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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 176.50 | 173.00 | 180.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | 3.75M | -396k | -0.0133 | -132.71 | 52.73M |
From May 2019 to May 2024
TIDMESO TIDMEO.P TIDMEC.P TIDMEL.P
RNS Number : 2477C
EPE Special Opportunities Limited
28 September 2018
EPE Special Opportunities Limited
("ESO Ltd" or "the Company", formerly EPE Special Opportunities plc)
Interim Review and Unaudited Financial Statements for the 6 months ended 31 July 2018
The Board of EPE Special Opportunities Limited are pleased to announce the Company's Interim Review and Unaudited Financial Statements for the 6 months ended 31 July 2018.
Highlights:
-- The Net Asset Value ("NAV") at 31 July 2018 was 190.18 pence per share, a decrease of 18.8% on the NAV per share of 234.43 pence as at 31 January 2018;
-- The share price at 31 July 2018 was 132.68 pence, representing a decrease of 17.1% on the share price of 160.00 pence as at 31 January 2018;
-- The unwelcome performance of the Company's NAV during the six month period was driven by a 50.0 per cent. fall in value of the Company's largest asset, Luceco plc. The fall in share price value was a consequence of trading updates issued by Luceco plc which reduced the market's expectations for the business's trading; reported headwinds in its retail business and ongoing margin pressure;
-- The Board believe that Luceco plc remains an attractive long-term investment. On 1 August 2018, the Company acquired additional shares in Luceco plc in the market at a cost of GBP2.0 million.
-- The Company exercised 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 incurred a one-off cost of GBP4.0 million, resulting in an annual reduction in financing costs of GBP0.3 million. The Company's NAV was unaffected by the redemption;
-- The Company sought and received shareholder consent for a migration of the Company's incorporation from the Isle of Man to Bermuda. The Board believe that Bermuda offers a more appropriate VAT, legal and regulatory environment for the Company going forwards. The migration is anticipated to complete during September 2018.
-- The Board continues to closely monitor developments in the UK's exit from the European Union, including the risk of short-term uncertainty and market volatility.
-- Whittard of Chelsea maintained strong growth in the half year ended June 2018, with both the UK retail estate and domestic and international e-commerce platforms trading well, despite the headwinds felt in the wider UK retail sector;
-- Process Components had a solid year to 30 June 2018 and enters the new year with an order book of record size. The momentum is being supported by continued investment in the business's operations and sales infrastructure;
-- Pharmacy2U continues to record high growth levels, with over 150,000 active patients and over 300,000 prescriptions delivered in May 2018. In March 2018, Pharmacy2U completed the raise of GBP40 million new growth capital from G Square Capital, a European healthcare focussed private equity investor, to support the continuation of this high growth trajectory;
-- The Company's most recent acquisition, David Phillips, continued to implement its turnaround strategy. The business has achieved a substantial reduction in its overhead base, and is hopeful it can now achieve a strengthening of its market position as a result of the improvements in its service levels and operations effected since acquisition.
-- The portfolio remains conservatively valued with a weighted average Enterprise Value equating to an EBITDA multiple of 4.6x 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 1.3x third party net debt to EBITDA;
-- The Company retains gross asset coverage of 14.8x for total outstanding loans of GBP3.9 million. Overall liquidity at the Company, inclusive of banking facilities, is GBP25.4 million;
-- Mr. Geoffrey Vero, Chairman, commented: "Whilst the Board is disappointed in the performance of the Company's largest asset during the period, the Board has taken comfort in the momentum seen elsewhere in the portfolio. I would like to express my gratitude to the Company's shareholders for their ongoing support, and look forward to updating at the year end."
The person responsible for releasing this information on behalf of the Company is Hilary Jones of R&H Fund Services (Jersey) Limited.
Enquiries:
Hot Features
Premium
EPIC Private Equity LLP +44 (0) 207 269 8865
Alex Leslie
R&H Fund Services (Jersey) Limited +44 (0) 1534 825 323
Hilary Jones
Cardew Group Limited +44 (0) 207 930 0777
Richard Spiegelberg
Numis Securities Limited +44 (0) 207 260 1000
Nominated Advisor: Stuart Skinner / Hugh Jonathan
Corporate Broker: Charles Farquhar
Chairman's Statement
The performance of EPE Special Opportunities Limited ("ESO Ltd" or the "Company", formerly EPE Special Opportunities plc) for the half year ending 31 July 2018 has been disappointing. The encouraging progress made across the bulk of the portfolio was offset by headwinds in Luceco plc's market value. The Board continues to closely monitor developments in the UK's exit from the European Union, including the risk of short-term uncertainty and market volatility.
The Net Asset Value ("NAV") per share as at 31 July 2018 for the Company was 190.18 pence per share, representing a decrease of 18.8 per cent. on the NAV per share of 234.43 pence as at 31 January 2018. The share price as at 31 July 2018 for the Company was 132.68 pence, representing a decrease of 17.1 per cent. on the share price of 160.00 pence as at 31 January 2018.
The unwelcome performance of the Company's NAV during the six-month period was driven by a 50.0 per cent. fall in value of the Company's largest asset, Luceco plc. The fall in share price was a consequence of trading updates issued by Luceco plc which reduced the market's expectations for the business's trading; reported headwinds in its retail business and ongoing margin pressure.
The Board believe however that Luceco plc is currently an attractive investment for the Company. On 1 August 2018, the Company acquired an additional 5.0 million shares in Luceco plc in the market at a cost of GBP2.0 million.
Whittard of Chelsea maintained strong growth in the half year ended June 2018, with both the UK retail estate and domestic and international e-commerce platforms trading well, despite the negative performance of the wider UK retail sector.
Process Components had a solid year to 30 June 2018 and enters the new year with a record order book. The momentum is supported by continued investment in the business's operations and sales infrastructure.
The Company's most recent acquisition, David Phillips, continued to implement its turnaround strategy. The business has achieved a substantial reduction in its overhead base. As a result of the improvements in its service levels and operations effected since acquisition, David Phillips is hopeful it can now achieve a strengthening of its market position.
Pharmacy2U continues to record good growth levels, with strong customer acquisition during the period. In March 2018, Pharmacy2U completed the raise of GBP40 million 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 to G Square achieving a 2.0x money multiple realised return.
The Company exercised its option to redeem GBP4.0 million of outstanding unsecured loan notes in July 2018, resulting in an annual reduction in financing costs of GBP0.3 million. The Company's NAV was unaffected by the redemption.
The Company sought and received shareholder consent for a migration of the Company's incorporation from the Isle of Man to Bermuda. The migration completed on 12 September 2018.
The market conditions for UK small and medium sized businesses remains volatile with uncertainty surrounding the UK's exit from the European Union and headwinds in the retail sector. However, the increase in the Bank of England's base rate is reflective of improving economic momentum, observed, for example, in the level of employment and wage growth. Nevertheless the situation remains fragile with growing political uncertainty over Brexit and the overall effects on the UK Economy; the Board continues to monitor ongoing developments.
The Company's strong cash position allows the Board to continue to examine further investment proposals presented by the Investment Advisor, with the application of price discipline and rigorous consideration of value creation fundamentals paramount in what is a vigorously competitive market for asset opportunities.
I would like to express my gratitude to the Company's shareholders for their ongoing support, and will report further at the year-end.
Geoffrey Vero
Chairman
28 September 2018
Investment Advisor's Report
The Investment Advisor (the "IA") continues to build a portfolio of investments both via the development of existing assets and the deployment of the Company's liquidity into new opportunities. The IA continues to investigate an attractive pipeline of new investments and remains cautiously positive in the outlook for the UK lower mid-market in the longer term recognising the recent political uncertainty with regard to Brexit.
The Company
The NAV per share as at 31 July 2018 for the Company was 190.18 pence representing a decrease of 18.8 per cent. on the NAV per share of 234.43 pence as at 31 January 2018. The share price for the Company as at 31 July 2018 was 132.68 pence, representing a decrease of 17.1 per cent. on the share price of 160.00 pence as at 31 January 2018.
Based on the Company's balance sheet as at 31 July 2018, gross asset cover for the total outstanding loans of GBP3.9 million is 14.8x. Cash balances now stand at GBP23.2 million (including cash held by underlying partnerships in which the Company is the sole investor). Overall liquidity at the Company, inclusive of banking facilities is GBP25.4 million.
The Portfolio
Third party net debt across the Company's private equity portfolio stands at 1.3x EBITDA. The portfolio remains conservatively valued with a weighted average Enterprise Value equating to an EBITDA multiple of 4.6x for mature unquoted assets and 0.4x sales for growth unquoted assets investing for growth. This compares favourably to an average Enterprise Value to EBITDA multiple across comparable listed European private equity companies of 11.2x.
During the six months to 31 July 2018 the share price of Luceco plc fell by 50.0 per cent. driven by headwinds experienced by the business's retail customer base as detailed in trading updates released to the market during the period. These downward revisions in trading expectations follow margin pressures disclosed in the prior period. The Company acquired further shares in Luceco plc on 1 August 2018, for a cost of GBP2.0 million. On 10 September 2018, the business updated the market on its forward outlook, noting there had been a 30% increase in its retail order book, lower commodity input prices, better selling prices and a more favourable currency position." The IA continues to monitor the business closely.
At 31 July 2018, Luceco plc represented circa 20 per cent. Of the Company's NAV, with the balance held in other investments and cash. In consequence the Company's NAV will be proportionately less impacted by further volatility in the Luceco's share price, given the reduced concentration of this asset within the Company's portfolio.
Whittard of Chelsea has traded strongly over the half year ending 30 June 2018, with sales ahead of budget and prior year. The IA is encouraged by the growth achieved in the UK retail business despite the challenging conditions experienced by the wider sector. The business continues to invest in its domestic operations, with the development of a new web platform, estate optimisation and product development programs in progress. Whittard's promising Chinese e-commerce channels continue to perform strongly, with the option available to join further digital platforms and develop a Chinese retail channel in the future. Opportunities for distribution partnerships in other international markets continue to be developed.
Process Components has traded ahead of the prior year and continues to build sales momentum following the relocation of its manufacturing facility in 2017.The business enters the second half of 2018 with a robust order pipeline. The management continues to develop operational improvements in manufacturing processes and is opening new international sales offices to drive growth.
Pharmacy2U has achieved strong growth, underpinned by pleasing momentum in new customer acquisition. In March 2018, Pharmacy2U completed the raise of GBP40 million new growth capital from G Square 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 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 million growth capital investment.
David Phillips has continued to implement its turnaround strategy with notable improvements in its sales pipeline and operational efficiency. The business is recovering from a period of operating and trading difficulty caused by working capital constraints before the Company's investment in December 2017. The IA is pleased so far by the positive momentum seen across the majority of the business which has supported sales through the business' key summer trading months. Further improvements in profitability are anticipated through an increased focus on high margin business and ongoing operational improvements. The IA continues to monitor the investment closely as the nascent turnaround is established.
The IA would like to extend its thanks to the Board and the Company's shareholders for their ongoing support over the previous months.
EPIC Private Equity LLP
Investment Advisor to EPE Special Opportunities Limited
28 September 2018
Biographies of the Directors
Geoffrey Vero FCA Clive Spears
Geoffrey Vero qualified as a chartered Clive Spears retired from the
accountant with Ernst & Young Royal Bank of Scotland
and then worked for Savills, chartered International Limited in December
surveyors, and The Diners Club 2003 as Deputy Director of Jersey
Limited. He has been active in after 32 years of service. His
venture capital since 1985, initially main activities prior to retirement
with Lazard Development Capital included Product Development,
Limited and then from 1987 to Corporate Finance, Trust and Offshore
2002 as a director of Causeway Company Services and he was Head
Capital Limited which became ABN of Joint Venture Fund Administration
Amro Capital Limited. In 2002, with Rawlinson & Hunter. Mr Spears
he set up The Vero Consultancy is an Associate of the Chartered
specialising in corporate advisory Institute of Bankers and a Member
services and recovery situations. of the Chartered Institute for
He has considerable experience Securities & Investment. He has
in evaluating investment opportunities accumulated a well
and dealing with corporate recovery. spread portfolio of directorships
While at Causeway Capital, Mr centring on private equity, infrastructure
Vero was a Founder Director of and corporate debt. His appointments
Causeway Invoice Discounting Company currently include being Chairman
Limited, which was subsequently of Nordic Capital Limited, sitting
sold to NM Rothschild. He is also on the board of Jersey Finance
a nonexecutive director of Numis Limited and being director and
Corporation plc and Chairman of Head of the Investment Committee
Albion Development VCT plc. for GCP Infrastructure Investments
(FTSE 250 listed company).
--------------------------------------------
Heather Bestwick Robert Qyayle,
--------------------------------------------
Heather Bestwick has been a financial Robert Quayle qualified as an
services professional for 25 years, English solicitor at Linklaters
onshore in the City of London & Paines in 1974 after reading
and offshore in the Cayman Islands law at Selwyn College, Cambridge.
and Jersey. She qualified as an He subsequently practiced in London
English solicitor, specialising and the Isle of Man as a partner
in ship finance, with City firm in Travers Smith Braithwaite.
Norton Rose, and worked in their He served as Clerk of Tynwald
London and Greek offices for 8 (the Isle of Man's parliament)
years. Ms Bestwick subsequently for periods totalling 12 years
practised and became a partner and holds a number of public and
with global offshore law firm private appointments, and is active
Walkers in the Cayman Islands, in the voluntary sector. Mr. Quayle
and Managing Partner of the Jersey is Chairman of the Isle of Man
office. Becoming a non-executive Steam Packet Company Limited and
director in 2014, she is Chairman a number of other companies in
of Equion (Jersey) Limited and the financial services, manufacturing
Equion (Guernsey) Limited, sits and distribution sectors.
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
EPIC Private Equity LLP ("EPE" or the "Investment Advisor") was founded in June 2001 and is independently owned by its Partners. EPE focuses on niche investment opportunities with a focus on special situations, distressed, growth and buyout transactions, special purpose acquisition companies, private investments in public equities, as well as primary and secondary limited partner transactions
Giles Brand Hiren Patel
Giles Brand is a Managing Partner Hiren Patel is a Managing Partner
and the founder of EPE. He is and EPE's Finance Director and
currently the non-executive chairman Compliance Officer. He has worked
of Whittard of Chelsea and non-executive in the investment management industry
chairman of Luceco plc. Before for the past ten years. Before
joining EPE, Giles was a founding joining EPEA and EPE, Hiren was
Director of EPIC Investment Partners, finance director of EPIC Investment
a fund management business which Partners and was employed at Groupama
at sale to Syndicate Asset Management Asset Management where he was the
plc had US$5 billion under management Group Financial Controller.
and spent five years working
in Mergers and Acquisitions at
Baring Brothers in Paris and
London. Giles read History at
Bristol University.
-----------------------------------------
Robert Fulford James Henderson
-----------------------------------------
Robert Fulford is an Investment James Henderson is an Investment
Director of EPE. He previously Director of EPE. He previously
worked at Barclaycard Consumer worked in the Investment Banking
Europe before joining EPE. Whilst division at Deutsche Bank before
at Barclaycard, Robert as the joining EPE. Whilst at Deutsche
Senior Manager for Strategic Bank he worked on a number of M&A
Insight and was responsible for transactions and IPOs in the energy,
identifying, analysing and responding property, retail and gaming sectors,
to competitive forces. Prior as well as providing corporate
to Barclaycard, Robert was a broking advice to mandated clients.
strategy consultant at Oliver He manages the Company's investment
Wyman Financial Services, where in Pharmacy2U. James read Modern
he worked with a range of major History at Oxford University and
retail banking and institutional Medicine at Nottingham University.
clients in the UK, mainland Europe,
Middle East and Africa, specialising
in strategy and risk modelling.
He manages the Company's investment
in David Phillips and Whittard
of Chelsea, where he is currently
a non-executive director. Robert
read Engineering at Cambridge
University.
-----------------------------------------
Alex Leslie Ian Williams
------------------------------------------ -----------------------------------------
Alex Leslie is an Investment Ian Williams is an Investment Director
Director of EPE. He previously of EPE. Before joining EPE, he
worked in Healthcare Investment was a partner at Lyceum Capital
Banking at Piper Jaffray. Whilst where he was responsible for deal
at Piper Jaffray he worked on origination with a primary focus
a number of M&A transactions on the business services and software
and equity fundraisings within sectors, as well as financial services,
the Biotechnology, Specialty education and health sectors. Prior
Pharmaceutical and Medical Technology to Lyceum, Ian was a Director at
sectors. He manages the Company's Arbuthnot Securities, involved
investments in Luceco plc and in transactions including IPOs,
Process Components, where he secondary fund raisings and M&A,
is currently a non-executive focusing on the support services,
director. Alex read Human Biological healthcare, transport & IT sectors.
and Social Sciences at Oxford Ian read Politics and Economics
University and obtained an MPhil at the University of Bristol.
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, including the Company's compliance with the QCA Corporate Governance Code;
-- 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 three 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. In addition, the Committee undertook a review of the Company's corporate governance and adoption of the QCA Corporate Governance Code.
Significant accounting matters
The primary risk considered by the Risk and Audit Committee during the period under review 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 7 and 8. 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 2019 is expected to be GBP35,000 (2018: GBP35,800).
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 provided non-audit services to the Company in relation to the Company's migration to Bermuda.
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 Company does not have an internal audit function. The Risk and Audit Committee believes this is appropriate as all of the Company's operational functions are delegated to their party service providers who have their own internal control and risk monitoring arrangements. A report on these arrangements is prepared by each third party service provider and submitted to the Risk and Audit Committee which it reviews on behalf of the Board to support the Directors' responsibility for overall internal control. The Company does not have a whistleblowing policy and procedure in place. The Company delegates this function to the Investment Advisor who is regulated by the FCA and has such policies in place. The Risk and Audit Committee has been informed by the Investment Advisor that these policies meet the industry standards and no whistleblowing took place during the year.
Clive Spears
Chairman of the Risk and Audit Committee
28 September 2018
Corporate Governance
The Board of EPE Special Opportunities Limited is pleased to inform shareholders of the Company's adoption of the Quoted Companies Alliance 2018 Corporate Governance Code (the "QCA Code").
The Company is committed to the highest standards of corporate governance, ethical practices and regulatory compliance. The Board believe that these standards are vital to generate long-term, sustainable value for the Company's shareholders. In particular the Board is concerned that the Company is governed in manner to allow efficient and effective decision making, with robust risk management procedures.
As an investment vehicle, the Company is reliant upon its service providers for many of its operations. The Board maintains ongoing and rigorous review of these providers.
Specifically the Board reviews the governance and compliance of these entities to ensure they meet the high standards of the Company.
The Board is dedicated to upholding these high standards and will look to strengthen the Company's governance on an ongoing basis.
The Company's compliance with the QCA Code is on the Company's website (www.epespecialopportunities.com). The Company will provide annual updates on changes to compliance with the QCA Code.
Geoffrey Vero
Chairman
28 September 2018
Independent Review Report to EPE Special Opportunities Limited (formerly EPE Special Opportunities plc)
Conclusion
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly report for the six months ended 31 July 2018 which comprises the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statement of Financial Position, the Condensed Consolidated Statement of Changes in Equity, the Condensed Consolidated Statement of Cash Flows and the related explanatory notes.
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 31 July 2018 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting as adopted by the EU and the AIM Rules.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. We read the other information contained in the half-yearly report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly report in accordance with the AIM Rules.
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards as adopted by the EU. The Directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34 as adopted by the EU.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly report based on our review.
The purpose of our review work and to whom we owe our responsibilities
This report is made solely to the Company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this 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 for our review work, for this report, or for the conclusions we have reached.
KPMG Audit LLC
Chartered Accountants
Heritage Court
41 Athol Street
Douglas
Isle of Man IM99 1HN
28 September 2018
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 31 July 2018
1 Feb 1 Feb
2017 to 2017 to
1 Feb 2018 to 31 Jul 31 Jul 31 Jan
2018 2017 2018
Revenue Capital Total Total Total
(unaudited) (unaudited) (unaudited) (unaudited) (audited)
------------- ------------- ------------- ------------- -------------
Note GBP GBP GBP GBP GBP
---------------------------- ------------- ------------- ------------- ------------- -------------
Income
Interest income 115,815 - 115,815 3,482 33,477
---------------------------- ------------- ------------- ------------- ------------- -------------
Total income 115,815 - 115,815 3,482 33,477
---------------------------- ------------- ------------- ------------- ------------- -------------
Expenses
Investment advisor's
5 fees (549,493) - (549,493) (1,369,521) (2,370,687)
Administration fees (75,345) - (75,345) (108,269) (218,589)
Directors' fees (77,000) - (77,000) (86,417) (161,500)
Directors' and Officers'
insurance (4,102) - (4,102) (1,994) (3,974)
Professional fees (121,460) - (121,460) (35,919) (211,428)
Provision for migration
15 costs (700,000) - (700,000) - -
Board meeting and travel
expenses (4,978) - (4,978) (4,731) (7,391)
Auditors' remuneration (20,376) - (20,376) (21,125) (35,800)
Bank charges (512) - (512) (443) (868)
Irrecoverable VAT - - - (32,764) (32,764)
Share-based payment
6 expense (69,567) - (69,567) (103,297) (210,043)
Sundry expenses (9,885) - (9,885) (22,103) (60,300)
Listing fees (16,557) - (16,557) (17,605) (28,511)
Nominated advisor and
broker fees (33,086) - (33,086) (31,092) (60,405)
Total expenses (1,682,361) - (1,682,361) (1,835,280) (3,402,260)
---------------------------- ------------- ------------- ------------- ------------- -------------
Net expenses (1,566,546) - (1,566,546) (1,831,798) (3,368,783)
---------------------------- ------------- ------------- ------------- ------------- -------------
Movements on investments
Share of (loss)/profit
7 of associates - (10,714,584) (10,714,584) 14,952,071 (32,258,774)
Gain on fair value
of loan to related
companies - - - - 40,000
(Loss)/gain for the
period/year on investments - (10,714,584) (10,714,584) 14,952,071 (32,218,774)
---------------------------- ------------- ------------- ------------- ------------- -------------
Interest on unsecured
13 loan note instruments (309,382) - (309,382) (309,382) (618,765)
(Loss)/profit for the
period/year before
taxation (1,875,928) (10,714,584) (12,590,512) 12,810,891 (36,206,322)
Taxation - - - - -
------------- -------------
(Loss)/profit for the
period/year (1,875,928) (10,714,584) (12,590,512) 12,810,891 (36,206,322)
---------------------------- ------------- ------------- ------------- ------------- -------------
Other comprehensive
income - - - - -
---------------------------- ------------- ------------- ------------- ------------- -------------
Total comprehensive
(loss)/income for the
period/year (1,875,928) (10,714,584) (12,590,512) 12,810,891 (36,206,322)
---------------------------- ------------- ------------- ------------- ------------- -------------
Basic (loss)/earnings
per ordinary share
11 (pence) (6.63) (37.86) (44.49) 45.59 (128.45)
---------------------------- ------------- ------------- ------------- ------------- -------------
Diluted (loss)/earnings
per ordinary share
11 (pence) (6.63) (37.86) (44.49) 45.17 (128.45)
---------------------------- ------------- ------------- ------------- ------------- -------------
The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS as adopted by the EU. The supplementary revenue return and capital return columns are prepared in accordance with the Board of Directors' agreed principles. All items derive from continuing activities.
Condensed Consolidated Statement of Financial Position
As at 31 July 2018
31 July 31 January 31 July
2018 2018 2017
(unaudited) (audited) (unaudited)
Note GBP GBP GBP
-------------------------------- --------------- ------------ ---------------
Non-current assets
7 Investment in associates 30,676,674 41,391,258 88,562,103
Loans to associates and
7,9 related companies 5,834,303 5,152,739 3,057,712
36,510,977 46,543,997 91,619,815
-------------------------------- --------------- ------------ ---------------
Current assets
Cash and cash equivalents 22,019,716 28,047,141 31,025,667
Trade and other receivables 232,358 98,774 102,379
22,252,074 28,145,915 31,128,046
-------------------------------- --------------- ------------ ---------------
Current liabilities
Trade and other payables (335,833) (464,322) (639,851)
Provision for migration
15 costs (700,000) - -
(1,035,833) (464,322) (639,851)
-------------------------------- --------------- ------------ ---------------
Net current assets 21,216,241 27,681,593 30,488,195
-------------------------------- --------------- ------------ ---------------
Non-current liabilities
13 Unsecured loan note instruments (3,905,309) (7,882,736) (7,872,433)
(3,905,309) (7,882,736) (7,872,433)
-------------------------------- --------------- ------------ ---------------
Net assets 53,821,909 66,342,854 114,235,577
-------------------------------- --------------- ------------ ---------------
Equity
10 Share capital 1,503,286 1,503,286 1,473,781
Share premium 3,867,209 3,867,209 2,893,562
Capital reserve 37,866,806 48,581,390 95,752,235
Revenue reserve 10,584,608 12,390,969 14,115,999
Total equity 53,821,909 66,342,854 114,235,577
-------------------------------- --------------- ------------ ---------------
Net asset value per share
12 (pence) 190.18 234.43 412.26
-------------------------------- --------------- ------------ ---------------
Condensed Consolidated Statement of Changes in Equity
For the six months ended 31 July 2018
Six months ended 31 July 2018 (unaudited)
Share Share Capital Revenue
capital premium reserve reserve Total
GBP GBP GBP GBP GBP
------------------------------------ ---------- ---------- ------------- ------------ -------------
Balance at 1 February
2018 1,503,286 3,867,209 48,581,390 12,390,969 66,342,854
Total comprehensive loss
for the period - - (10,714,584) (1,875,928) (12,590,512)
------------------------------------- ---------- ---------- ------------- ------------ -------------
Contributions by and distributions
to owners
Share-based payment charge - - - 69,567 69,567
Total transactions with
owners - - - 69,567 69,567
------------------------------------- ---------- ---------- ------------- ------------ -------------
Balance at 31 July 2018 1,503,286 3,867,209 37,866,806 10,584,608 53,821,909
------------------------------------- ---------- ---------- ------------- ------------ -------------
Year ended 31 January 2018 (audited)
Share Share Capital Revenue
capital premium reserve reserve Total
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 charge - - - 210,043 210,043
Share ownership scheme
participation - - - 15,914 15,915
Purchase of treasury shares (94,787) - - (1,715,482) (1,810,269)
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
------------------------------------- ---------- ---------- ------------- ------------ -------------
Six months ended 31 July 2017
(unaudited)
Share Share Capital Revenue
capital premium reserve reserve Total
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 income
for the period - - 14,952,071 (2,141,180) 12,810,891
------------------------------------- ---------- ---------- ----------- ------------ ------------
Contributions by and distributions
to owners
Share-based payment charge - - - 103,297 103,297 Cash received from JSOP participants - - - 1,323 1,323 Purchase of treasury shares (94,787) - - (1,715,482) (1,810,269) Total transactions with owners (94,787) - - (1,610,863) (1,705,650) ------------------------------------- ---------- ---------- ----------- ------------ ------------ Balance at 31 July 2017 1,473,781 2,893,562 95,752,235 14,115,999 114,235,577 ------------------------------------- ---------- ---------- ----------- ------------ ------------
Condensed Consolidated Statement of Cash Flows
For the six months ended 31 July 2018
1 Feb 2018 1 Feb 2017 1 Feb 2017
to 31 Jul to 31 Jan to 31 Jul
2018 2018 2017
(unaudited) (audited) (unaudited)
GBP GBP GBP
--------------------------------------- -------------- ------------ --------------
Operating activities
Interest income received 7,368 8,450 3,482
Expenses paid (1,047,984) (3,414,475) (1,780,217)
Net cash used in operating activities (1,040,616) (3,406,025) (1,776,735)
-------------------------------------------- -------------- ------------ --------------
Investing activities
Loan advances to associate - (2,045,657) (2,045,657)
Loan advances to investee company (700,000) (2,030,000) -
Loan repayment to associates - (274,410) (276,510)
Capital contribution to associate - (40,160) (160)
Net cash used in investing activities (700,000) (4,390,227) (2,322,327)
-------------------------------------------- -------------- ------------ --------------
Financing activities
Issue of new shares - 1,003,151 -
Unsecured loan note interest paid (299,080) (598,159) (299,080)
Cash received from JSOP participants - - 1,322
Purchase of treasury shares - (1,810,269) (1,810,269)
Share ownership scheme participation - 15,914 -
Unsecured loan note redeemed (3,987,729) - -
Net cash used in financing activities (4,286,809) (1,389,363) (2,108,027)
-------------------------------------------- -------------- ------------ --------------
Decrease in cash and cash equivalents (6,027,425) (9,185,615) (6,207,089)
Cash and cash equivalents at start
of period/year 28,047,141 37,232,756 37,232,756
-------------------------------------------- -------------- ------------ --------------
Cash and cash equivalents at end
of period/year 22,019,716 28,047,141 31,025,667
-------------------------------------------- -------------- ------------ --------------
Notes to the Condensed Consolidated Interim Financial Statements
For the six months ended 31 July 2018
1 The Company
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 moved its operations to Jersey with immediate effect on 22 May 2017 and subsequently operates from Jersey only.
The Company continued from the Isle of Man to Bermuda on 12 September 2018. The Company continued as an exempted company under the laws of Bermuda with company number 53954 and discontinued as a company under the laws of the Isle of Man. The Company continues to operate 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 interim consolidated financial statements as at and for the six months ended 31 July 2018 comprise the Company and its subsidiaries (together "the Group"). The interim consolidated financial statements are unaudited.
The consolidated financial statements of the Group as at and for the year ended 31 January 2018 are available upon request from the Company's business office at Ordnance House, 31 Pier Road, St Helier, Jersey, JE4 8PW and the registered office at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda, or at www.epicpe.com.
The Company has two wholly owned subsidiary companies. EPIC Reconstruction Property Company (IOM) Limited, a company incorporated on 29 October 2005 in the Isle of Man and Corvina Limited, a company incorporated on 16 November 2012 in the Isle of Man.
At 31 July 2018, the Company also 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 Company has no employees.
2 Statement of compliance
These interim consolidated and company financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting.
The interim consolidated financial statements do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 January 2018.
The interim consolidated financial statements were approved by the Board of Directors on 28 September 2018.
3 Significant accounting policies
Except the adoption of IFRS 9 Financial Instruments as described below, the accounting policies applied in these interim financial statements are the same as those applied in the Group's consolidated financial statements as at and for the year ended 31 January 2018.
Associates
The Company holds interests in ESO Investments 1 LP, ESO Alternative Investments LP, ESO Investments 2 LP, ESO Investment (DP) Ltd and ESO Investments (PC) LLP, which are managed and controlled by EPIC Private Equity LLP, or a subsidiary of EPIC Private Equity LLP, for the benefit of the Company and the other members. The Company has the power to appoint members to the investment committee of ESO Investments 1 LP, ESO Alternative Investments LP, ESO Investments 2 LP, ESO Investment (DP) Ltd and ESO Investments (PC) LLP but does not have the ability to direct the activities of ESO Investments 1 LP, ESO Alternative Investments LP, ESO Investments 2 LP, ESO Investment (DP) Ltd and ESO Investments (PC) LLP. The Directors consider that ESO Investments 1 LP, ESO Alternative Investments LP, ESO Investments 2 LP, ESO Investment (DP) Ltd and ESO Investments (PC) LLP do not meet the definition of subsidiaries.
These entities are instead treated as associates.
IFRS 9 Financial Instruments
The Group has initially adopted IFRS 9 Financial Instruments from 1 February 2018. A number of other new standards are effective from 1 February 2018 but do not have a material effect on the Group's financial statements.
IFRS 9 sets out requirements for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This standard replaces IAS 39 Financial Instruments: Recognition and Measurement.
(a) Classification and measurement
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of financial liabilities. However, it eliminates the previous IAS 39 categories for financial assets of held to maturity, loans and receivables and available for sale.
Under IFRS 9, on initial recognition, a financial asset is classified as measured at: amortised cost; fair value through other comprehensive income ("FVOCI") - debt investment; FVOCI - equity investment; or fair value through profit or loss ("FVTPL"). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics.
The following table explain the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial assets as at 1 February 2018.
Original classification New classification Original carrying New carrying
under IAS under IFRS amount under amount under
39 9 IAS 39 IFRS 9
Financial Assets GBP GBP
Loans to associates Loans and Amortised
and related companies receivables cost 5,152,739 5,152,739
Loans and Amortised
Trade and other receivables receivables cost 98,774 98,774
Loans and Amortised
Cash and cash equivalents receivables cost 28,047,141 28,047,141
------------------ --------------
Total financial assets 33,298,654 33,298,654
------------------ --------------
The adoption of IFRS 9 has not had a significant effect on the Group's accounting policies related to financial liabilities.
(b) Impairment
The most significant effect of the adoption of IFRS 9 is on the assets classified at amortised cost. IFRS 9 requires the Group to record expected credit losses (ECLs) on its loans to associates and related companies, trade receivables and other receivables and cash and cash equivalents, either on a 12-month or lifetime basis. At 31 July 2018, assets classified at amortised cost totalled GBP28,086,377 (31 January 2018: GBP33,298,654 and 31 July 2017: GBP34,185,758). The Group has determined there will be no material impact of ECLs on the financial statements.
4 Financial risk management
The Group financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 January 2018.
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 period was GBP549,493 (period ended 31 July 2017: GBP1,369,521; year ended 31 January 2018: GBP2,370,687).
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 period was GBP75,345 (period ended 31 July 2017:GBP 108,269; year ended 31 January 2018: GBP 218,589).
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 period ended 31 July 2018 (period ended 31 July 2017:GBP nil; year ended 31 January 2018: GBP nil).
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 period ended 31 July 2018, GBP2,687,783 has been debited from the carry account of the Investment Advisor in the records of ESO 1 LP (year ended 31 January 2018: Debit of GBP8,115,607).
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 period ended 31 July 2018, GBP1,056 (year ended 31 January 2018: GBP50,646) was debited to the Investment Advisor.
6 Share-based payment expense
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").
The cost of equity settled transactions with certain Directors of the Company and other participants (including employees, members and consultants 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 (31 January 2018: 420,050) matching shares at 31 July 2018 which have traditionally not voted.
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 GBP69,567 (period ended 31 July 2017: GBP103,297; year ended 31 January 2018: GBP210,043).
7 Non-current assets
31 July 31 January 31 July
2018 2018 2017
(unaudited) (audited) (unaudited)
GBP GBP GBP
--------------------------------- ------------ ----------- ------------
Investment in associates 30,676,674 41,391,258 88,562,103
Loans to associates and related
companies 5,834,303 5,152,739 3,057,712
36,510,977 46,543,997 91,619,815
------------ ----------- ------------
Investment in associates
Investments in associates comprise the investment in ESO Investments 1 LP, ESO Alternative Investments LP, ESO Investments 2 LP, ESO Investments (DP) Ltd and ESO Investments (PC) LLP which are stated at fair value through profit and loss. The associates have accounted for their equity investments at fair value.
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.
Summary financial information for associates as at and for the period ended 31 July 2018 is as follows:
Total Minority ESO Ltd Percentage
Associate interest share share
ESO 1 LP GBP GBP GBP %
------------------------------- ------------- ------------------------- ------------- ----------------------
Non-current assets 28,282,167 (5,656,433) 22,625,734 80.00%
Current assets 622,441 (124,488) 497,953 80.00%
Current liabilities (691,649) 138,329 (553,320) 80.00%
Net assets 28,212,959 (5,642,592) 22,570,367 80.00%
------------------------------- ------------- ------------------------- ------------- ----------------------
Income 87,214 (16,523) 70,691 81.10%
Losses on investments (13,239,478) 2,508,155 (10,731,323) 81.10%
Expenses (111,653) 21,152 (90,501) 81.10%
-------------------------------
Loss (13,263,917) 2,512,784 (10,751,133) 81.10%
------------------------------- ------------- ------------------------- ------------- ----------------------
ESO (PC) LLP
------------------------------- ------------- ------------------------- ------------- ----------------------
Non-current assets 9,453,084 (1,898,095) 7,554,989 79.90%
Current assets 265,670 (53,344) 212,326 79.90%
Current liabilities (1,483) 298 (1,185) 79.90%
Net assets 9,717,271 (1,951,141) 7,766,130 79.90%
------------------------------- ------------- ------------------------- ------------- ----------------------
Income - - - -
Gains/(losses) on investments - - - -
Expenses (5,476) 1,055 (4,421) 80.70%
------------------------------- ----------------------
Loss (5,476) 1,055 (4,421) 80.70%
------------------------------- ------------- ------------------------- ------------- ----------------------
ESO AI LP
------------------------------- ------------- ------------------------- ------------- ----------------------
Non-current assets 2,177,407 - 2,177,407 100.00%
Current assets 217,577 - 217,577 100.00%
Current liabilities (2,047,141) - (2,047,141) 100.00%
Net assets 347,843 - 347,843 100.00%
------------------------------- ------------- ------------------------- ------------- ----------------------
Income 87,861 - 87,863 100.00%
Gains/(losses) on investments (43,201) - (43,201) 100.00%
Expenses (2,364) - (2,364) 100.00%
------------------------------- ----------------------
Profit 42,296 - 42,296 100.00%
------------------------------- ------------- ------------------------- ------------- ----------------------
ESO (DP) Ltd
------------------------------- ------------- ------------------------- ------------- ----------------------
Non-current assets - - - -
Current assets - - - -
Current liabilities (7,746) - (7,746) 100.00%
Net assets (7,746) - (7,746) 100.00%
------------------------------- ------------- ------------------------- ------------- ----------------------
Income - - - -
Gains/(losses) on investments - - - -
Expenses (1,328) - (1,328) 100.00%
-------------------------------
Loss (1,328) - (1,328) 100.00%
------------------------------- ------------- ------------------------- ------------- ----------------------
ESO 2 LP
------------------------------- ------------- ------------------------- ------------- ----------------------
Non-current assets 100 (20) 80 80.00%
Current assets - - - -
Current liabilities - - - -
Net assets 100 (20) 80 80.00%
------------------------------- ------------- ------------------------- ------------- ----------------------
Income - - - -
Gains/(losses) on investments - - - -
Expenses - - - -
------------------------------- ------------- ------------------------- ------------- ----------------------
Profit - - - -
------------------------------- ------------- ------------------------- ------------- ----------------------
ESO Ltd
------------------------------- ------------- ------------------------- ------------- ----------------------
Loans to associates and
related companies 5,834,303 - 5,834,303 100.00%
Loans from associates and - - - -
related companies
Other assets and liabilities
ESO Ltd 21,216,241 - 21,216,241 100.00%
------------------------------- ------------------------- ----------------------
Total 27,050,544 - 27,050,544 100.00%
------------------------------- ------------- ------------------------- ------------- ----------------------
Total assets less current
liabilities 65,320,971 (7,593,753) 57,727,218 88.40%
------------------------------- ------------- ------------------------- ------------- ----------------------
Summary of ESO Ltd fund Total Minority ESO Ltd Percentage
structure interest share share
GBP GBP GBP GBP
------------------------------- ------------- ------------------------- ------------- ----------------------
ESO 1 LP 28,212,959 (5,642,592) 22,570,368 80.00%
ESO AI LP 347,843 - 347,843 100.00%
ESO 2 LP 100 (20) 80 80.00%
ESO (PC) LLP 9,717,271 (1,951,141) 7,766,129 79.90%
ESO (DP) Ltd (7,746) - (7,746) 100.00%
ESO Ltd current assets,
current liabilities and
loans to related companies 27,050,544 - 27,050,544 100%
------------------------------- ------------------------- ----------------------
Total assets less current
liabilities 65,320,971 (7,593,753) 57,727,218 88.40%
------------------------------- ------------- ------------------------- ------------- ----------------------
Summary financial information for associates as at and for the year ended 31 January 2018 was as follows:
Associate Total Minority ESO Ltd Percentage
interest share share
ESO 1 LP GBP GBP GBP %
------------------------------- ------------- ---------------------- ------------- -----------
Non-current assets 41,282,258 (8,256,451) 33,025,807 80.00%
Current assets 3,233,610 (646,722) 2,586,888 80.00%
Current liabilities (2,863,992) 572,799 (2,291,193) 80.00%
Net assets 41,651,876 (8,330,374) 33,321,502 80.00%
------------------------------- ------------- ---------------------- ------------- -----------
Income 570,268 (110,083) 460,185 80.70%
Gains/(losses) on investments (40,594,020) 7,836,254 (32,757,767) 80.70%
Expenses (204,281) 39,434 (164,847) 80.70%
------------------------------- -----------
Loss (40,228,033) 7,765,605 (32,462,428) 80.70%
------------------------------- ------------- ---------------------- ------------- -----------
ESO (PC) LLP
------------------------------- ------------- ---------------------- ------------- -----------
Non-current assets 9,453,084 (1,898,053) 7,555,031 79.90%
Current assets 270,674 (54,348) 216,326 79.90%
Current liabilities (1,011) 203 (808) 79.90%
Net assets 9,722,747 (1,952,198) 7,770,549 79.90%
------------------------------- ------------- ---------------------- ------------- -----------
Income - - - -
Gains/(losses) on investments - - - -
Expenses (4,747) 953 (3,794) 79.90%
------------------------------- -----------
Loss (4,747) 953 (3,794) 79.90%
------------------------------- ------------- ---------------------- ------------- -----------
ESO AI LP
------------------------------- ------------- ---------------------- ------------- -----------
Non-current assets 2,234,789 - 2,234,789 100.00%
Current assets 119,881 - 119,881 100.00%
Current liabilities (2,049,124) - (2,049,124) 100.00%
Net assets 305,546 - 305,546 100.00%
------------------------------- ------------- ---------------------- ------------- -----------
Income 102,788 - 102,788 100.00%
Gains/(losses) on investments 253,419 - 253,419 100.00%
Expenses (50,741) - (50,741) 100.00%
------------------------------- ----------------------
Profit 305,466 - 305,466 100.00%
------------------------------- ------------- ---------------------- ------------- -----------
ESO (DP) Ltd
------------------------------- ------------- ---------------------- ------------- -----------
Non-current assets - - - -
Current assets - - - -
Current liabilities (6,419) - (6,419) 100.00%
----------------------
Net assets (6,419) - (6,419) 100.00%
------------------------------- ------------- ---------------------- ------------- -----------
Income - - - -
Gains/(losses) on investments (40,000) - (40,000) 100.00%
Expenses (6,419) - (6,419) 100.00%
------------------------------- ----------------------
Loss (46,419) - (46,419) 100.00%
------------------------------- ------------- ---------------------- ------------- -----------
ESO 2 LP
------------------------------- ------------- ---------------------- ------------- -----------
Non-current assets 100 (20) 80 80.00%
Current assets - - - -
Current liabilities - - - -
----------------------
Net assets 100 (20) 80 80.00%
------------------------------- ------------- ---------------------- ------------- -----------
Income - - - -
Gains/(losses) on investments - - - -
Expenses - - - -
------------------------------- ------------- ---------------------- -------------
Profit - - - -
------------------------------- ------------- ---------------------- ------------- -----------
ESO Ltd
------------------------------- ------------- ---------------------- ------------- -----------
Loans to associates and
related companies 5,152,739 - 5,152,739 100.00%
Other assets and liabilities
ESO Ltd 27,681,593 - 27,681,593 100.00%
------------------------------- ---------------------- -----------
Total 32,834,332 - 32,834,332 100.00%
------------------------------- ------------- ---------------------- ------------- -----------
Total assets less current
liabilities 84,508,182 (10,282,592) 74,225,590 87.80%
------------------------------- ------------- ---------------------- ------------- -----------
Summary of ESO Ltd fund Total Minority ESO Ltd Percentage
structure interest share share
GBP GBP GBP GBP
------------------------------- ------------- ---------------------- ------------- -----------
ESO 1 LP 41,651,875 (8,330,374) 33,321,502 80.00%
ESO (PC) LLP 9,722,747 (1,952,198) 7,770,549 79.90%
ESO AI LP 305,546 - 305,546 100.00%
ESO (DP) Ltd (6,419) - (6,419) 100.00%
ESO 2 LP 100 (20) 80 80.00%
ESO Ltd current assets,
current liabilities and
loans to related companies 32,834,332 - 32,834,332 100.00%
Total assets less current
liabilities 84,508,182 (10,282,592) 74,225,590 87.80%
------------------------------- ------------- ---------------------- ------------- -----------
8 Financial assets and liabilities
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. All of the Group's underlying investments held by equity accounted investees are deemed as level 3 in the fair value hierarchy.
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 and EBITDA multiple valuation models 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, who 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 and EBITDA multiple valuation models are used, based on budgeted Sales and 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 equity accounted investees 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 1 Level 3 Total
31 July 2018 GBP GBP GBP
---------------------------------------- ----------- ------------------------ -----------
Financial assets at fair value through
profit or loss
Unlisted private equity investments - 13,805,850 13,805,850
Listed private equity investments 14,381,808 - 14,381,808
Debt securities, unlisted - 11,725,000 11,725,000
Total investments 14,381,808 25,530,850 39,912,658
----------------------------------------- ----------- ------------------------ -----------
ESO Ltd Share 11,505,446 20,852,684 32,358,130
Minority Interest Share 2,876,362 4,678,166 7,554,528
Total investments 14,381,808 25,530,850 39,912,658
----------------------------------------- ----------- ------------------------ -----------
Level 1 Level 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 private equity investments 28,763,616 - 28,763,616
Debt securities, unlisted - 11,495,027 11,495,027
Total investments 28,763,616 26,232,427 54,996,043
----------------------------------------- ------------------------ ------------------------ -----------
ESO Ltd Share 23,010,893 21,830,645 44,841,538
Minority Interest Share 5,752,723 4,401,782 10,154,505
Total investments 28,763,616 26,232,427 54,996,043
----------------------------------------- ------------------------ ------------------------ -----------
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 for the underlying investments held by equity accounted investees.
31 July 31 January
2018 2018
(unaudited) (audited)
--------------------------------------------- ------------ -----------
Unlisted private equity investments GBP GBP
--------------------------------------------- ------------ -----------
Balance at 1 February 14,737,400 11,685,937
Additional investments - 2,352,192
Disposal of investments (1,559,321) -
Change in fair value through profit or loss 627,771 700,359
---------------------------------------------- ------------
Total 13,805,850 14,737,400
---------------------------------------------- ------------ -----------
Significant unobservable inputs used in measuring fair value
The table below sets out information about significant unobservable inputs used at 31 July 2018 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.
Description Fair value at 31 January Valuation technique
2018
------------------------------------ ----------------------
GBP
------------------------------------ ------------------------- ----------------------
Unquoted private equity investments 11,035,850 Sales/EBITDA multiple
------------------------- ----------------------
Recently purchased unquoted 2,770,000 Cost value
private equity investments
------------------------- ----------------------
Significant unobservable inputs are developed as follows:
-- Sales/EBITDA multiples: Represents amounts that market participants would use when pricing the investments. Sales/EBITDA multiples are selected from comparable public companies based on geographic location, industry, size, target markets and other factors that management considers to be reasonable. The traded multiples for the comparable companies are determined by dividing the enterprise value of the company by its Sales or EBITDA and further discounted for considerations such as the lack of marketability and other differences between the comparable peer group and specific company.
-- The Sales/EBITDA multiple is applied to the budgeted Sales/EBITDA for the next financial year.
IFRS 13 requires disclosure, by class of financial instrument, if the effect of changing one or more inputs to reasonably possible alternative assumptions would result in a significant change to the fair value measurement. The information used in determination of the fair value of Level 3 investments is chosen with reference to the specific underlying circumstances and position of the investee company. On that basis, the Board believe that the impact of changing one or more of the inputs to reasonably possible alternative assumptions would not change the fair value significantly.
9 Loans to associates and related companies
31 July 31 January 31 July
2018 2018 2017
(unaudited) (audited) (unaudited)
GBP GBP GBP
--------------------------------- ------------ ----------- ------------
ESO 1 LP 512,055 512,055 512,055
ESO AI LP 2,045,657 2,045,657 2,045,657
EPIC Structured Finance Limited 500,000 500,000 500,000
ESO (DP) Ltd 6,591 - -
Hamsard 3463 Limited 2,730,000 2,055,027 -
David Philips Groups Limited 40,000 40,000 -
Loans to associates and related
companies 5,834,303 5,152,739 3,057,712
---------------------------------- ------------ ----------- ------------
The loans to associates are unsecured, interest free and not subject to any fixed repayment terms.
The loan to David Philips Group Limited is interest free and payable by 31 January 2023.
The loan to Hamsard 3463 Limited is interest bearing at 10% per annum and payable by 31 January 2023.
10 Share capital
31 July 2018 31 January 2018 31 July 2017
(unaudited) (audited) (unaudited)
------------------------ ------------------------ ------------------------
Number GBP Number GBP Number GBP
--------------------- ------------ ---------- ------------ ---------- ------------ ----------
Authorised share
capital
Ordinary shares
of 5p each 45,000,000 2,250,000 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 30,065,714 1,503,286 29,475,625 1,473,781
Ordinary shares
of 5p each held
in treasury (1,765,876) - (1,765,876) - (1,765,876) -
28,299,838 1,503,286 28,299,838 1,503,286 27,709,749 1,473,781
--------------------- ------------ ---------- ------------ ---------- ------------ ----------
11 Basic and diluted earnings per ordinary share
The basic earnings per share is calculated by dividing the loss of the Group for the period attributable to ordinary shareholders of (GBP12,590,512) by the weighted average number of shares outstanding during the period of 28,299,838 (six-month period ended 31 July 2017: 28,098,107; year ended 31 January 2018: 28,187,483).
The diluted earnings per share is calculated by dividing the profit for the period attributable to ordinary shareholders by the weighted average number of shares outstanding during the period, as adjusted for the effects of all dilutive potential ordinary shares of 28,299,838 (six-month period ended 31 July 2017: 28,361,968; year ended 31 January 2018: 28,187,483).
12 Net asset value per share (pence)
The net asset value per share is based on the net assets at the period end of GBP53,821,909 divided by 28,299,838 ordinary shares in issue at the end of the period (31 July 2017: GBP114,235,577 and 27,709,749 ordinary shares; 31 January 2018: GBP66,342,854 and 28,299,838 ordinary shares).
The diluted net asset value per share of 190.18 pence, is based on the net assets of the Group and the Company at the period-end of GBP53,821,909 divided by the shares in issue at the end of the period, as adjusted for the effects of dilutive potential ordinary shares, of 28,299,838, after excluding treasury shares (31 July 2017: GBP114,235,577 and 27,973,610 ordinary shares; 31 January 2018: GBP66,342,854 and 28,299,838, ordinary shares).
13 Loan note instruments
31 July 31 January 31 July
2018 2018 2017
(unaudited) (audited) (unaudited)
GBP GBP GBP
-------------------------------- ------------ ----------- ------------
Unsecured loan note instrument 3,905,309 7,882,736 7,872,433
3,905,309 7,882,736 7,872,433
------------ ----------- ------------
On 23 July 2015, the Company raised GBP4,500,000 via a placing of an 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. There were no ULNs issued during the period. On 31 July 2018, 50% of the outstanding ULNs in issue were redeemed such that GBP3,987,729 in principal amount was outstanding at the end of the period.
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. A total of GBP10,302 was expensed in the period ended 31 July 2018 (GBP20,605 in the year ended 31 January 2018, GBP10,302 in the period ended 31 July 2017). The total interest expense on the ULNs in the period ended 31 July 2018 is GBP309,382 (GBP618,765 in the year ended 31 January 2018, GBP309,382 in the period ended 31 July 2017). This includes the amortisation of the issue costs.
14 Financial commitments and guarantees
Under the terms of the limited partnership agreement, the Company is committed to provide a maximum of GBP2.0 million additional investment to ESO Investments 1 LP.
15 Provision for migration costs
On 1 August 2018 the Company announced its proposal to migrate the Company's jurisdiction of incorporation from Isle of Man to Bermuda (the "Migration"). As per the circular published to the shareholders on the day, the estimated cost of implementing the Migration is GBP700,000. A provision for this cost has been made and is recognised in the consolidated statement of comprehensive income for the period ended 31 July 2018.
16 Subsequent events
On 1 August 2018, EPIC Investments LLP, an entity in which ESO Ltd is the sole investor, acquired 4,983,372 ordinary shares in Luceco plc in the market (the "Acquisition"). The cost of the Acquisition was GBP2.0 million, representing an average cost per ordinary share of 39.74 pence. Following the Acquisition, EPIC Investment LLP now holds 44,064,372 ordinary shares in Luceco plc, representing 27.40% of the business' ordinary share capital.
On 1 August 2018, the Company announced that it proposed to migrate the Company's jurisdiction of incorporation from the Isle of Man to Bermuda (the "Migration"). The Company published a circular to shareholders detailing all information about the background to, and the rationale for, the Migration. The Migration was conditional on, amongst other things, the passing of the resolutions to be proposed at a general meeting of the Company.
On 24 August 2018, the Company held a general meeting at which the resolutions detailed in the Migration Circular were tabled. At that meeting, all resolutions put to shareholders were duly passed.
On 12 September 2018, the Company continued from the Isle of Man to Bermuda. The Company continued as an exempted company under the laws of Bermuda with company number 53954 and discontinued as a company under the laws of the Isle of Man. The Company continues to operate from Jersey only. The Company's shares were suspended upon continuance and re-admitted to the AIM market and the NEX Exchange on 21 September 2018.
The Board continues to closely monitor developments in the UK's exit from the European Union, including the risk of short term uncertainty and market volatility.
17 Related Party Transactions
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 period ended 31 July 2018, broker fees of GBP 33,086 (31 July 2017: GBP 31,092) were payable to Numis Securities Limited.
Four of the Directors have interests in the shares of the Company as at 31 July 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).
Directors' fees paid during the period amounted to GBP77,000 (period ended 31 July 2017:GBP 86,417; year ended 31 January 2018:GBP 161,500)
Certain Directors of the Company and other participants are incentivised in the form of equity settled share-based payment transactions, through a Joint Share Ownership Plan (see note 6).
Details of fees payable to key service providers are included in note 5 to the financial statements.
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 Accountants Registered Agent (Isle 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
Jersey JE1 1ES
HSBC Bank plc
1st Floor
60 Queen Victoria Street Investor Relations
London EC4N 4TR Richard Spiegelberg
Cardew Group
5 Chancery Lane
London EC4A 1BL
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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