JZ CAPITAL PARTNERS LIMITED (the
"Company" or "JZCP")
(a closed-end investment company incorporated with limited
liability under the laws of Guernsey with registered number 48761)
ANNUAL RESULTS FOR
THE TWELVE-MONTH PERIOD ENDED
28 FEBRUARY 2017
17 May 2017
JZ Capital Partners, the London
listed fund that invests in US and European micro-cap companies and
US real estate, announces its annual results for the twelve-month
period ended 28 February 2017.
Results Highlights
- Total NAV return per share of 2.7%.
- NAV of $848.8 million (FYE
29/02/16: $851.7 million).
- Post-dividend NAV per share of $10.12 (FYE 29/02/16: $10.15).
- 30.5 cents per share in dividends
paid during the period - implied dividend yield of 4.5% (as at
28/02/17).
- Share price trading near all-time high as at 16 May 2017, rising 43% since 29 February 2016.
Portfolio Highlights
- JZCP invested a total of $159.5
million, underpinned by investments in Peaceable Street
Capital, Jordan Health Products and real estate properties in
Brooklyn, NY and South Florida.
- JZCP received $131.4 million of
proceeds from realisations, primarily through the sale of Medplast,
Southern Petroleum Laboratories and Winn Group.
- Eight properties acquired during the period, including
Esperante Corporate Centre, a landmark office building in
West Palm Beach, Florida.
- As of 28 February 2017, the
portfolio comprised:
- US micro-cap: 20 businesses which includes four
‘verticals’ and 12 co-investments, across nine industries.
- European micro-cap: 13 companies across five industries
and six countries.
- US real estate: 59 properties across four major
assemblages in New York and
South Florida all in various
stages of (re)/development.
Strategic Initiatives
- Shareholder approval for initiatives designed to maximize
shareholder returns, including the discontinuation of the Company’s
current dividend policy and inception of new strategy to allow for
the repurchase of shares (16 May
2017).
- Repayment of remaining ZDPs due June
2016, for £32.9 million.
- JZCP increased its loan facility with Guggenheim Partners from
approximately $100 million to $150
million, in order to provide additional liquidity to JZCP to
bridge certain planned realisations (April
2017).
Outlook
- Healthy pipeline of realisation and investment opportunities
over the next 12 months.
- Balance sheet strength, diversified portfolio and share buyback
policy positions the Company well to continue to drive underlying
portfolio growth and enhance shareholder returns.
David Zalaznick, JZCP’s
Founder and Investment Adviser, said: “We are pleased with the
positive performance of the portfolio on an operating basis and
appreciation of the underlying values of the portfolio’s assets.
Our execution of JZCP’s investment policy, to create a more
balanced and diversified portfolio by geography and asset type, has
shown great progress and should provide superior returns.
The buoyant US market presents a number of potential realisation
opportunities for the Company, which should in turn provide
additional liquidity to invest in the multiple investment
opportunities we are seeing.”
David Macfarlane, Chairman of
JZCP, said: “The progress the Company has made during the
period has been steady, characterised by a good flow of investment
and realisation activity.
We are also delighted that we have the support from our
shareholders to further maximise long-term value through the
consideration of a new share buyback policy. We look ahead to the
next twelve months with continued confidence.”
Presentation details:
There will be an audiocast presentation for investors and
analysts at 2pm UK (BST) /
9am US (EDT) on 17 May 2017.
The presentation can be accessed via http://bit.ly/2qktzkt
and by dialing +44 (0) 33 0336 9411 (UK) or +1 719
325 2202 (US) with the participant access code
1404617
A playback facility will be available two hours after the
conference call concludes. This facility may be accessed via the
following dial in details, using the same participant access code
as above: +44 (0) 207 984 7568 (UK) or +1 719-457-0820
(US).
For further information:
Ed Berry / Kit
Dunford
+44 (0) 20 3727 1046 / 1143
FTI Consulting
David Zalaznick
+1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Teresa Le
Couteur-Tembo
+44 (0) 1481 745 741
JZ Capital Partners, Ltd.
About JZCP
JZCP is a London listed fund
which invests in US and European micro-cap companies and US real
estate. Its objective is to achieve an overall return comprised of
a current yield and capital appreciation. JZCP receives investment
advice from Jordan/Zalaznick Advisers, Inc. (“JZAI”) which is led
by David Zalaznick and Jay Jordan. They have worked together for 30
years and are supported by teams of investment professionals in
New York, Chicago, London and Madrid. JZAI’s experts work with the existing
management of micro-cap companies to help build better businesses,
create value and deliver strong returns for investors. JZCP also
invests in mezzanine loans, first and second lien investments and
other publicly traded securities. For more information please visit
www.jzcp.com.
Chairman's Statement
I am pleased to report the results of JZ Capital Partners
(“JZCP” or the “Company”) for the twelve month period ended
28 February 2017.
Performance
The Company’s performance over the last twelve months, driven by
positive growth across our three core portfolios of US and European
micro-cap and US real estate investments, is particularly pleasing
given the backdrop of sustained global market volatility as a
result of the rise of populist politics and geopolitical
tensions.
Political shifts have been stark in many regions, with voters
eschewing the status quo to support populist mandates and the
corresponding uncertainty that they bring. The UK’s decision to
leave the European Union and Trump’s victory both caused disruption
to global financial markets and temporarily influenced investment
activity.
The US economy is gaining traction again and households remain
upbeat, with annualised GDP growth reported of 2.1% in the fourth
quarter of 2016. This growth follows a relatively weak first half
of the year, having been boosted by a long awaited rebound in
investment.
In Europe, the economic
recovery continues, supported by highly favourable monetary
conditions, a weaker euro and an improvement in global growth, with
the Emerging Markets in particular doing better. The consequences
of the events of 2016 remain uncertain and additional headwinds are
looming on the horizon, especially political risks, suggesting
volatility may rise over the next twelve months.
Given this market environment, the Board is pleased to announce
that JZCP has produced a satisfactory set of full year results,
having achieved total NAV return per share of 2.7%, which includes
30.5 cents per share in dividends
paid during the year. JZCP’s post-dividend NAV per share decreased
marginally from $10.15 to $10.12 at
the end of the period.
Strategic Initiatives
In view of the persistently wide discount to NAV at which the
Company’s shares trade, the Board recently launched a comprehensive
review of the Company's existing dividend policy. Giving careful
consideration as to whether full value for shareholders is being
achieved, the Board determined that the existing policy of paying
out approximately 3% of NAV per year has not had the desired
long-term effect on JZCP’s stock price. Instead, the Board believes
that the interests of shareholders would be better served through
the discontinuation of the current dividend policy and
implementation of a new strategy to allow for the repurchase of
shares.
The recent proposals to implement a general buy-back framework
received shareholder approval today. The Board will have the option
of exercising the buy-back programme opportunistically and where it
would be accretive to shareholder value.
Whilst we recognise that some shareholders will be disappointed
by the loss of the dividend, we believe the new strategy is a
significant step forward for the Company and in the best interest
of all shareholders over the long term.
Portfolio Update
Overview
The result has been driven by the positive underlying
performance of our three major asset classes, where we continue to
pursue our value-added investment strategy and anticipate further
asset growth during the fiscal period.
It has been an active investment period for the Company, putting
$159.5 million to work across these
core portfolios – whilst realising $131.4
million, primarily through the sale of Medplast, Southern
Petroleum Laboratories and Winn Group.
At the end of the period, the Company’s portfolio consisted of
33 micro-cap businesses across nine industries and 59 properties
located in Brooklyn, New York and
South Florida. The portfolio
continues to become more diversified geographically as we invest in
further Western European countries. It’s also important to note
that 35% of our investment portfolio is less than three years
old.
US and European Micro-cap
It has been another period of significant activity within our US
micro-cap portfolio, which has continued to perform well with
progress made both with investments and realisations. The portfolio
has seen a valuation increase of 38
cents per share during the period, primarily due to net
accrued income of 19 cents per share
and increased earnings at our Healthcare Revenue Cycle Management
vertical (32 cents). The portfolio
was valued at 8.3x EBITDA, after applying an average 26%
marketability discount to public comparables.
JZCP continues to implement its disciplined and value-oriented
investment approach targeting high quality micro-cap companies in
Western Europe, which now
represent approximately 14 per cent of the Investment Portfolio
($154 million) and consist of 13
companies across five industries and six countries.
The portfolio has seen a valuation increase of 12 cents per share, primarily due to accrued
income of 6 cents per share and a
write-up at Fidor Bank (5 cents),
which was sold to Group BPCE, the second largest banking group in
France.
As of 28 February 2017, Fund
III1 held seven investments: two in Spain, two in Scandinavia, and one each in the
UK, Italy and Luxembourg, and EMC2 held two
investments in Spain: Factor
Energia and Oro.
Real Estate
Now in its fifth year, the US real estate portfolio has
continued to grow steadily, currently consisting of 59 properties,
all in various stages of development and re-development.
As of 28 February 2017, JZCP, in
partnership with its long-term real estate partner, RedSky Capital,
had more than $343.5 million invested
in a diverse portfolio of retail, office and residential properties
located in Brooklyn, New York and
South Florida. JZCP acquired eight
properties during the period, including Esperante Corporate Centre,
a landmark office building in West Palm
Beach, Florida.
The real estate portfolio had a net increase of 25 cents, led by significant write-ups at our
Roebling Portfolio property (25
cents) and our Greenpoint property (21 cents), both located in adjacent North Brooklyn neighbourhoods. Increases in
value at our real estate properties are based upon third-party
appraisals.
Realisations
The Company generated realisations totalling $131.4 million, primarily through the sale of
three US micro-cap companies and the sale of European micro-cap
company Winn Group. The Company received proceeds of $25.6 million from the sale of Medplast, a
manufacturer of plastic medical components based in the US.
Distributions
As a consequence of the new strategy, the current dividend
policy will be discontinued and the Company will not declare or pay
a second interim dividend for the six-month period ending
28 February 2017.
Significant Financings
Post period end (April 2017), the
Company increased its loan facility with Guggenheim Partners from
approximately $100 million to $150
million, in order to provide additional liquidity to JZCP to
bridge certain planned realisations. The entire $150 million facility may be repaid, in whole or
in part, with no penalty after June
2017.
The Board and Investment Adviser have discussed the expected
cash flows within the investment portfolio, investments and
divestments, and likely opportunities based on the Company’s
strategy. Following this discussion, the Board can report to
shareholders that it believes it is unlikely further equity capital
will be needed in the foreseeable medium term.
Outlook
The benefits of measures approved by shareholders in 2015 to
increase the flexibility of the Company’s investment policy and
strengthen its balance sheet continue to bear fruit, as
demonstrated by the steady performance of the three core portfolios
during the period, set against a turbulent macro environment.
We are delighted that we have the support from our shareholders
to implement the new strategy, which is designed to maximise
long-term value for shareholders. The Company remains absolutely
focused on generating positive NAV growth and continues to believe
it is the most effective driver to narrow the Company's persistent
discount to NAV. We look to the next twelve months with
optimism.
David Macfarlane
Chairman
16 May 2017
1JZI Fund III, L.P. is defined throughout the Annual Report and
Financial Statements as "Fund III".
2EuroMicrocap Fund 2010, L.P. and EuroMicrocap Fund-C, L.P. are
defined throughout the Annual Report and Financial Statements as
"EMC", both L.P.s are held by the same limited partners and in the
same ownership percentages.
Investment Adviser's Report
Dear Fellow Shareholders,
We are pleased to report that all three of JZCP’s major asset
classes within the portfolio – US micro-cap, European micro-cap and
US real estate – continued their positive performance for the year
ending 28 February 2017. JZCP’s NAV
per share was approximately flat ($10.12 at 28 February
2017 versus $10.15 at
29 February 2016), whereas total NAV
return per share was 2.7%, which includes 30.5 cents per share in dividends paid during the
year. Unless otherwise stated, figures included in this report
refer to the twelve-month period ended 28
February 2017.
As of 28 February 2017, our stock
was trading at a 34% discount to NAV and had an implied dividend
yield of 4.5%. Despite historically low (to negative) interest
rates, our stated dividend policy of paying out 3% of NAV did not
have the desired long-term effect on our stock price. Consequently,
JZCP’s board of directors has discontinued the current dividend
policy and asked shareholders to authorise a new policy to allow
for the repurchase of shares. We believe these proposals are in the
best interest of all shareholders. JZCP represents a highly
attractive investment opportunity and we hope to take advantage of
the wide discount. If we are able to buy shares at a significant
discount, it will increase our NAV per share which is the ultimate
mark by which our share price will be measured.
In the year ended 28 February
2017, JZCP invested a total of $159.5
million, underpinned by investments in Peaceable Street
Capital, Jordan Health Products and real estate properties in
Brooklyn, NY and South Florida. We realized $131.4 million primarily through the sale of
Medplast and Southern Petroleum Laboratories (“SPL”), both
co-investments, and European portfolio company Winn.
At the period end, our US micro-cap portfolio consisted of 20
businesses, which includes four ‘verticals’ and 12 co-investments,
across nine industries; this portfolio was valued at 8.3x EBITDA,
after applying an average 26% marketability discount to public
comparables. The average underlying leverage senior to JZCP’s
position in our US micro-cap portfolio is 3.2x EBITDA. Consistent
with our value-oriented investment strategy, we have acquired our
current US micro-cap portfolio at an average 6.2x EBITDA; we paid
5.1x EBITDA on average for US micro-cap acquisitions made during
the past fiscal year.
Our European micro-cap portfolio consisted of 13 companies
across five industries and six countries. The European micro-cap
portfolio has very conservative leverage senior to JZCP’s position,
currently under 2.0x EBITDA.
As of 28 February 2017, our US real estate portfolio
consisted of 59 properties and can be grouped primarily into four
major “assemblages”, located in the Williamsburg and
Downtown/Fulton Mall neighbourhoods of Brooklyn, New York and the Wynwood and Design
District neighbourhoods of Miami,
Florida. We acquired eight properties during the period,
including a trophy office building in West Palm Beach, Florida. Our assemblages are
comprised of adjacent or concentrated groupings of properties that
can be developed, financed and/or sold together at a higher
valuation than on a stand-alone basis.
Net Asset Value ("NAV")
JZCP’s NAV per share was approximately flat for the year ending
28 February 2017 ($10.12 at 28 February
2017 vs. $10.15 at
29 February 2016). Total NAV return
per share was 2.7%, which includes 30.5
cents per share in dividends paid during the year.
NAV
bridge |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV per
Ordinary share as of 29 February 2016 |
|
|
|
|
|
$10.15 |
|
|
|
|
Change
in NAV due to capital gains and accrued income |
|
|
|
|
|
|
|
|
|
|
+ US Micro-cap |
|
|
|
|
|
|
|
|
|
0.38 |
|
|
|
|
+ European
Micro-cap |
|
|
|
|
|
|
|
|
|
0.12 |
|
|
|
|
+ Real Estate |
|
|
|
|
|
|
|
|
|
0.25 |
|
|
|
|
+ Other
Investments |
|
|
|
|
|
|
|
|
|
0.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
increases/(decreases) in NAV |
|
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|
- Change in CULS
market price |
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|
|
(0.05) |
|
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|
|
- Finance costs |
|
|
|
|
|
|
|
|
|
(0.18) |
|
|
|
|
+ Foreign exchange
effect(1) |
|
|
|
|
|
|
|
|
|
0.12 |
|
|
|
|
- Expenses and
taxation |
|
|
|
|
|
|
|
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|
(0.39) |
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NAV per
Ordinary share (before dividends paid) |
|
|
|
|
|
|
$10.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
-
Dividends paid |
|
|
|
|
|
|
|
|
|
(0.305) |
|
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|
NAV per
Ordinary share as of 28 February 2017 |
|
|
|
|
|
|
|
$10.12 |
|
|
|
|
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|
|
|
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|
(1) Includes fx losses of 2 cents relating to
investments and fx gains of 8 cents relating to the currency
translation of the CULS. |
The US micro-cap portfolio had a net increase of 38 cents, primarily due to net accrued income of
19 cents and increased earnings at
our Healthcare Revenue Cycle Management vertical (32 cents). Also contributing to the positive
portfolio performance were increases at several co-investment
companies: Salter (6 cents), a
healthcare products manufacturer; TierPoint, a data centre business
(3 cents); and Vitalyst, an IT
support business (3 cent). We also
received 7 cents of escrow payments
during the period.
Offsetting these increases was a decrease at Healthcare Products
Holdings, our power wheelchair company, which was written down to
zero (12 cents), as further
regulations have significantly hindered the company’s prospects.
Other assets to experience earnings declines included: our Water
and Industrial Services Solutions (“ISS”) verticals, (5 and
6 cents, respectively); Suzo-Happ,
our co-investment manufacturer of parts for the global gaming
industry (3 cents); and Nationwide,
our school photography business (3
cents).
The European micro-cap portfolio had a net increase of
12 cents, primarily due to accrued
income of 6 cents and a write-up at
our online German bank, Fidor Bank (5
cents), which was sold to a French banking conglomerate
during the year. Other assets written up due to increased earnings
include Petrocorner (2 cents), our
petrol station build-up in Spain,
and Winn (1 cent), our UK legal
claims business (which was realised during the year).
The real estate portfolio had a net increase of 25 cents, led by significant write-ups at our
Roebling Portfolio property (25
cents) and our Greenpoint property (21 cents), both located in adjacent North Brooklyn neighbourhoods. Other
properties written up during the year include: Flatbush Portfolio
(4 cents), Design District
(2 cents) and Esperante Corporate
Center (3 cents). These increases
were offset by decreases at our Bedford Avenue property
(3 cents), Fulton Assemblage
(13 cents), Williamsburg Retail
Assemblage (7 cents) and Wynwood
Portfolio (7 cents). While properties
are written up or down based on newly received appraisals, factors
that include fluctuations in balance sheet items at the property
level, particularly regarding senior mortgages on the properties,
can drive JZCP’s equity value in the properties up or down as
well.
Returns
The chart below summarises the cumulative NAV per share total
returns and total shareholder returns for the most recent
three-month, twelve-month, three-year, four-year and five-year
periods.
|
|
28.2.2017 |
|
30.11.2016 |
|
29.2.2016 |
|
28.2.2014 |
|
28.2.2013 |
|
29.2.2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share price (in
GBP) |
|
£5.38 |
|
£5.07 |
|
£3.97 |
|
£4.45 |
|
£5.00 |
|
£3.66 |
NAV per share (in
USD) |
|
$10.12 |
|
$10.13 |
|
$10.15 |
|
$10.25 |
|
$9.69 |
|
$9.47 |
NAV to market price
discount |
|
34% |
|
37% |
|
46% |
|
27% |
|
22% |
|
38% |
|
|
|
|
3
month
return |
|
1
year
return |
|
3
year
return |
|
4
year
return |
|
5
year
return |
Dividends paid (in
USD) |
|
|
|
- |
|
$0.305 |
|
$0.95 |
|
$1.245 |
|
$1.570 |
Total Shareholders'
return1 |
|
|
|
6.1% |
|
42.8% |
|
39.9% |
|
29.4% |
|
86.3% |
Total NAV return per
share1 |
|
|
|
-0.1% |
|
2.7% |
|
8.5% |
|
25.3% |
|
76.7% |
1Total returns are cumulative and assume that
dividends were reinvested. |
Portfolio Summary
Our portfolio is well-diversified by asset type and geography,
with 33 US and European micro-cap investments across nine
industries and four primary real estate “assemblages” (59 total
properties) located in Brooklyn, New
York and South Florida. The
portfolio continues to become more diversified geographically
across Western Europe with
investments in Spain, Italy, Luxembourg, Scandinavia and the UK. It’s also
important to note that 35% of our investment portfolio is less than
three years old.
Below is a summary of JZCP’s assets and liabilities at
28 February 2017 as compared to
29 February 2016. An explanation of
the changes in the portfolio follows:
|
28.2.2017
US$'000 |
|
29.2.2016
US$'000 |
US micro-cap
portfolio |
423,137 |
|
386,173 |
European micro-cap
portfolio |
154,277 |
|
168,797 |
Real estate
portfolio |
468,599 |
|
366,158 |
Other investments |
23,167 |
|
64,320 |
Total
Private Investments |
1,069,180 |
|
985,448 |
Listed corporate
bonds |
- |
|
13,036 |
UK treasury gilts |
- |
|
45,608 |
Cash |
29,063 |
|
91,937 |
Total
Listed Investments and Cash |
29,063 |
|
150,581 |
Other assets |
520 |
|
3,551 |
Total
Assets |
1,098,763 |
|
1,139,580 |
Zero Dividend
Preferred shares |
53,935 |
|
101,617 |
Convertible Unsecured
Loan Stock |
57,063 |
|
59,573 |
Loans payable |
97,396 |
|
97,011 |
Other payables |
41,525 |
|
29,640 |
Total
Liabilities |
249,919 |
|
287,841 |
Total Net
Assets |
848,844 |
|
851,739 |
In April 2017, JZCP increased its
loan facility with Guggenheim Partners from approximately
$100 million to $150 million. The
purpose of this increase in borrowings is to provide additional
liquidity to JZCP in order to bridge certain planned realisations.
The entire $150 million facility may
be repaid, in whole or in part, with no penalty after June 2017.
US Micro-Cap Portfolio
Our US micro-cap portfolio performed well over the past year,
with further progress made in new investments and realisations. As
described earlier in the NAV section, the US micro-cap portfolio
had a net increase of 38 cents per
share, primarily due to net accrued income of 19 cents and increased earnings at our Healthcare
Revenue Cycle Management vertical (32
cents).
Our US portfolio is grouped into industry verticals where we are
continuing our strategy of consolidating businesses under industry
executives who can add value via organic growth and cross company
synergies. In addition, we made a number of acquisitions in our
verticals during the period.
New US
investments – Verticals |
|
|
|
|
|
|
|
|
|
|
|
Vertical |
Number of Acquisitions |
|
JZCP Investment $millions |
|
|
|
|
|
|
|
|
|
|
|
Industrial Service
Solutions |
|
5 |
|
No cash required from JZCP |
|
|
Healthcare Revenue
Cycle Management |
|
3 |
|
|
|
1.4 |
|
|
Testing services |
|
2 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
10 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
New US
investments – Co-investments |
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio
Company |
New / Follow-on |
|
JZCP Investment $millions |
|
|
|
|
|
|
|
|
|
|
|
Peaceable Street
Capital |
Follow-on |
|
21.3 |
|
|
Jordan Health
Products |
New/Follow-on |
|
13.5 |
|
|
George Industries |
New |
|
12.6 |
|
|
Orizon |
Follow-on |
|
8.6 |
|
|
Southern Petroleum
Laboratories |
Follow-on |
|
0.4 |
|
|
New Vitality |
Follow-on |
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
56.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Case Study: Recent US Strategic
Build-up
Bolder Healthcare Solutions (“BHS”) is a build-up of businesses
in the Revenue Cycle Management (“RCM”) industry, focusing on
hospitals and physician offices. BHS helps these entities manage
their receivables portfolio, from assisting in pre-admission
insurance coverage to helping with bad debt expenses. The industry
is changing rapidly, with the continued modification of rules and
regulations due to Obamacare, and other potential policy changes.
BHS focuses on second-tier hospitals and physician offices in order
to achieve the high EBITDA margins it has exhibited to date.
The company was formed in July
2012, with the purchase of a pre-admission insurance
qualification business. Starting with approximately $15 million of revenue and $4.3 million of EBITDA, BHS has grown via
acquisitions and organic growth to $194
million and $40.3 million of
“run-rate” revenue and EBITDA, respectively. The company continues
to show very positive earnings momentum, as revenues and EBITDA
margins improve.
Management
BHS is managed by Mike Shea, a
seasoned veteran in the RCM industry, who managed a similar
build-up in the past, which was sold in 2008 for a 4.2x multiple of
capital invested. Mike has brought most of his previous team with
him, who are responsible for managing and growing the business. The
sales team have been heavily involved in the integration of the
nine acquisitions made to date, from both a “front office” and
“back office” perspective.
European Micro-Cap Portfolio
The European micro-cap portfolio had another strong year of
growth, posting a net increase of 12
cents, primarily due to accrued income of 6 cents and a write-up at our online German bank,
Fidor Bank (5 cents), which was sold
to a French banking conglomerate during the year. Other assets
written up due to increased earnings include Petrocorner
(2 cents), our petrol station
build-up in Spain, and Winn
(1 cent), our UK legal claims
business (which was realized during the year).
JZCP invests in the European micro-cap sector through its 75%
ownership of EuroMicrocap Fund 2010, L.P. (“EMC”) and its 18.8%
ownership of JZI Fund III, L.P. (“Fund III”). As you may recall,
JZAI has offices in London and
Madrid and an outstanding team
with over fifteen years of experience investing together in
European micro-cap deals.
As of 28 February 2017, EMC held
two investments in Spain: Factor
Energia and Oro. Fund III held seven investments: two in
Spain, two in Scandinavia, and one
each in the UK, Italy and
Luxembourg. JZCP held direct loans
to a further four companies in Spain: Ombuds, Docout, Xacom and Toro
Finance.
Recent events
Following the receipt of regulatory approval in August 2016, JZCP closed the sale of its stake in
Newcastle-based UK legal services
firm Winn (held through EMC) to a major financial institution,
receiving net sale proceeds of $21.9
million, having first invested $14.8
million in August 2013, approximately a gross 1.5x
multiple of invested capital over three years.
JZCP sold its interest in Fidor Bank (“Fidor”) to Groupe BPCE,
the second largest banking group in France. The transaction closed in December 2016. JZCP invested a total of
$13.8 million and is expected to
receive total gross proceeds of approximately $25 million from the sale, approximately a gross
1.8x multiple of invested capital over four years. JZCP received
its first tranche of proceeds totalling $12.5 million in March 2017.
Real Estate Portfolio
Our real estate portfolio has continued to perform exceptionally
well. As of 28 February 2017, JZCP
had more than $343.5 million invested
in a portfolio of retail, office and residential properties in
Brooklyn, New York and
South Florida that is valued at
$468.6 million as of the same date.
We have made these investments in partnership with RedSky Capital,
a team with significant experience in the sector.
During the period, JZCP, together with RedSky, acquired eight
properties. Since we began investing with RedSky in April 2012, we have acquired a total of 59
properties, all currently in various stages of development and
re-development.
The real estate portfolio had a net increase of 25 cents, led by write-ups at our Roebling
Portfolio property (25 cents) and our
Greenpoint property (21 cents), both
located in adjacent North Brooklyn
neighbourhoods. Other properties written up during the year
include: Flatbush Portfolio (4
cents), Design District (2
cents) and Esperante Corporate Center (3 cents). While properties are written up or down
based on newly received appraisals, factors that include
fluctuations in balance sheet items at the property level,
particularly regarding senior mortgages on the properties, can
drive JZCP’s equity value in the properties up or down as well.
Real
Estate Acquisitions in Year |
|
|
|
|
|
|
|
|
|
|
|
|
Geography |
|
Number of Acquisitions |
|
JZCP Investment $millions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooklyn,
New York |
3 |
|
|
17.8 |
|
|
South Florida |
|
|
5 |
|
|
46.4 |
|
|
Follow-ons and
expenses |
|
|
- |
|
|
25.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
89.5 |
|
|
|
|
|
|
|
|
|
|
Case study –
Esperante Corporate Center
In July 2016, JZCP acquired
Esperante Corporate Center (“Esperante”) a trophy office building
in West Palm Beach, Florida. With
17 floors across more than 250,000 square feet of office and retail
space, Esperante is a permanent fixture in the Downtown West Palm Beach skyline and one of
only three existing trophy office buildings in the market.
We are currently pursuing re-leasing 25% of the most desirable
office space at Esperante which is coming available within 24
months. In the effort to establish Esperante as the most attractive
office building in the marketplace, we are repositioning the ground
floor retail area of the building, renovating the lobby and valet
parking area, and creating a unique restaurant and rooftop bar. So
far, we have begun signing office leases at what we believe are the
highest per square foot rents achieved in West Palm Beach to date.
Other Investments
Our asset management business in the US, Spruceview Capital
Partners, addresses the growing demand from corporate pensions,
endowments, family offices and foundations for fiduciary management
services through an Outsourced Chief Investment Officer (“OCIO”)
model. Spruceview has a robust pipeline of opportunities and
continues to provide investment oversight to the pension fund of a
Canadian subsidiary of an international confectionary company, as
well as a European private credit fund-of-funds tailored to the
clients of an international multi-family office.
As previously reported, Richard
Sabo, former Chief Investment Officer of Global Pension and
Retirement Plans at JPMorgan and a member of that firm’s executive
committee, is leading a team of 12 senior investment, business
development, legal and operations professionals.
Realisations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds |
|
|
Investment |
Type |
|
|
|
Portfolio |
|
($
millions) |
|
|
Bright Spruce
Fund |
Liquidation |
|
Other investments |
|
44.5 |
|
|
Medplast |
Sale |
|
US micro-cap |
|
25.6 |
|
|
Winn |
Sale |
|
European micro-cap |
|
21.9 |
|
|
Water Vertical |
Refinancing |
|
US micro-cap |
|
10.2 |
|
|
SPL |
Sale |
|
US micro-cap |
|
8.4 |
|
|
Redbridge Bedford |
Refinancing |
|
|
Real estate |
|
5.3 |
|
|
Metpar |
Sale |
|
Other investments/mezzanine |
|
3.1 |
|
|
Dental Services |
Escrow |
|
US micro-cap |
|
3.1 |
|
|
Other
minor refinancings, escrow receipts and distributions |
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Realisations |
|
|
|
|
|
|
131.4 |
|
|
|
|
|
|
|
|
|
|
|
Outlook
We remain committed to pursuing our value-added investment
strategy across several asset classes and will be highly focused
over the next two years on identifying and realizing value from our
portfolio companies. We believe it is an opportune time to be a
seller in the US and we want to take advantage of the buoyant
market, which will in turn provide more liquidity for us to invest
in our growing pipeline of attractive opportunities.
We are pleased with the performance of our three major asset
classes – US micro-cap, European micro-cap and US real estate – and
we anticipate further asset growth during the fiscal period. As you
know, we have been building an asset management business,
Spruceview, from scratch with an excellent management team – we
think 2017-2018 will be a year where the fruits of the team’s
labour will show great progress.
We are excited about JZCP’s prospects, and following the formal
shareholder vote, let us say thank you for supporting the change in
the dividend policy and associated proposals. We believe our
investment portfolio, whether directly buying businesses or through
purchasing our stock at a deep discount, will provide JZCP
shareholders with superior investment returns.
As always, we thank you for your continued support in our
investment strategy. Please feel free to contact us with any ideas
that might be beneficial to JZCP.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
16 May 2017
Investment Portfolio
|
|
Historical |
|
Carrying
Value |
|
Percentage of portfolio |
|
|
Book |
|
28
February |
|
|
|
cost |
|
2017 |
|
|
|
US$'000 |
|
US$'000 |
|
|
% |
|
|
|
|
|
|
|
|
US Micro-cap
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Micro-cap
(Verticals) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Services
Solutions(4) |
|
|
|
|
|
|
|
INDUSTRIAL SERVICES SOLUTIONS (“ISS”)
A combination of twenty five acquired businesses in the industrial
maintenance, repair and service industry |
|
|
|
|
|
|
|
Total Industrial
Services Solutions valuation |
|
33,257 |
|
83,754 |
|
|
7.8 |
|
|
|
|
|
|
|
|
Healthcare Revenue
Cycle Management (4) |
|
|
|
|
|
|
|
BHS HOSPITAL
SERVICES
Provider of outsourced revenue cycle management solutions to
hospitals. BHS Hospital Services, Inc., which owns Bolder
Outreach Services (formerly known as Monti Eligibility & Denial
Solutions), Receivables Outsourcing, Inc. and Avectus
Healthcare Solutions, LLC is a subsidiary of Bolder Healthcare
Solutions, LLC |
|
|
|
|
|
|
0.0 |
BHS PHYSICIAN
SERVICES
Provider of outsourced revenue cycle management solutions to
physician groups. BHS Physician Services, Inc., which owns Bodhi
Tree Group and PPM Information Solutions, Inc. is
a subsidiary of Bolder Healthcare Solutions, LLC |
|
|
|
|
|
|
0.0 |
Total Healthcare
Revenue Cycle Management valuation |
|
30,327 |
|
67,418 |
|
|
6.3 |
|
|
|
|
|
|
|
|
Testing
Services(4) |
|
|
|
|
|
|
|
ARGUS GROUP
HOLDINGS
Sells, rents and services safety and testing equipment to a variety
of industries. Argus Group Holdings is a subsidiary of Testing
Services Holdings |
|
|
|
|
|
|
|
Total Testing
Services Vertical valuation |
|
11,174 |
|
10,311 |
|
|
1.0 |
|
|
|
|
|
|
|
|
Water
Services(4) |
|
|
|
|
|
|
|
TWH INFRASTRUCTURE
INDUSTRIES, INC.
Environmental infrastructure company that provides technology to
facilitate repair of underground pipes and other infrastructure.
TWH Infrastructure Industries, Inc., which owns LMK
Enterprises, Perma-Liner Industries and APMCS is
a subsidiary of Triwater Holdings |
|
|
|
|
|
|
|
TWH WATER TREATMENT
INDUSTRIES, INC.
Provider of water treatment supplies and services. TWH Water
Treatment Industries, Inc., which owns Nashville Chemical &
Equipment and Klenzoid Canada Company/Eldon Water, Inc.,
is a subsidiary of Triwater Holdings |
|
|
|
|
|
|
|
TWH FILTRATION
INDUSTRIES, INC.
Supplier of parts and filters for point-of-use filtration systems,
which owns Paragon Water Systems, is a subsidiary of
Triwater Holdings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Water
Services Vertical valuation |
|
24,730 |
|
31,965 |
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total US
Micro-cap (Verticals) |
|
99,488 |
|
193,448 |
|
|
18.1 |
GEORGE INDUSTRIES
Manufacturer of highly engineered, complex and high tolerance
products for the aerospace, transportation, military and other
industrial markets |
|
12,639 |
|
12,637 |
|
|
1.2 |
IGLOO
PRODUCTS CORP(4)
Designer, manufacturer and marketer of coolers and outdoor
products |
|
6,040 |
|
6,039 |
|
|
0.5 |
ILLUMINATION
INVESTMENTS, LLC(4)
Designer and manufacturer of LED lights and lighting systems |
|
4,920 |
|
1,930 |
|
|
0.2 |
JORDAN HEALTH
PRODUCTS, LLC
Provider of new and professionally refurbished healthcare
equipment |
|
31,529 |
|
31,529 |
|
|
2.9 |
K2 TOWERS,
LLC
Acquirer of wireless communication towers |
|
20,900 |
|
19,462 |
|
|
1.8 |
NEW
VITALITY HOLDINGS, INC.(4)
Direct-to-consumer provider of nutritional supplements and personal
care products. |
|
3,497 |
|
3,870 |
|
|
0.4 |
PEACEABLE STREET
CAPITAL, LLC
Specialty finance platform focused on commercial real estate |
|
25,000 |
|
24,632 |
|
|
2.3 |
VITALYST(4)
Provider of outsourced IT support and training services |
|
9,020 |
|
8,192 |
|
|
0.8 |
SALTER
LABS, INC.(4)
Developer and manufacturer of respiratory medical products and
equipment for the homecare, hospital, and sleep disorder
markets |
|
16,762 |
|
21,413 |
|
|
2.0 |
SUZO HAPP
GROUP(4)
Designer, manufacturer and distributor of components for the global
gaming, amusement and industrial markets |
|
2,572 |
|
11,700 |
|
|
1.1 |
ORIZON(4)
Manufacturer of high precision machine parts and tools for
aerospace and defence industries |
|
15,843 |
|
15,843 |
|
|
1.5 |
TIERPOINT, LLC(4)
Provider of cloud computing and collocation data centre
services |
|
44,313 |
|
46,813 |
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total US
Micro-cap (Co-investments) |
|
193,035 |
|
204,060 |
|
|
19.1 |
|
|
|
|
|
|
|
|
US Micro-cap
(Other) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEALTHCARE PRODUCTS
HOLDINGS, INC.(1),(3)
Designer and manufacturer of motorised vehicles |
|
17,636 |
|
- |
|
|
- |
NATIONWIDE STUDIOS, INC.
Processer of digital photos for preschoolers |
|
21,907 |
|
9,952 |
|
|
0.9 |
NIELSEN-KELLERMAN
Designer and manufacturer of weather, wind and timing measurement
instruments and devices. Nielsen-Kellerman is a subsidiary of
Sensors Solutions Holdings |
|
2,644 |
|
6,731 |
|
|
0.6 |
PRIORITY EXPRESS, LLC
Provider of same day express courier services to various companies
located in north-eastern USA. Priority Express is a subsidiary of
US Logistics, LLC |
|
13,200 |
|
8,946 |
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total US
Micro-cap (Other) |
|
55,387 |
|
25,629 |
|
|
2.4 |
|
|
|
|
|
|
|
|
Total US Micro-cap
portfolio |
|
347,910 |
|
423,137 |
|
|
39.6 |
European Micro-cap
portfolio |
|
|
|
|
|
|
|
EUROMICROCAP FUND 2010, L.P.
At 28 February 2017, held the proceeds pending distribution from
the sale of Fidor Bank |
|
19,005 |
|
21,433 |
|
|
2.0 |
EUROMICROCAP FUND-C, L.P.
At 28 February 2017, was invested in two companies in the European
micro-cap sector: Factor Energia and Oro Direct |
|
13,937 |
|
61,482 |
|
|
5.8 |
JZI Fund
III, L.P.
At 28 February 2017, was invested in seven companies in the
European micro-cap sector: Petrocorner, Fincontinuo, S.A.C,
Collingwood, My Lender, Alianzas en Acero and ERSIndstries Lux
S.a.r.l. |
|
24,156 |
|
26,779 |
|
|
2.5 |
|
|
|
|
|
|
|
|
Direct
Investments |
|
|
|
|
|
|
|
DOCOUT, SL
Provider of digitalisation, document processing and storage
services |
|
2,777 |
|
2,990 |
|
|
0.3 |
GRUPO OMBUDS
Provider of personal security and asset protection |
|
17,155 |
|
20,250 |
|
|
1.9 |
TORO FINANCE
Provides short term receivables finance to the suppliers of major
Spanish companies |
|
21,619 |
|
18,249 |
|
|
1.7 |
XACOM COMUNICACIONES
SL
Supplier of telecom products and technologies |
|
2,055 |
|
3,094 |
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total European
Micro-cap portfolio |
|
100,704 |
|
154,277 |
|
|
14.5 |
|
|
|
|
|
|
|
|
Real
Estate |
|
|
|
|
|
|
|
JZCP
REALTY FUND(2)
Facilitates JZCP's investment in US real estate |
|
343,507 |
|
468,599 |
|
|
43.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate
portfolio |
|
343,507 |
|
468,599 |
|
|
43.8 |
|
|
|
|
|
|
|
|
Other
investments |
|
|
|
|
|
|
|
BRIGHT SPRUCE FUND,
L.P.
Fund investing in marketable equity, fixed income and alternative
asset classes |
|
5,463 |
|
4,500 |
|
|
0.4 |
BSM ENGENHARIA
S.A.
Brazilian-based provider of supply chain logistics, infrastructure
services and equipment rental |
|
6,115 |
|
459 |
|
|
- |
INDUSTRIAL PERFORMANCE
SOLUTIONS(4)
Acquirer of companies providing mission critical inspection
services for a variety of industries |
|
332 |
|
429 |
|
|
- |
JZ
INTERNATIONAL, LLC(3)
Fund of European LBO investments |
|
- |
|
750 |
|
|
0.1 |
MODJ,
LLC(4)
Acquirer of speciality retail companies located in the centre of
shopping malls |
|
208 |
|
279 |
|
|
- |
SPRUCEVIEW CAPITAL,
LLC
Asset management company focusing primarily on managing
endowments and pension funds |
|
21,010 |
|
16,093 |
|
|
1.5 |
US SANITATION,
LLC(4)
Acquirer of janitorial and sanitorial product distributors and
related chemical manufacturers and blenders |
|
425 |
|
657 |
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
investments |
|
33,553 |
|
23,167 |
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total -
portfolio |
|
825,674 |
|
1,069,180 |
|
|
100.0 |
|
|
|
|
|
|
|
|
(1) Original book cost incurred by JZEP/JZCP
adjusted for subsequent transactions. The book cost represents cash
outflows and excludes PIK investments.
(2) JZCP owns 100% of the shares and voting rights of JZCP
Realty Fund, Ltd.
(3) Legacy Investments. Legacy investments are excluded from the
calculation of capital and income incentive fees.
(4) Co-investment with Fund A, a Related Party (Note
23).
Board of Directors
David Macfarlane (Chairman)1
Mr Macfarlane was appointed to the Board of JZCP in April 2008 as Chairman and a non-executive
Director. Until 2002 he was a Senior Corporate Partner at Ashurst.
He was a non-executive director of the Platinum Investment Trust
Plc from 2002 until January 2007.
Patrick Firth2
Mr Firth was appointed to the Board of JZCP in April 2008. He is also a director of a number of
offshore funds and management companies, including DW Catalyst
Limited Fund (formerly "BH Credit Catalysts Limited"), ICG- Longbow
Senior Secured UK Property Debt Investments Limited, Riverstone
Energy Limited and NextEnergy Solar Fund Limited. He is Chairman of
GLI Finance Limited. He is a member of the Institute of Chartered
Accountants in England and
Wales and The Chartered Institute
for Securities and Investment. He is a resident of Guernsey.
James Jordan
Mr Jordan is a private investor who was appointed to the Board of
JZCP in 2008. He is a director of the First Eagle family of mutual
funds, and of Alpha Andromeda Investment Trust Company, S.A. Until
30 June 2005, he was the managing
director of Arnhold and S. Bleichroeder Advisers, LLC, a privately
owned investment bank and asset management firm; and until
25 July 2013, he was a non-executive
director of Leucadia National Corporation. He is a Trustee and Vice
Chairman of the World Monuments Fund, and serves as an Overseer of
the Gennadius Library of the American School of Classical Studies
in Athens, and as a Director of
Pro Natura de Yucatan.
Tanja Tibaldi
Ms Tibaldi was appointed to the Board of JZCP in April 2008. She was on the board of JZ Equity
Partners Plc from January 2005 until
the company's liquidation on 1 July
2008. She was managing director at Fairway Investment
Partners, a Swiss asset management company where she was
responsible for the Group's marketing and co-managed two fund of
funds. Previously she was an executive at the Swiss Stock Exchange
and currently serves on the board of several private companies.
Christopher Waldron
Mr Waldron was appointed to the Board of JZCP in 2013. He has more
than thirty years’ experience as an asset manager and is a director
of a number of listed companies, including DW Catalyst Fund Limited
and Crystal Amber Fund Limited. He is Chairman of UK Mortgages
Limited and Ranger Direct Lending Fund PLC. He was Chief Executive
of the Edmond de Rothschild companies in Guernsey until 2013, when he stepped down to
concentrate on non-executive work and investment consultancy. He is
a member of the States of Guernsey’s Investment and Bond Management
Sub-Committee and a Fellow of the Chartered Institute for
Securities and Investment. Mr Waldron is a Guernsey resident.
1Chairman of the nominations committee of which all
Directors are members.
2Chairman of the audit committee of which all Directors are
members.
Report of the Directors
The Directors present their annual report together with the
audited financial statements of JZ Capital Partners ("JZCP" or the
"Company") for the year ended 28 February
2017.
Principal Activities
JZ Capital Partners Limited is a closed-ended investment company
with limited liability which was incorporated in Guernsey on 14 April
2008 under The Companies (Guernsey) Law, 1994. The Company is subject to
The Companies (Guernsey) Law,
2008. The Company's Capital consists of Ordinary shares, Zero
Dividend Preference ("ZDP") shares and Convertible Unsecured Loan
Stock ("CULS"). The Company's Ordinary shares, ZDP Shares and CULS
are traded on the London Stock Exchange's Specialist Fund
Segment.
The Company's objective is to create a portfolio of investments
providing a superior overall return comprised of a current yield
and significant capital appreciation.
The Company’s Investment Policy is to target predominantly
private investments, seeking to back exceptional management teams
to deliver on attractive investment propositions. In executing
strategy, the Company takes a long term view. The Company seeks to
invest directly in its target investments, although it may also
invest through other collective investment vehicles. The Company
may also invest in listed investments, whether arising on the
listing of its private investments or directly.
The Company is focused on investing in the following areas:
(a) small or micro-cap buyouts in
the form of debt and equity and preferred stock in both the US and
Europe; and
(b) real estate interests.
The Investment Adviser takes a dynamic approach to asset
allocation and, though it doesn’t expect to, in the event that the
Company were to invest 100% of gross assets in one area, the
Company will, nevertheless always seek to maintain a broad spread
of investment risk. Exposures are monitored and managed by the
Investment Adviser under the supervision of the Board.
The Investment Adviser is able to invest globally but with a
particular focus on opportunities in the
United States and Europe.
Business Review
The total profit attributable to Ordinary shareholders for the year
ended 28 February 2017 was
$22,697,000 (year ended 29 February 2016: profit of $51,594,000). The revenue return for the year was
$5,612,000 (year ended 29 February
2016:$10,004,000), after charging
directors fees and administrative expenses of $2,550,000 (year ended 29 February
2016:$2,713,000) and Investment
Adviser's base fee of $16,865,000
(year ended 29 February 2016:$15,510,000). The net asset value ("NAV") of the
Company at the year end was $848,844,000 (29 February
2016: $851,739,000) equal to
$10.12 (29
February 2016: $10.15) per
Ordinary share.
For the year ended 28 February
2017, the Company had $9,239,000 of cash outflows resulting from
operating activities (year ended 29 February
2016: outflows of $24,681,000).
A review of the Company's activities and performance is detailed
in the Chairman's Statement and the Investment Adviser's
Report. The valuation of the unlisted investments are detailed in
the Investment Portfolio section.
Dividends
Post year end, the dividend policy of distributing approximately
3% of the Company's net assets in the form of dividends was
discontinued. Shareholder approval was received to adopt a new
strategy where purchases by the Company of its Ordinary Shares may
be undertaken when opportunities in the market permit, and as the
Company’s cash resources allow.
For the year ended 28 February
2017 an interim dividend of 15.5
cents per Ordinary share (total $13,006,000) was declared by the Board on
25 October 2016 and paid on
25 November 2016. No second interim
dividend will be paid.
Directors
The Directors listed below are all independent and
non-executive, they have served on the Board throughout the year
and were in office at the end of the year and subsequent to the
date of this report. The biographical details of the Directors are
shown in the Board of Directors section.
David Macfarlane (Chairman)
Patrick Firth
James Jordan
Tanja Tibaldi
Christopher Waldron
Annual General Meeting
The Company's Annual General Meeting is due to be held on
27 June 2017.
Stated Capital, Purchase of own Shares
and Convertible Unsecured Loan Stock "CULS"
Details of the ZDP shares and the Ordinary shares can be found
in Notes 15 and 18. During the year, the Company did not buy back
any of its own shares. Details of the CULS can be found in Note
14.
The beneficial interests of the Directors in the Ordinary shares
of the Company are shown below:
|
|
|
|
|
Number of Ordinary shares at 1 March 2016 |
|
Ordinary shares purchased in year |
|
Number of Ordinary shares at 28 February 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Macfarlane |
|
|
|
74,800 |
|
- |
|
74,800 |
Patrick
Firth |
|
|
|
5,440 |
|
- |
|
5,440 |
James
Jordan |
|
|
|
40,800 |
|
- |
|
40,800 |
Tanja
Tibaldi |
|
|
|
2,720 |
|
- |
|
2,720 |
Christopher Waldron |
|
|
|
2,720 |
|
1,280 |
|
4,000 |
|
|
|
|
|
126,480 |
|
1,280 |
|
127,760 |
The beneficial interests of the Directors in the CULS of the
Company are shown below (no change from 29
February 2016 position):
|
|
|
|
|
|
|
|
|
|
Number of CULS of £10 nominal value at 28 February 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Macfarlane |
|
|
|
|
|
|
|
|
734 |
Patrick
Firth |
|
|
|
|
|
|
|
|
734 |
Tanja
Tibaldi |
|
|
|
|
|
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,835 |
None of the Directors held any interest in the Zero Dividend
Preference shares during the year. There have been no changes in
the Directors' interests between 28 February
2017 and the date of this report.
Substantial Shareholders
As at 28 February 2017, the
Company has been notified in accordance with applicable listing
rules of the following interests of 5% or more of the total
Ordinary share capital of the Company (the Company is unaware of
any significant changes to below holdings at the date of signing
this report) :
|
|
|
As at 28 February 2017 |
|
|
|
|
Ordinary |
|
% of
Ordinary |
|
|
|
|
shares |
|
shares |
|
|
|
|
|
|
|
Edgewater Growth
Capital Partners L.P. |
|
|
|
18,335,944 |
|
21.9% |
David W.
Zalaznick |
|
|
|
10,550,294 |
|
12.6% |
John W. Jordan II
& Affiliates |
|
|
|
10,550,294 |
|
12.6% |
Leucadia Financial
Corporation |
|
|
|
8,021,552 |
|
9.6% |
Abrams Capital
Management L.P. |
|
|
|
7,744,366 |
|
9.2% |
Finepoint Capital
L.P. |
|
|
|
4,432,818 |
|
5.5% |
First Eagle Investment
Management LLC |
|
|
|
4,391,275 |
|
5.2% |
|
|
|
|
|
|
|
|
The percentage of Ordinary shares shown above represents the
ownership of voting rights at the year end, before weighting for
votes on Directors.
It is the responsibility of the shareholders to notify the
Company of any change to their shareholdings when it reaches 5% of
shares in issue and any subsequent change when the shareholding
increases or decreases by a further 5% (up to 30% of shares in
issue i.e. 10%, 15%, 20%, 25% and 30%) and thereafter 50% and
75%.
Ongoing Charges
Ongoing charges for the years ended 28
February 2017 and 29 February
2016 have been prepared in accordance with the Association
of Investment Companies ("AIC") recommended methodology. The
ongoing charges ratio represents annualised recurring operational
expenses as a percentage of the average net asset value. The
Ongoing charges for the year ended 28
February 2017 were 2.3% (29 February
2016: 2.4%) excluding incentive fees of 1.4% (29 February 2016: 2.1%).
Principal Risks and Uncertainties
The Company's Board believes the principal risks and
uncertainties that relate to an investment in JZCP are as
follows:
NAV Factors
(i) Macroeconomic Risks
The Company's performance, and underlying NAV, is influenced by
economic factors that affect the demand for products or services
supplied by investee companies and the valuation of Real Estate
interests held. Economic factors will also influence the Company's
ability to invest and realise investments and the level of realised
returns. Approximately 15% of the Company's investments are
denominated in non-US dollar currencies, primarily the euro. Also
the Company has issued debt denominated in non-US dollar
currencies, primarily sterling. Fluctuations to these exchange
rates will affect the NAV of the Company.
(ii) Underlying Investment Performance
The Company is reliant on the Investment Adviser to source and
execute suitable investment opportunities. The Investment Adviser
provides to the Board an explanation of all investment decisions
and also quarterly investment reports and valuation proposals of
investee companies. The Board reviews investment performance
quarterly and investment decisions are checked to ensure they are
consistent with the agreed long term investment strategy.
Portfolio Liquidity
The Company invests predominantly in unquoted companies.
Therefore this potential illiquidity means there can be no
assurance investments will be realised at their latest valuation.
The Board considers this illiquidity when planning to meet its
future obligations, whether committed investments or the repayment
of debt facilities or the future repayment of CULS and ZDP shares.
On a quarterly basis, the Board receives from the Investment
Adviser and reviews a working capital model produced by the
Investment Adviser which highlights the Company's projected
liquidity and financial commitments.
Share Price Trading at Discount to NAV
JZCP's share price is subject to market sentiment and will also
reflect any periods of illiquidity when it may be difficult for
shareholders to realise shares without having a negative impact on
share price. The Directors review the share price in relation to
Net Asset Value on a regular basis and determine whether to take
any action to manage the discount. The Directors with the support
of the Investment Adviser work with brokers to maintain interest in
the Company’s shares through market contact and research
reports.
Operational and Personnel
Although the Company has no direct employees, the
Company considers what dependence there is on key individuals
within the Investment Adviser and service providers that are key to
the Company meeting its operational and control requirements.
The Board considers the principal risks and uncertainties above
are consistent with the prior year and the Company's exposure to
these risks is neither greater nor any less than in May 2016.
Viability Statement
In accordance with the UK Corporate Governance Code (the "UK
Code") the Board has assessed the expectations that the Company
will be able to continue in operation and meet ongoing debt
obligations. In order to make the assessment the Board has carried
out a robust review of the Company's principal risks and
uncertainties, as noted above, to which the Company is exposed and
that potentially threaten future performance and liquidity and has
assessed the Company's current position and prospects as detailed
in the Chairman's statement and Investment Adviser's report. The
period covered by the viability statement is the next three
financial years to 29 February
2020.
The Board believes that a viability assessment of three years
aligns with the Company's review of working capital models provided
by the Investment Adviser which detail expected investment activity
and estimated liquidity over a three year period. The Board also
considers the underlying investment portfolio, which consists
primarily of unlisted micro-cap businesses and real estate
investments which are not publicly traded. Micro-cap investments
are held for the medium term, typically a period of 3 to 5 years
and it is anticipated real estate developments will take a similar
time frame to realise returns.
The Board will continue to review the period of assessment on an
annual basis and may in future years extend the period if it is
considered appropriate.
Factors considered whilst reviewing the Company's future
prospects and viability, include:
Financing obligations
The Company has obligations to repay loan debt in June 2021, the balance outstanding to Guggenheim
Partners at 28 February 2017 was
$97.4 million, and post year end the
credit facility has been extended by a further $50 million. It is expected the debt facility
will be repaid from the proceeds of realisations and refinancing of
investments. The Company will potentially redeem CULS in
July 2021 amounting to £38.9 million,
assuming holders of CULS do not convert their holdings to equity.
JZCP is due to redeem £57.6 million of ZDP shares on 1 October
2022, again it is expected the redemption of both CULS and ZDPs
will be met from the proceeds of realisations and refinancing of
investments. At 28 February 2017, the
Company had outstanding investment commitments of $76.8 million (29 February
2016: $115.1 million).
The Board will continue to consider the Company's position in
meeting debt obligations and commitments falling outside the three
year review and will continue to consider appropriate gearing
levels to enable the financing of debt and ongoing
investment/operating activities. During the year ended 28 February 2017, the Company redeemed £32.9
million of ZDP shares on their redemption date.
Investment performance and liquidity
The Board reviews, on a quarterly basis, the valuation and
prospects of all underlying investee companies. The Board is
confident that the diversity of the portfolio and ability of the
Investment Adviser to select suitable investment opportunities will
negate the risk of a significant fall in NAV, similar to the one
the Company suffered during the financial crisis of 2008 which saw
a reduction in NAV for the 7 month period ended 28 February 2009 of approximately 30%. Whilst a
similar fall in NAV would not directly threaten the Company's
viability the Board is mindful that in a similar financial
environment, the Company will be exposed to a possible lack of
liquidity due to the difficulty in realising investments and the
possibility of investments defaulting on interest obligations to
the Company. JZCP has had realisations over the last 3 financial
years that have averaged cash inflows of $217 million per annum and has invested an
average of $231 million per annum
over the same period. The Board's current view is that whilst a
reduction in realisations may curtail scope of future investment
opportunities, cash inflows will be sufficient to enable the
Company to meets its investment and operational obligations.
Mitigation of risk as outlined in the Principal Risks and
Uncertainties.
The Board is confident the performance of the Company over the
period of review will be robust and the investment strategy will
deliver returns and liquidity. Therefore the Board has been able to
form a reasonable expectation that the Company will continue in
operation and meet its liabilities as they fall due over the next
three financial years.
Going Concern
The Board considers that the Company has adequate financial
resources, in view of its cash balances and cash equivalents and
liquid investments and the income streams deriving from its
investments and believes that the Company is well placed to manage
its business risks successfully to continue in operational
existence for a period of at least 12 months from signing of the
financial statements and that it is appropriate to prepare the
financial statements on the going concern basis.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and Consolidated Financial Statements in accordance with applicable
Guernsey Law and generally accepted accounting principles. Guernsey
Company Law requires the Directors to prepare financial statements
for each financial year which give a true and fair view of the
state of affairs of the Company as at the end of the financial year
and of the profit or loss for that year. They are also responsible
for ensuring that the Annual Report, Financial Statements, and
Company comply with the provisions of the Listing Rules, Disclosure
Rules, and Transparency Rules of the UK Listing Authority which,
with regard to corporate governance, require the Company to
disclose how it has applied the principles, and complied with the
provisions, of the corporate governance code applicable to the
Company.
In preparing Financial Statements the Directors are required
to:
- select suitable accounting policies and apply them
consistently;
- make judgements and estimates that are reasonable and
prudent;
- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the Financial Statements;
- prepare the Financial Statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business;
- confirm that there is no relevant audit information of which
the Company’s Auditor is unaware; and
- confirm that they have taken all reasonable steps which they
ought to have taken as Directors to make themselves aware of any
relevant audit information and to establish that the Company’s
Auditor is aware of that information.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Financial Statements have been properly prepared in accordance
with the Companies (Guernsey) Law,
2008 and International Financial Reporting Standards as adopted by
the European Union (“IFRS”). They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The Directors confirm that they have complied with these
requirements in preparing the Financial Statements.
Responsibility Statement of the Directors in
respect of the Financial Statements
The Directors confirm that to the best of their knowledge:
- the Financial Statements have been prepared in accordance with
IFRS and give a true and fair view of the asset, liabilities and
financial position, and profit or loss of the Company;
- the Annual Report includes a fair review of the development
and performance of the business and position of the Company
together with the description of the principal risks and
uncertainties that the Company faces, as required by the Disclosure
and Transparency Rules of the UK Listing Authority; and
- the Directors confirm that the Annual Report and Financial
Statements, taken as a whole, is fair, balanced and understandable
and provides the information necessary for Shareholders to assess
the Company’s performance and strategy.
Directors’ Statement
So far as each of the Directors is aware, there is no relevant
audit information of which the Company's auditor is unaware, and
each Director has taken all the steps they ought to have taken as a
Director to make themselves aware of any relevant audit information
and to establish that the Company's auditor is aware of that
information.
Approved by the Board of Directors and agreed on behalf of the
Board on 16 May 2017.
David Macfarlane
Chairman
Patrick Firth
Director
Corporate Governance
Introduction
The Board of JZ Capital Partners Limited has considered the
principles and recommendations of the AIC Code of Corporate
Governance published in February 2015
(the "AIC Code"). The AIC Code addresses all the principles set out
in the UK Corporate Governance Code (the "UK Code"), as well as
setting out additional principles and recommendations on issues
that are of specific relevance to JZ Capital Partners Limited. The
AIC Code can be found at www.theaic.co.uk and the UK Code can be
found at. www.frc.org.uk.
The Company is a member of the Association of Investment
Companies (the "AIC") and by complying with the AIC Code of
Corporate Governance ("AIC Code") is deemed to comply with both the
UK and Guernsey Codes of Corporate Governance.
The Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates the UK Corporate Governance Code), will provide
better information to shareholders. To ensure ongoing compliance
with these principles the Board receives and reviews a report from
the Corporate Secretary, at each quarterly meeting, identifying how
the Company is in compliance and identifying any changes that might
be necessary.
Throughout the accounting period the Company has complied with
the recommendations of the AIC Code and thus the relevant
provisions of the UK Corporate Governance Code, except as set out
below.
The UK Corporate Governance code includes provisions relating
to:
- the role of the chief executive
- executive directors remuneration
- the need for an internal audit function
- appointment of a senior independent director
- whistle blowing policy
The Board considers these provisions are not relevant to the
position of JZ Capital Partners Limited, being an externally
managed investment company. The Company has therefore not reported
further in respect of these provisions. The Directors are
non-executive and the Company does not have employees, hence no
whistle blowing policy is required. However the Directors have
satisfied themselves that the Company's service providers have
appropriate whistle blowing policies and procedures and have
received confirmation from the service providers that nothing has
arisen under those policies and procedures which should be brought
to the attention of the Board. There have been no other instances
of non-compliance, other than those noted above.
Guernsey Code of
Corporate Governance
The Guernsey Financial Services Commission’s (GFSC) “Finance
Sector Code of Corporate Governance” (Guernsey Code) came into
effect on 1 January 2012. The
introduction to the Guernsey Code states that companies which
report against the UK Corporate Governance Code or the AIC’s Code
of Corporate Governance are deemed to meet the Guernsey Code.
The Board
Corporate Governance of JZCP is monitored by the Board which at
the end of the year comprised five Directors, all of whom are
non-executive. Biographical details of the Board members at the
date of signing these Financial Statements are shown on the Board
of Directors section and their interests in the shares of JZCP are
shown in the Report of the Directors. The Directors' biographies
highlight their wide range of business experience.
The Board considers that all of the Directors are independent of
the Investment Adviser. The Board considers the Directors are free
from any business or other relationship that could materially
interfere with the exercise of their independent judgment. The
Board reviews the independence of the Directors at least
annually.
Proceedings of the Board
The Directors have overall responsibility for the Company's
activities and the determination of its investment policy and
strategy. The Company has entered into an investment advisory and
management agreement with its Investment Adviser, JZAI, pursuant to
which, subject to the overall supervision of the Directors, the
Investment Adviser acts as the investment manager to the Company
and manages the investment and reinvestment of the assets of the
Company in pursuit of the investment objective of the Company and
in accordance with the investment policies and investment
guidelines from time to time of the Company and any investment
limits and restrictions notified by the Directors (following
consultation with the Investment Adviser). Within its strategic
responsibilities the Board regularly considers corporate strategy
as well as dividend policy, the policy on share buy backs and
corporate governance issues.
The Directors meet at least quarterly to direct and supervise
the Company’s affairs. This includes reviewing the investment
strategy, risk profile, gearing strategy and performance of the
Company and the performance of the Company’s functionaries, and
monitoring compliance with the Company's objectives.
The Directors visit the Investment Adviser at least annually for
a comprehensive review of the portfolio, its valuation methodology
and general strategy. The Directors deem it appropriate to review
the valuations of the investment portfolio on a quarterly basis.
The schedule of Directors and Committee meetings is shown in the
Corporate Governance section.
Continuing terms of Investment
Adviser agreement
In the opinion of the Directors, the continuing appointment of
the Investment Adviser on the terms agreed continues to be in the
interests of Shareholders. In reaching its conclusion the Board
considers the Investment Adviser's performance and expertise and is
confident in the Investment Adviser's ability to source excellent
future investment opportunities.
Supply of information
The Chairman ensures that all Directors are properly briefed on
issues arising at Board meetings. The Company's advisers provide
the Board with appropriate and timely information in order that the
Board may reach proper decisions. Directors can, if necessary,
obtain independent professional advice at the Company's
expense.
Directors' training
The Board is provided with information concerning changes to the
regulatory or statutory regimes as they may affect the Company, and
are offered the opportunity to attend courses or seminars on such
changes, or other relevant matters. An induction programme is
available for any future Director appointments.
Chairman and senior independent Director
The Chairman is a non-executive Director, together with the rest
of the Board. There is no executive Director position within the
Company. Day-to-day management of the Company's affairs has been
delegated to the Administrator. The Board has considered whether a
senior independent Director should be appointed. However, as the
Board comprises entirely non-executive Directors, the appointment
of a senior independent Director for the time being, is not
considered necessary. Any of the non-executive Directors are
available to shareholders if they have concerns which cannot be
resolved through discussion with the Chairman.
Board diversity
The Board has also given careful consideration to the
recommendations of the Davies Report on women on boards and as
recommended in that report has reviewed its composition and
believes that it has available an appropriate range of skills and
experience. In order to extend its diversity, the Board is
committed to implementing the recommendations of the Davies Report,
if possible within the timescales proposed in the Davies Report,
and to that end will ensure that women candidates are considered
when appointments to the Board are under consideration – as indeed
has always been its practice.
Re-election of Directors
Each Director having served longer than nine years is subject to
annual re-election. Each Director who has served less than nine
years retires from office at the third annual general meeting after
appointment or (as the case may be) the general meeting at which he
was last appointed and is eligible for reappointment.
The Letters of Appointment of the non-executive Directors
suggest that it is appropriate for Directors to retire and be
nominated for re-election after three years of service. Subject to
the recommendation of the General Meeting David Macfarlane,
Patrick Firth, James Jordan and Tanja
Tibaldi are seeking re-election to the Board at the 2017
Annual General Meeting on the basis they would have served more
than nine years on 27 June 2017.Christopher
Waldron will also seek re-election having served for more
than three years since previously being re-elected.
The Board's evaluation
The Board, Audit Committee, and Nomination Committee undertake
an evaluation of their own performance and that of individual
Directors on an annual basis. In order to review their
effectiveness, the Board and its Committees carry out a process of
formal self-appraisal. The Board and Committees consider how they
function as a whole and also review the individual performance of
its members. This process is conducted by the respective Chairman
reviewing each member’s performance, contribution and their
commitment to the Company. The Board as a whole reviews the
performance of the Chairman. Each Board member is also required to
submit details of training they have undertaken on an annual basis.
Currently, no third party evaluation of the Directors effectiveness
is undertaken.
The results of the evaluation process concluded the Board was
functioning effectively and the Board and its committees provided a
suitable mix of skills and experience.
Board Committees
In accordance with the AIC Code, the Board has established an
Audit Committee and a Nomination Committee, in each case with
formally delegated duties and responsibilities within written terms
of reference. The identity of each of the chairmen of the
committees referred to below are reviewed on an annual basis. The
Board has decided that the entire Board should fulfil the role of
the Audit and Nomination committees. The terms of reference of the
committees are kept under review and can be viewed on the Company's
website www.jzcp.com.
Nomination Committee
In accordance with the Code, the Company has established a
Nomination Committee. The main role of the committee is to propose
candidates for election to the Board of Directors, including the
Chairman. The Nomination Committee takes into consideration the
Code’s rules on independence of the Board in relation to the
Company, its senior management and major shareholders. The
nomination committee is chaired by David
Macfarlane, and each of the other Directors is also a
member. The members of the committee are independent of the
Investment Adviser. The Nomination Committee has responsibility for
considering the size, structure and composition of the Board,
retirements and appointments of additional and replacement
Directors and making appropriate recommendations to the Board.
Due to the nature of the Company being a listed investment
company investing in private equity with an international
shareholder base, the Company needs Directors with a broad range of
financial experience. For this reason, Directors believe that it is
more appropriate to use their own contacts as a source of suitable
candidates as no one external consultancy or advertising source is
likely to be in a position to identify suitable candidates.
The final decision with regard to appointments always rests with
the Board and all such appointments are subject to confirmation by
shareholders.
Audit Committee
The Audit Committee is chaired by Patrick Firth. All the other Directors are
members. Members of the Committee are independent of the Company’s
external auditors and the Investment Adviser. The Audit Committee
meets at least twice a year and meets the external auditors at
least twice a year. The Audit Committee is responsible for
overseeing the Company’s relationship with the external auditors,
including making recommendations to the Board on the appointment of
the external auditors and their remuneration. The Committee also
considers the nature, scope and results of the auditors’ work and
reviews, and develops and implements policies on the supply of any
non-audit services that are to be provided by the external
auditors.
A report of the Audit Committee detailing responsibilities and
activities is presented in the Audit Committee Report.
Management Engagement Committee
The Company currently does not have a separate Management
Engagement committee. The recommended functions and
responsibilities of such a committee are exercised by the full
board each member of which is unassociated with the Investment
Adviser.
Remuneration Committee
In view of its non-executive and independent nature, the Board
considers that it is not appropriate for there to be a separate
Remuneration Committee as prescribed by the AIC Code. The process
for agreeing the non-executive Directors' fees is set out in the
Directors' Remuneration Report.
Board and Committee meeting
attendance
The number of formal meetings of the Board and its committees
held during the year and the attendance of individual Directors at
these meetings was as follows:
|
Number of meetings |
|
|
Board |
|
|
Ad
Hoc |
Audit |
|
|
Main |
AGM |
EGM |
Meetings |
Committee |
Total number of
meetings |
|
5 |
1 |
1 |
1 |
2 |
David Macfarlane |
|
5 |
1 |
1 |
1 |
2 |
Patrick Firth |
|
4 |
1 |
1 |
1 |
2 |
James Jordan |
|
5 |
1 |
1 |
- |
2 |
Tanja Tibaldi |
|
5 |
1 |
1 |
1 |
1 |
Christopher
Waldron |
|
5 |
1 |
1 |
1 |
2 |
The main Board meetings are held to agree the Company's
valuation of its investments, agree the Company's financial
statements and discuss and agree other strategic issues. Other
meetings are held when required to agree board decisions on ad-hoc
issues.
Internal Controls
The Board is ultimately responsible for establishing and
maintaining the Company’s system of internal financial and
operating control and for maintaining and reviewing its
effectiveness. The Company's risk matrix continues to be the core
element of the Company's risk management process in establishing
the Company's system of internal financial and reporting control.
The risk matrix is prepared and maintained by the Board which
initially identifies the risks facing the Company and then
collectively assesses the likelihood of each risk, the impact of
those risks and the strength of the controls operating over each
risk. The system of internal financial and operating control is
designed to manage rather than to eliminate the risk of failure to
achieve business objectives and by their nature can only provide
reasonable and not absolute assurance against misstatement and
loss.
These controls aim to ensure that assets of the Company are
safeguarded, proper accounting records are maintained and the
financial information for publication is reliable. The
Board confirms that there is an ongoing process for identifying,
evaluating and managing the principal risks faced by the
Company.
This process has been in place for the year under review and up
to the date of approval of this Annual Report and Financial
Statements and is reviewed by the Board and is in accordance with
the Internal controls: Guidance on Risk Management, Internal
Control and Related Financial and Business Reporting.
The Board has evaluated the systems of internal controls of the
Company. In particular, it has prepared a process for identifying
and evaluating the principal risks affecting the Company and the
policies by which these risks are managed.
The Board has delegated the day to day responsibilities for the
management of the Company’s investment portfolio, the provision of
depositary services and administration, registrar and corporate
secretarial functions including the independent calculation of the
Company's NAV and the production of the Annual Report and
Consolidated Financial Statements which are independently
audited.
Formal contractual agreements have been put in place between the
Company and providers of these services.
Even though the Board has delegated responsibility for these
functions, it retains accountability for these functions and is
responsible for the systems of internal control. At each quarterly
board meeting, compliance reports are provided by the
Administrator, Company Secretary and Portfolio Manager. The Board
also receives confirmation from the Administrator of its
accreditation under its Service Organisation Controls 1 report.
The Company’s risk exposure and the effectiveness of its risk
management and internal control systems are reviewed by the Audit
Committee at its quarterly meetings and annually by the Board.
The Board believes that the Company has adequate and effective
systems in place to identify, mitigate and manage the risks to
which it is exposed.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act
(“FATCA”), the Company registered with the US Internal Revenue
Services (“IRS”) as a Guernsey
reporting Foreign Financial Institution (“FFI”), received a Global
Intermediary Identification Number CAVBUD.999999.SL.831, and can be
found on the IRS FFI list.
The Common Reporting Standard (“CRS”) is a global standard for
the automatic exchange of financial account information developed
by the Organisation for Economic Co-operation and Development
(“OECD”), which has been adopted by Guernsey and which came into effect on
1 January 2016. The CRS replaced the
intergovernmental agreement between the UK and Guernsey to improve international tax
compliance that had previously applied in respect of 2014 and
2015.
The Board will take necessary actions to ensure that the Company
is compliant with Guernsey
regulations and guidance in this regard.
Relations with Shareholders
The Directors believe that the maintenance of good relations
with both institutional and retail shareholders is important for
the long term prospects of the Company. It therefore seeks active
engagement with investors, bearing in mind the duties regarding
equal treatment of shareholders and the dissemination of inside
information. The Board receives feedback on shareholder views from
its Corporate Broker and Investment Adviser, and is circulated with
Broker reports on the Company.
The Directors believe that the Annual General Meeting, a meeting
for all shareholders, is the key point in the year when the Board
of Directors accounts to all shareholders for the performance of
the Company. It therefore encourages all shareholders to attend,
and all Directors are present unless unusual circumstances
prevail.
The Directors believe that the Company policy of reporting to
shareholders as soon as possible after the Company's year end and
the holding of the Annual General Meeting at the earliest
opportunity is valuable.
The Company also provides an Interim Report and Accounts in
accordance with IAS 34 and Interim Management statements for the
quarterly periods.
Directors' Remuneration
Report
The Directors' remuneration report has been prepared on behalf
of the Directors in accordance with the UK Corporate Governance
Code ("the Code") as issued by the UK Listing Authority.
The Company's policy in regard to Directors' remuneration is to
ensure that the Company maintains a competitive fee structure in
order to recruit, retain and motivate non-executive Directors of
excellent quality in the overall interests of shareholders.
Remuneration policy
The Directors do not consider it necessary for the Company to
establish a separate Remuneration Committee. All of the matters
recommended by the Code that would be delegated to such a committee
are considered by the Board as a whole.
It is the responsibility of the Board as a whole to determine
and approve the Directors' fees, following a recommendation from
the Chairman who will have given the matter proper consideration,
having regard to the level of fees payable to non- executive
Directors in the industry generally, the role that individual
Directors fulfil in respect of Board and Committee responsibilities
and the time committed to the Company's affairs. The Chairman's
remuneration is decided separately and is approved by the Board as
a whole.
The Company's Articles state that Directors'
remuneration payable in any accounting year shall not exceed in the
aggregate an annual sum of US$650,000. Each Director is also entitled to
reimbursement of their reasonable expenses. There are no commission
or profit sharing arrangements between the Company and the
Directors. Similarly, none of the Directors is entitled to pension,
retirement or similar benefits. No element of the Directors'
remuneration is performance related.
The remuneration policy set out above is the one applied for the
year ended 28 February 2017 and is
not expected to change in the foreseeable future.
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of the Directors.
Remuneration for services
|
|
Fees for services to the Company for the year to 28
February 2017 |
|
Fees for services to the Company for the year to 29
February 2016 |
|
|
|
|
|
|
|
|
|
|
US$ |
|
|
US$ |
David Macfarlane
(Chairman) |
|
|
160,000 |
|
|
160,000 |
Patrick Firth |
|
|
70,000 |
|
|
70,000 |
James Jordan |
|
|
60,000 |
|
|
60,000 |
Tanja Tibaldi |
|
|
60,000 |
|
|
60,000 |
Christopher
Waldron |
|
|
65,000 |
|
|
65,000 |
|
|
|
|
|
|
|
|
|
|
415,000 |
|
|
415,000 |
The amounts payable to Directors as shown above were for
services as non-executive Directors. No Director has a service
contract with the Company, nor are any such contracts proposed.
Directors' Term of Appointment
Each Director having served longer than nine years is subject to
annual re-election. Each Director who has served less than nine
years retires from office at the third annual general meeting after
appointment or (as the case may be) the general meeting at which he
was last appointed and is eligible for reappointment.
The Directors were appointed as non-executive Directors by
letters issued in April 2008 and
October 2013 which state that their
appointment and any subsequent termination or retirement shall be
subject to three-months’ notice from either party in accordance
with the Articles. Each Director’s appointment letter provides
that, upon the termination of his/her appointment, that he/she must
resign in writing and all records remain the property of the
Company. The Directors’ appointments can be terminated in
accordance with the Articles and without compensation. There is no
notice period specified in the Articles for the removal of
Directors. The Articles provide that the office of director shall
be terminated by, among other things: (a) written resignation; (b)
unauthorised absences from board meetings for six months or more;
(c) unanimous written request of the other directors; and (d) an
ordinary resolution of the Company.
Signed on behalf of the Board of Directors on 16 May 2017 by:
David Macfarlane
Chairman
Patrick Firth
Director
Audit Committee Report
Dear Shareholder,
We present the Audit Committee's Report, setting out the
responsibilities of the Audit Committee and its key activities in
2016/2017. The Audit Committee has reviewed the Company's financial
reporting, the independence and effectiveness of the external
auditor and the internal control and risk management systems of the
Company's service providers. In order to assist the Audit Committee
in discharging these responsibilities, regular reports are received
and reviewed from the Investment Manager, Administrator and
external auditor.
A member of the Audit Committee will continue to be available at
each Annual General Meeting to respond to any shareholder questions
on the activities of the Audit Committee.
Responsibilities
The terms of reference of the Audit Committee include the
requirement to:
? monitor the integrity of the published Financial
Statements of the Company
? review and report to the Board on the significant
issues and judgements made in the preparation of the Company's
published Financial Statements, (having regard to matters
communicated by the external Auditors) and other financial
information
? monitor and review the quality and effectiveness of the
external Auditors and their independence
? consider and make recommendations to the Board on the
appointment, reappointment, replacement and remuneration of the
Company's external Auditor
? advise the Board that the annual report and accounts,
taken as a whole, is fair, balanced and understandable
? review and consider the Company's Principal risks and
uncertainties
? consider the long term viability of the Company
? review the Company's procedures for prevention,
detection and reporting of fraud, bribery and corruption
? monitor and review the internal control and risk
management systems of the service providers
? consider and make representations to the Board
regarding Directors' remuneration
The Audit Committee's full terms of reference can be viewed on
the Company's website www.jzcp.com.
Key Activities of the Audit Committee
The following sections discuss the assessments made by the Audit
Committee during the year:
Financial
Reporting:
The Audit Committee's review of the Annual Financial Statements
focused on the following significant areas:
? Valuation of Investments:
The fair value of the Company’s unlisted securities at 28 February 2017 was $1,069,180,000 accounting for 97% of the
Company's assets. The Committee has concentrated on ensuring the
Investment Manager has applied appropriate valuation methodologies
to these investments in producing the net asset value of the
Company.
Members of the Audit Committee meet the Investment Adviser at
least annually to discuss the valuation process. The Committee
gains comfort in the valuations produced by reviewing the
methodologies used. The valuations were challenged and approved by
the Audit Committee in a recent visit to the Investment Adviser.
The Audit Committee has thus satisfied itself that the valuation
techniques are appropriate and accurate.
? Ownership of Investments
The Audit Committee considered the ownership of the investments
held by the Company as at 28 February
2017 to be substantiated by the periodic reconciliation of
records held by the Custodian to the Company's portfolio and by
confirmations provided by Lawyers, Custodian and Administrator.
Following a review of the presentations and reports from the
Administrator and consulting where necessary with the external
auditor, the Audit Committee is satisfied that the Company duly
owns its investments which are correctly stated in the Annual
Report and Financial Statements.
? NAV-Based Fees
The Board has identified that there is a risk that management and
incentive fees which are calculated based on the NAV of the Company
could potentially be misstated if there were to be an error in the
calculation of the NAV. However, as each monthly NAV calculation is
approved by the Investment Adviser and the year end NAV has been
audited, the Board are satisfied that the fees have been correctly
calculated as stated in the Annual Report and Financial
Statements.
Risk
Management:
The Audit Committee continued to consider the process for
managing the risk of the Company and its service providers. Risk
management procedures for the Company, as detailed in the Company's
risk assessment matrix, were reviewed and approved by the Audit
Committee. There were no issues noted during the year.
Fraud, Bribery and
Corruption:
The Audit Committee continues to monitor the fraud, bribery and
corruption policies of the Company. The Board receives a
confirmation from all service providers that there have been no
instances of fraud or bribery.
The External Auditor
Ernst & Young LLP have acted as external auditor since the
Company's inception in April
2008.
Reappointment of External Auditor
Consequent to this review process, the Audit Committee has
recommended to the Board that a resolution be put to the 2017
Annual General Meeting for the reappointment of Ernst & Young
LLP as external auditor. The Board has accepted this
recommendation.
Independence,
objectivity and fees:
The independence and objectivity of the external auditor is
reviewed by the Audit Committee which also reviews the terms under
which the external auditor is appointed to perform non-audit
services. The Audit Committee has established pre-approval policies
and procedures for the engagement of the auditor to provide
non-audit and assurance services. The audit committee ensure the
appointment does not create a scenario which:
- places the external auditor in a position to audit their own
work
- creates a mutuality of interest
- results in the external auditor developing close relationships
with service providers of the Company
- results in the external auditor functioning as a manager or
employee of the Company
- puts the external auditor in the role of advocate of the
Company
As a general rule, the Company does not utilise external
auditors for internal audit purposes, secondments or valuation
advice. Services which are in the nature of audit, such as tax
compliance, tax structuring, private letter rulings, accounting
advice, quarterly reviews and disclosure advice are normally
permitted but will be pre-approved by the Audit Committee.
The following table summarises the remuneration paid by JZCP to
Ernst & Young LLP and to other Ernst & Young LLP member
firms for audit and other services during the years ended
28 February 2017 and 29 February 2016.
|
|
US
Dollar Equivalent |
|
US
Dollar Equivalent |
Year ended |
Year ended |
Year ended |
Year ended |
28.2.2017 |
28.2.2017 |
29.2.2016 |
29.2.2016 |
Ernst & Young
LLP |
|
|
|
|
- Annual audit |
£211,500 |
$263,000 |
£203,000 |
$290,000 |
- Auditor's interim
review |
£40,000 |
$51,000 |
£28,000 |
$42,000 |
- Fees in
relation to Ordinary Share placing and ZDP rollover
Other Ernst & Young LLP affiliates |
- |
- |
£266,000 |
$406,000 |
- Passive Foreign
Investment Company tax services |
- |
$60,000 |
- |
$60,000 |
In line with the policies and procedures above, the Audit
Committee does not consider that the provision of non-audit
services, which comprise acting as Reporting Accountant during
capital raising and determining whether the Company is a passive
foreign investment company as defined by the U.S. Internal Revenue
Code, to be a threat to the objectivity and independence of the
external auditor.
Performance and effectiveness:
During the year, when considering the effectiveness of the
external auditor, the Audit Committee has taken into account the
following factors:
- the audit plan presented to them before each audit;
- the post audit report including variations from the original
plan;
- changes in audit personnel;
- the external auditor's own internal procedures to identify
threats to independence; and
- feedback received from both the Investment Adviser and
Administrator.
The Audit Committee reviewed and challenged the audit plan and
the post audit report of the external auditor and concluded that
audit risks had been sufficiently identified and were sufficiently
addressed. The Audit Committee considered reports from the external
auditor on their procedures to identify threats to independence and
concluded that the procedures were sufficient to identify potential
threats to independence.
There were no significant adverse findings from this
evaluation.
The Audit Committee has examined the scope and results of the
audit, its cost effectiveness and the independence and objectivity
of the external auditor and considers Ernst & Young LLP, as
external auditor, to be independent of the Company.
Internal control and risk management
systems
Additional work performed by the Audit Committee in the areas of
internal control and risk management is disclosed in the Audit
Committee Report.
The Audit Committee has also reviewed the need for an internal
audit function. The Audit Committee has decided that the systems
and procedures employed by the Investment Adviser and the
Administrator, including the Administrator's internal audit
function, provide sufficient assurance that a sound system of
internal control, which safeguards the Company’s assets, is
maintained. An internal audit function specific to the Company is
therefore considered unnecessary.
In finalising the Annual Report and Accounts for recommendation
to the Board for approval, the Audit Committee has satisfied itself
that the Annual Report and Accounts taken as a whole are fair,
balanced and understandable.
The Audit Committee Report was approved by the Board on
16 May 2017 and signed on behalf
by:
Patrick
Firth
Chairman, Audit Committee
Statement of Comprehensive Income |
|
|
|
|
|
|
Year Ended 28 February 2017 |
|
Year Ended 29 February 2016 |
|
|
|
Revenue |
|
Capital |
|
|
|
Revenue |
|
Capital |
|
|
|
|
|
Return |
|
Return |
|
Total |
|
Return |
|
Return |
|
Total |
|
|
Note |
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on
investments at fair value through profit or loss |
6 |
- |
|
28,699 |
|
28,699 |
|
- |
|
55,088 |
|
55,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on financial
liabilities at fair value through profit or Loss |
14 |
- |
|
2,510 |
|
2,510 |
|
- |
|
7,990 |
|
7,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net write back of
impairments on loans and receivables |
7 |
- |
|
2,374 |
|
2,374 |
|
- |
|
2,594 |
|
2,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realisations from
investments held in escrow accounts |
27 |
- |
|
5,942 |
|
5,942 |
|
- |
|
1,534 |
|
1,534 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net foreign currency
exchange gain |
|
- |
|
4,728 |
|
4,728 |
|
- |
|
8,056 |
|
8,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
8 |
25,699 |
|
- |
|
25,699 |
|
28,533 |
|
- |
|
28,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank and deposit
interest |
|
41 |
|
- |
|
41 |
|
92 |
|
- |
|
92 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,740 |
|
44,253 |
|
69,993 |
|
28,625 |
|
75,262 |
|
103,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Adviser's
base fee |
10 |
(16,865) |
|
- |
|
(16,865) |
|
(15,510) |
|
- |
|
(15,510) |
|
Investment Adviser's
incentive fee |
10 |
- |
|
(12,404) |
|
(12,404) |
|
- |
|
(15,450) |
|
(15,450) |
|
Administrative
expenses |
10 |
(2,135) |
|
- |
|
(2,135) |
|
(2,298) |
|
- |
|
(2,298) |
|
Directors'
remuneration |
10 |
(415) |
|
- |
|
(415) |
|
(415) |
|
- |
|
(415) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,415) |
|
(12,404) |
|
(31,819) |
|
(18,223) |
|
(15,450) |
|
(33,673) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit |
|
6,325 |
|
31,849 |
|
38,174 |
|
10,402 |
|
59,812 |
|
70,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
9 |
- |
|
(14,764) |
|
(14,764) |
|
- |
|
(18,222) |
|
(18,222) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
Taxation |
|
6,325 |
|
17,085 |
|
23,410 |
|
10,402 |
|
41,590 |
|
51,992 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Withholding taxes |
11 |
(713) |
|
- |
|
(713) |
|
(398) |
|
- |
|
(398) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the
Year |
|
5,612 |
|
17,085 |
|
22,697 |
|
10,004 |
|
41,590 |
|
51,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of Ordinary shares in issue during the year |
24 |
|
|
|
|
83,907,516 |
|
|
|
|
|
72,914,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
Ordinary share |
24 |
6.69c |
|
20.36c |
|
27.05c |
|
13.72c |
|
57.04c |
|
70.76c |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per
Ordinary share |
24 |
6.21c |
|
19.66c |
|
25.88c |
|
12.61c |
|
46.75c |
|
59.36c |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All items in the above statement are derived from continuing
operations.
The profit for the year is attributable to the Ordinary
shareholders of the Company.
The format of the Statement of Comprehensive Income follows the
recommendations of the AIC Statement of Recommended Practice.
The "Total" column of this statement represents the Company's
statement of comprehensive income, prepared in accordance with
International Financial Reporting Standards as adopted by the
European Union.
There was no comprehensive income other than the profit for the
year.
The accompanying notes form an integral part of the audited
financial statements.
Statement of Financial Position |
|
|
|
As at 28 February
2017 |
|
|
|
|
|
|
|
|
28
February |
|
29
February |
|
|
|
2017 |
|
2016 |
|
Note |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
Assets |
|
|
|
|
|
Investments at fair
value through profit or loss |
12 |
|
1,069,180 |
|
1,043,342 |
Investments classified
as loans and receivables |
12 |
|
- |
|
750 |
Cash at bank |
|
|
29,063 |
|
91,937 |
Other receivables |
13 |
|
520 |
|
3,551 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets |
|
|
1,098,763 |
|
1,139,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Convertible Unsecured
Loan Stock |
14 |
|
57,063 |
|
59,573 |
Zero Dividend
Preference (2022) shares |
15 |
|
53,935 |
|
57,400 |
Zero Dividend
Preference (2016) shares |
15 |
|
- |
|
44,217 |
Loans payable |
16 |
|
97,396 |
|
97,011 |
Investment Adviser's
incentive fee |
10 |
|
37,293 |
|
24,889 |
Investment Adviser's
base fee |
10 |
|
2,026 |
|
2,145 |
Other payables |
17 |
|
2,206 |
|
2,606 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities |
|
|
249,919 |
|
287,841 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Stated capital |
18 |
|
265,685 |
|
265,685 |
Other reserve |
20 |
|
353,528 |
|
353,528 |
Capital reserve |
20 |
|
173,871 |
|
156,786 |
Revenue reserve |
20 |
|
55,760 |
|
75,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Equity |
|
|
848,844 |
|
851,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
and Equity |
|
|
1,098,763 |
|
1,139,580 |
|
|
|
|
|
|
|
|
|
|
|
|
Number of Ordinary
shares in issue at year end |
18 |
|
83,907,516 |
|
83,907,516 |
|
|
|
|
|
|
Net Asset Value per
Ordinary share |
26 |
|
$10.12 |
|
$10.15 |
These audited financial statements were approved by the Board of
Directors and authorised for issue on 16 May
2017. They were signed on its behalf by:
David
Macfarlane
Chairman
Patrick
Firth
Director
The accompanying notes form an integral part of the audited
financial statements.
Statement of Changes in Equity |
|
|
|
|
For the
Year Ended 28 February 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated |
|
Other |
|
Capital Reserve |
|
Revenue |
|
|
|
|
|
|
Capital |
|
Reserve |
|
Realised |
|
Unrealised |
|
Reserve |
|
Total |
|
|
Note |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1
March 2016 |
|
|
|
265,685 |
|
353,528 |
|
59,560 |
|
97,226 |
|
75,740 |
|
851,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the
year |
|
|
|
- |
|
- |
|
3,018 |
|
14,067 |
|
5,612 |
|
22,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior year
ZDP (2016) finance costs and currency gains now realised |
- |
|
- |
|
(34,544) |
|
34,544 |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
29 |
|
- |
|
- |
|
- |
|
- |
|
(25,592) |
|
(25,592) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 28
February 2017 |
|
|
|
265,685 |
|
353,528 |
|
28,034 |
|
145,837 |
|
55,760 |
|
848,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparative for the Year ended 29 February 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stated |
|
Other |
|
Capital Reserve |
|
Revenue |
|
|
|
|
|
|
Capital |
|
Reserve |
|
Realised |
|
Unrealised |
|
Reserve |
|
Total |
|
|
Note |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1
March 2015 |
|
|
|
149,269 |
|
353,528 |
|
104,657 |
|
10,539 |
|
87,517 |
|
705,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the
year |
|
|
|
- |
|
- |
|
(45,097) |
|
86,687 |
|
10,004 |
|
51,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issue of Ordinary
shares |
|
|
|
116,416 |
(1) |
- |
|
- |
|
- |
|
- |
|
116,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid |
|
29 |
|
- |
|
- |
|
- |
|
- |
|
(21,781) |
|
(21,781) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 29
February 2016 |
|
|
|
265,685 |
|
353,528 |
|
59,560 |
|
97,226 |
|
75,740 |
|
851,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of the audited
financial statements.
(1) Net of share issue costs of $3.523 million.
Statement of Cash Flows |
For the
Year Ended 28 February 2017 |
|
|
Year
Ended |
|
Year
Ended |
|
|
28
February 2017 |
|
29
February 2016 |
|
Note |
US$'000 |
|
US$'000 |
Operating Activities |
Net cash outflow from
operating activities |
28 |
(9,239) |
|
(24,681) |
Cash outflow for
investments (direct investments and capital calls) |
|
(156,505) |
|
(314,221) |
Cash inflow from
repayment and disposal of investments |
|
183,210 |
|
236,761 |
Cash inflow from the
repayment of loans and receivables |
|
3,114 |
|
2,886 |
Net cash
inflow/(outflow) before financing activities |
|
20,580 |
|
(99,255) |
Financing Activity |
Redemption of Zero
Dividend Preference (2016) shares |
|
(47,863) |
|
- |
Finance costs
paid |
|
(10,395) |
|
(9,148) |
Dividends paid to
shareholders |
29 |
(25,592) |
|
(21,781) |
Proceeds from issue of
Ordinary shares |
18 |
- |
|
119,939 |
Issue costs relating
to the issue of Ordinary shares |
18 |
- |
|
(3,523) |
Issue costs relating
to the issue of ZDP shares |
15 |
- |
|
(1,511) |
Proceeds from loan
facilities |
16 |
9,512 |
|
107,983 |
Loan issue costs
paid |
16 |
- |
|
(4,033) |
Repayment of loan
facility |
16 |
(9,512) |
|
(97,660) |
Net cash
(outflow)/inflow from financing activities |
|
(83,850) |
|
90,266 |
Decrease in cash and
cash equivalents |
|
(63,270) |
|
(8,989) |
Reconciliation of Net Cash Flow to Movements in Cash and
Cash Equivalents |
Cash at bank at 1
March |
|
91,937 |
|
101,323 |
Decrease in cash and
cash equivalents as above |
|
(63,270) |
|
(8,989) |
Unrealised foreign
exchange movements on cash at bank |
|
396 |
|
(397) |
Cash at bank at year
end |
|
29,063 |
|
91,937 |
Reconciliation of Cash Outflows/Inflows from Investments
and Realisations to numbers presented in the Chairman's
Statement, Investment Adviser's Report
and Note 12 of the financial statements |
|
|
Year
Ended |
|
Year
Ended |
|
|
28
February 2017 |
|
29
February 2016 |
|
|
US$'000 |
|
US$'000 |
Cash outflow for
investments (direct investments and capital calls) |
|
156,505 |
|
314,221 |
Deposits paid during
prior year invested in current year |
|
3,018 |
|
3,875 |
Investments in year
(direct investments and capital calls) - note 12 |
|
159,523 |
|
318,096 |
Cash inflow from
repayment and disposal of investments |
|
183,210 |
|
236,761 |
Cash inflow from the
repayment of loans and receivables |
|
3,114 |
|
2,886 |
Proceeds from
Investments Realised - note 12 |
|
186,324 |
|
239,647 |
Adjusted to reconcile to totals quoted on the
Chairman’s Statement and Investment
Adviser’s Report |
Escrow receipts |
|
5,942 |
|
|
Proceeds from maturity
of UK Treasury Gilt and Corporate Bond excluded |
|
(60,523) |
|
|
Debt interest received
on realisations |
|
321 |
|
|
Withholding tax
deducted from proceeds of refinancing |
|
(712) |
|
|
Total realisations for
the year (Chairman’s Statement and Investment
Adviser’s Report) |
|
131,352 |
|
|
The
accompanying notes form an integral part of the audited financial
statements. |
Notes to the Financial Statements
1. General Information
JZ Capital Partners Limited ("JZCP" or the "Company") is a
Guernsey domiciled closed-ended
investment company which was incorporated in Guernsey on 14 April
2008 under the Companies (Guernsey) Law, 1994. The Company is now
subject to the Companies (Guernsey) Law, 2008. The Company is classified
as an authorised fund under the Protection of Investors (Bailiwick
of Guernsey) Law 1987. The
Company's Capital consists of Ordinary shares, Zero Dividend
Preference ("ZDP") shares and Convertible Unsecured Loan Stock
("CULS"). The Company's shares trade on the London Stock Exchange's
Specialist Fund Segment ("SFS").
The Company's objective is to create a portfolio of investments
providing a superior overall return comprised of a current yield
and significant capital appreciation.
The Company’s Investment Policy is to target predominantly
private investments, seeking to back management teams to deliver on
attractive investment propositions. In executing its strategy, the
Company takes a long term view. The Company seeks to invest
directly in its target investments, although it may also invest
through other collective investment vehicles. The Company may also
invest in listed investments, whether arising on the listing of its
private investments or directly. The Investment Adviser is able to
invest globally but with a particular focus on opportunities in
the United States and Europe.
The Company is currently mainly focused on investing in the
following areas:
- small or micro-cap buyouts in the form of debt and equity and
preferred stock in both the US and Europe; and
- real estate interests.
The Investment Adviser takes a dynamic approach to asset
allocation and, though it doesn’t expect to, in the event that the
Company were to invest 100% of gross assets in one area, the
Company will, nevertheless, always seek to maintain a broad spread
of investment risk. Exposures are monitored and managed by the
Investment Adviser under the supervision of the Board.
The Company has no direct employees. For its services the
Investment Adviser receives a management fee and is also entitled
to performance related fees (Note 10). The Company has no ownership
interest in the Investment Adviser. During the year under review
the Company was administered by Northern Trust International Fund
Administration Services (Guernsey)
Limited.
The financial statements are presented in US$'000 except where
otherwise indicated.
2. Significant Accounting Policies
The accounting policies adopted in
the preparation of these audited
annual financial statements have been
consistently applied during the year, unless otherwise stated.
Statement of
Compliance
The financial statements have been prepared in accordance with
the International Financial Reporting Standards as adopted by the
European Union ("IFRS"), which comprise standards and
interpretations approved by the International Accounting Standards
Board ("IASB") together with applicable legal and regulatory
requirements of Guernsey Law, and the SFS.
Basis of Preparation
The financial statements have been prepared under the historical
cost basis, modified by the revaluation of financial instruments
designated at fair value through profit or loss upon initial
recognition. The principal accounting policies adopted are set out
below. The preparation of financial statements in conformity with
IFRS requires the Company to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date
of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could
differ from those estimates. The presentation of the financial
statements and certain disclosures follows the guidance as outlined
in the Association of Investment Companies ("AIC") Statement of
Recommended Practice ("SORP") issued in November 2014.
Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the
previous financial year.
Standards, amendments and interpretations that are not
effective and are expected to have a material impact on the
financial position or performance of the Company
IFRS 9 replaces IAS 39 - Financial Instruments: Recognition and
Measurement.
Nature and scope of new or amended pronouncement
IFRS 9 introduces a new approach to the classification of financial
assets, which is driven by the business model in which the asset is
held and their cash flow characteristics. A new business model was
introduced which does allow certain financial assets to be
categorised as “fair value through other comprehensive income” in
certain circumstances. The requirements for financial liabilities
are mostly carried forward unchanged from IAS 39. However, some
changes were made to the fair value option for financial
liabilities to address the issue of own credit risk.
The new model introduces a single impairment model being applied
to all financial instruments, as well as an “expected credit loss”
model for the measurement of financial assets.
IFRS 9 contains a new model for hedge accounting that aligns the
accounting treatment with the risk management activities of an
entity, in addition enhanced disclosures will provide better
information about risk management and the effect of hedge
accounting on the consolidated financial statements.
IFRS 9 carries forward the derecognition requirements of
financial assets and liabilities from IAS 39.
Effect on the financial statements
The standard is effective on or after 1
January 2018 and will be adopted for the year ending
28 February 2019.
The Company’s financial instruments consist of equity
instruments and debt instruments. The Company’s financial assets
under equity and debt instruments will continue to be valued at
fair value through profit or loss (“FVTPL”). Due to the cash flow
characteristics of such financial instruments, on application of
IFRS 9, they will continue to be classified as fair value through
the profit or loss.
Although early adoption is permitted the Company has established
that the impact will be minimal. In addition, the Company does not
apply hedge accounting and the valuation model is consistent with
the Company’s current methodology.
It is anticipated that this application of IFRS 9 will not
change the measurement and presentation of the current financial
instruments.
There are certain other current standards, amendments and
interpretations that are not materially relevant to the Company's
operations.
Functional and presentational currency
Items included in the financial statements of the Company are
measured in the currency of the primary economic environment in
which the Company operates (the "functional currency"). The
functional currency of the Company as determined in accordance with
IFRS is the US Dollar because this is the currency that best
reflects the economic substance of the underlying events and
circumstances of the Company. The financial statements are
presented in US Dollars, as the Company has chosen the US Dollar as
its presentation currency.
Foreign exchange
Monetary assets and liabilities denominated in foreign currency are
translated into the functional currency at the rate of exchange
ruling at the end of the reporting period date. Transactions in
foreign currencies during the course of the period are translated
at the rate of exchange ruling at the date of the transaction.
Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation at reporting period end
exchange rates of monetary assets and liabilities that are
denominated in foreign currencies are recognised in the Statement
of Comprehensive Income. Foreign exchange gains and losses on
financial assets and financial liabilities at fair value through
profit or loss are recognised together with other changes in the
fair value. Net foreign exchange gains or losses on monetary
financial assets and liabilities other than those classified as at
fair value through profit or loss are included in the line item
'Net foreign currency exchange gains'.
Financial assets and liabilities at
fair value through profit or loss ("FVTPL")
(i) Classification
The Company classifies its investments within its micro-cap, real
estate and other investments portfolios as financial assets at fair
value through profit or loss. These financial assets are designated
by the Board of Directors as at fair value through profit or loss
at inception.
Financial assets designated at fair value through profit or loss
at inception are those that are managed and their performance
evaluated on a fair value basis in accordance with the Company's
investment strategy as documented in its prospectus.
Financial liabilities may be designated at fair value through
profit or loss rather than stated at amortised cost, when the board
have considered the appropriate accounting treatment for the
specific liability.
(ii) Recognition/derecognition
Purchases and sales of investments are recognised on the trade date
- the date on which the Company commits to purchase or sell the
investment. Investments are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
Financial assets and liabilities at fair value through profit or
loss are initially recognised at fair value. Transaction costs are
expensed in the Statement of Comprehensive Income. Subsequent to
initial recognition, all financial assets and liabilities at fair
value through profit or loss are measured at fair value. Gains and
losses arising from changes in the fair value of the 'financial
assets or financial liabilities at fair value through profit or
loss' category are presented in the Statement of Comprehensive
Income in the year in which they arise.
Realised surpluses and deficits on the partial sale of
investments are arrived at by deducting the average cost of such
investments from the sales proceeds.
(iii) Fair value estimation
The fair value of financial instruments traded in active markets
(such as publicly traded securities) is based on quoted market
prices at the statement of financial position date. The quoted
market price used for financial assets held by the Company is the
bid price.
Unquoted preferred shares, micro cap loans, unquoted equities
and equity related securities investments are typically valued by
reference to their enterprise value, which is generally calculated
by applying an appropriate multiple to the last twelve months'
earnings before interest, tax, depreciation and amortisation
("EBITDA"). In determining the multiple, the Directors consider
inter alia, where practical, the multiples used in recent
transactions in comparable unquoted companies, previous valuation
multiples used and where appropriate, multiples of comparable
publicly traded companies. In accordance with the International
Private Equity and Venture Capital Association ("IPEVCA") valuation
guidelines, a marketability discount is applied which reflects the
discount that in the opinion of the Directors, market participants
would apply in a transaction in the investment in question.
The valuation techniques to derive the fair value of real estate
interests and other investments are detailed in Note 5.
Loans and receivables
(i) Classification
The Company classifies unquoted senior subordinated debt within
Mezzanine investments as loans and receivables. Investments are
generally accounted for at amortised cost using the effective
interest method except where there is deemed to be impairment in
value which indicates that a provision should be made.
(ii) Recognition/derecognition
Purchases and sales of investments are recognised on the trade date
- the date on which the Company commits to purchase or sell the
investment. Investments are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
(iii) Measurement
The effective interest method is a method of calculating the
amortised cost of a financial asset or a financial liability and of
allocating the interest income or interest expense over the
relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the
financial asset or financial liability. When calculating the
effective interest rate, the Company estimates cash flows
considering all contractual terms of the financial instrument but
does not consider future credit losses. The calculation includes
all fees paid or received between parties to the contract that are
an integral part of the effective interest rate, transaction costs
and all other premiums or discounts.
(iv) Impairment
The Company assesses at each reporting date whether the loans and
receivables are impaired. Evidence of impairment may include
indications that the counterparty is experiencing significant
financial difficulty, default or delinquency in interest or
principal payments, the probability that they will enter bankruptcy
or other financial reorganisation and where observable data
indicates that there is a measurable decrease in the estimated
future cash flows, such as changes in arrears or economic
conditions that correlate with defaults. If there is objective
evidence that an impairment loss has occurred, the amount of the
loss is measured as the difference between the asset’s carrying
amount and the net present value of expected cash flows discounted
at the original effective interest rate.
The carrying amount of the asset is reduced through the use of
an allowance account and the amount of the loss is recognised in
the Statement of Comprehensive Income as net impairments on loans
and receivables.
Impaired debts together with the associated allowance are
written off when there is no realistic prospect of future recovery
and all collateral has been realised or has been transferred to the
Company. If, in a subsequent period, the amount of the estimated
impairment loss increases or decreases because of an event
occurring after the impairment was recognised, the previously
recognised impairment loss is increased or reduced by adjusting the
allowance account. If a previous write-off is later recovered, the
recovery is credited to net impairments/write back of impairments
on loans and receivables.
Cash on deposit and cash and cash equivalents
Cash on deposit comprises bank deposits with an original maturity
of three months or more. Cash and cash equivalents comprise
bank balances and cash held by the Company, including short-term
bank deposits with a maturity of three months or less. Cash also
includes amounts held in interest-bearing overnight accounts.
Other receivables and payables
Other receivables do not carry any interest and are short-term in
nature and are accordingly stated at their nominal value as reduced
by appropriate allowances for estimated irrecoverable amounts.
Other payables are not interest-bearing and are stated at their
nominal value.
Financial liabilities and equity
Financial liabilities and equity are classified according to the
substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in
the assets of the Company after deducting all of its liabilities.
Financial liabilities, other than CULS (see below) and equity are
recorded at the amount of proceeds received, net of issue costs.
Ordinary shares are regarded as equity.
Zero Dividend Preference ("ZDP") shares
In accordance with International Accounting Standard 32 -
'Financial Instruments: Presentation', ZDP shares have been
disclosed as a financial liability as the shares are redeemable at
a fixed date and holders are entitled to a fixed return. ZDP shares
are recorded at amortised cost using the effective interest rate
method.
Convertible Unsecured Loan
Stock
The Convertible Unsecured Loan Stock (“CULS”) issued by the Company
is denominated in a currency (GBP) other than the Company's
functional currency and hence fails the 'fixed-for-fixed' criteria
for equity classification. Rather than account for the host debt
and embedded conversion element separately, the Company elects to
account for the CULS in its entirety in accordance with the IAS 39
'Fair Value Option'. The CULS' fair value is deemed to be the
listed offer price at the year end. CULS is translated at the
exchange rate at the reporting date and both differences in fair
value due to the listed offer price and exchange rates are
recognised in the Statement of Comprehensive Income.
Income
Interest income for all interest bearing financial instruments is
included on an accruals basis using the effective interest method.
Dividend income is recognised when the Company's right to receive
payment is established. When there is reasonable doubt that income
due to be received will actually be received, such income is not
accrued until it is clear that its receipt is probable. Where
following an accrual of income, receipt becomes doubtful, the
accrual is either fully or partly written off until the reasonable
doubt is removed.
Expenses
Investment Adviser's basic fees are allocated to revenue. The
Company also provides for a Capital Gains Incentive fee based on
net realised and unrealised investments gains.
Expenses which are deemed to be incurred wholly in connection
with the maintenance or enhancement of the value of the investments
are charged to realised capital reserve. All other expenses are
accounted for on an accruals basis and are presented as revenue
items.
Finance costs
Finance costs are interest expenses in respect of the ZDP shares,
loans payable and CULS, and are recognised in the Statement of
Comprehensive Income using the effective interest rate method.
Escrow accounts
Where investments are disposed of, the consideration given may
include contractual terms requiring that a percentage of the
consideration is held in an escrow account pending resolution of
any indemnifiable claims that may arise and as such the value of
these escrow amounts is not immediately known. The Company records
gains realised on investments held in escrow in the Statement of
Comprehensive Income following confirmation that any such
indemnifiable claims have been resolved and none is expected in the
future.
Taxation
The company has been granted Guernsey tax exempt status in accordance with
The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended).
However, in some jurisdictions, investment income and capital gains
are subject to withholding tax deducted at the source of the
income. The Company presents the withholding tax separately from
the gross investment income in the Statement of Comprehensive
Income.
3. Estimates and Judgements
The following are the key judgements and other key sources of
estimation uncertainty at the end of the reporting year, that have
a significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial
year:
Estimates
(i) Fair Value of Investments at Fair Value Through
Profit or Loss ("FVTPL")
Certain investments are classified as FVTPL, and valued
accordingly, as disclosed in note 2. The key source of estimation
uncertainty is on the valuation of unquoted equities and
equity-related securities.
In reaching its valuation of the unquoted equities and
equity-related securities the key judgements the Board has to make
are those relating to the multiples and the discount factors used
in the valuation models.
(ii) Loans and Receivables
Certain investments are classified as Loans and Receivables, and
valued accordingly, as disclosed in note 2. The key estimation is
the impairment review and the key assumptions are as disclosed in
note 2.
Judgements
Assessment as an Investment
Entity
Entities that meet the definition of an investment entity within
IFRS 10 are required to measure their subsidiaries at fair value
through profit or loss rather than consolidate them. The criteria
which define an investment entity are as follows:
- An entity that obtains funds from one or more investors for the
purpose of providing those investors with investment services;
- An entity that commits to its investors that its business
purpose is to invest funds solely for returns from capital
appreciation, investment income or both; and
- An entity that measures and evaluates the performance of
substantially all of its investments on a fair value basis.
The Company has a wide range of investors; through its
Investment Adviser management services it enables investors to
access private equity, real estate and similar investments.
The Company’s objective to provide a “superior overall return
comprised of a current yield and significant capital appreciation”
is consistent with that of an investment entity. The Company has
clearly defined exit strategies for each of its investment classes,
these strategies are again consistent with an investment
entity.
In determining the fair value of unlisted investments JZCP
follows the principles of IPEVCA valuation guidelines. The
Valuation Guidelines have been prepared with the goal that Fair
Value measurements derived when using these Valuation Guidelines
are compliant with IFRS.
The Board of JZCP evaluates the performance of unlisted
investments quarterly on a fair value basis. Listed investments are
recorded at Fair Value in accordance with IFRS being the last
traded market price where this price falls within the bid- ask
spread. In circumstances where the last traded price is not within
the bid-ask spread, the Board determines the point within the
bid-ask spread that is most representative of fair value in
accordance with IFRS 13.
The Board has also concluded that the Company meets the
additional characteristics of an investment entity, in that it has
more than one investment; the investments are predominantly in the
form of equities and similar securities; it has more than one
investor and its investors are not related parties.
Investment in Associates
An associate is an entity over which the Company has significant
influence. An entity is regarded as a subsidiary only if the
Company has control over its strategic, operating and financial
policies and intends to hold the investment on a long-term basis
for the purpose of securing a contribution to the Company’s
activities.
In accordance with the exemption within IAS 28 Investments in
Associates and Joint Ventures, the Company does not account for its
investment in EuroMicrocap Fund 2010, L.P., EuroMicrocap Fund-C
,L.P. JZI Fund III GP, L.P., Spruceview Capital, LLC and Orangewood
Partners Platform LLC using the equity method. Instead, the Company
has elected to measure its investment in its associates at fair
value through profit or loss.
The Directors have determined that although the Company has over
50% economic interest in EuroMicrocap Fund 2010, L.P., EuroMicrocap
Fund-C,L.P. JZI Fund III GP, L.P. and Orangewood Partners Platform
LLC, it does not have the power to govern the financial and
operating policies of the entities, but does have significant
influence over the strategic, operating and financial policies.
Going Concern
A fundamental principle of the preparation of financial
statements in accordance with IFRS is the judgement that an entity
will continue in existence as a going concern for a period of at
least 12 months from signing of the financial statements, which
contemplates continuity of operations and the realisation of assets
and settlement of liabilities occurring in the ordinary course of
business.
The Directors consider the Company has adequate financial
resources, in view of its holding in cash and cash equivalents and
the income streams deriving from its investments and believe that
the Company is well placed to manage its business risks
successfully to continue in operational existence for a period of
at least 12 months from signing of the financial statements and
that it is appropriate to prepare the financial statements on the
going concern basis.
4. Segment Information
The Investment Manager is responsible for allocating resources
available to the Company in accordance with the overall business
strategies as set out in the Investment Guidelines of the Company.
The Company is organised into the following segments:
•
•
•
•
The investment objective of each segment is to achieve
consistent medium-term returns from the investments in each segment
while safeguarding capital by investing in a diversified
portfolio.
Investments in corporate bonds and treasury gilts were not
considered part of any individual segment and have therefore been
excluded from this segmental analysis. The Company investments in
corporate bonds and treasury gilts matured during the year ended
28 February 2017.
The Company disposed of its remaining listed equity holding
during the year ended 28 February
2015, a provision remaining for withholding tax has been
reclassified as non-segmental.
Segmental Profit/(Loss)
For the year ended 28 February
2017
|
US
Micro-Cap
US$ '000 |
European
Micro-Cap
US$ '000 |
Real Estate
US$ '000 |
Other
Investments US$ '000 |
Total US$ '000 |
Interest revenue |
20,485 |
4,580 |
322 |
301 |
25,688 |
Total segmental
revenue |
20,485 |
4,580 |
322 |
301 |
25,688 |
Realisations from
investments held in Escrow |
5,942 |
- |
- |
- |
5,942 |
Net gain/(loss) on
investments at FVTPL |
5,263 |
1,102 |
21,236 |
(783) |
26,818 |
Write back of
Impairments on loans and receivables |
- |
- |
- |
2,374 |
2,374 |
Investment Adviser's
base fee |
(6,250) |
(2,423) |
(6,418) |
(607) |
(15,698) |
Investment Adviser's
capital incentive fee1 |
(7,882) |
264 |
(4,247) |
(135) |
(12,000) |
Total segmental
operating profit |
17,558 |
3,523 |
10,893 |
1,150 |
33,124 |
For the year ended 29 February 2016 |
|
|
|
|
|
|
US |
European |
|
Other |
|
|
Micro-Cap |
Micro-Cap |
Real
Estate |
Investments |
Total |
|
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
Interest revenue |
20,927 |
3,972 |
728 |
851 |
26,478 |
Dividend revenue |
1,326 |
- |
- |
- |
1,326 |
Total segmental
revenue |
22,253 |
3,972 |
728 |
851 |
27,804 |
Realisations from
investments held in Escrow |
1,534 |
- |
- |
- |
1,534 |
Net gain/(loss) on
investments at FVTPL |
10,167 |
(188) |
52,712 |
(4,031) |
58,660 |
Write back of
Impairments on loans and receivables |
- |
- |
- |
2,594 |
2,594 |
Investment Adviser's
base fee |
(5,114) |
(3,581) |
(4,078) |
(1,087) |
(13,860) |
Investment Adviser's
capital incentive fee1 |
(6,099) |
127 |
(10,542) |
350 |
(16,164) |
Total segmental
operating profit/(loss) |
22,741 |
330 |
38,820 |
(1,323) |
60,568 |
1The capital incentive fee is allocated across segments where a
realised or unrealised gain or loss has occurred. Segments with
realised or unrealised losses are allocated a credit pro rata to
the size of the loss and segments with realised or unrealised gains
are allocated a charge pro rata to the size of the gain.
Certain income and expenditure is not considered part of the
performance of an individual segment. This includes net foreign
exchange gains, interest on cash, finance costs, management fees,
custodian and administration fees, directors’ fees and other
general expenses.
The following table provides a reconciliation between total
segmental operating profit and operating profit.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segmental Operating Profit |
|
|
|
|
|
|
|
33,124 |
|
60,568 |
Net
gain/(loss) on treasury gilts and corporate bonds |
|
|
|
1,881 |
|
(3,572) |
|
Gain on
financial liabilities at fair value through profit or loss |
|
|
|
2,510 |
|
7,990 |
|
Net
foreign exchange gains |
|
|
|
|
|
|
|
4,728 |
|
8,056 |
Interest
on treasury notes and corporate bonds |
|
|
|
|
|
|
|
11 |
|
729 |
Interest on cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41 |
|
92 |
Fees
payable to investment adviser based on non-segmental assets |
|
|
|
(1,571) |
|
(936) |
|
Expenses
not attributable to segments |
|
|
|
|
|
(2,550) |
|
(2,713) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit |
|
|
|
|
|
|
|
|
|
|
|
38,174 |
|
70,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides a reconciliation between total
segmental revenue and Company revenue.
|
28.2.2017
US$ '000 |
29.2.2016
US$ '000 |
Total segmental
revenue |
|
|
|
25,688 |
27,804 |
Non-segmental revenue
Interest on treasury gilts and corporate bonds |
|
|
|
11 |
729 |
Bank and deposit
interest |
|
|
|
41 |
92 |
Total revenue |
|
|
|
25,740 |
28,625 |
Segmental Net Assets |
|
|
|
|
|
At 28 February
2017 |
|
|
|
|
|
|
US |
European |
Real |
Other |
|
|
Micro-Cap |
Micro-Cap |
Estate |
Investments |
Total |
|
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
Segmental assets
Investments at FVTPL |
423,137 |
154,277 |
468,599 |
23,167 |
1,069,180 |
Other receivables |
- |
- |
495 |
- |
495 |
Total
segmental assets |
423,137 |
154,277 |
469,094 |
23,167 |
1,069,675 |
Segmental liabilities
Payables and accrued expenses |
(19,666) |
1,646 |
(25,796) |
3,398 |
(40,418) |
Total
segmental liabilities |
(19,666) |
1,646 |
(25,796) |
3,398 |
(40,418) |
Total
segmental net assets |
403,471 |
155,923 |
443,298 |
26,565 |
1,029,257 |
Segmental Net Assets
At 29 February 2016
Segmental assets |
US
Micro-Cap US$ '000 |
European Micro-Cap US$ '000 |
Real
Estate US$ '000 |
Other
Investments US$ '000 |
Total US$ '000 |
Investments at
FVTPL |
386,173 |
168,797 |
366,158 |
63,570 |
984,698 |
Investments classified
as loans and receivables |
- |
- |
- |
750 |
750 |
Other receivables |
- |
- |
3,513 |
- |
3,513 |
Total
segmental assets |
386,173 |
168,797 |
369,671 |
64,320 |
988,961 |
Segmental liabilities
Payables and accrued expenses |
(11,714) |
1,263 |
(21,405) |
3,456 |
(28,400) |
Total
segmental liabilities |
(11,714) |
1,263 |
(21,405) |
3,456 |
(28,400) |
Total
segmental net assets |
374,459 |
170,060 |
348,266 |
67,776 |
960,561 |
Other receivables and prepayments are not considered to be part
of individual segment assets. Certain liabilities are not
considered to be part of the net assets of an individual segment.
These include custodian and administration fees payable, directors’
fees payable and Other payables and accrued expenses.
The following table provides a reconciliation between total
segmental assets and total assets and total segmental liabilities
and total liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segmental Assets |
|
|
|
|
|
|
|
|
|
1,069,675 |
|
988,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
Segmental Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at
bank |
|
|
|
|
|
|
|
|
|
|
|
|
|
29,063 |
|
91,937 |
|
Treasury gilts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
45,608 |
|
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
13,036 |
|
Other
receivables and prepayments |
|
|
|
|
|
25 |
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
1,098,763 |
|
1,139,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segmental Liabilities |
|
|
|
|
|
|
|
|
|
(40,418) |
|
(28,400) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
Segmental Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Zero
Dividend Preference (2022) shares |
|
|
|
|
|
(53,935) |
|
(57,400) |
|
Zero
Dividend Preference (2016) shares |
|
|
|
|
|
- |
|
(44,217) |
|
Convertible Unsecured Loan Stock |
|
|
|
|
|
(57,063) |
|
(59,573) |
|
Loans payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(97,396) |
|
(97,011) |
|
Other
payables and accrued expenses |
|
|
|
|
|
(1,107) |
|
(1,240) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities |
|
|
|
|
|
|
|
|
|
(249,919) |
|
(287,841) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Net Assets |
|
|
|
|
|
|
|
|
|
848,844 |
|
851,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Fair Value of Financial Instruments
The Company classifies fair value measurements of its financial
instruments at Fair Value Through Profit or Loss ("FVTPL") using a
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. The financial assets valued at
FVTPL are analysed in a fair value hierarchy based on the following
levels:
Level 1
Quoted prices (unadjusted) in active markets for identical
assets or liabilities.
Level 2
Those involving inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (that is, as prices) or indirectly (that is, derived from
prices). For example, investments which are valued based on quotes
from brokers (intermediary market participants) are generally
indicative of Level 2 when the quotes are executable and do not
contain any waiver notices indicating that they are not necessarily
tradable. Another example would be derivatives such as interest
rate swaps or forward currency contracts where inputs are mostly
observable and therefore may also fall into Level 2. At the year
end, the Company had assessed it held no assets or liabilities
valued at FVTPL that were using inputs that would be classified as
Level 2 within the valuation method.
Level 3
Those involving inputs for the asset or liability that are not
based on observable market data (that is, unobservable inputs).
Investments in JZCP's portfolio valued using unobservable inputs
such as multiples, capitalisation rates, discount rates (see Note
5) fall within Level 3.
Differentiating between Level 2 and Level 3 fair value
measurements i.e., assessing whether inputs are observable and
whether the unobservable inputs are significant, may require
judgement and a careful analysis of the inputs used to measure fair
value including consideration of factors specific to the asset or
liability.
The following table shows financial instruments recognised at
fair value, analysed between those whose fair value is based
on:
Financial assets at 28 February 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
1 |
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Micro-cap |
|
|
|
|
|
- |
- |
|
423,137 |
|
423,137 |
European
Micro-cap |
|
|
|
|
|
- |
- |
|
154,277 |
|
154,277 |
Real
Estate |
|
|
|
|
|
|
- |
- |
|
468,599 |
|
468,599 |
Other Investments |
|
|
|
|
|
|
|
- |
- |
|
23,167 |
|
23,167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
- |
|
1,069,180 |
|
1,069,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments classed as loan and receivables and recorded at
amortised cost would fall in to the Level 3 hierarchy if valued at
FVTPL.
Financial assets at 29 February 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level
1 |
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
Micro-cap |
|
|
|
|
|
- |
- |
|
386,173 |
|
386,173 |
European
Micro-cap |
|
|
|
|
|
- |
- |
|
168,797 |
|
168,797 |
Real
Estate |
|
|
|
|
|
|
- |
- |
|
366,158 |
|
366,158 |
Other Investments |
|
|
|
|
|
|
|
- |
- |
|
63,570 |
|
63,570 |
Listed Securities |
|
|
|
|
|
|
|
58,644 |
- |
|
- |
|
58,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,644 |
- |
|
984,698 |
|
1,043,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities designated at fair value through profit or
loss at inception |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at 28 February 2017 |
|
Level 1 |
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
|
US$ '000 |
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Subordinated Unsecured Loan Stock |
|
57,063 |
- |
|
- |
|
57,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,063 |
- |
|
- |
|
57,063 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at 29 February 2016 |
|
Level 1 |
Level 2 |
|
Level 3 |
|
Total |
|
|
|
|
|
|
|
US$ '000 |
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Subordinated Unsecured Loan Stock |
|
59,573 |
- |
|
- |
|
59,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,573 |
- |
|
- |
|
59,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers between levels
There were no transfers between the levels of hierarchy of
financial assets and liabilities recognised at fair value within
the year ended 28 February 2017 and
the year ended 29 February 2016.
Valuation techniques
In valuing investments in accordance with IFRS, the Board follow
the principles as detailed in the IPEVCA guidelines.
When fair values of listed equity and debt securities at the
reporting date are based on quoted market prices or binding dealer
price quotations (bid prices for long positions), without any
deduction for transaction costs, the instruments are included
within Level 1 of the hierarchy.
The fair value of bank debt which is derived from unobservable
data is classified as Level 3.
Investments for which there are no active markets are valued
according to one of the following methods:
Real Estate
JZCP makes its Real Estate investments through a wholly-owned
subsidiary, which in turn owns interests in various residential,
commercial, and development real estate properties. The net asset
value of the subsidiary is used for the measurement of fair value.
The underlying fair value of JZCP’s Real Estate holdings, however,
is represented by the properties themselves. The Company's
Investment Adviser and Board review the fair value methods and
measurement of the underlying properties on a quarterly basis.
Where available, the Company will use third party appraisals on the
subject property, to assist the fair value measurement
of the underlying property. Third-party appraisals are
prepared in accordance with the Appraisal and Valuation Standards
(6th edition) issued by the Royal Institution of Chartered
Surveyors. Fair value techniques used in the underlying valuations
are:
- Use of comparable market values per square foot of properties
in recent transactions in the vicinity in which the property is
located, and in similar condition, of the relevant property,
multiplied by the property’s square footage.
- Discounted Cash Flow ("DCF") analysis, using the relevant
rental stream, less expenses, for future periods, discounted at a
Market Capitalization ("MC") rate, or interest rate.
- Relevant rental stream less expenses divided by the market
capitalization rate; this method approximates the enterprise value
construct used for non-real estate assets.
For each of the above techniques third party debt is deducted to
arrive at fair value.
Due to the inherent uncertainties of real estate valuation, the
values reflected in the financial statements may differ
significantly from the values that would be determined by
negotiation between parties in a sales transaction and those
differences could be material.
Mezzanine loans
Investments are generally valued at amortised cost except where
there is deemed to be impairment in value which indicates that a
provision should be made. Mezzanine loans are classified in the
Statement of Financial Position as loans and receivables and are
accounted for at amortised cost using the effective interest method
less accumulated impairment allowances in accordance with IFRS. If
there is objective evidence that an impairment loss has been
incurred, the amount of the loss is measured as the difference
between the asset’s carrying amount and the net present value of
expected cash flows discounted at the original effective interest
rate.
Unquoted preferred shares, micro-cap loans,
unquoted equities and equity related securities
Unquoted preferred shares, micro-cap loans, unquoted equities and
equity related securities investments are classified in the
Statement of Financial Position as Investments at fair value
through profit or loss. These investments are typically valued by
reference to their enterprise value, which is generally calculated
by applying an appropriate multiple to the last twelve months'
earnings before interest, tax, depreciation and amortisation
("EBITDA"). In determining the multiple, the Board consider inter
alia, where practical, the multiples used in recent transactions in
comparable unquoted companies, previous valuation multiples used
and where appropriate, multiples of comparable publicly traded
companies. In accordance with IPEVCA guidelines, a marketability
discount is applied which reflects the discount that in the opinion
of the Board, market participants would apply in a transaction in
the investment in question.
In respect of unquoted preferred shares and micro-cap loans the
Company values these investments by reference to the attributable
enterprise value as the exit strategy in respect to these
investments would be a one tranche disposal together with the
equity component. The fair value of the investment is determined by
reference to the attributable enterprise value (this is calculated
by a multiple of EBITDA reduced by senior debt and marketability
discount) covering the aggregate of the unquoted equity, unquoted
preferred shares and debt instruments invested in the underlying
company. The increase of the fair value of the aggregate investment
is reflected through the unquoted equity component of the
investment and a decrease in the fair value is reflected across all
financial instruments invested in an underlying company.
Other Investments
Other investments at year end, comprise of mainly the Company's
investment in the asset management business - Spruceview Capital,
LLC ("Spruceview"). Spruceview is valued at impaired cost, which
the Board currently considers an appropriate measure of fair value.
As there are no unobservable inputs in the valuation of Spruceview
no sensitivity analysis is provided in the current year.
Quantitative information of significant unobservable
inputs and sensitivity analysis to significant changes in
unobservable inputs within Level 3
hierarchy
The significant unobservable inputs used in fair value measurement
categorised within Level 3 of the fair value hierarchy together
with a quantitative sensitivity as at 28
February 2017 and 29 February
2016 are shown below:
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2017 |
|
Valuation |
|
Unobservable |
Range (weighted average) |
Sensitivity |
|
Effect on Fair Value |
|
|
US$'000 |
|
Technique |
|
input |
used 1 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
micro-cap investments |
423,137 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
6.0x -
18.7x (8.3x) |
0.5x /
-0.5x |
|
(37,665) |
|
36,186 |
|
|
|
|
|
|
Discount
to Average Multiple |
|
10% - 35%
(26%) |
5.0% /
-5.0% |
|
(50,801) |
|
49,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European micro-cap
investments |
|
154,277 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
6.2x -
11.3x (8.6x) |
0.5x /
-0.5x |
|
(3,511) |
|
3,511 |
|
|
|
|
|
|
Discount
to Average Multiple |
41% discount - 63% premium (5% premium) |
5.0% /
-5.0% |
|
(4,512) |
|
4,492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
2 |
|
468,599 |
|
Comparable Sales |
|
Market
Value Per Square Foot |
|
$286 -
$3,106 per sq ft |
-5%
/+5% |
|
(13,706) |
|
14,786 |
|
|
|
|
DCF
Model/Income Approach |
|
Discount
Rate |
|
6.25% -
6.75% |
+25bps /-25bps |
(1,228) |
|
1,515 |
|
|
|
|
Cap Rate/
Income Approach |
|
Capitalisation Rate |
|
4% -
5% |
+25bps /-25bps |
(8,357) |
|
9,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
29.2.2016 |
|
Valuation |
|
Unobservable |
Range (weighted average) |
Sensitivity |
|
Effect on Fair Value |
|
|
US$'000 |
|
Technique |
|
input |
used 1 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
micro-cap investments |
386,173 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
6.0x -
18.7x (8.1x) |
0.5x /
-0.5x |
|
(29,855) |
|
29,254 |
|
|
|
|
|
|
Discount
to Average Multiple |
|
15% - 35%
(24%) |
5% /
-5% |
|
(38,104) |
|
36,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European micro-cap
investments |
|
168,797 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
6.5x -
10.0x (8.2x) |
0.5x /
-0.5x |
|
(4,181) |
|
4,181 |
|
|
|
|
|
|
Discount
to Average Multiple |
|
0% - 42%
(16%) |
5% /
-5% |
|
(2,748) |
|
2,748 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
2 |
|
366,158 |
|
Comparable Sales |
|
Market
Value Per Square Foot |
|
$380 -
$575 per sq ft |
-5%
/+5% |
|
(5,607) |
|
5,809 |
|
|
|
|
DCF
Model/Income Approach |
|
Discount
Rate |
|
7% |
+25bps /-25bps |
(1,236) |
|
1,055 |
|
|
|
|
Cap Rate/
Income Approach |
|
Capitalisation Rate |
|
3.75% -
5.5% |
+25bps /-25bps |
(11,619) |
|
12,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
|
63,570 |
|
EBITDA
Multiple |
|
Average
EBITDA Multiple of Peers |
|
7.5x |
0.5x /
-0.5x |
|
(295) |
|
295 |
|
|
|
|
Adjusted
NAV |
|
Discount
for Lack of Liquidity |
|
5% |
5% /
-5% |
|
(2,418) |
|
2,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 The sensitivity analysis refers to a percentage amount added
or deducted from the average input and the effect this has on the
fair value.
2 The Fair Value of JZCP's investment in financial
interests in Real Estate, is measured as JZCP's percentage interest
in the value of the underlying properties. The Board consider the
discount rate used, applied to the DCF, when valuing the properties
as the most significant unobservable input affecting the
measurement of fair value.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and the end of the reporting year.
Year ended
28 February 2017 |
US
Micro-Cap
US$ '000 |
European Micro-Cap
US$ '000 |
Real Estate
US$ '000 |
Other Investments US$ '000 |
Total US$ '000 |
At 1 March 2016 |
386,173 |
168,797 |
366,158 |
63,570 |
984,698 |
Investments in year
including capital calls |
62,778 |
2,739 |
89,506 |
4,500 |
159,523 |
Payment In Kind
("PIK") |
17,793 |
- |
- |
118 |
17,911 |
Proceeds from
investments realised |
(46,996) |
(21,906) |
(8,301) |
(45,484) |
(122,687) |
Net gains/(losses) on
investments |
5,263 |
1,102 |
21,236 |
(784) |
26,817 |
Transfer to/(from)
segment |
(1,245) |
- |
- |
1,245 |
- |
Movement in accrued
interest |
(629) |
3,545 |
- |
2 |
2,918 |
At 28 February
2017 |
423,137 |
154,277 |
468,599 |
23,167 |
1,069,180 |
|
|
|
|
|
|
Year ended
29 February 2016 |
US |
European |
Real |
Other |
|
|
Micro-Cap |
Micro-Cap |
Estate |
Investments |
Total |
|
US$ '000 |
US$ '000 |
US$ '000 |
US$ '000 |
US$ '000 |
At 1 March 2015 |
297,340 |
245,884 |
216,781 |
75,993 |
835,998 |
Investments in year
including capital calls |
103,125 |
59,319 |
104,677 |
5,593 |
272,714 |
Payment In Kind
("PIK") |
16,996 |
- |
- |
78 |
17,074 |
Proceeds from
investments realised |
(41,441) |
(137,289) |
(8,012) |
(13,982) |
(200,724) |
Net gains/(losses) on
investments |
10,167 |
(188) |
52,712 |
(4,030) |
58,661 |
Movement in accrued
interest |
(14) |
1,071 |
- |
(82) |
975 |
At 29 February
2016 |
386,173 |
168,797 |
366,158 |
63,570 |
984,698 |
Fair value of Zero Dividend Preference ("ZDP") shares
The fair value of the ZDP shares is deemed to be their quoted
market price. As at 28 February 2017
the ask price for the ZDP (2022) shares was £4.22 (29 February 2016: £3.85) the total fair value of
the ZDP shares was $62,532,000
(29 February 2016: $63,889,000) which is $8,597,000 (29 February
2016: $6,489,000) higher than
the liability recorded in the Statement of Financial Position.
ZDP shares are recorded at amortised cost and would fall in to
the Level 1 hierarchy if valued at FVTPL.
6. Net Gain on Investments
at Fair Value Through Profit or Loss
|
Year Ended 28.2.2017
US$ '000 |
Year Ended 29.2.2016
US$ '000 |
Gains on investments held in investment portfolio at year
end
Net movement in unrealised gains in year |
16,069 |
91,784 |
Net unrealised
gains/(losses) in prior years now realised |
11,908 |
(31,636) |
Net movement in
unrealised gains in the year |
27,977 |
60,148 |
Gains/(losses) on investments realised in year
Proceeds from investments realised |
183,210 |
236,761 |
Cost of investments
realised |
(170,580) |
(273,457) |
Net realised
gains/(losses) based on book cost |
12,630 |
(36,696) |
Net unrealised
(gains)/losses in prior years now realised |
(11,908) |
31,636 |
Total gains/(losses)
in the year on investments realised in year |
722 |
(5,060) |
Net gain on
investments in the year |
28,699 |
55,088 |
7. Write Back of
Impairments on Loans and Receivables
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
28.2.2017 |
29.2.2016 |
|
|
|
|
|
|
|
|
|
|
|
US$ '000 |
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised
write back of impairments on loans and receivables |
|
|
|
- |
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loans
repaid |
|
|
|
|
|
|
|
|
|
|
3,114 |
2,886 |
Cost of loans
repaid |
|
|
|
|
|
|
|
|
|
|
(2,976) |
(353) |
Write back
of Impairments recognised in earlier years |
|
|
|
|
|
2,236 |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,374 |
2,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Write back
of impairments on loans and receivables |
|
|
|
|
|
2,374 |
2,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2017 |
29.2.2016 |
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from investments classified as FVTPL |
|
|
|
|
|
|
25,599 |
28,491 |
Income
from investments classified as loans and receivables |
|
|
|
|
100 |
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,699 |
28,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
for the year ended 28 February 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
Loan note |
|
Other |
|
|
|
|
|
|
Dividends |
|
Dividends |
|
PIK |
|
Cash |
|
Interest |
|
Total |
|
|
|
|
US$
'000 |
|
US$ '000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap
portfolio |
|
|
|
- |
|
16,464 |
|
940 |
|
2,993 |
|
88 |
|
20,485 |
European
micro-cap portfolio |
- |
|
- |
|
3,841 |
|
739 |
|
- |
|
4,580 |
Real estate |
|
|
|
- |
|
- |
|
- |
|
- |
|
322 |
|
322 |
Other investments |
|
|
|
- |
|
120 |
|
- |
|
181 |
|
- |
|
301 |
Treasury
gilts and corporate bonds |
- |
|
- |
|
- |
|
11 |
|
- |
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- |
|
16,584 |
|
4,781 |
|
3,924 |
|
410 |
|
25,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income for the year ended 29 February 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
Loan note |
|
Other |
|
|
|
|
|
|
Dividends |
|
Dividends |
|
PIK |
|
Cash |
|
Interest |
|
Total |
|
|
|
|
US$
'000 |
|
US$ '000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap
portfolio |
|
|
|
1,326 |
|
14,198 |
|
3,259 |
|
3,470 |
|
- |
|
22,253 |
European
micro-cap portfolio |
- |
|
- |
|
1,995 |
|
1,653 |
|
324 |
|
3,972 |
Real estate |
|
|
|
- |
|
- |
|
- |
|
- |
|
728 |
|
728 |
Other investments |
|
|
|
- |
|
- |
|
42 |
|
- |
|
809 |
|
851 |
Treasury
gilts and corporate bonds |
- |
|
- |
|
- |
|
- |
|
729 |
|
729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,326 |
|
14,198 |
|
5,296 |
|
5,123 |
|
2,590 |
|
28,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Finance Costs
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CULS
finance costs paid (Note 14) |
|
|
|
|
|
3,190 |
|
3,497 |
ZDP (2022)
shares (Note 15) |
|
|
|
|
|
2,853 |
|
1,296 |
ZDP (2016)
shares (Note 15) |
|
|
|
|
|
1,180 |
|
6,459 |
Loan -
Guggenheim (Note 16) |
|
|
|
|
|
|
|
|
|
|
|
7,545 |
|
5,298 |
Loan -
Jefferies Finance, LLC (Note 16) |
|
|
|
|
|
|
- |
|
1,431 |
Margin
loan interest |
|
|
|
|
|
|
70 |
|
241 |
Refund of issue
costs |
|
|
|
|
|
|
|
|
|
|
|
(74) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,764 |
|
18,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10. Expenses
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Investment Adviser's
base fee |
|
|
|
|
|
|
|
16,865 |
|
15,510 |
Investment Adviser's
incentive fee |
|
|
|
|
|
|
|
12,404 |
|
15,450 |
Directors'
remuneration |
|
|
|
|
|
|
|
415 |
|
415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,684 |
|
31,375 |
|
|
|
|
|
|
|
|
|
|
|
Administrative
expenses: |
|
|
|
|
|
|
|
|
|
|
Legal fees |
|
|
|
|
|
|
|
584 |
|
640 |
Other expenses |
|
|
|
|
|
|
|
376 |
|
380 |
Accounting, secretarial and administration fees |
|
|
|
|
|
350 |
|
350 |
Other professional
fees |
|
|
|
|
|
|
|
349 |
|
405 |
Auditors'
remuneration |
|
|
|
|
|
|
|
322 |
|
313 |
Auditors' remuneration
- non-audit fees |
|
|
|
|
|
|
|
111 |
|
137 |
Custodian fees |
|
|
|
|
|
|
|
43 |
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,135 |
|
2,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
|
|
|
|
|
31,819 |
|
33,673 |
|
|
|
|
|
|
|
|
|
|
|
Administration Fees
Northern Trust International Fund Administration Services
(Guernsey) Limited was appointed
as Administrator to the Company on 1
September 2012. The Administrator is entitled to an annual
fee of $350,000 (29 February 2016:
$350,000) payable quarterly in
arrears. Fees payable to the Administrator are subject to an annual
fee review.
Directors'remuneration
For the years ended 28 February 2017
and 29 February 2016, the Chairman
was entitled to a fee of $160,000 per
annum and the Chairman of the Audit Committee was entitled to a fee
of US$70,000 per annum, all other
directors are entitled to a fee of US$60,000 with one director receiving an
additional $5,000 for extra
responsibilities. For the year ended 28
February 2017 total Directors' fees included in the
Statement of Comprehensive Income were $415,000 (year ended 29
February 2016: US$415,000), of
this amount $68,000 was outstanding
at the year end (29 February 2016:
$80,000).
Investment Advisory and
Performance fees
The Company entered into the amended and restated investment
advisory and management agreement with Jordan/Zalaznick Advisers,
Inc. (the "Investment Adviser") on 23
December 2010 (the “Advisory Agreement”).
Pursuant to the Advisory Agreement, the Investment Adviser is
entitled to a base management fee and to an incentive fee. The base
management fee is an amount equal to 1.5 per cent. per annum of the
average total assets under management of the Company less excluded
assets as defined under the terms of the Advisory Agreement. The
base management fee is payable quarterly in arrears; the agreement
provides that payments in advance on account of the base management
fee will be made.
For the year ended 28 February
2017, total investment advisory and management expenses,
based on the average total assets of the Company, were included in
the Statement of Comprehensive Income of $16,865,000 (year ended 29
February 2016: $15,510,000).
Of this amount $2,026,000
(29 February 2016: $2,145,000) was due and payable at the year
end.
The incentive fee has two parts. The first part is calculated by
reference to the net investment income of the Company ("Income
Incentive fee") and is payable quarterly in arrears provided that
the net investment income for the quarter exceeds 2 per cent of the
average of the net asset value of the Company for that quarter (the
"hurdle") (8 per cent. annualised). The fee is an amount equal to
(a) 100 per cent of that proportion of the net investment income
for the quarter as exceeds the hurdle, up to an amount equal to a
hurdle of 2.5%, and (b) 20 per cent. of the net investment income
of the Company above a hurdle of 2.5% in any quarter. Investments
categorised as legacy investments and other assets identified by
the Company as being excluded are excluded from the calculation of
the fee. A true-up calculation is also prepared at the end of each
financial year to determine if further fees are payable to the
Investment Adviser or if any amounts are recoverable from future
income incentive fees.
For the years ended 28 February
2017 and 29 February 2016
there was no income incentive fee.
The second part of the incentive fee is calculated by reference
to the net realised capital gains ("Capital Gains Incentive fee")
of the Company and is equal to: (a) 20 per cent. of the realised
capital gains of the Company for each financial year less all
realised capital losses of the Company for the year less (b) the
aggregate of all previous capital gains incentive fees paid by the
Company to the Investment Adviser. The capital gains incentive is
payable in arrears within 90 days of the fiscal year end.
Investments categorised as legacy investments and assets of the
EuroMicrocap Fund 2010, LP, EuroMicrocap-C Fund, L.P. and JZI Fund
III, L.P. are excluded from the calculation of the fee.
For the purpose of calculating incentive fees cumulative
preferred dividends received on the disposal of an investment are
treated as a capital return rather than a receipt of income.
At 28 February 2017 and
29 February 2016, due to cumulative
net realised losses there was no provision for an incentive fee
based on realised gains. For the year ended 28 February 2017, for the purpose of the capital
gains incentive fee ("CGIF") calculation JZCP had cumulative net
realised capital losses of $9,572,000
(29 February 2016: $22,667,000), an amount which the Investment
Adviser must cover through realised gains before being able to earn
an incentive fee going forward. Cumulative net realised capital
losses are offset against the unrealised provision for capital
gains until a net realised gain provision arises.
The Company also provides for a CGIF based on unrealised gains,
calculated on the same basis as that of the fee on realised
gains/losses. For the year ended 28 February
2017 a provision of $37,293,000 (2016: $24,889,000) has been included.
|
|
|
|
Provision At |
|
Provision At |
|
Paid
In Year |
Charge to Income Statement |
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
28.2.2017 |
|
28.2.2017 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Provision for CGIF on
unrealised investments |
|
|
|
37,293 |
|
24,889 |
|
n/a |
|
12,404 |
CGIF on realised
investments |
|
|
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision At |
|
Provision At |
|
Paid
In Year |
Charge to Income Statement |
|
|
|
|
29.2.2016 |
|
28.2.2015 |
|
29.2.2016 |
|
29.2.2016 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Provision for CGIF on
unrealised investments |
|
|
|
24,889 |
|
9,439 |
|
n/a |
|
15,450 |
CGIF on realised
investments |
|
|
|
- |
|
13,156 |
|
13,156 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,450 |
|
|
|
|
|
|
|
|
|
|
|
The Advisory Agreement may be terminated by the Company or the
Investment Adviser upon not less than two and one-half years’ (i.e.
913 days’) prior notice (or such lesser period as may be agreed by
the Company and Investment Adviser).
Custodian Fees
HSBC Bank (USA) N.A, (the
"Custodian") was appointed on 12 May
2008 under a custodian agreement. The Custodian is entitled
to receive an annual fee of $2,000
and a transaction fee of $50 per
transaction. For the year ended 28 February
2017, total Custodian expenses of $43,000 (29 February
2016: $73,000) were included
in the Statement of Comprehensive Income of which $8,000 (29 February
2016: $14,000) was outstanding
at the year end and is included within Other Payables.
Auditors' Remuneration
During the year ended 28 February
2017, the Company incurred fees for audit services of
$322,000 (29
February 2016: $313,000). Fees
are also payable to Ernst & Young for non-audit services
(reporting accountant services, interim review and taxation
services in relation to the Company's status as a Passive Foreign
Investment Company).
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
|
|
|
Audit fees |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Audit fees
- 2017: £211,500 (2016: £163,000) |
|
|
|
262 |
|
230 |
2016 -
Additional fees charged not accrued at 29.2.2016 (£40,000) |
|
|
|
60 |
|
- |
2015 -
Additional fees charged not accrued at 28.2.2015 |
|
|
|
- |
|
66 |
Disbursements payable to Ernst & Young |
|
|
|
|
- |
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total audit fees |
|
|
|
|
|
|
|
322 |
|
313 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-audit fees paid to Ernst & Young |
|
|
|
|
US$
'000 |
|
US$
'000 |
Interim
Review - Invoiced in sterling 2017: £40,000 (2016: £28,000) |
|
51 |
|
42 |
Taxation services -
2016 |
|
|
|
|
|
|
|
60 |
|
- |
Taxation services -
2015 |
|
|
|
|
|
|
|
- |
|
60 |
Taxation services -
2014 |
|
|
|
|
|
|
|
- |
|
35 |
|
|
|
|
|
|
|
|
|
|
|
Direct charge to
expenses |
|
|
|
|
|
|
|
111 |
|
137 |
|
|
|
|
|
|
|
|
|
|
|
Reporting
Accountant services - Sterling 2016: £267,0001 |
|
- |
|
406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-audit
fees |
|
|
|
|
|
|
|
111 |
|
543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Fees paid to Ernst & Young regarding the
issue of Ordinary shares amount to $263,000 and are included within share issue
costs which are debited to stated capital reserve. Fees paid of
$143,000 regarding the rollover of
ZDP shares are deducted from the cost and amortised to finance
costs over the life of the shares.
11. Taxation
The company has been granted Guernsey tax exempt status in accordance with
The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended) in
exchange for a £1,200 annual fee.
During the year, taxes of $713,000
were withheld from the proceeds from the refinancing of the
Company's investment in Trilateral Holdings. During the year ended
29 February 2016, the Company
provided for withholding tax of $398,000 on a dividend received from a private
investment.
12. Investments
Categories
of financial instruments |
Listed 28.2.2017 |
Unlisted 28.2.2017 |
Carrying Value
28.2.2017 |
|
US$
'000 |
US$
'000 |
US$
'000 |
Fair value through
profit or loss (FVTPL) |
- |
1,069,180 |
1,069,180 |
|
- |
1,069,180 |
1,069,180 |
|
Listed |
Unlisted |
Total |
|
28.2.2017 |
28.2.2017 |
28.2.2017 |
|
US$
'000 |
US$
'000 |
US$
'000 |
Book cost at 1 March
2016 |
61,971 |
832,007 |
893,978 |
Investments in year
including capital calls |
- |
159,523 |
159,523 |
Payment in kind
("PIK") |
- |
17,911 |
17,911 |
Proceeds from
investments realised |
(60,523) |
(125,801) |
(186,324) |
Net realised
(losses)/gains |
(1,448) |
14,216 |
12,768 |
Book cost at 28
February 2017 |
- |
897,856 |
897,856 |
Unrealised gains at 28
February 2017 |
- |
157,468 |
157,468 |
Accrued interest at 28
February 2017 |
- |
13,856 |
13,856 |
Carrying value at 28
February 2017 |
- |
1,069,180 |
1,069,180 |
Comparative reconciliation for the
year ended 29 February 2016 |
|
|
|
Categories
of financial instruments |
Listed |
Unlisted |
Carrying Value |
|
29.2.2016 |
29.2.2016 |
29.2.2016 |
|
US$
'000 |
US$
'000 |
US$
'000 |
Fair value through
profit or loss (FVTPL) |
58,644 |
984,698 |
1,043,342 |
Loans and
receivables |
- |
750 |
750 |
|
58,644 |
985,448 |
1,044,092 |
|
Listed |
Unlisted |
Total |
|
29.2.2016 |
29.2.2016 |
29.2.2016 |
|
US$
'000 |
US$
'000 |
US$
'000 |
Book cost at 1 March
2015(1) |
57,321 |
775,225 |
832,546 |
Investments in year
including capital calls |
45,381 |
272,715 |
318,096 |
Payment in kind
("PIK") |
- |
17,146 |
17,146 |
Proceeds from
investments realised |
(36,037) |
(203,610) |
(239,647) |
Net realised
losses |
(4,694) |
(29,469) |
(34,163) |
Book cost at 29
February 2016 |
61,971 |
832,007 |
893,978 |
Unrealised
(losses)/gains at 29 February 2016 |
(3,329) |
142,492 |
139,163 |
Accrued interest at 29
February 2016 |
2 |
10,949 |
10,951 |
Carrying value at 29
February 2016 |
58,644 |
985,448 |
1,044,092 |
The above book cost is the cost to JZCP equating to
the transfer value as at 1 July 2008
upon the liquidation of JZEP and adjusted for subsequent
transactions.
The cost of PIK investments is deemed to be interest
not received in cash but settled by the issue of further securities
when that interest has been recognised in the Statement of
Comprehensive Income.
Investment in Associates
An associate is an entity over which the Company has significant
influence. An entity is regarded as a subsidiary only if the
Company has control over its strategic, operating and financial
policies and intends to hold the investment on a long-term basis
for the purpose of securing a contribution to the Company’s
activities. The Company has elected for an exemption for 'equity
accounting' for associates and instead classifies its associates as
Investments at fair value through profit or loss.
Entity |
Place of incorporation |
|
%
Interest |
|
28.2.2017 US$'000 |
|
29.2.2016 US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EuroMicrocap Fund 2010, L.P. ("EMC 2010") |
Cayman |
|
75% |
|
21,433 |
|
46,918 |
EuroMicrocap Fund-C, L.P. ("EMC-C") |
|
|
Cayman |
|
75% |
|
61,482 |
|
57,907 |
JZI Fund
III GP, L.P. (has 18.75% partnership interest in JZI Fund III,
L.P.) |
Cayman |
|
75% |
|
26,779 |
|
22,159 |
Spruceview
Capital Partners, LLC |
Delaware |
|
49% |
|
16,093 |
|
16,510 |
Orangewood
Partners Platform LLC1 |
Delaware |
|
79% |
|
56,731 |
|
25,750 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in associates at fair value |
|
|
|
182,518 |
|
169,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Invests in K2 Towers, George Industries and Peaceable Street
Capital LLC.
The principal activity of all the EuroMicrocap Fund 2010,
L.P.,EuroMicrocap Fund-C,L.P. and Orangewood Partners Platform LLC
is the acquisition of micro-cap companies. The principal activity
of Spruceview Capital, LLC is that of an asset management company.
There are no significant restrictions on the ability of associates
to transfer funds to the Company in the form of dividends or
repayment of loans or advances.
The Company's maximum exposure to losses from the associates
(shown below) equates to the carrying value plus outstanding
commitments:
Entity |
28.2.2017
US$'000 |
29.2.2016
US$'000 |
EuroMicrocap Fund
2010, L.P. ("EMC 2010") |
21,433 |
46,918 |
EuroMicrocap Fund-C,
L.P. ("EMC-C") |
61,482 |
57,907 |
JZI Fund III GP,
L.P. |
83,189 |
82,605 |
Orangewood Partners
Platform LLC (Invests in K2 Towers, |
56,731 |
47,000 |
Spruceview Capital
Partners, LLC |
24,929 |
29,846 |
|
247,764 |
264,276 |
During Q1 2016, the investment in Oro Direct was transferred
from EMC 2010 to EMC-C, the investment was transferred at fair
value being $2,780,000 or
€2,559,000.
Investment in Subsidiaries
The principal place of business for subsidiaries is the
USA. The Company meets the
definition of an Investment Entity in accordance with IFRS 10.
Therefore, it does not consolidate its subsidiaries but rather
recognises them as investments at fair value through profit or
loss.
Entity |
Place of incorporation |
|
%
Interest |
|
28.2.2017 US$'000 |
|
29.2.2016 US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JZCP Realty Fund
Ltd |
|
Cayman |
|
100% |
|
468,599 |
|
366,158 |
JZCP Bright Spruce
Ltd(1) |
|
Cayman |
|
100% |
|
4,500 |
|
45,940 |
JZBC, Inc.
(Invests in Spruceview Capital Partners, LLC) |
Delaware |
|
99% |
|
16,093 |
|
16,510 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in subsidiaries at fair value |
|
|
|
489,192 |
|
428,608 |
|
|
|
|
|
|
|
|
|
|
|
(1)During the year, the majority of JZCP's investment
in JZCP Bright Spruce Ltd was liquidated. JZCP received total
proceeds of $44,537,000, at the year
end the remaining investment is valued at $4,500,000.
There are no significant restrictions on the ability of
subsidiaries to transfer funds to the Company. The Company has no
contractual commitments to provide any financial or other support
to its unconsolidated subsidiaries.
JZCP Realty Fund, Ltd has a 100% interest in the following
Delaware incorporated entities:
JZCP Loan Metropolitan Corp, JZCP Loan 1 Corp, JZCP Loan Flatbush
Portfolio Corp, JZCP Loan Flatbush Corp, JZCP Loan Fulton Corp, JZ
REIT Fund Greenpoint, LLC, JZ REIT Fund Florida, LLC, JZCP Loan
Florida Corp, JZCP Loan Design Corp and JZ REIT Fund Design
LLC.
JZCP Realty Fund, Ltd has a 99% interest in the following
Delaware incorporated entities: JZ
REIT Fund Metropolitan, LLC, JZ REIT Fund 1, LLC, JZ REIT Fund
Flatbush Portfolio, LLC, JZ REIT Fund Flatbush, LLC, JZ REIT Fund
Fulton, LLC and JZCP Loan Greenpoint Corp.
13. Other Receivables
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Accrued interest due
from JZCP Realty Fund |
|
|
|
|
|
|
|
495 |
|
495 |
Other receivables and
prepayments |
|
|
|
|
|
|
|
25 |
|
38 |
Deposits paid on
behalf of JZCP Realty Fund |
|
|
|
|
|
|
|
- |
|
3,018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
520 |
|
3,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14. Convertible Subordinated Unsecured Loan Stock
("CULS")
On 30 July 2014, JZCP issued
£38,861,140 6% CULS. Holders of CULS may convert the whole or part
(being an integral multiple of £10 in nominal amount) of their CULS
into Ordinary Shares. Conversion Rights may be exercised at any
time during the period from 30 September
2014 to 10 business days prior to the Maturity date being
the 30 July 2021. The initial
conversion price is £6.0373 per Ordinary Share, which shall be
subject to adjustment to deal with certain events which would
otherwise dilute the conversion of the CULS. These events include
consolidation of Ordinary Shares, dividend payments made by the
Company, issues of shares, rights, share-related securities and
other securities by the Company and other events as detailed in the
Prospectus.
CULS bear interest on their nominal amount at the rate of 6.00
per cent. per annum, payable semi-annually in arrears. During the
year ended 28 February 2017:
$3,190,000 (29
February 2016: $3,497,000) of
interest was paid to holders of CULS and is shown as a finance cost
in the Statement of Comprehensive Income.
|
28.2.2017
US$ '000 |
29.2.2016
US$ '000 |
Fair Value of CULS at
1 March |
59,573 |
67,563 |
Unrealised movement in
fair value of CULS |
4,332 |
(1,501) |
Unrealised currency
gain to the Company on translation during the year |
(6,842) |
(6,489) |
Fair Value of CULS
based on offer price |
57,063 |
59,573 |
15. Zero Dividend Preference ("ZDP") Shares
ZDP shares were issued on 22 June
2009 at a price of 215.80
pence and were designed to provide a pre-determined final
capital entitlement of 369.84 pence
on 22 June 2016 which ranks behind
the Company's creditors but in priority to the capital entitlements
of the Ordinary shares. The ZDP shares carry no entitlement to
income and the whole of their return will therefore take the form
of capital. The capital appreciation of approximately 8% per annum
is calculated monthly. In certain circumstances, ZDP shares carry
the right to vote at general meetings of the Company as detailed in
the Company's Memorandum of Articles and Incorporation. Issue costs
are deducted from the cost of the liability and allocated to the
Statement of Comprehensive Income over the life of the ZDP
shares.
On 1 October 2015, the Company
rolled over 11,907,720 existing ZDP shares in to new ZDP shares
with a 2022 maturity date. The new ZDP shares have a gross
redemption yield of 4.75% and a total redemption value of
£57,598,000 (approximately $87,246,000 using the exchange rate on date of
rollover). The remaining 8,799,421 ZDP (2016) shares were redeemed
on 22 June 2016 the total redemption
value being £32,870,000. The redemption value of £32,870,000
included a 1% premium agreed as part of the terms of the rollover,
the premium was treated as an issue cost of the 2022 ZDPs and is
accounted for accordingly.
ZDP (2022)
Shares |
28.2.2017
US$ '000 |
29.2.2016
US$ '000 |
ZDP shares issued 1
October 2015 |
|
|
Rollover - from ZDP
(2016) shares |
- |
63,085 |
Issue costs |
- |
(1,997) |
Amortised cost at 1
March 2016/1 October 2015 |
57,400 |
61,088 |
Finance costs
allocated to Statement of Comprehensive Income |
2,853 |
1,296 |
Unrealised currency
gain to the Company on translation during the year |
(6,318) |
(4,984) |
Amortised cost at year
end |
53,935 |
57,400 |
Total number of ZDP
(2022) shares in issue |
11,907,720 |
11,907,720 |
ZDP (2016)
Shares |
28.2.2017 |
29.2.2016 |
|
US$
'000 |
US$
'000 |
ZDP
shares issued 22 June 2009
Amortised cost at 1 March |
44,217 |
106,813 |
Finance costs
allocated to Statement of Comprehensive Income |
1,180 |
6,459 |
Redeemed 22 June
2016 |
(47,863) |
- |
Rollover - to ZDP
(2022) shares |
- |
(63,085) |
Unrealised currency
(loss)/gain to the Company on translation during the year |
2,466 |
(5,970) |
Amortised cost at year
end |
- |
44,217 |
Total number of ZDP
(2016) shares in issue |
- |
8,799,421 |
16. Loans Payable
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Guggenheim Partners
Limited |
|
|
|
|
|
|
|
97,396 |
|
97,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,396 |
|
97,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guggenheim Partners Limited
On 12 June 2015, JZCP entered into
a loan agreement with Guggenheim Partners Limited. The agreement
was structured so that part of the proceeds (€18 million) were
received and will be repaid in Euros and the remainder of the
facility received in US dollars ($80
million).
The loan matures on 12 June 2021
(6 year term) and interest is payable at 5.75% + LIBOR(1). There is
an interest rate floor that stipulates LIBOR will not be lower than
1%. Under IFRS an interest rate floor that is initially in the
money meets the criteria of an embedded derivative which is not
closely related to the host contract and should therefore be
separated from the host loan contract and measured at fair value.
However, in this agreement, the presence of the floor does not
significantly alter the amortised cost of the instrument to be
deemed to be not closely related, therefore separation is not
required and the loan is valued at amortised cost using the
effective interest rate method.
At 28 February 2017, investments
valued at $918,140,000 (29 February 2016: $602,780,000) were held as collateral on the
loan. A covenant on the loan states the fair value of the
collateral must be 4x the loan value and the cost of collateral
must be at least 57.5% of total assets. The Company is also
required to hold a minimum cash balance of $15 million plus 50% of interest on any new debt.
At 28 February 2017 and throughout
the year, the Company was in full compliance with covenant
terms.
There is an early repayment charge of 1% of the total loan if
repaid before 12 June 2017.
|
28.2.2017
US$ '000 |
29.2.2016
US$ '000 |
Amortised cost (US$
drawdown) - 1 March 2016 |
77,916 |
- |
Amortised cost (Euro
drawdown) - 1 March 2016 |
19,095 |
- |
Proceeds - 12 June
2015 (US dollar drawdown) |
- |
80,000 |
Proceeds - 12 June
2015 (Euro draw down €18 million) |
- |
20,283 |
Issue costs |
- |
(4,033) |
Finance costs charged
to Statement of Comprehensive Income |
7,545 |
5,298 |
Interest and finance
costs paid |
(6,723) |
(3,825) |
Unrealised currency
gain on translation of Euro drawdown |
(437) |
(712) |
Amortised cost at year
end |
97,396 |
97,011 |
Amortised cost (US
dollar drawdown) |
78,572 |
77,916 |
Amortised cost (Euro
drawdown) |
18,824 |
19,095 |
|
97,396 |
97,011 |
(1) LIBOR rates applied are the US dollar 3 month rate ($80
million) and the Euro 3 month rate (€18 million). |
The carrying value of
the loans approximates to fair value. |
|
|
17. Other Payables
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Provision
for tax on dividends received not withheld at source |
|
|
|
1,401 |
|
1,401 |
Legal fee
provision |
|
|
|
|
|
|
|
250 |
|
250 |
Audit fees |
|
|
|
|
|
|
|
224 |
|
116 |
Directors'
remuneration |
|
|
|
|
|
|
|
68 |
|
80 |
Other expenses |
|
|
|
|
|
|
|
263 |
|
273 |
ZDP issue costs |
|
|
|
|
|
|
|
- |
|
486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,206 |
|
2,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18. Stated Capital
Authorised
Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlimited
number of ordinary shares of no par value. |
|
|
|
|
|
|
Ordinary shares -
Issued Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
Number of shares |
|
Number
of shares |
|
|
|
|
|
|
|
|
|
|
|
Total Ordinary shares
in issue |
|
|
|
|
|
|
|
83,907,516 |
|
83,907,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company's shares trade on the London Stock Exchange's
Specialist Fund Segment.
On 30 September 2015, a placing
and open offer of Ordinary shares resulted in a further 18,888,909
Ordinary shares being issued at £4.1919 per share.
The Ordinary shares carry a right to receive the profits of the
Company available for distribution by dividend and resolved to be
distributed by way of dividend to be made at such time as
determined by the Directors.
In addition to receiving the income distributed, the Ordinary
shares are entitled to the net assets of the Company on a winding
up, after all liabilities have been settled and the entitlement of
the ZDP shares has been met. In addition, holders of Ordinary
shares will be entitled on a winding up to receive any accumulated
but unpaid revenue reserves of the Company, subject to all
creditors having been paid out in full but in priority to the
entitlements of the ZDP shares. Any distribution of revenue
reserves on a winding up is currently expected to be made by way of
a final special dividend prior to the Company's eventual
liquidation.
Holders of Ordinary shares have the rights to receive notice of,
to attend and to vote at all general meetings of the Company.
Capital raised on issue of new
shares
Subsequent amounts raised by the issue of new shares, net of issue
costs, are credited to the stated capital account.
Stated
capital account |
28.2.2017 |
29.2.2016 |
|
US$
'000 |
US$
'000 |
At 1 March |
265,685 |
149,269 |
Issue of Ordinary
shares |
- |
119,939 |
Issue costs |
- |
(3,523) |
At year end |
265,685 |
265,685 |
19. Capital Management
The Company's capital is represented by the Ordinary shares, ZDP
shares and CULS.
As a result of the ability to issue, repurchase and resell
shares, the capital of the Company can vary. The Company is not
subject to externally imposed capital requirements and has no
restrictions on the issue, repurchase or resale of its shares.
The Company's objectives for managing capital are:
•
•
•
•
The Company continues to keep under review opportunities to buy
back Ordinary or ZDP shares.
Subsequent to the year end, the Company discontinued the
dividend policy to distribute approximately 3% of the Company's net
assets in the form of dividends to Shareholders and adopted a new
strategy enabling purchases by the Company of its Ordinary Shares
to be undertaken when opportunities in the market permit, and as
the Company’s cash resources allow.
The Company monitors capital by analysing the NAV per share over
time and tracking the discount to the Company's share price. It
also monitors the performance of the existing investments to
identify opportunities for exiting at a reasonable return to the
shareholders.
20. Reserves
Capital raised on formation of
Company
The Royal Court of Guernsey
granted that on the admission of the Company's shares to the
Official List and to trading on the London Stock Exchange's market,
the amount credited to the share premium account of the Company
immediately following the admission of such shares be cancelled and
any surplus thereby created accrue to the Company's distributable
reserves to be used for all purposes permitted by The Companies
(Guernsey) Law, 2008, including
the purchase of shares and the payment of dividends.
Summary of
reserves attributable to Ordinary shareholders |
28.2.2017 |
29.2.2016 |
|
US$ '000 |
US$ '000 |
Stated capital
account |
265,685 |
265,685 |
Other reserve |
353,528 |
353,528 |
Capital reserve |
173,871 |
156,786 |
Revenue reserve |
55,760 |
75,740 |
|
848,844 |
851,739 |
Other reserve
There was no movement in the Company's Other reserve for the years
ended 28 February 2017 and
29 February 2016. Subject to
satisfaction of the solvency test, all of the Company's capital and
reserves are distributable in accordance with The Companies
(Guernsey) Law, 2008.
Capital reserve
All surpluses arising from the realisation or revaluation of
investments and all other capital profits and accretions of capital
are credited to the Capital reserve. Any loss arising from the
realisation or revaluation of investments or any expense, loss or
liability classified as capital in nature may be debited to the
Capital reserve.
|
Realised 28.2.2017 |
Unrealised 28.2.2017 |
Total 28.2.2017 |
US$ '000 |
US$ '000 |
US$ '000 |
At 1 March 2016 |
59,560 |
97,226 |
156,786 |
Net gains on
investments |
12,768 |
18,305 |
31,073 |
Net (losses)/gains on
foreign currency exchange |
(4,603) |
9,331 |
4,728 |
Realised gains on
investments held in escrow accounts |
5,942 |
- |
5,942 |
Expenses charged to
capital |
- |
(12,404) |
(12,404) |
Net gain on CULS |
- |
2,510 |
2,510 |
Finance costs |
(11,089) |
(3,675) |
(14,764) |
Prior year ZDP (2016)
finance costs and currency gains now realised |
(34,544) |
34,544 |
- |
At 28 February
2017 |
28,034 |
145,837 |
173,871 |
|
Realised |
Unrealised |
Total |
|
29.2.2016 |
29.2.2016 |
29.2.2016 |
|
US$ '000 |
US$ '000 |
US$ '000 |
At 1 March 2015 |
104,657 |
10,539 |
115,196 |
Net gains on
investments |
(34,163) |
91,845 |
57,682 |
Net (losses)/gains on
foreign currency exchange |
(3,213) |
11,269 |
8,056 |
Realised gains on
investments held in escrow accounts |
1,534 |
- |
1,534 |
Expenses charged to
capital |
- |
(15,450) |
(15,450) |
Net gain on CULS |
- |
7,990 |
7,990 |
Finance costs |
(9,255) |
(8,967) |
(18,222) |
At 29 February
2016 |
59,560 |
97,226 |
156,786 |
Revenue
reserve |
|
|
|
|
|
28.2.2017 |
29.2.2016 |
|
|
US$ '000 |
US$ '000 |
At 1 March |
|
75,740 |
87,517 |
Profit for the year
attributable to revenue |
|
5,612 |
10,004 |
Dividend paid |
|
(25,592) |
(21,781) |
At year end |
|
55,760 |
75,740 |
21. Financial Risk Management
Objectives and Policies
Introduction
The Company’s objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company’s
activities, but it is managed through a process of ongoing
identification, measurement and monitoring, subject to risk limits
and other controls. The process of risk management is critical to
the Company’s continuing profitability. The Company is exposed to
market risk (including currency risk, fair value interest rate
risk, cash flow interest rate risk and price risk), credit risk and
liquidity risk arising from the financial instruments it holds.
Risk management structure
The Company’s Investment Adviser is responsible for identifying and
controlling risks. The Directors supervise the Investment Adviser
and are ultimately responsible for the overall risk management
approach within the Company.
Risk mitigation
The Company's prospectus sets out its overall business strategies,
its tolerance for risk and its general risk management philosophy.
The Company may use derivatives and other instruments for trading
purposes and in connection with its risk management activities.
Market risk
Market risk is defined as "the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of
changes in variables such as equity price, interest rate and
foreign currency rate".
The Company's investments are subject to normal market
fluctuations and there can be no assurance that no depreciation in
the value of those investments will occur. There can be no
guarantee that any realisation of an investment will be on a basis
which necessarily reflects the Company's valuation of that
investment for the purposes of calculating the NAV of the
Company.
Changes in industry conditions, competition, political and
diplomatic events, tax, environmental and other laws and other
factors, whether affecting the United
States alone or other countries and regions more widely, can
substantially and either adversely or favourably affect the value
of the securities in which the Company invests and, therefore, the
Company's performance and prospects.
The Company's market price risk is managed through
diversification of the investment portfolio across various sectors.
The Investment Adviser considers each investment purchase to ensure
that an acquisition will enable the Company to continue to have an
appropriate spread of market risk and that an appropriate
risk/reward profile is maintained.
Equity price risk
Equity price risk is the risk of unfavourable changes in the fair
values of equity investments as a result of changes in the value of
individual shares. The equity price risk exposure arose from the
Company’s investments in equity securities.
The Company does not generally invest in liquid equity
investments and the previous portfolio of listed equity investments
resulted from the successful flotation of unlisted investments.
For unlisted equity and non-equity shares the market risk is
deemed to be inherent in the appropriate valuation methodology
(earnings, multiples, capitalisation rates etc). The impact on fair
value and subsequent profit or loss, due to movements in these
variables, is set out in Note 5.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. It has not been the Company's policy to use
derivative instruments to mitigate interest rate risk, as the
Investment Adviser believes that the effectiveness of such
instruments does not justify the costs involved.
The table below summarises the Company's exposure to interest
rate risks:
|
|
|
|
|
|
Interest bearing |
|
Non
interest |
|
|
|
|
|
|
|
|
Fixed
rate |
|
Floating rate |
|
bearing |
|
Total |
|
|
|
|
|
|
28.2.2017 |
|
28.2.2017 |
|
28.2.2017 |
|
28.2.2017 |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
|
|
233,831 |
|
- |
|
835,349 |
|
1,069,180 |
Other receivables and
prepayments |
|
|
|
|
|
- |
|
- |
|
520 |
|
520 |
Cash and cash
equivalents |
|
|
|
|
|
- |
|
29,063 |
|
- |
|
29,063 |
Loans payable |
|
|
|
|
|
- |
|
(97,396) |
|
- |
|
(97,396) |
ZDP shares (2022) |
|
|
|
|
|
(53,935) |
|
- |
|
- |
|
(53,935) |
CULS |
|
|
|
|
|
(57,063) |
|
- |
|
- |
|
(57,063) |
Other payables |
|
|
|
|
|
- |
|
- |
|
(41,525) |
|
(41,525) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
122,833 |
|
(68,333) |
|
794,344 |
|
848,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below summarises the Company's exposure to interest
rate risks:
|
|
|
|
|
|
|
|
|
Interest bearing |
|
Non
interest |
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate |
|
Floating rate |
|
bearing |
|
Total |
|
|
|
|
|
|
|
|
|
29.2.2016 |
|
29.2.2016 |
|
29.2.2016 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Investments at FVTPL |
|
|
|
|
|
312,563 |
|
- |
|
730,779 |
|
1,043,342 |
Loans and
receivables |
|
|
|
|
|
|
|
|
750 |
|
- |
|
- |
|
750 |
Other
receivables and prepayments |
|
|
|
|
- |
|
- |
|
3,551 |
|
3,551 |
Cash and
cash equivalents |
|
|
|
|
|
|
- |
|
91,937 |
|
- |
|
91,937 |
Loans payable |
|
|
|
|
|
|
|
|
- |
|
(97,011) |
|
- |
|
(97,011) |
ZDP shares (2022) |
|
|
|
|
|
|
|
|
(57,400) |
|
- |
|
- |
|
(57,400) |
ZDP shares (2016) |
|
|
|
|
|
|
|
|
(44,217) |
|
- |
|
- |
|
(44,217) |
CULS |
|
|
|
|
|
|
|
|
(59,573) |
|
- |
|
- |
|
(59,573) |
Other payables |
|
|
|
|
|
|
|
|
- |
|
- |
|
(29,640) |
|
(29,640) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net
assets |
|
|
|
|
|
|
|
|
152,123 |
|
(5,074) |
|
704,690 |
|
851,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table analyses the Company's exposure in terms of
the interest bearing assets and liabilities maturity dates.
As at 28 February
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-3
months |
|
4-12
months |
|
1 - 3
years |
|
3 -5
years |
|
> 5
years |
|
No maturity
date |
|
Total |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at
FVTPL |
|
|
18,249 |
|
- |
|
40,809 |
|
9,734 |
|
- |
|
165,039 |
|
233,831 |
Cash and
cash equivalents |
- |
|
- |
|
- |
|
- |
|
- |
|
29,063 |
|
29,063 |
|
Loans payable |
|
|
- |
|
- |
|
- |
|
(97,396) |
|
- |
|
- |
|
(97,396) |
ZDP shares (2022) |
|
|
- |
|
- |
|
- |
|
- |
|
(53,935) |
|
- |
|
(53,935) |
CULS |
|
|
- |
|
- |
|
- |
|
(57,063) |
|
- |
|
- |
|
(57,063) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,249 |
|
- |
|
40,809 |
|
(144,725) |
|
(53,935) |
|
194,102 |
|
54,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 29 February
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-3
months |
|
4-12
months |
|
1 – 3
years |
|
3 -5
years |
|
> 5
years |
|
No maturity
date |
|
Total |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at
FVTPL |
|
|
51,371 |
|
13,036 |
|
50,291 |
|
3,050 |
|
3,658 |
|
191,157 |
|
312,563 |
Loans and
receivables |
|
|
- |
|
750 |
|
- |
|
- |
|
- |
|
- |
|
750 |
Cash and
cash equivalents |
- |
|
- |
|
- |
|
- |
|
- |
|
91,937 |
|
91,937 |
|
Loans payable |
|
|
- |
|
- |
|
- |
|
- |
|
(97,011) |
|
- |
|
(97,011) |
ZDP shares (2022) |
|
|
- |
|
- |
|
- |
|
- |
|
(57,400) |
|
- |
|
(57,400) |
ZDP shares (2016) |
|
|
- |
|
(44,217) |
|
- |
|
- |
|
- |
|
- |
|
(44,217) |
CULS |
|
|
- |
|
- |
|
- |
|
- |
|
(59,573) |
|
- |
|
(59,573) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51,371 |
|
(30,431) |
|
50,291 |
|
3,050 |
|
(210,326) |
|
283,094 |
|
147,049 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income receivable by the Company is not subject to
significant amounts of risk due to fluctuations in the prevailing
levels of market interest rates. However, whilst the income
received from fixed rate securities is unaffected by changes in
interest rates, the investments are subject to risk in the movement
of fair value. The Investment Adviser considers the risk in the
movement of fair value as a result of changes in the market
interest rate for fixed rate securities to be insignificant, hence
no sensitivity analysis is provided.
The Company values the CULS issued at fair value, being the
quoted offer price. As the stock has a fixed interest rate of 6% an
increase/decrease of prevailing interest rates will potentially
have an effect on the demand for the CULS and the subsequent fair
value. Other factors such as the Company's ordinary share price and
credit rating will also determine the quoted offer price. The
overall risk to the Company due to the impact of interest rate
changes to the CULS' fair value is deemed immaterial. Therefore no
sensitivity analysis is presented.
During the year the Company realised its remaining investment in
bank lien debt. The market values of these floating rate
instruments were influenced by factors such as the performance of
the issuer and bank liquidity and not by a change in prevailing
interest rates. Investment income received was sensitive to the
prevailing 3 month floating LIBOR rate.
Of the cash and cash equivalents held, $29,063,000 (29 February
2016: $91,937,000) earns
interest at variable rates and the income may rise and fall
depending on changes to interest rates.
The Investment Adviser monitors the Company's overall interest
sensitivity on a regular basis by reference to prevailing interest
rates and the level of the Company's cash balances. The Company has
not used derivatives to mitigate the impact of changes in interest
rates.
The table below demonstrates the sensitivity of the Company's
profit/(loss) for the year to a reasonably possible change in
interest rates. The Company has cash at bank and loans payable for
which interest receivable and payable are sensitive to a
fluctuation to rates. The below sensitivity analysis assumes year
end balances and interest rates are constant through the year.
|
|
|
|
|
|
|
|
|
|
Interest Receivable |
|
Interest Payable |
|
|
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
28.2.2017 |
|
29.2.2016 |
Change
in basis points increase/decrease |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+100/-100 |
|
|
|
|
|
|
|
|
|
291/(58) |
|
919/(129) |
|
(800)/nil |
|
(485)/nil |
+300/-300 |
|
|
|
|
|
|
|
|
|
872/(58) |
|
2,758/(129) |
|
(2,713)/nil |
|
(2,425)/nil |
Currency risk is the risk that the value of a financial
instrument will fluctuate due to changes in foreign exchange
rates.
Changes in exchange rates are considered to impact the fair
value of the Company's investments denominated in Euros and
Sterling. However, under IFRS the foreign currency risk on these
investments is deemed to be part of the market price risk
associated with such holding such non-monetary investments. As the
information relating to the non-monetary investments is
significant, the Company also provides the total exposure and
sensitivity changes on non-monetary investments on a
voluntary basis.
The following table sets out the Company's exposure by currency
to foreign currency risk.
Exposure to Monetary Assets (held in foreign
currencies)
|
Euro |
|
Sterling |
|
Total |
|
|
|
Euro |
|
Sterling |
|
Total |
|
28.2.2017 |
|
28.2.2017 |
|
28.2.2017 |
|
|
|
29.2.2016 |
|
29.2.2016 |
|
29.2.2016 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at Bank |
4,803 |
|
705 |
|
5,508 |
|
|
|
30,024 |
|
5,600 |
|
35,624 |
Other Receivables |
- |
|
25 |
|
25 |
|
|
|
- |
|
38 |
|
38 |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
CULS |
- |
|
(57,063) |
|
(57,063) |
|
|
|
- |
|
(59,573) |
|
(59,573) |
ZDP (2022) shares |
- |
|
(53,935) |
|
(53,935) |
|
|
|
- |
|
(57,400) |
|
(57,400) |
ZDP (2016) shares |
- |
|
- |
|
- |
|
|
|
- |
|
(44,217) |
|
(44,217) |
Loans payable |
(18,824) |
|
- |
|
(18,824) |
|
|
|
(19,095) |
|
- |
|
(19,095) |
Other payables |
- |
|
(311) |
|
(311) |
|
|
|
- |
|
(727) |
|
(727) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Currency
Exposure |
(14,021) |
|
(110,579) |
|
(124,600) |
|
|
|
10,929 |
|
(156,279) |
|
(145,350) |
The sensitivity analysis for monetary and non-monetary net
assets calculates the effect of a reasonably possible movement of
the currency rate against the US dollar on an increase or decrease
in net assets attributable to shareholders with all other variables
held constant. An equivalent decrease in each of the aforementioned
currencies against the US dollar would have resulted in an
equivalent but opposite impact.
Currency |
|
Change in
Currency Rate |
|
|
|
Effect on net assets attributable to shareholders
(relates to monetary financial assets and liabilities) |
|
|
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Euro |
|
|
|
+10% |
|
|
|
|
|
(1,402) |
|
1,093 |
GBP |
|
|
|
+10% |
|
|
|
|
|
(11,058) |
|
(15,628) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exposure to Non-Monetary Assets (held in foreign
currencies)
|
Euro |
Sterling |
Total |
|
Euro |
Sterling |
Total |
28.2.2017 |
28.2.2017 |
28.2.2017 |
|
29.2.2016 |
29.2.2016 |
29.2.2016 |
US$ '000 |
US$ '000 |
US$ '000 |
|
US$ '000 |
US$ '000 |
US$ '000 |
Financial assets at
FVTPL |
150,742 |
4,285 |
155,027 |
|
154,869 |
72,672 |
227,541 |
Net Currency
Exposure |
150,742 |
4,285 |
155,027 |
|
154,869 |
72,672 |
227,541 |
|
|
|
|
Change
in |
|
|
|
Effect on net assets attributable to
shareholders |
Currency |
|
Currency Rate |
|
|
|
(relates to non-monetary financial assets) |
|
|
|
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Euro |
|
|
|
+10% |
|
|
|
|
|
15,074 |
|
15,487 |
GBP |
|
|
|
+10% |
|
|
|
|
|
429 |
|
7,267 |
Credit risk
The Company takes on exposures to credit risk, which is the risk
that a counterparty to a financial instrument will cause a
financial loss to the Company by failing to discharge an
obligation. These credit exposures exist within debt instruments
and cash & cash equivalents.
They may arise, for example, from a decline in the financial
condition of a counterparty or from entering into derivative
contracts under which counterparties have obligations to make
payments to the Company. As the Company’s credit exposure
increases, it could have an adverse effect on the Company’s
business and profitability if material unexpected credit losses
were to occur.
In the event of any default on the Company's loan investments by
a counterparty, the Company will bear a risk of loss of principal
and accrued interest of the investment, which could have a material
adverse effect on the Company's income and ability to meet
financial obligations.
In accordance with the Company’s policy, the Investment Adviser
regularly monitors the Company's exposure to credit risk in its
investment portfolio, by reviewing the financial statements,
budgets and forecasts of underlying investee companies. Agency
credit ratings do not apply to the Company's investment in investee
company debt. The ‘credit quality' of the debt is deemed to be
reflected in the fair value valuation of the investee company.
The table below analyses the Company's maximum exposure to
credit risk. The maximum exposure is shown gross at the reporting
date.
|
Total
28.2.2017
US$ '000 |
|
Total
29.2.2016
US$ '000 |
US micro-cap debt |
24,209 |
|
46,332 |
European micro-cap
debt |
44,583 |
|
41,814 |
Cash and cash
equivalents |
29,063 |
|
91,937 |
Corporate bond |
- |
|
13,036 |
Other investments |
- |
|
750 |
|
97,855 |
|
193,869 |
A proportion of micro-cap and mezzanine debt held does not
entitle the Company to interest payment in cash. This interest is
capitalised (PIK) and as a result there is a credit risk to the
Company, as there is no return until the loan plus all the
interest, is repaid in full. During the year ended 28 February 2017, the Company recognised PIK
interest of $4,895,000 (29 February 2016: $5,296,000) from debt investments as income in
the Statement of Comprehensive Income in line with the Company's
policy of recognising interest in proportion to the carrying value
versus cost.
An impairment review is performed by the Investment Adviser on
investments classified as loans and receivables on a quarterly
basis. At 28 February 2017 the JZCP
did not hold any investments classified as loans and receivables.
At 29 February 2016, the Company held
one Mezzanine investment which comprised a debt element, the debt
at year end was valued at $750,000 an
impairment of $2,107,000 on the
original cost of $2,857,000.
The following table analyses the concentration of credit risk in
the Company's debt portfolio by industrial distribution.
|
28.2.2017
US$ '000 |
|
29.2.2016
US$ '000 |
Private Security |
29% |
|
18% |
Financial General |
27% |
|
30% |
Support Services |
11% |
|
7% |
House, Leisure &
Personal Goods |
10% |
|
6% |
Logistics |
9% |
|
6% |
Healthcare Services
& Equipment |
6% |
|
13% |
Telecom |
4% |
|
3% |
Document
Processing |
4% |
|
3% |
Industrial
Engineering |
0% |
|
10% |
Water Treatment /
Infrastructure |
0% |
|
3% |
Construction &
Materials |
0% |
|
1% |
|
100% |
|
100% |
The Company's CULS are valued at fair value being the listed
offer price at the year end. Movement in the fair value due to
changes in the offer price are considered the result of increased
demand due to the underlying price of the Company's Ordinary shares
and underlying interest rates, rather than changes in the Company’s
credit risk.
The table below analyses the Company’s cash and cash equivalents
by rating agency category.
|
|
|
|
Credit ratings |
|
|
|
|
|
|
|
|
|
Standard & Poor's Outlook |
|
|
Fitch LT Issuer Default Rating |
|
28.2.2017 |
|
|
|
29.2.2016 |
|
|
|
|
|
|
US$
'000 |
|
|
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC Bank
USA NA |
Negative (2016: Stable) |
|
|
|
AA-
(2016: AA-) |
|
25,620 |
|
|
|
91,332 |
Raymond
James |
Positive |
|
|
|
Baa2 |
|
3,267 |
|
|
|
- |
Northern
Trust (Guernsey) Limited |
Stable (2016: Stable) |
|
|
|
AA
(2016: AA-) |
|
176 |
|
|
|
62 |
Deutsche
Bank |
Negative (2016: Stable) |
|
|
|
A-
(2016: A-) |
|
- |
|
|
|
543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,063 |
|
|
|
91,937 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bankruptcy or insolvency of the Banks may cause the Company's
rights with respect to these assets to be delayed or limited. The
Investment Adviser monitors risk by reviewing the credit rating of
the Bank. If credit quality deteriorates, the Investment Adviser
may move the holdings to another bank.
Liquidity risk
Liquidity risk is defined as the risk that the Company will
encounter difficulty in meeting obligations associated with
financial liabilities. Liquidity risk arises because of the
possibility that the Company could be required to pay its
liabilities earlier than expected. There has been no change during
the year in the Company's processes and arrangements for managing
liquidity.
Many of the Company's investments are private equity, mezzanine
loans and other unlisted investments. By their nature, these
investments will generally be of a long term and illiquid nature
and there may be no readily available market for sale of these
investments. None of the Company's assets/liabilities are subject
to special arrangement due to their illiquid nature.
The Company has capital requirements to repay CULS and a debt
facility in 2021 and ZDP shareholders in 2022. At the year end the
Company has outstanding investment commitments of $76,751,000 (2016: $115,125,000) see Note 23.
The Company manages liquidity risk and the ability to meet its
obligations by monitoring current and expected cash balances from
forecasted investment activity.
The table below analyses JZCP's financial liabilities into
relevant maturity groups based on the remaining period at the
reporting date to the contractual maturity date. Amounts attributed
to CULS and ZDP share include future contractual interest payments.
The provision for the payment of a capital gains incentive fee is
shown as ‘no stated maturity,’ as payment depends on future
realisations.
At 28 February
2017 |
Less
than 1 year |
|
1-3
years |
|
3-5
years |
|
>5
years |
|
No
stated maturity |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CULS |
2,737 |
|
5,167 |
|
40,687 |
|
- |
|
- |
ZDP (2022) shares |
- |
|
- |
|
- |
|
55,315 |
|
- |
Loans payable |
6,268 |
|
11,749 |
|
80,612 |
|
- |
|
- |
Other
payables |
4,232 |
|
- |
|
- |
|
- |
|
37,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,237 |
|
16,916 |
|
121,299 |
|
55,315 |
|
37,293 |
|
|
|
|
|
|
|
|
|
|
At 29 February
2016 |
Less
than 1 year |
|
1-3
years |
|
3-5
years |
|
>5
years |
|
No
stated maturity |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CULS |
3,065 |
|
5,620 |
|
5,002 |
|
41,683 |
|
- |
ZDP (2022) shares |
- |
|
- |
|
- |
|
64,527 |
|
- |
ZDP (2016) shares |
45,808 |
|
- |
|
- |
|
- |
|
- |
Loans payable |
6,295 |
|
11,421 |
|
10,022 |
|
72,748 |
|
- |
Other payables |
4,751 |
|
- |
|
- |
|
- |
|
24,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,919 |
|
17,041 |
|
15,024 |
|
178,958 |
` |
24,889 |
|
|
|
|
|
|
|
|
|
|
22. Commitments
At 28 February 2017 and 29 February 2016, JZCP had the following
financial commitments outstanding in relation to fund
investments:
|
Expected date
of Call |
28.2.2017
US$ '000 |
29.2.2016
US$ '000 |
JZI Fund III GP, L.P.
(€53,087,000 outstanding at year end) |
Over 3
years |
56,410 |
60,446 |
Spruceview Capital
Partners, LLC |
Over 2
years |
8,836 |
13,336 |
Orizon |
< 1
year |
4,158 |
12,745 |
Suzo Happ Group |
> 3
years |
4,491 |
4,491 |
BSM Engenharia
S.A. |
> 3
years |
2,085 |
2,085 |
Igloo Products
Corp |
> 3
years |
771 |
772 |
Peaceable Street
Capital, LLC |
Called |
- |
21,250 |
|
|
76,751 |
115,125 |
23. Related Party Transactions
JZCP invests in European micro-cap companies via the EuroMicrocap
Fund 2010, L.P. ("EMC 2010"), EuroMicrocap Fund-C, L.P. ("EMC-C")
and JZI Fund III, L.P. (“Fund III”). EMC 2010, EMC-C and Fund III
are managed by JZ International LLC, an affiliate of JZAI, JZCP's
investment manager. JZAI was founded by David Zalaznick and John ("Jay") Jordan. At
28 February 2017, JZCP's investments
in EMC 2010 were valued at $21,433,000 (29 February
2016: $46,918,000), EMC-C at
$61,482,000 (29 February 2016: $57,907,000) and Fund III at $26,779,000 (29 February
2016: $22,159,000).
During Q1 2016 the investment in Oro Direct was transferred from
EMC 2010 to EMC-C, the investment was transferred at fair value
being $2,780,000 or €2,559,000.
JZCP invests in Spruceview Capital Partners, LLC on a 50:50
basis with Jay Jordan and
David Zalaznick (or their respective
affiliates). The total amount committed by JZCP to this investment
at 28 February 2017 was $30,000,000 with $8,836,000 (29 February: $13,336,000) of commitments outstanding.
JZCP has co-invested with Fund A, Fund A Parallel I, II and III
Limited Partnerships in a number of US micro-cap buyouts. These
Limited Partnerships are managed by an affiliate of JZAI. JZCP
invested in a ratio of 82%/18% with the Fund A
entities. At 28 February 2017, the total
value of JZCP's investment in these
co-investments was $[326,290,000] (29 February 2016: $324,848,000). Fund A, Fund A Parallel I, II and
III Limited Partnerships are no longer making platform investments
alongside JZCP.
JZAI is a US based company that provides advisory services to
the Board of Directors of the Company in exchange for management
fees, paid quarterly. Fees paid by the Company to the Investment
Adviser are detailed in Note 10.
JZCP is able to invest up to $75,000,000 in "New JI Platform Companies". The
platform companies are being established to invest primarily in
buyouts and build-ups of companies and in growth company platforms
in the US micro-cap market, primarily healthcare equipment
companies. At 28 February 2017, JZCP
had invested $31,529,000
(29 February 2016: $18,000,000) in Jordan Health Products, LLC. JZCP co-invests
50/50 in the platform companies with other investors (“JI
Members”). David Zalaznick and an
affiliated entity of Jay Jordan own
approximately 33.7% of the JI members’ ownership interests.
During the year, JZCP transferred part of its investment in K2
Towers, to Jay Jordan. The
investment was transferred at fair value being $1,100,000, which equates to the cost to JZCP. A
‘cost to carry’ of $88,000, was paid
to JZCP at a rate of 8% on cost over the period the investment was
held.
24. Basic and Diluted Earnings Per Share
Basic earnings per share is calculated by dividing the earnings for
the year by the weighted average number of Ordinary shares
outstanding during the year.
The weighted average number of Ordinary shares outstanding has
been calculated as follows:
|
|
|
|
|
|
|
Number of Ordinary shares |
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
|
|
|
Qualifying shares at
beginning of the year |
|
|
|
|
|
|
83,907,516 |
|
65,018,607 |
Ordinary
shares issued during year (18,888,909) adjusted for time
apportionment |
|
- |
|
7,896,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,907,516 |
|
72,914,790 |
|
|
|
|
|
|
|
|
|
|
The weighted average of Ordinary shares is based on the average
number of Ordinary shares in issue during the year. During
September 2015, a placing and open
offer of Ordinary shares resulted in 18,888,909 new Ordinary shares
being issued.
The diluted earnings per share are calculated by considering
adjustments required to the earnings and weighted average number of
shares for the effects of potential dilutive Ordinary shares. The
weighted average of the number of Ordinary shares is adjusted
assuming the conversion of the CULS ("If-converted method").
Conversion is assumed even though at 28 February 2017 and 29
February 2016 the exercise price of the CULS is higher than
the market price of the Company's Ordinary shares and are therefore
deemed 'out of the money'. Earnings are adjusted to remove the fair
value gain on CULS $2,510,000
(29 February 2016: $7,990,000) and finance cost attributable to CULS
of $3,190,000 (29 February 2016: $3,497,000).
25. Controlling Party
The issued shares of the Company are owned by a number of parties,
and therefore, in the opinion of the Directors, there is no
ultimate controlling party of the Company, as defined by IAS 24 -
Related Party Disclosures.
26. Net Asset Value Per Share
The net asset value per Ordinary share of US$10.12 (29 February
2016: US$10.15) is based on
the net assets at the year end of US$848,844,000 (29
February 2016: US$851,739,000)
and on 83,907,516 (29 February 2016:
83,907,516) Ordinary shares, being the number of Ordinary shares in
issue at the year end.
27. Contingent Assets
Amounts held in escrow accounts
When investments have been disposed of by the Company, proceeds may
reflect contractual terms requiring that a percentage is held in an
escrow account pending resolution of any indemnifiable claims that
may arise. At 28 February 2017 and
29 February 2016, the Company has
assessed that the likelihood of the recovery of these escrow
accounts cannot be determined and has therefore recognised the
escrow accounts as a contingent asset.
As at 28 February 2017 and
29 February 2016, the Company had the
following contingent assets held in escrow accounts which had not
been recognised as assets of the Company:
Company |
|
|
|
|
|
|
Amount in Escrow |
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
Dental Holdings
Corporation |
|
|
|
|
|
|
- |
|
2,776 |
Galson
Laboratories |
|
|
|
|
|
|
- |
|
475 |
Amptek, Inc. |
|
|
|
|
|
|
- |
|
1,129 |
ETX Holdings,
Inc. |
|
|
|
|
|
|
77 |
|
118 |
Petco Animal Supplies,
Inc. |
|
|
|
|
|
|
- |
|
39 |
H&S (BG
Holdings) |
|
|
|
|
|
|
- |
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77 |
|
4,547 |
|
|
|
|
|
|
|
|
|
|
During the year ended 28 February
2017 proceeds of $5,942,000
(29 February 2016: $1,534,000) were realised during the year and
recorded in the Statement of Comprehensive Income.
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
Escrows at 1
March |
|
|
|
|
|
|
4,547 |
|
5,575 |
Escrows
added on realisation of investments |
|
|
|
- |
|
39 |
Additional
escrows recognised in year not reflected in opening position |
|
|
|
1,523 |
|
467 |
Escrows
recognised in opening position and written off in year |
|
(51) |
|
- |
Escrow receipts during
the year |
|
|
|
|
|
|
(5,942) |
|
(1,534) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Escrows at year
end |
|
|
|
|
|
|
77 |
|
4,547 |
|
|
|
|
|
|
|
|
|
|
28. Notes to the Statement of Cash
Flows
Reconciliation of the profit for the year to net cash from
operating activities |
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Profit for the
year |
|
|
|
|
|
|
22,697 |
|
51,594 |
Decrease/(Increase) in other receivables and prepayments |
|
|
|
|
13 |
|
(5) |
Increase in other
payables |
|
|
|
|
|
|
86 |
|
489 |
Increase
in amount owed to Investment Adviser |
|
|
|
|
|
12,285 |
|
2,988 |
Deposits paid for real
estate investments |
|
|
|
|
|
|
- |
|
(3,018) |
Net gains on
investments |
|
|
|
|
|
|
(28,699) |
|
(55,088) |
Net write
back of impairments on loans and receivables |
|
|
|
|
|
(2,374) |
|
(2,594) |
Currency gains on ZDP
shares |
|
|
|
|
|
|
(3,852) |
|
(10,954) |
Currency gains on
Guggenheim loan |
|
|
|
|
|
|
(437) |
|
(712) |
Unrealised
foreign exchange movements on cash at bank (shown as net movement
in cash) |
(396) |
|
397 |
Unrealised
profit on CULS valued at fair value |
|
(2,510) |
|
(7,990) |
Increase
in accrued interest on investments and accumulated preferred
dividends and PIK |
(20,816) |
|
(18,010) |
Finance
costs |
|
14,764 |
|
18,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash outflow from
operating activities |
|
|
|
|
|
|
(9,239) |
|
(24,681) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income received during the year |
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Interest on
investments |
|
|
|
|
|
|
4,584 |
|
7,808 |
Bank interest |
|
|
|
|
|
|
41 |
|
92 |
Dividends from private
investment |
|
|
|
|
|
|
- |
|
1,326 |
Dividends from listed
investments |
|
|
|
|
|
|
- |
|
647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,625 |
|
9,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and sales of investments are considered to be
operating activities of the Company, given its purpose, rather than
investing activities. The cash flows arising from these activities
are shown in the Statement of Cash Flows.
29. Dividends Paid and Proposed
For the year ended 29 February 2016,
a second interim dividend of 15 cents
(total $12,586,000) was paid by the
Company on 10 June 2016.
An interim dividend of 15.5 cents
per Ordinary share (total $13,006,000) was paid by the Company on
25 November 2016.
No second interim dividend will be paid for the year ended
28 February 2017 in line with the
agreed discontinuation of the dividend policy, which was to
distribute approximately 3% of the Company's net assets in the form
of dividends (see Note 32).
30. Financial highlights
The following table presents performance information derived from
the financial statements.
|
|
|
|
|
|
|
28.2.2017 |
|
29.2.2016 |
|
|
|
|
|
|
|
US$ |
|
US$ |
|
|
|
|
|
|
|
|
|
|
Net asset
value per share at the beginning of the year |
|
|
|
10.15 |
|
10.85 |
|
|
|
|
|
|
|
|
|
|
Performance during the
year (per share): |
|
|
|
|
|
|
|
|
|
Net investment
income |
|
|
|
|
|
|
0.07 |
|
0.17 |
Incentive fee |
|
|
|
|
|
|
(0.15) |
|
(0.20) |
Net realised and
unrealised gains |
|
|
|
|
|
|
0.53 |
|
0.90 |
Finance costs |
|
|
|
|
|
|
(0.18) |
|
(0.26) |
Dividends paid |
|
|
|
|
|
|
(0.305) |
|
(0.335) |
Dilution
per share on issue of new Ordinary shares |
|
|
|
|
|
- |
|
(0.97) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total return |
|
|
|
|
|
|
(0.03) |
|
(0.70) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset
value per share at the end of the year |
|
|
|
|
|
10.12 |
|
10.15 |
|
|
|
|
|
|
|
|
|
|
Total Return |
|
|
|
|
|
|
(0.34%) |
|
(6.41%) |
|
|
|
|
|
|
|
|
|
|
Net
investment income to average net assets excluding incentive
fee |
|
0.68% |
|
1.39% |
|
|
|
|
|
|
|
|
|
|
Operating expenses to
average net assets |
|
|
|
|
|
|
(2.25%) |
|
(2.43%) |
Incentive fees to
average net assets |
|
|
|
|
|
|
(1.47%) |
|
(2.07%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses to average net assets including incentive fee |
|
(3.72%) |
|
(4.50%) |
|
|
|
|
|
|
|
|
|
|
Finance costs to
average net assets |
|
|
|
|
|
|
(1.76%) |
|
(2.53%) |
31. US GAAP reconciliation
The Company's financial statements are prepared in accordance with
IFRS, which in certain respects differ from the accounting
principles generally accepted in the
United States ("US GAAP"). It is the opinion of the
Directors that these differences are not material and therefore no
reconciliation between IFRS, as adopted by the EU, and US GAAP has
been presented.
32. Subsequent Events
These financial statements were approved by the Board on
16 May 2017. Subsequent events have
been evaluated until this date.
During April 2017, JZCP increased
its credit facility with Guggenheim Partners by $50 million to approximately $150 million. The purpose of this increase in
borrowings is to provide additional liquidity to JZCP in order to
bridge certain planned realisations.
In connection with the discontinuance of the dividend policy of
distributing approximately 3% of the Company's net assets to
shareholders as a dividend, the Company received shareholder
approval to adopt a new strategy where purchases by the Company of
its Ordinary Shares may be undertaken when opportunities in the
market permit, and as the Company’s cash resources allow.
Independent Auditor's Report
Our opinion on the Financial Statements
In our opinion JZ Capital Partners Limited’s (the “Company”)
financial statements (the “financial statements”):
- give a true and fair view of the state of the company’s affairs
as at 28 February 2017 and of its
profit for the year then ended;
- have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union
(“IFRS”); and
- have been prepared in accordance with the requirements of the
Companies (Guernsey) Law
2008.
What we have audited
We have audited the financial statements of the Company which
comprise:
- the statement of comprehensive income for the year ended
28 February 2017;
- the statement of financial position as at 28 February 2017;
- the statement of changes in equity for the year ended
28 February 2017;
- the statement of cash flows for the year ended 28 February 2017; and
- the related notes 1 to 32 to the financial statements.
The financial reporting framework that has been applied in their
preparation is applicable law and IFRS.
Overview of our audit approach |
Risk of material
misstatement |
- Valuation of unquoted investments, including unrealised
gains/losses.
|
- Existence and ownership of real estate investments.
|
- Calculation of management and incentive fees
|
Audit scope |
- We performed an audit of the complete financial statements of
the Company for the year ended 28 February 2017.
|
Materiality |
- Overall materiality of $17 million (2016: $17 million), which
represents 2% (2016: 2%) of total equity.
|
What has changed |
- There has been no a change to the audit approach since prior
year.
|
Our assessment of risk of material
misstatement
We identified the risks of material misstatement described below as
those that had the greatest effect on our overall audit strategy,
the allocation of resources in the audit and the direction of the
efforts of the audit team. This is not a complete list of all risks
or areas of focus identified by our audit. In addressing these
risks, we have performed the procedures below which were designed
in the context of the financial statements as a whole and,
consequently, we do not express any opinion on these individual
areas.
Risk |
Our response
to the risk |
What
we concluded to the Audit
Committee |
Valuation of unquoted investments (2017: $1,069,180,000; 2016:
US$
984,698,000)
Refer to the Audit Committee Report; Accounting policies in Note 2
and 3, and Note 12 to the Financial Statements
100% (2016: 94%) of the carrying value of investments relates to
the Company’s holdings in unquoted investments, which are valued
using different valuation techniques, as defined in note 5.
The valuation is subjective, with a high level of judgement and
estimation linked to the determination of the values with limited
market information available.
As a result, there is a risk of an inappropriate valuation model
being applied, together with the risk of inappropriate inputs to
the model/calculation being selected. The valuation of the unquoted
investments is the key driver of the Company’s net asset value and
total return. Incorrect valuation could have a significant impact
on the net asset value of the Company and therefore the return
generated for shareholders. |
- We documented our understanding of the processes, policies and
methodologies used by management for valuing unquoted investments
and performed walkthrough tests to confirm our understanding of the
systems and controls implemented;
- We carried out the following substantive investment valuation
procedures on a sample, of unquoted investments held by the
Company. These substantive procedures comprised of:
- agreeing the valuation per the financial statements back to the
models used by management;
- determined and challenged the appropriateness of the valuation
techniques applied to unquoted investments and determined whether
they were in accordance with IFRS and International Private Equity
and Venture Capital Association (IPEVCA) guidelines;
- testing all the significant inputs to the models to independent
sources and evaluating whether all key terms of the unquoted
investments had been considered in the application of the
models;
- testing the mathematical accuracy of the calculations;
- testing qualitative factors such as the key assumptions made by
management and other information provided by the Investment Advisor
that supports the EBITDA multiples used to value unquoted
investments, specifically the comparable multiples used which were
based on a basket of similar listed companies and any liquidity
adjustments thereafter; and
- agreed the proposed values per the valuation decks received
from the Investment Advisor to the investment portfolio report
prepared by the Administrator.
- We engaged our own internal valuation experts in relation to
the valuation of a sample of investments in real estate assets to:
- assist us to determine whether the methodologies used to value
real estate assets were consistent with methods usually used by
market participants for these types of real estate investments; and
- use their knowledge of the market to assess and corroborate
management's market related judgements and valuation inputs (i.e.
discount rates, rental per square foot, selling price per square
foot, recent relevant transaction data and buildable area) by
reference to comparable transactions, and independently compiled
databases/indices.
|
We reported to the
audit committee that the carrying amount of one investment in the
Company’s real estate portfolio did not, in our opinion, adequately
reflect the incremental risk of securing planning approval in
respect of an independent valuation based on a buildable area
greater than the zoning code base tables. The potential
overstatement is not considered material by the Directors or
ourselves, and we have sought specific representation from the
Directors on this point. |
Existence and ownership of investment in real estate assets
(2017: $468,599,000; 2016:
$366,158,000)
Refer to the Audit Committee Report; Accounting policies in Note 2
and 3, and Note 12 to the Financial Statements.
Risk that real estate assets presented in the financial statements
do not exist or the Company does not have title of ownership. Due
to the significance of the carrying value of real estate assets,
there is a risk that if the Company did not have good title, the
carrying value of these investments could be materially
overstated.
Our risk is specifically in respect of real estate assets due to
the complexity of their ownership structure, the increase in
relative significance of their carrying value as a percentage of
the total investment portfolio and the fact that we have not
historically identified issues with title to other investments held
by the company for which
holding structures are less complex. |
- We documented our understanding of the processes, used by
management in respect of the existence of real estate investments
and performed walkthrough tests to confirm our understanding of the
systems and controls implemented.
- Performance of substantive audit procedures over real estate
assets existence including:
- obtained independent confirmations from all underlying investee
companies through the holding structure and confirmed that the
company has title to all real estate investments;
- obtained copies of the deeds and mortgage bond documents (where
applicable) for a sample of properties; and
- obtained contracts/agreements for all new investments entered
into during the year to support the initial recognition and
associated terms and conditions.
|
We confirmed that
there were no matters identified during our audit work on existence
of real estate assets that we wanted to bring to the attention of
the audit committee. |
Calculation of management and incentive fees (2017: $
29,269,000; 2016: $ 30,960,000)
Refer to the Audit Committee Report; Accounting policies in Note 2
and Note 10 to the Financial Statements.
Risk that losses may be incurred as a result of intentional or
inadvertent misstatement of management and performance fees, or as
a result of errors in processing financial information. |
- We have performed specific audit procedures over the fair value
of the investments on which the management and incentive fees are
based, as noted above; and
- We re-performed the management and incentive fee calculations
for mathematical accuracy and consistency with the terms of the
investment advisory agreement.
|
We confirmed that
there were no matters identified during our audit work on the
calculation of management and incentive fees that we wanted to
bring to the attention of the Audit Committee. |
The scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our
allocation of performance materiality determine our audit scope.
Taken together, this enables us to form an opinion on the financial
statements.
Our application of materiality
We apply the concept of
materiality in planning and
performing the audit, in evaluating
the effect of identified misstatements on the
audit and in forming our audit opinion.
Materiality
This is the magnitude of an omission or misstatement that,
individually or in the aggregate, could reasonably be expected to
influence the economic decisions of the users of the financial
statements. Materiality provides a basis for determining the nature
and extent of our audit procedures.
We determined materiality for the Company to be $17 million (2016: $17
million), which is 2% (2016: 2%) of total equity.
This provided a basis for determining the nature, timing and
extent of risk assessment procedures, identifying and assessing the
risk of material misstatement and determining the nature, timing
and extent of further audit procedures.
It was considered inappropriate to determine materiality based
on Company profit before tax as the primary focus of the Company is
the overall performance of investments held, which includes a
significant asset revaluation component. In addition, profit is not
a key metric reported upon by the Company, with the ability to make
dividend payments not limited by the profitability of the Company
in any particular period.
We believe that total equity provides us with an appropriate
basis for audit materiality as it is a key published performance
measure and is a key metric used by management in assessing and
reporting on overall performance.
During the course of our audit, we reassessed initial
materiality and noted no matters leading us to amend materiality
levels from those originally determined at the audit planning
stage.
Performance Materiality
This refers to the application of materiality at the individual
account or balance level. It is set at an amount to reduce to an
appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality.
On the basis of our risk assessments, together with our
assessment of the Company’s overall control environment, our
judgement was that performance materiality was 75% (2016: 50%) of
our planning materiality, namely $12.7
million (2016: $8.5 million).
Performance materiality in 2016 was set at 50% due to the existence
of audit adjustments during the 2015 audit cycle. These had
significantly reduced during the 2016 cycle. Our objective in
adopting this approach was to ensure that total uncorrected and
undetected audit differences in the financial Statements did not
exceed our materiality level.
Reporting threshold
An amount below which identified misstatements is considered as
being clearly trivial.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of $0.85 million (2016: $0.85
million), which is set at 5% of planning materiality, as
well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company’s circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the annual
report to identify material inconsistencies with the audited
financial statements and to identify any information that is
apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors’ Responsibilities
Statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board’s Ethical Standards for
Auditors.
This report is made solely to the Company’s members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law 2008. Our audit work has been
undertaken so that we might state to the Company’s members those
matters we are required to state to them in an auditor’s report and
for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
Company and the Company’s members as a body, for our audit work,
for this report, or for the opinions we have formed.
Respective responsibilities of
Directors and Auditor
ISAs (UK
and Ireland) reporting |
We are
required to report to you if, in our opinion, financial and
non-financial information in the annual report is:
In particular, we are required to report whether we have identified
any inconsistencies between our knowledge acquired in the course of
performing the audit and the directors’ statement that they
consider the annual report and accounts taken as a whole is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the entity’s performance, business model
and strategy; and whether the annual report appropriately addresses
those matters that we communicated to the audit committee that we
consider should have been disclosed. |
We have no exceptions
to report. |
Companies
(Guernsey) Law 2008 reporting |
We are required to
report to you if, in our opinion: |
We have no exceptions
to report. |
Statement on the Directors’ assessment
of the principal risks that would threaten the solvency or
liquidity of the entity
ISAs (UK
and Ireland) reporting |
We are required to
give a statement as to whether we have anything material to add or
to draw attention to in relation to: |
We have nothing
material to add or to draw attention to. |
Christopher James Matthews,
FCA
for and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
16 May 2017
1. The maintenance and integrity of the Company’s web site is
the responsibility of the Directors; the work carried out by the
auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements since they were
initially presented on the web site.
2. Legislation in Guernsey
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Company
Advisers |
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Investment
Adviser |
|
Independent
Auditor |
The
Investment Adviser to JZ Capital Partners Limited (“JZCP”) is
Jordan/Zalaznick Advisers, Inc., (“JZAI”) a company beneficially
owned by John (Jay) W Jordan II and David W Zalaznick. The company
was formed for the purpose of advising the Board of JZCP on
investments in leveraged securities, primarily related to private
equity transactions. JZAI has offices in New York and Chicago. |
|
Ernst & Young
LLP |
|
PO Box 9 |
|
Royal Chambers |
|
St Julian's
Avenue |
|
St Peter Port |
|
Guernsey GY1 4AF |
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UK
Solicitors |
|
|
Ashurst LLP |
Jordan/Zalaznick
Advisers, Inc. |
|
Broadwalk House |
9 West, 57th
Street |
|
5 Appold Street |
New York NY 10019 |
|
London EC2A 2HA |
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Registered
Office |
|
US Lawyers |
PO Box 255 |
|
Monge Law Firm,
PLLC |
Trafalgar Court |
|
333 West Trade
Street |
Les Banques |
|
Charlotte, NC
28202 |
St Peter Port |
|
|
Guernsey GY1 3QL |
|
Mayer Brown LLP |
|
|
214 North Tryon
Street |
JZ Capital Partners
Limited is registered in Guernsey |
|
Suite 3800 |
Number 48761 |
|
Charlotte NC
28202 |
|
|
|
Administrator,
Registrar and Secretary |
|
Winston & Strawn
LLP |
Northern Trust
International Fund Administration Services |
|
35 West Wacker
Drive |
(Guernsey)
Limited |
|
Chicago IL
60601-9703 |
PO Box 255 |
|
|
Trafalgar Court |
|
Guernsey
Lawyers |
Les Banques |
|
Mourant Ozannes |
St Peter Port |
|
P.O Box 186 |
Guernsey GY1 3QL |
|
1 Le Marchant
Street |
|
|
St Peter Port |
UK Transfer and
Paying Agent |
|
Guernsey GY1 4HP |
Equiniti Limited |
|
|
Aspect House |
|
Financial Adviser
and Broker |
Spencer Road |
|
JP Morgan Cazenove
Limited |
Lancing |
|
20 Moorgate |
West Sussex BN99
6DA |
|
London EC2R 6DA |
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US Bankers |
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HSBC Bank USA NA |
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452 Fifth Avenue |
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New York NY 10018 |
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|
(Also
provides custodian services to JZ Capital Partners |
Limited under the
terms of a Custody Agreement). |
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Guernsey
Bankers |
|
|
Northern Trust
(Guernsey) Limited |
|
|
PO Box 71 |
|
|
Trafalgar Court |
|
|
Les Banques |
|
|
St Peter Port |
|
|
Guernsey GY1 3DA |
|
|
Useful Information for
Shareholders
Listing
JZCP Ordinary, Zero Dividend Preference ("ZDP") shares and
Convertible Unsecured Loan Stock ("CULS") are listed on the
Official List of the Financial Services Authority of the UK, and
are admitted to trading on the London Stock Exchange Specialist
Fund Segment for listed securities.
The price of the Ordinary shares are shown in the Financial
Times under "Conventional Private Equity" and can also be found at
https://markets.ft.com along with the prices of the ZDP shares and
CULS.
ISIN/SEDOL
numbers |
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Ticker
Symbol |
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ISIN
Code |
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Sedol
Number |
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Ordinary shares |
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JZCP |
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GG00B403HK58 |
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B403HK5 |
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ZDP (2022) shares |
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JZCZ |
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GG00BZ0RY036 |
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Z0RY03 |
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CULS |
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JZCC |
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GG00BP46PR08 |
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BP46PR0 |
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance
Measures ("APMs") the Board has considered what APMs are included
in the annual report and financial statements which require further
clarification. An APM is defined as a financial measure of
historical or future financial performance, financial position, or
cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. APMs included in the
annual report and financial statements, which are unaudited and
outside the scope of IFRS, are deemed to be as follows:
Total NAV Return
The Total NAV Return measures how the net asset value (NAV) per
share has performed over a period of time, taking into account both
capital returns and dividends paid to shareholders. JZCP quotes NAV
total return as a percentage change from the start of the period
(one year) and also three-month, three-year, four year, five-year
and seven year periods. It assumes that dividends paid to
shareholders are reinvested back into the Company therefore future
NAV gains are not diminished by the paying of dividends. JZCP also
produces an adjusted Total NAV Return which excludes the effect of
the dilution per share caused by the issue of shares at a discount
to NAV, the result of the adjusted Total NAV return is to provide a
measurement of how the Company's Investment portfolio contributed
to NAV growth adjusted for the Company's expenses and finance
costs. The Total NAV Return for the year ended 28 February 2017 was 2.7% (2016: -3.5%) which
includes dividends paid of 30.5 cents
(2016: 33.5 cents).
Total Shareholder Return
A measure showing how the share price has performed over a period
of time, taking into account both capital returns and dividends
paid to shareholders. JZCP quotes shareholder price total return as
a percentage change from the start of the period (one year) and
also three-month, three-year, four year, five-year and seven-year
periods. It assumes that dividends paid to shareholders are
reinvested in the shares at the time the shares are quoted ex
dividend. The Shareholder Return for the year ended 28 February 2017 was 42.8% (2016: 2.0%) which
includes dividends paid (Sterling equivalent) of 21.7 cents (2016: 23.0
cents).
NAV to market price discount
The NAV per share is the value of all the company’s assets, less
any liabilities it has, divided by the number of shares. However,
because JZCP shares are traded on the London Stock Exchange's
Specialist Fund Market, the share price may be higher or lower than
the NAV. The difference is known as a discount or premium. JZCP's
discount is calculated by expressing the difference between the
period end dollar equivalent share price and the period end NAV per
share as a percentage of the NAV per share.
At 28 February 2017, JZCP's
Ordinary shares traded at £5.38 (2016: £3.97)) or $6.69 (2016: $5.53)
being the dollar equivalent using the year end exchange rate of £1:
$1.24 (2016 £1: $1.39). The shares traded at a 34% (2016: 46%)
discount to the NAV per share of $10.12 (2016: $10.15).
Implied Dividend Yield
The implied dividend yield is the annual dividends paid during the
year expressed as a percentage of the year end share price. The
implied dividend yield for JZCP is quoted at 4.5% (2016: 6.1%)
being the sterling equivalent, using the year end exchange rate, of
the dividends paid during the year 30.5
cents/24.5 pence (2016:
33.5 cents/24.0 pence) as a percentage of the year end share
price £5.38 (2016; £3.97).
Ongoing Charges calculation
A measure expressing the Ongoing annualised expenses as a
percentage of the Company's average annualised net assets over the
year 2.3% (2016: 2.4%). Ongoing charges, or annualised recurring
operating expenses, are those expenses of a type which are likely
to recur in the foreseeable future, whether charged to capital or
revenue, and which relate to the operation of the company,
excluding the Investment Adviser's Incentive fee, financing charges
and gains/losses arising on investments.
Ongoing expenses for the year are $19,415,000 (2016: $18,223,000) comprising of the IA base fee
$16,865,000 (2016: $15,510,000), administrative fees $2,135,000 (2016: $2,298,000) and directors fees $415,000 (2016:$415,000). Average net assets for the year are
calculated using quarterly NAVs $857,768,000 (2016: $748,931,000).
Non-Mainstream Pooled Investments
From 1 January 2014, the FCA rules
relating to the restrictions on the retail distribution of
unregulated collective investment schemes and close substitutes
came into effect. JZCP's Ordinary shares qualify as an ‘excluded
security’ under these rules and will therefore be excluded from the
FCA’s restrictions which apply to non-mainstream investment
products. Therefore Ordinary shares issued by JZ Capital Partners
can continue to be recommended by financial advisors as an
investment for UK retail investors.
Financial
Diary |
|
|
|
|
Annual General
Meeting |
|
|
|
27 June 2017 |
Interim
report for the six months ended 31 August 2017 |
|
October/November 2017
(date to be confirmed) |
Results
for the year ended 28 February 2018 |
|
May 2018 (date to be
confirmed) |
JZCP will be issuing an Interim Management Statement for the
quarters ending 31 May 2017 and
30 November 2017. These Statements
will be sent to the market via RNS within six weeks from the end of
the appropriate quarter, and will be posted on JZCP's website at
the same time, or soon thereafter.
Payment of Dividends
In the event of a cash dividend being paid, the dividend will be
sent by cheque to the first-named shareholder on the register of
members at their registered address, together with a tax voucher.
At shareholders' request, where they have elected to receive
dividend proceeds in Sterling, the dividend may instead be paid
direct into the shareholder's bank account through the Bankers'
Automated Clearing System. Payments will be paid in US dollars
unless the shareholder elects to receive the dividend in Sterling.
Existing elections can be changed by contacting the Company's
Transfer and Paying Agent, Equiniti Limited on +44 (0) 121 415
7047.
Share Dealing
Investors wishing to buy or sell shares in the Company may do so
through a stockbroker. Most banks also offer this service.
Internet Address
The Company: www.jzcp.com
Foreign Account Tax Compliance
Act
The Company is registered (with a Global Intermediary
Identification Number CAVBUD.999999.SL.831) under The Foreign
Account Tax Compliance Act ("FATCA").
Share Register Enquiries
The Company's UK Transfer and Paying Agent, Equiniti Limited,
maintains the share registers. In event of queries regarding your
holding, please contact the Registrar on 0871 384 2265, calls to
this number cost 8p per minute from a BT landline, other providers'
costs may vary. Lines are open 8.30 a.m. to
5.30 p.m., Monday to Friday, If calling from overseas +44
(0) 121 415 7047 or access their website at www.equiniti.com.
Changes of name or address must be notified in writing to the
Transfer and Paying Agent.
Nominee Share Code
Where notification has been provided in advance, the Company will
arrange for copies of shareholder communications to be provided to
the operators of nominee accounts. Nominee investors may attend
general meetings and speak at meetings when invited to do so by the
Chairman.
Documents Available for Inspection
The following documents will be available at the registered office
of the Company during usual business hours on any weekday until the
date of the Annual General Meeting and at the place of the meeting
for a period of fifteen minutes prior to and during the
meeting:
(a) the Register of Directors' Interests in the stated capital
of the Company;
(b) the Articles of Incorporation of the Company; and
(c) the terms of appointment of the Directors.
Warning to Shareholders – Boiler Room
Scams
In recent years, many companies have become aware that their
shareholders have been targeted by unauthorised overseas-based
brokers selling what turn out to be non-existent or high risk
shares, or expressing a wish to buy their shares. If you are
offered, for example, unsolicited investment advice, discounted
JZCP shares or a premium price for the JZCP shares you own, you
should take these steps before handing over any money:
- Make sure you get the correct name of the person or
organisation
- Check that they are properly authorised by the FCA before
getting involved by visiting
http://www.fca.org.uk/firms/systems-
reporting/register
- Report the matter to the FCA by calling 0800 111 6768
- If the calls persist, hang up
- More detailed information on this can be found on the Money
Advice Service website www.moneyadviceservice.org.uk
US Investors
General
The Company's Articles contain provisions allowing the Directors to
decline to register a person as a holder of any class of ordinary
shares or other securities of the Company or to require the
transfer of those securities (including by way of a disposal
effected by the Company itself) if they believe that the
person:
(a) is a "US person" (as defined in Regulation
S under the US Securities Act of 1933, as amended) and not a
"qualified purchaser" (as defined in the US Investment Company Act
of 1940, as amended, and the related rules thereunder);
(b) is a "Benefit Plan Investor" (as described
under "Prohibition on Benefit Plan Investors and Restrictions on
Non-ERISA Plans" below); or
(c) is, or is related to, a citizen or
resident of the United States, a
US partnership, a US corporation or a certain type of estate or
trust and that ownership of any class of ordinary shares or any
other equity securities of the Company by the person would
materially increase the risk that the Company could be or become a
"controlled foreign corporation" (as described under "US Tax
Matters").
In addition, the Directors may require any holder of any class
of ordinary shares or other securities of the Company to show to
their satisfaction whether or not the holder is a person described
in paragraphs (A), (B) or (C) above.
US Securities
Laws
The Company (a) is not subject to the reporting requirements of
the US Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and does not intend to become subject to such reporting
requirements and (b) is not registered as an investment company
under the US Investment Company Act of 1940, as amended (the "1940
Act"), and investors in the Company are not entitled to the
protections provided by the 1940 Act.
Prohibition on Benefit Plan Investors and
Restrictions on Non-ERISA Plans
Investment in the Company by "Benefit Plan Investors" is
prohibited so that the assets of the Company will not be deemed to
constitute "plan assets" of a "Benefit Plan Investor". The term
"Benefit Plan Investor" shall have the meaning contained in Section
3(42) of the US Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and includes (a) an "employee benefit plan" as
defined in Section 3(3) of ERISA that is subject to Part 4 of Title
I of ERISA; (b) a "plan" described in Section 4975(e)(1) of the US
Internal Revenue Code of 1986, as amended (the "Code"), that is
subject to Section 4975 of the Code; and (c) an entity whose
underlying assets include "plan assets" by reason of an employee
benefit plan's or a plan's investment in such entity. For purposes
of the foregoing, a "Benefit Plan Investor" does not include a
governmental plan (as defined in Section 3(32) of ERISA), a non-US
plan (as defined in Section 4(b)(4) of ERISA) or a church plan (as
defined in Section 3(33) of ERISA) that has not elected to be
subject to ERISA.
Each purchaser and subsequent transferee of any class of
ordinary shares (or any other class of equity interest in the
Company) will be required to represent, warrant and covenant, or
will be deemed to have represented, warranted and covenanted, that
it is not, and is not acting on behalf of or with the assets of, a
Benefit Plan Investor to acquire such ordinary shares (or any other
class of equity interest in the Company).
Under the Articles, the directors have the power to require the
sale or transfer of the Company's securities in order to avoid the
assets of the Company being treated as "plan assets" for the
purposes of ERISA.
The fiduciary provisions of pension codes applicable to
governmental plans, non-US plans or other employee benefit plans or
retirement arrangements that are not subject to ERISA
(collectively, "Non-ERISA Plans") may impose limitations on
investment in the Company. Fiduciaries of Non-ERISA Plans, in
consultation with their advisors, should consider, to the extent
applicable, the impact of such fiduciary rules and regulations on
an investment in the Company.
Among other considerations, the fiduciary of a Non-ERISA Plan
should take into account the composition of the Non-ERISA Plan's
portfolio with respect to diversification; the cash flow needs of
the Non-ERISA Plan and the effects thereon of the illiquidity of
the investment; the economic terms of the Non- ERISA Plan's
investment in the Company; the Non-ERISA Plan’s funding objectives;
the tax effects of the investment and the tax and other risks
associated with the investment; the fact that the investors in the
Company are expected to consist of a diverse group of investors
(including taxable, tax-exempt, domestic and foreign entities) and
the fact that the management of the Company will not take the
particular objectives of any investors or class of investors into
account.
Non-ERISA Plan fiduciaries should also take into account the
fact that, while the Company's board of directors and its
investment advisor will have certain general fiduciary duties to
the Company, the board and the investment advisor will not have any
direct fiduciary relationship with or duty to any investor, either
with respect to its investment in Shares or with respect to the
management and investment of the assets of the Company. Similarly,
it is intended that the assets of the Company will not be
considered plan assets of any Non-ERISA Plan or be subject to any
fiduciary or investment restrictions that may exist under pension
codes specifically applicable to such Non-ERISA Plans. Each
Non-ERISA Plan will be required to acknowledge and agree in
connection with its investment in any securities to the foregoing
status of the Company, the board and the investment advisor that
there is no rule, regulation or requirement applicable to such
investor that is inconsistent with the foregoing description of the
Company, the board and the investment advisor.
Each purchaser or transferee that is a Non-ERISA Plan will be
deemed to have represented, warranted and covenanted as
follows:
(a) The Non-ERISA Plan is not a Benefit Plan
Investor;
(b) The decision to commit assets of the
Non-ERISA Plan for investment in the Company was made by
fiduciaries independent of the Company, the Board, the Investment
Advisor and any of their respective agents, representatives or
affiliates, which fiduciaries (i) are duly authorized to make such
investment decision and have not relied on any advice or
recommendations of the Company, the Board, the Investment Advisor
or any of their respective agents, representatives or affiliates
and (ii) in consultation with their advisers, have carefully
considered the impact of any applicable federal, state or local law
on an investment in the Company;
(c) None of the Company, the Board, the
Investment Advisor or any of their respective agents,
representatives or affiliates has exercised any discretionary
authority or control with respect to the Non-ERISA Plan’s
investment in the Company, nor has the Company, the Board, the
Investment Advisor or any of their respective agents,
representatives or affiliates rendered individualized investment
advice to the Non-ERISA Plan based upon the Non-ERISA Plan’s
investment policies or strategies, overall portfolio composition or
diversification with respect to its commitment to invest in the
Company and the investment program thereunder; and
(d) It acknowledges and agrees that it
is intended that the Company will not hold plan assets of the
Non-ERISA Plan and that none of the Company, the Board, the
Investment Advisor or any of their respective agents,
representatives or affiliates will be acting as a fiduciary to the
Non-ERISA Plan under any applicable federal, state or local law
governing the Non- ERISA Plan, with respect to either (i) the
Non-ERISA Plan’s purchase or retention of its investment in the
Company or (ii) the management or operation of the business or
assets of the Company. It also confirms that there is no rule,
regulation, or requirement applicable to such purchaser or
transferee that is inconsistent with the foregoing description of
the Company, the Board and the Investment Advisor.
US Tax Matters
This discussion does not constitute tax advice and is not
intended to be a substitute for tax advice and planning.
Prospective holders of the Company's securities must consult
their own tax advisers concerning the US federal, state and
local income tax and estate tax consequences in their particular
situations of the acquisition, ownership and disposition of
any of the Company's securities, as well as any consequences
under the laws of any other taxing jurisdiction.
The Company's directors are entitled to decline to register a
person as, or to require such person to cease to be, a holder of
any class of ordinary shares or other equity securities of the
Company if they believe that: such person is, or is related to, a
citizen or resident of the United
States, a US partnership, a US corporation or a certain type
of estate or trust and that ownership of any class of ordinary
shares or any other equity securities of the Company by such person
would materially increase the risk that the Company could be or
become a "controlled foreign corporation" within the meaning of the
Code (a "CFC").
In general, a foreign corporation is treated as a CFC only if
its "US shareholders" collectively own more than 50% of the total
combined voting power or total value of the corporation's stock. A
"US shareholder" means any US person who owns, directly or
indirectly through foreign entities, or is considered to own (by
application of certain constructive ownership rules), 10% or more
of the total combined voting power of all classes of stock of a
foreign corporation, such as the Company.
There is a risk that the Company will decline to register a
person as, or will require such person to cease to be, a holder of
the Company's securities if the Company could be or become a CFC.
The Company's treatment as a CFC could have adverse tax
consequences for US taxpayers.
The Company has been advised that it is NOT a passive foreign
investment company ("PFIC") for the fiscal years ended February 2016 and 2015. A classification as a
PFIC would likely have an adverse tax consequences for US
taxpayers.
The taxation of a US taxpayer's
investment in the Company's securities is highly complex.
Prospective holders of the Company's securities must consult their
own tax advisers concerning the US federal, state and local income
tax and estate tax consequences in their particular situations of
the acquisition, ownership and disposition of any of the Company's
securities, as well as any consequences under the laws of any other
taxing jurisdiction.
Investment Adviser's ADV Form
Shareholders and state securities authorities wishing to view
the Investment Adviser's ADV form can do so by following the link
below:
https://adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?ORG_PK=160932