TIDMBC12 TIDMBCAP
RNS Number : 5578U
Better Capital PCC Limited
13 July 2018
13 July 2018
BETTER CAPITAL PCC LIMITED
(the "Company")
FINAL RESULTS UPDATE
Better Capital PCC Limited announces its 2018 annual results for
both the 2009 Cell and the 2012 Cell.
2009 Cell Final Results
-- NAV at 31 March 2018: GBP40.4 million, NAV at 30 September
2017: GBP40.4 million, NAV at 31 March 2016: GBP260.3 million
-- GBP210.0 million total capital raised
-- GBP203.8 million net proceeds invested in Fund I
-- GBP288.8 million/137.5 per cent. cumulative distributions to date
-- 60.6 per cent. return from NAV growth and distributions since inception
-- 7.1 per cent. annualised NAV total return including distributions
Key Financials
NAV GBP40.4 m
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NAV (including distributions) GBP329.2 m
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NAV per share 114.62 pence
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NAV per share (including distributions) 159.20 pence
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NAV total return (including distributions)
(1) 60.6 per cent.
------------------------------------------------------ ---------------
Annualised NAV total return (including distributions)
(2) 7.1 per cent.
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Share price at 30 September 2015 62.50 pence
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Market capitalisation at 30 September 2015 GBP22.0m
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-- 4 good realisations - Gardner, Santia, ATH Coal, Calyx Managed Services
-- 2 poor realisations - Reader's Digest, Fairline
-- 7.2 years average holding period of portfolio companies
-- GBP0.6 million(3) net debt across Fund I portfolio companies
(1) Cumulative return over the period of the life of the 2009
Cell since inception based on the weighted average issue price of
ordinary shares and net of share issue costs.
(2) Internal rate of return since inception, based on the net
proceeds of share issues and distributions to shareholders
(3) SPOT net debt (GBP40.6m) excluded from net debt figure.
2012 Cell Final Results
-- NAV at 31 March 2018: GBP138.1 million, NAV at 30 September
2017: GBP144.3 million, NAV at 31 March 2017: GBP172.3 million
-- GBP355.5 million total capital raised
-- GBP347.4 million net proceeds invested in Fund II
-- GBP48.4 million/13.6 per cent. cumulative distributions to 31 March 2018
-- 5.0 per cent. 2012 Shares acquired by the Company and cancelled on 19 June 2018
-- 4.2 per cent. Better Capital 2012 Shares held by Fund II
-- 43.4 per cent. value decline combined NAV and distributions since inception
-- 10.8 per cent. annualised value decline combined NAV and distributions
Key Financials
NAV GBP138.1 m
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NAV (including distributions) GBP186.4 m
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NAV per share 43.41 pence
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NAV per share (including distributions) 58.61 pence
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NAV total decline (including distributions)
(1) (43.4) per cent.
------------------------------------------------------ -----------------
Annualised NAV total return (including distributions)
(2) (10.8) per cent.
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Share price at 31 March 2018 24.00 pence
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Market capitalisation at 31 March 2018 GBP76.3 m
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-- 6 total platform investments
-- 1 follow-on investment
-- 1 good realisation -iNTERTAIN
-- 2 partial losses - City Link, Jaeger
-- 3 remaining assets - Everest, SPOT, Northern Aerospace(3)
-- 4.2 years average holding period of portfolio companies
-- GBP21.0 million(4) net debt across Fund II portfolio companies
(1) Cumulative return over the period of the life of the 2012
Cell since inception based on the weighted average issue price of
ordinary shares and net of share issue costs, since inception.
(2) Internal rate of return since inception, based on the net
proceeds of share issues and distributions to shareholders
(3) Formerly traded as CAV Aerospace.
(4) Including total net debt of SPOT (GBP40.6m).
For further information, please contact:
+44 (0) 1481 742
Better Capital PCC Limited 742
Norman Amey (Administrator and Company Secretary)
+44 (0) 20 7260
Numis Securities Limited 1000
Nathan Brown
Note:
HOLDERS OF ORDINARY SHARES OF GBP1 EACH IN THE 2012 CELL ("2012
SHARES") ARE REMINDED THAT, WITH EFFECT FROM 19 JUNE 2018, THE
TOTAL NUMBER OF 2012 SHARES IN ISSUE IS 302,181,436. ALL
SHAREHOLDERS ARE REFERRED TO THE ANNOUNCEMENT MADE BY THE COMPANY
AT 07.00 AM ON 02 JULY 2018 (RNS NUMBER: 1495T) REGARDING THE
CALCULATION OF TOTAL VOTING RIGHTS.
Chairman's Statement
Better Capital PCC Limited, together with its two protected
cells, the 2009 Cell and 2012 Cell, today issues its Annual Results
for the year ended 31 March 2018.
This has been another busy year at Better Capital. Almost to a
year following the successful sale of Gardner to SLMR, the Fund II
GP notified the Board on 8 June that it was in negotiations to sell
Northern Aerospace to Gardner for GBP44.0 million on an enterprise
value basis, which together with the proceeds of the warranty claim
would have returned substantial value to Fund II, and to the 2012
Shareholders.
However, the Board and the Fund II GP were informed on 18 June
that the Secretary of State for Business, Energy and Industrial
Strategy had on 17 June issued an intervention notice in respect of
the proposed disposal, further to which the Competition and Markets
Authority (the "CMA") issued an Initial Enforcement Order ("IEO")
in respect of the proposed disposal. An IEO is a mechanism
available to the CMA to prohibit activity in respect of a
merger.
In the intervening period, the Fund II GP and Northern Aerospace
worked collaboratively to assist with the investigation. Northern
Aerospace's business consists very largely of making parts to the
design of non-UK civil aviation customers. Less than 1 per cent. of
its revenues go to military programs and these are not of a
sensitive nature. The CMA refused to provide a derogation to enable
Northern Aerospace's shares to be transferred to Gardner on 22 June
(being the target completion date) pending the completion of their
own procedural investigation.
The Fund II GP and Gardner then entered into an agreement to
extend the completion date to 7 July. Both parties agreed that
failure by the CMA to provide a derogation allowing the transfer of
the shares of Northern Aerospace by this date would terminate the
proposed disposal.
No such derogation was provided and accordingly the disposal
lapsed.
Northern Aerospace had thoroughly planned for a separate
existence and is now engaged in implementing the next stage of its
plans.
On 19 June 2018, the Company's 2012 Cell announced the
acquisition of 15,870,806 2012 Shares from Fund II under the terms
of the buyback contract entered into between the Company and Fund
II in December 2016 (the "Shares Buyback"). The 2012 Shares were
purchased at 29.693 pence per share, being the volume weighted
average price ("VWAP") of the 2012 Shares on the preceding business
day.
Following the Shares Buyback, the Company immediately cancelled
all of the 2012 Shares acquired, reducing the number of 2012 Shares
in issue from 318,052,242 to 302,181,436. The pro forma impact of
the Shares Buyback and subsequent cancellation is to provide an
uplift to the 2012 NAV per share (including distributions) at 31
March 2018 of 3.1 per cent.
Better Capital 2009 Cell
Omnico has demonstrated solid progress in the first six months
of its FY18 financial year ending 30 September 2018. The business
is trading ahead of its EBITDA budget due to a combination of
better product mix, improved staff utilisation and cost control.
Its new V6 retail product is starting to generate sales,
particularly in the theme parks and leisure sector and the pipeline
has grown as a result. Delivery of the order book is now a key
priority.
The Fund I GP, through the Consultant, embarked on a strategic
review of m-hance in late 2017/ early 2018. The findings led to the
conclusion that a sale now will not generate optimal value to the
2009 Cell Shareholders; however, the business should achieve a
higher valuation with further investment effort, particularly in
its high growth CRM division.
The 2009 Cell NAV summary is set out below.
Value Movement Movement Value Movement Movement Value Fund
at March at cost in value at Sept at cost in value at March cost
2017 GBP'm GBP'm 2017 GBP'm GBP'm 2018 March
GBP'm GBP'm GBP'm 2018
GBP'm
Gardner 254.1 (22.7) (231.4) - - - - -
---------- --------- ---------- --------- --------- ---------- ---------- -------
m-hance 10.5 - - 10.5 0.1 (0.1) 10.5 14.1
---------- --------- ---------- --------- --------- ---------- ---------- -------
Omnico 20.0 0.7 1.3 22.0 - 1.0 23.0 41.5
---------- --------- ---------- --------- --------- ---------- ---------- -------
SPOT 4.7 - (0.2) 4.5 - (0.3) 4.2 10.1
---------- --------- ---------- --------- --------- ---------- ---------- -------
289.3 (22.0) (230.3) 37.0 0.1 0.6 37.7 65.7
---------- --------- ---------- --------- --------- ---------- ---------- -------
Fund cash on deposit 3.1 2.7
--------- --------- ---------- ---------- -------
Fund & SPV combined other net 0.3(1) -
assets/(liabilities) attributable
to 2009 Cell
--------- --------- ---------- ---------- -------
Provision for carried interest (0.3) (0.2)
--------- --------- ---------- ---------- -------
2009 Cell fair value of investment
in Fund I 40.1 40.2
--------- --------- ---------- ---------- -------
2009 Cell cash on deposit 0.4 0.3
--------- --------- ---------- ---------- -------
2009 Cell current assets less
liabilities (0.1) (0.1)
--------- --------- ---------- ---------- -------
2009 Cell NAV 40.4 40.4
--------- --------- ---------- ---------- -------
2009 Cell cumulative distributions 288.8 288.8
--------- --------- ---------- ---------- -------
2009 Cell adjusted NAV 329.2 329.2
--------- --------- ---------- ---------- -------
The main contributor to performance in Fund I in the year to 31
March 2018 was the sale of Gardner to SLMR in June 2017 which
crystallised net proceeds of GBP254.1 million in Fund I.
The NAV total return(2) since inception excluding distributions
was 15.6 per cent. to 31 March 2018 (31 March 2017: 27.0 per cent.;
30 September 2017: 15.5 per cent.) and is stated after accounting
for a carry provision of GBP0.2 million (31 March 2017: GBP29.6
million; 30 September 2017: GBP0.3 million).
On a cumulative basis, NAV total return(2) since inception
including distributions was 60.6 per cent. for the year (31 March
2017: 59.5 per cent.; 30 September 2017: 60.6 per cent.) with the
annualised NAV total return(3) including distributions rising to
7.1 per cent. (31 March 2017: 6.6 per cent.; 30 September 2017: 7.2
per cent.).
(1) Includes GBP150,000 of net proceeds from the Fairline
administration received in full in November 2017.
(2) Based on the weighted average issue price of ordinary shares
and net of share issue costs since inception.
(3) Internal rate of return since inception, based on the net
proceeds of share issues and distributions to shareholders
Comprehensive details on Fund I's investment activities,
portfolio companies and valuation are set out in the Fund I GP's
report below.
Extension to Fund I
In accordance with the terms of the Prospectus of the Company
dated 29 July 2013 and the Amended and Restated Limited Partnership
Agreement of Fund I dated 16 December 2011, the General Partner of
Fund I can exercise its discretion to extend Fund I's term for up
to two additional one year periods, subject to the consent of the
Company. On 22 February 2017, the Company announced that it had
consented to an extension to Fund I of one year to 17 December
2018. On 24 April 2018, the Company announced that it had consented
to an extension to Fund I of a further one year to 17 December
2019. The Board considered that this extension to Fund I will
provide an appropriate timeframe in which the General Partner of
Fund I can maximise returns through the realisation of the residual
assets in the portfolio.
Better Capital 2012 Cell
The operational issues plaguing Everest have continued into
2018. Lead generation and order intake continue to perform well,
with the order book now standing at c. GBP45 million but delivery
has not been fast enough. Wholesale management changes have
recently taken place in the expectation of reinvigorating the
improvement programmes.
The Spicers division of SPOT continues to see contraction in its
marketplace. Tactical initiatives such as the Alliance Programme
with dealers are starting to yield results; however, revenue
decline is a major issue. Plans are in place to right-size and
refocus this division in order to be more agile and to equip it for
more direct business. OfficeTeam is performing well against budget,
and acquired ZenOffice in April 2018 principally to complement its
managed print services offering. Oyez Professional Services, SPOT's
legal subscription services business continues to perform well and
is certainly a business capable of being spun off on its own.
Overall, SPOT has been marked down by GBP2.5 million/6.1 per cent.
on the back of weaker financial performance in Spicers.
Northern Aerospace is performing well against its EBITDA and
cash budget. In the Interim Report, we reported that Airbus, its
largest customer had decided not to extend the supply contracts
beyond December 2018. Actions were taken by the business to
minimise the impact as a result of the loss of these key contracts.
Since then, constructive discussions with Airbus have taken place
as the latter seeks to secure the crucial parts it requires to
deliver on its substantial order book. Northern Aerospace is,
following the aborted sale, pursuing clarity as to its way ahead
with Airbus whilst energetically pursuing cost reductions and
extending its customer base.
The 2012 Cell NAV summary is set out below.
Value Movement Movement Value Movement Movement Value Fund
at March at cost in value at Sept at cost in value at March cost
2017 GBP'm GBP'm 2017 GBP'm GBP'm 2018 March
GBP'm GBP'm GBP'm 2018
GBP'm
Everest 38.0 - (18.0) 20.0 2.5 (2.5) 20.0 27.9
---------- --------- ---------- --------- --------- ---------- ---------- --------
SPOT 47.3 (4.6) (2.0) 40.7 - (2.5) 38.2 91.6
---------- --------- ---------- --------- --------- ---------- ---------- --------
Northern
Aerospace 60.0 2.0 (2.0) 60.0 - - 60.0 66.9
---------- --------- ---------- --------- --------- ---------- ---------- --------
2012 shares 7.9 - 1.8 9.7 - (2.8) 6.9(2) 11.1(3)
---------- --------- ---------- --------- --------- ---------- ---------- --------
153.2 (2.6) (20.2) 130.4 2.5 (7.8) 125.1 197.5
---------- --------- ---------- --------- --------- ---------- ---------- --------
Fund II cash on deposit 10.2 6.8
--------- --------- ---------- ---------- --------
Fund II & SPV combined other net
assets attributable to 2012 Cell 2.7(1,4) 5.4(1,4)
--------- --------- ---------- ---------- --------
2012 Cell fair value of investment
in Fund II 143.3 137.3
--------- --------- ---------- ---------- --------
2012 Cell cash on deposit 0.3 0.1
--------- --------- ---------- ---------- --------
2012 Cell current assets less liabilities 0.7 0.7
--------- --------- ---------- ---------- --------
2012 Cell NAV 144.3 138.1
--------- --------- ---------- ---------- --------
2012 Cell cumulative distributions 48.4 48.4
--------- --------- ---------- ---------- --------
2012 Cell adjusted NAV 192.7 186.5
--------- --------- ---------- ---------- --------
Further details on Fund II's investment activities, portfolio
companies and valuation are set out in the Fund II GP's report
below.
The NAV total decline(5) since inception but excluding
distributions was 56.8 per cent. to 31 March 2018 (31 March 2017:
46.0 per cent.; 30 September 2017: 54.8 per cent.).
On a cumulative basis, NAV total decline(5) since inception
including distributions was 43.4 per cent. for the year (31 March
2017: 33.5 per cent.; 30 September 2017: 39.7 per cent.) with the
annualised NAV total decline(6) including distributions falling to
10.8 per cent. (31 March 2017: 7.6 per cent.; 30 September 2017:
11.0 per cent.).
(1) Includes iNTERTAIN proceeds in escrow payable pending the
resolution of legacy matters recorded as a fund receivable.
(2) 28,548,277 2012 Shares at the closing price on 31 March 2018
of 24.00p per share.
(3) Average cost per remaining share, 40.84p. Includes
commission and levy.
(4) At 31 March 2018, the estimated remaining net receivable
from the City Link administration is GBP135,000 (at 31 March 2017:
GBP200,000). This is after accounting for receipts of GBP250,000 in
September 2017 and a GBP185,000 improvement to the overall
estimated outcome. On 20 June 2018, Fund II received a further
distribution of GBP75,000.
(5) Based on the weighted average issue price of ordinary shares
and net of share issue costs.
(6) Internal rate of return since inception, based on the net
proceeds of share issues and distributions to shareholders.
The main contributors to performance in Fund II in the year to
31 March 2018 were the write downs in Everest and SPOT totalling
GBP18.0 million and GBP4.5 million respectively.
Better Capital 2012 Shares buyback and cancellation
On 19 June 2018, Fund II sold 15,870,806 2012 Shares to the 2012
Cell for GBP4.7 million (29.693 pence per share). The transaction
price was based on the terms agreed under the buyback contract
entered into in December 2016, being the VWAP of the business day
immediately before. The consideration owed by the 2012 Cell to Fund
II will be offset against the outstanding loan between the parties
and has not resulted in any return of capital to the 2012
Shareholders.
Immediately following the acquisition, the Company cancelled the
newly acquired 2012 Shares, reducing the 2012 Shares in issue from
318,052,242 to 302,181,436, a 4.99 per cent. reduction.
NAV at NAV per NAV uplift Adjusted Adjusted Adjusted
31 March share NAV at NAV per NAV uplift
2018 (GBPm) (p) 31 March share
2018 (GBPm) (p)
Pre 2012 Shares
buyback and
cancellation 138.1 43.41(2) 186.5 58.61(2)
2012 Shares
buyback and
cancellation (3.8) (1) (3.8)
Immediately
following 2012
Shares buyback
and cancellation
(pro forma) 134.3 44.43(3) 2.3% 182.7 60.44(3) 3.1%
The financial effect of the cancellation was to provide a
pro-forma uplift to the adjusted NAV per remaining 2012 Shares, of
approximately 1.83p per 2012 Share or 3.1 per cent. based on the
2012 Cell's NAV including cumulative distribution per share on 31
March 2018.
Following the 2012 Shares buyback transaction, Fund II held
12,677,471 2012 Shares, representing 4.2 per cent. of the remaining
2012 Shares in issue.
(1) Based on the disposal of 15,870,806 2012 Shares at the
closing price on 31 March 2018, of 24.00pps
(2) Based on 318,052,242 2012 Shares in issue
(3) Based on the new 302,181,436 2012 Shares in issue
Distributions - 2009 Cell
The sale of Gardner to SLMR in June 2017 enabled the
distribution of GBP222.0 million, equivalent to 107.35p per share
to the 2009 Shareholders by way of a redemption. Other than
Gardner, there were no other distributions made during the year to
31 March 2018 nor is there any expectation of any near term
distribution out of the 2009 Cell.
The cumulative distribution to the 2009 Shareholders following
the redemption is GBP288.8 million or 1.4 times of funds
raised.
Distributions - 2012 Cell
The sale of the debt instruments in Jaeger enabled a third
distribution of GBP8.3 million, equivalent to 2.6p per share in May
2017 by way of a reduction of share capital to the 2012
Shareholders. There were no other distributions made during the
year.
2012 Cell distributions to date total GBP48.4 million or 13.6
per cent. of funds raised.
Better Capital LLP
The Fund I GP and Fund II GP have notified the Board of the
termination of their respective contractual arrangements with the
Consultant effective on 31 March 2018. The GP companies have
largely absorbed the Consultant's functions. Separate temporary
arrangements are in place for Rob Asplin and Bonnie Kraus for the
provision of certain consultancy services. In addition, Simon
Pilling has joined Omnico in the capacity of independent chairman,
a business which he has chaired and mentored whilst still a member
of the Consultant.
Strategy
As reported above, the Board had in April 2018 consented to a
further one year extension to the life of Fund I, taking it to
December 2019. Having discussed at length with the Fund I GP, we
believe this is vital to maximise value in the remaining portfolio
companies and consequently the total returns to the 2009
Shareholders. The Fund I GP remains of the view that the strategic
direction set in late 2017 for these businesses are appropriate but
will now take longer than initially anticipated and into 2019.
In addition to Northern Aerospace which now remains with Fund
II, there remain two other considerable assets in Fund II, namely
Everest and SPOT. Both companies are still on extended turnaround
journeys and will continue to be actively managed by the Fund II
GP. The Fund II GP is further supported by Octavia Morley who is
chair at SPOT.
Conclusion
The circumstances around the aborted disposal of Northern
Aerospace could not have been foreseen. It is deeply frustrating
that unspecified concerns about national security should have been
pursued as your Board has no knowledge of their nature or
circumstance.
Looking forward the Board is closely engaged with both GPs to
ensure that they continue to push for improvements in the
portfolios. I am pleased to report they are energetically doing
so.
Richard Crowder
Chairman
12 July 2018
Report of the Directors
The Directors hereby submit the annual report and audited
financial statements for each of the Company, the 2009 Cell and the
2012 Cell for the year ended 31 March 2018.
Principal activities
Further information on the principal activities of the Company
can be found on the inside of the front cover.
Business review
A review of the Company's business and its likely future
development is provided in the Chairman's Statement above. The
underlying investments of the Funds are reviewed in the relevant
General Partner's Report for Fund I and Fund II and are below.
Results and distributions
The Company
The results of the Company for the year are shown in the audited
statement of comprehensive income below.
2009 Cell
The results of the 2009 Cell for the year are shown in the
audited statement of comprehensive income below.
The Net Asset Value of the 2009 Cell as at 31 March 2018 was
GBP40.4 million (2017: GBP260.3 million).
During the year, the 2009 Cell made its fifth distribution of
GBP222.0 million (2017: GBP5.2 million) to shareholders of the 2009
Cell as at the ex-date of 27 June 2017. The distribution consisted
of a payment of 107.35 pence per ordinary share payable in cash
from the 2009 Cell's share capital account and has been treated as
a reduction of share capital and partial distribution from retained
earnings.
The five cumulative distributions (including reductions of share
capital) at 31 March 2018 for the 2009 Cell total GBP288.8 million,
being 137.5 per cent. of funds raised.
2012 Cell
The results of the 2012 Cell for the year are shown in the
audited statement of comprehensive income below.
The Net Asset Value of the 2012 Cell as at 31 March 2018 was
GBP138.1 million (2017: GBP172.3 million).
During the year the 2012 Cell made its third distribution of
GBP8.3 million (2017: GBP34.0 million) to shareholders of the 2012
Cell as at the ex-date of 4 May 2017. The distribution consisted of
a payment of 2.6 pence per ordinary share payable in cash from the
2012 Cell's share capital account and has been treated as a
reduction of share capital.
The three cumulative distributions (reductions of share capital)
at 31 March 2018 for the 2012 Cell total GBP48.4 million, being
13.6 per cent. of funds raised.
Annual General Meetings
The Annual General Meetings of the Company and the Cells will be
held on 13 September 2018 at Lefebvre Place, Lefebvre Street, St
Peter Port, Guernsey. The AGM of the 2009 Cell will be held at
10.00 am. The AGM of the 2012 Cell will be held at 10.15 am or, if
later, immediately following the conclusion of the AGM of the 2009
Cell. The AGM of the Company will be held at 10.30 am or, if later,
immediately following the conclusion of the AGM of the 2012 Cell.
Details of the resolutions to be proposed at the AGMs, together
with explanations, appear in the Notices of Meetings which are
being sent to Shareholders at the same time as this Annual
Report.
Members of the Board, including the Chairman and the Audit
Committee Chairman, will be in attendance at the AGMs and will be
available to answer shareholder questions.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report
for each financial year which give a true and fair view of the
state of affairs of the Company, the 2009 Cell and the 2012 Cell
and of the respective results for the year then ended, in
accordance with applicable Guernsey law and EU adopted IFRS. In
preparing these financial statements the Directors are required
to:
-- select suitable accounting policies in accordance with IAS 8:
Accounting Policies, changes in Accounting Estimates and Errors and
then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- provide additional disclosures when compliance with the
specific requirements in IFRS are insufficient to enable users to
understand the impact of particular transactions, other events and
conditions on the Company's financial position and financial
performance;
-- state that the Company has complied with IFRS, subject to any
material departures disclosed and explained in the financial
statements; and
-- prepare the financial statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping proper accounting
records which disclose, with reasonable accuracy at any time, the
financial position of the Company and its Cells and which enable
them to ensure that the financial statements comply with the
Companies Law. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud, error and non-compliance with
law and regulations.
The Directors confirm that, so far as they are aware, there is
no information relevant to the audit of which the Company's auditor
is unaware. The Directors also confirm that they have taken all
steps they ought to have taken as Directors to make themselves
aware of any information relevant to the audit and to establish
that the Company's auditor is aware of that information.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website (www.bettercapital.gg); the work carried out by
the auditor does not involve considerations of these matters and,
accordingly, the auditor accepts no responsibility for any change
that may have occurred to the financial statements.
Responsibility statement of the Directors in respect of the
Annual Report
Each of the Directors, whose names are set out below in the
Report of the Directors section of the Annual Report, confirms
that, to the best of their knowledge and belief:
-- the financial statements, prepared in accordance with EU
adopted IFRS give a true and fair view of the assets, liabilities,
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 the position of the Company,
together with a description of the principal risks and
uncertainties faced;
-- the Annual Report, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Company's performance, business model
and strategy; and
-- the Annual Report includes information required by the UK
Listing Authority and that the Company complies with the provisions
of the Listing Rules and DTRs 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.
Listing requirements
Throughout the period since being admitted to the Official List
maintained by the FCA, the Company has complied with the Listing
Rules.
Non-mainstream pooled investments
The Board notes the FCA rules regarding the restrictions on the
promotion to retail investors of unregulated collective investment
schemes and close substitutes (referred to as "non-mainstream
pooled investments"), which came into effect on 1 January 2014. On
the basis of advice received, the Board has concluded that the
Company's, the 2009 Cell's and 2012 Cell's Shares are not
non-mainstream pooled investments for the purposes of these rules,
meaning that the restrictions on promotion imposed by the rules do
not apply.
AIFMD
The Directors have considered the impact of the EU AIFMD (no.
2011/61/EU), which became effective in the UK on 22 July 2014 on
the Company and its operations.
The Company is a non-EU domiciled alternative investment fund
which does not currently intend to market its shares within Europe;
therefore, the Directors consider that neither authorisation nor
registration is required.
FATCA
The Company was registered by the Administrator in the fourth
quarter of 2014. The Board and the Administrator are in regular
discussions with the Company's service providers and advisors to
ensure that the Company continues to comply with FATCA's
requirements to the extent relevant to the Company.
Corporate governance statement
The Board recognises the value of sound corporate governance
and, in particular, has regard to the requirements of the UK Code
(available from the FRC's website, www.frc.org.uk).
The Board monitors developments in corporate governance to
ensure the Board remains aligned with best practice especially with
respect to the increased focus on diversity. The Board acknowledges
the importance of diversity, including gender, for the effective
functioning of the Board and commits to supporting diversity in the
boardroom. It is the Board's ongoing aspiration to have a
well-diversified representation. The Board also values diversity of
business skills and experience because Directors with diverse skill
sets, capabilities and experience gained from different
geographical backgrounds enhance the Board by bringing a wide range
of perspectives to the Company.
The Company's prospectus dated 29 July 2013 stated that the
Company was, and intended to continue to be, in compliance with the
UK Code. The Company is a member of the AIC and the Board of the
Company has accordingly considered, and resolved to follow, the
principles and recommendations of the AIC Code by reference to the
AIC Guide (both available from the AIC's website,
www.theaic.co.uk).
The AIC Code, as explained by the AIC Guide, addresses all the
principles set out in the UK Code, as well as setting out
additional principles and recommendations on issues that are of
specific relevance to investment companies such as the Company. The
Board considers that reporting against the principles and
recommendations of the AIC Code, by reference to the AIC Guide
(which incorporates the UK Code), provides better information to
shareholders.
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of Section 1 of the UK Code,
except as set out below.
For the reasons set out in the AIC Guide, and in the preamble to
the UK Code, the Board considers these provisions are not relevant
to the position of the Company which delegates most day-to-day
functions to third parties. The Company does not have a chief
executive or any executive directors, employees or internal
operations and has therefore not reported further in respect of
these provisions. The need for an internal audit function is
discussed in the Audit Committee Report.
Except as disclosed in the following paragraphs, the Company has
complied throughout the year with the provisions of the AIC
Code.
-- Principle 1 of the AIC Code states a Board should consider
appointing one independent non-executive Director to be the Senior
Independent Director. The Board, having taken into account its
small size and that the Chairman and two of the other three
Directors are each similarly independent and non-executive,
considers it unnecessary to appoint such a Senior Independent
Director. All members of the Board are available to shareholders if
they have unresolved concerns.
-- Principle 6 of the AIC Code states Directors should consider
the diversity of the Board, including gender. The Board will
consider diversity when a vacancy arises.
Pursuant to the GFSC Code, companies which report in line with
the UK Code or the AIC Code are deemed to meet the GFSC Code (the
GFSC Code is available from the GFSC website www.gfsc.gg).
The Funds themselves are not subject to any code of corporate
governance. However, the Funds act through the Fund GPs which in
turn act through Fund GP Companies which are licensed under the POI
Law. As POI Licensees, the boards of the Fund GP Companies have
regard to the GFSC Code, which sets out the general
responsibilities of the boards of the Fund GP Companies and
includes proposals to deal with risk management, internal control
procedures, the duties of directors, the composition of the Boards
of the Fund GP Companies and self-assessment. The Fund GP Companies
are managed in a manner which complies with the GFSC Code.
The Board
The Directors of the Company at the date of this report are
Richard Crowder (Chairman), Richard Battey, Philip Bowman and Jon
Moulton.
The Board meets on at least a quarterly basis. The dates for
each scheduled meeting are planned at the beginning of the year and
confirmed in writing in accordance with the Company's articles of
incorporation. Meetings for urgent issues may be and are convened
at short notice if all Directors are informed. In addition to
formal Board and/or committee meetings and, to the extent
practicable and appropriate, the Directors maintain close contact
with each other and the Administrator, by email and conference
calls, and with the directors of the Fund I GP Company and Fund II
GP Company for the purpose of keeping themselves informed about
Fund I's and Fund II's activities. The Board requires information
to be supplied in a timely manner by the respective general partner
of Fund I and Fund II, the Administrator and other advisors in a
form and of a quality appropriate to enable it to discharge its
duties.
The Company has adopted a share dealing code for the Board and
will seek to ensure compliance by the Board and relevant personnel
of the Fund I GP and the Fund II GP with the terms of the share
dealing code. The share dealing code is compliant with the EU
Market Abuse Regulation.
Board tenure and re-election
Any director who has held office with the Company, other than
employment or executive office, for a continuous period of nine
years or more at the date of the meeting, shall retire from office
and may offer himself for reappointment by the members. While no
member of the Board has currently served for longer than nine years
and no issues have arisen to be considered by the Board with
respect to long tenure, all of the Directors have elected to offer
themselves for reappointment by the members annually. In accordance
with the AIC Code, when and if any director shall have been in
office (or on re-election would at the end of that term of office)
for more than nine years the Company will consider further whether
there is a risk that such a director might reasonably be deemed to
have lost independence through such long service. The Management
Engagement, Nomination and Remuneration Committee shall take the
lead in any discussions relating to the appointment or
re-appointment of directors.
Mr Moulton, as a director of the Fund I GP Company and the Fund
II GP Company is subject to annual re-election in accordance with
the Listing Rules.
A Director who retires at an Annual General Meeting may, if
willing to continue to act, be elected or re-elected at that
meeting. If, at a general meeting at which a Director retires, the
Company neither re-elects that Director nor appoints another person
to the Board in the place of that Director, the retiring Director
shall, if willing to act, be deemed to have been re-elected unless
at the general meeting it is resolved not to fill the vacancy or
unless a resolution for the re-election of the Director is put to
the meeting and not passed.
The Board is of the opinion that all directors be proposed for
re-election because they have the appropriate skills and experience
to continue to serve the Company.
Directors do not have service contracts. Directors are appointed
under letters of appointment, copies of which are available at the
registered office of the Company. The Board considers its
composition and succession planning on an on-going basis.
Directors' remuneration
During the year to 31 March 2018 the Directors' remuneration was
paid as follows (of which GBP59,000 (2017: GBP59,000) was
outstanding at the year end):
31 March 2018
Annual Paid Total 2009 Cell 2012 Cell
(GBP'000) (GBP'000) paid for paid for paid for
year the year the year
(GBP'000) (GBP'000) (GBP'000)
Richard Crowder 70.00 70.00 85.00 27.01 57.99
----------- ----------- ----------- ----------- -----------
Richard Battey 62.50 62.50 77.50 25.73 51.77
----------- ----------- ----------- ----------- -----------
Philip Bowman 60.00 60.00 75.00 25.30 49.70
----------- ----------- ----------- ----------- -----------
Jon Moulton 45.00 45.00 45.00 7.72 37.28
----------- ----------- ----------- ----------- -----------
Total 237.50 237.50 282.50 85.76 196.74
----------- ----------- ----------- ----------- -----------
31 March 2017
Annual Paid Total 2009 Cell 2012 Cell
(GBP'000) (GBP'000) paid for paid for paid for
year the year the year
(GBP'000) (GBP'000) (GBP'000)
Richard Crowder 70.00 70.00 70.00 34.56 35.44
----------- ----------- ----------- ----------- -----------
Richard Battey 62.50 62.50 62.50 30.85 31.65
----------- ----------- ----------- ----------- -----------
Philip Bowman 60.00 60.00 60.00 29.62 30.38
----------- ----------- ----------- ----------- -----------
Jon Moulton 45.00 45.00 45.00 22.22 22.78
----------- ----------- ----------- ----------- -----------
Total 237.50 237.50 237.50 117.25 120.25
----------- ----------- ----------- ----------- -----------
All of the Directors are non-executive. The Board considers
Messrs Crowder, Battey and Bowman as independent of the Fund I GP
and Fund II GP and free from any business or other relationship
that could materially interfere with the exercise of their
independent judgment. The Board as a whole is independent of the
Fund I GP and the Fund II GP. Mr Moulton is a director of the Fund
I GP Company and the Fund II GP Company and is therefore not
considered to be independent.
The Chairman of the Board must be independent and is appointed
in accordance with the Company's articles of incorporation. Mr
Crowder is considered to be independent because he:
-- has no current or historical employment with the GP Companies;
-- has no current directorships in any other entities for which
the GP Companies provide services; and
-- is not an executive of a self-managed company or an
ex-employee who has left the executive team of a self-managed
company within the last five years.
Duties and responsibilities
The Board has overall responsibility for maximising the
Company's success by directing and supervising the affairs of the
business and meeting the appropriate interests of shareholders and
relevant stakeholders, while enhancing the value of the Company and
also ensuring the protection of investors. A summary of the Board's
responsibilities is as follows:
-- statutory obligations and public disclosure;
-- strategic matters and financial reporting;
-- risk assessment and management including reporting,
compliance, governance, monitoring and control; and
-- other matters having a material effect on the Company.
The Board is responsible to shareholders for the overall
management of the Company. The Board has adopted a Schedule of
Matters Reserved for the Board which sets out the particular duties
of the Board, which demonstrates the seriousness with which it
takes its fiduciary responsibilities. Such reserved powers include
decisions relating to the determination of investment policy and
approval of changes in strategy, capital structure, statutory
obligations and public disclosure, and entering into any material
contracts by the Company.
The Directors have access to the advice and services of the
Administrator, who is responsible to the Board for ensuring that
Board procedures are followed and that it complies with Companies
Law and applicable rules and regulations of the GFSC and the LSE.
Where necessary, in carrying out their duties, the Directors may
seek independent legal or other professional advice and services at
the expense of the Company. As a result of the use of professional
service providers and the nature of the Company's operations, the
Company does not have any employees.
The Company maintains appropriate Directors' and Officers'
liability insurance in respect of legal action against its
Directors. Suitable insurance is in place, having been renewed on
10 January 2018.
The Board's responsibilities for the Annual Report are set out
in the Directors' Responsibilities Statement above. The Board is
also responsible for issuing appropriate half-yearly financial
reports and other price-sensitive public reports.
The primary focus at board meetings is to review investment
performance and associated matters such as share price
discount/premium management, investor relations, peer group
information, gearing and industry issues.
The attendance record of the Directors for the year is set out
below:
Director Scheduled Audit Committee Management
Board Meetings Meetings Engagement,
(max 6) (max 3) Nomination
and Remuneration
Committee
(max 1)
Richard Crowder 6 3 1
Richard Battey 6 3 1
Philip Bowman 6 3 1
Jon Moulton* 6 n/a n/a
The Board meets at least four times a year. During the year, a
further four ad hoc Board and Board Committee meetings were held to
deal with other matters, principally of an administrative nature,
and these were attended by those Directors available. Between
meetings, there is regular contact with the GPs, the Secretary and
the Company's Broker, as necessary.
(*) Mr Moulton is not a member of the Audit Committee or the
Management, Engagement, Nomination and Remuneration Committee,
however from time to time he is invited to attend and did so during
the year.
Directors
Richard Crowder - Chairman - Guernsey resident (aged 68)
Richard Crowder holds a range of non-executive directorships and
advisory appointments. He works with a wide range of investment
styles and portfolios as well as being a director of two groups of
family companies where he acts as an offshore director/adviser and
chairman of an investment committee. He has extensive experience
of: Chairmanships and Directorships of quoted and unquoted
companies, including chairing a FTSE 250 company; structuring
businesses; managing and growing securities, banking, investment
and advisory businesses; as well as being well versed in offshore
governance. In his early career, he worked as an investment manager
with Ivory & Sime in Edinburgh and as a head of investment
research with W.I. Carr in Singapore, Hong Kong and Japan. He
undertook a wide range of responsibilities for Schroders in London
and the Far East, culminating in the role of Managing Director for
Schroders' Singapore associate and Director of J Henry Schroder
Wagg & Co. Limited. Having then worked as Chairman of Smith New
Court International Agency and Director of Smith New Court Plc,
Richard Crowder was the founding Managing Director of Schroders'
Channel Islands subsidiary from 1991 until he became a full time
non-executive director and consultant in 2000. He is a member of
the Chartered Institute for Securities and Investments. Mr Crowder
was appointed as a Director on 24 November 2009.
Richard Battey - Non-executive Director - Guernsey resident
(aged 66)
Since 2007 Richard Battey has been a non-executive director of a
number of listed and unlisted investment companies. Current
directorships of listed companies are Juridica Investments Limited
(AIM listed), NB Global Floating Rate Income Fund Limited (UK
listed), Pershing Square Holdings Limited (UK and Euronext listed)
and Princess Private Equity Holding Limited (UK listed). He is a
Fellow of the Institute of Chartered Accountants in England and
Wales having qualified with Baker Sutton & Co. in London in
1977. He joined the Schroder Group in December 1977 and worked
first in London with J. Henry Schroder Wagg & Co. Limited and
Schroder Investment Management in financial and management
accounting roles and then in Guernsey helping to build Schroders'
offshore private banking business. Richard was a director of
Schroders (C.I.) Limited in Guernsey from April 1994 to December
2004 where he served as Finance Director and Chief Operating
Officer. He was a director of a number of the Schroder Group's
Guernsey companies covering banking, investment management, trusts,
insurance and private equity administration retiring from his last
Schroder directorship in December 2008. He was formerly Chief
Financial Officer of CanArgo Energy Corporation (May 2005 to July
2006), which was engaged in oil and gas exploration and production
in Georgia and Kazakhstan. Mr Battey was appointed as a Director on
24 November 2009.
Philip Bowman - Non-executive Director - Non-UK resident (aged
65)
Philip Bowman is the chairman of MAF Properties LLC and Potrero
Holdings LLP, and a director of Ferrovial S.A. and Kathmandu
Holdings Ltd. He previously held the positions of Chief Executive
of three FTSE100 companies - Smiths Group plc from December 2007 to
September 2015, Scottish Power plc from early 2006 until mid-2007
and Allied Domecq plc between 1999 and 2005. In 1977 Mr Bowman
qualified as a Chartered Accountant with the Institute of Chartered
Accountants in England and Wales while employed at Price
Waterhouse. Past board appointments include British Sky
Broadcasting Group plc, Scottish & Newcastle Group plc,
Burberry Group plc, Berry Bros. & Rudd Limited and Coles Myer
Limited as well as Chairman of Liberty plc, Coral Eurobet plc and
Miller Group plc. His earlier career includes five years as a
director of Bass plc (now Mitchells & Butler plc and
Intercontinental Hotel Group plc), where he held the roles of Chief
Financial Officer and subsequently Chief Executive of Bass Taverns.
Mr Bowman is an Australian national and was appointed as a Director
on 24 November 2009.
Jon Moulton - Non-executive Director - Guernsey resident (aged
67)
Jon Moulton is a Fellow of the Institute for Turnaround
Professionals and a Corporate Financier in the Institute of
Chartered Accountants in England and Wales. Mr Moulton is the
Chairman of FinnCap, the stockbroker and a director or trustee of a
number of companies and charities. Mr Moulton is Chairman of The
International Stock Exchange. Between 1997 and September 2009, he
was the Managing Partner and founder of Alchemy Partners. He worked
in the M&A group of Coopers & Lybrand in New York for two
years before moving to Citicorp Venture Capital, initially in New
York and then, from 1981, in London where he was a Managing
Director in the LBOs and venture capital group. From 1985 to 1994,
he was the Managing Partner and founder of Schroder Ventures, where
he focused on LBOs and venture capital, and was a member of the
French and German Investment Committees. Between 1994 and 1997, Mr
Moulton was the Director in charge of LBOs at Apax Partners. Mr
Moulton was appointed as a Director on 28 June 2013.
Shareholdings of the Directors
Directors of the Company and their beneficial interests in the
2009 Shares and the 2012 Shares as at 31 March 2018 are detailed
below:
2009 Cell
Director 2009 Shares Per cent. Per cent.
Holding* Holding*
31 March 31 March
2018 2017
31 March 2018 31 March
2017
-------------- -----------
Richard Crowder 18,759 110,000 0.05 0.05
-------------- ----------- ---------- ----------
Richard Battey 10,232 60,000 0.03 0.03
-------------- ----------- ---------- ----------
Philip Bowman 42,633 250,000 0.12 0.12
-------------- ----------- ---------- ----------
Jon Moulton 4,164,994 23,123,809 11.81 11.18
-------------- ----------- ---------- ----------
* Per cent. holding is given on one for one share holding basis
rather than on voting rights.
2012 Cell
Director 2012 Shares Per cent. Per cent.
Holding* Holding*
31 March 31 March
2018 2017
31 March 2018 31 March
2017
-------------- -----------
Richard Crowder 100,000 100,000 0.03 0.03
-------------- ----------- ---------- ----------
Richard Battey 60,000 60,000 0.02 0.02
-------------- ----------- ---------- ----------
Philip Bowman 595,238 595,238 0.19 0.19
-------------- ----------- ---------- ----------
Jon Moulton 48,415,582 38,615,582 15.22 12.14
-------------- ----------- ---------- ----------
* Per cent. holding is given on one for one share holding basis
rather than on voting rights.
Jon Moulton has acquired an additional 525,000 2009 Shares since
31 March 2018.
Committees of the Board
Audit Committee
The Company has an Audit Committee with formally delegated
duties and responsibilities within written terms of reference.
Further information on the Audit Committee is included in the
Report of the Audit Committee below.
Management Engagement, Nomination and Remuneration Committee
("MNR Committee")
The MNR Committee is chaired by Philip Bowman. The MNR Committee
currently consists of Philip Bowman, Richard Battey and Richard
Crowder. Any non-executive Directors who are not considered
independent do not take part in the MNR Committee's deliberations
regarding remuneration levels. The MNR Committee meets at least
once a year pursuant to its terms of reference which are available
on the Company's website (www.bettercapital.gg).
Regarding management engagement, the MNR Committee provides a
formal mechanism for the review of the performance of the Company's
advisors. It carries out this review through consideration of a
number of objective and subjective criteria and through a review of
the terms and conditions of the advisors' appointments with the aim
of evaluating performance, identifying any weaknesses and ensuring
value for money for the Company's shareholders.
Regarding nomination, the MNR Committee's remit is to review
regularly the structure, size and composition of the Board, to give
full consideration to succession planning for Directors, to keep
under review the leadership needs of the Company and be responsible
for identifying and nominating for the approval of the Board,
candidates to fill Board vacancies as and when they arise. The
Board believes that, as a whole, it comprises an appropriate
balance of skills, experience and knowledge. The Board also
believes that diversity of experience and approach, including
gender diversity, amongst board members is of great importance and
it is the Company's policy to give careful consideration to issues
of board balance and diversity when making new appointments.
Regarding remuneration, the MNR Committee determines and agrees
with the Board the remuneration of the Company's Chairman and
non-executive Directors and in determining such remuneration, takes
into account all factors which it deems necessary including any
relevant legal requirements, the provisions and recommendations in
the AIC Code, the Listing Rules and associated guidance.
Board performance and evaluation
In accordance with Principle 7 of the AIC Code, the Board is
required to undertake a formal and rigorous evaluation of its
performance on an annual basis. Such an evaluation of the
performance of the Board as a whole and the Chairman was carried
out under the mandate of the MNR Committee and in the form of
self-appraisal questionnaires and a detailed discussion of the
outcomes. The Directors believe that the current mix of skills,
experience, ages and length of service of the Directors is
appropriate to the requirements of the Company. With any new
director appointment to the Board, induction training will be
provided.
Internal control and financial reporting
The Directors acknowledge that they are responsible for
establishing and maintaining the Company's system of internal
control and reviewing its effectiveness. Internal control systems
are designed to manage rather than eliminate the failure to achieve
business objectives and can only provide reasonable but not
absolute assurance against material misstatements or loss. The
Directors review all controls including operations, compliance and
risk management. The key procedures which have been established to
provide internal control are:
-- The Board monitors the actions of the Fund I GP, the Fund II
GP and undertakings of any external consultant as appointed by the
GPs at regular board meetings and is given frequent updates on
developments arising from the operations and strategic direction of
the underlying investee companies. The Board has also delegated
administration and company secretarial services to the
Administrator; however, it retains accountability for all functions
it delegates.
-- The Board clearly defines the duties and responsibilities of
the Company's agents and advisors and appointments are made by the
Board after due and careful consideration. The Board monitors the
ongoing performance of such agents and advisors and will continue
to do so primarily through the MNR committee.
-- The Fund I GP, Fund II GP and Administrator together maintain
a system of internal control on which they report to the Board. The
Board has reviewed the need for an internal audit function and has
decided that the systems and procedures employed by the Fund I GP,
Fund II GP and Administrator, including the Administrator's own
internal controls and procedures, provide sufficient assurance that
a sound system of risk management and internal control, which
safeguards shareholders' investment and the Company's assets, is
maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
The systems of control referred to above are designed to ensure
effectiveness and efficient operation, internal control and
compliance with laws and regulations. In establishing the systems
of internal control, regard is paid to the materiality of relevant
risks, the likelihood of costs being incurred and costs of
control.
Relations with Shareholders
The Board welcomes Shareholders' views and places great
importance on communication with its Shareholders. The Company's
Annual General Meeting provides a forum for shareholders to meet
and discuss issues with the Directors of the Company. The Chairman
and other Directors are also available to meet with shareholders at
other times, if required. In addition, the Company maintains a
website which contains comprehensive information
(www.bettercapital.gg), including company notifications, share
information, financial reports, company newsletter, investment
objectives and policy, investor contacts and information on the
Board and corporate governance.
Major Shareholders
As at 29 May 2018, insofar as is known to the Company, the
following persons were interested, directly or indirectly, in 5 per
cent. or more of the 2009 Shares and 2012 Shares in issue:
2009 Cell
Shareholder Shareholding % Holding Nature of
(Ordinary Shares) Holding
--------------------------------- ------------------- ---------- ----------
Ruffer LLP 6,468,276 18.34 Indirect
Asset Value Investors 6,418,794 18.20 Indirect
Jon Moulton 4,689,994 13.30 Indirect
Blackrock Investment Management 3,612,339 10.24 Indirect
Lind Invest 3,314,650 9.40 Indirect
CG Asset Management 2,617,646 7.42 Indirect
2012 Cell
Shareholder Shareholding % Holding Nature of
(Ordinary Shares) Holding
--------------------------------- ------------------- ---------- ----------
John Caudwell 50,000,000 15.72 Direct
Jon Moulton 48,415,582 15.22 Indirect
Blackrock Investment Management 39,773,483 12.51 Indirect
BECAP12 Fund LP 28,548,277 8.98 Direct
Progressive Capital Partners 21,895,922 6.88 Indirect
Other than the 100 Core Shares issued to the Better Capital
Purpose Trust as part of the Conversion, the Directors confirm that
there are no securities in issue that carry special rights with
regards to the control of the Company. The Core Shares have no
voting rights for so long as Cell Shares are in issue.
The Company's issued share capital consists of 35,262,505 shares
in the 2009 Cell and 302,181,436 shares in the 2012 Cell
(318,052,242 prior to the Shares buyback on 19 June 2018). Under
the Company's articles of incorporation, at any general meeting of
the Company:
-- each holder of 2009 Shares who is present in person shall
have one vote and on a poll the vote shall be weighted where a vote
cast in relation to each 2009 Share shall count as 1.1096 towards
the total number of votes cast; and
-- each holder of 2012 Shares who is present in person shall
have one vote and on a poll the vote shall be weighted where a vote
cast in relation to each 2012 Share shall count as 0.9770 towards
the total number of votes cast.
The figure which may be used by the Shareholders as the
denominator for the calculations by which they will determine if
they are required to notify their interest in, or a change to their
interest in, Better Capital PCC Limited under the FCA's DTRs, is
the aggregate of the number of votes capable of being cast on a
poll. This is calculated as the sum of the 2009 Shares (35,262,505)
multiplied by 1.1096 plus the 2012 Shares (302,181,436) multiplied
by 0.9770.
Similarly, to calculate the numerator, Shareholders should
multiply their holding of 2009 Shares by 1.1096 and multiply their
holding of 2012 Shares by 0.9770. The sum of those calculations
will result in the relevant number of voting rights for the
numerator value.
Directors' authority to issue shares
2009 Cell
The Directors do not have the power to issue shares in the 2009
Cell.
2012 Cell
At the Annual General Meeting of the Company held on 5 September
2017, the Board renewed its authority to issue up to 5 per cent. of
the aggregate 2012 Shares admitted to trading on the LSE, free of
restrictions under the articles, which would otherwise require the
Company first to offer the new 2012 Shares to the current holders
of the 2012 Shares. In any rolling three-year period, the Company
will not issue more than 7.5 per cent. of the 2012 Shares. This
power shall (unless previously revoked, varied or renewed by the
Company) expire on the conclusion of the AGM of the Company to be
held on 13 September 2018.
Directors' authority to buy back shares
The current authority of the Company to make market purchases of
up to a maximum of 14.99 per cent. of the issued 2009 Share Capital
and/or 2012 Share Capital is renewable annually and was last
authorised at the AGM held on 5 September 2017. At the AGM to take
place on 13 September 2018 the Board will seek to renew such
authority in respect of the 2009 Shares and the 2012 Shares. Any
buy back of 2009 Shares and/or 2012 Shares will be made subject to
Companies Law and within any guidelines established from time to
time by the Board and the making and timing of any buy backs will
be at the absolute discretion of the Board and not at the option of
the Shareholders. Purchases of 2009 Shares and/or 2012 Shares will
only be made through the market for cash at prices below the
prevailing Net Asset Value of the 2009 Shares and/or 2012 Shares
(as last calculated) where the Directors believe such purchases
will enhance shareholder value. Such purchases will also only be
made in accordance with the Listing Rules of the UK Listing
Authority which provide that the price to be paid must not be more
than 5 per cent. above the average of the middle market quotations
for the 2009 Shares and/or 2012 Shares for the five business days
before the shares are purchased unless previously advised to
shareholders.
In accordance with the Company's Articles and Companies Law up
to 10 per cent. of the Company's shares may be held as treasury
shares. The Company has not held any shares in treasury at any
time.
Articles of Incorporation
The Company's Articles may only be amended by special resolution
of the shareholders and if the amendment affects the rights of the
holders of shares of a particular cell, by a separate resolution of
such holders only.
Change of control
There are no agreements that the Company considers significant
and to which the Company is party that would take effect, alter or
terminate upon change of control of the Company following a
takeover bid.
Principal risks and uncertainties
The Company's assets consist of investments, through Funds I and
II, in portfolios of businesses which have significant operating
issues and may have associated financial distress, with a primary
focus on businesses which have significant activities within the
United Kingdom and Ireland. Its principal risks are therefore
related to market conditions in general, but also the particular
circumstance of the businesses in which it is invested. The GP
Companies seek to mitigate these risks through active asset
management initiatives and carrying out due diligence work on
potential targets before entering into any investments.
Each Director is aware of the risks inherent in the Company's
business and understands the importance of identifying, evaluating
and monitoring these risks. The Board has adopted procedures and
controls that enable it to manage these risks within acceptable
limits and to meet all of its legal and regulatory obligations.
The Board considers the process for identifying, evaluating and
managing any significant risks faced by the Company and by each of
the 2009 Cell and 2012 Cell on an on-going basis and these risks
are reported and discussed at Board Meetings. It ensures that
effective controls are in place to mitigate these risks and that a
satisfactory compliance regime exists to ensure all applicable
local and international laws and regulations are upheld. Particular
attention has been given to the effectiveness of controls to
monitor liquidity risk, asset values and counterparty exposure.
The financial risks of the Company, the 2009 Cell and 2012 Cell
are discussed in Note 9 to the financial statements.
The Company's other risk factors are fully discussed in the
Company's prospectuses, available on the Company's website
(www.bettercapital.gg) and should be reviewed by Shareholders.
Going concern
After making enquiries and given the nature of the Company, Fund
I and its investments and Fund II and its investments, the
Directors are satisfied that it is appropriate to continue to adopt
the going concern basis in preparing the financial statements, and,
after due consideration, the Directors consider that the Company is
able to continue for the foreseeable future.
Long-term Viability Statement
As required by the AIC Code, the Directors have assessed the
viability of the Company over a period longer than 12 months. The
Board has concluded that this period shall be the remaining life of
the Funds plus the discretional two one year extensions. In the
case of the 2009 Cell, the viability has been assessed up to 31
December 2019. In the case of the 2012 Cell this has been assessed
up to 30 June 2023. Once the final Cell has closed, the Company
will come to the end of its life.
The Directors have made a robust assessment of the Cells'
principal risks and associated mitigations that are outlined in
Note 9 to the financial statements and the Company's prospectus
along with a review of the nature of the Company's business,
reserves of cash, the potential of its portfolio of investments to
generate future income and capital proceeds, and the ability of the
Directors to minimise the level of cash outflows, should this be
necessary. Of the identified principal risks, the most relevant
risks identified that could potentially impact the viability of
both Cells, and therefore the Company, were considered to be:
-- the risk of a substantial litigation resulting in both the
Cells and the Funds being unable to continue in existence;
-- the inability to recover investments at their carrying value; and
-- the key executive in the Fund GP Companies, principally Jon
Moulton, being unable or unwilling to devote such time to the
business affairs of the Fund GP Companies as is reasonably
necessary to enable the proper performance of their general partner
duties.
The Board considers the process of evaluation and mitigation of
these principal risks on an on-going basis and have concluded that
there is a reasonable expectation that the Company and, in turn,
the Cells will be able to continue in operation and meet their
future liabilities as they fall due over the periods
identified.
By order of the Board
Richard Crowder
Chairman
12 July 2018
Report of the Audit Committee
The Audit Committee has been in operation throughout the year.
The Audit Committee, chaired by Richard Battey, operates within
clearly defined terms of reference (which are available from the
Company's website, www.bettercapital.gg), which include all matters
indicated by DTR 7.1 and the AIC Code. Its other members are
Richard Crowder and Philip Bowman. Only independent directors can
serve on the Audit Committee and members of the Audit Committee
must have no links with the Company's external auditor and must be
independent of the Fund I GP and the Fund II GP. The identity of
the chairman of the Audit Committee is reviewed on an annual basis
and the membership of the Audit Committee and its terms of
reference are kept under review. The Audit Committee meets no less
than twice a year in Guernsey, and meets the external auditor at
least once a year in Guernsey. The Audit Committee met three times
in the year to 31 March 2018.
The Board has taken note of the requirement that at least one
member of the Committee should have recent and relevant financial
experience and is satisfied that the Committee is properly
constituted in that respect, with all members being highly
experienced and, in particular two members having backgrounds as
chartered accountants.
The duties of the Audit Committee in discharging its
responsibilities include reviewing the Interim Report, Annual
Report, the valuation of the Company's investment portfolio, the
system of internal controls, and the terms of appointment of the
external auditor together with their remuneration. It is also the
formal forum through which the external auditor reports to the
Board of Directors and shall meet not less than twice a year and at
such other times as the Audit Committee chairman shall require. The
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 and the fees
paid to the external auditor or their affiliated firms
overseas.
The Audit Committee also reviews, considers and, if thought
appropriate, recommends for the purposes of the Company's financial
statements, 2009 Cell's financial statements and 2012 Cell's
financial statements, valuations prepared by the Fund I GP and Fund
II GP in respect of the investments of Fund I and Fund II. It also
receives and reviews reports from the Fund I GP and the Fund II
GP.
The main duties of the Audit Committee are:
-- giving full consideration and recommending to the Board for
approval of the contents of the Interim Report and Annual Report
and reviewing the external auditor's report thereon;
-- reviewing the scope, results, cost effectiveness,
independence and objectivity of the external auditor;
-- reviewing the draft valuation of the Company's investments in
the Funds prepared by the Fund GPs, and making a recommendation to
the Board on the valuation of the Company's investments;
-- reviewing and recommending to the Board for approval of the
audit, audit related and non-audit fees payable to the external
auditor and the terms of their engagement;
-- reviewing and approving the external auditor's plan for the following financial year;
-- reviewing the appropriateness of the Company's accounting policies;
-- ensuring the standards and adequacy of the internal control systems;
-- reviewing and considering the UK Code, the AIC Code and the
FRC Guidance on Audit Committees; and
-- reviewing the risks facing the Company and monitoring the risk matrix.
The Audit Committee is required to report its findings to the
Board, identifying any matters on which it considers that action or
improvement is needed, and make recommendations on the steps to be
taken.
The external auditor is invited to attend the Audit Committee
meetings at which the Interim Reports and Annual Reports are
considered and at which they have the opportunity to meet with the
Committee without representatives of any external consultant as
appointed by the GPs being present at least once a year.
Financial reporting
The primary role of the Audit Committee in relation to the
financial reporting is to review with the Administrator, any
external consultant as appointed by the GPs and the external
auditor the appropriateness of the Interim Reports and Annual
Reports, concentrating on, amongst other matters:
-- the quality and acceptability of accounting policies and practices;
-- the clarity of the disclosures and compliance with financial
reporting standards and relevant financial and governance reporting
requirements;
-- material areas in which significant judgements have been
applied or there has been discussion with both any external
consultant as appointed by the GPs and the external auditor;
-- whether the Annual Report, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Company's performance, business
model and strategy; and
-- any correspondence from regulators in relation to the Company's financial reporting.
To aid its review, the Audit Committee considers reports from
GPs and any external consultant as appointed by the GPs of the
underlying Funds and also reports from the external auditor on the
outcomes of their half-year review and annual audit. The Audit
Committee supports BDO Limited in displaying the necessary
professional scepticism their role requires.
Meetings
The Committee has met on three occasions during the year. The
matters discussed at those meetings were:
-- review of the terms of reference of the Audit Committee to
confirm that they remain appropriate to the business of the
committee and the current regulatory environment in which the
Company operates;
-- review of the accounting policies and format of the financial statements;
-- the draft valuation of the Company's investments in the Funds
prepared by the Fund GPs, and the recommendation to the Board on
the valuation of the Company's investments;
-- review and approval of the audit plan of the external auditor;
-- discussion and approval of the fee for the external audit;
-- detailed review of the Annual Report and recommendation for approval by the Board;
-- detailed review of the Interim Report and recommendation for approval by the Board;
-- assessment of the effectiveness of the external audit process as described below; and
-- review of the Company's key risks and internal controls.
Primary area of judgement
The Audit Committee determined that the key risk of misstatement
of the Company's and Cells' financial statements related to the
valuation of investments at fair value through profit or loss, in
the context of the judgements necessary to evaluate current fair
values.
As outlined in Note 4 to the financial statements of the
Company, the total carrying value of financial assets of the
Company at fair value at 31 March 2018 was GBP177.4 million (2017:
GBP430.3 million). Market quotations are not available for these
financial assets such that the value of the Company's investments
in the Funds is based on the value of the Company's limited partner
capital and loan accounts within each Fund, which are themselves
based on the value of the relevant underlying investee companies as
determined by the General Partner of each Fund.
The valuation process and methodology were discussed with the
Fund GPs and with the external auditor at a board meeting held on 7
June 2018. The external consultants, as appointed by the GPs, carry
out a valuation semi-annually for the GP Companies. In turn the
Fund GPs provide valuations of each Cell's investment in the
relevant Fund.
The Audit Committee has reviewed the work of the GPs. The
external consultants, as appointed by the GPs, confirmed to the
Audit Committee that the valuation methodology had been applied
consistently during the year. After reviewing the work of the
external auditor the Audit Committee concluded that they had not
identified any errors or inconsistencies that were material in the
context of the financial statements of the Company and Cells as a
whole.
The external auditor explained the results of their review of
the valuations, including their challenge of management's
underlying projections, the economic assumptions and multiples
used. On the basis of their audit work, there were no adjustments
proposed that were material in the context of the financial
statements of the Company and Cells as a whole.
Internal audit
The Audit Committee shall consider at least once a year whether
or not there is a need for an internal audit function. Currently,
the Audit Committee does not consider there to be a need for an
internal audit function, given that there are no employees in the
Company and all outsourced functions are with parties who have
their own internal controls and procedures.
Appointment of the external auditor
BDO Limited has been the Company's external auditor since the
Company's inception. The lead audit director, Richard Searle, has
not changed during the year. Mr Searle will be replaced in the year
ended 31 March 2021 in accordance with normal audit director
rotation arrangements.
The Audit Committee has noted the revisions to the UK Code
introduced by the FRC in September 2012 and the AIC Code issued in
February 2015, in particular, the recommendation in each, to put
the external audit out to tender at least every ten years.
The objectivity of the external auditor is reviewed by the Audit
Committee which also reviews the terms under which the external
auditor may be appointed to perform non-audit services. The Audit
Committee reviews the scope and results of the audit, its cost
effectiveness and the independence and objectivity of the external
auditor, with particular regard to any non-audit work that the
external auditor may undertake and the level of fees associated to
this non-audit work. In order to safeguard external auditor
independence and objectivity, the Audit Committee ensures that any
other advisory and/or consulting services provided by the external
auditor does not conflict with its statutory audit
responsibilities. Advisory and/or consulting services will
generally only cover reviews of interim financial statements, tax
compliance and capital raising work. Any non-audit services
conducted by the external auditor outside of these areas require
the consent of the Audit Committee before being initiated.
The external auditor may not undertake any work for the Company
in respect of the following matters - preparation of the financial
statements, preparation of valuations used in financial statements,
provision of investment advice, taking management decisions or
advocacy work in adversarial situations. The Audit Committee
considers BDO Limited to be independent of the Company.
To fulfil its responsibility regarding the independence of the
external auditor, the Audit Committee considered:
-- changes in audit personnel in the audit plan for the current year;
-- a report from the external auditor describing its
arrangements to identify, report and manage any conflicts of
interest; and
-- the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external auditor, the
committee reviewed:
-- the external auditor's fulfilment of the agreed audit plan and variations from it;
-- reports highlighting the major issues that arose during the course of the audit; and
-- feedback from the Fund I GP, Fund II GP and any external
consultant as appointed by the GPs evaluating the performance of
the audit team.
The Audit Committee is satisfied with BDO Limited's
effectiveness and independence as external auditor having
considered the degree of diligence and professional scepticism
demonstrated by them. As such, the Audit Committee has not
considered it necessary this year to conduct a tender process for
the appointment of its external auditor. Having carried out the
review described above and having satisfied itself that the
external auditor remains independent and effective, the Audit
Committee has recommended to the Board that BDO Limited be
reappointed as external auditor for the year ending 31 March
2019.
On behalf of the Audit Committee,
Richard Battey
Chairman of the Audit Committee
12 July 2018
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
BETTER CAPITAL PCC LIMITED
Opinion
We have audited the financial statements of Better Capital PCC
Limited (the 'Company') for the year ended 31 March 2018 which
comprise the Statement of Financial Position, the Statement of
Comprehensive Income, the Statement of Changes in Equity, the
Statement of Cash Flows and notes to the financial statements,
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 (IFRSs) as adopted by the European Union.
In our opinion the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 March 2018 and of its loss for the year then
ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union; 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. 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.
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 above that
describe the principal risks and explain how they are being managed
or mitigated;
-- the directors' confirmation above in the annual report that
they have carried out a robust assessment of the principal risks
facing the Company, including those that would threaten its
business model, future performance, solvency or liquidity;
-- the directors' statement in the financial statements about
whether the directors considered it appropriate to adopt the going
concern basis of accounting in preparing the financial statements
and the directors' identification of any material uncertainties to
the Company's ability to continue to do so over a period of at
least twelve months from the date of approval of the financial
statements;
-- whether the directors' statement relating to going concern is
materially inconsistent with our knowledge obtained in the audit;
or
-- the directors' explanation set out above in the annual report
as to how they have assessed the prospects of the Company, over
what period they have done so and why they consider that period to
be appropriate, and their statement as to whether they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
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 forming our
opinion thereon, and we do not provide a separate opinion on these
matters.
In arriving at our audit opinion on the financial statements,
the key audit matter that had the greatest effect on our audit is
included in the table below. In addition, we have set out how we
tailored our audit to address this specific area in order to
provide an opinion on the financial statements as a whole. This is
not a complete list of all risks identified by our audit.
Key Audit Matter Audit Response
Valuation of investments Our procedures included:
including unrealised gains/(losses) * Enquiry of external consultants as appointed by the
Refer to the accounting GPs to assess and document the design and
policies below and Note implementation of the investment valuation processes;
2 to the Financial Statements.
All of the underlying investee
companies are unquoted entities, * Challenging the external consultants as appointed by
which are valued in accordance the GPs on key judgements affecting investee company
with the International Private valuations in the context of observed industry best
Equity and Venture Capital practice and the provisions of the International
Valuation Guidelines by Private Equity and Venture Capital Valuation
using the following measurements Guidelines.
of
* revenue multiples;
* In particular, we focussed on the appropriateness of
the valuation basis selected for each investment as
* earnings multiples; well as the underlying assumptions, such as discount
factors, and the choice of benchmark for earnings
multiples.
* earnings and net assets.
* We compared key underlying financial data inputs to
There is a significant risk external sources, investee company audited accounts
over the valuations of these and management information, as applicable. We
investments due to the inherent challenged the assumptions around sustainability of
subjectivity and estimation earnings based on the plans of the investee companies
involved in the valuation and whether these are achievable.
of such assets. Incorrect
valuation could have a significant
impact on the net asset * Our work included consideration of events which
value of the Company and occurred subsequent to the year end until the date of
therefore the return generated this audit report and attending the year end board
for shareholders. Accordingly meeting where we assessed the effectiveness of the
this is the key judgemental Board's challenge and approval of unlisted investment
area on which our audit valuations.
focussed.
* Our work also included consideration of events which
occurred subsequent to the year end until the date of
this audit report.
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
For planning, we considered materiality to be the level by which
misstatements individually or in aggregate, including omissions,
could influence the economic decisions of the relevant users. Based
on our professional judgment, we determined materiality for the
financial statements as a whole to be GBP2,700,000 (2017:
GBP6,300,000), which is based on a level of 1.5% (2017: 1.5%) of
total assets. We considered total assets to be the most appropriate
benchmark due to the Company being an investment fund with the
objective of long term capital growth.
We considered the application of materiality at the individual
account or balance level and set an amount to reduce to an
appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality. This
performance materiality has been set at GBP2,025,000 (2017:
GBP4,725,000) which is 75% (2017: 75%) of materiality. This has
been set based upon the control environment in place and the
directors' assessment of risk.
International Standards on Auditing (UK) also allow the auditor
to set a lower materiality for particular classes of transaction,
balances or disclosures for which misstatements of lesser amounts
than materiality for the financial statements as a whole could
reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements. In this context, we
set a lower level of materiality to apply to certain trading
activities, such as sensitive overhead expenses. Specific
materiality has been determined on the basis of 5% (2017: 1%) of
materiality being GBP135,000 (2017: GBP63,000).
We agreed with the Board of Directors that we would report all
audit differences in excess of GBP54,000 (2017: GBP63,000).
An overview of the scope of our audit
We tailored the scope of our audit taking into account the
nature of the Company's investments, involvement of external
consultants as appointed by the GPs and the Company Administrator,
the accounting and reporting environment and the industry in which
the Company operates.
In designing our overall audit approach, we determined
materiality and assessed the risk of material misstatement in the
financial statements.
This assessment took into account the likelihood, nature and
potential magnitude of any misstatement. As part of this risk
assessment we considered the Company's interaction with the
external consultant as appointed by the GPs and the Company
Administrator. We assessed the control environment in place at the
external consultant as appointed by the GPs and the Company
Administrator to the extent that it was relevant to our audit.
Following this assessment, we applied professional judgement to
determine the extent of testing required over each balance in the
financial statements.
As with all of our audits we also addressed the risk of
management override of internal controls, including evaluating
whether there was evidence of bias by the directors that
represented a risk of material misstatement due to fraud.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our 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 address specifically 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 above - 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 above - the section
describing the work of the audit committee does not appropriately
address matters communicated by us to the audit committee; or
-- Directors' statement of compliance with the UK Corporate
Governance Code set out above - the parts of the Directors'
statement required under the Listing Rules 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
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the Company; or
-- the financial statements are not in agreement with the accounting records; 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 set out above 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: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Other matters which we are required to address
Following the recommendation of the Audit Committee, we were
appointed by the Board on 27 January 2011 to audit the financial
statements for the period ending 31 March 2011 and subsequent
financial periods. The period of total uninterrupted engagement is
8 years, covering the period/years ending 31 March 2011 to 31 March
2018.
The non-audit services prohibited by the FRC's Ethical Standards
were not provided to the Company and we remain independent of the
Company in conducting our audit.
Our audit opinion is consistent with the additional report to
the Audit Committee.
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. 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.
Richard Michael Searle FCA
For and on behalf of BDO Limited
Chartered Accountants and Recognised Auditor
Place du Pré
Rue du Pré
St Peter Port
Guernsey
Date: 12 July 2018
Statement of Financial Position
As at 31 March 2018
2018 2017
GBP'000 GBP'000
Notes
ASSETS:
Non-current assets
Investment in limited
partnerships 4 177,352 430,340
Total non-current assets 177,352 430,340
------------ ------------
Current assets
Trade and other receivables 5 818 1,611
Cash and cash equivalents 502 813
------------
Total current assets 1,320 2,424
------------ ------------
TOTAL ASSETS 178,672 432,764
------------ ------------
LIABILITIES:
Current liabilities
Trade and other payables (197) (207)
Total current liabilities (197) (207)
------------ ------------
TOTAL LIABILITIES (197) (207)
------------ ------------
NET ASSETS 178,475 432,557
============ ============
EQUITY
Share capital 7 288,950 435,436
Retained earnings (110,475) (2,879)
TOTAL EQUITY 178,475 432,557
============ ============
Number of 2009 Shares
in issue at year end 7 35,262,505 206,780,952
============ ============
Number of 2012 Shares
in issue at year end 7 318,052,242 318,052,242
============ ============
NAV per 2009 Share (pence) 10 114.62 125.86
============ ============
Adjusted NAV per 2009
Share (pence) 10 159.20 158.16
============ ============
NAV per 2012 Share (pence) 10 43.41 54.17
============ ============
Adjusted NAV per 2012
Share (pence) 10 58.61 66.78
============ ============
The audited financial statements of the Company were approved
and authorised for issue by the Board of Directors on 12 July 2018
and signed on its behalf by:
Richard Crowder Jon Moulton
Chairman Director
The notes below form an integral part of the Company's financial
statements.
Statement of Comprehensive Income
For the year ended 31 March 2018
2018 2017
GBP'000 GBP'000
Notes
Income
Change in fair value of investments
in limited partnerships 4 (108,307) (5,550)
Distributions 85,365 -
Interest income - 4
Total expense (22,942) (5,546)
---------- --------
Expenses
Administration fees 259 263
Directors' fees and expenses 8 283 241
Legal and professional fees 147 301
Other fees and expenses 70 98
Audit fees 63 73
Insurance premiums 27 26
Registrar fees 42 61
Total expenses 891 1,063
---------- --------
Loss and total comprehensive
expense for the financial year (23,833) (6,609)
========== ========
Basic and diluted earnings per
2009 Share (pence) 10 2.76 11.62
========== ========
Basic and diluted earnings per
2012 Share (pence) 10 (8.17) (9.05)
========== ========
The notes below form an integral part of the Company's financial
statements.
Statement of Changes in Equity
For the year ended 31 March 2018
Share Retained Total
capital earnings equity
Notes GBP'000 GBP'000 GBP'000
As at 1 April 2017 435,436 (2,879) 432,557
Loss and total comprehensive
expense for the financial
year - (23,833) (23,833)
Total comprehensive
expense for the year - (23,833) (23,833)
---------- ---------- ----------
Transactions with owners
Distributions 7 (146,486) (83,763) (230,249)
Total transactions with
owners (146,486) (83,763) (230,249)
As at 31 March 2018 288,950 (110,475) 178,475
========== ========== ==========
Share Retained Total
capital earnings equity
GBP'000 GBP'000 GBP'000
As at 1 April 2016 485,234 3,730 488,964
Loss and total comprehensive
expense for the financial
year - (6,609) (6,609)
Total comprehensive
expense for the year - (6,609) (6,609)
---------- ---------- ----------
Transactions with owners
Distributions 7 (39,202) - (39,202)
Share buyback and cancellation 7 (10,596) - (10,596)
Total transactions with
owners (49,798) - (49,798)
As at 31 March 2017 435,436 (2,879) 432,557
========== ========== ==========
Any surplus/deficit arising from the profit/loss for a period is
taken to retained earnings which may be utilised for payment of
dividends or distributions.
The notes below form an integral part of the Company's financial
statements.
Statement of Cash Flows
For the year ended 31 March 2018
2018 2017
GBP'000 GBP'000
Cash flows from operating
activities
Loss for the financial year (23,833) (6,609)
Adjustments for:
Change in fair value of
investments in limited partnerships 108,307 5,550
Movement in debtors and
prepayments 793 23
Movement in creditors and
accruals (10) (16)
Repayment of loan investment in
limited partnerships 144,681 38,474
Net cash generated from
operating activities 229,938 37,422
---------- ---------
Cash flow from financing
activities
Distributions (230,249) (39,202)
Net cash used in financing
activities (230,249) (39,202)
---------- ---------
Net movement in cash and
cash equivalents during
the year (311) (1,780)
Cash and cash equivalents
at the beginning of the
year 813 2,593
Cash and cash equivalents
at the end of the year 502 813
========== =========
The notes below form an integral part of the Company's financial
statements.
Notes to the Audited Financial Statements
For the year ended 31 March 2018
1. General information
Better Capital PCC Limited is a Closed-ended Investment company,
incorporated in, and controlled from Guernsey as a Protected Cell
Company. It has an unlimited life and is registered with the GFSC
as a Registered Closed-ended Collective Investment Scheme pursuant
to the POI Law.
The Company maintains a separate cell account for each class of
shares, to which the capital proceeds of issue and the income
arising from the investment of these proceeds in the respective
Fund are credited, and against which the expenses allocated are
charged. In any redemption, shareholders are only entitled to their
proportion of the net assets held in the cell relating to the
particular shares.
The Company has two cells: 2009 Cell and 2012 Cell. The
financial results for each cell can be found below.
2. Accounting policies
Basis of preparation
The financial statements for the year ended 31 March 2018 have
been prepared in accordance with EU Adopted IFRS and with the
provisions of the Companies Law.
The principal accounting policies adopted are set out below.
Standards, interpretations and amendments to published standards
adopted in the period
There were no new standards, interpretations or amendments
applied during the year ended 31 March 2018.
New and revised standards
At the date of approval of these financial statements, the
following standards and interpretations, which have not been
applied in these financial statements, were issued but not yet
effective and are relevant to the financial statements of the
Company and Cells:
IFRS 9: Financial Instruments, replaces IAS 39 Financial
Instruments: Recognition and Measurement. The Company will adopt
IFRS 9 for the accounting period beginning on 1 April 2018.
IFRS 9, effective date for annual periods beginning on or after
1 January 2018, specifies how an entity should classify and measure
financial assets and liabilities, including some hybrid contracts.
The standard changes the approach for classification and
measurement of financial assets compared with the requirements of
IAS 39. Most of the requirements in IAS 39 for classification and
measurement of financial liabilities were carried forward
unchanged. The standard applies a consistent approach to
classifying financial assets and replaces the numerous categories
of financial assets in IAS 39, each of which had its own
classification criteria. The Company's equity and debt instruments
continue to be measured at fair vale through profit or loss as it
is the Company's business model to convert the debt to equity to
sell for a gain. It is not expected that the classification of
other financial assets and liabilities will change from fair value
through profit or loss.
IFRS 15: Revenue from Contracts with Customers will be adopted
for the accounting period beginning on 1 April 2018. IFRS 15
replaces IAS 18: Revenue, and prescribes a model for accounting for
revenue arising from contracts with customers. As the Company's
only income is interest and distributions received which are part
of net fair value under IFRS 9 no impact is expected from the
adoption of IFRS 15.
IFRS 16: Leases comes into effect for accounting periods
beginning on or after 1 January 2019. As the Company has no leases,
there will be no impact from the adoption of IFRS 16.
The Company has not adopted early any standards, amendments or
interpretations to existing standards that have been published and
will be mandatory for the Company's accounting periods beginning
after 1 April 2018 or later periods.
Foreign currencies
The functional currency of the Company is Pound Sterling
reflecting the primary economic environment in which the Company
operates. The Company does not have any transactions in currencies
other than Pounds Sterling.
Financial instruments
Financial assets and financial liabilities are recognised in the
Company's statement of financial position when the Company becomes
a party to the contractual provisions of the instrument.
Financial assets
The classification of financial assets at initial recognition
depends on the purpose for which the financial asset was acquired
and its characteristics.
The Company's financial assets comprise only loans and
receivables and investments held at fair value through profit or
loss.
a) Loans and receivables
These assets are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They
principally comprise trade and other receivables and cash and cash
equivalents. They are initially recognised at fair value plus
transaction costs that are directly attributable to the
acquisition, and subsequently carried at amortised cost using the
effective interest rate method, less provisions for impairment.
Cash and cash equivalents comprise cash on hand only.
b) Investments at fair value through profit or loss
i. Classification
The Company's investments in Fund I and Fund II are accounted
for as financial assets rather than consolidated as the Company has
no substantive removal rights over the General Partners and the GPs
have wide ranging discretion in respect of the investments made by
the Funds. The investments in Fund I and Fund II were designated as
financial assets at fair value through profit or loss on initial
recognition as this is the way in which the Company manages and
evaluates the performance of those assets. As described further
below the Company has invested its funds into Funds I and II with
the principal objective of benefiting from capital gains arising
from the Funds' activities in investing in and turning round
distressed businesses.
ii. Recognition
Purchases and sales of investments are recognised on the trade
date - the date on which the Company commits to purchase or sell
the investment.
iii. Measurement
The investments in Fund I and Fund II were initially recognised
at fair value, being the fair value of consideration given.
Investments treated as "investments at fair value through profit
or loss" are subsequently measured at fair value. Fair value is
defined as the amount for which an asset could be exchanged between
knowledgeable willing parties in an arm's length transaction.
iv. Fair value estimation
The IFRS 13 and IPEV valuation techniques used are detailed in
Note 6 of the Company's and the Cells' financial statements.
Financial liabilities
The classification of financial liabilities at initial
recognition depends on the purpose for which the financial
liability was issued and its characteristics.
All financial liabilities are initially recognised at fair value
net of transaction costs incurred. All purchases of financial
liabilities are recorded on the date on which the Company becomes
party to the contractual requirements of the financial
liability.
The Company's financial liabilities consist of only financial
liabilities measured at amortised cost.
Capital
Financial instruments issued by the Company are treated as
equity if the holder has only a residual interest in the assets of
the Company after the deduction of all liabilities. The Company's
shares are classified as equity instruments.
Interest Income
Interest income is recognised on a time apportioned basis using
the effective interest method.
Income distributions
Income distributions are distributions from the Funds which have
been allocated as income based on the discretionary allocation
powers of the General Partner of each fund as set out in each
fund's limited partnership agreement and are recognised when the
Company becomes entitled to those receipts.
Other expenses
Other expenses are accounted for on an accruals basis.
Going concern
After making appropriate enquiries, the Directors have a
reasonable expectation that the Company and in turn Fund I and Fund
II, have adequate resources to continue in operational existence
for the foreseeable future and do not consider there to be any
threat to the going concern status of the Company. For this reason,
they continue to adopt the going concern basis in preparing these
financial statements.
Critical accounting judgment and estimation uncertainty
Use of estimates and judgements
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses.
The critical accounting judgments and estimation uncertainties
for the 2009 Cell and 2012 Cell are stated below.
Taxation
The Company and Cells are exempt from taxation in Guernsey.
3. Segmental reporting
For management purposes, the Company is organised into two main
operating segments, being the 2009 Cell and the 2012 Cell. Full
details of the 2009 Cell's and 2012 Cell's results are shown
below.
4. Investment in limited partnerships
Total Investment:
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1 April 2017 434,734 37 434,771
Repayment of loan investment
in limited partnerships (144,681) - (144,681)
Carried forward 290,053 37 290,090
---------- -------- ----------
Fair value adjustment through
profit or loss
Brought forward (4,431) - (4,431)
Unrealised fair value movement
during the year (108,307) - (108,307)
Carried forward (112,738) - (112,738)
---------- -------- ----------
Fair value as at 31 March 2018 177,315 37 177,352
========== ======== ==========
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1 April 2016 483,805 37 483,842
Repayment in loan investment
in limited partnerships (49,071) - (49,071)
Carried forward 434,734 37 434,771
---------- -------- ----------
Fair value adjustment through
profit or loss
Brought forward 1,119 - 1,119
Unrealised fair value movement
during the year (5,550) - (5,550)
Carried forward (4,431) - (4,431)
---------- -------- ----------
Fair value as at 31 March 2017 430,303 37 430,340
========== ======== ==========
The movement in fair value is derived from the fair value
movements in the underlying investments held by Fund I and Fund II,
net of income and expenses of Fund I and Fund II and their related
special purpose vehicles.
The outstanding loans do not incur interest. The loans (net of
provisions) are expected to be repaid by way of distributions from
the Funds. The Company is not entitled to demand repayment of the
outstanding loans, however, the General Partner may, upon request
by the Company, repay to the Company any amount of the outstanding
loan. During the year GBP137.0 million was repaid to the Company by
Fund I (2017: GBP5.5 million) and GBP7.7 million by Fund II (2017:
GBP43.6 million).
Income distributions receivable from the Funds in the year
amounted to GBPnil (2017: GBPnil). At 31 March 2018 an aggregate
GBP0.8 million (2017: GBP1.6 million) remained outstanding.
In the financial statements of the Company, the fair value of
the investments in limited partnerships is adjusted to reflect the
fair value of the Cells' attributable valuation of net assets
within Fund I and Fund II, as seen in more detail in Note 6 of the
Company's and Cells' financial statements.
5. Trade and other receivables
Full details of the 2009 Cell's and 2012 Cell's trade and other
receivables are shown below.
6. Fair value
The level in the fair value hierarchy within which the financial
assets or financial liabilities are categorised is determined on
the basis of the lowest level input that is significant to the fair
value measurement.
Financial assets and financial liabilities are classified in
their entirety into only one of the three levels.
The fair value hierarchy has the following levels:
- Level 1 - quoted prices (unadjusted) in active markets for
identical assets or liabilities.
- Level 2 - inputs other than quoted prices included within
Level 1 that are observable for the assets or liabilities, either
directly (i.e. as prices) or indirectly (i.e. derived from
prices).
- Level 3 - inputs for the assets or liabilities that are not
based on observable market data (unobservable inputs).
The only financial instruments carried at fair value are the
investments which are fair valued at each reporting date.
The Company's investments in Fund I and Fund II have been
classified within Level 3 as they have unobservable inputs and are
not traded. Amounts classified under Level 3 for the year are
GBP40.1 million for Fund I (2017: GBP260.1 million) and GBP137.2
million for Fund II (2017: GBP170.2 million).
Transfers during the year
There have been no transfers between levels.
Valuation techniques
The value of the Cells' investments in the Funds is based on the
value of each Cell's limited partner capital and loan accounts
within each Fund. This is based on the components within the Funds,
principally the value of the underlying investee companies. Any
fluctuation in the value of the underlying investee companies will
directly impact on the value of the Company's investment in the
Funds.
When valuing the underlying investee companies, the GPs of each
Fund reviews information provided by the underlying investee
companies and other business partners and applies IPEV
methodologies, to estimate a fair value that is in adherence with
the requirements of IFRS 13 as at the date of the statement of
financial position.
Initially acquisitions are valued at price of recent investment.
Once maintainable earnings can be identified or reasonably
estimated the preferred method of valuation is the earnings
multiple valuation technique, where a multiple that is an
appropriate and reasonable indicator of value (given the size, risk
profile and earnings growth prospects of the underlying company) is
applied to the maintainable earnings of the company. Occasionally
other methods, as deemed suitable by the GPs, may be used, such as
revenue multiple, net assets, or break-up value. The techniques
used in determining the fair value of the Cells' investments are
selected on an investment by investment basis so as to maximise the
use of market based observable inputs.
The Board reviews and considers the fair value arrived at by the
GPs before incorporating into the fair value of the investment
adopted by the Company. The variety of valuation bases adopted,
quality of management information provided by the underlying
investee companies and the lack of liquid markets for the
investments mean that there are inherent difficulties in
determining the fair value of these investments that cannot be
eliminated. Therefore the amounts realised on the disposal of
investments may differ from the fair values reflected in these
financial statements and the differences may be significant.
The significant unobservable inputs in the 2009 Cell and in the
2012 Cell are shown below.
7. Share capital
Core Shares
Authorised:
The Company is authorised to issue an unlimited amount of ordinary
shares at GBP1 par value.
Issued and fully paid:
Year ended 31 March 2018
GBP
Core shares as at 1 April 2017 and as
at 31 March 2018 100
====
Year ended 31 March 2017
GBP
Core shares as at 1 April 2016 and as
at 31 March 2017 100
====
Cell Shares
Authorised:
The Cells are each authorised to issue an unlimited amount of
ordinary shares at GBP1 par value.
Year ended 31 March 2018
2009 Cell 2012 Cell Total
Issued and fully paid:
Unlimited shares of GBP1 No. No. No.
par value
Shares as at 1 April 2017 206,780,952 318,052,242 524,833,194
Movements for the year (171,518,447) - (171,518,447)
-------------- ------------ --------------
Shares as at 31 March
2018 35,262,505 318,052,242 353,314,747
============== ============ ==============
Share capital GBP'000 GBP'000 GBP'000
Share capital as at 1
April 2017 138,216 297,220 435,436
Movements for the year:
Distributions (138,216) (8,270) (146,486)
Share capital as at 31
March 2018 - 288,950 288,950
============== ============ ==============
Year ended 31 March 2017
2009 Cell 2012 Cell Total
Issued and fully paid:
Unlimited shares of GBP1 No. No. No.
par value
Shares as at 1 April 2016 206,780,952 346,600,520 553,381,472
Movements for the year - (28,548,278) (28,548,278)
Shares as at 31 March
2017 206,780,952 318,052,242 524,833,194
============ ============= =============
Share capital GBP'000 GBP'000 GBP'000
Share capital as at 1
April 2016 143,386 341,848 485,234
Movements for the year:
Distributions (5,170) (34,032) (39,202)
Buyback and cancellation - (10,596) (10,596)
------------ ------------- -------------
Share capital as at 31
March 2017 138,216 297,220 435,436
============ ============= =============
During the year the 2009 Cell made its fifth distribution of
GBP222.0 million to shareholders of the 2009 Cell as at the ex-date
of 27 June 2017. The distribution consisted of a compulsory
pro-rata redemption of 82.95 per cent. of the 2009 Shares at 129.42
pence per share redeemed, equivalent to a total distribution of
107.35 pence per share. The redemption was first allocated against
the 2009 Cell share capital account until it was exhausted; with
the residue allocated to the 2009 Cell retained earnings
account.
The five cumulative distributions (reductions of share capital)
at 31 March 2018 for the 2009 Cell total GBP288.8 million, being
137.5 per cent. of funds raised.
During the year the 2012 Cell made its third distribution of
GBP8.3 million to shareholders of the 2012 Cell as at the ex-date
of 4 May 2017. The distribution consisted of a payment of 2.6 pence
per ordinary share payable in cash from the 2012 Cell's share
capital account and has been treated as a reduction of share
capital and partial distribution from retained earnings.
The three cumulative distributions (reduction of share capital)
at 31 March 2018 for the 2012 Cell total GBP48.4 million, being
13.6 per cent. of funds raised.
During the prior year the Company entered into a buyback
agreement with Fund II to acquire 28,548,278 2012 Shares,
representing 50 per cent. of Fund II's holding at the purchase
price of 37.12 pence per share. Following the share buyback, the
Company immediately cancelled all the 2012 Shares it acquired from
Fund II, reducing the number of 2012 Shares in issue from
346,600,520 to 318,052,242.
The Core Shares have no voting rights for so long as Cell Shares
are in issue.
As at 31 March 2018 the Company's issued share capital consisted
of 35,262,505 shares in the 2009 Cell and 318,052,242 shares in the
2012 Cell. Under the Company's articles of incorporation, at any
general meeting of the Company:
-- each holder of 2009 Shares who is present in person shall
have one vote and on a poll the vote shall be weighted where a vote
cast in relation to each 2009 Share shall count as 1.1096 towards
the total number of votes cast; and
-- each holder of 2012 Shares who is present in person shall
have one vote and on a poll the vote shall be weighted where a vote
cast in relation to each 2012 Share shall count as 0.9770 towards
the total number of votes cast.
The figure which may be used by the Shareholders as the
denominator for the calculations by which they will determine if
they are required to notify their interest in, or a change to their
interest in, Better Capital PCC Limited under the FCA's Disclosure
and Transparency Rules, is the aggregate of the number of votes
capable of being cast on a poll, namely 334,358,539. This is
calculated as the sum of the 2009 Shares (35,262,505) multiplied by
1.1096 plus the 2012 Shares remaining after the Shares Buyback on
19 June 2018 (302,181,436) multiplied by 0.9770. Further
information on the Shares Buyback is given in Note 11 to the
financial statements of the 2012 Cell below.
Similarly, to calculate the numerator, Shareholders should
multiply their holding of 2009 Shares by 1.1096 and multiply their
holding of 2012 Shares by 0.9770. The sum of those calculations
will result in the relevant number of voting rights for the
numerator.
8. Related party transactions
The Company has four non-executive Directors. Mr Jon Moulton is
a director and the sole shareholder of BECAP GP Limited, the
general partner of the Fund I GP and BECAP12 GP Limited, the
general partner of the Fund II GP. Mr Moulton, as a limited partner
of Better Capital SLP LP, is due to participate in the accrued
carried interest from Fund I. Transactions with the Funds are
detailed in Note 4.
Annual remuneration terms for each Director are as follows: the
Chairman receives GBP70,000 (2017: GBP70,000), the chairman of the
audit committee receives GBP62,500 (2017: GBP62,500), the chairman
of MNR committee receives GBP60,000 (2017: GBP60,000) and the other
non-executive director receives GBP45,000 (2017: GBP45,000).
Directors' fees and expenses for the year to 31 March 2018
amounted to GBP283,000 (2017: GBP241,000), of which GBP59,000
(2017: GBP59,000) was outstanding at the year end.
The Directors received a distribution of capital from the 2009
Cell of 107.35 pence per ordinary share and from the 2012 Cell of
2.6 pence per ordinary share (2017: 2009 Cell - 2.5 pence, 2012
Cell - 10.7 pence). The Directors' shareholdings can be seen above
in the Report of the Directors.
9. Financial risk management
Financial risk management objectives
The Company's investing activities, through Fund I and Fund II
and their special purpose vehicles, intentionally expose it to
various types of risk that are associated with the investee
companies in which it invests in order to generate returns in
accordance with its investment policy and objectives. The financial
risks to which the Company is exposed are market risk, liquidity
risk and credit risk. The Board of Directors has overall
responsibility for the determination of the Company's risk
management and sets policy to manage that risk at an acceptable
level to achieve those objectives. The policy and process for
measuring and mitigating each of the main risks are described
below.
The Corporate Broker and the Administrator provide information
to the Company which allows it to monitor and manage financial
risks relating to its operations through internal risk reports
which analyse exposures by degree and magnitude of risks. The
Corporate Broker and the Administrator report to the Board on a
quarterly basis.
Due to the nature of the loan investments, being non recourse,
the loans have the same characteristics as the capital invested
into the Funds. As a result for the purposes of the following
disclosure both the capital and loan investments have been
considered as one combined investment which is fair valued. Any
default/credit risk is taken into account when fair valuing the
investments.
Categories of financial instruments
2018 2017
GBP'000 GBP'000
Financial assets
Investments at fair value through profit
or loss:
Investments in limited partnerships 177,352 430,340
Loans and receivables:
Debtors (excluding prepayments) 800 1,600
Cash and cash equivalents 502 813
Financial liabilities
Financial liabilities measured at amortised
cost:
Creditors and accruals 197 207
The Directors consider that the carrying values of cash and cash
equivalents, creditors and accruals and debtors approximate their
fair value.
Capital risk management
The Company's objectives when managing capital are to safeguard
the Company's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to maintain an effective capital structure to
reduce the cost of capital.
In order to maintain or adjust the capital structure, the
Company may: return capital to shareholders, adjust the amount of
distributions paid to shareholders, issue new shares or sell assets
to reduce debt.
The Company considers its capital to comprise the 2009 Shares,
2012 Shares, Core Shares, and retained earnings. There has been no
change in what the Company considers to be capital since
incorporation other than as part of the Conversion to a PCC. The
Company is not subject to any externally imposed capital
requirements.
Market risk
Market risk includes price risk, foreign currency risk and
interest rate risk.
(a) Price risk
Price risk arises from uncertainty about future prices of
financial investments held. The Company invests through Fund I and
Fund II. The underlying investments held by Fund I and Fund II
present a potential risk of loss of capital to the Funds and hence
to the Company.
The Funds are exposed to a variety of risks which may have an
impact on the carrying value of the Company's investment in the
Funds. The Funds' risk factors are addressed in the 2009 Cell and
2012 Cell financial statements below.
(b) Foreign currency risk
The Company has no direct foreign currency risk since all assets
and transactions to date have been denominated in Pound Sterling,
the Company's functional and presentation currency.
The Funds' indirect foreign currency risk, primarily with the US
Dollar, arises from the overseas operations of the underlying
portfolio investments. The investee companies' management monitor
options for hedging against adverse exchange rate movements. The
clear majority of the transactions made by the Funds have been
denominated in Pound Sterling and accordingly the Fund GPs do not
consider foreign exchange risk to be significant at this stage.
(c) Interest rate risk
The Company's direct exposure to interest rate risk relates to
the Company's cash and cash equivalents. The Company is subject to
risk due to fluctuations in the prevailing levels of market
interest rates. Any excess cash and cash equivalents are invested
at short-term market interest rates. As at the reporting date the
majority of the Company's cash and cash equivalents were held on
instant access deposit.
As at 31 March 2018, GBP9.5 million (2017: GBP16.6 million) or
5.1 per cent. (2017: 3.5 per cent.) of the Funds' financial assets
were cash balances held on deposit.
Interest income of GBPnil (2017: GBP4,000) arose from cash and
cash equivalents and has been calculated using the effective
interest rate method. There are no other gains or losses on loans
and receivables other than the interest income.
The Company has no other interest bearing assets or liabilities
as at the reporting date. As a consequence, the Company is only
exposed to cash flow interest rate risk. The Board does not expect
any significant change in interest rates that would have a material
impact on the financial performance of the Company in the near
future.
Liquidity risk
Ultimate responsibility for liquidity risk management of the
Company rests with the Board of Directors.
Liquidity risk is defined as the risk that the Company may not
be able to settle or meet its obligations on time or at a
reasonable price.
The Company adopts a prudent approach to liquidity management
and through the preparation of budgets and cash flow forecasts
maintains sufficient cash reserves to meet its obligations.
During the year ended 31 March 2018, the Company had no
liabilities other than creditors and accruals (2017: GBPnil). The
Company had sufficient cash and cash equivalents to pay these as
they fell due.
The following table details the Company's contractual discounted
cash flows for its financial liabilities:
On demand 0-6 months 6+ months Total
31 March 2018 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and accruals - 197 - 197
- 197 - 197
==================================== =========== ========== ========
On demand 0-6 months 6+ months Total
31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and accruals - 207 - 207
- 207 - 207
==================================== =========== ========== ========
Credit risk
Credit risk refers to the risk that the counterparty will
default on its contractual obligations resulting in financial loss
to the Company.
The Company's principal financial assets are the investments in
Fund I and Fund II and as a consequence the Company has a
significant credit risk if the Funds fail.
The carrying value of the investment in Fund I as at 31 March
2018 was GBP40.1 million (2017: GBP260.1 million).
The carrying value of the investment in Fund II as at 31 March
2018 was GBP137.2 million (2017: GBP170.2 million).
Other financial assets mainly consist of cash and cash
equivalents and investments at fair value through profit or loss.
The Company's risk on liquid funds is minimised because the Funds
have a strict cash management policy. The Company mitigates its
credit risk exposure on investments at fair value through profit or
loss by the exercise of due diligence on the counterparties of
Funds and their General Partners. The investment risk is managed by
an investment strategy that diversifies the investments in terms of
financing stage, industry or geography. The aggregate amount
deposited or invested with any single such bank or other
counterparty (including their associates) or in government and
public securities of any single issue, shall not exceed GBP35.0
million for Fund I and GBP50.0 million for Fund II.
The investment objectives, policy and restrictions of the Funds
are set out in their respective partnership agreements and cannot
be varied without an amendment to the relevant partnership
agreement, which would require the consent of all the partners
including the Company.
The table below shows the Company's material cash balances and
the short-term issuer credit rating for the counterparties used at
the year end date:
Standard
& Poor's 31 March 31 March
Counterparty Location Rating 2018 2017
GBP'000 GBP'000
Royal Bank of Scotland
International Limited Guernsey A-2 212 177
Barclays Bank PLC Guernsey A-1 290 164
Lloyds Bank International
Limited Jersey A-2 - 472
The Company's maximum exposure to loss of capital at the year
end is shown below:
Carrying value
31 March 2018 and maximum exposure
Investment at fair value GBP'000
through profit or loss:
* Fund I 40,146
* Fund II 137,206
Loans and receivables (including
cash and cash equivalents
but excluding prepayments) 1,302
----------------------
178,654
======================
Carrying value
31 March 2017 and maximum exposure
Investment at fair value GBP'000
through profit or loss:
* Fund I 260,097
* Fund II 170,243
Loans and receivables (including
cash and cash equivalents
but excluding prepayments) 2,413
----------------------
432,753
======================
There are no past due or impaired receivable balances
outstanding at the year end.
10. Earnings per share and Net Asset Value per share
The earnings per share, Net Asset Value per share and adjusted
Net Asset Value per share for the 2009 Cell and 2012 Cell are shown
below.
11. Subsequent events
Subsequent events for 2009 Cell and 2012 Cell are detailed
below.
Better Capital 2009 Cell
Summary of Investment policy
Better Capital 2009 Cell has invested in a portfolio of
businesses which, when acquired, had significant operating issues
and associated financial distress and which have significant
activities within the United Kingdom or Ireland.
Uninvested or surplus capital or assets may be invested on a
temporary basis in cash deposits.
The 2009 Cell Investment policy is set out in the Company's
Prospectus.
General Partner's Report
In my last report to you, I had touched on strategic options
available for the remaining assets in Fund I. It is increasingly
clear the decision to hold onto, in particular, Omnico is the right
one. Omnico has had an encouraging H1 FY18. Performance in H2 FY18
will be somewhat limited by its ability to deploy on the committed
order book. A listing on AIM is still a likely route to market;
however, not in the timescale originally envisaged.
A sale of the entire m-hance business was considered and several
expressions of serious interest were received, albeit none at an
acceptable level especially given the growth prospects in its
Customer Relationship Management (CRM) division. New leadership has
been appointed to bring renewed vigour into the business.
There has been slow progress in dealing with Fund I's holding in
SPOT due to structural complexities. Independent advice is being
taken in respect of finding an exit route for Fund I's 9.9 per
cent. holding in SPOT, a business which is majority owned by Fund
II.
Portfolio update
m-hance closed its FY17 financial year ended 31 December with
revenue and EBITDA of GBP13.9 million and GBP0.7 million
respectively (audited revenue and EBITDA FY16: GBP15.5 million and
GBP1.1 million respectively). Five months into its FY18 financial
year, m-hance is performing ahead of its EBITDA budget. The
challenge, as reported before, remains one of sales growth in the
business, particularly in the Enterprise Resource Planning (ERP)
channel. Microsoft's new mid-market cloud-based solution continued
to experience branding and functionality changes ahead of its
recent full UK launch. This has led prospective customers to delay
decisions about ERP replacement, leaving the new business market
very soft. With this backdrop, a decision was made in November 2017
to review the size of the sales and marketing department, resulting
in a small reduction in headcount.
However, FY17 proved to be a very successful year for the CRM
division, particularly in the Not-for-Profit and Education sectors.
Service revenue and gross margin grew by 25 per cent. and 16 per
cent. respectively. This trend has continued into the current
financial period, with further substantial deals contracted in both
sectors and with the pipeline looking strong. This, combined with
the changes mentioned above, is expected to result in a return to
the profitability levels of FY16.
Strategically m-hance will continue to concentrate on its niche
CRM division, where the business is seen as a market leader and
Microsoft is perceived to provide the most suitable technology
platform. The much-delayed Microsoft Dynamics 365 Business Central
ERP platform was finally released in April 2018. This gives
m-hance's GP customers the ability to upgrade to a cloud-based
solution whilst remaining on a Microsoft platform, which will in
time allow them to benefit from the common data model Microsoft is
developing to integrate all their business applications. This is
expected to drive early adopter sales in the latter part of 2018,
but it augurs well for future years given the size of m-hance's
Microsoft user base.
The CEO retired in May 2018 and Alan Moody, who up until
recently was leading the technology and software development
division of Henry Schein Inc.'s UK and Europe regions, has replaced
him.
The valuation for m-hance has been retained at GBP10.5 million.
This has been derived using an earnings based approach (range of
EV/ EBITDA: 3.4 times to 12.1 times) on the business's FY18
budgeted EBITDA. At 31 March 2018, the business had net debt of
GBP0.6 million.
Omnico's year-to-date EBITDA for its FY18 financial year ending
30 September is ahead of budget and the prior year (audited FY17
EBITDA: GBP2.3 million) due to improvements in billable utilisation
(up 11 per cent. on prior year) and professional services revenue
per day achieved (up 17 per cent. on prior year).
Sales revenue is marginally behind budget. The qualified sales
pipeline has grown substantially by over 40 per cent. since the
start of FY18 but sales have been impacted by delays to customer
decision making, coupled with the market shift towards a recurring
revenue/subscription pricing model. Whilst this reduces revenue in
the short term, it does mean a larger portion of the annual revenue
target becomes contracted and recurring, therefore improving the
long term value of the business.
Omnico's success is driven by an ability to enable clients to
migrate from traditional fixed tills to environments that address
multiple sales channels, including those using mobile, Internet of
Things and cloud technologies. The business's conscious decision to
focus on the destinations market (covering theme parks, leisure and
entertainment sites) in 2016 is yielding results as it continues to
see substantial opportunity in the global theme park market against
a declining UK high street retail backdrop. Omnico is already the
leading provider of Point of Sale solutions in North American theme
parks, and works with 7 of the world's top 11 park operators where
visitors expect retail and hospitality to be seamlessly integrated
into their experience. Since my last report, the business has been
able to add Welk, a US luxury resorts operator as a net new
customer.
Additionally, it is pleasing to report that some existing
support and maintenance contracts have been renegotiated on more
favourable terms, and that two major customers (one of them being
Sodexo) have taken Omnico Managed Services on multi-year contracts.
The business has recently completed a roll out of software across
279 individual sites for a UK attractions brand.
Omnico has embarked on a major software upgrade (V6) and will,
over the next two years, migrate existing customers to the new
platform, with work already commencing with the Merlin Group. The
V6 product provides a unique digital enablement platform providing
customers with the ability to upgrade to future Omnico digital
products and avoiding the costly migrations associated with legacy
Point of Sale companies. Omnico has invested and will continue to
invest to ensure that the V6 and digital platform rollouts are
successful. Key areas of spend, beyond the V6 functional
development itself, have been in recruiting fresh talent into the
technical teams and on improving the product delivery especially in
the areas of testing assurance and performance. The next 6 to 12
months will, undoubtedly, be demanding on the business as it moves
the V6 product into full implementation phase for customers.
In general the prospects for Omnico look stronger with good
earnings growth now confidently expected.
Based on the business's improving prospects, the carrying value
for Omnico has increased by GBP1.0 million to GBP23.0 million. This
is supported using an earnings based approach to valuation. At 31
March 2018, the business had net cash of GBP22,000.
An update on Spicers OfficeTeam (SPOT), a portfolio company 9.9
per cent. owned by Fund I, is provided in the Fund II General
Partner's Report below. Fund I's interest in SPOT has been written
down by GBP0.3 million to GBP4.2 million.
Investment activities
On 12 June 2017, Fund I completed the sale of Gardner to SLMR
for GBP326.0 million on an Enterprise Value basis. The sale
realised net proceeds to Fund I of GBP254.1 million, recording an
IRR of 35.3 per cent. and 7 times money multiple on total
investment of GBP41.0 million.
Fund I provided additional funding to m-hance totalling GBP0.4
million in October 2017, of which GBP0.3 million was repaid in
December 2017, and to Omnico totalling GBP0.8 million in July
2017.
The administration of Fairline resulted in distributions
totalling GBP0.3 million during the year.
Valuation
The overall portfolio carrying value declined by GBP251.6
million between 1 April 2017 and 31 March 2018, mainly due to the
disposal of Gardner in June 2017. Excluding Gardner and on a
like-for-like basis, the portfolio carrying value grew by GBP2.5
million (7.1 per cent.) in the year principally due to a GBP3.0
million write up in Omnico (of which GBP1.0 million occurred in the
six months to 31 March 2018), offset by a write down in SPOT of
GBP0.5 million (of which GBP0.3 million occurred in the six months
to 31 March 2018).
Distributions
The sale of Gardner in June 2017 enabled the return of GBP222.4
million to the 2009 Cell. Accordingly, this enabled the Company to
effect a pro rata redemption of the 2009 Shares in July 2017 and
return GBP222.0 million (equivalent to 107.35 pence per share) to
the 2009 Cell Shareholders.
There were no further distributions since that date. Future
distributions will be driven by the divestments of the remaining
Fund I assets.
Cash
The cash balance at the time of writing stands at GBP2.2
million, which is adequate for the effective functioning of Fund
I.
Closing remarks
The task is to realise the remaining assets by the end of 2019.
It seems likely that further value will be generated before
then.
Jon Moulton
Chairman
BECAP GP Limited
12 July 2018
Investment Report of Fund I
m-hance
Business description
Implements, deploys and manages enterprise wide business
management software solutions (www.m-hance.com)
(www.highcloudsolutions.co.uk)
Fund I Investment details
31 March 30 September 31 March
GBP'm 2018 2017 2017
Total invested 14.1 14.0 14.0
Total committed 14.1 14.0 14.0
Fund I fair value (earnings
based) 10.5 10.5 10.5
Omnico Group
Business description
Provider of omni-channel software solutions and services to the
retail, entertainment, hospitality and leisure sectors
(www.omnicogroup.com)
Fund I Investment details
31 March 30 September 31 March
GBP'm 2018 2017 2017
Total invested 41.5 41.5 40.8
Total committed 41.5 41.5 40.8
Fund I fair value (earnings
based) 23.0 22.0 20.0
SPOT
Business description
Spicers is a leading office products and stationery wholesaler
(www.spicers.co.uk)
OfficeTeam is a leading office products and services supplier
(www.officeteam.co.uk)
Fund I Investment details
31 March 30 September 31 March
GBP'm 2018 2017 2017
Total invested 10.1 10.1 10.1
Total committed 10.1 10.1 10.1
Fund I fair value (earnings
and assets basis) 4.2 4.5 4.7
Portfolio summary and reconciliation
31 March 2018 Sector Fund Project Fund fair value Valuation Valuation
cost(1) investment in percentage of methodology
GBPm SPVs(2) NAV
GBPm
Information
m-hance Systems 14.1 10.5 26.0 % Earnings
Information
Omnico Group Systems 41.5 23.0 56.9 % Earnings
Earnings and
SPOT Office Products 10.1 4.2 10.4 % Assets
65.7 37.7 93.3 %
------------------- ----------------- ----------------- ------------------ -----------------
Fund cash on deposit 2.7 6.7%
Fund & SPV combined other net assets (0.1) (0.2%)
Provision for carried interest (0.2) (0.5%)
---------------------------------------------------------- ----------------- ------------------ -----------------
2009 Cell fair value of investment in Fund I 40.1 99.3%
---------------------------------------------------------- ----------------- ------------------ -----------------
2009 Cell cash on deposit 0.3 0.7%
2009 Cell current assets less liabilities - 0.0%
---------------------------------------------------------- ----------------- ------------------ -----------------
2009 Cell NAV 40.4 100.0%
------------------- ------------------ ----------------- ----------------- ------------------ -----------------
Cumulative
distributions 288.8
------------------- ------------------ ----------------- ----------------- ------------------ -----------------
2009 Cell adjusted
NAV 329.2
------------------- ------------------ ----------------- ----------------- ------------------ -----------------
Summary income statement for Fund I
2018 2017
GBP'000 GBP'000
----------------------------------------------- ---------- ---------
Total income 231,214 65
(Loss)/profit on Fund I investment portfolio (227,510) 37,496
Fund I GP's Share (859) (1,348)
Other operating expenses (274) (1,191)
Carried Interest movement (151) (10,452)
Distributions (85,365) -
Fund I's operating (loss)/profit
for the year (82,945) 24,570
------------------------------------------------ ---------- ---------
Portion of the operating (loss)/profit
for the year for 2009 Cell's investment
in the limited partnership (Note 4) (82,945) 24,570
------------------------------------------------- ---------- ---------
(1) Fund I holds its investments at cost in accordance with the terms of the limited partnership
agreement.
(2) The Company fair values its investment in Fund I in accordance with the methodologies
as set out in Note 6.
Cash Management
As at 31 March 2018, Fund I had placed a total of GBP2.7 million
(2017: GBP1.4 million) of cash on instant access deposit with one
bank. Fund I has in place a strict cash management policy that
limits counterparty risks whilst simultaneously seeking to maximise
returns.
Standard
& Poor's 31 March 31 March
Counterparty Location Rating Term 2018 2017
GBP'000 GBP'000
Instant
Barclays Bank Plc Guernsey A-1 access 2,666 1,392
INDEPENT AUDITOR'S REPORT TO THE DIRECTORS OF
BETTER CAPITAL PCC LIMITED IN RESPECT OF THE 2009 CELL
We have audited the supplementary financial statements of the
2009 Cell (the "Cell"), a cell of Better Capital PCC Limited (the
"Company") for the year ended 31 March 2018 which comprise the
Statement of Financial Position, the Statement of Comprehensive
Income, the Statement of Changes in Equity, the Statement of Cash
Flows and the related notes 1 to 11. The financial reporting
framework that has been applied in their preparation is
International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
This report is made solely to the directors of the Company, as a
body, in accordance with our engagement letter dated 13 February
2017. Our audit work is undertaken so that we might state to the
directors of the Company 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 directors of the Company as
a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of the directors and auditor
As explained more fully in the Directors' Responsibilities
Statement within the Report of the Directors, the directors of the
Company are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair
view.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Financial Reporting Council's Ethical Standard for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Cell's circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors of the Company; and the
overall presentation of the financial statements. In addition, we
read all the financial and non--financial information in the Annual
Report to identify material inconsistencies with the audited
financial statements and to identify any information that is
apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent
misstatements or inconsistencies we consider the implications for
our report.
Opinion on the financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Cell's affairs
as at 31 March 2018 and of its profit for the year then ended;
and
-- have been properly prepared in accordance with IFRSs as adopted by the European Union.
BDO Limited
Chartered Accountants
Place du Pré
Rue du Pré
St Peter Port
Guernsey
12 July 2018
Statement of Financial Position
As at 31 March 2018
2018 2017
GBP'000 GBP'000
Notes
ASSETS:
Non-current assets
Investment in limited partnership 4 40,146 260,097
Total non-current assets 40,146 260,097
----------- ------------
Current assets
Trade and other receivables 5 2 5
Cash and cash equivalents 331 223
----------- ------------
Total current assets 333 228
----------- ------------
TOTAL ASSETS 40,479 260,325
----------- ------------
LIABILITIES:
Current liabilities
Trade and other payables (62) (73)
----------- ------------
Total current liabilities (62) (73)
----------- ------------
TOTAL LIABILITIES (62) (73)
----------- ------------
NET ASSETS 40,417 260,252
=========== ============
EQUITY
Share capital 7 - 138,216
Retained earnings 40,417 122,036
TOTAL EQUITY 40,417 260,252
=========== ============
Number of 2009 Shares in
issue at year end 7 35,262,505 206,780,952
=========== ============
NAV per 2009 Share (pence) 10 114.62 125.86
=========== ============
Adjusted NAV per 2009 Share
(pence) 10 159.20 158.16
=========== ============
The audited financial statements of the 2009 Cell were approved
and authorised for issue by the Board of Directors on 12 July 2018
and signed on its behalf by:
Richard Crowder Jon Moulton
Chairman Director
The notes below form an integral part of the 2009 Cell's
financial statements.
Statement of Comprehensive Income
For the year ended 31 March 2018
2018 2017
GBP'000 GBP'000
Notes
Income
Change in fair value of investment
in limited partnership 4 (82,945) 24,570
Distributions 85,365 -
Total income 2,420 24,570
--------- --------
Expenses
Administration fees 87 130
Directors' fees and expenses 8 86 119
Legal and professional fees 52 157
Other fees and expenses 19 46
Audit fees 10 37
Insurance premiums 5 13
Registrar fees 17 31
Total expenses 276 533
--------- --------
Profit and total comprehensive income
for the financial year 2,144 24,037
========= ========
Basic and diluted earnings per
2009 Share (pence) 10 2.76 11.62
========= ========
The notes below form an integral part of the 2009 Cell's
financial statements.
Statement of Changes in Equity
For the year ended 31 March 2018
Share Retained Total
capital earnings equity
Notes GBP'000 GBP'000 GBP'000
As at 1 April 2017 138,216 122,036 260,252
Profit and total comprehensive
income for the financial
year - 2,144 2,144
Total comprehensive
income for the year - 2,144 2,144
---------- --------- ----------
Transactions with owners
Distributions 7 (138,216) (83,763) (221,979)
---------- --------- ----------
Total transactions with
owners (138,216) (83,763) (221,979)
As at 31 March 2018 - 40,417 40,417
========== ========= ==========
Share Retained Total
capital earnings equity
GBP'000 GBP'000 GBP'000
As at 1 April 2016 143,386 97,999 241,385
Profit and total comprehensive
income for the financial
year - 24,037 24,037
Total comprehensive
income for the year - 24,037 24,037
---------- --------- ----------
Transactions with owners
Distributions 7 (5,170) - (5,170)
---------- --------- ----------
Total transactions with
owners (5,170) - (5,170)
As at 31 March 2017 138,216 122,036 260,252
========== ========= ==========
Any surplus/deficit arising from the profit/loss for a period is
taken to retained earnings which may be utilised for payment of
dividends or distributions.
The notes below form an integral part of the 2009 Cell's
financial statements.
Statement of Cash Flows
For the year ended 31 March 2018
2018 2017
GBP'000 GBP'000
Cash flows from operating activities
Profit for the financial year 2,144 24,037
Adjustments for:
Change in fair value of investment
in limited partnership 82,945 (24,570)
Movement in debtors and prepayments 3 22
Movement in creditors and accruals (11) (15)
Repayment of loan investment
in limited partnership 137,006 5,474
Net cash generated from operating
activities 222,087 4,948
---------- ---------
Cash flow used in financing
activities
Distributions (221,979) (5,170)
Net cash used in financing activities (221,979) (5,170)
---------- ---------
Net movement in cash and cash
equivalents during the year 108 (222)
Cash and cash equivalents at
the beginning of the year 223 445
Cash and cash equivalents at
the end of the year 331 223
========== =========
The notes below form an integral part of the 2009 Cell's
financial statements.
Notes to the Audited Financial Statements of the 2009 Cell
For the year ended 31 March 2018
1. General information
The 2009 Cell is a cell of Better Capital PCC Limited and has
the investment objective of generating attractive total returns
from investing (through Fund I) in a portfolio of businesses which
have significant operating issues and may have associated financial
distress, with a primary focus on businesses which have significant
activities within the United Kingdom and Ireland. Such returns are
expected to be largely derived from capital growth.
Fund I is managed by its general partner, BECAP GP LP, which is
in turn managed by its general partner BECAP GP Limited. Such
arrangements are governed under the respective Limited Partnership
Agreement, as amended.
The 2009 Cell is listed on the LSE Main Market.
2. Accounting policies
Basis of preparation
The 2009 Cell financial statements for the year ended 31 March
2018 have been prepared in accordance with EU Adopted IFRS.
The principal accounting policies adopted are set out in the
Company's accounting policies above.
Going concern
After making appropriate enquiries and considering the extension
to the life of Fund I to 17 December 2019, the Directors have a
reasonable expectation that the 2009 Cell, and in turn Fund I, have
adequate resources to continue in operational existence for the
foreseeable future and do not consider there to be any threat to
the going concern status of the 2009 Cell. For this reason, they
continue to adopt the going concern basis in preparing these
financial statements.
Critical accounting judgment and estimation uncertainty
Use of estimates and judgements
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses.
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The areas involving a high degree of judgement or complexity or
areas where assumptions and estimates are significant to the
financial statements are disclosed below. Revisions to accounting
estimates are recognised in the period in which the estimate is
revised and in any future periods affected.
The resulting accounting estimates will, by definition, seldom
equate to the related actual results.
Investment in Fund I
The value of the 2009 Cell's investment in Fund I is based on
the value of the 2009 Cell's limited partner capital and loan
accounts within Fund I. This is based on the components within Fund
I, principally the value of the underlying investee companies. Any
fluctuation in the value of the underlying investee companies will
directly impact on the value of the 2009 Cell's investment in Fund
I.
When valuing the underlying investee companies, the General
Partner of Fund I reviews information provided by the underlying
investee companies and other business partners and applies IPEV
methodologies, as noted above, to estimate a fair value as at the
date of the Statement of Financial Position. The variety of
valuation bases adopted, quality of management information provided
by the underlying investee companies and the lack of liquid markets
for the investments mean that there are inherent difficulties in
determining the fair value of these investments that cannot be
eliminated. Therefore the amounts realised on the disposal of
investments may differ from the fair values reflected in these
financial statements and the differences may be significant.
Further information in relation to the valuation of the
investment in Fund I is disclosed in Notes 4 and 6.
3. Segmental reporting
For management purposes, the 2009 Cell is organised into one
operating segment, which invests in one limited partnership.
4. Investment in limited partnership
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1 April 2017 137,006 20 137,026
Repayment of loan investment
in limited partnership (137,006) - (137,006)
Carried forward - 20 20
---------- -------- ----------
Fair value adjustment through
profit or loss
Brought forward 123,071 - 123,071
Unrealised fair value movement
during the year (82,945) - (82,945)
Carried forward 40,126 - 40,126
---------- -------- ----------
Fair value as at 31 March 2018 40,126 20 40,146
========== ======== ==========
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1 April 2016 142,480 20 142,500
Repayment of loan investment
in limited partnership (5,474) - (5,474)
Carried forward 137,006 20 137,026
---------- -------- ----------
Fair value adjustment through
profit or loss
Brought forward 98,501 - 98,501
Unrealised fair value movement
during the year 24,570 - 24,570
Carried forward 123,071 - 123,071
---------- -------- ----------
Fair value as at 31 March 2017 260,077 20 260,097
========== ======== ==========
The movement in fair value of the 2009 Cell is derived from the
fair value increase in Omnico Group, fair value decrease in SPOT
and the sale of Gardner, net of expenses in Fund I and its related
special purpose vehicles.
The outstanding loans do not incur interest. The loans are
expected to be repaid by way of distributions from Fund I. The 2009
Cell is not entitled to demand repayment of the outstanding loans,
however, the General Partner may, upon request by the Company,
repay to the 2009 Cell any amount of the Cell's outstanding loan.
During the year GBP137.0 million was repaid to the 2009 Cell by
Fund I (2017: GBP5.5 million) following the divestment of Gardner
in June 2017.
In the financial statements of the 2009 Cell the fair value of
the investment in limited partnership is adjusted to reflect the
fair value of the 2009 Cell's attributable valuation of net assets
within Fund I, as seen in more detail in Note 6.
5. Trade and other receivables
2018 2017
GBP'000 GBP'000
Debtors - -
Prepayments 2 5
-------- --------
2 5
======== ========
There are no past due or impaired receivable balances
outstanding at the year end. The Directors consider that the
carrying value of debtors and prepayments approximates their fair
value.
6. Fair value
The level in the fair value hierarchy within which the financial
assets or financial liabilities are categorised is determined on
the basis of the lowest level input that is significant to the fair
value measurement. The fair value hierarchy and further information
on valuation techniques can be found in Note 6 in the Company
financial statements.
The following table summarises the valuation methodologies and
inputs used for the 2009 Cell's Level 3 investments as at year
end:
Valuation Description Input Adjustments Discount Rate Discounted
Methodology Applied Multiples Value of portfolio valued on
to Multiples this basis (GBP'm)
------------------------------------------------------------------------------------------
31 March 2018 31 March 2017
Multiples are
applied to
the earnings
of the
investee
company to
determine
the
enterprise
value. Where
there
is evidence
that a A discount is
division of applied
an to earnings
Most commonly investee multiples
used Private could be sold derived from
Equity as an market
valuation independent transaction
methodology. business, the multiples
Used for multiple at 48 per cent.
investments applied to (31 March 2017:
which that 20 per cent to
are profitable division's 55 per cent.)
and for which earnings may No EBITDA multiples
a set of listed be discount is ranging from
companies different to Relevant applied 9.5
and precedent that applied provisions to earnings times to 9.7
transactions to the may be multiples times
with similar earnings of deducted derived from at the investee
characteristics the rest of from the recent level (31 March
can be the group multiple offers for the 2017: 6.6 times
Multiple determined (m-hance). valuation investee. to 10.1 times). 33.5 35.2
31 March Earnings
2018 Reported
m-hance earnings
Omnico adjusted for
non-recurring
items, such as
restructuring
expenses, for
significant
corporate
actions and,
in exceptional
cases,
run-rate
adjustments to
arrive at
maintainable
earnings. Most
common
measure is
EBITDA
(m-hance,
Omnico).
Further
information in
relation
to the
application of
earnings can
be found in
the Fund I GP
report
above .
31 March Discounts to the Multiples The
2017 valuation earnings
m-hance generated by multiple
Omnico applying is derived
SPOT multiples from market
to reflect the transaction
time and costs multiples
of reaching (Omnico) or
sustainable recent offers
profitability for the
and the investee
inevitable (m-hance).
accompanying Where
uncertainties market
transactions
are used, the
Fund I GP
typically
selects
businesses
in the same
industry and,
where
possible, with
a similar
business
model and
profile in
terms of size,
products,
services and
customers,
growth rates
and geographic
focus
and adjust for
changes in the
relative
performance in
the set of
comparables.
Values of
separate For elements
elements valued
prepared under using earnings
other methods, multiples
as deemed derived For elements
suitable by the from market valued
Fund I GP, such transactions, based on their
as net a discount of earnings,
realisable As 20 EBITDA
value and determined per cent. is multiples range
earnings and on a case applied from 6.6 to 8.0
assets Earnings and by (31 March 2017: (31 March 2017:
Other basis assets (SPOT) case basis 20 per cent.). 6.6 times). 4.2 254.1
----------------- -------------
31 March 2018
SPOT
31 March
2017
Gardner
----------------- --------------- ------------- ----------------- ----------------- -------------------------------------------- --------------------------------------------
Level 3 Portfolio valuation 37.7 289.3
Other net assets/(liabilities) 2.6 0.5
Provision for Better Capital SLP interest in Fund I (0.2) (29.6)
2009 Cell fair value of investments in Fund I 40.1 260.2
This approach requires the use of assumptions about certain
unobservable inputs. Significant unobservable inputs as at 31 March
2018 are:
- Multiples used to derive enterprise value; and
- Discount factors.
A reasonably possible change in the multiples used of +/- 10 per
cent. would result in:
- An increase in carrying value of GBP3.7 million or 9.8 per
cent. (+10 per cent.)
- A decrease in the carrying value of GBP3.7 million or 9.8 per
cent. (-10 per cent.)
A reasonably possible change in the discount factors used would
be to completely remove the discount factor or to double the
discount factor. This would result in:
- An increase in the carrying value of GBP37.38 million or 100.2
per cent. (-100 per cent.)
- A decrease in carrying value of GBP16.3 million or 43.1 per
cent. (+100 per cent.)
The Fund I GP approves the valuations performed with input from
any external consultant as appointed by the GPs and monitors the
range of reasonably possible changes in significant observable
inputs on a regular basis.
7. Share capital
Share capital for the 2009 Cell is detailed in the relevant
column in Note 7 of the Company's financial statements.
The five cumulative distributions (capital redemption and
reductions of share capital) to date for the 2009 Cell total
GBP288.8 million, being 137.5 per cent. of funds raised.
8. Related party transactions
Further information on related parties can be found in Note 8 of
the Company's financial statements.
Directors' fees and expenses, incurred by the 2009 Cell, for the
year to 31 March 2018 amounted to GBP86,000 (2017: GBP119,000).
During the period a fee of GBP45,000 was paid in relation to
additional work undertaken by the Directors in respect of the sale
of Gardner. The Directors' fees and expenses were apportioned
equally between the Cells up to 30 September 2013, thereafter fees
were split on a NAV basis. GBP10,000 (2017: GBP29,000) remained
outstanding at the year end.
9. Financial risk management
Financial risk management objectives
The 2009 Cell's investing activities, through Fund I and its
special purpose vehicles, intentionally expose it to various types
of risk that are associated with the investee companies in which
Fund I invests in order to generate returns in accordance with its
investment policy and objectives. The financial risks to which the
2009 Cell is exposed are market risk, liquidity risk and credit
risk. The Board of Directors has overall responsibility for the
determination of the 2009 Cell's risk management and sets policy to
manage that risk at an acceptable level to achieve those
objectives. The policy and process for measuring and mitigating
each of the main risks are described below.
The Corporate Broker and the Administrator provide information
to the 2009 Cell which allows it to monitor and manage financial
risks relating to its operations through internal risk reports
which analyse exposures by degree and magnitude of risks. The
Corporate Broker and the Administrator report to the Board on a
quarterly basis.
Due to the nature of the loan investments, being non-recourse,
the loans have the same characteristics as the capital invested
into Fund I. As a result for the purposes of the following
disclosure both the capital and loan investments have been
considered as one combined investment which is fair valued. Any
default/credit risk is taken into account when fair valuing the
investments.
Categories of financial instruments
2018 2017
GBP'000 GBP'000
Financial assets
Investment at fair value through profit
or loss:
Investment in limited partnership 40,146 260,097
Loans and receivables:
Debtors (excluding prepayments) - -
Cash and cash equivalents 331 223
Financial liabilities
Financial liabilities measured at amortised
cost:
Creditors and accruals 62 73
Directors consider that the carrying values of cash and cash
equivalents, creditors and accruals and debtors approximate their
fair value.
Capital risk management
The 2009 Cell's objectives when managing capital are to
safeguard the 2009 Cell's ability to continue as a going concern in
order to provide returns for Shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
In order to maintain or adjust the capital structure, the 2009
Cell may; return capital to Shareholders, adjust the amount of
distributions paid to Shareholders, issue new shares or sell assets
to reduce debt.
Market risk
Market risk includes price risk, foreign currency risk and
interest rate risk.
(a) Price risk
Price risk arises from uncertainty about future prices of
financial investments held. The 2009 Cell invests through Fund I.
The underlying investments held by Fund I present a potential risk
of loss of capital to Fund I and hence to the 2009 Cell.
Fund I is exposed to a variety of risks which may have an impact
on the carrying value of the 2009 Cell's investment in Fund I. Fund
I's risk factors are addressed below.
-- Fund I's investments are not traded in an active market but
are still exposed to market price risk arising from uncertainties
about future values of the investments held. The underlying
investments of Fund I vary as to industry sector, level of
distress, geographic distribution of operations and size, all of
which may impact the susceptibility of the valuation to
uncertainty.
This risk is managed by an investment strategy that diversifies
the investments in terms of geography, financing stage or industry
and through careful selection of investments within the specified
limits of the investment policy. The investments are monitored on a
regular basis by the Fund I GP.
In accordance with the 2009 Cell's accounting policies the
investments in Fund I, and indirectly the investments in investee
companies through special purpose vehicles, have been valued at
fair value.
Sensitivity analysis has been undertaken. See Note 6.
-- Concentration in an investment portfolio can have opposing
effects on the portfolio. This becomes an exposure to price risk
through the fair value movement in the underlying investments.
A low number of investments in a portfolio, or high
concentration, reduces risk due to better knowledge and information
whilst a higher portfolio concentration in a certain sector of
industry, level of distress, geographic distribution of operations
or size increases sector concentration and the risk of the
portfolio.
Conversely a high number of investments and lower concentration
can reduce the credit risk of the portfolio but may limit
availability of resources and flexibility.
The level of analytical sophistication, both financial and
legal, necessary for successful investment in businesses
experiencing significant operating issues and associated financial
distress is unusually high. Accordingly Fund I has a low number of
investments and thus a high concentration. This allows sufficient
resources to be allocated to each investment.
The Fund I GP monitors the concentration of each investment in
Fund I to ensure compliance with the Fund I investment policy.
In Fund I no single investment will be more than 20 per cent. of
Fund I Total Commitments without special dispensation from the
Board.
(b) Foreign currency risk
The 2009 Cell has no direct foreign currency risk since all
assets and transactions to date have been denominated in Pound
Sterling, the 2009 Cell's functional and presentation currency.
Fund I has indirect foreign currency risk, primarily with the
Euro and US Dollar, arising from the overseas operations of the
underlying portfolio investments. The investee companies'
management monitor options for hedging against adverse exchange
rate movements. The clear majority of the transactions made by Fund
I have been denominated in Pound Sterling and accordingly the Fund
I GP does not consider foreign exchange risk to be significant at
this stage.
(c) Interest rate risk
The 2009 Cell's exposure to interest rate risk relates to the
2009 Cell's cash and cash equivalents. The 2009 Cell is subject to
risk due to fluctuations in the prevailing levels of market
interest rates. Any excess cash and cash equivalents are invested
at short-term market interest rates. As at the reporting date the
majority of the 2009 Cell's cash and cash equivalents were held on
instant access deposit.
Interest income of GBPnil (2017: GBPnil) arose from cash and
cash equivalents and has been calculated using the effective
interest rate method. There are no other gains or losses on loans
and receivables other than the interest income.
The 2009 Cell has no other interest bearing assets or
liabilities as at the reporting date. As a consequence, the 2009
Cell is only exposed to cash flow interest rate risk. The Board
does not expect any significant change in interest rates that would
have a material impact on the financial performance of the 2009
Cell in the near future.
Liquidity risk
Ultimate responsibility for liquidity risk management of the
2009 Cell rests with the Board of Directors.
Liquidity risk is defined as the risk that the 2009 Cell may not
be able to settle or meet its obligations on time or at a
reasonable price.
The 2009 Cell adopts a prudent approach to liquidity management
and through the preparation of budgets and cash flow forecasts
maintains sufficient cash reserves to meet its obligations.
During the year ended 31 March 2018, the 2009 Cell had no
liabilities other than creditors and accruals (2017: GBPnil). The
2009 Cell had sufficient cash and cash equivalents to pay these as
they fall due.
The following table details the 2009 Cell's contractual
undiscounted cash flows for its financial liabilities:
On demand 0-6 months 6+ months Total
31 March 2018 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and accruals - 62 - 62
- 62 - 62
==================================== =========== ========== ========
On demand 0-6 months 6+ months Total
31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and accruals - 73 - 73
- 73 - 73
==================================== =========== ========== ========
Credit risk
Credit risk refers to the risk that the counterparty will
default on its contractual obligations resulting in financial loss
to the 2009 Cell.
The 2009 Cell's principal financial asset is the investment in
Fund I and as a consequence the 2009 Cell has a significant credit
risk if Fund I fails.
The carrying value of the investment in Fund I as at 31 March
2018 was GBP40.1 million (2017: GBP260.1 million).
Financial assets mainly consist of cash and cash equivalents and
investments at fair value through profit or loss. Fund I's
underlying investments are dynamic in nature and Fund I aims to
maintain flexibility in funding by keeping sufficient liquidity in
cash and cash equivalents which may be invested on a temporary
basis in:
-- cash or cash equivalents, money market instruments, bonds,
commercial paper or other debt obligations with banks or other
counterparties having a "single A" or higher credit rating as
determined by any reputable rating agency selected by the Fund I
GP; and
-- any "government and public securities" as defined for the
purposes of the FCA Rules.
As at 31 March 2017, GBP2.7 million (2017: GBP1.4 million) or
5.4 per cent. (2017: 0.5 per cent.) of Fund I's financial assets
were cash balances held on deposit.
The 2009 Cell mitigates its credit risk exposure on investments
at fair value through profit or loss by the exercise of due
diligence on the counterparties of Fund I and its General Partner.
The aggregate amount deposited or invested with any single such
bank or other counterparty (including their associates) or in
government and public securities of any single issue, shall not
exceed GBP35.0 million for Fund I.
The investment objectives, policy and restrictions of Fund I are
set out in its limited partnership agreement and cannot be varied
without an amendment to the limited partnership agreement, which
would require the consent of all the partners including the 2009
Cell.
The table below shows the 2009 Cell's material cash balances and
the credit rating for the counterparties used at the year end
date:
Standard
& Poor's 31 March 31 March
Counterparty Location Rating 2018 2017
GBP'000 GBP'000
Royal Bank of Scotland
International Limited Guernsey A-2 46 59
Barclays Bank PLC Guernsey A-1 285 164
The 2009 Cell's maximum exposure to loss of capital at the year
end is shown below:
Carrying value
31 March 2018 and maximum exposure
GBP'000
Investment at fair value through profit
or loss 40,146
Loans and receivables (including cash and
cash equivalents but excluding prepayments) 331
----------------------
40,477
======================
Carrying value
31 March 2017 and maximum exposure
GBP'000
Investment at fair value through profit
or loss 260,097
Loans and receivables (including cash and
cash equivalents but excluding prepayments) 223
----------------------
260,320
======================
There are no past due or impaired receivable balances
outstanding at the year end.
10. Earnings per share and Net Asset Value per share
Earnings per share
2018 2017
Profit for the year GBP2,143,085 GBP24,036,173
Weighted average number of
2009 Shares in issue 77,554,725 206,780,952
EPS (pence) 2.76 11.62
============= ==============
The earnings per share is based on the profit for the year and
on the weighted average number of shares in issue for the year.
The 2009 Cell does not have any instruments which could dilute
basic earnings per share.
Net Asset Value per share
2018 2017
Net assets attributable to 2009 Share Shareholders GBP40,416,189 GBP260,252,277
Distributions GBP288,769,420 GBP66,790,247
--------------- ---------------
Adjusted Net Asset Value GBP329,185,609 GBP327,042,524
=============== ===============
2009 Shares in issue 35,262,505 206,780,952
NAV per share (IFRS) (pence) 114.62 125.86
--------------- ---------------
Adjusted NAV per share (pence) 159.20 158.16
=============== ===============
The Net Asset Value per share for the 2009 Cell is arrived at by
dividing the total net assets of the 2009 Cell at the year end by
the number of shares in issue at the year end.
The adjusted Net Asset Value adds back cumulative distributions
made to the 2009 Share investors to date.
The adjusted Net Asset Value per share for the 2009 Cell is
arrived at by dividing the adjusted Net Asset Value of the 2009
Cell at the year end by the number of 2009 Shares in issue at the
year end. The denominator at 31 March 2018 has been amended to add
back the shares redeemed during the period.
11. Subsequent events
There were no significant events occurring after 31 March
2018.
Better Capital 2012 Cell
Investment policy
Better Capital 2012 Cell has invested in a portfolio of
businesses which, when acquired, had significant operating issues
and associated financial distress and which have significant
activities within the United Kingdom or Ireland.
Uninvested or surplus capital or assets may be invested on a
temporary basis in cash deposits.
The 2012 Cell Investment policy is set out in the Company's
Prospectus.
General Partner's Report
Following the totally unexpected intervention preventing the
sale of the investment, the capable management team at Northern
Aerospace will (and remains motivated to) drive the business
forward. Detailed plans were in place before the recent approach
and those will now be rapidly deployed. Substantial operating
efficiencies are available.
Performance in Everest and SPOT continues to be frustrating in
spite of considerable effort. The issues facing Everest remain
largely internal and operational whereas the issues facing SPOT are
market structural.
The recent disposal of 15,870,806 2012 Shares (representing 4.99
per cent. of 2012 Shares in issue) to the Company and the
subsequent cancellation has provided an uplift to NAV of 1.83p /
3.1 per cent. per share (including distributions). The remaining
2012 Shares (representing 4.2 per cent. of the 2012 Shares in
issue) are being held as liquid assets for the foreseeable
future.
Portfolio update
A satisfactory start to the Everest FY17 financial year ended in
31 December 2017 gave way to steadily weaker operating performance,
culminating in a similar overall financial outcome to the prior
year. Audited pre-exceptional EBITDA for the year was GBP2.1
million compared with GBP2.4 million in FY16. The order intake in
FY17 should have generated a useful growth in sales but internal
processes did not allow this to happen.
Peter Mottershead (CEO) has resigned and recruitment is underway
for a replacement, pending which a strong interim has been put in
place. I have taken over the chairmanship role and new marketing
direction is being sought.
The series of initiatives put in place to drive operational
performance in FY17 were not well implemented. A review by a
management consultancy during the autumn further highlighted
weaknesses in processes, with particular emphasis on the urgent
need for greater productivity and quality in installations.
In April 2018, a plan was put in place to focus more
specifically on the root causes of the repeated underperformance of
Everest in recent years. There have been weak controls over the
movement of goods from factories to depots and onward to customers'
homes causing costs to rise. The combination of poor packaging, a
lack of consolidation of orders in the factory, and too many touch
points with goods handling imposes a high cost. Recruitment,
retention and efficient use of installers have all been issues
still not being properly addressed. This is exacerbated by computer
systems that were failing to provide manufacturing, depots,
business centres and installers with appropriate information in a
timely fashion. Redirected efforts in this area and the benefits it
can bring will have an appreciable impact on financial performance.
To achieve this, efforts have been concentrated on breaking down
silos between functions to provide a far clearer product flow. To
focus on this, other projects have been delayed or deferred,
including the introduction of a new finance system.
While operational processes are being dealt with at a much
greater pace, it is pleasing that the commercial positioning of the
business remains encouraging. Triple glazed windows have become a
good differentiating line. The work with Yale on security locks has
proved effective in generating innovative new products. The theme
of the acoustic impact of windows is expected to prove significant
in H2 FY18. The business is also very focussed on value for money
for marketing leads generated - be they through online search or
self-generated leads from sales staff.
The investment was written down to GBP20.0 million in the last
Interim Results to reflect the weak performance in FY17. Fund II
injected GBP2.5 million in January 2018 and a further GBP2.5
million in May 2018 as part of a longer term debt instrument
facility. At the time of writing, the new GBP5.0 million funding is
substantially unutilised. With an order book comfortably over GBP45
million and with the distribution initiatives now having an impact
across the business, the business expects a material improvement in
performance as the year progresses.
Everest's valuation is unchanged at GBP20.0 million using an
earnings based approach to valuation (EV/ EBITDA range: 5.5 times
to 9.3 times). Overall, market comparable multiples are broadly
unchanged once Safestyle UK plc is excluded from the peer group due
to reported underperformance (Interim EV/ EBITDA range: 5.3 times
to 8.8 times). The business had cash of GBP4.7 million at 31 March
2018 with no external funding. There are a series of performance
enhancing, market position improving initiatives to be taken which
should revive the longer-term profitability of the business.
Spicers OfficeTeam (SPOT) reported a FY17 financial year ended
31 December with audited sales of GBP269.8 million (FY16: GBP284.0
million) and audited EBITDA of GBP8.2 million (FY16: GBP8.9
million). Following a strong start to the year, performance over
the summer was affected by a slowdown in the office products market
which has continued both in the final quarter and through into the
start of FY18. In addition, in FY17 SPOT incurred a number of
non-recurring costs in executing its distribution network change
project totalling GBP2.3 million providing a pre-exceptional EBITDA
for FY17 of GBP10.5 million (FY16: GBP12.1 million).
In the face of this challenging trading environment in the
office product segment, current trading at SPOT is behind budget
with this trend particularly affecting the Spicers wholesale
business despite its strong recent contract wins. These contract
wins deliver sales growth, but have added short-term cost and
service complexity in the first quarter which is now being
resolved. Office Team, which has successfully diversified its
customer offering into new product areas, has been able to offset
this market deterioration through growth in these other categories
and is trading ahead of budget.
Strategically, SPOT is accelerating its focus on reconfiguring
its delivery network in order to position itself for lower ongoing
expected volumes in the office products market through Spicers.
This is a continuation of the programme in FY17 to deliver a
sustainably low cost infrastructure which remains capable of
delivering a responsive and efficient service to customers. The
investment in this programme will ensure that Spicers can continue
to deliver a cost effective solution both for dealers and their end
customers in a market which both pricing and supply chain costs are
increasingly under pressure. The greater centralisation of stock
will also enable more efficient utilisation of working capital
whilst continuing to provide consistently high product
availability.
These market dynamics have provided opportunities to win
customer contracts through working in partnership to reduce supply
chain duplication, most notably with the recent win as the
preferred sole supplier to Advantia, a UK office products dealer
group which commenced in February 2018. The sales focus in the
current year is to add dealers to the Alliance programme through
these partnership arrangements. In addition, Spicers will
prioritise widening its product offer to its customer base through
building supplier relationships in order to build capability in
related product markets such as facilities supplies which are
demonstrating growth.
OfficeTeam has continued to generate an improving pipeline of
new business wins, supported by strong sales relationships and a
focus on customer service. The investment in expertise in adjacent
markets (print, facilities suppliers, interiors, workwear and
managed print services (MPS)) has been critical to offset declines
in the traditional office supplies sectors, and this focus
continues for the current year with an increased sales capability
and new supplier relationships. Management priorities also include
the, later than planned, introduction of the new SmartPad
technology which will significantly enhance the customer experience
in order and account management across the breadth of the
OfficeTeam product offer. This will be particularly important for
servicing the growing online demands of both corporate and SME
customers.
In April 2018, OfficeTeam completed the acquisition of ZenOffice
Limited, a business supplies dealer with sales in FY17 of GBP15.5
million. ZenOffice has built a successful, high growth MPS business
in addition to a market position servicing SME customers, primarily
through telesales. This provides a strong fit with OfficeTeam's
small but high potential MPS business bringing a proven track
record in larger project delivery, robust infrastructure and an
experienced management team. The acquisition was funded through
SPOT's internal resources.
SPOT's subsidiary Oyez Professional Services Limited (OPS), the
legal subscription services business, performed respectably in
FY17, with 4 per cent. EBITDA growth year-on-year. OPS currently
sells into 40 per cent. of the UK's top 500 legal firms. The focus
for this year is to develop and launch new technology to enable a
cloud-based, digital solution to automate legal forms production
and submission to provide a significantly enhanced client
experience. Profitability is expected to grow in the current
year.
Net cash flow in FY17 was limited due to investment in both
working capital and expenditure on its new technology platform for
OfficeTeam, SmartPad, which will launch to customers in FY18
delivering more efficient order placement and management. There is
an important effort to reduce working capital in FY18 through the
efficient management of stock and a greater focus on OfficeTeam
debtors.
SPOT, which is 76.0 per cent. owned by Fund II, has been written
down by GBP2.5 million to GBP38.2 million during the six months to
31 March 2018 (full year reduction in carrying value of GBP9.1
million). The business has been evaluated as a sum of parts with
Spicers on an assets basis, OPS and OfficeTeam (as enlarged by its
acquisition of ZenOffice) using an earnings basis approach. Net
debt at 31 March 2018 was GBP40.6 million.
Northern Aerospace (NAL) continued to make good progress through
the FY17 financial year ended 31 December 2017 achieving unaudited
revenues and EBITDA of GBP67.0m and GBP7.0m respectively and
exceeding cash flow expectations. The start to FY18 has been
promising with EBITDA and cash flow currently outperforming budget
targets.
NAL's major customer, Airbus, continues to influence and drive
strategic direction with a clearer path now evolving. Airbus'
success in generating increased volumes has brought focus to bear
on NAL as its operational capacity, capability, know-how and
expertise are critical to its customers, positioning it well for
future decisive negotiations. As previously reported, the
business's contracts with Airbus are currently planned to cease at
the end of 2018, however it does seem likely that further
commercial activity will occur imminently in this area. There is
also currently a very strong desire from Airbus for NAL to return
to medium term 24/7 working. Discussions have obviously started on
a fresh basis post the cessation of disposal discussions.
Operational performance continues to improve at NAL with a clear
focus driven by the successful implementation of the standard
costing system. This has provided guidance as to which areas need
improvement and informed management as to the financial benefits of
improvements to be made. This in turn has enabled a more targeted
approach to negative variance reduction.
Whilst internal scrap continues to reduce, disappointing one-off
events still blight underlying improving trends. Projects such as
capital investment in tool life management and focused continuous
improvement teams are all contributing to the improvements in scrap
reduction and productivity.
The implementation of NAL's industrial plan continues with a
recent approval being given to begin construction of a new
11,000m(2) Polish manufacturing facility designed to assist with
the modernisation and development of the technology base.
Substantial investment in new equipment is also in progress. This
investment is to be funded from a combination of internal cash
generation and support from Fund II. Build completion is slated for
the end of 2018.
The warranty claim has seen a successful outcome with the
GBP10.4 million previously held in escrow now returned to C Bidco
Limited, the acquisition vehicle of CAV Aerospace Limited in
February 2018. Further discussions on final settlements on costs
are underway.
NAL's valuation (together with the GBP10.4 million proceeds of
the warranty claim and an estimate of the final settlement) is
unchanged at GBP60.0 million, being based on the expected
performance of NAL in the absence of the Gardner acquisition.
However the valuation is also supported by the expected net
proceeds receivable by Fund II should the transaction with Gardner
have completed.
Investment activities
Following the debt sale in Jaeger in March 2017, Fund II repaid
GBP8.3 million to the 2012 Cell on 5 April 2017. This facilitated a
third distribution to the 2012 Cell Shareholders, of 2.6 pence per
share on 12 May 2017.
As a secured creditor to City Link (in administration), Fund II
received total distributions of GBP0.3 million during the year
ended 31 March 2018. The estimate outcome statement at 31 March
2018 puts the total net receivable by Fund II at GBP22.8 million, a
GBP0.3 million improvement in the year (of which GBP33,000 occurred
in the six months to 31 March 2018) with GBP22.7 million already
received. A further distribution of GBP75,000 was received post
year end with the remaining estimated balance of GBP60,000
recognised as a fund receivable.
BECAP12 SPOT Limited, a special purpose vehicle owned by Fund II
in relation to the investment in SPOT, repaid GBP5.0 million in
April 2017 which represented a combination of capital and interest
payments. In December 2017 SPOT issued a further series of PIK
notes for GBP0.2 million to Fund II.
In January 2018, Fund II extended a loan of GBP2.5 million to
Everest. A further GBP2.5 million was extended as part of a long
term recapitalisation exercise in May 2018. The total invested in
Everest now stands at GBP30.4 million.
On 19 June 2018, Fund II disposed of 15,870,806 2012 Shares
under the terms of the Buyback Contract entered into in December
2016 to the Company. The shares were transacted at a consideration
of 29.693pence per share (totalling GBP4.7 million) reflecting the
VWAPof the 2012 Shares on the preceding business day. The newly
acquired shares were immediately cancelled by the Company, reducing
the 2012 Shares in issue from 318,052,242 to 302,181,436. Following
the Shares Buyback, Fund II held as an investment 12,677,471 2012
Shares, some 4.2 per cent. of the remaining 2012 Shares in
issue.
Valuation
The investment portfolio value has reduced by GBP28.1 million in
the year to 31 March 2018 (GBP5.3 million since the Interim
Results). The movement in the investment portfolio is summarised as
follows:
GBP'm
Portfolio value at 1 April 2017 153.2
Additions at cost - follow on investments 4.5
Return of cash from loan repayments (4.6)
NAV movement - portfolio companies (27.0)
126.1
NAV movement - 2012 Shares (1.0)
-------
Portfolio value at 31 March 2018 125.1
-------
The decline in the portfolio value during the year was due to
significant write downs in Everest (GBP20.5 million) and to a
lesser extent in SPOT (GBP4.5 million) and the 2012 Shares (GBP1.0
million).
Management fees
During the financial year the Fund II GP granted a GBP1.0
million rebate against the management fee due. Fees at 1.5 per
cent. of the carrying value of the remaining portfolio companies
are sufficient to support operations for the remaining portfolio
and structure.
Cash and closing remarks
On 11 July 2018, Fund II had cash of GBP3.1 million. Remaining
cash will be deployed on an as required basis to support the three
remaining portfolio companies and to support Fund II's
operations.
It is anticipated that the proceeds from the NAL warranty claim
will be substantially applied to develop Northern Aerospace's
Polish plant to further improve profits.
No part of this portfolio is in both a strong and stable
position. NAL is unrecognisable from 3 years ago and could still
generate further upside. SPOT is stable and working towards a
better future.
Everest still needs massive improvement. Managerial change,
coupled with increased energy and pace should make a big difference
by the end of 2018.
Jon Moulton
Chairman
BECAP12 GP Limited
12 July 2018
Investment Report of Fund II
Everest
Business description
A leading consumer brand in the manufacture, installation and
supply of uPVC and aluminium windows and doors, conservatories,
garage doors, security systems, driveways and other home
improvement products (www.everest.co.uk)
Fund II Investment details
31 March 30 September 31 March
GBP'm 2018 2017 2017
Total invested 27.9 25.4 25.4
Total committed 27.9 25.4 25.4
Fund II fair value (earnings
based) 20.0 20.0 38.0
SPOT
Business description
Spicers is a leading office products and stationery wholesaler
(www.spicers.co.uk)
OfficeTeam is a leading office products and services supplier
(www.officeteam.co.uk)
Fund II Investment details
31 March 30 September 31 March
GBP'm 2018 2017 2017
Total invested 91.6 91.6 96.2
Total committed 91.6 91.6 96.2
Fund II fair value (earnings
and assets basis) 38.2 40.7 47.3
Northern Aerospace
Business description
A leading European aerospace manufacturer of complex metallic
components and sub-assemblies to major original equipment
manufacturers (www.northernaerospace.com)
Fund II Investment details
31 March 30 September 31 March
GBP'm 2018 2017 2017
Total invested 66.9 66.9 64.9
Total committed 66.9 66.9 64.9
Fund II fair value (earnings
based) 60.0 60.0 60.0
Portfolio summary and reconciliation
31 March 2018 Sector Fund Project Fund fair value Valuation Valuation
cost(1) investment in percentage of methodology
GBPm SPVs(2) NAV
GBPm
Home Improvement
Everest Products 27.9 20.0 14.5% Earnings
Earnings and
SPOT Office Products 91.6 38.2 27.7% Assets
Northern Aerospace
Aerospace Manufacturing 66.9 60.0 43.4% Earnings
Private Equity
Better Capital Investment
2012 Cell Vehicle 11.1 6.9 5.0% Market Value
197.5 125.1 90.6%
------------------- ----------------- ----------------- ----------------- ------------------
Fund II cash on deposit 6.8 4.9%
Fund II & SPV combined other net assets attributable to
2012 Cell 5.4 3.8%
2012 Cell fair value of investment in Fund II 137.3 99.3%
---------------------------------------------------------- ----------------- ----------------- ------------------
2012 Cell cash on deposit 0.1 0.1%
2012 Cell current assets less liabilities 0.7 0.6%
---------------------------------------------------------- ----------------- ----------------- ------------------
2012 Cell NAV 138.1 100.0%
------------------- ------------------ ----------------- ----------------- ----------------- ------------------
Cumulative
distributions 48.4
------------------- ------------------ ----------------- ----------------- ----------------- ------------------
2012 Cell adjusted
NAV 186.5
------------------- ------------------ ----------------- ----------------- ----------------- ------------------
Summary income statement for Fund II
2018 2017
GBP'000 GBP'000
----------------------------------------- --------- ---------
Total income 95 204
Loss on Fund II investment portfolio (24,279) (25,614)
Fund II GP's Share (951) (3,291)
Other operating expenses (227) (1,419)
Fund II's operating loss for the year (25,362) (30,120)
------------------------------------------ --------- ---------
Portion of the operating loss for the
year for 2012 Cell's investment in the
limited partnership (Note 4) (25,362) (30,120)
------------------------------------------- --------- ---------
(1) Fund II holds its investments at cost in accordance with the
terms of the limited partnership agreement.
(2) The 2012 Cell fair values its investments in Fund II in
accordance with the methodologies as set out in Note 6.
Cash Management
As at 31 March 2018, Fund II had placed a total of GBP6.8
million (2017: GBP15.2 million) of cash on deposit with one bank
(2017: three banks). Fund II has in place a strict cash management
policy that limits counterparty risks whilst simultaneously seeking
to maximise returns.
Standard
& Poor's 31 March 31 March
Counterparty Location Rating Term 2018 2017
GBP'000 GBP'000
Instant
Barclays Bank Plc Guernsey A-1 access 6,794 8,423
Royal Bank of Scotland Instant
International Limited Guernsey A-2 access - 9
Lloyds Bank International Instant
Ltd Jersey A-2 access - 6,732
INDEPENT AUDITOR'S REPORT TO THE DIRECTORS OF
BETTER CAPITAL PCC LIMITED IN RESPECT OF THE 2012 CELL
We have audited the supplementary financial statements of the
2012 Cell (the "Cell"), a cell of Better Capital PCC Limited (the
"Company") for the year ended 31 March 2018 which comprise the
Statement of Financial Position, the Statement of Comprehensive
Income, the Statement of Changes in Equity, the Statement of Cash
Flows and the related notes 1 to 11. The financial reporting
framework that has been applied in their preparation is
International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
This report is made solely to the directors of the Company, as a
body, in accordance with our engagement letter dated 13 February
2017. Our audit work is undertaken so that we might state to the
directors of the Company 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 directors of the Company as
a body, for our audit work, for this report, or for the opinions we
have formed.
Respective responsibilities of the directors and auditor
As explained more fully in the Directors' Responsibilities
Statement within the Report of the Directors, the directors of the
Company are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair
view.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with International Standards on
Auditing (UK and Ireland). Those standards require us to comply
with the Financial Reporting Council's Ethical Standard for
Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Cell's circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the directors of the Company; and the
overall presentation of the financial statements. In addition, we
read all the financial and non--financial information in the Annual
Report to identify material inconsistencies with the audited
financial statements and to identify any information that is
apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent
misstatements or inconsistencies we consider the implications for
our report.
Opinion on the financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Cell's affairs
as at 31 March 2018 and of its loss for the year then ended;
and
-- have been properly prepared in accordance with IFRSs as adopted by the European Union.
BDO Limited
Chartered Accountants
Place du Pré
Rue du Pré
St Peter Port
Guernsey
12 July 2018
Statement of Financial Position
As at 31 March 2018
2018 2017
GBP'000 GBP'000
Notes
ASSETS:
Non-current assets
Investment in limited partnership 4 137,206 170,243
------------
Total non-current assets 137,206 170,243
------------ ------------
Current assets
Trade and other receivables 5 853 1,606
Cash and cash equivalents 112 531
------------
Total current assets 965 2,137
------------ ------------
TOTAL ASSETS 138,171 172,380
------------ ------------
LIABILITIES:
Current liabilities
Trade and other payables (113) (75)
------------
Total current liabilities (113) (75)
------------ ------------
TOTAL LIABILITIES (113) (75)
------------ ------------
NET ASSETS 138,058 172,305
============ ============
EQUITY
Share capital 7 288,950 297,220
Retained earnings (150,892) (124,915)
------------
TOTAL EQUITY 138,058 172,305
============ ============
Number of 2012 Shares in issue
at year end 7 318,052,242 318,052,242
============ ============
NAV per 2012 Share (pence) 10 43.41 54.17
============ ============
Adjusted NAV per 2012 Share
(pence) 10 58.61 66.78
============ ============
The audited financial statements of the 2012 Cell were approved
and authorised for issue by the Board of Directors on 12 July 2018
and signed on its behalf by:
Richard Crowder Jon Moulton
Chairman Director
The notes below form an integral part of the 2012 Cell's
financial statements.
Statement of Comprehensive Income
For the year ended 31 March 2018
2018 2017
Notes GBP'000 GBP'000
Income
Change in fair value of investments
in limited partnership 4 (25,362) (30,120)
Interest income - 4
---------
Total expense (25,362) (30,116)
--------- ---------
Expenses
Administration fees 172 133
Directors' fees and expenses 8 197 122
Legal and professional fees 95 144
Other fees and expenses 51 52
Audit fees 53 36
Insurance premiums 22 13
Registrar fees 25 30
---------
Total expense 615 530
--------- ---------
Loss and total comprehensive expense
for the year (25,977) (30,646)
========= =========
Basic and diluted earnings per
2012 Share (pence) 10 (8.17) (9.05)
========= =========
The notes below form an integral part of the 2012 Cell's
financial statements.
Statement of Changes in Equity
For the year ended 31 March 2018
Share Retained Total
capital earnings Equity
Notes GBP'000 GBP'000 GBP'000
As at 1 April 2017 297,220 (124,915) 172,305
Loss and total comprehensive expense for the financial year - (25,977) (25,977)
Total comprehensive expense for the year - (25,977) (25,977)
-------- ---------- ---------
Transactions with owners
Distributions 7 (8,270) - (8,270)
Total transactions with owners (8,270) - (8,270)
-------- ---------- ---------
As at 31 March 2018 288,950 (150,892) 138,058
======== ========== =========
Share Retained Total
capital earnings Equity
Notes GBP'000 GBP'000 GBP'000
As at 1 April 2016 341,848 (94,269) 247,579
Loss and total comprehensive expense for the financial year - (30,646) (30,646)
Total comprehensive expense for the year - (30,646) (30,646)
--------- ---------- ---------
Transactions with owners
Distributions 7 (34,032) - (34,032)
Share buyback and cancellation 7 (10,596) - (10,596)
--------- ---------- ---------
Total transactions with owners (44,628) - (44,628)
--------- ---------- ---------
As at 31 March 2017 297,220 (124,915) 172,305
========= ========== =========
Any surplus/deficit arising from the profit/loss for a period is
taken to retained earnings which may be utilised for payment of
dividends or distributions.
The notes below form an integral part of the 2012 Cell's
financial statements.
Statement of Cash Flows
For the year ended 31 March 2018
2018 2017
GBP'000 GBP'000
Cash flows from operating activities
Loss for the financial year (25,977) (30,646)
Adjustments for:
Change in fair value of investments
in limited partnership 25,362 30,120
Movement in debtors and prepayments 753 1
Movement in creditors and accruals 38 (37)
Repayment of loan investment in
limited partnership 7,675 33,000
---------
Net cash generated from operating
activities 7,851 32,438
--------- ---------
Cash flow generated from financing
activities
Distributions (8,270) (34,032)
---------
Net cash used in financing activities (8,270) (34,032)
--------- ---------
Net movement in cash and cash equivalents
during the year (419) (1,594)
Cash and cash equivalents at the
beginning of the year 531 2,125
Cash and cash equivalents at the
end of the year 112 531
========= =========
The notes below form an integral part of the 2012 Cell's
financial statements.
Notes to the Audited Financial Statements
For the year ended 31 March 2018
1. General information
The 2012 Cell is a cell of Better Capital PCC Limited and has
the investment objective of generating attractive total returns
from investing (through Fund II) in a portfolio of businesses which
have significant operating issues and may have associated financial
distress, with a primary focus on businesses which have significant
activities within the United Kingdom and Ireland. Such returns are
expected to be largely derived from capital growth.
Fund II is managed by its general partner, BECAP12 GP LP, which
is in turn managed by its general partner BECAP12 GP Limited. Such
arrangements are governed under the respective Limited Partnership
Agreement, as amended.
The 2012 Cell is listed on the LSE Main Market.
2. Accounting policies
Basis of preparation
The 2012 Cell financial statements for the year ended 31 March
2018 have been prepared in accordance with EU Adopted IFRS.
The principal accounting policies adopted are set out in the
Company's accounting policies above.
Going concern
After making appropriate enquiries, the Directors have a
reasonable expectation that the 2012 Cell, and in turn Fund II,
have adequate resources to continue in operational existence for
the foreseeable future and do not consider there to be any threat
to the going concern status of the 2012 Cell. For this reason, they
continue to adopt the going concern basis in preparing these
financial statements.
Critical accounting judgment and estimation uncertainty
Use of estimates and judgements
The preparation of financial statements requires management to
make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of
assets, liabilities, income and expenses.
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The areas involving a high degree of judgement or complexity or
areas where assumptions and estimates are significant to the
financial statements are disclosed below. Revisions to accounting
estimates are recognised in the period in which the estimate is
revised and in any future periods affected.
The resulting accounting estimates will, by definition, seldom
equate to the related actual results.
Investment in Fund II
The value of the 2012 Cell's investment in Fund II is based on
the value of the 2012 Cell's limited partner capital and loan
accounts within Fund II. This is based on the components within
Fund II, principally the value of the underlying investee
companies. Any fluctuation in the value of the underlying investee
companies will directly impact on the value of the 2012 Cell's
investment in Fund II.
When valuing the underlying investee companies, the General
Partner of Fund II reviews information provided by the underlying
investee companies and other business partners and applies IPEV
methodologies, as noted above, to estimate a fair value as at the
date of the Statement of Financial Position. The variety of
valuation bases adopted, quality of management information provided
by the underlying investee companies and the lack of liquid markets
for the investments mean that there are inherent difficulties in
determining the fair value of these investments that cannot be
eliminated. Therefore the amounts realised on the disposal of
investments may differ from the fair values reflected in these
financial statements and the differences may be significant.
Further information in relation to the valuation of the
investment in Fund II is disclosed in Notes 4 and 6.
3. Segmental reporting
For management purposes, the 2012 Cell is organised into one
operating segment, which invests in one limited partnership.
4. Investment in limited partnership
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1 April
2017 297,728 17 297,745
Repayment of loan investment
in limited partnership (7,675) - (7,675)
Carried forward 290,053 17 290,070
---------- -------- ----------
Fair value adjustment through
profit or loss
Brought forward (127,502) - (127,502)
Unrealised fair value movement
during the year (25,362) - (25,362)
Carried forward (152,864) - (152,864)
---------- -------- ----------
Fair value as at 31 March 2018 137,189 17 137,206
========== ======== ==========
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1 April
2016 341,325 17 341,342
Repayment of loan investment
in limited partnership (43,597) - (43,597)
Carried forward 297,728 17 297,745
---------- -------- ----------
Fair value adjustment through
profit or loss
Brought forward (97,382) - (97,382)
Unrealised fair value movement
during the year (30,120) - (30,120)
Carried forward (127,502) - (127,502)
---------- -------- ----------
Fair value as at 31 March 2017 170,226 17 170,243
========== ======== ==========
The movement in fair value of the Fund II investment is derived
from the fair value decrease in the 2012 Cell Shares, Everest and
SPOT, net of income and expenses of Fund II and its related special
purpose vehicles.
The outstanding loans do not incur interest. The loans are
expected to be repaid by way of distributions from Fund II. The
2012 Cell is not entitled to demand repayment of the outstanding
loans, however, the General Partner may, upon request by the
Company, repay to the 2012 Cell any amount of the Cell's
outstanding loan. During the year GBP7.7 million (2017: GBP43.6
million) was repaid to the 2012 Cell by Fund II.
Income distributions receivable from Fund II in the year
amounted to GBPnil (2017: GBPnil). At 31 March 2018 an aggregate
GBP0.8 million (2017: GBP1.6 million) remained outstanding.
In the financial statements of the 2012 Cell the fair value of
the investment in limited partnership is adjusted to reflect the
fair value of the 2012 Cell's attributable valuation of net assets
within Fund II, as seen in more detail in Note 6.
5. Trade and other receivables
2018 2017
GBP'000 GBP'000
Debtors 837 1,600
Prepayments 16 6
-------- --------
853 1,606
======== ========
There are no past due or impaired receivable balances
outstanding at the year end. The Directors consider that the
carrying value of debtors and prepayments approximates their fair
value.
In outstanding debtors at the year end GBP0.8 million (2017:
GBP1.6 million) relates to income distributions receivable from
Fund II. At the period end there is also an amount of GBP37,000 due
from the 2009 Cell to the 2012 Cell.
6. Fair value
The level in the fair value hierarchy within which the financial
assets or financial liabilities are categorised is determined on
the basis of the lowest level input that is significant to the fair
value measurement. The fair value hierarchy and further information
on valuation techniques can be found in Note 6 in the Company
financial statements.
Fund II's Level 1 investment consists of 28.5 million shares in
the 2012 Cell, which are valued at GBP6.9 million based on their 31
March 2018 quoted closing price.
The following table summarises the valuation methodologies and
inputs used for the 2012 Cell's Level 3 investments as at year
end:
Valuation Description Input Adjustments Discount Rate Discounted Value of
Methodology Applied Multiples portfolio valued
to Multiples on this basis
(GBP'm)
------------------
31 31 March
March 2017
2018
Most commonly
used Private
Equity
valuation
methodology.
Used for
investments
which
are profitable Multiples are
and for which applied to EBITDA Multiples
a set of listed the earnings A discount is 6.3 times to
companies of the Relevant applied 6.5
and precedent investee provisions to earnings times EBITDA
transactions company to may be multiples (31
with similar determine deducted at 20 per cent. March 2017: 6.0
characteristics the from the to 36 per cent. times to 8.0
can be enterprise multiple (31 March 2017: times
Multiple determined. value valuation 20 per cent.) EBITDA) 80.0 85.3
-------------
31 March Earnings
2018 Reported
Everest earnings
Northern adjusted for
Aerospace non-recurring
items, such as
restructuring
expenses, for
significant
corporate
actions and,
in exceptional
cases,
run-rate
adjustments to
arrive at
maintainable
earnings. Most
common
measure is
EBITDA
(Everest,
Northern
Aerospace).
Other earnings
such
as revenue may
also be used
where
relevant.
Further
information in
relation to
the
application of
earnings
can be found
in the Fund II
GP report
above
-------------
31 March Discounts to the Multiples The
2017 valuation earnings
Everest generated by multiple
SPOT applying is derived
multiples from
to reflect the comparable
time and costs listed
of reaching companies
sustainable (Everest,
profitability Northern
and the Aerospace).
inevitable The Fund II GP
accompanying typically
uncertainties selects
businesses in
the same
industry
and, where
possible, with
a similar
business model
and profile in
terms
of size,
products,
services and
customers,
growth rates
and geographic
focus and
adjust for
changes in
the relative
performance in
the
set of
comparables
Values of
separate For elements
elements valued
prepared under using earnings
other methods, multiples
as deemed derived For elements
suitable by the from market valued
Fund II GP, transactions, based on their
such as net a discount of earnings,
realisable As 20 EBITDA
value and determined per cent. is multiples range
earnings and on a case applied from 6.6 to 8.0
assets Earnings and by (31 March 2017: (31 March 2017:
Other basis assets (SPOT) case basis 20 per cent.). 6.6 times). 38.2 60.2
----------------- --------------- ------------- ----------------- ----------------- ------ ----------
31 March 2018
SPOT
------ ----------
31 March 2017
City Link
Jaeger
Northern Aerospace
------ ----------
Level 3 Portfolio valuation 118.2 145.5
Level 1 Portfolio valuation 6.9 7.9
Other net assets 12.1 16.8
------ ----------
2012 Cell fair value of investments in Fund II 137.2 170.2
This approach requires the use of assumptions about certain
unobservable inputs. Significant unobservable inputs as at 31 March
2018 are:
- Multiples used to derive enterprise value; and
- Discount factors.
A reasonably possible change in the multiples used of +/- 10 per
cent. would result in:
- An increase in carrying value of GBP10.5 million or 8.4 per cent. (+10 per cent.)
- A decrease in the carrying value of GBP10.5 million or 8.4 per cent. (-10 per cent.)
A reasonably possible change in the discount factors used would
be to completely remove the discount factor or to double the
discount factor. This would result in:
- An increase in the carrying value of GBP40.3 million or 32.2 per cent. (-100 per cent.)
- A decrease in carrying value of GBP33.7 million or 26.9 per cent. (+100 per cent.)
The Fund II GP approves the valuations performed with input from
any external consultant as appointed by the GPs and monitors the
range of reasonably possible changes in significant observable
inputs on a regular basis.
7. Share capital
Share capital for the 2012 Cell is detailed in the relevant
column in Note 7 of the Company's financial statements.
The three cumulative distributions (reductions of share capital)
announced to date for the 2012 Cell totalled GBP48.4 million, being
13.6 per cent. of funds raised.
8. Related party transactions
Further information on related party transactions can be found
in Note 8 in the Company financial statements.
Directors' fees and expenses, incurred by the 2012 Cell, for the
year to 31 March 2018 amounted to GBP197,000 (2017: GBP122,000).
The Directors' fees and expenses were apportioned equally between
the Cells up to 30 September 2013, thereafter fees were split on a
NAV basis. GBP49,000 (2017: GBP30,000) remained outstanding at the
year end.
9. Financial risk management
Financial risk management objectives
The 2012 Cell's investing activities, through Fund II and its
special purpose vehicles, intentionally expose it to various types
of risk that are associated with the investee companies in which
Fund II invests in order to generate returns in accordance with its
investment policy and objectives. The financial risks to which the
2012 Cell is exposed are market risk, liquidity risk and credit
risk. The Board of Directors has overall responsibility for the
determination of the 2012 Cell's risk management and sets policy to
manage that risk at an acceptable level to achieve those
objectives. The policy and process for measuring and mitigating
each of the main risks are described below.
The Corporate Broker and the Administrator provide information
to the 2012 Cell which allows it to monitor and manage financial
risks relating to its operations through internal risk reports
which analyse exposures by degree and magnitude of risks. The
Corporate Broker and the Administrator report to the Board on a
quarterly basis.
Due to the nature of the loan investments, being non-recourse,
the loans have the same characteristics as the capital invested
into Fund II. As a result for the purposes of the following
disclosure both the capital and loan investments have been
considered as one combined investment which is fair valued. Any
default/credit risk is taken into account when fair valuing the
investments.
Categories of financial instruments
2018 2017
GBP'000 GBP'000
Financial assets
Investment at fair value through profit
or loss:
Investment in limited partnership 137,206 170,243
Loans and receivables:
Debtors (excluding prepayments) 837 1,600
Cash and cash equivalents 112 531
Financial liabilities
Financial liabilities measured at amortised
cost:
Creditors and accruals 113 75
The Directors consider that the carrying values of cash and cash
equivalents, creditors and accruals and debtors approximate their
fair value.
Capital risk management
The 2012 Cell's objectives when managing capital are to
safeguard the 2012 Cell's ability to continue as a going concern in
order to provide returns for Shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to reduce
the cost of capital.
In order to maintain or adjust the capital structure, the 2012
Cell may: return capital to Shareholders, adjust the amount of
distributions paid to Shareholders, issue new shares or sell assets
to reduce debt.
Market risk
Market risk includes price risk, foreign currency risk and
interest rate risk.
(a) Price risk
Price risk arises from uncertainty about future prices of
financial investments held. The 2012 Cell invests through Fund II.
The underlying investments held by Fund II present a potential risk
of loss of capital to Fund II and hence to the 2012 Cell.
Fund II is exposed to a variety of risks which may have an
impact on the carrying value of the 2012 Cell's investment in Fund
II. Fund II's risk factors are addressed below.
-- Other than the investment in the 2012 Cell's shares, Fund
II's investments are not traded in an active market but are still
exposed to market price risk arising from uncertainties about
future values of the investments held. The underlying investments
of Fund II vary as to industry sector, level of distress,
geographic distribution of operations and size, all of which may
impact the susceptibility of the valuation to uncertainty.
This risk is managed by an investment strategy that diversifies
the investments in terms of geography, financing stage or industry
and through careful selection of investments within the specified
limits of the investment policy. The investments are monitored on a
regular basis by the Fund II GP.
In accordance with the 2012 Cell's accounting policies the
investments in Fund II, and indirectly the investments in investee
companies through special purpose vehicles, have been valued at
fair value.
Sensitivity analysis has been undertaken in respect of those
investment valuations applying earnings multiples. See Note 6.
-- Concentration in an investment portfolio can have opposing
effects on the portfolio. This becomes an exposure to price risk
through the fair value movement in the underlying investments.
A low number of investments in a portfolio, or high
concentration, reduces risk due to better knowledge and information
whilst a higher portfolio concentration in a certain sector of
industry, level of distress, geographic distribution of operations
or size increases sector concentration and the risk of the
portfolio.
Conversely a high number of investments and lower concentration
can reduce the credit risk of the portfolio but may limit
availability of resources and flexibility.
The level of analytical sophistication, both financial and
legal, necessary for successful investment in businesses
experiencing significant operating issues and associated financial
distress is unusually high. Accordingly Fund II has a low number of
investments and thus a high concentration. This allows sufficient
resources to be allocated to each investment.
The Fund II GP monitors the concentration of each investment in
Fund II to ensure compliance with the Fund II investment
policy.
In Fund II no single investment will be more than 30 per cent.
of Fund II Total Commitments.
(b) Foreign currency risk
The 2012 Cell has no direct foreign currency risk since all
assets and transactions to date have been denominated in Pound
Sterling, the 2012 Cell's functional and presentation currency.
Fund II has indirect foreign currency risk, primarily with the
Euro, arising from the overseas operations of the underlying
portfolio investments. The investee companies' management monitor
options for hedging against adverse exchange rate movements. The
clear majority of the transactions made by Fund II have been
denominated in Pound Sterling and accordingly the Fund II GP does
not consider foreign exchange risk to be significant at this
stage.
(c) Interest rate risk
The 2012 Cell's exposure to interest rate risk relates to the
2012 Cell's cash and cash equivalents. The 2012 Cell is subject to
risk due to fluctuations in the prevailing levels of market
interest rates. Any excess cash and cash equivalents are invested
at short-term market interest rates. As at the reporting date the
majority of the 2012 Cell's cash and cash equivalents was held on
instant access deposit.
Interest income of GBPnil (2017: GBP4,000) arose from cash and
cash equivalents and has been calculated using the effective
interest rate method. There are no other gains or losses on loans
and receivables other than the interest income.
The 2012 Cell has no other interest bearing assets or
liabilities as at the reporting date. As a consequence, the 2012
Cell is only exposed to cash flow interest rate risk. The Board
does not expect any significant change in interest rates that would
have a material impact on the financial performance of the 2012
Cell in the near future.
Liquidity risk
Ultimate responsibility for liquidity risk management of the
2012 Cell rests with the Board of Directors.
Liquidity risk is defined as the risk that the 2012 Cell may not
be able to settle or meet its obligations on time or at a
reasonable price.
The 2012 Cell adopts a prudent approach to liquidity management
and through the preparation of budgets and cash flow forecasts
maintains sufficient cash reserves to meet its obligations.
During the year ended 31 March 2018, the 2012 Cell had no
liabilities other than creditors and accruals (2017: GBPnil). The
2012 Cell had sufficient cash and cash equivalents to pay these as
they fall due.
The following table details the 2012 Cell's contractual
undiscounted cash flows for its financial liabilities:
On demand 0-6 months 6+ months Total
31 March 2018 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and accruals - 113 - 113
- 113 - 113
==================================== =========== ========== ========
On demand 0-6 months 6+ months Total
31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and accruals - 75 - 75
- 75 - 75
==================================== =========== ========== ========
Credit risk
Credit risk refers to the risk that the counterparty will
default on its contractual obligations resulting in financial loss
to the 2012 Cell.
The 2012 Cell's principal financial asset is the investment in
Fund II and as a consequence the 2012 Cell has a significant credit
risk if Fund II fails.
The carrying value of the investment in Fund II as at 31 March
2018 was GBP137.2 million (2017: GBP170.2 million).
Financial assets mainly consist of cash and cash equivalents and
investments at fair value through profit or loss. Fund II's
underlying investments are dynamic in nature and Fund II aims to
maintain flexibility in funding by keeping sufficient liquidity in
cash and cash equivalents. Uninvested or surplus capital or assets
may be invested on a temporary basis in cash deposits or other high
interest accounts.
As at 31 March 2018, GBP6.8 million (2017: GBP15.2 million) or
5.0 per cent. (2017: 9.1 per cent.) of the Fund II's financial
assets were cash balances held on deposit.
The 2012 Cell mitigates its credit risk exposure on investments
at fair value through profit or loss by the exercise of due
diligence on the counterparties of Fund II and its General Partner.
The investment risk is managed by an investment strategy that
diversifies the investments in terms of financing stage, industry
or time. The aggregate amount deposited or invested with any single
such bank or other counterparty (including their associates) or in
government and public securities of any single issue, shall not
exceed GBP50.0 million for Fund II.
The investment objectives, policy and restrictions of Fund II
are set out in its limited partnership agreement and cannot be
varied without an amendment to the limited partnership agreement,
which would require the consent of all the Partners including the
2012 Cell.
The table below shows the 2012 Cell's material cash balances and
the credit rating for the counterparties used at the year end
date:
Standard
& Poor's 31 March 31 March
Counterparty Location Rating 2018 2017
GBP'000 GBP'000
Royal Bank of Scotland
International Limited Guernsey A-2 107 59
Lloyds Bank International
Limited Jersey A-2 - 472
Barclays Bank Plc Guernsey A-1 5 -
The 2012 Cell's maximum exposure to loss of capital at the year
end is shown below:
Carrying value
31 March 2018 and maximum exposure
GBP'000
Investment at fair value through profit
or loss 137,206
Loans and receivables (including cash and
cash equivalents but excluding prepayments) 949
---------------------
138,155
=====================
Carrying value
31 March 2017 and maximum exposure
GBP'000
Investment at fair value through profit
or loss 170,243
Loans and receivables (including cash and
cash equivalents but excluding prepayments) 2,131
----------------------
172,374
======================
There are no past due or impaired receivable balances
outstanding at the year end.
10. Earnings per share and net asset value per share
Earnings per share
2018 2017
Loss for the year GBP(25,976,828) GBP(30,645,610)
Weighted average number of 2012
Shares in issue 318,052,242 338,779,074
EPS (pence) (8.17) (9.05)
The earnings per share is based on the loss for the year and on
the weighted average number of shares in issue for the year.
The 2012 Cell does not have any instruments which could dilute
basic earnings per share.
Net asset value per share
2018 2017
Net assets attributable to 2012 Share Shareholders GBP138,057,867 GBP172,304,053
Distributions GBP48,366,457 GBP40,097,099
--------------- ---------------
Adjusted Net Asset Value GBP186,424,324 GBP212,401,152
=============== ===============
2012 Shares in issue 318,052,242 318,052,242
NAV per share (IFRS) (pence) 43.41 54.17
--------------- ---------------
Adjusted NAV per share (pence) 58.61 66.78
=============== ===============
The Net Asset Value per share for the 2012 Cell is arrived at by
dividing the total net assets of the 2012 Cell at the year end by
the number of 2012 shares in issue at the year end.
The adjusted Net Asset Value adds back cumulative distributions
made to the 2012 Share investors to date.
The adjusted Net Asset Value per share for the 2012 Cell is
arrived at by dividing the adjusted Net Asset Value of the 2012
Cell at the year end by the number of 2012 Shares in issue at the
year end.
11. Subsequent events
Fund II invested a further GBP2.5 million short term funding in
Everest during May 2018 to fund short term working capital.
On 8 June 2018, Fund II notified the Company that it had entered
into negotiations to sell Northern Aerospace to Gardner, formerly
held as an investment by Fund I. On 17 June 2018 the Competition
and Markets Authority issued an Initial Enforcement Order,
prohibiting the disposal. It did not prove possible to obtain a
derogation permitting the transaction to proceed by the agreed
completion date, and so this disposal has not taken place.
On 19 June 2018, the 2012 Cell announced the acquisition of
15,870,806 2012 Shares from Fund II under the terms of the buyback
contract entered into between the Company and Fund II in December
2016 (the "Shares Buyback"). The 2012 Shares were purchased at
29.693 pence per share, being the VWAP of the 2012 Shares on the
preceding business day.
Following the Shares Buyback, the Company immediately cancelled
all the 2012 Shares acquired, reducing the number of 2012 Shares in
issue from 318,052,242 to 302,181,436. The pro forma impact of the
Shares Buyback and subsequent cancellation is to provide an uplift
to the 2012 adjusted NAV per share at 31 March 2018 of 3.1 per
cent.
On 20 June 2018, Fund II received proceeds of GBP75,000 from the
City Link administration.
On 28 June 2018, Fund II repaid GBP0.3 million of the
outstanding loan from the 2012 Cell to enable the cell to fund its
working capital for the foreseeable future.
Other than the above, there were no significant events occurring
after 31 March 2018.
Defined Terms
"2009 Cell" or "Better the Cell in the Company established following
Capital 2009 Cell" conversion which holds partnership interest
in Fund I, and is interpreted as the Company
acting in its capacity as a protected cell
company transacting its business in the name
of the 2009 Cell;
"2009 Shares" the ordinary shares of GBP1 par value in the
2009 Cell being, prior to Conversion, the
Shares;
"2012 Cell" or "Better the Cell in the Company established following
Capital 2012 Cell" the Conversion which holds partnership interests
in Fund II, and is interpreted as the Company
acting in its capacity as a protected cell
company transacting its business in the name
of the 2012 Cell;
"2012 Shares" the ordinary shares of GBP1 par value in the
2012 Cell issued by the Company pursuant to
the Firm Placing and Placing and Open Offer;
"Administrator" or "Estera" means Estera International Fund Managers (Guernsey)
or "EIFG" Limited (formerly known as Heritage International
Fund Managers Limited);
"AIC" the Association of Investment Companies;
"AIC Code" the AIC Code of Corporate Governance dated
July 2016;
"AIC Guide" the AIC Corporate Governance Guide for Investment
Companies dated July 2016;
"AIFMD" the Alternative Investment Fund Managers Directive;
"AIM" the AIM Market, a market operated by the London
Stock Exchange;
"Annual General Meeting" the general meeting of the Company;
or "AGM"
"Annual Report" the Annual Report and Audited Financial Statements;
"Carried Interest" the Special Limited Partner's entitlement
to participate in the gains and profits of
Fund I or Fund II, as set out in the relevant
partnership agreement;
"Cells" the 2009 Cell and 2012 Cell together;
"Cell Shares" the 2009 Shares and 2012 Shares together;
means City Link Limited;
"City Link"
"Companies Law" the Companies (Guernsey) Law, 2008;
"Company" or "Better Capital Better Capital Limited, being prior to the
PCC Limited" Conversion, a non-cellular company limited
by shares and being upon and after the Conversion
a protected cell company, in each case incorporated
in Guernsey with registered number 51194 whose
registered office is at Heritage Hall, PO
Box 225, Le Marchant Street, St Peter Port,
Guernsey GY1 4HY;
"Company's Articles" means the Company's Articles of Incorporation;
"Consultant" means Better Capital LLP;
"Conversion" the conversion of the Company from a non-cellular
company into a protected cell company pursuant
to the Resolutions in accordance with section
46 of the Companies Law;
"Core" the Company excluding its Cells;
"Core Shares" the shares in the Core;
"Corporate Broker" being Numis Securities Limited;
"Directors" or "Board" the directors of the Company as at the date
of this document and "Director" means any
one of them;
Disclosure and Transparency Rules of the UK's
"DTR" FCA;
"EBITDA" being earnings before interest, tax, depreciation
and amortisation;
"EU" or "European Union" the European Union first established by the
treaty made at Maastricht on 7 February 1992;
"EU Adopted IFRS" International Financial Reporting Standards
as adopted in the EU;
"Everest" means the Everest group of companies;
means the Fairline group of companies;
"Fairline"
"FATCA" the Foreign Account Tax Compliance Act;
"FCA" the Financial Conduct Authority;
"FCA Rules" the rules or regulations issued or promulgated
by the FCA from time to time and for the time
being in force (as varied by any waiver or
modification granted, or guidance given, by
the FCA);
"FRC" the Financial Reporting Council;
"Funds" both Fund I and Fund II together;
"Fund GP Companies" being both Fund I GP Company and Fund II GP
Company;
"Fund GPs" being both Fund I GP and Fund II GP;
"Fund I" BECAP Fund LP, a Guernsey limited partnership
established on 23 November 2009 and registered
in Guernsey as a limited partnership on 25
November 2009 (registration number 1242);
"Fund I GP" means BECAP GP LP acting as general partner
of BECAP Fund LP and by its general partner,
the Fund I GP Company;
"Fund I GP Company" means BECAP GP Limited (a company registered
in Guernsey with registration number 51176)
acting as general partner of the Fund I GP;
"Fund I GP's Share" the priority profit share payable to the Fund
I GP pursuant to the
Fund I Partnership Agreement;
"Fund I Investment Policy" the investment policy to be applied by the
Company in respect of the 2009 Cell and relating
to Fund I, as set out above;
"Fund I Total Commitments" the aggregate commitments of the 2009 Cell
and the Fund I Special Limited Partner to
Fund I, being prior to Conversion the total
commitments of the Company and the Fund I
Special Limited Partner to Fund I;
"Fund II" BECAP12 Fund LP, a Guernsey limited partnership
established and registered in Guernsey as
a limited partnership on 17 November 2011
(registration number 1558);
"Fund II GP Company" means BECAP12 GP Limited (a company registered
in Guernsey with registration number 54252)
acting as general partner of the Fund II GP;
"Fund II GP" means BECAP12 GP LP acting as general partner
of BECAP12 Fund LP and by its general partner,
the Fund II GP 12 Company;
"Fund II GP's Share" the priority profit share payable to the Fund
II GP pursuant to the
Fund II Partnership Agreement;
"Fund II Investment Policy" the investment policy to be applied by the
Company in respect of the 2012 Cell and relating
to Fund II, as set out above;
"Fund II Total Commitments" the aggregate commitments of the 2012 Cell
and Fund II Special Limited Partner to Fund
II;
"Gardner" means Gardner Group Limited;
"General Partners" or both Fund I GP and Fund II GP together;
"GPs"
"General Partner's Share" the priority profit share payable to the General
Partner pursuant to the Partnership Agreement;
"GFSC" the Guernsey Financial Services Commission;
"GFSC Code" the GFSC Finance Sector Code of Corporate
Governance as amended February 2016;
"GP Companies" both the Fund I GP Company and Fund II GP
Company together;
"IFRS" International Financial Reporting Standards;
"Interim Report" the Interim Financial Report;
"iNTERTAIN" means iNTERTAIN Limited;
"IPEV" International Private Equity and Venture Capital
Valuation Guidelines;
"IRR" means Internal Rate of Return;
"Jaeger" means the Jaeger group of companies;
"Listing Rules" the listing rules made under section 73A of
the Financial Services and Markets Act 2000
(as set out in the FCA Handbook), as amended;
"London Stock Exchange" London Stock Exchange plc;
"LSE" London Stock Exchange's main market for listed
securities;
"Main Market" the main market of the London Stock Exchange;
"MNR Committee" the Management Engagement, Nomination and
Remuneration Committee;
"Net Asset Value" or "NAV" the value of the assets of the Company less
its liabilities, calculated in accordance
with the valuation guidelines laid down by
the Board;
"Northern Aerospace" means Northern Aerospace Limited;
"OfficeTeam" means Project Oliver Topco Limited and its
subsidiaries, which together trade as Office
Team;
"Official List" the official list of the UK Listing Authority;
"Omnico Group" the business formed from the merger of DigiPoS
and Clarity;
"PCC" Protected Cell Company;
"POI Law" The Protection of Investors (Bailiwick of
Guernsey) Law, 1987, as amended;
"Prospectus" the prospectus of the Company, most recently
updated on 29 July 2013 and available on the
Company's website (www.bettercapital.gg);
"Redemption" a compulsory pro rata redemption of the 2009
Shares;
"Redemption Date" effective date of 28 June 2017;
"Registrar" Link Market Services (Guernsey) Limited;
"Santia" means the Santia group of companies;
"Shareholders" meaning the holders of the shares in both
the 2009 Cell and 2012 Cell;
"SLMR" Shaanxi Ligeance Mineral Resources Co., Ltd.;
"Spicers" means the Spicers group of companies;
"SPOT" means the Spicers Office Team group of companies;
"UK" United Kingdom;
"UK Code" the UK Corporate Governance Code (April 2016)
published by the Financial Reporting Council;
"US" the United States of America.
General Information
Board of Directors
Richard Crowder (Chairman) Guernsey advocates to the Company
Richard Battey Carey Olsen
Philip Bowman PO Box 98
Jon Moulton (appointed 28 June 2013) Carey House
Les Banques
All of the above are non-executive, St Peter Port
including the Chairman, and were Guernsey
appointed on the 24 November 2009 GY1 4BZ
unless otherwise stated. English solicitors to the Company
DLA Piper UK LLP
Company secretary 3 Noble Street
Estera International Fund Managers London
(Guernsey) Limited (formerly Heritage EC2V 7EE
International Fund Managers Limited)
Heritage Hall Corporate broker and financial
PO Box 225 adviser
Le Marchant Street Numis Securities Limited
St Peter Port 10 Paternoster Square
Guernsey London
GY1 4HY EC4M 7LT
Registered office Independent auditor
Heritage Hall BDO Limited
PO Box 225 PO Box 180
Le Marchant Street Place du Pré
St Peter Port Rue du Pré
Guernsey St Peter Port
GY1 4HY Guernsey
Guernsey administrator GY1 3LL
Estera International Fund Managers Public relations adviser
(Guernsey) Limited (formerly Heritage Powerscourt
International Fund Managers Limited) 1 Tudor Street
Heritage Hall London
PO Box 225 EC4Y 0AH
Le Marchant Street Website
St Peter Port www.bettercapital.gg
Guernsey Tickers
GY1 4HY 2009 Cell: BCAP.L
Registrar 2012 Cell: BC12.L
Link Market Services (Guernsey)
Limited
Longue Hougue House
St Sampson
Guernsey
GY2 4JN
Better Capital PCC Limited is a company incorporated in and
controlled from Guernsey as a Protected Cell Company. There are two
cells, being the 2009 Cell and the 2012 Cell. The ordinary shares
of each cell are admitted to the Main Market operated by the London
Stock Exchange plc.
The principal activity of the Company is to act as a feeder
fund, through each cell, and pursue an investment objective which
aims to generate attractive total returns by investing in a
portfolio of distressed businesses (2009 Cell through Fund I and
2012 Cell through Fund II), such returns being expected to accrue
largely through capital growth.
Following the investment by the Cells into the Funds, the Funds
invested in distressed businesses, through special purpose
vehicles. The Fund GPs are the investment managers to each
respective Fund and have overall responsibility for the management
and administration of the business and affairs of the Funds,
including the management of its investments and as such, the Cells
have no control over the investments made by the Funds.
The Company is a limited liability, Closed-ended Investment
Company, which was incorporated on 24 November 2009 in Guernsey and
which, by special resolution of its members, converted to a
protected cell company on 12 January 2012 and on that same day
changed its name from Better Capital Limited to Better Capital PCC
Limited. The Company has an unlimited life and is registered with
the GFSC as a Registered Closed-ended Collective Investment Scheme.
The registered office of the Company is Heritage Hall, PO Box 225,
Le Marchant Street, St Peter Port, Guernsey, GY1 4HY.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GGURCMUPRUWW
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