TIDMBC12 TIDMBCAP
RNS Number : 9141D
Better Capital PCC Limited
01 July 2019
1 July 2019
BETTER CAPITAL PCC LIMITED
(the "Company")
FINAL RESULTS UPDATE
Better Capital PCC Limited announces its 2019 annual results for
both the 2009 Cell and the 2012 Cell.
2009 Cell Final Results
-- NAV at 31 March 2019: GBP27.8 million, NAV at 30 September
2018: GBP28.3 million, NAV at 31 March 2018: GBP40.4 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
-- 54.4 per cent. return from NAV growth and distributions since inception(1)
-- 6.5 per cent. annualised NAV total return including distributions(2)
Key Financials
NAV GBP27.8 m
------------------------------------------------------ ---------------
NAV per share at 31 March 2019 78.85 pence
------------------------------------------------------ ---------------
NAV total return (including distributions)
(1) 54.4 per cent.
------------------------------------------------------ ---------------
Annualised NAV total return (including distributions)
(2) 6.5 per cent.
------------------------------------------------------ ---------------
Share price at 31 March 2019 48.50 pence
------------------------------------------------------ ---------------
Market capitalisation at 31 March 2019 GBP17.1m
------------------------------------------------------ ---------------
-- 9 total platform investments
-- 10 follow-on investments
-- 7 realisations - Gardner, Santia, ATH Coal, Reader's Digest,
Fairline, Calyx Managed Services, SPOT(3)
-- 2 remaining assets - m-hance, Omnico
-- 8.2 years average holding period of portfolio companies
-- GBP0.6 million 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, valuations and distributions to
shareholders.
(3) SPOT minority holding in Fund I sold to Fund II on 14
November 2018.
2012 Cell Final Results
-- NAV at 31 March 2019: GBP55.6 million, NAV at 30 September
2018: GBP58.0 million, NAV at 31 March 2017: GBP138.1 million
-- GBP355.5 million total capital raised
-- GBP347.4 million net proceeds invested into Fund II
-- GBP96.7 million/27.2 per cent. cumulative distributions to 31 March 2019
-- 4.2 per cent. Better Capital 2012 Shares held by Fund II
-- 51.8 per cent. value decline combined NAV and distributions since inception(1)
Key Financials
NAV GBP55.6 m
------------------------------------------------------- ---------------
NAV per share at 31 March 2019 18.40 pence
------------------------------------------------------- ---------------
NAV total decline (including distributions)
(1) 51.8 per cent.
------------------------------------------------------- ---------------
Annualised NAV total decline (including distributions)
(2) 12.7 per cent.
------------------------------------------------------- ---------------
Share price at 31 March 2019 8.25 pence
------------------------------------------------------- ---------------
Market capitalisation at 31 March 2019 GBP24.9 m
------------------------------------------------------- ---------------
-- 6 total platform investments
-- 1 follow-on investment
-- 4 realisations -iNTERTAIN, City Link, Jaeger, Northern Aerospace
-- 2 remaining assets - Everest, SPOT
-- 5.8 years average holding period of portfolio companies
-- GBP18.1 million 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.
(2) Internal rate of return since inception, based on the net
proceeds of share issues, valuations and distributions to
shareholders.
http://www.rns-pdf.londonstockexchange.com/rns/9141D_1-2019-6-28.pdf
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 2019.
Better Capital 2009 Cell
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
2018 GBP'm GBP'm 2018 GBP'm GBP'm 2019 March
GBP'm GBP'm GBP'm 2019
GBP'm
m-hance 10.5 - - 10.5 0.3 - 10.8 14.4
---------- --------- ---------- --------- --------- ---------- ---------- -------
Omnico 23.0 1.0 (10.0) 14.0 - - 14.0 42.5
---------- --------- ---------- --------- --------- ---------- ---------- -------
SPOT 4.2 - (1.7) 2.5 (10.1) 7.6 - -
---------- --------- ---------- --------- --------- ---------- ---------- -------
37.7 1.0 (11.7) 27.0 (9.8) 7.6 24.8 56.9
---------- --------- ---------- --------- --------- ---------- ---------- -------
Fund cash on deposit 1.1 2.9
--------- --------- ---------- ---------- -------
Fund & SPV combined other net
assets/(liabilities) attributable
to 2009 Cell - 0.1
--------- --------- ---------- ---------- -------
Provision for carried interest - -
--------- --------- ---------- ---------- -------
2009 Cell fair value of investment
in Fund I 28.1 27.8
--------- --------- ---------- ---------- -------
2009 Cell cash on deposit 0.2 0.1
--------- --------- ---------- ---------- -------
2009 Cell current assets less
liabilities - (0.1)
--------- --------- ---------- ---------- -------
2009 Cell NAV 28.3 27.8
--------- --------- ---------- ---------- -------
m-Hance is progressing well under the leadership of Alan Moody
who joined the business last summer. The performance in the
not-for-profit sector continues to be pleasing and this has
resulted in a further strengthening of the business's relationship
with Microsoft. The business is tracking ahead of budget for the
first quarter of FY19 and is expecting to maintain the lead through
into the second quarter and the second half of FY19 with a
year-on-year double-digit percentage EBITDA growth. Exit options
are under consideration.
Deployment of the V6 product in Omnico has now commenced with
the development of the final modules expected to complete
imminently. This will enable Omnico to address the qualified sales
pipeline which includes strategic new opportunities. The business
tracked ahead of its EBITDA budget at mid-year (31 March 2019). It
is forecasting a significantly stronger year to 30 September 2020
and it seems likely that this means that an exit would be
sub-optimal if done in 2019. However advisers have been selected to
pursue an exit at an opportune time.
Fund I disposed of its minority interest in SPOT during November
2018 as part of a complex balance sheet restructuring exercise
instigated to simplify the business's capital structure and to
facilitate the design of a new incentive scheme for the management
team. Fund I received GBP2.5 million, the carrying value as
reported at 30 September 2018.
Comprehensive details on Fund I's investment activities,
portfolio companies and valuation are set out in the Fund I GP's
report below.
Fund I - Extension to end of life
Fund I was formed with a finite life, which following two
extensions ends 17 December 2019. Having received a comprehensive
update from the Fund I GP on the short to medium prospects of both
m-Hance and Omnico, the Board considers that an extension to the
life of Fund I by a further 18 months to be appropriate and in the
best interests of the 2009 Shareholders. A proposal will be put to
shareholders in due course.
Better Capital 2012 Cell
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
2018 GBP'm GBP'm 2018 GBP'm GBP'm 2019 March
GBP'm GBP'm GBP'm 2019
GBP'm
Everest 20.0 2.5 (7.5) 15.0 6.5 (1.5) 20.0 36.9
---------- --------- ---------- --------- --------- ---------- ---------- -------
SPOT 38.2 - (15.6) 22.6 2.6(6) - 25.2 94.2
---------- --------- ---------- --------- --------- ---------- ---------- -------
Northern
Aerospace 60.0 (66.9) 6.9 -(2) - - - -
---------- --------- ---------- --------- --------- ---------- ---------- -------
2012 shares 6.9 (4.7)(3) (0.8) 1.4(4) - (0.4) 1.0(4) 6.4(5)
---------- --------- ---------- --------- --------- ---------- ---------- -------
125.1 (69.1) (17.0) 39.0 9.1 (1.9) 46.2 137.5
---------- --------- ---------- --------- --------- ---------- ---------- -------
Fund II cash on deposit 13.6 4.1
--------- --------- ---------- ---------- -------
Fund II & SPV combined other net
assets attributable to 2012 Cell 4.8(1,2) 5.0(1,2)
--------- --------- ---------- ---------- -------
2012 Cell fair value of investment
in Fund II 57.4 55.3
--------- --------- ---------- ---------- -------
2012 Cell cash on deposit 0.7 0.4
--------- --------- ---------- ---------- -------
2012 Cell current assets less liabilities (0.1) (0.1)
--------- --------- ---------- ---------- -------
2012 Cell NAV 58.0 55.6
--------- --------- ---------- ---------- -------
Further details on Fund II's investment activities, portfolio
companies and valuation are set out in the Fund II GP's report
below.
(1) Includes the remaining estimated net receivable from the
City Link administration and iNTERTAIN proceeds in escrow which
will become payable pending the resolution of legacy matters
(2) Northern Aerospace was disposed of in July 2018 with the
remainder of the proceeds from the warranty claim of CAV Aerospace
Limited recognised as a fund receivable at 30 September 2018. This
balance was received in full in October 2018 and held as cash in
BECAP12 Northern Aerospace Limited at 31 March 2019
(3) Based on the disposal of 15,870,806 2012 Shares at the
volume weighted average price ("VWAP") on 18 June 2018, of
29.69p
(4) 12,677,471 2012 Shares at the closing price of 11.00p per
share on 30 September 2018 and 8.25p per share on 31 March 2019
(5) Average cost per remaining share, 54.80p. Includes
commission and levy
(6) GBP2.5 million was paid to Fund I with the remaining GBP0.1
million to current and previous SPOT employees
We were delighted to conclude the disposal of Northern Aerospace
to Gardner in July 2018. The process was arduous, not just on
account of the cross border nature of the transaction but that the
disposal was at risk of being blocked by United Kingdom national
agencies. The sale of Northern Aerospace provided for a
distribution totalling GBP48.3 million in August 2018.
In November 2018, SPOT completed the complex internal balance
sheet restructure which was designed to simplify SPOT's capital
structure and enable a new incentive scheme for the management
team. The effect of this restructure was to reduce the loan notes
in SPOT to GBP10 million, giving the business a much stronger
position from which to improve its performance. At the same time
the interest in SPOT held by Fund I was disposed to Fund II.
In March 2019, SPOT disposed its profitable but non-core legal
forms business to Advanced Legal Solutions Limited for GBP22
million. The net proceeds from the sale have been applied to
strengthen SPOT's balance sheet significantly which also saw the
business repay GBP3.0 million to Fund II in June 2019.
Progress in Everest has been marked in areas such as sales and
marketing; however, these improvements have been significantly
offset by weaker performance in manufacturing as well as 'cost of
failure'. Although still early days, the business's install revenue
KPI is showing positive trend in recent weeks.
SPOT is a business of 2 halves. Spicers continues with its
footprint restructuring to simplify and improve efficiency. It is
currently trading consistent to its FY19 budget. OfficeTeam closed
FY18 below budget despite a good start to the first half year. As a
result, the management team has accelerated the change programmes
within OfficeTeam to reduce costs. Steve Horne, formerly from Euro
Car Parts was appointed CEO in March 2019.
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 was offset against the outstanding loan between the parties and
had 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.
Having considered the medium term liquidity of Fund II, the Fund
II GP has informed the Company of its decision to sell the
remaining 2012 Shares in Fund II's holding. It is expected that
these 2012 Shares will be repurchased by the Company on or around 2
July 2019 and as before, on the terms as agreed under the buyback
contract entered into in December 2016.
The financial effect of the cancellation will provide a
pro-forma uplift to the NAV per remaining 2012 Shares, of
approximately 0.44p per 2012 Share or 2.4 per cent. based on the
2012 Cell's NAV per share at 31 March 2019.
NAV at 31 NAV per share NAV uplift
March 2019 (p)
(GBPm)
Pre 2012 Shares buyback
and cancellation 55.6 18.40(2)
------------ -------------- -----------
2012 Shares buyback
and cancellation (1.0) (1)
------------ -------------- -----------
Immediately following
2012 Shares buyback
and cancellation (pro
forma) 54.6 18.84(3) 2.4%
------------ -------------- -----------
Following the 2012 Shares buyback and cancellation transaction,
there remains 289,503,965 2012 Shares in issue.
(1) Based on the disposal of 12,677,471 2012 Shares at the
closing price on 31 March 2019, of 8.25pps
(2) Based on 302,181,436 2012 Shares in issue
(3) Based on the new 289,503,965 2012 Shares in issue
Distributions - 2012 Cell
The sale of Northern Aerospace in July 2018 facilitated the
fourth distribution out of the 2012 Cell. On 10 August 2018, the
Company distributed GBP48.3 million or 16.0 pps to the 2012
Shareholders. In line with the previous distributions, this
distribution has been treated by the Company as a reduction of
share capital paid out of monies attributed to the "share capital
account".
Following the sale of the legal forms business in SPOT during
March 2019, the Board intends to declare a fifth distribution out
of the 2012 Cell of approximately 1.0 pps. Further details will be
announced in due course.
Better Capital PCC expenses
The table below summarises the costs incurred throughout the
structure during the year:
GBP'000 2009 Cell 2012 Cell
GBP'000 GBP'000
PCC level 802 221 581
-------- ---------- ----------
Fund Level 435 174 261
-------- ---------- ----------
General Partner
level 874 229 645
-------- ---------- ----------
2,111 624 1,487
-------- ---------- ----------
These include all costs and represent 2.5 per cent. of the NAV
at 31 March 2019.
Conclusion
The actions undertaken by the Fund I GP reflect clear intentions
to ensure an orderly wind down of Fund I whilst maximising value
creation in the 2009 Cell. The Board is wholly supportive on the
matter.
The Fund II portfolio is still in what has been a protracted
restructuring. The Board continues to monitor developments closely
and not withstanding poor performance remains supportive of the
Fund II GP's direction of actions.
Richard Crowder
Chairman
28 June 2019
A copy of the Annual Report and Financial Statements of Better
Capital PCC Limited for the year ended 31 March 2019 will be
available on the Company's website www.bettercapital.gg and at the
National Storage Mechanism http://www.morningstar.co.uk/uk/NSM in
due course.
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
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 2019.
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 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 2019 was
GBP27.8 million (2018: GBP40.4 million).
No distributions were paid during the year ended 31 March 2019
(2018: GBP222.0 million, the distribution consisted of a payment of
107.35 pence per ordinary share).
The five cumulative distributions (including reductions of share
capital) at 31 March 2019 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 2019 was
GBP55.6 million (2018: GBP138.1 million).
During the year the 2012 Cell made its fourth distribution of
GBP48.3 million (2018: GBP8.3 million) to shareholders of the 2012
Cell as at the ex-date of 2 August 2018. The distribution consisted
of a payment of 16.0 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 four cumulative distributions (reductions of share capital)
at 31 March 2019 for the 2012 Cell total GBP96.7 million, being
27.2 per cent. of funds raised.
Annual General Meetings
The Annual General Meetings of the Company and the Cells will be
held on 12 September 2019 at Trafalgar Court, Les Banques, 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 in due course.
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.
AIFMD
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.
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 certain of 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.
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. 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.
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 Chairman, Mr Battey and Mr Bowman have been members of the
Board since November 2009 and have therefore served for over nine
years. The Board have considered this matter in detail and, at this
stage in the Company's life, consider that shareholders are best
served by Board continuity and retention of the in-depth knowledge
the Directors have of the underlying portfolio businesses. The
Board is also of the opinion that the current Directors continue to
bring appropriate skills and experience to best serve the Company.
Additionally, the Board does not consider that there are any
impediments to the independence of Directors who have served for
over nine years and therefore recommend that all Directors submit
themselves for re-election at the AGM.
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 2019 the Directors' remuneration was
paid as follows (of which GBP59,000 (2018: GBP59,000) was
outstanding at the year end):
31 March 2019
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 15.85 54.15
----------- ----------- ----------- ----------- -----------
Richard Battey 62.50 62.50 62.50 14.15 48.35
----------- ----------- ----------- ----------- -----------
Philip Bowman 60.00 60.00 60.00 13.59 46.41
----------- ----------- ----------- ----------- -----------
Jon Moulton 45.00 45.00 45.00 10.19 34.81
----------- ----------- ----------- ----------- -----------
Total 237.50 237.50 237.50 53.78 183.72
----------- ----------- ----------- ----------- -----------
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
----------- ----------- ----------- ----------- -----------
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 direct or indirect current or historical employment
with the GP Companies and he;
-- has no current directorships in any other entities for which
the GP Companies provide services.
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
12 January 2019.
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 ten 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 69)
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 investment director/
investment adviser. 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 67)
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 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
66)
Philip Bowman is the chairman of MAF Properties LLC, Tegel Group
Holdings Ltd., and Potrero Distilling Holdings LLC, and a director
of Ferrovial S.A., MAF Holding LLC 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 whilst working at Price Waterhouse & Co. 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
68)
Jon Moulton is Chairman and founder of the Better Capital fund
vehicles. He is a Chartered Accountant with the Institute of
Chartered Accountants in England and Wales, a Corporate Financier
and a Fellow of the Society of Turnaround Professionals. Formerly
Managing Partner of Alchemy Partners, Jon also previously worked
with Citicorp Venture Capital in New York and London, Permira and
Apax. Jon is the Non-Executive Chairman of FinnCap, the
stockbroker, Anti-Microbial Research and The International Stock
Exchange. He is a member of the ICAEW Technical Strategy Board and
of the ICAEW corporate finance faculty.
Shareholdings of the Directors
Directors of the Company and their beneficial interests in the
2009 Shares and the 2012 Shares as at 31 March 2019 are detailed
below:
2009 Cell
Director 2009 Shares Per cent. Per cent.
Holding* Holding*
31 March 31 March
2019 2018
31 March 2019 31 March
2018
-------------- ----------
Richard Crowder 18,759 18,759 0.05 0.05
-------------- ---------- ---------- ----------
Richard Battey 10,232 10,232 0.03 0.03
-------------- ---------- ---------- ----------
Philip Bowman 42,633 42,633 0.12 0.12
-------------- ---------- ---------- ----------
Jon Moulton 6,789,994 4,164,994 19.26 11.81
-------------- ---------- ---------- ----------
* Per cent. holding is given on one for one shareholding basis
rather than on voting rights.
2012 Cell
Director 2012 Shares Per cent. Per cent.
Holding* Holding*
31 March 31 March
2019 2018
31 March 2019 31 March
2018
-------------- -----------
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 0.20 0.19
-------------- ----------- ---------- ----------
Jon Moulton 69,815,582 48,415,582 23.10 15.22
-------------- ----------- ---------- ----------
* Per cent. holding is given on one for one shareholding basis
rather than on voting rights.
Jon Moulton has acquired an additional 4,000,000 2012 Shares
since 31 March 2019.
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 30 May 2019, 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
--------------------------------- ------------------- ---------- ----------
Jon Moulton 6,789,994 19.26 Indirect
Asset Value Investors 6,402,024 18.16 Indirect
Overseas Asset Management 3,838,536 10.89 Indirect
Lind Invest 3,344,543 9.48 Indirect
Blackrock Investment Management 3,195,678 9.06 Indirect
CG Asset Management 2,617,646 7.42 Indirect
2012 Cell
Shareholder Shareholding % Holding Nature of
(Ordinary Shares) Holding
------------------------------ ------------------- ---------- ----------
Jon Moulton 73,815,582 24.43 Indirect
John Caudwell 50,000,000 16.55 Direct
Progressive Capital Partners 31,064,355 10.28 Indirect
Overseas Asset Management 28,908,000 9.57 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.
Details of the voting rights can be found below.
Directors' authority to issue shares
2009 Cell
The Directors do not have the power to issue shares in the 2009
Cell.
2012 Cell
The Directors do not have the power to issue shares in the 2012
Cell.
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 13 September 2018. At the AGM to take
place on 12 September 2019 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 discretionary two one year extensions. In the
case of the 2009 Cell, the viability has been assessed up to 30
June 2021, being the expected extension timing that will be
proposed to maximise shareholder value. 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
28 June 2019
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 2019.
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.
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 2019 was GBP83.1 million (2018:
GBP177.4 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
11 June 2019. 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 to those valuations approved by the Audit Committee 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
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
remained in office during the year. Mr Searle will be replaced in
the year ended 31 March 2021 in accordance with normal audit
director rotation arrangements.
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
2020.
On behalf of the Audit Committee,
Richard Battey
Chairman of the Audit Committee
28 June 2019
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 2019 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 2019 and of its loss for the year then
ended;
-- have been properly prepared in accordance with IFRSs as adopted by the European Union;
-- 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 above 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.
Key Audit Matter Audit Response
Valuation of investments including Our procedures included:
unrealised gains/(losses) * Challenging the Consultant on key judgements
Refer to the accounting policies affecting investee company valuations in the context
below and Note 2 to the Financial of observed industry best practice and the provisions
Statements. of the International Private Equity and Venture
All of the underlying investee Capital Valuation Guidelines.
companies are unquoted entities,
which are valued in accordance
with the International Private * In particular, we focussed on the appropriateness of
Equity and Venture Capital Valuation the valuation basis selected for each investment as
Guidelines by using the following well as the underlying assumptions, such as discount
measurements of factors, and the choice of benchmark for earnings
multiples.
* earnings multiples;
* We compared key underlying financial data inputs to
* net assets. external sources, investee company audited accounts
and management information, as applicable. We
challenged the assumptions around sustainability of
There is a significant risk over earnings based on the plans of the investee companies
the valuations of these investments and whether these are achievable.
due to the inherent subjectivity
and estimation involved in the
valuation of such assets. Incorrect * Our work included consideration of events which
valuation could have a significant occurred subsequent to the year end until the date of
impact on the net asset value this audit report and attending the year end board
of the Company and therefore meeting where we assessed the effectiveness of the
the return generated for shareholders. Board's challenge and approval of unlisted investment
Accordingly this is the key judgemental valuations.
area on which our audit focussed.
Based on our work we did not
identify to suggest that the
valuation method or assumptions
used were inappropriate.
-------------------------------------------------------------------------
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.
Based on our professional judgment, we determined materiality
for the financial statements as a whole to be GBP1,200,000 (2018:
GBP2,700,000), which is based on a level of 1.5% (2018: 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 GBP780,000 (2018:
GBP2,025,000 which is 65% (2018: 75%) of materiality. This has been
set based upon the control environment in place.
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 certain trading
activities, such as sensitive overhead expenses. Specific
materiality has been determined on the basis of 5% (2018: 5%) of
materiality being GBP60,000 (2018: GBP135,000).
We agreed with the Board of Directors that we would report all
audit differences in excess of GBP25,200 (2018: GBP54,000). We also
agreed to report differences below these thresholds that, in our
view, warranted reporting on qualitative grounds.
An overview of the scope of our audit
We carried out a full scope audit of the company. Our audit
approach is risk based and we tailored the scope of our audit
taking into account the nature of the company's investments, 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
Consultant and the Company Administrator. We assessed the control
environment in place at the Consultant 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.
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 and Audited Financial Statements, 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.
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: 28 June 2019
Statement of Financial Position
As at 31 March 2019
2019 2018
GBP'000 GBP'000
Notes
ASSETS:
Non-current assets
Investment in limited
partnerships 4 83,072 177,352
Total non-current assets 83,072 177,352
------------ ------------
Current assets
Trade and other receivables 5 7 818
Cash and cash equivalents 512 502
------------
Total current assets 519 1,320
------------ ------------
TOTAL ASSETS 83,591 178,672
------------ ------------
LIABILITIES:
Current liabilities
Trade and other payables (185) (197)
Total current liabilities (185) (197)
------------ ------------
TOTAL LIABILITIES (185) (197)
------------ ------------
NET ASSETS 83,406 178,475
============ ============
EQUITY
Share capital 7 235,889 288,950
Retained earnings (152,483) (110,475)
TOTAL EQUITY 83,406 178,475
============ ============
Number of 2009 Shares
in issue at year end 7 35,262,505 35,262,505
============ ============
Number of 2012 Shares
in issue at year end 7 302,181,436 318,052,242
============ ============
NAV per 2009 Share (pence) 10 78.85 114.62
============ ============
NAV per 2012 Share (pence) 10 18.40 43.41
============ ============
The audited financial statements of the Company were approved
and authorised for issue by the Board of Directors on 28 June 2019
and signed on its behalf by:
Richard Crowder Richard Battey
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 2019
2019 2018
GBP'000 GBP'000
Notes
Income
Change in fair value of investments
in limited partnerships 4 (41,206) (108,307)
Income distributions - 85,365
Total (expense) (41,206) (22,942)
--------- ----------
Expenses
Administration fees 202 259
Directors' fees and expenses 8 238 283
Legal and professional fees 161 147
Other fees and expenses 53 70
Audit fees 67 63
Insurance premiums 27 27
Registrar fees 54 42
Total expenses 802 891
--------- ----------
Loss and total comprehensive
expense for the financial year (42,008) (23,833)
========= ==========
Basic and diluted earnings per
2009 Share (pence) 10 (35.77) 2.76
========= ==========
Basic and diluted earnings per
2012 Share (pence) 10 (9.62) (8.17)
========= ==========
The notes below form an integral part of the Company's financial
statements.
Statement of Changes in Equity
For the year ended 31 March 2019
Share Retained Total
capital earnings equity
Notes GBP'000 GBP'000 GBP'000
As at 1 April 2018 288,950 (110,475) 178,475
Loss and total comprehensive
expense for the financial
year - (42,008) (42,008)
Total comprehensive
expense for the year - (42,008) (42,008)
---------- ---------- ----------
Transactions with owners
Distributions 7 (48,348) - (48,348)
Share buyback and cancellation 7 (4,713) - (4,713)
Total transactions with
owners (53,061) - (53,061)
As at 31 March 2019 235,889 (152,483) 83,406
========== ========== ==========
Share Retained Total
capital earnings equity
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
========== ========== ==========
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 2019
2019 2018
GBP'000 GBP'000
Cash flows from operating
activities
Loss for the financial year (42,008) (23,833)
Adjustments for:
Change in fair value of
investments in limited partnerships 41,206 108,307
Movement in debtors and
prepayments 811 793
Movement in creditors and
accruals 12 (10)
Repayment of loan investment in
limited partnerships 48,361 144,681
Net cash generated from
operating activities 48,358 229,938
--------- ----------
Cash flow from financing
activities
Distributions (48,348) (230,249)
Net cash used in financing
activities (48,348) (230,249)
--------- ----------
Net movement in cash and
cash equivalents during
the year 10 (311)
Cash and cash equivalents
at the beginning of the
year 502 813
Cash and cash equivalents
at the end of the year 512 502
========= ==========
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 2019
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 2019 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 two new standards applied during the year ended 31
March 2019.
IFRS 9: Financial Instruments, replaces IAS 39 Financial
Instruments: Recognition and Measurement. The Company adopted IFRS
9 for the accounting period beginning on 1 April 2018.
IFRS 9 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. Although the application of IFRS 9 has resulted in changes
to the classification of financial assets and liabilities, there
has been no impact on the carrying values of such financial
instruments. The following table summarises the financial assets
and liabilities held by the Company, the treatment under IAS 39,
the new treatment under IFRS 9 and the impact on the financial
statements at 1 April 2018. The Company's equity and debt
instruments continue to be measured at fair value through profit or
loss as the investments are monitored, measured and evaluated on a
fair value basis. This had no effect on the carrying value of the
Company's financial assets and financial liabilities.
Original classification New classification under
under IAS 39 IFRS 9
Financial assets
Fair value through profit Fair value through profit
Investments or loss or loss
Cash and cash
equivalents Loans and receivables Amortised cost
Receivables Loans and receivables Amortised cost
Financial liabilities
Payables Amortised cost Amortised cost
IFRS 15: Revenue from Contracts with Customers was 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 income is
interest and distributions received which are part of net fair
value under IFRS 9, there was no impact from the adoption of IFRS
15.
New and revised standards
At the date of approval of these financial statements, the
following standard and interpretation, which have not been applied
in these financial statements, were issued but not yet effective
and are not relevant to the financial statements of the Company and
Cells:
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 2019 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.
Classification and measurement of financial assets and financial
liabilities
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.
The adoption of IFRS 9 has not had a significant effect on the
Company's accounting policies related to financial liabilities. The
impact of IFRS 9 on the classification and measurement of financial
assets is set out below.
Under IFRS 9, on initial recognition, a financial asset is
classified as measured at:
-- Amortised cost;
-- Fair value through other comprehensive income - debt investment;
-- Fair value through other comprehensive income - equity investment; or
-- Fair value through profit or loss.
The classification of financial assets under IFRS 9 Is generally
based on the business model in which a financial asset is managed
and its contractual cash flow characteristics. The Company only has
financial assets that are classified at fair value through profit
or loss. The Company's investments are measured at fair value
through profit or loss as they fail the SPPI and business model
test.
Impairment of financial assets
IFRS 9 has introduced the expected credit loss model which
brings forward the timing of impairments. Under IFRS 9 for trade
receivables the Company applies the simplified model. Under the
simplified approach the requirement is to always recognise lifetime
expected credit losses. Under the simplified approach practical
expedients are available to measure lifetime expected credit losses
but forward looking information must still be incorporated. Under
the simplified approach there is no need to monitor significant
increases in credit risk and entities will be required to measure
lifetime expected credit losses at all times.
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 GPs, with the latter having
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 and de-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.
A financial asset is de-recognised either when the Company has
transferred all the risks and rewards of ownership; it has neither
transferred nor retained substantially all the risks and rewards
and when it no longer has control over the assets or a portion of
the asset; or the contractual right to receive cash flow has
expired.
iii. Measurement
The investments in Fund I and Fund II are 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.
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 GP 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 Funds I and
II, have adequate resources to continue in operational existence
for the foreseeable future. As noted below, following two
extensions, Fund I is due to terminate on 17 December 2019 and with
Fund I being the 2009 Cell's sole investment, following its
termination, the Board will begin the orderly wind-up of the 2009
Cell. Having received a comprehensive update from the Fund I GP on
the short to medium prospects of both m-Hance and Omnico, the Board
considers that an extension to the life of Fund I by a further 18
months to be appropriate and in the best interests of the 2009
Shareholders. A proposal will be put to shareholders in due course.
For this reason, the accounts of the 2009 Cell are therefore not
prepared on a going concern basis, however there is no material
difference in reporting between adopting a going concern basis or a
non-going concern basis. As this affects only Fund I and the 2009
Cell, the accounts of the 2012 Cell and of the Company continue to
be prepared on a going concern basis.
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 2018 290,053 37 290,090
Repayment of loan investment
in limited partnerships (53,074) - (53,074)
Carried forward 236,979 37 237,016
---------- -------- ----------
Fair value adjustment through
profit or loss
Brought forward (112,738) - (112,738)
Unrealised fair value movement
during the year (41,206) - (41,206)
Carried forward (153,944) - (153,944)
---------- -------- ----------
Fair value as at 31 March 2019 83,035 37 83,072
========== ======== ==========
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1 April 2017 434,734 37 434,771
Repayment in 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
========== ======== ==========
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 fair value of
the loans is 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 GBPnil was repaid to the Company by Fund I
(2018: GBP137.0 million) and GBP53.1 million by Fund II (2018:
GBP7.7 million).
Income distributions receivable from the Funds in the year
amounted to GBPnil (2018: GBPnil). At 31 March 2019 an aggregate
GBPnil (2018: GBP0.8 million) remained outstanding. Income
distributions received from the Funds in the year amounted to
GBPnil (2018: GBP85 million).
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 always been
classified within Level 3 as they have unobservable inputs and are
not traded. Amounts classified under Level 3 for the year are
GBP27.8 million for Fund I (2018: GBP40.1 million) and GBP55.3
million for Fund II (2018: GBP137.2 million).
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.
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 carefully 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 2019
GBP
Core shares as at 1 April 2018 and as
at 31 March 2019 100
====
Year ended 31 March 2018
GBP
Core shares as at 1 April 2017 and as
at 31 March 2018 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 2019
2009 Cell 2012 Cell Total
Issued and fully paid:
Unlimited shares of GBP1 No. No. No.
par value
Shares as at 1 April 2018 35,262,505 318,052,242 353,314,747
Movements for the year - (15,870,806) (15,870,806)
----------- ------------- -------------
Shares as at 31 March
2019 35,262,505 302,181,436 337,443,941
=========== ============= =============
Share capital GBP'000 GBP'000 GBP'000
Share capital as at 1
April 2018 - 288,950 288,950
Movements for the year:
Distributions - (48,348) (48,348)
Buyback and cancellation - (4,713) (4,713)
Share capital as at 31
March 2019 - 235,889 235,889
=========== ============= =============
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
============== ============ ==============
No distributions were paid during the year for the 2009 Cell
(2018: GBP222.0 million).
The five cumulative distributions (reductions of share capital)
at 31 March 2019 for the 2009 Cell total GBP288.8 million, being
137.5 per cent. of funds raised.
During the year the 2012 Cell made its fourth distribution of
GBP48.3 million to shareholders of the 2012 Cell as at the ex-date
of 2 August 2018. The distribution consisted of a payment of 16.0
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 four cumulative distributions (reduction of share capital)
at 31 March 2019 for the 2012 Cell total GBP96.7 million, being
27.2 per cent. of funds raised.
The Core Shares have no voting rights for so long as Cell Shares
are in issue.
As at 31 March 2019 the Company's issued share capital consisted
of 35,262,505 shares in the 2009 Cell and 302,181,436 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.
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, would be due to participate in any
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 (2018: GBP70,000), the chairman of the
audit committee receives GBP62,500 (2018: GBP62,500), the chairman
of MNR committee receives GBP60,000 (2018: GBP60,000) and the other
non-executive director receives GBP45,000 (2018: GBP45,000).
Directors' fees and expenses for the year to 31 March 2018
amounted to GBP238,000 (2018: GBP283,000), of which GBP59,000
(2018: GBP59,000) was outstanding at the year end.
The Directors received a distribution of capital from the 2012
Cell of 16.0 pence per ordinary share (2018: 2009 Cell - 107.35
pence, 2012 Cell - 2.6 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
2019 2018
GBP'000 GBP'000
Financial assets
Investments at fair value through profit
or loss:
Investments in limited partnerships 83,072 177,352
Amortised cost loans
and receivables:
Debtors (excluding prepayments) - 800
Cash and cash equivalents 512 502
Financial liabilities
Financial liabilities measured at amortised
cost:
Creditors and accruals 185 197
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.
(c) Interest rate risk
The Company's direct exposure to interest rate risk relates to
the Company's cash and cash equivalents. At current interest rate
levels this risk is immaterial.
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 2019, the Company had no
liabilities other than creditors and accruals (2018: GBPnil). The
Company had sufficient cash and cash equivalents to pay these as
they fell due.
All creditors and accruals are due within six months.
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
2019 was GBP27.8 million (2018: GBP40.1 million).
The carrying value of the investment in Fund II as at 31 March
2019 was GBP55.3 million (2018: GBP137.2 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 GPs. The investment risk is managed by an
investment strategy that diversifies the investments in terms of
financing stage, industry or geography. The aggregate amount in
term deposits 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 2019 2018
GBP'000 GBP'000
Royal Bank of Scotland
International Limited Guernsey A-2 107 212
Barclays Bank PLC Guernsey A-1 405 290
The Company's maximum exposure to loss of capital at the year
end is shown below:
Carrying value
31 March 2019 and maximum exposure
Investment at fair value GBP'000
through profit or loss:
* Fund I 27,754
* Fund II 55,318
Amortised cost loans and
receivables (including
cash and cash equivalents
but excluding prepayments) 512
----------------------
83,584
======================
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
Amortised cost loans and
receivables (including
cash and cash equivalents
but excluding prepayments) 1,302
----------------------
178,654
======================
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 and 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.
The 2009 Cell Investment policy is set out in the Company's
Prospectus.
General Partner's Report
Following the disposal of Fund I's minority interest in SPOT to
Fund II in November 2018, there remain only m-Hance and Omnico.
Both companies have made reasonable progress since my last
report, in particular m-Hance which has responded well to new
leadership and market opportunities. To facilitate maximum value
creation, the Board will be putting proposals to the members to
extend the life of Fund I and in turn this cell by 18 months to
maximise shareholder value.
Portfolio update
m-hance closed its FY18 financial year ending 31 December 2018
with an unaudited EBITDA of GBP0.8 million (FY17 audited EBITDA
GBP0.6 million), marginally below the trading budget due to
customer driven implementation delays and the decision to exit the
NetSuite reseller market.
The appointment of Alan Moody in the capacity of CEO in June
2018 gave rise to a comprehensive strategic re-assessment of the
business. Following a re-direction to focus on the business's key
areas of growth, m-hance has seen significant and further
improvements in the Not-for-Profit ("NfP") sector whilst
simultaneously managing existing customers. The NfP sector has
grown consistently over the past two decades and has shown itself
to be resistant to economic downturns. Already selling into a
number of high profile NfP clients (e.g. Christian Aid, MIND, Motor
Neurone Association and Crohn's and Colitis), m-hance is now
developing a range of products and services built on Microsoft's
core Customer Relationship Management ("CRM") and Enterprise
Resource Planning ("ERP") cloud technologies resulting in an
acceleration of the number of wins as well as an increasing sales
pipeline across all product lines. Since my last report, the
business has closed contracts with among others, Medecins Sans
Frontieres,
SANDS, Tenovus Cancer Care, Marie Stopes International and
Concern WorldWide. The business has also increased its market
presence through its dedicated website for NfP
(www.nfp365.com).
As a direct consequence of prioritising the NfP market, the
relationship with Microsoft continues to strengthen. Microsoft has
selected m-hance to be the sole European-based global launch
partner for its Technology for Social Impact initiative with
several joint initiatives now underway including a NfP event to be
hosted by Microsoft this summer. m-hance has retained its Microsoft
Gold partner status in core technologies such as CRM, ERP and
Hosting, and has now attained the top-level partner status in Cloud
Service Provision thereby maximising margin potential from
reselling Microsoft products.
In addition to the on-going investment in leading technologies
and the development of market specific products and services,
Making Tax Digital for VAT represents a further opportunity in 2019
and beyond for m-hance to sell and deliver into its existing ERP
base. The business has now developed and secured HMRC Compliance
for both its GP and i365 products which have facilitated improved
customer engagement. This initiative is also allowing for customers
to upgrade to newer versions of GP and i365 products driving
greater revenues.
At the operational level, there are several initiatives
delivering on increasing efficiency and effectiveness. These
include the development and management of Key Performance
Indicators within the support function to improve case and backlog
management as well as initiatives to improve employee engagement
including regular surveys, cross-departmental initiatives and
targeted training. With a relatively high proportion of employees
working remotely, attention has been given to increasing the
frequency and consistency of communications at all levels within
the organisation. These communications are designed to increase
awareness as well as to encourage an improved level of
collaboration and sense of loyalty to teams and the wider
organisation. Cost control, cash management and strong financial
processes remain major strengths at m-hance.
The business is tracking ahead of budget for the first quarter
of FY19 and is expecting to maintain the lead through Q2 and into
H2 FY19 with a year-on-year double-digit percentage growth in
EBITDA.
As at 31 March 2019, the business has net debt of GBP0.1
million. Fund l injected GBP0.3 million into the business during
March 2019 to fund working capital - the need was caused by the
timing of cash flows from operations and was repaid in full in May
2019.
The valuation for m-hance has been retained at GBP10.5 million.
This has been derived using an earnings based approach (EV/ EBITDA:
9.0 times) on the business's FY19 forecast EBITDA.
Omnico's year-to-date EBITDA for its FY19 financial year ending
30 September is ahead of budget representing 53 per cent. of the
FY19 EBITDA budget at the half year point (FY18 audited EBITDA:
GBP0.9 million). Total YTD order intake of GBP12.2 million has
contributed to order book growth of 10 per cent. since the end of
FY18. Billable utilisation has continued to increase during the
period, resulting in continued professional services revenue
growth.
Omnico has continued to invest in research and development and
is now finalising the development of its V6 product. The completion
of V6 will allow Omnico to accelerate focus on its digital
strategy. The V6 product provides the platform which enables
Omnico's clients to maximise customer engagement through the
creation of multi-channel journeys.
The focus for Omnico over the coming twelve months is to further
grow its recurring revenues through the transition to a Software as
a Service model. Omnico's new hosted solution has now been
successfully deployed to 5 clients in both the UK and US, 3 of
which are new name accounts. A further 3 projects are due for
completion during the second half of FY19. Speed of deployment has
been significantly enhanced, enabling Omnico to deliver solutions
to a greater number of customers simultaneously.
Omnico's sales prospect pipeline remains strong and stands at
GBP129 million. Omnico's target markets of theme parks, contract
catering, casino resorts and retail are well represented in the
pipeline and its geographical reach remains broad. Further
deployment of the Omnico platform in existing accounts as well as
closure of a small number of key opportunities will significantly
enhance Omnico's Software as a Service and recurring revenues as
the market moves towards hosted solutions.
Further streamlining of the business has also progressed with
the previously separate leisure division moving into core
operations as the focus continues on the core V6 platform and
digital products.
The business has now started to repay the short term loan of
GBP0.8 million injected by Fund I in September 2018 and cash flow
from operations continues to increase. At 31 March 2019, Omnico had
net cash of GBP0.7 million, the highest level since January
2015.
Although there has been satisfactory progress in the first six
months of FY19, the valuation for the business has remained
unchanged at GBP14.0 million until visibility is proven over the
latter part of the year. This valuation is supported using an
earnings based approach (EV/ EBITDA: 8.7 times) to valuation and
applied against its EBITDA budget for FY19.
Investment activities
On 14 November 2018, SPOT completed a complex balance sheet
restructure. The objective of the exercise was to simplify SPOT's
capital structure and to facilitate the design of a new incentive
scheme for the management team. The restructure saw the Fund II GP
on behalf of Fund II making an offer for the loan note and equity
interests held by Fund I as well as to current and former members
of the SPOT management. The Fund I GP on behalf of Fund I accepted
the cash offer of GBP2.5 million.
In August and September 2018, Fund I injected a total of GBP1.0
million into Omnico to fund working capital - the need caused by
repayment of an external debt facility and lack of cash flow from
operations. This short term loan is being repaid in tranches from
April 2019.
Valuation
The overall portfolio carrying value declined by GBP12.9 million
between 1 April 2018 and 31 March 2019 due to the write downs in
Omnico of GBP9.0 million (of which GBP9.0 million occurred in the
six months to 30 September 2018) and SPOT, of GBP1.7 million (of
which GBP1.7 million occurred in the six months to 30 September
2018) and the write up in m-hance of GBP0.3 million (of which
GBPnil occurred in the six months to 30 September 2018). The
remainder of the movement in portfolio value attributed to the sale
of Fund I's minority stake in SPOT to Fund II in November 2018, of
GBP2.5 million.
Cash and closing remarks
Cash from the sale of Fund I's interest in SPOT has been
retained for the foreseeable future. The cash balance at the time
of writing stands at GBP3.3 million which is adequate for the
effective functioning of Fund I.
Plans are in place to support an orderly winding down of Fund I.
Having reviewed the short to medium prospects of both m-Hance and
Omnico, the Fund I GP considers that an extension to the life of
Fund I by a further 18 months to be appropriate and in the best
interests of the 2009 Shareholders.
Jon Moulton
Chairman
BECAP GP Limited
28 June 2019
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 2019 2018 2018
Total invested 14.4 14.1 14.1
Total committed 14.4 14.1 14.1
Fund I fair value (earnings
based) 10.8 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 2019 2018 2018
Total invested 42.5 42.5 41.5
Total committed 42.5 42.5 41.5
Fund I fair value (earnings
based) 14.0 14.0 23.0
Portfolio summary and reconciliation
31 March 2019 Sector Fund Project Fund fair Valuation Valuation
cost(1) value percentage of NAV methodology
GBPm investment in
SPVs(2)
GBPm
Information
m-hance Systems 14.4 10.8 38.8% Earnings
Information
Omnico Group Systems 42.5 14.0 50.4% Earnings
56.9 24.8 89.2%
------------------- ----------------- ---------------- ------------------- -----------------
Fund cash on deposit 2.9 10.4 %
Fund & SPV combined other net assets 0.1 0.4 %
Provision for carried interest - - %
---------------------------------------------------------- ---------------- ------------------- -----------------
2009 Cell fair value of investment in Fund I 27.8 100.0 %
---------------------------------------------------------- ---------------- ------------------- -----------------
2009 Cell cash on deposit 0.1 0.4 %
2009 Cell current assets less liabilities (0.1) (0.4) %
---------------------------------------------------------- ---------------- ------------------- -----------------
2009 Cell NAV 27.8 100.0 %
------------------- ------------------ ----------------- ---------------- ------------------- -----------------
Summary income statement for Fund I
2019 2018
GBP'000 GBP'000
------------------------------------------ --------- ----------
Total income 30 231,214
Loss on Fund I investment portfolio (11,707) (227,510)
Fund I GP's Share (691) (859)
Other operating expenses (175) (274)
Carried Interest movement 151 (151)
Distributions - (85,365)
Fund I's operating loss for
the year (12,392) (82,945)
------------------------------------------- --------- ----------
Portion of the operating loss for the
year for 2009 Cell's investment in the
limited partnership (Note 4) (12,392) (82,945)
-------------------------------------------- --------- ----------
(1) Fund I holds its investments at cost less impairment 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 2019, Fund I had placed a total of GBP2.9 million
(2018: GBP2.7 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 2019 2018
GBP'000 GBP'000
Instant
Barclays Bank Plc Guernsey A-1 access 2,921 2,666
INDEPENT AUDITOR'S REPORT TO THE DIRECTORS OF
BETTER CAPITAL PCC LIMITED IN RESPECT OF THE 2009 CELL
Opinion
We have audited the non-statutory financial statements of the
2009 Cell (the "Cell"), a cell of Better Capital PCC Limited (the
"Company") for the year ended 31 March 2019 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 applicable
law and International Financial Reporting Standards (IFRSs).
In our opinion, the financial statements:
-- give a true and fair view of the state of the Cell's affairs
as at 31 March 2019 and of its loss for the year then ended;
-- have been properly prepared in accordance with IFRSs.
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 relevant to our audit
of the financial statements in the UK, including the FRC's Ethical
Standard 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.
Emphasis of matter - Going concern
In forming our conclusion on the financial statements, which is
not qualified, we have considered the adequacy of the disclosure
made in note 2 to the financial statements concerning the Cell's
going concern. As disclosed in note 2 the Cell's investment, Fund
I, will cease operations on 17 December 2019 due to its limited
life. It is the Fund's intention to seek shareholder approval for
an extension to the life of Fund I and consequently Cell 2009 for a
period of at least eighteen months to enable the maximisation of
shareholder value. As approval is yet to be obtained the Board have
concluded that the Cell is not a going concern. This has not had
any impact on the carrying value in the assets and liabilities of
the Cell and no adjustments have been made to these financial
statements as a result of preparing on a basis other than that of
going concern.
Responsibilities of the directors
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 and for such internal control as the directors determines is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or
error.
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.
Use of our report
This report is made solely to the directors of the Company, as a
body, in accordance with the terms of engagement dated 4 March
2019. Our audit work has been 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.
BDO Limited
Chartered Accountants
Place du Pré
Rue du Pré
St Peter Port
Guernsey
28 June 2019
Statement of Financial Position
As at 31 March 2019
2019 2018
GBP'000 GBP'000
Notes
ASSETS:
Non-current assets
Investment in limited partnership 4 27,754 40,146
Total non-current assets 27,754 40,146
----------- -----------
Current assets
Trade and other receivables 5 2 2
Cash and cash equivalents 102 331
----------- -----------
Total current assets 104 333
----------- -----------
TOTAL ASSETS 27,858 40,479
----------- -----------
LIABILITIES:
Current liabilities
Trade and other payables (54) (62)
----------- -----------
Total current liabilities (54) (62)
----------- -----------
TOTAL LIABILITIES (54) (62)
----------- -----------
NET ASSETS 27,804 40,417
=========== ===========
EQUITY
Share capital 7 - -
Retained earnings 27,804 40,417
TOTAL EQUITY 27,804 40,417
=========== ===========
Number of 2009 Shares in
issue at year end 7 35,262,505 35,262,505
=========== ===========
NAV per 2009 Share (pence) 10 78.85 114.62
=========== ===========
The audited financial statements of the 2009 Cell were approved
and authorised for issue by the Board of Directors on 28 June 2019
and signed on its behalf by:
Richard Crowder Richard Battey
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 2019
2019 2018
GBP'000 GBP'000
Notes
Income
Change in fair value of investment
in limited partnership 4 (12,392) (82,945)
Income distributions - 85,365
Total (expense)/income (12,392) 2,420
--------- ---------
Expenses
Administration fees 82 87
Directors' fees and expenses 8 54 86
Legal and professional fees 34 52
Other fees and expenses 9 19
Audit fees 15 10
Insurance premiums 6 5
Registrar fees 21 17
Total expenses 221 276
--------- ---------
(Loss)/profit and total comprehensive
(expense)/income for the financial year (12,613) 2,144
========= =========
Basic and diluted earnings per
2009 Share (pence) 10 (35.77) 2.76
========= =========
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 2019
Share Retained Total
capital earnings equity
Notes GBP'000 GBP'000 GBP'000
As at 1 April 2018 - 40,417 40,417
Loss and total comprehensive
expense for the financial
year - (12,613) (12,613)
Total comprehensive
expense for the year - (12,613) (12,613)
---------- --------- ----------
As at 31 March 2019 - 27,804 27,804
========== ========= ==========
Share Retained Total
capital earnings equity
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
========== ========= ==========
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 2019
2019 2018
GBP'000 GBP'000
Cash flows from operating activities
(Loss)/profit for the financial
year (12,613) 2,144
Adjustments for:
Change in fair value of investment
in limited partnership 12,392 82,945
Movement in debtors and prepayments - 3
Movement in creditors and accruals (8) (11)
Repayment of loan investment
in limited partnership - 137,006
Net cash (used in)/ generated
from operating activities (229) 222,087
--------- ----------
Cash flow used in financing
activities
Distributions - (221,979)
Net cash used in financing activities - (221,979)
--------- ----------
Net movement in cash and cash
equivalents during the year (229) 108
Cash and cash equivalents at
the beginning of the year 331 223
Cash and cash equivalents at
the end of the year 102 331
========= ==========
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
2019 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
During the year, the Board has made further progress towards the
realisation of the residual assets in the portfolio. Following two
extensions, Fund I is due to terminate on 17 December 2019. Having
received a comprehensive update from the Fund I GP on the short to
medium prospects of both m-Hance and Omnico, the Board considers
that an extension to the life of Fund I by a further 18 months to
be appropriate and in the best interests of the 2009 Shareholders.
A proposal will be put to shareholders at the AGM. For this reason,
the accounts are therefore not prepared on a going concern
basis.
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.
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 principally on 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 below, 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 2018 - 20 20
Carried forward - 20 20
---------- -------- ----------
Fair value adjustment through
profit or loss
Brought forward 40,126 - 40,126
Unrealised fair value movement
during the year (12,392) - (12,392)
Carried forward 27,734 - 27,734
---------- -------- ----------
Fair value as at 31 March 2019 27,734 20 27,754
========== ======== ==========
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
========== ======== ==========
The movement in fair value of the 2009 Cell is derived from the
fair value increase in m-hance, decrease in Omnico and the sale of
SPOT, 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 GBPnil was repaid to the 2009 Cell by Fund I (2018:
GBP137.0 million).
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
2019 2018
GBP'000 GBP'000
Prepayments 2 2
-------- --------
2 2
======== ========
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
2019 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 GBP2.3 million or 9.4 per
cent. (+10 per cent.)
- A decrease in the carrying value of GBP2.3 million or 9.4 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 GBP3.3 million or 13.4
per cent. (remove discount)
- A decrease in carrying value of GBP3.3 million or 13.4 per
cent. (double discount)
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 2019 amounted to GBP54,000 (2018: GBP86,000). The
Directors' fees and expenses were apportioned equally between the
Cells up to 30 September 2013, thereafter fees were split on a NAV
basis. GBP13,000 (2018: GBP10,000) 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
2019 2018
GBP'000 GBP'000
Financial assets
Investment at fair value through profit
or loss:
Investment in limited partnership 27,754 40,146
Amortised cost loans
and receivables:
Debtors (excluding prepayments) - -
Cash and cash equivalents 102 331
Financial liabilities
Financial liabilities measured at amortised
cost:
Creditors and accruals 54 62
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 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 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 have inherent volatility in valuation.
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 leads to an exposure to price risk through the
fair value movement in the underlying investments.
With two remaining investments clearly the potential volatility
of valuation is high. This risk cannot be mitigated.
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. Fund I has a low number of investments
and thus a high concentration risk.
(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 US
Dollar, arising from the overseas operations of Omnico. The
investee companies' management monitor options for hedging against
adverse exchange rate movements. The remaining investments 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. Given the size of these deposits and current
interest rate levels this risk is immaterial.
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 2019, the 2009 Cell had no
liabilities other than creditors and accruals (2018: GBPnil). The
2009 Cell had sufficient cash and cash equivalents to pay these as
they fall due.
All creditors and accruals are due within six months.
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
2019 was GBP27.8 million (2018: GBP40.1 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 2018, GBP2.9 million (2018: GBP2.7 million) or
10.5 per cent. (2018: 5.4 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 2019 2018
GBP'000 GBP'000
Royal Bank of Scotland
International Limited Guernsey A-2 32 46
Barclays Bank PLC Guernsey A-1 70 285
The 2009 Cell's maximum exposure to loss of capital at the year
end is shown below:
Carrying value
31 March 2019 and maximum exposure
GBP'000
Investment at fair value through profit
or loss 27,754
Amortised cost loans and receivables (including
cash and cash equivalents but excluding
prepayments) 102
----------------------
27,856
======================
Carrying value
31 March 2018 and maximum exposure
GBP'000
Investment at fair value through profit
or loss 40,146
Amortised cost loans and receivables (including
cash and cash equivalents but excluding
prepayments) 331
----------------------
40,477
======================
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
2019 2018
(Loss)/profit for the year GBP(12,613,334) GBP2,143,085
Weighted average number of
2009 Shares in issue 35,262,505 77,554,725
EPS (pence) (35.77) 2.76
================ =============
The earnings per share is based on the (loss)/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
2019 2018
Net assets attributable to 2009 Share Shareholders GBP27,802,855 GBP40,416,189
2009 Shares in issue 35,262,505 35,262,505
NAV per share (IFRS) (pence) 78.85 114.62
-------------- --------------
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.
11. Subsequent events
Since the year end, Fund I has received repayments of short term
loans of GBP275,000 from m-hance and GBP225,000 from Omnico
Group.
Other than the above, there have been no significant events
occurring after 31 March 2019.
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.
The 2012 Cell Investment policy is set out in the Company's
Prospectus.
General Partner's Report
The sale of Northern Aerospace in July 2018 has further reduced
Fund II to two portfolio companies, namely Everest and SPOT.
Portfolio update
Everest has continued to face many of the same issues set out in
the Interim Report. Success has been achieved in increasing the
installer headcount and reducing the over large total order book
from GBP47 million in September 2018 to GBP35 million at March
2019, resulting in both installed revenue and EBITDA finishing the
financial year FY18 ending in 31 December 2018 ahead of the
forecast produced at the time of the Interim Report (albeit still
reporting a smaller negative EBITDA). In Q1 FY19, revenue was ahead
of forecast and broadly in line with prior year, however cost of
quality-related issues has remained high which together with some
poor cost control resulted in a depressed gross margin and EBITDA
falling behind forecast. This has been partly mitigated by cost
savings, most notably in marketing.
Installer manpower stood at 371 at the end of March 2019,
broadly in line with the business's internal target and ahead of
the 360 targeted in the Interim Report. This is largely a result of
an improved and simplified installer pay deal. As the business now
has a reduced order book, there is a challenge in ensuring install
resource is located in the local areas where the backlog remains
high. Q1 FY19 installer productivity was lower than prior year -
this is due to glass supply issues restricting manufacturing output
and the level of time spent on rectification work. Significant
management time and resource has been dedicated to resolve supply
chain issues, maximising factory output and ensuring that customer
appointments to install product are maximised against the
availability of installers. Recent weeks have shown better
installation and manufacturing output.
The poor quality of glass supply and closure of Everest's major
glass supplier in Q1 FY19 significantly impacted the 'cost of
failure' measure which had reached GBP8 million in FY18. Costs
associated with replacement of poor quality product and associated
rectification fees have significantly impacted gross margin and
remained a focus of attention in FY18 whilst the search for a high
quality and reliable glass supplier continued. The glass supply
chain issues are now under control following a move to a new
supplier. Total 'cost of failure' is still unacceptably high but
declining and a new senior operations team is currently rolling out
granular cost and quality control action plans across each of the
17 install centres with specific targets to be measured as part of
new monthly installation centre profit and loss reporting. Raising
standards across supply chain, manufacture and install operations
remains a priority.
The conservatories business has benefited considerably from an
improvement in management, most clearly demonstrated in the level
of cost control exercised on a job-by-job basis, meaning that the
division is now usefully profitable at an EBITDA level.
Conservatories represented GBP11 million of the order book at Q1
FY19 - this should represent a meaningful net contribution to FY19
EBITDA. Installation volumes are rising.
Marketing spend has been significantly reduced during the last
six months, providing a cash saving and allowing for a reduction in
the high order book. Despite this, sales performance has remained
strong with Q1 FY19 showing good marketing efficiency (a reduction
in cost per company generated lead of 47 per cent. compared to
prior year) and excellent self-generated business performance. This
underlines the strength of the Everest brand, the commitment from
the sales force and a strong performance from the marketing
team.
The business has needed significant cultural change, with Joanne
Holland as CEO leading a programme focussed on providing better
customer service and greater ownership of customers at middle
management levels. The senior management team has been further
changed during Q1 FY19 with new appointments in Director of
Performance, Head of Manufacturing, Business Centre Operations
Manager, Head of Supply Chain and a restructuring in senior install
operations management.
Everest's most substantial challenges remain increasing weekly
installed revenue in the short term and fixing quality over the
months ahead in order to significantly improve upon FY18's EBITDA
performance and build a solid platform for growth beyond FY19.
These are operational issues within the company's own control and
progress is being made - but not at the pace expected.
It remains that the company has no external debt and had cash of
GBP3.3 million at 31 March 2019. A return to regular profitability
is within reach.
Everest was valued at GBP20.0 million at 31 March 2019, based on
the last reported valuation in September 2018 as augmented by the
additional funding received since then. The current valuation is
also supported using an earnings based approach.
Spicers OfficeTeam (SPOT) reported a FY18 financial year ended
31 December with audited sales of GBP281.2 million (FY17: GBP269.8
million) and audited EBITDA of GBP1.3 million (FY17: GBP8.2
million). The outcome for the financial year reflects the
challenging market conditions which affected both Spicers and
OfficeTeam with increasing cost pressures - these were not
mitigated until Q4 FY18. In addition, in FY18, SPOT incurred a
number of non-recurring expenses in reducing costs both across the
distribution network and in central overheads, including an onerous
lease provision totalling GBP3.1 million. As a consequence, SPOT's
pre-exceptional EBITDA for FY18 was GBP4.4 million (FY17: GBP10.5
million).
In November 2018, SPOT completed the complex internal balance
sheet restructure which was designed to simplify SPOT's capital
structure and enable a new incentive scheme for the management
team. The effect of this restructure was to reduce the loan notes
in SPOT to GBP10 million, giving the business a much stronger
position from which to accelerate its growth. At the same time the
interest in SPOT held by Fund I was disposed to Fund II.
In Q1 FY19, SPOT reported an EBITDA performance on budget.
Whilst the market remains both difficult and uncertain,
particularly into the second quarter, SPOT has implemented rigorous
cost control to offset some sales weakness, primarily in
OfficeTeam. In January, the long-standing CEO of SPOT retired.
After an external search for his replacement, Steve Horne joined in
March 2019 from Euro Car Parts where he was previously COO. Steve
brings an extensive track record in growing and transforming
businesses, and he has had an immediately positive impact on the
SPOT group.
On 31 March 2019, SPOT completed the disposal of two
subsidiaries, Waterlow Business Supplies and Oyez Professional
Services ("OPS") for an enterprise value of GBP22 million. As
previously highlighted, OPS has a strong niche position in its
market of legal subscription services. This market position and the
recent digital development within OPS has been recognised in its
acquisition by Advanced Legal Solutions Limited, a leading UK
software company. The net proceeds achieved by SPOT were a
significant premium to the value attributed to these operations in
the previous financial statements of the Company and represent a
substantial proportion of the Company's carrying value in SPOT. Of
the total net proceeds, GBP3.0 million has been returned to Fund II
with the balance applied to strengthen the business's balance
sheet.
The core businesses within SPOT are therefore now Spicers and
OfficeTeam. For Spicers, the continuing decline in the core office
products market in FY18 was offset by contract wins, driving sales
growth of 12 per cent. These new contracts have been key to
underpin the Spicers partnership approach where it can add
significant value to proactive and dynamic customers by reducing
costs throughout the supply chain - this is a strategic focus for
the business in future. However, these contracts are at a lower
margin, and there were operational implications of the assimilation
of these contracts adding short-term cost and service complexity,
particularly in H1 FY18. This affected productivity across the
operation, compounded by inflation in labour costs and a scarcity
of experienced labour in some locations. The resulting cost to
maintain service levels to customers remained over budget for the
majority of the year until improved disciplines and increased
stability restored operational effectiveness. As a result Spicers
reported a loss in the financial year.
In FY19, Spicers is focused on a significant reshaping of the
delivery network which is underway with the expected closure of two
sites in Bristol and Glasgow at the end of their leases during
2019, and a substantial reduction in the freehold Birmingham
facility, which will primarily be dedicated to OfficeTeam. Spicers
will service customers from two main distribution centres in
Manchester and Greenwich, supported by cross-dock operations as
required. This simplified, efficient infrastructure will deliver a
sustainably low cost platform through improved cost effectiveness
and reduced working capital requirements whilst improving
availability and maintaining high service standards.
Spicers' performance in the first quarter is slightly ahead of
budget driven by better than expected sales, despite the market
conditions. It continues to focus both on attracting new customers
and increasing spend with existing customers through competitive
pricing, improving the customer journey and strong range
availability. The management team and all involved are currently
delivering a high quality of service to their customers despite the
operational transformation.
OfficeTeam, which had a comparatively strong start to FY18, did
not maintain that momentum into the second half, and ended the year
with sales growth of 2 per cent., including the integration of
ZenOffice Limited from its acquisition in April 2018. Market
conditions have deteriorated, and OfficeTeam experienced both
slower core product sales in its major customers, and delays in
larger projects in the new product areas which have previously
driven growth. New business acquisition, however, remained strong
reflecting the relevance of the proposition to key customers given
the width of available product, strong sales support and the
personalised delivery service.
In Q1 FY19, management has accelerated the pace of change within
OfficeTeam as a response to these subdued conditions. Core customer
spend remains depressed with continuing political uncertainty
affecting discretionary expenditure. The business has continued to
generate an improving pipeline of new business wins, and increased
resource has been allocated to increase conversion of these
prospects. Initiatives to improve the efficacy and the
incentivisation of the sales force supported by the competitiveness
of the OfficeTeam pricing proposition have been implemented, with
effect from the second quarter onwards. These changes should
improve spend within existing customers and encourage penetration
into adjacent markets (print, facilities supplies, interiors and
work wear). The acquisition of ZenOffice Limited also added
expertise in managed print services to the group, and this added a
high quality service offering with sufficient scale and
infrastructure to appeal to OfficeTeam customers in an expanding
market which should deliver sales growth in FY19.
Management priorities also include increasing utilisation of the
new Smartpad technology platform. This product is critical in
delivering a leading customer offer, but has been extremely slow to
implement at a sustainably consistent performance. It will enable
both efficiency and sales opportunities for the future, and further
investment in development resources and internal capability has
been undertaken and will continue.
In FY18 SPOT net cash flow was an inflow of GBP0.7 million,
after the funding of the initial consideration for ZenOffice.
Progress was made in more efficient management of stock and an
improvement in OfficeTeam debtors. This was however offset by an
increase in trade creditors where our trading terms with key
partners have come under pressure through the year both directly
and through the credit insurance market. There is further
opportunity for stock reduction through the network change
programme in FY19.
The business has been evaluated using an earnings basis
approach, providing a carrying value of GBP25.2 million at 31 March
2019. Net debt at that date was GBP21.4 million.
Investment activities
In July 2018, Northern Aerospace was disposed to Gardner
Aerospace with GBP60 million realised in Fund II. This included the
warranty claim on CAV Aerospace. GBP48.9 million was returned to
the 2012 Cell for onward distribution.
Fund II extended loans totalling GBP9.0 million to Everest
during the course of 2018 to fund losses. The total invested in
Everest now stands at GBP36.9 million.
On 14 November 2018, SPOT completed a complex balance sheet
restructure. The objective of the exercise was to simplify SPOT's
capital structure and to facilitate the design of a new incentive
scheme for the management team. The restructure saw the Fund II GP
on behalf of Fund II making an offer for the loan note and equity
interests held by Fund I as well as to current and former members
of the SPOT management for GBP2.6 million.
On 31 March 2019, SPOT completed the disposal of its two
subsidiaries, Waterlow Business Supplies and OPS to Advanced Legal
Solutions Limited. GBP3.0 million of the net proceeds were repaid
to Fund II in June 2019.
As a secured creditor to City Link (in administration), Fund II
received total distributions of GBP0.2 million during the year
ended 31 March 2019. GBP34,000 remains receivable with GBP22.8
million already received to date. There is some prospect of further
realisation from City Link.
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 29.693 pence per share (totalling GBP4.7 million) reflecting the
VWAP of 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.
As previously disclosed, the iNTERTAIN escrow arose due to
legacy matters prior to Fund II's ownership of the business. Some
of the matters have now past the time-barred period and escrow
releases are being reviewed with the remaining matters having a
long stop date of 6 December 2019.
Valuation
The movement in the investment portfolio value is summarised as
follows:
GBP'm
Portfolio value at 1 April 2018 125.1
Northern Aerospace disposal (60.0)
-------
Portfolio value at 1 April 2019 on
a like-for-like basis 65.1
Additions at cost - follow on investments 11.6
NAV movement - portfolio companies (24.6)
52.1
Share sale to the Company - 2012
Shares (4.7)
NAV movement - 2012 Shares (1.2)
-------
Portfolio value at 31 March 2019 46.2
-------
The decrease in the portfolio value during the year was largely
due to the sale in Northern Aerospace. There were also write downs
in Everest (GBP9.0 million, of which GBP7.5 million occurred in the
six months to 30 September 2018) and SPOT (GBP15.6 million), offset
by further new investments into Everest (GBP9.0 million, of which
GBP2.5 million occurred in the six months to 30 September 2018) and
SPOT (GBP2.6 million).
2012 Shares - proposed sale and cancellation
The proposed disposal of the remaining 2012 Shares held by Fund
II to the Company and the subsequent cancellation is expected to
provide a pro-forma uplift to the NAV per remaining 2012 Shares of
approximately 0.44p per 2012 Share or 2.4 per cent. based on the
2012 Cell's NAV per share at 31 March 2019.
Cash and closing remarks
Plans are in progress to target a return of GBP2.9 million or
1.0 pps to the 2012 Cell to facilitate a fifth 2012 Cell
distribution. Further details will be announced in due course.
On 27 June 2019, Fund II had cash of GBP6.8 million. Remaining
cash will be deployed on an as required basis to support the two
remaining portfolio companies and to support Fund II's
operations.
Jon Moulton
Chairman
BECAP12 GP Limited
28 June 2019
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 2019 2018 2018
Total invested 36.9 30.4 27.9
Total committed 36.9 30.4 27.9
Fund II fair value (earnings
based) 20.0 15.0 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 II Investment details
31 March 30 September 31 March
GBP'm 2019 2018 2018
Total invested 94.2 91.6 91.6
Total committed 94.2 91.6 91.6
Fund II fair value (earnings
based) 25.2 22.6 38.2
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 36.9 20.0 35.9% Earnings
SPOT Office Products 94.2 25.2 45.2% Earnings
Private Equity
Better Capital Investment
2012 Cell Vehicle 6.4 1.0 1.8% Market Value
137.5 46.2 82.9%
------------------- ----------------- ----------------- ----------------- ------------------
Fund II cash on deposit 4.1 7.4%
Fund II & SPV combined other net assets attributable to
2012 Cell 5.0 9.2%
2012 Cell fair value of investment in Fund II 55.3 99.5%
---------------------------------------------------------- ----------------- ----------------- ------------------
2012 Cell cash on deposit 0.4 0.7%
2012 Cell current assets less liabilities (0.1) (0.2)%
---------------------------------------------------------- ----------------- ----------------- ------------------
2012 Cell NAV 55.6 100.0%
------------------- ------------------ ----------------- ----------------- ----------------- ------------------
Summary income statement for Fund II
2019 2018
GBP'000 GBP'000
----------------------------------------- --------- ---------
Total income 63 95
Loss on Fund II investment portfolio (26,340) (24,279)
Fund II GP's Share (1,468) (951)
Other operating expenses (1,069) (227)
Fund II's operating loss for the year (28,814) (25,362)
------------------------------------------ --------- ---------
Portion of the operating loss for the
year for 2012 Cell's investment in the
limited partnership (Note 4) (28,814) (25,362)
------------------------------------------- --------- ---------
(1) Fund II holds its investments at cost less impairment 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 2019, Fund II had placed a total of GBP4.1
million (2018: GBP6.8 million) of cash on deposit with one bank
(2018: one bank). 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 2019 2018
GBP'000 GBP'000
Instant
Barclays Bank Plc Guernsey A-1 access 4,066 6,794
INDEPENT AUDITOR'S REPORT TO THE DIRECTORS OF
BETTER CAPITAL PCC LIMITED IN RESPECT OF THE 2012 CELL
Opinion
We have audited the non-statutory financial statements of the
2012 Cell (the "Cell"), a cell of Better Capital PCC Limited (the
"Company") for the year ended 31 March 2019 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 applicable
law and International Financial Reporting Standards (IFRSs).
In our opinion, the financial statements:
-- give a true and fair view of the state of the Cell's affairs
as at 31 March 2019 and of its loss for the year then ended;
-- have been properly prepared in accordance with IFRSs.
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 relevant to our audit
of the financial statements in the UK, including the FRC's Ethical
Standard 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 going concern
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you
where:
-- the directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the Company's ability to continue to adopt the going
concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for
issue.
Responsibilities of the directors
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 and for such internal control as the directors determines is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or
error.
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.
Use of our report
This report is made solely to the directors of the Company, as a
body, in accordance with the terms of engagement dated 4 March
2019. Our audit work has been 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.
BDO Limited
Chartered Accountants
Place du Pré
Rue du Pré
St Peter Port
Guernsey
28 June 2019
Statement of Financial Position
As at 31 March 2019
2019 2018
GBP'000 GBP'000
Notes
ASSETS:
Non-current assets
Investment in limited partnership 4 55,318 137,206
------------
Total non-current assets 55,318 137,206
------------ ------------
Current assets
Trade and other receivables 5 5 853
Cash and cash equivalents 410 112
------------
Total current assets 415 965
------------ ------------
TOTAL ASSETS 55,733 138,171
------------ ------------
LIABILITIES:
Current liabilities
Trade and other payables (131) (113)
------------
Total current liabilities (131) (113)
------------ ------------
TOTAL LIABILITIES (131) (113)
------------ ------------
NET ASSETS 55,602 138,058
============ ============
EQUITY
Share capital 7 235,889 288,950
Retained earnings (180,287) (150,892)
------------
TOTAL EQUITY 55,602 138,058
============ ============
Number of 2012 Shares in issue
at year end 7 302,181,436 318,052,242
============ ============
NAV per 2012 Share (pence) 10 18.40 43.41
============ ============
The audited financial statements of the 2012 Cell were approved
and authorised for issue by the Board of Directors on 28 June 2019
and signed on its behalf by:
Richard Crowder Richard Battey
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 2019
2019 2018
Notes GBP'000 GBP'000
Income
Change in fair value of investments
in limited partnership 4 (28,814) (25,362)
Total (expense) (28,814) (25,362)
--------- ---------
Expenses
Administration fees 120 172
Directors' fees and expenses 8 184 197
Legal and professional fees 127 95
Other fees and expenses 44 51
Audit fees 52 53
Insurance premiums 21 22
Registrar fees 33 25
---------
Total expense 581 615
--------- ---------
Loss and total comprehensive expense
for the year (29,395) (25,977)
========= =========
Basic and diluted earnings per
2012 Share (pence) 10 (9.62) (8.17)
========= =========
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 2019
Share Retained Total
capital earnings Equity
Notes GBP'000 GBP'000 GBP'000
As at 1 April 2018 288,950 (150,892) 138,058
Loss and total comprehensive expense for the financial year - (29,395) (29,395)
Total comprehensive expense for the year - (29,395) (29,395)
--------- ---------- ---------
Transactions with owners
Distributions 7 (48,348) - (48,348)
Share buyback and cancellation 7 (4,713) - (4,713)
Total transactions with owners (53,061) - (53,061)
--------- ---------- ---------
As at 31 March 2019 235,889 (180,287) 55,602
========= ========== =========
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
======== ========== =========
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 2019
2019 2018
GBP'000 GBP'000
Cash flows from operating activities
Loss for the financial year (29,395) (25,977)
Adjustments for:
Change in fair value of investments
in limited partnership 28,814 25,362
Movement in debtors and prepayments 848 753
Movement in creditors and accruals 18 38
Repayment of loan investment in
limited partnership 48,361 7,675
---------
Net cash generated from operating
activities 48,646 7,851
--------- ---------
Cash flow generated from financing
activities
Distributions (48,348) (8,270)
---------
Net cash used in financing activities (48,348) (8,270)
--------- ---------
Net movement in cash and cash equivalents
during the year 298 (419)
Cash and cash equivalents at the
beginning of the year 112 531
Cash and cash equivalents at the
end of the year 410 112
========= =========
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 2019
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
2019 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 below, 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
2018 290,053 17 290,070
Repayment of loan investment
in limited partnership (53,074) - (53,074)
Carried forward 236,979 17 236,996
---------- -------- ----------
Fair value adjustment through
profit or loss
Brought forward (152,864) - (152,864)
Unrealised fair value movement
during the year (28,814) - (28,814)
Carried forward (181,678) - (181,678)
---------- -------- ----------
Fair value as at 31 March 2019 55,301 17 55,318
========== ======== ==========
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
========== ======== ==========
The movement in fair value of the Fund II investment is derived
from the fair value decrease in SPOT and the 2012 Cell Shares and
the sale of Northern Aerospace 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 GBP53.1 million (2018: GBP7.7
million) was repaid to the 2012 Cell by Fund II, GBP4.7 million of
this relates to the disposal of 15,870,806 2012 Shares at the
volume weighted average price on 18 June 2018, of 29.69p. The
consideration owed by the 2012 Cell to Fund II was offset against
the outstanding loan between the parties.
Income distributions receivable from Fund II in the year
amounted to GBPnil (2018: GBPnil). At 31 March 2019 an aggregate
GBPnil (2018: GBP0.8 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
2019 2018
GBP'000 GBP'000
Debtors - 837
Prepayments 5 16
-------- --------
5 853
======== ========
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 GBPnil (2018: GBP0.8
million) relates to income distributions receivable from Fund
II.
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 12.7 million shares in
the 2012 Cell, which are valued at GBP1.0 million based on their 31
March 2019 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
------ ----------
118.2 145.5
6.9 7.9
12.1 16.8
------ ----------
137.2 170.2
This approach requires the use of assumptions about certain
unobservable inputs. Significant unobservable inputs as at 31 March
2019 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 GBP6.2 million or 13.3 per
cent. (+10 per cent.)
- A decrease in the carrying value of GBP6.2 million or 13.3 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 GBP15.4 million or 33.2
per cent. (remove discount)
- A decrease in carrying value of GBP15.4 million or 33.2 per
cent. (double discount)
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 four cumulative distributions (reductions of share capital)
announced to date for the 2012 Cell totalled GBP96.7 million, being
27.2 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 2019 amounted to GBP184,000 (2018: GBP197,000).
The Directors' fees and expenses were apportioned equally between
the Cells up to 30 September 2013, thereafter fees were split on a
NAV basis. GBP46,000 (2018: GBP49,000) 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
2019 2018
GBP'000 GBP'000
Financial assets
Investment at fair value through profit
or loss:
Investment in limited partnership 55,318 137,206
Amortised cost loans
and receivables:
Debtors (excluding prepayments) - 837
Cash and cash equivalents 410 112
Financial liabilities
Financial liabilities measured at amortised
cost:
Creditors and accruals 131 113
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 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 have inherent volatility in valuation.
Volatility is unavoidable given the significance of holding two
principal investments.
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 leads to an exposure to price risk through the
fair value movement in the underlying investments.
With two remaining principal investments clearly the potential
volatility of valuation is high. This risk cannot be mitigated.
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. Fund II has a low number of investments
and thus a high concentration.
(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 transactions of the underlying
portfolio investments. The investee companies' management monitor
options for hedging against adverse exchange rate movements. 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. Given the size of these deposits and current
interest rate levels this risk is immaterial.
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 2019, the 2012 Cell had no
liabilities other than creditors and accruals (2018: GBPnil). The
2012 Cell had sufficient cash and cash equivalents to pay these as
they fall due.
All creditors and accruals are due within six months.
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
2019 was GBP55.3 million (2018: GBP137.2 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 2019, GBP4.1 million (2018: GBP6.8 million) or
7.5 per cent. (2018: 5.0 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 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 2019 2018
GBP'000 GBP'000
Royal Bank of Scotland
International Limited Guernsey A-2 75 107
Barclays Bank Plc Guernsey A-1 335 5
The 2012 Cell's maximum exposure to loss of capital at the year
end is shown below:
Carrying value
31 March 2019 and maximum exposure
GBP'000
Investment at fair value through profit
or loss 55,318
Amortised cost loans and receivables (including
cash and cash equivalents but excluding
prepayments) 410
----------------------
55,728
======================
Carrying value
31 March 2018 and maximum exposure
GBP'000
Investment at fair value through profit
or loss 137,206
Amortised cost loans and receivables (including
cash and cash equivalents but excluding
prepayments) 949
----------------------
138,155
======================
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
2019 2018
Loss for the year GBP(29,395,195) GBP(25,976,828)
Weighted average number of 2012
Shares in issue 305,659,968 318,052,242
EPS (pence) (9.62) (8.17)
================ ================
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
2019 2018
Net assets attributable to 2012 Share Shareholders GBP55,602,124 GBP138,057,867
2012 Shares in issue 302,181,436 318,052,242
NAV per share (IFRS) (pence) 18.40 43.41
-------------- ---------------
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.
11. Subsequent events
Having considered the medium term liquidity of Fund II, the Fund
II GP has informed the Company of its decision to sell the
remaining 2012 Shares in Fund II's holding. It is expected that
these 2012 Shares will be repurchased by the Company on or around 2
July 2019 and as before, on the terms as agreed under the buyback
contract entered into in December 2016.
The financial effect of the cancellation will provide a
pro-forma uplift to the NAV per remaining 2012 Shares, of
approximately 0.44p per 2012 Share or 2.4 per cent. based on the
2012 Cell's NAV per share at 31 March 2019.
Following the sale of the legal forms business in SPOT during
March 2019, the Board intends to declare a fifth distribution out
of the 2012 Cell of approximately 1.0 pps. Further details will be
announced in due course.
Other than the above, there have been no significant events
occurring after 31 March 2019.
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;
"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 PO Box 286, Floor
2, Trafalgar Court, Le Banques, St Peter Port,
Guernsey GY1 4HY;
"Company's Articles" means the Company's Articles of Incorporation;
"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 Aerospace Holdings 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;
"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;
"PPS" means pence per share;
"Prospectus" the prospectus of the Company, most recently
updated on 29 July 2013 and available on the
Company's website (www.bettercapital.gg);
"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;
"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 EC2V 7EE
PO Box 286
Floor 2, Trafalgar Court Corporate broker and financial
Les Banques adviser
St Peter Port Numis Securities Limited
Guernsey 10 Paternoster Square
GY1 4LY London
Registered office EC4M 7LT
PO Box 286 Independent auditor
Floor 2, Trafalgar Court BDO Limited
Les Banques PO Box 180
St Peter Port Place du Pré
Guernsey Rue du Pré
GY1 4LY St Peter Port
Guernsey administrator Guernsey
Estera International Fund Managers GY1 3LL
(Guernsey) Limited Public relations adviser
PO Box 286 Powerscourt
Floor 2, Trafalgar Court 1 Tudor Street
Les Banques London
St Peter Port EC4Y 0AH
Guernsey Website
GY1 4LY www.bettercapital.gg
Registrar Tickers
Link Market Services (Guernsey) 2009 Cell: BCAP.L
Limited 2012 Cell: BC12.L
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.
Following two extensions, Fund I will terminate on 17 December
2019. Having received a comprehensive update from the Fund I GP on
the short to medium prospects of both m-Hance and Omnico, the Board
considers that an extension to the life of Fund I by a further 18
months to be appropriate and in the best interests of the 2009
Shareholders. The Board intends to seek the approval of
shareholders for such an extension at the 2019 AGM.
With Fund I being the 2009 Cell's sole investment, following its
termination, the Board will begin the orderly wind-up of the 2009
Cell. For this reason, the accounts of the 2009 Cell are therefore
not prepared on a going concern basis.
Fund II is scheduled to terminate on 30 June 2021, unless the
General Partner of Fund II exercises its discretion to extend Fund
II's term for up to two additional one year periods, subject to the
consent of the Company. For this reason, the Board continues to
adopt the going concern basis in preparing the accounts of the 2012
Cell.
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 PO Box 286, Floor 2,
Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 4LY.
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 PGUAGQUPBGQR
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