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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Epe Special Opportunities Limited | LSE:ESO | London | Ordinary Share | BMG3163K1053 | ORD 5P (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 2.50 | 1.52% | 167.50 | 163.00 | 172.00 | 167.50 | 164.00 | 164.00 | 2,000 | 12:34:41 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | -39.36M | -43.84M | -1.4672 | -1.14 | 50.04M |
From Apr 2019 to Apr 2024
TIDMESO TIDMEO.P TIDMEC.P TIDMEL.P
RNS Number : 7994M
EPE Special Opportunities PLC
02 May 2018
EPE Special Opportunities plc
("ESO plc" or "the Company")
Audited Report and Accounts for the 12 months ended 31 January 2018
The Board of EPE Special Opportunities plc are pleased to announce the Company's Audited Report and Accounts for the year ended 31 January 2018.
-- The Net Asset Value ("NAV") at 31 January 2018 was 234.43 pence per share, a decrease of 35.6% on the NAV per share of 364.13 pence as at 31 January 2017;
-- The share price at 31 January 2018 was 160.00 pence, representing a decrease of 40.4% on the share price of 268.50 pence as at 31 January 2017;
-- The positive momentum in most of the portfolio was overshadowed by a 58.8% fall in value of the Company's largest asset, Luceco plc. This movement was reflected in the stock market performance of ESO plc over the period and represented an unwelcome setback for the Company. In February 2018, Luceco plc appointed a new, highly qualified and experienced chief financial officer, from FTSE 100 listed multinational building materials distribution company Ferguson plc.;
-- Whittard of Chelsea traded strongly throughout 2017, driven by outperformance of its UK retail estate and e-commerce platform. The business continues to invest in future growth via international development, following its recent launch on the Chinese e-commerce platform Tmall;
-- Process Components has performed well, experiencing strong order intake and relocating to a new facility with enhanced internal assembly capabilities;
-- Pharmacy2U has maintained its high growth trajectory, exceeding 100,000 active patients in September 2017. In March 2018, Pharmacy2U raised GBP40 million of new growth capital from G Square Capital, a European healthcare focused private equity investor, to support the continuation of this high growth trajectory. The transaction was completed at a premium to Pharmacy2U's holding value and, in conjunction with the new investment, the Company sold down 50% of its existing investment, realising 2.0x invested capital.
-- On 19 December 2017, the Company announced a new investment in the turnaround of David Phillips, a market-leading business-to-business provider of furniture and furnishing services to the UK property sector, supplying owners, managers, agents and developers in the residential, student accommodation and social housing sectors.
-- The Company is also considering the exercise of its option to redeem up to 50% of the outstanding unsecured loan notes in July 2018 to reduce financing costs. The early redemption of GBP4.0 million would result in an annual reduction in financing costs of GBP0.3 million. The Company's NAV would be unaffected by the redemption;
-- The portfolio remains conservatively valued with a weighted average Enterprise Value equating to an EBITDA multiple of 5.3x for mature unquoted assets and equating to a Sales multiple of 0.4x for unquoted assets investing for growth. The underlying portfolio is relatively unleveraged with 1.2x third party net debt to EBITDA;
-- The Company retains gross asset coverage of 9.4x and interest coverage of 49.9x for total outstanding loans of GBP7.9 million. Overall liquidity at the Company, inclusive of banking facilities, is GBP31.8 million;
-- The Company's largest shareholder is Giles Brand and his connected persons own 22.6% of the Company's issued Ordinary Share Capital between them, as at 24 January 2018; and
-- Mr. Geoffrey Vero, Chairman, commented: "Overall the last twelve months have been clearly disappointing for the Company and its shareholders. The Board have been pleased however with the momentum achieved elsewhere in the portfolio. I wish to convey my sincere gratitude to the Company's shareholders for their longstanding confidence and support".
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Enquiries:
EPIC Private Equity LLP +44 (0) 207
269 8865
Alex Leslie
R&H Fund Services (Jersey) +44 (0) 1534
Limited 825 323
Hilary Jones
Cardew Group Limited +44 (0) 207
930 0777
Richard Spiegelberg
+44 (0) 207
Numis Securities Limited 260 1000
Nominated Advisor: Stuart Skinner
/ Hugh Jonathan
Corporate Broker: Charles Farquhar
Chairman's Statement
The performance of EPE Special Opportunities plc ("ESO plc" or the "Company") for the year has been mixed and the overall outcome is clearly disappointing. The positive momentum in most of the portfolio was overshadowed by the fall in Luceco plc's quoted value. This has been reflected in the stock market performance of ESO plc over the period and represented an unwelcome setback for the Company.
The Net Asset Value ("NAV") per share as at 31 January 2018 for the Company was 234.43 pence per share, representing a decrease of 35.6 per cent. on the NAV per share of 364.13 pence as at 31 January 2017. The share price as at 31 January 2018 for the Company was 160.00 pence, representing a decrease of 40.4 per cent. on the share price of 268.50 pence as at 31 January 2017.
The unsatisfactory performance of the Company's NAV during the year was driven by a 58.8 per cent. fall in value of the Company's largest asset, Luceco plc. The fall in share price value is a consequence of revised guidance issued by Luceco plc which reduced the market's expectations for the year ended 31 December 2017.
Your Board was disappointed by this setback but believes that Luceco plc remains an attractive long-term investment for the Company. The structural growth drivers for the group remain intact, namely the growth of LED lighting, consolidation of the UK wiring accessories supplier market and international expansion. Furthermore, in February 2018 Luceco plc appointed a new, highly qualified and experienced chief financial officer, from a FTSE 100 listed multinational building materials distribution company Ferguson plc. This represents a positive development in the implementation of more robust financial controls. The Investment Advisor, supported by the Board, will continue to monitor Luceco plc closely.
The Company will continue to deploy capital where it believes compelling returns to investors are available. To this end, the Company made two new investments during the year: an investment in the turnaround of David Phillips Holdings Limited, a supplier of furniture and furniture services to the UK residential property market, and a fund investment in European Capital Private Debt Fund LP, which provides asset diversification and attractive risk adjusted return expectations.
The Board have been pleased by the growth of other assets within the portfolio. Whittard of Chelsea traded strongly throughout 2017, driven by outperformance of its UK retail estate and e-commerce platform. The business continues to invest in future growth via international development, following its recent launch on the Chinese e-commerce platform Tmall.
Process Components has performed well, experiencing strong order intake and relocating to a new facility with enhanced internal assembly capabilities.
Pharmacy2U has maintained its high growth trajectory, exceeding 100,000 active patients in September 2017. In March 2018, Pharmacy2U raised GBP40 million of new growth capital from G Square Capital, a European healthcare focussed private equity investor, to support the continuation of this high growth trajectory. The transaction was completed at a premium to Pharmacy2U's holding value and, in conjunction with the new investment, the Company sold down 50 per cent of its existing investment, realising 2.0x invested capital.
The Company is considering a re-domiciliation from the Isle of Man to Bermuda. No decision has yet been taken and the Company will update shareholders on its deliberations in due course.
The Company is also considering the exercise of its option to redeem up to 50 per cent. of the outstanding unsecured loan notes in July 2018 to reduce financing costs. The early redemption of GBP4.0 million would result in an annual reduction in financing costs of GBP0.3 million. The Company's NAV would be unaffected by the redemption.
The Board of ESO plc continues to consider a pipeline of new investment opportunities presented by the Investment Advisor, applying rigorous analysis and pricing discipline.
I wish to convey my sincere gratitude to the Company's shareholders for their longstanding confidence and support.
Geoffrey Vero
Chairman
1 May 2018
Investment Advisor's Report
The Investment Advisor (the "IA") is extremely disappointed by the performance of the Company's net asset value ("NAV") over the year. The fall in Luceco plc's share price has obscured strong performance elsewhere in the portfolio. The IA has been encouraged by the deployment of capital into new opportunities, namely David Phillips Holdings Limited ("David Phillips") and European Capital Private Debt Fund LP ("European Capital"), laying the foundations for future shareholder value creation.
The IA will continue to seek to build a portfolio of strongly performing investments both via the development of existing assets and the deployment of the Company's reserves into new opportunities. The Company continues to investigate a strong pipeline of new investments and remains cautiously positive about the outlook for the UK lower mid-market.
The Company
The NAV per share as at 31 January 2018 for the Company was 234.43 pence representing a decrease of 35.6 per cent. on the NAV per share of 364.13 pence as at 31 January 2017. The share price for the Company as at 31 January 2018 was 160.00 pence, representing a decrease of 40.4 per cent. on the share price of 268.50 pence as at 31 January 2017.
Based on the latest NAV, as set out above, Gross Asset Cover for the total outstanding loans of GBP7.9 million is 9.4x and interest coverage is 49.9x. Overall liquidity at the Company, inclusive of banking facilities, is GBP31.8 million.
The Portfolio
Third party net debt across the Company's private equity portfolio stands at 1.2x EBITDA. The portfolio remains conservatively valued with a weighted average Enterprise Value equating to 5.3x EBITDA for mature unquoted assets and 0.4x sales for growth unquoted assets. This compares favourably to an average Enterprise Value to EBITDA multiple across comparable listed European private equity companies of 10.4x.
During the year the share price of Luceco plc fell by 58.8 per cent. However as noted in Luceco plc's Annual Report, the margin improvement initiatives implemented in Q1 2018 are on track to return gross margins to long term expectations during the second half of 2018. In addition, the appointment in February of a new, highly qualified and experienced chief financial officer demonstrates Luceco plc's commitment to reinforcing financial controls. The IA is hopeful that Luceco plc now has a base from which to develop renewed positive momentum, in line with the historic growth of 18 per cent. sales CAGR achieved between 2015 and 2017.
Luceco plc's revisions to prior market guidance and the resulting decreases in share price represent a setback for the business and for the Company. However as noted in Luceco plc's Annual Report, the margin improvement initiatives implemented in Q1 2018 are on track to return gross margins to long term expectations during the second half of 2018. In addition, the appointment in February of a new, highly qualified and experienced chief financial officer demonstrates Luceco plc's commitment to reinforcing financial controls. The IA is hopeful that Luceco plc now has a base from which to develop renewed positive momentum, in line with the historic growth of 18 per cent sales CAGR achieved between 2015 and 2017.
Luceco plc represents circa 30 per cent. of the Company's NAV (at a share price of 60.0 pence for Luceco plc), with the balance held in other investments and cash. This means that the Company's NAV would be less impacted by further falls in the Luceco's share price.
Whittard of Chelsea has traded well over the last year and ahead of budget expectations. The IA is pleased with the business's significant outperformance of the wider UK retail sector which has been achieved thanks to its differentiated product offering and increasingly diversified routes to market. The brand's international appeal continues to strengthen with pleasing revenue growth in the Chinese market, in particular via the online B2C platform Tmall. The business is investigating further international distribution partnership opportunities while continuing to enhance its domestic offering (with a focus on its e-commerce channel).
Process Components has traded in line with expectations and consistently ahead of the prior year, and the IA believes that trading in the coming year will be even more encouraging based on an order pipeline at historic highs. The business recently relocated to a new, larger facility and has significantly expanded its internal assembly capabilities.
Pharmacy2U has achieved its ambitious growth targets over the last year. The IA has been encouraged by the business' momentum in new customer acquisition and logistical capabilities, most notably with 100,000 active NHS patients being exceeded in September 2017. In March 2018, Pharmacy2U completed the raise of GBP40.0 million new growth capital from G Square Capital to support the continuation of this high growth trajectory. The transaction was completed at a premium to Pharmacy2U's holding value and, in conjunction with the new investment, the Company sold down 50 per cent. of its existing investment to G Square Capital achieving a 2.0x money multiple realised return. The remaining 50 per cent. of the Company's investment in Pharmacy2U has been retained to benefit from the potential increase in value offered by the GBP40.0 million growth capital investment.
Recent Transactions
On 8 March 2017, ESO Alternative Investments LP ("ESOAI LP"), a partnership established to hold the Company's primary and secondary fund investments, committed EUR2.5 million to European Capital Private Debt Fund LP ("ECPD") in a secondary transaction. ECPD provides private debt for European small and medium sized enterprises, predominantly in France and the UK. The fund has total commitments of EUR473.0 million. The acquisition of the ECPD interest will yield interest income and will further diversify the Company's asset class exposure. The acquisition price and level of deployed capital support solid return expectations. Prior to March 2016, the IA acted as placement agent to ECPD on the successful raise of the fund.
On 19 December 2017, the Company announced a new investment in David Phillips. David Phillips is a market-leading business-to-business provider of furniture and furnishing services to the UK property sector, supplying owners, managers, agents and developers in the residential, student accommodation and social housing sectors. David Phillips has achieved significant historic growth as a result of the resurgence of the Private Rented Sector and the emergence of Build-to-Rent development. In December 2017, David Phillips required additional equity funding given the business's profitability and working capital requirements. The prevailing socioeconomic dynamics favouring rented property in the UK and initiatives undertaken by the IA, in partnership with the business's management, are expected to support the turnaround and long-term, profitable growth of the business.
The IA is grateful for the continued support of the Board and the Company's shareholders over the last year and in particular over the last few months which have been challenging. The IA would also like to thank the management and employees of the Company's portfolio companies for their ongoing hard work and diligence.
EPIC Private Equity LLP
Investment Advisor to EPE Special Opportunities plc
1 May 2018
Biographies of the Directors
Geoffrey Vero FCA Clive Spears
----------------------------------------- ------------------------------------------
Geoffrey Vero qualified as a Clive Spears retired from the
chartered accountant with Ernst& Royal Bank of Scotland International
Young and then worked for Savills, Limited in December 2003 as
chartered surveyors, and The Deputy Director of Jersey after
Diners Club Limited. He has 32 years of service. His main
been active in venture capital activities prior to retirement
since 1985, initially with Lazard included Product Development,
Development Capital Limited Corporate Finance, Trust and
and then from 1987 to 2002 as Offshore Company Services and
a director of Causeway Capital he was Head of Joint Venture
Limited which became ABN Amro Fund Administration with Rawlinson
Capital Limited. In 2002, he & Hunter. Mr Spears is an Associate
set up The Vero Consultancy of the Chartered Institute of
specialising in corporate advisory Bankers and a Member of the
services and recovery situations. Chartered Institute for Securities
He has considerable experience & Investment. He has accumulated
in evaluating investment opportunities a well spread portfolio of directorships
and dealing with corporate recovery. centring on private equity,
While at Causeway Capital, Mr infrastructure and corporate
Vero was a Founder Director debt. His appointments currently
of Causeway Invoice Discounting include being Chairman of Nordic
Company Limited, which was subsequently Capital Limited, sitting on
sold to NM Rothschild. He is the board of Jersey Finance
also a nonexecutive director Limited and being director and
of Numis Corporation plc and Head of the Investment Committee
Chairman of Albion Development for GCP Infrastructure Investments
VCT plc. (FTSE 250 listed company).
----------------------------------------- ------------------------------------------
Heather Bestwick Robert Quayle
------------------------------------------
Heather Bestwick has been a Robert Quayle qualified as an
financial services professional English solicitor at Linklaters
for 25 years, onshore in the & Paines in 1974 after reading
City of London and offshore law at Selwyn College, Cambridge.
in the Cayman Islands and Jersey. He subsequently practiced in
She qualified as an English London and the Isle of Man as
solicitor, specialising in ship a partner in Travers Smith Braithwaite.
finance, with City firm Norton He served as Clerk of Tynwald
Rose, and worked in their London (the Isle of Man's parliament)
and Greek offices for 8 years. for periods totalling 12 years
Ms Bestwick subsequently practised and holds a number of public
and became a partner with global and private appointments, and
offshore law firm Walkers in is active in the voluntary sector.
the Cayman Mr. Quayle is Chairman of the
Islands, and Managing Partner Isle of Man Steam Packet Company
of the Jersey office. Becoming Limited, and a number of other
a non-executive director in companies in the financial services,
2014, she is Chairman of Equiom manufacturing and distribution
(Jersey) Limited and Equiom sectors.
(Guernsey) Limited, sits on the boards of the manager of the Deutsche Bank dbX hedge fund platform, a shipping fund, and the States of Jersey incorporated company holding Jersey's affordable housing. ----------------------------------------- ------------------------------------------ Nicholas Wilson ----------------------------------------- Nicholas Wilson has over 40 years of experience in hedge funds, derivatives and global asset management. He has run offshore branch operations for Mees Pierson Derivatives Limited, ADM Investor Services International Limited and several other London based financial services companies. He is Chairman of Gulf Investment Fund plc, a premium listed company, and, until recently, was chairman of Alternative Investment Strategies Limited. He is a resident of the Isle of Man. -----------------------------------------
Biographies of the Investment Advisor
Giles Brand Robert Fulford
---------------------------------------- ----------------------------------------
Giles Brand is a Partner and Robert Fulford is an Investment
the founder of EPE. He is currently Director of EPE. He previously
the non-executive chairman worked at Barclaycard Consumer
of Whittard of Chelsea and Europe before joining EPE. Whilst
non-executive chairman of Luceco at Barclaycard, Robert was the
plc. Before joining EPE, Giles Senior Manager for Strategic
was a founding Director of Insight and was responsible
EPIC Investment Partners, a for identifying, analysing and
fund management business which responding to competitive forces.
at sale to Syndicate Asset Prior to Barclaycard, Robert
Management plc had US$5 billion spent four years as a strategy
under management and spent consultant at Oliver Wyman Financial
five years working in Mergers Services, where he worked with
and Acquisitions at Baring a range of major retail banking
Brothers in Paris and London. and institutional clients in
Giles read History at Bristol the UK, mainland Europe, Middle
University. East and Africa, specialising
in strategy and risk modelling.
He manages the Company's investment
in Whittard of Chelsea, where
he is currently a non-executive
director. Robert read Engineering
at Cambridge University.
---------------------------------------- ----------------------------------------
Hiren Patel James Henderson
---------------------------------------- ----------------------------------------
Hiren Patel is a Partner and James Henderson is an Investment
EPE's Finance Director and Director of EPE. He previously
Compliance Officer. He has worked in the Investment Banking
worked in the investment management division at Deutsche Bank before
industry for the past ten years. joining EPE. Whilst at Deutsche
Before joining EPEA and EPE, Bank he worked on a number of
Hiren was finance director M&A transactions and IPOs in
of EPIC Investment Partners. the energy, property, retail
Before EPIC Investment Partners and gaming sectors, as well
Hiren was employed at Groupama as providing corporate broking
Asset Management where he was advice to mandated clients.
the Group Financial Controller. He manages the Company's investment
in Pharmacy2U. James read Modern
History at Oxford University
and Medicine at Nottingham University.
---------------------------------------- ----------------------------------------
Alex Leslie
----------------------------------------
Alex Leslie is an Investment
Director of EPE. He previously
worked in Healthcare Investment
Banking at Piper Jaffray before
joining EPE. Whilst at Piper
Jaffray he worked on a number
of M&A transactions and equity
fundraisings within the Biotechnology,
Specialty Pharmaceutical and
Medical Technology sectors.
He manages the Company's investments
in Luceco plc. David Phillips
and Process Components, where
he is currently a non-executive
director. Alex read Human Biological
and Social Sciences at Oxford
University and obtained an
MPhil in Management from the
Judge Business School at Cambridge
University.
----------------------------------------
Risk and Audit Committee Report
The Risk and Audit Committee is chaired by Clive Spears and comprises all other Directors.
The Risk and Audit Committee's main duties are:
-- To review and monitor the integrity of the interim and annual financial statements, interim statements, announcements and matters relating to accounting policy, laws and regulations of the Company;
-- To evaluate the risks to the quality and effectiveness of the financial reporting process;
-- To review the effectiveness and robustness of the internal control systems and the risk management policies and procedures of the Company;
-- To review the valuation of portfolio investments;
-- To review corporate governance compliance;
-- To review the nature and scope of the work to be performed by the Auditors, and their independence and objectivity; and
-- To make recommendations to the Board as to the appointment and remuneration of the external auditors.
The Risk and Audit Committee has a calendar which sets out its work programme for the year to ensure it covers all areas within its remit appropriately. It met four times during the period under review to carry out its responsibilities and senior representatives of the Investment Advisor attended the meetings as required by the Risk and Audit Committee. In between meetings, the Risk and Audit Committee chairman maintains ongoing dialogue with the Investment Advisor and the lead audit partner via visits and meetings at the office of the Investment Advisor.
During the past year the Risk and Audit Committee carried out an ongoing review of its own effectiveness and the Board carried out a review of the Committee's terms of reference. These concluded that the Risk and Audit Committee is satisfactorily fulfilling its terms of reference and is operating effectively. Additional risk lines have been agreed covering Cyber Security and macro influences, such as Brexit.
Significant accounting matters
The significant issue considered by the Risk and Audit Committee during the year in relation to the financial statements of the Company is the valuation of unquoted investments.
The Company's accounting policy for valuing investments is set out in notes 10 and 11. The Risk and Audit Committee examined and challenged the valuations prepared by the Investment Advisor, taking into account the latest available information on the Company's investments and the Investment Advisor's knowledge of the underlying portfolio companies through their ongoing monitoring. The Risk and Audit Committee satisfied itself that the valuation of investments had been carried out consistently with prior accounting periods, or that any change in valuation basis was appropriate, and was conducted in accordance with published industry guidelines.
The Auditors explained the results of their review of the procedures undertaken by the Investment Advisor in preparation of valuation recommendations for the Risk and Audit Committee. On the basis of their audit work, no material adjustments were identified by the Auditor.
External audit
The Risk and Audit Committee reviewed the audit plan and fees presented by the Auditors, KPMG Audit LLC ("KPMG"), and considered their report on the financial statements. The fee for the audit of the annual report and financial statements of the Company for the year ended 31 January 2018 is expected to be GBP28,275 (2017: GBP27,450).
The Risk and Audit Committee reviews the scope and nature of all proposed non-audit services before engagement, with a view to ensuring that none of these services have the potential to impair or appear to impair the independence of their audit role. The Committee receives an annual assurance from the Auditors that their independence is not compromised by the provision of such services, if applicable. During the period under review, the Auditors did not provide any non-audit services to the Company.
KPMG were appointed as Auditors to the Company for the year ending 31 January 2005 audit. The Risk and Audit Committee does regularly consider the need to put the audit out to tender, the Auditors' fees and independence, alongside matters raised during each audit. The appointment of KPMG has not been put out to tender as yet as the Committee, from ongoing direct observation and indirect enquiry of the Investment Advisor, remain satisfied that KPMG continue to provide a high-quality audit and effective independent challenge in carrying out their responsibilities. The Company adheres to a five year roll over in relation to the Auditor partner.
Having considered these matters and the continuing effectiveness of the external auditor, the Risk and Audit Committee has recommended to the Board that KPMG be appointed as Auditors for the year ending 31 January 2019.
The Board will review the performance and services offered by R&H as fund administrator following their recent appointment and EPEA as fund sub-administrator on an ongoing basis. An external assurance review was completed in the past year to provide comfort to the Board regarding operational processes undertaken by EPEA.
Risk management and internal control
The Board will review the performance and services offered by R&H as fund administrator following their recent appointment and EPEA as fund sub-administrator on an ongoing basis. An external assurance review was completed in the past year to provide comfort to the Board regarding operational processes undertaken by EPEA.
Clive Spears
Chairman of the Risk and Audit Committee
1 May 2018
Report of the Directors
Principal activity
The Company was incorporated in the Isle of Man as a company limited by shares under the Isle of Man Companies Acts 1931 to 1993 with registration number 108834C on 25 July 2003. On 23 July 2012, the Company re-registered under the Isle of Man Companies Act 2006, with registration number 008597V. The Company's ordinary shares are quoted on AIM, a market operated by the London Stock Exchange, and the Growth Market of the NEX Exchange.
The principal activity of the Company and its subsidiaries and its associates ("the Group") is to arrange income yielding financing for growth, buyout and special situations and holding the investments with a view to exiting in due course at a profit.
Incorporation
The Company was incorporated on 25 July 2003. The Company's registered office is:
IOMA House, Hope Street, Douglas, Isle of Man, IM1 1AP.
Details of subsidiaries are provided in note 23.
Place of business
Since 17 May 2017, the Company has solely operated out of and has been controlled from:
Ordnance House, 31 Pier Road, St Helier, Jersey, JE4 8PW
Results of the financial year
Results for the year are set out in the Consolidated Statements of Comprehensive Income and in the Consolidated Statement of Changes in Equity below.
Dividends
The Board does not recommend a dividend in relation to the current year (2017: nil) (see note 9 for further details).
Corporate governance principles
As an Isle of Man registered company and under the AIM Rules for companies, the Company is not required to comply with the UK Corporate Governance Code published by the Financial Reporting Council ("Code"). The Directors, however, place a high degree of importance on ensuring that the Company maintains high standards of Corporate Governance and have therefore adopted the spirit of the Code to the extent that they consider appropriate, taking into account the size of the Company and nature of its operations. This includes a periodic internal evaluation of board performance.
The Board holds at least four meetings annually and has established Audit and Risk and Investment committees. The Board does not intend to establish remuneration and nomination committees given the current composition of the Board and the nature of the Company's operations. The Board reviews annually the remuneration of the Directors and agrees on the level of Directors' fees.
Composition of the Board
The Board currently comprises five non-executive directors, all of whom are independent. Geoffrey Vero is Chairman of the Board, Clive Spears is Chairman of the Risk and Audit Committee and Nicholas Wilson is Chairman of the Investment Committee.
Risk and Audit Committee
The activities of the Risk and Audit Committee continued, members of which are Clive Spears (Chairman of the Committee) and all the other Directors. The Risk and Audit Committee provides a forum through which the Company's external auditors report to the Board.
The Risk and Audit Committee meets twice a year, at a minimum, and is responsible for considering the appointment and fee of the external auditors and for agreeing the scope of the audit and reviewing its findings. It is responsible for monitoring compliance with accounting and legal requirements, ensuring that an effective system of internal controls in maintained and for reviewing annual and interim financial statements of the Company before their submission for approval by the Board. The Risk and Audit Committee has adopted and complied with the extended terms of reference implemented on the Company's readmission in August 2010, as reviewed by the Board from time to time.
The Board is satisfied that the Risk and Audit Committee contains members with sufficient recent and relevant financial experience.
Investment Committee
The Board established an Investment Committee, which comprises Nicholas Wilson (Chairman of the Committee) and all the other Directors. The purpose of this committee is to review the portfolio of the Company and evaluate the performance of the Investment Advisor.
The Board is satisfied that the Investment Committee contains members with sufficient recent and relevant financial experience.
Significant holdings
Significant shareholdings are analysed below. The Directors are not aware of any other holdings greater than 3% of issued shares.
Directors
The Directors of the Company holding office during the financial year and to date are:
Mr. G.O. Vero (Chairman)
Mr. R.B.M. Quayle
Mr. C.L. Spears
Mr. N.V. Wilson
Ms. H. Bestwick (appointed 10 February 2017)
Staff
At 31 January 2018 the Group employed no staff (2017: none).
Auditors
Our Auditors, KPMG Audit LLC, being eligible, have expressed their willingness to continue in office.
On behalf of the Board
Nicholas Wilson
Director
1 May 2018
Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the Group financial statements in accordance with applicable law and regulations.
The Directors are required to prepare Group financial statements for each financial year. As required by the AIM Rules of the London Stock Exchange they are required to prepare the Group financial statements in accordance with International Financial Reporting Standards as adopted by the EU (IFRSs as adopted by the EU), as applicable to an Isle of Man company and applicable law.
The Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of its profit or loss for that period. In preparing the Group financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently; -- make judgements and estimates that are reasonable, relevant and reliable; -- state whether they have been prepared in accordance with IFRSs as adopted by the EU;
-- assess the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and
-- use the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure that its financial statements comply with the Isle of Man Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the Isle of Man governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Independent Auditor's Report to the Members of EPE Special Opportunities plc
1. Our opinion is unmodified
We have audited the financial statements of EPE Special Opportunities plc ("the Company") for the year ended 31 January 2018 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Assets and Liabilities, the Consolidated Statement of Changes in Equity, the Consolidated Statement of Cash Flows and the related notes, including the accounting policies in note 3.
In our opinion the financial statements:
-- give a true and fair view of the state of the Group's affairs as at 31 January 2018 and of the Group's loss for the year then ended;
-- have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRSs as adopted by the EU), as applicable to an Isle of Man company; and
-- the financial statements have been prepared in accordance with the requirements of the Isle of Man Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities are described below. We have fulfilled our ethical responsibilities under, and are independent of the Group in accordance with, UK ethical requirements including the FRC Ethical Standard. We believe that the audit evidence we have obtained is a sufficient and appropriate basis for our opinion.
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the financial statements and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. This matter was addressed, and our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
The risk Our response
----------------------- --------------------------- ----------------------------------------------------------------
The carrying Subjective valuation: Our procedures included:
value of investments Unquoted investments Control design: Documenting
in associates are measured at and assessing the
and loans to fair value, which processes in place
associates is established to record investment
and related in accordance with transactions and to
companies includes the International value the portfolio.
the Group's Private Equity Tests of detail:
effective share and Venture Capital
of exposure Valuation Guidelines * Methodology choice: We challenged the appropriateness
to unquoted by using measurements of the valuation basis selected by comparison with
private equity of value such as observed industry best practice and the provisions of
investments prices of recent the International Private Equity and Venture Capital
of GBP22.8 orderly transactions, Valuation Guidelines,;
million (2017: earnings multiples
GBP17.6 million). and net assets.
Refer below The preparation * Our valuations experience: Challenging key judgements
(Significant of the fair value affecting investee company valuations, such as
accounting estimate for the discount factors and the choice of benchmark for
matters identified investments and sales or earnings multiples, by comparing key
by the Risk related disclosures underlying financial data inputs to external sources
and Audit Committee), involves subjective and investee company management accounts information
notes 3(f) judgments or as applicable. We challenged the assumptions around
(accounting uncertainties, sustainability of sales and earnings by comparison
policy); note which requires with the plans of the investee companies and
10 (non-current special audit assessment as to whether these are achievable.
assets), note consideration Further, we obtained an understanding of existing and
11 (financial because of the prospective investee company cash flows to understand
assets and likelihood and whether borrowings can be serviced or whether
liabilities) potential magnitude refinancing may be required. Our work included
and note 20 of misstatements consideration of events which occurred subsequent to
(financial to the valuation the year end up until the date of this audit report;
instruments of the financial
disclosures). instrument.
* Assessing transparency: Consideration of the
appropriateness, in accordance with relevant
accounting standards, of the disclosures in respect
of unquoted investments.
----------------------- --------------------------- ----------------------------------------------------------------
3. Our application of materiality and an overview of the scope of our audit
Materiality for the Group financial statements as a whole was set at GBP1,990,000 (2017: GBP2,853,000), determined with reference to a benchmark of Groups' net assets, of which it represents 3% (2017: 3%).
Whilst our audit procedures are designed to identify misstatements (including disclosure misstatements) which are material to our opinion on the financial statements as a whole, we nevertheless report any misstatements of lesser amounts to the extent that these are identified by our audit work.
Under ISA 260, we are obliged to report omissions or misstatements (including disclosure misstatements) other than those which are 'clearly trivial' to those charged with governance. ISA 260 defines 'clearly trivial' as matters that are clearly inconsequential, whether taken individually or in aggregate and whether judged by any quantitative or qualitative criteria.
The Group's associates were subjected to full scope statutory audit by the Group audit team and subject to a lower level of materiality based on their individual financial statements.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding GBP99,500 (2017: GBP106,000) for Group's financial statements, in addition to other identified misstatements that warranted reporting on qualitative grounds.
4. We have nothing to report on going concern
We are required to report to you if we have concluded that the use of the going concern basis of accounting is inappropriate or there is an undisclosed material uncertainty that may cast significant doubt over the use of that basis for a period of at least twelve months from the date of approval of the financial statements. We have nothing to report in these respects.
5. We have nothing to report on the other information in the Annual Report
The Directors are responsible for the other information, which comprises the Chairman's Statement, the Investment Advisor's Report, the Governance Report, the Risk and Audit Committee and the Directors' Report included in the annual report. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except as explicitly stated below, any form of assurance conclusion thereon.
Based solely on that work:
-- we have not identified material misstatements in the other information; and
-- in our opinion the information given in the directors' report for the financial year is consistent with the financial statements.
6. Respective responsibilities
Directors' responsibilities
As explained more fully in their statement above, the Directors are responsible for: the preparation of the financial statements including being satisfied that they give a true and fair view; such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error; assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue our opinion in an auditor's report. Reasonable assurance is a high level of assurance, but does not guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
A fuller description of our responsibilities is provided on the FRC's website at www.frc.org.uk/auditorsresponsibilities.
7. The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the Company's members, as a body, in accordance with Section 80(c) of the Isle of Man Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members, as a body, for our audit work, for this report, or for the opinions we have formed.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
1 May 2018
Consolidated Statement of Comprehensive Income
For the year ended 31 January 2018
31 January 31 January
2018 2017
Revenue Capital Total Total
Note GBP GBP GBP GBP
-------------------------- ------------ ------------- ------------- ------------
Income
4 Interest income 33,477 - 33,477 12,558
-------------------------- ------------ ------------- ------------- ------------
Total income 33,477 - 33,477 12,558
-------------------------- ------------ ------------- ------------- ------------
Expenses
Investment advisor's
5 fees (2,370,687) - (2,370,687) (1,181,626)
5 Administration fees (218,589) - (218,589) (119,680)
6 Directors' fees (161,500) - (161,500) (124,000)
Directors' and Officers'
insurance (3,974) - (3,974) (3,988)
Professional fees (211,428) - (211,428) (70,942)
Board meeting and
travel expenses (7,391) - (7,391) (10,974)
Auditors' remuneration (35,800) - (35,800) (35,700)
Bank charges (868) - (868) (1,068)
Irrecoverable VAT (32,764) - (32,764) (310,161)
Share based payment
7 expense (210,043) - (210,043) (245,750)
Sundry expenses (60,300) - (60,300) (27,637)
Nominated advisor
and broker fees (60,405) - (60,405) (63,935)
Listing fees (28,511) - (28,511) (31,643)
Total expenses (3,402,260) - (3,402,260) (2,227,104)
-------------------------- ------------ ------------- ------------- ------------
Net expense (3,368,783) - (3,368,783) (2,214,546)
-------------------------- ------------ ------------- ------------- ------------
(Losses)/gains on
investments
Share of (loss)/profit
10 of associates - (32,258,774) (32,258,774) 63,958,644
Gain on fair value
of loan to related
companies - 40,000 40,000 -
(Loss)/gain for the
year on investments - (32,218,774) (32,218,774) 63,958,644
-------------------------- ------------ ------------- ------------- ------------
Finance charges
Interest on unsecured
15 loan note instruments (618,765) - (618,765) (618,765)
Interest on convertible
15 loan note instruments - - - (129,126)
(Loss)/profit for
the year before taxation (3,987,548) (32,218,774) (36,206,322) 60,996,207
8 Taxation - - - -
-------------------------- ------------ ------------- ------------- ------------
(Loss)/profit for
the year (3,987,548) (32,218,774) (36,206,322) 60,996,207
-------------------------- ------------ ------------- ------------- ------------
Other comprehensive
income - - - -
-------------------------- ------------ ------------- ------------- ------------
Total comprehensive
(loss)/income (3,987,548) (32,218,774) (36,206,322) 60,996,207
-------------------------- ------------ ------------- ------------- ------------
Basic (loss)/earnings
per ordinary share
17 (pence) (14.15) (114.30) (128.45) 213.39
-------------------------- ------------ ------------- ------------- ------------
Diluted (loss)/earnings
per ordinary share
17 (pence) (14.15) (114.30) (128.45) 211.78
-------------------------- ------------ ------------- ------------- ------------
The total column of this statement represents the Group Statement of Comprehensive Income, prepared in accordance with IFRSs. The Supplementary revenue and capital return columns are prepared in accordance with the Board of Directors' agreed principles. All items derive from continuing activities.
Consolidated Statement of Assets and Liabilities
At 31 January 2018
31 January 31 January
2018 2017
Note GBP GBP
-------------------------------- ------------ ------------
Non-current assets
10 Investments in associates 41,391,258 73,609,872
Loans to associates and related
10,13 companies 5,152,739 1,012,055
46,543,997 74,621,927
-------------------------------- ------------ ------------
Current assets
12 Cash and cash equivalents 28,047,141 37,232,756
Trade and other receivables 98,774 99,290
28,145,915 37,332,046
-------------------------------- ------------ ------------
Current liabilities
14 Trade and other payables (464,322) (684,996)
Loans from associates and
13 related companies - (276,510)
--------------------------------
(464,322) (961,506)
-------------------------------- ------------ ------------
Net current assets 27,681,593 36,370,540
-------------------------------- ------------ ------------
Non-current liabilities
15 Unsecured loan note instruments (7,882,736) (7,862,131)
(7,882,736) (7,862,131)
-------------------------------- ------------ ------------
Net assets 66,342,854 103,130,336
-------------------------------- ------------ ------------
Equity
16 Share capital 1,503,286 1,568,568
16 Share premium 3,867,209 2,893,562
Capital reserve 48,581,390 80,800,164
Revenue reserve 12,390,969 17,868,042
Total equity 66,342,854 103,130,336
Net asset value per share
18 (pence) 234.43 364.13
-------------------------------- ------------ ------------
The financial statements were approved by the Board of Directors on 1 May 2018 and signed on its behalf by:
Geoffrey Vero Clive Spears
Director Director
Consolidated Statement of Changes in Equity
For the year ended 31 January 2018
Year ended 31 January 2018
Share Share Capital Revenue
capital premium reserve reserve Total
Note GBP GBP GBP GBP GBP
---------------------- ---------- ---------- ------------- ------------ -------------
Balance at 1 February
2017 1,568,568 2,893,562 80,800,164 17,868,042 103,130,336
Total comprehensive
loss for the year - - (32,218,774) (3,987,548) (36,206,322)
---------------------- ---------- ---------- ------------- ------------ -------------
Contributions by
and distributions
to owners
Share based payment
7 charge - - - 210,043 210,043
Share ownership
scheme participation - - - 15,915 15,915
Purchase of treasury
16 shares (94,786) - - (1,715,483) (1,810,269)
16 Issue of new shares 29,504 973,647 - - 1,003,151
Total transactions
with owners (65,282) 973,647 - (1,489,525) (581,160)
---------------------- ---------- ---------- ------------- ------------ -------------
Balance at 31 January
2018 1,503,286 3,867,209 48,581,390 12,390,969 66,342,854
---------------------- ---------- ---------- ------------- ------------ -------------
Year ended 31 January 2017
Share Share Capital Revenue
capital premium reserve reserve Total
Note GBP GBP GBP GBP GBP
---------------------- ---------- ---------- ----------- ------------ ------------
Balance at 1 February
2016 1,543,206 2,056,590 16,841,520 23,020,022 43,461,338
Total comprehensive
income for the year - - 63,958,644 (2,962,437) 60,996,207
---------------------- ---------- ---------- ----------- ------------ ------------
Contributions by
and distributions
to owners
Share based payment
7 charge - - - 245,750 245,750
Purchase of treasury
16 shares - - - (2,435,293) (2,435,293)
16 Issue of new shares 25,362 836,972 - - 862,334
Total transactions
with owners 25,362 836,972 - (2,189,543) (1,327,209)
---------------------- ---------- ---------- ----------- ------------ ------------
Balance at 31 January
2017 1,568,568 2,893,562 80,800,164 17,868,042 103,130,336
---------------------- ---------- ---------- ----------- ------------ ------------
Consolidated Statement of Cash Flows
For the year ended 31 January 2018
31 January 31 January
2018 2017
Note GBP GBP
--------------------------------------- ------------ ------------
Operating activities
Interest income received 8,450 12,558
Expenses paid (3,414,475) (1,597,954)
Net cash used in operating
19 activities (3,406,025) (1,585,396)
--------------------------------------- ------------ ------------
Investing activities
Loan advances to associates (2,045,657) -
Loan advances to investee
companies (2,030,000) -
Loan repayment to associates (274,410) -
Capital (contribution to)/distribution
10 from associates (40,160) 36,416,460
Net cash (used in)/generated
from investing activities (4,390,227) 36,416,460
--------------------------------------- ------------ ------------
Financing activities
16 Issue of new shares 1,003,151 -
Convertible loan note interest
paid - (102,236)
Convertible loan note repurchases - (1,017,714)
Unsecured loan note interest
paid (598,159) (598,159)
16 Purchase of treasury shares (1,810,269) (2,435,293)
Share ownership scheme
16 participation 15,914 -
Net cash generated used
in financing activities (1,389,363) (4,153,402)
--------------------------------------- ------------ ------------
(Decrease)/increase in
cash and cash equivalents (9,185,615) 30,677,662
Cash and cash equivalents
at start of year 37,232,756 6,555,094
--------------------------------------- ------------ ------------
Cash and cash equivalents
at end of year 28,047,141 37,232,756
--------------------------------------- ------------ ------------
Notes to the Financial Statements
For the year ended 31 January 2018
1 Operations
The Company was incorporated with limited liability in the Isle of Man on 25 July 2003. The Company then re-registered under the Isle of Man Companies Act 2006, with registration number 008597V. The Company raised GBP30.0 million by a placing of ordinary shares at 100 pence per share. The Company moved its operations to Jersey with immediate effect on 17 May 2017 and subsequently operates from Jersey only.
The Company's ordinary shares are quoted on AIM, a market operated by the London Stock Exchange, and the Growth Market of the NEX Exchange.
The Company has two wholly owned subsidiary companies (see note 23) and at 31 January 2018, had interests in four partnerships and one limited company that are accounted for as associates. The partnerships comprise one limited liability partnership and three limited partnerships.
The principal activity of the Group and its associates is to arrange income yielding financing for growth, buyout and special situations and holding the investments and its associates with a view to exiting in due course at a profit.
The consolidated financial statements comprise the results of the Group and its associates (see notes 3(a) and 23).
The Company has no employees.
2 Basis of preparation a. Statement of compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards and Interpretations as adopted by the EU ("IFRS") and applicable legal and regulatory requirements of Isle of Man law and reflect the following policies, which have been adopted and applied consistently, with the exception of the adoption of the following new standards and amendments to standards, including any consequential amendments to other standards, with a date of initial application of 1 February 2017:
a. Annual improvements to IFRS - 2014-2016 cycle - various standards b. Investment entities -IFRS 12: Disclosure of interests in other entities c. Disclosure initiative - amendments to IAS 7 d. IAS 12 Income Taxes (Amendment - Recognition of Deferred Tax Assets for Unrealised Losses)
The adoption of the above new standards has had no significant impact on the Groups' measurement of its assets and liabilities, and no impact on the disclosures included in the financial statements.
b. Basis of measurement
The consolidated financial statements have been prepared on the historical cost basis except for financial instruments at fair value through profit or loss which are measured at fair value.
c. Functional and presentation currency
These consolidated financial statements are presented in Sterling, which is the Group's functional currency. All financial information presented in Sterling has been rounded to the nearest pound.
d. Use of estimates and judgements
The preparation of financial statements in conformity with IFRSs requires Directors and the Investment Advisor to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. The Directors have, to the best of their ability, provided as true and fair a view as is possible. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Judgements made by Directors and the Investment Advisor in the application of IFRSs that have a significant effect on the financial statements and estimates with a significant risk of material adjustments in the next year relate to impairment provisioning in connection with secured loans and valuations of unquoted equity investments held by associates (see note 11).
3 Significant accounting policies a. Basis of consolidation
Subsidiaries
Subsidiaries are those enterprises controlled by the Company. Control exists when the Company is exposed or has rights to variable returns from its involvement with the investee and has the ability to effect those returns through its power over the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
Associates
Associates are those enterprises over which the Company has significant influence, and which are neither subsidiaries nor an interest in a joint venture. Significant influence is exerted when the Company has the power to participate in the financial and operating policy decision of the investee, but is not in control or joint control over those policies.
The Company holds interests in ESO Investments 1 LP, ESO Alternative Investments LP, ESO Investments (PC) LLP, ESO Investments 2 LP and ESO Investments (DP) Limited which are managed and controlled by parties related to EPE for the benefit of the Company and the other members. The Company does not have the ability to direct the activities of ESO Investments 1 LP, ESO Alternative Investments LP, ESO Investments (PC) LLP, ESO Investments 2 LP and ESO Investments (DP) Limited. The Directors consider that ESO Investments 1 LP, ESO Alternative Investments LP, ESO Investments (PC) LLP, ESO Investments 2 LP and ESO Investments (DP) Limited do not meet the definition of subsidiaries. These entities are instead treated as associates.
The Company applies the equity method in accounting for associates. The investment is initially measured at cost and the carrying amount is increased or decreased to recognise the Company's share of the associate's profit or loss. Accounting policies of associates are aligned with those of the Group.
b. Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment of business and geographic area being arranging financing for growth, buyout and special situations in the United Kingdom. Information presented to the Board of Directors for the purpose of decision making is based on this single segment.
c. Income
Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is accounted for when the right to receive such income is established.
d. Expenses
All expenses are accounted for on an accruals basis.
e. Cash and cash equivalents
Cash comprises current deposits with banks. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash, are subject to an insignificant risk of changes in value and are held for the purposes of meeting short-term cash commitments rather than for investments or other purposes.
f. Financial assets and financial liabilities
i. Classification
Equity and preference share investments, including those held by associates, have been designated at fair value through profit or loss.
Financial assets that are designated as loans and receivables comprise loans and accrued interest and other receivables.
ii. Recognition
The Group recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument.
iii. Measurement
Equity and preference share investments, including those held by associates, are stated at fair value. Loans and receivables are stated at amortised cost less any impairment losses.
The Investment Advisor determines asset values using IPEV guidelines and other valuation methods with reference to the valuation principles of IFRS 13. The valuation principles adopted are classified as Level 3 for unquoted investments and Level 1 for quoted investments in the IFRS 7 fair value hierarchy. IPEV guidelines recommend the use of comparable quoted company metrics and comparable transaction metrics to determine an appropriate enterprise value, to which a marketability discount is applied given the illiquid nature of private equity investments. The Investment Advisor also seeks to confirm value using discounted cash flow and other methods of valuation, and by applying a range approach. The Investment Advisor then seeks to determine whether holding the investment at cost is appropriate given the implied value, or whether an adjustment should be made to achieve fair value: whether this be in the form of an impairment or a write-up.
'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantages market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.
When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as 'active' if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The Group measures instruments quoted in an active market at mid-price.
If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.
The Group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred.
The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. Financial assets that are not carried at fair value though profit and loss are subject to an impairment test. For loans to portfolio companies the impairment test is undertaken as part of the assessment of the fair value of the enterprise value of the related business, as described above. If expected life cannot be determined reliably, then the contractual life is used.
iv. Impairment
Financial assets that are stated at cost or amortised cost are reviewed at each reporting date to determine whether there is objective evidence of impairment. If any such indication exists, an impairment loss is recognised in the profit or loss as the difference between the asset's carrying amount and the higher of its fair value less costs to sell and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate.
If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost decreases, and the decrease can be linked objectively to an event occurring after the write-down, the write-down is reversed through the profit or loss.
v. Derecognition
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39.
The Company uses the weighted average method to determine realised gains and losses on derecognition. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired.
g. Share capital
Ordinary share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
Repurchase of share capital (treasury shares)
When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, net of any tax effects, is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from retained earnings.
h. Compound financial instruments
Compound financial instruments issued by the Group comprise convertible loan note instruments that can be converted to share capital at the option of the holder, and the number of shares to be issued does not vary with changes in their fair value.
The liability component of a compound financial instrument is recognised initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognised initially at the difference between fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.
Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition.
When convertible loan notes are repurchased, the nominal value of the convertible loan notes repurchased is first deducted from the consideration paid with any gain or loss from the repurchase being recognised in the profit or loss.
Interest, dividends, losses and gains in relation to the financial liability are recognised in profit or loss. Distributions to the equity holders are recognised in equity net of any tax benefits.
i. EPIC Private Equity Employee Benefit Trust ("EBT")
As the Company is deemed to have control of its EBT, the EBT is treated as a subsidiary and consolidated for the purposes of the Group financial statements. The EBT's assets (other than investments in the Company's shares), liabilities, income and expenses are included on a line-by-line basis in the Group financial statements. The EBT's investment in the Company's shares is deducted from shareholders' funds in the Group Statement of asset and liabilities as if they were treasury shares (see note 7).
Share based payments
Certain employees (including Directors) of the Company and the Investment Advisors receive remuneration in the form of equity settled share-based payment transactions, through a Joint Share Ownership Plan ("JSOP").
Equity-settled share-based payments are measured at fair value at the date of grant. The fair value is determined based on the share price of the equity instrument at the grant date. The fair value determined at the grant date of the equity-settled share-based payment is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the number of shares that will eventually vest. The instruments are subject to a three year service vesting condition from the grant date, and their fair value is recognised as an employee benefit expense with a corresponding increase in retained earnings within equity over the vesting period.
Contributions received from employees as part of the JSOP arrangement are recognised directly in equity.
j. Future changes in accounting policies
The International Accounting Standards Board ("IASB") and the International Financial Reporting Interpretations Committee ("IFRIC") have issued the following standards and interpretations with an effective date after the date of these financial statements:
IFRS Standards and Interpretations EU effective date
(IAS/IFRS) (accounting periods
commencing on or after)
------------------------------------- -------------------------
IFRS 9 Financial Instruments 1 January 2018
(issued on 24 July 2014)
IFRS 15 Revenue from Contracts 1 January 2018
with Customers (issued on
28 May 2014) including amendments
to IFRS 15: Effective date
of IFRS 15 (issued on 11
September 2015)
IFRIC Interpretation 22 Foreign 1 January 2018
Currency Transactions and
Advance Consideration
------------------------------------- -------------------------
Amendments EU effective date
(accounting periods
commencing on or after)
------------------------------------- -------------------------
Annual improvements to IFRS 1 January 2017
Standards 2014-2016 Cycle
(issued on 8 December 2016)
Annual improvements to IFRS Not yet endorsed
Standards 2015-2017 Cycle
(issued on 12 December 2017)
Amendments to IFRS 2: Classification 1 January 2018
and Measurement of Share-based
Payment Transactions (issued
on 20 June 2016)
Clarifications to IFRS 15 1 January 2018
Revenue from Contracts with
Customers (issued on 12 April
2016)
Amendments to IFRS 9 Financial Not yet endorsed
Instruments:
Prepayment Features with
Negative Compensation (issued
on 12 October 2017)
Amendments to IAS 28: Long-term Not yet endorsed
Interests in Associates and
Joint Ventures (issued on
12 October 2017)
The Directors do not expect the adoption of the standards and interpretations to have a material impact on the Group's financial statements in the period of initial application.
4 Interest income
2018 2017
Group Group
GBP GBP
---------------------- ------- -------
Cash balances 8,450 12,558
Bond interest income 25,027 -
---------------------- ------- -------
Total 33,477 12,558
----------------------- ------- -------
5 Investment advisory, administration and performance fees
Investment advisory fees
Company
As agreed on the 31 August 2010, the investment advisory fee payable to EPIC Private Equity LLP ("EPE") is calculated at 2% of the Group's Net Asset Value ("NAV"), with a minimum of GBP325,000 payable per annum. The charge for the current year was GBP2,370,687 (2017: GBP1,181,626). Amount outstanding as at 31 January 2018 was GBP386,934 (2017: GBP600,000).
ESO 1 LP
The members of ESO 1 LP restated the Limited Partnership agreement on 25 July 2015. The restated agreement allocated the Investment Advisor a fixed priority profit share of GBP350,000 per annum (previously GBP800,000 per annum).
Administration fees
On 30 November 2007 the Group entered into an agreement with FIM Capital Limited ("FIM"), for the provision of administration, registration and secretarial services. On 17 May 2017 and concurrent with the move of the Company's operations to Jersey, R&H Fund Services (Jersey) Limited ("R&H") were appointed as the Company's administrators
The provision of accounting and financial administration services has been delegated to EPE Administration Limited ("EPEA", formerly EHM International Limited). The fee payable to EPEA is at a rate of 0.15% per annum of the Group's NAV. The charge for the current year was GBP161,697 (2017:GBP100,508). Amount outstanding as at 31 Jan 2018 was GBP9,673 (2017:GBP15,000).
Performance fees
Company
The Investment Advisory Agreement with EPE as described above also provides for the provision of a performance fee. The fee is payable if the Total Return (taken as NAV plus dividends distributed) is equal to at least 8% per annum from the date of admission of the Company's shares to AIM, based on the funds raised through the placing of shares and compounded annually. No performance fee has accrued for the year ended 31 January 2018 (2017: GBPnil).
Carried interest in ESO 1 LP
The distribution policy of ESO 1 LP includes a carried interest portion retained for the Investment Advisor such that, for each investor where a hurdle of 8% per annum has been achieved, the carry vehicle of the Investment Advisor is entitled to receive 20% of the increase in that investor's investment. For the year ended 31 January 2018, GBP8,115,607 has been debited from the carry account of the Investment Advisor in the records of ESO 1 LP (2017: Credit of GBP6,944,664).
Carried interest in ESO (PC) LLP
The Investment Advisor is entitled to receive 20% of the profits of ESO (PC) LLP where a hurdle of 8% has been achieved over the initial value of the investment. For the year ended 31 January 2018, GBP50,646 (2017: GBP844,822) was credited to the Investment Advisor.
6 Directors' fees
2018 2017
Group Group
GBP GBP
---------------------- -------- --------
G.O. Vero (Chairman) 32,000 32,000
R.B.M. Quayle 30,000 30,000
C.L. Spears 32,000 32,000
N.V. Wilson 30,000 30,000
H. Bestwick 37,500 -
---------------------- -------- --------
Total 161,500 124,000
----------------------- -------- --------
H. Bestwick received GBP37,500 as a Directors' fee (2017: nil) of which GBP30,000 relates to her ongoing appointment and GBP7,500 relates to services provided prior to her appointment.
7 Share based payment expense
The cost of equity settled transactions with certain Directors of the Company and other participants (including employees of the Investment Advisor) ("Participants") is measured by reference to the fair value at the date on which they are granted. The fair value is determined based on the share price of the equity instrument at the grant date.
The EBT was created to award shares to Participants as part of the JSOP. Participants are awarded a certain number of shares ("Matching Shares") which vest after three years. In order to receive their Matching Share allocation Participants are required to purchase shares in the Company on the open market ("Bought Shares"). The Participant will then be entitled to acquire a joint ownership interest in the Matching Shares for the payment of a nominal amount, on the basis of one joint ownership interest in one Matching Share for every Bought Share they acquire in the relevant award period.
The EBT holds the Matching Shares jointly with the Participant until the award vests.
The EBT held 420,050 (2017: 1,547,065) matching shares at the year end which have traditionally not voted (see note 16).
The amount expensed in the income statement has been calculated by reference to the grant date fair value of the equity instrument and the estimated number of equity instruments to be issued after the vesting period, less the nominal amount paid for the joint ownership interest in the Matching Shares. The total expense recognised on the share based payments during the year amounts to GBP210,043 (2017: GBP245,750).
8 Taxation
The Company was a tax resident of Isle of Man until 17 May 2017 and has been a tax resident of Jersey thereafter. The Company is subject to 0% income tax (2017: 0%).
The Limited Liability Partnerships and Limited Partnerships are transparent for tax purposes.
ESO Investments (DP) Limited is tax resident in the United Kingdom and did not have any tax charge in the current period.
9 Dividends paid and proposed
No dividends were paid or proposed for the year ended 31 January 2018 (2017: GBPnil).
10 Non-current assets
2018 2017
GBP GBP
Financial assets
--------------------------------- ----------- -----------
Investments in associates 41,391,258 73,609,872
Loans to associates and related
companies (note 13) 5,152,739 1,012,055
--------------------------------- ----------- -----------
46,543,997 74,621,927
--------------------------------- ----------- -----------
Investment in associates
The Investment Advisor has applied appropriate valuation methods with reference to IPEV guidelines and the valuation principles of IAS 39 Financial Instruments: Recognition and Measurement, with regard to the underlying investments held by the associates. See note 11 regarding the assessment of the fair values of the underlying investments.
Investments in associates comprise the investment in ESO Investments 1 LP, ESO Investments (PC) LLP, ESO Alternative Investments LP, ESO Investments (DP) Limited and ESO Investments 2 LP which are stated at fair value through profit or loss. The fair value of the investment is calculated with reference to the Second Amended and Restated Limited Partnership Agreement for ESO Investments 1 LP, the Limited Liability Partnership Agreement for ESO Investments (PC) LLP, the Limited Liability Partnership Agreement for ESO Alternative Investments LLP and the Article of Association for ESO Investments (DP) Limited. The associates have accounted for their equity investments at fair value.
During the year, the Company received GBPnil (2017:GBP36,416,460) capital distribution from ESO Investments 1 LP, GBPnil (2017:GBPnil), from ESO Investments (PC) LLP and GBPnil (2017: nil) from ESO Alternative Investment LP, ESO Investments (DP) Limited and ESO Investments 2 LP. The movements in the associates during the year are as follows:
ESO ESO ESO ESO
ESO 1 (PC) AI (DP) 2
LP LLP LP Ltd LP Total
GBP GBP GBP GBP GBP
-------------------------- ------------- ---------- -------- --------- ---- -------------
Investment in associates
Balance at 1 February
2017 65,783,930 7,825,942 - - - 73,609,872
Share of profit/(loss)
from associates (32,462,428) (55,393) 305,466 (46,419) - (32,258,774)
Investment in associates - - 80 40,000 80 40,160
-------------------------- -------------
33,321,502 7,770,549 305,546 (6,419) 80 41,391,258
-------------------------- ------------- ---------- -------- --------- ---- -------------
Summary financial information for associates as at 31 January 2018 is as follows:
Minority ESO plc Percentage
Vehicle Total interest share share
ESO 1 LP GBP GBP GBP %
--------------------- ------------- ----------------------- ------------- -----------
Non-current assets 41,282,258 (8,256,451) 33,025,807 80.0%
Current assets 3,233,610 (646,722) 2,586,888 80.0%
Current liabilities (2,863,992) 572,799 (2,291,193) 80.0%
Net assets 41,651,876 (8,330,374) 33,321,502 80.0%
--------------------- ------------- ----------------------- ------------- -----------
Income 570,268 (110,083) 460,185 80.7%
Gains/(losses) on
investments (40,594,020) 7,836,254 (32,757,766) 80.7%
Expenses (204,281) 39,434 (164,847) 80.7%
--------------------- ------------- ----------------------- -------------
Profit (40,228,033) 7,765,605 (32,462,428) 80.7%
--------------------- ------------- ----------------------- ------------- -----------
ESO (PC) LLP
--------------------- ------------- ----------------------- ------------- -----------
Non-current assets 9,453,084 (1,898,053) 7,555,031 79.9%
Current assets 270,674 (54,348) 216,326 79.9%
Current liabilities (1,011) 203 (808) 79.9%
Net assets 9,722,747 (1,952,198) 7,770,549 79.9%
--------------------- ------------- ----------------------- ------------- -----------
Income - - - -
Gains/(losses) on
investments - - - -
Expenses (4,747) 953 (3,794) 79.9%
--------------------- ------------- ----------------------- -------------
Profit (4,747) 953 (3,794) 79.9%
--------------------- ------------- ----------------------- ------------- -----------
ESO AI LP
--------------------- ------------- ----------------------- ------------- -----------
Non-current assets 2,234,789 - 2,234,789 100.0%
Current assets 119,881 - 119,881 100.0%
Current liabilities (2,049,124) - (2,049,124) 100.0%
Net assets 305,546 - 305,546 100.0%
--------------------- ------------- ----------------------- ------------- -----------
Income 102,788 - 102,788 100.0%
Gains/(losses) on
investments 253,419 - 253,419 100.0%
Expenses (50,741) - (50,741) 100.0%
--------------------- ------------- ----------------------- -------------
Profit 305,466 - 305,466 100.0%
--------------------- ------------- ----------------------- ------------- -----------
ESO (DP) Ltd
--------------------- ------------- ----------------------- ------------- -----------
Non-current assets - - - -
Current assets - - - -
Current liabilities (6,419) - (6,419) 100.0%
-----------------------
Net assets (6,419) - (6,419) 100.0%
--------------------- ------------- ----------------------- ------------- -----------
Income - - - -
Gains/(losses) on
investments (40,000) - (40,000) 100.0%
Expenses (6,419) - (6,419) 100.0%
----------------------- ------------------------ --------------------------- -------------------------
Profit (46,419) - (46,419) 100.0%
----------------------- ------------------------ --------------------------- ------------------------- -----------
ESO 2 LP
----------------------- ------------------------ --------------------------- ------------------------- -----------
Non-current assets 100 (20) 80 80.0%
Current assets - - - -
Current liabilities - - - -
---------------------------
Net assets 100 (20) 80 80.0%
----------------------- ------------------------ --------------------------- ------------------------- -----------
Income - - - -
Gains/(losses) on
investments - - - -
Expenses - - - -
----------------------- ------------------------ --------------------------- -------------------------
Profit - - - -
----------------------- ------------------------ --------------------------- ------------------------- -----------
ESO plc
----------------------- ------------------------ --------------------------- ------------------------- -----------
Loans to associates
and related companies 5,152,739 - 5,152,739 100.0%
Other assets and
liabilities ESO plc 27,681,593 - 27,681,593 100.0%
----------------------- ------------------------ --------------------------- ------------------------- -----------
Total 32,834,332 - 32,834,332 100.0%
----------------------- ------------------------ --------------------------- ------------------------- -----------
Total assets less
current liabilities 84,508,182 (10,282,592) 74,225,590 87.8%
----------------------- ------------------------ --------------------------- ------------------------- -----------
Summary of ESO plc Minority ESO plc Percentage
fund structure Total interest share share
GBP GBP GBP GBP
----------------------- ------------------------ --------------------------- ------------------------- -----------
ESO 1 LP 41,651,876 (8,330,374) 33,321,502 80.0%
ESO (PC) LLP 9,722,747 (1,952,198) 7,770,549 79.9%
ESO AI LP 305,546 - 305,546 100.0%
ESO (DP) Ltd (6,419) - (6,419) 100.0%
ESO 2 LP 100 (20) 80 80.0%
ESO plc current
assets,
current liabilities
and loans to related
companies 32,834,332 - 32,834,332 100.0%
----------------------- ------------------------ --------------------------- ------------------------- -----------
Total assets less
current liabilities 84,508,182 (10,282,592) 74,225,590 87.8%
----------------------- ------------------------ --------------------------- ------------------------- -----------
Summary financial information for associates as at 31 January 2017 is as follows:
Minority ESO plc Percentage
Vehicle Total interest share share
ESO 1 LP GBP GBP GBP %
------------------------------ ------------ -------------------- --------------------- -------------------
Non-current assets 81,090,140 (16,218,028) 64,872,112 80.0%
Current assets 4,735,863 (947,172) 3,788,691 80.0%
Current liabilities (3,596,093) 719,220 (2,876,873) 80.0%
------------------------------ ------------ -------------------- --------------------- -------------------
Net assets 82,229,910 (16,445,980) 65,783,930 80.0%
------------------------------ ------------ -------------------- --------------------- -------------------
Income 685,005 (139,522) 545,483 79.6%
Gains/(losses) on
investments 75,645,445 (15,407,480) 60,237,965 79.6%
Expenses (247,461) 50,403 (197,058) 79.6%
------------------------------ ------------ -------------------- --------------------- -------------------
Profit 76,082,989 (15,496,599) 60,586,390 79.6%
------------------------------ ------------ -------------------- --------------------- -------------------
ESO (PC) LLP
------------------------------ ------------ -------------------- --------------------- -------------------
Non-current assets 9,453,084 (1,849,629) 7,603,455 80.4%
Current assets 276,610 (54,123) 222,487 80.4%
------------------------------ ------------ -------------------- --------------------- -------------------
Net assets 9,729,694 (1,903,752) 7,825,942 80.4%
------------------------------ ------------ -------------------- --------------------- -------------------
Income - - - -
Gains/(losses) on
investments 4,224,784 (846,366) 3,378,418 80.0%
Expenses (7,710) 1,546 (6,164) 80.0%
------------------------------ ------------ -------------------- --------------------- -------------------
Profit 4,217,074 (844,820) 3,372,254 80.0%
------------------------------ ------------ -------------------- --------------------- -------------------
ESO plc
------------------------------ ------------ -------------------- --------------------- -------------------
Loans to associates
and related companies 1,012,055 - 1,012,055 100.0%
Loans from associates
and related companies (276,510) - (276,510) 100.0%
Other assets and liabilities
ESO plc 36,647,050 - 36,647,050 100.0%
------------------------------ ------------ -------------------- --------------------- -------------------
Total 37,382,595 - 37,382,595 100.0%
------------------------------ ------------ -------------------- --------------------- -------------------
Total assets less
current liabilities 129,342,199 (18,349,732) 110,992,467 85.8%
------------------------------ ------------ -------------------- --------------------- -------------------
Summary of ESO plc Minority ESO plc Percentage
fund structure Total interest share share
GBP GBP GBP GBP
------------------------------ ------------ -------------------- --------------------- -------------------
ESO 1 LP 82,229,910 (16,445,980) 65,783,930 80.0%
ESO (PC) LLP 9,729,694 (1,903,752) 7,825,942 80.4%
ESO plc current assets,
current liabilities
and loans to related
companies 37,382,595 - 37,382,595 100.0%
------------------------------ ------------ -------------------- --------------------- -------------------
Total assets less
current liabilities 129,342,199 (18,349,732) 110,992,467 85.8%
------------------------------ ------------ -------------------- --------------------- -------------------
11 Financial assets and liabilities
2018 2017
GBP GBP
-------------------------------------- ------------ ------------
Assets
Financial assets at fair value
through profit or loss - designated
on initial recognition
Investments in associates 41,391,258 73,609,871
Financial assets at amortised
cost
Loans and receivables and cash
balances 33,298,654 38,344,101
-------------------------------------- ------------ ------------
Total financial assets 74,689,912 111,953,972
-------------------------------------- ------------ ------------
Liabilities
Financial liabilities measured
at amortised cost
Other financial liabilities (464,322) (684,996)
Loans from associates and related
companies - (276,510)
Unsecured loan note instruments (7,882,736) (7,862,131)
-------------------------------------- ------------ ------------
Total financial liabilities (8,347,058) (8,823,637)
-------------------------------------- ------------ ------------
Fair values of financial instruments
The fair values of financial assets and financial liabilities that are traded in an active market are based on quoted market prices. For all other financial instruments, the Group determines fair values using other valuation techniques, based on the IPEV guidelines.
For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.
The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:
-- Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments;
-- Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using; quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data;
-- Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments but for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.
Various valuation techniques may be applied in determining the fair value of investments held as level 3 in the fair value hierarchy. The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.
Valuation models that employ significant unobservable inputs require a higher degree of management judgement and estimation in the determination of fair value. Management judgement and estimation are usually required for the selection of the appropriate valuation model to be used. As discussed below, the Investment Advisor has selected to use the Sales/EBITDA multiples valuation model in arriving at the fair value of investments held as level 3 in the fair value hierarchy.
Valuation framework
The Group has developed a valuation framework with respect to the measurement of fair values. The valuation of investments is performed by the Investment Advisor. As detailed in note 3(f), the Investment Advisor determines fair values using the IPEV guidelines. The following approach is used:
-- 'Fair value' is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk;
-- The Sales/EBITDA multiples valuation model is used, based on budgeted Sales/EBITDA for the next financial year;
-- Loans made are stated at amortised cost but impairment tested based on the enterprise value derived from the valuation.
Fair value hierarchy - Financial instruments measured at fair value
The table below analyses the underlying investments held by the associates measured at fair value at the reporting date by the level in the fair value hierarchy into which the fair value measurement is categorised. Debt securities are also included, as although stated at amortised cost, the Investment Advisor assesses the fair value of the total investment, which includes debt and equity. The amounts are based on the values recognised in the statement of financial position. All fair value measurements below are recurring. There are no other financial assets or liabilities carried at fair value.
Level Level
1 3 Total
31 January 2018 GBP GBP GBP
--------------------------- ----------- ----------- -----------
Financial assets at fair
value through profit or
loss
Unlisted private equity
investments - 14,737,400 14,737,400
Listed equity investments 28,763,616 - 28,763,616
Debt securities, unquoted - 11,495,027 11,495,027
---------------------------- ----------- -----------
Total investments 28,763,616 26,232,427 54,996,043
---------------------------- ----------- ----------- -----------
Level Level
1 3 Total
31 January 2017 GBP GBP GBP
--------------------------- ----------- ----------- -----------
Financial assets at fair
value through profit or
loss
Unlisted private equity
investments - 11,685,937 11,685,937
Listed equity investments 69,857,288 - 69,857,288
Debt securities, unquoted - 9,000,000 9,000,000
---------------------------- ----------- -----------
Total investments 69,857,288 20,685,937 90,543,225
---------------------------- ----------- ----------- -----------
The following table shows a reconciliation of the opening balances to the closing balances for fair value measurements in Leve1 3 of the fair value hierarchy.
2018 2017
Unlisted private equity investments GBP GBP
------------------------------------- ----------- -------------
Balance at 1 February 11,685,937 37,276,754
Additional investments made 2,351,104 330,327
Transfers to Level 1 - (30,908,209)
Change in fair value through
profit or loss 700,359 4,987,065
-------------------------------------- -----------
Balance at 31 January 14,737,400 11,685,937
-------------------------------------- ----------- -------------
Significant unobservable inputs used in measuring fair value
The table below sets out information about significant unobservable inputs used at 31 January 2018 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.
Description Fair value at 31 January 2018 Valuation technique
GBP
------------------------------------------- ------------------------------ ----------------------
Unquoted private equity investments 12,667,400 Sales/EBITDA multiple
------------------------------------------- ------------------------------ ----------------------
Recent unquoted private equity investments 2,070,000 Cost value
------------------------------------------- ------------------------------ ----------------------
Significant unobservable inputs are developed as follow:
-- Sales/EBITDA multiples: Represents amounts that market participants would use when pricing the investments. Sales/EBITDA multiples are selected from comparable public companies based on geographic location, industry, size, target markets and other factors that management considers to be reasonable. The traded multiples for the comparable companies are determined by dividing the enterprise value of the company by its Sales or EBITDA and further discounted for considerations such as the lack of marketability and other differences between the comparable peer group and specific company.
-- Cost value: For recently acquired unquoted private equity investments the fair value of the asset is measured as the acquisition cost (less any attributable fees). This approach to measuring the fair value of unquoted private equity investments is in line with the guidelines published by IPEV.
IFRS 13 requires disclosure, by class of financial instrument, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of the investee company. On that basis, the Board believe that the impact of changing one or more of the inputs to reasonably possible alternative assumptions would not change the fair value significantly.
Financial instruments not measured at fair value
The carrying value of short-term financial assets and financial liabilities (cash, debtors and creditors) approximate their fair value. The carrying value of the convertible and the new loan note instruments are also considered to approximate fair value. Investments in associates are considered to be stated at fair value, as the underlying investments are at fair value.
12 Cash and cash equivalents
2018 2017
--------------------------- ----------- -----------
GBP GBP
--------------------------- ----------- -----------
Current and call accounts 28,047,141 37,232,756
--------------------------- ----------- -----------
28,047,141 37,232,756
--------------------------- ----------- -----------
The current and call accounts have been classified as cash and cash equivalents in the Consolidated Statement of Cash Flows.
13 Loans to/(from) associates and related companies
2018 2017
GBP GBP
------------------------------------------------- ---------- ----------
EPIC Structured Finance Limited 500,000 500,000
ESO 1 LP 512,055 512,055
ESO AI LP 2,045,657 -
David Philips Group Limited 40,000 -
Hamsard 3463 Limited 2,055,027 -
Total loans to associates and related companies 5,152,739 1,012,055
-------------------------------------------------- ---------- ----------
2018 2017
GBP GBP
--------------------------------------------------- ------ ----------
ESO (PC) LLP - (276,510)
---------------------------------------------------- ----- ----------
Total loans from associates and related companies - (276,510)
---------------------------------------------------- ----- ----------
The loans to associates are unsecured, interest free and not subject to any fixed repayment terms.
The loan to David Philips Group Limited is unsecured, interest free and payable by 31 January 2023.
The loan to Hamsard 3463 Limited is unsecured, interest bearing at 10% per annum and payable by 31 January 2023.
14 Trade and other payables
2018 2017
GBP GBP
---------------------------- ------------- --------
Trade payables 16,391 1,030
Accrued administration fee 9,673 15,000
Accrued audit fee 14,241 12,845
Accrued professional fee 24,250 18,316
Accrued investment advisor
fees 386,934 600,000
Accrued Directors' fees 12,833 10,916
Convertible interest - 26,889
Total 464,322 684,996
----------------------------- ------------- --------
15 Non-current liabilities
On 23 July 2015, the Company raised GBP4,500,000 via a placing of a Unsecured Loan Note ("ULN") instrument. Following the initial issuance of the ULNs, further notes were issued to investors such that on 31 January 2016 the Company had issued GBP7,975,459 in principal amount and the notes admitted to trading on the ISDX Growth Market on 29 January 2016. During the years ended 31 January 2017 and 31 January 2018 the Company issued no further notes such that on 31 January 2018 the Company had issued GBP7,975,459 in principle amount. The notes carry interest at 7.5% per annum. Issue costs totalling GBP144,236 have been offset against the value of the loan note instrument and are being amortised over the life of the instrument. The total amount expensed in the year ended 31 January 2018 was GBP20,605 (2017: GBP20,605). The carrying value of the ULNs in issue at the year-end was GBP7,882,736 (2017: GBP7,862,131). The total interest expense on the ULNs for the year is GBP618,765 (2017: GBP618,765). This includes the amortisation of the issue costs.
16 Share Capital
At the year end 420,050 treasury shares were held by the EBT (see note 7) (2017:1,547,065).
2018 2018 2017 2017
Number GBP Number GBP
--------------------------- ------------ ---------- ------------ ----------
Authorised share capital
Ordinary shares of
5p each 45,000,000 2,250,000 45,000,000 2,250,000
---------------------------- ------------ ---------- ------------ ----------
Called up, allotted
and fully paid
Ordinary shares of
5p each 30,065,714 1,503,286 31,371,362 1,568,568
Ordinary shares of
5p each held in treasury (1,765,876) - (3,048,879) -
---------------------------- ------------ ---------- ------------ ----------
28,299,838 1,503,286 28,322,483 1,568,568
--------------------------- ------------ ---------- ------------ ----------
During the year, the Company bought back 612,734 ordinary shares from the market and on 26 May 2017 cancelled all ordinary shares held by Corvina Limited, a wholly owned subsidiary of the Company.
Of the ordinary shares bought back from the market, Giles Brand (Managing Partner of the Investment Advisor) and Hiren Patel (Managing Partner, Finance Director and Head of Compliance of the Investment Advisor) (both also being Person Discharging Managerial Responsibilities ("PDMRs") of the Company) sold 113,310 and 21,750 Ordinary Shares respectively at a price of 295.00 pence to the Company.
During the year ended 31 January 2018, 590,089 ordinary shares of 5 pence each were issued as a result of the conversion of warrants at a price of 170 pence per share. The aggregate gross proceeds of this exercise was GBP1,003,151. Following the warrant exercise, there are no warrants outstanding.
17 Basic and diluted loss per share (pence)
The Group's basic loss per share is calculated by dividing the loss of the Group for the year attributable to the ordinary shareholders of (GBP36,206,322) (2017: profit of GBP60,996,207) divided by the weighted average number of shares outstanding during the year of 28,187,483 after excluding treasury shares (2017: 28,585,144 shares).
The Group's diluted loss per share is calculated by dividing the loss of the Group for the year attributable to ordinary shareholders of (GBP36,206,322) (2017: profit of GBP60,996,207) divided by the weighted average number of ordinary shares outstanding during the year, as adjusted for the effects of all dilutive potential ordinary shares, of 28,187,483 after excluding treasury shares (2017: 28,801,620 shares).
18 NAV per share (pence)
The Group's NAV per share of 234.43 pence (2017: 364.13 pence) is based on the net assets of the Group at the year-end of GBP66,342,854 (2017: GBP103,130,336) divided by the shares in issue at the end of the year of 28,299,838 after excluding treasury shares (2017:28,322,483).
The Group's diluted NAV per share of 234.43 pence is based on the net assets of the Group at the year-end of GBP66,342,854 (2017:GBP103,130,336) divided by the shares in issue at the end of the year, as adjusted for the effects of dilutive potential ordinary shares of 28,299,838 after excluding treasury shares (2017: 28,538,959).
19 Net cash used in operating activities
Reconciliation of net investment expense to net cash used in operating activities:
2018 2017
Group Group
GBP GBP
--------------------------------------------------------- ------------ ------------
Net investment expense (3,368,783) (2,214,546)
Adjustments:
Share based payment expense 210,043 245,750
--------------------------------------------------------- ------------ ------------
(3,158,740) (1,968,796)
Non-cash items
Movement in trade and other receivables 516 (740)
Movement in trade and other payables (220,674) 389,750
Accrued bond interest income (25,027) -
Movement in loans from associates and related companies (2,100) (5,610)
Net cash used in operating activities (3,406,025) (1,585,396)
--------------------------------------------------------- ------------ ------------
20 Financial instruments
The Group's financial instruments comprise:
-- Investments in listed and unlisted companies held by associates, comprising equity and loans
-- Investments in listed companies comprising equity -- Cash and cash equivalents, bank loan and convertible loan note instruments; and -- Accrued interest and trade and other receivables, accrued expenses and sundry creditors.
Financial risk management objectives and policies
The main risks arising from the Group's financial instruments are liquidity risk, credit risk, market price risk and interest rate risk. None of those risks are hedged. These risks arise through directly held financial instruments and through the indirect exposures created by the underlying financial instruments in the associates. These risks are managed by the Directors in conjunction with the Investment Advisor. The Investment Advisor is responsible for day to day management of financial instruments in the associates.
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group's liquid assets comprise cash and cash equivalents and trade and other receivables, which are readily realisable.
Residual contractual maturities of financial liabilities
Less 3 months
than 1 - 3 to 1 1 - 5 Over No stated
31 January 1 Month Months year years 5 years maturity
2018 GBP GBP GBP GBP GBP GBP
----------------- --------- -------- --------- ---------- --------- ----------
Financial
liabilities
Trade and
other payables 464,322 - - - - -
Loan note
instruments - - - 7,882,736 - -
Total 464,322 - - 7,882,736 - -
----------------- --------- -------- --------- ---------- --------- ----------
Less 3 months
than 1 - 3 to 1 1 - 5 Over No stated
31 January 1 Month Months year years 5 years maturity
2017 GBP GBP GBP GBP GBP GBP
----------------- --------- -------- --------- ---------- --------- ----------
Financial
liabilities
Trade and
other payables 684,996 - - - - -
Loan note
instruments - - - 7,862,131 - -
Loans from
associates - - 276,510 - - -
--------- -------- --------- ---------- --------- ----------
Total 684,996 - 276,510 7,862,131 - -
----------------- --------- -------- --------- ---------- --------- ----------
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Group.
The Group, through its interests in associates, has advanced loans to a number of private companies which exposes the Group to significant credit risk. The loans are advanced to unquoted private companies, which have no credit risk rating. They are entered into as part of the investment strategy of the Group and its associates, and credit risk is managed by taking security where available (typically a floating charge) and the Investment Advisor taking an active role in the management of the borrowing companies.
Although the Investment Advisor looks to set realistic repayment schedules, it does not necessarily view a portfolio company not repaying on time and in full as 'underperforming' and seeks to monitor each portfolio company on a case-by-case basis. However, in all cases the Investment Advisor reserves the right to exercise step in rights. In addition to the repayment of loans advanced, the Group and associates will often arrange additional preference share structures and take significant equity stakes so as to create shareholder value. It is the performance on the combination of all securities including third party debt that determines the Group's view of each investment.
At the reporting date, the Group's financial assets exposed to credit risk amounted to the following (excluding exposure in the underlying associates):
2018 2017
GBP GBP
------------------------------------------- ----------- -----------
Cash and cash equivalents 28,047,141 37,232,756
Trade and other receivables 84,210 84,210
Loans to associates and related companies 5,152,739 1,012,055
-------------------------------------------- ----------- -----------
Total 33,284,090 38,329,021
-------------------------------------------- ----------- -----------
Cash balances are placed with HSBC Bank plc and Barclays Bank plc both of which have the credit rating of A1 Negative (Moody's).
Market price risk
Market price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk). The Group is exposed to a market price risk via its equity investments held through its interests in associates, which are stated at fair value.
Market price risk sensitivity
The Group is exposed to market price risk with regard to its investment in the partnerships, which own equity interests in a number of quoted and unquoted companies which are stated at fair value. Sensitivity analysis cannot be performed with any reliability on the unquoted equity investments. Luceco plc was quoted on the Main Market of the London Stock Exchange at 31 January 2018. If Luceco plc's share price had been 5.0% higher than actual close of market on 31 January 2018, ESO plc's NAV / share would have been 1.74% higher than reported. If Luceco's share price had been 5.0% lower than actual close of market on 31 January 2018, ESO plc's NAV / share would have been 1.74% lower than reported. Such movement would have had a corresponding effect on the profit for the year.
Interest rate risk
The Group is exposed to interest rate risk through its investment in the associates and on its cash balances. The associates provide loans to portfolio companies. Most of the loans are at fixed rates. Cash balances earn interest at variable rates. The convertible loan note instruments carry fixed interest rates.
The table below summarises the Group's exposure to interest rate risks. It includes the Group's financial assets and liabilities at the earlier of contractual re-pricing or maturity date, measured by the carrying values of assets and liabilities:
Non-
31 January Less than 1 3 months - 1 interest
2018 month 1 - 3 months year 1 - 5 years Over 5 years bearing Total
Assets GBP GBP GBP GBP GBP GBP GBP
-------------- ------------- ------------- -------------- ------------ ------------- ------------- ------------
Loans and
receivables
Loans to
associates
and related
companies - - - 2,055,027 - 3,097,712 5,152,739
Trade and
other
receivables - - - - - 84,210 84,210
Cash and cash
equivalents 28,047,141 - - - - - 28,047,141
-------------- ------------- ------------- -------------- ------------
Total
financial
assets 28,047,141 - - 2,055,027 - 3,181,922 33,284,090
-------------- ------------- ------------- -------------- ------------ ------------- ------------- ------------
Liabilities
Financial
liabilities
measured at
amortised
cost
Trade and
other
payables - - - - - (464,322) (464,322)
Convertible
loan note
instruments - - - (7,882,736) - - (7,882,736)
-------------- ------------- ------------- -------------- ------------ ------------- ------------- ------------
Total
financial
liabilities - - - (7,882,736) - (464,322) (8,347,058)
-------------- ------------- ------------- -------------- ------------ ------------- ------------- ------------
Total
interest
rate
sensitivity
gap 28,047,141 - - (7,882,736) - - -
-------------- ------------- ------------- -------------- ------------ ------------- ------------- ------------
Less 3 months Non-
31 January than 1 - - 1 1 - Over interest
2017 1 month 3 months year 5 years 5 years bearing Total
Assets GBP GBP GBP GBP GBP GBP GBP
-------------------- ----------- ---------- --------- ------------ --------- ---------- ------------
Loans and
receivables
Loans to
associates
and related
companies - - - - - 1,012,055 1,012,055
Trade and
other receivables - - - - - 84,210 84,210
Cash and
cash equivalents 37,232,756 - - - - - 37,232,756
-------------------- ----------- ---------- --------- ------------
Total financial
assets 37,232,756 - - - - 1,096,265 38,329,021
-------------------- ----------- ---------- --------- ------------ --------- ---------- ------------
Liabilities
Financial
liabilities
measured
at amortised
cost
Trade and
other payables - - - - - (684,996) (684,996)
Loans from
associates
and related
companies - - - - - (276,510) (276,510)
Loan note
instruments - - - (7,862,131) - - (7,862,131)
-------------------- ----------- ---------- --------- ------------ --------- ---------- ------------
Total financial
liabilities - - - (7,862,131) - (961,506) (8,823,637) -------------------- ----------- ---------- --------- ------------ --------- ---------- ------------ Total interest rate sensitivity gap 37,232,756 - - (7,862,131) - - - -------------------- ----------- ---------- --------- ------------ --------- ---------- ------------
Interest rate sensitivity
The Group is exposed to market interest rate risk only via its cash balances. A sensitivity analysis has not been provided as it is not considered significant to Group performance.
Currency risk
The Group has no direct exposure to currency risk as it has no non-sterling assets or liabilities.
21 Directors' interests
Four of the Directors have interests in the shares of the Company as at 31 January 2018 (2017: four). Geoffrey Vero holds 105,532 ordinary shares (2017: 84,912). Nicholas Wilson holds 105,743 ordinary shares (2017: 67,669). Robert Quayle holds 87,883 ordinary shares (2017: 50,128). Clive Spears holds 105,787 ordinary shares (2017: 68,032).
22 Related parties
Geoffrey Vero is a non-executive Director of Numis Corporation plc and a former non-executive Director of Numis Securities Limited, the Nominated Advisors to the Company. During the year ended 31 January 2018, broker fees of GBP60,405 (2017: GBP63,935) were payable to Numis Securities Limited.
Directors' interests in the shares of the Company are included in note 21 to the financial statements.
Certain Directors of the Company and other participants (including employees of the Investment Advisor) are incentivised in the form of equity settled share-based payment transactions, through a Joint Share Ownership Plan (see note 7).
Details of fees payable to key service providers are included in note 5 to the financial statements.
23 Subsidiary companies
On 29 October 2005, the Company incorporated EPIC Reconstruction Property Company (IOM) Limited, in the Isle of Man.
On 16 November 2012, the Company incorporated Corvina Limited, in the Isle of Man, whose principal activity is that of acquiring shares in the Company, which are held as treasury shares (see note 16).
The Company is deemed to have control of its EBT, which is therefore treated as a subsidiary and consolidated for the purpose of the Group accounts (see note 16).
24 Financial commitments and guarantees
Under the terms of the limited partnership agreement the Company is committed to provide a maximum of GBP2 million additional investment to ESO 1 LP.
25 Subsequent events
On 6 March 2018, Luceco plc issued a trading update which revised down market expectations for the year ended 31 December 2017 but gave the market greater guidance for Luceco plc's future outlook. The trading statement also announced the appointment of Matt Webb as the business' chief financial officer.
On 29 March 2018, the Company announced that Pharmacy2U had completed the raise of GBP40 million new growth capital from G Square Capital ("G Square"), a European healthcare focussed private equity investor, to support the continuation of this high growth trajectory. The transaction was completed at a premium to Pharmacys2U's holding value and, in conjunction with the new investment, the Company sold down 50% of its existing investment to G Square achieving a 2.0x money multiple realised return.
Schedule of shareholders holding over 3% of issued shares
Percentage
holding
---------------------- -----------
Giles Brand 22.59%
Corporation
of Lloyds 6.20%
Miton Asset
Management 5.30%
HSBC Private
Bank 5.26%
Hargreave Hale
Investment Managers 4.82%
Janus Henderson
Investors 4.12%
Hoares Bank 3.33%
Lombard Odier Darier
Hentsch 3.25%
Total over
3% holding 54.87%
-------------------------- -----------
Group Information
Directors Administrator and Company
Address
G.O. Vero (Chairman) R&H Fund Services (Jersey)
Limited
H. Bestwick Ordnance House
R.B.M. Quayle 31 Pier Road, St Helier
C.L. Spears Jersey JE4 8PW
N.V. Wilson
Secretary
P.P. Scales
Investment Advisor Nominated Advisor and
Broker
EPIC Private Equity LLP Numis Securities Limited
Audrey House 10 Paternoster Square
16-20 Ely Place London EC4M 7LT
London EC1N 6SN
Auditors and Reporting Registered Agent (Isle
Accountants of Man)
KPMG Audit LLC FIM Capital Limited
Heritage Court IOMA House
41 Athol Street Hope Street
Douglas Douglas
Isle of Man IM99 1HN Isle of Man IM1 1AP
Bankers Registrar and CREST
Providers
Barclays Bank plc Computershare Investor
Services (Jersey) Limited
1 Churchill Place Queensway House
Canary Wharf Hilgrove Street
London E14 5HP St. Helier JE1 1ES
Investor Relations
HSBC Bank plc Richard Spiegelberg
1st Floor Cardew Group
60 Queen Victoria Street 5 Chancery Lane
London EC4N 4TR London EC4A 1BL
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSWFIFFASEDI
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May 02, 2018 02:00 ET (06:00 GMT)
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