REG-JZ Capital Ptnrs Ltd: Half-year Report
10/11/2022 07:15
JZ CAPITAL PARTNERS LIMITED (the "Company" or "JZCP")
(a closed-end investment company incorporated with limited liability under the
laws of Guernsey with registered number 48761)
INTERIM RESULTS FOR THE SIX-MONTH PERIOD ENDED
31 AUGUST 2022
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET
ABUSE REGULATION (EU) NO. 596/2014 WHICH FORMS PART OF UK LAW BY VIRTUE OF THE
EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("MAR").
10 November 2022
JZ Capital Partners, the London listed fund that invests in US and European
microcap companies and US real estate, announces its interim results for the
six-month period ended 31 August 2022.
Financial and Operational Highlights
* NAV per share of $4.71 (FYE 28/02/22: $4.29), representing an increase of
10%
* NAV of $365.1 million (FYE 28/02/22: $332.3 million)
* Total realisation and distribution proceeds of $106 million, including the
sale of JZCP’s investments in Salter Labs, Flow Control and Testing
Services, and its co-investment in New Vitality.
* Despite economic headwinds, the US and European micro-cap portfolios have
generally performed well, and both portfolios are working towards several
realisations.
Investment Policy and Liquidity
* The Company remains focused on the implementation of its New Investment
Policy. This policy focuses on realising the maximum value from the
Company’s investment portfolio and, after repaying its debt obligations,
returning capital to shareholders.
* The Company drew down $31.5 million of Subordinated Notes under a facility
made available by affiliates of Jay Jordan and David Zalaznick, which maturity
was recently extended to 30 September 2023.
* The Company redeemed in full its £38.8 million of Convertible Unsecured
Loan Stock (CULS) and £57.6 million of Zero Dividend Preference Shares (ZDPs)
on their respective maturity dates.
* In summary, the Company’s outstanding debt has been reduced to (i) $45.0
million Senior Term Loan Facility due 26 January 2027 and (ii) $31.5 million
of Subordinated Notes due 30 September 2023.
David Macfarlane, Chairman of JZCP, said: “The past year and a half have
been transformational for the Company. The successful realization of several
investments has increased the Company’s NAV and generated substantial
liquidity, allowing it to dramatically reduce its debt obligations and achieve
financial stability.
Whilst it may take more time than anticipated due to the economic downturn,
the Board is confident that the New Investment Policy will be implemented in
an orderly manner and that, in due course, a significant amount of capital
will be able to be returned to shareholders.”
Market Abuse Regulation:
The information contained within this announcement is inside information as
stipulated under MAR. Upon the publication of this announcement, this inside
information is now considered to be in the public domain. The person
responsible for arranging the release of this announcement on behalf of the
Company is David Macfarlane, Chairman.
For further information:
Ed Berry / Kit Dunford
+44 (0)7703 330 199 / +44 (0)7717 417 038
FTI Consulting
David Zalaznick
+1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Hannah
Hayward
+44 (0) 1481 745 417
Northern Trust International Fund
Administration Services (Guernsey) Limited
About JZ Capital Partners Limited
JZCP has investments in US and European micro-cap companies, as well as real
estate properties in the US.
JZCP’s Investment Adviser is Jordan/Zalaznick Advisers, Inc. (“JZAI”)
which was founded by David Zalaznick and
Jay Jordan in 1986. JZAI has investment professionals in New York, Chicago,
London and Madrid.
In August 2020, the Company's shareholders approved changes to the Company’s
investment policy. Under the new policy, the Company will make no further
investments except in respect of which it has existing obligations and to
continue selectively to support the existing portfolio. The intention is to
realise the maximum value of the Company's investments and, after repayment of
all debt, to return capital to shareholders.
JZCP is a Guernsey domiciled closed-ended investment company authorised by the
Guernsey Financial Services Commission. JZCP's shares trade on the Specialist
Fund Segment of the London Stock Exchange.
For more information please visit www.jzcp.com.
Important Notice:
This announcement includes statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "anticipates", "expects", "intends", "may", "will" or
"should" or, in each case, their negative or other variations or comparable
terminology. These forward-looking statements relate to matters that are not
historical facts. By their nature, forward-looking statements involve risks
and uncertainties because they relate to events and depend on circumstances
that may or may not occur in the future. Forward-looking statements are not
guarantees of future performance. The Company's actual investment performance,
results of operations, financial condition, liquidity, policies and the
development of its strategies may differ materially from the impression
created by the forward-looking statements contained in this announcement. In
addition, even if the investment performance, result of operations, financial
condition, liquidity and policies of the Company and development of its
strategies, are consistent with the forward-looking statements contained in
this announcement, those results or developments may not be indicative of
results or developments in subsequent periods. These forward-looking
statements speak only as at the date of this announcement. Subject to their
legal and regulatory obligations, each of the Company, the Investment Adviser
and their respective affiliates expressly disclaims any obligations to update,
review or revise any forward-looking statement contained herein whether to
reflect any change in expectations with regard thereto or any change in
events, conditions or circumstances on which any statement is based or as a
result of new information, future developments or otherwise.
Chairman's Statement
The Directors are pleased to present the Interim Results of the Company for
the six-month period ended 31 August 2022, which show that the NAV per share
of the Company has increased approximately 10%, from $4.29 as of 28 February
2022 to $4.71 as of 31 August 2022.
This substantial increase is in large part due to write-ups and realisations
above NAV in the JZHL Secondary Fund LP portfolio (the “Secondary Fund”),
in which the Company holds a Special Limited Partnership interest.
Investment Policy and Liquidity
The past year and a half have been transformational for the Company. Major
realisations, notably those of Salter Labs, Flow Control and Testing Services
(the latter two in the Secondary Fund), increased the Company’s NAV and
generated substantial liquidity.
In addition to these realisations, affiliates of David Zalaznick and Jay
Jordan provided the Company with a $31.5 million facility of Subordinated
Notes, of which the maturity was recently extended to 30 September 2023.
The Company redeemed in full its £38.8 million of Convertible Unsecured Loan
Stock and £57.6 million of Zero Dividend Preference Shares on their
respective maturity dates. Consequently, the Company’s outstanding debt has
been reduced to a $45 million senior term loan facility (the “Senior Term
Loan Facility”) due 26 January 2027 and the $31.5 million of Subordinated
Notes due 30 September 2023. The Senior Term Loan Facility may be repaid early
without penalty once the senior lender has received an aggregate return of
15%. No early repayment charges apply to the Subordinated Notes. In addition,
the Senior Credit Facility provides for up to an additional $25 million in
first lien delayed draw term loan, none of which has been drawn on so far. The
Company’s cash and cash equivalents balance currently amounts to
approximately $64 million.
The Company remains focused on the implementation of its investment policy
(the “New Investment Policy”), which was adopted by shareholders in August
2020. This policy is to realise the maximum value from the Company’s
investment portfolio and, after repaying the remainder of the Company’s
debt, to return capital to shareholders. The Company is only making
investments where it has existing obligations or to selectively support its
existing portfolio to maximise value.
While the events of the past year represent tremendous progress in meeting the
goals of the New Investment Policy, the timeline to begin returning capital to
shareholders remains uncertain. The climate for achieving realisations is
substantially more challenging and time consuming than it was just several
months ago. The Board would also like to note that in cases where the Company
is a co-investor in a portfolio asset, decisions regarding realisations and
their timing is not under the control of the Company. However, once the
Company’s debt is paid off, it remains the Company’s intention to begin
making interim distributions of capital as liquidity permits.
US and European Micro-cap Portfolios
Our US and, in context of difficulties in Europe, our European micro-cap
portfolios have generally performed well, and we continue to work towards
several realisations in both portfolios. The Board looks forward to reporting
on further potential realisations at the year-end period.
Real Estate Portfolio
The Company has two remaining properties with equity value: Esperante, an
office building in West Palm Beach, Florida, and 247 Bedford Avenue, a retail
building with Apple as the primary tenant, in Williamsburg, Brooklyn. The
Board looks forward to reporting further on these properties when there is an
updated appraisal done for each at the year-end period.
Outlook
Due to the transformational events of the past year, the Company has achieved
financial stability; heading towards year-end, the Board believes the Company
is well-positioned to weather the current economic headwinds. Although it may
take more time than might have seemed possible prior to the economic downturn,
the Directors are confident that the New Investment Policy will be implemented
in an orderly manner and that in due course a significant amount of capital
will be able to be returned to shareholders.
David Macfarlane Chairman
9 November 2022
Investment Adviser's Report
Dear Fellow Shareholders,
We are pleased to report that our Company has achieved some significant
milestones recently, most notably the recent redemption of the Zero Dividend
Preference Shares (“ZDPs”) at their stated maturity in early October. JZCP
heads into its fiscal year-end (February 28, 2023) with a strong balance
sheet, which will provide the foundation for completing the build-out of
existing assets, realizing investments, paying down debt and returning capital
to shareholders.
With regards to our efforts to fortify JZCP’s balance sheet over the past
year and half, we successfully executed the following transactions, among
others:
* We agreed to provide through our affiliates a $31.5 million liquidity
facility at 6.0% interest to JZCP (i.e., at the same rate as the CULS), which
was approved by shareholders.
* JZCP paid off its CULS (£38.8 million) in full and on their stated due date
while at the same time maintaining a cash cushion.
* The Company repaid its previous senior facility (the “Previous Senior
Facility”) with clients and funds managed by Cohanzick Management, LLC and
CrossingBridge Advisors, LLC in an amount of approximately $52.9 million,
prior to such facility’s maturity date of 12 June 2022.
* On 26 January 2022, the Company entered into a new five-year term senior
secured loan facility (the “New Senior Facility”) with WhiteHorse Capital
Management LLC. The New Senior Facility consists of a $45.0 million first lien
term loan (which was drawn at close) and up to an additional $25.0 million in
first lien delayed draw term loan (which remains undrawn). The terms of the
New Senior Facility represent a substantial improvement to those of the
Previous Senior Facility, including a lower interest cost and longer maturity
– the New Senior Facility is due on 26 January 2027.
* In June and August 2022, the JZHL Secondary Fund LP (the “Secondary
Fund”) made two distributions to JZCP, totaling approximately $97.4 million.
Pursuant to the Secondary Fund’s waterfall, in which JZCP has a Special LP
Interest, the Company expects to receive approximately 37.5% of all further
distributions received by the Secondary Fund. As of 31 August 2022, JZCP still
has approximately $74.5 million of remaining value in the Secondary Fund.
* In October 2022, JZCP paid off its ZDPs (£57.6 million) in full and on
their stated maturity while maintaining a significant cash cushion.
While our US micro-cap portfolio has overall performed well, our European
portfolio has been challenged by the economic effects of the recession in
Europe, including soaring energy prices, falling commodity prices and the
impact of the war in the Ukraine.
The Company’s two remaining real estate assets that have equity value are
247 Bedford Avenue in Brooklyn, New York (where Apple is the principal
tenant), and the Esperante office building in West Palm Beach, Florida. We
look forward to receiving new appraisals for both properties at the year-end.
As of 31 August 2022, our US micro-cap portfolio consisted of 12 businesses,
which includes three ‘verticals’ and five co-investments, across nine
industries. Our European micro-cap portfolio consisted of 17 companies across
six industries and seven countries.
Net Asset Value (“NAV”)
JZCP’s NAV per share increased 42 cents, or approximately 9.8%, during the
six-month period.
NAV per Ordinary share as of 28 February 2022 $4.29
Change in NAV due to capital gains and accrued income
+ US micro-cap 0.66
- European micro-cap (0.03)
- Real estate (0.01)
- Other investments (0.01)
Other decreases in NAV
- Net foreign exchange effect (0.06)
- Finance costs (0.06)
- Expenses and taxation (0.07)
NAV per Ordinary share as of 31 August 2022 $4.71
The US micro-cap portfolio continued to perform well during the six-month
period, delivering a net increase of 66 cents per share. This was primarily
due to net accrued income of (4) cents and write-ups at co-investment Deflecto
(3 cents) and the JZHL Secondary Fund portfolio (71 cents).
Offsetting these increases were decreases at co-investment New Vitality and
another US micro-cap portfolio company Avante (5 cents and 7 cents
respectively).
Our European portfolio decreased 3 cents during the six-month period, due to
net write downs at European portfolio companies in our JZI Fund III, L.P.
portfolio.
The real estate portfolio was mostly flat for the six-month period.
Returns
The chart below summarises cumulative total shareholder returns and total NAV
returns for the most recent six- month, one-year, three-year and five-year
periods.
31.8.2022 28.2.2022 31.8.2021 31.8.2019 31.8.2017
Share price (in GBP) £1.71 £1.05 £1.20 £4.82 £5.16
NAV per share (in USD) $4.71 $4.29 $4.08 $9.66 $9.88
NAV to market price discount 57.8% 67.2% 59.5% 39.2% 32.8%
6- month return 1 year return 3 year return 5 year return
Dividends paid (in USD) - - - $0.155
Total Shareholders' return (GBP) (1) 62.9% 42.5% (64.5%) (66.0%)
Total NAV return per share (USD) (1) 9.8% 15.4% (51.2%) (52.3%)
(1) Total returns are cumulative and assume that dividends were reinvested.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography, with 29 US and
European micro-cap investments across eleven industries. The European
portfolio itself is well-diversified geographically across Spain, Italy,
Portugal, Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP’s assets and liabilities at 31 August 2022 as
compared to 28 February 2022. An explanation of the changes in the portfolio
follows:
31.8.2022 28.2.2022
US$’000 US$’000
US micro-cap portfolio 228,386 284,162
European micro-cap portfolio 96,624 105,475
Real estate portfolio 23,075 23,597
Other investments 23,279 23,533
Total Private Investments 371,364 436,767
Treasury bills 53,340 3,394
UK gilt 67,105 -
Cash 15,953 43,656
Total cash and cash equivalents 136,398 47,050
Other assets 310 70
Total Assets 508,072 483,887
Senior Credit Facility 42,804 42,573
Subordinated Notes 32,296 32,293
Zero Dividend Preferred shares 66,740 75,038
Other liabilities 1,170 1,719
Total Liabilities 143,010 151,623
Total Net Assets 365,062 332,264
US microcap portfolio
As you know from previous reports, our US portfolio is grouped into industry
‘verticals’ and co-investments. As of December 4, 2020, certain of our
verticals and co-investments are now grouped under JZHL Secondary Fund, LP
(“JZHL” or the “Secondary Fund”). JZCP has a continuing interest in
the Secondary Fund through a Special LP Interest, which entitles JZCP to
certain distributions from the Secondary Fund.
Our ‘verticals’ strategy focuses on consolidating businesses under
industry executives who can add value via organic growth and cross company
synergies. Our co-investments strategy allows for greater diversification of
our portfolio by investing in larger companies alongside well-known private
equity groups.
The US micro-cap portfolio continued to perform well during the six-month
period, delivering a net increase of 66 cents per share. This was primarily
due to net accrued income of (4) cents and write-ups at co-investment Deflecto
(3 cents) and the JZHL Secondary Fund portfolio (71 cents).
Offsetting these increases were decreases at co-investment New Vitality and
another US micro-cap portfolio company Avante (5 cents and 7 cents
respectively).
European microcap portfolio
Our European portfolio decreased 3 cents during the six-month period, due to
net write downs at European portfolio companies in our JZI Fund III, L.P.
portfolio. Given the ongoing challenges of the recession in Europe and the war
in Ukraine, we expect there to be further write-downs in the European
portfolio by our fiscal year-end.
JZCP invests in the European micro-cap sector through its approximately 18.8%
ownership of JZI Fund III, L.P. As of 31 August 2022, Fund III held 13
investments: five in Spain, two in Scandinavia, two in Italy, two in the UK
and one each in Portugal and Luxembourg. JZCP held direct loans to a further
two companies in Spain: Docout and Toro Finance.
Real estate portfolio
The Company’s two remaining real estate assets that have equity value are
247 Bedford Avenue in Brooklyn, New York (where Apple is the principal
tenant), and the Esperante office building in West Palm Beach, Florida.
We look forward to reporting on our progress at both properties in the coming
months.
Other investments
Our asset management business in the US, Spruceview Capital Partners, has
continued to make encouraging progress since our last report to you.
Spruceview addresses the growing demand from corporate pensions, endowments,
family offices and foundations for fiduciary management services through an
Outsourced Chief Investment Officer (“OCIO”) model as well as customized
products/solutions per asset class.
During the period, Spruceview’s mandate for a portfolio of alternative
investments for a Mexican trust (or “CERPI”) was increased by $200
million, bringing total assets to $1.2 billion, with the potential to further
increase the size of the CERPI to $1.5 billion, pending regulatory approvals,
over the coming year. In addition, Spruceview won a $200 million advisory
mandate for a portfolio of alternative investments sponsored by a Colombian
public pension fund administrator. Further, the firm received over $31
million in additional contributions to the pension plans to which it provides
advisory services.
Spruceview also maintained a pipeline of potential client opportunities and
continued to provide investment management oversight to the pension funds of
the Mexican and Canadian subsidiaries of an international packaged foods
company, as well as portfolios for family office clients, and a growing series
of private market funds.
As previously reported, Richard Sabo, former Chief Investment Officer of
Global Pension and Retirement Plans at JPMorgan and a member of that firm’s
executive committee, is leading a team of 22 investment, business and product
development, legal and operations professionals.
Realisations
New Vitality
In July 2022, JZCP received a distribution from the sale of co-investment New
Vitality totaling approximately $7.4 million.
JZHL Secondary Fund LP
In June and August 2022, the Secondary Fund made two distributions to JZCP,
totaling approximately $97.4 million. Pursuant to the Secondary Fund’s
waterfall, in which JZCP has a Special LP Interest, the Company expects to
receive approximately 37.5% of all further distributions received by the
Secondary Fund.
Outlook
We believe that 2022 has been a transformational year for JZCP. Having now
paid off the CULS and ZDPs in full and at their stated maturities, the Company
has the ability to continue to build-out and maximize the value of its
remaining portfolio.
As a result of the payoff of the CULS and ZDPs, our current balance sheet is
in a much stronger position than previously reported, with key outstanding
debt obligations of just $45.0 million outstanding on the New Senior Facility
due 26 January 2027 and $31.5 million of Subordinated Notes due 30 September
2023.
Fortunately, we had significant realizations in the Secondary Fund portfolio
in the past year which provided much needed liquidity to pay down debt.
However, since the world has changed dramatically in the past six months –
with rising interest rates and macroeconomic challenges – asset values
cannot be realized as easily as in the recent past. Furthermore, we may see
asset values decline before they go up again.
We will take advantage of realization opportunities as market conditions
permit. In the meantime, we will continue to build our existing portfolio
companies which we believe is the most effective way to return significant
capital to our ordinary shareholders.
Thank you again for your continued support through a difficult period. We
firmly believe that the Company is in a much stronger position than at any
point in the past three years.
As always, we remain dedicated to maximizing value for our fellow
shareholders.
Yours faithfully, Jordan/Zalaznick Advisers, Inc.
9 November 2022
Board of Directors
David Macfarlane (Chairman)(1)
Mr Macfarlane was appointed to the Board of JZCP in 2008 as Chairman and a
non-executive Director. Until 2002 he was a Senior Corporate Partner at
Ashurst. He was a non-executive director of the Platinum Investment Trust Plc
from 2002 until January 2007.
James Jordan
Mr Jordan is a private investor who was appointed to the Board of JZCP in
2008. He is a director of the First Eagle family of mutual funds, and of Alpha
Andromeda Investment Trust Company, S.A. Until 30 June 2005, he was the
managing director of Arnhold and S. Bleichroeder Advisers, LLC, a privately
owned investment bank and asset management firm; and until 25 July 2013, he
was a non-executive director of Leucadia National Corporation. He is an
Overseer of the Gennadius Library of the American School of Classical Studies
in Athens, and a Director of Pro Natura de Yucatan.
Sharon Parr(2)
Mrs Parr was appointed to the Board of JZCP in June 2018. In 2003 she
completed a private equity backed MBO of the trust and fund administration
division of Deloitte and Touche, called Walbrook, selling it to Barclays
Wealth in 2007. As a Managing Director of Barclays, she ultimately became
global head of their trust and fund administration businesses, comprising over
450 staff in 10 countries. She stepped down from her executive roles in 2011
to focus on other areas and interests but has maintained directorships in
several companies. She is a Fellow of the Institute of Chartered Accountants
in England and Wales and a member of the Society of Trust and Estate
Practitioners, and is a resident of Guernsey.
Ashley Paxton
Mr Paxton was appointed to the board in August 2020. He has more than 25 years
of funds and financial services industry experience, with a demonstrable track
record in advising closed-ended London listed boards and their audit
committees on IPOs, capital market transactions, audit and other corporate
governance matters. He was previously C.I. Head of Advisory for KPMG in the
Channel Islands, a position he held from 2008 through to his retirement from
the firm in 2019. He is a Fellow of the Institute of Chartered Accountants in
England and Wales and a resident of Guernsey. Amongst other appointments he is
Chairman of the Youth Commission for Guernsey & Alderney, a locally based
charity whose vision is that all children and young people in the Guernsey
Bailiwick are ambitious to reach their full potential.
(1)Chairman of the nominations committee of which all Directors are members.
(2)Chairman of the audit committee of which all Directors are members.
Report of the Directors
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Interim Report and Financial
Statements comprising the Half-yearly Interim Report (the "Interim Report")
and the Unaudited Condensed Interim Financial Statements (the "Interim
Financial Statements") in accordance with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
* the Interim Financial Statements have been prepared in accordance with IAS
34, "Interim Financial Reporting" as adopted in the European Union and give a
true and fair view of the assets, liabilities, financial position and profit
or loss of the Company; and
* the Chairman’s Statement and Investment Adviser’s Report include a fair
review of the information required by:
(i) DTR 4.2.7R of the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority, being an indication
of important events that have occurred during the first six months of the
financial year and their impact on the Interim Financial Statements; and a
description of the principal risks and uncertainties for the remaining six
months of the year; and
(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority, being related party
transactions that have taken place in the first six months of the financial
year and that have materially affected the financial position or the
performance of the entity during that period; and any changes in the related
party transactions described in the 2022 Annual Report and Financial
Statements that could do so.
Principal Risks and Uncertainties
The Company's Board believes the principal risks and uncertainties that relate
to an investment in JZCP are as follows:
Portfolio Liquidity
The Company invests predominantly in unquoted companies and real estate.
Therefore, this potential illiquidity means there can be no assurance
investments will be realised at their latest valuation or on the timing of
such realisations. The Board considers this illiquidity when planning to meet
its future obligations, whether committed investments or the repayment of the
ZDP shares (redeemed post period-end), Senior Credit Facility and
subordinated, second lien Subordinated Notes (the “Subordinated Notes”).
On a quarterly basis, the Board reviews a working capital model produced by
the Investment Adviser which highlights the Company's projected liquidity and
financial commitments.
Investment Performance and Impact on NAV
The Company is reliant on the Investment Adviser to support the Company's
investment portfolio by executing suitable investment decisions. The
Investment Adviser provides the Board with an explanation of all investment
decisions and also provides quarterly investment reports and valuation
proposals of investee companies. The Board reviews investment performance
quarterly and investment decisions are checked to ensure they are consistent
with the agreed investment strategy.
Macroeconomic Risks and Impact on NAV
The Company's performance, and underlying NAV, is influenced by economic
factors that affect the demand for products or services supplied by investee
companies and the valuation of Real Estate interests held. Economic factors
will also influence the Company's ability to invest and realise investments
and the level of realised returns. Approximately 20% (28 February 2022: 24%)
of the Company's investments are denominated in non-US dollar currencies,
primarily the euro. Fluctuations to these exchange rates will affect the NAV
of the Company.
Uncertainties in today's world that influence economic factors include:
(i) COVID-19
Whilst the Company's portfolio has performed robustly throughout the pandemic,
the Board acknowledge world economies face lasting challenges as they emerge
from the pandemic.
(ii) War in Ukraine and resulting energy crisis
The Board strongly condemn the actions of the Russian government and the
devastating events that have unfolded since Russia’s unprovoked invasion of
Ukraine.
JZCP's investments are predominantly focused in the U.S. and Western Europe,
and as such, the portfolio has no direct exposure to the affected regions.
However, certain portfolio companies have exposure to the rising energy costs
resulting from the conflict. The Board continue to receive reports from the
Investment Adviser on the impact of these increased costs. The Board is not
aware that the Company has any Russian investors.
(iii) Global warming
The Board considers the impact of climate change on the firm’s business
strategy and risk profile and, where appropriate will make timely climate
change related disclosures. Regular updates, given by the Investment Adviser
on portfolio companies and properties will include potential risk factors
pertaining to climate change and how/if these risks are to be mitigated.
The Board also has regard to the impact of the Company’s operations on the
environment and other stakeholders. There are expectations that portfolio
companies operate is a manner that contributes to sustainability by
considering the social, environmental, and economic impacts of doing business.
The Board requests the Investment Adviser report on any circumstances where
expected standards are not met.
Share Price Trading at Discount to NAV
JZCP's share price is subject to market sentiment and will also reflect any
periods of illiquidity when it may be difficult for shareholders to realise
shares without having a negative impact on share price. The Directors review
the share price in relation to Net Asset Value on a regular basis and
determine whether to take any action to manage the discount. The Directors,
with the support of the Investment Adviser, work with brokers to maintain
interest in the Company’s shares through market contact and research
reports.
Operational and Personnel
Although the Company has no direct employees, the Company considers what
dependence there is on key individuals within the Investment Adviser and
service providers that are key to the Company meeting its operational and
control requirements.
The Board considers the principal risks and uncertainties above are broadly
consistent with those reported at the prior year end, but wish to note the
following:
* The Board recognises the Company will have an increased exposure to
liquidity risk as future debt obligations near maturity.
* The effect of the war in Ukraine on market conditions means that there are
challenges to completing corporate transactions within the European micro-cap
portfolio and planned realisations may be delayed.
* The Board deems the risks posed by COVID-19 to the Company’s investment
portfolio, in terms of valuation and ability to complete realisations continue
to lessen as economies learn to live and adapt to the virus.
Going Concern
A fundamental principle of the preparation of financial statements in
accordance with IFRS is the judgement that an entity will continue in
existence as a going concern for a period of 12 months from signing of the
Interim Financial Statements, which contemplates continuity of operations and
the realisation of assets and settlement of liabilities occurring in the
ordinary course of business.
In reaching its conclusion, the Board has considered the risks that could
impact the Company’s liquidity over the period from 9 November 2022 to 30
November 2023 (the "Going Concern period").
As part of their assessment, the Board considered whether there was a
reasonable expectation that the Company has and will generate adequate
liquidity to meet its debt obligations over the Going Concern period
including the redemption of its Subordinated Notes payable 30 September 2023.
Recent events impacting liquidity
* realisation proceeds during the interim period in excess of $100 million;
* post period end, the extension of the maturity date of the Subordinated
Notes to 30 September 2023; and
* post period end, the redemption and cancellation of the Company's ZDP
shares.
Update on material liabilities due for settlement and the Company's net debt
position
The below table shows the Company's improved net debt position as at 1 October
2022 (reflecting the post-period redemption of the ZDP shares) compared to
previous period ends:
1.10.2022 $'000 31.8.2022 $'000 28.2.2022 $'000 31.8.2021 $'000 28.2.2021 $’000
Senior Credit Facility 43,271 42,804 42,573 36,629 68,694
Subordinated Notes 31,505 32,296 32,293 31,669 -
ZDP Shares - 66,740 77,281 75,014 80,527
CULS - - - - 54,322
Total debt 74,776 141,840 152,147 143,312 203,553
Cash and cash equivalents held (1) 65,672 136,398 47,050 44,582 63,178
Net debt position 9,104 5,442 105,097 98,730 140,375
(1)Includes investments in Treasury Bills and UK Gilts
Realisations and refinancings during the interim period and previous two
fiscal years
Period End 31.8.2022 $ million Year End 28.2.2022 $ million Year End 28.2.2021 $ million
JZHL Secondary Fund U.S. 97.4 Salter Labs U.S. 41.1 Secondary Sale U.S 87.7
New Vitality U.S. 7.4 George Industries U.S. 9.5 Real estate 13.6
Fund III Euro 0.2 Orangewood Fund U.S. 6.2 ABTA U.S 9.4
Igloo U.S. 3.8 Eliantus Euro 9.4
Vitalyst U.S. 1.9 K2 Towers II Euro 9.2
EMC 2010 Euro 2.2 Other U.S 9.0
1.1 Cerpi Other 1.2
105.0 65.8 139.5
The Board takes account of the levels of realisation proceeds historically
generated by the Company’s micro-cap portfolios as well as the accuracy of
previous forecasts to assess the predicted accuracy of forecasts presented.
The Company continues to work on the realisation of various investments within
a timeframe that will enable the Company to maximise the value of its
investment portfolio.
Going Concern Conclusion
Considering the Company’s projected cash position, including the Company's
ongoing operating costs and the anticipated further investment required to
support the Company’s portfolio, the Board is satisfied, as of today’s
date, that it is appropriate to adopt the going concern basis in preparing the
financial statements and they have a reasonable expectation that the Company
will continue in existence as a going concern for the period to 30 November
2023.
Approved by the Board of Directors and agreed on behalf of the Board on 9
November 2022.
David
Macfarlane
Sharon Parr
Chairman
Director
Investment Portfolio
31 August 2022 Percentage
Cost (1) Value of Portfolio
US$'000 US$'000 %
US Micro-cap portfolio
US Micro-cap Fund
JZHL Secondary Fund L.P.(2)
JZHL Secondary Fund L.P.
JZCP's investment in the JZHL Secondary Fund is further detailed below.
Total JZHL Secondary Fund L.P. valuation 34,876 74,470 15.2
US Micro-cap (Vertical)
Industrial Services Solutions (3)
INDUSTRIAL SERVICES SOLUTIONS (“ISS”) Provider of aftermarket maintenance, repair, and field services for critical process equipment throughout the US
Total Industrial Services Solutions valuation 48,250 95,944 19.5
US Micro-cap (Co-investments)
DEFLECTO Deflecto designs, manufactures and sells innovative plastic products to multiple industry segments 45,010 45,384 9.2
ORIZON Manufacturer of high precision machine parts and tools for aerospace and defence industries 3,899 7,000 1.4
Total US Micro-cap (Co-investments) 48,909 52,384 10.6
US Micro-cap (Other)
AVANTE HEALTH SOLUTIONS Provider of new and professionally refurbished healthcare equipment 8,140 4,588 0.9
HEALTHCARE PRODUCTS HOLDINGS Designer and manufacturer of motorised vehicles 17,636 - -
NATIONWIDE STUDIOS Processor of digital photos for pre-schoolers 26,324 1,000 0.2
Total US Micro-cap (Other) 52,100 5,588 1.1
Total US Micro-cap portfolio 184,135 228,386 46.4
European Micro-cap portfolio
EUROMICROCAP FUND 2010, L.P.
Invested in European Micro-cap entities 1 596 0.1
JZI FUND III, L.P.
JZCP's investment in JZI Fund III is further detailed below 59,316 70,430 14.4
Total European Micro-cap (measured at Fair Value) 59,317 71,026 14.5
Debt Investments
DOCOUT
Provider of digitalisation, document processing and storage services 2,777 3,503 0.7
TORO FINANCE
Provides short term receivables finance to the suppliers of major Spanish companies 21,619 22,095 4.5
XACOM
Supplier of telecom products and technologies 2,055 - -
Debt Investments (classified at amortised cost) 26,451 25,598 5.2
Total European Micro-cap portfolio 85,768 96,624 19.7
Real Estate portfolio
247 BEDFORD AVENUE
Prime retail asset in northern Brooklyn, NY 17,717 8,832 1.8
ESPERANTE
An iconic building on the downtown, West Palm Beach skyline 14,158 14,243 2.9
JZCP REALTY Other Properties held - no equity value 8,409 - -
Total Real Estate portfolio 40,284 23,075 4.7
Other investments
BSM ENGENHARIA
Brazilian-based provider of supply chain logistics, infrastructure services
and equipment rental 6,115 459 0.1
JZ INTERNATIONAL
Fund of European LBO investments - 750 0.1
SPRUCEVIEW CAPITAL
Asset management company focusing primarily on managing
endowments and pension funds 32,605 22,070 4.5
Total Other investments 38,720 23,279 4.7
Listed investments
U.S. Treasury Bill - Maturity 16 February 2023 16,646 16,648 3.4
U.S. Treasury Bill - Maturity 17 November 2022 33,285 33,308 6.8
U.S. Treasury Bill - Maturity 20 October 2022 3,393 3,384 0.7
UK Gilt - Maturity 7 September 2022 69,824 67,105 13.6
Total Listed investments 123,148 120,445 24.5
Total - portfolio 472,055 491,809 100.0
(1) Original book cost incurred by JZCP adjusted for subsequent transactions.
Other than JZHL Secondary Fund (see foot note 2), the book cost represents
cash outflows and excludes PIK investments.
(2) Notional cost of the Company's interest in JZHL Secondary Fund is
calculated in accordance with IFRS, and represents the fair value of the
Company's LP interest on recognition adjusted for subsequent distributions.
(3) Co-investment with Fund A, a Related Party (Note 19).
Summary of JZCP's investments in JZHL Secondary Fund
JZHL Valuation (1) As at 31.8.2022 $'000s
US Micro-cap investments
ACW FLEX PACK, LLC Provider of a variety of custom flexible packaging solutions to converters and end-users 5,568
FLOW CONTROL, LLC Manufacturer and distributor of high-performance, mission-critical flow handling products and components utilized to connect processing fine equipment 17
SAFETY SOLUTIONS HOLDINGS Provider of safety focused solutions for the industrial, environmental and life science related markets, and testing, certification and validation services for cleanroom, critical environments and containment systems 3,051
FELIX STORCH Supplier of specialty, professional, commercial, and medical refrigerators and freezers, and cooking appliances 41,625
PEACEABLE STREET CAPITAL Specialty finance platform focused on commercial real estate 13,703
TIERPOINT Provider of cloud computing and colocation data centre services 11,112
75,076
Hurdle amount due to Secondary Investors (606)
JZCP's interest in JZHL Secondary Fund 74,470
(1)JZCP’s valuation being the 37.5% Special L.P interest in the underlying
investment in JZHL Secondary Fund.
Summary of JZCP's investments in JZI Fund III
Country JZCP Cost (EURO) (1) As at 31.8.2022 €'000s JZCP Value (EURO) (1) As at 31.8.2022 €'000s JZCP Value (USD) As at 31.8.2022 €'000s
ALIANZAS EN ACEROS Steel service center Spain 4,354 4,652 4,678
BLUESITES Build-up in cell tower land leases Portugal 3,615 5,512 5,543
COLLINGWOOD Niche UK motor insurer UK 3,014 3,038 3,054
ERSI Reinforced steel modules Lux 8,544 1,861 1,871
FACTOR ENERGIA Electricity supplier Spain 3,281 8,063 8,107
FINCONTINUO Niche consumer lender Italy 4,762 5,473 5,504
GUANCHE Build-up of petrol stations Spain 4,590 4,983 5,011
KARIUM Personal care consumer brands UK 4,321 9,712 9,767
LUXIDA Build-up in electricity distribution Spain 3,315 4,969 4,966
MY LENDER Niche consumer lender Finland 4,865 1,411 1,419
S.A.C Operational van leasing Denmark 3,487 8,100 8,145
TREEE e-waste recycling Italy 3,818 9,581 9,634
UFASA Niche consumer lender Spain 5,119 6,810 6,847
Other net Liabilities (4,146)
Total valuation 70,430
(1)Represents JZCP's 18.75% of Fund III's investment portfolio
Independent Review Report to JZ Capital Partners Limited
Conclusion
We have been engaged by the Company to review the Unaudited Interim Financial
Statements (“Interim Financial Statements”) for the six months ended 31
August 2022 which comprises the Statement of Comprehensive Income (Unaudited),
Statement of Financial Position (Unaudited), Statement of Changes in Equity
(Unaudited), Statement of Cash Flows (Unaudited) and related Notes 1 to 22. We
have read the other information contained in the Interim Report and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the Interim Financial Statements.
Based on our review, nothing has come to our attention that causes us to
believe that the Unaudited Interim Financial Statements for the six months
ended 31 August 2022 are not prepared, in all material respects, in accordance
with International Accounting Standard 34, “Interim Financial Reporting”,
as adopted by the European Union (“IAS 34”), and the Disclosure Guidance
and Transparency Rules of the United Kingdom’s Financial Conduct Authority
(“DTR”).
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements 2410 (UK) "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" issued by the Financial Reporting
Council. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in Note 2, the annual financial statements of the Company are
prepared in accordance with IFRS as adopted by the European Union. The Interim
Financial Statements have been prepared in accordance with IAS 34.
Conclusion relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis of Conclusion section of this report,
nothing has come to our attention to suggest that management have
inappropriately adopted the going concern basis of accounting or that
management have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
International Standard on Review Engagements 2410 (UK) “Review of Interim
Financial Information Performed by the Independent Auditor of the Entity”
issued by the Financial Reporting Council, however future events or conditions
may cause the entity to cease to continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the Interim Report and Interim
Financial Statements in accordance with Disclosure Guidance and Transparency
Rules of the United Kingdom's Financial Conduct Authority.
In preparing the Interim Report and Interim Financial Statements, the
Directors are responsible for assessing the company’s ability to continue as
a going concern, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless the Directors either
intend to liquidate the company or to cease operations, or have no realistic
alternative but to do so.
Auditor’s responsibilities for the review of the financial information
In reviewing the Interim Report and Interim Financial Statements, we are
responsible for expressing to the Company a conclusion on the Interim
Financial Statements. Our conclusion, including our Conclusions relating to
going concern, is based on procedures that are less extensive than audit
procedures, as described in the Basis for Conclusion paragraph of this report.
Use of our report
This report is made solely to the Company in accordance with guidance
contained in International Standard on Review Engagements 2410 (UK) "Review of
Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Financial Reporting Council. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other
than the Company, for our work, for this report, or for the conclusions we
have formed.
Ernst & Young LLP Guernsey, Channel Islands
9 November 2022
Notes
1. The Interim Report and Financial Statements are published on websites
maintained by the Investment Adviser.
2. The maintenance and integrity of these websites are the responsibility
of the Investment Adviser; the work carried out by the Auditors does not
involve consideration of these matters and, accordingly, the Auditor accepts
no responsibility for any changes that may have occurred to the Condensed
Interim Financial Statements since they were initially presented on the
website.
3. Legislation in Guernsey governing the preparation and dissemination of
Condensed Interim Financial Statements may differ from legislation in other
jurisdictions.
Statement of Comprehensive Income (Unaudited)
For the Period from 1 March 2022 to 31 August 2022
Six Month Six Month
Period Ended Period Ended
31 August 2022 31 August 2021
Note US$'000 US$’000
Income, investment and other gains
Net gain on investments at fair value through profit or loss 6 27,671 -
Investment income 8 8,607 9,119
Bank and deposit interest 85 75
Realisations from investments held in escrow accounts 21 999 -
Net foreign currency exchange gains 6,108 -
43,470 9,194
Expenses and losses
Expected credit losses 7 (916) (1,405)
Investment Adviser's base fee 10 (3,872) (3,888)
Administrative expenses (1,331) (2,154)
Directors' remuneration (145) (145)
Net loss on investments at fair value through profit or loss 6 - (4,809)
Loss on financial liabilities at fair value through profit or loss 15 - (1,869)
Net foreign currency exchange losses - (202)
(6,264) (14,472)
Operating profit/(loss) 37,206 (5,278)
Finance costs 9 (4,806) (6,981)
Profit/(loss) before taxation 32,400 (12,259)
Withholding Tax 398 -
Profit/(loss) for the period 32,798 (12,259)
Other comprehensive loss that will not be reclassified to the Income Statement
Loss on financial liabilities due to change in credit risk 15 - (1,074)
Total comprehensive profit/(loss) for the period 32,798 (13,333)
Weighted average number of Ordinary shares in issue during the period 20 77,477,214 77,474,670
Basic and diluted earnings/(loss) per Ordinary share 20 42.33c (15.82)c
The profits for the period all derive from continuing operations.
The accompanying notes form an integral part of the Interim Financial
Statements.
Statement of Financial Position (Unaudited)
As at 31 August 2022
Assets Note 31 August 2022 US$'000 28 February 2022 US$'000
Investments at fair value through profit or loss 11 466,211 411,568
Loans at amortised cost 11 25,598 28,593
Other receivables 310 70
Cash at bank 15,953 43,656
Total assets 508,072 483,887
Liabilities Senior Credit Facility 12 42,804 42,573
Zero Dividend Preference Shares 13 66,740 75,038
Subordinated Notes 14 32,296 32,293
Other payables 16 713 1,443
Investment Adviser's base fee 10 457 276
Total liabilities 143,010 151,623
Equity Share capital 216,650 216,650
Other reserve 353,528 353,528
Retained deficit (205,116) (237,914)
Total equity 365,062 332,264
Total liabilities and equity 508,072 483,887
Number of Ordinary shares in issue at period/year end 17 77,477,214 77,477,214
Net asset value per Ordinary share $4.71 $4.29
These Interim Financial Statements were approved by the Board of Directors and
authorised for issuance on 9 November 2022. They were signed on its behalf by:
David
Macfarlane
Sharon Parr
Chairman
Director
The accompanying notes form an integral part of the Interim Financial
Statements.
Statement of Changes in Equity (Unaudited)
For the Period from 1 March 2022 to 31 August 2022
Share Capital Other Reserve Retained Deficit Total
US$'000 US$'000 US$'000 US$'000
Balance as at 1 March 2022 216,650 353,528 (237,914) 332,264
Profit for the period - - 32,798 32,798
Balance at 31 August 2022 216,650 353,528 (205,116) 365,062
Comparative for the Period from 1 March 2021 to 31 August 2021
Share Capital Other Reserve Retained Deficit Total
US$'000 US$'000 US$'000 US$'000
Balance as at 1 March 2021 216,625 354,602 (241,668) 329,559
Loss for the period - - (12,259) (12,259)
Loss on financial liabilities due to change in credit risk - (1,074) - (1,074)
Issue of Ordinary shares 25 - - 25
Balance at 31 August 2021 216,650 353,528 (253,927) 316,251
The accompanying notes form an integral part of the Interim Financial
Statements.
Statement of Cash Flows (Unaudited)
For the Period from 1 March 2022 to 31 August 2022
Cash flows from operating activities
Period Ended Period Ended
31 August 2022 31 August 2021
Cash inflows Note US$'000 US$'000
Realisation of investments 11 105,024 56,929
Maturity of treasury bills 11 3,395 -
Escrow receipts received 21 999 -
Income distributions received from investments 372 234
Bank interest received 85 75
Cash outflows
Direct investments and capital calls (1) 11 (4,945) (7,381)
Purchase of Treasury Bills and UK Gilts (1) 11 (123,132) -
Investment Adviser's base fee paid 10 (3,691) (4,652)
Other operating expenses paid (2,048) (2,515)
Net cash (outflow)/inflow before financing activities (23,941) 42,690
Financing activities
Repayment of Senior Credit Facility - (33,264)
Redemption of Convertible Unsecured Loan Stock - (54,005)
Issue of Subordinated Notes - 31,500
Finance costs paid:
- Senior Credit Facility (1,834) (2,385)
- Subordinated Notes (945) -
- Convertible Unsecured Loan Stock - (2,679)
Net cash outflow from financing activities (2,779) (60,833)
Decrease in cash at bank (26,720) (18,143)
Reconciliation of net cash flow to movements in cash at bank
US$'000 US$'000
Cash and cash equivalents at 1 March 43,656 59,784
Decrease in cash at bank (26,720) (18,143)
Foreign exchange movements on cash at bank (983) (454)
Cash and cash equivalents at period end 15,953 41,187
The accompanying notes form an integral part of the Interim Financial
Statements.
Notes to the Interim Financial Statements (Unaudited)
1. General Information
JZ Capital Partners Limited ("JZCP" or the "Company") is a Guernsey domiciled
closed-ended investment company which was incorporated in Guernsey on 14 April
2008 under the Companies (Guernsey) Law, 1994. The Company is now subject to
the Companies (Guernsey) Law, 2008. The Company is classified as an authorised
fund under the Protection of Investors (Bailiwick of Guernsey) Law 1987. As at
31 August 2022, the Company's capital consisted of Ordinary shares and Zero
Dividend Preference ("ZDP") shares. Post period end, the Company redeemed and
cancelled the ZDP shares. The Company's shares trade on the London Stock
Exchange's Specialist Fund Segment ("SFS").
The Company's new investment policy, adopted in August 2020, is for the
Company to make no further investments outside of its existing obligations or
to the extent that investment may be made to support selected existing
portfolio investments. The intention is to realise the maximum value of the
Company’s investments and, after repayment of all debt, to return capital to
shareholders. The Company’s previous Investment Policy was to target
predominantly private investments and back management teams to deliver on
attractive investment propositions. In executing this strategy, the Company
took a long term view. The Company looked to invest directly in its target
investments and was able to invest globally but with a particular focus on
opportunities in the United States and Europe.
The Company is currently mainly focused on supporting its investments in the
following areas:
(a) small or micro-cap buyouts in the form of debt and
equity and preferred stock in both the US and Europe; and
(b) real estate interests.
The Company has no direct employees. For its services, the Investment Adviser
receives a management fee as described in Note 10. The Company has no
ownership interest in the Investment Adviser. During the period under review,
the Company was administered by Northern Trust International Fund
Administration Services (Guernsey) Limited.
The Unaudited Condensed Interim Financial Statements (the "Interim Financial
Statements") are presented in US$'000 except where otherwise indicated.
2. Significant Accounting Policies
The accounting policies adopted in the preparation of these Interim Financial
Statements have been consistently applied during the period, unless otherwise
stated.
Statement of compliance
The Interim Financial Statements of the Company for the period 1 March 2022 to
31 August 2022 have been prepared in accordance with IAS 34, "Interim
Financial Reporting" as adopted in the European Union, together with
applicable legal and regulatory requirements of the Companies (Guernsey) Law,
2008 and the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority. The Interim Financial Statements do not
include all the information and disclosure required in the Annual Audited
Financial Statements and should be read in conjunction with the Annual Report
and Financial Statements for the year ended 28 February 2022.
Basis of preparation
The Interim Financial Statements have been prepared under the historical cost
basis, except for financial assets and financial liabilities held at fair
value through profit or loss ("FVTPL"). The principal accounting policies
adopted in the preparation of these Interim Financial Statements are
consistent with the accounting policies stated in Note 2 of the Annual
Financial Statements for the year ended 28 February 2022. The preparation of
these Interim Financial Statements is in conformity with IAS 34, "Interim
Financial Reporting" as adopted in the European Union, and requires the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the Interim Financial Statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could materially differ from those estimates.
New standards, interpretations and amendments adopted by the Company
The accounting policies adopted in the preparation of the Interim Financial
Statements are consistent with those followed in the preparation of the
Company’s Annual Financial Statements for the year ended 28 February 2022,
which were prepared in accordance with IFRS as adopted by the European Union.
There has been no early adoption, by the Company, of any other standard,
interpretation or amendment that has been issued but is not yet effective.
3. Estimates and Judgements
The estimates and judgements made by the Board of Directors are consistent
with those made in the Audited Financial Statements for the year ended 28
February 2022.
Directors’ assessment of going concern
A fundamental principle of the preparation of financial statements in
accordance with IFRS is the judgement that an entity will continue in
existence as a going concern for a period of 12 months from signing of the
Interim Financial Statements, which contemplates continuity of operations and
the realisation of assets and settlement of liabilities occurring in the
ordinary course of business.
In reaching its conclusion, the Board has considered the risks that could
impact the Company’s liquidity over the period from 9 November 2022 to 9
November 2023 (the "Going Concern Period").
As part of their assessment, the Board considered whether there was a
reasonable expectation that the Company has and will generate adequate
liquidity to meet its debt obligations over the Going Concern Period
including the redemption of its Subordinated Notes payable 30 September 2023.
Recent events impacting liquidity
* realisation proceeds during the interim period in excess of $100 million;
* post period end, the extension of the maturity date of the Subordinated
Notes to 30 September 2023; and
* post period end, the redemption and cancellation of the Company's ZDP
shares.
The below table shows the Company's improved net debt position as at 1 October
2022 (reflecting the post-period redemption of the ZDP shares) compared to
previous period ends:
1.10.2022 $'000 31.8.2022 $'000 28.2.2022 $'000 31.8.2021 $'000 28.2.2021 $'000
Senior Credit Facility 43,271 42,804 42,573 36,629 68,694
Subordinated Notes 31,505 32,296 32,293 31,669 -
ZDP Shares - 66,740 77,281 75,014 80,527
CULS - - - - 54,332
Total debt 74,776 141,840 152,147 143,312 203,553
Cash and cash equivalents held (1) 65,672 136,398 47,050 44,582 63,178
Net debt position 9,104 5,442 105,097 98,730 140,375
(1)Includes investments in Treasury Bills and UK Gilts
Realisations and refinancings during the interim period and previous two
fiscal years
Period End Year End Year End
31.8.2022 28.2.2022 28.2.2022
$ million $ million $ million
JZHL Secondary Fund U.S. 97.4 Salter Labs U.S. 41.1 Secondary Sale U.S 87.7
New Vitality U.S. 7.4 George Industries U.S. 9.5 Real estate 13.6
Fund III Euro 0.2 Orangewood Fund U.S. 6.2 ABTA U.S 9.4
Igloo U.S. 3.8 Eliantus Euro 9.4
Vitalyst U.S. 1.9 K2 Towers II Euro 9.2
EMC 2010 Euro 2.2 Other U.S 9.0
1.1 Cerpi Other 1.2
105.0 65.8 139.5
The Board takes account of the levels of realisation proceeds historically
generated by the Company’s micro-cap portfolios as well as the accuracy of
previous forecasts to assess the predicted accuracy of forecasts presented.
The Company continues to work on the realisation of various investments within
a timeframe that will enable the Company to maximise the value of its
investment portfolio.
Going concern conclusion
Considering the Company’s projected cash position, including the Company's
ongoing operating costs and the anticipated further investment required to
support the Company’s portfolio, the Board is satisfied, as of today’s
date, that it is appropriate to adopt the going concern basis in preparing the
financial statements and they have a reasonable expectation that the Company
will continue in existence as a going concern for the period to 9 November
2023.
4. Segment Information
The Investment Manager is responsible for allocating resources available to
the Company in accordance with the overall business strategies as set out in
the Investment Guidelines of the Company. The Company is organised into the
following segments:
1. Portfolio of US Micro-cap investments
2. Portfolio of European Micro-cap investments
3. Portfolio of Real Estate investments
4. Portfolio of Other Investments - (not falling into above categories)
Investments in treasury bills and UK gilts are not considered as part of the
investment strategy and are therefore excluded from this segmental analysis.
The investment objective of each segment is to achieve consistent medium-term
returns from the investments in each segment while safeguarding capital by
investing in a diversified portfolio.
Segmental operating profit/(loss)
For the period from 1 March 2022 to 31 August 2022
US European Real Other
Micro-cap Micro-cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Interest revenue 7,081 916 - - 7,997
Dividend revenue 372 - - - 372
Total segmental revenue 7,453 916 - - 8,369
Net gain/(loss) on investments at FVTPL 41,604 (9,988) (522) (504) 30,590
Expected credit losses - (916) - - (916)
Realisations from investments held in Escrow 999 - - - 999
Investment Adviser's base fee (2,237) (776) (179) (178) (3,370)
Total segmental operating profit/(loss) 47,819 (10,764) (701) (682) 35,672
For the period from 1 March 2021 to 31 August 2021
US European Real Other
Micro-cap Micro-cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Interest revenue 7,479 1,405 - - 8,884
Dividend revenue 234 - - - 234
Total segmental revenue 7,713 1,405 - - 9,118
Net (loss)/gain on investments at FVTPL (570) 349 (4,588) - (4,809)
Expected credit losses - (1,405) - - (1,405)
Realisations from investments held in Escrow - - - - -
Investment Adviser's base fee (2,156) (899) (167) (174) (3,396)
Total segmental operating profit/(loss) 4,987 (550) (4,755) (174) (492)
Certain income and expenditure is not considered part of the performance of an
individual segment. This includes net foreign exchange gains, interest on
cash, finance costs, management fees, custodian and administration fees,
directors’ fees and other general expenses. The segmental allocation is
consistent with that of the previous year end.
The following table provides a reconciliation between total segmental
operating profit/(loss) and operating profit/(loss):
Period ended Period ended
31.8.2022 31.8.2021
US$ '000 US$ '000
Total segmental operating profit/(loss) 35,672 (492)
Net loss on non-segmental investments at FVTPL (2,919) -
Net foreign exchange gain/(loss) 6,108 (202)
Bank and deposit interest 85 75
Other interest 238 1
Expenses not attributable to segments (1,476) (2,299)
Fees payable to investment adviser based on non-segmental assets (502) (492)
Loss on financial liabilities at fair value through profit or loss - (1,869)
Operating profit/(loss) 37,206 (5,278)
The following table provides a reconciliation between total segmental revenue
and Company revenue:
Period ended Period ended
31.8.2022 31.8.2021
US$ '000 US$ '000
Total segmental revenue 8,369 9,118
Non-segmental revenue
Bank and deposit interest 85 75
Other interest 238 1
Total revenue 8,692 9,194
Segmental Net Assets
At 31 August 2022 US European Real Other
Micro-cap Micro-cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Segmental assets
Investments at FVTPL 228,386 71,026 23,075 23,279 345,766
Loans at amortised cost - 25,598 - - 25,598
Total segmental assets 228,386 96,624 23,075 23,279 371,364
Segmental liabilities
Payables and accrued expenses (205) (87) (21) (21) (334)
Total segmental liabilities (205) (87) (21) (21) (334)
Total segmental net assets 228,181 96,537 23,054 23,258 371,030
At 28 February 2022 US European Real Other
Micro-cap Micro-cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Segmental assets
Investments at FVTPL 284,162 76,882 23,597 23,533 408,174
Loans at amortised cost - 28,593 - - 28,593
Total segmental assets 284,162 105,475 23,597 23,533 436,767
Segmental liabilities
Payables and accrued expenses (551) (72) (11) (14) (648)
Total segmental liabilities (551) (72) (11) (14) (648)
Total segmental net assets 283,611 105,403 23,586 23,519 436,119
The following table provides a reconciliation between total segmental assets
and total assets and total segmental liabilities and total liabilities:
31.8.2022 28.2.2022
US$ '000 US$ '000
Total segmental assets 371,364 436,767
Non segmental assets
Cash at bank 15,953 43,656
Listed investments - cash equivalents 120,445 3,394
Other receivables 310 70
Total assets 508,072 483,887
Total segmental liabilities (334) (648)
Non segmental liabilities
Senior Credit Facility (42,804) (42,573)
Zero Dividend Preference Shares (66,740) (75,038)
Subordinated Notes (32,296) (32,293)
Other payables (836) (1,071)
Total liabilities (143,010) (151,623)
Total net assets 365,062 332,264
Other receivables (other than the Investment Adviser fee prepayment) are not
considered to be part of individual segment assets. Certain liabilities are
not considered to be part of the net assets of an individual segment. These
include custodian and administration fees payable, directors’ fees payable
and other payables and accrued expenses.
5. Fair Value of Financial Instruments
The Company classifies fair value measurements of its financial instruments at
FVTPL using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The financial instruments valued at
FVTPL are analysed in a fair value hierarchy based on the following levels:
Level 1
Quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2
Those involving inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (that is, as
prices) or indirectly (that is, derived from prices). For example,
investments which are valued based on quotes from brokers (intermediary market
participants) are generally indicative of Level 2 when the quotes are
executable and do not contain any waiver notices indicating that they are not
necessarily tradeable. Another example would be when assets/liabilities with
quoted prices, that would normally meet the criteria of Level 1, do not meet
the definition of being traded on an active market.
Level 3
Those involving inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs). Investments in JZCP's
portfolio valued using unobservable inputs such as multiples, capitalisation
rates, discount rates (see below) fall within Level 3.
Differentiating between Level 2 and Level 3 fair value measurements i.e.,
assessing whether inputs are observable and whether the unobservable inputs
are significant, may require judgement and a careful analysis of the inputs
used to measure fair value including consideration of factors specific to the
asset or liability.
The following table shows financial instruments recognised at fair value,
analysed by the fair value hie that the fair value is based on:
Financial assets at 31 August 2022
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap - - 228,386 228,386
European micro-cap - - 71,026 71,026
Real estate - - 23,075 23,075
Other investments - - 23,279 23,279
Listed investments 120,445 - - 120,445
120,445 - 345,766 466,211
Financial assets at 28 February 2022
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap - - 284,162 284,162
European micro-cap - - 76,882 76,882
Real estate - - 23,597 23,597
Other investments - - 23,533 23,533
Listed investments 3,394 - - 3,394
3,394 - 408,174 411,568
Valuation techniques
In valuing investments in accordance with IFRS, the Board follows the
principles as detailed in the IPEVCA guidelines.
When fair values of listed equity and debt securities at the reporting date
are based on quoted market prices or binding dealer price quotations (bid
prices for long positions), without any deduction for transaction costs, the
instruments are included within Level 1 of the hierarchy.
Investments for which there are no active markets are valued according to one
of the following methods:
Real estate
JZCP makes its real estate investments through a wholly-owned subsidiary,
which in turn owns interests in various residential, commercial, and
development real estate properties. The net asset value of the subsidiary is
used for the measurement of fair value. The underlying fair value of JZCP’s
Real Estate holdings, however, is represented by the properties themselves.
The Company's Investment Adviser and Board review the fair value methods and
measurement of the underlying properties on a quarterly basis. Where
available, the Company will use third party appraisals on the subject
property, to assist the fair value measurement of the underlying property.
Third-party appraisals are prepared in accordance with the Appraisal and
Valuation Standards (6th edition) issued by the Royal Institution of Chartered
Surveyors. Fair value techniques used in the underlying valuations are:
* Use of comparable market values per square foot of properties in recent
transactions in the vicinity in which the property is located, and in similar
condition, of the relevant property, multiplied by the property’s square
footage.
* Discounted Cash Flow ("DCF") analysis, using the relevant rental stream,
less expenses, for future periods, discounted at a Market Capitalisation
("MC") rate, or interest rate.
* Relevant rental stream less expenses divided by the market capitalization
rate; this method approximates the enterprise value construct used for
non-real estate assets.
* Income capital approach using the relevant sell out analysis, less expenses
and costs.
For each of the techniques third party debt is deducted to arrive at fair
value.
The valuations obtained in relation to the real estate portfolio are dated 31
December 2021. Subsequent discussions with appraisers indicate there would be
no significant change in property values between 31 December 2021 and 31
August 2022. Due to the inherent uncertainties of real estate valuation, the
values reflected in the financial statements may differ significantly from the
values that would be determined by negotiation between parties in a sales
transaction and those differences could be material.
Unquoted preferred shares, unquoted equities and equity related securities
Unquoted equities and equity related securities investments are classified in
the Statement of Financial Position as Investments at fair value through
profit or loss. These investments are typically valued by reference to their
enterprise value, which is generally calculated by applying an appropriate
multiple to the last twelve months' earnings before interest, tax,
depreciation and amortisation ("EBITDA"). In determining the multiple, the
Board consider inter alia, where practical, the multiples used in recent
transactions in comparable unquoted companies, previous valuation multiples
used and where appropriate, multiples of comparable publicly traded companies.
In accordance with IPEVCA guidelines, a marketability discount is applied
which reflects the discount that in the opinion of the Board, market
participants would apply in a transaction in the investment in question. The
increase of the fair value of the aggregate investment is reflected through
the unquoted equity component of the investment and a decrease in the fair
value is reflected across all financial instruments invested in an underlying
company.
In respect of unquoted preferred shares the Company values these investments
at fair value by reference to the attributable enterprise value as the exit
strategy in respect to these investments would be a one tranche disposal
together with the equity component. The fair value of the investment is
determined by reference to the attributable enterprise value reduced by senior
debt and marketability discount.
Micro-cap loans
Investments in micro-cap debt are valued at fair value by reference to the
attributable enterprise value when the Company also holds an equity position
in the investee company.
When the Company invests in micro-cap loans and does not hold an equity
position in the underlying investee company these loans are valued at
amortised cost in accordance with IFRS 9 (Note 2). The carrying value at
amortised cost is considered to approximate to fair value.
Other Investments
Other investments at year end, comprise of mainly the Company's investment in
the asset management business -Spruceview Capital Partners ("Spruceview").
Spruceview is valued using a valuation model which considers a forward looking
revenue approach. Previously, Spruceview was valued using a valuation model
which considers both current assets under management ("AUM") and the potential
for new AUM. The Board considers the new approach to be more consistent with
the valuation methods used by peer companies.
Quantitative information of significant unobservable inputs and sensitivity
analysis to significant changes in unobservable inputs within Level 3
hierarchy
The significant unobservable inputs used in fair value measurement categorised
within Level 3 of the fair value hierarchy together with a quantitative
sensitivity as at 31 August 2022 and 28 February 2022 are shown below:
Value Valuation Unobservable Range (weighted Sensitivity Effect on Fair
31.8.2022 Value
US$'000 Technique input average) used US$'000
US micro-cap investments 228,386 EBITDA Multiple Average EBITDA Multiple of Peers 6.5x - 13.5x (8.3x) -0.5x /+0.5x (21,959) 20,354
Discount to Average Multiple 5% - 30% (13%) +5% / -5% (27,223) 30,503
European micro-cap investments 71,026 EBITDA Multiple Average EBITDA Multiple of Peers 5.0x – 14.3x (8.8x) -0.5x /+0.5x (4,399) 4,399
Discount to Average Multiple 1% - 50% (18%) +5% / -5% (3,590) 3,590
Real estate (1,2) 23,075 Cap Rate/ Income Approach Capitalisation Rate 5.25% - 6.25% (5.9%) +50bps/-50bps (5,338) 6,552
Other investments (3) 22,070 Forward looking Revenue Approach Revenue Multiple $8.3 million 5.3x -10%/+10% -10%/+10% (2,206) (2,206) 2,163 2,163
Value Valuation Unobservable Range (weighted Sensitivity Effect on Fair
28.2.2022 Value
US$'000 Technique input average) used US$'000
US micro-cap investments 284,162 EBITDA Multiple Average EBITDA Multiple of Peers Discount to Average Multiple 7.0% - 13.5% (9.0x) 5% - 30% (14.7%) -0.5x/+0.5x +5%/-5% (23,876) (32,217) 23,998 31,887
European micro-cap investments 76,286 EBITDA Multiple Average EBITDA Multiple of Peers Discount to Average Multiple 5.5% - 14.2% (9.4x) 2% - 50% (23%) -0.5x/+0.5x +5%/-5% (5,293) (4,533) 5,293 4,533
Real estate (1,2) 23,597 Cap Rate/Income Approach Capitalisation Rate 5.25% - 5.75% (5.56%) +50bps/-50bps (5,388) 6,552
Other investments (3) 22,324 Forward looking revenue approach Revenue multiple $8.3million 5.3x -10%/+10% -10%/+10% (2,187) (2,206) 1,824 1,809
(1) The Fair Value of JZCP's investment in financial interests in Real Estate
is measured as JZCP's percentage interest in the value of the underlying
properties.
(2) Sensitivity is applied to the property value and then the debt associated
to the property is deducted before the impact to JZCP's equity value is
calculated. Due to gearing levels in the property structures, an increase in
the sensitivity of measurement metrics at property level will result in a
significantly greater impact at JZCP's equity level.
(3) JZCP's investment in Spruceview.
The following table shows a reconciliation of all movements in the fair value
of financial instruments categorised within Level 3 between the beginning and
the end of the reporting period/year.
Period ended 31 August 2022 US European Real Other
Micro- Cap Micro- Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2022 284,162 76,882 23,597 23,533 408,174
Investments in year including capital calls 317 4,378 - 250 4,945
Payment in kind ("PIK") 2,086 - - - 2,086
Proceeds from investments realised (104,778) (246) - - (105,024)
Net gains/(losses) on investments 41,604 (9,988) (522) (504) 30,590
Movement in accrued interest 4,995 - - - 4,995
At 31 August 2022 228,386 71,026 23,075 23,279 345,766
Year ended 28 February 2022
US European Real Other
Micro- Cap Micro- Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2021 299,339 83,968 23,376 23,147 429,830
Investments in year including capital calls 4,898 7,647 - 400 12,945
Payment in kind ("PIK") 14,190 - - - 14,190
Proceeds from investments realised (62,466) (3,333) - - (65,799)
Net gains/(losses) on investments 28,723 (11,400) 221 (14) 17,530
Movement in accrued interest (522) - - - (522)
At 28 February 2022 284,162 76,882 23,597 23,533 408,174
Fair value of Zero Dividend Preference ("ZDP") shares
'The fair value of the ZDP shares is deemed to be their quoted market price.
As at 31 August 2022, the ask price for the ZDP (2022) shares was £4.84 (28
February 2022: £4.74 per share) and the total fair value of the ZDP shares
was $67,062,000 (28 February 2022: $75,732,000) which is $322,000 higher (28
February 2022: $694,000 higher) than the liability recorded in the Statement
of Financial Position.
ZDP shares are recorded at amortised cost and would fall into the Level 2
hierarchy if valued at FVTPL.
6. Net Profit/(Loss) on Investments at Fair Value Through Profit or Loss
Period Period
ended ended
31.8.2022 31.8.2021
US$ '000 US$ '000
Loss on investments held in investment portfolio at period end
Net movement in period end unrealised gain position (31,737) 18,315
Unrealised net loss in prior periods now realised (15,265) (24,765)
Net unrealised loss in the period (47,002) (6,450)
Net profit on investments realised in the period
Proceeds from investments realised 108,419 57,490
Cost of investments realised (49,011) (80,614)
Unrealised net loss in prior periods now realised 15,265 24,765
Total net profit in the period on investments realised in the period 74,673 1,641
Net profit/(loss) on investments in the period 27,671 (4,809)
7. Expected Credit Losses
Expected Credit Losses ("ECLs") are recognised in three stages. Stage one
being for credit exposures for which there has not been a significant increase
in credit risk since initial recognition, ECLs are provided for credit losses
that result from default events that are possible within the next 12-months (a
12-month ECL). Stage two being for those credit exposures for which there has
been a significant increase in credit risk since initial recognition, a loss
allowance is required for credit losses expected over the remaining life of
the exposure, irrespective of the timing of the default (a lifetime ECL).
Stage three being credit exposures which are considered credit-impaired,
interest revenue is calculated based on the amortised cost (i.e. the gross
carrying amount less the loss allowance). Financial assets in this stage
will generally be assessed individually. Lifetime expected credit losses are
recognised on these financial assets.
Period ended Period ended
31.8.2022 31.8.2022
US$ '000 US$ '000
Impairment on loans classified as Stage 1 916 987
Impairment on loans classified as Stage 2 - 418
Impairment on loans classified as Stage 3 - -
Total impairment on loans during the period 916 1,405
8. Investment Income
Period ended Period ended
31.8.2022 31.8.2022
US$ '000 US$ '000
Interest calculated using the effective interest rate method 916 1,405
Other interest and similar income 7,691 7,714
8,607 9,119
Income for the period ended 31 August 2022
Preferred Loan note Interest Other
Interest PIK Cash Dividend Interest Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap 7,081 - - 372 - 7,453
European micro-cap - 916 - - - 916
Listed investments - - - - 238 238
7,081 916 - 372 1 8,607
Income for the period ended 31 August 2021
Preferred Loan note Interest Other
Portfolio Interest PIK Cash Dividend Interest Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap 7,479 - - 234 - 7,713
European micro-cap - 1,405 - - - 1,405
Listed investments - - - - 1 1
7,479 1,405 - 234 1 9,119
9. Finance Costs
Period ended Period ended
31.8.2022 31.8.2021
US$ '000 US$ '000
Interest expense calculated using the effective interest method
ZDP shares (Note 12) 2,065 3,584
Loan Notes (Note 13) 1,793 1,892
Senior Debt Facility (Note 14) 948 169
5,645 5,645
Other interest and similar expense
CULS interest (Note 15) - 1,336
4,806 6,981
10. Fees Payable to the Investment Adviser
Investment Advisory and Performance fees
The Company entered into the amended and restated investment advisory and
management agreement with Jordan/Zalaznick Advisers, Inc. (the "Investment
Adviser") on 23 December 2010 (the ”Advisory Agreement”).
Pursuant to the Advisory Agreement, the Investment Adviser is entitled to a
base management fee and to an incentive fee. The base management fee is an
amount equal to 1.5 per cent per annum of the average total assets under
management of the Company less those assets identified by the Company as being
excluded from the base management fee, under the terms of the agreement. The
base management fee is payable quarterly in arrears; the agreement provides
that payments in advance on account of the base management fee will be made.
For the six-month period ended 31 August 2022, total investment advisory and
management expenses, based on the average total assets of the Company, were
included in the Statement of Comprehensive Income of $3,872,000 (period ended
31 August 2021: $3,888,000). Of this amount, $457,000 (28 February 2022:
$276,000) was due and payable at the period end.
During the year ended 29 February 2020, the Investment Adviser agreed to waive
incentive fees payable by the Company relating to realised gains in the years
ended February 2019 and 2020. No further incentive fees will be paid to the
Investment Adviser until the Company and Investment Adviser have mutually
agreed to reinstate such payments.
11. Investments
Listed Unlisted Unlisted Carrying Value
FVTPL FVTPL Loans Total
31.8.2022 US$ '000 31.8.2022 US$ '000 31.8.2022 US$ '000 31.8.2022 US$ '000
Book cost at 1 March 2022 3,395 451,364 43,097 497,856
Investments in period including capital calls 123,132 4,945 - 128,077
Payment in kind ("PIK") (1) - 2,086 219 2,305
Proceeds from investments matured/realised (3,395) (105,024) - (108,419)
Net realised gain - 59,408 - 59,408
Book cost at 31 August 2022 123,132 412,779 43,316 579,227
Unrealised investment and foreign exchange loss (2,919) (74,010) (7,586) (84,515)
Impairment on loans at amortised cost - - (11,064) (11,064)
Accrued interest 232 6,997 932 8,161
Carrying value at 31 August 2022 120,445 345,766 25,598 491,809
(1)The cost of PIK investments is deemed to be interest not received in cash
but settled by the issue of further securities when that interest has been
recognised in the Statement of Comprehensive Income
Listed Unlisted Unlisted Carrying Value
FVTPL FVTPL Loans Total
28.2.2022 US$ '000 28.2.2022 US$ '000 28.2.2022 US$ '000 28.2.2022 US$ '000
Book cost at 1 March 2021 3,393 543,740 74,651 621,784
Investments in year including capital calls 3,395 12,945 - 16,340
Payment in kind ("PIK") (1) - 14,190 2,877 17,067
Proceeds from investments matured/realised (3,395) (65,799) - (69,194)
Interest received on maturity 2 - - 2
Net realised loss - (53,712) - (53,712)
Realised impairment loss (2) - - (31,757) (31,757)
Realised currency loss (2) - - (2,674) (2,674)
Book cost at 28 February 2022 3,395 451,364 43,097 497,856
Unrealised investment and foreign exchange loss - (45,192) (4,664) (49,856)
Impairment on loans at amortised cost - - (10,148) (10,148)
Accrued interest (1) 2,002 308 2,309
Carrying value at 28 February 2022 3,394 408,174 28,593 440,161
(1)The cost of PIK investments is deemed to be interest not received in cash
but settled by the issue of further securities when that interest has been
recognised in the Statement of Comprehensive Income.
(2)Realised impairment loss and realised currency is due to the Company's
direct loan in Ombuds (European micro-cap). The loss was recognised in prior
periods and was included within the comparative number for Impairment on loans
at amortised cost.
Loans at amortised cost
Interest on the loans accrues at the following rates:
As At 31 August 2022 As At 28 February 2022
8% 10% Total 8% 10% Total
Loans at amortised cost 23,530 2,068 25,598 26,357 2,236 28,593
The Company has extended the maturity date of all loans to European micro-cap
companies to 31 December 2022.
12. Senior Credit Facility
On 26 January 2022, JZCP entered into an agreement with WhiteHorse Capital
Management, LLC (the "New Senior Lender") providing for a new five year term
senior secured loan facility (the "New Senior Credit Facility"). The New
Senior Credit Facility matures on 26 January 2027 and replaced the Company's
Previous Senior Secured Loan Facility with clients and funds advised and
sub-advised by Cohanzick Management, LLC and CrossingBridge Advisors, LLC (the
"Previous Senior Lenders").
The New Senior Credit Facility consists of a $45.0 million first lien term
loan (the "Closing Date Term Loan"), fully funded as of the closing date
(being 26 January 2022), and up to $25.0 million in first lien delayed draw
term loans (the "DDT Loans"), which remain undrawn as of the closing date and
the year end. The Company can draw down the DDT Loans from time to time in its
discretion in the 24 month period following the closing date. Customary fees
and expenses were payable upon the drawing of the Closing Date Term Loan. The
proceeds of the Closing Date Term Loan, together with cash at hand, were used
by the Company to repay the Previous Senior Secured Facility of approximately
$52.9 million due 12 June 2022 and for the payment of fees and expenses
related to the New Senior Facility.
The interest rate charged to The New Senior Facility during the period, is the
LIBOR Rate plus 7.001 per cent., or if the Company elects for a portion of the
interest to be paid in kind, the LIBOR Rate plus 9.00 per cent., of which 4.00
per cent. would be charged as payment-in kind (PIK) interest. The Closing Date
Term Loans are subject to a prepayment penalty if they are repaid before
yielding an aggregate 15 per cent. The prepayment penalty ranges from 3.00 per
cent. to 1.00 per cent. depending on whether it is repaid within 1 year, 2
years or 3 years of funding.
The New Senior Credit Facility Agreement includes covenants from the Company
customary for an agreement of this nature, including (a) maintaining a minimum
asset coverage ratio (calculated by reference to eligible assets, subject to
customary ineligibility criteria and concentration limits, plus unrestricted
cash) of not less than 4.00 to 1.00, and (b) ensuring the Company retains an
aggregate amount of unrestricted cash and cash equivalents of not less than
$12.5 million. As at 31 August 2022, eligible assets of $488.0 million
adjusted to $393.1 million (28 February 2022: $471.0 million adjusted to
$351.9 million) were held as collateral. The New Senior Facility allows for
the repayment of the Company's other debt obligations assuming the above
covenants are not breached as a result of repayment.
1There is an interest rate floor that stipulates LIBOR will not be lower than
1%. In this agreement, the presence of the floor does not significantly alter
the amortised cost of the instrument, therefore separation is not required and
the loan is valued at amortised cost using the effective interest rate method.
During the year, the relevant 3 month LIBOR rates were below 1%. LIBOR
regulators (including the UK Financial Conduct Authority and the US Commodity
Futures Trading Commission) have announced a transition away from LIBOR,
however it is expected that the 3 month USD LIBOR which is relevant to the
Company will continue to be available until the end of June 2023.
New Senior Term Loan Facility
31.8.2022 28.2.2022
US$ '000 US$ '000
Principal - drawdown 26 January 2022 - 45,000
Issue costs - (2,787)
Amortised cost - 26 January 2022 - 42,213
Amortised cost at 1 March 42,573 -
Finance costs charged to Statement of Comprehensive Income 2,065 360
Interest and finance costs paid (1,834) -
Amortised cost at period/year end 42,804 42,573
Previous Senior Term Loan Facility
31.8.2022 28.2.2022
US$ '000 US$ '000
Amortised cost - 1 March - 68,694
Loan advance - 16,000
Loan repayments - (85,585)
Finance costs charged to Statement of Comprehensive Income - 6,483
Interest and finance costs paid - (5,592)
Amortised cost at period/year end - -
The carrying value of the loans approximates to fair value.
13. Zero Dividend Preference ("ZDP") shares
Post period end (3 October 2022), the Company redeemed the ZDP shares on their
maturity date.
On 1 October 2015, the Company rolled over 11,907,720 existing ZDP (2016)
shares into new ZDP shares with a 2022 maturity date. The new ZDP shares (ZDP
2022) have a gross redemption yield of 4.75% and a total redemption value of
£57,597,000 (approximately $67,021,000 using the period end exchange rate).
ZDP shares are designed to provide a pre-determined final capital entitlement
which ranks behind the Company's creditors but in priority to the capital
entitlements of the Ordinary shares. The ZDP shares carry no entitlement to
income and the whole of their return will therefore take the form of capital.
In certain circumstances, ZDP shares carry the right to vote at general
meetings of the Company as detailed in the Company's Memorandum and Articles
of Incorporation. Issue costs are deducted from the cost of the liability and
allocated to the Statement of Comprehensive Income over the life of the ZDP
shares.
ZDP (2022) shares
31.8.2022 28.2.2022
US$ '000 US$ '000
Amortised cost at 1 March 75,038 74,303
Finance costs allocated to Statement of Comprehensive Income 1,793 3,807
Unrealised currency gain on translation (10,091) (3,072)
Amortised cost at period/year end 66,740 75,038
Total number of ZDP shares in issue 11,907,720 11,907,720
14. Subordinated Notes
In July 2021, the Company entered into a note purchase agreement with David
Zalaznick and John (Jay) Jordan, the founders and principals of the Company's
investment adviser, Jordan/Zalaznick Advisers, Inc. ("JZAI"), pursuant to
which they purchased directly or through their affiliates, subordinated,
second lien Subordinated Notes totalling $31.5 million, with a maturity date
of 11 September 2022 (the “Subordinated Notes”). In August 2022, the
Company announced the extension of the maturity date of the Subordinated
Subordinated Notes through to 30 September 2023.
The interest rate on the Subordinated Notes is 6 per cent. per annum payable
semi-annually on each of 31 March and 30 September of each year, commencing on
the first such date to occur after the issuance of the Subordinated Notes.
31.8.2022 US$ '000 28.2.2022 US$ '000
Subordinated Notes issued in period Amortised cost at 1 March - 32,293 31,500
Finance costs charged to Statement of Comprehensive Income 948 1,108
Interest and finance costs paid (945) (315)
Amortised cost at period/year end 32,296 32,293
15. Convertible Subordinated Unsecured Loan Stock ("CULS")
On 30 July 2021, JZCP redeemed 3,884,279 £10 CULS and converted on request,
1,835 £10 CULS into 3,039 Ordinary Shares at the agreed conversion price.
CULS bore interest on their nominal amount at the rate of 6.00 per cent. per
annum, payable semi-annually in arrears.
31.8.2022 US$ '000 28.2.2022 US$ '000
Fair Value of CULS at 1 March - 52,430
Interest expense - 1,336
Coupon paid - (2,679)
Unrealised movement in value of CULS due to change in Company's Credit Risk - 1,074
Unrealised movement in the fair value of CULS allocated to change in observed (benchmark) interest rate - 2,170
Unrealised currency gain on translation during the period/year - (301)
Loss to the Company on movement in the fair value of CULS - 1,869
Redemption of CULS - (54,005)
Conversion of CULS into Ordinary Shares - (25)
Fair Value of CULS based on offer price - -
16. Other Payables
31.8.2022 28.2.2022
US$ '000 US$ '000
Audit fees 150 325
Legal fees provision 200 505
Directors' remuneration 48 47
Other expenses 315 168
Provision for tax on dividends received not withheld at source - 398
713 1,443
17. Ordinary shares - Issued Capital
31.8.2022 28.2.2022
Number of shares Number of shares
Balance at 1 March 77,477,214 77,474,175
Ordinary shares issued during period/year - 3,039
Total Ordinary shares in issue 77,477,214 77,477,214
The Company's shares trade on the London Stock Exchange's Specialist Fund
Segment.
On 2 August 2021, the Company issued 3,039 Ordinary shares resulting from the
conversion of 1,835 CULS. The conversion price was £6.0373 per Ordinary
Share, resulting in a credit to the Share capital account of £18k ($25k).
18. Commitments
At 31 August 2022 and 28 February 2022, JZCP had the following financial
commitments outstanding in relation to fund investments:
Expected date 31.8.2022 28.2.2022
of Call US$ '000 US$ '000
JZI Fund III GP, L.P. €10,160,906 (28.2.2022: €13,967,295) over 3 years 10,217 15,688
Spruceview Capital Partners, LLC (1) over 1 year 250 500
10,467 16,188
(1)As approved by a shareholder vote on 12 August 2020, JZCP has the ability
to make up to approximately $4.1 million in further commitments to Spruceview,
above the $0.25 million unfunded commitments as at 31 August 2022.
19. Related Party Transactions
JZAI is a US based company founded by David Zalaznick and Jay Jordan, that
provides advisory services to the Company in exchange for management fees,
paid quarterly. Fees paid by the Company to the Investment Adviser are
detailed in Note 10. JZAI and various affiliates provide services to certain
JZCP portfolio companies and may receive fees for providing these services
pursuant to the Advisory Agreement.
JZCP invests in European micro-cap companies through JZI Fund III, L.P.
(“Fund III”). Previously investments were made via the EuroMicrocap Fund
2010, L.P. ("EMC 2010"). Fund III and EMC 2010 are managed by an affiliate of
JZAI. At 31 August 2022, JZCP's investment in Fund III was valued at $70.4
million (28 February 2022: $76.3 million). JZCP's investment in EMC 2010 was
valued at $0.6 million (28 February 2022: $0.6 million).
JZCP has invested in Spruceview Capital Partners, LLC on a 50:50 basis with
Jay Jordan and David Zalaznick (or their respective affiliates). The total
amount committed by JZCP to this investment at 31 August 2022, was $33.5
million with $0.25 million of this amount remaining unfunded and outstanding.
As approved by a shareholder vote on 12 August 2020, JZCP has the ability to
make up to approximately $4.1 million in further commitments to Spruceview,
above the $33.5 million committed as of 31 August 2022. Should this approved
capital be committed to Spruceview, it would be committed on the same 50:50
basis with Jay Jordan and David Zalaznick (or their respective affiliates).
During the year ended 28 February 2021, the Company sold its interests in
certain US microcap portfolio companies (the "Secondary Sale") to a secondary
fund led by Hamilton Lane Advisors, L.L.C. The Secondary Sale was structured
as a sale and contribution to a newly formed fund, JZHL Secondary Fund LP,
managed by an affiliate of JZAI. At 31 August 2022, JZCP's investment in JZHL
Secondary Fund LP was valued at $74.5 million (28 February 2022: $99.2
million).
JZCP has co-invested with Fund A, Fund A Parallel I, II and III Limited
Partnerships in a number of US micro-cap buyouts. These Limited Partnerships
are managed by an affiliate of JZAI. JZCP invested in a ratio of 82%/18% with
the Fund A entities. At 31 August 2022, these co-investments, with Fund A,
were in the following portfolio companies: Industrial Services Solutions,
Safety Solutions Holdings and Tierpoint. JZCP's investments in Safety
Solutions Holdings and Tierpoint have subsequently been transferred to JZHL
Secondary Fund LP (mentioned above).
During the prior year, the Company entered into a note purchase agreement with
David Zalaznick and Jay Jordan, pursuant to which they have purchased
directly or through their affiliates, subordinated, second lien Subordinated
Notes in the amount of $31.5 million, with an interest rate of 6 per cent. per
annum and maturing on 11 September 2022 (the “Subordinated Notes”). The
issuance of the Subordinated Notes was subject to a number of conditions,
including shareholder approval. On 26 August 2022, the maturity date of the
Subordinated Notes was extended to 30 September 2022 and subsequently after
certain criteria was met extended for a further 12 months to 30 September
2023.
Total Directors' remuneration for the six-month period ended 31 August 2022
was $145,000 (31 August 2021: $145,000).
20. Basic and Diluted Earnings/(Loss) per Share
Basic loss per share is calculated by dividing the loss for the period by the
weighted average number of Ordinary shares outstanding during the period.
For the period ended 31 August 2022, the weighted average number of Ordinary
shares outstanding during the period was 77,477,214 (31 August 2021:
77,474,670).
The diluted loss per share is calculated by considering adjustments required
to the loss and weighted average number of shares for the effects of potential
dilutive Ordinary shares. Following the redemption of the Company's CULS
during the prior period, there are no longer any potential dilutive events to
the Ordinary shares.
21. Contingent Assets
Amounts held in escrow accounts
When investments have been disposed of by the Company, proceeds may reflect
contractual terms requiring that a percentage is held in an escrow account
pending resolution of any indemnifiable claims that may arise.
At 31 August 2022 and 28 February 2022, the Company has assessed that the
likelihood of the recovery of these escrow accounts cannot be determined and
has therefore disclosed the escrow accounts as a contingent asset.
As at 31 August 2022 and 28 February 2022, the Company had the following
contingent assets held in escrow accounts which had not been recognised as
assets of the Company:
Amount in Escrow
31.8.2022 28.2.2022
US$'000 US$'000
JZHL Secondary Fund (being 37.5% of the total amount held in escrow) (1) New Vitality – added on realisation of investment 411 202
152 -
Igloo 49 49
Salter Labs ($528,000 received) - 536
Southern Petroleum Laboratories ($509,000 received) - 509
612 1,296
During the period ended 31 August 2022, net proceeds including a minor refund
of an escrow receipt, totalled $999,000 (31 August 2021: $nil) were realised
and recorded in the Statement of Comprehensive Income.
(1) During the period, the JZHL Secondary Fund received an Escrow of $723,000
which was distributed to its limited partners. On the closing of JZHL
Secondary Fund's realisation of Testing Services $1,096,000 was placed in
Escrow.
22. Subsequent Events
These Interim Financial Statements were approved by the Board on 9 November
2022. Events subsequent to the period end 31 August 2022 have been evaluated
until this date.
On 30 September 2022, the Company announced the further extension of the
maturity date of the Subordinated Notes through to 30 September 2023.
On 3 October 2022, the Company announced the redemption and cancellation of
its ZDP shares.
Company Advisers
Investment Adviser Independent Auditor
The Investment Adviser to JZ Capital Partners Limited (“JZCP”) is Jordan/Zalaznick Advisers, Inc., (“JZAI”) a company beneficially owned by John (Jay) W Jordan II and David W Zalaznick. The company offers investment advice to the Board of JZCP. JZAI has offices in New York and Chicago. Ernst & Young LLP
PO Box 9
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
Jordan/Zalaznick Advisers, Inc. UK Solicitor
9 West, 57th Street Ashurst LLP
New York NY 10019 London Fruit & Wool Exchange
1 Duval Square
Registered Office London E1 6PW
PO Box 255
Trafalgar Court US Lawyers
Les Banques Monge Law Firm, PLLC
St Peter Port 435 South Tyron Street, Suite 711
Guernsey GY1 3QL Charlotte, NC 28202
JZ Capital Partners Limited is registered in Guernsey Mayer Brown LLP
Number 48761 214 North Tryon Street
Suite 3800
Administrator, Registrar and Secretary Charlotte NC 28202
Northern Trust International Fund Administration
Services (Guernsey) Limited Winston & Strawn LLP
PO Box 255 35 West Wacker Drive
Trafalgar Court Chicago IL 60601-9703
Les Banques
St Peter Port Guernsey Lawyer
Guernsey GY1 3QL Mourant
Royal Chambers
UK Transfer and Paying Agent St Julian's Avenue
Equiniti Limited St Peter Port
Aspect House Guernsey GY1 4HP
Spencer Road
Lancing Financial Adviser and Broker
West Sussex BN99 6DA JP Morgan Cazenove Limited
20 Moorgate
US Banker London EC2R 6DA
HSBC Bank USA NA
452 Fifth Avenue
New York NY 10018
(Also provides custodian services to JZ Capital Partners
Limited under the terms of a Custody Agreement).
Guernsey Banker
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA
Useful Information for Shareholders
Listing
JZCP Ordinary shares are listed on the Official List of the Financial Services
Authority of the UK, and are admitted to trading on the London Stock Exchange
Specialist Fund Segment for listed securities.
The price of the Ordinary shares is shown in the Financial Times under
"Conventional Private Equity" and can also be found at https://markets.ft.com
along with the prices of the ZDP shares.
ISIN/SEDOL numbers
Ticker Symbol ISIN Code Sedol Number
Ordinary shares JZCP GG00B403HK58 B403HK5
Key Information Documents
JZCP produces a Key Information Documents to assist investors' understanding
of the Company's securities and to enable comparison with other investment
products. This document is found on the Company's website -
www.jzcp.com/investor-relations/key-information-documents.
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance Measures
("APMs"), the Board has considered what APMs are included in the Interim
Report and Financial Statements which require further clarification. An APM is
defined as a financial measure of historical or future financial performance,
financial position, or cash flows, other than a financial measure defined or
specified in the applicable financial reporting framework. APMs included in
the Interim Report and Financial Statements, which are unaudited and outside
the scope of IFRS, are deemed to be as follows:
Total NAV Return
The Total NAV Return measures how the net asset value ("NAV") per share has
performed over a period of time, taking into account both capital returns and
dividends paid to shareholders. JZCP quotes NAV total return as a percentage
change from the start of the period (one year) and also three-month,
three-year, five-year and seven year periods. It assumes that dividends paid
to shareholders are reinvested back into the Company therefore future NAV
gains are not diminished by the paying of dividends. JZCP also produces an
adjusted Total NAV Return which excludes the effect of the
appreciation/dilution per share caused by the buy back/issue of shares at a
discount to NAV, the result of the adjusted Total NAV return is to provide a
measurement of how the Company's Investment portfolio contributed to NAV
growth adjusted for the Company's expenses and finance costs. The Total NAV
Return for the period ended 31 August 2022 was 15.4%, which only reflects the
change in NAV as no dividends were paid during the year. The Total NAV Return
for the year ended 28 February 2022 was 0.9%.
Total Shareholder Return (Ordinary shares)
A measure showing how the share price has performed over a period of time,
taking into account both capital returns and dividends paid to shareholders.
JZCP quotes shareholder price total return as a percentage change from the
start of the period (one year) and also three-month, three-year, five-year and
seven-year periods. It assumes that dividends paid to shareholders are
reinvested in the shares at the time the shares are quoted ex- dividend. The
Shareholder Return for the period ended 31 August 2022 was 42.5%, which only
reflects the change in share price as no dividends were paid during the year.
The Shareholder Return for the year ended 28 February 2022 was 34.6%.
NAV to market price discount
The NAV per share is the value of all the company’s assets, less any
liabilities it has, divided by the number of shares. However, because JZCP
shares are traded on the London Stock Exchange's Specialist Fund Segment, the
share price may be higher or lower than the NAV. The difference is known as a
discount or premium. JZCP's
discount is calculated by expressing the difference between the period end
dollar equivalent share price and the period end NAV per share as a percentage
of the NAV per share.
At 31 August 2022, JZCP's Ordinary shares traded at £1.71 (28 February 2022:
£1.05) or $1.99 (28 February 2022: $1.41) being the dollar equivalent using
the period end exchange rate of £1:$1.16 (28 February 2022
£1: $1.34). The shares traded at a 57.8% (28 February 2022: 67.2%) discount
to the NAV per share of $4.71 (28 February 2022: $4.29)
Criminal Facilitation of Tax Evasion
The Board has approved a policy of zero tolerance towards the criminal
facilitation of tax evasion, in compliance with the Criminal Finances Act
2017.
Non-Mainstream Pooled Investments
From 1 January 2014, the FCA rules relating to the restrictions on the retail
distribution of unregulated collective investment schemes and close
substitutes came into effect. JZCP's Ordinary shares qualify as an ‘excluded
security’ under these rules and will therefore be excluded from the FCA’s
restrictions which apply to non- mainstream investment products. Therefore,
Ordinary shares issued by JZ Capital Partners can continue to be recommended
by financial advisers as an investment for UK retail investors.
Internet Address
The Company: www.jzcp.com
Financial Diary
Results for the year ended 28 February
2023 May
2023 (date to be confirmed)
Annual General Meeting
June/July 2022 (date to be
confirmed)
Interim report for the six months ended 31 August 2023
November 2023 (date to be confirmed)
Payment of Dividends
In the event of a cash dividend being paid, the dividend will be sent by
cheque to the first-named shareholder on the register of members at their
registered address, together with a tax voucher. At shareholders' request,
where they have elected to receive dividend proceeds in Sterling, the dividend
may instead be paid direct into the shareholder's bank account through the
Bankers' Automated Clearing System. Payments will be paid in US dollars unless
the shareholder elects to receive the dividend in Sterling. Existing elections
can be changed by contacting the Company's Transfer and Paying Agent, Equiniti
Limited on +44 (0) 121 415 7047.
Share Dealing
Investors wishing to buy or sell shares in the Company may do so through a
stockbroker. Most banks also offer this service.
Foreign Account Tax Compliance Act
The Company is registered (with a Global Intermediary Identification Number
CAVBUD.999999.SL.831) under The Foreign Account Tax Compliance Act ("FATCA").
Share Register Enquiries
The Company's UK Transfer and Paying Agent, Equiniti Limited, maintains the
share registers. In event of queries regarding your holding, please contact
the Registrar on 0871 384 2265, calls to this number cost 8p per minute from a
BT landline, other providers' costs may vary. Lines are open 8.30 a.m. to 5.30
p.m., Monday to Friday, If calling from overseas +44 (0) 121 415 7047 or
access their website at www.equiniti.com. Changes of name or address must be
notified in writing to the Transfer and Paying Agent.
Nominee Share Code
Where notification has been provided in advance, the Company will arrange for
copies of shareholder communications to be provided to the operators of
nominee accounts. Nominee investors may attend general meetings and speak at
meetings when invited to do so by the Chairman.
Documents Available for Inspection
The following documents will be available at the registered office of the
Company during usual business hours on any weekday until the date of the
Annual General Meeting and at the place of the meeting for a period of fifteen
minutes prior to and during the meeting:
1. the Register of Directors' Interests in the stated capital of the Company;
2. the Articles of Incorporation of the Company; and
3. the terms of appointment of the Directors.
Warning to Shareholders – Boiler Room Scams
In recent years, many companies have become aware that their shareholders have
been targeted by unauthorised overseas-based brokers selling what turn out to
be non-existent or high risk shares, or expressing a wish to buy their shares.
If you are offered, for example, unsolicited investment advice, discounted
JZCP shares or a premium price for the JZCP shares you own, you should take
these steps before handing over any money:
* Make sure you get the correct name of the person or organisation
* Check that they are properly authorised by the FCA before getting involved
by visiting http://www.fca.org.uk/firms/systems-reporting/register
* Report the matter to the FCA by calling 0800 111 6768
* If the calls persist, hang up
* More detailed information on this can be found on the Money Advice Service
website www.moneyadviceservice.org.uk
US Investors
General
The Company's Articles contain provisions allowing the Directors to decline to
register a person as a holder of any class of ordinary shares or other
securities of the Company or to require the transfer of those securities
(including by way of a disposal effected by the Company itself) if they
believe that the person:
1. is a "US person" (as defined in Regulation S under the US Securities Act of
1933, as amended) and not a "qualified purchaser" (as defined in the US
Investment Company Act of 1940, as amended, and the related rules thereunder);
2. is a "Benefit Plan Investor" (as described under "Prohibition on Benefit
Plan Investors and Restrictions on Non-ERISA Plans" below); or
3. is, or is related to, a citizen or resident of the United States, a US
partnership, a US corporation or a certain type of estate or trust and that
ownership of any class of ordinary shares or any other equity securities of
the Company by the person would materially increase the risk that the Company
could be or become a "controlled foreign corporation" (as described under "US
Tax Matters" below).
In addition, the Directors may require any holder of any class of ordinary
shares or other securities of the Company to show to their satisfaction
whether or not the holder is a person described in paragraphs (A), (B) or (C)
above.
US Securities Laws
The Company (a) is not subject to the reporting requirements of the US
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and does not
intend to become subject to such reporting requirements and (b) is not
registered as an investment company under the US Investment Company Act of
1940, as amended (the "1940 Act"), and investors in the Company are not
entitled to the protections provided by the 1940 Act.
Prohibition on Benefit Plan Investors and Restrictions on Non-ERISA Plans
Investment in the Company by "Benefit Plan Investors" is prohibited so that
the assets of the Company will not be deemed to constitute "plan assets" of a
"Benefit Plan Investor". The term "Benefit Plan Investor" shall have the
meaning contained in 29 C.F.R. Section 2510.3-101, as modified by Section
3(42) of the US Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and includes (a) an "employee benefit plan" as defined in Section
3(3) of ERISA that is subject to Part 4 of Title I of ERISA; (b) a "plan"
described in Section 4975(e)(1) of the US Internal Revenue Code of 1986, as
amended (the "Code"), that is subject to Section 4975 of the Code; and
(c) an entity whose underlying assets include "plan assets" by reason of an
employee benefit plan's or a plan's investment in such entity. For purposes of
the foregoing, a "Benefit Plan Investor" does not include a governmental plan
(as defined in Section 3(32) of ERISA), a non-US plan (as defined in Section
4(b)(4) of ERISA) or a church plan (as defined in Section 3(33) of ERISA) that
has not elected to be subject to ERISA.
Each purchaser and subsequent transferee of any class of ordinary shares (or
any other class of equity interest in the Company) will be required to
represent, warrant and covenant, or will be deemed to have represented,
warranted and covenanted, that it is not, and is not acting on behalf of or
with the assets of, a Benefit Plan Investor to acquire such ordinary shares
(or any other class of equity interest in the Company).
Under the Articles, the directors have the power to require the sale or
transfer of the Company's securities in order to avoid the assets of the
Company being treated as "plan assets" for the purposes of ERISA.
The fiduciary provisions of laws applicable to governmental plans, non-US
plans or other employee benefit plans or retirement arrangements that are not
subject to ERISA (collectively, "Non-ERISA Plans") may impose limitations on
investment in the Company. Fiduciaries of Non-ERISA Plans, in consultation
with their advisers, should consider, to the extent applicable, the impact of
such fiduciary rules and regulations on an investment in the Company.
Among other considerations, the fiduciary of a Non-ERISA Plan should take into
account the composition of the Non-ERISA Plan's portfolio with respect to
diversification; the cash flow needs of the Non-ERISA Plan and the effects
thereon of the illiquidity of the investment; the economic terms of the
Non-ERISA Plan's investment in the Company; the Non-ERISA Plan’s funding
objectives; the tax effects of the investment and the tax and other risks
associated with the investment; the fact that the investors in the Company are
expected to consist of a diverse group of investors (including taxable,
tax-exempt, domestic and foreign entities) and the fact that the management of
the Company will not take the particular objectives of any investors or class
of investors into account.
Non-ERISA Plan fiduciaries should also take into account the fact that, while
the Company's board of directors and its investment adviser will have certain
general fiduciary duties to the Company, the board and the investment adviser
will not have any direct fiduciary relationship with or duty to any investor,
either with respect to its investment in Shares or with respect to the
management and investment of the assets of the Company. Similarly, it is
intended that the assets of the Company will not be considered plan assets of
any Non-ERISA Plan or be subject to any fiduciary or investment restrictions
that may exist under laws specifically applicable to such Non- ERISA Plans.
Each Non-ERISA Plan will be required to acknowledge and agree in connection
with its investment in any securities to the foregoing status of the Company,
the board and the investment adviser that there is no rule, regulation or
requirement applicable to such investor that is inconsistent with the
foregoing description of the Company, the board and the investment adviser.
Each purchaser or transferee that is a Non-ERISA Plan will be deemed to have
represented, warranted and covenanted as follows:
1. The Non-ERISA Plan is not a Benefit Plan Investor;
2. The decision to commit assets of the Non-ERISA Plan for investment in the
Company was made by fiduciaries independent of the Company, the Board, the
Investment adviser and any of their respective agents, representatives or
affiliates, which fiduciaries (i) are duly authorized to make such investment
decision and have not relied on any advice or recommendations of the Company,
the Board, the Investment adviser or any of their respective agents,
representatives or affiliates and (ii) in consultation with their advisers,
have carefully considered the impact of any applicable federal, state or local
law on an investment in the Company;
3. The Non-ERISA Plan’s investment in the Company will not result in a
non-exempt violation of any applicable federal, state or local law;
4. None of the Company, the Board, the Investment adviser or any of their
respective agents, representatives or affiliates has exercised any
discretionary authority or control with respect to the Non-ERISA Plan’s
investment in the Company, nor has the Company, the Board, the Investment
adviser or any of their respective agents, representatives or affiliates
rendered individualized investment advice to the Non-ERISA Plan based upon the
Non ERISA Plan’s investment policies or strategies, overall portfolio
composition or diversification with respect to its commitment to invest in the
Company and the investment program thereunder; and
5. It acknowledges and agrees that it is intended that the Company will not
hold plan assets of the Non-ERISA Plan and that none of the Company, the
Board, the Investment adviser or any of their respective agents,
representatives or affiliates will be acting as a fiduciary to the Non-ERISA
Plan under any applicable federal, state or local law governing the Non-ERISA
Plan, with respect to either (i) the Non-ERISA Plan’s purchase or retention
of its investment in the Company or (ii) the management or operation of the
business or assets of the Company. It also confirms that there is no rule,
regulation, or requirement applicable to such purchaser or transferee that is
inconsistent with the foregoing description of the Company, the Board and the
Investment adviser.
US Tax Matters
This discussion does not constitute tax advice and is not intended to be a
substitute for tax advice and planning. Prospective holders of the Company's
securities must consult their own tax advisers concerning the US federal,
state and local income tax and estate tax consequences in their particular
situations of the acquisition, ownership and disposition of any of the
Company's securities, as well as any consequences under the laws of any other
taxing jurisdiction.
The Board may decline to register a person as, or to require such person to
cease to be, a holder of any class of ordinary shares or other equity
securities of the Company because of, among other reasons, certain US
ownership and transfer restrictions that relate to “controlled foreign
corporations” contained in the Articles of the Company. A Shareholder of the
Company may be subject to forced sale provisions contained in the Articles in
which case such shareholder could be forced to dispose of its securities if
the Company’s directors believe that such shareholder is, or is related to,
a citizen or resident of the United States, a US partnership, a US corporation
or a certain type of estate or trust and that ownership of any class of
ordinary shares or any other equity securities of the Company by such
shareholder would materially increase the risk that the Company could be or
become a "controlled foreign corporation" within the meaning of the Code (a
"CFC"). Shareholders of the Company may also be restricted by such provisions
with respect to the persons to whom they are permitted to transfer their
securities.
In general, a foreign corporation is treated as a CFC if, on any date of its
taxable year, its "10% US Shareholders" collectively own (directly, indirectly
or constructively within the meaning of Section 958 of the Code) more than 50%
of the total combined voting power or total value of the corporation's stock.
For this purpose, a "10% US Shareholder" means any US person who owns
(directly, indirectly or constructively within the meaning of Section 958 of
the Code) 10% or more of the total combined voting power of all classes of
stock of a foreign corporation or 10% or more of the total value of shares of
all classes of stock of a foreign corporation. The Tax Cuts and Jobs Act (the
“Tax Act”) eliminated the prohibition on “downward attribution” from
non-US persons to US persons under Section 958(b)(4) of the Code for purposes
of determining constructive stock ownership under the CFC rules. As a result,
the Company’s US subsidiary will be deemed to own all of the stock of the
Company’s non-US subsidiaries held by the Company for purposes of
determining such foreign subsidiaries’ CFC status. The legislative history
under the Tax Act indicates that this change was not intended to cause the
Company’s non-US subsidiaries to be treated as CFCs with respect to a 10% US
Shareholder that is not related to the Company’s US subsidiary. However, the
IRS has not yet issued any guidance confirming this intent and it is not clear
whether the IRS or a court would interpret the change made by the Tax Act in a
manner consistent with such indicated intent. The Company's treatment as a CFC
as well as its foreign subsidiaries’ treatment as CFCs could have adverse
tax consequences for 10% US Shareholders.
The Company has been advised that it is be treated as a "passive foreign
investment company" ("PFIC") for the fiscal year ended February 2021. The
Company's treatment as a PFIC is likely to have adverse tax consequences for
US taxpayers. Previously, for the fiscal year ended February 2020 the Company
was found NOT to be a PFIC. An analysis for the financial year ended 28
February 2022 will be undertaken this year.
The taxation of a US taxpayer's investment in the Company's securities is
highly complex. Prospective holders of the Company's securities must consult
their own tax advisers concerning the US federal, state and local income tax
and estate tax consequences in their particular situations of the acquisition,
ownership and disposition of any of the Company's securities, as well as any
consequences under the laws of any other taxing jurisdiction.
Investment Adviser's ADV Form
Shareholders and state securities authorities wishing to view the Investment
Adviser's ADV form can do so by following the link below:
https://adviserinfo.sec.gov/firm/summary/160932
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