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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Jz Capital Partners Limited | LSE:JZCP | London | Ordinary Share | GG00B403HK58 | ORD NPV |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 215.00 | 192.00 | 238.00 | 219.00 | 215.00 | 215.00 | 39 | 08:00:19 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Investors, Nec | 22.2M | 2.65M | 0.0342 | 62.87 | 166.58M |
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TIDMJZCP TIDMJZCC TIDMJZCN
JZ CAPITAL PARTNERS LIMITED (the "Company" or "JZCP")
(a closed-end investment company incorporated with limited liability under the
laws of Guernsey with registered number 48761)
ANNUAL RESULTS FOR THE TWELVE-MONTH PERIODED
28 FEBRUARY 2018
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)
22 May 2018
JZ Capital Partners, the London listed fund that invests in US and European
micro-cap companies and US real estate, announces its annual results for the
twelve-month period ended 28 February 2018.
Results and Portfolio Highlights
· NAV of $837.6 million (FYE 28/02/17: $848.8 million)
· NAV per share of $9.98 (FYE 28/02/17: $10.12)
· Total investments of $96.5 million, including: Felix Storch, ABTB (Taco
Bell franchises) and properties in Brooklyn, New York and South Florida.
· Realisation proceeds of $133.7 million, primarily through the sale of
Factor Energia, Fidor Bank, K2 Towers and Neilsen-Kellerman.
· As of 28 February 2018, the portfolio comprised:
o US micro-cap: 21 businesses including four 'verticals' and 12
co-investments, across nine industries.
o European micro-cap: 17 companies across six industries and seven countries.
o US real estate: 59 properties across five major assemblages in New York and
South Florida all in various stages of (re)/development.
· JZCP made two significant post-period realisations (March 2018), both
above net asset value: Paragon Water Systems and Bolder Healthcare Solutions.
· Current and post-period realisations provide approximately $250 million
[1] (including escrows and distributions) in gross proceeds to JZCP.
Outlook
· Balance sheet remains strong with a healthy pipeline of realisation and
investment opportunities over the next 12 months.
· Renewed focus on rebalancing the Company's debt maturity profile over
the course of the next fiscal year.
· Discussions underway with potential institutional joint venture partners
to deleverage the real estate portfolio.
David Zalaznick, JZCP's Founder and Investment Adviser, said: "We have made
significant progress in realising portfolio assets, at or above NAV.
The positive uplifts to NAV from realisations over the past year were offset by
pre-development and carrying costs in our real estate portfolio. However we are
exploring partnerships with several institutional investors to reduce the
impact of these costs going forward.
Our goal in the coming year is to continue to realise investments and use the
proceeds to buy back stock, make new investments and pay down debt."
David Macfarlane, Chairman of JZCP, said: "The Board is delighted with the
level of investment and realisation activity during the period. The Company
continues to make excellent progress in building a diversified portfolio of
assets, both by geography and asset type. We look ahead to the rest of the year
with continued confidence."
Presentation details:
There will be an audiocast presentation for investors and analysts at 2pm UK
(BST) / 9am US (EDT) on 22 May 2018. The presentation can be accessed via
https://bit.ly/2rNx2bm and by dialing +44 (0)330 336 9411 (UK) or +1
323-794-2094 (US) with the participant access code 9762398.
A playback facility will be available two hours after the conference call
concludes. This facility may be accessed via the following dial in details,
using the same participant access code as above: +44 (0) 207 660 0134 (UK) or
+1 719-457-0820 (US).
For further information:
Ed Berry / Kit
Dunford
+44 (0) 20 3727 1046 / 1143
FTI Consulting
David Zalaznick
+1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Paul
Ford
+44 (0) 1481 745383
JZ Capital Partners
About JZ Capital Partners
JZ Capital Partners ("JZCP") is one of the oldest closed-end investment
companies listed on the London Stock Exchange. It seeks to provide shareholders
with a return by investing selectively in US and European microcap companies
and US real estate. JZCP receives investment advice from Jordan/Zalaznick
Advisers, Inc. ("JZAI") which is led by David Zalaznick and Jay Jordan. They
have worked together for more than 35 years and are supported by teams of
investment professionals in New York, Chicago, London and Madrid. JZAI's
experts work with the existing management of micro-cap companies to help build
better businesses, create value and deliver strong returns for investors. For
more information please visit www.jzcp.com.
Chairman's Statement
I am pleased to report the results of JZ Capital Partners ("JZCP" or the
"Company") for the twelve-month period ended 28 February 2018.
Performance
The Company's performance over the last twelve months was set against a
backdrop of renewed business confidence and improving global growth outlook,
whilst the year was also marked by a series of natural disasters, continued
geopolitical tensions, and deep political divisions in many countries.
Global GDP growth experienced its broadest cyclical upswing since the start of
the decade, boosted by a recovery in investment, global trade growth and higher
employment levels.
Meanwhile, the US economy continued to gain momentum in 2017, delivering annual
net growth of 2.7%, driven primarily by an uptick in consumer confidence,
strong corporate profits and a booming stock market - currently the
second-longest bull market in history.
In Europe, the economy ended 2017 with its strongest growth in almost seven
years, boosted by an increase in service sector and manufacturing activity, and
also reflects years of monetary stimulus employed by the ECB aimed at staving
off deflation.
Within this market environment, the Board is pleased to announce that JZCP has
made excellent progress in realising a series of investments (some post-period)
at or above NAV. On a combined basis, these realisations have returned gross
proceeds to JZCP of approximately $250.0 million and have contributed a
combined net 55 cents in uplift to NAV during the fiscal year ended 28 February
2018.
Despite the uplifts from realisations over the past year, JZCP's net asset
value ("NAV") per share declined 1.4% from $10.12 to $9.98; the positive
underlying performance of the US and European micro-cap portfolio was offset
principally by the pre-development and carrying costs in our real estate
portfolio.
Portfolio Update
It has been an active investment period for the Company, putting $96.5 million
to work across our three major asset classes - whilst realising $133.7 million,
primarily through the sale of Factor Energia ("Factor"), K2 Towers and Fidor
Bank.
At the end of the period, the Company's portfolio consisted of 38 US and
European micro-cap businesses across nine industries and five primary real
estate 'assemblages' (59 total properties) located in Brooklyn, New York and
South Florida. The portfolio continues to become more diversified
geographically across Western Europe with investments in Spain, Italy,
Portugal, Luxembourg, Scandinavia and the UK.
US and European Micro-cap
The Board is pleased with the positive performance of the US micro-cap
portfolio, which has delivered a net valuation increase of 91 cents per share
during the period. This was primarily due to net accrued income (23 cents),
increased earnings at Felix Storch (17 cents) and our water vertical (4 cents),
and the successful realisations of the Healthcare Revenue Cycle Management
vertical (44 cents), K2 Towers (11 cents) and Nielsen Kellerman (2 cents).
The portfolio was valued at 8.3x EBITDA, after applying an average 25%
marketability discount to public comparables.
JZCP continues to implement its disciplined and value-oriented investment
approach targeting high quality micro- cap companies in Western Europe, which
now consists of 17 companies across six industries and seven countries. JZCP
now, principally invests in the European micro-cap sector through its 18.8%
ownership of JZI Fund III, L.P. ("Fund III"). The portfolio continues to
perform well and has seen a valuation increase of 2 cents per share.
Europe continues to be a fertile ground for originating attractive investment
opportunities and during the period, the Company invested in four new
businesses through Fund III: Treee, Italy's first nationwide recycler of
electric and electronic goods; Eliantus, a build-up of solar plants in Spain;
Bluemint, a build-up of cell tower land leases in Portugal; and Luxida, a
buy-and-build of electricity distribution businesses in Spain.
Real Estate
The Company continues to make significant progress in building a diversified
portfolio of retail, office and residential properties in Brooklyn, New York
and South Florida.
As of 28 February 2018, JZCP, in partnership with its long-term real estate
partner, RedSky Capital, had invested approximately $388.5 million in 59
properties, all currently in various stages of development and re-development.
Whilst the real estate portfolio is performing in line with expectations, it
produced a net decrease of 60 cents per share, primarily due to operating
expenses and debt service at the property level. The Company's ongoing
discussions with a number of institutional joint venture partners will look to
address the impact of these costs on JZCP's NAV. The Company will update the
market accordingly when those discussions conclude.
Realisations
The Company generated realisations totalling $133.7 million, primarily through
the sale of two US micro-cap companies and two European micro-cap companies.
The Company realised its investment in Factor, a Spanish electricity supplier
to SMEs, for a gross multiple of capital invested of 9.2x and a gross IRR of
42.3%. In addition, the Company received proceeds of $28.7 million from the
sale of K2 Towers, a national acquirer of wireless communication towers based
in the US.
Post-period
As previously announced, the Board and the Investment Manager consider that the
ability to buy back Ordinary Shares and ZDPs is beneficial to shareholders. As
part of this, the Company commenced its share buyback programme in April 2018.
Furthermore, the Board is delighted with two significant post-period
realisations significantly above net asset value, in March 2018. JZCP expects
to receive gross proceeds of $110.0 million from the sale of Bolder Healthcare
Solutions, representing a 4.5% uplift to NAV. The Company also expects to
receive gross proceeds of $16.2 million from the sale of Paragon Water Systems,
representing a gross multiple of invested capital of approximately 1.8x and a
gross internal rate of return of approximately 18.4%.
Board
Patrick Firth has served as Chairman of JZCP's Audit Committee since the
incorporation of the Company in 2008. Patrick therefore intends to retire as
Chairman of the Audit Committee and as a Director. The Board is grateful to him
for the substantial contribution that he has made to the Company and wishes him
well. The process for appointing Patrick's successor is underway and he has
kindly agreed to continue on the board for a sufficient period to ensure a
smooth transition to his successor. The Board is also reviewing the wider
issues of board refreshment and succession.
Outlook
We are pleased with the strong performance of the underlying portfolio and the
level of realisation activity during the period.
The Company remains focused on unlocking liquidity from its mature investments,
refinancings and partnerships, and redeploying capital into investment
opportunities in Western Europe and the US and the Company's share buyback
programme. We also intend to refocus our efforts on rebalancing the Company's
debt maturity profile and paying down existing debt over the course of the next
fiscal year.
The Board remains confident that the Company is well-positioned to tackle the
ongoing discount to NAV through positive investment performance, further
successful realisations and the ability of the Company to buy back shares.
David Macfarlane
Chairman
21 May 2018
Investment Adviser's Report
Dear Fellow Shareholders,
Our primary goal during the past fiscal year has been to achieve liquidity
through realisations and refinancings. Once achieved, we plan to use the
proceeds to make new investments, buy back stock or repay company debt.
Importantly, with each successive realisation at or above net asset value
("NAV"), we hope to prove to the market that JZCP's NAV is solid.
Over the past six months, we have realised five investments at or above NAV:
Factor Energia, K2 Towers, Nielsen-Kellerman, Paragon (post-period) and Bolder
Healthcare (post-period). On a combined basis, these realisations have returned
gross proceeds to JZCP of approximately $250.0 million1 (including escrows and
interim distributions) and have contributed a combined net 55 cents in uplift
to NAV during the fiscal year ended 28 February 2018.
Post year end, we have begun to buy back our stock at a significant discount to
NAV and plan to continue doing so as it represents an excellent investment
opportunity for the Company. We also intend to pay down a portion of JZCP's
existing debt over the coming fiscal year.
Even though we had significant uplifts from realisations over the past year,
JZCP's NAV per share fell 1.4%, from $10.12 at 28 February 2017 to $9.98 at 28
February 2018, primarily due to pre-development and carrying costs at our real
estate portfolio. We are in the process of discussing joint venture
partnerships with a number of institutional investors which will reduce this
drag on NAV as well as provide liquidity from our real estate portfolio. We
hope to have further news regarding this in the coming months. Unless otherwise
stated, figures included in this report refer to the twelve-month period ended
28 February 2018.
We have had a very busy year in each of our major asset classes - US and
European micro-cap and US real estate - which continue to perform well. During
the period, JZCP invested a total of $96.5 million, including new investments
in Felix Storch and ABTB (Taco Bell franchises) and follow-on investments in
Avante Health Solutions, Peaceable Street Capital and properties in Brooklyn,
New York and South Florida. We are very excited about these investments, a
number of which are featured in the Investment Review section of this annual
report.
As of 28 February 2018, our US micro-cap portfolio consisted of 21 businesses,
which includes four 'verticals' and 12 co-investments, across nine industries;
this portfolio was valued at 8.3x EBITDA, after applying an average 25%
marketability discount to public comparables. The average underlying leverage
senior to JZCP's position in our US micro-cap portfolio is 3.5x EBITDA.
Consistent with our value-oriented investment strategy, we have acquired our
current US micro-cap portfolio at an average 6.1x EBITDA; we paid 4.1x EBITDA
on average for US micro-cap acquisitions made during the period.
Our European micro-cap portfolio consisted of 17 companies across six
industries and seven countries. The European micro-cap portfolio has low
leverage senior to JZCP's position, of under 2.0x EBITDA.
Our US real estate portfolio consists of 59 properties and can be grouped
primarily into five major 'assemblages', located in the Williamsburg,
Greenpoint and Downtown/Fulton Mall neighbourhoods of Brooklyn, New York, and
the Wynwood and Design District neighbourhoods of Miami, Florida. Our
assemblages are comprised of adjacent or concentrated groupings of properties
that can be developed, financed and/or sold together at a higher valuation than
on a stand-alone basis.
1 Factor Energia total gross proceeds of approximately EUR69.7 million ($85.0
million) (including interim distributions and future expected proceeds all
multiplied by a theoretical, illustrative exchange rate of $1.22 to EUR1.00,
which is current as of 25 April 2018 per Oanda.com). K2 Towers total expected
gross proceeds of approximately $31.3 million. Nielsen-Kellerman total gross
proceeds of approximately $8.6 million. Paragon (post-period) expected total
gross proceeds of $16.2 million. Bolder Healthcare Solutions (post-period)
expected total gross proceeds of approximately $110.0 million.
Net Asset Value ("NAV")
JZCP's NAV per share fell 1.4% during the period, from $10.12 at 28 February
2017 to $9.98 at 28 February 2018.
NAV bridge
$10.12
Change in NAV due to capital gains and accrued income
+ US Micro-cap
0.91
+ European Micro-cap
0.02
- Real Estate
(0.60)
- Other Investments
(0.08)
Other increases/(decreases) in
NAV
+ Change in CULS market price
0.03
+ Foreign exchange effect2
0.08
- Finance costs
(0.21)
- Expenses and taxation3
(0.29)
$9.98
2 Includes FX gains of 22 cents relating to currency translation of investments
and FX losses of 7 cents relating to the translation of CULS.
3 Includes an incentive fee provided for on capital gains of 4 cents.
The US micro-cap portfolio performed well during the period, delivering a net
increase of 91 cents. This was primarily due to net accrued income of 23 cents,
increased earnings at co-investment Felix Storch (17 cents) and writing our
Healthcare Revenue Cycle Management vertical, K2 Towers and Nielsen Kellerman
investments up to their sale values (44 cents, 11 cents and 2 cents,
respectively). Also contributing to the positive portfolio performance were
increases at our logistics vertical (1 cent), water vertical (4 cents) and
co-investment business Avante (2 cents). We also received 2 cents of escrow
payments during the period.
Offsetting these increases were declines at our Industrial Services Solutions
("ISS") vertical (13 cents) and Nationwide, our school photography business (2
cents).
The European micro-cap portfolio continued its positive trajectory, posting a
net increase of 2 cents, primarily due to accrued income of 8 cents, write-ups
at JZI Fund III, LP ("Fund III") portfolio companies Collingwood and S.A.C (4
cents combined) and a net positive carried interest adjustment of 2 cents.
These gains were offset by write-downs at Factor Energia (6 cents) and Oro
Direct (6 cents).
The real estate portfolio experienced a net decrease of 60 cents, primarily due
to operating expenses, including significant pre-development costs, and debt
service at the property level.
Returns
The chart below summarises cumulative total shareholder returns and total NAV
returns for the most recent three-month, one-year, three-year and five-year
periods.
28.2.2018 30.11.2017 28.2.2017 28.2.2015 28.2.2013
Share price (in GBP) GBP4.51 GBP5.09 GBP5.38 GBP4.09 GBP5.02
NAV per share (in USD) $9.98 $9.91 $10.12 $10.85 $9.69
NAV to market price discount 38% 31% 34% 42% 21%
3 month 1 year 3 year 5 year
return return return return
Dividends paid (in USD) $0.00 $0.00 $0.64 $1.245
Total Shareholders' return4 -11.3% -16.2% 20.7% 8.2%
Total NAV return per share4 0.7% -1.4% -2.0% 16.7%
4Total returns are cumulative and assume that dividends were reinvested.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography, with 38 US and
European micro-cap investments across nine industries and five primary real
estate 'assemblages' (59 total properties) located in Brooklyn, New York and
South Florida. The portfolio continues to become more diversified
geographically across Western Europe with investments in Spain, Italy,
Portugal, Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP's assets and liabilities at 28 February 2018 as
compared to 28 February 2017. An explanation of the changes in the portfolio
follows:
28.2.2018 28.2.2017
US$'000 US$'000
US micro-cap portfolio 488,258 423,137
European micro-cap portfolio 103,457 154,277
Real estate portfolio 463,391 468,599
Other investments 15,302 23,167
Total Private Investments 1,070,408 1,069,180
Treasury bills 49,975 -
Cash and cash equivalents6 33,987 29,063
Total Listed Investments and Cash 83,962 29,063
Other assets 2,158 520
Total Assets 1,156,528 1,098,763
Zero Dividend Preferred shares 62,843 53,935
Convertible Unsecured Loan Stock 59,970 57,063
Loans payable 150,125 97,396
Investment Adviser's incentive fee 41,606 37,293
Investment Adviser's base fee 2,225 2,026
Other payables 2,186 2,206
Total Liabilities 318,955 249,919
Total Net Assets 837,573 848,844
As previously announced, in April 2017 JZCP increased its loan facility with
Guggenheim Partners from approximately $100 million to $150 million. The entire
$150 million facility may be repaid, in whole or in part, at any time, without
any prepayment penalties.
6 Cash and cash equivalents includes cash held of $9.0 million and $25.0
million being receivables from the sale of Treasury Bills (received 1 March
2018).
US Micro-Cap Portfolio
As you know from previous reports, our US portfolio is grouped into industry
'verticals' and co-investments. Our 'verticals' strategy focuses on
consolidating businesses under industry executives who can add value via
organic growth and cross company synergies. Our co-investments strategy allows
for greater diversification of our portfolio by investing in larger companies
alongside well known private equity groups.
New US investments - verticals
Vertical # Acquisitions JZCP Investment
($ millions)
Technical Solutions 2 1.2
2 1.2
New US investments - co-investments
Vertical
New/Follow-on JZCP Investment
($ millions)
ABTB (Taco Bell franchises) New 8.8
K2 Towers II New 4.2
Peaceable Street Capital Follow-on 3.0
Sloan LED Follow-on 1.1
New Vitality Follow-on 0.1
17.2
Portfolio Company New/Follow-on JZCP Investment
($ millions)
Felix Storch New 12.0
Avante Health Solutions (f/k/a Jordan Health Follow-on 4.5
Products)
16.5
European micro-cap portfolio
The European micro-cap portfolio continued its positive trajectory over the
past year (net increase of 2 cents), highlighted by the sale of Factor Energia
("Factor") for an approximate gross multiple of invested capital of 9.2x and an
approximate gross IRR of 42.3% in euro-denominated terms. JZCP expects to
receive total gross proceeds (before carry) from Factor of approximately EUR69.7
million (including deferred payments and interim distributions received over
the course of the investment). Although inconsistent with the exceptional
returns described above, we wrote down Factor by 6 cents over the year to
approximate its sale value as the transaction became formalised.
JZCP currently invests in the European micro-cap sector through its
approximately 18.8% ownership of JZI Fund III, L.P. ("Fund III"). As of 28
February 2018, Fund III held 12 investments: five in Spain, two in Scandinavia,
two in Italy and one each in the UK, Portugal and Luxembourg. JZCP held direct
loans to a further four companies in Spain: Ombuds, Docout, Xacom and Toro
Finance.
JZAI has offices in London and Madrid and an outstanding team with over fifteen
years of experience investing together in European micro-cap deals.
Recent Events
During the period, JZCP acquired stakes in four new businesses via its
ownership in Fund III: (i) Treee, Italy's first nationwide recycler of electric
and electronic goods, (ii) Eliantus, a build-up of solar plants in Spain, (iii)
Bluemint, a build-up of cell tower land leases in Portugal, and (iv) Luxida, a
buy-and-build of electricity distribution businesses in Spain.
Additionally, as part of Factor's acquisition (described above) by a
public-sector asset manager, on behalf of a major Canadian pension fund, Fund
III agreed to invest EUR20 million alongside the majority owner and Factor
management, representing approximately 25% of the business' fully diluted
equity ownership.
JZCP also made follow-on investments in My Lender, a consumer lending business
in Finland, and Alianzas en Aceros, a steel transformation company in Spain,
both of which are owned by Fund III.
In March and December 2017, JZCP received proceeds totalling $23.5 million from
the sale of portfolio company Fidor Bank to Groupe BPCE, the second largest
banking group in France. The transaction had closed in December 2016. JZCP
invested a total of $13.8 million in the business.
In July 2017, JZCP received proceeds totalling $1.5 million from the
refinancing of Petrocorner, a build-up of petrol stations in Spain, and a
distribution on loan notes from Collingwood, a niche motor insurance business
in the UK.
Real Estate Portfolio
We are very excited with the progress of our first ground-up development in
South Florida, CUBE Wynwd (the "CUBE"), a development project in Miami's
Wynwood neighbourhood totalling 90,000 square feet and featuring seven stories
of office space geared towards tech and media businesses and ground floor
retail space.
JZCP anticipates excellent returns from the CUBE, underpinned by (i) having
acquired the land at a significant discount to market comparables and (ii)
having pre-leased approximately 30% of the building to Spaces, a full service,
creative co-working environment with a unique entrepreneurial spirit. We are
experiencing strong interest from potential tenants to lease the remaining
available space at the CUBE and we expect to deliver the project to our anchor
tenant in the first quarter of 2019.
Wynwood, where we own four additional development sites and one cash flowing
retail property, is an exciting neighbourhood that can be described as the
"Williamsburg of Miami". The vibrant atmosphere is attracting tech and other
businesses to office spaces in the neighbourhood where their employees would
like to work. We have significantly progressed development plans for our other
sites in the neighbourhood and look forward to reporting further on our
progress in Wynwood over the coming year.
As of 28 February 2018, JZCP had approximately $388.5 million invested in a
portfolio of retail, office and residential properties in Brooklyn, New York,
and South Florida which is valued at $463.4 million as of that date. We have
made these investments alongside our long-term real estate partner, RedSky
Capital, a team with significant experience in the sector.
Since we began investing with RedSky in April 2012, we have acquired a total of
59 properties, all currently in various stages of development and
re-development.
The real estate portfolio had a net decrease of 60 cents, primarily due to
operating expenses and debt service at the property level.
Real estate investments during the period
JZCP Investment
($ millions)
Follow-ons & expenses 47.2
47.2
Other investments
Our asset management business in the US, Spruceview Capital Partners, addresses
the growing demand from corporate pensions, endowments, family offices and
foundations for fiduciary management services through an Outsourced Chief
Investment Officer ("OCIO") model. Spruceview has a robust pipeline of
opportunities and has recently added another international pension OCIO client
in the second quarter of 2018.
Spruceview continues to provide investment oversight to the pension fund of a
Canadian subsidiary of an international packaged foods company, a European
private credit fund-of-funds, and portfolios for family office clients.
As previously reported, Richard Sabo, former Chief Investment Officer of Global
Pension and Retirement Plans at JPMorgan and a member of that firm's executive
committee, is leading a team of 14 investment, business development, legal and
operations professionals.
Realisations
Proceeds
Investment Portfolio $ millions
Factor Energia - Sale Europe 54.7
K2 Towers - Sale U.S. 28.7
Fidor - Sale Europe 23.5
Nielsen-Kellerman - Sale U.S. 8.6
Avante Health Solutions (f/k/a Jordan Health U.S. 7.6
Products)-Recapitalisation
Bright Spruce Fund - Liquidation Other 4.7
JZ Realty - Flatbush Sale & Esperante Distribution Real Estate 2.5
Escrows U.S. 1.9
JZI Fund III - Petrocorner & Collingwood Distribution Europe 1.5
133.7
As previously mentioned, JZCP made two post-period realisations (March 2018),
both significantly above NAV: Paragon Water Systems ("Paragon") and Bolder
Healthcare Solutions ("BHS").
Paragon Water Systems
In March 2018, Paragon was acquired by Culligan Water, the world leader in
residential, office, commercial and industrial water treatment.
Founded in 1988 and headquartered in Tampa, Florida, Paragon develops and
produces "point-of-use" water filtration products for leading global Original
Equipment Manufacturer ("OEM") clients, big brand suppliers to specialty and
big box retailers, direct sales organisations and companies with national or
international water filtration dealership networks.
JZCP expects to realise approximately $16.2 million in gross proceeds
(including escrows) from the sale, representing an increase of approximately
$3.7 million, or 29.6% on the carrying value of Paragon of approximately $12.5
million as of 31 January 2018. This transaction represents a gross multiple of
invested capital ("MOIC") of approximately 1.8x and a gross internal rate of
return ("IRR") of approximately 18.4%.
Bolder Healthcare Solutions
In March 2018, BHS was acquired by a subsidiary of Cognizant, one of the
world's leading professional services companies.
Headquartered in Louisville, Kentucky, BHS offers a full suite of healthcare
revenue cycle management services to the hospital and physician marketplace in
the United States. BHS was formed through a co-investment partnership between
JZCP and the Edgewater Funds.
JZCP will realise approximately $110.0 million in gross proceeds from this sale
(including escrows), which represents an increase in NAV of approximately $37.1
million, or 4.5% of NAV, as of January 31, 2018.
Outlook
We hope to build on the significant momentum we have achieved during the
period, following the successful realisations of Factor Energia, K2 Towers,
Nielsen-Kellerman, Paragon (post-period) and Bolder Healthcare (post period).
With regards to our real estate portfolio, we are in the process of discussing
joint venture partnerships with a number of institutional investors, which will
provide JZCP liquidity for a portion of its investment as well as reduce the
drag on NAV due to pre-development carrying costs for the properties.
Our goal is to re-deploy the liquidity unlocked from realisations, refinancings
and partnerships into making new investments and buying back our stock at a
significant discount. In addition, we hope to pay down a portion of the
Company's existing debt over the coming fiscal year.
Our continued objective is to validate JZCP's NAV and we are confident that
further realisations will enhance this validation.
We are also pleased to have initiated our share buyback programme in April
2018, and fully intend to continue repurchasing our own shares following the
"closed period". While JZCP's ordinary shares were down by 16.2% for the year,
they have rebounded since 28 February 2018 by approximately 7% in value.
We remain committed to pursuing our value-added investment strategy and are
pleased with the current composition of JZCP's portfolio, which we believe is
well-balanced by geography and asset type.
As always, we thank you for your continued support in our investment strategy.
Please feel free to contact us with any ideas that might be beneficial to
JZCP.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
21 May 2018
Investment Portfolio
28 February 2018
Cost(1) Value Percentage
of Portfolio
US$'000 US$'000 %
US Micro-cap portfolio
US Micro-cap (Verticals)
Industrial Services Solutions(4)
INDUSTRIAL SERVICES SOLUTIONS ("ISS")
A combination of twenty seven acquired
businesses in the industrial maintenance, repair
and service industry
Total Industrial Services Solutions valuation 33,174 77,885 7.0
Healthcare Revenue Cycle Management(4)
BOLDER HEALTHCARE SOLUTIONS
BHS HOSPITAL SERVICES 0.0
Provider of outsourced revenue cycle management
solutions to hospitals. BHS Hospital Services,
which owns Bolder Outreach Services (formerly
known as Monti Eligibility & Denial Solutions),
Receivables Outsourcing and Avectus Healthcare
Solutions is a subsidiary of Bolder Healthcare
Solutions
BHS PHYSICIAN SERVICES 0.0
Provider of outsourced revenue cycle management
solutions to physician groups. BHS Physician
Services, which owns Bodhi Tree Group and PPM
Information Solutions is a subsidiary of Bolder
Healthcare Solutions
Total Healthcare Revenue Cycle Management vertical 30,327 108,026 9.6
valuation
Testing Services Holdings(4)
TECHNICAL SOLUTIONS AND SERVICES
Sells, rents and services safety & testing
equipment and sells protective & safety apparel
to a variety of industries. Technical Solutions
and Services is a subsidiary of Testing
Services Holdings
Total Technical Solutions and Services Vertical 12,854 12,425 1.1
valuation
Water Services(4)
WATERLINE RENEWAL TECHNOLOGIES
Environmental infrastructure company that
provides technology to facilitate repair of
underground pipes and other infrastructure. TWH
Infrastructure Industries, Inc., which owns LMK
Enterprises, Perma-Liner Industries and APMCS
is a subsidiary of Triwater Holdings
WATER TREATMENT SYSTEMS
Provider of water treatment supplies and
services. TWH Water Treatment Industries, Inc.,
which owns Nashville Chemical & Equipment,
Klenzoid Canada Company/Eldon Water and Chemco
, is a subsidiary of Triwater Holdings
WATER FILTRATION SYSTEMS
Supplier of parts and filters for point-of-use
filtration systems, which owns Paragon Water
Systems, is a subsidiary of Triwater Holdings
Total Water Services Vertical valuation 24,730 39,126 3.5
Total US Micro-cap (Verticals) 101,085 237,462 21.2
US Micro-cap (Co-investments)
8,760 8,760 0.8
ABTB
Acquirer of franchises within the fast-casual
eateries and quick-service restaurants sector
GEORGE INDUSTRIES 12,639 12,637 1.1
Manufacturer of highly engineered, complex and
high tolerance products for the aerospace,
transportation, military and other industrial
markets
IGLOO(4 6,040 6,040 0.5
Designer, manufacturer and marketer of coolers
and outdoor products
4,211 4,211 0.4
K2 TOWERS II
Acquirer of wireless communication towers
3,622 3,994 0.4
NEW VITALITY(4)
Direct-to-consumer provider of nutritional
supplements and personal care products
15,843 15,843 1.4
ORIZON(4)
Manufacturer of high precision machine parts
and tools for aerospace and defence industries
PEACEABLE STREET CAPITAL 28,041 27,673 2.5
Specialty finance platform focused on
commercial real estate
SALTER LABS(4 16,762 21,529 1.9
Developer and manufacturer of respiratory
medical products and equipment for the
homecare, hospital, and sleep disorder markets
6,030 3,044 0.3
SLOAN LED(4),(6)
Designer and manufacturer of LED lights and
lighting systems
SUZO HAPP GROUP(4) 2,572 11,700 1.0
Designer, manufacturer and distributor of
components for the global gaming, amusement and
industrial markets
TIERPOINT(4) 44,313 46,813 4.2
Provider of cloud computing and collocation
data centre services
VITALYST(4) 9,020 8,192 0.7
Provider of outsourced IT support and training
services
Total US Micro-cap (Co-investments) 157,853 170,436 15.2
US Micro-cap (Other)
FELIX STORCH 12,000 27,342 2.4
Supplier of specialty, professional,
commercial, and medical refrigerators and
freezers, and cooking appliances
HEALTHCARE PRODUCTS HOLDINGS(1),(3) 17,636 - -
Designer and manufacturer of motorised vehicles
AVANTE HEALTH SOLUTIONS 30,641 33,133 3.0
Provider of new and professionally refurbished
healthcare equipment
NATIONWIDE STUDIOS 23,599 10,024 0.9
Processer of digital photos for preschoolers
13,200 9,861 0.9
PRIORITY EXPRESS
Provider of same day express courier services
to various companies located in north-eastern
USA. Priority Express is a subsidiary of US
Logistics
Total US Micro-cap (Other) 97,076 80,360 7.2
Total US Micro-cap portfolio 356,014 488,258 43.6
European Micro-cap portfolio
- 33 -
EUROMICROCAP FUND 2010, L.P.
Invested in European Micro-cap entities
- 3,784 0.3
EUROMICROCAP FUND-C, L.P.
Invested in European Micro-cap entities
30,987 42,291 3.8
JZI FUND III, L.P.
At 28 February 2018, was invested in twelve
companies in the European micro-cap sector:
Petrocorner, Fincontinuo, S.A.C, Collingwood,
My Lender, Alianzas en Aceros, ERSI, Treee,
Eliantus, Factor Energia, Bluemint and Luxida
Direct Investments
DOCOUT 2,777 4,010 0.3
Provider of digitalisation, document processing
and storage services
OMBUDS 17,198 26,764 2.4
Provider of personal security, asset protection
and facilities management services
TORO FINANCE 21,619 22,498 2.0
Provides short term receivables finance to the
suppliers of major Spanish companies
XACOM 2,055 4,077 0.4
Supplier of telecom products and technologies
Total European Micro-cap portfolio 74,636 103,457 9.2
Real Estate portfolio
JZCP REALTY(2) 388,509 463,391 41.4
Facilitates JZCP's investment in US real estate
Total Real Estate portfolio 388,509 463,391 41.4
Other investments
6,115 459 -
BSM ENGENHARIA
Brazilian-based provider of supply chain
logistics, infrastructure services and
equipment rental
- 750 0.1
JZ INTERNATIONAL(3)
Fund of European LBO investments
25,010 14,093 1.3
SPRUCEVIEW CAPITAL
Asset management company focusing primarily on
managing endowments and pension funds
Total Other investments 31,125 15,302 1.4
LISTED INVESTMENTS
US TREASURY BILLS 15.3.2018 49,845 49,975 4.4
Total Listed investments 49,845 49,975 4.4
Total - portfolio 900,129 1,120,383 100.0
(1) Original book cost incurred by JZEP/JZCP adjusted for
subsequent transactions. The book cost represents cash outflows
and excludes PIK investments.
(2) JZCP owns 100% of the shares and voting rights of JZCP Realty Ltd.
(3) Legacy Investments. Legacy investments are excluded from the
calculation of capital and income incentive fees.
(4) Co-investment with Fund A, a Related Party (Note 24).
(5) Jordan Health Products was rebranded as Avante.
(6) Sloan LED was previously named Illumination Investments, Llc in the
February 2017 investment portfolio.
Board of Directors
David Macfarlane (Chairman)1
Mr Macfarlane was appointed to the Board of JZCP in April 2008 as Chairman and
a non-executive Director. Until 2002 he was a Senior Corporate Partner at
Ashurst. He was a non-executive director of the Platinum Investment Trust Plc
from 2002 until January 2007.
Patrick Firth2
Mr Firth was appointed to the Board of JZCP in April 2008. He is also a
director of a number of offshore funds and management companies, including
ICG-Longbow Senior Secured UK Property Debt Investments Limited, Riverstone
Energy Limited and NextEnergy Solar Fund Limited. He is Chairman of GLI Finance
Limited. He is a member of the Institute of Chartered Accountants in England
and Wales and The Chartered Institute for Securities and Investment. He is a
resident of Guernsey.
James Jordan
Mr Jordan is a private investor who was appointed to the Board of JZCP in 2008.
He is a director of the First Eagle family of mutual funds, and of Alpha
Andromeda Investment Trust Company, S.A. Until 30 June 2005, he was the
managing director of Arnhold and S. Bleichroeder Advisers, LLC, a privately
owned investment bank and asset management firm; and until 25 July 2013, he was
a non-executive director of Leucadia National Corporation. He is an Overseer of
the Gennadius Library of the American School of Classical Studies in Athens and
is a Director of Pro Natura de Yucatan.
Tanja Tibaldi
Ms Tibaldi was appointed to the Board of JZCP in April 2008. She was on the
board of JZ Equity Partners Plc from January 2005 until the company's
liquidation on 1 July 2008. She was managing director at Fairway Investment
Partners, a Swiss asset management company where she was responsible for the
Group's marketing and co- managed two fund of funds. Previously she was an
executive at the Swiss Stock Exchange and currently serves on the board of
several private companies.
Christopher Waldron
Mr Waldron was appointed to the Board of JZCP in 2013. He has more than thirty
years' experience as an asset manager and director of investment funds. He is
Chairman of UK Mortgages Limited, Ranger Direct Lending PLC and Crystal Amber
Fund Limited. He began his career with James Capel and subsequently held
investment management positions with Bank of Bermuda, the Jardine Matheson
Group and Fortis prior to joining the Edmond de Rothschild Group in Guernsey as
Investment Director in 1999. He was appointed Managing Director of the Edmond
de Rothschild companies in Guernsey in 2008, a position he held until 2013,
when he stepped down to concentrate on non-executive work and investment
consultancy. He is a member of the States of Guernsey's Investment and Bond
Management Sub-Committee and a Fellow of the Chartered Institute for Securities
and Investment.
1Chairman of the nominations committee of which all Directors are members.
2Chairman of the Audit Committee of which all Directors are members.
Report of the Directors
The Directors present their annual report together with the audited financial
statements of JZ Capital Partners ("JZCP" or the "Company") for the year ended
28 February 2018.
Principal Activities
JZ Capital Partners Limited is a closed-ended investment company with limited
liability which was incorporated in Guernsey on 14 April 2008 under the
Companies (Guernsey) Law, 1994. The Company is subject to the Companies
(Guernsey) Law, 2008. The Company's Capital consists of Ordinary shares, Zero
Dividend Preference ("ZDP") shares and Convertible Unsecured Loan Stock
("CULS"). The Company's Ordinary shares, ZDP Shares and CULS are traded on the
London Stock Exchange's Specialist Fund Segment.
The Company's Investment Policy is to target predominantly private investments,
seeking to back exceptional management teams to deliver on attractive
investment propositions. In executing strategy, the Company takes a long term
view. The Company seeks to invest directly in its target investments, although
it may also invest through other collective investment vehicles. The Company
may also invest in listed investments, whether arising on the listing of its
private investments or directly.
The Company is focused on investing in the following areas:
(a) small or micro-cap buyouts in the form of debt and equity and preferred
stock in both the US and Europe; and
(b) real estate interests.
The Investment Adviser takes a dynamic approach to asset allocation and, though
it doesn't expect to, in the event that the Company were to invest 100% of
gross assets in one area, the Company will, nevertheless always seek to
maintain a broad spread of investment risk. Exposures are monitored and managed
by the Investment Adviser under the supervision of the Board.
The Investment Adviser is able to invest globally but with a particular focus
on opportunities in the United States and Europe.
Business Review
The total loss attributable to Ordinary shareholders for the year ended 28
February 2018 was $11,271,000 (year ended 28 February 2017: profit of
$22,697,000). The revenue return for the year was $11,913,000 (year ended
28 February 2017: $5,612,000), after charging directors fees and administrative
expenses of $3,085,000 (year ended 28 February 2017:$2,550,000) and Investment
Adviser's base fee of $16,912,000 (year ended 28 February 2017: $16,865,000).
The net asset value ("NAV") of the Company at the year-end was $837,573,000 (28
February 2017: $848,844,000) equal to $9.98 (28 February 2017: $10.12) per
Ordinary share.
For the year ended 28 February 2018, the Company had $16,542,000 of cash
outflows resulting from operating activities (year ended 28 February 2017:
outflows of $9,239,000).
A review of the Company's activities and performance is detailed in the
Chairman's Statement and the Investment Adviser's Report. The valuation of the
unlisted investments are detailed in the Investment Portfolio section.
Dividends
During 2017, the dividend policy of distributing approximately 3% of the
Company's net assets in the form of dividends was discontinued. Shareholder
approval was received to adopt a new strategy where purchases by the Company of
its Ordinary Shares may be undertaken when opportunities in the market permit,
and as the Company's cash resources allow.
Directors
The Directors listed below are all independent and non-executive, they have
served on the Board throughout the year and were in office at the end of the
year and subsequent to the date of this report. The biographical details of the
Directors are shown in the Board of Directors section.
David Macfarlane (Chairman)
Patrick Firth
James Jordan
Tanja Tibaldi
Christopher Waldron
Annual General Meeting
The Company's Annual General Meeting is due to be held on 26 June 2018.
Stated Capital, Purchase of own Shares and Convertible Unsecured Loan Stock
"CULS"
Details of the ZDP shares and the Ordinary shares can be found in Notes 16 and
19. During the year the Company did not buy back any of its own shares. Post
year end, the Company repurchased 188,685 of its own shares. Details of the
CULS can be found in Note 15.
The beneficial interests of the Directors in the Ordinary shares of the Company
are shown below:
Number of Purchased Sold Number of
Ordinary shares in year in year Ordinary shares
at 1 March 2017 at
28 February 2018
David Macfarlane 74,800 17,500 (17,500) 74,800
Patrick Firth 5,440 - - 5,440
James Jordan 40,800 - - 40,800
Tanja Tibaldi 2,720 - - 2,720
Christopher 4,000 - - 4,000
Waldron
127,760 17,500 (17,500) 127,760
The beneficial interests of the Directors in the CULS of the Company are shown
below (no change from 28 February 2017 position):
Number of CULS
of GBP10 nominal value at
28 February 2018
David Macfarlane 734
Patrick Firth 734
Tanja Tibaldi 367
1,835
None of the Directors held any interest in the Zero Dividend Preference shares
during the year. There have been no changes in the Directors' interests of any
share class between 28 February 2018 and the date of this report.
Substantial Shareholders
As at 21 May 2018, the Company has been notified in accordance with the
Disclosure and Transparency Rules of the following interests of 5% or more of
the total Ordinary share capital of the Company (and save as set out below the
Company is unaware of any significant changes to the below holdings at the date
of signing this report). The number and percentage of Ordinary shares relate to
the number informed by shareholders on the relevant notification rather than
the current share register.
As at 21 May 2018
Ordinary % of Ordinary
shares shares
Edgewater Growth Capital Partners L.P.1 18,335,944 21.9%
David W. Zalaznick1 10,550,294 12.6%
John W. Jordan II & Affiliates1 10,550,294 12.6%
Leucadia Financial Corporation 8,021,552 9.6%
Abrams Capital Management L.P. 7,744,366 9.3%
Finepoint Capital L.P. 4,413,067 5.3%
Arnhold, LLC2 Company not notified2 5.5%
The percentage of Ordinary shares shown above represents the ownership of
voting rights at the year end, before weighting for votes on Directors.
It is the responsibility of the shareholders to notify the Company of any
change to their shareholdings when it reaches 5% of shares in issue and any
subsequent change when the shareholding increases or decreases by a further 5%
(up to 30% of shares in issue i.e. 10%, 15%, 20%, 25% and 30%) and thereafter
50% and 75%.
1 The notifiable interests set out in the table above for each of Edgewater
Growth Capital Partners L.P., David W. Zalaznick, and John (Jay) W. Jordan II
and Affiliates do not reflect the number of Ordinary shares bought back from
each of those shareholders pursuant to certain share buy backs of Ordinary
shares undertaken by the Company as announced on 4 April 2018 and 18 April
2018. Each of those shareholders had Ordinary shares repurchased from them by
the Company in proportion to their then current shareholdings of Ordinary
shares at the time and as such, as at 21 May 2018 and so far as the Company is
aware, Edgewater Growth Capital Partners L.P. holds 18,294,711 Ordinary shares
(being 21.9% of the issued Ordinary shares), David W. Zalaznick holds
10,526,568 Ordinary shares (being 12.6% of the issued Ordinary shares), and
John (Jay) W. Jordan II and Affiliates holds 10,526,568 Ordinary shares (being
12.6% of the issued Ordinary shares).
2 On 6 February 2018, First Eagle Investment Management notified a change of
major shareholding in the Company's securities and specifically that the
accounts through which it held Ordinary shares and that related to its
previously reported notifiable interest had ceased to be managed by it.
Subsequently on 14 March 2018, Arnhold LLC notified a change of major
shareholding in the Company's securities and specifically that it had assumed
management of accounts holding Ordinary shares which were previously managed by
First Eagle Investment Management. The notifiable interest of Arnhold LLC was
notified as 5.45% of the issued Ordinary shares of the Company; the total
number of Ordinary shares the subject of the notifiable interest was not
notified. The notifiable interest relating to Arnhold LLC set out in the table
above has been revised upwards to 5.5% on account of rounding and the reduction
in the total number of Ordinary shares in issue by virtue of the Company having
undertaken certain share buy backs of Ordinary shares announced on 4 April 2018
and 18 April 2018 (and on the assumption that Arnhold LLC did not have any
Ordinary shares repurchased from them as part of those share buy backs).
Ongoing Charges
Ongoing charges for the years ended 28 February 2018 and 28 February 2017 have
been prepared in accordance with the Association of Investment Companies
("AIC") recommended methodology. The ongoing charges ratio represents
annualised recurring operational expenses as a percentage of the average net
asset value. The Ongoing charges for the year ended 28 February 2018 were 2.35%
(28 February 2017: 2.26%) excluding incentive fees of 0.52% (28 February 2017:
1.45%).
Principal Risks and Uncertainties
The Company's Board believes the principal risks and uncertainties that relate
to an investment in JZCP are as follows:
NAV Factors
(i) Macroeconomic Risks
The Company's performance, and underlying NAV, is influenced by economic
factors that affect the demand for products or services supplied by investee
companies and the valuation of Real Estate interests held. Economic factors
will also influence the Company's ability to invest and realise investments and
the level of realised returns. Approximately 9% of the Company's investments
are denominated in non-US dollar currencies, primarily the euro. Also the
Company has issued debt denominated in non-US dollar currencies, primarily
sterling. Fluctuations to these exchange rates will affect the NAV of the
Company.
(ii) Underlying Investment Performance
The Company is reliant on the Investment Adviser to source and execute suitable
investment opportunities. The Investment Adviser provides to the Board an
explanation of all investment decisions and also quarterly investment reports
and valuation proposals of investee companies. The Board reviews investment
performance quarterly and investment decisions are checked to ensure they are
consistent with the agreed long term investment strategy.
Portfolio Liquidity
The Company invests predominantly in unquoted companies. Therefore this
potential illiquidity means there can be no assurance investments will be
realised at their latest valuation. The Board considers this illiquidity when
planning to meet its future obligations, whether committed investments or the
repayment of debt facilities or the future repayment of CULS and ZDP shares. On
a quarterly basis, the Board receives from the Investment Adviser and reviews a
working capital model produced by the Investment Adviser which highlights the
Company's projected liquidity and financial commitments.
Share Price Trading at Discount to NAV
JZCP's share price is subject to market sentiment and will also reflect any
periods of illiquidity when it may be difficult for shareholders to realise
shares without having a negative impact on share price. The Directors review
the share price in relation to Net Asset Value on a regular basis and determine
whether to take any action to manage the discount. The Directors with the
support of the Investment Adviser work with brokers to maintain interest in the
Company's shares through market contact and research reports.
Operational and Personnel
Although the Company has no direct employees, the Company considers what
dependence there is on key individuals within the Investment Adviser and
service providers that are key to the Company meeting its operational and
control requirements.
The Board considers the principal risks and uncertainties above are consistent
with the prior year and the Company's exposure to these risks is neither
greater nor any less than in May 2017.
Viability Statement
In accordance with the UK Corporate Governance Code (the "UK Code") the Board
has assessed the expectations that the Company will be able to continue in
operation and meet ongoing debt obligations. In order to make the assessment
the Board has carried out a robust review of the Company's principal risks and
uncertainties, as noted above, to which the Company is exposed and that
potentially threaten future performance and liquidity and has assessed the
Company's current position and prospects as detailed in the Chairman's
statement and Investment Adviser's report. The period covered by the viability
statement is the next three financial years to 28 February 2021.
The Board believes that a viability assessment of three years aligns with the
Company's review of working capital models provided by the Investment Adviser
which detail expected investment activity and estimated liquidity over a three
year period. The Board also considers the underlying investment portfolio,
which consists primarily of unlisted micro-cap businesses and real estate
investments which are not publicly traded. Micro-cap investments are held for
the medium term, typically a period of 3 to 5 years and it is anticipated real
estate developments will take a similar time frame to realise returns.
The Board will continue to review the period of assessment on an annual basis
and may in future years extend the period if it is considered appropriate.
Factors considered whilst reviewing the Company's future prospects and
viability, include:
(i) Financing obligations
The Company has obligations to repay loan debt in June 2021, the balance
outstanding to Guggenheim Partners at 28 February 2018 was $150.1 million (28
February 2017: $97.4 million). It is expected the debt facility will be repaid
from the proceeds of realisations and refinancing of investments. The Company
will potentially redeem CULS in July 2021 amounting to GBP38.9 million, assuming
holders of CULS do not convert their holdings to equity. JZCP is due to redeem
GBP57.6 million of ZDP shares on 1 October 2022, again it is expected the
redemption of both CULS and ZDPs will be met from the proceeds of realisations
and refinancing of investments. At 28 February 2018, the Company had
outstanding investment commitments of $73.7 million (28 February 2017: $76.8
million). The Board will continue to consider the Company's position in meeting
debt obligations and commitments falling outside the three year review and will
continue to consider appropriate gearing levels to enable the financing of debt
and ongoing investment/operating activities.
(ii) Investment performance and liquidity
The Board reviews, on a quarterly basis, the valuation and prospects of all
underlying investee companies. The Board is confident that the diversity of the
portfolio and ability of the Investment Adviser to select suitable investment
opportunities will negate the risk of a significant fall in NAV, similar to the
one the Company suffered during the financial crisis of 2008 which saw a
reduction in NAV for the 7 month period ended 28 February 2009 of approximately
30%. Whilst a similar fall in NAV would not directly threaten the Company's
viability the Board is mindful that in a similar financial environment, the
Company will be exposed to a possible lack of liquidity due to the difficulty
in realising investments and the possibility of investments defaulting on
interest obligations to the Company. JZCP has had realisations from unlisted
investments over the last 3 financial years that have averaged cash inflows of
$159 million per annum and has invested an average of $178 million per annum
over the same period in unlisted investments. The Board's current view is that
whilst a reduction in realisations may curtail scope of future investment
opportunities, cash inflows will be sufficient to enable the Company to meets
its investment and operational obligations.
(iii) Mitigation of risk as outlined in the Principal Risks and
Uncertainties.
The Board is confident the performance of the Company over the period of review
will be robust and the investment strategy will deliver returns and liquidity.
Therefore the Board has been able to form a reasonable expectation that the
Company will continue in operation and meet its liabilities as they fall due
over the next three financial years.
Going Concern
The Board considers that the Company has adequate financial resources, in view
of its cash balances and cash equivalents and liquid investments and the income
streams deriving from its investments and believes that the Company is well
placed to manage its business risks successfully to continue in operational
existence for a period of at least 12 months from signing of the financial
statements and that it is appropriate to prepare the financial statements on
the going concern basis.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and Financial
Statements in accordance with applicable Guernsey Law and generally accepted
accounting principles. Guernsey Company Law requires the Directors to prepare
financial statements for each financial year which give a true and fair view of
the state of affairs of the Company as at the end of the financial year and of
the profit or loss for that year. They are also responsible for ensuring that
the Annual Report, Financial Statements, and Company comply with the provisions
of the Disclosure and Transparency Rules of the UK Listing Authority which,
with regard to corporate governance, require the Company to disclose how it has
applied the principles, and complied with the provisions, of the corporate
governance code applicable to the Company.
In preparing Financial Statements the Directors are required to:
select suitable accounting policies and apply them consistently;
make judgements and estimates that are reasonable and prudent;
state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the Financial
Statements;
prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business;
confirm that there is no relevant audit information of which the
Company's Auditor is unaware; and
confirm that they have taken all reasonable steps which they ought to
have taken as Directors to make themselves aware of any relevant audit
information and to establish that the Company's Auditor is aware of that
information.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements have been
properly prepared in accordance with the Companies (Guernsey) Law, 2008 and
International Financial Reporting Standards as adopted by the European Union
("IFRS"). They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors confirm that they have complied with these requirements in
preparing the Financial Statements.
Responsibility Statement of the Directors in respect of the Financial
Statements
The Directors confirm that to the best of their knowledge:
the Financial Statements have been prepared in accordance with IFRS and give
a true and fair view of the asset, liabilities and financial position, and
profit or loss of the Company;
the Annual Report includes a fair review of the development and performance
of the business and position of the Company together with the description of
the principal risks and uncertainties that the Company faces, as required by
the Disclosure and Transparency Rules of the UK Listing Authority; and
the Directors confirm that the Annual Report and Financial Statements, taken
as a whole, is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Company's performance and strategy.
Directors' Statement
So far as each of the Directors is aware, there is no relevant audit
information of which the Company's auditor is unaware, and each Director has
taken all the steps they ought to have taken as a Director to make themselves
aware of any relevant audit information and to establish that the Company's
auditor is aware of that information.
Approved by the Board of Directors and agreed on behalf of the Board on 21 May
2018.
David Macfarlane
Chairman
Patrick Firth
Director
Corporate Governance
Introduction
The Board of JZ Capital Partners Limited has considered the principles and
recommendations of the AIC Code of Corporate Governance published in July 2016
(the "AIC Code"). The AIC Code addresses all the principles set out in the UK
Corporate Governance Code (the "UK Code"), as well as setting out additional
principles and recommendations on issues that are of specific relevance to JZ
Capital Partners Limited. The AIC Code can be found at www.theaic.co.uk and the
UK Code can be found at. www.frc.org.uk.
The Company is a member of the Association of Investment Companies (the "AIC")
and by complying with the AIC Code of Corporate Governance ("AIC Code") is
deemed to comply with both the UK and Guernsey Codes of Corporate Governance.
The Board considers that reporting against the principles and recommendations
of the AIC Code, and by reference to the AIC Guide (which incorporates the UK
Corporate Governance Code), will provide better information to shareholders. To
ensure ongoing compliance with these principles the Board receives and reviews
a report from the Corporate Secretary, at each quarterly meeting, identifying
how the Company is in compliance and identifying any changes that might be
necessary.
Throughout the accounting period the Company has complied with the
recommendations of the AIC Code and thus the relevant provisions of the UK
Corporate Governance Code, except as set out below.
The UK Corporate Governance code includes provisions relating to:
- the role of the chief executive
- executive directors remuneration
- the need for an internal audit function
- appointment of a senior independent director
- whistle blowing policy
The Board considers these provisions are not relevant to the position of JZ
Capital Partners Limited, being an externally managed investment company. The
Company has therefore not reported further in respect of these provisions. The
Directors are non-executive and the Company does not have employees, hence no
whistle blowing policy is required. However the Directors have satisfied
themselves that the Company's service providers have appropriate whistle
blowing policies and procedures and have received confirmation from the service
providers that nothing has arisen under those policies and procedures which
should be brought to the attention of the Board. There have been no other
instances of non-compliance, other than those noted above.
Guernsey Code of Corporate Governance
The Guernsey Financial Services Commission's (GFSC) "Finance Sector Code of
Corporate Governance" (Guernsey Code) came into effect on 1 January 2012. The
introduction to the Guernsey Code states that companies which report against
the UK Corporate Governance Code or the AIC's Code of Corporate Governance are
deemed to meet the Guernsey Code.
The Board
Corporate Governance of JZCP is monitored by the Board which at the end of the
year comprised five Directors, all of whom are non-executive. Biographical
details of the Board members at the date of signing these Financial Statements
are shown on Board of Directors section and their interests in the shares of
JZCP are shown in the Report of the Directors. The Directors' biographies
highlight their wide range of relevant financial and sector experience.
Directors' Independence
The Board considers the Directors are free from any business or other
relationship that could materially interfere with the exercise of their
independent judgement. However, the Board notes the Financial Reporting
Council's consultation document, "Proposed Revisions to the UK Corporate
Governance Code". If accepted, the proposals will apply to accounting periods
beginning on or after 1 January 2019. The proposed changes include a statement
that on reaching a term of nine years a director will be deemed to be
non-independent. The Board awaits the final FRC report, but notes and agrees
with the AIC's response to the proposed revisions, in particular its
recommendation that length of service should be an indicator to consider when
assessing independence, not a threshold.
Proceedings of the Board
The Directors have overall responsibility for the Company's activities and the
determination of its investment policy and strategy. The Company has entered
into an investment advisory and management agreement with its Investment
Adviser, JZAI, pursuant to which, subject to the overall supervision of the
Directors, the Investment Adviser acts as the investment manager to the Company
and manages the investment and reinvestment of the assets of the Company in
pursuit of the investment objective of the Company and in accordance with the
investment policies and investment guidelines from time to time of the Company
and any investment limits and restrictions notified by the Directors (following
consultation with the Investment Adviser). Within its strategic
responsibilities the Board regularly considers corporate strategy as well as
dividend policy, the policy on share buy backs and corporate governance issues.
The Directors meet at least quarterly to direct and supervise the Company's
affairs. This includes reviewing the investment strategy, risk profile, gearing
strategy and performance of the Company and the performance of the Company's
functionaries, and monitoring compliance with the Company's objectives.
The Directors visit the Investment Adviser at least annually for a
comprehensive review of the portfolio, its valuation methodology and general
strategy. The Directors deem it appropriate to review the valuations of the
investment portfolio on a quarterly basis. The schedule of Board and Committee
meetings is shown on Corporate Governance.
Continuing terms of Investment Adviser agreement
In the opinion of the Directors, the continuing appointment of the Investment
Adviser on the terms agreed continues to be in the interests of Shareholders.
In reaching its conclusion the Board considers the Investment Adviser's
performance and expertise and is confident in the Investment Adviser's ability
to source excellent future investment opportunities.
Supply of information
The Chairman ensures that all Directors are properly briefed on issues arising
at Board meetings. The Company's advisers provide the Board with appropriate
and timely information in order that the Board may reach proper decisions.
Directors can, if necessary, obtain independent professional advice at the
Company's expense.
Directors' training
The Board is provided with information concerning changes to the regulatory or
statutory regimes as they may affect the Company, and are offered the
opportunity to attend courses or seminars on such changes, or other relevant
matters. An induction programme is available for any future Director
appointments.
Chairman and senior independent Director
The Chairman is a non-executive Director, together with the rest of the Board.
There is no executive Director position within the Company. Day-to-day
management of the Company's affairs has been delegated to third party service
providers. The Board has considered whether a senior independent Director
should be appointed. However, as the Board comprises entirely of non- executive
Directors, the appointment of a senior independent Director for the time being,
is not considered necessary. Any of the non-executive Directors are available
to shareholders if they have concerns which cannot be resolved through
discussion with the Chairman.
Board diversity
The Board has also given careful consideration to the recommendations of the
Davies Report on women on boards and as recommended in that report has reviewed
its composition and believes that it has available an appropriate range of
skills and experience. In order to extend its diversity, the Board is committed
to implementing the recommendations of the Davies Report, if possible within
the timescales proposed in the Davies Report, and to that end will ensure that
women candidates are considered when appointments to the Board are under
consideration - as indeed has always been its practice.
Re-election of Directors
Each Director having served longer than nine years is subject to annual
re-election. Each Director who has served less than nine years retires from
office at the third annual general meeting after appointment or (as the case
may be) the general meeting at which he was last appointed and is eligible for
reappointment.
The Letters of Appointment of the non-executive Directors suggest that it is
appropriate for Directors to retire and be nominated for re-election after
three years of service. Subject to the recommendation of the General Meeting
David Macfarlane, James Jordan and Tanja Tibaldi are seeking re-election to the
Board at the 2018 Annual General Meeting ("AGM") because they have served more
than nine years.
As discussed in the Chairman's statement Patrick Firth intends to retire as a
director and as Chairman of the audit committee. However, Patrick will seek
re-election to the board at the 2018 AGM, in order to ensure a smooth
transition to his successor.
The Board's evaluation
The Board, Audit Committee, and Nomination Committee undertake an evaluation of
their own performance and that of individual Directors on an annual basis. In
order to review their effectiveness, the Board and its Committees carry out a
process of formal self-appraisal. The Board and Committees consider how they
function as a whole and also review the individual performance of its members.
This process is conducted by the respective Chairman reviewing each member's
performance, contribution and their commitment to the Company. The Board as a
whole reviews the performance of the Chairman. Each Board member is also
required to submit details of training they have undertaken on an annual basis.
Currently, no third party evaluation of the Directors effectiveness is
undertaken. The results of the evaluation process concluded the Board was
functioning effectively and the Board and its committees provided a suitable
mix of skills and experience.
Board Committees
In accordance with the AIC Code, the Board has established an Audit Committee
and a Nomination Committee, in each case with formally delegated duties and
responsibilities within written terms of reference. The identity of each of the
chairmen of the committees referred to below are reviewed on an annual basis.
The Board has decided that the entire Board should fulfil the role of the Audit
and Nomination committees. The terms of reference of the committees are kept
under review and can be viewed on the Company's website www.jzcp.com.
Nomination Committee
In accordance with the Code, the Company has established a Nomination
Committee. The main role of the committee is to propose candidates for election
to the Board of Directors, including the Chairman. The Nomination Committee
takes into consideration the Code's rules on independence of the Board in
relation to the Company, its senior management and major shareholders. The
Nomination Committee is chaired by David Macfarlane, and each of the other
Directors is also a member. The members of the committee are independent of the
Investment Adviser. The Nomination Committee has responsibility for considering
the size, structure and composition of the Board, retirements and appointments
of additional and replacement Directors and making appropriate recommendations
to the Board.
Due to the nature of the Company being a listed investment company investing in
private equity with an international shareholder base, the Company needs
Directors with a broad range of financial experience. For this reason,
Directors believe that it is appropriate to use their own contacts, as well as
external consultants to identify suitable candidates.
The final decision with regard to appointments always rests with the Board and
all such appointments are subject to confirmation by shareholders.
Audit Committee
The Audit Committee is chaired by Patrick Firth. All the other Directors are
members. Members of the Committee are independent of the Company's external
auditors and the Investment Adviser. All members have the necessary financial
and sector experience to contribute effectively to the Committee. The Audit
Committee meets at least twice a year and meets the external auditors at least
twice a year. The Audit Committee is responsible for overseeing the Company's
relationship with the external auditors, including making recommendations to
the Board on the appointment of the external auditors and their remuneration.
The Committee also considers the nature, scope and results of the auditors'
work and reviews, and develops and implements policies on the supply of any
non-audit services that are to be provided by the external auditors.
A report of the Audit Committee detailing responsibilities and activities is
presented in the Audit Committee Report.
Management Engagement Committee
To date, the recommended functions of a Management Engagement Committee have
been exercised by the full board, each member of which is unassociated with the
Investment Adviser. However, the Board now believes it appropriate to establish
a Management Engagement Committee, whose responsibilities will include
reviewing the performance and contractual arrangements of the Company's service
providers. The new Committee will be chaired by Chris Waldron and will comprise
the entire board.
Remuneration Committee
In view of its non-executive and independent nature, the Board considers that
it is not appropriate for there to be a separate Remuneration Committee as
prescribed by the AIC Code. The process for agreeing the non-executive
Directors' fees is set out in the Directors' Remuneration Report.
Board and Committee meeting attendance
The number of formal meetings of the Board and its committees held during the
year and the attendance of individual Directors at these meetings was as
follows:
Number of meetings
Board AGM Ad Hoc Audit
Main Main Meetings Committee
Total number of meetings 5 1 2 3
David Macfarlane 5 1 2 3
Patrick Firth 4 1 1 3
James Jordan 5 1 1 3
Tanja Tibaldi 5 1 2 3
Christopher Waldron 5 1 2 3
The main Board meetings are held to agree the Company's valuation of its
investments, agree the Company's financial statements and discuss and agree
other strategic issues. Other meetings are held when required to agree board
decisions on ad-hoc issues.
UK Criminal Finances Act 2017
In respect of the UK Criminal Finances Act 2017 which has introduced a new
Corporate Criminal Offence of 'failing to take reasonable steps to prevent the
facilitation of tax evasion', the Board confirms that it is committed to zero
tolerance towards the criminal facilitation of tax evasion.
The Board also keeps under review developments involving other social and
environmental issues, such as Modern Slavery and General Data Protection
Regulation, and will report on those to the extent they are considered relevant
to the Company's operations.
Internal Controls
The Board is ultimately responsible for establishing and maintaining the
Company's system of internal financial and operating control and for
maintaining and reviewing its effectiveness. The Company's risk matrix
continues to be the core element of the Company's risk management process in
establishing the Company's system of internal financial and reporting control.
The risk matrix is prepared and maintained by the Board which initially
identifies the risks facing the Company and then collectively assesses the
likelihood of each risk, the impact of those risks and the strength of the
controls operating over each risk. The system of internal financial and
operating control is designed to manage rather than to eliminate the risk of
failure to achieve business objectives and by their nature can only provide
reasonable and not absolute assurance against misstatement and loss.
These controls aim to ensure that assets of the Company are safeguarded, proper
accounting records are maintained and the financial information for publication
is reliable. The Board confirms that there is an ongoing process for
identifying, evaluating and managing the principal risks faced by the Company.
This process has been in place for the year under review and up to the date of
approval of this Annual Report and Financial Statements and is reviewed by the
Board and is in accordance with the Internal controls: Guidance on Risk
Management, Internal Control and Related Financial and Business Reporting.
The Board has evaluated the systems of internal controls of the Company. In
particular, it has prepared a process for identifying and evaluating the
principal risks affecting the Company and the policies by which these risks are
managed.
The Board has delegated the day to day responsibilities for the management of
the Company's investment portfolio, the provision of depositary services and
administration, registrar and corporate secretarial functions including the
independent calculation of the Company's NAV and the production of the Annual
Report and Consolidated Financial Statements which are independently audited.
Formal contractual agreements have been put in place between the Company and
providers of these services.
Even though the Board has delegated responsibility for these functions, it
retains accountability for these functions and is responsible for the systems
of internal control. At each quarterly board meeting, compliance reports are
provided by the Administrator, Company Secretary and Portfolio Manager. The
Board also receives confirmation from the Administrator of its accreditation
under its Service Organisation Controls 1 report.
The Company's risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee at its quarterly
meetings and annually by the Board.
The Board believes that the Company has adequate and effective systems in place
to identify, mitigate and manage the risks to which it is exposed.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act ("FATCA"), the
Company registered with the US Internal Revenue Services ("IRS") as a Guernsey
reporting Foreign Financial Institution ("FFI"), received a Global Intermediary
Identification Number CAVBUD.999999.SL.831, and can be found on the IRS FFI
list.
The Common Reporting Standard ("CRS") is a global standard for the automatic
exchange of financial account information developed by the Organisation for
Economic Co-operation and Development ("OECD"), which has been adopted by
Guernsey and which came into effect on 1 January 2016. The CRS replaced the
intergovernmental agreement between the UK and Guernsey to improve
international tax compliance that had previously applied.
The Board will take necessary actions to ensure that the Company is compliant
with Guernsey regulations and guidance in this regard.
Relations with Shareholders
The Directors believe that the maintenance of good relations with both
institutional and retail shareholders is important for the long term prospects
of the Company. It therefore seeks active engagement with investors, bearing in
mind the duties regarding equal treatment of shareholders and the dissemination
of inside information. The Board receives feedback on shareholder views from
its Corporate Broker and Investment Adviser, and is circulated with Broker
reports on the Company.
The Directors believe that the Annual General Meeting, a meeting for all
shareholders, is the key point in the year when the Board of Directors accounts
to all shareholders for the performance of the Company. It therefore encourages
all shareholders to attend, and all Directors are present unless unusual
circumstances prevail.
The Directors believe that the Company policy of reporting to shareholders as
soon as possible after the Company's year-end and the holding of the Annual
General Meeting at the earliest opportunity is valuable.
The Company also provides an Interim Report and Accounts in accordance with IAS
34 and Interim Management statements for the quarterly periods.
Directors' Remuneration Report
The Company's policy in regard to Directors' remuneration is to ensure that the
Company maintains a competitive fee structure in order to recruit, retain and
motivate non-executive Directors of excellent quality in the overall interests
of shareholders.
Remuneration policy
The Directors do not consider it necessary for the Company to establish a
separate Remuneration Committee. All of the matters recommended by the Code
that would be delegated to such a committee are considered by the Board as a
whole.
It is the responsibility of the Board as a whole to determine and approve the
Directors' fees, following a recommendation from the Chairman who will have
given the matter proper consideration, having regard to the level of fees
payable to non- executive Directors in the industry generally, the role that
individual Directors fulfil in respect of Board and Committee responsibilities
and the time committed to the Company's affairs. The Chairman's remuneration is
decided separately and is approved by the Board as a whole.
The Company's Articles state that Directors' remuneration payable in any
accounting year shall not exceed in the aggregate an annual sum of US$650,000.
Each Director is also entitled to reimbursement of their reasonable expenses.
There are no commission or profit sharing arrangements between the Company and
the Directors. Similarly, none of the Directors is entitled to pension,
retirement or similar benefits. No element of the Directors' remuneration is
performance related.
The remuneration policy set out above is the one applied for the year ended 28
February 2018 and is not expected to change in the foreseeable future.
Directors' and Officers' liability insurance cover is maintained by the Company
on behalf of the Directors.
Remuneration for services
Fees for services to the Fees for services to the
Company for the year to Company for the year to
28 February 2018 28 February 2017
US$ US$
David Macfarlane (Chairman) 160,000 160,000
Patrick Firth 70,000 70,000
James Jordan 60,000 60,000
Tanja Tibaldi 60,000 60,000
Christopher Waldron 65,000 65,000
415,000 415,000
The amounts payable to Directors as shown above were for services as
non-executive Directors. No Director has a service contract with the Company,
nor is any such contracts proposed.
Directors' Term of Appointment
Each Director having served longer than nine years is subject to annual
re-election. Each Director who has served less than nine years retires from
office at the third annual general meeting after appointment or (as the case
may be) the general meeting at which he was last appointed and is eligible for
reappointment.
The Directors were appointed as non-executive Directors by letters issued in
April 2008 and October 2013 which state that their appointment and any
subsequent termination or retirement shall be subject to three-months' notice
from either party in accordance with the Articles. Each Director's appointment
letter provides that, upon the termination of his/her appointment, that he/she
must resign in writing and all records remain the property of the Company. The
Directors' appointments can be terminated in accordance with the Articles and
without compensation. There is no notice period specified in the Articles for
the removal of Directors. The Articles provide that the office of director
shall be terminated by, among other things: (a) written resignation; (b)
unauthorised absences from board meetings for six months or more; (c) unanimous
written request of the other directors; and (d) an ordinary resolution of the
Company.
Signed on behalf of the Board of Directors on 21 May 2018 by:
David Macfarlane
Chairman
Patrick Firth
Director
Audit Committee Report
Dear Shareholder,
We present the Audit Committee's Report, setting out the responsibilities of
the Audit Committee and its key activities in 2017/2018. The Audit Committee
has reviewed the Company's financial reporting, the independence and
effectiveness of the external auditor and the internal control and risk
management systems of the Company's service providers. In order to assist the
Audit Committee in discharging these responsibilities, regular reports are
received and reviewed from the Investment Manager, Administrator and external
auditor.
A member of the Audit Committee will continue to be available at each Annual
General Meeting to respond to any shareholder questions on the activities
of the Audit Committee.
Responsibilities
The terms of reference of the Audit Committee include the requirement to:
monitor the integrity of the published Financial Statements of the Company
review and report to the Board on the significant issues and judgements made in
the preparation of the Company's published Financial Statements, (having regard
to matters communicated by the external Auditors) and other financial
information
monitor and review the quality and effectiveness of the external Auditors and
their independence
consider and make recommendations to the Board on the appointment,
reappointment, replacement and remuneration of the Company's external Auditor
advise the Board that the annual report and accounts, taken as a whole, is
fair, balanced and understandable
review and consider the Company's Principal risks and uncertainties
consider the long term viability of the Company
review the Company's procedures for prevention, detection and reporting of
fraud, bribery and corruption
monitor and review the internal control and risk management systems of the
service providers
consider and make representations to the Board regarding Directors'
remuneration
The Audit Committee's full terms of reference can be viewed on the Company's
website www.jzcp.com
Key Activities of the Audit Committee
The following sections discuss the assessments made by the Audit Committee
during the year:
Financial Reporting:
The Audit Committee's review of the Annual Financial Statements focused on the
following significant areas:
Valuation of Investments:
The fair value of the Company's unlisted securities at 28 February 2018 was
$1,070,408,000 accounting for 93% of the Company's assets. The Committee has
concentrated on ensuring the Investment Manager has applied appropriate
valuation methodologies to these investments in producing the net asset value
of the Company.
Members of the Audit Committee meet the Investment Adviser at least annually to
discuss the valuation process. The Committee gains comfort in the valuations
produced by reviewing the methodologies used. The valuations were challenged
and approved by the Audit Committee in a recent visit to the Investment
Adviser. The Audit Committee has thus satisfied itself that the valuation
techniques are appropriate and accurate.
Ownership of Investments
The Audit Committee considered the ownership of the investments held by the
Company as at 28 February 2018 to be substantiated by the periodic
reconciliation of records held by the Custodian to the Company's portfolio and
by confirmations provided by Lawyers, Custodian and Administrator. Following a
review of the presentations and reports from the Administrator and consulting
where necessary with the external auditor, the Audit Committee is satisfied
that the Company duly owns its investments which are correctly stated in the
Annual Report and Financial Statements.
NAV-Based Fees
The Board has identified that there is a risk that management and incentive
fees which are calculated based on the NAV of the Company could potentially be
misstated if there were to be an error in the calculation of the NAV. However,
as each monthly NAV calculation is approved by the Investment Adviser and the
year end NAV has been audited, the Board are satisfied that the fees have been
correctly calculated as stated in the Annual Report and Financial Statements.
Risk Management:
The Audit Committee continued to consider the process for managing the risk of
the Company and its service providers. Risk management procedures for the
Company, as detailed in the Company's risk assessment matrix, were reviewed and
approved by the Audit Committee. There were no issues noted during the year.
Fraud, Bribery and Corruption:
The Audit Committee continues to monitor the fraud, bribery and corruption
policies of the Company. The Board receives a confirmation from all service
providers that there have been no instances of fraud or bribery.
The External Auditor
Ernst & Young LLP have acted as external auditor since the Company's inception
in April 2008. This is the last year of Christopher Matthews' five year tenure
as audit partner.
Appointment of External Auditor
The Audit Committee will commence a tendering process for the audit of the
Company. The process is scheduled to be completed during 2018 with the outcome
intended to be put to shareholders for approval at next year's annual general
meeting. In order to facilitate a smooth transition and give a potential new
auditor the necessary time to adequately plan their audit process, the Audit
Committee has recommended, to the Board, that a resolution be put to the 2018
Annual General Meeting for the reappointment of Ernst & Young LLP for the audit
for the year ended 28 February 2019. The Board has accepted this
recommendation.
Independence, objectivity and fees:
The independence and objectivity of the external auditor is reviewed by the
Audit Committee which also reviews the terms under which the external auditor
is appointed to perform non-audit services. The Audit Committee has established
pre- approval policies and procedures for the engagement of the auditor to
provide non-audit and assurance services. The audit committee ensures the
appointment does not create a scenario which:
places the external auditor in a position to audit their own work
creates a mutuality of interest
results in the external auditor developing close relationships with service
providers of the Company
results in the external auditor functioning as a manager or employee of the
Company
puts the external auditor in the role of advocate of the Company
As a general rule, the Company does not utilise external auditors for internal
audit purposes, secondments or valuation advice. Services which are in the
nature of audit, such as tax compliance, private letter rulings, accounting
advice, quarterly reviews and disclosure advice are normally permitted but will
be pre-approved by the Audit Committee.
The following table summarises the remuneration paid by JZCP to Ernst & Young
LLP and to other Ernst & Young LLP member firms for audit and other services
during the years ended 28 February 2018 and 28 February 2017.
$ $
Equivalent Equivalent
Year Year ended Year Year ended
ended ended
28.2.2018 28.2.2018 28.2.2017 28.2.2017
Ernst & Young
LLP
- Annual audit GBP218,000 $298,000 GBP211,500 $263,000
- Auditor's GBP41,000 $55,000 GBP40,000 $51,000
interim review
Other Ernst & Young LLP
affiliates
- Passive Foreign Investment Company - $65,000 - $67,600
tax services
In line with the policies and procedures above, the Audit Committee does not
consider that the provision of non-audit services, which comprises determining
whether the Company is a passive foreign investment company as defined by the
U.S. Internal Revenue Code, to be a threat to the objectivity and independence
of the external auditor.
Performance and effectiveness:
During the year, when considering the effectiveness of the external auditor,
the Audit Committee has taken into account the following factors:
· the audit plan presented to them before each audit;
· the post audit report including variations from the original plan;
· changes in audit personnel;
· the external auditor's own internal procedures to identify threats to
independence; and
· feedback received from both the Investment Adviser and Administrator.
The Audit Committee reviewed and challenged the audit plan and the post audit
report of the external auditor and concluded that audit risks had been
sufficiently identified and were sufficiently addressed. The Audit Committee
considered reports from the external auditor on their procedures to identify
threats to independence and concluded that the procedures were sufficient to
identify potential threats to independence.
There were no significant adverse findings from this evaluation.
The Audit Committee has examined the scope and results of the audit, its cost
effectiveness and the independence and objectivity of the external auditor and
considers Ernst & Young LLP, as external auditor, to be independent of
the Company.
Internal control and risk management systems
Additional work performed by the Audit Committee in the areas of internal
control and risk management are disclosed in the Corporate Governance section.
The Audit Committee has also reviewed the need for an internal audit function.
The Audit Committee has decided that the systems and procedures employed by the
Investment Adviser and the Administrator, including the Administrator's
internal audit function, provide sufficient assurance that a sound system of
internal control, which safeguards the Company's assets, is maintained. An
internal audit function specific to the Company is therefore considered
unnecessary.
In finalising the Annual Report and Accounts for recommendation to the Board
for approval, the Audit Committee has satisfied itself that the Annual Report
and Accounts taken as a whole are fair, balanced and understandable.
The Audit Committee Report was approved by the Board on 21 May 2018 and signed
on its behalf by:
Patrick Firth
Chairman, Audit Committee
Independent Auditor's Report
Opinion
We have audited the financial statements of JZ Capital Partners Limited (the
'Company') for the year ended 28 February 2018, which comprise the Statement of
Comprehensive Income, the Statement of Financial Position, the Statement of
Changes in Equity, the Statement of Cash Flows and the related notes 1 to 33,
including a summary of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable law and
International Financial Reporting Standards as adopted by the European Union
('IFRS').
In our opinion, the financial statements:
give a true and fair view of the state of the Company's affairs as at
28 February 2018 and of its loss for the year then ended;
have been properly prepared in accordance with IFRS; and
have been properly prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
Basis for Opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) ('ISAs (UK)') and applicable law. Our responsibilities under those
standards are further described in the "Auditor's responsibilities for the
audit of the financial statements" section of our report below. We are
independent of the Company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed entities, and we have fulfilled our
other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Use of our report
This report is made solely to the Company's members, as a body, in accordance
with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work 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.
Conclusions relating to principal risks, going concern and viability statement
We have nothing to report in respect of the following information in the annual
report, in relation to which the ISAs(UK) require us to report to you whether
we have anything material to add or draw attention to:
the disclosures in the annual report set out on Report of the Directors
that describe the principal risks and explain how they are being managed or
mitigated;
the directors' confirmation set out on Report of the Directors in the
annual report that they have carried out a robust assessment of the principal
risks facing the entity, including those that would threaten its business
model, future performance, solvency or
the directors' statement set out on Report of the Directors in the
annual report and on Notes to the Financial Statement about whether they
considered it appropriate to adopt the going concern basis of accounting in
preparing them, and their identification of any material uncertainties to the
entity's ability to continue to do so over a period of at least twelve months
from the date of approval of the financial statements;
whether the directors' statement in relation to going concern is
materially inconsistent with our knowledge obtained in the audit; or
the directors' explanation set out in the Report of the Directors in the
annual report as to how they have assessed the prospects of the entity, over
what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable
expectation that the entity will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment, including any
related disclosures drawing attention to any necessary qualifications or
assumptions.
Overview of our audit approach
Key audit matters Valuation of unquoted investments.
Existence and ownership of real estate investments.
Calculation of management and incentive fees.
Audit scope We performed an audit of the complete financial
statements of the Company for the year ended 28
February 2018.
Materiality Overall materiality of $16.8 million (2017: $17.0
million), which represents 2% (2017: 2%) of total
equity.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of
most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified. These matters included 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 our opinion thereon, and we do not provide a separate
opinion on these matters.
Risk Our response to the risk What we concluded to the
Audit Committee
Valuation of unquoted We documented our understanding of We confirmed that there
investments (2018: $1.07 the processes, policies and were no material matters
billion; 2017: $1.07 methodologies used by management for arising from our audit
billion) valuing unquoted investments and work on the inputs used
96% (2017: 100%) of the performed walkthrough tests to and the judgments made by
carrying value of confirm our understanding of the management that we wished
investments relates to the systems and controls implemented; to bring to the attention
Company's holdings in We performed the following of the Committee.
unquoted investments, which substantive investment valuation
are valued using different procedures on a sample of unquoted We confirmed that there
valuation techniques, as investments held by the Company: were no material instances
described in note 5 to the o agreeing the valuation per the of use of inappropriate
financial statements. financial statements back to the policies or methodologies
The valuation is subjective, models used by management; and that the valuation of
with a high level of o determining and challenging the unquoted investments was
judgement and estimation appropriateness of the valuation not materially misstated.
linked to the determination techniques applied to unquoted
of the values with limited investments and determining whether
market information they were in accordance with IFRS
available. and International Private Equity and
As a result, there is a risk Venture Capital Association (IPEVCA)
of an inappropriate guidelines;
valuation model being o testing all the significant inputs
applied, together with the to the models to independent sources
risk of inappropriate inputs and evaluating whether all key terms
to the model/calculation of the unquoted investments had been
being selected. The considered in the application of the
valuation of the unquoted models;
investments is the key o testing the mathematical accuracy
driver of the Company's net of the calculations;
asset value and total o testing qualitative factors such
return. Incorrect valuation as the key assumptions made by
could have a significant management and other information
impact on the net asset provided by the Investment Advisor
value of the Company and that supports the EBITDA multiples
therefore used to value unquoted investments,
The return generated for and specifically the comparable
shareholders. multiples used which were based on a
basket of similar listed companies
Refer to the Audit Committee and any liquidity adjustments
Report; thereafter; and
Accounting policies in Note o agreeing the proposed values per
2, 5 and 3, and Note 12 to the valuation decks received from
the Financial Statements the Investment Advisor to the
investment portfolio report prepared
by the Administrator.
We engaged our own internal valuation
experts in relation to the valuation of a
sample of investments in real estate
assets to:
o assist us in determining whether the
methodologies used to value real estate
assets were consistent with methods
usually used by market participants for
these types of real estate investments;
and
o use their knowledge of the market to
assess and corroborate management's market
related judgements and valuation inputs
(i.e. discount rates, rental per square
foot, selling price per square foot,
recent relevant transaction data and
buildable area) by reference to comparable
transactions, and independently compiled
databases/indices.
Existence and ownership of real We documented our understanding of the We confirmed that there were no
estate investments (2018: $463 processes, used by management in respect matters identified during our
million; 2017: $469 million) of the existence of real estate audit work on existence and
Risk that real estate investments investments and performed walkthrough ownership of real estate
presented in the financial tests to confirm our understanding of the investments that we wanted to
statements do not exist or the systems and controls implemented. bring to the attention of the
Company does not have title of Performance of substantive audit audit committee.
ownership. Due to the procedures over real estate investments
significance of the carrying existence including:
value of real estate investments, o obtaining independent confirmations
there is a risk that if the from all underlying investee companies
Company did not have good title, through the holding structure and
the carrying value of these confirmed that the company has title to
investments could be materially all real estate investments;
overstated. o obtaining copies of the deeds and
Our risk is specifically in mortgage bond documents (where applicable)
respect of real estate for a sample of properties; and
investments due to the complexity o obtaining contracts/ agreements for all
of their ownership structure, the new investments entered into during the
increase in relative significance year to support the initial recognition
of their carrying value as a and associated terms and conditions.
percentage of the total
investment portfolio and the fact
that we have not historically
identified issues with title to
other investments held by the
company for which holding
structures are less complex.
Refer to the Audit Committee;
Accounting policies in Note 2 and
3, and Note 12 to the Financial
Statements.
Calculation of management and We have performed specific audit We confirmed that there were no
incentive fees (2018: $21 procedures over the fair value of the matters identified during our
million; 2017: $ 29 million) investments on which the management and audit work on the calculation
Risk that losses may be incurred incentive fees are based, as noted above; of management and incentive
as a result of intentional or and fees that we wanted to bring to
inadvertent misstatement of We re-performed the management and the attention of the audit
management and incentive fees, or incentive fee calculations for committee.
as a result of errors in mathematical accuracy and consistency with
processing financial information. the terms of the investment advisory
agreement.
Refer to the Audit Committee
Report; Accounting policies in
Note 2 and Note 10 to the
Financial Statements.
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation
of performance materiality determine our audit scope. Taken together, this
enables us to form an opinion on the financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing the audit, in
evaluating the effect of identified misstatements on the audit and in forming
our audit opinion.
Materiality
Materiality is the magnitude of omissions or misstatements that, individually
or in the aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a
basis for determining the nature and extent of our audit procedures.
We determined materiality for the Company to be $16.8 million (2017: $17.0
million), which is 2% (2017: 2%) of total equity. We believe that total equity
provides us with an appropriate basis for audit materiality as it is a key
published performance measure and is a key metric used by management in
assessing and reporting on overall performance.
During the course of our audit, we reassessed initial materiality and noted no
matters leading us to amend the basis of materiality (2% of total equity).
However, the materiality amount was adjusted to reflect total equity at year
end rather than total equity at the audit planning stage.
Performance materiality
Performance materiality is the application of materiality at the individual
account or balance level. It is set at an amount to reduce to an appropriately
low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of the
Company's overall control environment, our judgement was that performance
materiality was 75% (2017: 75%) of our planning materiality, namely $12.6
million (2017: $12.7 million). We have set performance materiality at this
percentage because we have considered the likelihood of misstatements to be
low. We have considered both quantitative and qualitative factors when
determining the expected level of detected misstatements and setting the
performance materiality at this level.
Reporting threshold
The reporting threshold is an amount below which identified misstatements are
considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected
audit differences in excess of $0.84 million (2017: $0.85 million), which is
set at 5% of planning materiality, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information.
Our opinion on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in this report, we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that
there is a material misstatement of the other information, we are required to
report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility
to specifically address the following items in the other information and to
report as uncorrected material misstatements of the other information where we
conclude that those items meet the following conditions:
Fair, balanced and understandable set out on Report of the Directors
- the statement given by the directors that they consider the annual report and
financial statements taken as a whole is fair, balanced and understandable and
provides the information necessary for shareholders to assess the Company's
performance, business model and strategy, is materially inconsistent with our
knowledge obtained in the audit; or
Audit committee reporting set out on Audit Committee Report - the
section describing the work of the audit committee does not appropriately
address matters communicated by us to the audit is materially inconsistent with
our knowledge obtained in the audit; or
Directors' statement of compliance with the UK Corporate Governance
Code set out on Report of the Directors - the parts of the directors'
statement relating to the Company's compliance with the UK Corporate Governance
Code containing provisions specified for review by the auditor in accordance
with Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to
which the Companies (Guernsey) Law, 2008 requires us to report to you if, in
our opinion:
proper accounting records have not been kept by the Company; or
the financial statements are not in agreement with the Company's
accounting records and returns; or
we have not received all the information and explanations we require
for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Company'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 the directors either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
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 an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a 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 the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at https://
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor's report.
Christopher James Matthews, FCA
for and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
21 May 2018
1. The maintenance and integrity of the Company's web site is the
responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the web site.
2. Legislation in Guernsey governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
Statement of Comprehensive Income
Year Ended 28 February 2018 Year Ended 28 February 2017
Revenue Capital Revenue Capital
Return Return Total Return Return Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Income
Net gain on 6 - 6,140 6,140 - 28,699 28,699
investments at fair
value through profit
or loss
(Loss)/gain on 15 - (2,907) (2,907) - 2,510 2,510
financial liabilities
at fair value through
profit or Loss
Net write back of 7 - - - - 2,374 2,374
impairments on loans
and receivables
Realisations from 28 - 1,922 1,922 - 5,942 5,942
investments held in
escrow accounts
Net foreign currency - (6,457) (6,457) - 4,728 4,728
exchange (loss)/gain
Investment income 8 31,751 - 31,751 25,699 - 25,699
Bank and deposit 128 - 128 41 - 41
interest
31,879 (1,302) 30,577 25,740 44,253 69,993
Expenses
Investment Adviser's 10 (16,912) - (16,912) (16,865) - (16,865)
base fee
Investment Adviser's 10 - (4,313) (4,313) - (12,404) (12,404)
incentive fee
Administrative 10 (2,670) - (2,670) (2,135) - (2,135)
expenses
Directors' 10 (415) - (415) (415) - (415)
remuneration
(19,997) (4,313) (24,310) (19,415) (12,404) (31,819)
Operating Profit 11,882 (5,615) 6,267 6,325 31,849 38,174
Finance costs 9 - (17,569) (17,569) - (14,764) (14,764)
Profit/(Loss) before 11,882 (23,184) (11,302) 6,325 17,085 23,410
Taxation
Withholding taxes 11 31 - 31 (713) - (713)
Profit/(Loss) for the 11,913 (23,184) (11,271) 5,612 17,085 22,697
Year
Weighted average 25 83,907,516 83,907,516
number of Ordinary
shares in issue
during the year
Basic earnings/(loss) 25 14.20c (27.63)c (13.43)c 6.69c 20.36c 27.05c
per Ordinary share
Diluted earnings/ 25 14.20c (27.63)c (13.43)c 6.21c 19.67c 25.88c
(loss) per Ordinary
share
All items in the above statement are derived from continuing operations.
The profit/(loss) for the year is attributable to the Ordinary shareholders of
the Company.
The format of the Statement of Comprehensive Income follows the recommendations
of the AIC Statement of Recommended Practice.
The "Total" column of this statement represents the Company's statement of
comprehensive income, prepared in accordance with International Financial
Reporting Standards as adopted by the European Union.
There was no comprehensive income other than the profit/(loss) for the year.
The accompanying notes form an integral part of the audited financial
statements.
Statement of Financial Position
As at 28 February 2018
28 February 28 February
2018 2017
Note US$'000 US$'000
Assets
Investments at fair value through profit or loss 12 1,120,383 1,069,180
Securities sold receivable 13 24,987 -
Other receivables 14 2,158 520
Cash at bank 9,000 29,063
Total Assets 1,156,528 1,098,763
Liabilities
Convertible Unsecured Loan Stock 15 59,970 57,063
Zero Dividend Preference (2022) shares 16 62,843 53,935
Loans payable 17 150,125 97,396
Investment Adviser's incentive fee 10 41,606 37,293
Investment Adviser's base fee 10 2,225 2,026
Other payables 18 2,186 2,206
Total Liabilities 318,955 249,919
Equity
Stated capital 19 265,685 265,685
Other reserve 21 353,528 353,528
Capital reserve 21 150,687 173,871
Revenue reserve 21 67,673 55,760
Total Equity 837,573 848,844
Total Liabilities and Equity 1,156,528 1,098,763
Number of Ordinary shares in issue at year end 19 83,907,516 83,907,516
Net Asset Value per Ordinary share 27 $9.98 $10.12
These audited financial statements were approved by the Board of Directors and
authorised for issue on 21 May 2018. They were signed on its behalf by:
David Macfarlane
Chairman
Patrick Firth
Director
The accompanying notes form an integral part of the audited financial
statements.
Statement of Changes in Equity
For the Year Ended 28 February 2018
Stated Other Capital Reserve Revenue
Capital Reserve Realised Unrealised Reserve Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance as at 1 March 265,685 353,528 28,034 145,837 55,760 848,844
2017
Profit/(loss) for the - - 42,743 (65,927) 11,913 (11,271)
year
Balance at 28 February 265,685 353,528 70,777 79,910 67,673 837,573
2018
Comparative for the Year ended 28 February 2017
Stated Other Capital Reserve Revenue
Capital Reserve Realised Unrealised Reserve Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance as at 1 March 265,685 353,528 59,560 97,226 75,740 851,739
2016
Profit for the year - - 3,018 14,067 5,612 22,697
Prior year ZDP (2016) finance - - (34,544) 34,544 - -
costs and currency gains now
realised
Dividends paid 30 - - - - (25,592) (25,592)
Balance at 28 February 265,685 353,528 28,034 145,837 55,760 848,844
2017
The accompanying notes form an integral part of the audited financial
statements.
Statement of Cash Flows
For the Year Ended 28 February 2018
28 28 February
February
2018 2017
Note US$'000 US$'000
Operating Activities
Net cash outflow from operating activities 29 (16,542) (9,239)
Cash outflow for investments (direct 12 (177,806) (156,505)
investments and capital calls)
Cash inflow from repayment and disposal of 12 138,593 183,210
investments
Cash inflow from the repayment of loans and 12 - 3,114
receivables
Net cash (outflow)/inflow before financing (55,755) 20,580
activities
Financing Activities
Proceeds from loan facilities 17 50,000 9,512
Loan issue costs paid 17 (1,840) -
Finance costs paid 15,17 (12,772) (10,395)
Redemption of Zero Dividend Preference (2016) - (47,863)
shares
Repayment of loan facility - (9,512)
Dividends paid to shareholders 30 - (25,592)
Net cash inflow/(outflow) from financing 35,388 (83,850)
activities
Decrease in cash and cash equivalents (20,367) (63,270)
Reconciliation of Net Cash Flow to Movements in Cash and Cash
Equivalents
Cash at bank at 1 March 29,063 91,937
Decrease in cash and cash equivalents as (20,367) (63,270)
above
Unrealised foreign exchange movements on 304 396
cash at bank
Cash at bank at year end 9,000 29,063
Reconciliation of Cash Outflows/Inflows from Investments and Realisations to
numbers presented in the Chairman's Statement, Investment Adviser's Report and
Note 12 of the financial statements
Year Ended Year Ended
28 February 28 February
2018 2017
US$'000 US$'000
Investments
Cash outflow for investments (direct investments 177,806 156,505
and capital calls)
Deposits paid during prior year invested in - 3,018
current year
Investments in year (direct investments and 177,806 159,523
capital calls) - note 12
Adjusted to reconcile to totals quoted
Investment in treasury bills (74,767)
Investment in short term loans to Euro micro-cap (6,571)
companies (repaid in year)
Total investment for the year 96,468
Realisations
Cash inflow from repayment and disposal of 138,593 183,210
investments
Proceeds received post year end from realisation 24,987 -
of treasury bills
Cash inflow from the repayment of loans and - 3,114
receivables
Proceeds from Investments Realised - note 12 163,580 186,324
Adjusted to reconcile to totals quoted
Escrow receipts 1,922
Proceeds from repayment of treasury bills (24,987)
Repayment of short term loans to Euro micro-cap (7,104)
companies
Distribution of income 301
Total realisations for the year 133,712
The accompanying notes form an integral part of the audited financial
statements.
Notes to the Financial Statements
1. General Information
JZ Capital Partners Limited ("JZCP" or the "Company") is a Guernsey domiciled
closed-ended investment company which was incorporated in Guernsey on 14 April
2008 under the Companies (Guernsey) Law, 1994. The Company is now subject to
the Companies (Guernsey) Law, 2008. The Company is classified as an authorised
fund under the Protection of Investors (Bailiwick of Guernsey) Law 1987. The
Company's Capital consists of Ordinary shares, Zero Dividend Preference ("ZDP")
shares and Convertible Unsecured Loan Stock ("CULS"). The Company's shares
trade on the London Stock Exchange's Specialist Fund Segment ("SFS").
The Company's Investment Policy is to target predominantly private investments,
seeking to back management teams to deliver on attractive investment
propositions. In executing its strategy, the Company takes a long term view.
The Company seeks to invest directly in its target investments, although it may
also invest through other collective investment vehicles. The Company may also
invest in listed investments, whether arising on the listing of its private
investments or directly. The Investment Adviser is able to invest globally but
with a particular focus on opportunities in the United States and Europe.
The Company is currently mainly focused on investing in the following areas:
(a) small or micro-cap buyouts in the form of debt and equity and
preferred stock in both the US and Europe; and
(b) real estate interests.
The Investment Adviser takes a dynamic approach to asset allocation and, though
it doesn't expect to, in the event that the Company were to invest 100% of
gross assets in one area, the Company will, nevertheless, always seek to
maintain a broad spread of investment risk. Exposures are monitored and managed
by the Investment Adviser under the supervision of the Board.
The Company has no direct employees. For its services the Investment Adviser
receives a management fee and is also entitled to performance related fees
(Note 10). The Company has no ownership interest in the Investment Adviser.
During the year under review the Company was administered by Northern Trust
International Fund Administration Services (Guernsey) Limited.
The financial statements are presented in US$'000 except where otherwise
indicated.
2. Significant Accounting Policies
The accounting policies adopted in the preparation of these audited annual
financial statements have been consistently applied during the year, unless
otherwise stated.
Statement of Compliance
The financial statements have been prepared in accordance with the
International Financial Reporting Standards as adopted by the European Union
("IFRS"), which comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB") together with applicable
legal and regulatory requirements of Guernsey Law, and the SFS.
Basis of Preparation
The financial statements have been prepared under the historical cost basis,
modified by the revaluation of financial instruments designated at fair value
through profit or loss ("FVTPL") upon initial recognition. The principal
accounting policies adopted are set out below. The preparation of financial
statements in conformity with IFRS requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. The presentation of the financial statements and certain disclosures
follows the guidance as outlined in the Association of Investment Companies
("AIC") Statement of Recommended Practice ("SORP").
Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the previous
financial year, except that the Company has adopted the following:
(i) Standards, amendments and interpretations effective during the year
Amendment to IAS 7 - Statement of Cash Flows - amendments as a result of the
Disclosure initiative ("IAS 7"). The amendments are intended to clarify IAS 7
to improve information provided to users of financial statements about an
entity's financing activities. The financial statements now include a
reconciliation of changes in financing liabilities arising from both cash flow
and non-cash flow items (note 29).
(ii) Standards, amendments and interpretations that are not effective
and are expected to have a material impact on the financial position or
performance of the Company
IFRS 9 replaces IAS 39 - Financial Instruments: Recognition and Measurement.
Nature and scope of new or amended pronouncement
IFRS 9 "Financial Instruments" replaces IAS 39 "Financial Instruments:
Recognitions and Measurement" and is effective for an annual reporting periods
beginning on or after 1 January 2018. It specifies how an entity should
classify and measure financial assets and liabilities, hedging, and a new
expected credit losses model for calculating impairment of financial assets.
The standard also contains the new hedge accounting rules. The Company intends
to adopt the standard once it becomes mandatory.
Classification Financial Assets and of Financial Liabilities
IFRS 9 contains three principal classification categories for financial assets
measured at amortised cost, fair value through other comprehensive income and
fair value through profit or loss. IFRS 9 classification is generally based on
the business model in which a financial asset is managed and its contractual
cash flows.
Based on the Company's initial assessment, this standard is not expected to
have a material impact on the classification of financial assets and financial
liabilities of the Company. This is because:
a) Other financial instruments currently measured at fair value through
profit or loss under IAS 39 are designated into this category because they are
managed on a fair value basis in accordance with a documented investment
strategy. These investments are not expected to meet the SPPI criterion (solely
payments of principal and interest) and accordingly, these financial
instruments will be mandatorily measured at fair value through profit or loss
under IFRS 9; and
b) Financial assets currently measured at amortised cost are: cash and
cash equivalents, securities sold receivable and other receivables. These
instruments meet the solely payments of principal and interest criterion and
are held in a held-to collect business model. Accordingly, they will continue
to be measured at amortised cost under IFRS 9.
c) Financial liabilities currently valued at amortised cost are loans
payable, other payables and ZDPs and will continued to be measured at amortised
cost. CULs are measured at FVTPL currently and will continued to be under IFRS
9 as the conversion feature will be considered an embedded derivative.
d) The Company is required to consider the change in the fair value of
Financial liabilities valued at FVTPL, due to any change in the Company's
credit risk profile and allocate the fair value movement through Other
Comprehensive Income.
Impairment of Financial Assets
IFRS 9 replaced the "incurred loss" model in IAS 39 with an "expected credit
loss" model. The new impairment model also applies to certain loan commitments
and financial guarantee contracts but not to equity investments. Under IFRS 9,
credit losses are recognised earlier than under IAS 39.
Based on the Company's initial assessment, changes to the impairment model are
not expected to have a material impact on the financial assets of the Company.
This is because:
a) the majority of the financial assets are measured at fair value
through profit or loss and the impairment requirements do not apply to such
instruments; and
b) the financial assets at amortised cost are short-term (i.e. no longer
than 12 months) and/or assets considered to be of high credit quality;
accordingly, the expected credit losses on such assets are expected to be
small.
Hedge Accounting
The Company does not apply hedge accounting; therefore, IFRS 9 hedge
accounting-related changes do not have an impact on the financial statements of
the Company.
There are certain other current standards, amendments and interpretations that
are not materially relevant to the Company's operations.
Functional and presentational currency
Items included in the financial statements of the Company are measured in the
currency of the primary economic environment in which the Company operates (the
"functional currency"). The functional currency of the Company as determined in
accordance with IFRS is the US Dollar because this is the currency that best
reflects the economic substance of the underlying events and circumstances of
the Company. The financial statements are presented in US Dollars, as the
Company has chosen the US Dollar as its presentation currency.
Foreign exchange
Monetary assets and liabilities denominated in foreign currency are translated
into the functional currency at the rate of exchange ruling at the end of the
reporting period date. Transactions in foreign currencies during the course of
the period are translated at the rate of exchange ruling at the date of the
transaction. Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation at reporting period end exchange
rates of monetary assets and liabilities that are denominated in foreign
currencies are recognised in the Statement of Comprehensive Income. Foreign
exchange gains and losses on financial assets and financial liabilities at fair
value through profit or loss are recognised together with other changes in the
fair value. Net foreign exchange gains or losses on monetary financial assets
and liabilities other than those classified as at fair value through profit or
loss are included in the line item 'Net foreign currency exchange gain/(loss)'.
Financial assets and liabilities at fair value through profit or loss ("FVTPL")
(i) Classification
The Company classifies its investments within its micro-cap, real estate and
other investments portfolios as financial assets at fair value through profit
or loss. These financial assets are designated by the Board of Directors as at
fair value through profit or loss at inception.
Financial assets designated at fair value through profit or loss at inception
are those that are managed and their performance evaluated on a fair value
basis in accordance with the Company's investment strategy as documented in its
prospectus.
Financial liabilities may be designated at fair value through profit or loss
rather than stated at amortised cost, when the board have considered the
appropriate accounting treatment for the specific liability.
(ii) Recognition/derecognition
Purchases and sales of investments are recognised on the trade date - the date
on which the Company commits to purchase or sell the investment. Investments
are derecognised when the rights to receive cash flows from the investments
have expired or the Company has transferred substantially all risks and rewards
of ownership.
Financial assets and liabilities at fair value through profit or loss are
initially recognised at fair value. Transaction costs are expensed in the
Statement of Comprehensive Income. Subsequent to initial recognition, all
financial assets and liabilities at fair value through profit or loss are
measured at fair value. Gains and losses arising from changes in the fair value
of the 'financial assets or financial liabilities at fair value through profit
or loss' category are presented in the Statement of Comprehensive Income in the
year in which they arise.
Realised surpluses and deficits on the partial sale of investments are arrived
at by deducting the average cost of such investments from the sales proceeds.
(iii) Fair value estimation
The fair value of financial instruments traded in active markets (such as
publicly traded securities) is based on quoted market prices at the Statement
of Financial Position date. The quoted market price used for financial assets
held by the Company is the bid price.
Unquoted preferred shares, micro cap loans, unquoted equities and equity
related securities investments are typically valued by reference to their
enterprise value, which is generally calculated by applying an appropriate
multiple to the last twelve months' earnings before interest, tax, depreciation
and amortisation ("EBITDA"). In determining the multiple, the Directors
consider inter alia, where practical, the multiples used in recent transactions
in comparable unquoted companies, previous valuation multiples used and where
appropriate, multiples of comparable publicly traded companies. In accordance
with the International Private Equity and Venture Capital Association
("IPEVCA") valuation guidelines, a marketability discount is applied which
reflects the discount that in the opinion of the Directors, market participants
would apply in a transaction in the investment in question.
The valuation techniques to derive the fair value of real estate interests and
other investments are detailed in note 5.
Cash on deposit and cash and cash equivalents
Cash on deposit comprises bank deposits with an original maturity of three
months or more. Cash and cash equivalents comprise bank balances and cash held
by the Company, including short-term bank deposits with a maturity of three
months or less. Cash also includes amounts held in interest-bearing overnight
accounts.
Securities sold receivable
Securities sold receivables do not carry any interest and are short-term in
nature and are accordingly stated at their nominal value as reduced by
appropriate allowances for estimated irrecoverable amounts.
Other receivables and payables
Other receivables do not carry any interest and are short-term in nature and
are accordingly stated at their nominal value as reduced by appropriate
allowances for estimated irrecoverable amounts. Other payables are not
interest-bearing and are stated at their nominal value.
Financial liabilities and equity
Financial liabilities and equity are classified according to the substance of
the contractual arrangements entered into. An equity instrument is any contract
that evidences a residual interest in the assets of the Company after deducting
all of its liabilities. Financial liabilities, other than CULS (see overleaf)
and equity are recorded at the amount of proceeds received, net of issue
costs. Ordinary Shares are classified as equity in accordance with IAS 32 -
"Financial Instruments: Presentation" as these instruments include no
contractual obligation to deliver cash and the redemption mechanism is not
mandatory.
Zero Dividend Preference ("ZDP") shares
In accordance with International Accounting Standard 32 - 'Financial
Instruments: Presentation', ZDP shares have been disclosed as a financial
liability as the shares are redeemable at a fixed date and holders are entitled
to a fixed return. ZDP shares are recorded at amortised cost using the
effective interest rate method.
Convertible Unsecured Loan Stock
The Convertible Unsecured Loan Stock ("CULS") issued by the Company is
denominated in a currency (GBP) other than the Company's functional currency
and hence fails the 'fixed-for-fixed' criteria for equity classification.
Rather than account for the host debt and embedded conversion element
separately, the Company elects to account for the CULS in its entirety in
accordance with the IAS 39 'Fair Value Option'. The CULS' fair value is deemed
to be the listed offer price at the year end. CULS is translated at the
exchange rate at the reporting date and both differences in fair value due to
the listed offer price and exchange rates are recognised in the Statement of
Comprehensive Income.
Income
Interest income for all interest bearing financial instruments is included on
an accruals basis using the effective interest method. Dividend income is
recognised when the Company's right to receive payment is established. When
there is reasonable doubt that income due to be received will actually be
received, such income is not accrued until it is clear that its receipt is
probable. Where following an accrual of income, receipt becomes doubtful, the
accrual is either fully or partly written off until the reasonable doubt is
removed.
Expenses
Investment Adviser's basic fees are allocated to revenue. The Company also
provides for a Capital Gains Incentive fee based on net realised and unrealised
investments gains.
Expenses which are deemed to be incurred wholly in connection with the
maintenance or enhancement of the value of the investments are charged to
realised capital reserve. All other expenses are accounted for on an accruals
basis and are presented as revenue items.
Finance costs
Finance costs are interest expenses in respect of the ZDP shares, loans payable
and CULS, and are recognised in the Statement of Comprehensive Income using the
effective interest rate method.
Escrow accounts
Where investments are disposed of, the consideration given may include
contractual terms requiring that a percentage of the consideration is held in
an escrow account pending resolution of any indemnifiable claims that may arise
and as such the value of these escrow amounts is not immediately known. The
Company records gains realised on investments held in escrow in the Statement
of Comprehensive Income following confirmation that any such indemnifiable
claims have been resolved and none is expected in the future.
Taxation
The company has been granted Guernsey tax exempt status in accordance with The
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended). However, in
some jurisdictions, investment income and capital gains are subject to
withholding tax deducted at the source of the income. The Company presents the
withholding tax separately from the gross investment income in the Statement of
Comprehensive Income.
3. Estimates and Judgements
The following are the key judgements and other key sources of estimation
uncertainty at the end of the reporting year, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year:
Estimates
Fair Value of Investments at Fair Value Through Profit or Loss ("FVTPL")
Certain investments are classified as FVTPL, and valued accordingly, as
disclosed in note 2. The key source of estimation uncertainty is on the
valuation of unquoted equities, equity-related securities and real estate
investments.
In reaching its valuation of the unquoted equities, equity-related securities
and real estate investments the key estimates the Board has to make are those
relating to the multiples, discount factors and real estate valuation factors
(note 5) used in the valuation models.
Judgements
Assessment as an Investment Entity
Entities that meet the definition of an investment entity within IFRS 10 are
required to measure their subsidiaries at fair value through profit or loss
rather than consolidate them. The criteria which define an investment entity
are as follows:
* An entity that obtains funds from one or more investors for the
purpose of providing those investors with investment services;
* An entity that commits to its investors that its business purpose is
to invest funds solely for returns from capital appreciation, investment
income or both; and
* An entity that measures and evaluates the performance of substantially
all of its investments on a fair value basis.
The Company has a wide range of investors; through its Investment Adviser
management services it enables investors to access private equity, real estate
and similar investments.
The Company's objective to provide "significant capital appreciation" is
consistent with that of an investment entity. The Company has clearly defined
exit strategies for each of its investment classes, these strategies are again
consistent with an investment entity.
In determining the fair value of unlisted investments JZCP follows the
principles of IPEVCA valuation guidelines. The Valuation Guidelines have been
prepared with the goal that Fair Value measurements derived when using these
Valuation Guidelines are compliant with IFRS. The Board of JZCP evaluates the
performance of unlisted investments quarterly on a fair value basis. Listed
investments are recorded at Fair Value in accordance with IFRS being the last
traded market price where this price falls within the bid-ask spread.
The Board has also concluded that the Company meets the additional
characteristics of an investment entity, in that it has more than one
investment; the investments are predominantly in the form of equities and
similar securities and it has more than one investor.
Investment in Associates
An associate is an entity over which the Company has significant influence. An
entity is regarded as a subsidiary only if the Company has control over its
strategic, operating and financial policies and intends to hold the investment
on a long-term basis for the purpose of securing a contribution to the
Company's activities.
In accordance with the exemption within IAS 28 Investments in Associates and
Joint Ventures, the Company does not account for its investment in EuroMicrocap
Fund 2010, L.P., EuroMicrocap Fund-C, L.P. JZI Fund III GP, L.P., Spruceview
Capital Partners, LLC and Orangewood Partners Platform LLC using the equity
method. Instead, the Company has elected to measure its investment in its
associates at fair value through profit or loss.
The Directors have determined that although the Company has over 50% economic
interest in EuroMicrocap Fund 2010, L.P., EuroMicrocap Fund-C, L.P. JZI Fund
III GP, L.P. and Orangewood Partners Platform LLC, it does not have the power
to govern the financial and operating policies of the entities, but does have
significant influence over the strategic, operating and financial policies.
Going Concern
A fundamental principle of the preparation of financial statements in
accordance with IFRS is the judgement that an entity will continue in existence
as a going concern for a period of at least 12 months from signing of the
financial statements, which contemplates continuity of operations and the
realisation of assets and settlement of liabilities occurring in the ordinary
course of business.
The Directors consider the Company has adequate financial resources, in view of
its holding in cash and cash equivalents and the income streams deriving from
its investments and believe that the Company is well placed to manage its
business risks successfully to continue in operational existence for a period
of at least 12 months from signing of the financial statements and that it is
appropriate to prepare the financial statements on the going concern basis.
4. Segment Information
The Investment Manager is responsible for allocating resources available to the
Company in accordance with the overall business strategies as set out in the
Investment Guidelines of the Company. The Company is organised into the
following segments:
* Portfolio of US micro-cap
investments
* Portfolio of European
micro-cap investments
* Portfolio of Real estate
investments
* Portfolio of Other
investments
The investment objective of each segment is to achieve consistent medium-term
returns from the investments in each segment while safeguarding capital by
investing in a diversified portfolio.
Investments in treasury bills and corporate bonds are not considered as part of
the investment strategy and are therefore excluded from this segmental
analysis.
Segmental Profit/(Loss)
For the year ended 28 February 2018 US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$
'000
Interest revenue 24,426 6,829 301 - 31,556
Total segmental revenue 24,426 6,829 301 - 31,556
Realisations from investments held in 1,922 - - - 1,922
Escrow
Net gain/(loss) on investments at FVTPL 50,549 12,990 (50,210) (7,189) 6,140
Investment Adviser's base fee (6,594) (2,295) (7,057) (254) (16,200)
Investment Adviser's capital incentive (14,530) (1,111) 9,982 1,360 (4,299)
fee1
Total segmental operating profit/ 55,773 16,413 (46,984) (6,083) 19,119
(loss)
For the year ended 28 February US European Real Other
2017
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$
'000
Interest 20,485 4,580 322 301 25,688
revenue
Total segmental revenue 20,485 4,580 322 301 25,688
Realisations from investments held in 5,942 - - - 5,942
Escrow
Net gain/(loss) on investments 5,263 1,102 21,236 (783) 26,818
at FVTPL
Write back of Impairments on loans and - - - 2,374 2,374
receivables
Investment (6,250) (2,423) (6,418) (607) (15,698)
Adviser's
base fee
Investment Adviser's capital incentive (7,882) 264 (4,247) (135) (12,000)
fee1
Total segmental operating 17,558 3,523 10,893 1,150 33,124
profit
1The capital incentive fee is allocated across segments where a realised or
unrealised gain or loss has occurred. Segments with realised or unrealised
losses are allocated a credit pro rata to the size of the loss and segments
with realised or unrealised gains are allocated a charge pro rata to the size
of the gain.
Certain income and expenditure is not considered part of the performance of an
individual segment. This includes net foreign exchange gains, interest on cash,
finance costs, management fees, custodian and administration fees, directors'
fees and other general expenses.
The following table provides reconciliation between total segmental operating
profit and operating profit.
28.2.2018 28.2.2017
US$ '000 US$ '000
Total Segmental Operating Profit 19,119 33,124
(Loss)/gain on financial liabilities at fair value through (2,907) 2,510
profit or loss
Net foreign exchange (loss)/gains (6,457) 4,728
Interest on treasury notes and 195 11
corporate bonds
Interest on cash 128 41
Fees payable to investment adviser based on non-segmental (726) (1,571)
assets
Expenses not attributable to segments (3,085) (2,550)
Net gain on listed investments - 1,881
Operating Profit 6,267 38,174
The following table provides a reconciliation between total segmental revenue
and Company revenue.
28.2.2018 28.2.2017
US$ '000 US$ '000
Total segmental revenue 31,556 25,688
Non-segmental revenue
Interest on treasury gilts and 195 11
corporate bonds
Bank and deposit interest 128 41
Total revenue 31,879 25,740
Segmental Net Assets
At 28 February 2018 US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Segmental assets
Investments at FVTPL 488,258 103,457 463,391 15,302 1,070,408
Other receivables - - 2,090 - 2,090
Total segmental assets 488,258 103,457 465,481 15,302 1,072,498
Segmental liabilities
Payables and accrued expenses (34,274) 493 (15,973) 4,777 (44,977)
Total segmental liabilities (34,274) 493 (15,973) 4,777 (44,977)
Total segmental net assets 453,984 103,950 449,508 20,079 1,027,521
At 28 February 2017 US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Segmental assets
Investments at FVTPL 423,137 154,277 468,599 23,167 1,069,180
Other receivables - - 495 - 495
Total segmental assets 423,137 154,277 469,094 23,167 1,069,675
Segmental liabilities
Payables and accrued expenses (19,666) 1,646 (25,796) 3,398 (40,418)
Total segmental liabilities (19,666) 1,646 (25,796) 3,398 (40,418)
Total segmental net assets 403,471 155,923 443,298 26,565 1,029,257
Other receivables and prepayments are not considered to be part of individual
segment assets. Certain liabilities are not considered to be part of the net
assets of an individual segment. These include custodian and administration
fees payable, directors' fees payable and other payables and accrued expenses.
The following table provides a reconciliation between total segmental assets/
liabilities and total assets/liabilities.
28.2.2018 28.2.2017
US$ '000 US$ '000
Total Segmental Assets 1,072,498 1,069,675
Non Segmental Assets
Cash at bank 9,000 29,063
Treasury bills 49,975 -
Securities sold 24,987 -
receivable
Other receivables 68 25
Total Assets 1,156,528 1,098,763
Total Segmental Liabilities (44,977) (40,418)
Non Segmental Liabilities
Zero Dividend Preference (2022) shares (62,843) (53,935)
Convertible Unsecured Loan Stock (59,970) (57,063)
Loans payable (150,125) (97,396)
Other payables (1,040) (1,107)
Total Liabilities (318,955) (249,919)
Total Net Assets 837,573 848,844
5. Fair Value of Financial Instruments
The Company classifies fair value measurements of its financial instruments at
Fair Value Through Profit or Loss ("FVTPL") using a fair value hierarchy that
reflects the significance of the inputs used in making the measurements. The
financial assets valued at FVTPL are analysed in a fair value hierarchy based
on the following levels:
Level 1
Quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2
Those involving inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices). For example, investments which
are valued based on quotes from brokers (intermediary market participants) are
generally indicative of Level 2 when the quotes are executable and do not
contain any waiver notices indicating that they are not necessarily tradable.
Another example would be derivatives such as interest rate swaps or forward
currency contracts where inputs are observable and therefore may also fall into
Level 2. At the year end, the Company had assessed it held no assets or
liabilities valued at FVTPL that were using inputs that would be classified as
Level 2 within the valuation method.
Level 3
Those involving inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs). Investments in JZCP's
portfolio valued using unobservable inputs such as multiples, capitalisation
rates, discount rates fall within Level 3.
Differentiating between Level 2 and Level 3 fair value measurements i.e.,
assessing whether inputs are observable and whether the unobservable inputs are
significant, may require judgement and a careful analysis of the inputs used to
measure fair value including consideration of factors specific to the asset or
liability.
The following table shows financial instruments recognised at fair value,
analysed between those whose fair value is based on:
Financial assets at 28 February 2018
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
US Micro-cap - - 488,258 488,258
European Micro-cap - - 103,457 103,457
Real Estate - - 463,391 463,391
Other Investments - - 15,302 15,302
Listed Investments 49,975 - - 49,975
49,975 - 1,070,408 1,120,383
Financial assets at 28 February 2017
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
US Micro-cap - - 423,137 423,137
European Micro-cap - - 154,277 154,277
Real Estate - - 468,599 468,599
Other Investments - - 23,167 23,167
- - 1,069,180 1,069,180
Financial liabilities designated at fair value through profit or loss at
inception
Financial liabilities at 28 February 2018
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Convertible Subordinated Unsecured 59,970 - - 59,970
Loan Stock
59,970 - - 59,970
Financial liabilities at 28 February 2017
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Convertible Subordinated Unsecured 57,063 - - 57,063
Loan Stock
57,063 - - 57,063
Transfers between levels
There were no transfers between the levels of hierarchy of financial assets and
liabilities recognised at fair value within the year ended 28 February 2018 and
the year ended 28 February 2017.
Valuation techniques
In valuing investments in accordance with IFRS, the Board follow the principles
as detailed in the IPEVCA guidelines.
When fair values of listed equity and debt securities at the reporting date are
based on quoted market prices or binding dealer price quotations (bid prices
for long positions), without any deduction for transaction costs, the
instruments are included within Level 1 of the hierarchy.
The fair value of bank debt which is derived from unobservable data is
classified as Level 3. Investments for which there are no active markets are
valued according to one of the following methods:
Real Estate
JZCP makes its Real Estate investments through a wholly-owned subsidiary, which
in turn owns interests in various residential, commercial, and development real
estate properties. The net asset value of the subsidiary is used for the
measurement of fair value. The underlying fair value of JZCP's Real Estate
holdings, however, is represented by the properties themselves. The Company's
Investment Adviser and Board review the fair value methods and measurement of
the underlying properties on a quarterly basis. Where available, the Company
will use third party appraisals on the subject property, to assist the fair
value measurement of the underlying property. Third-party appraisals are
prepared in accordance with the Appraisal and Valuation Standards (6th edition)
issued by the Royal Institution of Chartered Surveyors. Fair value
techniques used in the underlying valuations are:
- Use of comparable market values per square foot of properties in recent
transactions in the vicinity in which the property is located, and in similar
condition, of the relevant property, multiplied by the property's squarefootage.
- Discounted Cash Flow ("DCF") analysis, using the relevant rental stream,
less expenses, for future periods, discounted at a Market Capitalization ("MC")
rate, or interest rate.
- Relevant rental stream less expenses divided by the market capitalization
rate; this method approximates the enterprise value construct used for non-real
estate assets.
For each of the above techniques third party debt is deducted to arrive at fair
value.
Due to the inherent uncertainties of real estate valuation, the values
reflected in the financial statements may differ significantly from the values
that would be determined by negotiation between parties in a sales transaction
and those differences could be material.
Unquoted preferred shares, micro-cap loans, unquoted equities and equity
related securities
Unquoted preferred shares, micro-cap loans, unquoted equities and equity
related securities investments are classified in the Statement of Financial
Position as Investments at fair value through profit or loss. These investments
are typically valued by reference to their enterprise value, which is generally
calculated by applying an appropriate multiple to the last twelve months'
earnings before interest, tax, depreciation and amortisation ("EBITDA"). In
determining the multiple, the Board consider inter alia, where practical, the
multiples used in recent transactions in comparable unquoted companies,
previous valuation multiples used and where appropriate, multiples of
comparable publicly traded companies. In accordance with IPEVCA guidelines, a
marketability discount is applied which reflects the discount that in the
opinion of the Board, market participants would apply in a transaction in the
investment in question.
In respect of unquoted preferred shares and micro-cap loans the Company values
these investments by reference to the attributable enterprise value as the exit
strategy in respect to these investments would be a one tranche disposal
together with the equity component. The fair value of the investment is
determined by reference to the attributable enterprise value (this is
calculated by a multiple of EBITDA reduced by senior debt and marketability
discount) covering the aggregate of the unquoted equity, unquoted preferred
shares and debt instruments invested in the underlying company. The increase of
the fair value of the aggregate investment is reflected through the unquoted
equity component of the investment and a decrease in the fair value is
reflected across all financial instruments invested in an underlying company.
Other Investments
Other investments at year end, comprise of mainly the Company's investment in
the asset management business - Spruceview Capital Partners ("Spruceview").
Spruceview is valued at impaired cost, which the Board currently considers an
appropriate measure of fair value. As there are no unobservable inputs in the
valuation of Spruceview no sensitivity analysis is provided in the current
year.
New Investments
The fair value of a new investment, classified at Level 3, is deemed to
approximate to cost for the first year the investment is held, unless there is
an event or evidence which indicates a requirement for an adjustment.
Quantitative information of significant unobservable inputs and sensitivity
analysis to significant changes in unobservable inputs within Level 3 hierarchy
The significant unobservable inputs used in fair value measurement categorised
within Level 3 of the fair value hierarchy together with a quantitative
sensitivity as at 28 February 2018 and 28 February 2017 are shown below:
Value Valuation Unobservable Range
28.2.2018 (weighted Sensitivity Effect on Fair Value
average)
US$'000 Technique input used 1 US$'000
US micro-cap EBITDA Average EBITDA 6.0x - 0.5x /
investments 488,258 Multiple Multiple of 12.6x -0.5x (32,783) 33,044
Peers (8.3x)
Discount to 15% - +5% / -5% (43,208) 45,083
Average 35%
Multiple (25%)
European EBITDA Average EBITDA 5.5x - 0.5x / -0.5x (3,324) 3,324
micro-cap 103,457 Multiple Multiple of 12.6x
investments Peers (8.1x)
13% - 45% +5% / -5% (2,833) 2,833
Discount to (30%)
Average
Multiple
Real Comparable Market Value $314 - -5% /+5% (14,057) 12,708
estate 2 463,391 Sales Per Square $3,106
Foot per sq
ft
DCF Model/ Discount Rate 5.5% - +25bps /-25bps 2,345
Income 7.5% (1,729)
Approach
Cap Rate/ Capitalisation 3.25 - +25bps /-25bps 9,713
Income Rate 5.5% (9,527)
Approach
Value Valuation Unobservable Range Sensitivity
28.2.2017 (weighted Effect on Fair Value
average)
US$'000 Technique input used 1 US$'000
US micro-cap EBITDA Average EBITDA 6.0x - 0.5x /
investments 423,137 Multiple Multiple of 18.7x -0.5x (37,665) 36,186
Peers (8.3x)
Discount to 10% - +5% / -5%
Average 35% (50,801) 49,462
Multiple (26%)
European EBITDA Average EBITDA 6.2x - 0.5x /
micro-cap 154,277 Multiple Multiple of 11.3.6x -0.5x (3,511) 3,511
investments Peers (8.6x)
Discount to +5% / -5%
Average 6% - 41% (4,512) 4,492
Multiple (8%)
Real Comparable Market Value $286 - -5% /+5%
estate 2 468,599 Sales Per Square $3,106 (13,706) 14,786
Foot per sq
ft
DCF Model/ Discount Rate 6.25% - +25bps /-25bps
Income 6.75% (1,228) 1,515
Approach
Cap Rate/ Capitalisation 4% - 5% +25bps /-25bps
Income Rate (8,357) 9,349
Approach
1 The sensitivity analysis refers to a percentage amount added or deducted from
the average input and the effect this has on the fair value.
2 The Fair Value of JZCP's investment in financial interests in Real Estate, is
measured as JZCP's percentage interest in the value of the underlying
properties. The Board consider the discount rate used, applied to the DCF, when
valuing the properties as the most significant unobservable input affecting the
measurement of fair value.
The following table shows a reconciliation of all movements in the fair value
of financial instruments categorised within Level 3 between the beginning and
the end of the reporting year.
Year ended 28 February US European Real Other
2018
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2017 423,137 154,277 468,599 23,167 1,069,180
Investments in year including capital 36,592 15,220 47,227 4,000 103,039
calls
Payment In Kind ("PIK") 22,287 43 - 69 22,399
Proceeds from investments realised (44,911) (86,777) (2,225) (4,745) (138,658)
Net gains/(losses) on investments 50,549 12,990 (50,210) (7,189) 6,140
Movement in accrued interest 604 7,704 - - 8,308
At 28 February 2018 488,258 103,457 463,391 15,302 1,070,408
Year ended 28 February US European Real Other
2017
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2016 386,173 168,797 366,158 63,570 984,698
Investments in year including capital 62,778 2,739 89,506 4,500 159,523
calls
Payment In Kind ("PIK") 17,793 - - 118 17,911
Proceeds from investments realised (46,996) (21,906) (8,301) (45,484) (122,687)
Net gains/(losses) on investments 5,263 1,102 21,236 (784) 26,817
Transfer (from)/to segment (1,245) - - 1,245 -
Movement in accrued interest (629) 3,545 - 2 2,918
At 28 February 2017 423,137 154,277 468,599 23,167 1,069,180
Fair value of Zero Dividend Preference ("ZDP") shares
The fair value of the ZDP shares is deemed to be their quoted market price. As
at 28 February 2018 the ask price for the ZDP (2022) shares was GBP4.38 (28
February 2017: GBP4.22) the total fair value of the ZDP shares was $71,863,000
(28 February 2017: $62,532,000) which is $9,020,000 (28 February 2017:
$8,597,000) higher than the liability recorded in the Statement of Financial
Position.
ZDP shares are recorded at amortised cost and would fall in to the Level 1
hierarchy if valued at FVTPL.
6. Net Gain on Investments at Fair Value Through Profit or Loss
Year Year
Ended Ended
28.2.2018 28.2.2017
US$ '000 US$ '000
(Loss)/gain on investments held in investment portfolio at
year end
Net movement in unrealised gains in (48,554) 16,069
year
Net unrealised gains in prior years now 45,718 11,908
realised
Net movement in unrealised gains on investments held at the (2,836) 27,977
year end
Gains on investments realised in year
Proceeds from investments realised 163,580 183,210
Cost of investments (108,886) (170,580)
realised
Net realised gains 54,694 12,630
Net unrealised gains in prior years now (45,718) (11,908)
realised
Total gains in the year on investments 8,976 722
realised
Net gain on investments in the year 6,140 28,699
7. Write Back of Impairments on Loans and Receivables
Year Year
Ended Ended
28.2.2018 28.2.2017
US$ '000 US$ '000
Proceeds from loans repaid - 3,114
Cost of loans repaid - (2,976)
Write back of impairments recognised in earlier - 2,236
years
Write back of impairments on loans and receivables - 2,374
8. Investment Income
Year Ended Year
Ended
28.2.2018 28.2.2017
US$ '000 US$ '000
Income from investments classified as FVTPL 31,751 25,599
Income from investments classified as loans and - 100
receivables
31,751 25,699
Income for the year ended 28 February 2018
Preferred Loan note Other
Dividends PIK Cash Interest Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap 22,686 328 1,412 - 24,426
portfolio
European micro-cap - 5,950 879 - 6,829
portfolio
Real estate - - - 301 301
Treasury Bills - - - 195 195
22,686 6,278 2,291 496 31,751
Income for the year ended 28 February 2017
Preferred Loan note Other
Dividends PIK Cash Interest Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap portfolio 16,464 940 2,993 88 20,485
European micro-cap - 3,841 739 - 4,580
portfolio
Real estate - - - 322 322
Other investments 120 - 181 - 301
Corporate bonds - - 11 - 11
16,584 4,781 3,924 410 25,699
9. Finance Costs
Year Ended Year Ended
28.2.2018 28.2.2017
US$ '000 US$ '000
CULS finance costs paid (Note 15) 3,022 3,190
ZDP (2022) shares (Note 16) 2,996 2,853
Loan interest (Note 17) 11,551 7,545
ZDP (2016) shares (Note 16) - 1,180
Margin loan interest - 70
Refund of issue costs - (74)
17,569 14,764
10. Expenses
Year Ended Year Ended
28.2.2018 28.2.2017
US$ '000 US$ '000
Investment Adviser's base fee 16,912 16,865
Investment Adviser's incentive fee 4,313 12,404
Directors' remuneration 415 415
21,640 29,684
Administrative expenses:
Legal fees 1,216 584
Other professional fees 352 349
Accounting, secretarial and 350 350
administration fees
Auditors' remuneration 281 322
Auditors' remuneration - non-audit 127 111
fees
Custodian fees 48 43
Other expenses 296 376
2,670 2,135
Total expenses 24,310 31,819
Administration Fees
Northern Trust International Fund Administration Services (Guernsey) Limited
was appointed as Administrator to the Company on 1 September 2012. The
Administrator is entitled to an annual fee of $350,000 (28 February 2017:
$350,000) payable quarterly in arrears. Fees payable to the Administrator are
subject to an annual fee review.
Directors' remuneration
For the years ended 28 February 2018 and 28 February 2017, the Chairman was
entitled to a fee of $160,000 per annum and the Chairman of the Audit Committee
was entitled to a fee of US$70,000 per annum, all other directors are entitled
to a fee of US$60,000 with one director receiving an additional $5,000 for
extra responsibilities. For the year ended 28 February 2018 total Directors'
fees included in the Statement of Comprehensive Income were $415,000 (year
ended 28 February 2017: US$415,000), of this amount $69,000 was outstanding at
the year end (28 February 2017: $68,000).
Investment Advisory and Performance fees
The Company entered into the amended and restated investment advisory and
management agreement with Jordan/Zalaznick Advisers, Inc. (the "Investment
Adviser") on 23 December 2010 (the "Advisory Agreement").
Pursuant to the Advisory Agreement, the Investment Adviser is entitled to a
base management fee and to an incentive fee. The base management fee is an
amount equal to 1.5 per cent. per annum of the average total assets under
management of the Company less excluded assets as defined under the terms of
the Advisory Agreement. The base management fee is payable quarterly in
arrears; the agreement provides that payments in advance on account of the base
management fee will be made.
For the year ended 28 February 2018, total investment advisory and management
expenses, based on the average total assets of the Company, were included in
the Statement of Comprehensive Income of $16,912,000 (year ended 28 February
2017: $16,865,000). Of this amount $2,225,000 (28 February 2017: $2,026,000)
was due and payable at the year end.
The incentive fee has two parts. The first part is calculated by reference to
the net investment income of the Company ("Income Incentive fee") and is
payable quarterly in arrears provided that the net investment income for the
quarter exceeds 2 per cent of the average of the net asset value of the Company
for that quarter (the "hurdle") (8 per cent. annualised). The fee is an amount
equal to (a) 100 per cent of that proportion of the net investment income for
the quarter as exceeds the hurdle, up to an amount equal to a hurdle of 2.5%,
and (b) 20 per cent. of the net investment income of the Company above a hurdle
of 2.5% in any quarter. Investments categorised as legacy investments and other
assets identified by the Company as being excluded are excluded from the
calculation of the fee. A true-up calculation is also prepared at the end of
each financial year to determine if further fees are payable to the Investment
Adviser or if any amounts are recoverable from future income incentive fees.
For the years ended 28 February 2018 and 28 February 2017 there was no income
incentive fee.
The second part of the incentive fee is calculated by reference to the net
realised capital gains ("Capital Gains Incentive fee") of the Company and is
equal to: (a) 20 per cent. of the realised capital gains of the Company for
each financial year less all realised capital losses of the Company for the
year less (b) the aggregate of all previous capital gains incentive fees paid
by the Company to the Investment Adviser. The capital gains incentive is
payable in arrears within 90 days of the fiscal year end. Investments
categorised as legacy investments and assets of the EuroMicrocap Fund 2010, LP,
EuroMicrocap-C Fund, L.P. and JZI Fund III, L.P. are excluded from the
calculation of the fee.
For the purpose of calculating incentive fees cumulative preferred dividends
received on the disposal of an investment are treated as a capital return
rather than a receipt of income.
At 28 February 2018, JZCP had cumulative net realised capital gains of
$4,981,000 (28 February 2017: cumulative net realised losses of $9,572,000).
Therefore, at 28 February 2018 a capital gains incentive fee ("CGIF") of
$996,000 (28 February 2017: $nil) was payable to the Investment Adviser.
Cumulative net realised capital losses are offset against the unrealised
provision for capital gains until a net realised gain provision arises.
The Company also provides for a CGIF based on unrealised gains, calculated on
the same basis as that of the fee on realised gains/losses. For the year ended
28 February 2018 a provision of $40,610,000 (2017: $37,293,000) has been
included.
Provision Provision Paid In Charge to
At At Year Income
Statement
28.2.2018 28.2.2017 28.2.2018 28.2.2018
US$ '000 US$ '000 US$ '000 US$ '000
Provision for CGIF on 40,610 37,293 n/a 3,317
unrealised investments
CGIF on realised investments 996 - - 996
41,606 37,293 - 4,313
Provision Provision Paid In Charge to
At At Year Income
Statement
28.2.2017 28.2.2016 28.2.2017 28.2.2017
US$ '000 US$ '000 US$ '000 US$ '000
Provision for CGIF on unrealised 37,293 24,889 n/a 12,404
investments
CGIF on realised investments - - - -
37,293 24,889 - 12,404
The Advisory Agreement may be terminated by the Company or the Investment
Adviser upon not less than two and one- half years' (i.e. 913 days') prior
notice (or such lesser period as may be agreed by the Company and Investment
Adviser).
Custodian Fees
HSBC Bank (USA) N.A, (the "Custodian") was appointed on 12 May 2008 under a
custodian agreement. The Custodian is entitled to receive an annual fee of
$2,000 and a transaction fee of $50 per transaction. For the year ended 28
February 2018, total Custodian expenses of $48,000 (28 February 2017: $43,000)
were included in the Statement of Comprehensive Income of which $10,000 (28
February 2017: $8,000) was outstanding at the year end and is included within
Other Payables.
Auditors' Remuneration
During the year ended 28 February 2018, the Company incurred fees for audit
services of $281,000
(28 February 2017:$322,000). Fees are also payable to Ernst & Young for
non-audit services (reporting accountant services, interim review and taxation
services in relation to the Company's status as a Passive Foreign Investment
Company).
28.2.2018 28.2.2017
Audit fees US$ '000 US$ '000
Audit fees - 2018: GBP218,000 298 -
Audit fees - 2017: GBP211,500 (2016: GBP163,000) (17) 262
2016 - Additional fees charged not accrued at 29.2.2016 (GBP - 60
40,000)
Total audit fees 281 322
Non-audit fees paid to Ernst & Young US$ '000 US$ '000
Interim Review - Invoiced in sterling 2018: GBP41,000 (2017: GBP 55 51
40,000)
Taxation services - 2017 65 -
Taxation services - 2016 7 60
Total non-audit fees 127 111
11. Taxation
The Company has been granted Guernsey tax exempt status in accordance with The
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended) in exchange
for a GBP1,200 annual fee.
During the year, taxes of $202,000 were withheld from the proceeds of a
distribution from Company's investment in Avante. An amount of $233,000 was
returned to Company in relation to an amount provided for in a prior year.
During the year ended 28 February 2017, taxes of $713,000 were withheld from
the proceeds from the refinancing of the Company's investment in Triwater
Holdings.
12. Investments
Category of financial instruments Listed Unlisted Carrying
Value
28.2.2018 28.2.2018 28.2.2018
US$ '000 US$ '000 US$ '000
Investments at fair value through 49,975 1,070,408 1,120,383
profit or loss
49,975 1,070,408 1,120,383
Listed Unlisted Total
28.2.2018 28.2.2018 28.2.2018
US$ '000 US$ '000 US$ '000
Book cost at 1 March 2017 - 897,856 897,856
Investments in year including 74,767 103,039 177,806
capital calls
Payment in kind ("PIK") - 22,399 22,399
Proceeds from investments realised (24,922) (138,658) (163,580)
Net realised gain - 54,694 54,694
Book cost at 28 February 2018 49,845 939,330 989,175
Unrealised gain at 28 February 2018 - 108,914 108,914
Accrued interest at 28 February 2018 130 22,164 22,294
Carrying value at 28 February 2018 49,975 1,070,408 1,120,383
Comparative reconciliation for the year ended 28 February 2017
Category of financial instruments Listed Unlisted Carrying
Value
28.2.2017 28.2.2017 28.2.2017
US$ '000 US$ '000 US$ '000
Investments at fair value through - 1,069,180 1,069,180
profit or loss
- 1,069,180 1,069,180
Listed Unlisted Total
28.2.2017 28.2.2017 28.2.2017
US$ '000 US$ '000 US$ '000
Book cost at 1 March 2016 61,971 832,007 893,978
Investments in year including - 159,523 159,523
capital calls
Payment in kind ("PIK") - 17,911 17,911
Proceeds from investments realised (60,523) (125,801) (186,324)
Net realised (loss)/gain (1,448) 14,216 12,768
Book cost at 28 February 2017 - 897,856 897,856
Unrealised gain at 28 February 2017 - 157,468 157,468
Accrued interest at 28 February 2017 - 13,856 13,856
Carrying value at 28 February 2017 - 1,069,180 1,069,180
The above book cost is the cost to JZCP equating to the transfer value as at 1
July 2008 upon the liquidation of JZEP and adjusted for subsequent
transactions.
The cost of PIK investments is deemed to be interest not received in cash but
settled by the issue of further securities when that interest has been
recognised in the Statement of Comprehensive Income.
Investment in Associates
An associate is an entity over which the Company has significant influence. An
entity is regarded as a subsidiary only if the Company has control over its
strategic, operating and financial policies and intends to hold the investment
on a long-term basis for the purpose of securing a contribution to the
Company's activities. The Company has elected for an exemption for 'equity
accounting' for associates and instead classifies its associates as Investments
at fair value through profit or loss.
.Entity Place of incorporation %
Interest 28.2.2018 28.2.2017
US$'000 US$'000
JZI Fund III GP, L.P. (has 42,291
18.75% partnership interest Cayman 75% 26,779
in JZI Fund III, L.P.)
Orangewood Partners Platform Delaware 79% 53,281 56,731
LLC1
Spruceview Capital Partners, Delaware 49% 14,093 16,093
LLC
EuroMicrocap Fund-C, L.P. Cayman 75% 3,784 61,482
("EMC-C")
EuroMicrocap Fund 2010, L.P. ("EMC 2010") Cayman 75% 33 21,433
Investments in associates at fair value 113,482 182,518
1Invests in K2 Towers II, George Industries, Peaceable Street Capital and ABTB.
The principal activity of all the EuroMicrocap Fund 2010, L.P., EuroMicrocap
Fund-C, L.P. and Orangewood Partners Platform LLC is the acquisition of
micro-cap companies. The principal activity of Spruceview Capital Partners, LLC
is that of an asset management company. There are no significant restrictions
on the ability of associates to transfer funds to the Company in the form of
dividends or repayment of loans or advances.
The Company's maximum exposure to losses from the associates (shown below)
equates to the carrying value plus outstanding commitments:
Entity 28.2.2018 28.2.2017
US$'000 US$'000
JZI Fund III GP, L.P. 99,489 83,189
Orangewood Partners Platform LLC1 53,281 56,731
Spruceview Capital Partners, LLC 19,083 24,929
EuroMicrocap Fund-C, L.P. ("EMC-C")2 3,784 61,482
EuroMicrocap Fund 2010, L.P. ("EMC 2010")2 33 21,433
175,670 247,764
1Invests in K2 Towers II, George Industries, Peaceable Street Capital and ABTB.
2Reduction in carrying value due to the realisation of underlying investments
and subsequent distribution of proceeds.
Investment in Subsidiaries
The principal place of business for subsidiaries is the USA. The Company meets
the definition of an Investment Entity in accordance with IFRS 10. Therefore,
it does not consolidate its subsidiaries but rather recognises them as
investments at fair value through profit or loss.
Entity Place of % 28.2.2018 28.2.2017
incorporation Interest US$'000 US$'000
JZCP Realty Fund Ltd Cayman 100% 463,391 468,599
JZBC, Inc. (Invests in Spruceview Capital Delaware 99% 14,093 16,093
Partners, LLC)
JZCP Bright Spruce Ltd (Liquidated during Cayman 100% - 4,500
year)
Investments in subsidiaries at fair value 477,484 489,192
There are no significant restrictions on the ability of subsidiaries to
transfer funds to the Company. The Company has no contractual commitments to
provide any financial or other support to its unconsolidated subsidiaries.
JZ Realty Ltd has a 100% interest in the following Delaware incorporated
entities: JZCP Loan 1 Corp, JZCP Loan Fulton Corp, JZCP Loan Flatbush Corp,
JZCP Loan Flatbush Portfolio Corp, JZCP Loan Metropolitan Corp, JZCP Loan
Greenpoint Corp, JZCP Loan Florida Corp, JZCP Loan Design Corp and JZCP Loan
Esperante Corp.
JZ Realty Ltd has a 99% interest in the following Delaware incorporated
entities: JZ REIT Fund 1, LLC, JZCP Loan Fulton Corp, JZ REIT Fund Fulton, LLC,
JZ REIT Fund Flatbush, LLC, JZ REIT Fund Flatbush Portfolio, LLC, JZ REIT Fund
Metropolitan, LLC, JZ REIT Fund Greenpoint, LLC, JZ REIT Fund Florida LLC, JZ
REIT Fund Design LLC and JZ REIT Fund Esperante LLC.
13. Securities sold receivable
28.2.2018 28.2.2017
US$ '000 US$ '000
US Treasury Bills 15.3.2018 24,987 -
24,987 -
Proceeds from the sale of US Treasury Bills were received by JZCP on 1 March
2018.
14. Other Receivables
28.2.2018 28.2.2017
US$ '000 US$ '000
Deposits paid on behalf of JZCP 1,595 -
Realty
Accrued interest due from JZCP 495 495
Realty
Other receivables and prepayments 68 25
2,158 520
15. Convertible Subordinated Unsecured Loan Stock ("CULS")
On 30 July 2014, JZCP issued GBP38,861,140 6% CULS. Holders of CULS may convert
the whole or part (being an integral multiple of GBP10 in nominal amount) of
their CULS into Ordinary Shares. Conversion Rights may be exercised at any time
during the period from 30 September 2014 to 10 business days prior to the
Maturity date being the 30 July 2021. The initial conversion price is GBP6.0373
per Ordinary Share, which shall be subject to adjustment to deal with certain
events which would otherwise dilute the conversion of the CULS. These events
include consolidation of Ordinary Shares, dividend payments made by the
Company, issues of shares, rights, share-related securities and other
securities by the Company and other events as detailed in the Prospectus.
CULS bear interest on their nominal amount at the rate of 6.00 per cent. per
annum, payable semi-annually in arrears. During the year ended 28 February
2018: $3,022,000 (28 February 2017: $3,190,000) of interest was paid to holders
of CULS and is shown as a finance cost in the Statement of Comprehensive
Income.
28.2.2018 28.2.2017
US$ '000 US$ '000
Fair Value of CULS at 1 March 57,063 59,573
Unrealised movement in fair value of CULS (2,901) 4,332
Unrealised currency loss/(gain) to the Company on 5,808 (6,842)
translation during the year
Loss/(gain) on financial liabilities at fair value through 2,907 (2,510)
profit or Loss
Fair Value of CULS based on offer price 59,970 57,063
16. Zero Dividend Preference ("ZDP") Shares
On 1 October 2015, the Company rolled over 11,907,720 existing ZDP (2016)
shares in to new ZDP shares with a 2022 maturity date. The ZDP (2022)
shares have a gross redemption yield of 4.75% and a total
redemption value of GBP57,598,000 (approximately $87,246,000 using the
exchange rate on date of rollover). The remaining 8,799,421 ZDP (2016) shares
were redeemed on 22 June 2016 the total redemption value being GBP32,870,000.
ZDP shares are designed to provide a pre-determined final capital entitlement
which ranks behind the Company's creditors but in priority to the capital
entitlements of the Ordinary shares. The ZDP shares carry no entitlement to
income and the whole of their return will therefore take the form of capital.
In certain circumstances, ZDP shares carry the right to vote at general
meetings of the Company as detailed in the Company's Memorandum of Articles and
Incorporation. Issue costs are deducted from the cost of the liability and
allocated to the Statement of Comprehensive Income over the life of the ZDP
shares.
ZDP (2022) Shares 28.2.2018 28.2.2017
US$ '000 US$ '000
Amortised cost at 1 March 53,935 57,400
Finance costs allocated to Statement of Comprehensive Income 2,996 2,853
Unrealised currency loss/(gain) gain to the Company on translation 5,912 (6,318)
during the year
Amortised cost at year end 62,843 53,935
Total number of ZDP (2022) shares in issue 11,907,720 11,907,720
ZDP (2016) Shares 28.2.2018 28.2.2017
US$ '000 US$ '000
ZDP shares issued 22 June 2009
Amortised cost at 1 March - 44,217
Finance costs allocated to Statement of Comprehensive Income - 1,180
Redeemed 22 June 2016 - (47,863)
Unrealised currency loss to the Company on translation during the - 2,466
year
Amortised cost at year end - -
17. Loans Payable
28.2.2018 28.2.2017
US$ '000 US$ '000
Guggenheim Partners Limited 150,125 97,396
150,125 97,396
Guggenheim Partners Limited
On 12 June 2015, JZCP entered into a loan agreement with Guggenheim Partners
Limited. The agreement was structured so that part of the proceeds (EUR18
million) were received and will be repaid in Euros and the remainder of the
facility were received in US dollars ($80 million). During April 2017, JZCP
increased its credit facility with Guggenheim Partners by $50 million.
The loan matures on 12 June 2021 (6 year term) and interest is payable at 5.75%
+ LIBOR(1). There is an interest rate floor that stipulates LIBOR will not be
lower than 1%. In this agreement, the presence of the floor does not
significantly alter the amortised cost of the instrument, therefore separation
is not required and the loan is valued at amortised cost using the effective
interest rate method.
At 28 February 2018, investments valued at $978,090,000 (28 February 2017:
$918,140,000) were held as collateral on the loan. A covenant on the loan
states the fair value of the collateral must be 4x the loan value and the cost
of collateral must be at least 57.5% of total assets. The Company is also
required to hold a minimum cash balance of $15 million2 plus 50% of interest on
any new debt. At 28 February 2018 and throughout the year, the Company was in
full compliance with covenant
terms.
There was an early repayment charge of 1% of the total loan, which expired on
12 June 2017.
28.2.2018 28.2.2017
US$ '000 US$ '000
Amortised cost (Dollar drawdown) - 1 March 78,572 77,916
Amortised cost (Euro drawdown) - 1 March 18,824 19,095
Proceeds - April 2017 (Dollar drawdown) 50,000 -
Issue costs (1,840) -
Finance costs charged to Statement of Comprehensive 11,551 7,545
Income
Interest and finance costs paid (9,750) (6,723)
Unrealised currency loss/(gain) on translation of Euro 2,768 (437)
drawdown
Amortised cost at year end 150,125 97,396
Amortised cost (Dollar drawdown) 128,407 78,572
Amortised cost (Euro drawdown) 21,718 18,824
150,125 97,396
The carrying value of the loans approximates to fair
value.
(1) LIBOR rates applied are the US dollar 3 month rate ($80 million) and the
Euro 3 month rate (EUR18 million).
(2) Treasury bills held and securities sold receivable at the year end total
value $75.0 million, are classified as cash for covenant purposes.
18. Other Payables
28.2.2018 28.2.2017
US$ '000 US$ '000
Provision for tax on dividends received not 1,401 1,401
withheld at source
Legal fee provision 250 250
Audit fees 223 224
Directors' remuneration 69 68
Other expenses 243 263
2,186 2,206
19. Stated Capital
Authorised Capital
Unlimited number of ordinary shares of no par value.
Ordinary shares - Issued Capital
28.2.2018 28.2.2017
Number of Number of
shares shares
Total Ordinary shares in issue 83,907,516 83,907,516
The Company's shares trade on the London Stock Exchange's Specialist Fund
Segment.
The Ordinary shares carry a right to receive the profits of the Company
available for distribution by dividend and resolved to be distributed by way of
dividend to be made at such time as determined by the Directors.
In addition to receiving the income distributed, the Ordinary shares are
entitled to the net assets of the Company on a winding up, after all
liabilities have been settled and the entitlement of the ZDP shares have been
met. In addition, holders of Ordinary shares will be entitled on a winding up
to receive any accumulated but unpaid revenue reserves of the Company, subject
to all creditors having been paid out in full but in priority to the
entitlements of the ZDP shares. Any distribution of revenue reserves on a
winding up is currently expected to be made by way of a final special dividend
prior to the Company's eventual
liquidation.
Holders of Ordinary shares have the rights to receive notice of, to attend and
to vote at all general meetings of the Company.
Capital raised on issue of new
shares
Subsequent amounts raised by the issue of new shares, net of issue costs, are
credited to the stated capital account. For the years ended 28 February 2018
and 2017 there was no movement on the Stated capital account, the balance
remained at $265,685,000.
20. Capital Management
The Company's capital is represented by the Ordinary shares, ZDP shares and
CULS.
As a result of the ability to issue, repurchase and resell shares, the capital
of the Company can vary. The Company is not subject to externally imposed
capital requirements and has no restrictions on the issue, repurchase or resale
of its
shares.
The Company's objectives for managing capital are:
* To invest the capital in investments meeting the description, risk exposure
and expected return indicated in its prospectus.
* To achieve consistent returns while safeguarding capital by investing in a
diversified portfolio.
* To maintain sufficient liquidity to meet the expenses of the
Company.
* To maintain sufficient size to make the operation of the Company
cost-efficient.
The Company continues to keep under review opportunities to buy back Ordinary
or ZDP shares.
The Company has adopted a new strategy enabling purchases by the Company of its
Ordinary Shares to be undertaken when opportunities in the market permit, and
as the Company's cash resources allow.
The Company monitors capital by analysing the NAV per share over time and
tracking the discount to the Company's share price. It also monitors the
performance of the existing investments to identify opportunities for exiting
at a reasonable return to the
shareholders.
21. Reserves
Capital raised on formation of Company
The Royal Court of Guernsey granted that on the admission of the Company's
shares to the Official List and to trading on the London Stock Exchange's
market, the amount credited to the share premium account of the Company
immediately following the admission of such shares be cancelled and any surplus
thereby created accrue to the Company's distributable reserves to be used for
all purposes permitted by The Companies (Guernsey) Law, 2008, including the
purchase of shares and the payment of dividends.
Summary of reserves attributable to Ordinary
shareholders
28.2.2018 28.2.2017
US$ '000 US$ '000
Stated capital account 265,685 265,685
Other reserve 353,528 353,528
Capital reserve 150,687 173,871
Revenue reserve 67,673 55,760
837,573 848,844
Other reserve
There was no movement in the Company's Other reserve for the years ended 28
February 2018 and 28 February 2017.
Subject to satisfaction of the solvency test, all of the Company's capital and
reserves are distributable in accordance with The Companies (Guernsey) Law,
2008.
Capital reserve
All surpluses arising from the realisation or revaluation of investments and
all other capital profits and accretions of capital are credited to the Capital
reserve. Any loss arising from the realisation or revaluation of investments or
any expense, loss or liability classified as capital in nature may be debited
to the Capital reserve.
Realised Unrealised Total
28.2.2018 28.2.2018 28.2.2018
US$ '000 US$ '000 US$ '000
At 1 March 2017 28,034 145,837 173,871
Net gain/(loss) on investments 54,694 (48,554) 6,140
Net gain/(loss) on foreign currency exchange 89 (6,546) (6,457)
Realised gains on investments held in escrow 1,922 - 1,922
accounts
Expenses charged to capital (996) (3,317) (4,313)
Net loss on CULS - (2,907) (2,907)
Finance costs (12,966) (4,603) (17,569)
At 28 February 2018 70,777 79,910 150,687
Realised Unrealised Total
28.2.2017 28.2.2017 28.2.2017
US$ '000 US$ '000 US$ '000
At 1 March 2016 59,560 97,226 156,786
Net gains on investments 12,768 18,305 31,073
Net (loss)/gain on foreign currency exchange (4,603) 9,331 4,728
Realised gains on investments held in escrow 5,942 - 5,942
accounts
Expenses charged to capital - (12,404) (12,404)
Net gain on CULS - 2,510 2,510
Finance costs (11,089) (3,675) (14,764)
Prior year ZDP (2016) finance costs and currency (34,544) 34,544 -
gains now realised
At 28 February 2017 28,034 145,837 173,871
Revenue reserve
28.2.2018 28.2.2017
US$ '000 US$ '000
At 1 March 55,760 75,740
Profit for the year attributable to revenue 11,913 5,612
Dividend paid - (25,592)
At year end 67,673 55,760
22. Financial Risk Management Objectives and Policies
Introduction
The Company's objective in managing risk is the creation and protection of
shareholder value. Risk is inherent in the Company's activities, but it is
managed through a process of ongoing identification, measurement and
monitoring, subject to risk limits and other controls. The process of risk
management is critical to the Company's continuing profitability. The Company
is exposed to market risk (including currency risk, fair value interest rate
risk, cash flow interest rate risk and price risk), credit risk and liquidity
risk arising from the financial instruments it
holds.
Risk management
structure
The Company's Investment Adviser is responsible for identifying and controlling
risks. The Directors supervise the Investment Adviser and are ultimately
responsible for the overall risk management approach within the Company.
Risk
mitigation
The Company's prospectus sets out its overall business strategies, its
tolerance for risk and its general risk management philosophy. The Company may
use derivatives and other instruments for trading purposes and in connection
with its risk management
activities.
Market
risk
Market risk is defined as "the risk that the fair value or future cash flows of
a financial instrument will fluctuate because of changes in variables such as
equity price, interest rate and foreign currency rate".
The Company's investments are subject to normal market fluctuations and there
can be no assurance that no depreciation in the value of those investments will
occur. There can be no guarantee that any realisation of an investment will be
on a basis which necessarily reflects the Company's valuation of that
investment for the purposes of calculating the NAV of the Company.
Changes in industry conditions, competition, political and diplomatic events,
tax, environmental and other laws and other factors, whether affecting the
United States alone or other countries and regions more widely, can
substantially and either adversely or favourably affect the value of the
securities in which the Company invests and, therefore, the Company's
performance and prospects.
The Company's market price risk is managed through diversification of the
investment portfolio across various sectors. The Investment Adviser considers
each investment purchase to ensure that an acquisition will enable the Company
to continue to have an appropriate spread of market risk and that an
appropriate risk/reward profile is maintained.
Equity price
risk
Equity price risk is the risk of unfavourable changes in the fair values of
equity investments as a result of changes in the value of individual shares.
The equity price risk exposure arose from the Company's investments in equity
securities.
The Company does not generally invest in liquid equity investments and the
previous portfolio of listed equity investments resulted from the successful
flotation of unlisted investments.
For unlisted equity and non-equity shares the market risk is deemed to be
inherent in the appropriate valuation methodology (earnings, multiples,
capitalisation rates etc). The impact on fair value and subsequent profit or
loss, due to movements in these variables, is set out in Note
5.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates
will affect future cash flows or the fair values of financial instruments. It
has not been the Company's policy to use derivative instruments to mitigate
interest rate risk, as the Investment Adviser believes that the effectiveness
of such instruments does not justify the costs involved.
The table below summarises the Company's exposure to interest rate risks:
Interest bearing Non interest
Fixed rate Floating bearing Total
rate
28.2.2018 28.2.2018 28.2.2018 28.2.2018
US$ '000 US$ '000 US$ '000 US$ '000
Investments at FVTPL 303,538 - 816,845 1,120,383
Cash and cash equivalents - 9,000 - 9,000
Securities sold receivable - 24,987 24,987
Other receivables and - - 2,158 2,158
prepayments
Loans payable - (150,125) - (150,125)
ZDP shares (2022) (62,843) - - (62,843)
CULS (59,970) - - (59,970)
Other payables - - (46,017) (46,017)
180,725 (141,125) 797,973 837,573
The table below summarises the Company's exposure to interest rate risks:
Interest bearing Non
interest
Fixed Floating bearing Total
rate rate
28.2.2017 28.2.2017 28.2.2017 28.2.2017
US$ '000 US$ '000 US$ '000 US$ '000
Investments at FVTPL 233,831 - 835,349 1,069,180
Other receivables and prepayments - - 520 520
Cash and cash - 29,063 - 29,063
equivalents
Loans payable - (97,396) - (97,396)
ZDP shares (2022) (53,935) - - (53,935)
CULS (57,063) - - (57,063)
Other payables - - (41,525) (41,525)
Total net assets 122,833 (68,333) 794,344 848,844
The following table analyses the Company's exposure in terms of the interest
bearing assets and liabilities maturity dates.
As at 28 February 2018
0-3 months 4-12 1 - <3 3 - <5 5 years No Total
months years years maturity
date
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Investments at - 8,053 67,373 3,889 - 224,223 303,538
FVTPL
Cash and cash - - - - - 9,000 9,000
equivalents
Loans payable - - - (150,125) - - (150,125)
ZDP shares (2022) - - - (62,843) - - (62,843)
CULS - - - (59,970) - - (59,970)
- 8,053 67,373 (269,049) - 233,223 39,600
As at 28 February 2017
0-3 months 4-12 1 - <3 3 - <5 5 years No Total
months years years maturity
date
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ US$
'000 '000
Investments at 18,249 - 40,809 9,734 - 165,039 233,831
FVTPL
Cash and cash - - - - - 29,063 29,063
equivalents
Loans payable - - - (97,396) - - (97,396)
ZDP shares - - - - (53,935) - (53,935)
(2022)
CULS - - - (57,063) - - (57,063)
18,249 - 40,809 (144,725) (53,935) 194,102 54,500
The income receivable by the Company is not subject to significant amounts of
risk due to fluctuations in the prevailing levels of market interest rates.
However, whilst the income received from fixed rate securities is unaffected by
changes in interest rates, the investments are subject to risk in the movement
of fair value. The Investment Adviser considers the risk in the movement of
fair value as a result of changes in the market interest rate for fixed rate
securities to be insignificant, hence no sensitivity analysis is
provided.
The Company values the CULS issued at fair value, being the quoted offer price.
As the stock has a fixed interest rate of 6% an increase/decrease of prevailing
interest rates will potentially have an effect on the demand for the CULS and
the subsequent fair value. Other factors such as the Company's ordinary share
price and credit rating will also determine the quoted offer price. The overall
risk to the Company due to the impact of interest rate changes to the CULS'
fair value is deemed immaterial. Therefore no sensitivity analysis is
presented.
Of the cash and cash equivalents held, $9,000,000 (28 February 2017:
$29,063,000) earns interest at variable rates and the income may rise and fall
depending on changes to interest rates.
The Investment Adviser monitors the Company's overall interest sensitivity on a
regular basis by reference to the current market rate and the level of the
Company's cash balances. The Company has not used derivatives to mitigate the
impact of changes in interest rates.
The table below demonstrates the sensitivity of the Company's profit/(loss) for
the year to a reasonably possible change in interest rates. The Company has
cash at bank and loans payable for which interest receivable and payable are
sensitive to a fluctuation to rates. The below sensitivity analysis assumes
year end balances and interest rates are constant through the
year.
Interest Receivable Interest Payable
28.2.2018 28.2.2017 28.2.2018 28.2.2017
Change in basis points increase/ US$ '000 US$ '000 US$ '000 US$ '000
decrease
+100/-100 90/(41) 291/(58) (1,300)/ (800)/nil
403
+300/-300 270/(41) 872/(58) (4,324)/ (2,713)/
403 nil
Currency risk
Currency risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates.
Changes in exchange rates are considered to impact the fair value of the
Company's investments denominated in Euros and Sterling. However, under IFRS
the foreign currency risk on these investments is deemed to be part of the
market price risk associated with such holding such non-monetary investments.
As the information relating to the non-monetary investments is significant, the
Company also provides the total exposure and sensitivity changes on
non-monetary investments on a voluntary basis.
The following table sets out the Company's exposure by currency to foreign
currency risk.
Exposure to Monetary Assets/Liabilities (held in foreign currencies)
Euro Sterling Total Euro Sterling Total
28.2.2018 28.2.2018 28.2.2018 28.2.2017 28.2.2017 28.2.2017
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Cash at Bank 2,798 - 2,798 4,803 705 5,508
Other Receivables - 11 11 - 25 25
Liabilities
CULS - (59,970) (59,970) - (57,063) (57,063)
ZDP (2022) shares - (62,843) (62,843) - (53,935) (53,935)
Loans payable (21,718) - (21,718) (18,824) - (18,824)
Other payables - (316) (316) - (311) (311)
Net Currency (18,920) (123,118) (142,038) (14,021) (110,579) (124,600)
Exposure
The sensitivity analysis for monetary and non-monetary net assets calculates
the effect of a reasonably possible movement of the currency rate against the
US dollar on an increase or decrease in net assets attributable to shareholders
with all other variables held constant. An equivalent decrease in each of the
aforementioned currencies against the US dollar would have resulted in an
equivalent but opposite impact.
Change Effect on net assets attributable to
in shareholders
Currency Currency Rate (relates to monetary financial assets and
liabilities)
28.2.2018 28.2.2017
US$ '000 US$ '000
Euro +10% (1,892) (1,402)
GBP +10% (12,312) (11,058)
Exposure to Non-Monetary Assets (held in foreign currencies)
Euro Sterling Total Euro Sterling Total
28.2.2018 28.2.2018 28.2.2018 28.2.2017 28.2.2017 28.2.2017
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Financial assets at 98,381 5,826 104,207 150,742 4,285 155,027
FVTPL
Net Currency 98,381 5,826 104,207 150,742 4,285 155,027
Exposure
Change Effect on net assets attributable to
in shareholders
Currency Currency Rate (relates to non-monetary financial assets)
28.2.2018 28.2.2017
US$ '000 US$ '000
Euro +10% 9,838 15,074
GBP +10% 583 429
Credit risk
The Company takes on exposures to credit risk, which is the risk that a
counterparty to a financial instrument will cause a financial loss to the
Company by failing to discharge an obligation. These credit exposures exist
within debt instruments and cash & cash equivalents.
They may arise, for example, from a decline in the financial condition of a
counterparty or from entering into derivative contracts under which
counterparties have obligations to make payments to the Company. As the
Company's credit exposure increases, it could have an adverse effect on the
Company's business and profitability if material unexpected credit losses were
to occur.
In the event of any default on the Company's loan investments by a
counterparty, the Company will bear a risk of loss of principal and accrued
interest of the investment, which could have a material adverse effect on the
Company's income and ability to meet financial obligations.
In accordance with the Company's policy, the Investment Adviser monitors the
Company's exposure to credit risk on a regular basis, by reviewing the
financial statements, budgets and forecasts of underlying investee
companies.
The table below analyses the Company's maximum exposure to credit risk.
Total Total
28.2.2018 28.2.2017
US$ '000 US$ '000
US micro-cap debt 21,966 24,209
European micro-cap debt 57,349 44,583
US Treasury Bills 49,975 -
Securities sold receivable 24,987 -
Cash and cash equivalents 9,000 29,063
163,277 97,855
A proportion of micro-cap and mezzanine debt held does not entitle the Company
to interest payment in cash. This interest is capitalised (PIK) and as a result
there is a credit risk to the Company, as there is no return until the loan
plus all the interest, is repaid in full. During the year ended 28 February
2018, the Company recognised PIK interest of $6,278,000 (28 February 2017:
$4,781,000) from debt investments as income in the Statement of Comprehensive
Income in line with the Company's policy of recognising interest in proportion
to the carrying value versus cost.
The following table analyses the concentration of credit risk in the Company's
debt portfolio by industrial distribution.
28.2.2018 28.2.2017
US$ '000 US$ '000
Private Security 34% 29%
Financial General 28% 27%
House, Leisure & Personal Goods 13% 10%
Logistics 10% 9%
Telecom 5% 4%
Document Processing 5% 4%
Healthcare Services & Equipment 5% 6%
Support Services 0% 11%
- -
100% 100%
The table below analyses the Company's cash and cash equivalents by rating
agency category.
Credit ratings
Standard & Poor's LT Issuer Default 28.2.2018 28.2.2017
Outlook Rating
US$ '000 US$ '000
HSBC Bank USA NA Stable (2017: Fitch- AA- (2017: 5,340 25,620
Negative) AA-)
Raymond James Positive (2017: S&P - BBB (2017: 3,277 3,267
Positive) Baa2)
Northern Trust Stable (2017: S&P - AA (2017: 383 176
(Guernsey) Stable) AA)
Limited
9,000 29,063
Bankruptcy or insolvency of the Banks may cause the Company's rights with
respect to these assets to be delayed or limited. The Investment Adviser
monitors risk by reviewing the credit rating of the Bank. If credit quality
deteriorates, the Investment Adviser may move the holdings to another bank.
The Company's CULS are valued at fair value being the listed offer price at the
year end. Movement in the fair value due to changes in the offer price are
considered the result of increased demand due to the underlying price of the
Company's Ordinary shares and underlying interest rates, rather than changes in
the Company's credit risk.
Liquidity risk
Liquidity risk is defined as the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities.
Liquidity risk arises because of the possibility that the Company could be
required to pay its liabilities earlier than expected. There has been no change
during the year in the Company's processes and arrangements for managing
liquidity.
Many of the Company's investments are private equity, mezzanine loans and other
unlisted investments. By their nature, these investments will generally be of a
long term and illiquid nature and there may be no readily available market for
sale of these investments. None of the Company's assets/liabilities are subject
to special arrangement due to their illiquid nature.
The Company has capital requirements to repay CULS and a debt facility in 2021
and ZDP shareholders in 2022. At the year end the Company has outstanding
investment commitments of $73,693,000 (2017: $76,751,000) see Note 23.
The Company manages liquidity risk and the ability to meet its obligations by
monitoring current and expected cash balances from forecasted investment
activity.
The table below analyses JZCP's financial liabilities into relevant maturity
groups based on the remaining period at the reporting date to the contractual
maturity date. Amounts attributed to CULS and ZDP share include future
contractual interest payments. The provision for the payment of a capital gains
incentive fee is shown as 'no stated maturity', as payment depends on future
realisations.
At 28 February 2018 Less than 1 >1 year - >3 years - >5 years No stated
year 3 years 5 years maturity
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
CULS 3,213 6,425 54,883 - -
ZDP (2022) shares - - 79,361 - -
Loans payable 10,660 21,320 154,962 - -
Other payables 5,407 - - - 40,610
19,280 27,745 289,206 - 40,610
At 28 February 2017 Less than 1 >1 year - >3 years - >5 years No stated
year 3 years 5 years maturity
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
CULS 2,902 5,803 52,469 - -
ZDP (2022) shares - - - 71,675 -
Loans payable 6,691 13,382 107,706 - -
Other payables 4,232 - - - 37,293
13,825 19,185 160,175 71,675 ` 37,293
23. Commitments
At 28 February 2018 and 28 February 2017, JZCP had the following financial
commitments outstanding in relation to fund investments:
Expected date 28.2.2018 28.2.2017
of Call US$ '000 US$ '000
JZI Fund III GP, L.P. (EUR46,897,000 outstanding Over 3 years 57,198 56,410
at year end)
Spruceview Capital Partners, LLC Over 2 years 4,990 8,836
Orizon < 1 year 4,158 4,158
Suzo Happ Group > 3 years 4,491 4,491
BSM Engenharia S.A. > 3 years 2,085 2,085
Igloo Products Corp > 3 years 771 771
73,693 76,751
24. Related Party Transactions
JZCP invests in European micro-cap companies via JZI Fund III, L.P. ("Fund
III"), previously investments were made via the EuroMicrocap Fund 2010, L.P.
("EMC 2010") and EuroMicrocap Fund-C, L.P. ("EMCC"). Fund III, EMC 2010 and
EMC-C are managed by an affiliate of JZAI, JZCP's investment manager. JZAI was
founded by David Zalaznick and John ("Jay") Jordan. At 28 February 2018, JZCP's
investments in Fund III were valued at $42,291,000 (28 February 2017:
$26,779,000). EMC 2010 were valued at $33,000 (28 February 2017: $21,433,000)
and EMCC at $3,784,000 (28 February 2017: $61,482,000).
JZCP has invested in Spruceview Capital Partners, LLC on a 50:50 basis with Jay
Jordan and David Zalaznick (or their respective affiliates). The total amount
committed by JZCP to this investment at 28 February 2018, was $30,000,000 with
$4,990,000 (28 February 2017: $8,836,000) of commitments outstanding.
JZCP has co-invested with Fund A, Fund A Parallel I, II and III Limited
Partnerships in a number of US micro-cap buyouts. These Limited Partnerships
are managed by an affiliate of JZAI. JZCP invested in a ratio of 82%/18% with
the Fund A entities. At 28 February 2018, the total value of JZCP's
investment in these co-investments was $354,617,000 (28 February 2017:
$326,290,000). Fund A, Fund A Parallel I, II and III Limited Partnerships are
no longer making platform investments alongside JZCP.
JZAI is a US based company that provides advisory services to the Board of
Directors of the Company in exchange for management fees, paid quarterly. Fees
paid by the Company to the Investment Adviser are detailed in Note 10. JZAI and
various affiliates provide services to certain JZCP portfolio companies and may
receive fees for providing these services pursuant to the Advisory Agreement.
JZCP is able to invest up to $75 million in "New JI Platform Companies". The
platform companies are being established to invest primarily in buyouts and
build-ups of companies and in growth company platforms in the US micro-cap
market, primarily healthcare equipment companies. At 28 February 2018, JZCP had
invested $36.0 million (28 February 2017: $31.5 million) and during the year
received a partial redemption of $7.6 million in Avante (formerly named Jordan
Health Products). JZCP co-invests 50/50 in the platform companies with other
investors ("JI members"). David Zalaznick and an affiliated entity of Jay
Jordan own approximately 33.7% of the JI member's ownership interests.
25. Basic and Diluted Earnings/Loss) Per Share
Basic earnings/(loss) per share is calculated by dividing the earnings/(loss)
for the year by the weighted average number of Ordinary shares outstanding
during the year.
For the years ended 28 February 2018 and 28 February 2017, the weighted average
number of Ordinary shares outstanding during the year was 83,907,516.
The diluted earnings/(loss) per share are calculated by considering adjustments
required to the earnings and weighted average number of shares for the effects
of potential dilutive Ordinary shares. The weighted average of the number of
Ordinary shares is adjusted assuming the conversion of the CULS ("If-converted
method"). Conversion is assumed even though at 28 February 2018 and 28 February
2017 the exercise price of the CULS is higher than the market price of the
Company's Ordinary shares and are therefore deemed 'out of the money'. Earnings
are adjusted to remove the fair value (loss)/gain of $(2,907,000) (28 February
2017: $2,510,000) and finance cost attributable to CULS of $3,022,000 (28
February 2017: $3,190,000). For the year ended 28 February 2018, the potential
conversion of the CULS would be anti-dilutive to the total loss per share,
therefore the diluted earnings/(loss) per share is presented as per the basic
earnings/(loss) per share calculation.
26. Controlling Party
The issued shares of the Company are owned by a number of parties, and
therefore, in the opinion of the Directors, there is no ultimate controlling
party of the Company, as defined by IAS 24 - Related Party Disclosures.
27. Net Asset Value Per Share
The net asset value per Ordinary share of $9.98 (28 February 2017: $10.12) is
based on the net assets at the year end of $837,573,000 (28 February 2017:
$848,844,000) and on 83,907,516 (28 February 2017: 83,907,516) Ordinary shares,
being the number of Ordinary shares in issue at the year end.
28. Contingent Assets
Amounts held in escrow accounts
When investments have been disposed of by the Company, proceeds may reflect
contractual terms requiring that a percentage is held in an escrow account
pending resolution of any indemnifiable claims that may arise. At 28 February
2018 and 28 February 2017, the Company has assessed that the likelihood of the
recovery of these escrow accounts cannot be determined and has therefore
recognised the escrow accounts as a contingent asset.
As at 28 February 2018 and 28 February 2017, the Company had the following
contingent assets held in escrow accounts which had not been recognised as
assets of the Company:
Company Amount in Escrow
28.2.2018 28.2.2017
US$'000 US$'000
K2 Towers 1,551 -
CBO Holdings 294 -
SPL 107 -
ETX Holdings, Inc. - 77
1,952 77
During the year ended 28 February 2018 proceeds of $1,922,000 (28 February
2017: $5,942,000) were realised during the year and recorded in the Statement
of Comprehensive Income.
Year Ended Year Ended
28.2.2018 28.2.2017
US$'000 US$'000
Escrows at 1 March 77 4,547
Additional escrows recognised in year not reflected in opening 3,797 1,523
position
Escrows recognised in opening position and written off - (51)
in year
Escrow receipts during the year (1,922) (5,942)
Escrows at year end 1,952 77
29. Notes to the Statement of Cash Flows
Reconciliation of the (loss)/profit for the year to net cash from Year Ended Year Ended
operating activities
28.2.2018 28.2.2017
US$ '000 US$ '000
(Loss)/profit for the year (11,271) 22,697
(Increase)/decrease in other receivables and prepayments (43) 13
(Decrease)/increase in other (20) 86
payables
Increase in amount owed to Investment Adviser 4,512 12,285
Deposits paid for real estate investments (1,595) -
Net gains on investments (6,140) (28,699)
Currency loss/(gain) on ZDP shares 5,912 (3,852)
Currency loss/(gain) on Guggenheim loan 2,768 (437)
Unrealised foreign exchange movements on cash at bank (shown as net (304) (396)
movement in cash)
Unrealised loss/(gain) on CULS valued at fair value 2,907 (2,510)
Increase in accrued interest on investments, accumulated preferred (30,837) (20,816)
dividends and PIK
Finance costs 17,569 14,764
Net write back of impairments on loans and - (2,374)
receivables
Net cash outflow from operating activities (16,542) (9,239)
Investment income received during the year Year Ended Year Ended
28.2.2018 28.2.2017
US$ '000 US$ '000
Interest on investments 2,787 4,584
Bank interest 128 41
2,915 4,625
Purchases and sales of investments are considered to be operating activities of
the Company, given its purpose, rather than investing activities. The cash
flows arising from these activities are shown in the Statement of Cash Flows.
Changes in financing liabilities arising from both cash flow and non-cash flow
items
Non-cash changes
1.3.2017 Cash Fair Value Finance Foreign 28.2.2018
flows Costs Exchange
US$ '000 US$ '000 US$ US$ '000 US$ '000 US$ '000
'000
Zero Dividend Preference 53,935 - - 2,996 5,912 62,843
(2022) shares
Convertible Unsecured Loan 57,063 (3,022) (2,901) 3,022 5,808 59,970
Stock
Loans payable 97,396 38,410 - 11,551 2,768 150,125
208,394 35,388 (2,901) 17,569 14,488 272,938
30. Dividends Paid and Proposed
No dividends were paid or proposed for the year ended 28 February 2018 in line
with agreed discontinuation of the dividend policy. During the year ended 28
February 2017, an interim dividend of 15.5 cents per Ordinary share (total
$13,006,000) was paid by the Company on 25 November 2016. A second interim
dividend relating to the 2016 financial year end, of 15 cents per share (total
$12,586,000) was paid on 10 June 2016.
31. Financial highlights
The following table presents performance information derived from the financial
statements.
28.2.2018 28.2.2017
US$ US$
Net asset value per share at the beginning of the 10.12 10.15
year
Performance during the year (per share):
Net investment income 0.14 0.07
Incentive fee (0.05) (0.15)
Net realised and unrealised (loss)/gain (0.02) 0.53
Finance costs (0.21) (0.18)
Dividends paid - (0.305)
Total return (0.14) (0.03)
Net asset value per share at the end of the year 9.98 10.12
Total Return (1.41%) (0.34%)
Net investment income to average net assets excluding incentive 1.41% 0.68%
fee
Operating expenses to average net assets (2.41%) (2.25%)
Incentive fees to average net assets (0.50%) (1.47%)
Operating expenses to average net assets including incentive (2.91%) (3.72%)
fee
Finance costs to average net assets (2.11%) (1.76%)
32. US GAAP reconciliation
The Company's financial statements are prepared in accordance with IFRS, which
in certain respects differ from the accounting principles generally accepted in
the United States ("US GAAP"). It is the opinion of the Directors that these
differences are not material and therefore no reconciliation between IFRS, as
adopted by the EU, and US GAAP has been presented.
33. Subsequent Events
These financial statements were approved by the Board on 21 May 2018.
Subsequent events have been evaluated until this date.
During March 2018, the Company announced the realisation of the Company's
Healthcare Revenue Cycle Management vertical and its water filtration business
'Paragon Water Systems'. Gross proceeds (including escrows) are expected of
approximately $110.0 and $16.2 million respectively.
During April 2018, the Company commenced its share buyback programme, buying
188,685 shares at an average cost of GBP4.87 per share.
Company Advisers
Investment Adviser Independent Auditor
The Investment Adviser to JZ Capital Ernst & Young LLP
Partners Limited
("JZCP") is Jordan/Zalaznick Advisers, PO Box 9
Inc., ("JZAI") a company beneficially owned
by John (Jay) W Jordan II and David W Royal Chambers
Zalaznick. The company was formed for the
purpose of advising the Board of JZCP on St Julian's Avenue
investments in leveraged securities,
primarily related to private equity St Peter Port
transactions. JZAI has offices in New York
and Chicago. Guernsey GY1 4AF
UK Solicitors
Ashurst LLP
Jordan/Zalaznick Advisers, Inc. Broadwalk House
9 West, 57th Street 5 Appold Street
New York NY 10019 London EC2A 2HA
Registered Office US Lawyers
PO Box 255 Monge Law Firm, PLLC
Trafalgar Court 333 West Trade Street
Les Banques Charlotte, NC 28202
St Peter Port
Guernsey GY1 3QL Mayer Brown LLP
214 North Tryon Street
JZ Capital Partners Limited is registered Suite 3800
in Guernsey
Number 48761 Charlotte NC 28202
Administrator, Registrar and Secretary Winston & Strawn LLP
Northern Trust International Fund 35 West Wacker Drive
Administration
Services (Guernsey) Limited Chicago IL 60601-9703
PO Box 255
Trafalgar Court Guernsey Lawyers
Les Banques Mourant Ozannes
St Peter Port P.O Box 186
Guernsey GY1 3QL 1 Le Marchant Street
St Peter Port
UK Transfer and Paying Agent Guernsey GY1 4HP
Equiniti Limited
Aspect House Financial Adviser and Broker
Spencer Road JP Morgan Cazenove Limited
Lancing 20 Moorgate
West Sussex BN99 6DA London EC2R 6DA
US Bankers
HSBC Bank USA NA
452 Fifth Avenue
New York NY 10018
(Also provides custodian services to JZ
Capital Partners
Limited under the terms of a Custody
Agreement).
Guernsey Bankers
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA
Useful Information for Shareholders
Listing
JZCP Ordinary, Zero Dividend Preference ("ZDP") shares and Convertible
Unsecured Loan Stock ("CULS") are listed on the Official List of the Financial
Services Authority of the UK, and are admitted to trading on the London Stock
Exchange Specialist Fund Segment for listed securities.
The price of the Ordinary shares are shown in the Financial Times under
"Conventional Private Equity" and can also be found at https://markets.ft.com
along with the prices of the ZDP shares and CULS.
ISIN/SEDOL
Ticker Symbol ISIN Code Sedol Number
Ordinary shares JZCP GG00B403HK58 B403HK5
ZDP (2022) shares JZCZ GG00BZ0RY036 Z0RY03
CULS JZCC GG00BP46PR08 BP46PR0
Key Information Documents
JZCP produces Key Information Documents to assist investors' understanding of
the Company's securities and to enable comparrison with other investment
products. These documents are found on the Company's webstite - www.jzcp.com/
investor- relations/key-information-documents.
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance Measures ("APMs")
the Board has considered what APMs are included in the annual report and
financial statements which require further clarification. An APM is defined as
a financial measure of historical or future financial performance, financial
position, or cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. APMs included in the annual
report and financial statements, which are unaudited and outside the scope of
IFRS, are deemed to be as follows:
Total NAV Return
The Total NAV Return measures how the net asset value (NAV) per share has
performed over a period of time, taking into account both capital returns and
dividends paid to shareholders. JZCP quotes NAV total return as a percentage
change from the start of the period (one year) and also three-month,
three-year, five-year and seven year periods. It assumes that dividends paid to
shareholders are reinvested back into the Company therefore future NAV gains
are not diminished by the paying of dividends. JZCP also produces an adjusted
Total NAV Return which excludes the effect of the dilution per share caused by
the issue of shares at a discount to NAV, the result of the adjusted Total NAV
return is to provide a measurement of how the Company's Investment portfolio
contributed to NAV growth adjusted for the Company's expenses and finance
costs. The Total NAV Return for the year ended 28 February 2018 was -1.4%,
which only reflects the change in NAV as no dividends were paid during the
year. The Total NAV Return for the year ended 28 February 2017 was 2.7%, which
included dividends paid of 30.5 cents.
Total Shareholder Return
A measure showing how the share price has performed over a period of time,
taking into account both capital returns and dividends paid to shareholders.
JZCP quotes shareholder price total return as a percentage change from the
start of the period (one year) and also three-month, three-year, five-year and
seven-year periods. It assumes that dividends paid to shareholders are
reinvested in the shares at the time the shares are quoted ex dividend. The
Shareholder Return for the year ended 28 February 2018 was -16.2%, which only
reflects the change in share price as no dividends were paid during the year.
The Shareholder Return for the year ended 28 February 2017 was 42.8%, which
included dividends paid (Sterling equivalent) of 23.0 cents.
NAV to market price discount
The NAV per share is the value of all the company's assets, less any
liabilities it has, divided by the number of shares. However, because JZCP
shares are traded on the London Stock Exchange's Specialist Fund Segment, the
share price may be higher or lower than the NAV. The difference is known as a
discount or premium. JZCP's discount is calculated by expressing the difference
between the period end dollar equivalent share price and the period end NAV per
share as a percentage of the NAV per share.
At 28 February 2018, JZCP's Ordinary shares traded at GBP4.51 (2017: GBP5.38)) or
$6.21 (2017: $6.69) being the dollar equivalent using the year end exchange
rate of GBP1: $1.38 (2017 GBP1: $1.24). The shares traded at a 38% (2017: 34%)
discount to the NAV per share of $9.98 (2017: $10.12).
Ongoing Charges calculation
A measure expressing the Ongoing annualised expenses as a percentage of the
Company's average annualised net assets over the year 2.35% (2017: 2.26%).
Ongoing charges, or annualised recurring operating expenses, are those expenses
of a type which are likely to recur in the foreseeable future, whether charged
to capital or revenue, and which relate to the operation of the company,
excluding the Investment Adviser's Incentive fee, financing charges and gains/
losses arising on investments.
Ongoing expenses for the year are $19,580,000 (2017: $19,415,000) comprising of
the IA base fee $16,912,000 (2017: $16,865,000), administrative fees $2,253,000
(2017: $2,135,000) and directors fees $415,000 (2017:$415,000). Average net
assets for the year are calculated using quarterly NAVs $836,038,000 (2017:
$857,768,000).
Criminal Facilitation of Tax Evasion
The Board have approved a policy of zero tolerance towards the criminal
facilitation of tax evasion, in compliance with the Criminal Finances Act
2017.
Non-Mainstream Pooled Investments
From 1 January 2014, the FCA rules relating to the restrictions on the retail
distribution of unregulated collective investment schemes and close substitutes
came into effect. JZCP's Ordinary shares qualify as an 'excluded security'
under these rules and will therefore be excluded from the FCA's restrictions
which apply to non-mainstream investment products. Therefore Ordinary shares
issued by JZ Capital Partners can continue to be recommended by financial
advisors as an investment for UK retail investors.
Financial Diary
Annual General Meeting 26 June 2018
Interim report for the six months ended 31 November 2018 (date to be confirmed)
August 2018
Results for the year ended 28 February May 2019 (date to be confirmed)
2019
JZCP will be issuing an Interim Management Statement for the quarters ending 31
May 2018 and 30 November 2018. These Statements will be sent to the market via
RNS within six weeks from the end of the appropriate quarter, and will be
posted on JZCP's website at the same time, or soon thereafter.
Payment of Dividends
In the event of a cash dividend being paid, the dividend will be sent by cheque
to the first-named shareholder on the register of members at their registered
address, together with a tax voucher. At shareholders' request, where they have
elected to receive dividend proceeds in Sterling, the dividend may instead be
paid direct into the shareholder's bank account through the Bankers' Automated
Clearing System. Payments will be paid in US dollars unless the shareholder
elects to receive the dividend in Sterling. Existing elections can be changed
by contacting the Company's Transfer and Paying Agent, Equiniti Limited on +44
(0) 121 415 7047.
Share Dealing
Investors wishing to buy or sell shares in the Company may do so through a
stockbroker. Most banks also offer this service.
Internet Address
The Company: www.jzcp.com
Foreign Account Tax Compliance Act
The Company is registered (with a Global Intermediary Identification Number
CAVBUD.999999.SL.831) under The Foreign Account Tax Compliance Act ("FATCA").
Share Register Enquiries
The Company's UK Transfer and Paying Agent, Equiniti Limited, maintains the
share registers. In event of queries regarding your holding, please contact the
Registrar on 0871 384 2265, calls to this number cost 8p per minute from a BT
landline, other providers' costs may vary. Lines are open 8.30 a.m. to 5.30
p.m., Monday to Friday, If calling from overseas +44 (0) 121 415 7047 or access
their website at www.equiniti.com. Changes of name or address must be notified
in writing to the Transfer and Paying Agent.
Nominee Share Code
Where notification has been provided in advance, the Company will arrange for
copies of shareholder communications to be provided to the operators of nominee
accounts. Nominee investors may attend general meetings and speak at meetings
when invited to do so by the Chairman.
Documents Available for Inspection
The following documents will be available at the registered office of the
Company during usual business hours on any weekday until the date of the Annual
General Meeting and at the place of the meeting for a period of fifteen minutes
prior to and during the meeting:
(a) the Register of Directors' Interests in the stated capital of the Company;
(b) the Articles of Incorporation of the Company; and
(c) the terms of appointment of the Directors.
Warning to Shareholders - Boiler Room Scams
In recent years, many companies have become aware that their shareholders have
been targeted by unauthorised overseas- based brokers selling what turn out to
be non-existent or high risk shares, or expressing a wish to buy their shares.
If you are offered, for example, unsolicited investment advice, discounted JZCP
shares or a premium price for the JZCP shares you own, you should take these
steps before handing over any money:
* Make sure you get the correct name of the person or organisation
* Check that they are properly authorised by the FCA before getting involved
by visiting http://www.fca.org.uk/firms/systems- reporting/register
* Report the matter to the FCA by calling 0800 111 6768
* If the calls persist, hang up
* More detailed information on this can be found on the Money Advice Service
website www.moneyadviceservice.org.uk
US Investors
General
The Company's Articles contain provisions allowing the Directors to decline to
register a person as a holder of any class of ordinary shares or other
securities of the Company or to require the transfer of those securities
(including by way of a disposal effected by the Company itself) if they believe
that the person:
(a) is a "US person" (as defined in Regulation S under the US
Securities Act of 1933, as amended) and not a "qualified purchaser" (as defined
in the US Investment Company Act of 1940, as amended, and the related rules
thereunder);
(b) is a "Benefit Plan Investor" (as described under "Prohibition
on Benefit Plan Investors and Restrictions on Non-ERISA Plans" below); or
(c) is, or is related to, a citizen or resident of the United
States, a US partnership, a US corporation or a certain type of estate or trust
and that ownership of any class of ordinary shares or any other equity
securities of the Company by the person would materially increase the risk that
the Company could be or become a "controlled foreign corporation" (as described
under "US Tax Matters").
In addition, the Directors may require any holder of any class of ordinary
shares or other securities of the Company to show to their satisfaction whether
or not the holder is a person described in paragraphs (A), (B) or (C) above.
US Securities Laws
The Company (a) is not subject to the reporting requirements of the US
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and does not
intend to become subject to such reporting requirements and (b) is not
registered as an investment company under the US Investment Company Act of
1940, as amended (the "1940 Act"), and investors in the Company are not
entitled to the protections provided by the 1940 Act.
Prohibition on Benefit Plan Investors and Restrictions on Non-ERISA Plans
Investment in the Company by "Benefit Plan Investors" is prohibited so that the
assets of the Company will not be deemed to constitute "plan assets" of a
"Benefit Plan Investor". The term "Benefit Plan Investor" shall have the
meaning contained in Section 3(42) of the US Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and includes (a) an "employee
benefit plan" as defined in Section 3(3) of ERISA that is subject to Part 4 of
Title I of ERISA; (b) a "plan" described in Section 4975(e)(1) of the US
Internal Revenue Code of 1986, as amended (the "Code"), that is subject to
Section 4975 of the Code; and (c) an entity whose underlying assets include
"plan assets" by reason of an employee benefit plan's or a plan's investment in
such entity. For purposes of the foregoing, a "Benefit Plan Investor" does not
include a governmental plan (as defined in Section 3(32) of ERISA), a non-US
plan (as defined in Section 4(b)(4) of ERISA) or a church plan (as defined in
Section 3(33) of ERISA) that has not elected to be subject to ERISA.
Each purchaser and subsequent transferee of any class of ordinary shares (or
any other class of equity interest in the Company) will be required to
represent, warrant and covenant, or will be deemed to have represented,
warranted and covenanted, that it is not, and is not acting on behalf of or
with the assets of, a Benefit Plan Investor to acquire such ordinary shares (or
any other class of equity interest in the Company).
Under the Articles, the directors have the power to require the sale or
transfer of the Company's securities in order to avoid the assets of the
Company being treated as "plan assets" for the purposes of ERISA.
The fiduciary provisions of pension codes applicable to governmental plans,
non-US plans or other employee benefit plans or retirement arrangements that
are not subject to ERISA (collectively, "Non-ERISA Plans") may impose
limitations on investment in the Company. Fiduciaries of Non-ERISA Plans, in
consultation with their advisors, should consider, to the extent applicable,
the impact of such fiduciary rules and regulations on an investment in the
Company.
Among other considerations, the fiduciary of a Non-ERISA Plan should take into
account the composition of the Non-ERISA Plan's portfolio with respect to
diversification; the cash flow needs of the Non-ERISA Plan and the effects
thereon of the illiquidity of the investment; the economic terms of the Non-
ERISA Plan's investment in the Company; the Non-ERISA Plan's funding
objectives; the tax effects of the investment and the tax and other risks
associated with the investment; the fact that the investors in the Company are
expected to consist of a diverse group of investors (including taxable,
tax-exempt, domestic and foreign entities) and the fact that the management of
the Company will not take the particular objectives of any investors or class
of investors into account.
Non-ERISA Plan fiduciaries should also take into account the fact that, while
the Company's board of directors and its investment advisor will have certain
general fiduciary duties to the Company, the board and the investment advisor
will not have any direct fiduciary relationship with or duty to any investor,
either with respect to its investment in Shares or with respect to the
management and investment of the assets of the Company. Similarly, it is
intended that the assets of the Company will not be considered plan assets of
any Non-ERISA Plan or be subject to any fiduciary or investment restrictions
that may exist under pension codes specifically applicable to such Non-ERISA
Plans. Each Non-ERISA Plan will be required to acknowledge and agree in
connection with its investment in any securities to the foregoing status of the
Company, the board and the investment advisor that there is no rule, regulation
or requirement applicable to such investor that is inconsistent with the
foregoing description of the Company, the board and the investment advisor.
Each purchaser or transferee that is a Non-ERISA Plan will be deemed to have
represented, warranted and covenanted as follows:
(a) The Non-ERISA Plan is not a Benefit Plan Investor;
(b) The decision to commit assets of the Non-ERISA Plan for investment in
the Company was made by fiduciaries independent of the Company, the Board, the
Investment Advisor and any of their respective agents, representatives or
affiliates, which fiduciaries
(i) are duly authorized to make such investment decision and have not relied
on any advice or recommendations of the Company, the Board, the Investment
Advisor or any of their respective agents, representatives or affiliates and
(ii) in consultation with their advisers, have carefully considered the impact
of any applicable federal, state or local law on an investment in the Company;
(c) None of the Company, the Board, the Investment Advisor or any of their
respective agents, representatives or affiliates has exercised any
discretionary authority or control with respect to the Non-ERISA Plan's
investment in the Company, nor has the Company, the Board, the Investment
Advisor or any of their respective agents, representatives or affiliates
rendered individualized investment advice to the Non-ERISA Plan based upon the
Non-ERISA Plan's investment policies or strategies, overall portfolio
composition or diversification with respect to its commitment to invest in the
Company and the investment program thereunder; and
(d) It acknowledges and agrees that it is intended that the Company will not
hold plan assets of the Non-ERISA Plan and that none of the Company, the Board,
the Investment Advisor or any of their respective agents, representatives or
affiliates will be acting as a fiduciary to the Non-ERISA Plan under any
applicable federal, state or local law governing the Non-ERISA Plan, with
respect to either (i) the Non-ERISA Plan's purchase or retention of its
investment in the Company or (ii) the management or operation of the business
or assets of the Company. It also confirms that there is no rule, regulation,
or requirement applicable to such purchaser or transferee that is inconsistent
with the foregoing description of the Company, the Board and the Investment
Advisor.
US Tax Matters
This discussion does not constitute tax advice and is not intended to be a
substitute for tax advice and planning. Prospective holders of the
Company's securities must consult their own tax advisers concerning the US
federal, state and local income tax and estate tax consequences
in their particular situations of the acquisition, ownership
and disposition of any of the Company's securities,
as well as any consequences under the laws of any other taxing jurisdiction.
The Company's directors are entitled to decline to register a person as, or to
require such person to cease to be, a holder of any class of ordinary shares or
other equity securities of the Company if they believe that: such person is, or
is related to, a citizen or resident of the United States, a US partnership, a
US corporation or a certain type of estate or trust and that ownership of any
class of ordinary shares or any other equity securities of the Company by such
person would materially increase the risk that the Company could be or become a
"controlled foreign corporation" within the meaning of the Code (a "CFC").
In general, a foreign corporation is treated as a CFC only if its "US
shareholders" collectively own more than 50% of the total combined voting power
or total value of the corporation's stock. A "US shareholder" means any US
person who owns, directly or indirectly through foreign entities, or is
considered to own (by application of certain constructive ownership rules), 10%
or more of the total combined voting power of all classes of stock of a foreign
corporation, such as the Company.
There is a risk that the Company will decline to register a person as, or will
require such person to cease to be, a holder of the Company's securities if the
Company could be or become a CFC. The Company's treatment as a CFC could have
adverse tax consequences for US taxpayers.
The Company has been advised that it is NOT a passive foreign investment
company ("PFIC") for the fiscal years ended February 2017 and 2016. A
classification as a PFIC would likely have an adverse tax consequences for US
taxpayers.
The taxation of a US taxpayer's investment in the Company's securities is
highly complex. Prospective holders of the Company's securities must consult
their own tax advisers concerning the US federal, state and local income tax
and estate tax consequences in their particular situations of the acquisition,
ownership and disposition of any of the Company's securities, as well as any
consequences under the laws of any other taxing jurisdiction.
Investment Adviser's ADV Form
Shareholders and state securities authorities wishing to view the Investment
Adviser's ADV form can do so by following the link below:
https://adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?ORG_PK=160932
[1] Factor Energia total gross proceeds of approximately EUR69.7 million ($85.0
million) (including interim distributions and future expected proceeds all
multiplied by a theoretical, illustrative exchange rate of $1.22 to EUR1.00,
which is current as of April 25, 2018 per Oanda.com). K2 Towers total expected
gross proceeds of approximately $31.3 million. Nielsen-Kellerman total gross
proceeds of approximately $8.6 million. Paragon (post-period) expected total
gross proceeds of $16.2 million. Bolder Healthcare Solutions (post-period)
expected total gross proceeds of approximately $110.0 million.
END
(END) Dow Jones Newswires
May 22, 2018 02:00 ET (06:00 GMT)
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