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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Molten Ventures Plc | LSE:GROW | London | Ordinary Share | GB00BY7QYJ50 | ORD GBP0.01 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 233.50 | 234.50 | 236.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Finance Services | -215.7M | -243.4M | -1.5909 | -1.47 | 357.25M |
From Apr 2019 to Apr 2024
TIDMGROW
RNS Number : 2666P
Draper Esprit PLC
25 May 2018
Draper Esprit plc
("Draper Esprit" or "the Company")
FINAL RESULTS FOR THE YEARED 31 MARCH 2018
Draper Esprit (AIM: GROW, ESM: GRW), a leading venture capital firm investing in high-growth digital technology businesses, today announces its final results for the year ended 31 March 2018.
Financial highlights
-- Gross Primary Portfolio value has grown by 116% to GBP243.5 million (2017: 72%, GBP112.7 million)
-- Profit after tax increased to GBP65.3 million, a 97% increase (2017: GBP33.2 million) -- Invested GBP71.5 million by plc and a further GBP24.8m by EIS/ VCT and managed funds
-- Capital raised by the Company of GBP100.0 million in June 2017 and a further GBP55.0 million across EIS and VCT funds
-- Net Assets, including goodwill, increased by 107% to GBP311.3 million (2017: GBP150.7 million)
-- NAV per share of 431 pence (2017: 370 pence) -- NAV per share, excluding goodwill, of 402 pence (2017: 319 pence) -- Value of the Core Holdings* has increased by 119%
Operational highlights
-- Invested GBP71.5 million by plc and a further GBP24.8 million by EIS/VCT and managed funds in 9 new and 11 existing portfolio companies, across four key subsectors of enterprise, digital health and wellness, hardware and consumer technology.
-- Announced target of investing GBP75.0 million in top European seed funds across five-year period
-- Commitments of GBP17.0 million in 7 new fund of funds vehicles, including 3 post year-end investments.
-- Acquired Seedcamp Fund I and Fund II, for GBP17.9 million resulting in a stake in Transferwise.
-- Further disposals announced, including Clavis Insight and have now exited 10 of the original 24 portfolio companies, realising over GBP57.0 million in cash (including amounts held in escrow)
Post period end highlights
-- Invested GBP10.0 million (US$14.0m) in Aircall, a leading provider of cloud-based call centre software
-- Investing up to GBP11.5 million (US$16.5m) in Revolut, the leading fintech business. -- Announced the sale of portfolio company, Tails.com, to Nestlé Purina Petcare.
Simon Cook, CEO Draper Esprit commented:
"Draper Esprit is pleased to report strong performance and growth across the portfolio. Since the IPO in 2016, we have grown our team, invested in 20 high growth companies, realised over GBP57.0 million in cash, raised GBP100.0 million on the public market in June 2017 as well as a further GBP55.0 million across our EIS and VCT funds.
"Over the past 12 months we continued to invest in European high-growth companies by selecting, building and growing the very best technology businesses. In particular, we invested GBP96.3 million in 9 new and 11 existing portfolio companies (GBP71.5 million from the plc as well as GBP24.8 million co-invested from EIS/ VCT and managed funds). We have also exited 3 companies, realising cash of GBP15.9 million to the benefit of plc shareholders.
We have executed against our strategy, as set out at the time of the IPO. Our long-term capital, flexible approach and global networks, enable us to partner with the best entrepreneurs in Europe. We also continue to deliver the growth and scale in our portfolio that will drive sustainable returns for our shareholders. We look forward to the next financial year with confidence and optimism."
*The top 10 companies in the portfolio combine to represent approximately 70% of the portfolio fair value.
Availability of Annual Report and Notice of AGM
The Annual Report and Accounts for the financial year ended 31 March 2018 and notice of the Annual General Meeting ("AGM") of Draper Esprit will be will be available today on Draper Esprit's website at http://draperesprit.com/.
ENQUIRIES
Draper Esprit plc Simon Cook (Chief Executive Officer) Ben Wilkinson (Chief Financial Officer) +44 (0)20 7931 8800 Numis Securities Nominated Adviser & Joint Broker Alex Ham Richard Thomas Jamie Loughborough +44 (0)20 7260 1000 Goodbody Stockbrokers ESM Adviser & Joint Broker Don Harrington Linda Hickey +353 1 667 0420/+44 20 3841 Charlotte Craigie 6202 MHP Communications (PR) James White Vera Prokhorenko Pete Lambie +44 (0)20 3128 8570
NOTES TO EDITORS
Draper Esprit is one of the most active venture capital firms in Europe, helping to build and invest in disruptive, high growth technology companies. We believe the best entrepreneurs in Europe are capable of building the global businesses of the future, by partnering with the global Draper Venture Network with VC funds in 22 countries. We fuel their growth with long- term capital, access to international networks and decades of experience building businesses. Draper Esprit's portfolio includes global technology leaders such as Trustpilot, Ledger, Perkbox, Revolut, and Graphcore. Recent successful exits include Grapeshot, Clavis Insight, Tails.com, and Movidius. Visit www.draperesprit.com
CHAIRMAN'S STATEMENT
The last twelve months have been a transformational period for our business. In what has been our first full trading year as an AIM company we have built on the momentum we generated following our successful IPO in 2016 and have made significant progress, growing all aspects of the business.
Through our provision of long-term patient capital to innovative technology companies across Europe, we have continued to demonstrate that the public venture capital (VC) model is working effectively. For companies looking to scale up, growth capital is still relatively scarce in Europe and we believe much needed - to finance companies on the journey from start up to scale up, enabling them to pursue global rather than national ambitions. Our capital, expertise, international networks and strategic advice make us ideal partners for businesses at this stage in their life cycle.
We meet thousands of fast growing companies a year. We use our experience to invest in those companies where we can use our expertise to help them achieve their ambitions. In addition, by taking a board seat, we can apply our expertise beyond the original investment decision, to supporting our investments to fulfil their potential for growth and market leadership.
Over the twelve months to the end of March 2018, we have continued to deploy our increased pool of capital, secured through the GBP100m placing of new shares completed in June 2017. This fund raising demonstrates the benefit of our public listing and the flexibility it gives our balance sheet. It has enabled us to undertake a wide variety of transactions, which we might not otherwise have been able to contemplate, including the Seedcamp acquisition (and the resulting stake acquired in TransferWise). In addition, it has enabled us to develop a fund of funds strategy and the building of an exciting ecosystem of investment opportunities.
In summary, this has resulted in the addition of further impressive new companies to our portfolio across a broad spectrum of technology subsectors, ranging from blockchain and cyber security to gene synthesis and peer-to-peer banking.
We remain passionate advocates for the role that these technology companies and others we invest in can play in improving how we as a society work together, learn from one another, communicate with each other
and live longer, healthier and more productive lives.
We are continually focused on, and have again delivered, significant returns to our shareholders through the continued growth of our Net Asset Value, targeting a portfolio return of 20% per annum, which is underpinned by an average of over 40% revenue growth across our Core Portfolio Companies.
The European technology market is experiencing an unprecedented period of growth and, with the continued support of our team, Board colleagues, Shareholders, advisers and our wider network of contacts, I am very confident that Draper Esprit can continue to maintain our position as a leading player.
Karen Slatford
Non-Executive Chair
CHIEF EXECUTIVE'S STATEMENT
Overview
I am pleased to report a year of particularly strong growth across our portfolio, combined with a number of successful reinvestments into new and high-growth portfolio companies. The Company also completed several realisations at attractive valuations.
As we outlined at the time of our IPO, by providing early-stage and growth-stage technology businesses with capital, networks and management support, we are uniquely well placed to offer investors access to private high-growth technology companies that they wouldn't otherwise be able to source or invest in.
Our experience of investing over the past 20 years, combined with our unique and flexible approach to deploying long-term capital means that we have continued to execute against our strategy over the past twelve months, delivering the growth and scale in our portfolio that will drive sustainable growth for our shareholders.
Operating review
Although the wider technology sector has made headlines for the wrong reasons in recent months, we remain passionate advocates for the role technology can play across the various subsectors in which we invest. At the same time, while Europe's venture capital industry has long been considered a poor relation to its US counterpart, there are growing signs that Europe is building a sustainable and vibrant VC industry of its own; indeed, KPMG recently valued the European VC industry at US$19.1 billion representing more than 25% growth on the previous year.
Despite this, Europe still lags behind the US, particularly when it comes to the provision of growth capital, but this gap is slowly closing and, by selecting, building and growing the very best technology businesses from around Europe, we are confident that we can play a prominent role in reducing this disparity.
Over the course of financial year 2018, we made significant strides in this regard, investing GBP71.5 million in 9 new and 11 existing portfolio companies as well as GBP24.8 million co-invested from EIS/ VCT and managed funds. In addition, we exited three companies, realising cash of GBP15.9 million (including amounts held in escrows).
As a result, we have exceeded our core strategic aim of targeting a portfolio return of 20% per annum.
Successful exits
During the year, the Company has announced three disposals.
In December 2017, we announced the sale of Clavis Insight, the leading eCommerce insights company, to Ascential plc a global business-to-business information company, for an initial cash consideration of US$119.0 million. Draper Esprit originally invested GBP8.1 million in Clavis in December 2016 and will receive total proceeds of GBP15.3 million including amounts held in escrow.
The exit followed the sales of Moviepilot and Aveillant earlier in the same month to the Paris-based publishing group Webedia and multi-national defence business Thales respectively.
Of the original 24 companies in the portfolio at IPO in June 2016, we have now exited 10 companies, realising over GBP57.0 million in cash.
Continued investment in high-growth technology companies
In June 2017, we raised GBP100 million from new and existing investments to scale our capital deployment.
There are a number of routes by which we invest our capital - and during the year we significantly expanded this by developing our new fund of funds strategy and also investing in a secondary portfolio transaction. These types of investment complement and fuel our core investment strategy which is to invest at the point of growth in primary portfolio businesses.
At the time of our fundraising, we outlined our strategy to invest up to approximately GBP100.0m (US$130.0 million) a year in technology businesses at series A, B, and C+ rounds across the Group's funds (the plc balance sheet, EIS, VCT and secondary funds), with investment from the Company's balance sheet representing approximately GBP60.0 million per annum.
New investments in primary portfolio businesses
Our hands-on approach in working with our portfolio companies, via our active role in board management, our global network and the support we provide to entrepreneurs, continues to be an attractive proposition for the businesses we seek to partner with.
All of our investments are innovative technology businesses that are capable of becoming much larger, global businesses. We continue to focus on the four key subsectors of enterprise, digital health & wellness, hardware and consumer technology.
Examples included Evonetix, Ieso Digital Health, Ledger, PremFina, Droplet and Verve. Ledger is a Paris headquartered cryptocurrency and blockchain security company in which we made a GBP17.7 million investment in January 2018. The investment will enable Ledger to significantly scale up its operations as demand for its products increases. As cryptocurrency participation has increased, so have the security challenges associated with it. Against this backdrop, there are substantial opportunities to develop trust for participants in this area, a key driver behind Ledger's business model.
Fund of funds strategy
In October 2017, we announced a strategy to target up to GBP75.0 million (US$100.0 million) of investment in the top seed funds across Europe over a five-year period. We have committed to invest in seven funds including Seedcamp (www.seedcamp.com), Episode 1 Ventures (www.episode1.com), Join Capital
(www.join.capital) and Icebreaker
(www.icebreaker.vc), widely recognised as some of Europe's leading seed fund platforms. Draper Esprit was already an investor in the leading crowdfunding companies, Crowdcube and Seedrs.
By closely aligning Draper Esprit with the seed fund ecosystem, we believe we can provide growth capital to the best companies and unlock the strong performance of Europe's highest quality seed funds to the benefit of the plc shareholders.
Secondary portfolio acquisition
In October 2017, we announced the acquisition of Seedcamp Funds I and II for GBP17.9 million, through which we acquired stakes in high profile growing technology companies including TransferWise, a leading UK based Fintech business as well as a number of promising companies including Codacy, Edited, Erply, Fishbrain, Codility, Winnow, Codeship and Try.com.
Follow on investments
As well as new investments, during the year we also invested in our core portfolio by adding to our existing investments, delivering on our strategy of building larger stakes in businesses we passionately believe in (having earmarked 70% of our capital to be reserved for scaling-up and increasing our stakes in portfolio companies through later rounds of funding).
During the period, we deployed GBP23.0m in this way through follow-on investments in the semiconductor specialist Graphcore; the employee engagement platform, Perkbox; the leading electric vehicle charging company, Pod Point; and Push Doctor, Europe's largest digital health provider.
We remain confident in the growth potential of our underlying portfolio companies with all of our top holdings continuing to make strong commercial progress, growing sales significantly and reporting positive news flow, thereby providing strong value creation for our shareholders.
Continued momentum - outlook and summary
We have entered the new financial year in a strong position, and our model of offering investors, who otherwise wouldn't have access to, or the capacity to actively manage, investments in high-growth private technology businesses, continues to bear fruit.
Post period end, we have invested US$14.0m in Aircall in May, a leading provider of cloud-based call centre software and have committed to US$16.5 million in the more recent investment round in Revolut, the leading fintech business. We have also announced the sale of our portfolio company, Tails.com, to Nestlé Purina Petcare.
We remain grateful for the support we have received from our existing shareholder base and welcome our new investors. Our ambition remains to deliver at least 20% year on year growth in portfolio value while building on our ability to hold and grow our portfolio companies for longer, increasing our investment in later rounds in order to maximise the opportunity to build large and successful European technology businesses that are able to become the global businesses of the future.
Lastly, I would like to place on record my thanks to our management team, who continue to leverage their experience, vision and capabilities on behalf of our talented array of portfolio companies, as well as the management teams of these portfolio companies who remain the very essence of our business.
We enter the new financial year well positioned to capitalise further on opportunities in 2018/19 and remain focused on executing our strategy for the benefit of our shareholders.
Simon Cook
CEO
PORTFOLIO REVIEW
Overview
This year has seen an increase in the investment rate, taking advantage of the opportunities in the market that are afforded by our flexible model. Our Core Portfolio Companies have performed strongly, driven by revenue growth and from financing rounds and exits at higher valuations being achieved.
At the year ended 31 March 2018 the fair value of the Company's Gross Primary Portfolio had increased to GBP243.5 million (2017: GBP112.7 million from GBP78.7 million since the IPO in June 2016). Excluding new investments and realisations across our portfolio of companies, the gross portfolio value has increased 66% (2017: 39%). During the year, the Group has realised the investment holdings in Clavis, Aveillant and Moviepilot with GBP15.9 million (2017: GBP42.0 million) of cash generated (including amounts held in escrow). The Company has invested GBP71.5m (2017: GBP37.1 million) in the year, with a further GBP24.8 million (2017: GBP6.0 million) co-invested from EIS/VCT and managed funds, into the next generation of high-growth digital technology companies and to further support our existing portfolio.
The increase in fair value in the period has been driven by continued strong performance across the portfolio with notable uplifts in the value of the core portfolio companies, in particular Graphcore, Lyst, Trustpilot, Perkbox, M-Files, PodPoint and TransferWise (acquired as part of the Seedcamp Fund I and II acquisition in the year).
At year end, the portfolio held by the plc consists of significant minority interests in 31 companies (2017: 29 companies). The fair value of the Gross Primary Portfolio is underpinned by ten core holdings which account for approximately 70% of the total portfolio value, with the remaining value spread across 21 investments which have the potential to grow into the core holdings of the future. Further investments post year end bring the current portfolio to 33 companies (see note 30).
As we scale the business the fair value of the core portfolio holdings is increasing. New investments in the year (Ledger and TransferWise) and realisations (Clavis Insight) have been reflected such that the core companies now comprise of: Trustpilot, Graphcore, Lyst, Perkbox, Ledger, TransferWise, Pod Point, Graze, M-Files, and SportPursuit. These portfolio companies now have an average turnover in excess of US$77.0 million, growing in aggregate over 46% annually from 2017. The gross profit margin of the core holdings average 65% and demonstrate the ability of the companies to reinvest for future revenue growth and also the opportunity for future profitability at the appropriate time in the company's life cycle. Post year-end investments in Revolut and Aircall are expected to form part of the core portfolio going forward.
The fair value growth in the period reflects the strong revenue growth of the portfolio companies, the flexible model of the plc to be able to acquire positions at a discount by providing liquidity to private markets and the upside impact of portfolio companies achieving financing rounds at higher valuations.
Investments
The target rate of capital deployment from the plc is GBP60.0 million with a further GBP40.0 million from co-investment funds. During the financial year a total of GBP71.5 million (2017: GBP37.1 million) was deployed by the plc and a further GBP24.8 million (2017: GBP6.0 million) across the Group in 20 companies (9 new and 11 existing) and 4 FOF. Since the year end, the Group has invested a further GBP21.5 million post year end (see note 30). The Group continues to balance the portfolio by deploying approximately 30% of the Group's investment capital towards smaller rounds in early stage companies with approximately 70% being invested in larger later-stage growth rounds. The intention is to increase the size of the equity interest held in the portfolio companies over time in line with the available capital of the Group.
Some of the notable new investments made in financial year ended 31 March 2018 include:
- GBP18 million into Ledger, the Paris headquartered cryptocurrency and blockchain security company.
- GBP18 million to acquire Seedcamp Fund I and II, 2007 and 2010 vintage funds which include stakes in high profile growing technology companies including TransferWise (a leading international Fintech money transfer business), Codacy, Edited, Erply, Fishbrain, Codility, Winnow, Codeship and Try.com and which provides strong follow-on potential.
- GBP21.0 million across the Group (GBP12.0 million plc, GBP9.0 million EIS/VCT) into Ieso Digital Health (online mental health platform), Verve (word-of-mouth sales software), Evonetix (DNA synthesis platform), Kaptivo (SaaS-based digital collaboration solutions for enterprise using computer vision), Droplet (software allowing unmodified applications to run on any device) and PremFina (insure-tech business providing premium finance).
The Company also made further investments of GBP17.0 million alongside a further GBP3.1 million from EIS/VCT to increase its holdings in:
- Trustpilot, the global online review community. - Perkbox, digital employee engagement platform.
- Pod Point, the UK's leading provider of electric car charging solutions for home, workplace and public charging.
- Resolver, the customer support and complaints resolution software business. - Realeyes, machine learning technology measuring emotions through facial recognition.
Alongside this, the Company has continued to expand its fund of fund strategy with further commitments to a number of Europe's top seed funds: Episode 1 (UK), Seedcamp Fund IV (UK), Join Capital (Germany), Icebreaker (Finland). Commitments have also been made to three other funds based in London, Cambridge and Ireland.
A further GBP21.5 million has been committed for investment in new companies post year end as follows:
- A further GBP10.0 million invested by the Company in Aircall. - Up to GBP11.5 million committed by the Company in Revolut.
Realisations
The Company announced the following significant disposals since IPO:
- December 2017 - The sale of Clavis Insight, a leading eCommerce insights company to Ascential Plc. The sale was for an initial cash consideration of $US119.0 million resulting in cash to the Company, including escrows of GBP15.3 million. This represented a cash exit multiple on funds invested of 1.9x.
- September 2016 - the sale of Movidius to Intel Corporation. Movidius is a leader in high performance, ultra-low power computer vision technology for connected devices. This sale brings an estimated total gross cash return to the Company of approximately GBP27.4 million, including amounts held in escrow. This represented a cash exit multiple on funds invested by the Company of 7.6x;
- October 2016 - the sale of Qosmos to ENEA. Qosmos is a supplier of network intelligence software based on Deep Packet Inspection and commands a dominating share of its market. The sale was for a total gross cash consideration of approximately EUR52.7 million resulting in cash to the Company, including escrows, of GBP8.0 million. This represented a cash exit multiple on funds invested by the Company of 1.9x; and
- November 2016 - the sale of Datahug, a sales forecasting software company, to Callidus Software Inc for a cash consideration of approximately US$13.0 million, resulting in a gross cash return to the Company of approximately GBP3.6 million, including funds held in escrow. This represented a cash exit multiple on funds invested by the Company of 1.6x.
- Since September 2016, interim results the Group has disposed of its remaining holding in Horizon Discovery. The Company realised a gross cash return on investment of GBP2.9 million which represented a cash exit multiple of 2.6x. In addition, the Company also exited its investment in WorldStores which realised a gross cash loss of GBP4.3 million.
Hot Features
Premium
Fair Value Fair Value Interest
of of FD
Investments Investments category
31st March Movement in Draper Esprit 31st March ** at
2017 Investments Realisations*** Fair Value (Ireland) Limited 2018 reporting
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 date
Investments
Trustpilot 18,226 6,700 - 9,407 - 34,333
Graphcore 2,307 1,853 - 19,228 - 23,388 C
Lyst 8,052 - - 10,289 - 18,341 B
Perkbox 1,650 6,616 - 9,229 - 17,495 C
Ledger - 17,703 - - - 17,703 C
M-Files 9,789 - - 4,570 - 14,359 B
SportPursuit 10,070 206 - 3,091 - 13,367 B
Transferwise - 10,501 - 1,688 - 12,189 D
Graze 9,683 - - 365 - 10,048 A
Podpoint 3,350 2,010 - 4,524 - 9,884 B
Remaining Portfolio 47,667 25,933 (15,338) 10,869 953 70,085 C
Total 110,794 71,523 (15,338) 73,260 953 241,193
Co-invest assigned to plc 1,935 - - 385 - 2,320
Gross Portfolio Value 112,729 71,523 (15,338) 73,645 953 243,513
Carry external (5,621) - - (5,858) 302 (11,177)
Portfolio deferred tax (3,413) - - (332) 1,895 (1,849)
Trading carry & co-invest 2,276 - - (853) - 1,423
Net portfolio value 105,971 71,523 (15,338) 66,603 3,151 231,910
* Realisations do not include amounts held in escrow. Total cash realisations including amounts held in escrow was GBP15.9 million (2017: GBP42.0 million)
** Fully diluted interest categorised as follows: Cat A: 0-5%, Cat B: 6-10%, Cat C: 11-15%, Cat D: 16-25%, Cat E: >25%
Core Portfolio Companies
Graphcore
The Group first backed Graphcore in 2016 and has now invested GBP4.2 million in total, with the most recent investment in 2017 of GBP1.9 million, part of a wider US$30.0 million Series B funding round. Since then, US fund Sequoia Capital, led a further US$50.0 million round in the company.
Graphcore is a machine intelligence semiconductor company, changing the way that developers can build AI and machine learning applications through its cutting-edge processing capabilities. Its technology will be indispensable for advancements in artificial intelligence and machine learning across diverse industries - from autonomous vehicles to personalised healthcare, intelligent mobile devices and collaborative robots. The appetite for an easier and more powerful way to develop such applications is growing rapidly.
The business is a spin-out of XMOS, a semiconductor business based near Bristol, UK, which is backed by other funds managed by Draper Esprit. Nigel Toon, the CEO and Simon Knowles, the CTO, were previously founders of Icera, a Draper Esprit management backed semiconductor business which was sold to NVIDIA for US$360 million in 2011. The company plans to bring its intelligent processing system to market I this year, which is anticipated to enable material performance increases (from 10-100x) for machine learning computation.
Alongside Draper Esprit, investors include: Sequoia Capital, Atomico, Amadeus Capital, Robert Bosch Ventures, C4 Ventures, Dell Technologies Capital, Foundation Capital, Pitango Venture Capital, the Samsung Catalyst Fund and AI experts such as Demis Hassabis (DeepMind), as angel investors.
TrustPilot
Draper Esprit Funds first invested in Trustpilot in 2013, with follow-on investment in 2015 and 2017 bringing the total investment by the Company to GBP18.1 million, including GBP6.7 million invested in the financial year.
Founded in 2007, Trustpilot is a global, multi-language review community. Trustpilot has customers in 65 countries including Denmark, Sweden, the UK, France, Italy, Germany and the Netherlands, as well as the US. The company's aim is to build the world's single most trusted review company.
It is rapidly becoming an essential part of customer service for consumer-facing companies. Consumers visit the Trustpilot website to leave positive or negative reviews about an online merchant where they purchased a product. Once a merchant has a paid subscription to use Trustpilot, they are able to respond directly and openly with consumers who have left reviews.
Trustpilot has built a strong SaaS revenue model with excellent growth over the last 3 years. They have successfully expanded from Europe into the US, with over 42 million reviews and 210,000 reviewed companies in that market.
Alongside Draper Esprit, investors include: Vitruvian Partners, Index Ventures, Northzone and SEED Capital Denmark.
Perkbox
Perkbox, a digital employee engagement platform, received GBP2.5 million (plc GBP1.7 million) from the Group in 2016. In 2017, the plc built its stake in the business further by investing GBP6.6 million.
Perkbox enables companies of all sizes to incentivise, motivate and attract staff with over 200 perks and benefits. Its platform includes a sophisticated rewards and recognition infrastructure. Launched in 2015, the company already has over 650,000 paying members ranging from SMEs to large corporations such as British Gas and BUPA. The company has now developed a white-labelled platform called "Perkbox for customers", which helps businesses acquire, connect, and retain loyal customers. The company has doubled year-on-year and now has over 165 employees. Forbes magazine recently ranked Perkbox as one of Britain's fastest growing companies.
Draper Esprit first invested in Perkbox alongside the crowd on the Seedrs platform.
Ledger
Ledger, a cryptocurrency and blockchain security company, received GBP17.7 million from the plc in January 2018.
The company have developed two main hardware products: the Ledger Nano S and the Ledger Blue, both of which enable users to store their keys offline. They will also launch a new product: the Ledger Vault, enabling hedge funds, banks and family offices to manage their crypto assets, due to high demand. All these products are underpinned by a unique technology: an Operating System (OS) specifically designed to run on any secure hardware and to support any crypto asset.
By building a cold storage solution, the company offers users the most secure option in the market, enabling crypto owners to keep full ownership of their digital assets, without the need for third party intervention. The hardware wallets isolate the private keys from computers or smartphones, which are easily hackable.
Already profitable, it has sold over a million of cryptocurrency hardware wallets to customers in 165 countries. The team, now over 80 employees across France and the US, has managed to recruit some of the best engineering talent from organisations such as Gemalto and French smart card experts, such as Oberthur Technologies.
Other investors include Draper Network funds, Draper Associates (US), Draper Dragon (China) and Boost VC (US), as well as FirstMark Capital, Cathay Capital and Korelya Capital.
SportPusuit
SportPursuit was founded in 2011 as a UK-based sport-specific ecommerce website where members receive access to sales from brand partners targeting the technical sportswear and outdoor clothing and equipment space. The company offers up to 70% discounts on sports and outdoor brands. SportPursuit has customers in the UK, Australia, Germany, France and Scandinavia. It aims to be the world's largest private shopping club for sports enthusiasts.
Currently sales are focused across the following niches: outdoor, running, skiing & snowboarding, health & wellbeing, athletics, swimwear, cycling, golf, tennis and experiences (gyms, clubs). The vision of the team is to utilise the power of the online channel, the SportPursuit brand and the community they build up around it to realise a greater value opportunity.
Alongside Draper Esprit Funds, investors include CIT Growth Capital and Scottish Equity Partners.
M-Files
M-Files is a software company which provides enterprise information management (EIM) solutions to eliminate information silos and to provide access to content from core business systems and devices. By using software based on the meta-data contained within the document, it is not constrained by where the document is stored or resides.
The M-Files solution is built on three pillars: it's metadata based, repository neutral, and intelligent. That means that you can find data based on what it is, not where it's stored. See information in context automatically, regardless of its system of origin. M-Files therefore enables users to access data easily, with a faster and more intuitive data migration system.
Alongside Draper Esprit, other investors include Partech Ventures and Tesi.
Graze
Graze is a multichannel manufacturer of health snacks, operating in the UK and the US. Founded in 2009, it developed a subscription model based on experiences of founder Graham Bosher at Lovefilm, the DVD rental business. The company has developed logistics technology that allows it to deliver cost-effectively across the UK and the US. It utilises data generated from user reviews to innovate and develop new products for evolving taste preferences and growing consumer demand for wholesome on-the-go snack options.
The company has launched its own retail product with wide availability in the UK across 11,000 stores including retailers such as Boots, Tesco, WH Smith and Sainsbury's. This will drive further UK growth together with new online ecommerce sales through a subscription-based model. The company launched in the US in 2016 and their products are now available in over 20,000 retail stores in this market, and further online growth is forecast. Graze remains profitable with strong gross margins.
Graze's vision is to become the number one health snack brand in the world.
Alongside Draper Esprit, investors in Graze include The Carlyle Group and Octopus Investments.
Lyst
Lyst is a global fashion search platform used by 65 million people every year. Lyst is one of the world's largest e-commerce websites, offering over 4.2 million fashion products from 12,000 of the world's leading fashion brands and stores. The company aims to empower customers to find the fashion that's perfect for them, whatever their style.
With over a million orders, the company reached profitability this year and has grown 70% year on year. It now has offices in New York and London. Draper Esprit invested GBP2.6 million in 2012.
Alongside Draper Esprit, investors include Balderton Capital, Accel Partners and Susa Ventures.
Pod Point
Pod Point, the electric charge point supplier, received GBP3.4 million in 2017 and a further GBP2.0 million in 2018 from plc. Pod Point is a well-established, leading player in the UK's electric vehicle sector, having manufactured and sold over 50,000 charging points since it was founded in 2009.
The market for electric vehicles is going from strength to strength, driven by advances in technology, infrastructure developments and cost efficiencies. In the UK, Pod Point has in excess of a 40% market share of the home charge market, having sold over 50,000 charging points. The team is also expanding rapidly and now comprises over 140 employees. Following recent partnerships with Barratt Homes, Holiday Extra and Hyundai, Pod Point intends to have one of its stations installed everywhere people park for an hour or more by 2020.
Alongside Draper Esprit, investors include Barclay's Capital and QVentures.
TransferWise
TransferWise is an international money transfer platform - using real exchange rates and has no hidden fees. Co-founded by Taavet Hinrikus and Kristo Kaarmann, TransferWise was launched in 2011. It is now one of Europe's most successful fintech startups and over two million people use the service to transfer US$1.2 billion each month.
In April 2018, the company became the first non-bank to join the Bank of England's payment system, enabling it to process payments in the UK without going through commercial banks.
Draper Esprit acquired a stake in TransferWise through the acquisition of Seedcamp Fund I and II as a Secondary portfolio.
Alongside Draper Esprit, other investors include Andreessen Horowitz, Valar Ventures, Baillie Gifford, Sir Richard Branson and Max Levchin of PayPal. In 2017, the company announced a further US$280.0 million in a funding round led by Old Mutual Global Investors and IVP.
Emerging Portfolio Companies
Evonetix
Draper Esprit co-led a GBP9.0 million funding round in Evonetix, helping it to scale technology that opens up new possibilities for synthetic biology. The company is pioneering a new approach to scalable and high-fidelity gene synthesis and received GBP1.8 million funding from the plc and a further GBP1.8 million from the Group in January 2018.
The ability to synthesise fragments of DNA without the limitation of sequences and with no fundamental errors is a challenge. All existing DNA manufacturing methods can only produce short sequences because longer sequences have a higher rate of error. Evonetix was founded in 2016 to address this very problem. Their platform uses an addressable silicon array to direct the synthesis of DNA at many sites in parallel, followed by an error-detection process to enable DNA production at scale.
The US$12.3 million financing was co-led by DCVC (Data Collective) of Palo Alto, CA and Draper Esprit, and included the Morningside group, alongside existing investors Providence Investment Company (Jersey), Cambridge Consultants Ltd (Cambridge, UK), Rising Tide Fund (San Francisco, CA) and Civilization Ventures (San Francisco, CA).
Ieso
Draper co-led an GBP18.0 million funding round, the largest amount raised by a digital behavioural health business in Europe. Draper Esprit invested GBP7.5 million across the Group (GBP3.8 million from plc) alongside existing investor Touchstone Innovations. This was part of a round to accelerate growth in Ieso's home market and commercialise its transformative technology platform in the US.
Based in Cambridge, UK, Ieso Digital Health's breakthrough technology, is transforming the way mental health is delivered. Ieso provides patients with access to secure, one-on-one, real-time, evidence-based cognitive behavioural therapy (CBT) programmes, delivered by accredited therapists, at a time that is convenient for patients. Ieso's intelligent technology platform is both cost effective and removes many of the significant barriers preventing treatment, including stigma and accessibility. It also gives its therapist network guides and insights to enhance their performance and clinical outcomes.
More than 16,700 patients have been treated to date and Ieso now leads the way in digital therapy as the number one provider of online CBT in the UK and has also recently expanded into the USA. Unlike many other online or digital services, Ieso's method was validated in a randomised clinical trial published in The Lancet in 2009.
Financial Review
The year ended 31 March 2018 has been an active period for the Group highlighted by the June 2017 equity raise of GBP100.0 million (GBP95.3 million net of fees) which has led to an increased investment target of GBP60.0 million per annum by the plc (alongside a further GBP40.0 million from EIS and VCT co-investment funds). Accordingly, further investment activity has been demonstrated with GBP71.5 million deployed in the financial year (2017: GBP37.1 million). Portfolio performance, particularly in the core portfolio (as further described in the Portfolio Review) has driven strong fair value returns and further exits have returned additional cash back to the plc. The benefits of the plc model have been further demonstrated through the secondary acquisition of Seedcamp Fund I and II and the building of secondary stakes in existing portfolio companies. The flexibility to invest outside of primary funding rounds enhances the investment opportunity set the plc is able to take advantage of.
The Gross Primary Portfolio, the gross value of the Company's investment holdings before deductions for carry and any deferred tax, has more than doubled to GBP243.5 million (2017: GBP112.7 million), an increase of GBP130.8 million (2017: GBP34.0 million). The increase in the value of the Gross Primary Portfolio reflects investments made during the year of GBP71.5 million, a fair value increase of GBP74.6 million (2017: GBP43.8 million) and realisations of GBP15.3 million (2017: GBP35.1 million). The increase in fair value has been driven by the strong performance across the portfolio and in particular across the core holdings (ten portfolio companies with a fair value greater than GBP8.0 million that combine to represent more than 70% of the Gross Portfolio Value). Notable uplifts in the value of Graphcore, Trustpilot, Lyst, Perkbox, Pod Point and TransferWise (acquired as part of the Seedcamp Fund I and II acquisition in the period). Graphcore (reflecting the uplift in value from the US$50.0 million Series C investment by Sequoia), Trustpilot (driven by growth in revenue and continued secondary acquisitions to build the equity holding), Lyst (revenue growth and turning profitable), Perkbox (continued strong revenue growth and secondary stake acquisition), Pod Point (continued revenue growth) and TransferWise (acquired as part of the Seedcamp Fund I and II acquisition in the period - raised equity at $1.6 billion led by IVP).
In the financial year the Group has realised successful exits from the investments in Clavis, Aveillant and Moviepilot generating GBP15.9 million (2017: GBP42.0 million) of cash proceeds (including amounts held in escrow). Of the original 24 companies in the portfolio at IPO in June 2016, Draper Esprit has now exited 10 companies (including Tails.com post period end, see note 30).
The Group's portfolio is valued in accordance with the International Private Equity and Venture Capital Valuation Guidelines ("IPEV"). Following the initial investment in a portfolio company the value of the investment is held at cost in the Group's books. The mechanism for growth in the portfolio companies to be translated into increased fair values in the accounts of the Group is triggered by the portfolio company achieving either financing rounds at higher valuations (with external investors as well as the Group) or revenue growth in the portfolio company being reflected against listed comparable companies price-sales ratio multiples.
The Gross Primary Portfolio of GBP243.5 million (2017: GBP112.7 million) is subject to deductions for the fair value of the carry liabilities and deferred tax to generate the net investment value of GBP231.9 million (2017: GBP106.0 million) which is reflected on the consolidated statement of financial position as financial assets held at fair value through the profit or loss. The table opposite has been generated to reflect the movement in value of the portfolio during the period.
A deferred tax provision of GBP1.8 million (2017: GBP3.4 million) has been recognised in the year against the gains in the portfolio to reflect holdings of less than 5% equity interest or for a period of less than 12 months in the underlying portfolio companies. Tax was paid in the period of GBP1.9 million against realisations made where the holding period was less than 12 months (Movidius, Qosmos, Datahug). Carry balances due to previous and current employees of the Group are accrued on the basis of the current fair value at the year-end and deducted against the Gross Primary Portfolio, the Carried Interest Plan is further described in the Directors' Remuneration Report (page 40). Trading carry and co-investment of GBP1.4 million (2017: GBP2.3 million) reflects the carry accrued to plc on the fair value of the portfolio companies held within legacy funds that are in run-off and continued to be managed by the Group. The net position of GBP231.9 million (2017: GBP106.0 million) is reflected on the balance sheet as financial assets held at fair value through the profit or loss.
Balance sheet net assets have increased by 107% to GBP311.3 million (2017: 17% to GBP150.7 million) in the period while net assets excluding goodwill have grown by 123% to GBP290.9 million (2017: 22% to GBP130.2 million) reflecting the growth in the fair value of the portfolio and the funds raised in June 2017. The increase in trade and other receivables to GBP4.8 million (2017: GBP0.5 million) is reflective of GBP3.5 million of accrued income relating to an EIS performance fee which is attributable from the sale of Grapeshot to Oracle. Grapeshot was an investment held in the EIS funds and generated a gross 20% performance fee on gains above 1.25x following the recent successful sale to Oracle. Encore Ventures is 70% owned by plc and the balances are therefore consolidated gross with a non-controlling interest balance reflecting the amounts not accruing to the plc. GBP1.0 million of the accrued income is directly attributable to the plc. This balance demonstrates the benefit of the co-investment funds in reducing the plc cost base and the upside potential from successful exits. The GBP3.5 million accrued income is also reflected as revenue on the income statement.
Year-end cash balances of GBP56.6 million (2017: GBP24.9 million) reflect the cash proceeds from the equity raise of GBP100.0 million (net of GBP5.0 million of directly attributable costs, which are reflected in the share premium account on the statement of financial position), amounts invested of GBP71.5 million, GBP15.3 million of investments realised and the administrative costs of the Company.
Goodwill of GBP20.5 million was generated from the acquisition of Esprit Capital Partners LLP ("ECP") and is held on the balance sheet as an intangible asset. The goodwill was recognised as the difference between the consideration and the fair value of the assets acquired in the accounts of ECP.
Consolidated statement of comprehensive income
Investment income for the year comprises the GBP66.6 million (2017: GBP35.7 million) of unrealised investment gains (gains are unrealised as they are held within Draper Esprit (Ireland) Limited, which is accounted for as an investment company) and fee income of GBP7.2 million (2017: GBP1.7 million) which is generated from management fees, performance fees and director fees.
Fee income has increased in the period as investment amounts increase and EIS and VCT funds have continued to increase the size of their funds raised. Fee income has increased in the period due to 1) the GBP3.5 million EIS performance fee, described above, of which GBP1.0 million is directly attributable to the plc (balance is reflected in non-controlling interests), 2) GBP3.5 million of management fees (2017: GBP1.6 million), which have increased in line with the assets under management of the Group.
Total operating costs of GBP7.1 million (2017: GBP4.0 million in the nine month period) consists of administrative costs of GBP5.8 million (2017: GBP3.7 million), predominantly relating to employment costs and other operating expenses, non-cash share-based payments of GBP0.5 million (2017: GBP0.1 million), which have increased in the year following the issuance of further options in November 2017 and the charge taken relating to lapsed options (note 13), direct investment costs of GBP0.4 million and exceptional items of GBP0.2 million for personnel changes. Administrative costs are in line with expectations and reflect the growth in the investment team and level of deal activity.
Post balance sheet events
The Group has made further investments totalling GBP21.5 million (see note 30) and realised GBP2.5 million cash from the sale of Tails.com to Nestlé Purina Petcare.
After a successful first full year as a listed entity, the Company is scaling and taking advantage of the broad range of opportunities available to it.
Ben Wilkinson
CFO
Consolidated Statement of Comprehensive Income
for the year ended 31 March 2018
Notes Year ended Year ended
31 Mar 31 Mar
2018 2017
GBP'000s GBP'000s
Unrealised gains on investments held at fair value
through the profit and loss 5 66,603 35,744
Fee income 6 7,163 1,673
Total investment income 73,766 37,417
Operating expenses
General administrative expenses 7 (5,785) (3,705)
Depreciation and amortisation (160) (127)
Share based payments (490) (123)
Investment and acquisition costs (424) -
Exceptional items (229) -
Total operating costs (7,088) (3,955)
Operating profit from operations 8 66,678 33,462
Finance (expense)/income 10 (1,418) 221
Operating profit/(loss) before tax 65,260 33,683
Income taxes 11, 21 43 (438)
Profit/(loss) for the year 65,303 33,245
Share of profit/(loss) attributable to non-controlling
interests (3,131) (330)
Profit/(loss) from continuing operations 62,172 32,915
Other comprehensive income/(expense):
Other comprehensive expense - -
Total comprehensive income/(loss) for the year 62,172 32,915
Earnings per share attributable to:
Equity holders of parent (pence) 12 86.8 80.8
Diluted earnings per share (pence) 12 83.3 -
The notes on pages 58 to 80 are an integral part of these consolidated financial statements.
Consolidated Statement of Financial Position
for the year ended 31 March 2018
Non-current assets Notes Year ended Year ended
31 Mar 31 Mar
2018 2017
GBP'000s GBP'000s
Non-current assets
Intangible assets 14 21,055 21,158
Investments in associates 15 258 258
Financial assets held at fair value through the
profit or loss 16 231,910 105,971
Property, plant and equipment 17 229 152
Total non-current assets 253,452 127,539
Current assets
Trade and other receivables 19 4,840 527
Cash and cash equivalents 56,641 24,892
Total current assets 61,481 25,419
Current liabilities
Trade and other payables 20 (2,948) (1,548)
Total current liabilities (2,948) (1,548)
Non-current liabilities
Deferred tax 21 (651) (716)
Total non-current liabilities (3,600) (716)
Net assets 311,334 150,694
Equity
Share capital 22 716 407
Share premium account 22 188,229 93,248
Merger relief reserve 22 23,920 23,920
Share-based payments reserve 13 613 123
Retained earnings 95,064 32,892
Equity attributable to owners of parent 308,542 150,590
Non-controlling interests 2,792 104
Total equity 311,334 150,694
Net assets per share (pence) 12 431 370
The financial statements were approved by the Board of Directors and authorised for issue on 24 May 2018.
S. M. Chapman
Chief Operating Officer
The notes on pages 58 to 80 are an integral part of these consolidated financial statements.
Consolidated Statement of Cash Flows
for the year ended 31 March 2018
Notes Year ended Year ended
31 Mar 31 Mar
2018 2017
GBP'000s GBP'000s
Cash flows from operating activities
Operating profit/(loss) after tax 65,303 33,245
Adjustments to reconcile operating profit to net
cash flows used in operating activities:
Revaluation of investments held at fair value
through the profit and loss 5 (66,603) (35,744)
Depreciation and amortisation 160 155
Share-based payments 490 123
Bad debt provision - 37
Foreign exchange movements 10 1,530 (221)
(Increase)/ decrease in trade and other receivables (4,314) 681
Increase in trade and other payables 1,401 441
Net cash used in operating activities (2,033) (1,283)
Tax paid (107) -
Net cash outflow from operating activities (2,140) (1,283)
Cash flows from investing activities
Purchase of property, plant and equipment (204) (166)
Interest received 112
Cash acquired on purchase of subsidiary - 495
Loans repaid from underlying investment vehicles 16 15,338 17,137
Purchase of initial portfolio 16 - (40,000)
Purchase of investments 16 (74,674) (20,602)
Net cash outflow investing activities (59,428) (43,136)
Cash flows from financing activities
Cash paid to non-controlling interests (443) (246)
Proceeds from issue of share capital 22 100,000 72,060
Equity issuance costs 22 (4,710) (2,724)
Net cash inflow from financing activities 94,847 69,090
Net increase in cash & cash equivalents 33,279 24,671
Cash and cash equivalents at beginning of year 24,892 -
Exchange differences on cash and cash equivalents 10 (1,530) 221
Cash and cash equivalents at end of year 56,641 24,892
The notes on pages 58 to 80 are an integral part of these consolidated financial statements.
Consolidated Statement of Changes in Equity
for the year ended 31 March 2018
Share Share Merger Share-based Retained Total Attributable Total
capital premium relief payments earnings attributable to equity
GBP'000s GBP'000s reserve reserve GBP'000s to equity non-controlling GBP'000s
GBP'000s GBP'000s holders interests
of the GBP'000s
parent
GBP'000s
Balance at 31
March 2016 50 - - - (3) 47 - 47
Total
comprehensive
Income
for the year
Profit for the
year - - - - 32,915 32,915 330 33,245
Acquired
reserves due
to
non-controlling
interest - - - - (20) (20) 20 -
Amounts
withdrawn by
non-controlling
interest - - - - - - (246) (246)
Total
comprehensive
income/(loss)
for the year - - - - 32,895 32,895 104 32,999
Contributions by
and
distributions
to the owners:
Issue of share
capital
(note 22) 357 - - - - 357 - 357
Share premium
(note 22) - 93,248 - - - 93,248 - 93,248
Merger relief
reserve
(note 22) - - 23,920 - - 23,920 - 23,920
Share based
payment (note
13) - - - 123 - 123 - 123
Balance at 31
March 2017 407 93,248 23,920 123 32,892 150,590 104 150,694
Comprehensive
Income for
the year
Profit for the
year - - - - 62,172 62,172 3,131 65,303
Amounts
withdrawn by
non-controlling
interest - - - - - - (443) (443)
Total
comprehensive
income
for the year - - - - 62,172 62,172 2,688 64,860
Contributions by
and
distributions
to the owners:
Issue of share
capital
(note 22) 309 - - - - 309 - 309
Share premium
(note 22) - 94,981 - - - 94,981 - 94,981
Merger relief - - - - - - - -
reserve
(note 22)
Share based
payment (note
13) - - - 490 - 490 - 490
Balance at 31
March 2018 716 188,229 23,920 613 95,064 308,542 2,792 311,334
The notes on pages 58 to 80 are an integral part of these consolidated financial statements.
Notes to the Consolidated Financial Statements
1. General information
Draper Esprit plc (the "Company") is a public limited company incorporated and domiciled in England and Wales. On 15 June 2016, the Company listed on the London Stock Exchange's AIM market and the Irish Stock Exchange's ESM market (the "IPO").
The Company is the ultimate parent company in which results of all subsidiaries are consolidated. The consolidated financial statements ("the Group accounts") for the year ended 31 March 2018 comprise the financial statements of the Company and its subsidiaries (together, "the Group").
The consolidated financial statements are presented in Pounds Sterling (GBP) which is the currency of the primary economic environment the Group operates in. All amounts are rounded to the nearest thousand, unless otherwise stated.
2. Adoption of new and revised standards
Information on the Draper Esprit Group's structure is given in note 3(a). Information on other related party relationships of the Draper Esprit Group is provided in note 28.
In the current year, there were no new and revised standards and Interpretations that have been adopted which affected the amounts reported in these consolidated financial statements.
Standards not affecting the reported results or financial position
At the date of authorisation of these consolidated financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:
-- IFRS 15 Revenue from Contracts with Customers is the only new Standard effective from 1 January 2018. IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The Directors have not yet fully determined the impact on the Group's consolidated financial statements as a result of adopting this Standard.
-- IFRS 16 Leases was effective from 1 January 2018. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for the Group's operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments, see note 23. The Directors have determined that commitments of GBP1.9 million with respect to the Company's registered office (note 23) are recognised on the balance sheet as a liability for the financial year commencing 1 April 2018.
-- IFRS 9 Financial Instruments: IFRS 9, effective from 1 January 2018, will replace IAS 39 in its entirety. The process has been divided into three main components, being classification and measurement; impairment; and hedge accounting. The Group provisionally assesses the potential effect to be immaterial given the majority of its financial assets will be held 'at fair value through profit or loss' ('FVTPL'). The Directors have not yet fully determined the impact on the Group's consolidated financial statements as a result of adopting this Standard.
3. Significant accounting policies
Basis of accounting
The Group accounts have been prepared and approved by the Directors in accordance with all relevant IFRSs as issued by the International Accounting Standards Board ("IASB"), and interpretations issued by the IFRS Interpretations Committee, endorsed by the European Union ("EU"). The financial reporting framework that has been applied in the preparation of the Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). The Company has taken advantage of disclosure exemptions available under FRS 101 as explained further in note 1 of the Company's accounts. The financial statements are prepared on a going concern basis as disclosed in the Directors' Report.
a) Basis of consolidation
The consolidated financial statements comprise the Company and the results, cash flows and changes in equity of the following subsidiary undertakings:
Name of undertaking Nature of business Country % ownership
of incorporation
Esprit Capital Partners
LLP Investment Management England 100%
Encore Ventures LLP Investment Management England 71%
Esprit Capital I GP Limited General Partner England 100%
DFJ Esprit II GP Limited General Partner England 100%
Esprit Capital III Founder
GP Limited General Partner England 100%
Esprit Capital III GP
LP General Partner England 100%
Encore I GP Limited General Partner England 100%
Encore I Founder GP Limited General Partner England 100%
Esprit Capital Management
Limited Admin company England 100%
Esprit Capital Holdings
Limited Dormant England 100%
Esprit Nominees Limited Dormant England 100%
Esprit Capital I CIP Limited Dormant England 100%
Subsidiaries
Subsidiaries are entities controlled by the Group. Control, as defined by IFRS 10, is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated from the date on which the Group effectively obtains control. They are deconsolidated from the date that control ceases. Control is reassessed whenever circumstances indicate that there may be a change in any of these elements of control. Refer to note 4(b) for further information. The Group has accounted for the acquisition of Esprit Capital Partners LLP on 15 June 2016 as an acquisition in accordance with IFRS 3 business combinations and not as a reverse acquisition having assessed the substance of the transaction, including control and changes of in ownership. All transactions and balances between Group subsidiaries are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests.
Associates
Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost. Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in profit or loss, and the Group's share of movements in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. The carrying amount of equity-accounted investments is tested for impairment where there are indications that the carrying value may no longer be recoverable.
Investment company
In accordance with the provisions of IFRS 10, Draper Esprit plc considers itself to be an investment entity and its wholly-owned subsidiary, Draper Esprit (Ireland) limited to be an investment company as its sole purpose is hold investments on behalf of the Group. Consequently, Draper Esprit (Ireland) Limited is not consolidated in accordance with IFRS10, instead it is recognised as an investment held at fair value through the profit and loss on the consolidated balance sheet. Loans to investment vehicles are treated as net investments at fair value through the profit and loss.
The below is a list of entities that are controlled and not consolidated but held as investments at fair value through the profit and loss on the consolidated balance sheet.
Name of undertaking Principal activity Country
of incorporation
------------------------ -------------------- ------------------
Draper Esprit (Ireland) Investment company Ireland
Limited
------------------------ -------------------- ------------------
Esprit Capital III LP Limited partnership England
------------------------ -------------------- ------------------
Esprit Capital IV LP Limited partnership England
------------------------ -------------------- ------------------
Esprit Investments (1) Limited partnership England
LP
------------------------ -------------------- ------------------
Esprit Investments (1) Limited partnership England
(B) LP^
------------------------ -------------------- ------------------
Esprit Investments (2) Limited partnership England
LP^
------------------------ -------------------- ------------------
Esprit Investments (2) Limited partnership England
(B) LP^
^ Esprit Investments (1) (B) LP, Esprit Investments (2) (B) LP and Esprit Investments (2) LP were newly registered UK limited partnerships during the year.
Limited Partnerships (co-investment)
The following limited partnerships that the Group's General Partners are members of are not considered to be controlled and, therefore, they are not consolidated in these financial statements:
Name of undertaking Principal activity Country
of incorporation
--------------------------- ---------------------------------- ------------------
Encore I GP LP General partner England
--------------------------- ---------------------------------- ------------------
DFJ Esprit II Founder Co-investment limited partnership England
LP
--------------------------- ---------------------------------- ------------------
DFJ Esprit II Founder Co-investment limited partnership England
2 LP
--------------------------- ---------------------------------- ------------------
Encore I Founder LP Co-investment limited partnership England
--------------------------- ---------------------------------- ------------------
Encore I Founder 2014 Co-investment limited partnership England
LP
--------------------------- ---------------------------------- ------------------
Encore I Founder 2014-A Co-investment limited partnership England
LP
--------------------------- ---------------------------------- ------------------
Esprit Capital III Founder Co-investment limited partnership England
LP
b) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and other sales-related taxes. All revenue from services is generated within the UK and is stated exclusive of value added tax.
Revenue from services comprises:
-- Fund management services
Fund management fees are either earned at a fixed annual rate or are set at a fixed percentage of funds under management, measured either by commitments or invested cost, depending on the stage of the fund being managed. Revenues are recognised as the related services that are provided.
-- Arrangement fees
Occasionally Draper Esprit plc may charge a fee as part of arranging an investment from one of the funds it manages into a portfolio company. Such fees are charged at a rate determined on a case-by-case basis and are payable upon completion of the investment.
-- Portfolio Directors' fees
Portfolio Directors' fees are annual fees, charged in arrears, to an investee company and payable to Draper Esprit plc as the fund manager. Draper Esprit plc only charges Directors' fees on a limited number of the investee companies.
-- Performance fees
Performance fees are earned on a percentage basis on returns over a hurdle rate in the statement of comprehensive income. Amounts are recognised as revenue when it can be reliably measured and probable funds will flow to the Group.
c) Deferred income
The Group's management fees are typically billed either quarterly of half-yearly in advance. Where fees have been billed for an advance period the amounts are credited to deferred income, and then subsequently released through the profit and loss accounting the period the fees relate to.
d) Business combinations
The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values.
The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree's financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of: a) fair value of consideration transferred; b) the recognised amount of any non-controlling interest in the acquiree; and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (i.e. gain on a bargain purchase) is recognised in profit or loss immediately.
e) Goodwill and other intangible assets
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.
When the consideration transferred by the Group in a business combination includes an asset or liability resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the "measurement period" (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
Other intangible assets
Certain previously unrecognised assets acquired in a business combination that qualify for separate recognition are recognised as intangible assets at their fair values e.g. brand names, customer contracts and lists (see note 14). All finite-lived intangible assets, are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing as described below. Customer contracts are amortised on a straight-line basis over their useful economic lives which is typically the duration of the underlying contracts. The following useful economic lives are applied:
-- customer contracts: eight years. f) Impairment
For the purposes of assessing impairment, assets are grouped at the lowest level for which there are largely independent cash inflows ("cash generating units" or "CGU"). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash-generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised in the consolidated statement of total comprehensive income for the amount by which the assets or cash generating units carrying amount exceeds its recoverable amount which is the higher of fair value less costs to sell and value-in-use. To determine value-in-use, management estimates expected future cashflows from each cash-generating unit and determine a suitable discount rate in order to calculate the present value of those cashflows. Discount factors are determined individually for each cash-generating unit and reflect their respective risk profile as assessed by management. Impairment losses for cash generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro-rata to the other assets in the cash-generating unit with the exception of goodwill, and all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge is reversed if the cash-generating units recoverable amount exceeds its carrying amount.
g) Foreign currency
Transactions entered into by Group entities in a currency other than the functional currency in which they operate are recorded at the rates prevailing when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates prevailing at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the profit and loss.
The individual financial statements of the Group's subsidiary undertakings are presented in their functional currency. For the purpose of these consolidated financial statements, the results and financial position of each subsidiary undertaking are expressed in Pounds Sterling, which is the presentation currency for these consolidated financial statements.
The assets and liabilities of the Group's undertakings, whose functional currency is not pounds sterling, are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period.
h) Financial assets
All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned and are initially measured at fair value, plus transaction costs, except for those financial assets classified at fair value through profit or loss, which are initially measured at fair value.
Financial assets are classified by the Group into the following specified categories: financial assets 'at fair value through profit or loss' (FVTPL) and 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Fair value through profit or loss
A financial asset may be designated as at FVTPL upon initial recognition if:
(a) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
(b) the financial asset forms part of a group of financial assets or financial liabilities, or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Draper Esprit Group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
(c) it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.
The Group considers that the investment interests it holds in Esprit Capital III LP, Esprit Capital III Founder LP, DFJ Esprit II Founder LP, Esprit Capital IV LP and Esprit Investments(I) LP are appropriately designated as at FVTPL as they meet criteria (b) above.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.
Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default.
The Groups loans and receivables comprise trade and other receivables, and cash and cash equivalents in the consolidated statement of financial position.
i) Financial liabilities
The Group's financial liabilities may include borrowings and trade, and other payables.
All financial liabilities are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned and are initially measured at fair value, plus transaction costs.
Financial liabilities are measured subsequently at amortised cost using the effective interest Method. All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within finance costs or finance income.
j) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the outflow of resources embodying the economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
k) Share capital
Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.
The Group's ordinary shares are classified as equity instruments.
l) Defined contribution schemes
Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.
m) Share-based payments
Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period. Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest. Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted. As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied. The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.
Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the remaining vesting period. Where equity instruments are granted to persons other than employees, the consolidated statement of comprehensive income is charged with the fair value of goods and services received.
n) Leased assets
Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a "finance lease") the asset is treated as if it had been purchased outright. The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum payments payable of the term of the lease. The corresponding lease commitment is shown as a liability. Lease payments are analysed between capital and interest. The interest element is charged to the consolidated statement of comprehensive income over the period of the lease and is calculated so that it represents constant proportion of the lease liability. The capital element reduces the balance owed to the lessor.
Where substantially all of the risks and rewards incidental to the ownership are not transferred to the Group (an "operating lease") the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight-line basis over the lease term. The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight-line basis.
o) Dividends
Dividends are recognised when they become legally payable. In the case of interim dividends to equity shareholders, this is when declared by directors. In the case of final dividends, this is when approved by the shareholders at the AGM.
p) Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years, and it further excludes items that are never taxable or deductible. The group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
q) Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled, or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities, and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.
r) Property, Plant and equipment
Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method, on the following basis:
Leasehold improvements - over the term of the lease
Fixtures and equipment - 33% p.a. straight line
Computer equipment - 33% p.a. straight line
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.
s) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments maturing within 90 days from the date of acquisition that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
t) Segmental reporting
IFRS 8, "Operating Segments" defines operating segments as those activities of an entity about which separate financial information is available and which are evaluated by the Chief Operating Decision Maker to assess performance and determine the allocation of resource. The Chief Operating Decision Maker has been identified by the Board of Directors as the Chief Executive Officer.
u) Financial instruments
Financial assets and financial liabilities are recognised on the consolidated balance sheet when the Group becomes a party to the contractual provisions of the instrument.
Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.
v) Exceptional items
The Group classifies items of income and expenditure as exceptional when the nature of the item or its size is likely to be material, so as to assist the reader of the financial statements to better understand the results of the operations of the Group. Such items by their nature are not expected to recur and are shown separately on the face of the consolidated statement of comprehensive income. The exceptional item in the current year of GBP0.23k (2017: GBPnil) relates to costs associated with a change in personnel.
w) Interest income
Interest income earned on cash and deposits and short-term liquidity investments is recognised when it is probable that the economic benefits will flow to the Group and the amount of income recognised can be measured reliably. Interest income is accrued in a time basis, with reference to the principal outstanding and at the effective interest rate applicable.
x) Carried interest
The Company has established carried interest plans for the Executive Directors, other members of the investment team and certain other employees (together, the "Plan Participants") in respect of any investments and follow-on investments made from Admission. Each carried interest plan operates in respect of investments made during a 24-month period and related follow-on investments made for a further 36-month period.
Subject to certain exceptions, Plan Participants will receive, in aggregate, 15% of the net realised cash profits from the investments and follow-on investments made over the relevant period once the Company has received an aggregate annualised 10% realised return on investments and follow-on investments made during the relevant period. The Plan Participants' return is subject to a "catch-up" in their favour. Plan Participants' carried interests vest over five years for each carried interest plan and are subject to good and bad leaver provisions. Any unvested carried interest resulting from a Plan Participant becoming a leaver can be reallocated by the Remuneration Committee.
The Groups interest in carried interest is measured at fair value through the profit and loss (FVTPL) with reference to the performance conditions described above.
Fair value measurement
Management uses valuation techniques to determine the fair value of financial assets. This involves developing estimates and assumptions consistent with how market participants would price the assets. Management bases its assumptions on observable data as far as possible but this is not always available, in that case management uses the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm's length transaction at the reporting date (see Note 4(a)).
4. Critical accounting estimates and judgements
The Directors have made the following judgements and estimates that have had the most significant effect on the carrying amounts of the assets and liabilities in the consolidated financial statement. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. There have been no changes to the accounting estimates and judgements in the financial year ended 31 March 2018.
a) Valuation of unquoted equity investments at fair value through the profit and loss
The judgements and estimations required to determine the appropriate valuation methodology of unquoted equity investments means there is a risk of material adjustment to the carrying amounts of assets and liabilities. These judgements include whether to increase or decrease investment valuations or not and require the use of judgement, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily available or observable.
The fair value of unlisted securities is established with reference to the International Private Equity and Venture Capital Valuation Guidelines (IPEVCVG). In line with the IPEVCVG, the Group may base valuations on earnings or revenues where applicable, market comparables, price of recent investments in the investee companies, or on net asset values.
The Group invests in early-stage and growth technology companies, through predominantly unlisted securities. Given the nature of these investments, there are often no current or short-term future earnings or positive cash flows. Consequently, the most appropriate approach to determine fair value is based on a methodology with reference to observable market data, being the price of the most recent transaction. Fair value estimates that are based on observable market data will be of greater reliability than those based on estimates and assumptions and accordingly where there have been recent investments by third parties, the price of that investment will generally provide a basis of the valuation.
The length of period for which it remains appropriate to use the price of recent investment depends on the specific circumstances of the investment, and the Group will consider whether the basis remains appropriate each time valuations are reviewed. If the "price of recent investment" methodology is no longer considered appropriate, the Group then considers alternative methodologies in the IPEVCVG guidelines, being principally price-revenue or price-earnings multiples, depending upon the stage of the asset, requiring management to make assumptions over the timing and nature of future revenues and earnings when calculating fair value.
Where a fair value cannot be estimated reliably, the investment is reported at the carrying value at the previous reporting date unless there is evidence that the investment has since been impaired.
In all cases, valuations are based on the judgement of the Directors after consideration of the above and upon available information believed to be reliable, which may be affected by conditions in the financial markets. Due to the inherent uncertainty of the investment valuations, the estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material. Due to this uncertainty, the Group may not be able to sell its investments at the carrying value in these financial statements when it desires to do so or to realise what it perceives to be fair value in the event of a sale. See note 26 and note 27 for information on unobservable inputs used and sensitivity analysis on investments held at fair value through the profit and loss.
b) Control assessment
The Group has a number of entities within its corporate structure and consideration has been made of which should be consolidated in accordance with IFRS 10, and which should not. The Group consolidates all entities where it has control over the following: power over the investee to significantly direct the activities; exposure, or rights, to variable returns from its involvement with the investee, and the ability to use its power over the investee to affect the amount of the investor's returns. The Company does not consolidate qualifying investment companies it controls in accordance with IFRS 10 and instead recognises them as investments held at fair value through the profit and loss. See note 3 (a) for further details.
c) Carrying amount of goodwill
Determining whether goodwill is impaired requires an estimation of the recoverable amount of the cash-generating units to which goodwill is allocated. The CGU was determined to be the fund managers, which is a critical management judgement as they are responsible for generating deal flow and working with investee companies creating value and maximising returns for the Group. The recoverable amount is based on "value in use" calculations which requires estimates of future cashflows expected from the cash generation unit (CGU) and a suitable discount rate in order to calculate present value. The key assumptions for the value in use calculations are the discount rate using pre-tax rates that reflect the current market assessments of the time value of money and risks specific to the CGU. The internal rate of return ("IRR") used was based on past performance and experience. The discount rate used was 10% and the IRR used was 20%. The carrying amount of goodwill at balance sheet date was GBP20.5m (2017: GBP20.5 million). The Group has conducted a sensitivity analysis on the impairment test of the CGU and the carrying value. A higher discount rate in the range of 15%-20% together with a lower IRR of 10% does not reduce the carrying value of goodwill to less than its recoverable amount.
d) Business combinations
The directors have undertaken a detailed assessment of the substance of the transaction through which the Company acquired the underlying investment vehicles and Esprit Capital Partners LLP and its subsidiaries with reference to the requirements of IFRS 10 and IFRS 3. Following that assessment directors have determined that this transaction is appropriately accounted for as an acquisition.
5. Earnings per share and net asset value
The calculation of basic earnings per share is based on the profit attributable to shareholders and the number of basic average shares. When calculating the diluted earnings per share, the weighted average number of shares in issue is adjusted for the effect of all dilutive share options and awards. There was no dilution impact in the prior year.
Basic earnings per ordinary share Profit Weighted Pence
after average per share
tax no. of
GBP'000s shares
'000
31 March 2018 62,172 71,612 86.8
31 March 2017 32,915 40,748 80.8
Diluted earnings per ordinary share Profit Weighted Pence
after average per share
tax no. of
GBP'000s shares
'000
31 March 2018 62,172 74,636 83.3
31 March 2017 - - -
Net asset value ("NAV") per share is based on the net asset attributable to shareholders and the number of basic average shares. When calculating the diluted earnings per share, the weighted average number of shares in issue is adjusted for the effect of all dilutive share options and awards. There was no dilution impact in the prior year.
Net asset value per ordinary share Net Weighted Pence
assets average per share
GBP'000s no. of
shares
'000
31 March 2018 308,542 71,612 431
31 March 2017 150,590 40,748 370
Diluted net asset value per ordinary share Net Weighted Pence
assets average per share
GBP'000s no. of
shares
'000
31 March 2018 308,542 74,636 413
31 March 2017 - - -
6. Intangible assets
31 March 2018 Goodwill(1) Customer Total
GBP'000s contracts(2) GBP'000s
GBP'000s
Cost
Cost carried forward as at 1 April 2017 20,476 818 21,294
Additions during the year - - -
Cost as at 31 March 2018 20,476 818 21,294
Accumulated amortisation
Amortisation carried forward as at 1 April 2017 - (136) (136)
Charge for the year - (103) (102)
Accumulated amortisation as at 31 March 2018 - (239) (238)
Net book value:
As at 31 March 2018 20,476 579 21,055
As at 31 March 2017 20,476 682 21,158
31 March 2017 Goodwill(1) Customer Total
GBP'000s contracts(2) GBP'000s
GBP'000s
Cost
Cost carried forward as at 1 April 2016
Additions during the year - - -
Acquired through business combinations (note 18) 20,476 818 21,294
Cost as at 31 March 2017 20,476 818 21,294
Accumulated amortisation
Amortisation carried forward as at 1 April 2016 - - -
Charge for the year - (136) (136)
Accumulated amortisation as at 31 March 2017 - (136) (136)
Net book value:
As at 31 March 2017 20,476 682 21,158
1 Goodwill of GBP20.5 million arose on the acquisition of all the capital interests in Esprit Capital Partners LLP, a Venture Capital manager based in the UK, on 15 June 2016 and represents the value of the acquired expertise and knowledge of the fund managers. The directors have identified the fund managers as the cash-generating unit ("CGU") being the smallest group of assets that generates cash inflows independent of cash flows from other assets or groups of assets. The fund managers are responsible for generating deal flow and working closely with investee companies creating value and maximising returns for the Group. The Group tests goodwill annually for impairment comparing the recoverable amount using value-in-use calculations and the carrying amount. Value-in-use calculations are based on future expected cash flows generated by the CGU from the realisation of investments for the next eight years with reference to the most recent financial budget and forecasts. An eight-year cashflows period was deemed appropriate for the value in use calculation given the patient capital model adopted by the Group. The key assumptions for the value in use calculations are the discount rate using pre-tax rates that reflect the current market assessments of the time value of money and risks specific to the CGU. The internal rate of return ("IRR") used was based on past performance and experience. The discount rate used was 10% and the IRR used was 20%.
2 An intangible asset of GBP0.8 million was also recognised in respect of the anticipated profit from the participation in Encore Ventures LLP as a consequence of the acquisition of Esprit Capital Partners LLP.
7. Investments
The Group holds investments through investment vehicles it manages. The investments are predominantly in unlisted securities and are carried at fair value through the profit and loss. The Groups valuation policies are set out in note 4(a) and note 26. The table below sets out the movement in the balance sheet value of investments from the start to the end of the year, showing investments made, cash receipts and fair value movements.
Year ended Year ended
31 Mar 31 Mar
2018 2017
GBP'000s GBP'000s
As at 1 April 105,971 -
Initial portfolio acquired on 15 June 2016(1) - 63,940
Carry and Co-invest acquired on 15 June 2016 - 2,822
Investments made in the year(2) 74,674 20,602
Loans repaid from underlying investment vehicles (15,338) (17,137)
Unrealised gains on the revaluation of investments 66,603 35,744
As at 31 March 231,910 105,971
1 The initial portfolio was acquired on 15 June 2016 as part of the IPO which was satisfied by a mixture of cash (GBP40.0 million) and shares of (GBP23.9 million) issued by the Company.
2 Investments made in the year are amounts the Company has invested in underlying investment vehicles. This is not the equivalent to the total amount invested in portfolio companies as existing cash balances from the investment vehicles are reinvested.
8. Acquisition of Esprit Capital Partners LLP
On 15 June 2016, the Company acquired 100% of the member's capital of Esprit Capital Partners LLP, a venture capital manager based in the UK. The business was acquired in order for Draper Esprit plc to become a self-managed investment entity. The revenues and profits of the acquired group would have been GBP1.2 million and GBP32.9 million had the entity been acquired at the beginning of the accounting year, being 1 April 2016. Details of the business combination are as follows:
GBP'000s
Fair value of equity shares issued 24,000
Total 24,000
Recognised amounts of identifiable net assets:
Property, plant and equipment 5
Intangible assets 818
Investments 2,675
Trade and other receivables 1,165
Cash and cash equivalents 495
Deferred tax liabilities (310)
Trade and other payables (1,324)
Net identifiable assets and liabilities 3,524
Goodwill 20,476
Consideration transferred
The acquisition was settled by issuing 8,000,000 shares of Draper Esprit plc. The fair value of the equity shares issued was based on the market value of Draper Esprit plc's traded shares on the acquisition date. Certain Directors each received 2,911,311 ordinary shares pursuant to the terms of the of the Esprit Capital Acquisition Agreement on 15 June 2016 and agreed to immediately sell 681,156 ordinary shares.
9. Share capital and share premium
Ordinary share capital
31 March 2018 - Allotted and fully paid Number Pence At the beginning of the year 40,747,576 1 Issue of share capital during the year 30,864,197 1 At the end of the year 71,611,773 1
On 5 June 2017 the Company announced a placing and subscription for GBP100.0 million. 29,012,346 new shares were issued on 20 June 2017 to trading on AIM and ESM with a further 1,851,851 new shares issued for 324 pence each on 4th August 2017.
31 March 2017 - Allotted and fully paid Number Pence At the beginning of the year 50,000 100 Redeemed during the year(1) (50,000) 100 Issue of share capital during the year 40,747,576 1 At the end of the year 40,747,576 1
1 During the year, 50,000 management shares were redeemed by the Company at par for 100 pence each.
On 15 June 2016, 40,673,909 new ordinary shares of 1 pence each were issued for trading on the AIM and ESM at a price of 300 pence per share as part of an IPO transaction to purchase Esprit Capital III LP and acquire the Esprit Capital Partners LLP Group. The shares were issued as follows:
-- 23,829,017 shares (GBP69.3 million) were issued to investors for cash proceeds net of issuance costs;
-- 8,844,892 shares (GBP23.9 million) were issued for the acquisition of investment interests held by Draper Esprit Ireland in Esprit Capital III LP as described in note 16;
-- 8,000,000 shares (GBP24.0 million) were issued for the acquisition of Esprit Capital Partners LLP, as described in note 18.
On 26 November 2016, a further 73,667 new ordinary shares of 1 pence each were issued at a price of 350 pence per share to purchase Elderstreet Holdings limited as described in note 15.
Share premium
Allotted and fully paid Year ended Period
31 Mar ended
2018^ 31 Mar
GBP'000s 2017^^
GBP'000s
At the beginning of the year 93,248 -
Premium arising on the issue of ordinary shares 100,000 95,972
Equity issuance costs (5,019) (2,724)
At the end of the year 188,229 93,248
^ The premium on ordinary shares in the period arises from the issue of 30,864,197 new ordinary shares of 1 pence each on 20 June 2017 and 4 August 2017.
^^ The premium on ordinary shares arises from the issue of 32,747,576 new ordinary shares of 1 pence each on 15 June 2016 and 26 November 2016.
Merger relief reserve
In accordance with the Companies Act 2006, a Merger Relief Reserve of GBP23.9 million (net of the cost of share capital issued of GBP80k) was created on the issue of 8,000,000 ordinary shares for 300 pence each in Draper Esprit plc as consideration for the acquisition of 100% of the capital interests in Esprit Capital Partners LLP on 15 June 2016. The Merger Relief Reserve forms part of the Groups distributable reserves.
10. Fair value measurements
This section should be read with reference to note 4(a) and note 16. The Group classifies financial instruments measured at fair value through the profit and loss according to the following fair value hierarchy:
-- Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
-- Level 2: inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
-- Level 3: inputs are unobservable inputs for the asset or liability.
All investments are held at fair value through the profit and loss are classified as level 3 in the fair value hierarchy. As a consequence, the values of investments at balance sheet date are considered to be entirely based on Level 3 inputs. There were no transfers between Levels 1, 2 and 3 during the year.
Significant unobservable inputs for Level 3 valuations
The Group's investments are all classified as Level 3 investments. The Group may base valuations on earnings or revenues where applicable, market comparables, price of recent investments in the investee companies, or on net asset values. The Group mainly uses most recent investment price as a proxy for fair value where available. Where such data is not available or no longer appropriate a revenue multiple is used. See note 4(a) where valuation policies are discussed in more detail.
11. Related party transactions
Draper Esprit plc may require that one of its members is appointed to the board of an investee company in a non-executive role. In such circumstances Draper Esprit plc charges an administration fee to the investees for the provision of Director services. These fees which amounted to GBP9,527 (year ended March 2017: GBP29,825) have been included in the turnover for the year. Draper Esprit does not exercise control or management through any of these non-executive positions.
On Admission, Simon Cook and Stuart Chapman assigned a portion of their personal entitlements in the carried interest in DFJ Esprit III(i) LP to the Group. The fair value of the DFJ Esprit III(i) LP interest assigned, calculated in accordance with the policies applied with the Group's financial statements, was GBP656,000. A payment of GBP75,000 each was made in favour of Simon Cook and Stuart Chapman in recognition of the transfer. The members of the LLP also assigned a 61.5% interest in the gains of DFJE III FP LP for GBPnil consideration. The fair value of the DFJE III FP LP interest assigned, calculated in accordance with the policies applied with the Group's financial statements, was GBP444,000. All amounts have been settled by the year end.
Glossary
In this document, where the context permits, the expressions set out below shall bear the following meaning:
"Admission" or the Admission of the enlarged share capital to trading
"IPO" on AIM and ESM on 15 June 2016 and such admission becoming
effective in accordance with the AIM Rules and the ESM
Rules respectively. The IPO included the acquisition
of Esprit Capital Partners LLP and Draper Esprit (Ireland)
Limited.
"Act" the UK Companies Act 2006.
"AIM" AIM, the market of that name operated by the London Stock
Exchange.
"Audit Committee" the audit committee of the Board.
"Company" or "Draper Draper Esprit plc, a company incorporated in England
Esprit" or "plc" and Wales with registration number 09799594 and having
its registered office at 20 Garrick Street, London, WC2E
9BT.
"Core Portfolio Top 10 portfolio companies by value.
Companies"
"Directors" or the directors of the Company from time to time, but whose
"Board" names as at the date of this document appear on page
43 of this document.
"Draper Esprit the Esprit Funds and the Encore Funds.
Funds"
"Draper Venture the self-governed network of ten independent growth and
Network" venture funds, of which Esprit Capital is a member.
"EIS" Enterprise Investment Scheme under the provisions of
Part 5 of the Income Tax Act 2007.
"Encore Funds" DFJ Esprit Angels' EIS Co-Investment Fund, DFJ Esprit
Angels' EIS Co-Investment II, DFJ Esprit EIS III and
DFJ Esprit EIS IV and each an "Encore Fund".
"Encore Ventures" Encore Ventures LLP, a limited liability partnership
incorporated in England and Wales with registration number
OC347590 whose registered office is at 20 Garrick Street,
London, WC2E 9BT.
"ESM" the Enterprise Securities Market operated and regulated
by the Irish Stock Exchange.
"Esprit Capital" Esprit Capital Partners LLP (previously Draper Esprit
LLP), a limited liability partnership incorporated in
England and Wales with registration number OC318087 whose
registered office is at 20 Garrick Street, London WC2E
9BT, the holding vehicle of the Group immediately prior
to Admission.
"Esprit Ireland" Draper Esprit (Ireland) Limited, a wholly owned subsidiary
of the Company incorporated in Ireland with registration
number 572006 and having its registered office at 32
Molesworth Street, Dublin 2, Ireland.
"FCA" the UK Financial Conduct Authority.
"FOF" or "FoF" Fund of Funds.
"Gross Portfolio Gross portfolio value is the value of the portfolio of
Value" or "Gross investee companies held by funds controlled by the Company
Primary Portfolio" before accounting for deferred tax, external carried
interest and amounts co-invested.
"Grant Thornton" Grant Thornton UK LLP, a limited liability partnership
registered in England and Wales with registration number
OC307742 and having its registered office at 30 Finsbury
Square, London EC2A 1AG.
"Group" the Company and its subsidiaries from time to time and,
for the purposes of this document, including Esprit Capital
and its subsidiaries and subsidiary undertakings.
"HMRC" HM Revenue & Customs.
"IFRS" or "IFRSs" International Financial Reporting Standards, as adopted
for use in the European Union.
"Irish Stock Exchange" Irish Stock Exchange Plc.
"IRR" the internal rate of return.
"Net Asset Value" the value, as at any date, of the assets of the Company
after deduction of all liabilities determined in accordance
with the accounting policies adopted by the Company from
time to time.
"Ordinary Shares" ordinary shares of GBP0.01 pence each in the capital
of the Company.
"EIS" enterprise investment scheme.
"International the International Private Equity and Venture Capital
Private Equity Valuation Guidelines, as amended from time to time.
and Venture Capital
Valuation Guidelines"
"VC" venture capital.
"VCT" A VCT (venture capital trust) is a UK closed-ended collective
investment scheme.
London | HQ
20 Garrick Street
London, WC2E 9BT
Tel: +44 (0)20 7931 8800
draperesprit.com
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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May 25, 2018 02:00 ET (06:00 GMT)
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