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 REPORT AND
FINANCIAL STATEMENTS
FOR THE YEAR ENDED
28 FEBRUARY 2023
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").
8 June
2023
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 2023.
Financial and Operational
Highlights
· NAV per share of $4.06. The prior year NAV per share as at
28 February 2022, has been restated
to $4.03 per share ($4.29 per share before
restatement).1
· NAV of $314.5 million (FYE 28/02/22: $327.1 million)
· Total realisation and
distribution proceeds of $184.1
million (FYE 28/02/22: $65.8
million), including the sale of JZCP’s investments in
Evriholder (a subsidiary of Deflecto Holdings, LLC), Flow Control
and Testing Services, its co-investment in New Vitality, and the
partial sale of Industrial Services Solutions.
· The US micro-cap portfolio has
overall performed well, while the European portfolio continues to
be challenged by the economic effects of the recession in
Europe and war in Ukraine.
The Company is working towards realisations in both portfolios as
market conditions allow.
· 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. Due to
newly received appraisals, the portfolio experienced a net write-up
of 9 cents per share.
[1] The NAV per share at 28 February 2022, as reported in the Annual
Report and Financial Statements dated 14
June 2022 was $4.29. However,
due to a prior period restatement this has been subsequently
adjusted to $4.03 (28/02/22). Further
details on this can be found in Note 2 to the Financial
Statements.
Investment Policy and Liquidity
· The Company remains focused on
the implementation of its New Investment Policy. This policy
focuses on realising the maximum value from the Company’s
investment portfolio and, after repaying its debt obligations,
returning capital to shareholders.
· The Company redeemed in full its
£38.8 million of Convertible Unsecured Loan Stock (CULS) and £57.6
million of Zero Dividend Preference Shares (ZDPs) on their
respective maturity dates.
· The Company also redeemed early
and in full the $31.5 million of
Subordinated Notes provided by affiliates of Jay Jordan and David
Zalaznick.
· Consequently, the Company’s
outstanding debt is limited to its $45.0
million Senior Credit Facility due 26
January 2027.
David Macfarlane, Chairman of
JZCP, said: “Our view of the outlook for the Company remains
substantially unchanged to that reported in the Interim Report. We
have achieved a number of successful realizations during the
period, which has generated substantial liquidity and allowed us to
significantly reduce our debt obligations and achieve financial
stability.
The Board’s view is that in the current uncertain economic and
financial market conditions, it may take more time to deliver on
the New Investment Policy than might have been expected a year ago.
However, the Company is well-positioned to weather financial
pressures from an economic downturn or periods of volatility, which
should allow the Investment Adviser the time needed to maximise the
value of the portfolio and implement the policy in an orderly
manner. The Board expects that in due course a significant amount
of capital will be returned to shareholders.”
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.
Matt
Smart
+44 (0) 1481 745 228
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 is supported by teams of 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 or 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.
Chairman's Statement
The Directors present the results for the Company for the
financial year ended 28 February
2023. The NAV per share of the Company has declined from
$4.29 as of 28
February 2022 (as reported in the Annual Report dated
12 June 2023 and before the
subsequent prior year reclassification and remeasurement which
restated the NAV to $4.03) to
$4.06 as of 28
February 2023.
This decline results mainly from the write-down of the
investment in Toro Finance as well as the write-down attributable
to the part sale of ISS, offset by substantial write-ups and
realisations above NAV in the portfolio of JZHL Secondary Fund LP
(the “Secondary Fund”), in which the Company owns a Special Limited
Partnership interest.
Investment Policy and Liquidity
As a result of substantial realisations over the past eighteen
months, the financial position of the Company has been stabilised.
These realisations included Flow Control and Testing Services (both
portfolio companies of the Secondary Fund), Salter Labs, ISS (a
part sale) and Evriholder.
On their respective due dates, the Company redeemed in full its
£38.8 million of Convertible Unsecured Loan Stock as well as £57.6
million of Zero Dividend Preference Shares; in addition, the
Company redeemed early and in full the $31.5
million of Subordinated Notes provided by affiliates of
Jay Jordan and David Zalaznick. Consequently, the Company’s
outstanding debt is limited to its $45
million senior credit facility (the “Senior Credit
Facility”) due 26 January 2027, which
may be repaid early without penalty at any time. In addition, the
Senior Credit Facility provides for up to an additional
$25 million in first lien delayed
draw term loan, none of which has been drawn. The Company’s ability
to access the delayed draw term loan facility expires on
January 26, 2024. As at 31 May 2023, the Company has cash and treasuries
of approximately $99 million.
The Board and the Investment Adviser remain focused on the
implementation of the new investment policy (the “New Investment
Policy”) to realise maximum value from the Company’s investments
and, after the repayment of all debt, to return capital to
shareholders. Under the New Investment Policy, the Company will
limit further investment to where it has existing obligations or
selectively to support the existing portfolio.
The Board’s view is that in the current uncertain economic and
financial market conditions, prudence requires a conservative
maintenance of maximum liquidity; nevertheless, the Board will keep
under close review the timing of the redemption of the Senior
Credit Facility.
Over the last two years, the Investment Adviser has achieved
several significant realisations in the portfolio; however, the
Board believes that in the current climate, it may be difficult to
maintain this pace. As we said in the Interim Report, the market
conditions for achieving realisations have become more challenging
than at this point last year. Furthermore, certain of our remaining
portfolio assets require additional time to develop in order to
maximize their value. We must also highlight that where the Company
is a co-investor, the decision regarding the timing of a
realisation does not lie with the Investment Adviser.
As well as keeping under close review the timing of the
repayment of the Senior Credit Facility, the Board will likewise
closely monitor when it can commence return of capital.
US and European Micro-cap
Portfolios
While our US micro-cap portfolio has overall performed well
(with material realisations in the US portfolio including Flow
Control and Testing Services (both portfolio companies of the
Secondary Fund), ISS (a part sale) and Evriholder), our European
portfolio continues to be challenged by the economic effects of the
recession in Europe and war in
Ukraine. The Company continues to
work towards realisations in both portfolios as market
circumstances allow.
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.
Due to newly received appraisals at the calendar year-end, the
real estate portfolio experienced a net write-up of 9 cents per share.
Restatement to Correct Historical
Error in Classification and Associated Measurement of Asset
The Company’s investment in Toro Finance has been reclassified
to fair value through profit or loss from amortised cost as at
1 March 2021 and 28 February 2022, leading to the loan being
remeasured on these dates. Further details on this prior year
restatement can be found in Note 2 to the Financial Statements.
Outlook
Our view of the outlook for the Company remains substantially
unchanged to that reported in the Interim Report. The Company is
committed to delivering on the New Investment Policy. For the
reasons mentioned above, it will probably take more time than might
have been expected a year ago. The Company is well- positioned to
weather potential financial pressures from an economic downturn or
period of volatility in the financial markets, which should allow
the Investment Adviser the time needed to maximise the value of the
portfolio and implement the New Investment Policy in an orderly
manner. The Board expects that in due course a significant amount
of capital will be returned to shareholders.
David Macfarlane
Chairman
7 June 2023
Investment Adviser's Report
Dear Fellow Shareholders,
We are pleased to report that our Company has achieved some
significant milestones recently, most notably the redemption of the
Zero Dividend Preference Shares (“ZDPs”) at their stated maturity
in early October 2022 and the early
redemption of the Subordinated Notes in February 2023. JZCP heads into the beginning of
its new fiscal year (the year ending February 28, 2024) with a strong and stable
balance sheet, which will continue to provide the foundation for
completing the build-out of existing assets, realizing investments,
paying down debt and returning capital to shareholders.
With regards to our efforts to fortify JZCP’s balance sheet over
the past two years, we successfully executed the following
transactions, among others:
· We agreed to personally provide
a $31.5 million liquidity facility
(the "Subordinated Notes") 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 credit facility (the “Previous Senior Credit 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 Credit Facility”)
with WhiteHorse Capital Management LLC. The New Senior Credit
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 and expires on
26 January 2024). The terms of the
New Senior Credit Facility represent a substantial improvement to
those of the Previous Senior Credit Facility, including a lower
interest cost and longer maturity – the New Senior Credit Facility
is due on 26 January 2027.
· In June and August 2022, the JZHL Secondary Fund LP (the
“Secondary Fund”) made two distributions to JZCP, totaling
approximately $97.4 million. Pursuant
to the Secondary Fund’s waterfall, in which JZCP has a Special LP
Interest, the Company expects to receive approximately 37.5% of all
further distributions received by the Secondary Fund. As of
28 February 2023, JZCP still has
approximately $80.4 million of
remaining value in the Secondary Fund.
· In October 2022, JZCP paid off its ZDPs (£57.6
million) in full and on their stated maturity.
· In February 2023, JZCP redeemed early its
Subordinated Notes ($31.5 million) in
full, while maintaining a significant cash cushion.
While our US micro-cap portfolio has overall performed well, our
European portfolio continues to be challenged by economic headwinds
in Europe and the effects of the
war in Ukraine. Notwithstanding
these challenges, we continue to pursue several significant
realizations in our European portfolio, which will return capital
to JZCP.
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. Due to newly received appraisals at
year-end, the real estate portfolio experienced a net write-up of
9 cents per share.
As of 28 February 2023, our US
micro-cap portfolio consisted of 12 businesses, which includes
three ‘verticals’ and five 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 decreased 23
cents, or approximately 5.4%, during the twelve-month
period.
NAV per
Ordinary share as of 1 March 2022 (as reported 12 June
2022) |
|
|
|
|
|
|
|
|
|
$4.29 |
Restatement
of Prior Year NAV |
|
|
|
|
|
- European
micro-cap |
|
|
|
(0.26) |
Change
in NAV due to capital gains and accrued income |
|
|
|
|
+ US
micro-cap |
|
|
|
|
|
|
|
|
|
0.34 |
- European
micro-cap |
|
|
|
|
|
|
|
|
|
(0.20) |
+ Real
estate |
|
|
|
|
|
|
|
|
|
0.09 |
+ Other
investments |
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
+ Interest
on cash and treasuries |
|
|
|
|
|
|
|
0.02 |
+ Foreign exchange
effect |
|
|
|
|
|
|
|
|
|
0.01 |
- Finance costs |
|
|
|
|
|
|
|
|
|
(0.11) |
- Expenses |
|
|
|
|
|
|
|
|
|
(0.13) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAV per Ordinary
share as of 28 February 2023 |
|
|
|
|
|
|
|
|
|
$4.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The US micro-cap portfolio continued to perform well during the
six-month period, delivering a net increase of 34 cents per share. This was primarily due to net
accrued income of 3 cents and
write-ups at co-investment Deflecto (30
cents) and the JZHL Secondary Fund portfolio (78 cents). One cent
of escrows was received as well.
Offsetting these increases were decreases at the ISS vertical
(62 cents), co-investments New
Vitality and Orizon (5 cents and
4 cents, respectively) and other US
micro-cap portfolio company Avante (7
cents).
Our European portfolio decreased 46
cents during the twelve-month period, due to net write downs
at European portfolio companies in our JZI Fund III, L.P. portfolio
(18 cents) and the write down of the
direct loan to Toro Finance (28
cents).
Due to newly received appraisals at year-end, the real estate
portfolio experienced a net write-up of 9
cents per share.
Returns
The chart below summarizes cumulative total shareholder returns
and total NAV returns for the most recent one-year, three-year and
five-year periods.
|
28.2.2023 |
28.2.20221 |
29.2.2020 |
28.2.2018 |
Share price (in
GBP) |
£1.58 |
£1.05 |
£2.58 |
£4.51 |
NAV per share (in
USD) |
$4.06 |
$4.29 |
$6.14 |
$9.98 |
NAV to market price
discount |
53.0% |
67.2% |
46.3% |
37.7% |
|
|
1
year |
3
year |
5
year |
|
|
return |
return |
return |
Total Shareholders'
return (GBP) |
|
50.0% |
(39.0%) |
(65.1%) |
Total NAV return per
share (USD)1 |
|
(5.4%) |
(33.9%) |
(59.3%) |
1 The restated NAV per share at 28 February 2022, after a prior period adjustment
was $4.03. The restated Total NAV
return per share for the year ended 28
February 2023 is 0.7%.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography,
with 29 US and European micro-cap investments across eleven
industries. The European portfolio itself is well-diversified
geographically across Spain,
Italy, Portugal, Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP’s assets and liabilities at
28 February 2023 as compared to
28 February 2022 (before restatement
of prior year numbers). An explanation of the changes in the
portfolio follows:
|
|
|
|
28.2.2023 |
|
28.2.2022 |
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
US micro-cap
portfolio |
|
|
|
127,811 |
|
284,162 |
European micro-cap
portfolio |
|
|
|
71,966 |
|
100,350 |
Real estate
portfolio |
|
|
|
31,156 |
|
23,597 |
Other investments |
|
|
|
25,683 |
|
23,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Private
Investments |
|
|
|
256,616 |
|
431,642 |
|
|
|
|
|
|
|
Treasury bills |
|
|
|
90,600 |
|
3,394 |
Cash and cash
equivalents |
|
|
|
11,059 |
|
43,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Treasuries and
Cash |
|
|
|
101,659 |
|
47,050 |
|
|
|
|
|
|
|
Other assets |
|
|
|
168 |
|
70 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets |
|
|
|
358,443 |
|
478,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior Credit
Facility |
|
|
|
43,181 |
|
42,573 |
Zero Dividend Preferred
Shares |
|
|
|
- |
|
75,038 |
Subordinated Notes |
|
|
|
- |
|
32,293 |
Other liabilities |
|
|
|
764 |
|
1,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities |
|
|
|
43,945 |
|
151,623 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net
Assets |
|
|
|
314,498 |
|
337,139 |
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
six-month period, delivering a net increase of 34 cents per share. This was primarily due to net
accrued income of 3 cents and
write-ups at co-investment Deflecto (30
cents) and the JZHL Secondary Fund portfolio (78 cents). One cent
of escrows was received as well.
Offsetting these increases were decreases at the ISS vertical
(62 cents), co-investments New
Vitality and Orizon (5 cents and
4 cents, respectively) and other US
micro-cap portfolio company Avante (7
cents).
European Micro-Cap Portfolio
As anticipated in the Investment Adviser’s Report as of
31 August 2022, our European
portfolio has experienced further net write-downs at year-end, due
in large part to the ongoing economic challenges in Europe and the effects of the war in
Ukraine. For the twelve-month
period, our European portfolio decreased 46
cents, due to net write downs at European portfolio
companies in our JZI Fund III, L.P. portfolio (18 cents) and the write down of our direct loan
to Toro Finance (28 cents).
JZCP invests in the European micro-cap sector through its
approximately 18.8% ownership of JZI Fund III,
L.P. As of 28 February 2023, 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 two companies in Spain:
Docout and Toro Finance.
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. Due to newly received appraisals at
year-end, the real estate portfolio experienced a net write-up of
9 cents per share.
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 fiscal year, Spruceview’s mandate for a portfolio of
private markets investments for a Mexican trust (or “CERPI”) was
increased by $255 million, bringing
total assets for this mandate to $1.3
billion. In addition, Spruceview won a $200 million mandate for a portfolio of private
markets investments for a Colombian public pension fund
administrator, as well as an expanded advisory mandate for a
$372 million employee savings plan
sponsored by a Mexican corporate client. Further, the firm received
over $46 million in additional
contributions to the corporate pension plans to which it provides
advisory services. Spruceview also received commitments of over
$20 million for a new private markets
investments fund targeting growth buyout fund investments in the
US, with the potential to receive additional commitments in
subsequent closings in the coming months.
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 22 investment, business and product
development, legal and operations professionals.
Realisations
New Vitality
In July 2022, JZCP received a
distribution from the sale of co-investment New Vitality totaling
approximately $7.4 million.
JZHL Secondary Fund LP
In June and August 2022, the
Secondary Fund made two distributions to JZCP, totaling
approximately $97.4 million. Pursuant
to the Secondary Fund’s waterfall, in which JZCP has a Special LP
Interest, the Company expects to receive approximately 37.5% of all
further distributions received by the Secondary Fund.
ISS (Partial Sale)
In December 2022, JZCP received a
distribution from the partial sale of ISS, totaling approximately
$22.5 million; in addition, the
Company may receive up to a further approximately $8.3 million, which will be payable post-closing
pursuant to a standard escrow arrangement that is subject to
customary final closing adjustments. JZCP continues to maintain an
interest in ISS through a new investment vehicle, Industrial
Service Solutions WC L.P. (“ISS WC”). The value attributable to
JZCP's interest in ISS WC is approximately $21.1 million as of 28
February 2023.
Evriholder
In January 2023, Deflecto
Holdings, LLC (“Deflecto”), one of the Company's US micro-cap
co-investments, sold its interest in one of its subsidiaries,
Evriholder. This transaction resulted in JZCP receiving a
distribution of approximately $54.3
million. JZCP’s continuing interest in Deflecto is valued at
$12.3 million as of 28 February 2023.
Outlook
The past two years have been a major turnaround for JZCP,
highlighted by significant realizations in our US portfolio,
particularly the Secondary Fund Portfolio. We have now paid off the
CULS and ZDPs in full and at their stated maturities; additionally,
we recently redeemed early in full the Subordinated Notes. With
just $45.0 million outstanding on the
New Senior Facility due 26 January
2027 and more than $101
million in cash and cash equivalents, the Company has the
ability to continue to build-out and maximize the value of its
remaining portfolio.
We continue to work diligently on realizations in both our US
and European portfolios and will take advantage of market
opportunities as conditions permit. In the meantime, we will
continue to build our existing portfolio companies which we believe
is the most effective way to return significant capital to our
ordinary shareholders.
We remain dedicated to maximizing value for our fellow
shareholders.
Thank you for your continued support.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
7 June 2023
Investment Portfolio
|
|
28 February 2023 |
|
|
|
|
|
|
|
|
Percentage |
|
|
Cost1 |
|
Value |
|
of Portfolio |
|
|
US$'000 |
|
US$'000 |
|
% |
|
|
|
|
|
|
|
US Micro-cap
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
US Micro-cap
Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
JZHL Secondary Fund
L.P.2
Invested in six companies in the US micro-cap sector: |
|
|
|
|
|
|
Total JZHL
Secondary Fund L.P. valuation |
|
34,876 |
|
80,403 |
|
23.2 |
|
|
|
|
|
|
|
US Micro-cap
(Vertical) |
|
|
|
|
|
|
|
|
|
|
|
|
|
INDUSTRIAL SERVICES
SOLUTIONS WC, L.P (“ISS”)3
Provider of aftermarket maintenance, repair, and field services for
critical process equipment throughout the US |
|
|
|
|
|
|
Total Industrial
Services Solutions valuation |
|
21,139 |
|
25,655 |
|
7.4 |
|
|
|
|
|
|
|
US Micro-cap
(Co-investments) |
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFLECTO
Deflecto designs, manufactures and sells innovative plastic
products to multiple industry segments |
|
12,174 |
|
12,269 |
|
3.5 |
ORIZON
Manufacturer of high precision machine parts and tools for
aerospace and defence industries |
|
3,899 |
|
3,840 |
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total US
Micro-cap (Co-investments) |
|
16,073 |
|
16,109 |
|
4.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Micro-cap
(Other) |
|
|
|
|
|
|
|
|
|
|
|
|
|
AVANTE HEALTH
SOLUTIONS
Provider of new and professionally refurbished healthcare
equipment |
|
8,140 |
|
4,644 |
|
1.3 |
NATIONWIDE
STUDIOS
Processor of digital photos for pre-schoolers |
|
26,324 |
|
1,000 |
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total US
Micro-cap (Other) |
|
34,464 |
|
5,644 |
|
1.6 |
|
|
|
|
|
|
|
Total US Micro-cap
portfolio |
|
106,552 |
|
127,811 |
|
36.8 |
|
|
|
|
|
|
|
|
|
European Micro-cap
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EUROMICROCAP FUND
2010, L.P.
Invested in European Micro-cap
entities |
|
1 |
|
- |
|
|
- |
JZI FUND
III, L.P.
At 28 February 2023, was invested in thirteen companies in the
European micro-cap sector: |
62,903 |
|
66,786 |
|
|
19.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total European
Micro-cap (measured at Fair Value) |
|
62,904 |
|
66,786 |
|
|
19.2 |
|
|
|
|
|
|
|
|
Debt
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOCOUT4
Provider of digitalisation, document processing and storage
services |
|
2,777 |
|
3,695 |
|
|
1.1 |
TORO FINANCE
Provides short term receivables finance to the suppliers of major
Spanish companies |
|
21,619 |
|
1,485 |
|
|
0.4 |
XACOM4
Supplier of telecom products and technologies |
|
2,055 |
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt Investments
(Loans to European Micro-cap companies) |
|
26,451 |
|
5,180 |
|
|
1.5 |
|
|
|
|
|
|
|
|
Total European
Micro-cap portfolio |
|
89,355 |
|
71,966 |
|
|
20.7 |
|
|
|
|
|
|
|
|
Real Estate
portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247 BEDFORD AVENUE
Prime retail asset in northern Brooklyn, NY |
|
17,717 |
|
6,298 |
|
|
1.8 |
ESPERANTE
An iconic building on the downtown, West Palm Beach skyline |
|
14,983 |
|
24,858 |
|
|
7.2 |
JZCP REALTY
Other Properties held - no equity value |
|
8,409 |
|
- |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate
portfolio |
|
41,109 |
|
31,156 |
|
|
9.0 |
|
|
|
|
|
|
|
|
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 |
|
33,455 |
|
24,474 |
|
|
7.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other
investments |
|
39,570 |
|
25,683 |
|
|
7.4 |
|
|
|
|
|
|
|
|
Listed
investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Bills -
Maturity 2 March 2023 |
|
33,161 |
|
33,496 |
|
|
9.6 |
U.S. Treasury Bills -
Maturity 16 March 2023 |
|
22,277 |
|
22,458 |
|
|
6.5 |
U.S. Treasury Bill -
Maturity 18 May 2023 |
|
34,594 |
|
34,646 |
|
|
10.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Listed
investments |
|
90,032 |
|
90,600 |
|
|
26.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total -
portfolio |
|
366,618 |
|
347,216 |
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Original book cost incurred by JZCP
adjusted for subsequent transactions.
2 Notional cost of the Company's interest
in JZHL Secondary Fund being $34.876
million which is calculated in accordance with IFRS, and
represents the fair value of the Company's LP interest on
recognition adjusted for subsequent distributions.
3 Co-investment with Fund A, a Related
Party (Note 25).
4 Classified as loan at amortised
cost.
JZHL Secondary Fund LP
In December 2020, the Company
completed the sale 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 limited partner 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 $80.4 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. is distributed to Hamilton Lane and
various members of the Fund's management team (the "Secondary
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 Secondary 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 Secondary Investors until the Company has received
distributions equal to US$67.6
million; and
iv) Fourth, 62.5 per cent. to the Secondary Investors (pro rata
in accordance with their respective contributions)
In April 2022, 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.
In June 2022, JZHL realised a
portion of its investment in Testing Services Holdings receiving
proceeds of $182.8 million. As a
result, the Company received a distribution from the Secondary Fund
of approximately $96.2 million as a
result of its Special LP Interest and in accordance with the
distribution waterfall as described above.
JZCP's
valuation of special interest in
JZHL Secondary Fund |
|
|
JZHL Cost1
As at 28.2.2023
$'000s |
JZHL Valuation
As at 28.2.2023
$'000s |
ACW Flex Pack,
LLC |
13,955 |
13,905 |
Flow Control, LLC |
- |
45 |
Safety Solutions
Holdings |
- |
8,477 |
Felix Storch |
24,500 |
126,000 |
Peaceable Street
Capital |
34,321 |
36,541 |
Tierpoint |
29,632 |
29,632 |
|
102,408 |
214,600 |
Less interest of other
secondary investments |
|
(134,197) |
JZCP's
interest in JZHL Secondary
Fund |
|
80,403 |
1The cost of 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,
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
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.
Further information can be found at www.peaceablestreet.com
Safety Solutions Holdings
Safety Solutions Holdings offers a complete range of safety
products, including gas detection, safety equipment, respiratory,
fall protection, lighting, calibration gas, noise and sound,
particle counters, personal protection equipment, hi-visibility
apparel, and compressors and vacuum pumps.
Further information can be found at
safetysolutionsholdings.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 2023
|
|
|
|
|
|
|
JZCP Cost (EURO)1 |
JZCP
Value (EURO)1 |
JZCP Value (USD) |
|
Country |
As at |
As
at |
As at |
|
|
28.2.2023 |
28.2.2023 |
28.2.2023 |
|
|
€'000s |
€'000s |
$'000s |
ALIANZAS
EN ACEROS
Steel service
center |
Spain |
4,425 |
3,508 |
3,720 |
BLUESITES
Build-up in cell tower land
leases |
Portugal |
3,643 |
6,581 |
6,979 |
COLLINGWOOD
Niche UK motor
insurer |
UK |
3,015 |
2,700 |
2,863 |
ERSI
Reinforced steel
modules |
Lux |
8,448 |
1,725 |
1,829 |
FACTOR
ENERGIA
Electricity
supplier |
Spain |
3,653 |
9,394 |
9,962 |
FINCONTINUO
Niche consumer
lender |
Italy |
4,810 |
938 |
994 |
GUANCHE
Build-up of petrol
stations |
Spain |
5,082 |
5,475 |
5,806 |
KARIUM
Personal care consumer
brands |
UK |
4,321 |
9,525 |
10,101 |
LUXIDA
Build-up in electricity
distribution |
Spain |
3,315 |
4,969 |
5,270 |
MY
LENDER
Niche consumer
lender |
Finland |
4,870 |
198 |
210 |
S.A.C
Operational van
leasing |
Denmark |
3,392 |
9,000 |
9,545 |
TREEE
e-waste
recycling |
Italy |
5,070 |
4,463 |
4,733 |
UFASA
Niche consumer
lender |
Spain |
5,294 |
6,952 |
7,373 |
Other net
Liabilities |
|
|
|
(2,599) |
Total
valuation |
|
|
|
66,786 |
|
|
|
|
|
|
|
|
|
|
1Represents JZCP's 18.75% of Fund III's investment
portfolio.
JZCP's Top Ten Investments
|
Portfolio |
Value
US$'000 |
Percentage of
Portfolio |
1. Felix
Storch1 |
U.S.
micro-cap |
47,250 |
18.3% |
2. Industrial Services
Solutions WC, L.P (“ISS”) |
U.S.
micro-cap |
25,655 |
9.9% |
3. Esperante |
Real
estate |
24,858 |
9.6% |
4. Spruceview Capital
Management, LLC |
Other |
24,474 |
9.5% |
5. Peaceable Street
Capital1 |
U.S.
micro-cap |
13,703 |
5.3% |
6. Deflecto, LLC |
U.S.
micro-cap |
12,269 |
4.7% |
7.
Tierpoint1 |
U.S.
micro-cap |
11,112 |
4.3% |
8.
Karium2 |
Euro
micro-cap |
10,101 |
3.9% |
9. Factor
Energia2 |
Euro
micro-cap |
9,962 |
3.8% |
10.
S.A.C2 |
Euro
micro-cap |
9,945 |
3.8% |
1 JZCP value calculated net of JZHL secondary
investors valuation.
2 Represents JZCP's 18.75% of Fund III's investment
portfolio.
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. 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.
Sharon
Parr2
Mrs Parr was appointed to the Board of JZCP in June 2018. She has over 35 years in the finance
industry and spent a significant portion of her professional career
with Deloitte and Touche in a number of different countries. After
a number of years in the audit department, on relocating to
Guernsey in 1999 she transferred
into their fiduciary and fund management business and, after
completing a management buyout and subsequently selling to Barclays
Wealth in 2007, she ultimately retired from her role there as
Global Head of Wealth Structuring in 2011. Ms Parr holds a number
of Non-Executive Directorships across the financial services sector
including in other listed funds. Ms Parr 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
2023.
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 and is subject to the
Companies (Guernsey) Law, 2008.
The Company's Capital consists of Ordinary shares which are traded
on the London Stock Exchange's Specialist Fund Segment.
The Company's second lien loan notes (the "Subordinated Notes"),
ZDP shares and Convertible Unsecured Loan Stock ("CULS") were
redeemed on 15 February 2023,
3 October 2022 and 30 July 2021 respectively. The Company's debt now
consists of a Senior Credit Facility.
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
2023 was $2,646,000 (year
ended 28 February 2022: $3,113,000). The net asset value ("NAV") of the
Company at the year end was $314,498,000 (28 February
2022: $311,852,000) equal to
$4.06 (28
February 2022: $4.03) per
Ordinary share.
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.
Restatement to Correct Historical
Error in Classification and Associated Measurement of Asset
An investment in a direct loan to a European micro-cap company
has been revalued to reflect the contractual terms of the loan in
place as at 1 March 2021 and
28 February 2022. The investment has
been reclassified from a Loan at Amortised Cost to an Investment at
Fair Value Through Profit or Loss. Further details and the balances
changed by the restatement are detailed in Note 2 to the Financial
Statements.
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 Credit
Facility. 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.
Financing in the Real Estate Portfolio
The cost of servicing debt in the underlying real estate
structures may impact the net valuation of the real estate
portfolio and subsequently the Company's NAV. Gearing in the
underlying real estate structures will increase any losses arising
from a downturn in property valuations. The Board assess the risk
that debt facilities may be withdrawn due to default or reasons
beyond the Company's control.
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.
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 21% (28 February
2022: 24%) of the Company's investments are denominated in
non-US dollar currencies, primarily the euro and also 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 the Company's portfolio has performed robustly throughout
the pandemic, the Board acknowledge world economies face lasting
challenges as they continue to emerge from the pandemic and learn
to live with the virus.
(ii) War in Ukraine and
resulting energy crisis
The Board strongly condemns the actions of the Russian
government and the devastating events that have unfolded since
Russia’s unprovoked invasion of Ukraine.
JZCP's investments are predominantly focused in the U.S. and
Western Europe, and 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. The Board is not aware that the Company has any
Russian investors.
(iii) Climate Change
JZCP does not have a sustainability-driven investment strategy,
nor is its intention to do so, but the Board believes that
considering the principle of being environmentally responsible is
important in realising the maximum value of the Company's
investments.
JZCP only invests where it has existing obligations or to
continue selectively to support the existing portfolio. JZAI where
possible plans to use its influence as an investor to ensure
investee businesses and funds have a cautious and responsible
approach to environmental management of their business operations.
JZCP invests across a wide range of businesses but has limited
exposure to those that create high levels of emissions.
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 Adviser on portfolio companies and properties
will include potential risk factors pertaining to climate change
and how/if these risks are to be mitigated. The Board receive a
report from the Investment Adviser categorising the Company's
investments according to their level of exposure to climate-related
risks. These climate-related risks can be categorised as either
physical (impact of extreme weather, rising sea levels) or
transitional (impact of the transition to a lower-carbon
economy).
The Board also has regard to the impact of the Company’s own
operations on the environment and other stakeholders. There are
expectations that portfolio companies operate in a manner that
contributes to sustainability by considering the social,
environmental, and economic impacts of doing business. The Board
requests the Investment Adviser report on any circumstances where
expected standards are not met.
The Board has assessed the impact of climate change and has
judged that the Company's immediate exposure to the associated
risks are low and therefore there is no material impact on the fair
value of investments and the financial performance reported in
these Financial Statements.
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.
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 Company's exposure to
liquidity risk has decreased during the year as debt obligations
were repaid on their maturity date; 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.
· In May
2023, the World Health Organization declared that COVID-19
no longer represented a "global health emergency".
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 Annual Report, which
contemplates continuity of operations and the realisation of assets
and settlement of liabilities occurring in the ordinary course of
business.
In reaching its conclusion, the Board has considered the risks
that could impact the Company’s liquidity over the period from
7 June 2023 to 30 June 2024 (the "Going Concern period").
Recent events impacting liquidity:
· realisation proceeds during the
financial year in excess of $184
million;
· the redemption and cancellation
of the Company's ZDP shares; and
· the early redemption of the
Company's Subordinated Notes.
The Company’s outstanding debt is now limited to its
$45 million Senior Credit Facility
due 26 January 2027, which may be
repaid early without penalty at any time. In addition, the Senior
Credit Facility provides for up to an additional
$25 million in first lien delayed
draw term loan, none of which has been drawn.
The below table shows the Company's net liquidity position at
the year end and the previous three year ends:
|
28.2.2023 |
28.2.2022 |
28.2.2021 |
29.2.2020 |
|
$'000 |
$'000 |
$'000 |
$'000 |
Senior
Credit Facility1 |
(45,000) |
(45,000) |
(68,694) |
(150,362) |
ZDP
Shares |
- |
(77,281) |
(80,527) |
(73,569) |
Subordinated Notes |
- |
(32,293) |
- |
- |
CULS |
- |
- |
(54,332) |
(49,637) |
Total debt |
|
(45,000) |
(154,574) |
(203,553) |
(273,568) |
Cash and Treasury
Bills |
|
101,659 |
47,050 |
63,178 |
56,298 |
Net liquidity
position |
|
56,659 |
(107,524) |
(140,375) |
(217,270) |
1Principal amount of $45
million, due on 26 January
2027, excludes any accrued interest due on maturity.
The below table details the proceeds from the Company's
realisations during the last three fiscal years:
Year End 28.2.2023
$ million |
Year End 28.2.2022
$ million |
Year End 28.2.2021
$ million |
JZHL Secondary
Fund |
U.S. |
97.4 |
Salter Labs |
U.S. |
41.1 |
Secondary Sale |
U.S. |
87.7 |
Deflecto |
U.S. |
54.3 |
George Industries |
U.S. |
9.5 |
Real estate |
|
13.6 |
ISS |
U.S. |
22.5 |
Orangewood Fund |
U.S. |
6.2 |
ABTA |
U.S. |
9.4 |
New Vitality |
U.S. |
7.4 |
Igloo |
U.S. |
3.8 |
Eliantus |
Euro |
9.4 |
Other |
|
2.5 |
Vitalyst |
U.S. |
1.9 |
K2 Towers II |
Euro |
9.2 |
|
|
|
EMC 2010 |
Euro |
2.2 |
Other |
U.S. |
9.0 |
|
|
|
Fund III |
Euro |
1.1 |
Cerpi |
Other |
1.2 |
|
|
184.1 |
|
|
65.8 |
|
|
139.5 |
The Board takes account of the levels of realisation proceeds
historically generated by the Company’s micro-cap portfolios as
well as the accuracy of previous forecasts to assess the predicted
accuracy of forecasts presented. The Company continues to work on
the realisation of various investments within a timeframe that will
enable the Company to maximise the value of its investment
portfolio.
The Board is encouraged by the Company's ability to deliver
realisations and the subsequent improved liquidity position, having
net liquidity of approximately $56
million at the year end.
The Board has analysed the projected cash outflows over the
going concern period and concluded they will be paid from the
Company's cash reserves (including maturing treasury bills).
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 from
7 June 2023 to 30 June 2024.
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 and 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. It 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
2026.
The Board has continued to use the period of three years that
has been used historically to assess viability. 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.
The three year period is also considered 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 Balance Sheet
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.
During the prior year, the Company successfully restructured its
senior debt facility. The terms of the new facility included an
extended maturity date to 2027 and allowed for the repayment of the
Company's ZDP Shares and Subordinated Notes assuming the required
asset ratio together with other covenants were maintained.
During the year to 28 February
2023, the Company made the following significant debt
repayments:
Zero Dividend Preference (2022) Shares
On their maturity date of 3 October
2022, the Company redeemed and cancelled its ZDP shares. The
ZDP shares had a redemption value of £57,597,000 ($64,296,000 using the exchange rate on the
redemption date).
Subordinated Notes
On 14 February 2023, the Company
undertook an early voluntary redemption in full of its $31.5 million Subordinated Notes.
As highlighted in the Company’s going concern assessment the
Company has greatly improved liquidity and is in a position to meet
its financial obligations in both the near and medium term as it
looks to maximise and realise the value of remaining
investments.
(ii) Financing obligations
Senior Credit Facility
The new senior credit facility has a maturity date of
27 January 2027, the principal
balance outstanding at 28 February
2023 was $45.0 million. It is
expected the extended credit facility will be repaid from the cash
held or future proceeds from realisations and/or refinancing of
investments.
Commitments
At 28 February 2023, JZCP had
financial commitments of $7.1 million
(28 February 2022: $16.2 million) outstanding in relation to fund
investments.
(iii) Investment performance and portfolio liquidity
The Board reviews, on a quarterly basis, the valuation and
prospects of all underlying investee companies. The Board is
generally satisfied with the performance of the micro-cap
portfolios and believe the historic realisation of investments at
or above NAV provide support to the level of the current valuations
and the Company will continue to explore suitable realisation
opportunities. JZCP's micro-cap portfolio has averaged annual
realisations of approximately $130
million over the five years ending 28
February 2023.
(iv) Loan covenants
A covenant on the senior debt facility states the fair value of
collateral must be no less than 4x the loan value (which equates to
approximately $180 million at the
year end) and the Company is also required to hold a minimum cash
balance of $12.5 million. At
28 February 2023, investments and
cash valued at $352.0 million were
held as collateral on the senior debt facility. The collateral
value used in the asset coverage ratio of $252.1 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.
(v) 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 ending 28 February 2026, being the period of the
assessment. The Board considers the going concern assumptions and
conclusion set out above to be relevant.
Ongoing Charges
Ongoing charges for the years ended 28
February 2023 and 28 February
2022 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. Ongoing charges are based on costs
incurred in the year as being the best estimate of future costs but
are amended if this method is not considered an accurate prediction
of future expenses. The Ongoing charges for the year ended
28 February 2023 were 2.56%
(28 February 2022: 3.31%).
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 on
Director’s Report.
David Macfarlane
(Chairman)
James
Jordan
Sharon
Parr
Ashley
Paxton
Dividends
No dividends were paid or proposed for the years ended
28 February 2023 and 28 February
2022.
Annual General
Meeting
The Company's Annual General Meeting is due to be held on 11
July
2023.
Substantial
Shareholders
As at 7 June 2023, 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 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% |
Arnhold, LLC |
|
|
|
|
|
|
4,573,007 |
|
5.9% |
Almitas Capital
LLC |
|
|
|
|
|
|
4,504,586 |
|
5.8% |
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 2022 |
|
Purchased in year |
|
Sold
in year |
|
Number of
Ordinary shares at 28 February 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Macfarlane |
|
|
71,550 |
|
- |
|
- |
|
71,550 |
James
Jordan |
|
|
39,124 |
|
- |
|
- |
|
39,124 |
Sharon
Parr |
|
|
10,000 |
|
- |
|
- |
|
10,000 |
Ashley
Paxton |
|
|
12,250 |
|
- |
|
- |
|
12,250 |
|
|
|
|
132,924 |
|
- |
|
- |
|
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 2022 |
|
Purchased in year |
|
Redeemed
in year |
|
Number of
ZDP shares at
28 February 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Macfarlane |
|
|
- |
|
- |
|
- |
|
- |
James
Jordan |
|
|
- |
|
- |
|
- |
|
- |
Sharon
Parr |
|
|
- |
|
- |
|
- |
|
- |
Ashley
Paxton |
|
|
4,250 |
|
- |
|
(4,250) |
|
- |
|
|
|
|
4,250 |
|
- |
|
(4,250) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There have been no changes in the Directors' interests of
Ordinary shares between 28 February
2023 and the date of this report.
Details of the ZDP shares and the Ordinary shares can be found
in Notes 16 and 20.
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. The Board encourages shareholders to attend the Annual
General Meeting where Directors will be present and available to
engage with shareholders.
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. A monthly factsheet is also posted on the Company's
website.
Engaging with Service Providers
The Board is 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 7 June 2023.
David
Macfarlane
Sharon
Parr
Chairman
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. Up to 29 February 2020,
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 Board of
Directors section and their interests in the shares of JZCP are
shown in the Report of the Directors. The Directors' biographies
highlight their wide range of relevant financial and sector
experience.
Directors' Independence
The Board 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
investment policy introduced in 2020. 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 on Corporate Governance
section.
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 a
number of Committees (see below), 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 considers 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 31 May 2024 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 2026.
The activities and responsibilities of the Audit Committee are
further described on 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
The Disclosure Committee is constituted of two Directors and two
representatives of the Investment Adviser. Its purpose is to
monitor and review the Company’s obligation to inform the market in
respect of matters and events, to ensure compliance with the Market
Abuse Regulations.
Disclosure Committee
The Disclosure Committee is constituted of two Directors and two
representatives of the Investment Adviser to monitor and review the
Company’s obligation to inform the market in respect of matters and
events, to ensure compliance with the Market Abuse Regulations.
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
Main |
AGM |
AdHoc
Meetings |
Audit
Committee |
Disclosure Committee |
Engagement Committee |
Total number of
meetings |
4 |
1 |
5 |
5 |
2 |
1 |
David Macfarlane |
4 |
1 |
5 |
5 |
2 |
1 |
James Jordan |
3 |
1 |
4 |
3 |
N/A |
1 |
Sharon Parr |
4 |
1 |
5 |
5 |
2 |
1 |
Ashley Paxton |
4 |
1 |
5 |
5 |
N/A |
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.
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 FRC’s
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.
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.
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 $650,000. Each Director
is also entitled to reimbursement of their reasonable expenses.
There are no commission or profit sharing arrangements between the
Company and the Directors. Similarly, none of the Directors is
entitled to pension, retirement or similar benefits. No element of
the Directors' remuneration is performance
related.
The remuneration policy set out above is the one applied for the
year ended 28 February 2023 and is
not expected to change in the foreseeable
future.
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of the Directors.
Remuneration
for Services to the Company
as Non-Executive Directors |
Year Ended |
Year Ended |
|
28 February 2023
US$ |
28 February 2022
US$ |
David Macfarlane
(Chairman) |
120,000 |
120,000 |
James Jordan |
50,000 |
50,000 |
Sharon Parr |
70,000 |
70,000 |
Ashley Paxton |
50,000 |
50,000 |
|
290,000 |
290,000 |
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.
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 7 June 2023 by:
David
Macfarlane
Sharon
Parr
Chairman
Director
Audit Committee Report
Dear Shareholder,
Below, 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
2023. 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 2024. 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.
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 2026. 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 Director.
The Committee has concluded it has 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. The
committee consider the going concern assumptions 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.
•
Valuation of Unquoted Investment Fair Values including the impact
on management fees
The fair value of the Company’s unquoted securities at
28 February 2023, which are valued
using techniques detailed in Note 5 of the financial statements,
was $252,921,000 accounting for 72.8%
of the Company's investment portfolio. The Committee has
concentrated on ensuring the Investment Adviser 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. The Audit Committee
is satisfied that there is a robust procedure around the production
and authorisation of the Company's NAV calculations and therefore
management 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".
•
Restatement to Correct Historical Error in Classification and
Associated Measurement of Asset
The Audit Committee has considered the impact of Toro Finance
being reclassified from amortised cost to fair value through profit
and loss and revalued at 1 March 2021
and 28 February 2022 and is satisfied
that the disclosures given in Note 2 to the financial statements
are appropriate.
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 of any 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, which is still ongoing, 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.
Following the announcement, the Company undertook a subsequent
review and concluded the alleged fraudulent conduct did not impact
the Company's investments held through JZI Fund III.
In a press release dated 3 January
2023, the Company announced that it had come to the Board’s
attention that two separate claims alleging criminal complaints had
been filed on behalf of certain private entities in the Spanish
courts against a number of entities, including the Company, the
Company’s Investment Adviser and a number of their respective
related entities. Subsequently, the company has been able to
confirm that (i) the investigation was never formally opened
against the Company, which remained outside the perimeter of the
procedure by decision of the Judge since its very beginning, and
(ii) in any case, said procedure was provisionally closed by the
Judge in charge of the investigation upon not finding through the
initial evidence taken any indication of a crime.
The External
Auditor
Ernst & Young LLP have acted as external auditor since the
Company's inception in April 2008.
This is the fifth 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. PFIC services
which had previously been provided by affiliates of Ernst &
Young LLP up to the year ended 29 February
2020, are now provided by PricewaterhouseCoopers LLP.
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 2023 and
28 February 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
Equivalent |
|
|
|
$
Equivalent |
|
|
|
|
|
|
|
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
Year
ended |
|
|
|
|
|
|
|
|
28.2.2023 |
|
28.2.2023 |
|
28.2.2022 |
|
28.2.2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ernst
& Young LLP |
|
|
|
|
|
|
|
|
|
|
|
|
-
Annual audit |
|
|
|
|
£222,000 |
|
$268,000 |
|
£256,000 |
|
$343,000 |
|
-
Auditor's interim review |
|
|
|
£55,000 |
|
$68,000 |
|
£53,000 |
|
$71,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Audit Quality
Review
Post year end, the Financial Reporting Council (FRC)’s Audit
Quality Review (AQR) team concluded and reported to the Audit
Committee the results of their inspection and assessment of the
quality of the audit work performed by the Company’s Auditors on
the prior year’s financial statements ended 28 February
2022.
The Audit Committee has discussed the findings and the actions
to be taken with both the FRC and Ernst & Young LLP.
Further information and scope of the work performed by the FRC’S
AQR team can be found at Audit Quality Review | Financial
Reporting Council
(frc.org.uk)
Internal control and risk management
systems:
Additional work performed by the Audit Committee in the areas of
internal control and risk management are disclosed in the ‘Internal
Controls’ section under ‘Corporate Governance’.
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
7 June
2023
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 2023 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 33, including a summary of significant
accounting policies. The financial reporting framework that has
been applied in their preparation is applicable law and
International Financial Reporting Standards as adopted by the
European Union (“IFRS”).
In our opinion, the financial statements:
?
give a true and fair view of the state of the Company’s affairs as
at 28 February 2023 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 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.
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.
Going Concern
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;
-
In conjunction with our walkthrough of the Company’s financial
close process, we confirmed our understanding of management’s Going
Concern assessment process and also engaged with management early
to ensure all key factors were considered in their assessment;
-
We obtained management’s going concern assessment, including cash
flow forecasts and covenant calculation prepared by the Investment
Adviser, Jordan/Zalaznick Advisers, Inc (“JZAI”) for the going
concern period which covers a year from the date of the signing of
the audit opinion;
-
We have tested the factors and assumptions used to model the
cashflow forecast and covenant calculation and tested the
arithmetical accuracy of the models including reperforming the
covenant tests;
-
We obtained the agreements and enquired of management to understand
the Senior Credit 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
unfunded 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; 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.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Company's ability to continue as a going concern for a period to
30 June 2024.
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 $3.16m
(2022: $3.41m) 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
Kyiv and London offices, 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
Stakeholders are increasingly interested in how climate change
will impact the Company. The Company determined that the most
significant future impacts from climate change on its operations
will be from transition and physical risk. These are explained in
the required Task Force for Climate related Financial Disclosures
and on page 19 in the principal risks and uncertainties. They have
also explained their climate commitments on page 19. All of these
disclosures form part of the “Other information,” rather than the
audited financial statements. Our procedures on these unaudited
disclosures therefore consisted solely of considering whether they
are materially inconsistent with the financial statements, or our
knowledge obtained in the course of the audit or otherwise appear
to be materially misstated, in line with our responsibilities on
“Other information”.
In planning and performing our audit we assessed the potential
impacts of climate change on the Company’s business and any
consequential material impact on its financial statements.
Based on our work we have not identified the impact of climate
change on the financial statements to be a key audit matter or to
impact a key audit matter.
The Company has explained in Note 2 its articulation of how
climate change has been reflected in the financial statements and
how they have reflected the impact of climate change in their
financial statements. Significant judgements and estimates relating
to climate change are included in Note 3.
Our audit effort in considering the impact of climate change on
the financial statements was focused on evaluating management’s
assessment of the impact of climate risk, physical and transition,
their climate commitments, the effects of material climate risks
disclosed in Note 3 and the significant judgements and estimates
disclosed in Note 3 and whether these have been appropriately
reflected following the requirements of IFRS. As part of this
evaluation, we performed our own risk assessment to determine the
risks of material misstatement in the financial statements from
climate change which needed to be considered in our
audit.
We also challenged the Directors’ considerations of climate
change risks in their assessment of going concern and viability and
associated disclosures. Where considerations of climate change were
relevant to our assessment of going concern, these are described
above.
Based on our work we have not identified the impact of climate
change on the financial statements to be a key audit matter or to
impact a key audit matter.
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.
Risk |
Our response to the risk |
Key observations communicated to the Audit
Committee |
Misstatement of unquoted investment fair values, including the
impact on management fees (2023: $253 million; 2022 (Restated):
$412 million)
Refer to the Audit Committee Report; Accounting policies; and Note
5 of the financial statements
74% (2022: 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 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.
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.
|
Our audit
procedures consisted of:
Private Equities
Updating and confirming our understanding of the Company’s
processes and methodologies, including the use of industry specific
measures, and policies for valuing private equity investments held
by the Company;
Attending fair value discussions in relation to 28 February 2023
valuations. These included the Investment Adviser, EY core audit
team and EY valuation specialists;
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;
For a sample of significant private equity investments selected
based on their size/value and complexity, we engaged EY Kyiv and EY
London. It was considered appropriate for EY Kyiv to review both US
and European assets as the estimation process is common across both
geographies and EY London to review the debt investments.
We engaged the above as valuation specialist to:
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 US and European
private equity investments discount rates and EBITDA multiples
while in relation to debt investments the probability weighted
scenario approach) by reference to comparable transactions, and
independently compiled databases/indices;
assist us to determine whether the methodologies used to value
private equity investments assets were consistent with methods
usually used by market participants;
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.
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 and complexity;
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;
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;
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;
Identifying the significant unobservable inputs to valuations and
reviewing and assessing the reasonableness of the sensitivity
workings and disclosures, comparing the Investment Adviser’s
position with EY’s range of acceptable inputs;
Challenging management on the appropriateness of their chosen
comparable public companies used to compute multiples as well as
corroborating those multiples with independent data;
Reporting to the Audit Committee on the investment valuations
against EY’s ranges and commenting on any specific movements of
valuation marks in those ranges vs prior periods;
Real Estate Investments
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;
We engaged with EY New York and Miami to:
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 real estate assets
discount rates, rental per square foot, selling price per square
foot by reference to comparable transactions, and independently
compiled databases/indices;
assist us to determine whether the methodologies used to value real
estate assets were consistent with methods usually used by market
participants;
perform procedures to assess whether, in light of market data, the
fair values of certain recently acquired real estate assets
continue to approximate to their consideration paid; and
assist us in determining whether the Company’s specialist, for the
real estate assets, was appropriately qualified and
independent;
Agreeing the valuation per the financial statements back to the
models per the independent appraisal reports, prepared by the
Company’s specialist;
For all unquoted investments, we re-perform the management fee
calculations for arithmetical accuracy and consistency with the
terms of the investment advisory agreement. |
We have no matters to
report to the Audit Committee in this regard. |
Impairment of direct loans measured at amortised cost (2023:
$3.7 million; 2022 (Restated) $3.9 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. |
Our audit
procedures consisted of:
Obtaining copies of the signed loan agreements including any
changes to the terms and conditions of the loans;
Re-performing the amortised cost calculations for mathematical
accuracy and consistency with the terms of the loan agreements;
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;
Inquiring and challenging management’s valuations of the
investments held by the holding companies, which are the
counterparties to the direct loans;
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;
Assessing the reasonableness of the effective interest rate
calculations used to recognise lifetime expected losses, with
interest revenue based on the net amount;
Assessing the impact the potential material uncertainties in
respect of going concern might have on the valuation of the
expected credit loss; and
Reviewing to ensure that the presentation and disclosure
requirements of IFRS 9 are adequate in the financial
statements. |
From our
audit procedures, we noted one direct loan was incorrectly
classified at amortised cost. This has been reclassified to fair
value through profit or loss and correctly presented in the
restated financial statements by management. We believe the
disclosure in Note 2 of the financial statements appropriately
describes the error.
We have no other matters to report to the Audit Committee in this
regard. |
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 $3.16 million (2022: $3.41
million), which is 1% (2022: 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% (2022: 50%) of
our planning materiality, namely $1.58m (2022:$1.70m). 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 $0.15m (2022: $0.17m), which is set at 5% of planning
materiality, as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our
opinion.
Other information
The other information comprises the information included in the
Annual Report other than the financial statements and our auditor’s
report thereon. The directors are responsible for the other
information 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.
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;
?Directors’ explanation as to its assessment of the Company’s
prospects, the period this assessment covers and why the period is
appropriate;
?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;
and
?The section describing the work of the audit committee.
Responsibilities of Directors
As explained more fully in the directors’ responsibilities
statement set out on page 24, 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, as amended, 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 ending 28 February 2009 and
subsequent financial periods. We signed an engagement letter on
27 April 2008..
?The period of total uninterrupted engagement including previous
renewals and reappointments is 15 years, covering the years ended
28 February 2009 to 28 February 2023.
?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
7 June 2023
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 Auditor’s Report To The
Directors of JZ Capital Partners For Audit Conducted In Accordance
With Auditing Standards Generally Accepted In The United States1
Opinion
We have audited the financial statements of JZ Capital Partners
Limited (the “Company”), which comprise the Statements of Financial
Position as of February 28, 2023 and
2022, and the related Statements of Comprehensive Income, Changes
in Equity and 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 February 28, 2023 and
2022, and the results of its operations 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 audits. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our audit opinion.
Restatement of 2022 and 2021 Financial
Statements
As discussed in Note 2 to the financial statements, the
financial statements as of February 28,
2022 and March 1, 2021 and for
the year ended February 28, 2022 have
been restated to correct misstatements in an investment which has
been reclassified to fair value through profit or loss from
amortised cost and subsequently remeasured. Our opinion is not
modified with respect to this matter.
Management’s Responsibility 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 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 management
either intends to liquidate the Company or to cease operations, or
has 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 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 skepticism
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
Management is 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
7 June 2023
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 2023
|
|
Year Ended |
|
|
Year Ended |
|
|
28 February 2023 |
|
28 February 2022 (Restated) |
|
|
|
US$'000 |
|
|
US$'000 |
|
|
Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income and
investment and other gains |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
2,8 |
|
12,542 |
|
|
15,333 |
|
|
|
|
|
|
|
|
|
Bank and deposit
interest |
|
|
275 |
|
|
174 |
|
|
|
|
|
|
|
|
|
Realisations from
investments held in escrow accounts |
29 |
|
1,189 |
|
|
597 |
|
|
|
|
|
|
|
|
|
Net foreign currency
exchange gains |
2,9 |
|
9,845 |
|
|
2,075 |
|
|
|
|
|
|
|
|
|
Net gain on
investments at fair value through profit or loss |
2,6 |
|
- |
|
|
15,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,851 |
|
|
34,151 |
|
|
|
|
|
|
|
|
|
Expenses and
losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on
investments at fair value through profit or loss |
6 |
|
(2,045) |
|
|
- |
|
|
|
|
|
|
|
|
|
Expected credit
losses |
2,7 |
|
(462) |
|
|
(3,840) |
|
|
|
|
|
|
|
|
|
Investment Adviser's
base fee |
11 |
|
(7,033) |
|
|
(7,414) |
|
|
|
|
|
|
|
|
|
Administrative
expenses |
11 |
|
(2,583) |
|
|
(3,457) |
|
|
|
|
|
|
|
|
|
Directors'
remuneration |
11 |
|
(290) |
|
|
(290) |
|
|
|
|
|
|
|
|
|
Loss on financial
liabilities at fair value through profit or loss |
18 |
|
- |
|
|
(1,869) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,413) |
|
|
(16,870) |
|
|
|
|
|
|
|
|
|
Operating
profit |
|
|
11,438 |
|
|
17,281 |
|
|
|
|
|
|
|
|
|
Other income |
12 |
|
398 |
|
|
- |
|
Finance costs |
10 |
|
(9,030) |
|
|
(13,094) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before
taxation |
|
|
2,806 |
|
|
4,187 |
|
|
|
|
|
|
|
|
|
Withholding taxes |
12 |
|
(160) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the
year |
|
|
2,646 |
|
|
4,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss that will not be reclassified to the Income
Statement |
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss that will not be reclassified to the Income
Statement |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on financial
liabilities due to change in credit risk |
18 |
|
- |
|
|
(1,074) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive
profit for the year |
|
|
2,646 |
|
|
3,113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of Ordinary shares in issue during the year |
26 |
77,477,214 |
|
77,475,932 |
|
|
|
|
|
|
|
|
|
Basic and diluted
(loss)/earnings per Ordinary share |
26 |
|
3.42c |
|
|
5.40c |
|
All of the profits and losses presented in this statement are
from continuing operations. The accompanying notes form an integral
part of these Financial Statements.
The accompanying notes form an integral part of these Financial
Statements.
Prior year balances have been restated to present an investment
which has been reclassified to fair value through profit or loss
from amortised cost as at 28 February
2022 and 1 March 2021, leading
to the loan being remeasured on these dates (see Note 2 to the
Financial Statements).
Statement of Financial Position
As at 28
February 2023
|
|
|
28
February
2023 |
|
|
28
February
2022 |
|
1
March
2021 |
|
|
|
|
|
|
(Restated) |
|
(Restated) |
|
Notes |
US$'000 |
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Investments at fair
value through profit or loss |
2,13 |
343,521 |
|
|
415,836 |
|
439,050 |
|
|
|
|
|
|
|
|
|
Loans at amortised
cost |
2,13 |
3,695 |
|
|
3,913 |
|
7,142 |
|
|
|
|
|
|
|
|
|
Other receivables |
14 |
|
168 |
|
|
70 |
|
22 |
|
|
|
|
|
|
|
|
|
Cash at bank |
|
|
11,059 |
|
|
43,656 |
|
59,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets |
|
|
358,443 |
|
|
463,475 |
|
505,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Senior Credit
Facility |
15 |
|
43,181 |
|
|
42,573 |
|
68,694 |
|
|
|
|
|
|
|
|
|
Zero Dividend
Preference (2022) Shares |
16 |
|
- |
|
|
75,038 |
|
74,303 |
|
|
|
|
|
|
|
|
|
Subordinated
Notes |
17 |
|
- |
|
|
32,293 |
|
- |
|
|
|
|
|
|
|
|
|
Investment Adviser's
base fee |
11 |
|
- |
|
|
276 |
|
573 |
|
|
|
|
|
|
|
|
|
Other payables |
19 |
|
764 |
|
|
1,443 |
|
1,284 |
|
|
|
|
|
|
|
|
|
Converted Unsecured
Loan Stock |
|
|
- |
|
|
- |
|
52,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities |
|
|
43,945 |
|
|
151,623 |
|
197,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
Share capital |
20 |
|
216,650 |
|
|
216,650 |
|
216,625 |
|
|
|
|
|
|
|
|
|
Other reserve |
22 |
|
353,528 |
|
|
353,528 |
|
354,602 |
|
|
|
|
|
|
|
|
|
Retained deficit |
2,22 |
|
(255,680) |
|
|
(258,326) |
|
(262,513) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Equity |
|
|
314,498 |
|
|
311,852 |
|
308,714 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
and Equity |
|
|
358,443 |
|
|
463,475 |
|
505,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Ordinary
shares in issue at year end |
20 |
|
77,477,214 |
|
|
77,477,214 |
|
77,477,214 |
|
|
|
|
|
|
|
|
|
Basic and Diluted
NAV per Ordinary share |
2,28 |
$4.06 |
|
|
$4.03 |
|
$3.98 |
These Audited Financial Statements were approved by the Board of
Directors and authorised for issuance on 7
June 2023. They were signed on its behalf by:
David Macfarlane
Sharon Parr
Chairman
Director
The accompanying notes form an integral part of these Financial
Statements.
Prior year balances have been restated to present an investment
which has been reclassified to fair value through profit or loss
from amortised cost as at 28 February
2022 and 1 March 2021, leading
to the loan being remeasured on these dates (see Note 2 to the
Financial Statements).
Statement of Changes in Equity
For the Year Ended 28 February 2023
|
|
|
|
Share |
|
Other |
|
|
|
|
|
|
Capital |
|
Reserve |
|
Retained Deficit |
|
Total |
|
|
Notes |
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1
March 2022 |
|
|
|
216,650 |
|
353,528 |
|
(258,326) |
|
311,852 |
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
|
|
- |
|
- |
|
2,646 |
|
2,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 28
February 2023 |
|
|
|
216,650 |
|
353,528 |
|
(255,680) |
|
314,498 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
comparative for the Year ended 28 February 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share |
|
Other |
|
Retained |
|
|
|
|
|
|
Capital |
|
Reserve |
|
Deficit |
|
Total |
|
|
|
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1
March 2021 |
|
|
|
216,625 |
|
354,602 |
|
(241,668) |
|
329,559 |
|
|
|
|
|
|
|
|
|
|
|
Restatement to Correct
Historical Error |
|
2 |
|
- |
|
- |
|
(20,845) |
|
(20,845) |
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
(restated) |
|
2 |
|
- |
|
- |
|
4,187 |
|
4,187 |
|
|
|
|
|
|
|
|
|
|
|
Loss on
financial liabilities due to change in credit risk |
18 |
|
- |
|
(1,074) |
|
- |
|
(1,074) |
|
|
|
|
|
|
|
|
|
|
|
Issue of Ordinary
shares |
|
20 |
|
25 |
|
- |
|
- |
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 28
February 2022 (Restated) |
|
|
|
216,650 |
|
353,528 |
|
(258,326) |
|
311,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes form an integral part of these Financial
Statements.
Prior year balances have been restated to present an investment
which has been reclassified to fair value through profit or loss
from amortised cost as at 28 February
2022 and 1 March 2021, leading
to the loan being remeasured on these dates (see Note 2 to the
Financial Statements).
Statement of Cash Flows
For the Year Ended 28 February 2023
|
|
|
|
28
February |
|
28
February |
|
|
|
|
2023 |
|
2022 |
|
|
|
|
|
|
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
Cash
flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Cash
inflows |
|
|
|
|
|
Realisation of investments |
|
|
182,540 |
|
65,799 |
Maturity
of treasuries |
|
|
123,357 |
|
3,395 |
Escrow
receipts received |
|
|
1,189 |
|
597 |
Income
distributions received from investments |
|
|
372 |
|
520 |
Bank
Interest received |
|
|
275 |
|
174 |
|
|
|
|
|
|
|
Cash
outflows |
|
|
|
|
|
Direct
investments and capital calls |
|
|
(10,870) |
|
(13,008) |
Purchase
of treasuries |
|
|
(213,164) |
|
(3,395) |
Investment
Adviser's base fee paid |
|
|
(7,374) |
|
(7,711) |
Other
operating expenses paid |
|
|
(3,187) |
|
(3,637) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
inflow from operating activities |
|
|
73,138 |
|
42,734 |
|
|
|
|
|
|
|
Cash
flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Repayment
of ZDP shares |
|
|
(64,296) |
|
- |
(Repayment)/Advance of Subordinated Notes |
|
|
(31,500) |
|
31,500 |
Advance of
Senior Credit Facility |
|
|
- |
|
16,000 |
Repayment
of Senior Credit Facility |
|
|
- |
|
(40,585) |
Repayment
of Convertible Unsecured Loan Stock |
|
|
- |
|
(54,401) |
Finance
costs paid: |
|
|
|
|
|
• Senior
Credit Facility |
|
|
(4,555) |
|
(8,379) |
•
Subordinated Notes |
|
|
(2,593) |
|
(315) |
•
Convertible Unsecured Loan Stock |
|
|
- |
|
(2,677) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash
outflow from financing activities |
|
|
(102,944) |
|
(58,857) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
in cash and cash equivalents |
|
|
(29,806) |
|
(16,123) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Cash Flow to Movements in Cash and Cash
Equivalents |
|
|
Cash at
bank at beginning of year |
|
|
43,656 |
|
59,784 |
Decrease
in cash and cash equivalents as above |
|
|
(29,806) |
|
(16,123) |
Foreign
exchange movements on cash at bank |
|
|
(2,791) |
|
(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at
bank at year end |
|
|
11,059 |
|
43,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There is no impact on the prior year cash flow balances due to
the restatement as detailed in Note 2 to the Financial
Statements.
The accompanying notes form an integral part of these 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. As at
28 February 2023, the Company's
capital consisted of Ordinary shares. In October 2022, the Company redeemed and cancelled
its Zero Dividend Preference ("ZDP") shares. The Company's shares
trade on the London Stock Exchange's Specialist Fund Segment
("SFS").
The Company's debt structure consists of a Senior Credit
Facility. In February 2023, the
Company redeemed its subordinated, second lien loan notes (the
"Subordinated 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:
small or micro-cap buyouts in the form of debt and equity and
preferred stock in both the US and Europe; and
US real estate.
The Company has no direct employees. For its services, the
Investment Adviser receives a management fee as described in Note
11. 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
Basis of preparation
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.
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 2022, that had
significant effect on the Company's Financial Statements. The new
standards or amendments to existing standards and interpretations,
effective from 1 March 2022, 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 has 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.
Climate Change
The Board has assessed the impact of climate change on the
financial performance of the Company reported within these
Financial Statements.
Restatement to Correct Historical Error in Classification
and Associated Measurement of
Asset
An investment in a direct loan to a European micro-cap company
has been reclassified to fair value through profit or loss from
amortised cost as at 28 February 2022
and 1 March 2021 to reflect its
contractual terms, leading to the loan being remeasured on these
dates. The reclassification is required as the contractual terms of
the loan do not give rise, on specified dates, to cash flows that
are solely payments of principal and interest on the principal
amount of the loan outstanding and are therefore not consistent
with an amortised cost classification. The affected financial
statement line items for the prior periods have been restated, as
follows:
Impact on the statement of financial
position
|
28.2.20221 |
Reclass-
ification2 |
Remeasure-
ment2 |
28.2.2022
(restated) |
1.3.20211 |
Reclass-
ification |
Remeasure-
ment |
1.3.2021
(restated) |
Assets |
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
Investments at
FVTPL |
411,568 |
24,680 |
(20,412) |
415,836 |
433,224 |
26,671 |
(20,845) |
439,050 |
Loans at amortised
cost |
28,593 |
(24,680) |
- |
3,913 |
33,813 |
(26,671) |
- |
7,142 |
1The value of the assets as recorded in the prior
year financial statements before restatement.
2Assumes the reclassification and remeasurement
occurred on 28 February 2022 rather
than 1 March 2021.
NAV per share as at 28.2.2022 of
$4.29 per share has been restated to
$4.03 (28.2.2021: $4.25 per share restated to $3.98)
Impact
on statement of comprehensive income |
|
|
28.2.2022 |
|
US$
'000 |
Investment income |
(1,437) |
Net foreign currency
exchange gains |
1,991 |
Net gain on
investments at fair value through profit or loss |
(1,558) |
Expected credit
losses |
1,437 |
Net impact on profit
for the year |
433 |
Impact on basic and diluted earnings
per share ("EPS") (Increase/(decrease) in EPS)
Basic and diluted earnings per Ordinary share (cents per
share)
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;
· 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 meets the criteria of
an investment entity and does not account for its investments in
associates using the equity method but measures its investments in
associates at FVTPL; and
· 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 and cash equivalents
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
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. As at 28 February
2023, the Company had no financial liabilities designated as
FVTPL.
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 the Senior Credit Facility and other
short-term payables. Zero Dividend Preference (“ZDP”) shares and
Subordinated Notes which were repaid during the year were also
included in this category.
a) Senior Credit Facility
The loan is recorded at amortised cost using the effective
interest rate method.
b) 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.
c) Zero Dividend Preference (“ZDP”) Shares
ZDP shares met the definition of a financial liability in
accordance with IAS 32 - "Financial Instruments: Presentation", as
the shares were redeemable at a fixed date and holders were
entitled to a fixed return. ZDP shares were recorded at amortised
cost using the effective interest rate method.
d) Subordinated Notes
Subordinated Notes were recorded at amortised cost using the
effective interest rate method.
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 is 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.
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 credit facility and Subordinated 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 has
historically and will continue to record 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. However, following the
partial sale of the Company's interest in Industrial Services
Solutions (ISS), the Board determined due to the high likelihood
that a portion of the total escrow would be released imminently, it
would be included within the year end valuation of Industrial
Service Solutions WC, L.P. rather than as an contingent asset (see
Note 29).
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 FVTPL 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.
Having considered the Company's investor profile, investment
policy and methodology of valuing investments, management have
judged the Company meets the criteria 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 Board has also concluded that the Company meets the
additional characteristics of an investment entity stated under
IFRS 10, in that it has more than one investment, the investments
are predominantly in the form of equities and similar securities,
it has more than one investor and it has investors that are not
related parties of the Company.
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.P. (JZCP holds indirectly a 18.75% partnership
interest in JZI Fund III, L.P. through its interest in JZI Fund III
GP, L.P.), 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.
As the Company is an investment company, it measures its
investments in associates at fair value.
Climate Change
The Board has assessed the impact of climate change and has
judged that the Company's immediate exposure to the associated
risks are low and therefore there is no material impact on the fair
value of investments and the financial performance reported in
these Financial Statements.
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 Annual Report, which
contemplates continuity of operations and the realisation of assets
and settlement of liabilities occurring in the ordinary course of
business.
In reaching its conclusion, the Board has considered the risks
that could impact the Company’s liquidity over the period from
7 June 2023 to 30 June 2024 (the "Going Concern Period").
Recent events impacting liquidity
· realisation proceeds during the
financial year in excess of $180
million;
· the redemption and cancellation
of the Company's ZDP shares; and
· the early redemption of the
Company's Subordinated Notes.
The Company’s outstanding debt is now limited to its
$45 million Senior Credit Facility
due 26 January 2027, which may be
repaid early without penalty at any time. In addition, the Senior
Credit Facility provides for up to an additional $25 million in first lien delayed draw term loan,
none of which has been drawn.
The below table shows the Company's net liquidity position at
the year end and the previous three year ends:
|
28.2.2023 |
28.2.2022 |
28.2.2021 |
29.2.2020 |
|
$'000 |
$'000 |
$'000 |
$'000 |
Senior
Credit Facility1 |
(45,000) |
(45,000) |
(68,694) |
(150,362) |
ZDP
Shares |
- |
(77,281) |
(80,527) |
(73,569) |
Subordinated Notes |
- |
(32,293) |
- |
- |
CULS |
- |
- |
(54,332) |
(49,637) |
Total debt |
|
(45,000) |
(154,574) |
(203,553) |
(273,568) |
Cash and Treasury
Bills |
|
101,659 |
47,050 |
63,178 |
56,298 |
Net liquidity
position |
|
56,659 |
(107,524) |
(140,375) |
(217,270) |
The below table details the proceeds from the Company's
realisations during the last three fiscal years.
Year End 28.2.2023
$ million |
Year End 28.2.2022
$ million |
Year End 28.2.2021
$ million |
JZHL Secondary
Fund |
U.S. |
97.4 |
Salter Labs |
U.S. |
41.1 |
Secondary Sale |
U.S. |
87.7 |
Deflecto |
U.S. |
54.3 |
George Industries |
U.S. |
9.5 |
Real estate |
|
13.6 |
ISS |
U.S. |
22.5 |
Orangewood Fund |
U.S. |
6.2 |
ABTA |
U.S. |
9.4 |
New Vitality |
U.S. |
7.4 |
Igloo |
U.S. |
3.8 |
Eliantus |
Euro |
9.4 |
Other |
|
2.5 |
Vitalyst |
U.S. |
1.9 |
K2 Towers II |
Euro |
9.2 |
|
|
|
EMC 2010 |
Euro |
2.2 |
Other |
U.S. |
9.0 |
|
|
|
Fund III |
Euro |
1.1 |
Cerpi |
Other |
1.2 |
|
|
184.1 |
|
|
65.8 |
|
|
139.5 |
The Board takes account of the levels of realisation proceeds
historically generated by the Company’s micro-cap portfolios as
well as the accuracy of previous forecasts to assess the predicted
accuracy of forecasts presented. The Company continues to work on
the realisation of various investments within a timeframe that will
enable the Company to maximise the value of its investment
portfolio.
The Board is encouraged by the Company's ability to deliver
realisations and the subsequent improved liquidity position, having
net liquidity of approximately $56
million at the year end.
The Board has analysed the projected cash outflows over the
going concern period and concluded they will be paid from the
Company's cash reserves (including treasury bills).
Going Concern
Conclusion
After careful consideration and based on the reasons outlined
above, the Board is satisfied, as at the date of the signing of the
Annual Report and Financial Statements, that it is appropriate to
adopt the going concern basis in preparing the financial statements
and they have a reasonable expectation that the Company will
continue in existence as a going concern for the period from
7 June 2023 to 30 June 2024.
4. Segment Information
The Investment Manager is responsible for allocating resources
available to the Company in accordance with the overall business
strategies as set out in the Investment Guidelines of the Company.
The Company is organised into the following segments:
· Portfolio of US micro-cap
investments
· Portfolio of European micro-cap
investments
· Portfolio of Real estate
investments
· Portfolio of Other investments -
(not falling into above categories)
The investment objective of each segment is to achieve
consistent medium-term returns from the investments in each segment
while safeguarding capital by investing in a diversified portfolio.
Investments in treasury bills are not considered as part of the
investment strategy and are therefore excluded from this segmental
analysis.
|
Segmental
Profit/(Loss) |
|
|
|
|
|
|
For the year ended 28
February 2023 |
US |
European |
Real |
Other |
|
|
|
Micro-Cap |
Micro-Cap |
Estate |
Investments |
Total |
|
|
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
|
Interest revenue |
10,336 |
462 |
- |
- |
10,798 |
|
Other portfolio
income |
532 |
- |
- |
- |
532 |
|
Total segmental
income |
10,868 |
462 |
- |
- |
11,330 |
|
Net gain/(loss) on
investments at FVTPL |
14,626 |
(20,596) |
6,734 |
1,050 |
1,814 |
|
Expected credit
losses |
- |
(462) |
- |
- |
(462) |
|
Realisations from
investments held in Escrow |
1,189 |
- |
- |
- |
1,189 |
|
Other income |
398 |
- |
- |
- |
398 |
|
Withholding tax |
(160) |
- |
- |
- |
(160) |
|
Investment Adviser's
base fee |
(3,582) |
(1,466) |
(366) |
(356) |
(5,770) |
|
Total segmental
operating profit/(loss) |
23,339 |
(22,062) |
6,368 |
694 |
8,339 |
For the year ended 28
February 2022 (restated1) |
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 |
1,146 |
- |
- |
14,813 |
Other portfolio
income |
520 |
- |
- |
- |
520 |
Total segmental
income |
14,187 |
1,146 |
- |
- |
15,333 |
Net gain/(loss) on
investments at FVTPL |
28,723 |
(12,958) |
221 |
(14) |
15,972 |
Expected credit
losses |
- |
(3,840) |
- |
- |
(3,840) |
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 |
(17,394) |
(96) |
(362) |
21,549 |
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 and profit for the year.
|
28.2.2023 |
28.2.20221 |
|
|
(restated) |
|
US$
'000 |
US$
'000 |
Total Segmental
Operating Profit |
8,339 |
21,549 |
Net foreign exchange
gain |
9,845 |
2,075 |
Fees payable to
Investment Adviser based on non-segmental assets |
(1,263) |
(901) |
Expenses not
attributable to segments |
(2,873) |
(3,747) |
Interest on cash |
275 |
174 |
Realised currency loss
on UK gilts |
(3,859) |
- |
Interest on Treasury
bills and UK gilts |
1,212 |
- |
Loss on financial
liabilities at fair value through profit or loss |
- |
(1,869) |
Finance costs |
(9,030) |
(13,094) |
Profit for the
year |
2,646 |
4,187 |
1 See Note 2
|
|
|
|
|
The
following table provides a reconciliation between total segmental
income and total income which comprises the Company's income from
investments and bank deposits. |
|
|
28.2.2023 |
28.2.2022
(restated1) |
|
|
US$ '000 |
US$
'000 |
|
Total segmental
income |
11,330 |
15,333 |
|
Non-segmental
income |
|
|
|
Interest on treasury
bills and UK gilts |
1,212 |
- |
|
Bank and deposit
interest |
275 |
174 |
|
Total income |
12,817 |
15,507 |
Segmental Net Assets
The Company's segmental net assets at the year end are as
follows:
At 28 February
2023 |
US
Micro-Cap |
European Micro-Cap |
Real Estate |
Other Investments |
Total |
Segmental
assets |
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
Investments at
FVTPL |
127,811 |
68,271 |
31,156 |
25,683 |
252,921 |
Loans at amortised
cost |
- |
3,695 |
- |
- |
3,695 |
Prepaid expenses |
29 |
12 |
3 |
3 |
47 |
Total segmental
assets |
127,840 |
71,978 |
31,159 |
25,686 |
256,663 |
Segmental
liabilities |
- |
- |
- |
- |
- |
Total segmental net
assets |
127,840 |
71,978 |
31,159 |
25,686 |
256,663 |
At 28 February 2022
(restated1) |
US |
European |
Real |
Other |
|
Segmental assets |
Micro-Cap
US$ '000 |
Micro-Cap
US$ '000 |
Estate
US$ '000 |
Investments
US$ '000 |
Total
US$ '000 |
Investments at
FVTPL |
284,162 |
81,150 |
23,597 |
23,533 |
412,442 |
Loans at amortised
cost |
- |
3,913 |
- |
- |
3,913 |
Total segmental
assets |
284,162 |
85,063 |
23,597 |
23,533 |
416,355 |
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 |
84,991 |
23,586 |
23,519 |
415,707 |
|
|
|
|
|
|
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.
|
|
28.2.2023 |
28.2.2022
(restated1) |
|
|
US$
'000 |
US$
'000 |
|
|
|
|
Total Segmental
Assets |
|
256,663 |
416,355 |
Non Segmental
Assets |
|
|
|
Cash at bank |
|
11,059 |
43,656 |
Treasury bills |
|
90,600 |
3,394 |
Other receivables |
|
121 |
70 |
Total
Assets |
|
358,443 |
463,475 |
Total Segmental
Liabilities |
|
- |
(648) |
Non Segmental
Liabilities |
|
|
|
Senior Credit
Facility |
|
(43,181) |
(42,573) |
Subordinated
Notes |
|
- |
(32,293) |
Zero Dividend
Preference (2022) Shares |
|
- |
(75,038) |
Other payables |
|
(764) |
(1,071) |
Total
Liabilities |
|
(43,945) |
(151,623) |
Total Net
Assets |
|
314,498 |
311,852 |
1 See Note 2
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 2023 |
Level 1 |
Level 2 |
Level 3 |
Total |
|
|
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
|
US micro-cap |
- |
- |
127,811 |
127,811 |
|
European
micro-cap |
- |
- |
68,271 |
68,271 |
|
Real estate |
- |
- |
31,156 |
31,156 |
|
Other investments |
- |
- |
25,683 |
25,683 |
|
Listed
investments |
90,600 |
- |
- |
90,600 |
|
|
90,600 |
- |
252,921 |
343,521 |
|
Financial
assets at 28 February 2022 (restated see Note
2) |
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 |
- |
- |
81,150 |
81,150 |
|
Real estate |
- |
- |
23,597 |
23,597 |
|
Other investments |
- |
- |
23,533 |
23,533 |
|
Listed
investments |
3,394 |
- |
- |
3,394 |
|
|
3,394 |
- |
412,442 |
415,836 |
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 2022.
Subsequent discussions with appraisers indicate there would be no
significant change in property values between 31 December 2022 and 28
February 2023. 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 which the
Board considers to be 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 2023 and 28
February 2022 are shown below:
|
Value 28.2.2023
US$'000 |
Valuation Technique |
Unobservable
input |
Range (weighted average) |
Sensitivity
used |
Effect on Fair Value US$'000 |
US micro-cap |
|
|
Average
EBITDA |
|
|
|
|
investments |
127,811 |
EBITDA
Multiple |
Multiple
of Peers |
7.0x -
13.5x (8.3x) |
-0.5x /+0.5x |
(10,326) |
10,092 |
|
|
|
Discount
to Average |
|
|
|
|
|
|
|
Multiple |
5% - 35%
(14.3%) |
+5% /-5% |
(12,303) |
11,955 |
European micro- |
|
|
Average EBITDA |
|
|
|
|
cap
investments1 |
66,786 |
EBITDA
Multiple |
Multiple
of Peers |
5.0x -
15.7x (8.6x) |
-0.5x /+0.5x |
(4,693) |
4,705 |
|
|
|
Discount
to Average |
|
|
|
|
|
|
|
Multiple |
4% - 61%
(26%) |
+5% /-5% |
(3,542) |
3,554 |
Real estate 2,3 |
31,156 |
Cap Rate/
Income
Approach |
Capitalisation Rate |
5.25%-5.75% (5.65%) |
+50bps/
-50bps |
(6,918) |
8,061 |
Other
investments4 |
24,474 |
Forward
looking |
Revenue |
$9.5
million |
-10%/+10% |
(1,722) |
2,613 |
|
|
Revenue
Approach |
Multiple |
5.3x |
-10%/+10% |
(1,722) |
2,613 |
|
Value 28.2.2022
US$'000 |
Valuation Technique |
Unobservable
input |
Range (weighted average) |
Sensitivity
used |
Effect on Fair Value US$'000 |
US micro-cap |
284,162 |
EBITDA Multiple |
Average
EBITDA Multiple of Peers |
7.0x - 13.5x (9.0x) |
-0.5x /+0.5x |
(23,876) |
23,998 |
investments |
|
|
Discount
to Average |
|
|
|
|
|
|
|
Multiple |
5% - 30%
(14.7%) |
+5%
/-5% |
(32,217) |
31,887 |
|
|
|
Average
EBITDA |
|
|
|
|
European micro- |
76,286 |
EBITDA
Multiple |
Multiple
of Peers |
5.5x -
14.2x (9.4x) |
-0.5x
/+0.5x |
(5,293) |
5,293 |
cap
investments1 |
|
|
Discount
to Average |
|
|
|
|
|
|
|
Multiple |
2% - 50%
(23%) |
+5%
/-5% |
(4,533) |
4,533 |
Real estate2,3 |
23,597 |
Cap Rate/
Income
Approach |
Capitalisation Rate |
5.25%-5.75% (5.56%) |
+50bps/
-50bps |
(5,338) |
6,552 |
Other
investments4 |
22,324 |
Forward
looking |
Revenue |
$8.3
million |
-10%/+10% |
(2,187) |
1,824 |
|
|
Revenue
Approach |
Multiple |
5.3x |
-10%/+10% |
(2,206) |
1,809 |
1 Excludes the Company's investment in Toro
Finance.
2 The Fair Value of JZCP's investment in financial
interests in Real Estate is measured as JZCP's percentage interest
in the value of the underlying properties.
3 Sensitivity is applied to the property value and
then the debt associated to the property is deducted before the
impact to JZCP's equity value is calculated. Due to gearing levels
in the property structures an increase in the sensitivity of
measurement metrics at property level will result in a relatively
greater impact at JZCP's equity level.
4 JZCP's investment in Spruceview.
The following table shows a reconciliation of all movements in
the fair value of financial instruments categorised within Level 3
between the beginning and the end of the reporting year.
Year
ended 28 February 2023 |
|
US |
|
European |
|
Real |
|
Other |
|
|
|
Micro-Cap |
|
Micro-Cap |
|
Estate |
|
Investments |
|
Total |
|
US$ '000 |
|
US$ '000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
At 1 March
2022 |
284,162 |
|
81,150 |
|
23,597 |
|
23,533 |
|
412,442 |
Investments in year including capital calls |
317 |
|
8,628 |
|
825 |
|
1,100 |
|
10,870 |
Payment In
Kind ("PIK") |
11,810 |
|
- |
|
- |
|
- |
|
11,810 |
Proceeds
from investments realised |
(181,629) |
|
(911) |
|
- |
|
- |
|
(182,540) |
Net
gains/(losses) on investments |
14,626 |
|
(20,596) |
|
6,734 |
|
1,050 |
|
1,814 |
Movement
in accrued interest |
|
(1,475) |
|
- |
|
- |
|
- |
|
(1,475) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 28
February 2023 |
|
|
|
127,811 |
|
68,271 |
|
31,156 |
|
25,683 |
|
252,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended 28 February 2022 (restated1) |
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 |
|
89,794 |
|
23,376 |
|
23,147 |
|
435,656 |
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 |
|
(12,958) |
|
221 |
|
(14) |
|
15,972 |
Movement
in accrued interest |
|
(522) |
|
- |
|
- |
|
- |
|
(522) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 28
February 2022 |
|
|
|
284,162 |
|
81,150 |
|
23,597 |
|
23,533 |
|
412,442 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
Net (Loss)/Gain on Investments at Fair Value Through Profit or
Loss
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2023 |
|
28.2.2022
(restated1) |
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
Net
(loss)/gain on investments held in investment portfolio at year
end |
|
|
|
|
|
|
Net
movement in unrealised gain/(loss) positions during the year |
|
|
|
34,171 |
|
69,684 |
Reversal
of net unrealised loss in prior years on investments now
realised |
|
|
|
|
|
|
(75,905) |
|
(54,048) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
unrealised (loss)/gain on investments held at the year end |
|
|
|
|
(41,734) |
|
15,636 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains/(loss) on investments realised in the year |
|
|
|
|
|
|
|
|
Proceeds
from investments realised |
|
|
|
|
|
|
|
327,036 |
|
65,799 |
Cost of
investments realised |
|
|
|
|
|
|
|
|
|
(363,252) |
|
(119,511) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realised loss |
|
|
|
|
|
|
|
|
|
|
|
(36,216) |
|
(53,712) |
Reversal
of net unrealised loss in prior years on investments now
realised |
|
|
|
|
|
|
75,905 |
|
54,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gain
on investments realised during the year |
|
|
|
|
|
|
|
39,689 |
|
336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss)/gain on investments during the year |
|
|
|
|
|
|
|
(2,045) |
|
15,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 See Note 2
7. Expected Credit Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2023 |
|
28.2.2022
(restated1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairments on loans during the year |
|
|
|
|
|
|
|
|
|
462 |
|
3,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Please refer to Note 23 Financial Risk Management
Objectives and Policies/Credit Risk for further information on the
Company's
ECLs.
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
28.2.2023 |
|
28.2.2022 |
|
|
|
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
|
Impairment
on loans classified as Stage 1 |
|
|
|
|
|
|
|
462 |
|
455 |
|
|
Impairment
on loans classified as Stage 3 |
|
|
|
|
|
|
|
- |
|
3,385 |
|
|
Total
impairment on loans during the year |
|
|
|
|
|
|
|
462 |
|
3,840 |
|
8. |
Investment Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year Ended |
|
|
|
|
|
|
|
|
|
|
28.2.2023 |
|
28.2.2022
(restated1) |
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$ '000 |
|
|
|
Interest
revenue calculated using the effective interest method |
|
|
|
|
462 |
|
1,146 |
|
|
Other
interest and similar income |
|
|
|
|
|
|
|
12,080
|
|
14,187 |
|
|
|
|
|
|
|
|
|
|
12,542 |
|
15,333 |
|
|
Income
for the year ended 28 February 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
Loan
note |
|
|
Other |
|
|
|
|
Dividends |
|
Dividends |
|
PIK |
|
|
Income |
|
Total |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
US$ '000 |
|
US$ '000 |
|
|
US
micro-cap portfolio
|
532 |
|
10,336 |
|
- |
|
|
- |
|
10,868 |
|
|
European
micro-cap
portfolio
|
- |
|
- |
|
462 |
|
|
- |
|
462 |
|
|
Treasury
bills and UK gilts
|
- |
|
- |
|
- |
|
|
1,212 |
|
1,212 |
|
|
|
532 |
|
10,336 |
|
462 |
|
|
1,212 |
|
12,542 |
|
|
Income
for the year ended 28 February 2022 (restated) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred |
|
Loan
note |
|
|
Other |
|
|
|
|
|
Dividends |
|
Dividends |
|
PIK |
|
|
Income |
|
Total |
|
|
US
micro-cap portfolio
|
520 |
|
13,667 |
|
- |
|
|
- |
|
14,187 |
|
|
European
micro-cap
portfolio
|
- |
|
- |
|
1,146 |
|
|
- |
|
1,146 |
|
|
|
520 |
|
13,667 |
|
1,146 |
|
|
- |
|
15,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. |
Net Foreign Currency Exchange
Gains
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2023 |
|
28.2.2022
(restated1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange gain on translation of ZDP Shares |
|
|
|
12,809 |
|
3,072 |
Foreign
exchange loss on translation of cash held for redemption of ZDP
Shares |
|
|
|
(2,755) |
|
- |
Foreign
exchange loss on translation of loans at amortised cost |
|
|
|
(219) |
|
(535) |
Other net
foreign exchange gains/(losses) |
|
|
|
10 |
|
(462) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,845 |
|
2,075 |
|
|
|
1 See Note
2 |
|
10. |
Finance
Costs |
|
|
|
|
Year
Ended |
Year Ended |
|
|
|
28.2.2023 |
28.2.2022 |
|
|
|
US$
'000 |
US$ '000 |
|
|
Interest expense
calculated using the effective interest method |
|
|
|
|
Senior Credit Facility
(Note 15) |
5,163 |
6,843 |
|
ZDP Shares
(Note 16) |
2,067 |
3,807 |
|
|
Subordinated Notes
(Note 17) |
1,800 |
1,108 |
|
|
|
9,030 |
11,758 |
|
|
Other interest and
similar expense |
|
|
|
|
CULS finance costs
paid (Note 18) |
- |
1,336 |
|
|
|
9,030 |
13,094 |
|
11. |
Expenses |
|
|
|
|
|
Year
Ended |
Year Ended |
|
|
|
28.2.2023 |
28.2.2022 |
|
|
|
US$
'000 |
US$ '000 |
|
|
Investment Adviser's
base fee |
7,033 |
7,414 |
|
|
Directors'
remuneration |
290 |
290 |
|
|
|
7,323 |
7,704 |
|
|
Administrative
expenses: |
|
|
|
|
Legal fees |
1,091 |
1,675 |
|
|
Other professional
fees |
289 |
432 |
|
|
Accounting,
secretarial and administration fees |
350 |
350 |
|
|
Auditors'
remuneration |
269 |
350 |
|
|
Auditors' remuneration
- non-audit fees |
68 |
71 |
|
|
Directors'
insurance |
403 |
226 |
|
|
Custodian fees |
32 |
24 |
|
|
Other expenses |
81 |
329 |
|
|
|
2,583 |
3,457 |
|
|
Total expenses |
9,906 |
11,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors'
Remuneration
For the year ended 28 February
2023 total Directors' fees included in the Statement of
Comprehensive Income were
$290,000 (year ended 28 February 2022: $290,000), of this amount $47,000 was outstanding at the year end
(28 February 2022: $47,000). 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
2023, total investment advisory and management expenses,
based on the average total assets of the Company, were included in
the Statement of Comprehensive Income of $7,033,000 (year ended 28
February 2022: $7,414,000). At
28 February 2023, an amount
$65,000 was prepaid to the Investment
Adviser (28
February 2022: $276,000 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 2022: $350,000) payable quarterly in arrears. Fees
payable to the Administrator are subject to an annual fee review.
As from 1 March 2023, the
Administrator's fees have been increased to $370,000 per annum.
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
2023, total Custodian expenses of $32,000 (28 February
2022: $24,000) were included
in the Statement of Comprehensive Income of which $10,000 (28 February
2022: $10,000) was outstanding
at the year end.
Auditors'
Remuneration
During the year ended 28 February
2023, the Company incurred fees for audit services of
$269,000 (28
February 2022: $350,000).
|
28.2.2023 |
28.2.2022 |
Non-audit Fees Paid
to Ernst & Young |
US$
'000 |
US$
'000 |
Interim Review -
£53,000 (2022: £53,000) |
68 |
71 |
Total non-audit
fees |
68 |
71 |
12.
Taxation
As at 31 December 2022, the
Company had been granted Guernsey
tax exempt status in accordance with The Income Tax (Exempt Bodies)
(Guernsey) Ordinance 1989 (as
amended). Regarding the Company's tax exempt status for 2023, an
application has been made and the company is awaiting
confirmation.
During the year ended 28 February
2023, the Company reversed a provision for potential
withholding tax of $398,000. The
provision related to dividend income from an investment realised in
2015 and is shown as Other income in the Statement of Comprehensive
Income. The Company had tax withheld of $160,000 on a dividend received during the
year.
13.
Investments Including Loans at Amortised Cost
|
|
|
|
|
|
|
|
Category of financial instruments |
|
Listed |
|
Unlisted |
|
Unlisted |
Carrying Value |
|
FVTPL |
|
FVTPL |
|
Loans |
Total |
|
28.2.2023 |
|
28.2.2023 |
|
28.2.2023 |
28.2.2023 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
US$
'000 |
Book cost at 1 March
2022 |
3,395 |
|
472,983 |
|
12,828 |
489,206 |
Investments in year
including capital calls |
213,164 |
|
32,009 |
|
- |
245,173 |
Payment in kind
("PIK")1 |
- |
|
11,810 |
|
455 |
12,265 |
Proceeds from
investments matured/realised |
(123,357) |
|
(203,679) |
|
- |
(327,036) |
Interest received on
maturity |
689 |
|
- |
|
- |
689 |
Realised currency
loss |
(3,859) |
|
- |
|
- |
(3,859) |
Net realised loss |
- |
|
(32,357) |
|
- |
(32,357) |
Book cost at 28
February 2023 |
90,032 |
|
280,766 |
|
13,283 |
384,081 |
Unrealised net
investment and foreign exchange loss |
- |
|
(28,372) |
|
(895) |
(29,267) |
Impairment on loans at
amortised cost |
- |
|
- |
|
(8,775) |
(8,775) |
Accrued interest |
568 |
|
527 |
|
82 |
1,177 |
Carrying value at 28
February 2023 |
90,600 |
|
252,921 |
|
3,695 |
347,216 |
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. |
Comparative reconciliation for the year ended 28 February 2022
(restated1) |
|
|
|
|
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 |
|
565,359 |
|
45,837 |
614,589 |
Investments in year
including capital calls |
3,395 |
|
12,945 |
|
- |
16,340 |
Payment in kind
("PIK")1 |
- |
|
14,190 |
|
1,422 |
15,612 |
Proceeds from
realisation and repayment of investments |
(3,395) |
|
(65,799) |
|
- |
(69,194) |
Interest received on
maturity |
2 |
|
- |
|
- |
2 |
Net realised loss |
- |
|
(53,712) |
|
- |
(53,712) |
Realised impairment
loss |
- |
|
- |
|
(31,757) |
(31,757) |
Realised currency
loss |
- |
|
- |
|
(2,674) |
(2,674) |
Book cost at 28
February 2022 |
3,395 |
|
472,983 |
|
12,828 |
489,206 |
Unrealised net
investment and foreign exchange loss |
- |
|
(62,543) |
|
(678) |
(63,221) |
Impairment on loans at
amortised cost |
- |
|
- |
|
(8,313) |
(8,313) |
Accrued interest |
(1) |
|
2,002 |
|
76 |
2,077 |
Carrying value at 28
February 2022 |
3,394 |
|
412,442 |
|
3,913 |
419,749 |
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. |
Loans at amortised cost
Loans to European micro-cap companies are classified and
measured as Loans at amortised cost under IFRS 9.
The repayment of the loans will occur when the underlying
investee company issuing the debt redeems on ownership change or
due date.
Interest on the loans accrues at the following rates:
|
|
|
As At 28 February 2023 |
|
As At 28 February 2022 (restated2) |
|
|
|
8% |
|
10% |
|
Total |
|
8% |
|
10% |
|
Total |
|
|
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans at
amortised cost |
1,447 |
|
2,248 |
|
3,695 |
|
1,677 |
|
2,236 |
|
3,913 |
|
The Company has not recognised interest on the loans classified
as being credit impaired (Stage 3 see Note 7). Maturity dates are
as follows:
As At 28
February
2023
As At 28 February 2022
(restated2)
$'000 |
$'000 |
$'000 |
|
$'000 |
3,695 |
3,695 |
3,913 |
|
3,913 |
|
|
0-6 months Total7-12
months
Total
Loans at amortised cost
During the year, a loan with a carrying value of $1.485 million (28
February 2022: $24.680
million) became past due and the maturity date of a loan
with a carrying value of $3.695
million (28 February 2022:
$3.913 million) was extended from
31 December 2022 to 30 June 2023.
2 See Note 2
Investment in Associates
An associate is an entity over which the Company has significant
influence. An entity is regarded as a subsidiary only if the
Company has control over its strategic, operating and financial
policies and intends to hold the investment on a long-term basis
for the purpose of securing a contribution to the Company’s
activities. The Company meets the definition of an investment
entity and therefore measures its associates at fair value through
profit or loss in accordance with IFRS 10. |
Carrying Value of
Investments in Associates |
Entity |
|
% Interest |
28.2.2023
US$'000 |
|
28.2.2022
US$'000 |
JZI Fund III GP, L.P.
(has 25% partnership interest in JZI Fund III,
L.P.)1 |
Cayman |
75% |
66,786 |
|
76,286 |
JZHL Secondary Fund
L.P. |
Delaware |
n/a |
80,403 |
|
117,339 |
Spruceview Capital
Partners, LLC |
Delaware |
33.75% |
24,474 |
|
22,324 |
EuroMicrocap Fund
2010, L.P. |
Cayman |
75% |
- |
|
596 |
|
|
|
171,663 |
|
216,545 |
1JZCP holds
indirectly a 18.75% partnership interest in JZI Fund III, L.P. |
|
|
|
|
|
The principal activity of all the JZI Fund III, JZHL Secondary
Fund and EuroMicrocap Fund 2010, L.P. is the acquisition of
micro-cap companies. The principal activity of Spruceview Capital
Partners, LLC is that of an asset management company. There are no
significant restrictions on the ability of associates to transfer
funds to the Company in the form of dividends or repayment of loans
or advances.
The Company's maximum exposure to losses from the associates
(shown below) equates to the carrying value plus outstanding
commitments:
Entity |
|
|
28.2.2023
US$'000 |
28.2.2022
US$'000 |
JZI Fund III GP,
L.P. |
|
|
73,850 |
91,974 |
JZHL Secondary Fund
L.P. |
|
|
80,403 |
117,339 |
Spruceview Capital
Partners, LLC |
|
|
24,474 |
22,824 |
EuroMicrocap Fund
2010, L.P. |
|
|
- |
596 |
|
|
|
178,727 |
232,733 |
Investment in
Subsidiaries |
|
|
|
|
The
principal place of business for subsidiaries is the USA. The
Company meets the definition of an Investment Entity in accordance
with IFRS 10. Therefore, it does not consolidate its subsidiaries
but rather recognises them as investments at fair value through
profit or loss. |
Entity |
Place of incorporation |
% Interest |
28.2.2023
US$'000 |
28.2.2022
US$'000 |
JZCP Realty, Ltd |
Cayman |
100% |
31,156 |
23,597 |
Investments in
subsidiaries at fair value |
|
|
31,156 |
23,597 |
There are no significant restrictions on the ability of
subsidiaries to transfer funds to the Company. The Company has no
contractual commitments to provide any financial or other support
to its unconsolidated subsidiaries.
JZCP Realty Ltd has a 100% interest in JZ REIT Esperante Corp
(Maryland incorporated) and JZ RS
Onshore Blocker, LLC (Delaware
incorporated).
14. |
Other
Receivables |
|
|
|
|
28.2.2023 |
28.2.2022 |
|
|
US$ '000 |
US$ '000 |
|
Prepayments |
168 |
70 |
|
|
168 |
70 |
15.
Senior Credit
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 "Senior Credit Facility"). The Senior Credit
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 Senior Credit 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. Use of proceeds from the DDT Loans are
limited to finance (i) Permitted Investments or (ii) for any other
purpose consented to in writing by the Administrative Agent.
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 Credit Facility of approximately $52.9 million due 12 June
2022 and for the payment of fees and expenses related to the
Senior Credit Facility.
The interest rate charged under the Senior Credit Facility at
the year end is the LIBOR/SOFR1 Rate plus 7.002 per
cent., or if the Company elects for a portion of the interest to be
paid in kind, the LIBOR/SOFR 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 Loan was subject to a prepayment penalty if
repaid before yielding an aggregate 15 per cent. Post year end, the
aggregate yield exceeded 15 per cent and therefore the Closing Date
Term is no longer subject to a prepayment penalty.
During the year, no election was made for a portion of the
interest to be paid in kind. The average interest rate paid by the
Company was 9.73% being the applicable LIBOR/SOFR rate plus 7.0 per
cent. The rate payable at the year end was 11.82 per cent
(28 February 2022: 8.00 per
cent).
The Senior Credit 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. At 28 February 2023, investments and cash valued at
$352.0 million were held as
collateral on the senior debt facility. The collateral value used
in the asset coverage ratio of $252.1
million is after adjustments to the collateral value
including a ceiling value on any one investment. The Senior Credit
Facility allowed for the repayment of the Company's other debt
obligations assuming the above covenants were not breached as a
result of
repayment.
1Post year end, the Secured Overnight Financing Rate
(SOFR) replaced LIBOR as the benchmark interest rate for the Senior
Credit
Facility.
2There is an interest rate floor that stipulates
LIBOR/SOFR will not be lower than 1%. In this agreement, the
presence of the floor does not significantly alter the amortised
cost of the instrument and is considered to be clearly and closely
related to the facility, therefore separation is not required and
the loan is valued at amortised cost using the effective interest
rate
method.
Senior Credit
Facility |
|
|
|
28.2.2023 |
28.2.2022 |
|
US$
'000 |
US$
'000 |
Principal - drawdown
26 January 2022 |
- |
45,000 |
Issue costs |
- |
(2,787) |
Amortised cost - 26
January 2022 |
- |
42,213 |
Amortised cost - 1
March 2022 |
42,573 |
- |
Finance costs charged
to Statement of Comprehensive Income |
5,163 |
360 |
Interest and finance
costs paid |
(4,555) |
- |
Amortised cost at year
end |
43,181 |
42,573 |
Previous Senior
Credit Facility |
|
|
|
28.2.2023 |
28.2.2022 |
|
US$
'000 |
US$
'000 |
Amortised cost (Dollar
drawdown) - 1 March |
- |
68,694 |
Loan advance |
- |
16,000 |
Loan repayments |
- |
(85,585) |
Finance costs charged
to Statement of Comprehensive Income |
- |
6,483 |
Interest and finance
costs paid |
- |
(5,592) |
Amortised cost at year
end |
- |
- |
The carrying value of the Senior Credit Facility and Previous
Senior Credit Facility at the prior year end approximated fair
value.
16. Zero Dividend Preference ("ZDP") Shares
On 3 October 2022, the Company
redeemed and cancelled its ZDP shares on their maturity date. The
ZDP shares had a gross redemption yield of 4.75% and a total
redemption value of £57,597,000 ($64,296,000 using the exchange rate on the
redemption date).
|
ZDP (2022)
Shares |
28.2.2023 |
28.2.2022 |
|
|
US$ '000 |
US$ '000 |
|
Amortised cost at 1
March |
75,038 |
74,303 |
|
Finance costs
allocated to Statement of Comprehensive Income |
2,067 |
3,807 |
|
Unrealised currency
gain to the Company on translation during the year |
(12,809) |
(3,072) |
|
Redemption |
(64,296) |
- |
|
Amortised cost at year
end |
- |
75,038 |
Total number of ZDP (2022) shares
in
issue
-
11,907,720
17. Subordinated Notes
During the prior year, 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
$31.5 million, with a maturity date
of 11 September 2022 (the
“Subordinated notes”). In August
2022, the Company announced the extension of the maturity
date of the Subordinated Notes through to 30
September 2023. On 14 February
2023, the Company undertook an early voluntary redemption in
full of the Subordinated Notes.
The interest rate on the Loan notes was 6 per cent. per annum
payable semi-annually, in arrears, on each of 31 March and 30
September of each year and on redemption.
|
|
28.2.2023 |
28.2.2022 |
|
|
US$
'000 |
US$
'000 |
|
Subordinated Notes
issued |
- |
31,500 |
|
Amortised cost at 1
March |
32,293 |
- |
|
Finance costs charged
to Statement of Comprehensive Income |
1,800 |
1,108 |
|
Interest and finance
costs paid |
(2,593) |
(315) |
|
Redemption |
(31,500) |
- |
|
Amortised cost at year
end |
- |
32,293 |
18. |
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. CULS bore interest on their nominal amount at the
rate of 6.00 per cent. per annum, payable semi-annually in
arrears. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2023 |
|
28.2.2022 |
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
of CULS at 1 March |
|
|
|
|
|
|
|
- |
|
52,430 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense |
|
|
|
|
|
|
|
- |
|
1,336 |
|
|
Coupon
paid |
|
|
|
|
|
|
|
- |
|
(2,679) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised movement in value of CULS due to change in Company's
Credit Risk |
|
- |
|
1,074 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealised
movement in fair value of CULS |
|
|
|
|
|
|
|
- |
|
2,170 |
|
|
Unrealised currency gain on translation during the year |
- |
|
(301) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on
financial liabilities at fair value through profit or loss |
|
|
|
|
- |
|
1,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
of CULS |
|
|
|
|
|
|
|
- |
|
(54,005) |
|
|
Conversion
of CULS into Ordinary Shares |
|
|
|
|
|
|
|
- |
|
(25) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
of CULS based on offer price |
|
|
|
|
|
|
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19. |
Other
Payables |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28.2.2023 |
|
28.2.2022 |
|
|
|
|
|
|
|
|
|
|
US$ '000 |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal fee
provision |
|
|
|
|
|
|
|
200 |
|
505 |
|
|
Audit
fees |
|
|
|
|
|
|
|
268 |
|
325 |
|
|
Other
expenses |
|
|
|
|
|
|
|
249 |
|
168 |
|
|
Directors'
remuneration |
|
|
|
|
|
|
|
47 |
|
47 |
|
|
Provision
for tax on dividends received not withheld at source |
|
- |
|
398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
764 |
|
1,443 |
|
|
|
20. |
Share
Capital |
|
|
Authorised Capital |
|
|
|
|
Unlimited
number of ordinary shares of no par value. |
|
|
|
|
Ordinary shares - Issued Capital |
|
|
|
|
28.2.2023 |
28.2.2022 |
|
|
|
Number of
shares |
Number of
shares |
|
|
Balance
at 1 March |
77,477,214 |
77,474,175 |
|
|
Ordinary
shares issued during the year |
- |
3,039 |
|
|
Total
Ordinary shares in issue |
77,477,214 |
77,477,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
($25,000).
The Company's shares trade on the London Stock Exchange's
Specialist Fund Segment.
The Ordinary shares carry a right to receive the profits of the
Company available for distribution by dividend and resolved to be
distributed by way of dividend to be made at such time as
determined by the Directors.
In addition to receiving the income distributed, the Ordinary
shares are entitled to the net assets of the Company on a winding
up, after all liabilities have been settled. In addition, holders
of Ordinary shares will be entitled on a winding up to receive any
accumulated but unpaid revenue reserves of the Company, subject to
all creditors having been paid out in full. Any distribution of
revenue reserves on a winding up is currently expected to be made
by way of a final special dividend prior to the Company's eventual
liquidation.
Holders of Ordinary shares have the rights to receive notice of,
to attend and to vote at all general meetings of the Company.
Capital raised on
issue of new shares and capital repaid on buy back of shares
Subsequent amounts raised by the issue of new shares (net of
issue costs) and amounts paid to buy back Ordinary shares, are
credited/debited to the share capital account.
Share Capital |
|
|
|
28.2.2023 |
28.2.2022 |
|
US$
‘000 |
US$
‘000 |
At beginning of
year |
216,650 |
216,625 |
Issue of Ordinary
shares |
- |
25 |
At year end |
216,650 |
216,650 |
21. Capital Management
The Company’s capital is represented by the Ordinary shares
following the redemption of ZDP shares and CULS.
As a result of the ability to issue, repurchase and resell
shares, the capital of the Company can vary. Other than a minimum
asset coverage ratio specified under the New Senior Credit Facility
and certain typical restrictions in the New Senior Credit Facility
with respect to the payments of dividends and issuance of
disqualified capital stock (e.g., convertible or redeemable capital
stock), 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. 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.
22. Reserves
Summary of reserves attributable to
Ordinary
shareholders
|
28.2.2023 |
|
28.2.2022
(restated1) |
|
US$
'000 |
|
US$
'000 |
Share capital |
216,650 |
|
216,650 |
Other reserve |
353,528 |
|
353,528 |
Retained deficit |
(255,680) |
|
(258,326) |
|
314,498 |
|
311,852 |
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'.
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 |
|
|
28.2.2023 |
|
28.2.2022 |
|
(restated1) |
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
At
beginning of year |
|
(243,118) |
|
(241,668) |
Restatement to Correct Historical Error |
|
- |
|
(5,637) |
Profit for
the year |
|
2,646 |
|
4,187 |
|
|
|
|
|
|
|
|
|
|
At year
end |
|
(240,472) |
|
(243,118) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1See Note 2
23. 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.
Restatement to Correct Historical
Error in Classification and Associated Measurement of Asset
Comparative numbers included in Note 23, have been amended to
reflect the prior year reclassification and remeasurement detailed
in Note 2.
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 (restated):
|
Interest Fixed rate |
|
bearing Floating rate |
|
Non
interest
bearing |
|
Total |
28.2.2023 |
|
28.2.2023 |
|
28.2.2023 |
|
28.2.2023 |
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
Investments at
FVTPL |
139,493 |
|
- |
|
204,028 |
|
343,521 |
Loans at amortised
cost |
3,695 |
|
- |
|
- |
|
3,695 |
Cash and cash
equivalents |
- |
|
11,059 |
|
- |
|
11,059 |
Other receivables and
prepayments |
- |
|
- |
|
168 |
|
168 |
Senior Credit
Facility |
- |
|
(43,181) |
|
- |
|
(43,181) |
Other payables |
- |
|
- |
|
(764) |
|
(764) |
|
143,188 |
|
(32,122) |
|
203,432 |
|
314,498 |
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 |
143,811 |
|
- |
|
272,025 |
|
415,836 |
Loans at
amortised cost |
3,913 |
|
- |
|
- |
|
3,913 |
Cash and
cash equivalents |
- |
|
43,656 |
|
- |
|
43,656 |
Other
receivables and prepayments |
- |
|
- |
|
70 |
|
70 |
Senior
Credit Facility |
- |
|
(42,573) |
|
- |
|
(42,573) |
ZDP Shares
(2022) |
(75,038) |
|
- |
|
- |
|
(75,038) |
Subordinated Notes |
(32,293) |
|
- |
|
- |
|
(32,293) |
Other
payables |
- |
|
- |
|
(1,719) |
|
(1,719) |
|
|
40,393 |
|
1,083 |
|
270,376 |
|
311,852 |
|
|
|
|
|
|
|
|
|
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 2023
|
|
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 |
|
90,600 |
|
- |
|
- |
|
- |
|
2,485 |
|
46,408 |
|
139,493 |
Loans at amortised
cost |
|
- |
|
- |
|
- |
|
- |
|
3,695 |
|
- |
|
3,695 |
Cash and cash
equivalents |
|
11,059 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
11,059 |
Senior Credit
Facility |
|
- |
|
- |
|
- |
|
(43,181) |
|
- |
|
- |
|
(43,181) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,659 |
|
- |
|
- |
|
(43,181) |
|
6,180 |
|
46,408 |
|
111,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 28
February 2022 (restated)
|
|
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 |
|
4,268 |
|
- |
|
- |
|
1,000 |
|
141,258 |
|
149,920 |
Loans at amortised
cost |
|
- |
|
3,913 |
|
- |
|
- |
|
- |
|
- |
|
3,913 |
Cash and cash
equivalents |
|
43,656 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
43,656 |
Senior Credit
Facility |
|
- |
|
- |
|
- |
|
(42,573) |
|
- |
|
- |
|
(42,573) |
ZDP Shares (2022) |
|
- |
|
(78,038) |
|
- |
|
- |
|
- |
|
- |
|
(75,038) |
Subordinated
Notes |
|
- |
|
(32,293) |
|
- |
|
- |
|
- |
|
- |
|
(32,293) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,050 |
|
(99,150) |
|
- |
|
(42,573) |
|
1,000 |
|
141,258 |
|
47,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Of the cash and cash equivalents held, $11,059,000 (28 February
2022: $43,656,000) earns
interest at variable rates and the income may rise and fall
depending on changes to interest rates.
The Investment Adviser monitors the Company's overall interest
sensitivity on a regular basis by reference to the current market
rate and the level of the Company's cash balances. The Company has
not used derivatives to mitigate the impact of changes in interest
rates.
The table below demonstrates the sensitivity of the Company's
profit/(loss) for the year to a reasonably possible movement in
interest rates. The Company has cash at bank and loans payable for
which interest receivable and payable are sensitive to a
fluctuation to rates. The below sensitivity analysis assumes year
end balances and interest rates are constant through the
year.
|
|
|
|
|
|
|
|
Interest Receivable1 |
Interest Payable2 |
|
|
28.2.2023 |
28.2.2022 |
28.2.2023 |
28.2.2022 |
|
Change
in basis points increase/decrease |
US$
'000 |
US$
'000 |
US$
'000 |
US$
'000 |
|
+100/-100 |
25/(25) |
350/(175) |
(450)/450 |
(230)/
nil |
|
+300/-300 |
76/(76) |
1,051/(175) |
(1,350)/1,350 |
(1,130)/
nil |
|
|
|
|
|
|
|
1 Sensitivity applied to money market account balance
and applying the year end rate of 4.1% |
|
|
|
2 Sensitivity applied to year end balances at relevant
rates being $45 million at 11.8% |
|
|
Currency risk
Currency risk is the risk that the value of a financial
instrument will fluctuate due to changes in foreign exchange
rates.
Changes in exchange rates are considered to impact the fair
value of the Company's investments denominated in Euros and
Sterling. However, under IFRS the foreign currency risk on these
investments is deemed to be part of the market price risk
associated with holding such non-monetary investments. As the
information relating to the non-monetary investments is
significant, the Company also provides the total exposure and
sensitivity changes on non-monetary investments. The following
tables set out the Company's exposure by currency to foreign
currency risk.
Exposure to Non-Monetary Assets (held
in foreign currencies)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro |
|
Sterling |
|
Total |
|
Euro |
|
Sterling |
|
Total |
|
|
|
28.2.2023 |
|
28.2.2023 |
|
28.2.2023 |
|
28.2.2022 |
|
28.2.2022 |
|
28.2.2022 |
|
|
|
US$
'000 |
|
US$
'000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
US$ '000 |
|
Loans at amortised
cost |
|
3,695 |
|
- |
|
3,695 |
|
3,913 |
|
- |
|
3,913 |
|
Cash at bank |
|
216 |
|
159 |
|
375 |
|
507 |
|
38 |
|
545 |
|
Other receivables |
|
- |
|
157 |
|
157 |
|
- |
|
70 |
|
70 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
ZDP Shares |
|
- |
|
- |
|
- |
|
- |
|
(75,038) |
|
(75,038) |
|
Other payables |
|
- |
|
(392) |
|
(392) |
|
- |
|
(415) |
|
(415) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Currency
Exposure |
|
3,911 |
|
(76) |
|
3,835 |
|
4,420 |
|
(75,345) |
|
(70,925) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
Currency |
Change in Currency Rate |
Effect on net assets attributable to shareholders
(relates to monetary financial assets and liabilities) |
|
|
28.2.2023 |
28.2.2022 |
|
|
US$
'000 |
US$
'000 |
Euro |
+10% |
391 |
2,910 |
GBP |
+10% |
(8) |
(7,535) |
Exposure to Non-Monetary Assets (held
in foreign currencies)
|
|
Euro |
|
Sterling |
|
Total |
|
|
|
Euro |
|
Sterling |
|
Total |
|
|
28.2.2023 |
|
28.2.2023 |
|
28.2.2023 |
|
|
|
28.2.2022 |
|
28.2.2022 |
|
28.2.2022 |
|
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
US$ '000 |
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets at
FVTPL |
|
53,822 |
|
12,964 |
|
66,786 |
|
|
|
62,287 |
|
14,595 |
|
76,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Currency
Exposure |
|
53,822 |
|
12,964 |
|
66,786 |
|
|
|
62,287 |
|
14,595 |
|
76,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency |
Change in Currency Rate |
Effect on net assets attributable to shareholders
(relates to non-monetary financial assets) |
|
|
28.2.2023 |
28.2.2022 |
|
|
US$
'000 |
US$
'000 |
Euro |
+10% |
5,382 |
6,229 |
GBP |
+10% |
1,296 |
1,460 |
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 the 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 |
|
|
|
|
28.2.2023 |
|
28.2.2022 |
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
US
micro-cap debt |
|
1,000 |
|
1,000 |
European
micro-cap debt |
|
5,180 |
|
8,181 |
US Treasury Bills |
|
|
|
90,600 |
|
3,394 |
Cash and
cash equivalents |
|
11,059 |
|
43,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,839 |
|
56,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table analyses the concentration of credit risk in
the Company's debt portfolio by industrial distribution.
|
28.2.2023 |
28.2.2022 |
|
US$
'000 |
US$
'000 |
Financial General |
24% |
46% |
Document
Processing |
60% |
43% |
House, Leisure &
Personal Goods |
16% |
11% |
|
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.
On assessment of the recoverability of the Xacom loan in the prior
year, 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. The loans to Xacom is recognised
at stage three loans and is considered credit-impaired, lifetime
expected credit losses are recognised on this loan. Information on
the three stages on which ECLs are recognised is provided within
Note 7.
Year
ended 28 February
2023
Year ended 28 February 2022
(restated)
|
Stage
1 |
Stage
2 |
Stage
3 |
Total |
|
Stage
1 |
Stage
2 |
Stage
3 |
Total |
$'000 |
$'000 |
$'000 |
$'000 |
|
$'000 |
$'000 |
$'000 |
$'000 |
ECL at 1 March |
1,329 |
- |
6,318 |
7,647 |
|
954 |
3,177 |
32,559 |
36,690 |
Provision during the
year |
462 |
- |
- |
462 |
|
455 |
3,385 |
- |
3,840 |
Level transfer |
- |
- |
- |
- |
|
- |
(6,318) |
6,318 |
- |
ECL realised |
- |
- |
- |
- |
|
- |
- |
(31,664) |
(31,664) |
Foreign exchange
movement |
(70) |
- |
(353) |
(423) |
|
(80) |
(244) |
(895) |
(1,249) |
|
1,721 |
- |
5,965 |
7,686 |
|
1,329 |
- |
6,318 |
7,647 |
The table below analyses the Company’s cash and cash equivalents
by rating agency category.
Credit ratings
|
Outlook |
LT Issuer Default
Rating |
28.2.2023
$'000 |
HSBC Bank USA NA |
S&P Stable (2022:
Stable) |
S&P A+ (2022:
A+) |
8,320 |
City National
Bank |
S&P Stable (2022:
Stable) |
S&P AA- (2022:
AA-) |
2,497 |
Northern Trust
(Guernsey) Limited |
S&P Stable (2022:
Stable) |
S&P AA- (2022:
AA-) |
242 |
|
|
|
11,059 |
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 private 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 it Senior Credit
Facility in January 2027. At the year
end the Company has outstanding investment commitments of
$7,064,000 (28
February 2022: $16,188,000)
see Note 24.
The Company manages liquidity risk and the ability to meet its
obligations by monitoring current and expected cash balances from
forecasted investment activity.
The table below analyses JZCP’s financial liabilities into
relevant maturity groups based on the remaining period at the
reporting date to the contractual maturity date. Amounts attributed
to the Senior Credit Facility, ZDP Shares and Subordinated Notes
include future contractual interest payments. Financial commitments
are contractual outflows of cash and are included within the
liquidity statement.
At 28 February
2023 |
Less
than
1 year |
>1
year –
3 years |
>3
years –
5 years |
>5 years |
No
stated maturity |
|
US$
‘000 |
US$
‘000 |
US$
‘000 |
US$
‘000 |
US$
‘000 |
Senior Credit
Facility |
5,364 |
10,728 |
50,364 |
- |
- |
Other payables |
764 |
- |
- |
- |
- |
Financial commitments
(see note 24) |
2,355 |
4,709 |
- |
- |
- |
|
8,483 |
15,437 |
50,364 |
- |
- |
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 Credit
Facility |
3,600 |
7,200 |
52,200 |
- |
- |
ZDP (2022) Shares |
77,281 |
- |
- |
- |
- |
Subordinated
Notes |
33,075 |
- |
- |
- |
- |
Other payables |
1,299 |
- |
- |
- |
398 |
Financial commitments
(see Note 24) |
5,729 |
10,459 |
- |
- |
- |
|
120,984 |
17,659 |
52,200 |
- |
398 |
24. Commitments
At 28 February 2023 and
28 February 2022, JZCP had the
following financial commitments outstanding in relation to fund
investments:
|
|
Expected date |
28.2.2023 |
|
28.2.2022 |
|
|
of
Call |
US$
‘000 |
|
US$
‘000 |
|
JZI Fund
III GP, L.P. €6,661,066 (28.2.2022: €13,967,295) |
over 3
years |
7,064 |
|
15,688 |
|
Spruceview
Capital Partners, LLC1 |
over 1
year |
- |
|
500 |
|
|
|
7,064 |
|
16,188 |
|
1Following a capital call of $0.6 million in
November 2022, JZCP has the option to increase further commitments
to Spruceview up to approximately $3.5 million.
|
25. |
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 2023, JZCP's
investment in Fund III was valued at $67.6 million (28 February
2022: $76.3 million). JZCP's investment in EMC 2010 was valued at
$nil (28 February 2022: $0.6 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 and funded by JZCP to this
investment at 28 February 2023, was $34.1 million. As approved by a
shareholder vote on 12 August 2020, JZCP has the ability to make up
to approximately $4.1 million in further commitments to Spruceview,
above the original $33.5 million committed. Further commitments
made would be on the same 50:50 basis with Jay Jordan and David
Zalaznick (or their respective affiliates). Following a capital
call of $0.6 million in November 2022, JZCP has the option to
increase further commitments to Spruceview up to approximately $3.5
million.
During the year ended 28 February 2021, the Company sold 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 2023, JZCP's
investment in JZHL Secondary Fund LP was valued at $80.4 million
(28 February 2022: $99.2 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 2023, these co-investments, with the Fund A entities, were
in the following portfolio companies: Industrial Service Solutions
WC, L.P., Safety Solutions Holdings, BSM Engenharia and Tierpoint.
Pursuant to a merger agreement, dated December 14, 2022, JZCP and
all of the Fund A Entities transferred their prior investments in
ISS #2, LLC ratably in exchange for cash, a rollover investment
(Industrial Service Solutions WC, L.P.) and contingent escrow
amounts. JZCP's investments in Safety Solutions Holdings and
Tierpoint have subsequently been transferred to JZHL Secondary Fund
LP (mentioned above).
During the prior 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 lien Subordinated 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 “Subordinated Notes”). The
issuance of the Subordinated Notes was subject to a number of
conditions, including shareholder approval. On 26 August 2022, the
maturity date of the Subordinated Notes was extended to 30
September 2022 and subsequently after certain criteria were met
extended for a further 12 months to 30 September 2023. On 14
February 2023, the Company completed an early voluntary redemption
in full of the Subordinated Notes.
Total Directors' remuneration for the year ended 28 February 2023
was $290,000 (28 February 2022: $290,000).
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. Basic and Diluted (Loss)/Earnings Per Share
Basic earnings per share is calculated by dividing the profit for
the year by the weighted average number of Ordinary shares
outstanding during the year.
For the year ended 28 February 2023, the weighted average number of
Ordinary shares outstanding during the year was 77,477,214 (Year
ended 28 February 2022: 77,475,932).
The diluted earnings per share is calculated by considering
adjustments required to the profit and weighted average number of
shares for the effects of potential dilutive Ordinary shares.
Following the redemption of the Company's CULS during the prior
year, there are no longer any potential dilutive events to the
Ordinary shares.
28. Net Asset Value Per Share
The net asset value per Ordinary share of $4.06 (28 February 2022:
$4.03, restated from $4.29 in accordance with information disclosed
in Note 2) is based on the net assets at the year end of
$314,498,000 (28 February 2022:$311,852,000) and on 77,477,214 (28
February 2022: 77,477,214) Ordinary shares, being the number of
Ordinary shares in issue at the year end.
29. 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. With the exception of Industrial Services Solutions
(ISS) discussed below, the Company has assessed that the likelihood
of the recovery of other escrow accounts at 28 February 2023 and 28
February 2022 cannot be determined and has therefore classified
these escrow accounts as a contingent asset.
In December 2022, following the partial sale of the Company's
interest in Industrial Services Solutions (ISS), approximately $8.3
million was placed in an escrow account payable to the Company
post-closing pursuant to an escrow arrangement that is subject to
customary final closing adjustments. Included in this escrow amount
was approximately $5.3 million held back for the scenario of the
estimated net working capital on closing exceeding the final agreed
amount. The Board determined due to the high likelihood that this
portion of the total escrow would be released imminently, it would
be included within the year end valuation of Industrial Service
Solutions WC, L.P. rather than as an contingent asset. The Company
still has the potential to receive further proceeds from the
closing of the ISS partial sale once the final working capital of
ISS on the closing date has been agreed, as well as the other
standard escrows highlighted in below table.
As at 28 February 2023 and 28 February 2022, the Company had the
following contingent assets held in escrow accounts which had not
been recognised as assets of the Company: |
|
|
|
|
|
|
|
|
28.2.2023 |
|
|
|
|
|
|
|
|
|
US$ |
|
Unaudited
NAV per share - announced 20 March 2023 |
4.08 |
|
Valuation
change |
(0.02) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audited
NAV per share |
4.06 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company |
|
|
|
|
Amount in Escrow |
|
|
|
|
|
28.2.2023 |
|
28.2.2022 |
|
|
|
|
|
US$'000 |
|
US$'000 |
|
|
|
|
|
|
|
|
Industrial Services
Solutions (ISS) |
|
|
|
|
3,044 |
|
- |
Igloo |
|
|
|
|
49 |
|
49 |
Salter Labs ($528,000
received) |
|
|
|
|
- |
|
536 |
Southern
Petroleum Laboratories ($525,000 received) |
|
- |
|
509 |
JZHL
Secondary Fund (being 37.5% of the total amount held in
escrow) |
|
- |
|
202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,093 |
|
1,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended 28 February
2023 net proceeds including a minor refund of an escrow
receipt, totalled $1,189,000
(28 February 2022: $597,000) were realised during the year and
recorded in the Statement of Comprehensive Income.
|
Year
Ended |
|
Year
Ended |
|
28.2.2023 |
|
28.2.2022 |
|
US$'000 |
|
US$'000 |
Escrows at beginning
of year |
1,296 |
|
328 |
Escrows added on
realisation of investments |
4,336 |
|
1,321 |
Escrow receipts during
the year |
(1,189) |
|
(597) |
Escrow
received by JZHL Secondary Fund and distributed in accordance
with
Limited Partner agreement. |
(1,320) |
|
- |
Additional escrows
recognised in year not reflected in opening position |
(30) |
|
509 |
Potential escrows at
prior year end no longer recorded |
- |
|
(265) |
|
|
|
|
Escrows at year
end |
3,093 |
|
1,296 |
30. Notes to the Statement of Cash
Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and interest received during the year |
|
|
|
|
Year
Ended |
|
Year
Ended |
|
|
|
|
|
|
|
|
|
28.2.2023 |
|
28.2.2022 |
|
|
|
|
|
|
|
|
|
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on unlisted
investments |
|
|
|
|
|
|
|
- |
|
520 |
|
Bank interest |
|
|
|
|
|
|
|
275 |
|
174 |
|
Treasury interest |
|
|
|
|
|
|
|
726 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,001 |
|
694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
1.3.2022 |
|
Cash
flows |
Fair Value |
Finance Costs |
Foreign Exchange |
28.2.2023 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
|
US$
'000 |
US$
'000 |
|
US$
'000 |
|
|
|
|
|
|
|
|
|
|
|
Senior credit
facility |
42,573 |
|
(4,555) |
|
- |
|
5,163 |
- |
|
43,181 |
Subordinated
Notes |
32,293 |
|
(34,093) |
|
- |
|
1,800 |
- |
|
- |
Zero Dividend
Preference (2022) shares |
75,038 |
|
(64,296) |
|
- |
|
2,067 |
(12,809) |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
149,904 |
|
(102,944) |
|
- |
|
9,030 |
(12,809) |
|
43,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 credit
facility |
68,694 |
|
(32,964) |
|
- |
|
6,843 |
- |
|
42,573 |
Zero Dividend
Preference (2022) shares |
74,303 |
|
- |
|
- |
|
3,807 |
(3,072) |
|
75,038 |
Subordinated
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 |
|
|
|
|
|
|
|
|
|
|
|
31. Dividends Paid and Proposed
No dividends were paid or proposed for the years ended
28 February 2023 and 28 February 2022.
32. 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 2023, 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, 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 2024.
Measurement of Liabilities
The Company's Senior Credit Facility and previously the
Company's Subordinated Notes and ZDP shares are/were recorded at
amortised cost using the effective interest rate method in
accordance with US GAAP and IFRS.
The following table presents performance information derived
from the Financial Statements.
The Company's Senior Credit Facility and previously the
Company's Subordinated Notes and ZDP shares are/were recorded at
amortised cost using the effective interest rate method in
accordance with US GAAP and IFRS.
The following table presents performance information derived
from the Financial Statements.
|
|
|
|
|
|
|
|
|
28.2.2022 |
|
|
|
|
|
|
28.2.2023 |
|
restated1 |
|
|
|
|
|
|
US$ |
|
US$ |
|
|
|
|
|
|
|
|
|
Net asset
value per share at the beginning of the year |
|
|
4.03 |
|
3.98 |
|
|
|
|
|
|
|
|
|
Performance during the
year (per share): |
|
|
|
|
|
|
|
|
Net investment
income |
|
|
|
|
|
0.17 |
|
0.22 |
Net realised and
unrealised gain |
|
|
|
|
|
0.11 |
|
0.14 |
Operating
expenses |
|
|
|
|
|
(0.13) |
|
(0.14) |
Finance costs |
|
|
|
|
|
(0.12) |
|
(0.17) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total return |
|
|
|
|
|
0.03 |
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset
value per share at the end of the year |
|
|
|
|
4.06 |
|
4.03 |
|
|
|
|
|
|
|
|
|
Total Return |
|
|
|
|
|
0.66% |
|
0.95% |
|
|
|
|
|
|
|
|
|
Net
investment income to average net assets excluding incentive
fee |
|
3.72% |
|
4.76% |
|
|
|
|
|
|
|
|
|
Operating expenses to
average net assets |
|
|
|
|
|
(2.91%) |
|
(3.41%) |
|
|
|
|
|
|
|
|
|
Finance costs to
average net assets |
|
|
|
|
|
(2.65%) |
|
(4.00%) |
|
1 See Note 2
33. Subsequent Events
These financial statements were approved by the Board on
7 June 2023. Subsequent events have
been evaluated until this date.
There are no subsequent events to report.
Company
Advisers |
|
|
|
|
|
|
|
|
|
|
|
Investment Adviser |
|
|
Independent
Auditor |
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. |
|
|
Ernst & Young
LLP |
|
|
PO Box 9 |
|
|
Royal Chambers |
|
|
St Julian's
Avenue |
|
|
St Peter Port |
|
|
Guernsey GY1 4AF |
|
|
|
|
Jordan/Zalaznick Advisers, Inc. |
|
|
UK
Solicitor |
9 West
57th Street |
|
|
Ashurst LLP |
New York
NY 10019 |
|
|
London Fruit &
Wool Exchange |
|
|
|
1 Duval Square |
Registered Office |
|
|
London E1 6PW |
PO Box
255 |
|
|
|
Trafalgar
Court |
|
|
US Lawyers |
Les
Banques |
|
|
Monge Law Firm,
PLLC |
St Peter
Port |
|
|
435 South Tryon
Street |
Guernsey
GY1 3QL |
|
|
Charlotte, NC
28202 |
|
|
|
|
JZ Capital
Partners Limited is registered in Guernsey |
|
|
Mayer Brown LLP |
Number
48761 |
|
|
300 South Tryon
Street |
|
|
|
Suite 1800 |
Administrator, Registrar and Secretary |
|
|
Charlotte NC
28202 |
Northern
Trust International Fund Administration |
|
|
|
Services
(Guernsey) Limited |
|
|
Winston & Strawn
LLP |
PO Box
255 |
|
|
35 West Wacker
Drive |
Trafalgar
Court |
|
|
Chicago IL
60601-9703 |
Les
Banques |
|
|
|
St Peter
Port |
|
|
Guernsey
Lawyer |
Guernsey
GY1 3QL |
|
|
Mourant Ozannes
(Guernsey) LLP |
|
|
|
Royal Chambers |
UK
Transfer and Paying Agent |
|
|
St Julian's
Avenue |
Equiniti
Limited |
|
|
St Peter Port |
Aspect
House |
|
|
Guernsey GY1 4HP |
Spencer
Road |
|
|
|
Lancing |
|
|
Financial Adviser
and Broker |
West
Sussex BN99 6DA |
|
|
J.P. Morgan Securities
plc |
|
|
|
25 Bank Street |
US
Bankers |
|
|
London E14 5JP |
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). |
|
|
|
|
|
|
|
City
National Bank |
|
|
|
100 SE 2nd
Street, 13th Floor |
|
|
|
Miami, FL
33131 |
|
|
|
|
|
|
|
Guernsey Banker |
|
|
|
Northern
Trust (Guernsey) Limited |
|
|
|
PO Box
71 |
|
|
|
Trafalgar
Court |
|
|
|
Les
Banques |
|
|
|
St Peter
Port |
|
|
|
Guernsey
GY1 3DA |
|
|
|
|
|
|
|
|
|
|
|
|
Useful Information for
Shareholders
Listing
JZCP Ordinary 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.
On 3 October 2022, the Company
redeemed and cancelled its Zero Dividend Preference ("ZDP") shares
on their maturity date.
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.
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
2023 was 0.7% (2022: 1.1% (restated)), 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 2023 was 50.0%, 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 2022 was 34.6%.
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 2023, JZCP's
Ordinary shares traded at £1.58 (28 February
2022: £1.05) or $1.91
(28 February 2022: $1.41) being the dollar equivalent using the year
end exchange rate of £1: $1.21
(28 February 2022 £1: $1.34). The shares traded at a 53.0%
(28 February 2022: 65.0% (restated))
discount to the NAV per share of $4.06 (2022: $4.03).
Ongoing Charges calculation
A measure expressing the Ongoing annualised expenses as a
percentage of the Company's average annualised net assets over the
year 2.56% (2022: 3.31%). Ongoing charges, or annualised recurring
operating expenses, are those expenses of a type which are likely
to recur in the foreseeable future, and which relate to the
operation of the company, excluding financing charges and
gains/losses arising on investments.
Ongoing charges are based on costs incurred in the year as being
the best estimate of future costs but are amended if this method is
not considered an accurate prediction of future expenses. Ongoing
expenses for the year are $8,306,000
(2022: $10,785,000) comprising of the
IA base fee $5,406,000 (2022:
$7,414,000), Directors' fees
$290,000 (2022: $290,000) and other fees $2,610,000 (2022: $3,081,000) . Average net assets for the year are
calculated using quarterly NAVs $344,532,000 (2022: $323,045,000).
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 |
25 July 2023 |
Interim report for the
six months ended 31 August 2023 |
November 2023 (date to
be confirmed) |
Results for the year
ended 28 February 2024 |
May 2024 (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"). |
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 may 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. Pursuant to current tax laws regarding constructive
ownership of CFC stock, the Company’s US subsidiary will be deemed
to own all of the stock of the non-US subsidiaries held by the
Company for purposes of determining such non-US subsidiaries’ CFC
status. The Company's treatment as a CFC as well as its non-US
subsidiaries’ treatment as CFCs could have adverse tax consequences
for 10% US Shareholders. A 10% US Shareholder must generally
include in its gross income its pro rata share of certain earnings
and profits of a CFC. If such 10% US Shareholder sells or exchanges
stock of an entity which, during the five-year period ending upon
the date of such sale or disposition, was a CFC, then such 10% US
Shareholder will be required to treat a portion of the gain
recognized upon such sale or exchange as a dividend to the extent
of the earnings and profits of the CFC attributable to such stock.
In addition, a 10% US Shareholder is subject to an additional
taxable income inclusion for its pro-rata amount of “global
intangible low-taxed income” (“GILTI”). The includable amount of
income is the 10% US Shareholder’s share of the excess of the CFC’s
“net CFC tested income” above a notional 10% annual return on the
CFC’s aggregate adjusted tax basis in certain tangible depreciable
business assets. Corporate 10% US Shareholders are entitled to a
deduction equal to 50% of the GILTI amount until December 31, 2025 (and a deduction equal to 37.5%
of the GILTI amount thereafter) and may be able to offset a share
of such income inclusions with deemed paid foreign tax credits. Any
non-corporate 10% US Shareholder may elect to be treated as a
corporation for purposes of the subpart F and GILTI rules.
The Company has been advised that it qualified as a "passive
foreign investment company" ("PFIC") for the fiscal year ended
February 2022. The Company's
treatment as a PFIC is likely to have adverse tax consequences for
US taxpayers. Previously, for the fiscal year ended February 2021 the Company was advised that it
qualified as a PFIC, however, for fiscal year 2020 the Company was
determined not to qualify as a PFIC. An analysis for the financial
year ended 28 February 2023 will be
undertaken this year. An investment in a PFIC will cause US
taxpayer to be subject to special tax rules. In general, an entity
formed under the laws of a non-US jurisdiction that is classified
as a corporation for US federal income tax purposes will be
classified as a PFIC if seventy-five percent (75%) or more of its
gross income for the taxable year is from passive sources
(generally defined to include interest, dividends, rents, royalties
and gains from the disposition of passive assets) or fifty percent
(50%) or more of the average value of the entity’s assets on the
last day of each fiscal quarter during a year consist of assets
that generate passive income. There are no minimum stock ownership
requirements for application of the PFIC rules. Once a corporation
is a PFIC with respect to a shareholder, it is generally always
treated as a PFIC unless a purging election is made, irrespective
of whether the entity ceases to meet the definitional requirements
for PFIC classification. Under the PFIC rules, gain attributable to
a disposition of the stock of a PFIC, as well as income
attributable to certain “excess distributions” with respect to that
PFIC stock, is allocated ratably over the shareholder’s holding
period for the stock. The portion of such gain and excess
distribution allocated under such rules to such prior years are
subject to tax as ordinary income at the highest rate applicable to
such income during each such year during such holding period, and
is subject to an interest-like charge on the tax liability
attributable to income that is treated as allocated to prior years
as if such liability had actually been due in each such prior
year.
An investor in a PFIC may generally elect to treat that entity
as a qualified electing fund (“QEF”) by filing IRS Form 8621. If a
QEF election is made with respect to the Company, U.S. holders
would generally be required to take into account currently their
pro rata share of certain earnings and net capital gain from the
Company, in general, without regard to whether the Company makes an
actual cash distribution, but would generally not be subject to the
tax regime discussed above. The Company shall provide each investor
with a PFIC Annual Information Statement with its other tax
reporting information for the taxable year upon request. Such
statement shall include sufficient information to enable the
shareholder to calculate its pro rata share of the PFIC’s ordinary
earnings and net capital gain for the tax 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.
U.S. investors can request a PFIC
statement from Northern Trust, the Administrator and Secretary of
JZCP (contact details above).
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