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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 | |
|---|---|---|---|---|---|---|---|---|---|---|
| 7.50 | 4.48% | 175.00 | 165.00 | 173.00 | 169.00 | 167.50 | 167.50 | 1 | 16:35:28 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Unit Inv Tr, Closed-end Mgmt | -39.36M | -43.84M | -1.4672 | -1.15 | 50.49M |
From Apr 2019 to Apr 2024
TIDMESO TIDMEO.P TIDMEC.P TIDMEL.P
RNS Number : 5837V
EPE Special Opportunities Limited
09 April 2019
EPE Special Opportunities Limited
("ESO" or "the Company)
Annual Report and Accounts for the year ended 31 January 2019
The Board of EPE Special Opportunities Limited are pleased to announce the Company's Annual Report and Accounts for the year ended 31 January 2019.
Highlights:
-- The Net Asset Value ("NAV") at 31 January 2019 was 205.19 pence per share, a decrease of 12.5% on the NAV per share of 234.43 pence as at 31 January 2018.
-- The share price at 31 January 2019 was 148.57 pence, representing a decrease of 7.1% on the share price of 160.00 pence as at 31 January 2018.
-- A significant number of positive developments occurred during the period, including successful disposals, the migration of the Company to Bermuda, redemption of half the unsecured loan notes and good financial performance across the majority of the portfolio.
-- The unsatisfactory performance of the Company's NAV during the twelve month period was driven by a 27.7% fall in value of the Company's largest asset, Luceco plc. In April 2019, Luceco plc announced performance in line with market expectations for the full year ended 31 December 2018 and that net debt had reduced to GBP32.2m. On 1 August 2018, the Company acquired additional shares in Luceco plc in the market at a cost of GBP2.0 million.
-- The Company completed the sale of Process Components to Schenck Process in September 2018, returning GBP13.6 million to ESO Investments (PC) LLP at the exit date and a total of GBP18.2 million since acquisition. Process Components has thereby represented a strong return over the lifetime of the investment, generating a 4.5x Money Multiple and 20.7% IRR since acquisition in March 2005.
-- Whittard of Chelsea achieved robust sales growth in the year ended December 2018, with the UK retail estate achieving like for like sales growth despite the headwinds felt in the wider UK retail sector and domestic and international e-commerce platforms trading well, to be aided in the coming period by the recent launch of a new domestic platform. The brand opened its first store in Taiwan in January 2019.
-- Pharmacy2U has achieved strong growth, underpinned by pleasing momentum in new customer acquisitions. 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 has achieved a substantial reduction in its overhead base and a strengthening of its market position as a result of improvements in its service levels and operations.
-- The Company exercised its option to redeem up to 50% of its 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 migration completed on 11 September 2018 and as a result of the migration, the Company is now incorporated in Bermuda.
-- The portfolio remains conservatively valued with a weighted average Enterprise Value equating to an EBITDA multiple of 5.1x for mature assets and equating to a sales multiple of 0.2x for assets investing for growth. The underlying portfolio is relatively unleveraged with 0.9x third party net debt to EBITDA.
-- The gross asset cover for the outstanding unsecured loans of GBP3.9 million equates to 16.3x. Overall liquidity at the Company, inclusive of banking facilities, is GBP32.6 million.
-- The Board continues closely to monitor developments in the UK's exit from the European Union, including the risk of short term uncertainty and market volatility.
-- Mr. Geoffrey Vero, Chairman, commented: "The performance of the Company in the period has been mixed; a significant number of positive developments and good financial performance across the majority of the portfolio were set against a drop in the market value of the company's largest asset, Luceco. I would like to extend my thanks to the Company's shareholders for their confidence and support, and look forward to reporting further improvements at the half year point and beyond".
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" or the "Company") for the year ending 31 January 2019 has been mixed. The Investment Advisor has successfully stabilised, consolidated and de-risked the Company and the portfolio. A significant number of positive developments occurred during the period, including successful disposals, the migration of the Company to Bermuda, redemption of half of the unsecured loan notes and good financial performance across the majority of the portfolio. The Company's strong momentum was, despite Luceco plc's stabilising financial position, set against a fall in Luceco plc's market value which cast a long shadow over the financial performance of the Company.
The Net Asset Value ("NAV") per share of the Company as at 31 January 2019 was 205.19 pence per share, representing a decrease of 12.5 per cent. on the NAV per share of 234.43 pence as at 31 January 2018. The share price of the Company as at 31 January 2019 was 148.57 pence, representing a decrease of 7.1 per cent. on the share price of 160.00 pence as at 31 January 2018. The unsatisfactory performance of the Company's NAV during the full year period was driven primarily by a 27.7 per cent. fall in value of the Company's largest asset, Luceco plc. Nonetheless, leverage across the Company's portfolio remains modest, with third party net debt representing 0.9x EBITDA. Furthermore, it is the Board's view that the valuations employed across the private equity portfolio are conservative, with a weighted average Enterprise Value to EBITDA multiple for mature assets of 5.1x and sales multiple for assets investing for growth of 0.2x across the portfolio.
The UK economy continues to face considerable questions over its future trajectory given the uncertainty surrounding the European Union exit process, with the Bank of England predicting a potential contraction in UK GDP should an exit occur on unfavourable terms. However, underlying economic momentum is mixed, with slowing GDP growth in the fourth quarter of 2018, while the labour market and wage growth remain robust. The Board will continue to assess ongoing political developments and their implications for UK markets and the portfolio.
Given uncertainty in the UK economy and the underperformance of Luceco plc, the Investment Advisor decided to de-risk the portfolio during 2018. As a result, two notable disposals occurred during the year: the full exit of Process Components in September and a partial exit of the investment in Pharmacy2U in March. The disposal of Process Components returned GBP13.6 million in total to ESO Investments (PC) LLP and was completed at a 44.1 per cent. premium to Process Components Limited's prevailing NAV. The total return to ESO Investments (PC) LLP since acquisition in March 2005 equates to a 4.5x Money Multiple and 20.7 per cent. IRR or a total of GBP18.2 million, distributed via income, loan repayments and the disposal proceeds.
In March 2018, Pharmacy2U completed the raise of GBP40 million new growth capital from G Square Capital, a European healthcare focussed private equity investor. 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.
Luceco plc's share price was under considerable pressure during 2018 after announcements made to the market in the first quarter which reduced trading expectations as a result of headwinds in its retail business as well as ongoing margin pressure. Luceco plc announced performance in line with market expectations in April 2019. Luceco plc significantly lowered its net debt in the second half of 2018, with a reduction of GBP9.2 million to GBP32.2 million as at 31 December 2018. The Company acquired 5.0 million additional shares in August 2018, taking the Company's holding in Luceco plc to 27.4 per cent.
Whittard of Chelsea has grown resiliently through the period. The business achieved like for like sales growth across its UK retail estate despite the significant headwinds experienced across much of the UK retail sector. In particular, Whittard enjoyed a stable festive trading period, despite a hostile, discount-driven retail environment. The business's e-commerce platforms maintained an encouraging growth trajectory, to be aided in the coming period by the recent launch of a new domestic platform and expansion in their international channels. The brand continues to seek new international franchise partnerships, and in January 2019, opened its first store in Taiwan.
David Phillips made progress in its ongoing turnaround through the period. Substantial efficiencies have been achieved across the business's operations, with further future opportunities identified. David Phillips' trading momentum has stabilised through the year as a result of the normalisation of service levels, working capital and operations. Given the nascent turnaround of the business and ongoing Brexit turbulence the Board continues to monitor this investment closely.
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 11 September 2018, and the Company is now incorporated in Bermuda.
The Company continues to manage prudently its capital structure and investigate opportunities to maximise liquidity, shareholder value creation and alignment with the Investment Advisor, including the buyout of minority interests within the Company's capital structure and the buyback of shares in the market. Consistent with these objectives, the Company chose to exercise its option to redeem GBP4.0 million of outstanding unsecured loan notes in July 2018, allowing the Company to both reduce leverage and save GBP0.3 million in annual financing costs.
The Company's strong cash position following its recent disposals allows the Board to continue to examine further investment proposals presented by the Investment Advisor. The Company maintains its focus on identifying attractively valued assets and endeavours to ensure careful and thoughtful interrogation is applied to potential opportunities. In addition to utilising available cash balances the Board is considering other sources of finance for acquisitions including zero dividend preference shares.
I would like to extend my thanks to the Company's shareholders for their confidence and support and look forward to reporting further improvements at the half year point and beyond.
Geoffrey Vero
Chairman
8 April 2019
Investment Advisor's Report
The Investment Advisor (the "IA") continues to focus its efforts both on the creation of value within the current portfolio and the identification and consideration of compelling new investments. The IA acknowledges the significant volatility resulting from the ongoing Brexit process. Nevertheless, the IA is confident that within the Company's investment mandate there exist good opportunities for investment, albeit requiring prudence and sensitivity to emerging dynamics in the short to medium term. To this end, the IA continues to review and develop a healthy pipeline of potential investments.
The Company
The NAV per share of the Company as at 31 January 2019 was 205.19 pence representing a decrease of 12.5 per cent. on the NAV per share of 234.43 pence as at 31 January 2018. The share price of the Company as at 31 January 2019 was 148.57 pence, representing a decrease of 7.1 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 January 2019, gross asset cover for the total outstanding loans of GBP3.9 million is 16.3x. Cash balances now stand at GBP30.4 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 GBP32.6 million.
The Portfolio
Third party net debt across the Company's private equity portfolio is low, standing at 0.9x EBITDA. The portfolio remains conservatively valued with a weighted average Enterprise Value equating to an EBITDA multiple of 5.1x for mature assets and a sales multiple of 0.2x for assets investing for growth. This compares favourably to an average Enterprise Value to EBITDA multiple across comparable listed European private equity companies of 11.5x.
The share price of Luceco plc fell by 27.7 per cent. during the period, following announcements made in the first half of 2018 reducing trading expectations due to margin pressure and headwinds in the retail division. In February 2018, Luceco plc appointed a new CFO, Matt Webb, who joined the business from FTSE 100 listed multinational building materials distribution company Ferguson plc. Since joining, Matt has had a meaningful and sustained impact in improving Luceco's people, processes and systems.
In April 2019, Luceco released results for the 12 months ended 31 December 2018, noting that revenue was broadly in line with the prior year, and that there had been a significant improvement in margin in H2 2018 as a result of a shift towards the higher margin professional channel, pricing changes and a more favourable input cost environment. Luceco reported a reduction in net debt of GBP9.2 million in H2 2018 which was ahead of market expectations and resulted in a balance of GBP32.2 million as at 31 December 2018. Since the end of the period, Luceco's share price increased by 36.7 per cent. from 53.20p at 31 January 2019 to 72.75p at 5 April 2019.
The Company acquired a further 5.0 million shares in Luceco plc in the market on 1 August 2018, for a cost of GBP2.0 million. As at 31 January 2019, Luceco plc represented circa 31.4 per cent. of the Company's GAV, with the remaining assets constituted by other investments and cash.
Whittard of Chelsea achieved robust sales growth over the period, outperforming both budget and the prior year. EBITDA performance was ahead of the prior year (on a 52 week basis) but behind budget, impacted by a reduction in margin across sales channels as well as increased people and property costs. The IA believes this performance should be considered particularly commendable given the significant challenges facing the wider UK retail sector. The business remains focussed on the expansion of its e-commerce offering and launched a new web platform in September 2018. Rapid growth in Whittard's Chinese e-commerce channels is expected to be supported in the coming period by expansion onto further platforms and a physical presence in the territory. In addition, franchise partnerships and wholesale opportunities continue to be pursued in new international markets, with Whittard's debut Taiwanese store opening in the new year.
The IA successfully completed the sale of Process Components to Schenck Process in September 2018, returning GBP13.6 million to ESO Investments (PC) LLP at the exit date and a total of GBP18.2 million since acquisition. Process Components has thereby represented a strong return over the lifetime of the investment, generating a 4.5x Money Multiple and 20.7 per cent. IRR since acquisition in March 2005. The IA would like to thank the management of Process Components for their hard work and dedication over the last 13 years.
Pharmacy2U has achieved strong growth, underpinned by pleasing momentum in new customer acquisition. In March 2018, Pharmacy2U completed the raise of GBP40.0 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 GBP40.0 million growth capital investment.
David Phillips has faced difficult, but strengthening, trading in the marketplace over the period. The IA remains focused on delivering operational improvements across all facets of the business. The IA has sought to realign the business's cost base and working capital requirements with current trading levels, delivering significant reductions over the period. Further improvements in profitability are intended through the next phase of the turnaround, with the achievement of further operational efficiencies and a strategic focus on high margin business lines. The IA continues closely to monitor progress made in the business's ongoing turnaround.
EPIC Private Equity LLP
Investment Advisor to EPE Special Opportunities Limited
8 April 2019
Biographies of the Directors
Geoffrey Vero FCA Clive Spears Geoffrey Vero qualified as a chartered Clive Spears retired from the Royal Bank accountant with Ernst & Young and then of Scotland International Limited in worked for Savills, chartered surveyors, December 2003 as Deputy Director of Jersey and The Diners Club Limited. He has been after 32 years of service. His main activities active in venture capital since 1985, prior to retirement included Product initially with Lazard Development Capital Development, Corporate Finance, Trust Limited and then from 1987 to 2002 as and Offshore Company Services and he a director of Causeway Capital Limited was Head of Joint Venture Fund Administration which became ABN Amro Capital Limited. with Rawlinson & Hunter. Mr Spears is In 2002, he set up The Vero Consultancy an Associate of the Chartered Institute specialising in corporate advisory services of Bankers and a Member of the Chartered and recovery situations. He has considerable Institute for Securities & Investment. experience in evaluating investment opportunities He has accumulated a well spread portfolio and dealing with corporate recovery. of directorships centring on private While at Causeway Capital, Mr Vero was equity, infrastructure and corporate a Founder Director of Causeway Invoice debt. His appointments currently include Discounting Company Limited, which was being Chairman of Nordic Capital Limited subsequently sold to NM Rothschild. He and being director and Head of the Investment is also a nonexecutive director of Numis Committee for GCP Infrastructure Investments
Corporation plc and Chairman of Albion (FTSE 250 listed company).
Development VCT plc.
------------------------------------------------
Heather Bestwick Robert Quayle
------------------------------------------------
Heather Bestwick has been a financial Robert Quayle qualified as an English
services professional for 25 years, onshore solicitor at Linklaters & Paines in 1974
in the City of London and offshore in after reading law at Selwyn College,
the Cayman Islands and Jersey. She qualified Cambridge. He subsequently practiced
as an English solicitor, specialising in London and the Isle of Man as a partner
in ship finance, with City firm Norton in Travers Smith Braithwaite. He served
Rose, and worked in their London and as Clerk of Tynwald (the Isle of Man's
Greek offices for 8 years. Ms Bestwick parliament) for periods totalling 12
subsequently practised and became a partner years and holds a number of public and
with global offshore law firm Walkers private appointments, and is active in
in the Cayman the voluntary sector. Mr. Quayle is Chairman
Islands, and Managing Partner of the of the Isle of Man Steam Packet Company
Jersey office. Becoming a non-executive Limited, and a number of other companies
director in 2014, she is Chairman of in the financial services, manufacturing
Equiom (Jersey) Limited and Equiom (Guernsey) and distribution sectors.
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 the founder Robert Fulford is an Investment
of EPE. He is currently the non-executive Director of EPE. He previously
Chairman of Whittard of Chelsea and non-executive worked at Barclaycard Consumer
chairman of Luceco plc. Before joining Europe before joining EPE. Whilst
EPE, Giles was a founding Director of at Barclaycard, Robert was the
EPIC Investment Partners, a fund management Senior Manager for Strategic
business which at sale to Syndicate Asset Insight and was responsible for
Management plc had US$5 billion under identifying, analysing and responding
management and spent five years working to competitive forces. Prior
in Mergers and Acquisitions at Baring to Barclaycard, Robert spent
Brothers in Paris and London. Giles read four years as a strategy consultant
History at Bristol University. at Oliver Wyman Financial Services,
where he worked with a range
of major retail banking and institutional
clients in the UK, mainland Europe,
Middle East and Africa, specialising
in strategy and risk modelling.
He manages the Company's investment
in Whittard of Chelsea, where
he is currently a non-executive
director. Robert read Engineering
at Cambridge University.
--------------------------------------------------
Hiren Patel James Henderson
--------------------------------------------------
Hiren Patel is a Partner and EPE's Finance James Henderson is an Investment
Director and Compliance Officer. He has Director of EPE. He previously
worked in the investment management industry worked in the Investment Banking
for the past ten years. Before joining division at Deutsche Bank before
EPEA and EPE, Hiren was finance director joining EPE. Whilst at Deutsche
of EPIC Investment Partners. Before EPIC Bank he worked on a number of
Investment Partners Hiren was employed M&A transactions and IPOs in
at Groupama Asset Management where he the energy, property, retail
was the Group Financial Controller. and gaming sectors, as well as
providing corporate broking advice
to mandated clients. He manages
the Company's investment in Pharmacy2U.
James read Modern History at
Oxford University and Medicine
at Nottingham University.
--------------------------------------------------
Alex Leslie Ian Williams
------------------------------------------------
Alex Leslie is an Investment Director Ian Williams is an Investment Director
of EPE. He previously worked in Healthcare of EPE. Before joining EPE, he was a partner
Investment Banking at Piper Jaffray. Whilst at Lyceum Capital where he was responsible
at Piper Jaffray he worked on a number for deal origination with a primary focus
of M&A transactions and equity fundraisings on the business services and software
within the Biotechnology, Specialty Pharmaceutical sectors, as well as financial services,
and Medical Technology sectors. He manages education and health sectors. Prior to
the Company's investment in Luceco plc. Lyceum, Ian was a Director at Arbuthnot
Alex read Human Biological and Social Securities, involved in transactions including
Sciences at Oxford University and obtained IPOs, secondary fund raisings and M&A,
an MPhil in Management from the Judge focusing on the support services, healthcare,
Business School at Cambridge University. transport & IT sectors. Ian read Politics
and Economics at the University of Bristol.
------------------------------------------------
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 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. 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 3i, 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 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 Audit 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 2020.
The Board will review the performance and services offered by R&H as fund administrator 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 third 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
8 April 2019
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 a 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
8 April 2019
Report of the Directors
Principal activity
The Company was incorporated in the Isle of Man as a company limited by shares under Isle of Man Law with registered number 108834C on 25 July 2003. On 23 July 2012, the Company re-registered under the Isle of Man Companies Act 2006, with registration number 008597V. On 11 September 2018, the company re-registered under the Bermuda Companies Act 1981, with registration number 53954. 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 and on 11 September 2018, registered under the Bermuda Companies Act 1981. The Company's registered office is:
Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.
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.
Dividends
The Board does not recommend a dividend in relation to the current year (2018: nil) (see note 9 for further details).
Corporate governance principles
As a company quoted on the AIM market on the London Stock Exchange, the Company is subject to the AIM Rules, which include a requirement for the Company to adopt a recognised Corporate Governance Code. The Directors have therefore adopted the QCA Corporate Governance Code. The Corporate Governance Report sets out the QCA Corporate Governance Code, it's principles and explanations of the Company's compliance with the code.
The Board holds at least four meetings annually and has established Risk and Audit 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 is 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
Staff
At 31 January 2019 the Group employed no staff (2018: 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
8 April 2019
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 a Bermuda 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 Bermuda Companies Act. 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 Bermuda 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 Limited
1 Our opinion is unmodified
We have audited the financial statements of EPE Special Opportunities Limited ("the Group") for the year ended 31 January 2019 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 2019 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)
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 as applied to listed entities. 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. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon and we do not provide a separate opinion on these matters. We identified one key audit matter in arriving at our audit opinion above. The key audit matter was as set out below. This key audit matter and the risk significance of this matter is unchanged from 2018.
The risk Our response
Carrying value of investments Subjective valuation: Our procedures included:
in associates and loans
to associates and related 48% of the Group's Control design:
companies where underlying underlying investment Documenting and assessing
investments are unquoted: portfolio (by value) the design and implementation
GBP14.2m (2018: GBP21.9m). includes investments of the investment valuation
in and loans to entities process and controls;
Refer below (Significant where no quoted market
accounting matters identified price is available.
by the Risk and Audit Methodology choice:
Committee), notes 3(i) Unquoted investments In the context of observed
(accounting policy); are measured at fair industry best practice
note 10 (non-current value, which is established and the provisions of the
assets), note 11 (financial in accordance with International Private Equity
assets and liabilities) the International and Venture Capital Valuation
and note 20 (financial Private Equity and Guidelines, we challenged
instruments disclosures). Venture Capital Valuation the appropriateness of
Guidelines by using the valuation basis selected;
measurements of value
such as prices of Our valuations experience:
recent orderly transactions, Challenging the Investment
earnings multiples Advisor on key judgements
and net assets. affecting investee entity
valuations, such as the
The preparation of choice of benchmark for
the fair value estimate sales or earnings multiples
for the investments or by comparing key underlying
and related disclosures financial data inputs to
involves subjective external sources and investee
judgments or uncertainties, company management accounts
which requires special information as applicable.
audit consideration We challenged the assumptions
because of the likelihood around sustainability of
and potential magnitude sales and earnings by comparison
of misstatements to with the plans of the investee
the valuation of the companies. Further, we
financial instrument. obtained an understanding
The effect of these of existing and prospective
matters is that as investee company cash flows
part of our risk assessment, to understand whether refinancing
we determined that may be required. Our work
the valuation of unquoted included consideration
investments has a of events which occurred
high degree of estimation subsequent to the year
uncertainty, with end up until the date of
a potential range this audit report including
of reasonable outcomes the impact of uncertainties
greater than our materiality due to the UK exiting the
for the financial European Union.
statements as a whole,
and possibly many Assessing transparency:
times that amount. Consideration of the appropriateness,
The financial statements in accordance with relevant
(note 11) disclose accounting standards, of
the range estimated the disclosures in respect
by the Group. of unquoted investments
and the effect of changing
one or more inputs to reasonably
possible alternative valuation
assumptions.
------------------------------ ---------------------------------------
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 GBP1,790,000 (2018: GBP1,990,000), determined with reference to a benchmark of Groups' net assets, of which it represents 3% (2018: 3%). Net assets has been used as a benchmark as this is deemed to be the most appropriate benchmark the it is a key focus for users of the financial statements.
We agreed to report to the Audit Committee any corrected or uncorrected identified misstatements exceeding GBP89,500 (2018: GBP99,500) for Group's financial statements, in addition to other identified misstatements that warranted reporting on qualitative grounds.
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, except for the two dormant subsidiary entities. For these two non-significant entities, we conducted reviews of financial information (including inquiry), as they were not financially significant enough to receive a full scope audit for group purposes.
4 We have nothing to report on going concern
The Directors have prepared the financial statements on the going concern basis as they do not intend to liquidate the Group or to cease their operations, and as they have concluded that the Group's financial position means that this is realistic. They have also concluded that there are no material uncertainties that could have cast significant doubt over their ability to continue as a going concern for at least a year from the date of approval of the financial statements ("the going concern period").
Our responsibility is to conclude on the appropriateness of the Directors' conclusions and, had there been a material uncertainty related to going concern, to make reference to that in this audit report. However, as we cannot predict all future events or conditions and as subsequent events may result in outcomes that are inconsistent with judgements that were reasonable at the time they were made, the absence of reference to a material uncertainty in this auditor's report is not a guarantee that the Group or the Company will continue in operation.
In our evaluation of the Directors' conclusions, we considered the inherent risks to the Group's business model, including the impact of a disorderly Brexit, and analysed how those risks might affect the Group's financial resources or ability to continue operations over the going concern period. We evaluated those risks and concluded that they were not significant enough to require us to perform additional audit procedures.
Based on this work, 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 a year from the date of approval of the financial statements.
We have nothing to report in these respects, and we did not identify going concern as a key audit matter.
5 We have nothing to report on the other information in the Annual Report
The Directors are responsible for the information presented in the Annual Report together with the financial statements. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon. Based solely on that work we have not identified material misstatements in the other information.
6 Respective responsibilities
Directors' responsibilities
As explained more fully in their statement set out 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. 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
8 April 2019
Consolidated Statement of Comprehensive Income
For the year ended 31 January 2019
31 January 31 January
2019 2018
Revenue Capital Total Total
Note GBP GBP GBP GBP
--------------------------------- ------------ ------------ ------------ -------------
Income
4 Interest income 276,328 - 276,328 33,477
--------------------------------- ------------ ------------ ------------ -------------
Total income 276,328 - 276,328 33,477
--------------------------------- ------------ ------------ ------------ -------------
Expenses
5 Investment advisor's fees (1,137,117) - (1,137,117) (2,370,687)
Administration fees (148,566) - (148,566) (218,589)
6 Directors' fees (154,000) - (154,000) (161,500)
Directors' and Officers'
insurance (11,705) - (11,705) (3,974)
Professional fees (855,046) - (855,046) (211,428)
Board meeting and travel
expenses (12,340) - (12,340) (7,391)
Auditors' remuneration (35,217) - (35,217) (35,800)
Bank charges (1,008) - (1,008) (868)
Irrecoverable VAT - - - (32,764)
7 Share based payment expense (120,544) - (120,544) (210,043)
Sundry expenses (40,183) - (40,183) (60,300)
Nominated advisor and broker
fees (57,758) - (57,758) (60,405)
Listing fees (38,425) - (38,425) (28,511)
Net foreign exchange loss (2,049) - (2,049) -
Total expenses (2,613,958) - (2,613,958) (3,402,260)
--------------------------------- ------------ ------------ ------------ -------------
Net expense (2,337,630) - (2,337,630) (3,368,783)
--------------------------------- ------------ ------------ ------------ -------------
(Losses)/Gains on investments
10 Share of loss of associates - (2,776,502) (2,776,502) (32,258,774)
(Loss)/gain on FV of loan
to related companies - (1,087,945) (1,087,945) 40,000
Loss for the year on investments - (3,864,447) (3,864,447) (32,218,774)
--------------------------------- ------------ ------------ ------------ -------------
Finance charges
Interest on unsecured loan
15 note instruments (469,225) - (469,225) (618,765)
Loss for the year before
taxation (2,806,855) (3,864,447) (6,671,302) (36,206,322)
8 Taxation - - - -
--------------------------------- ------------ ------------ ------------ -------------
Loss for the year (2,806,855) (3,864,447) (6,671,302) (36,206,322)
--------------------------------- ------------ ------------ ------------ -------------
Other comprehensive income - - - -
--------------------------------- ------------ ------------ ------------ -------------
Total comprehensive loss (2,806,855) (3,864,447) (6,671,302) (36,206,322)
--------------------------------- ------------ ------------ ------------ -------------
Basic loss per ordinary
17 share (pence) (9.87) (13.60) (23.47) (128.45)
--------------------------------- ------------ ------------ ------------ -------------
Diluted loss per ordinary
17 share (pence) (9.87) (13.60) (23.47) (128.45)
--------------------------------- ------------ ------------ ------------ -------------
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 2019
31 January 31 January
2019 2018
Note GBP GBP
------------------------------------------ ------------ ------------
Non-current assets
10 Investments in associates 27,707,795 41,391,258
10,13 Loans to associates and related companies 7,085,825 5,152,739
34,793,620 46,543,997
------------------------------------------ ------------ ------------
Current assets
12 Cash and cash equivalents 29,125,615 28,047,141
Trade and other receivables 301,728 98,774
29,427,343 28,145,915
------------------------------------------ ------------ ------------
Current liabilities
14 Trade and other payables (492,878) (464,322)
(492,878) (464,322)
------------------------------------------ ------------ ------------
Net current assets 28,934,465 27,681,593
------------------------------------------ ------------ ------------
Non-current liabilities
15 Unsecured loan note instruments (3,915,612) (7,882,736)
(3,915,612) (7,882,736)
------------------------------------------ ------------ ------------
Net assets 59,812,473 66,342,854
------------------------------------------ ------------ ------------
Equity
16 Share capital 1,503,286 1,503,286
Share premium 3,867,209 3,867,209
Capital reserve 44,716,943 48,581,390
Revenue reserve 9,725,035 12,390,969
Total equity 59,812,473 66,342,854
18 Net asset value per share (pence) 205.19 234.43
------------------------------------------ ------------ ------------
The financial statements were approved by the Board of Directors on 8 April 2019 and signed on its behalf by:
Geoffrey Vero Clive Spears
Director Director
Consolidated Statement of Changes in Equity
For the year ended 31 January 2019
Year ended 31 January 2019
Share capital Share premium Capital reserve Revenue reserve Total
Note 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
income for the year - - (3,864,447) (2,806,855) (6,671,302)
------------------------- -------------- -------------- ---------------- ---------------- ------------
Contributions by and
distributions to owners
Share based payment
7 charge - - - 120,544 120,544
Share ownership scheme
participation - - - 20,377 20,377
Total transactions
with owners - - - 140,921 140,921
------------------------- -------------- -------------- ---------------- ---------------- ------------
Balance at 31 January
2019 1,503,286 3,867,209 44,716,943 9,725,035 59,812,473
------------------------- -------------- -------------- ---------------- ---------------- ------------
Year ended 31 January 2018
Share capital Share premium Capital reserve Revenue 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
shares (94,786) - - (1,715,483) (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
------------------------- -------------- -------------- ---------------- ---------------- -------------
Consolidated Statement of Cash Flows
For the year ended 31 January 2019
31 January 31 January
2019 2018
Note GBP GBP
---------------------------------------- ------------ ------------
Operating activities
Interest income received 187,516 8,450
Expenses paid (2,591,918) (3,414,475)
19 Net cash used in operating activities (2,404,402) (3,406,025)
---------------------------------------- ------------ ------------
Investing activities
Loan advances to associates (2,008,113) (2,045,657)
Loan advances to investee companies (1,000,000) (2,030,000)
Loan repayment to associates - (274,410)
Capital distribution from/(contribution
10 to) associate 10,906,961 (40,160)
Net cash generated from/(used in)
investing activities 7,898,848 (4,390,227)
---------------------------------------- ------------ ------------
Financing activities
Issue of new shares - 1,003,151
Unsecured loan note repurchases (3,987,729) -
Unsecured loan note interest paid (448,620) (598,159)
Purchase of treasury shares - (1,810,269)
Share ownership scheme participation 20,377 15,914
Net cash used in financing activities (4,415,972) (1,389,363)
---------------------------------------- ------------ ------------
Increase/(decrease) in cash and cash
equivalents 1,078,474 (9,185,615)
Cash and cash equivalents at start
of year 28,047,141 37,232,756
---------------------------------------- ------------ ------------
Cash and cash equivalents at end
of year 29,125,615 28,047,141
---------------------------------------- ------------ ------------
Notes to the Financial Statements
For the year ended 31 January 2019
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. On 11 September 2018, the company re-registered under the Bermuda Companies Act 1981, with registration number 53954. The Company raised GBP30.0 million by a placing of ordinary shares at 100 pence per share. In 2009 the Company raised an additional GBP5.0 million by a placing of ordinary shares at 5 pence per share. During the year ended 31 January 2011, the Company issued a further GBP2.4 million in share capital. During the year ended 31 January 2016, the Company raised a further GBP0.25 million in share capital. The Company 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 2019, 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 Bermuda 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 January 2018:
a. Annual improvements to IFRS - 2014-2016 cycle - various standards b. IFRS 15: Revenue from Contracts with Customers c. IFRS 9 Financial Instruments d. Amendments to IAS 40: Transfers of Investments Property
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).
Brexit
The major effects of Brexit, if executed, will be felt only once the country actually leaves the EU, with the nature and magnitude of these effects dependent on the terms of exit and the success of subsequent trade negotiations. Whilst the exact terms of Brexit are yet to be finalised and the ultimate outcome is uncertain, the Board have made an assessment of the potential effect on the Group and do not believe that Brexit will have a material impact on the investment activities of the Group.
e. Disclosure on changes in significant accounting policies
This note explains the impact of the adoption of IFRS 9 Financial Instruments effective from 1 January 2018. IFRS 9 replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 Financial Instruments has resulted in changes in accounting policies and in accordance with the transitional provisions in IFRS 9 (7.2.15) and (7.2.26), comparative figures have not been restated.
The following table and the accompanying notes below explain the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Fund's financial assets and financial liabilities as at 1 January 2018.
Original New
Financial classification classification Original carrying amount New carrying amount under
Assets under IAS 39 under IFRS 9 under IAS 39 IFRS 9
------------- ---------------- ---------------- -------------------------------------------------- ---------------------------------------
Investments
in Designated as Mandatorily at
associates at FVTPL FVTPL 27,707,795 27,707,795
Loans to
associates
and related Loans and
companies receivables Amortised cost 7,085,825 7,085,825
Cash and
cash Loans and
equivalents receivables Amortised cost 29,125,615 29,125,615
Trade and
other Loans and
receivables receivables Amortised cost 301,728 301,728
64,220,963 64,220,963
================================================== =======================================
Original New
Financial classification classification Original carrying amount New carrying amount
Liabilities under IAS 39 under IFRS 9 under IAS 39 under IFRS 9
------------- ---------------- ---------------- -------------------------------------------------- ---------------------------------------
Trade and
other
payables Amortised cost Amortised cost 492,878 492,878
Unsecured
loan
note
instruments Amortised cost Amortised cost 3,915,612 3,915,612
4,408,490 4,408,490
================================================== =======================================
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 EPIC Private Equity LLP 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. Finance Charges
Finance charges that are directly attributable to the acquisition, construction or production of a 'qualifying asset' (one that necessarily takes a substantial period of time to get ready for its intended use or sale) are included in the cost of the asset. Other finance charges are recognised as an expense.
g. Trade and other payables
Trade and other payables are stated at amortised cost in accordance with IFRS 9.
h. Unsecured loan note instruments
Unsecured loan note instruments are stated at amortised cost in accordance with IFRS 9.
i. Financial assets and financial liabilities
i. Classification
Ø Financial assets
When the company first recognises a financial asset, it classifies it based on the business model for managing the asset and the asset's contractual cash flow characteristics, as follows:
-- Amortised cost-a financial asset is measured at amortised cost if both of the following conditions are met:
- the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
- the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
-- Fair value through other comprehensive income-financial assets are classified and measured at fair value through other comprehensive income if they are held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.
-- Fair value through profit or loss-any financial assets that are not held in one of the two business models mentioned are measured at fair value through profit or loss.
When, and only when, the company changes its business model for managing financial assets it must reclassify all affected financial assets.
Ø Financial liabilities
All financial liabilities are measured at amortised cost, except for financial liabilities at fair value through profit or loss. Such liabilities include derivatives (other than derivatives that are financial guarantee contracts or are designated and effective hedging instruments), other liabilities held for trading, and liabilities that an entity designates to be measured at fair value through profit or loss.
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
Ø 12-month expected credit losses
12-month expected credit losses are calculated by multiplying the probability of a default occurring in the next 12 months with the total (lifetime) expected credit losses that would result from that default, regardless of when those losses occur. Therefore, 12-month expected credit losses represent a financial asset's lifetime expected credit losses that are expected to arise from default events that are possible within the 12 month period following origination of an asset, or from each reporting date for those assets in initial recognition stage.
Ø Lifetime expected credit losses
Lifetime expected credit losses are the present value of expected credit losses that arise if a borrower defaults on its obligation at any point throughout the term of a lender's financial asset (that is, all possible default events during the term of the financial asset are included in the analysis). Lifetime expected credit losses are calculated based on a weighted average of expected credit losses, with the weightings being based on the respective probabilities of default.
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 IFRS 9.
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.
j. 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.
k. 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.
l. 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).
m. 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.
n. 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 (accounting
(IAS/IFRS) periods commencing on or
after)
IFRS 16 - Leases (issued on 13 January 1 January 2019
2016)
------------------------------
IFRIC 23- Uncertainty over Income 1 January 2019
Tax Treatments (issued on 07 June
2017)
------------------------------
Amendments EU effective date (accounting
periods commencing on or
after)
------------------------------
Annual improvements to IFRS Standards Not yet endorsed
2015-2017 Cycle (issued on 12 December
2017)
------------------------------
Amendments to IFRS 9 Financial Instruments: Not yet endorsed
Prepayment Features with Negative
Compensation (issued on 12 October
2017)
------------------------------
Amendments to IAS 28: Long-term Interests Not yet endorsed
in Associates and Joint Ventures
(issued on 12 October 2017)
------------------------------
Amendments to IRFS 4: Applying IFRS Not yet endorsed
9 Financial Instruments with IFRS
4 Insurance Contracts
------------------------------
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
2019 2018
Group Group
GBP GBP
---------------------- -------- -------
Cash balances 17,711 8,450
Bond interest income 258,617 25,027
----------------------- -------- -------
Total 276,328 33,477
----------------------- -------- -------
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 GBP1,137,117 (2018: GBP2,370,687). Amount outstanding as at 31 January 2019 was GBP308,454 (2018: GBP386,934).
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 GBP88,438 (2018: GBP161,697). Amount outstanding as at 31 Jan 2019 was GBP7,726 (2018: GBP9,673).
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 2019 (2018: 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 2019, GBP1,533,425 has been debited from the carry account of the Investment Advisor in the records of ESO 1 LP (2018: Debit of GBP8,115,607).
The Board and the Investment Advisor continue to explore mechanisms for aligning the Investment Advisor with the Company's performance whilst preserving liquidity in the vehicle. These mechanisms include the buyout of the Investment Advisor's carried interest in ESO 1 LP in exchange for shares in the Company. Such a buyout of ESO 1 LP carried interest would be dilutive to existing Company shareholders but would increase Company cash proceeds from future asset sales that would otherwise be partially paid out as carried interest to the Investment Advisor.
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 2019, GBP1,952,103 has been debited from the carry account of the Investment Advisor in the records of EOS (PC) LLP (2018: Credit of GBP50,646).
6 Directors' fees
2019 2019 2018 2018
Share based Share based
payment payment
Group expense Group expense
GBP GBP GBP GBP
---------------------- -------- ------------ -------- ------------
G.O. Vero (Chairman) 32,000 5,709 32,000 6,357
R.B.M. Quayle 30,000 2,614 30,000 5,077
C.L. Spears 32,000 2,614 32,000 5,077
N.V. Wilson 30,000 2,614 30,000 5,077
H. Bestwick 30,000 - 37,500 -
---------------------- -------- ------------ -------- ------------
Total 154,000 13,551 161,500 21,588
---------------------- -------- ------------ -------- ------------
H. Bestwick had received GBP37,500 as a Directors' fee in 2018 of which GBP7,500 related 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 are subject to a three year service vesting condition from the grant date. 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. These shares carry the same rights as rest of the ordinary shares.
The EBT held 1,035,624 (2018: 420,050) matching shares at the year end which have traditionally not voted (see note 16).
During the year, 849,626 was issued to EBT for the JSOP scheme. 234,052 shares were vested during the year to the JSOP participants. No shares were awarded to the participants in the year ending 31 January 2019.
The amount expensed in the income statement has been calculated by reference to the grant date at a 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 GBP120,544 (2018: GBP210,043).
8 Taxation
The Company is a tax resident of Jersey. The Company is subject to 0% income tax (2018: 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 2019 (2018: GBPnil).
10 Non-current assets
2019 2018
GBP GBP
------------------------------------------- ----------- -----------
Financial assets
Investments in associates 27,707,795 41,391,258
Loans to associates and related companies
(note 13) 7,085,825 5,152,739
------------------------------------------- ----------- -----------
34,793,620 46,543,997
------------------------------------------- ----------- -----------
Investment in associates
The Investment Advisor has applied appropriate valuation methods with reference to IPEV guidelines and the valuation principles of IFRS 9 Financial Instruments, 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 (2018:GBPnil) capital distribution from ESO Investments 1 LP, GBP10,906,961 (2018:GBPnil) from ESO Investments (PC) LLP and GBPnil (2018: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 (PC) ESO AI ESO (DP) ESO
ESO 1 LP LLP LP Ltd 2 LP Total
GBP GBP GBP GBP GBP
-------------------------- ------------ ------------- -------- --------- ------ -------------
Investment in associates
Balance at 1 February
2018 33,321,502 7,770,549 305,546 (6,419) 80 41,391,258
Share of profit/(loss)
from associates (6,133,700) 3,136,788 224,073 (3,663) - (2,776,502)
Capital distribution
from associate - (10,906,961) - - - (10,906,961)
27,187,802 376 529,619 (10,082) 80 27,707,795
-------------------------- ------------ ------------- -------- --------- ------ -------------
Summary financial information for associates as at 31 January 2019 is as follows:
Minority ESO Ltd Percentage
Vehicle Total interest share share
ESO 1 LP GBP GBP GBP %
------------------------------- ------------ ------------------------ ------------ -----------
Non-current assets 36,029,926 (7,205,984) 28,823,942 80.0%
Current assets 1,014,047 (202,808) 811,239 80.0%
Current liabilities (3,059,224) 611,845 (2,447,379) 80.0%
Net assets 33,984,749 (6,796,947) 27,187,802 80.0%
------------------------------- ------------ ------------------------ ------------ -----------
Income 168,913 (27,317) 141,596 83.8%
Gains/(losses) on investments (7,255,808) 1,173,508 (6,082,300) 83.8%
Expenses (230,232) 37,236 (192,996) 83.8%
------------------------------- ------------ ------------------------ ------------
Profit (7,317,127) 1,183,427 (6,133,700) 83.8%
------------------------------- ------------ ------------------------ ------------ -----------
ESO (PC) LLP
------------------------------- ------------ ------------------------ ------------ -----------
Non-current assets - - - -
Current assets 4,697 (939) 3,758 80.0%
Current liabilities (4,227) 845 (3,382) 80.0%
Net assets 470 (94) 376 80.0%
------------------------------- ------------ ------------------------ ------------ -----------
Income - - - -
Gains/(losses) on investments 4,001,157 (857,725) 3,143,432 78.6%
Expenses (8,457) 1,813 (6,644) 78.6%
------------------------------- ------------ ------------------------ ------------
Profit 3,992,700 (855,912) 3,136,788 78.6%
------------------------------- ------------ ------------------------ ------------ -----------
ESO AI LP
------------------------------- ------------ ------------------------ ------------ -----------
Non-current assets 2,464,248 - 2,464,248 100.0%
Current assets 114,655 - 114,655 100.0%
Current liabilities (2,049,284) - (2,049,284) 100.0%
Net assets 529,619 - 529,619 100.0%
------------------------------- ------------ ------------------------ ------------ -----------
Income 230,399 - 230,399 100.0%
Gains/(losses) on investments 9,020 - 9,020 100.0%
Expenses (15,346) - (15,346) 100.0%
------------------------------- ------------ ------------------------ ------------
Profit 224,073 - 224,073 100.0%
------------------------------- ------------ ------------------------ ------------ -----------
ESO Inv (DP)
------------------------------ ------------------------ --------------------------- ------------------------- -------------
Non-current assets - - - -
Current assets - - - -
Current liabilities (10,082) - (10,082) 100.0%
------------------------ --------------------------- -------------------------
Net assets (10,082) - (10,082) 100.0%
------------------------------ ------------------------ --------------------------- ------------------------- -------------
Income - - - 100.0%
Gains/(losses) on investments - - - 100.0%
Expenses (3,663) - (3,663) 100.0%
------------------------------ ------------------------ --------------------------- -------------------------
Profit (3,663) - (3,663) 100.0%
------------------------------ ------------------------ --------------------------- ------------------------- -------------
ESO Inv 2 LP
------------------------------ ------------------------ --------------------------- ------------------------- -------------
Non-current assets 100 (20) 80 80.0%
Current assets - - - 80.0%
Current liabilities - - - 80.0%
---------------------------
Net assets 100 (20) 80 80.0%
------------------------------ ------------------------ --------------------------- ------------------------- -------------
Income - - - 100.0%
Gains/(losses) on investments - - - 100.0%
Expenses - - - 100.0%
------------------------------ ------------------------ --------------------------- -------------------------
Profit - - - 100.0%
------------------------------ ------------------------ --------------------------- ------------------------- -------------
ESO Ltd
------------------------------ ------------------------ --------------------------- ------------------------- -------------
Loans to associates and
related companies 7,085,825 - 7,085,825 100.0%
Other assets and liabilities
ESO Ltd 28,934,465 - 28,934,465 100.0%
------------------------------ ------------------------ --------------------------- ------------------------- -------------
Total 36,020,290 - 36,020,290 100.0%
------------------------------ ------------------------ --------------------------- ------------------------- -------------
Total assets less current
liabilities 70,525,146 (6,797,061) 63,728,085 90.4%
------------------------------ ------------------------ --------------------------- ------------------------- -------------
Summary of ESO Ltd fund Minority ESO Ltd Percentage
structure Total interest share share
GBP GBP GBP GBP
------------------------------ ------------------------ --------------------------- ------------------------- -------------
ESO 1 LP 33,984,749 (6,796,947) 27,187,802 80.0%
ESO (PC) LLP 470 (94) 376 80.0%
ESO AI LP 529,619 - 529,619 100.0%
ESO Inv (DP) (10,082) - (10,082) 100.0%
ESO Inv 2 LP 100 (20) 80 80.0%
ESO Ltd current assets,
current liabilities and
loans to related companies 36,020,290 - 36,020,290 100.0%
------------------------------ ------------------------ --------------------------- ------------------------- -------------
Total assets less current
liabilities 70,525,146 (6,797,061) 63,728,085 90.4%
------------------------------ ------------------------ --------------------------- ------------------------- -------------
Summary financial information for associates as at 31 January 2018 is as follows:
Minority ESO Ltd 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 Inv (DP)
---------------- -------------------------- --------------------------- -------------------------- --------------------------
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 Inv 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 Ltd
---------------- -------------------------- --------------------------- -------------------------- --------------------------
Loans to
associates and
related
companies 5,152,739 - 5,152,739 100.0%
Other assets
and
liabilities
ESO Ltd 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
Ltd fund Minority ESO Ltd Percentage
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%
Expenses 305,546 - 305,546 100.0%
Profit (6,419) - (6,419) 100.0%
ESO Inv 2 LP 100 (20) 80 80.0%
ESO Ltd 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%
---------------- -------------------------- --------------------------- -------------------------- --------------------------
11 Financial assets and liabilities
2019 2018
Group Group
GBP GBP
--------------------------------------------- ------------ ------------
Assets
Financial assets at fair value through
profit or loss - designated on initial
recognition
Investments in associates 27,707,795 41,391,258
Financial assets at amortised cost
Loans and receivables and cash balances 36,513,168 33,298,654
--------------------------------------------- ------------ ------------
Total financial assets 64,220,963 74,689,912
--------------------------------------------- ------------ ------------
Liabilities
Financial liabilities measured at amortised
cost
Other financial liabilities (492,878) (464,322)
Loans from associates and related companies - -
Unsecured loan note instruments (3,915,612) (7,882,736)
--------------------------------------------- ------------ ------------
Total financial liabilities (4,408,490) (8,347,058)
--------------------------------------------- ------------ ------------
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 as a benchmark 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 as a benchmark and is 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 2019 GBP GBP GBP
---------------------------------------- ----------- ----------- -----------
Financial assets at fair value through
profit or loss
Unlisted private equity investments - 3,130,983 3,130,983
Listed private equity investments 23,442,246 - 23,442,246
Debt securities, unlisted - 13,595,893 13,595,893
----------------------------------------- ----------- -----------
Total investments 23,442,246 16,726,876 40,169,122
----------------------------------------- ----------- ----------- -----------
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 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
----------------------------------------- ----------- ----------- -----------
The following table shows a reconciliation of the opening balances to the closing balances for fair value measurements in Level 3 of the fair value hierarchy.
2019 2018
Unlisted private equity investments GBP GBP
---------------------------------------- ------------- -----------
Balance at 1 February 14,737,400 11,685,937
Additional investments - 2,351,104
Sale of investments (11,012,405) -
Change in fair value through profit or
loss (594,012) 700,359
----------------------------------------- -------------
Balance at 31 January 3,130,983 14,737,400
----------------------------------------- ------------- -----------
Significant unobservable inputs used in measuring fair value
The table below sets out information about significant unobservable inputs used at 31 January 2019 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.
Description Fair value at 31 January Valuation technique Range of Estimate
2019
GBP
Unquoted private equity GBP3.13m Sales/EBITDA GBP2.85m -
investments multiple GBP4.59m
------------------------- -------------------- ------------------
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 Valuation technique Range of Estimate
January 2018
GBP
Unquoted private equity GBP12.67m Sales/EBITDA GBP11.25m
investments multiple - GBP20.78m
----------------- -------------------- ------------------
Recent unquoted private GBP2.07m Cost value -
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.
-- 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
2019 2018
GBP GBP
--------------------------- ----------- -----------
Current and call accounts 29,125,615 28,047,141
--------------------------- ----------- -----------
29,125,615 28,047,141
--------------------------- ----------- -----------
The current and call accounts have been classified as cash and cash equivalents in the Consolidated Statement of Cash Flows.
13 Loans to associates and related companies
2019 2018
GBP GBP
--------------------------------------- ---------- ----------
EPIC Structured Finance Limited 500,000 500,000
ESO 1 LP 2,512,055 512,055
ESO AI LP 2,045,657 2,045,657
David Philips Group Limited - 40,000
Hamsard 3463 Limited 2,020,000 2,055,027
ESO DP Limited 8,113 -
Total loans to associates and related
companies 7,085,825 5,152,739
---------------------------------------- ---------- ----------
The loans to associates are unsecured, interest free and not subject to any fixed repayment terms.
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
2019 2018
GBP GBP
--------------------------------- -------- --------
Trade payables 50,176 16,391
Accrued administration fee 7,726 9,673
Accrued audit fee 12,224 14,241
Accrued professional fee 101,465 24,250
Accrued investment advisor fees 308,454 386,934
Accrued Directors' fees 12,833 12,833
Total 492,878 464,322
---------------------------------- -------- --------
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 principal amount. 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. The total amount expensed in the year ended 31 January 2019 was GBP20,605 (2018: GBP20,605). The carrying value of the ULNs in issue at the year-end was GBP3,915,612 (2018: GBP7,882,736). The total interest expense on the ULNs for the year is GBP469,225 (2018: GBP618,765). This includes the amortisation of the issue costs.
16 Share Capital
At the year end 1,035,624 treasury shares were held by the EBT (see note 7) (2018: 420,050).
2019 2019 2018 2018
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 30,065,714 1,503,286
Ordinary shares of 5p each
held in treasury (916,250) - (1,765,876) -
-------------------------------- ----------- ---------- ------------ ----------
29,149,464 1,503,286 28,299,838 1,503,286
------------------------------- ----------- ---------- ------------ ----------
On 10 December 2018, the Company transferred a total of 849,626 ordinary shares of 5 pence each from the Company's treasury to the trustee of the Company's JSOP Scheme. The transfer was made at a price of 160.00 pence per ordinary share, representing the closing share price on the day of the transfer.
17 Basic and diluted loss per share (pence)
Basic loss per share is calculated by dividing the loss of the Group for the year attributable to the ordinary shareholders of (GBP6,671,302) (2018: loss of GBP36,206,322) divided by the weighted average number of shares outstanding during the year of 28,420,881 after excluding treasury shares (2018: 28,187,483 shares).
Diluted loss per share is calculated by dividing the loss of the Group for the year attributable to ordinary shareholders of (GBP6,671,302) (2018: loss of GBP36,206,322) 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 28,420,881 after excluding treasury shares (2018: 28,187,483 shares).
18 NAV per share (pence)
The Group's NAV per share of 205.19 pence (2018: 234.43 pence) is based on the net assets of the Group at the year-end of GBP59,812,473 (2018: GBP66,342,854) divided by the shares in issue at the end of the year of 29,149,464 after excluding treasury shares (2018: 28,299,838).
The Group's diluted NAV per share of 205.19 pence is based on the net assets of the Group at the year-end of GBP59,812,473 (2018: GBP66,342,854) divided by the shares in issue at the end of the year, as adjusted for the effects of dilutive potential ordinary shares of 29,149,464 after excluding treasury shares (2018: 28,299,838).
19 Net cash used in operating activities
Reconciliation of net investment expense to net cash used in operating activities:
2019 2018
Group Group
GBP GBP
----------------------------------------- ------------ ------------
Net investment expense (2,337,630) (3,368,783)
Adjustments for:
Share based payment expense 120,544 210,043
------------------------------------------ ------------ ------------
(2,217,086) (3,158,740)
Non-cash items
Movement in trade and other receivables (215,872) 516
Movement in trade and other payables 28,556 (220,674)
Accrued bond interest income - (25,027)
Movement in loans from associates and
related companies - (2,100)
Net cash used in operating activities (2,404,402) (3,406,025)
------------------------------------------ ------------ ------------
20 Financial instruments
The Group's financial instruments comprise:
-- Investments in listed and unlisted companies held by associates, comprising equity and loans
-- 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.
Capital management
The Group's capital comprises share capital, share premium and reserves and is not subject to externally imposed capital requirements.
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
than 1 - 3 3 months 1 - 5 Over No stated
1 Month Months to 1 year years 5 years maturity
31 January 2019 GBP GBP GBP GBP GBP GBP
----------------------- --------- -------- ----------- ---------- --------- ----------
Financial liabilities
Trade and other
payables 492,878 - - - - -
Loan note instruments - - - 3,915,612 - -
Loans from associates - - - - - -
--------- -------- ----------- ---------- --------- ----------
Total 492,878 - - 3,915,612 - -
------------------------- --------- -------- ----------- ---------- --------- ----------
Less
than 1 - 3 3 months 1 - 5 Over No stated
1 Month Months to 1 year years 5 years maturity
31 January 2018 GBP GBP GBP GBP GBP GBP
----------------------- --------- -------- ----------- ---------- --------- ----------
Financial liabilities
Trade and other
payables 464,322 - - - - -
Loan note instruments - - - 7,882,736 - -
Loans from associates - - - - - -
--------- -------- ----------- ---------- --------- ----------
Total 464,322 - - 7,882,736 - -
------------------------- --------- -------- ----------- ---------- --------- ----------
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):
2019 2018
GBP GBP
------------------------------------------- ----------- -----------
Cash and cash equivalents 29,125,615 28,047,141
Trade and other receivables 180,103 84,210
Loans to associates and related companies 7,085,825 5,152,739
-------------------------------------------- ----------- -----------
Total 36,391,543 33,284,090
-------------------------------------------- ----------- -----------
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 2019. If Luceco plc's share price had been 5.0% higher than actual close of market on 31 January 2019, EPE Special Opportunities Limited's NAV / share would have been 1.57% higher than reported. If Luceco's share price had been 5.0% lower than actual close of market on 31 January 2019, EPE Special Opportunities Limited's NAV / share would have been 1.57% 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 - 5 Over interest
2019 1 month 3 months - 1 year years 5 years bearing Total
Assets GBP GBP GBP GBP GBP GBP GBP
------------------------ ----------- ---------- ---------- ------------ --------- ---------- ------------
Loans and receivables
Secured loans - - - - - - -
Loans to associates
and related
companies - - - 2,020,000 - 5,065,825 7,085,825
Trade and other
receivables - - - - - 180,103 180,103
Cash and cash
equivalents 29,125,615 - - - - - 29,125,615
------------------------- ----------- ---------- ---------- ------------
Total financial
assets 29,125,615 - - 2,020,000 - 5,245,928 36,391,543
------------------------- ----------- ---------- ---------- ------------ --------- ---------- ------------
Liabilities
Financial liabilities
measured at
amortised cost
Trade and other
payables - - - - - (492,878) (492,878)
Loans from
associates
and related
companies - - - - - - -
Convertible
loan note instruments - - - (3,915,612) - - (3,915,612)
------------------------- ----------- ---------- ---------- ------------ --------- ---------- ------------
Total financial
liabilities - - - (3,915,612) - (492,878) (4,408,490)
------------------------- ----------- ---------- ---------- ------------ --------- ---------- ------------
Total interest
rate sensitivity
gap 29,125,615 - - (1,895,612) - - -
------------------------- ----------- ---------- ---------- ------------ --------- ---------- ------------
Non-
Less than 1 - 3 3 months 1 - 5 Over interest
31 January 2018 1 month months - 1 year years 5 years bearing Total
Assets GBP GBP GBP GBP GBP GBP GBP
------------------------ ----------- -------- ---------- ------------ --------- ---------- ------------
Loans and receivables
Secured loans - - - - - - -
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)
Loans from associates
and related
companies - - - - - - -
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 - - (5,827,709) - - -
------------------------- ----------- -------- ---------- ------------ --------- ---------- ------------
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
Five of the Directors have interests in the shares of the Company as at 31 January 2019 (2018: four). Geoffrey Vero holds 136,214 ordinary shares (2018: 105,532). Nicholas Wilson holds 120,894 ordinary shares (2018: 105,743). Robert Quayle holds 107,201 ordinary shares (2018: 87,883). Clive Spears holds 125,105 ordinary shares (2018: 105,787) and Heather Bestwick holds 12,500 ordinary shares (2018: nil).
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 2019, broker fees of GBP52,758 (2018: GBP60,405) and corporate and finance fees of GBP235,000 (2018: GBPnil) in relation to the Company's redomicile to Bermuda were paid to Numis Securities Limited, a subsidiary of Numis Corporation plc.
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 and members 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, which was incorporated to allow the Group to look into possible investments in IOM which did not transpire the way it was intended to. As a result, there has been no trading activity being carried out through the subsidiary. EPE Special Opportunities Limited owns 100% ordinary shares of EPIC Reconstruction Property Company (IOM) Limited.
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). EPE Special Opportunities Limited owns 100% ordinary shares of Corvina Limited ordinary shares.
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). EPE Special Opportunities Limited owns 100% ordinary shares of EBT.
EPIC Reconstruction Property Company (IOM) Limited and Corvina Limited are dormant.
24 Subsequent events
There were no significant subsequent events.
Schedule of shareholders holding over 3% of issued shares
As at 24 January 2019
Percentage
holding
--------------------------- -----------
Giles Brand 22.41%
Corporation of Lloyds 6.09%
Miton Asset Management 5.91%
HSBC Private Bank 5.01%
Canaccord Genuity Wealth
Management 4.68%
Janus Henderson Investors 3.32%
Total over 3% holding 47.42%
------------------------------- -----------
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 (Bermuda)
KPMG Audit LLC Conyers Dill & Pearman
Heritage Court Clarendon House, 2 Church
Street
41 Athol Street Hamilton HM 11
Douglas Bermuda
Isle of Man IM99 1HN
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
HSBC Bank plc
1st Floor
60 Queen Victoria Street
London EC4N 4TR
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
FR SSDSMUFUSESL
(END) Dow Jones Newswires
April 09, 2019 02:09 ET (06:09 GMT)
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