REG - EPE Special Opps Ltd EPE Special Opp-EO.P EPE Special Opp-EL.P - Annual Financial Report
28/03/2024 07:00
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RNS Number : 5947I EPE Special Opportunities Limited 28 March 2024
EPE Special Opportunities Limited
("ESO" or the "Company")
Reports and Accounts for the year ended 31 January 2024
The Board of EPE Special Opportunities is pleased to announce the Company's
Report and Accounts for the year ended 31 January 2024.
Summary
· The macro-economic environment has continued to be complex
throughout the year ended 31 January 2024, creating headwinds for the Company
and its portfolio. Economic uncertainty has underpinned an adverse environment
for new investments or disposals within the portfolio at acceptable pricing.
As a result, the Board and Investment Advisor have prioritised positioning the
portfolio to navigate turbulent market conditions, focussing on operating
improvements and liquidity, alongside progressing longer term growth
strategies which will allow the Company to capitalise as the trading
environment begins to stabilise. The Board and Investment Advisor are
encouraged by early signs of stabilisation in key indicators and are
cautiously optimistic of further improvement over the coming period.
· The Net Asset Value ("NAV") per share of the Company as at 31
January 2024 was 324 pence, representing a decrease of 1 per cent. on the NAV
per share of 328 pence as at 31 January 2023.
· The share price of the Company as at 31 January 2024 was 165 pence,
representing a decrease of 3 per cent. on the share price of 170 pence as at
31 January 2023.
· In March 2024, Luceco released its results for the year ended 31
December 2023, announcing trading ahead of market expectations. The group
announced sales of £209 million, with Q4 trading 9.5 per cent. ahead of the
prior year. The business generated operating profit of £24 million, ahead of
expectations. The business achieved strong cash generation driven by higher
operating profit and improved working capital efficiency which supported
further deleveraging, with net debt of 0.6x LTM EBITDA as at 31 December 2023.
An excellent achievement and well below Luceco's target range of 1.0-2.0x net
debt to EBITDA.
· Whittard of Chelsea ("Whittard") delivered a strong performance in
the period led by growth in its UK retail channel, due to strengthening
domestic and tourist footfall, further enhanced by a new pop-up store in
London Paddington station over the Christmas period. Whittard has continued to
progress its international strategy, with the business entering a strategic
partnership with Rayware to develop its overseas presence and with its South
Korean franchise partner opening a new store in Samsung Town in April 2023.
The business made two senior appointments in January 2024, including a new
Chief Financial Officer and Chief Marketing Officer.
· The Rayware Group ("Rayware") has experienced challenging trading
conditions throughout the period. Financial performance was impacted by
customer destocking, acute supply chain costs, depressed consumer confidence
and well publicised inflationary cost pressures. Rayware's capital structure
has therefore remained under pressure due to depressed EBITDA, interest
exposure and mezzanine finance raised at acquisition. ESO invested £3.35
million in the period to reduce external debt and has a contingent guarantee
of £1.75 million outstanding. More positively, in support of the
international growth strategy, a new Head of US Sales and Marketing was
appointed in June 2023 and a new Head of Export was appointed in February
2024.
· David Phillips has continued to develop its built-to-rent and
project-based divisions, delivering year-on-year sales growth. Profitability
has improved from better product sourcing, pricing and a focus on recurring
sales channels. Efficiency has been further enhanced through prudent actions
taken to reduce the cost base.
· Pharmacy2U ("P2U") demonstrated an increased rate of organic growth
in its core NHS online prescription division in the period. In October 2023,
P2U announced the acquisition of LloydsDirect, the UK's second largest online
pharmacy, from McKesson UK. In March 2024, the UK Competition and Markets
Authority provided clearance for the transaction.
· Denzel's has focussed on developing its team and infrastructure in
the period to support its ambitious growth plans, whilst at the same time
achieving strong year-on-year sales growth. The business relaunched its
website and has seen a significant increase in online marketing and
transactional activity to support its early successes in offline retail
channels.
· In January 2024, EPIC Acquisition Corp ("EAC") announced that it
will return all residual capital to third parties and wind up. A perfect storm
of Ukraine, global divestment from China, economic flux from energy prices,
subsequent inflation and inevitable stock market volatility made 2022 and 2023
difficult years with regards to a high conviction, high risk, capital markets
product. Over the 24 month investment period, the EAC team reviewed over 250
opportunities, engaged actively with 12 targets and held over 100 investor
meetings. Interesting transaction opportunities arose but could not be
completed given the lack of appetite for public market transactions during the
period. A disappointing end to an interesting investment product and
opportunity for ESO. ESO's holding in EAC was realised at par after the year
end, while the value realised from EAC Sponsor will be determined following
the completion of the liquidation.
· In July 2023, the Company completed the realisation of its holdings
in Atlantic Credit Opportunities Fund and in August 2023 completed the
realisation of its holdings in Prelude Structured Alternatives Master Fund LP,
both realised at carrying value.
· The Company had cash balances of £15.3 million1 as at 31 January
2024. The Board continues to focus on maintaining satisfactory liquidity
during the ongoing period of market uncertainty. In July 2023, the Company
exercised its right to extend the maturity of its £4.0 million unsecured loan
notes to 23 July 2024. In July 2023, the Company also repurchased 7.5 million
zero dividend preference ("ZDP") shares for a total consideration of £7.9
million. Following this buyback, the Company has 12.5 million ZDP shares
remaining in issue, maturing in December 2026. The Company has no other
third-party debt outstanding.
· As at 31 January 2024, the Company's unquoted portfolio was valued
at a weighted average EBITDA to enterprise value multiple of 7.2x (excluding
assets investing for growth) and the portfolio continues with a low level of
third party leverage, which is commensurate with current market conditions,
with net third party debt at 1.4x EBITDA in aggregate.
Mr Clive Spears, Chairman, commented: "The Company has faced a complicated
operating environment in the period, but the Board and Investment Advisor have
prudently managed its positioning of the portfolio and the Company with
particular focus on maintaining liquidity and structural or operational
support as required at company and portfolio level. The Board would like to
thank Mr Wilson, who retired in September 2023, for his long period of service
and express their gratitude for his dedication and support throughout his
appointment to the Company over the last 20 years. The Board would like to
express its gratitude to the Investment Advisor and the portfolio management
teams for their diligence during another turbulent year which has been
particularly demanding to ensure investee companies remain on track. The Board
will continue to monitor developments and looks forward to updating
shareholders at the half year."
The person responsible for releasing this information on behalf of the Company
is Amanda Robinson of Langham Hall Fund Management (Jersey) Limited.
Note 1: Company liquidity is stated inclusive of cash held by subsidiaries in
which the Company is the sole investor
Enquiries:
EPIC Investment Partners LLP +44 (0) 207 269 8865
Alex Leslie
Langham Hall Fund Management (Jersey) Limited +44 (0) 15 3488 5200
Amanda Robinson
Cardew Group Limited +44 (0) 207 930 0777
Richard Spiegelberg
Numis Securities Limited +44 (0) 207 260 1000
Nominated Advisor: Stuart Skinner
Corporate Broker: Charles Farquhar
Chairman's Statement
The macro-economic environment has continued to be complex throughout the year
ended 31 January 2024, creating headwinds for the Company and its portfolio.
Economic uncertainty has underpinned an adverse environment for new
investments or disposals within the portfolio at acceptable pricing. As a
result, the Board and Investment Advisor have prioritised positioning the
portfolio to navigate turbulent market conditions, focussing on operating
improvements and liquidity alongside progressing longer term growth strategies
which will allow the Company to capitalise as the trading environment begins
to stabilise. The Board and Investment Advisor are encouraged by early signs
of stabilisation in key indicators and are cautiously optimistic of further
improvement over the coming period.
The Net Asset Value ("NAV") per share* of the Company as at 31 January 2024
was 324 pence, representing a decrease of 1 per cent. on the NAV per share* of
328 pence as at 31 January 2023. The share price of the Company as at 31
January 2024 was 165 pence, representing a decrease of 3 per cent. on the
share price of 170 pence as at 31 January 2023. The share price of the
Company represents a discount(*) of 49% to the NAV per share of the Company as
at 31 January 2024. The Company seeks to manage the discount to NAV via
capital management, including ordinary share buyback programs, as well as
achieving further diversification of the investment portfolio and scale in the
Company.
The Company has prudently managed its positioning of the portfolio, whilst
maintaining momentum within overarching strategic initiatives to drive growth;
· Luceco plc ("Luceco") released its results for the year ended 31
December 2023 announcing sales of £209 million and an operating profit of
£24 million, ahead of expectations.
· The Rayware Group ("Rayware") trading was impacted by customer
destocking, supply chain, consumer confidence and inflationary pressures. A
new Head of US Sales and Marketing was appointed in June 2023 and Head of
Export in February 2024.
· Whittard of Chelsea ("Whittard") delivered its highest revenue under
EPIC ownership, with notable gains in its UK retail channel. A new CMO and CFO
were appointed in January 2024.
· David Phillips has grown sales year-on-year, driven by notable gains
across the build-to-rent and project-based divisions.
· Pharmacy2U ("P2U") delivered sustained growth in its core NHS online
prescription division. The acquisition of LloydsDirect promises to materially
increase the scale of the platform.
· Denzel's has grown sales year-on-year and built a strong foundation
to support its future growth plans. In January 2024, the business appointed an
experienced Chairman to the board.
· EPIC Acquisition Corp ("EAC") announced that it will return all
residual capital to third parties and wind up. ESO's holding in EAC was
realised at par after the year end, while the value realised from EAC Sponsor
will be determined following the completion of the liquidation.
The Company successfully completed the following investments and realisations
in the period;
· In the year ended 31 January 2024, the Company, through its
subsidiary ESO Investments 1 Limited, invested £3.35 million in Rayware,
reducing the business' senior debt, and provided a contingent guarantee to
Rayware's third party lenders with a balance of £1.75m outstanding as at 31
January 2024, following a £0.75 million drawdown in the period.
· In July 2023, the Company completed the realisation of its
holdings in Atlantic Credit Opportunities Fund and in August 2023 completed
the realisation of its holdings in Prelude Structured Alternatives Master Fund
LP, both realised at carrying value.
The performance of the investment portfolio is a key driver of the Net Asset
Value performance of the Company.
The Company had cash balances of £15.3 million*(1) as at 31 January 2024.
Maintaining liquidity has existed as a core focus for the Board, whilst the
macroeconomic environment remains turbulent. In July 2023, the Company
exercised its right to extend the maturity of its £4.0 million unsecured loan
notes to 23 July 2024. In July 2023, the Company also repurchased 7.5 million
zero dividend preference ("ZDP") shares for a total consideration of £7.9
million. Following this buyback, the Company has 12.5 million ZDP shares
remaining in issue, maturing in December 2026. The Company has no other
third-party debt outstanding.
The Board would like to thank Mr Wilson, who retired in September 2023, for
his long period of service and express their gratitude for his dedication and
support throughout his appointment to the Company over the last 20 years. The
Board would like to note its appreciation of the Investment Advisor and the
portfolio management teams for their efforts through a complicated period. The
Board will monitor the progress of the portfolio over the coming months and
looks forward to updating shareholders at the half year.
Clive Spears
Chairman
27 March 2024
*See Alternative Performance Measures of this Report and Accounts.
1 Company liquidity is stated inclusive of cash held in subsidiaries in
which the Company is the sole investor.
Investment Advisor's Report
The macroeconomic backdrop remained volatile, presenting challenges for both
the Company and its portfolio. A complex global economic landscape has
generated a market environment inconducive to new investments or divestments.
As a result, the Board and Investment Advisor have remained focused on
providing support to the portfolio and their management teams, ensuring they
are well-positioned from a strategic, operational and liquidity standpoint.
The Company has taken action to de-risk its capital structure and improved
liquidity by electing to extend the maturity of its £4.0 million unsecured
loan notes to July 2024. This supported the repurchase of 7.5 million of its
ZDP shares, decreasing the redemption amount payable at maturity in December
2026.
The NAV per share* of the Company as at 31 January 2024 was 324 pence,
representing a decrease of 1 per cent. on the NAV per share* of 328 pence as
at 31 January 2023. The share price of the Company as at 31 January 2024 was
165 pence, representing a decrease of 3 per cent. on the share price of 170
pence as at 31 January 2023.
The Company maintains satisfactory liquidity during the ongoing period of
market uncertainty. The Company had cash balances of £15.3 million*(1) as at
31 January 2024, which are available to support the portfolio, meet committed
obligations and deploy into attractive investment opportunities. Net third
party debt(*) in the underlying portfolio stands at 1.4x EBITDA(*) in
aggregate.
The Company's unquoted private investments portfolio is valued at a weighted
average enterprise value to EBITDA multiple* of 7.2x for mature assets
(excluding assets investing for growth). The valuation has been derived by
reference to quoted comparables, after the application of a liquidity discount
to adjust for the portfolio's scale and unquoted nature. The Investment
Advisor notes that the fair market value of the portfolio remains exposed to a
volatile macro environment and equity market valuations.
In July 2023, the Company completed the repurchase of 7.5 million of its ZDP
shares in the market (or 38 per cent. of the Company's issued ZDP share
capital) at a weighted average share price of 105 pence for a total
consideration of £7.9 million.
Luceco released its results for the year ended 31 December 2023 in March 2024.
The business announced trading ahead of market expectations, with sales of
£209 million and Q4 trading 9.5 per cent. ahead of the prior year. The
business generated operating profit of £24 million, ahead of expectations.
The business achieved strong cash generation driven by higher operating profit
and improved working capital efficiency which supported further deleveraging,
with net debt(*) of 0.6x LTM EBITDA(*) as at 31 December 2023. An excellent
achievement and well below Luceco's target range of 1.0-2.0x net debt(*) to
EBITDA(*).
Rayware experienced challenging trading conditions throughout the period.
Financial performance was impacted by customer destocking, acute supply chain
costs, depressed consumer confidence and well publicised inflationary cost
pressures. Rayware's capital structure has therefore remained under pressure
due to depressed EBITDA(*), interest exposure and mezzanine finance raised at
acquisition. ESO invested £3.35 million in the period to reduce external debt
and has a contingent guarantee of £1.75 million outstanding. More positively,
in support of the international growth strategy, a new Head of US Sales and
Marketing was appointed in June 2023 and a new Head of Export was appointed in
February 2024.
Whittard of Chelsea delivered a strong performance in the period led by growth
in its UK retail channel, due to strengthening domestic and tourist footfall,
further enhanced by a new pop-up store in London Paddington station over the
Christmas period. Whittard has continued to progress its international
strategy, with the business entering a strategic partnership with Rayware to
develop its overseas presence and with its South Korean franchise partner
opening a new store in Samsung Town in April 2023. The business made two
senior appointments in January 2024, including a new Chief Financial Officer
and Chief Marketing Officer.
David Phillips has continued to develop its built-to-rent and project-based
divisions, delivering year-on-year sales growth. Profitability has improved
from better product sourcing, pricing and a focus on recurring sales channels.
Efficiency has been further enhanced through prudent actions taken to reduce
the cost base.
Pharmacy2U demonstrated an increased rate of organic growth in its core NHS
online prescription division in the period. In October 2023, P2U announced the
acquisition of LloydsDirect, the UK's second largest online pharmacy, from
McKesson UK. In March 2024, the UK Competition and Markets Authority provided
clearance for the transaction.
Denzel's has focussed on developing its team and infrastructure in the period
to support its ambitious growth plans, whilst at the same time achieving
strong year-on-year sales growth. The business relaunched its website and has
seen a significant increase in online marketing and transactional activity to
support its early successes in offline retail channels. In January 2024, the
business appointed an experienced Chairman to the board.
In January 2024, EPIC Acquisition Corp announced that it will return all
residual capital to third parties and wind up. A perfect storm of Ukraine,
global divestment from China, economic flux from energy prices, subsequent
inflation and inevitable stock market volatility made 2022 and 2023 difficult
years with regards to a high conviction, high risk, capital markets product.
Over the 24 month investment period, the EAC team reviewed over 250
opportunities, engaged actively with 12 targets and held over 100 investor
meetings. Interesting transaction opportunities arose but could not be
completed given the lack of appetite for public market transactions during the
period. A disappointing end to an interesting investment product and
opportunity for ESO. ESO's holding in EAC was realised at par after the year
end, while the value realised from EAC Sponsor will be determined following
the completion of the liquidation.
The Investment Advisor continues to monitor the Company's credit fund
investments. European Capital Private Debt Fund has completed its investment
period and is distributing capital to the Company. In July 2023, the Company
completed the realisation of its holdings in Atlantic Credit Opportunities
Fund and in August 2023 completed the realisation of its holdings in Prelude
Structured Alternatives Master Fund LP, both realised at carrying value.
The Investment Advisor would like to convey its thanks to all of the
management teams across the portfolio for their continued commitment during a
difficult period, and to the Board and the Company's shareholders for their
counsel and support.
EPIC Investment Partners LLP
Investment Advisor to the Company
27 March 2024
*See Alternative Performance Measures of this Report and Accounts.
1 Company liquidity is stated inclusive of cash held in subsidiaries in
which the Company is the sole investor.
Audit and Risk Committee Report
The Audit and Risk Committee is chaired by David Pirouet and comprises all
other Directors. Mr Pirouet was appointed as Chairman of the Committee on 28
June 2019.
The Audit and Risk Committee's main duties are:
· To review and monitor the integrity of the interim and annual
financial statements, interim statements, announcements and matters relating
to accounting policy, laws and regulations of the Company;
· To evaluate the risks to the quality and effectiveness of the
financial reporting process;
· To review the effectiveness and robustness of the internal control
systems and the risk management policies and procedures of the Company;
· To review the valuation of portfolio investments;
· To review corporate governance compliance, including the Company's
compliance with the QCA Corporate Governance Code and Disclosure Guidance and
Transparency Rules ("DTR") reporting requirements;
· To review the nature and scope of the work to be performed by the
Auditors, and their independence and objectivity; and
· To make recommendations to the Board as to the appointment and
remuneration of the external auditors.
The Audit and Risk Committee has a calendar which sets out its work programme
for the year to ensure it covers all areas within its remit appropriately. It
met four times during the period under review to carry out its
responsibilities and senior representatives of the Investment Advisor attended
the meetings as required by the Audit and Risk Committee. In between meetings,
the Audit and Risk Committee chairman maintains ongoing dialogue with the
Investment Advisor and the lead audit partner via regular calls and physical
meetings.
During the past year the Audit and Risk Committee carried out an ongoing
review of its own effectiveness. These concluded that the Audit and Risk
Committee is satisfactorily fulfilling its terms of reference and is operating
effectively. In addition, the Audit and Risk Committee undertook a review of
the Company's corporate governance and compliance with the QCA Corporate
Governance Code and DTR reporting requirements.
Significant accounting matters
The primary risk considered by the Audit and Risk Committee during the period
under review in relation to the financial statements of the Company is the
valuation of unquoted investments.
The Company's accounting policy for valuing investments is set out in notes 3i
and 12. The Audit and Risk Committee examined and challenged the valuations
prepared by the Investment Advisor, taking into account the latest available
information on the Company's investments and the Investment Advisor's
knowledge of the underlying portfolio companies through their ongoing
monitoring. The Audit and Risk Committee satisfied itself that the valuation
of investments had been carried out consistently with prior accounting
periods, or that any change in valuation basis was appropriate, and was
conducted in accordance with published industry guidelines.
The Auditors explained the results of their review of the procedures
undertaken by the Investment Advisor in preparation of valuation
recommendations for the Audit and Risk Committee. On the basis of their audit
work, no material adjustments were identified by the Auditor.
External audit
The Audit and Risk Committee reviewed the audit plan and fees presented by the
auditors, PricewaterhouseCoopers CI LLP ("PwC"), and considered their report
on the financial statements. The fee for the audit of the annual report and
financial statements of the Company (and subsidiaries) for the year ended 31
January 2024 is £81,200 (2023: £61,350).
The Audit and Risk Committee reviews the scope and nature of all proposed
non-audit services before engagement, with a view to ensuring that none of
these services have the potential to impair or appear to impair the
independence of their audit role. The Audit and Risk Committee receives an
annual assurance from the auditors that their independence is not compromised
by the provision of such services, if applicable. During the period under
review, the auditors provided non-audit services to the Company in relation to
the Interim Review representing total fees of £26,350 (2023: £17,000).
On 22 April 2022, PwC were appointed as auditors to the Company from the 31
July 2023 Interim review and the 31 January 2023 audit. The Audit and Risk
Committee regularly considers the need to put the audit out to tender, the
auditors' fees and independence, alongside matters raised during each audit.
PwC, being eligible, have expressed their willingness to continue in office
for the current financial year.
Other service providers
The Board will review the performance and services offered by Langham Hall, as
fund administrator and EPIC Administration as fund sub-administrator on an
ongoing basis. EPIC Administration completed its last triennial agreed upon
procedures review during the year ended 31 January 2021. The agreed upon
procedures review for 2024 is currently ongoing.
Risk management and internal control
The Company does not have an internal audit function. The Audit and Risk
Committee believes this is appropriate as all of the Company's operational
functions are delegated to third party service providers who have their own
internal control and risk monitoring arrangements. A report on these
arrangements is prepared by each third party service provider and submitted to
the Audit and Risk Committee which it reviews on behalf of the Board to
support the Directors' responsibility for overall internal control. The
Company does not have a whistleblowing policy and procedure in place. The
Company delegates this function to the Investment Advisor who is regulated by
the FCA and has such policies in place. The Audit and Risk Committee has been
informed by the Investment Advisor that these policies meet the industry
standard and no whistleblowing took place during the year.
Corporate Governance Statement
The Board of EPE Special Opportunities is pleased to update shareholders of
the Company's compliance with the 2018 Quoted Companies Alliance Corporate
Governance Code (the "QCA Code").
The Company is committed to the highest standards of corporate governance,
ethical practices and regulatory compliance. The Board believe that these
standards are vital to generate long-term, sustainable value for the Company's
shareholders. In particular the Board is concerned that the Company is
governed in a manner to allow efficient and effective decision making, with
robust risk management procedures.
As an investment vehicle, the Company is reliant upon its service providers
for many of its operations. The Board maintains ongoing and rigorous review of
these providers. Specifically the Board reviews the governance and compliance
of these entities to ensure they meet the high standards of the Company.
The Board is dedicated to upholding these high standards and will look to
strengthen the Company's governance on an ongoing basis.
The Company's compliance with the QCA Code is included in this report and on
the Company's website (www.epespecialopportunities.com). The Board deems the
QCA Code sufficient and any additional listing rules and DTR disclosures are
covered in this Corporate Governance report. The Company will provide annual
updates on changes to compliance with the QCA Code.
The Quoted Companies Alliance has announced that a revised version of the QCA
Code will apply to accounting periods commencing on or after 1 April 2024. The
Company will update its corporate governance disclosures to reflect the
revised code in the Report and Accounts released in the relevant future
accounting period.
The FCA also progresses on changing the UK Listing Rules. The key changes
include creating a single segment for listed equity securities, replacing the
current premium and standard distinctions and placing additional obligations
on standard listed issuers, including related party transactions as well as
bringing them within scope of the UK Governance Code. The Board will monitor
and make an assessment of how these changes impact the Company.
The Board has reviewed the analysis below and confirms in its view that the
Company has complied with the applicable requirements of the 2018 QCA Code.
Clive Spears
Chairman
27 March 2024
Report of the Directors
Principal activity and incorporation
EPE Special Opportunities Limited (the "Company") was incorporated in the Isle
of Man as a company limited by shares under the Laws with registered number
108834C on 25 July 2003. On 23 July 2012, the Company re-registered under the
Isle of Man Companies Act 2006, with registration number 008597V. On 11
September 2018, the Company re-registered under the Bermuda Companies Act
1981, with registration number 53954. The Company's ordinary shares are quoted
on AIM, a market operated by the London Stock Exchange, and the Growth Market
of the Aquis Stock Exchange (formerly the NEX Exchange). The Company's
Unsecured Loan Notes ("ULN") are quoted on the Aquis Stock Exchange.
The Company's Zero Dividend Preference Shares ("ZDP") are admitted to trade on
the main market of the London Stock Exchange (standard listed). It was
identified that the 31 January 2023 accounts did not fully include certain
disclosures and requirements necessitated by the main market listing of the
ZDP shares. Detailed review has been performed by management to consider
obligations and reporting requirements in accordance with the Listing Rules
and DTR for the standard listed segment (shares) on the London Stock Exchange.
The format of the annual report has been updated to include the required
disclosures.
The principal activity of the Company and its subsidiaries holding vehicles
(together the "Subsidiaries") is to provide long- term return on equity for
its shareholders by investing between £2m and £30m in small and medium sized
companies. The Company targets growth capital and buy-out opportunities,
special situations and distressed transactions, deploying capital where it
believes the potential for shareholder value creation to be compelling. The
Company has the flexibility to invest in public as well as private companies
and is also able to invest in Special Purpose Acquisition Companies ("SPACs")
and third party funds. The Company will consider most industry sectors
including business services, consumer and retail, financial services and the
industrials sector. The portfolio is likely to be concentrated, numbering
between two and ten assets at any one time, which allows the Company to
allocate the necessary resource to form genuinely engaged and supportive
partnerships with management teams. This active approach facilitates the
delivery of truly transformational initiatives in underlying investments
during the Company's period of ownership.
The Subsidiary investment holding vehicles are not consolidated in the group's
financial statements in accordance with IFRS 10. The Company also controls an
employee benefit trust ("EBT") established to operate the jointly owned share
plan and share based payment scheme for the Company's Directors and certain
employees of the Investment Advisor. The financial statements presented in
this Report and Accounts are the consolidated financial statements of the
Company and the EBT subsidiary. The Company and the EBT subsidiary are
collectively referred to as the "Group" hereinafter.
Registered office
The Company's registered office is:
Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.
Place of business
Prior to 15 May 2023, the Company operated out of and was controlled from:
Liberation House, Castle Street, St Helier, Jersey JE1 2LH.
On 15 May 2023, the Company's place of business was amended to:
Gaspe House, 66-72 Esplanade, St Helier, Jersey, Channel Islands, JE1 2LH.
Results of the financial year
Results for the year are set out in the Consolidated Statement of
Comprehensive Income and in the Consolidated Statement of Changes in Equity.
Dividends
The Board does not recommend a dividend in relation to the current year (2023:
nil) (see note 10 for further details).
Corporate governance principles
Please refer to the Corporate Governance Statement of this Report &
Accounts. The Directors, place a high degree of importance on ensuring that
the Company maintains high standards of Corporate Governance and have
therefore adopted the Quoted Companies Alliance 2018 Corporate Governance Code
(the "QCA Code").
The Board holds at least four meetings annually and has established an Audit
and Risk Committee. The Investment Committee was agreed to be disbanded by the
Board, given that the Subsidiary investment holding vehicles have their own
Boards and governance structure in place. The Subsidiary investment holding
vehicles' Boards review and approve the direct investments, and as such a
separate Investment Committee at the Company level is not required. The Board
does not intend to establish remuneration and nomination committees given the
current composition of the Board and the nature of the Company's operations.
The Board reviews annually the remuneration of the Directors and agrees on the
level of Directors' fees.
Composition of the Board
The Board currently comprises four non-executive directors, all of whom are
independent. Clive Spears is Chairman of the Board, David Pirouet is Chairman
of the Audit and Risk Committee.
Nicholas Wilson stepped down from the Board on 30 September 2023.
Audit and Risk Committee
The Audit and Risk Committee comprises David Pirouet (Chairman of the
Committee) and all other Directors. The Audit and Risk Committee provides a
forum through which the Company's external auditors report to the Board.
The Audit and Risk Committee meets twice a year, at a minimum, and is
responsible for considering the appointment and fee of the external auditors
and for agreeing the scope of the audit and reviewing its findings. It is
responsible for monitoring compliance with accounting and legal requirements,
ensuring that an effective system of internal controls is maintained and for
reviewing the annual and interim financial statements of the Company before
their submission for approval by the Board. The Audit and Risk Committee has
adopted and complied with the extended terms of reference implemented on the
Company's readmission to AIM in August 2010, as reviewed by the Board from
time to time.
The Board is satisfied that the Audit and Risk Committee contains members with
sufficient recent and relevant financial experience.
Principal risks and uncertainties
The Group has a robust approach to risk management that involves ongoing risk
assessments, communication with our Board of Directors and Investment Advisor,
and the development and implementation of a risk management framework along
with reports, policies and procedures. We continue to monitor relevant
emerging risks and consider the market and macro impacts on our key risks.
Risk Description Mitigation
Performance Risk In the event the Company's investment portfolio underperforms the market, the The Board independently reviews any investment recommendation made by the
Company may underperform vs. the market and peer benchmarks. Investment Advisor in light of the investment objectives of the Company and
the expectations of shareholders.
The Investment Advisor maintains board representation on all majority owned
portfolio investments and maintains ongoing discussions with management and
other key stakeholders in investments to ensure that there are controls in
place to ensure the success of the investment.
Portfolio Concentration Risk The Company's investment policy is to hold a concentrated portfolio of 2-10 The Directors and Investment Advisor keep the portfolio under review and focus
assets. In a concentrated portfolio, if the valuation of any asset decreases closely on those holdings which represent the largest proportion of total
it may have a material impact on the Company's NAV. value.
Liquidity Management Liquidity risk is the risk that the Company will encounter difficulty in The Board and Investment Advisor closely monitors cash flow forecasts in
meeting the obligations associated with its financial liabilities that are conjunction with liability maturity. Liquidity forecasts are carefully
settled by delivering cash or another financial asset. considered before capital deployment decisions are made.
Credit Risk Credit risk is the risk that an issuer or counterparty will be unable or Loan investments are entered into as part of the investment strategy of the
unwilling to meet a commitment that it has entered into with the Company. The Company and its subsidiaries, and credit risk is managed by taking security
Company, through its interests in subsidiaries, has advanced loans to a number where available (typically a floating charge) and the Investment Advisor
of private companies which exposes the Company to credit risk. The loans are taking an active role in the management of the borrowing companies. In
advanced to unquoted private companies, which have no credit risk rating. addition to the repayment of loans advanced, the Company and subsidiaries will
often arrange additional preference share structures and take significant
equity stakes so as to create shareholder value. It is the performance of the
combination of all securities including third party debt that determines the
Company's view of each investment.
Operational Risk The Company outsources investment advisory and administrative functions to The primary responsibility for the development and implementation of controls
service providers. Inadequate or failed internal processes could lead to over operational risk rests with the Board of Directors. This responsibility
operational performance risk and regulatory risk. is supported by the development of overall standards for the management of
operational risk, which encompasses the controls and processes at the service
providers and the establishment of service levels with the service providers.
The Directors' assessment of the adequacy of the controls and processes in
place at the service providers with respect to operational risk is carried out
via regular discussions with the service providers as well as site visits to
their offices. The Company also undertakes periodic third-party reviews of
service providers' activities.
Significant holdings
Significant shareholdings are analysed in the unaudited schedule of
shareholders holding over 3% of issued shares. The Directors are not aware of
any other holdings greater than 3 per cent. of issued shares.
Directors
The Directors of the Company holding office during the financial year and to
date are:
Mr. C.L. Spears (Chairman)
Mr. N.V. Wilson (resigned on 30 September 2023)
Ms. H. Bestwick
Mr. D.R. Pirouet
Mr. M.M Gray
Related Party Transactions
Details in respect of the Group's related party transactions during the period
are included in note 22 to the financial statements.
Staff and Secretary
At 31 January 2024 the Group employed no staff (2023: none).
Independent Auditors
The current year is the second year in which PricewaterhouseCoopers CI LLP are
undertaking the audit for the Group. PricewaterhouseCoopers CI LLP have
indicated willingness to continue in office.
On behalf of the Board
Heather Bestwick
Director
27 March 2024
Statement of Directors' Responsibilities
in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
The Directors are required to prepare financial statements for each financial
year. The Group is required to prepare the financial statement in accordance
with IFRS Accounting Standards as issued by the International Accounting
Standards Board (hereinafter "IFRS Accounting Standards") and applicable legal
and regulatory requirements of Bermuda Companies Act 1981.
The Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of affairs of the
Group and of its profit or loss for that period. In preparing the Group's
financial statements, the Directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and estimates that are reasonable, relevant and
reliable;
· state whether they have been prepared in accordance with IFRS
Accounting Standards; and
· assess the Group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and use the going
concern basis of accounting unless they either intend to liquidate the Group
or to cease operations, or have no realistic alternative but to do so.
The Directors confirm that they have complied with the above requirements in
preparing the financial statements.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's transactions and disclose with
reasonable accuracy at any time the financial position of the Group and enable
them to ensure that its financial statements comply with the Bermuda Companies
Act 1981. They are responsible for such internal control as they determine is
necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error, and have general
responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the Group and to prevent and detect fraud and other
irregularities.
The maintenance and integrity of the Company's 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 might have occurred to the annual
financial statements since they were initially presented on the website.
Legislation in Bermuda governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Each of the Directors confirm that, to the best of their knowledge:
· The financial statements, prepared in accordance with IFRS Accounting
Standards, give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company and the undertakings included in
the consolidation taken as a whole; and
· the Investment Advisor's report includes a fair review of the
development and performance of the business and the position of the Company
and the undertakings included in the consolidation taken as a whole, together
with a description of the principal risks and uncertainties that they face.
In the case of each Director in office at the date the Directors' report is
approved:
· so far as the Director is aware, there is no relevant audit
information of which the Group's auditors are unaware; and
· they have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit information
and to establish that the Group's auditors are aware of that information.
This annual report was approved by the Board and the above Director's
Responsibility Statement was signed on behalf of the Board by:
Heather Bestwick
Director
27 March 2024
Consolidated Statement of Comprehensive Income
For the year ended 31 January 2024
31 January 2024 31 January 2023
Total Total
Note £ £
Income
4 Interest income 366,660 79,899
11 Net fair value movement on investments* 3,384,604 (39,438,551)
Total income / (loss) 3,751,264 (39,358,652)
Expenses
5 Investment advisor's fees (1,832,745) (1,755,442)
6 Directors' fees (162,474) (172,000)
7 Share based payment expense (339,593) (555,225)
8 Other expenses (635,675) (557,416)
Total expense (2,970,487) (3,040,083)
Profit / (loss) before finance costs and tax 780,777 (42,398,735)
Finance charges
15 Interest on unsecured loan note instruments (309,049) (309,382)
15 Zero dividend preference shares finance charge (868,190) (1,128,093)
Loss for the year before taxation (396,462) (43,836,210)
9 Taxation - -
Loss for the year (396,462) (43,836,210)
Other comprehensive income - -
Total comprehensive loss (396,462) (43,836,210)
17 Basic loss per ordinary share (pence) (1.39) (147.95)
17 Diluted loss per ordinary share (pence) (1.33) (141.77)
* The net fair value movements on investments is allocated to the capital
reserve and all other income and expenses are allocated to the revenue reserve
in the Consolidated Statement of Changes in Equity. All items derive from
continuing activities.
Consolidated Statement of Assets and Liabilities
At 31 January 2024
31 January 2024 31 January 2023
Note £ £
Non-current assets
11 Investments at fair value through profit or loss 95,459,612 100,412,977
95,459,612 100,412,977
Current assets
11 Investments at fair value through profit or loss 5,262,427 -
13 Cash and cash equivalents 14,462,495 22,226,008
Trade and other receivables and prepayments 73,646 87,899
19,798,568 22,313,907
Current liabilities
14 Trade and other payables (676,284) (596,790)
15 Unsecured loan note instruments (3,987,729) (3,987,729)
(4,664,013) (4,584,519)
Net current assets 15,134,555 17,729,388
Non-current liabilities
15 Zero dividend preference shares (13,714,191) (20,721,001)
(13,714,191) (20,721,001)
Net assets 96,879,976 97,421,364
Equity
16 Share capital 1,730,828 1,730,828
16 Share premium 13,619,627 13,619,627
24 Capital reserve 100,523,993 97,139,389
24 Revenue reserve and other equity (18,994,472) (15,068,480)
Total equity 96,879,976 97,421,364
18 Net asset value per share (pence) 324.26 328.41
The financial statements were approved by the Board of Directors on 27 March
2024 and signed on its behalf by:
Clive
Spears
David Pirouet
Director
Director
Consolidated Statement of Changes in Equity
For the year ended 31 January 2024
Year ended 31 January 2024
Share capital Share premium Capital reserve Revenue Total
reserve and other equity
Note £ £ £ £ £
Balance at 1 February 2023 1,730,828 13,619,627 97,139,389 (15,068,480) 97,421,364
Total comprehensive loss for the year - - 3,384,604 (3,781,066) (396,462)
Contributions by and distributions to owners
7 Share-based payment charge - - - 339,593 339,593
Share ownership scheme participation - - - 41,401 41,401
16 Share acquisition for JOSP scheme - - - (525,920) (525,920)
Total transactions with owners - - - (144,926) (144,926)
Balance at 31 January 2024 1,730,828 13,619,627 100,523,993 (18,994,472) 96,879,976
Year ended 31 January 2023
Share capital Share premium Capital reserve Revenue Total
reserve and
other equity
Note £ £ £ £ £
Balance at 1 February 2022 1,730,828 13,619,627 136,577,940 (8,303,418) 143,624,977
Total comprehensive loss for the year - - (39,438,551) (4,397,659) (43,836,210)
Contributions by and distributions to owners
7 Share-based payment charge - - - 555,225 555,225
Share ownership scheme participation - - - 149,568 149,568
16 Purchase of shares - - - (2,587,375) (2,587,375)
16 Share acquisition for JOSP scheme - - - (484,821) (484,821)
Total transactions with owners - - - (2,367,403) (2,367,403)
Balance at 31 January 2023 1,730,828 13,619,627 97,139,389 (15,068,480) 97,421,364
Consolidated Statement of Cash Flows
For the year ended 31 January 2024
31 January 2024 31 January 2023
Note £ £
Operating activities
Interest income received 366,660 79,899
Expenses paid (2,535,853) (2,853,467)
11 Purchase of investments (3,350,000) (3,174,948)
11 Proceeds from investments 6,425,542 3,848,880
19 Net cash generated from / (used in) operating activities 906,349 (2,099,636)
Financing activities
15 Unsecured loan note interest paid (309,049) (299,080)
Purchase of shares (525,920) (3,072,196)
15 Buyback of zero dividend preference shares (7,875,000) -
Share ownership scheme participation 41,401 149,568
Net cash used in financing activities (8,668,568) (3,221,708)
Decrease in cash and cash equivalents (7,762,219) (5,321,344)
Effect of exchange rate fluctuations on cash and cash equivalents (1,294) 2,310
Cash and cash equivalents at start of year 22,226,008 27,545,042
13 Cash and cash equivalents at end of year 14,462,495 22,226,008
Reconciliation of net debt
Cash and cash equivalents On 31 January 2023 Cash flows Other non-cash charge On 31 January 2024
£ £ £ £
Cash at bank 22,226,008 (7,762,219) (1,294) 14,462,495
Unsecured loan note 309,049 (309,049) (3,987,729)
instruments (3,987,729)
Zero dividend preference shares (20,721,001) 7,875,000 (868,190) (13,714,191)
Net debt (2,482,722) 421,830 (1,178,533) (3,239,425)
Notes to the Consolidated Financial Statements
For the year ended 31 January 2024
1 General information
On 25 July 2003, the Company was incorporated with limited liability in the
Isle of Man. On 23 July 2012, the Company then re-registered in the Isle of
Man in order to bring the Company within the Isle of Man Companies Act 2006,
with registration number 008597V. On 11 September 2018, the Company
re-registered under the Bermuda Companies Act 1981, with registration number
53954. The Company moved its operations to Jersey with immediate effect on 17
May 2017 and has subsequently operated from Jersey only.
The Company's ordinary shares are quoted on AIM, a market operated by the
London Stock Exchange, and the Growth Market of the Aquis Stock Exchange
(formerly the NEX Exchange). The Company's zero dividend preference shares are
admitted to trade on the main market of the London Stock Exchange (standard
listed). The Company's unsecured loan notes are quoted on the Aquis Stock
Exchange.
The Company's portfolio investments are held in two majority owned subsidiary
entities, ESO Investments 1 Limited and ESO Investments 2 Limited and one
wholly owned subsidiary entity, ESO Alternative Investments LP (together the
"Subsidiaries"). ESO Investments 1 Limited and ESO Investments 2 Limited
operate out of Jersey and ESO Alternative Investments LP operates out of the
United Kingdom.
Direct interests in the individual portfolio investments are held by the
following Subsidiaries;
· ESO Investment 1 Limited: Rayware, Whittard, David Phillips and
Denzel's
· ESO Investments 2 Limited: Luceco and Pharmacy2U
· ESO Alternative Investments LP: European Capital Private Debt Fund
LP, Atlantic Credit Opportunities DAC, EPIC Acquisition Corp and EAC Sponsor
Limited
The above Subsidiaries are subsidiary holding vehicles and are not
consolidated in accordance with IFRS 10 as detailed in Notes 3a and 3b.
The Company also controls the EPIC Private Equity Employee Benefit Trust
(referred herein as the "EBT subsidiary"), an employee benefit trust, which
financial position and results are consolidated in these financial statements
(refer to Notes 3a and 7 for details). These financial statements are
consolidated financial statements of the Company and the EBT subsidiary. The
Company and the EBT subsidiary are collectively referred to as the "Group"
hereinafter.
The Group's primary objective is to provide long-term return on equity for its
shareholders by investing between £2m and £30m in small and medium sized
companies.
The Group targets growth capital and buy-out opportunities, special situations
and distressed transactions, deploying capital where it believes the potential
for shareholder value creation to be compelling. ESO has the flexibility to
invest in public as well as private companies and is also able to invest in
Special Purpose Acquisition Companies ("SPACs") and third party funds.
ESO will consider most industry sectors including business services, consumer
and retail, financial services and the industrials sector.
The portfolio is likely to be concentrated, numbering between two and ten
assets at any one time, which allows the Group to allocate the necessary
resource to form genuinely engaged and supportive partnerships with management
teams. This active approach facilitates the delivery of truly transformational
initiatives in underlying investments during the Group's period of ownership.
The Group has no employees.
The following significant changes occurred during the year ended 31 January
2024:
· In July 2023, the Company completed the realisation of its holdings
in Atlantic Credit Opportunities Fund and in August 2023 completed the
realisation of its holdings in Prelude Structured Alternatives Master Fund LP,
with both realised at carrying value.
· In January 2024, EPIC Acquisition Corp. announced that it will return
all residual capital to third parties and wind up. The valuation methodology
for EPIC Acquisition Corp. and EAC Sponsor Limited was amended to a
liquidation valuation, implying a reduction in the aggregate value of the
holdings. As a result, the designation of the level of fair value hierarchy of
EPIC Acquisition Corp was amended to Level 3 from Level 2 as at 31 January
2023 (see note 12).
· In July 2023, the Company completed the buyback of 7.5 million zero
dividend preference shares ("ZDP"). Following this buyback, the Company has
12.5 million ZDP shares remaining in issue, maturing in December 2026 for a
value of £7,875,000 (see note 15).
· The movement in the value of investments and fair value movement are
deemed as significant changes during the period (see note 12).
The financial information is derived from the Group's consolidated financial
statements for the year ended 31 January 2024. The financial information set
out above does not constitute the Group's statutory accounts for the years
ended 31 January 2023 and 31 January 2024 but is derived from those accounts.
The Auditors have reported on the statutory accounts and their report was
unqualified and did not draw attention to any matters by way of emphasis.
The full text of the auditors' report can be found in the Company's full
2024 Report and Accounts on pages 48 to 53.
The 2024 Report and Accounts will be published on the Company's website
at https://www.epespecialopportunities.com/
(https://www.epespecialopportunities.com/) as soon as practicable. They will
also be submitted to the National Storage Mechanism where they will be
available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) .
2 Basis of preparation
a. Statement of compliance
The financial statements have been prepared in accordance with IFRS Accounting
Standards as issued by the International Accounting Standards Board ("IFRS
Accounting Standards") and applicable legal and regulatory requirements of
Bermuda Companies Act 1981. The following accounting policies have been
adopted and applied consistently. The financial statements comply with IFRS
Accounting Standards as issued by the International Accounting Standards Board
(IASB).
b. Basis of measurement
The financial statements have been prepared on the historical cost convention
except for financial instruments at fair value through profit or loss which
are measured at fair value (note 12). The following are amendments that the
Group has decided not to adopt early:
· Standards and amendments to existing standards effective 1
January 2023
There are no standards, amendments to standards or interpretations that are
effective for annual periods beginning on 1 January 2023 that have a material
effect on the financial statements of the Group.
· New standards, amendments and interpretations effective after 1
January 2023 and have not been early adopted
A number of new standards, amendments to standards and interpretations are
effective for annual periods beginning after 1 January 2023, and have not been
early adopted in preparing these financial statements. None of these are
expected to have a material effect on the financial statements of the Group.
c. Functional and presentation currency
These financial statements are presented in Sterling, which is the Group's
functional and presentation currency. All financial information presented in
Sterling has been rounded to the nearest pound.
'Functional currency' is the currency of the primary economic environment in
which the Group operates. The expenses (including investment advisory and
administration fees) and investments are denominated and paid in Sterling.
Accordingly, management has determined that the functional currency of the
Group is Sterling.
A foreign currency transaction is recorded initially at the rate of exchange
at the date of the transaction. Assets and liabilities are translated from
foreign currency to the functional currency at the closing rate at the end of
the reporting period. The resulting gains or losses are included in the
Consolidated Statement of Comprehensive Income.
d. Use of estimates and judgements
The preparation of financial statements in conformity with IFRS Accounting
Standard requires the Directors and the Investment Advisor to make judgements,
estimates and assumptions that affect the application of policies and the
reported amounts of assets and liabilities, income and expense. The estimates
and associated assumptions are based on historical experience and various
other factors that are believed to be reasonable under the circumstances, the
results of which form the basis of making the judgements about carrying values
of assets and liabilities that are not readily apparent from other sources.
The Directors have, to the best of their ability, provided as true and fair a
view as is possible. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both current and
future periods.
Critical accounting estimates and assumptions made by Directors and the
Investment Advisor in the application of IFRS Accounting Standards that have a
significant effect on the financial statements and estimates with a
significant risk of material adjustments in the year relate to the
determination of fair value of financial instruments with significant
unobservable inputs (see note 12).
The critical judgements made by the Directors and the Investment Advisor in
preparing these financial statements are:
· Classification of the zero dividend preference share as a non-current
liability in the Consolidated Statement of Assets and Liabilities. The zero
dividend preference shares meet the definition of a non-current liability as
detailed in note 3(l). Please refer to note 15 for further details.
· Categorisation of ESO Alternative Investments LP, ESO Investments 1
Limited and ESO Investments 2 Limited as Subsidiaries. The Company is deemed
to have control over these Subsidiaries. Please refer to note 3(a) for
details.
e. Unconsolidated structured entities
The Company invests in portfolio investments through its Subsidiaries. See
note 3(a) for an explanation of why these entities are considered controlled
subsidiary investments. The purpose of the Subsidiaries is to hold
investments. The Subsidiaries meet the definition of unconsolidated structured
entities under IFRS 12. There are letters of support in place between the
Company and ESO Investments 1 Limited and ESO Investments 2 Limited for the
payment of expenses. ESO Alternative Investments LP pays its own expenses.
The total fair value of the Subsidiaries, and the amount recognised in the
Company's financial statements (as investments at fair value) is £100,722,039
(2023: £100,412,977).
In respect of ESO Alternative Investments LP, the Company has 100% beneficial
ownership of the entity. In respect of ESO Investments 1 Limited, the Company
has 80% beneficial ownership of the entity.
In respect of ESO Investments 2 Limited, the Company has 80% beneficial
ownership of the entity.
There are no restrictions on the ability of the above Subsidiaries to transfer
funds to the Company in the form of cash dividends or loan repayments.
The Company's maximum exposure to loss from its interest in its Subsidiaries
is equal to the total fair value of its investment in its Subsidiaries.
The Company's Subsidiaries invest in quoted and unquoted securities, in line
with the Company's investment policy. The value of these investments may be
impacted by market price risk arising from uncertainty about the future market
value of these holdings as well as the risk of underperformance of the
underlying portfolio companies.
The exposure to investments in Subsidiaries measured at fair value is
disclosed in the following table :
31 January 2024 31 January 2023
£ £
ESO Investments 1 Limited 52,200,243 43,217,307
ESO Investments 2 Limited 42,722,072 44,330,483
ESO Alternative Investments LP 5,799,724 12,865,187
100,722,039 100,412,977
During the year ended 31 January 2024 total net profit incurred on the fair
value movement on investments in Subsidiaries was £3,384,604 (2023: loss of
£39,438,551) (as set out in note 11).
f. Going concern
The Group's management has assessed the Group's ability to continue as a going
concern and is satisfied that the Group has adequate resources to continue in
business for at least twelve months from the date of approval of financial
statements. Furthermore, the management is not aware of any material
uncertainties that may cast significant doubt upon the Group's ability to
continue as a going concern. Therefore, the financial statements continue to
be prepared on the going concern basis.
3 Material accounting policy information
a. Subsidiaries and consolidation
The Company has subsidiaries which have been determined to be controlled
subsidiary investments. Controlled subsidiary investments are measured at fair
value through profit or loss and are not consolidated in accordance with IFRS
10. The fair value of controlled subsidiary investments is determined on a
consistent basis to all other investments measured at fair value through
profit or loss, and as described in note 3.i.
A controlled subsidiary investment involves holding companies over which the
Company has the power to govern the financial and operating policies. These
holding companies are subsidiaries that have been incorporated for the purpose
of holding underlying investments on behalf of the Company. Such holding
companies have no operations other than providing a vehicle for the
acquisition, holding and onward sale of certain portfolio investment
companies. The holding companies are also reflected at its fair value, with
the key fair value driver thereof being the investment in the underlying
portfolio company investments that the holding company holds on behalf of the
Company. The holding companies require no consolidation, because the holding
companies are not deemed to be providing investment related services, as
defined by IFRS 10.
Where the Company is deemed to have control over an underlying portfolio
company, either directly or indirectly, and whether the control is via voting
rights or through the ability to direct the relevant activities in return for
access to a significant portion of the variable gains and losses derived from
those relevant activities, the Company does not consolidate the underlying
portfolio company; instead, the Company reflects its investment at fair value
through profit or loss.
The EPIC Private Equity Employee Benefit Trust ("EBT Subsidiary or Trust") is
treated as a subsidiary and consolidated in the financial statements. The
impact on the financial statements is immaterial. All transactions and
balances between the Company and EBT Subsidiary are eliminated on
consolidation. Amounts reported in the financial statements have been adjusted
where necessary to ensure consistency with the accounting policies adopted by
the Company. Please refer to note 7 for more details.
b. Investment entity
IFRS 10: "Consolidated Financial Statements", provides an exception to the
consolidation requirement for entities that meet the definition of an
investment entity.
The Directors believe the Company meets the definition of an investment entity
as the following conditions exist:
· The Company obtains funds from its members for the purpose of
providing those members with investment management services;
· The Company commits to its members that its business purpose is to
invest funds solely for returns from capital appreciation, investment income,
or both; and
· The Company measures and evaluates the performance of substantially
all of its investments on a fair value basis.
The exception to consolidation requires investment entities to account for
subsidiaries at fair value through profit or loss.
c. Segmental reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business and geographic area, being arranging financing for growth,
buyout and special situations investments in the United Kingdom. Information
presented to the Board of Directors for the purpose of decision making is
based on this single segment. All significant operating decisions are based
upon the analysis of the Company's investments as a single operating segment.
The financial information from this segment are equivalent to the financial
information of the Company as a whole, which are evaluated on a regular basis
by the Board of Directors.
d. Income
Interest income is recognised as it accrues in profit or loss, using the
effective interest method. Dividend income is accounted for when the right to
receive such income is established.
e. Expenses
All expenses are accounted for on an accrual basis.
f. Cash and cash equivalents
Cash and cash equivalents comprise of current cash deposits with banks only.
Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to insignificant
risk of changes in value.
g. Finance charges
Other finance charges are recognised as an expense.
h. Trade and other payables
Trade and other payables are stated at amortised cost in accordance with IFRS
9.
i. Unsecured loan note instruments
Unsecured loan note instruments are stated at amortised cost in accordance
with IFRS 9.
j. Financial assets and financial liabilities
A. Classification
Financial assets
When the Group first recognises a financial asset, it classifies it based on
the business model for managing the
asset and the asset's contractual cash flow characteristics, as follows:
· Amortised cost: a financial asset is measured at amortised cost
if both of the following conditions are met:
- the asset is held within a business model whose objective is to hold
assets in order to collect contractual cash flows; and
- the contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and interest on the
principal amount outstanding.
· Fair value through other comprehensive income: financial assets are
classified and measured at fair value through other comprehensive income if
they are held in a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets.
· Fair value through profit or loss: any financial assets that are not
held in one of the two business models mentioned are measured at fair value
through profit or loss.
When, and only when, the Group changes its business model for managing
financial assets it must reclassify all affected assets
Financial liabilities
All financial liabilities are measured at amortised cost, except for financial
liabilities at fair value through profit or loss. Such liabilities include
derivatives (other than derivatives that are financial guarantee contracts or
are designated and effective hedging instruments), other liabilities held for
trading, and liabilities that an entity designates to be measured at fair
value through profit or loss.
B. Recognition
The Group recognises financial assets and financial liabilities on the date it
becomes a party to the contractual provisions of the instrument.
C. Measurement
Equity and debt investments, including those held by Subsidiaries, are stated
at fair value. Loans and Receivables are stated at amortised cost less any
impairment losses.
The Investment Advisor determines asset values using the valuation principles
of IFRS 13.
'Fair value' is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date in the principal or, in its absence, the most advantages
market to which the Group has access at that date. The fair value of a
liability reflects its non-performance risk.
When available, the Company measures the fair value of an instrument using the
quoted price in an active market for that instrument. A market is regarded as
'active' if transactions for the asset or liability take place with sufficient
frequency and volume to provide pricing information on an ongoing basis. The
Company measures instruments quoted in an active market at closing price on
the relevant exchange at the measurement date.
If there is no quoted price in an active market, then the Company uses
valuation techniques that maximise the use of relevant observable inputs and
minimise the use of unobservable inputs. The chosen valuation technique
incorporates all of the factors that market participants would take into
account in pricing a transaction.
The Company recognises transfers between levels of the fair value hierarchy as
at the end of the reporting period during which the change has occurred.
The amortised cost of a financial asset or financial liability is the amount
at which the financial asset or financial liability is measured at initial
recognition, minus principal repayments, plus or minus the cumulative
amortisation using the effective interest method of any difference between the
initial amount recognised and the maturity amount, minus any reduction for
impairment. Financial assets that are not carried at fair value though profit
and loss are subject to an impairment test. For loans to portfolio companies
the impairment test is undertaken as part of the assessment of the fair value
of the enterprise value of the related business, as described above. If
expected life cannot be determined reliably, then the contractual life is
used.
D. Impairment
12-month expected credit losses
12-month expected credit losses are calculated by multiplying the probability
of a default occurring in the next 12 months with the total (lifetime)
expected credit losses that would result from that default, regardless of when
those losses occur. Therefore, 12-month expected credit losses represent a
financial asset's lifetime expected credit losses that are expected to arise
from default events that are possible within the 12 month period following
origination of an asset, or from each reporting date for those assets in
initial recognition stage.
Lifetime expected credit losses
Lifetime expected credit losses are the present value of expected credit
losses that arise if a borrower defaults on its obligation at any point
throughout the term of a lender's financial asset (that is, all possible
default events during the term of the financial asset are included in the
analysis). Lifetime expected credit losses are calculated based on a weighted
average of expected credit losses, with the weightings being based on the
respective probabilities of default.
E. Derecognition
The Company derecognises a financial asset when the contractual rights to the
cash flows from the financial asset expire or it transfers the financial asset
and the transfer qualifies for derecognition in accordance with IFRS 9.
The Company uses the weighted average method to determine realised gains and
losses on derecognition. A financial liability is derecognised when the
obligation specified in the contract is discharged, cancelled or expired.
k. Share capital
Ordinary share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares and share options are recognised
as a deduction from equity, net of any tax effects.
Repurchase of share capital (treasury shares)
When share capital recognised as equity is repurchased, the amount of the
consideration paid, which includes directly attributable costs, net of any tax
effects, is recognised as a deduction from equity. Repurchased shares are
classified as treasury shares and are presented as a deduction from total
equity. When treasury shares are sold or reissued subsequently, the amount
received is recognised as an increase in equity, and the resulting surplus or
deficit on the transaction is transferred to / from revenue reserves.
Capital Reserve and Revenue Reserve and other equity
The capital reserve comprises net gains and losses on investments. The revenue
reserve and other equity comprise other income and expenses plus other items
recorded directly in equity (excluding items recorded as share capital / share
premium).
l. Jointly owned share plan ("JOSP") and share-based payments
Directors of the Company and certain employees of the Investment Advisor
(together "Participants") receive remuneration in the form of equity-settled
share-based payment transactions, through a JOSP Scheme.
Equity-settled share-based payments are measured at fair value at the date of
grant. The fair value is determined based on the share price of the equity
instrument at the grant date. The fair value determined at the grant date of
the equity-settled share-based payment is expensed on a straight-line basis
over the vesting period, based on the Company's estimate of the number of
shares that will eventually vest. The instruments are subject to a three-year
service vesting condition from the grant date, and their fair value is
recognised as a share-based expense with a corresponding increase in revenue
reserves within equity over the vesting period. Contributions received from
employees as part of the JOSP arrangement are recognised directly in equity in
the line share ownership scheme participation.
The assets (other than investments in the Company's shares), liabilities,
income and expenses of the Trust established to operate the JOSP scheme are
consolidated in these financial statements. Any expense incurred by the Trust
are borne by the Company. The Trust's investment in the Company's shares is
deducted from shareholders' funds in the Consolidated Statement of Asset and
Liabilities as if they were treasury shares (see note 7).
m. Zero dividend preference shares ("ZDP")
Under IAS 32 - Financial Instruments: Presentation, the ZDP Shares are
classified as financial liabilities and are held at amortised cost. An accrual
for the final capital entitlement of the ZDP Shares is included in the
Consolidated Statement of Comprehensive Income as a finance cost and is
calculated using the effective interest rate method ("EIR"). The costs of
issue of the ZDP Shares are amortised over the period to the ZDP Share
redemption date.
n. Future changes in accounting policies
Several new standards and interpretations have been published that are not
mandatory for 31 January 2024 reporting periods and earlier application is
permitted; however, the Group has not adopted early the new or amended
standards in preparing these financial statements.
The Directors do not expect the adoption of the standards and interpretations
to have a material impact on the Group's financial statements in the period of
initial application.
o. Change in categorisation of holding companies
During the year ended 31 January 2023, the Directors reassessed its
categorisation of ESO Alternative Investments LP, ESO Investments 1 Limited
and ESO Investments 2 Limited from Associates to Subsidiaries. These entities
were set up by the Company as holding vehicles for investments acquired for
the benefit of the Company. The holding companies are structured entities and
as such voting rights or similar rights are not the dominant factor in
decision-making power over them. As a result, the Directors deem the
classification of these entities as Subsidiaries to be more appropriate.
4 Interest income
2024 2023
Group Group
£ £
Interest earned on cash balances 366,660 79,899
Total 366,660 79,899
5 Investment advisory, administration and performance fees
Investment advisory fees
The investment advisory fee payable to EPIC Investment Partners LLP ("EPIC")
is assessed and payable at the end of each fiscal quarter and is calculated as
2 per cent. of the Group's NAV where the Group's NAV is less than £100
million; otherwise the investment advisory fee is calculated as the greater of
£2.0 million or the sum of 2 per cent. of the Group's NAV comprising Level 2
and Level 3 portfolio assets, 1 per cent. of the Group's NAV comprising Level
1 assets, no fees on assets which are managed or advised by a third-party
manager, 0.5 per cent. of the Group's net cash (if greater than nil), and 2
per cent. of the Group's net cash (if less than nil) (i.e. reducing fees for
net debt positions).
The charge for the current year was £1,832,745 (2023: £1,755,442). The
amount outstanding as at 31 January 2024 was £484,400 (2023: £487,107 ) (see
note 14).
Administration fees
EPIC Administration Limited provides accounting and financial administration
services to the Group. The fee payable to EPIC Administration Limited is
assessed and payable at the end of each fiscal quarter and is calculated as
0.15 per cent. of the Group's NAV where the Group's NAV is less than £100
million (subject to a minimum fee of £35,000); otherwise the advisory fee
shall be calculated as 0.15 per cent. of £100 million plus a fee of 0.1 per
cent.
of the excess of the Group's NAV above £100 million.
The charge for the current year was £141,330 (2023: £147,043).
Other administration fees during the year were £82,406 (2023: £76,302).
Performance fees paid by Subsidiaries
The Subsidiaries are stated at fair value. Performance fees are paid to the
Investment Advisor based on the performance of the Subsidiaries and deducted
in calculating the fair value of Subsidiaries.
Performance fee in ESO Investments 1 Limited
The distribution policy of ESO Investments 1 Limited includes an allocation of
profits to the Investment Advisor such that, for each investment where a
returns hurdle of 8 per cent. per annum has been achieved, the Investment
Advisor is entitled to receive 20 per cent. of the increase above the base
value of investment. As at 31 January 2024, £4,983,792 has been accrued in
the profit share account of the Investment Advisor in the records of ESO
Investments 1 Limited (2023: £nil accrued).
Performance fee in ESO Investments 2 Limited
The distribution policy of ESO Investments 2 Limited includes an allocation of
profit to the Investment Advisor such that, for each investment where a
returns hurdle of 8 per cent. per annum has been achieved, the Investment
Advisor is entitled to receive 20 per cent. of the increase above the base
value of investment. As at 31 January 2024, £9,104,320 has been accrued in
the profit share account of the Investment Advisor in the records of ESO
Investments 2 Limited (2023: £9,112,002 accrued).
Joint Owned Share Plan ("JOSP") and share-based payments
Directors of the Company and certain employees of the Investment Advisor
(together "Participants") receive remuneration in the form of equity-settled
share-based payment transactions, through a JOSP Scheme (see note 7).
6 Directors' fees
2024 2024 2023 2023
Company Share-based payment Company Share-based payment
£ £ £ £
C.L. Spears (Chairman) 42,000 6,393 42,000 9,388
N.V. Wilson (resigned on 30 September 2023) 22,474 5,972 32,000 9,216
H. Bestwick 32,000 6,393 32,000 9,388
D.R. Pirouet 34,000 8,298 34,000 6,132
M.M. Gray 32,000 4,296 32,000 2,093
Total 162,474 31,352 172,000 36,217
In addition to the fees noted above, C.L. Spears, H. Bestwick and M.M Gray
received during the year;
· £3,750 each as Directors' fees for their directorship of ESO
Investments 1 Limited; and
· £3,750 each as Directors' fees for their directorship of ESO
Investments 2 Limited.
Aggregate Directors' fees for ESO Investments 1 Limited and ESO Investments 2
Limited for the year ended 31 January 2024 amounted to £22,500 (2023 :
£22,500).
Nicholas Wilson resigned on 30 September 2023. The share-based payment expense
is calculated as set out in note 7.
7 Share-based payment expense
The cost of equity-settled transactions to Participants in the JOSP Scheme are
measured at fair value at the grant date. The fair value is determined based
on the share price of the equity instrument at the grant date.
The Trust was created to award shares to Participants as part of the JOSP. The
Trust is consolidated in these financial statements in accordance with Note
3a. Participants are awarded a certain number of shares ("Matching Shares")
which are subject to a three-year service vesting condition from the grant
date. In order to receive their Matching Share allocation Participants are
required to purchase shares in the Company on the open market ("Bought
Shares"). The Participant will then be entitled to acquire a joint ownership
interest in the Matching Shares for the payment of a nominal amount, on the
basis of one joint ownership interest in one Matching Share for every Bought
Share they acquire in the relevant award period.
The Trust holds the Matching Shares jointly with the Participant until the
award vests. These shares carry the same rights as the rest of the ordinary
shares.
The Trust held 1,546,693 (2023: 1,290,202) matching shares at the year-end
which have historically not voted (see note 16).
257,061 shares vested to Participants in the year ended 31 January 2024 (2023:
862,290). 305,082 shares were awarded to Participants in the year ended 31
January 2024 (2023: 156,173). The weighted average fair value of the shares
awarded during the period is 146.33 pence per share.
The fair value of awards granted under the JOSP is recognised as an employee
benefits expense, with a corresponding increase in equity. This has been
calculated on the basis of the fair value of the equity instruments, which is
the share price of the equity instrument on the AIM market of the London Stock
Exchange at the grant date and the estimated number of equity instruments to
be issued after the vesting period, less the amount paid for the joint
ownership interest in the Matching Shares from the Participants. As the
Company does not pay dividends, no expected dividends were incorporated into
the measurement value. No other features other than the share price of the
equity instrument is incorporated into the measurement of the fair value of
the awards.
The impact of revision to original estimates, if any, is recognised in profit
or loss, with a corresponding adjustment to equity.
The total share-based payment expense in the year ended 31 January 2024 was
£339,593 (2023: £555,225). Of the total share-based payment expense in the
year ended 31 January 2024, £31,352 related to the Directors (2023: £36,217)
and the balance related to members, employees and consultants of the
Investment Advisor.
8 Other expenses
The breakdown of other expenses presented in the Consolidated Statement of
Comprehensive Income is as follows:
31 January 31 January
2024 2023
Total Total
£ £
Administration fees (223,806) (223,345)
Directors' and officers' insurance (27,993) (27,464)
Professional fees (145,363) (94,442)
Board meeting and travel expenses (1,639) (1,085)
Auditors' remuneration (81,200) (61,350)
Interim review remuneration(*) (26,350) (17,000)
Bank charges (1,404) (1,705)
Foreign exchange movement (1,137) 2,687
Nominated advisor and broker fees (55,001) (62,322)
Listing fees (53,472) (52,769)
Sundry expenses (18,310) (18,621)
Other expenses (635,675) (557,416)
(*)This relates to the interim review of the half yearly financial report
which was performed by the auditors.
9 Taxation
The Company is a tax resident of Jersey and is subject to 0 per cent.
corporation tax (2023: 0 per cent.).
ESO Alternative Investments LP is transparent for tax purposes.
ESO Investments 1 Limited and ESO Investments 2 Limited are tax resident in
Jersey and are subject to 0 per cent. (2023: 0 per cent.) corporation tax.
10 Dividends paid and proposed
No dividends were paid or proposed for the year ended 31 January 2024 (2023:
£nil).
11 Investments at fair value through profit or loss
31 January 31 January
2024 2023
£ £
Investments at fair value through profit and loss* 100,722,039 100,412,977
100,722,039 100,412,997
Investments roll forward schedule
31 January 31 January
2024 2023
£ £
Investments at fair value at 1 February 100,412,977 140,525,060
Purchase of investments 3,350,000 3,174,948
Proceeds from investments (6,425,542) (3,848,880)
Net fair value movements 3,384,604 (39,438,551)
Reclassification of debtor balance to investee - 400
Investments at fair value 100,722,039 100,412,977
* Comprises Subsidiaries stated at fair value in accordance with accounting
policy set out in note 3(a) (ESO Investments 1 Limited, ESO Investments 2
Limited and ESO Alternative Investments LP).
Discussion of the performance of individual investments is presented in the
Chairman's Statement and the Investments Advisor's Report.
12 Fair value of financial instruments
The Company determines the fair value of financial instruments with reference
to IPEV guidelines and the valuation principles of IFRS 13 (Fair Value
Measurement). The Company measures fair value using the IFRS 13 fair value
hierarchy, which reflects the significance and certainty of the inputs used in
deriving the fair value of an asset:
· Level 1: Inputs that are quoted market prices (unadjusted) in
active markets for identical instruments;
· Level 2: Inputs other than quoted prices included within Level 1
that are observable either directly (i.e. as prices) or indirectly (i.e.
derived from prices). This category includes instruments valued using quoted
market prices in active markets for similar instruments, quoted prices for
identical or similar instruments in markets that are considered less than
active or other valuation techniques in which all significant inputs are
directly or indirectly observable from market data;
· Level 3: Inputs that are unobservable. This category includes all
instruments for which the valuation technique includes inputs not based on
observable data and the unobservable inputs have a significant effect on the
instrument's valuation. This category includes instruments that are valued
based on quoted prices for similar instruments but for which significant
unobservable adjustments or assumptions are required to reflect differences
between the instruments.
The Investment Advisor undertakes the valuation of financial instruments
required for financial reporting purposes. Recommended valuations are reviewed
and approved by the Investment's Advisor's Valuation Committee for circulation
to the Company's Board. The Audit and Risk Committee of the Company's Board
meets at least once every six months, in line with the Company's semi-annual
reporting periods, to review the recommended valuations and approve final
valuations for adoption in the Company's financial statements.
The Company recognises transfers between levels of the fair value hierarchy at
the end of the reporting period during which the change has occurred.
Valuation framework
The Company employs the valuation framework detailed below with respect to the
measurement of fair values. A valuation of the Company's investments held via
its Subsidiaries are prepared by the Investment Advisor with reference to IPEV
guidelines and the valuation principles of IFRS 13 (Fair Value Measurement).
The Investment Advisor recommends these valuations to the Board of Directors.
The Audit and Risk Committee of the Company's Board considers the valuations
recommended by the Investment Advisor, determines any amendments required and
thereafter adopts the fair values presented in the Company's financial
statements. Changes in the fair value of financial instruments are recorded in
the Consolidated Statement of Comprehensive Income in the line item "Net fair
value movement on investments".
Quoted investments
Quoted investments traded in an active market are classified as Level 1 in the
IFRS 13 fair value hierarchy. The investment in Luceco is a Level 1 asset. For
Level 1 assets, the holding value is calculated from the closing price on the
relevant exchange at the measurement date.
Quoted investments traded in markets that are considered less than active are
classified as Level 2 in the IFRS 13 fair value hierarchy. The investment in
EPIC Acquisition Corp was considered to be a Level 2 asset in the year ended
31 January 2023. For the year ended 31 January 2024, the investment in EPIC
Acquisition Corp is considered to be a Level 3 asset, and therefore no assets
are considered to be Level 2.
Unquoted private equity investments and unquoted fund investments
Private equity investments and fund investments are classified as Level 3 in
the IFRS 13 fair value hierarchy. The investments in Whittard, David Phillips,
Rayware, Denzel's, Pharmacy2U, European Capital Private Debt Fund LP, EPIC
Acquisition Corp and EAC Sponsor Limited are considered to be Level 3 assets.
Various valuation techniques may be applied in determining the fair value of
investments held as Level 3 in the fair value hierarchy;
· For underperforming assets, net asset or liquidation valuation is
considered more applicable, in particular where the business' performance be
contingent on shareholder financial support;
· For performing assets, market approach is considered to be the most
appropriate with a specific focus on trading comparables, applied on a forward
basis. Transaction comparables, applied on a historic basis may also be
considered. The financial metric to which the multiple is applied will depend
on the stage of the company and the sector in which it operates. Typically,
mature companies will be valued on the basis of the basis of an EBITDA
multiple, while growth companies will be valued on the basis of a sales
multiple;
· For assets managed and valued by third party managers, the valuation
methodology of the third party manager is reviewed. If deemed appropriate and
consistent with reporting standards, the valuation prepared by the third-party
manager will be used.
For the year ended 31 January 2024, a public comparable sales multiple
valuation is employed for the investment in Denzel's. The valuation
methodology has been amended from investment cost given the elapsed time since
investment, with changes in market conditions and trading outlook in the
intervening period.
The Investment Advisor believe that it is appropriate to apply an illiquidity
discount to the multiples of comparable companies when using them to calculate
valuations for small, private companies. This discount adjusts for the
difference in size between generally larger comparable companies and the
smaller assets being valued. The illiquidity discount also considers the
premium the market gives to comparable companies for being freely traded or
listed securities. The Investment Advisor has determined between 15 per cent.
and 25 per cent. to be an appropriate illiquidity discount with reference to
market data and transaction multiples seen in the market in which the
Investment Advisor operates.
Where portfolio investments are held through subsidiary holding companies, the
net assets of the holding company are added to the value of the portfolio
investment being assessed to derive the fair value of the holding company held
by the Company.
EPIC Acquisition Corp and EAC Sponsor Limited
EPIC Acquisition Corp ("EAC") is a special purpose acquisition company
("SPAC"). For the year ended 31 January 2024, a liquidation valuation is
employed for the holdings in EPIC Acquisition Corp and EAC Sponsor Limited,
calculated on the basis of the value of ESO Alternative Investments LP's
holding in a liquidation scenario. The investments are considered as Level 3
assets. For the year ended 31 January 2023, EPIC Acquisition Corp was valued
on a marked to market basis and considered a Level 2 asset and EAC Sponsor
Limited was valued on the basis of a probability weighted range of implied
values under potential realisation scenarios and considered a Level 3 asset.
The valuation methodology has been amended to a liquidation value to reflect
the announcement in January 2024 that EPIC Acquisition Corp. will return all
residual capital to third parties and wind up. The liquidation valuation
approach implies both assets are considered Level 3 assets.
Although management believes that its estimates of fair value are appropriate,
the use of different methodologies or assumptions could lead to different
measurements of fair value. For fair value measurements of EPIC Acquisition
Corp and EAC Sponsor Limited's assets, changing one or more of the assumptions
used to reasonably possible alternative assumptions would have the following
effects on the investment valuations. The key inputs into the preparation of
the valuations of EPIC Acquisition Corp and EAC Sponsor Limited were the
distributions available in a liquidation scenario to EAC Sponsor Limited. If
these inputs had been taken at the higher end of the range of expected
realisations, the value of these assets and profit for the year would have
been £33,299 higher. If these inputs had been taken at the lower end of the
range, their would be nil change to the value of these assets and profit for
the year, given the valuation is prepared on a nil realisation basis. This
sensitivity excludes amounts held by EPIC Acquisition Corp. in escrow, which
will deliver a fixed distribution in the event of a liquidation scenario.
Fair value hierarchy - Financial instruments measured at fair value
The Company's investments in the Subsidiaries at 31 January 2024 are
classified as Level 3 (in line with 31 January 2023), given the variation in
classification of the underlying assets. The Company values these investments
on the basis of the net asset value of these holdings.
The table below analyses the underlying investments held by the Subsidiaries
measured at fair value at the reporting date by the level in the fair value
hierarchy into which the fair value measurement is categorised. The Board
assesses the fair value of the total investment, which includes debt and
equity.
The tables below show the gross amount and the net amount of all investments
held via the Subsidiaries per the fair value hierarchy. The net amount is a
result of the application of profit share adjustments relating to the
performance fees discussed in Note 5.
Level 1 Level 3 Total
31 January 2024 £ £ £
Financial assets at fair value through profit or loss
Unquoted private equity investments - 59,103,536 59,103,536
(including debt)
Fund investments - 451,348 451,348
Quoted investments* 48,865,293 5,262,427 54,127,720
Investments at fair value through profit or loss 48,865,293 64,817,311 113,682,604
Other asset and liabilities (held at cost) - - 1,127,547
Performance fee adjustment (8,732,750) (5,355,362) (14,088,112)
Total 40,132,543 59,461,949 100,722,039
Level 1 Level 2 Level 3 Total
31 January 2023 £ £ £ £
Financial assets at fair value through profit or loss
Unquoted private equity investments - - 47,752,184 47,752,184
(including debt)
Unquoted fund investments - - 3,184,749 3,184,749
Quoted investments 50,501,249 5,495,557 - 55,996,806
Investments at fair value through profit or loss 50,501,249 5,495,557 50,936,933 106,933,739
Other asset and liabilities (held at cost) - - - 2,591,240
Performance fee adjustment (8,743,708) - (368,294) (9,112,002)
Total 41,757,541 5,495,557 50,568,639 100,412,977
* There has been a change in the designation of the level of fair value
hierarchy of EPIC Acquisition Corp from Level 2 to Level 3 during the current
year, with the valuation methodology amended to a liquidation value approach.
The following table, detailing the value of portfolio investments only, shows
a reconciliation of the opening balances to the closing balances for fair
value measurements in Level 3 of the fair value hierarchy for the underlying
investments held by the Subsidiaries.
31 January 31 January
2024 2023
Unquoted investments (including debt) £ £
Balance as at 1 February 50,568,639 47,886,854
Additional investments 3,350,912 2,086,948
Capital distributions from investments (2,694,993) (2,235,136)
Transfer to Level 3 investments 5,495,557 -
Change in fair value through profit & loss 2,741,834 2,829,973
Balance as at 31 January 59,461,949 50,568,639
Significant unobservable inputs used in measuring fair value
The table below sets out information about significant unobservable inputs
used at 31 January 2024 in measuring financial instruments categorised as
Level 3 in the fair value hierarchy.
Description Fair value at Significant
31 January 2024 unobservable inputs
£
Unquoted private equity investments (including debt) 53,748,174 Sales / EBITDA multiple
Fund investments 5,713,775 Reported net asset value or liquidation value
Significant unobservable inputs are developed as follows:
· Trading comparable multiple: valuation multiples used by other market
participants when pricing comparable assets. Relevant comparable assets are
selected from public companies determined to be proximate to the investment
based on similarity of sector, size, geography or other relevant factors. The
valuation multiple for a comparable company is determined by calculating the
enterprise value of the company implied by its market price as at the
reporting date and dividing by the relevant financial metric (sales or
EBITDA).
· Reported net asset value: for assets managed and valued by a third
party, the manager provides periodic valuations of the investment. The
valuation methodology of the third-party manager is reviewed. If deemed
appropriate and consistent with reporting standards, the Board will adopt the
valuation prepared by the third-party manager. Adjustments are made to third
party valuations where considered necessary to arrive at the Director's
estimate of fair value.
· Investment cost: for recently acquired assets (typically completed in
the last twelve months), the Investment Advisor considers the investment cost
an appropriate fair value for the asset. No asset was valued using investment
cost as at 31 January 2024.
· Liquidation value: for underperforming assets, the Investment Advisor
considers the value recovered in the event of a liquidation of the asset an
appropriate fair value for the asset.
Although management believes that its estimates of fair value are appropriate,
the use of different methodologies or assumptions could lead to different
measurements of fair value. For fair value measurements of Level 3 assets,
changing one or more of the assumptions used to reasonably possible
alternative assumptions would have the following effects on the Level 3
investment valuations:
· For the Company's investment in mature Level 3 assets, the valuations
used in the preparation of the financial statements imply an average EV to
EBITDA multiple of 7.2x (weighted by each asset's total valuation) (2023:
6.7x). The key unobservable inputs into the preparation of the valuation of
mature Level 3 assets was the EBITDA multiple applied to the asset's financial
forecasts. A sensitivity of 25 per cent. has been applied to these multiples,
in line with the maximum liquidity discount employed in the valuations. If
these inputs had been taken to be 25 per cent. higher, the value of the Level
3 assets and profit for the year would have been £15,161,561 higher. If these
inputs had been taken to be 25 per cent. lower, the value of the Level 3
assets and profit for the year would have been £17,786,484 lower. A
corresponding increase or decrease in the asset's financial forecasts would
have a similar impact on the Company's assets and profit.
· For the Company's investment in growth Level 3 assets, the valuations
used in the preparation of the financial statements imply an average EV to
sales multiple of 1.5x (weighted by each asset's total valuation) (2023:
1.4x). The key unobservable inputs into the preparation of the valuation of
growth Level 3 assets were the sales multiple applied to the asset's financial
forecasts. A sensitivity of 25 per cent. has been applied to these multiples,
in line with the maximum liquidity discount employed in the valuations. If
these inputs had been taken to be 25 per cent. higher, the value of the Level
3 assets and profit for the year would have been £860,072 higher. If these
inputs had been taken to be 25 per cent. lower, the value of the Level 3
assets and profit for the year would have been £707,743 lower. A
corresponding increase or decrease in the asset's financial forecasts would
have a similar impact on the Company's assets and profit.
Classification of financial assets and liabilities
The table below sets out the classifications of the carrying amounts of the
Company's financial assets and liabilities into categories of financial
instruments.
31 January 2024
Financial assets At fair At amortised Total
value cost £
£ £
Investments at fair value through profit or loss 100,722,039 - 100,722,039
Cash and cash equivalents - 14,462,495 14,462,495
100,722,039 14,462,495 115,184,534
Financial liabilities
Trade and other payables - 676,284 676,284
Unsecured loan note instruments* - 3,987,729 3,987,729
Zero dividend preference shares** - 13,714,191 13,714,191
- 18,378,204 18,378,204
31 January 2023
Financial assets At fair At amortised Total
value cost £
£ £
Investments at fair value through profit or loss 100,412,977 - 100,412,977
Cash and cash equivalents - 22,226,008 22,226,008
100,412,977 22,226,008 122,638,985
Financial liabilities
Trade and other payables - 596,790 596,790
Unsecured loan note instruments* - 3,987,729 3,987,729
Zero dividend preference shares** - 20,721,001 20,721,001
- 25,305,520 25,305,520
* The Directors consider that the fair value of the unsecured loan note
instruments is the same as its carrying value.
** The Directors consider that the fair value of the zero dividend preference
shares is £12,812,500 (2023: £19,100,000) calculated on the basis of the
quoted price of the instrument on the London Stock Exchange of 102.50 pence as
at 31 January 2024 (2023: 95.50 pence).
13 Cash and cash equivalents
2024 2023
£ £
Current and call accounts 14,462,495 22,226,008
14,462,495 22,226,008
The current and call accounts have been classified as cash and cash
equivalents in the Consolidated Statement of Cash Flows.
14 Trade and other payables
2024 2023
£ £
Trade payables 91,297 1,008
Accrued administration fee 36,330 36,533
Accrued audit fee 20,918 9,920
Accrued professional fee 29,272 45,489
Accrued investment advisor fees 484,400 487,107
Accrued Directors' fees 11,667 14,333
Other payables 2,400 2,400
Total 676,284 596,790
15 Liabilities
Unsecured Loan Notes ("ULN")
The Company has issued ULN's that are redeemable on 24 July 2024, following
the extension of their maturity in July 2023. The Company's ULN's are quoted
on the Aquis Stock Exchange. The interest rate for the period up to 23 July
2023 was 7.5 per cent per annum. The interest rate was increased to 8.0 per
cent per annum for the period subsequent to 23 July 2023. At 31 January 2024,
£3,987,729 (2023: £3,987,729) of ULNs in principal amount were outstanding.
Issue costs totalling £144,236 have been offset against the value of the loan
note instrument and have been amortised over the period to 24 July 2022. The
total issue costs expensed in the year ended 31 January 2024 was £nil (2023:
£10,303). The carrying value of the ULNs in issue at the year end was
£3,987,729 (2023: £3,987,729). The total interest expense for the ULNs for
the year is £309,049 (2023: £309,382). The comparatives for interest expense
includes the amortisation of the issue costs. The carrying value of the ULN is
presented under current liabilities in the current period as they are
redeemable within 12-month period from the Consolidated Statement of Assets
and Liabilities date. The ULN has in place Financial Covenants including an
Interest Coverage Test (that the ratio of cash and cash equivalents to
interest payable is greater than or equal to 6:1) and a Gross Asset Test (that
the ratio of gross asset value to financial indebtedness of the Company is
greater than or equal to 2:1). The Covenants have been met for the years ended
31 January 2024 and 31 January 2023.
Zero Dividend Preference Shares ("ZDP Shares")
On 17 December 2021 the Company issued 20,000,000 ZDP Shares at a price of £1
per share, raising £20,000,000. The Company's ZDP shares are admitted to
trade on the main market of the London Stock Exchange (standard listed). The
ZDP Shares will not pay dividends but have a final capital entitlement at
maturity on 16 December 2026 of 129.14 pence per ZDP Share. It should be noted
that the predetermined capital entitlement of a ZDP Share is not guaranteed
and is dependent upon the Company's gross assets being sufficient on 16
December 2026 to meet the final capital entitlement. Under IAS 32 - Financial
Instruments: Presentation, the ZDP Shares are classified as financial
liabilities and are held at amortised cost. Issue costs totalling £573,796
have been offset against the value of the ZDP Shares and are being amortised
over the life of the instrument. In July 2023, the Company completed the
repurchase of 7,500,000 ZDP shares, which are held in treasury. Following this
buyback, the Company has 12,500,000 ZDP shares remaining in issue. The total
issue costs expensed in the year ended 31 January 2024 was £115,359 (2023:
£115,359). The carrying value of the ZDP Shares in issue at the year-end was
£13,714,191 (2023: £20,721,001). The total finance charge for the ZDP Shares
for the year is £868,190 (2023: £1,128,093). This includes the ZDP Share
finance charge and the amortisation of the Issue costs.
31 January 2024 31 January 2023
£ £
Balance as at 1 February 20,721,001 19,580,190
ZDP non cash charge 945,348 1,140,811
Buyback of ZDP shares (7,952,158) -
Total 13,714,191 20,721,001
16 Share capital
2024 2024 2023 2023
Number £ Number £
Authorised share capital
Ordinary shares of 5p each 45,000,000 2,250,000 45,000,000 2,250,000
Called up, allotted and fully paid
Ordinary shares of 5p each 34,616,554 1,730,828 34,616,554 1,730,828
Ordinary shares of 5p each held in treasury (4,739,707) - (4,951,575) -
29,876,847 1,730,828 29,664,979 1,730,828
Share Premium - 13,619,627 - 13,619,627
No shares were issued during the year ended 31 January 2024 and year ended 31
January 2023.
During the year ended 31 January 2024, the Company transferred 211,868 out of
treasury to the Trust (2023: repurchase of 1,855,000 shares into treasury)
with a total value of £350,006 (2023: £2,587,375). These shares are held as
treasury shares.
During the year ended 31 January 2024, the Trust purchased 301,684 shares
(2023: 280,739 shares) with a total value of £525,920 (2023: £484,821).
257,061 shares vested to Participants in the year ended 31 January 2024 (2023:
862,290). At 31 January 2024 1,546,693 shares were held by the Trust (2023:
1,290,202) (see note 7).
17 Basic and diluted loss per share (pence)
Basic loss per share for the year ended 31 January 2024 is 1.39 pence (2023:
basic loss per share of 147.95 pence). This is calculated by dividing the loss
of the Group for the year attributable to the ordinary shareholders of
£396,462 (2023: loss of £43,836,210) divided by the weighted average number
of shares outstanding, excluding the shares of the EBT subsidiary, during the
year of 28,469,486 (2023: 29,628,992 shares). The basic loss per share for the
year ended 31 January 2023 has been restated to exclude the shares of the EBT
subsidiary from the weighted average number of outstanding shares so that it
is consistent with the calculation for the year ended 31 January 2024.
Diluted loss per share for the year ended 31 January 2024 is 1.33 pence (2023:
diluted profit per share of 141.77 pence). This is calculated by dividing the
loss of the Group for the year attributable to ordinary shareholders of
£396,462 (2023: loss of £43,836,210) divided by the weighted average
number of shares outstanding, including the shares of the EBT subsidiary,
during the year of 29,832,732 (2023: 30,921,130 shares).
18 NAV per share (pence)
The Group's NAV per share of 324.26 pence (2023: 328.41 pence) is based on the
net assets of the Group at the year-end of £96,879,976 (2023: £97,421,364)
divided by the outstanding shares of 29,876,847 (2023: 29,664,979).
The shares of the EBT subsidiary are included in the outstanding shares when
calculating the Company's NAV per share to ensure that the NAV per share is
stable in the event of share purchases made by the EBT subsidiary or the
vesting of shares of the EBT subsidiary.
19 Net cash used in operating activities
Reconciliation of profit before finance cost and tax to net cash used in
operating activities:
2024 2023
Group Group
£ £
Loss for the year before taxation (396,462) (43,836,210)
Adjustments for non-cash income / expense
Net fair value movement on investments (3,384,604) 39,438,551
Interest on unsecured loan note instruments 309,049 309,382
Zero dividend preference shares finance charge 868,190 1,128,093
Loss before finance cost (2,603,827) (2,960,184)
Adjustments:
Share-based payment expense 339,593 555,225
Purchase of investments (3,350,000) (3,174,948)
Proceeds from investments 6,425,542 3,848,880
811,308 (1,731,027)
Working capital changes
Movement in trade and other receivables and prepayments 14,253 6,848
Movement in trade and other payables 79,494 (373,147)
Non-cash items
Effect of exchange rate fluctuations on cash and cash equivalents 1,294 (2,310)
Net cash generated from / (used in) operating activities 906,349 (2,099,636)
20 Financial instruments
The Company's financial instruments comprise:
· Investments in listed and unlisted companies held by
Subsidiaries, comprising equity and loans
· Cash and cash equivalents, ZDP shares and unsecured loan note
instruments; and
· Accrued interest and trade and other receivables, accrued
expenses and trade and other payables.
Financial risk management objectives and policies
The main risks arising from the Company's financial instruments are liquidity
risk, credit risk, market price risk and interest rate risk. None of those
risks are hedged. These risks arise through directly held financial
instruments and through the indirect exposures created by the underlying
financial instruments in the Subsidiaries. These risks are managed by the
Directors in conjunction with the Investment Advisor. The Investment Advisor
is responsible for day to day management of financial instruments in the
Subsidiaries.
Capital management
The Company's capital comprises share capital, share premium and reserves and
is not subject to externally imposed capital requirements.
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in
meeting the obligations associated with its financial liabilities that are
settled by delivering cash or another financial asset. The Company's liquid
assets comprise cash and cash equivalents and trade and other receivables,
which are readily realisable.
Residual contractual maturities of financial assets
31 January 2024 Less than 1 Month 1 - 3 Months 3 months to 1 year 1 - 5 years Over No stated maturity
£
£
£
£
£
5 years
£
Financial assets
Cash and cash equivalents 14,462,495 - - - - -
Total 14,462,495 - - - - -
31 January 2023 Less than 1 Month 1 - 3 Months 3 months to 1 year 1 - 5 years Over 5 years No stated maturity
£
£
£
£
£
£
Financial assets
Cash and cash equivalents 22,226,008 - - - - -
Total 22,226,008 - - - - -
Residual contractual maturities of financial liabilities
31 January 2024 Less than 1 Month 1 - 3 Months 3 months to 1 year 1 - 5 years Over No stated maturity
£
£
£
£
£
5 years
£
Financial liabilities
Trade and other payables 676,284 - - - - -
Loan note instruments - - 3,987,729 - - -
Zero dividend preference shares - - - 16,142,500 - -
Total 676,284 - 3,987,729 16,142,500 - -
31 January 2023 Less than 1 Month 1 - 3 Months 3 months to 1 year 1 - 5 years Over 5 years No stated maturity
£
£
£
£
£
£
Financial liabilities
Trade and other payables 596,790 - - - - -
Loan note instruments - - 3,987,729 - - -
Zero dividend preference shares - - - 25,827,284 - -
Total 596,790 - 3,987,729 25,827,284 - -
Credit risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Company.
The Company, through its interests in Subsidiaries, has advanced loans to a
number of private companies which exposes the Company to significant credit
risk. The loans are advanced to unquoted private companies, which have no
credit risk rating. They are entered into as part of the investment strategy
of the Company and its Subsidiaries, and credit risk is managed by taking
security where available (typically a floating charge) and the Investment
Advisor taking an active role in the management of the borrowing companies.
Although the Investment Advisor looks to set realistic repayment schedules, it
does not necessarily view a portfolio company not repaying on time and in full
as 'underperforming' and seeks to monitor each portfolio company on a
case-by-case basis. However, in all cases the Investment Advisor reserves the
right to exercise step in rights. In addition to the repayment of loans
advanced, the Company and Subsidiaries will often arrange additional
preference share structures and take significant equity stakes so as to create
shareholder value. It is the performance of the combination of all securities
including third party debt that determines the Company's view of each
investment.
At the reporting date, the Company's financial assets exposed to credit risk
amounted to the following (excluding exposure in the underlying Subsidiaries):
2024 2023
£ £
Cash and cash equivalents 14,462,495 22,226,008
Total 14,462,495 22,226,008
Cash balances are placed with HSBC Bank plc, Barclays Bank plc and Santander
Financial Services plc, all of which have the credit rating of A1 Stable
(Moody's).
Market price risk
Market price risk is the risk that the value of a financial instrument will
fluctuate as a result of changes in market prices (other than those arising
from interest rate risk or currency risk). The Company is exposed to a market
price risk via its equity investments held through its interests in
Subsidiaries, which are stated at fair value.
Market price risk sensitivity
The Company is exposed to market price risk with regard to its underlying
equity interests in a number of quoted and unquoted companies which are stated
at fair value. Luceco plc was quoted on the Main Market of the London Stock
Exchange at 31 January 2024. EPIC Acquisition Corp's shares and warrants were
quoted on the Euronext Amsterdam Stock Exchange at 31 January 2024.
If Luceco plc's share price had been 5.0 per cent. higher than actual close of
market on 31 January 2024, EPE Special Opportunities Limited's NAV per share
would have been 2.0 per cent. (2023: 2.03 per cent.) higher than reported. If
Luceco's share price had been 5.0 per cent. lower than actual close of market
on 31 January 2024, EPE Special Opportunities Limited's NAV per share would
have been 2.0 per cent. (2023: 2.03 per cent.) lower than reported. These
movements would have had a corresponding effect on the profit for the year.
A sensitivity is not prepared for EPIC Acquisition Corp. given that the
vehicle is in liquidation.
Interest rate risk
The Company is exposed to interest rate risk through its unsecured loan note
instruments and on its cash balances. Most of the loans are at fixed rates.
Cash balances earn interest at variable rates. The unsecured loan note
instruments carry fixed interest rates.
The table below summarises the Company's exposure to interest rate risks. It
includes the Company's financial assets and liabilities at the earlier of
contractual re-pricing or maturity date, measured by the carrying values of
assets and liabilities:
31 January 2024 Less than 1 month 1 month 1 - 5 years Over Non- interest bearing Total
to 1 year 5 years
Assets £ £ £ £ £ £
Receivables and cash
Trade and other receivables - - - - - -
Cash and cash equivalents 14,462,495 - - - - 14,462,495
Total financial assets 14,462,495 - - - - 14,462,495
Liabilities
Financial liabilities measured
at amortised cost
Trade and other payables - - - - (676,284) (676,284)
Unsecured loan note instruments - (3,987,729) - - - (3,987,729)
Total financial liabilities - (3,987,729) - - (676,284) (4,664,013)
31 January 2023 Less than 1 month 1 month 1 - 5 years Over Non- interest bearing Total
to 1 year 5 years
Assets £ £ £ £ £ £
Receivables and cash
Trade and other receivables - - - - - -
Cash and cash equivalents 22,226,008 - - - - 22,226,008
Total financial assets 22,226,008 - - - - 22,226,008
Liabilities
Financial liabilities measured
at amortised cost
Trade and other payables - - - - (596,790) (596,790)
Unsecured loan note instruments - (3,987,729) - - - (3,987,729)
Total financial liabilities - (3,987,729) - - (596,790) (4,584,519)
Interest rate sensitivity
The Company is exposed to market interest rate risk via its cash balances and
unsecured loan note instruments. A sensitivity analysis has not been provided
as it is not considered significant to Company performance.
Currency risk
The Group has no significant exposure to foreign currency risk.
Exposure to other market price risk
The Investment Advisor monitors the concentration of risk for equity and debt
securities based on counterparties and industries (and geographical location).
The Company's underlying investments including bank deposits held through its
Subsidiaries are concentrated in the following industries.
2024 2023
% %
Consumer and Retail 49 41
Engineering, Manufacturing and Distribution 35 34
Healthcare 2 2
Credit Funds <1 3
Bank Deposits 13 20
100 100
The Group notes that there was a concentration on the Consumer and Retail
sector, representing 49 per cent. of investments for the year ended 31 January
2024 (2023: Consumer and Retail sector representing 41 per cent.). The Company
monitors carefully the sector concentration risk across the portfolio.
Operational risk
'Operational risk' is the risk of direct or indirect loss arising from a wide
variety of causes associated with the processes, technology and infrastructure
supporting the Company's activities (both at the Company and at its service
providers) and from external factors (other than credit, market and liquidity
risks) such as those arising from legal and regulatory requirements and
generally accepted standards of investment management behaviour.
The Company's objective is to manage operational risk so as to balance the
limitation of financial losses and damage to its reputation with achieving its
investment objective of generating returns to investors.
The primary responsibility for the development and implementation of controls
over operational risk rests with the Board of Directors. This responsibility
is supported by the development of overall standards for the management of
operational risk, which encompasses the controls and processes at the service
providers and the establishment of service levels with the service providers,
in the following areas:
· documentation of controls and procedures;
· requirements for:
- appropriate segregation of duties between various functions, roles
and responsibilities;
- reconciliation and monitoring of transactions; and
- periodic assessment of operational risk faced;
· the adequacy of controls and procedures to address the risks
identified;
· compliance with regulatory and other legal requirements;
· development of contingency plans;
· training and professional development;
· ethical and business standards; and
· risk mitigation, including insurance if this is effective.
The Company's key service providers include the following:
· Administrator: Langham Hall Fund Management (Jersey) Limited
· Investment Advisor: EPIC Investment Partners LLP
· Financial Administrator: EPIC Administration Limited
· Nominated Advisor and Broker: Numis Securities Limited
· Registrar and CREST Providers: Computershare Investor Services
(Jersey) Limited
The Directors' assessment of the adequacy of the controls and processes in
place at the service providers with respect to operational risk is carried out
via regular discussions with the service providers as well as site visits to
their offices. The Company also undertakes periodic third-party reviews of
service providers' activities.
21 Directors' interests
Four of the Directors have interests in the shares of the Company as at 31
January 2024 (2023: five). Clive Spears holds 63,010 ordinary shares (2023:
51,841). Heather Bestwick holds 50,600 ordinary shares (2023: 39,431). David
Pirouet holds 33,635 ordinary shares (2023: 17,309). Michael Gray holds 11,627
ordinary shares (2023: 5,614).
22 Related parties
The Company has no ultimate controlling party.
Directors' fees expenses during the year amounted to £162,474 (2023:
£172,000) of which £11,667 is accrued as at 31 January 2024 (2023:
£14,333).
There were no shares re-acquired from related parties during the year ended 31
January 2024 (2023: nil). Certain Directors of the Company and other
participants are incentivised in the form of equity settled share-based
payment transactions, through a Jointly Owned Share Plan (see note 7).
Details of remuneration payable to key service providers are included in note
5 to the financial statements.
Performance fees are paid to the Investment Advisor based on the performance
of the Subsidiaries and deducted in calculating the fair value of Subsidiaries
(see note 5).
In December 2021, ESO Alternative Investments LP invested €10 million into
EPIC Acquisition Corp ("EAC"), a special purpose acquisition company ("SPAC")
and EAC's sponsor, EAC Sponsor Limited (the "Sponsor"). The Sponsor was
jointly led by the Investment Advisor and TT Bond Partners (an independent
party). In January 2024, EPIC Acquisition Corp announced that it will return
all residual capital to the Company and to third parties and wind up. In
February 2024, the realisation of the investment in EPIC Acquistion Corp was
completed, returning €6.2 million. The realisation from EAC Sponsor Limited
remains subject to the completion of the liquidation.
In July 2023, the Company agreed the extension of the maturity of £4.0
million unsecured loan notes to 24 July 2024. Delphine Brand, a Managing
Partner of EPIC and a connected party of Giles Brand (a person discharging
managerial responsibilities ("PDMR") for the Company), is a minority holder of
the unsecured loan notes.
Giles Brand, Managing Partner of the Investment Advisor, is a director of
certain portfolio holding vehicles, including Luceco plc and Hamsard 3145
Limited (trading as Whittard of Chelsea).
23 Commitments and Contingencies
As at 31 January 2024, ESO Investments 1 Limited has a contingent guarantee of
£1.75 million outstanding (2023: £nil) in favour of Rayware Limited and its
third party debt providers (a £2.50 million guarantee was provided in July
2023 of which £0.75 million was drawn down in the subsequent period).
24 Other information
The revenue and capital reserves are presented in accordance with the Board of
Directors' agreed principles, which are that the net gain / loss on
investments is allocated to the capital reserve and all other income and
expenses are allocated to the revenue reserve and other equity. The total
reserve of the Company for the year ended 31 January 2024 is £81,529,521
(2023: £82,070,909).
25 Subsequent events
In February 2024, the Company received €6.2 million as proceeds from the
realisation of its holding in EPIC Acquisition Corp.
Alternative Performance Measures
An Alternative Performance Measure is a numerical measure of the Group's
historical or current performance.
Measures Definition
Premium / Discount to NAV The amount by which the share price of the Company is either higher (premium) or lower (discount) than the NAV per share, expressed as a percentage of the NAV per share.
Please find a reconciliation to the NAV per share of the Company below
31 January 31 January
2024 2023
Share price (pence) 165 170
NAV per share (pence) 324 328
Discount to NAV (%) 49% 48%
EBITDA Earnings before interest, taxation, depreciation and amortisation.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
EV / EBITDA multiple The EV / EBITDA multiple is calculated by dividing a company's Enterprise Value ('EV') by its annual EBITDA. The mature unquoted asset valuation EV / EBITDA multiple quoted in the report is weighted by the Fair Value of the underlying investments, and excludes assets at a pre-profitability growth stage.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
31 January 31 January
2024 2023
Mature unquoted asset valuation 7.2x 6.7x
EV / Sales multiple The EV / Sales multiple is calculated by dividing a company's EV by its annual Sales.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
IRR The gross Internal Rate of Return ("IRR") of an investment or set of investments, calculated as the annual compound rate of return on the investment cashflows. Gross IRR does not reflect expenses to be borne by the relevant fund or its investors, including performance fees, management fees, taxes and
organisational or transaction expenses.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
31 January 31 January
2024 2023
Portfolio IRR 22% 23%
EPIC IRR 15% 16%
Liquidity Company liquidity is calculated as cash balances held by the Company, inclusive of
cash held by Subsidiaries in which the Company is the sole investor.
Please find a reconciliation to the cash balances held by the Company below.
31 January 31 January
2024 2023
Cash held by the Company 14,462,495 22,226,008
Cash held by the Subsidiaries 868,510 2,284,081
Total liquidity 15,331,005 24,510,089
Portfolio Sales CAGR The portfolio sales compound annual growth rate ("CAGR") is calculated on the basis of the CAGR implied by the sum of the annual sales for the portfolio companies' latest completed financial year vs. the prior three year period.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
31 January 31 January
2024 2023
Portfolio Sales CAGR 8% 12%
MM The Money Multiple ("MM") is calculated as the total gross realisations from an investment or set of investments, divided by the total cost of the investment. Gross money multiple does not reflect expenses to be borne by the relevant fund or its investors, including performance fees, management fees, taxes and organisational or transaction expenses.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
31 January 31 January
2024 2023
Portfolio MM 3.1x 3.1x
EPIC MM 2.3x 2.3x
NAV per share The Group's NAV per share is calculated as the net assets of the Group at the year-end divided by the outstanding shares.
The shares of the EBT subsidiary are included in the outstanding shares when
calculating the Company's NAV per share to ensure that the NAV per share is
stable in the event of share purchases made by the EBT subsidiary or the
vesting of shares of the EBT subsidiary.
31 January 31 January
2024 2023
Net asset value (£) 96,879,976 97,421,364
Outstanding shares 29,876,847 29,664,979
NAV per share (pence) 324.26 328.41
Net Debt Net Debt is calculated as the total third party debt of a portfolio company, less cash balances.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
Portfolio Leverage Portfolio Leverage is calculated as the aggregate Net Debt of the portfolio, divided by the aggregate annual EBITDA of the portfolio.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
31 January 31 January
2024 2023
Portfolio Leverage 1.4x 1.3x
Annualised share price return The annualised share price return is calculated as the CAGR implied by the Company's share price vs. the share price 10 years prior.
Please find a reconciliation to the share price of the Company below:
31 January 31 January
2024 2023
Company's share price 10 years prior to the year end (pence) 87 56
Company's share price at the year end (pence) 165 170
Annualised share price return (%) 7% 12%
EBITDA
Earnings before interest, taxation, depreciation and amortisation.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
EV / EBITDA multiple
The EV / EBITDA multiple is calculated by dividing a company's Enterprise Value ('EV') by its annual EBITDA. The mature unquoted asset valuation EV / EBITDA multiple quoted in the report is weighted by the Fair Value of the underlying investments, and excludes assets at a pre-profitability growth stage.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
31 January 31 January
2024 2023
Mature unquoted asset valuation 7.2x 6.7x
EV / Sales multiple
The EV / Sales multiple is calculated by dividing a company's EV by its annual Sales.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
IRR
The gross Internal Rate of Return ("IRR") of an investment or set of investments, calculated as the annual compound rate of return on the investment cashflows. Gross IRR does not reflect expenses to be borne by the relevant fund or its investors, including performance fees, management fees, taxes and organisational or transaction expenses.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
31 January 31 January
2024 2023
Portfolio IRR 22% 23%
EPIC IRR 15% 16%
Liquidity
Company liquidity is calculated as cash balances held by the Company, inclusive of
cash held by Subsidiaries in which the Company is the sole investor.
Please find a reconciliation to the cash balances held by the Company below.
31 January 31 January
2024 2023
Cash held by the Company 14,462,495 22,226,008
Cash held by the Subsidiaries 868,510 2,284,081
Total liquidity 15,331,005 24,510,089
Portfolio Sales CAGR
The portfolio sales compound annual growth rate ("CAGR") is calculated on the basis of the CAGR implied by the sum of the annual sales for the portfolio companies' latest completed financial year vs. the prior three year period.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
31 January 31 January
2024 2023
Portfolio Sales CAGR 8% 12%
MM
The Money Multiple ("MM") is calculated as the total gross realisations from an investment or set of investments, divided by the total cost of the investment. Gross money multiple does not reflect expenses to be borne by the relevant fund or its investors, including performance fees, management fees, taxes and organisational or transaction expenses.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
31 January 31 January
2024 2023
Portfolio MM 3.1x 3.1x
EPIC MM 2.3x 2.3x
NAV per share
The Group's NAV per share is calculated as the net assets of the Group at the year-end divided by the outstanding shares.
The shares of the EBT subsidiary are included in the outstanding shares when
calculating the Company's NAV per share to ensure that the NAV per share is
stable in the event of share purchases made by the EBT subsidiary or the
vesting of shares of the EBT subsidiary.
31 January 31 January
2024 2023
Net asset value (£) 96,879,976 97,421,364
Outstanding shares 29,876,847 29,664,979
NAV per share (pence) 324.26 328.41
Net Debt
Net Debt is calculated as the total third party debt of a portfolio company, less cash balances.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
Portfolio Leverage
Portfolio Leverage is calculated as the aggregate Net Debt of the portfolio, divided by the aggregate annual EBITDA of the portfolio.
This measure is calculated at the level of the underlying portfolio and therefore is not directly reconcilable to GAAP metrics in the financial statements.
31 January 31 January
2024 2023
Portfolio Leverage 1.4x 1.3x
Annualised share price return
The annualised share price return is calculated as the CAGR implied by the Company's share price vs. the share price 10 years prior.
Please find a reconciliation to the share price of the Company below:
31 January 31 January
2024 2023
Company's share price 10 years prior to the year end (pence) 87 56
Company's share price at the year end (pence) 165 170
Annualised share price return (%) 7% 12%
Unaudited schedule of shareholders holding over 3% of issued shares
As at 31 January 2024
Percentage holding
Giles Brand 35.5%
Corporation of Lloyds 9.9%
Asset Value Investors 5.1%
First Equity 4.8%
Boston Trust Company Limited (Trustee to the ESO JOSP Scheme) 4.5%
Lombard Odier Darier Hentsch 3.5%
Total over 3% holding 63.3%
Company Information
Directors Administrator and Company Address
C.L. Spears (Chairman) Langham Hall Fund Management (Jersey) Limited
H. Bestwick Gaspe House
D. Pirouet 66-72 Esplanade, St Helier
M.M. Gray Jersey JE1 2LH
Investment Advisor Financial Administrator
EPIC Investment Partners LLP EPIC Administration Limited
Audrey House Audrey House
16-20 Ely Place 16-20 Ely Place
London EC1N 6SN London EC1N 6SN
Auditors and Reporting Accountants Nominated Advisor and Broker
PricewaterhouseCoopers CI LLP Numis Securities Limited
37 Esplanade 45 Gresham Street
St Helier, Jersey London EC2V 7BF
Channel Islands JE1 4XA
Bankers Registered Agent (Bermuda)
Barclays Bank plc Conyers Dill & Pearman
1 Churchill Place Clarendon House, 2 Church Street
Canary Wharf Hamilton HM 11
London E14 5HP Bermuda
HSBC Bank plc Registrar and CREST Providers
1st Floor Computershare Investor Services (Jersey) Limited
60 Queen Victoria Street Queensway House
London EC4N 4TR Hilgrove Street
St. Helier JE1 1ES
Santander International Investor Relations
PO Box 545 Richard Spiegelberg
19-21 Commercial Street Cardew Company
St Helier, Jersey, JE4 8XG 29 Lincoln's Inn Fields
London WC2A 3EG
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