TIDMESO TIDMEO.P TIDMEC.P TIDMEL.P
RNS Number : 3070B
EPE Special Opportunities PLC
03 April 2017
EPE Special Opportunities plc
("ESO plc" or "the Company")
Audited Financial Statements for the 12 months ended 31 January
2017
The Board of EPE Special Opportunities plc are pleased to
announce the Company's Final Results for the 12 months ended 31
January 2017.
Highlights:
-- The Net Asset Value ("NAV") at 31 January 2017 was 364.13
pence per share, an increase of 127.6% on the NAV per share of
160.00 pence as at 31 January 2016;
-- The share price at 31 January 2017 was 268.50 pence,
representing an increase of 115.7% on the share price of 124.50
pence as at 31 January 2016;
-- The positive performance of the Company's NAV per share has
benefited from the successful initial public offering ("IPO") and
admission to trading on the Main Market of the London Stock
Exchange of the Company's largest asset, Luceco plc. The IPO was
announced on 17 October 2016 at an implied market capitalisation of
GBP209.0 million. Prior to the IPO, ESO plc held 48.6% of the
shares of Luceco plc and loans of GBP10.0 million. Subsequent to
the secondary sale of shares to new investors, ESO plc now holds
24.3% of the newly quoted entity. The IPO implied a return to ESO
plc of 24.4x Money Multiple and 75.6% IRR, of which 12.3x Money
Multiple and 57.9% IRR has been realised;
-- The retention of 24.3% of Luceco plc is expected to be
accretive to ESO plc shareholders over the medium to long-term.
Shares in Luceco plc have performed strongly since IPO and on 31
January 2017 closed at 178.75p, up 37.5% on the IPO valuation of
130.00p;
-- Whittard of Chelsea had a good finish to 2016 with
strengthening sales across its UK retail estate and e-commerce
channels. The improving performance was in part due to macro
factors, such as the increased tourism custom seen across UK
retail, and business specific initiatives, such as the launch of
its Chinese e-commerce presence and a strong festive product
range;
-- Process Components had a strong second half of 2016 and order
intake remains encouraging. The business has successfully brought
the manufacture of its equipment range in-house, providing both
margin and supply chain control benefits;
-- On 4 July 2016, the Company announced the completion of a
merger of Pharmacy2U and ChemD Holdings Limited, which trades as
ChemistDirect.co.uk ("Chemist Direct"). In conjunction with the
merger, the Business Growth Fund has invested GBP10.0 million to
support the new business' ambitious growth plans. The enterprise
value of the new business equates to GBP43.3 million and the merger
creates a clear leader in the UK online pharmacy sector, with 1.5
million customers and unrivalled experience in digital pharmacy
services. The Chief Executive of the new business is
ChemistDirect.co.uk Chief Executive Mark Livingstone, who brings a
strong track record in innovative internet-based businesses
including LOVEFiLM and Graze.com. Subsequent to the merger,
synergies have been realised in line with management
projections;
-- On 8 March 2017, the Company completed a secondary
acquisition of a EUR2.5 million commitment in European Capital's
Private Debt Fund ("ECPD") via ESO Alternative Investments LP, a
new partnership established to hold the Company's primary and
secondary fund investments. ECPD provides private debt for European
small and medium sized enterprises, predominantly in France and the
UK. The Fund has commitments of EUR473.0 million. The acquisition
of the Company's first Limited Partner interest in ECPD will
provide a reasonable yield and will further diversify the Company's
exposure to different asset classes;
-- The portfolio remains conservatively valued with a weighted
average Enterprise Value equating to an EBITDA multiple of 5.0x for
mature unquoted assets and equating to a Sales multiple of 0.4x for
unquoted assets investing for growth;
-- The underlying portfolio is relatively unleveraged with 0.9x
third party net debt to EBITDA;
-- The Company retains a cash balance of GBP39.4 million as at
31 January 2017, providing 66.8x per annum coverage on outstanding
loan interest. Overall liquidity in the Company is GBP41.9
million;
-- Over the last five years the Company has continued to use its
capital resources prudently, retiring 36.5% of the capital
base;
-- The Company is actively pursuing new investment opportunities
where the Board is confident a good return for investors can be
achieved. All new private equity investments will be made via ESO
Investments 2 LP, in which the Company is the sole investor. All
new primary and secondary fund investments will be made via ESO
Alternative Investments LP, in which the Company is the sole
investor;
-- The Board are delighted to welcome Heather Bestwick, who
joined the Board on 10 February 2017. Heather's track record of
success and extensive experience in financial services will be
invaluable to the Company;
-- The Company's largest shareholder is Giles Brand and his
connected persons own 22.4% of the Company's issued Ordinary Share
Capital between them; and
-- Mr. Geoffrey Vero, Chairman, commented: "The Board are
pleased with the performance of the portfolio over the period. The
IPO of Luceco plc was a particular highlight and represents a
significant milestone in the Company's development, providing an
uplift in the NAV, reducing asset concentration risk and providing
greater liquidity. The Investment Advisor and Board continue to
actively pursue new investment opportunities".
Enquiries:
EPIC Private Equity LLP +44 (0) 207 269 8865
Alex Leslie
FIM Capital Limited +44 (0) 1624 681 250
Philip Scales
Cardew Group Limited +44 (0) 207 930 0777
Richard Spiegelberg
Numis Securities Limited +44 (0) 207 260 1000
Nominated Advisor: Stuart Skinner / Hugh
Corporate Broker: Jonathan
Charles Farquhar
Biographies of the Directors
Geoffrey Vero FCA Clive Spears
----------------------------------- ----------------------------------
Geoffrey Vero qualified Clive Spears retired
as a chartered accountant from the Royal Bank of
with Ernst & Young and Scotland International
then worked for Savills, Limited in December 2003
chartered surveyors, and as Deputy Director of
The Diners Club Limited. Jersey after 32 years
He has been active in of service. His main
venture capital since activities prior to retirement
1985, initially with Lazard included Product Development,
Development Capital Limited Corporate Finance, Trust
and then from 1987 to and Offshore Company
2002 as a director of Services and he was Head
Causeway Capital Limited of Joint Venture Fund
which became ABN Amro Administration with Rawlinson
Capital Limited. In 2002, & Hunter. Mr Spears is
he set up The Vero Consultancy an Associate of the Chartered
specialising in corporate Institute of Bankers
advisory services and and a Member of the Chartered
recovery situations. He Institute for Securities
has considerable experience & Investment. He has
in evaluating investment accumulated a well spread
opportunities and dealing portfolio of directorships
with corporate recovery. centring on private equity,
While at Causeway Capital, infrastructure and corporate
Mr Vero was a Founder debt. His appointments
Director of Causeway Invoice currently include being
Discounting Company Limited, Chairman of Nordic Capital
which was subsequently Limited, sitting on the
sold to NM Rothschild. board of Jersey Finance
He is also a non-executive Limited and being director
director of Numis Corporation and Head of the Investment
plc and Chairman of Albion Committee for GCP Infrastructure
Development VCT plc. Investments (FTSE 250
listed company).
----------------------------------- ----------------------------------
Robert Quayle Nicholas Wilson
----------------------------------- ----------------------------------
Robert Quayle qualified Nicholas Wilson has over
as an English solicitor 40 years of experience
at Linklaters & Paines in hedge funds, derivatives
in 1974 after reading and global asset management.
law at Selwyn College, He has run offshore branch
Cambridge. He subsequently operations for Mees Pierson
practiced in London and Derivatives Limited,
the Isle of Man as a partner ADM Investor Services
in Travers Smith Braithwaite. International Limited
He served as Clerk of and several other London
Tynwald (the Isle of Man's based financial services
parliament) for periods companies. He is Chairman
totalling 12 years and of Qatar Investment Fund
holds a number of public Plc, a premium listed
and private appointments, company, and, until recently,
and is active in the voluntary was chairman of Alternative
sector. Mr. Quayle is Investment Strategies
Chairman of the Isle of Limited. He is a resident
Man Steam Packet Company of the Isle of Man.
Limited, W.H. Ireland
(IOM) Limited and a number
of other companies in
the financial services,
manufacturing and distribution
sectors.
----------------------------------- ----------------------------------
Heather Bestwick
-----------------------------------
Heather Bestwick has been
a financial services professional
for 25 years, onshore
in the City of London
and offshore in the Cayman
Islands and Jersey. She
qualified as an English
solicitor, specialising
in ship finance, with
City firm Norton Rose,
and worked in their London
and Greek offices for
8 years. Ms Bestwick subsequently
practised and became a
partner with global offshore
law firm Walkers in the
Cayman Islands, and Managing
Partner of the Jersey
office. Becoming a non-executive
director in 2014, she
is Chairman of Equiom
(Jersey) Limited and Equiom
(Guernsey) Limited, sits
on the boards of the manager
of the Deutsche Bank dbX
hedge fund platform, a
shipping fund, and the
States of Jersey incorporated
company holding Jersey's
affordable housing, together
with several other financial
services companies.
-----------------------------------
Profile of Investment Advisor
EPIC Private Equity LLP ("EPE" or the "Investment Advisor") was
founded in June 2001 and is independently owned by its Partners.
EPE focuses on niche investment opportunities with a focus on
special situations, distressed, growth and buyout transactions,
special purpose acquisition companies, private investments in
public equities, as well as primary and secondary limited partner
transactions.
Giles Brand Robert Fulford
--------------------------------- ----------------------------------
Giles Brand is a Partner Robert Fulford is an Investment
and the founder of EPE. Director of EPE. He previously
He is currently a non-executive worked at Barclaycard Consumer
director of Whittard of Europe before joining EPE.
Chelsea and Luceco plc. Whilst at Barclaycard,
Before joining EPE, Giles Robert was the Senior Manager
was a founding Director for Strategic Insight and
of EPIC Investment Partners, was responsible for identifying,
a fund management business analysing and responding
which at sale to Syndicate to competitive forces.
Asset Management plc had Prior to Barclaycard, Robert
US$5 billion under management spent four years as a strategy
and spent five years working consultant at Oliver Wyman
in Mergers and Acquisitions Financial Services, where
at Baring Brothers in Paris he worked with a range
and London. Giles read of major retail banking
History at Bristol University. and institutional clients
in the UK, mainland Europe,
Middle East and Africa,
specialising in strategy
and risk modelling. He
manages the Company's investment
in Whittard of Chelsea,
where he is currently a
non-executive director.
Robert read Engineering
at Cambridge University.
--------------------------------- ----------------------------------
James Henderson Alex Leslie
--------------------------------- ----------------------------------
James Henderson is an Investment Alex Leslie is an Investment
Director of EPE. He previously Director of EPE. He previously
worked in the Investment worked in Healthcare Investment
Banking division at Deutsche Banking at Piper Jaffray
Bank before joining EPE. before joining EPE. Whilst
Whilst at Deutsche Bank at Piper Jaffray he worked
he worked on a number of on a number of M&A transactions
M&A transactions and IPOs and equity fundraisings
in the energy, property, within the Biotechnology,
retail and gaming sectors, Specialty Pharmaceutical
as well as providing corporate and Medical Technology
broking advice to mandated sectors. He manages the
clients. He manages the Company's investments in
Company's investment in Luceco plc and Process
Pharmacy2U, where he is Components, where he is
currently a non-executive currently a non-executive
director. James read Modern director. Alex read Human
History at Oxford University Biological and Social Sciences
and Medicine at Nottingham at Oxford University and
University. obtained an MPhil in Management
from the Judge Business
School at Cambridge University.
--------------------------------- ----------------------------------
Hiren Patel
---------------------------------
Hiren Patel is a Partner
and EPE's Finance Director
and Compliance Officer.
He has worked in the investment
management industry for
the past ten years. Before
joining EPEA and EPE, Hiren
was finance director of
EPIC Investment Partners.
Before EPIC Investment
Partners Hiren was employed
at Groupama Asset Management
where he was the Group
Financial Controller.
---------------------------------
Chairman's Statement
The UK's vote to leave the European Union on the 23 June 2016
continues to dominate the political and economic outlook of the
country. However recent political events, such as announcements
regarding the timetable and objectives for the UK's departure from
the European Union, and recent economic indicators, such as the
upward revision of the Bank of England's forecast for UK GDP growth
in 2017 from 1.4% to 2.0%, have provided positive contributions to
the outlook for the coming year. Whilst the long-term effects of
the referendum will not be known for some time, short-term effects
such as the devaluation of sterling and the risk of rising
inflation in 2017 have been widely identified. The Board continues
to track the impact of the UK's economic fortunes on the portfolio
of EPE Special Opportunities ("ESO plc" or "the Company").
The Net Asset Value ("NAV") per share as at 31 January 2017 for
the Company was 364.13 pence per share, representing an increase of
127.6% on the NAV per share of 160.00 pence as at 31 January 2016.
The share price as at 31 January 2017 for the Company was 268.50
pence, representing an increase of 115.7% on the share price of
124.50 pence as at 31 January 2016.
The positive performance of the Company's NAV per share has
benefited from the successful initial public offering ("IPO") and
admission to trading on the Main Market of the London Stock
Exchange of the Company's largest asset, Luceco plc. The IPO was
announced on 17 October 2016 at an implied market capitalisation of
GBP209.0 million. Prior to the IPO, ESO plc held 48.6% of the
shares of Luceco plc and loans of GBP10.0 million. Subsequent to
the secondary sale of shares to new investors, ESO plc now holds
24.3% of the newly quoted entity. The IPO implied a return to ESO
plc of 24.4x Money Multiple and 75.6% IRR, of which 12.3x Money
Multiple and 57.9% IRR has been realised.
The retention of 24.3% of Luceco plc is expected to be accretive
to ESO plc shareholders over the medium to long-term. Shares in
Luceco plc have performed strongly since IPO and on 31 January 2017
closed at 178.75p, up 37.5% on the IPO valuation of 130.00p. Giles
Brand, Managing Partner of EPE, has continued as Non-Executive
Chairman of Luceco plc.
The IPO of Luceco plc represents a significant milestone in the
development of the Company; providing an uplift in the NAV of the
Company, reducing asset concentration risk and providing greater
liquidity. This liquidity will be re-invested in line with the
Company's investment policy as currently defined.
Performance of other assets within the Company's portfolio has
been encouraging over the period. Whittard of Chelsea had a good
finish to 2016 with strengthening sales across its UK retail estate
and e-commerce channels. The improving performance was in part due
to macro factors, such as the increased tourism custom seen across
UK retail, and business specific initiatives, such as the launch of
its Chinese e-commerce presence and a strong festive product range.
The business continues to invest in programmes to target long-term,
sustainable returns, such as customer retention and international
sales channels.
On 4 July 2016, the Company announced the completion of a merger
of Pharmacy2U and ChemD Holdings Limited, which trades as
ChemistDirect.co.uk ("Chemist Direct"). The merger created a clear
leader in the UK online pharmacy sector, with 1.5 million customers
and unrivalled experience in digital pharmacy services. Subsequent
to the merger, synergies have been realised in line with management
projections.
Process Components had a strong second half of 2016 and order
intake remains encouraging. The business has successfully brought
the manufacture of its equipment range in-house, providing both
margin and supply chain control benefits.
On 8 March 2017, the Company completed a secondary acquisition
of a EUR2.5 million commitment in European Capital's Private Debt
Fund ("ECPD") via ESO Alternative Investments LP, a partnership
established to hold the Company's primary and secondary fund
investments. ECPD provides private debt for European small and
medium sized enterprises ("SMEs"), predominantly in France and the
UK. The Fund has commitments of EUR473.0 million. The acquisition
of the Company's first LP interest in ECPD interest will provide a
reasonable yield and will further diversify the Company's exposure
to different asset classes. The acquisition price and level of
deployed capital are supportive to the Company's forecast
returns.
The Board is particularly pleased with the overall performance
of the portfolio over the year to 31 January 2017, which has
resulted in the Company being recognised as the highest performing
investment trust over a five year period (FE Trustnet: best
performing investment trust over a five year period (excluding
property funds) by price performance (31 December 2016)) . The
Board continues to actively review new investment opportunities to
deploy the Company's liquidity where projected returns to
shareholders are attractive. The Board believes that portfolio
diversification is a key consideration of future capital
allocation, including prudent geographic or asset class
diversification. The Company will continue to invest in UK focused
assets, but will also consider businesses with significant overseas
operations.
I would like to extend my warm welcome to Heather Bestwick, who
joined the Board on 10 February 2017. Heather's track record of
success and extensive experience in financial services will be
invaluable to the Company as we continue to grow our industry
leading business.
I would also like to extend my gratitude to the Investment
Advisor, EPE, as well as my fellow Directors and professional
advisors, for their hard work and diligence over what has been a
successful year.
I look forward to updating you once again at the half year
point.
Geoffrey Vero
Chairman
31 March 2017
Investment Advisor's Report
In the year to 31 January 2017, the Investment Advisor has
focused on maintaining and creating value from within the existing
portfolio held by the Company through organic growth and corporate
transactions. The Investment Advisor continues to undertake
operational improvements and revenue enhancement measures to
increase the value of the current portfolio assets. At the same
time, the Investment Advisor has endeavoured to find new
opportunities by way of platform transformation or bolt-on
investment opportunities, such as the merger of Pharmacy2U and
Chemist Direct, in July 2016, and the IPO of Luceco plc, in October
2016.
A number of new private equity deals have been considered but
exercise of strict price disciplines and appropriate attention to
prevailing market volatility has meant none have been completed
during the period. All new private equity investments will be made
via ESO Investments 2 LP ("ESO 2 LP"), in which the Company is the
sole investor.
On 8 March 2017, the Company completed the secondary acquisition
of a EUR2.5 million commitment in European Capital's Private Debt
Fund ("ECPD") by ESO Alternative Investments LP, a partnership
established to hold the Company's primary and secondary fund
investments. ECPD provides private debt for European SME's,
predominantly in France and the UK. The fund has commitments of
EUR473.0 million. The acquisition of the ECPD interest will provide
the Company with a reasonable yield and more particularly will
further diversify the Company's asset class exposure. The
acquisition price and level of deployed capital are supportive to
the Company's forecast returns. Prior to March 2016, the Investment
Advisor acted as placement agent to ECPD on the successful
fundraise of the fund.
The Investment Advisor continues to monitor the impact of macro
economic factors upon the portfolio, most notably the impact of the
UK's vote to leave the European Union on 23 June 2016. The
Investment Advisor is mindful of the short-term impact this event
will have upon the UK economy, including the devaluation of
sterling and volatility on the public markets, whilst noting the
recent positive revisions in growth forecasts for the UK.
On 17 October 2016, the Company announced the successful IPO and
admission to trading on the Main Market of the London Stock
Exchange of its largest asset, Luceco plc. The IPO was priced at
130.0p per share or an implied market capitalisation of GBP209.0
million. Prior to the IPO, ESO plc held 48.6% of the shares of
Luceco plc and loans of GBP10.0 million. Subsequent to the
secondary sale of shares to new investors, ESO plc now holds 24.3%
of the newly quoted entity. The IPO implied a return to ESO plc of
24.4x Money Multiple and 75.6% IRR, of which 12.3x Money Multiple
and 57.9% IRR is realised.
The retention by ESO plc of 24.3% of Luceco plc is expected to
be accretive to ESO plc shareholders over the medium to long-term.
Luceco plc has performed strongly in the aftermarket, closing up
15.3% on the business' first day of trading and closing up 37.5% on
the IPO valuation on 31 January 2017. Subsequent to the IPO, the
business has continued to trade well and has announced that results
for 2016 will be in line with market expectations. The business has
entered 2017 with significant momentum and the Investment Advisor
continues to have a positive outlook for Luceco plc.
Whittard of Chelsea had a good finish to 2016 with improving
sales across its UK retail estate and e-commerce channels. This
strong performance was in part due to macro factors, such as the
increased tourism custom seen across UK retail, and business
specific initiative, such as the launch of its Chinese e-commerce
presence and a strong festive product range. The business continues
to invest in programmes to target long-term, sustainable returns,
such as customer retention and international sales channels.
Together, Luceco and Whittard represent 56.8% of the Company's
Gross Asset Value ("GAV").
Process Components had a weak year to 30 June 2016, finishing
behind budget, in part due to order phasing. However, trading in
the remainder of 2016 was encouraging and the outlook for 2017 is
promising, demonstrated by strengthening order intake and the
movement of equipment manufacture in-house, providing greater
supply chain control and margin benefits. The business continues to
invest in future sales and production infrastructure and product
development at the business' UK and US facilities.
Pharmacy2U finished the year to 31 March 2016 behind budget in
part due to operational issues surrounding the opening of a new
facility which have now been resolved. Dispensing costs are
expected to fall in the coming months, in part, as a result of the
new facility opened in December 2015. On 4 July 2016, the Company
announced the completion of a merger of Pharmacy2U and Chemist
Direct. In conjunction with the merger, the Business Growth Fund
has invested GBP10.0 million to support the new business' ambitious
growth plans. The enterprise value of the new business equates to
GBP43.3 million and the merger creates a clear leader in the UK
online pharmacy sector, with 1.5 million customers and unrivalled
experience in digital pharmacy services. Subsequent to the merger,
synergies have been realised in line with management
projections.
Company highlights
The NAV per share as at 31 January 2017 for the Company was
364.13 pence, calculated on the basis of 28.3 million ordinary
shares (versus 30.0 million at issue), representing an increase of
127.6% on the NAV per share of 160.00 pence as at 31 January 2016.
The share price for the Company as at 31 January 2017 was 268.50
pence, representing an increase of 115.7% on the share price of
124.50 pence as at 31 January 2016.
Based on the latest NAV, as set out above, Gross Asset Cover for
the total outstanding loans of GBP7.9 million is now 14.1x. Cash
balances now stand at GBP39.4 million (including cash held by ESO 1
LP) with interest coverage of 66.8x per annum. Overall liquidity in
the Company is GBP41.9 million.
Third party net debt in the Company's portfolio stands at 0.9x
EBITDA. The portfolio remains conservatively valued with a weighted
average Enterprise Value equating to an EBITDA multiple of 5.0x for
mature unquoted assets and equating to a Sales multiple of 0.4x for
unquoted assets investing for growth. 9.9% of the portfolio's GAV
is comprised of yielding loans.
Investment highlights from the inception of the Company (16
September 2003) to date include:
-- Deployed GBP66 million of capital;
-- Returned over GBP134 million to the Company in capital and income;
-- Paid dividends of GBP5 million; and
-- The underlying portfolio is valued at a gross 7.7x money multiple and 39.2% IRR.
Performance summary One Three Five
As at 31 January 2017 Year Years Years
ESO plc Share Price 116% 209% 465%
ESO plc NAV Per Share 128% 169% 308%
Listed European PE Index* 47% 64% 187%
FTSE All-Share Index 16% 10% 32%
AIM All-Share Index 27% 3% 16%
--------------------------- ------ ------- -------
* Selected Listed European PE Index constituents: 3i, Better
Capital, Dunedin Enterprise, Electra Private Equity, HgCapital
Trust, ICG Enterprise Trust and Oakley Capital Investments. The
Index has been constructed by weighting the daily share price of
each constituent by its market capitalisation on a daily basis.
Recent developments
-- July 2015: acquisition of minority interest in ESO 1 LP for
GBP8.6 million; GBP4.5 million ULNs issue and GBP0.25 million issue
of new equity in the Company.
-- November to December 2015: refinance of GBP3.0 million in
principal amount of the existing CLNs into ULNs with warrants over
Ordinary shares offered on a 1 for 5 basis. A further GBP0.5
million was raised through issuance of ULNs to new investors.
-- July 2016: merger of Pharmacy2U with Chemist Direct, creating
a clear leader in the UK online pharmacy sector.
-- October 2016: IPO and admission to trading on the Main Market
of the London Stock Exchange of Luceco plc. An implied return to
ESO plc at the IPO valuation of 24.4x Money Multiple and 75.6% IRR,
of which 12.3x Money Multiple and 57.9% IRR has been realised.
-- March 2017: acquisition of EUR2.5 million commitment in
European Private Debt Fund which provides private debt for European
SME's, predominantly in France and the UK.
Portfolio diversification
The portfolio at the year end was diversified by sector and
instrument as follows:
Sector diversification %
---------------------------- ------
Engineering, Manufacturing
and Distribution 87.6%
Retail / FMCG 9.9%
Healthcare 2.5%
---------------------------- ------
Total 100%
---------------------------- ------
Instrument diversification %
Equity 58.4%
Cash 35.2%
Shareholder Loans 6.4%
---------------------------- ------
Total 100%
---------------------------- ------
Current portfolio: ESO 1 LP
Luceco plc
Luceco plc ("Luceco") is a manufacturer and distributor of
electrical accessories and LED lighting in the UK and increasingly
internationally, operating under the brand names British General
(or "BG"), Luceco and Masterplug, supplying both the retail and
wholesale markets. The development of the Luceco LED lighting
ranges is a major focus for the business. The gathering momentum
behind the lighting technology switch to LED provides the business
with an opportunity to enter and build market share in the category
at a point of disruptive transition as traditional solutions are
superseded. Luceco is differentiated by its positioning as a
Chinese manufacturer, where the Company has built a 52,500 square
metre wholly-owned production facility in Jiaxing, with British
product quality and a responsive product development team. Luceco
completed a successful IPO in October 2016 and was admitted to
trading on the Main Market of the London Stock Exchange.
Whittard of Chelsea
Whittard of Chelsea ("Whittard") is a retailer of specialty tea,
coffee and hot chocolate. Established in 1886, Whittard commands
both strong brand recognition and customer loyalty in the UK and
abroad. The main channel for Whittard is the portfolio of 50 stores
across the UK. These stores are positioned in prime locations on
the high street, in tourist centres and outlets, with sales
generated from both gifting and regular self-purchases. Other
channels include the online, wholesale and franchise channels. The
Investment Advisor has focused on developing the Whittard of
Chelsea brand towards a more premium stance, which should broaden
its appeal both in the UK home market and abroad.
Pharmacy2U
Pharmacy2U ("P2U") is an online pharmacy business, delivering
National Health Service and private prescriptions direct to the
home using an innovative technology developed in conjunction with
the NHS, the Electronic Prescription Service ("EPSr2"). In December
2015, P2U moved into a new automated distribution facility which,
once established, is expected to drive future capacity growth in
the near term. In July 2016, P2U merged with Chemist Direct
creating a clear leader in the UK online pharmacy sector.
Current portfolio: ESO Investments (PC) LLP ("ESO (PC) LLP")
Process Components
Process Components ("PCL") is an engineering parts and equipment
supplier to the powder processing industries, primarily food,
agriculture and pharmaceuticals. Customers are blue chip global
manufacturers, and the business has been growing its international
supply operations.
Current Portfolio: ESO Alternative Investments LP ("ESO AI
LP")
European Capital Private Debt Fund
European Capital Private Debt Fund ("ECPD Fund") is a provider
of private debt to European SME's, predominantly in France and the
UK. The ECPD Fund has total commitments of EUR473.0 million. Prior
to March 2016, the Investment Advisor acted as placement agent to
the ECPD Fund on the successful fundraise of the fund. The Company
acquired a fund commitment of EUR2.5 million in March 2017 through
ESO AI LP, in which ESO plc is the sole investor.
Current portfolio: ESO 2 LP
No new private equity investments were made in the period. The
Company continues to explore opportunities to acquire high quality
assets at attractive prices to further diversify the current
portfolio.
Outlook
The Investment Advisor is focused on creating value in its core
investments, where opportunities for significant value creation
remain, as well as on making new investments to increase portfolio
diversification and generate attractive returns for shareholders.
The Investment Advisor expects to achieve continued cost savings
and revenue improvement measures in portfolio companies, especially
those in manufacturing and consumer focused sectors. New investment
opportunities are being pursued. All new private equity investments
will be made via ESO 2 LP, in which the Company is the sole
investor. All new primary and secondary fund investments will be
made via ESO AI LP, in which the Company is the sole investor.
Strategic Report
Objectives and opportunities
The Company is an investment company and has been quoted on the
Alternative Investment Market ("AIM"). Its objective is to provide
long-term return on equity for its shareholders by way of
investment in a portfolio of private equity assets. The portfolio
is likely to be concentrated, numbering between two and 10 assets
at any one time.
Investment policy
The Investment Advisor believes that the current economic
environment continues to create a wide range of investment
opportunities in small and medium sized enterprises ("SMEs"). As a
result, the Investment Advisor continues to use proprietary deal
sourcing approaches to source these opportunities, as well as
engaging actively with the wider restructuring and advisory
community to communicate the Company's investment strategy. The
Company seeks to target growth and buyout opportunities, as well as
special situations and distressed transactions, making investments
where it believes pricing to be attractive and the potential for
value creation strong. The Company will continue to target the
following types of investments:
-- Growth, Buyout and Pre-IPO opportunities: leveraging the
Investment Advisor's investment experience, contacts and ability.
The Company is particularly focused on making investments in
sectors where the opportunity exists to create a unique asset via
the consolidation of a number of smaller companies, taking
advantage of the lack of liquidity in the SME market and the
attraction to secondary buyers of larger operations.
-- Special Situations: investment opportunities where the
Investment Advisor believes that assets are undervalued due to
specific, event-driven circumstances and where asset-backing may be
available and the opportunity exists for recovery and significant
upside. Target companies may or may not be distressed as a result
of the situation. The Investment Advisor will aim to use its
restructuring and refinancing expertise to resolve the situation
and achieve a controlling position in the target company. The
Company seeks to acquire distressed debt, undervalued equity or the
assets of target businesses in solvent or insolvent situations.
-- Private Investment in Public Equities (PIPEs): the Company
may consider making investments in a number of smaller quoted
companies, primarily ones whose shares are admitted to AIM. The
Company will either seek to acquire and de-list the target company
or take a large minority interest in the target company whilst
retaining the listing. The Company may offer ordinary shares in the
Company as all or part of the consideration for such
investments.
-- Special Purpose Acquisition Companies (SPACs): the Company
may consider making investments in listed companies which have been
established to acquire other companies. The Investment Advisor
would seek to work with a management team to develop an acquisition
strategy in advance of the listing of the SPAC, at which point the
Company would invest. The subsequent acquisition or acquisitions
may be funded through further equity raises directly into the SPAC.
The strategy would seek to take advantage of the Investment
Advisor's combination of experience in both the establishment of
and management of listed companies and private equity
investing.
-- Secondary portfolios / Limited Partner positions (Secondary
or Primary) / EPE Funds: the Company is able, through EPE's
Placement business, to invest as a limited partner in various
Private Equity funds on substantially improved terms. On occasion,
the Company will seek to take advantage of these commitments. The
EPE skill-set and experience is well suited to the requirements of
co-investing in funds.
The Company will consider most industry sectors, including
consumer, retail, manufacturing, financial services, healthcare,
support services and media industries. The Company partners with
management and entrepreneurs to maximise value by combining
financial and operational expertise in each investment.
The Company will seek to invest between GBP2 million and GBP20
million in a range of debt and equity instruments with a view to
generating returns through both yield (c.5% to 15% per annum) and
capital gain. Whilst in general the Company aims to take
controlling equity positions, it may seek to develop companies as a
minority investor. Occasionally the Board may authorise investments
of less than GBP2 million. For investments larger than GBP20
million, the Company may seek co-investment from third parties or
additional public market fundraisings.
Investment policy
The Company looks to invest in businesses with strong
fundamentals, including defensible competitive advantage,
opportunity for strong future cashflow and dynamic management
teams.
The Company aims to maintain a concentrated portfolio of between
two and 10 assets.
The Company looks to invest in UK focused assets as well as
those with significant overseas operations. For instance, within
the Company's current portfolio, Luceco plc employs c.2,000 staff
at it's manufacturing and product development facility in Jiaxing,
China and Process Components has a significant US sales and
distribution operation.
The Company's Investment Policy has been in place for several
years and is subject to ongoing review as described below and in
the Investment Advisors Report.
The Investment Advisor
The Investment Advisor to the Company is EPE, which was founded
in June 2001 and is an independent investment manager wholly owned
by its Partners. Since 2001, EPE has made 38 investments. EPE
manages the Company's investments in accordance with guidelines
determined by the Directors, the Investment Advisor and the
Company's constitutional commitments. These guidelines evolve
periodically. EPE was appointed as the Investment Advisor in
September 2003.
Current and future development
A detailed review of the year and outlook is contained in the
Chairman's Statement and the Investment Advisor's Report.
The Board regularly reviews the development and strategic
direction of the Company. The Board's main focus continues to be on
the Company's long-term investment return. It is believed that the
Company has foundations in place to build a successful and durable
investment vehicle given its supportive shareholder base, with
Giles Brand and his connected persons owning 22.4% (Excluding
awards made under the Joint Share Ownership Plan) of the issued
Ordinary Share Capital of the Company, and the provision of equity
funding until at least December 2020, with five year extensions
thereafter, via the passing of the Continuation Vote in July
2013.
Performance
A detailed review of historic performance is contained in the
Chairman's Statement and the Investment Advisor's Report. A number
of key indicators are considered by the Board and the Investment
Advisor in assessing the progress and performance of the Company.
These are well established industry measures and are as
follows:
-- Return on equity over the long-term;
-- Movement in NAV per ordinary share;
-- Movement in share price; and
-- Realisation of assets above cost and above holding value at NAV.
Further details of these key performance indicators can be found
below.
As part of this review of performance, the Board and the
company's auditors review and challenge the investment valuations
prepared by EPE to ensure the Company's performance is fairly
reported. The Board also considers contemplated capital events over
the lifetime of the Company to gain an appreciation of the
Company's likely development and future performance. This is
considered in light of the risks faced by the Company and its
portfolio discussed below.
Risk management
All risks associated with the Company are the responsibility of
the Board, which reviews and manages these either directly or
through EPE. The Board and EPE review the risks faced by the
Company on an ongoing basis and at quarterly Board meetings. These
reviews are not restricted to a specific time horizon due to the
long-term nature of investments and the short-term liquidity
requirement. Further, the Risk and Audit Committee reviews the
Company's approach to risk management on a biannual basis at the
Business Risk Assessment level and on an annual basis at the
operational level to ensure adopted practices are suitable,
effective and robust. An ISAE programme is being introduced during
the coming year to provide further assurance to the Board regarding
operational processes.
The main risks which the Company currently faces are as
follows:
Macroeconomic risks
The performance of the Company's underlying portfolio of assets
as well as the Company's ability to exit these assets is materially
influenced by the macroeconomic conditions, including the current
business environment and market conditions, the availability of
debt finance, the level of interest rates, as well as the number of
active buyers. Considerable effort continues to be taken by the
Investment Advisor to position the portfolio companies to cope with
the changing macroeconomic climate.
Share price volatility and liquidity
The market price of the Company's shares could be subject to
significant fluctuations due to a change in investor sentiment
regarding the Company or the industry in which the Company operates
or in response to specific facts and events, including positive or
negative variations in the Company's interim or full year operating
results and business developments of the Company and/or
competitors. The market price of the shares may not reflect the
underlying value of the Group and it is possible that the market
price of the shares will trade at a discount to NAV.
The Board monitors share price to NAV per share discount, and
considers the most effective methodologies to keep this at a
minimum. These methodologies include a share buyback policy, with
Directors continuing to seek shareholder authority on an annual
basis to enable them to purchase shares for cancellation when they
believe it will be in the best interests of shareholders. To date,
this strategy has been used prudently and efficiently to improve
shareholder returns, with the Company having retired limited
partnership interests, par value CLNs and ordinary shares over the
last five years equating to 36.5% of the capital base.
The Company holds quoted investments, through its investment in
Luceco plc, which are subject to share price volatility. The
Company values its holding in Luceco plc at the quoted price at
close of the markets on the balance sheet date without adjustment.
Therefore the holding value for this asset is subject to
short-term, interday volatility (i.e. no period averages are taken)
or more widely, fluctuations due to a change in investor sentiment
regarding the business or the industry in which the business
operates.
Long-term strategic risks
The Company is subject to the risk that share price performance
and long-term strategy fail to meet the expectations of its
shareholders. The Board regularly reviews the Objective and
Investment Policy in light of prevailing investor sentiment to
ensure the Company remains attractive to its shareholders.
Investment risks
The Company operates in a competitive market. Changes in the
number of market participants, the availability of investable
assets, the pricing of investable assets, or in the ability of EPE
to access and execute deals could have a significant effect on the
Company's competitive position and on the sustainability of
returns.
Adequate sourcing and execution of deals is primarily dependent
on the ability of EPE to attract and retain key investment
executives with the requisite skills and experience.
Adequate performance of portfolio assets once acquired is
primarily dependent on macroeconomic conditions, conditions within
each asset's market and the ability of the respective management
teams of each asset to execute their business strategy. Any one of
these factors could have an impact on the valuation of a portfolio
company and upon the Company's ability to make a profitable exit
from the investment within the desired timeframe.
The Company may at certain times hold a relatively concentrated
investment portfolio of between two and 10 assets. The Company
could be subject to significant losses if it, for example, holds a
large position in a particular investment that declines in value.
Such losses could have a material adverse effect on the performance
of and returns achieved by the Company.
The Company and EPE monitor the risk that high asset
concentration within the investment portfolio may pose. The Company
mitigates the risk through the current level of liquidity available
to the Company to invest in new assets, the Investment Advisor's
ongoing work to identify new attractive investment opportunities
and careful monitoring of all the investment portfolio's assets,
with particular attention to the portfolio's larger assets.
A rigorous process is put in place by EPE for managing the
relationship with each portfolio company. This includes regular
asset reviews, an assessment of concentration of the investment
portfolio at any given period and board representation by one or
more EPE executives. The Board reviews both the performance of EPE
and its incentive arrangements on a regular basis to ensure that
both are appropriate to the objectives of the Company.
Gearing risks
Gearing can cause both gains and losses in the asset value of
the Company to be magnified. Gearing can also have serious
operational impacts on the Company if a breach of its banking
covenants occurs. Secondary risks relate to whether the cost of
gearing is too high and whether the length of the gearing is
appropriate. The Board regularly monitors the headroom available
under funding covenants and reviews the impact of the various forms
of gearing and their cost to the Company. The Company uses gearing
directly via its CLNs, its ULNs and an overdraft facility at ESO 1
LP, and indirectly via gearing in individual portfolio assets.
Foreign exchange risk
The base currency of the Company is Sterling. Certain of the
Company's assets may be invested in investee companies which may
have operations in countries whose currency is not Sterling and
securities and other investments which are denominated in other
currencies. Accordingly, the Company will necessarily be subject to
foreign exchange risks and the value of its assets may be affected
unfavourably by fluctuations in currency rates.
Valuation risks and methodology
The Investment Advisor determines asset values using IPEV
guidelines and other valuation methods with reference to the
valuation principles of IFRS 13: Fair Value Measurement. This
determination is subject to many assumptions and requires
considerable judgment.
For unquoted investments, the assets are classified as Level 3
in the IFRS 7 fair value hierarchy. IPEV guidelines recommend the
use of comparable quoted company metrics and comparable transaction
metrics to determine an appropriate enterprise value, to which a
marketability discount is applied given the illiquid nature of
private equity investments. The Investment Advisor also seeks to
confirm value using discounted cash flow and other methods of
valuation, and by applying a range approach. The Investment Advisor
adopts a conservative approach to valuation with reference to the
aforementioned methodology having regard for on-going volatile
market conditions.
For quoted investments, the assets are classified as Level 1 in
the IFRS 7 fair value hierarchy. Accordingly, the assets are valued
at the quoted price at close of markets on the balance sheet date,
without adjustment. The Company announces an estimated net asset
value per ordinary share on a monthly basis following a review of
the valuation of the Company's investments.
Operational risks
The Company's investment management and administration are
provided or arranged for the Company by EPE. The Company is
therefore exposed to internal and external operational risks at
EPE, including regulatory, legal, information technology, human
resources and deficiencies in internal controls. The Company
monitors the provision of services by EPE to ensure they meet the
Company's business objectives.
The Board continues to monitor the operational procedures of the
Company and those of the Investment Advisor. The Board has reviewed
these procedures within the last year with the support of the
Company Secretary and Nomad. This review included an assessment of
the performance of the Investment Advisor, as well as assessing the
services offered by other providers including the Company's Nomad,
Secretary and Fund Administrators. Key risks considered include
service provider failure, conflicts of interest and the risks of
fraud, reputation damage and bribery. The Board will continue to
monitor these procedures and risks, and update the Company's
procedures accordingly.
Quarterly Board reports are submitted by each provider setting
out any operational or compliance issues arising and are monitored
by the Board. The Board considers the performance of each outsource
provider in conjunction with the Audit and Risk Committee processes
assumed directly by the Board in accordance with the offer
document. An Audit and Risk Committee visit to the Investment
Advisor was completed in January 2017.
Performance is further considered as part of the annual audit
process and any issues arising therein as a result of reports and
or discussion with the appointed Auditors.
The Company has appointed FIM Capital Limited ("FIM") as
administrators and EPE Administration Limited ("EPEA") (formerly
EHM International Limited) as sub-administrator to provide
administration and accounting services. The Board reviews the
performance and procedures of both service providers (including
disaster recovery procedures) on an annual basis and conducted an
in-depth review of the procedures and services offered by EPEA on
15 June 2015. As a result of this in-depth review, EPEA has engaged
KPMG to provide an ISAE assurance process with scoping agreed and
phase one work to commence in 2017.
The Company's Nomad and corporate finance advisor is Numis
Securities ("Numis") who provide compliance and regulatory services
to the Company. The Board also periodically reviews the performance
of Numis as Nomad and Corporate Adviser to the Company. A review
was carried out in 2016 with performance deemed to be satisfactory
and the ongoing engagement approved. The next review is planned for
2017.
Sources of funds
The Company considers a number of sources for funds. These
include its own cash resources, listed Luceco plc shares and third
party funds. Own cash resources originate via income from ESO 1 LP
and ESO (PC) LLP and capital from asset realisations and
refinancings. The focus on utilising these cash resources allows
the Company to minimise dilution from public market fundraisings
and provides sufficient capital for small share buybacks and the
execution of one to two new investment opportunities per annum.
The Company's own cash resources may be supplemented by
additional third party funding. One route of third party funding
includes the provision of co-investment capital alongside the
Company in ESO 2 LP, either as private investment capital directly
into ESO 2 LP or on a deal by deal basis. The Company may also seek
opportunistic public market fundraisings, in particular when
considering transformational investment opportunities such as the
acquisition of the EPIC plc private equity portfolio in 2010.
Alternatively, third party debt funding may be sourced, comprising
zero dividend preference shares, preference shares, senior and
mezzanine debt, such as the GBP10.0 million of CLNs raised in 2010
to part-fund the EPIC plc portfolio acquisition and the GBP8.0
million new ULNs raised in 2015.
Board Composition and Succession Plan
Objectives of Plan
-- To ensure that the Board is composed of persons who
collectively are fit and proper to direct the Company's business
with prudence, integrity and professional skills; and
-- To define the Board Composition and Succession Plan (the
"Plan"), which guides the size, shape and constitution of the Board
and the identification of suitable candidates for appointment to
the Board.
The Plan is reviewed by the Board annually and at such other
times as circumstances may require (e.g. a major corporate
development or an unexpected resignation from the Board). The Plan
may be amended or varied in relation to individual circumstances at
the Board's discretion in due course.
The Board has reviewed and approved a formal succession plan
with regards to the Directors. The Board conducted a competency and
succession review and following the results of that review
appointed Heather Bestwick to the Board on 10 February 2017.
Methodology
The Board is conscious of the need to ensure that proper
processes are in place to deal with succession issues and the Board
uses a skills matrix to assist in the selection process.
The matrix includes the following elements: finance, accounting
and operations; familiarity with the broader concepts of private
equity investment, diversity (gender, residency, cultural
background); Shareholder perspectives; investment management;
multijurisdictional compliance and risk management. In adopting the
matrix, the Board acknowledges that it is an iterative document and
will be reviewed and revised periodically to meet the Company's
on-going needs.
Directors may be appointed by the Board, in which case they are
required to seek election at the first AGM following their
appointment. In making an appointment the Board shall have regard
to the Board skills matrix.
The Board also uses the skill matrix to review the current
composition of the Board to assess strengths and to identify and
mitigate any weaknesses. The Board conduct these reviews on an
ongoing basis and addresses issues as they are highlighted by the
process. The next review is set for May 2017.
A Director's formal letter of appointment sets out, amongst
other things, the following requirements:
-- Bringing independent judgment to bear on issues of strategy,
performance, resources, key appointments and standards of conduct
and the importance of remaining free from any business or other
relationship that could materially interfere with independent
judgement;
-- Having an understanding of the Company's affairs and its
position in the industry in which it operates;
-- Keeping abreast of and complying with the legislative and
broader responsibilities of a Director of a company whose shares
are traded on the London Stock Exchange;
-- Allocating sufficient time to meet the requirements of the
role, including preparation for Board meetings; and
-- Disclosing to the Board as soon as possible any potential conflicts of interest.
Geoffrey Vero
Chairman
31 March 2017
Risk and Audit Committee Report
The Risk and Audit Committee is chaired by Clive Spears and
comprises all other Directors.
The Risk and Audit Committee's main duties are:
-- To review and monitor the integrity of the interim and annual
financial statements, interim statements, announcements and matters
relating to accounting policy, laws and regulations of the
Company;
-- To evaluate the risks to the quality and effectiveness of the financial reporting process;
-- To review the effectiveness and robustness of the internal
control systems and the risk management policies and procedures of
the Company;
-- To review the valuation of portfolio investments;
-- To review corporate governance compliance;
-- To review the nature and scope of the work to be performed by
the Auditors, and their independence and objectivity; and
-- To make recommendations to the Board as to the appointment
and remuneration of the external auditors.
The Risk and Audit Committee has a calendar which sets out its
work programme for the year to ensure it covers all areas within
its remit appropriately. It met four times during the period under
review to carry out its responsibilities and senior representatives
of the Investment Advisor attended the meetings as required by the
Risk and Audit Committee. In between meetings, the Risk and Audit
Committee chairman maintains ongoing dialogue with the Investment
Advisor and the lead audit partner via visits and meetings at the
office of the Investment Advisor.
During the year the Risk and Audit Committee carried out a
further review of its terms of reference against FRC guidelines and
its own effectiveness. It concluded that the changes were working
well and that the Risk and Audit Committee is satisfactorily
fulfilling its terms of reference and is operating effectively.
Additional risk lines have been agreed covering Cyber Security and
macro influences, such as Brexit.
Significant accounting matters
The significant issue considered by the Risk and Audit Committee
during the year in relation to the financial statements of the
Company is the valuation of unquoted investments.
The Company's accounting policy for valuing investments is set
out in note 3. The Risk and Audit Committee examined and challenged
the valuations prepared by the Investment Advisor, taking into
account the latest available information on the Company's
investments and the Investment Advisor's knowledge of the
underlying portfolio companies through their ongoing monitoring.
The Risk and Audit Committee satisfied itself that the valuation of
investments had been carried out consistently with prior accounting
periods, or that any change in valuation basis was appropriate, and
was conducted in accordance with published industry guidelines.
The Auditors explained the results of their review of the
procedures undertaken by the Manager for the valuation. On the
basis of their audit work, no material adjustments were identified
by the auditor.
External audit
The Risk and Audit Committee reviewed the audit plan and fees
presented by the Auditors, KPMG Audit LLC ("KPMG"), and considered
their report on the financial statements. The fee for the audit of
the annual report and financial statements of the Company for the
year ended 31 January 2017 was GBP26,900 (2016: GBP26,200).
The Risk and Audit Committee reviews the scope and nature of all
proposed non-audit services before engagement, with a view to
ensuring that none of these services have the potential to impair
or appear to impair the independence of their audit role. The
committee receives an annual assurance from the Auditors that their
independence is not compromised by the provision of such services,
if applicable. During the period under review, the Auditors did not
provide any non-audit services to the Company.
KPMG were appointed as Auditors to the Company for the year
ending 31 January 2005 audit. The Risk and Audit Committee does
regularly consider the need to put the audit out to tender, the
Auditors' fees and independence, alongside matters raised during
each audit. The appointment of KPMG has not been put out to tender
as yet as the Committee, from ongoing direct observation and
indirect enquiry of the Investment Advisor, remain satisfied that
KPMG continue to provide a high quality audit and effective
independent challenge in carrying out their responsibilities. The
Company adheres to a five year roll over in relation to the Auditor
partner and a new lead partner has been appointed over the period
of KPMG appointment.
Having considered these matters and the continuing effectiveness
of the external auditor, the Risk and Audit Committee has
recommended to the Board that KPMG be appointed as Auditors for the
current year.
The Board reviews the performance and services offered by FIM as
fund administrator and EPEA as fund sub-administrator on an ongoing
basis. As a result of an in-depth review undertaken in June 2015,
EPEA has engaged in a controls and system review, which will
complete during 2017.
Risk management and internal control
The Company does not have an internal audit function. The Risk
and Audit Committee believes this is appropriate as all of the
Company's management functions are delegated to the Investment
Advisor which has its own internal control and risk monitoring
arrangements. A report on these arrangements is prepared by the
Investment Advisor and submitted to the Risk and Audit Committee
which it reviews on behalf of the Board to support the Directors'
responsibility for overall internal control. The Company does not
have a whistleblowing policy and procedure in place. The Company
delegates this function to the Investment Advisor who is regulated
by the FCA and has such policies in place. The Risk and Audit
Committee has been informed by the Investment Advisor that these
policies meet the industry standards and no whistleblowing took
place during the year.
Clive Spears
Chairman of the Risk and Audit Committee
31 March 2017
Report of the Directors
Principal activity
The Company was incorporated in the Isle of Man as an AIM quoted
public company limited by shares under the Laws with registered
number 108834C on 25 July 2003. On 23 July 2012, the Company
re-registered under the Isle of Man Companies Act 2006, with
registration number 008597V.
The principal activity of the Company and its subsidiaries and
its associates is to arrange income yielding financing for growth,
buyout and special situations and holding the investments with a
view to exiting in due course at a profit.
Incorporation
The Company was incorporated on 25 July 2003. The Company's
registered office is:
IOMA House, Hope Street, Douglas, Isle of Man, IM1 1AP.
Details of subsidiaries are provided in note 23.
Results of the financial year
Results for the year are set out in the Consolidated Statements
of Comprehensive Income and in the Consolidated Statement of
Changes in Equity below.
Dividends
The Board does not recommend a dividend in relation to the
current year (2016: nil) (see note 9 for further details).
Corporate governance principles
As an Isle of Man registered company and under the AIM Rules for
companies, the Company is not required to comply with the UK
Corporate Governance Code published by the Financial Reporting
Council ("Code"). The Directors, however, place a high degree of
importance on ensuring that the Company maintains high standards of
Corporate Governance and have therefore adopted the spirit of the
Code to the extent that they consider appropriate, taking into
account the size of the Company and nature of its operations. This
includes a periodic internal evaluation of board performance.
The Board holds at least four meetings annually and has
established Audit and Risk and Investment committees. The Board
does not intend to establish remuneration and nomination committees
given the current composition of the Board and the nature of the
Company's operations. The Board reviews annually the remuneration
of the Directors and agrees on the level of Directors' fees.
Composition of the Board
The Board currently comprises five non-executive Directors, all
of whom are independent. Geoffrey Vero is Chairman of the Board,
Clive Spears is Chairman of the Risk and Audit Committee and
Nicholas Wilson is Chairman of the Investment Committee.
Risk and Audit Committee
The activities of the Risk and Audit Committee continued,
members of which are Clive Spears (Chairman of the Committee) and
all the other Directors. The Risk and Audit Committee provides a
forum through which the Company's external auditors report to the
Board.
The Risk and Audit Committee meets twice a year, at a minimum,
and is responsible for considering the appointment and fee of the
external auditors and for agreeing the scope of the audit and
reviewing its findings. It is responsible for monitoring compliance
with accounting and legal requirements, ensuring that an effective
system of internal controls in maintained and for reviewing annual
and interim financial statements of the Company before their
submission for approval by the Board. The Risk and Audit Committee
has adopted and complied with the extended terms of reference
implemented on the Company's readmission in August 2010, as
reviewed by the Board from time to time.
The Board is satisfied that the Risk and Audit Committee
contains members with sufficient recent and relevant financial
experience.
Investment Committee
The Board established an Investment Committee, which comprises
Nicholas Wilson (Chairman of the Committee) and all the other
Directors. The purpose of this committee is to review the portfolio
of the Company and evaluate the performance of the Investment
Advisor.
The Board is satisfied that the Investment Committee contains
members with sufficient recent and relevant financial
experience.
Significant holdings
Significant shareholdings are analysed below. The Directors are
not aware of any other holdings greater than 3% of issued
shares.
Directors
The Directors of the Company holding office during the financial
year and to date are:
Mr. G.O. Vero (Chairman)
Mr. R.B.M. Quayle
Mr. C.L. Spears
Mr. N.V. Wilson
Ms. H. Bestwick (appointed: 10 February 2017)
Secretary
The secretary of the Company holding office for the financial
year ended 31 January 2017 was Mr. P.P. Scales.
Staff
At 31 January 2017 the Group employed no staff (2016: none).
Auditors
Our Auditors, KPMG Audit LLC, being eligible, have expressed
their willingness to continue in office.
On behalf of the Board
Nicholas Wilson
Director
31 March 2017
Statement of Directors' Responsibilities in respect of the
Directors' Report and the Financial Statements
The Directors are responsible for preparing the Directors'
Report and the financial statements in accordance with applicable
law and regulations. In addition, the Directors have elected to
prepare the financial statements in accordance with International
Financial Reporting Standards ("IFRSs"), as adopted by the European
Union ("EU").
The financial statements are required to give a true and fair
view of the state of affairs of the Group and of the profit or loss
of the Company for that year.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
International Financial Reporting Standards, as adopted by the EU;
and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for keeping proper accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time its
financial position. They have general responsibility for taking
such steps as are reasonably open to them to safeguard the assets
of the Group and to prevent and detect fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. Legislation governing the preparation and
dissemination of financial statements may differ from one
jurisdiction to another.
Report of the Independent Auditors, KPMG Audit LLC, to members
of EPE Special Opportunities plc
We have audited the financial statements of EPE Special
Opportunities plc for the year ended 31 January 2017 which comprise
the Consolidated Statement of Comprehensive Income, the
Consolidated Statement of Assets and Liabilities, the Consolidated
Statement of Changes in Equity, the Consolidated Statement of Cash
Flows and the related notes. The financial reporting framework that
has been applied in their preparation is applicable law and
International Financial Reporting Standards ("IFRSs"), as adopted
by the EU.
This report is made solely to the Company's members, as a body.
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.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors' Responsibilities
Statement set out above, the Directors are responsible for the
preparation of financial statements that give a true and fair view.
Our responsibility is to audit, and express an opinion on, the
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
(APBs) Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Group's circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant
accounting estimates made by the Directors; and the overall
presentation of the financial statements.
In addition, we read all the financial and non-financial
information in the Chairman's Statement, Investment Advisors
Report, Strategic Report, Risk and Audit Committee Report and
Directors' Report to identify material inconsistencies with the
audited financial statements and to identify any information that
is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on the financial statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Group's affairs
as at 31 January 2017 and of the Group's profit for the year then
ended; and
-- have been properly prepared in accordance with IFRSs, as adopted by the EU.
KPMG Audit LLC
Heritage Court,
41 Athol Street,
Douglas,
Isle of Man, IM99 1HN
31 March 2017
Consolidated Statement of Comprehensive Income
For the year ended 31 January 2017
31 January 31 January
2017 2016
Revenue Capital Total Total
Note GBP GBP GBP GBP
------------------------- ------------ ----------- ------------ ------------
Income
4 Interest income 12,558 - 12,558 15,969
------------------------- ------------ ----------- ------------ ------------
Total income 12,558 - 12,558 15,969
------------------------- ------------ ----------- ------------ ------------
Expenses
Investment advisor's
5 fees (1,181,626) - (1,181,626) (853,488)
5 Administration fees (119,680) - (119,680) (77,923)
6 Directors' fees (124,000) - (124,000) (124,000)
Directors' and Officers'
insurance (3,988) - (3,988) (4,110)
Professional fees (70,942) - (70,942) (264,460)
Board meeting and
travel expenses (10,974) - (10,974) (8,600)
Auditors' remuneration (35,700) - (35,700) (32,861)
Bank charges (1,068) - (1,068) (970)
Irrecoverable VAT (310,161) - (310,161) (292,322)
Share based payment
7 expense (245,750) - (245,750) (296,608)
Sundry expenses (27,637) - (27,637) (35,441)
Nominated advisor
and broker fees (63,935) - (63,935) (62,534)
Listing fees (31,643) - (31,643) (22,148)
Total expenses (2,227,104) - (2,227,104) (2,075,465)
------------------------- ------------ ----------- ------------ ------------
Net expense (2,214,546) - (2,214,546) (2,059,496)
------------------------- ------------ ----------- ------------ ------------
Gains/(losses) on
investments
Share of profit
10 of associates - 63,958,644 63,958,644 6,662,201
Foreign exchange
24 gain - - - 428,889
Gains for the year
on investments - 63,958,644 63,958,644 7,091,090
------------------------- ------------ ----------- ------------ ------------
Finance charges
Interest on unsecured
15 loan note instruments (618,765) - (618,765) (263,742)
Interest on convertible
15 loan note instruments (129,126) - (129,126) (383,745)
Profit/(loss) for
the year before
taxation (2,962,437) 63,958,644 60,996,207 4,384,107
8 Taxation - - - -
------------------------- ------------ ----------- ------------ ------------
Profit/(loss) for
the year (2,962,437) 63,958,644 60,996,207 4,384,107
------------------------- ------------ ----------- ------------ ------------
Other comprehensive
income - - - -
------------------------- ------------ ----------- ------------ ------------
Total comprehensive
income/(loss) (2,962,437) 63,958,644 60,996,207 4,384,107
------------------------- ------------ ----------- ------------ ------------
Basic earnings/(loss)
per ordinary share
17 (pence) (10.36) 223.75 213.39 16.14
------------------------- ------------ ----------- ------------ ------------
Diluted earnings/(loss)
per ordinary share
17 (pence) (10.29) 222.07 211.78 15.31
------------------------- ------------ ----------- ------------ ------------
The total column of this statement represents the Group
Statement of Comprehensive Income, prepared in accordance with
IFRSs. The Supplementary revenue and capital return columns are
prepared in accordance with the Board of Directors' agreed
principles. All items derive from continuing activities.
Consolidated Statement of Assets and Liabilities
At 31 January 2017
31 January 31 January
2017 2016
Note GBP GBP
---------------------------------- ------------ ------------
Non-current assets
10 Investments in associates 73,609,872 46,067,688
Loans to associates and
10,13 related companies 1,012,055 1,012,055
74,621,927 47,079,743
---------------------------------- ------------ ------------
Current assets
12 Cash and cash equivalents 37,232,756 6,555,094
Trade and other receivables 99,290 98,550
37,332,046 6,653,644
---------------------------------- ------------ ------------
Current liabilities
14 Trade and other payables (684,996) (268,357)
Loans from associates and
13 related companies (276,510) (282,120)
15 Convertible loan note instruments - (1,880,047)
---------------------------------- ------------ ------------
(961,506) (2,430,524)
----------------------------------
Net current assets 36,370,540 4,223,120
---------------------------------- ------------ ------------
Non-current liabilities
15 Unsecured loan note instruments (7,862,131) (7,841,525)
(7,862,131) (7,841,525)
---------------------------------- ------------ ------------
Net assets 103,130,336 43,461,338
---------------------------------- ------------ ------------
Equity
16 Share capital 1,568,568 1,543,206
16 Share premium 2,893,562 2,056,590
Capital reserve 80,800,164 16,841,520
Revenue reserve 17,868,042 23,020,022
Total equity 103,130,336 43,461,338
Net asset value per share
18 (pence) 364.13 160.00
---------------------------------- ------------ ------------
The financial statements were approved by the Board of Directors
on 31 March 2017 and signed on its behalf by:
Geoffrey Vero Clive Spears
Director Director
Consolidated Statement of Changes in Equity
For the year ended 31 January 2017
Year ended 31 January 2017
Share Share Capital Revenue
capital premium reserve reserve Total
Note GBP GBP GBP GBP GBP
---------------------- ---------- ---------- ----------- ------------ ------------
Balance at 1 February
2016 1,543,206 2,056,590 16,841,520 23,020,022 43,461,338
Total comprehensive
income for the year - - 63,958,644 (2,962,437) 60,996,207
---------------------- ---------- ---------- ----------- ------------ ------------
Contributions by
and distributions
to owners
Share based payment
7 charge - - - 245,750 245,750
Cash received from
JSOP participants - - - - -
Purchase of treasury
16 shares - - - (2,435,293) (2,435,293)
16 Issue of new shares 25,362 836,972 - - 862,334
Total transactions
with owners 25,362 836,972 - (2,189,543) (1,327,209)
---------------------- ---------- ---------- ----------- ------------ ------------
Balance at 31 January
2017 1,568,568 2,893,562 80,800,164 17,868,042 103,130,336
---------------------- ---------- ---------- ----------- ------------ ------------
Year ended 31 January 2016
Share Share Capital Revenue
capital premium reserve reserve Total
Note GBP GBP GBP GBP GBP
---------------------- ---------- ---------- ----------- ------------ -----------
Balance at 1 February
2015 1,534,411 1,815,385 9,750,430 26,000,008 39,100,234
Total comprehensive
income for the year - - 7,091,090 (2,706,983) 4,384,107
---------------------- ---------- ---------- ----------- ------------ -----------
Contributions by
and distributions
to owners
Share based payment
7 charge - - - 296,608 296,608
Cash received from
JSOP participants - - - 8,471 8,471
Purchase of treasury
16 shares - - - (578,082) (578,082)
16 Issue of new shares 8,795 241,205 - - 250,000
Total transactions
with owners 8,795 241,205 - (273,003) (23,003)
---------------------- ---------- ---------- ----------- ------------ -----------
Balance at 31 January
2016 1,543,206 2,056,590 16,841,520 23,020,022 43,461,338
---------------------- ---------- ---------- ----------- ------------ -----------
Consolidated Statement of Cash Flows
For the year ended 31 January 2017
31 January 31 January
2017 2016
Note GBP GBP
------------------------------------- ------------ ------------
Operating activities
Interest income received 12,558 15,969
Expenses paid (1,597,954) (1,691,416)
Net cash used in operating
19 activities (1,585,396) (1,675,447)
------------------------------------- ------------ ------------
Investing activities
Purchase of share of equity
accounted investees - (8,629,872)
Capital distribution from
10 associate 36,416,460 -
Net cash generated from/(used
in) investing activities 36,416,460 (8,629,872)
------------------------------------- ------------ ------------
Financing activities
Convertible loan note interest
paid (102,236) (344,418)
Convertible loan note repurchases (1,017,714) (1,246,081)
Proceeds from the issue
of unsecured loan note instrument - 5,025,000
Unsecured loan note interest
paid (598,159) (253,439)
Proceeds from the issue
of new shares - 250,000
Purchase of treasury shares (2,435,293) (578,082)
16 Share ownership scheme participation - 8,471
Net cash (used in)/generated
from financing activities (4,153,402) 2,861,451
------------------------------------- ------------ ------------
Increase/(decrease) in cash
and cash equivalents 30,677,662 (7,443,868)
Cash and cash equivalents
at start of year 6,555,094 13,998,962
------------------------------------- ------------ ------------
Cash and cash equivalents
at end of year 37,232,756 6,555,094
------------------------------------- ------------ ------------
Notes to the Financial Statements
For the year ended 31 January 2017
1 Operations
The Company was incorporated in the Isle of Man as an AIM quoted
public company limited by shares under the Laws with registered
number 108834C on 25 July 2003. On 23 July 2012, the Company
re-registered under the Isle of Man Companies Act 2006, with
registration number 008597V. The Company raised GBP30.0 million by
a placing of ordinary shares at 100 pence per share. In 2009 the
Company raised an additional GBP5.0 million by a placing of
ordinary shares at 5 pence per share. During the year ended 31
January 2011, the Company issued a further GBP2.4 million in share
capital. During the year ended 31 January 2016, the Company raised
a further GBP0.25 million in share capital.
The Company has three wholly owned subsidiary companies (see
note 23) and at 31 January 2017, had interests in two partnerships
that are accounted for as associates. The partnerships comprise one
limited liability partnership and one limited partnership. The
Company also has an interest in a third partnership, ESO
Alternative Investments LP ("ESO AI LP") (previously ESO
Investments 2 LP), a partnership established to hold the Company's
primary and secondary fund investments. As at 31 January 2017, ESO
Alternative Investments LP had made no investments.
The principal activity of the Group and its associates is to
arrange income yielding financing for growth, buyout and special
situations and holding the investments and its associates with a
view to exiting in due course at a profit.
The consolidated financial statements comprise the results of
the Group and its associates (see notes 3(a) and 23).
The Company has no employees.
2 Basis of preparation
a. Statement of compliance
The financial statements have been prepared in accordance with
International Financial Reporting Standards and interpretations as
adopted by the EU and applicable legal and regulatory requirements
of Isle of Man law and reflect the following policies, which have
been adopted and applied consistently, with the exception of the
adoption of the following new standards and amendments to
standards, including any consequential amendments to other
standards, with a date of initial application of 1 February
2016:
a. Equity method in separate financial statements - Amendments to IAS 27
b. Annual improvements to IFRSs - 2012-2014 cycle - various standards
c. Investment entities: Applying the consolidation exception -
Amendments to IFRS 10, IFRS 12 and IAS 28
d. Disclosure initiatives - Amendments to IAS 1
The adoption of the above new standards has had no significant
impact on the Groups measurement of its assets and liabilities, and
no impact on the disclosures included in the financial
statements.
b. Basis of measurement
The consolidated financial statements have been prepared on the
historical cost basis except for financial instruments at fair
value through profit or loss which are measured at fair value.
c. Functional and presentation currency
These consolidated financial statements are presented in
Sterling, which is the Company's functional currency. All financial
information presented in Sterling has been rounded to the nearest
pound.
d. Use of estimates and judgements
The preparation of financial statements in conformity with IFRSs
requires Directors and the Investment Advisor to make judgements,
estimates and assumptions that affect the application of policies
and the reported amounts of assets and liabilities, income and
expense. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making the judgements about carrying values of assets
and liabilities that are not readily apparent from other sources.
The Directors have, to the best of their ability, provided as true
and fair a view as is possible. Actual results may differ from
these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
Judgements made by Directors and the Investment Advisor in the
application of IFRSs that have a significant effect on the
financial statements and estimates with a significant risk of
material adjustments in the next year relate to impairment
provisioning in connection with secured loans and valuations of
unquoted equity investments held by associates (see note 11).
3 Significant accounting policies
a. Basis of consolidation
Subsidiaries
Subsidiaries are those enterprises controlled by the Company.
Control exists when the Company is exposed or has rights to
variable returns from its involvement with the investee and has the
ability to effect those returns through its power over the investee
. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control
commences until the date that control ceases.
The Company holds interests in ESO 1 LP, ESO AI LP and ESO (PC)
LLP, which are managed and controlled by EPE for the benefit of the
Company and the other members. The Company does not have the
ability to direct the activities of ESO 1 LP, ESO AI LP and ESO
(PC) LLP. The Directors consider that ESO 1 LP, ESO AI LP and ESO
(PC) LLP do not meet the definition of subsidiaries. These entities
are instead treated as associates and equity accounted.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from intra-group transactions, are eliminated
in preparing the consolidated financial statements. Unrealised
gains arising from transactions with associates are eliminated
against the investment to the extent of the Group's interest in the
investee. Unrealised losses are eliminated in the same way as
unrealised gains, but only to the extent that there is no evidence
of impairment.
Associates
Associates are those enterprises over which the Company has
significant influence, and which are neither subsidiaries nor an
interest in a joint venture. Significant influence is exerted when
the Company has the power to participate in the financial and
operating policy decision of the investee, but is not in control or
joint control over those policies.
The Company applies the equity method in accounting for
associates. The investment is initially measured at cost and the
carrying amount is increased or decreased to recognise the
Company's share of the associate's profit or loss. Accounting
policies of associates are aligned with those of the Group.
b. Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single segment of business and geographic area being arranging
financing for growth, buyout and special situations in the United
Kingdom. Information presented to the Board of Directors for the
purpose of decision making is based on this single segment.
c. Income
Interest income is recognised as it accrues in profit or loss,
using the effective interest method. Dividend income is accounted
for when the right to receive such income is established.
d. Expenses
All expenses are accounted for on an accruals basis.
e. Cash and cash equivalents
Cash comprises current deposits with banks. Cash equivalents are
short-term highly liquid investments that are readily convertible
to known amounts of cash, are subject to an insignificant risk of
changes in value and are held for the purposes of meeting
short-term cash commitments rather than for investments or other
purposes.
f. Financial assets and financial liabilities
i. Classification
Equity and preference share investments, including those held by
associates, have been designated at fair value through profit or
loss.
Financial assets that are designated as loans and receivables
comprise loans and accrued interest and other receivables.
ii. Recognition
The Group recognises financial assets and financial liabilities
on the date it becomes a party to the contractual provisions of the
instrument.
iii. Measurement
Equity and preference share investments, including those held by
associates, are stated at fair value. Loans and receivables are
stated at amortised cost less any impairment losses.
The Investment Advisor determines asset values using IPEV
guidelines and other valuation methods with reference to the
valuation principles of IFRS 13. The valuation principles adopted
are classified as Level 3 for unquoted investments and Level 1 for
quoted investments in the IFRS 7 fair value hierarchy. IPEV
guidelines recommend the use of comparable quoted company metrics
and comparable transaction metrics to determine an appropriate
enterprise value, to which a marketability discount is applied
given the illiquid nature of private equity investments. The
Investment Advisor also seeks to confirm value using discounted
cash flow and other methods
3 Significant accounting policies
of valuation, and by applying a range approach. The Investment
Advisor then seeks to determine whether holding the investment at
cost is appropriate given the implied value, or whether an
adjustment should be made to achieve fair value: whether this be in
the form of an impairment or a write-up.
'Fair value' is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date in the
principal or, in its absence, the most advantages market to which
the Group has access at that date. The fair value of a liability
reflects its non-performance risk.
When available, the Group measures the fair value of an
instrument using the quoted price in an active market for that
instrument. A market is regarded as 'active' if transactions for
the asset or liability take place with sufficient frequency and
volume to provide pricing information on an ongoing basis. The
Group measures instruments quoted in an active market at
mid-price.
If there is no quoted price in an active market, then the Group
uses valuation techniques that maximise the use of relevant
observable inputs and minimise the use of unobservable inputs. The
chosen valuation technique incorporates all of the factors that
market participants would take into account in pricing a
transaction.
The Group recognises transfers between levels of the fair value
hierarchy as at the end of the reporting period during which the
change has occurred.
The amortised cost of a financial asset or financial liability
is the amount at which the financial asset or financial liability
is measured at initial recognition, minus principal repayments,
plus or minus the cumulative amortisation using the effective
interest method of any difference between the initial amount
recognised and the maturity amount, minus any reduction for
impairment. Financial assets that are not carried at fair value
though profit and loss are subject to an impairment test. For loans
to portfolio companies the impairment test is undertaken as part of
the assessment of the fair value of the enterprise value of the
related business, as described above. If expected life cannot be
determined reliably, then the contractual life is used.
iv. Impairment
Financial assets that are stated at cost or amortised cost are
reviewed at each reporting date to determine whether there is
objective evidence of impairment. If any such indication exists, an
impairment loss is recognised in the profit or loss as the
difference between the asset's carrying amount and the higher of
its fair value less costs to sell and the present value of
estimated future cash flows discounted at the financial asset's
original effective interest rate.
If in a subsequent period the amount of an impairment loss
recognised on a financial asset carried at amortised cost
decreases, and the decrease can be linked objectively to an event
occurring after the write-down, the write-down is reversed through
the profit or loss.
v. Derecognition
The Company derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire or it
transfers the financial asset and the transfer qualifies for
derecognition in accordance with IAS 39.
The Company uses the weighted average method to determine
realised gains and losses on derecognition. A financial liability
is derecognised when the obligation specified in the contract is
discharged, cancelled or expired.
g. Share capital
Ordinary share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of ordinary shares and share
options are recognised as a deduction from equity, net of any tax
effects.
Repurchase of share capital (treasury shares)
When share capital recognised as equity is repurchased, the
amount of the consideration paid, which includes directly
attributable costs, net of any tax effects, is recognised as a
deduction from equity. Repurchased shares are classified as
treasury shares and are presented as a deduction from total equity.
When treasury shares are sold or reissued subsequently, the amount
received is recognised as an increase in equity, and the resulting
surplus or deficit on the transaction is transferred to/from
retained earnings.
h. Compound financial instruments
Compound financial instruments issued by the Group comprise
convertible loan note instruments that can be converted to share
capital at the option of the holder, and the number of shares to be
issued does not vary with changes in their fair value.
The liability component of a compound financial instrument is
recognised initially at the fair value of a similar liability that
does not have an equity conversion option. The equity component is
recognised initially at the difference between fair value of the
compound financial instrument as a whole and the fair value of the
liability component. Any directly attributable transaction costs
are allocated to the liability and equity components in proportion
to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a
compound financial instrument is measured at amortised cost using
the effective interest method. The equity component of a compound
financial instrument is not re-measured subsequent to initial
recognition.
When convertible loan notes are repurchased, the nominal value
of the convertible loan notes repurchased is first deducted from
the consideration paid with any gain or loss from the repurchase
being recognised in the profit or loss.
Interest, dividends, losses and gains in relation to the
financial liability are recognised in profit or loss. Distributions
to the equity holders are recognised in equity net of any tax
benefits.
EPIC Private Equity Employee Benefit Trust ("EBT")
As the Company is deemed to have control of its EBT, the EBT is
treated as a subsidiary and consolidated for the purposes of the
Group financial statements. The EBT's assets (other than
investments in the Company's shares), liabilities, income and
expenses are included on a line-by-line basis in the Group
financial statements. The EBT's investment in the Company's shares
is deducted from shareholders' funds in the Group Statement of
asset and liabilities as if they were treasury shares (see note
7).
Share based payments
Certain employees (including Directors) of the Company and the
Investment Advisors receive remuneration in the form of equity
settled share-based payment transactions, through a Joint Share
Ownership Plan ("JSOP").
Equity-settled share-based payments are measured at fair value
at the date of grant. The fair value is determined based on the
share price of the equity instrument at the grant date. The fair
value determined at the grant date of the equity-settled
share-based payment is expensed on a straight-line basis over the
vesting period, based on the Group's estimate of the number of
shares that will eventually vest. The instruments are subject to a
three year service vesting condition from the grant date, and their
fair value is recognised as an employee benefit expense with a
corresponding increase in retained earnings within equity over the
vesting period.
Contributions received from employees as part of the JSOP
arrangement are recognised directly in equity.
i. Future changes in accounting policies
The International Accounting Standards Board ("IASB") and the
International Financial Reporting Interpretations Committee
("IFRIC") have issued the following standards and interpretations
with an effective date after the date of these financial
statements:
New/Revised International Financial Reporting Standards EU Effective Date (accounting periods commencing on or
(IAS/IFRS) after)
---------------------------------------------------------- ----------------------------------------------------------
Disclosure initiative - amendments to IAS 7 Not yet endorsed
Standards not yet effective, but available for early EU Effective Date (accounting periods commencing on or
adoption after)
---------------------------------------------------------- ----------------------------------------------------------
IFRS 15 Revenue from Contracts with Customers 1 January 2018
IFRS 9 Financial Instruments 1 January 2018
The Directors do not expect the adoption of the standards and
interpretations to have a material impact on the Group's financial
statements in the period of initial application.
4 Interest income
2017 2016
Group Group
GBP GBP
--------------- ------- -------
Cash balances 12,558 15,969
---------------- ------- -------
Total 12,558 15,969
---------------- ------- -------
5 Investment advisory, administration and performance fees
Investment advisory fees
ESO
The investment advisory fee payable to EPE was, until 31 August
2010, calculated at 2% of the Group's NAV, with a minimum of
GBP325,000 payable per annum. On 31 August 2010, the Investment
Advisor agreed to waive the fee from the Company for a period of
two years in return for a priority profit share paid from ESO 1 LP,
as detailed below. Consequently, the payment of fees has resumed at
a rate of 2% per annum of the Company's NAV plus VAT. The charge
for the current year was GBP1,181,626 (2016: GBP853,488). Amount
outstanding as at 31 January 2017: GBP600,000 (2016: nil).
ESO 1 LP
On the completion of the creation of ESO 1 LP on 31 August 2010,
the Investment Advisor agreed to waive entitlement to management
fees from the Company and ESO Investments LLP in exchange for a
fixed priority profit share paid by ESO 1 LP of GBP800,000 per
annum for the first two years (a year being calculated as ending on
31 August), GBP500,000 for the third year and GBP350,000 for the
fourth and fifth years, thereafter in any subsequent period of the
ESO 1 LP Partnership, such amount as may be agreed between the
Partner. Subsequent to the ESD buyout, the partners agreed to a
fixed priority profit share of GBP350,000 per annum.
Administration fees
On 30 November 2007 the Group entered into an agreement with FIM
Capital Limited ("FIM"), for the provision of administration,
registration and secretarial services. FIM delegated the provision
of accounting services to EPE Administration Limited (formerly EHM
International Limited). The fee is payable at a rate of 0.15% per
annum of the Group's NAV. The charge for the current year was
GBP100,508 (2016:GBP65,481). Amount outstanding as at 31 Jan 2017
was GBP15,000 (2016:GBP3,000).
Performance fees
ESO
The Investment Advisory Agreement with EPE as described above
also provides for the provision of a performance fee. The fee is
payable if the Total Return (taken as NAV plus dividends
distributed) is equal to at least 8% per annum from the date of
admission of the Company's shares to AIM, based on the funds raised
through the placing of shares and compounded annually. No
performance fee has accrued for the year ended 31 January 2017
(2016: GBPnil).
Carried interest in ESO 1 LP
The distribution policy of ESO 1 LP includes a carried interest
portion retained for the Investment Advisor such that, for each
investor where a hurdle of 8% per annum has been achieved, the
carry vehicle of the Investment Advisor is entitled to receive 20%
of the increase in that investor's investment. For the year ended
31 January 2017, GBP6,944,664 (2016: GBP1,794,249) has been
credited to the carry account of the Investment Advisor in the
records of ESO 1 LP.
Carried interest in ESO (PC) LLP
The Investment Advisor is entitled to receive 20% of the profits
of ESO (PC) LLP where a hurdle of 8% has been achieved over the
initial value of the investment. For the year ended 31 January
2016, GBP109,433 was debited from the Investment Advisor. For the
year ended 31 January 2017, GBP844,822 was credited to the
Investment Advisor.
6 Directors' fees
2017 2016
Group Group
GBP GBP
---------------------- -------- --------
G.O. Vero (Chairman) 32,000 32,000
R.B.M. Quayle 30,000 30,000
C.L. Spears 32,000 32,000
N.V. Wilson 30,000 30,000
----------------------- -------- --------
Total 124,000 124,000
----------------------- -------- --------
H. Bestwick joined the Board 10 February 2017 and therefore
received no fees for the year ended 31 January 2017 (2016:
nil).
7 Share based payment expense
The cost of equity settled transactions with certain Directors
of the Company and other participants (including employees of the
Investment Advisor) ("Participants") is measured by reference to
the fair value at the date on which they are granted. The fair
value is determined based on the share price of the equity
instrument at the grant date.
The EBT was created to award shares to Participants as part of
the JSOP. Participants are awarded a certain number of shares
("Matching Shares") which vest after three years. In order to
receive their Matching Share allocation Participants are required
to purchase shares in the Company on the open market ("Bought
Shares"). The Participant will then be entitled to acquire a joint
ownership interest in the Matching Shares for the payment of a
nominal amount, on the basis of one joint ownership interest in one
Matching Share for every Bought Share they acquire in the relevant
award period.
The EBT holds the Matching Shares jointly with the Participant
until the award vests.
The EBT held 1,547,065 (2016: 1,467,065) matching shares at the
year end which have traditionally not voted (see note 16).
The amount expensed in the income statement has been calculated
by reference to the grant date fair value of the equity instrument
and the estimated number of equity instruments to be issued after
the vesting period, less the nominal amount paid for the joint
ownership interest in the Matching Shares. The total expense
recognised on the share based payments during the year amounts to
GBP245,750 (2016: GBP296,608).
8 Taxation
The Company is a tax resident of the Isle of Man. The Company is
subject to 0% income tax (2016: 0%).
The Limited Liability Partnerships and Limited Partnerships are
transparent for tax purposes.
9 Dividends paid and proposed
No dividends were paid or proposed for the year ended 31 January
2017 (2016: GBPnil).
10 Non-current assets
2017 2016
GBP GBP
--------------------------------- ----------- -----------
Financial assets
Investments in associates 73,609,871 46,067,688
Loans to associates and related
companies (see note 13) 1,012,055 1,012,055
--------------------------------- ----------- -----------
74,621,926 47,079,743
--------------------------------- ----------- -----------
Investment in associates
The Investment Advisor has applied appropriate valuation methods
with reference to IPEV guidelines and the valuation principles of
IAS 39 Financial Instruments: Recognition and Measurement, with
regard to the underlying investments held by the associates. See
note 11 regarding the assessment of the fair values of the
underlying investments.
Investments in associates comprise the investment in ESO 1 LP
and ESO (PC) LLP which are stated at fair value through profit or
loss. The fair value of the investment is calculated with reference
to the Second Amended and Restated Limited Partnership Agreement
for ESO 1 LP, and the Limited Liability Partnership Agreement for
ESO (PC) LLP. The associates have accounted for their equity
investments at fair value.
During the year, the Company received GBP36,416,460
(2016:GBPnil) from ESO 1 LP. The movements in the associates during
the year are as follows:
ESO (PC)
ESO 1 LP LLP Total
GBP GBP GBP
-------------------------- ------------- ---------- -------------
Investment in associates
Balance at 1 February
2016 41,614,000 4,453,688 46,067,688
Share of profit from
associates 60,586,390 3,372,254 63,958,644
Capital distribution
from associate (36,416,460) - (36,416,460)
--------------------------- -------------
Balance at 31 January
2017 65,783,930 7,825,942 73,609,872
--------------------------- ------------- ---------- -------------
Summary financial information for associates as at 31 January
2017 is as follows:
Minority ESO plc Percentage
Vehicle Total interest share share
ESO 1 LP GBP GBP GBP %
------------------------- ------------ -------------------------- ------------ -----------
Non-current assets 81,090,140 (16,218,028) 64,872,112 80.0%
Current assets 4,735,863 (947,172) 3,788,691 80.0%
Current liabilities (3,596,093) 719,220 (2,876,873) 80.0%
Net assets 82,229,910 (16,445,980) 65,783,930 80.0%
------------------------- ------------ -------------------------- ------------ -----------
Income 685,005 (139,522) 545,483 79.6%
Gains/(losses) on
investments 75,645,445 (15,407,480) 60,237,965 79.6%
Expenses (247,461) 50,403 (197,058) 79.6%
------------------------- ------------ -------------------------- ------------ -----------
Profit 76,082,989 (15,496,599) 60,586,390 79.6%
------------------------- ------------ -------------------------- ------------ -----------
ESO (PC) LLP
------------------------- ------------ -------------------------- ------------ -----------
Non-current assets 9,453,084 (1,849,629) 7,603,455 80.4%
Current assets 276,610 (54,123) 222,487 80.4%
Net assets 9,729,694 (1,903,752) 7,825,942 80.4%
------------------------- ------------ -------------------------- ------------ -----------
Income - - - -
Gains/(losses) on
investments 4,224,784 (846,366) 3,378,418 80.0%
Expenses (7,710) 1,546 (6,164) 80.0%
------------------------- ------------ -------------------------- ------------ -----------
Profit 4,217,074 (844,820) 3,372,254 80.0%
------------------------- ------------ -------------------------- ------------ -----------
ESO plc
------------------------- ------------ -------------------------- ------------ -----------
Loans to associates
and related companies 1,012,055 - 1,012,055 100.0%
Loans (from) associates
and related companies (276,510) - (276,510) 100.0%
Other assets and
liabilities ESO
plc 36,647,050 - 36,647,050 100.0%
------------------------- ------------ -------------------------- ------------ -----------
Total 37,382,595 - 37,382,595 100.0%
------------------------- ------------ -------------------------- ------------ -----------
Total assets less
current liabilities 129,342,199 (18,349,732) 110,992,467 85.8%
------------------------- ------------ -------------------------- ------------ -----------
Summary of ESO plc Minority ESO plc Percentage
fund structure Total interest share share
GBP GBP GBP GBP
------------------------- ------------ -------------------------- ------------ -----------
ESO 1 LP 82,229,910 (16,445,980) 65,783,930 80.0%
ESO (PC) LLP 9,729,694 (1,903,752) 7,825,942 80.4%
ESO plc current
assets, current
liabilities and
loans to related
companies 37,382,595 - 37,382,595 100.0%
------------------------- ------------ -------------------------- ------------ -----------
Total assets less
current liabilities 129,342,199 (18,349,732) 110,992,467 85.8%
------------------------- ------------ -------------------------- ------------ -----------
Summary financial information for associates as at 31 January
2016 is as follows:
Minority ESO plc Percentage
Vehicle Total interest share share
ESO 1 LP GBP GBP GBP %
------------------------- ------------ -------------------------- ------------ -----------
Non-current assets 49,899,390 (9,275,302) 40,624,088 81.4%
Current assets 3,486,528 (648,077) 2,838,451 81.4%
Current liabilities (2,270,600) 422,060 (1,848,540) 81.4%
------------------------- ------------ -------------------------- ------------ -----------
Net assets 51,115,318 (9,501,319) 41,613,999 81.4%
------------------------- ------------ -------------------------- ------------ -----------
Income 1,005,451 (236,131) 769,320 76.5%
Gains/(losses) on
investments 8,591,267 (2,017,669) 6,573,598 76.5%
Expenses (275,475) 64,696 (210,779) 76.5%
------------------------- ------------ -------------------------- ------------ -----------
Profit 9,321,243 (2,189,104) 7,132,139 76.5%
------------------------- ------------ -------------------------- ------------ -----------
ESO (PC) LLP
------------------------- ------------ -------------------------- ------------ -----------
Non-current assets 5,228,300 (1,002,628) 4,225,672 80.8%
Current assets 282,120 (54,102) 228,018 80.8%
------------------------- ------------ -------------------------- ------------ -----------
Net assets 5,510,420 (1,056,730) 4,453,690 80.8%
------------------------- ------------ -------------------------- ------------ -----------
Income - - - -
Gains/(losses) on
investments (574,636) 108,539 (466,097) 81.1%
Expenses (4,735) 894 (3,841) 81.1%
------------------------- ------------ -------------------------- ------------ -----------
Profit (579,371) 109,433 (469,938) 81.1%
------------------------- ------------ -------------------------- ------------ -----------
ESO plc
------------------------- ------------ -------------------------- ------------ -----------
Loans to/(from)
associates and related
companies 1,012,055 - 1,012,055 100.0%
Loans to/(from)
associates and related
companies (282,120) - (282,120) 100.0%
Other assets and
liabilities ESO
plc 6,385,286 - 6,385,286 100.0%
------------------------- ------------ -------------------------- ------------ -----------
Total 7,115,221 - 7,115,221 100.0%
------------------------- ------------ -------------------------- ------------ -----------
Total assets less
current liabilities 63,740,959 (10,558,049) 53,182,910 83.4%
------------------------- ------------ -------------------------- ------------ -----------
Summary of ESO plc Minority ESO plc Percentage
fund structure Total interest share share
GBP GBP GBP GBP
------------------------- ------------ -------------------------- ------------ -----------
ESO 1 LP 51,115,318 (9,501,319) 41,613,999 81.4%
ESO (PC) LLP 5,510,420 (1,056,730) 4,453,690 80.8%
ESO plc current
assets, current
liabilities and
loans to related
companies 7,115,221 - 7,115,221 100.0%
------------------------- ------------ -------------------------- ------------ -----------
Total assets less
current liabilities 63,740,959 (10,558,049) 53,182,910 83.4%
------------------------- ------------ -------------------------- ------------ -----------
11 Financial assets and liabilities
2017 2016
GBP GBP
----------------------------------- ------------ -------------
Assets
Financial assets at fair value through
profit or loss - designated on initial
recognition
Investments in associates 73,609,871 46,067,688
Financial assets at amortised
cost
Loans and receivables and cash
balances 38,344,101 7,665,699
----------------------------------- ------------ -------------
Total financial assets 111,953,972 53,733,387
----------------------------------- ------------ -------------
Liabilities
Financial liabilities measured
at amortised cost
Trade and other payables (684,996) (268,357)
Loans from associates and related
companies (276,510) (282,120)
Loan note instruments (7,862,131) (9,721,572)
----------------------------------- ------------ -------------
Total financial liabilities (8,823,637) (10,272,049)
----------------------------------- ------------ -------------
Fair values of financial instruments
The fair values of financial assets and financial liabilities
that are traded in an active market are based on quoted market
prices. For all other financial instruments, the Group determines
fair values using other valuation techniques, based on the IPEV
guidelines.
For financial instruments that trade infrequently and have
little price transparency, fair value is less objective, and
requires varying degrees of judgement depending on liquidity,
uncertainty of market factors, pricing assumptions and other risks
affecting the specific instrument.
The Group measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements:
-- Level 1: Inputs that are quoted market prices (unadjusted) in
active markets for identical instruments;
-- Level 2: Inputs other than quoted prices included within
Level 1 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category includes
instruments valued using; quoted market prices in active markets
for similar instruments; quoted prices for identical or similar
instruments in markets that are considered less than active; or
other valuation techniques in which all significant inputs are
directly or indirectly observable from market data;
-- Level 3: Inputs that are unobservable. This category includes
all instruments for which the valuation technique includes inputs
not based on observable data and the unobservable inputs have a
significant effect on the instrument's valuation. This category
includes instruments that are valued based on quoted prices for
similar instruments but for which significant unobservable
adjustments or assumptions are required to reflect differences
between the instruments.
Various valuation techniques may be applied in determining the
fair value of investments held as level 3 in the fair value
hierarchy. The objective of valuation techniques is to arrive at a
fair value measurement that reflects the price that would be
received to sell the asset or paid to transfer the liability in an
orderly transaction between market participants at the measurement
date.
Valuation models that employ significant unobservable inputs
require a higher degree of management judgement and estimation in
the determination of fair value. Management judgement and
estimation are usually required for the selection of the
appropriate valuation model to be used. As discussed below, the
Investment Advisor has selected to use the Sales/EBITDA multiples
valuation model in arriving at the fair value of investments held
as level 3 in the fair value hierarchy.
Valuation framework
The Group has developed a valuation framework with respect to
the measurement of fair values. The valuation of investments is
performed by the Investment Advisor. As detailed in note 3(f), the
Investment Advisor determines fair values using the IPEV
guidelines. The following approach is used:
-- 'Fair value' is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date in the
principal or, in its absence, the most advantageous market to which
the Group has access at that date. The fair value of a liability
reflects its non-performance risk;
-- The Sales/EBITDA multiples valuation model is used, based on
budgeted Sales/EBITDA for the next financial year;
-- Loans made are stated at amortised cost but impairment tested
based on the enterprise value derived from the valuation.
Fair value hierarchy - Financial instruments measured at fair
value
The table below analyses the underlying investments held by the
associates measured at fair value at the reporting date by the
level in the fair value hierarchy into which the fair value
measurement is categorised. Debt securities are also included, as
although stated at amortised cost, the Investment Advisor assesses
the fair value of the total investment, which includes debt and
equity. The amounts are based on the values recognised in the
statement of financial position. All fair value measurements below
are recurring. There are no other financial assets or liabilities
carried at fair value.
Level Level
1 3 Total
31 January 2017 GBP GBP GBP
--------------------------- ----------- ----------- -----------
Financial assets at fair
value through profit or
loss
Unlisted private equity
investments - 11,685,937 11,685,937
Listed equity investments 69,857,288 - 69,857,288
Debt securities, unlisted - 9,000,000 9,000,000
---------------------------- ----------- -----------
Total investments 69,857,288 20,685,937 90,543,225
---------------------------- ----------- ----------- -----------
Level Level
1 3 Total
31 January 2016 GBP GBP GBP
--------------------------- --------- ----------- -----------
Financial assets at fair
value through profit or
loss
Unlisted private equity
investments - 37,276,754 37,276,754
Debt securities, unlisted - 17,850,936 17,850,936
---------------------------- -------- -----------
Total investments - 55,127,690 55,127,690
---------------------------- -------- ----------- -----------
The following table shows a reconciliation of the opening
balances to the closing balances for fair value measurements in
Leve1 3 of the fair value hierarchy.
2017 2016
Unlisted private equity investments GBP GBP
------------------------------------- ------------- -----------
Balance at 1 February 37,276,754 29,515,300
Additional investments 330,327 -
Transfers to Level 1 (30,908,209) -
Sale of investments - (235,000)
Change in fair value through profit
or loss 4,987,065 7,996,453
-------------------------------------- -------------
Balance at 31 January 11,685,937 37,276,754
-------------------------------------- ------------- -----------
Significant unobservable inputs used in measuring fair value
The table below sets out information about significant
unobservable inputs used at 31 January 2017 in measuring financial
instruments categorised as Level 3 in the fair value hierarchy.
Description Fair value at 31 January 2017 Valuation technique
GBP
------------------------------------ ------------------------------ ----------------------
Unlisted private equity investments 11,685,937 Sales/EBITDA multiple
------------------------------------ ------------------------------ ----------------------
Significant unobservable inputs are developed as follow:
-- Sales/EBITDA multiples: Represents amounts that market
participants would use when pricing the investments. Sales/EBITDA
multiples are selected from comparable public companies based on
geographic location, industry, size, target markets and other
factors that management considers to be reasonable. The traded
multiples for the comparable companies are determined by dividing
the enterprise value of the company by its Sales or EBITDA and
further discounted for considerations such as the lack of
marketability and other differences between the comparable peer
group and specific company.
-- The Sales/EBITDA multiple is applied to the budgeted
Sales/EBITDA for the next financial year.
IFRS 13 requires disclosure, by class of financial instrument,
if the effect of changing one or more inputs to reasonably possible
alternative assumptions would result in a significant change to the
fair value measurement. The information used in determination of
the fair value of Level 3 investments is chosen with reference to
the specific underlying circumstances and position of the investee
company. On that basis, the Board believe that the impact of
changing one or more of the inputs to reasonably possible
alternative assumptions would not change the fair value
significantly.
Financial instruments not measured at fair value
The carrying value of short-term financial assets and financial
liabilities (cash, debtors and creditors) approximate their fair
value. The carrying value of the convertible and the new loan note
instruments are also considered to approximate fair value.
Investments in associates are considered to be stated at fair
value, as the underlying investments are at fair value.
12 Cash and cash equivalents
2017 2016
GBP GBP
--------------------------- ----------- ----------
Current and call accounts 37,232,756 6,555,094
--------------------------- ----------- ----------
37,232,756 6,555,094
--------------------------- ----------- ----------
The current and call accounts have been classified as cash and
cash equivalents in the Consolidated Statement of Cash Flows.
13 Loans to/(from) associates and related companies
2017 2016
GBP GBP
--------------------------------------- ---------- ----------
EPIC Structured Finance Limited 500,000 500,000
ESO 1 LP 512,055 512,055
---------------------------------------- ----------
Total loans to associates and related
companies 1,012,055 1,012,055
---------------------------------------- ---------- ----------
2017 2016
GBP GBP
----------------------------------- ---------- ----------
ESO (PC) LLP (276,510) (282,120)
------------------------------------
Total loans (from) associates and
related companies (276,510) (282,120)
------------------------------------ ---------- ----------
The loans to/(from) associates and related companies are
unsecured, interest free and not subject to any fixed repayment
terms.
14 Trade and other payables
2017 2016
GBP GBP
--------------------------------- -------- --------
Trade payables 1,030 30,264
Accrued administration fee 15,000 3,000
Accrued audit fee 12,845 10,100
Accrued professional fee 18,316 214,077
Accrued investment advisor fees 600,000 -
Accrued Directors' fees 10,916 10,916
Convertible interest 26,889 -
Total 684,996 268,357
---------------------------------- -------- --------
15 Non-current liabilities
Convertible loan note instruments were issued on 31 August 2010
to The Equity Partnership Investment Company plc. The amount
issued, net of issue costs was GBP9,870,304. The notes carry
interest at 7.5% per annum and are convertible at the option of the
holder at a price of 170 pence per ordinary share. The CLNs fall
under the definition of compound financial instruments within IAS
32 Financial Instruments: Presentation. On issue of the CLNs, the
Directors were required to assess the elements of equity and
liability contained with the compound instrument. At the date of
issue, the Directors considered that the instrument had no equity
element and therefore the whole instrument was treated as a
liability.
During the year ended 31 January 2017, the Company repurchased a
total of GBP1,017,713 million in principal amount of the CLNs. The
remaining CLNs with the principal amount of GBP862,334 were
converted to ordinary shares at the option price of 170 pence per
share. 507,245 ordinary shares were issued as a result of the
conversion. The carrying value of the CLNs in issue at the year end
was nil (2016: GBP1,880,047). The total interest expensed on the
convertible loan notes for the year is GBP129,126 (2016:
GBP383,745).
On 23 July 2015 , the Company raised GBP4,500,000 via a placing
of a ULN instrument. Following the initial issuance of the ULNs,
further notes were issued to investors such that on 31 January 2016
the Company had issued GBP7,975,459 in principal amount and the
notes admitted to trading on the ISDX Growth Market on 29 January
2016. During the year ended 31 January 2017 the company issued no
further notes such that on 31 January 2017 the company had issued
GBP7,975,459 in principle amount. The notes carry interest at 7.5%
per annum. Issue costs totalling GBP144,236 have been offset
against the value of the loan note instrument and are being
amortised over the life of the instrument. The total amount
expensed in the year ended 31 January 2017 was GBP20,605 (2016:
GBP10,303). The carrying value of the ULNs in issue at the year end
was GBP7,862,131 (2016: GBP7,841,525). The total interest expensed
on the ULNs for the year is GBP618,765 (2016: GBP263,742). This
includes the amortisation of the issue costs.
16 Share Capital
At the year end 1,547,065 treasury shares were held by the EBT
(see note 7) (2016: 1,467,065).
2017 2016
Number GBP Number GBP
--------------------------- ------------ ---------- ------------ ----------
Authorised share capital
Ordinary shares of
5p each 33,000,000 1,650,000 33,000,000 1,650,000
---------------------------- ------------ ---------- ------------ ----------
Called up, allotted
and fully paid
Ordinary shares of
5p each 31,371,362 1,568,568 30,864,117 1,543,206
Ordinary shares of
5p each held in treasury (3,048,879) - (3,700,944) -
---------------------------- ------------ ---------- ------------ ----------
28,322,483 1,568,568 27,163,173 1,543,206
--------------------------- ------------ ---------- ------------ ----------
During the year ended 31 January 2017, 507,245 ordinary shares
were issued as a result of the conversion of CLNs with the
principle amount of GBP862,334.
During the year ended 31 January 2016, 175,895 ordinary shares
were issued for the consideration of GBP250,000.
During the year 815,000 (2016:522,914) ordinary shares were
bought back by Corvina Limited (100% subsidiary) and as a result
were added to the treasury shares. 1,467,065 treasury shares held
by the EBT were re-classed as Ordinary shares in the year.
Share premium
The share premium arose on the issue of the ordinary shares and
represented the difference between the price at which the shares
were issued and the par value (5 pence).
17 Basic and diluted earnings/(loss) per share (pence)
Basic earnings per share are calculated by dividing the profit
of the Group for the year attributable to the ordinary shareholders
of GBP60,996,207 (2016: GBP4,384,107) divided by the weighted
average number of shares outstanding during the year of 28,585,144
after excluding treasury shares (2016: 27,165,280 shares).
Diluted earnings per share are calculated by dividing the profit
of the Group for the year attributable to ordinary shareholders of
GBP60,996,207 (2016: GBP4,384,107) divided by the weighted average
number of ordinary shares outstanding during the year, as adjusted
for the effects of all dilutive potential ordinary shares, of
28,801,620 after excluding treasury shares (2016: 28,632,345
shares). Dilutive instruments consist of the warrants over Ordinary
shares issued during the refinancing of CLNs of 216,476 (2016:
nil).
18 NAV per share (pence)
The Group's NAV per share of 364.13 pence is based on the net
assets of the Group at the year end of GBP103,130,335 (2016:
GBP43,461,338) divided by the shares in issue at the end of the
year of 28,322,483 after excluding treasury shares (2016:
27,163,173).
The Group's diluted NAV per share of 361.37 pence is based on
the net assets of the Group at the year end of GBP103,130,335
(2016:GBP43,461,338) divided by the shares in issue at the end of
the year, as adjusted for the effects of dilutive potential
ordinary shares of 28,538,959, after excluding treasury shares
(2016: 29,220,327).
19 Net cash used in operating activities
Reconciliation of net investment expense to net cash used in
operating activities:
2017 2016
Group Group
GBP GBP
------------------------------------------ ------------ ------------
Net investment expense (2,214,546) (2,059,496)
Adjustments:
Share based payment expense 245,750 296,608
------------------------------------------- ------------ ------------
(1,968,796) (1,762,888)
Movements in trade and other receivables (740) 47,753
Movements in trade and other payables 389,750 44,423
Movements in loans from associates
and related companies (5,610) (4,735)
------------------------------------------- ------------
Net cash used in operating activities (1,585,396) (1,675,447)
------------------------------------------- ------------ ------------
20 Financial instruments
The Group's financial instruments comprise:
-- Investments in listed and unlisted companies held by
associates, comprising equity and loans
-- Investments in listed companies comprising equity
-- Cash and cash equivalents, bank loan and convertible loan note instruments; and
-- Accrued interest and trade and other receivables, accrued expenses and sundry creditors.
Financial risk management objectives and policies
The main risks arising from the Group's financial instruments
are liquidity risk, credit risk, market price risk and interest
rate risk. None of those risks are hedged. These risks arise
through directly held financial instruments and through the
indirect exposures created by the underlying financial instruments
in the associates. These risks are managed by the Directors in
conjunction with the Investment Advisor. The Investment Advisor is
responsible for day to day management of financial instruments in
the associates.
Liquidity risk
Liquidity risk is the risk that the Group will encounter
difficulty in meeting the obligations associated with its financial
liabilities that are settled by delivering cash or another
financial asset. The Group's liquid assets comprise cash and cash
equivalents and trade and other receivables, which are readily
realisable.
Residual contractual maturities of financial liabilities
Less 3 months No
than 1 - to 1 1 - Over stated
31 January 1 Month 3 Months year 5 years 5 years maturity
2017 GBP GBP GBP GBP GBP GBP
----------------- --------- ---------- --------- ---------- --------- ----------
Financial
liabilities
Trade and
other payables 684,996 - - - - -
Loan note
instruments - - - 7,862,131 - -
Loans from
associates - - 276,510 - - -
--------- ---------- --------- ---------- --------- ----------
Total 684,996 - 276,510 7,862,131 - -
------------------- --------- ---------- --------- ---------- --------- ----------
Less 3 months No
than 1 - to 1 1 - Over stated
31 January 1 Month 3 Months year 5 years 5 years maturity
2016 GBP GBP GBP GBP GBP GBP
----------------- --------- ---------- ---------- ---------- --------- ----------
Financial
liabilities
Trade and
other payables 268,357 - - - - -
Loan note
instruments - - 1,880,047 7,841,525 - -
Loans from
associates - - 282,120 - - -
--------- ---------- ---------- ---------- --------- ----------
Total 268,357 - 2,162,167 7,841,525 - -
------------------- --------- ---------- ---------- ---------- --------- ----------
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Group.
The Group, through its interests in associates, has advanced
loans to a number of private companies which exposes the Group to
significant credit risk. The loans are advanced to unquoted private
companies, which have no credit risk rating. They are entered into
as part of the investment strategy of the Group and its associates,
and credit risk is managed by taking security where available
(typically a floating charge) and the Investment Advisor taking an
active role in the management of the borrowing companies.
Although the Investment Advisor looks to set realistic repayment
schedules, it does not necessarily view a portfolio company not
repaying on time and in full as 'underperforming' and seeks to
monitor each portfolio company on a case-by-case basis. However, in
all cases the Investment Advisor reserves the right to exercise
step in rights. In addition to the repayment of loans advanced, the
Group and associates will often arrange additional preference share
structures and take significant equity stakes so as to create
shareholder value. It is the performance on the combination of all
securities including third party debt that determines the Group's
view of each investment.
At the reporting date, the Group's financial assets exposed to
credit risk amounted to the following (excluding exposure in the
underlying associates):
2017 2016
GBP GBP
--------------------------------- ----------- ----------
Cash and cash equivalents 37,232,756 6,555,094
Trade and other receivables 84,210 84,210
Loans to associates and related
companies 1,012,055 1,012,055
---------------------------------- ----------- ----------
Total 38,329,021 7,651,359
---------------------------------- ----------- ----------
Cash balances are placed with HSBC Bank plc and Barclays Bank
plc both of which have the credit rating of A1 Negative
(Moody's).
Market price risk
Market price risk is the risk that the value of a financial
instrument will fluctuate as a result of changes in market prices
(other than those arising from interest rate risk or currency
risk). The Group is exposed to a market price risk via its equity
investments held through its interests in associates, which are
stated at fair value.
Market price risk sensitivity
The Group is exposed to market price risk with regard to its
investment in the partnerships, which own equity interests in a
number of quoted and unquoted companies which are stated at fair
value. Sensitivity analysis cannot be performed with any
reliability on the unquoted equity investments. Luceco plc was
quoted on the Main Market of the London Stock Exchange at 31
January 2017. If Luceco plc's share price had been 5.0% higher than
actual close of market on 31 January 2017, ESO plc's NAV / share
would have been 2.7% higher than reported. If Luceco's share price
had been 5.0% lower than actual close of market on 31 January 2017,
ESO plc's NAV / share would have been 2.7% lower than reported.
Such movement would have had a corresponding effect on the profit
for the year.
Interest rate risk
The Group is exposed to interest rate risk through its
investment in the associates and on its cash balances. The
associates provide loans to portfolio companies. Most of the loans
are at fixed rates. Cash balances earn interest at variable rates.
The convertible loan note instruments carry fixed interest
rates.
The table below summarises the Group's exposure to interest rate
risks. It includes the Group's financial assets and liabilities at
the earlier of contractual re-pricing or maturity date, measured by
the carrying values of assets and liabilities:
Less Over Non-
31 January than 1 - 3 months 1 - 5 5 interest
2017 1 month 3 months - 1 year years years bearing Total
Assets GBP GBP GBP GBP GBP GBP GBP
-------------------- ----------- ---------- ---------- ------------ ------- ---------- ------------
Loans and
receivables
Secured loans - - - - - - -
Loans to
associates
and related
companies - - - - - 1,012,055 1,012,055
Trade and
other receivables - - - - - 84,210 84,210
Cash and
cash equivalents 37,232,756 - - - - - 37,232,756
--------------------- ----------- ---------- ---------- ------------
Total financial
assets 37,232,756 - - - - 1,096,265 38,329,021
--------------------- ----------- ---------- ---------- ------------ ------- ---------- ------------
Liabilities
Financial
liabilities
measured
at amortised
cost
Trade and
other payables - - - - - (684,996) (684,996)
Loans from
associates
and related
companies - - - - - (276,510) (276,510)
Loan note
instruments - - - (7,862,131) - - (7,862,131)
--------------------- ----------- ---------- ---------- ------------ ------- ---------- ------------
Total financial
liabilities - - - (7,862,131) - (961,506) (8,823,637)
--------------------- ----------- ---------- ---------- ------------ ------- ---------- ------------
Total interest
rate sensitivity
gap 37,232,756 - - (7,862,131) - - -
--------------------- ----------- ---------- ---------- ------------ ------- ---------- ------------
Less 3 months Over Non-
31 January than 1 - - 1 1 - 5 5 interest
2016 1 month 3 months year years years bearing Total
Assets GBP GBP GBP GBP GBP GBP GBP
-------------------- ---------- ---------- ------------ ------------ ------- ---------- -------------
Loans and
receivables
Secured loans - - - - - - -
Loans to
associates
and related
companies - - - - - 1,012,055 1,012,055
Trade and
other receivables - - - - - 84,210 84,210
Cash and
cash equivalents 6,555,094 - - - - - 6,555,094
--------------------- ---------- ---------- ------------ ------------ ------- ---------- -------------
Total financial
assets 6,555,094 - - - - 1,096,265 7,651,359
--------------------- ---------- ---------- ------------ ------------ ------- ---------- -------------
Liabilities
Financial
liabilities
measured
at amortised
cost
Trade and
other payables - - - - - (268,357) (268,357)
Loans from
associates
and related
companies - - - - - (282,120) (282,120)
Loan note
instruments - - (1,880,047) (7,841,525) - - (9,721,572)
--------------------- ---------- ---------- ------------ ------------ ------- ---------- -------------
Total financial
liabilities - - (1,880,047) (7,841,525) - (550,477) (10,272,049)
--------------------- ---------- ---------- ------------ ------------ ------- ---------- -------------
Total interest
rate sensitivity
gap 6,555,094 - (1,880,047) (7,841,525) - - -
--------------------- ---------- ---------- ------------ ------------ ------- ---------- -------------
Interest rate sensitivity
The Group is exposed to market interest rate risk only via its
cash balances. A sensitivity analysis has not been provided as it
is not considered significant to Group performance.
Currency risk
The Group has no exposure to currency risk as it has no
non-sterling assets or liabilities.
21 Directors' interests
Four of the Directors have interests in the shares of the
Company as at 31 January 2017 (2016: four). Geoffrey Vero holds
84,912 ordinary shares (2016: 78,802). Nicholas Wilson holds 67,699
ordinary shares (2016: 64,892). Robert Quayle holds 50,128 ordinary
shares (2016: 44,573). Clive Spears holds 68,032 ordinary shares
(2016: 65,255).
22 Related parties
Geoffrey Vero is a non-executive Director of Numis Corporation
plc and a former non-executive Director of Numis Securities
Limited, the Nominated Advisors to the Company. During the year
ended 31 January 2017, broker fees of GBP63,935 (2016: GBP62,534)
were payable to Numis Securities Limited.
Directors' interests in the shares of the Company are included
in note 21 to the financial statements.
Certain Directors of the Company and other participants
(including employees of the Investment Advisor) are incentivised in
the form of equity settled share-based payment transactions,
through a Joint Share Ownership Plan (see note 7).
Details of fees payable to key service providers are included in
note 5 to the financial statements.
23 Subsidiary companies
On 29 October 2005, the Company incorporated EPIC Reconstruction
Property Company (IOM) Limited, in the Isle of Man.
On 16 November 2012, the Company incorporated Corvina Limited,
in the Isle of Man, whose principal activity is that of acquiring
shares in the Company, which are held as treasury shares (see note
16).
The Company held 100% of the issued share capital of EPIC
Reconstruction Property Company II Limited. The subsidiary was
deconsolidated during the 2014 year end, and was liquidated on 9
February 2016.
The Company is deemed to have control of its EBT, which is
therefore treated as a subsidiary and consolidated for the purpose
of the Group accounts (see note 16).
24 Foreign exchange gain
No foreign exchange gain has been recognised in the Consolidated
Statement of Comprehensive Income in the year ended 31 January
2017.
A foreign exchange gain of GBP428,889 was recognised in the
Consolidated Statement of Comprehensive Income in the year ended 31
January 2016. The gain was in respect of the buyout of the minority
interest held by ESD in ESO 1 LP and results from the actual rate
of exchange on settlement of 1:1.42 being more favourable than the
initial rate of exchange agreed of 1:1.35, as per the deed of
transfer.
25 Financial commitments and guarantees
Under the terms of the limited partnership agreement the Company
is committed to provide a maximum of GBP2 million additional
investment to ESO 1 LP.
26 Subsequent events
On 8 March 2017, the Company announced the completion of a
secondary acquisition of a EUR2.5 million commitment in European
Capital's Private Debt Fund ("ECPD") by ESO Alternative Investments
LP, a partnership established to hold the Company's primary and
secondary fund investments. Prior to March 2016, the Investment
Advisor acted as placement agent to ECPD on the successful
fundraise of the fund.
Schedule of shareholders holding over 3% of issued shares
Percentage
holding
------------------------ -----------
Giles Brand 22.44%
The Corporation
of Lloyds 8.92%
Hoares Bank 4.79%
Miton Asset Management 4.73%
Henderson Global
Investors 3.96%
Total over 3% holding 44.84%
---------------------------- -----------
Group Information
Directors Secretary
G.O. Vero (Chairman) P.P. Scales
R.B.M. Quayle
C.L. Spears
N.V. Wilson
H. Bestwick
Registrar and Registered Investment Advisor
Office
FIM Capital Limited EPIC Private Equity
LLP
IOMA House Audrey House
Hope Street 16-20 Ely Place
Douglas London EC1N 6SN
Isle of Man IM1 1AP
Nominated Advisor and Auditors and Reporting
Broker Accountants
Numis Securities Limited KPMG Audit LLC
10 Paternoster Square Heritage Court
London EC4M 7LT 41 Athol Street
Douglas
Isle of Man IM99 1HN
Bankers CREST Providers
Barclays Bank plc Computershare Investor
Services (Jersey) Limited
1 Churchill Place Queensway House
Canary Wharf Hilgrove Street
London E14 5HP St. Helier
Jersey JE1 1ES
HSBC Bank plc
1st Floor
60 Queen Victoria Street
London EC4N 4TR
This information is provided by RNS
The company news service from the London Stock Exchange
END
ACSSSSSMDFWSEFL
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