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)
ANNUAL RESULTS FOR THE
TWELVE-MONTH PERIOD ENDED
29 FEBRUARY
2020
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section
1.1)
18 June
2020
JZ Capital Partners, the London
listed fund that invests in US and European micro-cap companies and
US real estate, announces its preliminary results for the year
ended 29 February 2020.
Results and Portfolio Highlights
· NAV per share of $6.14 (FYE 28/02/19: $10.04)
· NAV of $475.7
million (FYE 28/02/19: $810.2
million)
· Total realisations of $148.2 million, including: the sale of JZCP’s 80%
stake in Avante & Orizon, the sale of Waterline Renewal; and
the sale of Priority Express.
· As of 29 February
2020, the portfolio comprised:
o US micro-cap: 23
businesses, which includes four ‘verticals’ and 15 co-investments,
across nine industries.
o European micro-cap:
13 companies across six countries.
o US real estate: major
assemblages in New York and
South Florida
Covid-19 (post-period)
· At this time, it is difficult to
accurately gauge the potential impact of the Covid-19 pandemic on
the Company. However, in particular the outbreak is currently
having a negative impact on several of the Company's real estate
assets, although the exact nature, extent and duration of the
impact on our entire portfolio is not yet known and cannot be
accurately assessed with certainty.
· The Investment Adviser is working
closely with JZCP’s portfolio companies and their management teams
to ensure they navigate the headwinds caused by the crisis.
Real Estate Portfolio
· Following the release of the Company’s
interim results in November 2019, the
Board appointed a new independent third-party appraiser to
reappraise the real estate portfolio; it is these year-end
valuations, with a value date of 31 December
2019, that have given rise to the recent write-downs in
value.
· The Board do not consider that there
were any material changes to the portfolio valuations in the two
months ended 29 February 2020.
· However, the Board and Investment
Adviser believe the effects of the Covid-19 crisis on the values of
the real estate investments are expected to be significant and
adverse, although their quantum cannot yet be estimated. Further
appraisals will be commissioned to establish the value of the real
estate portfolio as at 31 August
2020.
Strategic Initiatives
· On 22 April
2020, the Board announced it was seeking shareholder
approval for the adoption of a revised investment policy, whereby
the Company intends to realise the maximum value of its investments
and, after repayment of all debt, to return capital to
shareholders.
· In light of the difficulties that the
Company has endured, the Board has had discussions with its
Investment Adviser, JZAI, about the Company’s future. The Board
believes it is in the Company's best interests that JZAI manages
the continued realisation of the Company’s assets over an
appropriate time period that will maximise their value.
· The Company had already announced a
stabilisation plan to realise assets, including the execution of
the secondary sale of certain US micro-cap assets, in order to
generate enough liquidity to cover its debt obligations at a
corporate level. Unfortunately, the Covid-19 crisis has delayed
these plans, but the Investment Adviser has already identified
other potentially realisable assets, which would satisfy the aims
of the plan in full.
· The maturity dates on the Company’s
debt obligations and the Company’s existing cash resources mean
that there is no near-term liquidity pressure.
David Macfarlane, Chairman of
JZCP, said: “The global impact of Covid-19 has been
unprecedented, and one of the most significant macro-economic
shocks the world has experienced in the past century. At this time,
it is difficult to accurately gauge the potential impact of the
Covid-19 outbreak on the Company’s portfolio, but the Investment
Adviser is working more closely with our portfolio companies than
ever before to ensure they navigate the headwinds caused by the
crisis. We are also in negotiation with our lenders across the real
estate portfolio to provide us with more flexibility in the short
to medium-term.
We are deeply disappointed with the significant losses in the
value of the Company’s real estate portfolio and poor performance
reported during the period. While the US and European micro-cap
assets continue to perform well, the Board recognises that there
has to be a change in investment policy. Accordingly, and as
previously announced, the Company is seeking shareholder approval
for a new investment policy, whereby it will make no further
investments outside of its existing obligations or to the extent
that investment is required to support selected existing
investments. The Company’s plan and focus is on realising assets,
repaying debt and then returning capital to shareholders. The
Covid-19 crisis has delayed the timetable for achieving this, but
the Board believe that substantial progress can be made when the
crisis lifts.”
__________________________________________________________________________________
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.
Chairman's Statement
It is regrettable that the financial results of the Company for
the year ended 29 February 2020
reflect significant losses in value to the Company. The Company’s
NAV during the period reported on has fallen from $10.04 to $6.14 per
share. This 38.8% reduction is attributable in the most part to
write-downs in the value of certain real estate investments, which
was foreshadowed prior to the release of the interim results in
late October 2019 and announced
thereafter. The other areas of the Company’s business, investment
in US and European micro-cap assets, have, apart from one
significant loss on a European debt investment, performed well, as
generally speaking, they always have.
As a result of the significant losses in value to the Company’s
real estate portfolio and ensuing poor performance, the Board has
recognised the need for a change in investment policy. Accordingly,
as announced on 22 April 2020, the
Board has proposed a new investment policy whereby the Company will
make no further investments outside of its existing obligations or
to the extent that investment may be made to support selected
existing portfolio investments. The intention is to realise the
maximum value of the Company’s investments and, after repayment of
all debt, to return capital to shareholders. A separate letter to
shareholders will be issued on or before the posting of the printed
version of these results convening an Extraordinary General Meeting
at which to propose a resolution formally to adopt this new
policy.
Soon after the period end, the full extent of the COVID-19
crisis started to take effect globally and the Investment Adviser
moved swiftly to ensure the safety of its employees and their
families adapting to remote working and appropriate social
distancing measures. Whilst the full impact of the pandemic on the
portfolio is yet to be determined, the Investment Adviser is
working closer with our portfolio companies than ever before to
ensure they navigate the headwinds caused by the crisis.
Real Estate Portfolio
During the autumn of 2019, initial indications of potential
impairment to the real estate portfolio emerged in the ordinary
course of business between the Company’s Investment Adviser and
third-party real estate brokers. These initial indications
suggested that certain investments might not be realisable at the
values at which the Company was holding them, which were based upon
the valuations of the Company’s independent third-party appraiser
at that time. In light of this, the Board requested that the
third-party appraiser urgently review its appraisals and bring them
up to date. The appraisals were updated in time for the Company to
publish its interim results; however, the appraiser’s review
revealed minimal differences from its previously prepared
valuations. Nevertheless the Investment Adviser continued to have
substantial reservations about these appraisals as indicated in
those results.
Following the release of the Company’s interim results, the
Board appointed a new independent third-party appraiser to
reappraise the real estate portfolio; it is these year-end
valuations that have given rise to the recent write-downs in value.
The downward valuations of certain properties have been less severe
than others, but only one property has maintained its previous
carrying value. In the case of two substantial investments, Fulton
Mall and Design District, the markdowns at the property level were
sufficient to extinguish the Company’s entire equity in these
properties.
While no obvious major macro-economic trends would imply a
change in value of the magnitude of the write downs, several
factors, including the general decline of retail and, in
New York, new regulations
adversely affecting residential properties, have led to a general
softening of the Brooklyn and
South Florida real estate markets.
In addition, there has been either an inability or delay in
executing strategic investment plans. High loan-to-value ratios at
the property level have also exacerbated the effect of falling
appraisals on the Company’s equity value. Nonetheless, it would
seem that many of the Company’s real estate investments have not
been the advantageous purchases they were considered to be, in
terms of either price or timing.
It is important to note that the valuations at which the real
estate investments are held as at year-end are based upon the
appraisals done by the new independent third-party appraiser with a
value date of 31 December 2019. The
Board do not consider that there were any material changes to
portfolio valuations in the two months ended 29 February 2020, However, needless to say the
effects of the COVID-19 crisis since then on values of the real
estate investments are expected to be significant and adverse
although their quantum cannot yet be estimated. Further appraisals
will be commissioned to establish the value of the real estate
portfolio as at 31st August 2020, the
Company’s half year end and the date to which the Interim Results
for the Company’s financial year ending 28th
February 2021 will be presented.
US and European Micro-cap
Portfolios
In contrast the year under review has been a solid one for the
Company’s US and European micro-cap investments. However, these
results are stated before taking into account the impact of the
COVID-19 crisis, because its effect could not then be known. Now
the impact is known to affect adversely most businesses to varying
degrees of severity, although it is not known what the quantum is
or what will be the longer-term effect on values. Suffice to say
that the main factor will be the length of the lockdown and how
quickly business can return to normal. In the short term, the
Company’s Investment Adviser continues to work assiduously with its
portfolio companies and their management teams to guide them safely
through this crisis. We look forward to reporting further on our US
and European micro-cap portfolios at our interim results.
Stabilisation Plan
The Company had already announced a plan to realise assets as
soon as possible in order to generate sufficient liquidity to cover
its debt obligations at the corporate level: the Guggenheim loan of
approximately $150 million (due
12 June 2021), Convertible Unsecured
Loan Stock (“CULS”) of approximately £38.9 million (due
30 July 2021) and Zero Dividend
Preference Shares (“ZDPs”) of approximately £57.6 million (due
1 October 2022). This plan was well
underway, featuring a largely agreed secondary sale of certain US
micro-cap assets at a substantial premium to NAV, which would have
contributed half the liquidity required for the entire
stabilisation plan. Unfortunately, the Covid-19 crisis intervened,
deferring the ultimate execution of the secondary sale. In tandem,
the Company’s Investment Adviser has identified several other
potentially realisable assets, which in aggregate would be
sufficient to satisfy the aims of the stabilisation plan in full.
Again, this timetable, originally targeted for this calendar year,
will be extended due to the disruption and uncertainty created by
COVID-19. Fortunately, the maturity dates on the Company’s debt
obligations and the Company’s existing cash resources mean that
there is no near-term liquidity pressure. That said, in view of the
uncertainties at least temporarily as to value caused by Covid 19,
at Guggenheim’s invitation, the Company and Guggenheim are
discussing amendments to the loan agreement with the purpose of
ensuring that any risk of breach of covenant that might otherwise
occur will be avoided. Although in the light of the decline in
value of the Company’s real estate portfolio and the enhanced
uncertainty in light of the Coronavirus crisis about the Company’s
ability to realise assets, the assumption as to which is always key
to its ability to continue as a going concern, has in these results
occasioned the material uncertainties that have been disclosed in
detail in the Directors Report.
Investment Adviser
In light of the difficulties that the Company has endured, the
Board has had discussions with its Investment Adviser, JZAI, and
with Jay Jordan and David Zalaznick about the Company’s future. The
Board believes it is in the Company’s best interests that JZAI
manages the continued realisation of the Company’s assets over an
appropriate time period that will maximise their value. The Board
appreciates the concessions that David and Jay have made in
relation to their waiver of capital incentive fees earned of
$24.6 million. They have also agreed
to relieve the Company of some $8.6
million of of commitments and obligations in relation to
investment in the CERPI fund managed by Spruceview; and in respect
of the Orangewood Fund, where the Company’s commitment was
originally $24 million, they have
agreed to relieve the Company by each of them assuming the
obligation of $2 million, by
arranging the transfer of a further $5m to a third party and it is anticipated that
the balance of $15 million will also
be transferred. In addition, it has been agreed that the Company’s
intended co-commitment with David and Jay to JZ Fund IV originally
of €64 million will not be made at all.
The Board
In my statement accompanying the Company’s annual results for
its financial year ended 28 February
2019, I indicated that a substantial refreshment of the
board was planned to take place by 2021, including the appointment
of a replacement for myself as Chairman. To this end Tanja Tibaldi will retire from the board at the
forthcoming Annual General Meeting and an additional Guernsey resident director is being recruited.
The Board is greatly appreciative of Tanja’s contribution and
thanks her for her service. The Board will keep under review the
need for further refreshment as time goes on and circumstances
require. However, in the light of the events of the last few
months, my own plans for retirement have been deferred and I now
intend to remain in office to oversee the realisation of the
Company’s assets, repayment of debt and return of capital to
shareholders. I am pleased to say that Jim
Jordan has also agreed to remain in office. In such
circumstances though the Board is mindful of the need to limit its
cost to the Company and accordingly directors’ base fees will be
reduced by $10,000 to $50,000 and my fees will be reduced by 25%.
However, the chairman of the audit committee will receive an
additional fee this year in recognition of the substantial
additional work that she has had to undertake.
Prospects
The prospects of the Company depend to a great extent in the
immediate term upon the duration of the Covid-19 crisis and its
outcome for the Company’s investments. As noted above and in the
Investment Adviser’s report there are grounds for some optimism as
regards the Company’s microcap investments but the outlook for the
real estate portfolio is more uncertain. The Company’s plan and
focus is on realising assets, repaying debt and then returning
capital to shareholders. The timetable for achieving this has been
delayed by the COVID-19 crisis but the Board believes that
substantial progress can be made when the crisis lifts.
David Macfarlane
Chairman
17 June 2020
Investment Adviser's Report
Dear Fellow Shareholders,
As previously announced, we’ve spent the past six months focused
on our stated goal of realizing investments to generate cash to pay
debt, support certain investments in the existing portfolio and
return capital to shareholders; this is all in line with the new
investment policy. We’ve made some progress on realizations as
detailed below. However, with the arrival of the COVID-19 crisis,
our plans have been pushed back by six to twelve months, or longer.
Therefore, our efforts will be totally dedicated towards raising
cash in order to execute the aforementioned plan to pay debt as
well as continue to selectively support the existing portfolio so
that we can maximize the value of the Company’s assets.
Our US and European micro-cap portfolios performed relatively
well during the first calendar quarter of 2020. To deal with the
COVID-19 pandemic, we are working daily with each portfolio
company’s leadership team to review contingency plans and liquidity
scenarios to weather the current downturn. Many of our portfolio
companies currently have strong liquidity positions; regardless, we
are in touch with lenders to amend loan terms to give our companies
as much headroom as necessary to get through COVID-19. While we are
hopeful that the economic downturn will be relatively short-term in
nature, we are executing on conservative plans to support our
portfolio in case of a longer duration impact.
We believe our micro-cap portfolios remain in good shape because
(i) they are not heavily invested in cyclical businesses; (ii) they
are conservatively leveraged; and (iii) our entry multiples are
below market and offer significant room for capital gains.
Furthermore, we believe certain of our build-ups in the US and
Europe may end up being net
beneficiaries of current market conditions as add-on acquisition
targets become available on more attractive terms.
With regards to our real estate portfolio, COVID-19 has been
devastating to commercial retail real estate and may likely result
in further write downs in the value of our real estate assets. Many
of our retail tenants have not paid rent in April or May. We are
negotiating with our lenders across the portfolio on numerous
fronts to allow us to weather the current situation.
During the year ended 29 February
2020, JZCP realized more than $152
million in gross proceeds, including: $65 million from the August 2019 sale of 80% of its interest in
portfolio companies Orizon and Avante; $23.3
million from the April 2019
sale of Waterline Renewal; $17.2
million from the October 2019
sale of Priority Express; $14.5
million from the sale of Fund III portfolio company
Petrocorner and the refinancing of companies Collingwood and
Fincontinuo; $14.0 million from the
March 2019 refinancing of
Felix Storch; and $4.6 million from the sale of our Triangle real estate property.
As of 29 February 2020, our US
micro-cap portfolio consisted of 23 businesses, which includes four
‘verticals’ and 15 co-investments, across nine industries; this
portfolio was valued at 8.3x EBITDA, after applying an average 18%
marketability discount to public comparables. The average
underlying leverage senior to JZCP’s position in our US micro-cap
portfolio is 4.6x EBITDA. Consistent with our value-oriented
investment strategy, we have acquired our current US micro-cap
portfolio at an average 5.9x EBITDA. Our European micro-cap
portfolio consisted of 18 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 discussed in the Chairman’s Statement and several press
releases in JZCP’s third and fourth quarters of this fiscal year,
our real estate portfolio has suffered a large reduction in value
during the year. Our US real estate portfolio consists primarily of
‘assemblages’ located in the Williamsburg, Greenpoint and Downtown Brooklyn neighbourhoods of
Brooklyn, New York, as well as the
cities of Miami and West Palm Beach in South Florida.
Net Asset Value ("NAV")
JZCP’s NAV per share decreased by $3.90, or 38.8%, during the year.
NAV
bridge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV per
Ordinary share as of 1 March 2019 |
|
|
|
|
|
|
|
$10.04 |
|
|
|
|
Change
in NAV due to capital gains and accrued income |
|
|
|
|
|
|
|
|
|
|
+ US Micro-cap |
|
|
|
|
|
|
|
|
|
0.59 |
|
|
|
|
- European
Micro-cap |
|
|
|
|
|
|
|
|
|
(0.25) |
|
|
|
|
- Real Estate |
|
|
|
|
|
|
|
|
|
(4.27) |
|
|
|
|
+ Other
Investments |
|
|
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
increases/(decreases) in NAV |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+ Change in CULS
market price |
|
|
|
|
|
|
|
|
|
0.03 |
|
|
|
|
- Finance costs |
|
|
|
|
|
|
|
|
|
(0.25) |
|
|
|
|
+ Reversal of
Incentive fee accrual |
|
|
|
|
|
|
|
|
|
0.45 |
|
|
|
|
- Expenses and
taxation |
|
|
|
|
|
|
|
|
|
(0.24) |
|
|
|
|
+ Appreciation from
share buy backs |
|
|
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV per
Ordinary share as of 29 February 2020 |
|
|
|
|
|
|
|
$6.14 |
|
|
The US micro-cap portfolio performed respectably during the
period, delivering a net increase of 59
cents per share. This was primarily due to net accrued
income of 18 cents, increased
earnings at co-investments Peaceable Street Capital (11 cents), New Vitality (7
cents) and K2 Towers II (3
cents) as well as writing up our Orizon, Avante and
Logistics investments upon their realizations in 2019 (18, 7 and
6 cents, respectively). We also
received 6 cents of escrow payments
during the year. Offsetting these increases were decreases at co-
investments Sloan (1 cent), Igloo (6
cents) and Deflecto (10
cents).
Our JZI Fund III, L.P. (“Fund III”) portfolio performed well
during the period, posting a net increase of 8 cents, primarily due to write-ups at Fund III
portfolio companies S.A.C, 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 (33 cents).
The real estate portfolio experienced a net decrease of
$4.27, largely due to the write-offs
of the Design District and Fulton Mall investments.
Returns
The chart below summarizes cumulative total shareholder returns
and total NAV returns for the most recent six-month, one-year,
three-year and five-year periods.
|
29.2.2020 |
31.8.2019 |
28.2.2019 |
28.2.2017 |
28.2.2015 |
Share price (in
GBP) |
£2.58 |
£4.82 |
£4.35 |
£5.38 |
£4.09 |
NAV per share (in
USD) |
$6.14 |
$9.66 |
$10.04 |
$10.12 |
$10.85 |
NAV to market price
discount |
46.3% |
39.2% |
42.4% |
33.8% |
41.7% |
|
|
6
month |
1
year |
3
year |
5
year |
|
|
return |
return |
return |
return |
Dividends paid (in
USD) |
|
$0.00 |
$0.00 |
$0.00 |
$0.64 |
Total Shareholders'
return (GBP)1 |
|
-41.9% |
-40.7% |
-52.0% |
-30.2% |
Total NAV return per
share (USD)1 |
|
-37.5% |
-38.8% |
-39.3% |
-39.7% |
Adjusted NAV return
per share(USD)1,2 |
|
-37.5% |
-39.0% |
-40.4% |
-34.8% |
|
|
|
|
1Total returns are cumulative and assume that
dividends were reinvested.
2Adjusted NAV returns reflect the return per share
before (i) the dilution resulting from the issue of 18,888,909
ordinary shares at a discount to NAV on 30
September 2015 and (ii) subsequent appreciation from the
buyback of ordinary shares at a discount.
Portfolio Summary
Below is a summary of JZCP’s assets and liabilities at
29 February 2020 as compared to
28 February 2019. An explanation of
the changes in the portfolio follows:
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
US$'000 |
|
US$'000 |
US micro-cap
portfolio |
|
|
|
|
404,880 |
|
478,970 |
European micro-cap
portfolio |
|
|
|
|
102,591 |
|
128,698 |
Real estate
portfolio |
|
|
|
|
158,712 |
|
443,044 |
Other investments |
|
|
|
|
22,603 |
|
18,302 |
Total Private
Investments |
|
|
|
|
688,786 |
|
1,069,014 |
Treasury bills |
|
|
|
|
3,386 |
|
3,314 |
Cash and cash
equivalents |
|
|
|
|
52,912 |
|
50,994 |
Total Listed
Investments and Cash |
|
|
|
|
56,298 |
|
54,308 |
Other assets |
|
|
|
|
119 |
|
1,286 |
Total
Assets |
|
|
|
|
745,203 |
|
1,124,608 |
|
|
|
|
|
|
|
|
Zero Dividend
Preferred shares |
|
|
|
|
64,510 |
|
63,838 |
Convertible Unsecured
Loan Stock |
|
|
|
|
49,886 |
|
54,274 |
Loans payable |
|
|
|
|
150,362 |
|
149,227 |
Other liabilities |
|
|
|
|
4,711 |
|
47,007 |
Total
Liabilities |
|
|
|
|
269,469 |
|
314,346 |
|
|
|
|
|
|
|
|
Total Net
Assets |
|
|
|
|
475,734 |
|
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 Micro-Cap Portfolio
As you know from previous reports, our US portfolio is grouped
into industry ‘verticals’ and co-investments. Our ‘verticals’
strategy focuses on consolidating businesses under industry
executives who can add value via organic growth and cross company
synergies. Our co-investments strategy allows for greater
diversification of our portfolio by investing in larger companies
alongside well-known private equity groups.
The US micro-cap portfolio performed respectably during the
period, delivering a net increase of 59
cents per share. This was primarily due to net accrued
income of 18 cents, increased
earnings at co-investments Peaceable Street Capital (11 cents), New Vitality (7
cents) and K2 Towers II (3
cents) as well as writing up our Orizon, Avante and
Logistics investments upon their realizations in 2019 (18, 7 and
6 cents, respectively). We also
received 6 cents of escrow payments
during the year. Offsetting these increases were decreases at
co-investments Sloan (1 cent), Igloo (6
cents) and Deflecto (10
cents).
European Micro-Cap Portfolio
Our Fund III portfolio performed well during the year, posting a
net increase of 8 cents, primarily
due to write-ups at Fund III portfolio companies S.A.C, 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 (33 cents).
JZCP invests in the European micro-cap sector through its
approximately 18.8% ownership of Fund III. As of 29 February 2020, Fund III held 13 investments:
five in Spain, two in Scandinavia,
two in Italy, two in the UK and
one each in Portugal and
Luxembourg. JZCP held direct loans
to a further four companies in Spain: Ombuds, Docout, Xacom and Toro
Finance.
JZAI has offices in London and
Madrid and an outstanding team
with over fifteen years of experience investing together in
European micro-cap deals.
During the year, JZCP received distributions totaling
approximately €12.8 million (approximately $14.5 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.
Post-period (April 2020), JZCP
received a distribution of €2.7 million from the refinancing of
Eliantus.
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 €12.1
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 22.0%.
Real estate Portfolio
As discussed in the Chairman’s Statement and several press
releases in JZCP’s third and fourth quarters of this fiscal year,
our real estate portfolio has suffered a large reduction in value
during the year. COVID-19 has further damaged the portfolio and may
likely result in further write downs in the value of our real
estate assets. Many of our retail tenants have not paid rent in
April or May. We are negotiating with our lenders across the
portfolio on numerous fronts to allow us to weather the current
situation.
As of 29 February 2020, JZCP had
approximately $419 million invested
in a portfolio of retail, office and residential properties in
Brooklyn, New York, and
South Florida, which is valued at
$159 million as of that date.
Other investments
Our asset management business in the US, Spruceview Capital
Partners, has continued to make encouraging progress since our last
report to you. Spruceview addresses the growing demand from
corporate pensions, endowments, family offices and foundations for
fiduciary management services through an Outsourced Chief
Investment Officer (“OCIO”) model as well as customized
products/solutions per asset class.
During the period, Spruceview received commitments totaling
$700 million for a portfolio of
alternative private equity investments for a Mexican trust (or
“CERPI”). Spruceview has successfully deployed most of those
commitments and continues working to deploy the remaining amounts.
Additionally, Spruceview is anticipating the potential commitment
of an additional $700 million to the
CERPI, subject to regulatory approval.
During the period, Spruceview also maintained a pipeline of
potential client opportunities and continued to provide investment
management oversight to the pension funds of the Mexican and
Canadian subsidiaries of an international packaged foods company,
as well as portfolios for family office clients, a European private
credit fund- of-funds, and a US middle market private equity
fund-of-funds.
As previously reported, Richard
Sabo, former Chief Investment Officer of Global Pension and
Retirement Plans at JPMorgan and a member of that firm’s executive
committee, is leading a team of 15 investment, business and product
development, legal and operations professionals.
Realisations
|
|
|
|
|
|
|
|
|
|
Investment |
|
|
|
|
Portfolio |
|
Proceeds
$ millions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avante - Sale of 80%
of JZCP's stake |
|
|
|
|
U.S micro-cap |
37.5 |
|
|
|
Orizon - Sale of 80%
of JZCP's stake |
|
|
|
|
U.S micro-cap |
28.0 |
|
|
|
Waterline Renewal -
Sale |
|
|
|
|
U.S micro-cap |
23.3 |
|
|
|
Priority Express -
Sale |
|
|
|
|
U.S micro-cap |
17.2 |
|
|
|
Fund III –
Proceeds from Sale of Petrocorner / Refinancing of Collingwood
& Fincontinuo |
Euro micro-cap |
14.8 |
|
|
|
Felix Storch -
Refinancing |
|
|
|
|
U.S micro-cap |
14.0 |
|
|
|
Triangle - Sale |
|
|
|
|
Real
Estate |
|
4.6 |
|
|
|
Other |
|
|
|
|
U.S micro-cap |
3.2 |
|
|
|
Receipt of Escrow
Balances |
|
|
|
|
U.S micro-cap |
5.6 |
|
|
|
Total |
|
|
|
|
|
|
148.2 |
|
|
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, 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.
Triangle
In January 2020, JZCP sold its
investment in the Triangle
property, receiving $4.6 million in
sale proceeds.
Eliantus
In April 2020 (post period), JZCP
received €2.7 million in proceeds from the refinancing of Fund III
portfolio company, Eliantus, which issued its second project bond
backed by solar power plants in Spain.
Outlook
As we think about the outlook, it’s almost impossible to project
at a time when the economy is declining by 20% or more and
unemployment is spiking in the United
States. It is our hope that these conditions subside and
reverse with COVID-19 in decline.
Our efforts are dedicated towards generating cash, which
includes selling certain assets when the market is open as well as
conserving cash by not spending the Company’s resources until we
have clear visibility on when the economy will be on the road to
recovery.
As previously reported, we have reduced the Company’s
commitments to several investments and will continue to do so to
reduce the Company’s cash requirements. We have several of our real
estate properties for sale, but, again, it is very difficult to
sell anything in this environment. In some cases, we may support
the business plan for certain of our properties to retain value as
well as to maximize value.
The schedule for realizing value in the real estate portfolio
has been delayed at least six to twelve months due to the COVID-19
crisis. As you’ve seen, the real estate portfolio has been marked
down significantly since we last reported to you in August 2019. The decision by the Board to adopt
this markdown was made largely upon the basis of the updated
appraisals done by the new appraiser retained by the Company.
Unfortunately post year end, COVID-19 has caused severe impairment
on certain retail real estate assets which may result in further
write- downs. We hope to make progress on realizing some of these
values once the market opens up.
We will keep you informed as to the results of our efforts to
realize cash from our investments. In the meantime, we hope
everybody is healthy and safe and that we can report brighter
prospects when we report to you on our interim results.
Thank you again for your support of the Company’s revised
investment strategy.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
17 June 2020
Investment Review
The following investment review
focuses on JZCP's largest investments (by value) in the US
micro-cap and also provides further analysis of the European
micro-cap and real estate portfolios.
US MICRO-CAP
Industrial Service Solutions
(“ISS”)
Portfolio: US Micro-cap
(Vertical)
Date of Initial Investment: July
2012
Website:
techholdings.com
Cost 29.2.2020 |
|
$48.25
million |
Valuation
29.2.2020 |
$95.9
million |
The investment strategy for Industrial Service Solutions (“ISS”)
is to build a uniquely positioned industrial repair, service and
manufacturing holding company with multiple value propositions
across diversified industries.
ISS provides a broad set of services to critical-to-process
equipment. These services include: on-site mechanical and repair,
regionally based shop services, quality assurance and quality
control inspection, testing, and parts supply, rental and
remanufacturing. The company also sells parts and supplies for the
products it services.
ISS serves a wide variety of industries, such as pulp and paper;
petrochemical; tire and rubber; oil and gas; power generation;
cement; metals and mining; water and waste water; and other
industrial and commercial markets.
With hundreds of dedicated and skilled technicians, machinists,
craftsmen, project leaders and application engineers, ISS has the
experience and talent to deliver high-quality work on schedule and
on budget. The increasing complexity of equipment in industrial
settings, along with fewer maintenance staff at these plants,
should encourage growth in ISS’ customers’ needs. This large and
very fragmented industry is well suited for a consolidation
strategy.
Business
Update
Combined sales for 2019 were $400.4
million (2018: $439.4 million)
and combined EBITDA of $47.4 million
(2018:$51.0 million).
Testing Services Holdings, LLC
("TSH")
Portfolio: US Micro-cap (Vertical)
Date of Initial Investment: July
2012
Website: techholdings.com
Cost 29.2.2020 |
|
$23.8 million |
Valuation
29.2.2020 |
$23.9 million |
Testing Services Holdings, LLC ("TSH") is a holding company
established to pursue a strategic build-up in the highly fragmented
health, safety and environmental ("HSE") market. Companies acquired
under TSH provide service and product-based health & safety
solutions to a variety of end markets, with a particular focus on
the healthcare and life sciences sectors.
To date, TSH has established two vertical platforms,
Contamination Control & Certification Holdings, Inc. (the
"Services Vertical" and Technical Solutions Holdings, Inc. (the
"Products Vertical"), to focus on two specific segments of the
larger HSE market:
· Testing, inspection, certification, repair and calibration
service providers
· Value-added distribution and rental of industrial hygiene
& safety equipment
The Services Vertical is an industry leading provider of
comprehensive testing/inspection, certification, calibration, and
validation services for cleanrooms and critical environments. Since
2018, the Services Vertical has acquired 16 companies in total
throughout the U.S., and is able to gain significant operating
efficiencies as further acquisitions are made.
The Products Vertical is a manufacturer of premium high
visibility safety apparel and offers a comprehensive range of
safety-related products including rental instruments and
calibration services. Since 2012, the Products Vertical has
acquired 8 companies in total throughout the U.S.
Business
Update
Combined sales for 2019 were $112.2
million (2018: $102.5 million)
and combined EBITDA increased to $12.8
million (2018: $12.6
million).
TierPoint
Portfolio: US Micro-cap (Other)
Sector: Data Centre
Acquisition Date: June 2014
Website: www.tierpoint.com
Cost 29.2.2020 |
|
$44.3 million |
Valuation
29.2.2020 |
$46.8 million |
TierPoint is a leading provider of information technology and
data center services, including colocation, cloud computing,
disaster recovery and managed IT services. TierPoint's hybrid IT
solutions help clients increase business agility, drive performance
and manage risk. TierPoint operates via a network of 43 data
centres in 20 markets across the United
States.
There are several strong underlying demand characteristics that
support continued growth in the colocation and hosting sector:
growth in data demand, customer use of third-party infrastructure
to minimise capital investment, continued trend of IT outsourcing,
rapid adoption of cloud solutions, increased focus on compliance
requirements and necessity of secure computing environments.
TierPoint is focused predominantly on Tier II markets that have
strong growth prospects and a robust small-to-medium sized business
customer population.
Deal summary and update
In June 2014, JZCP participated in
the recapitalisation of TierPoint alongside trusted co-investment
partners with whom we have a long-term relationship. The
transaction was led by RedBird Capital Partners and TierPoint
management. At the time of the initial investment, TierPoint
generated $27 million of EBITDA and
has since grown organically and via acquisitions to over
$140 million of Pro Forma Adjusted
EBITDA.
High quality business
The data centre business is attractive due to a highly visible
recurring revenue model, sticky customer relationships, high free
cash flow generation, attractive internal reinvestment
opportunities and a significant runway for growth. Furthermore,
TierPoint is focused on small-to-medium sized businesses in Tier II
US markets, which we believe to be an attractive niche. As
TierPoint transitions toward higher-value managed and cloud
services via a series of acquisitions and strategic initiatives, we
believe the result will be greater customer captivity, greater
profitability and a structurally higher quality business. TierPoint
is led by Jerry Kent, CEO, who has
an established track record of great returns for his investors. As
major shareholders of TierPoint, management’s interest and focus is
fully aligned with investors.
Business update
Net sales for 2019 were $399.6
million (2018: $379.9 million)
and annualised adjusted EBITDA was $152
million (2018:$153
million).
Deflecto
Portfolio: US Micro-cap (Co-investments)
Sector: Consumer Products Acquisition Date: July 2018
Website: www.deflecto.com
Cost 29.2.2020 |
|
$40.1 million |
Valuation
29.2.2020 |
$38.3 million |
Deflecto is a diversified designer, distributor and manufacturer
of consumer and commercial products operating across five industry
segments. The company's customers include major retailers,
wholesalers and OEMs including major big box and online
retailers.
Deflecto is the world’s largest chair mat, bicycle reflector and
dryer venting manufacturer and a global leader in sign and
literature holders, office workspace accessories and other air
distribution products.
Added value is expected from the implementation of business
processes to simplify operations and improve profitability.
Increased revenues and lower costs are expected by focusing on
largest customers and most popular products.
In 2018, Deflecto completed the acquisition of Evriholder
Products which is currently run as a standalone operating company.
Evriholder has expertise in managing retail relationships, new
product introductions and has an international supply chain.
Business update
Sales for 2019 were $194.0 million
(2018: $187.5 million) and adjusted
EBITDA for 2019 was $16.9 million
(2018: $13.6 million).
Felix Torch
Portfolio: US Micro-cap
Sector: Refrigeration
Acquisition Date: March 2017
Website: www.felixstorchinc.com
Cost 29.2.2020 |
|
$0.05 million |
Valuation
29.2.2020 |
$24.5 million |
Felix Storch is a leading
provider of specialty refrigeration and custom appliances to
residential small kitchen, professional, life sciences, food
service and hospitality markets. Felix
Storch is a second generation family business, founded in
1969 and based in The Bronx, NY.
Felix Storch's products now include
a wide range of major appliances sold both nationally and
internationally.
Through its Summit Appliance division, Felix Storch manufactures the industry’s largest
collection of undercounter and ADA compliant refrigeration
products, as well as a large selection of outdoor appliances and
cooking appliances. The Summit Commercial division focuses on the
commercial foodservice market. Felix
Storch's Accucold brand has a growing line of medical,
pharmacy, laboratory, and scientific products.
Business Update
During the year, Felix Storch
recapitalised its debt enabling the return to JZCP of Preferred
Equity of approximately $14
million.
Sales for 2019 were $95.6 million
(2018: $87.3 million) and adjusted
EBITDA for 2019 was $15.6 million
(2018: $15.0 million).
Peaceable Street Capital ("PSC")
Portfolio: US Micro-cap (Co-investments)
Sector: Finance
Acquisition Date: March 2016
Website: www.peaceablestreet.com
Cost 29.2.2020 |
|
$28.0 million |
Valuation
29.2.2020 |
$36.5 million |
Peaceable Street Capital ("PSC") is a specialty finance platform
focused on making structured investments in small and mid-sized
income producing commercial real estate. The company is built on a
foundation of know-how, creatively structuring preferred equity to
provide senior equity in even the most complex situations. With
extensive investment experience throughout the United States and Canada, Peaceable Street Capital’s
underwriting and decision making process is designed to deliver
creative, flexible and dependable solutions quickly.
PSC focuses on a diverse portfolio of property types including
multi-family, office, self-storage, industrial, retail, RV parks,
mobile home parks, parking health care, hotels, etc.
PSC has a business plan to build a $300-$500 million
portfolio in 3-5 years with a management team with a track record
of success.
Business Update
During 2019, PSC signed a strategic joint venture with an
investment firm to scale and grow the business.
PSC's valuation of $36.5 million
(2018: $27.7 million) is largely
based on the net operating income and various capitalisation rates
that pertain to the underlying developed properties.
Salter Labs (incorporating SunMed)
Portfolio: US Micro-cap (Co-investments)
Sector: Respiratory medical products
Acquisition Date: October 2010
Website: salterlabs.com, sun-med.com
Cost 29.2.2020 |
|
$16.8 million |
Valuation
29.2.2020 |
$21.8 million |
Salter Labs (incorporating SunMed) is a manufacturer and
distributor of high quality medical devices for use in hospitals
and healthcare facilities worldwide. SunMed's products includes
airway management, anaesthesia, respiratory, resuscitation/
ventilation, diagnostics, oxygen delivery and surgical care
products. In addition to the SunMed brand, Ventlab and Ethox
Medical branded products are part of the product range.
The company's headquarters in West
Michigan, include a warehouse and distribution center,
production space, cleanroom, and administrative offices for over
140 staff. Its overseas facility is their manufacturing hub
featuring even greater capacity. The company is rapidly growing
with new, innovative products that promote better patient care, and
serves the healthcare industry in over 40 countries.
Business Update
Sales for 2019 were $164.2 million
(2018: $152.6 million) and adjusted
EBITDA for 2019 was $46.5 million
(2018: $44.3 million).
Toro Finance ("Toro")
Portfolio: European Micro-cap
Sector: Financial Services
Acquisition Date: December
2013
Website: Toro Finance
Cost 29.2.2020 |
|
$21.6 million |
Valuation
29.2.2020 |
$23.1 million |
Toro Finance ("Toro") is a provider of short term receivables
financing to the suppliers of major Spanish companies, taking
advantage of the combined lack of financing from banks for these
highly rated credits. An opportunity was identified to provide
financing to this segment and in late 2013 JZCP approached this
market via a joint venture. In February
2016, JZCP realised its equity in Toro but continues to hold
an investment in the company's debt.
Business Update
In March 2020, just before the
lockdown of Spain due to COVID-19,
Toro refinanced its funding facilities, significantly decreasing
the cost of its debt. Toro anticipates substantial commercial
opportunities in the coming years, as banks further retreat from
making loans to small and medium enterprises in Spain post COVID-19.
EUROPEAN MICRO-CAP
JZCP currently invests in the European micro-cap sector through
its 18.75% stake in JZI Fund III, which completed its final fund
raising in December 2015. Previously,
JZCP's investments were made through EuroMicrocap Fund 2010, L.P.
The European investment team has worked together for over ten years
and has a proprietary network of intermediaries to deliver
micro-cap buy-and-build opportunities throughout the continent.
As at 29 February 2020, JZI Fund
III was invested in 13 European micro-cap companies. The portfolio
has five investments in Spain, two
in Scandinavia, UK and Italy and
one each in PortugaI and Luxembourg.
Summary of JZCP's investments in JZI Fund III's Investment
Portfolio at 29 February 2020
|
|
|
|
|
|
|
|
Cost |
|
Valuation1 |
|
Valuation1 |
Company |
|
Industry |
|
|
|
|
29.2.2020 |
|
29.2.2020 |
|
29.2.2020 |
|
|
|
|
|
|
|
|
Euro'000 |
|
Euro'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
S.A.C |
|
S.A.C is
an operational van leasing company in Denmark, specialising in
providing vans on operational lease contracts to large engineering
companies. |
3,355 |
|
7,444 |
|
8,177 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fincontinuo |
|
Fincontinuo is an Italian provider of Cessione del Quinto ("CdQ")
personal loans. CDQ loans are salary-backed and are a uniquely low
risk market niche. |
5,083 |
|
7,520 |
|
8,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Collingwood |
|
A niche UK
motor insurer with operations in Newcastle and Gibraltar. |
2,359 |
|
3,356 |
|
3,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
myLender |
|
myLender
is a Finnish provider of unsecured personal lending products. |
|
3,938 |
|
4,669 |
|
5,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Alianzas
en Aceros |
Alianzas
is a specialised steel service centre business in Spain. The
company is unique due to its combination of strategic asset
acquisitions at a discount, its low cost structure and the
management's extensive know-how/industry relationships. |
|
3,760 |
|
4,406 |
|
4,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
ERSI |
|
ERSI
operates within the reinforced steel sector. It provides an
integrated solution to contractors, which encompasses the entire
value chain of reinforced steel used in concrete structures. |
|
7,789 |
|
4,031 |
|
4,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Treee |
|
Comprised
of six Italian companies, Treee is a leading business in the
treatment and recycling of electronic goods across Italy. |
|
4,733 |
|
7,631 |
|
8,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliantus |
|
Eliantus
is a build-up in the Spanish solar power industry. |
|
4,377 |
|
8,438 |
|
9,269 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Factor
Energia |
|
Factor
Energia is a leading independent supplier of electricity in Spain.
The company is focused on the highly profitable SME segment. |
|
3,750 |
|
6,375 |
|
7,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
BlueSites |
|
Fund III
has entered into a transaction with an experienced management team
to execute a build-up strategy to acquire cell tower land leases in
Portugal. |
|
1,313 |
|
1,950 |
|
2,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Luxida |
|
Luxida is
a build-up in the Spanish last-mile energy distribution sector,
presenting the opportunity to acquire high-quality assets with
long-term regulated revenues at attractive entry multiples. |
|
2,662 |
|
3,750 |
|
4,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Karium |
|
Karium has
a buy-and- build strategy of consumer brands in the UK and European
personal care sector. |
4,321 |
|
7,203 |
|
7,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Union
Financiera Asturiana |
|
Union
Financiera Asturiana ("UFASA") is a leading independent consumer
lender in Spain. |
2,946 |
|
2,946 |
|
3,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net
liabilities |
|
|
|
|
(7,696) |
Total
valuation |
|
|
|
|
68,887 |
1JZCP's 18.75% share of Fund III gross investment
valuation.
REAL ESTATE
JZCP invests in properties through JZCP Realty Fund, a wholly
owned subsidiary. The real estate portfolio has been assembled in
partnership with RedSky Capital, a Brooklyn based real estate company.
In 2012, JZCP started to invest in properties in Brooklyn, a borough of New York City with a population of 2.5
million. Brooklyn has seen a
renaissance where areas that had been historically industrial and
low income have seen demographic changes, fuelled by an influx of
young and affluent ex-Manhattan
residents.
In 2015, JZCP began to invest in the Wynwood and Design District
neighbourhoods of Miami, Florida.
At the time, these two locations where showing rapidly increasing
retail rents and appeared attractive investment opportunities. In
2016, JZCP invested in Esperante Corporate Center, a trophy office
building in West Palm Beach,
Florida.
JZCP's Real Estate portfolio at 29
February 2020, includes the following property
portfolios:
Wynwood Collection, Miami
Florida
The Wynwood collection is comprised of six separate retail and
office buildings in one of Miami's
most up and coming neighbourhoods. JZ Realty is looking at how to
maximise the value of this portfolio.
Bedford Ave, Williamsburg
JZ Realty's first acquisition. A prime retail asset in northern
Brooklyn. In 2016, Apple opened
its first Brooklyn store occupying
the prime corner retail unit.
India Street, Greenpoint
Large development site on the revitalised East River waterfront.
The development site has been marketed for sale and negotiations
are continuing to conclude the realisation.
Esperante, West Palm Beach Florida
Esperante Corporate Center is an iconic building on the downtown
West Palm Beach skyline. The
building is approximately 85% leased and the intention is to market
this property in the near/medium future.
Williamsburg Retail Portfolio
Portfolio comprises several retail buildings along North 6th
Street within the Williamsburg
neighborhood of Brooklyn and one
development site. The portfolio was acquired to reposition the
properties into top-class retail spaces and lease them at market
rents.
Driggs Portfolio, Williamsburg
JZ Realty owns two separate development sites on Driggs Avenue
very close to the Apple store.
Flatbush Portfolio, Downtown
Brooklyn
JZ Realty owns two mixed residential/retail properties within
immediate proximity of the Barclays Center, a 19,000 seat arena and
home to the Brooklyn Nets.
Roebling Portfolio, Williamsburg
The Roebling Portfolio is within two blocks of our Bedford Ave properties.
Hart St.,Bushwick
Hart St. is a loft building in the Bushwick neighbourhood of
Brooklyn.
Design District, Miami
Florida
The Design District has significant excess capacity and is
currently experiencing a low absorption rate. It is estimated it
would take 2-3 years before there would be sufficient demand for
the intended JZCP developments. With high carrying costs for the
assemblage the investment proposition has become untenable. JZ
Realty is negotiating a forbearance agreement with the lender and
in line with most recent appraisal has marked the investment to
nil.
Fulton Mall, Downtown
Brooklyn
JZ Realty has assembled thirteen separate buildings in a vibrant
and transforming neighbourhood. Unable to exercise on the original
investment plan, JZ Realty is negotiating with the lender to allow
time to enable a sale of the assemblage whilst deferring interest
payments.
Triangle, Downtown Brooklyn
Property was sold during the current financial year for
$4.3 million (cost $4.6 million).
At 29 February 2020, JZCP's real
estate portfolio was valued at $158.7
million (28 February 2019:
$443.0 million).
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost1 |
|
JZCP
Equity % |
|
|
Property
Value |
|
Valuation
of JZCP's Equity2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
29.2.2020 |
|
|
29.2.2020 |
|
29.2.2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$'000 |
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wynwood
Collection, Miami Florida |
|
|
|
67,363 |
|
76.80% |
|
|
140,800 |
|
36,140 |
Bedford
Ave, Williamsburg |
|
|
|
17,480 |
|
59.03% |
|
|
183,000 |
|
34,067 |
India
Street, Greenpoint |
|
|
|
43,356 |
|
42.32% |
|
|
154,000 |
|
33,566 |
Esperante, Palm Beach Florida |
|
|
|
14,053 |
|
59.71% |
|
|
144,000 |
|
19,017 |
Williamsburg Retail Portfolio |
|
|
|
69,141 |
|
76.43% |
|
|
210,400 |
|
11,271 |
Driggs
Portfolio, Williamsburg |
|
|
|
7,343 |
|
76.70% |
|
|
35,900 |
|
5,782 |
Flatbush
Portfolio, Downtown Brooklyn |
|
8,302 |
|
76.47% |
|
|
35,400 |
|
5,386 |
Roebling
Portfolio, Williamsburg |
|
|
|
14,089 |
|
76.82% |
|
|
62,000 |
|
3,896 |
Hart
St.,Bushwick |
|
|
|
3,369 |
|
76.06% |
|
|
4,200 |
|
925 |
Design
District, Miami Florida |
|
|
|
164,717 |
|
77.38% |
|
|
130,000 |
|
- |
Fulton
Mall, Downtown Brooklyn |
|
|
|
23,288 |
|
39.37% |
|
|
140,000 |
|
- |
Other
assets |
|
|
|
|
|
9,763 |
|
|
|
|
|
|
8,661 |
Total
assets |
|
|
|
|
|
442,264 |
|
|
|
|
|
|
158,712 |
1Cost represents JZCP Realty's initial investment
plus follow-on property additions and development costs.
2Third party debt is deducted to arrive at the fair
value of JZCP's equity interests.
Investment Portfolio
|
|
29 February 2020 |
|
Percentage of Portfolio |
|
|
Cost1 |
|
Value |
|
|
|
US$'000 |
|
US$'000 |
|
|
% |
|
|
|
|
|
|
|
|
US Micro-cap
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Micro-cap
(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 |
|
95,889 |
|
|
13.8 |
|
|
|
|
|
|
|
|
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 |
|
23,771 |
|
23,889 |
|
|
3.5 |
|
|
|
|
|
|
|
|
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 |
|
10,032 |
|
11,496 |
|
|
1.7 |
|
|
|
|
|
|
|
|
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 |
|
15,507 |
|
|
2.2 |
Total US
Micro-cap (Verticals) |
|
96,093 |
|
146,781 |
|
|
21.2 |
|
|
|
|
|
|
|
|
US Micro-cap
(Co-investments) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABTB
Acquirer of franchises within the fast-casual eateries and
quick-service restaurants sector |
|
8,256 |
|
8,256 |
|
|
1.2 |
DEFLECTO
Deflecto designs, manufactures and sells innovative plastic
products to multiple industry segments |
|
40,112 |
|
38,323 |
|
|
5.5 |
GEORGE INDUSTRIES
Manufacturer of highly engineered, complex and high tolerance
products for the aerospace, transportation, military and other
industrial markets |
|
12,179 |
|
12,177 |
|
|
1.8 |
IGLOO2
Designer, manufacturer and marketer of coolers and outdoor
products |
|
6,040 |
|
1,450 |
|
|
0.2 |
K2 TOWERS II
Acquirer of wireless communication towers |
|
8,466 |
|
10,966 |
|
|
1.6 |
NEW
VITALITY2
Direct-to-consumer provider of nutritional supplements and personal
care products |
|
3,354 |
|
8,996 |
|
|
1.3 |
ORANGEWOOD PARTNERS
II-A LP
Private fund managed by Orangewood Partners currently invests in K2
Towers II (see above) and Exer Urgent Care an urgent care
operator. |
|
6,754 |
|
6,754 |
|
|
1.0 |
ORIZON
Manufacturer of high precision machine parts and tools for
aerospace and defence industries |
|
4,127 |
|
7,065 |
|
|
1.0 |
PEACEABLE STREET
CAPITAL
Specialty finance platform focused on commercial real estate |
|
28,041 |
|
36,541 |
|
|
5.3 |
SALTER
LABS2
Developer and manufacturer of respiratory medical products and
equipment for the homecare, hospital, and sleep disorder
markets |
|
16,762 |
|
21,778 |
|
|
3.1 |
SLOAN
LED2
Designer and manufacturer of LED lights and lighting systems |
|
6,030 |
|
- |
|
|
- |
SUZO HAPP
GROUP2
Designer, manufacturer and distributor of components for the global
gaming, amusement and industrial markets |
|
2,572 |
|
11,700 |
|
|
1.7 |
VITALYST2
Provider of outsourced IT support and training services |
|
9,020 |
|
8,192 |
|
|
1.2 |
Total US
Micro-cap (Co-investments) |
|
151,713 |
|
172,198 |
|
|
24.9 |
|
|
|
|
|
|
|
|
US Micro-cap
(Other) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVANTE HEALTH
SOLUTIONS
Provider of new and professionally refurbished healthcare
equipment |
|
7,185 |
|
9,588 |
|
|
1.4 |
FELIX STORCH
Supplier of specialty, professional, commercial, and medical
refrigerators and freezers, and cooking appliances |
|
50 |
|
24,500 |
|
|
3.5 |
HEALTHCARE PRODUCTS
HOLDINGS3
Designer and manufacturer of motorised vehicles |
|
17,636 |
|
- |
|
|
- |
NATIONWIDE STUDIOS
Processor of digital photos for pre-schoolers |
|
26,324 |
|
5,000 |
|
|
0.7 |
TIERPOINT2
Provider of cloud computing and collocation data centre
services |
|
44,313 |
|
46,813 |
|
|
6.8 |
Total US
Micro-cap (Other) |
|
95,508 |
|
85,901 |
|
|
12.4 |
|
|
|
|
|
|
|
|
Total US Micro-cap
portfolio |
|
343,314 |
|
404,880 |
|
|
58.5 |
|
|
|
|
|
|
|
|
European Micro-cap
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EUROMICROCAP FUND
2010, L.P.
Invested in European Micro-cap entities |
|
169 |
|
2,732 |
|
|
0.4 |
JZI FUND III, L.P.
At 29 February 2020, was invested in thirteen companies in the
European micro-cap sector: Fincontinuo, S.A.C, Collingwood, My
Lender, Alianzas en Aceros, ERSI, Treee, Eliantus, Factor Energia,
BlueSites, Luxida, Karium and UFASA |
|
48,513 |
|
68,887 |
|
|
9.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total European
Micro-cap (measured at Fair Value) |
|
48,682 |
|
71,619 |
|
|
10.3 |
|
|
|
|
|
|
|
|
Direct
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOCOUT5
Provider of digitalisation, document processing and storage
services |
|
2,777 |
|
3,827 |
|
|
0.6 |
OMBUDS5
Provider of personal security, asset protection and facilities
management services |
|
17,198 |
|
- |
|
|
- |
TORO
FINANCE5
Provides short term receivables finance to the suppliers of major
Spanish companies |
|
21,619 |
|
23,078 |
|
|
3.3 |
XACOM5
Supplier of telecom products and technologies |
|
2,055 |
|
4,067 |
|
|
0.6 |
Total European
Micro-cap (Direct Investments) |
|
43,649 |
|
30,972 |
|
|
4.5 |
|
|
|
|
|
|
|
|
Total European
Micro-cap portfolio |
|
92,331 |
|
102,591 |
|
|
14.8 |
|
|
|
|
|
|
|
|
Real Estate
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JZCP
REALTY4
Facilitates JZCP's investment in US real estate |
|
442,264 |
|
158,712 |
|
|
22.9 |
Total Real Estate
portfolio |
|
442,264 |
|
158,712 |
|
|
22.9 |
|
|
|
|
|
|
|
|
Other
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BSM ENGENHARIA
Brazilian-based provider of supply chain logistics, infrastructure
services and equipment rental |
|
6,115 |
|
459 |
|
|
0.1 |
CERPI
Spruceview managed investment product |
|
1,056 |
|
1,056 |
|
|
0.2 |
JZ
INTERNATIONAL3
Fund of European LBO investments |
|
- |
|
750 |
|
|
0.1 |
SPRUCEVIEW CAPITAL
Asset management company focusing primarily on managing endowments
and pension funds |
|
31,255 |
|
20,338 |
|
|
2.9 |
Total Other
investments |
|
38,426 |
|
22,603 |
|
|
3.3 |
|
|
|
|
|
|
|
|
Listed
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Bill -
Maturity 14 May 2020 |
|
3,385 |
|
3,386 |
|
|
0.5 |
Total Listed
investments |
|
3,385 |
|
3,386 |
|
|
0.5 |
|
|
|
|
|
|
|
|
Total -
portfolio |
|
919,720 |
|
692,172 |
|
|
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 23).
3Legacy Investments. Legacy investments are
excluded from the calculation of capital and income incentive
fees.
4JZCP 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.
5Classified as Loans at Amortised
Cost.
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 June 2018. In 2003 she completed a private equity
backed MBO of the trust and fund administration division of
Deloitte and Touche, called Walbrook, selling it to Barclays Wealth
in 2007. As a Managing Director of Barclays, she ultimately became
global head of their trust and fund administration businesses,
comprising over 450 staff in 10 countries. She stepped down from
her executive roles in 2011 to focus on other areas and interests
but has maintained directorships in several companies. She is a
Fellow of the Institute of Chartered Accountants in England and Wales and a member of the Society of Trust and
Estate Practitioners, and is a resident of Guernsey.
Tanja
Tibaldi
Ms Tibaldi was appointed to the Board of JZCP in April 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. Ms
Tibaldi intends to retire from the Board at the Company's AGM in
August 2020.
Patrick
Firth
Mr Firth resigned from the Board and as Chairman of the Audit
Committee on 27 June 2019.
Christopher
Waldron
Mr Waldron resigned from the Board on 26
November 2019.
1Chairman of the nominations committee of which all
Directors are members.
2Chairman of the audit committee of which all
Directors are members.
Report of the Directors
The Directors present their annual report together with the
audited financial statements of JZ Capital Partners ("JZCP" or the
"Company") for the year ended 29 February
2020.
Principal Activities
JZ Capital Partners Limited is a closed-ended investment company
with limited liability which was incorporated in Guernsey on 14 April
2008 under the Companies (Guernsey) Law, 1994. The Company is subject to
the Companies (Guernsey) Law,
2008. The Company's Capital consists of Ordinary shares, Zero
Dividend Preference ("ZDP") shares and Convertible Unsecured Loan
Stock ("CULS"). The Company's Ordinary shares, ZDP Shares and CULS
are traded on the London Stock Exchange's Specialist Fund
Segment.
The Company’s Investment Policy has been to target predominantly
private investments, seeking to back exceptional management teams
to deliver on attractive investment propositions. In executing its
strategy, the Company takes a long term view.
The Company focused on investing in the following areas, and is
now focused on supporting these investments:
(a) small or micro-cap buyouts in the form of debt and equity
and preferred stock in both the US and Europe; and
(b) US real estate interests.
The Investment Adviser has taken a dynamic approach to asset
allocation. However, the Company has sought to maintain a broad
spread of investment risk. Exposures are monitored and managed by
the Investment Adviser under the supervision of the Board. The
Investment Adviser is able to invest globally but with a particular
focus on opportunities in the United
States and Europe.
The Company's shareholders are due to vote on proposed changes
to the Company’s investment policy. Under the proposals, the
Company will make no further investments except in respect of which
it has existing obligations or to the extent that investment is
required to support existing investments. The intention is to
realise the maximum value of its investments and, after repayment
of all debt, to return capital to shareholders.
Business Review
The total loss attributable to Ordinary shareholders for the
year ended 29 February 2020 was
$304,549,000 (year ended 28 February 2019: loss of $6,835,000). The net asset value ("NAV") of the
Company at the year end was $475,734,000 (28 February
2019: $810,262,000) equal to
$6.14 (28
February 2019: $10.04) per
Ordinary share. The loss recorded for the year ended 29 February 2020 is largely attributable to
valuation write downs in the Company's real estate portfolio.
A review of the Company's activities and performance is detailed
in the Chairman's Statement and the Investment Adviser's Report.
The valuations of the unlisted investments are detailed on
Investment Portfolio Schedule.
The implications of coronavirus ("COVID-19") on the Company, are
further explained in this report. At the date of signing this
report, the Board have been unable to quantify the impact on the
valuation of the portfolio. It is noted that in accordance with
IFRS, the Board have judged any quantifiable impact on the
portfolio would not have been included within the 29 February 2020 valuations but would have been
reported as a non-adjusting event within the Subsequent Events note
in the financial statements, as the lock down impacting the
Company's underlying investments occurred after the year end.
Principal Risks and Uncertainties
The Company's Board believes the principal risks and
uncertainties that relate to an investment in JZCP are as
follows:
COVID-19
The impact of the COVID-19 outbreak evolved rapidly during 2020.
The World Health Organization declared the outbreak of coronavirus
to be a Public Health Emergency of International Concern on
30 January 2020 and recognised it as
a pandemic on 11 March 2020.
The Company is reporting its annual results as at 29 February 2020; this was also the date
the United States announced its
first coronavirus death and the Trump administration first
announced travel restrictions to/from areas that at the time were
the most affected by the virus. At this date, the Company’s
underlying investee portfolio was largely unaffected by the virus
with only minimal impacts on the supply chains for some micro-cap
investments. The full impact on the economy of the eventual
‘lockdown’ in the U.S., Europe and
much of the rest of the world, required to restrict contagion was
not fully envisaged.
The Board continue to monitor the impact of COVID-19 on the
Company's investments and its on-going viability. As the outbreak
continues to evolve, it is difficult, at this juncture, to estimate
the full extent and duration of the impact on the Company.
As disclosed in the Board's Going Concern Assessment, the market
conditions generated by COVID-19 have resulted in uncertainties
that may cast significant doubt on the Company’s ability to
continue as a going concern.
NAV Factors
(i) Macroeconomic Risks
The Company's performance, and underlying NAV, is influenced by
economic factors that affect the demand for products or services
supplied by investee companies and the valuation of Real Estate
interests held. Economic factors will also influence the Company's
ability to invest and realise investments and the level of realised
returns. Approximately 15% of the Company's investments are
denominated in non-US dollar currencies, primarily the euro. Also
the Company has issued debt denominated in non-US dollar
currencies, primarily sterling. Fluctuations to these exchange
rates will affect the NAV of the Company.
(ii) Underlying Investment
Performance
The Company is reliant on the Investment Adviser to source and
execute suitable investment opportunities. The Investment Adviser
provides to the Board an explanation of all investment decisions
and also quarterly investment reports and valuation proposals of
investee companies. The Board reviews investment performance
quarterly and investment decisions are checked to ensure they are
consistent with the agreed long term investment strategy.
Portfolio Liquidity
The Company invests predominantly in unquoted companies and real
estate. Therefore, this potential illiquidity means there can be no
assurance investments will be realised at their latest valuation.
The Board considers this illiquidity when planning to meet its
future obligations, whether committed investments or the repayment
of debt facilities or the future repayment of CULS and ZDP shares.
On a quarterly basis, the Board reviews a working capital model
produced by the Investment Adviser which highlights the Company's
projected liquidity and financial commitments.
Gearing and Financing Costs in the real estate Portfolio
The cost of servicing debt in the underlying real estate
structures may impact the net valuation of the real estate
portfolio and subsequently the Company's NAV. Gearing in the
underlying real estate structures will increase any losses arising
from a downturn in property valuations.
Share Price Trading at Discount to NAV
JZCP's share price is subject to market sentiment and will also
reflect any periods of illiquidity when it may be difficult for
shareholders to realise shares without having a negative impact on
share price. The Directors review the share price in relation to
Net Asset Value on a regular basis and determine whether to take
any action to manage the discount. The Directors with the support
of the Investment Adviser work with brokers to maintain interest in
the Company’s shares through market contact and research
reports.
Operational and Personnel
Although the Company has no direct employees, the Company
considers what dependence there is on key individuals within the
Investment Adviser and service providers that are key to the
Company meeting its operational and control requirements.
Other than the associated risks of COVID-19, the Board considers
the principal risks and uncertainties above are consistent with the
prior year. The Board recognises the Company will have an increased
exposure to liquidity risk as future debt obligations near
maturity, for other risks noted the Company's exposure to these
risks is neither greater nor any less during the year ended
29 February 2020 compared to the year
ended 28 February 2019.
Going Concern
A fundamental principle of the preparation of financial
statements in accordance with IFRS is the judgement that an entity
will continue in existence as a going concern for a period of at
least 12 months from signing of the financial statements, which
contemplates continuity of operations and the realisation of assets
and settlement of liabilities occurring in the ordinary course of
business.
In the context of the delay in realising assets as previously
announced, the potential impact on the repayment of the Guggenheim
facility and the CULS together with the COVID-19 impact on
valuation of the Company’s investment portfolio and related loan
covenants, there are material uncertainties which cast significant
doubt on the ability of the Company to continue as a going concern.
However the financial statements have been prepared on a going
concern basis for the reasons set out below and as the Directors,
with recommendation from the Audit Committee, have a reasonable
expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future.
In reaching its conclusion, the Board have considered the risks
that could impact the Company’s liquidity over the period to
31 July 2021. This period, which is
longer than the required period of 12 months, has been considered
to be relevant due to the repayment date for the Company’s CULS
being only 43 days after the 12 month period.
As part of their assessment the Audit Committee highlighted the
following key considerations:
1. Whether, the Company can generate
sufficient cash through realisations of its underlying investments
to discharge its liabilities over the period to 31 July 2021
2. Whether, in the event that the
realisation events previously referred to do not materialise before
the expiration of the current loan facility and the repayment date
of the CULS, the Company is able to implement an alternative plan
for refinancing the loan facility within the required timeframe
3. COVID-19 impact on valuation of
the Company’s investment portfolio and related loan covanents
4. Valuation losses incurred by the Company during the year
ended 29 February 2020
1. Whether, the Company can generate
sufficient cash through realisations of its underlying investments
to discharge its liabilities over the period to 31 July 2021
As at 31 May 2020, the Company had
cash and cash equivalents of approximately $43 million which offers over 6 months of
liquidity cover assuming no income from realisations and making
payments as forecast for follow-on investments, debt financing and
ongoing expenses and the retainment of $15
million cash required for current loan.
The Company has two major debt obligations to settle towards the
end of the going concern period being:
i) the Loan facility with Guggenheim of approximately
$150 million due for settlement on
12 June 2021; and
ii) ii) CULS for settlement value of £38.9 million
(approximately $50 million) due for
settlement on 30 July 2021.
It is anticipated that the liquidity required to settle the debt
obligations mentioned above, and other ongoing
obligations in 2021, will be generated from
realisations within the going concern period. These forecast
realisations include two anticipated secondary sales of several
micro-cap companies and also certain other assets. Total
realisation proceeds of approximately $260
million are expected from the aforementioned events.
Prior to the COVID-19 pandemic and the resulting lockdown some
of these realisation events were close to completion. Whilst the
Board still expects these transactions to complete, the timing of
the closure of the transactions depends largely on the length and
severity of the COVID-19 lockdown. The Directors have also
considered the levels of realisation proceeds
historically generated by the Company’s micro-cap portfolios as
well as the accuracy of previous forecasts whilst concluding on the
accuracy of the forecast.
2. Whether, in the event that the
realisation events referred to in (1) do not materialise before the
expiration of the current loan facility and the repayment of the
CULS, the Company is able to implement alternative plans for
refinancing within the required timeframe.
JZAI personnel manage the relationship with the Company’s
lender, monitor compliance with loan terms and covenants and report
to the Board on matters arising. Throughout the year ended
29 February 2020, the Company has
continued to be in compliance with covenant terms and made all
scheduled interest payments on time. Post year end, the Company
obtained agreement from the parties to the loan facility for an
extension to the time for delivery of this annual report, the
release of which was delayed on account of COVID-19. Discussions
are also ongoing regarding amendments to the loan
agreement to ensure any risk of breach of covenant in light of the
uncertainties caused by COVID-19 over post year end valuations is
avoided.
3. COVID-19 impact on valuation of
the Company’s investment portfolio and related loan covenants
The Board recognise the high degree of uncertainty in respect of
the dynamic situation which has unfolded with COVID-19 and is
currently unable to assess the likely duration and exact impact to
the Company of the outbreak.
Whilst the effect of Covid-19 on the valuation of the
Company’s investment portfolio cannot yet be
estimated, there is an expectation that there will be further
write downs within the real estate portfolio following the interim
appraisals and also a lengthy lockdown period, especially in the
US, could adversely affect the valuation of the company’s micro-cap
portfolio.
Post year end, the Board has received regular updates from the
Investments Adviser of the impact of COVID-19 on the individual
investments within the Company’s investment portfolio. To enable
the Board to assess the ongoing risk to the Company posed by the
virus, information has been provided on the following business
aspects of portfolio companies:
· Demand for product/service;
· Supply Chain & operational issues;
· Flexibility and adaptability of workforce to
perform duties;
· Financial Strength of Company – Liquidity
Issues; and
· Support received from Government
programmes.
The pandemic has unfortunately created an environment where the
completion of corporate transactions has predominantly stalled.
Therefore, the Company have had to consider the effect on
liquidity. The Board have concluded that they have a reasonable
expectation that delays in scheduled realisations will be
short-lived and completed as financial markets return to a level of
normality.
Future valuation losses may impact compliance with covenants
placed on the Company’s loan facility which require a 4x asset
value cover. The Board note the current collateral/loan ratio is
4.5x and a further fall in the NAV of approx. $70 million would see the required 4x cover of
this loan covenant breached. Discussions are ongoing between the
Company and Guggenheim, in part regarding the amendment of the loan
agreement to ensure any risk of breach of covenant is avoided in
light of the uncertainties caused by COVID-19 over post year end
valuations.
4. Valuation losses incurred by the
Company during the year ended 29 February
2020
The Company has incurred losses of $304.5
million during the year ended 29
February 2020. As previously announced towards the latter
half of 2019, the Company has dramatically revised downwards its
valuation of its real estate portfolio.
The Board have assessed that these losses, as they are valuation
related, have not impacted or created a material uncertainty around
the Company’s ability to continue in existence as a going
concern.
Going Concern Conclusion
After careful consideration and based on the reasons outlined
above, the Board are satisfied, as of today’s date, that it is
appropriate to adopt the going concern basis in preparing the
financial statements and they have a reasonable expectation that
the Company will continue in existence as a going concern for the
period ending 31 July 2021.
However, of the four key considerations identified above the
Board have concluded that three of them create material
uncertainties which cast significant doubt over the ability of the
Company to continue as a Going Concern, being:
· Whether, the Company will be able to
generate sufficient realisation proceeds before the expiration of
the current loan facility and repayment of the CULS;
· In the event sufficient realisation proceeds
referenced above are not generated the Company is able to implement
alternative plans within a timetable agreed with its lenders;
and
The full impact of COVID-19 on the valuation of the Company’s
investment portfolio and related loan covenants is not currently
known.The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
Viability Statement
In accordance with the UK Corporate Governance Code (the "UK
Code") the Board has assessed the expectations that the Company
will be able to continue in operation and meet ongoing debt
obligations. In order to make the assessment the Board has carried
out a robust review of the Company's principal risks and
uncertainties, as noted above, to which the Company is exposed and
that potentially threaten future performance and liquidity and has
assessed the Company's current position and prospects as detailed
in the Chairman's statement and Investment Adviser's report. The
period covered by the viability statement is the next three
financial years to 28 February
2023.
As set out in the going concern statement, the viability of the
Company is dependent entirely on actions that are being and will be
taken over the course of the going concern period ended
31 July 2021. However, there are
material uncertainties which cast significant doubt over the
ability of the Company to continue as a going concern and its
longer-term viability, being:
· Whether, the Company will be able to
generate sufficient realisation proceeds before the expiration of
the current loan facility and repayment of the CULS;
· In the event sufficient realisation proceeds
referenced above are not generated the Company is able to implement
alternative plans within a timetable agreed with its lenders;
and
The full impact of COVID-19 on the valuation of the Company’s
investment portfolio and related loan covenants is not currently
known.
The Directors have continued to use the period of three years to
assess viability that has been used historically. This period is
considered appropriate as the actions will be directed at achieving
liquidity from sales of investments, at a level that will
reasonably ensure the longer-term viability of the operations of
the Company. The Board will continue to review the period of
assessment on an annual basis and may in future adjust if
considered appropriate.
In reaching its conclusion on the Company’s viability, the
Directors have considered the following:
(i) Recent
Events
Reduction in Company's Net Asset Value
As noted in the Going Concern Assessment, during the
February 2020 fiscal year, the
Company suffered valuation losses with its NAV being decreased by
approx. 41% over the year. This reduction has weakened the
Company’s balance sheet and the Board have subsequently had to
consider the impact on the liquidity of the Company.
In order to stabilise the Company's balance sheet, the Board are
focused on repaying debt. Investment is being curtailed to
commitments and what is necessary to maximise the value of the
existing portfolio. No repayment of capital will be made to
shareholders until debt obligations have been met.
COVID-19
The Board and Investment Adviser are continuing to monitor the
impact and consequences of the virus on the Company and its
investments (As noted above in Going Concern Key
Considerations).
(ii) Financing obligations
Guggenheim Loan - Maturity date 12 June
2021
The loan facility has a maturity date of June 2021, the balance outstanding to Guggenheim
Partners at 29 February 2020 was approximately
$150 million. It is expected the debt
facility will be repaid in full or part from the proceeds of
realisations and/or refinancing of investments. The Investment
Adviser and Guggenheim Partners are in ongoing discussions
regarding amendments to the loan agreement to ensure any risk of a
breach of covenant is avoided by providing Guggenheim Partners with
assurance that a percentage of any realisation proceeds will be
utilised to pay down the debt. The Board and Investment Adviser
will continue to review the option of potentially extending the
maturity date or rolling a smaller amount into a new facility to
aid future liquidity.
Convertible Unsecured Loan Stock - Maturity date 30 July
2021
The Company will redeem CULS in July
2021 amounting to £38.9 million (approx. $50 million at year end exchange rate),
assuming holders of CULS do not convert their holdings to equity.
It is expected the redemption of the CULS will be met from
the proceeds of realisations and/or refinancing of investments.
Zero Dividend Preference (2022) shares - Maturity date
1 October 2022
JZCP is due to redeem £57.6 million (est. $73.6 million at year end exchange rate), of ZDP
shares on 1 October 2022, again it is
expected the redemption of the ZDPs will be met from the proceeds
of realisations and/or refinancing of investments.
Commitments
At 17 June 2020, JZCP had financial
commitments of $50.4 million
outstanding in relation to fund investments.
(iii) Investment performance and portfolio liquidity
The Board reviews, on a quarterly basis, the valuation and
prospects of all underlying investee companies. The performance of
JZCP's real estate portfolio has limited the potential to realise
liquidity from this portfolio and therefore increased the risk to
both liquidity and therefore viability. The Board however, are
satisfied in large with the performance of the JZCP's micro-cap
portfolios and believe there will be suitable realisation
opportunities and proceeds in order for the Company to meet its
debt and other obligations. JZCP's micro-cap portfolio has averaged
annual realisations of $137 million
over the five years ending 29 February
2020. JZAI is currently pursuing various opportunities to
realise value, whilst COVID-19 has delayed both the investment and
realisation activity, the Board have concluded that they have a
reasonable expectation that this is a relatively short-term
issue.
(iv) Loan covenants
At 29 February 2020, investments
and cash valued at $668 million were
held as collateral on the Guggenheim loan. A covenant on the loan
states the fair value of the collateral must be 4x the loan value
and the cost of collateral must be at least 57.5%
of total assets. The Company is also required to hold a minimum
cash balance of $15 million plus 50%
of interest on any new debt. The Board note the current
collateral/loan ratio is 4.5x and a further fall in the NAV of
approx.
$70 million would see this
covenant on the loan breached. As a result
discussions are ongoing regarding amendments
to the loan agreement to ensure any risk of a breach of covenant
is avoided.
(v) Mitigation of other risks as outlined in the Principal Risks
and Uncertainties (detailed above).
Conclusion
In concluding on the viability of the Company, the Directors have
concluded that they have a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over the period of the assessment. They consider the
going concern assumptions, material uncertainties and conclusion
set out above to be relevant.
Dividends
No dividends were paid or proposed for the years ended
29 February 2020 and 28 February 2019.
Ongoing Charges
Ongoing charges for the years ended 29
February 2020 and 28 February
2019 have been prepared in accordance with the Association
of Investment Companies ("AIC") recommended methodology. The
ongoing charges ratio represents annualised recurring operational
expenses as a percentage of the average net asset value. The
Ongoing charges for the year ended 29
February 2020 were 2.71% (28 February
2019: 2.42%) excluding incentive fees of -4.97% being the
reversal of prior year provision (28
February 2019: 0.30%).
Directors
The Directors listed below, who served on the Board during the
year are all deemed independent and non-executive, other than
Patrick Firth and Christopher Waldron they were in office at the
end of the year and subsequent to the date of this report. The
biographical details of the Directors are shown in the Board of
Directors.
David Macfarlane (Chairman)
James Jordan
Sharon Parr
Tanja Tibaldi
Patrick Firth (resigned
27 June 2019)
Christopher Waldron (resigned
26 November 2019)
Substantial Shareholders
As at 17 June 2020, the Company
has been notified in accordance with the Disclosure Guidance and
Transparency Rules of the following interests of 5% or more of the
total Ordinary share capital of the Company. The number and
percentage of Ordinary shares relate to the number informed by
shareholders on the relevant notification rather than the current
share register. The number and percentage of Ordinary shares set
out below for each substantial shareholder will therefore not take
account of any Ordinary shares bought or sold by them or the effect
of any share buy backs undertaken by the Company on their
shareholdings, in each case, not so notified as required by, or in
accordance with, the Disclosure Guidance and Transparency
Rules.
|
|
|
|
|
|
|
Ordinary |
|
% of
Ordinary |
|
|
|
|
|
|
|
shares |
|
shares |
|
|
|
|
|
|
|
|
|
|
Edgewater Growth
Capital Partners L.P. |
|
|
|
|
|
|
18,335,944 |
|
23.7% |
David W.
Zalaznick |
|
|
|
|
|
|
10,550,294 |
|
13.6% |
John W. Jordan II
& Affiliates |
|
|
|
|
|
|
10,550,294 |
|
13.6% |
Leucadia Financial
Corporation |
|
|
|
|
|
|
8,021,552 |
|
10.4% |
Abrams Capital
Management L.P. |
|
|
|
|
|
|
7,744,366 |
|
10.0% |
Arnhold, LLC |
|
|
|
|
|
|
4,573,007 |
|
5.9% |
Finepoint Capital
L.P. |
|
|
|
|
|
|
4,413,067 |
|
5.7% |
The percentage of Ordinary shares shown above represents the
ownership of voting rights at the year end, before weighting for
votes on Directors.
It is the responsibility of the shareholders to notify the
Company of any change to their shareholdings when it reaches 5% of
shares in issue and any subsequent change when the shareholding
increases or decreases by a further 5% (up to 30% of shares in
issue i.e. 10%, 15%, 20%, 25% and 30%) and thereafter 50% and
75%.
Share Capital, Purchase of Own Shares
and Convertible Unsecured Loan Stock "CULS"
The beneficial interests of the Directors in the Ordinary shares
of the Company are shown below:
|
|
|
|
Number of Ordinary shares at 1 March 2019 |
|
Purchased in year |
|
Sold
in year |
|
Number of Ordinary shares at 29 February 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Macfarlane |
|
|
74,800 |
|
- |
|
(3,250) |
|
71,550 |
James
Jordan |
|
|
40,800 |
|
- |
|
(1,676) |
|
39,124 |
Tanja
Tibaldi |
|
|
2,720 |
|
- |
|
- |
|
2,720 |
Patrick
Firth1 |
|
|
5,440 |
|
(see below) |
|
|
|
|
Christopher Waldron2 |
|
|
4,000 |
|
(see below) |
|
|
|
|
|
|
|
|
127,760 |
|
- |
|
(4,926) |
|
113,394 |
1Patrick Firth held
5,440 shares at 1 March 2019 and on
his retirement from the board at 27 June
2019.
2Christopher Waldron
held 4,000 shares at 1 March 2019 and
3,827 on his retirement from the board at 26
November 2019.
The beneficial interests of the Directors in the CULS of the
Company are shown at 29 February 2020
(no change from 28 February 2019
position):
|
|
|
|
|
|
|
|
Number of CULS
of £10 nominal value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Macfarlane |
|
|
|
|
|
|
|
|
734 |
Tanja
Tibaldi |
|
|
|
|
|
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,101 |
None of the Directors held any interest in the Zero Dividend
Preference shares during the year. There have been no changes in
the Directors' interests of any share class between 29 February 2020 and the date of this report.
Details of the ZDP shares and the Ordinary shares can be found
in Notes 15 and 18. Details of the CULS can be found in Note
14.
Annual General Meeting
The Company's Annual General Meeting is due to be held on
12 August 2020.
Engaging with Stakeholders
In line with best practice, and under the 2019 AIC Code of
Corporate Governance (the “AIC Code”), the Board is required to
ensure effective engagement with, and participation from, its
shareholders and stakeholders. The Board should also understand the
views of the Company’s key stakeholders and describe in the annual
report how their interests and the matters set out in section 172
of the Companies Act 2006 have been considered in board discussions
and decision-making.
The Board identifies its key stakeholders as the following:
· Shareholders and prospective investors
· JZAI, the Investment Adviser of its
portfolio investments and other service providers
The Company has no employees
Engaging with
Shareholders
The Directors believe that the maintenance of good relations with
both institutional and retail shareholders is important for the
long term prospects of the Company. It therefore seeks active
engagement with investors, bearing in mind the duties regarding
equal treatment of shareholders and the dissemination of inside
information. The Board receives feedback on shareholder views from
its Corporate Broker and Investment Adviser, and is circulated with
Broker reports on the Company.
The Board believes that the Annual General Meeting, a meeting
for all shareholders, is the key point in the year when the Board
of Directors accounts to all shareholders for the performance of
the Company. In usual circumstances the Directors encourage all
shareholders to attend where Directors will be present and
available to engage with shareholders. In light of COVID-19,
shareholders should refer to the Notice of AGM for guidance on
physical attendance at this year's meeting.
The Board believes that the Company policy of reporting to
shareholders as soon as possible after the Company's year end and
the holding of the Annual General Meeting at the earliest
opportunity is valuable.
The Company also provides an Interim Report and Accounts in
accordance with IAS 34 and usually provides Interim Management
statements for the quarterly periods. No Interim Management
statement was issued for the quarterly period ended
30 November 2019 or will be for the
quarter ended 31 May 2020, due to the
delayed release of the interim financial statements and annual
report. In addition, considering the uncertainties about valuation
that result from COVID19, the Company will be suspending its
monthly NAV announcements until circumstances allow for more
informed judgements as to value.
Engaging with Service
Providers
The Board visits the Investment Adviser at least annually for a
comprehensive review of the portfolio, its valuation methodology
and general strategy. The Board are also in regular communication
with the Investment Adviser to discuss the Company’s strategy as
well as being kept up to date with portfolio matters.
A Management Engagement Committee, was established in 2018, to
review the performance and contractual arrangements of the
Company’s service providers. The Board look to engage with service
providers and encourage communication of any concerns of matters
arising and deal with them appropriately.
Statement of Directors'
Responsibilities
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable laws and
regulations. Guernsey Company Law requires the Directors to prepare
financial statements for each financial year which give a true and
fair view of the state of affairs of the Company as at the end of
the financial year and of the profit or loss for that year.
In preparing Financial Statements the Directors are required
to:
· select suitable accounting policies and
apply them consistently;
· make judgements and estimates that are
reasonable and prudent;
· state whether applicable accounting
standards have been followed, subject to any material departures
disclosed and explained in the Financial Statements;
· prepare the Financial Statements on the
going concern basis unless it is inappropriate to presume that the
Company will continue in business;
· confirm that there is no relevant audit
information of which the Company’s Auditor is unaware; and
· confirm that they have taken all reasonable
steps which they ought to have taken as Directors to make
themselves aware of any relevant audit information and to establish
that the Company’s Auditor is aware of that information.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Financial Statements have been properly prepared in accordance
with the Companies (Guernsey) Law,
2008 and International Financial Reporting Standards as adopted by
the European Union (“IFRS”). They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors confirm that they have complied with these
requirements in preparing the Financial Statements.
Responsibility Statement of the
Directors in respect of the Financial Statements
The Directors confirm that to the best of their knowledge:
· the Financial Statements have been prepared
in accordance with IFRS and give a true and fair view of the
assets, liabilities and financial position, and profit or loss of
the Company;
· the Annual Report includes a fair review of
the development and performance of the business and position of the
Company together with the description of the principal risks and
uncertainties that the Company faces, as required by the Disclosure
Guidance and Transparency Rules of the UK Listing Authority;
and
· the Directors confirm that the Annual Report
and Financial Statements, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Company’s performance and strategy.
Directors’ Statement
So far as each of the Directors is aware, there is no relevant
audit information of which the Company's auditor is unaware, and
each Director has taken all the steps they ought to have taken as a
Director to make themselves aware of any relevant audit information
and to establish that the Company's auditor is aware of that
information.
Approved by the Board of Directors and
signed on behalf of the Board on 17 June
2020.
David
Macfarlane
Chairman
Sharon
Parr
Director
Corporate Governance
Introduction
As a UK listed Company, JZCP’s governance policies and procedures
are based on the principles of the UK Corporate Governance Code as
required under the Disclosure Guidance and Transparency Rules. The
UK Code is available on the Financial Reporting Council’s website,
www.frc.org.uk. The Company is subject to the GFSC Code, which
applies to all companies registered as collective investment
schemes in Guernsey. The GFSC has
also confirmed that companies that report against the UK Code or
AIC Code are deemed to meet the GFSC Code. The AIC Code addresses
all the principles set out in the UK Code, as well as setting out
additional principles and recommendations on issues that are of
specific relevance to investment companies such as the Company. The
Board considers that reporting against the principles and
recommendations of the AIC Code provides better information to
Shareholders.
Throughout the accounting period the Company has complied with
the recommendations of the AIC Code and thus the relevant
provisions of the UK Corporate Governance Code, except as set out
below.
The UK Corporate Governance Code includes provisions relating
to:
- the role of the chief executive
- executive directors remuneration
- the need for an internal audit function
- appointment of a senior independent director
- whistle blowing policy
The Board considers these provisions are not relevant to the
position of JZ Capital Partners Limited, being an externally
managed investment company. The Company has therefore not reported
further in respect of these provisions. The Directors are
non-executive and the Company does not have employees, hence no
whistle blowing policy is required. However, the Directors have
satisfied themselves that the Company's service providers have
appropriate whistle blowing policies and procedures and have
received confirmation from the service providers that nothing has
arisen under those policies and procedures which should be brought
to the attention of the Board. There have been no other instances
of non-compliance, other than those noted above.
Guernsey Code of Corporate
Governance
The Guernsey Financial Services Commission’s (the "GFSC")
“Finance Sector Code of Corporate Governance” (the "Guernsey Code")
came into effect on 1 January 2012
and was subsequently amended on 18 February
2016. The introduction to the Guernsey Code states that
companies which report against the UK Corporate Governance Code or
the AIC’s Code of Corporate Governance are deemed to meet the
Guernsey Code.
The Board
Corporate Governance of JZCP is monitored by the Board which at
the end of the year comprised four Directors, all of whom are
non-executive. Biographical details of the Board members at the
date of signing these Financial Statements are shown in the Board
of Directors and their interests in the shares of JZCP are shown in
the Report of the Directors. The Directors' biographies highlight
their wide range of relevant financial and sector experience.
Directors'
Independence
The Board continually considers the independence of the Directors,
including in light of the circumstances which are set out in the
AIC Code as likely to impair a director's independence.
There are no circumstances that exist, including those under the
AIC Code (2019), which the Board considers likely to impair the
independence of any of the Directors.
A number of the Directors have, however, served on the Board for
a period of longer than nine years which is one of those
circumstances set out in the AIC Code. The conclusion the Board has
reached is that despite having served on the Board for more than
nine years, this has not impacted the independence of such
Directors. However, the Board will continue to assess on an annual
basis how length of service could impair judgement and decision
making both on the basis of an individual Director and the Board as
a whole.
Further details on the Board’s processes and criteria for the
appointment of directors can be found under the section of this
Annual Report detailing the work of the Nomination Committee.
Succession Planning
The Board acknowledges that the Board and its Committees should
have a combination of skills, experience and knowledge and that
membership should be regularly refreshed. The Board annually
evaluates its composition, diversity and how effectively each
member contributes and how they work together to achieve
objectives. Further details on the evaluation of the Board and its
Committees can be found below in this section of the Annual
Report.
During the fiscal year, both Patrick
Firth and Chris Waldron
resigned from the Board. Tanja
Tibaldi intends to retire from the board at the forthcoming
Annual General Meeting and further Board refreshment is intended at
the Annual General Meeting in 2021. The Board is currently looking
to recruit an additional Guernsey
resident director.
Chairman
Tenure
The Board’s policy on the Chairman’s tenure is that continuity and
experience are considered to add significantly to the strength of
the Board and as such these attributes need to be weighed against
any advantages that a new appointment may bring. Therefore, no
limit on the overall length of service of the Chairman is
imposed.
The Chairman has served on the Board since the Company’s
inception (April 2008), the Board
therefore acknowledges that succession to the role needs to be
anticipated in line with effective succession planning. In the 2019
Annual Report, it was noted a substantial refreshment of the board
was planned to take place in 2021, including the appointment of a
new Chairman. In the light of the events of the last fiscal year
the Chairman will continue to oversee the stabilisation of the
Company. The Chairman will continue to seek re-election to the
Board annually.
Proceedings of the
Board
The Directors have overall responsibility for the Company's
activities and the determination of its investment policy and
strategy. The Company has entered into an investment advisory and
management agreement with its Investment Adviser, JZAI, pursuant to
which, subject to the overall supervision of the Directors, the
Investment Adviser acts as the investment manager to the Company
and manages the investment and reinvestment of the assets of the
Company in pursuit of the investment objective of the Company and
in accordance with the investment policies and investment
guidelines from time to time of the Company and any investment
limits and restrictions notified by the Directors (following
consultation with the Investment Adviser). Within its strategic
responsibilities, the Board regularly considers corporate strategy
as well as dividend policy, the policy on share buy backs and
corporate governance issues.
The Directors meet at least quarterly to direct and supervise
the Company’s affairs. This includes reviewing the investment
strategy, risk profile, gearing strategy and performance of the
Company and the performance of the Company’s functionaries, and
monitoring compliance with the Company's objectives.
The Directors visit the Investment Adviser at least annually for
a comprehensive review of the portfolio, its valuation methodology
and general strategy. The Directors deem it appropriate to review
the valuations of the investment portfolio on a quarterly basis.
The schedule of Board and Committee meetings is shown in the Board
and Committee meeting attendance.
Continuing terms of Investment
Adviser agreement
In the opinion of the Directors, the continuing appointment of
the Investment Adviser on the terms agreed continues to be in the
interests of Shareholders. In reaching its conclusion the Board
considers the Investment Adviser's performance, expertise and
ability in effectively assisting the management of portfolio
companies.
Supply of information
The Chairman ensures that all Directors are properly briefed on
issues arising at, and when necessary in advance of, Board
meetings. The Company's advisers provide the Board with appropriate
and timely information in order that the Board may reach proper
decisions. Directors can, if necessary, obtain independent
professional advice at the Company's expense.
Directors' training
The Board is provided with information concerning changes to the
regulatory or statutory regimes as they may affect the Company, and
are offered the opportunity to attend courses or seminars on such
changes, or other relevant matters. An induction programme is
available for any new Director appointments. The induction
programme offers training about the Company, its managers, their
legal responsibilities and investment company industry matters.
Chairman and Senior Independent
Director
The Chairman is a non-executive Director, together with the rest
of the Board. There is no executive Director position within the
Company. Day-to-day management of the Company's affairs has been
delegated to third party service providers. Chris Waldron was appointed as Senior
Independent Director on 7 May 2019
until his resignation on 26 November
2019. No further appointment to this role has yet been
made.
Board diversity
The Board has also given careful consideration to the
recommendations of the Davies Review and the findings of the
Hampton-Alexander Review on the evolving gender diversity debate.
The Board continues to review its composition in terms of
diversity, appropriate range of skills and experience and the Board
is committed to ensuring that diversity is considered when
appointments to the Board are under consideration – as indeed has
always been its practice.
Re-election of Directors
Previously, each Director having served longer than nine years
was subject to annual re-election and each Director having served
less than nine years was subject to re-election at the third annual
general meeting after appointment or (as the case may be) the
general meeting at which he or she was last appointed. In line with
the 2019 AIC Code of Corporate Governance, all Directors are now
subject to annual re-election.
The Board's evaluation
The Board, Audit Committee, and Nomination Committee undertake
an evaluation of their own performance and that of individual
Directors on an annual basis. In order to review their
effectiveness, the Board and its Committees carry out a process of
formal self-appraisal. The Board and Committees consider how they
function as a whole and also review the individual performance of
its members. This process is conducted by the Chairman reviewing
each member’s performance, contribution and their commitment to the
Company. The Board as a whole reviews the performance of the
Chairman. Each Board member is also required to submit details of
training they have undertaken on an annual basis. Currently, no
third party evaluation of the Directors effectiveness is
undertaken. The results of the evaluation process concluded the
Board was functioning effectively and the Board and its committees
provided a suitable mix of skills and experience.
Board Committees
In accordance with the AIC Code, the Board has established an
Audit Committee and a Nomination Committee, in each case with
formally delegated duties and responsibilities within written terms
of reference. The identity of each of the Chairmen of the
committees referred to below is reviewed on an annual basis. The
Board, consisting of all non-executive Directors, has decided that
the entire Board should fulfil the role of the Audit and Nomination
Committees. The terms of reference of the committees are kept under
review and can be viewed on the Company's website www.jzcp.com.
Nomination Committee
In accordance with the Code, the Company has established a
Nomination Committee. The Nomination Committee leads the process
for all board appointments, oversees the development of and reports
on, amongst other things, its approach to a diverse pipeline for
succession.
The Nomination Committee takes into consideration the Code’s
rules on independence of the Board in relation to the Company, its
senior management and major shareholders. The Nomination Committee
is chaired by David Macfarlane, and
each of the other Directors is also a member. The members of the
committee are independent of the Investment Adviser. The Nomination
Committee has responsibility for considering the size, structure
and composition of the Board, retirements and appointments of
additional and replacement Directors and making appropriate
recommendations to the Board.
Due to the nature of the Company being a listed investment
company investing in private equity with an international
shareholder base, the Company needs Directors with a broad range of
financial experience. For this reason, Directors use external
consultants as well as using their own contacts to identify
suitable candidates.
The final decision with regard to appointments always rests with
the Board and all such appointments are subject to confirmation by
shareholders.
Audit Committee
The Audit Committee is chaired by Sharon
Parr (as from 27 June 2019),
prior to this date it was chaired by Patrick Firth, before his resignation from the
Board. All the other Directors are members. Members of the
Committee are independent of the Company’s external auditors and
the Investment Adviser. All members have the necessary financial
and sector experience to contribute effectively to the Committee.
The Audit Committee meets at least twice a year and meets the
external auditors at least twice a year. The Audit Committee is
responsible for overseeing the Company’s relationship with the
external auditors, including making recommendations to the Board on
the appointment of the external auditors and their remuneration.
The Committee also considers the nature, scope and results of the
auditors’ work and reviews, and develops and implements policies on
the supply of any non-audit services that are to be provided by the
external auditors.
Post year end, the Audit Committee has re-considered whether the
Company is able to continue as a going concern for the period
ending 31 July 2021 and whether it
considers it appropriate to adopt the going concern basis of
accounting in preparing them, and identify any material
uncertainties to the company’s ability to continue to do so. Also,
the Audit Committee, has considered the Company’s current position
and principal risks, and assessed the prospects of the Company,
over the viability period of three years to 28 February 2023.
The work undertaken by the Audit Committee is further described
in the Audit Committee Report and the recommendations to the Board
made by the Audit Committee, regarding the going concern and
viability of the Company are detailed in the Directors' Report.
A report of the Audit Committee detailing responsibilities and
activities is presented in the Audit Committee Report.
Management Engagement Committee
The Management Engagement Committee is chaired by David Macfarlane and comprises the entire Board.
Responsibilities include reviewing the performance and contractual
arrangements of the Company’s service providers.
Remuneration Committee
In view of its non-executive and independent nature, the Board
considers that it is not appropriate for there to be a separate
Remuneration Committee as prescribed by the AIC Code. The process
for agreeing the non-executive Directors' fees is set out in the
Directors' Remuneration Report.
Board and Committee meeting
attendance
The number of formal meetings of the Board and its committees
held during the fiscal year and the attendance of individual
Directors at these meetings was as follows:
|
|
|
Number of meetings |
|
|
|
|
|
|
Management |
|
Board |
|
Ad
Hoc |
Audit |
Nomination |
Engagement |
|
Main |
AGM |
Meetings |
Committee |
Committee |
Committee |
|
|
|
|
|
|
|
Total number of
meetings |
5 |
1 |
20 |
2 |
- |
1 |
David Macfarlane |
5 |
1 |
19 |
2 |
- |
1 |
James Jordan |
5 |
1 |
15 |
2 |
- |
1 |
Sharon Parr |
5 |
1 |
20 |
2 |
- |
1 |
Tanja Tibaldi |
5 |
1 |
14 |
2 |
- |
1 |
Patrick Firth
(resigned 27 June 2019) |
1 |
1 |
4 |
1 |
- |
- |
Christopher
Waldron
(resigned 26 November 2019) |
4 |
1 |
12 |
1 |
- |
- |
The main Board meetings are held to agree the Company's
valuation of its investments, agree the Company's financial
statements and discuss and agree other strategic issues. Other
meetings are held when required to agree board decisions on ad-hoc
issues.
UK Criminal Finances Act 2017
In respect of the UK Criminal Finances Act 2017 which has
introduced a new Corporate Criminal Offence of 'failing to take
reasonable steps to prevent the facilitation of tax evasion', the
Board confirms that it is committed to zero tolerance towards the
criminal facilitation of tax evasion.
The Board also keeps under review developments involving other
social and environmental issues, such as Modern Slavery and General
Data Protection Regulation, and will report on those to the extent
they are considered relevant to the Company's operations.
Internal Controls
The Board is ultimately responsible for establishing and
maintaining the Company’s system of internal financial and
operating control and for maintaining and reviewing its
effectiveness on an annual basis. The Company's risk matrix
continues to be the core element of the Company's risk management
process in establishing the Company's system of internal financial
and reporting control. The risk matrix is prepared and maintained
by the Board which initially identifies the risks facing the
Company and then collectively assesses the likelihood of each risk,
the impact of those risks and the strength of the controls
operating over each risk. The system of internal financial and
operating control is designed to manage rather than to eliminate
the risk of failure to achieve business objectives and by their
nature can only provide reasonable and not absolute assurance
against misstatement and loss.
These controls aim to ensure that assets of the Company are
safeguarded, proper accounting records are maintained and the
financial information for publication is reliable. The Board
confirms that there is an ongoing process for identifying,
evaluating and managing the principal risks faced by the
Company.
This process has been in place for the year under review and up
to the date of approval of this Annual Report and Financial
Statements and is reviewed by the Board and is in accordance with
the Internal controls: Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting.
The Board has evaluated the systems of internal controls of the
Company. In particular, it has prepared a process for identifying
and evaluating the principal risks affecting the Company and the
policies by which these risks are managed.
The Board has delegated the day to day responsibilities for the
management of the Company’s investment portfolio, the provision of
depositary services and administration, registrar and corporate
secretarial functions including the independent calculation of the
Company's NAV and the production of the Annual Report and Financial
Statements which are independently audited.
Formal contractual agreements have been put in place between the
Company and providers of these services. Even though the Board has
delegated responsibility, it retains accountability for these
functions and is responsible for the systems of internal control.
At each quarterly board meeting, compliance reports are provided by
the Administrator, Company Secretary and Portfolio Manager. The
Board also receives confirmation from the Administrator of its
accreditation under its Service Organisation Controls 1 report.
The Company’s risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit
Committee at its quarterly meetings and annually by the Board.
The Board believes that the Company has adequate and effective
systems in place to identify, mitigate and manage the risks to
which it is exposed.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act
(“FATCA”), the Company registered with the US Internal Revenue
Services (“IRS”) as a Guernsey
reporting Foreign Financial Institution (“FFI”), received a Global
Intermediary Identification Number CAVBUD.999999.SL.831, and can be
found on the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and Development
(“OECD”), which has been adopted by Guernsey and which came into effect on
1 January 2016. The CRS replaced the
intergovernmental agreement between the UK and Guernsey to improve international tax
compliance that had previously applied.
The Board will take necessary actions to ensure that the Company
is compliant with Guernsey
regulations and guidance in this regard.
Directors' Remuneration Report
The Company's policy in regard to Directors' remuneration is to
ensure that the Company maintains a competitive fee structure in
order to recruit, retain and motivate non-executive Directors of
excellent quality in the overall interests of shareholders.
Remuneration Policy
The Directors do not consider it necessary for the Company to
establish a separate Remuneration Committee. All of the matters
recommended by the Code that would be delegated to such a committee
are considered by the Board as a whole.
It is the responsibility of the Board as a whole to determine
and approve the Directors' fees, following a recommendation from
the Chairman who will have given the matter proper consideration,
having regard to the level of fees payable to non-executive
Directors in the industry generally, the role that individual
Directors fulfil in respect of Board and Committee responsibilities
and the time committed to the Company's affairs. The Chairman's
remuneration is decided separately and is approved by the Board as
a whole.
The Company's Articles state that Directors' remuneration
payable in any accounting year shall not exceed in the aggregate an
annual sum of US$650,000. Each
Director is also entitled to reimbursement of their reasonable
expenses. There are no commission or profit sharing arrangements
between the Company and the Directors. Similarly, none of the
Directors is entitled to pension, retirement or similar benefits.
No element of the Directors' remuneration is performance
related.
The remuneration policy set out above is the one applied for the
year ended 29 February 2020 and is
not expected to change in the foreseeable future.
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of the Directors.
Remuneration for Services to the
Company as Non-Executive Directors
|
|
Year Ended
29 February 2020 |
|
Year Ended
28 February 2019 |
|
|
|
US$ |
|
|
US$ |
David Macfarlane
(Chairman) |
|
|
160,000 |
|
|
160,000 |
James Jordan |
|
|
60,000 |
|
|
60,000 |
Sharon Parr (appointed
27 June 2018) |
|
|
67,000 |
|
|
41,000 |
Tanja Tibaldi |
|
|
60,000 |
|
|
60,000 |
Patrick Firth
(resigned 27 June 2019) |
|
|
23,000 |
|
|
70,000 |
Christopher Waldron (resigned 26 November 2019) |
|
51,000 |
|
|
67,000 |
|
|
|
421,000 |
|
|
458,000 |
Ms Tibaldi intends to retire from the board at the forthcoming
Annual General Meeting.
As from 1 March 2020, fees payable
to the Chairman and Directors (excluding Ms Tibaldi) will be
reduced to $120,000 per annum and
$50,000 per annum respectively. The
Chairman of the Audit Committee will receive an additional amount
of $20,000 per annum.
No Director has a service contract with the Company, nor are any
such contracts proposed.
Directors' Term of Appointment
In the financial year ended 29 February
2020, each Director having served longer than nine years was
subject to annual re-election. Each Director who served less than
nine years being subject to re-election only at the third annual
general meeting after appointment or (as the case may be) the
general meeting at which he or she was last appointed and being
eligible for re-appointment.
In line with the 2019 AIC Code of Corporate Governance, all
Directors seeking re-election to the Board will do so on an annual
basis regardless of their tenure not yet exceeding nine years.
The Directors were appointed as non-executive Directors by
letters issued in April 2008 and
June 2018 which state that their
appointment and any subsequent termination or retirement shall be
subject to three-months’ notice from either party in accordance
with the Articles. Each Director’s appointment letter provides
that, upon the termination of his/her appointment, that he/she must
resign in writing and all records remain the property of the
Company. The Directors’ appointments can be terminated in
accordance with the Articles and without compensation. There is no
notice period specified in the Articles for the removal of
Directors. The Articles provide that the office of director shall
be terminated by, among other things: (a) written resignation; (b)
unauthorised absences from board meetings for six months or more;
(c) unanimous written request of the other directors; and (d) an
ordinary resolution of the Company.
Signed on behalf of the Board of Directors on 17 June 2020 by:
David Macfarlane
Chairman
Sharon
Parr
Director
Audit Committee Report
Dear Shareholder,
We present the Audit Committee's Report, setting out the
responsibilities of the Audit Committee and its key activities
during the year ended 29 February
2020. The Audit Committee has reviewed the Company's
financial reporting, the independence and effectiveness of the
external auditor and the internal control and risk management
systems of the Company's service providers. In order to assist the
Audit Committee in discharging these responsibilities, regular
reports are received and reviewed from the Investment Manager,
Administrator and external auditor.
A member of the Audit Committee will continue to be available at
each Annual General Meeting to respond to any shareholder questions
on the activities of the Audit Committee.
Responsibilities
The terms of reference of the Audit Committee include the
requirement to:
· monitor the integrity of the published
Financial Statements of the Company;
· review and report to the Board on the
significant issues and judgements made in the preparation of the
Company's published Financial Statements, (having regard to matters
communicated by the external Auditors) and other financial
information;
· monitor and review the quality and
effectiveness of the external Auditors and their independence;
· consider and make recommendations to the
Board on the appointment, reappointment, replacement and
remuneration of the Company's external Auditor;
· advise the Board that the annual report and
accounts, taken as a whole, is fair, balanced and
understandable;
· review and consider the Company's Principal
risks and uncertainties;
· consider the long-term viability of the
Company;
· review the Company's procedures for
prevention, detection and reporting of fraud, bribery and
corruption;
· monitor and review the internal control and
risk management systems of the service providers; and
· consider and make representations to the
Board regarding Directors' remuneration.
The Audit Committee's full terms of reference can be viewed on
the Company's website www.jzcp.com
Key Activities of the Audit Committee
The following sections discuss the assessments made by the Audit
Committee during the year:
Financial Reporting:
The Audit Committee's review of the Annual Financial Statements
focused on the following significant areas:
· COVID-19
Post year end, the Audit Committee has received regular updates
from the Investment Adviser of the impact of COVID-19 on the
Company's investment portfolio. Information has been provided on
the following business aspects of portfolio companies/properties,
to enable the Board to assess the ongoing risk to the Company and
also any impact COVID-19 may have had on the reporting year ended
29 February 2020:
i) Demand for product/service;
ii) Supply Chain & operational issues;
iii) Flexibility and adaptability of workforce to perform
duties;
iv) Financial Strength of Company – Liquidity Issues;
v) Support received from Government programmes; and
vi) Real estate markets.
The Audit Committee have also been
regularly updated on scheduled realisations and liquidity
projections in light of the COVID-19 lockdowns and delays in
corporate transactions.
· Assessment of
Going Concern and Viability
The Audit Committee has considered the ability of the Company to
continue as a going concern over the period ending 31 July 2021. After careful consideration the
Committee have recommended to the Board that it is satisfied that
it is appropriate to adopt the going concern basis in preparing
these financial statements and they have a reasonable expectation
that the Company will continue in existence as a going concern for
the period ending 31 July 2021. The
reasons for reaching this judgement are detailed in the Directors'
report. However, there are material uncertainties which cast
significant doubt over the ability of the Company to continue as a
Going Concern, being:
i) Whether, the Company will be able to generate sufficient
realisation proceeds before the expiration of the current loan
facility and repayment of the CULS;
ii) In the event sufficient realisation proceeds referenced
above are not generated the Company is able to implement
alternative plans within a timetable agreed with its lenders;
and
iii) The full impact of COVID-19 on the valuation of the
Company’s investment portfolio and related loan covenants is not
currently known.
For the viability assessment, the Audit Committee has assessed
the expectations that the Company will be able to continue in
operation and meet ongoing debt obligations over the period ending
28 February 2023. In making its
recommendation to the Board the Committee has carried out a robust
review of the Company's principal risks and uncertainties to which
the Company is exposed and that potentially threaten future
performance and liquidity and has assessed the Company's current
position and prospects as detailed in the Chairman's statement and
Investment Adviser's report.
The key factors considered by the Committee are detailed in the
Directors' Report.
The Committee have concluded that they have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of the
assessment. They consider the going concern assumptions, material
uncertainties and conclusion set out above to be relevant.
The Audit Committee was also satisfied that the disclosures in
the basis of preparation note and the viability statement, relating
to the going concern assessment of the Company, were appropriately
clear and transparent. In particular that the several material
uncertainties prevalent in the going concern basis of preparation
are disclosed in a fair, balanced and understandable manner.
· Valuation of Unquoted Investment Fair Values
including the impact on management
fees
The fair value of the Company’s unquoted securities at 29 February 2020, which are valued using
techniques detailed in note 5 of the financial statements, was
$661,200,000 accounting for 95.5% of
the Company's investment portfolio. The Committee has concentrated
on ensuring the Investment Manager has applied appropriate
valuation methodologies to these investments in producing the net
asset value of the Company.
Additional focus was given in the year to the valuation of the
real estate portfolio with two external valuations undertaken over
the majority of the portfolio. The need for additional appraisals
arose as indications of potential impairment to the real estate
portfolio emerged in the ordinary course of business between the
Company’s Investment Adviser and third-party real estate
brokers.
Members of the Audit Committee meet the Investment Adviser at
least annually to discuss the valuation process. The Committee
gains comfort in the valuations produced by reviewing the
methodologies used. The valuations were challenged and approved by
the Audit Committee in a recent visit to the Investment Adviser.
The Audit Committee has thus satisfied itself that the valuation
techniques are appropriate and accurate.
The valuation of the unquoted investments is the key driver of
the Company’s gross asset value and the basis of the management
fees payable to the Investment Adviser and therefore the management
fees payable could potentially be misstated if there were to be an
error in the calculation of the gross assets. However, as each
monthly NAV calculation is approved by the Investment Adviser and
the year-end NAV has been audited, the Audit Committee is satisfied
that the fees have been correctly calculated as stated in the
Annual Report and Financial Statements.
· Impairment of Direct Loans Measured at
Amortised Cost
Risk that the carrying value of the direct loans might be
misstated due to application of inappropriate methodologies, inputs
and/or judgemental factors determining the expected credit loss in
accordance with IFRS9.
Risk
Management:
The Audit Committee continued to consider the process for
managing the risk of the Company and its service providers. Risk
management procedures for the Company, as detailed in the Company's
risk assessment matrix, were reviewed and approved by the Audit
Committee. New risks are added to the matrix when deemed
appropriate.
Fraud, Bribery and
Corruption:
The Audit Committee continues to monitor the fraud, bribery and
corruption policies of the Company. The Board receives a
confirmation from all service providers that there have been no
instances of fraud, bribery or corruption.
The External Auditor
Ernst & Young LLP have acted as external auditor since the
Company's inception in April 2008.
This is the second year of Andrew Dann’s anticipated five year
tenure as audit partner. A full tender process was undertaken
during December 2018 and January 2019 resulting in Ernst & Young LLP
being reappointed.
Independence,
objectivity and fees:
The independence and objectivity of the external auditor is
reviewed by the Audit Committee which also reviews the terms under
which the external auditor is appointed to perform non-audit
services. Following the introduction of the UK FRC Revised Ethical
Standard on 18 December 2019 the
Audit Committee has introduced a general prohibition on the
external auditor providing non-audit services to the Company. This
general prohibition does not extend to an interim review report
providing the fee for such interim review is subject to a 70% fee
cap when compared to the audit fee and is valid for accounting
periods starting after 1 March
2020.
The following table summarises the remuneration paid and payable
by the Company to Ernst & Young LLP and to other Ernst &
Young LLP member firms for audit and other services during the
years ended 29 February 2020 and
28 February 2019.
|
|
|
|
|
|
|
|
|
$
Equivalent |
|
|
|
$
Equivalent |
|
|
|
|
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
|
|
|
|
29.2.2020 |
|
29.2.2020 |
|
28.2.2019 |
|
28.2.2019 |
Ernst
& Young LLP |
|
|
|
|
|
|
|
|
|
|
|
-
Annual audit |
|
|
|
|
£365,000 |
|
$454,206 |
|
£257,250 |
|
$332,000 |
-
Auditor's interim review |
|
|
|
N/A |
|
N/A |
|
£42,500 |
|
$56,000 |
Other
Ernst & Young LLP affiliates |
|
|
|
|
|
|
|
-
Passive Foreign Investment Company tax services |
- |
|
$65,000 |
|
- |
|
$65,000 |
During the year, JZCP incurred additional audit fees resulting
from the real estate property portfolio valuation issues as well as
going concern considerations, including COVID-19.
The interim report and financial statements for the six-month
period ended 31 August 2019 were not
reviewed by EY. Due to further requested information provided by
real estate appraisers it would not have been possible for EY to
have been able to complete their customary review of the interim
results and related report within the regulatory timeframe.
In line with the historic policies and procedures above, the
Audit Committee does not consider that the provision of non-audit
services, which includes determining whether the Company is a
passive foreign investment company as defined by the U.S. Internal
Revenue Code, to have been a threat to the objectivity and
independence of the external auditor.
Performance and
effectiveness:
During the year, when considering the effectiveness of the
external auditor, the Audit Committee has taken into
account the following factors:
· the audit plan presented to them before each
audit;
· the post audit report including variations
from the original plan;
· changes in audit personnel;
· the external auditor's own internal
procedures to identify threats to independence; and
· feedback received from both the Investment
Adviser and Administrator.
The Audit Committee reviewed and challenged the audit plan and
the post audit report of the external auditor and concluded that
audit risks had been sufficiently identified and were sufficiently
addressed. The Audit Committee considered reports from the external
auditor on their procedures to identify threats to independence and
concluded that the procedures were sufficient to identify potential
threats to independence.
There were no significant adverse findings from this
evaluation.
The Audit Committee has examined the scope and results of the
audit, its cost effectiveness and the independence and objectivity
of the external auditor and considers Ernst & Young LLP, as
external auditor, to be independent of the Company.
Internal control and risk management
systems:
Additional work performed by the Audit Committee in the areas of
internal control and risk management are disclosed in the Corporate
Governance.
The Audit Committee has also reviewed the need for an internal
audit function. The Audit Committee has decided that the systems
and procedures employed by the Investment Adviser and the
Administrator, including the Administrator's internal audit
function, provide sufficient assurance that a sound system of
internal control, which safeguards the Company’s assets, is
maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
In finalising the Annual Report and Accounts for recommendation
to the Board for approval, the Audit Committee has satisfied itself
that the Annual Report and Accounts taken as a whole are fair,
balanced and understandable.
Sharon
Parr
Chairman, Audit Committee
17 June 2020
Independent Auditor's Report
To The Members of JZ Capital Partners
Limited
Opinion
We have audited the Financial Statements of JZ Capital Partners
Limited (the ‘Company’) for the year ended
29 February 2020 which comprise the
Statement of Comprehensive Income, the Statement of Financial
Position, the Statement of Changes in Equity, the Statement of Cash
Flows and the related notes 1 to 31, including a summary of
significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and
International Financial Reporting Standards as adopted by the
European Union (‘IFRS’).
In our opinion, the financial statements:
· give a true and fair view of the state of
the Company’s affairs as at 29 February
2020 and of its loss for the year then ended;
· have been properly prepared in accordance
with IFRS; and
· have been properly prepared in accordance
with the requirements of the Companies (Guernsey) Law, 2008.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our
responsibilities under those standards are further described in the
“Auditor’s responsibilities for the audit of the Financial
Statements” section of our report below. We are independent of the
Company in accordance with the ethical requirements that are
relevant to our audit of the Financial Statements in the UK,
including the FRC’s Ethical Standard as applied
to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
Material uncertainty related to Going
Concern
We draw your attention to Note 3 in the Financial Statements,
which states that there are material uncertainties in relation
to the timing of realising assets, the potential
impact on the repayment of the Guggenheim facility together with
the impact of COVID-19 on the valuation of the Company's investment
portfolio and related covenants, which casts significant
doubt over the ability of the Company to continue as a
Going Concern. The Financial Statements do
not include any adjust- ments that might result from the outcome of
these uncertainties.
We describe below how our audit responded to the risk relating
to going concern:
1. The audit engagement partner increased his time
directing and supervising the audit procedures on going
concern;
2. We assessed the determination made by the Board of
Directors of the Company and the Investment Adviser,
Jordan/Zalaznick Advisers, Inc (“JZAI”) that the Company is a going
concern and the appropriateness of the Financial Statements to be
prepared on a going concern basis;
3. We obtained the cash flow forecasts and sensitivities
prepared by management and tested for arithmetical accuracy of the
models including reperforming the covenant tests therein;
4. We have discussed with management the Guggenheim Loan
Facility refinancing and associated agreement amendments, including
the nature of facilities, repayment terms and covenants;
5. We performed a stress testing for covenant compliance
using market indices up to 31 May
2020, to assess the likelihood of a reduction in fair values
triggering a covenant breach;
6. We challenged the appropriateness of management’s
forecasts by assessing historical forecasting accuracy, challenging
management’s consideration of downside sensitivity analysis
including Management’s scenario to reflect its expectation of the
impact of the timing of realising assets, the potential impact on
the repayment of the Guggenheim facility together with COVID-19,
and applying further sensitivities to understand the impact on
liquidity of the Company;
7. We assessed whether available funds, compared to
commitments made to underlying investments at year end and other
ongoing commitments including investment advisor and other expenses
cast significant doubt over the going concern status of the
Company;
8. We held discussions with the Investment Adviser and the
Audit Committee in relation to the status of the secondary sales,
real estate offers and refinancing of the Guggenheim loan
facility;
9. We discussed the likely success and risk factors of the
Company’s alternative investing and financing plans with its
Investment Adviser; and
10. We assessed the
disclosures in the Annual Report and Financial Statements relating
to going concern, including the material uncertainties, to ensure
they were fair, balanced and understandable and in compliance with
IAS1.
We draw attention to the viability statement in the Annual
Report, which indicates that the key assumptions to the statement
of viability are that a) the realisation of the underlying
investments will generate sufficient liquid resources for the
Company to meet its obligations and pay its expenses as and when
they fall due, (b) the refinancing of the Guggenheim Loan Facility
will be finalised and (c) COVID-19 will not have any significant
impact on the Company’s long term viability. The
Directors consider that the material uncertainties referred to in
respect of going concern casts significant doubt over the future
viability of the Company should these above events not
complete.
Our opinion is not modified in respect of this matter.
Conclusions relating to principal
risks, going concern and viability statement
Aside from the impact of the matters disclosed in the material
uncertainties related to going concern section, we have nothing to
report in respect of the following information in the Annual
Report, in relation to which the ISAs (UK) require us to report to
you whether we have anything material to add or draw attention
to:
· the disclosures in the Annual Report that
describe the principal risks and explain how they are being managed
or mitigated;
· the Directors’ confirmation in the Annual
Report that they have carried out a robust assessment of the
principal risks facing the entity, including those that would
threaten its business model, future performance, solvency or
liquidity;
· whether the Directors’ statement in the
Annual Report in relation to going concern and their assessment of
the prospects of the Company required under the Listing Rules is
materially inconsistent with our knowledge obtained in the audit;
or
· the Directors’ explanation in the Annual
Report as to how they have assessed the prospects of the entity,
over what period they have done so and why they consider that
period to be appropriate, and their statement as to whether they
have a reasonable expectation that the entity will be able to
continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or
assumptions.
Overview of our audit approach
Key audit matters |
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Misstatement of
Unquoted Investment Fair Values including the impact on management
fees; and |
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Impairment of direct
loans measured at amortised cost. |
Audit scope |
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We have audited the
Financial Statements of the Company for the year ended 29 February
2020. |
Materiality |
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Overall materiality of
$4.8 million (2019: $16.2 million), which represents 1% (2019: 2%)
of total equity. |
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the Financial
Statements of the current year. In addition to the matters
described in the ‘Material Uncertainty Related to Going Concern’
section, we have determined the matters described below to be the
key audit matters to be communicated in our report. These matters
were addressed in the context of our audit of the Financial
Statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. For each matter
below, our description of how our audit addressed the matter is
provided in that context.
We have fulfilled the responsibilities described in the
Auditor’s responsibilities for the audit of the Financial
Statements section of our report, including in relation to these
matters. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the risks of
material misstatement of the Financial Statements. The results of
our audit procedures, including the procedures performed to address
the matters below, provide the basis for our audit opinion on the
accompanying Financial Statements.
Risk |
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Our
response to the risk |
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Key observations
communicated to the Audit Committee |
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Misstatement of Unquoted Investment Fair Values including
the impact on management fees (2020: $0.661 billion; 2019: US$
1.014 billion)
99% (2019: 99%) of the carrying value of investments relates to the
Company’s holdings in unquoted investments, which are valued using
different valuation techniques, as described in note 5 to the
Financial Statements.
The valuation is subjective, with a high level of judgement and
estimation linked to the determination of the values with limited
market information available, as a result of the low level of
liquidity in the private equity and real estate markets at the
year-end.
As a result, there is a risk of an inappropriate valuation model
being applied, together with the risk of inappropriate inputs to
the model/calculation being selected including the possible impact
on the management fees.
The valuation of the unquoted investments is the key driver of the
Company’s net asset value and total return. Incorrect valuation
could have a significant impact on the net asset value of the
Company and therefore the return generated for shareholders.
Refer to the Audit Committee Report; Accounting policies in
Notes 2, 3 and 5, and Note 12 to the Financial Statements |
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Our audit
procedures consisted of: |
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We
reported to the Audit Committee that overall there were no material
matters arising from our audit work on the valuation of the
Company’s investments that we wished to bring to their
attention. |
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Updating
and confirming our understanding of the Company’s processes and
methodologies, including the use of industry specific measures, and
policies for valuing unquoted investments held by the Company
Challenged management on the rationale for change in independent
real estate appraisers and, as part of our review of the
appraisals, specifically considered the credentials of the new
appraiser for such appraisals; |
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Obtaining and inspecting the valuation decks and supporting data
for the private equity investments, to assess whether the data used
is appropriate and relevant, and discussing these with
Investment Adviser to evaluate whether the fair value of the
Company’s private equity investments are reasonably stated,
challenging the assumptions made by JZAI and Board of Directors of
the Company;
Obtaining and inspecting the independent appraisals and supporting
data regarding the real estate assets, to assess whether the data
used is appropriate and relevant, and discussing these with
Investment Adviser to evaluate whether the fair value of the
Company’s real estate investments are reasonably stated,
challenging the assumptions made by JZAI and Board of Directors of
the Company;
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Attending fair value
discussions in relation to 29 February 2020 valuations, for both
real estate and private equity investments. Challenging the value
roll forward considerations between the 31 December 2019 asset
valuations and the balance sheet date. These included the
Investment Adviser, EY Guernsey, EY valuation specialists, RedSky
(Real Estate Asset Advisor) and the independent valuation
specialists appointed by the Company; |
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Vouching valuation inputs that do not require specialist knowledge
to independent sources and testing the arithmetical accuracy of the
Company’s calculations for a sample of significant investments
selected based on their size/value; |
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Performing back
testing to get an overview of how management values the investments
on an overall view compared to prior year values; |
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For a sample of
significant private equity investments selected based on their
size/value, we engaged EY Canada (“EY VME”), and for the real
estate investments, we engaged EY New York and Miami (collectively
“EY TRE”) as valuation specialists to: |
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use their knowledge
of the market to assess and corroborate Investment Adviser's and
third party specialists’ market related judgements and valuation
inputs (in relation to the private equity investments discount
rates and EBITDA multiples and in relation to real estate assets
discount rates, rental per square foot, selling price per square
foot) by reference to comparable transactions, and independently
compiled databases/indices; |
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assist us
to determine whether the methodologies used to value private equity
investments and real estate assets were consistent with methods
usually used by market participants; |
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assist
with enquiries with the newly appointed appraiser regarding changes
in approach, models and fair values compared to the appraiser in
the prior year;
performed procedures to assess whether, in light of market data,
the fair values of certain recently acquired investments continue
to approximate to their consideration paid; and |
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assist us in
determining whether the Company’s specialist were appropriately
qualified and independent. |
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Agreeing the
valuation per the Financial Statements back to the models per the
valuation decks, relating to private equity investments, prepared
by Investment Adviser and agreeing the proposed values per the
valuation decks to the investment portfolio report prepared by the
Administrator; |
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Reviewing the
waterfall calculations on the flow of valuation through the SPV
structures to the Company and reviewing the inputs to, and
arithmetic accuracy, of the valuation calculations/waterfall; |
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Updating our previous
understanding of the real estate portfolio valuation with the
Investment Adviser and RedSky with respect to the qualitative
factors and other information used to value real estate
investments; |
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Reporting to the Audit
Committee on the calibration of investment valuations against EY’s
ranges and commenting on any specific movements of valuation marks
in those ranges vs prior periods; and |
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Identifying the significant unobservable inputs to valuations and
reviewed and assessed the reasonableness of the sensitivity
workings and disclosures, comparing the Investment Adviser’s
position with EY’s range of acceptable inputs.
Re-performed the management fee calculations for mathematical
accuracy and consistency with the terms of the investment advisory
agreement; |
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Impairment of direct loans measured at amortised cost (2020: $31
million; 2019 $58 million)
Risk that the carrying value of the direct loans might be misstated
due to application of inappropriate methodologies, inputs and/or
judgemental factors determining the expected credit loss in
accordance with IFRS 9.
Refer to the Audit Committee Report; Accounting policies in
Notes 2 and 3, and Notes 7, 12 and 22 to the Financial
Statements |
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For all
direct loans we performed the following procedures: |
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We
confirmed that there were no material matters arising from our
audit work on the judgments and estimates made by management
regarding the expected credit loss that we wished to bring to the
attention of the Committee.
We confirmed that the expected credit loss was not materially
misstated. |
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We obtained copies of
the signed loan agreements including any changes to the terms and
conditions of the loans; |
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We re-performed the
amortised cost calculations for mathematical accuracy and
consistency with the terms of the loan agreements; |
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We obtained the
expected credit loss calculation from the Investment Advisor for
each material loan and determined that the estimate and judgements
applied by management specific to each loan were in accordance with
IFRS 9; and |
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We reviewed the
possible default scenarios and credit risk of each loan separately
and applied probabilities of default to assess the ECL over the
next 12 months. |
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An overview of the scope of our
audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Company. This enables us to form an opinion on the
Financial Statements. We consider size, risk profile, the
organisation of the Company and effectiveness of controls,
including controls and changes in the business environment when
assessing the level of work to be performed. All audit work was
performed directly by the audit engagement team.
Our application of materiality
We apply the concept of materiality in planning and performing
the audit, in evaluating the effect of identified misstatements on
the audit and in forming our audit opinion.
Materiality
“Materiality” is the magnitude of
omissions or misstatements that, individually or in aggregate,
could reasonably be expected to influence the economic decisions of
the users of the Financial Statements. Materiality provides a basis
for determining the nature and extent of our audit procedures.
We determined planning materiality for the Company to be
$4.8 million (2019: $16.2 million), which is 1% (2019: 2%) of total
equity. This provided a basis for determining the nature, timing
and extent of risk assessment procedures, identifying and assessing
the risk of material misstatement and determining the nature,
timing and extent of further audit procedures. We used equity as a
basis for determining planning materiality because the Company’s
primary performance measures for internal and external reporting
are based on equity. The basis was reduced from 2% to 1% as a
result of risk factors associated with external financing and the
longer-term direction of the company.
Performance materiality
“Performance materiality” is the
application of materiality at the individual account or balance
level. It is set at an amount to reduce to an appropriately low
level the probability that the aggregate of uncorrected and
undetected misstatements exceeds materiality.
Based on our risk assessment, together with our assessment of
the Company’s overall control environment, our judgement was that
overall performance materiality (i.e. our tolerance for
misstatement in an individual account or balance) for the Company
should be 50%. of materiality, namely $2.4
million (2019: 75%. of materiality, namely $12.2 million). Although there is no history of
material misstatements, based on which our expectation of the
likelihood of misstatement in the future is low and we have a
strong understanding of the control environment, there were changes
in circumstances or events outside the normal course of business.
As a result, we have increased the audit risk to high (as there is
a higher likelihood that misstatements may occur within the
Financial Statements) primarily as a result of the announcement
made by the Company in October 2019.
Accordingly, we have reduced performance materiality from 75% to
50%.
Our objective in adopting this approach was to ensure that total
uncorrected and undetected audit differences in the Financial
Statements did not exceed our materiality level.
Reporting threshold
“Reporting threshold” is an amount
below which identified misstatements are considered as being
clearly trivial.
We agreed with the Audit Committee that we would report to them
all audit differences in excess of $0.24
million (2019: $0.8 million)
which is set at 5%. of planning materiality, as well as differences
below that threshold that, in our view, warranted reporting on
qualitative grounds.
We evaluated any uncorrected misstatements against both the
quantitative measures of materiality discussed above and
considering other relevant qualitative considerations in forming
our opinion.
Other information
The other information comprises the information included in the
Annual Report, other than the Financial Statements and our
auditor’s report thereon. The Directors are responsible for the
other information.
Our opinion on the Financial Statements does not cover the other
information and, except to the extent otherwise explicitly stated
in this report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the Financial Statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the Financial Statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there
is a material misstatement in the Financial Statements or a
material misstatement of the other information. If, based on the
work we have performed, we conclude that there is a material
misstatement of the other information, we are required to report
that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report regarding our
responsibility to specifically address the following items in the
other information and to report as uncorrected material
misstatements of the other information where we conclude that those
items meet the following conditions:
· Fair, balanced and understandable set out in
the statement given by the Directors that they consider the Annual
Report and Financial Statements taken as a whole is fair, balanced
and understandable and provides the information necessary for
Shareholders to assess the Company’s performance, business model
and strategy, is materially inconsistent with our knowledge
obtained in the audit; or
· Audit committee reporting set out in the
section describing the work of the audit committee does not
appropriately address matters communicated by us to the audit
committee; or
· Directors’ statement of compliance with the
UK Corporate Governance Code set out in the parts of the Directors’
statement required under the Listing Rules relating to the
Company’s compliance with the UK Corporate Governance Code
containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a
departure from a relevant provision of the UK Corporate Governance
Code.
Matters on which we are required to
report by exception
We have nothing to report in respect of the following matters in
relation to which the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
· proper accounting records have not been kept
by the Company; or
· the financial statements are not in
agreement with the Company’s accounting records and returns; or
· we have not received all the information and
explanations we require for our audit.
Responsibilities of directors
As explained more fully in the Directors’ Responsibilities
Statement, the Directors are responsible for the preparation of the
Financial Statements and for being satisfied that they give a true
and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of Financial
Statements that are free from material misstatement, whether due to
fraud or error.
In preparing the Financial Statements, the Directors are
responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Company or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the Financial Statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these Financial
Statements.
A further description of our responsibilities for the audit of
the Financial Statements is located on the Financial Reporting
Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description
forms part of our auditor’s report.
Use of our report
This report is made solely to the Company’s members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been
undertaken so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Andrew Jonathan Dann, FCA
for and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
17 June 2020
1. The maintenance and integrity of the Company’s website
is the sole responsibility of the Directors; the work carried out
by the auditors does not involve consideration of these matters
and, accordingly, the auditor accepts no responsibility for any
changes that may have occurred to the Financial Statements since
they were initially presented on the website.
2. Legislation in Guernsey governing the preparation and
dissemination of Financial Statements may differ from legislation
in other jurisdictions.
Independent Auditors Report for audit
conducted in accordance with auditing standards generally accepted
in the United
States1
To The Directors of JZ Capital
Partners Limited
We have audited the accompanying financial statements of JZ
Capital Partners Limited (the “Company”), which comprise the
statement of financial position as of 29
February, 2020, and the related statements of comprehensive
income, changes in equity and cash flows for the year then ended,
and the related notes to the financial statements.
Management’s Responsibility for the
Financial Statements
Management is responsible for the preparation and fair
presentation of these financial statements in conformity with
International Financial Reporting Standards as adopted by the
European Union (“IFRS”); this includes the design, implementation,
and maintenance of internal control relevant to the preparation and
fair presentation of financial statements that are free of material
misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit in accordance
with auditing standards generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the Financial Statements are free of material
misstatement.
An audit involves performing procedures to obtain audit evidence
about the amounts and disclosures in the Financial Statements. The
procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the
Company’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control.
Accordingly, we express no such opinion. An audit also includes
evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by
management, as well as evaluating the overall presentation of the
financial statements.
We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
JZ Capital Partners Limited at 29 February
2020, and the results of its operations, changes in its
equity, and its cash flows for the year then ended, in conformity
with IFRS.
Ability to continue as a going
concern
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 3 in the financial statements, the Company has
stated that there are material uncertainties in relation to the
timing of realising assets, the potential impact on the repayment
of the Guggenheim facility together with the impact of COVID-19 on
the valuation of the Company's investment portfolio and related
covenants, which casts significant doubt over the ability of the
Company to continue as a Going Concern.
Management’s evaluation of the events and conditions and
management’s plans regarding these matters are also described in
Note 3. The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.
Our opinion is not modified in respect of this matter.
Supplementary Information
Our audit was conducted for the purpose of forming an opinion on
the financial statements as a whole. The accompanying Supplemental
U.S. GAAP Disclosures and Certain Regulatory Disclosures are
presented for the purposes of additional analysis and are not a
required part of the financial statements. Such information is the
responsibility of management and was derived from and relates
directly to the underlying accounting and other records used to
prepare the financial statements. The information has been
subjected to the auditing procedures applied in the audit of the
financial statements and certain additional procedures, including
comparing and reconciling such information directly to the
underlying accounting and other records used to prepare the
financial statements or to the financial statements themselves, and
other additional procedures in accordance with auditing standards
generally accepted in the United States
of America. In our opinion, the information is fairly
stated, in all material respects, in relation to the financial
statements as a whole.
Ernst & Young LLP
Guernsey, Channel Islands
17 June 2020
1In order to comply with the U.S. Securities and
Exchange Commission's custody rule, an audit opinion was requested,
by the Company’s Investment Adviser, which satisfies the
requirements of auditing standards generally accepted in
the United States.
Statement of Comprehensive Income
For the Period from 1 March 2019 to
29 February 2020
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Year
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Year
Ended |
|
|
|
|
29
February 2020 |
|
|
28
February 2019 |
|
|
Note |
US$'000 |
|
|
US$'000 |
|
|
|
|
|
|
|
|
|
Income and
investment and other gains |
|
|
|
|
|
|
|
Investment income |
8 |
|
33,264 |
|
|
28,823 |
|
Bank and deposit
interest |
|
|
455 |
|
|
525 |
|
Realisations from
investments held in escrow accounts |
27 |
|
5,559 |
|
|
3,303 |
|
Net foreign currency
exchange gains/(loss) |
|
|
664 |
|
|
(1,354) |
|
Gain on financial
liabilities at fair value through profit or loss |
14 |
|
4,388 |
|
|
5,696 |
|
|
|
|
44,330 |
|
|
36,993 |
|
Expenses and
losses |
|
|
|
|
|
|
|
Net loss on
investments at fair value through profit or loss |
6 |
|
(316,506) |
|
|
(2,773) |
|
Expected credit
losses |
7 |
|
(29,318) |
|
|
(75) |
|
Investment Adviser's
base fee |
10 |
|
(15,224) |
|
|
(16,733) |
|
Investment Adviser's
incentive fee |
10 |
|
35,880 |
|
|
(2,161) |
|
Administrative
expenses |
10 |
|
(3,708) |
|
|
(2,641) |
|
Directors'
remuneration |
10 |
|
(421) |
|
|
(458) |
|
|
|
|
(329,297) |
|
|
(24,841) |
|
Operating
(loss)/profit |
|
|
(284,967) |
|
|
12,152 |
|
Finance costs |
9 |
|
(20,460) |
|
|
(18,987) |
|
Loss before
taxation |
|
|
(305,427) |
|
|
(6,835) |
|
Withholding taxes |
11 |
|
878 |
|
|
- |
|
Loss for the
year |
|
|
(304,549) |
|
|
(6,835) |
|
|
|
|
|
|
|
|
|
Weighted average
number of Ordinary shares in issue during the year |
24 |
|
79,053,060 |
|
|
82,757,833 |
|
Basic loss per
Ordinary share |
24 |
|
(385.25)c |
|
|
(8.26)c |
|
Diluted loss per
Ordinary share |
24 |
|
(385.25)c |
|
|
(10.52)c |
|
The format of the Statement of Comprehensive Income has changed
from prior years in that it now presents income in one column
format rather than a split between capital and revenue.
The accompanying notes form an integral part of the Audited
Financial Statements.
Statement of Financial Position
As at 29 February 2020
|
|
|
29
February |
|
28
February |
|
|
|
2020 |
|
2019 |
|
Note |
US$'000 |
|
US$'000 |
|
|
|
|
|
|
Assets |
|
|
|
|
|
Investments at fair
value through profit or loss |
12 |
|
661,200 |
|
1,014,316 |
Loans at amortised
cost |
12 |
|
30,972 |
|
58,012 |
Other receivables |
13 |
|
119 |
|
1,286 |
Cash at bank |
|
|
52,912 |
|
50,994 |
Total
Assets |
|
|
745,203 |
|
1,124,608 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Zero Dividend
Preference (2022) shares |
15 |
|
64,510 |
|
63,838 |
Convertible Unsecured
Loan Stock |
14 |
|
49,886 |
|
54,274 |
Loans payable |
16 |
|
150,362 |
|
149,227 |
Investment Adviser's
incentive fee |
10 |
|
2,307 |
|
42,771 |
Investment Adviser's
base fee |
10 |
|
1,179 |
|
2,102 |
Other payables |
17 |
|
1,225 |
|
2,134 |
Total
Liabilities |
|
|
269,469 |
|
314,346 |
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
18 |
|
216,625 |
|
246,604 |
Other reserve |
20 |
|
353,528 |
|
353,528 |
Retained
(deficit)/earnings |
20 |
|
(94,419) |
|
210,130 |
Total
Equity |
|
|
475,734 |
|
810,262 |
|
|
|
|
|
|
Total Liabilities
and Equity |
|
|
745,203 |
|
1,124,608 |
|
|
|
|
|
|
Number of Ordinary
shares in issue at year end |
18 |
|
77,474,175 |
|
80,666,838 |
Net Asset Value per
Ordinary share |
26 |
|
$6.14 |
|
$10.04 |
These Audited Financial Statements were approved by the Board of
Directors and authorised for issuance on
17 June 2020. They were signed on its
behalf by:
David
Macfarlane
Chairman
Sharon
Parr
Director
The accompanying notes form an integral part of the Audited
Financial Statements.
Statement of Changes in Equity
For the Year Ended 29 February
2020
|
|
|
|
|
|
|
|
Retained |
|
|
|
|
|
|
Share |
|
Other |
|
Earnings/ |
|
|
|
|
|
|
Capital |
|
Reserve |
|
(Deficit) |
|
Total |
|
|
Note |
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1
March 2019 |
|
|
|
246,604 |
|
353,528 |
|
210,130 |
|
810,262 |
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
|
|
- |
|
- |
|
(304,549) |
|
(304,549) |
|
|
|
|
|
|
|
|
|
|
|
Buy back of Ordinary
shares |
|
18 |
|
(29,979) |
|
- |
|
- |
|
(29,979) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 29
February 2020 |
|
|
|
216,625 |
|
353,528 |
|
(94,419) |
|
475,734 |
|
|
|
|
|
|
|
|
|
|
|
Comparative for the Year ended
28 February 2019
|
|
|
|
Share |
|
Other |
|
Retained |
|
|
|
|
|
|
Capital |
|
Reserve |
|
Earnings |
|
Total |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1
March 2018 |
|
|
|
265,685 |
|
353,528 |
|
218,360 |
|
837,573 |
|
|
|
|
|
|
|
|
|
|
|
Impact of adoption of
IFRS 9 |
|
|
|
- |
|
- |
|
(1,395) |
|
(1,395) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Balance as
at 1 March 2018 |
|
|
|
265,685 |
|
353,528 |
|
216,965 |
|
836,178 |
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
|
|
- |
|
- |
|
(6,835) |
|
(6,835) |
|
|
|
|
|
|
|
|
|
|
|
Buy back of Ordinary
shares |
|
18 |
|
(19,081) |
|
- |
|
- |
|
(19,081) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 28
February 2019 |
|
|
|
246,604 |
|
353,528 |
|
210,130 |
|
810,262 |
|
|
|
|
|
|
|
|
|
|
|
The format of the Statement of Changes in Equity has changed
from prior periods in that it now reflects the one column income
presentation in the Statement of Comprehensive Income format. The
Company's profit/loss are now posted to retained earnings rather
than individual revenue/capital reserves.
The accompanying notes form an integral part of the Audited
Financial Statements
Statement of Cash Flows
For the Year Ended 29 February
2020
|
|
|
|
29
February |
|
28
February |
|
|
|
|
2020 |
|
2019 |
|
|
|
|
|
|
|
|
|
Note |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
Cash
flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
inflows |
|
|
|
|
|
Realisation of investments |
|
|
140,296 |
|
215,582 |
Maturity
of treasury bills |
|
|
6,700 |
|
78,099 |
Escrow
receipts received |
|
|
5,559 |
|
3,303 |
Interest
received from unlisted investments |
|
|
1,669 |
|
2,076 |
Income
distributions received from investments |
|
|
1,781 |
|
- |
Bank
Interest received |
|
|
455 |
|
525 |
|
|
|
|
|
|
|
Cash
outflows |
|
|
|
|
|
Direct
investments and capital calls |
|
|
(77,110) |
|
(194,431) |
Purchase
of treasury bills |
|
|
(6,706) |
|
(6,579) |
Real
estate deposit paid |
|
|
- |
|
(700) |
Investment
Adviser's base fee paid |
|
|
(16,147) |
|
(16,856) |
Investment
Adviser's incentive fee paid |
|
|
(4,584) |
|
(996) |
Other
operating expenses paid |
|
|
(4,188) |
|
(3,174) |
Foreign
exchange loss realised |
|
|
(626) |
|
(171) |
|
|
|
|
|
|
|
Net cash
inflow before financing activities |
|
|
47,099 |
|
76,678 |
|
|
|
|
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Finance
costs paid: |
|
|
|
|
|
•
Convertible Unsecured Loan Stock |
|
|
(2,956) |
|
(3,155) |
• Loan
Payable |
|
|
(12,436) |
|
(12,142) |
Buy back
of Ordinary shares |
18 |
|
(29,979) |
|
(19,081) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
outflow from financing activities |
|
|
(45,371) |
|
(34,378) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in cash and cash equivalents |
|
|
1,728 |
|
42,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Cash Flow to Movements in Cash and Cash
Equivalents |
|
|
|
|
Cash at
bank at beginning of year |
|
|
50,994 |
|
9,000 |
Increase
in cash and cash equivalents as above |
|
|
1,728 |
|
42,300 |
Unrealised
foreign exchange movements on cash at bank |
|
|
190 |
|
(306) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at
bank at year end |
|
|
52,912 |
|
50,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Cash Inflows from Realisations to numbers
presented in the Chairman's Statement, Investment Adviser's Report
and Note 12 of the financial statements |
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
29
February |
|
28
February |
|
|
|
|
2020 |
|
2019 |
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
Proceeds
from realisation and repayment of investments (note 12) |
|
|
146,996 |
|
268,694 |
Less
proceeds from maturity of treasury bills |
|
|
(6,700) |
|
(78,099) |
Proceeds
received post year end from realisation of treasury bills |
|
|
- |
|
24,987 |
|
|
|
|
|
|
|
Cash
inflow from realisation of unlisted investments (above) |
|
|
140,296 |
|
215,582 |
|
|
|
|
|
|
|
Adjusted to reconcile to totals quoted in Annual Report |
|
|
|
|
|
Cash
inflow from realisation of unlisted investments (above) |
|
|
140,296 |
|
|
Escrow
receipts |
|
|
5,559 |
|
|
Income
received from distributions/realisations |
|
|
2,322 |
|
|
|
|
|
|
148,177 |
|
|
The accompanying notes form an integral part of the Audited
Financial Statements.
Notes to the Annual Financial Statements
1. General
Information
JZ Capital Partners Limited ("JZCP" or the "Company") is a
Guernsey domiciled closed-ended
investment company which was incorporated in Guernsey on 14 April
2008 under the Companies (Guernsey) Law, 1994. The Company is now
subject to the Companies (Guernsey) Law, 2008. The Company is classified
as an authorised fund under the Protection of Investors (Bailiwick
of Guernsey) Law 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 ("SFS").
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. Post year end, the Board has proposed
a new investment policy, to be formally adopted, whereby the
Company will make no further investments outside of its existing
obligations or to the extent that investment may be made to support
selected existing portfolio investments. The intention is to
realise the maximum value of the Company’s investments and, after
repayment of all debt, to return capital to shareholders.
The Company is currently mainly focused on investing in the
following areas:
(a) small or micro-cap buyouts in the form of debt and equity
and preferred stock in both the US and Europe; and
(b) real estate interests.
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 year under review
the Company was administered by Northern Trust International Fund
Administration Services (Guernsey)
Limited.
2. Basis of Accounting and Significant Accounting
Policies
Statement of
compliance
The financial statements have been prepared in accordance with the
International Financial Reporting Standards as adopted by the
European Union ("IFRS"), which comprise standards and
interpretations approved by the International Accounting Standards
Board ("IASB") together with applicable legal and regulatory
requirements of Guernsey Law, and the SFS.
Basis of preparation
The financial statements of the Company have been prepared in
accordance with IFRS. The financial statements have been prepared
on a historical-cost basis, except for financial assets and
financial liabilities held at fair value through profit or loss
("FVTPL").
The financial statements are presented in US dollars, which is
the functional currency of the Company, and all values are rounded
to the nearest thousand dollars ($000), except where otherwise indicated.
The format of the Statement of Comprehensive Income has changed
from prior years in that it now presents profit/loss in one column
format rather than a split between capital and revenue. This change
is also reflected in the format of the Statement of Changes in
Equity, the Company's profit/loss is now posted to retained
earnings/deficit rather than individual revenue/capital
reserves.
The Company now presents its Statement Of Cash Flows statement
on a direct-basis rather the indirect basis of previous years.
Both of the above changes were made to improve and simplify
presentation.
The Company's Statement of Financial Position's is presented in
order of liquidity, which provides information in a format that is
deemed relevant to the Company.
New and amended standards and
interpretations
The Company applied, for the first time, certain standards and
amendments, which are effective for annual periods beginning on or
after 1 January 2019. The new
standards or amendments to existing standards and interpretations,
effective from 1 March 2019, did not
have a material impact of the Company’s Financial Statements. The
Company has assessed the impact of standards issued but not yet
applicable, and have concluded that they will not have a
material impact on the Financial Statements.
Changes in accounting policy and disclosure
The accounting policies adopted in the preparation of these audited
annual financial statements have been consistently applied during
the year and are consistent with those of the previous year, unless
otherwise stated.
Significant Accounting Policies
Financial instruments
Financial assets and financial liabilities are offset and the net
amount is reported in the Statement of Financial Position if, and
only if, there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net
basis, or to realise the asset and settle the liability
simultaneously. This is generally not the case with master netting
agreements unless one party to the agreement defaults and the
related assets and liabilities are presented gross in the statement
of financial position.
In accordance with IFRS 9, the Company classifies its financial
assets and financial liabilities at initial recognition into the
categories of financial assets and financial liabilities discussed
below.
Financial
assets
The Company classifies its financial assets as subsequently
measured at amortised cost or measured at FVTPL on the basis of
both:
· The entity’s business model for managing the
financial assets; and
· The contractual cash flow characteristics of
the financial asset.
i) Financial assets measured at amortised cost
A debt instrument is measured at amortised cost if it is held
within a business model whose objective is to hold financial assets
in order to collect contractual cash flows and its contractual
terms give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal (“SPPI”) amount
outstanding. The Company includes in this category loans at
amortised cost, short-term non-financing receivables and other
receivables.
ii) Financial assets measured at
FVTPL
A financial asset is measured at fair value through profit or loss
if:
· Its contractual terms do not give rise to
cash flows on specified dates that are SPPI on the principal amount
outstanding; or
· It is not held within a business model whose
objective is either to collect contractual cash flows, or to both
collect contractual cash flows and sell; or
· At initial recognition, it is irrevocably
designated as measured at FVPL when doing so eliminates or
significantly reduces a measurement or recognition inconsistency
that would otherwise arise from measuring assets or liabilities or
recognising the gains and losses on them on different bases.
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date.
ii a)
Classification
Financial assets classified at FVTPL are those that are managed and
their performance evaluated on a fair value basis in accordance
with the Company’s investment strategy as documented in its
prospectus.
The Company includes in this category:
· Investments in the equity and preferred
stock of micro cap, real estate and other investments;
· Investments in subsidiaries and associates:
Investment in subsidiaries: In accordance with the exception under
IFRS10, the Company does not consolidate subsidiaries in the
financial statements unless the subsidiary is not itself an
investment entity and its main purpose and activities are providing
services that relate to the Company’s investment activities. The
Company has no consolidated subsidiaries.
· Investment in associates: In accordance with
the exemption in IAS28 Investments in Associates and Joint
Ventures, the Company does not account for its investments in
associates using the equity method. Instead, the Company has
elected to measure its investments in associates at FTVPL.
· Investments in debt instruments which
include investments that are held under a business model to manage
them on a fair value basis for investment income and fair value
gains.
ii b)
Measurement
Investments made by the Company are measured initially and
subsequently at fair value, with changes in fair value taken to the
Statement of Comprehensive Income. Transaction costs are expensed
in the Statement of Comprehensive Income in the year in which they
arise for those financial instruments classified at FVTPL.
ii c) Fair value
estimate
The fair value of financial assets traded in active markets (such
as publicly traded securities) is based on quoted market prices at
the Statement of Financial Position date. The quoted market price
used for financial assets held by the Company is the bid price.
Unquoted preferred shares, micro cap loans, unquoted equities
and equity related securities investments are typically valued by
reference to their enterprise value, which is generally calculated
by applying an appropriate multiple to the last twelve months’
earnings before interest, tax, depreciation and amortisation
(“EBITDA”). In determining the multiple, the Directors consider
inter alia, where practical, the multiples used in recent
transactions in comparable unquoted companies, previous valuation
multiples used and where appropriate, multiples of comparable
publicly traded companies. In accordance with the International
Private Equity and Venture Capital Association (“IPEVCA”) valuation
guidelines, a marketability discount is applied which reflects the
discount that in the opinion of the Directors, market participants
would apply in a transaction in the investment in question.
The valuation techniques to derive the fair value of real estate
interests and other investments are detailed in Note 5.
iii) Other receivables
Other receivables do not carry any interest and are short-term in
nature and are accordingly stated at their nominal value as reduced
by appropriate allowances for estimated irrecoverable amounts.
iv) Cash on deposit and cash and cash
equivalents
Cash on deposit comprises bank deposits with an original maturity
of three months or more. Cash and cash equivalents comprise bank
balances and cash held by the Company, including short-term bank
deposits with a maturity of three months or less. Cash also
includes amounts held in interest-bearing overnight accounts.
Financial liabilities
For financial liabilities designated as FVTPL using the fair value
option ("FVO"), the amount of change in the fair value of such
financial liabilities that is attributable to changes in the
Company's credit risk must be presented in Other Comprehensive
Income ("OCI"). The remainder of the change in fair value is
presented in profit or loss, unless presentation in OCI of the fair
value change in respect of the liability’s credit risk would create
or enlarge an accounting mismatch in profit or loss.
Financial liabilities are classified according to the substance
of the contractual arrangements entered into. Financial
liabilities, other than CULS (see overleaf) are recorded at the
amount of proceeds received, net of issue costs.
Financial liabilities may be designated at fair value through
profit or loss rather than stated at amortised cost, when the Board
have considered the appropriate accounting treatment for the
specific liability.
i) Financial liabilities measured at FVTPL
Convertible Unsecured Loan Stock
(“CULS”)
The CULS issued by the Company is denominated in a currency (GBP)
other than the Company’s functional currency and hence fails the
‘fixed-for-fixed’ criteria for equity classification. Rather than
account for the host debt and embedded conversion element
separately, the Company elects to account for the CULS in its
entirety in accordance with the IFRS 9 ‘Fair Value Option’.
The CULS’ fair value is deemed to be the listed offer price at
the year end. CULS is translated at the exchange rate at the
reporting date and both differences in fair value due to the listed
offer price and exchange rates are recognised in the Statement of
Comprehensive Income.
ii) Financial liabilities measured at amortised
cost
This category includes all financial liabilities, other than those
measured at fair value through profit or loss. The Company includes
in this category, Zero Dividend Preference (“ZDP”) shares,
Guggenheim loan and other short-term payables.
a) Zero Dividend Preference (“ZDP”)
shares
ZDP shares meet the definition of a financial liability in
accordance with IAS 32 Financial Instruments: Presentation, as the
shares are redeemable at a fixed date and holders are entitled to a
fixed return. ZDP shares are recorded at amortised cost using the
effective interest rate
method.
b) Guggenheim loan
The loan is recorded at amortised cost using the effective interest
rate method.
c) Other
payables
Other payables (include the accrual of Investment Adviser’s fees)
are classified as financial liabilities at amortised cost. Other
payables are not interest-bearing and are stated at their nominal
value.
Equity
Equity is classified according to the substance of the contractual
arrangements entered into. An equity instrument is any contract
that evidences a residual interest in the assets of the Company
after deducting all of its liabilities. Equity are recorded at the
amount of proceeds received, net of issue costs. Ordinary Shares
are classified as equity in accordance with IAS 32 – “Financial
Instruments: Presentation” as these instruments include no
contractual obligation to deliver cash and the redemption mechanism
is not mandatory.
Interest
revenue
Interest revenues are recognised in the Statement of Comprehensive
Income for all interest-bearing financial instruments using the
effective interest method.
Dividend
income
Dividend income is recognised when the Company's right to receive
payment is established. When there is reasonable doubt that income
due to be received will actually be received, such income is not
accrued until it is clear that its receipt is probable. Where,
following an accrual of income, receipt becomes doubtful, the
accrual is either fully or partly written off until the reasonable
doubt is removed.
Escrow
accounts
Where investments are disposed of, the consideration given may
include contractual terms requiring that a percentage of the
consideration is held in an escrow account pending resolution of
any indemnifiable claims that may arise and as such the value of
these escrow amounts is not immediately known. The Company records
gains realised on investments held in escrow in the Statement of
Comprehensive Income following confirmation that any such
indemnifiable claims have been resolved and none is expected in the
future.
Taxation
The company has been granted Guernsey tax exempt status in accordance with
The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended).
However, in some jurisdictions, investment income and capital gains
are subject to withholding tax deducted at the source of the
income. The Company presents the withholding tax
separately from the gross investment income in the Statement of
Comprehensive Income.
3. Estimates and Judgements
The preparation of the Company’s financial statements requires
management to make estimates, judgements, and assumptions that
affect the reported amounts recognised in the financial statements.
However, uncertainty about these assumptions and estimates could
result in outcomes that could require a material adjustment to the
carrying amount of the asset or liability affected in future
periods.
The following are the key judgements and other key sources of
estimation uncertainty at the end of the reporting year, that have
a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial
year:
Estimates
Fair Value of Investments at Fair Value Through Profit or
Loss
Certain investments are classified as FVTPL, and valued
accordingly, as disclosed in Note 2. The key source of estimation
uncertainty is on the valuation of unquoted equities,
equity-related securities and real estate investments.
In reaching its valuation of the unquoted equities,
equity-related securities and real estate investments the key
estimates management has to make are those relating to the
multiples, discount factors and real estate valuation factors (Note
5) used in the valuation models.
Judgements
Assessment as an Investment
Entity
Entities that meet the definition of an investment entity within
IFRS 10 are required to measure their subsidiaries at fair value
through profit or loss rather than consolidate them. The criteria
which define an investment entity are as follows:
· An entity that obtains funds from one or
more investors for the purpose of providing those investors with
investment services;
· An entity that commits to its investors that
its business purpose is to invest funds solely for returns from
capital appreciation, investment income or both; and
· An entity that measures and evaluates the
performance of substantially all of its investments on a fair value
basis.
The Company has a wide range of investors; through its
Investment Adviser management services it enables investors to
access private equity, real estate and similar investments.
The Company’s objective to provide a “significant capital
appreciation” is consistent with that of an investment entity. The
Company has clearly defined exit strategies for each of its
investment classes, these strategies are again consistent with an
investment entity.
In determining the fair value of unlisted investments JZCP
follows the principles of IPEVCA valuation guidelines. The
Valuation Guidelines have been prepared with the goal that Fair
Value measurements derived when using these Valuation Guidelines
are compliant with IFRS. The Board of JZCP evaluates the
performance of unlisted investments quarterly on a fair value
basis. Listed investments are recorded at Fair Value in accordance
with IFRS being the last traded market price where this price falls
within the bid-ask spread.
The Board has also concluded that the Company meets the
additional characteristics of an investment entity, in that it has
more than one investment; the investments are predominantly in the
form of equities and similar securities and it has more than one
investor.
Investment in
Associates
An associate is an entity over which the Company has significant
influence. An entity is regarded as a subsidiary only if the
Company has control over its strategic, operating and financial
policies and intends to hold the investment on a long-term basis
for the purpose of securing a contribution to the Company’s
activities.
In accordance with the exemption within IAS 28 Investments in
Associates and Joint Ventures, the Company does not account for its
investment in EuroMicrocap Fund 2010, L.P., JZI Fund III GP, L.P.,
Spruceview Capital Partners, LLC and Orangewood Partners Platform
LLC using the equity method. Instead, the Company has elected to
measure its investment in its associates at FVTPL.
The Directors have determined that although the Company has over
50% economic interest in EuroMicrocap Fund 2010, L.P., JZI Fund III
GP, L.P. and Orangewood Partners Platform LLC, it does not have the
power to govern the financial and operating policies of the
entities, but does have significant influence over the strategic,
operating and financial policies.
Expected Credit Losses ("ECL")
Certain financial assets are classified as Loans at Amortised cost,
and valued accordingly as disclosed in note 2. The key source of
estimation uncertainty is on the various default scenarios for
prescribed future periods and the probability of each scenario
occurring which are considered when estimating the ECLs.
Going Concern
A fundamental principle of the preparation of financial statements
in accordance with IFRS is the judgement that an entity will
continue in existence as a going concern for a period of at least
12 months from signing of the financial statements, which
contemplates continuity of operations and the realisation of assets
and settlement of liabilities occurring in the ordinary course of
business.
In the context of the delay in realising assets as previously
announced, the potential impact on the repayment of the Guggenheim
facility and the CULS together with COVID-19, there are material
uncertainties which casts significant doubt on the ability of the
Company to continue as a going concern. However the financial
statements have been prepared on a going concern basis for the
reasons set out below and as the Directors, with recommendation
from the Audit Committee, have a reasonable expectation that the
Company has adequate resources to continue in operational existence
for the foreseeable future.
In reaching its conclusion, the Board have considered the risks
that could impact the Company’s liquidity over the period to
31 July 2021. This period, which is
longer than the required period of 12 months, has been considered
to be relevant due to the repayment date for the Company’s CULS
being only 43 days after the 12 month period.
As part of their assessment the Audit
Committee highlighted the following key considerations:
1. Whether, the Company can
generate sufficient cash through realisations of its underlying
investments to discharge its liabilities over the period to
31 July 2021
2. Whether, in the event that
the realisation events previously referred to do not materialise
before the expiration of the current loan facility and the
repayment date of the CULS, the Company is able to implement an
alternative plan for refinancing the loan facility within the
required timeframe
3. COVID-19
4. Valuation losses incurred by the Company during the
year ended 29 February 2020
1. Whether, the Company can generate
sufficient cash through realisations of its underlying investments
to discharge its liabilities over the period to 31 July 2021
As at 31 May 2020, the Company had
cash and cash equivalents of approximately $43 million which offers over 6 months of
liquidity cover assuming no income from realisations and making
payments as forecast for follow-on investments, debt financing and
ongoing expenses and the retainment of $15
million cash required for current loan covenant.
The Company has two major debt obligations to settle towards the
end of the going concern period being:
i. the Loan facility with Guggenheim of approximately
$150 million due for settlement on
12 June 2021; and
ii. the settlement of its
CULS on 30 July 2021 for £38.9
million (approximately $50
million).
It is anticipated that the liquidity required to settle the debt
obligations mentioned above, and other ongoing obligations in 2021,
will be generated from realisations within the going concern
period. These forecast realisations include two anticipated
secondary sales of several micro-cap companies and also certain
other assets. Total realisation proceeds of approximately
$260 million are expected from the
aforementioned events.
Prior to the COVID-19 pandemic and the resulting lockdown, some
of these realisation events were close to completion. Whilst the
Board still expects these transactions to complete, the timing of
the closure of the transactions depends largely on the length and
severity of the COVID-19 lockdown. The Directors have also
considered the levels of realisation proceeds historically
generated by the Company’s micro-cap portfolios as well as the
accuracy of previous forecasts whilst concluding on the accuracy of
the forecast.
2. Whether, in the event that the realisation events referred
to in (1) do not materialise before the expiration of the current
loan facility and the repayment of the CULS, the Company is able to
implement alternative plans for refinancing within the required
timeframe.
JZAI personnel manage the relationship with the Company’s
lender, monitor compliance with loan terms and covenants and report
to the Board on matters arising. Throughout the year ended
29 February 2020, the Company has
continued to be in compliance with covenant terms and made all
scheduled interest payments on time. Post year end, the Company
obtained agreement from the parties to the loan facility for an
extension to the time for delivery of this annual report, the
release of which was delayed on account of COVID-19. Discussions
are also ongoing regarding amendments to the loan agreement to
ensure any risk of breach of covenant in light of the uncertainties
caused by COVID-19 over post year end valuations is avoided.
3. COVID-19
The Board recognise the high degree of uncertainty in respect of
the dynamic situation which has unfolded with COVID-19 and is
unable to currently assess the likely duration and exact impact to
the Company of the outbreak.
Whilst the effect of Covid-19 on the valuation of the Company’s
investment portfolio cannot yet be estimated, there is an
expectation that there will be further write downs within the real
estate portfolio following the interim appraisals and also a
lengthy lockdown period, especially in the US, could adversely
affect the valuation of the company’s micro cap portfolio.
Post year end, the Board has received regular updates from the
Investment Adviser of the impact of COVID-19 on the individual
investments within the Company’s investment portfolio. To enable
the Board to assess the ongoing risk to the Company, information
has been provided on the following business aspects of portfolio
companies:
· Demand for product/service;
· Supply Chain & operational issues;
· Flexibility and adaptability of workforce to
perform duties;
· Financial Strength of Company – Liquidity
Issues; and
· Support received from Government
programmes.
The pandemic has unfortunately created an environment where the
completion of corporate transactions has predominantly stalled.
Therefore, the Company have had to consider the effect on
liquidity. The Board have concluded that they have a reasonable
expectation that delays in scheduled realisations will be
short-lived and completed as financial markets return to a level of
normality.
Future valuation losses may impact compliance with covenants
placed on the Company’s loan facility which require a 4x asset
value cover. The Board note the current collateral/loan ratio is
4.5x and a further fall in the NAV of approx.
$70 million would see the required
4x cover of this loan covenant breached. Discussions are ongoing
between the Company and Guggenheim, in part regarding the amendment
of the loan agreement to ensure any risk of breach of covenant is
avoided in light of the uncertainties caused by COVID-19 over post
year end valuations.
4. Valuation losses incurred by the
Company during the year ended 29 February
2020
The total loss attributable to Ordinary shareholders for the
year ended 29 February 2020 is
$304.5 million. As previously
announced towards the latter half of 2019, the Company has
dramatically revised downwards its valuation of the Company’s real
estate portfolio.
The Board have assessed that these losses, as they are valuation
related, have not impacted or created a material uncertainty around
the Company’s ability to continue in existence as a going
concern.
Going Concern
Conclusion
After careful consideration and based on the reasons outlined
above, the Board are satisfied, as of today’s date, that it is
appropriate to adopt the going concern basis in preparing the
financial statements and they have a reasonable expectation that
the Company will continue in existence as a going concern for the
period ending 31 July 2021.
However, of the four key considerations identified above the
Board have concluded that three of them create material
uncertainties which cast significant doubt over the ability of the
Company to continue as a Going Concern, being:
· Whether, the Company will be able to
generate sufficient realisation proceeds before the expiration of
the current loan facility and repayment of the CULS;
· In the event sufficient realisation
proceeds referenced above are not generated the Company is able to
implement alternative plans within a timetable agreed with its
lenders; and
The full impact of COVID-19 on the valuation of the Company’s
investment portfolio and related loan covenants is not currently
known.The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
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)
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.
Investments in treasury bills and corporate bonds are not
considered as part of the investment strategy and are therefore
excluded from this segmental analysis.
Segmental
Profit/(Loss)
For the year ended 29 February
2020
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Interest
revenue |
27,372 |
|
4,499 |
|
(454) |
|
- |
|
31,417 |
Other portfolio
income |
|
560 |
|
1,221 |
|
- |
|
- |
|
1,781 |
Total segmental
revenue |
|
27,932 |
|
5,720 |
|
(454) |
|
- |
|
33,198 |
Net gain/(loss) on
investments at FVTPL |
|
12,459 |
|
1,941 |
|
(330,906) |
|
- |
|
(316,506) |
Expected credit
losses |
|
- |
|
(29,318) |
|
- |
|
- |
|
(29,318) |
Realisations from investments held in Escrow |
5,559 |
|
- |
|
- |
|
- |
|
5,559 |
Withholding tax |
|
(126) |
|
- |
|
- |
|
1,004 |
|
878 |
Investment
Adviser's base fee |
(6,454) |
|
(1,583) |
|
(5,860) |
|
(307) |
|
(14,204) |
Investment
Adviser's capital incentive fee1 |
- |
|
- |
|
35,880 |
|
- |
|
35,880 |
Total
segmental operating profit/(loss) |
39,370 |
|
(23,240) |
|
(301,340) |
|
697 |
|
(284,513) |
For the 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 |
|
|
|
|
|
|
|
|
|
|
|
Interest revenue |
|
22,135 |
|
6,486 |
|
142 |
|
- |
|
28,763 |
Total segmental
revenue |
|
22,135 |
|
6,486 |
|
142 |
|
- |
|
28,763 |
Net
gain/(loss) on investments at FVTPL |
16,686 |
|
7,053 |
|
(26,512) |
|
- |
|
(2,773) |
Expected credit
losses |
|
- |
|
(75) |
|
- |
|
- |
|
(75) |
Realisations from investments held in Escrow |
3,303 |
|
- |
|
- |
|
- |
|
3,303 |
Investment
Adviser's base fee |
(6,725) |
|
(1,772) |
|
(6,852) |
|
(255) |
|
(15,604) |
Investment
Adviser's capital incentive fee1 |
(8,074) |
|
637 |
|
5,291 |
|
(15) |
|
(2,161) |
Total
segmental operating profit/(loss) |
27,325 |
|
12,329 |
|
(27,931) |
|
(270) |
|
11,453 |
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 and operating profit.
|
|
|
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segmental Operating (Loss)/Profit |
|
|
|
|
|
(284,513) |
|
11,453 |
Gain on
financial liabilities at fair value through profit or loss |
|
4,388 |
|
5,696 |
Net
foreign exchange gain/(loss) |
|
|
|
|
|
664 |
|
(1,354) |
Interest
on treasury notes and corporate bonds |
|
|
|
66 |
|
60 |
Interest on cash |
|
|
|
|
|
|
|
|
|
|
|
|
455 |
|
525 |
Fees
payable to investment adviser based on non-segmental assets |
|
(1,020) |
|
(1,129) |
Expenses
not attributable to segments |
|
|
|
(4,129) |
|
(3,099) |
Withholding tax |
|
|
|
|
|
|
|
|
|
|
|
|
(878) |
|
- |
Operating (Loss)/Profit |
|
|
|
|
|
|
|
|
|
(284,967) |
|
12,152 |
The following table provides a reconciliation between total
segmental revenue and Company revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Total segmental
revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,198 |
|
28,763 |
Non-segmental
revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on treasury
bills |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66 |
|
60 |
Bank and deposit
interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
455 |
|
525 |
Total revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,719 |
|
29,348 |
Segmental Net Assets
At 29 February 2020
|
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
Segmental assets |
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Investments at FVTPL |
404,880 |
|
71,619 |
|
158,712 |
|
22,603 |
|
657,814 |
Loans at
amortised cost |
- |
|
30,972 |
|
- |
|
- |
|
30,972 |
Other
receivables |
|
|
- |
|
- |
|
80 |
|
- |
|
80 |
Total
segmental assets |
404,880 |
|
102,591 |
|
158,792 |
|
22,603 |
|
688,866 |
Segmental liabilities |
|
|
|
|
|
|
|
|
|
Payables
and accrued expenses |
(3,290) |
|
(113) |
|
(501) |
|
(23) |
|
(3,927) |
Total
segmental liabilities |
(3,290) |
|
(113) |
|
(501) |
|
(23) |
|
(3,927) |
Total
segmental net assets |
401,590 |
|
102,478 |
|
158,291 |
|
22,580 |
|
684,939 |
At 28 February 2019
|
|
|
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
Segmental assets |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Investments at FVTPL |
478,970 |
|
70,686 |
|
443,044 |
|
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 |
(38,768) |
|
1,321 |
|
(10,573) |
|
1,850 |
|
(46,170) |
Total
segmental net assets |
440,202 |
|
130,019 |
|
433,746 |
|
20,152 |
|
1,024,119 |
Other receivables and prepayments are not considered to be part of
individual segment assets. Certain liabilities are not considered
to be part of the net assets of an individual segment. These
include custodian and administration fees payable, directors’ fees
payable and other payables and accrued expenses.
The following table provides a reconciliation between total
segmental assets/liabilities and total assets/liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segmental Assets |
|
|
|
|
|
|
|
|
|
688,866 |
|
1,070,289 |
Non
Segmental Assets |
|
|
|
|
|
|
|
|
|
|
|
|
Cash at
bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
52,912 |
|
50,994 |
Treasury bills |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,386 |
|
3,314 |
Other
receivables |
|
|
|
|
|
39 |
|
11 |
Total
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
745,203 |
|
1,124,608 |
Total
Segmental Liabilities |
|
|
|
|
|
|
|
|
|
(3,927) |
|
(46,170) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
Segmental Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Zero
Dividend Preference (2022) shares |
|
|
|
|
|
(64,510) |
|
(63,838) |
Convertible Unsecured Loan Stock |
|
|
|
|
|
(49,886) |
|
(54,274) |
Loans payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(150,362) |
|
(149,227) |
Other
payables |
|
|
|
|
|
(784) |
|
(837) |
Total
Liabilities |
|
|
|
|
|
|
|
|
|
(269,469) |
|
(314,346) |
Total
Net Assets |
|
|
|
|
|
|
|
|
|
475,734 |
|
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 assets 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
tradable. Another example would be derivatives such as interest
rate swaps or forward currency contracts where inputs are
observable and therefore may also fall into Level 2.
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 (see
Quantitative information of significant unobservable inputs and
sensitivity analysis to significant changes in unobservable inputs
within Level 3 hierarchy table below) 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 29 February 2020
|
|
|
|
|
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
US Micro-cap |
|
|
|
|
|
|
|
- |
|
- |
|
404,880 |
|
404,880 |
European
Micro-cap |
|
|
|
|
|
|
- |
|
- |
|
71,619 |
|
71,619 |
Real Estate |
|
|
|
|
|
|
|
- |
|
- |
|
158,712 |
|
158,712 |
Other Investments |
|
|
|
|
|
|
|
- |
|
- |
|
22,603 |
|
22,603 |
Listed
Investments |
|
|
|
|
|
|
|
3,386 |
|
- |
|
- |
|
3,386 |
|
|
|
|
|
|
|
|
3,386 |
|
- |
|
657,814 |
|
661,200 |
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 |
|
|
|
|
|
|
|
3,269 |
|
- |
|
- |
|
3,269 |
|
|
|
|
|
|
|
|
3,269 |
|
- |
|
1,011,002 |
|
1,014,271 |
Financial liabilities designated at fair value through profit or
loss at inception
Financial liabilities at 29 February
2020
|
|
|
|
|
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Subordinated Unsecured Loan Stock |
- |
|
49,886 |
|
- |
|
49,886 |
|
|
|
|
|
|
|
|
- |
|
49,886 |
|
- |
|
49,886 |
Financial liabilities at 28 February
2019
|
|
|
|
|
|
|
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Subordinated Unsecured Loan Stock |
54,274 |
|
- |
|
- |
|
54,274 |
|
|
|
|
|
|
|
|
54,274 |
|
- |
|
- |
|
54,274 |
Transfers between
levels
During the year, it was concluded that market transactions for the
CULS do not take place with sufficient frequency and volume to
provide adequate pricing information on an ongoing basis and
therefore do not justify a Level 1 categorisation. Therefore, it is
now considered the CULS are not traded in an active market and are
therefore categorised at Level 2 as defined by IFRS. The transfer
took place on 31 August 2019, based
on the closing price at the date of transfer being
£10.60 (total value £41.2 million or $50.2 million using the appropriate exchange
rate).
Valuation techniques
In valuing investments in accordance with IFRS, the Board follows
the principles as detailed in the IPEVCA guidelines. When fair
values of listed equity and debt securities at the reporting date
are based on quoted market prices or binding dealer price
quotations (bid prices for long positions), without any deduction
for transaction costs, the instruments are included within Level 1
of the hierarchy.
Investments for which there are no active markets are valued
according to one of the following methods:
Real estate
JZCP makes its real estate investments through a wholly-owned
subsidiary, which in turn owns interests in various residential,
commercial, and development real estate properties. The net asset
value of the subsidiary is used for the measurement of fair value.
The underlying fair value of JZCP’s Real Estate holdings, however,
is represented by the properties themselves. The Company's
Investment Adviser and Board review the fair value methods and
measurement of the underlying properties on a quarterly basis.
Where available, the Company will use third party appraisals on the
subject property, to assist the fair value measurement of the
underlying property. Third-party appraisals are prepared in
accordance with the Appraisal and Valuation Standards (6th edition)
issued by the Royal Institution of Chartered Surveyors. Fair value
techniques used in the underlying valuations are:
- Use of comparable market values
per square foot of properties in recent transactions in the
vicinity in which the property is located, and in similar
condition, of the relevant property, multiplied by the property’s
square footage.
- Discounted Cash Flow ("DCF")
analysis, using the relevant rental stream, less expenses, for
future periods, discounted at a Market Capitalisation ("MC") rate,
or interest rate.
- Relevant rental stream less
expenses divided by the market capitalization rate; this method
approximates the enterprise value construct used for non-real
estate assets.
- Income capital approach using
the relevant sell out analysis, less expenses and costs.
For each of the above techniques third party debt is deducted to
arrive at fair value.
The valuations obtained in relation to the real estate portfolio
are dated 31 December 2019 and were
received in March 2020. In
discussions after the year end with the appraisers there was no
indication that there may have been a significant shift in values
between 31 December and 29 February. Due to the inherent
uncertainties of real estate valuation, the values reflected in the
financial statements may differ significantly from the values that
would be determined by negotiation between parties in a sales
transaction and those differences could be material.
Post year end, effects of the COVID-19 crisis since then on
values of the real estate investments are expected to be
significant and adverse although their quantum cannot yet be
estimated. Further appraisals will be commissioned to establish the
value of the real estate portfolio as at 31st August 2020, the Company’s half year end and
the date to which the Interim Results for the Company’s financial
year ending 28th February 2021 will
be presented.
Unquoted preferred shares, unquoted equities and equity related
securities
Unquoted equities and equity related securities investments are
classified in the Statement of Financial Position as Investments at
fair value through profit or loss. These investments are typically
valued by reference to their enterprise value, which is generally
calculated by applying an appropriate multiple to the last twelve
months' earnings before interest, tax, depreciation and
amortisation ("EBITDA"). In determining the multiple, the Board
consider inter alia, where practical, the multiples used in recent
transactions in comparable unquoted companies, previous valuation
multiples used and where appropriate, multiples of comparable
publicly traded companies. In accordance with IPEVCA guidelines, a
marketability discount is applied which reflects the discount that
in the opinion of the Board, market participants would apply in a
transaction in the investment in question. The increase of the fair
value of the aggregate investment is reflected through the unquoted
equity component of the investment and a decrease in the fair value
is reflected across all financial instruments invested in an
underlying company.
In respect of unquoted preferred shares the Company values these
investments at fair value by reference to the attributable
enterprise value as the exit strategy in respect to these
investments would be a one tranche disposal together with the
equity component. The fair value of the investment is determined by
reference to the attributable enterprise value reduced by senior
debt and marketability discount.
Micro-cap loans
Investments in micro-cap debt are valued at fair value by reference
to the attributable enterprise value when the Company also holds an
equity position in the investee company.
When the Company invests in micro-cap loans and does not hold an
equity position in the underlying investee company these loans are
valued at amortised cost in accordance with IFRS 9 (Note 2). The
carrying value at amortised cost is considered to approximate to
fair value.
Other Investments
Other investments at year end, comprise of mainly the Company's
investment in the asset management business -Spruceview Capital
Partners ("Spruceview"). Spruceview is valued using a valuation
model which considers both current assets under management ("AUM")
and the potential for new AUM.
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 29 February 2020 and 28
February 2019 are shown below:
|
Value
29.2.2020 |
Valuation |
Unobservable |
|
Sensitivity |
Effect on Fair Value |
|
US$'000 |
Technique |
input |
Range
(weighted average) |
used |
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap
investments |
404,880 |
EBITDA
Multiple |
Average
EBITDA Multiple of Peers |
6.5% -
16.3% (8.7%) |
-0.5x/+0.5x |
(32,240) |
|
33,918 |
|
|
|
Discount
to Average Multiple |
10% - 30%
(17%) |
+5%/-5% |
(39,497) |
|
40,898 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European micro-cap
investments |
71,619 |
EBITDA
Multiple |
Average
EBITDA Multiple of Peers |
6.7x -
14.0x (10.0x) |
-0.5x
/+0.5x |
(4,210) |
|
4,210 |
|
|
|
Discount
to Average Multiple |
3% - 58%
(16%) |
+5%
/-5% |
(4,380) |
|
4,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
1,2,3 |
73,126 |
Comparable Sales |
Market
Value Per Square Foot |
$286 -
$1,964 ($795) per sq ft |
-10%/+10% |
(21,188) |
|
22,717 |
|
45,283 |
DCF
Model/Income Approach |
Capitalisation Rate
Discount Rate |
5.25%-5.75% (5.5%)
6.25%-7.50% (6.5%) |
+50bps/
-50bps |
(19,797) |
|
27,497 |
|
32,518 |
Cap Rate/
Income Approach |
Capitalisation Rate |
4.75%-6.0% (5.75%) |
+50bps/
-50bps |
(13,671) |
|
16,084 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
20,338 |
AUM
Approach |
AUM |
$3.2
Bn |
-10%/+10% |
(4,065) |
|
4,065 |
|
|
|
% Applied
to AUM |
2.6% |
-10%/+10% |
(2,034) |
|
2,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
28.2.2019
US$'000 |
Valuation
Technique |
Unobservable
input |
Range (weighted average) |
Sensitivity
used 1 |
|
Effect on Fair Value
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap
investments |
478,970 |
EBITDA
Multiple |
Average
EBITDA Multiple of Peers |
|
6.0x -
16.3x (8.5x) |
|
-0.5x / 0.5x |
|
(37,624) |
|
39,780 |
|
|
|
Discount
to Average Multiple |
|
15% - 35%
(23%) |
|
+5% / -5% |
|
(47,352) |
|
49,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European micro-cap
investments |
70,686 |
EBITDA
Multiple |
Average
EBITDA Multiple of Peers |
|
5.2x - 12.1x (8.7x) |
-0.5x / 0.5x |
|
(8,934) |
|
8,934 |
|
|
|
Discount
to Average Multiple |
|
0% - 29% (19%) |
+5% / -5% |
|
(7,316) |
|
7,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
1,2 |
443,043 |
Comparable Sales |
Market
Value Per Square Foot |
|
$324 -
$3,113 ($1,441) per sq ft |
|
-5% /+5% |
|
(13,852) |
|
13,141 |
|
|
DCF
Model/Income Approach3 |
Discount
Rate |
|
5.5% -
6.5% (6.2%) |
+25bps /-25bps |
(939) |
|
1,479 |
|
|
Cap Rate/
Income Approach |
Capitalisation Rate |
|
3.25 -
5.5% (4.5%) |
+25bps /-25bps |
(6,692) |
|
7,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
17,093 |
AUM
Approach |
AUM |
|
$2.6 Bn -
$2.0 Bn |
|
10%/+10% |
|
(3,112) |
|
3,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 The Fair Value of JZCP's investment in financial
interests in Real Estate is measured as JZCP's percentage interest
in the value of the underlying properties.
2 Sensitivity is applied to the property value and then the
debt associated to the property is deducted before the impact to
JZCP's equity value is calculated. Due to gearing levels in the
property structures an increase in the sensitivity of measurement
metrics at property level will result in a significantly greater
impact at JZCP's equity level.
The sensitivity applied for the year ended 29 February 2020 has been increased to reflect
the potential increased volatility of the real estate
portfolio.
3 Other real estate assets totalling $7.8 million are excluded from sensitivity
analysis.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and the end of the reporting year.
Year ended 29
February 2020
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
At 1 March
2019 |
|
478,970 |
|
70,686 |
|
443,044 |
|
18,302 |
|
1,011,002 |
Investments in year including capital calls |
9,678 |
|
12,635 |
|
51,196 |
|
4,301 |
|
77,810 |
Payment In
Kind ("PIK") |
26,205 |
|
- |
|
- |
|
- |
|
26,205 |
Proceeds
from investments realised |
(122,031) |
|
(13,643) |
|
(4,622) |
|
- |
|
(140,296) |
Net
gains/(losses) on investments |
12,459 |
|
1,941 |
|
(330,906) |
|
- |
|
(316,506) |
Movement
in accrued interest |
(401) |
|
- |
|
- |
|
- |
|
(401) |
At 29
February 2020 |
404,880 |
|
71,619 |
|
158,712 |
|
22,603 |
|
657,814 |
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 calls |
106,540 |
|
18,388 |
|
57,965 |
|
3,000 |
|
185,893 |
Payment In
Kind ("PIK") |
20,514 |
|
- |
|
- |
|
- |
|
20,514 |
Proceeds
from investments realised |
(153,371) |
|
(863) |
|
(51,800) |
|
- |
|
(206,034) |
Net
gains/(losses) on investments |
16,686 |
|
7,053 |
|
(26,512) |
|
- |
|
(2,773) |
Movement
in accrued interest |
343 |
|
- |
|
- |
|
- |
|
343 |
At 28
February 2019 |
478,970 |
|
70,686 |
|
443,044 |
|
18,302 |
|
1,011,002 |
Fair value of Zero Dividend Preference ("ZDP") shares
The fair value of the ZDP shares is deemed to be their quoted
market price. As at 29 February 2020,
the ask price for the ZDP (2022) shares was £4.34 (28 February 2019: £4.36) the total fair value of
the ZDP shares was $66,010,000
(28 February 2019: $69,056,000) which is $1,500,000 (28 February
2019: $5,218,000) higher than
the liability recorded in the Statement of Financial Position.
ZDP shares are recorded at amortised cost and would fall in to
the Level 1 hierarchy if valued at FVTPL.
6. Net Loss on Investments at Fair
Value Through Profit or Loss
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Net
loss on investments held in investment portfolio at year
end |
|
|
|
|
|
|
|
Net
movement in unrealised gains/losses position during year |
|
|
|
|
|
(342,851) |
|
(86,839) |
Net
unrealised gains in prior years now realised |
|
|
|
|
|
|
|
13,576 |
|
79,476 |
Net
unrealised loss on investments held at the year end |
|
|
|
|
|
(329,275) |
|
(7,363) |
Gains
on investments realised in year |
|
|
|
|
|
|
|
|
|
|
Proceeds
from investments realised |
|
|
|
|
|
|
|
140,296 |
|
256,974 |
Cost of
investments realised |
|
|
|
|
|
|
|
|
|
(113,951) |
|
(172,908) |
Net realised
gains |
|
|
|
|
|
|
|
|
|
|
|
26,345 |
|
84,066 |
Net
unrealised gains in prior years now realised |
|
|
|
|
|
|
|
(13,576) |
|
(79,476) |
Total
gains in the year on investments realised |
|
|
|
|
|
|
|
12,769 |
|
4,590 |
Net loss
on investments during the year |
|
|
|
|
|
|
|
(316,506) |
|
(2,773) |
7. Expected credit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Impairments on loans during year |
|
|
|
|
|
|
|
|
|
|
29,318 |
|
75 |
Expected Credit Losses ("ECLs") are recognised in three stages.
Stage one being for credit exposures for which there has not been a
significant increase in credit risk since initial recognition, ECLs
are provided for credit losses that result from default events that
are possible within the next 12-months (a 12-month ECL). Stage two
being for those credit exposures for which there has been a
significant increase in credit risk since initial recognition, a
loss allowance is required for credit losses expected over the
remaining life of the exposure, irrespective of the timing of the
default (a lifetime ECL). Stage three being credit exposures which
are considered credit-impaired, interest revenue is calculated
based on the amortised cost (i.e. the gross carrying amount less
the loss allowance). Financial assets in this stage will generally
be assessed individually. Lifetime expected credit losses are
recognised on these financial assets.
As from 1 June 2019, the Company
recognised ECLs on its investment in Ombuds per the stage two
methodology due to the likelihood that the portfolio
company would enter bankruptcy (which it did in the summer of
2019). As from 1 December 2019 the
Company provided for ECLs to write down the value of the Ombuds
loans to nil as no recovery of the loan is expected.
Following the default event, the loan is now classified as Level 3
stage, consequently no further interest is being
recognised on the loan. ECLs recognised on other direct loan
investments are done per the stage one methodology being the
recognition of expected losses over a 12 month period (or to
maturity date if earlier).
See Note 21 for information on credit risk, how amounts are
determined and staging.
8. Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Interest
revenue calculated using the effective interest method |
|
|
|
|
|
5,740 |
|
7,884 |
Other
interest and similar income |
|
|
|
|
|
|
|
|
|
|
27,524 |
|
20,939 |
|
|
|
|
|
|
|
|
|
|
|
|
|
33,264 |
|
28,823 |
Income for the year ended 29 February
2020
|
|
|
|
|
|
|
Preferred |
|
Loan note |
|
Other |
|
|
|
|
|
|
|
Dividends |
|
Dividends |
|
PIK |
|
Cash |
|
Income |
|
Total |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
US
micro-cap portfolio |
560 |
|
26,131 |
|
218 |
|
1,023 |
|
- |
|
27,932 |
European
micro-cap portfolio |
- |
|
- |
|
4,499 |
|
- |
|
1,221 |
|
5,720 |
Real
estate |
- |
|
- |
|
- |
|
- |
|
(454) |
|
(454) |
Treasury
bills |
|
- |
|
- |
|
- |
|
- |
|
66 |
|
66 |
|
|
|
|
|
560 |
|
26,131 |
|
4,717 |
|
1,023 |
|
833 |
|
33,264 |
Income for the year ended 28 February
2019
|
|
|
|
|
|
|
Preferred |
|
Loan note |
|
Other |
|
|
|
|
|
|
|
Dividends |
|
Dividends |
|
PIK |
|
Cash |
|
Income |
|
Total |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
US
micro-cap portfolio |
- |
|
20,737 |
|
119 |
|
1,279 |
|
- |
|
22,135 |
European
micro-cap portfolio |
- |
|
- |
|
6,079 |
|
407 |
|
- |
|
6,486 |
Real
estate |
- |
|
- |
|
- |
|
- |
|
142 |
|
142 |
Treasury
bills |
|
- |
|
- |
|
- |
|
- |
|
60 |
|
60 |
|
|
|
|
|
- |
|
20,737 |
|
6,198 |
|
1,686 |
|
202 |
|
28,823 |
9. Finance Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense calculated using the effective interest
method |
|
|
|
|
|
|
|
|
ZDP shares
(Note 15) |
|
|
|
|
|
3,211 |
|
3,148 |
Loan interest (Note
16) |
|
|
|
|
|
|
|
|
|
|
|
|
14,293 |
|
12,684 |
|
|
|
|
|
|
|
|
|
|
|
|
|
17,504 |
|
15,832 |
Other interest and
similar expense |
|
|
|
|
|
|
|
|
|
|
|
|
CULS
finance costs paid (Note 14) |
|
|
|
|
|
2,956 |
|
3,155 |
Total finance
costs |
|
|
|
|
|
|
|
|
|
|
|
|
20,460 |
|
18,987 |
10. Expenses
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Investment Adviser's
base fee |
|
|
|
|
|
|
|
15,224 |
|
16,733 |
Investment Adviser's
incentive fee |
|
|
|
|
|
|
|
(35,880) |
|
2,161 |
Directors'
remuneration |
|
|
|
|
|
|
|
421 |
|
458 |
|
|
|
|
|
|
|
|
(20,235) |
|
19,352 |
|
|
|
|
|
|
|
|
|
|
|
Administrative
expenses: |
|
|
|
|
|
|
|
|
|
|
Legal fees |
|
|
|
|
|
|
|
1,730 |
|
956 |
Other professional
fees |
|
|
|
|
|
|
|
666 |
|
482 |
Accounting,
secretarial and administration fees |
|
|
|
|
|
|
|
350 |
|
370 |
Auditors'
remuneration |
|
|
|
|
|
|
|
458 |
|
290 |
Auditors' remuneration
- non-audit fees |
|
|
|
|
|
|
|
65 |
|
121 |
Custodian fees |
|
|
|
|
|
|
|
27 |
|
45 |
Other expenses |
|
|
|
|
|
|
|
412 |
|
377 |
|
|
|
|
|
|
|
|
3,708 |
|
2,641 |
Total expenses |
|
|
|
|
|
|
|
(16,527) |
|
21,993 |
Administration Fees
Northern Trust International Fund Administration Services
(Guernsey) Limited was appointed
as Administrator to the Company on 1
September 2012. The Administrator is entitled to an annual
fee of $350,000 (28 February 2019: $350,000) payable quarterly in arrears. Fees
payable to the Administrator are subject to an annual fee review.
In the comparative year, a further fee of $20,000 was paid to the Administrator during the
year in relation to services provided for facilitating share buy
backs.
Directors'
Remuneration
For the year ended 29 February 2020
total Directors' fees included in the Statement of Comprehensive
Income were$421,000 (year ended 28 February
2019: US$458,000), of this
amount $58,000 was outstanding at the
year end (28 February 2019:
$80,000). The Directors' remuneration
report in the annual report provides further details of the
remuneration paid.
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 excluded
assets as defined under the terms of the Advisory 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 year ended 29 February
2020, total investment advisory and management expenses,
based on the average total assets of the Company, were included in
the Statement of Comprehensive Income of $15,224,000 (year ended 28
February 2019: $16,733,000).
Of this amount $1,179,000
(28 February 2019: $2,102,000) was due and payable at the year
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 per cent, and (b) 20 per cent. of the net investment
income of the Company above a hurdle of 2.5 per cent 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 years ended 29 February
2020 and 28 February 2019
there was no income incentive fee.
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 and assets of the
EuroMicrocap Fund 2010, L.P. and JZI Fund III, L.P. are excluded
from the calculation of the fee.
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 29 February 2020, a CGIF of
$2,307,000 (28
February 2019: $21,429,000)
based on net realised gains was payable to the Investment Adviser
based on realised gains during the year ended 28 February 2019.
During the process of announcing the Company's interim results
the Investment Adviser agreed to waive fees payable by the
Company of $14.5 million relating to
realised gains in the year ended 28 February
2019. Further fees becoming payable for realised gains in
the current fiscal year of $10.1
million have also been waived. No further incentive fees
will be paid to the Investment Adviser until the Company and
Investment Adviser 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. As at 29 February 2020,
accumulated unrealised losses exceeded unrealised gains therefore
no provision (28 February 2019:
$21,429,000) has been included.
|
|
Provision At |
|
Provision At |
|
Paid
In Year |
Reversal of
Expense |
|
|
29.2.2020 |
|
28.2.2019 |
|
29.2.2020 |
|
29.2.2020 |
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Provision for CGIF on
unrealised investments |
|
- |
|
(21,342) |
|
- |
|
(21,342) |
CGIF on realised
investments |
|
2,307 |
|
(21,429) |
|
4,584 |
|
(14,538) |
|
|
2,307 |
|
(42,771) |
|
4,584 |
|
(35,880) |
|
|
|
|
|
|
|
|
|
|
|
Provision At |
|
Provision At |
|
Paid
In Year |
Expense |
|
|
28.2.2019 |
|
28.2.2018 |
|
28.2.2019 |
|
28.2.2019 |
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Provision for CGIF on
unrealised investments |
|
21,342 |
|
(40,610) |
|
- |
|
(19,268) |
CGIF on realised
investments |
|
21,429 |
|
(996) |
|
(996) |
|
21,429 |
|
|
42,771 |
|
(41,606) |
|
(996) |
|
2,161 |
The Advisory Agreement may be terminated by the Company or the
Investment Adviser upon not less than two and one-half years’ (i.e.
913 days’) prior notice (or such lesser period as may be agreed by
the Company and Investment Adviser).
Custodian
Fees
HSBC Bank (USA) N.A, (the
"Custodian") was appointed on 12 May
2008 under a custodian agreement. The Custodian is entitled
to receive an annual fee of $2,000
and a transaction fee of $50 per
transaction. For the year ended 29 February
2020, total Custodian expenses of $27,000 (28 February
2019: $45,000) were included
in the Statement of Comprehensive Income of which $10,000 (28 February
2019: $13,000) was outstanding
at the year end and is included within Other Payables.
Auditors'
Remuneration
During the year ended 29 February
2020, the Company incurred fees for audit services of
$458,000 (28 February
2019:$290,000). Fees are also payable
to Ernst & Young for non-audit services including taxation
services in relation to the Company's status as a Passive Foreign
Investment Company.
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Audit Fees |
|
|
|
|
|
|
|
|
|
|
Audit fees
accrued - 2020: £305,0001 |
|
|
|
395 |
|
- |
Audit fees
- 2019: £257,750 |
|
|
|
63 |
|
269 |
Disbursements relating
to 2019 audit |
|
|
|
|
|
|
|
- |
|
13 |
Audit fees
- 2018: £218,000 under accrual at prior year end |
|
|
|
- |
|
8 |
Total audit fees |
|
|
|
|
|
|
|
458 |
|
290 |
|
|
|
|
|
|
|
|
|
|
|
Non-audit Fees Paid to Ernst & Young |
|
|
|
|
US$
'000 |
|
US$
'000 |
Interim
Review - no review for 31 August 2019 (31 August 2018:
£42,500) |
|
|
|
- |
|
56 |
Taxation services |
|
|
|
|
|
|
|
65 |
|
65 |
Total non-audit
fees |
|
|
|
|
|
|
|
65 |
|
121 |
1 Post year end, additional audit fees of £60,000
were agreed by the Audit Committee.
11. Taxation
The Company has been granted Guernsey tax exempt status in accordance with
The Income Tax (Exempt Bodies)(Guernsey) Ordinance 1989 (as amended).
During the year, withholding tax of $126,000 was provided for on receipt of a
dividend from an unlisted investment. At 29
February 2020, a prior period provision of $1,004,000 was reversed. This related to
dividends received from a listed investment realised in 2012. At
29 February 2020, the Company has
provided for $523,000 (28 February 2019: $1,401,000 of potential witholding tax).
12. Investments
|
|
|
|
Category of financial instruments |
|
|
|
|
Listed |
|
Unlisted |
|
Unlisted |
|
Carrying Value |
|
|
|
|
FVTPL |
|
FVTPL |
|
Loans |
|
Total |
|
|
|
|
29.2.2020 |
|
29.2.2020 |
|
29.2.2020 |
|
29.2.2020 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Book cost at 1 March
2019 |
|
|
|
3,312 |
|
980,120 |
|
66,849 |
|
1,050,281 |
Investments in year including capital calls |
6,706 |
|
77,810 |
|
- |
|
84,516 |
Payment in kind
("PIK") |
|
|
|
- |
|
26,205 |
|
5,090 |
|
31,295 |
Proceeds
from realisation and repayment of investments |
(6,700) |
|
(140,296) |
|
- |
|
(146,996) |
Interest received on
maturity |
|
|
|
67 |
|
- |
|
- |
|
67 |
Net
realised investment and foreign exchange gain |
- |
|
26,345 |
|
- |
|
26,345 |
Book cost at 29
February 2020 |
|
|
|
3,385 |
|
970,184 |
|
71,939 |
|
1,045,508 |
Unrealised
net investment and foreign exchange loss |
- |
|
(316,149) |
|
(11,077) |
|
(327,226) |
Impairment
on loans at amortised cost |
- |
|
- |
|
(30,261) |
|
(30,261) |
Accrued interest |
|
|
|
1 |
|
3,779 |
|
371 |
|
4,151 |
Carrying value at 29
February 2020 |
|
|
|
3,386 |
|
657,814 |
|
30,972 |
|
692,172 |
Comparative reconciliation for the year ended 28 February 2019
|
|
|
|
Category of financial instruments |
|
|
|
|
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 capital calls |
6,579 |
|
183,722 |
|
12,304 |
|
202,605 |
Payment in kind
("PIK") |
|
|
|
- |
|
20,514 |
|
5,893 |
|
26,407 |
Proceeds
from realisation and repayment of investments |
(53,112) |
|
(203,862) |
|
(11,720) |
|
(268,694) |
Net
realised investment and foreign exchange gain/loss |
- |
|
84,066 |
|
(584) |
|
83,482 |
Book cost at 28
February 2019 |
|
|
|
3,312 |
|
980,120 |
|
66,849 |
|
1,050,281 |
Unrealised
investment gain and foreign exchange gain/(loss) |
- |
|
26,702 |
|
(8,389) |
|
18,313 |
Impairment
on loans at amortised cost |
- |
|
- |
|
(1,470) |
|
(1,470) |
Accrued interest |
|
|
|
2 |
|
4,180 |
|
1,022 |
|
5,204 |
Carrying value at 28
February 2019 |
|
|
|
3,314 |
|
1,011,002 |
|
58,012 |
|
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
Direct loans to European micro-cap companies are classified and
measured as Loans at amortised under IFRS 9.
Interest on the loans accrues at the following rates:
|
As At 29 February 2020 |
|
As At 28 February 2019 |
|
|
|
8% |
|
10% |
|
14% |
|
Total |
|
8% |
|
10% |
|
14% |
|
Total |
Loans at
amortised cost |
25,289 |
|
1,616 |
|
4,067 |
|
30,972 |
|
24,902 |
|
1,528 |
|
31,582 |
|
58,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity dates are as follows:
|
|
|
As At 29 February 2020 |
|
As At 28 February 2019 |
|
|
|
0-6
months |
|
7-12
months |
|
1-2
years |
|
Total |
|
0-6
months |
|
7-12
months |
|
1-2
years |
|
Total |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Loans at
amortised cost |
3,827 |
|
27,145 |
|
- |
|
30,972 |
|
35,550 |
|
- |
|
22,462 |
|
58,012 |
Investment in
Associates
An associate is an entity over which the Company has significant
influence. An entity is regarded as a subsidiary only if the
Company has control over its strategic, operating and financial
policies and intends to hold the investment on a long-term basis
for the purpose of securing a contribution to the Company’s
activities. The Company has elected for an exemption for 'equity
accounting' for associates and instead classifies its associates as
Investments at fair value through profit or loss.
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
Entity |
|
|
|
|
Place of incorporation |
% Interest |
US$'000 |
|
US$'000 |
JZI Fund
III GP, LP (has 18.75% partnership interest in JZI Fund III,
LP) |
|
|
Cayman |
75% |
68,887 |
|
66,816 |
Orangewood
Partners Platform LLC1 |
|
|
Delaware |
79% |
74,694 |
|
57,493 |
Spruceview
Capital Partners, LLC |
|
|
Delaware |
49% |
20,338 |
|
17,093 |
EuroMicrocap Fund 2010, L.P. ("EMC 2010")2 |
|
|
Cayman |
75% |
2,732 |
|
3,870 |
Investments in associates at fair value |
|
|
|
|
166,651 |
|
145,272 |
The principal activity of all the JZI Fund III, EuroMicrocap
Fund 2010, L.P. and Orangewood Partners Platform LLC is the
acquisition of micro-cap companies. The principal activity of
Spruceview Capital Partners, LLC is that of an asset management
company. There are no significant restrictions on the ability of
associates to transfer funds to the Company in the form of
dividends or repayment of loans or advances.
Entity |
|
|
|
|
29.2.2020
US$'000 |
|
28.2.2019
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JZI Fund
III GP, L.P. |
|
|
94,830 |
|
103,182 |
Orangewood
Partners Platform LLC1 |
|
|
91,941 |
|
57,493 |
Spruceview
Capital Partners, LLC |
|
|
20,558 |
|
19,083 |
EuroMicrocap Fund 2010, L.P.2 |
|
|
2,732 |
|
3,870 |
|
|
|
|
|
|
|
|
210,061 |
|
183,628 |
1Invests in K2 Towers II, George Industries,
Peaceable Street Capital, ABTB and Orangewood Partners II-A
L.P.
2EMC-C and EMC 2010 have now merged in to one entity
EuroMicrocap Fund 2010, L.P.
Investment in
Subsidiaries
The principal place of business for subsidiaries is the
USA. The Company meets the
definition of an Investment Entity in accordance with IFRS 10.
Therefore, it does not consolidate its subsidiaries but rather
recognises them as investments at fair value through profit or
loss.
Entity |
Place of incorporation |
|
%
Interest |
|
29.2.2020
US$'000 |
|
28.2.2019
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JZCP Realty, Ltd |
|
Cayman |
|
100% |
|
158,712 |
|
443,044 |
JZBC, Inc.
(Invests in Spruceview Capital Partners, LLC) |
Delaware |
|
99% |
|
20,338 |
|
17,093 |
Investments in subsidiaries at fair value |
|
|
|
179,050 |
|
460,137 |
There are no significant restrictions on the ability of
subsidiaries to transfer funds to the Company. The Company has no
contractual commitments to provide any financial or other support
to its unconsolidated subsidiaries.
JZCP Realty Ltd has a 100% interest in the following
Delaware incorporated entities:
JZCP Loan 1 Corp, JZCP Loan Fulton Corp, JZCP Loan Flatbush Corp,
JZCP Loan Flatbush Portfolio Corp, JZCP Loan Metropolitan Corp,
JZCP Loan Greenpoint Corp, JZCP Loan Florida Corp, JZCP Loan Design
Corp and JZCP Loan Esperante Corp.
JZCP Realty Ltd has a 99% interest in the following Delaware incorporated entities: JZ REIT Fund
1, LLC, JZCP Loan Fulton Corp, JZ REIT Fund Fulton, LLC, JZ REIT
Fund Flatbush, LLC, JZ REIT Fund Flatbush Portfolio, LLC, JZ REIT
Fund Metropolitan, LLC, JZ REIT Fund Greenpoint, LLC, JZ REIT Fund
Florida LLC, JZ REIT Fund Design LLC and JZ REIT Fund Esperante
LLC.
13. Other Receivables
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Deposits paid on
behalf of JZCP Realty, Ltd |
|
|
|
|
|
|
|
- |
|
700 |
Accrued interest due
from JZCP Realty, Ltd |
|
|
|
|
|
|
|
- |
|
495 |
Other receivables and
prepayments |
|
|
|
|
|
|
|
119 |
|
91 |
|
|
|
|
|
|
|
|
119 |
|
1,286 |
14. Convertible Subordinated Unsecured
Loan Stock ("CULS")
On 30 July 2014, JZCP issued
£38,861,140 6% CULS. Holders of CULS may convert the whole or part
(being an integral multiple of £10 in nominal amount) of their CULS
into Ordinary Shares. Conversion Rights may be exercised at any
time during the period from 30 September
2014 to 10 business days prior to the maturity date being
the 30 July 2021. The initial
conversion price is £6.0373 per Ordinary Share, which shall be
subject to adjustment to deal with certain events which would
otherwise dilute the conversion of the CULS. These events include
consolidation of Ordinary Shares, dividend payments made by the
Company, issues of shares, rights, share-related securities and
other securities by the Company and other events as detailed in the
Prospectus.
CULS bear interest on their nominal amount at the rate of 6.00%
per annum, payable semi-annually in arrears. During the year ended
29 February 2020: $2,956,000 (28 February
2019: $3,155,000) of interest
was paid to holders of CULS and is shown as a finance cost in the
Statement of Comprehensive Income.
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Fair Value of CULS at
1 March |
|
|
|
|
|
|
|
54,274 |
|
59,970 |
|
|
|
|
|
|
|
|
|
|
|
Unrealised movement in
fair value of CULS |
|
|
|
|
|
|
|
(2,326) |
|
(3,748) |
Unrealised
currency gain to the Company on translation during the year |
(2,062) |
|
(1,948) |
Gain on
financial liabilities at fair value through profit or loss |
|
|
|
|
(4,388) |
|
(5,696) |
|
|
|
|
|
|
|
|
|
|
|
Fair Value of CULS
based on offer price |
|
|
|
|
|
|
|
49,886 |
|
54,274 |
The CULS are valued at fair value being the listed offer price at
the year end. Given the illiquid nature of the instruments, which
drove the reclassification to Level 2, the Company considers the
potential need to apply an adjustment to the listed offer price. No
adjustment was applied at the year-end. The Company has assessed
the movement in the fair value of the CULS and concluded changes in
the offer price are the result of increased demand due to the
underlying price of the Company's Ordinary shares and underlying
interest rates. Any change in the fair value due to perceived
changes in the Company’s credit risk is deemed immaterial.
15. Zero Dividend Preference ("ZDP") Shares
On 1 October 2015, the Company rolled
over 11,907,720 existing ZDP (2016) shares in to new ZDP shares
with a 2022 maturity date. The ZDP (2022) shares have a gross
redemption yield of 4.75% and a total redemption value of
£57,598,000 (approximately $73,569,000 using the exchange rate at year end).
The remaining 8,799,421 ZDP (2016) shares were redeemed on
22 June 2016 the total redemption
value being £32,870,000.
ZDP shares are designed to provide a pre-determined final
capital entitlement which ranks behind the Company's creditors but
in priority to the capital entitlements of the Ordinary shares. The
ZDP shares carry no entitlement to income and the whole of their
return will therefore take the form of capital. In certain
circumstances, ZDP shares carry the right to vote at general
meetings of the Company as detailed in the Company's Memorandum of
Articles and Incorporation. Issue costs are deducted from the cost
of the liability and allocated to the Statement of Comprehensive
Income over the life of the ZDP shares.
ZDP (2022)
Shares |
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Amortised
cost at 1 March |
|
63,838 |
|
62,843 |
Finance
costs allocated to Statement of Comprehensive Income |
|
3,211 |
|
3,148 |
Unrealised
currency gain to the Company on translation during the year |
|
(2,539) |
|
(2,153) |
Amortised
cost at year end |
|
64,510 |
|
63,838 |
Total
number of ZDP (2022) shares in issue |
|
11,907,720 |
|
11,907,720 |
16. Loan Payable
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Guggenheim Partners
Limited |
|
|
|
|
|
|
|
150,362 |
|
149,227 |
|
|
|
|
|
|
|
|
150,362 |
|
149,227 |
Guggenheim Partners
Limited
On 12 June 2015, JZCP entered into a
loan agreement with Guggenheim Partners Limited. The agreement was
structured so that part of the proceeds (€18 million) was received
and will be repaid in Euros and the remainder of the facility were
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. There was an early repayment charge of 1% of the total
loan, which expired in 2017.
At 29 February 2020, investments
and cash valued at $668,141,000(2) (28 February 2019: $951,164,000) were held as collateral on 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 $15 million plus 50% of interest on any new debt.
At 29 February 2020 and throughout
the year, the Company was in full compliance with covenant terms.
Post year end, the Company obtained agreement from the parties to
the loan facility for an extension to the time for delivery of this
annual report, the release of which was delayed on account of
COVID-19.
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised
cost (Dollar 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 |
|
|
14,293 |
|
12,684 |
|
Interest
and finance costs paid |
|
|
(12,436) |
|
(12,142) |
|
Unrealised
currency gain on translation of Euro drawdown |
|
(722) |
|
(1,440) |
|
Amortised
cost at year end |
|
150,362 |
|
149,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortised
cost (Dollar drawdown) |
|
130,523 |
|
128,838 |
|
Amortised
cost (Euro drawdown) |
|
19,839 |
|
20,389 |
|
|
|
|
|
|
|
|
|
150,362 |
|
149,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of the loans approximates to fair value.
(1) LIBOR rates applied are the US dollar 3 month rate ($80 million) and the Euro
3 month rate (€18 million).
(2) Investments held as collateral exclude the
Company's investment in Spruceview and 35% of the value of
investments held by JZCP Realty.
17. Other Payables
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Provision
for tax on dividends received not withheld at source |
|
|
|
|
523 |
|
1,401 |
Legal fee
provision |
|
|
|
|
|
|
|
250 |
|
250 |
Audit fees |
|
|
|
|
|
|
|
190 |
|
185 |
Directors'
remuneration |
|
|
|
|
|
|
|
58 |
|
80 |
Other expenses |
|
|
|
|
|
|
|
204 |
|
218 |
|
|
|
|
|
|
|
|
1,225 |
|
2,134 |
18. Share Capital
Authorised
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlimited
number of ordinary shares of no par value. |
|
|
|
|
|
|
Ordinary shares -
Issued Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
Number
of shares |
|
Number
of shares |
Total Ordinary shares
in issue |
|
|
|
|
|
|
|
77,474,175 |
|
80,666,838 |
During the year, 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 (£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. In
the comparative year ended 28 February
2019, the Company bought back 3,240,678 of its Ordinary
shares at a cost of $19.081 million.
All shares repurchased have subsequently been cancelled.
The Company's shares trade on the London Stock Exchange's
Specialist Fund Segment.
The Ordinary shares carry a right to receive the profits of the
Company available for distribution by dividend and resolved to be
distributed by way of dividend to be made at such time as
determined by the Directors.
In addition to receiving the income distributed, the Ordinary
shares are entitled to the net assets of the Company on a winding
up, after all liabilities have been settled and the entitlement of
the ZDP shares have been met. In addition, holders of Ordinary
shares will be entitled on a winding up to receive any accumulated
but unpaid revenue reserves of the Company, subject to all
creditors having been paid out in full but in priority to the
entitlements of the ZDP shares. Any distribution of revenue
reserves on a winding up is currently expected to be made by way of
a final special dividend prior to the Company's eventual
liquidation.
Holders of Ordinary shares have the rights to receive notice of,
to attend and to vote at all general meetings of the Company.
Capital raised on issue of new shares and capital repaid on
buy back of shares
Subsequent amounts raised by the issue of new shares (net of issue
costs) and amounts paid to buy back Ordinary shares, are
credited/debited to the share capital account.
Share Capital
Account |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
At
beginning of year |
|
|
|
|
246,604 |
|
265,685 |
Buy back of Ordinary
shares |
|
|
|
|
|
|
|
(29,979) |
|
(19,081) |
At year
end |
|
|
216,625 |
|
246,604 |
19. Capital
Management
The Company's capital is represented by the Ordinary shares, ZDP
shares and CULS.
As a result of the ability to issue, repurchase and resell
shares, the capital of the Company can vary. The Company is not
subject to externally imposed capital requirements and has no
restrictions on the issue, repurchase or resale of its shares. The
Company's objectives for managing capital are:
· To invest the capital in investments
meeting the description, risk exposure and expected return
indicated in its prospectus;
· To achieve consistent returns while
safeguarding capital by investing in a diversified portfolio;
· To maintain sufficient liquidity to
meet the expenses of the Company; and
· To maintain sufficient size to make
the operation of the Company cost-efficient.
The Company's current focus is on realising the maximum value of
the Company’s investments and repaying debt. Once this has been
achieved, and after the repayment of all debt, the Company intends
to return capital to shareholders and will at this point keep under
review opportunities to buy back Ordinary shares or ZDP shares. The
Company will be seeking shareholder approval for the return of
capital to shareholders, should the Company be in a position to do
so.
The Company monitors capital by analysing the NAV per share over
time and tracking the discount to the Company's share price.
20. Reserves
Capital raised on formation of
Company
The Royal Court of Guernsey
granted that on the admission of the Company's shares to the
Official List and to trading on the London Stock Exchange's market,
the amount credited to the share premium account of the Company
immediately following the admission of such shares be cancelled and
any surplus thereby created accrue to the Company's distributable
reserves to be used for all purposes permitted by The Companies
(Guernsey) Law, 2008, including
the purchase of shares and the payment of dividends.
Summary of reserves attributable to
Ordinary shareholders
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Share
capital account |
|
|
216,625 |
|
246,604 |
Other
reserve |
|
|
353,528 |
|
353,528 |
Retained
earnings |
|
|
(94,419) |
|
210,130 |
|
|
|
|
|
|
|
|
475,734 |
|
810,262 |
Other reserve
There was no movement in the Company's Other reserve for the years
ended 29 February 2020 and
28 February 2019.
Subject to satisfaction of the solvency test, all of the
Company's capital and reserves are distributable in accordance with
The Companies (Guernsey) Law,
2008.
Retained earnings
The Company's loss is now posted to one 'retained earnings'
reserve. Previously, profit/loss was split between revenue and
capital and reflected in separate reserve accounts. The comparative
reserve accounts have been adjusted accordingly.
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
At
beginning of year |
|
|
|
|
210,130 |
|
218,360 |
Impact of
adoption of IFRS 9 |
|
|
|
|
|
|
- |
|
(1,395) |
Loss for
the year attributable to revenue |
|
|
(304,549) |
|
(6,835) |
At year
end |
|
|
(94,419) |
|
210,130 |
21. Financial Risk Management Objectives and Policies
Introduction
The Company’s objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company’s
activities, but it is managed through a process of ongoing
identification, measurement and monitoring, subject to risk limits
and other controls. The process of risk management is critical to
the Company’s continuing profitability. The Company is exposed to
market risk (including currency risk, fair value interest rate
risk, cash flow interest rate risk and price risk), credit risk and
liquidity risk arising from the financial instruments it holds.
Risk management structure
The Company’s Investment Adviser is responsible for identifying and
controlling risks. The Directors supervise the Investment Adviser
and are ultimately responsible for the overall risk management
approach within the Company.
Risk
mitigation
The Company's prospectus sets out its overall business strategies,
its tolerance for risk and its general risk management philosophy.
The Company may use derivatives and other instruments for trading
purposes and in connection with its risk management activities.
Market risk
Market risk is defined as "the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in variables such as equity price, interest rate and
foreign currency rate".
The Company's investments are subject to normal market
fluctuations and there can be no assurance that no depreciation in
the value of those investments will occur. There can be no
guarantee that any realisation of an investment will be on a basis
which necessarily reflects the Company's valuation of that
investment for the purposes of calculating the NAV of the
Company.
Changes in industry conditions, competition, political and
diplomatic events, tax, environmental and other laws and other
factors, whether affecting the United
States alone or other countries and regions more widely, can
substantially and either adversely or favourably affect the value
of the securities in which the Company invests and, therefore, the
Company's performance and prospects.
The Company's market price risk is managed through
diversification of the investment portfolio across various sectors.
The Investment Adviser considers each investment purchase to ensure
that an acquisition will enable the Company to continue to have an
appropriate spread of market risk and that an appropriate
risk/reward profile is maintained.
Equity price
risk
Equity price risk is the risk of unfavourable changes in the fair
values of equity investments as a result of changes in the value of
individual shares. The equity price risk exposure arose from the
Company’s investments in equity securities.
The Company does not generally invest in liquid equity
investments and the previous portfolio of listed equity investments
resulted from the successful flotation of unlisted investments.
For unlisted equity and non-equity shares the market risk is
deemed to be inherent in the appropriate valuation methodology
(earnings, multiples, capitalisation rates etc). The impact on fair
value and subsequent profit or loss, due to movements in these
variables, is set out in Note 5.
Interest rate
risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. It has not been the Company's policy to use
derivative instruments to mitigate interest rate risk, as the
Investment Adviser believes that the effectiveness of such
instruments does not justify the costs involved.
The table below summarises the Company's exposure to interest
rate risks:
|
|
|
|
|
Interest bearing |
|
Non
interest |
|
|
|
|
|
|
|
Fixed
rate |
|
Floating rate |
|
bearing |
|
Total |
|
|
|
|
|
29.2.2020 |
|
29.2.2020 |
|
29.2.2020 |
|
29.2.2020 |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
|
218,757 |
|
- |
|
442,443 |
|
661,200 |
Loans at
amortised cost |
30,972 |
|
- |
|
- |
|
30,972 |
Cash and cash
equivalents |
|
|
|
|
- |
|
52,912 |
|
- |
|
52,912 |
Other
receivables and prepayments |
|
- |
|
- |
|
119 |
|
119 |
Loans payable |
|
|
|
|
- |
|
(150,362) |
|
- |
|
(150,362) |
ZDP shares (2022) |
|
|
|
|
(64,510) |
|
- |
|
- |
|
(64,510) |
CULS |
|
|
|
|
(49,886) |
|
- |
|
- |
|
(49,886) |
Other payables |
|
|
|
|
- |
|
- |
|
(4,711) |
|
(4,711) |
|
|
|
|
|
135,333 |
|
(97,450) |
|
437,851 |
|
475,734 |
The table below summarises the Company's exposure to interest rate
risks:
|
|
|
|
|
Interest bearing |
|
Non
interest |
|
|
|
|
|
|
|
Fixed
rate |
|
Floating rate |
|
bearing |
|
Total |
|
|
|
|
|
28.2.2019 |
|
28.2.2019 |
|
28.2.2019 |
|
28.2.2019 |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
|
281,665 |
|
- |
|
732,651 |
|
1,014,316 |
Loans at
amortised cost |
58,012 |
|
- |
|
- |
|
58,012 |
Cash and cash
equivalents |
|
|
|
|
- |
|
50,994 |
|
- |
|
50,994 |
Other
receivables and prepayments |
|
- |
|
- |
|
1,286 |
|
1,286 |
Loans payable |
|
|
|
|
- |
|
(149,227) |
|
- |
|
(149,227) |
ZDP shares (2022) |
|
|
|
|
(63,838) |
|
- |
|
- |
|
(63,838 |
CULS |
|
|
|
|
(54,274) |
|
- |
|
- |
|
(54,274) |
Other payables |
|
|
|
|
- |
|
- |
|
(47,007) |
|
(47,007) |
|
|
|
|
|
221,565 |
|
(98,233) |
|
686,930 |
|
810,262 |
The following table analyses the Company's exposure in terms of
the interest bearing assets and liabilities maturity dates. The
Company’s assets and liabilities are included at their carrying
value.
As at 29
February 2020
|
0-3
months |
|
4-12
months |
|
1 - <3
years |
|
3 - <5
years |
|
<5 years |
|
No
maturity date |
|
Total |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at
FVTPL |
3,386 |
|
5,000 |
|
4,138 |
|
- |
|
- |
|
206,233 |
|
218,757 |
Loans at amortised
cost |
- |
|
30,972 |
|
- |
|
- |
|
- |
|
- |
|
30,972 |
Cash and cash
equivalents |
- |
|
- |
|
- |
|
- |
|
- |
|
52,912 |
|
52,912 |
Loans payable |
- |
|
- |
|
(150,362) |
|
- |
|
- |
|
- |
|
(150,362) |
ZDP shares (2022) |
- |
|
- |
|
(64,510) |
|
- |
|
- |
|
- |
|
(64,510) |
CULS |
- |
|
- |
|
(49,886) |
|
- |
|
- |
|
- |
|
(49,886) |
|
3,386 |
|
35,972 |
|
(260,620) |
|
- |
|
- |
|
259,145 |
|
37,883 |
As at 28
February 2019
|
0-3
months |
|
4-12
months |
|
1 - <3
years |
|
3 - <5
years |
|
<5 years |
|
No
maturity date |
|
Total |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at
FVTPL |
- |
|
3,314 |
|
17,065 |
|
- |
|
- |
|
261,286 |
|
281,665 |
Loans at amortised
cost |
- |
|
35,550 |
|
22,462 |
|
- |
|
- |
|
- |
|
58,012 |
Cash and cash
equivalents |
- |
|
- |
|
- |
|
- |
|
- |
|
50,994 |
|
50,994 |
Loans payable |
- |
|
- |
|
(149,227) |
|
- |
|
- |
|
- |
|
(149,227) |
ZDP shares (2022) |
- |
|
- |
|
- |
|
(63,838) |
|
- |
|
- |
|
(63,838) |
CULS |
- |
|
- |
|
(54,274) |
|
- |
|
- |
|
- |
|
(54,274) |
|
- |
|
38,864 |
|
(163,974) |
|
(63,838) |
|
- |
|
312,280 |
|
123,332 |
The income receivable by the Company is not subject to
significant amounts of risk due to fluctuations in the prevailing
levels of market interest rates. However, whilst the income
received from fixed rate securities is unaffected by changes in
interest rates, the investments are subject to risk in the movement
of fair value. The Investment Adviser considers the risk in the
movement of fair value as a result of changes in the market
interest rate for fixed rate securities to be insignificant, hence
no sensitivity analysis is provided.
The Company values the CULS issued at fair value, being the
quoted offer price. As the stock has a fixed interest rate of 6% an
increase/decrease of prevailing interest rates will potentially
have an effect on the demand for the CULS and the subsequent fair
value. Other factors such as the Company's ordinary share price and
credit rating will also determine the quoted offer price. The
overall risk to the Company due to the impact of interest rate
changes to the CULS' fair value is deemed immaterial. Therefore no
sensitivity analysis is presented.
Of the cash and cash equivalents held, $52,912,000 (28 February
2019: $50,994,000) earns
interest at variable rates and the income may rise and fall
depending on changes to interest rates.
The Investment Adviser monitors the Company's overall interest
sensitivity on a regular basis by reference to the current market
rate and the level of the Company's cash balances. The Company has
not used derivatives to mitigate the impact of changes in interest
rates.
The table below demonstrates the sensitivity of the Company's
profit/(loss) for the year to a reasonably possible change in
interest rates. The Company has cash at bank and loans payable for
which interest receivable and payable are sensitive to a
fluctuation to rates. The below sensitivity analysis assumes year
end balances and interest rates are constant through the year.
|
|
|
|
|
|
|
|
|
|
Interest Receivable1 |
|
Interest Payable2 |
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
29.2.2020 |
|
28.2.2019 |
Change in basis
points increase/decrease |
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+100/-100 |
|
|
|
|
|
|
476/(429) |
|
384/(345) |
|
(1,153)/1,300 |
|
(1,300)/1,300 |
+300/-300 |
|
|
|
|
|
|
1,429/(429) |
|
1,151/(345) |
|
(1,153)/4,432 |
|
(4,452)/2,100 |
1 Sensitivity applied to money market account balance
and applying the year end rate of 0.9%
2 Sensitivity applied to year end balances at
relevant rates being $130 million at
7.88% and €18 million at 6.76%
Currency risk
Currency risk is the risk that the value of a financial
instrument will fluctuate due to changes in foreign exchange
rates.
Changes in exchange rates are considered to impact the fair
value of the Company's investments denominated in Euros and
Sterling. However, under IFRS the foreign currency risk on these
investments is deemed to be part of the market price risk
associated with holding such non-monetary investments. As the
information relating to the non-monetary investments is
significant, the Company also provides the total exposure and
sensitivity changes on non-monetary investments on a voluntary
basis.
The following table sets out the Company's exposure by currency
to foreign currency risk.
Exposure to Monetary
Assets/Liabilities (held in foreign currencies)
|
|
|
|
Euro |
|
Sterling |
|
Total |
|
Euro |
|
Sterling |
|
Total |
|
|
|
|
29.2.2020 |
|
29.2.2020 |
|
29.2.2020 |
|
28.2.2019 |
|
28.2.2019 |
|
28.2.2019 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Loans at
Amortised Cost |
30,972 |
|
- |
|
30,972 |
|
58,012 |
|
- |
|
58,012 |
Cash at
Bank |
352 |
|
27 |
|
379 |
|
7,206 |
|
28 |
|
7,234 |
Other
Receivables |
- |
|
39 |
|
39 |
|
- |
|
11 |
|
11 |
Liabilities |
|
|
|
|
|
|
|
|
|
|
- |
CULS |
|
|
|
- |
|
(49,886) |
|
(49,886) |
|
- |
|
(54,274) |
|
(54,274) |
ZDP (2022)
shares |
- |
|
(64,510) |
|
(64,510) |
|
- |
|
(63,838) |
|
(63,838) |
Loans
payable |
(19,839) |
|
- |
|
(19,839) |
|
(20,389) |
|
- |
|
(20,389) |
Other
payables |
- |
|
(352) |
|
(352) |
|
- |
|
(503) |
|
(503) |
Net
Currency Exposure |
11,485 |
|
(114,682) |
|
(103,197) |
|
44,829 |
|
(118,576) |
|
(73,747) |
The sensitivity analysis for monetary and non-monetary net
assets calculates the effect of a reasonably possible movement of
the currency rate against the US dollar on an increase or decrease
in net assets attributable to shareholders with all other variables
held constant. An equivalent decrease in each of the aforementioned
currencies against the US dollar would have resulted in an
equivalent but opposite impact.
|
|
|
|
|
|
|
|
Effect
on net assets attributable to shareholders |
|
|
|
|
|
|
(relates to monetary financial assets and liabilities) |
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
Currency |
|
Change in Currency Rate |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
Euro |
|
|
|
+10% |
|
|
|
|
|
1,149 |
|
4,483 |
|
|
|
GBP |
|
|
|
+10% |
|
|
|
|
|
(11,468) |
|
(11,858) |
|
|
|
Exposure to Non-Monetary Assets (held
in foreign currencies)
|
|
|
|
Euro |
|
Sterling |
|
Total |
|
Euro |
|
Sterling |
|
Total |
|
|
|
|
29.2.2020 |
|
29.2.2020 |
|
29.2.2020 |
|
28.2.2019 |
|
28.2.2019 |
|
28.2.2019 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Financial
assets at FVTPL |
60,770 |
|
11,599 |
|
72,369 |
|
55,952 |
|
15,484 |
|
71,436 |
Net
Currency Exposure |
60,770 |
|
11,599 |
|
72,369 |
|
55,952 |
|
15,484 |
|
71,436 |
|
|
|
|
|
|
|
|
Effect on net assets attributable to
shareholders |
|
|
|
|
|
|
(relates to non-monetary financial assets and
liabilities) |
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
Currency |
Change in Currency Rate |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
Euro |
|
|
|
+10% |
|
|
|
|
|
6,077 |
|
5,595 |
|
|
|
GBP |
|
|
|
+10% |
|
|
|
|
|
1,160 |
|
1,548 |
|
|
|
Credit risk
The Company takes on exposures to credit risk, which is the risk
that a counterparty to a financial instrument will cause a
financial loss to the Company by failing to discharge an
obligation. These credit exposures exist within debt instruments
and cash & cash equivalents. They may arise, for example, from
a decline in the financial condition of a counterparty or from
entering into derivative contracts under which counterparties have
obligations to make payments to the Company. As the Company’s
credit exposure increases, it could have an adverse effect on the
Company’s business and profitability if material unexpected credit
losses were to occur. In the event of any default on the Company's
loan investments by a counterparty, the Company will bear a risk of
loss of principal and accrued interest of the investment, which
could have a material adverse effect on the Company's income and
ability to meet financial obligations.
In accordance with the Company’s policy, the Investment Adviser
regularly monitors the Company's exposure to credit risk in its
investment portfolio, by reviewing the financial statements,
budgets and forecasts of underlying investee companies. Agency
credit ratings do not apply to the Company's investment in investee
company debt. The 'credit quality' of the debt is deemed to be
reflected in the fair value valuation of the investee company. The
Company's investment in accumulated preferred stock is excluded
from below analysis as the instruments are deemed to be more
closely associated with the investment in the portfolio companies'
equity than its debt.
The table below analyses the Company's maximum exposure to
credit risk.
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
|
|
28.2.2019 |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
|
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
micro-cap debt |
|
|
|
|
|
|
|
9,138 |
|
|
|
17,065 |
European
micro-cap debt |
|
|
|
|
|
|
|
30,972 |
|
|
|
58,012 |
US Treasury Bills |
|
|
|
|
|
|
|
|
|
3,386 |
|
|
|
3,314 |
Cash and
cash equivalents |
|
|
|
|
|
|
|
52,912 |
|
|
|
50,994 |
|
|
|
|
|
|
|
|
|
|
96,408 |
|
|
|
129,385 |
A proportion of micro-cap debt held does not entitle the Company
to interest payment in cash. This interest is capitalised (PIK) and
as a result there is a credit risk to the Company, as there is no
return until the loan plus all the interest, is repaid in full.
During the year ended 29 February
2020, the Company recognised PIK interest of $4,717,000 (28 February
2019: $6,198,000) from debt
investments as income in the Statement of Comprehensive Income in
line with the Company's policy of recognising interest in
proportion to the carrying value versus cost.
The following table analyses the concentration of credit risk in
the Company's debt portfolio by industrial distribution.
|
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
|
|
28.2.2019 |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
|
|
US$
'000 |
Financial General |
|
|
|
|
|
|
|
|
|
58% |
|
|
|
30% |
House,
Leisure & Personal Goods |
|
|
|
|
|
|
|
|
12% |
|
|
|
7% |
Healthcare
Services & Equipment |
|
|
|
|
|
|
|
|
10% |
|
|
|
5% |
Telecom |
|
|
|
|
|
|
|
|
|
10% |
|
|
|
6% |
Document
Processing |
|
|
|
|
|
|
|
|
|
10% |
|
|
|
5% |
Private Security |
|
|
|
|
|
|
|
|
|
- |
|
|
|
36% |
Logistics |
|
|
|
|
|
|
|
|
|
- |
|
|
|
11% |
|
|
|
|
|
|
|
|
|
|
100% |
|
|
|
100% |
Loans at Amortised Cost and Expected
Credit Losses ("ECL")
The Company's direct loans to European micro-cap companies are
classified as loans at amortised cost. The credit risk in these
investments is deemed to be reflected in the performance and
valuation of the investee company. Using IFRS 9's “expected credit
loss” model, the Company calculates the allowance for credit losses
by considering the cash shortfalls it would incur in various
default scenarios for prescribed future periods and multiplying the
shortfalls by the probability of each scenario occurring. The
allowance is the sum of these probability weighted outcomes. The
IFRS ECL model assumed all loans and receivables carries with it
some risk of default, every such asset has an expected loss
attached to it from the moment of its origination or acquisition.
At the reporting date, the credit risk on the loans to Docout, Toro
Finance and Xacom are deemed low-risk and therefore the ECL are
considered over the future 12 months or maturity if sooner. In
July 2019, Ombuds entered bankruptcy
the Company do not believe there will be proceeds to pay any
portion of JZCP’s loan hence a provision has been made to bring the
carrying value down to $nil.
ECL Provision |
|
|
|
|
|
|
|
|
|
29.2.2020 |
|
|
|
28.2.2019 |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
|
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ECL at 1 March |
|
|
|
|
|
|
|
|
|
1,470 |
|
|
|
1,395 |
Provision
during the year for ECL on stage 1 credit exposures |
|
|
|
1,187 |
|
|
|
75 |
Provision
during the year for ECL on stage 2 credit exposures |
|
|
14,106 |
|
|
|
- |
Provision
during the year for ECL on stage 3 credit exposures |
|
14,025 |
|
|
|
- |
Total ECL
provision during the year |
|
29,318 |
|
|
|
75 |
|
|
|
|
|
|
|
Foreign
exchange movement of Euro denominated loss provision revalued at
year end |
|
(527) |
|
|
|
- |
ECL at year end |
|
|
|
|
|
|
|
|
|
30,261 |
|
|
|
1,470 |
'As at 29 February 2020, of the
$30,261,000 (28 February 2019: $1,470,000) recognised as total ECL $905,000 (28 February
2019: $1,470,000) are
provisions on stage 1 credit exposures and $29,356,000 (28 February
2019: $nil) are provisions on stage 3 credit exposures. See
Note 7 for information on the three stages that ECLs are
recognised.
The table below analyses the Company’s cash and cash equivalents
by rating agency category.
|
|
Standard & Poor's Outlook |
LT Issuer Default Rating |
29.2.2020 |
Credit ratings |
|
$'000 |
HSBC Bank USA NA |
|
|
Negative (2019: Stable) |
|
Fitch A+ (2019: AA-) |
52,595 |
Raymond James
Bank |
|
|
Stable (2019: Stable) |
|
S&P BBB+ (2019: BBB+) |
1 |
Northern
Trust (Guernsey) Limited |
|
Stable (2019: Stable) |
|
S&P A-1+ (2019: A-1+) |
316 |
|
|
|
|
|
|
52,912 |
Bankruptcy or insolvency of the Banks may cause the Company's
rights with respect to these assets to be delayed or limited. The
Investment Adviser monitors risk by reviewing the credit rating of
the Bank. If credit quality deteriorates, the Investment Adviser
may move the holdings to another bank.
Liquidity risk
Liquidity risk is defined as the risk that the Company will
encounter difficulty in meeting obligations associated with
financial liabilities. Liquidity risk arises because of the
possibility that the Company could be required to pay its
liabilities earlier than expected. There has been no change during
the year in the Company's processes and arrangements for managing
liquidity.
The Company's investments are predominately private equity, real
estate and other unlisted investments. By their nature, these
investments will generally be of a long term and illiquid nature
and there may be no readily available market for sale of these
investments. None of the Company's assets/liabilities are subject
to special arrangement due to their illiquid nature.
The Company has capital requirements to repay CULS and a debt
facility in 2021 and ZDP shareholders in 2022. At the year end the
Company has outstanding investment commitments of $48,769,000
(28 February 2019: $43,618,000) see Note 22.
The Company manages liquidity risk and the ability to meet its
obligations by monitoring current and expected cash balances from
forecasted investment activity.
The table below analyses JZCP's financial liabilities into
relevant maturity groups based on the remaining period at the
reporting date to the contractual maturity date. Amounts attributed
to CULS and ZDP share include future contractual interest payments.
Financial commitments are contractual outflows of cash and are
included within the liquidity statement.
At 29 February
2020
|
Less
than 1 year |
|
>1
year - 3 years |
|
>3
years - 5 years |
|
>5
years |
|
No
stated maturity |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
CULS |
2,978 |
|
54,594 |
|
- |
|
- |
|
- |
ZDP (2022) shares |
- |
|
73,569 |
|
- |
|
- |
|
- |
Loans payable |
10,163 |
|
152,829 |
|
- |
|
- |
|
- |
Other payables |
4,711 |
|
- |
|
- |
|
- |
|
523 |
Financial commitments
(see note 22) |
12,049 |
|
34,441 |
|
2,279 |
|
- |
|
- |
|
29,901 |
|
315,433 |
|
2,279 |
|
- |
|
523 |
At 28 February
2019
|
Less
than 1 year |
|
>1
year - 3 years |
|
>3
years - 5 years |
|
>5
years |
|
No
stated maturity |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
CULS |
3,101 |
|
56,591 |
|
- |
|
- |
|
- |
ZDP (2022) shares |
- |
|
- |
|
74,387 |
|
- |
|
- |
Loans payable |
12,640 |
|
170,029 |
|
- |
|
- |
|
- |
Other payables |
22,162 |
|
- |
|
- |
|
- |
|
22,743 |
Financial commitments
(see note 22) |
20,173 |
|
18,183 |
|
5,262 |
|
- |
|
- |
|
58,076 |
|
244,803 |
|
79,649 |
|
- |
|
22,743 |
22. Commitments
At February 2020 and 28 February 2019, JZCP had the following
financial commitments outstanding in relation to fund investments
(the below table also shows the amount of outstanding commitments
at date signing these financial statements):
|
|
|
Expected date |
|
|
17.6.2020 |
|
29.2.2020 |
|
28.2.2019 |
|
|
|
of
Call |
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
JZI Fund
III GP, L.P. €23,617,789
(28.2.2019: €31,936,400) |
over 2
years |
|
|
27,634 |
|
25,943 |
|
36,366 |
Orangewood Partners II-A LP
CERPI |
|
over 3 years |
|
|
15,901
2,880 |
|
17,247
3,080 |
|
-
- |
Spruceview Capital
Partners, LLC |
|
over 1 year |
|
|
1,675 |
|
220 |
|
1,990 |
Suzo Happ
Group1 |
|
|
over 3
years |
|
|
2,039 |
|
2,039 |
|
4,491 |
Igloo Products
Corp |
|
|
over 3
years |
|
|
240 |
|
240 |
|
771 |
|
|
|
|
|
|
50,369 |
|
48,769 |
|
43,618 |
1Commitment reduced per amended and restated
agreement of Limited Partnership.
23. 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 29 February 2020,
JZCP's investment in Fund III was valued at $66.8 million (28 February
2019: $66.8 million). JZCP's
investment in EMC 2010 was valued at $2.7
million (28 February 2019:
$2.7 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 17 June 2020, was $33.5 million with $1.7
million (28 February 2019:
$2.0 million) of commitments
outstanding. In March 2019, JZCP
increased its commitment by an additional $1.475 million to cover JZCP’s initial commitment
alongside Messrs. Jordan and Zalaznick (and their affiliates) on a
50%/50% basis to Spruceview CERPI PE Fund 2019, L.P. (“CERPI”).
JZCP received shareholder approval in June
2019, to invest a further $15
million in Spruceview Capital Partners, LLC, the investment
being on the same 50:50 basis with Jay
Jordan and David Zalaznick
(or their respective affiliates). In March
2020, JZCP increased its commitment by an additional
$2.275 million.
JZCP has co-invested with Fund A, Fund A Parallel I, II and III
Limited Partnerships in a number of US micro-cap buyouts. These
Limited Partnerships are managed by an affiliate of JZAI. JZCP
invested in a ratio of 82%/18% with the Fund A entities. At
29 February 2020, the total value of
JZCP's investment in these co-investments was $218.7 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 and, having failed, in the case of Testing Services Holdings,
LLC, to make certain preferred ownership investments, the common
ownership interest of the Fund A Partnerships in Testing Services
has been diluted.
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
29 February 2020 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 Avante 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 year, 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.
During the year, 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. JZCP received proceeds of
$17.2 million from the
realisation.
Total Directors' remuneration for the year ended 29 February 2020 was $421,000 (28 February
2019: $458,000).
24. Basic and Diluted Earnings/(Loss)
Per Share
Basic earnings/(loss) per share is calculated by dividing the
earnings/(loss) for the year by the weighted average number of
Ordinary shares outstanding during the year.
For the year ended 29 February
2020, the weighted average number of Ordinary shares
outstanding during the year was 79,053,060 (Year ended 28 February 2019: 82,757,833).
The Company's diluted loss per share is 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"). The adjusted weighted average of the
number of Ordinary shares for the year ended 29 February 2020 was 85,489,901 (28 February 2019: 89,194,674). Conversion is
assumed even though at 29 February
2020 and 28 February 2019 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 of
$4,388,000 (28
February 2019: $5,696,000 and
finance cost attributable to CULS of $2,956,000 (28 February
2019: $3,155,000). For the
year ended 29 February 2020, the
potential conversion of the CULS would have been anti-dilutive to
the total loss per share, therefore the diluted loss per share, for
the comparative year, is presented as per the basic loss per share
calculation.
25. Controlling Party
The issued shares of the Company are owned by a number of
parties, and therefore, in the opinion of the Directors, there is
no ultimate controlling party of the Company, as defined by IAS 24
- Related Party Disclosures.
26. Net Asset Value Per Share
The net asset value per Ordinary share of $6.14 (28 February
2019: $10.04) is based on the
net assets at the year end of$475,734,000 (28 February 2019: $810,262,000) and on 77,474,175 (28 February 2019: 80,666,838) Ordinary shares,
being the number of Ordinary shares in issue at the year end.
27. Contingent Assets
Amounts held in escrow accounts
When investments have been disposed of by the Company, proceeds
may reflect contractual terms requiring that a percentage is held
in an escrow account pending resolution of any indemnifiable claims
that may arise. At 29 February 2020
and 28 February 2019, the Company has
assessed that the likelihood of the recovery of these escrow
accounts cannot be determined and has therefore recognised the
escrow accounts as a contingent asset.
As at 29 February 2020 and
28 February 2019, the Company had the
following contingent assets held in escrow accounts which had not
been recognised as assets of the Company:
Company |
|
|
|
|
|
|
|
Amount in Escrow |
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
Bolder Healthcare
Solutions |
|
|
|
|
|
|
|
343 |
|
3,090 |
Waterline Renewal
Technologies |
|
|
|
|
|
|
|
431 |
|
- |
Water Treatment
Systems |
|
|
|
|
|
|
|
213 |
|
6,051 |
Xpress
Logistics (AKA Priority Express) |
|
|
|
|
|
153 |
|
- |
Water Filtration
Systems |
|
|
|
|
|
|
|
- |
|
120 |
|
|
|
|
|
|
|
|
1,140 |
|
9,261 |
During the year ended 29 February
2020 proceeds of $5,559,000
(28 February 2019: $3,303,000) were realised during the year and
recorded in the Statement of Comprehensive Income.
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
Escrows at beginning
of year |
|
|
|
|
|
|
|
9,261 |
|
1,952 |
Escrows
added on realisation of investments |
|
|
|
|
|
|
431 |
|
9,261 |
Potential
escrows at prior year end no longer recorded |
|
|
|
|
(2,993) |
|
- |
Escrow receipts during
the year |
|
|
|
|
|
|
|
(5,559) |
|
(3,303) |
Additional
escrows recognised in year not reflected in opening position |
|
|
- |
|
1,351 |
Escrows at year
end |
|
|
|
|
|
|
|
1,140 |
|
9,261 |
28. Notes to the Statement of Cash
Flows
Investment income and interest received during the year |
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Interest on
investments |
|
|
|
|
|
|
|
1,669 |
|
2,076 |
Dividends on unlisted
investments |
|
|
|
|
|
|
|
1,781 |
|
- |
Bank interest |
|
|
|
|
|
|
|
455 |
|
525 |
|
|
|
|
|
|
|
|
3,905 |
|
2,601 |
Purchases and sales of investments are considered to be
operating activities of the Company, given its purpose, rather than
investing activities. The cash flows arising from these activities
are shown in the Statement of Cash Flows.
Changes in financing liabilities
arising from both cash flow and non-cash flow items
|
|
|
|
|
Non-cash changes |
|
|
|
1.3.2019 |
|
Cash
flows |
|
Fair
Value |
|
Finance Costs |
Foreign Exchange |
|
29.2.2020 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
US$
'000 |
|
US$
'000 |
Zero Dividend
Preference (2022) shares |
63,838 |
|
- |
|
- |
|
3,211 |
(2,539) |
|
64,510 |
Convertible Unsecured
Loan Stock |
54,274 |
|
(2,956) |
|
(2,326) |
|
2,956 |
(2,062) |
|
49,886 |
Loans payable |
149,227 |
|
(12,436) |
|
- |
|
14,293 |
(722) |
|
150,362 |
|
267,339 |
|
(15,392) |
|
(2,326) |
|
20,460 |
(5,323) |
|
264,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash changes |
|
|
|
1.3.2018 |
|
Cash
flows |
|
Fair
Value |
|
Finance
Costs |
Foreign Exchange |
|
28.2.2019 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Zero Dividend
Preference (2022) shares |
62,843 |
|
- |
|
- |
|
3,148 |
(2,153) |
|
63,838 |
Convertible Unsecured
Loan Stock |
59,970 |
|
(3,155) |
|
(3,748) |
|
3,155 |
(1,948) |
|
54,274 |
Loans payable |
150,125 |
|
(12,142) |
|
- |
|
12,684 |
(1,440) |
|
149,227 |
|
272,938 |
|
(15,297) |
|
(3,748) |
|
18,987 |
(5,541) |
|
267,339 |
29. Dividends Paid and Proposed
No dividends were paid or proposed for the years ended
29 February 2020 and 28 February 2019.
30. IFRS to US GAAP Reconciliation
The Company's Financial Statements are prepared in accordance
with IFRS, which in certain respects differ from US GAAP. These
differences are not material and therefore no reconciliation
between IFRS and US GAAP has been presented. For reference, please
see below for a summary of the key judgments and estimates taken
into account with regards to the Company as of 29 February 2020, as well as the Shareholders'
financial highlights required under US GAAP.
Assessment as an Investment
Entity
As stated in Note 2, the Company meets the definition of an
investment entity under IFRS 10 and is therefore required to
measure its subsidiaries at fair value through profit or loss
rather ("FVTPL") than consolidate them. Per US GAAP (Financial
Services - Investment Companies (Topic 946): Amendments to the
Scope, Measurement, and Disclosure Requirements or "ASC 946"), the
Company meets the definition of an investment company, and as
required by ASC 946, JZCP measures its investment in Subsidiaries
at FVTPL.
Fair Value Measurement of Investments
The fair value of the underlying investments held by the Company
are determined in accordance with US GAAP and IFRS based on
valuation techniques and inputs that are observable in the market
which market participants have access to and will use to determine
the exit price or selling price of the investments.
Measurement of
Liabilities
The Company's loan facility and ZDP shares are recorded at
amortised cost using the effective interest rate method in
accordance with US GAAP and IFRS. The CULS’ fair value is deemed to
be the listed offer price at the year end. CULS is translated at
the exchange rate at the reporting date and both differences in
fair value due to the listed offer price and exchange rates are
recognised in the Statement of Comprehensive Income in accordance
with US GAAP and IFRS.
The following table presents performance information derived
from the financial statements.
|
|
|
|
|
|
|
29.2.2020 |
|
28.2.2019 |
|
|
|
|
|
|
|
US$ |
|
US$ |
|
|
|
|
|
|
|
|
|
|
Net asset
value per share at the beginning of the year |
|
|
|
10.04 |
|
9.98 |
|
|
|
|
|
|
|
|
|
|
Performance during the
year (per share): |
|
|
|
|
|
|
|
|
|
Net investment
income |
|
|
|
|
|
|
0.42 |
|
0.35 |
Net realised and
unrealised (loss)/gain |
|
|
|
|
|
|
(4.30) |
|
0.06 |
Incentive fee |
|
|
|
|
|
|
0.45 |
|
(0.03) |
Operating
expenses |
|
|
|
|
|
|
(0.24) |
|
(0.25) |
Finance costs |
|
|
|
|
|
|
(0.25) |
|
(0.23) |
Accretion
from the buy back of Ordinary shares at a discount to NAV |
|
|
0.02 |
|
0.16 |
Total return |
|
|
|
|
|
|
(3.90) |
|
0.06 |
|
|
|
|
|
|
|
|
|
|
Net asset
value per share at the end of the year |
|
|
|
|
|
6.14 |
|
10.04 |
|
|
|
|
|
|
|
|
|
|
Total Return |
|
|
|
|
|
|
(38.81%) |
|
0.61% |
|
|
|
|
|
|
|
|
|
|
Net
investment income to average net assets excluding incentive
fee |
|
|
4.64% |
|
1.01% |
|
|
|
|
|
|
|
|
|
|
Operating expenses to
average net assets |
|
|
|
|
|
|
(2.71%) |
|
(2.42%) |
Incentive fees to
average net assets |
|
|
|
|
|
|
4.97% |
|
(0.30%) |
Operating
expenses to average net assets including incentive fee |
|
|
|
2.26% |
|
(2.72%) |
|
|
|
|
|
|
|
|
|
|
Finance costs to
average net assets |
|
|
|
|
|
|
(2.76%) |
|
(2.33%) |
|
|
|
|
|
|
|
|
|
|
|
31. Subsequent Events
These financial statements were approved by the Board on
17 June 2020. Subsequent events have
been evaluated until this date.
The implications for the Company, of COVID-19 and the resulting
lockdown post year end, are further explained within the Directors’
Report and Note 2 to the Financial Statements. The Board considers
the emergence and spread of COVID-19 to be a non-adjusting post
balance sheet event.
At the date of signing this report, the Board have been unable
to quantify the impact on the valuation of the portfolio. As
discussed in the Investment Adviser’s Report, Covid-19 has severely
affected commercial retail real estate and therefore further write
downs in the value of the Company’s real estate assets are
expected. Since the end of the year the Board have been in
continuous discussions with the Investment Adviser to assess the
impact of COVID-19 on the micro-cap portfolios and to remain up to
date on liquidity and performance within the portfolio. As at the
date of signing of these financial statements, the Board are
pleased with reports that the micro-cap portfolio has so far
performed robustly throughout the pandemic, this has enabled the
Board to be optimistic about the micro-cap valuations presented in
these financial statements.
The uncertainty of the effect of COVID-19 on the valuation of
the Company’s investment portfolio and also its ability to realise
investments within a timeframe to repay debt obligations are
considered by the Board to be material uncertainties which could
impact the Company’s ability to operate as a going concern as noted
within the Directors’ Report and Note 2 to the Financial
Statements.
Company Advisers
Investment Adviser
The Investment Adviser to JZ Capital Partners Limited (“JZCP”) is
Jordan/Zalaznick Advisers, Inc., (“JZAI”) a company beneficially
owned by John (Jay) W Jordan II and David W Zalaznick. The company
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
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
JZ Capital Partners Limited is registered in Guernsey Number
48761
Administrator, Registrar and Secretary
Northern Trust International Fund Administration
Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
UK Transfer and Paying Agent
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
US Bankers
HSBC Bank USA NA
452 Fifth Avenue
New York NY 10018
(Also provides custodian services to JZ Capital Partners Limited
under the terms of a Custody Agreement).
Guernsey Bankers
Northern Trust (Guernsey)
Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA
Independent Auditor
Ernst & Young LLP
PO Box 9
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
UK Solicitors
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW
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
Financial Adviser and Broker
JP Morgan Cazenove Limited
20 Moorgate
London EC2R 6DA
Useful Information for
Shareholders
Listing
JZCP Ordinary, Zero Dividend Preference ("ZDP") shares and
Convertible Unsecured Loan Stock ("CULS") are listed on the
Official List of the Financial Services Authority of the UK, and
are admitted to trading on the London Stock Exchange Specialist
Fund Segment for listed securities.
The price of the Ordinary shares are shown in the Financial
Times under "Conventional Private Equity" and can also be found at
https://markets.ft.com along with the prices of the ZDP shares and
CULS.
ISIN/SEDOL numbers
|
|
Ticker
Symbol |
|
ISIN
Code |
|
Sedol
Number |
Ordinary shares |
|
JZCP |
|
GG00B403HK58 |
|
B403HK5 |
ZDP (2022) shares |
|
JZCZ |
|
GG00BZ0RY036 |
|
BZ0RY03 |
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 year ended
29 February 2020 was -38.8%, which
only reflects the change in NAV as no dividends were paid during
the year. The Total NAV Return for the year ended 28 February 2019 was 0.6%.
Total Shareholder Return (Ordinary
shares)
A measure showing how the share price has performed over a
period of time, taking into account both capital returns and
dividends paid to shareholders. JZCP quotes shareholder price total
return as a percentage change from the start of the period (one
year) and also three-month, three-year, five-year and seven-year
periods. It assumes that dividends paid to shareholders are
reinvested in the shares at the time the shares are quoted ex
dividend. The Shareholder Return for the year ended 29 February 2020 was -40.7%, which only reflects
the change in share price as no dividends were paid during the
year. The Shareholder Return for the year ended 28 February 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 29 February 2020, JZCP's
Ordinary shares traded at £2.58 (28 February
2019: £4.35) or $3.30 (28
February 2019:$5.79) being the dollar
equivalent using the year end exchange rate of £1: $1.28 (28 February
2019 £1: $1.33). The shares
traded at a 46% (28 February 2019:
42%) discount to the NAV per share of $6.14 (2019: $10.04).
Ongoing Charges calculation
A measure expressing the Ongoing annualised expenses as a
percentage of the Company's average annualised net assets over the
year 2.71% (2019: 2.42%). Ongoing charges, or annualised recurring
operating expenses, are those expenses of a type which are likely
to recur in the foreseeable future, whether charged to capital or
revenue, and which relate to the operation of the company,
excluding the Investment Adviser's Incentive fee, financing charges
and gains/losses arising on investments.
Ongoing expenses for the year are $19,353,000 (2019: $19,832,000) comprising of the IA base fee
$15,224,000 (2019:$16,733,000), administrative fees $3,708,000 (2019: $2,641,000) and directors fees $421,000 (2019:$458,000). Average net assets for the year are
calculated using quarterly NAVs $713,333,000 (2019: $818,383,000).
Criminal Facilitation of Tax
Evasion
The Board has approved a policy of zero tolerance towards the
criminal facilitation of tax evasion, in compliance with the
Criminal Finances Act 2017.
Non-Mainstream Pooled Investments
From 1 January 2014, the FCA rules
relating to the restrictions on the retail distribution of
unregulated collective investment schemes and close substitutes
came into effect. JZCP's Ordinary shares qualify as an ‘excluded
security’ under these rules and will therefore be excluded from the
FCA’s restrictions which apply to non-mainstream investment
products. Therefore Ordinary shares issued by JZ Capital Partners
can continue to be recommended by financial advisers as an
investment for UK retail investors.
Internet Address
The Company: www.jzcp.com
Financial Diary
Annual General
Meeting |
|
|
|
12 August 2020 |
|
|
Interim
report for the six months ended 31 August 2020 |
|
November
2020 (date to be confirmed) |
Results for the year
ended 28 February 2021 |
|
May 2021
(date to be confirmed) |
JZCP will be issuing an Interim Management Statement for the
quarters ending 31 May 2020 and
30 November 2020. These Statements
will be sent to the market via RNS within six weeks from the end of
the appropriate quarter, and will be posted on JZCP's website at
the same time, or soon thereafter.
Payment of Dividends
In the event of a cash dividend being paid, the dividend will be
sent by cheque to the first-named shareholder on the register of
members at their registered address, together with a tax voucher.
At shareholders' request, where they have elected to receive
dividend proceeds in Sterling, the dividend may instead be paid
direct into the shareholder's bank account through the Bankers'
Automated Clearing System. Payments will be paid in US dollars
unless the shareholder elects to receive the dividend in Sterling.
Existing elections can be changed by contacting the Company's
Transfer and Paying Agent, Equiniti Limited on +44 (0) 121 415
7047.
Share Dealing
Investors wishing to buy or sell shares in the Company may do so
through a stockbroker. Most banks also offer this service.
Foreign Account Tax Compliance Act
The Company is registered (with a Global Intermediary
Identification Number CAVBUD.999999.SL.831) under The Foreign
Account Tax Compliance Act ("FATCA").
Share Register Enquiries
The Company's UK Transfer and Paying Agent, Equiniti Limited,
maintains the share registers. In event of queries regarding your
holding, please contact the Registrar on 0871 384 2265, calls to
this number cost 8p per minute from a BT landline, other providers'
costs may vary. Lines are open 8.30 a.m. to
5.30 p.m., Monday to Friday, If calling from overseas +44
(0) 121 415 7047 or access their website at www.equiniti.com.
Changes of name or address must be notified in writing to the
Transfer and Paying Agent.
Nominee Share Code
Where notification has been provided in advance, the Company
will arrange for copies of shareholder communications to be
provided to the operators of nominee accounts. Nominee investors
may attend general meetings and speak at meetings when invited to
do so by the Chairman.
Documents Available for Inspection
The following documents will be available at the registered
office of the Company during usual business hours on any weekday
until the date of the Annual General Meeting and at the place of
the meeting for a period of fifteen minutes prior to and during the
meeting:
(a) the Register of Directors' Interests in the stated capital
of the Company;
(b) the Articles of Incorporation of the Company; and
(c) the terms of appointment of the Directors.
Warning to Shareholders – Boiler Room
Scams
In recent years, many companies have become aware that their
shareholders have been targeted by unauthorised overseas-based
brokers selling what turn out to be non-existent or high risk
shares, or expressing a wish to buy their shares. If you are
offered, for example, unsolicited investment advice, discounted
JZCP shares or a premium price for the JZCP shares you own, you
should take these steps before handing over any money:
· Make sure you get the correct name of the
person or organisation
· Check that they are properly authorised by
the FCA before getting involved by visiting
http://www.fca.org.uk/firms/systems-reporting/register
· Report the matter to the FCA by calling 0800
111 6768
· If the calls persist, hang up
· More detailed information on this can be
found on the Money Advice Service website
www.moneyadviceservice.org.uk
US Investors
General
The Company's Articles contain provisions allowing the Directors
to decline to register a person as a holder of any class of
ordinary shares or other securities of the Company or to require
the transfer of those securities (including by way of a disposal
effected by the Company itself) if they believe that the
person:
(a) is a "US person" (as defined in Regulation S under the US
Securities Act of 1933, as amended) and not a "qualified purchaser"
(as defined in the US Investment Company Act of 1940, as amended,
and the related rules thereunder);
(b) is a "Benefit Plan Investor" (as described under
"Prohibition on Benefit Plan Investors and Restrictions on
Non-ERISA Plans" below); or
(c) is, or is related to, a citizen or resident of the United States, a US partnership, a US
corporation or a certain type of estate or trust and that ownership
of any class of ordinary shares or any other equity securities of
the Company by the person would materially increase the risk that
the Company could be or become a "controlled foreign corporation"
(as described under "US Tax Matters").
In addition, the Directors may require any holder of any class
of ordinary shares or other securities of the Company to show to
their satisfaction whether or not the holder is a person described
in paragraphs (A), (B) or (C) above.
US Securities
Laws
The Company (a) is not subject to the reporting requirements of
the US Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and does not intend to become subject to such reporting
requirements and (b) is not registered as an investment company
under the US Investment Company Act of 1940, as amended (the "1940
Act"), and investors in the Company are not entitled to the
protections provided by the 1940 Act.
Prohibition on
Benefit Plan Investors and Restrictions on Non-ERISA Plans
Investment in the Company by "Benefit Plan Investors" is
prohibited so that the assets of the Company will not be deemed to
constitute "plan assets" of a "Benefit Plan Investor". The term
"Benefit Plan Investor" shall have the meaning contained in 29
C.F.R. Section 2510.3-101, as modified by Section 3(42) of the US
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and includes (a) an "employee benefit plan" as defined
in Section 3(3) of ERISA that is subject to Part 4 of Title I of
ERISA; (b) a "plan" described in Section 4975(e)(1) of the US
Internal Revenue Code of 1986, as amended (the "Code"), that is
subject to Section 4975 of the Code; and (c) an entity whose
underlying assets include "plan assets" by reason of an employee
benefit plan's or a plan's investment in such entity. For purposes
of the foregoing, a "Benefit Plan Investor" does not include a
governmental plan (as defined in Section 3(32) of ERISA), a non-US
plan (as defined in Section 4(b)(4) of ERISA) or a church plan (as
defined in Section 3(33) of ERISA) that has not elected to be
subject to ERISA.
Each purchaser and subsequent transferee of any class of
ordinary shares (or any other class of equity interest in the
Company) will be required to represent, warrant and covenant, or
will be deemed to have represented, warranted and covenanted, that
it is not, and is not acting on behalf of or with the assets of, a
Benefit Plan Investor to acquire such ordinary shares (or any other
class of equity interest in the Company).
Under the Articles, the directors have the power to require the
sale or transfer of the Company's securities in order to avoid the
assets of the Company being treated as "plan assets" for the
purposes of ERISA.
.
The fiduciary provisions of laws applicable to governmental
plans, non-US plans or other employee benefit plans or retirement
arrangements that are not subject to ERISA (collectively,
"Non-ERISA Plans") may impose limitations on investment in the
Company. Fiduciaries of Non-ERISA Plans, in consultation with their
advisers, should consider, to the extent applicable, the impact of
such fiduciary rules and regulations on an investment in the
Company.
Among other considerations, the fiduciary of a Non-ERISA Plan
should take into account the composition of the Non-ERISA Plan's
portfolio with respect to diversification; the cash flow needs of
the Non-ERISA Plan and the effects thereon of the illiquidity of
the investment; the economic terms of the Non- ERISA Plan's
investment in the Company; the Non-ERISA Plan’s funding objectives;
the tax effects of the investment and the tax and other risks
associated with the investment; the fact that the investors in the
Company are expected to consist of a diverse group of investors
(including taxable, tax-exempt, domestic and foreign entities) and
the fact that the management of the Company will not take the
particular objectives of any investors or class of investors into
account.
Non-ERISA Plan fiduciaries should also take into account the
fact that, while the Company's board of directors and its
investment adviser will have certain general fiduciary duties to
the Company, the board and the investment adviser will not have any
direct fiduciary relationship with or duty to any investor, either
with respect to its investment in Shares or with respect to the
management and investment of the assets of the Company. Similarly,
it is intended that the assets of the Company will not be
considered plan assets of any Non-ERISA Plan or be subject to any
fiduciary or investment restrictions that may exist under laws
specifically applicable to such Non-ERISA Plans. Each Non-ERISA
Plan will be required to acknowledge and agree in connection with
its investment in any securities to the foregoing status of the
Company, the board and the investment adviser that there is no
rule, regulation or requirement applicable to such investor that is
inconsistent with the foregoing description of the Company, the
board and the investment adviser.
Each purchaser or transferee that is a Non-ERISA Plan will be
deemed to have represented, warranted and covenanted as
follows:
(a) The Non-ERISA Plan is not a Benefit Plan Investor;
(b) The decision to commit assets of the Non-ERISA Plan for
investment in the Company was made by fiduciaries independent of
the Company, the Board, the Investment adviser and any of their
respective agents, representatives or affiliates, which fiduciaries
(i) are duly authorized to make such investment decision and have
not relied on any advice or recommendations of the Company, the
Board, the Investment adviser or any of their respective agents,
representatives or affiliates and (ii) in consultation with their
advisers, have carefully considered the impact of any applicable
federal, state or local law on an investment in the Company;
(c) The Non-ERISA Plan’s investment in the Company will not
result in a non-exempt violation of any applicable federal, state
or local law;
(d) None of the Company, the Board, the Investment adviser or
any of their respective agents, representatives or affiliates has
exercised any discretionary authority or control with respect to
the Non-ERISA Plan’s investment in the Company, nor has the
Company, the Board, the Investment adviser or any of their
respective agents, representatives or affiliates rendered
individualized investment advice to the Non-ERISA Plan based upon
the Non-ERISA Plan’s investment policies or strategies, overall
portfolio composition or diversification with respect to its
commitment to invest in the Company and the investment program
thereunder; and
(e) It acknowledges and agrees that it is intended that the
Company will not hold plan assets of the Non-ERISA Plan and that
none of the Company, the Board, the Investment adviser or any of
their respective agents, representatives or affiliates will be
acting as a fiduciary to the Non-ERISA Plan under any applicable
federal, state or local law governing the Non-ERISA Plan, with
respect to either (i) the Non-ERISA Plan’s purchase or retention of
its investment in the Company or (ii) the management or operation
of the business or assets of the Company. It also confirms that
there is no rule, regulation, or requirement applicable to such
purchaser or transferee that is inconsistent with the foregoing
description of the Company, the Board and the Investment
adviser.
US Tax Matters
This discussion does not constitute
tax advice and is not intended to be a substitute for tax advice
and planning. Prospective holders of the Company's securities must
consult their own tax advisers concerning the US federal, state and
local income tax and estate tax consequences in their particular
situations of the acquisition, ownership and disposition of any of
the Company's securities, as well as any consequences under the
laws of any other taxing jurisdiction.
The Board may decline to register a person as, or to require
such person to cease to be, a holder of any class of ordinary
shares or other equity securities of the Company because of, among
other reasons, certain US ownership and transfer restrictions that
relate to “controlled foreign corporations” contained in the
Articles of the Company. A Shareholder of the Company may be
subject to forced sale provisions contained in the Articles in
which case such shareholder could be forced to dispose of its
securities if the Company’s directors believe that such shareholder
is, or is related to, a citizen or resident of the United States, a US partnership, a US
corporation or a certain type of estate or trust and that ownership
of any class of ordinary shares or any other equity securities of
the Company by such shareholder would materially increase the risk
that the Company could be or become a "controlled foreign
corporation" within the meaning of the Code (a "CFC"). Shareholders
of the Company may also be restricted by such provisions with
respect to the persons to whom they are permitted to transfer their
securities.
In general, a foreign corporation is treated as a CFC if, on any
date of its taxable year, its "10% US Shareholders" collectively
own (directly, indirectly or constructively within the meaning of
Section 958 of the Code) more than 50% of the total combined voting
power or total value of the corporation's stock. For this purpose,
a "10% US Shareholder" means any US person who owns (directly,
indirectly or constructively within the meaning of Section 958 of
the Code) 10% or more of the total combined voting power of all
classes of stock of a foreign corporation or 10% or more of the
total value of shares of all classes of stock of a foreign
corporation. The Tax Cuts and Jobs Act (the “Tax Act”) eliminated
the prohibition on “downward attribution” from non-US persons to US
persons under Section 958(b)(4) of the Code for purposes of
determining constructive stock ownership under the CFC rules. As a
result, the Company’s US subsidiary will be deemed to own all of
the stock of the Company’s non-US subsidiaries held by the Company
for purposes of determining such foreign subsidiaries’ CFC status.
The legislative history under the Tax Act indicates that this
change was not intended to cause the Company’s non-US subsidiaries
to be treated as CFCs with respect to a 10% US Shareholder that is
not related to the Company’s US subsidiary. However, the IRS has
not yet issued any guidance confirming this intent and it is not
clear whether the IRS or a court would interpret the change made by
the Tax Act in a manner consistent with such indicated intent. The
Company's treatment as a CFC as well as its foreign subsidiaries’
treatment as CFCs could have adverse tax consequences for 10% US
Shareholders.
The Company has been advised that it is NOT a passive foreign
investment company ("PFIC") for the fiscal years ended February 2019 and 2018. An analysis for the
financial year ended 29 February 2020
will be undertaken this year. 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