JZ CAPI ZDRP
JZ CAPITAL PARTNERS LIMITED (the "Company" or "JZCP")
(a closed-end investment company incorporated with limited liability under the
laws of Guernsey with registered number 48761)
ANNUAL RESULTS FOR THE TWELVE-MONTH PERIOD ENDED
28 FEBRUARY 2017
17 May 2017
JZ Capital Partners, the London listed fund that invests in US and European
micro-cap companies and US real estate, announces its annual results for the
twelve-month period ended 28 February 2017.
Results Highlights
* Total NAV return per share of 2.7%.
* NAV of $848.8 million (FYE 29/02/16: $851.7 million).
* Post-dividend NAV per share of $10.12 (FYE 29/02/16: $10.15).
* 30.5 cents per share in dividends paid during the period - implied dividend
yield of 4.5% (as at 28/02/17).
* Share price trading near all-time high as at 16 May 2017, rising 43% since
29 February 2016.
Portfolio Highlights
* JZCP invested a total of $159.5 million, underpinned by investments in
Peaceable Street Capital, Jordan Health Products and real estate properties
in Brooklyn, NY and South Florida.
* JZCP received $131.4 million of proceeds from realisations, primarily
through the sale of Medplast, Southern Petroleum Laboratories and Winn
Group.
* Eight properties acquired during the period, including Esperante Corporate
Centre, a landmark office building in West Palm Beach, Florida.
* As of 28 February 2017, the portfolio comprised:
* US micro-cap: 20 businesses which includes four 'verticals' and 12
co-investments, across nine industries.
* European micro-cap: 13 companies across five industries and six countries.
* US real estate: 59 properties across four major assemblages in New York and
South Florida all in various stages of (re)/development.
Strategic Initiatives
* Shareholder approval for initiatives designed to maximize shareholder
returns, including the discontinuation of the Company's current dividend
policy and inception of new strategy to allow for the repurchase of shares
(16 May 2017).
* Repayment of remaining ZDPs due June 2016, for £32.9 million.
* JZCP increased its loan facility with Guggenheim Partners from
approximately $100 million to $150 million, in order to provide additional
liquidity to JZCP to bridge certain planned realisations (April 2017).
Outlook
* Healthy pipeline of realisation and investment opportunities over the next
12 months.
* Balance sheet strength, diversified portfolio and share buyback policy
positions the Company well to continue to drive underlying portfolio growth
and enhance shareholder returns.
David Zalaznick, JZCP's Founder and Investment Adviser, said: "We are pleased
with the positive performance of the portfolio on an operating basis and
appreciation of the underlying values of the portfolio's assets. Our execution
of JZCP's investment policy, to create a more balanced and diversified
portfolio by geography and asset type, has shown great progress and should
provide superior returns.
The buoyant US market presents a number of potential realisation opportunities
for the Company, which should in turn provide additional liquidity to invest in
the multiple investment opportunities we are seeing."
David Macfarlane, Chairman of JZCP, said: "The progress the Company has made
during the period has been steady, characterised by a good flow of investment
and realisation activity.
We are also delighted that we have the support from our shareholders to further
maximise long-term value through the consideration of a new share buyback
policy. We look ahead to the next twelve months with continued confidence."
Presentation details:
There will be an audiocast presentation for investors and analysts at 2pm UK
(BST) / 9am US (EDT) on 17 May 2017. The presentation can be accessed via
http://bit.ly/2qktzkt and by dialing +44 (0) 33 0336 9411 (UK) or +1 719 325
2202 (US) with the participant access code 1404617
A playback facility will be available two hours after the conference call
concludes. This facility may be accessed via the following dial in details,
using the same participant access code as above: +44 (0) 207 984 7568 (UK) or
+1 719-457-0820 (US).
For further information:
Ed Berry / Kit
Dunford
+44 (0) 20 3727 1046 / 1143
FTI Consulting
David Zalaznick
+1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Teresa Le
Couteur-Tembo
+44 (0) 1481 745 741
JZ Capital Partners, Ltd.
About JZCP
JZCP is a London listed fund which invests in US and European micro-cap
companies and US real estate. Its objective is to achieve an overall return
comprised of a current yield and capital appreciation. JZCP receives investment
advice from Jordan/Zalaznick Advisers, Inc. ("JZAI") which is led by David
Zalaznick and Jay Jordan. They have worked together for 30 years and are
supported by teams of investment professionals in New York, Chicago, London and
Madrid. JZAI's experts work with the existing management of micro-cap companies
to help build better businesses, create value and deliver strong returns for
investors. JZCP also invests in mezzanine loans, first and second lien
investments and other publicly traded securities. For more information please
visit www.jzcp.com.
Chairman's Statement
I am pleased to report the results of JZ Capital Partners ("JZCP" or the
"Company") for the twelve month period ended 28 February 2017.
Performance
The Company's performance over the last twelve months, driven by positive
growth across our three core portfolios of US and European micro-cap and US
real estate investments, is particularly pleasing given the backdrop of
sustained global market volatility as a result of the rise of populist politics
and geopolitical tensions.
Political shifts have been stark in many regions, with voters eschewing the
status quo to support populist mandates and the corresponding uncertainty that
they bring. The UK's decision to leave the European Union and Trump's victory
both caused disruption to global financial markets and temporarily influenced
investment activity.
The US economy is gaining traction again and households remain upbeat, with
annualised GDP growth reported of 2.1% in the fourth quarter of 2016. This
growth follows a relatively weak first half of the year, having been boosted by
a long awaited rebound in investment.
In Europe, the economic recovery continues, supported by highly favourable
monetary conditions, a weaker euro and an improvement in global growth, with
the Emerging Markets in particular doing better. The consequences of the events
of 2016 remain uncertain and additional headwinds are looming on the horizon,
especially political risks, suggesting volatility may rise over the next twelve
months.
Given this market environment, the Board is pleased to announce that JZCP has
produced a satisfactory set of full year results, having achieved total NAV
return per share of 2.7%, which includes 30.5 cents per share in dividends paid
during the year. JZCP's post-dividend NAV per share decreased marginally from
$10.15 to $10.12 at the end of the period.
Strategic Initiatives
In view of the persistently wide discount to NAV at which the Company's shares
trade, the Board recently launched a comprehensive review of the Company's
existing dividend policy. Giving careful consideration as to whether full value
for shareholders is being achieved, the Board determined that the existing
policy of paying out approximately 3% of NAV per year has not had the desired
long-term effect on JZCP's stock price. Instead, the Board believes that the
interests of shareholders would be better served through the discontinuation of
the current dividend policy and implementation of a new strategy to allow for
the repurchase of shares.
The recent proposals to implement a general buy-back framework received
shareholder approval today. The Board will have the option of exercising the
buy-back programme opportunistically and where it would be accretive to
shareholder value.
Whilst we recognise that some shareholders will be disappointed by the loss of
the dividend, we believe the new strategy is a significant step forward for the
Company and in the best interest of all shareholders over the long term.
Portfolio Update
Overview
The result has been driven by the positive underlying performance of our three
major asset classes, where we continue to pursue our value-added investment
strategy and anticipate further asset growth during the fiscal period.
It has been an active investment period for the Company, putting $159.5 million
to work across these core portfolios - whilst realising $131.4 million,
primarily through the sale of Medplast, Southern Petroleum Laboratories and
Winn Group.
At the end of the period, the Company's portfolio consisted of 33 micro-cap
businesses across nine industries and 59 properties located in Brooklyn, New
York and South Florida. The portfolio continues to become more diversified
geographically as we invest in further Western European countries. It's also
important to note that 35% of our investment portfolio is less than three years
old.
US and European Micro-cap
It has been another period of significant activity within our US micro-cap
portfolio, which has continued to perform well with progress made both with
investments and realisations. The portfolio has seen a valuation increase of 38
cents per share during the period, primarily due to net accrued income of 19
cents per share and increased earnings at our Healthcare Revenue Cycle
Management vertical (32 cents). The portfolio was valued at 8.3x EBITDA, after
applying an average 26% marketability discount to public comparables.
JZCP continues to implement its disciplined and value-oriented investment
approach targeting high quality micro-cap companies in Western Europe, which
now represent approximately 14 per cent of the Investment Portfolio ($154
million) and consist of 13 companies across five industries and six countries.
The portfolio has seen a valuation increase of 12 cents per share, primarily
due to accrued income of 6 cents per share and a write-up at Fidor Bank (5
cents), which was sold to Group BPCE, the second largest banking group in
France.
As of 28 February 2017, Fund III1 held seven investments: two in Spain, two in
Scandinavia, and one each in the UK, Italy and Luxembourg, and EMC2 held two
investments in Spain: Factor Energia and Oro.
Real Estate
Now in its fifth year, the US real estate portfolio has continued to grow
steadily, currently consisting of 59 properties, all in various stages of
development and re-development.
As of 28 February 2017, JZCP, in partnership with its long-term real estate
partner, RedSky Capital, had more than $343.5 million invested in a diverse
portfolio of retail, office and residential properties located in Brooklyn, New
York and South Florida. JZCP acquired eight properties during the period,
including Esperante Corporate Centre, a landmark office building in West Palm
Beach, Florida.
The real estate portfolio had a net increase of 25 cents, led by significant
write-ups at our Roebling Portfolio property (25 cents) and our Greenpoint
property (21 cents), both located in adjacent North Brooklyn neighbourhoods.
Increases in value at our real estate properties are based upon third-party
appraisals.
Realisations
The Company generated realisations totalling $131.4 million, primarily through
the sale of three US micro-cap companies and the sale of European micro-cap
company Winn Group. The Company received proceeds of $25.6 million from the
sale of Medplast, a manufacturer of plastic medical components based in the US.
Distributions
As a consequence of the new strategy, the current dividend policy will be
discontinued and the Company will not declare or pay a second interim dividend
for the six-month period ending 28 February 2017.
Significant Financings
Post period end (April 2017), the Company increased its loan facility with
Guggenheim Partners from approximately $100 million to $150 million, in order
to provide additional liquidity to JZCP to bridge certain planned realisations.
The entire $150 million facility may be repaid, in whole or in part, with no
penalty after June 2017.
The Board and Investment Adviser have discussed the expected cash flows within
the investment portfolio, investments and divestments, and likely opportunities
based on the Company's strategy. Following this discussion, the Board can
report to shareholders that it believes it is unlikely further equity capital
will be needed in the foreseeable medium term.
Outlook
The benefits of measures approved by shareholders in 2015 to increase the
flexibility of the Company's investment policy and strengthen its balance sheet
continue to bear fruit, as demonstrated by the steady performance of the three
core portfolios during the period, set against a turbulent macro environment.
We are delighted that we have the support from our shareholders to implement
the new strategy, which is designed to maximise long-term value for
shareholders. The Company remains absolutely focused on generating positive NAV
growth and continues to believe it is the most effective driver to narrow the
Company's persistent discount to NAV. We look to the next twelve months with
optimism.
David Macfarlane
Chairman
16 May 2017
1JZI Fund III, L.P. is defined throughout the Annual Report and Financial
Statements as "Fund III".
2EuroMicrocap Fund 2010, L.P. and EuroMicrocap Fund-C, L.P. are defined
throughout the Annual Report and Financial Statements as "EMC", both L.P.s are
held by the same limited partners and in the same ownership percentages.
Investment Adviser's Report
Dear Fellow Shareholders,
We are pleased to report that all three of JZCP's major asset classes within
the portfolio - US micro-cap, European micro-cap and US real estate - continued
their positive performance for the year ending 28 February 2017. JZCP's NAV per
share was approximately flat ($10.12 at 28 February 2017 versus $10.15 at 29
February 2016), whereas total NAV return per share was 2.7%, which includes
30.5 cents per share in dividends paid during the year. Unless otherwise
stated, figures included in this report refer to the twelve-month period ended
28 February 2017.
As of 28 February 2017, our stock was trading at a 34% discount to NAV and had
an implied dividend yield of 4.5%. Despite historically low (to negative)
interest rates, our stated dividend policy of paying out 3% of NAV did not have
the desired long-term effect on our stock price. Consequently, JZCP's board of
directors has discontinued the current dividend policy and asked shareholders
to authorise a new policy to allow for the repurchase of shares. We believe
these proposals are in the best interest of all shareholders. JZCP represents a
highly attractive investment opportunity and we hope to take advantage of the
wide discount. If we are able to buy shares at a significant discount, it will
increase our NAV per share which is the ultimate mark by which our share price
will be measured.
In the year ended 28 February 2017, JZCP invested a total of $159.5 million,
underpinned by investments in Peaceable Street Capital, Jordan Health Products
and real estate properties in Brooklyn, NY and South Florida. We realized
$131.4 million primarily through the sale of Medplast and Southern Petroleum
Laboratories ("SPL"), both co-investments, and European portfolio company Winn.
At the period end, our US micro-cap portfolio consisted of 20 businesses, which
includes four 'verticals' and 12 co-investments, across nine industries; this
portfolio was valued at 8.3x EBITDA, after applying an average 26%
marketability discount to public comparables. The average underlying leverage
senior to JZCP's position in our US micro-cap portfolio is 3.2x EBITDA.
Consistent with our value-oriented investment strategy, we have acquired our
current US micro-cap portfolio at an average 6.2x EBITDA; we paid 5.1x EBITDA
on average for US micro-cap acquisitions made during the past fiscal year.
Our European micro-cap portfolio consisted of 13 companies across five
industries and six countries. The European micro-cap portfolio has very
conservative leverage senior to JZCP's position, currently under 2.0x EBITDA.
As of 28 February 2017, our US real estate portfolio consisted of 59 properties
and can be grouped primarily into four major "assemblages", located in the
Williamsburg and Downtown/Fulton Mall neighbourhoods of Brooklyn, New York and
the Wynwood and Design District neighbourhoods of Miami, Florida. We acquired
eight properties during the period, including a trophy office building in West
Palm Beach, Florida. Our assemblages are comprised of adjacent or concentrated
groupings of properties that can be developed, financed and/or sold together at
a higher valuation than on a stand-alone basis.
Net Asset Value ("NAV")
JZCP's NAV per share was approximately flat for the year ending 28 February
2017 ($10.12 at 28 February 2017 vs. $10.15 at 29 February 2016). Total NAV
return per share was 2.7%, which includes 30.5 cents per share in dividends
paid during the year.
NAV bridge
NAV per Ordinary share as of 29 February 2016 $10.15
Change in NAV due to capital gains and accrued
income
+ US Micro-cap 0.38
+ European Micro-cap 0.12
+ Real Estate 0.25
+ Other Investments 0.02
Other increases/(decreases) in
NAV
- Change in CULS market price (0.05)
- Finance costs (0.18)
+ Foreign exchange effect(1) 0.12
- Expenses and taxation (0.39)
NAV per Ordinary share (before dividends paid) $10.42
- Dividends paid (0.305)
NAV per Ordinary share as of 28 February $10.12
2017
(1) Includes fx losses of 2 cents relating to investments and fx gains of 8
cents relating to the currency translation of the CULS.
The US micro-cap portfolio had a net increase of 38 cents, primarily due to net
accrued income of 19 cents and increased earnings at our Healthcare Revenue
Cycle Management vertical (32 cents). Also contributing to the positive
portfolio performance were increases at several co-investment companies: Salter
(6 cents), a healthcare products manufacturer; TierPoint, a data centre
business (3 cents); and Vitalyst, an IT support business (3 cent). We also
received 7 cents of escrow payments during the period.
Offsetting these increases was a decrease at Healthcare Products Holdings, our
power wheelchair company, which was written down to zero (12 cents), as further
regulations have significantly hindered the company's prospects. Other assets
to experience earnings declines included: our Water and Industrial Services
Solutions ("ISS") verticals, (5 and 6 cents, respectively); Suzo-Happ, our
co-investment manufacturer of parts for the global gaming industry (3 cents);
and Nationwide, our school photography business (3 cents).
The European micro-cap portfolio had a net increase of 12 cents, primarily due
to accrued income of 6 cents and a write-up at our online German bank, Fidor
Bank (5 cents), which was sold to a French banking conglomerate during the
year. Other assets written up due to increased earnings include Petrocorner (2
cents), our petrol station build-up in Spain, and Winn (1 cent), our UK legal
claims business (which was realised during the year).
The real estate portfolio had a net increase of 25 cents, led by significant
write-ups at our Roebling Portfolio property (25 cents) and our Greenpoint
property (21 cents), both located in adjacent North Brooklyn neighbourhoods.
Other properties written up during the year include: Flatbush Portfolio (4
cents), Design District (2 cents) and Esperante Corporate Center (3 cents).
These increases were offset by decreases at our Bedford Avenue property (3
cents), Fulton Assemblage (13 cents), Williamsburg Retail Assemblage (7 cents)
and Wynwood Portfolio (7 cents). While properties are written up or down based
on newly received appraisals, factors that include fluctuations in balance
sheet items at the property level, particularly regarding senior mortgages on
the properties, can drive JZCP's equity value in the properties up or down as
well.
Returns
The chart below summarises the cumulative NAV per share total returns and total
shareholder returns for the most recent three-month, twelve-month, three-year,
four-year and five-year periods.
28.2.2017 30.11.2016 29.2.2016 28.2.2014 28.2.2013 29.2.2012
Share price (in GBP) £5.38 £5.07 £3.97 £4.45 £5.00 £3.66
NAV per share (in $10.12 $10.13 $10.15 $10.25 $9.69 $9.47
USD)
NAV to market price 34% 37% 46% 27% 22% 38%
discount
3 month 1 year 3 year 4 year 5 year
return return return return return
Dividends paid (in $0.305 $0.95 $1.245 $1.570
USD) -
Total Shareholders' 6.1% 42.8% 39.9% 29.4% 86.3%
return1
Total NAV return per -0.1% 2.7% 8.5% 25.3% 76.7%
share1
1Total returns are cumulative and assume that dividends were reinvested.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography, with 33 US and
European micro-cap investments across nine industries and four primary real
estate "assemblages" (59 total properties) located in Brooklyn, New York and
South Florida. The portfolio continues to become more diversified
geographically across Western Europe with investments in Spain, Italy,
Luxembourg, Scandinavia and the UK. It's also important to note that 35% of our
investment portfolio is less than three years old.
Below is a summary of JZCP's assets and liabilities at 28 February 2017 as
compared to 29 February 2016. An explanation of the changes in the portfolio
follows:
28.2.2017 29.2.2016
US$'000 US$'000
US micro-cap portfolio 423,137 386,173
European micro-cap portfolio 154,277 168,797
Real estate portfolio 468,599 366,158
Other investments 23,167 64,320
Total Private Investments 1,069,180 985,448
Listed corporate bonds - 13,036
UK treasury gilts - 45,608
Cash 29,063 91,937
Total Listed Investments and Cash 29,063 150,581
Other assets 520 3,551
Total Assets 1,098,763 1,139,580
Zero Dividend Preferred shares 53,935 101,617
Convertible Unsecured Loan Stock 57,063 59,573
Loans payable 97,396 97,011
Other payables 41,525 29,640
Total Liabilities 249,919 287,841
Total Net Assets 848,844 851,739
In April 2017, JZCP increased its loan facility with Guggenheim Partners from
approximately $100 million to $150 million. The purpose of this increase in
borrowings is to provide additional liquidity to JZCP in order to bridge
certain planned realisations. The entire $150 million facility may be repaid,
in whole or in part, with no penalty after June 2017.
US Micro-Cap Portfolio
Our US micro-cap portfolio performed well over the past year, with further
progress made in new investments and realisations. As described earlier in the
NAV section, the US micro-cap portfolio had a net increase of 38 cents per
share, primarily due to net accrued income of 19 cents and increased earnings
at our Healthcare Revenue Cycle Management vertical (32 cents).
Our US portfolio is grouped into industry verticals where we are continuing our
strategy of consolidating businesses under industry executives who can add
value via organic growth and cross company synergies. In addition, we made a
number of acquisitions in our verticals during the period.
New US investments - Verticals
Vertical Number of JZCP Investment $millions
Acquisitions
Industrial Service Solutions 5 No cash required from JZCP
Healthcare Revenue Cycle Management 3 1.4
Testing services 2 0.5
Total 10 1.9
New US investments - Co-investments
Portfolio Company New / Follow-on JZCP Investment $millions
Peaceable Street Capital Follow-on 21.3
Jordan Health Products New/Follow-on 13.5
George Industries New 12.6
Orizon Follow-on 8.6
Southern Petroleum Laboratories Follow-on 0.4
New Vitality Follow-on 0.2
56.6
Case Study: Recent US Strategic Build-up
Bolder Healthcare Solutions ("BHS") is a build-up of businesses in the Revenue
Cycle Management ("RCM") industry, focusing on hospitals and physician offices.
BHS helps these entities manage their receivables portfolio, from assisting in
pre-admission insurance coverage to helping with bad debt expenses. The
industry is changing rapidly, with the continued modification of rules and
regulations due to Obamacare, and other potential policy changes. BHS focuses
on second-tier hospitals and physician offices in order to achieve the high
EBITDA margins it has exhibited to date.
The company was formed in July 2012, with the purchase of a pre-admission
insurance qualification business. Starting with approximately $15 million of
revenue and $4.3 million of EBITDA, BHS has grown via acquisitions and organic
growth to $194 million and $40.3 million of "run-rate" revenue and EBITDA,
respectively. The company continues to show very positive earnings momentum, as
revenues and EBITDA margins improve.
Management
BHS is managed by Mike Shea, a seasoned veteran in the RCM industry, who
managed a similar build-up in the past, which was sold in 2008 for a 4.2x
multiple of capital invested. Mike has brought most of his previous team with
him, who are responsible for managing and growing the business. The sales team
have been heavily involved in the integration of the nine acquisitions made to
date, from both a "front office" and "back office" perspective.
European Micro-Cap Portfolio
The European micro-cap portfolio had another strong year of growth, posting a
net increase of 12 cents, primarily due to accrued income of 6 cents and a
write-up at our online German bank, Fidor Bank (5 cents), which was sold to a
French banking conglomerate during the year. Other assets written up due to
increased earnings include Petrocorner (2 cents), our petrol station build-up
in Spain, and Winn (1 cent), our UK legal claims business (which was realized
during the year).
JZCP invests in the European micro-cap sector through its 75% ownership of
EuroMicrocap Fund 2010, L.P. ("EMC") and its 18.8% ownership of JZI Fund III,
L.P. ("Fund III"). As you may recall, JZAI has offices in London and Madrid and
an outstanding team with over fifteen years of experience investing together in
European micro-cap deals.
As of 28 February 2017, EMC held two investments in Spain: Factor Energia and
Oro. Fund III held seven investments: two in Spain, two in Scandinavia, and one
each in the UK, Italy and Luxembourg. JZCP held direct loans to a further four
companies in Spain: Ombuds, Docout, Xacom and Toro Finance.
Recent events
Following the receipt of regulatory approval in August 2016, JZCP closed the
sale of its stake in Newcastle-based UK legal services firm Winn (held through
EMC) to a major financial institution, receiving net sale proceeds of $21.9
million, having first invested $14.8 million in August 2013, approximately a
gross 1.5x multiple of invested capital over three years.
JZCP sold its interest in Fidor Bank ("Fidor") to Groupe BPCE, the second
largest banking group in France. The transaction closed in December 2016. JZCP
invested a total of $13.8 million and is expected to receive total gross
proceeds of approximately $25 million from the sale, approximately a gross 1.8x
multiple of invested capital over four years. JZCP received its first tranche
of proceeds totalling $12.5 million in March 2017.
Real Estate Portfolio
Our real estate portfolio has continued to perform exceptionally well. As of 28
February 2017, JZCP had more than $343.5 million invested in a portfolio of
retail, office and residential properties in Brooklyn, New York and South
Florida that is valued at $468.6 million as of the same date. We have made
these investments in partnership with RedSky Capital, a team with significant
experience in the sector.
During the period, JZCP, together with RedSky, acquired eight properties. Since
we began investing with RedSky in April 2012, we have acquired a total of 59
properties, all currently in various stages of development and re-development.
The real estate portfolio had a net increase of 25 cents, led by write-ups at
our Roebling Portfolio property (25 cents) and our Greenpoint property (21
cents), both located in adjacent North Brooklyn neighbourhoods. Other
properties written up during the year include: Flatbush Portfolio (4 cents),
Design District (2 cents) and Esperante Corporate Center (3 cents). While
properties are written up or down based on newly received appraisals, factors
that include fluctuations in balance sheet items at the property level,
particularly regarding senior mortgages on the properties, can drive JZCP's
equity value in the properties up or down as well.
Real Estate Acquisitions in Year
Geography Number of JZCP Investment $millions
Acquisitions
Brooklyn, New York 3 17.8
South Florida 5 46.4
Follow-ons and - 25.3
expenses
8 89.5
Case study - Esperante Corporate Center
In July 2016, JZCP acquired Esperante Corporate Center ("Esperante") a trophy
office building in West Palm Beach, Florida. With 17 floors across more than
250,000 square feet of office and retail space, Esperante is a permanent
fixture in the Downtown West Palm Beach skyline and one of only three existing
trophy office buildings in the market.
We are currently pursuing re-leasing 25% of the most desirable office space at
Esperante which is coming available within 24 months. In the effort to
establish Esperante as the most attractive office building in the marketplace,
we are repositioning the ground floor retail area of the building, renovating
the lobby and valet parking area, and creating a unique restaurant and rooftop
bar. So far, we have begun signing office leases at what we believe are the
highest per square foot rents achieved in West Palm Beach to date.
Other Investments
Our asset management business in the US, Spruceview Capital Partners, addresses
the growing demand from corporate pensions, endowments, family offices and
foundations for fiduciary management services through an Outsourced Chief
Investment Officer ("OCIO") model. Spruceview has a robust pipeline of
opportunities and continues to provide investment oversight to the pension fund
of a Canadian subsidiary of an international confectionary company, as well as
a European private credit fund-of-funds tailored to the clients of an
international multi-family office.
As previously reported, Richard Sabo, former Chief Investment Officer of Global
Pension and Retirement Plans at JPMorgan and a member of that firm's executive
committee, is leading a team of 12 senior investment, business development,
legal and operations professionals.
Realisations
Proceeds
Investment Type Portfolio ($
millions)
Bright Spruce Fund Liquidation Other investments 44.5
Medplast Sale US micro-cap 25.6
Winn Sale European micro-cap 21.9
Water Vertical Refinancing US micro-cap 10.2
SPL Sale US micro-cap 8.4
Redbridge Bedford Refinancing Real estate 5.3
Metpar Sale Other investments/ 3.1
mezzanine
Dental Services Escrow US micro-cap 3.1
Other minor refinancings, escrow receipts and distributions 9.3
Total Realisations 131.4
Outlook
We remain committed to pursuing our value-added investment strategy across
several asset classes and will be highly focused over the next two years on
identifying and realizing value from our portfolio companies. We believe it is
an opportune time to be a seller in the US and we want to take advantage of the
buoyant market, which will in turn provide more liquidity for us to invest in
our growing pipeline of attractive opportunities.
We are pleased with the performance of our three major asset classes - US
micro-cap, European micro-cap and US real estate - and we anticipate further
asset growth during the fiscal period. As you know, we have been building an
asset management business, Spruceview, from scratch with an excellent
management team - we think 2017-2018 will be a year where the fruits of the
team's labour will show great progress.
We are excited about JZCP's prospects, and following the formal shareholder
vote, let us say thank you for supporting the change in the dividend policy and
associated proposals. We believe our investment portfolio, whether directly
buying businesses or through purchasing our stock at a deep discount, will
provide JZCP shareholders with superior investment returns.
As always, we thank you for your continued support in our investment strategy.
Please feel free to contact us with any ideas that might be beneficial to JZCP.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
16 May 2017
Investment Portfolio
Historical Carrying Percentage
Value of
portfolio
Book 28 February
cost 2017
US$'000 US$'000 %
US Micro-cap portfolio
US Micro-cap (Verticals)
Industrial Services Solutions(4)
INDUSTRIAL SERVICES SOLUTIONS ("ISS")
A combination of twenty five acquired
businesses in the industrial maintenance,
repair and service industry
Total Industrial Services Solutions valuation 33,257 83,754 7.8
Healthcare Revenue Cycle Management (4)
BHS HOSPITAL SERVICES 0.0
Provider of outsourced revenue cycle
management solutions to hospitals. BHS
Hospital Services, Inc., which owns Bolder
Outreach Services (formerly known as Monti
Eligibility & Denial Solutions), Receivables
Outsourcing, Inc. and Avectus Healthcare
Solutions, LLC is a subsidiary of Bolder
Healthcare Solutions, LLC
BHS PHYSICIAN SERVICES 0.0
Provider of outsourced revenue cycle
management solutions to physician groups. BHS
Physician Services, Inc., which owns Bodhi
Tree Group and PPM Information Solutions,
Inc. is a subsidiary of Bolder Healthcare
Solutions, LLC
Total Healthcare Revenue Cycle Management 30,327 67,418 6.3
valuation
Testing Services(4)
ARGUS GROUP HOLDINGS
Sells, rents and services safety and testing
equipment to a variety of industries. Argus
Group Holdings is a subsidiary of Testing
Services Holdings
Total Testing Services Vertical valuation 11,174 10,311 1.0
Water Services(4)
TWH INFRASTRUCTURE INDUSTRIES, INC.
Environmental infrastructure company that
provides technology to facilitate repair of
underground pipes and other infrastructure.
TWH Infrastructure Industries, Inc., which
owns LMK Enterprises, Perma-Liner Industries
and APMCS is a subsidiary of Triwater
Holdings
TWH WATER TREATMENT INDUSTRIES, INC.
Provider of water treatment supplies and
services. TWH Water Treatment Industries,
Inc., which owns Nashville Chemical &
Equipment and Klenzoid Canada Company/Eldon
Water, Inc., is a subsidiary of Triwater
Holdings
TWH FILTRATION INDUSTRIES, INC.
Supplier of parts and filters for
point-of-use filtration systems, which owns
Paragon Water Systems, is a subsidiary of
Triwater Holdings
Total Water Services Vertical valuation 24,730 31,965 3.0
Total US Micro-cap (Verticals) 99,488 193,448 18.1
GEORGE INDUSTRIES 12,639 12,637 1.2
Manufacturer of highly engineered, complex
and high tolerance products for the
aerospace, transportation, military and
other industrial markets
IGLOO PRODUCTS CORP(4) 6,040 6,039 0.5
Designer, manufacturer and marketer of
coolers and outdoor products
ILLUMINATION INVESTMENTS, LLC(4) 4,920 1,930 0.2
Designer and manufacturer of LED lights and
lighting systems
JORDAN HEALTH PRODUCTS, LLC 31,529 31,529 2.9
Provider of new and professionally
refurbished healthcare equipment
K2 TOWERS, LLC 20,900 19,462 1.8
Acquirer of wireless communication towers
NEW VITALITY HOLDINGS, INC.(4) 3,497 3,870 0.4
Direct-to-consumer provider of nutritional
supplements and personal care products.
PEACEABLE STREET CAPITAL, LLC 25,000 24,632 2.3
Specialty finance platform focused on
commercial real estate
VITALYST(4) 9,020 8,192 0.8
Provider of outsourced IT support and
training services
SALTER LABS, INC.(4) 16,762 21,413 2.0
Developer and manufacturer of respiratory
medical products and equipment for the
homecare, hospital, and sleep disorder
markets
SUZO HAPP GROUP(4) 2,572 11,700 1.1
Designer, manufacturer and distributor of
components for the global gaming, amusement
and industrial markets
ORIZON(4) 15,843 15,843 1.5
Manufacturer of high precision machine parts
and tools for aerospace and defence
industries
TIERPOINT, LLC(4) 44,313 46,813 4.4
Provider of cloud computing and collocation
data centre services
Total US Micro-cap (Co-investments) 193,035 204,060 19.1
US Micro-cap (Other)
HEALTHCARE PRODUCTS HOLDINGS, INC.(1),(3) 17,636 -
-
Designer and manufacturer of motorised
vehicles
NATIONWIDE STUDIOS, INC. 21,907 9,952 0.9
Processer of digital photos for preschoolers
2,644 6,731 0.6
NIELSEN-KELLERMAN
Designer and manufacturer of weather, wind
and timing measurement instruments and
devices. Nielsen-Kellerman is a subsidiary
of Sensors Solutions Holdings
13,200 8,946 0.9
PRIORITY EXPRESS, LLC
Provider of same day express courier
services to various companies located in
north-eastern USA. Priority Express is a
subsidiary of US Logistics, LLC
Total US Micro-cap (Other) 55,387 25,629 2.4
Total US Micro-cap portfolio 347,910 423,137 39.6
European Micro-cap portfolio
19,005 21,433 2.0
EUROMICROCAP FUND 2010, L.P.
At 28 February 2017, held the proceeds
pending distribution from the sale of Fidor
Bank
EUROMICROCAP FUND-C, L.P. 13,937 61,482 5.8
At 28 February 2017, was invested in two
companies in the European micro-cap sector:
Factor Energia and Oro Direct
JZI Fund III, L.P. 24,156 26,779 2.5
At 28 February 2017, was invested in seven
companies in the European micro-cap sector:
Petrocorner, Fincontinuo, S.A.C, Collingwood,
My Lender, Alianzas en Acero and ERSIndstries
Lux S.a.r.l.
Direct Investments
DOCOUT, SL 2,777 2,990 0.3
Provider of digitalisation, document
processing and storage services
GRUPO OMBUDS 17,155 20,250 1.9
Provider of personal security and asset
protection
TORO FINANCE 21,619 18,249 1.7
Provides short term receivables finance to
the suppliers of major Spanish companies
XACOM COMUNICACIONES SL 2,055 3,094 0.3
Supplier of telecom products and technologies
Total European Micro-cap portfolio 100,704 154,277 14.5
Real Estate
JZCP REALTY FUND(2) 343,507 468,599 43.8
Facilitates JZCP's investment in US real
estate
Total Real Estate portfolio 343,507 468,599 43.8
Other investments
BRIGHT SPRUCE FUND, L.P. 5,463 4,500 0.4
Fund investing in marketable equity, fixed
income and alternative asset classes
BSM ENGENHARIA S.A. 6,115 459 -
Brazilian-based provider of supply chain
logistics, infrastructure services and
equipment rental
INDUSTRIAL PERFORMANCE SOLUTIONS(4) 332 429 -
Acquirer of companies providing mission
critical inspection services for a variety of
industries
JZ INTERNATIONAL, LLC(3) - 750 0.1
Fund of European LBO investments
MODJ, LLC(4) 208 279 -
Acquirer of speciality retail companies
located in the centre of shopping malls
SPRUCEVIEW CAPITAL, LLC 21,010 16,093 1.5
Asset management company focusing primarily
on managing endowments and pension funds
US SANITATION, LLC(4) 425 657 0.1
Acquirer of janitorial and sanitorial product
distributors and related chemical
manufacturers and blenders
Total Other investments 33,553 23,167 2.1
Total - portfolio 825,674 1,069,180 100.0
(1) Original book cost incurred by JZEP/JZCP adjusted for subsequent
transactions. The book cost represents cash outflows and excludes PIK
investments.
(2) JZCP owns 100% of the shares and voting rights of JZCP Realty Fund, Ltd.
(3) Legacy Investments. Legacy investments are excluded from the calculation of
capital and income incentive fees.
(4) Co-investment with Fund A, a Related Party (Note 23).
Board of Directors
David Macfarlane (Chairman)1
Mr Macfarlane was appointed to the Board of JZCP in April 2008 as Chairman and
a non-executive Director. Until 2002 he was a Senior Corporate Partner at
Ashurst. He was a non-executive director of the Platinum Investment Trust Plc
from 2002 until January 2007.
Patrick Firth2
Mr Firth was appointed to the Board of JZCP in April 2008. He is also a
director of a number of offshore funds and management companies, including DW
Catalyst Limited Fund (formerly "BH Credit Catalysts Limited"), ICG- Longbow
Senior Secured UK Property Debt Investments Limited, Riverstone Energy Limited
and NextEnergy Solar Fund Limited. He is Chairman of GLI Finance Limited. He is
a member of the Institute of Chartered Accountants in England and Wales and The
Chartered Institute for Securities and Investment. He is a resident of
Guernsey.
James Jordan
Mr Jordan is a private investor who was appointed to the Board of JZCP in 2008.
He is a director of the First Eagle family of mutual funds, and of Alpha
Andromeda Investment Trust Company, S.A. Until 30 June 2005, he was the
managing director of Arnhold and S. Bleichroeder Advisers, LLC, a privately
owned investment bank and asset management firm; and until 25 July 2013, he was
a non-executive director of Leucadia National Corporation. He is a Trustee and
Vice Chairman of the World Monuments Fund, and serves as an Overseer of the
Gennadius Library of the American School of Classical Studies in Athens, and as
a Director of Pro Natura de Yucatan.
Tanja Tibaldi
Ms Tibaldi was appointed to the Board of JZCP in April 2008. She was on the
board of JZ Equity Partners Plc from January 2005 until the company's
liquidation on 1 July 2008. She was managing director at Fairway Investment
Partners, a Swiss asset management company where she was responsible for the
Group's marketing and co-managed two fund of funds. Previously she was an
executive at the Swiss Stock Exchange and currently serves on the board of
several private companies.
Christopher Waldron
Mr Waldron was appointed to the Board of JZCP in 2013. He has more than thirty
years' experience as an asset manager and is a director of a number of listed
companies, including DW Catalyst Fund Limited and Crystal Amber Fund Limited.
He is Chairman of UK Mortgages Limited and Ranger Direct Lending Fund PLC. He
was Chief Executive of the Edmond de Rothschild companies in Guernsey until
2013, when he stepped down to concentrate on non-executive work and investment
consultancy. He is a member of the States of Guernsey's Investment and Bond
Management Sub-Committee and a Fellow of the Chartered Institute for Securities
and Investment. Mr Waldron is a Guernsey resident.
1Chairman of the nominations committee of which all Directors are members.
2Chairman of the audit committee of which all Directors are members.
Report of the Directors
The Directors present their annual report together with the audited financial
statements of JZ Capital Partners ("JZCP" or the "Company") for the year ended
28 February 2017.
Principal Activities
JZ Capital Partners Limited is a closed-ended investment company with limited
liability which was incorporated in Guernsey on 14 April 2008 under The
Companies (Guernsey) Law, 1994. The Company is subject to The Companies
(Guernsey) Law, 2008. The Company's Capital consists of Ordinary shares, Zero
Dividend Preference ("ZDP") shares and Convertible Unsecured Loan Stock
("CULS"). The Company's Ordinary shares, ZDP Shares and CULS are traded on the
London Stock Exchange's Specialist Fund Segment.
The Company's objective is to create a portfolio of investments providing a
superior overall return comprised of a current yield and significant capital
appreciation.
The Company's Investment Policy is to target predominantly private investments,
seeking to back exceptional management teams to deliver on attractive
investment propositions. In executing strategy, the Company takes a long term
view. The Company seeks to invest directly in its target investments, although
it may also invest through other collective investment vehicles. The Company
may also invest in listed investments, whether arising on the listing of its
private investments or directly.
The Company is focused on investing in the following areas:
(a) small or micro-cap buyouts in the form of debt and equity and
preferred stock in both the US and Europe; and
(b) real estate interests.
The Investment Adviser takes a dynamic approach to asset allocation and, though
it doesn't expect to, in the event that the Company were to invest 100% of
gross assets in one area, the Company will, nevertheless always seek to
maintain a broad spread of investment risk. Exposures are monitored and managed
by the Investment Adviser under the supervision of the Board.
The Investment Adviser is able to invest globally but with a particular focus
on opportunities in the United States and Europe.
Business Review
The total profit attributable to Ordinary shareholders for the year ended 28
February 2017 was $22,697,000 (year ended 29 February 2016: profit of
$51,594,000). The revenue return for the year was $5,612,000 (year ended 29
February 2016:$10,004,000), after charging directors fees and administrative
expenses of $2,550,000 (year ended 29 February 2016:$2,713,000) and Investment
Adviser's base fee of $16,865,000 (year ended 29 February 2016:$15,510,000).
The net asset value ("NAV") of the Company at the year end was $848,844,000 (29
February 2016: $851,739,000) equal to $10.12 (29 February 2016: $10.15) per
Ordinary share.
For the year ended 28 February 2017, the Company had $9,239,000 of cash
outflows resulting from operating activities (year ended 29 February 2016:
outflows of $24,681,000).
A review of the Company's activities and performance is detailed in the
Chairman's Statement and the Investment Adviser's Report. The valuation of the
unlisted investments are detailed in the Investment Portfolio section.
Dividends
Post year end, the dividend policy of distributing approximately 3% of the
Company's net assets in the form of dividends was discontinued. Shareholder
approval was received to adopt a new strategy where purchases by the Company of
its Ordinary Shares may be undertaken when opportunities in the market permit,
and as the Company's cash resources allow.
For the year ended 28 February 2017 an interim dividend of 15.5 cents per
Ordinary share (total $13,006,000) was declared by the Board on 25 October 2016
and paid on 25 November 2016. No second interim dividend will be paid.
Directors
The Directors listed below are all independent and non-executive, they have
served on the Board throughout the year and were in office at the end of the
year and subsequent to the date of this report. The biographical details of the
Directors are shown in the Board of Directors section.
David Macfarlane (Chairman)
Patrick Firth
James Jordan
Tanja Tibaldi
Christopher Waldron
Annual General Meeting
The Company's Annual General Meeting is due to be held on 27 June 2017.
Stated Capital, Purchase of own Shares and Convertible Unsecured Loan Stock
"CULS"
Details of the ZDP shares and the Ordinary shares can be found in Notes 15 and
18. During the year, the Company did not buy back any of its own shares.
Details of the CULS can be found in Note 14.
The beneficial interests of the Directors in the Ordinary shares of the Company
are shown below:
Number of Ordinary shares Number of
Ordinary purchased in year Ordinary
shares at shares at
1 March 28 February
2016 2017
David Macfarlane 74,800 74,800
-
Patrick Firth 5,440 5,440
-
James Jordan 40,800 40,800
-
Tanja Tibaldi 2,720 2,720
-
Christopher Waldron 2,720 1,280 4,000
126,480 1,280 127,760
The beneficial interests of the Directors in the CULS of the Company are shown
below (no change from 29 February 2016 position):
Number of
CULS of £10
nominal
value at 28
February
2017
David Macfarlane 734
Patrick Firth 734
Tanja Tibaldi 367
1,835
None of the Directors held any interest in the Zero Dividend Preference shares
during the year. There have been no changes in the Directors' interests between
28 February 2017 and the date of this report.
Substantial Shareholders
As at 28 February 2017, the Company has been notified in accordance with
applicable listing rules of the following interests of 5% or more of the total
Ordinary share capital of the Company (the Company is unaware of any
significant changes to below holdings at the date of signing this report) :
As at 28 February 2017
Ordinary % of Ordinary
shares shares
Edgewater Growth Capital Partners 18,335,944 21.9%
L.P.
David W. Zalaznick 10,550,294 12.6%
John W. Jordan II & Affiliates 10,550,294 12.6%
Leucadia Financial Corporation 8,021,552 9.6%
Abrams Capital Management L.P. 7,744,366 9.2%
Finepoint Capital L.P. 4,432,818 5.5%
First Eagle Investment Management 4,391,275 5.2%
LLC
The percentage of Ordinary shares shown above represents the ownership of
voting rights at the year end, before weighting for votes on Directors.
It is the responsibility of the shareholders to notify the Company of any
change to their shareholdings when it reaches 5% of shares in issue and any
subsequent change when the shareholding increases or decreases by a further 5%
(up to 30% of shares in issue i.e. 10%, 15%, 20%, 25% and 30%) and thereafter
50% and 75%.
Ongoing Charges
Ongoing charges for the years ended 28 February 2017 and 29 February 2016 have
been prepared in accordance with the Association of Investment Companies
("AIC") recommended methodology. The ongoing charges ratio represents
annualised recurring operational expenses as a percentage of the average net
asset value. The Ongoing charges for the year ended 28 February 2017 were 2.3%
(29 February 2016: 2.4%) excluding incentive fees of 1.4% (29 February 2016:
2.1%).
Principal Risks and Uncertainties
The Company's Board believes the principal risks and uncertainties that relate
to an investment in JZCP are as follows:
NAV Factors
(i) Macroeconomic Risks
The Company's performance, and underlying NAV, is influenced by economic
factors that affect the demand for products or services supplied by investee
companies and the valuation of Real Estate interests held. Economic factors
will also influence the Company's ability to invest and realise investments and
the level of realised returns. Approximately 15% of the Company's investments
are denominated in non-US dollar currencies, primarily the euro. Also the
Company has issued debt denominated in non-US dollar currencies, primarily
sterling. Fluctuations to these exchange rates will affect the NAV of the
Company.
(ii) Underlying Investment Performance
The Company is reliant on the Investment Adviser to source and execute suitable
investment opportunities. The Investment Adviser provides to the Board an
explanation of all investment decisions and also quarterly investment reports
and valuation proposals of investee companies. The Board reviews investment
performance quarterly and investment decisions are checked to ensure they are
consistent with the agreed long term investment strategy.
Portfolio Liquidity
The Company invests predominantly in unquoted companies. Therefore this
potential illiquidity means there can be no assurance investments will be
realised at their latest valuation. The Board considers this illiquidity when
planning to meet its future obligations, whether committed investments or the
repayment of debt facilities or the future repayment of CULS and ZDP shares. On
a quarterly basis, the Board receives from the Investment Adviser and reviews a
working capital model produced by the Investment Adviser which highlights the
Company's projected liquidity and financial commitments.
Share Price Trading at Discount to NAV
JZCP's share price is subject to market sentiment and will also reflect any
periods of illiquidity when it may be difficult for shareholders to realise
shares without having a negative impact on share price. The Directors review
the share price in relation to Net Asset Value on a regular basis and determine
whether to take any action to manage the discount. The Directors with the
support of the Investment Adviser work with brokers to maintain interest in the
Company's shares through market contact and research reports.
Operational and Personnel
Although the Company has no direct employees, the Company considers what
dependence there is on key individuals within the Investment Adviser and
service providers that are key to the Company meeting its operational and
control requirements.
The Board considers the principal risks and uncertainties above are consistent
with the prior year and the Company's exposure to these risks is neither
greater nor any less than in May 2016.
Viability Statement
In accordance with the UK Corporate Governance Code (the "UK Code") the Board
has assessed the expectations that the Company will be able to continue in
operation and meet ongoing debt obligations. In order to make the assessment
the Board has carried out a robust review of the Company's principal risks and
uncertainties, as noted above, to which the Company is exposed and that
potentially threaten future performance and liquidity and has assessed the
Company's current position and prospects as detailed in the Chairman's
statement and Investment Adviser's report. The period covered by the viability
statement is the next three financial years to 29 February 2020.
The Board believes that a viability assessment of three years aligns with the
Company's review of working capital models provided by the Investment Adviser
which detail expected investment activity and estimated liquidity over a three
year period. The Board also considers the underlying investment portfolio,
which consists primarily of unlisted micro-cap businesses and real estate
investments which are not publicly traded. Micro-cap investments are held for
the medium term, typically a period of 3 to 5 years and it is anticipated real
estate developments will take a similar time frame to realise returns.
The Board will continue to review the period of assessment on an annual basis
and may in future years extend the period if it is considered appropriate.
Factors considered whilst reviewing the Company's future prospects and
viability, include:
Financing obligations
The Company has obligations to repay loan debt in June 2021, the balance
outstanding to Guggenheim Partners at 28 February 2017 was $97.4 million, and
post year end the credit facility has been extended by a further $50 million.
It is expected the debt facility will be repaid from the proceeds of
realisations and refinancing of investments. The Company will potentially
redeem CULS in July 2021 amounting to £38.9 million, assuming holders of CULS
do not convert their holdings to equity. JZCP is due to redeem £57.6 million of
ZDP shares on 1 October 2022, again it is expected the redemption of both CULS
and ZDPs will be met from the proceeds of realisations and refinancing of
investments. At 28 February 2017, the Company had outstanding investment
commitments of $76.8 million (29 February 2016: $115.1 million). The Board
will continue to consider the Company's position in meeting debt obligations
and commitments falling outside the three year review and will continue to
consider appropriate gearing levels to enable the financing of debt and ongoing
investment/operating activities. During the year ended 28 February 2017, the
Company redeemed £32.9 million of ZDP shares on their redemption date.
Investment performance and liquidity
The Board reviews, on a quarterly basis, the valuation and prospects of all
underlying investee companies. The Board is confident that the diversity of the
portfolio and ability of the Investment Adviser to select suitable investment
opportunities will negate the risk of a significant fall in NAV, similar to the
one the Company suffered during the financial crisis of 2008 which saw a
reduction in NAV for the 7 month period ended 28 February 2009 of approximately
30%. Whilst a similar fall in NAV would not directly threaten the Company's
viability the Board is mindful that in a similar financial environment, the
Company will be exposed to a possible lack of liquidity due to the difficulty
in realising investments and the possibility of investments defaulting on
interest obligations to the Company. JZCP has had realisations over the last 3
financial years that have averaged cash inflows of $217 million per annum and
has invested an average of $231 million per annum over the same period. The
Board's current view is that whilst a reduction in realisations may curtail
scope of future investment opportunities, cash inflows will be sufficient to
enable the Company to meets its investment and operational obligations.
Mitigation of risk as outlined in the Principal Risks and Uncertainties.
The Board is confident the performance of the Company over the period of review
will be robust and the investment strategy will deliver returns and liquidity.
Therefore the Board has been able to form a reasonable expectation that the
Company will continue in operation and meet its liabilities as they fall due
over the next three financial years.
Going Concern
The Board considers that the Company has adequate financial resources, in view
of its cash balances and cash equivalents and liquid investments and the income
streams deriving from its investments and believes that the Company is well
placed to manage its business risks successfully to continue in operational
existence for a period of at least 12 months from signing of the financial
statements and that it is appropriate to prepare the financial statements on
the going concern basis.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and Consolidated
Financial Statements in accordance with applicable Guernsey Law and generally
accepted accounting principles. Guernsey Company Law requires the Directors to
prepare financial statements for each financial year which give a true and fair
view of the state of affairs of the Company as at the end of the financial year
and of the profit or loss for that year. They are also responsible for ensuring
that the Annual Report, Financial Statements, and Company comply with the
provisions of the Listing Rules, Disclosure Rules, and Transparency Rules of
the UK Listing Authority which, with regard to corporate governance, require
the Company to disclose how it has applied the principles, and complied with
the provisions, of the corporate governance code applicable to the Company.
In preparing Financial Statements the Directors are required to:
* select suitable accounting policies and apply them consistently;
* make judgements and estimates that are reasonable and prudent;
* state whether applicable accounting standards have been followed, subject
to any material departures disclosed and explained in the Financial
Statements;
* prepare the Financial Statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business;
* confirm that there is no relevant audit information of which the Company's
Auditor is unaware; and
* confirm that they have taken all reasonable steps which they ought to have
taken as Directors to make themselves aware of any relevant audit
information and to establish that the Company's Auditor is aware of that
information.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements have been
properly prepared in accordance with the Companies (Guernsey) Law, 2008 and
International Financial Reporting Standards as adopted by the European Union
("IFRS"). They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
The Directors confirm that they have complied with these requirements in
preparing the Financial Statements.
Responsibility Statement of the Directors in respect of the Financial
Statements
The Directors confirm that to the best of their knowledge:
- the Financial Statements have been prepared in accordance with IFRS and give
a true and fair view of the asset, liabilities and financial position, and
profit or loss of the Company;
- the Annual Report includes a fair review of the development and performance
of the business and position of the Company together with the description of
the principal risks and uncertainties that the Company faces, as required by
the Disclosure and Transparency Rules of the UK Listing Authority; and
- the Directors confirm that the Annual Report and Financial Statements, taken
as a whole, is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Company's performance and strategy.
Directors' Statement
So far as each of the Directors is aware, there is no relevant audit
information of which the Company's auditor is unaware, and each Director has
taken all the steps they ought to have taken as a Director to make themselves
aware of any relevant audit information and to establish that the Company's
auditor is aware of that information.
Approved by the Board of Directors and agreed on behalf of the Board on 16 May
2017.
David Macfarlane
Chairman
Patrick Firth
Director
Corporate Governance
Introduction
The Board of JZ Capital Partners Limited has considered the principles and
recommendations of the AIC Code of Corporate Governance published in February
2015 (the "AIC Code"). The AIC Code addresses all the principles set out in the
UK Corporate Governance Code (the "UK Code"), as well as setting out additional
principles and recommendations on issues that are of specific relevance to JZ
Capital Partners Limited. The AIC Code can be found at www.theaic.co.uk and the
UK Code can be found at. www.frc.org.uk.
The Company is a member of the Association of Investment Companies (the "AIC")
and by complying with the AIC Code of Corporate Governance ("AIC Code") is
deemed to comply with both the UK and Guernsey Codes of Corporate Governance.
The Board considers that reporting against the principles and recommendations
of the AIC Code, and by reference to the AIC Guide (which incorporates the UK
Corporate Governance Code), will provide better information to shareholders. To
ensure ongoing compliance with these principles the Board receives and reviews
a report from the Corporate Secretary, at each quarterly meeting, identifying
how the Company is in compliance and identifying any changes that might be
necessary.
Throughout the accounting period the Company has complied with the
recommendations of the AIC Code and thus the relevant provisions of the UK
Corporate Governance Code, except as set out below.
The UK Corporate Governance code includes provisions relating to:
- the role of the chief executive
- executive directors remuneration
- the need for an internal audit function
- appointment of a senior independent director
- whistle blowing policy
The Board considers these provisions are not relevant to the position of JZ
Capital Partners Limited, being an externally managed investment company. The
Company has therefore not reported further in respect of these provisions. The
Directors are non-executive and the Company does not have employees, hence no
whistle blowing policy is required. However the Directors have satisfied
themselves that the Company's service providers have appropriate whistle
blowing policies and procedures and have received confirmation from the service
providers that nothing has arisen under those policies and procedures which
should be brought to the attention of the Board. There have been no other
instances of non-compliance, other than those noted above.
Guernsey Code of Corporate Governance
The Guernsey Financial Services Commission's (GFSC) "Finance Sector Code of
Corporate Governance" (Guernsey Code) came into effect on 1 January 2012. The
introduction to the Guernsey Code states that companies which report against
the UK Corporate Governance Code or the AIC's Code of Corporate Governance are
deemed to meet the Guernsey Code.
The Board
Corporate Governance of JZCP is monitored by the Board which at the end of the
year comprised five Directors, all of whom are non-executive. Biographical
details of the Board members at the date of signing these Financial Statements
are shown on the Board of Directors section and their interests in the shares
of JZCP are shown in the Report of the Directors. The Directors' biographies
highlight their wide range of business experience.
The Board considers that all of the Directors are independent of the Investment
Adviser. The Board considers the Directors are free from any business or other
relationship that could materially interfere with the exercise of their
independent judgment. The Board reviews the independence of the Directors at
least annually.
Proceedings of the Board
The Directors have overall responsibility for the Company's activities and the
determination of its investment policy and strategy. The Company has entered
into an investment advisory and management agreement with its Investment
Adviser, JZAI, pursuant to which, subject to the overall supervision of the
Directors, the Investment Adviser acts as the investment manager to the Company
and manages the investment and reinvestment of the assets of the Company in
pursuit of the investment objective of the Company and in accordance with the
investment policies and investment guidelines from time to time of the Company
and any investment limits and restrictions notified by the Directors (following
consultation with the Investment Adviser). Within its strategic
responsibilities the Board regularly considers corporate strategy as well as
dividend policy, the policy on share buy backs and corporate governance issues.
The Directors meet at least quarterly to direct and supervise the Company's
affairs. This includes reviewing the investment strategy, risk profile, gearing
strategy and performance of the Company and the performance of the Company's
functionaries, and monitoring compliance with the Company's objectives.
The Directors visit the Investment Adviser at least annually for a
comprehensive review of the portfolio, its valuation methodology and general
strategy. The Directors deem it appropriate to review the valuations of the
investment portfolio on a quarterly basis. The schedule of Directors and
Committee meetings is shown in the Corporate Governance section.
Continuing terms of Investment Adviser agreement
In the opinion of the Directors, the continuing appointment of the Investment
Adviser on the terms agreed continues to be in the interests of Shareholders.
In reaching its conclusion the Board considers the Investment Adviser's
performance and expertise and is confident in the Investment Adviser's ability
to source excellent future investment opportunities.
Supply of information
The Chairman ensures that all Directors are properly briefed on issues arising
at Board meetings. The Company's advisers provide the Board with appropriate
and timely information in order that the Board may reach proper decisions.
Directors can, if necessary, obtain independent professional advice at the
Company's expense.
Directors' training
The Board is provided with information concerning changes to the regulatory or
statutory regimes as they may affect the Company, and are offered the
opportunity to attend courses or seminars on such changes, or other relevant
matters. An induction programme is available for any future Director
appointments.
Chairman and senior independent Director
The Chairman is a non-executive Director, together with the rest of the Board.
There is no executive Director position within the Company. Day-to-day
management of the Company's affairs has been delegated to the Administrator.
The Board has considered whether a senior independent Director should be
appointed. However, as the Board comprises entirely non-executive Directors,
the appointment of a senior independent Director for the time being, is not
considered necessary. Any of the non-executive Directors are available to
shareholders if they have concerns which cannot be resolved through discussion
with the Chairman.
Board diversity
The Board has also given careful consideration to the recommendations of the
Davies Report on women on boards and as recommended in that report has reviewed
its composition and believes that it has available an appropriate range of
skills and experience. In order to extend its diversity, the Board is committed
to implementing the recommendations of the Davies Report, if possible within
the timescales proposed in the Davies Report, and to that end will ensure that
women candidates are considered when appointments to the Board are under
consideration - as indeed has always been its practice.
Re-election of Directors
Each Director having served longer than nine years is subject to annual
re-election. Each Director who has served less than nine years retires from
office at the third annual general meeting after appointment or (as the case
may be) the general meeting at which he was last appointed and is eligible for
reappointment.
The Letters of Appointment of the non-executive Directors suggest that it is
appropriate for Directors to retire and be nominated for re-election after
three years of service. Subject to the recommendation of the General Meeting
David Macfarlane, Patrick Firth, James Jordan and Tanja Tibaldi are seeking
re-election to the Board at the 2017 Annual General Meeting on the basis they
would have served more than nine years on 27 June 2017.Christopher Waldron will
also seek re-election having served for more than three years since previously
being re-elected.
The Board's evaluation
The Board, Audit Committee, and Nomination Committee undertake an evaluation of
their own performance and that of individual Directors on an annual basis. In
order to review their effectiveness, the Board and its Committees carry out a
process of formal self-appraisal. The Board and Committees consider how they
function as a whole and also review the individual performance of its members.
This process is conducted by the respective Chairman reviewing each member's
performance, contribution and their commitment to the Company. The Board as a
whole reviews the performance of the Chairman. Each Board member is also
required to submit details of training they have undertaken on an annual basis.
Currently, no third party evaluation of the Directors effectiveness is
undertaken.
The results of the evaluation process concluded the Board was functioning
effectively and the Board and its committees provided a suitable mix of skills
and experience.
Board Committees
In accordance with the AIC Code, the Board has established an Audit Committee
and a Nomination Committee, in each case with formally delegated duties and
responsibilities within written terms of reference. The identity of each of the
chairmen of the committees referred to below are reviewed on an annual basis.
The Board has decided that the entire Board should fulfil the role of the Audit
and Nomination committees. The terms of reference of the committees are kept
under review and can be viewed on the Company's website www.jzcp.com.
Nomination Committee
In accordance with the Code, the Company has established a Nomination
Committee. The main role of the committee is to propose candidates for election
to the Board of Directors, including the Chairman. The Nomination Committee
takes into consideration the Code's rules on independence of the Board in
relation to the Company, its senior management and major shareholders. The
nomination committee is chaired by David Macfarlane, and each of the other
Directors is also a member. The members of the committee are independent of the
Investment Adviser. The Nomination Committee has responsibility for considering
the size, structure and composition of the Board, retirements and appointments
of additional and replacement Directors and making appropriate recommendations
to the Board.
Due to the nature of the Company being a listed investment company investing in
private equity with an international shareholder base, the Company needs
Directors with a broad range of financial experience. For this reason,
Directors believe that it is more appropriate to use their own contacts as a
source of suitable candidates as no one external consultancy or advertising
source is likely to be in a position to identify suitable candidates.
The final decision with regard to appointments always rests with the Board and
all such appointments are subject to confirmation by shareholders.
Audit Committee
The Audit Committee is chaired by Patrick Firth. All the other Directors are
members. Members of the Committee are independent of the Company's external
auditors and the Investment Adviser. The Audit Committee meets at least twice a
year and meets the external auditors at least twice a year. The Audit Committee
is responsible for overseeing the Company's relationship with the external
auditors, including making recommendations to the Board on the appointment of
the external auditors and their remuneration. The Committee also considers the
nature, scope and results of the auditors' work and reviews, and develops and
implements policies on the supply of any non-audit services that are to be
provided by the external auditors.
A report of the Audit Committee detailing responsibilities and activities is
presented in the Audit Committee Report.
Management Engagement Committee
The Company currently does not have a separate Management Engagement committee.
The recommended functions and responsibilities of such a committee are
exercised by the full board each member of which is unassociated with the
Investment Adviser.
Remuneration Committee
In view of its non-executive and independent nature, the Board considers that
it is not appropriate for there to be a separate Remuneration Committee as
prescribed by the AIC Code. The process for agreeing the non-executive
Directors' fees is set out in the Directors' Remuneration Report.
Board and Committee meeting attendance
The number of formal meetings of the Board and its committees held during the
year and the attendance of individual Directors at these meetings was as
follows:
Number of meetings
Board Ad Hoc Audit
Main AGM EGM Meetings Committee
Total number of 5 1 1 1 2
meetings
David Macfarlane 5 1 1 1 2
Patrick Firth 4 1 1 1 2
James Jordan 5 1 1 - 2
Tanja Tibaldi 5 1 1 1 1
Christopher Waldron 5 1 1 1 2
The main Board meetings are held to agree the Company's valuation of its
investments, agree the Company's financial statements and discuss and agree
other strategic issues. Other meetings are held when required to agree board
decisions on ad-hoc issues.
Internal Controls
The Board is ultimately responsible for establishing and maintaining the
Company's system of internal financial and operating control and for
maintaining and reviewing its effectiveness. The Company's risk matrix
continues to be the core element of the Company's risk management process in
establishing the Company's system of internal financial and reporting control.
The risk matrix is prepared and maintained by the Board which initially
identifies the risks facing the Company and then collectively assesses the
likelihood of each risk, the impact of those risks and the strength of the
controls operating over each risk. The system of internal financial and
operating control is designed to manage rather than to eliminate the risk of
failure to achieve business objectives and by their nature can only provide
reasonable and not absolute assurance against misstatement and loss.
These controls aim to ensure that assets of the Company are safeguarded, proper
accounting records are maintained and the financial information for
publication is reliable. The Board confirms that there is an ongoing process
for identifying, evaluating and managing the principal risks faced by the
Company.
This process has been in place for the year under review and up to the date of
approval of this Annual Report and Financial Statements and is reviewed by the
Board and is in accordance with the Internal controls: Guidance on Risk
Management, Internal Control and Related Financial and Business Reporting.
The Board has evaluated the systems of internal controls of the Company. In
particular, it has prepared a process for identifying and evaluating the
principal risks affecting the Company and the policies by which these risks are
managed.
The Board has delegated the day to day responsibilities for the management of
the Company's investment portfolio, the provision of depositary services and
administration, registrar and corporate secretarial functions including the
independent calculation of the Company's NAV and the production of the Annual
Report and Consolidated Financial Statements which are independently audited.
Formal contractual agreements have been put in place between the Company and
providers of these services.
Even though the Board has delegated responsibility for these functions, it
retains accountability for these functions and is responsible for the systems
of internal control. At each quarterly board meeting, compliance reports are
provided by the Administrator, Company Secretary and Portfolio Manager. The
Board also receives confirmation from the Administrator of its accreditation
under its Service Organisation Controls 1 report.
The Company's risk exposure and the effectiveness of its risk management and
internal control systems are reviewed by the Audit Committee at its quarterly
meetings and annually by the Board.
The Board believes that the Company has adequate and effective systems in place
to identify, mitigate and manage the risks to which it is exposed.
International Tax Reporting
For purposes of the US Foreign Account Tax Compliance Act ("FATCA"), the
Company registered with the US Internal Revenue Services ("IRS") as a Guernsey
reporting Foreign Financial Institution ("FFI"), received a Global Intermediary
Identification Number CAVBUD.999999.SL.831, and can be found on the IRS FFI
list.
The Common Reporting Standard ("CRS") is a global standard for the automatic
exchange of financial account information developed by the Organisation for
Economic Co-operation and Development ("OECD"), which has been adopted by
Guernsey and which came into effect on 1 January 2016. The CRS replaced the
intergovernmental agreement between the UK and Guernsey to improve
international tax compliance that had previously applied in respect of 2014 and
2015.
The Board will take necessary actions to ensure that the Company is compliant
with Guernsey regulations and guidance in this regard.
Relations with Shareholders
The Directors believe that the maintenance of good relations with both
institutional and retail shareholders is important for the long term prospects
of the Company. It therefore seeks active engagement with investors, bearing in
mind the duties regarding equal treatment of shareholders and the dissemination
of inside information. The Board receives feedback on shareholder views from
its Corporate Broker and Investment Adviser, and is circulated with Broker
reports on the Company.
The Directors believe that the Annual General Meeting, a meeting for all
shareholders, is the key point in the year when the Board of Directors accounts
to all shareholders for the performance of the Company. It therefore encourages
all shareholders to attend, and all Directors are present unless unusual
circumstances prevail.
The Directors believe that the Company policy of reporting to shareholders as
soon as possible after the Company's year end and the holding of the Annual
General Meeting at the earliest opportunity is valuable.
The Company also provides an Interim Report and Accounts in accordance with IAS
34 and Interim Management statements for the quarterly periods.
Directors' Remuneration Report
The Directors' remuneration report has been prepared on behalf of the Directors
in accordance with the UK Corporate Governance Code ("the Code") as issued by
the UK Listing Authority.
The Company's policy in regard to Directors' remuneration is to ensure that the
Company maintains a competitive fee structure in order to recruit, retain and
motivate non-executive Directors of excellent quality in the overall interests
of shareholders.
Remuneration policy
The Directors do not consider it necessary for the Company to establish a
separate Remuneration Committee. All of the matters recommended by the Code
that would be delegated to such a committee are considered by the Board as a
whole.
It is the responsibility of the Board as a whole to determine and approve the
Directors' fees, following a recommendation from the Chairman who will have
given the matter proper consideration, having regard to the level of fees
payable to non- executive Directors in the industry generally, the role that
individual Directors fulfil in respect of Board and Committee responsibilities
and the time committed to the Company's affairs. The Chairman's remuneration is
decided separately and is approved by the Board as a whole.
The Company's Articles state that Directors' remuneration payable in any
accounting year shall not exceed in the aggregate an annual sum of US$650,000.
Each Director is also entitled to reimbursement of their reasonable expenses.
There are no commission or profit sharing arrangements between the Company and
the Directors. Similarly, none of the Directors is entitled to pension,
retirement or similar benefits. No element of the Directors' remuneration is
performance related.
The remuneration policy set out above is the one applied for the year ended 28
February 2017 and is not expected to change in the foreseeable future.
Directors' and Officers' liability insurance cover is maintained by the Company
on behalf of the Directors.
Remuneration for services
Fees for services Fees for services
to the Company for to the Company for
the year to 28 the year to 29
February 2017 February 2016
US$ US$
David Macfarlane (Chairman) 160,000 160,000
Patrick Firth 70,000 70,000
James Jordan 60,000 60,000
Tanja Tibaldi 60,000 60,000
Christopher Waldron 65,000 65,000
415,000 415,000
The amounts payable to Directors as shown above were for services as
non-executive Directors. No Director has a service contract with the Company,
nor are any such contracts proposed.
Directors' Term of Appointment
Each Director having served longer than nine years is subject to annual
re-election. Each Director who has served less than nine years retires from
office at the third annual general meeting after appointment or (as the case
may be) the general meeting at which he was last appointed and is eligible for
reappointment.
The Directors were appointed as non-executive Directors by letters issued in
April 2008 and October 2013 which state that their appointment and any
subsequent termination or retirement shall be subject to three-months' notice
from either party in accordance with the Articles. Each Director's appointment
letter provides that, upon the termination of his/her appointment, that he/she
must resign in writing and all records remain the property of the Company. The
Directors' appointments can be terminated in accordance with the Articles and
without compensation. There is no notice period specified in the Articles for
the removal of Directors. The Articles provide that the office of director
shall be terminated by, among other things: (a) written resignation; (b)
unauthorised absences from board meetings for six months or more; (c) unanimous
written request of the other directors; and (d) an ordinary resolution of the
Company.
Signed on behalf of the Board of Directors on 16 May 2017 by:
David Macfarlane
Chairman
Patrick Firth
Director
Audit Committee Report
Dear Shareholder,
We present the Audit Committee's Report, setting out the responsibilities of
the Audit Committee and its key activities in 2016/2017. The Audit Committee
has reviewed the Company's financial reporting, the independence and
effectiveness of the external auditor and the internal control and risk
management systems of the Company's service providers. In order to assist the
Audit Committee in discharging these responsibilities, regular reports are
received and reviewed from the Investment Manager, Administrator and external
auditor.
A member of the Audit Committee will continue to be available at each Annual
General Meeting to respond to any shareholder questions on the activities of
the Audit Committee.
Responsibilities
The terms of reference of the Audit Committee include the requirement to:
? monitor the integrity of the published Financial Statements of the Company
? review and report to the Board on the significant issues and judgements made
in the preparation of the Company's published Financial Statements, (having
regard to matters communicated by the external Auditors) and other financial
information
? monitor and review the quality and effectiveness of the external Auditors and
their independence
? consider and make recommendations to the Board on the appointment,
reappointment, replacement and remuneration of the Company's external Auditor
? advise the Board that the annual report and accounts, taken as a whole, is
fair, balanced and understandable
? review and consider the Company's Principal risks and uncertainties
? consider the long term viability of the Company
? review the Company's procedures for prevention, detection and reporting of
fraud, bribery and corruption
? monitor and review the internal control and risk management systems of the
service providers
? consider and make representations to the Board regarding Directors'
remuneration
The Audit Committee's full terms of reference can be viewed on the Company's
website www.jzcp.com.
Key Activities of the Audit Committee
The following sections discuss the assessments made by the Audit Committee
during the year:
Financial Reporting:
The Audit Committee's review of the Annual Financial Statements focused on the
following significant areas:
? Valuation of Investments:
The fair value of the Company's unlisted securities at 28 February 2017 was
$1,069,180,000 accounting for 97% of the Company's assets. The Committee has
concentrated on ensuring the Investment Manager has applied appropriate
valuation methodologies to these investments in producing the net asset value
of the Company.
Members of the Audit Committee meet the Investment Adviser at least annually to
discuss the valuation process. The Committee gains comfort in the valuations
produced by reviewing the methodologies used. The valuations were challenged
and approved by the Audit Committee in a recent visit to the Investment
Adviser. The Audit Committee has thus satisfied itself that the valuation
techniques are appropriate and accurate.
? Ownership of Investments
The Audit Committee considered the ownership of the investments held by the
Company as at 28 February 2017 to be substantiated by the periodic
reconciliation of records held by the Custodian to the Company's portfolio and
by confirmations provided by Lawyers, Custodian and Administrator. Following a
review of the presentations and reports from the Administrator and consulting
where necessary with the external auditor, the Audit Committee is satisfied
that the Company duly owns its investments which are correctly stated in the
Annual Report and Financial Statements.
? NAV-Based Fees
The Board has identified that there is a risk that management and incentive
fees which are calculated based on the NAV of the Company could potentially be
misstated if there were to be an error in the calculation of the NAV. However,
as each monthly NAV calculation is approved by the Investment Adviser and the
year end NAV has been audited, the Board are satisfied that the fees have been
correctly calculated as stated in the Annual Report and Financial Statements.
Risk Management:
The Audit Committee continued to consider the process for managing the risk of
the Company and its service providers. Risk management procedures for the
Company, as detailed in the Company's risk assessment matrix, were reviewed and
approved by the Audit Committee. There were no issues noted during the year.
Fraud, Bribery and Corruption:
The Audit Committee continues to monitor the fraud, bribery and corruption
policies of the Company. The Board receives a confirmation from all service
providers that there have been no instances of fraud or bribery.
The External Auditor
Ernst & Young LLP have acted as external auditor since the Company's inception
in April 2008.
Reappointment of External Auditor
Consequent to this review process, the Audit Committee has recommended to the
Board that a resolution be put to the 2017 Annual General Meeting for the
reappointment of Ernst & Young LLP as external auditor. The Board has accepted
this recommendation.
Independence, objectivity and fees:
The independence and objectivity of the external auditor is reviewed by the
Audit Committee which also reviews the terms under which the external auditor
is appointed to perform non-audit services. The Audit Committee has established
pre-approval policies and procedures for the engagement of the auditor to
provide non-audit and assurance services. The audit committee ensure the
appointment does not create a scenario which:
* places the external auditor in a position to audit their own work
* creates a mutuality of interest
* results in the external auditor developing close relationships with service
providers of the Company
* results in the external auditor functioning as a manager or employee of the
Company
* puts the external auditor in the role of advocate of the Company
As a general rule, the Company does not utilise external auditors for internal
audit purposes, secondments or valuation advice. Services which are in the
nature of audit, such as tax compliance, tax structuring, private letter
rulings, accounting advice, quarterly reviews and disclosure advice are
normally permitted but will be pre-approved by the Audit Committee.
The following table summarises the remuneration paid by JZCP to Ernst & Young
LLP and to other Ernst & Young LLP member firms for audit and other services
during the years ended 28 February 2017 and 29 February 2016.
US Dollar US Dollar
Equivalent Equivalent
Year Year ended Year ended Year ended
ended
28.2.2017 28.2.2017 29.2.2016 29.2.2016
Ernst & Young LLP
- Annual audit £211,500 $263,000 £203,000 $290,000
- Auditor's interim review £40,000 $51,000 £28,000 $42,000
- Fees in relation to Ordinary Share - - £266,000 $406,000
placing and ZDP rollover
Other Ernst & Young LLP affiliates
- Passive Foreign Investment Company tax - $60,000 - $60,000
services
In line with the policies and procedures above, the Audit Committee does not
consider that the provision of non-audit services, which comprise acting as
Reporting Accountant during capital raising and determining whether the Company
is a passive foreign investment company as defined by the U.S. Internal Revenue
Code, to be a threat to the objectivity and independence of the external
auditor.
Performance and effectiveness:
During the year, when considering the effectiveness of the external auditor,
the Audit Committee has taken into account the following factors:
* the audit plan presented to them before each audit;
* the post audit report including variations from the original plan;
* changes in audit personnel;
* the external auditor's own internal procedures to identify threats to
independence; and
* feedback received from both the Investment Adviser and Administrator.
The Audit Committee reviewed and challenged the audit plan and the post audit
report of the external auditor and concluded that audit risks had been
sufficiently identified and were sufficiently addressed. The Audit Committee
considered reports from the external auditor on their procedures to identify
threats to independence and concluded that the procedures were sufficient to
identify potential threats to independence.
There were no significant adverse findings from this evaluation.
The Audit Committee has examined the scope and results of the audit, its cost
effectiveness and the independence and objectivity of the external auditor and
considers Ernst & Young LLP, as external auditor, to be independent of the
Company.
Internal control and risk management systems
Additional work performed by the Audit Committee in the areas of internal
control and risk management is disclosed in the Audit Committee Report.
The Audit Committee has also reviewed the need for an internal audit function.
The Audit Committee has decided that the systems and procedures employed by the
Investment Adviser and the Administrator, including the Administrator's
internal audit function, provide sufficient assurance that a sound system of
internal control, which safeguards the Company's assets, is maintained. An
internal audit function specific to the Company is therefore considered
unnecessary.
In finalising the Annual Report and Accounts for recommendation to the Board
for approval, the Audit Committee has satisfied itself that the Annual Report
and Accounts taken as a whole are fair, balanced and understandable.
The Audit Committee Report was approved by the Board on 16 May 2017 and signed
on behalf by:
Patrick Firth
Chairman, Audit Committee
Statement of Comprehensive Income
Year Ended 28 February 2017 Year Ended 29 February 2016
Revenue Capital Revenue Capital
Return Return Total Return Return Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Income
Net gain on investments at 6 - 28,699 28,699 - 55,088 55,088
fair value through profit or
loss
Gain on financial 14 - 2,510 2,510 - 7,990 7,990
liabilities at fair value
through profit or Loss
Net write back of 7 - 2,374 2,374 - 2,594 2,594
impairments on loans and
receivables
Realisations from 27 - 5,942 5,942 - 1,534 1,534
investments held in escrow
accounts
Net foreign currency - 4,728 4,728 - 8,056 8,056
exchange gain
Investment income 8 25,699 - 25,699 28,533 - 28,533
Bank and deposit interest 41 - 41 92 - 92
25,740 44,253 69,993 28,625 75,262 103,887
Expenses
Investment Adviser's base 10 (16,865) - (16,865) (15,510) - (15,510)
fee
Investment Adviser's 10 - (12,404) (12,404) - (15,450) (15,450)
incentive fee
Administrative expenses 10 (2,135) - (2,135) (2,298) - (2,298)
Directors' remuneration 10 (415) - (415) (415) - (415)
(19,415) (12,404) (31,819) (18,223) (15,450) (33,673)
Operating Profit 6,325 31,849 38,174 10,402 59,812 70,214
Finance costs 9 - (14,764) (14,764) - (18,222) (18,222)
Profit before Taxation 6,325 17,085 23,410 10,402 41,590 51,992
Withholding taxes 11 (713) - (713) (398) - (398)
Profit for the Year 5,612 17,085 22,697 10,004 41,590 51,594
Weighted average number of 24 83,907,516 72,914,790
Ordinary shares in issue
during the year
Basic earnings per Ordinary 24 6.69c 20.36c 27.05c 13.72c 57.04c 70.76c
share
Diluted earnings per 24 6.21c 19.66c 25.88c 12.61c 46.75c 59.36c
Ordinary share
All items in the above statement are derived from continuing operations.
The profit for the year is attributable to the Ordinary shareholders of the
Company.
The format of the Statement of Comprehensive Income follows the recommendations
of the AIC Statement of Recommended Practice.
The "Total" column of this statement represents the Company's statement of
comprehensive income, prepared in accordance with International Financial
Reporting Standards as adopted by the European Union.
There was no comprehensive income other than the profit for the year.
The accompanying notes form an integral part of the audited financial
statements.
Statement of Financial Position
As at 28 February 2017
28 February 29 February
2017 2016
Note US$'000 US$'000
Assets
Investments at fair value through profit or loss 12 1,069,180 1,043,342
Investments classified as loans and receivables 12 - 750
Cash at bank 29,063 91,937
Other receivables 13 520 3,551
Total Assets 1,098,763 1,139,580
Liabilities
Convertible Unsecured Loan Stock 14 57,063 59,573
Zero Dividend Preference (2022) shares 15 53,935 57,400
Zero Dividend Preference (2016) shares 15 - 44,217
Loans payable 16 97,396 97,011
Investment Adviser's incentive fee 10 37,293 24,889
Investment Adviser's base fee 10 2,026 2,145
Other payables 17 2,206 2,606
Total Liabilities 249,919 287,841
Equity
Stated capital 18 265,685 265,685
Other reserve 20 353,528 353,528
Capital reserve 20 173,871 156,786
Revenue reserve 20 55,760 75,740
Total Equity 848,844 851,739
Total Liabilities and Equity 1,098,763 1,139,580
Number of Ordinary shares in issue at year end 18 83,907,516 83,907,516
Net Asset Value per Ordinary share 26 $10.12 $10.15
These audited financial statements were approved by the Board of Directors and
authorised for issue on 16 May 2017. They were signed on its behalf by:
David
Macfarlane
Chairman
Patrick Firth
Director
The accompanying notes form an integral part of the audited financial
statements.
Statement of Changes in Equity
For the Year Ended 28 February 2017
Stated Other Capital Reserve Revenue
Capital Reserve Realised Unrealised Reserve Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance as at 1 March 2016 265,685 353,528 59,560 97,226 75,740 851,739
Profit for the year - - 3,018 14,067 5,612 22,697
Prior year ZDP (2016) finance costs - - (34,544) 34,544 - -
and currency gains now realised
Dividends paid 29 - - - - (25,592) (25,592)
Balance at 28 February 265,685 353,528 28,034 145,837 55,760 848,844
2017
Comparative for the Year ended 29 February 2016
Stated Other Capital Reserve Revenue
Capital Reserve Realised Unrealised Reserve Total
Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Balance as at 1 March 2015 149,269 353,528 104,657 10,539 87,517 705,510
Profit for the year - - (45,097) 86,687 10,004 51,594
Issue of Ordinary shares 116,416 (1) - - - - 116,416
Dividends paid 29 - - - - (21,781) (21,781)
Balance at 29 February 265,685 353,528 59,560 97,226 75,740 851,739
2016
The accompanying notes form an integral part of the audited financial
statements.
(1) Net of share issue costs of $3.523 million.
Statement of Cash Flows
For the Year Ended 28 February 2017
Year Ended Year Ended
28 February 29 February
2017 2016
Note US$'000 US$'000
Operating Activities
Net cash outflow from operating activities 28 (9,239) (24,681)
Cash outflow for investments (direct investments (156,505) (314,221)
and capital calls)
Cash inflow from repayment and disposal of 183,210 236,761
investments
Cash inflow from the repayment of loans and 3,114 2,886
receivables
Net cash inflow/(outflow) before financing 20,580 (99,255)
activities
Financing Activity
Redemption of Zero Dividend Preference (2016) (47,863) -
shares
Finance costs paid (10,395) (9,148)
Dividends paid to shareholders 29 (25,592) (21,781)
Proceeds from issue of Ordinary shares 18 - 119,939
Issue costs relating to the issue of Ordinary 18 - (3,523)
shares
Issue costs relating to the issue of ZDP shares 15 - (1,511)
Proceeds from loan facilities 16 9,512 107,983
Loan issue costs paid 16 - (4,033)
Repayment of loan facility 16 (9,512) (97,660)
Net cash (outflow)/inflow from financing activities
(83,850) 90,266
Decrease in cash and cash equivalents (63,270) (8,989)
Reconciliation of Net Cash Flow to Movements in Cash and Cash Equivalents
Cash at bank at 1 March 91,937 101,323
Decrease in cash and cash equivalents as above (63,270) (8,989)
Unrealised foreign exchange movements on cash at 396 (397)
bank
Cash at bank at year end 29,063 91,937
Reconciliation of Cash Outflows/Inflows from Investments and Realisations to
numbers presented in the Chairman's Statement, Investment Adviser's Report and
Note 12 of the financial statements
Year Ended Year Ended
28 February 29 February
2017 2016
US$'000 US$'000
Cash outflow for investments (direct investments 156,505 314,221
and capital calls)
Deposits paid during prior year invested in current 3,018 3,875
year
Investments in year (direct investments and capital 159,523 318,096
calls) - note 12
Cash inflow from repayment and disposal of
investments 183,210 236,761
Cash inflow from the repayment of loans and 3,114 2,886
receivables
Proceeds from Investments Realised - note 12 186,324 239,647
Adjusted to reconcile to totals quoted on the Chairman's Statement and
Investment Adviser's Report
Escrow receipts 5,942
Proceeds from maturity of UK Treasury Gilt and (60,523)
Corporate Bond excluded
Debt interest received on realisations 321
Withholding tax deducted from proceeds of (712)
refinancing
Total realisations for the year (Chairman's 131,352
Statement and Investment Adviser's Report)
The accompanying notes form an integral part of the audited financial
statements.
Notes to the Financial Statements
1. General Information
JZ Capital Partners Limited ("JZCP" or the "Company") is a Guernsey domiciled
closed-ended investment company which was incorporated in Guernsey on 14 April
2008 under the Companies (Guernsey) Law, 1994. The Company is now subject to
the Companies (Guernsey) Law, 2008. The Company is classified as an authorised
fund under the Protection of Investors (Bailiwick of Guernsey) Law 1987. The
Company's Capital consists of Ordinary shares, Zero Dividend Preference ("ZDP")
shares and Convertible Unsecured Loan Stock ("CULS"). The Company's shares
trade on the London Stock Exchange's Specialist Fund Segment ("SFS").
The Company's objective is to create a portfolio of investments providing a
superior overall return comprised of a current yield and significant capital
appreciation.
The Company's Investment Policy is to target predominantly private investments,
seeking to back management teams to deliver on attractive investment
propositions. In executing its strategy, the Company takes a long term view.
The Company seeks to invest directly in its target investments, although it may
also invest through other collective investment vehicles. The Company may also
invest in listed investments, whether arising on the listing of its private
investments or directly. The Investment Adviser is able to invest globally but
with a particular focus on opportunities in the United States and Europe.
The Company is currently mainly focused on investing in the following areas:
a. small or micro-cap buyouts in the form of debt and equity and preferred
stock in both the US and Europe; and
b. real estate interests.
The Investment Adviser takes a dynamic approach to asset allocation and, though
it doesn't expect to, in the event that the Company were to invest 100% of
gross assets in one area, the Company will, nevertheless, always seek to
maintain a broad spread of investment risk. Exposures are monitored and managed
by the Investment Adviser under the supervision of the Board.
The Company has no direct employees. For its services the Investment Adviser
receives a management fee and is also entitled to performance related fees
(Note 10). The Company has no ownership interest in the Investment Adviser.
During the year under review the Company was administered by Northern Trust
International Fund Administration Services (Guernsey) Limited.
The financial statements are presented in US$'000 except where otherwise
indicated.
2. Significant Accounting Policies
The accounting policies adopted in the preparation of these audited
annual financial statements have been consistently applied during the
year, unless otherwise stated.
Statement of Compliance
The financial statements have been prepared in accordance with the
International Financial Reporting Standards as adopted by the European Union
("IFRS"), which comprise standards and interpretations approved by the
International Accounting Standards Board ("IASB") together with applicable
legal and regulatory requirements of Guernsey Law, and the SFS.
Basis of Preparation
The financial statements have been prepared under the historical cost basis,
modified by the revaluation of financial instruments designated at fair value
through profit or loss upon initial recognition. The principal accounting
policies adopted are set out below. The preparation of financial statements in
conformity with IFRS requires the Company to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. The
presentation of the financial statements and certain disclosures follows the
guidance as outlined in the Association of Investment Companies ("AIC")
Statement of Recommended Practice ("SORP") issued in November 2014.
Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the previous
financial year.
Standards, amendments and interpretations that are not effective and are
expected to have a material impact on the financial position or performance of
the Company
IFRS 9 replaces IAS 39 - Financial Instruments: Recognition and Measurement.
Nature and scope of new or amended pronouncement
IFRS 9 introduces a new approach to the classification of financial assets,
which is driven by the business model in which the asset is held and their cash
flow characteristics. A new business model was introduced which does allow
certain financial assets to be categorised as "fair value through other
comprehensive income" in certain circumstances. The requirements for financial
liabilities are mostly carried forward unchanged from IAS 39. However, some
changes were made to the fair value option for financial liabilities to address
the issue of own credit risk.
The new model introduces a single impairment model being applied to all
financial instruments, as well as an "expected credit loss" model for the
measurement of financial assets.
IFRS 9 contains a new model for hedge accounting that aligns the accounting
treatment with the risk management activities of an entity, in addition
enhanced disclosures will provide better information about risk management and
the effect of hedge accounting on the consolidated financial statements.
IFRS 9 carries forward the derecognition requirements of financial assets and
liabilities from IAS 39.
Effect on the financial statements
The standard is effective on or after 1 January 2018 and will be adopted for
the year ending 28 February 2019.
The Company's financial instruments consist of equity instruments and debt
instruments. The Company's financial assets under equity and debt instruments
will continue to be valued at fair value through profit or loss ("FVTPL"). Due
to the cash flow characteristics of such financial instruments, on application
of IFRS 9, they will continue to be classified as fair value through the profit
or loss.
Although early adoption is permitted the Company has established that the
impact will be minimal. In addition, the Company does not apply hedge
accounting and the valuation model is consistent with the Company's current
methodology.
It is anticipated that this application of IFRS 9 will not change the
measurement and presentation of the current financial instruments.
There are certain other current standards, amendments and interpretations that
are not materially relevant to the Company's operations.
Functional and presentational currency
Items included in the financial statements of the Company are measured in the
currency of the primary economic environment in which the Company operates (the
"functional currency"). The functional currency of the Company as determined in
accordance with IFRS is the US Dollar because this is the currency that best
reflects the economic substance of the underlying events and circumstances of
the Company. The financial statements are presented in US Dollars, as the
Company has chosen the US Dollar as its presentation currency.
Foreign exchange
Monetary assets and liabilities denominated in foreign currency are translated
into the functional currency at the rate of exchange ruling at the end of the
reporting period date. Transactions in foreign currencies during the course of
the period are translated at the rate of exchange ruling at the date of the
transaction. Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation at reporting period end exchange
rates of monetary assets and liabilities that are denominated in foreign
currencies are recognised in the Statement of Comprehensive Income. Foreign
exchange gains and losses on financial assets and financial liabilities at fair
value through profit or loss are recognised together with other changes in the
fair value. Net foreign exchange gains or losses on monetary financial assets
and liabilities other than those classified as at fair value through profit or
loss are included in the line item 'Net foreign currency exchange gains'.
Financial assets and liabilities at fair value through profit or loss ("FVTPL")
(i) Classification
The Company classifies its investments within its micro-cap, real estate and
other investments portfolios as financial assets at fair value through profit
or loss. These financial assets are designated by the Board of Directors as at
fair value through profit or loss at inception.
Financial assets designated at fair value through profit or loss at inception
are those that are managed and their performance evaluated on a fair value
basis in accordance with the Company's investment strategy as documented in its
prospectus.
Financial liabilities may be designated at fair value through profit or loss
rather than stated at amortised cost, when the board have considered the
appropriate accounting treatment for the specific liability.
(ii) Recognition/derecognition
Purchases and sales of investments are recognised on the trade date - the date
on which the Company commits to purchase or sell the investment. Investments
are derecognised when the rights to receive cash flows from the investments
have expired or the Company has transferred substantially all risks and rewards
of ownership.
Financial assets and liabilities at fair value through profit or loss are
initially recognised at fair value. Transaction costs are expensed in the
Statement of Comprehensive Income. Subsequent to initial recognition, all
financial assets and liabilities at fair value through profit or loss are
measured at fair value. Gains and losses arising from changes in the fair value
of the 'financial assets or financial liabilities at fair value through profit
or loss' category are presented in the Statement of Comprehensive Income in the
year in which they arise.
Realised surpluses and deficits on the partial sale of investments are arrived
at by deducting the average cost of such investments from the sales proceeds.
(iii) Fair value estimation
The fair value of financial instruments traded in active markets (such as
publicly traded securities) is based on quoted market prices at the statement
of financial position date. The quoted market price used for financial assets
held by the Company is the bid price.
Unquoted preferred shares, micro cap loans, unquoted equities and equity
related securities investments are typically valued by reference to their
enterprise value, which is generally calculated by applying an appropriate
multiple to the last twelve months' earnings before interest, tax,
depreciation and amortisation ("EBITDA"). In determining the multiple, the
Directors consider inter alia, where practical, the multiples used in recent
transactions in comparable unquoted companies, previous valuation multiples
used and where appropriate, multiples of comparable publicly traded companies.
In accordance with the International Private Equity and Venture Capital
Association ("IPEVCA") valuation guidelines, a marketability discount is
applied which reflects the discount that in the opinion of the Directors,
market participants would apply in a transaction in the investment in question.
The valuation techniques to derive the fair value of real estate interests and
other investments are detailed in Note 5.
Loans and receivables
(i) Classification
The Company classifies unquoted senior subordinated debt within Mezzanine
investments as loans and receivables. Investments are generally accounted for
at amortised cost using the effective interest method except where there is
deemed to be impairment in value which indicates that a provision should be
made.
(ii) Recognition/derecognition
Purchases and sales of investments are recognised on the trade date - the date
on which the Company commits to purchase or sell the investment. Investments
are derecognised when the rights to receive cash flows from the investments
have expired or the Company has transferred substantially all risks and rewards
of ownership.
(iii) Measurement
The effective interest method is a method of calculating the amortised cost of
a financial asset or a financial liability and of allocating the interest
income or interest expense over the relevant period. The effective interest
rate is the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial instrument or, when
appropriate, a shorter period to the net carrying amount of the financial asset
or financial liability. When calculating the effective interest rate, the
Company estimates cash flows considering all contractual terms of the financial
instrument but does not consider future credit losses. The calculation includes
all fees paid or received between parties to the contract that are an integral
part of the effective interest rate, transaction costs and all other premiums
or discounts.
(iv) Impairment
The Company assesses at each reporting date whether the loans and receivables
are impaired. Evidence of impairment may include indications that the
counterparty is experiencing significant financial difficulty, default or
delinquency in interest or principal payments, the probability that they will
enter bankruptcy or other financial reorganisation and where observable data
indicates that there is a measurable decrease in the estimated future cash
flows, such as changes in arrears or economic conditions that correlate with
defaults. If there is objective evidence that an impairment loss has occurred,
the amount of the loss is measured as the difference between the asset's
carrying amount and the net present value of expected cash flows discounted at
the original effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance
account and the amount of the loss is recognised in the Statement of
Comprehensive Income as net impairments on loans and receivables.
Impaired debts together with the associated allowance are written off when
there is no realistic prospect of future recovery and all collateral has been
realised or has been transferred to the Company. If, in a subsequent period,
the amount of the estimated impairment loss increases or decreases because of
an event occurring after the impairment was recognised, the previously
recognised impairment loss is increased or reduced by adjusting the allowance
account. If a previous write-off is later recovered, the recovery is credited
to net impairments/write back of impairments on loans and receivables.
Cash on deposit and cash and cash equivalents
Cash on deposit comprises bank deposits with an original maturity of three
months or more. Cash and cash equivalents comprise bank balances and cash held
by the Company, including short-term bank deposits with a maturity of three
months or less. Cash also includes amounts held in interest-bearing overnight
accounts.
Other receivables and payables
Other receivables do not carry any interest and are short-term in nature and
are accordingly stated at their nominal value as reduced by appropriate
allowances for estimated irrecoverable amounts. Other payables are not
interest-bearing and are stated at their nominal value.
Financial liabilities and equity
Financial liabilities and equity are classified according to the substance of
the contractual arrangements entered into. An equity instrument is any contract
that evidences a residual interest in the assets of the Company after deducting
all of its liabilities. Financial liabilities, other than CULS (see below) and
equity are recorded at the amount of proceeds received, net of issue costs.
Ordinary shares are regarded as equity.
Zero Dividend Preference ("ZDP") shares
In accordance with International Accounting Standard 32 - 'Financial
Instruments: Presentation', ZDP shares have been disclosed as a financial
liability as the shares are redeemable at a fixed date and holders are entitled
to a fixed return. ZDP shares are recorded at amortised cost using the
effective interest rate method.
Convertible Unsecured Loan Stock
The Convertible Unsecured Loan Stock ("CULS") issued by the Company is
denominated in a currency (GBP) other than the Company's functional currency
and hence fails the 'fixed-for-fixed' criteria for equity classification.
Rather than account for the host debt and embedded conversion element
separately, the Company elects to account for the CULS in its entirety in
accordance with the IAS 39 'Fair Value Option'. The CULS' fair value is deemed
to be the listed offer price at the year end. CULS is translated at the
exchange rate at the reporting date and both differences in fair value due to
the listed offer price and exchange rates are recognised in the Statement of
Comprehensive Income.
Income
Interest income for all interest bearing financial instruments is included on
an accruals basis using the effective interest method. Dividend income is
recognised when the Company's right to receive payment is established. When
there is reasonable doubt that income due to be received will actually be
received, such income is not accrued until it is clear that its receipt is
probable. Where following an accrual of income, receipt becomes doubtful, the
accrual is either fully or partly written off until the reasonable doubt is
removed.
Expenses
Investment Adviser's basic fees are allocated to revenue. The Company also
provides for a Capital Gains Incentive fee based on net realised and unrealised
investments gains.
Expenses which are deemed to be incurred wholly in connection with the
maintenance or enhancement of the value of the investments are charged to
realised capital reserve. All other expenses are accounted for on an accruals
basis and are presented as revenue items.
Finance costs
Finance costs are interest expenses in respect of the ZDP shares, loans payable
and CULS, and are recognised in the Statement of Comprehensive Income using the
effective interest rate method.
Escrow accounts
Where investments are disposed of, the consideration given may include
contractual terms requiring that a percentage of the consideration is held in
an escrow account pending resolution of any indemnifiable claims that may arise
and as such the value of these escrow amounts is not immediately known. The
Company records gains realised on investments held in escrow in the Statement
of Comprehensive Income following confirmation that any such indemnifiable
claims have been resolved and none is expected in the future.
Taxation
The company has been granted Guernsey tax exempt status in accordance with The
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended). However, in
some jurisdictions, investment income and capital gains are subject to
withholding tax deducted at the source of the income. The Company presents the
withholding tax separately from the gross investment income in the Statement of
Comprehensive Income.
3. Estimates and Judgements
The following are the key judgements and other key sources of estimation
uncertainty at the end of the reporting year, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year:
Estimates
(i) Fair Value of Investments at Fair Value Through Profit or Loss ("FVTPL")
Certain investments are classified as FVTPL, and valued accordingly, as
disclosed in note 2. The key source of estimation uncertainty is on the
valuation of unquoted equities and equity-related securities.
In reaching its valuation of the unquoted equities and equity-related
securities the key judgements the Board has to make are those relating to the
multiples and the discount factors used in the valuation models.
(ii) Loans and Receivables
Certain investments are classified as Loans and Receivables, and valued
accordingly, as disclosed in note 2. The key estimation is the impairment
review and the key assumptions are as disclosed in note 2.
Judgements
Assessment as an Investment Entity
Entities that meet the definition of an investment entity within IFRS 10 are
required to measure their subsidiaries at fair value through profit or loss
rather than consolidate them. The criteria which define an investment entity
are as follows:
* An entity that obtains funds from one or more investors for the purpose of
providing those investors with investment services;
* An entity that commits to its investors that its business purpose is to
invest funds solely for returns from capital appreciation, investment
income or both; and
* An entity that measures and evaluates the performance of substantially all
of its investments on a fair value basis.
The Company has a wide range of investors; through its Investment Adviser
management services it enables investors to access private equity, real estate
and similar investments.
The Company's objective to provide a "superior overall return comprised of a
current yield and significant capital appreciation" is consistent with that of
an investment entity. The Company has clearly defined exit strategies for each
of its investment classes, these strategies are again consistent with an
investment entity.
In determining the fair value of unlisted investments JZCP follows the
principles of IPEVCA valuation guidelines. The Valuation Guidelines have been
prepared with the goal that Fair Value measurements derived when using these
Valuation Guidelines are compliant with IFRS.
The Board of JZCP evaluates the performance of unlisted investments quarterly
on a fair value basis. Listed investments are recorded at Fair Value in
accordance with IFRS being the last traded market price where this price falls
within the bid- ask spread. In circumstances where the last traded price is not
within the bid-ask spread, the Board determines the point within the bid-ask
spread that is most representative of fair value in accordance with IFRS 13.
The Board has also concluded that the Company meets the additional
characteristics of an investment entity, in that it has more than one
investment; the investments are predominantly in the form of equities and
similar securities; it has more than one investor and its investors are not
related parties.
Investment in Associates
An associate is an entity over which the Company has significant influence. An
entity is regarded as a subsidiary only if the Company has control over its
strategic, operating and financial policies and intends to hold the investment
on a long-term basis for the purpose of securing a contribution to the
Company's activities.
In accordance with the exemption within IAS 28 Investments in Associates and
Joint Ventures, the Company does not account for its investment in EuroMicrocap
Fund 2010, L.P., EuroMicrocap Fund-C ,L.P. JZI Fund III GP, L.P., Spruceview
Capital, LLC and Orangewood Partners Platform LLC using the equity method.
Instead, the Company has elected to measure its investment in its associates at
fair value through profit or loss.
The Directors have determined that although the Company has over 50% economic
interest in EuroMicrocap Fund 2010, L.P., EuroMicrocap Fund-C,L.P. JZI Fund III
GP, L.P. and Orangewood Partners Platform LLC, it does not have the power to
govern the financial and operating policies of the entities, but does have
significant influence over the strategic, operating and financial policies.
Going Concern
A fundamental principle of the preparation of financial statements in
accordance with IFRS is the judgement that an entity will continue in existence
as a going concern for a period of at least 12 months from signing of the
financial statements, which contemplates continuity of operations and the
realisation of assets and settlement of liabilities occurring in the ordinary
course of business.
The Directors consider the Company has adequate financial resources, in view of
its holding in cash and cash equivalents and the income streams deriving from
its investments and believe that the Company is well placed to manage its
business risks successfully to continue in operational existence for a period
of at least 12 months from signing of the financial statements and that it is
appropriate to prepare the financial statements on the going concern basis.
4. Segment Information
The Investment Manager is responsible for allocating resources available to the
Company in accordance with the overall business strategies as set out in the
Investment Guidelines of the Company. The Company is organised into the
following segments:
•
•
•
•
The investment objective of each segment is to achieve consistent medium-term
returns from the investments in each segment while safeguarding capital by
investing in a diversified portfolio.
Investments in corporate bonds and treasury gilts were not considered part of
any individual segment and have therefore been excluded from this segmental
analysis. The Company investments in corporate bonds and treasury gilts matured
during the year ended 28 February 2017.
The Company disposed of its remaining listed equity holding during the year
ended 28 February 2015, a provision remaining for withholding tax has been
reclassified as non-segmental.
Segmental Profit/(Loss)
For the year ended 28 February 2017
US European Other
Micro-Cap Micro-Cap Real Investments Total
US$ '000 US$ '000 Estate US$ '000 US$ '000
US$ '000
Interest revenue 20,485 4,580 322 301 25,688
Total segmental revenue 20,485 4,580 322 301 25,688
Realisations from investments held 5,942 - - - 5,942
in Escrow
Net gain/(loss) on investments at 5,263 1,102 21,236 (783) 26,818
FVTPL
Write back of Impairments on loans - - - 2,374 2,374
and receivables
Investment Adviser's base fee (6,250) (2,423) (6,418) (607) (15,698)
Investment Adviser's capital (7,882) 264 (4,247) (135) (12,000)
incentive fee1
Total segmental operating profit 17,558 3,523 10,893 1,150 33,124
For the year ended 29 February 2016
US European Other
Micro-Cap Micro-Cap Real Investments Total
Estate
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Interest revenue 20,927 3,972 728 851 26,478
Dividend revenue 1,326 - - - 1,326
Total segmental revenue 22,253 3,972 728 851 27,804
Realisations from investments held 1,534 - - - 1,534
in Escrow
Net gain/(loss) on investments at 10,167 (188) 52,712 (4,031) 58,660
FVTPL
Write back of Impairments on loans - - - 2,594 2,594
and receivables
Investment Adviser's base fee (5,114) (3,581) (4,078) (1,087) (13,860)
Investment Adviser's capital (6,099) 127 (10,542) 350 (16,164)
incentive fee1
Total segmental operating profit/ 22,741 330 38,820 (1,323) 60,568
(loss)
1The capital incentive fee is allocated across segments where a realised or
unrealised gain or loss has occurred. Segments with realised or unrealised
losses are allocated a credit pro rata to the size of the loss and segments
with realised or unrealised gains are allocated a charge pro rata to the size
of the gain.
Certain income and expenditure is not considered part of the performance of an
individual segment. This includes net foreign exchange gains, interest on cash,
finance costs, management fees, custodian and administration fees, directors'
fees and other general expenses.
The following table provides a reconciliation between total segmental operating
profit and operating profit.
28.2.2017 29.2.2016
US$ '000 US$ '000
Total Segmental Operating Profit 33,124 60,568
Net gain/(loss) on treasury gilts and corporate bonds (3,572)
1,881
Gain on financial liabilities at fair value through profit or loss 7,990
2,510
Net foreign exchange gains 4,728 8,056
Interest on treasury notes and 11 729
corporate bonds
Interest on 41 92
cash
Fees payable to investment adviser based on non-segmental assets (936)
(1,571)
Expenses not attributable to segments (2,713)
(2,550)
Operating Profit 38,174 70,214
The following table provides a reconciliation between total segmental revenue
and Company revenue.
28.2.2017 29.2.2016
US$ '000 US$ '000
Total segmental revenue 25,688 27,804
Non-segmental revenue
Interest on treasury gilts and 11 729
corporate bonds
Bank and deposit interest 41 92
Total revenue 25,740 28,625
Segmental Net Assets
At 28 February 2017
US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Segmental assets
Investments at FVTPL 423,137 154,277 468,599 23,167 1,069,180
Other receivables - - 495 - 495
Total segmental assets 423,137 154,277 469,094 23,167 1,069,675
Segmental liabilities
Payables and accrued expenses (19,666) 1,646 (25,796) 3,398 (40,418)
Total segmental liabilities (19,666) 1,646 (25,796) 3,398 (40,418)
Total segmental net assets 403,471 155,923 443,298 26,565 1,029,257
Segmental Net Assets
At 29 February 2016
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 386,173 168,797 366,158 63,570 984,698
Investments classified as loans and - - - 750 750
receivables
Other receivables - - 3,513 - 3,513
Total segmental assets 386,173 168,797 369,671 64,320 988,961
Segmental liabilities
Payables and accrued expenses (11,714) 1,263 (21,405) 3,456 (28,400)
Total segmental liabilities (11,714) 1,263 (21,405) 3,456 (28,400)
Total segmental net assets 374,459 170,060 348,266 67,776 960,561
Other receivables and prepayments are not considered to be part of individual
segment assets. Certain liabilities are not considered to be part of the net
assets of an individual segment. These include custodian and administration
fees payable, directors' fees payable and Other payables and accrued expenses.
The following table provides a reconciliation between total segmental assets
and total assets and total segmental liabilities and total liabilities.
28.2.2017 29.2.2016
US$ '000 US$ '000
Total Segmental Assets 1,069,675 988,961
Non Segmental Assets
Cash at bank 29,063 91,937
Treasury gilts - 45,608
Corporate bonds - 13,036
Other receivables and prepayments 25 38
Total Assets 1,098,763 1,139,580
Total Segmental Liabilities (40,418) (28,400)
Non Segmental Liabilities
Zero Dividend Preference (2022) shares (53,935) (57,400)
Zero Dividend Preference (2016) shares - (44,217)
Convertible Unsecured Loan Stock (57,063) (59,573)
Loans payable (97,396) (97,011)
Other payables and accrued expenses (1,107) (1,240)
Total Liabilities (249,919) (287,841)
Total Net Assets 848,844 851,739
5. Fair Value of Financial Instruments
The Company classifies fair value measurements of its financial instruments at
Fair Value Through Profit or Loss ("FVTPL") using a fair value hierarchy that
reflects the significance of the inputs used in making the measurements. The
financial assets valued at FVTPL are analysed in a fair value hierarchy based
on the following levels:
Level 1
Quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2
Those involving inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (that is, as prices)
or indirectly (that is, derived from prices). For example, investments which
are valued based on quotes from brokers (intermediary market participants) are
generally indicative of Level 2 when the quotes are executable and do not
contain any waiver notices indicating that they are not necessarily tradable.
Another example would be derivatives such as interest rate swaps or forward
currency contracts where inputs are mostly observable and therefore may also
fall into Level 2. At the year end, the Company had assessed it held no assets
or liabilities valued at FVTPL that were using inputs that would be classified
as Level 2 within the valuation method.
Level 3
Those involving inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs). Investments in JZCP's
portfolio valued using unobservable inputs such as multiples, capitalisation
rates, discount rates (see Note 5) fall within Level 3.
Differentiating between Level 2 and Level 3 fair value measurements i.e.,
assessing whether inputs are observable and whether the unobservable inputs are
significant, may require judgement and a careful analysis of the inputs used to
measure fair value including consideration of factors specific to the asset or
liability.
The following table shows financial instruments recognised at fair value,
analysed between those whose fair value is based on:
Financial assets at 28 February 2017
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
US Micro-cap - - 423,137 423,137
European Micro-cap - - 154,277 154,277
Real Estate - - 468,599 468,599
Other Investments - - 23,167 23,167
- - 1,069,180 1,069,180
Investments classed as loan and receivables and recorded at amortised cost
would fall in to the Level 3 hierarchy if valued at FVTPL.
Financial assets at 29 February 2016
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
US Micro-cap - - 386,173 386,173
European Micro-cap - - 168,797 168,797
Real Estate - - 366,158 366,158
Other Investments - - 63,570 63,570
Listed Securities 58,644 - - 58,644
58,644 - 984,698 1,043,342
Financial liabilities designated at fair value through profit or loss at
inception
Financial liabilities at 28 February 2017 Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Convertible Subordinated Unsecured Loan 57,063 - - 57,063
Stock
57,063 - - 57,063
Financial liabilities at 29 February 2016 Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Convertible Subordinated Unsecured Loan 59,573 - - 59,573
Stock
59,573 - - 59,573
Transfers between levels
There were no transfers between the levels of hierarchy of financial assets and
liabilities recognised at fair value within the year ended 28 February 2017 and
the year ended 29 February 2016.
Valuation techniques
In valuing investments in accordance with IFRS, the Board follow the principles
as detailed in the IPEVCA guidelines.
When fair values of listed equity and debt securities at the reporting date are
based on quoted market prices or binding dealer price quotations (bid prices
for long positions), without any deduction for transaction costs, the
instruments are included within Level 1 of the hierarchy.
The fair value of bank debt which is derived from unobservable data is
classified as Level 3.
Investments for which there are no active markets are valued according to one
of the following methods:
Real Estate
JZCP makes its Real Estate investments through a wholly-owned subsidiary, which
in turn owns interests in various residential, commercial, and development real
estate properties. The net asset value of the subsidiary is used for the
measurement of fair value. The underlying fair value of JZCP's Real Estate
holdings, however, is represented by the properties themselves. The Company's
Investment Adviser and Board review the fair value methods and measurement of
the underlying properties on a quarterly basis. Where available, the Company
will use third party appraisals on the subject property, to assist the fair
value measurement of the underlying property. Third-party appraisals are
prepared in accordance with the Appraisal and Valuation Standards (6th edition)
issued by the Royal Institution of Chartered Surveyors. Fair value techniques
used in the underlying valuations are:
- Use of comparable market values per square foot of properties in recent
transactions in the vicinity in which the property is located, and in similar
condition, of the relevant property, multiplied by the property's square
footage.
- Discounted Cash Flow ("DCF") analysis, using the relevant rental stream, less
expenses, for future periods, discounted at a Market Capitalization ("MC")
rate, or interest rate.
- Relevant rental stream less expenses divided by the market capitalization
rate; this method approximates the enterprise value construct used for non-real
estate assets.
For each of the above techniques third party debt is deducted to arrive at fair
value.
Due to the inherent uncertainties of real estate valuation, the values
reflected in the financial statements may differ significantly from the values
that would be determined by negotiation between parties in a sales transaction
and those differences could be material.
Mezzanine loans
Investments are generally valued at amortised cost except where there is deemed
to be impairment in value which indicates that a provision should be made.
Mezzanine loans are classified in the Statement of Financial Position as loans
and receivables and are accounted for at amortised cost using the effective
interest method less accumulated impairment allowances in accordance with IFRS.
If there is objective evidence that an impairment loss has been incurred, the
amount of the loss is measured as the difference between the asset's carrying
amount and the net present value of expected cash flows discounted at the
original effective interest rate.
Unquoted preferred shares, micro-cap loans, unquoted equities and equity
related securities
Unquoted preferred shares, micro-cap loans, unquoted equities and equity
related securities investments are classified in the Statement of Financial
Position as Investments at fair value through profit or loss. These investments
are typically valued by reference to their enterprise value, which is generally
calculated by applying an appropriate multiple to the last twelve months'
earnings before interest, tax, depreciation and amortisation ("EBITDA"). In
determining the multiple, the Board consider inter alia, where practical, the
multiples used in recent transactions in comparable unquoted companies,
previous valuation multiples used and where appropriate, multiples of
comparable publicly traded companies. In accordance with IPEVCA guidelines, a
marketability discount is applied which reflects the discount that in the
opinion of the Board, market participants would apply in a transaction in the
investment in question.
In respect of unquoted preferred shares and micro-cap loans the Company values
these investments by reference to the attributable enterprise value as the exit
strategy in respect to these investments would be a one tranche disposal
together with the equity component. The fair value of the investment is
determined by reference to the attributable enterprise value (this is
calculated by a multiple of EBITDA reduced by senior debt and marketability
discount) covering the aggregate of the unquoted equity, unquoted preferred
shares and debt instruments invested in the underlying company. The increase of
the fair value of the aggregate investment is reflected through the unquoted
equity component of the investment and a decrease in the fair value is
reflected across all financial instruments invested in an underlying company.
Other Investments
Other investments at year end, comprise of mainly the Company's investment in
the asset management business - Spruceview Capital, LLC ("Spruceview").
Spruceview is valued at impaired cost, which the Board currently considers an
appropriate measure of fair value. As there are no unobservable inputs in the
valuation of Spruceview no sensitivity analysis is provided in the current
year.
Quantitative information of significant unobservable inputs and sensitivity
analysis to significant changes in unobservable inputs within Level 3 hierarchy
The significant unobservable inputs used in fair value measurement categorised
within Level 3 of the fair value hierarchy together with a quantitative
sensitivity as at 28 February 2017 and 29 February 2016 are shown below:
Value
28.2.2017 Valuation Unobservable Range Sensitivity Effect on Fair Value
(weighted
US$'000 Technique input average) used 1 US$'000
US micro-cap EBITDA Average EBITDA 6.0x - 0.5x /
investments 423,137 Multiple Multiple of 18.7x -0.5x (37,665) 36,186
Peers (8.3x)
Discount to 10% - 35% 5.0% /
Average (26%) -5.0% (50,801) 49,462
Multiple
European EBITDA Average EBITDA 6.2x - 0.5x /
micro-cap 154,277 Multiple Multiple of 11.3x -0.5x (3,511) 3,511
investments Peers (8.6x)
Discount to 41% discount 5.0% /
Average - 63% premium -5.0% (4,512) 4,492
Multiple (5% premium)
Real estate 2 Comparable Market Value $286 - -5% /+5%
468,599 Sales Per Square Foot $3,106 per (13,706) 14,786
sq ft
DCF Model/ Discount Rate 6.25% - +25bps /
Income 6.75% -25bps (1,228) 1,515
Approach
Cap Rate/ Capitalisation 4% - 5% +25bps /
Income Rate -25bps (8,357) 9,349
Approach
Value
29.2.2016 Valuation Unobservable Range Sensitivity Effect on Fair Value
(weighted
US$'000 Technique input average) used 1 US$'000
US micro-cap EBITDA Average EBITDA 6.0x - 0.5x /
investments 386,173 Multiple Multiple of 18.7x -0.5x (29,855) 29,254
Peers (8.1x)
Discount to 15% - 35% 5% / -5%
Average (24%) (38,104) 36,129
Multiple
European EBITDA Average EBITDA 6.5x - 0.5x /
micro-cap 168,797 Multiple Multiple of 10.0x -0.5x (4,181) 4,181
investments Peers (8.2x)
Discount to 0% - 42% 5% / -5%
Average (16%) (2,748) 2,748
Multiple
Real estate 2 Comparable Market Value $380 - -5% /+5%
366,158 Sales Per Square Foot $575 per (5,607) 5,809
sq ft
DCF Model/ Discount Rate 7% +25bps /
Income -25bps (1,236) 1,055
Approach
Cap Rate/ Capitalisation 3.75% - +25bps /
Income Rate 5.5% -25bps (11,619) 12,399
Approach
Other EBITDA Average EBITDA 7.5x 0.5x /
investments 63,570 Multiple Multiple of -0.5x (295) 295
Peers
Adjusted Discount for 5% 5% / -5%
NAV Lack of (2,418) 2,686
Liquidity
1 The sensitivity analysis refers to a percentage amount added or deducted from
the average input and the effect this has on the fair value.
2 The Fair Value of JZCP's investment in financial interests in Real Estate,
is measured as JZCP's percentage interest in the value of the underlying
properties. The Board consider the discount rate used, applied to the DCF, when
valuing the properties as the most significant unobservable input affecting the
measurement of fair value.
The following table shows a reconciliation of all movements in the fair value
of financial instruments categorised within Level 3 between the beginning and
the end of the reporting year.
Year ended 28 February 2017 US European Real Other
Micro-Cap Micro-Cap Estate Investments Total US$
US$ '000 US$ '000 US$ US$ '000 '000
'000
At 1 March 2016 386,173 168,797 366,158 63,570 984,698
Investments in year including 62,778 2,739 89,506 4,500 159,523
capital calls
Payment In Kind ("PIK") 17,793 - - 118 17,911
Proceeds from investments (46,996) (21,906) (8,301) (45,484) (122,687)
realised
Net gains/(losses) on investments 5,263 1,102 21,236 (784) 26,817
Transfer to/(from) segment (1,245) - - 1,245 -
Movement in accrued interest (629) 3,545 - 2 2,918
At 28 February 2017 423,137 154,277 468,599 23,167 1,069,180
Year ended 29 February 2016 US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ US$ '000 US$ '000
'000
At 1 March 2015 297,340 245,884 216,781 75,993 835,998
Investments in year including 103,125 59,319 104,677 5,593 272,714
capital calls
Payment In Kind ("PIK") 16,996 - - 78 17,074
Proceeds from investments (41,441) (137,289) (8,012) (13,982) (200,724)
realised
Net gains/(losses) on investments 10,167 (188) 52,712 (4,030) 58,661
Movement in accrued interest (14) 1,071 - (82) 975
At 29 February 2016 386,173 168,797 366,158 63,570 984,698
Fair value of Zero Dividend Preference ("ZDP") shares
The fair value of the ZDP shares is deemed to be their quoted market price. As
at 28 February 2017 the ask price for the ZDP (2022) shares was £4.22 (29
February 2016: £3.85) the total fair value of the ZDP shares was $62,532,000
(29 February 2016: $63,889,000) which is $8,597,000 (29 February 2016:
$6,489,000) higher than the liability recorded in the Statement of Financial
Position.
ZDP shares are recorded at amortised cost and would fall in to the Level 1
hierarchy if valued at FVTPL.
6. Net Gain on Investments at Fair Value Through Profit or Loss
Year Year
Ended Ended
28.2.2017 29.2.2016
US$ '000 US$ '000
Gains on investments held in investment portfolio at year
end 16,069 91,784
Net movement in unrealised gains in year
Net unrealised gains/(losses) in prior years now realised 11,908 (31,636)
Net movement in unrealised gains in the year 27,977 60,148
Gains/(losses) on investments realised in year
Proceeds from investments realised 183,210 236,761
Cost of investments realised (170,580) (273,457)
Net realised gains/(losses) based on book cost 12,630 (36,696)
Net unrealised (gains)/losses in prior years now realised (11,908) 31,636
Total gains/(losses) in the year on investments realised in 722 (5,060)
year
Net gain on investments in the year 28,699 55,088
7. Write Back of Impairments on Loans and Receivables
Year Ended Year
Ended
28.2.2017 29.2.2016
US$ '000 US$ '000
Unrealised write back of impairments on loans and - 61
receivables
Proceeds from loans 3,114 2,886
repaid
Cost of loans repaid (2,976) (353)
Write back of Impairments recognised in 2,236 -
earlier years
2,374 2,533
Write back of impairments on loans and 2,374 2,594
receivables
1. Investment Income
Year Year
Ended Ended
28.2.2017 29.2.2016
US$ '000 US$ '000
Income from investments classified as FVTPL 25,599 28,491
Income from investments classified as loans and 100 42
receivables
25,699 28,533
Income for the year ended 28 February
2017
Preferred Loan note Other
Dividends Dividends PIK Cash Interest Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap - 16,464 940 2,993 88 20,485
portfolio
European micro-cap - - 3,841 739 - 4,580
portfolio
Real estate - - - - 322 322
Other investments - 120 - 181 - 301
Treasury gilts and - - - 11 - 11
corporate bonds
- 16,584 4,781 3,924 410 25,699
Income for the year ended 29 February
2016
Preferred Loan note Other
Dividends Dividends PIK Cash Interest Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap 1,326 14,198 3,259 3,470 - 22,253
portfolio
European micro-cap - - 1,995 1,653 324 3,972
portfolio
Real estate - - - - 728 728
Other investments - - 42 - 809 851
Treasury gilts and - - - - 729 729
corporate bonds
1,326 14,198 5,296 5,123 2,590 28,533
9. Finance Costs
Year Year
Ended Ended
28.2.2017 29.2.2016
US$ '000 US$ '000
CULS finance costs paid (Note 14) 3,190 3,497
ZDP (2022) shares (Note 15) 2,853 1,296
ZDP (2016) shares (Note 15) 1,180 6,459
Loan - Guggenheim (Note 16) 7,545 5,298
Loan - Jefferies Finance, LLC (Note 16) - 1,431
Margin loan interest 70 241
Refund of issue costs (74) -
14,764 18,222
10. Expenses
Year Year
Ended Ended
28.2.2017 29.2.2016
US$ '000 US$ '000
Investment Adviser's base fee 16,865 15,510
Investment Adviser's incentive fee 12,404 15,450
Directors' remuneration 415 415
29,684 31,375
Administrative expenses:
Legal fees 584 640
Other expenses 376 380
Accounting, secretarial and 350 350
administration fees
Other professional fees 349 405
Auditors' remuneration 322 313
Auditors' remuneration - non-audit 111 137
fees
Custodian fees 43 73
2,135 2,298
Total expenses 31,819 33,673
Administration Fees
Northern Trust International Fund Administration Services (Guernsey) Limited
was appointed as Administrator to the Company on 1 September 2012. The
Administrator is entitled to an annual fee of $350,000 (29 February 2016:
$350,000) payable quarterly in arrears. Fees payable to the Administrator are
subject to an annual fee review.
Directors'remuneration
For the years ended 28 February 2017 and 29 February 2016, the Chairman was
entitled to a fee of $160,000 per annum and the Chairman of the Audit Committee
was entitled to a fee of US$70,000 per annum, all other directors are entitled
to a fee of US$60,000 with one director receiving an additional $5,000 for
extra responsibilities. For the year ended 28 February 2017 total Directors'
fees included in the Statement of Comprehensive Income were $415,000 (year
ended 29 February 2016: US$415,000), of this amount $68,000 was outstanding at
the year end (29 February 2016: $80,000).
Investment Advisory and Performance fees
The Company entered into the amended and restated investment advisory and
management agreement with Jordan/Zalaznick Advisers, Inc. (the "Investment
Adviser") on 23 December 2010 (the "Advisory Agreement").
Pursuant to the Advisory Agreement, the Investment Adviser is entitled to a
base management fee and to an incentive fee. The base management fee is an
amount equal to 1.5 per cent. per annum of the average total assets under
management of the Company less excluded assets as defined under the terms of
the Advisory Agreement. The base management fee is payable quarterly in
arrears; the agreement provides that payments in advance on account of the base
management fee will be made.
For the year ended 28 February 2017, total investment advisory and management
expenses, based on the average total assets of the Company, were included in
the Statement of Comprehensive Income of $16,865,000 (year ended 29 February
2016: $15,510,000). Of this amount $2,026,000 (29 February 2016: $2,145,000)
was due and payable at the year end.
The incentive fee has two parts. The first part is calculated by reference to
the net investment income of the Company ("Income Incentive fee") and is
payable quarterly in arrears provided that the net investment income for the
quarter exceeds 2 per cent of the average of the net asset value of the Company
for that quarter (the "hurdle") (8 per cent. annualised). The fee is an amount
equal to (a) 100 per cent of that proportion of the net investment income for
the quarter as exceeds the hurdle, up to an amount equal to a hurdle of 2.5%,
and (b) 20 per cent. of the net investment income of the Company above a hurdle
of 2.5% in any quarter. Investments categorised as legacy investments and other
assets identified by the Company as being excluded are excluded from the
calculation of the fee. A true-up calculation is also prepared at the end of
each financial year to determine if further fees are payable to the Investment
Adviser or if any amounts are recoverable from future income incentive fees.
For the years ended 28 February 2017 and 29 February 2016 there was no income
incentive fee.
The second part of the incentive fee is calculated by reference to the net
realised capital gains ("Capital Gains Incentive fee") of the Company and is
equal to: (a) 20 per cent. of the realised capital gains of the Company for
each financial year less all realised capital losses of the Company for the
year less (b) the aggregate of all previous capital gains incentive fees paid
by the Company to the Investment Adviser. The capital gains incentive is
payable in arrears within 90 days of the fiscal year end. Investments
categorised as legacy investments and assets of the EuroMicrocap Fund 2010, LP,
EuroMicrocap-C Fund, L.P. and JZI Fund III, L.P. are excluded from the
calculation of the fee.
For the purpose of calculating incentive fees cumulative preferred dividends
received on the disposal of an investment are treated as a capital return
rather than a receipt of income.
At 28 February 2017 and 29 February 2016, due to cumulative net realised losses
there was no provision for an incentive fee based on realised gains. For the
year ended 28 February 2017, for the purpose of the capital gains incentive fee
("CGIF") calculation JZCP had cumulative net realised capital losses of
$9,572,000 (29 February 2016: $22,667,000), an amount which the Investment
Adviser must cover through realised gains before being able to earn an
incentive fee going forward. Cumulative net realised capital losses are offset
against the unrealised provision for capital gains until a net realised gain
provision arises.
The Company also provides for a CGIF based on unrealised gains, calculated on
the same basis as that of the fee on realised gains/losses. For the year ended
28 February 2017 a provision of $37,293,000 (2016: $24,889,000) has been
included.
Provision Provision Paid In Charge to
At At Year Income
Statement
28.2.2017 29.2.2016 28.2.2017 28.2.2017
US$ '000 US$ '000 US$ '000 US$ '000
Provision for CGIF on 37,293 24,889 n/a 12,404
unrealised investments
CGIF on realised investments - - - -
12,404
Provision Provision Paid In Charge to
At At Year Income
Statement
29.2.2016 28.2.2015 29.2.2016 29.2.2016
US$ '000 US$ '000 US$ '000 US$ '000
Provision for CGIF on 24,889 9,439 n/a 15,450
unrealised investments
CGIF on realised investments - 13,156 13,156 -
15,450
The Advisory Agreement may be terminated by the Company or the Investment
Adviser upon not less than two and one-half years' (i.e. 913 days') prior
notice (or such lesser period as may be agreed by the Company and Investment
Adviser).
Custodian Fees
HSBC Bank (USA) N.A, (the "Custodian") was appointed on 12 May 2008 under a
custodian agreement. The Custodian is entitled to receive an annual fee of
$2,000 and a transaction fee of $50 per transaction. For the year ended 28
February 2017, total Custodian expenses of $43,000 (29 February 2016: $73,000)
were included in the Statement of Comprehensive Income of which $8,000 (29
February 2016: $14,000) was outstanding at the year end and is included within
Other Payables.
Auditors' Remuneration
During the year ended 28 February 2017, the Company incurred fees for audit
services of $322,000 (29 February 2016: $313,000). Fees are also payable to
Ernst & Young for non-audit services (reporting accountant services, interim
review and taxation services in relation to the Company's status as a Passive
Foreign Investment Company).
28.2.2017 29.2.2016
Audit fees US$ '000 US$ '000
Audit fees - 2017: £211,500 (2016: £163,000) 262 230
2016 - Additional fees charged not accrued at 29.2.2016 60 -
(£40,000)
2015 - Additional fees charged not accrued at 28.2.2015 - 66
Disbursements payable to Ernst & Young - 17
Total audit fees 322 313
Non-audit fees paid to Ernst & Young US$ '000 US$ '000
Interim Review - Invoiced in sterling 2017: £40,000 (2016: £ 51 42
28,000)
Taxation services - 2016 60 -
Taxation services - 2015 - 60
Taxation services - 2014 - 35
Direct charge to expenses 111 137
Reporting Accountant services - Sterling 2016: £267,0001 - 406
Total non-audit fees 111 543
(1) Fees paid to Ernst & Young regarding the issue of Ordinary shares amount
to $263,000 and are included within share issue costs which are debited to
stated capital reserve. Fees paid of $143,000 regarding the rollover of ZDP
shares are deducted from the cost and amortised to finance costs over the life
of the shares.
11. Taxation
The company has been granted Guernsey tax exempt status in accordance with The
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended) in exchange
for a £1,200 annual fee.
During the year, taxes of $713,000 were withheld from the proceeds from the
refinancing of the Company's investment in Trilateral Holdings. During the year
ended 29 February 2016, the Company provided for withholding tax of $398,000 on
a dividend received from a private investment.
12. Investments
Categories of financial instruments Listed Unlisted Carrying
28.2.2017 28.2.2017 Value
28.2.2017
US$ '000 US$ '000 US$ '000
Fair value through profit or loss (FVTPL) - 1,069,180 1,069,180
- 1,069,180 1,069,180
Listed Unlisted Total
28.2.2017 28.2.2017 28.2.2017
US$ '000 US$ '000 US$ '000
Book cost at 1 March 2016 61,971 832,007 893,978
Investments in year including capital calls - 159,523 159,523
Payment in kind ("PIK") - 17,911 17,911
Proceeds from investments realised (60,523) (125,801) (186,324)
Net realised (losses)/gains (1,448) 14,216 12,768
Book cost at 28 February 2017 - 897,856 897,856
Unrealised gains at 28 February 2017 - 157,468 157,468
Accrued interest at 28 February 2017 - 13,856 13,856
Carrying value at 28 February 2017 - 1,069,180 1,069,180
Comparative reconciliation for the year ended 29
February 2016
Categories of financial instruments Listed Unlisted Carrying
Value
29.2.2016 29.2.2016 29.2.2016
US$ '000 US$ '000 US$ '000
Fair value through profit or loss (FVTPL) 58,644 984,698 1,043,342
Loans and receivables - 750 750
58,644 985,448 1,044,092
Listed Unlisted Total
29.2.2016 29.2.2016 29.2.2016
US$ '000 US$ '000 US$ '000
Book cost at 1 March 2015(1) 57,321 775,225 832,546
Investments in year including capital calls 45,381 272,715 318,096
Payment in kind ("PIK") - 17,146 17,146
Proceeds from investments realised (36,037) (203,610) (239,647)
Net realised losses (4,694) (29,469) (34,163)
Book cost at 29 February 2016 61,971 832,007 893,978
Unrealised (losses)/gains at 29 February 2016 (3,329) 142,492 139,163
Accrued interest at 29 February 2016 2 10,949 10,951
Carrying value at 29 February 2016 58,644 985,448 1,044,092
The above book cost is the cost to JZCP equating to the transfer value as at 1
July 2008 upon the liquidation of JZEP and adjusted for subsequent
transactions.
The cost of PIK investments is deemed to be interest not received in cash but
settled by the issue of further securities when that interest has been
recognised in the Statement of Comprehensive Income.
Investment in Associates
An associate is an entity over which the Company has significant influence. An
entity is regarded as a subsidiary only if the Company has control over its
strategic, operating and financial policies and intends to hold the investment
on a long-term basis for the purpose of securing a contribution to the
Company's activities. The Company has elected for an exemption for 'equity
accounting' for associates and instead classifies its associates as Investments
at fair value through profit or loss.
Place of incorporation % 28.2.2017 29.2.2016
Entity Interest US$'000 US$'000
EuroMicrocap Fund 2010, L.P. ("EMC Cayman 75% 21,433 46,918
2010")
EuroMicrocap Fund-C, L.P. Cayman 75% 61,482 57,907
("EMC-C")
JZI Fund III GP, L.P. (has 18.75% Cayman 75% 26,779 22,159
partnership interest in JZI Fund III,
L.P.)
Spruceview Capital Partners, LLC Delaware 49% 16,093 16,510
Orangewood Partners Platform LLC1 Delaware 79% 56,731 25,750
Investments in associates at fair value 182,518 169,244
1Invests in K2 Towers, George Industries and Peaceable Street Capital LLC.
The principal activity of all the EuroMicrocap Fund 2010, L.P.,EuroMicrocap
Fund-C,L.P. and Orangewood Partners Platform LLC is the acquisition of
micro-cap companies. The principal activity of Spruceview Capital, LLC is that
of an asset management company. There are no significant restrictions on the
ability of associates to transfer funds to the Company in the form of dividends
or repayment of loans or advances.
The Company's maximum exposure to losses from the associates (shown below)
equates to the carrying value plus outstanding commitments:
Entity 28.2.2017 29.2.2016
US$'000 US$'000
EuroMicrocap Fund 2010, L.P. ("EMC 2010") 21,433 46,918
EuroMicrocap Fund-C, L.P. ("EMC-C") 61,482 57,907
JZI Fund III GP, L.P. 83,189 82,605
Orangewood Partners Platform LLC (Invests in K2 Towers, 56,731 47,000
Spruceview Capital Partners, LLC 24,929 29,846
247,764 264,276
During Q1 2016, the investment in Oro Direct was transferred from EMC 2010 to
EMC-C, the investment was transferred at fair value being $2,780,000 or €
2,559,000.
Investment in Subsidiaries
The principal place of business for subsidiaries is the USA. The Company meets
the definition of an Investment Entity in accordance with IFRS 10. Therefore,
it does not consolidate its subsidiaries but rather recognises them as
investments at fair value through profit or loss.
Entity Place of incorporation % 28.2.2017 29.2.2016
Interest US$'000 US$'000
JZCP Realty Fund Ltd Cayman 100% 468,599 366,158
JZCP Bright Spruce Ltd(1) Cayman 100% 4,500 45,940
JZBC, Inc. (Invests in Spruceview Capital Delaware 99% 16,093 16,510
Partners, LLC)
Investments in subsidiaries at fair value 489,192 428,608
(1)During the year, the majority of JZCP's investment in JZCP Bright Spruce Ltd
was liquidated. JZCP received total proceeds of $44,537,000, at the year end
the remaining investment is valued at $4,500,000.
There are no significant restrictions on the ability of subsidiaries to
transfer funds to the Company. The Company has no contractual commitments to
provide any financial or other support to its unconsolidated subsidiaries.
JZCP Realty Fund, Ltd has a 100% interest in the following Delaware
incorporated entities: JZCP Loan Metropolitan Corp, JZCP Loan 1 Corp, JZCP Loan
Flatbush Portfolio Corp, JZCP Loan Flatbush Corp, JZCP Loan Fulton Corp, JZ
REIT Fund Greenpoint, LLC, JZ REIT Fund Florida, LLC, JZCP Loan Florida Corp,
JZCP Loan Design Corp and JZ REIT Fund Design LLC.
JZCP Realty Fund, Ltd has a 99% interest in the following Delaware incorporated
entities: JZ REIT Fund Metropolitan, LLC, JZ REIT Fund 1, LLC, JZ REIT Fund
Flatbush Portfolio, LLC, JZ REIT Fund Flatbush, LLC, JZ REIT Fund Fulton, LLC
and JZCP Loan Greenpoint Corp.
13. Other Receivables
28.2.2017 29.2.2016
US$ '000 US$ '000
Accrued interest due from JZCP 495 495
Realty Fund
Other receivables and prepayments 25 38
Deposits paid on behalf of JZCP - 3,018
Realty Fund
520 3,551
14. Convertible Subordinated Unsecured Loan Stock ("CULS")
On 30 July 2014, JZCP issued £38,861,140 6% CULS. Holders of CULS may convert
the whole or part (being an integral multiple of £10 in nominal amount) of
their CULS into Ordinary Shares. Conversion Rights may be exercised at any time
during the period from 30 September 2014 to 10 business days prior to the
Maturity date being the 30 July 2021. The initial conversion price is £6.0373
per Ordinary Share, which shall be subject to adjustment to deal with certain
events which would otherwise dilute the conversion of the CULS. These events
include consolidation of Ordinary Shares, dividend payments made by the
Company, issues of shares, rights, share-related securities and other
securities by the Company and other events as detailed in the Prospectus.
CULS bear interest on their nominal amount at the rate of 6.00 per cent. per
annum, payable semi-annually in arrears. During the year ended 28 February
2017: $3,190,000 (29 February 2016: $3,497,000) of interest was paid to holders
of CULS and is shown as a finance cost in the Statement of Comprehensive
Income.
28.2.2017 29.2.2016
US$ '000 US$ '000
Fair Value of CULS at 1 March 59,573 67,563
Unrealised movement in fair value of CULS 4,332 (1,501)
Unrealised currency gain to the Company on translation (6,842) (6,489)
during the year
Fair Value of CULS based on offer price 57,063 59,573
15. Zero Dividend Preference ("ZDP") Shares
ZDP shares were issued on 22 June 2009 at a price of 215.80 pence and were
designed to provide a pre-determined final capital entitlement of 369.84 pence
on 22 June 2016 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. The capital appreciation of approximately 8% per annum is
calculated monthly. In certain circumstances, ZDP shares carry the right to
vote at general meetings of the Company as detailed in the Company's Memorandum
of Articles and Incorporation. Issue costs are deducted from the cost of the
liability and allocated to the Statement of Comprehensive Income over the life
of the ZDP shares.
On 1 October 2015, the Company rolled over 11,907,720 existing ZDP shares in to
new ZDP shares with a 2022 maturity date. The new ZDP shares have a gross
redemption yield of 4.75% and a total redemption value of £57,598,000
(approximately $87,246,000 using the exchange rate on date of rollover). The
remaining 8,799,421 ZDP (2016) shares were redeemed on 22 June 2016 the total
redemption value being £32,870,000. The redemption value of £32,870,000
included a 1% premium agreed as part of the terms of the rollover, the premium
was treated as an issue cost of the 2022 ZDPs and is accounted for accordingly.
ZDP (2022) Shares 28.2.2017 29.2.2016
US$ '000 US$ '000
ZDP shares issued 1 October 2015
Rollover - from ZDP (2016) shares - 63,085
Issue costs - (1,997)
Amortised cost at 1 March 2016/1 October 2015 57,400 61,088
Finance costs allocated to Statement of Comprehensive 2,853 1,296
Income
Unrealised currency gain to the Company on translation (6,318) (4,984)
during the year
Amortised cost at year end 53,935 57,400
Total number of ZDP (2022) shares in issue 11,907,720 11,907,720
ZDP (2016) Shares 28.2.2017 29.2.2016
US$ '000 US$ '000
ZDP shares issued 22 June 2009
Amortised cost at 1 March 44,217 106,813
Finance costs allocated to Statement of Comprehensive 1,180 6,459
Income
Redeemed 22 June 2016 (47,863) -
Rollover - to ZDP (2022) shares - (63,085)
Unrealised currency (loss)/gain to the Company on 2,466 (5,970)
translation during the year
Amortised cost at year end - 44,217
Total number of ZDP (2016) shares in issue - 8,799,421
16. Loans Payable
28.2.2017 29.2.2016
US$ '000 US$ '000
Guggenheim Partners Limited 97,396 97,011
97,396 97,011
Guggenheim Partners Limited
On 12 June 2015, JZCP entered into a loan agreement with Guggenheim Partners
Limited. The agreement was structured so that part of the proceeds (€18
million) were received and will be repaid in Euros and the remainder of the
facility received in US dollars ($80 million).
The loan matures on 12 June 2021 (6 year term) and interest is payable at 5.75%
+ LIBOR(1). There is an interest rate floor that stipulates LIBOR will not be
lower than 1%. Under IFRS an interest rate floor that is initially in the money
meets the criteria of an embedded derivative which is not closely related to
the host contract and should therefore be separated from the host loan contract
and measured at fair value. However, in this agreement, the presence of the
floor does not significantly alter the amortised cost of the instrument to be
deemed to be not closely related, therefore separation is not required and the
loan is valued at amortised cost using the effective interest rate method.
At 28 February 2017, investments valued at $918,140,000 (29 February 2016:
$602,780,000) were held as collateral on the loan. A covenant on the loan
states the fair value of the collateral must be 4x the loan value and the cost
of collateral must be at least 57.5% of total assets. The Company is also
required to hold a minimum cash balance of $15 million plus 50% of interest on
any new debt. At 28 February 2017 and throughout the year, the Company was in
full compliance with covenant terms.
There is an early repayment charge of 1% of the total loan if repaid before 12
June 2017.
28.2.2017 29.2.2016
US$ '000 US$ '000
Amortised cost (US$ drawdown) - 1 March 2016 77,916 -
Amortised cost (Euro drawdown) - 1 March 2016 19,095 -
Proceeds - 12 June 2015 (US dollar drawdown) - 80,000
Proceeds - 12 June 2015 (Euro draw down €18 million) - 20,283
Issue costs - (4,033)
Finance costs charged to Statement of Comprehensive Income 7,545 5,298
Interest and finance costs paid (6,723) (3,825)
Unrealised currency gain on translation of Euro drawdown (437) (712)
Amortised cost at year end 97,396 97,011
Amortised cost (US dollar drawdown) 78,572 77,916
Amortised cost (Euro drawdown) 18,824 19,095
97,396 97,011
(1) LIBOR rates applied are the US dollar 3 month rate ($80 million) and the
Euro 3 month rate (€18 million).
The carrying value of the loans approximates to fair value.
17. Other Payables
28.2.2017 29.2.2016
US$ '000 US$ '000
Provision for tax on dividends received not 1,401 1,401
withheld at source
Legal fee provision 250 250
Audit fees 224 116
Directors' remuneration 68 80
Other expenses 263 273
ZDP issue costs - 486
2,206 2,606
18. Stated Capital
Authorised Capital
Unlimited number of ordinary shares of no par
value.
Ordinary shares - Issued Capital
28.2.2017 29.2.2016
Number of Number of
shares shares
Total Ordinary shares in issue 83,907,516 83,907,516
The Company's shares trade on the London Stock Exchange's Specialist Fund
Segment.
On 30 September 2015, a placing and open offer of Ordinary shares resulted in a
further 18,888,909 Ordinary shares being issued at £4.1919 per share.
The Ordinary shares carry a right to receive the profits of the Company
available for distribution by dividend and resolved to be distributed by way of
dividend to be made at such time as determined by the Directors.
In addition to receiving the income distributed, the Ordinary shares are
entitled to the net assets of the Company on a winding up, after all
liabilities have been settled and the entitlement of the ZDP shares has been
met. In addition, holders of Ordinary shares will be entitled on a winding up
to receive any accumulated but unpaid revenue reserves of the Company, subject
to all creditors having been paid out in full but in priority to the
entitlements of the ZDP shares. Any distribution of revenue reserves on a
winding up is currently expected to be made by way of a final special dividend
prior to the Company's eventual liquidation.
Holders of Ordinary shares have the rights to receive notice of, to attend and
to vote at all general meetings of the Company.
Capital raised on issue of new shares
Subsequent amounts raised by the issue of new shares, net of issue costs, are
credited to the stated capital account.
Stated capital account
28.2.2017 29.2.2016
US$ '000 US$ '000
At 1 March 265,685 149,269
Issue of Ordinary shares - 119,939
Issue costs - (3,523)
At year end 265,685 265,685
19. Capital Management
The Company's capital is represented by the Ordinary shares, ZDP shares and
CULS.
As a result of the ability to issue, repurchase and resell shares, the capital
of the Company can vary. The Company is not subject to externally imposed
capital requirements and has no restrictions on the issue, repurchase or resale
of its shares.
The Company's objectives for managing capital are:
•
•
•
•
The Company continues to keep under review opportunities to buy back Ordinary
or ZDP shares.
Subsequent to the year end, the Company discontinued the dividend policy to
distribute approximately 3% of the Company's net assets in the form of
dividends to Shareholders and adopted a new strategy enabling purchases by the
Company of its Ordinary Shares to be undertaken when opportunities in the
market permit, and as the Company's cash resources allow.
The Company monitors capital by analysing the NAV per share over time and
tracking the discount to the Company's share price. It also monitors the
performance of the existing investments to identify opportunities for exiting
at a reasonable return to the shareholders.
20. Reserves
Capital raised on formation of Company
The Royal Court of Guernsey granted that on the admission of the Company's
shares to the Official List and to trading on the London Stock Exchange's
market, the amount credited to the share premium account of the Company
immediately following the admission of such shares be cancelled and any surplus
thereby created accrue to the Company's distributable reserves to be used for
all purposes permitted by The Companies (Guernsey) Law, 2008, including the
purchase of shares and the payment of dividends.
Summary of reserves attributable to Ordinary shareholders
28.2.2017 29.2.2016
US$ '000 US$ '000
Stated capital account 265,685 265,685
Other reserve 353,528 353,528
Capital reserve 173,871 156,786
Revenue reserve 55,760 75,740
848,844 851,739
Other reserve
There was no movement in the Company's Other reserve for the years ended 28
February 2017 and 29 February 2016. Subject to satisfaction of the solvency
test, all of the Company's capital and reserves are distributable in accordance
with The Companies (Guernsey) Law, 2008.
Capital reserve
All surpluses arising from the realisation or revaluation of investments and
all other capital profits and accretions of capital are credited to the Capital
reserve. Any loss arising from the realisation or revaluation of investments or
any expense, loss or liability classified as capital in nature may be debited
to the Capital reserve.
Realised Unrealised Total
28.2.2017 28.2.2017 28.2.2017
US$ '000 US$ '000 US$ '000
At 1 March 2016 59,560 97,226 156,786
Net gains on investments 12,768 18,305 31,073
Net (losses)/gains on foreign currency exchange (4,603) 9,331 4,728
Realised gains on investments held in escrow accounts 5,942 - 5,942
Expenses charged to capital - (12,404) (12,404)
Net gain on CULS - 2,510 2,510
Finance costs (11,089) (3,675) (14,764)
Prior year ZDP (2016) finance costs and currency gains (34,544) 34,544 -
now realised
At 28 February 2017 28,034 145,837 173,871
Realised Unrealised Total
29.2.2016 29.2.2016 29.2.2016
US$ '000 US$ '000 US$ '000
At 1 March 2015 104,657 10,539 115,196
Net gains on investments (34,163) 91,845 57,682
Net (losses)/gains on foreign currency exchange (3,213) 11,269 8,056
Realised gains on investments held in escrow accounts 1,534 - 1,534
Expenses charged to capital - (15,450) (15,450)
Net gain on CULS - 7,990 7,990
Finance costs (9,255) (8,967) (18,222)
At 29 February 2016 59,560 97,226 156,786
Revenue reserve
28.2.2017 29.2.2016
US$ '000 US$ '000
At 1 March 75,740 87,517
Profit for the year attributable to revenue 5,612 10,004
Dividend paid (25,592) (21,781)
At year end 55,760 75,740
21. Financial Risk Management Objectives and Policies
Introduction
The Company's objective in managing risk is the creation and protection of
shareholder value. Risk is inherent in the Company's activities, but it is
managed through a process of ongoing identification, measurement and
monitoring, subject to risk limits and other controls. The process of risk
management is critical to the Company's continuing profitability. The Company
is exposed to market risk (including currency risk, fair value interest rate
risk, cash flow interest rate risk and price risk), credit risk and liquidity
risk arising from the financial instruments it holds.
Risk management structure
The Company's Investment Adviser is responsible for identifying and controlling
risks. The Directors supervise the Investment Adviser and are ultimately
responsible for the overall risk management approach within the Company.
Risk mitigation
The Company's prospectus sets out its overall business strategies, its
tolerance for risk and its general risk management philosophy. The Company may
use derivatives and other instruments for trading purposes and in connection
with its risk management activities.
Market risk
Market risk is defined as "the risk that the fair value or future cash flows of
a financial instrument will fluctuate because of changes in variables such as
equity price, interest rate and foreign currency rate".
The Company's investments are subject to normal market fluctuations and there
can be no assurance that no depreciation in the value of those investments will
occur. There can be no guarantee that any realisation of an investment will be
on a basis which necessarily reflects the Company's valuation of that
investment for the purposes of calculating the NAV of the Company.
Changes in industry conditions, competition, political and diplomatic events,
tax, environmental and other laws and other factors, whether affecting the
United States alone or other countries and regions more widely, can
substantially and either adversely or favourably affect the value of the
securities in which the Company invests and, therefore, the Company's
performance and prospects.
The Company's market price risk is managed through diversification of the
investment portfolio across various sectors. The Investment Adviser considers
each investment purchase to ensure that an acquisition will enable the Company
to continue to have an appropriate spread of market risk and that an
appropriate risk/reward profile is maintained.
Equity price risk
Equity price risk is the risk of unfavourable changes in the fair values of
equity investments as a result of changes in the value of individual shares.
The equity price risk exposure arose from the Company's investments in equity
securities.
The Company does not generally invest in liquid equity investments and the
previous portfolio of listed equity investments resulted from the successful
flotation of unlisted investments.
For unlisted equity and non-equity shares the market risk is deemed to be
inherent in the appropriate valuation methodology (earnings, multiples,
capitalisation rates etc). The impact on fair value and subsequent profit or
loss, due to movements in these variables, is set out in Note 5.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates
will affect future cash flows or the fair values of financial instruments. It
has not been the Company's policy to use derivative instruments to mitigate
interest rate risk, as the Investment Adviser believes that the effectiveness
of such instruments does not justify the costs involved.
The table below summarises the Company's exposure to interest rate risks:
Non
Interest bearing interest
Fixed Floating bearing Total
rate rate
28.2.2017 28.2.2017 28.2.2017 28.2.2017
US$ '000 US$ '000 US$ '000 US$ '000
Investments at FVTPL 233,831 - 835,349 1,069,180
Other receivables and - - 520 520
prepayments
Cash and cash equivalents - 29,063 - 29,063
Loans payable - (97,396) - (97,396)
ZDP shares (2022) (53,935) - - (53,935)
CULS (57,063) - - (57,063)
Other payables - - (41,525) (41,525)
122,833 (68,333) 794,344 848,844
The table below summarises the Company's exposure to interest rate risks:
Interest bearing Non
interest
Fixed Floating bearing Total
rate rate
29.2.2016 29.2.2016 29.2.2016 29.2.2016
US$ '000 US$ '000 US$ '000 US$ '000
Investments at FVTPL 312,563 - 730,779 1,043,342
Loans and receivables 750 - - 750
Other receivables and prepayments - - 3,551 3,551
Cash and cash equivalents - 91,937 - 91,937
Loans payable - (97,011) - (97,011)
ZDP shares (2022) (57,400) - - (57,400)
ZDP shares (2016) (44,217) - - (44,217)
CULS (59,573) - - (59,573)
Other payables - - (29,640) (29,640)
Total net assets 152,123 (5,074) 704,690 851,739
The following table analyses the Company's exposure in terms of the interest
bearing assets and liabilities maturity dates.
As at 28 February
2017
0-3 4-12 1 - 3 3 -5 > 5 years No Total
months months years years maturity
date
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Investments at 18,249 - 40,809 9,734 - 165,039 233,831
FVTPL
Cash and cash - - - - - 29,063 29,063
equivalents
Loans payable - - - (97,396) - - (97,396)
ZDP shares (2022) - - - - (53,935) - (53,935)
CULS - - - (57,063) - - (57,063)
18,249 - 40,809 (144,725) (53,935) 194,102 54,500
As at 29 February
2016
0-3 4-12 1 - 3 3 -5 > 5 years No Total
months months years years maturity
date
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Investments at 51,371 13,036 50,291 3,050 3,658 191,157 312,563
FVTPL
Loans and - 750 - - - - 750
receivables
Cash and cash - - - - - 91,937 91,937
equivalents
Loans payable - - - - (97,011) - (97,011)
ZDP shares (2022) - - - - (57,400) - (57,400)
ZDP shares (2016) - (44,217) - - - - (44,217)
CULS - - - - (59,573) - (59,573)
51,371 (30,431) 50,291 3,050 (210,326) 283,094 147,049
The income receivable by the Company is not subject to significant amounts of
risk due to fluctuations in the prevailing levels of market interest rates.
However, whilst the income received from fixed rate securities is unaffected by
changes in interest rates, the investments are subject to risk in the movement
of fair value. The Investment Adviser considers the risk in the movement of
fair value as a result of changes in the market interest rate for fixed rate
securities to be insignificant, hence no sensitivity analysis is provided.
The Company values the CULS issued at fair value, being the quoted offer price.
As the stock has a fixed interest rate of 6% an increase/decrease of prevailing
interest rates will potentially have an effect on the demand for the CULS and
the subsequent fair value. Other factors such as the Company's ordinary share
price and credit rating will also determine the quoted offer price. The overall
risk to the Company due to the impact of interest rate changes to the CULS'
fair value is deemed immaterial. Therefore no sensitivity analysis is
presented.
During the year the Company realised its remaining investment in bank lien
debt. The market values of these floating rate instruments were influenced by
factors such as the performance of the issuer and bank liquidity and not by a
change in prevailing interest rates. Investment income received was sensitive
to the prevailing 3 month floating LIBOR rate.
Of the cash and cash equivalents held, $29,063,000 (29 February 2016:
$91,937,000) earns interest at variable rates and the income may rise and fall
depending on changes to interest rates.
The Investment Adviser monitors the Company's overall interest sensitivity on a
regular basis by reference to prevailing interest rates and the level of the
Company's cash balances. The Company has not used derivatives to mitigate the
impact of changes in interest rates.
The table below demonstrates the sensitivity of the Company's profit/(loss) for
the year to a reasonably possible change in interest rates. The Company has
cash at bank and loans payable for which interest receivable and payable are
sensitive to a fluctuation to rates. The below sensitivity analysis assumes
year end balances and interest rates are constant through the year.
Interest Receivable Interest Payable
28.2.2017 29.2.2016 28.2.2017 29.2.2016
Change in basis points increase/decrease US$ '000 US$ '000 US$ '000 US$ '000
+100/-100 291/(58) 919/(129) (800)/nil (485)/nil
+300/-300 872/(58) 2,758/ (2,713)/ (2,425)/
(129) nil nil
Currency risk is the risk that the value of a financial instrument will
fluctuate due to changes in foreign exchange rates.
Changes in exchange rates are considered to impact the fair value of the
Company's investments denominated in Euros and Sterling. However, under IFRS
the foreign currency risk on these investments is deemed to be part of the
market price risk associated with such holding such non-monetary investments.
As the information relating to the non-monetary investments is significant, the
Company also provides the total exposure and sensitivity changes on
non-monetary investments on a voluntary basis.
The following table sets out the Company's exposure by currency to foreign
currency risk.
Exposure to Monetary Assets (held in foreign currencies)
Euro Sterling Total Euro Sterling Total
28.2.2017 28.2.2017 28.2.2017 29.2.2016 29.2.2016 29.2.2016
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Cash at Bank 4,803 705 5,508 30,024 5,600 35,624
Other Receivables - 25 25 - 38 38
Liabilities
CULS - (57,063) (57,063) - (59,573) (59,573)
ZDP (2022) shares - (53,935) (53,935) - (57,400) (57,400)
ZDP (2016) shares - - - - (44,217) (44,217)
Loans payable (18,824) - (18,824) (19,095) - (19,095)
Other payables - (311) (311) - (727) (727)
Net Currency (14,021) (110,579) (124,600) 10,929 (156,279) (145,350)
Exposure
The sensitivity analysis for monetary and non-monetary net assets calculates
the effect of a reasonably possible movement of the currency rate against the
US dollar on an increase or decrease in net assets attributable to shareholders
with all other variables held constant. An equivalent decrease in each of the
aforementioned currencies against the US dollar would have resulted in an
equivalent but opposite impact.
Currency Change in Effect on net assets attributable to
Currency Rate shareholders (relates to monetary
financial assets and liabilities)
28.2.2017 29.2.2016
US$ '000 US$ '000
Euro +10% (1,402) 1,093
GBP +10% (11,058) (15,628)
Exposure to Non-Monetary Assets (held in foreign currencies)
Euro Sterling Total Euro Sterling Total
28.2.2017 28.2.2017 28.2.2017 29.2.2016 29.2.2016 29.2.2016
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Financial assets at FVTPL 150,742 4,285 155,027 154,869 72,672 227,541
Net Currency Exposure 150,742 4,285 155,027 154,869 72,672 227,541
Change in Effect on net assets attributable to
shareholders
Currency Currency Rate (relates to non-monetary financial
assets)
28.2.2017 29.2.2016
US$ '000 US$ '000
Euro +10% 15,074 15,487
GBP +10% 429 7,267
Credit risk
The Company takes on exposures to credit risk, which is the risk that a
counterparty to a financial instrument will cause a financial loss to the
Company by failing to discharge an obligation. These credit exposures exist
within debt instruments and cash & cash equivalents.
They may arise, for example, from a decline in the financial condition of a
counterparty or from entering into derivative contracts under which
counterparties have obligations to make payments to the Company. As the
Company's credit exposure increases, it could have an adverse effect on the
Company's business and profitability if material unexpected credit losses were
to occur.
In the event of any default on the Company's loan investments by a
counterparty, the Company will bear a risk of loss of principal and accrued
interest of the investment, which could have a material adverse effect on the
Company's income and ability to meet financial obligations.
In accordance with the Company's policy, the Investment Adviser regularly
monitors the Company's exposure to credit risk in its investment portfolio, by
reviewing the financial statements, budgets and forecasts of underlying
investee companies. Agency credit ratings do not apply to the Company's
investment in investee company debt. The 'credit quality' of the debt is deemed
to be reflected in the fair value valuation of the investee company.
The table below analyses the Company's maximum exposure to credit risk. The
maximum exposure is shown gross at the reporting date.
Total Total
28.2.2017 29.2.2016
US$ '000 US$ '000
US micro-cap debt 24,209 46,332
European micro-cap debt 44,583 41,814
Cash and cash equivalents 29,063 91,937
Corporate bond - 13,036
Other investments - 750
97,855 193,869
A proportion of micro-cap and mezzanine debt held does not entitle the Company
to interest payment in cash. This interest is capitalised (PIK) and as a result
there is a credit risk to the Company, as there is no return until the loan
plus all the interest, is repaid in full. During the year ended 28 February
2017, the Company recognised PIK interest of $4,895,000 (29 February 2016:
$5,296,000) from debt investments as income in the Statement of Comprehensive
Income in line with the Company's policy of recognising interest in proportion
to the carrying value versus cost.
An impairment review is performed by the Investment Adviser on investments
classified as loans and receivables on a quarterly basis. At 28 February 2017
the JZCP did not hold any investments classified as loans and receivables. At
29 February 2016, the Company held one Mezzanine investment which comprised a
debt element, the debt at year end was valued at $750,000 an impairment of
$2,107,000 on the original cost of $2,857,000.
The following table analyses the concentration of credit risk in the Company's
debt portfolio by industrial distribution.
28.2.2017 29.2.2016
US$ '000 US$ '000
Private Security 29% 18%
Financial General 27% 30%
Support Services 11% 7%
House, Leisure & Personal Goods 10% 6%
Logistics 9% 6%
Healthcare Services & Equipment 6% 13%
Telecom 4% 3%
Document Processing 4% 3%
Industrial Engineering 0% 10%
Water Treatment / Infrastructure 0% 3%
Construction & Materials 0% 1%
100% 100%
The Company's CULS are valued at fair value being the listed offer price at the
year end. Movement in the fair value due to changes in the offer price are
considered the result of increased demand due to the underlying price of the
Company's Ordinary shares and underlying interest rates, rather than changes in
the Company's credit risk.
The table below analyses the Company's cash and cash equivalents by rating
agency category.
Credit ratings
Standard & Poor's Fitch LT Issuer 28.2.2017 29.2.2016
Outlook Default Rating
US$ '000 US$ '000
HSBC Bank USA NA Negative (2016: AA- (2016: 25,620 91,332
Stable) AA-)
Raymond James Positive Baa2 3,267 -
Northern Trust Stable (2016: AA (2016: AA-) 176 62
(Guernsey) Limited Stable)
Deutsche Bank Negative (2016: A- (2016: A-) - 543
Stable)
29,063 91,937
Bankruptcy or insolvency of the Banks may cause the Company's rights with
respect to these assets to be delayed or limited. The Investment Adviser
monitors risk by reviewing the credit rating of the Bank. If credit quality
deteriorates, the Investment Adviser may move the holdings to another bank.
Liquidity risk
Liquidity risk is defined as the risk that the Company will encounter
difficulty in meeting obligations associated with financial liabilities.
Liquidity risk arises because of the possibility that the Company could be
required to pay its liabilities earlier than expected. There has been no change
during the year in the Company's processes and arrangements for managing
liquidity.
Many of the Company's investments are private equity, mezzanine loans and other
unlisted investments. By their nature, these investments will generally be of a
long term and illiquid nature and there may be no readily available market for
sale of these investments. None of the Company's assets/liabilities are subject
to special arrangement due to their illiquid nature.
The Company has capital requirements to repay CULS and a debt facility in 2021
and ZDP shareholders in 2022. At the year end the Company has outstanding
investment commitments of $76,751,000 (2016: $115,125,000) see Note 23.
The Company manages liquidity risk and the ability to meet its obligations by
monitoring current and expected cash balances from forecasted investment
activity.
The table below analyses JZCP's financial liabilities into relevant maturity
groups based on the remaining period at the reporting date to the contractual
maturity date. Amounts attributed to CULS and ZDP share include future
contractual interest payments. The provision for the payment of a capital gains
incentive fee is shown as 'no stated maturity,' as payment depends on future
realisations.
At 28 February 2017 Less than 1-3 years 3-5 years >5 years No stated
1 year maturity
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
CULS 2,737 5,167 40,687 - -
ZDP (2022) shares - - - 55,315 -
Loans payable 6,268 11,749 80,612 - -
Other payables 4,232 - - - 37,293
13,237 16,916 121,299 55,315 37,293
At 29 February 2016 Less than 1-3 years 3-5 years >5 years No stated
1 year maturity
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
CULS 3,065 5,620 5,002 41,683 -
ZDP (2022) shares - - - 64,527 -
ZDP (2016) shares 45,808 - - - -
Loans payable 6,295 11,421 10,022 72,748 -
Other payables 4,751 - - - 24,889
59,919 17,041 15,024 178,958 ` 24,889
22. Commitments
At 28 February 2017 and 29 February 2016, JZCP had the following financial
commitments outstanding in relation to fund investments:
Expected date 28.2.2017 29.2.2016
of Call US$ '000 US$ '000
JZI Fund III GP, L.P. (€53,087,000 Over 3 years 56,410 60,446
outstanding at year end)
Spruceview Capital Partners, LLC Over 2 years 8,836 13,336
Orizon < 1 year 4,158 12,745
Suzo Happ Group > 3 years 4,491 4,491
BSM Engenharia S.A. > 3 years 2,085 2,085
Igloo Products Corp > 3 years 771 772
Peaceable Street Capital, LLC Called - 21,250
76,751 115,125
23. Related Party Transactions
JZCP invests in European micro-cap companies via the EuroMicrocap Fund 2010,
L.P. ("EMC 2010"), EuroMicrocap Fund-C, L.P. ("EMC-C") and JZI Fund III, L.P.
("Fund III"). EMC 2010, EMC-C and Fund III are managed by JZ International LLC,
an affiliate of JZAI, JZCP's investment manager. JZAI was founded by David
Zalaznick and John ("Jay") Jordan. At 28 February 2017, JZCP's investments in
EMC 2010 were valued at $21,433,000 (29 February 2016: $46,918,000), EMC-C at
$61,482,000 (29 February 2016: $57,907,000) and Fund III at $26,779,000 (29
February 2016: $22,159,000).
During Q1 2016 the investment in Oro Direct was transferred from EMC 2010 to
EMC-C, the investment was transferred at fair value being $2,780,000 or €
2,559,000.
JZCP invests in Spruceview Capital Partners, LLC on a 50:50 basis with Jay
Jordan and David Zalaznick (or their respective affiliates). The total amount
committed by JZCP to this investment at 28 February 2017 was $30,000,000 with
$8,836,000 (29 February: $13,336,000) of commitments outstanding.
JZCP has co-invested with Fund A, Fund A Parallel I, II and III Limited
Partnerships in a number of US micro-cap buyouts. These Limited Partnerships
are managed by an affiliate of JZAI. JZCP invested in a ratio of 82%/18% with
the Fund A entities. At 28 February 2017, the total value of JZCP's
investment in these co-investments was $[326,290,000] (29 February 2016:
$324,848,000). Fund A, Fund A Parallel I, II and III Limited Partnerships are
no longer making platform investments alongside JZCP.
JZAI is a US based company that provides advisory services to the Board of
Directors of the Company in exchange for management fees, paid quarterly. Fees
paid by the Company to the Investment Adviser are detailed in Note 10.
JZCP is able to invest up to $75,000,000 in "New JI Platform Companies". The
platform companies are being established to invest primarily in buyouts and
build-ups of companies and in growth company platforms in the US micro-cap
market, primarily healthcare equipment companies. At 28 February 2017, JZCP had
invested $31,529,000 (29 February 2016: $18,000,000) in Jordan Health Products,
LLC. JZCP co-invests 50/50 in the platform companies with other investors ("JI
Members"). David Zalaznick and an affiliated entity of Jay Jordan own
approximately 33.7% of the JI members' ownership interests.
During the year, JZCP transferred part of its investment in K2 Towers, to Jay
Jordan. The investment was transferred at fair value being $1,100,000, which
equates to the cost to JZCP. A 'cost to carry' of $88,000, was paid to JZCP at
a rate of 8% on cost over the period the investment was held.
24. Basic and Diluted Earnings Per Share
Basic earnings per share is calculated by dividing the earnings for the year by
the weighted average number of Ordinary shares outstanding during the year.
The weighted average number of Ordinary shares outstanding has been calculated
as follows:
Number of Ordinary shares
28.2.2017 29.2.2016
Qualifying shares at beginning 83,907,516 65,018,607
of the year
Ordinary shares issued during year (18,888,909) - 7,896,183
adjusted for time apportionment
83,907,516 72,914,790
The weighted average of Ordinary shares is based on the average number of
Ordinary shares in issue during the year. During September 2015, a placing and
open offer of Ordinary shares resulted in 18,888,909 new Ordinary shares being
issued.
The diluted earnings per share are calculated by considering adjustments
required to the earnings and weighted average number of shares for the effects
of potential dilutive Ordinary shares. The weighted average of the number of
Ordinary shares is adjusted assuming the conversion of the CULS ("If-converted
method"). Conversion is assumed even though at 28 February 2017 and 29
February 2016 the exercise price of the CULS is higher than the market price of
the Company's Ordinary shares and are therefore deemed 'out of the money'.
Earnings are adjusted to remove the fair value gain on CULS $2,510,000 (29
February 2016: $7,990,000) and finance cost attributable to CULS of $3,190,000
(29 February 2016: $3,497,000).
25. Controlling Party
The issued shares of the Company are owned by a number of parties, and
therefore, in the opinion of the Directors, there is no ultimate controlling
party of the Company, as defined by IAS 24 - Related Party Disclosures.
26. Net Asset Value Per Share
The net asset value per Ordinary share of US$10.12 (29 February 2016: US$10.15)
is based on the net assets at the year end of US$848,844,000 (29 February 2016:
US$851,739,000) and on 83,907,516 (29 February 2016: 83,907,516) Ordinary
shares, being the number of Ordinary shares in issue at the year end.
27. Contingent Assets
Amounts held in escrow accounts
When investments have been disposed of by the Company, proceeds may reflect
contractual terms requiring that a percentage is held in an escrow account
pending resolution of any indemnifiable claims that may arise. At 28 February
2017 and 29 February 2016, the Company has assessed that the likelihood of the
recovery of these escrow accounts cannot be determined and has therefore
recognised the escrow accounts as a contingent asset.
As at 28 February 2017 and 29 February 2016, the Company had the following
contingent assets held in escrow accounts which had not been recognised as
assets of the Company:
Company Amount in Escrow
28.2.2017 29.2.2016
US$'000 US$'000
Dental Holdings Corporation - 2,776
Galson Laboratories - 475
Amptek, Inc. - 1,129
ETX Holdings, Inc. 77 118
Petco Animal Supplies, Inc. - 39
H&S (BG Holdings) - 10
77 4,547
During the year ended 28 February 2017 proceeds of $5,942,000 (29 February
2016: $1,534,000) were realised during the year and recorded in the Statement
of Comprehensive Income.
Year Ended Year Ended
28.2.2017 29.2.2016
US$'000 US$'000
Escrows at 1 March 4,547 5,575
Escrows added on realisation of investments - 39
Additional escrows recognised in year not 1,523 467
reflected in opening position
Escrows recognised in opening position and written off (51) -
in year
Escrow receipts during the year (5,942) (1,534)
Escrows at year end 77 4,547
28. Notes to the Statement of Cash Flows
Reconciliation of the profit for the year to net cash from Year Ended Year Ended
operating activities
28.2.2017 29.2.2016
US$ '000 US$ '000
Profit for the year 22,697 51,594
Decrease/(Increase) in other receivables and 13 (5)
prepayments
Increase in other payables 86 489
Increase in amount owed to Investment Adviser 12,285 2,988
Deposits paid for real estate investments - (3,018)
Net gains on investments (28,699) (55,088)
Net write back of impairments on loans and (2,374) (2,594)
receivables
Currency gains on ZDP shares (3,852) (10,954)
Currency gains on Guggenheim loan (437) (712)
Unrealised foreign exchange movements on cash at bank (shown as (396) 397
net movement in cash)
Unrealised profit on CULS valued at fair value (2,510) (7,990)
Increase in accrued interest on investments and accumulated (20,816) (18,010)
preferred dividends and PIK
Finance costs 14,764 18,222
Net cash outflow from operating activities (9,239) (24,681)
Investment income received during the year Year Ended Year Ended
28.2.2017 29.2.2016
US$ '000 US$ '000
Interest on investments 4,584 7,808
Bank interest 41 92
Dividends from private investment - 1,326
Dividends from listed investments - 647
4,625 9,873
Purchases and sales of investments are considered to be operating activities of
the Company, given its purpose, rather than investing activities. The cash
flows arising from these activities are shown in the Statement of Cash Flows.
29. Dividends Paid and Proposed
For the year ended 29 February 2016, a second interim dividend of 15 cents
(total $12,586,000) was paid by the Company on 10 June 2016.
An interim dividend of 15.5 cents per Ordinary share (total $13,006,000) was
paid by the Company on 25 November 2016.
No second interim dividend will be paid for the year ended 28 February 2017 in
line with the agreed discontinuation of the dividend policy, which was to
distribute approximately 3% of the Company's net assets in the form of
dividends (see Note 32).
30. Financial highlights
The following table presents performance information derived from the financial
statements.
28.2.2017 29.2.2016
US$ US$
Net asset value per share at the beginning of the 10.15 10.85
year
Performance during the year (per
share):
Net investment income 0.07 0.17
Incentive fee (0.15) (0.20)
Net realised and unrealised gains 0.53 0.90
Finance costs (0.18) (0.26)
Dividends paid (0.305) (0.335)
Dilution per share on issue of new - (0.97)
Ordinary shares
Total return (0.03) (0.70)
Net asset value per share at the end of 10.12 10.15
the year
Total Return (0.34%) (6.41%)
Net investment income to average net assets excluding 0.68% 1.39%
incentive fee
Operating expenses to average net (2.25%) (2.43%)
assets
Incentive fees to average net (1.47%) (2.07%)
assets
Operating expenses to average net assets including (3.72%) (4.50%)
incentive fee
Finance costs to average net (1.76%) (2.53%)
assets
31. US GAAP reconciliation
The Company's financial statements are prepared in accordance with IFRS, which
in certain respects differ from the accounting principles generally accepted in
the United States ("US GAAP"). It is the opinion of the Directors that these
differences are not material and therefore no reconciliation between IFRS, as
adopted by the EU, and US GAAP has been presented.
32. Subsequent Events
These financial statements were approved by the Board on 16 May 2017.
Subsequent events have been evaluated until this date.
During April 2017, JZCP increased its credit facility with Guggenheim Partners
by $50 million to approximately $150 million. The purpose of this increase in
borrowings is to provide additional liquidity to JZCP in order to bridge
certain planned realisations.
In connection with the discontinuance of the dividend policy of distributing
approximately 3% of the Company's net assets to shareholders as a dividend, the
Company received shareholder approval to adopt a new strategy where purchases
by the Company of its Ordinary Shares may be undertaken when opportunities in
the market permit, and as the Company's cash resources allow.
Independent Auditor's Report
Our opinion on the Financial Statements
In our opinion JZ Capital Partners Limited's (the "Company") financial
statements (the "financial statements"):
* give a true and fair view of the state of the company's affairs as at 28
February 2017 and of its profit for the year then ended;
* have been properly prepared in accordance with International Financial
Reporting Standards as adopted by the European Union ("IFRS"); and
* have been prepared in accordance with the requirements of the Companies
(Guernsey) Law 2008.
What we have audited
We have audited the financial statements of the Company which comprise:
* the statement of comprehensive income for the year ended 28 February 2017;
* the statement of financial position as at 28 February 2017;
* the statement of changes in equity for the year ended 28 February 2017;
* the statement of cash flows for the year ended 28 February 2017; and
* the related notes 1 to 32 to the financial statements.
The financial reporting framework that has been applied in their preparation is
applicable law and IFRS.
Overview of our audit approach
Risk of material * Valuation of unquoted investments, including
misstatement unrealised gains/losses.
* Existence and ownership of real estate investments.
* Calculation of management and incentive fees
Audit scope * We performed an audit of the complete financial
statements of the Company for the year ended 28
February 2017.
Materiality * Overall materiality of $17 million (2016: $17
million), which represents 2% (2016: 2%) of total
equity.
What has changed * There has been no a change to the audit approach
since prior year.
Our assessment of risk of material misstatement
We identified the risks of material misstatement described below as those that
had the greatest effect on our overall audit strategy, the allocation of
resources in the audit and the direction of the efforts of the audit team. This
is not a complete list of all risks or areas of focus identified by our audit.
In addressing these risks, we have performed the procedures below which were
designed in the context of the financial statements as a whole and,
consequently, we do not express any opinion on these individual areas.
Risk Our response to the risk What we concluded to
the Audit
Committee
Valuation of unquoted * We documented our We reported to the
investments (2017: understanding of the audit committee that
$1,069,180,000; 2016: US$ processes, policies and the carrying amount of
984,698,000) methodologies used by one investment in the
Refer to the Audit management for valuing Company's real estate
Committee Report; unquoted investments and portfolio did not, in
Accounting policies in performed walkthrough our opinion, adequately
Note 2 and 3, and Note 12 tests to confirm our reflect the incremental
to the Financial understanding of the risk of securing
Statements systems and controls planning approval in
100% (2016: 94%) of the implemented; respect of an
carrying value of * We carried out the independent valuation
investments relates to following substantive based on a buildable
the Company's holdings in investment valuation area greater than the
unquoted investments, procedures on a sample, of zoning code base
which are valued using unquoted investments held tables. The potential
different valuation by the Company. These overstatement is not
techniques, as defined in substantive procedures considered material by
note 5. comprised of: the Directors or
The valuation is + agreeing the valuation ourselves, and we have
subjective, with a high per the financial sought specific
level of judgement and statements back to the representation from the
estimation linked to the models used by Directors on this
determination of the management; point.
values with limited + determined and
market information challenged the
available. appropriateness of the
As a result, there is a valuation techniques
risk of an inappropriate applied to unquoted
valuation model being investments and
applied, together with determined whether
the risk of inappropriate they were in
inputs to the model/ accordance with IFRS
calculation being and International
selected. The valuation Private Equity and
of the unquoted Venture Capital
investments is the key Association (IPEVCA)
driver of the Company's guidelines;
net asset value and total + testing all the
return. Incorrect significant inputs to
valuation could have a the models to
significant impact on the independent sources
net asset value of the and evaluating whether
Company and therefore the all key terms of the
return generated for unquoted investments
shareholders. had been considered in
the application of the
models;
+ testing the
mathematical accuracy
of the calculations;
+ testing qualitative
factors such as the
key assumptions made
by management and
other information
provided by the
Investment Advisor
that supports the
EBITDA multiples used
to value unquoted
investments,
specifically the
comparable multiples
used which were based
on a basket of similar
listed companies and
any liquidity
adjustments
thereafter; and
+ agreed the proposed
values per the
valuation decks
received from the
Investment Advisor to
the investment
portfolio report
prepared by the
Administrator.
* We engaged our own
internal valuation experts
in relation to the
valuation of a sample of
investments in real estate
assets to: - assist us to
determine whether the
methodologies used to
value real estate assets
were consistent with
methods usually used by
market participants for
these types of real estate
investments; and
+ use their knowledge of
the market to assess
and corroborate
management's market
related judgements and
valuation inputs (i.e.
discount rates, rental
per square foot,
selling price per
square foot, recent
relevant transaction
data and buildable
area) by reference to
comparable
transactions, and
independently compiled
databases/indices.
Existence and ownership * We documented our We confirmed that there
of investment in real understanding of the were no matters
estate assets (2017: processes, used by identified during our
$468,599,000; 2016: management in respect of audit work on existence
$366,158,000) the existence of real of real estate assets
Refer to the Audit estate investments and that we wanted to bring
Committee Report; performed walkthrough to the attention of the
Accounting policies in tests to confirm our audit committee.
Note 2 and 3, and Note 12 understanding of the
to the Financial systems and controls
Statements. implemented.
Risk that real estate * Performance of substantive
assets presented in the audit procedures over real
financial statements do estate assets existence
not exist or the Company including:
does not have title of
ownership. Due to the * obtained independent
significance of the confirmations from all
carrying value of real underlying investee
estate assets, there is a companies through the
risk that if the Company holding structure and
did not have good title, confirmed that the company
the carrying value of has title to all real
these investments could estate investments;
be materially overstated. * obtained copies of the
Our risk is specifically deeds and mortgage bond
in respect of real estate documents (where
assets due to the applicable) for a sample
complexity of their of properties; and
ownership structure, the * obtained contracts/
increase in relative agreements for all new
significance of their investments entered into
carrying value as a during the year to support
percentage of the total the initial recognition
investment portfolio and and associated terms and
the fact that we have not conditions.
historically identified
issues with title to
other investments held by
the company for which
holding structures are
less complex.
Calculation of management * We have performed specific We confirmed that there
and incentive fees (2017: audit procedures over the were no matters
$ 29,269,000; 2016: $ fair value of the identified during our
30,960,000) investments on which the audit work on the
Refer to the Audit management and incentive calculation of
Committee Report; fees are based, as noted management and
Accounting policies in above; and incentive fees that we
Note 2 and Note 10 to the * We re-performed the wanted to bring to the
Financial Statements. management and incentive attention of the Audit
Risk that losses may be fee calculations for Committee.
incurred as a result of mathematical accuracy and
intentional or consistency with the terms
inadvertent misstatement of the investment advisory
of management and agreement.
performance fees, or as a
result of errors in
processing financial
information.
The scope of our audit
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation
of performance materiality determine our audit scope. Taken together, this
enables us to form an opinion on the financial statements.
Our application of materiality
We apply the concept of materiality in planning and performing the
audit, in evaluating the effect of identified misstatements on the audit
and in forming our audit opinion.
Materiality
This is the magnitude of an omission or misstatement that, individually or in
the aggregate, could reasonably be expected to influence the economic decisions
of the users of the financial statements. Materiality provides a basis for
determining the nature and extent of our audit procedures.
We determined materiality for the Company to be $17 million (2016: $17
million), which is 2% (2016: 2%) of total equity.
This provided a basis for determining the nature, timing and extent of risk
assessment procedures, identifying and assessing the risk of material
misstatement and determining the nature, timing and extent of further audit
procedures.
It was considered inappropriate to determine materiality based on Company
profit before tax as the primary focus of the Company is the overall
performance of investments held, which includes a significant asset revaluation
component. In addition, profit is not a key metric reported upon by the
Company, with the ability to make dividend payments not limited by the
profitability of the Company in any particular period.
We believe that total equity provides us with an appropriate basis for audit
materiality as it is a key published performance measure and is a key metric
used by management in assessing and reporting on overall performance.
During the course of our audit, we reassessed initial materiality and noted no
matters leading us to amend materiality levels from those originally determined
at the audit planning stage.
Performance Materiality
This refers to the application of materiality at the individual account or
balance level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality.
On the basis of our risk assessments, together with our assessment of the
Company's overall control environment, our judgement was that performance
materiality was 75% (2016: 50%) of our planning materiality, namely $12.7
million (2016: $8.5 million). Performance materiality in 2016 was set at 50%
due to the existence of audit adjustments during the 2015 audit cycle. These
had significantly reduced during the 2016 cycle. Our objective in adopting this
approach was to ensure that total uncorrected and undetected audit differences
in the financial Statements did not exceed our materiality level.
Reporting threshold
An amount below which identified misstatements is considered as being clearly
trivial.
We agreed with the Audit Committee that we would report to them all uncorrected
audit differences in excess of $0.85 million (2016: $0.85 million), which is
set at 5% of planning materiality, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or
error. This includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting
estimates made by the directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial
information in the annual report to identify material inconsistencies with the
audited financial statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the knowledge
acquired by us in the course of performing the audit. If we become aware of any
apparent material misstatements or inconsistencies we consider the implications
for our report.
Respective responsibilities of Directors and Auditor
As explained more fully in the Directors' Responsibilities Statement, the
directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view. Our responsibility is
to audit and express an opinion on the financial statements in accordance with
applicable law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's Ethical
Standards for Auditors.
This report is made solely to the Company's members, as a body, in accordance
with Section 262 of the Companies (Guernsey) Law 2008. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and Auditor
ISAs (UK and Ireland) We are required to report to We have no exceptions
reporting you if, in our opinion, to report.
financial and non-financial
information in the annual
report is:
In particular, we are required
to report whether we have
identified any inconsistencies
between our knowledge acquired
in the course of performing
the audit and the directors'
statement that they consider
the annual report and accounts
taken as a whole is fair,
balanced and understandable
and provides the information
necessary for shareholders to
assess the entity's
performance, business model
and strategy; and whether the
annual report appropriately
addresses those matters that
we communicated to the audit
committee that we consider
should have been disclosed.
Companies (Guernsey) Law 2008 We are required to report to We have no exceptions
reporting you if, in our opinion: to report.
Statement on the Directors' assessment of the principal risks that would
threaten the solvency or liquidity of the entity
ISAs (UK and Ireland) We are required to give a We have nothing
reporting statement as to whether we material to add or to
have anything material to add draw attention to.
or to draw attention to in
relation to:
Christopher James Matthews, FCA
for and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
16 May 2017
1. The maintenance and integrity of the Company's web site is the
responsibility of the Directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the web site.
2. Legislation in Guernsey governing the preparation and dissemination of
financial statements may differ from legislation in other jurisdictions.
Company Advisers
Investment Adviser Independent Auditor
The Investment Adviser to JZ Capital Ernst & Young LLP
Partners Limited ("JZCP") is Jordan/
Zalaznick Advisers, Inc., ("JZAI") a PO Box 9
company beneficially owned by John (Jay)
W Jordan II and David W Zalaznick. The Royal Chambers
company was formed for the purpose of
advising the Board of JZCP on St Julian's Avenue
investments in leveraged securities,
primarily related to private equity St Peter Port
transactions. JZAI has offices in New
York and Chicago. Guernsey GY1 4AF
UK Solicitors
Ashurst LLP
Jordan/Zalaznick Advisers, Inc. Broadwalk House
9 West, 57th Street 5 Appold Street
New York NY 10019 London EC2A 2HA
Registered Office US Lawyers
PO Box 255 Monge Law Firm, PLLC
Trafalgar Court 333 West Trade Street
Les Banques Charlotte, NC 28202
St Peter Port
Guernsey GY1 3QL Mayer Brown LLP
214 North Tryon Street
JZ Capital Partners Limited is Suite 3800
registered in Guernsey
Number 48761 Charlotte NC 28202
Administrator, Registrar and Secretary Winston & Strawn LLP
Northern Trust International Fund 35 West Wacker Drive
Administration Services
(Guernsey) Limited Chicago IL 60601-9703
PO Box 255
Trafalgar Court Guernsey Lawyers
Les Banques Mourant Ozannes
St Peter Port P.O Box 186
Guernsey GY1 3QL 1 Le Marchant Street
St Peter Port
UK Transfer and Paying Agent Guernsey GY1 4HP
Equiniti Limited
Aspect House Financial Adviser and Broker
Spencer Road JP Morgan Cazenove Limited
Lancing 20 Moorgate
West Sussex BN99 6DA London EC2R 6DA
US Bankers
HSBC Bank USA NA
452 Fifth Avenue
New York NY 10018
(Also provides custodian services to JZ Capital Partners
Limited under the terms of a Custody
Agreement).
Guernsey Bankers
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA
Useful Information for Shareholders
Listing
JZCP Ordinary, Zero Dividend Preference ("ZDP") shares and Convertible
Unsecured Loan Stock ("CULS") are listed on the Official List of the Financial
Services Authority of the UK, and are admitted to trading on the London Stock
Exchange Specialist Fund Segment for listed securities.
The price of the Ordinary shares are shown in the Financial Times under
"Conventional Private Equity" and can also be found at https://markets.ft.com
along with the prices of the ZDP shares and CULS.
ISIN/SEDOL numbers
Ticker Symbol ISIN Code Sedol Number
Ordinary shares JZCP GG00B403HK58 B403HK5
ZDP (2022) shares JZCZ GG00BZ0RY036 Z0RY03
CULS JZCC GG00BP46PR08 BP46PR0
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance Measures ("APMs")
the Board has considered what APMs are included in the annual report and
financial statements which require further clarification. An APM is defined as
a financial measure of historical or future financial performance, financial
position, or cash flows, other than a financial measure defined or specified in
the applicable financial reporting framework. APMs included in the annual
report and financial statements, which are unaudited and outside the scope of
IFRS, are deemed to be as follows:
Total NAV Return
The Total NAV Return measures how the net asset value (NAV) per share has
performed over a period of time, taking into account both capital returns and
dividends paid to shareholders. JZCP quotes NAV total return as a percentage
change from the start of the period (one year) and also three-month,
three-year, four year, five-year and seven year periods. It assumes that
dividends paid to shareholders are reinvested back into the Company therefore
future NAV gains are not diminished by the paying of dividends. JZCP also
produces an adjusted Total NAV Return which excludes the effect of the dilution
per share caused by the issue of shares at a discount to NAV, the result of the
adjusted Total NAV return is to provide a measurement of how the Company's
Investment portfolio contributed to NAV growth adjusted for the Company's
expenses and finance costs. The Total NAV Return for the year ended 28 February
2017 was 2.7% (2016: -3.5%) which includes dividends paid of 30.5 cents (2016:
33.5 cents).
Total Shareholder Return
A measure showing how the share price has performed over a period of time,
taking into account both capital returns and dividends paid to shareholders.
JZCP quotes shareholder price total return as a percentage change from the
start of the period (one year) and also three-month, three-year, four year,
five-year and seven-year periods. It assumes that dividends paid to
shareholders are reinvested in the shares at the time the shares are quoted ex
dividend. The Shareholder Return for the year ended 28 February 2017 was 42.8%
(2016: 2.0%) which includes dividends paid (Sterling equivalent) of 21.7 cents
(2016: 23.0 cents).
NAV to market price discount
The NAV per share is the value of all the company's assets, less any
liabilities it has, divided by the number of shares. However, because JZCP
shares are traded on the London Stock Exchange's Specialist Fund Market, the
share price may be higher or lower than the NAV. The difference is known as a
discount or premium. JZCP's discount is calculated by expressing the difference
between the period end dollar equivalent share price and the period end NAV per
share as a percentage of the NAV per share.
At 28 February 2017, JZCP's Ordinary shares traded at £5.38 (2016: £3.97)) or
$6.69 (2016: $5.53) being the dollar equivalent using the year end exchange
rate of £1: $1.24 (2016 £1: $1.39). The shares traded at a 34% (2016: 46%)
discount to the NAV per share of $10.12 (2016: $10.15).
Implied Dividend Yield
The implied dividend yield is the annual dividends paid during the year
expressed as a percentage of the year end share price. The implied dividend
yield for JZCP is quoted at 4.5% (2016: 6.1%) being the sterling equivalent,
using the year end exchange rate, of the dividends paid during the year 30.5
cents/24.5 pence (2016: 33.5 cents/24.0 pence) as a percentage of the year end
share price £5.38 (2016; £3.97).
Ongoing Charges calculation
A measure expressing the Ongoing annualised expenses as a percentage of the
Company's average annualised net assets over the year 2.3% (2016: 2.4%).
Ongoing charges, or annualised recurring operating expenses, are those expenses
of a type which are likely to recur in the foreseeable future, whether charged
to capital or revenue, and which relate to the operation of the company,
excluding the Investment Adviser's Incentive fee, financing charges and gains/
losses arising on investments.
Ongoing expenses for the year are $19,415,000 (2016: $18,223,000) comprising of
the IA base fee $16,865,000 (2016: $15,510,000), administrative fees $2,135,000
(2016: $2,298,000) and directors fees $415,000 (2016:$415,000). Average net
assets for the year are calculated using quarterly NAVs $857,768,000 (2016:
$748,931,000).
Non-Mainstream Pooled Investments
From 1 January 2014, the FCA rules relating to the restrictions on the retail
distribution of unregulated collective investment schemes and close substitutes
came into effect. JZCP's Ordinary shares qualify as an 'excluded security'
under these rules and will therefore be excluded from the FCA's restrictions
which apply to non-mainstream investment products. Therefore Ordinary shares
issued by JZ Capital Partners can continue to be recommended by financial
advisors as an investment for UK retail investors.
Financial Diary
Annual General Meeting 27 June 2017
Interim report for the six months ended 31 October/November 2017 (date to be
August 2017 confirmed)
Results for the year ended 28 February 2018 May 2018 (date to be confirmed)
JZCP will be issuing an Interim Management Statement for the quarters ending 31
May 2017 and 30 November 2017. These Statements will be sent to the market via
RNS within six weeks from the end of the appropriate quarter, and will be
posted on JZCP's website at the same time, or soon thereafter.
Payment of Dividends
In the event of a cash dividend being paid, the dividend will be sent by cheque
to the first-named shareholder on the register of members at their registered
address, together with a tax voucher. At shareholders' request, where they have
elected to receive dividend proceeds in Sterling, the dividend may instead be
paid direct into the shareholder's bank account through the Bankers' Automated
Clearing System. Payments will be paid in US dollars unless the shareholder
elects to receive the dividend in Sterling. Existing elections can be changed
by contacting the Company's Transfer and Paying Agent, Equiniti Limited on +44
(0) 121 415 7047.
Share Dealing
Investors wishing to buy or sell shares in the Company may do so through a
stockbroker. Most banks also offer this service.
Internet Address
The Company: www.jzcp.com
Foreign Account Tax Compliance Act
The Company is registered (with a Global Intermediary Identification Number
CAVBUD.999999.SL.831) under The Foreign Account Tax Compliance Act ("FATCA").
Share Register Enquiries
The Company's UK Transfer and Paying Agent, Equiniti Limited, maintains the
share registers. In event of queries regarding your holding, please contact the
Registrar on 0871 384 2265, calls to this number cost 8p per minute from a BT
landline, other providers' costs may vary. Lines are open 8.30 a.m. to 5.30
p.m., Monday to Friday, If calling from overseas +44 (0) 121 415 7047 or access
their website at www.equiniti.com. Changes of name or address must be notified
in writing to the Transfer and Paying Agent.
Nominee Share Code
Where notification has been provided in advance, the Company will arrange for
copies of shareholder communications to be provided to the operators of nominee
accounts. Nominee investors may attend general meetings and speak at meetings
when invited to do so by the Chairman.
Documents Available for Inspection
The following documents will be available at the registered office of the
Company during usual business hours on any weekday until the date of the Annual
General Meeting and at the place of the meeting for a period of fifteen minutes
prior to and during the meeting:
(a) the Register of Directors' Interests in the stated capital of the Company;
(b) the Articles of Incorporation of the Company; and
(c) the terms of appointment of the Directors.
Warning to Shareholders - Boiler Room Scams
In recent years, many companies have become aware that their shareholders have
been targeted by unauthorised overseas-based brokers selling what turn out to
be non-existent or high risk shares, or expressing a wish to buy their shares.
If you are offered, for example, unsolicited investment advice, discounted JZCP
shares or a premium price for the JZCP shares you own, you should take these
steps before handing over any money:
* Make sure you get the correct name of the person or organisation
* Check that they are properly authorised by the FCA before getting involved
by visiting http://www.fca.org.uk/firms/systems-
reporting/register
* Report the matter to the FCA by calling 0800 111 6768
* If the calls persist, hang up
* More detailed information on this can be found on the Money Advice Service
website www.moneyadviceservice.org.uk
US Investors
General
The Company's Articles contain provisions allowing the Directors to decline to
register a person as a holder of any class of ordinary shares or other
securities of the Company or to require the transfer of those securities
(including by way of a disposal effected by the Company itself) if they believe
that the person:
(a) is a "US person" (as defined in Regulation S under the US Securities Act
of 1933, as amended) and not a "qualified purchaser" (as defined in the US
Investment Company Act of 1940, as amended, and the related rules thereunder);
(b) is a "Benefit Plan Investor" (as described under "Prohibition on Benefit
Plan Investors and Restrictions on Non-ERISA Plans" below); or
(c) is, or is related to, a citizen or resident of the United States, a US
partnership, a US corporation or a certain type of estate or trust and that
ownership of any class of ordinary shares or any other equity securities of the
Company by the person would materially increase the risk that the Company could
be or become a "controlled foreign corporation" (as described under "US Tax
Matters").
In addition, the Directors may require any holder of any class of ordinary
shares or other securities of the Company to show to their satisfaction whether
or not the holder is a person described in paragraphs (A), (B) or (C) above.
US Securities Laws
The Company (a) is not subject to the reporting requirements of the US
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and does not
intend to become subject to such reporting requirements and (b) is not
registered as an investment company under the US Investment Company Act of
1940, as amended (the "1940 Act"), and investors in the Company are not
entitled to the protections provided by the 1940 Act.
Prohibition on Benefit Plan Investors and Restrictions on Non-ERISA Plans
Investment in the Company by "Benefit Plan Investors" is prohibited so that the
assets of the Company will not be deemed to constitute "plan assets" of a
"Benefit Plan Investor". The term "Benefit Plan Investor" shall have the
meaning contained in Section 3(42) of the US Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and includes (a) an "employee
benefit plan" as defined in Section 3(3) of ERISA that is subject to Part 4 of
Title I of ERISA; (b) a "plan" described in Section 4975(e)(1) of the US
Internal Revenue Code of 1986, as amended (the "Code"), that is subject to
Section 4975 of the Code; and (c) an entity whose underlying assets include
"plan assets" by reason of an employee benefit plan's or a plan's investment in
such entity. For purposes of the foregoing, a "Benefit Plan Investor" does not
include a governmental plan (as defined in Section 3(32) of ERISA), a non-US
plan (as defined in Section 4(b)(4) of ERISA) or a church plan (as defined in
Section 3(33) of ERISA) that has not elected to be subject to ERISA.
Each purchaser and subsequent transferee of any class of ordinary shares (or
any other class of equity interest in the Company) will be required to
represent, warrant and covenant, or will be deemed to have represented,
warranted and covenanted, that it is not, and is not acting on behalf of or
with the assets of, a Benefit Plan Investor to acquire such ordinary shares (or
any other class of equity interest in the Company).
Under the Articles, the directors have the power to require the sale or
transfer of the Company's securities in order to avoid the assets of the
Company being treated as "plan assets" for the purposes of ERISA.
The fiduciary provisions of pension codes applicable to governmental plans,
non-US plans or other employee benefit plans or retirement arrangements that
are not subject to ERISA (collectively, "Non-ERISA Plans") may impose
limitations on investment in the Company. Fiduciaries of Non-ERISA Plans, in
consultation with their advisors, should consider, to the extent applicable,
the impact of such fiduciary rules and regulations on an investment in the
Company.
Among other considerations, the fiduciary of a Non-ERISA Plan should take into
account the composition of the Non-ERISA Plan's portfolio with respect to
diversification; the cash flow needs of the Non-ERISA Plan and the effects
thereon of the illiquidity of the investment; the economic terms of the Non-
ERISA Plan's investment in the Company; the Non-ERISA Plan's funding
objectives; the tax effects of the investment and the tax and other risks
associated with the investment; the fact that the investors in the Company are
expected to consist of a diverse group of investors (including taxable,
tax-exempt, domestic and foreign entities) and the fact that the management of
the Company will not take the particular objectives of any investors or class
of investors into account.
Non-ERISA Plan fiduciaries should also take into account the fact that, while
the Company's board of directors and its investment advisor will have certain
general fiduciary duties to the Company, the board and the investment advisor
will not have any direct fiduciary relationship with or duty to any investor,
either with respect to its investment in Shares or with respect to the
management and investment of the assets of the Company. Similarly, it is
intended that the assets of the Company will not be considered plan assets of
any Non-ERISA Plan or be subject to any fiduciary or investment restrictions
that may exist under pension codes specifically applicable to such Non-ERISA
Plans. Each Non-ERISA Plan will be required to acknowledge and agree in
connection with its investment in any securities to the foregoing status of the
Company, the board and the investment advisor that there is no rule, regulation
or requirement applicable to such investor that is inconsistent with the
foregoing description of the Company, the board and the investment advisor.
Each purchaser or transferee that is a Non-ERISA Plan will be deemed to have
represented, warranted and covenanted as follows:
(a) The Non-ERISA Plan is not a Benefit Plan Investor;
(b) The decision to commit assets of the Non-ERISA Plan for investment in
the Company was made by fiduciaries independent of the Company, the Board, the
Investment Advisor and any of their respective agents, representatives or
affiliates, which fiduciaries (i) are duly authorized to make such investment
decision and have not relied on any advice or recommendations of the Company,
the Board, the Investment Advisor or any of their respective agents,
representatives or affiliates and (ii) in consultation with their advisers,
have carefully considered the impact of any applicable federal, state or local
law on an investment in the Company;
(c) None of the Company, the Board, the Investment Advisor or any of their
respective agents, representatives or affiliates has exercised any
discretionary authority or control with respect to the Non-ERISA Plan's
investment in the Company, nor has the Company, the Board, the Investment
Advisor or any of their respective agents, representatives or affiliates
rendered individualized investment advice to the Non-ERISA Plan based upon the
Non-ERISA Plan's investment policies or strategies, overall portfolio
composition or diversification with respect to its commitment to invest in the
Company and the investment program thereunder; and
(d) It acknowledges and agrees that it is intended that the Company will
not hold plan assets of the Non-ERISA Plan and that none of the Company, the
Board, the Investment Advisor or any of their respective agents,
representatives or affiliates will be acting as a fiduciary to the Non-ERISA
Plan under any applicable federal, state or local law governing the Non- ERISA
Plan, with respect to either (i) the Non-ERISA Plan's purchase or retention of
its investment in the Company or (ii) the management or operation of the
business or assets of the Company. It also confirms that there is no rule,
regulation, or requirement applicable to such purchaser or transferee that is
inconsistent with the foregoing description of the Company, the Board and the
Investment Advisor.
US Tax Matters
This discussion does not constitute tax advice and is not intended to be a
substitute for tax advice and planning. Prospective holders of the Company's
securities must consult their own tax advisers concerning the US federal, state
and local income tax and estate tax consequences in their particular situations
of the acquisition, ownership and disposition of any of the Company's
securities, as well as any consequences under the laws of any other taxing
jurisdiction.
The Company's directors are entitled to decline to register a person as, or to
require such person to cease to be, a holder of any class of ordinary shares or
other equity securities of the Company if they believe that: such person is, or
is related to, a citizen or resident of the United States, a US partnership, a
US corporation or a certain type of estate or trust and that ownership of any
class of ordinary shares or any other equity securities of the Company by such
person would materially increase the risk that the Company could be or become a
"controlled foreign corporation" within the meaning of the Code (a "CFC").
In general, a foreign corporation is treated as a CFC only if its "US
shareholders" collectively own more than 50% of the total combined voting power
or total value of the corporation's stock. A "US shareholder" means any US
person who owns, directly or indirectly through foreign entities, or is
considered to own (by application of certain constructive ownership rules), 10%
or more of the total combined voting power of all classes of stock of a foreign
corporation, such as the Company.
There is a risk that the Company will decline to register a person as, or will
require such person to cease to be, a holder of the Company's securities if the
Company could be or become a CFC. The Company's treatment as a CFC could have
adverse tax consequences for US taxpayers.
The Company has been advised that it is NOT a passive foreign investment
company ("PFIC") for the fiscal years ended February 2016 and 2015. A
classification as a PFIC would likely have an adverse tax consequences for US
taxpayers.
The taxation of a US taxpayer's investment in the Company's securities is
highly complex. Prospective holders of the Company's securities must consult
their own tax advisers concerning the US federal, state and local income tax
and estate tax consequences in their particular situations of the acquisition,
ownership and disposition of any of the Company's securities, as well as any
consequences under the laws of any other taxing jurisdiction.
Investment Adviser's ADV Form
Shareholders and state securities authorities wishing to view the Investment
Adviser's ADV form can do so by following the link below:
https://adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?ORG_PK=160932JZ CAPI ZDRP : Capital Partners Ltd - Annual Financial Report
May 17, 2017 at 11:32 am IST
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