EPE Special Opportunities PLC Annual Financial Report (3070B)

TIDMESO TIDMEO.P TIDMEC.P TIDMEL.P

RNS Number : 3070B

EPE Special Opportunities PLC

03 April 2017

EPE Special Opportunities plc

("ESO plc" or "the Company")

Audited Financial Statements for the 12 months ended 31 January 2017

The Board of EPE Special Opportunities plc are pleased to announce the Company's Final Results for the 12 months ended 31 January 2017.

Highlights:

-- The Net Asset Value ("NAV") at 31 January 2017 was 364.13 pence per share, an increase of 127.6% on the NAV per share of 160.00 pence as at 31 January 2016;

-- The share price at 31 January 2017 was 268.50 pence, representing an increase of 115.7% on the share price of 124.50 pence as at 31 January 2016;

-- The positive performance of the Company's NAV per share has benefited from the successful initial public offering ("IPO") and admission to trading on the Main Market of the London Stock Exchange of the Company's largest asset, Luceco plc. The IPO was announced on 17 October 2016 at an implied market capitalisation of GBP209.0 million. Prior to the IPO, ESO plc held 48.6% of the shares of Luceco plc and loans of GBP10.0 million. Subsequent to the secondary sale of shares to new investors, ESO plc now holds 24.3% of the newly quoted entity. The IPO implied a return to ESO plc of 24.4x Money Multiple and 75.6% IRR, of which 12.3x Money Multiple and 57.9% IRR has been realised;

-- The retention of 24.3% of Luceco plc is expected to be accretive to ESO plc shareholders over the medium to long-term. Shares in Luceco plc have performed strongly since IPO and on 31 January 2017 closed at 178.75p, up 37.5% on the IPO valuation of 130.00p;

-- Whittard of Chelsea had a good finish to 2016 with strengthening sales across its UK retail estate and e-commerce channels. The improving performance was in part due to macro factors, such as the increased tourism custom seen across UK retail, and business specific initiatives, such as the launch of its Chinese e-commerce presence and a strong festive product range;

-- Process Components had a strong second half of 2016 and order intake remains encouraging. The business has successfully brought the manufacture of its equipment range in-house, providing both margin and supply chain control benefits;

-- On 4 July 2016, the Company announced the completion of a merger of Pharmacy2U and ChemD Holdings Limited, which trades as ChemistDirect.co.uk ("Chemist Direct"). In conjunction with the merger, the Business Growth Fund has invested GBP10.0 million to support the new business' ambitious growth plans. The enterprise value of the new business equates to GBP43.3 million and the merger creates a clear leader in the UK online pharmacy sector, with 1.5 million customers and unrivalled experience in digital pharmacy services. The Chief Executive of the new business is ChemistDirect.co.uk Chief Executive Mark Livingstone, who brings a strong track record in innovative internet-based businesses including LOVEFiLM and Graze.com. Subsequent to the merger, synergies have been realised in line with management projections;

-- On 8 March 2017, the Company completed a secondary acquisition of a EUR2.5 million commitment in European Capital's Private Debt Fund ("ECPD") via ESO Alternative Investments LP, a new partnership established to hold the Company's primary and secondary fund investments. ECPD provides private debt for European small and medium sized enterprises, predominantly in France and the UK. The Fund has commitments of EUR473.0 million. The acquisition of the Company's first Limited Partner interest in ECPD will provide a reasonable yield and will further diversify the Company's exposure to different asset classes;

-- The portfolio remains conservatively valued with a weighted average Enterprise Value equating to an EBITDA multiple of 5.0x for mature unquoted assets and equating to a Sales multiple of 0.4x for unquoted assets investing for growth;

-- The underlying portfolio is relatively unleveraged with 0.9x third party net debt to EBITDA;

-- The Company retains a cash balance of GBP39.4 million as at 31 January 2017, providing 66.8x per annum coverage on outstanding loan interest. Overall liquidity in the Company is GBP41.9 million;

-- Over the last five years the Company has continued to use its capital resources prudently, retiring 36.5% of the capital base;

-- The Company is actively pursuing new investment opportunities where the Board is confident a good return for investors can be achieved. All new private equity investments will be made via ESO Investments 2 LP, in which the Company is the sole investor. All new primary and secondary fund investments will be made via ESO Alternative Investments LP, in which the Company is the sole investor;

-- The Board are delighted to welcome Heather Bestwick, who joined the Board on 10 February 2017. Heather's track record of success and extensive experience in financial services will be invaluable to the Company;

-- The Company's largest shareholder is Giles Brand and his connected persons own 22.4% of the Company's issued Ordinary Share Capital between them; and

-- Mr. Geoffrey Vero, Chairman, commented: "The Board are pleased with the performance of the portfolio over the period. The IPO of Luceco plc was a particular highlight and represents a significant milestone in the Company's development, providing an uplift in the NAV, reducing asset concentration risk and providing greater liquidity. The Investment Advisor and Board continue to actively pursue new investment opportunities".

Enquiries:

 
EPIC Private Equity LLP   [phone] 
                           Alex Leslie 
FIM Capital Limited       [phone] 
                           Philip Scales 
Cardew Group Limited      [phone] 
                           Richard Spiegelberg 
Numis Securities Limited  [phone] 
 Nominated Advisor:        Stuart Skinner / Hugh 
 Corporate Broker:         Jonathan 
                           Charles Farquhar 
 

Biographies of the Directors

 
 Geoffrey Vero FCA                    Clive Spears 
-----------------------------------  ---------------------------------- 
 Geoffrey Vero qualified              Clive Spears retired 
  as a chartered accountant            from the Royal Bank of 
  with Ernst & Young and               Scotland International 
  then worked for Savills,             Limited in December 2003 
  chartered surveyors, and             as Deputy Director of 
  The Diners Club Limited.             Jersey after 32 years 
  He has been active in                of service. His main 
  venture capital since                activities prior to retirement 
  1985, initially with Lazard          included Product Development, 
  Development Capital Limited          Corporate Finance, Trust 
  and then from 1987 to                and Offshore Company 
  2002 as a director of                Services and he was Head 
  Causeway Capital Limited             of Joint Venture Fund 
  which became ABN Amro                Administration with Rawlinson 
  Capital Limited. In 2002,            & Hunter. Mr Spears is 
  he set up The Vero Consultancy       an Associate of the Chartered 
  specialising in corporate            Institute of Bankers 
  advisory services and                and a Member of the Chartered 
  recovery situations. He              Institute for Securities 
  has considerable experience          & Investment. He has 
  in evaluating investment             accumulated a well spread 
  opportunities and dealing            portfolio of directorships 
  with corporate recovery.             centring on private equity, 
  While at Causeway Capital,           infrastructure and corporate 
  Mr Vero was a Founder                debt. His appointments 
  Director of Causeway Invoice         currently include being 
  Discounting Company Limited,         Chairman of Nordic Capital 
  which was subsequently               Limited, sitting on the 
  sold to NM Rothschild.               board of Jersey Finance 
  He is also a non-executive           Limited and being director 
  director of Numis Corporation        and Head of the Investment 
  plc and Chairman of Albion           Committee for GCP Infrastructure 
  Development VCT plc.                 Investments (FTSE 250 
                                       listed company). 
-----------------------------------  ---------------------------------- 
 Robert Quayle                        Nicholas Wilson 
-----------------------------------  ---------------------------------- 
 Robert Quayle qualified              Nicholas Wilson has over 
  as an English solicitor              40 years of experience 
  at Linklaters & Paines               in hedge funds, derivatives 
  in 1974 after reading                and global asset management. 
  law at Selwyn College,               He has run offshore branch 
  Cambridge. He subsequently           operations for Mees Pierson 
  practiced in London and              Derivatives Limited, 
  the Isle of Man as a partner         ADM Investor Services 
  in Travers Smith Braithwaite.        International Limited 
  He served as Clerk of                and several other London 
  Tynwald (the Isle of Man's           based financial services 
  parliament) for periods              companies. He is Chairman 
  totalling 12 years and               of Qatar Investment Fund 
  holds a number of public             Plc, a premium listed 
  and private appointments,            company, and, until recently, 
  and is active in the voluntary       was chairman of Alternative 
  sector. Mr. Quayle is                Investment Strategies 
  Chairman of the Isle of              Limited. He is a resident 
  Man Steam Packet Company             of the Isle of Man. 
  Limited, W.H. Ireland 
  (IOM) Limited and a number 
  of other companies in 
  the financial services, 
  manufacturing and distribution 
  sectors. 
-----------------------------------  ---------------------------------- 

 Heather Bestwick 
----------------------------------- 
 Heather Bestwick has been 
  a financial services professional 
  for 25 years, onshore 
  in the City of London 
  and offshore in the Cayman 
  Islands and Jersey. She 
  qualified as an English 
  solicitor, specialising 
  in ship finance, with 
  City firm Norton Rose, 
  and worked in their London 
  and Greek offices for 
  8 years. Ms Bestwick subsequently 
  practised and became a 
  partner with global offshore 
  law firm Walkers in the 
  Cayman Islands, and Managing 
  Partner of the Jersey 
  office. Becoming a non-executive 
  director in 2014, she 
  is Chairman of Equiom 
  (Jersey) Limited and Equiom 
  (Guernsey) Limited, sits 
  on the boards of the manager 
  of the Deutsche Bank dbX 
  hedge fund platform, a 
  shipping fund, and the 
  States of Jersey incorporated 
  company holding Jersey's 
  affordable housing, together 
  with several other financial 
  services companies. 
----------------------------------- 
 

Profile of Investment Advisor

EPIC Private Equity LLP ("EPE" or the "Investment Advisor") was founded in June 2001 and is independently owned by its Partners. EPE focuses on niche investment opportunities with a focus on special situations, distressed, growth and buyout transactions, special purpose acquisition companies, private investments in public equities, as well as primary and secondary limited partner transactions.

 
 Giles Brand                        Robert Fulford 
---------------------------------  ---------------------------------- 
 Giles Brand is a Partner           Robert Fulford is an Investment 
  and the founder of EPE.            Director of EPE. He previously 
  He is currently a non-executive    worked at Barclaycard Consumer 
  director of Whittard of            Europe before joining EPE. 
  Chelsea and Luceco plc.            Whilst at Barclaycard, 
  Before joining EPE, Giles          Robert was the Senior Manager 
  was a founding Director            for Strategic Insight and 
  of EPIC Investment Partners,       was responsible for identifying, 
  a fund management business         analysing and responding 
  which at sale to Syndicate         to competitive forces. 
  Asset Management plc had           Prior to Barclaycard, Robert 
  US$5 billion under management      spent four years as a strategy 
  and spent five years working       consultant at Oliver Wyman 
  in Mergers and Acquisitions        Financial Services, where 
  at Baring Brothers in Paris        he worked with a range 
  and London. Giles read             of major retail banking 
  History at Bristol University.     and institutional clients 
                                     in the UK, mainland Europe, 
                                     Middle East and Africa, 
                                     specialising in strategy 
                                     and risk modelling. He 
                                     manages the Company's investment 
                                     in Whittard of Chelsea, 
                                     where he is currently a 
                                     non-executive director. 
                                     Robert read Engineering 
                                     at Cambridge University. 
---------------------------------  ---------------------------------- 
 James Henderson                    Alex Leslie 
---------------------------------  ---------------------------------- 
 James Henderson is an Investment   Alex Leslie is an Investment 
  Director of EPE. He previously     Director of EPE. He previously 
  worked in the Investment           worked in Healthcare Investment 
  Banking division at Deutsche       Banking at Piper Jaffray 
  Bank before joining EPE.           before joining EPE. Whilst 
  Whilst at Deutsche Bank            at Piper Jaffray he worked 
  he worked on a number of           on a number of M&A transactions 
  M&A transactions and IPOs          and equity fundraisings 
  in the energy, property,           within the Biotechnology, 
  retail and gaming sectors,         Specialty Pharmaceutical 
  as well as providing corporate     and Medical Technology 
  broking advice to mandated         sectors. He manages the 
  clients. He manages the            Company's investments in 
  Company's investment in            Luceco plc and Process 
  Pharmacy2U, where he is            Components, where he is 
  currently a non-executive          currently a non-executive 
  director. James read Modern        director. Alex read Human 
  History at Oxford University       Biological and Social Sciences 
  and Medicine at Nottingham         at Oxford University and 
  University.                        obtained an MPhil in Management 
                                     from the Judge Business 
                                     School at Cambridge University. 
---------------------------------  ---------------------------------- 
 Hiren Patel 
--------------------------------- 
 Hiren Patel is a Partner 
  and EPE's Finance Director 
  and Compliance Officer. 
  He has worked in the investment 
  management industry for 
  the past ten years. Before 
  joining EPEA and EPE, Hiren 
  was finance director of 
  EPIC Investment Partners. 
  Before EPIC Investment 
  Partners Hiren was employed 
  at Groupama Asset Management 
  where he was the Group 
  Financial Controller. 
--------------------------------- 
 

Chairman's Statement

The UK's vote to leave the European Union on the 23 June 2016 continues to dominate the political and economic outlook of the country. However recent political events, such as announcements regarding the timetable and objectives for the UK's departure from the European Union, and recent economic indicators, such as the upward revision of the Bank of England's forecast for UK GDP growth in 2017 from 1.4% to 2.0%, have provided positive contributions to the outlook for the coming year. Whilst the long-term effects of the referendum will not be known for some time, short-term effects such as the devaluation of sterling and the risk of rising inflation in 2017 have been widely identified. The Board continues to track the impact of the UK's economic fortunes on the portfolio of EPE Special Opportunities ("ESO plc" or "the Company").

The Net Asset Value ("NAV") per share as at 31 January 2017 for the Company was 364.13 pence per share, representing an increase of 127.6% on the NAV per share of 160.00 pence as at 31 January 2016. The share price as at 31 January 2017 for the Company was 268.50 pence, representing an increase of 115.7% on the share price of 124.50 pence as at 31 January 2016.

The positive performance of the Company's NAV per share has benefited from the successful initial public offering ("IPO") and admission to trading on the Main Market of the London Stock Exchange of the Company's largest asset, Luceco plc. The IPO was announced on 17 October 2016 at an implied market capitalisation of GBP209.0 million. Prior to the IPO, ESO plc held 48.6% of the shares of Luceco plc and loans of GBP10.0 million. Subsequent to the secondary sale of shares to new investors, ESO plc now holds 24.3% of the newly quoted entity. The IPO implied a return to ESO plc of 24.4x Money Multiple and 75.6% IRR, of which 12.3x Money Multiple and 57.9% IRR has been realised.

The retention of 24.3% of Luceco plc is expected to be accretive to ESO plc shareholders over the medium to long-term. Shares in Luceco plc have performed strongly since IPO and on 31 January 2017 closed at 178.75p, up 37.5% on the IPO valuation of 130.00p. Giles Brand, Managing Partner of EPE, has continued as Non-Executive Chairman of Luceco plc.

The IPO of Luceco plc represents a significant milestone in the development of the Company; providing an uplift in the NAV of the Company, reducing asset concentration risk and providing greater liquidity. This liquidity will be re-invested in line with the Company's investment policy as currently defined.

Performance of other assets within the Company's portfolio has been encouraging over the period. Whittard of Chelsea had a good finish to 2016 with strengthening sales across its UK retail estate and e-commerce channels. The improving performance was in part due to macro factors, such as the increased tourism custom seen across UK retail, and business specific initiatives, such as the launch of its Chinese e-commerce presence and a strong festive product range. The business continues to invest in programmes to target long-term, sustainable returns, such as customer retention and international sales channels.

On 4 July 2016, the Company announced the completion of a merger of Pharmacy2U and ChemD Holdings Limited, which trades as ChemistDirect.co.uk ("Chemist Direct"). The merger created a clear leader in the UK online pharmacy sector, with 1.5 million customers and unrivalled experience in digital pharmacy services. Subsequent to the merger, synergies have been realised in line with management projections.

Process Components had a strong second half of 2016 and order intake remains encouraging. The business has successfully brought the manufacture of its equipment range in-house, providing both margin and supply chain control benefits.

On 8 March 2017, the Company completed a secondary acquisition of a EUR2.5 million commitment in European Capital's Private Debt Fund ("ECPD") via ESO Alternative Investments LP, a partnership established to hold the Company's primary and secondary fund investments. ECPD provides private debt for European small and medium sized enterprises ("SMEs"), predominantly in France and the UK. The Fund has commitments of EUR473.0 million. The acquisition of the Company's first LP interest in ECPD interest will provide a reasonable yield and will further diversify the Company's exposure to different asset classes. The acquisition price and level of deployed capital are supportive to the Company's forecast returns.

The Board is particularly pleased with the overall performance of the portfolio over the year to 31 January 2017, which has resulted in the Company being recognised as the highest performing investment trust over a five year period (FE Trustnet: best performing investment trust over a five year period (excluding property funds) by price performance (31 December 2016)) . The Board continues to actively review new investment opportunities to deploy the Company's liquidity where projected returns to shareholders are attractive. The Board believes that portfolio diversification is a key consideration of future capital allocation, including prudent geographic or asset class diversification. The Company will continue to invest in UK focused assets, but will also consider businesses with significant overseas operations.

I would like to extend my warm welcome to Heather Bestwick, who joined the Board on 10 February 2017. Heather's track record of success and extensive experience in financial services will be invaluable to the Company as we continue to grow our industry leading business.

I would also like to extend my gratitude to the Investment Advisor, EPE, as well as my fellow Directors and professional advisors, for their hard work and diligence over what has been a successful year.

I look forward to updating you once again at the half year point.

Geoffrey Vero

Chairman

31 March 2017

Investment Advisor's Report

In the year to 31 January 2017, the Investment Advisor has focused on maintaining and creating value from within the existing portfolio held by the Company through organic growth and corporate transactions. The Investment Advisor continues to undertake operational improvements and revenue enhancement measures to increase the value of the current portfolio assets. At the same time, the Investment Advisor has endeavoured to find new opportunities by way of platform transformation or bolt-on investment opportunities, such as the merger of Pharmacy2U and Chemist Direct, in July 2016, and the IPO of Luceco plc, in October 2016.

A number of new private equity deals have been considered but exercise of strict price disciplines and appropriate attention to prevailing market volatility has meant none have been completed during the period. All new private equity investments will be made via ESO Investments 2 LP ("ESO 2 LP"), in which the Company is the sole investor.

On 8 March 2017, the Company completed the secondary acquisition of a EUR2.5 million commitment in European Capital's Private Debt Fund ("ECPD") by ESO Alternative Investments LP, a partnership established to hold the Company's primary and secondary fund investments. ECPD provides private debt for European SME's, predominantly in France and the UK. The fund has commitments of EUR473.0 million. The acquisition of the ECPD interest will provide the Company with a reasonable yield and more particularly will further diversify the Company's asset class exposure. The acquisition price and level of deployed capital are supportive to the Company's forecast returns. Prior to March 2016, the Investment Advisor acted as placement agent to ECPD on the successful fundraise of the fund.

The Investment Advisor continues to monitor the impact of macro economic factors upon the portfolio, most notably the impact of the UK's vote to leave the European Union on 23 June 2016. The Investment Advisor is mindful of the short-term impact this event will have upon the UK economy, including the devaluation of sterling and volatility on the public markets, whilst noting the recent positive revisions in growth forecasts for the UK.

On 17 October 2016, the Company announced the successful IPO and admission to trading on the Main Market of the London Stock Exchange of its largest asset, Luceco plc. The IPO was priced at 130.0p per share or an implied market capitalisation of GBP209.0 million. Prior to the IPO, ESO plc held 48.6% of the shares of Luceco plc and loans of GBP10.0 million. Subsequent to the secondary sale of shares to new investors, ESO plc now holds 24.3% of the newly quoted entity. The IPO implied a return to ESO plc of 24.4x Money Multiple and 75.6% IRR, of which 12.3x Money Multiple and 57.9% IRR is realised.

The retention by ESO plc of 24.3% of Luceco plc is expected to be accretive to ESO plc shareholders over the medium to long-term. Luceco plc has performed strongly in the aftermarket, closing up 15.3% on the business' first day of trading and closing up 37.5% on the IPO valuation on 31 January 2017. Subsequent to the IPO, the business has continued to trade well and has announced that results for 2016 will be in line with market expectations. The business has entered 2017 with significant momentum and the Investment Advisor continues to have a positive outlook for Luceco plc.

Whittard of Chelsea had a good finish to 2016 with improving sales across its UK retail estate and e-commerce channels. This strong performance was in part due to macro factors, such as the increased tourism custom seen across UK retail, and business specific initiative, such as the launch of its Chinese e-commerce presence and a strong festive product range. The business continues to invest in programmes to target long-term, sustainable returns, such as customer retention and international sales channels. Together, Luceco and Whittard represent 56.8% of the Company's Gross Asset Value ("GAV").

Process Components had a weak year to 30 June 2016, finishing behind budget, in part due to order phasing. However, trading in the remainder of 2016 was encouraging and the outlook for 2017 is promising, demonstrated by strengthening order intake and the movement of equipment manufacture in-house, providing greater supply chain control and margin benefits. The business continues to invest in future sales and production infrastructure and product development at the business' UK and US facilities.

Pharmacy2U finished the year to 31 March 2016 behind budget in part due to operational issues surrounding the opening of a new facility which have now been resolved. Dispensing costs are expected to fall in the coming months, in part, as a result of the new facility opened in December 2015. On 4 July 2016, the Company announced the completion of a merger of Pharmacy2U and Chemist Direct. In conjunction with the merger, the Business Growth Fund has invested GBP10.0 million to support the new business' ambitious growth plans. The enterprise value of the new business equates to GBP43.3 million and the merger creates a clear leader in the UK online pharmacy sector, with 1.5 million customers and unrivalled experience in digital pharmacy services. Subsequent to the merger, synergies have been realised in line with management projections.

Company highlights

The NAV per share as at 31 January 2017 for the Company was 364.13 pence, calculated on the basis of 28.3 million ordinary shares (versus 30.0 million at issue), representing an increase of 127.6% on the NAV per share of 160.00 pence as at 31 January 2016. The share price for the Company as at 31 January 2017 was 268.50 pence, representing an increase of 115.7% on the share price of 124.50 pence as at 31 January 2016.

Based on the latest NAV, as set out above, Gross Asset Cover for the total outstanding loans of GBP7.9 million is now 14.1x. Cash balances now stand at GBP39.4 million (including cash held by ESO 1 LP) with interest coverage of 66.8x per annum. Overall liquidity in the Company is GBP41.9 million.

Third party net debt in the Company's portfolio stands at 0.9x EBITDA. The portfolio remains conservatively valued with a weighted average Enterprise Value equating to an EBITDA multiple of 5.0x for mature unquoted assets and equating to a Sales multiple of 0.4x for unquoted assets investing for growth. 9.9% of the portfolio's GAV is comprised of yielding loans.

Investment highlights from the inception of the Company (16 September 2003) to date include:

   --      Deployed GBP66 million of capital; 
   --      Returned over GBP134 million to the Company in capital and income; 
   --      Paid dividends of GBP5 million; and 
   --      The underlying portfolio is valued at a gross 7.7x money multiple and 39.2% IRR. 
 
 Performance summary            One    Three     Five 
  As at 31 January 2017        Year    Years    Years 
 ESO plc Share Price           116%     209%     465% 
 ESO plc NAV Per Share         128%     169%     308% 
 Listed European PE Index*      47%      64%     187% 
 FTSE All-Share Index           16%      10%      32% 
 AIM All-Share Index            27%       3%      16% 
---------------------------  ------  -------  ------- 
 

* Selected Listed European PE Index constituents: 3i, Better Capital, Dunedin Enterprise, Electra Private Equity, HgCapital Trust, ICG Enterprise Trust and Oakley Capital Investments. The Index has been constructed by weighting the daily share price of each constituent by its market capitalisation on a daily basis.

Recent developments

-- July 2015: acquisition of minority interest in ESO 1 LP for GBP8.6 million; GBP4.5 million ULNs issue and GBP0.25 million issue of new equity in the Company.

-- November to December 2015: refinance of GBP3.0 million in principal amount of the existing CLNs into ULNs with warrants over Ordinary shares offered on a 1 for 5 basis. A further GBP0.5 million was raised through issuance of ULNs to new investors.

-- July 2016: merger of Pharmacy2U with Chemist Direct, creating a clear leader in the UK online pharmacy sector.

-- October 2016: IPO and admission to trading on the Main Market of the London Stock Exchange of Luceco plc. An implied return to ESO plc at the IPO valuation of 24.4x Money Multiple and 75.6% IRR, of which 12.3x Money Multiple and 57.9% IRR has been realised.

-- March 2017: acquisition of EUR2.5 million commitment in European Private Debt Fund which provides private debt for European SME's, predominantly in France and the UK.

Portfolio diversification

The portfolio at the year end was diversified by sector and instrument as follows:

 
 Sector diversification            % 
----------------------------  ------ 
 Engineering, Manufacturing 
  and Distribution             87.6% 
 Retail / FMCG                  9.9% 
 Healthcare                     2.5% 
----------------------------  ------ 
 Total                          100% 
----------------------------  ------ 
 
 
 Instrument diversification        % 
 Equity                        58.4% 
 Cash                          35.2% 
 Shareholder Loans              6.4% 
----------------------------  ------ 
 Total                          100% 
----------------------------  ------ 
 

Current portfolio: ESO 1 LP

Luceco plc

Luceco plc ("Luceco") is a manufacturer and distributor of electrical accessories and LED lighting in the UK and increasingly internationally, operating under the brand names British General (or "BG"), Luceco and Masterplug, supplying both the retail and wholesale markets. The development of the Luceco LED lighting ranges is a major focus for the business. The gathering momentum behind the lighting technology switch to LED provides the business with an opportunity to enter and build market share in the category at a point of disruptive transition as traditional solutions are superseded. Luceco is differentiated by its positioning as a Chinese manufacturer, where the Company has built a 52,500 square metre wholly-owned production facility in Jiaxing, with British product quality and a responsive product development team. Luceco completed a successful IPO in October 2016 and was admitted to trading on the Main Market of the London Stock Exchange.

Whittard of Chelsea

Whittard of Chelsea ("Whittard") is a retailer of specialty tea, coffee and hot chocolate. Established in 1886, Whittard commands both strong brand recognition and customer loyalty in the UK and abroad. The main channel for Whittard is the portfolio of 50 stores across the UK. These stores are positioned in prime locations on the high street, in tourist centres and outlets, with sales generated from both gifting and regular self-purchases. Other channels include the online, wholesale and franchise channels. The Investment Advisor has focused on developing the Whittard of Chelsea brand towards a more premium stance, which should broaden its appeal both in the UK home market and abroad.

Pharmacy2U

Pharmacy2U ("P2U") is an online pharmacy business, delivering National Health Service and private prescriptions direct to the home using an innovative technology developed in conjunction with the NHS, the Electronic Prescription Service ("EPSr2"). In December 2015, P2U moved into a new automated distribution facility which, once established, is expected to drive future capacity growth in the near term. In July 2016, P2U merged with Chemist Direct creating a clear leader in the UK online pharmacy sector.

Current portfolio: ESO Investments (PC) LLP ("ESO (PC) LLP")

Process Components

Process Components ("PCL") is an engineering parts and equipment supplier to the powder processing industries, primarily food, agriculture and pharmaceuticals. Customers are blue chip global manufacturers, and the business has been growing its international supply operations.

Current Portfolio: ESO Alternative Investments LP ("ESO AI LP")

European Capital Private Debt Fund

European Capital Private Debt Fund ("ECPD Fund") is a provider of private debt to European SME's, predominantly in France and the UK. The ECPD Fund has total commitments of EUR473.0 million. Prior to March 2016, the Investment Advisor acted as placement agent to the ECPD Fund on the successful fundraise of the fund. The Company acquired a fund commitment of EUR2.5 million in March 2017 through ESO AI LP, in which ESO plc is the sole investor.

Current portfolio: ESO 2 LP

No new private equity investments were made in the period. The Company continues to explore opportunities to acquire high quality assets at attractive prices to further diversify the current portfolio.

Outlook

The Investment Advisor is focused on creating value in its core investments, where opportunities for significant value creation remain, as well as on making new investments to increase portfolio diversification and generate attractive returns for shareholders. The Investment Advisor expects to achieve continued cost savings and revenue improvement measures in portfolio companies, especially those in manufacturing and consumer focused sectors. New investment opportunities are being pursued. All new private equity investments will be made via ESO 2 LP, in which the Company is the sole investor. All new primary and secondary fund investments will be made via ESO AI LP, in which the Company is the sole investor.

Strategic Report

Objectives and opportunities

The Company is an investment company and has been quoted on the Alternative Investment Market ("AIM"). Its objective is to provide long-term return on equity for its shareholders by way of investment in a portfolio of private equity assets. The portfolio is likely to be concentrated, numbering between two and 10 assets at any one time.

Investment policy

The Investment Advisor believes that the current economic environment continues to create a wide range of investment opportunities in small and medium sized enterprises ("SMEs"). As a result, the Investment Advisor continues to use proprietary deal sourcing approaches to source these opportunities, as well as engaging actively with the wider restructuring and advisory community to communicate the Company's investment strategy. The Company seeks to target growth and buyout opportunities, as well as special situations and distressed transactions, making investments where it believes pricing to be attractive and the potential for value creation strong. The Company will continue to target the following types of investments:

-- Growth, Buyout and Pre-IPO opportunities: leveraging the Investment Advisor's investment experience, contacts and ability. The Company is particularly focused on making investments in sectors where the opportunity exists to create a unique asset via the consolidation of a number of smaller companies, taking advantage of the lack of liquidity in the SME market and the attraction to secondary buyers of larger operations.

-- Special Situations: investment opportunities where the Investment Advisor believes that assets are undervalued due to specific, event-driven circumstances and where asset-backing may be available and the opportunity exists for recovery and significant upside. Target companies may or may not be distressed as a result of the situation. The Investment Advisor will aim to use its restructuring and refinancing expertise to resolve the situation and achieve a controlling position in the target company. The Company seeks to acquire distressed debt, undervalued equity or the assets of target businesses in solvent or insolvent situations.

-- Private Investment in Public Equities (PIPEs): the Company may consider making investments in a number of smaller quoted companies, primarily ones whose shares are admitted to AIM. The Company will either seek to acquire and de-list the target company or take a large minority interest in the target company whilst retaining the listing. The Company may offer ordinary shares in the Company as all or part of the consideration for such investments.

-- Special Purpose Acquisition Companies (SPACs): the Company may consider making investments in listed companies which have been established to acquire other companies. The Investment Advisor would seek to work with a management team to develop an acquisition strategy in advance of the listing of the SPAC, at which point the Company would invest. The subsequent acquisition or acquisitions may be funded through further equity raises directly into the SPAC. The strategy would seek to take advantage of the Investment Advisor's combination of experience in both the establishment of and management of listed companies and private equity investing.

-- Secondary portfolios / Limited Partner positions (Secondary or Primary) / EPE Funds: the Company is able, through EPE's Placement business, to invest as a limited partner in various Private Equity funds on substantially improved terms. On occasion, the Company will seek to take advantage of these commitments. The EPE skill-set and experience is well suited to the requirements of co-investing in funds.

The Company will consider most industry sectors, including consumer, retail, manufacturing, financial services, healthcare, support services and media industries. The Company partners with management and entrepreneurs to maximise value by combining financial and operational expertise in each investment.

The Company will seek to invest between GBP2 million and GBP20 million in a range of debt and equity instruments with a view to generating returns through both yield (c.5% to 15% per annum) and capital gain. Whilst in general the Company aims to take controlling equity positions, it may seek to develop companies as a minority investor. Occasionally the Board may authorise investments of less than GBP2 million. For investments larger than GBP20 million, the Company may seek co-investment from third parties or additional public market fundraisings.

Investment policy

The Company looks to invest in businesses with strong fundamentals, including defensible competitive advantage, opportunity for strong future cashflow and dynamic management teams.

The Company aims to maintain a concentrated portfolio of between two and 10 assets.

The Company looks to invest in UK focused assets as well as those with significant overseas operations. For instance, within the Company's current portfolio, Luceco plc employs c.2,000 staff at it's manufacturing and product development facility in Jiaxing, China and Process Components has a significant US sales and distribution operation.

The Company's Investment Policy has been in place for several years and is subject to ongoing review as described below and in the Investment Advisors Report.

The Investment Advisor

The Investment Advisor to the Company is EPE, which was founded in June 2001 and is an independent investment manager wholly owned by its Partners. Since 2001, EPE has made 38 investments. EPE manages the Company's investments in accordance with guidelines determined by the Directors, the Investment Advisor and the Company's constitutional commitments. These guidelines evolve periodically. EPE was appointed as the Investment Advisor in September 2003.

Current and future development

A detailed review of the year and outlook is contained in the Chairman's Statement and the Investment Advisor's Report.

The Board regularly reviews the development and strategic direction of the Company. The Board's main focus continues to be on the Company's long-term investment return. It is believed that the Company has foundations in place to build a successful and durable investment vehicle given its supportive shareholder base, with Giles Brand and his connected persons owning 22.4% (Excluding awards made under the Joint Share Ownership Plan) of the issued Ordinary Share Capital of the Company, and the provision of equity funding until at least December 2020, with five year extensions thereafter, via the passing of the Continuation Vote in July 2013.

Performance

A detailed review of historic performance is contained in the Chairman's Statement and the Investment Advisor's Report. A number of key indicators are considered by the Board and the Investment Advisor in assessing the progress and performance of the Company. These are well established industry measures and are as follows:

   --      Return on equity over the long-term; 
   --      Movement in NAV per ordinary share; 
   --      Movement in share price; and 
   --      Realisation of assets above cost and above holding value at NAV. 

Further details of these key performance indicators can be found below.

As part of this review of performance, the Board and the company's auditors review and challenge the investment valuations prepared by EPE to ensure the Company's performance is fairly reported. The Board also considers contemplated capital events over the lifetime of the Company to gain an appreciation of the Company's likely development and future performance. This is considered in light of the risks faced by the Company and its portfolio discussed below.

Risk management

All risks associated with the Company are the responsibility of the Board, which reviews and manages these either directly or through EPE. The Board and EPE review the risks faced by the Company on an ongoing basis and at quarterly Board meetings. These reviews are not restricted to a specific time horizon due to the long-term nature of investments and the short-term liquidity requirement. Further, the Risk and Audit Committee reviews the Company's approach to risk management on a biannual basis at the Business Risk Assessment level and on an annual basis at the operational level to ensure adopted practices are suitable, effective and robust. An ISAE programme is being introduced during the coming year to provide further assurance to the Board regarding operational processes.

The main risks which the Company currently faces are as follows:

Macroeconomic risks

The performance of the Company's underlying portfolio of assets as well as the Company's ability to exit these assets is materially influenced by the macroeconomic conditions, including the current business environment and market conditions, the availability of debt finance, the level of interest rates, as well as the number of active buyers. Considerable effort continues to be taken by the Investment Advisor to position the portfolio companies to cope with the changing macroeconomic climate.

Share price volatility and liquidity

The market price of the Company's shares could be subject to significant fluctuations due to a change in investor sentiment regarding the Company or the industry in which the Company operates or in response to specific facts and events, including positive or negative variations in the Company's interim or full year operating results and business developments of the Company and/or competitors. The market price of the shares may not reflect the underlying value of the Group and it is possible that the market price of the shares will trade at a discount to NAV.

The Board monitors share price to NAV per share discount, and considers the most effective methodologies to keep this at a minimum. These methodologies include a share buyback policy, with Directors continuing to seek shareholder authority on an annual basis to enable them to purchase shares for cancellation when they believe it will be in the best interests of shareholders. To date, this strategy has been used prudently and efficiently to improve shareholder returns, with the Company having retired limited partnership interests, par value CLNs and ordinary shares over the last five years equating to 36.5% of the capital base.

The Company holds quoted investments, through its investment in Luceco plc, which are subject to share price volatility. The Company values its holding in Luceco plc at the quoted price at close of the markets on the balance sheet date without adjustment. Therefore the holding value for this asset is subject to short-term, interday volatility (i.e. no period averages are taken) or more widely, fluctuations due to a change in investor sentiment regarding the business or the industry in which the business operates.

Long-term strategic risks

The Company is subject to the risk that share price performance and long-term strategy fail to meet the expectations of its shareholders. The Board regularly reviews the Objective and Investment Policy in light of prevailing investor sentiment to ensure the Company remains attractive to its shareholders.

Investment risks

The Company operates in a competitive market. Changes in the number of market participants, the availability of investable assets, the pricing of investable assets, or in the ability of EPE to access and execute deals could have a significant effect on the Company's competitive position and on the sustainability of returns.

Adequate sourcing and execution of deals is primarily dependent on the ability of EPE to attract and retain key investment executives with the requisite skills and experience.

Adequate performance of portfolio assets once acquired is primarily dependent on macroeconomic conditions, conditions within each asset's market and the ability of the respective management teams of each asset to execute their business strategy. Any one of these factors could have an impact on the valuation of a portfolio company and upon the Company's ability to make a profitable exit from the investment within the desired timeframe.

The Company may at certain times hold a relatively concentrated investment portfolio of between two and 10 assets. The Company could be subject to significant losses if it, for example, holds a large position in a particular investment that declines in value. Such losses could have a material adverse effect on the performance of and returns achieved by the Company.

The Company and EPE monitor the risk that high asset concentration within the investment portfolio may pose. The Company mitigates the risk through the current level of liquidity available to the Company to invest in new assets, the Investment Advisor's ongoing work to identify new attractive investment opportunities and careful monitoring of all the investment portfolio's assets, with particular attention to the portfolio's larger assets.

A rigorous process is put in place by EPE for managing the relationship with each portfolio company. This includes regular asset reviews, an assessment of concentration of the investment portfolio at any given period and board representation by one or more EPE executives. The Board reviews both the performance of EPE and its incentive arrangements on a regular basis to ensure that both are appropriate to the objectives of the Company.

Gearing risks

Gearing can cause both gains and losses in the asset value of the Company to be magnified. Gearing can also have serious operational impacts on the Company if a breach of its banking covenants occurs. Secondary risks relate to whether the cost of gearing is too high and whether the length of the gearing is appropriate. The Board regularly monitors the headroom available under funding covenants and reviews the impact of the various forms of gearing and their cost to the Company. The Company uses gearing directly via its CLNs, its ULNs and an overdraft facility at ESO 1 LP, and indirectly via gearing in individual portfolio assets.

Foreign exchange risk

The base currency of the Company is Sterling. Certain of the Company's assets may be invested in investee companies which may have operations in countries whose currency is not Sterling and securities and other investments which are denominated in other currencies. Accordingly, the Company will necessarily be subject to foreign exchange risks and the value of its assets may be affected unfavourably by fluctuations in currency rates.

Valuation risks and methodology

The Investment Advisor determines asset values using IPEV guidelines and other valuation methods with reference to the valuation principles of IFRS 13: Fair Value Measurement. This determination is subject to many assumptions and requires considerable judgment.

For unquoted investments, the assets are classified as Level 3 in the IFRS 7 fair value hierarchy. IPEV guidelines recommend the use of comparable quoted company metrics and comparable transaction metrics to determine an appropriate enterprise value, to which a marketability discount is applied given the illiquid nature of private equity investments. The Investment Advisor also seeks to confirm value using discounted cash flow and other methods of valuation, and by applying a range approach. The Investment Advisor adopts a conservative approach to valuation with reference to the aforementioned methodology having regard for on-going volatile market conditions.

For quoted investments, the assets are classified as Level 1 in the IFRS 7 fair value hierarchy. Accordingly, the assets are valued at the quoted price at close of markets on the balance sheet date, without adjustment. The Company announces an estimated net asset value per ordinary share on a monthly basis following a review of the valuation of the Company's investments.

Operational risks

The Company's investment management and administration are provided or arranged for the Company by EPE. The Company is therefore exposed to internal and external operational risks at EPE, including regulatory, legal, information technology, human resources and deficiencies in internal controls. The Company monitors the provision of services by EPE to ensure they meet the Company's business objectives.

The Board continues to monitor the operational procedures of the Company and those of the Investment Advisor. The Board has reviewed these procedures within the last year with the support of the Company Secretary and Nomad. This review included an assessment of the performance of the Investment Advisor, as well as assessing the services offered by other providers including the Company's Nomad, Secretary and Fund Administrators. Key risks considered include service provider failure, conflicts of interest and the risks of fraud, reputation damage and bribery. The Board will continue to monitor these procedures and risks, and update the Company's procedures accordingly.

Quarterly Board reports are submitted by each provider setting out any operational or compliance issues arising and are monitored by the Board. The Board considers the performance of each outsource provider in conjunction with the Audit and Risk Committee processes assumed directly by the Board in accordance with the offer document. An Audit and Risk Committee visit to the Investment Advisor was completed in January 2017.

Performance is further considered as part of the annual audit process and any issues arising therein as a result of reports and or discussion with the appointed Auditors.

The Company has appointed FIM Capital Limited ("FIM") as administrators and EPE Administration Limited ("EPEA") (formerly EHM International Limited) as sub-administrator to provide administration and accounting services. The Board reviews the performance and procedures of both service providers (including disaster recovery procedures) on an annual basis and conducted an in-depth review of the procedures and services offered by EPEA on 15 June 2015. As a result of this in-depth review, EPEA has engaged KPMG to provide an ISAE assurance process with scoping agreed and phase one work to commence in 2017.

The Company's Nomad and corporate finance advisor is Numis Securities ("Numis") who provide compliance and regulatory services to the Company. The Board also periodically reviews the performance of Numis as Nomad and Corporate Adviser to the Company. A review was carried out in 2016 with performance deemed to be satisfactory and the ongoing engagement approved. The next review is planned for 2017.

Sources of funds

The Company considers a number of sources for funds. These include its own cash resources, listed Luceco plc shares and third party funds. Own cash resources originate via income from ESO 1 LP and ESO (PC) LLP and capital from asset realisations and refinancings. The focus on utilising these cash resources allows the Company to minimise dilution from public market fundraisings and provides sufficient capital for small share buybacks and the execution of one to two new investment opportunities per annum.

The Company's own cash resources may be supplemented by additional third party funding. One route of third party funding includes the provision of co-investment capital alongside the Company in ESO 2 LP, either as private investment capital directly into ESO 2 LP or on a deal by deal basis. The Company may also seek opportunistic public market fundraisings, in particular when considering transformational investment opportunities such as the acquisition of the EPIC plc private equity portfolio in 2010. Alternatively, third party debt funding may be sourced, comprising zero dividend preference shares, preference shares, senior and mezzanine debt, such as the GBP10.0 million of CLNs raised in 2010 to part-fund the EPIC plc portfolio acquisition and the GBP8.0 million new ULNs raised in 2015.

Board Composition and Succession Plan

Objectives of Plan

-- To ensure that the Board is composed of persons who collectively are fit and proper to direct the Company's business with prudence, integrity and professional skills; and

-- To define the Board Composition and Succession Plan (the "Plan"), which guides the size, shape and constitution of the Board and the identification of suitable candidates for appointment to the Board.

The Plan is reviewed by the Board annually and at such other times as circumstances may require (e.g. a major corporate development or an unexpected resignation from the Board). The Plan may be amended or varied in relation to individual circumstances at the Board's discretion in due course.

The Board has reviewed and approved a formal succession plan with regards to the Directors. The Board conducted a competency and succession review and following the results of that review appointed Heather Bestwick to the Board on 10 February 2017.

Methodology

The Board is conscious of the need to ensure that proper processes are in place to deal with succession issues and the Board uses a skills matrix to assist in the selection process.

The matrix includes the following elements: finance, accounting and operations; familiarity with the broader concepts of private equity investment, diversity (gender, residency, cultural background); Shareholder perspectives; investment management; multijurisdictional compliance and risk management. In adopting the matrix, the Board acknowledges that it is an iterative document and will be reviewed and revised periodically to meet the Company's on-going needs.

Directors may be appointed by the Board, in which case they are required to seek election at the first AGM following their appointment. In making an appointment the Board shall have regard to the Board skills matrix.

The Board also uses the skill matrix to review the current composition of the Board to assess strengths and to identify and mitigate any weaknesses. The Board conduct these reviews on an ongoing basis and addresses issues as they are highlighted by the process. The next review is set for May 2017.

A Director's formal letter of appointment sets out, amongst other things, the following requirements:

-- Bringing independent judgment to bear on issues of strategy, performance, resources, key appointments and standards of conduct and the importance of remaining free from any business or other relationship that could materially interfere with independent judgement;

-- Having an understanding of the Company's affairs and its position in the industry in which it operates;

-- Keeping abreast of and complying with the legislative and broader responsibilities of a Director of a company whose shares are traded on the London Stock Exchange;

-- Allocating sufficient time to meet the requirements of the role, including preparation for Board meetings; and

   --      Disclosing to the Board as soon as possible any potential conflicts of interest. 

Geoffrey Vero

Chairman

31 March 2017

Risk and Audit Committee Report

The Risk and Audit Committee is chaired by Clive Spears and comprises all other Directors.

The Risk and Audit Committee's main duties are:

-- To review and monitor the integrity of the interim and annual financial statements, interim statements, announcements and matters relating to accounting policy, laws and regulations of the Company;

   --      To evaluate the risks to the quality and effectiveness of the financial reporting process; 

-- To review the effectiveness and robustness of the internal control systems and the risk management policies and procedures of the Company;

   --      To review the valuation of portfolio investments; 
   --      To review corporate governance compliance; 

-- To review the nature and scope of the work to be performed by the Auditors, and their independence and objectivity; and

-- To make recommendations to the Board as to the appointment and remuneration of the external auditors.

The Risk and Audit Committee has a calendar which sets out its work programme for the year to ensure it covers all areas within its remit appropriately. It met four times during the period under review to carry out its responsibilities and senior representatives of the Investment Advisor attended the meetings as required by the Risk and Audit Committee. In between meetings, the Risk and Audit Committee chairman maintains ongoing dialogue with the Investment Advisor and the lead audit partner via visits and meetings at the office of the Investment Advisor.

During the year the Risk and Audit Committee carried out a further review of its terms of reference against FRC guidelines and its own effectiveness. It concluded that the changes were working well and that the Risk and Audit Committee is satisfactorily fulfilling its terms of reference and is operating effectively. Additional risk lines have been agreed covering Cyber Security and macro influences, such as Brexit.

Significant accounting matters

The significant issue considered by the Risk and Audit Committee during the year in relation to the financial statements of the Company is the valuation of unquoted investments.

The Company's accounting policy for valuing investments is set out in note 3. The Risk and Audit Committee examined and challenged the valuations prepared by the Investment Advisor, taking into account the latest available information on the Company's investments and the Investment Advisor's knowledge of the underlying portfolio companies through their ongoing monitoring. The Risk and Audit Committee satisfied itself that the valuation of investments had been carried out consistently with prior accounting periods, or that any change in valuation basis was appropriate, and was conducted in accordance with published industry guidelines.

The Auditors explained the results of their review of the procedures undertaken by the Manager for the valuation. On the basis of their audit work, no material adjustments were identified by the auditor.

External audit

The Risk and Audit Committee reviewed the audit plan and fees presented by the Auditors, KPMG Audit LLC ("KPMG"), and considered their report on the financial statements. The fee for the audit of the annual report and financial statements of the Company for the year ended 31 January 2017 was GBP26,900 (2016: GBP26,200).

The Risk and Audit Committee reviews the scope and nature of all proposed non-audit services before engagement, with a view to ensuring that none of these services have the potential to impair or appear to impair the independence of their audit role. The committee receives an annual assurance from the Auditors that their independence is not compromised by the provision of such services, if applicable. During the period under review, the Auditors did not provide any non-audit services to the Company.

KPMG were appointed as Auditors to the Company for the year ending 31 January 2005 audit. The Risk and Audit Committee does regularly consider the need to put the audit out to tender, the Auditors' fees and independence, alongside matters raised during each audit. The appointment of KPMG has not been put out to tender as yet as the Committee, from ongoing direct observation and indirect enquiry of the Investment Advisor, remain satisfied that KPMG continue to provide a high quality audit and effective independent challenge in carrying out their responsibilities. The Company adheres to a five year roll over in relation to the Auditor partner and a new lead partner has been appointed over the period of KPMG appointment.

Having considered these matters and the continuing effectiveness of the external auditor, the Risk and Audit Committee has recommended to the Board that KPMG be appointed as Auditors for the current year.

The Board reviews the performance and services offered by FIM as fund administrator and EPEA as fund sub-administrator on an ongoing basis. As a result of an in-depth review undertaken in June 2015, EPEA has engaged in a controls and system review, which will complete during 2017.

Risk management and internal control

The Company does not have an internal audit function. The Risk and Audit Committee believes this is appropriate as all of the Company's management functions are delegated to the Investment Advisor which has its own internal control and risk monitoring arrangements. A report on these arrangements is prepared by the Investment Advisor and submitted to the Risk and Audit Committee which it reviews on behalf of the Board to support the Directors' responsibility for overall internal control. The Company does not have a whistleblowing policy and procedure in place. The Company delegates this function to the Investment Advisor who is regulated by the FCA and has such policies in place. The Risk and Audit Committee has been informed by the Investment Advisor that these policies meet the industry standards and no whistleblowing took place during the year.

Clive Spears

Chairman of the Risk and Audit Committee

31 March 2017

Report of the Directors

Principal activity

The Company was incorporated in the Isle of Man as an AIM quoted public company limited by shares under the Laws with registered number 108834C on 25 July 2003. On 23 July 2012, the Company re-registered under the Isle of Man Companies Act 2006, with registration number 008597V.

The principal activity of the Company and its subsidiaries and its associates is to arrange income yielding financing for growth, buyout and special situations and holding the investments with a view to exiting in due course at a profit.

Incorporation

The Company was incorporated on 25 July 2003. The Company's registered office is:

IOMA House, Hope Street, Douglas, Isle of Man, IM1 1AP.

Details of subsidiaries are provided in note 23.

Results of the financial year

Results for the year are set out in the Consolidated Statements of Comprehensive Income and in the Consolidated Statement of Changes in Equity below.

Dividends

The Board does not recommend a dividend in relation to the current year (2016: nil) (see note 9 for further details).

Corporate governance principles

As an Isle of Man registered company and under the AIM Rules for companies, the Company is not required to comply with the UK Corporate Governance Code published by the Financial Reporting Council ("Code"). The Directors, however, place a high degree of importance on ensuring that the Company maintains high standards of Corporate Governance and have therefore adopted the spirit of the Code to the extent that they consider appropriate, taking into account the size of the Company and nature of its operations. This includes a periodic internal evaluation of board performance.

The Board holds at least four meetings annually and has established Audit and Risk and Investment committees. The Board does not intend to establish remuneration and nomination committees given the current composition of the Board and the nature of the Company's operations. The Board reviews annually the remuneration of the Directors and agrees on the level of Directors' fees.

Composition of the Board

The Board currently comprises five non-executive Directors, all of whom are independent. Geoffrey Vero is Chairman of the Board, Clive Spears is Chairman of the Risk and Audit Committee and Nicholas Wilson is Chairman of the Investment Committee.

Risk and Audit Committee

The activities of the Risk and Audit Committee continued, members of which are Clive Spears (Chairman of the Committee) and all the other Directors. The Risk and Audit Committee provides a forum through which the Company's external auditors report to the Board.

The Risk and Audit Committee meets twice a year, at a minimum, and is responsible for considering the appointment and fee of the external auditors and for agreeing the scope of the audit and reviewing its findings. It is responsible for monitoring compliance with accounting and legal requirements, ensuring that an effective system of internal controls in maintained and for reviewing annual and interim financial statements of the Company before their submission for approval by the Board. The Risk and Audit Committee has adopted and complied with the extended terms of reference implemented on the Company's readmission in August 2010, as reviewed by the Board from time to time.

The Board is satisfied that the Risk and Audit Committee contains members with sufficient recent and relevant financial experience.

Investment Committee

The Board established an Investment Committee, which comprises Nicholas Wilson (Chairman of the Committee) and all the other Directors. The purpose of this committee is to review the portfolio of the Company and evaluate the performance of the Investment Advisor.

The Board is satisfied that the Investment Committee contains members with sufficient recent and relevant financial experience.

Significant holdings

Significant shareholdings are analysed below. The Directors are not aware of any other holdings greater than 3% of issued shares.

Directors

The Directors of the Company holding office during the financial year and to date are:

Mr. G.O. Vero (Chairman)

Mr. R.B.M. Quayle

Mr. C.L. Spears

Mr. N.V. Wilson

Ms. H. Bestwick (appointed: 10 February 2017)

Secretary

The secretary of the Company holding office for the financial year ended 31 January 2017 was Mr. P.P. Scales.

Staff

At 31 January 2017 the Group employed no staff (2016: none).

Auditors

Our Auditors, KPMG Audit LLC, being eligible, have expressed their willingness to continue in office.

On behalf of the Board

Nicholas Wilson

Director

31 March 2017

Statement of Directors' Responsibilities in respect of the Directors' Report and the Financial Statements

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations. In addition, the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards ("IFRSs"), as adopted by the European Union ("EU").

The financial statements are required to give a true and fair view of the state of affairs of the Group and of the profit or loss of the Company for that year.

In preparing these financial statements, the Directors are required to:

   --      select suitable accounting policies and then apply them consistently; 
   --      make judgements and estimates that are reasonable and prudent; 

-- state whether they have been prepared in accordance with International Financial Reporting Standards, as adopted by the EU; and

-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time its financial position. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation governing the preparation and dissemination of financial statements may differ from one jurisdiction to another.

Report of the Independent Auditors, KPMG Audit LLC, to members of EPE Special Opportunities plc

We have audited the financial statements of EPE Special Opportunities plc for the year ended 31 January 2017 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Assets and Liabilities, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards ("IFRSs"), as adopted by the EU.

This report is made solely to the Company's members, as a body. 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

As explained more fully in the Directors' Responsibilities Statement set out above, the Directors are responsible for the preparation of financial statements that 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 (APBs) Ethical Standards for Auditors.

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 Group'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 Chairman's Statement, Investment Advisors Report, Strategic Report, Risk and Audit Committee Report and Directors' 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.

Opinion on the financial statements

In our opinion the financial statements:

-- give a true and fair view of the state of the Group's affairs as at 31 January 2017 and of the Group's profit for the year then ended; and

   --      have been properly prepared in accordance with IFRSs, as adopted by the EU. 

KPMG Audit LLC

Heritage Court,

41 Athol Street,

Douglas,

Isle of Man, IM99 1HN

31 March 2017

Consolidated Statement of Comprehensive Income

For the year ended 31 January 2017

 
                                                                 31 January      31 January 
                                                                       2017            2016 
                                         Revenue      Capital         Total           Total 
 Note                                        GBP          GBP           GBP             GBP 
       -------------------------    ------------  -----------  ------------    ------------ 
        Income 
  4     Interest income                   12,558            -        12,558          15,969 
       -------------------------    ------------  -----------  ------------    ------------ 
        Total income                      12,558            -        12,558          15,969 
       -------------------------    ------------  -----------  ------------    ------------ 
        Expenses 
        Investment advisor's 
  5      fees                        (1,181,626)            -   (1,181,626)       (853,488) 
  5     Administration fees            (119,680)            -     (119,680)        (77,923) 
  6     Directors' fees                (124,000)            -     (124,000)       (124,000) 
        Directors' and Officers' 
         insurance                       (3,988)            -       (3,988)         (4,110) 
        Professional fees               (70,942)            -      (70,942)       (264,460) 
        Board meeting and 
         travel expenses                (10,974)            -      (10,974)         (8,600) 
        Auditors' remuneration          (35,700)            -      (35,700)        (32,861) 
        Bank charges                     (1,068)            -       (1,068)           (970) 
        Irrecoverable VAT              (310,161)            -     (310,161)       (292,322) 
        Share based payment 
  7      expense                       (245,750)            -     (245,750)       (296,608) 
        Sundry expenses                 (27,637)            -      (27,637)        (35,441) 
        Nominated advisor 
         and broker fees                (63,935)            -      (63,935)        (62,534) 
        Listing fees                    (31,643)            -      (31,643)        (22,148) 
        Total expenses               (2,227,104)            -   (2,227,104)     (2,075,465) 
       -------------------------    ------------  -----------  ------------    ------------ 
        Net expense                  (2,214,546)            -   (2,214,546)     (2,059,496) 
       -------------------------    ------------  -----------  ------------    ------------ 
        Gains/(losses) on 
         investments 
        Share of profit 
  10     of associates                         -   63,958,644    63,958,644       6,662,201 
        Foreign exchange 
  24     gain                                  -            -             -         428,889 
        Gains for the year 
         on investments                        -   63,958,644    63,958,644       7,091,090 
       -------------------------    ------------  -----------  ------------    ------------ 
        Finance charges 
        Interest on unsecured 
  15     loan note instruments         (618,765)            -     (618,765)       (263,742) 
        Interest on convertible 
  15     loan note instruments         (129,126)            -     (129,126)       (383,745) 
        Profit/(loss) for 
         the year before 
         taxation                    (2,962,437)   63,958,644    60,996,207       4,384,107 
  8     Taxation                               -            -             -               - 
       -------------------------    ------------  -----------  ------------    ------------ 
        Profit/(loss) for 
         the year                    (2,962,437)   63,958,644    60,996,207       4,384,107 
       -------------------------    ------------  -----------  ------------    ------------ 
        Other comprehensive 
         income                                -            -             -               - 
       -------------------------    ------------  -----------  ------------    ------------ 
        Total comprehensive 
         income/(loss)               (2,962,437)   63,958,644    60,996,207       4,384,107 
       -------------------------    ------------  -----------  ------------    ------------ 
        Basic earnings/(loss) 
         per ordinary share 
  17     (pence)                         (10.36)       223.75        213.39           16.14 
       -------------------------    ------------  -----------  ------------    ------------ 
        Diluted earnings/(loss) 
         per ordinary share 
  17     (pence)                         (10.29)       222.07        211.78           15.31 
       -------------------------    ------------  -----------  ------------    ------------ 
 

The total column of this statement represents the Group Statement of Comprehensive Income, prepared in accordance with IFRSs. The Supplementary revenue and capital return columns are prepared in accordance with the Board of Directors' agreed principles. All items derive from continuing activities.

Consolidated Statement of Assets and Liabilities

At 31 January 2017

 
                                                31 January      31 January 
                                                      2017            2016 
 Note                                                  GBP             GBP 
        ----------------------------------    ------------    ------------ 
         Non-current assets 
  10     Investments in associates              73,609,872      46,067,688 
         Loans to associates and 
 10,13    related companies                      1,012,055       1,012,055 
                                                74,621,927      47,079,743 
        ----------------------------------    ------------    ------------ 
         Current assets 
  12     Cash and cash equivalents              37,232,756       6,555,094 
         Trade and other receivables                99,290          98,550 
                                                37,332,046       6,653,644 
        ----------------------------------    ------------    ------------ 
         Current liabilities 
  14     Trade and other payables                (684,996)       (268,357) 
         Loans from associates and 
  13      related companies                      (276,510)       (282,120) 
  15     Convertible loan note instruments               -     (1,880,047) 
        ----------------------------------    ------------    ------------ 
                                                 (961,506)     (2,430,524) 
        ---------------------------------- 
         Net current assets                     36,370,540       4,223,120 
        ----------------------------------    ------------    ------------ 
         Non-current liabilities 
  15     Unsecured loan note instruments       (7,862,131)     (7,841,525) 
                                               (7,862,131)     (7,841,525) 
        ----------------------------------    ------------    ------------ 
         Net assets                            103,130,336      43,461,338 
        ----------------------------------    ------------    ------------ 
         Equity 
  16     Share capital                           1,568,568       1,543,206 
  16     Share premium                           2,893,562       2,056,590 
         Capital reserve                        80,800,164      16,841,520 
         Revenue reserve                        17,868,042      23,020,022 
         Total equity                          103,130,336      43,461,338 
         Net asset value per share 
  18      (pence)                                   364.13          160.00 
        ----------------------------------    ------------    ------------ 
 

The financial statements were approved by the Board of Directors on 31 March 2017 and signed on its behalf by:

Geoffrey Vero Clive Spears

Director Director

Consolidated Statement of Changes in Equity

For the year ended 31 January 2017

 
                                                    Year ended 31 January 2017 
                                      Share       Share      Capital       Revenue 
                                    capital     premium      reserve       reserve         Total 
 Note                                   GBP         GBP          GBP           GBP           GBP 
       ----------------------    ----------  ----------  -----------  ------------  ------------ 
        Balance at 1 February 
         2016                     1,543,206   2,056,590   16,841,520    23,020,022    43,461,338 
 
        Total comprehensive 
         income for the year              -           -   63,958,644   (2,962,437)    60,996,207 
       ----------------------    ----------  ----------  -----------  ------------  ------------ 
 
        Contributions by 
         and distributions 
         to owners 
        Share based payment 
  7      charge                           -           -            -       245,750       245,750 
        Cash received from 
         JSOP participants                -           -            -             -             - 
        Purchase of treasury 
  16     shares                           -           -            -   (2,435,293)   (2,435,293) 
  16    Issue of new shares          25,362     836,972            -             -       862,334 
        Total transactions 
         with owners                 25,362     836,972            -   (2,189,543)   (1,327,209) 
       ----------------------    ----------  ----------  -----------  ------------  ------------ 
        Balance at 31 January 
         2017                     1,568,568   2,893,562   80,800,164    17,868,042   103,130,336 
       ----------------------    ----------  ----------  -----------  ------------  ------------ 
 
 
                                                   Year ended 31 January 2016 
                                      Share       Share      Capital       Revenue 
                                    capital     premium      reserve       reserve        Total 
 Note                                   GBP         GBP          GBP           GBP          GBP 
       ----------------------    ----------  ----------  -----------  ------------  ----------- 
        Balance at 1 February 
         2015                     1,534,411   1,815,385    9,750,430    26,000,008   39,100,234 
 
        Total comprehensive 
         income for the year              -           -    7,091,090   (2,706,983)    4,384,107 
       ----------------------    ----------  ----------  -----------  ------------  ----------- 
 
        Contributions by 
         and distributions 
         to owners 
        Share based payment 
  7      charge                           -           -            -       296,608      296,608 
        Cash received from 
         JSOP participants                -           -            -         8,471        8,471 
        Purchase of treasury 
  16     shares                           -           -            -     (578,082)    (578,082) 
  16    Issue of new shares           8,795     241,205            -             -      250,000 
        Total transactions 
         with owners                  8,795     241,205            -     (273,003)     (23,003) 
       ----------------------    ----------  ----------  -----------  ------------  ----------- 
        Balance at 31 January 
         2016                     1,543,206   2,056,590   16,841,520    23,020,022   43,461,338 
       ----------------------    ----------  ----------  -----------  ------------  ----------- 
 

Consolidated Statement of Cash Flows

For the year ended 31 January 2017

 
                                                  31 January      31 January 
                                                        2017            2016 
 Note                                                    GBP             GBP 
       -------------------------------------    ------------    ------------ 
        Operating activities 
        Interest income received                      12,558          15,969 
        Expenses paid                            (1,597,954)     (1,691,416) 
        Net cash used in operating 
  19     activities                              (1,585,396)     (1,675,447) 
       -------------------------------------    ------------    ------------ 
 
        Investing activities 
        Purchase of share of equity 
         accounted investees                               -     (8,629,872) 
        Capital distribution from 
  10     associate                                36,416,460               - 
        Net cash generated from/(used 
         in) investing activities                 36,416,460     (8,629,872) 
       -------------------------------------    ------------    ------------ 
        Financing activities 
        Convertible loan note interest 
         paid                                      (102,236)       (344,418) 
        Convertible loan note repurchases        (1,017,714)     (1,246,081) 
        Proceeds from the issue 
         of unsecured loan note instrument                 -       5,025,000 
        Unsecured loan note interest 
         paid                                      (598,159)       (253,439) 
        Proceeds from the issue 
         of new shares                                     -         250,000 
        Purchase of treasury shares              (2,435,293)       (578,082) 
  16    Share ownership scheme participation               -           8,471 
        Net cash (used in)/generated 
         from financing activities               (4,153,402)       2,861,451 
       -------------------------------------    ------------    ------------ 
        Increase/(decrease) in cash 
         and cash equivalents                     30,677,662     (7,443,868) 
        Cash and cash equivalents 
         at start of year                          6,555,094      13,998,962 
       -------------------------------------    ------------    ------------ 
        Cash and cash equivalents 
         at end of year                           37,232,756       6,555,094 
       -------------------------------------    ------------    ------------ 
 

Notes to the Financial Statements

For the year ended 31 January 2017

   1    Operations 

The Company was incorporated in the Isle of Man as an AIM quoted public company limited by shares under the Laws with registered number 108834C on 25 July 2003. On 23 July 2012, the Company re-registered under the Isle of Man Companies Act 2006, with registration number 008597V. The Company raised GBP30.0 million by a placing of ordinary shares at 100 pence per share. In 2009 the Company raised an additional GBP5.0 million by a placing of ordinary shares at 5 pence per share. During the year ended 31 January 2011, the Company issued a further GBP2.4 million in share capital. During the year ended 31 January 2016, the Company raised a further GBP0.25 million in share capital.

The Company has three wholly owned subsidiary companies (see note 23) and at 31 January 2017, had interests in two partnerships that are accounted for as associates. The partnerships comprise one limited liability partnership and one limited partnership. The Company also has an interest in a third partnership, ESO Alternative Investments LP ("ESO AI LP") (previously ESO Investments 2 LP), a partnership established to hold the Company's primary and secondary fund investments. As at 31 January 2017, ESO Alternative Investments LP had made no investments.

The principal activity of the Group and its associates is to arrange income yielding financing for growth, buyout and special situations and holding the investments and its associates with a view to exiting in due course at a profit.

The consolidated financial statements comprise the results of the Group and its associates (see notes 3(a) and 23).

The Company has no employees.

   2    Basis of preparation 
   a.   Statement of compliance 

The financial statements have been prepared in accordance with International Financial Reporting Standards and interpretations as adopted by the EU and applicable legal and regulatory requirements of Isle of Man law and reflect the following policies, which have been adopted and applied consistently, with the exception of the adoption of the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 February 2016:

   a.     Equity method in separate financial statements - Amendments to IAS 27 
   b.     Annual improvements to IFRSs - 2012-2014 cycle - various standards 

c. Investment entities: Applying the consolidation exception - Amendments to IFRS 10, IFRS 12 and IAS 28

   d.     Disclosure initiatives - Amendments to IAS 1 

The adoption of the above new standards has had no significant impact on the Groups measurement of its assets and liabilities, and no impact on the disclosures included in the financial statements.

   b.   Basis of measurement 

The consolidated financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss which are measured at fair value.

   c.   Functional and presentation currency 

These consolidated financial statements are presented in Sterling, which is the Company's functional currency. All financial information presented in Sterling has been rounded to the nearest pound.

   d.   Use of estimates and judgements 

The preparation of financial statements in conformity with IFRSs requires Directors and the Investment Advisor to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The Directors have, to the best of their ability, provided as true and fair a view as is possible. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by Directors and the Investment Advisor in the application of IFRSs that have a significant effect on the financial statements and estimates with a significant risk of material adjustments in the next year relate to impairment provisioning in connection with secured loans and valuations of unquoted equity investments held by associates (see note 11).

   3    Significant accounting policies 
   a.   Basis of consolidation 

Subsidiaries

Subsidiaries are those enterprises controlled by the Company. Control exists when the Company is exposed or has rights to variable returns from its involvement with the investee and has the ability to effect those returns through its power over the investee . The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

The Company holds interests in ESO 1 LP, ESO AI LP and ESO (PC) LLP, which are managed and controlled by EPE for the benefit of the Company and the other members. The Company does not have the ability to direct the activities of ESO 1 LP, ESO AI LP and ESO (PC) LLP. The Directors consider that ESO 1 LP, ESO AI LP and ESO (PC) LLP do not meet the definition of subsidiaries. These entities are instead treated as associates and equity accounted.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Associates

Associates are those enterprises over which the Company has significant influence, and which are neither subsidiaries nor an interest in a joint venture. Significant influence is exerted when the Company has the power to participate in the financial and operating policy decision of the investee, but is not in control or joint control over those policies.

The Company applies the equity method in accounting for associates. The investment is initially measured at cost and the carrying amount is increased or decreased to recognise the Company's share of the associate's profit or loss. Accounting policies of associates are aligned with those of the Group.

   b.   Segmental reporting 

The Directors are of the opinion that the Group is engaged in a single segment of business and geographic area being arranging financing for growth, buyout and special situations in the United Kingdom. Information presented to the Board of Directors for the purpose of decision making is based on this single segment.

   c.   Income 

Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is accounted for when the right to receive such income is established.

   d.   Expenses 

All expenses are accounted for on an accruals basis.

   e.   Cash and cash equivalents 

Cash comprises current deposits with banks. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value and are held for the purposes of meeting short-term cash commitments rather than for investments or other purposes.

   f.    Financial assets and financial liabilities 

i. Classification

Equity and preference share investments, including those held by associates, have been designated at fair value through profit or loss.

Financial assets that are designated as loans and receivables comprise loans and accrued interest and other receivables.

   ii.         Recognition 

The Group recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument.

   iii.       Measurement 

Equity and preference share investments, including those held by associates, are stated at fair value. Loans and receivables are stated at amortised cost less any impairment losses.

The Investment Advisor determines asset values using IPEV guidelines and other valuation methods with reference to the valuation principles of IFRS 13. The valuation principles adopted are classified as Level 3 for unquoted investments and Level 1 for quoted investments in the IFRS 7 fair value hierarchy. IPEV guidelines recommend the use of comparable quoted company metrics and comparable transaction metrics to determine an appropriate enterprise value, to which a marketability discount is applied given the illiquid nature of private equity investments. The Investment Advisor also seeks to confirm value using discounted cash flow and other methods

   3    Significant accounting policies 

of valuation, and by applying a range approach. The Investment Advisor then seeks to determine whether holding the investment at cost is appropriate given the implied value, or whether an adjustment should be made to achieve fair value: whether this be in the form of an impairment or a write-up.

'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantages market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.

When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as 'active' if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The Group measures instruments quoted in an active market at mid-price.

If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred.

The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. Financial assets that are not carried at fair value though profit and loss are subject to an impairment test. For loans to portfolio companies the impairment test is undertaken as part of the assessment of the fair value of the enterprise value of the related business, as described above. If expected life cannot be determined reliably, then the contractual life is used.

   iv.        Impairment 

Financial assets that are stated at cost or amortised cost are reviewed at each reporting date to determine whether there is objective evidence of impairment. If any such indication exists, an impairment loss is recognised in the profit or loss as the difference between the asset's carrying amount and the higher of its fair value less costs to sell and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate.

If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost decreases, and the decrease can be linked objectively to an event occurring after the write-down, the write-down is reversed through the profit or loss.

v. Derecognition

The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39.

The Company uses the weighted average method to determine realised gains and losses on derecognition. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired.

   g.   Share capital 

Ordinary share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.

Repurchase of share capital (treasury shares)

When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings.

   h.   Compound financial instruments 

Compound financial instruments issued by the Group comprise convertible loan note instruments that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.

The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition.

When convertible loan notes are repurchased, the nominal value of the convertible loan notes repurchased is first deducted from the consideration paid with any gain or loss from the repurchase being recognised in the profit or loss.

Interest, dividends, losses and gains in relation to the financial liability are recognised in profit or loss. Distributions to the equity holders are recognised in equity net of any tax benefits.

EPIC Private Equity Employee Benefit Trust ("EBT")

As the Company is deemed to have control of its EBT, the EBT is treated as a subsidiary and consolidated for the purposes of the Group financial statements. The EBT's assets (other than investments in the Company's shares), liabilities, income and expenses are included on a line-by-line basis in the Group financial statements. The EBT's investment in the Company's shares is deducted from shareholders' funds in the Group Statement of asset and liabilities as if they were treasury shares (see note 7).

Share based payments

Certain employees (including Directors) of the Company and the Investment Advisors receive remuneration in the form of equity settled share-based payment transactions, through a Joint Share Ownership Plan ("JSOP").

Equity-settled share-based payments are measured at fair value at the date of grant. The fair value is determined based on the share price of the equity instrument at the grant date. The fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest. The instruments are subject to a three year service vesting condition from the grant date, and their fair value is recognised as an employee benefit expense with a corresponding increase in retained earnings within equity over the vesting period.

Contributions received from employees as part of the JSOP arrangement are recognised directly in equity.

   i.    Future changes in accounting policies 

The International Accounting Standards Board ("IASB") and the International Financial Reporting Interpretations Committee ("IFRIC") have issued the following standards and interpretations with an effective date after the date of these financial statements:

 
 New/Revised International Financial Reporting Standards     EU Effective Date (accounting periods commencing on or 
 (IAS/IFRS)                                                  after) 
----------------------------------------------------------  ---------------------------------------------------------- 
 Disclosure initiative - amendments to IAS 7                 Not yet endorsed 
 
 
 Standards not yet effective, but available for early        EU Effective Date (accounting periods commencing on or 
 adoption                                                    after) 
----------------------------------------------------------  ---------------------------------------------------------- 
 IFRS 15 Revenue from Contracts with Customers               1 January 2018 
 IFRS 9 Financial Instruments                                1 January 2018 
 
 

The Directors do not expect the adoption of the standards and interpretations to have a material impact on the Group's financial statements in the period of initial application.

   4    Interest income 
 
                     2017     2016 
                    Group    Group 
                      GBP      GBP 
---------------   -------  ------- 
 Cash balances     12,558   15,969 
----------------  -------  ------- 
 Total             12,558   15,969 
----------------  -------  ------- 
 
   5   Investment advisory, administration and performance fees 

Investment advisory fees

ESO

The investment advisory fee payable to EPE was, until 31 August 2010, calculated at 2% of the Group's NAV, with a minimum of GBP325,000 payable per annum. On 31 August 2010, the Investment Advisor agreed to waive the fee from the Company for a period of two years in return for a priority profit share paid from ESO 1 LP, as detailed below. Consequently, the payment of fees has resumed at a rate of 2% per annum of the Company's NAV plus VAT. The charge for the current year was GBP1,181,626 (2016: GBP853,488). Amount outstanding as at 31 January 2017: GBP600,000 (2016: nil).

ESO 1 LP

On the completion of the creation of ESO 1 LP on 31 August 2010, the Investment Advisor agreed to waive entitlement to management fees from the Company and ESO Investments LLP in exchange for a fixed priority profit share paid by ESO 1 LP of GBP800,000 per annum for the first two years (a year being calculated as ending on 31 August), GBP500,000 for the third year and GBP350,000 for the fourth and fifth years, thereafter in any subsequent period of the ESO 1 LP Partnership, such amount as may be agreed between the Partner. Subsequent to the ESD buyout, the partners agreed to a fixed priority profit share of GBP350,000 per annum.

Administration fees

On 30 November 2007 the Group entered into an agreement with FIM Capital Limited ("FIM"), for the provision of administration, registration and secretarial services. FIM delegated the provision of accounting services to EPE Administration Limited (formerly EHM International Limited). The fee is payable at a rate of 0.15% per annum of the Group's NAV. The charge for the current year was GBP100,508 (2016:GBP65,481). Amount outstanding as at 31 Jan 2017 was GBP15,000 (2016:GBP3,000).

Performance fees

ESO

The Investment Advisory Agreement with EPE as described above also provides for the provision of a performance fee. The fee is payable if the Total Return (taken as NAV plus dividends distributed) is equal to at least 8% per annum from the date of admission of the Company's shares to AIM, based on the funds raised through the placing of shares and compounded annually. No performance fee has accrued for the year ended 31 January 2017 (2016: GBPnil).

Carried interest in ESO 1 LP

The distribution policy of ESO 1 LP includes a carried interest portion retained for the Investment Advisor such that, for each investor where a hurdle of 8% per annum has been achieved, the carry vehicle of the Investment Advisor is entitled to receive 20% of the increase in that investor's investment. For the year ended 31 January 2017, GBP6,944,664 (2016: GBP1,794,249) has been credited to the carry account of the Investment Advisor in the records of ESO 1 LP.

Carried interest in ESO (PC) LLP

The Investment Advisor is entitled to receive 20% of the profits of ESO (PC) LLP where a hurdle of 8% has been achieved over the initial value of the investment. For the year ended 31 January 2016, GBP109,433 was debited from the Investment Advisor. For the year ended 31 January 2017, GBP844,822 was credited to the Investment Advisor.

   6    Directors' fees 
 
                             2017      2016 
                            Group     Group 
                              GBP       GBP 
----------------------   --------  -------- 
 G.O. Vero (Chairman)      32,000    32,000 
 R.B.M. Quayle             30,000    30,000 
 C.L. Spears               32,000    32,000 
 N.V. Wilson               30,000    30,000 
-----------------------  --------  -------- 
 Total                    124,000   124,000 
-----------------------  --------  -------- 
 

H. Bestwick joined the Board 10 February 2017 and therefore received no fees for the year ended 31 January 2017 (2016: nil).

   7    Share based payment expense 

The cost of equity settled transactions with certain Directors of the Company and other participants (including employees of the Investment Advisor) ("Participants") is measured by reference to the fair value at the date on which they are granted. The fair value is determined based on the share price of the equity instrument at the grant date.

The EBT was created to award shares to Participants as part of the JSOP. Participants are awarded a certain number of shares ("Matching Shares") which vest after three years. In order to receive their Matching Share allocation Participants are required to purchase shares in the Company on the open market ("Bought Shares"). The Participant will then be entitled to acquire a joint ownership interest in the Matching Shares for the payment of a nominal amount, on the basis of one joint ownership interest in one Matching Share for every Bought Share they acquire in the relevant award period.

The EBT holds the Matching Shares jointly with the Participant until the award vests.

The EBT held 1,547,065 (2016: 1,467,065) matching shares at the year end which have traditionally not voted (see note 16).

The amount expensed in the income statement has been calculated by reference to the grant date fair value of the equity instrument and the estimated number of equity instruments to be issued after the vesting period, less the nominal amount paid for the joint ownership interest in the Matching Shares. The total expense recognised on the share based payments during the year amounts to GBP245,750 (2016: GBP296,608).

   8    Taxation 

The Company is a tax resident of the Isle of Man. The Company is subject to 0% income tax (2016: 0%).

The Limited Liability Partnerships and Limited Partnerships are transparent for tax purposes.

   9    Dividends paid and proposed 

No dividends were paid or proposed for the year ended 31 January 2017 (2016: GBPnil).

10 Non-current assets

 
                                          2017         2016 
                                           GBP          GBP 
---------------------------------  -----------  ----------- 
 Financial assets 
 Investments in associates          73,609,871   46,067,688 
 Loans to associates and related 
  companies (see note 13)            1,012,055    1,012,055 
---------------------------------  -----------  ----------- 
                                    74,621,926   47,079,743 
---------------------------------  -----------  ----------- 
 

Investment in associates

The Investment Advisor has applied appropriate valuation methods with reference to IPEV guidelines and the valuation principles of IAS 39 Financial Instruments: Recognition and Measurement, with regard to the underlying investments held by the associates. See note 11 regarding the assessment of the fair values of the underlying investments.

Investments in associates comprise the investment in ESO 1 LP and ESO (PC) LLP which are stated at fair value through profit or loss. The fair value of the investment is calculated with reference to the Second Amended and Restated Limited Partnership Agreement for ESO 1 LP, and the Limited Liability Partnership Agreement for ESO (PC) LLP. The associates have accounted for their equity investments at fair value.

During the year, the Company received GBP36,416,460 (2016:GBPnil) from ESO 1 LP. The movements in the associates during the year are as follows:

 
                                              ESO (PC) 
                                  ESO 1 LP         LLP          Total 
                                       GBP         GBP            GBP 
--------------------------   -------------  ----------  ------------- 
 Investment in associates 
 Balance at 1 February 
  2016                          41,614,000   4,453,688     46,067,688 
 Share of profit from 
  associates                    60,586,390   3,372,254     63,958,644 
 Capital distribution 
  from associate              (36,416,460)           -   (36,416,460) 
---------------------------  ------------- 
 Balance at 31 January 
  2017                          65,783,930   7,825,942     73,609,872 
---------------------------  -------------  ----------  ------------- 
 

Summary financial information for associates as at 31 January 2017 is as follows:

 
                                                           Minority       ESO plc   Percentage 
 Vehicle                          Total                    interest         share        share 
 ESO 1 LP                           GBP                         GBP           GBP            % 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Non-current assets          81,090,140                (16,218,028)    64,872,112        80.0% 
 Current assets               4,735,863                   (947,172)     3,788,691        80.0% 
 Current liabilities        (3,596,093)                     719,220   (2,876,873)        80.0% 
 Net assets                  82,229,910                (16,445,980)    65,783,930        80.0% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
 Income                         685,005                   (139,522)       545,483        79.6% 
 Gains/(losses) on 
  investments                75,645,445                (15,407,480)    60,237,965        79.6% 
 Expenses                     (247,461)                      50,403     (197,058)        79.6% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Profit                      76,082,989                (15,496,599)    60,586,390        79.6% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
 ESO (PC) LLP 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Non-current assets           9,453,084                 (1,849,629)     7,603,455        80.4% 
 Current assets                 276,610                    (54,123)       222,487        80.4% 
 Net assets                   9,729,694                 (1,903,752)     7,825,942        80.4% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
 Income                               -                           -             -            - 
 Gains/(losses) on 
  investments                 4,224,784                   (846,366)     3,378,418        80.0% 
 Expenses                       (7,710)                       1,546       (6,164)        80.0% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Profit                       4,217,074                   (844,820)     3,372,254        80.0% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
 ESO plc 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Loans to associates 
  and related companies       1,012,055                           -     1,012,055       100.0% 
 Loans (from) associates 
  and related companies       (276,510)                           -     (276,510)       100.0% 
 Other assets and 
  liabilities ESO 
  plc                        36,647,050                           -    36,647,050       100.0% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Total                       37,382,595                           -    37,382,595       100.0% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 

 Total assets less 
  current liabilities       129,342,199                (18,349,732)   110,992,467        85.8% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
 Summary of ESO plc                                        Minority       ESO plc   Percentage 
  fund structure                  Total                    interest         share        share 
                                    GBP                         GBP           GBP          GBP 
-------------------------  ------------  --------------------------  ------------  ----------- 
 ESO 1 LP                    82,229,910                (16,445,980)    65,783,930        80.0% 
 ESO (PC) LLP                 9,729,694                 (1,903,752)     7,825,942        80.4% 
 ESO plc current 
  assets, current 
  liabilities and 
  loans to related 
  companies                  37,382,595                           -    37,382,595       100.0% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Total assets less 
  current liabilities       129,342,199                (18,349,732)   110,992,467        85.8% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 

Summary financial information for associates as at 31 January 2016 is as follows:

 
                                                           Minority       ESO plc   Percentage 
 Vehicle                          Total                    interest         share        share 
 ESO 1 LP                           GBP                         GBP           GBP            % 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Non-current assets          49,899,390                 (9,275,302)    40,624,088        81.4% 
 Current assets               3,486,528                   (648,077)     2,838,451        81.4% 
 Current liabilities        (2,270,600)                     422,060   (1,848,540)        81.4% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Net assets                  51,115,318                 (9,501,319)    41,613,999        81.4% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
 Income                       1,005,451                   (236,131)       769,320        76.5% 
 Gains/(losses) on 
  investments                 8,591,267                 (2,017,669)     6,573,598        76.5% 
 Expenses                     (275,475)                      64,696     (210,779)        76.5% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Profit                       9,321,243                 (2,189,104)     7,132,139        76.5% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
 ESO (PC) LLP 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Non-current assets           5,228,300                 (1,002,628)     4,225,672        80.8% 
 Current assets                 282,120                    (54,102)       228,018        80.8% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Net assets                   5,510,420                 (1,056,730)     4,453,690        80.8% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
 Income                               -                           -             -            - 
 Gains/(losses) on 
  investments                 (574,636)                     108,539     (466,097)        81.1% 
 Expenses                       (4,735)                         894       (3,841)        81.1% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Profit                       (579,371)                     109,433     (469,938)        81.1% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
 ESO plc 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Loans to/(from) 
  associates and related 
  companies                   1,012,055                           -     1,012,055       100.0% 
 Loans to/(from) 
  associates and related 
  companies                   (282,120)                           -     (282,120)       100.0% 
 Other assets and 
  liabilities ESO 
  plc                         6,385,286                           -     6,385,286       100.0% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Total                        7,115,221                           -     7,115,221       100.0% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
 Total assets less 
  current liabilities        63,740,959                (10,558,049)    53,182,910        83.4% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
 Summary of ESO plc                                        Minority       ESO plc   Percentage 
  fund structure                  Total                    interest         share        share 
                                    GBP                         GBP           GBP          GBP 
-------------------------  ------------  --------------------------  ------------  ----------- 
 ESO 1 LP                    51,115,318                 (9,501,319)    41,613,999        81.4% 
 ESO (PC) LLP                 5,510,420                 (1,056,730)     4,453,690        80.8% 
 ESO plc current 
  assets, current 
  liabilities and 
  loans to related 
  companies                   7,115,221                           -     7,115,221       100.0% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 Total assets less 
  current liabilities        63,740,959                (10,558,049)    53,182,910        83.4% 
-------------------------  ------------  --------------------------  ------------  ----------- 
 
   11    Financial assets and liabilities 
 
                                             2017           2016 
                                              GBP            GBP 
-----------------------------------  ------------  ------------- 
 Assets 
           Financial assets at fair value through 
           profit or loss - designated on initial 
                                      recognition 
 
 Investments in associates             73,609,871     46,067,688 
 Financial assets at amortised 
  cost 
 Loans and receivables and cash 
  balances                             38,344,101      7,665,699 
-----------------------------------  ------------  ------------- 
 Total financial assets               111,953,972     53,733,387 
-----------------------------------  ------------  ------------- 
 
 Liabilities 
 Financial liabilities measured 
  at amortised cost 
 Trade and other payables               (684,996)      (268,357) 
 Loans from associates and related 
  companies                             (276,510)      (282,120) 
 Loan note instruments                (7,862,131)    (9,721,572) 
-----------------------------------  ------------  ------------- 
 Total financial liabilities          (8,823,637)   (10,272,049) 
-----------------------------------  ------------  ------------- 
 

Fair values of financial instruments

The fair values of financial assets and financial liabilities that are traded in an active market are based on quoted market prices. For all other financial instruments, the Group determines fair values using other valuation techniques, based on the IPEV guidelines.

For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

-- Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments;

-- Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using; quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data;

-- Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments but for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Various valuation techniques may be applied in determining the fair value of investments held as level 3 in the fair value hierarchy. The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.

Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in the determination of fair value. Management judgement and estimation are usually required for the selection of the appropriate valuation model to be used. As discussed below, the Investment Advisor has selected to use the Sales/EBITDA multiples valuation model in arriving at the fair value of investments held as level 3 in the fair value hierarchy.

Valuation framework

The Group has developed a valuation framework with respect to the measurement of fair values. The valuation of investments is performed by the Investment Advisor. As detailed in note 3(f), the Investment Advisor determines fair values using the IPEV guidelines. The following approach is used:

-- 'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk;

-- The Sales/EBITDA multiples valuation model is used, based on budgeted Sales/EBITDA for the next financial year;

-- Loans made are stated at amortised cost but impairment tested based on the enterprise value derived from the valuation.

Fair value hierarchy - Financial instruments measured at fair value

The table below analyses the underlying investments held by the associates measured at fair value at the reporting date by the level in the fair value hierarchy into which the fair value measurement is categorised. Debt securities are also included, as although stated at amortised cost, the Investment Advisor assesses the fair value of the total investment, which includes debt and equity. The amounts are based on the values recognised in the statement of financial position. All fair value measurements below are recurring. There are no other financial assets or liabilities carried at fair value.

 
                                    Level        Level 
                                        1            3        Total 
 31 January 2017                      GBP          GBP          GBP 
---------------------------   -----------  -----------  ----------- 
 Financial assets at fair 
  value through profit or 
  loss 
 Unlisted private equity 
  investments                           -   11,685,937   11,685,937 
 Listed equity investments     69,857,288            -   69,857,288 
 Debt securities, unlisted              -    9,000,000    9,000,000 
----------------------------  -----------  ----------- 
 Total investments             69,857,288   20,685,937   90,543,225 
----------------------------  -----------  -----------  ----------- 
 
 
 
                                  Level        Level 
                                      1            3        Total 
 31 January 2016                    GBP          GBP          GBP 
---------------------------   ---------  -----------  ----------- 
 Financial assets at fair 
  value through profit or 
  loss 
 Unlisted private equity 
  investments                         -   37,276,754   37,276,754 
 Debt securities, unlisted            -   17,850,936   17,850,936 
----------------------------   --------  ----------- 
 Total investments                    -   55,127,690   55,127,690 
----------------------------   --------  -----------  ----------- 
 

The following table shows a reconciliation of the opening balances to the closing balances for fair value measurements in Leve1 3 of the fair value hierarchy.

 
                                                 2017         2016 
 Unlisted private equity investments              GBP          GBP 
-------------------------------------   -------------  ----------- 
 Balance at 1 February                     37,276,754   29,515,300 
 Additional investments                       330,327            - 
 Transfers to Level 1                    (30,908,209)            - 
 Sale of investments                                -    (235,000) 
 Change in fair value through profit 
  or loss                                   4,987,065    7,996,453 
--------------------------------------  ------------- 
 Balance at 31 January                     11,685,937   37,276,754 
--------------------------------------  -------------  ----------- 
 

Significant unobservable inputs used in measuring fair value

The table below sets out information about significant unobservable inputs used at 31 January 2017 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.

 
 Description                           Fair value at 31 January 2017   Valuation technique 
                                                                 GBP 
------------------------------------  ------------------------------  ---------------------- 
 Unlisted private equity investments                      11,685,937   Sales/EBITDA multiple 
------------------------------------  ------------------------------  ---------------------- 
 

Significant unobservable inputs are developed as follow:

-- Sales/EBITDA multiples: Represents amounts that market participants would use when pricing the investments. Sales/EBITDA multiples are selected from comparable public companies based on geographic location, industry, size, target markets and other factors that management considers to be reasonable. The traded multiples for the comparable companies are determined by dividing the enterprise value of the company by its Sales or EBITDA and further discounted for considerations such as the lack of marketability and other differences between the comparable peer group and specific company.

-- The Sales/EBITDA multiple is applied to the budgeted Sales/EBITDA for the next financial year.

IFRS 13 requires disclosure, by class of financial instrument, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of the investee company. On that basis, the Board believe that the impact of changing one or more of the inputs to reasonably possible alternative assumptions would not change the fair value significantly.

Financial instruments not measured at fair value

The carrying value of short-term financial assets and financial liabilities (cash, debtors and creditors) approximate their fair value. The carrying value of the convertible and the new loan note instruments are also considered to approximate fair value. Investments in associates are considered to be stated at fair value, as the underlying investments are at fair value.

12 Cash and cash equivalents

 
                                    2017        2016 
                                     GBP         GBP 
---------------------------  -----------  ---------- 
 Current and call accounts    37,232,756   6,555,094 
---------------------------  -----------  ---------- 
                              37,232,756   6,555,094 
---------------------------  -----------  ---------- 
 

The current and call accounts have been classified as cash and cash equivalents in the Consolidated Statement of Cash Flows.

13 Loans to/(from) associates and related companies

 
                                                2017        2016 
                                                 GBP         GBP 
---------------------------------------   ----------  ---------- 
 EPIC Structured Finance Limited             500,000     500,000 
 ESO 1 LP                                    512,055     512,055 
----------------------------------------  ---------- 
 Total loans to associates and related 
  companies                                1,012,055   1,012,055 
----------------------------------------  ----------  ---------- 
 
 
                                            2017        2016 
                                             GBP         GBP 
-----------------------------------   ----------  ---------- 
 ESO (PC) LLP                          (276,510)   (282,120) 
------------------------------------ 
 Total loans (from) associates and 
  related companies                    (276,510)   (282,120) 
------------------------------------  ----------  ---------- 
 

The loans to/(from) associates and related companies are unsecured, interest free and not subject to any fixed repayment terms.

14 Trade and other payables

 
                                        2017      2016 
                                         GBP       GBP 
---------------------------------   --------  -------- 
 Trade payables                        1,030    30,264 
 Accrued administration fee           15,000     3,000 
 Accrued audit fee                    12,845    10,100 
 Accrued professional fee             18,316   214,077 
 Accrued investment advisor fees     600,000         - 
 Accrued Directors' fees              10,916    10,916 
 Convertible interest                 26,889         - 
  Total                              684,996   268,357 
----------------------------------  --------  -------- 
 

15 Non-current liabilities

Convertible loan note instruments were issued on 31 August 2010 to The Equity Partnership Investment Company plc. The amount issued, net of issue costs was GBP9,870,304. The notes carry interest at 7.5% per annum and are convertible at the option of the holder at a price of 170 pence per ordinary share. The CLNs fall under the definition of compound financial instruments within IAS 32 Financial Instruments: Presentation. On issue of the CLNs, the Directors were required to assess the elements of equity and liability contained with the compound instrument. At the date of issue, the Directors considered that the instrument had no equity element and therefore the whole instrument was treated as a liability.

During the year ended 31 January 2017, the Company repurchased a total of GBP1,017,713 million in principal amount of the CLNs. The remaining CLNs with the principal amount of GBP862,334 were converted to ordinary shares at the option price of 170 pence per share. 507,245 ordinary shares were issued as a result of the conversion. The carrying value of the CLNs in issue at the year end was nil (2016: GBP1,880,047). The total interest expensed on the convertible loan notes for the year is GBP129,126 (2016: GBP383,745).

On 23 July 2015 , the Company raised GBP4,500,000 via a placing of a ULN instrument. Following the initial issuance of the ULNs, further notes were issued to investors such that on 31 January 2016 the Company had issued GBP7,975,459 in principal amount and the notes admitted to trading on the ISDX Growth Market on 29 January 2016. During the year ended 31 January 2017 the company issued no further notes such that on 31 January 2017 the company had issued GBP7,975,459 in principle amount. The notes carry interest at 7.5% per annum. Issue costs totalling GBP144,236 have been offset against the value of the loan note instrument and are being amortised over the life of the instrument. The total amount expensed in the year ended 31 January 2017 was GBP20,605 (2016: GBP10,303). The carrying value of the ULNs in issue at the year end was GBP7,862,131 (2016: GBP7,841,525). The total interest expensed on the ULNs for the year is GBP618,765 (2016: GBP263,742). This includes the amortisation of the issue costs.

16 Share Capital

At the year end 1,547,065 treasury shares were held by the EBT (see note 7) (2016: 1,467,065).

 
                                  2017                      2016 
                                    Number         GBP        Number         GBP 
---------------------------   ------------  ----------  ------------  ---------- 
 Authorised share capital 
 Ordinary shares of 
  5p each                       33,000,000   1,650,000    33,000,000   1,650,000 
----------------------------  ------------  ----------  ------------  ---------- 
 Called up, allotted 
  and fully paid 
 Ordinary shares of 
  5p each                       31,371,362   1,568,568    30,864,117   1,543,206 
 Ordinary shares of 
  5p each held in treasury     (3,048,879)           -   (3,700,944)           - 
----------------------------  ------------  ----------  ------------  ---------- 
                                28,322,483   1,568,568    27,163,173   1,543,206 
 ---------------------------  ------------  ----------  ------------  ---------- 
 

During the year ended 31 January 2017, 507,245 ordinary shares were issued as a result of the conversion of CLNs with the principle amount of GBP862,334.

During the year ended 31 January 2016, 175,895 ordinary shares were issued for the consideration of GBP250,000.

During the year 815,000 (2016:522,914) ordinary shares were bought back by Corvina Limited (100% subsidiary) and as a result were added to the treasury shares. 1,467,065 treasury shares held by the EBT were re-classed as Ordinary shares in the year.

Share premium

The share premium arose on the issue of the ordinary shares and represented the difference between the price at which the shares were issued and the par value (5 pence).

17 Basic and diluted earnings/(loss) per share (pence)

Basic earnings per share are calculated by dividing the profit of the Group for the year attributable to the ordinary shareholders of GBP60,996,207 (2016: GBP4,384,107) divided by the weighted average number of shares outstanding during the year of 28,585,144 after excluding treasury shares (2016: 27,165,280 shares).

Diluted earnings per share are calculated by dividing the profit of the Group for the year attributable to ordinary shareholders of GBP60,996,207 (2016: GBP4,384,107) divided by the weighted average number of ordinary shares outstanding during the year, as adjusted for the effects of all dilutive potential ordinary shares, of 28,801,620 after excluding treasury shares (2016: 28,632,345 shares). Dilutive instruments consist of the warrants over Ordinary shares issued during the refinancing of CLNs of 216,476 (2016: nil).

18 NAV per share (pence)

The Group's NAV per share of 364.13 pence is based on the net assets of the Group at the year end of GBP103,130,335 (2016: GBP43,461,338) divided by the shares in issue at the end of the year of 28,322,483 after excluding treasury shares (2016: 27,163,173).

The Group's diluted NAV per share of 361.37 pence is based on the net assets of the Group at the year end of GBP103,130,335 (2016:GBP43,461,338) divided by the shares in issue at the end of the year, as adjusted for the effects of dilutive potential ordinary shares of 28,538,959, after excluding treasury shares (2016: 29,220,327).

19 Net cash used in operating activities

Reconciliation of net investment expense to net cash used in operating activities:

 
                                                     2017          2016 
                                                    Group         Group 
                                                      GBP           GBP 
------------------------------------------   ------------  ------------ 
 Net investment expense                       (2,214,546)   (2,059,496) 
 Adjustments: 
 Share based payment expense                      245,750       296,608 
-------------------------------------------  ------------  ------------ 
                                              (1,968,796)   (1,762,888) 
 Movements in trade and other receivables           (740)        47,753 
 Movements in trade and other payables            389,750        44,423 
 Movements in loans from associates 
  and related companies                           (5,610)       (4,735) 
-------------------------------------------  ------------ 
 Net cash used in operating activities        (1,585,396)   (1,675,447) 
-------------------------------------------  ------------  ------------ 
 

20 Financial instruments

The Group's financial instruments comprise:

-- Investments in listed and unlisted companies held by associates, comprising equity and loans

   --      Investments in listed companies comprising equity 
   --      Cash and cash equivalents, bank loan and convertible loan note instruments; and 
   --      Accrued interest and trade and other receivables, accrued expenses and sundry creditors. 

Financial risk management objectives and policies

The main risks arising from the Group's financial instruments are liquidity risk, credit risk, market price risk and interest rate risk. None of those risks are hedged. These risks arise through directly held financial instruments and through the indirect exposures created by the underlying financial instruments in the associates. These risks are managed by the Directors in conjunction with the Investment Advisor. The Investment Advisor is responsible for day to day management of financial instruments in the associates.

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's liquid assets comprise cash and cash equivalents and trade and other receivables, which are readily realisable.

Residual contractual maturities of financial liabilities

 
                          Less               3 months                                 No 
                          than         1 -       to 1         1 -       Over      stated 
 31 January            1 Month    3 Months       year     5 years    5 years    maturity 
  2017                     GBP         GBP        GBP         GBP        GBP         GBP 
-----------------    ---------  ----------  ---------  ----------  ---------  ---------- 
 Financial 
  liabilities 
 Trade and 
  other payables       684,996           -          -           -          -           - 
 Loan note 
  instruments                -           -          -   7,862,131          -           - 
 Loans from 
  associates                 -           -    276,510           -          -           - 
                     ---------  ----------  ---------  ----------  ---------  ---------- 
 Total                 684,996           -    276,510   7,862,131          -           - 
-------------------  ---------  ----------  ---------  ----------  ---------  ---------- 
 
 
                          Less                3 months                                 No 
                          than         1 -        to 1         1 -       Over      stated 
 31 January            1 Month    3 Months        year     5 years    5 years    maturity 
  2016                     GBP         GBP         GBP         GBP        GBP         GBP 
-----------------    ---------  ----------  ----------  ----------  ---------  ---------- 
 Financial 
  liabilities 
 Trade and 
  other payables       268,357           -           -           -          -           - 
 Loan note 
  instruments                -           -   1,880,047   7,841,525          -           - 
 Loans from 
  associates                 -           -     282,120           -          -           - 
                     ---------  ----------  ----------  ----------  ---------  ---------- 
 Total                 268,357           -   2,162,167   7,841,525          -           - 
-------------------  ---------  ----------  ----------  ----------  ---------  ---------- 
 

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group.

The Group, through its interests in associates, has advanced loans to a number of private companies which exposes the Group to significant credit risk. The loans are advanced to unquoted private companies, which have no credit risk rating. They are entered into as part of the investment strategy of the Group and its associates, and credit risk is managed by taking security where available (typically a floating charge) and the Investment Advisor taking an active role in the management of the borrowing companies.

Although the Investment Advisor looks to set realistic repayment schedules, it does not necessarily view a portfolio company not repaying on time and in full as 'underperforming' and seeks to monitor each portfolio company on a case-by-case basis. However, in all cases the Investment Advisor reserves the right to exercise step in rights. In addition to the repayment of loans advanced, the Group and associates will often arrange additional preference share structures and take significant equity stakes so as to create shareholder value. It is the performance on the combination of all securities including third party debt that determines the Group's view of each investment.

At the reporting date, the Group's financial assets exposed to credit risk amounted to the following (excluding exposure in the underlying associates):

 
                                           2017        2016 
                                            GBP         GBP 
---------------------------------   -----------  ---------- 
 Cash and cash equivalents           37,232,756   6,555,094 
 Trade and other receivables             84,210      84,210 
 Loans to associates and related 
  companies                           1,012,055   1,012,055 
----------------------------------  -----------  ---------- 
 Total                               38,329,021   7,651,359 
----------------------------------  -----------  ---------- 
 
 

Cash balances are placed with HSBC Bank plc and Barclays Bank plc both of which have the credit rating of A1 Negative (Moody's).

Market price risk

Market price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk). The Group is exposed to a market price risk via its equity investments held through its interests in associates, which are stated at fair value.

Market price risk sensitivity

The Group is exposed to market price risk with regard to its investment in the partnerships, which own equity interests in a number of quoted and unquoted companies which are stated at fair value. Sensitivity analysis cannot be performed with any reliability on the unquoted equity investments. Luceco plc was quoted on the Main Market of the London Stock Exchange at 31 January 2017. If Luceco plc's share price had been 5.0% higher than actual close of market on 31 January 2017, ESO plc's NAV / share would have been 2.7% higher than reported. If Luceco's share price had been 5.0% lower than actual close of market on 31 January 2017, ESO plc's NAV / share would have been 2.7% lower than reported. Such movement would have had a corresponding effect on the profit for the year.

Interest rate risk

The Group is exposed to interest rate risk through its investment in the associates and on its cash balances. The associates provide loans to portfolio companies. Most of the loans are at fixed rates. Cash balances earn interest at variable rates. The convertible loan note instruments carry fixed interest rates.

The table below summarises the Group's exposure to interest rate risks. It includes the Group's financial assets and liabilities at the earlier of contractual re-pricing or maturity date, measured by the carrying values of assets and liabilities:

 
                              Less                                           Over        Non- 
 31 January                   than         1 -    3 months         1 - 5        5    interest 
  2017                     1 month    3 months    - 1 year         years    years     bearing         Total 
 Assets                        GBP         GBP         GBP           GBP      GBP         GBP           GBP 
--------------------   -----------  ----------  ----------  ------------  -------  ----------  ------------ 
 Loans and 
  receivables 
 Secured loans                   -           -           -             -        -           -             - 
 Loans to 
  associates 
  and related 
  companies                      -           -           -             -        -   1,012,055     1,012,055 
 Trade and 
  other receivables              -           -           -             -        -      84,210        84,210 
 Cash and 
  cash equivalents      37,232,756           -           -             -        -           -    37,232,756 
---------------------  -----------  ----------  ----------  ------------ 
 Total financial 
  assets                37,232,756           -           -             -        -   1,096,265    38,329,021 
---------------------  -----------  ----------  ----------  ------------  -------  ----------  ------------ 
 
 Liabilities 
 Financial 
  liabilities 
  measured 
  at amortised 
  cost 
 Trade and 
  other payables                 -           -           -             -        -   (684,996)     (684,996) 
 Loans from 
  associates 
  and related 
  companies                      -           -           -             -        -   (276,510)     (276,510) 
 Loan note 
  instruments                    -           -           -   (7,862,131)        -           -   (7,862,131) 
---------------------  -----------  ----------  ----------  ------------  -------  ----------  ------------ 
 Total financial 
  liabilities                    -           -           -   (7,862,131)        -   (961,506)   (8,823,637) 
---------------------  -----------  ----------  ----------  ------------  -------  ----------  ------------ 
 Total interest 
  rate sensitivity 
  gap                   37,232,756           -           -   (7,862,131)        -           -             - 
---------------------  -----------  ----------  ----------  ------------  -------  ----------  ------------ 
 
 
                             Less                  3 months                   Over        Non- 
 31 January                  than         1 -           - 1         1 - 5        5    interest 
  2016                    1 month    3 months          year         years    years     bearing          Total 
 Assets                       GBP         GBP           GBP           GBP      GBP         GBP            GBP 
--------------------   ----------  ----------  ------------  ------------  -------  ----------  ------------- 
 Loans and 
  receivables 
 Secured loans                  -           -             -             -        -           -              - 
 Loans to 
  associates 
  and related 
  companies                     -           -             -             -        -   1,012,055      1,012,055 
 Trade and 
  other receivables             -           -             -             -        -      84,210         84,210 
 Cash and 
  cash equivalents      6,555,094           -             -             -        -           -      6,555,094 
---------------------  ----------  ----------  ------------  ------------  -------  ----------  ------------- 
 Total financial 
  assets                6,555,094           -             -             -        -   1,096,265      7,651,359 
---------------------  ----------  ----------  ------------  ------------  -------  ----------  ------------- 
 
 Liabilities 
 Financial 
  liabilities 
  measured 
  at amortised 
  cost 
 Trade and 
  other payables                -           -             -             -        -   (268,357)      (268,357) 
 Loans from 
  associates 
  and related 
  companies                     -           -             -             -        -   (282,120)      (282,120) 
 Loan note 
  instruments                   -           -   (1,880,047)   (7,841,525)        -           -    (9,721,572) 
---------------------  ----------  ----------  ------------  ------------  -------  ----------  ------------- 
 Total financial 
  liabilities                   -           -   (1,880,047)   (7,841,525)        -   (550,477)   (10,272,049) 
---------------------  ----------  ----------  ------------  ------------  -------  ----------  ------------- 
 Total interest 
  rate sensitivity 
  gap                   6,555,094           -   (1,880,047)   (7,841,525)        -           -              - 
---------------------  ----------  ----------  ------------  ------------  -------  ----------  ------------- 
 

Interest rate sensitivity

The Group is exposed to market interest rate risk only via its cash balances. A sensitivity analysis has not been provided as it is not considered significant to Group performance.

Currency risk

The Group has no exposure to currency risk as it has no non-sterling assets or liabilities.

21 Directors' interests

Four of the Directors have interests in the shares of the Company as at 31 January 2017 (2016: four). Geoffrey Vero holds 84,912 ordinary shares (2016: 78,802). Nicholas Wilson holds 67,699 ordinary shares (2016: 64,892). Robert Quayle holds 50,128 ordinary shares (2016: 44,573). Clive Spears holds 68,032 ordinary shares (2016: 65,255).

22 Related parties

Geoffrey Vero is a non-executive Director of Numis Corporation plc and a former non-executive Director of Numis Securities Limited, the Nominated Advisors to the Company. During the year ended 31 January 2017, broker fees of GBP63,935 (2016: GBP62,534) were payable to Numis Securities Limited.

Directors' interests in the shares of the Company are included in note 21 to the financial statements.

Certain Directors of the Company and other participants (including employees of the Investment Advisor) are incentivised in the form of equity settled share-based payment transactions, through a Joint Share Ownership Plan (see note 7).

Details of fees payable to key service providers are included in note 5 to the financial statements.

23 Subsidiary companies

On 29 October 2005, the Company incorporated EPIC Reconstruction Property Company (IOM) Limited, in the Isle of Man.

On 16 November 2012, the Company incorporated Corvina Limited, in the Isle of Man, whose principal activity is that of acquiring shares in the Company, which are held as treasury shares (see note 16).

The Company held 100% of the issued share capital of EPIC Reconstruction Property Company II Limited. The subsidiary was deconsolidated during the 2014 year end, and was liquidated on 9 February 2016.

The Company is deemed to have control of its EBT, which is therefore treated as a subsidiary and consolidated for the purpose of the Group accounts (see note 16).

24 Foreign exchange gain

No foreign exchange gain has been recognised in the Consolidated Statement of Comprehensive Income in the year ended 31 January 2017.

A foreign exchange gain of GBP428,889 was recognised in the Consolidated Statement of Comprehensive Income in the year ended 31 January 2016. The gain was in respect of the buyout of the minority interest held by ESD in ESO 1 LP and results from the actual rate of exchange on settlement of 1:1.42 being more favourable than the initial rate of exchange agreed of 1:1.35, as per the deed of transfer.

25 Financial commitments and guarantees

Under the terms of the limited partnership agreement the Company is committed to provide a maximum of GBP2 million additional investment to ESO 1 LP.

   26   Subsequent events 

On 8 March 2017, the Company announced the completion of a secondary acquisition of a EUR2.5 million commitment in European Capital's Private Debt Fund ("ECPD") by ESO Alternative Investments LP, a partnership established to hold the Company's primary and secondary fund investments. Prior to March 2016, the Investment Advisor acted as placement agent to ECPD on the successful fundraise of the fund.

Schedule of shareholders holding over 3% of issued shares

 
                               Percentage 
                                  holding 
------------------------      ----------- 
 Giles Brand                       22.44% 
 The Corporation 
  of Lloyds                         8.92% 
 Hoares Bank                        4.79% 
 Miton Asset Management             4.73% 
 Henderson Global 
  Investors                         3.96% 
 Total over 3% holding             44.84% 
----------------------------  ----------- 
 

Group Information

 
 Directors                  Secretary 
 G.O. Vero (Chairman)       P.P. Scales 
 R.B.M. Quayle 
 C.L. Spears 
 N.V. Wilson 
 H. Bestwick 
 
 Registrar and Registered   Investment Advisor 
  Office 
 FIM Capital Limited        EPIC Private Equity 
                             LLP 
 IOMA House                 Audrey House 
 Hope Street                16-20 Ely Place 
 Douglas                    London EC1N 6SN 
 Isle of Man IM1 1AP 
 
 Nominated Advisor and      Auditors and Reporting 
  Broker                     Accountants 
 Numis Securities Limited   KPMG Audit LLC 
 10 Paternoster Square      Heritage Court 
 London EC4M 7LT            41 Athol Street 
                            Douglas 
                            Isle of Man IM99 1HN 
 
 Bankers                    CREST Providers 
 Barclays Bank plc          Computershare Investor 
                             Services (Jersey) Limited 
 1 Churchill Place          Queensway House 
 Canary Wharf               Hilgrove Street 
 London E14 5HP             St. Helier 
                            Jersey JE1 1ES 
 
 HSBC Bank plc 
 1st Floor 
 60 Queen Victoria Street 
 London EC4N 4TR 
 

This information is provided by RNS

The company news service from the London Stock Exchange

END

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April 03, 2017 02:15 ET (06:15 GMT)