is £6.0373 per Ordinary Share, which shall be
subject to adjustment to deal with certain events which would
otherwise dilute the conversion of the CULS. These events include
consolidation of Ordinary Shares, dividend payments made by the
Company, issues of shares, rights, share-related securities and
other securities by the Company and other events as detailed in the
Prospectus.
CULS bear interest on their nominal amount at the rate of 6.00
per cent. per annum, payable semi-annually in arrears. During the
year ended 28 February 2018:
$3,022,000 (28
February 2017: $3,190,000) of
interest was paid to holders of CULS and is shown as a finance cost
in the Statement of Comprehensive Income.
|
28.2.2018
US$ '000 |
|
28.2.2017
US$ '000 |
Fair Value of CULS at 1 March |
57,063 |
|
59,573 |
Unrealised movement in fair value of
CULS |
(2,901) |
|
4,332 |
Unrealised currency loss/(gain) to the
Company on translation during the year |
5,808 |
|
(6,842) |
Loss/(gain) on financial liabilities at
fair value through profit or Loss |
2,907 |
|
(2,510) |
Fair Value of CULS based on offer
price |
59,970 |
|
57,063 |
16. Zero Dividend Preference ("ZDP")
Shares
On 1 October 2015, the Company
rolled over 11,907,720 existing ZDP (2016) shares in to new ZDP
shares with a 2022 maturity date. The ZDP (2022)
shares have a gross redemption
yield of 4.75% and a total
redemption value of £57,598,000 (approximately
$87,246,000 using the exchange rate
on date of rollover). The remaining 8,799,421 ZDP (2016) shares
were redeemed on 22 June 2016 the
total redemption value being £32,870,000.
ZDP shares are designed to provide a pre-determined final
capital entitlement which ranks behind the Company's creditors but
in priority to the capital entitlements of the Ordinary shares. The
ZDP shares carry no entitlement to income and the whole of their
return will therefore take the form of capital. In certain
circumstances, ZDP shares carry the right to vote at general
meetings of the Company as detailed in the Company's Memorandum of
Articles and Incorporation. Issue costs are deducted from the cost
of the liability and allocated to the Statement of Comprehensive
Income over the life of the ZDP shares.
ZDP (2022) Shares |
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Amortised cost at 1 March |
|
53,935 |
|
57,400 |
Finance costs allocated to Statement of
Comprehensive Income |
|
2,996 |
|
2,853 |
Unrealised currency loss/(gain) gain to
the Company on translation during the year |
|
5,912 |
|
(6,318) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised cost at year end |
|
62,843 |
|
53,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total number of ZDP (2022) shares in
issue |
|
11,907,720 |
|
11,907,720 |
|
|
|
|
|
|
|
|
|
|
|
ZDP (2016) Shares |
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
ZDP shares issued 22 June
2009 |
|
|
|
|
|
|
|
|
|
|
Amortised cost at 1 March |
|
- |
|
44,217 |
Finance costs allocated to Statement of
Comprehensive Income |
|
- |
|
1,180 |
Redeemed 22 June 2016 |
|
|
|
|
|
|
|
- |
|
(47,863) |
Unrealised currency loss to the Company
on translation during the year |
|
- |
|
2,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised cost at year end |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
17. Loans Payable
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Guggenheim Partners Limited |
|
|
|
|
|
|
|
150,125 |
|
97,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,125 |
|
97,396 |
|
|
|
|
|
|
|
|
|
|
|
Guggenheim Partners Limited
On 12 June 2015, JZCP entered into
a loan agreement with Guggenheim Partners Limited. The
agreement was structured so that part of the proceeds
(€18 million) were received and will be repaid in Euros and the
remainder of the facility were received in US dollars ($80 million). During April
2017, JZCP increased its credit facility with Guggenheim
Partners by $50 million.
The loan matures on 12 June 2021
(6 year term) and interest is payable at 5.75% + LIBOR(1). There is
an interest rate floor that stipulates LIBOR will not be lower than
1%. In this agreement, the presence of the floor does not
significantly alter the amortised cost of the instrument, therefore
separation is not required and the loan is valued at amortised cost
using the effective interest rate method.
At 28 February 2018, investments
valued at $978,090,000 (28 February 2017: $918,140,000) were held as collateral on the
loan. A covenant on the loan states the fair value of the
collateral must be 4x the loan value and the cost of collateral
must be at least 57.5% of total assets. The Company is also
required to hold a minimum cash balance of $15 million2 plus 50% of interest on any new
debt. At 28 February 2018 and
throughout the year, the Company was in full compliance with
covenant
terms.
There was an early repayment charge of 1% of the total loan,
which expired on 12 June 2017.
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Amortised cost (Dollar drawdown) - 1
March |
|
|
78,572 |
|
77,916 |
Amortised cost (Euro drawdown) - 1
March |
|
|
18,824 |
|
19,095 |
Proceeds - April 2017 (Dollar
drawdown) |
|
|
|
|
|
|
|
50,000 |
|
- |
Issue costs |
|
|
|
|
|
|
|
(1,840) |
|
- |
Finance costs charged to Statement of
Comprehensive Income |
|
|
|
11,551 |
|
7,545 |
Interest and finance costs paid |
|
|
|
|
|
|
|
(9,750) |
|
(6,723) |
Unrealised currency loss/(gain) on
translation of Euro drawdown |
|
2,768 |
|
(437) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised cost at year end |
|
150,125 |
|
97,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised cost (Dollar drawdown) |
|
128,407 |
|
78,572 |
Amortised cost (Euro drawdown) |
|
21,718 |
|
18,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,125 |
|
97,396 |
|
|
|
|
|
|
|
|
|
|
|
The carrying value of the loans approximates to fair
value.
(1) LIBOR rates applied are the US dollar
3 month rate ($80 million) and
the Euro 3 month rate (€18
million).
(2) Treasury bills held and securities sold receivable at the
year end total value $75.0 million,
are classified as cash for covenant
purposes.
18. Other Payables
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Provision for tax on dividends received
not withheld at source |
|
|
|
|
1,401 |
|
1,401 |
Legal fee provision |
|
|
|
|
|
|
|
250 |
|
250 |
Audit fees |
|
|
|
|
|
|
|
223 |
|
224 |
Directors' remuneration |
|
|
|
|
|
|
|
69 |
|
68 |
Other expenses |
|
|
|
|
|
|
|
243 |
|
263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,186 |
|
2,206 |
|
|
|
|
|
|
|
|
|
|
|
19. Stated
Capital
Authorised Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlimited number of ordinary shares of
no par value. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary shares - Issued
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
Number
of shares |
|
Number
of shares |
|
|
|
|
|
|
|
|
|
|
|
Total Ordinary shares in issue |
|
|
|
|
|
|
|
83,907,516 |
|
83,907,516 |
|
|
|
|
|
|
|
|
|
|
|
The Company's shares trade on the London Stock Exchange's
Specialist Fund Segment.
The Ordinary shares carry a right to receive the profits of the
Company available for distribution by dividend and resolved to be
distributed by way of dividend to be made at such time as
determined by the Directors.
In addition to receiving the income distributed, the Ordinary
shares are entitled to the net assets of the Company on a winding
up, after all liabilities have been settled and the entitlement of
the ZDP shares have been met. In addition, holders of Ordinary
shares will be entitled on a winding up to receive any accumulated
but unpaid revenue reserves of the Company, subject to all
creditors having been paid out in full but in priority to the
entitlements of the ZDP shares. Any distribution of revenue
reserves on a winding up is currently expected to be made by way of
a final special dividend prior to the Company's eventual
liquidation.
Holders of Ordinary shares have the rights to receive notice of,
to attend and to vote at all general meetings of the
Company.
Capital raised on issue of new
shares
Subsequent amounts raised by the issue of new shares, net of
issue costs, are credited to the stated capital account. For the
years ended 28 February 2018 and 2017
there was no movement on the Stated capital account, the balance
remained at $265,685,000.
20. Capital
Management
The Company's capital is represented by the Ordinary shares, ZDP
shares and CULS.
As a result of the ability to issue, repurchase and resell
shares, the capital of the Company can vary. The Company is not
subject to externally imposed capital requirements and has no
restrictions on the issue, repurchase or resale of its
shares.
The Company's objectives for managing capital are:
• To invest the capital in investments meeting the
description, risk exposure and expected return indicated in its
prospectus.
• To achieve consistent returns while safeguarding capital
by investing in a diversified portfolio.
• To maintain sufficient liquidity to meet the expenses of
the
Company.
• To maintain sufficient size to make the operation of the
Company
cost-efficient.
The Company continues to keep under review opportunities to buy
back Ordinary or ZDP
shares.
The Company has adopted a new strategy enabling purchases by the
Company of its Ordinary Shares to be undertaken when opportunities
in the market permit, and as the Company’s cash resources
allow.
The Company monitors capital by analysing the NAV per share over
time and tracking the discount to the Company's share price. It
also monitors the performance of the existing investments to
identify opportunities for exiting at a reasonable return to the
shareholders.
21. Reserves
Capital raised on formation of
Company
The Royal Court of Guernsey granted that on the admission of the
Company's shares to the Official List and to trading on the London
Stock Exchange's market, the amount credited to the share premium
account of the Company immediately following the admission of such
shares be cancelled and any surplus thereby created accrue to the
Company's distributable reserves to be used for all purposes
permitted by The Companies (Guernsey) Law, 2008, including
the purchase of shares and the payment of
dividends.
Summary of reserves attributable to Ordinary
shareholders
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
Stated capital account |
265,685 |
|
265,685 |
Other reserve |
353,528 |
|
353,528 |
Capital reserve |
150,687 |
|
173,871 |
Revenue reserve |
67,673 |
|
55,760 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
837,573 |
|
848,844 |
|
|
|
|
|
|
|
|
|
Other
reserve
There was no movement in the Company's Other reserve for the
years ended 28 February 2018 and 28
February 2017.
Subject to satisfaction of the solvency test, all of the
Company's capital and reserves are distributable in accordance with
The Companies (Guernsey) Law,
2008.
Capital reserve
All surpluses arising from the realisation or revaluation of
investments and all other capital profits and accretions of capital
are credited to the Capital reserve. Any loss arising from the
realisation or revaluation of investments or any expense, loss or
liability classified as capital in nature may be debited to the
Capital reserve.
|
|
|
|
|
|
Realised |
|
Unrealised |
|
Total |
|
|
|
|
|
|
28.2.2018 |
|
28.2.2018 |
|
28.2.2018 |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
At 1 March 2017 |
28,034 |
|
145,837 |
|
173,871 |
Net gain/(loss) on investments |
54,694 |
|
(48,554) |
|
6,140 |
Net gain/(loss) on foreign currency
exchange |
|
|
89 |
|
(6,546) |
|
(6,457) |
Realised gains on investments held in
escrow accounts |
|
|
1,922 |
|
- |
|
1,922 |
Expenses charged to capital |
|
|
(996) |
|
(3,317) |
|
(4,313) |
Net loss on CULS |
- |
|
(2,907) |
|
(2,907) |
Finance costs |
|
|
(12,966) |
|
(4,603) |
|
(17,569) |
|
|
|
|
|
|
|
|
|
|
|
|
At 28 February 2018 |
70,777 |
|
79,910 |
|
150,687 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realised |
|
Unrealised |
|
Total |
|
|
|
|
|
|
28.2.2017 |
|
28.2.2017 |
|
28.2.2017 |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
At 1 March 2016 |
59,560 |
|
97,226 |
|
156,786 |
Net gains on investments |
12,768 |
|
18,305 |
|
31,073 |
Net (loss)/gain on foreign currency
exchange |
|
|
(4,603) |
|
9,331 |
|
4,728 |
Realised gains on investments held in
escrow accounts |
|
|
5,942 |
|
- |
|
5,942 |
Expenses charged to capital |
|
|
- |
|
(12,404) |
|
(12,404) |
Net gain on CULS |
- |
|
2,510 |
|
2,510 |
Finance costs |
|
|
(11,089) |
|
(3,675) |
|
(14,764) |
Prior year ZDP (2016) finance costs and
currency gains now realised |
|
(34,544) |
|
34,544 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
At 28 February 2017 |
28,034 |
|
145,837 |
|
173,871 |
|
|
|
|
|
|
|
|
|
|
|
Revenue reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
At 1 March |
|
|
|
|
55,760 |
|
75,740 |
Profit for the year attributable to
revenue |
|
|
11,913 |
|
5,612 |
Dividend paid |
|
|
- |
|
(25,592) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At year end |
|
|
67,673 |
|
55,760 |
|
|
|
|
|
|
|
|
|
|
|
22. Financial Risk Management Objectives and
Policies
Introduction
The Company’s objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company’s
activities, but it is managed through a process of ongoing
identification, measurement and monitoring, subject to risk limits
and other controls. The process of risk management is critical to
the Company’s continuing profitability. The Company is exposed to
market risk (including currency risk, fair value interest rate
risk, cash flow interest rate risk and price risk), credit risk and
liquidity risk arising from the financial instruments it
holds.
Risk management
structure
The Company’s Investment Adviser is responsible for identifying
and controlling risks. The Directors supervise the Investment
Adviser and are ultimately responsible for the overall risk
management approach within the
Company.
Risk
mitigation
The Company's prospectus sets out its overall business
strategies, its tolerance for risk and its general risk management
philosophy. The Company may use derivatives and other instruments
for trading purposes and in connection with its risk management
activities.
Market
risk
Market risk is defined as "the risk that the fair value or
future cash flows of a financial instrument will fluctuate because
of changes in variables such as equity price, interest rate and
foreign currency
rate".
The Company's investments are subject to normal market
fluctuations and there can be no assurance that no depreciation in
the value of those investments will occur. There can be no
guarantee that any realisation of an investment will be on a basis
which necessarily reflects the Company's valuation of that
investment for the purposes of calculating the NAV of the
Company.
Changes in industry conditions, competition, political and
diplomatic events, tax, environmental and other laws and other
factors, whether affecting the United
States alone or other countries and regions more widely, can
substantially and either adversely or favourably affect the value
of the securities in which the Company invests and, therefore, the
Company's performance and prospects.
The Company's market price risk is managed through
diversification of the investment portfolio across various sectors.
The Investment Adviser considers each investment purchase to ensure
that an acquisition will enable the Company to continue to have an
appropriate spread of market risk and that an appropriate
risk/reward profile is maintained.
Equity price
risk
Equity price risk is the risk of unfavourable changes in the
fair values of equity investments as a result of changes in the
value of individual shares. The equity price risk exposure arose
from the Company’s investments in equity
securities.
The Company does not generally invest in liquid equity
investments and the previous portfolio of listed equity investments
resulted from the successful flotation of unlisted investments.
For unlisted equity and non-equity shares the market risk is
deemed to be inherent in the appropriate valuation methodology
(earnings, multiples, capitalisation rates etc). The impact on fair
value and subsequent profit or loss, due to movements in these
variables, is set out in Note
5.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. It has not been the Company's policy to use
derivative instruments to mitigate interest rate risk, as the
Investment Adviser believes that the effectiveness of such
instruments does not justify the costs involved.
The table below summarises the Company's exposure to interest
rate risks:
|
|
|
Interest bearing |
|
Non
interest |
|
|
|
|
|
Fixed
rate |
|
Floating rate |
|
bearing |
|
Total |
|
|
|
28.2.2018 |
|
28.2.2018 |
|
28.2.2018 |
|
28.2.2018 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
303,538 |
|
- |
|
816,845 |
|
1,120,383 |
Cash and cash equivalents |
|
|
- |
|
9,000 |
|
- |
|
9,000 |
Securities sold receivable |
|
|
|
|
- |
|
24,987 |
|
24,987 |
Other receivables and prepayments |
|
|
- |
|
- |
|
2,158 |
|
2,158 |
Loans payable |
|
|
- |
|
(150,125) |
|
- |
|
(150,125) |
ZDP shares (2022) |
|
|
(62,843) |
|
- |
|
- |
|
(62,843) |
CULS |
|
|
(59,970) |
|
- |
|
- |
|
(59,970) |
Other payables |
|
|
- |
|
- |
|
(46,017) |
|
(46,017) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
180,725 |
|
(141,125) |
|
797,973 |
|
837,573 |
|
|
|
|
|
|
|
|
|
|
The table below summarises the Company's exposure to interest
rate
risks:
|
|
|
|
Interest bearing |
|
Non
interest |
|
|
|
|
|
|
Fixed
rate |
|
Floating rate |
|
bearing |
|
Total |
|
|
|
|
28.2.2017 |
|
28.2.2017 |
|
28.2.2017 |
|
28.2.2017 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
233,831 |
|
- |
|
835,349 |
|
1,069,180 |
Other receivables and prepayments |
|
- |
|
- |
|
520 |
|
520 |
Cash and cash equivalents |
|
|
|
- |
|
29,063 |
|
- |
|
29,063 |
Loans payable |
|
|
|
- |
|
(97,396) |
|
- |
|
(97,396) |
ZDP shares (2022) |
|
|
|
(53,935) |
|
- |
|
- |
|
(53,935) |
CULS |
|
|
|
(57,063) |
|
- |
|
- |
|
(57,063) |
Other payables |
|
|
|
- |
|
- |
|
(41,525) |
|
(41,525) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net assets |
|
|
|
122,833 |
|
(68,333) |
|
794,344 |
|
848,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table analyses the Company's exposure in terms of
the interest bearing assets and liabilities maturity
dates.
As at 28 February 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-3 months |
|
4-12 months |
|
1 - <3 years |
|
3 - <5 years |
|
5 years |
|
No maturity date |
|
Total |
|
|
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
|
- |
|
8,053 |
|
67,373 |
|
3,889 |
|
- |
|
224,223 |
|
303,538 |
Cash and cash equivalents |
|
- |
|
- |
|
- |
|
- |
|
- |
|
9,000 |
|
9,000 |
Loans payable |
|
|
- |
|
- |
|
- |
|
(150,125) |
|
- |
|
- |
|
(150,125) |
ZDP shares (2022) |
|
|
- |
|
- |
|
- |
|
(62,843) |
|
- |
|
- |
|
(62,843) |
CULS |
|
|
- |
|
- |
|
- |
|
(59,970) |
|
- |
|
- |
|
(59,970) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
8,053 |
|
67,373 |
|
(269,049) |
|
- |
|
233,223 |
|
39,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 28 February 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-3 months |
|
4-12 months |
|
1 - <3 years |
|
3 - <5 years |
|
5 years |
|
No maturity date |
|
Total |
|
|
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
|
18,249 |
|
- |
|
40,809 |
|
9,734 |
|
- |
|
165,039 |
|
233,831 |
Cash and cash equivalents |
|
- |
|
- |
|
- |
|
- |
|
- |
|
29,063 |
|
29,063 |
Loans payable |
|
|
- |
|
- |
|
- |
|
(97,396) |
|
- |
|
- |
|
(97,396) |
ZDP shares (2022) |
|
|
- |
|
- |
|
- |
|
- |
|
(53,935) |
|
- |
|
(53,935) |
CULS |
|
|
- |
|
- |
|
- |
|
(57,063) |
|
- |
|
- |
|
(57,063) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,249 |
|
- |
|
40,809 |
|
(144,725) |
|
(53,935) |
|
194,102 |
|
54,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income receivable by the Company is not subject to
significant amounts of risk due to fluctuations in the prevailing
levels of market interest rates. However, whilst the income
received from fixed rate securities is unaffected by changes in
interest rates, the investments are subject to risk in the movement
of fair value. The Investment Adviser considers the risk in the
movement of fair value as a result of changes in the market
interest rate for fixed rate securities to be insignificant, hence
no sensitivity analysis is
provided.
The Company values the CULS issued at fair value, being the
quoted offer price. As the stock has a fixed interest rate of 6% an
increase/decrease of prevailing interest rates will potentially
have an effect on the demand for the CULS and the subsequent fair
value. Other factors such as the Company's ordinary share price and
credit rating will also determine the quoted offer price. The
overall risk to the Company due to the impact of interest rate
changes to the CULS' fair value is deemed immaterial. Therefore no
sensitivity analysis is presented.
Of the cash and cash equivalents held, $9,000,000 (28 February
2017: $29,063,000) earns
interest at variable rates and the income may rise and fall
depending on changes to interest rates.
The Investment Adviser monitors the Company's overall interest
sensitivity on a regular basis by reference to the current market
rate and the level of the Company's cash balances. The Company has
not used derivatives to mitigate the impact of changes in interest
rates.
The table below demonstrates the sensitivity of the Company's
profit/(loss) for the year to a reasonably possible change in
interest rates. The Company has cash at bank and loans payable for
which interest receivable and payable are sensitive to a
fluctuation to rates. The below sensitivity analysis assumes year
end balances and interest rates are constant through the
year.
|
|
|
|
|
|
|
|
|
|
Interest Receivable |
|
Interest Payable |
|
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
28.2.2018 |
|
28.2.2017 |
Change in basis points
increase/decrease |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+100/-100 |
|
|
|
|
|
|
|
|
|
90/(41) |
|
291/(58) |
|
(1,300)/403 |
|
(800)/nil |
+300/-300 |
|
|
|
|
|
|
|
|
|
270/(41) |
|
872/(58) |
|
(4,324)/403 |
|
(2,713)/nil |
Currency
risk
Currency risk is the risk that the value of a financial
instrument will fluctuate due to changes in foreign exchange
rates.
Changes in exchange rates are considered to impact the fair
value of the Company's investments denominated in Euros and
Sterling. However, under IFRS the foreign currency risk on these
investments is deemed to be part of the market price risk
associated with such holding such non-monetary investments. As the
information relating to the non-monetary investments is
significant, the Company also provides the total exposure and
sensitivity changes on non-monetary investments on a voluntary
basis.
The following table sets out the Company's exposure by currency
to foreign currency
risk.
Exposure to Monetary
Assets/Liabilities (held in foreign currencies) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro |
|
Sterling |
|
Total |
|
|
|
Euro |
|
Sterling |
|
Total |
|
|
|
|
|
28.2.2018 |
|
28.2.2018 |
|
28.2.2018 |
|
|
|
28.2.2017 |
|
28.2.2017 |
|
28.2.2017 |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at Bank |
|
|
|
2,798 |
|
- |
|
2,798 |
|
|
|
4,803 |
|
705 |
|
5,508 |
|
Other Receivables |
|
|
|
- |
|
11 |
|
11 |
|
|
|
- |
|
25 |
|
25 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CULS |
|
|
|
- |
|
(59,970) |
|
(59,970) |
|
|
|
- |
|
(57,063) |
|
(57,063) |
|
ZDP (2022) shares |
|
|
|
- |
|
(62,843) |
|
(62,843) |
|
|
|
- |
|
(53,935) |
|
(53,935) |
|
Loans payable |
|
|
|
(21,718) |
|
- |
|
(21,718) |
|
|
|
(18,824) |
|
- |
|
(18,824) |
|
Other payables |
|
|
|
- |
|
(316) |
|
(316) |
|
|
|
- |
|
(311) |
|
(311) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Currency Exposure |
|
|
|
(18,920) |
|
(123,118) |
|
(142,038) |
|
|
|
(14,021) |
|
(110,579) |
|
(124,600) |
|
The sensitivity analysis for monetary and non-monetary net
assets calculates the effect of a reasonably possible movement of
the currency rate against the US dollar on an increase or decrease
in net assets attributable to shareholders with all other variables
held constant. An equivalent decrease in each of the aforementioned
currencies against the US dollar would have resulted in an
equivalent but opposite impact.
|
|
|
|
Change
in |
|
|
|
|
|
Effect on net assets attributable to
shareholders |
Currency |
|
Currency Rate |
|
|
|
|
|
(relates to monetary financial assets and
liabilities) |
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
Euro |
|
|
|
+10% |
|
|
|
|
|
|
|
(1,892) |
|
(1,402) |
|
|
GBP |
|
|
|
+10% |
|
|
|
|
|
|
|
(12,312) |
|
(11,058) |
|
|
Exposure to Non-Monetary Assets (held
in foreign currencies) |
|
|
|
|
|
Euro |
|
Sterling |
|
Total |
|
|
|
Euro |
|
Sterling |
|
Total |
|
|
|
|
|
28.2.2018 |
|
28.2.2018 |
|
28.2.2018 |
|
|
|
28.2.2017 |
|
28.2.2017 |
|
28.2.2017 |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at FVTPL |
98,381 |
|
5,826 |
|
104,207 |
|
|
|
150,742 |
|
4,285 |
|
155,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Currency Exposure |
|
98,381 |
|
5,826 |
|
104,207 |
|
|
|
150,742 |
|
4,285 |
|
155,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in |
|
|
|
|
|
Effect on net assets attributable to
shareholders |
Currency |
|
Currency Rate |
|
|
|
|
|
(relates to non-monetary financial assets) |
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
Euro |
|
|
|
+10% |
|
|
|
|
|
|
|
9,838 |
|
15,074 |
|
|
GBP |
|
|
|
+10% |
|
|
|
|
|
|
|
583 |
|
429 |
|
|
Credit risk
The Company takes on exposures to credit risk, which is the risk
that a counterparty to a financial instrument will cause a
financial loss to the Company by failing to discharge an
obligation. These credit exposures exist within debt instruments
and cash & cash
equivalents.
They may arise, for example, from a decline in the financial
condition of a counterparty or from entering into derivative
contracts under which counterparties have obligations to make
payments to the Company. As the Company’s credit exposure
increases, it could have an adverse effect on the Company’s
business and profitability if material unexpected credit losses
were to occur.
In the event of any default on the Company's loan investments by
a counterparty, the Company will bear a risk of loss of principal
and accrued interest of the investment, which could have a material
adverse effect on the Company's income and ability to meet
financial obligations.
In accordance with the Company’s policy, the Investment Adviser
monitors the Company's exposure to credit risk on a regular basis,
by reviewing the financial statements, budgets and forecasts of
underlying investee
companies.
The table below analyses the Company's maximum exposure to
credit risk.
|
|
|
|
|
|
|
|
|
Total |
|
Total |
|
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap debt |
|
|
|
|
|
|
21,966 |
|
24,209 |
European micro-cap debt |
|
|
|
|
|
|
57,349 |
|
44,583 |
US Treasury Bills |
|
|
|
|
|
|
|
|
49,975 |
|
- |
Securities sold receivable |
|
|
|
24,987 |
|
- |
|
Cash and cash equivalents |
|
|
|
|
|
|
9,000 |
|
29,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
163,277 |
|
97,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A proportion of micro-cap and mezzanine debt held does not
entitle the Company to interest payment in cash. This interest is
capitalised (PIK) and as a result there is a credit risk to the
Company, as there is no return until the loan plus all the
interest, is repaid in full. During the year ended 28 February 2018, the Company recognised PIK
interest of $6,278,000 (28 February 2017: $4,781,000) from debt investments as income in
the Statement of Comprehensive Income in line with the Company's
policy of recognising interest in proportion to the carrying value
versus cost.
The following table analyses the concentration of credit risk in
the Company's debt portfolio by industrial
distribution.
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Private Security |
|
|
|
|
|
|
34% |
|
29% |
Financial General |
|
|
|
|
|
|
28% |
|
27% |
House, Leisure & Personal Goods |
|
|
|
|
|
13% |
|
10% |
Logistics |
|
|
|
|
|
|
10% |
|
9% |
Telecom |
|
|
|
|
|
|
5% |
|
4% |
Document Processing |
|
|
|
|
|
|
5% |
|
4% |
Healthcare Services & Equipment |
|
|
|
|
|
5% |
|
6% |
Support Services |
|
|
|
|
|
|
0% |
|
11% |
|
|
|
|
|
|
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100% |
|
100% |
|
|
|
|
|
|
|
|
|
|
The table below analyses the Company’s cash and cash equivalents
by rating agency
category.
|
|
|
Credit ratings |
|
|
|
|
|
|
|
|
Standard & Poor's Outlook |
|
|
LT Issuer Default Rating |
|
28.2.2018 |
|
|
|
28.2.2017 |
|
|
|
|
|
US$
'000 |
|
|
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC Bank USA NA |
|
Stable (2017: Negative) |
|
|
|
Fitch- AA- (2017: AA-) |
|
5,340 |
|
|
|
25,620 |
Raymond James |
|
|
Positive (2017: Positive) |
|
|
|
S&P - BBB (2017: Baa2) |
|
3,277 |
|
|
|
3,267 |
Northern Trust (Guernsey) Limited |
|
Stable (2017: Stable) |
|
|
|
S&P - AA (2017: AA) |
|
383 |
|
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,000 |
|
|
|
29,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy or insolvency of the Banks may cause the Company's
rights with respect to these assets to be delayed or limited.
The Investment Adviser monitors risk by reviewing the credit rating
of the Bank. If credit quality deteriorates, the Investment Adviser
may move the holdings to another bank.
The Company's CULS are valued at fair value being the listed
offer price at the year end. Movement in the fair value due to
changes in the offer price are considered the result of increased
demand due to the underlying price of the Company's Ordinary shares
and underlying interest rates, rather than changes in the Company’s
credit risk.
Liquidity risk
Liquidity risk is defined as the risk that the Company will
encounter difficulty in meeting obligations associated with
financial liabilities. Liquidity risk arises because of the
possibility that the Company could be required to pay its
liabilities earlier than expected. There has been no change during
the year in the Company's processes and arrangements for managing
liquidity.
Many of the Company's investments are private equity, mezzanine
loans and other unlisted investments. By their nature, these
investments will generally be of a long term and illiquid nature
and there may be no readily available market for sale of these
investments. None of the Company's assets/liabilities are subject
to special arrangement due to their illiquid nature.
The Company has capital requirements to repay CULS and a debt
facility in 2021 and ZDP shareholders in 2022. At the year end the
Company has outstanding investment commitments of $73,693,000 (2017: $76,751,000) see Note 23.
The Company manages liquidity risk and the ability to meet its
obligations by monitoring current and expected cash balances from
forecasted investment activity.
The table below analyses JZCP's financial liabilities into
relevant maturity groups based on the remaining period at the
reporting date to the contractual maturity date. Amounts attributed
to CULS and ZDP share include future contractual interest payments.
The provision for the payment of a capital gains incentive fee is
shown as 'no stated maturity', as payment depends on future
realisations.
At 28 February 2018 |
Less
than 1 year |
|
>1
year - 3 years |
|
>3
years - 5 years |
|
>5
years |
|
No
stated maturity |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CULS |
3,213 |
|
6,425 |
|
54,883 |
|
- |
|
- |
ZDP (2022) shares |
- |
|
- |
|
79,361 |
|
- |
|
- |
Loans payable |
10,660 |
|
21,320 |
|
154,962 |
|
- |
|
- |
Other payables |
5,407 |
|
- |
|
- |
|
- |
|
40,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,280 |
|
27,745 |
|
289,206 |
|
- |
|
40,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 28 February 2017 |
Less
than 1 year |
|
>1
year - 3 years |
|
>3
years - 5 years |
|
>5
years |
|
No
stated maturity |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CULS |
2,902 |
|
5,803 |
|
52,469 |
|
- |
|
- |
ZDP (2022) shares |
- |
|
- |
|
- |
|
71,675 |
|
- |
Loans payable |
6,691 |
|
13,382 |
|
107,706 |
|
- |
|
- |
Other payables |
4,232 |
|
- |
|
- |
|
- |
|
37,293 |
|
|
|
|
|
|
|
|
|
|
|
13,825 |
|
19,185 |
|
160,175 |
|
71,675 |
` |
37,293 |
|
|
|
|
|
|
|
|
|
|
23. Commitments
At 28 February 2018 and
28 February 2017, JZCP had the
following financial commitments outstanding in relation to fund
investments:
|
|
|
Expected date |
|
28.2.2018 |
|
28.2.2017 |
|
|
|
of
Call |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
JZI Fund III GP, L.P. (€46,897,000
outstanding at year end) |
|
Over 3
years |
|
57,198 |
|
56,410 |
Spruceview Capital Partners, LLC |
|
Over 2 years |
|
4,990 |
|
8,836 |
Orizon |
|
|
< 1
year |
|
4,158 |
|
4,158 |
Suzo Happ Group |
|
|
> 3
years |
|
4,491 |
|
4,491 |
BSM Engenharia S.A. |
|
|
> 3
years |
|
2,085 |
|
2,085 |
Igloo Products Corp |
|
|
> 3
years |
|
771 |
|
771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73,693 |
|
76,751 |
|
|
|
|
|
|
|
|
24. Related Party Transactions
JZCP invests in European micro-cap companies via JZI Fund III,
L.P. (“Fund III”), previously investments were made via the
EuroMicrocap Fund 2010, L.P. ("EMC 2010") and EuroMicrocap Fund-C,
L.P. ("EMCC"). Fund III, EMC 2010 and EMC-C are managed by an
affiliate of JZAI, JZCP's investment manager. JZAI was founded by
David Zalaznick and John ("Jay")
Jordan. At 28 February 2018, JZCP's
investments in Fund III were valued at $42,291,000 (28 February
2017: $26,779,000). EMC 2010
were valued at $33,000 (28 February 2017: $21,433,000) and EMCC at $3,784,000 (28 February
2017: $61,482,000).
JZCP has invested in Spruceview Capital Partners, LLC on a 50:50
basis with Jay Jordan and
David Zalaznick (or their respective
affiliates). The total amount committed by JZCP to this
investment at 28 February 2018,
was $30,000,000 with $4,990,000 (28 February
2017: $8,836,000) of
commitments outstanding.
JZCP has co-invested with Fund A, Fund A Parallel I, II and III
Limited Partnerships in a number of US micro-cap buyouts. These
Limited Partnerships are managed by an affiliate of JZAI. JZCP
invested in a ratio of 82%/18% with the Fund A
entities. At 28 February 2018, the total
value of JZCP's investment in these
co-investments was $354,617,000
(28 February 2017: $326,290,000). Fund A, Fund A Parallel I, II and
III Limited Partnerships are no longer making platform investments
alongside JZCP.
JZAI is a US based company that provides advisory services to
the Board of Directors of the Company in exchange for management
fees, paid quarterly. Fees paid by the Company to the Investment
Adviser are detailed in Note 10. JZAI and various affiliates
provide services to certain JZCP portfolio companies and may
receive fees for providing these services pursuant to the Advisory
Agreement.
JZCP is able to invest up to $75
million in "New JI Platform Companies". The platform
companies are being established to invest primarily in buyouts and
build-ups of companies and in growth company platforms in the US
micro-cap market, primarily healthcare equipment companies. At
28 February 2018, JZCP had invested
$36.0 million (28 February 2017: $31.5
million) and during the year received a partial redemption
of $7.6 million in Avante (formerly
named Jordan Health Products). JZCP co-invests 50/50 in the
platform companies with other investors (“JI members”).
David Zalaznick and an affiliated
entity of Jay Jordan own
approximately 33.7% of the JI member’s ownership interests.
25. Basic and Diluted Earnings/Loss) Per Share
Basic earnings/(loss) per share is calculated by dividing the
earnings/(loss) for the year by the weighted average number of
Ordinary shares outstanding during the year.
For the years ended 28 February
2018 and 28 February 2017, the
weighted average number of Ordinary shares outstanding during the
year was 83,907,516.
The diluted earnings/(loss) per share are calculated by
considering adjustments required to the earnings and weighted
average number of shares for the effects of potential dilutive
Ordinary shares. The weighted average of the number of Ordinary
shares is adjusted assuming the conversion of the CULS
("If-converted method"). Conversion is assumed even though at
28 February 2018 and 28 February 2017 the exercise price of the CULS
is higher than the market price of the Company's Ordinary shares
and are therefore deemed 'out of the money'. Earnings are adjusted
to remove the fair value (loss)/gain of $(2,907,000) (28 February
2017: $2,510,000) and finance
cost attributable to CULS of $3,022,000 (28 February
2017: $3,190,000). For the
year ended 28 February 2018, the potential conversion of the
CULS would be anti-dilutive to the total loss per share, therefore
the diluted earnings/(loss) per share is presented as per the basic
earnings/(loss) per share calculation.
26. Controlling Party
The issued shares of the Company are owned by a number of
parties, and therefore, in the opinion of the Directors, there is
no ultimate controlling party of the Company, as defined by IAS 24
- Related Party Disclosures.
27. Net Asset Value Per Share
The net asset value per Ordinary share of $9.98 (28 February
2017: $10.12) is based on the
net assets at the year end of $837,573,000 (28 February
2017: $848,844,000) and on
83,907,516 (28 February 2017:
83,907,516) Ordinary shares, being the number of Ordinary shares in
issue at the year end.
28. Contingent Assets
Amounts held in escrow accounts
When investments have been disposed of by the Company, proceeds
may reflect contractual terms requiring that a percentage is held
in an escrow account pending resolution of any indemnifiable claims
that may arise. At 28 February 2018
and 28 February 2017, the Company has assessed that the
likelihood of the recovery of these escrow accounts cannot be
determined and has therefore recognised the escrow accounts as a
contingent asset.
As at 28 February 2018 and
28 February 2017, the Company had the
following contingent assets held in escrow accounts which had not
been recognised as assets of the Company:
Company |
|
|
|
|
|
|
|
Amount in Escrow |
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
K2 Towers |
|
|
|
|
|
|
|
1,551 |
|
- |
CBO Holdings |
|
|
|
|
|
|
|
294 |
|
- |
SPL |
|
|
|
|
|
|
|
107 |
|
- |
ETX Holdings, Inc. |
|
|
|
|
|
|
|
- |
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,952 |
|
77 |
|
|
|
|
|
|
|
|
|
|
|
During the year ended 28 February
2018 proceeds of $1,922,000
(28 February 2017: $5,942,000) were realised during the year and
recorded in the Statement of Comprehensive Income.
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
Escrows at 1 March |
|
|
|
|
|
|
|
77 |
|
4,547 |
Additional escrows recognised in year
not reflected in opening position |
3,797 |
|
1,523 |
Escrows recognised in opening position
and written off in year |
|
|
|
|
- |
|
(51) |
Escrow receipts during the year |
|
|
|
|
|
|
|
(1,922) |
|
(5,942) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Escrows at year end |
|
|
|
|
|
|
|
1,952 |
|
77 |
|
|
|
|
|
|
|
|
|
|
|
29. Notes to the Statement of Cash Flows
Reconciliation of the (loss)/profit for
the year to net cash from operating activities |
Year Ended |
|
Year Ended |
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
US$ '000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
(Loss)/profit for the year |
|
|
|
|
|
|
|
(11,271) |
|
22,697 |
(Increase)/decrease in other receivables
and prepayments |
|
|
(43) |
|
13 |
(Decrease)/increase in other
payables |
|
|
|
|
|
|
|
(20) |
|
86 |
Increase in amount owed to Investment
Adviser |
|
|
|
|
4,512 |
|
12,285 |
Deposits paid for real estate
investments |
|
|
|
|
(1,595) |
|
- |
Net gains on investments |
|
|
|
|
|
|
|
(6,140) |
|
(28,699) |
Currency loss/(gain) on ZDP shares |
|
|
|
|
|
|
|
5,912 |
|
(3,852) |
Currency loss/(gain) on Guggenheim
loan |
|
|
|
|
|
2,768 |
|
(437) |
Unrealised foreign exchange movements on
cash at bank (shown as net movement in cash) |
(304) |
|
(396) |
Unrealised loss/(gain) on CULS valued at
fair value |
|
|
2,907 |
|
(2,510) |
Increase in accrued interest on
investments, accumulated preferred dividends and PIK |
(30,837) |
|
(20,816) |
Finance costs |
|
|
17,569 |
|
14,764 |
Net write back of impairments on loans
and receivables |
|
|
|
|
- |
|
(2,374) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash outflow from operating
activities |
|
|
|
|
(16,542) |
|
(9,239) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income received during the
year |
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Interest on investments |
|
|
|
|
|
|
|
2,787 |
|
4,584 |
Bank interest |
|
|
|
|
|
|
|
128 |
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,915 |
|
4,625 |
|
|
|
|
|
|
|
|
|
|
|
Purchases and sales of investments are considered to be
operating activities of the Company, given its purpose, rather than
investing activities. The cash flows arising from these activities
are shown in the Statement of Cash Flows.
Changes in financing liabilities arising from both cash flow and
non-cash flow items
|
|
|
|
|
Non-cash changes |
|
|
|
1.3.2017 |
|
Cash flows |
Fair Value |
Finance Costs |
Foreign Exchange |
28.2.2018 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Zero Dividend Preference (2022)
shares |
53,935 |
|
- |
|
- |
|
2,996 |
5,912 |
|
62,843 |
Convertible Unsecured Loan Stock |
57,063 |
|
(3,022) |
|
(2,901) |
|
3,022 |
5,808 |
|
59,970 |
Loans payable |
97,396 |
|
38,410 |
|
- |
|
11,551 |
2,768 |
|
150,125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208,394 |
|
35,388 |
|
(2,901) |
|
17,569 |
14,488 |
|
272,938 |
|
|
|
|
|
|
|
|
|
|
|
30. Dividends Paid and Proposed
No dividends were paid or proposed for the year ended
28 February 2018 in line with agreed
discontinuation of the dividend policy. During the year ended
28 February 2017, an interim dividend
of 15.5 cents per Ordinary share
(total $13,006,000) was paid by the
Company on 25 November 2016. A second
interim dividend relating to the 2016 financial year end, of
15 cents per share (total
$12,586,000) was paid on 10 June 2016.
31. Financial highlights
The following table presents performance information derived
from the financial statements.
|
|
|
|
|
|
|
|
28.2.2018 |
|
28.2.2017 |
|
|
|
|
|
|
|
|
US$ |
|
US$ |
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share at the
beginning of the year |
|
|
|
|
10.12 |
|
10.15 |
|
|
|
|
|
|
|
|
|
|
|
Performance during the year (per
share): |
|
|
|
|
|
|
|
|
|
Net investment income |
|
|
|
|
|
|
|
0.14 |
|
0.07 |
Incentive fee |
|
|
|
|
|
|
|
(0.05) |
|
(0.15) |
Net realised and unrealised
(loss)/gain |
|
|
|
|
|
|
(0.02) |
|
0.53 |
Finance costs |
|
|
|
|
|
|
|
(0.21) |
|
(0.18) |
Dividends paid |
|
|
|
|
|
|
|
- |
|
(0.305) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total return |
|
|
|
|
|
|
|
(0.14) |
|
(0.03) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share at the end of
the year |
|
|
|
|
9.98 |
|
10.12 |
|
|
|
|
|
|
|
|
|
|
|
Total Return |
|
|
|
|
|
|
|
(1.41%) |
|
(0.34%) |
|
|
|
|
|
|
|
|
|
|
|
Net investment income to average net
assets excluding incentive fee |
|
1.41% |
|
0.68% |
|
|
|
|
|
|
|
|
|
|
|
Operating expenses to average net
assets |
|
|
|
|
(2.41%) |
|
(2.25%) |
Incentive fees to average net
assets |
|
|
|
|
|
|
(0.50%) |
|
(1.47%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses to average net assets
including incentive fee |
|
|
(2.91%) |
|
(3.72%) |
|
|
|
|
|
|
|
|
|
|
|
Finance costs to average net assets |
|
|
|
|
|
(2.11%) |
|
(1.76%) |
32. US GAAP reconciliation
The Company's financial statements are prepared in accordance
with IFRS, which in certain respects differ from the accounting
principles generally accepted in the
United States ("US GAAP"). It is the opinion of the
Directors that these differences are not material and therefore no
reconciliation between IFRS, as adopted by the EU, and US GAAP has
been presented.
33. Subsequent Events
These financial statements were approved by the Board on
21 May 2018. Subsequent events have
been evaluated until this date.
During March 2018, the Company
announced the realisation of the Company's Healthcare Revenue Cycle
Management vertical and its water filtration business 'Paragon
Water Systems'. Gross proceeds (including escrows) are expected of
approximately $110.0 and $16.2 million respectively.
During April 2018, the Company
commenced its share buyback programme, buying 188,685 shares at an
average cost of £4.87 per share.
Company Advisers |
|
|
|
|
|
|
|
|
Investment Adviser |
|
Independent Auditor |
The Investment Adviser to JZ Capital
Partners Limited
(“JZCP”) is Jordan/Zalaznick Advisers, Inc., (“JZAI”) a company
beneficially owned by John (Jay) W Jordan II and David W Zalaznick.
The company was formed for the purpose of advising the Board of
JZCP on investments in leveraged securities, primarily related to
private equity transactions. JZAI has offices in New York and
Chicago. |
|
Ernst & Young LLP |
|
PO Box 9 |
|
Royal Chambers |
|
St Julian's Avenue |
|
St Peter Port |
|
Guernsey GY1 4AF |
|
|
|
UK Solicitors |
|
|
Ashurst LLP |
Jordan/Zalaznick Advisers,
Inc. |
|
Broadwalk House |
9 West, 57th Street |
|
5 Appold Street |
New York NY 10019 |
|
London EC2A 2HA |
|
|
|
Registered Office |
|
US Lawyers |
PO Box 255 |
|
Monge Law Firm, PLLC |
Trafalgar Court |
|
333 West Trade Street |
Les Banques |
|
Charlotte, NC 28202 |
St Peter Port |
|
|
Guernsey GY1 3QL |
|
Mayer Brown LLP |
|
|
214 North Tryon Street |
JZ Capital Partners Limited is
registered in Guernsey |
|
Suite 3800 |
Number 48761 |
|
Charlotte NC 28202 |
|
|
|
Administrator, Registrar and
Secretary |
|
Winston & Strawn LLP |
Northern Trust International Fund
Administration |
|
35 West Wacker Drive |
Services (Guernsey) Limited |
|
Chicago IL 60601-9703 |
PO Box 255 |
|
|
Trafalgar Court |
|
Guernsey Lawyers |
Les Banques |
|
Mourant Ozannes |
St Peter Port |
|
P.O Box 186 |
Guernsey GY1 3QL |
|
1 Le Marchant Street |
|
|
St Peter Port |
UK Transfer and Paying Agent |
|
Guernsey GY1 4HP |
Equiniti Limited |
|
|
Aspect House |
|
Financial Adviser and Broker |
Spencer Road |
|
JP Morgan Cazenove Limited |
Lancing |
|
20 Moorgate |
West Sussex BN99 6DA |
|
London EC2R 6DA |
|
|
|
US Bankers |
|
|
HSBC Bank USA NA |
|
|
452 Fifth Avenue |
|
|
New York NY 10018 |
|
|
(Also provides custodian services to JZ
Capital Partners |
|
Limited under the terms of a Custody
Agreement). |
|
|
|
|
|
Guernsey Bankers |
|
|
Northern Trust (Guernsey) Limited |
|
|
PO Box 71 |
|
|
Trafalgar Court |
|
|
Les Banques |
|
|
St Peter Port |
|
|
Guernsey GY1 3DA |
|
|
Useful Information for Shareholders
Listing
JZCP Ordinary, Zero Dividend Preference ("ZDP") shares and
Convertible Unsecured Loan Stock ("CULS") are listed on the
Official List of the Financial Services Authority of the UK, and
are admitted to trading on the London Stock Exchange Specialist
Fund Segment for listed securities.
The price of the Ordinary shares are shown in the Financial
Times under "Conventional Private Equity" and can also be found at
https://markets.ft.com along with the prices of the ZDP shares and
CULS.
ISIN/SEDOL
|
|
Ticker
Symbol |
|
ISIN
Code |
|
Sedol
Number |
|
|
|
|
|
|
|
Ordinary shares |
|
JZCP |
|
GG00B403HK58 |
|
B403HK5 |
ZDP (2022) shares |
|
JZCZ |
|
GG00BZ0RY036 |
|
Z0RY03 |
CULS |
|
JZCC |
|
GG00BP46PR08 |
|
BP46PR0 |
Key Information Documents
JZCP produces Key Information Documents to assist investors'
understanding of the Company's securities and to enable comparrison
with other investment products. These documents are found on the
Company's webstite - www.jzcp.com/investor-
relations/key-information-documents.
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance
Measures ("APMs") the Board has considered what APMs are included
in the annual report and financial statements which require further
clarification. An APM is defined as a financial measure of
historical or future financial performance, financial position, or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. APMs included in the
annual report and financial statements, which are unaudited and
outside the scope of IFRS, are deemed to be as follows:
Total NAV Return
The Total NAV Return measures how the net asset value (NAV) per
share has performed over a period of time, taking into account both
capital returns and dividends paid to shareholders. JZCP quotes NAV
total return as a percentage change from the start of the period
(one year) and also three-month, three-year, five-year and seven
year periods. It assumes that dividends paid to shareholders are
reinvested back into the Company therefore future NAV gains are not
diminished by the paying of dividends. JZCP also produces an
adjusted Total NAV Return which excludes the effect of the dilution
per share caused by the issue of shares at a discount to NAV, the
result of the adjusted Total NAV return is to provide a measurement
of how the Company's Investment portfolio contributed to NAV growth
adjusted for the Company's expenses and finance costs. The Total
NAV Return for the year ended 28 February
2018 was -1.4%, which only reflects the change in NAV as no
dividends were paid during the year. The Total NAV Return for the
year ended 28 February 2017 was 2.7%,
which included dividends paid of 30.5
cents.
Total Shareholder Return
A measure showing how the share price has performed over a
period of time, taking into account both capital returns and
dividends paid to shareholders. JZCP quotes shareholder price total
return as a percentage change from the start of the period (one
year) and also three-month, three-year, five-year and seven-year
periods. It assumes that dividends paid to shareholders are
reinvested in the shares at the time the shares are quoted ex
dividend. The Shareholder Return for the year ended 28 February 2018 was -16.2%, which only reflects
the change in share price as no dividends were paid during the
year. The Shareholder Return for the year ended 28 February 2017 was 42.8%, which included
dividends paid (Sterling equivalent) of 23.0
cents.
NAV to market price discount
The NAV per share is the value of all the company’s assets, less
any liabilities it has, divided by the number of shares. However,
because JZCP shares are traded on the London Stock Exchange's
Specialist Fund Segment, the share price may be higher or lower
than the NAV. The difference is known as a discount or premium.
JZCP's discount is calculated by expressing the difference between
the period end dollar equivalent share price and the period end NAV
per share as a percentage of the NAV per share.
At 28 February 2018, JZCP's
Ordinary shares traded at £4.51 (2017: £5.38)) or $6.21 (2017: $6.69)
being the dollar equivalent using the year end exchange rate of £1:
$1.38 (2017 £1: $1.24). The shares traded at a 38% (2017: 34%)
discount to the NAV per share of $9.98 (2017: $10.12).
Ongoing Charges calculation
A measure expressing the Ongoing annualised expenses as a
percentage of the Company's average annualised net assets over the
year 2.35% (2017: 2.26%). Ongoing charges, or annualised recurring
operating expenses, are those expenses of a type which are likely
to recur in the foreseeable future, whether charged to capital or
revenue, and which relate to the operation of the company,
excluding the Investment Adviser's Incentive fee, financing charges
and gains/losses arising on investments.
Ongoing expenses for the year are $19,580,000 (2017: $19,415,000) comprising of the IA base fee
$16,912,000 (2017: $16,865,000), administrative fees $2,253,000 (2017: $2,135,000) and directors fees $415,000 (2017:$415,000). Average net assets for the year are
calculated using quarterly NAVs $836,038,000 (2017: $857,768,000).
Criminal Facilitation of Tax
Evasion
The Board have approved a policy of zero tolerance towards the
criminal facilitation of tax evasion, in compliance with the
Criminal Finances Act 2017.
Non-Mainstream Pooled Investments
From 1 January 2014, the FCA rules
relating to the restrictions on the retail distribution of
unregulated collective investment schemes and close substitutes
came into effect. JZCP's Ordinary shares qualify as an ‘excluded
security’ under these rules and will therefore be excluded from the
FCA’s restrictions which apply to non-mainstream investment
products. Therefore Ordinary shares issued by JZ Capital Partners
can continue to be recommended by financial advisors as an
investment for UK retail investors.
Financial Diary
Annual General Meeting |
|
|
|
26 June 2018 |
|
|
Interim report for the six months ended
31 August 2018 |
|
November 2018 (date to be
confirmed) |
Results for the year ended 28 February
2019 |
|
|
|
May 2019 (date to be confirmed) |
JZCP will be issuing an Interim Management Statement for the
quarters ending 31 May 2018 and
30 November 2018. These Statements
will be sent to the market via RNS within six weeks from the end of
the appropriate quarter, and will be posted on JZCP's website at
the same time, or soon thereafter.
Payment of Dividends
In the event of a cash dividend being paid, the dividend will be
sent by cheque to the first-named shareholder on the register of
members at their registered address, together with a tax voucher.
At shareholders' request, where they have elected to receive
dividend proceeds in Sterling, the dividend may instead be paid
direct into the shareholder's bank account through the Bankers'
Automated Clearing System. Payments will be paid in US dollars
unless the shareholder elects to receive the dividend in Sterling.
Existing elections can be changed by contacting the Company's
Transfer and Paying Agent, Equiniti Limited on +44 (0) 121 415
7047.
Share Dealing
Investors wishing to buy or sell shares in the Company may do so
through a stockbroker. Most banks also offer this service.
Internet Address
The Company: www.jzcp.com
Foreign Account Tax Compliance Act
The Company is registered (with a Global Intermediary
Identification Number CAVBUD.999999.SL.831) under The Foreign
Account Tax Compliance Act ("FATCA").
Share Register Enquiries
The Company's UK Transfer and Paying Agent, Equiniti Limited,
maintains the share registers. In event of queries regarding your
holding, please contact the Registrar on 0871 384 2265, calls to
this number cost 8p per minute from a BT landline, other providers'
costs may vary. Lines are open 8.30 a.m. to
5.30 p.m., Monday to Friday, If calling from overseas +44
(0) 121 415 7047 or access their website
at www.equiniti.com. Changes of name or address must be
notified in writing to the Transfer and Paying Agent.
Nominee Share Code
Where notification has been provided in advance, the Company
will arrange for copies of shareholder communications to be
provided to the operators of nominee accounts. Nominee investors
may attend general meetings and speak at meetings when invited to
do so by the Chairman.
Documents Available for
Inspection
The following documents will be available at the registered
office of the Company during usual business hours on any weekday
until the date of the Annual General Meeting and at the place of
the meeting for a period of fifteen minutes prior to and during the
meeting:
(a) the Register of Directors' Interests in the stated
capital of the Company;
(b) the Articles of Incorporation of the Company; and
(c) the terms of appointment of the Directors.
Warning to Shareholders – Boiler Room
Scams
In recent years, many companies have become aware that their
shareholders have been targeted by unauthorised overseas- based
brokers selling what turn out to be non-existent or high risk
shares, or expressing a wish to buy their shares. If you are
offered, for example, unsolicited investment advice, discounted
JZCP shares or a premium price for the JZCP shares you own, you
should take these steps before handing over any money:
• Make sure you get the correct name of the person
or organisation
• Check that they are properly authorised by the FCA
before getting involved by
visiting http://www.fca.org.uk/firms/systems- reporting/register
• Report the matter to the FCA by calling 0800 111 6768
• If the calls persist, hang up
• More detailed information on this can be found on the Money
Advice Service website www.moneyadviceservice.org.uk
US Investors
General
The Company's Articles contain provisions allowing the Directors
to decline to register a person as a holder of any class of
ordinary shares or other securities of the Company or to require
the transfer of those securities (including by way of a disposal
effected by the Company itself) if they believe that the
person:
(a)
is a "US person" (as defined in Regulation S under the US
Securities Act of 1933, as amended) and not a "qualified purchaser"
(as defined in the US Investment Company Act of 1940, as amended,
and the related rules thereunder);
(b)
is a "Benefit Plan Investor" (as described under "Prohibition on
Benefit Plan Investors and Restrictions on Non-ERISA Plans" below);
or
(c)
is, or is related to, a citizen or resident of the United States, a US partnership, a US
corporation or a certain type of estate or trust and that ownership
of any class of ordinary shares or any other equity securities of
the Company by the person would materially increase the risk that
the Company could be or become a "controlled foreign corporation"
(as described under "US Tax Matters").
In addition, the Directors may require any holder of any class
of ordinary shares or other securities of the Company to show to
their satisfaction whether or not the holder is a person described
in paragraphs (A), (B) or (C) above.
US Securities
Laws
The Company (a) is not subject to the reporting requirements of
the US Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and does not intend to become subject to such reporting
requirements and (b) is not registered as an investment company
under the US Investment Company Act of 1940, as amended (the "1940
Act"), and investors in the Company are not entitled to the
protections provided by the 1940 Act.
Prohibition on Benefit Plan Investors
and Restrictions on Non-ERISA Plans
Investment in the Company by "Benefit Plan Investors" is
prohibited so that the assets of the Company will not be deemed to
constitute "plan assets" of a "Benefit Plan Investor". The term
"Benefit Plan Investor" shall have the meaning contained in Section
3(42) of the US Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and includes (a) an "employee benefit plan" as
defined in Section 3(3) of ERISA that is subject to Part 4 of Title
I of ERISA; (b) a "plan" described in Section 4975(e)(1) of the US
Internal Revenue Code of 1986, as amended (the "Code"), that is
subject to Section 4975 of the Code; and (c) an entity whose
underlying assets include "plan assets" by reason of an employee
benefit plan's or a plan's investment in such entity. For purposes
of the foregoing, a "Benefit Plan Investor" does not include a
governmental plan (as defined in Section 3(32) of ERISA), a
non-US plan (as defined in Section 4(b)(4) of ERISA) or a church
plan (as defined in Section 3(33) of ERISA) that has not elected to
be subject to ERISA.
Each purchaser and subsequent transferee of any class of
ordinary shares (or any other class of equity interest in the
Company) will be required to represent, warrant and covenant, or
will be deemed to have represented, warranted and covenanted, that
it is not, and is not acting on behalf of or with the assets of, a
Benefit Plan Investor to acquire such ordinary shares (or any other
class of equity interest in the Company).
Under the Articles, the directors have the power to require the
sale or transfer of the Company's securities in order to avoid the
assets of the Company being treated as "plan assets" for the
purposes of ERISA.
The fiduciary provisions of pension codes applicable to
governmental plans, non-US plans or other employee benefit plans or
retirement arrangements that are not subject to ERISA
(collectively, "Non-ERISA Plans") may impose limitations on
investment in the Company. Fiduciaries of Non-ERISA Plans, in
consultation with their advisors, should consider, to the extent
applicable, the impact of such fiduciary rules and regulations on
an investment in the Company.
Among other considerations, the fiduciary of a Non-ERISA Plan
should take into account the composition of the Non-ERISA Plan's
portfolio with respect to diversification; the cash flow needs of
the Non-ERISA Plan and the effects thereon of the illiquidity of
the investment; the economic terms of the Non- ERISA Plan's
investment in the Company; the Non-ERISA Plan’s funding objectives;
the tax effects of the investment and the tax and other risks
associated with the investment; the fact that the investors in the
Company are expected to consist of a diverse group of investors
(including taxable, tax-exempt, domestic and foreign entities) and
the fact that the management of the Company will not take the
particular objectives of any investors or class of investors into
account.
Non-ERISA Plan fiduciaries should also take into account the
fact that, while the Company's board of directors and its
investment advisor will have certain general fiduciary duties to
the Company, the board and the investment advisor will not have any
direct fiduciary relationship with or duty to any investor,
either with respect to its investment in Shares or with
respect to the management and investment of the assets of the
Company. Similarly, it is intended that the assets of the Company
will not be considered plan assets of any Non-ERISA Plan or be
subject to any fiduciary or investment restrictions that may exist
under pension codes specifically applicable to such Non-ERISA
Plans. Each Non-ERISA Plan will be required to acknowledge and
agree in connection with its investment in any securities to the
foregoing status of the Company, the board and the investment
advisor that there is no rule, regulation or requirement applicable
to such investor that is inconsistent with the foregoing
description of the Company, the board and the investment
advisor.
Each purchaser or transferee that is a Non-ERISA Plan will be
deemed to have represented, warranted and covenanted as
follows:
(a) The Non-ERISA Plan is not a Benefit Plan
Investor;
(b) The decision to commit assets of the
Non-ERISA Plan for investment in the Company was made by
fiduciaries independent of the Company, the Board, the Investment
Advisor and any of their respective agents, representatives or
affiliates, which fiduciaries
(i) are duly authorized to
make such investment decision and have not relied on any advice or
recommendations of the Company, the Board, the Investment Advisor
or any of their respective agents, representatives or affiliates
and (ii) in consultation with their advisers, have carefully
considered the impact of any applicable federal, state or local law
on an investment in the Company;
(c) None of the Company, the Board, the
Investment Advisor or any of their respective agents,
representatives or affiliates has exercised any discretionary
authority or control with respect to the Non-ERISA Plan’s
investment in the Company, nor has the Company, the Board, the
Investment Advisor or any of their respective agents,
representatives or affiliates rendered individualized investment
advice to the Non-ERISA Plan based upon the Non-ERISA Plan’s
investment policies or strategies, overall portfolio composition or
diversification with respect to its commitment to invest in the
Company and the investment program thereunder; and
(d) It acknowledges and agrees that it is
intended that the Company will not hold plan assets of the
Non-ERISA Plan and that none of the Company, the Board, the
Investment Advisor or any of their respective agents,
representatives or affiliates will be acting as a fiduciary to the
Non-ERISA Plan under any applicable federal, state or local law
governing the Non-ERISA Plan, with respect to either (i) the
Non-ERISA Plan’s purchase or retention of its investment in the
Company or (ii) the management or operation of the business or
assets of the Company. It also confirms that there is no rule,
regulation, or requirement applicable to such purchaser or
transferee that is inconsistent with the foregoing description of
the Company, the Board and the Investment Advisor.
US Tax Matters
This discussion does not constitute tax advice and is not intended to be a
substitute for tax advice and planning.
Prospective holders of the Company's securities must
consult their own tax advisers concerning the US federal, state and
local income
tax and estate tax consequences in their particular situations of the acquisition, ownership and disposition of any of the Company's securities, as well as any consequences under the laws of any other taxing jurisdiction.
The Company's directors are entitled to decline to register a
person as, or to require such person to cease to be, a holder of
any class of ordinary shares or other equity securities of the
Company if they believe that: such person is, or is related to, a
citizen or resident of the United
States, a US partnership, a US corporation or a certain type
of estate or trust and that ownership of any class of ordinary
shares or any other equity securities of the Company by such person
would materially increase the risk that the Company could be or
become a "controlled foreign corporation" within the meaning of the
Code (a "CFC").
In general, a foreign corporation is treated as a CFC only if
its "US shareholders" collectively own more than 50% of the total
combined voting power or total value of the corporation's stock. A
"US shareholder" means any US person who owns, directly or
indirectly through foreign entities, or is considered to own (by
application of certain constructive ownership rules), 10% or more
of the total combined voting power of all classes of stock of a
foreign corporation, such as the Company.
There is a risk that the Company will decline to register a
person as, or will require such person to cease to be, a holder of
the Company's securities if the Company could be or become a CFC.
The Company's treatment as a CFC could have adverse tax
consequences for US taxpayers.
The Company has been advised that it is NOT a passive foreign
investment company ("PFIC") for the fiscal years ended February 2017 and 2016. A classification as a
PFIC would likely have an adverse tax consequences for US
taxpayers.
The taxation of a US
taxpayer's investment in the Company's securities is highly
complex. Prospective holders of the Company's securities must
consult their own tax advisers concerning the US federal, state and
local income tax and estate tax consequences in their particular
situations of the acquisition, ownership and disposition of any of
the Company's securities, as well as any consequences under the
laws of any other taxing jurisdiction.
Investment Adviser's ADV
Form
Shareholders and state securities authorities wishing to view
the Investment Adviser's ADV form can do so by following the link
below:
https://adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?ORG_PK=160932
[1] Factor Energia total gross proceeds of approximately €69.7
million ($85.0 million) (including
interim distributions and future expected proceeds all multiplied
by a theoretical, illustrative exchange rate of $1.22 to €1.00, which is current as of
April 25, 2018 per Oanda.com). K2
Towers total expected gross proceeds of approximately $31.3 million. Nielsen-Kellerman total gross
proceeds of approximately $8.6
million. Paragon (post-period) expected total gross proceeds
of $16.2 million. Bolder Healthcare
Solutions (post-period) expected total gross proceeds of
approximately $110.0 million.