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 YEAR ENDED
28 FEBRUARY 2022
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section
1.1)
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014 WHICH FORMS PART
OF UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018
("MAR").
15 June
2022
JZ Capital Partners, the London
listed fund that has investments in US and European micro-cap
companies and US real estate, announces its preliminary results for
the year ended 28 February 2022.
Financial Highlights
· NAV per share of $4.29 (FYE 28/02/21: $4.25)
· NAV of $332.3
million (FYE 28/02/21: $329.5
million)
· Total realisations of $65.8 million, including: the sale of JZCP’s
investment in Salter Labs, proceeds from selling down the “funded
portion” of its commitment to the Orangewood Fund; and the sale of
George Industries, Igloo and Vitalyst.
Investment Policy and Liquidity
· The Company’s objective remains
realising the maximum value from its investment portfolio and,
after repaying its debt obligations (which includes the £57.6
million of Zero Dividend Preference Shares (“ZDPs”) due
1 October 2022), the return of
capital to shareholders.
· The US and European micro-cap
portfolios have generally performed well, and both portfolios are
working towards several realizations.
· To meet this challenge and afford the
Company more time to maximise the value of its portfolio and bring
these businesses to market, the following transactions have taken
place in regard to the Company’s indebtedness:
o The Company realised its investment in Salter Labs above
NAV, receiving net proceeds of approximately $41 million.
o The Company drew down $31.5
million of Subordinated Notes (payable on 11 September 2022) under a facility made
available by affiliates of Jay
Jordan and David Zalaznick
(as approved by shareholders).
o The Company redeemed approximately £38.8 million
(approximately $54.1 million) of
Convertible Unsecured Loan Stock on its maturity date of
30 July 2021.
o The Company repaid its previous senior facility (the
“Previous Senior Facility”) which was provided by clients and funds
managed by Cohanzick Management, LLC and CrossingBridge Advisors,
LLC in an amount of approximately $52.9
million, prior to such facility’s maturity date of
12 June 2022.
o On 26 January 2022, the
Company entered into a new five-year term senior secured loan
facility (the “New Senior Facility”) with WhiteHorse Capital
Management LLC. The New Senior facility consists of a $45.0 million first lien term loan (which was
drawn at close) and up to an additional $25.0 million in first lien delayed draw term
loan (which remains undrawn) – the New Senior Facility is due on
26 January 2027.
o In March 2022
(post-period), the Secondary Fund, in which the Company has a
Special Limited Partnership (“LP”) Interest, sold its interest in
Flow Control Holdings LLC (“Flow Control”) for a consideration of
approximately $77.7 million. Whilst
reflected in the Company's valuation of its Special LP Interest as
at 28 February 2022, this
transaction conferred no immediate cash benefit to the Company, as
the other investors in the Secondary Fund (the “Secondary
Investors”) have an entitlement to a priority return of 1.4x
invested capital prior to any distributions being made to the
Company. However, as a result of the distribution made to the
Secondary Investors from the Flow Control realization (as well as
other smaller transactions), the balance outstanding on the
Secondary Investors’ priority return was significantly reduced from
approximately $132.6 million to
approximately $35.5 million. Once the
remaining balance on the priority return has been distributed to
the Secondary Investors, the Company will be entitled to receive
95% of all subsequent distributions until the Company has received
$67.6 million in proceeds.
Thereafter, the Company will receive 37.5% of all further
distributions.
o In May 2022 (post-period),
a portfolio company of the Secondary Fund executed an agreement to
sell certain of its interests, with the Secondary Fund expecting to
receive a distribution from such portfolio company of net proceeds
it receives in such sale of approximately $165-$180 million.
Pursuant to the Secondary Fund’s waterfall, such portfolio company
sale is expected to result in JZCP receiving a distribution from
the Secondary Fund of approximately $89-$94 million,
which would correspond to a NAV uplift to JZCP in the range of
approximately 56-63 cents per
ordinary share. It is hoped that closing of this transaction is
imminent but at the moment it remains conditional. Such uplift has
not been reflected in the Company's valuation of its Special LP
Interest in the Secondary Fund as at 28
February 2022.
· In summary, the Company’s key
outstanding debt obligations are (i) $45.0
million outstanding on the New Senior Facility due
26 January 2027, (ii) approximately
£57.6 million of ZDPs due 1 October
2022, and (iii) $31.5 million
of Subordinated Notes due 11 September
2022.
David Macfarlane, Chairman of
JZCP, said: “The Board believes that the Company’s outlook has
improved dramatically. We continue to see significant value
to be realised from our US and European microcap portfolios and are
working towards several realisations that will provide potentially
significant liquidity events in the near future.
In addition, on the back of the expected substantial
distribution from the Secondary Fund, the Board is very optimistic
that all the Company’s obligations will be repaid in full and that
a significant amount of capital will be returned to
shareholders.
“We look forward to the next twelve months with renewed
confidence.”
Market Abuse Regulation:
The information contained within this
announcement is inside information as stipulated under MAR. Upon
the publication of this announcement, this inside information is
now considered to be in the public domain. The person responsible
for arranging the release of this announcement on behalf of the
Company is David Macfarlane,
Chairman.
For further information:
Ed Berry / Kit
Dunford
+44 (0)7703 330 199 / +44 (0)7717 417 038
FTI Consulting
David Zalaznick
+1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Martin Chapman
+44 (0) 1481 745183
Northern Trust International Fund
Administration Services (Guernsey) Limited
About JZ Capital Partners
JZCP has investments in US and European micro-cap companies, as
well as real estate properties in the US.
JZCP’s Investment Adviser is Jordan/Zalaznick Advisers, Inc.
(“JZAI”) which was founded by David
Zalaznick and Jay Jordan in
1986. JZAI has investment professionals in New York, Chicago, London and Madrid.
In August 2020, the Company's
shareholders approved changes to the Company’s investment policy.
Under the new policy, the Company will make no further investments
except in respect of which it has existing obligations and to
continue selectively to support the existing portfolio. The
intention is to realise the maximum value of the Company's
investments and, after repayment of all debt, to return capital to
shareholders.
JZCP is a Guernsey domiciled
closed-ended investment company authorised by the Guernsey
Financial Services Commission. JZCP's shares trade on the
Specialist Fund Segment of the London Stock Exchange.
For more information please visit www.jzcp.com.
Important Notice:
This announcement includes statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates",
"anticipates", "expects", "intends", "may", "will" or "should" or,
in each case, their negative or other variations or comparable
terminology. These forward-looking statements relate to matters
that are not historical facts. By their nature, forward-looking
statements involve risks and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the
future. Forward-looking statements are not guarantees of future
performance. The Company's actual investment performance, results
of operations, financial condition, liquidity, policies and the
development of its strategies may differ materially from the
impression created by the forward-looking statements contained in
this announcement. In addition, even if the investment performance,
result of operations, financial condition, liquidity and policies
of the Company and development of its strategies, are consistent
with the forward-looking statements contained in this announcement,
those results or developments may not be indicative of results or
developments in subsequent periods. These forward-looking
statements speak only as at the date of this announcement. Subject
to their legal and regulatory obligations, each of the Company, the
Investment Adviser and their respective affiliates expressly
disclaims any obligations to update, review or revise any
forward-looking statement contained herein whether to reflect any
change in expectations with regard thereto or any change in events,
conditions or circumstances on which any statement is based or as a
result of new information, future developments or otherwise.
Chairman’s Statement
We present the results of the Company for the financial year
ended 28 February 2022, which show
that the NAV of the Company increased from $4.25 per share at 28
February 2021 to $4.29 per
share at 28 February 2022
($4.08 at 31
August 2021). This modest increase is primarily attributable
to strong performance of JZHL Secondary Fund LP (the “Secondary
Fund”) and the realisations of Salter Labs and Igloo above NAV,
offset by finance and administration costs as well as write-downs
at two US micro-cap investments, Deflecto and Vitalyst, and net
write downs in the European portfolio at JZI Fund III, L.P. and our
direct loan to Xacom.
Investment Policy and Liquidity
The Company’s objective remains to realise the maximum
value from its investment portfolio and, after repaying its debt
obligations (which includes the £57.6 million of Zero Dividend
Preference Shares (“ZDPs”) due 1 October
2022), to return capital to shareholders.
The following are the key events affecting the Company’s
liquidity over the past year:
× The Company realised its
investment in Salter Labs above NAV, receiving net proceeds of
approximately $41 million.
× The Company drew down
$31.5 million of Subordinated Notes
(payable on 11 September 2022) under
a facility made available by affiliates of Jay Jordan and David
Zalaznick (as approved by shareholders).
× The Company redeemed
approximately £38.8 million (approximately $54.1 million) of Convertible Unsecured Loan
Stock on its maturity date of 30 July
2021.
× The Company repaid its previous
senior facility (the “Previous Senior Facility”) which was provided
by clients and funds managed by Cohanzick Management, LLC and
CrossingBridge Advisors, LLC in an amount of approximately
$52.9 million, prior to such
facility’s maturity date of 12 June
2022.
× On 26
January 2022, the Company entered into a new five-year term
senior secured loan facility (the “New Senior Facility”) with
WhiteHorse Capital Management LLC. The New Senior facility consists
of a $45.0 million first lien term
loan (which was drawn at close) and up to an additional
$25.0 million in first lien delayed
draw term loan (which remains undrawn). The terms of the New Senior
Facility represent a substantial improvement to those of the
Previous Senior Facility, including as to interest cost and
maturity –the New Senior Facility is due on 26 January 2027.
× In March
2022 (post-period), the Secondary Fund, in which the Company
has a Special LP Interest, sold its interest in Flow Control
Holdings LLC (“Flow Control”) for a consideration of approximately
$77.7 million. Whilst reflected in
the Company's valuation of its Special Limited Partnership ("LP")
Interest as at 28 February 2022, this
transaction conferred no immediate cash benefit to the Company, as
the other investors in the Secondary Fund (the “Secondary
Investors”) have an entitlement to a priority return of 1.4x
invested capital prior to any distributions being made to the
Company. However, as a result of the distribution made to the
Secondary Investors from the Flow Control realization (as well as
other smaller transactions) the balance outstanding on the
Secondary Investors’ priority return was significantly reduced from
approximately $132.6 million to
approximately $35.5 million. Once the
remaining balance on the priority return has been distributed to
the Secondary Investors, the Company will be entitled to receive
95% of all subsequent distributions until the Company has received
$67.6 million in proceeds.
Thereafter, the Company will receive 37.5% of all further
distributions.
× As announced in a press release
dated 23 May 2022, a portfolio
company of the Secondary Fund executed an agreement to sell certain
of its interests, with the Secondary Fund expecting to receive a
distribution from such portfolio company of net proceeds it
receives in such sale of approximately $165-$180 million.
Pursuant to the Secondary Fund’s waterfall, in which JZCP has a
Special LP Interest, such portfolio company sale is expected to
result in JZCP receiving a distribution from the Secondary Fund of
approximately $89-$94 million, which would correspond to a NAV
uplift to JZCP in the range of approximately 56-63 cents per ordinary share. It is hoped that
closing of this transaction is imminent but at the moment it
remains conditional. Such uplift has not been reflected in the
Company's valuation of its Special LP Interest in the Secondary
Fund as at 28 February 2022.
In summary, the Company’s key outstanding debt obligations are
(i) $45.0 million outstanding on the
New Senior Facility due 26 January
2027, (ii) approximately £57.6 million of ZDPs due
1 October 2022 and (iii) $31.5 million of Subordinated Notes due
11 September 2022.
Subject to compliance with its financial covenants, the New
Senior Facility permits, and, in fact, requires, the repayment of
the Subordinated Notes and ZDPs on their respective maturities.
While the Company’s ability to repay its Subordinated Notes and
ZDPs remains dependent upon the Company achieving sufficient
realisations in due time, the Board is confident that following the
Company’s receipt of its expected distribution from the Secondary
Fund, the Company will have sufficient cash to redeem its ZDPs. As
noted in the press release dated 23 May
2022, the redemption of the ZDPs remains subject to
compliance with the New Senior Facility’s financial covenants and
the extension of the maturity of the Subordinated Notes. It has
been indicated that when the Company has sufficient cash to redeem
the ZDPs such an extension will be negotiated.
In consequence of the conditionality of the portfolio company
sale referred to above, uncertainty remains regarding the Company’s
ability to redeem the ZDPs on their maturity date as well as the
Company’s expected ability to extend the Subordinated Notes.
Accordingly, the Report of the Directors accompanying these results
discloses a material uncertainty as to the Company’s ability to
continue as a going concern.
US and European Micro-cap
Portfolios
Our US and European micro-cap portfolios have generally
performed well, and we are working towards several realisations in
both portfolios. The Board looks forward to reporting on further
potential realisations at the interim period.
In a press release dated 21 March
2022, the Company announced that it had come to the Board's
attention that allegations of fraudulent conduct had been made
against two individuals who were members of the management team
that manages JZCP's investments in European micro-cap companies. A
claim has been made in respect thereof in the New York State Supreme Court. The claimants
are a fund in which JZCP has only an approximate 1% interest
(carried at approximately $0.75
million) as well as a fund in which JZCP has no
interest.
The Board understands that the investigation into the
allegations has concluded; the information available to the Board
at this time indicates that the Company has no reason to believe
that the alleged conduct will have a material adverse effect on the
Company's investments held through JZI Fund III, L.P.
The Board will however make further announcements as and when
appropriate should any further information concerning the
investigation and any potential impact on the Company become
available.
No allegations of fraudulent conduct were made against employees
of the Company's investment adviser, Jordan/Zalaznick Advisers,
Inc.
Real Estate portfolio
The Company has two remaining properties with equity value,
Esperante, an office building in West
Palm Beach, Florida, and 247 Bedford Avenue, a retail
building with Apple as the primary tenant, in Williamsburg, Brooklyn.
Based on newly received appraisals at the calendar year-end,
both assets were written up from their values at the interim period
(31 August 2021). However, the real
estate portfolio remained flat as compared to the previous year-end
(28 February 2021).
Outlook
The Board believes that the Company’s outlook has improved
dramatically. On the back of the expected substantial distribution
from the Secondary Fund, the Board is very optimistic that all the
Company’s obligations will be repaid in full and that a significant
amount of capital will be returned to shareholders.
David
Macfarlane
Chairman
14 June
2022
Investment Adviser’s Report
Dear Fellow Shareholders,
We are very pleased to announce that the Company has completed
the fiscal year in a stronger financial position than in recent
years. Several major realizations (both during the year and
post-period), combined with our successful efforts to fortify
JZCP’s balance sheet, have strengthened the Company’s position.
As announced in a press release dated May
23, 2022, a portfolio company of JZHL Secondary Fund LP, the
(“Secondary Fund”) executed an agreement to sell certain of its
interests, with the Secondary Fund expecting to receive a
distribution from such portfolio company of net proceeds it
receives in such sale of approximately $165-$180 million.
Pursuant to the Secondary Fund’s waterfall, in which JZCP has a
Special LP Interest, such portfolio company sale is expected to
result in JZCP receiving a distribution from the Secondary Fund of
approximately $89-$94 million, which would correspond to a NAV
uplift to JZCP in the range of approximately 56-63 cents per ordinary share.
Including this expected distribution from such portfolio company
(anticipated imminently), the Company would have cash on hand today
of more than $125 million.
With regards to our efforts to reinforce JZCP’s balance sheet,
we successfully executed the following transactions, among others,
during the year:
• We agreed to personally provide a
$31.5 million liquidity facility at
6.0% interest to JZCP (i.e., at the same rate as the CULS), which
was approved by shareholders.
• JZCP paid off its CULS (£38.8 million)
in full and on their stated due date while at the same time
maintaining a cash cushion.
• The Company repaid its previous senior
facility (the “Previous Senior Facility”) with clients and funds
managed by Cohanzick Management, LLC and CrossingBridge Advisors,
LLC in an amount of approximately $52.9
million, prior to such facility’s maturity date of
12 June 2022.
On 26 January 2022, the Company
entered into a new five-year term senior secured loan facility (the
“New Senior Facility”) with WhiteHorse Capital Management LLC. The
New Senior facility consists of a $45.0
million first lien term loan (which was drawn at close) and
up to an additional $25.0 million in
first lien delayed draw term loan (which remains undrawn). The
terms of the New Senior Facility represent a substantial
improvement to those of the Previous Senior Facility, including a
lower interest cost and longer maturity – the New Senior Facility
is due on 26 January 2027.
Our US and European micro-cap portfolios have generally
performed well. We are working towards several realizations in both
portfolios.
The Company’s two remaining real estate assets that have equity
value are 247 Bedford Avenue in Brooklyn,
New York (where Apple is the principal tenant), and the
Esperante office building in West Palm
Beach, Florida. Both assets were written up at the year-end
based on newly received appraisals. We look forward to reporting on
our progress at both properties in the coming months.
As of 28 February 2022, our US
micro-cap portfolio consisted of 14 businesses, which includes four
‘verticals’ and six co-investments, across nine industries. Our
European micro-cap portfolio consisted of 17 companies across six
industries and seven countries.
Net Asset Value (“NAV”)
JZCP’s NAV per share increased 4
cents, or 0.9%, during the twelve-month period:
NAV per
Ordinary share as of 1 March 2021 |
|
|
|
|
|
|
|
$4.25 |
|
|
|
Change
in NAV due to capital gains and accrued income |
|
|
|
|
|
|
|
|
+ US micro-cap |
|
|
|
|
|
|
|
|
|
0.57 |
|
|
|
- European
micro-cap |
|
|
|
|
|
|
|
|
|
(0.10) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
decreases in NAV |
|
|
|
|
|
|
|
|
|
|
|
|
|
- Change in CULS fair
value |
|
|
|
|
|
|
|
|
|
(0.02) |
|
|
|
- Foreign exchange
effect |
|
|
|
|
|
|
|
|
|
(0.08) |
|
|
|
- Finance costs |
|
|
|
|
|
|
|
|
|
(0.18) |
|
|
|
- Expenses |
|
|
|
|
|
|
|
|
|
(0.15) |
|
NAV per
Ordinary share as of 28 February 2022 |
|
|
|
|
|
$4.29 |
|
The US micro-cap portfolio continued to perform well during the
year, delivering a net increase of 57
cents per share. This was primarily due to net accrued
income of 6 cents and write-ups at
co-investments Salter Labs (4 cents)
and Igloo (4 cents) and the JZHL
Secondary Fund portfolio (58
cents).
Offsetting these increases were decreases at co-investments
George Industries, New Vitality, Deflecto and Vitalyst
(1 cent, 1
cent, 6 cents and 6 cents respectively) and Avante (2 cents).
Our European portfolio decreased 10
cents during the year, due to net write downs at European
portfolio companies.
The real estate portfolio was flat for the year; after a
one-time write-down at the interim period at Esperante, the
property was written-up at the year-end based on a newly received
appraisal.
Returns
The chart below summarizes cumulative total shareholder returns
and total NAV returns for the most recent six-month, one-year,
three-year and five-year periods.
|
28.2.2022 |
31.8.2021 |
28.2.2021 |
28.2.2019 |
28.2.2017 |
Share price (in
GBP) |
£1.05 |
£1.20 |
£0.78 |
£4.35 |
£5.38 |
Share price (in USD)
1 |
$1.41 |
$1.65 |
$1.09 |
$5.79 |
$6.69 |
NAV per share (in
USD) |
$4.29 |
$4.08 |
$4.25 |
$10.04 |
$10.12 |
NAV to market price
discount |
67.2% |
59.5% |
74.3% |
42.4% |
33.8% |
|
|
6
month |
1
year |
3
year |
5
year |
|
|
return |
return |
return |
return |
Total Shareholders'
return (GBP) |
|
(12.5%) |
34.6% |
(75.9%) |
(80.5%) |
Total NAV return per
share (USD) |
|
5.1% |
0.9% |
(57.3%) |
(57.6%) |
1Translated at the relevant year end exchange
rate.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography,
with 31 US and European micro-cap investments across eleven
industries. The European portfolio itself is well-diversified
geographically across Spain,
Italy, Portugal, Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP’s assets and liabilities at
28 February 2022 as compared to
28 February 2021. An explanation of
the changes in the portfolio follows:
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
US micro-cap
portfolio |
|
|
|
284,162 |
|
299,339 |
European micro-cap
portfolio |
|
|
|
105,475 |
|
117,781 |
Real estate
portfolio |
|
|
|
23,597 |
|
23,376 |
Other investments |
|
|
|
23,533 |
|
23,147 |
Total Private
Investments |
|
|
|
436,767 |
|
463,643 |
|
|
|
|
|
|
|
Treasury bills |
|
|
|
3,394 |
|
3,394 |
Cash and cash
equivalents |
|
|
|
43,656 |
|
59,784 |
Total Listed
Investments and Cash |
|
|
|
47,050 |
|
63,178 |
|
|
|
|
|
|
|
Other assets |
|
|
|
70 |
|
22 |
Total
Assets |
|
|
|
483,887 |
|
526,843 |
|
|
|
|
|
|
|
Senior debt
facility |
|
|
|
42,573 |
|
68,694 |
Zero Dividend Preferred
shares |
|
|
|
75,038 |
|
74,303 |
Loan Notes |
|
|
|
32,293 |
|
- |
Convertible Unsecured
Loan Stock |
|
|
|
|
- |
52,430 |
Other liabilities |
|
|
|
1,719 |
|
1,857 |
Total
Liabilities |
|
|
|
151,623 |
|
197,284 |
Total Net
Assets |
|
|
|
332,264 |
|
329,559 |
US Micro-Cap Portfolio
As you know from previous reports, our US portfolio is grouped
into industry ‘verticals’ and co-investments. As of December 4, 2020, certain of our verticals and
co-investments are now grouped under JZHL Secondary Fund, LP
(“JZHL” or the “Secondary Fund”). JZCP has a continuing interest in
the Secondary Fund through a Special LP Interest, which entitles
JZCP to certain distributions from the Secondary Fund.
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.
The US micro-cap portfolio continued to perform well during the
year, delivering a net increase of 57
cents per share. This was primarily due to net accrued
income of 6 cents and write-ups at
co-investments Salter Labs (4 cents)
and Igloo (4 cents) and the JZHL
Secondary Fund portfolio (58
cents).
Offsetting these increases were decreases at co-investments
George Industries, New Vitality, Deflecto and Vitalyst
(1 cent, 1
cent, 6 cents and 6 cents respectively) and Avante (2 cents).
European Micro-Cap Portfolio
Our European portfolio decreased 10
cents during the year, due to net write downs at European
portfolio companies.
JZCP invests in the European micro-cap sector through its
approximately 18.8% ownership of Fund III. As of 28 February 2022, Fund III held 13 investments:
five in Spain, two in Scandinavia,
two in Italy, two in the UK and
one each in Portugal and
Luxembourg. JZCP held direct loans
to a further three companies in Spain: Docout, Xacom and Toro Finance.
JZAI has offices in London and
Madrid and an experienced team
with over fifteen years of investing together in European micro-cap
deals.
Real estate Portfolio
The Company’s two remaining real estate assets that have equity
value are 247 Bedford Avenue in Brooklyn,
New York (where Apple is the principal tenant), and the
Esperante office building in West Palm
Beach, Florida.
Both assets were written up at the year-end based on newly
received appraisals. We look forward to reporting on our progress
at both properties in the coming months.
Other investments
Our asset management business in the US, Spruceview Capital
Partners, has continued to make encouraging progress since our last
report to you. Spruceview addresses the growing demand from
corporate pensions, endowments, family offices and foundations for
fiduciary management services through an Outsourced Chief
Investment Officer (“OCIO”) model as well as customized
products/solutions per asset class.
During the period, Spruceview’s mandate for a portfolio of
alternative investments for a Mexican trust (or “CERPI”) was
increased by $177 million, bringing
total assets to $1 billion, with the
potential to further increase the size of the CERPI to $1.5 billion, pending regulatory approvals, over
the coming year. In addition, Spruceview won an advisory
mandate for a global equity portfolio sponsored by a Mexican mutual
fund administrator.
Spruceview’s third private markets fund, focused on
co-investment opportunities in the US, ended the period with
commitments of over $77 million. The
firm also received additional commitments to its second private
markets fund, bringing total commitments to $86 million, as well as over $90 million in additional contributions to the
pension plans to which it provides advisory services.
Spruceview also maintained a pipeline of potential client
opportunities and continued to provide investment management
oversight to the pension funds of the Mexican and Canadian
subsidiaries of an international packaged foods company, as well as
portfolios for family office clients, and a growing series of
private market funds.
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 20 investment, business and product
development, legal and operations professionals.
Realisations
Orangewood Fund
In May 2021 and June 2021, JZCP received approximately
$6.2 million in proceeds from selling
down the “funded portion” of its commitment to the Orangewood Fund
as well as from investor re-allocations from the final close of the
Orangewood Fund. JZCP has sold down its entire commitment to the
Orangewood Fund.
Salter Labs
In June 2021, JZCP received a
$41 million distribution from the
sale of Salter. In November 2021,
JZCP received an escrow distribution from Salter in the amount of
approximately $0.5 million.
George
In April 2021, JZCP sold its
investment in George, receiving
approximately $9.5 million in sale
proceeds.
New Vitality
In May 2021 and December 2021, JZCP received distributions from
New Vitality totaling approximately $0.5
million.
Igloo
In October 2021, JZCP sold its
investment in Igloo, receiving approximately $3.8 million in sale proceeds.
EuroMicrocap Fund 2010, L.P.
In October 2021, JZCP received a
distribution from EuroMicrocap Fund 2010, L.P. in the amount of
$2.2 million.
Vitalyst
In February 2022, JZCP sold its
investment in Vitalyst, receiving approximately $1.9 million in sale proceeds.
JZHL Secondary Fund LP
In December 2021, the Secondary
Fund, in which the Company has a Special LP Interest, received a
distribution of approximately $2.2
million from Peaceable.
In February 2022, the Secondary
Fund received a distribution of approximately $17.2 million from TierPoint, the result of a
partial sale of the Secondary Fund’s interest in TierPoint.
In March 2022 (post-period), the
Secondary Fund sold its interest in Flow Control Holdings LLC
(“Flow Control”) for consideration of approximately $77.7 million.
These three transactions conferred no immediate cash benefit to
the Company, as the other investors in the Secondary Fund (the
“Secondary Investors”) have an entitlement to a priority return of
1.4x invested capital prior to any distributions being made to the
Company. However, as a result of the above distributions made to
the Secondary Investors, the balance outstanding on the Secondary
Investors’ priority return was significantly reduced from
approximately $132.6 million to
approximately $35.5 million.
Once this remaining balance on the priority return has been
distributed to the Secondary Investors, the Company is entitled to
receive 95% of all subsequent distributions until the Company
receives $67.6 million in proceeds.
Thereafter, the Company receives 37.5% of all further
distributions.
In May 2022 (post-period), a
portfolio company of JZHL Secondary Fund LP, the (“Secondary Fund”)
executed an agreement to sell certain of its interests, with the
Secondary Fund expecting to receive a distribution from such
portfolio company of net proceeds it receives in such sale of
approximately $165-$180 million. Pursuant to the Secondary Fund’s
waterfall, in which JZCP has a Special LP Interest, such portfolio
company sale is expected to result in JZCP receiving a distribution
from the Secondary Fund of approximately $89-$94 million,
which would correspond to a NAV uplift to JZCP in the range of
approximately 56-63 cents per
ordinary share.
Outlook
We believe that JZCP’s outlook has dramatically improved. Once
the Company receives the above-mentioned distribution from the
Secondary Fund (expected imminently), JZCP expects to have cash on
hand of more than $125
million.
As detailed above, we have restructured JZCP’s liabilities and
believe that our current balance sheet is in a much stronger
position than previously reported. In summary, the Company’s key
outstanding debt obligations are (i) $45.0
million outstanding on the New Senior Facility due
26 January 2027, (ii) approximately
£57.6 million of ZDPs due 1 October
2022 and (iii) $31.5 million
of Subordinated Notes due 11 September
2022. Subject to compliance with its financial covenants,
the New Senior Facility allows for the repayment of the ZDPs on
their maturity date.
We see significant value to be realized from our US and European
microcap portfolios and will continue to selectively invest in the
underlying companies in each portfolio, in accordance with the new
investment policy, to maximize their values. We believe this is the
most effective way for us to be able to return significant capital
to our ordinary shareholders. We continue to pursue several
realizations and look forward to making further announcements
regarding potentially significant liquidity events in the near
future.
Thank you again for your continued support through a difficult
period; we firmly believe that we are now on the other side. As
always, we remain dedicated to maximizing value for our fellow
shareholders.
Yours faithfully,
Jordan/Zalaznick
Advisers, Inc.
14 June
2022
Investment Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Portfolio |
|
|
28 February 2022 |
|
|
|
Cost1 |
|
Value |
|
|
|
US$'000 |
|
US$'000 |
|
|
% |
|
|
|
|
|
|
|
|
US Micro-cap
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Micro-cap
Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JZHL Secondary Fund
L.P.2 |
|
|
|
|
|
|
|
JZHL Secondary Fund
L.P.
Invested in six companies in the US micro-cap sector:
(See below for further information) |
|
|
|
|
|
|
|
Total JZHL
Secondary Fund L.P. valuation |
|
40,965 |
|
117,339 |
|
|
26.7 |
|
|
|
|
|
|
|
|
US Micro-cap
(Vertical) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Services
Solutions3 |
|
|
|
|
|
|
|
INDUSTRIAL SERVICES
SOLUTIONS (“ISS”)
Provider of aftermarket maintenance, repair, and field services for
critical process equipment throughout the US |
|
|
|
|
|
|
|
Total Industrial
Services Solutions valuation |
|
48,250 |
|
95,889 |
|
|
21.8 |
|
|
|
|
|
|
|
|
US Micro-cap
(Co-investments) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFLECTO
Deflecto designs, manufactures and sells innovative plastic
products to multiple industry segments |
|
45,010 |
|
42,119 |
|
|
9.6 |
NEW
VITALITY3
Direct-to-consumer provider of nutritional supplements and personal
care products |
|
3,354 |
|
11,301 |
|
|
2.5 |
ORIZON
Manufacturer of high precision machine parts and tools for
aerospace and defence industries |
|
3,899 |
|
7,000 |
|
|
1.6 |
Total US Micro-cap
(Co-investments) |
|
52,263 |
|
60,420 |
|
|
13.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Micro-cap
(Other) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AVANTE HEALTH
SOLUTIONS
Provider of new and professionally refurbished healthcare
equipment |
|
7,823 |
|
9,514 |
|
|
2.2 |
HEALTHCARE PRODUCTS
HOLDINGS
Designer and manufacturer of motorised vehicles |
|
17,636 |
|
- |
|
|
- |
NATIONWIDE STUDIOS
Processor of digital photos for pre-schoolers |
|
26,324 |
|
1,000 |
|
|
0.2 |
Total US
Micro-cap (Other) |
|
51,783 |
|
10,514 |
|
|
2.4 |
|
|
|
|
|
|
|
|
Total US Micro-cap
portfolio |
|
193,261 |
|
284,162 |
|
|
64.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European Micro-cap
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EUROMICROCAP FUND
2010, L.P.
Invested in European Micro-cap entities |
|
1 |
|
596 |
|
|
0.1 |
JZI FUND
III, L.P.
At 28 February 2022, was invested in thirteen companies in the
European micro-cap sector (see below for further information) |
55,185 |
|
76,286 |
|
|
17.4 |
Total European
Micro-cap (measured at Fair Value) |
|
55,186 |
|
76,882 |
|
|
17.5 |
|
|
|
|
|
|
|
|
Debt
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOCOUT
Provider of digitalisation, document processing and storage
services |
|
2,777 |
|
3,913 |
|
|
0.9 |
TORO FINANCE
Provides short term receivables finance to the suppliers of major
Spanish companies |
|
21,619 |
|
24,680 |
|
|
5.6 |
XACOM
Supplier of telecom products and technologies |
|
2,055 |
|
- |
|
|
- |
Debt Investments
(classified at amortised cost) |
|
26,451 |
|
28,593 |
|
|
6.5 |
|
|
|
|
|
|
|
|
Total European
Micro-cap portfolio |
|
81,637 |
|
105,475 |
|
|
24.0 |
|
|
|
|
|
|
|
|
Real Estate
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247 BEDFORD AVENUE
Prime retail asset in northern Brooklyn, NY |
|
17,717 |
|
8,913 |
|
|
2.0 |
ESPERANTE
An iconic building on the downtown, West Palm Beach skyline |
|
14,158 |
|
14,684 |
|
|
3.3 |
JZCP REALTY
Other Properties held - no equity value |
|
39,178 |
|
- |
|
|
- |
Total Real Estate
portfolio |
|
71,053 |
|
23,597 |
|
|
5.3 |
|
|
|
|
|
|
|
|
Other
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BSM ENGENHARIA
Brazilian-based provider of supply chain logistics, infrastructure
services and equipment rental |
|
6,115 |
|
459 |
|
|
0.1 |
JZ INTERNATIONAL
Fund of European LBO investments |
|
- |
|
750 |
|
|
0.2 |
SPRUCEVIEW CAPITAL
Asset management company focusing primarily on managing
endowments and pension funds |
|
32,355 |
|
22,324 |
|
|
5.0 |
Total Other
investments |
|
38,470 |
|
23,533 |
|
|
5.3 |
|
|
|
|
|
|
|
|
Listed
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Bill -
Maturity 21 April 2022 |
|
3,395 |
|
3,394 |
|
|
0.8 |
Total Listed
investments |
|
3,395 |
|
3,394 |
|
|
0.8 |
|
|
|
|
|
|
|
|
Total -
portfolio |
|
387,816 |
|
440,161 |
|
|
100.0 |
1 Original book cost incurred by JZCP
adjusted for subsequent transactions. Other than JZHL Secondary
Fund (see foot note 2), the book cost represents cash outflows and
excludes PIK investments.
2 Notional cost of the Company's interest
in JZHL Secondary Fund being $40.965
million which is calculated in accordance with IFRS, and
represents the fair value of the Company's LP interest on
recognition.
3 Co-investment with Fund A, a Related
Party (Note 24).
JZHL Secondary Fund LP
In December 2020, the Company
completed the sale its of its interests in certain US microcap
portfolio companies (the "Secondary Sale") to a secondary fund led
by Hamilton Lane Advisors, L.L.C. ("Hamilton Lane"), one of the
world's largest allocators and managers of private markets capital.
The Secondary Sale was structured as a sale to a newly formed fund,
JZHL Secondary Fund LP (the "Secondary Fund"), managed by an
affiliate of JZAI.
The US microcap assets (detailed below) were sold to the
Secondary Fund at their agreed valuation. In return, the Company
received cash consideration and a Special LP Interest in the
Secondary Fund entitling the Company to certain distributions from
the Secondary Fund.
The Company's limited partner interest in the Secondary Fund's
year-end valuation is $117.3
million and is valued by considering the valuation of the
underlying investments and the order of returning capital to
investors being:
i) First, 100 per cent. will be distributed to Hamilton Lane and
various members of the Fund's management team (the "Other
Investors") pro rata in accordance with their respective
contributions until each Other Investor has received distributions
equal to its total aggregate contributions to the Secondary Fund
(amounting in total to US$90 million
plus any further contributions made thereafter, expected to be in
the aggregate of up to an additional US$20
million);
ii) Second, 100 per cent. to the Other Investors pro rata in
accordance with their respective contributions until each other
investor has realised the greater of a 15 per cent. net internal
rate of return on its total aggregate contributions or an amount
equal to 140 per cent. of its total aggregate contributions.
iii) Third, 95 per cent. to the Company (in its capacity as the
special limited partner of the Secondary Fund) and 5 per cent. to
the Other Investors until the Company has received distributions
equal to US$67.6 million; and
iv) Fourth, 62.5 per cent. to the Other Investors (pro
rata in accordance with their respective contributions) and 37.5
per cent. to the Company.
In April 2022 (post year end),
JZHL realised its investment in Flow Control, LLC receiving
proceeds of $77.7 million. The sale
of Flow Control resulted in the Secondary Investors receiving a
distribution from the Secondary Fund, together with other
distributions so far made and received, totalling approximately
$97.1 million for the benefit of the
Secondary Investors. The Secondary Investors are therefore still
entitled to receive further distributions from the Secondary Fund
totalling approximately $35.5 million
before JZCP becomes entitled to any distributions as a result of
its Special LP Interest and in accordance with the distribution
waterfall as described above.
In May 2022 (post-period), a
portfolio company of the Secondary Fund executed an agreement to
sell certain of its interests, with the Secondary Fund expecting to
receive a distribution from such portfolio company of approximately
$165-$180
million. Pursuant to the Secondary Fund’s waterfall, JZCP is
expected to receive a distribution from the anticipated sale of
approximately $89-$94 million resulting in an uplift in NAV. Such
uplift has not been reflected in the Company's valuation of its
Special LP Interest in the Secondary Fund as at 28 February 2022 (below), as the closing of this
transaction remains subject to conditions.
JZCP's valuation of Special LP
interest in JZHL Secondary Fund
|
JZHL |
|
JZHL |
Cost1 |
|
Valuation |
|
$'000s |
|
$'000s |
ACW FLEX PACK,
LLC |
13,955 |
|
12,750 |
FLOW CONTROL, LLC |
15,115 |
|
77,723 |
TESTING SERVICES
HOLDINGS |
23,426 |
|
49,385 |
FELIX STORCH |
24,500 |
|
111,000 |
PEACEABLE STREET
CAPITAL |
34,321 |
|
36,541 |
TIERPOINT |
29,632 |
|
29,632 |
|
140,949 |
|
317,031 |
Less interest of
Hamilton Lane and other secondary investments |
|
|
(199,692) |
JZCP's interest in
JZHL Secondary Fund |
|
|
117,339 |
1The cost of the JZHL's investments represent the
agreed transfer value from JZCP to JZHL plus additional
contributions from secondary investors less distributions made.
JZHL Secondary Fund LP includes
investments in the following companies:
ACW Flex Pack, LLC
Flex Pack is a provider of a variety of custom flexible
packaging solutions to converters and end-users.
Further information can be found at www.flex-pack.com
Felix Storch
Felix Storch is a leading
provider of specialty refrigeration and custom appliances to
residential small kitchen, professional, life sciences, food
service and hospitality markets. Felix
Storch is a second generation family business, founded in
1969 and based in The Bronx, NY.
Felix Storch’s products now include a wide range of major
appliances sold both nationally and internationally.
Further information can be found at www.felixstorchinc.com
Flow Control, LLC
Flow Controls is incorporated in Delaware and is a manufacturer and distributor
of high-performance, mission-critical flow handling products and
components utilised to connect processing line equipment.
Further information can be found at www.flowcontrolinc.com
Peaceable Street Capital
Peaceable is a specialty finance platform focused on making
structured investments in small and mid-sized income producing
commercial real estate. The company is built on a foundation of
know-how, creatively structuring preferred equity to provide senior
equity in complex situations. With extensive investment experience
throughout the United States and
Canada, Peaceable's underwriting
and decision making process is designed to deliver creative,
flexible and dependable solutions quickly. Peaceable focuses on a
diverse portfolio of property types including multi-family, office,
self-storage, industrial, retail, RV parks, mobile home parks,
parking health care and hotels.
Testing Services Holdings
Testing Services is a provider of safety focused solutions for
the industrial, environmental and life science related markets, and
testing, certification and validation services for cleanroom,
critical environments and containment systems.
Further information can be found at www.techholdings.com
Tierpoint
TierPoint is incorporated in Delaware and is a leading provider of
information technology and data centre services, including
colocation, cloud computing, disaster recovery and managed IT
services. TierPoint’s hybrid IT solutions help clients increase
business agility, drive performance and manage risk. TierPoint
operates via a network of 43 data centres in 20 markets across
the United States.
Further information can be found at www.tierpoint.com
Summary of JZCP's investment in JZI
Fund III''s Investment Portfolio at 28
February 2022
|
|
|
|
|
|
|
JZCP
Cost (EURO)1 |
|
JZCP
Value (EURO)1 |
|
JZCP
Value (USD) |
|
|
|
|
|
Country |
As
at |
|
As
at |
|
As
at |
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2022 |
|
28.2.2022 |
|
|
|
|
|
|
|
€'000s |
|
€'000s |
|
$'000s |
ALIANZAS EN ACEROS
Steel service center |
Spain |
4,267 |
|
4,619 |
|
5,188 |
BLUESITES
Build-up in cell tower land leases |
Portugal |
3,615 |
|
5,512 |
|
6,191 |
COLLINGWOOD
Niche UK motor insurer |
UK |
3,015 |
|
3,094 |
|
3,475 |
ERSI
Reinforced steel modules |
|
|
|
|
Lux |
8,541 |
|
1,882 |
|
2,114 |
FACTOR ENERGIA
Electricity supplier |
Spain |
4,028 |
|
8,437 |
|
9,476 |
FINCONTINUO
Niche consumer lender |
Italy |
4,715 |
|
6,240 |
|
7,009 |
GUANCHE
Build-up of petrol stations |
Spain |
4,375 |
|
4,750 |
|
5,335 |
KARIUM
Personal care consumer brands |
UK |
4,321 |
|
9,900 |
|
11,120 |
LUXIDA
Build-up in electricity distribution |
Spain |
3,315 |
|
4,969 |
|
5,581 |
MY LENDER
Niche consumer lender |
Finland |
4,863 |
|
2,067 |
|
2,322 |
S.A.C
Operational van leasing |
|
|
|
|
Denmark |
3,497 |
|
8,100 |
|
9,098 |
TREEE
e-waste recycling |
|
|
|
|
Italy |
3,255 |
|
9,019 |
|
10,130 |
UFASA
Niche consumer lender |
|
|
|
|
Spain |
5,119 |
|
6,803 |
|
7,641 |
Other net Liabilities |
|
|
|
|
|
|
|
|
|
|
(8,394) |
|
|
|
|
|
|
|
|
|
|
|
|
Total
valuation |
|
|
|
|
|
|
|
|
|
|
76,286 |
|
|
|
|
|
|
|
|
|
|
|
|
1Represents JZCP's 18.75% of Fund III's investment
portfolio |
|
|
|
|
JZCP's
Top Ten Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio |
|
Value |
|
Percentage of Portfolio |
|
|
|
|
US$'000 |
|
|
|
|
|
|
|
|
|
1. |
INDUSTRIAL SERVICES
SOLUTIONS (“ISS”) |
|
U.S. micro-cap |
|
95,889 |
|
21.8% |
|
|
|
|
|
|
|
|
2, |
DEFLECTO |
|
U.S. micro-cap |
|
42,119 |
|
9.6% |
|
|
|
|
|
|
|
|
3. |
FELIX
STORCH1 |
|
U.S. micro-cap |
|
41,083 |
|
9.3% |
|
|
|
|
|
|
|
|
4. |
FLOW
CONTROL1 |
|
U.S. micro-cap |
|
28,767 |
|
6.5% |
|
|
|
|
|
|
|
|
5. |
TORO FINANCE |
|
Euro debt investment |
|
24,680 |
|
5.6% |
|
|
|
|
|
|
|
|
6. |
SPRUCEVIEW
CAPITAL |
|
Other |
|
22,324 |
|
5.1% |
|
|
|
|
|
|
|
|
7. |
TESTING SERVICES
HOLDINGS1 |
|
U.S. micro-cap |
|
18,278 |
|
4.2% |
|
|
|
|
|
|
|
|
8. |
ESPERANTE |
|
Real estate |
|
14,684 |
|
3.3% |
|
|
|
|
|
|
|
|
9. |
PEACEABLE STREET
CAPITAL1 |
|
U.S. micro-cap |
|
13,524 |
|
3.1% |
|
|
|
|
|
|
|
|
10. |
KARIUM |
|
Euro micro-cap |
|
11,120 |
|
2.5% |
|
|
|
|
|
|
|
|
|
OTHER INVESTMENTS |
|
|
|
127,693 |
|
29.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
440,161 |
|
100.0% |
|
|
|
|
|
|
|
|
1 JZCP value calculated net of JZHL secondary
investors valuation
Board of Directors
David Macfarlane
(Chairman) 1
Mr Macfarlane was appointed to the Board of JZCP in 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.
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 a
Director of Pro Natura de Yucatan.
Sharon
Parr2
Mrs Parr was appointed to the Board of JZCP in June 2018. In 2003, she completed a private
equity backed MBO of the trust and fund administration division of
Deloitte and Touche, called Walbrook, selling it to Barclays Wealth
in 2007. As a Managing Director of Barclays, she ultimately became
global head of their trust and fund administration businesses,
comprising over 450 staff in 10 countries. She stepped down from
her executive roles in 2011 to focus on other areas and interests
but has maintained directorships in several companies. She is a
Fellow of the Institute of Chartered Accountants in England and Wales and a member of the Society of Trust and
Estate Practitioners, and is a resident of Guernsey.
Ashley
Paxton
Mr Paxton was appointed to the Board in August 2020. He
has more than 25 years of funds and financial services industry
experience, with a demonstrable track record in advising
closed-ended London listed boards
and their audit committees on IPOs, capital market transactions,
audit and other corporate governance matters. He was
previously C.I. Head of Advisory for KPMG in the Channel Islands, a position he held from 2008
through to his retirement from the firm in 2019. He is a Fellow of
the Institute of Chartered Accountants in England and Wales and a resident of Guernsey. Amongst other appointments he is
Chairman of the Youth Commission for Guernsey & Alderney, a
locally based charity whose vision is that all children and young
people in the Guernsey Bailiwick are ambitious to reach their full
potential.
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
2022.
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 and Zero
Dividend Preference ("ZDP") shares. The Company's Convertible
Unsecured Loan Stock ("CULS") were redeemed on 30 July 2021. The Company's Ordinary shares and
ZDP Shares are traded on the London Stock Exchange's Specialist
Fund Segment.
The Company's debt structure consists of a Senior debt facility
and subordinated, second lien loan notes (the "Loan notes").
The Company’s Investment Policy has been to target predominantly
private investments, seeking to back exceptional management teams
to deliver on attractive investment propositions. In executing its
strategy, the Company takes a long term view.
The Company focused on investing in the following areas, and is
now focused on supporting these investments:
(i) small or micro-cap buyouts in the form of debt and equity
and preferred stock in both the US and Europe; and
(ii) US real estate.
The Company's shareholders agreed changes to the Company’s
investment policy on 12 August 2020.
In line with the new investment policy, the Company will make no
further investments except in respect of which it has existing
obligations or to the extent that investment is required to support
existing investments. The intention is to realise the maximum value
of its investments and, after repayment of all debt, to return
capital to shareholders
Business Review
The total comprehensive profit attributable to Ordinary
shareholders for the year ended 28 February
2022 was $2,680,000 (year
ended 28 February 2021: loss of
$146,175,000). The net asset value
("NAV") of the Company at the year end was $332,264,000 (28 February
2021: $329,559,000) equal to
$4.29 (28
February 2021: $4.25) per
Ordinary share. The losses recorded during the comparative year
ended 28 February 2021 were
predominantly attributable to valuation write downs in the
Company's real estate portfolio.
A review of the Company's activities and performance is detailed
in the Chairman's Statement and the Investment Adviser's Report.
The valuations of the unlisted investments are detailed in the
Investment Portfolio.
Principal Risks and Uncertainties
The Company's Board believes the principal risks and
uncertainties that relate to an investment in JZCP are as
follows:
Portfolio Liquidity
The Company invests predominantly in unquoted companies and real
estate. Therefore, this potential illiquidity means there can be no
assurance investments will be realised at their latest valuation or
on the timing of such realisations. The Board considers this
illiquidity when planning to meet its future obligations, whether
committed investments or the repayment of the Senior Debt Facility,
Loan Notes and Zero Dividend Preference ("ZDP") shares. On a
quarterly basis, the Board reviews a working capital model produced
by the Investment Adviser which highlights the Company's projected
liquidity and financial commitments.
Investment Performance and Impact on NAV
The Company is reliant on the Investment Adviser to support the
Company's investment portfolio by executing suitable investment
decisions. The Investment Adviser provides the Board with an
explanation of all investment decisions and also provides 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
investment strategy.
Macroeconomic Risks and Impact on NAV
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 24% (28 February
2021: 25%) of the Company's investments are
denominated in non-US dollar currencies, primarily the euro. Also,
the Company's ZDP shares are denominated in sterling. Fluctuations
to these exchange rates will affect the NAV of the Company.
Uncertainties in today's world that influence economic factors
include:
(i) COVID-19
Whilst reporting its interim results for the year ended
28 February 2022, the Board disclosed
in its Going Concern Assessment, that the encouraging performance
of the micro-cap portfolios in the face of unprecedented
circumstances gave the Board confidence in the valuation of the
portfolios and the potential for growth and future valuation
uplifts. The Board has confidence that the micro-cap portfolios are
continuing to perform robustly but is mindful that market
conditions mean that realisations may be delayed or become more
difficult.
(ii) War in Ukraine
The Board has been shocked to witness the devastating events
unfold since Russia’s unprovoked invasion of Ukraine and strongly condemn the actions of
the Russian
government.
JZCP's investments are focused in the U.S. and Western Europe as such the portfolio has no
direct exposure to the affected regions. However, certain portfolio
companies have exposure to the rising energy costs resulting from
the conflict. The Board continue to receive reports from the
Investment Adviser on the impact of these increased costs. To the
best of its knowledge, the Board is not aware that the Company, has
had Russian investors, either today or historically.
(iii) Global Warming
The Board considers the impact of climate change on the firm’s
business strategy and risk profile and, where appropriate will make
timely climate change related disclosures. Regular updates, given
by the Investment Advisor, on portfolio companies and properties
will include potential risk factors pertaining to climate change
and how/if able these risks are to be mitigated.
The Board also has regard to the impact of the company’s
operations on the environment and other stakeholders. There are
expectations that portfolio companies operate is a manner that
contributes to sustainability by considering the social,
environmental, and economic impacts of doing business. The Board
request the Investment Adviser report on any circumstances where
expected standards are not met.
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 broadly consistent with those reported at the prior year end,
but wishes to note the following:
.
The Board recognises the Company will have an increased exposure to
liquidity risk as future debt obligations near maturity;
.
Gearing and the finance costs within the real estate portfolio have
become less of a future risk to the Company as the current
valuation of $23.6 million
(28 February 2021: $23.4 million) now reflects the majority of write
downs that could be generated by the gearing structure and costs
incurred; and
.
The effect of the war in Ukraine
on market conditions means that there are challenges to completing
corporate transactions within the European micro-cap portfolio and
planned realisations may be delayed. The Board deem the risks posed
by COVID-19 to the Company’s investment portfolio, in terms of
valuation and ability to complete realisations are lessening as
economies learn to live and adapt to the virus.
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.
Due to the uncertainty that the Company will not have sufficient
liquidity to repay its Loan notes (due 11
September 2022) and redeem its ZDP shares (due 1 October 2022), there is a material uncertainty
which casts significant doubt on the ability of the Company to
continue as a going concern. However, the Financial Statements for
the year ended 28 February 2022 have
been prepared on a going concern basis given the Board's assessment
of future realisations and likelihood that, should it be necessary,
agreement would be able to be reached with debt providers which
would allow the timely repayment of its obligations, including the
redemption of its ZDP shares. The Board, with recommendation from
the Audit Committee, has a reasonable expectation that the Company
has adequate resources to continue in operational existence for the
foreseeable future.
In reaching its conclusion, the Board has considered the risks
that could impact the Company’s liquidity over the period from
14 June 2022 to 30 June 2023 (the "going concern period") being
approximately 12 months from the signing of the Financial
Statements.
As part of their assessment the Audit
Committee highlighted the following key consideration:
Whether the Company can generate sufficient cash through
realisations of its underlying investments to discharge its
liabilities over the period to 30 June
2023 or failing to do so can agree terms with its debt
providers to repay its obligations, including the redemption of its
ZDP shares, over an extended timeframe.
In summary, the Company’s key outstanding debt obligations
during the going concern period are:
(i) $31.5 million of Subordinated Notes due
11 September 2022; and
(ii) Approximately
$77.3 million of ZDP shares due
1 October 2022, being £57.6 million
translated at the year end exchange rate.
The Company needs to generate realisation proceeds of
approximately $90 million during the
going concern period of which $70
million is required before 1 October
2022 to enable the settlement of the debt obligations on
their due date.
Key financing activities during the
year:
On 30 July 2021, the Company
redeemed its CULS totalling £38.9 million ($54 million) on their maturity and entered into a
note purchase agreement with the founders and principals of
the Company's investment adviser, for the Company to issue
subordinated, second lien loan notes (the "Loan Notes") of
additional financing totalling $31.5
million.
On 26 January 2022, the Company
entered into an agreement with a New Senior Lender replacing the
Company's previous senior debt facility. The key highlights of the
new facility are as follows:
.Extended maturity date on five year term (26 January 2027 previously 12 June 2022);
.Lower interest rate reducing future finance costs;
.Allowance for the repayment of the Loan notes and ZDP shares
assuming the required asset coverage is maintained; and
.Ability to draw down a further $25 million from time to time in its discretion,
provided certain conditions are met, in the 24 month period
following the closing date.
Update on material liabilities due
for settlement:
The below table shows the Company's net debt position at the
year end and the previous two year ends:
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
29.2.2020 |
|
|
|
|
|
$'000 |
|
$'000 |
|
$'000 |
Senior
Debt Facility - extended maturity date 26 January 2027 |
|
42,573 |
|
68,694 |
|
150,362 |
ZDP shares - maturity
date 1 October 20221 |
|
|
|
|
77,281 |
|
80,527 |
|
73,569 |
Loan notes - maturity
date 11 September 2022 |
|
|
|
|
32,293 |
|
- |
|
- |
CULS (£38.9 million) -
maturity date 30 July 2021 |
|
|
|
|
- |
|
54,332 |
|
49,637 |
|
|
|
|
|
152,147 |
|
203,553 |
|
273,568 |
Cash and cash
equivalents held |
|
|
|
|
47,050 |
|
63,178 |
|
56,298 |
Net debt position |
|
|
|
|
105,097 |
|
140,375 |
|
217,270 |
1Forecast ZDP maturity Dollar amount is the total
redemption amount of £57.6 million translated using the
28.2.2022 year end rate being
£1/$1.34175.
Realisations
The Company's ability to repay the above debt obligations
remains dependent upon the Company achieving sufficient
realisations of its assets within the relevant timeframes. During
the year ended 28 February 2022, the
Company had realisations of investments totalling $65.8 million (2021: $139.5 million and 2020: $148.2 million).
Realisations and refinancings during the last three fiscal years
are as follows:
|
|
Year
End |
|
|
|
Year
End |
|
|
|
Year
End |
|
|
28.2.2022 |
|
|
|
28.2.2021 |
|
|
|
29.2.2020 |
|
|
$
million |
|
|
|
$
million |
|
|
|
$
million |
|
|
|
|
|
|
|
|
|
|
|
Salter Labs |
U.S. |
41.1 |
|
Secondary Sale |
U.S. |
87.7 |
|
Avante |
U.S. |
37.5 |
George Industries |
U.S. |
9.5 |
|
Real estate |
|
13.6 |
|
Orizon |
U.S. |
28.0 |
Orangewood Fund |
U.S. |
6.2 |
|
ABTA |
U.S. |
9.4 |
|
Waterline Renewal |
U.S. |
23.3 |
Igloo |
U.S. |
3.8 |
|
Eliantus |
Euro |
9.4 |
|
Priority Express |
U.S. |
18.5 |
Vitalyst |
U.S. |
1.9 |
|
K2 Towers II |
Euro |
9.2 |
|
Felix Storch |
U.S. |
14.0 |
EMC 2010 |
Euro |
2.2 |
|
Other |
U.S. |
9.0 |
|
Other |
U.S. |
8.7 |
Fund III |
Euro |
1.1 |
|
Cerpi |
Other |
1.2 |
|
Fund III |
Euro |
13.6 |
|
|
|
|
|
|
|
|
Real estate |
|
4.6 |
|
|
65.8 |
|
|
|
139.5 |
|
|
|
148.2 |
Considering the Company’s projected cash position, including the
Company's ongoing operating costs and the anticipated further
investment required to support the Company’s portfolio, the Board
anticipates further proceeds of approximately $90 million are required from the realisation of
investments during the going concern period, to enable the Company
to settle its debts as they fall due. Of this amount approximately
$70 million is required before
1 October 2022 to enable settlement
of the ZDP shares. The required amounts from realisations assumes
the drawdown of the further $25
million available under the terms of the senior debt
facility.
The Company's Investment Adviser, JZAI, is currently pursuing
various opportunities to realise value, and these forecast
realisations include several anticipated sales of micro-cap
companies.
The Board continues to consider the levels of realisation
proceeds historically generated by the Company’s micro-cap
portfolios as well as the accuracy of previous forecasts whilst
concluding on the predicted accuracy of forecasts presented.
The Board recognises that, the raising of the required total
realisation amount is a considerable task but remains confident in
the value of its underlying micro-cap investments. This is
supported by the completed post year end realisation, above NAV, of
Flow Control LLC (JZHL Secondary Fund's portfolio company) and the
agreement of a further sale of a portfolio company of the Secondary
Fund as announced on 23 May 2022.
This sale, is anticipated to result in the receipt of approximately
$89-$94
million from the Secondary Fund. However, the Board notes
that the completion of the sale remains subject to certain
conditions, and at the time of signing there can be no assurance
that these conditions will be satisfied and accordingly, that
completion of the sale and subsequent distribution will occur.
Other than the realisation of Flow Control LLC, which did not
result in a cash distribution to JZCP from the Secondary Fund,
there were no further completed realisations post year end to the
date of this report.
The restructuring of the Company's debt structure during the
year affords the Company time to realise its remaining investments
within a timeframe that will help maximise the portfolio's value.
Should sufficient realisations proceeds not be raised, within the
going concern period to meet the Company's debt liabilities, the
Board is confident the Company can work with its lenders to ensure
alternative financing plans are in place to extend the timeframe
over which its debt obligations are repaid.
Going Concern Conclusion
After careful consideration and based on the reasons outlined
above, the Board is satisfied, as at the date of the signing of the
Annual Report and Financial Statements, that it is appropriate to
adopt the going concern basis in preparing the financial statements
and it has a reasonable expectation that the Company will continue
in existence as a going concern for the period ending 30 June 2023.
However, the Board has concluded that the following
consideration creates a material uncertainty which casts
significant doubt over the ability of the Company to continue as a
Going Concern, being:
Whether the Company can generate sufficient cash through
realisations of its underlying investments to discharge its
liabilities over the period to 30 June
2023 or failing to do so can agree terms with its debt
providers to repay its obligations, including the redemption of its
ZDP shares, over an extended timeframe.
The Financial Statements do not include any adjustments that
might result from the outcome of this uncertainty.
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, as noted above, the
Board has carried out a robust review of the principal risks and
uncertainties, 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 2025.
As set out in the going concern statement, the viability of the
Company is dependent on actions that are being and will be taken
over the course of the going concern period ended 30 June 2023. However, there is a material
uncertainty which casts significant doubt over the ability of the
Company to continue as a going concern and its longer-term
viability, being:
Whether the Company can generate sufficient cash through
realisations of its underlying investments to discharge its
liabilities over the period to 30 June
2023 or failing to do so can agree terms with its debt
providers to repay its obligations, including the redemption of its
ZDP shares, over an extended timeframe.
The Board has continued to use the period of three years to
assess viability that has been used historically. This period is
considered appropriate as the actions will be directed at achieving
liquidity from sales of investments at a level that will reasonably
ensure the longer-term viability of the operations of the Company.
It is also considered the three year period is consistent with the
Company’s investment policy to make no further investments except
in respect of which it has existing obligations and to continue
selectively to support the existing portfolio. The Board will
continue to review the period of assessment on an annual basis and
may in future adjust if considered appropriate.
In reaching its conclusion on the Company’s viability, the
Directors have considered the following:
(i) Stability in Company's Net Asset Value
During the February 2022 fiscal
year, the Company's investment portfolio contributed to NAV growth
this follows two fiscal years of material valuation losses. The
Board has confidence in the valuation of the Company's micro-cap
portfolios, which is backed up by historic realisations and current
performance.
In order to stabilise the Company's balance sheet, the Board is
focused on repaying debt. Investment is being curtailed to
commitments and what is necessary to maximise the value of the
existing portfolio. No repayment of capital will be made to
shareholders until debt obligations have been met.
(ii) New senior debt facility terms
During the year, the Company successfully restructured its
senior debt facility. The new facility has greatly improved terms
being;
.
Extended maturity date (January
2027);
.
Lower interest rate reducing future finance costs;
.
New facility allows for the repayment of the Loan Notes and ZDP
shares assuming the required asset coverage is maintained; and
.
The Company can draw down a further $25
million from time to time in its discretion in the 24 month
period following the closing date.
(iii) Financing obligations
Loan notes - Maturity date 11 September 2022
During the year ended 28 February
2022, the Company entered into a note purchase agreement
with David W. Zalaznick and
John (Jay) Jordan II, the founders
and principals of the Company's Investment Adviser,
Jordan/Zalaznick Advisers, Inc., pursuant to which they purchased
directly or through their affiliates, Loan notes in the amount of
$31.5 million, with an interest rate
of 6 per cent. per annum and maturing on 11
September 2022. It is expected the Loan notes will be repaid
from the proceeds of realisations and/or refinancing of
investments.
Zero Dividend Preference (2022) shares - Maturity date 1 October
2022
JZCP is due to redeem £57.6 million (approximately $77.3 million at year end exchange rate) of ZDP
shares on 1 October 2022, again it is
expected the redemption of the ZDPs will be met from the proceeds
of realisations and/or refinancing of investments.
Senior debt facility
The new senior debt facility has a maturity date of January 2027, the balance outstanding at
28 February 2022 was approximately
$42.6 million. It is expected the
extended debt facility will be repaid from the proceeds of
realisations and/or refinancing of investments.
Commitments
At 28 February 2022, JZCP had
financial commitments of $16.2
million (28 February 2021:
$31.9 million) outstanding in
relation to fund investments.
Convertible Unsecured Loan Stock - Matured date
30 July 2021
On 30 July 2021, JZCP successfully
redeemed 3,884,279 £10 CULS.
(iv) Investment performance and portfolio liquidity
The Board reviews, on a quarterly basis, the valuation and
prospects of all underlying investee companies. The performance of
JZCP's real estate portfolio has limited the potential to realise
liquidity from this portfolio and therefore increased the risk to
both liquidity and therefore viability. However, the Board is
satisfied in large with the performance of the JZCP's micro-cap
portfolios and believe there will be suitable realisation
opportunities and proceeds in order for the Company to meet its
debt and other obligations. JZCP's micro-cap portfolio has averaged
annual realisations of $121 million
over the five years ending 28 February
2022. JZAI is currently pursuing various opportunities to
realise value, the Board has concluded that there is a reasonable
expectation that forecast realisations will be completed.
(v) Loan covenants
A covenant on the senior debt facility states the fair value of
collateral must be 4x the loan value (which equates to
approximately $170.3 million at the
year end) and the Company is also required to hold a minimum cash
balance of $12.5 million. At
28 February 2022, investments and
cash valued at $471.09 million were
held as collateral on the senior debt facility. The collateral
value used in the asset coverage ratio of $351.9 million is after adjustments to the
collateral value including a ceiling value on any one investment.
The Board are confident the loan covenants will not be
breached.
(vi) Mitigation of other risks as outlined in the Principal
Risks and Uncertainties.
Viability Conclusion
In concluding on the viability of the Company, the Board has
concluded that there is a reasonable expectation that the Company
will be able to continue in operation and meet its liabilities as
they fall due over the three year period ended 28 February 2025, being the period of the
assessment. The Board considers the going concern assumptions,
material uncertainties and conclusion set out above to be
relevant.
Dividends
No dividends were paid or proposed for the years ended
28 February 2022 and 28 February 2021.
Ongoing Charges
Ongoing charges for the years ended 28
February 2022 and 28 February
2021 have been prepared consistently with the methodology
used in the previous year. 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 2022 were 3.31%
(28 February 2021: 3.52%).
Directors
The Directors listed below, who served on the Board during the
year and are all deemed independent and non-executive, 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
above.
David Macfarlane (Chairman)
James Jordan
Sharon Parr
Ashley Paxton
Substantial Shareholders
As at 14 June 2022, the Company
has been notified in accordance with the Disclosure Guidance and
Transparency Rules of the following interests of 5% or more of the
total Ordinary share capital of the Company. The number and
percentage of Ordinary shares relate to the number informed by
shareholders on the relevant notification rather than the current
share register. The number and percentage of Ordinary shares set
out below for each substantial shareholder will therefore not take
account of any Ordinary shares bought or sold by them or the effect
of any share buy backs undertaken by the Company on their
shareholdings, in each case, not so notified as required by, or in
accordance with, the Disclosure Guidance and Transparency Rules.
For the avoidance of doubt, the number and percentage of Ordinary
shares set out below should not therefore be used for the purposes
determining if the Company is or is to become a controlled foreign
corporation within the meaning of The United States Internal
Revenue Code of 1986, as amended (further information on the
Company's controlled foreign corporation status can be found in US
Tax Matters under the section Useful Information for Shareholders).
Shareholders and prospective shareholders must consult their own
tax advisers concerning US tax laws.
|
|
|
|
|
|
|
Ordinary |
|
% of
Ordinary |
|
|
|
|
|
|
|
shares |
|
shares |
|
|
|
|
|
|
|
|
|
|
Edgewater Growth
Capital Partners L.P. |
|
|
|
|
|
|
18,335,944 |
|
23.7% |
David W.
Zalaznick |
|
|
|
|
|
|
10,550,294 |
|
13.6% |
John W. Jordan II
& Affiliates |
|
|
|
|
|
|
10,550,294 |
|
13.6% |
Jefferies Financial
Group |
|
|
|
|
|
|
8,021,552 |
|
10.4% |
Abrams Capital
Management L.P. |
|
|
|
|
|
|
7,744,366 |
|
10.0% |
Arnhold, LLC |
|
|
|
|
|
|
4,573,007 |
|
5.9% |
Finepoint Capital
L.P. |
|
|
|
|
|
|
4,413,067 |
|
5.7% |
The percentage of Ordinary shares shown above represents the
ownership of voting rights at the date of this report, 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%.
Share Capital, Purchase of Own Shares
and Convertible Unsecured Loan Stock "CULS"
The beneficial interests of the Directors in the Ordinary shares
of the Company are shown below:
|
|
|
|
Number of Ordinary shares at 1 March 2021 |
|
Purchased in year |
|
Sold
in year |
|
Number of
Ordinary shares at 28 February 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Macfarlane |
|
|
71,550 |
|
- |
|
- |
|
71,550 |
James
Jordan |
|
|
39,124 |
|
- |
|
- |
|
39,124 |
Sharon
Parr |
|
|
- |
|
10,000 |
|
- |
|
10,000 |
Ashley
Paxton |
|
|
- |
|
12,250 |
|
- |
|
12,250 |
|
|
|
|
110,674 |
|
22,250 |
|
- |
|
132,924 |
The beneficial interests of the Directors in the ZDP shares of
the Company are shown below:
|
|
|
|
Number of
ZDP shares
at 1 March 2021 |
|
Purchased in year |
|
Sold
in year |
|
Number of
ZDP shares at
28 February 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Macfarlane |
|
|
- |
|
- |
|
- |
|
- |
James
Jordan |
|
|
- |
|
- |
|
- |
|
- |
Sharon
Parr |
|
|
- |
|
- |
|
- |
|
- |
Ashley
Paxton |
|
|
- |
|
4,250 |
|
- |
|
4,250 |
|
|
|
|
|
|
4,250 |
|
- |
|
4,250 |
David Macfarlane held 734 CULS
which were redeemed on 30 July 2021.
No Directors hold Loan notes issued on 30
July 2021. There have been no changes in the Directors'
interests of any share class between 28
February 2022 and the date of this report.
Details of the ZDP shares and the Ordinary shares can be found
in Notes 15 and 19. Details of the CULS can be found in Note
17.
Annual General
Meeting
The Company's Annual General Meeting is due to be held on
3 August 2022.
Engaging with Stakeholders
In line with best practice, the Board is required to ensure
effective engagement with, and participation from, its shareholders
and stakeholders. The Board should also understand the views of the
Company’s key stakeholders and describe in the annual report how
their interests and the matters set out in Section 172 of the
Companies Act 2006 have been considered in board discussions and
decision-making.
The Board identifies its key stakeholders as the following:
.
Shareholders and prospective investors;
.
JZAI, the Investment Adviser of its portfolio investments and other
service providers.
The Company has no employees.
Engaging with Shareholders
The Board believes that the maintenance of good relations with
both institutional and retail shareholders is important for the
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 Board considers 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. In usual circumstances the Directors encourage all
shareholders to attend where Directors will be present and
available to engage with shareholders. In light of the COVID-19
pandemic, the Company will continue to closely monitor the
situation in the lead up to the Annual General Meeting and will
make any further updates as required about the Meeting on its
website at www.jzcp.com.
The Board believes 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, provides an Interim Report and Accounts in
accordance with IAS 34 and will aim to issue monthly NAV
announcements within 21 day of the month end, these announcements
will be posted on JZCP's website at the same time, or soon
thereafter.
Engaging with Service Providers
In usual 'non-COVID-19' circumstances, the Board visits the
Investment Adviser at least annually for a comprehensive review of
the portfolio, its valuation methodology and general strategy. The
Board is also in regular communication with the Investment Adviser
to discuss the Company’s strategy as well as being kept up to date
with portfolio matters.
A Management Engagement Committee, was established in 2018, to
review the performance and contractual arrangements of the
Company’s service providers. The Board looks to engage with service
providers and encourage communication of any concerns of matters
arising and deal with them appropriately.
Statement of Directors'
Responsibilities
The Directors are responsible for preparing the Annual Report
and Financial Statements in accordance with applicable laws and
regulations. 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.
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 assets, 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 Guidance 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 signed on behalf of the
Board on 14 June 2022.
David Macfarlane
Chairman
Sharon Parr
Director
Corporate Governance
Introduction
As a Guernsey incorporated
company with a UK listing, JZCP’s governance policies and
procedures are based on the principles of the UK Corporate
Governance Code (the "UK Code") as required under the Disclosure
Guidance and Transparency Rules. The UK Code is available on the
Financial Reporting Council’s website, www.frc.org.uk. The Company
is subject to the GFSC Code, which applies to all companies
registered as collective investment schemes in Guernsey. The GFSC has also confirmed that
companies that report against the UK Code are deemed to meet the
GFSC Code. In prior years the Company reported against the AIC Code
of Corporate Governance (the "AIC Code"), which addresses all the
principles set out in the UK Code, as well as setting out
additional principles and recommendations on issues that are of
specific relevance to investment companies. The Company resigned
its membership from the AIC in 2020.
Throughout the accounting period the Company has complied with
the recommendations of the UK Code and thus the relevant provisions
of the UK Corporate Governance Code, except as set out
below.
- the tenure of the Chairman.
- the Chairman serving as a member of the Audit Committee.
The Board considers the following UK Code 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 role of the chief executive;
- executive directors remuneration; and
- appointment of a senior independent director.
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 (the "GFSC")
“Finance Sector Code of Corporate Governance” (the "Guernsey Code")
came into effect on 1 January 2012 and was subsequently
amended on 18 February 2016. 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 four Directors, all of whom are
non-executive. Biographical details of the Board members at the
date of signing these Financial Statements are shown on in ‘Board
of Directors’ 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 continually considers the independence of the
Directors, including in light of the circumstances which are set
out in the UK Code as likely to impair a director's
independence.
There are no circumstances that exist, including those under the
UK Code, which the Board considers likely to impair the
independence of any of the Directors.
Two Board members (David
Macfarlane and James Jordan)
have, however, served on the Board for a period of longer than nine
years which is one of those circumstances set out in the UK Code.
The conclusion the Board has reached is that despite having served
on the Board for more than nine years, this has not impacted the
independence of such Directors. However, the Board will continue to
assess on an annual basis how length of service could impair
judgement and decision making both on the basis of an individual
Director and the Board as a whole.
Previously, each Director having served longer than nine years
was subject to annual re-election and each Director having served
less than nine years was subject to re-election at the third
annual general meeting after appointment or (as the case may be)
the general meeting at which he or she was last appointed. In line
with best practice, all Directors are now subject to annual
re-election
Further details on the Board’s processes and criteria for the
appointment of directors can be found under the section of this
Annual Report detailing the work of the Nomination Committee.
Succession Planning
The Board acknowledges that the Board and its Committees should
have a combination of skills, experience and knowledge and that
membership should be regularly refreshed. The Board annually
evaluates its composition, diversity and how effectively each
member contributes and how they work together to achieve
objectives. Further details on the evaluation of the Board
and its Committees can be found below in this section of the Annual
Report.
Chairman Tenure
The UK Code, states the Chairman should not remain in post
beyond nine years from the date of their first appointment to the
Board. However, to facilitate effective succession planning and the
development of a diverse board, this period can be extended for a
limited time.
The Board’s policy on the Chairman’s tenure is that
continuity and experience are considered to add significantly to
the strength of the Board and as such these attributes need to be
weighed against any advantages that a new appointment may bring.
Therefore, no limit on the overall length of service of the
Chairman is imposed.
The Chairman has served on the Board since the Company’s
inception (April 2008) and the Board
therefore acknowledges that succession to the role needs to be
anticipated in line with effective succession planning. A
substantial refreshment of the board was planned to take place in
2021, including the appointment of a new Chairman. However, in the
light of the events which saw a material decline in the Company's
Net Asset Value, it was decided the Chairman would continue to
oversee the stabilisation of the Company and implementation of the
new investment policy. The Chairman will therefore continue to seek
re-election to the Board annually.
Proceedings of the Board
The Board has 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.
In usual circumstances, 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 in this statement.
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, expertise and
ability in effectively assisting the management of portfolio
companies.
Supply of information
The Chairman ensures that all Directors are properly briefed on
issues arising at, and when necessary in advance of, 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
the Directors are offered the opportunity to attend courses or
seminars on such changes, or other relevant matters. An induction
programme is available for any new Director appointments. The
induction programme offers training about the Company, its
managers, their legal responsibilities and investment company
industry matters.
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. Currently there is no
appointment of a Senior Independent Director.
Board diversity
The Board has also given careful consideration to the
recommendations of the Davies Review and the findings of the
Hampton-Alexander Review on the evolving gender diversity debate.
The Board continues to review its composition in terms of
diversity, appropriate range of skills and experience and the Board
is committed to ensuring that diversity is considered when
appointments to the Board are under consideration – as indeed has
always been its practice.
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 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 UK 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 is reviewed on an annual basis. The
Board, consisting of all non-executive Directors, 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 Nomination Committee leads the process
for all board appointments, oversees the development of and reports
on, amongst other things, its approach to a diverse pipeline for
succession.
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 use external
consultants as well as using their own contacts 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 Sharon
Parr and all other Directors are members. Contrary to the
recommendations of the UK Code, the Board consider it is
appropriate for the Company's Chairman to serve as a member of the
Audit Committee due to his considered independence and the
skills/experience contributed. The Board also notes the AIC Code,
previously followed by the Company, permits a chairman to be a
member of an audit committee if independent on appointment.
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.
Post year end, the Audit Committee has re-considered whether the
Company is able to continue as a going concern for the period
ending 30 June 2023 and whether it
considers it appropriate to adopt the going concern basis of
accounting in preparing them, and identify any material
uncertainties to the company’s ability to continue to do so. Also,
the Audit Committee, has considered the Company’s current position
and principal risks, and assessed the prospects of the Company,
over the viability period of three years to 28 February 2025.
The activities and responsibilities of the Audit Committee are
further described the Audit Committee Report and the
recommendations to the Board made by the Audit Committee, regarding
the going concern and viability of the Company are detailed in the
Report of the Directors.
Management Engagement Committee
The Management Engagement Committee is chaired by David Macfarlane and comprises the entire Board.
Responsibilities include reviewing the performance and contractual
arrangements of the Company’s service providers.
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 UK 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 fiscal year and the attendance of individual
Directors at these meetings was as follows:
|
|
|
Number of meetings |
|
|
|
|
|
|
Management |
|
Board |
|
Ad
Hoc |
Audit |
|
Engagement |
|
Main |
AGM |
Meetings |
Committee |
EGM |
Committee |
|
|
|
|
|
|
|
Total number of
meetings |
4 |
1 |
21 |
5 |
1 |
1 |
David Macfarlane |
4 |
1 |
21 |
5 |
1 |
1 |
James Jordan |
4 |
1 |
20 |
4 |
1 |
1 |
Sharon Parr |
4 |
1 |
21 |
5 |
1 |
1 |
Ashley Paxton |
4 |
1 |
21 |
5 |
1 |
1 |
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 on an annual basis. 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 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, 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 Investment Adviser. 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.
Whistle Blowing Policy
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.
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.
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 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.
The Company's Articles state that Directors' remuneration
payable in any accounting year shall not exceed in the aggregate an
annual sum of $650,000. Each Director
is also entitled to reimbursement of their reasonable expenses.
There are no commission or profit sharing arrangements between the
Company and the Directors. Similarly, none of the Directors is
entitled to pension, retirement or similar benefits. No element of
the Directors' remuneration is performance related.
The remuneration policy set out above is the one applied for the
year ended 28 February 2022 and is
not expected to change in the foreseeable future.
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of the Directors.
Remuneration for Services to the
Company as Non-Executive Directors
|
|
Year Ended
28 February 2022 |
|
Year Ended
28 February 2021 |
|
|
|
US$ |
|
|
US$ |
|
|
|
|
|
|
|
David
Macfarlane (Chairman) |
|
120,000 |
|
|
120,000 |
James
Jordan |
|
50,000 |
|
|
50,000 |
Sharon
Parr |
|
70,000 |
|
|
95,000 |
Ashley
Paxton (appointed 12 August 2020) |
|
50,000 |
|
|
27,000 |
Tanja
Tibaldi (resigned 12 August 2020) |
|
- |
|
|
27,000 |
|
|
|
290,000 |
|
|
319,000 |
Fees payable to the Chairman and Directors are $120,000 per annum and $50,000 per annum respectively. The Chairman of
the Audit Committee will receive an additional amount of
$20,000 per annum and in the prior
year received a further fee of $25,000 for additional work relating to events in
the 2020 financial year.
No Director has a service contract with the Company, nor are any
such contracts proposed.
Directors' Term of Appointment
In line with the UK Code of Corporate Governance, all Directors
seeking re-election to the Board will do so on an annual basis
regardless of their tenure not yet exceeding nine years.
The Directors were appointed as non-executive Directors by
letters issued in April 2008,
June 2018 and August 2020 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 14 June 2022 by:
David Macfarlane
Chairman
Sharon Parr
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
during the year ended 28 February
2022. 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; and
.
monitor and review the internal control and risk management systems
of the service providers.
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:
.
Assessment of Going Concern and Viability
The Audit Committee has considered the ability of the Company to
continue as a going concern over the period ending 30 June 2023. After careful consideration the
Committee have recommended to the Board that it is satisfied that
it is appropriate to adopt the going concern basis in preparing
these Financial Statements and they have a reasonable expectation
that the Company will continue in existence as a going concern for
the period. The reasons for reaching this judgement are detailed in
the Report of the Directors. However, there is a material
uncertainty which casts significant doubt over the ability of the
Company to continue as a Going Concern, being:
Whether the Company can generate
sufficient cash through realisations of its underlying investments
to discharge its liabilities over the period to 30 June 2023 or failing to do so can agree terms
with its debt providers to repay its obligations, including the
redemption of its ZDP shares, over an extended timeframe.
For the viability assessment, the Audit Committee has assessed
the expectations that the Company will be able to continue in
operation and meet ongoing debt obligations over the period ending
28 February 2025. In making its
recommendation to the Board the Committee has carried out a robust
review of the Company's principal risks and uncertainties 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 key factors considered by the Committee are detailed in the
Report of the Directors.
The Committee have concluded that they have a reasonable
expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the period of the
assessment. They consider the going concern assumptions, material
uncertainty and conclusion set out above to be relevant.
The Audit Committee was also satisfied that the disclosures in
the basis of preparation note and the viability statement, relating
to the going concern assessment of the Company, were appropriately
clear and transparent. In particular that the material uncertainty
prevalent in the going concern basis of preparation is disclosed in
a fair, balanced and understandable manner.
.
Valuation of Unquoted Investment Fair Values including the impact
on management fees
The fair value of the Company’s unquoted securities at
28 February 2022, which are valued
using techniques detailed in Note 5 of the financial statements,
was $408,174,000 accounting for 92.3%
of the Company's investment portfolio. 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, discuss the valuation process
with the Investment Adviser on a quarterly basis. The Audit
Committee gains comfort in the valuations produced by reviewing the
methodologies used and challenging the recommendations of the
Investment Adviser. The Audit Committee are thus satisfied
that the valuation techniques are appropriate and represent fair
value.
The valuation of the unquoted investments is the key driver of
the Company’s gross asset value and the basis of the management
fees payable to the Investment Adviser and therefore the management
fees payable could potentially be misstated if there were to
be an error in the calculation of the gross assets. However, as
each monthly NAV calculation is approved by the Investment Adviser
and the year-end NAV has been audited, the Audit Committee is
satisfied that the fees have been correctly calculated as stated in
the Annual Report and Financial Statements.
.
Impairment of Direct Loans Measured at Amortised Cost
Risk that the carrying value of the direct loans might be
misstated due to application of inappropriate methodologies, inputs
and/or judgemental factors determining the expected credit loss in
accordance with
IFRS 9 - "Financial Instruments".
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. New risks are added to the matrix when deemed
appropriate.
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, bribery or corruption.
In a press release dated 21 March
2022, the Company announced that it had come to the Board's
attention that allegations of fraudulent conduct had been made
against two individuals who were members of the management team
that manages JZCP's investments in European micro-cap companies. A
claim has been made in respect thereof in the New York State Supreme Court. The claimants
are a fund in which JZCP has only an approximate 1% interest
(carried at approximately $0.75
million) as well as a fund in which JZCP has no interest.
The information available to the Board at the date of this report
indicates that the Company has no reason to believe that the
alleged conduct will have a material adverse effect on the
Company's investments held through JZI Fund III.
The External Auditor
Ernst & Young LLP have acted as external auditor since the
Company's inception in April 2008.
This is the fourth year of Andrew Dann’s anticipated five year
tenure as audit partner. A full tender process was undertaken
during December 2018 and January 2019 resulting in Ernst & Young LLP
being reappointed.
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.
In line with the historic policies, the Audit Committee does not
consider that the provision of non-audit services, to have been a
threat to the objectivity and independence of the external auditor.
However, following the introduction of the UK FRC Revised Ethical
Standard (effective on 15 March
2020), the Audit Committee has introduced a general
prohibition on the external auditor providing non-audit services to
the Company. This general prohibition will not extend to an interim
review report providing the fee for such interim review is subject
to a 70% fee cap when compared to the audit fee.
The following table summarises the remuneration paid and payable
by the Company to Ernst & Young LLP and to other Ernst &
Young LLP member firms for audit and other services during the
years ended 28 February 2022 and
28 February 2021.
|
|
|
|
|
|
|
|
|
$
Equivalent |
|
|
|
$
Equivalent |
|
|
|
|
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2022 |
|
28.2.2021 |
|
28.2.2021 |
Ernst
& Young LLP |
|
|
|
|
|
|
|
|
|
|
|
-
Annual audit |
|
|
|
|
£256,000 |
|
$343,000 |
|
£275,000 |
|
$384,478 |
-
Auditor's interim review |
|
|
|
£53,000 |
|
$71,000 |
|
£50,000 |
|
$69,000 |
PFIC
services for the years ended 28 February 2022 and 2021 are now
provided by PricewaterhouseCoopers LLP. |
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 above.
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 also recommended
to the Board that the Annual Report and Accounts should be
considered fair, balanced and understandable.
Sharon Parr
Chairman, Audit Committee
14 June
2022
Independent Auditor's Report
To The Members of JZ Capital Partners
Limited
Opinion
We have audited the financial statements of JZ Capital Partners
Limited (the “Company”) for the year ended 28 February 2022 which comprise the Statement of
Financial Position, the Statement of Comprehensive Income, the
Statement of Changes in Equity, the Statement of Cash Flows and the
related notes 1 to 32, 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
2022 and of its profit 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. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical
requirements that are relevant to our audit of the financial
statements, including the UK FRC’s Ethical Standard as applied to
listed public interest entities, and we have fulfilled our other
ethical responsibilities in accordance with these requirements.
The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Company and we remain independent of the
Company in conducting the audit.
Material uncertainty relating to going
concern
We draw your attention to Note 3 in the financial statements,
which indicates that there is a material uncertainty as to whether
the Company can generate sufficient cash through realisations of
its underlying investments to discharge its liabilities over the
period to 30 June 2023 or failing to
do so can agree terms with its debt providers to repay its
obligations, including the redemption of its ZDP shares, over an
extended timeframe, which casts significant doubt over the ability
of the Company to continue as a Going Concern. Our opinion is not
modified in respect of this matter.
We draw attention to the viability statement in the Annual
Report, which indicates that the viability of the Company is
dependent entirely on actions that are being and will be taken over
the course of the going concern period to 30
June 2023. The Directors consider that the material
uncertainty referred to in respect of going concern may cast
significant doubt over the future viability of the Company should
these actions not complete. Our opinion is not modified in respect
of this matter.
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the directors’ assessment of the Company’s ability to
continue to adopt the going concern basis of accounting
included;
. The audit engagement partner directed
and supervised the audit procedures on going concern;
. We obtained the cash flow forecasts
prepared by the Investment Adviser, Jordan/Zalaznick Advisers, Inc
(“JZAI”) and tested the arithmetical accuracy of the models
including reperforming the covenant tests therein;
. We obtained the agreements and
enquired of management to understand the WhiteHorse loan facility and associated
agreement amendments, including the nature of facilities, repayment
terms and covenants.
. We performed a reverse-stress test for
covenant compliance to assess the likelihood of a reduction in fair
value and/ or cash balance, triggering a covenant breach;
. We challenged the appropriateness of
management’s forecasts by assessing historical forecasting
accuracy, challenging management’s consideration of downside
sensitivity analysis and applied further stress testing to
understand the sensitivity of the assessment to the timing and
quantum of asset realisations;
. We assessed whether available funds
are sufficient to cover commitments made to underlying investments
and other ongoing commitments including investment adviser and
other expenses;
. We held discussions with the
Investment Adviser and the Audit Committee in relation to the
status of the asset realisations;
. We have reviewed the management
provided stock purchase agreement which supported management’s cash
flow forecast;
. We assessed the likely success and
risk factors of the Company’s alternative investing and financing
plans with its Investment Adviser; and
. We assessed the disclosures in the
Annual Report and Financial Statements relating to going concern,
including the material uncertainties, to ensure they were fair,
balanced and understandable and in compliance with IAS 1.
In relation to the Company’s reporting on how they have applied
the UK Corporate Governance Code, we have nothing material to add
or draw attention to in relation to the directors’ statement in the
financial statements about whether the directors considered it
appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as
to the Company’s ability to continue as a going concern.
Overview of our audit approach
Key audit
matters |
Misstatement of
unquoted investment fair values, including the impact on management
fees: The risk that the fair value of investments might be
misstated due to application of inappropriate methodologies or
inputs to the valuations and/or inappropriate judgemental factors.
This will include the possible impact on the management fees. |
|
Impairment of direct
loans measured at amortised cost: The risk that the carrying value
of the direct loans might be misstated due to application of
inappropriate methodologies or inputs determining the amortised
cost and/or inappropriate judgemental factors Expected Credit Loss
(“ECL”) in accordance with IFRS 9. |
Materiality |
Overall materiality of
$3.41m (2021: $3.30m) which represents 1% of total equity. |
An overview of the scope of our
audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and
our allocation of performance materiality determine our audit scope
for the Company. This enables us to form an opinion on the
financial statements. We take into account size, risk profile, the
organisation of the Company and effectiveness of controls,
including controls and changes in the business environment when
assessing the level of work to be performed.
All audit work was performed directly by the audit engagement
team. The audit was led from Guernsey. In addition, we engaged our
Valuation, Modelling, and Economics (“VME”) industry valuation
specialists from the Brooklyn and
Miami offices, who assisted us in
auditing the valuation of the real estate investments, and the
Montreal office, who assisted us
in auditing the valuation of unquoted private equity investments.
The scope of their work was consistent with the prior year.
Climate change
The Company has explained climate-related risks in the
‘Macroeconomic Risks and Impact on NAV’ section of the Report of
the Directors and form part of the “Other information”, rather than
the audited financial statements. Our procedures on these
disclosures therefore consisted solely of considering whether these
disclosures are materially inconsistent with the Company’s
financial statements, or our knowledge obtained in the course of
the audit, or otherwise appear to be materially misstated.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, 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.
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Risk |
|
Our
response to the risk |
|
Key observations
communicated to the Audit Committee |
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|
Misstatement of unquoted investment fair values,
including the impact on management fees (2022: $408 million; 2021:
$430 million)
Refer to the Audit Committee Report; Accounting policies; and Note
5 of the financial statements
99% (2021: 99%) of the carrying value of investments relates to the
Company’s holdings in unquoted investments, which are valued using
different valuation techniques, as described in note 5 to the
financial statements.
The valuation is subjective, with a high level of judgement and
estimation linked to the determination of the values with limited
market information available, as a result of the low level of
liquidity in the private equity and real estate markets at the
year-end.
The Investment Advisory fees are calculated based on NAV, which is
driven by investment valuation and is therefore related to this key
audit matter.
As a result, there is a risk of an inappropriate valuation model
being applied, together with the risk of inappropriate inputs to
the model/calculation being selected including the possible impact
on the management fees.
The valuation of the unquoted investments is the key driver of the
Company’s net asset value and total return. Incorrect valuation
could have a significant impact on the net asset value of the
Company and therefore the return generated for shareholders. |
|
Our audit
procedures consisted of: |
|
We have no
matters to report to the Audit Committee in this regard. |
|
|
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|
|
Updating
and confirming our understanding of the Company’s processes and
methodologies, including the use of industry specific measures, and
policies for valuing unquoted investments held by the Company; |
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|
Obtaining
and inspecting the valuation decks and supporting data for the
private equity investments, to assess whether the data used is
appropriate and relevant, and discussing these with the Investment
Adviser to evaluate whether the fair value of the Company’s private
equity investments are reasonably stated, challenging the
assumptions made by the Investment Adviser and Board of Directors
of the Company; |
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|
Obtaining
and inspecting the independent appraisals and supporting data
regarding the real estate assets, to assess whether the data used
is appropriate and relevant, and discussing these with the
Investment Adviser to evaluate whether the fair value of the
Company’s real estate investments are reasonably stated,
challenging the assumptions made by the Investment Adviser and
Board of Directors of the Company; |
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|
Attending
fair value discussions in relation to 28 February 2022 valuations,
for private equity investments. These included the Investment
Adviser, EY Guernsey and EY valuation specialists; |
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|
Vouching
valuation inputs that do not require specialist knowledge to
independent sources and testing the arithmetical accuracy of the
Company’s calculations for a sample of significant private equity
investments selected based on their size/value; |
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Performing back testing on the Level 3 investment
sensitivity disclosures to understand the drivers of movements in
fair value;
Performing back testing to compare realisation proceeds during the
period to the previously reported fair values for those disposed
assets;
For a sample of significant private equity investments selected
based on their size/value, we engaged EY Montreal. It was
considered appropriate for EY Montreal to review both US and
European assets as |
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|
use their knowledge
of the market to assess and corroborate the Investment Adviser's
and the Company’s specialist’s market related judgements and
valuation inputs (in relation to the private equity investments
discount rates and EBITDA multiples and in relation to real estate
assets discount rates, rental per square foot, selling price per
square foot) by reference to comparable transactions, and
independently compiled databases/indices; |
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assist us to determine
whether the methodologies used to value private equity investments
and real estate assets were consistent with methods usually used by
market participants; |
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perform procedures to
assess whether, in light of market data, the fair values of certain
recently acquired private equity investments continue to
approximate to their consideration paid; and |
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assist us in
determining whether the Company’s specialist, for the real estate
assets, was appropriately qualified and independent. |
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Agreeing
the valuation per the financial statements back to the models per
the valuation decks, relating to private equity investments,
prepared by the Investment Adviser and agreeing the proposed values
per the valuation decks to the investment portfolio report prepared
by the Administrator; |
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Reviewing
the waterfall calculations on the flow of valuation through the SPV
structures to the Company and reviewing the inputs to, and
arithmetic accuracy of, the valuation calculations/waterfall; |
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Identifying the significant unobservable inputs to valuations and
reviewed and assessed the reasonableness of the sensitivity
workings and disclosures, comparing the Investment Adviser’s
position with EY’s range of acceptable inputs; |
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Challenging management on the appropriateness of their chosen
comparable public companies used to compute multiples as well as
corroborating those multiples with independent data; |
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Reporting
to the Audit Committee on the calibration of investment valuations
against EY’s ranges and commenting on any specific movements of
valuation marks in those ranges vs prior periods; and |
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Re-performing the management fee calculations for arithmetical
accuracy and consistency with the terms of the investment advisory
agreement. |
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Impairment of direct loans measured at amortised cost (2022: $29
million; 2021 $34 million)
Refer to the Audit Committee Report; Accounting policies; and Note
7 of the financial statements
There is a risk that the carrying value of the direct loans might
be misstated due to methodologies, inputs, and/or judgmental
factors determining the expected credit loss in accordance with
IFRS 9. |
|
For all direct loans we performed the following procedures: |
|
We have no matters to report to the Audit Committee in this
regard. |
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Obtaining
copies of the signed loan agreements including any changes to the
terms and conditions of the loans; |
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Re-performing the amortised cost calculations for mathematical
accuracy and consistency with the terms of the loan
agreements; |
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Obtaining
the expected credit loss calculation from the Investment Advisor
for each material loan and determining that the estimate and
judgements applied by management specific to each loan were in
accordance with IFRS 9; |
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Reviewing
the possible default scenarios and credit risk of each loan
separately and applying probabilities of default to assess the
expected credit loss over the next 12 months; |
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Assessing
the reasonableness of the effective interest rate calculations used
to recognise lifetime expected losses, with interest revenue based
on the net amount; |
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Assessing
the impact the potential material uncertainties in respect of going
concern might have on the valuation of the expected credit loss;
and |
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Reviewing
to ensure that the presentation and disclosure requirements of IFRS
9 are adequate in the financial statements. |
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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
The magnitude of an omission or
misstatement 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 $3.41 million (2021: $3.30
million), which is 1% (2021: 1%) of Total Equity. We believe
that Total Equity provides a basis for determining the nature,
timing and extent of risk assessment procedures, identifying and
assessing the risk of material misstatement and determining the
nature, timing and extent of further audit procedures. We believe
that Total Equity provides us with the best measure of planning
materiality as the Company’s primary performance measures for
internal and external reporting are based on Total Equity.
During the course of our audit, we reassessed initial
materiality and updated its calculation to align with the year-end
Total Equity figure.
Performance materiality
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 50% (2021: 50%) of
our planning materiality, namely $1.70m (2021: $1.65m). We have set performance
materiality at this percentage to ensure that the total uncorrected
and undetected audit differences in the financial statements did
not exceed our materiality level.
Reporting threshold
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 $0.17m (2021: $0.16m), 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 set out other than the financial statements and our
auditor’s report thereon. The directors are responsible for
the other information contained within the Annual Report.
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.
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 course of 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 themselves. 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.
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.
Corporate Governance Statement
The Listing Rules require us to review the directors’ statement
in relation to going concern, longer-term viability and that part
of the Corporate Governance Statement relating to the Company’s
compliance with the provisions of the UK Corporate Governance Code
specified for our review.
Based on the work undertaken as part of our audit, we have
concluded that each of the following elements of the Corporate
Governance Statement is materially consistent with the financial
statements or our knowledge obtained during the audit:
. Directors’ statement with
regards to the appropriateness of adopting the going concern basis
of accounting and any material uncertainties identified set out
above;
. Directors’ explanation as to its
assessment of the company’s prospects, the period this assessment
covers and why the period is appropriate set
. Directors’ statement on fair,
balanced and understandable;
. Board’s confirmation that it has
carried out a robust assessment of the emerging and principal
risks;
. The section of the annual report
that describes the review of effectiveness of risk management and
internal control systems set out; and
. The section describing the work
of the audit committee.
Responsibilities of Directors
As explained more fully in the directors’ responsibilities
statement set out in the Report of the Directors, 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.
Explanation as to
what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect irregularities,
including fraud. The risk of not detecting a material
misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery or intentional
misrepresentations, or through collusion. The extent to which our
procedures are capable of detecting irregularities, including fraud
is detailed below.
However, the primary responsibility for the prevention and
detection of fraud rests with both those charged with governance of
the Company and the Investment Adviser. Our approach was as
follows:
. We obtained an understanding of the
legal and regulatory frameworks that are applicable to the Company
and determined that the most significant are the Companies
(Guernsey) Law, 2008, the 2018 UK
Corporate Governance Code and the listing requirements of London
Stock Exchange and the Disclosure Guidance and Transparency Rules
of the UK Listing Authority;
. We understood how the Company is
complying with those frameworks by making enquiries of the
Investment Adviser and those charged with governance regarding:
their knowledge of any non-compliance or potential
non-compliance with laws and regulations that could affect the
financial statements;
the Company’s methods of enforcing and monitoring
non-compliance with such policies;
management’s process for identifying and responding to
fraud risks, including programs and controls the Company has
established to address risks identified by the entity, or that
otherwise prevent, deter and detect fraud; and
how management monitors those programs and controls;
. Administration and maintenance
of the Company’s books and records is performed by Northern Trust
International Fund Administration Services (Guernsey) Limited which is a regulated firm,
independent of the Investment Adviser. We corroborated our
enquiries through our review of Board minutes and any
correspondence received from regulatory bodies. We also obtained
their SOC1 controls report and reviewed it for findings relevant to
the Company. We noted no contradictory evidence during these
procedures;
× We assessed the susceptibility
of the Company’s financial statements to material misstatement,
including how fraud might occur by:
obtaining an understanding of entity-level controls and
considering the influence of the control environment;
obtaining management’s assessment of fraud risks
including an understanding of the nature, extent and frequency of
such assessment documented in the Board’s risk matrix;
making inquiries with those charged with governance as
to how they exercise oversight of management’s processes for
identifying and responding to fraud risks and the controls
established by management to mitigate specifically those risks the
entity has identified, or that otherwise help to prevent, deter and
detect fraud;
making inquiries with management and those charged with
governance regarding how they identify related parties including
circumstances related to the existence of a related party with
dominant influence; and
making inquiries with management and those charged with
governance regarding their knowledge of any actual or suspected
fraud or allegations of fraudulent financial reporting affecting
the Company.
. Based on this understanding we
designed our audit procedures to identify non-compliance with such
laws and regulations identified above. Our procedures involved a
review of Board minutes and inquiries of the Investment Adviser and
those charged with governance including:
Through discussion, gaining an understanding of how
those charged with governance, the Investment Adviser and
Administrator identify instances of non-compliance by the Company
with relevant laws and regulations;
Inspecting the relevant policies, processes and
procedures to further our understanding;
Reviewing Board minutes and internal compliance
reporting;
Inspecting correspondence with regulators; and
Obtaining relevant written representations from the
Board of Directors.
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.
Other matters we are required to
address
• Following the recommendation from the
audit committee, we were appointed by the Company to audit the
financial statements for the year ended 28
February 2009 and subsequent financial periods. We signed an
engagement letter on 27 November
2008.
• The period of total uninterrupted
engagement including previous renewals and reappointments is 14
years, covering the years ended 28 February
2009 to 28 February 2022.
• The audit opinion is consistent with
the additional report to the audit committee.
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.
Andrew Jonathan Dann, FCA
for and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
14 June 2022
1. The maintenance and
integrity of the JZ Capital Partners Limited website 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 website.
2. Legislation in
Guernsey governing the preparation
and dissemination of Financial Statements may differ from
legislation in other jurisdictions.
Independent Auditors Report For Audit Conducted In Accordance
With Auditing Standards Generally Accepted In The United States1
Opinion
We have audited the Financial Statements of JZ Capital Limited
(the “Company”), which comprise the Statement of Financial Position
as of 28 February 2022 and 2021, and
the related Statements of Comprehensive Income, the Statements of
Changes in Equity, the Statements of Cash Flows for the years then
ended, and the related notes (collectively referred to as the
“Financial Statements”).
In our opinion, the accompanying Financial Statements present
fairly, in all material respects, the financial position of the
Company as of 28 February 2022 and
2021, and the results of its operations, changes in equity, and its
cash flows for the years then ended, in accordance with
International Financial Reporting Standards as adopted by the
European Union (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with auditing standards
generally accepted in the United States
of America (“GAAS”). Our responsibilities under those
standards are further described in the Auditor’s Responsibilities
for the Audit of the Financial Statements section of our report. We
are required to be independent of the Company and to meet our other
ethical responsibilities in accordance with the relevant ethical
requirements relating to our audit. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Substantial Doubt About the Company’s
Ability to Continue as a Going Concern
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 3 and 31 to the financial statements, the Company
has stated that there is a material uncertainty relating to whether
the Company can generate sufficient cash through realisations of
its underlying investments to discharge its liabilities over
the period to 14 June 2023 or failing
to do so can agree terms with its debt providers to repay its
obligations, including the redemption of its ZDP shares, over an
extended timeframe. The Company has stated that substantial doubt
exists about the Company's ability to continue as a going concern.
Management’s evaluation of the events and conditions and
management’s plans regarding these matters are also described in
Note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty. Our opinion
is not modified with respect to this matter.
Responsibilities of Management for the
Financial Statements
Management is responsible for the preparation and fair
presentation of the Financial Statements in accordance with IFRS
and for the design, implementation, and maintenance of internal
control relevant to the preparation and fair presentation of
Financial Statements that are free of material misstatement,
whether due to fraud or error.
In preparing the Financial Statements, management is required to
evaluate whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the Company’s ability
to continue as a going concern for one year after the date that the
Financial Statements are available to be issued.
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 of 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 absolute assurance and
therefore is not a guarantee that an audit conducted in accordance
with GAAS will always detect a material misstatement when it
exists. The risk of not detecting a material misstatement resulting
from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
Misstatements are considered material if there is a substantial
likelihood that, individually or in the aggregate, they would
influence the judgment made by a reasonable user based on the
Financial Statements.
In performing an audit in accordance with GAAS, we:
× Exercise professional judgment
and maintain professional scepticism throughout the audit.
× Identify and assess the risks of
material misstatement of the Financial Statements, whether due to
fraud or error, and design and perform audit procedures responsive
to those risks. Such procedures include examining, on a test basis,
evidence regarding the amounts and disclosures in the Financial
Statements.
× Obtain an understanding of
internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
Company’s internal control. Accordingly, no such opinion is
expressed.
× Evaluate the appropriateness of
accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluate the
overall presentation of the Financial Statements.
× Conclude whether, in our
judgment, there are conditions or events, considered in the
aggregate, that raise substantial doubt about the Company’s ability
to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with
governance regarding, among other matters, the planned scope and
timing of the audit, significant audit findings, and certain
internal control-related matters that we identified during the
audit.
Other Information
The Directors are responsible for the other information. The
other information comprises the information included in the Annual
Report, but does not include the Financial Statements and our
auditor’s report thereon. Our opinion on the Financial
Statements does not cover the other information, and we do not
express an opinion or any form of assurance thereon.
In connection with our audit of the Financial Statements, our
responsibility is to read the other information and consider
whether a material inconsistency exists between the other
information and the Financial Statements, or the other information
otherwise appears to be materially misstated. If, based on the work
performed, we conclude that an uncorrected material misstatement of
the other information exists, we are required to describe it in our
report.
Ernst & Young LLP
Guernsey, Channel Islands
14 June 2022
1In order to comply with the U.S. Securities and
Exchange Commission's custody rule, an audit opinion was requested,
by the Company's Investment Adviser, which satisfies the
requirements of auditing standards generally accepted in
the United States.
Statement of Comprehensive Income
For the Year Ended 28 February 2022
|
|
|
Year
Ended |
|
|
Year
Ended |
|
|
|
28
February 2022 |
|
|
28
February 2021 |
|
Notes |
|
US$'000 |
|
|
US$'000 |
|
|
|
|
|
|
|
Income and
investment and other gains |
|
|
|
|
|
|
Net gain on
investments at fair value through profit or loss |
6 |
|
17,530 |
|
|
- |
Investment income |
8 |
|
16,770 |
|
|
22,160 |
Bank and deposit
interest |
|
|
174 |
|
|
220 |
Realisations from
investments held in escrow accounts |
28 |
|
597 |
|
|
1,147 |
Net foreign currency
exchange gains |
|
|
84 |
|
|
- |
|
|
|
35,155 |
|
|
23,527 |
|
|
|
|
|
|
|
Expenses and
losses |
|
|
|
|
|
|
Net loss on
investments at fair value through profit or loss |
6 |
|
- |
|
|
(126,386) |
Expected credit
losses |
7 |
|
(5,277) |
|
|
(3,062) |
Loss on financial
liabilities at fair value through profit or loss |
17 |
|
(1,869) |
|
|
(3,618) |
Investment Adviser's
base fee |
10 |
|
(7,414) |
|
|
(9,722) |
Administrative
expenses |
10 |
|
(3,457) |
|
|
(4,707) |
Directors'
remuneration |
10 |
|
(290) |
|
|
(319) |
Net foreign currency
exchange loss |
|
|
- |
|
|
(4,897) |
|
|
|
18,307 |
|
|
(152,711) |
|
|
|
|
|
|
|
Operating
profit/(loss) |
|
|
16,848 |
|
|
(129,184) |
Finance costs |
9 |
|
(13,094) |
|
|
(18,191) |
Profit/(loss)
before taxation |
|
|
3,754 |
|
|
(147,375) |
Withholding taxes |
11 |
|
- |
|
|
126 |
Profit/(loss) for
the year |
|
|
3,754 |
|
|
(147,249) |
|
|
|
|
|
|
|
Other
comprehensive (loss)/income that will not be reclassified to the
Income Statement |
|
|
|
|
|
|
|
Other
comprehensive income that will not be reclassified to the Income
Statement |
|
|
|
(Loss)/Gain on
financial liabilities due to change in credit risk |
17 |
|
(1,074) |
|
|
1,074 |
Total comprehensive
profit/(loss) for the year |
|
|
2,680 |
|
|
(146,175) |
|
|
|
|
|
|
|
Weighted average
number of Ordinary shares in issue during the year |
25 |
77,475,932 |
|
77,474,175 |
Basic earnings/(loss)
per Ordinary share |
25 |
|
4.85c |
|
|
(190.06)c |
Diluted
earnings/(loss) per Ordinary share |
25 |
|
4.85c |
|
|
(190.06)c |
All of the profits and losses presented in this statement are
from continuing operations.
The accompanying notes form an integral part of the Audited
Financial Statements.
Statement of Financial Position
As at 28
February 2022
|
|
|
28
February |
|
28
February |
|
|
|
2022 |
|
2021 |
|
Notes |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
Assets |
|
|
|
|
|
Investments at fair
value through profit or loss |
12 |
|
411,568 |
|
433,224 |
Loans at amortised
cost |
12 |
|
28,593 |
|
33,813 |
Other receivables |
13 |
|
70 |
|
22 |
Cash at bank |
|
|
43,656 |
|
59,784 |
Total
Assets |
|
|
483,887 |
|
526,843 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Senior debt
facility |
14 |
|
42,573 |
|
68,694 |
Zero Dividend
Preference (2022) shares |
15 |
|
75,038 |
|
74,303 |
Loan notes |
16 |
|
32,293 |
|
- |
Investment Adviser's
base fee |
10 |
|
276 |
|
573 |
Other payables |
18 |
|
1,443 |
|
1,284 |
Convertible Unsecured
Loan Stock |
17 |
|
- |
|
52,430 |
Total
Liabilities |
|
|
151,623 |
|
197,284 |
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
19 |
|
216,650 |
|
216,625 |
Other reserve |
21 |
|
353,528 |
|
354,602 |
Retained deficit |
21 |
|
(237,914) |
|
(241,668) |
Total
Equity |
|
|
332,264 |
|
329,559 |
|
|
|
|
|
|
Total Liabilities
and Equity |
|
|
483,887 |
|
526,843 |
|
|
|
|
|
|
Number of Ordinary
shares in issue at year end |
19 |
|
77,477,214 |
|
77,474,175 |
Basic and Diluted
Net Asset Value per Ordinary share |
27 |
|
$4.29 |
|
$4.25 |
These Audited Financial Statements were approved by the Board of
Directors and authorised for issuance on 14
June 2022. They were signed on its behalf by:
David Macfarlane
Chairman
Sharon Parr
Director
The accompanying notes form an integral part of the Audited
Financial Statements.
Statement of Changes in Equity
For the Year Ended 28 February 2022
|
|
|
|
|
|
|
|
Retained Deficit |
|
|
|
|
|
|
Share |
|
Other |
|
|
|
|
|
|
|
Capital |
|
Reserve |
|
|
Total |
|
|
Notes |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1
March 2021 |
|
|
|
216,625 |
|
354,602 |
|
(241,668) |
|
329,559 |
Profit for the
year |
|
|
|
- |
|
- |
|
3,754 |
|
3,754 |
Loss on financial
liabilities due to change in credit risk |
|
17 |
|
- |
|
(1,074) |
|
- |
|
(1,074) |
Issue of Ordinary
shares |
|
19 |
|
25 |
|
- |
|
- |
|
25 |
Balance at 28
February 2022 |
|
|
|
216,650 |
|
353,528 |
|
(237,914) |
|
332,264 |
Comparative for the Year ended
28 February 2021
|
|
|
|
Share |
|
Other |
|
Retained |
|
|
|
|
|
|
Capital |
|
Reserve |
|
Deficit |
|
Total |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1
March 2020 |
|
|
|
216,625 |
|
353,528 |
|
(94,419) |
|
475,734 |
Loss for the year |
|
|
|
- |
|
- |
|
(147,249) |
|
(147,249) |
Gain on financial
liabilities due to change in credit risk |
|
17 |
|
- |
|
1,074 |
|
- |
|
1,074 |
Balance at 28
February 2021 |
|
|
|
216,625 |
|
354,602 |
|
(241,668) |
|
329,559 |
The accompanying notes form an integral part of the Audited
Financial Statements.
Statement of Cash Flows
For the Year Ended 28 February 2022
|
|
|
|
28
February |
|
28
February |
|
|
|
|
2022 |
|
2021 |
|
|
|
|
|
|
|
|
|
Notes |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
Cash
flows from operating activities |
|
|
|
|
|
Cash
inflows |
|
|
|
|
|
Realisation of investments |
12 |
|
65,799 |
|
138,336 |
Maturity
of treasury bills |
12 |
|
3,395 |
|
6,790 |
Escrow
receipts received |
28 |
|
597 |
|
1,147 |
Interest
received from unlisted investments |
|
|
- |
|
361 |
Income
distributions received from investments |
|
|
520 |
|
379 |
Bank
Interest received |
|
|
174 |
|
220 |
|
|
|
|
|
|
|
Cash
outflows |
|
|
|
|
|
Direct
investments and capital calls |
12 |
|
(13,008) |
|
(17,966) |
Purchase
of treasury bills |
12 |
|
(3,395) |
|
(6,787) |
Investment
Adviser's base fee paid |
10 |
|
(7,711) |
|
(10,328) |
Other
operating expenses paid |
|
|
(3,637) |
|
(4,744) |
Investment
Adviser's incentive fee paid |
|
|
- |
|
(2,307) |
Net cash
inflow from operating activities |
|
|
42,734 |
|
105,101 |
|
|
|
|
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Advance of
Loan notes |
16 |
|
31,500 |
|
- |
Advance of
Senior debt facility |
14 |
|
16,000 |
|
- |
Repayment
of Senior debt facility |
14 |
|
(40,585) |
|
(82,912) |
Repayment
of Convertible Unsecured Loan Stock |
17 |
|
(54,401) |
|
- |
Finance
costs paid: |
|
|
|
|
|
Convertible Unsecured Loan Stock |
|
|
(2,677) |
|
(2,953) |
Senior debt facility |
|
|
(8,379) |
|
(12,331) |
Loan
notes |
|
|
(315) |
|
- |
Net cash
outflow from financing activities |
|
|
(58,857) |
|
(98,196) |
(Decrease)/increase in cash and cash equivalents |
|
|
(16,123) |
|
6,905 |
|
|
|
|
|
|
|
Reconciliation of Net Cash Flow to Movements in Cash and Cash
Equivalents |
|
|
Cash at
bank at beginning of year |
|
|
59,784 |
|
52,912 |
(Decrease)/increase in cash and cash equivalents as above |
|
|
(16,123) |
|
6,905 |
Foreign
exchange movements on cash balance |
|
|
(5) |
|
(33) |
Cash at
bank at year end |
|
|
43,656 |
|
59,784 |
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 2020. The
Company's Capital consists of Ordinary shares and Zero Dividend
Preference ("ZDP") shares. The Company had issued Convertible
Unsecured Loan Stock ("CULS"), which were redeemed on 30 July 2021. The Company's shares trade on the
London Stock Exchange's Specialist Fund Segment ("SFS").
The Company's debt structure consists of a Senior debt facility
and subordinated, second lien loan notes (the "Loan notes").
The Company's new investment policy, adopted in August 2020, is for the Company to make no
further investments outside of its existing obligations or to the
extent that investment may be made to support selected existing
portfolio investments. The intention is to realise the maximum
value of the Company’s investments and, after repayment of all
debt, to return capital to shareholders. The Company’s previous
Investment Policy was to target predominantly private investments
and back management teams to deliver on attractive investment
propositions. In executing this strategy, the Company took a long
term view. The Company looked to invest directly in its target
investments and was able to invest globally but with a particular
focus on opportunities in the United
States and Europe.
The Company is currently mainly focused on supporting its
investments 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) US real estate
The Company has no direct employees. For its services, the
Investment Adviser receives a management fee as described in Note
10. The Company has no ownership interest in the Investment
Adviser. During the period under review, the Company was
administered by Northern Trust International Fund Administration
Services (Guernsey) Limited.
2.
Basis of Accounting and Significant Accounting Policies
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 of the Company have been prepared in
accordance with IFRS. The Financial Statements have been prepared
on a historical-cost basis, except for financial assets and
financial liabilities held at fair value through profit or loss
("FVTPL").
The Financial Statements are presented in US dollars and all
values are presented to the nearest thousand dollars ($000), except where otherwise indicated. 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 Company presents its Statement of Cash Flows statement on a
direct-basis.
The Company's Statement of Financial Position's is presented in
order of liquidity, which provides information in a format that is
deemed relevant to the Company.
New and amended
standards and interpretations
There were no new standards or amendments to existing standard
and interpretations, effective for annual periods beginning on or
after 1 January 2021, that had
significant effect on the Company's Financial Statements. The new
standards or amendments to existing standards and interpretations,
effective from 1 March 2021, did not
have a material impact of the Company’s Financial Statements. The
Company has assessed the impact of standards issued but not yet
applicable, and have concluded that they will not have a material
impact on the Financial
Statements.
Changes in
accounting policy and disclosure
The accounting policies adopted in the preparation of these
Audited Annual Financial Statements have been consistently applied
during the year and are consistent with those of the previous year,
unless otherwise stated.
Significant Accounting Policies
Financial
instruments
In accordance with IFRS 9 - "Financial Instruments", the Company
classifies its financial assets and financial liabilities at
initial recognition into the categories of financial assets and
financial liabilities discussed below.
Financial assets
The Company classifies its financial assets as subsequently
measured at amortised cost or measured at FVTPL on the basis of
both:
-
The entity’s business model for managing the financial assets;
and
-
The contractual cash flow characteristics of the financial
asset.
i) Financial assets measured at
amortised cost
A debt instrument is measured at amortised cost if it is held
within a business model whose objective is to hold financial assets
in order to collect contractual cash flows and its contractual
terms give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount
outstanding. The Company includes in this category loans at
amortised cost, short-term non-financing receivables and other
receivables.
ii) Financial assets measured at
FVTPL
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement
date.
ii a) Classification
Financial assets classified at FVTPL 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.
The Company includes in this category:
Investments in the equity and preferred stock of micro cap, real
estate and other investments;
Investments in subsidiaries and associates:
× Investment in subsidiaries: In
accordance with the exception under IFRS 10 - "Consolidated
Financial Statements", the Company does not consolidate
subsidiaries in the financial statements unless the subsidiary is
not itself an investment entity and its main purpose and activities
are providing services that relate to the Company’s investment
activities. The Company has no consolidated subsidiaries.
× Investment in associates: In
accordance with the exemption in IAS 28 - "Investments in
Associates and Joint Ventures", the Company does not account for
its investments in associates using the equity method. Instead, the
Company has elected to measure its investments in associates at
FVTPL.
× Investments in debt instruments
which include investments that are held under a business model to
manage them on a fair value basis for investment income and fair
value gains.
ii b) Measurement
Investments made by the Company are measured initially and
subsequently at fair value, with changes in fair value taken to the
Statement of Comprehensive Income. Transaction costs are expensed
in the year in which they arise for those financial instruments
classified at FVTPL.
ii c) Fair value estimate
The fair value of financial assets 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.
iii) Other receivables
Other receivables do not carry any interest and are short-term
in nature and are accordingly stated at their carrying value as
reduced by appropriate allowances for expected credit losses.
iv) 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.
Financial liabilities
For financial liabilities designated as FVTPL using the fair
value option ("FVO"), the amount of change in the fair value of
such financial liabilities that is attributable to changes in the
Company's credit risk must be presented in Other Comprehensive
Income ("OCI"). The remainder of the change in fair value is
presented in profit or loss, unless presentation in OCI of the fair
value change in respect of the liability’s credit risk would create
or enlarge an accounting mismatch in profit or loss.
Financial liabilities are classified according to the substance
of the contractual arrangements entered into. Financial
liabilities, other than CULS (see below) are recorded at the amount
of proceeds received, net of issue costs.
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.
i) Financial liabilities measured at
FVTPL
Convertible Unsecured Loan Stock (“CULS”)
The CULS issued by the Company were 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 elected to account for the CULS in its
entirety in accordance with the IFRS 9 ‘Fair Value Option’.
The CULS’ fair value was deemed to be the listed offer price at
the year end. CULS were translated at the exchange rate at the
reporting date and both differences in fair value due to the listed
offer price and exchange rates were recognised in the Statement of
Comprehensive Income. Changes in fair value due to changes in
credit risk were presented as Other Comprehensive Income.
ii) Financial liabilities measured at
amortised cost
This category includes all financial liabilities, other than
those measured at fair value through profit or loss. The Company
includes in this category, Zero Dividend Preference (“ZDP”) shares,
senior debt facility, Loan notes and other short-term payables.
a) Zero Dividend Preference (“ZDP”) shares
ZDP shares meet the definition of a financial liability in
accordance with IAS 32 - "Financial Instruments: Presentation", 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.
b) Senior debt facility
The loan is recorded at amortised cost using the effective
interest rate method.
c) Loan notes
Loan Notes are recorded at amortised cost using the effective
interest rate method.
d) Other payables
Other payables (include the accrual of Investment Adviser’s
fees) are classified as financial liabilities at amortised cost.
Other payables are not interest-bearing and are stated at their
nominal value.
Equity
Equity is 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. 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.
Interest
revenue
Interest revenues are recognised in the Statement of
Comprehensive Income for all interest-bearing financial instruments
using the effective interest
method.
Dividend
income
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
All expenses are recognised in the Statement of Comprehensive
Income on an accruals basis.
Finance costs
Finance costs are interest expenses in respect of the ZDP
shares, Senior debt facility and Loan Notes, 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 preparation of the Company’s financial statements requires
management to make estimates, judgements, and assumptions that
affect the reported amounts recognised in the financial statements.
However, uncertainty about these assumptions and estimates could
result in outcomes that could require a material adjustment to the
carrying amount of the asset or liability affected in future
periods.
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
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 management has to make are those relating to the
multiples, discount factors and real estate valuation factors (Note
5) used in the valuation models.
Expected Credit Losses ("ECL")
Certain financial assets are classified as Loans at Amortised
cost, and valued accordingly as disclosed in Note 2. The key source
of estimation uncertainty is on the various default scenarios for
prescribed future periods and the probability of each scenario
occurring which are considered when estimating the ECLs.
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 a “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.
The management of JZCP, measure and evaluate the performance of
its investments on a fair value basis.
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. The Directors have determined that although the Company
has over 50% economic interest in EuroMicrocap Fund 2010, L.P. and
JZI Fund III GP, L.P1., 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. The Company also has significant influence over
the strategic, operating and financial policies of Spruceview
Capital Partners, LLC and JZHL Secondary Fund.
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., JZHL Secondary
Fund, JZI Fund III GP, L.P. and Spruceview Capital Partners, LLC
using the equity method. Instead, the Company has elected to
measure its investment in its associates at FVTPL.
1JZCP holds indirectly a 18.75% partnership
interest in JZI Fund III, L.P. through its interest in JZI Fund III
GP, L.P.
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.
Due to the uncertainty that the Company will not have sufficient
liquidity to repay its Loan notes (due 11
September 2022) and redeem its ZDP shares (due 1 October 2022), there is a material uncertainty
which casts significant doubt on the ability of the Company to
continue as a going concern. However, the Financial Statements for
the year ended 28 February 2022 have
been prepared on a going concern basis given the Board's assessment
of future realisations and likelihood that, should it be necessary,
agreement would be able to be reached with debt providers which
would allow the timely repayment of its obligations, including the
redemption of its ZDP shares. The Board, with recommendation from
the Audit Committee, has a reasonable expectation that the Company
has adequate resources to continue in operational existence for the
foreseeable future.
In reaching its conclusion, the Board has considered the risks
that could impact the Company’s liquidity over the period from
14 June 2022 to 30 June 2023 (the "going concern period") being
approximately 12 months from the signing of the Financial
Statements.
As part of their assessment the Audit Committee highlighted the
following key consideration:
Whether the Company can generate sufficient cash through
realisations of its underlying investments to discharge its
liabilities over the period to 30 June
2023 or failing to do so can agree terms with its debt
providers to repay its obligations, including the redemption of its
ZDP shares, over an extended timeframe.
In summary, the Company’s key outstanding debt obligations
during the going concern period are:
(i) $31.5 million of Subordinated
Notes due 11 September 2022; and
(ii) Approximately $77.3 million of
ZDP shares due 1 October 2022, being
£57.6 million translated at the year end exchange rate.
The Company needs to generate realisation proceeds of
approximately $90 million during the
going concern period of which $70
million is required before 1 October
2022 to enable the settlement of the debt obligations on
their due date.
Key financing activities during the year
On 30 July 2021, the Company
redeemed its CULS totalling £38.9 million ($54 million) on their maturity and entered into a
note purchase agreement with the founders and principals of
the Company's investment adviser, for the Company to issue
subordinated, second lien loan notes (the "Loan Notes") of
additional financing totalling $31.5
million.
On 26 January 2022, the Company
entered into an agreement with a New Senior Lender replacing the
Company's previous senior debt facility. The key highlights of the
new facility are as follows:
× Extended maturity date on five
year term (26 January 2027 previously
12 June 2022);
× Lower interest rate reducing
future finance costs;
× Allowance for the repayment of
the Loan notes and ZDP shares assuming the required asset coverage
is maintained; and
× Ability to draw down a further
$25 million from time to time in its
discretion, provided certain conditions are met, in the 24 month
period following the closing date.
Update on material liabilities due for settlement
The below table shows the Company's net debt position at the
year end and the previous two year ends:
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
29.2.2020 |
|
|
|
|
|
$'000 |
|
$'000 |
|
$'000 |
Senior Debt Facility -
extended maturity date 26 January 2027 |
|
42,573 |
|
68,694 |
|
150,362 |
ZDP shares - maturity date 1 October
20221 |
|
|
|
|
77,281 |
|
80,527 |
|
73,569 |
Loan notes - maturity date 11
September 2022 |
|
|
|
|
32,293 |
|
- |
|
- |
CULS (£38.9 million) - maturity date
30 July 2021 |
|
|
|
|
- |
|
54,332 |
|
49,637 |
|
|
|
|
|
152,147 |
|
203,553 |
|
273,568 |
Cash and cash equivalents held |
|
|
|
|
47,050 |
|
63,178 |
|
56,298 |
Net debt position |
|
|
|
|
105,097 |
|
140,375 |
|
217,270 |
1Forecast ZDP maturity Dollar amount is the total
redemption amount of £57.6million translated using the 28.2.2022 year end rate being £1/$1.34175.
Realisations
The Company's ability to repay the above debt obligations
remains dependent upon the Company achieving sufficient
realisations of its assets within the relevant timeframes. During
the year ended 28 February 2022, the
Company had realisations of investments totalling $65.8 million (2021:$139.5
million and 2020: $148.2
million).
Realisations and refinancings during the last three fiscal years
are as follows:
|
|
Year
End |
|
|
Year
End |
|
|
Year
End |
|
|
28.2.2022 |
|
|
28.2.2021 |
|
|
29.2.2020 |
|
|
$
million |
|
|
$
million |
|
|
$
million |
Salter Labs |
U.S. |
41.1 |
Secondary Sale |
U.S. |
87.7 |
Avante |
U.S. |
37.5 |
George Industries |
U.S. |
9.5 |
Real Estate |
|
13.6 |
Orizon |
U.S. |
28.0 |
Orangewood Fund |
U.S. |
6.2 |
ABTA |
U.S. |
9.4 |
Waterline Renewal |
U.S. |
23.3 |
Igloo |
U.S. |
3.8 |
Eliantus |
Euro |
9.4 |
Priority Express |
U.S. |
18.5 |
Vitalyst |
U.S. |
1.9 |
K2 Towers II |
Euro |
9.2 |
Felix Storch |
U.S. |
14.0 |
EMC 2010 |
Euro |
2.2 |
Other |
U.S. |
9.0 |
Other |
U.S. |
8.7 |
Fund III |
Euro |
1.1 |
Cerpi |
Other |
1.2 |
Fund III |
Euro |
13.6 |
|
|
|
|
|
|
Real estate |
|
4.6 |
|
|
65.8 |
|
|
139.5 |
|
|
148.2 |
Considering the Company’s projected cash position, including the
Company's ongoing operating costs and the anticipated further
investment required to support the Company’s portfolio, the Board
anticipates further proceeds of approximately $90 million are required from the realisation of
investments during the going concern period, to enable the Company
to settle its debts as they fall due. Of this amount approximately
$70 million is required before
1 October 2022 to enable settlement
of the ZDP shares. The required amounts from realisations assumes
the drawdown of the further $25
million available under the terms of the senior debt
facility.
The Company's investment adviser, JZAI, is currently pursuing
various opportunities to realise value, and these forecast
realisations include several anticipated sales of micro-cap
companies.
The Board continues to consider the levels of realisation
proceeds historically generated by the Company’s micro-cap
portfolios as well as the accuracy of previous forecasts whilst
concluding on the predicted accuracy of forecasts presented.
The Board recognises that, the raising of the required total
realisation amount is a considerable task but remains confident in
the value of its underlying micro-cap investments. This is
supported by the completed post year end realisation, above NAV, of
Flow Control LLC (JZHL Secondary Fund's portfolio company) and the
agreement of a further sale of a portfolio company of the Secondary
Fund as announced on 23 May 2022.
This sale, is anticipated to result in the receipt of approximately
$89-$94
million from the Secondary Fund. However, the Board notes
that the completion of the sale remains subject to certain
conditions, and at the time of signing there can be no assurance
that these conditions will be satisfied and accordingly, that
completion of the sale and subsequent distribution will occur.
Other than the realisation of Flow Control LLC, which did not
result in a cash distribution to JZCP from the Secondary Fund,
there were no further completed realisations post year end to the
date of these Financial Statements were approved.
The restructuring of the Company's debt structure during the
year affords the Company time to realise its remaining investments
within a timeframe that will help maximise the portfolio's value.
Should sufficient realisations proceeds not be raised, within the
going concern period to meet the Company's debt liabilities, the
Board is confident the Company can work with its lenders to ensure
alternative financing plans are in place to extend the timeframe
over which its debt obligations are repaid.
Going Concern
Conclusion
After careful consideration and based on the reasons outlined
above, the Board is satisfied, as at the date of the signing of the
Annual Report and Financial Statements, that it is appropriate to
adopt the going concern basis in preparing the financial statements
and they have a reasonable expectation that the Company will
continue in existence as a going concern for the period ending
30 June 2023.
However, the Board has concluded that the following
consideration creates a material uncertainty which casts
significant doubt over the ability of the Company to continue as a
Going Concern, being:
Whether the Company can generate sufficient cash through
realisations of its underlying investments to discharge its
liabilities over the period to 30 June
2023 or failing to do so can agree terms with its debt
providers to repay its obligations, including the redemption of its
ZDP shares, over an extended timeframe.
The Financial Statements do not include any adjustments that
might result from the outcome of this uncertainty.
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 -
(not falling into above categories)
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 2022 |
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
revenue |
|
|
|
13,667 |
|
2,583 |
|
- |
|
- |
|
16,250 |
|
Other portfolio
income |
|
|
|
|
520 |
|
- |
|
- |
|
- |
|
520 |
|
Total segmental
income |
|
|
|
|
14,187 |
|
2,583 |
|
- |
|
- |
|
16,770 |
|
Net
gain/(loss) on investments at FVTPL |
|
28,723 |
|
(11,400) |
|
221 |
|
(14) |
|
17,530 |
|
Expected credit
losses |
|
|
|
|
- |
|
(5,277) |
|
- |
|
- |
|
(5,277) |
|
Realisations from investments held in Escrow |
597 |
|
- |
|
- |
|
- |
|
597 |
|
Investment Adviser's
base fee |
|
|
|
|
(4,106) |
|
(1,742) |
|
(317) |
|
(348) |
|
(6,513) |
Total
segmental operating profit/(loss) |
|
39,401 |
|
(15,836) |
|
(96) |
|
(362) |
|
23,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
year ended 28 February 2021 |
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue |
|
|
|
|
19,132 |
|
2,638 |
|
- |
|
- |
|
21,770 |
|
Other portfolio
income |
|
|
|
|
379 |
|
- |
|
- |
|
- |
|
379 |
|
Total segmental
income |
|
|
|
|
19,511 |
|
2,638 |
|
- |
|
- |
|
22,149 |
|
Net
(loss)/gain on investments at FVTPL |
|
(13,772) |
|
11,819 |
|
(124,420) |
|
(13) |
|
(126,386) |
|
Expected credit
losses |
|
|
|
|
- |
|
(3,062) |
|
- |
|
- |
|
(3,062) |
|
Realisations from investments held in Escrow |
1,147 |
|
- |
|
- |
|
- |
|
1,147 |
|
Withholding tax |
|
|
|
|
126 |
|
- |
|
- |
|
- |
|
126 |
|
Investment Adviser's
base fee |
|
|
|
|
(5,839) |
|
(1,642) |
|
(1,187) |
|
(346) |
|
(9,014) |
Total
segmental operating profit/(loss) |
|
1,173 |
|
9,753 |
|
(125,607) |
|
(359) |
|
(115,040) |
Certain income and expenditure is not considered part of the
performance of an individual segment. This includes net foreign
exchange gain/(loss), gain/(loss) on financial liabilities at fair
value through profit or loss, interest on cash, finance costs, and
expenses other than the Investment Adviser fees which can be
allocated to an individual segment.
The following table provides a reconciliation between total
segmental operating profit/(loss) and operating profit/(loss) less
withholding tax.
|
|
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segmental Operating Profit/(Loss) |
|
|
|
|
|
|
|
23,107 |
|
(115,040) |
Loss on
financial liabilities at fair value through profit or loss |
|
|
|
(1,869) |
|
(3,618) |
Net
foreign exchange gain/(loss) |
|
|
|
|
|
|
|
84 |
|
(4,897) |
Fees
payable to Investment Adviser based on non-segmental assets |
|
|
|
(901) |
|
(708) |
Expenses
not attributable to segments |
|
|
|
|
|
(3,747) |
|
(5,026) |
Interest on cash |
|
|
|
|
|
|
|
|
|
|
174 |
|
220 |
Interest
on treasury notes and corporate bonds |
|
|
|
|
|
|
|
- |
|
11 |
Operating profit/(loss) less withholding tax |
|
|
|
|
|
|
|
16,848 |
|
(129,058) |
The following table provides a reconciliation between total
segmental income and total income which comprises the Company's
income from investments and bank deposits.
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
Total segmental
income |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
16,770 |
|
22,149 |
|
Non-segmental
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on treasury
bills |
|
|
|
|
|
|
|
|
|
|
- |
|
11 |
|
Bank and deposit
interest |
|
|
|
|
|
|
|
|
|
|
174 |
|
220 |
|
Total income |
|
|
|
|
|
|
|
|
|
|
16,944 |
|
22,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmental Net Assets
The Company's segmental net assets
At 28 February 2022 |
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
Segmental assets |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
284,162 |
|
76,882 |
|
23,597 |
|
23,533 |
|
408,174 |
Loans at
amortised cost |
|
- |
|
28,593 |
|
- |
|
- |
|
28,593 |
Total
segmental assets |
|
284,162 |
|
105,475 |
|
23,597 |
|
23,533 |
|
436,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmental liabilities |
|
|
|
|
|
|
|
|
|
|
|
Payables
and accrued expenses |
|
(551) |
|
(72) |
|
(11) |
|
(14) |
|
(648) |
|
Total
segmental liabilities |
|
(551) |
|
(72) |
|
(11) |
|
(14) |
|
(648) |
|
Total
segmental net assets |
|
283,611 |
|
105,403 |
|
23,586 |
|
23,519 |
|
436,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 28 February
2021 |
|
|
|
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
Segmental assets |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
299,339 |
|
83,968 |
|
23,376 |
|
23,147 |
|
429,830 |
|
Loans at
amortised cost |
|
- |
|
33,813 |
|
- |
|
- |
|
33,813 |
|
Total
segmental assets |
|
299,339 |
|
117,781 |
|
23,376 |
|
23,147 |
|
463,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segmental liabilities |
|
|
|
|
|
|
|
|
|
|
|
Payables
and accrued expenses |
|
(771) |
|
(101) |
|
(43) |
|
(21) |
|
(936) |
|
Total
segmental liabilities |
|
(771) |
|
(101) |
|
(43) |
|
(21) |
|
(936) |
|
Total
segmental net assets |
|
298,568 |
|
117,680 |
|
23,333 |
|
23,126 |
|
462,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Bills, Cash at bank and cash equivalents 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.
|
|
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segmental Assets |
|
|
|
|
|
|
|
436,767 |
|
463,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
Segmental Assets |
|
|
|
|
|
|
|
|
|
|
Cash at
bank |
|
|
|
|
|
|
|
|
|
43,656 |
|
59,784 |
Treasury bills |
|
|
|
|
|
|
|
|
|
|
3,394 |
|
3,394 |
Other
receivables |
|
|
|
|
|
70 |
|
22 |
Total
Assets |
|
|
|
|
|
|
|
|
|
483,887 |
|
526,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Segmental Liabilities |
|
|
|
|
|
|
|
(648) |
|
(936) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non
Segmental Liabilities |
|
|
|
|
|
|
|
|
|
|
Senior debt
facility |
|
|
|
|
|
|
|
|
|
|
(42,573) |
|
(68,694) |
Zero
Dividend Preference (2022) shares |
|
|
|
|
|
(75,038) |
|
(74,303) |
Loan notes |
|
|
|
|
|
|
|
|
|
|
(32,293) |
|
- |
Convertible Unsecured Loan Stock |
|
|
|
|
|
- |
|
(52,430) |
Other
payables |
|
|
|
|
|
(1,071) |
|
(921) |
Total
Liabilities |
|
|
|
|
|
|
|
(151,623) |
|
(197,284) |
Total
Net Assets |
|
|
|
|
|
|
|
332,264 |
|
329,559 |
5. Fair Value
of Financial Instruments
The Company classifies fair value measurements of its financial
instruments at 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 tradeable. Another example would be when
assets/liabilities with quoted prices, that would normally meet the
criteria of Level 1, do not meet the definition of being traded on
an active market.
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 the financial instruments at FVTPL by
fair value hierarchy category:
Financial assets at 28 February 2022 |
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap |
|
|
|
|
|
|
|
- |
|
- |
|
284,162 |
|
284,162 |
European
micro-cap |
|
|
|
|
|
- |
|
- |
|
76,882 |
|
76,882 |
Real estate |
|
|
|
|
|
|
|
- |
|
- |
|
23,597 |
|
23,597 |
Other investments |
|
|
|
|
|
|
|
- |
|
- |
|
23,533 |
|
23,533 |
Listed
investments |
|
|
|
|
|
|
|
3,394 |
|
- |
|
- |
|
3,394 |
|
|
|
|
|
|
|
|
3,394 |
|
- |
|
408,174 |
|
411,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at 28 February 2021 |
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap |
|
|
|
|
|
|
|
- |
|
- |
|
299,339 |
|
299,339 |
European
micro-cap |
|
|
|
|
|
- |
|
- |
|
83,968 |
|
83,968 |
Real estate |
|
|
|
|
|
|
|
- |
|
- |
|
23,376 |
|
23,376 |
Other investments |
|
|
|
|
|
|
|
- |
|
- |
|
23,147 |
|
23,147 |
Listed
investments |
|
|
|
|
|
|
|
3,394 |
|
- |
|
- |
|
3,394 |
|
|
|
|
|
|
|
|
3,394 |
|
- |
|
429,830 |
|
433,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities designated at fair value through profit or
loss at inception |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at 28 February 2022 |
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Unsecured Loan Stock |
|
|
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities at 28 February 2021 |
|
Level
1 |
|
Level
2 |
|
Level
3 |
|
Total |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Unsecured Loan Stock |
|
|
|
- |
|
52,430 |
|
- |
|
52,430 |
|
|
|
|
|
|
|
|
- |
|
52,430 |
|
- |
|
52,430 |
It was concluded that market transactions for the CULS did not
take place with sufficient frequency and volume to provide adequate
pricing information on an ongoing basis and therefore did not
justify a Level 1 categorisation. Therefore, it was considered the
CULS were not traded in an active market and were therefore
categorised at Level 2 as defined by IFRS. The CULS were valued at
fair value being the listed offer price at the year end. Given the
illiquid nature of the instruments, the Company considered the
potential need to apply an adjustment to the listed offer
price.
Valuation techniques
In valuing investments in accordance with IFRS, the Board
follows 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.
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 square
footage.
- Discounted Cash Flow ("DCF") analysis, using the
relevant rental stream, less expenses, for future periods,
discounted at a Market Capitalisation ("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.
- Income capital approach using the relevant sell out
analysis, less expenses and costs.
For each of the above techniques third party debt is deducted to
arrive at fair value.
The valuations obtained in relation to the real estate portfolio
are dated 31 December 2021.
Subsequent discussions with appraisers indicate there would be no
significant change in property values between 31 December 2021 and 28
February 2022. 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, unquoted equities and equity related
securities
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. 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.
In respect of unquoted preferred shares the Company values these
investments at fair value 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 reduced by senior
debt and marketability discount.
Micro-cap loans
Investments in micro-cap debt are valued at fair value by
reference to the attributable enterprise value when the Company
also holds an equity position in the investee company.
When the Company invests in micro-cap loans and does not hold an
equity position in the underlying investee company these loans are
valued at amortised cost in accordance with IFRS 9 (Note 2). The
carrying value at amortised cost is considered to approximate to
fair value.
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 using a valuation
model which considers a forward looking revenue approach.
Previously, Spruceview was valued using a valuation model which
considers both current assets under management ("AUM") and the
potential for new AUM. The Board considers the new approach to be
more consistent with the valuation methods used by peer
companies.
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 2022 and 28
February 2021 are shown below:
|
|
Value |
|
|
|
|
|
Effect on Fair Value |
|
|
28.2.2022 |
|
Valuation |
Unobservable |
Range (weighted average) |
Sensitivity |
|
|
US$'000 |
|
Technique |
input |
used |
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap
investments |
284,162 |
|
EBITDA
Multiple |
Average
EBITDA Multiple of Peers |
7.0x -
13.5x (9.0x) |
|
(23,876) |
|
23,998 |
|
|
|
|
|
Discount
to Average Multiple |
5% - 30%
(14.7%) |
|
(32,217) |
|
31,887 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European micro-cap
investments |
76,286 |
|
EBITDA
Multiple |
Average
EBITDA Multiple of Peers |
5.5x -
14.2x (9.4x) |
|
(5,293) |
|
5,293 |
|
|
|
|
|
Discount
to Average Multiple |
2% - 50%
(23%) |
|
(4,533) |
|
4,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate
1,2 |
23,597 |
|
Cap Rate/
Income Approach |
Capitalisation Rate |
5.25%-5.75% (5.56%) |
+50bps/
-50bps |
(5,338) |
|
6,552 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
investments3 |
22,324 |
|
Forward looking
Revenue Approach |
Revenue
Multiple |
$8.3
million |
|
(2,187) |
|
1,824 |
|
|
|
|
5.3x |
|
(2,206) |
|
1,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range (weighted average) |
|
|
|
|
|
|
Value
28.2.2021 |
|
|
Unobservable |
Sensitivity |
Effect on Fair Value |
|
|
US$'000 |
|
|
input |
used |
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
micro-cap investments |
299,339 |
|
EBITDA
Multiple |
Average
EBITDA Multiple of Peers |
7.5x -
13.5x (9.6x) |
-0.5x/+0.5x |
(26,888) |
|
22,859 |
|
|
|
|
Discount
to Average Multiple |
10% -
30% (17%) |
+5%/-5% |
(36,420) |
|
35,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European
micro-cap investments |
80,689 |
|
EBITDA
Multiple |
Average
EBITDA Multiple of Peers |
7.4x -
14.0x (10.0x) |
|
(4,615) |
|
4,597 |
|
|
|
|
Discount
to Average Multiple |
11% -
69% (29%) |
|
(4,225) |
|
4,205 |
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate1,2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,376 |
|
Cap Rate/
Income Approach |
Capitalisation Rate |
5.25%-6.25% (5.94%) |
+50bps/
-50bps |
(7,925) |
|
9,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments |
21,938 |
|
AUM
Approach |
AUM |
$3.8
Billion |
|
(4,989) |
|
4,989 |
|
|
|
|
|
% Applied
to AUM |
2.3% |
|
(2,194) |
|
2,194 |
1 The Fair Value of JZCP's investment in financial
interests in Real Estate is measured as JZCP's percentage interest
in the value of the underlying properties.
2 Sensitivity is applied to the property value and
then the debt associated to the property is deducted before the
impact to JZCP's equity value is calculated. Due to gearing levels
in the property structures an increase in the sensitivity of
measurement metrics at property level will result in a relatively
greater impact at JZCP's equity level.
3 JZCP's investment in Spruceview.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and the end of the reporting year.
Year
ended 28 February 2022 |
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 March 2021 |
|
|
|
|
|
299,339 |
|
83,968 |
|
23,376 |
|
23,147 |
|
429,830 |
Investments in year including capital calls |
|
4,898 |
|
7,647 |
|
- |
|
400 |
|
12,945 |
Payment In
Kind ("PIK") |
|
|
|
14,190 |
|
- |
|
- |
|
- |
|
14,190 |
Proceeds
from investments realised |
|
(62,466) |
|
(3,333) |
|
- |
|
- |
|
(65,799) |
Net
gains/(losses) on investments |
|
28,723 |
|
(11,400) |
|
221 |
|
(14) |
|
17,530 |
Movement
in accrued interest |
|
(522) |
|
- |
|
- |
|
- |
|
(522) |
At 28
February 2022 |
|
|
|
284,162 |
|
76,882 |
|
23,597 |
|
23,533 |
|
408,174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended 28 February 2021 |
|
US |
|
European |
|
Real |
|
Other |
|
|
|
|
|
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 March 2020 |
|
|
|
|
|
404,880 |
|
71,619 |
|
158,712 |
|
22,603 |
|
657,814 |
Investments in year including capital calls |
|
3,629 |
|
9,858 |
|
2,639 |
|
1,840 |
|
17,966 |
Payment In
Kind ("PIK") |
|
|
|
20,027 |
|
- |
|
- |
|
- |
|
20,027 |
Proceeds
from investments realised |
|
(114,170) |
|
(9,328) |
|
(13,555) |
|
(1,283) |
|
(138,336) |
Net
(losses)/gains on investments |
|
(13,772) |
|
11,819 |
|
(124,420) |
|
(13) |
|
(126,386) |
Movement
in accrued interest |
|
(1,255) |
|
- |
|
- |
|
- |
|
(1,255) |
At 28
February 2021 |
|
|
|
299,339 |
|
83,968 |
|
23,376 |
|
23,147 |
|
429,830 |
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 2022,
the offer price for the ZDP (2022) shares was £4.74 (28 February 2021: £3.80) and the total fair value
of the ZDP shares was $75,732,000
(28 February 2021: $63,263,000) which is $694,000 higher (28
February 2021: $11,040,000
lower) than the liability recorded in the Statement of Financial
Position.
ZDP shares are recorded at amortised cost and would fall in to
the Level 2 hierarchy if valued at FVTPL.
6. Net
Gain/(Loss) on Investments at Fair Value Through Profit or
Loss
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Net
gain/(loss) on investments held in investment portfolio at year
end |
|
|
|
|
|
|
Net
movement in unrealised gains/(loss) positions during the year |
|
|
|
|
|
71,242 |
|
199,715 |
Net
unrealised loss in prior years now realised |
|
|
|
|
|
|
|
(54,048) |
|
(215,285) |
Net
unrealised gain/(loss) on investments held at the year end |
|
|
|
|
|
17,194 |
|
(15,570) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(loss) on investments realised in the year |
|
|
|
|
|
|
|
|
|
|
Proceeds
from investments realised |
|
|
|
|
|
|
|
65,799 |
|
179,301 |
Cost of
investments realised |
|
|
|
|
|
|
|
|
|
(119,511) |
|
(505,402) |
Net realised loss |
|
|
|
|
|
|
|
|
|
|
|
(53,712) |
|
(326,101) |
Net
unrealised loss in prior years now realised |
|
|
|
|
|
|
|
54,048 |
|
215,285 |
Total
gain/(loss) in the year on investments realised |
|
|
|
|
|
336 |
|
(110,816) |
Net
gain/(loss) on investments during the year |
|
|
|
|
|
|
|
17,530 |
|
(126,386) |
The losses recorded for the year ended 28
February 2021 are predominantly attributable to valuation
write downs in the Company's real estate
portfolio.
7. Expected Credit
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments on loans during year |
|
|
|
|
|
|
|
|
|
|
5,277 |
|
3,062 |
Expected Credit Losses ("ECLs") are recognised in three stages.
Stage one being for credit exposures for which there has not been a
significant increase in credit risk since initial recognition, ECLs
are provided for credit losses that result from default events that
are possible within the next 12-months (a 12-month ECL). Stage two
being for those credit exposures for which there has been a
significant increase in credit risk since initial recognition, a
loss allowance is required for credit losses expected over the
remaining life of the exposure, irrespective of the timing of the
default (a lifetime ECL). Stage three being credit exposures which
are considered credit-impaired, interest revenue is calculated
based on the amortised cost (i.e. the gross carrying amount less
the loss allowance). Financial assets in this stage will
generally be assessed individually. Lifetime expected credit losses
are recognised on these financial assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
on loans classified as Stage 1 |
|
|
|
|
|
|
|
|
|
1,892 |
|
815 |
Impairment
on loans classified as Stage 2 |
|
|
|
|
|
|
|
|
|
- |
|
2,247 |
Impairment
on loans classified as Stage 3 |
|
|
|
|
|
|
|
|
|
3,385 |
|
- |
Total
impairment on loans during the year |
|
|
|
|
|
|
|
|
|
5,277 |
|
3,062 |
8. Investment
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest revenue
calculated using the effective interest method |
|
|
|
|
|
2,583 |
|
2,987 |
|
Other interest and
similar income |
|
|
|
|
|
|
|
|
|
|
14,187 |
|
19,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,770 |
|
22,160 |
Income
for the year ended 28 February 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
Loan note |
|
Other |
|
|
|
|
|
|
|
Dividends |
|
Dividends |
|
PIK |
|
Cash |
|
Income |
|
Total |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap
portfolio |
|
|
|
|
520 |
|
13,667 |
|
- |
|
- |
|
- |
|
14,187 |
European micro-cap
portfolio |
|
|
|
|
- |
|
- |
|
2,583 |
|
- |
|
- |
|
2,583 |
|
|
|
|
|
520 |
|
13,667 |
|
2,583 |
|
- |
|
- |
|
16,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
for the year ended 28 February 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
Loan note |
|
Other |
|
|
|
|
|
|
|
Dividends |
|
Dividends |
|
PIK |
|
Cash |
|
Income |
|
Total |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US micro-cap
portfolio |
|
|
|
|
379 |
|
18,783 |
|
70 |
|
279 |
|
- |
|
19,511 |
European micro-cap
portfolio |
|
|
|
|
- |
|
- |
|
2,638 |
|
- |
|
- |
|
2,638 |
Treasury
bills |
|
|
|
- |
|
- |
|
- |
|
11 |
|
11 |
|
|
|
|
|
379 |
|
18,783 |
|
2,708 |
|
279 |
|
11 |
|
22,160 |
9. Finance
Costs
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense calculated using the effective interest
method |
|
|
|
|
|
|
Senior debt facility
(note 14) |
|
|
|
|
|
|
|
6,843 |
|
11,797 |
ZDP shares
(note 15) |
3,807 |
|
3,441 |
Loan notes (note
16) |
|
|
|
|
|
|
|
1,108 |
|
- |
|
|
11,758 |
|
15,238 |
Other interest and
similar expense |
|
|
|
|
|
|
|
|
|
|
CULS
finance costs paid (note 17) |
1,336 |
|
2,953 |
|
|
|
|
|
|
|
|
13,094 |
|
18,191 |
10. Expenses
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Investment Adviser's
base fee |
|
|
|
|
|
|
|
7,414 |
|
9,722 |
Directors'
remuneration |
|
|
|
|
|
|
|
290 |
|
319 |
|
|
|
|
|
|
|
|
7,704 |
|
10,041 |
Administrative
expenses: |
|
|
|
|
|
|
|
|
|
|
Legal fees |
|
|
|
|
|
|
|
1,675 |
|
2,934 |
Other professional
fees |
|
|
|
|
|
|
|
432 |
|
565 |
Accounting,
secretarial and administration fees |
|
|
|
|
|
|
|
350 |
|
350 |
Auditors'
remuneration |
|
|
|
|
|
|
|
350 |
|
500 |
Auditors' remuneration
- non-audit fees |
|
|
|
|
|
|
|
71 |
|
134 |
Directors'
insurance |
|
|
|
|
|
|
|
226 |
|
59 |
Custodian fees |
|
|
|
|
|
|
|
24 |
|
17 |
Other expenses |
|
|
|
|
|
|
|
329 |
|
148 |
|
|
|
|
|
|
|
|
3,457 |
|
4,707 |
Total expenses |
|
|
|
|
|
|
|
11,161 |
|
14,748 |
Directors'
Remuneration
For the year ended 28 February
2022 total Directors' fees included in the Statement of
Comprehensive Income were $290,000
(year ended 28 February 2021:
$319,000), of this amount
$47,000 was outstanding at the year
end (28 February 2021: $46,000). The Directors' remuneration report in
the annual report provides further details of the remuneration
paid.
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
2022, total investment advisory and management expenses,
based on the average total assets of the Company, were included in
the Statement of Comprehensive Income of $7,414,000 (year ended 28
February 2021: $9,722,000). Of
this amount $276,000 (28 February 2021: $573,000) 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 the second part of the incentive fee is
calculated by reference to the net realised capital gains ("Capital
Gains Incentive Fee", or "CGIF").
In December 2019 following
significant losses reported in the Company's real estate portfolio,
the Investment Adviser agreed to waive fees payable by the Company
of $14.5 million relating to realised
gains in the year ended 28 February
2019. Further fees payable for realised gains in the year
ended 29 February 2020 of
$10.1 million were also waived. No
further incentive fees will be paid to the Investment Adviser until
the Company and Investment Adviser have mutually agreed to
reinstate such payments.
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).
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 2021: $350,000) payable quarterly in arrears.
Fees payable to the Administrator are subject to an annual fee
review.
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
2022, total Custodian expenses of $24,000 (28 February
2021: $17,000) were included
in the Statement of Comprehensive Income of which $10,000 (28 February
2021: $10,000) was outstanding
at the year end and is included within Other Payables.
Auditors' Remuneration
During the year ended 28 February
2022, the Company incurred fees for audit services of
$350,000 (28
February 2021: $500,000). Fees
were are also payable to Ernst & Young for non-audit services
including taxation services in relation to the Company's status as
a Passive Foreign Investment Company ("PFIC"). PFIC services
payable in the year ended 28 February
2022 were provided by PricewaterhouseCoopers LLP and are
classified as other professional fees.
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
Audit Fees |
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Audit fees
- 2022 (based on estimate received: £256,000) |
|
|
|
343 |
|
- |
Audit fees
- 2021 (based on estimate received: £275,000) |
|
|
|
7 |
|
385 |
Audit fees
- 2020: additional fees |
|
|
|
- |
|
115 |
Total audit fees |
|
|
|
|
|
|
|
350 |
|
500 |
|
|
|
|
|
|
|
|
|
|
|
Non-audit Fees Paid to Ernst & Young |
|
|
|
|
US$
'000 |
|
US$
'000 |
Interim
Review - £53,000 (2021: £50,000) |
|
71 |
|
69 |
Taxation services |
|
|
|
|
|
|
|
- |
|
65 |
Total non-audit
fees |
|
|
|
|
|
|
|
71 |
|
134 |
11. Taxation
The Company has been granted Guernsey tax exempt status in accordance with
The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended).
During the current year, there were no provisions or deductions
of withholding taxes. During the prior year, a withholding tax
provision of $126,000 provided for on
receipt of a dividend from an unlisted investment was reversed. At
28 February 2022, the Company has
provided for $398,000 (28 February 2021: $398,000 of potential withholding
tax).
12. Investments
|
|
|
|
Category of financial instruments |
|
|
|
|
Listed |
|
Unlisted |
|
Unlisted |
|
Carrying Value |
|
|
|
|
FVTPL |
|
FVTPL |
|
Loans |
|
Total |
|
|
|
|
28.2.2022 |
|
28.2.2022 |
|
28.2.2022 |
|
28.2.2022 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Book cost at 1 March
2021 |
|
|
|
3,393 |
|
543,740 |
|
74,651 |
|
621,784 |
Investments in year
including capital calls |
|
|
|
3,395 |
|
12,9451 |
|
- |
|
16,340 |
Payment in kind
("PIK")1 |
|
|
|
- |
|
14,190 |
|
2,877 |
|
17,067 |
Proceeds from
investments matured/realised |
|
|
|
(3,395) |
|
(65,799) |
|
- |
|
(69,194) |
Interest received on
maturity |
|
|
|
2 |
|
- |
|
- |
|
2 |
Net realised loss |
|
|
|
- |
|
(53,712) |
|
- |
|
(53,712) |
Realised impairment
loss2 |
|
|
|
- |
|
- |
|
(31,757) |
|
(31,757) |
Realised currency
loss2 |
|
|
|
- |
|
- |
|
(2,674) |
|
(2,674) |
Book cost at 28
February 2022 |
|
|
|
3,395 |
|
451,364 |
|
43,097 |
|
497,856 |
Unrealised
net investment and foreign exchange loss |
- |
|
(45,192) |
|
(4,664) |
|
(49,856) |
Impairment on loans at
amortised cost |
|
|
|
- |
|
- |
|
(10,148) |
|
(10,148) |
Accrued interest |
|
|
|
(1) |
|
2,002 |
|
308 |
|
2,309 |
Carrying value at 28
February 2022 |
|
|
|
3,394 |
|
408,174 |
|
28,593 |
|
440,161 |
1The 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.
2Realised impairment loss is due to the Company's
direct loan in Ombuds (European micro-cap). The loss was recognised
in prior periods and was included within the comparative number for
Impairment on loans at amortised cost.
Comparative reconciliation for the
year ended 28 February 2021
|
|
|
|
Category of financial instruments |
|
|
|
|
Listed |
|
Unlisted |
|
Unlisted |
|
Carrying Value |
|
|
|
|
FVTPL |
|
FVTPL |
|
Loans |
|
Total |
|
|
|
|
28.2.2021 |
|
28.2.2021 |
|
28.2.2021 |
|
28.2.2021 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Book cost at 1 March
2020 |
|
|
|
3,385 |
|
970,184 |
|
71,939 |
|
1,045,508 |
Investments in year
including capital calls |
|
|
|
6,787 |
|
58,931 |
|
- |
|
65,718 |
Payment in kind
("PIK")1 |
|
|
|
- |
|
20,027 |
|
2,712 |
|
22,739 |
Proceeds
from realisation and repayment of investments |
(6,790) |
|
(179,301) |
|
- |
|
(186,091) |
Interest received on
maturity |
|
|
|
11 |
|
- |
|
- |
|
11 |
Net
realised investment and foreign exchange loss |
|
|
- |
|
(326,101) |
|
- |
|
(326,101) |
Book cost at 28
February 2021 |
|
|
|
3,393 |
|
543,740 |
|
74,651 |
|
621,784 |
Unrealised
net investment and foreign exchange loss |
- |
|
(116,434) |
|
(7,973) |
|
(124,407) |
Impairment on loans at
amortised cost2 |
|
|
|
- |
|
- |
|
(33,323) |
|
(33,323) |
Accrued interest |
|
|
|
1 |
|
2,524 |
|
458 |
|
2,983 |
Carrying value at 28
February 2021 |
|
|
|
3,394 |
|
429,830 |
|
33,813 |
|
467,037 |
1The 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.
2Includes unrealised impairment loss of the Company's
direct loan in Ombuds (European micro-cap) which has been realised
during the current year.
Loans at amortised cost
Loans to European micro-cap companies are classified and
measured as Loans at amortised under IFRS 9.
Interest on the loans accrues at the following rates:
As At 28 February
2022 |
|
|
|
|
|
|
|
|
As At 28
February 2021 |
|
|
|
|
|
|
|
8% |
|
10% |
|
14% |
|
Total |
|
8% |
|
10% |
|
14% |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at amortised
cost |
|
26,357 |
|
2,236 |
|
- |
|
28,593 |
|
28,652 |
|
2,247 |
|
2,914 |
|
33,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity dates are as follows:
As At 28 February
2022 |
|
|
|
|
|
|
|
|
As At 28
February 2021 |
|
|
|
|
|
|
0-6
months |
|
7-12
months |
|
1-2
years |
|
Total |
|
0-6
months |
|
7-12
months |
|
1-2
years |
|
Total |
|
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at amortised
cost |
|
- |
|
28,593 |
|
- |
|
28,593 |
|
- |
|
- |
|
33,813 |
|
33,813 |
Tthe Company agreed to extend the maturity date of all loans to
European micro-cap companies to 31 December
2022.
Investment in Associates
An associate is an entity over which the Company has significant
influence. An entity is regarded as a subsidiary only if the
Company has control over its strategic, operating and financial
policies and intends to hold the investment on a long-term basis
for the purpose of securing a contribution to the Company’s
activities. The Company has elected for an exemption from 'equity
accounting' for associates and instead classifies its associates as
Investments at fair value through profit or loss.
Entity |
|
|
%
Interest |
|
28.2.2022 US$'000 |
|
28.2.2021 US$'000 |
|
|
|
|
|
|
|
|
|
|
|
JZI Fund
III GP, L.P. (has 25% partnership interest in JZI Fund III, L.P.)
1 |
Cayman |
|
75% |
|
76,286 |
|
80,689 |
JZHL
Secondary Fund L.P. |
Delaware |
|
n/a |
|
117,339 |
|
72,154 |
Spruceview
Capital Partners, LLC |
Delaware |
|
49% |
|
22,324 |
|
21,938 |
EuroMicrocap Fund 2010, L.P. |
Cayman |
|
75% |
|
596 |
|
3,279 |
Orangewood
Partners Platform LLC |
Delaware |
|
79% |
|
- |
|
10,876 |
|
|
|
|
|
|
|
|
216,545 |
|
188,936 |
1JZCP holds indirectly a 18.75% partnership interest
in JZI Fund III, L.P.
The principal activity of all the JZI Fund III, JZHL Secondary
Fund, EuroMicrocap Fund 2010,L.P. and Orangewood Partners
Platform LLC is the acquisition of micro- cap companies. The
principal activity of Spruceview Capital Partners, LLC is that of
an asset management company. There are no significant restrictions
on the ability of associates to transfer funds to the Company in
the form of dividends or repayment of loans or advances.
The Company's maximum exposure to losses from the associates
(shown below) equates to the carrying value plus outstanding
commitments:
Entity |
|
|
|
|
28.2.2022 US$'000 |
|
28.2.2021 US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JZI Fund
III GP, L.P. |
|
|
91,974 |
|
104,514 |
JZHL Secondary Fund
L.P. |
|
|
|
|
|
|
|
117,339 |
|
72,154 |
Spruceview
Capital Partners, LLC |
|
|
22,824 |
|
22,838 |
EuroMicrocap Fund 2010, L.P. |
|
|
596 |
|
3,279 |
Orangewood
Partners Platform LLC |
|
|
- |
|
25,980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
232,733 |
|
228,765 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Subsidiaries
The principal place of business for subsidiaries is the
USA. The Company meets the
definition of an Investment Entity in accordance with IFRS 10.
Therefore, it does not consolidate its subsidiaries but rather
recognises them as investments at fair value through profit or
loss.
Entity |
Place of incorporation |
|
% Interest |
|
28.2.2022 US$'000 |
|
28.2.2021 US$'000 |
|
|
|
|
|
|
|
|
|
|
|
JZCP Realty, Ltd |
|
Cayman |
|
100% |
|
23,597 |
|
23,376 |
Investments in subsidiaries at fair value |
|
|
|
23,597 |
|
23,376 |
There are no significant restrictions on the ability of
subsidiaries to transfer funds to the Company. The Company has no
contractual commitments to provide any financial or other support
to its unconsolidated subsidiaries.
JZCP Realty Ltd has a 100% interest in the following
Delaware incorporated entities:
JZCP Loan 1 Corp, JZCP Loan Fulton Corp, JZCP Loan Flatbush Corp,
JZCP Loan Flatbush Portfolio Corp, JZCP Loan Design Corp and JZCP
Loan Esperante Corp
JZCP Realty Ltd has a 99% interest in the following Delaware incorporated entities: JZBC, Inc., JZ
REIT Fund 1, LLC, JZ REIT Fund Fulton, LLC, JZ REIT Fund Flatbush,
LLC, JZ REIT Fund Flatbush Portfolio, LLC, JZ REIT Fund Design LLC
and JZ REIT Fund Esperante LLC.
13. Other Receivables
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
Prepayments |
|
|
|
|
|
|
|
70 |
|
22 |
|
|
|
|
|
|
|
|
|
70 |
|
22 |
14. Senior Debt Facility
New Senior Secured Loan Facility
On 26 January 2022, JZCP entered
into an agreement with WhiteHorse Capital Management, LLC (the "New
Senior Lender") providing for a new five year term senior secured
loan facility (the "New Senior Debt Facility"). The New Senior Debt
Facility matures on 26 January 2027
and replaced the Company's Previous Senior Secured Loan Facility
with clients and funds advised and sub-advised by Cohanzick
Management, LLC and CrossingBridge Advisors, LLC (the "Previous
Senior Lenders").
The New Senior Debt Facility consists of a $45.0 million first lien term loan (the "Closing
Date Term Loan"), fully funded as of the closing date (being
26 January 2022), and up to
$25.0 million in first lien delayed
draw term loans (the "DDT Loans"), which remain undrawn as of the
closing date and the year end. The Company can draw down the DDT
Loans from time to time in its discretion in the 24 month period
following the closing date. Customary fees and expenses were
payable upon the drawing of the Closing Date Term Loan. The
proceeds of the Closing Date Term Loan, together with cash at hand,
were used by the Company to repay the Previous Senior Secured
Facility of approximately $52.9
million due 12 June 2022 and
for the payment of fees and expenses related to the New Senior
Facility.
The interest rate charged to The New Senior Facility at the year
end is the LIBOR Rate plus 7.001 per cent., or if the Company
elects for a portion of the interest to be paid in kind, the LIBOR
Rate plus 9.00 per cent., of which 4.00 per cent. would be charged
as payment-in kind (PIK) interest. The Closing Date Term Loans are
subject to a prepayment penalty if they are repaid before yielding
an aggregate 15 per cent. The prepayment penalty ranges from 3.00
per cent. to 1.00 per cent. depending on whether it is repaid
within 1 year, 2 years or 3 years of funding.
The New Senior Debt Facility Agreement includes covenants from
the Company customary for an agreement of this nature, including
(a) maintaining a minimum asset coverage ratio (calculated by
reference to eligible assets, subject to customary ineligibility
criteria and concentration limits, plus unrestricted cash) of not
less than 4.00 to 1.00, and (b) ensuring the Company retains an
aggregate amount of unrestricted cash and cash equivalents of not
less than $12.5 million. As at
28 February 2022, eligible assets of
$471.0 million adjusted to
$351.9 were held as collateral. The
New Senior Facility allows for the repayment of the Company's other
debt obligations assuming the above covenants are not breached as a
result of repayment.
Previous Senior Secured Loan
Facility
On 12 June 2015, JZCP entered into
a Senior Secured Debt Facility agreement with Guggenheim Partners
Limited (the "Original Senior Lenders"). The original facility was
structured as $80 million and €18
million and increased by a further $50
million in April 2017. The
facility, before the extension noted below, was due to mature on
12 June 2021 (6-year term). During
the year ended 28 February 2021 and
following a repayment of $82.9
million, the outstanding principal was assigned from the
Original Senior Lenders to the Previous Senior
Lenders.
On 14 May 2021, the Company
entered into an amendment agreement with its Previous Senior
Lenders to further amend the terms of its senior debt facility,
which extended the maturity date of the senior debt facility by one
year until 12 June 2022 and amended
the interest rate charged for the First Out Loans from a rate of
LIBOR + 5.75 per cent. to a rate of LIBOR + 9.75 per cent. (with a
1 per cent. floor). The interest rate charged under the amended
agreement for the Last Out Loans was amended from a rate of LIBOR +
11 per cent. to a rate of LIBOR + 15 per cent. (with a 1 per cent.
floor), of which 4 per cent. were charged as payment-in-kind
interest. At this juncture, the modified terms of the loan were not
deemed to be substantially different from the original terms.
Therefore, as per IFRS-9, the senior debt facility was accounted
for as a continuation of the original facility rather than an
extinguishment of the original facility and the recognition of a
new facility.
On 18 June 2021, the Company
repaid a further $33.3 million of the
outstanding principal amount following a material investment
realisation. On 7 October 2021, the
Company received a further drawdown of $16
million on the terms of the First Out facility. On
26 January 2022, the Company repaid a
further $7.3 million on the repayment
of the facility and the transfer of $45
million to the New Senior Secured Loan Facility.
1There is an interest rate floor that stipulates
LIBOR will not be lower than 1%. In this agreement, the presence of
the floor does not significantly alter the amortised cost of the
instrument, therefore separation is not required and the loan is
valued at amortised cost using the effective interest rate method.
During the year, the relevant 3 month LIBOR rates were below 1%.
LIBOR regulators (including the UK Financial Conduct Authority and
the US Commodity Futures Trading Commission) have announced a
transition away from LIBOR, however it is expected that the 3 month
USD LIBOR which is relevant to the Company will continue to be
available until the end of June
2023.
New Senior Secured Loan Facility
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Principal - drawdown
26 January 2022 |
|
|
|
|
|
|
|
45,000 |
|
- |
Issue costs |
|
|
|
|
|
|
|
(2,787) |
|
- |
Amortised
cost - 26 January 2022 |
|
|
42,213 |
|
- |
Finance
costs charged to Statement of Comprehensive Income |
|
|
|
|
360 |
|
- |
Amortised
cost at year end |
|
42,573 |
|
- |
Previous Senior Secured Loan
Facility
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Amortised
cost (Dollar drawdown) - 1 March |
|
|
68,694 |
|
130,523 |
Amortised
cost (Euro drawdown) - 1 March |
|
|
- |
|
19,839 |
Loan advance |
|
|
|
|
|
|
|
16,000 |
|
- |
Loan
repayments1 |
|
|
|
|
|
|
|
(85,585) |
|
(82,912) |
Finance
costs charged to Statement of Comprehensive Income |
|
|
|
|
6,483 |
|
11,797 |
Interest and finance
costs paid |
|
|
|
|
|
|
|
(5,592) |
|
(12,331) |
Unrealised
currency gain on translation of Euro drawdown |
|
- |
|
1,778 |
Amortised
cost at year end |
|
- |
|
68,694 |
The carrying value of the loans approximates to fair value.
1Total principal repaid during the year includes cash
payments of $43.041 million and the
transfer to the New Senior Lender of $45.0
million principal less expenses deducted of $2.456 million.
15. 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
£57,597,000 (approximately $77,281,000 using the exchange rate at year
end).
ZDP shares are designed to provide a pre-determined final
capital entitlement which ranks behind the Company's creditors but
in priority to the capital entitlements of the Ordinary shares. The
ZDP shares carry no entitlement to income and the whole of their
return will therefore take the form of capital. In certain
circumstances, ZDP shares carry the right to vote at general
meetings of the Company as detailed in the Company's Memorandum of
Articles and Incorporation. Issue costs are deducted from the cost
of the liability and allocated to the Statement of Comprehensive
Income over the life of the ZDP
shares.
ZDP (2022)
Shares |
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Amortised
cost at 1 March |
|
74,303 |
|
64,510 |
Finance
costs allocated to Statement of Comprehensive Income |
|
3,807 |
|
3,441 |
Unrealised
currency (gain)/loss to the Company on translation during the
year |
|
(3,072) |
|
6,352 |
Amortised
cost at year end |
|
75,038 |
|
74,303 |
Total
number of ZDP (2022) shares in issue |
|
11,907,720 |
|
11,907,720 |
16. Loan Notes
During the period, the Company entered into a note purchase
agreement with David Zalaznick and
John (Jay) Jordan, the founders and
principals of the Company's investment adviser, Jordan/Zalaznick
Advisers, Inc. ("JZAI"), pursuant to which they purchased on
31 July 2021, directly or through
their affiliates, subordinated, second lien loan notes totalling
$31.5 million, with a maturity date
of 11 September 2022 (the “Loan notes”).
The interest rate on the Loan notes will be 6 per cent. per
annum payable semi-annually on each of 31 March and 30 September of
each year, commencing on the first such date to occur after the
issuance of the Loan Notes.
|
|
|
|
|
|
|
|
28.2.2022 |
28.2.2021 |
|
|
|
|
|
US$
'000 |
US$
'000 |
|
|
|
|
|
|
|
|
|
|
Loan notes issued in
period |
|
|
|
|
|
|
|
31,500 |
- |
Finance
costs charged to Statement of Comprehensive Income |
|
|
|
|
1,108 |
- |
Interest and finance
costs paid |
|
|
|
|
|
|
|
(315) |
- |
Amortised
cost at year end |
|
|
32,293 |
- |
17. Convertible Unsecured Loan
Stock ("CULS")
On 30 July 2021, JZCP redeemed
3,884,279 £10 CULS and converted on request, 1,835 £10 CULS into
3,039 Ordinary Shares at the agreed conversion price.
JZCP issued £38,861,140 6% CULS on 30
July 2014. The holders of the CULS had the option to convert
the whole or part (being an integral multiple of £10 in nominal
amount) of their CULS into Ordinary Shares at the agreed conversion
price of £6.0373 per Ordinary Share, which was subject to
adjustment to deal with certain events which would otherwise dilute
the conversion of the CULS.
CULS bore 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 2022:
$2,679,000 (28
February 2021: $2,953,000) of
interest was paid to holders of CULS and $1,336,000 (28 February
2021: $2,953,000) is shown as
a finance cost in the Statement of Comprehensive
Income.
In accordance with IFRS, the Company has calculated the movement
in fair value due to the change in the credit risk of the CULS
which is allocated as Other Comprehensive Income in the Statement
of Comprehensive Income. The loss on financial liabilities at fair
value through profit or loss comprises the movement in the fair
value attributable to the change in the benchmark interest rate and
the movement attributable to foreign exchange gain/loss on
translation.
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Fair Value of CULS at
1 March |
|
|
|
|
|
|
|
52,430 |
|
49,886 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
|
1,336 |
|
2,953 |
Coupon paid |
|
|
|
|
|
|
|
(2,679) |
|
(2,953) |
|
|
|
|
|
|
|
|
|
|
|
Unrealised
movement in value of CULS due to change in Company's Credit
Risk |
|
1,074 |
|
(1,074) |
|
|
|
|
|
|
|
|
|
|
|
Unrealised movement in
fair value of CULS |
|
|
|
|
|
|
|
2,170 |
|
(912) |
Unrealised
currency (gain)/loss on translation during the year |
(301) |
|
4,530 |
Loss on
financial liabilities at fair value through profit or loss |
|
|
|
|
1,869 |
|
3,618 |
|
|
|
|
|
|
|
|
|
|
|
Redemption of
CULS |
|
|
|
|
|
|
|
(54,005) |
|
2,953 |
Conversion of CULS
into Ordinary Shares |
|
|
|
|
|
|
|
(25) |
|
- |
Fair Value of CULS
based on offer price |
|
|
|
|
|
|
|
- |
|
52,430 |
18. Other Payables
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Provision
for tax on dividends received not withheld at source |
|
|
|
|
398 |
|
398 |
Legal fee
provision |
|
|
|
|
|
|
|
505 |
|
250 |
Audit fees |
|
|
|
|
|
|
|
325 |
|
363 |
Directors'
remuneration |
|
|
|
|
|
|
|
47 |
|
48 |
Other expenses |
|
|
|
|
|
|
|
168 |
|
225 |
|
|
|
|
|
|
|
|
1,443 |
|
1,284 |
19. Share Capital
Authorised Capital
Unlimited number of ordinary shares of no par value.
Ordinary shares - Issued Capital
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
Number
of shares |
|
Number
of shares |
|
|
|
|
|
|
|
|
|
|
|
Balance at
1 March |
|
|
|
|
|
|
77,474,175 |
|
77,474,175 |
Ordinary shares issued
during the year |
|
|
|
|
|
|
|
3,039 |
|
- |
Total Ordinary
shares in issue |
|
|
|
|
|
|
|
77,477,214 |
|
77,474,175 |
On 2 August 2021, the Company
issued 3,039 Ordinary shares resulting from the conversion of 1,835
CULS. The conversion price was £6.0373 per Ordinary Share,
resulting in a credit to the Share capital account of £18,000
($25,000).
The Company's shares trade on the London Stock Exchange's
Specialist Fund Segment.
The Ordinary shares carry a right to receive the profits of the
Company available for distribution by dividend and resolved to be
distributed by way of dividend to be made at such time as
determined by the Directors.
In addition to receiving the income distributed, the Ordinary
shares are entitled to the net assets of the Company on a winding
up, after all liabilities have been settled and the entitlement of
the ZDP shares have been met. In addition, holders of Ordinary
shares will be entitled on a winding up to receive any accumulated
but unpaid revenue reserves of the Company, subject to all
creditors having been paid out in full but in priority to the
entitlements of the ZDP shares. Any distribution of revenue
reserves on a winding up is currently expected to be made by way of
a final special dividend prior to the Company's eventual
liquidation.
Holders of Ordinary shares have the rights to receive notice of,
to attend and to vote at all general meetings of the Company.
Capital raised on
issue of new shares and capital repaid on buy back of shares
Subsequent amounts raised by the issue of new shares (net of
issue costs) and amounts paid to buy back Ordinary shares, are
credited/debited to the share capital account.
Share Capital
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
At
beginning of year |
|
|
|
|
216,625 |
|
216,625 |
Issue of Ordinary
shares |
|
|
|
|
|
|
|
25 |
|
- |
At year
end |
|
|
216,650 |
|
216,625 |
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; and
• To maintain sufficient size to make
the operation of the Company
cost-efficient.
The Company's current focus is on realising the maximum value of
the Company’s investments and repaying debt. Once this has been
achieved, and after the repayment of all debt, the Company intends
to return capital to shareholders and will at this point keep under
review opportunities to buy back Ordinary shares or ZDP shares. The
Company will be seeking shareholder approval for the return of
capital to shareholders, should the Company be in a position to do
so.
The Company monitors capital by analysing the NAV per share over
time and tracking the discount to the Company's share price.
21. Reserves
Summary
of reserves attributable to Ordinary shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Share
capital |
|
|
216,650 |
|
216,625 |
Other
reserve |
|
|
353,528 |
|
354,602 |
Retained
deficit |
|
|
(237,914) |
|
(241,668) |
|
|
|
|
|
|
|
|
332,264 |
|
329,559 |
Other reserve
On formation of the 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. This distributable
reserve was subsequently renamed 'Other reserve'.
The movement in the Other reserve during the year was the Gain
on financial liabilities due to reversal of the previously recorded
losses of $1,074,000 due to the
changes in the Company’s credit risk, calculated in accordance with
IFRS.
Subject to satisfaction of the solvency test, all of the
Company's capital and reserves are distributable in accordance with
The Companies (Guernsey) Law,
2008.
Retained deficit
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
At
beginning of year |
|
|
|
|
(241,668) |
|
(94,419) |
Profit/(loss) for the year attributable to revenue |
|
|
|
|
|
|
3,754 |
|
(147,249) |
At year
end |
|
|
(237,914) |
|
(241,668) |
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 and Risk
mitigation
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. 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 rate |
|
bearing |
|
Total |
|
|
|
|
|
|
28.2.2022 |
|
28.2.2022 |
|
28.2.2022 |
|
28.2.2022 |
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
|
|
139,543 |
|
- |
|
272,025 |
|
411,568 |
Loans at
amortised cost |
|
28,593 |
|
- |
|
- |
|
28,593 |
Cash and cash
equivalents |
|
|
|
|
|
- |
|
43,656 |
|
- |
|
43,656 |
Other receivables and
prepayments |
|
|
|
|
|
- |
|
- |
|
70 |
|
70 |
Senior debt
facility |
|
|
|
|
|
- |
|
(42,573) |
|
- |
|
(42,573) |
ZDP shares (2022) |
|
|
|
|
|
(75,038) |
|
- |
|
- |
|
(75,038) |
Loan notes |
|
|
|
|
|
(32,293) |
|
- |
|
- |
|
(32,293) |
Other payables |
|
|
|
|
|
- |
|
- |
|
(1,719) |
|
(1,719) |
|
|
|
|
|
|
60,805 |
|
1,083 |
|
270,376 |
|
332,264 |
The table below summarises the Company's exposure to interest
rate risks:
|
|
|
|
|
Interest bearing |
|
Non
interest |
|
|
|
|
|
|
|
Fixed
rate |
|
Floating rate |
|
bearing |
|
Total |
|
|
|
|
|
28.2.2021 |
|
28.2.2021 |
|
28.2.2021 |
|
28.2.2021 |
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
Investments at FVTPL |
|
|
174,433 |
|
- |
|
258,791 |
|
433,224 |
Loans at
amortised cost |
33,813 |
|
- |
|
- |
|
33,813 |
Cash and cash
equivalents |
|
|
|
|
- |
|
59,784 |
|
- |
|
59,784 |
Other
receivables and prepayments |
|
|
|
- |
|
- |
|
22 |
|
22 |
Loans payable |
|
|
|
|
- |
|
(68,694) |
|
- |
|
(68,694) |
ZDP shares (2022) |
|
|
|
|
(74,303) |
|
- |
|
- |
|
(74,303) |
CULS |
|
|
|
|
(52,430) |
|
- |
|
- |
|
(52,430) |
Other payables |
|
|
|
|
- |
|
- |
|
(1,857) |
|
(1,857) |
|
|
|
|
|
81,513 |
|
(8,910) |
|
256,956 |
|
329,559 |
The following table analyses the Company's exposure in terms of
the interest bearing assets and liabilities maturity dates. The
Company's assets and liabilities are included at their carrying
value.
As at 28 February
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-3
months |
|
4-12
months |
|
1 - <3
years |
|
3 - <5
years |
|
Past
due |
|
No
maturity date |
|
Total |
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at
FVTPL |
|
3,394 |
|
|
|
- |
|
- |
|
1,000 |
|
141,258 |
|
145,652 |
Loans at amortised
cost |
|
- |
|
28,593 |
|
- |
|
- |
|
- |
|
- |
|
28,593 |
Cash and cash
equivalents |
|
- |
|
- |
|
- |
|
- |
|
- |
|
43,656 |
|
43,656 |
Senior debt
facility |
|
- |
|
- |
|
|
|
(42,573) |
|
- |
|
- |
|
(42,573) |
ZDP shares (2022) |
|
- |
|
(75,038) |
|
- |
|
- |
|
- |
|
- |
|
(75,038) |
Loan notes |
|
- |
|
(32,293) |
|
|
|
- |
|
- |
|
- |
|
(32,293) |
|
|
3,394 |
|
(78,738) |
|
- |
|
(42,573) |
|
1,000 |
|
184,914 |
|
67,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 28 February
2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-3
months |
|
4-12
months |
|
1 - <3
years |
|
3 - <5
years |
|
<5 years |
|
No
maturity date |
|
Total |
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at
FVTPL |
|
- |
|
3,394 |
|
- |
|
- |
|
1,000 |
|
173,433 |
|
177,827 |
Loans at amortised
cost |
|
- |
|
33,813 |
|
- |
|
- |
|
- |
|
- |
|
33,813 |
Cash and cash
equivalents |
|
- |
|
- |
|
- |
|
- |
|
- |
|
59,784 |
|
59,784 |
Senior debt
facility |
|
- |
|
(68,694) |
|
|
|
- |
|
- |
|
- |
|
(68,694) |
ZDP shares (2022) |
|
- |
|
- |
|
(74,303) |
|
- |
|
- |
|
- |
|
(74,303) |
CULS |
|
- |
|
(52,430) |
|
|
|
- |
|
- |
|
- |
|
(52,430) |
|
|
- |
|
(83,917) |
|
(74,303) |
|
- |
|
1,000 |
|
233,217 |
|
75,997 |
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 valued 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 was deemed immaterial. Therefore no
sensitivity analysis is presented.
Of the cash and cash equivalents held, $43,656,000 (28 February
2021: $59,784,000) earns
interest at variable rates and the income may rise and fall
depending on changes to interest rates.
The Investment Adviser monitors the Company's overall interest
sensitivity on a regular basis by reference to the current market
rate and the level of the Company's cash balances. The Company has
not used derivatives to mitigate the impact of changes in interest
rates.
The table below demonstrates the sensitivity of the Company's
profit/(loss) for the year to a reasonably possible change in
interest rates. The Company has cash at bank and loans payable for
which interest receivable and payable are sensitive to a
fluctuation to rates. The below sensitivity analysis assumes year
end balances and interest rates are constant through the year.
|
|
|
|
|
|
|
|
Interest Receivable1,3 |
|
Interest Payable2,3 |
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
28.2.2022 |
|
28.2.2021 |
Change
in basis points increase/decrease |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
+100/-100 |
|
|
|
|
|
|
|
350/(175) |
|
503/(252) |
|
(230)/
nil |
|
(137)/
nil |
+300/-300 |
|
|
|
|
|
|
|
1,051/(175) |
|
1,510/(252) |
|
(1,130)/
nil |
|
(1,511)/
nil |
1 Sensitivity applied to money market account balance
and applying the year end rate of 0.5%
2 Sensitivity applied to year end balances at
relevant rates being $40 million at
12% and $28.7 million at 6.75%
3 The reduction in interest receivable and interest
payable is floored as the sensitivity applied reduces the interest
rate to zero
Currency risk
Currency risk is the risk that the value of a financial
instrument will fluctuate due to changes in foreign exchange
rates.
Changes in exchange rates are considered to impact the fair
value of the Company's investments denominated in Euros and
Sterling. However, under IFRS the foreign currency risk on these
investments is deemed to be part of the market price risk
associated with holding such non-monetary investments. As the
information relating to the non-monetary investments is
significant, the Company also provides the total exposure and
sensitivity changes on non-monetary investments on a voluntary
basis. The following tables set out the Company's exposure by
currency to foreign currency risk.
Exposure to Monetary
Assets/Liabilities (held in foreign currencies)
|
|
Euro |
|
Sterling |
|
Total |
|
|
|
Euro |
|
Sterling |
|
Total |
|
|
28.2.2022 |
|
28.2.2022 |
|
28.2.2022 |
|
|
|
28.2.2021 |
|
28.2.2021 |
|
28.2.2021 |
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Loans at Amortised
Cost |
|
28,593 |
|
- |
|
28,593 |
|
|
|
33,813 |
|
- |
|
33,813 |
Cash at Bank |
|
507 |
|
38 |
|
545 |
|
|
|
406 |
|
44 |
|
450 |
Other Receivables |
|
- |
|
70 |
|
70 |
|
|
|
- |
|
22 |
|
22 |
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ZDP (2022) shares |
|
- |
|
(75,038) |
|
(75,038) |
|
|
|
- |
|
(74,303) |
|
(74,303) |
CULS |
|
- |
|
- |
|
- |
|
|
|
- |
|
(52,430) |
|
(52,430) |
Other payables |
|
- |
|
(415) |
|
(415) |
|
|
|
- |
|
(528) |
|
(528) |
Net Currency
Exposure |
|
29,100 |
|
(75,345) |
|
(46,245) |
|
|
|
34,219 |
|
(127,195) |
|
(92,976) |
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 in |
|
|
|
Effect on net assets attributable to
shareholders |
Currency |
|
Currency Rate |
|
|
(relates to monetary financial assets and
liabilities) |
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
Euro |
|
+10% |
|
|
|
|
|
2,910 |
|
3,422 |
|
|
GBP |
|
+10% |
|
|
|
|
|
(7,535) |
|
(12,722) |
|
|
Exposure to Non-Monetary Assets (held
in foreign currencies)
|
|
Euro |
|
Sterling |
|
Total |
|
|
|
Euro |
|
Sterling |
|
Total |
|
|
28.2.2022 |
|
28.2.2022 |
|
28.2.2022 |
|
|
|
28.2.2021 |
|
28.2.2021 |
|
28.2.2021 |
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at
FVTPL |
|
62,287 |
|
14,595 |
|
76,882 |
|
|
|
69,956 |
|
14,762 |
|
84,718 |
Net Currency
Exposure |
|
62,287 |
|
14,595 |
|
76,882 |
|
|
|
69,956 |
|
14,762 |
|
84,718 |
|
|
Change
in |
|
|
|
|
|
Effect on net assets attributable to
shareholders |
Currency |
|
Currency Rate |
|
|
|
|
|
(relates to non-monetary financial assets) |
|
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
Euro |
|
+10% |
|
|
|
|
|
|
|
6,229 |
|
6,996 |
|
|
GBP |
|
+10% |
|
|
|
|
|
|
|
1,460 |
|
1,476 |
|
|
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
regularly monitors the Company's exposure to credit risk in its
investment portfolio, by reviewing the financial statements,
budgets and forecasts of underlying investee companies. Agency
credit ratings do not apply to the Company's investment in investee
company debt. The 'credit quality' of the debt is deemed to be
reflected in the fair value valuation of the investee company. The
Company's investment in accumulated preferred stock is excluded
from below analysis as the instruments are deemed to be more
closely associated with the investment in the portfolio companies'
equity than its debt.
The table
below analyses the Company's maximum exposure to credit risk. |
|
Total |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
|
|
28.2.2021 |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
|
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US
micro-cap debt |
|
|
|
|
|
|
|
1,000 |
|
|
|
1,000 |
European
micro-cap debt |
|
|
|
|
|
|
|
28,593 |
|
|
|
33,813 |
US Treasury Bills |
|
|
|
|
|
|
|
|
|
3,394 |
|
|
|
3,394 |
Cash and
cash equivalents |
|
|
|
|
|
|
|
43,656 |
|
|
|
59,784 |
|
|
|
|
|
|
|
|
|
|
76,643 |
|
|
|
97,991 |
A proportion of micro-cap 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.
The following table analyses the concentration of credit risk in
the Company's debt portfolio by industrial distribution.
|
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
|
|
28.2.2021 |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
|
|
US$
'000 |
Financial General |
|
|
|
|
|
|
|
|
|
84% |
|
|
|
77% |
Document
Processing |
|
|
|
|
|
|
|
|
|
13% |
|
|
|
12% |
House, Leisure &
Personal Goods |
|
|
|
|
|
|
|
|
|
3% |
|
|
|
3% |
Telecom |
|
|
|
|
|
|
|
- |
|
|
|
8% |
|
|
|
|
|
|
|
|
|
|
100% |
|
|
|
100% |
Loans at Amortised Cost and Expected Credit Losses ("ECL")
The Company's loans to European micro-cap companies are
classified as loans at amortised cost. The credit risk in these
investments is deemed to be reflected in the performance and
valuation of the investee company. Using IFRS 9's “expected credit
loss” model, the Company calculates the allowance for credit losses
by considering the cash shortfalls it would incur in various
default scenarios for prescribed future periods and multiplying the
shortfalls by the probability of each scenario occurring. The
allowance is the sum of these probability weighted outcomes. The
IFRS ECL model assumes all loans and receivables carries with it
some risk of default, every such asset has an expected loss
attached to it from the moment of its origination or acquisition.
At the reporting date, the credit risk on the loans to Docout and
Toro Finance are deemed low-risk and therefore the ECL are
considered over the future 12 months or maturity if sooner. The
credit risk on the loan to Xacom was deemed to have increased
significantly during the year. On assessment of the recoverability
of the Xacon loan post year end, it was concluded there would not
be proceeds from Xacom, to pay any portion of JZCP's loan hence a
provision has been made to bring the carrying value to $nil. ECL
realised is due to the Company's direct loan in Ombuds being
written off during the year, a loss provision to recognise the
carrying value of the Ombuds' loans at $nil, were previously
recognised when the company entered bankruptcy (July 2019).
ECL Provision
|
Year ended 28 February 2022 |
|
Year ended 28 February 2021 |
|
Stage
1 |
|
Stage
2 |
|
Stage
3 |
|
Total |
|
Stage
1 |
|
Stage
2 |
|
Stage
3 |
|
Total |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ECL at 1 March |
1,370 |
|
3,177 |
|
32,559 |
|
37,106 |
|
905 |
|
- |
|
29,356 |
|
30,261 |
Provision during the
year |
1,892 |
|
3,385 |
|
- |
|
5,277 |
|
815 |
|
2,247 |
|
- |
|
3,062 |
Level Transfer |
- |
|
(6,318) |
|
6,318 |
|
- |
|
(749) |
|
749 |
|
- |
|
- |
ECL realised |
- |
|
- |
|
(31,664) |
|
(31,664) |
|
- |
|
- |
|
- |
|
- |
Foreign exchange
movement |
(110) |
|
(244) |
|
(895) |
|
(1,249) |
|
399 |
|
181 |
|
3,203 |
|
3,783 |
ECL at year end |
3,152 |
|
- |
|
6,318 |
|
9,470 |
|
1,370 |
|
3,177 |
|
32,559 |
|
37,106 |
Information on the three stages on which ECLs are recognised is
provided within Note 7.
The table below analyses the Company’s cash and cash equivalents
by rating agency category.
Credit ratings |
|
|
Outlook |
|
|
LT Issuer Default Rating |
28.2.2022
$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HSBC Bank USA NA |
|
|
|
S&P Stable (2021: Stable) |
|
|
|
S&P A+ (2021: A+) |
40,588 |
|
City National
Bank |
|
|
|
S&P Stable (2021: Stable) |
|
|
|
S&P AA- (2021: A+) |
2,500 |
|
Raymond James
Bank |
|
|
|
S&P Positive (2021: Stable) |
|
|
|
S&P BBB+ (2021: BBB+) |
4 |
|
Northern Trust
(Guernsey) Limited |
|
|
|
S&P Stable (2021: Stable) |
|
|
|
S&P AA- (2021: AA-) |
564 |
|
|
|
|
|
|
|
|
|
|
43,656 |
|
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.
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.
The Company's investments are predominately private equity, real
estate 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 Loan Notes and ZDP
shareholders in 2022. At the year end the Company has outstanding
investment commitments of $16,188,000
(28 February 2021: $31,897,000) see Note 23.
The Company manages liquidity risk and the ability to meet its
obligations by monitoring current and expected cash balances from
forecasted investment activity.
The table below analyses JZCP's financial liabilities into
relevant maturity groups based on the remaining period at the
reporting date to the contractual maturity date. Amounts attributed
to the Senior debt facility, ZDP shares and Loan Notes include
future contractual interest payments. Financial commitments are
contractual outflows of cash and are included within the liquidity
statement.
At 28 February
2022 |
Less
than 1 year |
|
>1
year - 3 years |
|
>3
years - 5 years |
|
>5
years |
|
No
stated maturity |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Senior debt
facility |
- |
|
- |
|
63,000 |
|
- |
|
- |
ZDP (2022) shares |
77,281 |
|
- |
|
- |
|
- |
|
- |
Loan notes |
33,075 |
|
- |
|
- |
|
- |
|
- |
Other payables |
1,299 |
|
- |
|
- |
|
- |
|
398 |
Financial commitments
(see note 23) |
5,729 |
|
10,459 |
|
- |
|
- |
|
- |
|
117,384 |
|
10,459 |
|
63,000 |
|
- |
|
398 |
|
|
|
|
|
|
|
|
|
|
At 28 February
2021 |
Less
than 1 year |
|
>1
year - 3 years |
|
>3
years - 5 years |
|
>5
years |
|
No
stated maturity |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
ZDP (2022) shares |
- |
|
80,527 |
|
- |
|
- |
|
- |
CULS |
57,048 |
|
- |
|
- |
|
- |
|
- |
Senior debt
facility |
70,639 |
|
- |
|
- |
|
- |
|
- |
Other payables |
1,459 |
|
- |
|
- |
|
- |
|
398 |
Financial commitments
(see note 23) |
12,832 |
|
18,825 |
|
240 |
|
- |
|
- |
|
141,978 |
|
99,352 |
|
240 |
|
- |
|
398 |
23. Commitments
At 28 February 2022 and
28 February 2021, JZCP had the
following financial commitments outstanding in relation to fund
investments:
|
|
|
|
|
|
|
Expected date |
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
of
Call |
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
JZI Fund
III GP, L.P. €13,967,295 (28.2.2021: €19,628,404) |
|
over 3 years |
15,688 |
|
23,825 |
Spruceview Capital
Partners, LLC1 |
|
|
|
|
over 1 year |
500 |
|
900 |
Orangewood Partners
II-A LP2 |
|
|
|
|
|
- |
|
6,932 |
Igloo Products
Corp |
|
|
|
|
|
- |
|
240 |
|
|
|
|
|
|
|
|
16,188 |
|
31,897 |
1As approved by a shareholder vote on 12 August 2020, JZCP has the option to increase
further commitments to Spruceview up to approximately $4.1 million, above the $0.5 million unfunded commitments as at
28 February 2022.
2During the period, the Company received shareholder
approval for Jay Jordan and
David Zalaznick to relieve the
Company of all of its remaining commitments to the Orangewood Fund
being $12.35 million, of which
approximately $3 million of this
commitment was “funded” and $9.35
million “unfunded” (following the Orangewood Fund's final
close in April 2021 which resulted in
a reallocation of unfunded commitments).
24. Related Party
Transactions
JZAI is a US based company founded by David Zalaznick and John ("Jay") Jordan II, that
provides advisory services to 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 invests in European micro-cap companies through JZI Fund
III, L.P. (“Fund III”). Previously investments were made via the
EuroMicrocap Fund 2010, L.P. ("EMC 2010"). Fund III and EMC 2010
are managed by an affiliate of JZAI. At 28
February 2022, JZCP's investment in Fund III was valued at
$76.3 million (28 February 2021: $80.7
million). JZCP's investment in EMC 2010 was valued at
$0.6 million (28 February 2021: $3.3
million).
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 2022, was $33.5 million with $0.5
million of this amount remaining unfunded and outstanding.
As approved by a shareholder vote on 12
August 2020, JZCP has the option to increase further
commitments to Spruceview by approximately $4.1 million, above the $33.5 million committed as of 28 February 2022. Should this approved capital be
committed to Spruceview, it would be committed on the same 50:50
basis with Jay Jordan and
David Zalaznick (or their respective
affiliates).
During the year ended 28 February
2021, the Company announced that it had agreed and received
shareholder approval to sell its interests in certain US microcap
portfolio companies (the "Secondary Sale") to a secondary fund led
by Hamilton Lane Advisors, L.L.C. The Secondary Sale was structured
as a sale and contribution to a newly formed fund, JZHL Secondary
Fund LP, managed by an affiliate of JZAI. At 28 February 2022, JZCP's investment in Fund III
was valued at $99.2 million
(28 February 2021: $72.2 million).
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 2022, these
co-investments, with Fund A, were in the following portfolio
companies: Industrial Services Solutions and New Vitality. Fund A
and its parallel funds are also co-investors alongside JZHL
Secondary Fund LP in Testing Services Holdings and TierPoint.
During the year, following shareholder approval, JZAI Founders
Jay Jordan and David Zalaznick
relieved the Company of $12.35
million of its remaining commitments to the Orangewood Fund
(approximately $3 million of this
commitment being “funded” and $9.35
million “unfunded”).
During the year, the Company entered into a note purchase
agreement with David Zalaznick and Jay Jordan, pursuant to which they have
purchased directly or through their affiliates, subordinated,
second llien loan notes in the amount of $31.5 million, with an interest rate of 6 per
cent. per annum and maturing on 11 September 2022 (the “Loan
Notes”). The issuance of the Loan Notes was subject to a number of
conditions, including shareholder approval.
Total Directors' remuneration for the year ended 28 February 2022 was $290,000 (28 February
2021: $319,000).
25. Basic and Diluted
Earnings/(Loss) Per Share
Basic earnings/(loss) per share is calculated by dividing the
profit/(loss) for the year by the weighted average number of
Ordinary shares outstanding during the year.
For the year ended 28 February
2022, the weighted average number of Ordinary shares
outstanding during the year was 77,475,932 (Year ended 28 February 2021:
77,474,175).
The diluted earnings/(loss) per share is calculated by
considering adjustments required to the earnings/(loss) 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"). The Company's CULS have now been repaid
and therefore the Company no longer holds financial instruments
that have the potential to dilute the holdings of Ordinary shares.
Therefore, for the year ended 28 February 2022 the diluted
earnings per share was presented as per the basic earnings per
share calculation. The adjusted weighted average of the number of
Ordinary shares for the year ended 28
February 2021 was 83,911,016. Conversion was assumed even
though at 28 February 2021 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'. Losses for the year ended 28
February 2021 were adjusted to remove the fair value loss of
$3,618,000, unrealised movement in
value due to credit risk being a gain of $1,074,000 and finance costs attributable to CULS
of $2,953,000. For the year ended
28 February 2021, the potential
conversion of the CULS would have been anti-dilutive to the total
loss per share, therefore the diluted loss per share was presented
as per the basic 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 $4.29 (28 February
2021: $4.25) is based on the
net assets at the year end of $332,264,000 (28 February
2021: $329,559,000) and on
77,477,214 (28 February 2021:
77,474,175) Ordinary shares, being the number of Ordinary shares in
issue at the year end.
28. Contingent Assets
Amounts held in escrow accounts
When investments have been disposed of by the Company, proceeds
may reflect contractual terms requiring that a percentage is held
in an escrow account pending resolution of any indemnifiable claims
that may arise. At 28 February 2022
and 28 February 2021, the Company has
assessed that the likelihood of the recovery of these escrow
accounts cannot be determined and has therefore classified the
escrow accounts as a contingent asset.
As at 28 February 2022 and
28 February 2021, the Company had the
following contingent assets held in escrow accounts which had not
been recognised as assets of the Company:
Company |
|
|
|
|
|
|
|
Amount in Escrow |
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
Salter Labs |
|
|
|
|
|
|
|
536 |
|
- |
Southern Petroleum
Laboratories (received March 2022) |
|
|
|
|
|
|
|
509 |
|
- |
Igloo |
|
|
|
|
|
|
|
49 |
|
- |
JZHL Secondary Fund
(being 37.5% of the total amount held in escrow) |
|
|
|
|
|
|
|
202 |
|
- |
Triwater Holdings |
|
|
|
|
|
|
|
- |
|
309 |
Xpress Logistics (AKA
Priority Express) |
|
|
|
|
|
|
|
- |
|
19 |
|
|
|
|
|
|
|
|
1,296 |
|
328 |
During the year ended 28 February
2022 proceeds of $597,000
(28 February 2021: $1,147,000) were realised during the year and
recorded in the Statement of Comprehensive
Income.
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
Escrows at beginning
of year |
|
|
|
|
|
|
|
328 |
|
1,140 |
Escrows
added on realisation of investments |
|
|
|
|
|
|
1,321 |
|
- |
Potential
escrows at prior year end no longer recorded |
|
|
|
|
(265) |
|
- |
Escrow receipts during
the year |
|
|
|
|
|
|
|
(597) |
|
(1,147) |
Additional
escrows recognised in year not reflected in opening position |
|
|
509 |
|
335 |
Escrows at year
end |
|
|
|
|
|
|
|
1,296 |
|
328 |
29. Notes to the Statement of
Cash Flows
Investment income and interest received during the year |
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Interest on
investments |
|
|
|
|
|
|
|
- |
|
279 |
Dividends on unlisted
investments |
|
|
|
|
|
|
|
520 |
|
379 |
Bank interest |
|
|
|
|
|
|
|
174 |
|
220 |
Treasury interest |
|
|
|
|
|
|
|
- |
|
11 |
|
|
|
|
|
|
|
|
694 |
|
889 |
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 |
|
|
|
1.3.2021 |
|
Cash flows |
Fair Value |
Finance Costs |
Foreign Exchange |
28.2.2022 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Senior debt
facility |
68,694 |
|
(32,964) |
|
- |
|
6,843 |
- |
|
42,573 |
Zero Dividend
Preference (2022) shares |
74,303 |
|
- |
|
- |
|
3,807 |
(3,072) |
|
75,038 |
Loan notes |
- |
|
31,185 |
|
- |
|
1,108 |
- |
|
32,293 |
Convertible Unsecured
Loan Stock |
52,430 |
|
(54,030) |
|
565 |
|
1,336 |
(301) |
|
- |
|
195,427 |
|
(55,809) |
|
565 |
|
13,094 |
(3,373) |
|
149,904 |
|
|
|
|
|
Non-cash changes |
|
|
|
1.3.2020 |
|
Cash flows |
Fair Value |
Finance Costs |
Foreign Exchange |
28.2.2021 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Zero Dividend
Preference (2022) shares |
64,510 |
|
- |
|
- |
|
3,441 |
6,352 |
|
74,303 |
Convertible Unsecured
Loan Stock |
49,886 |
|
(2,953) |
|
(1,986) |
|
2,953 |
4,530 |
|
52,430 |
Senior debt
facility |
150,362 |
|
(95,243) |
|
- |
|
11,797 |
1,778 |
|
68,694 |
|
264,758 |
|
(98,196) |
|
(1,986) |
|
18,191 |
12,660 |
|
195,427 |
30. Dividends Paid and
Proposed
No dividends were paid or proposed for the years ended
28 February 2022 and 28 February 2021.
31. IFRS to US GAAP
Reconciliation
The Company's Financial Statements are prepared in accordance
with IFRS, which in certain respects differ from US GAAP. These
differences are not material and therefore no reconciliation
between IFRS and US GAAP has been presented. For reference, please
see below for a summary of the key judgments and estimates taken
into account with regards to the Company as of 28 February 2022, as well as the Shareholders'
financial highlights required under US GAAP.
Assessment as an Investment
Entity
As stated in Note 2, the Company meets the definition of an
investment entity under IFRS 10 and is therefore required to
measure its subsidiaries at fair value through profit or loss
rather ("FVTPL") than consolidate them. Per US GAAP (Financial
Services - Investment Companies (Topic 946): Amendments to the
Scope, Measurement, and Disclosure Requirements or "ASC 946"), the
Company meets the definition of an investment company, and as
required by ASC 946, JZCP measures its investment in Subsidiaries
at FVTPL.
Fair Value Measurement of
Investments
The fair value of the underlying investments held by the Company
are determined in accordance with US GAAP and IFRS based on
valuation techniques and inputs that are observable in the market
which market participants have access to and will use to determine
the exit price or selling price of the investments.
Consideration of going concern
As described in Note 3, there is substantial doubt about the
Company’s ability to continue as a going concern. For the purposes
of the US GAAP Going concern assessment, the Directors considered
that the period to 14 June 2023 was
covered by the assessment to 30 June
2023 as described in note 3.
Measurement of Liabilities
The Company's Senior debt facility, Loan Notes and ZDP shares
are recorded at amortised cost using the effective interest rate
method in accordance with US GAAP and IFRS. The CULS’ fair value is
deemed to be the listed offer price at the year end.
The following table presents performance information derived
from the Financial Statements.
|
|
|
|
|
|
|
|
28.2.2022 |
|
28.2.2021 |
|
|
|
|
|
|
|
|
US$ |
|
US$ |
|
|
|
|
|
|
|
|
|
|
|
Net asset
value per share at the beginning of the year |
|
|
|
|
|
4.25 |
|
6.14 |
|
|
|
|
|
|
|
|
|
|
|
Performance during the
year (per share): |
|
|
|
|
|
|
|
|
|
|
Net investment
income |
|
|
|
|
|
|
|
0.22 |
|
0.29 |
Net realised and
unrealised loss |
|
|
|
|
|
|
|
0.13 |
|
(1.76) |
Incentive fee |
|
|
|
|
|
|
|
- |
|
- |
Operating
expenses |
|
|
|
|
|
|
|
(0.14) |
|
(0.19) |
Finance costs |
|
|
|
|
|
|
|
(0.17) |
|
(0.23) |
Total return |
|
|
|
|
|
|
|
0.04 |
|
(1.89) |
Net asset
value per share at the end of the year |
|
|
|
|
|
|
4.29 |
|
4.25 |
Total Return |
|
|
|
|
|
|
|
0.83% |
|
(30.78%) |
Net
investment income to average net assets excluding incentive
fee |
|
|
5.23% |
|
5.72% |
Operating expenses to
average net assets |
|
|
|
|
|
|
|
(3.45%) |
|
(3.75%) |
Finance costs to
average net assets |
|
|
|
|
|
|
|
(4.04%) |
|
(4.54%) |
32. Subsequent Events
These financial statements were approved by the Board on
14 June 2022. Subsequent events have
been evaluated until this date.
In April 2022, the Company announced JZHL Secondary Fund
LP (the "Secondary Fund") had sold its interest in Flow Control
Holdings LLC for consideration of approximately $77.7 million. This transaction confers no
immediate cash benefit to JZCP because the other investors in the
Secondary Fund have an entitlement to a priority return before any
distribution may be made to JZCP.
In May 2022, the Company announced
that a portfolio company of the Secondary Fund executed an
agreement to sell certain of its interests, with the Secondary Fund
expecting to receive a distribution of approximately $165-$180 million.
Accordingly, this sale is expected to result in JZCP receiving a
distribution from the Secondary Fund of approximately $89-$94 million,
which would correspond to a NAV uplift to JZCP in the range of
approximately 56-63 cents per
ordinary share. This uplift is not reflected in the year end
valuation of the Secondary Fund as the closure of this deal remains
subject to certain conditions.
Company Advisers
Investment Adviser
The Investment Adviser to JZ Capital Partners Limited (“JZCP”)
is Jordan/Zalaznick Advisers, Inc., (“JZAI”) a company beneficially
owned by John (Jay) W Jordan II and David W Zalaznick. The company
offers investment advice to the Board of JZCP. JZAI has offices in
New York and Chicago.
Jordan/Zalaznick Advisers, Inc.
9 West, 57th Street
New York NY 10019
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
JZ Capital Partners Limited is registered in Guernsey Number
48761
Administrator, Registrar and
Secretary
Northern Trust International Fund Administration
Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
UK Transfer and Paying Agent
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
US Banker
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 Banker
Northern Trust (Guernsey)
Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA
Independent Auditor
Ernst & Young LLP
PO Box 9
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
UK Solicitors
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW
US Lawyers
Monge Law Firm, PLLC
435 South Tryon Street
Charlotte, NC 28202
Mayer Brown LLP
214 North Tryon Street
Suite 3800
Charlotte NC 28202
Winston & Strawn LLP
35 West Wacker Drive
Chicago IL 60601-9703
Guernsey Lawyers
Mourant Ozannes (Guernsey)
LLP
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4HP
Financial Adviser and Broker
J.P. Morgan Securities plc
25 Bank Street
London E14 5JP
Useful Information for
Shareholders
Listing
JZCP Ordinary and Zero Dividend Preference ("ZDP") shares 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.
ISIN/SEDOL numbers
|
|
Ticker
Symbol |
|
ISIN
Code |
|
SEDOL
Number |
|
|
|
|
|
|
|
Ordinary shares |
|
JZCP |
|
GG00B403HK58 |
|
B403HK5 |
ZDP (2022) shares |
|
JZCZ |
|
GG00BZ0RY036 |
|
BZ0RY03 |
Key Information Documents
JZCP produces Key Information Documents to assist investors'
understanding of the Company's securities and to enable comparison
with other investment products. These documents are found on the
Company's website
-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. The Total
NAV Return for the year ended 28 February
2022 was 0.9% (2021:-30.8%), which only reflects the change
in NAV ($) as no dividends were paid during the year.
Total Shareholder Return (Ordinary
shares)
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 six-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 2022 was 34.6%, 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 2021 was -69.8%.
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 2022, JZCP's
Ordinary shares traded at £1.05 (28 February
2021: £0.78) or $1.41
(28 February 2021: $1.09) being the dollar equivalent using the year
end exchange rate of £1: $1.34
(28 February 2021 £1: $1.39). The shares traded at a 67.2%
(28 February 2021: 74.3%) discount to
the NAV per share of $4.29 (2021:
$4.25).
Ongoing Charges calculation
A measure expressing the Ongoing annualised expenses as a
percentage of the Company's average annualised net assets over the
year 3.31% (2021: 3.52%). 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 $10,809,000 (2021: $13,747,000) comprising of the IA base fee
$7,414,000 (2021: $9,722,000), administrative fees $3,105,000 (2021: $3,706,000) and directors fees $290,000 (2021: $319,000). Average net assets for the year are
calculated using quarterly NAVs 323,723,000 (2021: $390,244,000).
Criminal Facilitation of Tax
Evasion
The Board has 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 advisers as an
investment for UK retail investors.
Internet
Address
The Company: www.jzcp.com
Financial
Diary
Annual General Meeting
3 August 2022
Interim report for the six months ended 31 August
2022 November 2022 (date
to be confirmed)
Results for the year ended 28 February
2023
May 2023 (date to be confirmed)
JZCP, will aim to issue monthly NAV announcements within 21 day
of the month end, these announcements 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.
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
https://www.fca.org.uk/firms/financial-services-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" below).
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 29
C.F.R. Section 2510.3-101, as modified by 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 laws 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
advisers, 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 adviser will have certain general fiduciary duties to
the Company, the board and the investment adviser 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 laws
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 adviser 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 Adviser.
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 adviser 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 adviser 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) The Non-ERISA Plan’s investment in the Company will not
result in a non-exempt violation of any applicable federal, state
or local law;
(d) None of the Company, the Board, the Investment adviser 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 adviser 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
(e) 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 adviser 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
Adviser.
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 Board may 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 because of, among
other reasons, certain US ownership and transfer restrictions that
relate to “controlled foreign corporations” contained in the
Articles of the Company. A Shareholder of the Company may be
subject to forced sale provisions contained in the Articles in
which case such shareholder could be forced to dispose of its
securities if the Company’s directors believe that such shareholder
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 shareholder would materially increase the risk
that the Company could be or become a "controlled foreign
corporation" within the meaning of the Code (a "CFC"). Shareholders
of the Company may also be restricted by such provisions with
respect to the persons to whom they are permitted to transfer their
securities.
In general, a foreign corporation is treated as a CFC if, on any
date of its taxable year, its "10% US Shareholders" collectively
own (directly, indirectly or constructively within the meaning of
Section 958 of the Code) more than 50% of the total combined voting
power or total value of the corporation's stock. For this
purpose, a "10% US Shareholder" means any US person who owns
(directly, indirectly or constructively within the meaning of
Section 958 of the Code) 10% or more of the total combined voting
power of all classes of stock of a foreign corporation or 10% or
more of the total value of shares of all classes of stock of a
foreign corporation. The Tax Cuts and Jobs Act (the “Tax
Act”) eliminated the prohibition on “downward attribution” from
non-US persons to US persons under Section 958(b)(4) of the Code
for purposes of determining constructive stock ownership under the
CFC rules. As a result, the Company’s US subsidiary will be
deemed to own all of the stock of the Company’s non-US subsidiaries
held by the Company for purposes of determining such foreign
subsidiaries’ CFC status. The legislative history under the
Tax Act indicates that this change was not intended to cause the
Company’s non-US subsidiaries to be treated as CFCs with respect to
a 10% US Shareholder that is not related to the Company’s US
subsidiary. However, the IRS has not yet issued any guidance
confirming this intent and it is not clear whether the IRS or a
court would interpret the change made by the Tax Act in a manner
consistent with such indicated intent. The Company's treatment as a
CFC as well as its foreign subsidiaries’ treatment as CFCs could
have adverse tax consequences for 10% US Shareholders.
The Company has been advised that it is be treated as a "passive
foreign investment company" ("PFIC") for the fiscal year
ended February 2021. The Company's
treatment as a PFIC is likely to have adverse tax consequences for
US taxpayers. Previously, for the fiscal year ended February 2020 the Company was found NOT to be a
PFIC. An analysis for the financial year ended 28 February 2022 will be undertaken this
year.
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/firm/summary/160932