TIDMESO TIDMEO.P TIDMEC.P TIDMEL.P
RNS Number : 3322Q
EPE Special Opportunities PLC
11 September 2017
EPE Special Opportunities plc
("ESO plc" or "the Company")
Interim Review and Unaudited Financial Statements for the 6
months ended 31 July 2017
The Board of EPE Special Opportunities plc are pleased to
announce the Company's Interim Review and Unaudited Financial
Statements for the 6 months ended 31 July 2017.
Highlights:
-- The Net Asset Value ("NAV") at 31 July 2017 was 412.26 pence
per share, an increase of 13.2% on the NAV per share of 364.13
pence as at 31 January 2017;
-- The share price at 31 July 2017 was 307.50 pence,
representing an increase of 14.5% on the share price of 268.50
pence as at 31 January 2017;
-- The Company's performance has been buoyed by continued growth
in the value of Company's largest asset, Luceco plc, which released
maiden results reporting sales growth of 29.8% and adjusted EPS
growth of 102.4% for the year ended 31 December 2016. These results
were well received by investors and Luceco's price has increased by
64.00 pence or 25.7% since 31 January 2017;
-- As reported at the year-end, Whittard of Chelsea had a good
finish to 2016 and this trend has continued into the first half of
2017. Momentum is encouraging across the business' UK retail estate
and online channels, supported by macro factors, such as the
tourism activity and consumer confidence. The business continues to
invest in programmes to target long-term growth and sustainable
returns, such as customer acquisition initiatives and international
sales channels;
-- Process Components has maintained a positive trajectory with
the sales pipeline and order backlog having reached historical
highs and the successful relocation to a new, larger manufacturing
facility. The business has also successfully brought in-house the
manufacture of its equipment range, providing both margin and
supply chain control benefits;
-- Pharmacy2U continues to successfully pursue a strategy of
customer acquisition, leveraging economies of scale to drive down
acquisition costs. The business continues to benefit from the new
distribution facility opened in 2016;
-- On 8 March 2017, the Company completed the acquisition of a
EUR2.5 million secondary commitment in European Capital's Private
Debt Fund ("ECPD"). ECPD provides private debt for European small
and medium sized enterprises ("SMEs"), predominantly in France and
the UK. The fund has commitments of EUR473.0 million. The
acquisition will provide a reasonable yield and will further
diversify the Company's exposure to different asset classes;
-- On 22 May 2017, the Company announced the appointment of
R&H Fund Services (Jersey) Limited ("R&H"). The Board look
forward to working with R&H, who have a strong track record of
working successfully with listed and private equity funds. The
Board would like to extend its gratitude to FIM Capital Limited
("FIM") for their long-standing support as the Company's
administrator;
-- The portfolio remains conservatively valued with a weighted
average Enterprise Value equating to an EBITDA multiple of 6.2x for
mature unquoted assets and equating to a Sales multiple of 0.5x for
unquoted assets investing for growth;
-- The underlying portfolio is relatively unleveraged with 0.9x third party net debt to EBITDA;
-- The Company retains a cash balance of GBP31.3 million as at
31 July 2017, providing 53.0x per annum coverage on outstanding
loan interest. Overall liquidity in the Company is GBP33.3
million;
-- Over the last five years the Company has continued to use its
capital resources prudently, retiring 39.9% of the capital
base;
-- The Company is actively pursuing new investment opportunities
where the Board is confident a good return for investors can be
achieved. All new private equity investments will be made via ESO
Investments 2 LP, in which the Company is the sole investor. All
new primary and secondary fund investments will be made via ESO
Alternative Investments LP, in which the Company is the sole
investor;
-- The Company's largest shareholder is Giles Brand and his
connected persons own 22.6% of the Company's issued Ordinary Share
Capital between them, as at 8 September 2017; and
-- Mr. Geoffrey Vero, Chairman, commented: "The Board are
pleased with the continued performance of the portfolio over the
period. The Board and the Investment Advisor have concentrated on
pursuing new investment opportunities and optimising growth
opportunities within the existing portfolio during the first half
of the current year. I would like to extend my thanks to my fellow
directors, the Investment Advisor and the Company's other advisors
for their hard work and look forward to updating you again at the
year end".
Enquiries:
EPIC Private Equity LLP +44 (0) 207 269 8865
Alex Leslie
R&H Fund Services (Jersey) +44 (0) 1534 825 323
Limited Hilary Jones
Cardew Group Limited +44 (0) 207 930 0777
Richard Spiegelberg
Numis Securities Limited +44 (0) 207 260 1000
Nominated Advisor: Stuart Skinner / Hugh
Jonathan
Corporate Broker: Charles Farquhar
Biographies of the Directors
Geoffrey Vero FCA, Non-Executive Heather Bestwick, Non-Executive
Chairman Director
--------------------------------- ----------------------------------
Geoffrey Vero qualified Heather Bestwick has
as a chartered accountant been a financial services
with Ernst & Young and professional for 25 years,
then worked for Savills, onshore in the City of
chartered surveyors, and London and offshore in
The Diners Club Limited. the Cayman Islands and
He has been active in Jersey. She qualified
venture capital since as an English solicitor,
1985, initially with Lazard specialising in ship
Development Capital Limited finance, with City firm
and then from 1987 to Norton Rose, and worked
2002 as a director of in their London and Greek
Causeway Capital Limited offices for 8 years.
which became ABN Amro Ms Bestwick subsequently
Capital Limited. In 2002, practised and became
he set up The Vero Consultancy a partner with global
specialising in corporate offshore law firm Walkers
advisory services and in the Cayman Islands,
recovery situations. He and Managing Partner
has considerable experience of the Jersey office.
in evaluating investment Becoming a non-executive
opportunities and dealing director in 2014, she
with corporate recovery. is Chairman of Equiom
While at Causeway Capital, (Jersey) Limited and
Mr Vero was a Founder Equiom (Guernsey) Limited,
Director of Causeway Invoice sits on the boards of
Discounting Company Limited, the manager of the Deutsche
which was subsequently Bank dbX hedge fund platform,
sold to NM Rothschild. a shipping fund, and
He is also a non-executive the States of Jersey
director of Numis Corporation incorporated company
plc and Chairman of Albion holding Jersey's affordable
Development VCT plc. housing, together with
several other financial
services companies.
--------------------------------- ----------------------------------
Robert Quayle, Non-Executive Clive Spears, Non-Executive
Director Director
--------------------------------- ----------------------------------
Robert Quayle qualified Clive Spears retired
as an English solicitor from the Royal Bank of
at Linklaters & Paines Scotland International
in 1974 after reading Limited in December 2003
law at Selwyn College, as Deputy Director of
Cambridge. He subsequently Jersey after 32 years
practiced in London and of service. His main
the Isle of Man as a partner activities prior to retirement
in Travers Smith Braithwaite. included Product Development,
He served as Clerk of Corporate Finance, Trust
Tynwald (the Isle of Man's and Offshore Company
parliament) for periods Services and he was Head
totalling 12 years and of Joint Venture Fund
holds a number of public Administration with Rawlinson
and private appointments, & Hunter. Mr Spears is
and is active in the voluntary an Associate of the Chartered
sector. Mr. Quayle is Institute of Bankers
Chairman of the Isle of and a Member of the Chartered
Man Steam Packet Company Institute for Securities
Limited, W.H. Ireland & Investment. He has
(IOM) Limited and a number accumulated a well spread
of other companies in portfolio of directorships
the financial services, centring on private equity,
manufacturing and distribution infrastructure and corporate
sectors. debt. His appointments
currently include being
Chairman of Nordic Capital
Limited, sitting on the
board of Jersey Finance
Limited and being director
and Head of the Investment
Committee for GCP Infrastructure
Investments (FTSE 250
listed company).
--------------------------------- ----------------------------------
Nicholas Wilson, Non-Executive
Director
---------------------------------
Nicholas Wilson has over
40 years of experience
in hedge funds, derivatives
and global asset management.
He has run offshore branch
operations for Mees Pierson
Derivatives Limited, ADM
Investor Services International
Limited and several other
London based financial
services companies. He
is Chairman of Qatar Investment
Fund Plc, a premium listed
company, and, until recently,
was chairman of Alternative
Investment Strategies
Limited. He is a resident
of the Isle of Man.
---------------------------------
Profile of Investment Advisor
EPIC Private Equity LLP ("EPE" or the "Investment Advisor") was
founded in June 2001 and is independently owned by its Partners.
EPE focuses on niche investment opportunities with a focus on
special situations, distressed, growth and buyout transactions,
special purpose acquisition companies, private investments in
public equities, as well as primary and secondary limited partner
transactions.
Giles Brand Robert Fulford
--------------------------------- ----------------------------------
Giles Brand is a Partner Robert Fulford is an Investment
and the founder of EPE. Director of EPE. He previously
He is currently a non-executive worked at Barclaycard Consumer
director of Whittard of Europe before joining EPE.
Chelsea and non-executive Whilst at Barclaycard,
chairman of Luceco plc. Robert was the Senior Manager
Before joining EPE, Giles for Strategic Insight and
was a founding Director was responsible for identifying,
of EPIC Investment Partners, analysing and responding
a fund management business to competitive forces.
which at sale to Syndicate Prior to Barclaycard, Robert
Asset Management plc had spent four years as a strategy
US$5 billion under management consultant at Oliver Wyman
and spent five years working Financial Services, where
in Mergers and Acquisitions he worked with a range
at Baring Brothers in Paris of major retail banking
and London. Giles read and institutional clients
History at Bristol University. in the UK, mainland Europe,
Middle East and Africa,
specialising in strategy
and risk modelling. He
manages the Company's investment
in Whittard of Chelsea,
where he is currently a
non-executive director.
Robert read Engineering
at Cambridge University.
--------------------------------- ----------------------------------
James Henderson Alex Leslie
--------------------------------- ----------------------------------
James Henderson is an Investment Alex Leslie is an Investment
Director of EPE. He previously Director of EPE. He previously
worked in the Investment worked in Healthcare Investment
Banking division at Deutsche Banking at Piper Jaffray
Bank before joining EPE. before joining EPE. Whilst
Whilst at Deutsche Bank at Piper Jaffray he worked
he worked on a number of on a number of M&A transactions
M&A transactions and IPOs and equity fundraisings
in the energy, property, within the Biotechnology,
retail and gaming sectors, Specialty Pharmaceutical
as well as providing corporate and Medical Technology
broking advice to mandated sectors. He manages the
clients. He manages the Company's investments in
Company's investment in Luceco plc and Process
Pharmacy2U, where he is Components, where he is
currently a non-executive currently a non-executive
director. James read Modern director. Alex read Human
History at Oxford University Biological and Social Sciences
and Medicine at Nottingham at Oxford University and
University. obtained an MPhil in Management
from the Judge Business
School at Cambridge University.
--------------------------------- ----------------------------------
Hiren Patel
---------------------------------
Hiren Patel is a Partner
and EPE's Finance Director
and Compliance Officer.
He has worked in the investment
management industry for
the past ten years. Before
joining EPEA and EPE, Hiren
was finance director of
EPIC Investment Partners.
Before EPIC Investment
Partners Hiren was employed
at Groupama Asset Management
where he was the Group
Financial Controller.
---------------------------------
Chairman's Statement
The UK's economic outlook has continued to be uncertain with
mixed indications of the country's economic trajectory. Since the
start of EPE Special Opportunities plc's ("ESO plc" or the
"Company") financial year, the negotiations for the UK's exit of
the European Union have started in earnest with notice given by the
UK under Article 50 and the first face-to-face negotiations between
lead political parties, albeit delayed by the UK's general election
in June 2017. The Board continues to monitor the softening of UK
GDP growth (0.2% in Q1 2017 among the lowest of the G7), rising
inflation (+2.7% consumer price index in April 2017) and continued
impact of the devaluation of sterling. However, over the same
period there have been encouraging indications, such as falling
unemployment and growth in certain sectors such as manufacturing.
The long-term effects of the UK's departure from the European Union
will not be known for some time, but as the negotiations progress,
the Board will monitor and react appropriately to outcomes as they
become apparent.
The Net Asset Value ("NAV") per share as at 31 July 2017 for the
Company was 412.26 pence per share, representing an increase of
13.2% on the NAV per share of 364.13 pence as at 31 January 2017.
The share price as at 31 July 2017 for the Company was 307.50
pence, representing an increase of 14.5% on the share price of
268.50 pence as at 31 January 2017.
The Company's performance has been buoyed by continued growth in
the value of Company's largest asset, Luceco plc, which released
maiden results reporting sales growth of 29.8% and adjusted EPS
growth of 102.4% for the year ended 31 December 2016. These results
were well received by investors and Luceco's price has increased by
64.00 pence or 25.7% since 31 January 2017.
As reported at the year end, Whittard of Chelsea had a good
finish to 2016, and this trend has continued into the first half of
2017. Momentum is encouraging across the business' UK retail estate
and online channels, supported by macro factors, such as tourism
activity and consumer confidence. The business continues to invest
in programmes to target long-term growth and sustainable returns,
such as customer acquisition initiatives and international sales
channels.
Process Components has maintained a positive trajectory; the
sales pipeline and order backlog have reached historical highs and
the business completed a successful relocation to a new, larger
manufacturing facility. The business has also successfully brought
in-house the manufacture of its equipment range, providing both
margin and supply chain control benefits.
Pharmacy2U continues to successfully pursue a strategy of
customer acquisition, leveraging economies of scale to drive down
customer acquisition costs. The business continues to benefit from
the new distribution facility opened in 2016.
On 8 March 2017, the Company completed the acquisition of a
EUR2.5 million secondary commitment in European Capital's Private
Debt Fund ("ECPD"). ECPD provides private debt for European small
and medium sized enterprises ("SMEs"), predominantly in France and
the UK.
On 22 May 2017, the Company announced the appointment of R&H
Fund Services (Jersey) ("R&H"). The Board look forward to
working with R&H, who have a strong track record of working
successfully with listed and private equity funds. The Board would
like to extend its gratitude to FIM Capital ("FIM") for their
long-standing support as the Company's administrator.
I would also like to thank the Investment Advisor, EPE, as well
as my fellow Directors and professional advisors, for their
continued hard work and attentiveness during the first half of the
year.
I look forward to updating you at the end of the year.
Geoffrey Vero
Chairman
8 September 2017
Investment Advisor's Report
In the six months to 31 July 2017, the Investment Advisor has
concentrated on building investor value through initiatives to
drive growth within the current portfolio, both organic and through
corporate actions, and through deployment of capital into new
investments.
The Investment Advisor continues to work with management teams
across the portfolio to develop operational improvements and
revenue expansion activities to enhance the value of the individual
assets. The Investment Advisor also continues to pursue corporate
activities within the portfolio where investor value can be
successfully obtained, such as the Initial Public Offer ("IPO") of
Luceco plc in October 2016.
During the period, a number of new private equity deals have
been sourced by the Investment Advisor but the maintenance of
strict price discipline and prudent consideration of wider market
conditions has meant none have been completed during the period, an
active pipeline however is in hand. All new private equity
investments will be made via ESO Investments 2 LP ("ESO 2 LP"), in
which the Company is the sole investor.
On 8 March 2017, the Company completed the secondary acquisition
of a EUR2.5 million commitment in European Capital's Private Debt
Fund ("ECPD") by ESO Alternative Investments LP ("ESO AI LP"), a
partnership established to hold the Company's primary and secondary
fund investments. ECPD provides private debt for European SMEs,
predominantly in France and the UK. The fund has commitments of
EUR473.0 million. The acquisition of the ECPD interest will provide
the Company with a reasonable yield and will further diversify the
Company's asset class exposure. The acquisition price and level of
deployed capital are supportive of the Company's forecast returns.
Prior to March 2016, the Investment Advisor acted as placement
agent to ECPD on the successful raise of the fund.
The Investment Advisor continues to monitor the impact of
macro-economic factors upon the portfolio, most notably that of the
UK's negotiations to leave the European Union, commenced during the
period. The Investment Advisor is mindful of the short-term effect
the uncertainty of these negotiation is having upon the UK economy,
including the devaluation of sterling and indications of slowing
GDP growth, whilst noting that certain sectors of the UK economy
maintain stronger growth forecasts, including manufacturing.
The Investment Advisor has continued to be pleased with the
growth of the portfolio's largest asset, Luceco plc. The growth
during the period has been driven by the release, on 3 April 2017,
of the business' maiden set of results for the year ended 31
December 2016. The business announced sales growth of 29.8% for the
year and adjusted EPS growth of 102.4% for the year, exceeding
market forecasts. These results were well received by investors and
Luceco's share price has increased by 64.00 pence or 25.7% since
the 31 January 2017. The Company, via ESO Investments 1 LP, holds
interest in 24.3% of Luceco's shares and Giles Brand, Managing
Partner of the Investment Advisor, is the Chairman of Luceco
plc.
As reported at the year end, Whittard of Chelsea had a good
finish to 2016 and the trend has continued into 2017. Momentum is
encouraging across its UK retail estate and online channels,
supported by macro factors, such as increased retail activity, and
consumer confidence. The business has benefited from the
devaluation of sterling through greater tourism activity but
conversely continues to monitor the impact of this devaluation on
cost prices. The business also focuses on programmes to target
long-term growth and sustainable returns, such as customer
acquisition initiatives and international sales channels in markets
such as China, Japan and Taiwan.
Process Components, an engineering parts and equipment supplier
to the powder processing and handling industries, has maintained
its positive trajectory; the sales pipeline and order backlog
remain at historical highs and the business has completed a
successful relocation of it's operations to a new, larger
manufacturing facility. The business continues to explore sales
growth opportunities in new sectors and geographies. The business
has also successfully brought the manufacture of its equipment
range in-house, providing both margin and supply chain control
benefits which are still being realised.
Pharmacy2U, an online pharmacy business, has maintained its
strong momentum following the completion of a merger with its
leading competitor, ChemistDirect, in 2016. The business continues
to successfully pursue a strategy of customer acquisition,
leveraging economies of scale to drive down acquisition costs. The
business has benefitted from the new distribution facility opened
in the prior period.
Company highlights
The NAV per share as at 31 July 2017 for the Company was 412.26
pence, calculated on the basis of 27.7 million ordinary shares
(versus 30.0 million at issue), representing an increase of 13.2%
on the NAV per share of 364.13 pence as at 31 January 2017. The
share price for the Company as at 31 July 2017 was 307.50 pence,
representing an increase of 14.5% on the share price of 268.50
pence as at 31 January 2017.
Based on the latest NAV, as set out above, Gross Asset Cover for
the total outstanding loans of GBP7.9 million is now 15.5x. Cash
balances now stand at GBP31.3 million (including cash held by ESO 1
LP) with interest coverage of 53.0x per annum. Overall liquidity in
the Company is GBP33.3 million.
Third party net debt in the Company's portfolio stands at 0.9x
EBITDA. The portfolio remains conservatively valued with a weighted
average Enterprise Value equating to an EBITDA multiple of 6.2x for
mature unquoted assets and equating to a Sales multiple of 0.5x for
unquoted assets investing for growth. This compares favourably to
an average Enterprise Value to EBITDA multiple across comparable
listed European private equity companies of 11.4x.
Investment highlights from the inception of the Company (16
September 2003) to 31 July 2017 include:
-- Deployed GBP66 million of capital;
-- Returned over GBP134 million to the Company in capital and income; and
-- The underlying portfolio is valued at a gross 8.2x money multiple and 28.7% IRR.
ESO plc NAV per share and share price performance versus various
alternative indices
Performance summary
As at 31 July 2017 One Year Three Years Five Years
ESO plc Share Price 107.1% 173.3% 444.2%
ESO plc NAV Per Share 119.5% 204.5% 362.4%
Listed European PE Index* 32.7% 33.9% 65.4%
AIM All-Share Index 30.2% 28.0% 47.2%
FTSE All-Share Index 10.7% 12.8% 38.2%
--------------------------- --------- ------------ -----------
* Selected Listed European PE Index constituents: Better
Capital, Dunedin Enterprise, Electra Private Equity, HgCapital
Trust, ICG Enterprise Trust and Oakley Capital Investments. The
Index has been constructed by weighting the daily share price of
each constituent by its market capitalisation on a daily basis.
Recent developments
-- July 2015: GBP4.5 million ULNs issue and GBP0.25 million
issue of new equity in the Company;
-- November to December 2015: refinance of GBP3.0 million in
principal amount of the existing CLNs into ULNs with warrants over
Ordinary shares offered on a 1 for 5 basis. A further GBP0.5
million was raised through issuance of ULNs to new investors;
-- July 2016: merger of Pharmacy2U with Chemist Direct, creating
a clear leader in the UK online pharmacy sector;
-- October 2016: IPO and admission to trading on the Main Market
of the London Stock Exchange of Luceco plc. An implied return to
ESO plc at the IPO valuation of 24.4x Money Multiple and 75.6% IRR,
of which 12.3x Money Multiple and 57.9% IRR has been realised;
and
-- March 2017: acquisition of EUR2.5 million commitment in
European Capital Private Debt Fund which provides private debt for
European SMEs, predominantly in France and the UK.
Portfolio diversification
The portfolio at the period-end was diversified by sector and
instrument as follows:
Sector %
---------------------------- --------
Engineering, Manufacturing
and Distribution 88.92%
Retail / FMCG 8.23%
Healthcare 2.85%
----------------------------
Total 100.00%
---------------------------- --------
Instrument %
------------------- --------
Equity 66.55%
LP Interest 1.83%
Shareholder Loans 5.97%
Cash 25.65%
-------------------
Total 100.00%
------------------- --------
Current portfolio: ESO Investments 1 LP ("ESO 1 LP")
Luceco plc
Luceco plc ("Luceco") is a manufacturer and distributor of
electrical accessories and LED lighting in the UK and increasingly
internationally, operating under the brand names British General
(or "BG"), Luceco and Masterplug, supplying both the retail and
wholesale markets. The development of the Luceco LED lighting
ranges is a major focus for the business. The gathering momentum
behind the lighting technology switch to LED provides the business
with an opportunity to enter and build market share in the category
at a point of disruptive transition as traditional solutions are
superseded. The business is building a strong market position in
the UK and starting to develop sales operations internationally,
for example in the USA, Spain, Germany and Hong Kong. Luceco is
differentiated by its positioning as a Chinese manufacturer, where
the Company has built a 52,500 square metre wholly-owned production
facility in Jiaxing, with British product quality and a responsive
product development team. Luceco completed a successful IPO in
October 2016 and was admitted to trading on the Main Market of the
London Stock Exchange.
Whittard of Chelsea
Whittard of Chelsea ("Whittard") is a retailer of specialty tea,
coffee and hot chocolate. Established in 1886, Whittard commands
both strong brand recognition and customer loyalty in the UK and
abroad. The main channel for Whittard is the portfolio of c.50
stores across the UK. These stores are positioned in prime
locations on the high street, in tourist centres and outlets, with
sales generated from both gifting and regular self-purchases. Other
channels include the online, wholesale and franchise channels. The
Investment Advisor has focused on developing the Whittard of
Chelsea brand towards a more premium stance, which should enhance
its appeal both in the UK home market and abroad.
Pharmacy2U
Pharmacy2U ("P2U") is an online pharmacy business, delivering
National Health Service and private prescriptions direct to the
home using an innovative technology developed in conjunction with
the NHS, the Electronic Prescription Service ("EPSr2"). In December
2015, P2U moved into a new automated distribution facility which,
once established, is expected to drive future capacity growth in
the near term. In July 2016, P2U merged with Chemist Direct
creating a clear leader in the UK online pharmacy sector.
Current portfolio: ESO Investments (PC) LLP ("ESO (PC) LLP")
Process Components
Process Components ("PCL") is an engineering parts and equipment
supplier to the powder processing and handling industries,
primarily food, agriculture and pharmaceuticals. Customers are blue
chip global manufacturers, and the business has been growing its
international supply operations.
Current Portfolio: ESO Alternative Investments LP ("ESO AI
LP")
European Capital Private Debt Fund
European Capital Private Debt Fund ("ECPD Fund") is a provider
of private debt to European SMEs, predominantly in France and the
UK. The ECPD Fund has total commitments of EUR473.0 million. Prior
to March 2016, the Investment Advisor acted as placement agent to
the ECPD Fund on the successful raise of the fund. The Company
acquired a fund commitment of EUR2.5 million in March 2017 through
ESO AI LP, in which ESO plc is the sole investor.
Current portfolio: ESO Investments 2 LP ("ESO 2 LP")
No new private equity investments were made in the period. The
Company continues to explore opportunities to acquire high quality
assets at attractive prices to further diversify the current
portfolio.
Outlook
The Investment Advisor is focused on creating value in its core
investments, where opportunities for significant value creation
remain, as well as on making new investments to increase portfolio
diversification and generate attractive returns for shareholders.
The Investment Advisor expects to achieve continued cost savings
and revenue improvement measures in portfolio companies, especially
those in manufacturing and consumer focused sectors. New investment
opportunities are being pursued. All new private equity investments
will be made via ESO 2 LP, in which the Company is the sole
investor. All new primary and secondary fund investments will be
made via ESO AI LP, in which the Company is the sole investor.
Strategic Report
Objectives and opportunities
The Company is an investment company and is quoted on the AIM
Market of the London Stock Exchange ("AIM Market") and the Growth
Market of the NEX Exchange. Its objective is to provide long-term
returns on equity for its shareholders by way of investment in a
portfolio of private equity assets. The portfolio is likely to be
concentrated, numbering between two and 10 assets at any one
time.
Investment policy
The Investment Advisor believes that the current economic
environment continues to create a wide range of investment
opportunities in small and medium sized enterprises ("SMEs"). As a
result, the Investment Advisor continues to use proprietary deal
sourcing approaches to source these opportunities, as well as
engaging actively with the wider restructuring and advisory
community to communicate the Company's investment strategy. The
Company seeks to target growth and buyout opportunities, as well as
special situations and distressed transactions, making investments
where it believes pricing to be attractive and the potential for
value creation strong. The Company will continue to target the
following types of investments:
-- Growth, Buyout and Pre-IPO opportunities: leveraging the
Investment Advisor's investment experience, contacts and ability.
The Company is particularly focused on making investments in
sectors where the opportunity exists to create a unique asset via
the consolidation of a number of smaller companies, taking
advantage of the lack of liquidity in the SME market and the
attraction to secondary buyers of larger operations.
-- Special Situations: investment opportunities where the
Investment Advisor believes that assets are undervalued due to
specific, event-driven circumstances and where asset-backing may be
available and the opportunity exists for recovery and significant
upside. Target companies may or may not be distressed as a result
of the situation. The Investment Advisor will aim to use its
restructuring and refinancing expertise to resolve the situation
and achieve a controlling position in the target company. The
Company seeks to acquire distressed debt, undervalued equity or the
assets of target businesses in solvent or insolvent situations.
-- Private Investment in Public Equities ("PIPEs"): the Company
may consider making investments in a number of smaller quoted
companies, primarily ones whose shares are admitted to the AIM
market. The Company will either seek to acquire and de-list the
target company or take a large minority interest in the target
company whilst retaining the listing. The Company may offer
ordinary shares in the Company as all or part of the consideration
for such investments.
-- Special Purpose Acquisition Companies ("SPACs"): the Company
may consider making investments in listed companies which have been
established to acquire other companies. The Investment Advisor
would seek to work with a management team to develop an acquisition
strategy in advance of the listing of the SPAC, at which point the
Company would invest. The subsequent acquisition or acquisitions
may be funded through further equity raises directly into the SPAC.
The strategy would seek to take advantage of the Investment
Advisor's combination of experience in both the establishment of
and management of listed companies and private equity
investing.
-- Secondary portfolios / Limited Partner positions (Secondary
or Primary) / EPE Funds: the Company is able, through EPE's
Placement business, to invest as a limited partner in various funds
on substantially improved terms. On occasion, the Company will seek
to take advantage of these commitments. The EPE skill-set and
experience is well suited to the requirements of co-investing in
funds.
The Company will consider most industry sectors, including
consumer, retail, manufacturing, financial services, healthcare,
support services and media industries. The Company partners with
management and entrepreneurs to maximise value by combining
financial and operational expertise in each investment.
The Company will seek to invest between GBP2 million and GBP20
million in a range of debt and equity instruments with a view to
generating returns through both yield (c.5% to 15% per annum) and
capital gain. Whilst in general the Company aims to take
controlling equity positions, it may seek to develop companies as a
minority investor. Occasionally the Board may authorise investments
of less than GBP2 million. For investments larger than GBP20
million, the Company may seek co-investment from third parties or
additional public market fundraisings.
The Company looks to invest in businesses with strong
fundamentals, including defensible competitive advantage,
opportunity for strong future cashflow and dynamic management
teams.
The Company aims to maintain a concentrated portfolio of between
two and 10 assets.
The Company is focused on investing in UK based SMEs, as well as
those with significant overseas operations. For instance, within
the Company's current portfolio, Luceco plc employs c.2,000 staff
at it's manufacturing and product development facility in Jiaxing,
China and Process Components has a significant US sales and
distribution operation.
The Company's Investment Policy has been in place for several
years and is subject to ongoing review as described below and in
the Investment Advisor's Report.
The Investment Advisor
The Investment Advisor to the Company is EPE, which was founded
in June 2001 and is an independent investment manager wholly owned
by its Partners. Since 2001, EPE has made 34 SME investments. EPE
manages the Company's investments in accordance with guidelines
determined by the Directors, the Investment Advisor and the
Company's constitutional commitments. These guidelines evolve
periodically. EPE was appointed as the Investment Advisor in
September 2003.
Current and future development
The Board regularly reviews the development and strategic
direction of the Company. The Board's main focus continues to be on
the Company's long-term investment return. It is believed that the
Company has foundations in place to build a successful and durable
investment vehicle given its supportive shareholder base, with
Giles Brand and his connected persons owning 22.6% (As at 8
September 2017 and excluding awards made under the Joint Share
Ownership Plan) of the issued Ordinary Share Capital of the
Company, and the provision of equity funding until at least
December 2020, with five year extensions thereafter, via the
passing of the Continuation Vote in July 2013.
Performance
A number of key indicators are considered by the Board and the
Investment Advisor in assessing the progress and performance of the
Company. These are well established industry measures and are as
follows:
-- Return on equity over the long-term;
-- Movement in NAV per ordinary share;
-- Movement in share price; and
-- Realisation of assets above cost and above holding value at NAV.
Further details of these key performance indicators can be found
on the Investment Advisor's report above.
As part of this review of performance, the Board and the
Company's auditors review and challenge the investment valuations
prepared by EPE to ensure the Company's performance is fairly
reported. The Board also considers contemplated capital events over
the lifetime of the Company to gain an appreciation of the
Company's likely development and future performance. This is
considered in light of the risks faced by the Company and its
portfolio discussed below.
Risk management
All risks associated with the Company are the responsibility of
the Board, which reviews and manages these either directly or
through EPE and the Company's administrators R&H Fund Services
(Jersey) Ltd ("R&H" or the "Administrator"). The Board, EPE and
R&H review the risks faced by the Company on an ongoing basis
and at quarterly Board meetings. These reviews are not restricted
to a specific time horizon due to the long-term nature of
investments and short-term liquidity requirements. Further, the
Risk and Audit Committee reviews the Company's approach to risk
management on a biannual basis at the Business Risk Assessment
level and on an annual basis at the operational level to ensure
adopted practices are suitable, effective and robust. An external
assurance review was completed in the past year to provide further
comfort to the Board regarding operational processes undertaken by
the Company's sub-administrator, EPE Administration Ltd
("EPEA").
The main risks which the Company currently faces are as
follows:
Macroeconomic risks
The performance of the Company's underlying portfolio of assets
as well as the Company's ability to exit these assets is materially
influenced by the macroeconomic conditions, including the current
business environment and market conditions, the availability of
debt finance, the level of interest rates, as well as the number of
active buyers. Considerable effort continues to be taken by the
Investment Advisor to position the portfolio companies to cope with
the changing macroeconomic climate.
Share price volatility and liquidity
The market price of the Company's shares could be subject to
significant fluctuations due to a change in investor sentiment
regarding the Company or the industry in which the Company operates
or in response to specific facts and events, including positive or
negative variations in the Company's interim or full year operating
results and business developments of the Company and/or
competitors. The market price of the shares may not reflect the
underlying value of the Group and it is possible that the market
price of the shares will trade at a discount to NAV.
The Board monitors share price to NAV per share discount, and
considers the most effective methodologies to keep this at a
minimum. These methodologies include a share buyback policy, which
has been used prudently and efficiently to improve shareholder
returns. Over the last five years, the policy, along with the
Company purchasing limited partnership interests, par value CLNs
and ordinary shares, has retired the equivalent of 39.9% of the
capital base.
The Company holds quoted investments, through its investment in
Luceco plc, which are subject to share price volatility. The
Company values its holding in Luceco plc at the quoted price at
close of the markets on the balance sheet date without adjustment.
Therefore the holding value for this asset is subject to
short-term, intraday volatility (i.e. no period averages are taken)
or more widely, fluctuations due to a change in investor sentiment
regarding the business or the industry in which the business
operates.
Long-term strategic risks
The Company is subject to the risk that share price performance
and long-term strategy fail to meet the expectations of its
shareholders. The Board regularly reviews the Objectives and
Investment Policy in light of prevailing investor sentiment to help
ensure the Company remains attractive to its shareholders.
Investment risks
The Company operates in a competitive market. Changes in the
number of market participants, the availability of investable
assets, the pricing of investable assets, or in the ability of EPE
to access and execute deals could have a significant effect on the
Company's competitive position and on the sustainability of
returns.
Adequate sourcing and execution of deals is primarily dependent
on the ability of EPE to attract and retain key investment
executives with the requisite skills and experience.
Adequate performance of portfolio assets once acquired is
primarily dependent on macroeconomic conditions, conditions within
each asset's market and the ability of the respective management
teams of each asset to execute their business strategy. Any one of
these factors could have an impact on the valuation of a portfolio
company and upon the Company's ability to make a profitable exit
from the investment within the desired timeframe.
The Company may at certain times hold a relatively concentrated
investment portfolio of between two and 10 assets. The Company
could be subject to significant losses if it, for example, holds a
large position in a particular investment that declines in value.
Such losses could have a material adverse effect on the performance
of and returns achieved by the Company.
The Company and EPE monitor the risk that high asset
concentration within the investment portfolio may pose. The Company
mitigates the risk through the current level of liquidity available
to the Company to invest in new assets, the Investment Advisor's
ongoing work to identify new attractive investment opportunities
and careful monitoring of all the investment portfolio's assets,
with particular attention to the portfolio's larger assets.
A rigorous process is put in place by EPE for managing the
relationship with each portfolio company. This includes regular
asset reviews, an assessment of concentration of the investment
portfolio at any given period and board representation by one or
more EPE executives. The Board reviews both the performance of EPE
and its incentive arrangements on a regular basis to ensure that
both are appropriate to the objectives of the Company.
Foreign exchange risk
The base currency of the Company is Sterling. Certain of the
Company's assets may be invested in investee companies which may
have operations in countries whose currency is not Sterling and
securities and other investments which are denominated in other
currencies.
The Company's investment in ECPD Fund is denominated in euros
and ESO AI LP maintains a small euro cash balance to meet drawdowns
from that investment. However, given the size of this investment, a
EUR2.5 million commitment, relative to the Company's gross asset
value, the exposure is limited.
Accordingly, the Company will necessarily be subject to foreign
exchange risks and the value of its assets may be affected
unfavourably by fluctuations in currency rates.
Valuation risks and methodology
The Investment Advisor determines asset values using IPEV
guidelines and other valuation methods with reference to the
valuation principles of IFRS 13: Fair Value Measurement. This
determination is subject to many assumptions and requires
considerable judgment.
For unquoted investments, the assets are classified as Level 3
in the IFRS 7 fair value hierarchy. IPEV guidelines recommend the
use of comparable quoted company metrics and comparable transaction
metrics to determine an appropriate enterprise value, to which a
marketability discount is applied, given the illiquid nature of
private equity investments. The Investment Advisor also seeks to
confirm value using discounted cash flow and other methods of
valuation, and by applying a range approach. The Investment Advisor
adopts a conservative approach to valuation with reference to the
aforementioned methodology having regard for on-going volatile
market conditions.
For quoted investments, the assets are classified as Level 1 in
the IFRS 7 fair value hierarchy. Accordingly, the assets are valued
at the quoted price at close of markets on the balance sheet date,
without adjustment.
The Company announces an estimated net asset value per ordinary
share on a monthly basis following a review of the valuation of the
Company's investments.
Gearing risks
Gearing can cause both gains and losses in the asset value of
the Company to be magnified. Gearing can also have serious
operational impacts on the Company if a breach of its banking
covenants occurs. Secondary risks relate to whether the cost of
gearing is too high and whether the length of the gearing is
appropriate. The Board regularly monitors the headroom available
under funding covenants and reviews the impact of the various forms
of gearing and their cost to the Company. The Company uses gearing
directly via its ULNs and an overdraft facility at ESO 1 LP, and
indirectly via gearing in individual portfolio assets.
Operational risks
The Company's investment management is provided or arranged for
the Company by EPE and the Company's administration is provided by
R&H. The Company is therefore exposed to internal and external
operational risks at EPE and R&H, including regulatory, legal,
information technology, human resources and deficiencies in
internal controls. The Company monitors the provision of services
by EPE and R&H to ensure they meet the Company's business
objectives.
The Board continues to monitor the operational procedures of the
Company and those of the Investment Advisor. The Board has reviewed
these procedures within the last year with the support of the
Company's Administrator and Nomad. This review included an
assessment of the performance of the Investment Advisor, as well as
assessing the services offered by other providers including the
Company's Nomad and Administrator. Key risks considered include
service provider failure, conflicts of interest and the risks of
fraud, reputation damage and bribery. The Board will continue to
monitor these procedures and risks, and update the Company's
procedures accordingly.
Quarterly Board reports are submitted by each provider setting
out any operational or compliance issues arising and are monitored
by the Board. The Board considers the performance of each outsource
provider in conjunction with the Audit and Risk Committee processes
assumed directly by the Board in accordance with the offer
document. An Audit and Risk Committee visit to the Investment
Advisor was completed in January 2017.
Performance is further considered as part of the annual audit
process and any issues arising therein as a result of reports and
or discussion with the appointed Auditors.
R&H Fund Services (Jersey) Ltd act as the Company's
administrators and EPE Administration Limited act as the Company's
as sub-administrator, specifically to provide administration and
accounting services. The Board reviews the performance and
procedures of both service providers (including disaster recovery
procedures) on an annual basis and conducted an in-depth review of
the procedures and services offered by EPEA in January 2017. An
external assurance review was completed in the past year to provide
assurance to the Board regarding operational processes undertaken
by EPEA.
The Company's Nomad and corporate finance advisor is Numis
Securities ("Numis") who provide compliance and regulatory services
to the Company. The Board also periodically reviews the performance
of Numis as Nomad and Corporate Adviser to the Company. A review
was carried out in 2016 with performance deemed to be satisfactory
and the ongoing engagement approved. The next review is planned
later in 2017.
Sources of funds
The Company considers a number of sources for funds. These
include its own cash resources, listed Luceco plc shares and
third-party funds. Own cash resources originate via income from ESO
1 LP, ESO AI LP and ESO (PC) LLP and capital from asset
realisations and refinancings. The focus on utilising these cash
resources allows the Company to minimise dilution from public
market fundraisings and provides sufficient capital for small share
buybacks and the execution of one to two new investment
opportunities per annum.
The Company's own cash resources may be supplemented by
additional third party funding. One route of third party funding
includes the provision of co-investment capital alongside the
Company in ESO 2 LP, either as private investment capital directly
into ESO 2 LP or on a deal by deal basis. The Company may also seek
opportunistic public market fundraisings, in particular when
considering transformational investment opportunities such as the
acquisition of the EPIC plc private equity portfolio in 2010.
Alternatively, third party debt funding may be sourced, comprising
zero dividend preference shares, preference shares, senior and
mezzanine debt, such as the GBP10.0 million of CLNs raised in 2010
to part-fund the EPIC plc portfolio acquisition and the GBP8.0
million new ULNs raised in 2015.
Board Composition and Succession Plan
Objectives of Plan
-- To ensure that the Board is composed of persons who
collectively are fit and proper to direct the Company's business
with prudence, integrity and professional skills.
-- To define the Board Composition and Succession Plan (the
"Plan"), which guides the size, shape and constitution of the Board
and the identification of suitable candidates for appointment to
the Board.
The Plan is reviewed by the Board annually and at such other
times as circumstances may require (e.g. a major corporate
development or an unexpected resignation from the Board). The Plan
may be amended or varied in relation to individual circumstances at
the Board's discretion in due course.
The Board has reviewed and approved a formal succession plan
with regards to the Directors. The Board conducted a competency and
succession review and following the results of that review
appointed Heather Bestwick to the Board on 10 February 2017.
Methodology
The Board is conscious of the need to ensure that proper
processes are in place to deal with succession issues and the Board
uses a skills matrix to assist in the selection process.
The matrix includes the following elements: finance, accounting
and operations; familiarity with the broader concepts of private
equity investment, diversity (gender, residency, cultural
background); Shareholder perspectives; investment management;
multijurisdictional compliance and risk management. In adopting the
matrix, the Board acknowledges that it is an iterative document and
will be reviewed and revised periodically to meet the Company's
on-going needs.
Directors may be appointed by the Board, in which case they are
required to seek election at the first AGM following their
appointment. In making an appointment the Board shall have regard
to the Board skills matrix.
The Board also uses the skill matrix to review the current
composition of the Board to assess strengths and to identify and
mitigate any weaknesses. The Board conduct these reviews on an
ongoing basis and addresses issues as they are highlighted by the
process. The next review is set for May 2018.
A Director's formal letter of appointment sets out, amongst
other things, the following requirements:
-- Bringing independent judgment to bear on issues of strategy,
performance, resources, key appointments and standards of conduct
and the importance of remaining free from any business or other
relationship that could materially interfere with independent
judgement;
-- Having an understanding of the Company's affairs and its
position in the industry in which it operates;
-- Keeping abreast of and complying with the legislative and
broader responsibilities of a Director of a company whose shares
are traded on the London Stock Exchange;
-- Allocating sufficient time to meet the requirements of the
role, including preparation for Board meetings; and
-- Disclosing to the Board as soon as possible any potential conflicts of interest.
Geoffrey Vero
Chairman
8 September 2017
Risk and Audit Committee Report
The Risk and Audit Committee is chaired by Clive Spears and
comprises all other Directors.
The Risk and Audit Committee's main duties are:
-- To review and monitor the integrity of the interim and annual
financial statements, interim statements, announcements and matters
relating to accounting policy, laws and regulations of the
Company;
-- To evaluate the risks to the quality and effectiveness of the financial reporting process;
-- To review the effectiveness and robustness of the internal
control systems and the risk management policies and procedures of
the Company;
-- To review the valuation of portfolio investments;
-- To review corporate governance compliance;
-- To review the nature and scope of the work to be performed by
the Auditors, and their independence and objectivity; and
-- To make recommendations to the Board as to the appointment
and remuneration of the external auditors.
The Risk and Audit Committee has a calendar which sets out its
work programme for the year to ensure it covers all areas within
its remit appropriately. It met four times during the period under
review to carry out its responsibilities and senior representatives
of the Investment Advisor attended the meetings as required by the
Risk and Audit Committee. In between meetings, the Risk and Audit
Committee chairman maintains ongoing dialogue with the Investment
Advisor and the lead audit partner via visits and meetings at the
office of the Investment Advisor.
During the past year the Risk and Audit Committee carried out a
further review of its terms of reference against FRC guidelines and
its own effectiveness. It concluded that the changes were working
well and that the Risk and Audit Committee is satisfactorily
fulfilling its terms of reference and is operating effectively.
Additional risk lines have been agreed covering Cyber Security and
macro influences, such as Brexit.
Significant accounting matters
The significant issue considered by the Risk and Audit Committee
during the year in relation to the financial statements of the
Company is the valuation of unquoted investments.
The Company's accounting policy for valuing investments is set
out in notes 7 and 8. The Risk and Audit Committee examined and
challenged the valuations prepared by the Investment Advisor,
taking into account the latest available information on the
Company's investments and the Investment Advisor's knowledge of the
underlying portfolio companies through their ongoing monitoring.
The Risk and Audit Committee satisfied itself that the valuation of
investments had been carried out consistently with prior accounting
periods, or that any change in valuation basis was appropriate, and
was conducted in accordance with published industry guidelines.
The Auditors explained the results of their review of the
procedures undertaken by the Manager for the valuation. On the
basis of their audit work, no material adjustments were identified
by the auditor.
External audit
The Risk and Audit Committee reviewed the audit plan and fees
presented by the Auditors, KPMG Audit LLC ("KPMG"), and considered
their report on the financial statements. The fee for the audit of
the annual report and financial statements of the Company for the
year ended 31 January 2018 is expected to be GBP28,550 (2017:
GBP27,450).
The Risk and Audit Committee reviews the scope and nature of all
proposed non-audit services before engagement, with a view to
ensuring that none of these services have the potential to impair
or appear to impair the independence of their audit role. The
Committee receives an annual assurance from the Auditors that their
independence is not compromised by the provision of such services,
if applicable. During the period under review, the Auditors did not
provide any non-audit services to the Company.
KPMG were appointed as Auditors to the Company for the year
ending 31 January 2005 audit. The Risk and Audit Committee does
regularly consider the need to put the audit out to tender, the
Auditors' fees and independence, alongside matters raised during
each audit. The appointment of KPMG has not been put out to tender
as yet as the Committee, from ongoing direct observation and
indirect enquiry of the Investment Advisor, remain satisfied that
KPMG continue to provide a high quality audit and effective
independent challenge in carrying out their responsibilities. The
Company adheres to a five year roll over in relation to the Auditor
partner and a further new lead partner has been appointed over the
period of KPMG's appointment.
Having considered these matters and the continuing effectiveness
of the external auditor, the Risk and Audit Committee has
recommended to the Board that KPMG be appointed as Auditors for the
current year.
The Board will review the performance and services offered by
R&H as fund administrator following their recent appointment
and EPEA as fund sub-administrator on an ongoing basis. An external
assurance review was completed in the past year to provide comfort
to the Board regarding operational processes undertaken by
EPEA.
Risk management and internal control
The Company does not have an internal audit function. The Risk
and Audit Committee believes this is appropriate as all of the
Company's management functions are delegated to the Investment
Advisor which has its own internal control and risk monitoring
arrangements. A report on these arrangements is prepared by the
Investment Advisor and submitted to the Risk and Audit Committee
which it reviews on behalf of the Board to support the Directors'
responsibility for overall internal control. The Company does not
have a whistleblowing policy and procedure in place. The Company
delegates this function to the Investment Advisor who is regulated
by the FCA and has such policies in place. The Risk and Audit
Committee has been informed by the Investment Advisor that these
policies meet the industry standards and no whistleblowing took
place during the year.
Clive Spears
Chairman of the Risk and Audit Committee
8 September 2017
Review report by KPMG Audit LLC to EPE Special Opportunities
plc
Conclusion
We have been engaged by the Company to review the condensed set
of financial statements in the half-yearly report for the six
months ended 31 July 2017 which comprises the Consolidated
Statement of Comprehensive Income, the Consolidated Statement of
Financial Position, the Consolidated Statement of Changes in
Equity, the Consolidated Statement of Cash Flows and the related
explanatory notes.
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly report for the six months ended 31 July 2017 is
not prepared, in all material respects, in accordance with IAS 34
Interim Financial Reporting as adopted by the EU and the AIM
Rules.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. We read the other information contained in the
half-yearly report and consider whether it contains any apparent
misstatements or material inconsistencies with the information in
the condensed set of financial statements.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and consequently does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the half-yearly report in accordance with the AIM
Rules.
The annual financial statements of the Group are prepared in
accordance with International Financial Reporting Standards as
adopted by the EU. The Directors are responsible for preparing the
condensed set of financial statements included in the half-yearly
financial report in accordance with IAS 34 as adopted by the
EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly report
based on our review.
The purpose of our review work and to whom we owe our
responsibilities
This report is made solely to the Company in accordance with the
terms of our engagement. Our review has been undertaken so that we
might state to the Company those matters we are required to state
to it in this 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 for our review work, for this
report, or for the conclusions we have reached.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man
IM99 1HN
8 September 2017
Consolidated Statement of Comprehensive Income
For the six months ended 31 July 2017
1 Feb 1 Feb
2016 to 2016 to
1 Feb 2017 to 31 31 Jul 31 Jan
Jul 2017 2016 2017
Revenue Capital Total Total Total
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
------------ ------------ ------------ ------------ -----------
Note GBP GBP GBP GBP GBP
------------------------ ------------ ------------ ------------ ------------ -----------
Income
Interest income 3,482 - 3,482 8,539 12,558
------------------------ ------------ ------------ ------------ ------------ -----------
Total income 3,482 - 3,482 8,539 12,558
------------------------ ------------ ------------ ------------ ------------ -----------
Expenses
Investment advisor's
5 fees (1,369,521) - (1,369,521) (406,525) (1,181,626)
Administration
fees (108,269) - (108,269) (37,418) (119,680)
Directors' fees (86,417) - (86,417) (62,000) (124,000)
Directors' and
Officers' insurance (1,994) - (1,994) (1,994) (3,988)
Professional fees (35,919) - (35,919) (31,021) (70,942)
Board meeting
and travel expenses (4,731) - (4,731) (6,195) (10,974)
Auditors' remuneration (21,125) - (21,125) (20,700) (35,700)
Bank charges (443) - (443) (589) (1,068)
Irrecoverable
VAT (32,764) - (32,764) (134,474) (310,161)
Share-based payment
6 expense (103,297) - (103,297) (117,823) (245,750)
Sundry expenses (22,103) - (22,103) (9,774) (27,637)
Listing fees (17,605) - (17,605) (13,312) (31,643)
Nominated advisor
and broker fees (31,092) - (31,092) (31,035) (63,935)
Total expenses (1,835,280) - (1,835,280) (872,860) (2,227,104)
------------------------ ------------ ------------ ------------ ------------ -----------
Net expenses (1,831,798) - (1,831,798) (864,321) (2,214,546)
------------------------ ------------ ------------ ------------ ------------ -----------
Gains on investments
Share of profit
7 of associates - 14,952,071 14,952,071 8,703,208 63,958,644
Gain for the period/year
on investments - 14,952,071 14,952,071 8,703,208 63,958,644
------------------------ ------------ ------------ ------------ ------------ -----------
Finance charges
Interest on unsecured
13 loan note instruments (309,382) - (309,382) (309,382) (618,765)
Interest on convertible
13 loan note instruments - - - (70,502) (129,126)
Profit/(loss)
for the period/year
before taxation (2,141,180) 14,952,071 12,810,891 7,459,003 60,996,207
Taxation - - - - -
------------ ------------
Profit/(loss)
for the period/year (2,141,180) 14,952,071 12,810,891 7,459,003 60,996,207
------------------------ ------------ ------------ ------------ ------------ -----------
Other comprehensive
income - - - - -
------------------------ ------------ ------------ ------------ ------------ -----------
Total comprehensive
income/(loss)
for the period/year (2,141,180) 14,952,071 12,810,891 7,459,003 60,996,207
------------------------ ------------ ------------ ------------ ------------ -----------
Basic earnings/(loss)
per ordinary share
11 (pence) (7.62) 53.21 45.59 27.46 213.39
------------------------ ------------ ------------ ------------ ------------ -----------
Diluted earnings/(loss)
per ordinary share
11 (pence) (7.62) 52.72 45.17 26.05 211.78
------------------------ ------------ ------------ ------------ ------------ -----------
The total column of this statement represents the Group's
Consolidated Statement of Comprehensive Income, prepared in
accordance with IFRS, as adopted by the EU. The supplementary
revenue return and capital return columns are prepared in
accordance with the Board of Directors' agreed principles. All
items derive from continuing activities.
The accompanying notes form an integral part of these financial
statements
Consolidated Statement of Financial Position
As at 31 July 2017
31 July 31 January 31 July
2017 2017 2016
(unaudited) (audited) (unaudited)
Note GBP GBP GBP
---------------------------- --------------- ------------ ---------------
Non-current assets
7 Investments in associates 88,562,103 73,609,872 54,770,897
Loans to associates
7,9 and related companies 3,057,712 1,012,055 1,012,055
91,619,815 74,621,927 55,782,952
---------------------------- --------------- ------------ ---------------
Current assets
Cash and cash equivalents 31,025,667 37,232,756 5,317,668
Trade and other receivables 102,379 99,290 110,176
31,128,046 37,332,046 5,427,844
---------------------------- --------------- ------------ ---------------
Current liabilities
Trade and other payables (639,851) (684,996) (160,690)
Loans from associates
7,9 and related companies - (276,510) (280,067)
Convertible loan
13 note instruments - - (1,880,047)
(639,851) (961,506) (2,320,804)
---------------------------- --------------- ------------ ---------------
Net current assets 30,488,195 36,370,540 3,107,040
---------------------------- --------------- ------------ ---------------
Non-current liabilities
Unsecured loan note
13 instruments (7,872,433) (7,862,131) (7,851,828)
(7,872,433) (7,862,131) (7,851,828)
---------------------------- --------------- ------------ ---------------
Net assets 114,235,577 103,130,336 51,038,164
---------------------------- --------------- ------------ ---------------
Equity
10 Share capital 1,473,781 1,568,568 1,543,206
Share premium 2,893,562 2,893,562 2,056,590
Capital reserve 95,752,235 80,800,164 25,544,728
Revenue reserve 14,115,999 17,868,042 21,893,640
Total equity 114,235,577 103,130,336 51,038,164
---------------------------- --------------- ------------ ---------------
Net asset value per
12 share (pence) 412.26 364.13 187.89
---------------------------- --------------- ------------ ---------------
The accompanying notes form an integral part of these financial
statements
Consolidated Statement of Changes in Equity
For the six months ended 31 July 2017
Six months ended 31 July 2017
(unaudited)
Share Share Capital Revenue
capital premium reserve reserve Total
GBP GBP GBP GBP GBP
-------------------------- ---------- ---------- ----------- ------------ ------------
Balance at 1 February
2017 1,568,568 2,893,562 80,800,164 17,868,042 103,130,336
Total comprehensive
income for the period - - 14,952,071 (2,141,180) 12,810,891
--------------------------- ---------- ---------- ----------- ------------ ------------
Contributions by and
distributions to owners
Share-based payment
charge - - - 103,297 103,297
Cash received from
JSOP participants - - - 1,322 1,322
Purchase of treasury
shares - - - (1,810,269) (1,810,269)
Cancellation of Treasury
Shares (94,787) - - 94,787 -
Issue of new shares - - - - -
Total transactions
with owners (94,787) - - (1,610,863) (1,705,650)
--------------------------- ---------- ---------- ----------- ------------ ------------
Balance at 31 July
2017 1,473,781 2,893,562 95,752,235 14,115,999 114,235,577
--------------------------- ---------- ---------- ----------- ------------ ------------
Year ended 31 January 2017 (audited)
Share Share Capital Revenue Total
capital premium reserve reserve
GBP GBP GBP GBP GBP
-------------------------- ---------- ---------- ----------- ------------ ------------
Balance at 1 February
2016 1,543,206 2,056,590 16,841,520 23,020,022 43,461,338
Total comprehensive
income for the year - - 63,958,644 (2,962,437) 60,996,207
--------------------------- ---------- ---------- ----------- ------------ ------------
Contributions by and
distributions to owners
Share-based payment
charge - - - 245,750 245,750
Cash received from - - - - -
JSOP participants
Purchase of treasury
shares - - - (2,435,293) (2,435,293)
Issue of new shares 25,362 836,972 - - 862,334
Total transactions
with owners 25,362 836,972 - (2,189,543) (1,327,209)
--------------------------- ---------- ---------- ----------- ------------ ------------
Balance at 31 January
2017 1,568,568 2,893,562 80,800,164 17,868,042 103,130,336
--------------------------- ---------- ---------- ----------- ------------ ------------
Six months ended 31 July 2016
(unaudited)
Share Share Capital Revenue Total
capital premium reserve reserve
GBP GBP GBP GBP GBP
-------------------------- ---------- ---------- ----------- ------------ -----------
Balance at 1 February
2016 1,543,206 2,056,590 16,841,520 23,020,022 43,461,338
Total comprehensive
income for the period - - 8,703,208 (1,244,205) 7,459,003
--------------------------- ---------- ---------- ----------- ------------ -----------
Contributions by and
distributions to owners
Share-based payment
charge - - - 117,823 117,823
Cash received from - - - - -
JSOP participants
Purchase of treasury - - - - -
shares
Issue of new shares - - - - -
Total transactions
with owners - - - 117,823 117,823
--------------------------- ---------- ---------- ----------- ------------ -----------
Balance at 31 July
2016 1,543,206 2,056,590 25,544,728 21,893,640 51,038,164
--------------------------- ---------- ---------- ----------- ------------ -----------
The accompanying notes form an integral part of these financial
statements
Consolidated Statement of Cash Flows
For the six months ended 31 July 2017
1 Feb 1 Feb 1 Feb
2017 to 2016 2016
31 Jul to 31 to 31
2017 Jan 2017 Jul 2016
(unaudited) (audited) (unaudited)
GBP GBP GBP
---------------------------------------- -------------- ------------ --------------
Operating activities
Interest income received 3,482 12,558 8,539
Expenses paid (1,780,217) (1,597,955) (876,384)
Net cash used in operating
activities (1,776,735) (1,585,397) (867,845)
--------------------------------------------- -------------- ------------ --------------
Investing activities
Loan advances to associate (2,045,657) - -
Loan repayment to associates (276,510) - -
Capital (contribution to)/distribution
from associate (160) 36,416,460 -
Net cash (used in)/generated
from investing activities (2,322,327) 36,416,460 -
--------------------------------------------- -------------- ------------ --------------
Financing activities
Convertible loan note interest
paid - (102,236) (70,502)
Convertible loan note repurchases - (1,017,713) -
Unsecured loan note interest
paid (299,080) (598,159) (299,079)
Cash received from JSOP
participants 1,322 - -
Purchase of treasury shares (1,810,269) (2,435,293) -
Net cash used in financing
activities (2,108,027) (4,153,401) (369,581)
--------------------------------------------- -------------- ------------ --------------
(Decrease)/increase in
cash and cash equivalents (6,207,089) 30,677,662 (1,237,426)
Cash and cash equivalents
at start of period/year 37,232,756 6,555,094 6,555,094
--------------------------------------------- -------------- ------------ --------------
Cash and cash equivalents
at end of period/year 31,025,667 37,232,756 5,317,668
--------------------------------------------- -------------- ------------ --------------
The accompanying notes form an integral part of these financial
statements
Notes to the Unaudited Interim Financial Statements
For the six months ended 31 July 2017
1 The Company
The Company was incorporated with limited liability in the Isle
of Man on 25 July 2003. The Company then re-registered under the
Isle of Man Companies Act 2006, with registration number 008597V.
The Company moved its operations to Jersey with immediate effect on
22 May 2017 and subsequently operates from Jersey only.
The Company's ordinary shares are quoted on AIM, a market
operated by the London Stock Exchange, and the Growth Market of the
NEX Exchange.
The interim consolidated financial statements as at and for the
six months ended 31 July 2017 comprise the Company and its
subsidiaries (together "the Group"). The interim consolidated
financial statements are unaudited.
The consolidated financial statements of the Group as at and for
the year ended 31 January 2017 are available upon request from the
Company's business office at Ordnance House, 31 Pier Road, St
Helier, Jersey, JE4 8PW and the registered office at IOMA House,
Hope Street, Douglas, Isle of Man, IM1 1AP, or at
www.epicpe.com.
The Company has two wholly owned subsidiary companies. EPIC
Reconstruction Property Company (IOM) Limited, a company
incorporated on 29 October 2005 in the Isle of Man and Corvina
Limited, a company incorporated on 16 November 2012 in the Isle of
Man.
Following the approval of the Share Matching Plan at the Annual
General Meeting on 20 July 2012, the Company established an
employee benefit trust ("EBT") located in the Isle of Man to
administer the scheme.
The Company is deemed to have control of its EBT, which is
therefore also treated as a subsidiary.
The Company also had interests in four partnerships that are
accounted for as associates. The partnerships comprise one limited
liability partnership and three limited partnerships.
2 Statement of compliance
These interim consolidated and company financial statements have
been prepared in accordance with IAS 34 Interim Financial
Reporting.
The interim consolidated financial statements do not include all
of the information required for full annual financial statements,
and should be read in conjunction with the consolidated financial
statements of the Group as at and for the year ended 31 January
2017.
The interim consolidated financial statements were approved by
the Board of Directors on 8 September 2017.
3 Significant accounting policies
The accounting policies applied by the Group in these interim
consolidated financial statements are the same as those applied by
the Group as at and for the year ended 31 January 2017.
Associates
The Company holds interests in ESO Investments 1 LP, ESO
Alternative Investments LP, ESO Investments 2 LP and ESO
Investments (PC) LLP, which are managed and controlled by EPIC
Private Equity LLP, or a subsidiary of EPIC Private Equity LLP, for
the benefit of the Company and the other members. The Company has
the power to appoint members to the investment committee of ESO
Investments 1 LP, ESO Alternative Investments LP, ESO Investments 2
LP and ESO Investments (PC) LLP but does not have the ability to
direct the activities of ESO Investments 1 LP, ESO Alternative
Investments LP, ESO Investments 2 LP and ESO Investments (PC) LLP.
The Directors consider that ESO Investments 1 LP, ESO Alternative
Investments LP, ESO Investments 2 LP and ESO Investments (PC) LLP
do not meet the definition of subsidiaries. These entities are
instead treated as associates.
4 Financial risk management
The Group financial risk management objectives and policies are
consistent with those disclosed in the consolidated financial
statements as at and for the year ended 31 January 2017.
5 Investment advisory fees
The investment advisory fee payable to EPIC Private Equity LLP
is calculated at 2% of the Group's Net Asset Value ("NAV"), with a
minimum of GBP325,000 payable per annum. The charge for the current
period was GBP1,369,521 (period ended 31 July 2016: GBP406,525;
year ended 31 January 2017: GBP1,181,626).
6 Share-based payment expense
Certain employees (including Directors) of the Group receive
remuneration in the form of equity settled share-based payment
transactions, through a Joint Share Ownership Plan ("JSOP").
The Employee Benefit Trust ("EBT") was created to award shares
to eligible employees as part of the JSOP. Participants are awarded
a certain number of shares ("Matching Shares") which vest after
three years. In order to receive their Matching Share allocation
participants are required to purchase shares in the Company on the
open market ("Bought Shares"). The participant will then be
entitled to acquire a joint ownership interest in the Matching
Shares for the payment of a nominal amount, on the basis of one
joint ownership interest in one Matching Share for every Bought
Share they acquire in the relevant award period.
The EBT holds the Matching Shares jointly with the participant
until the award vests. The EBT held 1,547,065 Matching Shares at
the period end which have traditionally not voted (31 January 2017:
1,547,065 matching shares).
The cost of equity settled transactions with employees is
measured by reference to the fair value at the date on which they
are granted. The fair value is determined based on the share price
of the equity instrument at the grant date.
The amount expensed in the income statement has been calculated
by reference to the grant date fair value of the equity instrument
and the estimated number of equity instruments to be issued after
the vesting period, less the nominal amount paid for the joint
ownership interest in the Matching Shares. The total expense
recognised on the share based payments during the period amounts to
GBP103,297 (period ended 31 July 2016: GBP117,823; year ended 31
January 2017: GBP245,750).
7 Non-current assets
31 July 31 January 31 July
2017 2017 2016
(unaudited) (audited) (unaudited)
GBP GBP GBP
--------------------------- ------------ ----------- ------------
Investments in associates 88,562,103 73,609,872 54,770,897
Loans to associates and
related companies 3,057,712 1,012,055 1,012,055
91,619,815 74,621,927 55,782,952
------------ ----------- ------------
Investment in associates
Investments in associates comprise the investment in ESO
Investments 1 LP, ESO Alternative Investments LP, ESO Investments 2
LP and ESO Investments (PC) LLP which are stated at cost plus the
share of profit and loss to date. The associates have accounted for
their equity investments at fair value.
During the period, the Company received GBPnil (year ended 31
January 2017: GBP36,416,460) from ESO 1 LP, GBPnil (year ended 31
January 2017: GBPnil) from ESO Investments (PC) LLP and GBPnil
(year ended 31 January 2017: GBPnil) from ESO Alternative
Investments.
Fair value hierarchy - Financial instruments measured at fair
value
The table below analyses the underlying investments held by the
associates measured at fair value at the reporting date by the
level in the fair value hierarchy into which the fair value
measurement is categorised. Debt securities are also included, as
although stated at amortised cost, the Investment Advisor assesses
the fair value of the total investment, which includes debt and
equity. The amounts are based on the values recognised in the
statement of financial position. All fair value measurements below
are recurring. There are no other financial assets or liabilities
carried at fair value.
The Investment Advisor has applied appropriate valuation methods
with reference to IPEV guidelines and other valuation methods with
reference to the valuation principles of IFRS 13. For unquoted
investments, the valuation principles adopted are classified as
Level 3 in the IFRS 13 fair value hierarchy. For quoted
investments, the assets are classified as Level 1 in the IFRS 7
fair value hierarchy. Accordingly, the assets are valued at the
quoted price at close of markets on the balance sheet date, without
adjustment.
Summary financial information for associates as at and for the
period ended 31 July 2017 is as follows:
Minority ESO plc Percentage
Associate Total interest share share
ESO 1 LP GBP GBP GBP %
------------------------------ ------------ ------------------------- ------------ -------------------------
Non-current assets 101,753,189 (20,350,636) 81,402,553 80.0%
Current assets 201,318 (40,264) 161,054 80.0%
Current liabilities (1,332,742) 266,549 (1,066,193) 80.0%
Net assets 100,621,765 (20,124,351) 80,497,414 80.0%
------------------------------ ------------ ------------------------- ------------ -------------------------
Income 188,844 (39,193) 149,651 79.2%
Gains/(losses) on
investments 18,476,911 (3,834,704) 14,642,207 79.2%
Expenses (98,900) 20,526 (78,374) 79.2%
------------------------------ ------------ ------------------------- ------------
Profit 18,566,855 (3,853,371) 14,713,484 79.2%
------------------------------ ------------ ------------------------- ------------ -------------------------
ESO AI LP
------------------------------ ------------ ------------------------- ------------ -------------------------
Non-current assets 2,211,866 - 2,211,866 100.0%
Current assets 126,919 - 126,919 100.0%
Current liabilities (2,045,657) - (2,045,657) 100.0%
Net assets 293,128 - 293,128 100.0%
------------------------------ ------------ ------------------------- ------------ -------------------------
Income 80,356 - 80,356 100.0%
Gains on investments 253,419 - 253,419 100.0%
Expenses (40,727) - (40,727) 100.0%
------------------------------ ------------ ------------------------- ------------ -------------------------
Profit 293,048 - 293,048 100.0%
------------------------------ ------------ ------------------------- ------------ -------------------------
ESO 2 LP
------------------------------ ------------ ------------------------- ------------ -------------------------
Non-current assets - - - -
Current assets 100 (20) 80 80.0%
Net assets 100 (20) 80 80.0%
------------------------------ ------------ ------------------------- ------------ -------------------------
Income - - - -
Gains/(losses) on
investments - - - -
Expenses - - - -
------------------------------ ------------ ------------------------- ------------ -------------------------
Profit - - - -
------------------------------ ------------ ------------------------- ------------ -------------------------
ESO (PC) LLP
------------------------------ ------------ ------------------------- ------------ -------------------------
Non-current assets 9,453,084 (1,897,994) 7,555,090 79.9%
Current assets 270,753 (54,362) 216,391 79.9%
------------------------------ ------------ ------------------------- ------------ -------------------------
Net assets 9,723,837 (1,952,356) 7,771,481 79.9%
------------------------------ ------------ ------------------------- ------------ -------------------------
Income - - - -
Gains on investments - - - -
Expenses (3,657) 731 (2,926) 80.0%
------------------------------ ------------ ------------------------- ------------ -------------------------
Loss (3,657) 731 (2,926) 80.0%
------------------------------ ------------ ------------------------- ------------ -------------------------
ESO plc
------------------------------ ------------ ------------------------- ------------ -------------------------
Loans to associates
and related companies 3,057,712 - 3,057,712 100.0%
Other assets and liabilities
ESO plc 30,488,194 - 30,488,194 100.0%
------------------------------ ------------ ------------------------- ------------ -------------------------
Total 33,545,906 - 33,545,906 100.0%
------------------------------ ------------ ------------------------- ------------ -------------------------
Total assets less
current liabilities 144,184,737 (22,076,727) 122,108,010 84.7%
------------------------------ ------------ ------------------------- ------------ -------------------------
Summary of ESO plc Minority ESO plc Percentage
fund structure Total interest share share
GBP GBP GBP GBP
------------------------------ ------------ ------------------------- ------------ -------------------------
ESO 1 LP 100,621,765 (20,124,351) 80,497,414 80.0%
ESO AI LP 293,129 - 293,129 100.0%
ESO 2 LP 100 (20) 80 80.0%
ESO (PC) LLP 9,723,837 (1,952,356) 7,771,481 79.9%
ESO plc current assets,
current liabilities
and loans to related
companies 33,545,906 - 33,545,906 100.0%
------------------------------ ------------ ------------------------- ------------ -------------------------
Total assets less
current liabilities 144,184,737 (22,076,727) 122,108,010 84.7%
------------------------------ ------------ ------------------------- ------------ -------------------------
Summary financial information for associates as at and for the
year ended 31 January 2017 was as follows:
Minority ESO plc Percentage
Associate Total interest share share
ESO 1 LP GBP GBP GBP %
------------------------- ------------ -------------------------- ------------ -----------
Non-current assets 81,090,140 (16,218,028) 64,872,112 80.0%
Current assets 4,735,863 (947,172) 3,788,691 80.0%
Current liabilities (3,596,093) 719,220 (2,876,873) 80.0%
Net assets 82,229,910 (16,445,980) 65,783,930 80.0%
------------------------- ------------ -------------------------- ------------ -----------
Income 685,005 (139,522) 545,483 79.6%
Gains on investments 75,645,445 (15,407,480) 60,237,965 79.6%
Expenses (247,461) 50,403 (197,058) 79.6%
------------------------- ------------ -------------------------- ------------ -----------
Profit 76,082,989 (15,496,599) 60,586,390 79.6%
------------------------- ------------ -------------------------- ------------ -----------
ESO (PC) LLP
------------------------- ------------ -------------------------- ------------ -----------
Non-current assets 9,453,084 (1,849,629) 7,603,455 80.4%
Current assets 276,610 (54,123) 222,487 80.4%
Net assets 9,729,694 (1,903,752) 7,825,942 80.4%
------------------------- ------------ -------------------------- ------------ -----------
Income - - - -
Gains on investments 4,224,784 (846,366) 3,378,418 80.0%
Expenses (7,710) 1,546 (6,164) 80.0%
------------------------- ------------ -------------------------- ------------ -----------
Profit 4,217,074 (844,820) 3,372,254 80.0%
------------------------- ------------ -------------------------- ------------ -----------
ESO plc
------------------------- ------------ -------------------------- ------------ -----------
Loans to associates
and related companies 1,012,055 - 1,012,055 100.0%
Loans from associates
and related companies (276,510) - (276,510) 100.0%
Other assets and
liabilities ESO plc 36,647,050 - 36,647,050 100.0%
------------------------- ------------ -------------------------- ------------ -----------
Total 37,382,595 - 37,382,595 100.0%
------------------------- ------------ -------------------------- ------------ -----------
Total assets less
current liabilities 129,342,199 (18,349,732) 110,992,467 85.8%
------------------------- ------------ -------------------------- ------------ -----------
Summary of ESO plc Minority ESO plc Percentage
fund structure Total interest share share
GBP GBP GBP GBP
------------------------- ------------ -------------------------- ------------ -----------
ESO 1 LP 82,229,910 (16,445,980) 65,783,930 80.0%
ESO (PC) LLP 9,729,694 (1,903,752) 7,825,942 80.4%
ESO plc current assets,
current liabilities
and loans to related
companies 37,382,595 - 37,382,595 100.0%
------------------------- ------------ -------------------------- ------------ -----------
Total assets less
current liabilities 129,342,199 (18,349,732) 110,992,467 85.8%
------------------------- ------------ -------------------------- ------------ -----------
8 Financial assets and liabilities
Fair values of financial instruments
The fair values of financial assets and financial liabilities
that are traded in an active market are based on quoted market
prices. For all other financial instruments, the Group determines
fair values using other valuation techniques based on the IPEV
guidelines.
For financial instruments that trade infrequently and have
little price transparency, fair value is less objective, and
requires varying degrees of judgement depending on liquidity,
uncertainty of market factors, pricing assumptions and other risks
affecting the specific instrument.
The Group measures fair values using the following fair value
hierarchy that reflects the significance of the inputs used in
making the measurements:
-- Level 1: Inputs that are quoted market prices (unadjusted) in
active markets for identical instruments;
-- Level 2: Inputs other than quoted prices included within
Level 1 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category includes
instruments valued using; quoted market prices in active markets
for similar instruments; quoted prices for identical or similar
instruments in markets that are considered less than active; or
other valuation techniques in which all significant inputs are
directly or indirectly observable from market data;
-- Level 3: Inputs that are unobservable. This category includes
all instruments for which the valuation technique includes inputs
not based on observable data and the unobservable inputs have a
significant effect on the instrument's valuation. This category
includes instruments that are valued based on quoted prices for
similar instruments but for which significant unobservable
adjustments or assumptions are required to reflect differences
between the instruments. All of the Group's underlying investments
held by equity accounted investees are deemed as level 3 in the
fair value hierarchy.
Various valuation techniques may be applied in determining the
fair value of investments held as Level 3 in the fair value
hierarchy. The objective of valuation techniques is to arrive at a
fair value measurement that reflects the price that would be
received to sell the asset or paid to transfer the liability in an
orderly transaction between market participants at the measurement
date.
Valuation models that employ significant unobservable inputs
require a higher degree of management judgement and estimation in
the determination of fair value. Management judgement and
estimation are usually required for the selection of the
appropriate valuation model to be used. As discussed below, the
Investment Advisor has selected to use the Sales and EBITDA
multiple valuation models in arriving at the fair value of
investments held as Level 3 in the fair value hierarchy.
Valuation framework
The Group has developed a valuation framework with respect to
the measurement of fair values. The valuation of investments is
performed by the Investment Advisor, who determines fair values
using the IPEV guidelines. The following approach is used:
-- 'Fair value' is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date in the
principal or, in its absence, the most advantageous market to which
the Group has access at that date. The fair value of a liability
reflects its non-performance risk;
-- The Sales and EBITDA multiple valuation models are used,
based on budgeted Sales and EBITDA for the next financial year;
-- Loans made are stated at amortised cost but impairment tested
based on the enterprise value derived from the valuation.
Fair value hierarchy - Financial instruments measured at fair
value
The table below analyses the underlying investments held by the
equity accounted investees measured at fair value at the reporting
date by the level in the fair value hierarchy into which the fair
value measurement is categorised. Debt securities are also
included, as although stated at amortised cost, the Investment
Advisor assesses the fair value of the total investment, which
includes debt and equity. The amounts are based on the values
recognised in the statement of financial position. All fair value
measurements below are recurring. There are no other financial
assets or liabilities carried at fair value.
Level Level
1 3 Total
31 July 2017 GBP GBP GBP
--------------------------- ----------- ------------------------ ------------
Financial assets at fair
value through profit or
loss
Unquoted investments - 14,783,592 14,783,592
Quoted equity investments 87,834,547 - 87,834,547
Debt securities, unquoted - 10,871,014 10,871,014
Total investments 87,834,547 25,654,606 113,489,153
---------------------------- ----------- ------------------------ ------------
Level Level
1 3 Total
31 January 2017 GBP GBP GBP
--------------------------- ----------- ----------- -----------
Financial assets at fair
value through profit or
loss
Unquoted investments - 11,685,937 11,685,937
Quoted equity investments 69,857,288 - 69,857,288
Debt securities, unquoted - 9,000,000 9,000,000
---------------------------- ----------- -----------
Total investments 69,857,288 20,685,937 90,543,225
---------------------------- ----------- ----------- -----------
The following table shows a reconciliation of the opening
balances to the closing balances for fair value measurements in
Leve1 3 of the fair value hierarchy.
31 July 31 January
2017 2017
(unaudited) (audited)
------------------------------------- ------------ -------------
Unquoted investments GBP GBP
------------------------------------- ------------ -------------
Balance at 1 February 11,685,937 37,276,754
Additional investments 2,352,192 330,327
Transfers to Level 1 - (30,908,209)
Change in fair value through profit
or loss 745,463 4,987,065
-------------------------------------- ------------
Total 14,783,592 11,685,937
-------------------------------------- ------------ -------------
Significant unobservable inputs used in measuring fair value
The table below sets out information about significant
unobservable inputs used at 31 July 2017 in measuring financial
instruments categorised as Level 3 in the fair value hierarchy.
Description Fair value at 31 July 2017 Valuation technique
GBP
--------------------- --------------------------- -----------------------
Unquoted investments 25,654,606 Sales/EBITDA multiples
--------------------- --------------------------- -----------------------
Significant unobservable inputs are developed as follows:
-- Sales/EBITDA multiples: Represents amounts that market
participants would use when pricing the investments. Sales/EBITDA
multiples are selected from comparable public companies based on
geographic location, industry, size, target markets and other
factors that management considers to be reasonable. The traded
multiples for the comparable companies are determined by dividing
the enterprise value of the company by its Sales or EBITDA and
further discounted for considerations such as the lack of
marketability and other differences between the comparable peer
group and specific company.
-- The Sales/EBITDA multiple is applied to the budgeted
Sales/EBITDA for the next financial year.
IFRS 13 requires disclosure, by class of financial instrument,
if the effect of changing one or more inputs to reasonably possible
alternative assumptions would result in a significant change to the
fair value measurement. The information used in determination of
the fair value of Level 3 investments is chosen with reference to
the specific underlying circumstances and position of the investee
company. On that basis, the Board believe that the impact of
changing one or more of the inputs to reasonably possible
alternative assumptions would not change the fair value
significantly.
9 Loans to/(from) associates and related companies
31 July 31 January 31 July
2017 2017 2016
(unaudited) (audited) (unaudited)
GBP GBP GBP
----------------------------- ------------ ----------- ------------
ESO Investments 1 LP 512,055 512,055 512,055
ESO Alternative Investments
LP 2,045,657 - -
EPIC Structured Finance
Limited 500,000 500,000 500,000
Loans to associates and
related companies 3,057,712 1,012,055 1,012,055
------------------------------ ------------ ----------- ------------
ESO Investments (PC) LLP - (276,510) (280,067)
Loans from associates
and related companies - (276,510) (280,067)
------------------------------ ------------ ----------- ------------
The loans to/(from) associates and related companies are
unsecured, interest free and not subject to any fixed repayment
terms.
10 Share capital
31 January
31 July 2017 2017 31 July 2016
(unaudited) (audited) (unaudited)
------------------------ ------------------------ ------------------------
Number GBP Number GBP Number GBP
------------------- ------------ ---------- ------------ ---------- ------------ ----------
Authorised
share capital
Ordinary shares
of 5p each 45,000,000 2,250,000 45,000,000 2,250,000 45,000,000 2,250,000
-------------------- ------------ ---------- ------------ ---------- ------------ ----------
Called up,
allotted and
fully paid
Ordinary shares
of 5p each 29,475,625 1,473,781 31,371,362 1,568,568 30,864,117 1,543,206
Ordinary shares
of 5p each
held in treasury (1,765,876) - (3,048,879) - (3,700,944) -
27,709,749 1,473,781 28,322,483 1,568,568 27,163,173 1,543,206
------------ ---------- ------------ ---------- ------------ ----------
Between 31 January 2017 and 31 July 2017, the Company bought
back 612,734 ordinary shares from the market and on 26 May 2017
cancelled all ordinary shares held by Corvina Limited, a wholly
owned subsidiary of the Company.
Of the ordinary shares bought back from the market, Giles Brand
(Managing Partner of the Investment Advisor) and Hiren Patel
(Partner, Finance Director and Head of Compliance of the Investment
Advisor) (both also being Person Discharging Managerial
Responsibilities ("PDMRs") of the Company) sold 113,310 and 21,750
Ordinary Shares respectively at a price of 295.00 pence to the
Company.
11 Basic and diluted earnings per ordinary share
The basic earnings per share is calculated by dividing the
profit for the period attributable to ordinary shareholders by the
weighted average number of shares outstanding during the period of
28,098,107 (six month period ended 31 July 2016: 27,163,173; year
ended 31 January 2017: 28,585,144).
The diluted earnings per share is calculated by dividing the
profit for the period attributable to ordinary shareholders by the
weighted average number of shares outstanding during the period, as
adjusted for the effects of all dilutive potential ordinary shares
of 28,361,968 (six month period ended 31 July 2016: 28,630,238;
year ended 31 January 2017: 28,801,620).
12 Net asset value per share (pence)
The net asset value per share is based on the net assets at the
period end of GBP114,235,577 divided by 27,709,749 ordinary shares
in issue at the end of the period (31 July 2016: GBP51,038,164 and
27,163,173 ordinary shares; 31 January 2017: GBP103,130,336 and
28,322,483 ordinary shares).
The diluted net asset value per share of 408.37 pence, is based
on the net assets of the Group and the Company at the period-end of
GBP114,235,577 divided by the shares in issue at the end of the
period, as adjusted for the effects of dilutive potential ordinary
shares, of 27,973,610, after excluding treasury shares (31 July
2016: GBP51,038,164 and 29,220,327 ordinary shares; 31 January
2017: GBP103,130,336 and 28,538,959, ordinary shares).
13 Loan note instruments
31 July 31 January 31 July
2017 2017 2016
(unaudited) (audited) (unaudited)
GBP GBP GBP
---------------------------------- ------------ ----------- ------------
Unsecured loan note instrument 7,872,433 7,862,131 7,851,828
Convertible loan note instrument - - 1,880,047
7,872,433 7,862,131 9,731,875
------------ ----------- ------------
On 23 July 2015, the Company raised GBP4,500,000 via a placing
of a Unsecured Loan Note ("ULN") instrument. Following the initial
issuance of the ULNs, further notes were issued to investors such
that on 31 January 2016 the Company had issued GBP7,975,459 in
principal amount and the notes admitted to trading on the ISDX
Growth Market on 29 January 2016. There were no ULNs issued during
the period.
The notes carry interest at 7.5% per annum. Issue costs
totalling GBP144,236 have been offset against the value of the loan
note instrument and are being amortised over the life of the
instrument. A total of GBP10,302 was expensed in the period ended
31 July 2017 (GBP20,605 in the year ended 31 January 2017,
GBP10,302 in the period ended 31 July 2016). The total interest
expensed on the ULNs in the period ended 31 July 2017 is GBP309,382
(GBP618,765 in the year ended 31 January 2017, GBP309,382 in the
period ended 31 July 2016). This includes the amortisation of the
issue costs.
Convertible Loan Note ("CLN") instrument issued on 31 August
2010 and was fully repaid on 29 December 2016. The total interest
expensed on the CLNs for the period ended 31 July 2016 was
GBP70,502 (GBP129,126 in the year ended 31 January 2017).
14 Financial commitments and guarantees
Under the terms of the limited partnership agreement, the
Company is committed to provide a maximum of GBP2.0 million
additional investment to ESO Investments 1 LP. To date no drawdowns
have been made.
15 Subsequent events
On 31 July 2017, the Company announced an amendment to the
exercise date of warrants, issued in respect of the CLN refinancing
announced on 16 September 2015. Having consulted with warrant
holders, the Company agreed to amend the earliest exercise date to
28 July 2017, from 31 July 2018 previously.
On 7 August 2017, the Company announced that it has received
notice of the exercise of 590,089 warrants in respect of one of the
Company's ordinary shares each at a price of 170 pence per share.
The aggregate gross proceeds of this exercise were GBP1,003,151.
Following the exercise of the warrants there were no warrants
outstanding and there were 28,299,838 ordinary shares in issue, not
held in treasury.
On 8 August 2017, the Company announced that certain awards made
under the Company's share matching scheme had vested to certain
members of the Investment Advisor, and to certain Directors of the
Company. Following the vesting of the awards, the EBT held 420,050
ordinary shares (31 January 2017: 1,547,065), Geoffrey Vero held
105,532 ordinary shares (31 January 2017: 84,912), Robert Quayle
held 87,883 ordinary shares (31 January 2017: 50,128), Clive Spears
held 105,787 ordinary shares (31 January 2017: 68,032) and Nicholas
Wilson held 105,743 ordinary shares (31 January 2017: 67,669).
16 Related Party Transactions
Geoffrey Vero is a non-executive Director of Numis Corporation
plc and a former non-executive Director of Numis Securities
Limited, the Nominated Advisors to the Company. During the period
ended 31 July 2017, broker fees of GBP31,092 (31 July 2016:
GBP31,035) were payable to Numis Securities Limited.
Certain Directors of the Company and other participants
(including employees and members of the Investment Advisor) are
incentivised in the form of equity settled share-based payment
transactions, through a Joint Share Ownership Plan (see note
6).
Prior to March 2016 and the Company's investment in ECPD Fund in
March 2017, the Investment Advisor acted as placement agent to the
ECPD Fund on the successful fundraise of the fund.
Details of fees payable to the key service providers are
included in note 5 to the interim financial statements.
Directors' interests in the shares of the Company are included
in note 15 to the interim financial statements.
Group Information
Directors Administrator and Company
Address
G.O. Vero (Chairman) R&H Fund Services (Jersey)
Limited
H. Bestwick Ordnance House
R.B.M. Quayle 31 Pier Road, St Helier
C.L. Spears Jersey JE4 8PW
N.V. Wilson
Secretary
P.P. Scales
Investment Advisor Nominated Advisor and
Broker
EPIC Private Equity LLP Numis Securities Limited
Audrey House 10 Paternoster Square
16-20 Ely Place London EC4M 7LT
London EC1N 6SN
Auditors and Reporting Registered Agent (Isle
Accountants of Man)
KPMG Audit LLC FIM Capital Limited
Heritage Court IOMA House
41 Athol Street Hope Street
Douglas Douglas
Isle of Man IM99 1HN Isle of Man IM1 1AP
Bankers Registrar and CREST
Providers
Barclays Bank plc Computershare Investor
Services (Jersey) Limited
1 Churchill Place Queensway House
Canary Wharf Hilgrove Street
London E14 5HP St. Helier
Jersey JE1 1ES
HSBC Bank plc
1st Floor
60 Queen Victoria Street
London EC4N 4TR
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAKNFFENXEEF
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September 11, 2017 02:13 ET (06:13 GMT)
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