JZ CAPITAL
PARTNERS LIMITED (the "Company" or "JZCP")
(a closed-end investment company
incorporated with limited liability under the laws of Guernsey with
registered number 48761)
INTERIM RESULTS
FOR THE SIX-MONTH PERIOD ENDED
31 AUGUST 2018
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section
1.2)
8 November
2018
JZ Capital Partners, the London
listed fund that invests in US and European micro-cap companies and
US real estate, announces its interim results for the six-month
period ended 31 August 2018.
Results and Portfolio Highlights
· NAV of $813.4 million (FYE 28/02/18: $837.6 million)
· NAV per share of $9.82 (FYE 28/02/18: $9.98)
· Total investments of
$120.8 million, including: Deflecto,
a new Flexible Packaging Vertical, Karium and investments in
properties located in Brooklyn, New
York and South Florida.
· Realization of three investments
significantly above NAV: Paragon Water Systems (“Paragon”), Bolder
Healthcare Solutions (“BHS”) and TWH Water Industries Inc. (“TWH”)
(post-period) with gross proceeds of approximately $172.51 million.
· As of 31 August
2018, the portfolio comprised:
o US micro-cap: 22 businesses, which includes four
‘verticals’ and 13 co-investments, across nine industries.
o European micro-cap: 18 companies across seven
industries and seven countries.
o US real estate: 60 properties across five major
assemblages in New York and
South Florida all in various
stages of (re)/development.
Tender Offer
· Since April 2017, JZCP has bought back approximately
1.1 million shares at a total cost of approximately $7.1 million. However, it has proved
challenging to find a sufficient volume of shares in the market at
prevailing market prices.
· The Board has now concluded that
the interests of all shareholders would be better served by the
Company using up to $50 million to
return capital via a tender offer of ordinary shares at a price no
wider than a five per cent discount to NAV and to repay bank
borrowings. The proposed tender offer, which will be subject to
shareholder approval, is intended to be funded in part by further
realizations and therefore further details of the tender offer will
be announced by the Company in due course.
Outlook
· Strong pipeline of realizations
and refinancings in the Company’s overall portfolio over the next
12 months.
· Balance sheet remains robust and
the Company is focused on using it to make new investments, buy
back stock and pay down debt.
· Ongoing discussions with
potential institutional joint venture partners to deleverage the
real estate portfolio.
David Zalaznick, JZCP’s
Founder and Investment Adviser, said: “We are pleased with the
positive performance of the underlying portfolio and series of
successful realizations during the period.
We look forward to further realizations which will fund, in
part, the tender offer our Board has announced.”
David Macfarlane, Chairman of
JZCP, said: “We are confident that the Company is
well-positioned to tackle the ongoing discount to NAV through
positive investment performance and further successful
realizations.
However, given the challenge in executing a significant buy-back
programme in the market, the Board has concluded that the interests
of all shareholders would be better served by the Company returning
capital via a tender offer of its ordinary shares, subject to
shareholder approval.”
Presentation details:
There will be an audiocast presentation for investors and
analysts at 2pm London time / 10am New York
time on 8 November 2018. The
presentation can be accessed here and by dialing +44 (0)330 336
9128 (UK) or +1 323-994-2093 (US) with the
participant access code 3293142.
__________________________________________________________________________________
The information contained within this
announcement is considered by the Company to constitute inside
information as stipulated under the Market Abuse Regulations (EU)
No. 596/2014. Upon the publication of this announcement, this
inside information is now considered to be in the public domain.
The person responsible for arranging the release of this
announcement on behalf of the Company is David Macfarlane, Chairman.
For further information:
Ed Berry / Kit Dunford
+44 (0)20 3727 1046 / 1143
FTI Consulting
David Zalaznick
+1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Sam Walden
+44 (0) 1481 745385
Northern Trust International Fund
Administration Services (Guernsey) Limited
About JZ Capital Partners
JZ Capital Partners (“JZCP”) is one of the oldest closed-end
investment companies listed on the London Stock Exchange. It seeks
to provide shareholders with a return by investing selectively in
US and European microcap companies and US real estate. JZCP
receives investment advice from Jordan/Zalaznick Advisers, Inc.
(“JZAI”) which is led by David
Zalaznick and Jay Jordan.
They have worked together for more than 35 years and are supported
by teams of investment professionals in New York, Chicago, London and Madrid. JZAI’s experts work with the existing
management of micro-cap companies to help build better businesses,
create value and deliver strong returns for investors. For more
information please visit www.jzcp.com.
1 Paragon expected total gross proceeds of
approximately $16.2 million
(including interim distributions and escrows). BHS expected total
gross proceeds of approximately $110.6
million (including interim distributions and escrows). TWH
(post-period) expected total gross proceeds of approximately
$45.7 million (including interim
distributions, escrows and receipt of full earn out).
Chairman's Statement
I am pleased to report the results of JZ Capital Partners
("JZCP" or the "Company") for the six-month period ended
31 August 2018.
Performance
The Company’s performance over the last six months has been set
against a backdrop of global political and economic uncertainty, as
US foreign policy has led to a rise in trade protectionism, an
escalating US-China trade war and a renegotiation of the North
American Free Trade Agreement (“NAFTA”). Meanwhile, the possibility
of a “no-deal” or prolonged Brexit continues to concern investors
on both sides of the Atlantic.
In spite of this situation, the US economy continues to expand
robustly, with US stock markets recently recording their longest
ever rally, capping a near decade-long boom. Comparatively, in
Europe, we have seen relatively
muted earnings growth and weak economic momentum, but GDP growth
remains solid and the long-term economic outlook is positive.
Within this market environment, our focus has been to achieve
liquidity through realisations and refinancings. Over the past six
months, we have realised three investments at or above NAV: Paragon
Water Systems (“Paragon”), Bolder Healthcare Solutions (“BHS”) and
TWH Water Industries Inc. (“TWH”).
Despite several realisations achieved during the period, JZCP’s
net asset value ("NAV") per share declined 1.6% from $9.98 to $9.82,
primarily due to carrying costs and pre-development expenses in our
real estate portfolio. As stated previously, the Company’s ongoing
discussions with a number of institutional joint venture partners
and the anticipated sale of some of our properties, at or above
NAV, will look to address the impact of these costs going
forward.
Portfolio update
It has been one of the most active investment periods for the
Company to date, putting $120.8
million to work across the US and European micro-cap and
real estate portfolios - whilst realising $124.8 million, primarily through the sale of
Paragon, a manufacturer of water filtration systems, and BHS, a
healthcare revenue cycle management services company.
At the end of the period, the Company’s portfolio consisted of
22 US micro-cap businesses - including four ‘verticals’ and 13
co-investments - across nine industries, 18 European micro-cap
companies across seven industries and seven countries, and five
major real estate assemblages (60 properties in total) located
across Brooklyn, New York and
South Florida. The portfolio
continues to become more diversified by asset type and
geography.
US and European Micro-cap
The Board is pleased with the continued strong performance of
the US micro-cap and European micro-cap portfolios during the
period.
The US micro-cap portfolio delivered a net increase of
25 cents, primarily due to net
accrued income of 10 cents per share
and increased earnings at our co-investment Felix Storch (12
cents). The portfolio was valued at 8.3x EBITDA, after
applying an average 23% marketability discount to public
comparables.
The European micro-cap portfolio delivered a net increase of
11 cents per share during the period,
due to write-ups at Petrocorner, Fincontinuo, S.A.C, Alianzas en
Aceros and Eliantus. The portfolio has low leverage senior to
JZCP’s position, of under 2.0x EBITDA.
JZCP continues to expand and diversify its investment portfolio
in Western Europe through its
approximately 18.8% ownership of JZI Fund III, L.P. (“Fund III”).
During the period, JZCP acquired a stake in Karium (through Fund
III), a unique portfolio of personal care brands recognized
throughout the UK and internationally.
As of 31 August 2018, Fund III
held 13 investments: five in Spain, two in Scandinavia, two in Italy, two in the UK and one each in
Portugal and Luxembourg. JZCP held direct loans to a
further four companies in Spain:
Ombuds, Docout, Xacom and Toro Finance.
Real Estate
The Board continues to be excited by the attractive investment
opportunities sourced by JZCP in conjunction with its long-term
real estate partner, RedSky Capital. During the period, JZCP made
new investments, follow-on investments and paid expenses totalling
$34.9 million. Post period, JZCP
added a further property to the Fulton Mall assemblage and
refinanced its office building (Esperante) in West Palm Beach, receiving $8.1 million in proceeds.
Realisations
The Company generated realisations totalling $124.8 million during the period, primarily
through the sale of Paragon and BHS.
The Board is also delighted with one post-period realisation
above net asset value. In September
2018, TWH Water Treatment Industries merged with DuBois
Chemicals, Inc., a specialty chemical company that provides
value-added chemicals, equipment and
service.
Post-period (September 2018), the
Company received initial gross proceeds of $31.3 million from the merger. The Company
expects to receive a further $1.2
million in post-closing adjustments plus up to a further
$5 million in earn-out proceeds,
based on certain revenue targets of TWH. Taking into account all of
the above, the sale of TWH represents a 2.7% uplift to NAV as at
31 July 2018.
Repurchase of Shares and Future Tender
Offers
On 20 April 2017, the Board
announced its conclusion that JZCP’s dividend policy was not having
a sustained impact on narrowing the discount to NAV at which the
Company’s shares were trading. The Board determined that the
interests of shareholders would be better served through a new
discount management strategy, which would enable the Company’s
available distributable profits to be used, among other
applications, to buy back its ordinary shares. However, it has
proved challenging to find a sufficient volume of shares in the
market at prevailing market prices. Since the announcement of the
change of policy in April 2017, the
Company has only bought back approximately 1.1 million shares at a
total cost of approximately $7.1
million.
In light of a number of realisations anticipated in the near
future, the Board has concluded that the interests of all
shareholders would be better served by the Company using up to
$50 million to return capital via a
tender offer of Ordinary shares and to repay bank borrowings. The
tender offer will be at a price no wider than a five per cent
discount to the nearest monthly NAV publicly available at the time
of such tender offer. Accordingly, the Board has also determined
that it intends to undertake periodic returns of capital in the
future through further tender offers, again at prices no wider than
a five per cent discount to the nearest monthly NAV of reference
publicly available. Future available liquidity may also be used to
repay bank borrowings, buy back stock opportunistically in the
market and continue to be deployed in new investments.
Outlook
The Company’s value-driven investment approach has continued to
drive strong performance of the underlying portfolio and resulted
in a series of successful realisations.
For JZCP, the outlook is positive. We have a strong pipeline of
realisations and refinancings in our overall portfolio, which we
expect will lead to positive NAV growth over the coming year. We
also remain focused on using our strong balance sheet to make new
investments, buy back stock and pay down
debt.
The Board is confident in the Investment Adviser’s ability to
continue to grow the Company’s NAV, and we look forward to the
second half of the year with confidence.
David
Macfarlane
Chairman
7 November
2018
Investment Adviser's Report
Dear Fellow Shareholders,
As we reported to you in our Adviser’s Report for the year ended
28 February 2018, our primary goal
for this year has been to achieve liquidity through realizations
and refinancings. Over the past six months, we have realized three
investments at or above NAV: Paragon, Bolder Healthcare and TWH
Water Industries Inc. (“TWH”). Each investment generated an
excellent return for JZCP: Paragon (1.8x gross multiple of invested
capital (“MOIC”)), Bolder Healthcare (4.0x gross MOIC) and TWH
(3.1x gross MOIC). On a combined basis, we expect these
realizations to return gross proceeds to JZCP of approximately
$172.5 million (all figures above
including escrows and interim distributions).
At the same time, we have repurchased a small amount of our
stock at a significant discount, although it has proved challenging
to find a sufficient volume of shares in the market at prevailing
market prices. We anticipate a number of realizations in early 2019
and in discussions with the Board it has been recommended that a
tender offer funded with a significant portion of these
realizations would be the best way to return capital to all
shareholders participating in the tender offer. As described in the
Chairman’s Letter, the Board will be seeking approval from
shareholders to undertake a tender offer at approximately NAV.
It has also been recommended that the Company continue to
undertake tender offers periodically when the liquidity of the
Company is sufficient to fund such future tender offers. In
addition, it is recommended to use a portion of future realization
proceeds to pay down debt as well as buy back stock
opportunistically in the market and, of course, continue to pursue
our investment strategy by making new investments.
In addition to several significant realizations over the first
six months of the fiscal year, JZCP invested a total of
$120.8 million. Investments made
during the period include a new Flexible Packaging vertical and new
co-investment, Deflecto, as well as follow-on investments in our
healthcare products build-up Avante, our Testing and Industrial
Services verticals as well as investments in our properties located
in Brooklyn, New York and
South Florida.
As of 31 August 2018, our US
micro-cap portfolio consisted of 22 businesses, which includes four
‘verticals’ and 13 co-investments, across nine industries; this
portfolio was valued at 8.3x EBITDA, after applying an average 23%
marketability discount to public comparables. The average
underlying leverage senior to JZCP’s position in our US micro-cap
portfolio is 3.8x EBITDA. Consistent with our value-oriented
investment strategy, we have acquired our current US micro-cap
portfolio at an average 6.1x EBITDA. The acquisitions made during
the six-month period ended 31 August
2018 were also acquired on average at 6.1x EBITDA.
Our European micro-cap portfolio consisted of 18 companies
across seven industries and seven countries. The European micro-cap
portfolio has low leverage senior to JZCP’s position, of under 2.0x
EBITDA.
As of the same date, our US real estate portfolio consisted of
60 properties and can be grouped primarily into five major
‘assemblages’, located in the Williamsburg, Greenpoint and
Downtown/Fulton Mall neighborhoods of Brooklyn, New York, and the Wynwood and Design
District neighborhoods of Miami,
Florida. Our assemblages are comprised of adjacent or
concentrated groupings of properties that can be developed,
financed and/or sold together at a higher valuation than on a
stand-alone basis.
Net Asset Value (“NAV”)
JZCP’s NAV per share fell 1.6% during the period, from
$9.98 at 28
February 2018 to $9.82 at
31 August 2018. As you see below, the
primary reason for the decline in NAV was due to carrying costs and
predevelopment expenses on our real estate portfolio. We expect to
mitigate a significant portion of this drag on NAV through joint
venture partnerships and potentially the sale of some of our
properties.
NAV per
Ordinary share as of 28 February 2018 |
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$9.98 |
Change
in NAV due to capital gains and accrued income |
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+ US Micro-cap |
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0.25 |
+ European
Micro-cap |
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0.11 |
- Real estate |
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(0.44) |
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Other
increases/(decreases) in NAV |
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+ Change
in CULS fair value |
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0.03 |
- Finance costs |
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(0.11) |
+ Net
foreign exchange effect |
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0.03 |
- Expenses and
taxation |
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(0.07) |
+
Appreciation from share buybacks |
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|
0.04 |
NAV per
Ordinary share as of 31 August 2018 |
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|
$9.82 |
The US micro-cap portfolio continued to perform well during the
period, delivering a net increase of 25
cents. This was primarily due to net accrued income of
10 cents, increased earnings at
co-investment Felix Storch
(12 cents) and writing our Water
Treatment Industries investment up to its sale value (22 cents). We also received 3 cents of escrow payments during the period.
Offsetting these increases were declines at our Industrial
Services Solutions (“ISS”) vertical (6
cents), our co-investment Sloan LED (3 cents), our Testing vertical (3 cents), our healthcare vertical (4 cents) and Nationwide, our school photography
business (6 cents).
The European micro-cap portfolio has performed very well during
the period, posting a net increase of 11
cents, primarily due to accrued income of 5 cents and write-ups at JZI Fund III, L.P.
(“Fund III”) portfolio companies Petrocorner, Fincontinuo, S.A.C,
Alianzas en Aceros and Eliantus (6
cents combined).
Returns
The chart below summarises cumulative total shareholder returns
and total NAV returns for the most recent six-month, one-year,
three-year and five-year periods.
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31.8.2018 |
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28.2.2018 |
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31.8.2017 |
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31.8.2015 |
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31.8.2013 |
Share
price (in GBP) |
|
|
£4.44 |
|
£4.51 |
|
£5.16 |
|
£4.34 |
|
£4.75 |
NAV per
share (in USD) |
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|
$9.82 |
|
$9.98 |
|
$9.88 |
|
$10.67 |
|
$9.87 |
NAV to
market price discount |
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41% |
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38% |
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33% |
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37% |
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26% |
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6 month return |
1 year return |
3 year return |
5 year
return |
Dividends
paid (in USD) |
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- |
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- |
|
$0.47 |
|
$1.100 |
Total
Shareholders' return1 |
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-1.6% |
|
-13.9% |
|
9.2% |
|
10.3% |
Total NAV
return per share1 |
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|
|
|
-1.6% |
|
-0.6% |
|
-3.8% |
|
11.0% |
1Total returns are cumulative and assume that
dividends were reinvested.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography,
with 40 US and European micro-cap investments across nine
industries and five primary real estate ‘assemblages’ (60 total
properties, including one post-period acquisition) located in
Brooklyn, New York and
South Florida. The portfolio
continues to become more diversified geographically across
Western Europe with investments in
Spain, Italy, Portugal, Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP’s assets and liabilities at
31 August 2018 as compared to
28 February 2018. An explanation of
the changes in the portfolio follows:
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31.8.2018 |
|
28.2.2018 |
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US$'000 |
|
US$'000 |
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US
micro-cap portfolio |
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|
|
|
453,456 |
|
488,258 |
European
micro-cap portfolio |
|
|
|
|
|
121,431 |
|
103,457 |
Real
estate portfolio |
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|
|
|
|
461,065 |
|
463,391 |
Other
investments |
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|
|
|
|
17,302 |
|
15,302 |
Total
investments |
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|
|
|
1,053,254 |
|
1,070,408 |
Treasury
bills |
|
|
|
|
|
3,269 |
|
49,975 |
Cash |
|
|
|
|
|
61,554 |
|
33,9871 |
Total
cash equivalents |
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|
|
|
64,823 |
|
83,962 |
Other
assets |
|
|
|
|
|
626 |
|
2,158 |
Total
assets |
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|
|
|
1,118,703 |
|
1,156,528 |
|
|
|
|
|
|
|
|
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|
Zero
Dividend Preference shares |
|
|
|
60,798 |
|
59,970 |
Convertible Unsecured Loan Stock |
|
|
|
54,045 |
|
62,843 |
Loans
payable |
|
|
|
|
|
149,329 |
|
150,125 |
Other
payables |
|
|
|
|
|
41,164 |
|
46,017 |
Total
liabilities |
|
|
|
|
|
305,336 |
|
318,955 |
Net
Asset Value |
|
|
|
|
|
813,367 |
|
837,573 |
1Cash and cash equivalents includes cash held of
$9.0 million and $25.0 million being receivables from the sale of
Treasury Bills (received 1 March
2018).
As previously announced, in April
2017 JZCP increased its loan facility with Guggenheim
Partners from approximately $100
million to $150 million. The
entire $150 million facility may be
repaid, in whole or in part, at any time, without any prepayment
penalties.
US micro-cap portfolio
As you know from previous reports, our US portfolio is grouped
into industry ‘verticals’ and co-investments. Our ‘verticals’
strategy focuses on consolidating businesses under industry
executives who can add value via organic growth and cross company
synergies. Our co-investments strategy allows for greater
diversification of our portfolio by investing in larger companies
alongside well known private equity groups.
New US
investments – verticals |
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Vertical |
|
Number of Acquisitions |
|
JZCP Investment ($ millions) |
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|
Flexible
Packaging |
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2 |
|
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|
10.0 |
|
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Industrial
Services Solutions1 |
|
- |
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|
15.1 |
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Testing Services |
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3 |
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9.1 |
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Total |
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5 |
|
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|
34.2 |
|
1Used to fund previously announced acquisitions of
PTI Industries (May 2016), Buna
Electric Motor Service (July 2016),
CPL Systems (October 2016) and IPEC
(December 2016).
New US
investments – co-investments |
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Portfolio
Company |
|
New/Follow-on |
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|
JZCP Investment ($ millions) |
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Deflecto |
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New |
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24.5 |
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Avante |
|
Follow-on |
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3.5 |
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|
K2 Towers II |
|
Follow-on |
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4.2 |
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Total |
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|
|
|
|
32.2 |
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New US
investments – other US micro-cap |
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Portfolio
Company |
|
New/Follow-on |
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|
JZCP Investment ($ millions) |
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|
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|
Nationwide
Studios |
|
Follow-on |
|
|
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|
2.7 |
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Total |
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|
|
|
|
|
|
2.7 |
|
European micro-cap portfolio
The European micro-cap portfolio continued its positive
trajectory over the past year (net increase of 11 cents), highlighted by write-ups at the
following portfolio companies: Petrocorner, Fincontinuo, S.A.C,
Alianzas en Aceros and Eliantus.
JZCP invests in the European micro-cap sector through its
approximately 18.8% ownership of Fund III. As of 31 August 2018, Fund III held 13 investments:
five in Spain, two in Scandinavia,
two in Italy, two in the UK and
one each in Portugal and
Luxembourg. JZCP held direct loans
to a further four companies in Spain: Ombuds, Docout, Xacom and Toro
Finance
JZAI has offices in London and
Madrid and an outstanding team
with over fifteen years of experience investing together in
European micro-cap deals
Recent events
During the period, JZCP acquired a stake in one new business via
its ownership in Fund III: Karium, a platform investment which will
support a strategy to acquire under-invested “orphan” consumer
brands in the United Kingdom and
European personal care sector. Karium, which owns four brands and
distributes one other brand under license, is a free-standing group
that was sold as the parent company (an Indian conglomerate) wished
to focus on emerging markets.
JZCP also made follow-on investments in: (i) Treee, an
electronic waste recycling business in Italy; (ii) Eliantus, a build-up of solar
power plants in Spain; and (iii)
Fincontinuo, a niche consumer lender in Italy. Additionally, JZCP received
distributions from its investments in Collingwood, a niche auto
insurance business in the UK, and S.A.C, a van leasing business in
Denmark.
Real estate portfolio
During the period, JZCP acquired 124-136 North 6th Street, an
18,000+ sq. ft. corner site which adds significant value to our
existing Williamsburg Retail assemblage. JZCP contributed
$2.3 million in equity to fund this
acquisition, with the balance being provided by a third-party
lender in conjunction with a refinancing of the entire assemblage.
In addition to funding this accretive acquisition, the recent
refinancing will cover upcoming construction costs for the
Williamsburg Retail assemblage as well as operating and debt
service shortfalls for the next 36 months. Over the past 12 months,
we have experienced tremendous leasing momentum in the Williamsburg
neighborhood, signing leases with Everlane, Vans, A Land, Alo Yoga,
UVA Wines, TOMS, Dig Inn and The North Face. In September 2018, LVMH opened their Sephora store
in our building at 247 Bedford Avenue.
Post-period (September 2018), JZCP
purchased 571 Fulton Street, a crucial acquisition which turned the
Fulton Mall assemblage into two premier development sites totaling
more than 540,000 buildable square feet in the heart of
Downtown Brooklyn. We are
currently working towards securing a joint venture partner with
whom we can fully develop the property.
Also post-period (October 2018),
JZCP refinanced Esperante, our office building in West Palm Beach, Florida. This refinancing
resulted in proceeds to JZCP of $8.1
million, which were received in early October 2018.
As reported in our year-end annual report, we continue to be
very excited with the progress of our first ground-up development
in South Florida, CUBE Wynwd (the
“CUBE”), a development project in Miami’s Wynwood neighborhood
totaling 90,000 square feet and featuring seven stories of office
space geared towards tech and media businesses and ground floor
retail space.
We have signed an anchor tenant for the CUBE and plan to
complete the building in Q1 2019. We are experiencing strong
interest from potential tenants to lease the remaining available
space at the CUBE and expect significant institutional interest on
a sale or joint venture.
As of 31 August 2018, JZCP had
approximately $423 million invested
in a portfolio of retail, office and residential properties in
Brooklyn, New York, and
South Florida which is valued at
$461 million as of that date. We have
made these investments alongside our long-term real estate partner,
RedSky Capital, a team with significant experience in the
sector.
Since we began investing with RedSky in April 2012, we have acquired a total of 60
properties (including post-period acquisition of 571 Fulton
Street), all currently in various stages of development and
re-development.
New
real estate investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JZCP Investment ($ millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of 124-136 North 6th Street |
|
|
|
|
|
2.3 |
|
|
|
Follow-ons &
expenses |
|
|
|
|
|
|
|
32.6 |
|
|
|
|
|
|
|
|
|
|
|
34.9 |
|
Other investments
Our asset management business in the US, Spruceview Capital
Partners, addresses the growing demand from corporate pensions,
endowments, family offices and foundations for fiduciary management
services through an Outsourced Chief Investment Officer (“OCIO”)
model as well as specific products per asset class. Spruceview has
a robust pipeline of opportunities and recently held the initial
closing of a US middle market private equity fund-of-funds along
with adding another international pension client in the second
quarter of 2018.
Spruceview continues to provide investment oversight to the
pension fund of an international packaged foods company, a European
private credit fund-of-funds and portfolios for family office
clients.
As previously reported, Richard
Sabo, former Chief Investment Officer of Global Pension and
Retirement Plans at JPMorgan and a member of that firm’s executive
committee, is leading a team of 14 investment, business
development, legal and operations professionals.
Realisations
|
|
Asset |
|
|
|
Portfolio |
|
|
|
Proceeds ($millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bolder
Healthcare Solutions – Sale |
|
US micro-cap |
|
|
|
105.7 |
|
|
Paragon
Water Systems – Sale |
|
US micro-cap |
|
|
|
16.1 |
|
|
New
Vitality – Dividend |
|
|
US micro-cap |
|
|
|
0.3 |
|
|
Esperante
– Cash Flow Distribution |
|
Real estate |
|
|
|
0.1 |
|
|
Flatbush
Portfolio – Refinancing |
|
Real estate |
|
|
|
0.5 |
|
|
Receipt of
Escrow balances |
|
US micro-cap |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
124.8 |
Bolder Healthcare Solutions
(“BHS”)
In March 2018, BHS was acquired by
a subsidiary of Cognizant, one of the world's leading professional
services companies.
Headquartered in Louisville,
Kentucky, BHS offers a full suite of healthcare revenue
cycle management services to the hospital and physician marketplace
in the United States. BHS was
formed through a co-investment partnership between JZCP and the
Edgewater Funds.
JZCP expects to realize approximately $110.0 million in gross proceeds from this sale
(including escrows). This transaction represents a gross MOIC of
approximately 4.0x and an IRR of approximately 33.7% (taking into
account proceeds received during the investment holding period and
the full receipt of escrows).
Paragon Water Systems (“Paragon”)
In March 2018, Paragon was
acquired by Culligan Water, the
world leader in residential, office, commercial and industrial
water treatment.
Founded in 1988 and headquartered in Tampa, Florida, Paragon develops and produces
“point-of-use” water filtration products for leading global
Original Equipment Manufacturer (“OEM”) clients, big brand
suppliers to specialty and big box retailers, direct sales
organizations and companies with national or international water
filtration dealership
networks.
JZCP expects to realize approximately $16.2 million in gross proceeds (including
escrows) from the sale. This transaction represents a gross MOIC of
approximately 1.8x and a gross internal rate of return (“IRR”) of
approximately 18.4%.
TWH Water Treatment Industries, Inc.
(“TWH”)
Post-period (September 2018), TWH
merged with DuBois Chemicals, Inc. ("DuBois"), a specialty chemical
company that provides value-added chemicals, equipment and
service
JZCP realized $31.3 million in
initial gross proceeds from the merger (subject to post-closing
adjustments), plus potentially up to $5
million of additional gross proceeds from an earn-out based
on certain revenue targets of TWH. Including gross proceeds from a
dividend recapitalization in November
2016, the transaction is expected to represent a gross MOIC
of approximately 3.1x and a gross IRR of approximately 25%, in each
case taking into account the receipt of full post-closing
adjustments and earn-out proceeds. Additionally, the sale of TWH
represents an uplift to JZCP’s NAV (pre-deal July 31, 2018 - $9.80) of approximately 2.7%, again taking into
account the receipt of full post-closing adjustments and earn-out
proceeds.
Esperante
Post-period (October 2018), JZCP
refinanced Esperante, our office building in West Palm Beach, Florida. This refinancing
resulted in refinancing proceeds to JZCP of $8.1 million, which were received in early
October 2018.
Outlook
The outlook for JZCP is excellent. We have a strong pipeline of
realizations and refinancings in our overall portfolio, including
real estate, and expect to return capital to our shareholders via a
series of tender offers at approximately NAV.
Our shareholders should know that we consider NAV growth to be
our primary job. We believe JZCP will have a series of successful
realizations over the coming year at or above current NAV. The most
significant drag on NAV – carrying costs and predevelopment
expenses on our real estate portfolio – will be less of an issue in
the future.
Many of you have been shareholders for quite some time. We
appreciate your support as well as your patience in building JZCP.
As you’ve seen with the realizations during the past year at or
above NAV, we have an excellent portfolio. Our plan is to continue
to realize a significant portion of the value in the portfolio over
the next 12 to 18 months. We look forward to reporting our
progress.
As always, we thank you for your continued support in our
investment strategy. Please feel free to contact us with any
ideas that might be beneficial to JZCP, other than buying back
stock – we’ve got that covered!
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
7 November
2018
Board of Directors
David
Macfarlane
(Chairman)1
Mr Macfarlane was appointed to the Board of JZCP in 2008 as
Chairman and a non-executive Director. Until 2002 he was a Senior
Corporate Partner at Ashurst. He was a non-executive director of
the Platinum Investment Trust Plc from 2002 until January 2007.
Patrick
Firth2,4
Mr Firth was appointed to the Board of JZCP in 2008. He is also
a director of a number of offshore funds and management companies,
including, ICG-Longbow Senior Secured UK Property Debt Investments
Limited, Riverstone Energy Limited and NextEnergy Solar Fund
Limited. He is Chairman of GLI Finance Limited. He is a member of
the Institute of Chartered Accountants in England and Wales and The Chartered Institute for
Securities and Investment. He is a resident of Guernsey.
James
Jordan
Mr Jordan is a private investor who was appointed to the Board
of JZCP in 2008. He is a director of the First Eagle family of
mutual funds, and of Alpha Andromeda Investment Trust Company, S.A.
Until 30 June 2005, he was the
managing director of Arnhold and S. Bleichroeder Advisers, LLC, a
privately owned investment bank and asset management firm; and
until 25 July 2013, he was a
non-executive director of Leucadia National Corporation. He is an
Overseer of the Gennadius Library of the American School of
Classical Studies in Athens, and
is a Director of Pro Natura de Yucatan.
Sharon
Parr
Mrs Parr was appointed to the Board of JZCP in June 2018. In 2003 she completed a private equity
backed MBO of the trust and fund administration division of
Deloitte and Touche, called Walbrook, selling it to Barclays Wealth
in 2007. As a Managing Director of Barclays, she ultimately became
global head of their trust and fund administration businesses,
comprising over 450 staff in 10 countries. She stepped down from
her executive roles in 2011 to focus on other areas and interests
but has maintained directorships in several companies. She is a
Fellow of the Institute of Chartered Accountants in England and Wales and a member of the Society of Trust and
Estate Practitioners, and is a resident of
Guernsey.
Tanja
Tibaldi
Ms Tibaldi was appointed to the Board of JZCP in 2008. She was
on the board of JZ Equity Partners Plc from January 2005 until the company's liquidation on
1 July 2008. She was managing
director at Fairway Investment Partners, a Swiss asset management
company where she was responsible for the Group's marketing and
co-managed two fund of funds. Previously she was an executive at
the Swiss Stock Exchange and currently serves on the board of
several private companies.
Christopher
Waldron3
Mr Waldron was appointed to the Board of JZCP in 2013. He has
more than thirty years’ experience as an asset manager and director
of investment funds. He is Chairman of UK Mortgages Limited and
Crystal Amber Fund Limited. He began his career with James Capel and subsequently held investment
management positions with Bank of Bermuda, the Jardine Matheson Group and Fortis
prior to joining the Edmond de Rothschild Group in Guernsey as
Investment Director in 1999. He was appointed Managing Director of
the Edmond de Rothschild companies in Guernsey in 2008, a position
he held until 2013, when he stepped down to concentrate on
non-executive work and investment consultancy. He is a member of
the States of Guernsey’s Investment and Bond Management
Sub-Committee and a Fellow of the Chartered Institute for
Securities and Investment. He is a resident of
Guernsey.
1Chairman of the nominations committee of which all
Directors are
members.
2Chairman of the audit committee of which all
Directors are
members.
3Chairman of the management engagement committee of
which all Directors are members.
4Mr Firth intends to retire from the Board and as
chairman of the audit committee in 2019.
Directors'
Responsibilities
Statement of Directors'
Responsibilities
The Directors are responsible for preparing the Half-Yearly
Report and Condensed Interim Financial Statements which contains
the half-yearly report and the condensed interim financial
statements (the "interim financial statements"). The Half-Yearly
Report and Condensed Interim Financial Statements give a true and
fair view of the state of affairs of the Company for that period
and are in accordance with applicable laws and interim financial
reporting standards. In preparing the Half-Yearly Report and
Condensed Interim Financial Statements the Directors are required
to:
· select suitable accounting
policies and apply them consistently;
· present information including
accounting policies, in a manner that provides relevant, reliable,
comparable and understandable information;
· make judgements and estimates
that are reasonable and prudent;
· prepare the interim financial
statements on the going concern basis, unless it is inappropriate
to presume that the Company will continue in business;
and
· provide additional disclosures
when compliance with the specific requirements of IFRS is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Company's
financial position and financial
performance.
The Directors confirm that they have complied with these
requirements in preparing the interim financial statements.
The interim financial statements have been prepared in
accordance with IAS 34,"Interim Financial Reporting" as adopted by
the European Union.
Each of the Directors confirms to the best of each person's
knowledge and belief that:
- this set of interim financial statements has been prepared in
accordance with IAS 34, "Interim Financial Reporting" as adopted by
the European Union;
- the Half-Yearly Report and Condensed Interim Financial
Statements include information detailed in the Chairman's Statement
and Investment Adviser's Report and Notes to the interim financial
statements which provides a fair review of the information required
by:
(i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules,
being an indication of important events that have occurred for the
period from 1 March 2018 to
31 August 2018 and their impact on
the interim financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year:
and
(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules,
being related party transactions that have taken place in the
period from 1 March 2018 to
31 August 2018 and that have
materially affected the financial position or performance of the
Company during that
period.
Going concern and principal risks and
uncertainties
As an investment fund, the Company's principal risks are those
that are associated with its investment portfolio. Given the nature
of the portfolio, the principal risks are associated with the
financial and operating performance of the underlying investments.
The Directors do not consider that the principal risks and
uncertainties have changed since the publication of the annual
report and accounts for the year ended 28
February 2018 (as explained in Report of the Directors of
the annual report). The Directors continue to monitor the risks to
the Company. These risks include the Company's exposure to Euro and
Sterling currencies and the impact of austerity measures being
adopted in countries within which the Company
invests.
The Directors consider the Company has adequate financial
resources, in view of its holding in cash and cash equivalents and
liquid investments, and the income streams deriving from its
investments and believe that the Company is well placed to manage
its business risks successfully to continue in operational
existence for the foreseeable future and that it is appropriate to
prepare the interim financial statements on the going concern
basis.
Approved by the Board of Directors and agreed on behalf of the
Board on 7 November
2018.
David Macfarlane
Chairman
Patrick Firth
Director
Investment Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Portfolio |
|
|
|
31 August 2018 |
|
|
|
|
Cost1 |
|
Value |
|
|
|
|
US$'000 |
|
US$'000 |
|
|
% |
|
|
|
|
|
|
|
|
|
|
US Micro-cap
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Micro-cap
(Verticals) |
|
|
|
|
|
|
|
|
Industrial Services
Solutions4 |
|
|
|
|
|
|
|
|
INDUSTRIAL SERVICES
SOLUTIONS (“ISS”) A combination of twenty seven acquired businesses
in the industrial maintenance, repair and service industry |
|
|
|
|
|
|
|
|
Total Industrial
Services Solutions valuation |
|
48,250 |
|
91,168 |
|
|
8.6 |
|
|
|
|
|
|
|
|
|
|
Testing Services
Holdings4 |
|
|
|
|
|
|
|
|
TECHNICAL SOLUTIONS
AND SERVICES
Sells, rents and services safety & testing equipment and
sells protective & safety apparel to a variety of industries.
Technical Solutions and Services is a subsidiary of Testing
Services Holdings |
|
|
|
|
|
|
|
|
Total Technical
Solutions and Services Vertical valuation |
|
21,967 |
|
19,751 |
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
Water
Services4 |
|
|
|
|
|
|
|
|
WATERLINE RENEWAL
TECHNOLOGIES
Environmental infrastructure company that provides technology to
facilitate repair of underground pipes and other infrastructure.
TWH Infrastructure Industries, Inc., which owns LMK
Enterprises, Perma-Liner Industries and APMCS is
a subsidiary of Triwater Holdings |
|
|
|
|
|
|
|
|
WATER TREATMENT
INDUSTRIES
(REALISED POST-PERIOD)
Provider of water treatment supplies and services. TWH Water
Treatment Industries, Inc., which owns Nashville Chemical &
Equipment, Klenzoid Canada Company/Eldon Water and
Chemco, is a subsidiary of Triwater Holdings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Water
Services Vertical valuation |
|
14,977 |
|
42,828 |
|
|
4.0 |
|
|
|
|
|
|
|
|
|
|
Flexible Packaging
Vertical |
|
|
|
|
|
|
|
|
ACW FLEX PACK, LLC
Provider of a variety of custom flexible packaging solutions to
converters and end-users |
|
|
|
|
|
|
|
|
Total Flexible
Packaging Vertical valuation |
|
9,958 |
|
10,160 |
|
|
1.0 |
|
Total US
Micro-cap (Verticals) |
|
95,152 |
|
163,907 |
|
|
15.5 |
|
|
|
|
|
|
|
|
|
|
US Micro-cap
(Co-investments) |
|
|
|
|
|
|
|
|
ABTB
Acquirer of franchises within the fast-casual eateries and
quick-service restaurants sector |
|
8,760 |
|
8,760 |
|
|
0.8 |
|
DEFLECTO
Deflecto designs, manufactures and sells innovative plastic
products to multiple industry segments |
|
24,533 |
|
24,742 |
|
|
2.3 |
|
GEORGE INDUSTRIES
Manufacturer of highly engineered, complex and high tolerance
products for the aerospace, transportation, military and other
industrial markets |
|
12,639 |
|
12,637 |
|
|
1.2 |
|
IGLOO4
Designer, manufacturer and marketer of coolers and outdoor
products |
|
6,040 |
|
6,040 |
|
|
0.6 |
|
K2 TOWERS II
Acquirer of wireless communication towers |
|
8,422 |
|
8,422 |
|
|
0.8 |
|
NEW
VITALITY4
Direct-to-consumer provider of nutritional supplements and personal
care products |
|
3,431 |
|
3,803 |
|
|
0.4 |
|
PEACEABLE STREET
CAPITAL
Specialty finance platform focused on commercial real estate
|
|
28,041 |
|
27,674 |
|
|
2.6 |
|
SALTER
LABS4
Developer and manufacturer of respiratory medical products and
equipment for the homecare, hospital, and sleep disorder
markets |
|
16,762 |
|
21,593 |
|
|
2.0 |
|
SLOAN
LED4
Designer and manufacturer of LED lights and lighting systems |
|
6,030 |
|
452 |
|
|
0.0 |
|
SUZO HAPP
GROUP4
Designer, manufacturer and distributor of components for the global
gaming, amusement and industrial markets |
|
2,572 |
|
11,700 |
|
|
1.1 |
|
TIERPOINT4
Provider of cloud computing and collocation data centre
services |
|
44,313 |
|
46,813 |
|
|
4.5 |
|
VITALYST4
Provider of outsourced IT support and training services |
|
9,020 |
|
8,192 |
|
|
0.8 |
|
Total US
Micro-cap (Co-investments) |
|
170,563 |
|
180,828 |
|
|
17.1 |
|
|
|
|
|
|
|
|
|
|
US Micro-cap
(Other) |
|
|
|
|
|
|
|
|
AVANTE HEALTH
SOLUTIONS
Provider of new and professionally refurbished healthcare
equipment |
|
34,141 |
|
37,576 |
|
|
3.6 |
|
HEALTHCARE PRODUCTS
HOLDINGS3
Designer and manufacturer of motorised vehicles |
|
17,636 |
|
- |
|
|
- |
|
FELIX STORCH
Supplier of specialty, professional, commercial, and medical
refrigerators and freezers, and cooking appliances |
|
12,000 |
|
37,853 |
|
|
3.6 |
|
NATIONWIDE STUDIOS
Processer of digital photos for pre-schoolers |
|
26,324 |
|
7,500 |
|
|
0.7 |
|
ORIZON
Manufacturer of high precision machine parts and tools for
aerospace and defence industries |
|
15,843 |
|
15,843 |
|
|
1.5 |
|
PRIORITY EXPRESS
Provider of same day express courier services to various companies
located in north-eastern USA. Priority Express is a subsidiary of
US Logistics |
|
13,200 |
|
9,949 |
|
|
0.9 |
|
Total US
Micro-cap (Other) |
|
119,144 |
|
108,721 |
|
|
10.3 |
|
|
|
|
|
|
|
|
|
|
Total US Micro-cap
portfolio |
|
384,859 |
|
453,456 |
|
|
42.9 |
|
|
|
|
|
|
|
|
|
|
European Micro-cap
portfolio |
|
|
|
|
|
|
|
|
EUROMICROCAP FUND
2010, L.P.
Invested in European Micro-cap entities |
|
- |
|
29 |
|
|
- |
|
EUROMICROCAP FUND-C,
L.P.
Invested in European Micro-cap entities |
|
- |
|
3,591 |
|
|
0.3 |
|
JZI FUND III, L.P.
At 31 August 2018, was invested in thirteen companies in the
European micro-cap sector: Petrocorner, Fincontinuo, S.A.C,
Collingwood, My Lender, Alianzas en Aceros, ERSI, Treee, Eliantus,
Factor Energia, BlueSites, Luxida and Karium |
|
45,723 |
|
60,003 |
|
|
5.7 |
|
Total European
Micro-cap (measured at Fair Value) |
|
45,723 |
|
63,623 |
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
Direct
Investments |
|
|
|
|
|
|
|
|
DOCOUT5
Provider of digitalisation, document processing and storage
services |
|
2,777 |
|
4,088 |
|
|
0.4 |
|
OMBUDS5
Provider of personal security, asset protection and facilities
management services |
|
17,198 |
|
27,340 |
|
|
2.6 |
|
TORO
FINANCE5
Provides short term receivables finance to the suppliers of major
Spanish companies |
|
21,619 |
|
22,215 |
|
|
2.1 |
|
XACOM5
Supplier of telecom products and technologies |
|
2,055 |
|
4,165 |
|
|
0.4 |
|
Total European
Micro-cap (Direct Investments) |
|
43,649 |
|
57,808 |
|
|
5.5 |
|
|
|
|
|
|
|
|
|
|
Total European
Micro-cap portfolio |
|
89,372 |
|
121,431 |
|
|
11.5 |
|
|
|
|
|
|
|
|
|
|
Real Estate
portfolio |
|
|
|
|
|
|
|
|
JZCP
REALTY2
Facilitates JZCP's investment in US real estate |
|
422,532 |
|
461,065 |
|
|
43.7 |
|
Total Real Estate
portfolio |
|
422,532 |
|
461,065 |
|
|
43.7 |
|
|
|
|
|
|
|
|
|
|
Other
investments |
|
|
|
|
|
|
|
|
BSM ENGENHARIA
Brazilian-based provider of supply chain logistics, infrastructure
services and equipment rental |
|
6,115 |
|
459 |
|
|
- |
|
JZ
INTERNATIONAL3
Fund of European LBO investments |
|
- |
|
750 |
|
|
0.1 |
|
SPRUCEVIEW CAPITAL
Asset management company focusing primarily on managing
endowments and pension funds |
|
27,010 |
|
16,093 |
|
|
1.5 |
|
Total Other
investments |
|
33,125 |
|
17,302 |
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
Listed
investments |
|
|
|
|
|
|
|
|
U.S. Treasury Bill
0.00% Maturity 7-Feb-19 |
|
3,267 |
|
3,269 |
|
|
0.3 |
|
Total Listed
investments |
|
3,267 |
|
3,269 |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total -
portfolio |
|
933,155 |
|
1,056,523 |
|
|
100.0 |
|
(1) Original book cost incurred by JZCP adjusted for
subsequent transactions. The book cost represents cash outflows and
excludes PIK investments.
(2) JZCP invests in real estate indirectly through
its investments in JZCP Realty Ltd. JZCP owns 100% of the shares
and voting rights of JZCP Realty, Ltd.
(3) Legacy Investments. Legacy investments are
excluded from the calculation of capital and income incentive
fees.
(4) Co-investment with Fund A, a Related Party (Note
20).
(5) Classified as Loans at Amortised Cost.
Independent Review Report to JZ
Capital Partners
Limited
Introduction
We have been engaged by JZ Capital Partners Limited (the
“Company”) to review the Interim Financial Statements in the
Half-yearly Report and Condensed Interim Financial Statements for
the six months ended 31 August 2018
which comprise the Unaudited Statement of Comprehensive Income, the
Unaudited Statement of Financial Position, the Unaudited Statement
of Changes in Equity, the Unaudited Statement of Cash Flows and the
related Notes 1 to 26. We have read the other information contained
in the Half-yearly Report and considered whether it contains any
apparent misstatements or material inconsistencies with the
information in the Interim Financial
Statements.
This report is made solely to the Company in accordance with
guidance contained in International Standards on Review Engagements
2410 (UK and Ireland) "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" (ISRE 2410”) issued by the Auditing Practices Board
(“APB”). To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the Company, for our
work, for this report, or for the conclusions we have
formed.
Directors'
Responsibilities
The Half-yearly Report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Half-yearly Financial Report in accordance with the
Disclosure Guidance and Transparency Rules (“DTR”) of the
United Kingdom's Financial Conduct
Authority (“FCA”). As disclosed in Note 2, the Interim Financial
Statements have been prepared by applying consistent accounting
policies used in the Annual Financial Statements of the Company
which are in accordance with International Financial Reporting
Standards as adopted by the European Union (“IFRS”). The Interim
Financial Statements have been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union (“IAS
34”).
Our
Responsibility
Our responsibility is to express to the Company a conclusion on
the Interim Financial Statements in the Half-yearly Report and
Condensed Interim Financial Statements based on our review.
Scope of
Review
We conducted our review in accordance with ISRE 2410 issued by
the APB for use in the United
Kingdom. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK) (“ISA (UK)”) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the Interim Financial Statements for the
six months ended 31 August, 2018 are
not prepared, in all material respects, in accordance with IAS 34
and the DTR of the United Kingdom’s
FCA.
Ernst & Young
LLP
Guernsey
Channel
Islands
7 November
2018
Notes
1. The Half-yearly Report and Condensed Interim Financial
Statements are published on websites maintained by the Investment
Adviser.
2. The maintenance and integrity of these websites are the
responsibility of the Investment Adviser; the work carried out by
the Auditors does not involve consideration of these matters and,
accordingly, the Auditor accepts no responsibility for any changes
that may have occurred to the Condensed Interim Financial
Statements since they were initially presented on the
website.
3. Legislation in Guernsey governing the preparation and
dissemination of Condensed Interim Financial Statements may differ
from legislation in other
jurisdictions.
Unaudited Statement of Comprehensive
Income
For the Period from 1 March 2018
to 31 August 2018
|
|
Six month period from 1 March 2018 to 31 August
2018 |
|
Six month period from 1 March 2017 to 31 August
2017 |
|
|
Revenue |
|
Capital |
|
|
|
Revenue |
|
Capital |
|
|
|
|
return |
|
return |
|
Total |
|
return |
|
return |
|
Total |
|
Note |
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain/(loss) on
financial liabilities at fair value through profit or loss |
|
- |
|
5,925 |
|
5,925 |
|
- |
|
(3,026) |
|
(3,026) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Realisations from
investments held in escrow accounts |
22 |
- |
|
2,085 |
|
2,085 |
|
- |
|
1,173 |
|
1,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net foreign currency
exchange gains |
|
- |
|
1,045 |
|
1,045 |
|
- |
|
1,961 |
|
1,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
7 |
14,300 |
|
- |
|
14,300 |
|
13,787 |
|
- |
|
13,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank and deposit
interest |
|
289 |
|
- |
|
289 |
|
30 |
|
- |
|
30 |
|
|
14,589 |
|
9,055 |
|
23,644 |
|
13,817 |
|
108 |
|
13,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on
investments at fair value through profit or loss |
6 |
- |
|
(25,720) |
|
(25,720) |
|
- |
|
(16,828) |
|
(16,828) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Adviser's
base fee |
9 |
(8,498) |
|
- |
|
(8,498) |
|
(8,458) |
|
- |
|
(8,458) |
Investment Adviser's
incentive fee |
9 |
- |
|
3,843 |
|
3,843 |
|
- |
|
1,812 |
|
1,812 |
Administrative
expenses |
|
(1,423) |
|
- |
|
(1,423) |
|
(1,565) |
|
- |
|
(1,565) |
Directors'
remuneration |
|
(219) |
|
- |
|
(219) |
|
(209) |
|
- |
|
(209) |
|
|
(10,140) |
|
(21,877) |
|
(32,017) |
|
(10,232) |
|
(15,016) |
|
(25,248) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
profit/(loss) |
|
4,449 |
|
(12,822) |
|
(8,373) |
|
3,585 |
|
(14,908) |
|
(11,323) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
8 |
- |
|
(9,126) |
|
(9,126) |
|
- |
|
(8,332) |
|
(8,332) |
Profit/(loss)
before taxation |
|
4,449 |
|
(21,948) |
|
(17,499) |
|
3,585 |
|
(23,240) |
|
(19,655) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Withholding taxes |
10 |
- |
|
- |
|
- |
|
233 |
|
- |
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) for
the period |
|
4,449 |
|
(21,948) |
|
(17,499) |
|
3,818 |
|
(23,240) |
|
(19,422) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of Ordinary shares in issue during the period |
21 |
|
|
|
83,456,487 |
|
|
|
|
83,907,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings/(loss)
per Ordinary share |
21 |
5.33c |
|
(26.30)c |
|
(20.97)c |
|
4.55c |
|
(27.70)c |
|
(23.15)c |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings/(loss) per Ordinary share |
20 |
4.95c |
|
(29.22)c |
|
(24.27)c |
|
4.55c |
|
(27.70)c |
|
(23.15)c |
All items in the above statement are derived from continuing
operations.
The profit/(loss) for the period is attributable to the Ordinary
shareholders of the
Company.
The format of the Unaudited Statement of Comprehensive Income
follows the recommendations of the AIC Statement of Recommended
Practice.
The "Total" column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with
IFRS.
There was no comprehensive income other than the profit/(loss)
for the period.
The accompanying notes form an integral part of the interim
financial
statements.
Unaudited Statement of Financial
Position
As at 31 August 2018
|
|
|
31
August |
|
28
February |
|
|
|
2018 |
|
2018 |
|
Note |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
Unaudited |
|
Audited |
|
|
|
|
|
|
Assets |
|
|
|
|
|
Investments at fair
value through profit or loss |
11 |
|
998,715 |
|
1,063,034 |
Loans at amortised
cost |
11 |
|
57,808 |
|
57,349 |
Securities sold
receivable |
12 |
|
- |
|
24,987 |
Other receivables |
13 |
|
626 |
|
2,158 |
Cash at bank |
|
|
61,554 |
|
9,000 |
Total
assets |
|
|
1,118,703 |
|
1,156,528 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Convertible Unsecured
Loan Stock |
14 |
|
54,045 |
|
59,970 |
Zero Dividend
Preference shares |
15 |
|
60,798 |
|
62,843 |
Loans payable |
16 |
|
149,329 |
|
150,125 |
Investment Adviser's
incentive fee |
9 |
|
36,767 |
|
41,606 |
Investment Adviser's
base fee |
9 |
|
2,210 |
|
2,225 |
Other payables |
17 |
|
2,187 |
|
2,186 |
Total
liabilities |
|
|
305,336 |
|
318,955 |
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
|
|
258,978 |
|
265,685 |
Other reserve |
|
|
353,528 |
|
353,528 |
Capital reserve |
|
|
128,739 |
|
150,687 |
Revenue reserve |
|
|
72,122 |
|
67,673 |
Total
equity |
|
|
813,367 |
|
837,573 |
|
|
|
|
|
|
Total liabilities
and equity |
|
|
1,118,703 |
|
1,156,528 |
|
|
|
|
|
|
Number of Ordinary
shares in issue at period end |
18 |
|
82,846,107 |
|
83,907,516 |
|
|
|
|
|
|
Net asset value per
Ordinary share |
|
|
$9.82 |
|
$9.98 |
These unaudited condensed interim financial statements were
approved by the Board of Directors and authorised for issue on
7 November 2018. They were signed on
its behalf
by:
David Macfarlane
Chairman
Patrick Firth
Director
The accompanying notes form an integral part of the interim
financial statements.
Unaudited Statement of Changes in
Equity
For the Period from 1 March 2018
to 31 August
2018
|
|
|
Share |
|
Other |
|
Capital Reserve |
|
Revenue |
|
|
|
|
|
Capital |
|
Reserve |
|
Realised |
|
Unrealised |
|
Reserve |
|
Total |
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1
March 2018 |
|
|
265,685 |
|
353,528 |
|
70,777 |
|
79,910 |
|
67,673 |
|
837,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) for the
period |
|
|
- |
|
- |
|
58,560 |
|
(80,508) |
|
4,449 |
|
(17,499) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy back of Ordinary
shares |
|
|
(6,707) |
|
- |
|
- |
|
- |
|
- |
|
(6,707) |
Balance at 31 August
2018 |
|
|
258,978 |
|
353,528 |
|
129,337 |
|
(598) |
|
72,122 |
|
813,367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparative for the period from 1 March
2017 to 31 August 2017
|
|
|
Share |
|
Other |
|
Capital Reserve |
|
Revenue |
|
|
|
|
|
Capital |
|
Reserve |
|
Realised |
|
Unrealised |
|
Reserve |
|
Total |
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 1 March
2017 |
|
|
265,685 |
|
353,528 |
|
28,034 |
|
145,837 |
|
55,760 |
|
848,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/profit for the
period |
|
|
- |
|
- |
|
(4,604) |
|
(18,636) |
|
3,818 |
|
(19,422) |
Balance at 31 August
2017 |
|
|
265,685 |
|
353,528 |
|
23,430 |
|
127,201 |
|
59,578 |
|
829,422 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of the interim
financial statements.
Unaudited Statement of Cash Flows
For the Period from 1 March 2018
to 31 August 2018
|
|
|
Six
Month |
|
Six
Month |
|
|
|
Period Ended |
|
Period Ended |
|
|
|
31
August 2018 |
|
31
August 2017 |
|
|
|
|
|
|
|
|
Note |
US$'000 |
|
US$'000 |
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
Net cash outflow from
operating activities |
23 |
(7,656) |
|
(6,980) |
|
Cash outflow for
investments (direct investments and capital calls) |
11 |
(134,749) |
|
(62,893) |
|
Cash inflow from
repayment and disposal of investments |
11 |
209,230 |
|
33,643 |
|
Net cash
inflow/(outflow) before financing activities |
|
66,825 |
|
(36,230) |
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
Finance costs
paid |
|
(7,351) |
|
(5,557) |
|
|
|
|
|
|
|
Payments to buy back
Company's Ordinary shares |
|
(6,707) |
|
- |
|
|
|
|
|
|
|
Proceeds from loan
facilities |
16 |
- |
|
50,000 |
|
|
|
|
|
|
|
Loan issue costs
paid |
16 |
- |
|
(1,840) |
|
Net cash
(outflow)/inflow from financing activities |
|
(14,058) |
|
42,603 |
|
|
|
|
|
|
|
Increase in cash at
bank |
|
52,767 |
|
6,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of net cash flow to movements in cash at
bank |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
Cash and cash
equivalents at 1 March |
|
9,000 |
|
29,063 |
|
Increase in cash at
bank |
|
52,767 |
|
6,373 |
|
Unrealised foreign
exchange movements on cash and cash equivalents |
|
(213) |
|
330 |
|
Cash and cash
equivalents at period end |
|
61,554 |
|
35,766 |
|
|
|
|
|
|
Reconciliation of cash flows to investment note and
reports |
|
|
|
|
|
US$'000 |
|
Cash outflow for
investments (direct investments and capital calls) |
|
134,749 |
|
Deposits paid during
prior year invested in current year |
|
1,595 |
|
Total investments for
the period - investment note |
11 |
136,344 |
|
|
|
|
|
|
|
|
|
Less: Investments in
Treasury bills during the period |
|
(3,267) |
|
Less: Short term loan
to investee company |
|
(12,304) |
|
Total investments
quoted in Results and Portfolio Highlights, Chairman’s Statement,
and Investment Adviser’s Report |
|
120,773 |
|
|
|
|
|
|
|
US$'000 |
|
Cash inflow from
repayment and disposal of investments |
|
209,230 |
|
Less: Prior year
securities sold receivable |
|
(24,987) |
|
|
|
|
|
Total realisations for
the period - investment note |
11 |
184,243 |
|
|
|
|
|
Realisations from
investments held in escrow accounts |
|
2,085 |
|
Less: Proceeds from
maturity of Treasury bills during period |
|
(49,845) |
|
Less: Short term loan
to investee company repaid |
|
(11,720) |
|
Total realisations
quoted in Results and Portfolio Highlights and Chairman’s
Statement |
|
124,763 |
The accompanying notes form an integral part of the interim
financial statements.
Notes to the Financial
Statements
1. General
Information
JZ Capital Partners Limited ("JZCP" or the "Company") is a
Guernsey domiciled closed-ended investment company which was
incorporated in Guernsey on 14 April
2008 under the Companies (Guernsey) Law, 2008 (as amended).
The Company is classed as an authorised fund under the Protection
of Investors (Bailiwick of Guernsey) Law 1987. The Company's
Capital consists of Ordinary shares, Zero Dividend Preference
("ZDP") shares and Convertible Unsecured Loan Stock ("CULS"). The
Company's shares trade on the London Stock Exchange's Specialist
Fund Segment.
The Company’s Investment Policy is to target predominantly
private investments, seeking to back management teams to deliver on
attractive investment propositions. In executing its strategy, the
Company takes a long term view. The Company seeks to invest
directly in its target investments, although it may also invest
through other collective investment vehicles. The Company may also
invest in listed investments, whether arising on the listing of its
private investments or directly. The Investment Adviser is able to
invest globally but with a particular focus on opportunities in
the United States and
Europe.
The Company is currently mainly focused on investing in the
following areas:
(a) small or micro-cap buyouts in the form of debt and equity
and preferred stock in both the US and Europe; and
(b) real estate interests
Jordan/Zalaznick Avisers, Inc. (the “Investment Adviser”) takes
an opportunistic approach to asset allocation and always seeks to
maintain a broad spread of investment risk. Exposures are monitored
and managed by the Investment Adviser under the supervision of the
Board.
The Company has no direct employees. For its services the
Investment Adviser receives a management fee and is also entitled
to performance related fees (Note 9). The Company has no ownership
interest in the Investment Adviser. During the period under review
the Company was administered by Northern Trust International Fund
Administration Services (Guernsey)
Limited.
The unaudited Condensed Interim Financial Statements (the
"interim financial statements") are presented in US$'000 except
where otherwise
indicated.
2. Significant Accounting
Policies
The accounting policies adopted in the preparation of these
interim financial statements have been consistently applied during
the period, unless otherwise
stated.
Statement of
Compliance
The interim financial statements of the Company for the period
1 March 2018 to 31 August 2018 have been prepared in accordance
with IAS 34, "Interim Financial Reporting" as adopted in the
European Union, together with applicable legal and regulatory
requirements of the Companies (Guernsey) Law, 2008 and the
Disclosure Guidance and Transparency Rules. The interim financial
statements do not include all the information and disclosure
required in the annual financial statements and should be read in
conjunction with the annual report and audited financial statements
at 28 February
2018.
Basis of
Preparation
The interim financial statements have been prepared under the
historical cost basis, modified by the revaluation of financial
instruments designated at fair value through profit or loss
("FVTPL") upon initial recognition. The principal accounting
policies adopted in the preparation of these interim financial
statements are consistent with the accounting policies stated in
Note 2 of the annual financial statements for the year ended
28 February 2018. The preparation of
these interim financial statements are in conformity with IAS 34,
"Interim Financial Reporting" as adopted in the European Union,
requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
interim financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could materially differ from those
estimates.
New standards,
interpretations and amendments adopted by the
Company
The accounting policies adopted in the preparation of the
interim financial statements are consistent with those followed in
the preparation of the Company’s annual financial statements for
the year ended 28 February 2018,
except for the adoption of new standards effective as of
1 January 2018. The Company has not
early adopted any other standard, interpretation or amendment that
has been issued but is not yet effective.
The Company considers that it does not have any material revenue
streams that fall within the scope of IFRS 15 Revenue from
Contracts with Customers and hence that the implementation of IFRS
15 did not have a material impact on its interim financial
statements.
Several other amendments and interpretations apply for the first
time in 2018, but do not have an impact on the interim financial
statements of the Company.
IFRS 9 Financial
Instruments
IFRS 9 Financial Instruments replaces IAS 39 Financial
Instruments: Recognition and Measurement for annual periods
beginning on or after 1 January 2018,
bringing together all three aspects of the accounting for financial
instruments: classification and measurement; impairment; and hedge
accounting.
The Company has applied IFRS 9 retrospectively, with the initial
application date of 1 March 2018 and
adjusting the comparative information for the period beginning
1 March 2017. However there was no
financial impact and no change to the comparative information for
2018 due to the application of IFRS
9.
(a) Classification
and measurement
Financial
Assets
Under IFRS 9, the Company initially measures a financial
asset at its fair value plus, in the case of a financial asset not
at fair value through profit or loss, transaction
costs
Under IFRS 9, debt financial instruments are subsequently
measured at fair value through profit or loss ("FVTPL"), amortised
cost, or fair value through other comprehensive income ("FVOCI").
The classification is based on two criteria: the Company's
business model for managing the assets; and whether the
instruments’ contractual cash flows represent ‘solely payments of
principal and interest’ on the principal amount outstanding (the
"SPPI
criterion").
There is a fair value option ("FVO") that allows financial
assets on initial recognition to be designated as FVTPL if that
eliminates or significantly reduces an accounting
mismatch.
Under IFRS 9, equity instruments are generally measured at
FVTPL. However, entities have an irrevocable option on an
instrument-by-instrument basis to present changes in the fair value
of non-trading instruments in other comprehensive income ("OCI")
without subsequent reclassification to profit or
loss.
The assessment of the Company’s business models was made as of
the date of initial application, 1 March
2018, and then applied prospectively. The assessment of
whether contractual cash flows on debt instruments are solely
comprised of principal and interest was made based on the facts and
circumstances as at the initial recognition of the assets.
Financial
liabilities
For financial liabilities designated as FVTPL using the
FVO, the amount of change in the fair value of such financial
liabilities that is attributable to changes in the Company's credit
risk must be presented in OCI. The remainder of the change in
fair value is presented in profit or loss, unless presentation in
OCI of the fair value change in respect of the liability’s credit
risk would create or enlarge an accounting mismatch in profit or
loss.
All other IAS 39 Financial Instruments: Recognition and
Measurement classification and measurement requirements for
financial liabilities have been carried forward into IFRS 9,
including the embedded derivative separation rules and the criteria
for using the FVO.
The Company considers the change in the fair value of financial
liabilities valued at FVTPL, due to any change in the Company's
credit risk profile and will allocate the fair value movement
through Other Comprehensive
Income.
By adopting IFRS 9, there is no
material impact on the classification and measurement of financial
assets and financial liabilities of the Company
because:
i) Financial assets measured at amortised cost under IAS 39 are
loans, securities sold receivable and other receivables. These
instruments meet the SPPI criterion and are held in a
held-to-collect business model. Accordingly, they will continue to
be measured at amortised cost under IFRS
9.
ii) Financial assets measured at FVTPL under IAS 39 are
investments in common stock (equity), preferred stock, subordinated
debt and limited partnership interest, and managed on a fair value
basis in accordance with a documented investment strategy. These
investments are also not expected to meet the SPPI criterion and
accordingly, these financial instruments will still be measured at
fair value through profit or loss under IFRS
9;
iii) Financial liabilities measured at FVTPL under IAS 39 are
CULS and will continue to be measured at FVTPL under IFRS
9;
iv) Financial liabilities valued at amortised cost under IAS 39
are loans payable, other payables and ZDPs and will continued to be
measured at amortised cost under IFRS 9
and
v) The embedded derivatives included in the financial
liabilities at amortised cost are not separated under IAS 39 and
will continued not to be separated under IFRS 9 because embedded
derivatives do not meet the SPPI test.
(b) Impairment
The adoption of IFRS 9 has changed the Company’s accounting for
impairment losses for financial assets by replacing IAS 39’s
incurred loss approach with a forward-looking expected credit loss
(ECL) approach.
ECLs are based on the difference between the contractual cash
flows due in accordance with the contract and all the cash flows
that the Company expects to receive. The shortfall is then
discounted at an approximation to the asset’s original effective
interest
rate.
For securities sold receivable and other receivables, the
Company has applied the standard’s simplified approach because of
the short term nature of these balances and has calculated ECLs
based on lifetime expected credit losses. No impairment allowance
has been accounted as a result of the adoption of IFRS
9.
For loans the ECL is based on the 12-month ECL. The 12-month ECL
is the portion of lifetime ECLs that results from default events on
a financial instrument that are possible within 12 months after the
reporting date. However, when there has been a significant increase
in credit risk since origination, the allowance will be based on
the lifetime
ECL.
The Company considers a financial asset in default when
contractual payment are past due. However, in certain cases, the
Company may also consider a financial asset to be in default when
internal or external information indicates that the Company is
unlikely to receive the outstanding contractual amounts in full
before taking into account any credit enhancements held by the
Company.
The adoption of the ECL requirements of IFRS 9 has not resulted
in any impairment allowances on the Company’s debt financial
assets.
(c) Hedge
accounting
The Company does not use hedge
accounting.
Transition
disclosures
The application of IFRS 9 did not change the measurement and
presentation of the current financial instruments therefore there
is no impact on the interim financial
statements.
3. Estimates and
Judgements
The estimates and judgements made by the Board of Directors are
consistent with those made in the Financial Statements for the year
ended 28 February
2018.
4. Segment
Information
The Investment Manager is responsible for allocating resources
available to the Company in accordance with the overall business
strategies as set out in the Investment Guidelines of the Company.
The Company is organised into the following segments:
• Portfolio of US micro-cap
investments
• Portfolio of European micro-cap
investments
• Portfolio of Real estate
investments
• Portfolio of Other
investments
Investments in treasury bills are not considered as part of the
investment strategy and are therefore excluded from this segmental
analysis.
The investment objective of each segment is to achieve
consistent medium-term returns from the investments in each segment
while safeguarding capital by investing in a diversified
portfolio.
Segmental operating
profit/(loss)
For the period from 1 March 2018
to 31 August
2018
|
|
|
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
revenue |
|
|
|
|
|
10,649 |
|
3,565 |
|
59 |
|
- |
|
14,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental revenue |
|
|
|
10,649 |
|
3,565 |
|
59 |
|
- |
|
14,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realisations from investments held in Escrow |
2,085 |
|
- |
|
- |
|
- |
|
2,085 |
|
Net
gain/(loss) on investments at FVTPL |
|
8,152 |
|
2,778 |
|
(36,650) |
|
- |
|
(25,720) |
|
Investment
Adviser's base fee |
|
|
|
(3,311) |
|
(859) |
|
(3,501) |
|
(122) |
|
(7,793) |
|
Investment
Adviser's capital incentive fee1 |
(3,922) |
|
435 |
|
7,330 |
|
- |
|
3,843 |
Total
segmental operating profit/(loss) |
|
13,653 |
|
5,919 |
|
(32,762) |
|
(122) |
|
(13,312) |
For the period from 1 March 2017
to 31 August 2017
|
|
|
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue |
|
|
|
|
|
|
9,836 |
|
3,916 |
|
- |
|
35 |
|
13,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental revenue |
|
|
|
9,836 |
|
3,916 |
|
- |
|
35 |
|
13,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realisations from investments held in Escrow |
1,173 |
|
- |
|
- |
|
- |
|
1,173 |
|
Net
(loss)/gain on investments at FVTPL |
|
(6,974) |
|
14,356 |
|
(14,235) |
|
(5,405) |
|
(12,258) |
|
Investment
Adviser's base fee |
|
|
|
(3,305) |
|
(1,177) |
|
(3,558) |
|
(137) |
|
(8,177) |
|
Investment
Adviser's capital incentive fee1 |
|
(1,117) |
|
(914) |
|
2,847 |
|
996 |
|
1,812 |
Total
segmental operating (loss)/profit |
|
(387) |
|
16,181 |
|
(14,946) |
|
(4,511) |
|
(3,663) |
1The capital incentive fee is allocated across
segments where a realised or unrealised gain or loss has occurred.
Segments with realised or unrealised losses are allocated a credit
pro rata to the size of the loss and segments with realised or
unrealised gains are allocated a charge pro rata to the size of the
gain.
Certain income and expenditure is not considered part of the
performance of an individual segment. This includes net foreign
exchange gains, interest on cash, finance costs, management fees,
custodian and administration fees, directors’ fees and other
general
expenses.
The following table provides a reconciliation between total
segmental operating loss and operating
loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
ended |
|
Period
ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.8.2018 |
|
31.8.2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental operating loss |
|
|
|
|
|
(13,312) |
|
(3,663) |
Gain/(loss) on financial liabilities at fair value through profit
or loss |
|
|
|
5,925 |
|
(3,026) |
Net
foreign exchange gain/(loss) |
|
|
|
|
|
1,045 |
|
(2,609) |
Bank and
deposit interest |
|
|
|
289 |
|
30 |
Expenses
not attributable to segments |
|
|
|
(1,642) |
|
(1,774) |
Fees
payable to investment adviser based on non-segmental assets |
|
(705) |
|
(281) |
Interest on
US treasury bills |
|
|
|
|
|
27 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
|
|
|
|
|
|
|
(8,373) |
|
(11,323) |
The following table provides a reconciliation between total
segmental revenue and Company
revenue:
|
|
|
|
|
|
|
|
|
|
|
31.8.2018 |
|
31.8.2017 |
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Total
segmental revenue |
|
|
|
|
|
|
|
|
|
14,273 |
|
13,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-segmental revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Bank and
deposit interest |
|
|
|
|
|
|
|
|
|
289 |
|
30 |
Interest on
US treasury bills |
|
|
|
27 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
|
|
|
|
|
|
|
|
14,589 |
|
13,817 |
Segmental Net Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31
August 2018 |
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
Segmental assets |
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
453,456 |
|
63,623 |
|
461,065 |
|
17,302 |
|
995,446 |
|
Loans at
amortised cost |
|
|
|
- |
|
57,808 |
|
- |
|
- |
|
57,808 |
|
Other
receivables |
|
- |
|
- |
|
495 |
|
- |
|
495 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental assets |
|
453,456 |
|
121,431 |
|
461,560 |
|
17,302 |
|
1,053,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmental liabilities |
|
|
|
|
|
|
|
|
|
|
|
Payables
and accrued expenses |
|
(34,631) |
|
1,120 |
|
(8,619) |
|
1,880 |
|
(40,250) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental liabilities |
|
(34,631) |
|
1,120 |
|
(8,619) |
|
1,880 |
|
(40,250) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental net assets |
|
418,825 |
|
122,551 |
|
452,941 |
|
19,182 |
|
1,013,499 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 28
February 2018 |
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
Segmental assets |
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
488,258 |
|
46,108 |
|
463,391 |
|
15,302 |
|
1,013,059 |
|
Loans at
amortised cost |
|
|
- |
|
57,349 |
|
- |
|
- |
|
57,349 |
|
Other
receivables |
|
- |
|
- |
|
2,090 |
|
- |
|
2,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental assets |
|
488,258 |
|
103,457 |
|
465,481 |
|
15,302 |
|
1,072,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmental liabilities |
|
|
|
|
|
|
|
|
|
|
|
Payables
and accrued expenses |
|
(34,274) |
|
493 |
|
(15,973) |
|
4,777 |
|
(44,977) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental liabilities |
|
(34,274) |
|
493 |
|
(15,973) |
|
4,777 |
|
(44,977) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental net assets |
|
453,984 |
|
103,950 |
|
449,508 |
|
20,079 |
|
1,027,521 |
The following table provides a reconciliation between total
segmental assets and total assets and total segmental liabilities
and total
liabilities:
|
|
|
|
|
|
|
|
|
|
|
31.8.2018 |
|
28.2.2018 |
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental assets |
|
|
|
|
|
1,053,749 |
|
1,072,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
segmental assets |
|
|
|
|
|
|
|
|
Treasury Bills |
|
|
|
|
|
|
|
|
|
|
3,269 |
|
49,975 |
Cash at
bank |
|
61,554 |
|
9,000 |
Securities sold receivable |
|
- |
|
24,987 |
Other
receivables |
|
|
|
|
|
|
131 |
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
|
|
|
|
1,118,703 |
|
1,156,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segmental liabilities |
|
|
|
|
|
|
|
(40,250) |
|
(44,977) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
segmental liabilities |
|
|
|
|
|
|
|
|
Zero
Dividend Preference shares |
|
(60,798) |
|
(62,843) |
Convertible Unsecured Loan Stock |
|
(54,045) |
|
(59,970) |
Loans payable |
|
|
|
|
|
|
|
|
|
|
(149,329) |
|
(150,125) |
Other
payables |
|
(914) |
|
(1,040) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities |
|
|
|
|
|
(305,336) |
|
(318,955) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
net assets |
|
|
|
|
|
813,367 |
|
837,573 |
5. Fair Value of Financial
Instruments
The Company classifies fair value measurements of its financial
instruments at fair value through profit or loss ("FVTPL") using a
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The financial instruments valued
at FVTPL are analysed in a fair value hierarchy based on the
following
levels:
Level
1
Quoted prices (unadjusted) in active markets for identical
assets or
liabilities.
Level
2
Those involving inputs other than quoted prices included within
level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices). For example, investments which are valued based on
quotes from brokers (intermediary market participants) are
generally indicative of Level 2 when the quotes are executable and
do not contain any waiver notices indicating that they are not
necessarily tradeable. Another example would be derivatives such as
interest rate swaps or forward currency contracts where inputs are
mostly observable and therefore may also fall into Level 2. At the
period end, the Company had assessed it held no assets or
liabilities valued at FVTPL that were using inputs that would be
classified as level 2 within the valuation
method.
Level
3
Those involving inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
Investments in JZCP's portfolio valued using unobservable inputs
such as multiples, capitalisation rates, discount rates fall within
Level 3.
Differentiating between Level 2 and Level 3 fair value
measurements i.e., assessing whether inputs are observable and
whether the unobservable inputs are significant, may require
judgement and a careful analysis of the inputs used to measure fair
value including consideration of factors specific to the asset or
liability.
The following table shows financial instruments recognised at
fair value, analysed between those whose fair value is based
on:
Financial assets at 31 August 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap |
|
|
|
|
|
|
|
|
- |
|
- |
|
453,456 |
|
453,456 |
European
micro-cap |
|
|
|
|
|
- |
|
- |
|
63,623 |
|
63,623 |
Real estate |
|
|
|
|
|
|
|
|
- |
|
- |
|
461,065 |
|
461,065 |
Other investments |
|
|
|
|
|
|
- |
|
- |
|
17,302 |
|
17,302 |
Listed
investments |
|
|
|
|
|
3,269 |
|
- |
|
- |
|
3,269 |
|
|
|
|
|
|
|
|
|
3,269 |
|
- |
|
995,446 |
|
998,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at 28 February 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap |
|
|
|
|
|
|
|
|
- |
|
- |
|
488,258 |
|
488,258 |
European
micro-cap |
|
|
|
|
|
- |
|
- |
|
46,108 |
|
46,108 |
Real estate |
|
|
|
|
|
|
|
|
- |
|
- |
|
463,391 |
|
463,391 |
Other
investments |
|
|
|
|
|
|
- |
|
- |
|
15,302 |
|
15,302 |
Listed
investments |
|
|
|
|
|
49,975 |
|
- |
|
- |
|
49,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,975 |
|
- |
|
1,013,059 |
|
1,063,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities designated at fair value through profit or
loss at inception |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at 31 August 2018 |
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Subordinated Unsecured Loan Stock |
|
54,045 |
|
- |
|
- |
|
54,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,045 |
|
- |
|
- |
|
54,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at 28 February 2018 |
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Subordinated Unsecured Loan Stock |
|
59,970 |
|
- |
|
- |
|
59,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,970 |
|
- |
|
- |
|
59,970 |
Transfers between
levels
There were no transfers between the levels of hierarchy of
financial assets and liabilities recognised at fair value through
profit or loss within the period ended 31
August 2018 and the year ended 28 February
2018.
Valuation
techniques
The same valuation methodology and process was deployed as for
the year ended 28 February
2018.
Quantitative information of
significant unobservable inputs and sensitivity analysis to
significant changes in unobservable inputs within Level 3
hierarchy
The significant unobservable inputs used in fair value
measurement categorised within Level 3 of the fair value hierarchy
together with a quantitative sensitivity as at 31 August 2018 and 28
February 2018 are shown
below:
|
|
Value |
|
|
|
|
|
Range (weighted average) |
|
|
|
|
|
|
|
|
31.8.2018 |
|
Valuation |
|
Unobservable |
|
|
Sensitivity |
|
Effect on Fair Value |
|
|
US$'000 |
|
Technique |
|
input |
|
|
used
1 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
micro-cap investments |
|
453,456 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
6.0x -
12.6x (8.3x) |
|
-0.5x /
0.5x |
|
(33,612) |
|
33,573 |
|
|
|
|
|
Discount
to Average Multiple |
|
15% - 35%
(23%) |
|
+5% /
-5% |
|
(46,736) |
|
45,331 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European
micro-cap investments |
|
121,431 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
6.3x -
11.2x (8.7x) |
|
-0.5x /
0.5x |
|
(3,245) |
|
3,235 |
|
|
|
|
|
Discount
to Average Multiple |
|
3% - 41%
(20%) |
|
+5% /
-5% |
|
(2,193) |
|
2,184 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate2 |
|
|
|
Comparable Sales |
|
Market
Value Per Square Foot |
|
$314 -
$3,106 per sq ft ($648) |
|
-5% /
+5% |
|
(14,850) |
|
14,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
461,065 |
|
DCF
Model/Income Approach |
|
Discount
Rate |
|
5.5% -
7.5% |
+25bps /-25bps |
(1,666) |
|
2,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cap Rate/
Income Approach |
|
Capitalisation Rate |
|
3.25 -
5.5% |
+25bps /-25bps |
(7,048) |
|
6,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value |
|
|
|
|
|
Range (weighted average) |
|
|
|
|
|
|
|
|
28.2.2018 |
|
Valuation |
|
Unobservable |
|
|
Sensitivity |
|
Effect on Fair Value |
|
|
US$'000 |
|
Technique |
|
input |
|
|
used
1 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
micro-cap investments |
|
488,258 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
6.0x -
12.6x (8.3x) |
|
-0.5x /
0.5x |
|
(32,783) |
|
33,044 |
|
|
|
|
|
Discount
to Average Multiple |
|
15% - 35%
(25%) |
|
+5% /
-5% |
|
(45,331) |
|
46,736 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European
micro-cap investments |
|
103,457 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
5.5x -
12.6x (8.1x) |
|
-0.5x /
0.5x |
|
(3,324) |
|
3,324 |
|
|
|
|
|
Discount
to Average Multiple |
|
13% - 45%
(30%) |
|
+5% /
-5% |
|
(2,833) |
|
2,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate2 |
|
463,391 |
|
Comparable Sales |
|
Market
Value Per Square Foot |
|
$314 -
$3,106 per sq ft |
|
-5% /
+5% |
|
(14,057) |
|
12,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DCF
Model/Income Approach |
|
Discount
Rate |
|
5.5% -
7.5% |
+25bps /-25bps |
(1,729) |
|
2,345 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cap Rate/
Income Approach |
|
Capitalisation Rate |
|
3.25 -
5.5% |
+25bps /-25bps |
(9,527) |
|
9,713 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 The sensitivity analysis refers to a percentage
amount added or deducted from the average input and the effect this
has on the fair
value.
2 The Fair Value of JZCP's investment in financial
interests in real estate, is measured as JZCP's percentage interest
in the value of the underlying properties. The Directors consider
the discount rate used, applied to the DCF, when valuing the
properties as the most significant unobservable input affecting the
measurement of fair
value.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and the end of the reporting
period.
Period
ended 31 August 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 March 2018 |
|
|
|
|
|
|
488,258 |
|
46,108 |
|
463,391 |
|
15,302 |
|
1,013,059 |
Investments in year including capital calls |
|
69,114 |
|
14,737 |
|
34,923 |
|
2,000 |
|
120,774 |
Payment in
kind ("PIK") |
|
|
|
1,568 |
|
- |
|
- |
|
- |
|
1,568 |
Proceeds
from investments realised |
|
(122,079) |
|
- |
|
(599) |
|
- |
|
(122,678) |
Net
gain/(loss) on investments |
|
8,152 |
|
2,778 |
|
(36,650) |
|
- |
|
(25,720) |
Movement
in accrued interest |
|
8,443 |
|
- |
|
- |
|
- |
|
8,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31
August 2018 |
|
|
|
453,456 |
|
63,623 |
|
461,065 |
|
17,302 |
|
995,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
28 February 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 March 2017 |
|
|
|
|
|
|
423,137 |
|
109,694 |
|
468,599 |
|
23,167 |
|
1,024,597 |
Investments in year including capital calls |
|
36,592 |
|
8,649 |
|
47,227 |
|
4,000 |
|
96,468 |
Payment in
kind ("PIK") |
|
|
|
22,287 |
|
- |
|
- |
|
69 |
|
22,356 |
Proceeds
from investments realised |
|
(44,911) |
|
(79,673) |
|
(2,225) |
|
(4,745) |
|
(131,554) |
Net
gain/(loss) on investments |
|
50,549 |
|
7,438 |
|
(50,210) |
|
(7,189) |
|
588 |
Movement
in accrued interest |
|
604 |
|
- |
|
- |
|
- |
|
604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 28
February 2018 |
|
|
|
488,258 |
|
46,108 |
|
463,391 |
|
15,302 |
|
1,013,059 |
Fair value of Zero Dividend Preference
("ZDP")
shares
The fair value of the ZDP shares is deemed to be their quoted
market price. As at 31 August 2018
the ask price for the ZDP (2022) shares was £4.38 (28 February 2018: £4.38 per share) the total fair
value of the ZDP shares was $67,790,000 (28 February
2018: $71,863,000) which is
$6,992,000 (28
February 2018: $9,020,000)
higher than the liability recorded in the Statement of Financial
Position.
ZDP shares are recorded at amortised cost and would fall in to
the Level 1 hierarchy if valued at
FVTPL.
6. Net Loss on Investments at Fair
Value Through Profit or Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Period
ended |
|
Period
ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
31.8.2018 |
|
31.8.2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Loss
on investments held in investment portfolio at period end |
|
|
|
|
|
|
Net
movement in period end unrealised gain position |
|
|
|
|
|
(91,838) |
|
(16,391) |
Unrealised
gains in prior periods now realised |
|
|
|
|
|
66,753 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealised losses in the period |
|
|
|
|
|
|
|
(25,085) |
|
(16,391) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(losses)/gains on investments realised in the period |
|
|
|
|
|
|
|
|
Proceeds
from investments realised |
|
|
|
|
|
|
|
172,523 |
|
26,538 |
Cost of
investments realised |
|
|
|
|
|
|
|
|
|
(106,405) |
|
(26,975) |
Unrealised
gains in prior periods now realised |
|
|
|
|
|
(66,753) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net
loss in the period on investments realised in the period |
|
|
|
(635) |
|
(437) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on
investments in the period |
|
|
|
|
|
|
|
(25,720) |
|
(16,828) |
Following a review of the categorisation of the Company's
investments, it has been determined that loans to European
micro-cap companies should be classified as Loans at amortised
cost. The comparative totals within these interim financial
statements have been adjusted to reflect the position if these
investments had been categorised as Loans and Receivables under IAS
39, subsequently Loans at amortised cost under IFRS 9, and not as
Investments at FVTPL. Therefore, the comparative figures have been
amended to reallocate $4,570,000 of
gains on investments at FVTPL to foreign exchange gains.
7. Investment Income
|
|
|
|
|
|
|
|
|
|
Period
ended |
|
Period
ended |
|
|
|
|
|
|
|
|
|
|
31.8.2018 |
|
31.8.2017 |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from investments classified as FVTPL |
|
|
|
|
10,735 |
|
9,871 |
Income
from investments classified as loans at amortised cost |
3,565 |
|
3,916 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,300 |
|
13,787 |
Income for the period ended 31 August 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
Loan note Interest |
|
Other |
|
|
|
|
|
|
|
|
|
Interest |
|
PIK |
|
Cash |
|
Interest |
|
Total |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap |
|
|
|
|
|
9,899 |
|
112 |
|
638 |
|
- |
|
10,649 |
|
European
micro-cap |
|
|
|
|
|
- |
|
3,159 |
|
406 |
|
- |
|
3,565 |
|
Real estate |
|
|
|
|
|
- |
|
- |
|
- |
|
59 |
|
59 |
|
Listed
investments |
|
|
|
|
|
- |
|
- |
|
- |
|
27 |
|
27 |
|
|
|
|
|
|
|
9,899 |
|
3,271 |
|
1,044 |
|
86 |
|
14,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income for
the period ended 31 August 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
Loan note Interest |
|
Other |
|
|
Portfolio |
|
|
|
|
|
Interest |
|
PIK |
|
Cash |
|
Interest |
|
Total |
|
|
|
|
|
|
US$ '000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
micro-cap portfolio |
|
|
|
8,921 |
|
131 |
|
784 |
|
- |
|
9,836 |
European
micro-cap portfolio |
|
|
- |
|
3,037 |
|
879 |
|
- |
|
3,916 |
Other investments |
|
|
|
|
|
35 |
|
- |
|
- |
|
- |
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,956 |
|
3,168 |
|
1,663 |
|
- |
|
13,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Finance Costs
|
|
|
|
|
|
|
|
|
|
Period ended |
|
Period
ended |
|
|
|
|
|
|
|
|
|
|
31.8.2018 |
|
31.8.2017 |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
CULS
interest paid (Note 14) |
|
|
|
|
1,631 |
|
1,454 |
Zero
Dividend Preference shares (Note 15) |
|
|
|
|
1,572 |
|
1,427 |
Loan -
Guggenheim (Note 16) |
|
|
|
|
5,923 |
|
5,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,126 |
|
8,332 |
9. Fees Payable to the Investment
Adviser
Investment Advisory and Performance
fees
The Company entered into the amended and restated investment
advisory and management agreement with Jordan/Zalaznick Advisers,
Inc. (the "Investment Adviser") on 23
December 2010 (the ”Advisory Agreement”).
Pursuant to the Advisory Agreement, the Investment Adviser is
entitled to a base management fee and to an incentive fee. The base
management fee is an amount equal to 1.5 per cent per annum of the
average total assets under management of the Company less those
assets identified by the Company as being excluded from the base
management fee, under the terms of the agreement. The base
management fee is payable quarterly in arrears; the agreement
provides that payments in advance on account of the base management
fee will be
made.
For the six-month period ended 31 August
2018, total investment advisory and management expenses,
based on the average total assets of the Company, were included in
the Statement of Comprehensive Income of US$8,498,000 (period ended 31 August 2017: US$8,458,000). Of this amount US$2,210,000 (28 February
2018: US$2,225,000) was due
and payable at the period end.
The incentive fee has two parts. The first part is calculated by
reference to the net investment income of the Company ("Income
Incentive fee") and is payable quarterly in arrears provided that
the net investment income for the quarter exceeds 2 per cent of the
average of the net asset value of the Company for that quarter (the
"hurdle") (8 per cent. annualised). The fee is an amount equal to
(a) 100 per cent of that proportion of the net investment income
for the quarter as exceeds the hurdle, up to an amount equal to a
hurdle of 2.5%, and (b) 20 per cent of the net investment income of
the Company above a hurdle of 2.5% in any quarter. Investments
categorised as legacy investments and other assets identified by
the Company as being excluded are excluded from the calculation of
the fee. A true-up calculation is also prepared at the end of each
financial year to determine if further fees are payable to the
Investment Adviser or if any amounts are recoverable from future
income incentive
fees.
For the periods ended 31 August
2018 and 31 August 2017 there
was no income incentive fee
payable.
The second part of the incentive fee is calculated by reference
to the net realised capital gains ("Capital Gains Incentive fee")
of the Company and is equal to: (a) 20 per cent. of the realised
capital gains of the Company for each financial year less all
realised capital losses of the Company for the year less (b) the
aggregate of all previous capital gains incentive fees paid by the
Company to the Investment Adviser. The capital gains incentive is
payable in arrears within 90 days of the fiscal year end.
Investments categorised as legacy investments are excluded from the
calculation of the fee. Assets of JZI Fund III, EuroMicrocap Fund
2010, L.P., and EuroMicrocap Fund-C, L.P are also excluded from the
Capital Gains Incentive fee ("CGIF"). Carried interest, of an
amount equivalent to the CGIF payable under the Advisory Agreement,
is payable by the funds to an affiliate of JZAI.
For the purpose of calculating incentive fees cumulative
preferred dividends received on the disposal of an investment are
treated as a capital return rather than a receipt of
income.
At 31 August 2018, a provision has
been made for a CGIF of $16,584,000
(28 February 2018: $996,000) based on net realised gains.
The Company also provides for a CGIF based on unrealised gains,
calculated on the same basis as that of the fee on realised
gains/losses. For the period ended 31 August
2018 a provision of $20,183,000 (28 February
2018: $40,610,000) has been
included.
|
|
|
Provision At |
|
Provision At |
|
Paid
during period |
Movement in provision for the period ended |
|
|
|
31.8.2018 |
|
28.2.2018 |
|
31.8.2018 |
|
31.8.2018 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Provision
for CGIF on unrealised investments |
20,183 |
|
40,610 |
|
n/a |
|
(20,427) |
CGIF on realised
investments |
|
|
16,584 |
|
996 |
|
996 |
|
16,584 |
|
|
|
36,767 |
|
41,606 |
|
996 |
|
(3,843) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision At |
|
Provision At |
|
Paid
during period |
Movement in provision for the period ended |
|
|
|
31.8.2017 |
|
28.2.2017 |
|
31.8.2017 |
|
31.8.2017 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Provision
for CGIF on unrealised investments |
35,481 |
|
37,293 |
|
n/a |
|
(1,812) |
10. Taxation
The Company has been granted Guernsey tax exempt status in
accordance with The Income Tax (Exempt Bodies) (Guernsey) Ordinance
1989 (as amended) in exchange for a £1,200 annual fee (31 August 2017:
£1,200).
During the period ended 31 August
2017, the Company was refunded $233,000 relating to tax previously
withheld.
11. Investments
Category of
financial instruments |
|
|
|
|
Listed |
|
Unlisted |
|
Carrying Value |
|
|
|
|
|
31.8.2018 |
|
31.8.2018 |
|
31.8.2018 |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Investments at fair value through profit or loss |
|
|
|
3,269 |
|
995,446 |
|
998,715 |
Loans at amortised
cost |
|
|
|
|
- |
|
57,808 |
|
57,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,269 |
|
1,053,254 |
|
1,056,523 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Book cost at 1 March
2018 |
|
|
|
|
49,845 |
|
939,330 |
|
989,175 |
Investments in period
including capital calls |
|
|
|
|
3,267 |
|
133,077 |
|
136,344 |
Payment in kind
("PIK") |
|
|
|
|
- |
|
1,568 |
|
1,568 |
Proceeds from
investments realised |
|
|
|
|
(49,845) |
|
(134,398) |
|
(184,243) |
Net realised gain |
|
|
|
|
- |
|
65,534 |
|
65,534 |
|
|
|
|
|
|
|
|
|
|
Book cost at 31 August
2018 |
|
|
|
|
3,267 |
|
1,005,111 |
|
1,008,378 |
Unrealised gains at 31
August 2018 |
|
|
|
|
- |
|
15,281 |
|
15,281 |
Accrued interest at 31
August 2018 |
|
|
|
|
2 |
|
32,862 |
|
32,864 |
|
|
|
|
|
|
|
|
|
|
Carrying value at 31
August 2018 |
|
|
|
|
3,269 |
|
1,053,254 |
|
1,056,523 |
|
|
|
|
|
|
|
|
|
|
Category of
financial instruments |
|
|
|
|
Listed |
|
Unlisted |
|
Carrying Value |
|
|
|
|
|
28.2.2018 |
|
28.2.2018 |
|
28.2.2018 |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Investments at fair value through profit or loss |
|
|
|
49,975 |
|
1,013,059 |
|
1,063,034 |
Loans at amortised
cost |
|
|
|
|
- |
|
57,349 |
|
57,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49,975 |
|
1,070,408 |
|
1,120,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Book cost at 1 March
2017 |
|
|
|
|
- |
|
897,856 |
|
897,856 |
Investments in year
including capital calls |
|
|
|
|
74,767 |
|
103,039 |
|
177,806 |
Payment in kind
("PIK") |
|
|
|
|
- |
|
22,399 |
|
22,399 |
Proceeds from
investments realised |
|
|
|
|
(24,922) |
|
(138,658) |
|
(163,580) |
Net realised gain |
|
|
|
|
- |
|
54,694 |
|
54,694 |
|
|
|
|
|
|
|
|
|
|
Book cost at 28
February 2018 |
|
|
|
|
49,845 |
|
939,330 |
|
989,175 |
Unrealised gains at 28
February 2018 |
|
|
|
|
- |
|
108,914 |
|
108,914 |
Accrued interest at 28
February 2018 |
|
|
|
|
130 |
|
22,164 |
|
22,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at 28
February 2018 |
|
|
|
|
49,975 |
|
1,070,408 |
|
1,120,383 |
The cost of PIK investments is deemed to be interest not
received in cash but settled by the issue of further securities
when that interest has been recognised in the Statement of
Comprehensive
Income.
Loans at amortised
cost1
Following a review of the categorisation of the Company's
investments, it has been determined that loans to European
micro-cap companies should be classified as Loans at amortised
cost. The comparative totals within these interim financial
statements have been adjusted to reflect the position if these
investments had been categorised as Loans and Receivables under IAS
39, subsequently Loans at amortised cost under IFRS 9, and not as
Investments at FVTPL. The loans were measured correctly in the past
at amortised cost, therefore no change in the value recorded at
28 February 2018. The amortised cost
of the loans approximates or does not materially differ from their
fair value.
Interest on the loans accrues at the following
rates:
As At
31 August 2018 |
|
|
|
|
|
|
|
As At 28
February 2018 |
|
|
|
|
|
8.0% |
|
10.0% |
|
14%1 |
|
Total |
|
8.0% |
|
10.0% |
|
14%2 |
|
Total |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Loans at amortised
cost |
22,215 |
|
4,088 |
|
31,505 |
|
57,808 |
|
22,498 |
|
4,010 |
|
30,841 |
|
57,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
dates are as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As At
31 August 2018 |
|
|
|
|
|
|
|
As At 28 February 2018 |
|
|
|
|
|
0-6
months |
|
7-12
months |
|
1-2
years |
|
Total |
|
0-6
months |
|
7-12
months |
|
1-2
years |
|
Total |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Loans at amortised
cost |
4,088 |
|
31,505 |
|
22,215 |
|
57,808 |
|
- |
|
26,508 |
|
30,841 |
|
57,349 |
1Borrower can elect to pay interest when due at 12%
or to add the amount to the principal and have interest accrue at
the higher rate of
14%.
12. Securities sold receivable
|
|
|
|
31.8.2018 |
|
28.2.2018 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
US Treasury Bills
15.3.2018 |
|
|
|
- |
|
24,987 |
|
|
|
|
- |
|
24,987 |
|
|
|
|
|
|
|
Proceeds from the sale of US Treasury Bills were received by
JZCP on 1 March
2018.
13. Other Receivables
|
|
|
|
31.8.2018 |
|
28.2.2018 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
Accrued
interest due from JZCP Realty, Ltd |
495 |
|
495 |
Other receivables and
prepayments |
|
|
|
131 |
|
68 |
Deposits
paid on behalf of JZCP Realty, Ltd |
- |
|
1,595 |
|
|
|
|
626 |
|
2,158 |
14. Convertible Subordinated Unsecured
Loan Stock ("CULS")
On 30 July 2014, JZCP issued
£38,861,140 6% CULS. Holders of CULS may convert the whole or part
(being an integral multiple of £10 in nominal amount) of their CULS
into Ordinary Shares. Conversion Rights may be exercised at any
time during the period from 30 September
2014 to 10 business days prior to the Maturity date being
the 30 July 2021. The initial
conversion price is £6.0373 per Ordinary Share, which shall be
subject to adjustment to deal with certain events which would
otherwise dilute the conversion of the CULS. These events include
consolidation of Ordinary Shares, dividend payments made by the
Company, issues of shares, rights, share-related securities and
other securities by the Company and other events as detailed in the
Prospectus.
CULS bear interest on their nominal amount at the rate of 6.00
per cent. per annum, payable semi-annually in arrears. During the
six-month period ended 31 August
2018: $1,631,000 (31 August 2017: $1,454,000) of interest was paid to holders of
CULS and is shown as a finance cost in the Statement of
Comprehensive
Income.
|
|
|
|
|
|
|
31.8.2018 |
|
28.2.2018 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Fair Value of CULS at
1 March |
|
|
|
|
|
|
59,970 |
|
57,063 |
|
|
|
|
|
|
|
|
|
|
Unrealised
movement in fair value of CULS |
|
|
|
|
(2,677) |
|
(2,901) |
Unrealised
currency (gain)/loss to the Company on translation during the
period |
|
(3,248) |
|
5,808 |
Total (gain)/loss on
CULS |
|
|
|
|
|
|
(5,925) |
|
2,907 |
Fair Value of CULS
based on offer price |
|
|
|
|
|
|
54,045 |
|
59,970 |
15. Zero Dividend Preference ("ZDP")
shares
On 1 October 2015, the Company
rolled over 11,907,720 existing ZDP (2016) shares in to new ZDP
shares with a 2022 maturity date. The new ZDP shares (ZDP 2022)
have a gross redemption yield of 4.75% and a total redemption value
of £57,598,000 (approximately $74,863,000 using the period end exchange rate).
ZDP shares are designed to provide a pre-determined final
capital entitlement which ranks behind the Company's creditors but
in priority to the capital entitlements of the Ordinary shares. The
ZDP shares carry no entitlement to income and the whole of their
return will therefore take the form of capital. In certain
circumstances, ZDP shares carry the right to vote at general
meetings of the Company as detailed in the Company's Memorandum of
Articles and Incorporation. Issue costs are deducted from the cost
of the liability and allocated to the Statement of Comprehensive
Income over the life of the ZDP
shares.
ZDP (2022)
shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.8.2018 |
|
28.2.2018 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
ZDP
shares issued 1 October 2015 |
|
|
|
|
|
|
|
Amortised
cost at 1 March |
62,843 |
|
53,935 |
|
|
|
|
|
|
|
|
|
|
Finance
costs allocated to Statement of Comprehensive Income |
1,572 |
|
2,996 |
Unrealised
currency (gain)/loss on translation |
|
(3,617) |
|
5,912 |
Amortised
cost at period end |
|
60,798 |
|
62,843 |
Total
number of ZDP shares in issue |
|
11,907,720 |
|
11,907,720 |
16. Loans Payable
Guggenheim Partners
Limited
On 12 June 2015, JZCP entered into
a loan agreement with Guggenheim Partners Limited. The agreement
was structured so that part of the proceeds (€18 million) were
received and will be repaid in Euros and the remainder of the
facility was received in US dollars ($80
million). During April 2017,
JZCP increased its credit facility with Guggenheim Partners by
$50 million. The entire facility may
be repaid, in whole or in part, with no
penalty.
The loan matures on 12 June 2021
(6 year term) and interest is payable at 5.75% + LIBOR(1). There is
an interest rate floor that stipulates LIBOR will not be lower than
1%. In this agreement, the presence of the floor does not
significantly alter the amortised cost of the instrument, therefore
separation is not required and the loan is valued at amortised cost
using the effective interest rate method.
At 31 August 2018, investments
valued at $940,611,000 (28 February 2018: $978,090,000) were held as collateral for the
loan. A covenant on the loan states the fair value of the
collateral must be 4x the loan value and the cost of collateral
must be at least 57.5% of total assets. The Company is also
required to hold a minimum cash balance of $15 million plus 50% of interest on any new debt.
The Company continues to remain in full compliance with covenant
terms.
|
|
|
|
|
|
|
31.8.2018 |
|
28.2.2018 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Amortised
cost (US$ drawdown) - 1 March |
|
128,407 |
|
78,572 |
Amortised
cost (Euro drawdown) - 1 March |
|
21,718 |
|
18,824 |
Interest paid |
|
|
|
|
|
|
(5,720) |
|
(9,750) |
Unrealised
currency (gain)/loss on translation of Euro drawdown |
|
(999) |
|
2,768 |
Finance
costs charged to Statement of Comprehensive Income |
|
|
|
5,923 |
|
11,551 |
Proceeds -
April 2017 (US$ further drawdown) |
|
- |
|
50,000 |
Issue costs paid |
|
|
|
|
|
|
- |
|
(1,840) |
Amortised
cost at period end |
|
149,329 |
|
150,125 |
|
|
|
|
|
|
|
|
|
|
Amortised
cost (US$ drawdown) |
|
128,551 |
|
128,407 |
Amortised
cost (Euro drawdown) |
|
20,778 |
|
21,718 |
|
|
|
|
|
|
|
149,329 |
|
150,125 |
|
|
|
|
|
|
|
|
|
|
The carrying value of the loans approximates to fair
value.
(1) LIBOR rates applied are the US dollar 3 month rate ($80 million) and the Euro
3-month rate (€18
million).
17. Other Payables
|
|
|
|
|
|
|
31.8.2018 |
|
28.2.2018 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Provision
for tax on dividends received not withheld at source |
|
|
|
1,401 |
|
1,401 |
Fees payable to
auditor |
|
|
|
|
|
|
230 |
|
223 |
Legal fees
provision |
|
|
|
|
|
|
250 |
|
250 |
Directors'
remuneration |
|
|
|
|
|
|
81 |
|
69 |
Other expenses |
|
|
|
|
|
|
225 |
|
243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,187 |
|
2,186 |
|
|
|
|
|
|
|
|
|
|
18. Ordinary shares - Issued
Capital
|
|
|
|
|
|
|
31.8.2018 |
|
28.2.2018 |
|
|
|
|
|
|
|
Number of shares |
|
Number of shares |
|
|
|
|
|
|
|
|
|
|
Total Ordinary
shares in issue |
|
|
|
|
|
|
82,846,107 |
|
83,907,516 |
The Company's shares trade on the London Stock Exchange's
Specialist Fund
Segment.
During the period, the Company bought back 1,061,409 of its own
Ordinary shares. The shares have subsequently been cancelled.
19. Commitments
At 31 August 2018 and 28 February 2018, JZCP had the following
financial commitments outstanding in relation to fund
investments:
|
|
|
|
|
Expected date |
|
31.8.2018 |
|
28.2.2018 |
|
|
|
|
|
of
Call |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
JZI Fund
III GP, L.P. €34,387,560 (28.2.2018: 46,897,000) |
Over 3
years |
|
40,010 |
|
57,198 |
Spruceview Capital
Partners, LLC |
|
|
|
|
Over 1
year |
|
2,990 |
|
4,990 |
Orizon |
|
|
|
|
< 1 year |
|
4,158 |
|
4,158 |
Suzo Happ Group |
|
|
|
|
> 3
years |
|
4,491 |
|
4,491 |
BSM
Engenharia S.A. |
> 3
years |
|
2,085 |
|
2,085 |
Igloo Products
Corp |
|
|
|
|
> 3
years |
|
771 |
|
771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,505 |
|
73,693 |
20. Related Party Transactions
JZCP invests in European micro-cap companies through JZI Fund
III, L.P. (“Fund III”). Previously investments were made via the
EuroMicrocap Fund 2010, L.P. ("EMC 2010") and EuroMicrocap Fund-C,
L.P. ("EMCC"). Fund III, EMC 2010 and EMCC are managed by an
affiliate of JZAI, JZCP's investment manager. JZAI was founded by
David Zalaznick and John ("Jay")
Jordan, II. At 31 August 2018, JZCP's
investment in Fund III was valued at $60,003,000 (28 February
2018: $42,291,000). JZCP's
investment in EMC 2010 was valued at $29,000 (28 February
2018: $33,000) and EMCC at
$3,591,000 (28
February 2018: $3,784,000).
JZCP has invested in Spruceview Capital Partners, LLC on a 50:50
basis with Jay Jordan and
David Zalaznick (or their respective
affiliates). The total amount committed by JZCP to this investment
at 31 August 2018, was $30,000,000 with $2,990,000 (28 February
2018: $4,990,000) of
commitments
outstanding.
JZCP has co-invested with Fund A, Fund A Parallel I, II and III
Limited Partnerships in a number of US micro-cap buyouts. These
Limited Partnerships are managed by an affiliate of JZAI. JZCP
invested in a ratio of 82%/18% with the Fund A entities. At
31 August 2018, the total value of
JZCP's investment in these co-investments was $280,014,000 (28 February
2018: $354,617,000). Fund A,
Fund A Parallel I, II and III Limited Partnerships are no longer
making platform investments alongside
JZCP.
JZAI is a US based company that provides advisory services to
the Board of Directors of the Company in exchange for management
fees, paid quarterly. Fees paid by the Company to the Investment
Adviser are detailed in Note 9. JZAI and various affiliates provide
services to certain JZCP portfolio companies and may receive fees
for providing these services pursuant to the Advisory
Agreement.
JZCP is able to invest up to $75
million in "New JI Platform Companies". The platform
companies are being established to invest primarily in buyouts and
build-ups of companies and in growth company platforms in the US
micro-cap market, primarily healthcare equipment companies. At
31 August 2018, JZCP had invested
$34.1 million (28 February 2018: $30.6
million) in Avante (formerly named Jordan Health Products).
JZCP co-invests 50/50 in the platform companies with other
investors (“JI members”). David
Zalaznick and an affiliated entity of Jay Jordan own approximately 33.7% of the JI
members' ownership interests.
During the period, JZCP obtained shareholder approval to acquire
a 27.7% stake in Deflecto Holdings, LLC from Edgewater Growth
Capital Partners ("Edgewater").
Edgewater is a substantial
shareholder of JZCP and therefore a related party of the Company.
The acquisition cost was $24,533,000
and the investment in Deflecto was valued at $24,742,000 at 31 August
2018.
Post period end, JZCP obtained shareholder approval for the
merger through which the Company realised its investment in TWH
Water Treatment Industries, a segment of its Water Services
vertical. JZCP received $31.3 million
in initial gross proceeds from the sale. The parent company of the
counterparty to the Merger, DuBois is a portfolio company of
Resolute Fund III, L.P. ("Resolute Fund III") which has a 73.7
percent. Ownership interest in DuBois and is one of the funds
managed by The Jordan Company, L.P. ("The Jordan Company").
David Zalaznick and Jay Jordan are founders of The Jordan Company
and have economic interest in Resolute Fund III or its affiliated
funds.
Total directors’ remuneration for the six-month period ended
31 August 2018 was $219,000 (31 August
2017: $209,000). The increase
in remuneration was due to the appointment, during June 2018, of Sharon
Parr as an additional director.
21. Basic and Diluted Earnings/(loss)
per share
Basic earnings/(loss) per share are calculated by dividing the
earnings/(loss) for the period by the weighted average number of
Ordinary shares outstanding during the
period.
For the period ended 31 August
2018 the weighted average number of Ordinary shares
outstanding during the period was 83,456,487 (31 August 2017:
83,907,516).
The diluted earnings per share are calculated by considering
adjustments required to the earnings and weighted average number of
shares for the effects of potential dilutive Ordinary shares. The
weighted average of the number of Ordinary shares is adjusted
assuming the conversion of the CULS ("If-converted method").
Conversion is assumed even though at 31
August 2018 and 31 August 2017
the exercise price of the CULS is higher than the market price of
the Company's Ordinary shares and are therefore deemed 'out of the
money'. Earnings are adjusted to remove the fair value gain/(loss)
on CULS $5,925,000 (31 August 2017: ($3,026,000)) and finance cost attributable to
CULS $1,631,000 (31 August 2017: $1,454,000).
22. Contingent Assets
Amounts held in escrow
accounts
When investments have been disposed of by the Company, proceeds
may reflect contractual terms requiring that a percentage is held
in an escrow account pending resolution of any indemnifiable claims
that may arise. At 31 August 2018 and
28 February 2018, the Company has
assessed that the likelihood of the recovery of these escrow
accounts cannot be determined and has therefore disclosed the
escrow accounts as a contingent
asset.
As at 31 August 2018 and
28 February 2018, the Company had the
following contingent assets held in escrow accounts which had not
been recognised as assets of the
Company:
|
|
|
|
|
|
|
Amount in Escrow |
|
|
|
|
|
|
|
31.8.2018 |
|
28.2.2018 |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
Bolder Healthcare
Solutions |
|
|
|
|
|
|
4,185 |
|
- |
K2 Towers |
|
|
|
|
|
|
1,123 |
|
1,551 |
Paragon |
|
|
|
|
|
|
118 |
|
- |
CBO Holdings |
|
|
|
|
|
|
- |
|
294 |
SPL |
|
|
|
|
|
|
- |
|
107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,426 |
|
1,952 |
During the period ended 31 August
2018, proceeds of $2,085,000
(31 August 2017: $1,173,000) were realised and recorded in the
Statement of Comprehensive Income. Of the amount realised during
the period, $133,000 had not been
recognised in the Company's escrow accounts at 28 February 2018. An additional $5,426,000 has been recognised as a
contingent asset in the
period.
23. Notes to the Unaudited Statement
of Cash Flows
Reconciliation of the loss for the period to net cash outflow
from operating activities
|
|
|
|
|
|
|
Period
ended |
|
Period
ended |
|
|
|
|
|
|
|
31.8.2018 |
|
31.8.2017 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Loss for the
period |
|
|
|
|
|
|
(17,499) |
|
(19,422) |
Non cash flow
adjustments |
|
|
|
|
|
|
|
|
|
Increase in other
receivables |
|
|
|
|
|
|
(63) |
|
(24) |
Increase/(decrease) in
other payables |
|
|
|
|
|
|
1 |
|
(49) |
Decrease
in amount owed to Investment Adviser |
|
|
|
|
|
(4,854) |
|
(1,574) |
Net
movement in unrealised gains/losses on investments |
|
|
|
25,085 |
|
16,391 |
Unrealised
(gain)/loss on financial liabilities at fair value through profit
or loss |
|
(5,925) |
|
3,026 |
Net other
unrealised foreign currency exchange gain |
|
(2,024) |
|
(751) |
Unrealised finance
costs |
|
|
|
|
|
|
1,775 |
|
2,775 |
Increase
in accrued interest on investments, accumulated preferred dividends
and PIK |
|
(12,138) |
|
(13,346) |
Reallocation of
cash flows |
|
|
|
|
|
|
|
|
|
Realised loss on
investments |
|
|
|
|
|
|
635 |
|
437 |
Finance
costs paid in period |
|
7,351 |
|
5,557 |
|
|
|
|
|
|
|
|
|
|
Net cash outflow from
operating activities |
|
|
|
|
|
|
(7,656) |
|
(6,980) |
|
|
|
|
|
|
|
|
|
|
Income received
during the period |
|
|
|
|
|
|
Period
ended |
|
Period
ended |
|
|
|
|
|
|
|
31.8.2018 |
|
31.8.2017 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Interest on
investments |
|
|
|
|
|
|
1,100 |
|
1,763 |
Current
period accumulated preferred dividends received on realisation of
investments |
|
1,515 |
|
- |
Bank interest |
|
|
|
|
|
|
289 |
|
30 |
Interest on treasury
bills |
|
|
|
|
|
|
155 |
|
- |
Return of withholding
tax |
|
|
|
|
|
|
- |
|
233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,059 |
|
2,026 |
Purchases and sales of investments are considered to be
operating activities of the Company, given its purpose, rather than
investing activities. The cash flows arising from these activities
are shown in the Statement of Cash Flows.
24. Dividends Paid and Proposed
No dividends were paid or proposed in the six-month periods
ended 31 August 2018 and 31 August
2017.
25. US GAAP
reconciliation
These interim financial statements are prepared in accordance
with IFRS, which in certain respects differ from the accounting
principles generally accepted in the
United States ("US GAAP"). It is the opinion of the
Directors that these differences are not material and therefore no
reconciliation between IFRS, as adopted by the EU, and US GAAP has
been
presented.
26. Subsequent Events
These interim financial statements were approved by the Board on
7 November 2018. Events subsequent to
the period end (31 August 2018) have
been evaluated until this
date.
During September 2018, the Company
realised, via a merger, its ownership interest of TWH Water
Treatment Industries Inc, a segment of its Water Services vertical.
JZCP realised $31.3 million in
initial gross proceeds from the sale.
Company Advisers
Investment Adviser
The Investment Adviser to JZ Capital Partners Limited (“JZCP”)
is Jordan/Zalaznick Advisers, Inc., (“JZAI”) a company beneficially
owned by John (Jay) W Jordan II and David W Zalaznick. The company
was formed for the purpose of advising the Board of JZCP on
investments in leveraged securities, primarily related to private
equity transactions. JZAI has offices in New York and Chicago.
Jordan/Zalaznick Advisers, Inc.
9 West, 57th Street
New York NY 10019
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
JZ Capital Partners Limited is registered in Guernsey
Number 48761
Administrator, Registrar and Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
UK Transfer and Paying Agent
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Independent Auditor
Ernst & Young LLP
PO Box 9
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
Financial Adviser and Broker
JP Morgan Cazenove Limited
25 Bank Street
London E14 5JP
US Bankers
HSBC Bank USA NA
452 Fifth Avenue
New York NY 10018
(Also provides custodian services to JZ Capital Partners
Limited under the terms of a Custody Agreement).
Guernsey Bankers
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA
UK Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London EC2A 2HA
US Lawyers
Monge Law Firm, PLLC
333 West Trade Street
Charlotte, NC 28202
Mayer Brown LLP
214 North Tryon Street
Suite 3800
Charlotte NC 28202
Winston & Strawn LLP
35 West Wacker Drive
Chicago IL 60601-9703
Guernsey Lawyers
Mourant Ozannes
P.O Box 186
1 Le Marchant Street
St Peter Port
Guernsey GY1 4HP
Useful Information for
Shareholders
Listing
JZCP Ordinary, Zero Dividend Preference ("ZDP") shares and
Convertible Unsecured Loan Stock ("CULS") are listed on the
Official List of the Financial Services Authority of the UK, and
are admitted to trading on the London Stock Exchange Specialist
Fund Segment for listed
securities.
The price of the Ordinary shares are shown in the Financial
Times under "Conventional Private Equity" and can also be found at
https://markets.ft.com along with the prices of the ZDP shares and
CULS.
ISIN/SEDOL
numbers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ticker
Symbol |
|
ISIN
Code |
|
Sedol
Number |
|
|
|
|
|
|
|
Ordinary shares |
|
JZCP |
|
GG00B403HK58 |
|
B403HK5 |
ZDP (2022) shares |
|
JZCZ |
|
GG00BZ0RY036 |
|
Z0RY03 |
CULS |
|
JZCC |
|
GG00BP46PR08 |
|
BP46PR0 |
Key Information
Documents
JZCP produces Key Information Documents to assist investors'
understanding of the Company's securities and to enable comparison
with other investment products. These documents are found on the
Company's website -
www.jzcp.com/investor-relations/key-information-documents.
Alternative Performance
Measures
In accordance with ESMA Guidelines on Alternative Performance
Measures ("APMs") the Board has considered what APMs are included
in the annual report and financial statements which require further
clarification. An APM is defined as a financial measure of
historical or future financial performance, financial position, or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. APMs included in the
annual report and financial statements, which are unaudited and
outside the scope of IFRS, are deemed to be as
follows:
Total NAV
Return
The Total NAV Return measures how the net asset value (NAV) per
share has performed over a period of time, taking into account both
capital returns and dividends paid to shareholders. JZCP quotes NAV
total return as a percentage change from the start of the period
(one year) and also three-month, three-year, five-year and seven
year periods. It assumes that dividends paid to shareholders are
reinvested back into the Company therefore future NAV gains are not
diminished by the paying of dividends. JZCP also produces an
adjusted Total NAV Return which excludes the effect of the
appreciation/dilution per share caused by the buy back/issue of
shares at a discount to NAV, the result of the adjusted Total NAV
return is to provide a measurement of how the Company's Investment
portfolio contributed to NAV growth adjusted for the Company's
expenses and finance costs. The Total NAV Return for the period
ended 31 August 2018 was -1.6%, which
only reflects the change in NAV as no dividends were paid during
the year. The Total NAV Return for the year ended 28 February 2018 was
-1.4%.
Total Shareholder
Return
A measure showing how the share price has performed over a
period of time, taking into account both capital returns and
dividends paid to shareholders. JZCP quotes shareholder price total
return as a percentage change from the start of the period (one
year) and also three-month, three-year, five-year and seven-year
periods. It assumes that dividends paid to shareholders are
reinvested in the shares at the time the shares are quoted ex
dividend. The Shareholder Return for the period ended 31 August 2018 was -1.6%, which only reflects the
change in share price as no dividends were paid during the year.
The Shareholder Return for the year ended 28
February 2018 was
-16.2%.
NAV to market price
discount
The NAV per share is the value of all the company’s assets, less
any liabilities it has, divided by the number of shares. However,
because JZCP shares are traded on the London Stock Exchange's
Specialist Fund Segment, the share price may be higher or lower
than the NAV. The difference is known as a discount or premium.
JZCP's discount is calculated by expressing the difference between
the period end dollar equivalent share price and the period end NAV
per share as a percentage of the NAV per
share.
At 31 August 2018, JZCP's Ordinary
shares traded at £4.44 (28 February
2018: £4.51)) or $5.77
(28 February 2018: $6.21) being the dollar equivalent using the year
end exchange rate of £1: $1.30
(28 February 2018 £1: $1.38). The shares traded at a 41% (28 February 2018: 38%) discount to the NAV per
share of $9.82 (2018: $9.98).
Criminal Facilitation of Tax
Evasion
The Board have approved a policy of zero tolerance towards the
criminal facilitation of tax evasion, in compliance with the
Criminal Finances Act 2017.
Non-Mainstream Pooled
Investments
From 1 January 2014, the FCA rules
relating to the restrictions on the retail distribution of
unregulated collective investment schemes and close substitutes
came into effect. JZCP's Ordinary shares qualify as an ‘excluded
security’ under these rules and will therefore be excluded from the
FCA’s restrictions which apply to non-mainstream investment
products. Therefore Ordinary shares issued by JZ Capital Partners
can continue to be recommended by financial advisors as an
investment for UK retail investors.
Financial
Diary |
|
|
|
|
Results
for the year ended 28 February 2019 |
|
May 2019 (date to be
confirmed) |
Annual General
Meeting |
|
|
|
June/July 2019 (date
to be confirmed) |
Interim
report for the six months ended 31 August 2019 |
|
November 2019 (date to
be confirmed) |
JZCP will be issuing an Interim Management Statement for the
quarters ending 30 November 2018 and
31 May 2019. These Statements will be
sent to the market via RNS within six weeks from the end of the
appropriate quarter, and will be posted on JZCP's website at the
same time, or soon
thereafter.
Payment of
Dividends
In the event of a cash dividend being paid, the dividend
will be sent by cheque to the first-named shareholder on the
register of members at their registered address, together with a
tax voucher. At shareholders' request, where they have elected to
receive dividend proceeds in Sterling, the dividend may instead be
paid direct into the shareholder's bank account through the
Bankers' Automated Clearing System. Payments will be paid in US
dollars unless the shareholder elects to receive the dividend in
Sterling. Existing elections can be changed by contacting the
Company's Transfer and Paying Agent, Equiniti Limited on +44 (0)
121 415 7047.
Share
Dealing
Investors wishing to buy or sell shares in the Company may do so
through a stockbroker. Most banks also offer this service.
Internet
Address
The Company:
www.jzcp.com
Foreign Account Tax Compliance
Act
The Company is registered (with a Global Intermediary
Identification Number CAVBUD.999999.SL.831) under The Foreign
Account Tax Compliance Act
("FATCA").
Share Register
Enquiries
The Company's UK Transfer and Paying Agent, Equiniti Limited,
maintains the share registers. In event of queries regarding your
holding, please contact the Registrar on 0871 384 2265, calls to
this number cost 8p per minute from a BT landline, other providers'
costs may vary. Lines are open 8.30 a.m. to
5.30 p.m., Monday to Friday, If calling from overseas
+44 (0) 121 415 7047 or access their website at
www.equiniti.com. Changes of name or address must be notified in
writing to the Transfer and Paying
Agent.
Nominee Share Code
Where notification has been provided in advance, the Company
will arrange for copies of shareholder communications to be
provided to the operators of nominee accounts. Nominee investors
may attend general meetings and speak at meetings when invited to
do so by the
Chairman.
Documents Available for
Inspection
The following documents will be available at the registered
office of the Company during usual business hours on any weekday
until the date of the Annual General Meeting and at the place of
the meeting for a period of fifteen minutes prior to and during the
meeting:
(a) the Register of Directors' Interests in the stated capital
of the
Company;
(b) the Articles of Incorporation of the Company;
and
(c) the terms of appointment of the
Directors.
Warning to Shareholders – Boiler Room
Scams
In recent years, many companies have become aware that their
shareholders have been targeted by unauthorised overseas-based
brokers selling what turn out to be non-existent or high risk
shares, or expressing a wish to buy their shares. If you are
offered, for example, unsolicited investment advice, discounted
JZCP shares or a premium price for the JZCP shares you own, you
should take these steps before handing over any
money:
• Make sure you get the correct name of the person or
organisation
• Check that they are properly authorised by the FCA before
getting involved by visiting
http://www.fca.org.uk/firms/systems-reporting/register
• Report the matter to the FCA by calling 0800 111 6768
• If the calls persist, hang
up
• More detailed information on this can be found on the Money
Advice Service website
www.moneyadviceservice.org.uk
US
Investors
General
The Company's Articles contain provisions allowing the Directors
to decline to register a person as a holder of any class of
ordinary shares or other securities of the Company or to require
the transfer of those securities (including by way of a disposal
effected by the Company itself) if they believe that the
person:
(a) is a "US person" (as defined in Regulation S under the
US Securities Act of 1933, as amended) and not a "qualified
purchaser" (as defined in the US Investment Company Act of 1940, as
amended, and the related rules
thereunder);
(b) is a "Benefit Plan Investor" (as described under
"Prohibition on Benefit Plan Investors and Restrictions on
Non-ERISA Plans" below);
or
(c) is, or is related to, a citizen or resident of the United States, a US partnership, a US
corporation or a certain type of estate or trust and that ownership
of any class of ordinary shares or any other equity securities of
the Company by the person would materially increase the risk that
the Company could be or become a "controlled foreign corporation"
(as described under "US Tax Matters" in Useful Information for
Shareholders
section).
In addition, the Directors may require any holder of any class
of ordinary shares or other securities of the Company to show to
their satisfaction whether or not the holder is a person described
in paragraphs (A), (B) or (C)
above.
US Securities
Laws
The Company (a) is not subject to the reporting requirements of
the US Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and does not intend to become subject to such reporting
requirements and (b) is not registered as an investment company
under the US Investment Company Act of 1940, as amended (the "1940
Act"), and investors in the Company are not entitled to the
protections provided by the 1940
Act.
Prohibition on
Benefit Plan Investors and Restrictions on Non-ERISA
Plans
Investment in the Company by "Benefit Plan Investors" is
prohibited so that the assets of the Company will not be deemed to
constitute "plan assets" of a "Benefit Plan Investor". The term
"Benefit Plan Investor" shall have the meaning contained in Section
3(42) of the US Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and includes (a) an "employee benefit plan" as
defined in Section 3(3) of ERISA that is subject to Part 4 of Title
I of ERISA; (b) a "plan" described in Section 4975(e)(1) of the US
Internal Revenue Code of 1986, as amended (the "Code"), that is
subject to Section 4975 of the Code; and (c) an entity whose
underlying assets include "plan assets" by reason of an employee
benefit plan's or a plan's investment in such entity. For purposes
of the foregoing, a "Benefit Plan Investor" does not include a
governmental plan (as defined in Section 3(32) of ERISA), a non-US
plan (as defined in Section 4(b)(4) of ERISA) or a church plan (as
defined in Section 3(33) of ERISA) that has not elected to be
subject to
ERISA.
Each purchaser and subsequent transferee of any class of
ordinary shares (or any other class of equity interest in the
Company) will be required to represent, warrant and covenant, or
will be deemed to have represented, warranted and covenanted, that
it is not, and is not acting on behalf of or with the assets of, a
Benefit Plan Investor to acquire such ordinary shares (or any other
class of equity interest in the
Company).
Under the Articles, the directors have the power to require the
sale or transfer of the Company's securities in order to avoid the
assets of the Company being treated as "plan assets" for the
purposes of
ERISA.
The fiduciary provisions of pension codes applicable to
governmental plans, non-US plans or other employee benefit plans or
retirement arrangements that are not subject to ERISA
(collectively, "Non-ERISA Plans") may impose limitations on
investment in the Company. Fiduciaries of Non-ERISA Plans, in
consultation with their advisors, should consider, to the extent
applicable, the impact of such fiduciary rules and regulations on
an investment in the Company.
Among other considerations, the fiduciary of a Non-ERISA Plan
should take into account the composition of the Non-ERISA Plan's
portfolio with respect to diversification; the cash flow needs of
the Non-ERISA Plan and the effects thereon of the illiquidity of
the investment; the economic terms of the Non- ERISA Plan's
investment in the Company; the Non-ERISA Plan’s funding objectives;
the tax effects of the investment and the tax and other risks
associated with the investment; the fact that the investors in the
Company are expected to consist of a diverse group of investors
(including taxable, tax-exempt, domestic and foreign entities) and
the fact that the management of the Company will not take the
particular objectives of any investors or class of investors into
account.
Non-ERISA Plan fiduciaries should also take into account the
fact that, while the Company's board of directors and its
investment advisor will have certain general fiduciary duties to
the Company, the board and the investment advisor will not have any
direct fiduciary relationship with or duty to any investor, either
with respect to its investment in Shares or with respect to the
management and investment of the assets of the Company. Similarly,
it is intended that the assets of the Company will not be
considered plan assets of any Non-ERISA Plan or be subject to any
fiduciary or investment restrictions that may exist under pension
codes specifically applicable to such Non-ERISA Plans. Each
Non-ERISA Plan will be required to acknowledge and agree in
connection with its investment in any securities to the foregoing
status of the Company, the board and the investment advisor that
there is no rule, regulation or requirement applicable to such
investor that is inconsistent with the foregoing description of the
Company, the board and the investment
advisor.
Each purchaser or transferee that is a Non-ERISA Plan will be
deemed to have represented, warranted and covenanted as
follows:
(a) The Non-ERISA Plan is not a Benefit Plan
Investor;
(b) The decision to commit assets of the Non-ERISA Plan for
investment in the Company was made by fiduciaries independent of
the Company, the Board, the Investment Advisor and any of their
respective agents, representatives or affiliates, which fiduciaries
(i) are duly authorized to make such investment decision and have
not relied on any advice or recommendations of the Company, the
Board, the Investment Advisor or any of their respective agents,
representatives or affiliates and (ii) in consultation with their
advisers, have carefully considered the impact of any applicable
federal, state or local law on an investment in the Company;
(c) None of the Company, the Board, the Investment Advisor or
any of their respective agents, representatives or affiliates has
exercised any discretionary authority or control with respect to
the Non-ERISA Plan’s investment in the Company, nor has the
Company, the Board, the Investment Advisor or any of their
respective agents, representatives or affiliates rendered
individualized investment advice to the Non-ERISA Plan based upon
the Non-ERISA Plan’s investment policies or strategies, overall
portfolio composition or diversification with respect to its
commitment to invest in the Company and the investment program
thereunder;
and
(d) It acknowledges and agrees that it is intended that the
Company will not hold plan assets of the Non-ERISA Plan and that
none of the Company, the Board, the Investment Advisor or any of
their respective agents, representatives or affiliates will be
acting as a fiduciary to the Non-ERISA Plan under any applicable
federal, state or local law governing the Non-ERISA Plan, with
respect to either (i) the Non-ERISA Plan’s purchase or retention of
its investment in the Company or (ii) the management or operation
of the business or assets of the Company. It also confirms that
there is no rule, regulation, or requirement applicable to such
purchaser or transferee that is inconsistent with the foregoing
description of the Company, the Board and the Investment
Advisor.
US Tax
Matters
This discussion does not constitute tax advice and is not
intended to be a substitute for tax advice and planning.
Prospective holders of the Company's securities must consult their
own tax advisers concerning the US federal, state and local income
tax and estate tax consequences in their particular situations of
the acquisition, ownership and disposition of any of the Company's
securities, as well as any consequences under the laws of any other
taxing
jurisdiction.
The Board may decline to register a person as, or to require
such person to cease to be, a holder of any class of ordinary
shares or other equity securities of the Company because of, among
other reasons, certain US ownership and transfer restrictions that
relate to “controlled foreign corporations” contained in the
Articles of the Company. A Shareholder of the Company may be
subject to forced sale provisions contained in the Articles in
which case such shareholder could be forced to dispose of its
securities if the Company’s directors believe that such shareholder
is, or is related to, a citizen or resident of the United States, a US partnership, a US
corporation or a certain type of estate or trust and that ownership
of any class of ordinary shares or any other equity securities of
the Company by such shareholder would materially increase the risk
that the Company could be or become a "controlled foreign
corporation" within the meaning of the Code (a "CFC"). Shareholders
of the Company may also be restricted by such provisions with
respect to the persons to whom they are permitted to transfer their
securities.
In general, a foreign corporation is treated as a CFC if, on any
date of its taxable year, its "10% US Shareholders" collectively
own (directly, indirectly or constructively within the meaning of
Section 958 of the Code) more than 50% of the total combined voting
power or total value of the corporation's stock. For this
purpose, a "10% US Shareholder" means any US person who owns
(directly, indirectly or constructively within the meaning of
Section 958 of the Code) 10% or more of the total combined voting
power of all classes of stock of a foreign corporation or 10% or
more of the total value of shares of all classes of stock of a
foreign corporation. The Tax Cuts and Jobs Act (the “Tax
Act”) eliminated the prohibition on “downward attribution” from
non-US persons to US persons under Section 958(b)(4) of the Code
for purposes of determining constructive stock ownership under the
CFC rules. As a result, the Company’s US subsidiary will be
deemed to own all of the stock of the Company’s non-US subsidiaries
held by the Company for purposes of determining such foreign
subsidiaries’ CFC status. The legislative history under the
Tax Act indicates that this change was not intended to cause the
Company’s non-US subsidiaries to be treated as CFCs with respect to
a 10% US Shareholder that is not related to the Company’s US
subsidiary. However, the IRS has not yet issued any guidance
confirming this intent and it is not clear whether the IRS or a
court would interpret the change made by the Tax Act in a manner
consistent with such indicated intent. The Company's treatment as a
CFC as well as its foreign subsidiaries’ treatment as CFCs could
have adverse tax consequences for 10% US
Shareholders.
The Company has been advised that it is NOT a passive foreign
investment company ("PFIC") for the fiscal years ended February 2017 and 2016. An analysis for the
financial year ended 28 February 2018
is currently being undertaken. A classification as a PFIC would
likely have adverse tax consequences for US
taxpayers.
The taxation of a US taxpayer's
investment in the Company's securities is highly complex.
Prospective holders of the Company's securities must consult their
own tax advisers concerning the US federal, state and local income
tax and estate tax consequences in their particular situations of
the acquisition, ownership and disposition of any of the Company's
securities, as well as any consequences under the laws of any other
taxing
jurisdiction.
Investment Adviser's ADV Form
Shareholders and state securities authorities wishing to view
the Investment Adviser's ADV form can do so by following the link
below:
https://adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?ORG_PK=160932