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JZ Capital Partners Ltd - Annual Financial Report

PR Newswire

London, May 21

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 2018

LEI: 549300TZCK08Q16HHU44

(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)

22 May 2018

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 2018.

Results and Portfolio Highlights

· NAV of $837.6 million (FYE 28/02/17: $848.8 million)

· NAV per share of $9.98 (FYE 28/02/17: $10.12)

· Total investments of $96.5 million, including: Felix Storch, ABTB (Taco Bell franchises) and properties in Brooklyn, New York and South Florida.

· Realisation proceeds of $133.7 million, primarily through the sale of Factor Energia, Fidor Bank, K2 Towers and Neilsen-Kellerman.

· As of 28 February 2018, the portfolio comprised:

o US micro-cap: 21 businesses including four ‘verticals’ and 12 co-investments, across nine industries.

o European micro-cap: 17 companies across six industries and seven countries.

o US real estate: 59 properties across five major assemblages in New York and South Florida all in various stages of (re)/development.

· JZCP made two significant post-period realisations (March 2018), both above net asset value: Paragon Water Systems and Bolder Healthcare Solutions.

· Current and post-period realisations provide approximately $250 million[1] (including escrows and distributions) in gross proceeds to JZCP.

Outlook

· Balance sheet remains strong with a healthy pipeline of realisation and investment opportunities over the next 12 months.

· Renewed focus on rebalancing the Company’s debt maturity profile over the course of the next fiscal year.

· Discussions underway with potential institutional joint venture partners to deleverage the real estate portfolio.

David Zalaznick, JZCP’s Founder and Investment Adviser, said: “We have made significant progress in realising portfolio assets, at or above NAV.

The positive uplifts to NAV from realisations over the past year were offset by pre-development and carrying costs in our real estate portfolio. However we are exploring partnerships with several institutional investors to reduce the impact of these costs going forward.

Our goal in the coming year is to continue to realise investments and use the proceeds to buy back stock, make new investments and pay down debt.”

David Macfarlane, Chairman of JZCP, said: “The Board is delighted with the level of investment and realisation activity during the period. The Company continues to make excellent progress in building a diversified portfolio of assets, both by geography and asset type. We look ahead to the rest of the year with continued confidence.”

Presentation details:

There will be an audiocast presentation for investors and analysts at 2pm UK (BST) / 9am US (EDT) on 22 May 2018. The presentation can be accessed via https://bit.ly/2rNx2bm and by dialing +44 (0)330 336 9411 (UK) or +1 323-794-2094 (US) with the participant access code 9762398.

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) 207 660 0134 (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.

Paul Ford +44 (0) 1481 745383

JZ Capital Partners

About JZ Capital Partners

JZ Capital Partners (“JZCP”) is one of the oldest closed-end investment companies listed on the London Stock Exchange. It seeks to provide shareholders with a return by investing selectively in US and European microcap companies and US real estate. JZCP receives investment advice from Jordan/Zalaznick Advisers, Inc. (“JZAI”) which is led by David Zalaznick and Jay Jordan. They have worked together for more than 35 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. 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 2018.

Performance

The Company’s performance over the last twelve months was set against a backdrop of renewed business confidence and improving global growth outlook, whilst the year was also marked by a series of natural disasters, continued geopolitical tensions, and deep political divisions in many countries.

Global GDP growth experienced its broadest cyclical upswing since the start of the decade, boosted by a recovery in investment, global trade growth and higher employment levels.

Meanwhile, the US economy continued to gain momentum in 2017, delivering annual net growth of 2.7%, driven primarily by an uptick in consumer confidence, strong corporate profits and a booming stock market – currently the second-longest bull market in history.

In Europe, the economy ended 2017 with its strongest growth in almost seven years, boosted by an increase in service sector and manufacturing activity, and also reflects years of monetary stimulus employed by the ECB aimed at staving off deflation.

Within this market environment, the Board is pleased to announce that JZCP has made excellent progress in realising a series of investments (some post-period) at or above NAV. On a combined basis, these realisations have returned gross proceeds to JZCP of approximately $250.0 million and have contributed a combined net 55 cents in uplift to NAV during the fiscal year ended 28 February 2018.

Despite the uplifts from realisations over the past year, JZCP’s net asset value ("NAV") per share declined 1.4% from $10.12 to $9.98; the positive underlying performance of the US and European micro-cap portfolio was offset principally by the pre-development and carrying costs in our real estate portfolio.

Portfolio Update

It has been an active investment period for the Company, putting $96.5 million to work across our three major asset classes – whilst realising $133.7 million, primarily through the sale of Factor Energia (“Factor”), K2 Towers and Fidor Bank.

At the end of the period, the Company’s portfolio consisted of 38 US and European micro-cap businesses across nine industries and five 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, Portugal, Luxembourg, Scandinavia and the UK.

US and European Micro-cap

The Board is pleased with the positive performance of the US micro-cap portfolio, which has delivered a net valuation increase of 91 cents per share during the period. This was primarily due to net accrued income (23 cents), increased earnings at Felix Storch (17 cents) and our water vertical (4 cents), and the successful realisations of the Healthcare Revenue Cycle Management vertical (44 cents), K2 Towers (11 cents) and Nielsen Kellerman (2 cents).

The portfolio was valued at 8.3x EBITDA, after applying an average 25% 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 consists of 17 companies across six industries and seven countries. JZCP now, principally invests in the European micro-cap sector through its 18.8% ownership of JZI Fund III, L.P. (“Fund III”). The portfolio continues to perform well and has seen a valuation increase of 2 cents per share.

Europe continues to be a fertile ground for originating attractive investment opportunities and during the period, the Company invested in four new businesses through Fund III: Treee, Italy’s first nationwide recycler of electric and electronic goods; Eliantus, a build-up of solar plants in Spain; Bluemint, a build-up of cell tower land leases in Portugal; and Luxida, a buy-and-build of electricity distribution businesses in Spain.

Real Estate

The Company continues to make significant progress in building a diversified portfolio of retail, office and residential properties in Brooklyn, New York and South Florida.

As of 28 February 2018, JZCP, in partnership with its long-term real estate partner, RedSky Capital, had invested approximately $388.5 million in 59 properties, all currently in various stages of development and re-development.

Whilst the real estate portfolio is performing in line with expectations, it produced a net decrease of 60 cents per share, primarily due to operating expenses and debt service at the property level. The Company’s ongoing discussions with a number of institutional joint venture partners will look to address the impact of these costs on JZCP’s NAV. The Company will update the market accordingly when those discussions conclude.

Realisations

The Company generated realisations totalling $133.7 million, primarily through the sale of two US micro-cap companies and two European micro-cap companies.

The Company realised its investment in Factor, a Spanish electricity supplier to SMEs, for a gross multiple of capital invested of 9.2x and a gross IRR of 42.3%. In addition, the Company received proceeds of $28.7 million from the sale of K2 Towers, a national acquirer of wireless communication towers based in the US.

Post-period

As previously announced, the Board and the Investment Manager consider that the ability to buy back Ordinary Shares and ZDPs is beneficial to shareholders. As part of this, the Company commenced its share buyback programme in April 2018.

Furthermore, the Board is delighted with two significant post-period realisations significantly above net asset value, in March 2018. JZCP expects to receive gross proceeds of $110.0 million from the sale of Bolder Healthcare Solutions, representing a 4.5% uplift to NAV. The Company also expects to receive gross proceeds of $16.2 million from the sale of Paragon Water Systems, representing a gross multiple of invested capital of approximately 1.8x and a gross internal rate of return of approximately 18.4%.

Board

Patrick Firth has served as Chairman of JZCP’s Audit Committee since the incorporation of the Company in 2008. Patrick therefore intends to retire as Chairman of the Audit Committee and as a Director. The Board is grateful to him for the substantial contribution that he has made to the Company and wishes him well. The process for appointing Patrick’s successor is underway and he has kindly agreed to continue on the board for a sufficient period to ensure a smooth transition to his successor. The Board is also reviewing the wider issues of board refreshment and succession.

Outlook

We are pleased with the strong performance of the underlying portfolio and the level of realisation activity during the period.

The Company remains focused on unlocking liquidity from its mature investments, refinancings and partnerships, and redeploying capital into investment opportunities in Western Europe and the US and the Company’s share buyback programme. We also intend to refocus our efforts on rebalancing the Company’s debt maturity profile and paying down existing debt over the course of the next fiscal year.

The Board remains confident that the Company is well-positioned to tackle the ongoing discount to NAV through positive investment performance, further successful realisations and the ability of the Company to buy back shares.

David Macfarlane

Chairman

21 May  2018

Investment Adviser's Report

Dear Fellow Shareholders,

Our primary goal during the past fiscal year has been to achieve liquidity through realisations and refinancings. Once achieved, we plan to use the proceeds to make new investments, buy back stock or repay company debt. Importantly, with each successive realisation at or above net asset value (“NAV”), we hope to prove to the market that JZCP’s NAV is solid.

Over the past six months, we have realised five investments at or above NAV: Factor Energia, K2 Towers, Nielsen-Kellerman, Paragon (post-period) and Bolder Healthcare (post-period). On a combined basis, these realisations have returned gross proceeds to JZCP of approximately $250.0 million1 (including escrows and interim distributions) and have contributed a combined net 55 cents in uplift to NAV during the fiscal year ended 28 February 2018.

Post year end, we have begun to buy back our stock at a significant discount to NAV and plan to continue doing so as it represents an excellent investment opportunity for the Company. We also intend to pay down a portion of JZCP’s existing debt over the coming fiscal year.

Even though we had significant uplifts from realisations over the past year, JZCP’s NAV per share fell 1.4%, from $10.12 at 28 February 2017 to $9.98 at 28 February 2018, primarily due to pre-development and carrying costs at our real estate portfolio. We are in the process of discussing joint venture partnerships with a number of institutional investors which will reduce this drag on NAV as well as provide liquidity from our real estate portfolio. We hope to have further news regarding this in the coming months. Unless otherwise stated, figures included in this report refer to the twelve-month period ended 28 February 2018.

We have had a very busy year in each of our major asset classes - US and European micro-cap and US real estate - which continue to perform well. During the period, JZCP invested a total of $96.5 million, including new investments in Felix Storch and ABTB (Taco Bell franchises) and follow-on investments in Avante Health Solutions, Peaceable Street Capital and properties in Brooklyn, New York and South Florida. We are very excited about these investments, a number of which are featured in the Investment Review section of this annual report.

As of 28 February 2018, our US micro-cap portfolio consisted of 21 businesses, which includes four ‘verticals’ and 12 co-investments, across nine industries; this portfolio was valued at 8.3x EBITDA, after applying an average 25% marketability discount to public comparables. The average underlying leverage senior to JZCP’s position in our US micro-cap portfolio is 3.5x EBITDA. Consistent with our value-oriented investment strategy, we have acquired our current US micro-cap portfolio at an average 6.1x EBITDA; we paid 4.1x EBITDA on average for US micro-cap acquisitions made during the period.

Our European micro-cap portfolio consisted of 17 companies across six industries and seven countries. The European micro-cap portfolio has low leverage senior to JZCP’s position, of under 2.0x EBITDA.

Our US real estate portfolio consists of 59 properties and can be grouped primarily into five major ‘assemblages’, located in the Williamsburg, Greenpoint and Downtown/Fulton Mall neighbourhoods of Brooklyn, New York, and the Wynwood and Design District neighbourhoods of Miami, 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.

1 Factor Energia total gross proceeds of approximately €69.7 million ($85.0 million) (including interim distributions and future expected proceeds all multiplied by a theoretical, illustrative exchange rate of $1.22 to €1.00, which is current as of 25 April 2018 per Oanda.com). K2 Towers total expected gross proceeds of approximately $31.3 million. Nielsen-Kellerman total gross proceeds of approximately $8.6 million. Paragon (post-period) expected total gross proceeds of $16.2 million. Bolder Healthcare Solutions (post-period) expected total gross proceeds of approximately $110.0 million.

Net Asset Value ("NAV")

JZCP’s NAV per share fell 1.4% during the period, from $10.12 at 28 February 2017 to $9.98 at 28 February 2018.

NAV bridge

2 Includes FX gains of 22 cents relating to currency translation of investments and FX losses of 7 cents relating to the translation of CULS.

3 Includes an incentive fee provided for on capital gains of 4 cents.

The US micro-cap portfolio performed well during the period, delivering a net increase of 91 cents. This was primarily due to net accrued income of 23 cents, increased earnings at co-investment Felix Storch (17 cents) and writing our Healthcare Revenue Cycle Management vertical, K2 Towers and Nielsen Kellerman investments up to their sale values (44 cents, 11 cents and 2 cents, respectively). Also contributing to the positive portfolio performance were increases at our logistics vertical (1 cent), water vertical (4 cents) and co-investment business Avante (2 cents). We also received 2 cents of escrow payments during the period.

Offsetting these increases were declines at our Industrial Services Solutions (“ISS”) vertical (13 cents) and Nationwide, our school photography business (2 cents).

The European micro-cap portfolio continued its positive trajectory, posting a net increase of 2 cents, primarily due to accrued income of 8 cents, write-ups at JZI Fund III, LP (“Fund III”) portfolio companies Collingwood and S.A.C (4 cents combined) and a net positive carried interest adjustment of 2 cents. These gains were offset by write-downs at Factor Energia (6 cents) and Oro Direct (6 cents).

The real estate portfolio experienced a net decrease of 60 cents, primarily due to operating expenses, including significant pre-development costs, and debt service at the property level.

Returns

The chart below summarises cumulative total shareholder returns and total NAV returns for the most recent three-month, one-year, three-year and five-year periods.

4Total returns are cumulative and assume that dividends were reinvested.

Portfolio Summary

Our portfolio is well-diversified by asset type and geography, with 38 US and European micro-cap investments across nine industries and five 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, Portugal, Luxembourg, Scandinavia and the UK.

Below is a summary of JZCP’s assets and liabilities at 28 February 2018 as compared to 28 February 2017. An explanation of the changes in the portfolio follows:

As previously announced, in April 2017 JZCP increased its loan facility with Guggenheim Partners from approximately $100 million to $150 million. The entire $150 million facility may be repaid, in whole or in part, at any time, without any prepayment penalties.

6 Cash and cash equivalents includes cash held of $9.0 million and $25.0 million being receivables from the sale of Treasury Bills (received 1 March 2018).

US Micro-Cap Portfolio

As you know from previous reports, our US portfolio is grouped into industry ‘verticals’ and co-investments. Our ‘verticals’ strategy focuses on consolidating businesses under industry executives who can add value via organic growth and cross company synergies. Our co-investments strategy allows for greater diversification of our portfolio by investing in larger companies alongside well known private equity groups.

European micro-cap portfolio

The European micro-cap portfolio continued its positive trajectory over the past year (net increase of 2 cents), highlighted by the sale of Factor Energia (“Factor”) for an approximate gross multiple of invested capital of 9.2x and an approximate gross IRR of 42.3% in euro-denominated terms. JZCP expects to receive total gross proceeds (before carry) from Factor of approximately €69.7 million (including deferred payments and interim distributions received over the course of the investment). Although inconsistent with the exceptional returns described above, we wrote down Factor by 6 cents over the year to approximate its sale value as the transaction became formalised.

JZCP currently invests in the European micro-cap sector through its approximately 18.8% ownership of JZI Fund III, L.P. (“Fund III”). As of 28 February 2018, Fund III held 12 investments: five in Spain, two in Scandinavia, two in Italy and one each in the UK, Portugal and Luxembourg. JZCP held direct loans to a further four companies in Spain: Ombuds, Docout, Xacom and Toro Finance.

JZAI has offices in London and Madrid and an outstanding team with over fifteen years of experience investing together in European micro-cap deals.

Recent Events

During the period, JZCP acquired stakes in four new businesses via its ownership in Fund III: (i) Treee, Italy’s first nationwide recycler of electric and electronic goods, (ii) Eliantus, a build-up of solar plants in Spain, (iii) Bluemint, a build-up of cell tower land leases in Portugal, and (iv) Luxida, a buy-and-build of electricity distribution businesses in Spain.

Additionally, as part of Factor’s acquisition (described above) by a public-sector asset manager, on behalf of a major Canadian pension fund, Fund III agreed to invest €20 million alongside the majority owner and Factor management, representing approximately 25% of the business’ fully diluted equity ownership.

JZCP also made follow-on investments in My Lender, a consumer lending business in Finland, and Alianzas en Aceros, a steel transformation company in Spain, both of which are owned by Fund III.

In March and December 2017, JZCP received proceeds totalling $23.5 million from the sale of portfolio company Fidor Bank to Groupe BPCE, the second largest banking group in France. The transaction had closed in December 2016. JZCP invested a total of $13.8 million in the business.

In July 2017, JZCP received proceeds totalling $1.5 million from the refinancing of Petrocorner, a build-up of petrol stations in Spain, and a distribution on loan notes from Collingwood, a niche motor insurance business in the UK.

Real Estate Portfolio

We are very excited with the progress of our first ground-up development in South Florida, CUBE Wynwd (the “CUBE”), a development project in Miami’s Wynwood neighbourhood totalling 90,000 square feet and featuring seven stories of office space geared towards tech and media businesses and ground floor retail space.

JZCP anticipates excellent returns from the CUBE, underpinned by (i) having acquired the land at a significant discount to market comparables and (ii) having pre-leased approximately 30% of the building to Spaces, a full service, creative co-working environment with a unique entrepreneurial spirit. We are experiencing strong interest from potential tenants to lease the remaining available space at the CUBE and we expect to deliver the project to our anchor tenant in the first quarter of 2019.

Wynwood, where we own four additional development sites and one cash flowing retail property, is an exciting neighbourhood that can be described as the “Williamsburg of Miami”. The vibrant atmosphere is attracting tech and other businesses to office spaces in the neighbourhood where their employees would like to work. We have significantly progressed development plans for our other sites in the neighbourhood and look forward to reporting further on our progress in Wynwood over the coming year.

As of 28 February 2018, JZCP had approximately $388.5 million invested in a portfolio of retail, office and residential properties in Brooklyn, New York, and South Florida which is valued at $463.4 million as of that date. We have made these investments alongside our long-term real estate partner, RedSky Capital, a team with significant experience in the sector.

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 decrease of 60 cents, primarily due to operating expenses and debt service at the property level.

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 has recently added another international pension OCIO client in the second quarter of 2018.

Spruceview continues to provide investment oversight to the pension fund of a Canadian subsidiary of an international packaged foods company, a European private credit fund-of-funds, and portfolios for family office clients.

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 14 investment, business development, legal and operations professionals.

Realisations

As previously mentioned, JZCP made two post-period realisations (March 2018), both significantly above NAV: Paragon Water Systems (“Paragon”) and Bolder Healthcare Solutions (“BHS”).

Paragon Water Systems

In March 2018, Paragon was acquired by Culligan Water, the world leader in residential, office, commercial and industrial water treatment.

Founded in 1988 and headquartered in Tampa, Florida, Paragon develops and produces “point-of-use” water filtration products for leading global Original Equipment Manufacturer (“OEM”) clients, big brand suppliers to specialty and big box retailers, direct sales organisations and companies with national or international water filtration dealership networks.

JZCP expects to realise approximately $16.2 million in gross proceeds (including escrows) from the sale, representing an increase of approximately $3.7 million, or 29.6% on the carrying value of Paragon of approximately $12.5 million as of 31 January 2018. This transaction represents a gross multiple of invested capital (“MOIC”) of approximately 1.8x and a gross internal rate of return (“IRR”) of approximately 18.4%.

Bolder Healthcare Solutions

In March 2018, BHS was acquired by a subsidiary of Cognizant, one of the world's leading professional services companies.

Headquartered in Louisville, Kentucky, BHS offers a full suite of healthcare revenue cycle management services to the hospital and physician marketplace in the United States. BHS was formed through a co-investment partnership between JZCP and the Edgewater Funds.

JZCP will realise approximately $110.0 million in gross proceeds from this sale (including escrows), which represents an increase in NAV of approximately $37.1 million, or 4.5% of NAV, as of January 31, 2018.

Outlook

We hope to build on the significant momentum we have achieved during the period, following the successful realisations of Factor Energia, K2 Towers, Nielsen-Kellerman, Paragon (post-period) and Bolder Healthcare (post period). With regards to our real estate portfolio, we are in the process of discussing joint venture partnerships with a number of institutional investors, which will provide JZCP liquidity for a portion of its investment as well as reduce the drag on NAV due to pre-development carrying costs for the properties.

Our goal is to re-deploy the liquidity unlocked from realisations, refinancings and partnerships into making new investments and buying back our stock at a significant discount. In addition, we hope to pay down a portion of the Company’s existing debt over the coming fiscal year.

Our continued objective is to validate JZCP’s NAV and we are confident that further realisations will enhance this validation.

We are also pleased to have initiated our share buyback programme in April 2018, and fully intend to continue repurchasing our own shares following the “closed period”. While JZCP’s ordinary shares were down by 16.2% for the year, they have rebounded since 28 February 2018 by approximately 7% in value.

We remain committed to pursuing our value-added investment strategy and are pleased with the current composition of JZCP’s portfolio, which we believe is well-balanced by geography and asset type.

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.21 May 2018

Investment Portfolio

(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 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 24).

(5)  Jordan Health Products was rebranded as Avante.

(6)  Sloan LED was previously named Illumination Investments, Llc in the February 2017 investment portfolio.

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 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 an Overseer of the Gennadius Library of the American School of Classical Studies in Athens and is 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 director of investment funds. He is Chairman of UK Mortgages Limited, Ranger Direct Lending PLC and Crystal Amber Fund Limited. He began his career with James Capel and subsequently held investment management positions with Bank of Bermuda, the Jardine Matheson Group and Fortis prior to joining the Edmond de Rothschild Group in Guernsey as Investment Director in 1999. He was appointed Managing Director of the Edmond de Rothschild companies in Guernsey in 2008, a position he held 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.

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 2018.

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 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 loss attributable to Ordinary shareholders for the year ended 28 February 2018 was $11,271,000 (year ended 28 February 2017: profit of $22,697,000). The revenue return for the year was $11,913,000 (year ended 28 February 2017: $5,612,000), after charging directors fees and administrative expenses of $3,085,000 (year ended 28 February 2017:$2,550,000) and Investment Adviser's base fee of $16,912,000 (year ended 28 February 2017: $16,865,000). The net asset value ("NAV") of the Company at the year-end was $837,573,000 (28 February 2017: $848,844,000) equal to $9.98 (28 February 2017: $10.12) per Ordinary share.

For the year ended 28 February 2018, the Company had $16,542,000 of cash outflows resulting from operating activities (year ended 28 February 2017: outflows of $9,239,000).

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

During 2017, 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.

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 26 June 2018.

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 16 and 19. During the year the Company did not buy back any of its own shares. Post year end, the Company repurchased 188,685 of its own shares. Details of the CULS can be found in Note 15.

The beneficial interests of the Directors in the Ordinary shares of the Company are shown below:

The beneficial interests of the Directors in the CULS of the Company are shown below (no change from 28 February 2017 position):

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 of any share class between 28 February 2018 and the date of this report.

Substantial Shareholders

As at 21 May 2018, the Company has been notified in accordance with the Disclosure and Transparency Rules of the following interests of 5% or more of the total Ordinary share capital of the Company (and save as set out below the Company is unaware of any significant changes to the below holdings at the date of signing this report). The number and percentage of Ordinary shares relate to the number informed by shareholders on the relevant notification rather than the current share register.

The 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%.

1 The notifiable interests set out in the table above for each of Edgewater Growth Capital Partners L.P., David W. Zalaznick, and John (Jay) W. Jordan II and Affiliates do not reflect the number of Ordinary shares bought back from each of those shareholders pursuant to certain share buy backs of Ordinary shares undertaken by the Company as announced on 4 April 2018 and 18 April 2018. Each of those shareholders had Ordinary shares repurchased from them by the Company in proportion to their then current shareholdings of Ordinary shares at the time and as such, as at 21 May 2018 and so far as the Company is aware, Edgewater Growth Capital Partners L.P. holds 18,294,711 Ordinary shares (being 21.9% of the issued Ordinary shares), David W. Zalaznick holds 10,526,568 Ordinary shares (being 12.6% of the issued Ordinary shares), and John (Jay) W. Jordan II and Affiliates holds 10,526,568 Ordinary shares (being 12.6% of the issued Ordinary shares).

2 On 6 February 2018, First Eagle Investment Management notified a change of major shareholding in the Company's securities and specifically that the accounts through which it held Ordinary shares and that related to its previously reported notifiable interest had ceased to be managed by it. Subsequently on 14 March 2018, Arnhold LLC notified a change of major shareholding in the Company's securities and specifically that it had assumed management of accounts holding Ordinary shares which were previously managed by First Eagle Investment Management. The notifiable interest of Arnhold LLC was notified as 5.45% of the issued Ordinary shares of the Company; the total number of Ordinary shares the subject of the notifiable interest was not notified. The notifiable interest relating to Arnhold LLC set out in the table above has been revised upwards to 5.5% on account of rounding and the reduction in the total number of Ordinary shares in issue by virtue of the Company having undertaken certain share buy backs of Ordinary shares announced on 4 April 2018 and 18 April 2018 (and on the assumption that Arnhold LLC did not have any Ordinary shares repurchased from them as part of those share buy backs).

Ongoing Charges

Ongoing charges for the years ended 28 February 2018 and 28 February 2017 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 2018 were 2.35% (28 February 2017: 2.26%) excluding incentive fees of 0.52% (28 February 2017: 1.45%).

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 9% 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 2017.

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 28 February 2021.

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:

(i) Financing obligations

The Company has obligations to repay loan debt in June 2021, the balance outstanding to Guggenheim Partners at 28 February 2018 was $150.1 million (28 February 2017: $97.4 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 2018, the Company had outstanding investment commitments of $73.7 million (28 February 2017: $76.8 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.

(ii) 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 from unlisted investments over the last 3 financial years that have averaged cash inflows of $159 million per annum and has invested an average of $178 million per annum over the same period in unlisted investments. 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.

(iii) 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 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 Disclosure 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 21 May 2018.

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 July 2016 (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 Board of Directors section and their interests in the shares of JZCP are shown in the Report of the Directors. The Directors' biographies highlight their wide range of relevant financial and sector experience.

Directors' Independence

The Board considers the Directors are free from any business or other relationship that could materially interfere with the exercise of their independent judgement. However, the Board notes the Financial Reporting Council’s consultation document, “Proposed Revisions to the UK Corporate Governance Code”. If accepted, the proposals will apply to accounting periods beginning on or after 1 January 2019. The proposed changes include a statement that on reaching a term of nine years a director will be deemed to be non-independent. The Board awaits the final FRC report, but notes and agrees with the AIC’s response to the proposed revisions, in particular its recommendation that length of service should be an indicator to consider when assessing independence, not a threshold.

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 Board and Committee meetings is shown on Corporate Governance.

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 third party service providers. The Board has considered whether a senior independent Director should be appointed. However, as the Board comprises entirely of 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, James Jordan and Tanja Tibaldi are seeking re-election to the Board at the 2018 Annual General Meeting ("AGM") because they have served more than nine years.

As discussed in the Chairman's statement Patrick Firth intends to retire as a director and as Chairman of the audit committee. However, Patrick will seek re-election to the board at the 2018 AGM, in order to ensure a smooth transition to his successor.

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 appropriate to use their own contacts, as well as external consultants 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. All members have the necessary financial and sector experience to contribute effectively to the Committee. The Audit Committee meets at least twice a year and meets the external auditors at least twice a year. The Audit Committee is responsible for overseeing the Company’s relationship with the external auditors, including making recommendations to the Board on the appointment of the external auditors and their remuneration. The Committee also considers the nature, scope and results of the auditors’ work and reviews, and develops and implements policies on the supply of any non-audit services that are to be provided by the external auditors.

A report of the Audit Committee detailing responsibilities and activities is presented in the Audit Committee Report.

Management Engagement Committee

To date, the recommended functions of a Management Engagement Committee have been exercised by the full board, each member of which is unassociated with the Investment Adviser. However, the Board now believes it appropriate to establish a Management Engagement Committee, whose responsibilities will include reviewing the performance and contractual arrangements of the Company’s service providers. The new Committee will be chaired by Chris Waldron and will comprise the entire board.

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

The main Board meetings are held to agree the Company's valuation of its investments, agree the Company's financial statements and discuss and agree other strategic issues. Other meetings are held when required to agree board decisions on ad-hoc issues.

UK Criminal Finances Act 2017

In respect of the UK Criminal Finances Act 2017 which has introduced a new Corporate Criminal Offence of 'failing to take reasonable steps to prevent the facilitation of tax evasion', the Board confirms that it is committed to zero tolerance towards the criminal facilitation of tax evasion.

The Board also keeps under review developments involving other social and environmental issues, such as Modern Slavery and General Data Protection Regulation, and will report on those to the extent they are considered relevant to the Company's operations.

Internal Controls

The Board is ultimately responsible for establishing and maintaining the Company’s system of internal financial and operating control and for maintaining and reviewing its effectiveness. 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.

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 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 2018 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

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 is 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 21 May 2018 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 2017/2018. 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 2018 was $1,070,408,000 accounting for 93% 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 2018 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. This is the last year of Christopher Matthews' five year tenure as audit partner.

Appointment of External Auditor

The Audit Committee will commence a tendering process for the audit of the Company. The process is scheduled to be completed during 2018 with the outcome intended to be put to shareholders for approval at next year's annual general meeting. In order to facilitate a smooth transition and give a potential new auditor the necessary time to adequately plan their audit process, the Audit Committee has recommended, to the Board, that a resolution be put to the 2018 Annual General Meeting for the reappointment of Ernst & Young LLP for the audit for the year ended 28 February 2019. 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 ensures 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, 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 2018 and 28 February 2017.

In line with the policies and procedures above, the Audit Committee does not consider that the provision of non-audit services, which comprises 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 are disclosed in the Corporate Governance section.

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 21 May 2018 and signed on its behalf by:

Patrick Firth

Chairman, Audit Committee

Independent Auditor's Report

Opinion

We have audited the financial statements of JZ Capital Partners Limited (the ‘Company’) for the year ended 28 February 2018, which comprise the Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows and the related notes 1 to 33, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards as adopted by the European Union (‘IFRS’).

In our opinion, the financial statements:

give a true and fair view of the state of the Company’s affairs as at 28 February 2018 and of its loss for the year then ended;

have been properly prepared in accordance with IFRS; and

have been properly prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under those standards are further described in the “Auditor’s responsibilities for the audit of the financial statements” section of our report below. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Use of our report

This report is made solely to the Company’s members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Conclusions relating to principal risks, going concern and viability statement

We have nothing to report in respect of the following information in the annual report, in relation to which the ISAs(UK) require us to report to you whether we have anything material to add or draw attention to:

the disclosures in the annual report set out on Report of the Directors that describe the principal risks and explain how they are being managed or mitigated;

the directors’ confirmation set out on Report of the Directors in the annual report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or

the directors’ statement set out on Report of the Directors in the annual report and on Notes to the Financial Statement about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements;

whether the directors’ statement in relation to going concern is materially inconsistent with our knowledge obtained in the audit; or

the directors’ explanation set out in the Report of the Directors in the annual report as to how they have assessed the prospects of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.

Overview of our audit approach

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters.

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

Materiality is the magnitude of omissions or misstatements 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 $16.8 million (2017: $17.0 million), which is 2% (2017: 2%) of total equity. 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 the basis of materiality (2% of total equity). However, the materiality amount was adjusted to reflect total equity at year end rather than total equity at the audit planning stage.

Performance materiality

Performance materiality is 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% (2017: 75%) of our planning materiality, namely $12.6 million (2017: $12.7 million). We have set performance materiality at this percentage because we have considered the likelihood of misstatements to be low. We have considered both quantitative and qualitative factors when determining the expected level of detected misstatements and setting the performance materiality at this level.

Reporting threshold

The reporting threshold is an amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of $0.84 million (2017: $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.

Other information

The other information comprises the information included in the annual report other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information.

Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact.

We have nothing to report in this regard.

In this context, we also have nothing to report in regard to our responsibility to specifically address the following items in the other information and to report as uncorrected material misstatements of the other information where we conclude that those items meet the following conditions:

Fair, balanced and understandable set out on Report of the Directors  – the statement given by the directors that they consider 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, business model and strategy, is materially inconsistent with our knowledge obtained in the audit; or

Audit committee reporting set out on Audit Committee Report  – the section describing the work of the audit committee does not appropriately address matters communicated by us to the audit is materially inconsistent with our knowledge obtained in the audit; or

Directors’ statement of compliance with the UK Corporate Governance Code set out on Report of the Directors  – the parts of the directors’ statement relating to the Company’s compliance with the UK Corporate Governance Code containing provisions specified for review by the auditor in accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision of the UK Corporate Governance Code.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters in relation to which the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:

proper accounting records have not been kept by the Company; or

the financial statements are not in agreement with the Company’s accounting records and returns; or

we have not received all the information and explanations we require for our audit.

Responsibilities of directors

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, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Christopher James Matthews, FCA

for and on behalf of Ernst & Young LLP

Guernsey, Channel Islands

21 May 2018

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.

Statement of Comprehensive Income

All items in the above statement are derived from continuing operations.

The profit/(loss) 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/(loss) for the year.

The accompanying notes form an integral part of the audited financial statements.

Statement of Financial Position

As at 28 February 2018

These audited financial statements were approved by the Board of Directors and authorised for issue on 21 May 2018. 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 2018

Comparative for the Year ended 28 February 2017

The accompanying notes form an integral part of the audited financial statements.

Statement of Cash Flows

For the Year Ended 28 February 2018

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

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 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 ("FVTPL") 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").

Changes in accounting policy and disclosures

The accounting policies adopted are consistent with those of the previous financial year, except that the Company has adopted the following:

(i) Standards, amendments and interpretations effective during the year

Amendment to IAS 7 – Statement of Cash Flows – amendments as a result of the Disclosure initiative (“IAS 7”). The amendments are intended to clarify IAS 7 to improve information provided to users of financial statements about an entity's financing activities. The financial statements now include a reconciliation of changes in financing liabilities arising from both cash flow and non-cash flow items (note 29).

(ii) 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 "Financial Instruments" replaces IAS 39 "Financial Instruments: Recognitions and Measurement" and is effective for an annual reporting periods beginning on or after 1 January 2018. It specifies how an entity should classify and measure financial assets and liabilities, hedging, and a new expected credit losses model for calculating impairment of financial assets. The standard also contains the new hedge accounting rules. The Company intends to adopt the standard once it becomes mandatory.

Classification Financial Assets and of Financial Liabilities

IFRS 9 contains three principal classification categories for financial assets measured at amortised cost, fair value through other comprehensive income and fair value through profit or loss. IFRS 9 classification is generally based on the business model in which a financial asset is managed and its contractual cash flows.

Based on the Company's initial assessment, this standard is not expected to have a material impact on the classification of financial assets and financial liabilities of the Company. This is because:

a) Other financial instruments currently measured at fair value through profit or loss under IAS 39 are designated into this category because they are managed on a fair value basis in accordance with a documented investment strategy. These investments are not expected to meet the SPPI criterion (solely payments of principal and interest) and accordingly, these financial instruments will be mandatorily measured at fair value through profit or loss under IFRS 9; and

b) Financial assets currently measured at amortised cost are: cash and cash equivalents, securities sold receivable and other receivables. These instruments meet the solely payments of principal and interest criterion and are held in a held-to collect business model. Accordingly, they will continue to be measured at amortised cost under IFRS 9.

c) Financial liabilities currently valued at amortised cost are loans payable, other payables and ZDPs and will continued to be measured at amortised cost. CULs are measured at FVTPL currently and will continued to be under IFRS 9 as the conversion feature will be considered an embedded derivative.

d) The Company is required to consider the change in the fair value of Financial liabilities valued at FVTPL, due to any change in the Company's credit risk profile and allocate the fair value movement through Other Comprehensive Income.

Impairment of Financial Assets

IFRS 9 replaced the "incurred loss" model in IAS 39 with an "expected credit loss" model. The new impairment model also applies to certain loan commitments and financial guarantee contracts but not to equity investments. Under IFRS 9, credit losses are recognised earlier than under IAS 39.

Based on the Company's initial assessment, changes to the impairment model are not expected to have a material impact on the financial assets of the Company. This is because:

a) the majority of the financial assets are measured at fair value through profit or loss and the impairment requirements do not apply to such instruments; and

b) the financial assets at amortised cost are short-term (i.e. no longer than 12 months) and/or assets considered to be of high credit quality; accordingly, the expected credit losses on such assets are expected to be small.

Hedge Accounting

The Company does not apply hedge accounting; therefore, IFRS 9 hedge accounting-related changes do not have an impact on the financial statements of the Company.

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 gain/(loss)'.

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.

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.

Securities sold receivable

Securities sold 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 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 overleaf) and equity are recorded at the amount of proceeds received, net of issue costs. Ordinary Shares are classified as equity in accordance with IAS 32 – “Financial Instruments: Presentation” as these instruments include no contractual obligation to deliver cash and the redemption mechanism is not mandatory.

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

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, equity-related securities and real estate investments.

In reaching its valuation of the unquoted equities, equity-related securities and real estate investments the key estimates the Board has to make are those relating to the multiples, discount factors and real estate valuation factors (note 5) used in the valuation models.

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 “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.

The Board has also concluded that the Company meets the additional characteristics of an investment entity, in that it has more than one investment; the investments are predominantly in the form of equities and similar securities and it has more than one investor.

Investment in Associates

An associate is an entity over which the Company has significant influence. An entity is regarded as a subsidiary only if the Company has control over its strategic, operating and financial policies and intends to hold the investment on a long-term basis for the purpose of securing a contribution to the Company’s activities.

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 Partners, 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 treasury bills and corporate bonds are not considered as part of the investment strategy and are therefore excluded from this segmental analysis.

Segmental Profit/(Loss)

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 reconciliation between total segmental operating profit and operating profit.

The following table provides a reconciliation between total segmental revenue and Company revenue.

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/liabilities and total assets/liabilities.