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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Better Capital Pcc Limited | LSE:BCAP | London | Ordinary Share | GG00BYXP9G82 | ORD GBP1.00 (2009) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 21.50 | 18.00 | 25.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMBCAP TIDMBC12
RNS Number : 6651J
Better Capital PCC Limited
30 June 2017
30 June 2017
BETTER CAPITAL PCC LIMITED
(the "Company")
FINAL RESULTS UPDATE
Better Capital PCC Limited is pleased to announce its 2017 final results for both the 2009 Cell and the 2012 Cell.
2009 Cell Final Results
- NAV at 31 March 2017: GBP260.3 million, NAV at 30 September 2016: GBP240.0 million, NAV at 31 March 2016: GBP241.4 million
- GBP210.0 million total capital raised - GBP203.8 million net proceeds invested in Fund I - GBP66.8 million/31.8 per cent. cumulative distributions to date - 59.5 per cent. return from NAV growth and distributions since inception(1) - 6.6 per cent. annualised NAV total return including distributions(2)
- GBP222.0 MILLION/107.35 pence per share Redemption of 2009 Shares with a Redemption date of 28 June 2017
Hot Features
Premium
Key Financials
------------------------------------------------------------
NAV GBP260.3 m
------------------------------------------- ---------------
NAV (including distributions) GBP327.1 m
------------------------------------------- ---------------
NAV per share 125.86 pence
------------------------------------------- ---------------
NAV per share (including distributions) 158.16 pence
------------------------------------------- ---------------
26.95 per
NAV total return (1) cent.
------------------------------------------- ---------------
NAV total return (including distributions) 59.53 per
(1) cent.
------------------------------------------- ---------------
Annualised NAV total return (including
distributions) (2) 6.58 per cent.
------------------------------------------- ---------------
Share price at 30 September 2015 103.00 pence
------------------------------------------- ---------------
Market capitalisation at 30 September
2015 GBP213.0 m
------------------------------------------- ---------------
(1) Based on the weighted average issue price of ordinary shares and net of share issue costs, since inception.
(2) Cumulative return over the period of the life of the 2009 Cell since inception.
2012 Cell Final Results
- NAV at 31 March 2017: GBP172.3 million, NAV at 30 September 2016: GBP211.9 million, NAV at 31 March 2016: GBP247.6 million
- GBP355.5 million total capital raised
- GBP347.4 million net proceeds invested in Fund II
- GBP40.1 million/11.3 per cent. cumulative distributions to 31 March 2017
- GBP8.3 million/2.3 per cent. further distribution post 31 March 2017
- 28.5 million/8.2 per cent. 2012 Shares buyback and cancellation
- 9.0 per cent. Better Capital 2012 Shares held by Fund II
- 33.5 per cent. value decline combined NAV and distributions since inception(1)
- 7.6 per cent. annualised value decline combined NAV and distributions(2)
Key Financials
----------------------------------------------------------
NAV GBP172.3 m
-------------------------------------------- ------------
NAV (including distributions) GBP212.4 m
-------------------------------------------- ------------
NAV per share 54.17 pence
-------------------------------------------- ------------
NAV per share (including distributions) 66.78 pence
-------------------------------------------- ------------
(46.04) per
NAV total decline (1) cent.
-------------------------------------------- ------------
NAV total decline (including distributions) (33.47) per
(1) cent.
-------------------------------------------- ------------
Annualised NAV total return (including (7.58) per
distributions) (2) cent.
-------------------------------------------- ------------
Share price at 30 September 2015 27.75 pence
-------------------------------------------- ------------
Market capitalisation at 30 September
2015 GBP88.3 m
-------------------------------------------- ------------
(1) Based on the weighted average issue price of ordinary shares and net of share issue costs, since inception.
(2) Annualised return since inception
For further information, please
contact:
+44 (0) 1481
Better Capital PCC Limited 716 000
Laurence McNairn (Administrator
and Company Secretary)
+44 (0)20
Better Capital LLP 7440 0840
Bonnie Kraus (Investor Relations)
+44 (0) 2072
Powerscourt 501 446
Justin Griffith
+44 (0) 2072
Numis Securities Limited 601 000
Nathan Brown
Note:
HOLDERS OF ORDINARY SHARES OF GBP1 EACH IN THE 2009 CELL ("2009 SHARES") ARE REMINDED THAT, WITH EFFECT FROM 29 JUNE 2017, THE TOTAL NUMBER OF 2009 SHARES IN ISSUE IS 35,262,505. ALL SHAREHOLDERS ARE REFERRED TO THE ANNOUNCEMENT MADE BY THE COMPANY AT 07.00 AM ON 29 JUNE 2017 (RNS NUMBER: 5046J) REGARDING THE CALCULATION OF TOTAL VOTING RIGHTS.
Chairman's Statement
These past 12 months have been a busy period for the Company, the Better Capital team and the underlying investments in Funds I and II.
The sale of Gardner, the most significant of Fund I assets, completed on 12 June 2017 which has resulted in the Company effecting a compulsory pro-rata redemption of the 2009 Shares (the "Redemption") with an effective date of 28 June (the "Redemption Date") to enable the distribution of GBP222.0 million to the 2009 Shareholders. Prior to that iNTERTAIN and the debt instruments in Jaeger (both Fund II investments) were divested during the year ended 31 March 2017 with CAV Aerospace restructured in November 2016.
Performance in most of the portfolio companies has been on an upward trend. This is particularly evident in Northern Aerospace, a company formed from the trade and assets of CAV Aerospace and in SPOT which is now seeing benefits from investment in infrastructure in its distribution centres.
At the Company level, a 2012 Shares buyback and cancellation corporate action took place in December 2016. The effect of this corporate action was to provide an uplift in NAV of 4 per cent. per 2012 Share based on the 30 September 2016 NAV, being the last reported NAV before the implementation.
Better Capital 2009 Cell
The overall performance of the 2009 Cell has been solid with the primary driver being Gardner. Gardner's carrying value at 31 March 2017 of GBP254.1 million corresponded to the net realisation received from Fund I's divestment of Gardner to Ligeance Investments Limited, a wholly owned subsidiary of SLMR on 12 June 2017. The investment generated an IRR of 35.3 per cent. and a 7 times return on a total investment of GBP41.0 million.
Omnico, is now a profitable omni-channel point of sale ("PoS") software business. In its current financial year ending September 2017, there have been some delays in signing-on projects with customers and in project deliveries but the pipeline remains strong and good progress is being made on the product development roadmap. Nonetheless results are behind plan and this has resulted in a GBP6.5 million write-down.
m-hance, has seen success with Cloud-based offerings around CRM and Netsuite. Sales growth remains its key challenge and opportunity.
The 2009 Cell NAV summary is set out below.
Value Movement Movement Value Movement Movement Value Fund
at March at cost in value at at cost in value at cost
2016 GBP'm GBP'm Sept GBP'm GBP'm March March
GBP'm 2016 2017 2017
GBP'm GBP'm GBP'm
--------- ---------- --------- ---------- ------- --------- ---------- --------- -------
Gardner 211.0 (3.2) 12.2 220.0 - 34.1 254.1 22.7
--------- ---------- --------- ---------- ------- --------- ---------- --------- -------
m-hance 12.5 - (2.0) 10.5 - - 10.5 14.0
--------- ---------- --------- ---------- ------- --------- ---------- --------- -------
Omnico 25.0 - 1.5 26.5 - (6.5) 20.0 40.8
--------- ---------- --------- ---------- ------- --------- ---------- --------- -------
SPOT 6.2 (0.3) (1.8) 4.1 - 0.6 4.7 10.1
--------- ---------- --------- ---------- ------- --------- ---------- --------- -------
254.7 (3.5) 9.9 261.1 - 28.2 289.3 87.6
--------- ---------- --------- ---------- ------- --------- ---------- --------- -------
Fund cash on deposit 1.6 1.4
-------------------------------------------- ------- --------- ---------- --------- -------
Fund & SPV combined other
net assets/(liabilities)
attributable to 2009 Cell 0.3(1) (0.9)(2)
-------------------------------------------- ------- --------- ---------- --------- -------
Provision for carried interest (23.2) (29.6)
-------------------------------------------- ------- --------- ---------- --------- ------- 2009 Cell fair value of investment in Fund I 239.8 260.2 -------------------------------------------- ------- --------- ---------- --------- ------- 2009 Cell cash on deposit 0.3 0.2 -------------------------------------------- ------- --------- ---------- --------- ------- 2009 Cell current assets less liabilities (0.1) (0.1) -------------------------------------------- ------- --------- ---------- --------- ------- 2009 Cell NAV 240.0 260.3 -------------------------------------------- ------- --------- ---------- --------- ------- 2009 Cell capital distributions 66.8 66.8 -------------------------------------------- ------- --------- ---------- --------- ------- 2009 Cell adjusted NAV 306.8 327.1 -------------------------------------------- ------- --------- ---------- --------- -------
(1) Included GBP0.3 million of Santia escrow cash and GBP0.2 million of estimated net proceeds from the Fairline administration. The Santia escrow cash was received in full and GBP150,000 of net proceeds were received from the Fairline administration in December 2016.
(2) Includes GBP225,000 of estimated net proceeds from the Fairline administration at 31 March 2017. GBP200,000 was received in May 2017 with the balance outstanding.
(3) Based on the weighted average issue price of ordinary shares and net of share issue costs.
(4) Cumulative return over the period of the life of the 2009 Cell since inception.
(5) Adjusted for the 2012 Shares buyback and cancellation that took place in December 2016 and including cumulative distribution.
NAV total return(3) rose to 27.0 per cent. in the year (31 March 2016: 17.7 per cent.; 30 September 2016: 17.1 per cent.) and is stated after accounting for a net carry provision of GBP29.6 million (31 March 2016: GBP19.1 million; 30 September 2016: GBP23.2 million).
On a cumulative basis, NAV total return(3) including distributions rose to 59.5 per cent. during the year (31 March 2016: 47.8 per cent.; 30 September 2016: 49.7 per cent.) with the annualised NAV total return(4) including distributions rising to 6.6 per cent. (31 March 2016: 6.4 per cent.; 30 September 2016: 6.1 per cent.).
Comprehensive details on Fund I's investment activities, portfolio companies and valuation are set out in the Fund I GP's report below.
Better Capital 2012 Cell
The remaining Fund II portfolio companies (Everest, SPOT and Northern Aerospace) continue to show steady improvement, with Northern Aerospace and SPOT's carrying values written up, providing a modest NAV growth of 1.8 per cent. on an adjusted basis(5) since the publication of the Interim Report.
CAV Aerospace went through a restructuring in which the trade and assets of the business were acquired by Northern Aerospace, a subsidiary of Fund II in November 2017 - this entity has been trading profitably ever since. With the operational improvement programme and pricing support from customers Northern Aerospace has been able to deliver incremental profits and cash flow, allowing it now to be assessed using an earnings based approach for the first time since its acquisition in March 2015 by Fund II.
SPOT operates in a market where demand for traditional office supplies is shrinking. It continues to face strong competition, to which has been added the arrival of Amazon B2B. SPOT is performing well, profitability has improved and the company is seeing the benefits from its own strategic activities including the network consolidation exercise and the Alliance Programme which are all focussed on better cost and service benefits for customers.
The disposal of iNTERTAIN to the Stonegate Pub Company Limited was completed in December 2016, and had delivered a respectable return on investment to Fund II. The sale realised net proceeds of GBP33.7 million at completion, with estimated proceeds of around GBP2.5 million deferred pending the resolution of certain legacy matters. The investment generated an IRR of 24.5 per cent. and a 1.6 times money multiple.
The debt instruments in Jaeger were sold in March 2017 to an undisclosed third party for GBP8.5 million at an enterprise value, net proceeds received of GBP7.5 million. The residual shareholdings have no value. This was an extremely disappointing outcome which followed a long period of considerable effort by the team and was set against a very difficult background for fashion retailing.
The 2012 Cell NAV summary is set out below.
Value Movement Movement Value Movement Movement Value Fund
at March at cost in value at at cost in value at cost
2016 GBP'm GBP'm Sept GBP'm GBP'm March March
GBP'm 2016 2017 2017
GBP'm GBP'm GBP'm
------------- ---------- --------- ---------- ------- ---------- ---------- --------- --------
Everest 44.5 - (6.5) 38.0 - - 38.0 25.4
------------- ---------- --------- ---------- ------- ---------- ---------- --------- --------
Jaeger 37.0 3.0 (10.0) 30.0 (8.5) (21.5) -(1) 60.5
------------- ---------- --------- ---------- ------- ---------- ---------- --------- --------
City Link 2.5 (1.5) - 1.0 (0.8) - 0.2 17.7
------------- ---------- --------- ---------- ------- ---------- ---------- --------- --------
SPOT 65.0 - (23.1) 41.9 - 5.4 47.3 96.2
------------- ---------- --------- ---------- ------- ---------- ---------- --------- --------
iNTERTAIN 38.0 - - 38.0 (33.7) (4.3) -(2) -
------------- ---------- --------- ---------- ------- ---------- ---------- --------- --------
Northern
Aerospace 31.0 - - 31.0 5.9 23.1 60.0 64.9
------------- ---------- --------- ---------- ------- ---------- ---------- --------- --------
BC12 shares 10.5 7.6 0.7 18.8 (10.6)(3) (0.3) 7.9(4) 11.1(5)
------------- ---------- --------- ---------- ------- ---------- ---------- --------- --------
228.5 9.1 (38.9) 198.7 (47.7) 2.4 153.4 275.8
------------- ---------- --------- ---------- ------- ---------- ---------- --------- --------
Fund II cash on deposit 9.3 15.2(1)
------------------------------------------------ ------- ---------- ---------- --------- --------
Fund II & SPV combined
other net assets attributable
to 2012 Cell 0.5 1.7(2)
------------------------------------------------ ------- ---------- ---------- --------- --------
2012 Cell fair value of
investment in Fund II 208.5 170.3
------------------------------------------------ ------- ---------- ---------- --------- --------
2012 Cell cash on deposit 1.9 0.5
------------------------------------------------ ------- ---------- ---------- --------- --------
2012 Cell current assets
less liabilities 1.5 1.5
------------------------------------------------ ------- ---------- ---------- --------- --------
2012 Cell NAV 211.9 172.3
------------------------------------------------ ------- ---------- ---------- --------- --------
2012 Cell capital distributions 6.1 40.1
------------------------------------------------ ------- ---------- ---------- --------- --------
2012 Cell adjusted NAV 218.0 212.4
------------------------------------------------ ------- ---------- ---------- --------- --------
(1) Net proceeds from the sale of Jaeger's debt instruments of GBP7.5 million recorded in fund cash and other net assets.
(2) Proceeds in escrow of GBP2.5 million payable pending the resolution of legacy matters recorded as a fund receivable.
(3) 2012 Shares buyback and cancellation at the purchase price of 37.12p per share with an average cost per share of 39.00p.
(4) 28,548,277 2012 Shares at the closing price on 31 March 2017 of 27.75p per share.
(5) Average cost per remaining share, 40.84p. Includes commission and levy.
Further details on Fund II's investment activities, portfolio companies and valuation are set out in the Fund II GP's report below.
2012 Shares buyback and cancellation
Number NAV at Original Adjusted NAV incl. Original Adjusted
of 2012 30 September NAV NAV cum. NAV NAV
Shares 2016 per share dist. incl incl
GBP'm share at cum. cum.
30 September dist. dist.
2016 per per
GBP'm share share
------------------- ------------- -------------- --------- --------- -------------- --------- ---------
Original 346,600,520 211.9 61.13p 217.9 62.88p
------------------- ------------- -------------- --------- --------- -------------- --------- ---------
Buyback
and cancellation (28,548,278) (9.4)(1) (9.4)(1)
------------------- ------------- -------------- --------- --------- -------------- --------- ---------
In issue 318,052,242 202.5 63.67p 208.5 65.56p
------------------- ------------- -------------- --------- --------- -------------- --------- ---------
(1) Based on closing price at 30 September 2016 of 33.00p per share.
The 2012 Shares buyback and cancellation corporate action was completed on 21 December 2016, whereby the Company had entered into a buyback contract with Fund II to acquire 28,548,278 2012 Shares, representing 50 per cent. of Fund II's holding at the purchase price of 37.12p per 2012 Share (total purchase price GBP10.6 million), which was calculated in accordance with the circular approving the buyback as 5 per cent. above the average market value of the 2012 Shares for the five business days prior to completion. Following the share buyback, the Company immediately cancelled all the 2012 Shares it acquired from Fund II, reducing the number of 2012 Shares in issue by 8.2 per cent. from 346,600,520 to 318,052,242.
Had the 2012 Cell NAV per share at 30 September 2016 (being the last reported 2012 Cell NAV before the implementation) been calculated using the new number of 2012 Shares in issue, the 2012 Cell NAV on an adjusted basis would have been 63.67p/ 65.56p (including cumulative distributions) against the unadjusted 61.13p/ 62.88p (including cumulative distributions). The effect of this corporate action was to provide a 4 per cent. NAV uplift per 2012 Share.
2012 Cell NAV performance on an adjusted basis
NAV NAV per NAV incl. NAV incl
GBP'm share cum. cum.
dist. dist.
GBP'm per share
-------------------------- ------- -------- ---------- -----------
NAV at 31 March 2017 172.3 54.16p 212.4 66.78p
-------------------------- ------- -------- ---------- -----------
NAV at 30 September
2016 adjusted for
the 2012 Shares buyback
and cancellation 202.5 63.67p 208.5 65.56p
-------------------------- ------- -------- ---------- -----------
2012 Cell NAV (decline)/ (14.9)
growth % 1.8 %
-------------------------- ------- -------- ---------- -----------
Using the new number of 2012 Shares in issue, the 2012 Cell NAV per share was 54.16p at 31 March 2017. This is to be compared with the 2012 Cell NAV per share at 30 September 2016 of 63.67p on an adjusted basis, a decline of 14.9 per cent. Similarly, using the new number of 2012 Shares in issue, the 2012 Cell NAV (incl. cum. dist.) per share was 66.78p at 31 March 2017. This is to be compared with the 2012 Cell NAV (incl. cum. dist.) per share on an adjusted basis at 30 September 2016 of 65.56p, delivering a growth of 1.8 per cent.
The General Partner routinely assesses Fund II's holding of the remaining 2012 Shares as an investment. There is presently no intention to sell the remaining holding of 2012 Shares.
Distributions - 2009 Cell
In the year to 31 March 2017, the 2009 Cell made a fourth distribution by way of a reduction of share capital, totalling GBP5.2 million/ 2.5p per share to the 2009 Shareholders, giving cumulative distribution of GBP66.8 million (31.8 per cent. of funds raised).
Gardner disposal proceeds
The sale of Gardner on 12 June 2017 crystallised net proceeds of GBP254.1 million in Fund I. After accounting for carry of GBP29.6 million and the retention of GBP2.1 million of cash to support Fund I's operations and working capital, GBP222.4 million was deemed surplus to requirements. On 14 June 2017, the General Partner of Fund I approved the return of GBP222.4 million to the 2009 Cell.
On the same date, the Company announced the distribution of GBP222.0 million, equivalent to 107.35p per share to the 2009 Shareholders by way of a Redemption on the Redemption Date. The Redemption was effected at the equivalent of 129.42p per 2009 Share, being the equivalent of the NAV as at 30 September 2016, adjusted for the net uplift resulting from the disposal of Gardner and less the costs of effecting the Redemption.
The Redemption was effected pro rata to holdings of the 2009 Shares on the register at the close of business on the Redemption Record Date, being 28 June. At the time of announcement, the Company had 206,780,952 2009 Shares in issue. On this basis 82.95 per cent. of each registered holding of 2009 Shares was redeemed on the Redemption Date.
Fractions of 2009 Shares were not redeemed and so the number of shares redeemed for each shareholder was rounded down to the nearest whole number of shares.
All 2009 Shares that were redeemed were cancelled with effect from the relevant Redemption date. Accordingly, the redeemed 2009 Shares are incapable of transfer.
Following the Redemption, the Company has 35,262,505 2009 Shares in issue. The pro-forma 2009 Cell NAV following the Redemption is estimated to be approximately GBP40.0 million, which reflects the fair valuation of Fund I's remaining portfolio assets as at 31 March 2017 and the estimated current net assets held by the 2009 Cell and Fund I on or around 14 June 2017. This number of shares and value of NAV would correspond to an estimated pro-forma NAV per remaining 2009 Share of approximately 113p.
The cumulative distribution to the 2009 Shareholders following the Redemption is GBP288.8 million or 1.4 times of funds raised.
Distributions - 2012 Cell
In January 2017, the 2012 Cell made its second distribution by way of a reduction of share capital totalling GBP34.0 million/ 10.7p per share to the 2012 Shareholders. This distribution was funded out of the net realised proceeds from the sale of iNTERTAIN in December 2016.
The sale of the debt instruments in Jaeger enabled a smaller third distribution of GBP8.3 million/ 2.6p per share, also by way of a reduction of share capital to the 2012 Shareholders in May 2017.
2012 Cell distributions to date total GBP48.4 million or 13.6 per cent. of funds raised.
Extension to Fund I
In accordance with the terms of the Prospectus of the Company dated 29 July 2013 and the Amended and Restated Limited Partnership Agreement of Fund I dated 16 December 2011, the General Partner of Fund I can enforce its discretion to extend Fund I's term for up to two additional one year periods, subject to the consent of the Company. On 22 February 2017, the Company announced that it had consented to an extension to Fund I of one year to 17 December 2018. The Board considered that an extension to Fund I will help to provide an appropriate timeframe in which the General Partner of Fund I can maximise returns through the realisation of the residual assets in the portfolio.
Board perspectives
The successful disposals in recent months, of iNTERTAIN and then Gardner, were welcome news to the Board. Throughout the processes the Board had kept in close contact with the General Partners of the respective funds who had sought to provide regular updates. In the case of Gardner, this was a highly complex cross-border aerospace transaction. Whilst the timetable had slipped marginally, the Better Capital team delivered an excellent outcome for the 2009 Shareholders.
The absence of Gardner leaves in plain sight a much smaller Fund I. Whilst the General Partner's Share and certain fund administration costs are directly linked to NAV and thereby reduce accordingly, there are certain other costs of a more fixed nature (albeit spread where possible across the company as a whole). The General Partner is engaged with the Board in considering several options in order to secure the best net financial outcome for the shareholders of the 2009 Cell.
Whilst it is recognised that the overall performance of the 2012 Cell has been very disappointing to date, the Board has been encouraged by the more recent progress in the Fund II portfolio companies - all of which are profitable and with low (or non-existent) gearing. Northern Aerospace has scope for further value creation. To mitigate rising costs in the 2012 Cell, the General Partner of Fund II has committed to reducing the General Partner's Share of costs by GBP1.0 million over the current financial year. The aim is that with this lower cost base combined with increasing expected returns from the remaining assets, the overall outcome for the 2012 Shareholders will improve.
Richard Crowder
Chairman
29 June 2017
Report of the Directors
The Directors hereby submit the annual report and audited financial statements for each of the Company, the 2009 Cell and the 2012 Cell for the year ended 31 March 2017.
Principal activities
Further information on the principal activities of the Company can be found on the inside of the front cover.
Business review
A review of the Company's business and its likely future development is provided in the Chairman's Statement above. The underlying investments of the Funds are reviewed in the relevant General Partner's Report for Fund I and Fund II below.
Results and distributions
The Company
The results of the Company for the year are shown in the audited statement of comprehensive income below.
2009 Cell
The results of the 2009 Cell for the year are shown in the audited statement of comprehensive income below.
The Net Asset Value of the 2009 Cell as at 31 March 2017 was GBP260.3 million (2016: GBP241.4 million).
During the year the 2009 Cell made its fourth capital distribution of GBP5.2 million (2016: GBP35.2 million) to shareholders of the 2009 Cell as at the ex-date of 30 June 2016. The distribution consisted of a payment of 2.5 pence per ordinary share payable in cash from the 2009 Cell's share capital account and has been treated as a reduction of share capital.
The four capital distributions (reductions of share capital) at 31 March 2017 for the 2009 Cell total GBP66.8 million, being 31.8 per cent. of funds raised.
2012 Cell
The results of the 2012 Cell for the year are shown in the audited statement of comprehensive income below.
The Net Asset Value of the 2012 Cell as at 31 March 2017 was GBP172.3 million (2016: GBP247.6 million).
During the year the 2012 Cell made its second capital distribution of GBP34.0 million (2016: GBPnil) to shareholders of the 2012 Cell as at the ex-date of 30 December 2016. The distribution consisted of a payment of 10.7 pence per ordinary share payable in cash from the 2012 Cell's share capital account and has been treated as a reduction of share capital.
The two capital distributions (reductions of share capital) at 31 March 2017 for the 2012 Cell total GBP40.1 million, being 11.3 per cent. of funds raised.
Annual General Meetings
The Annual General Meetings of the Company and the Cells will be held on 5 September 2017 at Lefebvre Place, Lefebvre Street, St Peter Port, Guernsey. The AGM of the 2009 Cell will be held at 9.00 am. The AGM of the 2012 Cell will be held at 9.15 am or, if later, immediately following the conclusion of the AGM of the 2009 Cell. The AGM of the Company will be held at 9.30 am or, if later, immediately following the conclusion of the AGM of the 2012 Cell. Details of the resolutions to be proposed at the AGMs, together with explanations, appear in the Notices of Meetings which are being sent to Shareholders at the same time as this Annual Report.
Members of the Board, including the Chairman and the Audit Committee Chairman, will be in attendance at the AGMs and will be available to answer shareholder questions.
Statement of Directors' responsibilities
The Directors are responsible for preparing the Annual Report for each financial year which give a true and fair view of the state of affairs of the Company, the 2009 Cell and the 2012 Cell and of the respective results for the year then ended, in accordance with applicable Guernsey law and EU adopted IFRS. In preparing these financial statements the Directors are required to:
-- select suitable accounting policies in accordance with IAS 8: Accounting Policies, changes in Accounting Estimates and Errors and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
-- provide additional disclosures when compliance with the specific requirements in IFRS are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance;
-- state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and
-- prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records which disclose, with reasonable accuracy at any time, the financial position of the Company and its Cells and which enable them to ensure that the financial statements comply with the Companies Law. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud, error and non-compliance with law and regulations.
The Directors confirm that, so far as they are aware, there is no information relevant to the audit of which the Company's auditor is unaware. The Directors also confirm that they have taken all steps they ought to have taken as Directors to make themselves aware of any information relevant to the audit and to establish that the Company's auditor is aware of that information.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website (www.bettercapital.gg); the work carried out by the auditor does not involve considerations of these matters and, accordingly, the auditor accepts no responsibility for any change that may have occurred to the financial statements.
Responsibility statement of the Directors in respect of the Annual Report
Each of the Directors, whose names are set out below in the Report of the Directors section of the Annual Report, confirms that, to the best of their knowledge and belief:
-- the financial statements, prepared in accordance with EU adopted IFRS give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company;
-- the Annual Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties faced;
-- the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and
-- The Annual Report includes information required by the UK Listing Authority and ensuring that the Company complies with the provisions of the Listing Rules, DTRs of the UK Listing Authority, with regard to corporate governance, require the Company to disclose how it has applied the principles and complied with the provisions of the corporate governance code applicable to the Company.
Listing requirements
Throughout the period since being admitted to the Official List maintained by the FCA, the Company has complied with the Listing Rules.
Non-mainstream pooled investments
The Board notes the changes to the FCA rules regarding the restrictions on the promotion to retail investors of unregulated collective investment schemes and close substitutes (referred to as "non-mainstream pooled investments"), which came into effect on 1 January 2014. On the basis of advice received, the Board has concluded that the Company's, the 2009 Cell's and 2012 Cell's Shares are not non-mainstream pooled investments for the purposes of these rules, meaning that the restrictions on promotion imposed by the rules do not apply.
AIFMD
The Directors have considered the impact of the EU AIFMD (no. 2011/61/EU), which became effective in the UK on 22 July 2014 with the transitional period ending in June 2014, on the Company and its operations.
The Company is a non-EU domiciled alternative investment fund which does not currently intend to market its shares within Europe; therefore, the Directors consider that neither authorisation nor registration is required.
FATCA
FATCA became effective on 1 January 2013 with registration required by 31 December 2014 and is being gradually implemented internationally. The legislation is aimed at determining the ownership of US assets in foreign accounts and improving US tax compliance with respect to those assets. The Company was registered by the Administrator in the fourth quarter of 2014. The Board and the Administrator are in regular discussions with the Company's service providers and advisors to ensure that the Company continues to comply with FATCA's requirements to the extent relevant to the Company.
Corporate governance statement
The Board recognises the value of sound corporate governance and, in particular, has regard to the requirements of the UK Code (available from the FRC's website, www.frc.org.uk).
The Board monitors developments in corporate governance to ensure the Board remains aligned with best practice especially with respect to the increased focus on diversity. The Board acknowledges the importance of diversity, including gender, for the effective functioning of the Board and commits to supporting diversity in the boardroom. It is the Board's ongoing aspiration to have a well-diversified representation. The Board also values diversity of business skills and experience because Directors with diverse skill sets, capabilities and experience gained from different geographical backgrounds enhance the Board by bringing a wide range of perspectives to the Company.
The Company's prospectus dated 29 July 2013 stated that the Company was, and intended to continue to be, in compliance with the UK Code. The Company is a member of the AIC and the Board of the Company has accordingly considered, and resolved to follow, the principles and recommendations of the AIC Code by reference to the AIC Guide (both available from the AIC's website, www.theaic.co.uk).
The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Code, as well as setting out additional principles and recommendations on issues that are of specific relevance to investment companies such as the Company. The Board considers that reporting against the principles and recommendations of the AIC Code, by reference to the AIC Guide (which incorporates the UK Code), provides better information to shareholders.
The UK Code includes provisions relating to:
-- the role of the chief executive; -- executive directors' remuneration; and -- the need for an internal audit function.
The Company has complied with the recommendations of the AIC Code and the relevant provisions of Section 1 of the UK Code, except as set out below.
For the reasons set out in the AIC Guide, and in the preamble to the UK Code, the Board considers these provisions are not relevant to the position of the Company which delegates most day-to-day functions to third parties. The Company does not have a chief executive or any executive directors, employees or internal operations and has therefore not reported further in respect of these provisions. The need for an internal audit function is discussed in the Audit Committee Report.
Except as disclosed in the following paragraphs, the Company has complied throughout the year with the provisions of the AIC Code.
-- Principle 1 of the AIC Code states a Board should consider appointing one independent non-executive Director to be the Senior Independent Director. The Board, having taken into account its small size and that the Chairman and two of the other three Directors are each similarly independent and non-executive, considers it unnecessary to appoint such a Senior Independent Director. All members of the Board are available to shareholders if they have unresolved concerns.
-- Principle 6 of the AIC Code states Directors should consider the diversity of the Board, including gender. The Board will consider diversity when a vacancy arises.
Pursuant to the GFSC Code, companies which report in line with the UK Code or the AIC Code are deemed to meet the GFSC Code (the GFSC Code is available from the GFSC website www.gfsc.gg).
The Funds themselves are not subject to any code of corporate governance. However, the Funds act through the Fund GPs which in turn act through Fund GP Companies which are licensed under the POI Law. As POI Licensees, the boards of the Fund GP Companies have regard to the GFSC Code, which sets out the general responsibilities of the boards of the Fund GP Companies and includes proposals to deal with risk management, internal control procedures, the duties of directors, the composition of the Boards of the Fund GP Companies and self-assessment. The Fund GP Companies are managed in a manner which complies with the GFSC Code.
The Board
The Directors of the Company at the date of this report are Richard Crowder (Chairman), Richard Battey, Philip Bowman and Jon Moulton.
The Board meets on at least a quarterly basis. The dates for each scheduled meeting are planned at the beginning of the year and confirmed in writing in accordance with the Company's articles of incorporation. Meetings for urgent issues may be and are convened at short notice if all Directors are informed. In addition to formal Board and/or committee meetings and, to the extent practicable and appropriate, the Directors maintain close contact with each other, the Consultant and the Administrator, by email and conference calls and with the directors of the Fund I GP Company and Fund II GP Company for the purpose of keeping themselves informed about Fund I's and Fund II's activities. The Board requires information to be supplied in a timely manner by the respective general partner of Fund I and Fund II, the Consultant, the Administrator and other advisors in a form and of a quality appropriate to enable it to discharge its duties.
The Company has adopted a share dealing code for the Board and will seek to ensure compliance by the Board and relevant personnel of the Consultant, the Fund I GP and the Fund II GP with the terms of the share dealing code. The share dealing code is compliant with the Model Code for Directors' Dealings contained in the Listing Rules.
Board tenure and re-election
Any director who has held office with the Company, other than employment or executive office, for a continuous period of nine years or more at the date of the meeting, shall retire from office and may offer himself for reappointment by the members. No member of the Board has currently served for longer than seven years to date. As such no issue has arisen to be considered by the Board with respect to long tenure. In accordance with the AIC Code, when and if any director shall have been in office (or on re-election would at the end of that term of office) for more than nine years the Company will consider further whether there is a risk that such a director might reasonably be deemed to have lost independence through such long service. The Management Engagement, Nomination and Remuneration Committee shall take the lead in any discussions relating to the appointment or re-appointment of directors.
Any Director who has been appointed by the Board since the last general meeting or who held office at the time of the two preceding Annual General Meetings and who did not retire at either of them must offer himself for re-appointment by the members. Mr Moulton, as a director of the Fund I GP Company and the Fund II GP Company is subject to annual re-election in accordance with the listing rules.
A Director who retires at an Annual General Meeting may, if willing to continue to act, be elected or re-elected at that meeting. If, at a general meeting at which a Director retires, the Company neither re-elects that Director nor appoints another person to the Board in the place of that Director, the retiring Director shall, if willing to act, be deemed to have been re-elected unless at the general meeting it is resolved not to fill the vacancy or unless a resolution for the re-election of the Director is put to the meeting and not passed.
The Board is of the opinion that those directors proposed for re-election should be re-elected because they have the appropriate skills and experience to continue to serve the Company.
Directors do not have service contracts. Directors are appointed under letters of appointment, copies of which are available at the registered office of the Company. The Board considers its composition and succession planning on an on-going basis.
Directors' remuneration
During the year to 31 March 2017 the Directors' remuneration was paid as follows (of which GBP59,000 (2016: GBP52,000) was outstanding at the year end):
31 March 2017
Annual Paid Total 2009 Cell 2012
paid paid for Cell
(GBP'000) (GBP'000) for the year paid
year (GBP'000) for
(GBP'000) the
year
(GBP'000)
--------------- ----------- ----------- ----------- ----------- -----------
Richard
Crowder 70.00 70.00 70.00 34.56 35.44
--------------- ----------- ----------- ----------- ----------- -----------
Richard
Battey 62.50 62.50 62.50 30.85 31.65
--------------- ----------- ----------- ----------- ----------- -----------
Philip Bowman 60.00 60.00 60.00 29.62 30.38
--------------- ----------- ----------- ----------- ----------- -----------
Jon Moulton 45.00 45.00 45.00 22.22 22.78
--------------- ----------- ----------- ----------- ----------- -----------
Total 237.50 237.50 237.50 117.25 120.25
--------------- ----------- ----------- ----------- ----------- -----------
31 March 2016
Annual Paid Total 2009 2012
paid Cell Cell
(GBP'000) (GBP'000) for paid paid
year for the for the
(GBP'000) year year
(GBP'000) (GBP'000)
--------------- ----------- ----------- ----------- ----------- -----------
Richard
Crowder 60.00 60.00 60.00 25.35 34.65
--------------- ----------- ----------- ----------- ----------- -----------
Richard
Battey 52.50 52.50 52.50 22.18 30.32
--------------- ----------- ----------- ----------- ----------- -----------
Philip Bowman 50.00 50.00 50.00 21.13 28.87
--------------- ----------- ----------- ----------- ----------- -----------
Jon Moulton 45.00 45.00 45.00 19.02 25.98
--------------- ----------- ----------- ----------- ----------- -----------
Total 207.50 207.50 207.50 87.68 119.82
--------------- ----------- ----------- ----------- ----------- -----------
All of the Directors are non-executive. The Board considers Messrs Crowder, Battey and Bowman as independent of the Fund I GP and Fund II GP and free from any business or other relationship that could materially interfere with the exercise of their independent judgment. The Board as a whole is independent of the Consultant, the Fund I GP and the Fund II GP. Mr Moulton is a director of the Fund I GP Company and the Fund II GP Company and is therefore not considered to be independent.
The Chairman of the Board must be independent and is appointed in accordance with the Company's articles of incorporation. Mr Crowder is considered to be independent because he:
-- has no current or historical employment with the Consultant;
-- has no current directorships in any other entities for which the Consultant provides consultancy services; and
-- is not an executive of a self-managed company or an ex-employee who has left the executive team of a self-managed company within the last five years.
Duties and responsibilities
The Board has overall responsibility for maximising the Company's success by directing and supervising the affairs of the business and meeting the appropriate interests of shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring the protection of investors. A summary of the Board's responsibilities is as follows:
-- statutory obligations and public disclosure; -- strategic matters and financial reporting;
-- risk assessment and management including reporting, compliance, governance, monitoring and control; and
-- other matters having a material effect on the Company.
The Board is responsible to shareholders for the overall management of the Company. The Board has adopted a Schedule of Matters Reserved for the Board which sets out the particular duties of the Board, which demonstrates the seriousness with which it takes its fiduciary responsibilities. Such reserved powers include decisions relating to the determination of investment policy and approval of changes in strategy, capital structure, statutory obligations and public disclosure, and entering into any material contracts by the Company.
The Directors have access to the advice and services of the Administrator, who is responsible to the Board for ensuring that Board procedures are followed and that it complies with Companies Law and applicable rules and regulations of the GFSC and the LSE. Where necessary, in carrying out their duties, the Directors may seek independent legal or other professional advice and services at the expense of the Company. As a result of the use of professional service providers and the nature of the Company's operations, the Company does not have any employees.
The Company maintains appropriate Directors' and Officers' liability insurance in respect of legal action against its Directors. Suitable insurance is in place, having been renewed on 12 January 2017.
The Board's responsibilities for the Annual Report are set out in the Directors' Responsibilities Statement above. The Board is also responsible for issuing appropriate half-yearly financial reports and other price-sensitive public reports.
The primary focus at board meetings is to review investment performance and associated matters such as share price discount/premium management, investor relations, peer group information, gearing and industry issues.
The attendance record of the Directors for the year is set out below:
Director Scheduled Audit Management Other
Board Committee Engagement, Board
Meetings Meetings Nomination Meetings
(max 6) (max 3) and Remuneration (max 3)
Committee
(max 2)
Richard Crowder 6 3 2 3
Richard Battey 6 3 2 3
Philip Bowman 6 3 2 2
Jon Moulton* 6 n/a n/a 3
(*) Mr Moulton is not a member of the Audit Committee or the Management, Engagement, Nomination and Remuneration Committee, however from time to time he is invited to attend and did so during the year.
Directors
Richard Crowder - Chairman - Guernsey resident (aged 67)
Richard Crowder holds a range of non-executive directorships and advisory appointments. He works with a wide range of investment styles and portfolios as well as being a director of two groups of family companies where he acts as an offshore director/adviser and chairman of an investment committee. He has extensive experience of: Chairmanships and Directorships of quoted and unquoted companies, including chairing a FTSE 250 company; structuring businesses; managing and growing securities, banking, investment and advisory businesses; as well as being well versed in offshore governance. In his early career, he worked as an investment manager with Ivory & Sime in Edinburgh and as a head of investment research with W.I. Carr in Singapore, Hong Kong and Japan. He undertook a wide range of responsibilities for Schroders in London and the Far East, culminating in the role of Managing Director for Schroders' Singapore associate and Director of J Henry Schroder Wagg & Co. Limited. Having then worked as Chairman of Smith New Court International Agency and Director of Smith New Court Plc, Richard Crowder was the founding Managing Director of Schroders' Channel Islands subsidiary from 1991 until he became a full time non-executive director and consultant in 2000. He is a member of the Chartered Institute for Securities and Investments.
Richard Battey - Non-executive Director - Guernsey resident (aged 65)
Richard Battey is a non-executive director of a number of investment companies including AcenciA Debt Strategies Limited (UK listed), Juridica Investments Limited (AIM listed), NB Global Floating Rate Income Fund Limited (UK listed), Pershing Square Holdings Limited (UK and Euronext listed), Princess Private Equity Holding Limited (UK listed) and Prospect Japan Fund Limited (UK listed). For each of these six companies he is Chairman of the Audit Committee. He is a Fellow of the Institute of Chartered Accountants in England and Wales having qualified with Baker Sutton & Co. in London in 1977. He joined the Schroder Group in December 1977 and worked first in London with J. Henry Schroder Wagg & Co. Limited and Schroder Investment Management in financial and management accounting roles and then in Guernsey helping to build Schroders' offshore private banking business. Richard was a director of Schroders (C.I.) Limited in Guernsey from April 1994 to December 2004 where he served as Finance Director and Chief Operating Officer. He was a director of a number of the Schroder Group's Guernsey companies covering banking, investment management, trusts, insurance and private equity administration retiring from his last Schroder directorship in December 2008. He was formerly Chief Financial Officer of CanArgo Energy Corporation (May 2005 to July 2006), which was engaged in oil and gas exploration and production in Georgia and Kazakhstan. Mr Battey was appointed as a Director on 24 November 2009.
Philip Bowman - Non-executive Director - Non-UK resident (aged 64)
Philip Bowman is the senior independent director of Burberry Group plc, chairman of The Miller Group (UK) Limited, chairman of MAF Properties LLC, a director of Ferrovial S.A., and of Anchor Brewers & Distillers LLC. He previously held the positions of Chief Executive of three FTSE100 companies - Smiths Group plc from December 2007 to September 2015, Scottish Power plc from early 2006 until mid-2007 and Allied Domecq plc between 1999 and 2005. In 1977 Mr Bowman qualified as a Chartered Accountant with the Institute of Chartered Accountants in England and Wales while employed at Price Waterhouse. Past board appointments include British Sky Broadcasting Group plc, Scottish & Newcastle Group plc, Berry Bros. & Rudd Limited and Coles Myer Limited as well as Chairman of Liberty plc and Coral Eurobet plc. His earlier career includes five years as a director of Bass plc (now Mitchells & Butler plc and Intercontinental Hotel Group plc), where he held the roles of Chief Financial Officer and subsequently Chief Executive of Bass Taverns. Mr Bowman is an Australian national and was appointed as a Director on 24 November 2009.
Jon Moulton - Non-executive Director - Guernsey resident (aged 66)
Jon Moulton is a Fellow of the Institute for Turnaround Professionals and a Corporate Financier in the Institute of Chartered Accountants in England and Wales. Mr Moulton is the chairman of FinnCap, the stockbroker and a director or trustee of a number of companies and charities. Mr Moulton is Chairman of The International Stock Exchange. Between 1997 and September 2009, he was the Managing Partner and founder of Alchemy Partners. He worked in the M&A group of Coopers & Lybrand in New York for two years before moving to Citicorp Venture Capital, initially in New York and then, from 1981, in London where he was a Managing Director in the LBOs and venture capital group. From 1985 to 1994, he was the Managing Partner and founder of Schroder Ventures, where he focused on LBOs and venture capital, and was a member of the French and German Investment Committees. Between 1994 and 1997, Mr Moulton was the Director in charge of LBOs at Apax Partners.
Shareholdings of the Directors
Directors of the Company and their beneficial interests in the 2009 Shares and the 2012 Shares as at 31 March 2017 are detailed below:
2009 Cell
Director 2009 Shares Per cent. Per cent.
Holding* Holding*
31 March 31 March
2017 2016
--------------- ------------------------ ---------- ----------
31 March 31 March
2017 2016
--------------- ----------- ----------- ---------- ----------
Richard
Crowder 110,000 110,000 0.05 0.05
--------------- ----------- ----------- ---------- ----------
Richard
Battey 60,000 60,000 0.03 0.03
--------------- ----------- ----------- ---------- ----------
Philip Bowman 250,000 250,000 0.12 0.12
--------------- ----------- ----------- ---------- ----------
Jon Moulton 23,123,809 23,123,809 11.18 11.18
--------------- ----------- ----------- ---------- ----------
* Per cent. holding is given on one for one share holding basis rather than on voting rights.
2012 Cell
Director 2012 Shares Per cent. Per cent.
Holding* Holding*
31 March 31 March
2017 2016
--------------- ------------------------ ---------- ----------
31 March 31 March
2017 2016
--------------- ----------- ----------- ---------- ----------
Richard
Crowder 100,000 100,000 0.03 0.03
--------------- ----------- ----------- ---------- ----------
Richard
Battey 60,000 60,000 0.02 0.02
--------------- ----------- ----------- ---------- ----------
Philip Bowman 595,238 595,238 0.19 0.17
--------------- ----------- ----------- ---------- ----------
Jon Moulton 38,615,582 38,615,582 12.14 11.14
--------------- ----------- ----------- ---------- ----------
* Per cent. holding is given on one for one share holding basis rather than on voting rights.
Jon Moulton has acquired an additional 1.3 million 2009 Shares and 3.5 million 2012 Shares since 31 March 2017.
Committees of the Board
Audit Committee
The Company has an Audit Committee with formally delegated duties and responsibilities within written terms of reference. Further information on the Audit Committee is included in the Report of the Audit Committee below.
Management Engagement, Nomination and Remuneration Committee
The MNR Committee is chaired by Philip Bowman. The MNR Committee currently consists of Philip Bowman, Richard Battey and Richard Crowder. Any non-executive Directors who are not considered independent do not take part in the MNR Committee's deliberations regarding remuneration levels. The MNR Committee meets at least once a year pursuant to its terms of reference which are available on the Company's website (www.bettercapital.gg).
Regarding management engagement, the MNR Committee provides a formal mechanism for the review of the performance of the Company's advisors. It carries out this review through consideration of a number of objective and subjective criteria and through a review of the terms and conditions of the advisors' appointments with the aim of evaluating performance, identifying any weaknesses and ensuring value for money for the Company's shareholders.
Regarding nomination, the MNR Committee's remit is to review regularly the structure, size and composition of the Board, to give full consideration to succession planning for Directors, to keep under review the leadership needs of the Company and be responsible for identifying and nominating for the approval of the Board, candidates to fill Board vacancies as and when they arise. The Board believes that, as a whole, it comprises an appropriate balance of skills, experience and knowledge. The Board also believes that diversity of experience and approach, including gender diversity, amongst board members is of great importance and it is the Company's policy to give careful consideration to issues of board balance and diversity when making new appointments.
Regarding remuneration, the MNR Committee determines and agrees with the Board the remuneration of the Company's Chairman and non-executive Directors and in determining such remuneration, takes into account all factors which it deems necessary including any relevant legal requirements, the provisions and recommendations in the AIC Code, the Listing Rules and associated guidance.
Board performance and evaluation
In accordance with Principle 7 of the AIC Code, the Board is required to undertake a formal and rigorous evaluation of its performance on an annual basis. Such an evaluation of the performance of the Board as a whole and the Chairman was carried out under the mandate of the MNR Committee and in the form of self-appraisal questionnaires and a detailed discussion of the outcomes. The Directors believe that the current mix of skills, experience, ages and length of service of the Directors is appropriate to the requirements of the Company. With any new director appointment to the Board, induction training will be provided.
Internal control and financial reporting
The Directors acknowledge that they are responsible for establishing and maintaining the Company's system of internal control and reviewing its effectiveness. Internal control systems are designed to manage rather than eliminate the failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatements or loss. The Directors review all controls including operations, compliance and risk management. The key procedures which have been established to provide internal control are:
-- The Board monitors the actions of the Fund I GP, the Fund II GP and undertakings of their common Consultant at regular board meetings and is given frequent updates on developments arising from the operations and strategic direction of the underlying investee companies. The Board has also delegated administration and company secretarial services to the Administrator; however, it retains accountability for all functions it delegates.
-- The Board clearly defines the duties and responsibilities of the Company's agents and advisors and appointments are made by the Board after due and careful consideration. The Board monitors the ongoing performance of such agents and advisors and will continue to do so primarily through the MNR committee.
-- The Fund I GP, Fund II GP and Administrator together maintain a system of internal control on which they report to the Board. The Board has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Fund I GP, Fund II GP and Administrator, including the Administrator's own internal controls and procedures, provide sufficient assurance that a sound system of risk management and internal control, which safeguards shareholders' investment and the Company's assets, is maintained. An internal audit function specific to the Company is therefore considered unnecessary.
The systems of control referred to above are designed to ensure effectiveness and efficient operation, internal control and compliance with laws and regulations. In establishing the systems of internal control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control.
Relations with Shareholders
The Board welcomes Shareholders' views and places great importance on communication with its Shareholders. The Company's Annual General Meeting provides a forum for shareholders to meet and discuss issues with the Directors of the Company. The Chairman and other Directors are also available to meet with shareholders at other times, if required. In addition, the Company maintains a website which contains comprehensive information (www.bettercapital.gg), including company notifications, share information, financial reports, company newsletter, investment objectives and policy, investor contacts and information on the Board and corporate governance.
Major Shareholders
As at 31 May 2017, insofar as is known to the Company, the following persons were interested, directly or indirectly, in 5 per cent. or more of the 2009 Shares and 2012 Shares in issue:
2009 Cell
Shareholder Shareholding % Holding Nature
(Ordinary of Holding
Shares)
------------------------ ------------- ---------- ------------
Ruffer LLP 40,883,100 19.77% Indirect
Asset Value Investors 36,467,424 17.64% Indirect
Jon Moulton 24,423,809 11.81% Direct
Blackrock Investment
Management 21,575,788 10.43% Indirect
Weiss Asset Management 12,490,145 6.04% Indirect
Lind Invest 11,175,000 5.40% Indirect
2012 Cell
Shareholder Shareholding % Holding Nature
(Ordinary of Holding
Shares)
----------------------- ------------- ---------- ------------
John Caudwell 50,000,000 15.72% Direct
Blackrock Investment
Management 44,470,603 13.98% Indirect
Jon Moulton 42,115,582 13.24% Direct
BECAP12 Fund LP 28,548,277 8.98% Direct
Lynchwood Nominees 21,895,922 6.88% Indirect
Troy Asset Management 17,355,000 5.46% Indirect
Other than the 100 Core Shares issued to the Better Capital Purpose Trust as part of the Conversion, the Directors confirm that there are no securities in issue that carry special rights with regards to the control of the Company. The Core Shares have no voting rights for so long as Cell Shares are in issue.
The Company's issued share capital consists of 206,780,952 shares in the 2009 Cell and 318,052,242 shares in the 2012 Cell. Under the Company's articles of incorporation, at any general meeting of the Company:
-- each holder of 2009 Shares who is present in person shall have one vote and on a poll the vote shall be weighted where a vote cast in relation to each 2009 Share shall count as 1.1096 towards the total number of votes cast; and
-- each holder of 2012 Shares who is present in person shall have one vote and on a poll the vote shall be weighted where a vote cast in relation to each 2012 Share shall count as 0.9770 towards the total number of votes cast.
The figure which may be used by the Shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, Better Capital PCC Limited under the FCA's DTRs, is the aggregate of the number of votes capable of being cast on a poll. This is calculated as the sum of the 2009 Shares (206,780,952) multiplied by 1.1096 plus the 2012 Shares (318,052,242) multiplied by 0.9770.
Similarly, to calculate the numerator, Shareholders should multiply their holding of 2009 Shares by 1.1096 and multiply their holding of 2012 Shares by 0.9770. The sum of those calculations will result in the relevant number of voting rights for the numerator value.
Directors' authority to issue shares
2009 Cell
The Directors do not have the power to issue shares in the 2009 Cell.
2012 Cell
At the Annual General Meeting of the Company held on 5 September 2016, the Board renewed its authority to issue up to 5 per cent. of the aggregate 2012 Shares admitted to trading on the LSE, free of restrictions under the articles, which would otherwise require the Company first to offer the new 2012 Shares to the current holders of the 2012 Shares. In any rolling three-year period, the Company will not issue more than 7.5 per cent. of the 2012 Shares. This power shall (unless previously revoked, varied or renewed by the Company) expire on the conclusion of the AGM of the Company to be held on 5 September 2017.
Directors' authority to buy back shares
The current authority of the Company to make market purchases of up to a maximum of 14.99 per cent. of the issued 2009 Share Capital and/or 2012 Share Capital is renewable annually and was last authorised at the AGM held on 5 September 2016. At the AGM to take place on 5 September 2017 the Board will seek to renew such authority in respect of the 2009 Shares and the 2012 Shares. Any buy back of 2009 Shares and/or 2012 Shares will be made subject to Companies Law and within any guidelines established from time to time by the Board and the making and timing of any buy backs will be at the absolute discretion of the Board and not at the option of the Shareholders. Purchases of 2009 Shares and/or 2012 Shares will only be made through the market for cash at prices below the prevailing Net Asset Value of the 2009 Shares and/or 2012 Shares (as last calculated) where the Directors believe such purchases will enhance shareholder value. Such purchases will also only be made in accordance with the Listing Rules of the UK Listing Authority which provide that the price to be paid must not be more than 5 per cent. above the average of the middle market quotations for the 2009 Shares and/or 2012 Shares for the five business days before the shares are purchased unless previously advised to shareholders.
In accordance with the Company's Articles and Companies Law up to 10 per cent. of the Company's shares may be held as treasury shares. The Company has not held any shares in treasury at any time.
Articles of Incorporation
The Company's Articles may only be amended by special resolution of the shareholders and if the amendment affects the rights of the holders of shares of a particular cell, by a separate resolution of such holders only.
Change of control
There are no agreements that the Company considers significant and to which the Company is party that would take effect, alter or terminate upon change of control of the Company following a takeover bid.
Principal risks and uncertainties
The Company's assets consist of investments, through Funds I and II, in portfolios of businesses which have significant operating issues and may have associated financial distress, with a primary focus on businesses which have significant activities within the United Kingdom and Ireland. Its principal risks are therefore related to market conditions in general, but also the particular circumstance of the businesses in which it is invested. The Consultant to the GP Companies seeks to mitigate these risks through active asset management initiatives and carrying out due diligence work on potential targets before entering into any investments.
Each Director is aware of the risks inherent in the Company's business and understands the importance of identifying, evaluating and monitoring these risks. The Board has adopted procedures and controls that enable it to manage these risks within acceptable limits and to meet all of its legal and regulatory obligations.
The Board considers the process for identifying, evaluating and managing any significant risks faced by the Company and by each of the 2009 Cell and 2012 Cell on an on-going basis and these risks are reported and discussed at Board Meetings. It ensures that effective controls are in place to mitigate these risks and that a satisfactory compliance regime exists to ensure all applicable local and international laws and regulations are upheld. Particular attention has been given to the effectiveness of controls to monitor liquidity risk, asset values and counterparty exposure.
The financial risks of the Company, the 2009 Cell and 2012 Cell are discussed in Note 9 to the financial statements.
The Company's other risk factors are fully discussed in the Company's prospectuses, available on the Company's website (www.bettercapital.gg) and should be reviewed by Shareholders.
Going concern
After making enquiries and given the nature of the Company, Fund I and its investments and Fund II and its investments, the Directors are satisfied that it is appropriate to continue to adopt the going concern basis in preparing the financial statements, and, after due consideration, the Directors consider that the Company is able to continue for the foreseeable future.
Long-term Viability Statement
As required by the AIC Code, the Directors have assessed the viability of the Company over a period longer than 12 months. The Board has concluded that this period shall be the remaining life of the Funds plus the discretional two one year extensions. In the case of the 2009 Cell, the viability has been assessed up to 31 December 2019. In the case of the 2012 Cell this has been assessed up to 30 June 2023. Once the final Cell has closed, the Company will come to the end of its life.
The Directors have made a robust assessment of the Cells principal risks and associated mitigations that are outlined in Note 9 to the financial statements and the Company's prospectus along with a review of the nature of the Company's business, reserves of cash, the potential of its portfolio of investments to generate future income and capital proceeds, and the ability of the Directors to minimise the level of cash outflows, should this be necessary. Of the identified principal risks, the most relevant risks identified that could potentially impact the viability of both Cells, and therefore the Company, were considered to be:
-- the risk of a substantial litigation resulting in both the Cells and the Funds being unable to continue in existence;
-- the inability to recover investments at their carrying value; and
-- the key executive in the Fund GP Companies, principally Jon Moulton, being unable or unwilling to devote such time to the business affairs of the Fund GP Companies as is reasonably necessary to enable the proper performance of their general partner duties.
The Board considers the process of evaluation and mitigation of these principal risks on an on-going basis and have concluded that there is a reasonable expectation that the Company and, in turn, the Cells will be able to continue in operation and meet their future liabilities as they fall due over the periods identified.
By order of the Board
Richard Crowder
Chairman
29 June 2017
Report of the Audit Committee
The Audit Committee has been in operation throughout the year. The Audit Committee, chaired by Richard Battey, operates within clearly defined terms of reference (which are available from the Company's website, www.bettercapital.gg), which include all matters indicated by DTR 7.1 and the AIC Code. Its other members are Richard Crowder and Philip Bowman. Only independent directors can serve on the Audit Committee and members of the Audit Committee must have no links with the Company's external auditor and must be independent of the Consultant, the Fund I GP and the Fund II GP. The identity of the chairman of the Audit Committee is reviewed on an annual basis and the membership of the Audit Committee and its terms of reference are kept under review. The Audit Committee meets no less than twice a year in Guernsey, and meets the external auditor at least once a year in Guernsey. The Audit Committee met three times in the year to 31 March 2017.
The Board has taken note of the requirement that at least one member of the Committee should have recent and relevant financial experience and is satisfied that the Committee is properly constituted in that respect, with all members being highly experienced and, in particular two members having backgrounds as chartered accountants.
The duties of the Audit Committee in discharging its responsibilities include reviewing the Interim Report, Annual Report, the valuation of the Company's investment portfolio, the system of internal controls, and the terms of appointment of the external auditor together with their remuneration. It is also the formal forum through which the external auditor reports to the Board of Directors and shall meet not less than twice a year and at such other times as the Audit Committee chairman shall require. The objectivity of the external auditor is reviewed by the Audit Committee which also reviews the terms under which the external auditor is appointed to perform non-audit services and the fees paid to the external auditor or their affiliated firms overseas.
The Audit Committee also reviews, considers and, if thought appropriate, recommends for the purposes of the Company's financial statements, 2009 Cell's financial statements and 2012 Cell's financial statements, valuations prepared by the Fund I GP and Fund II GP in respect of the investments of Fund I and Fund II. It also receives and reviews reports from the Fund I GP and the Fund II GP.
The main duties of the Audit Committee are:
-- giving full consideration and recommending to the Board for approval of the contents of the Interim Report and Annual Report and reviewing the external auditor's report thereon;
-- reviewing the scope, results, cost effectiveness, independence and objectivity of the external auditor;
-- reviewing the draft valuation of the Company's investments in the Funds prepared by the Fund GPs, and making a recommendation to the Board on the valuation of the Company's investments;
-- reviewing and recommending to the Board for approval of the audit, audit related and non-audit fees payable to the external auditor and the terms of their engagement;
-- reviewing and approving the external auditor's plan for the following financial year; -- reviewing the appropriateness of the Company's accounting policies; -- ensuring the standards and adequacy of the internal control systems;
-- reviewing and considering the UK Code, the AIC Code and the FRC Guidance on Audit Committees; and
-- reviewing the risks facing the Company and monitoring the risk matrix.
The Audit Committee is required to report its findings to the Board, identifying any matters on which it considers that action or improvement is needed, and make recommendations on the steps to be taken.
The external auditor is invited to attend the Audit Committee meetings at which the Interim Reports and Annual Reports are considered and at which they have the opportunity to meet with the Committee without representatives of the Consultant being present at least once a year.
Financial reporting
The primary role of the Audit Committee in relation to the financial reporting is to review with the Administrator, Consultant and the external auditor the appropriateness of the Interim Reports and Annual Reports, concentrating on, amongst other matters:
-- the quality and acceptability of accounting policies and practices;
-- the clarity of the disclosures and compliance with financial reporting standards and relevant financial and governance reporting requirements;
-- material areas in which significant judgements have been applied or there has been discussion with both the Consultant and the external auditor;
-- whether the Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and
-- any correspondence from regulators in relation to the Company's financial reporting.
To aid its review, the Audit Committee considers reports from the Consultant and GPs of the underlying Funds and also reports from the external auditor on the outcomes of their half-year review and annual audit. The Audit Committee supports BDO Limited in displaying the necessary professional scepticism their role requires.
Meetings
The Committee has met on three occasions during the year. The matters discussed at those meetings were:
-- consideration and agreement of the terms of reference of the Audit Committee for approval by the Board;
-- review of the accounting policies and format of the financial statements;
-- the draft valuation of the Company's investments in the Funds prepared by the Fund GPs, and the recommendation to the Board on the valuation of the Company's investments;
-- review and approval of the audit plan of the external auditor; -- discussion and approval of the fee for the external audit; -- detailed review of the Annual Report and recommendation for approval by the Board; -- detailed review of the Interim Report and recommendation for approval by the Board; -- assessment of the effectiveness of the external audit process as described below; and -- review of the Company's key risks and internal controls.
Primary area of judgement
The Audit Committee determined that the key risk of misstatement of the Company's and Cell's financial statements related to the valuation of investments at fair value through profit or loss, in the context of the judgements necessary to evaluate current fair values.
As outlined in Note 4 to the financial statements of the Company, the total carrying value of financial assets of the Company at fair value at 31 March 2017 was GBP430.3 million (2016: GBP485.0 million). Market quotations are not available for these financial assets such that the value of the Company's investments in the Funds is based on the value of the Company's limited partner capital and loan accounts within each Fund, which are themselves based on the value of the relevant underlying investee companies as determined by the General Partner of each Fund.
The valuation process and methodology were discussed with the Fund GPs, with input from the Consultant and with the external auditor at a board meeting held on 26 June 2017. The Consultant carries out a valuation semi-annually for the GP Companies. In turn the Fund GPs provide valuations of each Cell's investment in the relevant Fund.
The Audit Committee has reviewed the Consultant's work. The Consultant confirmed to the Audit Committee that the valuation methodology had been applied consistently during the year. After reviewing the work of the external auditor the Audit Committee concluded that they had not identified any errors or inconsistencies that were material in the context of the financial statements of the Company and Cells as a whole.
The external auditor explained the results of their review of the valuations, including their challenge of management's underlying projections, the economic assumptions and multiples used. On the basis of their audit work, there were no adjustments proposed that were material in the context of the financial statements of the Company and Cells as a whole.
Internal audit
The Audit Committee shall consider at least once a year whether or not there is a need for an internal audit function. Currently, the Audit Committee does not consider there to be a need for an internal audit function, given that there are no employees in the Company and all outsourced functions are with parties who have their own internal controls and procedures.
Appointment of the external auditor
BDO Limited has been the Company's external auditor since the Company's inception. The lead audit director, Richard Searle, has not changed during the year. Mr Searle will be replaced in the year ended 31 March 2021 in accordance with normal audit director rotation arrangements.
The Audit Committee has noted the revisions to the UK Code introduced by the FRC in September 2012 and the AIC Code issued in February 2015, in particular, the recommendation in each, to put the external audit out to tender at least every ten years.
The objectivity of the external auditor is reviewed by the Audit Committee which also reviews the terms under which the external auditor may be appointed to perform non-audit services. The Audit Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the external auditor, with particular regard to any non-audit work that the external auditor may undertake and the level of fees associated to this non-audit work. In order to safeguard external auditor independence and objectivity, the Audit Committee ensures that any other advisory and/or consulting services provided by the external auditor does not conflict with its statutory audit responsibilities. Advisory and/or consulting services will generally only cover reviews of interim financial statements, tax compliance and capital raising work. Any non-audit services conducted by the external auditor outside of these areas require the consent of the Audit Committee before being initiated.
The external auditor may not undertake any work for the Company in respect of the following matters - preparation of the financial statements, preparation of valuations used in financial statements, provision of investment advice, taking management decisions or advocacy work in adversarial situations. The Audit Committee considers BDO Limited to be independent of the Company.
To fulfil its responsibility regarding the independence of the external auditor, the Audit Committee considered:
- changes in audit personnel in the audit plan for the current year;
- a report from the external auditor describing its arrangements to identify, report and manage any conflicts of interest; and
- the extent of non-audit services provided by the external auditor.
To assess the effectiveness of the external auditor, the committee reviewed:
- the external auditor's fulfilment of the agreed audit plan and variations from it; - reports highlighting the major issues that arose during the course of the audit; and
- feedback from the Fund I GP, Fund II GP and the Consultant evaluating the performance of the audit team.
The Audit Committee is satisfied with BDO Limited's effectiveness and independence as external auditor having considered the degree of diligence and professional scepticism demonstrated by them. As such, the Audit Committee has not considered it necessary this year to conduct a tender process for the appointment of its external auditor. Having carried out the review described above and having satisfied itself that the external auditor remains independent and effective, the Audit Committee has recommended to the Board that BDO Limited be reappointed as external auditor for the year ending 31 March 2018.
On behalf of the Audit Committee,
Richard Battey
Chairman of the Audit Committee
29 June 2017
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
BETTER CAPITAL PCC LIMITED
Our opinion on the financial statements is unmodified
In our opinion the financial statements:
-- give a true and fair view of the state of the company's affairs as at 31 March 2017 and of its loss for the year then ended;
-- have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and
-- have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.
This opinion is to be read in the context of what we say below.
__________________________________________________________________________________________
What we have audited
The financial statements, included within the Annual Report, comprise:
-- the Statement of Financial Position; -- the Statement of Comprehensive Income; -- the Statement of Changes in Equity; -- the Statement of Cash Flows; and
-- the related notes 1 to 11, which include a summary of the significant accounting policies and other explanatory information.
The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and IFRSs as adopted by the European Union.
__________________________________________________________________________________________
Respective responsibilities of the directors and auditor
As explained more fully in the Directors' Responsibilities Statement within the Directors' Report, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council's Ethical Standards for Auditors.
This report is made solely to the company's members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work is 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.
__________________________________________________________________________________________
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
We tailored the scope of our audit taking into account the nature of the Company's investments, involvement of the Consultant and the Company Administrator, the accounting and reporting environment and the industry in which the company operates.
This assessment took into account the likelihood, nature and potential magnitude of any misstatement. As part of this risk assessment we considered the Company's interaction with the Consultant and the Company Administrator. We assessed the control environment in place at the Consultant and the Company Administrator to the extent that it was relevant to our audit. Following this assessment, we applied professional judgement to determine the extent of testing required over each balance in the financial statements.
As with all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud.
__________________________________________________________________________________
Our audit approach - Overview
What we have audited
* The Company is a limited liability Guernsey
registered closed ended investment company
established as a Protected Cell Company. The Company
consists of two cells that each invest in a Limited
Partnership. Each Limited Partnership holds a
portfolio of distressed businesses, which are managed
by the General Partner, who is supported by the
Consultant on behalf of the respective General
Partner, and cash on account for working capital and
further investment.
* The financial statements, which remain the
responsibility of the Directors, are prepared on
their behalf by the Company Administrator, Heritage
International Fund Managers Limited.
________________________________________________________
Our Principal
Areas of Audit * Valuation of investments in underlying Limited
Focus Partnerships.
Our Materiality ________________________________________________________
* GBP6.3 million - materiality for the financial
statements as a whole representing 1.5% of total
assets excluding un-invested cash held in Fund II.
__________________________________________________________________________________
Our application of materiality
The quantitative thresholds that we applied for materiality helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements.
We consider materiality to be the level by which misstatement individually or in aggregate, including omissions, could influence the economic decisions of the relevant users. Misstatements may be considered material for reasons other than size as we also take account of the nature of identified misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial statements.
Based on our professional judgment, we determined materiality for the financial statements as a whole to be GBP6,300,000 which is based on a level of 1.5% of total assets excluding un-invested cash held in Fund II.
International Standards on Auditing (UK & Ireland) also allow the auditor to set a lower materiality for particular classes of transaction, balances or disclosures for which misstatements of lesser amounts than materiality for the financial statements as a whole could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. In this context, we set a lower level of materiality to apply to income distributions and expenses. We determined materiality for this area to be GBP63,000.
We agreed with the Audit Committee that we would report all audit differences in excess of GBP63,000, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds.
__________________________________________________________________________________
Our assessment of risks of material misstatement
In arriving at our audit opinion above on the financial statements, the risk of material misstatement that had the greatest effect on our audit was the valuation of the underlying investments in Limited Partnerships.
We have set out how we tailored our audit to address this specific area in order to provide an opinion on the financial statements as a whole, and any comments we make on the results of our procedures should be read in this context. This is not a complete list of all risks identified by our audit.
The values of the investments in the Limited Partnerships are based on the values of the Limited Partner capital and loan accounts within each Limited Partnership as reported by the respective General Partner. These values are underpinned by the valuations of the underlying investments held by each Limited Partnership.
This risk is further discussed above in the Audit Committee report.
__________________________________________________________________________________
Risk area Reason Audit response
------------- ------------------------------------ -------------------------------------------------------------
Underlying As detailed in Our procedures included:
Investments the summary of * enquiry of the Consultant to assess and document the
accounting policies design and implementation of the investment valuation
in Note 2 and processes;
the audit committee
report, the underlying
investee companies, * challenging the Consultant on key judgements
which are unquoted affecting investee company valuations in the context
entities, are of observed industry best practice and the provisions
measured at fair of the International Private Equity and Venture
value, this being Capital Valuation Guidelines;
established in
accordance with
the International * In particular, we focused on the appropriateness of
Private Equity the valuation basis selected for each investment as
and Venture Capital well as the underlying assumptions, such as discount
Valuation Guidelines factors, and the choice of benchmark for earnings
by using the following multiples;
measurements of
value:
* revenue multiples; * We compared key underlying financial data inputs to
external sources, investee company audited accounts
and management information, as applicable. We
* earnings multiples; and challenged the assumptions around sustainability of
earnings based on the plans of the investee companies
and whether these are achievable;
* net assets.
* Our work included consideration of events which
There is a significant occurred subsequent to the year end until the date of
risk over the this audit report and attending the year end board
valuations of meeting where we assessed the effectiveness of the
these investments Board's challenge and approval of unlisted investment
due to the inherent valuations.
subjectivity and
estimation involved
in the valuation
of such assets.
Accordingly this
is the key judgemental
area on which
our audit focussed.
------------- ------------------------------------ -------------------------------------------------------------
ISAs (UK and Ireland) Reporting
Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:
-- materially inconsistent with the information in the audited financial statements; or
-- apparently materially incorrect based on, or materially inconsistent with, our knowledge of the company acquired during the course of performing our audit; or
-- is otherwise misleading.
In particular we are required to report to you if:-
-- we have identified any inconsistencies between our knowledge acquired during the audit and the Directors' statement above that they each consider the annual report taken as a whole to be fair, balanced and understandable; or
-- the annual report does not appropriately disclose those matters that were communicated to the Audit Committee which we consider should have been disclosed; or
-- we have anything material to add or to draw attention to in relation to:
-- the Directors' confirmation above in the annual report that they have carried out a robust assessment of the principal risks facing the Company including those that would threaten its business model, future performance, solvency or liquidity;
-- the disclosures above in the annual report that describe those risks and explain how they are being managed or mitigated;
-- the Directors' statement above in the financial statements about whether they have considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the Company's ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and
-- the Directors' explanation above in the annual report as to how they have assessed the prospects of the Company, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have no exceptions to report arising from this responsibility.
__________________________________________________________________________________________
Corporate Governance
Under the Listing Rules we are required to review the Directors' statements, set out above, in relation to going concern and set out above in relation to longer-term viability and the part of the corporate governance statement relating to the company's compliance with the provisions of the UK Corporate Governance Code specified review by the auditor in accordance with Listing Rule 9.8.10 R(2). Our review was substantially less in scope than an audit and only consisted of making enquiries and considering the Directors' process supporting their statements; checking that the statements are in alignment with the relevant provisions of the Code; and considering whether the statements are consistent with the knowledge acquired by us in the course of performing our audit.
We have nothing to report having performed our review.
Companies (Guernsey) Law, 2008 Reporting
The Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:
-- proper accounting records have not been kept by the company; or -- the financial statements are not in agreement with the accounting records; or
-- we have failed to obtain all the information and explanations, which, to the best of our knowledge and belief, are necessary for the purposes of our audit.
We have no exceptions to report arising from this responsibility.
Richard Michael Searle FCA
For and on behalf of BDO Limited
Chartered Accountants and Recognised Auditor
Place du Pré
Rue du Pré
St Peter Port
Guernsey
29 June 2017
Statement of Financial Position
As at 31 March 2017
2017 2016
GBP'000 GBP'000
Notes
ASSETS:
Non-current assets
Investment in limited
partnerships 4 430,340 484,961
Total non-current
assets 430,340 484,961
------------ ----------------------
Current assets
Trade and other
receivables 5 1,611 1,633
Cash and cash equivalents 813 2,593
------------
Total current assets 2,424 4,226
------------ ----------------------
TOTAL ASSETS 432,764 489,187
------------ ----------------------
LIABILITIES:
Current liabilities
Trade and other
payables (207) (223)
Total current liabilities (207) (223)
------------ ----------------------
TOTAL LIABILITIES (207) (223)
------------ ----------------------
NET ASSETS 432,557 488,964
============ ======================
EQUITY
Share capital 7 435,436 485,234
Retained earnings (2,879) 3,730
TOTAL EQUITY 432,557 488,964
============ ======================
Number of 2009
Shares in issue
at year end 7 206,780,952 206,780,952
============ ======================
Number of 2012
Shares in issue
at year end 7 318,052,242 346,600,520
============ ======================
NAV per 2009 Share
(pence) 10 125.86 116.73
============ ======================
Adjusted NAV per
2009 Share (pence) 10 158.16 146.53
============ ======================
NAV per 2012 Share
(pence) 10 54.17 71.43
============ ======================
Adjusted NAV per
2012 Share (pence) 10 66.78 73.18
============ ======================
The audited financial statements of the Company were approved and authorised for issue by the Board of Directors on 29 June 2017 and signed on its behalf by:
Richard Crowder Jon Moulton Chairman Director
The notes below form an integral part of the Company's financial statements.
Statement of Comprehensive Income
For the year ended 31 March 2017
2017 2016
GBP'000 GBP'000
Notes
Income
Change in fair value
of investments in limited
partnerships 4 (5,550) (77,251)
Interest income 4 7
Total expense (5,546) (77,244)
-------- ---------
Expenses
Administration fees 263 273
Directors' fees and expenses 8 241 211
Legal and professional
fees 301 147
Other fees and expenses 98 74
Audit fees 73 71
Insurance premiums 26 29
Registrar fees 61 44
Total expenses 1,063 849
-------- ---------
Loss and total comprehensive
expense for the financial
year (6,609) (78,093)
======== =========
Basic and diluted earnings
per 2009 Share (pence) 10 11.62 6.87
======== =========
Basic and diluted earnings
per 2012 Share (pence) 10 (9.05) (26.63)
======== =========
The notes below form an integral part of the Company's financial statements.
Statement of Changes in Equity
For the year ended 31 March 2017
Share Retained Total
capital earnings equity
Notes GBP'000 GBP'000 GBP'000
As at 1 April 2016 485,234 3,730 488,964
Loss and total
comprehensive expense
for the financial
year - (6,609) (6,609)
Total comprehensive
expense for the
year - (6,609) (6,609)
----------- --------- -----------
Transactions with
owners
Capital distribution 7 (39,202) - (39,202)
Share buyback and
cancellation (10,596) - (10,596)
Total transactions
with owners (49,798) - (49,798)
As at 31 March
2017 435,436 (2,879) 432,557
=========== ========= ===========
Share Retained Total
capital earnings equity
GBP'000 GBP'000 GBP'000
As at 1 April 2015 520,387 81,823 602,210
Loss and total
comprehensive expense
for the financial
year - (78,093) (78,093)
Total comprehensive
expense for the
year - (78,093) (78,093)
----------- --------- -----------
Transactions with
owners
Capital distribution 7 (35,153) - (35,153)
Total transactions
with owners (35,153) - (35,153)
As at 31 March
2016 485,234 3,730 488,964
=========== ========= ===========
Any surplus/deficit arising from the profit/loss for a period is taken to retained earnings which may be utilised for payment of dividends or distributions.
The notes below form an integral part of the Company's financial statements.
Statement of Cash Flows
For the year ended 31 March 2017
2017 2016
GBP'000 GBP'000
Cash flows from operating
activities
Loss for the financial
year (6,609) (78,093)
Adjustments for:
Change in fair value
of investments in
limited partnerships 5,550 77,251
Movement in debtors
and prepayments 23 2,229
Movement in creditors
and accruals (16) (33)
Repayment of loan investment
in limited partnerships 38,474 35,600
Net cash generated
from operating activities 37,422 36,954
--------- ---------
Cash flow from financing
activities
Capital distribution (39,202) (35,153)
Net cash used in financing
activities (39,202) (35,153)
--------- ---------
Net movement in cash
and cash equivalents
during the year (1,780) 1,801
Cash and cash equivalents
at the beginning of
the year 2,593 792
Cash and cash equivalents
at the end of the
year 813 2,593
========= =========
The notes below form an integral part of the Company's financial statements.
Notes to the Audited Financial Statements
For the year ended 31 March 2017
1. General information
Better Capital PCC Limited is a Closed-ended Investment company, incorporated in, and controlled from Guernsey as a Protected Cell Company. It has an unlimited life and is registered with the GFSC as a Registered Closed-ended Collective Investment Scheme pursuant to the POI Law.
The Company maintains a separate cell account for each class of shares, to which the capital proceeds of issue and the income arising from the investment of these proceeds in the respective Fund are credited, and against which the expenses allocated are charged. In any redemption, shareholders are only entitled to their proportion of the net assets held in the cell relating to the particular shares.
The Company has two cells: 2009 Cell and 2012 Cell. The financial results for each cell can be found below.
2. Accounting policies
Basis of preparation
The financial statements for the year ended 31 March 2017 have been prepared in accordance with EU Adopted IFRS and with the provisions of the Companies Law.
The principal accounting policies adopted are set out below.
Standards, interpretations and amendments to published standards adopted in the period
There were no new standards, interpretations or amendments applied during the year ended 31 March 2017.
New and revised standards
At the date of approval of these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were issued but not yet effective (and in some cases had not yet been adopted by the EU) and are relevant to the financial statements of the Company and Cells:
IFRS 9: Financial Instruments - IFRS 9 replaces IAS 39. The Company will adopt IFRS 9 no earlier than the accounting period beginning on or after 1 January 2018.
IFRS 15: Revenue from contracts with customers effective no earlier than 1 January 2018.
The Directors anticipate that the adoption of these standards and interpretations in the period of initial application will not have a material impact on the financial statements. IFRS 9 is not anticipated to have an impact as all investments would continue to be carried at fair value through profit or loss.
The Company has not adopted early any standards, amendments or interpretations to existing standards that have been published and will be mandatory for the Company's accounting periods beginning after 1 April 2017 or later periods.
Foreign currencies
The functional currency of the Company is Pound Sterling reflecting the primary economic environment in which the Company operates. The Company does not have any transactions other than Pounds Sterling.
Financial instruments
Financial assets and financial liabilities are recognised in the Company's statement of financial position when the Company becomes a party to the contractual provisions of the instrument.
Financial assets
The classification of financial assets at initial recognition depends on the purpose for which the financial asset was acquired and its characteristics.
The Company's financial assets comprise of only loans and receivables and investments held at fair value through profit or loss.
a) Loans and receivables
These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They principally comprise trade and other receivables and cash and cash equivalents. They are initially recognised at fair value plus transaction costs that are directly attributable to the acquisition, and subsequently carried at amortised cost using the effective interest rate method, less provisions for impairment. Cash and cash equivalents comprise cash on hand only.
b) Investments at fair value through profit or loss i. Classification
The Company's investments in Fund I and Fund II are accounted for as financial assets rather than consolidated as the Company has no substantive removal rights over the General Partner and the wide ranging discretion in respect of the investments made by the Funds. The investments in Fund I and Fund II were designated as financial assets at fair value through profit or loss on initial recognition as this is the way in which the Company manages and evaluates the performance of those assets. As described above the Company has invested its funds into Funds I and II with the principal objective of benefiting from capital gains arising from the Funds' activities in investing in and turning round distressed businesses.
ii. Recognition
Purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment.
iii. Measurement
The investments in Fund I and Fund II were initially recognised at cost, being the fair value of consideration given.
Investments treated as "investments at fair value through profit or loss" are subsequently measured at fair value. Fair value is defined as the amount for which an asset could be exchanged between knowledgeable willing parties in an arm's length transaction.
iv. Fair value estimation
The IFRS 13 and IPEV valuation techniques used are detailed in Note 6 of the Company's and the Cells' financial statements.
Financial liabilities
The classification of financial liabilities at initial recognition depends on the purpose for which the financial liability was issued and its characteristics.
All financial liabilities are initially recognised at fair value net of transaction costs incurred. All purchases of financial liabilities are recorded on the date on which the Company becomes party to the contractual requirements of the financial liability.
The Company's financial liabilities consist of only financial liabilities measured at amortised cost.
Capital
Financial instruments issued by the Company are treated as equity if the holder has only a residual interest in the assets of the Company after the deduction of all liabilities. The Company's shares are classified as equity instruments.
Interest Income
Interest income is recognised on a time apportioned basis using the effective interest method.
Income distributions
Income distributions are distributions from the Funds which have been allocated as income based on the discretionary allocation powers of the General Partner of each fund as set out in each fund's limited partnership agreement and are recognised when the Company becomes entitled to those receipts.
Other expenses
Other expenses are accounted for on an accruals basis.
Going concern
After making appropriate enquiries, the Directors have a reasonable expectation that the Company and in turn Fund I and Fund II, have adequate resources to continue in operational existence for the foreseeable future and do not consider there to be any threat to the going concern status of the Company. For this reason, they continue to adopt the going concern basis in preparing these financial statements.
Critical accounting judgment and estimation uncertainty
Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.
The critical accounting judgments and estimation uncertainties for the 2009 Cell and 2012 Cell are stated below.
Taxation
The Company and Cells are exempt from taxation in Guernsey.
3. Segmental reporting
For management purposes, the Company is organised into two main operating segments, being the 2009 Cell and the 2012 Cell. Full details of the 2009 Cell's and 2012 Cell's results are shown below.
4. Investment in limited partnerships
Total Investment:
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1
April 2016 483,805 37 483,842
Repayment of loan investment
in limited partnerships (49,071) - (49,071)
Carried forward 434,734 37 434,771
--------- -------- ---------
Fair value adjustment
through profit or loss
Brought forward 1,119 - 1,119
Unrealised fair value
movement during the year (5,550) - (5,550)
Carried forward (4,431) - (4,431)
--------- -------- ---------
Fair value as at 31 March
2017 430,303 37 430,340
========= ======== =========
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1
April 2015 519,405 37 519,442
Repayment in loan investment
in limited partnerships (35,600) - (35,600)
Carried forward 483,805 37 483,842
--------- -------- ---------
Fair value adjustment
through profit or loss
Brought forward 78,370 - 78,370
Unrealised fair value
movement during the year (77,251) - (77,251)
Carried forward 1,119 - 1,119
--------- -------- ---------
Fair value as at 31 March
2016 484,924 37 484,961
========= ======== =========
The movement in fair value is derived from the fair value movements in the underlying investments held by Fund I and Fund II, net of income and expenses of Fund I and Fund II and their related special purpose vehicles.
The outstanding loans do not incur interest. The loans (net of provisions) are expected to be repaid by way of distributions from the Funds. The Company is not entitled to demand repayment of the outstanding loans, however, the General Partner may, upon request by the Company, repay to the Company any amount of the outstanding loan. During the year GBP5.5 million was repaid to the Company by Fund I (2016: GBP35.6 million) and GBP43.6 million by Fund II (2016: GBPnil).
Income distributions receivable from the Funds in the year amounted to GBPnil (2016: GBPnil). At 31 March 2017 an aggregate GBP1.6 million (2016: GBP1.6 million) remained outstanding.
In the financial statements of the Company, the fair value of the investments in limited partnerships is adjusted to reflect the fair value of the Cells' attributable valuation of net assets within Fund I and Fund II, as seen in more detail in Note 6 of the Company's and Cells' financial statements.
5. Trade and other receivables
Full details of the 2009 Cell's and 2012 Cell's trade and other receivables are shown below.
6. Fair value
The level in the fair value hierarchy within which the financial assets or financial liabilities are categorised is determined on the basis of the lowest level input that is significant to the fair value measurement.
Financial assets and financial liabilities are classified in their entirety into only one of the three levels.
The fair value hierarchy has the following levels:
- Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2 - inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3 - inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
The only financial instruments carried at fair value are the investments which are fair valued at each reporting date.
The Company's investments in Fund I and Fund II have been classified within Level 3 as they have unobservable inputs and are not traded. Amounts classified under Level 3 for the year are GBP260.1 million for Fund I (2016: GBP241.0 million) and GBP170.2 million for Fund II (2016: GBP244.0 million).
Transfers during the year
There have been no transfers between levels.
Valuation techniques
The value of the Cells' investments in the Funds is based on the value of each Cell's limited partner capital and loan accounts within each Fund. This is based on the components within the Funds, principally the value of the underlying investee companies. Any fluctuation in the value of the underlying investee companies will directly impact on the value of the Company's investment in the Funds.
When valuing the underlying investee companies, the GPs of each Fund reviews information provided by the underlying investee companies and other business partners and applies IPEV methodologies, to estimate a fair value that is in adherence with the requirements of IFRS 13 as at the date of the statement of financial position.
Initially acquisitions are valued at price of recent investment. Once maintainable earnings can be identified or reasonably estimated the preferred method of valuation is the earnings multiple valuation technique, where a multiple that is an appropriate and reasonable indicator of value (given the size, risk profile and earnings growth prospects of the underlying company) is applied to the maintainable earnings of the company. Occasionally other methods, as deemed suitable by the GPs, may be used, such as revenue multiple, net assets, or break-up value. The techniques used in determining the fair value of the Cells' investments are selected on an investment by investment basis so as to maximise the use of market based observable inputs.
The Board reviews and considers the fair value arrived at by the GPs before incorporating into the fair value of the investment adopted by the Company. The variety of valuation bases adopted, quality of management information provided by the underlying investee companies and the lack of liquid markets for the investments mean that there are inherent difficulties in determining the fair value of these investments that cannot be eliminated. Therefore the amounts realised on the disposal of investments may differ from the fair values reflected in these financial statements and the differences may be significant.
The significant unobservable inputs in the 2009 Cell and in the 2012 Cell are shown below.
7. Share capital
Core Shares
Authorised: The Company is authorised to issue an unlimited amount of ordinary shares at GBP1 par value.
Issued and fully paid:
Year ended 31 March 2017
GBP
Core shares as at 1 April 2016
and as at 31 March 2017 100
====
Year ended 31 March 2016
GBP
Core shares as at 1 April 2015
and as at 31 March 2016 100
====
Cell Shares
Authorised: The Cells are each authorised to issue an unlimited amount of ordinary shares at GBP1 par value.
Year ended 31 March 2017
2009 Cell 2012 Cell Total
Issued and fully
paid:
Unlimited shares No. No. No.
of GBP1 par value
Shares as at 1 April
2016 206,780,952 346,600,520 553,381,472
Movements for the
year - (28,548,278) (28,548,278)
------------ ------------- -------------
Shares as at 31
March 2017 206,780,952 318,052,242 524,833,194
============ ============= =============
Share capital GBP'000 GBP'000 GBP'000
Share capital as
at 1 April 2016 143,386 341,848 485,234
Movements for the
year:
Capital distribution (5,170) (34,032) (39,202)
Buyback and cancellation - (10,596) (10,596)
------------ ------------- -------------
Share capital as
at 31 March 2017 138,216 297,220 435,436
============ ============= =============
Year ended 31 March 2016
2009 Cell 2012 Cell Total
Issued and fully
paid:
Unlimited shares
of GBP1 par value No. No. No.
Shares as at 1 April
2015 206,780,952 346,600,520 553,381,472
Shares as at 31
March 2016 206,780,952 346,600,520 553,381,472
============ ============ ============
Share capital GBP'000 GBP'000 GBP'000
Share capital as
at 1 April 2015 178,539 341,848 520,387
Movement for the
year:
Capital distribution (35,153) - (35,153)
------------ ------------ ------------
Share capital as
at 31 March 2016 143,386 341,848 485,234
============ ============ ============
During the year the 2009 Cell made its fourth capital distribution of GBP5.2 million (2016: GBP35.2 million) to shareholders of the 2009 Cell as at the ex-date of 30 June 2016. The distribution consisted of a payment of 2.5 pence per ordinary share payable in cash from the 2009 Cell's share capital account and has been treated as a reduction of share capital.
The four capital distributions (reductions of share capital) at 31 March 2017 for the 2009 Cell total GBP66.8 million, being 31.8 per cent. of funds raised.
During the year the 2012 Cell made its second capital distribution of GBP34.0 million (2016: GBPnil) to shareholders of the 2012 Cell as at the ex-date of 30 December 2016. The distribution consisted of a payment of 10.7 pence per ordinary share payable in cash from the 2012 Cell's share capital account and has been treated as a reduction of share capital.
The two capital distributions (reduction of share capital) at 31 March 2017 for the 2012 Cell total GBP40.1 million, being 11.3 per cent. of funds raised.
During the year the Company entered into a buyback agreement with Fund II to acquire 28,548,278 2012 Shares, representing 50 per cent. of Fund II's holding at the purchase price of 37.12 pence per share. Following the share buyback, the Company immediately cancelled all the 2012 Shares it acquired from Fund II, reducing the number of 2012 Shares in issue from 346,600,520 to 318,052,242.
The Core Shares have no voting rights for so long as Cell Shares are in issue.
As at 31 March 2017 the Company's issued share capital consists of 206,780,952 shares in the 2009 Cell and 318,052,242 shares in the 2012 Cell. Under the Company's articles of incorporation, at any general meeting of the Company:
-- each holder of 2009 Shares who is present in person shall have one vote and on a poll the vote shall be weighted where a vote cast in relation to each 2009 Share shall count as 1.1096 towards the total number of votes cast; and
-- each holder of 2012 Shares who is present in person shall have one vote and on a poll the vote shall be weighted where a vote cast in relation to each 2012 Share shall count as 0.9770 towards the total number of votes cast.
The figure which may be used by the Shareholders as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, Better Capital PCC Limited under the FCA's Disclosure and Transparency Rules, is the aggregate of the number of votes capable of being cast on a poll, namely 540,181,185. This is calculated as the sum of the 2009 Shares (206,780,952) multiplied by 1.1096 plus the 2012 Shares (318,052,242) multiplied by 0.9770.
Similarly, to calculate the numerator, Shareholders should multiply their holding of 2009 Shares by 1.1096 and multiply their holding of 2012 Shares by 0.9770. The sum of those calculations will result in the relevant number of voting rights for the numerator.
8. Related party transactions
The Company has four non-executive Directors. Mr Jon Moulton is a director and the sole shareholder of BECAP GP Limited, the general partner of the Fund I GP and BECAP12 GP Limited, the general partner of the Fund II GP. At the year end, Mr Moulton, as a limited partner of Better Capital SLP LP, is due to participate in the accrued carried interest from Fund I. Transactions with the Funds are detailed in Note 4.
Annual remuneration terms for each Director are as follows: the Chairman receives GBP70,000 (2016: GBP60,000), the chairman of the audit committee receives GBP62,500 (2016: GBP52,500), the chairman of MNR committee receives GBP60,000 (2016: GBP50,000) and the other non-executive director receives GBP45,000 (2016: GBP45,000).
Directors' fees and expenses for the year to 31 March 2017 amounted to GBP241,000 (2016: GBP211,000), of which GBP59,000 (2016: GBP52,000) was outstanding at the year end.
The Directors received a distribution of capital from the 2009 Cell of 2.5 pence per ordinary share and from the 2012 Cell of 10.7 pence per ordinary share (2016: 2009 Cell - 17.0 pence, 2012 Cell - nil pence). The Directors' shareholdings can be seen above in the Report of the Directors.
9. Financial risk management
Financial risk management objectives
The Company's investing activities, through Fund I and Fund II and their special purpose vehicles, intentionally expose it to various types of risk that are associated with the investee companies in which it invests in order to generate returns in accordance with its investment policy and objectives. The financial risks to which the Company is exposed are market risk, liquidity risk and credit risk. The Board of Directors has overall responsibility for the determination of the Company's risk management and sets policy to manage that risk at an acceptable level to achieve those objectives. The policy and process for measuring and mitigating each of the main risks are described below.
The Corporate Broker and the Administrator provide information to the Company which allows it to monitor and manage financial risks relating to its operations through internal risk reports which analyse exposures by degree and magnitude of risks. The Corporate Broker and the Administrator report to the Board on a quarterly basis.
Due to the nature of the loan investments, being non recourse, the loans have the same characteristics as the capital invested into the Funds. As a result for the purposes of the following disclosure both the capital and loan investments have been considered as one combined investment which is fair valued. Any default/credit risk is taken into account when fair valuing the investments.
Categories of financial instruments
2017 2016
GBP'000 GBP'000
Financial assets
Investments at fair value through
profit or loss:
Investments in limited partnerships 430,340 484,961
Loans and receivables:
Debtors (excluding prepayments) 1,600 1,623
Cash and cash equivalents 813 2,593
Financial liabilities
Financial liabilities measured
at amortised cost:
Creditors and accruals 207 223
The Directors consider that the carrying values of cash and cash equivalents, creditors and accruals and debtors approximate their fair value.
Capital risk management
The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an effective capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Company may: return capital to shareholders, adjust the amount of distributions paid to shareholders, issue new shares or sell assets to reduce debt.
The Company considers its capital to comprise the 2009 Shares, 2012 Shares, Core Shares, and retained earnings. There has been no change in what the Company considers to be capital since incorporation other than as part of the Conversion to a PCC. The Company is not subject to any externally imposed capital requirements.
Market risk
Market risk includes price risk, foreign currency risk and interest rate risk.
(a) Price risk
Price risk arises from uncertainty about future prices of financial investments held. The Company invests through Fund I and Fund II. The underlying investments held by Fund I and Fund II present a potential risk of loss of capital to the Funds and hence to the Company.
The Funds are exposed to a variety of risks which may have an impact on the carrying value of the Company's investment in the Funds. The Funds' risk factors are addressed in the 2009 Cell and 2012 Cell financial statements below.
As at 31 March 2017, GBP16.6 million (2016: GBP19.4 million) or 3.5 per cent. (2016: 3.9 per cent.) of the Funds' financial assets were cash balances held on deposit.
(b) Foreign currency risk
The Company has no direct foreign currency risk since all assets and transactions to date have been denominated in Pound Sterling, the Company's functional and presentation currency.
The Funds' indirect foreign currency risk, primarily with the Euro and US Dollar, arises from the overseas operations of the underlying portfolio investments. The investee companies' management monitor options for hedging against adverse exchange rate movements. The clear majority of the transactions made by the Funds have been denominated in Pound Sterling and accordingly the Fund GPs do not consider foreign exchange risk to be significant at this stage.
(c) Interest rate risk
The Company's direct exposure to interest rate risk relates to the Company's cash and cash equivalents. The Company is subject to risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates. As at the reporting date the majority of the Company's cash and cash equivalents were held on interest bearing fixed deposit accounts.
Interest income of GBP4,000 (2016: GBP7,000) arose from cash and cash equivalents and has been calculated using the effective interest rate method. There are no other gains or losses on loans and receivables other than the interest income.
The Company has no other interest bearing assets or liabilities as at the reporting date. As a consequence, the Company is only exposed to cash flow interest rate risk. The Board does not expect any significant change in interest rates that would have a material impact on the financial performance of the Company in the near future.
Liquidity risk
Ultimate responsibility for liquidity risk management of the Company rests with the Board of Directors.
Liquidity risk is defined as the risk that the Company may not be able to settle or meet its obligations on time or at a reasonable price.
The Company adopts a prudent approach to liquidity management and through the preparation of budgets and cash flow forecasts maintains sufficient cash reserves to meet its obligations.
During the year ended 31 March 2017, the Company had no borrowings other than creditors and accruals (2016: GBPnil). The Company had sufficient cash and cash equivalents to pay these as they fell due.
The following table details the Company's contractual discounted cash flows for its financial liabilities:
On demand 0-6 months 6+ months Total
31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and
accruals - 207 - 207
- 207 - 207
=========================== =========== ========== ========
On demand 0-6 months 6+ months Total
31 March 2016 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and
accruals - 223 - 223
- 223 - 223
=========================== =========== ========== ========
Credit risk
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the Company.
The Company's principal financial assets are the investments in Fund I and Fund II and as a consequence the Company has a significant credit risk if the Funds fail.
The carrying value of the investment in Fund I as at 31 March 2017 was GBP260.1 million (2016: GBP241.0 million).
The carrying value of the investment in Fund II as at 31 March 2017 was GBP170.2 million (2016: GBP244.0 million).
Financial assets mainly consist of cash and cash equivalents and investments at fair value through profit or loss. The Company's risk on liquid funds is minimised because the Funds have a strict cash management policy. The Company mitigates its credit risk exposure on investments at fair value through profit or loss by the exercise of due diligence on the counterparties of Funds and their General Partners. The investment risk is managed by an investment strategy that diversifies the investments in terms of financing stage, industry or geography. The aggregate amount deposited or invested with any single such bank or other counterparty (including their associates) or in government and public securities of any single issue, shall not exceed GBP35.0 million for Fund I and GBP50.0 million for Fund II.
The investment objectives, policy and restrictions of the Funds are set out in their respective partnership agreements and cannot be varied without an amendment to the relevant partnership agreement, which would require the consent of all the partners including the Company.
The table below shows the Company's material cash balances and the credit rating for the counterparties used at the year end date:
Moody's 31 March 31 March
Counterparty Location Rating 2017 2016
GBP'000 GBP'000
Royal Bank of Scotland
International Limited Guernsey A3 177 87
Barclays Bank PLC Guernsey A1 164 440
Lloyds Bank International
Limited Jersey A1 472 2,066
The Company's maximum exposure to loss of capital at the year end is shown below:
Carrying value
and maximum
31 March 2017 exposure
Investment at fair GBP'000
value through profit
or loss:
* Fund I 260,097
* Fund II 170,243
Loans and receivables
(including cash and
cash equivalents
but excluding prepayments) 2,413
---------------
432,753
===============
Carrying value
and maximum
31 March 2016 exposure
Investment at fair GBP'000
value through profit
or loss:
* Fund I 241,001
* Fund II 243,960
Loans and receivables
(including cash and
cash equivalents
but excluding prepayments) 4,216
---------------
489,177
===============
There are no past due or impaired receivable balances outstanding at the year end.
10. Earnings per share and Net Asset Value per share
The earnings per share, Net Asset Value per share and adjusted Net Asset Value per share for the 2009 Cell and 2012 Cell are shown below.
11. Subsequent events
Subsequent events for 2009 Cell and 2012 Cell are detailed below.
Better Capital 2009 Cell
Summary of Investment policy
Better Capital 2009 Cell has invested in a portfolio of businesses which, when acquired, had significant operating issues and associated financial distress and which have significant activities within the United Kingdom or Ireland.
Uninvested or surplus capital or assets may be invested on a temporary basis in cash deposits.
The 2009 Cell Investment policy is set out in the Company's Prospectus.
General Partner's Report
Achieving a successful sale of Gardner was the key focus over the past year. In February 2016, we reported that advisers were appointed to sell the business. During the course of preparation, Fund I received an unsolicited approach from SLMR in the summer of 2016. Discussions with SLMR progressed in tandem with the formal sales process, providing a useful benchmark to the General Partner of Fund I.
On 16 November 2016, Fund I entered into exclusive discussions with SLMR for the sale of its interest in Gardner. The period between signing exclusivity and completing the transaction involved a series of complex conditions that needed to be met by both parties, including Gardner's works council consultation and French governmental approval, SLMR's various government, state and regulatory sanctions as well as the buyer's fundraising and public company shareholder processes and procedures. Whilst it was drawn out longer than I would have liked, reflecting on the complications, it was a good outcome.
With Gardner (representing 97.6 per cent. of the 2009 Cell NAV) gone, Fund I has remaining assets of m-hance, and Omnico alongside a minority holding in SPOT. A more detailed assessment of these companies are set out below.
Portfolio update
m-hance closed its FY16 financial year ended 31 December with audited revenue and EBITDA of GBP15.2 million and GBP1.1 million respectively (audited revenue and EBITDA FY15: GBP16.9 million and GBP1.1 million respectively). Five months into its FY17 financial year, m-hance is trailing behind its revenue and EBITDA budget. The challenge as reported before remains one of sales growth in the business. The take on of new business particularly for Cloud based CRM has been slower than anticipated. It is, however, pleasing now to see these CRM sales coming through, most notably in the Not-for-Profit sector where legislative change is driving growth and m-hance has developed a niche product to fulfil this demand. Recent contracted wins/ final negotiations in this space are in the region ofGBP1.2 million.
The NetSuite-focused new business division, HighCloud, has established a healthy and growing sales pipeline, with management fully engaged in converting the pipeline to contract. H2 FY17 will see the UK launch of Dynamics 365 Financials, Microsoft's purely Cloud based ERP solution for the mid-market. This will give m-hance's substantial Microsoft customer base an easily accessed future proofed solution.
The strategic plan for m-hance is to develop and move the business towards Cloud based services to restore growth and enhance value, specifically through:
-- Protecting the existing customer base and support transitioning of those customers to new Cloud based services by offering market leading Microsoft and NetSuite solutions
-- Growing the existing Microsoft customer base, both ERP and CRM -- Building a NetSuite customer base
-- Heightening awareness and appeal of the m-hance (Microsoft) and HighCloud (NetSuite) brands.
The valuation for m-hance remains unchanged at GBP10.5 million. This has been derived using an earnings based approach (range of EV/ EBITDA: 7.6 times to 11.8 times), supported by a revenue approach, on the business's FY17 budgeted EBITDA and revenue. At 31 March 2017, the business had net debt of GBP0.9 million.
Omnico's year-to-date sales and EBITDA for its FY17 financial year ending 30 September are behind budget but significantly better than prior year. The business is greatly improved following the divestment of the loss making hardware business. In H1 FY17, Omnico has seen software revenues grow by 55 per cent. and its professional services business grow by 15 per cent. against prior year. The business now has a much healthier order book, which has grown by over 90 per cent. since October 2016.
Much of this growth in software revenues came from upgrades with existing customers, in particular securing new Europay MasterCard Visa ("EMV") product and services work with a major theme park customer in the USA (gross value: US$1.2 million). Omnico has also successfully entered into software upgrades to PriceSmart in the Americas valued at over US$1 million.
Omnico now has the ability to enable clients to migrate from traditional fixed tills to environments that address multiple sales channels, including those using mobile, Internet of Things ("IoT") and Cloud technologies. It is already the leading provider of PoS solutions in North American theme parks, and partners with seven of the world's top 11 park operators helping to provide customers with a 'single destination experience' joining retail, hospitality and entertainment engagements under a single software solution. This position was further enhanced by the completion of a deployment of Omnico software at Dubai Parks and Resorts in the UAE which provides a foothold for Omnico in the Middle East and Asian destinations market.
Omnico is making the important transition from bespoke software to customisable software products - enabling the business to resell the same product multiple times and to engage with selected channel partners to resell products on Omnico's behalf, thus significantly increasing customer reach. Whilst there is still more work to do, good progress has been made on a highly defined development roadmap. This form of productisation will allow Omnico to reduce costs associated with the support and maintenance of multiple bespoke software solutions and provides opportunities to increase ongoing revenues with existing clients.
The valuation for Omnico has been written down by GBP6.5 million to GBP20.0 million. Although the business is now significantly more profitable than prior years, Omnico has been slower than we would like in its negotiations with its prospective customers and delivering the solutions promptly and at an acceptable cost. This valuation is supported using an earnings based approach to valuation, benchmarked against Oracle's acquisition of MICROS Systems. At 31 March 2017, the business had net debt of GBP1.1 million.
Fund I has a 9.9 per cent. interest in Spicers OfficeTeam (SPOT), a business which is 76.0 per cent. owned by Fund II. SPOT has been written up by GBP0.6 million to GBP4.7 million on an earnings basis reflecting its on budget year-to-date EBITDA performance, and benchmarked against a selection of transactions operating in a similar space (EV/ EBITDA range: 5.2 times to 8.2 times). Maintainable earnings is derived as the average of FY16 pre-exceptional EBITDA and FY17 budgeted EBITDA. Net debt at 31 March 2017 was GBP37.7 million. Details of the business and the progress achieved are set out in the Fund II GP's report below.
Investment activities
During the year, Gardner repaid GBP3.2 million in a combination of capital and interest payments. On 12 June, following an extended period of contract exchange, the sale of Gardner to Ligeance Investments Limited, a wholly owned subsidiary of SLMR was completed. Proceeds net of transaction costs of GBP254.1 million were received by Fund I, generating an IRR of 35.3 per cent. and a 7 times return on total investment of GBP41.0 million.
The anniversary of the sale of Santia to Alcumus Holdings Limited (December 2016) crystallised the escrow payment of GBP0.3 million which was historically recognised as a fund receivable. In the same month, Fund I also received proceeds from the administration of Fairline totalling GBP0.2 million. This too, was historically recognised as a fund receivable.
SPOT repaid GBP2.7 million in June 2016 - GBP0.3 million to Fund I with the balance to Fund II.
Valuation
The overall portfolio carrying value rose by GBP34.6 million between 1 April 2016 and 31 March 2017, mainly driven by growth in Gardner (GBP46.3 million), offset by repayments to Fund I in the year (GBP3.2 million). Other smaller movements included a decline to the carrying value of m-hance of GBP2.0 million, net declines of GBP5.0 million in Omnico and GBP1.5 million in SPOT.
Distributions
Fund I repaid GBP5.2 million to the 2009 Cell from cash resources surplus to requirement in July 2016 which facilitated a 2.5 pence per share capital distribution to all 2009 Shareholders on 13 July 2016.
Gardner disposal proceeds
The Company and its cells are structured such that net proceeds from realisations are distributed to shareholders or used for operating costs. The sale of Gardner realised net proceeds of GBP254.1 million to Fund I through its participation in the equity and debt instruments in the business. As a consequence too, conditionality for the payment of carry to Better Capital SLP LP, a Guernsey based special limited partnership was satisfied. After accounting for carry of GBP29.6 million and retaining an additional GBP2.1 million to support Fund I's operations, it was assessed that GBP222.4 million was surplus to Fund I's requirements.
On 14 June 2017, the General Partner of Fund I approved the return of GBP222.4 million to the 2009 Cell. This gave rise to the Company's announcement on the same date to distribute GBP222.0 million by way of a Redemption.
Future distributions will likely be driven by the divestments of the remaining Fund I assets.
Cash and closing remarks
The sale of Gardner delivered a very good outcome to the 2009 Shareholders. Following the Redemption, each 2009 Share will have received a cumulative distribution of GBP1.40(1) .
The focus is now on ensuring the remaining three investments deliver to their potential, particularly Omnico.
I have now engaged with the Board in considering several options in order to secure the best outcome for the future of the 2009 Cell and its shareholders.
(1) Since the inception of the 2009 Cell
Jon Moulton
Chairman
BECAP GP Limited
29 June 2016
Investment Report of Fund I
Gardner
Business description
A Tier-1 supplier of medium and high complexity machined metallic components to the aerospace industry (www.gardner-aerospace.com). The sale of Gardner completed on 12 June 2017.
Fund I Investment details
31 March 30 September 31 March
GBP'm 2017 2016 2016
Total invested 22.7 22.7 25.9
Total committed 22.7 22.7 25.9
Fund I fair value (net
realisable value) 254.1 220.0 211.0
m-hance
Business description
Implements, deploys and manages enterprise wide business management software solutions (www.m-hance.com) (www.highcloudsolutions.co.uk)
Fund I Investment details
31 March 30 September 31 March
GBP'm 2017 2016 2016
Total invested 14.0 14.0 14.0
Total committed 14.0 14.0 14.0
Fund I fair value (earnings
based, supported by revenue
basis) 10.5 10.5 12.5
Omnico Group
Business description
Provider of omni-channel software solutions and services to the retail, entertainment, hospitality and leisure sectors (www.omnicogroup.com)
Fund I Investment details
31 March 30 September 31 March
GBP'm 2017 2016 2016
Total invested 40.8 40.8 40.8
Total committed 40.8 40.8 40.8
Fund I fair value (earnings
based) 20.0 26.5 25.0
SPOT
Business description
Spicers is a leading office products and stationery wholesaler (www.spicers.co.uk)
OfficeTeam is a leading office products and services supplier (www.officeteam.co.uk)
Fund I Investment details
31 March 30 September 31 March
GBP'm 2017 2016 2016
Total invested 10.1 10.1 10.4
Total committed 10.1 10.1 10.4
Fund I fair value (earnings
based) 4.7 4.1 6.2
Portfolio summary and reconciliation
31 March 2017 Sector Fund Project Fund fair Valuation Valuation
cost(1) value percentage of NAV methodology
GBPm investment in
SPVs(2)
GBPm
Net Realisable
Gardner Aerospace 22.7 254.1 97.6 % Value
Information
m-hance Systems 14.0 10.5 4.0 % Earnings
Information
Omnico Group Systems 40.8 20.0 7.7 % Earnings
SPOT Office Products 10.1 4.7 1.8 % Earnings
87.6 289.3 111.1%
------------------- ----------------- ---------------- ------------------- -----------------
Fund cash on deposit 1.4 0.5%
Fund & SPV combined other net assets /(liabilities) (0.9) (0.3%)
Provision for carried interest (29.6) (11.4%)
---------------------------------------------------------- ---------------- ------------------- -----------------
2009 Cell fair value of investment in Fund I 260.2 99.9%
---------------------------------------------------------- ---------------- ------------------- -----------------
2009 Cell cash on deposit 0.2 0.1%
2009 Cell current assets less liabilities (0.1) 0.0%
---------------------------------------------------------- ---------------- ------------------- -----------------
2009 Cell NAV 260.3 100.0%
------------------- ------------------ ----------------- ---------------- ------------------- -----------------
2009 Cell capital
distributions 66.8
------------------- ------------------ ----------------- ---------------- ------------------- -----------------
2009 Cell adjusted
NAV 327.1
------------------- ------------------ ----------------- ---------------- ------------------- -----------------
Summary income statement for Fund I
2017 2016
GBP'000 GBP'000
----------------------------------------- --------- ---------
Total income 65 22,000
Profit on Fund I investment
portfolio 37,496 9,223
Fund I GP's Share (1,348) (1,807)
Other operating expenses (1,191) (701)
Carried Interest movement (10,452) (14,134)
Fund I's operating profit
for the year 24,570 14,581
------------------------------------------ --------- ---------
Portion of the operating profit
for the year for 2009 Cell's
investment in the limited partnership
(Note 4) 24,570 14,581
------------------------------------------- --------- ---------
(1) Fund I holds its investments at cost in accordance with the terms of the limited partnership
agreement
(2) The Company fair values its investment in Fund I in accordance with the methodologies
as set out in Note 6
Cash Management
As at 31 March 2017, Fund I had placed a total of GBP1.4 million (2016: GBP4.4 million) of cash on instant access deposit with one bank. Fund I has in place a strict cash management policy that limits counterparty risks whilst simultaneously seeking to maximise returns.
Moody's
Counterparty Location Rating Term 2017 2016
GBP'000 GBP'000
Barclays Bank Instant
Plc Guernsey A1 access 1,392 4,381
INDEPENT AUDITOR'S REPORT TO THE DIRECTORS OF
BETTER CAPITAL PCC LIMITED IN REPECT OF THE 2009 CELL
We have audited the supplementary financial statements of the 2009 Cell (the "Cell"), a cell of Better Capital PCC Limited (the "Company") for the year ended 31 March 2017 which comprise the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Changes in Equity, the Statement of Cash Flows and the related notes 1 to 11. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the directors of the Company, as a body, in accordance with our engagement letter dated 13 February 2017. Our audit work is undertaken so that we might state to the directors of the Company 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 directors of the Company as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of the directors and auditor
As explained more fully in the Directors' Responsibilities Statement within the Report of the Directors, the directors of the Company are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council's 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 Cell's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors of the Company; and the overall presentation of the financial statements. In addition, we read all the financial and non--financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent 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 Cell's affairs as at 31 March 2017 and of its profit for the year then ended; and
-- have been properly prepared in accordance with IFRSs as adopted by the European Union.
BDO Limited
Chartered Accountants
Place du Pré
Rue du Pré
St Peter Port
Guernsey
29 June 2017
Statement of Financial Position
As at 31 March 2017
2017 2016
GBP'000 GBP'000
Notes
ASSETS:
Non-current assets
Investment in limited
partnership 4 260,097 241,001
Total non-current assets 260,097 241,001
------------ ------------
Current assets
Trade and other receivables 5 5 27
Cash and cash equivalents 223 445
------------ ------------
Total current assets 228 472
------------ ------------
TOTAL ASSETS 260,325 241,473
------------ ------------
LIABILITIES:
Current liabilities
Trade and other payables (73) (88)
------------ ------------
Total current liabilities (73) (88)
------------ ------------
TOTAL LIABILITIES (73) (88)
------------ ------------
NET ASSETS 260,252 241,385
============ ============
EQUITY
Share capital 7 138,216 143,386
Retained earnings 122,036 97,999
TOTAL EQUITY 260,252 241,385
============ ============
Number of 2009 Shares
in issue at year end 7 206,780,952 206,780,952
============ ============
NAV per 2009 Share
(pence) 10 125.86 116.73
============ ============
Adjusted NAV per 2009
Share (pence) 10 158.16 146.53
============ ============
The audited financial statements of the 2009 Cell were approved and authorised for issue by the Board of Directors on 29 June 2017 and signed on its behalf by:
Richard Crowder Jon Moulton Chairman Director
The notes below form an integral part of the 2009 Cell's financial statements.
Statement of Comprehensive Income
For the year ended 31 March 2017
2017 2016
GBP'000 GBP'000
Notes
Income
Change in fair value
of investment in limited
partnership 4 24,570 14,581
Interest income - -
Total income 24,570 14,581
-------- --------
Expenses
Administration fees 130 119
Directors' fees and expenses 8 119 89
Legal and professional
fees 157 55
Other fees and expenses 46 32
Audit fees 37 34
Insurance premiums 13 13
Registrar fees 31 25
Total expenses 533 367
-------- --------
Profit and total comprehensive
income for the financial year 24,037 14,214
======== ========
Basic and diluted earnings
per 2009 Share (pence) 10 11.62 6.87
======== ========
The notes below form an integral part of the 2009 Cell's financial statements.
Statement of Changes in Equity
For the year ended 31 March 2017
Share Retained Total
capital earnings equity
Notes GBP'000 GBP'000 GBP'000
As at 1 April 2016 143,386 97,999 241,385
Profit and total
comprehensive income
for the financial
year - 24,037 24,037
Total comprehensive
income for the
year - 24,037 24,037
--------- --------- ---------
Transactions with
owners
Capital distribution 7 (5,170) - (5,170)
--------- --------- ---------
Total transactions
with owners (5,170) - (5,170)
As at 31 March
2017 138,216 122,036 260,252
========= ========= =========
Share Retained Total
capital earnings equity
GBP'000 GBP'000 GBP'000
As at 1 April 2015 178,539 83,785 262,324
Profit and total
comprehensive income
for the financial
year - 14,214 14,214
Total comprehensive
income for the
year - 14,214 14,214
--------- --------- ---------
Transactions with
owners
Capital distribution 7 (35,153) - (35,153)
--------- --------- ---------
Total transactions
with owners (35,153) - (35,153)
As at 31 March
2016 143,386 97,999 241,385
========= ========= =========
Any surplus/deficit arising from the profit/loss for a period is taken to retained earnings which may be utilised for payment of dividends or distributions.
The notes below form an integral part of the 2009 Cell's financial statements.
Statement of Cash Flows
For the year ended 31 March 2017
2017 2016
GBP'000 GBP'000
Cash flows from operating
activities
Profit for the financial
year 24,037 14,214
Adjustments for:
Change in fair value
of investment in limited
partnership (24,570) (14,581)
Movement in debtors and
prepayments 22 (3)
Movement in creditors
and accruals (15) 9
Repayment of loan investment
in limited partnership 5,474 35,600
Net cash generated from
operating activities 4,948 35,239
--------- ---------
Cash flow used in financing
activities
Capital distribution (5,170) (35,153)
Net cash used in financing
activities (5,170) (35,153)
--------- ---------
Net movement in cash
and cash equivalents
during the year (222) 86
Cash and cash equivalents
at the beginning of the
year 445 359
Cash and cash equivalents
at the end of the year 223 445
========= =========
The notes below form an integral part of the 2009 Cell's financial statements.
Notes to the Audited Financial Statements of the 2009 Cell
For the year ended 31 March 2017
1. General information
The 2009 Cell is a cell of Better Capital PCC Limited and has the investment objective of generating attractive total returns from investing (through Fund I) in a portfolio of businesses which have significant operating issues and may have associated financial distress, with a primary focus on businesses which have significant activities within the United Kingdom and Ireland. Such returns are expected to be largely derived from capital growth.
Fund I is managed by its general partner, BECAP GP LP, which is in turn managed by its general partner BECAP GP Limited. Such arrangements are governed under the respective Limited Partnership Agreement, as amended.
The 2009 Cell is listed on the LSE Main Market.
2. Accounting policies
Basis of preparation
The 2009 Cell financial statements for the year ended 31 March 2017 have been prepared in accordance with EU Adopted IFRS.
The principal accounting policies adopted are set out in the Company's accounting policies above.
Going concern
After making appropriate enquiries, the Directors have a reasonable expectation that the 2009 Cell, and in turn Fund I, have adequate resources to continue in operational existence for the foreseeable future and do not consider there to be any threat to the going concern status of the 2009 Cell. For this reason, they continue to adopt the going concern basis in preparing these financial statements.
Critical accounting judgment and estimation uncertainty
Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The areas involving a high degree of judgement or complexity or areas where assumptions and estimates are significant to the financial statements are disclosed below. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
The resulting accounting estimates will, by definition, seldom equate to the related actual results.
Investment in Fund I
The value of the 2009 Cell's investment in Fund I is based on the value of the 2009 Cell's limited partner capital and loan accounts within Fund I. This is based on the components within Fund I, principally the value of the underlying investee companies. Any fluctuation in the value of the underlying investee companies will directly impact on the value of the 2009 Cell's investment in Fund I.
When valuing the underlying investee companies, the General Partner of Fund I reviews information provided by the underlying investee companies and other business partners and applies IPEV methodologies, as noted below, to estimate a fair value as at the date of the Statement of Financial Position. The variety of valuation bases adopted, quality of management information provided by the underlying investee companies and the lack of liquid markets for the investments mean that there are inherent difficulties in determining the fair value of these investments that cannot be eliminated. Therefore the amounts realised on the disposal of investments may differ from the fair values reflected in these financial statements and the differences may be significant.
Further information in relation to the valuation of the investment in Fund I is disclosed in Notes 4 and 6.
3. Segmental reporting
For management purposes, the 2009 Cell is organised into one operating segment, which invests in one limited partnership.
4. Investment in limited partnership
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1
April 2016 142,480 20 142,500
Repayment of loan investment
in limited partnership (5,474) - (5,474)
Carried forward 137,006 20 137,026
--------- -------- ---------
Fair value adjustment
through profit or loss
Brought forward 98,501 - 98,501
Unrealised fair value
movement during the year 24,570 - 24,570
Carried forward 123,071 - 123,071
--------- -------- ---------
Fair value as at 31 March
2017 260,077 20 260,097
========= ======== =========
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1
April 2015 178,080 20 178,100
Repayment of loan investment
in limited partnership (35,600) - (35,600)
Carried forward 142,480 20 142,500
--------- -------- ---------
Fair value adjustment
through profit or loss
Brought forward 83,920 - 83,920
Unrealised fair value
movement during the year 14,581 - 14,581
Carried forward 98,501 - 98,501
--------- -------- ---------
Fair value as at 31 March
2016 240,981 20 241,001
========= ======== =========
The movement in fair value of the 2009 Cell is derived from the fair value increase in Gardner, fair value decrease in m-hance, Omnico Group and SPOT and expenses in Fund I and its related special purpose vehicles.
The outstanding loans do not incur interest. The loans are expected to be repaid by way of distributions from Fund I. The 2009 Cell is not entitled to demand repayment of the outstanding loans, however, the General Partner may, upon request by the Company, repay to the 2009 Cell any amount of the Cell's outstanding loan. During the year GBP5.5 million was repaid to the 2009 Cell by Fund I (2016: GBP35.6 million).
In the financial statements of the 2009 Cell the fair value of the investment in limited partnership is adjusted to reflect the fair value of the 2009 Cell's attributable valuation of net assets within Fund I, as seen in more detail in Note 6.
5. Trade and other receivables
2017 2016
GBP'000 GBP'000
Debtors - 23
Prepayments 5 4
-------- --------
5 27
======== ========
There are no past due or impaired receivable balances outstanding at the year end. The Directors consider that the carrying value of debtors and prepayments approximates their fair value.
6. Fair value
The level in the fair value hierarchy within which the financial assets or financial liabilities are categorised is determined on the basis of the lowest level input that is significant to the fair value measurement. The fair value hierarchy and further information on valuation techniques can be found in Note 6 in the Company financial statements.
The following table summarises the valuation methodologies and inputs used for the 2009 Cell's Level 3 investments as at year end:
Valuation Description Input Adjustments Discount Rate Discounted
Methodology Applied to Multiples Value of portfolio valued
Multiples on this basis (GBP'm)
------------- ----------------- --------------- ------------- ----------------- ----------------- ------------------------------------------------------------------------------------------
31 March 2017 31 March 2016
Most commonly
used
Private Equity
valuation
methodology.
Used for
investments
which are
profitable and
for A discount
which a set of Multiples are is applied
listed applied to to earnings
companies and the earnings Relevant multiples at EBITDA multiples
precedent of the provisions 20 per cent ranging from
transactions investee may be to 55 per cent. 6.6 times to
with similar company to deducted (31 March 2016: 10.1 times
characteristics determine the from the 20 per cent (31 March 2016:
can enterprise multiple to 36 per 6.6 times to
Multiple be determined. value valuation cent.) 11.2 times) 35.2 254.7
31 March Earnings
2017 Reported
m-hance earnings
Omnico SPOT adjusted
for
non-recurring
items,
such as
restructuring
expenses,
for
significant
corporate
actions and,
in exceptional
cases,
run-rate
adjustments
to arrive at
maintainable
earnings. Most
common measure
is EBITDA
(m-hance,
Omnico,
SPOT). Further
information
in relation to
the
application
of earnings
can be found
in the Fund I
GP report
above
31 March Discounts to the Multiples
2016 valuation The earnings
Gardner generated by multiple is
m-hance applying derived from
Omnico SPOT multiples to market
reflect transaction
the time and multiples
costs (m-hance,
of reaching Omnico,
sustainable SPOT). The
profitability Fund I GP
and the typically
inevitable selects
accompanying businesses in
uncertainties the
same industry
and, where
possible, with
a similar
business model
and profile
in terms of
size,
products,
services and
customers,
growth rates
and geographic
focus and
adjust for
changes
in the
relative
performance
in the set of
comparables
Net Values of Net realisable As n/a n/a 254.1 -
Realisable separate value determined
Value elements on a case
prepared under by case
other methods, basis
as deemed
suitable by the
Fund
I GP, such as
net realisable
value.
----------------- -------------
31 March 2017
Gardner
31 March
2016
None
------------- ----------------- --------------- ------------- ----------------- ----------------- -------------------------------------------- --------------------------------------------
Level 3 Portfolio valuation 289.3 254.7
Other net assets/(liabilities) 0.5 5.5
Provision for Better Capital SLP interest in Fund I (29.6) (19.1)
2009 Cell fair value of investments in Fund I 260.2 241.1
This approach requires the use of assumptions about certain unobservable inputs. Significant unobservable inputs as at 31 March 2017 are:
- Multiples used to derive enterprise value; and - Discount factors.
A reasonably possible change in the multiples used of +/- 10 per cent. would result in:
- An increase in carrying value of GBP4.0 million or 1.4 per cent. (+10 per cent.)
- A decrease in the carrying value of GBP4.0 million or 1.4 per cent. (-10 per cent.)
A reasonably possible change in the discount factors used would be to completely remove the discount factor or to double the discount factor. This would result in:
- An increase in the carrying value of GBP32.6 million or 11.3 per cent. (-100 per cent.)
- A decrease in carrying value of GBP18.5 million or 6.4 per cent. (+100 per cent.)
The Fund I GP approves the valuations performed with input from the Consultant and monitors the range of reasonably possible changes in significant observable inputs on a regular basis.
7. Share capital
Share capital for the 2009 Cell is detailed in the relevant column in Note 7 of the Company's financial statements.
The four capital distributions (reductions of share capital) to date for the 2009 Cell total GBP66.8 million, being 31.8 per cent. of funds raised.
8. Related party transactions
Further information on related parties can be found in Note 8 of the Company's financial statements.
Directors' fees and expenses, incurred by the 2009 Cell, for the year to 31 March 2017 amounted to GBP119,000 (2016: GBP89,000). The Directors' fees and expenses were apportioned equally between the Cells up to 30 September 2013, thereafter fees were split on a NAV basis. GBP29,000 (2016: GBP23,000) remained outstanding at the year end.
9. Financial risk management
Financial risk management objectives
The 2009 Cell's investing activities, through Fund I and its special purpose vehicles, intentionally expose it to various types of risk that are associated with the investee companies in which Fund I invests in order to generate returns in accordance with its investment policy and objectives. The financial risks to which the 2009 Cell is exposed are market risk, liquidity risk and credit risk. The Board of Directors has overall responsibility for the determination of the 2009 Cell's risk management and sets policy to manage that risk at an acceptable level to achieve those objectives. The policy and process for measuring and mitigating each of the main risks are described below.
The Corporate Broker and the Administrator provide information to the 2009 Cell which allows it to monitor and manage financial risks relating to its operations through internal risk reports which analyse exposures by degree and magnitude of risks. The Corporate Broker and the Administrator report to the Board on a quarterly basis.
Due to the nature of the loan investments, being non-recourse, the loans have the same characteristics as the capital invested into Fund I. As a result for the purposes of the following disclosure both the capital and loan investments have been considered as one combined investment which is fair valued. Any default/credit risk is taken into account when fair valuing the investments.
Categories of financial instruments
2017 2016
GBP'000 GBP'000
Financial assets
Investment at fair value through
profit or loss:
Investment in limited partnership 260,097 241,001
Loans and receivables:
Debtors (excluding prepayments) - 23
Cash and cash equivalents 223 445
Financial liabilities
Financial liabilities measured
at amortised cost:
Creditors and accruals 73 88
Directors consider that the carrying values of cash and cash equivalents, creditors and accruals and debtors approximate their fair value.
Capital risk management
The 2009 Cell's objectives when managing capital are to safeguard the 2009 Cell's ability to continue as a going concern in order to provide returns for Shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the 2009 Cell may; return capital to Shareholders, adjust the amount of distributions paid to Shareholders, issue new shares or sell assets to reduce debt.
Market risk
Market risk includes price risk, foreign currency risk and interest rate risk.
(a) Price risk
Price risk arises from uncertainty about future prices of financial investments held. The 2009 Cell invests through Fund I. The underlying investments held by Fund I present a potential risk of loss of capital to Fund I and hence to the 2009 Cell.
Fund I is exposed to a variety of risks which may have an impact on the carrying value of the 2009 Cell's investment in Fund I. Fund I's risk factors are addressed below.
-- Fund I's investments are not traded in an active market but are still exposed to market price risk arising from uncertainties about future values of the investments held. The underlying investments of Fund I vary as to industry sector, level of distress, geographic distribution of operations and size, all of which may impact the susceptibility of the valuation to uncertainty.
This risk is managed by an investment strategy that diversifies the investments in terms of geography, financing stage or industry and through careful selection of investments within the specified limits of the investment policy. The investments are monitored on a regular basis by the Fund I GP.
In accordance with the 2009 Cell's accounting policies the investments in Fund I, and indirectly the investments in investee companies through special purpose vehicles, have been valued at fair value.
Sensitivity analysis has been undertaken. See Note 6.
-- Concentration in an investment portfolio can have opposing effects on the portfolio. This becomes an exposure to price risk through the fair value movement in the underlying investments.
A low number of investments in a portfolio, or high concentration, reduces risk due to better knowledge and information whilst a higher portfolio concentration in a certain sector of industry, level of distress, geographic distribution of operations or size increases sector concentration and the risk of the portfolio.
Conversely a high number of investments and lower concentration can reduce the credit risk of the portfolio but may limit availability of resources and flexibility.
The level of analytical sophistication, both financial and legal, necessary for successful investment in businesses experiencing significant operating issues and associated financial distress is unusually high. Accordingly Fund I has a low number of investments and thus a high concentration. This allows sufficient resources to be allocated to each investment.
The Fund I GP monitors the concentration of each investment in Fund I to ensure compliance with the Fund I investment policy.
In Fund I no single investment will be more than 20 per cent. of Fund I Total Commitments.
(b) Foreign currency risk
The 2009 Cell has no direct foreign currency risk since all assets and transactions to date have been denominated in Pound Sterling, the 2009 Cell's functional and presentation currency.
Fund I has indirect foreign currency risk, primarily with the Euro and US Dollar, arising from the overseas operations of the underlying portfolio investments. The investee companies' management monitor options for hedging against adverse exchange rate movements. The clear majority of the transactions made by Fund I have been denominated in Pound Sterling and accordingly the Fund I GP does not consider foreign exchange risk to be significant at this stage.
(c) Interest rate risk
The 2009 Cell's exposure to interest rate risk relates to the 2009 Cell's cash and cash equivalents. The 2009 Cell is subject to risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates. As at the reporting date the majority of the 2009 Cell's cash and cash equivalents were held on interest bearing fixed deposit accounts.
Interest income of GBPnil (2016: GBPnil) arose from cash and cash equivalents and has been calculated using the effective interest rate method. There are no other gains or losses on loans and receivables other than the interest income.
The 2009 Cell has no other interest bearing assets or liabilities as at the reporting date. As a consequence, the 2009 Cell is only exposed to cash flow interest rate risk. The Board does not expect any significant change in interest rates that would have a material impact on the financial performance of the 2009 Cell in the near future.
Liquidity risk
Ultimate responsibility for liquidity risk management of the 2009 Cell rests with the Board of Directors.
Liquidity risk is defined as the risk that the 2009 Cell may not be able to settle or meet its obligations on time or at a reasonable price.
The 2009 Cell adopts a prudent approach to liquidity management and through the preparation of budgets and cash flow forecasts maintains sufficient cash reserves to meet its obligations.
During the year ended 31 March 2017, the 2009 Cell had no borrowings other than creditors and accruals (2016: GBPnil). The 2009 Cell had sufficient cash and cash equivalents to pay these as they fall due.
The following table details the 2009 Cell's contractual undiscounted cash flows for its financial liabilities:
On demand 0-6 months 6+ months Total
31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and
accruals - 73 - 73
- 73 - 73
=========================== =========== ========== ========
On demand 0-6 months 6+ months Total
31 March 2016 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and
accruals - 88 - 88
- 88 - 88
=========================== =========== ========== ========
Credit risk
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the 2009 Cell.
The 2009 Cell's principal financial asset is the investment in Fund I and as a consequence the 2009 Cell has a significant credit risk if Fund I fails.
The carrying value of the investment in Fund I as at 31 March 2017 was GBP260.1 million (2016: GBP241.0 million).
Financial assets mainly consist of cash and cash equivalents and investments at fair value through profit or loss. Fund I's underlying investments are dynamic in nature and Fund I aims to maintain flexibility in funding by keeping sufficient liquidity in cash and cash equivalents which may be invested on a temporary basis in:
-- cash or cash equivalents, money market instruments, bonds, commercial paper or other debt obligations with banks or other counterparties having a "single A" or higher credit rating as determined by any reputable rating agency selected by the Fund I GP; and
-- any "government and public securities" as defined for the purposes of the FCA Rules.
As at 31 March 2017, GBP1.4 million (2016: GBP4.4 million) or 0.5 per cent. (2016: 1.6 per cent.) of Fund I's financial assets were cash balances held on deposit.
The 2009 Cell mitigates its credit risk exposure on investments at fair value through profit or loss by the exercise of due diligence on the counterparties of Fund I and its General Partner. The investment risk is managed by an investment strategy that diversifies the investments in terms of financing stage, industry or time. The aggregate amount deposited or invested with any single such bank or other counterparty (including their associates) or in government and public securities of any single issue, shall not exceed GBP35.0 million for Fund I.
The investment objectives, policy and restrictions of Fund I are set out in its limited partnership agreement and cannot be varied without an amendment to the limited partnership agreement, which would require the consent of all the partners including the 2009 Cell.
The table below shows the 2009 Cell's material cash balances and the credit rating for the counterparties used at the year end date:
Moody's 31 March 31 March
Counterparty Location Rating 2017 2016
GBP'000 GBP'000
Royal Bank of Scotland
International Limited Guernsey A3 59 5
Barclays Bank PLC Guernsey A1 164 440
The 2009 Cell's maximum exposure to loss of capital at the year end is shown below:
Carrying value
and maximum
31 March 2017 exposure
GBP'000
Investment at fair value through
profit or loss 260,097
Loans and receivables (including
cash and cash equivalents but
excluding prepayments) 223
---------------
260,544
===============
Carrying value
and maximum
31 March 2016 exposure
GBP'000
Investment at fair value through
profit or loss 241,001
Loans and receivables (including
cash and cash equivalents but
excluding prepayments) 468
---------------
241,469
===============
There are no past due or impaired receivable balances outstanding at the year end.
10. Earnings per share and Net Asset Value per share
Earnings per share
2017 2016
Profit for the year GBP24,036,173 GBP14,214,323
Weighted average number
of 2009 Shares in issue 206,780,952 206,780,952
EPS (pence) 11.62 6.87
============== ==============
The earnings per share is based on the profit for the year and on the weighted average number of shares in issue for the year.
The 2009 Cell does not have any instruments which could dilute basic earnings per share.
Net Asset Value per share
2017 2016
Net assets attributable to 2009 Share Shareholders GBP260,252,277 GBP241,385,627
Capital distributions GBP66,790,247 GBP61,620,724
--------------- ---------------
Adjusted Net Asset Value GBP327,042,524 GBP303,006,351
=============== ===============
2009 Shares in issue 206,780,952 206,780,952
NAV per share (IFRS) (pence) 125.86 116.73
--------------- ---------------
Adjusted NAV per share (pence) 158.16 146.53
=============== ===============
The Net Asset Value per share for the 2009 Cell is arrived at by dividing the total net assets of the 2009 Cell at the year end by the number of shares in issue at the year end.
The adjusted Net Asset Value adds back capital distributions made to the 2009 Share investors to date.
The adjusted Net Asset Value per share for the 2009 Cell is arrived at by dividing the adjusted Net Asset Value of the 2009 Cell at the year end by the number of 2009 Shares in issue at the year end.
11. Subsequent events
Gardner Sale
On 12 June 2017 the 2009 Cell completed the disposal of Gardner to Ligeance Investments Limited, a wholly owned subsidiary of SLMR for GBP326.0 million on an Enterprise Value basis.
Further to the above mentioned disposal the 2009 Cell returned GBP222.0 million (equivalent to 107.35p per share) to holders of the 2009 Shares by way of the Redemption on the Redemption Date.
The Redemption was effected pro rata to holdings of the 2009 Shares on the register at the close of business on the Redemption Date. On this basis 82.95 per cent. of each registered holding of 2009 Shares was redeemed on the Redemption Date.
Other
Fund I received a further GBP200,000 from the administration of Fairline in May 2017. As a result, the fund receivable from Fairline (in administration) reduces from GBP225,000 to GBP25,000.
Other than the above, there were no significant events occurring after 31 March 2017.
Better Capital 2012 Cell
Investment policy
Better Capital 2012 Cell has invested in a portfolio of businesses which, when acquired, had significant operating issues and associated financial distress and which have significant activities within the United Kingdom or Ireland.
Uninvested or surplus capital or assets may be invested on a temporary basis in cash deposits.
The 2012 Cell Investment policy is set out in the Company's Prospectus.
General Partner's Report
Following the sale of iNTERTAIN in December 2016 and the sale of the Jaeger debt instruments in March 2017, Fund II's attention is now focused on a core of three portfolio companies and its 9 per cent. holding of the 2012 Shares.
All three portfolio companies - Everest, SPOT and Northern Aerospace are trading profitably and better than prior year, with Northern Aerospace trading ahead of its budget. Only SPOT has a meaningful level of asset backed borrowing. The other companies are cash positive. Activity levels are high with each company implementing at pace their respective business improvement projects. The impact of Brexit and the recent General Election have had some adverse impact on Everest and SPOT. The weakness of Sterling is a positive for Northern Aerospace whose contracts are generally USD denominated.
During the year ended 31 March 2017, Fund II successfully divested its interest in iNTERTAIN to the Stonegate Pub Company Limited for an enterprise value of GBP39.5 million, delivering an IRR of 24.5 per cent. and a 1.6 times money multiple to Fund II. The disposal was timely as the late night/ bar sector was potentially facing a rise in its cost base (food and drink prices, apprenticeship levy) and uncertain consumer confidence.
The outcome in Jaeger was very disappointing. Following a comprehensive strategic review of the business in late 2016, a full sales process commenced in January 2017 with a view of structuring a solvent sale. On 30 March 2017, Fund II completed the disposal of the debt instruments in Jaeger to an undisclosed third party for an enterprise value of GBP8.5 million, providing proceeds of GBP7.5 million net of transaction expenses against total investments of GBP69.0 million and a previous carrying value of GBP30.0 million. Although losses were well below those in the business at acquisition, we could find no economic route to restore profitability and earlier indications of value from potential buyers fell away.
Northern Aerospace is a new company formed as a result of the restructuring in CAV Aerospace and is now trading profitably due to a combination of improving operations and customer support through renegotiated customer contracts. It is gratifying to see a much improved business following very considerable Better Capital input. The company is progressing well and there are good prospects for further improvement over the next years.
Portfolio update
Everest closed its FY16 financial year ended 31 December with a modest improvement to pre-exceptional EBITDA from prior year at an audited GBP2.4 million (audited FY15: GBP1.6 million). Exceptional costs in FY16 related to costs associated with the closure of non-core operations in solar, commercial and kitchens in FY15 and other restructuring costs, together totalling GBP1.0 million (FY15: GBP2.6 million).
The new senior management team led by Peter Mottershead have implemented a number of business improvement projects which have had a positive effect during FY16 and into FY17. These initiatives focussed on improving margin, through cost control and driving efficiency, rather than increasing revenue volume. Order pipeline at December 2016 was 61 per cent. higher than at December 2015.
Five months into its FY17 financial year, Everest is trailing behind its revenue and EBITDA budget having delivered a substantially improved January and February and a much stronger order pipeline (EBITDA loss in January and February 2016: GBP2.8 million). The strong order book which was 22 per cent. higher at the end of May 2017 compared to prior year will prove useful as Everest has seen some consumer and competitor challenges resulting from Brexit and the General Election affecting lead flow.
Several new developments are taking place at Everest including the launch of GrabLock in April 2017 - an innovative and secure lock for Everest windows, developed exclusively with leading lock manufacturer, Yale. Also, the business introduced the use of Paytel secure telephone payments system to simplify consumer finance applications. In addition, Everest is implementing the first phase of NetSuite ERP (finance modules) with an estimated completion at the end Q3 2017.
Key priorities for management in the current year are around operations, both in terms of increasing installer capacity and also enhancing efficiency across the regional installation centres leading to better controls and service provision. Measures to improve quality and effectiveness further are being applied across the business. Training programmes have been further improved and rolled out across sales teams.
Everest's valuation is unchanged at GBP38.0 million using an earnings based approach to valuation (EV/ EBITDA range: 5.5 times to 9.0 times). Overall, market comparable multiples have improved since the Interim Results (Interim EV/ EBITDA range: 5.2 times to 8.9 times) with SafeStyle UK plc trading at 10.2 times of current earnings. Maintainable earnings is the aggregate of the business's historic EBITDA for the six months to March 2017 and the budgeted EBITDA for the six months to September 2017. The business also held cash of GBP8.6 million at 31 March 2017. Everest is still not generating the profits that it should given its strong market position. FY17 and likely much of FY18 will be years of generating improvement.
Spicers OfficeTeam (SPOT) reported a FY16 financial year ended 31 December with audited sales of GBP284.0 million (FY15: GBP300.0 million) and audited EBITDA of GBP8.9 million (FY15: GBP6.6 million). In FY16 SPOT incurred a number of non-recurring costs relating to the warehouse rationalisation (redundancy, offsite storage, warehouse closure costs and project management) totalling GBP1.9 million and other non-recurring exceptionals of GBP1.3 million, providing a FY16 pre-exceptional EBITDA of GBP12.1 million. Five months into its FY17 financial year, the business is trading at the budgeted EBITDA level albeit in difficult market conditions.
The traditional office products market whilst in decline, driven by movement towards digitisation, forms part of a wider market that encompasses more buoyant segments such as facility supplies, furniture and print management worth some GBP15 billion annually. It is in this market that SPOT operates with both Spicers and OfficeTeam performing well in challenging market conditions.
The business has implemented several important structural changes and recruited new people skills, especially in account management and marketing, which have enhanced the operation of the business. SPOT has invested heavily in network infrastructure in areas such as Birmingham (the refit of the Central Distribution Centre ("CDC")) and in Greenwich, Glasgow and Manchester (Regional Distribution Centres) to ensure there is no single point of failure. The changes to the CDC has created new, significant capacity in the overall SPOT network not only for broader SPOT ranges but also for Customer Bespoke Stock. In addition, key investments have been made into developing Office Fleet to facilitate the 'final mile delivery' and the national trunking network to ensure SPOT has a distribution model which can support its resellers both now and in the future. Office Fleet undertakes some 1.2 million deliveries of circa 6 million parcels annually with coverage of 97 per cent. of the UK population. It is set to utilise a new range of technologies to optimise driver routes, create more central visibility of activity and provide customers with more real time communication.
These investments are part of the SPOT strategic vision recognising that the market place will continue to change at an even faster rate than seen over recent years with Amazon B2B now in the UK. SPOT is now geared as a cost effective, distributor of product, encompassing not just office supplies but increasingly, opening a much wider product range to its customers.
Spicers has developed several reseller based initiatives including the Alliance Programme which is for dealers who recognise the need for change through driving efficiencies throughout the supply chain to support their business. The Alliance Programme will help dealers remove cost, focus on sales through effective contact with the consumer and therefore improving profitability. Further to this, it has also relaunched the Brilliant Partner Programme to help support loyal customers who want to work in close cooperation with Spicers to take advantage of a wide spectrum of benefits and for those customers who want to focus on price, then Spicers will soon launch a transactional model with the cost of the product being key rather than the service around it.
OfficeTeam continues to develop new business wins, focused on high levels of service and account management, whether on-line, on phone or in person. It remains one of the most profitable businesses in its sector.
SPOT which is 76.0 per cent. owned by Fund II has been written up by GBP5.4 million to GBP47.3 million on an earnings basis reflecting its on budget year-to-date EBITDA performance, and benchmarked against a selection of transactions operating in a similar space (EV/ EBITDA range: 5.2 times to 8.2 times). Maintainable earnings is the average of FY16 pre-exceptional EBITDA and FY17 budgeted EBITDA. Net debt at 31 March 2017 was GBP37.7 million.
CAV Aerospace was restructured in November 2016. The group's business and assets were transferred to a newly incorporated company within the same corporate structure. The transaction enabled the business to renegotiate its key commercial contracts. The opportunity was taken to rebrand to Northern Aerospace.
Northern Aerospace is now consistently EBITDA and cash-flow positive. The new company's revenue budget for its FY17 financial year ending 31 December is 10 per cent. higher than the previous company's and there is expected to be a GBP10.7 million like-for-like improvement in EBITDA before exceptionals.
The much improved and now complete management team has made considerable progress with the operational change programmes. The workforce is being extensively upskilled and the level of engineering expertise is noticeably better. Efficiency, productivity and quality indicators are all now good and steadily improving. Product delivery and quality performance have benefitted the customer base - Northern Aerospace is now a very reliable supplier to the OEMs. This has been achieved by a determined focus on planning, operational improvement to increase capacity, and on quality to eliminate defects and additional supervision to drive product through production. This has also been supported by a significant reduction of the amount of product that needs to be scrapped during the production process which is a costly and complex area.
Health and safety continues to be a top priority. This area has been strengthened through investment in people, processes and equipment. There has been much emphasis placed on training, recruitment and developing a much better health and safety culture across the organisation.
The business is committed to a significant industrial improvement plan; investing in capital equipment to modernise and revitalise its engineering technology fully so as to offer customers better quality and service going forward thus enabling it to secure new and extended contracts. A strong balance sheet and operating cash flow enable this to be readily funded.
The warranty claim process is still running on its planned course, albeit slowly.
In light of the progress achieved and the incremental profitability being generated, Northern Aerospace is being valued using a combination of an earnings and assets basis approach. The current FY17 budget which has been constructed based on known contracts is expected to be maintainable and is benchmarked againsts market comparables operating in a similar space to Northern Aerospace (EV/ EBITDA range: 6.2 times to 9.8 times). At 31 March 2017, the business had net cash of GBP2.8 million. The value and timing of the warranty claim is broadly unchanged, together, resulting in a valuation of GBP60.0 million against the GBP31.0 million in the Interim Report.
Investment activities
In September 2016, Jaeger received GBP3.0 million of further investments to fund on-going losses. On 30 March, Fund II completed the disposal of the debt instruments in Jaeger for an enterprise value of GBP8.5 million. After accounting for transaction expenses of GBP1.0 million, GBP7.5 million was returned.
As a secured creditor to City Link (in administration), Fund II received total distributions of GBP2.4 million during the year (GBP0.8 million since the Interim Report). The most recent estimate outcome statement still puts the total net receivable by Fund II at GBP22.5 million. To date, GBP22.3 million has been received.
SPOT repaid GBP2.7 million in June 2016 - GBP0.3 million to Fund I with the balance to BECAP12 SPOT Limited, a special purpose vehicle owned by Fund II. In September 2016, BECAP12 SPOT Limited repaid GBP6.4 million to Fund II in a combination of capital and interest payments. At 31 March 2017, BECAP12 SPOT Limited held cash of GBP5.1 million. GBP5.0 million of this cash balance was repaid to Fund II in April 2017 in a combination of capital and interest payments, thereby reducing Fund II's carrying cost in the investment to GBP91.6 million.
On 7 December 2016 iNTERTAIN was sold to Stonegate Pub Company Limited for GBP39.5 million on an enterprise value. Fund II received net proceeds at completion of GBP33.7 million, with a further GBP2.5 million recognised as a fund receivable. We are pleased that the iNTERTAIN transaction delivered an IRR of 24.5 per cent. and a 1.6 times money multiple.
On 17 November 2016, Northern Aerospace acquired the business and assets of CAV Aerospace, facilitated through a pre-packaged insolvency process. Both companies were at that point wholly owned subsidiaries of Fund II. Fund II has backed Northern Aerospace with the provision of GBP5.9 million of new cash, to fund major capital expenditure projects and working capital to support management's plans for revenue growth and improved profitability. Total investment in Northern Aerospace stands at GBP64.9 million.
A total of 23.7 million 2012 Shares were acquired between April and July 2016 at the average price (inclusive of commission and levy) of 32.04p per share. On 21 December, Fund II entered into a buyback contract with the Company to sell 50 per cent. of its holding of 2012 Shares (28.5 million 2012 Shares) at the purchase price of 37.12p per share (totalling GBP10.6 million), which was calculated in accordance with the circular approving the buyback as 5 per cent. above the average market value of the 2012 Shares for the five business days prior to completion. No cash exchanged as a result of the transaction with the proceeds offset against the 2012 Cell loan account. Following the share buyback, the acquired 2012 Shares were immediately cancelled, reducing the number of 2012 Shares in issue from 346.6 million to 318.1 million. The effect of this corporate action was to provide an immediate 4 per cent. NAV uplift per 2012 Share.
No further 2012 Shares were traded following the share buyback programme. The 2012 Shares were quoted at a closing price of 27.75p per share at 31 March 2017.
Valuation
The investment portfolio value has reduced by GBP75.1 million during the year (GBP45.3 million since the Interim Results). The movement in the investment portfolio is summarised as follows:
GBP'm
Portfolio value at 1 April
2016 228.5
Additions at cost - follow
on investments 9.7
Return of cash from divestments/
loan repayments (43.5)
NAV movement - portfolio
companies (38.7)
156.0
Acquisition of 23.7 million
2012 Shares 7.6
2012 Share buyback and cancellation (10.6)
NAV movement - 2012 Shares 0.4
-------
Portfolio value at 31 March
2017 153.4
-------
Cash and closing remarks
On 28 June 2017, Fund II had cash of GBP12.2 million. Remaining cash will be deployed on an as required basis to support the three portfolio companies and to support Fund II's operations.
The performance in Fund II is still poor with Jaeger being very clearly a disappointment. The General Partner of Fund II has made a commitment to the Company to reduce its investment management fee by GBP1.0 million over the current financial year.
There is no doubt that there is considerable opportunity to increase the value of Fund II's portfolio. The aim is to achieve this over the coming years.
Jon Moulton
Chairman
BECAP12 GP Limited
29 June 2017
Investment Report of Fund II
Everest
Business description
A leading consumer brand in the manufacture, installation and supply of uPVC and aluminium windows and doors, conservatories, garage doors, security systems, driveways and other home improvement products (www.everest.co.uk)
Fund II Investment details
31 March 30 September 31 March
GBP'm 2017 2016 2016
Total invested 25.4 25.4 25.4
Total committed 25.4 25.4 25.4
Fund II fair value (earnings
based) 38.0 38.0 44.5
Jaeger
Business description
Ladies' and men's wear retailer, operating in the premium segment of the market (www.jaeger.co.uk). The debt instruments in Jaeger were disposed of on 30 March 2017.
Fund II Investment details
31 March 30 September 31 March
GBP'm 2017 2016 2016
Total invested 60.5 69.0 66.0
Total committed 60.5 69.0 66.0
Fund II fair value (net
realisable value) -(1) 30.0 37.0
City Link (in administration)
Business description
Formerly a parcel delivery business
Substantially realised with cash returned of GBP22.3 million at 31 March 2017.
Fund II Investment details
31 March 30 September 31 March
GBP'm 2017 2016 2016
Total invested 17.7 18.5 20.0
Total committed 17.7 18.5 20.0
Fund II fair value (net
realisable value) 0.2 1.0 2.5
(1) Net proceeds from the disposal of the debt instruments in Jaeger of GBP7.5 million have been recognised in fund cash and net current assets
SPOT
Business description
Spicers is a leading office products and stationery wholesaler (www.spicers.co.uk)
OfficeTeam is a leading office products and services supplier (www.officeteam.co.uk)
Fund II Investment details
31 March 30 September 31 March
GBP'm 2017 2016 2016
Total invested 96.2(1) 96.2 100.0
Total committed 96.2 96.2 100.0
Fund II fair value (earnings
based) 47.3 41.9 65.0
Northern Aerospace (formerly traded as CAV Aerospace)(2)
Business description
A leading European aerospace manufacturer of complex metallic components and sub-assemblies to major original equipment manufacturers (www.northernaerospace.com)
Fund II Investment details
31 March 30 September 31 March
GBP'm 2017 2016 2016
Total invested 64.9 59.0 59.0
Total committed 64.9 59.0 59.0
Fund II fair value (earnings
and assets basis) 60.0 31.0 31.0
(1) BECAP12 SPOT Limited repaid GBP6.4 million and GBP5.0 million in a combination of capital and interest payments to Fund II in September 2016 and April 2017 respectively. Fund II's current carrying cost in SPOT is GBP91.6 million.
(2) until 16 November 2016
Portfolio summary and reconciliation
31 March 2017 Sector Fund Project Fund fair value Valuation Valuation
cost(1) investment in percentage of methodology
GBPm SPVs(2) NAV
GBPm
Home Improvement
Everest Products 25.4 38.0 22.1% Earnings
Net realisable
Jaeger Retail 60.5 - 0.0% value
Net realisable
City Link Parcel Delivery 17.7 0.2 0.1% value
SPOT Office Products 96.2 47.3 27.5% Earnings
Northern Aerospace Earnings and
Aerospace Manufacturing 64.9 60.0 34.8% Assets basis
Private Equity
Better Capital Investment
2012 Cell Vehicle 11.1 7.9 4.6% Market Value
275.8 153.4 89.1%
------------------- ----------------- ----------------- ----------------- ------------------
Fund II cash on deposit 15.1 8.8%
Fund II & SPV combined other net assets attributable to
2012 Cell 1.7 0.9%
2012 Cell fair value of investment in Fund II 170.2 98.8%
---------------------------------------------------------- ----------------- ----------------- ------------------
2012 Cell cash on deposit 0.5 0.3%
2012 Cell current assets less liabilities 1.6 0.9%
---------------------------------------------------------- ----------------- ----------------- ------------------
2012 Cell NAV 172.3 100.0%
------------------- ------------------ ----------------- ----------------- ----------------- ------------------
2012 Cell capital
distributions 40.1
------------------- ------------------ ----------------- ----------------- ----------------- ------------------
2012 Cell adjusted
NAV 212.4
------------------- ------------------ ----------------- ----------------- ----------------- ------------------
Summary income statement for Fund II
2017 2016
GBP'000 GBP'000
---------------------------------------- --------- ---------
Total income 204 420
Loss on Fund II investment portfolio (25,614) (84,952)
Fund II GP's Share (3,291) (5,343)
Other operating expenses (1,419) (1,957)
Fund II's operating loss for
the year (30,120) (91,832)
----------------------------------------- --------- ---------
Portion of the operating loss
for the year for 2012 Cell's
investment in the limited partnership
(Note 4) (30,120) (91,832)
------------------------------------------ --------- ---------
(1) Fund II holds its investments at cost in accordance with the terms of the limited partnership agreement.
(2) The 2012 Cell fair values its investments in Fund II in accordance with the methodologies as set out in Note 6.
Cash Management
As at 31 March 2017, Fund II had placed a total of GBP15.2 million (2016: GBP15.0 million) of cash on deposit with three banks. Fund II has in place a strict cash management policy that limits counterparty risks whilst simultaneously seeking to maximise returns.
Moody's 31 March 31 March
Counterparty Location Rating Term 2017 2016
GBP'000 GBP'000
Royal Bank
of Scotland
International Instant
Limited Guernsey A3 access 9 134
Lloyds Bank
International Instant
Ltd Jersey A1 access 6,732 11,554
Barclays Bank Instant
Plc Guernsey A1 access 8,423 3,318
INDEPENT AUDITOR'S REPORT TO THE DIRECTORS OF
BETTER CAPITAL PCC LIMITED IN RESPECT OF THE 2012 CELL
We have audited the supplementary financial statements of the 2012 Cell (the "Cell"), a cell of Better Capital PCC Limited (the "Company") for the year ended 31 March 2017 which comprise the Statement of Financial Position, the Statement of Comprehensive Income, the Statement of Changes in Equity, the Statement of Cash Flows and the related notes 1 to 11. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the directors of the Company, as a body, in accordance with our engagement letter dated 13 February 2017. Our audit work is undertaken so that we might state to the directors of the Company 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 directors of the Company as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of the directors and auditor
As explained more fully in the Directors' Responsibilities Statement within the Report of the Directors, the directors of the Company are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the financial statements in accordance with International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Financial Reporting Council's 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 Cell's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors of the Company; and the overall presentation of the financial statements. In addition, we read all the financial and non--financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent 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 Cell's affairs as at 31 March 2017 and of its loss for the year then ended; and
-- have been properly prepared in accordance with IFRSs as adopted by the European Union.
BDO Limited
Chartered Accountants
Place du Pré
Rue du Pré
St Peter Port
Guernsey
29 June 2017
Statement of Financial Position
As at 31 March 2017
2017 2016
GBP'000 GBP'000
Notes
ASSETS:
Non-current assets
Investment in limited
partnership 4 170,243 243,960
------------
Total non-current assets 170,243 243,960
------------ ------------
Current assets
Trade and other receivables 5 1,606 1,606
Cash and cash equivalents 531 2,125
------------
Total current assets 2,137 3,731
------------ ------------
TOTAL ASSETS 172,380 247,691
------------ ------------
LIABILITIES:
Current liabilities
Trade and other payables (75) (112)
------------
Total current liabilities (75) (112)
------------ ------------
TOTAL LIABILITIES (75) (112)
------------ ------------
NET ASSETS 172,305 247,579
============ ============
EQUITY
Share capital 7 297,220 341,848
Retained earnings (124,915) (94,269)
------------
TOTAL EQUITY 172,305 247,579
============ ============
Number of 2012 Shares
in issue at year end 7 318,052,242 346,600,520
============ ============
NAV per 2012 Share (pence) 10 54.17 71.43
============ ============
Adjusted NAV per 2012
Share (pence) 10 66.78 73.18
============ ============
The audited financial statements of the 2012 Cell were approved and authorised for issue by the Board of Directors on 29 June 2017 and signed on its behalf by:
Richard Crowder Jon Moulton Chairman Director
The notes below form an integral part of the 2012 Cell's financial statements.
Statement of Comprehensive Income
For the year ended 31 March 2017
2017 2016
Notes GBP'000 GBP'000
Income
Change in fair value of
investments in limited
partnership 4 (30,120) (91,832)
Interest income 4 7
---------
Total expense (30,116) (91,825)
--------- ---------
Expenses
Administration fees 133 154
Directors' fees and expenses 8 122 122
Legal and professional
fees 144 92
Other fees and expenses 52 42
Audit fees 36 37
Insurance premiums 13 16
Registrar fees 30 19
---------
Total expense 530 482
--------- ---------
Loss and total comprehensive
expense for the year (30,646) (92,307)
========= =========
Basic and diluted earnings
per 2012 Share (pence) 10 (9.05) (26.63)
========= =========
The notes below form an integral part of the 2012 Cell's financial statements.
Statement of Changes in Equity
For the year ended 31 March 2017
Share Retained Total
capital earnings Equity
Notes GBP'000 GBP'000 GBP'000
As at 1 April 2016 341,848 (94,269) 247,579
Loss and total comprehensive expense for the financial year - (30,646) (30,646)
Total comprehensive expense for the year - (30,646) (30,646)
--------- ---------- ---------
Transactions with owners
Capital distribution 7 (34,032) - (34,032)
Share buyback and cancellation 7 (10,596) - (10,596)
--------- ---------- ---------
Total transactions with owners (44,628) - (44,628)
--------- ---------- ---------
As at 31 March 2017 297,220 (124,915) 172,305
========= ========== =========
Share Retained Total
capital earnings equity
GBP'000 GBP'000 GBP'000
As at 1 April 2015 341,848 (1,962) 339,886
Loss and total comprehensive expense for the financial year - (92,307) (92,307)
Total comprehensive expense for the year - (92,307) (92,307)
-------- --------- ---------
As at 31 March 2016 341,848 (94,269) 247,579
======== ========= =========
Any surplus/deficit arising from the profit/loss for a period is taken to retained earnings which may be utilised for payment of dividends or distributions.
The notes below form an integral part of the 2012 Cell's financial statements.
Statement of Cash Flows
For the year ended 31 March 2017
2017 2016
GBP'000 GBP'000
Cash flows from operating
activities
Loss for the financial year (30,646) (92,307)
Adjustments for:
Change in fair value of
investments in limited partnership 30,120 91,832
Movement in debtors and
prepayments 1 2,232
Movement in creditors and
accruals (37) (13)
Repayment of loan investment 33,000 -
in limited partnership
---------
Net cash generated from
operating activities 32,438 1,744
--------- ---------
Cash flow generated from
financing activities
Capital distribution (34,032) -
---------
Net cash used in financing
activities (34,032) -
--------- ---------
Net movement in cash and
cash equivalents during
the year (1,594) 1,744
Cash and cash equivalents
at the beginning of the
year 2,125 381
Cash and cash equivalents
at the end of the year 531 2,125
========= =========
The notes below form an integral part of the 2012 Cell's financial statements.
Notes to the Audited Financial Statements
For the year ended 31 March 2017
1. General information
The 2012 Cell is a cell of Better Capital PCC Limited and has the investment objective of generating attractive total returns from investing (through Fund II) in a portfolio of businesses which have significant operating issues and may have associated financial distress, with a primary focus on businesses which have significant activities within the United Kingdom and Ireland. Such returns are expected to be largely derived from capital growth.
Fund II is managed by its general partner, BECAP12 GP LP, which is in turn managed by its general partner BECAP12 GP Limited. Such arrangements are governed under the respective Limited Partnership Agreement, as amended.
The 2012 Cell is listed on the LSE Main Market.
2. Accounting policies
Basis of preparation
The 2012 Cell financial statements for the year ended 31 March 2017 have been prepared in accordance with EU Adopted IFRS.
The principal accounting policies adopted are set out in the Company's accounting policies above.
Going concern
After making appropriate enquiries, the Directors have a reasonable expectation that the 2012 Cell, and in turn Fund II, have adequate resources to continue in operational existence for the foreseeable future and do not consider there to be any threat to the going concern status of the 2012 Cell. For this reason, they continue to adopt the going concern basis in preparing these financial statements.
Critical accounting judgment and estimation uncertainty
Use of estimates and judgements
The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
The areas involving a high degree of judgement or complexity or areas where assumptions and estimates are significant to the financial statements are disclosed below. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
The resulting accounting estimates will, by definition, seldom equate to the related actual results.
Investment in Fund II
The value of the 2012 Cell's investment in Fund II is based on the value of the 2012 Cell's limited partner capital and loan accounts within Fund II. This is based on the components within Fund II, principally the value of the underlying investee companies. Any fluctuation in the value of the underlying investee companies will directly impact on the value of the 2012 Cell's investment in Fund II.
When valuing the underlying investee companies, the General Partner of Fund II reviews information provided by the underlying investee companies and other business partners and applies IPEV methodologies, as noted below, to estimate a fair value as at the date of the Statement of Financial Position. The variety of valuation bases adopted, quality of management information provided by the underlying investee companies and the lack of liquid markets for the investments mean that there are inherent difficulties in determining the fair value of these investments that cannot be eliminated. Therefore the amounts realised on the disposal of investments may differ from the fair values reflected in these financial statements and the differences may be significant.
Further information in relation to the valuation of the investment in Fund II is disclosed in Notes 4 and 6.
3. Segmental reporting
For management purposes, the 2012 Cell is organised into one operating segment, which invests in one limited partnership.
4. Investment in limited partnership
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1
April 2016 341,325 17 341,342
Repayment of loan investment
in limited partnership (43,597) - (43,597)
Carried forward 297,728 17 297,745
---------- -------- ----------
Fair value adjustment
through profit or loss
Brought forward (97,382) - (97,382)
Unrealised fair value
movement during the
year (30,120) - (30,120)
Carried forward (127,502) - (127,502)
---------- -------- ----------
Fair value as at 31
March 2017 170,226 17 170,243
========== ======== ==========
Loans Capital Total
GBP'000 GBP'000 GBP'000
Cost
Brought forward at 1
April 2015 341,325 17 341,342
Repayment of loan investment
in limited partnership - - -
Carried forward 341,325 17 341,342
---------- -------- ----------
Fair value adjustment
through profit or loss
Brought forward (5,550) - (5,550)
Unrealised fair value
movement during the
year (91,832) - (91,832)
Carried forward (97,382) - (97,382)
---------- -------- ----------
Fair value as at 31
March 2016 243,943 17 243,960
========== ======== ==========
The movement in fair value of the Fund II investment is derived from the fair value increase in Northern Aerospace, decrease in the 2012 Cell Shares, Everest, City Link and SPOT, and the sale of Jaeger debt, net of income and expenses of Fund II and its related special purpose vehicles.
The outstanding loans do not incur interest. The loans are expected to be repaid by way of distributions from Fund II. The 2012 Cell is not entitled to demand repayment of the outstanding loans, however, the General Partner may, upon request by the Company, repay to the 2012 Cell any amount of the Cell's outstanding loan. During the year GBP43.6 million (2016: GBPnil) was repaid to the 2012 Cell by Fund II.
Income distributions receivable from Fund II in the year amounted to GBPnil (2016: GBPnil). At 31 March 2017 an aggregate GBP1.6 million (2016: GBP1.6 million) remained outstanding.
In the financial statements of the 2012 Cell the fair value of the investment in limited partnership is adjusted to reflect the fair value of the 2012 Cell's attributable valuation of net assets within Fund II, as seen in more detail in Note 6.
5. Trade and other receivables
2017 2016
GBP'000 GBP'000
Debtors 1,600 1,600
Prepayments 6 6
-------- --------
1,606 1,606
======== ========
There are no past due or impaired receivable balances outstanding at the year end. The Directors consider that the carrying value of debtors and prepayments approximates their fair value.
In outstanding debtors at the year end GBP1.6 million (2016: GBP1.6 million) relates to income distributions receivable from Fund II. GBP0.8 million was received post year end.
6. Fair value
The level in the fair value hierarchy within which the financial assets or financial liabilities are categorised is determined on the basis of the lowest level input that is significant to the fair value measurement. The fair value hierarchy and further information on valuation techniques can be found in Note 6 in the Company financial statements.
Fund II's Level 1 investment consists of 28.5 million shares in the 2012 Cell, which are valued at GBP7.9 million based on their 31 March 2017 quoted closing price.
The following table summarises the valuation methodologies and inputs used for the 2012 Cell's Level 3 investments as at year end:
Valuation Description Input Adjustments Discount Rate Discounted Value of
Methodology Applied to Multiples portfolio
Multiples valued on this
basis
(GBP'm)
------------- ----------------- --------------- ------------- ----------------- ----------------- -----------------
31 31 March
March 2016
2017
Most commonly
used
Private Equity
valuation
methodology.
Used for
investments
which are
profitable and
for EBITDA Multiples
which a set of Multiples are 6.0 times to
listed applied to 8.0 times
companies and the earnings Relevant A discount EBITDA
precedent of the provisions is applied (31 March 2016:
transactions investee may be to earnings 0.4 times
with similar company to deducted multiples at revenue
characteristics determine the from the 20 per cent. and 5.9 times
can enterprise multiple (31 March 2016: to 7.6 times
Multiple be determined. value valuation 20 per cent.) EBITDA) 85.3 184.5
-------------
31 March Earnings
2017 Reported
Everest SPOT earnings
adjusted
for
non-recurring
items,
such as
restructuring
expenses,
for
significant
corporate
actions and,
in exceptional
cases,
run-rate
adjustments
to arrive at
maintainable
earnings. Most
common measure
is EBITDA
(Everest,
SPOT).
Other earnings
such as
revenue
may also be
used where
relevant.
Further
information in
relation
to the
application of
earnings
can be found
in the Fund
II GP report
above
-------------
31 March Discounts to the Multiples
2016 valuation The earnings
Everest generated by multiple is
SPOT applying derived from
iNTERTAIN multiples to comparable
Jaeger reflect listed
the time and companies
costs (Everest)
of reaching or relevant
sustainable market
profitability transaction
and the multiples
inevitable (SPOT) . The
accompanying Fund
uncertainties II GP
typically
selects
businesses in
the same
industry
and, where
possible, with
a similar
business model
and profile in
terms of
size,
products,
services
and customers,
growth rates
and geographic
focus and
adjust for
changes in the
relative
performance in
the set of
comparables
Values of
separate
elements
prepared under
other methods,
as deemed
suitable by the
Fund
II GP, such as
net
realisable
value (City
Link, Jaeger) As
and earnings Net realisable determined
and assets value, on a case
basis (Northern earnings by case
Other Aerospace) and assets basis n/a n/a 60.2 33.5
----------------- --------------- ------------- ----------------- ----------------- ------ ---------
31 March 2017
City Link
Jaeger Northern
Aerospace
------ ---------
31 March 2016
City Link Northern
Aerospace
------------------------------------------------------------------------------------------------------ ------ ---------
Level 3 Portfolio valuation 145.5 218.0
Level 1 Portfolio valuation 7.9 10.5
Other net assets 16.8 15.5
------ ---------
2012 Cell fair value of investments in Fund II 170.2 244.0
During the year the basis of valuation for Northern Aerospace changed from an asset basis to an earnings basis. The basis of valuation for Jaeger changed from a revenue basis to a net realisable value basis. The Fund II GP and the Company's Board consider these methods to be a more appropriate basis of valuation for the aforementioned portfolio companies. The changes to Jaeger and Northern Aerospace resulted in a net write down. Further information on this write down can be found in the Fund II GP Report above.
This approach requires the use of assumptions about certain unobservable inputs. Significant unobservable inputs as at 31 March 2017 are:
- Multiples used to derive enterprise value; and - Discount factors.
A reasonably possible change in the multiples used of +/- 10 per cent. would result in:
- An increase in carrying value of GBP15.3 million or 10.0 per cent. (+10 per cent.)
- A decrease in the carrying value of GBP15.3 million or 10.0 per cent. (-10 per cent.)
A reasonably possible change in the discount factors used would be to completely remove the discount factor or to double the discount factor. This would result in:
- An increase in the carrying value of GBP38.2 million or 24.9 per cent (-100 per cent.)
- A decrease in carrying value of GBP38.2 million or 24.9 per cent. (+100 per cent.)
The Fund II GP approves the valuations performed with input from the Consultant and monitors the range of reasonably possible changes in significant observable inputs on a regular basis.
7. Share capital
Share capital for the 2012 Cell is detailed in the relevant column in Note 7 of the Company's financial statements.
The two capital distributions (reductions of share capital) announced to date for the 2012 Cell totalled GBP40.1 million, being 11.3 per cent. of funds raised.
8. Related party transactions
Further information on related party transactions can be found in Note 8 in the Company financial statements.
Directors' fees and expenses, incurred by the 2012 Cell, for the year to 31 March 2017 amounted to GBP122,000 (2016: GBP122,000). The Directors' fees and expenses were apportioned equally between the Cells up to 30 September 2013, thereafter fees were split on a NAV basis. GBP30,000 (2016: GBP29,000) remained outstanding at the year end.
9. Financial risk management
Financial risk management objectives
The 2012 Cell's investing activities, through Fund II and its special purpose vehicles, intentionally expose it to various types of risk that are associated with the investee companies in which Fund II invests in order to generate returns in accordance with its investment policy and objectives. The financial risks to which the 2012 Cell is exposed are market risk, liquidity risk and credit risk. The Board of Directors has overall responsibility for the determination of the 2012 Cell's risk management and sets policy to manage that risk at an acceptable level to achieve those objectives. The policy and process for measuring and mitigating each of the main risks are described below.
The Corporate Broker and the Administrator provide information to the 2012 Cell which allows it to monitor and manage financial risks relating to its operations through internal risk reports which analyse exposures by degree and magnitude of risks. The Corporate Broker and the Administrator report to the Board on a quarterly basis.
Due to the nature of the loan investments, being non-recourse, the loans have the same characteristics as the capital invested into Fund II. As a result for the purposes of the following disclosure both the capital and loan investments have been considered as one combined investment which is fair valued. Any default/credit risk is taken into account when fair valuing the investments.
Categories of financial instruments
2017 2016
GBP'000 GBP'000
Financial assets
Investment at fair value through
profit or loss:
Investment in limited partnership 170,243 243,960
Loans and receivables:
Debtors (excluding prepayments) 1,600 1,600
Cash and cash equivalents 531 2,125
Financial liabilities
Financial liabilities measured
at amortised cost:
Creditors and accruals 75 112
The Directors consider that the carrying values of cash and cash equivalents, creditors and accruals and debtors approximate their fair value.
Capital risk management
The 2012 Cell's objectives when managing capital are to safeguard the 2012 Cell's ability to continue as a going concern in order to provide returns for Shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the 2012 Cell may; return capital to Shareholders, adjust the amount of distributions paid to Shareholders, issue new shares or sell assets to reduce debt.
Market risk
Market risk includes price risk, foreign currency risk and interest rate risk.
(a) Price risk
Price risk arises from uncertainty about future prices of financial investments held. The 2012 Cell invests through Fund II. The underlying investments held by Fund II present a potential risk of loss of capital to Fund II and hence to the 2012 Cell.
Fund II is exposed to a variety of risks which may have an impact on the carrying value of the 2012 Cell's investment in Fund II. Fund II's risk factors are addressed below.
-- Other than the investment in the 2012 Cell's shares, Fund II's investments are not traded in an active market but are still exposed to market price risk arising from uncertainties about future values of the investments held. The underlying investments of Fund II vary as to industry sector, level of distress, geographic distribution of operations and size, all of which may impact the susceptibility of the valuation to uncertainty.
This risk is managed by an investment strategy that diversifies the investments in terms of geography, financing stage or industry and through careful selection of investments within the specified limits of the investment policy. The investments are monitored on a regular basis by the Fund II GP.
In accordance with the 2012 Cell's accounting policies the investments in Fund II, and indirectly the investments in investee companies through special purpose vehicles, have been valued at fair value.
Sensitivity analysis has been undertaken in respect of those investment valuations applying earnings multiples. See Note 6.
-- Concentration in an investment portfolio can have opposing effects on the portfolio. This becomes an exposure to price risk through the fair value movement in the underlying investments.
A low number of investments in a portfolio, or high concentration, reduces risk due to better knowledge and information whilst a higher portfolio concentration in a certain sector of industry, level of distress, geographic distribution of operations or size increases sector concentration and the risk of the portfolio.
Conversely a high number of investments and lower concentration can reduce the credit risk of the portfolio but may limit availability of resources and flexibility.
The level of analytical sophistication, both financial and legal, necessary for successful investment in businesses experiencing significant operating issues and associated financial distress is unusually high. Accordingly Fund II has a low number of investments and thus a high concentration. This allows sufficient resources to be allocated to each investment.
The Fund II GP monitors the concentration of each investment in Fund II to ensure compliance with the Fund II investment policy.
In Fund II no single investment will be more than 30 per cent. of Fund II Total Commitments.
(b) Foreign currency risk
The 2012 Cell has no direct foreign currency risk since all assets and transactions to date have been denominated in Pound Sterling, the 2012 Cell's functional and presentation currency.
Fund II has indirect foreign currency risk, primarily with the Euro, arising from the overseas operations of the underlying portfolio investments. The investee companies' management monitor options for hedging against adverse exchange rate movements. The clear majority of the transactions made by Fund II have been denominated in Pound Sterling and accordingly the Fund II GP does not consider foreign exchange risk to be significant at this stage.
(c) Interest rate risk
The 2012 Cell's exposure to interest rate risk relates to the 2012 Cell's cash and cash equivalents. The 2012 Cell is subject to risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates. As at the reporting date the majority of the 2012 Cell's cash and cash equivalents was held on interest bearing fixed deposit accounts.
Interest income of GBP4,000 (2016: GBP7,000) arose from cash and cash equivalents and has been calculated using the effective interest rate method. There are no other gains or losses on loans and receivables other than the interest income.
The 2012 Cell has no other interest bearing assets or liabilities as at the reporting date. As a consequence, the 2012 Cell is only exposed to cash flow interest rate risk. The Board does not expect any significant change in interest rates that would have a material impact on the financial performance of the 2012 Cell in the near future.
Liquidity risk
Ultimate responsibility for liquidity risk management of the 2012 Cell rests with the Board of Directors.
Liquidity risk is defined as the risk that the 2012 Cell may not be able to settle or meet its obligations on time or at a reasonable price.
The 2012 Cell adopts a prudent approach to liquidity management and through the preparation of budgets and cash flow forecasts maintains sufficient cash reserves to meet its obligations.
During the year ended 31 March 2017, the 2012 Cell had no borrowings other than creditors and accruals (2016: GBPnil). The 2012 Cell had sufficient cash and cash equivalents to pay these as they fall due.
The following table details the 2012 Cell's contractual undiscounted cash flows for its financial liabilities:
On demand 0-6 months 6+ months Total
31 March 2017 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and
accruals - 75 - 75
- 75 - 75
=========================== =========== ========== ========
On demand 0-6 months 6+ months Total
31 March 2016 GBP'000 GBP'000 GBP'000 GBP'000
Creditors and
accruals - 112 - 112
- 112 - 112
=========================== =========== ========== ========
Credit risk
Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting in financial loss to the 2012 Cell.
The 2012 Cell's principal financial asset is the investment in Fund II and as a consequence the 2012 Cell has a significant credit risk if Fund II fails.
The carrying value of the investment in Fund II as at 31 March 2017 was GBP170.2 million (2016: GBP244.0 million).
Financial assets mainly consist of cash and cash equivalents and investments at fair value through profit or loss. Fund II's underlying investments are dynamic in nature and Fund II aims to maintain flexibility in funding by keeping sufficient liquidity in cash and cash equivalents. Uninvested or surplus capital or assets may be invested on a temporary basis in cash deposits or other high interest accounts.
As at 31 March 2017, GBP15.2 million (2016: GBP15.0 million) or 9.1 per cent. (2016: 6.4 per cent.) of the Fund II's financial assets were cash balances held on deposit.
The 2012 Cell mitigates its credit risk exposure on investments at fair value through profit or loss by the exercise of due diligence on the counterparties of Fund II and its General Partner. The investment risk is managed by an investment strategy that diversifies the investments in terms of financing stage, industry or time. The aggregate amount deposited or invested with any single such bank or other counterparty (including their associates) or in government and public securities of any single issue, shall not exceed GBP50.0 million for Fund II.
The investment objectives, policy and restrictions of Fund II are set out in its limited partnership agreement and cannot be varied without an amendment to the limited partnership agreement, which would require the consent of all the Partners including the 2012 Cell.
The table below shows the 2012 Cell's material cash balances and the credit rating for the counterparties used at the year end date:
Moody's 31 March 31 March
Counterparty Location Rating 2017 2016
GBP'000 GBP'000
Royal Bank of Scotland
International Limited Guernsey A3 59 59
Lloyds Bank International
Limited Jersey A1 472 2,066
The 2012 Cell's maximum exposure to loss of capital at the year end is shown below:
Carrying value
and maximum
31 March 2017 exposure
GBP'000
Investment at fair value through
profit or loss 170,243
Loans and receivables (including
cash and cash equivalents but
excluding prepayments) 2,131
---------------
172,374
===============
Carrying value
and maximum
31 March 2016 exposure
GBP'000
Investment at fair value through
profit or loss 243,960
Loans and receivables (including
cash and cash equivalents but
excluding prepayments) 3,726
---------------
247,686
===============
There are no past due or impaired receivable balances outstanding at the year end.
10. Earnings per share and net asset value per share
Earnings per share
2017 2016
Loss for the year GBP(30,645,610) GBP(92,307,568)
Weighted average number
of 2012 Shares in issue 338,779,074 346,600,520
EPS (pence) (9.05) (26.63)
================ ================
The earnings per share is based on the loss for the year and on the weighted average number of shares in issue for the year.
The 2012 Cell does not have any instruments which could dilute basic earnings per share.
Net asset value per share
2017 2016
Net assets attributable to 2012 Share Shareholders GBP172,304,053 GBP247,578,373
Capital distributions GBP40,097,099 GBP6,065,509
--------------- ---------------
Adjusted Net Asset Value GBP212,401,152 GBP253,643,882
=============== ===============
2012 Shares in issue 318,052,242 346,600,520
NAV per share (IFRS) (pence) 54.17 71.43
--------------- ---------------
Adjusted NAV per share (pence) 66.78 73.18
=============== ===============
The Net Asset Value per share for the 2012 Cell is arrived at by dividing the total net assets of the 2012 Cell at the year end by the number of 2012 shares in issue at the year end.
The adjusted Net Asset Value adds back capital distributions made to the 2012 Share investors to date.
The adjusted Net Asset Value per share for the 2012 Cell is arrived at by dividing the adjusted Net Asset Value of the 2012 Cell at the year end by the number of 2012 Shares in issue at the year end.
11. Subsequent events
On 21 April 2017 following the disposal of the debt instruments in Jaeger, the General Partner of Fund II authorised a GBP8.3 million repayment to the 2012 Cell. Having considered the working capital requirements of the 2012 Cell, the directors of the Company announced a third distribution of capital of 2.6 pence per ordinary share to the 2012 Cell Shareholders. In line with the previous distributions, this distribution of GBP8.3 million was treated by the Company as a reduction of share capital paid out of monies attributed to the "share capital account".
BECAP12 SPOT Limited repaid GBP5.0 million to Fund II in April 2017 in a combination of capital and interest payments.
Other than the above, there were no significant events occurring after 31 March 2017.
Defined Terms
"2009 Cell" or "Better the Cell in the Company established
Capital 2009 Cell" following conversion which holds
partnership interest in Fund I,
and is interpreted as the Company
acting in its capacity as a protected
cell company transacting its business
in the name of the 2009 Cell;
"2009 Shares" the ordinary shares of GBP1 par
value in the 2009 Cell being, prior
to Conversion, the Shares;
"2012 Cell" or "Better the Cell in the Company established
Capital 2012 Cell" following the Conversion which
holds partnership interests in
Fund II, and is interpreted as
the Company acting in its capacity
as a protected cell company transacting
its business in the name of the
2012 Cell;
"2012 Shares" the ordinary shares of GBP1 par
value in the 2012 Cell issued by
the Company pursuant to the Firm
Placing and Placing and Open Offer;
"Administrator" means Heritage International Fund
or "Heritage" or Managers Limited;
"HIFM"
"AIC" the Association of Investment Companies;
"AIC Code" the AIC Code of Corporate Governance
dated February 2015;
"AIC Guide" the AIC Corporate Governance Guide
for Investment Companies dated
February 2015;
"AIFMD" the Alternative Investment Fund
Managers Directive;
"AIM" the AIM Market, a market operated
by the London Stock Exchange;
"Annual General the general meeting of the Company;
Meeting" or "AGM"
"Annual Report" the Annual Report and Audited Financial
Statements;
"Carried Interest" the Special Limited Partner's entitlement
to participate in the gains and
profits of Fund I or Fund II, as
set out in the relevant partnership
agreement;
"CAV Aerospace" means CAV Aerospace Limited;
"Cells" the 2009 Cell and 2012 Cell together;
means City Link Limited;
"City Link"
"Cell Shares" the 2009 Shares and 2012 Shares
together;
"Companies Law" the Companies (Guernsey) Law, 2008;
"Company" or "Better Better Capital Limited, being prior
Capital PCC Limited" to the Conversion, a non-cellular
company limited by shares and being
upon and after the Conversion a
protected cell company, in each
case incorporated in Guernsey with
registered number 51194 whose registered
office is at Heritage Hall, PO
Box 225, Le Marchant Street, St
Peter Port, Guernsey GY1 4HY;
"Company's Articles" means the Company's Articles of
Incorporation;
"Consultant" means Better Capital LLP;
"Conversion" the conversion of the Company from a non-cellular company into a protected cell company
pursuant
to the Resolutions in accordance with section 46 of the Companies Law;
"Core" the Company excluding its Cells;
"Core Shares" the shares in the Core;
"Corporate Broker" being Numis Securities Limited;
"Directors" or "Board" the directors of the Company as at the date of this document and "Director" means any
one
of them;
Disclosure and Transparency Rules
"DTR" of the UK's FCA;
"EBITDA" being earnings before interest,
tax, depreciation and amortisation;
"EU" or "European Union" the European Union first established by the treaty made at Maastricht on 7 February
1992;
"EU Adopted IFRS" International Financial Reporting
Standards as adopted in the EU;
means the Fairline group of companies;
"Fairline"
"FATCA" the Foreign Account Tax Compliance
Act;
"FCA" the Financial Conduct Authority;
"FCA Rules" the rules or regulations issued
or promulgated by the FCA from
time to time and for the time being
in force (as varied by any waiver
or modification granted, or guidance
given, by the FCA);
"FRC" the Financial Reporting Council;
"Funds" both Fund I and Fund II together;
"Fund GP Companies" being both Fund I GP Company and
Fund II GP Company;
"Fund GPs" being both Fund I GP and Fund II
GP;
"Fund I" BECAP Fund LP, a Guernsey limited
partnership established on 23 November
2009 and registered in Guernsey
as a limited partnership on 25
November 2009 (registration number
1242);
"Fund I GP" means BECAP GP LP acting as general partner of BECAP Fund LP and by its general partner,
the
Fund I GP Company;
"Fund I GP Company" means BECAP GP Limited (a company
registered in Guernsey with registration
number 51176) acting as general
partner of the General Partner;
"Fund I GP's Share" the priority profit share payable
to the Fund I GP pursuant to the
Fund I Partnership Agreement;
"Fund I Investment the investment policy to be applied
Policy" by the Company in respect of the
2009 Cell and relating to Fund
I, as set out above;
"Fund I Total Commitments" the aggregate commitments of the
2009 Cell and the Fund I Special
Limited Partner to Fund I, being
prior to Conversion the total commitments
of the Company and the Fund I Special
Limited Partner to Fund I;
"Fund II" BECAP12 Fund LP, a Guernsey limited
partnership established and registered
in Guernsey as a limited partnership
on 17 November 2011 (registration
number 1558);
"Fund II GP Company" means BECAP12 GP Limited (a company
registered in Guernsey with registration
number 54252) acting as general
partner of the Fund II GP;
"Fund II GP" means BECAP12 GP LP acting as general partner of Better Capital Fund and by its general
partner,
the Fund II GP 12 Company;
"Fund II GP's Share" the priority profit share payable
to the Fund II GP pursuant to the
Fund II Partnership Agreement;
"Fund II Investment the investment policy to be applied
Policy" by the Company in respect of the
2012 Cell and relating to Fund
II, as set out above;
"Fund II Total Commitments" the aggregate commitments of the
2012 Cell and Fund II Special Limited
Partner to Fund II;
"Gardner" Gardner Group Limited;
"General Partners" both Fund I GP and Fund II GP together;
or "GPs"
"General Partner's Share" the priority profit share payable to the General Partner pursuant to the Partnership
Agreement;
"GFSC" the Guernsey Financial Services
Commission;
"GFSC Code" the GFSC Finance Sector Code of
Corporate Governance effective
1 January 2012;
"GP Companies" both the Fund I GP Company and
Fund II GP Company together;
"IFRS" International Financial Reporting
Standards;
"Interim Report" the Interim Financial Report;
"iNTERTAIN" means iNTERTAIN Limited;
"IPEV" International Private Equity and
Venture Capital Valuation Guidelines;
"IRR" means Internal Rate of Return;
"Jaeger" means the Jaeger group of companies;
"Listing Rules" the listing rules made under section 73A of the FSMA (as set out in the FCA Handbook),
as
amended;
"London Stock Exchange" London Stock Exchange plc;
"LSE" London Stock Exchange's main market
for listed securities;
"Main Market" the main market of the LSE;
"MNR Committee" the Management Engagement, Nomination
and Remuneration Committee;
"Net Asset Value" or "NAV" the value of the assets of the Company less its liabilities, calculated in accordance
with
the valuation guidelines laid down by the Board;
"Northern Aerospace" Means Northern Aerospace Limited;
"OfficeTeam" Means Project Oliver Topco Limited
and its subsidiaries, which together
trade as Office Team;
"Official List" the official list of the UK Listing
Authority;
"Omnico Group" The business formed from the merger
of DigiPoS and Clarity;
"PCC" Protected Cell Company;
"POI Law" The Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended;
"Prospectus" The prospectus of the Company,
most recently updated on 29 July
2013 and available on the Company's
website (www.bettercapital.gg);
"Redemption" a compulsory pro rata redemption
of the 2009 Shares;
"Redemption Date" Effective date of 28 June 2017;
"Registrar" Capita Registrars (Guernsey) Limited;
"Santia" means the Santia group of companies;
"Shareholders" meaning the holders of the shares
in both the 2009 Cell and 2012
Cell;
"SLMR" Shaanxi Ligeance Mineral Resources
Co., Ltd.;
"Spicers" means the Spicers group of companies;
"SPOT" Means the Spicers Office Team group
of companies
"UK" United Kingdom;
"UK Code" the UK Corporate Governance Code (September 2014) published by the Financial Reporting
Council;
"US" the United States of America.
General Information
Board of Directors Guernsey advocates to the Company
Richard Crowder (Chairman) Carey Olsen
Richard Battey PO Box 98
Philip Bowman Carey House
Jon Moulton (appointed 28 June 2013) Les Banques
St Peter Port
All of the above are non-executive, including the Chairman, and were Guernsey
appointed on the 24 November GY1 4BZ
2009 unless otherwise stated.
English solicitors to the Company
Company secretary DLA Piper UK LLP
Heritage International Fund Managers Limited 3 Noble Street
Heritage Hall London
PO Box 225 EC2V 7EE
Le Marchant Street
St Peter Port Corporate broker and financial adviser
Guernsey Numis Securities Limited
GY1 4HY 10 Paternoster Square
London
Registered office EC4M 7LT
Heritage Hall
PO Box 225 Independent auditor
Le Marchant Street BDO Limited
St Peter Port PO Box 180
Guernsey Place du Pré
GY1 4HY Rue du Pré
St Peter Port
Guernsey administrator Guernsey
Heritage International Fund Managers Limited GY1 3LL
Heritage Hall
PO Box 225 Public relations adviser Le Marchant Street Powerscourt St Peter Port 1 Tudor Street Guernsey London GY1 4HY EC4Y 0AH Registrar Website Capita Registrars (Guernsey) Limited www.bettercapital.gg Longue Hougue House St Sampson Tickers Guernsey 2009 Cell: BCAP.L GY2 4JN 2012 Cell: BC12.L
Better Capital PCC Limited is a company incorporated in and controlled from Guernsey as a Protected Cell Company. There are two cells, being the 2009 Cell and the 2012 Cell. The ordinary shares of each cell are admitted to the Main Market operated by the London Stock Exchange plc.
The principal activity of the Company is to act as a feeder fund, through each cell, and pursue an investment objective which aims to generate attractive total returns by investing in a portfolio of distressed businesses (2009 Cell through Fund I and 2012 Cell through Fund II), such returns being expected to accrue largely through capital growth.
Following the investment by the Cells into the Funds, the Funds invested in distressed businesses, through special purpose vehicles. The Fund GPs are the investment managers to each respective Fund and have overall responsibility for the management and administration of the business and affairs of the Funds, including the management of its investments and as such, the Cells have no control over the investments made by the Funds.
The Company is a limited liability, Closed-ended Investment Company, which was incorporated on 24 November 2009 in Guernsey and which, by special resolution of its members, converted to a protected cell company on 12 January 2012 and on that same day changed its name from Better Capital Limited to Better Capital PCC Limited. The Company has an unlimited life and is registered with the GFSC as a Registered Closed-ended Collective Investment Scheme. The registered office of the Company is Heritage Hall, PO Box 225, Le Marchant Street, St Peter Port, Guernsey, GY1 4HY.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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