TIDMJZCP
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 PERIODED
31 AUGUST 2023
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET
ABUSE REGULATION (EU) NO. 596/2014 WHICH FORMS PART OF UK LAW BY VIRTUE OF THE
EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("MAR").
9 November 2023
JZ Capital Partners Limited, the London listed fund that has investments in US
and European micro-cap companies and US real estate, announces its interim
results for the period ended 31 August 2023.
Financial and Operational Highlights
· NAV per share of $4.04 (FYE 28/02/23: $4.06).
· NAV of $312.7 million (FYE 28/02/22: $314.5 million).
· Total realisation and distribution proceeds of $9.9 million.
· The US micro-cap portfolio has overall performed well, delivering a net
increase of 7 cents per share, while the European portfolio remained flat for
the six-month period and continues to be challenged by the economic headwinds in
Europe and war in Ukraine. However, both portfolios are working towards several
realisations.
· The Company has two remaining properties with equity value: Esperante, an
office building in West Palm Beach, Florida, and 247 Bedford Avenue, a retail
building with Apple as the primary tenant, in Williamsburg, Brooklyn.
Investment Policy and Liquidity
· The Company remains focused on the implementation of its New Investment
Policy. This policy focuses on realising the maximum value from the Company's
investment portfolio and, after repaying its debt obligations, returning capital
to shareholders.
· Since the Company adopted its New Investment Policy in August 2020, the
Company has achieved realisations in excess of $395 million and repaid
approximately $225 million of debt.
· The Company's outstanding debt is limited to its $45 million Senior Credit
Facility due 26 January 2027.
· Although no significant realisations have been achieved in the period under
review, the Board anticipates potential near-term realisations that would enable
the Company to repay its Senior Credit Facility and, subject to retaining
sufficient funds to cover existing obligations and support certain existing
investments to maximise their value, to plan to commence to make distributions
to shareholders.
David Macfarlane, Chairman of JZCP, said: "Our view of the outlook for the
Company remains substantially unchanged to that reported at year-end. The
Company is committed to delivering on the New Investment Policy and is well
-positioned to weather potential financial pressures from an economic downturn
or period of volatility in financial markets.
The stability of the Company's balance sheet should allow the Investment Adviser
the time needed to maximise the value of the portfolio and implement the policy
in an orderly manner. The Board continues to expect that in due course a
significant amount of capital will be returned to shareholders."
Market Abuse Regulation:
The information contained within this announcement is inside information as
stipulated under MAR. 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:
Kit Dunford +44 (0)7717 417 038
FTI Consulting
David Zalaznick +1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Matt Smart +44 (0) 1481 745 228
Northern Trust International Fund
Administration Services (Guernsey) Limited
About JZ Capital Partners
JZCP has investments in US and European micro-cap companies, as well as real
estate properties in the US.
JZCP's Investment Adviser is Jordan/Zalaznick Advisers, Inc. ("JZAI") which was
founded by David Zalaznick and Jay Jordan in 1986. JZAI has investment
professionals in New York, Chicago, London and Madrid.
In August 2020, the Company's shareholders approved changes to the Company's
investment policy. Under the new policy, the Company will make no further
investments except in respect of which it has existing obligations and to
continue to selectively supporting the existing portfolio. The intention is to
realise the maximum value of the Company's investments and, after repayment of
all debt, to return capital to shareholders.
JZCP is a Guernsey domiciled closed-ended investment company authorised by the
Guernsey Financial Services Commission. JZCP's shares trade on the Specialist
Fund Segment of the London Stock Exchange.
For more information please visit www.jzcp.com.
The Directors present the results for the Company for the six-month period ended
31 August 2023. The NAV per share of the Company has declined from $4.06 as at
28 February 2023 to $4.04 as at 31 August 2023.
This decline results mainly from a modest excess of finance and administrative
costs over net write-ups of some investments during the period.
Investment Policy and Liquidity
The financial position of the Company is stable and strong as at 31 August 2023;
cash and treasuries were approximately $103.7 million while the Company's
outstanding debt is limited to its $45 million senior credit facility (the
"Senior Credit Facility") due 26 January 2027 (which may be repaid early without
penalty at any time).
The Board and the Investment Adviser remain focused on the implementation of the
new investment policy (the "New Investment Policy") to realise maximum value
from the Company's investments and, after the repayment of all debt, to return
capital to shareholders. Under the New Investment Policy, the Company will limit
further investment to where it has existing obligations or selectively to
support the existing portfolio.
As we said upon the publication of the results for the year-end, although the
Investment Adviser had achieved several significant realisations in the
portfolio over the previous two years, the Board believed that in the current
climate, it might be difficult to maintain that pace. So in the period under
review it has proved to be the case, no significant new realisations having been
achieved. However, the Board anticipates potential near-term realisations that
would enable the Company to repay its Senior Credit Facility and, subject to
retaining sufficient funds to cover existing obligations and support certain
existing investments to maximise their value, to plan to commence to make
distributions to shareholders.
US and European Micro-cap Portfolios
While our US micro-cap portfolio has overall performed well, with several
material realisations in the US portfolio over the past 18 months, our European
portfolio continues to be challenged by the economic headwinds in Europe and
wars in Ukraine and the Middle East. We continue to work towards several
realisations in both portfolios.
Real Estate Portfolio
The Company has two remaining properties with equity value: Esperante, an office
building in West Palm Beach, Florida, and 247 Bedford Avenue, a retail building
with Apple as the primary tenant, in Williamsburg, Brooklyn.
Outlook
Our view of the outlook for the Company remains substantially unchanged to that
reported at year-end. The Company is committed to delivering on the New
Investment Policy and is well-positioned to weather potential financial
pressures from an economic downturn or period of volatility in the financial
markets. The stability of the Company's balance sheet should allow the
Investment Adviser the time needed to maximise the value of the portfolio and
implement the New Investment Policy in an orderly manner. The Board continues to
expect that in due course a significant amount of capital will be returned to
shareholders.
David Macfarlane
Chairman
8 November 2023
Investment Adviser's Report
Dear Fellow Shareholders,
JZCP is in a strong financial position, having achieved several successful
realizations over the past eighteen months. The proceeds from the realizations
were used to repay the ZDPs, CULS and Subordinated Notes, leaving the Company
with a healthy cash balance. We need a significant amount of cash to support our
existing portfolio - as all our investments are illiquid assets, it is crucial
to have a strong cash position, especially after the Senior Credit Facility is
repaid. As we have further realizations, we will prioritize repaying remaining
debt and returning capital to shareholders.
While our remaining US micro-cap portfolio showed a gain for the past six
months, our European portfolio continues to be challenged by high interest rates
and a gathering recession in Europe. Notwithstanding these challenges, we are
pursuing several significant realizations in our European portfolio which, if
consummated, will return capital to JZCP.
The Company's two remaining real estate assets that have equity value are 247
Bedford Avenue in Brooklyn, New York (where Apple is the principal tenant), and
the Esperante office building in West Palm Beach, Florida.
As of 31 August 2023, our US micro-cap portfolio consisted of 12 businesses,
which includes three `verticals' and five co-investments, across nine
industries. Our European micro-cap portfolio consisted of 17 companies across
six industries and seven countries.
Net Asset Value ("NAV")
JZCP's NAV per share decreased 2 cents, or approximately 0.5%, during the six
-month period.
NAV per Ordinary share as of 28 February 2023 $4.06
Change in NAV due to capital gains and accrued income
+ US micro-cap 0.07
+ European micro-cap -
- Real estate (0.02)
- Other investments (0.03)
+ Income from treasuries 0.03
Other decreases in NAV
+ Net foreign exchange effect 0.02
- Finance costs (0.04)
- Expenses and taxation (0.05)
NAV per Ordinary share as of 31 August 2023 $4.04
The US micro-cap portfolio continued to perform well during the six-month
period, delivering a net increase of 7 cents per share. This was primarily due
to net accrued income of 2 cents and write-ups at ISS (4 cents) and co
-investment Deflecto (3 cents). Offsetting these increases was a decrease at US
micro-cap portfolio company Avante (2 cents).
Our European portfolio was flat for the six-month period.
Our real estate portfolio experienced a net write-down of 2 cents per share.
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.
31.8.2023 28.2.2023 31.8.20221
31.8.2020 31.8.2018
Share price £1.63 £1.58 £1.71 £0.89
£4.44
(in GBP)
NAV per share $4.04 $4.06 $4.45 $4.60
$9.82
(in USD)
NAV to market 49.0% 53.0% 55.3% 74.1%
41.2%
price
discount
6 month 1 year 3 year
5 year
return return return
return
Total 3.2% -5.0% 82.6%
-63.4%
Shareholders'
return (GBP)
Total NAV -0.5% -9.2% -12.2%
-58.9%
return per
share (USD)
1 The NAV per share at 31 August 2022, after a prior period adjustment was
restated from $4.71 per share to $4.45 per share and the respective total NAV
return per share for the 12-month period ended 31 August 2023 from -14.2% to
-9.2%.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography, with 29 US and
European micro-cap investments across eleven industries. The European portfolio
itself is well-diversified geographically across Spain, Italy, Portugal,
Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP's assets and liabilities at 31 August 2023 as
compared to 28 February 2023. An explanation of the changes in the portfolio
follows:
31.8.2023 28.2.2023
US$'000 US$'000
US micro-cap portfolio 125,881 127,811
European micro-cap portfolio 73,472 71,966
Real estate portfolio 29,865 31,156
Other investments 24,403 25,683
Total Private Investments 253,621 256,616
Treasury bills 58,540 90,600
Cash 45,193 11,059
Total cash and cash equivalents 103,733 101,659
Other assets 24 168
Total Assets 357,378 358,443
Senior Credit Facility 43,539 43,181
Other liabilities 1,179 764
Total Liabilities 44,718 43,945
Total Net Assets 312,660 314,498
US microcap portfolio
As you know from previous reports, our US portfolio is grouped into industry
`verticals' and co-investments. As of December 4, 2020, certain of our verticals
and co-investments are now grouped under JZHL Secondary Fund, LP ("JZHL" or the
"Secondary Fund"). JZCP has a continuing interest in the Secondary Fund through
a Special LP Interest, which entitles JZCP to certain distributions from the
Secondary Fund.
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 has allowed for greater diversification of our portfolio
by investing in larger companies alongside well-known private equity groups.
The US micro-cap portfolio continued to perform well during the six-month
period, delivering a net increase of 7 cents per share. This was primarily due
to net accrued income of 2 cents and write-ups at ISS (4 cents) and co
-investment Deflecto (3 cents). Offsetting these increases was a decrease at US
micro-cap portfolio company Avante (2 cents).
European microcap portfolio
Our European portfolio remained flat for the six-month period ended 31 August
2023. As stated in the Investment Adviser's Report as of 28 February 2023, our
European portfolio continues to be challenged by the ongoing economic
difficulties in Europe. We expect further write downs in the European portfolio
if the current trend continues.
JZCP invests in the European micro-cap sector through its approximately 18.8%
ownership of JZI Fund III, L.P. As of 28 February 2023, 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 two
companies in Spain: Docout and Toro Finance.
Real estate portfolio
The Company's two remaining real estate assets that have equity value are 247
Bedford Avenue in Brooklyn, New York (where Apple is the principal tenant), and
the Esperante office building in West Palm Beach, Florida.
The real estate portfolio experienced a net write-down of 2 cents per share,
largely due to small balance sheet changes at the two properties from the year
-end. Consistent with prior years, the Company will be engaging an appraisal
firm to value the two properties again at the year-end. Discussions with
appraisers indicate there would be no significant change in property values
between 31 December 2022 and 31 August 2023.
Other investments
Our asset management business in the US, Spruceview Capital Partners, has
continued to grow since we last reported to you. Spruceview 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 customized products/solutions per
asset class.
During the period, Spruceview undertook the development of its fifth private
markets fund, which is focused on growth buyout co-investments in the U.S. The
fund is expected to begin receiving commitments in the fourth quarter of 2023.
We expect Spruceview assets under management to continue to grow with increasing
indications of investor interest.
Spruceview also maintained a pipeline of potential client opportunities and
continued to provide investment management oversight to the pension funds of the
Mexican and Canadian subsidiaries of an international packaged foods company, as
well as portfolios for family office clients, and a growing series of private
market funds.
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 23 investment, business and product development,
legal and operations professionals.
Outlook
Our priority now is to realize current investments and finish building the
portfolio that is not yet ready for sale. Our goal is to repay the Company's
remaining debt and then return capital to shareholders.
Thank you for your continued support.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
8 November 2023
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.
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. 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.
Sharon Parr2
Ms Parr was appointed to the Board of JZCP in June 2018. She has over 35 years
in the finance industry and spent a significant portion of her professional
career with Deloitte and Touche in a number of different countries. After a
number of years in the audit department, on relocating to Guernsey in 1999 she
transferred into their fiduciary and fund management business and, after
completing a management buyout and subsequently selling to Barclays Wealth in
2007, she ultimately retired from her role there as Global Head of Wealth
Structuring in 2011. Ms Parr holds a number of Non-Executive Directorships
across the financial services sector including in other listed funds. Ms Parr 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.
Ashley Paxton
Mr Paxton was appointed to the Board in August 2020. He has more than 25 years
of funds and financial services industry experience, with a demonstrable track
record in advising closed-ended London listed boards and their audit committees
on IPOs, capital market transactions, audit and other corporate governance
matters. He was previously C.I. Head of Advisory for KPMG in the Channel
Islands, a position he held from 2008 through to his retirement from the firm in
2019. He is a Fellow of the Institute of Chartered Accountants in England and
Wales and a resident of Guernsey. Amongst other appointments he is Chairman of
the Youth Commission for Guernsey & Alderney, a locally based charity whose
vision is that all children and young people in the Guernsey Bailiwick are
ambitious to reach their full potential.
1Chairman of the nominations committee of which all Directors are members.
2Chairman of the audit committee of which all Directors are members.
Report of the Directors
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Interim Report and Financial
Statements comprising the Half- yearly Interim Report (the "Interim Report") and
the Unaudited Condensed Interim Financial Statements (the "Interim Financial
Statements") in accordance with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
· the Interim Financial Statements have been prepared in accordance with IAS
34, "Interim Financial Reporting" as adopted in the European Union and give a
true and fair view of the assets, liabilities, financial position and profit or
loss of the Company; and
· the Chairman's Statement and Investment Adviser's Report include a fair
review of the information required by:
(i) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority, being an indication
of important events that have occurred during the first six months of the
financial year 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 of the United Kingdom's Financial Conduct Authority, being related party
transactions that have taken place in the first six months of the financial year
and that have materially affected the financial position or the performance of
the entity during that period; and any changes in the related party transactions
described in the 2023 Annual Report and Financial Statements that could do so.
Principal Risks and Uncertainties
The Company's Board believes the principal risks and uncertainties that relate
to an investment in JZCP are as follows:
Portfolio Liquidity
The Company invests predominantly in unquoted companies and real estate.
Therefore, this potential illiquidity means there can be no assurance
investments will be realised at their latest valuation or on the timing of such
realisations. The Board considers this illiquidity when planning to meet its
future obligations, whether committed investments or the repayment of the Senior
Credit Facility. On a quarterly basis, the Board reviews a working capital model
produced by the Investment Adviser which highlights the Company's projected
liquidity and financial commitments.
Investment Performance and Impact on NAV
The Company is reliant on the Investment Adviser to support the Company's
investment portfolio by executing suitable investment decisions. The Investment
Adviser provides the Board with an explanation of all investment decisions and
also provides quarterly investment reports and valuation proposals of investee
companies. The Board reviews investment performance quarterly and investment
decisions are checked to ensure they are consistent with the agreed investment
strategy.
Operational and Personnel
Although the Company has no direct employees, the Company considers what
dependence there is on key individuals within the Investment Adviser and service
providers that are key to the Company meeting its
operational and control requirements.
Share Price Trading at Discount to NAV
JZCP's share price is subject to market sentiment and will also reflect any
periods of illiquidity when it may be difficult for shareholders to realise
shares without having a negative impact on share price. The Directors review the
share price in relation to Net Asset Value on a regular basis and determine
whether to take any action to manage the discount. The Directors, with the
support of the Investment Adviser, work with brokers to maintain interest in the
Company's shares through market contact and research reports.
Macroeconomic Risks and Impact on NAV
The Company's performance, and underlying NAV, is influenced by economic factors
that affect the demand for products or services supplied by investee companies
and the valuation of Real Estate interests held. Economic factors will also
influence the Company's ability to invest and realise investments and the level
of realised returns. Approximately 24% (28 February 2023: 21%) of the Company's
investments are denominated in non-US dollar currencies, primarily the euro and
also sterling. Fluctuations to these exchange rates will affect the NAV of the
Company.
Uncertainties in today's world that influence economic factors include:
(i) War in Ukraine and resulting energy crisis
The Board strongly condemns the actions of the Russian government and the
devastating events that have unfolded since Russia's unprovoked invasion of
Ukraine.
JZCP's investments are predominantly focused in the U.S. and Western Europe, and
as such, the portfolio has no direct exposure to the affected regions. However,
certain portfolio companies have exposure to the volatility in energy costs
resulting from the conflict. The Board continue to receive reports from the
Investment Adviser on the impact of these increased costs. The Board is not
aware that the Company has any Russian investors.
(ii) Conflict in the Middle East
The Board does not consider the Israel-Hamas conflict will directly impact its
investment portfolio. However, the Board notes an escalation of the conflict in
the Middle East could further increase volatility in energy cost and financial
markets.
(iii) Climate Change
JZCP does not have a sustainability-driven investment strategy, nor is its
intention to do so, but the Board believes that considering the principle of
being environmentally responsible is important in realising the maximum value of
the Company's investments.
JZCP only invests where it has existing obligations or to continue selectively
to support the existing portfolio. JZAI where possible plans to use its
influence as an investor to ensure investee businesses and funds have a cautious
and responsible approach to environmental management of their business
operations. JZCP invests across a wide range of businesses but has limited
exposure to those that create high levels of emissions.
The Board considers the impact of climate change on the firm's business strategy
and risk profile and, where appropriate will make timely climate change related
disclosures. Regular updates, given by the Investment Adviser on portfolio
companies and properties will include potential risk factors pertaining to
climate change and how/if these risks are to be mitigated. The Board receives a
report from the Investment Adviser categorising the Company's investments
according to their level of exposure to climate-related risks. These climate
-related risks can be categorised as either physical (impact of extreme weather,
rising sea levels) or transitional (impact of the transition to a lower-carbon
economy).
The Board also has regard to the impact of the Company's own operations on the
environment and other stakeholders. There are expectations that portfolio
companies operate in a manner that contributes to sustainability by considering
the social, environmental, and economic impacts of doing business. The Board
requests the Investment Adviser report on any circumstances where expected
standards are not met.
The Board has assessed the impact of climate change and has judged that the
Company's immediate exposure to the associated risks are low and therefore there
is no material impact on the fair value of investments and the financial
performance reported in these Interim Financial Statements.
The Board considers the impact of climate change on the firm's business strategy
and risk profile and, where appropriate will make timely climate change related
disclosures. Regular updates, given by the Investment Adviser on portfolio
companies and properties will include potential risk factors pertaining to
climate change and how/if these risks are to be mitigated.
The Board considers the principal risks and uncertainties above are broadly
consistent with those reported at the prior year end, but wish to note the
following:
· The effect of the uncertainty, primarily as a result of the war in Ukraine
on market conditions means that there are challenges to completing corporate
transactions within the European micro-cap portfolio and planned realisations
may take longer than initially anticipated. The potential escalation of the
conflict in the Middle East could further increase volatility in financial
markets.
· The World Health Organization has now declared that COVID-19 no longer
represents a "global health emergency". The Board no longer considers COVID-19 a
principal risk.
Going Concern
A fundamental principle of the preparation of financial statements in accordance
with IFRS is the judgement that an entity will continue in existence as a going
concern for a period of at least 12 months from signing of the Interim Financial
Statements, which contemplates continuity of operations and the realisation of
assets and settlement of liabilities occurring in the ordinary course of
business.
In reaching its conclusion, the Board has considered the risks that could impact
the Company's liquidity over the period from 8 November 2023 to 30 November 2024
(the "Going Concern Period"). There were no events or conditions identified
beyond this period which may cast significant doubt on the company's ability to
continue as a going concern.
Going Concern Assessment
In June 2023, the Company reported on its much-improved liquidity following a
period of material realisations and the subsequent repayment of the Company's
Subordinated Notes and ZDP shares.
During the six-month period ended 31 August 2023, the Company received
approximately $9.9 million from realisations and distributions and had cash
outflows relating to follow-on investments, expenses and finance costs of $10.1
million. Therefore, there has been no material change to the Company's liquidity
position since 28 February 2023 of approximately $100 million, comprising cash
of $45 million (28 February 2023: $11 million) and treasuries of $58 million (28
February 2023: $91 million). There has been no material change in liquidity
subsequent to 31 August 2023. The Company's remaining material debt obligation
is its $45 million Senior Credit Facility (28 February 2023: $45 million) which
matures in January 2027. The Company continues to comply with the covenants
attached to the Senior Credit Facility and the Board expect full compliance
throughout the going concern period.
As reported in the Chairman's Statement and the Investment Advisors report, the
Company anticipates potential near-term realisations that would enable the
Company to repay its Senior Credit Facility.
The Board takes account of the levels of realisation proceeds historically
generated by the Company's micro-cap portfolios, the level of funding
obligations the Company could be called on through capital calls on existing
investments, as well as the accuracy of previous forecasts to assess the
predicted accuracy of forecasts presented. The Company continues to work on the
realisation of various investments within a timeframe that will enable the
Company to maximise the value of its investment portfolio. Due to the Company's
strong liquidity, the timeframe to realise investments is not determined by the
need to repay debt and the Company is able to mitigate any downturn in the wider
economy which might influence the ability to exit investments.
Going Concern Conclusion
After careful consideration and based on the reasons outlined above, the Board
have not identified any material uncertainties which may cast significant doubt
on the Company's ability to continue as a going concern for the duration of the
going concern period. As such the Board is satisfied that it is appropriate to
adopt the going concern basis in preparing the Interim Financial Statements and
they have a reasonable expectation that the Company will continue in existence
as a going concern for the period to 30 November 2024.
Approved by the Board of Directors and agreed on behalf of the Board on 8
November 2023.
David MacfarlaneSharon Parr
Investment Portfolio
Percentage
of
Portfolio
31
August
2023
Cost1 Value
US$'000 US$'000
%
US Micro-cap portfolio
US Micro-cap Fund
JZHL Secondary Fund L.P.2
JZHL Secondary Fund L.P.
JZCP's investment in the JZHL Secondary Fund is
further detailed on Summary of JZCP's Investments.
Total JZHL Secondary Fund L.P. valuation
25.8
34,876 80,548
US Micro-cap (Vertical)
Industrial Services Solutions3
INDUSTRIAL SERVICES SOLUTIONS ("ISS")
Provider of aftermarket maintenance, repair, and
field services for critical process equipment
throughout the US
Total Industrial Services Solutions valuation
7.2
21,139 22,348
US Micro-cap (Co-investments)
DEFLECTO
4.7
Deflecto designs, manufactures and sells innovative 12,174 14,777
plastic products to multiple industry segments
ORIZON
1.2
Manufacturer of high precision machine parts and 3,899 3,840
tools for aerospace and defence industries
Total US Micro-cap (Co-investments)
5.9
16,073 18,617
US Micro-cap (Other)
AVANTE HEALTH SOLUTIONS
1.1
Provider of new and professionally refurbished 8,750 3,368
healthcare equipment
NATIONWIDE
0.3
STUDIOS 26,324 1,000
Processor of digital photos for pre-schoolers
Total US Micro-cap (Other)
1.4
35,074 4,368
Total US Micro-cap portfolio 107,16
40.3
2 125,881
European Micro-cap portfolio
EUROMICROCAP FUND 2010, L.P.
825
Invested in European Micro-cap
- -
entities
JZI FUND III, L.P.
63,854 70,120 22.4
JZCP's investment in JZI Fund III is further detailed on Summary of JZCP's
investment.
Total European Micro-cap
64,679 70,120 22.4
Debt Investments
DOCOUT4
2,777 1,833 0.6
Provider of digitalisation, document processing and storage services
TORO FINANCE
21,619 1,519 0.5
Provides short term receivables finance to the suppliers of major Spanish
companies
XACOM4
2,055
Supplier of telecom products and technologies
- -
Debt Investments (loans to European micro-cap companies)
26,451 3,352 1.1
Total European Micro-cap portfolio
91,130 73,472 23.5
Real Estate portfolio
247 BEDFORD AVENUE
17,717 6,298 2.0
Prime retail asset in northern Brooklyn, NY
ESPERANTE
14,983 23,567 7.6
An iconic building on the downtown, West Palm Beach skyline
Total Real Estate portfolio
32,700 29,865 9.6
Other investments
BSM ENGENHARIA
6,115 50
Brazilian-based provider of supply chain logistics, infrastructure services
-
and equipment rental
JZ
750 0.2
INTERNATIONAL -
Fund of European LBO investments
SPRUCEVIEW CAPITAL
34,255 23,603 7.6
Asset management company focusing primarily on managing endowments and
pension funds
Total Other investments
40,370 24,403 7.8
Listed investments
U.S. Treasury Bills - Maturity 21 September 2023
23,691 23,930 7.7
U.S. Treasury Bills - Maturity 16 November 2023
34,537 34,610 11.1
Total Listed investments
58,228 58,540 18.8
Total - portfolio
329,590 312,161 100.0
1 Original book cost incurred by JZCP adjusted for subsequent transactions.
Other than JZHL Secondary Fund (see foot note 2), the book cost represents cash
outflows and excludes PIK investments.
2Notional cost of the Company's interest in JZHL Secondary Fund is calculated in
accordance with IFRS, and represents the fair value of the Company's LP interest
on recognition adjusted for subsequent distributions.
3Co-investment with Fund A, a Related Party (Note 18).
4 Classified as loan at amortised cost.
Summary of JZCP's investments in JZHL Secondary Fund
JZHL Valuation1
As at
31.8.2023
$'000s
US Micro-cap investments
ACW FLEX PACK, LLC 4,483
Provider of a variety of custom flexible packaging solutions
to converters and end-users
FLOW CONTROL, LLC 17
Manufacturer and distributor of high-performance, mission
-critical flow handling products and components utilized to
connect processing line equipment
SAFETY SOLUTIONS HOLDINGS 3,305
Provider of safety focused solutions for the industrial,
environmental and life science related markets
FELIX STORCH 48,000
Supplier of specialty, professional, commercial, and medical
refrigerators and freezers, and cooking appliances
PEACEABLE STREET CAPITAL 13,703
Specialty finance platform focused on commercial real estate
TIERPOINT 11,112
Provider of cloud computing and colocation data centre
services
80,620
Hurdle amount due to Secondary Investors (72)
JZCP's interest in JZHL Secondary Fund 80,548
1JZCP's valuation being the 37.5% Special L.P. interest in the underlying
investment in JZHL Secondary Fund.
Summary of JZCP's investments in JZI Fund III
JZCP Cost (EURO)1 JZCP Value (EURO)1 JZCP Value
(USD)
Country As at As at As at
31.8.2023 31.8.2023 31.8.2023
?'000s ?'000s $'000s
ALIANZAS EN ACEROS Spain 4,468 3,472 3,768
Steel service
center
BLUESITES Portugal 1,372 4,802 5,212
Build-up in cell
tower land leases
COLLINGWOOD UK 3,015 2,513 2,727
Niche UK motor
insurer
ERSI Lux 8,482 1,675 1,818
Reinforced steel
modules
FACTOR ENERGIA Spain 3,989 9,263 10,053
Electricity
supplier
FINCONTINUO Italy 4,859 426 462
Niche consumer
lender
GUANCHE Spain 7,486 10,571 11,474
Build-up of petrol
stations
KARIUM UK 4,879 9,731 10,562
Personal care
consumer brands
LUXIDA Spain 3,315 4,969 5,393
Build-up in
electricity
distribution
MY LER Finland 4,321 192 209
Niche consumer
lender
S.A.C Denmark 3,392 9,000 9,768
Operational van
leasing
TREEE Italy 6,141 4,313 4,681
e-waste recycling
UFASA Spain 6,318 8,122 8,816
Niche consumer
lender
Other net (4,823)
Liabilities
Total valuation 70,120
1Represents JZCP's 18.75% of Fund III's investment portfolio.
Independent Review Report to JZ Capital Partners Limited
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
August 2023 which comprises the Statement of Comprehensive Income (Unaudited),
Statement of Financial Position (Unaudited), Statement of Changes in Equity
(Unaudited), Statement of Cash Flows (Unaudited) and related Notes 1 to 23. We
have read the other information contained in the half-yearly financial report
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the half-yearly financial
report for the six months ended 31 August 2023 are not prepared, in all material
respects, in accordance with International Accounting Standard 34 "Interim
Financial Reporting", as adopted by the European Union ("IAS 34"), and the
Disclosure Guidance and Transparency Rules of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" (ISRE) issued by the Financial Reporting
Council. 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) 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.
As disclosed in Note 2, the annual financial statements of the Company are
prepared in accordance with IFRS as adopted by the European Union. The condensed
set of financial statements included in this half-yearly financial report have
been prepared in accordance with IAS 34 "Interim Financial Reporting" as adopted
by the European Union.
Conclusion relating to going concern
Based on our review procedures, which are less extensive than those performed in
an audit as described in the Basis for Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that management
have identified material uncertainties relating to going concern that are not
appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
the ISRE, however future events or conditions may cause the entity to cease to
continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the half-yearly financial report in
accordance with Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible for
assessing the company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the half
-yearly financial report. Our conclusion, including our Conclusions relating to
Going Concern, are based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the company in accordance with guidance contained
in International Standard on Review Engagements 2410 (UK) "Review of Interim
Financial Information Performed by the Independent Auditor of the Entity" issued
by the Financial Reporting Council. 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.
Ernst & Young LLP
Guernsey, Channel Islands
8 November 2023
Notes
1. The Interim Report and 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.
Statement of Comprehensive Income (Unaudited)
For the Period from 1 March 2023 to 31 August 2023
Six Month
Six Month Period Ended
Period Ended 31 August 2022
31 August 2023 (Restated)
Note US$'000 US$'000
Income,
investment and
other gains
Net profit on 6 1,630 24,911
investments at
fair
value through
profit or loss
Investment income 8 3,967 7,920
Bank and deposit
interest 42 85
Net foreign 109 8,693
currency exchange
gains
Realisations from 21 999
investments held -
in escrow
accounts
5,748 42,608
Expenses and
losses
Expected credit 7
losses (259) (229)
Investment 10 (2,696) (3,872)
Adviser's base
fee
Administrative (1,280) (1,331)
expenses
Directors'
remuneration (145) (145)
(4,380) (5,577)
Operating profit 1,368 37,031
Finance costs 9 (3,206) (4,806)
Other income 398
-
(Loss)/profit (1,838) 32,623
before taxation
Taxation 22
- -
(Loss)/profit for (1,838) 32,623
the period
Weighted average 20 77,477,214 77,477,214
number of
Ordinary shares
in issue during
the period
Basic and diluted 20 (2.37)c 42.10c
(loss)/earnings
per Ordinary
share
The (loss)/profit for the period all derive from continuing operations.
The accompanying notes form an integral part of the Interim Financial
Statements.
Prior period balances have been restated to present an investment which has been
reclassified to fair value through profit or loss from amortised cost as at 31
August 2022 and 1 March 2022, leading to the loan being remeasured on these
dates (see Note 2 to the Financial Statements).
Statement of Financial Position (Unaudited)
As at 31 August 2023
31 August 28 February
2023 2023
Note US$'000 US$'000
Assets
Investments at fair value 11 310,328 343,521
through profit or loss
Loans at amortised cost 11 1,833 3,695
Other receivables 24 168
Cash at bank 45,193 11,059
Total assets 357,378 358,443
Liabilities
Senior Credit Facility 12 43,539 43,181
Other payables 15 829 764
Investment Adviser's base 10 350 -
fee
Total liabilities 44,718 43,945
Equity
Share capital 216,650 216,650
Other reserve 353,528 353,528
Retained deficit (257,518) (255,680)
Total equity 312,660 314,498
Total liabilities and 357,378 358,443
equity
Number of Ordinary shares 16 77,477,214 77,477,214
in issue at period/year
end
Net asset value per $4.04 $4.06
Ordinary share
These Interim Financial Statements were approved by the Board of Directors and
authorised on 8 November 2023. They were signed on its behalf by:
David MacfarlaneSharon Parr
ChairmanDirector
The accompanying notes form an integral part of the Interim Financial
Statements.
Statement of Changes in Equity (Unaudited)
For the Period from 1 March 2023 to 31 August 2023
Share Other Retained
Capital Reserve Deficit Total
US$'000 US$'000 US$'000 US$'000
Balance
as at 216,650
1 March 353,528 314,498
2023 (255,680)
Loss (1,838)
for the
period - -
(1,838)
Balance
at 31 (257,518)
August 216,650 353,528 312,660
2023
Restated comparative for the period from 1 March 2022 to 31 August 2022
Share Other Retained
Capital Reserve Deficit Total
Note US$'000 US$'000 US$'000 US$'000
Balance as 216,650 353,528 (237,91
332,264
at 1
March 2022 4
)
Restatement
(20,412)
to 2 - - (20,412)
correct
historical
error1
Balance as 216,650 353,528 (258,32
311,852
at 1
March 2022 6
(restated) )
Profit for
32,623
the - - 32,623
period
(restated)
Balance at
31 August 216,650 353,528
344,475
2022
(restated)
(225,70
3
)
1Prior period balances have been restated to present an investment which has
been reclassified to fair value through profit or loss from amortised cost as at
31 August 2022 and 1 March 2022, leading to the loan being remeasured on these
dates (see Note 2 to the Financial Statements).
The accompanying notes form an integral part of the Interim Financial
Statements.
Statement of Cash Flows (Unaudited)
For the Period from 1 March 2023 to 31 August 2023
Six Month Six Month
Period Ended Period Ended
31 August 2023 31 August 2022
Note US$'000 US$'000
Cash flows
from operating
activities
Cash inflows
Realisation of investments 11 9,880 105,024
Maturity of treasury bills 11 215,850
3,395
Bank interest received
42 85
Escrow receipts received 21
- 999
Income distributions received
from investments - 372
Cash outflows
Direct investments and 11 (3,659)
capital calls (4,945)
Purchase of Treasury Bills 11 (181,566) (123,132)
and UK Gilts
Investment Adviser's base fee 10 (2,281)
paid (3,691)
Other operating expenses paid (1,281)
(2,048)
Net cash inflow/(outflow) 36,985
before financing activities (23,941)
Financing
activities
Finance costs paid:
· Senior Credit Facility 12 (2,848)
(1,834)
· Subordinated Notes 14
- (945)
Net cash outflow from (2,848)
financing activities (2,779)
Increase/(decrease) in cash 34,137
at bank (26,720)
Reconciliation
of net cash
flow to
movements in
cash at bank
US$'000 US$'000
Cash and cash equivalents at 11,059 43,656
1 March
Increase/(decrease) in cash 34,137
at bank (26,720)
Foreign exchange movements on
cash at bank (3) (983)
Cash and cash equivalents at 45,193 15,953
period end
The accompanying notes form an integral part of the Interim Financial
Statements.
Notes to the Interim Financial Statements (Unaudited)
1. General Information
JZ Capital Partners Limited ("JZCP" or the "Company") is a Guernsey domiciled
closed-ended investment company which was incorporated in Guernsey on 14 April
2008 under the Companies (Guernsey) Law, 1994. The Company is now subject to the
Companies (Guernsey) Law, 2008. The Company is classified as an authorised fund
under the Protection of Investors (Bailiwick of Guernsey) Law 2020. As at 31
August 2023, the Company's capital consisted of Ordinary shares which are traded
on the London Stock Exchange's Specialist Fund Segment ("SFS").
The Company's new investment policy, adopted in August 2020, is for the Company
to make no further investments outside of its existing obligations or to the
extent that investment may be made to support selected existing portfolio
investments. The intention is to realise the maximum value of the Company's
investments and, after repayment of all debt, to return capital to shareholders.
The Company's previous Investment Policy was to target predominantly private
investments and back management teams to deliver on attractive investment
propositions. In executing this strategy, the Company took a long term view. The
Company looked to invest directly in its target investments and was able to
invest globally but with a particular focus on opportunities in the United
States and Europe.
The Company is currently mainly focused on supporting its investments in the
following areas:
(a) small or micro-cap buyouts in the form of debt and equity and preferred
stock in both the US and Europe; and
(b) real estate interests.
The Company has no direct employees. For its services, the Investment Adviser
receives a management fee as described in Note 10. 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.
2. Basis of Accounting and Significant Accounting Policies
Statement of compliance
The Unaudited Condensed Interim Financial Statements (the "Interim Financial
Statements") of the Company for the period 1 March 2023 to 31 August 2023 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 of the United Kingdom's Financial Conduct Authority. The
Interim Financial Statements do not include all the information and disclosure
required in the Annual Audited Financial Statements and should be read in
conjunction with the Annual Report and Financial Statements for the year ended
28 February 2023.
Basis of preparation
The Interim Financial Statements have been prepared under the historical cost
basis, except for financial assets and financial liabilities held at fair value
through profit or loss ("FVTPL"). 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 2023. The preparation of these Interim Financial
Statements is in conformity with IAS 34, "Interim Financial Reporting" as
adopted in the European Union, and 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.
The Unaudited Condensed Interim Financial Statements (the "Interim Financial
Statements") are presented in US$'000 except where otherwise indicated.
New standards, interpretations and amendments adopted by the Company
There has been no early adoption, by the Company, of any other standard,
interpretation or amendment that has been issued but is not yet effective.
Several amendments apply for the first time in 2023, but do not have material
impact on the Company's interim financial position or on the presentation of the
Company's statements.
Changes in accounting policy and disclosure
The accounting policies adopted in the preparation of these Interim Financial
Statements have been consistently applied during the period, unless otherwise
stated.
Climate Change
The Board has assessed the impact of climate change and has judged that the
Company's immediate exposure to the associated risks are low and therefore there
is no material impact on the fair value of investments and the financial
performance reported in these Interim Financial Statements.
Restatement to correct historical error in classification and associated
measurement of asset
In reporting the Company's results for the year ended 28 February 2023, a
restatement was made to correct a historical error in classification and
associated measurement of an investment. These Interim Financial Statements have
also been restated to reflect the correction of the same historical error
(detailed below), which has impacted the prior period's statement of
comprehensive income and statement of changes in equity. This restatement has
not impacted the Company's previously reported statement of financial position
as at 28 February 2023.
An investment in a direct loan to a European micro-cap company has been
reclassified to fair value through profit or loss from amortised cost as at 31
August 2022 and 1 March 2022 to reflect its contractual terms, leading to the
loan being remeasured on these dates. The reclassification is required as the
contractual terms of the loan do not give rise, on specified dates, to cash
flows that are solely payments of principal and interest on the principal amount
of the loan outstanding and are therefore not consistent with an amortised cost
classification. The affected financial statement line items for the prior
periods have been restated, as follows:
Impact on the statement of changes in equity
Reclassification Reclassification
and 1.3.2022 and
31.8.2022
1.3.20221 remeasurement (restated) 31.8.20221 remeasurement2
(restated)
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US$ '000
Retained (237,914) (20,412) (258,326) (205,116) (20,587)
(225,703)
deficit
1The retained deficit as recorded in the prior year financial statements before
restatement.
2Assumes the reclassification and remeasurement occurred on 31 August 2022
rather than 1 March 2022. The effect of the remeasurement for the six month
period ended 31 August 2022 is a reduction in profits of $0.175 million (see
below), being the decrease in value at this date being $20.587 million less the
decrease in value recognised at 1 March 2022 of $20.412 million.
NAV per share as at 31.8.2022 of $4.71 per share has been restated to $4.45.
Impact on statement of comprehensive income
31.8.2022
US$ '000
Investment (687)
income
Net foreign 2,585
currency
exchange
gains
Net gain on (2,760)
investments
at fair
value
through
profit or
loss
Expected 687
credit
losses
Net impact (175)
on profit
for the
period
Impact on
basic and
diluted
earnings
(Cents per
Ordinary
share)
31.8.2022
Basic and 42.33c
diluted
earnings
per
Ordinary
share
(cents per
share)
Impact from (0.23)c
correction
Basic and 42.10c
diluted
earnings
per
Ordinary
share
(restated)
3. Estimates and Judgements
The estimates and judgements made by the Board of Directors are consistent with
those made in the Audited Financial Statements for the year ended 28 February
2023.
Directors' assessment of going concern
A fundamental principle of the preparation of financial statements in accordance
with IFRS is the judgement that an entity will continue in existence as a going
concern for a period of at least 12 months from signing of the Interim Financial
Statements, which contemplates continuity of operations and the realisation of
assets and settlement of liabilities occurring in the ordinary course of
business.
In reaching its conclusion, the Board has considered the risks that could impact
the Company's liquidity over the period from 8 November 2023 to 30 November 2024
(the "Going Concern Period"). There were no events or conditions identified
beyond this period which may cast significant doubt on the company's ability to
continue as a going concern.
In June 2023, the Company reported on its much-improved liquidity following a
period of material realisations and the subsequent repayment of the Company's
Subordinated Notes and ZDP shares.
During the six-month period ended 31 August 2023, the Company received
approximately $9.9 million from realisations and distributions and had cash
outflows relating to follow-on investments, expenses and finance costs of
$10.1million. Therefore, there has been no material change to the Company's
liquidity position since 28 February 2023 of approximately $100 million,
comprising cash of $45 million (28 February 2023: $11 million) and treasuries of
$58 million (28 February 2023: $91 million). There has been no material change
in liquidity subsequent to 31 August 2023.
The Company's remaining material debt obligation is its $45 million Senior
Credit Facility (28 February 2023: $45 million) which matures in January 2027.
The Company continues to comply with the covenants attached to the Senior Credit
Facility and the Board expect full compliance throughout the going concern
period.
As reported in the Chairman's Statement and the Investment Advisors report, the
Company anticipates potential near-term realisations that would enable the
Company to repay its Senior Credit Facility.
The Board takes account of the levels of realisation proceeds historically
generated by the Company's micro-cap portfolios, the level of funding
obligations the Company could be called on through capital calls on existing
investments, as well as the accuracy of previous forecasts to assess the
predicted accuracy of forecasts presented. The Company continues to work on the
realisation of various investments within a timeframe that will enable the
Company to maximise the value of its investment portfolio. Due to the Company's
strong liquidity, the timeframe to realise investments is not determined by the
need to repay debt and the Company is able to mitigate any downturn in the wider
economy which might influence the ability to exit investments.
Going concern conclusion
After careful consideration and based on the reasons outlined above, the Board
have not identified any material uncertainties which may cast significant doubt
on the Company's ability to continue as a going concern for the duration of the
going concern period. As such the Board is satisfied that it is appropriate to
adopt the going concern basis in preparing the interim financial statements and
they have a reasonable expectation that the Company will continue in existence
as a going concern for the period to 30 November 2024.
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 - (not falling into above categories)
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.
US European Real
Other
Micro-cap Micro-cap Estate
Investments Total
US$ '000 US$ '000 US$ '000 US$
'000 US$ '000
Interest 1,484 259
1,743
revenue - -
Dividend
revenue - - - -
-
Total 1,484 259
1,743
segmental - -
revenue
Net 3,415 1,586 (1,291)
(2,080) 1,630
gain/(loss)
on
investments
at FVTPL
Expected (259)
(259)
credit - - -
losses
Realisations
from - - - -
-
investments
held in
Escrow
Investment (959) (548) (234)
(192) (1,933)
Adviser's
base fee
Total 3,940 1,038 (1,525)
(2,272) 1,181
segmental
operating
profit/(lo
ss)
For the period from 1 March 2022 to 31 August 2022 (restated1)
US European Real
Other
Micro-cap Micro-cap Estate
Investments Total
US$ '000 US$ '000 US$ '000 US$
'000 US$ '000
Interest 7,081 229
revenue - -
7,310
Dividend 372
revenue - - -
372
Total 7,453 229
segmental - -
7,682
revenue
Net 41,604 (12,748) (522)
(504)
gain/(loss)
27,830
on
investments
at FVTPL
Expected (229)
credit - - -
(229)
losses
Realisations 999
from - - -
999
investments
held in
Escrow
Other income 398
- - -
398
Investment (2,237) (776) (179)
(178)
Adviser's
(3,370)
base fee
Total 47,819 (13,126) (701)
(682) 33,310
segmental
operating
profit/(lo
ss)
Certain income and expenditure are 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 segmental allocation is consistent with
that of the previous year end.
The following table provides a reconciliation between total segmental operating
profit and operating (loss)/profit:
31.8.2022
31.8.2023 (restated1)
US$ '000 US$ '000
Total 1,181 33,310
segmental
operating
profit
Net foreign 109
exchange 8,693
gain/(loss)
Bank and 42
deposit 85
interest
Other 2,224
interest 238
Expenses not (1,425) (1,476)
attributable
to segments
Fees payable (763)
to (502)
investment
adviser
based on non
-segmental
assets
Finance (3,206)
costs (4,806)
Net loss on
non - (2,919)
-segmental
investments
at FVTPL
(Loss)/profit (1,838) 32,623
for the
period
1See Note 2
The following table provides a reconciliation between total segmental revenue
and Company revenue:
31.8.2022
31.8.2023 (restated1)
US$ '000 US$ '000
Total 1,743 7,682
segmental
revenue
Non
-segmental
revenue
Bank and 42 85
deposit
interest
Other 2,224 238
interest
Total 4,009 8,005
revenue
1See Note 2
Segmental Net Assets
At 31 August 2023
US European Real Other
Micro-cap Micro-cap Estate
Investments Total
US$ '000 US$ '000 US$ '000 US$
'000 US$ '000
Segmental
assets
Investments 125,881 29,865
24,403
at FVTPL 71,639
251,788
Loans at
amortised - 1,833 - -
1,833
cost
Total 125,881 29,865
24,403
segmental 73,472
253,621
assets
Segmental
liabilities
Payables (123)
(24)
and accrued (72) (29)
(248)
expenses
Total (123)
(24)
segmental (72) (29)
(248)
liabilities
Total 125,758 29,836
24,379
segmental 73,400
253,373
net
assets
At 28 February
US European Real
Other
Micro-cap Micro-cap Estate
Investments Total
US$ '000 US$ '000 US$ '000
US$ '000 US$ '000
Segmental
assets
Investments 127,811 68,271 31,156
25,683 252,921
at FVTPL
Loans at 3,695
3,695
amortised - - -
cost
Prepaid 29 12
47
expenses 3 3
Total 127,840 71,978 31,159
25,686 256,663
segmental
assets
Segmental
liabilities
Total
segmental - - - -
-
liabilities
Total 127,840 71,978 31,159
25,686 256,663
segmental
net
assets
The following table provides a reconciliation between total segmental assets and
total assets and total segmental liabilities and total liabilities:
31.8.2023 28.2.2023
US$ '000 US$ '000
Total 253,621 256,663
segmental
assets
Non
segmental
assets
Cash at 45,193 11,059
bank
Treasury 58,540 90,600
bills
Other 121
receivables 24
Total 357,378 358,443
assets
Total (248)
segmental -
liabilities
Non
segmental
liabilities
Senior (43,539) (43,181)
Credit
Facility
Other (764)
payables (931)
Total (44,718) (43,945)
liabilities
Total net 312,660 314,498
assets
Other receivables (other than the Investment Adviser fee prepayment) are not
considered to be part of individual segment assets. Certain liabilities are not
considered to be part of the net assets of an individual segment. These include
custodian and administration fees payable, directors' fees payable and other
payables and accrued expenses.
5. Fair Value of Financial Instruments
The Company classifies fair value measurements of its financial instruments at
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 when assets/liabilities with quoted prices, that would
normally meet the criteria of Level 1, do not meet the definition of being
traded on an active market.
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 by the hierarchy level that the fair value is based on:
Financial
assets at
31 August
2023
Level 1 Level 2 Level 3
Total
US$ '000 US$ '000 US$ '000
US$
'000
US micro 125,881
125,881
-cap - -
European 71,639
71,639
micro-cap - -
Real estate 29,865
29,865
- -
Other 24,403
24,403
investments - -
Treasury 58,540
58,540
bills - -
58,540 251,788
310,328
-
Financial
assets at
28 February
2023
Level 1 Level 2 Level 3
Total
US$ '000 US$ '000 US$ '000
US$
'000
US micro 127,811
127,811
-cap - -
European 68,271
68,271
micro-cap - -
Real estate 31,156
31,156
- -
Other 25,683
25,683
investments - -
Treasury 90,600
90,600
bills - -
90,600 252,921
343,521
-
Valuation techniques
In valuing investments in accordance with IFRS, the Board follows the principles
as detailed in the IPEVCA guidelines.
When fair values of listed equity and debt securities at the reporting date are
based on quoted market prices or binding dealer price quotations (bid prices for
long positions), without any deduction for transaction costs, the instruments
are included within Level 1 of the hierarchy.
Investments for which there are no active markets are valued according to one of
the following methods:
Real estate
JZCP owns its real estate investments through a wholly-owned subsidiary, which
in turn owns interests in real estate properties. The net asset value of the
subsidiary is used for the measurement of fair value. The underlying fair value
of JZCP's Real Estate holdings, however, is represented by the properties
themselves. The Company's Investment Adviser and Board review the fair value
methods and measurement of the underlying properties on a quarterly basis. Where
available, the Company will use third party appraisals on the subject property,
to assist the fair value measurement of the underlying property. Third-party
appraisals are prepared in accordance with the Appraisal and Valuation Standards
(6th edition) issued by the Royal Institution of Chartered Surveyors. Fair value
techniques used in the underlying valuations are:
- Use of comparable market values per square foot of properties in recent
transactions in the vicinity in which the property is located, and in similar
condition, of the relevant property, multiplied by the property's square
footage.
- Income capitalisation approach using the property's net operating income and a
capitalization rate.
For each of the techniques third party debt is deducted to arrive at fair value.
The valuations obtained in relation to the real estate portfolio are dated 31
December 2022. Subsequent discussions with appraisers indicate there would be no
significant change in property values between 31 December 2022 and 31 August
2023. Due to the inherent uncertainties of real estate valuation, the values
reflected in the financial statements may differ significantly from the values
that would be determined by negotiation between parties in a sales transaction
and those differences could be material.
Unquoted preferred shares, unquoted equities and equity related securities
Unquoted equities and equity related securities investments are classified in
the Statement of Financial Position as Investments at fair value through profit
or loss. These investments are typically valued by reference to their enterprise
value, which is generally calculated by applying an appropriate multiple to the
last twelve months' earnings before interest, tax, depreciation and amortisation
("EBITDA"). In determining the multiple, the Board consider inter alia, where
practical, the multiples used in recent transactions in comparable unquoted
companies, previous valuation multiples used and where appropriate, multiples of
comparable publicly traded companies. In accordance with IPEVCA guidelines, a
marketability discount is applied which reflects the discount that in the
opinion of the Board, market participants would apply in a transaction in the
investment in question. The increase of the fair value of the aggregate
investment is reflected through the unquoted equity component of the investment
and a decrease in the fair value is reflected across all financial instruments
invested in an underlying company.
In respect of unquoted preferred shares the Company values these investments at
fair value by reference to the attributable enterprise value as the exit
strategy in respect to these investments would be a one tranche disposal
together with the equity component. The fair value of the investment is
determined by reference to the attributable enterprise value reduced by senior
debt and marketability discount.
Micro-cap loans
Investments in micro-cap debt are valued at fair value by reference to the
attributable enterprise value when the Company also holds an equity position in
the investee company.
When the Company invests in micro-cap loans and does not hold an equity position
in the underlying investee company these loans are valued at amortised cost in
accordance with IFRS 9 (Note 2). The carrying value at amortised cost is
considered to approximate to fair value.
Other Investments
Other investments at year end, comprise of mainly the Company's investment in
the asset management business -Spruceview Capital Partners ("Spruceview").
Spruceview is valued using a valuation model which considers a forward looking
revenue approach which the Board considers to be consistent with the valuation
methods used by peer companies.
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 2023 and 28 February 2023 are shown below:
Value Valuation Unobservable Range Sensitivity
Effect
Technique input used on
Fair
31.8.2023 (weighted
Value
average)
US$'000
US$'000
US micro-cap 125,881 EBITDA Average EBITDA 5.0x -0.5x
(11,456) 11,434
Multiple Multiple of -14.0x /+0.5x
investments Peers (8.5x)
Discount to 5% - 35% +5% /-5%
(13,569) 13,521
Average (14%)
Multiple
European 70,120 EBITDA Average EBITDA 4.8x - -0.5x
(4,844) 4,844
micro Multiple Multiple of 17.2x /+0.5x
-cap Peers (9.3x)
investments1
Discount to 4% - 64% +5% /-5%
(3,875) 3,875
Average (34%)
Multiple
Real estate 29,865 Cap Rate/ Capitalisation 5.25% +50bps/
(6,918) 8,061
2,3 Income Rate -6.255%
-50bps
Approach (5.9%)
Other 23,603 Forward Revenue $8.8 -10%/+10%
(2,342) 2,342
investments4 looking Multiple million
-10%/+10%
(2,342) 2,342
Revenue 5.3x
Approach
Value Valuation Unobservable Range Sensitivity
Effect
Technique input used on
Fair
28.2.2023 (weighted
Value
average)
US$'000
US$'000
US micro-cap 127,811 EBITDA Average EBITDA 7.0x - -0.5x
(10,326) 10,092
investments Multiple Multiple of 13.5x /+0.5x
Peers (8.3x)
Discount to 5% - 35% +5% /-5%
(12,303) 11,955
Average (14.3%)
Multiple
European 66,786 EBITDA Average EBITDA 5.0x - -0.5x
(4,693) 4,705
micro-cap Multiple Multiple of 15.7x /+0.5x
Peers (8.6x)
investments1
Discount to 4% - 61% +5% /-5%
(3,542) 3,554
Average (26%)
Multiple
Real 31,156 Cap Rate/ Capitalisation 5.25% +50bps/
(6,918) 8,061
estate2,3 Income Rate -5.75%
-50bps
Approach (5.65%)
Other 24,474 Forward Revenue $9.5 -10%/+10%
(1,722) 2,613
investments4 looking Multiple million
Revenue -10%/+10%
(1,722) 2,613
Approach 5.3x
1Excludes the Company's investment in Toro Finance. The fair value of the loan
is impaired and is therefore assessed based on the balance that is recoverable
from the ongoing sale of Toro Finance.
2The Fair Value of JZCP's investment in financial interests in Real Estate is
measured as JZCP's percentage interest in the value of the underlying
properties.
3Sensitivity is applied to the property value and then the debt associated to
the property is deducted before the impact to JZCP's equity value is calculated.
Due to gearing levels in the property structures, an increase in the sensitivity
of measurement metrics at property level will result in a significantly greater
impact at JZCP's equity level.
4JZCP's investment in Spruceview.
The following table shows a reconciliation of all movements in the fair value of
financial instruments categorised within Level 3 between the beginning and the
end of the reporting period/year.
Period ended 31 August 2023
US European Real
Other Investments Total
Micro-Cap Micro-Cap Estate
US$ '000 US$ '000 US$ '000
US$ '000 US$ '000
At 1 March 68,271 31,156
25,683
2023 127,811
252,921
Investments 2,249
800
including 610 -
3,659
capital
calls
Payment in
kind 431 - -
- 431
("PIK")
Proceeds (467)
from (7,439) -
- (7,906)
investments
realised
Net 1,586 (1,291)
(2,080)
gains/(losse 3,415
1,630
s) on
investments
Movement in
accrued 1,053 - -
- 1,053
interest
At 31 125,881 71,639 29,865
24,403 251,788
August 2023
Year ended 28 February 2023
US European Real Other
Investments Total
Micro-Cap Micro Estate
-Cap
US$ '000 US$ '000 US$ '000 US$ '000
US$ '000
At 1 March 284,162 81,150 23,597
23,533
2022
412,442
Investments 317 8,628 825
1,100
including
10,870
capital
calls
Payment in 11,810 -
kind - -
11,810
("PIK")
Proceeds (181,629) (911)
from - -
(182,540)
investments
realised
Net 14,626 (20,596) 6,734
1,050
gains/(losse
1,814
s) on
investments
Movement in (1,475) -
accrued - -
(1,475)
interest
At 28 127,811 68,271 31,156
25,683 252,921
February
2023
6. Net Profit on Investments at Fair Value Through Profit or Loss
Period ended Period
ended
31.8.2022
31.8.2023 (restated1)
US$ '000 US$ '000
Loss on
investments
held in
investment
portfolio
at period
end
Net 2,606 (34,497)
movement in
period end
unrealised
gain
position
Unrealised (4,247) (15,265)
net loss in
prior
periods now
realised
Net (1,641) (49,762)
unrealised
loss in the
period
Net profit
on
investments
realised in
the period
Proceeds 7,906 108,419
from
investments
realised
Cost of (8,882) (49,011)
investments
realised
Unrealised 4,247 15,265
net loss in
prior
periods now
realised
Total net 3,271 74,673
profit in
the period
on
investments
realised in
the period
Net profit
on
investments 1,630 24,911
in the
period
1See Note 2
7. Expected Credit Losses
Expected Credit Losses ("ECLs") are recognised in three stages. Stage one being
for credit exposures for which there has not been a significant increase in
credit risk since initial recognition, ECLs are provided for credit losses that
result from default events that are possible within the next 12-months (a 12
-month ECL). Stage two being for those credit exposures for which there has been
a significant increase in credit risk since initial recognition, a loss
allowance is required for credit losses expected over the remaining life of the
exposure, irrespective of the timing of the default (a lifetime ECL). Stage
three being credit exposures which are considered credit-impaired, interest
revenue is calculated based on the amortised cost (i.e., the gross carrying
amount less the loss allowance). Financial assets in this stage will generally
be assessed individually. Lifetime expected credit losses are recognised on
these financial assets.
Period ended
Period ended 31.8.2022
31.8.2023 (restated1)
US$ '000 US$ '000
Impairment 229
on loans -
classified
as Stage 1
Impairment 259
on loans -
classified
as Stage 3
Total 259 229
impairment
on loans
during
period
1See Note 2
8. Investment Income
Period
ended
Period 31.8.2022
ended
31.8.2023 (restated1)
US$ '000 US$ '000
Interest 259 229
calculated
using the
effective
interest
rate
method
Other 3,708 7,691
interest
and
similar
income
3,967 7,920
Income for the period ended 31 August 2023
Preferred Loan note
Other
Interest
Interest PIK Cash Dividend
Interest Total
US$ '000 US$ '000 US$ '000 US$ '000
US$ '000 US$ '000
US micro 1,484
-cap - - -
- 1,484
European 259
micro - - -
- 259
-cap
Treasury
2,224
bills - - - -
2,224
1,484 259
2,224
- -
3,967
Income for the period ended 31 August 2022 (restated1)
Preferred Loan note
Other
Interest
Portfolio Interest PIK Cash Dividend
Interest Total
US$ '000 US$ '000 US$ '000 US$ '000
US$ '000 US$ '000
US micro 7,081 372
-cap - -
- 7,453
European 229
micro-cap - - -
- 229
Listed
238
investments - - - -
238
7,081 229 372
238
-
7,920
1See Note 2
9. Finance Costs
Period ended Period ended
31.8.2023 31.8.2022
US$ '000 US$ '000
Interest
expense
calculated
using the
effective
interest
method
Senior Credit 3,206
Facility (Note 2,065
12)
ZDP shares
(Note 13) - 1,793
Subordinated
Notes (Note - 948
14)
3,206
4,806
10. 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 2023, total investment advisory and
management expenses, based on the average total assets of the Company, were
included in the Statement of Comprehensive Income of $2,696,000 (period ended 31
August 2022: $3,872,000). Of this amount, $350,000 was due and payable at the
period end (28 February 2023: $65,000 was prepaid to the Investment Adviser).
No incentive fees will be paid to the Investment Adviser until the Company and
Investment Adviser have mutually agreed to reinstate such payments.
11. Investments
Listed Unlisted Unlisted
Carrying Value
FVTPL FVTPL Loans
Total
31.8.2023 31.8.2023 31.8.2023
31.8.2023
US$ '000 US$ '000 US$ '000 US$
'000
Book cost 90,032 280,766 13,283
at 1
384,081
March 2023
Investments 181,566 3,659
in -
185,225
period
including
capital
calls
Payment in 431 253
kind - 684
("PIK")1
Proceeds (215,850) (7,906) (1,974)
from
(225,730)
investments
matured/real
ised
Interest 2,480
received on - -
2,480
maturity
Net
realised - (976) -
(976)
loss
Book cost 58,228 275,974 11,562
at 31
345,764
August 2023
Unrealised (25,766) (783)
investment -
(26,549)
and
foreign
exchange
loss
Impairment (9,034)
on - -
(9,034)
loans at
amortised
cost
Accrued 312 1,580 88
interest
1,980
Carrying 58,540 251,788 1,833
value
312,161
at 31
August
2023
1The 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.
Listed Unlisted Unlisted
Carrying Value
FVTPL FVTPL Loans
Total
28.2.2023 28.2.2023 28.2.2023
28.2.2023
US$ '000 US$ '000 US$ '000 US$
'000
Book cost 3,395 472,983 12,828
at 1
489,206
March 2022
Investments 213,164 32,009
in -
245,173
year
including
capital
calls
Payment in 11,810 455
kind -
12,265
("PIK")1
Proceeds (123,357) (203,679)
from -
(327,036)
investments
matured/real
ise
d
Interest 689
received on - - 689
maturity
Net 32,357)
realised - -
(32,357)
loss
Realised (3,859)
currency - -
(3,859)
loss
Book cost 90,032 280,766 13,283
at
384,081
28 February
2023
Unrealised (28,372) (895)
investment -
(29,267)
and
foreign
exchange
loss
Impairment (8,775)
on - -
(8,775)
loans at
amortised
cost
Accrued 568 527 82
interest
1,177
Carrying 90,600 252,921 3,695
value
347,216
at 28
February
2023
1The 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 cost
Loans to European micro-cap companies are classified and measured as Loans at
amortised cost under IFRS 9.
The repayment of the loans will occur when the underlying investee company
issuing the debt redeems on ownership change or due date.
Interest on the loans accrues at the following rates:
As At 31 August 2023 As at 28 February 2023
8% 10% Total 8% 10% Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Loans at 1,833 - 1,833 1,447 2,248 3,695
amortised
cost
The Company has not recognised interest on the loans classified as being credit
impaired (Stage 3 see Note 7).
Maturity dates are as follows:
As At 31 August 2023 As At 28 February 2023
Past due Total 0-6 months Total
$'000 US$'000 $'000 US$'000
Loans at amortised cost 1,833 1,833 3,695 3,695
During the period, the maturity date of a loan with a carrying value of $1.833
million (28 February 2023: $3.695 million) became past due. The Company still
anticipates the repayment of the loan when the underlying investee company exits
the investment. In April 2023, JZCP received $1.974 million as part- repayment
of the loan.
12. Senior Credit Facility
On 26 January 2022, JZCP entered into an agreement with WhiteHorse Capital
Management, LLC (the "Senior Lender") providing for a new five year term senior
secured loan facility (the "Senior Credit Facility").
The Senior Credit Facility matures on 26 January 2027 and replaced the Company's
Previous Senior Secured Loan Facility with clients and funds advised and sub
-advised by Cohanzick Management, LLC and CrossingBridge Advisors, LLC (the
"Previous Senior Lenders").
The Senior Credit Facility consists of a $45.0 million first lien term loan (the
"Closing Date Term Loan"), fully funded as of the closing date (being 26 January
2022), and up to $25.0 million in first lien delayed draw term loans (the "DDT
Loans"), which remain undrawn as of the closing date and the period end. The
Company can draw down the DDT Loans from time to time in its discretion in the
24 month period following the closing date. Customary fees and expenses were
payable upon the drawing of the Closing Date Term Loan. The proceeds of the
Closing Date Term Loan, together with cash at hand, were used by the Company to
repay the Previous Senior Secured Facility of approximately $52.9 million due 12
June 2022 and for the payment of fees and expenses related to the New Senior
Facility.
During the period, no election was made for a portion of the interest to be paid
in kind. The average interest rate paid by the Company was 12.2 per cent being
the applicable LIBOR/SOFR1 rate plus 7.0 per cent. The rate payable at the year
end was 12.5 per cent (28 February 2023: 11.8 per cent).
The Senior Credit Facility Agreement includes covenants from the Company
customary for an agreement of this nature, including (a) maintaining a minimum
asset coverage ratio (calculated by reference to eligible assets, subject to
customary ineligibility criteria and concentration limits, plus unrestricted
cash) of not less than 4.00 to 1.00, and (b) ensuring the Company retains an
aggregate amount of unrestricted cash and cash equivalents of not less than
$12.5 million. At 31 August 2023, investments and cash valued at $351.4 million
(28 February 2023: $352.0 million) were held as collateral on the senior debt
facility. The collateral value used in the asset coverage ratio of $255.1
million (28 February 2023: $252.1 million) is after adjustments to the
collateral value including a ceiling value on any one investment. The Senior
Credit Facility allowed for the repayment of the Company's other debt
obligations assuming the above covenants were not breached as a result of
repayment.
There is an interest rate floor that stipulates LIBOR/SOFR will not be lower
than 1%. In this agreement, the presence of the floor is considered to be
clearly and closely related to the facility, therefore separation is not
required and the loan is valued at amortised cost using the effective interest
rate method.
1In June 2023, Secured Overnight Financing Rate (SOFR) replaced LIBOR as the
benchmark interest rate for the Senior Credit Facility.
Senior Credit Facility
31.8.2023 28.2.2023
US$ '000 US$ '000
Amortised cost at 1 March 43,181 42,573
Finance costs charged to Statement of Comprehensive Income 3,206 5,163
Interest and finance costs paid (2,848) (4,555)
Amortised cost at period/year end 43,539 43,181
The carrying value of the Senior Credit Facility approximates to fair value.
13. Zero Dividend Preference ("ZDP") shares
On 3 October 2022, the Company redeemed and cancelled its 11,907,720 ZDP shares
on their maturity date. The ZDP shares had a gross redemption yield of 4.75% and
a total redemption value of £57,597,000 ($64,296,000 using the exchange rate on
the redemption date).
31.8.2023 28.2.2023
US$ '000 US$ '000
Amortised cost at 1 March - 75,038
Finance costs allocated to - 2,067
Statement of Comprehensive
Income
Unrealised currency gain on - (12,809)
translation
Redemption - (64,296)
Amortised cost at period/year - -
end
14. Subordinated Notes
On 14 February 2023, the Company undertook an early voluntary redemption in full
of the Subordinated Notes.
31.8.2023 28.2.2023
US$ '000 US$ '000
Amortised cost - 32,293
at 1 March
Finance costs - 1,800
charged to
Statement of
Comprehensive
Income
Interest and - (2,593)
finance costs
paid
Redemption - (31,500)
Amortised cost - -
at period/year
end
15. Other Payables
31.8.2023 28.2.2023
US$ '000 US$ '000
Audit fees 211 268
Legal fees provision 200 200
Directors' remuneration 49 47
Other expenses 369 249
829 764
16. Ordinary Shares - Issued Capital
31.8.2023 28.2.2023
Number of shares Number of shares
Total Ordinary shares in issue 77,477,214 77,477,214
The Company's shares trade on the London Stock Exchange's Specialist Fund
Segment.
17. Commitments
At 31 August 2023 and 28 February 2023, JZCP had the following financial
commitments outstanding in relation to fund investments:
Expected date 31.8.2023 28.2.2023
of Call US$ '000 US$ '000
JZI Fund III GP, L.P. over 3 years 5,687 7,064
?10,160,906 (28.2.2023:
?6,661,066)
Spruceview Capital Partners, over 1 year - -
LLC1
5,687 7,064
1Following a capital call of $0.8 million in April 2023, JZCP has the option to
increase further commitments to Spruceview up to approximately $2.7 million.
18. Related Party Transactions
JZAI is a US based company founded by David Zalaznick and Jay Jordan, that
provides advisory services to the Company in exchange for management fees, paid
quarterly. Fees paid by the Company to the Investment Adviser are detailed in
Note 10. JZAI and various affiliates provide services to certain JZCP portfolio
companies and may receive fees for providing these services pursuant to the
Advisory Agreement.
JZCP 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"). Fund III and EMC 2010 are managed by an affiliate of JZAI. At 31
August 2023, JZCP's investment in Fund III was valued at $70.1 million (28
February 2023: $67.6 million). JZCP's investment in EMC 2010 was valued at $nil
(28 February 2023: $nil).
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 and funded by JZCP to this investment at 31 August 2023, was $34.9
million (28 February 2023: $34.1 million). As approved by a shareholder vote on
12 August 2020, JZCP has the ability to make up to approximately $4.1 million in
further commitments to Spruceview, above the original $33.5 million committed.
Further commitments made would be on the same 50:50 basis with Jay Jordan and
David Zalaznick (or their respective affiliates). Following subsequent capital
calls, JZCP has a remaining option to increase further commitments to Spruceview
up to approximately $2.7 million.
During the year ended 28 February 2021, the Company sold its interests in
certain US microcap portfolio companies (the "Secondary Sale") to a secondary
fund led by Hamilton Lane Advisors, L.L.C. The Secondary Sale was structured as
a sale and contribution to a newly formed fund, JZHL Secondary Fund LP, managed
by an affiliate of JZAI. At 31 August 2023, JZCP's investment in JZHL Secondary
Fund LP was valued at $80.5 million (28 February 2023: $80.4 million).
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 2023, these co-investments, with the Fund A
entities, were in the following portfolio companies: Industrial Service
Solutions WC, L.P. and BSM Engenharia. Pursuant to a merger agreement, dated
December 14, 2022, JZCP and all of the Fund A Entities transferred their prior
investments in ISS #2, LLC rateably in exchange for cash, a rollover investment
(Industrial Service Solutions WC, L.P.) and contingent escrow amounts. JZCP
previously co-invested with Fund A in Safety Solutions Holdings and Tierpoint
which were included in the transfer to JZHL Secondary Fund LP (mentioned above).
Total Directors' remuneration for the six-month period ended 31 August 2023 was
$145,000 (31 August 2022: $145,000).
19. Net Asset Value Per Share
The net asset value per Ordinary share of $4.04 (28 February 2023: $4.06) is
based on the net assets at the period end of $312,660,000 (28 February 2023:
$314,498,000) and on 77,477,214 (28 February 2023: 77,477,214) Ordinary shares,
being the number of Ordinary shares in issue at the period end. The below table
reconciles the estimated NAV per share as announced on 22 September 2023 to the
final reported NAV.
31.8.2023
US$
Estimated NAV per share - per Stock 4.05
Exchange announcement on 22 September
2023
Valuation change (0.01)
Reported NAV per share 4.04
20. Basic and Diluted (Loss)/Earnings per Share
Basic (loss)/earnings per share is calculated by dividing the loss for the
period by the weighted average number of Ordinary shares outstanding during the
period.
For the period ended 31 August 2023, the weighted average number of Ordinary
shares outstanding during the period was 77,477,214 (31 August 2022:
77,477,214).
The diluted loss per share is calculated by considering adjustments required to
the loss and weighted average number of shares for the effects of potential
dilutive Ordinary shares. There were no dilutive Ordinary shares during the
period.
21. 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 2023
and 28 February 2023, 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 2023 and 28 February 2023, the Company had the following
contingent assets held in escrow accounts which had not been recognised as
assets of the Company:
Amount in Escrow
31.8.2023 28.2.2023
US$'000 US$'000
Industrial Services Solutions (ISS)1 2,090 3,044
Deflecto Holdings 553 -
Igloo 49 49
2,692 3,093
During the period ended 31 August 2023, escrow proceeds of $nil (31 August 2022:
$999,000) were realised and recorded in the Statement of Comprehensive Income.
1In December 2022, following the partial sale of the Company's interest in
Industrial Services Solutions (ISS), approximately $8.3 million was placed in an
escrow account payable to the Company post-closing pursuant to an escrow
arrangement that is subject to customary final closing adjustments. Included in
this escrow amount was approximately $5.3 million held back for the scenario of
the estimated net working capital on closing exceeding the final agreed amount.
This amount was included within the year end valuation of Industrial Service
Solutions WC, L.P. rather than as an contingent asset, due to the likelihood
that this portion of the total escrow would be released imminently (received
June 2023). The Company received further proceeds in the period of $2.0 million
from the closing of the ISS partial sale based on the agreed final working
capital of ISS. The Company still has the potential to receive further proceeds
from the closing of the ISS partial sale based on the final working capital of
ISS, as well as the other standard escrows highlighted in table.
22. Taxation
The Company had been granted Guernsey tax exempt status in accordance with The
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended).
23. Subsequent Events
These Interim Financial Statements were approved by the Board on 8 November
2023. Events subsequent to the period end 31 August 2023 have been evaluated
until this date.
There are no subsequent events to report.
Company Advisers
Investment Adviser Independent Auditor
The Investment Adviser to Ernst & Young LLP
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 offers investment
advice to the Board of
JZCP. JZAI has offices in
New York and Chicago.
PO Box 9
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
Jordan/Zalaznick Advisers, UK Solicitor
Inc.
9 West 57th Street Ashurst LLP
New York NY 10019 London Fruit & Wool Exchange
1 Duval Square
Registered Office London E1 6PW
PO Box 255
Trafalgar Court US Lawyers
Les Banques Monge Law Firm, PLLC
St Peter Port 435 South Tryon Street
Guernsey GY1 3QL Charlotte, NC 28202
JZ Capital Partners Winston & Strawn LLP
Limited is registered in
Guernsey
Number 48761 35 West Wacker Drive
Chicago IL 60601-9703
Administrator, Registrar
and Secretary
Northern Trust Guernsey Lawyer
International Fund
Administration
Services (Guernsey) Mourant
Limited
PO Box 255 Royal Chambers
Trafalgar Court St Julian's Avenue
Les Banques St Peter Port
St Peter Port Guernsey GY1 4HP
Guernsey GY1 3QL
Financial Adviser and Broker
UK Transfer and Paying J.P. Morgan Cazenove Limited
Agent
Equiniti Limited 20 Moorgate
Aspect House London EC2R 6DA
Spencer Road
Lancing
West Sussex BN99 6DA
US Bankers
HSBC Bank USA NA
452 Fifth Avenue
New York NY 10018
(Also provides custodian
services to JZ Capital
Partners
Limited under the terms of
a Custody Agreement).
City National Bank
100 SE 2nd Street, 13th
Floor
Miami, FL 33131
Guernsey Banker
Northern Trust (Guernsey)
Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA
Useful Information for Shareholders
Listing
JZCP Ordinary shares 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 is 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.
ISIN/SEDOL numbers
Ticker Symbol ISIN Code Sedol Number
Ordinary shares JZCP GG00B403HK58 B403HK5
Key Information Documents
JZCP produces a Key Information Documents to assist investors' understanding of
the Company's securities and to enable comparison with other investment
products. This document is 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 Interim 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 Interim
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 six-month period ended 31 August
2023 was -0.5%, 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
2023 was 0.7%.
Total Shareholder Return (Ordinary shares)
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 2023, in Sterling terms, was 3.2%, which
only reflects the change in share price as no dividends were paid during the
year. The Shareholder Return for the year ended 28 February 2023 was 50.0%.
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 2023, JZCP's Ordinary shares traded at £1.625 (28 February 2023:
£1.575) or $2.06 (28 February 2023: $1.91) being the dollar equivalent using the
period end exchange rate of £1:$1.27 (28 February 2023 £1: $1.21). The shares
traded at a 49.0% (28 February 2023: 53.0%) discount to the NAV per share of
$4.04 (28 February 2023: $4.06).
Criminal Facilitation of Tax Evasion
The Board has 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 advisers as
an investment for UK retail investors.
Internet Address
The Company: www.jzcp.com
Financial Diary
Results for the year ended May/June 2024 (date to be confirmed)
29 February 2024
Annual General Meeting June/July 2024 (date to be confirmed)
Interim report for the six November 2024 (date to be confirmed)
months ended 31 August 2024
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)371-384-2265.
Share Dealing
Investors wishing to buy or sell shares in the Company may do so through a
stockbroker. Most banks also offer this service.
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 +44 (0)371-384-2265, 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 outside of the UK, please ensure the
country code is used 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" on Useful Information for Shareholders).
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 29 C.F.R. Section 2510.3-101, as modified by 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 laws 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
advisers, 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 adviser will have certain
general fiduciary duties to the Company, the board and the investment adviser
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 laws 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 adviser 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 adviser.
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 adviser 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 adviser 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) The Non-ERISA Plan's investment in the Company will not result in a non
-exempt violation of any applicable
federal, state or local law;
(d) None of the Company, the Board, the Investment adviser 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 adviser 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
(e) 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 adviser 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 adviser.
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 be treated as a "passive foreign
investment company" ("PFIC") for the fiscal years ended February 2022 and 2021.
The Company's treatment as a PFIC is likely to have adverse tax consequences for
US taxpayers. Previously, for the fiscal year ended February 2020 the Company
was found NOT to be a PFIC. An analysis for the financial year ended 28 February
2023 will be undertaken this year.
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/firm/summary/160932
This information was brought to you by Cision http://news.cision.com
END
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