TIDMJZCP TIDMJZCC TIDMJZCN
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 2019
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)
27 November 2019
JZ Capital Partners, the London listed fund that invests in US and European
micro-cap companies and US real estate, announces its interim results for the
six-month period ended 31 August 2019.
Results and Portfolio Highlights
* NAV of $748.2 million (FYE 28/02/19: $810.2 million)
* NAV per share of $9.66 (FYE 28/02/19: $10.04)
* Total realisations and refinancings of $121.2 million, including: the sale
of JZCP's 80% stake in Avante & Orizon for gross proceeds of approximately
$65.5 million, and the sale of Waterline Renewal for gross proceeds of
approximately $24.6 million (including escrows).
* JZCP made one post-period realisation (October 2019), selling Priority
Express for $18.8 million in gross proceeds (including escrows and a
potential earn-out), a 60% uplift to NAV.
* As of 31 August 2019, the portfolio comprised:
* US micro-cap: 23 businesses, which includes four 'verticals' and 14
co-investments, across nine industries.
* European micro-cap: 17 companies across six industries and seven countries.
* US real estate: 61 properties across five major assemblages in New York and
South Florida all in various stages of (re)/development.
Appraisal of Real Estate Portfolio
* Further to the announcement of 30 October 2019, the Company asked its
independent third-party appraiser to accelerate the annual appraisal
process and update its valuations for the real estate portfolio.
* The reports received indicate minimal differences from the appraiser's
year-end values as at 28 February 2019; however, the fair value of JZCP's
real estate investments at 31 August 2019 decreased to $422.7 million from
$443.1 million at 28 February 2019. The net movement in unrealised losses
between the fair value and cost of JZCP's real estate investment between 28
February 2019 and 31 August 2019 totalled $64 million, largely due to the
carrying costs of the portfolio.
* The Board believes that significant uncertainty remains as to whether the
real estate portfolio could be realised at these values. Due to financing
constraints and the requirement to generate liquidity in line with the
Company's recently approved investment policy, this will likely require
assets to be realised on an accelerated basis.
Strategic Initiatives
* On 24 October 2019 (post-period), the Board received shareholder approval
for the adoption of a revised investment policy, whereby JZCP will look to
realise investments and materially reduce commitments to new investments in
order to return a substantial amount of capital to shareholders and pay
down a substantial amount of debt.
* The Company's focus continues to be its revised investment policy; however,
potential impairment to the value of the real estate portfolio dictates
that the Company must protect its balance sheet in the near term by
prioritizing debt repayment over the return of capital to shareholders.
* In the past eighteen months, the Company has returned approximately $50
million to shareholders in a combination of open market purchases and a
tender offer at close to NAV.
* JZCP is currently in the market with a portfolio of certain US microcap
assets and expects to realise $150-170 million in gross proceeds from this
transaction before 29 February 2020.
Outlook
* Strong pipeline of realisations and refinancings in JZCP's overall
portfolio.
* JZCP expects to pay down a significant amount of debt in the near term upon
completion of the secondary sale of a portfolio of certain US microcap
assets.
David Macfarlane, Chairman of JZCP, said: "The Board regrets the delay in
publication of the Company's results as well as the uncertainty regarding the
value of the real estate portfolio.
The Company remains focused on implementing its revised investment policy;
however, due to potential provisions against the real estate portfolio, the
Company must protect its balance sheet in the near term by prioritizing debt
repayment over the return of capital to shareholders. Consequently, new capital
allocations will be largely limited to follow-on investments in existing
portfolio companies as well as other existing obligations.
The Board is confident in the Investment Adviser's ability to execute on the
strategic initiatives announced today, which have been designed to maximise
value for JZCP's shareholders."
Presentation details:
There will be an audiocast presentation for investors and analysts at 3.30pm
London time / 10.30am New York time on 27 November 2019. The presentation can
be accessed here and by dialing +44 (0)330 336 9411 (UK) or +1 323-994-2093
(US) with the participant access code 2869534.
__________________________________________________________________________________
The information contained within this announcement is considered by the Company
to constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this announcement, this
inside information is now considered to be in the public domain. The person
responsible for arranging the release of this announcement on behalf of the
Company is David Macfarlane, Chairman.
For further information:
Ed Berry / Kit Dunford
+44 (0)20 3727 1143
FTI Consulting
David Zalaznick
+1 212
485 9410
Jordan/Zalaznick Advisers, Inc.
Sam Walden
+44 (0)
1481 745385
Northern Trust International Fund
Administration Services (Guernsey) Limited
About JZ Capital Partners
JZ Capital Partners ("JZCP") is one of the oldest closed-end investment
companies listed on the London Stock Exchange. It seeks to provide shareholders
with a return by investing selectively in US and European microcap companies
and US real estate. JZCP receives investment advice from Jordan/Zalaznick
Advisers, Inc. ("JZAI") which is led by David Zalaznick and Jay Jordan. They
have worked together for more than 35 years and are supported by teams of
investment professionals in New York, Chicago, London and Madrid. JZAI's
experts work with the existing management of micro-cap companies to help build
better businesses, create value and deliver strong returns for investors. For
more information please visit www.jzcp.com.
About JZ Capital Partners
JZ Capital Partners ("JZCP") is one of the oldest closed-end investment
companies listed on the London Stock Exchange. It seeks to provide shareholders
with a return by investing selectively in US and European microcap companies
and US real estate. JZCP receives investment advice from Jordan/Zalaznick
Advisers, Inc. ("JZAI") which is led by David Zalaznick and Jay Jordan. They
have worked together for more than 35 years and are supported by teams of
investment professionals in New York, Chicago, London and Madrid. JZAI's
experts work with the existing management of micro-cap companies to help build
better businesses, create value and deliver strong returns for investors. For
more information please visit www.jzcp.com.
Chairman's Statement
I am now able to report the results of JZ Capital Partners ("JZCP" or the
"Company") for the six-month period ended 31 August 2019. The Board regrets the
delay in publication of JZCP's results as well as the uncertainty created by
the announcement of the delay made on 30 October 2019. As described further in
that announcement, discussions in the ordinary course of business between the
Company's Investment Adviser and certain third-party real estate brokers gave
rise to questions as to whether the Company's real estate portfolio was
overvalued. The Board therefore came to the view that a delay in publication of
the results and an announcement to the market were necessary while the
situation was further assessed.
Immediately, the Company asked its independent third-party appraiser to
accelerate the annual appraisal process and update its valuations as at 31
August 2019. The reports received were in accordance with the Company's
accounting policies as per the financial statements at 28 February 2019 and
indicate minimal differences from the appraiser's year-end values at 28
February 2019; however, the fair value of JZCP's real estate investments at 31
August 2019 decreased to $422.7 million from $443.1 million at 28 February
2019. The net movement in unrealised losses between the fair value and cost of
JZCP's real estate investment between 28 February 2019 and 31 August 2019
totalled $64 million. Notwithstanding the revised appraisals, the Board
believes that significant uncertainty remains as to whether the real estate
portfolio could be realised at these values. This uncertainty results from both
financing constraints at the underlying property level and the requirement to
generate liquidity in line with the Company's recently approved investment
policy, which will likely require assets to be realised on an accelerated
basis. As disclosed in the Company's published financial statements
historically, 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 sale
transaction and those differences could be material.
Not publishing the Company's interim results by 30 November 2019 would have
resulted in the temporary suspension of the listing of JZCP's securities (until
the actual date of publication). In the short period between the availability
of the appraiser's report and the deadline for publication it would not have
been possible for the Company's auditors to have been able to complete their
customary review of the interim results and related report. While best practice
for the publication of interim results contemplates an interim auditor review,
it is not a regulatory requirement; under these unusual circumstances, the
Board has determined that shareholders would be better served by avoiding a
temporary suspension and accordingly did not ask the auditors to review these
interim results.
Strategic Initiatives
On 24 October 2019 (post-period), the Board received shareholder approval for
the adoption of a revised investment policy, whereby JZCP will look to realise
investments and materially reduce commitments to new investments in order to
return a substantial amount of capital to shareholders and pay down a
substantial amount of debt.
As part of this strategy, the Company announced that it planned to raise
approximately $400-500 million in liquidity by the end of the fiscal year
ending February 2023, through realisations, the secondary sale of certain asset
portfolios, the formation of joint venture partnerships and the US Side-Car
Fund, in which the Company would be an initial investor.
Return of capital
In the past eighteen months, the Company has returned approximately $50 million
to shareholders in a combination of open market purchases and a tender offer at
close to NAV. Subject to the achievement of liquidity objectives, the Company
expects to continue to return capital to shareholders; however, the near term
priority is debt repayment.
Realisations
In August 2019, JZCP finalized the sale of 80% of its interest in portfolio
companies Orizon and Avante for $65.5 million in gross proceeds, a 23% uplift
to the July 2019 NAV of those assets. In October 2019 (post-period), JZCP
closed the sale of its portfolio company Priority Express for $18.8 million in
gross proceeds (including escrows and a potential earn out), a 60% uplift to
the July 2019 NAV.
These transactions, together with others, bring total gross proceeds realised
this fiscal year through November 2019 to more than $135 million. A process is
currently underway for the sale of a portfolio of US microcap assets, which is
expected to generate between $150-170 million in gross proceeds to JZCP by 29
February 2020.
Alterations to the investment policy
The Company's focus continues to be its revised investment policy; however,
potential impairment to the value of the real estate portfolio dictates that
the Company must protect its balance sheet in the near term by prioritizing
debt repayment over the return of capital to shareholders. Consequently, new
capital allocations will be largely limited to follow-on investments in
existing portfolio companies as well as other existing obligations.
As part of curtailing new investments, the Company will not proceed to make a
commitment to the recently announced US Side-Car Fund, which was approved by
shareholders to be up to $25 million. Furthermore, JZCP's commitment to JZI
Fund IV, L.P. ("Fund IV"), which shareholders previously approved at up to EUR64
million, is intended to be limited to a maximum of EUR15 million. The Board
expects this contribution to be made over a period of five years. Because of
JZCP's commitment reduction, Jay Jordan and David Zalaznick expect to increase
their aggregate commitment to Fund IV by up to approximately EUR10 million.
Additionally, the Board has requested that the Investment Adviser relieve the
Company of its future subscription obligations to certain managed funds where
the Company has current and projected future commitments of approximately up to
$44 million. In consultation with the Board, Jay Jordan and David Zalaznick
have agreed in principle to provide for or replace these commitments to certain
managed funds in an amount of up to approximately $50-60 million, including the
increased commitment to Fund IV.
Over time, the Board believes that the above measures will conserve cash of up
to approximately $100 million.
In addition, the Investment Adviser has volunteered to forego payment of the
remainder of its currently earned capital incentive fee on the basis that (i)
$3.9 million of it can be immediately paid to the members of the JZAI team
other than Jay Jordan and David Zalaznick and (ii) the net gains underpinning
the realised incentive fee are rolled forward and netted against future losses.
Additionally, the Investment Adviser has volunteered to forego future capital
incentive fees until the Company and the Investment Adviser mutually agree to
reinstate such payments.
Following the implementation of the above strategic initiatives, the Board will
consider the Company's strategy in light of the circumstances prevailing at
that time. The Board believes that a continuation of the aforementioned policy
changes will likely be adopted, involving further realisations, limited
investment activity, remaining debt repayments and the return of further
capital to shareholders.
Shareholders owning more than 50% of the Company's ordinary shares have
confirmed to the Board that they support continuance based on the repayment of
debt and capital detailed above.
Portfolio Update
At the end of the period, the Company's portfolio consisted of 24 US microcap
businesses (including four 'verticals' and 15 co-investments) across nine
industries, 17 European microcap companies across six industries and seven
countries, and five major real estate assemblages (61 properties in total)
located across Brooklyn, New York and South Florida.
US and European Microcap
The US microcap portfolio performed very well during the period, delivering a
net increase in NAV per share of 63 cents, primarily due to net accrued income
of 11 cents per share and increased earnings at the Company's co-investments
Peaceable Street Capital (11 cents), New Vitality (3 cents) and K2 Towers II (3
cents) as well as writing the Orizon, Avante and Logistics investments up to
their respective sale values (18, 7 and 6 cents per share, respectively).
The European microcap portfolio (via JZI Fund III, L.P. or "Fund III")
delivered a net increase of 9 cents per share during the period, due to
write-ups at S.A.C, My Lender, Treee, Eliantus, Factor Energia, BlueSites,
Luxida and Karium. However, these gains were offset by a write-down on the
Company's direct loan to Ombuds (16 cents).
As of 31 August 2019, Fund III held 12 investments: four in Spain, two in
Scandinavia, two in Italy, two in the UK and one each in Portugal and
Luxembourg. JZCP held direct loans to a further four companies in Spain:
Ombuds, Docout, Xacom and Toro Finance.
Real Estate
The real estate portfolio experienced a net decrease of 82 cents during the
period, primarily due to operating expenses and debt service at the property
level. As of 31 August 2019, the Company has approximately $416 million
invested in a portfolio of retail, office and residential properties in
Brooklyn, New York, and South Florida, alongside its real estate partner,
RedSky Capital. The total portfolio is comprised of 61 properties, which,
following the newly received appraisals mentioned above, is valued at $422.7
million, subject to the reservations of the Board and Investment Adviser
regarding the realisable value of the portfolio as discussed above. During the
period, JZCP made follow-on investments and paid expenses totalling
approximately $43 million.
As part of its focus on liquidity, the Company does not expect to make any new
investments in the real estate sector other than in its existing portfolio,
primarily where additional capital is required for debt service payments,
accretive pre-development expenditures or the acquisition of a remaining
property to complete an assemblage. The Board, Investment Adviser and RedSky
Capital are working closely to establish the best course of action
(development, sale or joint venture) to maximise value and liquidity from each
real estate asset. The Investment Adviser has taken a much more direct role in
the day-to-day management of both Redsky Capital and the real estate portfolio.
Spruceview Capital Partners
Spruceview Capital Partners ("Spruceview"), the Company's asset management
business in the US, continues to make progress. Spruceview looks to address 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.
After successfully deploying an initial committed amount of $300 million for a
portfolio of alternative investments for a Mexican trust (or "CERPI"),
Spruceview's mandate was extended in August by an additional commitment of $400
million, with the potential remaining to increase the size of the CERPI to up
to $1.0 billion over the coming years. Spruceview continues to have a healthy
pipeline of potential client opportunities.
The Board
As previously announced, the Board intends to seek new appointments and this
process has begun. I must report, however, that Chris Waldron has indicated his
wish to step down. He does so with our thanks for his contribution and our best
wishes for the future.
Outlook
The Board regrets the uncertainty regarding the realisable value of the real
estate portfolio but can reaffirm that the Investment Adviser is committed to
the strategy of maximising value for JZCP's shareholders by realising assets,
paying down a substantial amount of debt and continuing to return capital to
shareholders.
David Macfarlane
Chairman
26 November 2019
Investment Adviser's Report
Dear Fellow Shareholders,
On 24 October 2019, shareholders voted to approve a revised investment policy,
whereby JZCP will look to realise investments and materially reduce commitments
to new investments in order to return capital to shareholders and pay down
debt. We have achieved several realisations and are making progress on many
more.
In August 2019, JZCP finalized the sale of 80% of its interest in portfolio
companies Orizon and Avante for $65.5 million in gross proceeds, a 23% uplift
to the July 2019 NAV of those assets. In October 2019 (post- period), JZCP
closed the sale of its portfolio company Priority Express for $18.8 million in
gross proceeds (including escrows and a potential earn out), a 60% uplift to
the July 2019 NAV of that asset. These transactions bring total gross proceeds
realised this fiscal year through November 2019 to more than $135 million.
In addition to realisations, we plan to raise liquidity for JZCP from secondary
sales of certain asset portfolios and joint venture partnerships. We are
currently in the market with a portfolio of select US microcap assets and
expect to realise between $150-170 million in gross proceeds prior to 29
February 2020 from these transactions.
As of 31 August 2019, our US micro-cap portfolio consisted of 23 businesses,
which includes four 'verticals' and 14 co-investments, across nine industries;
this portfolio was valued at 8.2x EBITDA, after applying an average 23%
marketability discount to public comparables. The average underlying leverage
senior to JZCP's position in our US micro-cap portfolio is 4.4x EBITDA.
Consistent with our value-oriented investment strategy, we have acquired our
current US micro-cap portfolio at an average 6.0x EBITDA.
Our European micro-cap portfolio consisted of 17 companies across six
industries and seven countries. The European micro-cap portfolio has low
leverage senior to JZCP's position, of under 2.0x EBITDA.
As of the same date, our US real estate portfolio consisted of 61 properties
and can be grouped primarily into five major 'assemblages', located in the
Williamsburg, Greenpoint and Downtown/Fulton Mall neighbourhoods of Brooklyn,
New York, and the Wynwood and Design District neighbourhoods of Miami, Florida.
Our assemblages are comprised of adjacent or concentrated groupings of
properties that can be developed, financed and/or sold together at a higher
valuation than on a stand-alone basis.
Net Asset Value ("NAV")
JZCP's NAV per share decreased 38 cents, or 3.8%, during the six-month period
from 28 February 2019 to 31 August 2019.
NAV per Ordinary share as of 28 February 2019 $10.04
Change in NAV due to capital gains and accrued
income
+ US Micro-cap 0.63
- European Micro-cap (0.07)
- Real estate (0.82)
Other increases/(decreases) in NAV
+ Net foreign exchange effect 0.08
- Finance costs (0.13)
- Expenses and taxation (0.09)
+ Appreciation from share buybacks 0.02
NAV per Ordinary share as of 31 August 2019 $9.66
The US micro-cap portfolio performed well during the period, delivering a net
increase of 63 cents per share. This was primarily due to net accrued income of
11 cents, increased earnings at co-investments Peaceable Street Capital (11
cents), New Vitality (3 cents) and K2 Towers II (3 cents) as well as writing
our Orizon, Avante and Logistics investments up to their respective sale values
(18, 7 and 6 cents, respectively). We also received 4 cents of escrow payments
during the period.
Our JZI Fund III, L.P. ("Fund III") portfolio performed very well during the
period, posting a net increase of 9 cents, primarily due to write-ups at Fund
III portfolio companies S.A.C, My Lender, Treee, Eliantus, Factor Energia,
BlueSites, Luxida and Karium. Gains at our Fund III portfolio companies were
offset by a write-down on our direct loan to Ombuds (16 cents).
The real estate portfolio experienced a net decrease of 82 cents, primarily due
to operating expenses and debt service at the property level.
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.
31.8.2019 28.2.2019 31.8.2018 31.8.2016 31.8.2014
Share price (in GBP) GBP4.82 GBP4.35 GBP4.44 GBP4.53 GBP4.34
NAV per share (in USD) $9.66 $10.04 $9.82 $10.40 $10.11
NAV to market price discount 39.2% 42.4% 41.2% 43.0% 28.7%
6 month 1 year 3 year 5 year
return return return return
Dividends paid (in USD) $0.155 $0.790
- -
Total Shareholders' return 10.8% 8.6% 9.1% 25.8%
(GBP)1
Total NAV return per share (USD)1 -3.8% -1.6% -5.7% 3.3%
Total Adjusted NAV return per share (USD) 0.2% 1.3% -3.4% 16.7%
1,2
1 Total returns are cumulative and assume that dividends were reinvested.
2 Adjusted NAV returns reflect the return per share before (i) the dilution
resulting from the issue of 18,888,909 ordinary shares at a discount to NAV on
30 September 2015 and (ii) subsequent appreciation from the buyback of ordinary
shares at a discount.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography, with 40 US and
European micro-cap investments across eleven industries and five primary real
estate 'assemblages' (61 total properties) located in Brooklyn, New York and
South Florida. The portfolio continues to become more diversified
geographically across Western Europe with investments in Spain, Italy,
Portugal, Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP's assets and liabilities at 31 August 2019 as
compared to 28 February 2019. An explanation of the changes in the portfolio
follows:
31.8.2019 28.2.2019
US$'000 US$'000
US microcap 424,913 478,970
portfolio
European microcap portfolio 104,863 128,698
Real estate 422,656 443,044
portfolio
Other investments 20,916 18,302
Total investments 973,348 1,069,014
Treasury bills 3,323 3,314
Cash 71,686 50,994
Total cash 75,009 54,308
equivalents
Other assets 623 1,286
Total assets 1,048,980 1,124,608
Zero Dividend Preference shares 59,946 63,838
Convertible Unsecured Loan Stock 50,167 54,274
Loans payable 149,490 149,227
Other liabilities 41,151 47,007
Total liabilities 300,754 314,346
Net Asset Value 748,226 810,262
JZCP's loan facility with Guggenheim Partners may be repaid, in whole or in
part, at any time, without any prepayment penalties.
US microcap
portfolio
As you know from previous reports, our US portfolio is grouped into industry
'verticals' and co-investments. Our 'verticals' strategy focuses on
consolidating businesses under industry executives who can add value via
organic growth and cross company synergies. Our co-investments strategy allows
for greater diversification of our portfolio by investing in larger companies
alongside well-known private equity groups.
The US micro-cap portfolio performed well during the period, delivering a net
increase of 63 cents per share. This was primarily due to net accrued income of
11 cents, increased earnings at co-investments Peaceable Street Capital (11
cents), New Vitality (3 cents) and K2 Towers II (3 cents) as well as writing
our Orizon, Avante and Logistics investments up to their respective sale values
(18, 7 and 6 cents, respectively). We also received 4 cents of escrow
payments during the period.
European microcap
portfolio
Our Fund III portfolio performed very well during the period, posting a net
increase of 9 cents, primarily due to write- ups at Fund III portfolio
companies S.A.C, My Lender, Treee, Eliantus, Factor Energia, BlueSites, Luxida
and Karium. Gains at our Fund III portfolio companies were offset by a
write-down on our direct loan to Ombuds (16 cents).
JZCP invests in the European micro-cap sector through its approximately 18.8%
ownership of Fund III. As of 31 August 2019, Fund III held 12 investments: four
in Spain, two in Scandinavia, two in Italy, two in the UK and one each in
Portugal and Luxembourg. JZCP held direct loans to a further four companies in
Spain: Ombuds, Docout, Xacom and Toro Finance.
JZAI has offices in London and Madrid and an outstanding team with over fifteen
years of experience investing together in European micro-cap deals.
During the period, JZCP received distributions totaling approximately EUR12.5
million (approximately $14.1 million) from its investments in: (i)
Petrocorner, a network of petrol stations throughout Spain; (ii) Collingwood, a
niche auto insurance business in the UK; and (iii) Fincontinuo, a niche
consumer lender in Italy.
The proceeds included above from Petrocorner represent the first tranche of
proceeds from the sale of Petrocorner by Fund III to British Petroleum.
Headquartered in Madrid, Petrocorner is a strategic build-up in the Spanish
retail petrol station market, comprised of 65 petrol stations located across
Spain with annualized sales volume of approximately 250 million litres of
petrol. JZCP expects to receive cumulative gross proceeds of EUR12.1 million
from the sale (including interim proceeds and escrows), which represents a
gross multiple of invested capital ("MOIC") of approximately 2.0x and a gross
internal rate of return ("IRR") of approximately 23.0%.
Real estate
portfolio
As discussed in the Chairman's Statement and below in the Outlook section, we
believe the valuations are high for several of our real estate sites and
assemblages. Accordingly, we expect to see lower valuations for the fiscal year
ending 29 February 2020 beyond the approximately $64 million that the NAV has
been marked down to reflect the carrying costs for the six months ending 31
August 2019.
As of 31 August 2019, JZCP had approximately $416 million invested in a
portfolio of retail, office and residential properties in Brooklyn, New York,
and South Florida, which is valued at $422.7 million as of that date. We have
made these investments alongside our real estate partner, RedSky Capital.
Since we began investing in real estate in April 2012, we have acquired a total
of 61 properties, all currently in various stages of development and
re-development.
JZCP Investment
Follow-on real estate ($ millions)
investments
Follow-ons and expenses 43.6
Other
investments
Our asset management business in the US, Spruceview Capital Partners, has
continued to make encouraging progress 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.
After the successful deployment during the period of an initial committed
amount of $300 million for a portfolio of alternative investments for a Mexican
trust (or "CERPI"), Spruceview's mandate was extended in August by an
additional commitment of $400 million, with the potential remaining to increase
the size of the CERPI to up to $1.0 billion over the coming years.
During the period, Spruceview maintained a pipeline of potential client
opportunities and continued to provide investment oversight to the pension
funds of the Mexican and Canadian subsidiaries of an international packaged
foods company, as well as a European private credit fund-of-funds, a US middle
market private equity fund-of-funds, and portfolios for family office clients.
As previously reported, Richard Sabo, former Chief Investment Officer of Global
Pension and Retirement Plans at JPMorgan and a member of that firm's executive
committee, is leading a team of 14 investment, business development, legal and
operations professionals.
Realisations
Asset Portfolio Proceeds
($millions)
Avante - Sale of 80% of JZCP's stake US microcap 37.5
Orizon - Sale of 80% of JZCP's stake US microcap 28.0
Waterine Renewal -Sale US microcap 23.3
Fund III - Proceeds from Sale of European 14.5
Petrocorner / Refinancing of Collingwood & microcap
Fincontinuo
Felix Storch - Refinancing US microcap 14.0
Receipt of Escrow Balances US microcap 3.9
121.2
Avante &
Orizon
In August 2019, JZCP sold 80% of its stake in US micro-cap investments Avante
and Orizon to Edgewater Growth Capital Partners for $65.5 million in gross
proceeds, a 23% uplift to July 2019 NAV of those assets.
Avante is a single source provider of medical, surgical, diagnostic imaging and
radiation oncology equipment, including sales, service, repair, parts,
refurbishing and installation in over 150 countries. Orizon is a manufacturer
of integral aerospace assemblies for original equipment manufacturers and tier
one suppliers to original equipment manufacturers.
Waterline
Renewal
In April 2019, Waterline Renewal was acquired by Behrman Capital, a private
equity investment firm based in New York and San Francisco.
Waterline Renewal is a leading provider of engineered products used in the
trenchless rehabilitation of wastewater infrastructure for municipal,
commercial, industrial, and residential applications. The company's patented
line of products and technologies allows its customers to deliver long-lasting
solutions that repair sewer systems and wastewater lines without the need for
excavation or property damage, and prevent overflow created by excess inflow
and infiltration of ground water into the wastewater system.
JZCP expects to realise approximately $24.6 million in gross proceeds
(including escrows) from the sale.
Felix
Storch
In March 2019, JZCP refinanced Felix Storch, its manufacturer of small and
custom refrigeration appliances. This refinancing resulted in gross proceeds to
JZCP of approximately $14.0 million, which returned JZCP's entire March 2017
investment in Felix Storch of $12.0 million. Felix Storch has continued to
exhibit strong growth and we expect it to return more capital in the future.
Priority
Express
In October 2019 (post-period), Priority Express was acquired by Capstone
Logistics, a leading North American supply chain solutions partner.
Priority Express was founded in 2005 and provides over 500 customers in the
healthcare and e-commerce end markets with expedited freight and distribution
services, scheduled routed delivery services and on-demand delivery services.
JZCP expects to realise approximately $18.8 million in gross proceeds
(including escrows and a potential earn-out) from the sale, a 60% uplift to
July 2019 NAV.
Outlook
As discussed in the Chairman's Statement, we as the Investment Adviser have
been working with the Board to alleviate many of JZCP's commitments which would
require considerable cash resources. We are taking on the responsibility to
provide or procure these commitments, either through increased personal
investment or other avenues. Most importantly, JZCP will have up to
approximately $100 million less in cash requirements to fulfill these existing
commitments, which will be money that can be dedicated to debt repayment and
return of capital to shareholders.
Subject to achieving our liquidity objectives, our near and medium term
priority is debt repayment, including the Zero Dividend Preference Shares and
Convertible Unsecured Loan Stock. After that, we will endeavor to continue
to return capital to shareholders.
One near term initiative to achieve liquidity is through the secondary sale of
certain of our US micro-cap assets. Hopefully, this will yield prices at or
above our NAV, similar to our realisations already achieved this year. At the
same time, we are minimizing the amount of capital JZCP invests in new
acquisitions to preserve cash for near and medium term debt repayment and,
ultimately, return of capital to shareholders.
Realising liquidity for our real estate portfolio is also an objective. We are
currently evaluating the best course of action (development, sale or joint
venture) to maximize value. Toward that end, we will be putting several of our
properties up for sale in the next 60-90 days. It is important to note that we
must support the business plan for certain of our respective assemblages and
build-outs in order to complete the job and maximize value. These are the only
new investments we will be making in real estate; we expect it will take 24 to
36 months to maximize the value of our current portfolio.
With regard to valuation of our real estate portfolio, we believe the
valuations are high for several of the sites and assemblages. Accordingly, we
expect to see lower valuations for the fiscal year ending 29 February 2020
beyond the approximately $64 million that the NAV has been marked down to
reflect the carrying costs for the six months ending 31 August 2019.
We thank the Board and shareholders for their support of the revised investment
strategy and we are confident that we can execute the strategy. In the coming
months, we will be reporting to you how we are progressing with realisations to
raise cash for debt repayment. We anticipate the next event will be the pay
down of a significant amount of debt upon the successful completion of the
secondary sale.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
26 November 2019
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, and of Alpha
Andromeda Investment Trust Company, S.A. Until 30 June 2005, he was the
managing director of Arnhold and S. Bleichroeder Advisers, LLC, a privately
owned investment bank and asset management firm; and until 25 July 2013, he was
a non-executive director of Leucadia National Corporation. He is an Overseer of
the Gennadius Library of the American School of Classical Studies in Athens,
and as Director of Pro Natura de Yucatan.
Sharon
Parr2
Mrs Parr was appointed to the Board of JZCP in 2018. In 2003 she completed a
private equity backed MBO of the trust and fund administration division of
Deloitte and Touche, called Walbrook, selling it to Barclays Wealth in 2007. As
a Managing Director of Barclays, she ultimately became global head of their
trust and fund administration businesses, comprising over 450 staff in 10
countries. She stepped down from her executive roles in 2011 to focus on other
areas and interests but has maintained directorships in several companies. She
is a Fellow of the Institute of Chartered Accountants in England and Wales and
a member of the Society of Trust and Estate Practitioners, and is a resident of
Guernsey.
Tanja
Tibaldi
Ms Tibaldi was appointed to the Board of JZCP in 2008. She was on the board of
JZ Equity Partners Plc from January 2005 until the company's liquidation on 1
July 2008. She was managing director at Fairway Investment Partners, a Swiss
asset management company where she was responsible for the Group's marketing
and co- managed two fund of funds. Previously she was an executive at the Swiss
Stock Exchange and currently serves on the board of several private companies.
Christopher Waldron3,
4
Mr Waldron was appointed to the Board of JZCP in 2013. He has more than thirty
years' experience as an asset manager and director of investment funds. He is
Chairman of UK Mortgages Limited and Crystal Amber Fund Limited. He began his
career with James Capel and subsequently held investment management positions
with Bank of Bermuda, the Jardine Matheson Group and Fortis prior to joining
the Edmond de Rothschild Group in Guernsey as Investment Director in 1999. He
was appointed Managing Director of the Edmond de Rothschild companies in
Guernsey in 2008, a position he held until 2013, when he stepped down to
concentrate on non- executive work and investment consultancy. He is a member
of the States of Guernsey's Investment and Bond Management Sub-Committee and a
Fellow of the Chartered Institute for Securities and Investment. He is a
resident of Guernsey.
Patrick Firth
Mr Firth resigned from the Board and as Chairman of the Audit Committee in June
2019.
1Chairman of the nominations committee of which all Directors are members.
2Mrs Parr was appointed Chairman of the Audit Committee in June 2019. All
Directors are members of the Audit Committee.
3Chairman of the management engagement committee of which all Directors are
members. Mr Waldron was appointed as Senior Independent Director in May 2019.
4Mr Waldron proposed to resign from the Board on 26 November 2019.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Interim Report and Unaudited
Condensed Interim Financial Statements (the "Interim Report and Financial
Statements") in accordance with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
- the Unaudited and Condensed Interim Financial Statements (the "Interim
Financial Statements") have been prepared in accordance with IFRS 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, 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, 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 2019 Annual Report and Financial
Statements that could do so.
Going concern and principal risks and
uncertainties
As an investment fund, the Company's principal risks are those that are
associated with its investment portfolio. Given the nature of the portfolio,
the principal risks are associated with the financial and operating performance
of the underlying investments.
The Directors do not consider that the principal risks and uncertainties have
changed since the publication of the Annual Report and Financial Statements for
the year ended 28 February 2019 (as explained annual report). The Directors
continue to monitor the risks to the Company.
The Directors consider the Company has adequate financial resources, in view of
its holding in cash and cash equivalents and liquid investments, and the income
streams deriving from its investments and believe that the Company is well
placed to manage its business risks successfully to continue in operational
existence for the foreseeable future and that it is appropriate to prepare the
interim financial statements on the going concern basis.
Approved by the Board of Directors and agreed on behalf of the Board on 26
November 2019.
David Macfarlane
Chairman
Sharon Parr
Director
Investment Portfolio
31 August 2019 Percentage
of
Portfolio
Cost1 Value
US$'000 US$'000 %
US Microcap portfolio
US Microcap (Verticals)
Industrial Services Solutions2
INDUSTRIAL SERVICES SOLUTIONS ("ISS")
Provider of aftermarket maintenance, repair, and field services for critical
process equipment throughout the US
Total Industrial Services Solutions valuation 48,250 95,893 9.8
Testing Services Holdings2
TECHNICAL SOLUTIONS AND SERVICES
Provider of safety focused solutions for the industrial, environmental and life
science related markets
CONTAMINATION CONTROL & CERTIFICATION
Provider of testing, certification and validation services for cleanroom,
critical environments and containment systems
Total Technical Solutions and Services Vertical valuation 23,731 23,210 2.4
Flexible Packaging Vertical
ACW FLEX PACK, LLC
Provider of a variety of custom flexible packaging solutions to converters and
end-users
Total Flexible Packaging Vertical valuation 10,033 11,064 1.1
Flow Controls
FLOW CONTROL, LLC
Manufacturer and distributor of high-performance, mission-critical flow
handling products and components utilized to connect processing line equipment
Total Flow Control Vertical valuation 14,040 14,924 1.5
Total US Microcap (Verticals) 96,054 145,091 14.8
US Microcap (Co-investments) 8,760 8,760 0.9
ABTB
Acquirer of franchises within the fast-casual eateries and quick-service
restaurants sector
DEFLECTO 40,112 44,334 4.5
Deflecto designs, manufactures and sells innovative plastic products to
multiple industry segments
EXER URGENT CARE 2,400 2,400 0.3
Emergency Room alternative that combines clinical expertise, care & convenience
GEORGE INDUSTRIES 12,683 12,681 1.3
Manufacturer of highly engineered, complex and high tolerance products for the
aerospace, transportation, military and other industrial markets
IGLOO2 6,572 6,450 0.7
Designer, manufacturer and marketer of coolers and outdoor products
K2 TOWERS II 8,463 10,963 1.1
Acquirer of wireless communication towers
NEW VITALITY2 3,431 6,303 0.7
Direct-toconsumer provider of nutritional supplements and personal care
products
ORIZON 4,127 7,000 0.7
Manufacturer of high precision machine parts and tools for aerospace and
defence industries
PEACEABLE STREET CAPITAL 28,041 36,541 3.8
Specialty finance platform focused on commercial real estate
SALTER LABS2 16,762 21,717 2.2
Developer and manufacturer of respiratory medical products and equipment for
the homecare, hospital, and sleep disorder markets
SLOAN LED2 6,030 452 0.0
Designer and manufacturer of LED lights and lighting systems
SUZO HAPP 2,572 11,700 1.2
GROUP2
Designer, manufacturer and distributor of components for the global gaming,
amusement and industrial markets
TIERPOINT2 44,313 46,813 4.8
Provider of cloud computing and collocation data centre services
VITALYST2 9,020 8,192 0.8
Provider of outsourced IT support and training services
Total US Microcap (Co-investments) 193,286 224,306 23.0
US Microcap (Other)
AVANTE HEALTH SOLUTIONS 7,178 9,375 1.0
Provider of new and professionally refurbished healthcare equipment
FELIX STORCH 50 24,500 2.5
Supplier of specialty, professional, commercial, and medical refrigerators and
freezers, and cooking appliances
HEALTHCARE PRODUCTS HOLDINGS3 17,636 - 0.0
Designer and manufacturer of motorised vehicles
NATIONWIDE STUDIOS 26,324 5,000 0.5
Processor of digital photos for pre-schoolers
PRIORITY EXPRESS2 13,200 16,641 1.7
Provider of same day express courier services to various companies located in
north-eastern USA. Priority Express is a subsidiary of US Logistics
Total US Microcap (Other) 64,388 55,516 5.7
Total US Microcap portfolio 353,728 424,913 43.5
European Microcap portfolio
EUROMICROCAP FUND 2010, L.P. - 3,854 0.4
Invested in European Microcap entities
JZI FUND III, L.P. 35,200 57,010 5.8
At 31 August 2019, was invested in twelve companies in the European microcap
sector: Fincontinuo, S.A.C, Collingwood, My Lender, Alianzas en Aceros, ERSI,
Treee, Eliantus, Factor Energia, BlueSites, Luxida and Karium
Total European Microcap (measured at Fair Value) 35,200 60,864 6.2
Direct Investments
DOCOUT4 2,777 3,836 0.4
Provider of digitalisation, document processing and storage services
OMBUDS4 17,198 13,650 1.4
Provider of personal security, asset protection and facilities management
services
TORO FINANCE4 21,619 22,436 2.3
Provides short term receivables finance to the suppliers of major Spanish
companies
XACOM4 2,055 4,077 0.4
Supplier of telecom products and technologies
Total European Microcap (Direct Investments) 43,649 43,999 4.5
Total European Microcap portfolio 78,849 104,863 10.7
Real Estate portfolio
JZCP REALTY5 437,577 422,656 43.3
Facilitates JZCP's investment in US real estate
Total Real Estate portfolio 437,577 422,656 43.3
Other investments
BSM ENGENHARIA2 6,115 459 0.0
Brazilian-based provider of supply chain logistics, infrastructure services and
equipment rental
CERPI 619 619 0.1
Spruceview managed investment product
JZ INTERNATIONAL3 - 750 0.1
Fund of European LBO investments
SPRUCEVIEW CAPITAL 30,005 19,088 2.0
Asset management company focusing primarily on managing endowments and pension
funds
Total Other investments 36,739 20,916 2.2
Listed investments
U.S. Treasury Bill 0.00% Maturity 6th-February-2020 3,321 3,323 0.3
Total Listed investments 3,321 3,323 0.3
Total - portfolio 910,214 976,671 100.0
1Original book cost incurred by JZCP adjusted for subsequent transactions. The
book cost represents cash outflows and excludes PIK investments.
2Co-investment with Fund A, a Related Party (Note 19) .
3Legacy Investments. Legacy investments are excluded from the calculation of
capital and income incentive fees.
4Classified as Loans at Amortised Cost .
5JZCP invests in real estate indirectly through its investments in JZCP Realty
Ltd. JZCP owns 100% of the shares and voting rights of JZCP Realty, Ltd.
Statement of Comprehensive Income (Unaudited)
For the Period from 1 March 2019 to 31 August 2019
Six Month Six Month
Period Ended Period Ended
31 August 2019 31 August 2018
Note US$'000 US$'000
Income
Realisations from investments held in escrow 21 3,923 2,085
accounts
Net foreign currency exchange gains 3,765 1,045
Gain on financial liabilities at fair value through 4,107 5,925
profit or loss
Investment Income 8 19,984 14,300
Bank and deposit interest 225
289
32,004
23,644
Expenses
Net loss on investments at fair value through profit 6
or loss (31,575) (25,720)
Expected credit losses 7 (14,727) -
Investment Adviser's base fee 10 (8,301) (8,498)
Investment Adviser's incentive fee 10 2,895 3,843
Administrative expenses (1,660)
(1,423)
Directors' remuneration (219)
(230)
(53,598) (32,017)
Operating loss (21,594) (8,373)
Finance costs 9 (10,463) (9,126)
Loss for the period (32,057) (17,499)
Weighted average number of Ordinary shares in issue 20 80,614,784 83,456,487
during the period
Basic loss per Ordinary share 20 (39.77)c (20.97)c
Diluted loss per Ordinary share 20 (39.84)c (24.27)c
The format of the Statement of Comprehensive Income (Unaudited) has changed
from prior periods in that it now presents income in one column format rather
than a split between capital and revenue.
The accompanying notes form an integral part of the Interim Financial
Statements.
Statement of Financial Position (Unaudited)
As at 31 August 2019
31 August 28 February
2019 2019
Note US$'000 US$'000
Assets
Investments at fair value through profit or loss 11 932,672 1,014,316
Loans at amortised cost 11 43,999 58,012
Other receivables 12 623 1,286
Cash at bank 71,686 50,994
Total assets 1,048,980 1,124,608
Liabilities
Zero Dividend Preference shares 13 59,946 63,838
Convertible Unsecured Loan Stock 14 50,167 54,274
Loan payable 15 149,490 149,227
Investment Adviser's incentive fee 10 36,876 42,771
Investment Adviser's base fee 10 2,079 2,102
Other payables 16 2,196 2,134
Total liabilities 300,754 314,346
Equity
Share capital 216,625 246,604
Other reserve 353,528 353,528
Retained earnings 178,073 210,130
Total equity 748,226 810,262
Total liabilities and equity 1,048,980 1,124,608
Number of Ordinary shares in issue at period/year end 17 77,474,175 80,666,838
Net asset value per Ordinary share $9.66 $10.04
These Interim Financial Statements were approved by the Board of Directors and
authorised for issue on 26 November 2019. They were signed on its behalf by:
David Macfarlane
Chairman
Sharon Parr
Director
The accompanying notes form an integral part of the interim financial
statements.
Statement of Changes in Equity (Unaudited)
For the Period from 1 March 2019 to 31 August 2019
Share Other Retained
Capital Reserve Earnings Total
Note US$'000 US$'000 US$'000 US$'000
Balance as at 1 March 2019 246,604 353,528 210,130 810,262
Loss for the period - (32,057) (32,057)
-
Buy back of Ordinary shares 17 (29,979) - (29,979)
-
Balance at 31 August 2019 216,625 353,528 178,073 748,226
Comparative for the period from 1 March 2018 to 31 August 2018
Share Other Retained
Capital Reserve Earnings Total
US$'000 US$'000 US$'000 US$'000
Balance at 1 March 2018 265,685 353,528 218,360 837,573
Impact of adoption of IFRS 9 - - (1,395) (1,395)
Adjusted Balance at 1 March 2018 265,685 353,528 216,965 836,178
Loss for the period (17,499) (17,499)
- -
Buy back of Ordinary shares (6,707) (6,707)
- -
Balance at 31 August 2018 258,978 353,528 199,466 811,972
The accompanying notes form an integral part of the Interim Financial
Statements.
The format of the Statement of Changes in Equity has changed from prior periods
in that it now reflects the one column income presentation in the Statement of
Comprehensive Income format. The Company's profit/loss are now posted to
retained earnings rather than individual revenue/capital reserves.
Statement of Cashflows (Unaudited)
For the Period from 1 March 2019 to 31 August 2019
Six Month Six Month
Period Ended Period Ended
31 August 2019 31 August 2018
Note US$'000 US$'000
Cash flows from operating activities
Cash inflows
Realisation of investments1 11 117,341 159,385
Maturity of treasury bills2 11 3,350 49,845
Escrow receipts received 21 3,923 2,085
Interest received from unlisted investments 677 1,103
Income distributions received from investments 1,192 -
Bank Interest received 225 289
Cash outflows
Direct investments and capital calls3 11 (51,228) (131,482)
Purchase of treasury bills 11 (3,321) (3,267)
Investment Adviser's base fee paid 10 (8,324) (8,513)
Investment Adviser's incentive fee paid 10 (3,000) (996)
Other operating expenses paid (1,865) (1,641)
Foreign exchange (loss)/gain realised (306) 17
Net cash inflow before financing activities 58,664 66,825
Financing activities
Finance costs paid:
- Convertible Unsecured Loan Stock (1,515) (1,631)
- Loan Payable (6,453) (5,720)
Payments to buy back Company's Ordinary shares (29,979) (6,707)
Net cash outflow from financing activities (37,947) (14,058)
Increase in cash at bank 20,717 52,767
Reconciliation of net cash flow to movements in cash
at bank
US$'000 US$'000
Cash and cash equivalents at 1 March
50,994 9,000
Increase in cash at bank
20,717 52,767
Unrealised foreign exchange movements on cash at
bank (25) (213)
Cash and cash equivalents at period end
71,686 61,554
1Total realisations quoted in the interim report of $121.2 million, include
escrow receipts of $3.9 million and income distributions received of $1.2
million and exclude a short term debt repayment of $1.2 million.
2Includes $38,000 of treasury bill interest received on maturity.
3Total investments in period include $0.7 million of deposits held at 28
February 2019.
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, 2008 (as amended). The Company is
classed as an authorised fund under the Protection of Investors (Bailiwick of
Guernsey) Law 1987. The Company's Capital consists of Ordinary shares, Zero
Dividend Preference ("ZDP") shares and Convertible Unsecured Loan Stock
("CULS"). The Company's shares trade on the London Stock Exchange's Specialist
Fund Segment.
The Company's Investment Policy is to target predominantly private investments,
seeking to back management teams to deliver on attractive investment
propositions. In executing its strategy, the Company takes a long term view.
The Company seeks to invest directly in its target investments, although it may
also invest through other collective investment vehicles. The Company may also
invest in listed investments, whether arising on the listing of its private
investments or directly. The Investment Adviser is able to invest globally but
with a particular focus on opportunities in the United States and Europe.
The Company is currently mainly focused on investing in the following areas:
(a) small or micro-cap buyouts in the form of debt and equity and preferred
stock in both the US and Europe; and
(b) real estate.
Jordan/Zalaznick Advisers, Inc. (the "Investment Adviser") takes a dynamic
approach to asset allocation and, though it doesn't expect to, in the event
that the Company were to invest 100% of gross assets in one area, the Company
will, nevertheless, always seek to maintain a broad spread of investment risk.
Exposures are monitored and managed by the Investment Adviser under the
supervision of the Board.
The Company has no direct employees. For its services the Investment Adviser
receives a management fee and is also entitled to performance related fees
(Note 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.
The Unaudited Condensed Interim Financial Statements (the "Interim Financial
Statements") are presented in US$'000 except where otherwise indicated.
2. Significant Accounting Policies
The accounting policies adopted in the preparation of these Interim Financial
Statements have been consistently applied during the period, unless otherwise
stated.
Statement of Compliance
The Interim Financial Statements of the Company for the period 1 March 2019 to
31 August 2019 have been prepared in accordance with IAS 34, "Interim Financial
Reporting" as adopted in the European Union, together with applicable legal and
regulatory requirements of the Companies (Guernsey) Law, 2008 and the
Disclosure Guidance and Transparency Rules. The Interim Financial Statements do
not include all the information and disclosure required in the Annual Audited
Financial Statements and should be read in conjunction with the Annual Report
and Financial Statements for the year ended 28 February 2019.
Independent Review of Interim Financial Statements
These Interim Financial Statements and information in the accompanying Interim
Report have not been audited or reviewed by the Company's Auditor.
Basis of Preparation
The interim financial statements have been prepared under the historical cost
basis, modified by the revaluation of financial instruments designated at fair
value through profit or loss ("FVTPL") upon initial recognition. The principal
accounting policies adopted in the preparation of these Interim Financial
Statements are consistent with the accounting policies stated in Note 2 of the
Annual Financial Statements for the year ended 28 February 2019. The
preparation of these Interim Financial Statements are 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. Actual results could materially differ from those estimates.
The Statement of Comprehensive Income is now presented in a one column format
rather than AIC SORP recommended presentation which allocated profit/loss
between capital and revenue.
New standards, interpretations and amendments adopted by the Company
The accounting policies adopted in the preparation of the interim financial
statements are consistent with those followed in the preparation of the
Company's annual financial statements for the year ended 28 February 2019. The
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 and interpretations to standards apply for the first time in
2019, but do not have an impact on the interim financial statements of the
Company.
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
2019.
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.
Segmental operating profit/(loss)
For the period from 1 March 2019 to 31 August 2019
US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Interest 15,980 2,742 32 - 18,754
revenue
Dividend revenue - 1,192 - - 1,192
Total segmental revenue 15,980 3,934 32 - 19,946
Net gain/(loss) on investments at 29,331 3,097 (64,003) - (31,575)
FVTPL
Expected credit losses - (14,727) - - (14,727)
Realisations from investments held in 3,923 - - - 3,923
Escrow
Investment Adviser's base (3,420) (827) (3,379) (147) (7,773)
fee
Investment Adviser's capital (10,074) 240 12,729 - 2,895
incentive fee1
Total segmental operating profit/ 35,740 (8,283) (54,621) (147) (27,311)
(loss)
For the period from 1 March 2018 to 31 August 2018
US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Interest 10,649 3,565 59 - 14,273
revenue
Total segmental revenue 10,649 3,565 59 - 14,273
Realisations from investments held in 2,085 - - - 2,085
Escrow
Net gain/(loss) on investments at 8,152 2,778 (36,650) - (25,720)
FVTPL
Investment Adviser's base (3,311) (859) (3,501) (122) (7,793)
fee
Investment Adviser's capital (3,922) 435 7,330 - 3,843
incentive fee1
Total segmental operating profit/ 13,653 5,919 32,762) (122) (13,312)
(loss)
1The capital incentive fee is allocated across segments where a realised or
unrealised gain or loss has occurred. Segments with realised or unrealised
losses are allocated a credit pro rata to the size of the loss and segments
with realised or unrealised gains are allocated a charge pro rata to the size
of the gain.
Certain income and expenditure is not considered part of the performance of an
individual segment. This includes net foreign exchange gains, interest on
cash, finance costs, management fees, custodian and administration fees,
directors' fees and other general expenses.
The following table provides a reconciliation between total segmental operating
profit/(loss) and operating profit/(loss):.
Period ended Period ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Total segmental operating loss (27,311) (13,312)
Gain on financial liabilities at fair value through profit or
loss 4,107 5,925
Net foreign exchange gain
3,765 1,045
Bank and deposit interest
225 289
Expenses not attributable to segments (1,642)
(1,890)
Fees payable to investment adviser based on non-segmental assets
(528) (705)
Interest on US treasury bills
38 27
Operating loss (21,594) (8,373)
The following table provides a reconciliation between total segmental revenue
and Company revenue:
Period ended Period ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Total segmental revenue 19,946 14,273
Non-segmental revenue
Bank and deposit interest
225 289
Interest on US treasury bills
38 27
Total revenue 20,209 14,589
Segmental Net Assets
At 31 August 2019
US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Segmental assets
Investments at FVTPL 424,913 60,864 422,656 20,916 929,349
Loans at amortised cost 43,999 43,999
- - -
Other receivables 495 495
- - -
Total segmental assets 424,913 104,863 423,151 20,916 973,843
Segmental liabilities
Payables and accrued expenses (45,805) 1,594 2,146 3,259 (38,806)
Total segmental liabilities (45,805) 1,594 2,146 3,259
(38,806)
Total segmental net assets 379,108 106,457 425,297 24,175 935,037
At 28 February 2019
US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Segmental assets
Investments at FVTPL 478,970 70,686 43,044 18,302 1,011,002
Loans at amortised cost 58,012
- - - 58,012
Other receivables 1,275
- - - 1,275
Total segmental assets 478,970 128,698 444,319 18,302 1,070,289
Segmental liabilities
Payables and accrued expenses (38,768) 1,321 (10,573) 1,850
(46,170)
Total segmental liabilities 1,321 (10,573) 1,850
(38,768) (46,170)
Total segmental net assets 440,202 130,019 433,746 20,152 1,024,119
The following table provides a reconciliation between total segmental assets
and total assets and total segmental liabilities and total liabilities:
31.8.2019 28.2.2019
US$ '000 US$ '000
Total segmental assets 973,843 1,070,289
Non segmental assets
Treasury
Bills 3,323 3,314
Cash at bank
71,686 50,994
Other receivables
128 11
Total assets 1,048,980 1,124,608
Total segmental (38,806) (46,170)
liabilities
Non segmental liabilities
Zero Dividend Preference shares (59,946)
(63,838)
Convertible Unsecured Loan Stock (50,167) (54,274)
Loans payable (149,490) (149,227)
Other payables (2,345)
(837)
Total liabilities (300,754) (314,346)
Total net assets 748,226 810,262
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. At the period end, the Company had assessed that
the liabilities valued at FVTPL being the CULS and valued using the quoted ask
price, would be classified as level 2 within the valuation method as they are
not regularly traded.
Level 3
Those involving inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs). Investments in JZCP's
portfolio valued using unobservable inputs such as multiples, capitalisation
rates, discount rates fall within Level 3.
Differentiating between Level 2 and Level 3 fair value measurements i.e.,
assessing whether inputs are observable and whether the unobservable inputs are
significant, may require judgement and a careful analysis of the inputs used to
measure fair value including consideration of factors specific to the asset or
liability.
The following table shows financial instruments recognised at fair value,
analysed between those whose fair value is based on:
Financial assets at 31 August 2019
Level 1 Level 2 Level 3 Total
US$ '000 US$'000 US$ '000 US$ '000
US micro-cap 424,913 424,913
- -
European micro-cap 60,864 60,864
- -
Real estate 422,656 422,656
- -
Other investments 20,916 20,916
- -
Listed investments 3,323 3,323
- -
3,323 929,349 932,672
-
Financial assets at 28 February
2019
Level 1 Level 2 Level 3 Total
US$ '000 US$'000 US$ '000 US$ '000
US micro-cap - 478,970 478,970
-
European micro-cap 70,686 70,686
- -
Real estate 443,044 443,044
- -
Other investments 18,302 18,302
- -
Listed investments 3,314 3,314
- -
3,314 1,011,002 1,014,316
-
Financial liabilities designated at fair value through profit or loss at
inception
Financial liabilities at 31 August 2019 Level 1 Level 2 Level 3 Total
US$ '000 US$'000 US$ '000 US$ '000
CULS 50,167
- - 50,167
50,167
- - 50,167
Financial liabilities at 28 February 2019 Level 1 Level 2 Level 3 Total
US$ '000 US$'000 US$ '000 US$ '000
CULS 54,274
- - 54,274
54,274 -
- 54,274
Transfers between levels
Transactions for the CULS do not take place with sufficient frequency and
volume to provide adequate pricing information on an ongoing basis, as defined
by IFRS. Therefore, it is considered the CULS' are not traded in an active
market and are therefore categorised at level 2.
Valuation techniques
The same valuation methodology and process was deployed as for the year ended
28 February 2019.
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 2019 and 28 February 2019 are shown below:
Value Valuation Unobservable Range Sensitivity Approx. Impact on
31.8.2019 (weighted Fair Value
average)
US$'000 Technique input used 1 US$'000
US micro-cap EBITDA Average EBITDA 6.0x - -0.5x /
investments 424,913 Multiple Multiple of Peers 12.6x +0.5x (32,697) 34,114
(8.4x)
Discount to 15% - 35% +5% / -5%
Average Multiple (22.5%) (43,856) 42,066
European EBITDA Average EBITDA 6.0x-13.8x -0.5x /
micro-cap 60,864 Multiple Multiple of Peers (9.7x) +0.5x (4,143) 4,131
investments
Discount to -31.4% - +5% / -5%
Average Multiple 33.9% (3,910) 3,910
(-0.7%)
Real estate2 Comparable Market Value Per $324 - -5% / +5%
273,538 Sales Square Foot $3,113 per (30,902) 30,902
sq ft
($1,598)
DCF Model / Discount Rate 5.5% - +25bps /
42,313 Income 6.5% -25bps (3,544) 3,544
Approach3 (6.15%)
Cap Rate/ Capitalisation 3.25 - +25bps /
106,805 Income Rate 5.5% -25bps (20,292) 20,292
Approach (3.9%)
Other AUM AUM $3.0 Bn - +10%/-10%
investments 19,088 Approach $3.7 Bn 4,503 (4,234)
% Applied to 2.3% +10%/-10%
AUM 1,921 (1,921)
Value Valuation Unobservable Range Sensitivity Approx. Impact on
28.2.2019 (weighted Fair Value
average)
US$'000 Technique input used 1 US$'000
US micro-cap EBITDA Average EBITDA 6.0x - -0.5x /
investments 478,970 Multiple Multiple of Peers 16.3x +0.5x (37,624) 39,780
(8.5x)
Discount to 15% - 35% +5% / -5%
Average Multiple (23%) (47,352) 49,662
European EBITDA Average EBITDA 5.2x - -0.5x /
micro-cap 70,686 Multiple Multiple of Peers 12.1x +0.5x (8,934) 8,934
investments (8.7x)
Discount to 0% - 29% +5% / -5%
Average Multiple (19%) (7,316) 7,316
Real estate2 Comparable Market Value Per $324 - -5% / +5%
271,863 Sales Square Foot $3,113 (30,902) 30,902
($1,441)
per sq ft
DCF Model / Discount Rate 5.5% - +25bps /
43,954 Income 6.5% -25bps (3,544) 3,544
Approach3 (6.2%)
Cap Rate/ Capitalisation 3.25 - +25bps /
127,226 Income Rate 5.5% -25bps (20,292) 20,292
Approach (4.5%)
Other AUM AUM $2.0 Bn - +10%/-10%
investments 17,093 Approach $2.6 Bn 3,294 3,112
% Applied to 2.5% +10%/-10%
AUM 1,727 (1,727)
1The sensitivity analysis refers to a percentage amount added or deducted from
the average input and the effect this has on the fair value.
2The Fair Value of JZCP's investment in financial interests in real estate, is
measured as JZCP's percentage interest in the value of the underlying
properties.
3Certain investments in the Roebling, Williamsburg and Wynwood real estate
portfolios are valued using an income capitalisation approach.
The following table shows a reconciliation of all movements in the fair value
of financial instruments categorised within Level 3 between the beginning and
the end of the reporting period.
Period ended 31 August 2019
US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2019 70,686 443,044 18,302 1,011,002
478,970
Investments in year including capital 394 43,615 2,614
calls 5,305 51,928
Payment in kind ("PIK")
5,618 - - - 5,618
Proceeds from investments realised (104,028) (13,313)
- - (117,341)
Net gain/(loss) on investments 3,097 (64,003)
29,331 - (31,575)
Movement in accrued interest
9,717 - - - 9,717
At 31 August 2019 60,864 422,656 20,916
424,913 929,349
Post period end, the Company requested a full appraisal of its real estate
portfolio. The net loss above of $64 million is mainly attributable to carrying
costs of the properties.
Year ended 28 February 2019
US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2018 488,258 46,108 463,391 15,302 1,013,059
Investments in year including capital 18,388 57,965 3,000 185,893
calls 106,540
Payment in kind ("PIK")
20,514 - - - 20,514
Proceeds from investments realised (153,371) (863) (51,800)
- (206,034)
Net gain/(loss) on investments 7,053 (26,512)
16,686 - (2,773)
Movement in accrued interest
343 - - - 343
At 28 February 2019 70,686 443,044 18,302 1,011,002
478,970
The fair value of the ZDP shares is deemed to be their quoted market price. As
at 31 August 2019 the ask price for the ZDP (2022) shares was GBP4.46 (28
February 2019: GBP4.36 per share) the total fair value of the ZDP shares was
$64,678,000 (28 February 2019: $69,056,000) which is $4,732,000 (28 February
2019: $5,218,000) higher than the liability recorded in the Statement of
Financial Position.
ZDP shares are recorded at amortised cost and would fall in to the Level 2
hierarchy if valued at FVTPL.
6. Net loss on Investments at Fair Value Through Profit or Loss
Period Period
ended ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Loss on investments held in investment portfolio at
period end
Net movement in period end unrealised gain
position (55,727) (91,838)
Unrealised gains in prior periods now realised 13,259 66,753
Net unrealised losses in the period
(42,468) (25,085)
Net gains/(losses) on investments realised in the
period
Proceeds from investments realised 120,691 172,523
Cost of investments realised (96,539) (106,405)
Unrealised gains in prior periods now realised
(13,259) (66,753)
Total net gain/(loss) in the period on investments realised in the 10,893
period (635)
Net loss on investments in the period
(31,575) (25,720)
7. Expected Credit Losses
Period Period ended
ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Impairment on loans during period 14,727
-
Total Expected Credit Losses ("ECL") at 31 August 2019 are $16,197,000 (28
February 2019: $1,470,000).
During the period, JZCP's portfolio company Ombuds entered administration. JZCP
acting as lender, has a direct holding of debt in Ombuds. At 31 August 2019,
JZCP's had invested a total of EUR12.4 million and had subsequently accumulated
interest totalling. An ECL calculation for the investment in Ombuds, prepared
in accordance with IFRS 9 has supported a total impairment of EUR14.0 ($15.4)
million and is included in the portfolio's total ECL of EUR14.7 ($16.2) million.
8. Investment Income
Period Period ended
ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Interest calculated using the effective interest rate method 3,565
2,742
Other interest and similar income 10,735
17,242
19,984 14,300
Income for the period ended 31 August 2019
Preferred Loan note Interest Other
Interest1 PIK Cash Dividend Interest Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap 15,231 104 645 15,980
- -
European micro-cap 2,742 1,192 3,934
- - -
Real estate 32
- - - - 32
Listed investments 38
- - - - 38
15,231 2,846 645 1,192 70 19,984
1Preferred accumulated interest recognised in the period includes $5,139,000
realised on the disposal of investments.
Income for the period ended 31 August 2018
Preferred Loan note Interest Other
Portfolio Interest PIK Cash Dividend Interest Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap 9,899 112 638 10,649
- -
European micro-cap 3,159 406
- - - 3,565
Real estate 59
- - - - 59
Listed investments 27
- - - - 27
9,899 3,271 1,044 86 14,300
-
9. Finance Costs
Period Period
ended ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Interest expense calculated using the effective interest
method
ZDP shares (Note 13)
1,563 1,572
Loan payable - (Note 15)
7,385 5,923
8,948 7,495
Other interest and similar expense
CULS interest paid (Note 14)
1,515 1,631
10,463 9,126
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 2019, total investment advisory and
management expenses, based on the average total assets of the Company,
were included in the Statement of Comprehensive Income of $8,301,000
(period ended 31 August 2018: $8,498,000). Of this amount $2,079,000 (28
February 2019: $2,102,000) was due and payable at the period end.
The incentive fee has two parts. The first part is calculated by reference to
the net investment income of the Company ("Income Incentive fee") and is
payable quarterly in arrears provided that the net investment income for the
quarter exceeds 2 per cent of the average of the net asset value of the Company
for that quarter (the "hurdle") (8 per cent. annualised). The fee is an amount
equal to (a) 100 per cent of that proportion of the net investment income for
the quarter as exceeds the hurdle, up to an amount equal to a hurdle of 2.5%,
and (b) 20 per cent of the net investment income of the Company above a hurdle
of 2.5% in any quarter. Investments categorised as legacy investments and other
assets identified by the Company as being excluded are excluded from the
calculation of the fee. A true-up calculation is also prepared at the end of
each financial year to determine if further fees are payable to the Investment
Adviser or if any amounts are recoverable from future income incentive fees.
For the periods ended 31 August 2019 and 31 August 2018 there was no income
incentive fee payable.
The second part of the incentive fee is calculated by reference to the net
realised capital gains ("Capital Gains Incentive fee") of the Company and is
equal to: (a) 20 per cent. of the realised capital gains of the Company for
each financial year less all realised capital losses of the Company for the
year less (b) the aggregate of all previous capital gains incentive fees paid
by the Company to the Investment Adviser. The capital gains incentive is
payable in arrears within 90 days of the fiscal year end. Investments
categorised as legacy investments are excluded from the calculation of the fee.
Assets of JZI Fund III and EuroMicrocap Fund 2010, L.P. are also excluded from
the Capital Gains Incentive fee ("CGIF"). Carried interest, of an amount
equivalent to the CGIF payable under the Advisory Agreement, is payable by the
funds to an affiliate of JZAI.
For the purpose of calculating incentive fees cumulative preferred dividends
received on the disposal of an investment are treated as a capital return
rather than a receipt of income.
At 31 August 2019, a CGIF of $27,444,000 (28 February 2019: $21,429,000) based
on net realised gains was payable. The Investment Adviser has agreed to defer
the receipt of $23,544,000 of the total provision and also any further fee
becoming payable for the current fiscal year. Any future realised gains/losses
will be added/offset to/against the deferred net realised gains of $117,720,000
and the applicable incentive fee will be paid once the Company and Investment
Advisor have mutually agreed to reinstate such payments.
The Company also provides for a CGIF based on unrealised gains, calculated on
the same basis as that of the fee on realised gains/losses. For the period
ended 31 August 2019 a provision of $9,432,000 (28 February 2019: $21,342,000)
has been included.
Provision At Provision At Paid during Expense for the
period period ended
31.8.2019 28.2.2019 31.8.2019 31.8.2019
US$ '000 US$ '000 US$ '000 US$ '000
CGIF on realised
investments 27,444 21,429 (3,000) 9,015
Provision for CGIF on unrealised n/a
investments 9,432 21,342 (11,910)
36,876 42,771 (3,000) (2,895)
Provision At Provision At Paid during Expense for the
period period ended
31.8.2018 28.2.2018 31.8.2018 31.8.2018
US$ '000 US$ '000 US$ '000 US$ '000
CGIF on realised
investments 16,584 996 (996) 16,584
Provision for CGIF on unrealised n/a
investments 20,183 40,610 (20,427)
36,767 41,606 (996) (3,843)
11. Investments
Listed Unlisted Unlisted Carrying Value
FVTPL FVTPL Loans Total
31.8.2019 31.8.2019 31.8.2019 31.8.2019
US$ '000 US$ '000 US$ '000 US$ '000
Book cost at 1 March 2019 3,312 980,120 66,849
1,050,281
Investments in period including 3,321 51,928
capital calls - 55,249
Payment in kind ("PIK") 5,618 2,294
- 7,912
Proceeds from investments matured/ (3,350) (117,341)
realised - (120,691)
Income received on maturity 38
- - 38
Net realised gain 24,152
- - 24,152
Book cost at 31 August 2019 3,321 944,477 69,143
1,016,941
Unrealised investment and foreign (29,025) (10,358)
exchange gain/(loss) - (39,383)
Impairment on loans at - (16,197)
amortised cost - (16,197)
Accrued interest 2 13,897 1,411
15,310
Carrying value at 31 August 3,323 929,349 43,999
2019 976,671
Listed Unlisted Unlisted Carrying Value
FVTPL FVTPL Loans Total
28.2.2019 28.2.2019 28.2.2019 28.2.2019
US$ '000 US$ '000 US$ '000 US$ '000
Book cost at 1 March 2018 49,845 895,680 60,956
1,006,481
Investments in year including 6,579 183,722 12,304
capital calls 202,605
Payment in kind ("PIK") 20,514 5,893
- 26,407
Proceeds from investments matured/ (53,112) (203,862) (11,720)
realised (268,694)
Net realised gain/(loss) 84,066 (584)
- 83,482
Book cost at 28 February 2019 3,312 980,120 66,849
1,050,281
Unrealised investment and foreign 26,702 (8,389)
exchange gain/(loss) - 18,313
Impairment on loans at (1,470)
amortised cost - - (1,470)
Accrued interest 4,180 1022
2 5,204
Carrying value at 28 February 3,314 1,011,002 58,012
2019 1,072,328
The cost of PIK investments is deemed to be interest not received in cash but
settled by the issue of further securities when that interest has been
recognised in the Statement of Comprehensive Income.
Loans at amortised cost
Interest on the loans accrues at the following rates:
As at 31 August 2019 As At 28 February 2019
8% 8.9%1 14%2 Total 8% 10% 14%2 Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Loans at
amortised cost 22,436 3,760 17,803 43,999 24,902 1,528 31,528 58,012
Maturity dates are as follows:
As at 31 August 2019 As At 28 February 2019
<1 year 1-2 Past Total 0-6 7-12 1-2 Total
years due months months years
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Loans at -
amortised cost 3,760 26,513 13,726 43,999 35,550 22,462 58,012
1Weighted average of interest accruing at 8% on the principal amount and 10% on
the deferred interest amount.
2Throughout the duration of the loan the borrower can elect to pay interest
when due at 12% or to add the amount to the principal and have interest accrue
at the higher rate of 14%.
12. Other Receivables
31.8.2019 28.2.2019
US$ '000 US$ '000
Accrued interest due from JZCP Realty, 495
Ltd 495
Other receivables and 128
prepayments 91
Deposits paid on behalf of JZCP Realty,
Ltd - 700
623 1,286
13. Zero Dividend Preference ("ZDP") shares
On 1 October 2015, the Company rolled over 11,907,720 existing ZDP (2016)
shares into new ZDP shares with a 2022 maturity date. The new ZDP shares (ZDP
2022) have a gross redemption yield of 4.75% and a total redemption value of GBP
57,598,000 (approximately $70,146,000 using the period end exchange rate).
ZDP shares are designed to provide a pre-determined final capital entitlement
which ranks behind the Company's creditors but in priority to the capital
entitlements of the Ordinary shares. The ZDP shares carry no entitlement to
income and the whole of their return will therefore take the form of capital.
In certain circumstances, ZDP shares carry the right to vote at general
meetings of the Company as detailed in the Company's Memorandum and Articles of
Incorporation. Issue costs are deducted from the cost of the liability and
allocated to the Statement of Comprehensive Income over the life of the ZDP
shares.
ZDP (2022) shares
31.8.2019 28.2.2019
US$ '000 US$ '000
Amortised cost at 1 March
63,838 62,843
Finance costs allocated to Statement of Comprehensive Income
1,563 3,148
Unrealised currency gain on translation
(5,455) (2,153)
Amortised cost at period/year end
59,946 63,838
Total number of ZDP shares in issue 11,907,720
11,907,720
14. Convertible Subordinated Unsecured Loan Stock ("CULS")
On 30 July 2014, JZCP issued GBP38,861,140 6% CULS. Holders of CULS may convert
the whole or part (being an integral multiple of GBP10 in nominal amount) of
their CULS into Ordinary Shares. Conversion Rights may be exercised at any time
during the period from 30 September 2014 to 10 business days prior to the
Maturity date being the 30 July 2021. The initial conversion price is GBP6.0373
per Ordinary Share, which shall be subject to adjustment to deal with certain
events which would otherwise dilute the conversion of the CULS. These events
include consolidation of Ordinary Shares, dividend payments made by the
Company, issues of shares, rights, share-related securities and other
securities by the Company and other events as detailed in the Prospectus.
CULS bear interest on their nominal amount at the rate of 6.00 per cent. per
annum, payable semi-annually in arrears. During the six-month period ended 31
August 2019: $1,515,000 (31 August 2018: $1,631,000) of interest was paid to
holders of CULS and is shown as a finance cost in the Statement of
Comprehensive Income.
31.8.2019 28.2.2019
US$ '000 US$ '000
Fair Value of CULS at 1 March
54,274 59,970
Unrealised movement in fair value of CULS
517 (3,748)
Unrealised currency gain on translation during the
period/year (4,624) (1,948)
Total gain to the Company on movement in the fair value of CULS
(4,107) (5,696)
Fair Value of CULS based on offer
price 50,167 54,274
15. Loan Payable
Guggenheim Partners Limited
On 12 June 2015, JZCP entered into a loan agreement with Guggenheim Partners
Limited. The agreement was structured so that part of the proceeds (EUR18
million) were received and will be repaid in Euros and the remainder of the
facility was received in US dollars ($80 million). During April 2017, JZCP
increased its credit facility with Guggenheim Partners by $50 million.
The loan matures on 12 June 2021 (6 year term) and interest is payable at 5.75%
+ LIBOR(1). There is an interest rate floor that stipulates LIBOR will not be
lower than 1%. In this agreement, the presence of the floor does not
significantly alter the amortised cost of the instrument, therefore separation
is not required and the loan is valued at amortised cost using the effective
interest rate method. The loan may be repaid, in full or in part, with no
penalty.
At 31 August 2019, investments valued at $881,339,000 (28 February 2019:
$951,164,000) were held as collateral for the loan. A covenant on the loan
states the fair value of the collateral must be 4x the loan value and the cost
of collateral must be at least 57.5% of total assets. The Company is also
required to hold a minimum cash balance of $15 million plus 50% of interest on
any new debt. At 31 August 2019 and throughout the period, the Company was in
full compliance with covenant terms.
31.8.2019 28.2.2019
US$ '000 US$ '000
Amortised cost (US$ drawdown) - 1 March 128,838
128,407
Amortised cost (Euro drawdown) - 1 March
20,389 21,718
Finance costs charged to Statement of
Comprehensive Income 7,385 12,684
Interest and finance costs
paid (6,453) (12,142)
Unrealised currency gain on translation of Euro drawdown
(669) (1,440)
Amortised cost at period/year end 149,490 149,227
Amortised cost (US$ drawdown) 129,679
128,838
Amortised cost (Euro drawdown)
19,811 20,389
149,490
149,227
The carrying value of the loans approximates to fair value.
(1) LIBOR rates applied are the US dollar 3 month rate ($130 million) and the
Euro 3-month rate (EUR18 million).
16. Other Payables
31.8.2019 28.2.2019
US$ '000 US$ '000
Provision for tax on dividends received not 1,401 1,401
withheld at source
Audit fees 185
186
Legal fees provision 250
250
Directors' remuneration
70 80
Other expenses 218
289
2,196 2,134
17. Ordinary shares - Issued Capital
31.8.2019 28.2.2019
Number of Number of
shares shares
Total Ordinary shares in 77,474,175 80,666,838
issue
The Company's shares trade on the London Stock Exchange's Specialist Fund
Segment.
During the period, the Company bought back 3,192,663 of its own Ordinary shares
as part of a tender offer. The shares were purchased at a price of $9.39 (GBP
7.67) per share being a 5% discount to the NAV at 31 July 2019, the total cost
of the repurchase of the shares was $29.979 million. The shares have
subsequently been cancelled.
18. Commitments
At 31 August 2019 and 28 February 2019, JZCP had the following financial
commitments outstanding in relation to fund investments:
Expected date of 31.8.2019 28.2.2019
Call
US$ '000 US$ '000
JZI Fund III GP, L.P. EUR34,326,905 (28.2.2019: EUR < 2 years 37,803 36,366
31,936,400)
JZI Fund IV GP, L.P. EUR15,000,000 Over 5 years 16,519
-
Suzo Happ Group Over 3 years 4,491 4,491
Spruceview Capital Partners, LLC1 < 1 year 1,470 1,990
Igloo Products Corp Over 3 years 771
240
60,523 43,618
1During the period, JZCP increased its commitment by $1.475 million and $1.995
million was called.
19. Related Party Transactions
JZCP invests in European micro-cap companies through JZI Fund III, L.P. ("Fund
III"). Previously investments were made via the EuroMicrocap Fund 2010, L.P.
("EMC 2010") and EuroMicrocap Fund-C, L.P. ("EMCC"). Fund III, EMC 2010 and
EMCC are managed by an affiliate of JZAI, JZCP's investment manager. JZAI was
founded by David Zalaznick and John ("Jay") Jordan, II. At 31 August 2019,
JZCP's investment in Fund III was valued at $57.0 million (28 February 2019:
$66.8million). JZCP's investment in EMC 2010 was valued at $3.9 million (28
February 2019: $3.9 million). EMCC was liquidated in December 2018 and its
remaining assets were transferred to EMC 2010.
JZCP has invested in Spruceview Capital Partners, LLC on a 50:50 basis with Jay
Jordan and David Zalaznick (or their respective affiliates). The total amount
committed by JZCP to this investment at 31 August 2019, was $31.475 million (28
February 2019 $30.0 million), with $1.5 million (28 February 2019: $2.0
million) of commitments outstanding.
JZCP has co-invested with Fund A, Fund A Parallel I, II and III Limited
Partnerships in a number of US micro-cap buyouts. These Limited Partnerships
are managed by an affiliate of JZAI. JZCP invested in a ratio of 82%/18% with
the Fund A entities. At 31 August 2019, the total value of JZCP's investment in
these co-investments was $233.0 million (28 February 2019: $251.5 million).
Fund A, Fund A Parallel I, II and III Limited Partnerships are no longer making
platform investments alongside JZCP.
JZAI is a US based company that provides advisory services to the 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 is able to invest up to $75 million in "New JI Platform Companies". The
platform companies are being established to invest primarily in buyouts and
build-ups of companies and in growth company platforms in the US micro-cap
market, primarily healthcare equipment companies. At 31 August 2019 and 28
February 2019, JZCP had invested (before returns of capital) $41.3 million in
Avante (formerly named Jordan Health Products) and is therefore able to invest
a further $33.7 million. JZCP co-invests 50/50 in the platform companies with
other investors ("JI members"). David Zalaznick and an affiliated entity of Jay
Jordan own approximately 33.7% of the JI members' ownership interests.
During the period, JZCP obtained shareholder approval for the sale of 80% of
its holdings in both Avante and Orizon to Edgewater Growth Capital Partners
("Edgewater"). Edgewater is a substantial shareholder of JZCP and therefore a
related party of the Company. JZCP received proceeds of $37.5 million for the
Avante realisation and $28.0 million for Orizon.
Post period end, JZCP obtained shareholder approval for the merger of Priority
Express with Capstone Logistics. The Merger has resulted in the Company
realising its investment in Priority Express by disposing of its entire
ownership interests as well as its debt investments therein. Capstone Logistics
is a portfolio company of Resolute Fund III.
Total Directors' remuneration for the six-month period ended 31 August 2019 was
$230,000 (31 August 2018:$219,000).
20. Basic and Diluted Earnings/(Loss) per Share
Basic loss per share are 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 2019 the weighted average number of Ordinary
shares outstanding during the period was 80,614,784 (31 August 2018:
83,456,487).
The diluted earnings per share are calculated by considering adjustments
required to the earnings and weighted average number of shares for the effects
of potential dilutive Ordinary shares. The weighted average of the number of
Ordinary shares is adjusted assuming the conversion of the CULS ("If-converted
method"). Conversion is assumed even though at 31 August 2019 and 31 August
2018 the exercise price of the CULS is higher than the market price of the
Company's Ordinary shares and are therefore deemed 'out of the money'. Earnings
are adjusted to remove the fair value gain recorded $4,107,000 (31 August 2018:
$5,925,000) and finance cost attributable to CULS $1,515,000 (31 August 2018:
$1,631,000).
21. Contingent Assets
Amounts held in escrow accounts
When investments have been disposed of by the Company, proceeds may reflect
contractual terms requiring that a percentage is held in an escrow account
pending resolution of any indemnifiable claims that may arise. At 31 August
2019 and 28 February 2019, the Company has assessed that the likelihood of the
recovery of these escrow accounts cannot be determined and has therefore
disclosed the escrow accounts as a contingent asset.
As at 31 August 2019 and 28 February 2019, the Company had the following
contingent assets held in escrow accounts which had not been recognised as
assets of the Company:
Amount in Escrow
31.8.2019 28.2.2019
US$'000 US$'000
Bolder Healthcare Solutions 2,164 3,090
Waterline Renewal 431
Technologies -
Water Treatment Systems 213 6,051
Water Filtration Systems 120
-
2,808 9,261
During the period ended 31 August 2019, proceeds of $3,923,000 (31 August 2018:
$2,085,000) were realised and recorded in the Statement of Comprehensive
Income. Escrows of $431,000 became potentially payable on the realisation of
Waterline Renewal Technologies. Potential escrow proceeds recorded at 28
February 2019, totalling $2,961,000, from the future earnings of Water
Treatment Systems are no longer receivable.
22. Reconciliation of Published NAV Per Share to NAV Per Share Per Financial
Statements
31.8.2019 28.2.2019
US$ US$
Estimated NAV per share (published 23 September 2019) 10.03 10.04
Revaluation of Priority Express (net of fees)
0.05 -
Revaluation of JZCP Realty, Ltd (net of fees)
(0.42) -
NAV per share per financial 10.04
statements 9.66
23. Subsequent Events
These interim financial statements were approved by the Board on 26 November
2019. Events subsequent to the period end (31 August 2019) have been evaluated
until this date.
Post period-end, the Board received shareholder approval for the adoption of a
revised investment policy, whereby JZCP will look to realise investments and
materially reduce commitments to new investments in order to return capital to
shareholders and pay down debt.
Post period-end, JZCP realised its investment in Priority Express and expects
to receive approximately $18.5 million in gross proceeds (including escrows and
a potential earn-out).
Post period-end, the Company accelerated the annual appraisal process of its
real estate investments in order for updated valuations to be included within
the Interim Financial Statements. These updated valuations are reflected in a
reduction of value of $40.7 million as from what was reported in the Interim
Financial Statements.
Company Advisers
Investment Adviser
The Investment Adviser to JZ Capital Partners Limited ("JZCP") is Jordan/
Zalaznick Advisers, Inc., ("JZAI") a company 4 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.
Jordan/Zalaznick Advisers, Inc.
9 West, 57th Street
New York NY 10019
JZ Capital Partners Limited is registered in Guernsey -
Number 48761
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
Administrator and Secretary
Northern Trust International Fund Administration Services
(Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
UK Transfer and Paying Agent
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Independent Auditor
Ernst & Young LLP
PO Box 9
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
Financial Adviser and Broker
JP Morgan Cazenove Limited
25 Bank Street
London E14 5JP
US Bankers
HSBC Bank USA NA
52 Fifth Avenue New York NY 10018
(Also provides custodian services to JZ Capital Partners Limited under the
terms of a Custody Agreement).
Guernsey Bankers
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA
UK Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London EC2A 2HA
US Lawyers
Monge Law Firm, PLLC
333 West Trade Street
Charlotte, NC 28202
Mayer Brown LLP
214 North Tryon Street
Suite 3800
Charlotte NC 28202
Winston & Strawn LLP
35 West Wacker Drive
Chicago IL 60601-9703
Guernsey Lawyers
Mourant
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4HP
Useful Information for Shareholders
Internet Address
The Company: www.jzcp.com
Listing
JZCP Ordinary, Zero Dividend Preference ("ZDP") shares and Convertible
Unsecured Loan Stock ("CULS") are listed on the Official List of the
Financial Services Authority of the UK, and are admitted to trading on the
London Stock Exchange Specialist Fund Segment for listed securities.
The price of the Ordinary shares are shown in the Financial Times under
"Conventional Private Equity" and can also be found at https://markets.ft.com
along with the prices of the ZDP shares and CULS.
ISIN/SEDOL numbers
Ticker Symbol ISIN Code Sedol Number
Ordinary shares JZCP GG00B403HK58 B403HK5
ZDP (2022) shares JZCZ GG00BZ0RY036 Z0RY03
CULS JZCC GG00BP46PR08 BP46PR0
Key Information Documents
JZCP produces Key Information Documents to assist investors' understanding of
the Company's securities and to enable comparison with other investment
products. These documents are found on the Company's website - www.jzcp.com/
investor- relations/key-information-documents.
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance Measures ("APMs")
the Board has considered what APMs are included in the annual report and
financial statements which require further clarification. An APM is defined
as a financial measure of historical or future financial performance,
financial position, or cash flows, other than a financial measure defined or
specified in the applicable financial reporting framework. APMs included in the
annual report and financial statements, which are unaudited and outside the
scope of IFRS, are deemed to be as follows:
Total NAV Return
The Total NAV Return measures how the net asset value ("NAV") per share has
performed over a period of time, taking into account both capital returns and
dividends paid to shareholders. JZCP quotes NAV total return as a percentage
change from the start of the period (one year) and also three-month,
three-year, five-year and seven year periods. It assumes that dividends
paid to shareholders are reinvested back into the Company therefore future
NAV gains are not diminished by the paying of dividends. JZCP also produces an
adjusted Total NAV Return which excludes the effect of the appreciation/
dilution per share caused by the buy back/issue of shares at a discount to
NAV, the result of the adjusted Total NAV return is to provide a
measurement of how the Company's Investment portfolio contributed to NAV
growth adjusted for the Company's expenses and finance costs. The Total
NAV Return for the period ended 31 August 2019 was -3.8%, which only reflects
the change in NAV as no dividends were paid during the period. The Total NAV
Return for the year ended 28 February 2019 was 0.6%.
Total Shareholder Return
A measure showing how the share price has performed over a period of time,
taking into account both capital returns and dividends paid to
shareholders. JZCP quotes the shareholder sterling 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 six month
period ended 31 August 2019 was 10.8%, which only reflects the change in share
price as no dividends were paid during the period. The Shareholder Return
for the year ended 28 February 2019 was -3.5%.
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 2019, JZCP's Ordinary shares traded at GBP4.82 (28 February 2019: GBP
4.35) or $5.87 (28 February 2019: $5.79) being the dollar equivalent using the
year end exchange rate of GBP1: $1.21785 (28 February 2019 GBP1: $1.33). The
shares traded at a 39.2% (28 February 2019: 42.4%) discount to the NAV per
share of $9.66 (28 February 2019: $10.04).
Criminal Facilitation of Tax Evasion
The Board have approved a policy of zero tolerance towards the criminal
facilitation of tax evasion, in compliance with the Criminal Finances Act
2017.
Non-Mainstream Pooled Investments
From 1 January 2014, the FCA rules relating to the restrictions on the retail
distribution of unregulated collective investment schemes and close
substitutes came into effect. JZCP's Ordinary shares qualify as an 'excluded
security' under these rules and will therefore be excluded from the FCA's
restrictions which apply to non-mainstream investment products. Therefore
Ordinary shares issued by JZ Capital Partners can continue to be recommended by
financial advisors as an investment for UK retail investors.
Financial Diary
Results for the year ended 29 May 2020 (date to be confirmed)
February 2020
Annual General Meeting June/July 2020 (date to be confirmed)
Interim report for the six months ended 31 August November 2020 (date to be confirmed)
2020
JZCP does not plan to issue an Interim Management Statement for the quarter
ended 30 November 2019 due to the late announcement of the 31 August 2019
Interim Report and Financial Statements. A statement for the quarter ending 31
May 2020 will be sent to the market via RNS within six weeks from the end of
the quarter, and will be posted on JZCP's website at the same time, or soon
thereafter.
Payment of Dividends
In the event of a cash dividend being paid, the dividend will be sent by cheque
to the first-named shareholder on the register of members at their registered
address, together with a tax voucher. At shareholders' request, where they have
elected to receive dividend proceeds in Sterling, the dividend may instead be
paid direct into the shareholder's bank account through the Bankers' Automated
Clearing System. Payments will be paid in US dollars unless the shareholder
elects to receive the dividend in Sterling. Existing elections can be
changed by contacting the Company's Transfer and Paying Agent, Equiniti Limited
on +44 (0) 121 415 7047.
Share Dealing
Investors wishing to buy or sell shares in the Company may do so through a
stockbroker. Most banks also offer this service.
Foreign Account Tax Compliance Act
The Company is registered (with a Global Intermediary Identification Number
CAVBUD.999999.SL.831) under The Foreign Account Tax Compliance Act ("FATCA").
Share Register Enquiries
The Company's UK Transfer and Paying Agent, Equiniti Limited, maintains the
share registers. In event of queries regarding your holding, please contact the
Registrar on 0871 384 2265, calls to this number cost 8p per minute from a BT
landline, other providers' costs may vary. Lines are open 8.30 a.m. to 5.30
p.m., Monday to Friday, If calling from overseas +44 (0) 121 415 7047 or access
their website at www.equiniti.com. Changes of name or address must be notified
in writing to the Transfer and Paying Agent.
Nominee Share Code
Where notification has been provided in advance, the Company will arrange for
copies of shareholder communications to be provided to the operators of nominee
accounts. Nominee investors may attend general meetings and speak at meetings
when invited to do so by the Chairman.
Documents Available for Inspection
The following documents will be available at the registered office of the
Company during usual business hours on any weekday until the date of the
Annual General Meeting and at the place of the meeting for a period of fifteen
minutes prior to and during the meeting:
(a) the Register of Directors' Interests in the stated capital of the Company;
(b) the Articles of Incorporation of the Company; and
(c) the terms of appointment of the Directors.
Warning to Shareholders - Boiler Room Scams
In recent years, many companies have become aware that their shareholders have
been targeted by unauthorised overseas- based brokers selling what turn out
to be non-existent or high risk shares, or expressing a wish to buy their
shares. If you are offered, for example, unsolicited investment advice,
discounted JZCP shares or a premium price for the JZCP shares you own, you
should take these steps before handing over any money:
* Make sure you get the correct name of the person or organization
*Check that they are properly authorised by the FCA before getting involved by
visiting http://www.fca.org.uk/firms/systems-reporting/register
* Report the matter to the FCA by calling 0800 111 6768
* If the calls persist, hang up
* More detailed information on this can be found on the Money Advice Service
website www.moneyadviceservice.org.uk
US Investors
General
The Company's Articles contain provisions allowing the Directors to decline to
register a person as a holder of any class of ordinary shares or other
securities of the Company or to require the transfer of those securities
(including by way of a disposal effected by the Company itself) if they believe
that the person:
(a) is a "US person" (as defined in Regulation S under the US Securities Act of
1933, as amended) and not a "qualified purchaser" (as defined in the US
Investment Company Act of 1940, as amended, and the related rules thereunder);
(b) is a "Benefit Plan Investor" (as described under "Prohibition on Benefit
Plan Investors and Restrictions on Non-ERISA Plans" below); or
(c) is, or is related to, a citizen or resident of the United States, a US
partnership, a US corporation or a certain type of estate or trust and that
ownership of any class of ordinary shares or any other equity securities of the
Company by the person would materially increase the risk that the Company could
be or become a "controlled foreign corporation".as described under "US Tax
Matters").
In 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
advisors, should consider, to the extent applicable, the impact of such
fiduciary rules and regulations on an investment in the Company.
Among other considerations, the fiduciary of a Non-ERISA Plan should take into
account the composition of the Non-ERISA Plan's portfolio with respect to
diversification; the cash flow needs of the Non-ERISA Plan and the effects
thereon of the illiquidity of the investment; the economic terms of the Non-
ERISA Plan's investment in the Company; the Non-ERISA Plan's funding
objectives; the tax effects of the investment and the tax and other risks
associated with the investment; the fact that the investors in the Company
are expected to consist of a diverse group of investors (including taxable,
tax-exempt, domestic and foreign entities) and the fact that the management
of the Company will not take the particular objectives of any investors or
class of investors into account.
Non-ERISA Plan fiduciaries should also take into account the fact that, while
the Company's board of directors and its investment advisor will have certain
general fiduciary duties to the Company, the board and the investment advisor
will not have any direct fiduciary relationship with or duty to any investor,
either with respect to its investment in Shares or with respect to the
management and investment of the assets of the Company. Similarly, it is
intended that the assets of the Company will not be considered plan assets of
any Non-ERISA Plan or be subject to any fiduciary or investment restrictions
that may exist under 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 advisor that there is no rule, regulation or
requirement applicable to such investor that is inconsistent with the
foregoing description of the Company, the board and the investment advisor.
Each purchaser or transferee that is a Non-ERISA Plan will be deemed to have
represented, warranted and covenanted as follows:
(a) The Non-ERISA Plan is not a Benefit Plan Investor;
(b) The decision to commit assets of the Non-ERISA Plan for investment in
the Company was made by fiduciaries independent of the Company, the Board,
the Investment Advisor and any of their respective agents, representatives or
affiliates, which fiduciaries (i) are duly authorized to make such investment
decision and have not relied on any advice or recommendations of the
Company, the Board, the Investment Advisor or any of their respective agents,
representatives or affiliates and (ii) in consultation with their advisers,
have carefully considered the impact of any applicable federal, state or
local law on an investment in the Company;
(c) 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 Advisor or any of their
respective agents, representatives or affiliates has exercised any
discretionary authority or control with respect to the Non-ERISA Plan's
investment in the Company, nor has the Company, the Board, the Investment
Advisor or any of their respective agents, representatives or affiliates
rendered individualized investment advice to the Non-ERISA Plan based upon the
Non-ERISA Plan's investment policies or strategies, overall portfolio
composition or diversification with respect to its commitment to invest in
the Company and the investment program thereunder; and
(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 Advisor or any of their respective agents,
representatives or affiliates will be acting as a fiduciary to the Non-ERISA
Plan under any applicable federal, state or local law governing the Non-ERISA
Plan, with respect to either (i) the Non-ERISA Plan's purchase or retention of
its investment in the Company or (ii) the management or operation of the
business or assets of the Company. It also confirms that there is no rule,
regulation, or requirement applicable to such purchaser or transferee that is
inconsistent with the foregoing description of the Company, the Board and the
Investment Advisor.
US Tax Matters
This discussion does not constitute tax advice and is not intended to be a
substitute for tax advice and planning. Prospective holders of the Company's
securities must consult their own tax advisers concerning the US federal, state
and local income tax and estate tax consequences in their particular
situations of the acquisition, ownership and disposition of any of the
Company's securities, as well as any consequences under the laws of any other
taxing jurisdiction.
The Board may decline to register a person as, or to require such person to
cease to be, a holder of any class of ordinary shares or other equity
securities of the Company because of, among other reasons, certain US ownership
and transfer restrictions that relate to "controlled foreign corporations"
contained in the Articles of the Company. A Shareholder of the Company may be
subject to forced sale provisions contained in the Articles in which case such
shareholder could be forced to dispose of its securities if the Company's
directors believe that such shareholder is, or is related to, a citizen or
resident of the United States, a US partnership, a US corporation or a
certain type of estate or trust and that ownership of any class of ordinary
shares or any other equity securities of the Company by such shareholder
would materially increase the risk that the Company could be or become a
"controlled foreign corporation" within the meaning of the Code (a "CFC").
Shareholders of the Company may also be restricted by such provisions with
respect to the persons to whom they are permitted to transfer their securities.
In general, a foreign corporation is treated as a CFC if, on any date of its
taxable year, its "10% US Shareholders"collectively own (directly, indirectly
or constructively within the meaning of Section 958 of the Code) more than 50%
of the total combined voting power or total value of the corporation's stock.
For this purpose, a "10% US Shareholder" means any US person who owns
(directly, indirectly or constructively within the meaning of Section 958 of
the Code) 10% or more of the total combined voting power of all classes of
stock of a foreign corporation or 10% or more of the total value of shares of
all classes of stock of a foreign corporation. The Tax Cuts and Jobs Act (the
"Tax Act") eliminated the prohibition on "downward attribution" from non-US
persons to US persons under Section 958(b)(4) of the Code for purposes of
determining constructive stock ownership under the CFC rules. As a result, the
Company's US subsidiary will be deemed to own all of the stock of the
Company's non-US subsidiaries held by the Company for purposes of
determining such foreign subsidiaries' CFC status. The legislative
history under the Tax Act indicates that this change was not intended to cause
the Company's non-US subsidiaries to be treated as CFCs with respect to a
10% US Shareholder that is not related to the Company's US subsidiary. However,
the IRS has not yet issued any guidance confirming this intent and it is not
clear whether the IRS or a court would interpret the change made by the Tax Act
in a manner consistent with such indicated intent. The Company's treatment as a
CFC as well as its foreign subsidiaries' treatment as CFCs could have adverse
tax consequences for 10% US Shareholders.
The Company has been advised that it is NOT a passive foreign investment
company ("PFIC") for the fiscal years ended February 2018 and 2017. An analysis
for the financial year ended February 2019 is currently being undertaken. A
classification as a PFIC would likely have adverse tax consequences for US
taxpayers.
The taxation of a US taxpayer's investment in the Company's securities is
highly complex. Prospective holders of the Company's securities must consult
their own tax advisers concerning the US federal, state and local income tax
and estate tax consequences in their particular situations of the acquisition,
ownership and disposition of any of the Company's securities, as well as any
consequences under the laws of any other taxing jurisdiction.
Investment Adviser's ADV Form
Shareholders and state securities authorities wishing to view the Investment
Adviser's ADV form can do so by following the link below:
https://adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?ORG_PK=160932
END
(END) Dow Jones Newswires
November 27, 2019 02:00 ET (07:00 GMT)
Jz Capital Partners (LSE:JZCP)
Historical Stock Chart
From May 2024 to Jun 2024
Jz Capital Partners (LSE:JZCP)
Historical Stock Chart
From Jun 2023 to Jun 2024
