JZCC.L Regulatory News (JZCC)

JZ Capital Partners Ltd - Half-year Report

PR Newswire

London, November 26

JZ CAPITAL PARTNERS LIMITED (the "Company" or "JZCP")

(a closed-end investment company incorporated with limited liability under the laws of Guernsey with registered number 48761) 

INTERIM RESULTS FOR THE SIX-MONTH PERIOD ENDED

31 AUGUST 2019

LEI: 549300TZCK08Q16HHU44

(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)

27 November 2019

JZ Capital Partners, the London listed fund that invests in US and European micro-cap companies and US real estate, announces its interim results for the six-month period ended 31 August 2019.

Results and Portfolio Highlights

Appraisal of Real Estate Portfolio

Strategic Initiatives

Outlook

David Macfarlane, Chairman of JZCP, said: “The Board regrets the delay in publication of the Company’s results as well as the uncertainty regarding the value of the real estate portfolio.

The Company remains focused on implementing its revised investment policy; however, due to potential provisions against the real estate portfolio, the Company must protect its balance sheet in the near term by prioritizing debt repayment over the return of capital to shareholders. Consequently, new capital allocations will be largely limited to follow-on investments in existing portfolio companies as well as other existing obligations.

The Board is confident in the Investment Adviser’s ability to execute on the strategic initiatives announced today, which have been designed to maximise value for JZCP’s shareholders.”

Presentation details:

There will be an audiocast presentation for investors and analysts at 3.30pm London time / 10.30am New York time on 27 November 2019. The presentation can be accessed here and by dialing +44 (0)330 336 9411 (UK) or +1 323-994-2093 (US) with the participant access code 2869534.

__________________________________________________________________________________

The information contained within this announcement is considered by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain. The person responsible for arranging the release of this announcement on behalf of the Company is David Macfarlane, Chairman.

For further information:

Ed Berry / Kit Dunford +44 (0)20 3727 1143FTI Consulting

David Zalaznick +1 212 485 9410Jordan/Zalaznick Advisers, Inc.

Sam Walden +44 (0) 1481 745385Northern Trust International Fund

Administration Services (Guernsey) Limited 

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. 

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 now able to report the results of JZ Capital Partners ("JZCP" or the "Company") for the six-month period ended 31 August 2019. The Board regrets the delay in publication of JZCP’s results as well as the uncertainty created by the announcement of the delay made on 30 October 2019. As described further in that announcement, discussions in the ordinary course of business between the Company’s Investment Adviser and certain third-party real estate brokers gave rise to questions as to whether the Company’s real estate portfolio was overvalued. The Board therefore came to the view that a delay in publication of the results and an announcement to the market were necessary while the situation was further assessed.

Immediately, the Company asked its independent third-party appraiser to accelerate the annual appraisal process and update its valuations as at 31 August 2019. The reports received were in accordance with the Company’s accounting policies as per the financial statements at 28 February 2019 and indicate minimal differences from the appraiser’s year-end values at 28 February 2019; however, the fair value of JZCP’s real estate investments at 31 August 2019 decreased to $422.7 million from $443.1 million at 28 February 2019. The net movement in unrealised losses between the fair value and cost of JZCP’s real estate investment between 28 February 2019 and 31 August 2019 totalled $64 million. Notwithstanding the revised appraisals, the Board believes that significant uncertainty remains as to whether the real estate portfolio could be realised at these values. This uncertainty results from both financing constraints at the underlying property level and the requirement to generate liquidity in line with the Company’s recently approved investment policy, which will likely require assets to be realised on an accelerated basis. As disclosed in the Company’s published financial statements historically, due to the inherent uncertainties of real estate valuation, the values reflected in the financial statements may differ significantly from the values that would be determined by negotiation between parties in a sale transaction and those differences could be material.

Not publishing the Company’s interim results by 30 November 2019 would have resulted in the temporary suspension of the listing of JZCP’s securities (until the actual date of publication). In the short period between the availability of the appraiser’s report and the deadline for publication it would not have been possible for the Company’s auditors to have been able to complete their customary review of the interim results and related report. While best practice for the publication of interim results contemplates an interim auditor review, it is not a regulatory requirement; under these unusual circumstances, the Board has determined that shareholders would be better served by avoiding a temporary suspension and accordingly did not ask the auditors to review these interim results.

Strategic Initiatives

On 24 October 2019 (post-period), the Board received shareholder approval for the adoption of a revised investment policy, whereby JZCP will look to realise investments and materially reduce commitments to new investments in order to return a substantial amount of capital to shareholders and pay down a substantial amount of debt.

As part of this strategy, the Company announced that it planned to raise approximately $400-500 million in liquidity by the end of the fiscal year ending February 2023, through realisations, the secondary sale of certain asset portfolios, the formation of joint venture partnerships and the US Side-Car Fund, in which the Company would be an initial investor.

Return of capitalIn the past eighteen months, the Company has returned approximately $50 million to shareholders in a combination of open market purchases and a tender offer at close to NAV. Subject to the achievement of liquidity objectives, the Company expects to continue to return capital to shareholders; however, the near term priority is debt repayment.

RealisationsIn August 2019, JZCP finalized the sale of 80% of its interest in portfolio companies Orizon and Avante for $65.5 million in gross proceeds, a 23% uplift to the July 2019 NAV of those assets. In October 2019 (post-period), JZCP closed the sale of its portfolio company Priority Express for $18.8 million in gross proceeds (including escrows and a potential earn out), a 60% uplift to the July 2019 NAV.

These transactions, together with others, bring total gross proceeds realised this fiscal year through November 2019 to more than $135 million. A process is currently underway for the sale of a portfolio of US microcap assets, which is expected to generate between $150-170 million in gross proceeds to JZCP by 29 February 2020.

Alterations to the investment policyThe Company’s focus continues to be its revised investment policy; however, potential impairment to the value of the real estate portfolio dictates that the Company must protect its balance sheet in the near term by prioritizing debt repayment over the return of capital to shareholders. Consequently, new capital allocations will be largely limited to follow-on investments in existing portfolio companies as well as other existing obligations.

As part of curtailing new investments, the Company will not proceed to make a commitment to the recently announced US Side-Car Fund, which was approved by shareholders to be up to $25 million. Furthermore, JZCP’s commitment to JZI Fund IV, L.P. (“Fund IV”), which shareholders previously approved at up to €64 million, is intended to be limited to a maximum of €15 million. The Board expects this contribution to be made over a period of five years. Because of JZCP’s commitment reduction, Jay Jordan and David Zalaznick expect to increase their aggregate commitment to Fund IV by up to approximately €10 million.

Additionally, the Board has requested that the Investment Adviser relieve the Company of its future subscription obligations to certain managed funds where the Company has current and projected future commitments of approximately up to $44 million. In consultation with the Board, Jay Jordan and David Zalaznick have agreed in principle to provide for or replace these commitments to certain managed funds in an amount of up to approximately $50-60 million, including the increased commitment to Fund IV.

Over time, the Board believes that the above measures will conserve cash of up to approximately $100 million.

In addition, the Investment Adviser has volunteered to forego payment of the remainder of its currently earned capital incentive fee on the basis that (i) $3.9 million of it can be immediately paid to the members of the JZAI team other than Jay Jordan and David Zalaznick and (ii) the net gains underpinning the realised incentive fee are rolled forward and netted against future losses. Additionally, the Investment Adviser has volunteered to forego future capital incentive fees until the Company and the Investment Adviser mutually agree to reinstate such payments.

Following the implementation of the above strategic initiatives, the Board will consider the Company’s strategy in light of the circumstances prevailing at that time. The Board believes that a continuation of the aforementioned policy changes will likely be adopted, involving further realisations, limited investment activity, remaining debt repayments and the return of further capital to shareholders.

Shareholders owning more than 50% of the Company’s ordinary shares have confirmed to the Board that they support continuance based on the repayment of debt and capital detailed above.

Portfolio Update

At the end of the period, the Company’s portfolio consisted of 24 US microcap businesses (including four ‘verticals’ and 15 co-investments) across nine industries, 17 European microcap companies across six industries and seven countries, and five major real estate assemblages (61 properties in total) located across Brooklyn, New York and South Florida.

US and European Microcap

The US microcap portfolio performed very well during the period, delivering a net increase in NAV per share of 63 cents, primarily due to net accrued income of 11 cents per share and increased earnings at the Company’s co-investments Peaceable Street Capital (11 cents), New Vitality (3 cents) and K2 Towers II (3 cents) as well as writing the Orizon, Avante and Logistics investments up to their respective sale values (18, 7 and 6 cents per share, respectively).

The European microcap portfolio (via JZI Fund III, L.P. or “Fund III”) delivered a net increase of 9 cents per share during the period, due to write-ups at S.A.C, My Lender, Treee, Eliantus, Factor Energia, BlueSites, Luxida and Karium. However, these gains were offset by a write-down on the Company’s direct loan to Ombuds (16 cents).

As of 31 August 2019, Fund III held 12 investments: four in Spain, two in Scandinavia, two in Italy, two in the UK and one each in Portugal and Luxembourg. JZCP held direct loans to a further four companies in Spain: Ombuds, Docout, Xacom and Toro Finance.

 Real Estate

The real estate portfolio experienced a net decrease of 82 cents during the period, primarily due to operating expenses and debt service at the property level. As of 31 August 2019, the Company has approximately $416 million invested in a portfolio of retail, office and residential properties in Brooklyn, New York, and South Florida, alongside its real estate partner, RedSky Capital. The total portfolio is comprised of 61 properties, which, following the newly received appraisals mentioned above, is valued at $422.7 million, subject to the reservations of the Board and Investment Adviser regarding the realisable value of the portfolio as discussed above. During the period, JZCP made follow-on investments and paid expenses totalling approximately $43 million.

As part of its focus on liquidity, the Company does not expect to make any new investments in the real estate sector other than in its existing portfolio, primarily where additional capital is required for debt service payments, accretive pre-development expenditures or the acquisition of a remaining property to complete an assemblage. The Board, Investment Adviser and RedSky Capital are working closely to establish the best course of action (development, sale or joint venture) to maximise value and liquidity from each real estate asset. The Investment Adviser has taken a much more direct role in the day-to-day management of both Redsky Capital and the real estate portfolio.

Spruceview Capital Partners

Spruceview Capital Partners (“Spruceview”), the Company’s asset management business in the US, continues to make progress. Spruceview looks to address the growing demand from corporate pensions, endowments, family offices and foundations for fiduciary management services through an Outsourced Chief Investment Officer (“OCIO”) model as well as customized products/solutions per asset class.

After successfully deploying an initial committed amount of $300 million for a portfolio of alternative investments for a Mexican trust (or “CERPI”), Spruceview’s mandate was extended in August by an additional commitment of $400 million, with the potential remaining to increase the size of the CERPI to up to $1.0 billion over the coming years. Spruceview continues to have a healthy pipeline of potential client opportunities.

The Board

As previously announced, the Board intends to seek new appointments and this process has begun. I must report, however, that Chris Waldron has indicated his wish to step down. He does so with our thanks for his contribution and our best wishes for the future.

Outlook

The Board regrets the uncertainty regarding the realisable value of the real estate portfolio but can reaffirm that the Investment Adviser is committed to the strategy of maximising value for JZCP’s shareholders by realising assets, paying down a substantial amount of debt and continuing to return capital to shareholders.

David MacfarlaneChairman26 November 2019 

Investment Adviser’s Report

Dear Fellow Shareholders,

On 24 October 2019, shareholders voted to approve a revised investment policy, whereby JZCP will look to realise investments and materially reduce commitments to new investments in order to return capital to shareholders and pay down debt. We have achieved several realisations and are making progress on many more.

In August 2019, JZCP finalized the sale of 80% of its interest in portfolio companies Orizon and Avante for $65.5 million in gross proceeds, a 23% uplift to the July 2019 NAV of those assets. In October 2019 (post- period), JZCP closed the sale of its portfolio company Priority Express for $18.8 million in gross proceeds (including escrows and a potential earn out), a 60% uplift to the July 2019 NAV of that asset. These transactions bring total gross proceeds realised this fiscal year through November 2019 to more than $135 million.

In addition to realisations, we plan to raise liquidity for JZCP from secondary sales of certain asset portfolios and joint venture partnerships. We are currently in the market with a portfolio of select US microcap assets and expect to realise between $150-170 million in gross proceeds prior to 29 February 2020 from these transactions.

As of 31 August 2019, our US micro-cap portfolio consisted of 23 businesses, which includes four ‘verticals’ and 14 co-investments, across nine industries; this portfolio was valued at 8.2x EBITDA, after applying an average 23% marketability discount to public comparables. The average underlying leverage senior to JZCP’s position in our US micro-cap portfolio is 4.4x EBITDA. Consistent with our value-oriented investment strategy, we have acquired our current US micro-cap portfolio at an average 6.0x EBITDA.

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.

As of the same date, our US real estate portfolio consisted of 61 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.

Net Asset Value (“NAV”)

JZCP’s NAV per share decreased 38 cents, or 3.8%, during the six-month period from 28 February 2019 to 31 August 2019. 

The US micro-cap portfolio performed well during the period, delivering a net increase of 63 cents per share. This was primarily due to net accrued income of 11 cents, increased earnings at co-investments Peaceable Street Capital (11 cents), New Vitality (3 cents) and K2 Towers II (3 cents) as well as writing our Orizon, Avante and Logistics investments up to their respective sale values (18, 7 and 6 cents, respectively). We also received 4 cents of escrow payments during the period.

Our JZI Fund III, L.P. (“Fund III”) portfolio performed very well during the period, posting a net increase of 9 cents, primarily due to write-ups at Fund III portfolio companies S.A.C, My Lender, Treee, Eliantus, Factor Energia, BlueSites, Luxida and Karium. Gains at our Fund III portfolio companies were offset by a write-down on our direct loan to Ombuds (16 cents).

The real estate portfolio experienced a net decrease of 82 cents, primarily due to operating expenses and debt service at the property level.

Returns

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

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

2 Adjusted NAV returns reflect the return per share before (i) the dilution resulting from the issue of 18,888,909 ordinary shares at a discount to NAV on 30 September 2015 and (ii) subsequent appreciation from the buyback of ordinary shares at a discount.

Portfolio Summary

Our portfolio is well-diversified by asset type and geography, with 40 US and European micro-cap investments across eleven industries and five primary real estate ‘assemblages’ (61 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 31 August 2019 as compared to 28 February 2019. An explanation of the changes in the portfolio follows:

JZCP’s loan facility with Guggenheim Partners may be repaid, in whole or in part, at any time, without any prepayment penalties.

US microcap 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.

The US micro-cap portfolio performed well during the period, delivering a net increase of 63 cents per share. This was primarily due to net accrued income of 11 cents, increased earnings at co-investments Peaceable Street Capital (11 cents), New Vitality (3 cents) and K2 Towers II (3 cents) as well as writing our Orizon, Avante and Logistics investments up to their respective sale values (18, 7 and 6 cents, respectively). We also received 4 cents of escrow payments during the period.

European microcap portfolio Our Fund III portfolio performed very well during the period, posting a net increase of 9 cents, primarily due to write- ups at Fund III portfolio companies S.A.C, My Lender, Treee, Eliantus, Factor Energia, BlueSites, Luxida and Karium. Gains at our Fund III portfolio companies were offset by a write-down on our direct loan to Ombuds (16 cents).

JZCP invests in the European micro-cap sector through its approximately 18.8% ownership of Fund III. As of 31 August 2019, Fund III held 12 investments: four in Spain, two in Scandinavia, two in Italy, two in the UK and one each in Portugal and Luxembourg. JZCP held direct loans to a further 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.

During the period, JZCP received distributions totaling approximately €12.5 million (approximately $14.1 million) from its investments in: (i) Petrocorner, a network of petrol stations throughout Spain; (ii) Collingwood, a niche auto insurance business in the UK; and (iii) Fincontinuo, a niche consumer lender in Italy.

The proceeds included above from Petrocorner represent the first tranche of proceeds from the sale of Petrocorner by Fund III to British Petroleum. Headquartered in Madrid, Petrocorner is a strategic build-up in the Spanish retail petrol station market, comprised of 65 petrol stations located across Spain with annualized sales volume of approximately 250 million litres of petrol. JZCP expects to receive cumulative gross proceeds of €12.1 million from the sale (including interim proceeds and escrows), which represents a gross multiple of invested capital (“MOIC”) of approximately 2.0x and a gross internal rate of return (“IRR”) of approximately 23.0%.

Real estate portfolio As discussed in the Chairman’s Statement and below in the Outlook section, we believe the valuations are high for several of our real estate sites and assemblages. Accordingly, we expect to see lower valuations for the fiscal year ending 29 February 2020 beyond the approximately $64 million that the NAV has been marked down to reflect the carrying costs for the six months ending 31 August 2019.

As of 31 August 2019, JZCP had approximately $416 million invested in a portfolio of retail, office and residential properties in Brooklyn, New York, and South Florida, which is valued at $422.7 million as of that date. We have made these investments alongside our real estate partner, RedSky Capital.

Since we began investing in real estate in April 2012, we have acquired a total of 61 properties, all currently in various stages of development and re-development.

Other investments Our asset management business in the US, Spruceview Capital Partners, has continued to make encouraging progress since we last reported to you. Spruceview addresses the growing demand from corporate pensions, endowments, family offices and foundations for fiduciary management services through an Outsourced Chief Investment Officer (“OCIO”) model as well as customized products/solutions per asset class.

After the successful deployment during the period of an initial committed amount of $300 million for a portfolio of alternative investments for a Mexican trust (or “CERPI”), Spruceview’s mandate was extended in August by an additional commitment of $400 million, with the potential remaining to increase the size of the CERPI to up to $1.0 billion over the coming years.

During the period, Spruceview maintained a pipeline of potential client opportunities and continued to provide investment oversight to the pension funds of the Mexican and Canadian subsidiaries of an international packaged foods company, as well as a European private credit fund-of-funds, a US middle market private equity 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

Avante & Orizon In August 2019, JZCP sold 80% of its stake in US micro-cap investments Avante and Orizon to Edgewater Growth Capital Partners for $65.5 million in gross proceeds, a 23% uplift to July 2019 NAV of those assets.

Avante is a single source provider of medical, surgical, diagnostic imaging and radiation oncology equipment, including sales, service, repair, parts, refurbishing and installation in over 150 countries. Orizon is a manufacturer of integral aerospace assemblies for original equipment manufacturers and tier one suppliers to original equipment manufacturers.

Waterline Renewal In April 2019, Waterline Renewal was acquired by Behrman Capital, a private equity investment firm based in New York and San Francisco.

Waterline Renewal is a leading provider of engineered products used in the trenchless rehabilitation of wastewater infrastructure for municipal, commercial, industrial, and residential applications. The company's patented line of products and technologies allows its customers to deliver long-lasting solutions that repair sewer systems and wastewater lines without the need for excavation or property damage, and prevent overflow created by excess inflow and infiltration of ground water into the wastewater system.

JZCP expects to realise approximately $24.6 million in gross proceeds (including escrows) from the sale.

Felix Storch In March 2019, JZCP refinanced Felix Storch, its manufacturer of small and custom refrigeration appliances. This refinancing resulted in gross proceeds to JZCP of approximately $14.0 million, which returned JZCP’s entire March 2017 investment in Felix Storch of $12.0 million. Felix Storch has continued to exhibit strong growth and we expect it to return more capital in the future.

Priority Express In October 2019 (post-period), Priority Express was acquired by Capstone Logistics, a leading North American supply chain solutions partner.

Priority Express was founded in 2005 and provides over 500 customers in the healthcare and e-commerce end markets with expedited freight and distribution services, scheduled routed delivery services and on-demand delivery services.

JZCP expects to realise approximately $18.8 million in gross proceeds (including escrows and a potential earn-out) from the sale, a 60% uplift to July 2019 NAV.

Outlook

As discussed in the Chairman’s Statement, we as the Investment Adviser have been working with the Board to alleviate many of JZCP’s commitments which would require considerable cash resources. We are taking on the responsibility to provide or procure these commitments, either through increased personal investment or other avenues. Most importantly, JZCP will have up to approximately $100 million less in cash requirements to fulfill these existing commitments, which will be money that can be dedicated to debt repayment and return of capital to shareholders.

Subject to achieving our liquidity objectives, our near and medium term priority is debt repayment, including the Zero Dividend Preference Shares and Convertible Unsecured Loan Stock. After that, we will endeavor to continue to return capital to shareholders.

One near term initiative to achieve liquidity is through the secondary sale of certain of our US micro-cap assets. Hopefully, this will yield prices at or above our NAV, similar to our realisations already achieved this year. At the same time, we are minimizing the amount of capital JZCP invests in new acquisitions to preserve cash for near and medium term debt repayment and, ultimately, return of capital to shareholders.

Realising liquidity for our real estate portfolio is also an objective. We are currently evaluating the best course of action (development, sale or joint venture) to maximize value. Toward that end, we will be putting several of our properties up for sale in the next 60-90 days. It is important to note that we must support the business plan for certain of our respective assemblages and build-outs in order to complete the job and maximize value. These are the only new investments we will be making in real estate; we expect it will take 24 to 36 months to maximize the value of our current portfolio.

With regard to valuation of our real estate portfolio, we believe the valuations are high for several of the sites and assemblages. Accordingly, we expect to see lower valuations for the fiscal year ending 29 February 2020 beyond the approximately $64 million that the NAV has been marked down to reflect the carrying costs for the six months ending 31 August 2019.

We thank the Board and shareholders for their support of the revised investment strategy and we are confident that we can execute the strategy. In the coming months, we will be reporting to you how we are progressing with realisations to raise cash for debt repayment. We anticipate the next event will be the pay down of a significant amount of debt upon the successful completion of the secondary sale.

Yours faithfully,Jordan/Zalaznick Advisers, Inc.26 November 2019

Board of Directors

David Macfarlane (Chairman)1 Mr Macfarlane was appointed to the Board of JZCP in 2008 as Chairman and a non-executive Director. Until 2002 he was a Senior Corporate Partner at Ashurst. He was a non-executive director of the Platinum Investment Trust Plc from 2002 until January 2007.

James Jordan Mr Jordan is a private investor who was appointed to the Board of JZCP in 2008. He is a director of the First Eagle family of mutual funds, and of Alpha Andromeda Investment Trust Company, S.A. Until 30 June 2005, he was the managing director of Arnhold and S. Bleichroeder Advisers, LLC, a privately owned investment bank and asset management firm; and until 25 July 2013, he was a non-executive director of Leucadia National Corporation. He is an Overseer of the Gennadius Library of the American School of Classical Studies in Athens, and as Director of Pro Natura de Yucatan.

Sharon Parr2 Mrs Parr was appointed to the Board of JZCP in 2018. In 2003 she completed a private equity backed MBO of the trust and fund administration division of Deloitte and Touche, called Walbrook, selling it to Barclays Wealth in 2007. As a Managing Director of Barclays, she ultimately became global head of their trust and fund administration businesses, comprising over 450 staff in 10 countries. She stepped down from her executive roles in 2011 to focus on other areas and interests but has maintained directorships in several companies. She is a Fellow of the Institute of Chartered Accountants in England and Wales and a member of the Society of Trust and Estate Practitioners, and is a resident of Guernsey.

Tanja Tibaldi Ms Tibaldi was appointed to the Board of JZCP in 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 Waldron3, 4 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 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. He is a resident of Guernsey.

Patrick FirthMr Firth resigned from the Board and as Chairman of the Audit Committee in June 2019.

1Chairman of the nominations committee of which all Directors are members.2Mrs Parr was appointed Chairman of the Audit Committee in June 2019. All Directors are members of the Audit Committee.3Chairman of the management engagement committee of which all Directors are members. Mr Waldron was appointed as Senior Independent Director in May 2019.

4Mr Waldron proposed to resign from the Board on 26 November 2019.

Statement of Directors' ResponsibilitiesThe Directors are responsible for preparing the Interim Report and Unaudited Condensed Interim Financial Statements (the "Interim Report and Financial Statements") in accordance with applicable law and regulations.

The Directors confirm that to the best of their knowledge:

- the Unaudited and Condensed Interim Financial Statements (the "Interim Financial Statements") have been prepared in accordance with IFRS and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

- the Chairman’s Statement and Investment Adviser’s Report include a fair review of the information required by:

(i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the Interim Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or the performance of the entity during that period; and any changes in the related party transactions described in the 2019 Annual Report and Financial Statements that could do so.

Going concern and principal risks and uncertainties As an investment fund, the Company's principal risks are those that are associated with its investment portfolio. Given the nature of the portfolio, the principal risks are associated with the financial and operating performance of the underlying investments.

The Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report and Financial Statements for the year ended 28 February 2019 (as explained annual report). The Directors continue to monitor the risks to the Company.

The Directors consider the Company has adequate financial resources, in view of its holding in cash and cash equivalents and liquid investments, 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 the foreseeable future and that it is appropriate to prepare the interim financial statements on the going concern basis.

Approved by the Board of Directors and agreed on behalf of the Board on 26 November 2019.

David MacfarlaneChairman

Sharon ParrDirector

Investment Portfolio

1Original book cost incurred by JZCP adjusted for subsequent transactions. The book cost represents cash outflows and excludes PIK investments. 2Co-investment with Fund A, a Related Party (Note 19) .3Legacy Investments. Legacy investments are excluded from the calculation of capital and income incentive fees. 4Classified as Loans at Amortised Cost .5JZCP invests in real estate indirectly through its investments in JZCP Realty Ltd. JZCP owns 100% of the shares and voting rights of JZCP Realty, Ltd.

Statement of Comprehensive Income (Unaudited)For the Period from 1 March 2019 to 31 August 2019

The format of the Statement of Comprehensive Income (Unaudited) has changed from prior periods in that it now presents income in one column format rather than a split between capital and revenue.

The accompanying notes form an integral part of the Interim Financial Statements.

Statement of Financial Position (Unaudited) As at 31 August 2019

These Interim Financial Statements were approved by the Board of Directors and authorised for issue on 26 November 2019. They were signed on its behalf by:

David Macfarlane Chairman

Sharon Parr Director

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

Statement of Changes in Equity (Unaudited) For the Period from 1 March 2019 to 31 August 2019

Comparative for the period from 1 March 2018 to 31 August 2018

The accompanying notes form an integral part of the Interim Financial Statements.

The format of the Statement of Changes in Equity has changed from prior periods in that it now reflects the one column income presentation in the Statement of Comprehensive Income format. The Company's profit/loss are now posted to retained earnings rather than individual revenue/capital reserves.

Statement of Cashflows (Unaudited) For the Period from 1 March 2019 to 31 August 2019

1Total realisations quoted in the interim report of $121.2 million, include escrow receipts of $3.9 million and income distributions received of $1.2 million and exclude a short term debt repayment of $1.2 million.2Includes $38,000 of treasury bill interest received on maturity. 3Total investments in period include $0.7 million of deposits held at 28 February 2019.

The accompanying notes form an integral part of the Interim Financial Statements.

Notes to the Interim Financial Statements (Unaudited)

1. General Information JZ Capital Partners Limited ("JZCP" or the "Company") is a Guernsey domiciled closed-ended investment company which was incorporated in Guernsey on 14 April 2008 under the Companies (Guernsey) Law, 2008 (as amended). The Company is classed 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.

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.

Jordan/Zalaznick Advisers, Inc. (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 period under review the Company was administered by Northern Trust International Fund Administration Services (Guernsey) Limited.

The Unaudited Condensed Interim Financial Statements (the "Interim Financial Statements") are presented in US$'000 except where otherwise indicated.

2. Significant Accounting Policies

The accounting policies adopted in the preparation of these Interim Financial Statements have been consistently applied during the period, unless otherwise stated.

Statement of Compliance The Interim Financial Statements of the Company for the period 1 March 2019 to 31 August 2019 have been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted in the European Union, together with applicable legal and regulatory requirements of the Companies (Guernsey) Law, 2008 and the Disclosure Guidance and Transparency Rules. The Interim Financial Statements do not include all the information and disclosure required in the Annual Audited Financial Statements and should be read in conjunction with the Annual Report and Financial Statements for the year ended 28 February 2019.

Independent Review of Interim Financial StatementsThese Interim Financial Statements and information in the accompanying Interim Report have not been audited or reviewed by the Company's Auditor.

Basis of Preparation The interim 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 in the preparation of these Interim Financial Statements are consistent with the accounting policies stated in Note 2 of the Annual Financial Statements for the year ended 28 February 2019. The preparation of these Interim Financial Statements are in conformity with IAS 34, "Interim Financial Reporting" as adopted in the European Union, and requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

The Statement of Comprehensive Income is now presented in a one column format rather than AIC SORP recommended presentation which allocated profit/loss between capital and revenue.

New standards, interpretations and amendments adopted by the Company The accounting policies adopted in the preparation of the interim financial statements are consistent with those followed in the preparation of the Company’s annual financial statements for the year ended 28 February 2019. The has been no early adoption, by the Company, of any other standard, interpretation or amendment that has been issued but is not yet effective.

Several amendments and interpretations to standards apply for the first time in 2019, but do not have an impact on the interim financial statements of the Company.

3. Estimates and Judgements The estimates and judgements made by the Board of Directors are consistent with those made in the Audited Financial Statements for the year ended 28 February 2019.

4. Segment Information The Investment Manager is responsible for allocating resources available to the Company in accordance with the overall business strategies as set out in the Investment Guidelines of the Company. The Company is organised into the following segments:

• Portfolio of US micro-cap investments • Portfolio of European micro-cap investments • Portfolio of Real estate investments • Portfolio of Other investments - (not falling into above categories)

Investments in treasury bills are not considered as part of the investment strategy and are therefore excluded from this segmental analysis.

The investment objective of each segment is to achieve consistent medium-term returns from the investments in each segment while safeguarding capital by investing in a diversified portfolio.

Segmental operating profit/(loss) For the period from 1 March 2019 to 31 August 2019

For the period from 1 March 2018 to 31 August 2018

1The capital incentive fee is allocated across segments where a realised or unrealised gain or loss has occurred. Segments with realised or unrealised losses are allocated a credit pro rata to the size of the loss and segments with realised or unrealised gains are allocated a charge pro rata to the size of the gain.

Certain income and expenditure is not considered part of the performance of an individual segment. This includes net foreign exchange gains, interest on cash, finance costs, management fees, custodian and administration fees, directors’ fees and other general expenses.

The following table provides a reconciliation between total segmental operating profit/(loss) and operating profit/(loss):.

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

Segmental Net Assets At 31 August 2019

At 28 February 2019

The following table provides a reconciliation between total segmental assets and total assets and total segmental liabilities and total liabilities:

5. Fair Value of Financial InstrumentsThe Company classifies fair value measurements of its financial instruments at FVTPL using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The financial instruments valued at FVTPL are analysed in a fair value hierarchy based on the following levels:

Level 1Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2Those involving inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). For example, investments which are valued based on quotes from brokers (intermediary market participants) are generally indicative of Level 2 when the quotes are executable and do not contain any waiver notices indicating that they are not necessarily tradeable. Another example would be when assets/liabilities with quoted prices, that would normally meet the criteria of Level 1, do not meet the definition of being traded on an active market. At the period end, the Company had assessed that the liabilities valued at FVTPL being the CULS and valued using the quoted ask price, would be classified as level 2 within the valuation method as they are not regularly traded.

Level 3Those involving inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). Investments in JZCP's portfolio valued using unobservable inputs such as multiples, capitalisation rates, discount rates fall within Level 3.

Differentiating between Level 2 and Level 3 fair value measurements i.e., assessing whether inputs are observable and whether the unobservable inputs are significant, may require judgement and a careful analysis of the inputs used to measure fair value including consideration of factors specific to the asset or liability.

The following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on:

Transfers between levels Transactions for the CULS do not take place with sufficient frequency and volume to provide adequate pricing information on an ongoing basis, as defined by IFRS. Therefore, it is considered the CULS' are not traded in an active market and are therefore categorised at level 2.

Valuation techniques The same valuation methodology and process was deployed as for the year ended 28 February 2019.

Quantitative information of significant unobservable inputs and sensitivity analysis to significant changes in unobservable inputs within Level 3 hierarchyThe significant unobservable inputs used in fair value measurement categorised within Level 3 of the fair value hierarchy together with a quantitative sensitivity as at 31 August 2019 and 28 February 2019 are shown below:

1The sensitivity analysis refers to a percentage amount added or deducted from the average input and the effect this has on the fair value. 2The Fair Value of JZCP's investment in financial interests in real estate, is measured as JZCP's percentage interest in the value of the underlying properties. 3Certain investments in the Roebling, Williamsburg and Wynwood real estate portfolios are valued using an income capitalisation approach.

The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the reporting period.

Period ended 31 August 2019

Post period end, the Company requested a full appraisal of its real estate portfolio. The net loss above of $64 million is mainly attributable to carrying costs of the properties.

Year ended 28 February 2019

The fair value of the ZDP shares is deemed to be their quoted market price. As at 31 August 2019 the ask price for the ZDP (2022) shares was £4.46 (28 February 2019: £4.36 per share) the total fair value of the ZDP shares was $64,678,000 (28 February 2019: $69,056,000) which is $4,732,000 (28 February 2019: $5,218,000) higher than the liability recorded in the Statement of Financial Position.

ZDP shares are recorded at amortised cost and would fall in to the Level 2 hierarchy if valued at FVTPL.

6. Net loss on Investments at Fair Value Through Profit or Loss

7. Expected Credit Losses

Total Expected Credit Losses ("ECL") at 31 August 2019 are $16,197,000 (28 February 2019: $1,470,000).During the period, JZCP's portfolio company Ombuds entered administration. JZCP acting as lender, has a direct holding of debt in Ombuds. At 31 August 2019, JZCP's had invested a total of €12.4 million and had subsequently accumulated interest totalling. An ECL calculation for the investment in Ombuds, prepared in accordance with IFRS 9 has supported a total impairment of €14.0 ($15.4) million and is included in the portfolio's total ECL of €14.7 ($16.2) million.

8. Investment Income

Income for the period ended 31 August 2019 

1Preferred accumulated interest recognised in the period includes $5,139,000 realised on the disposal of investments.

Income for the period ended 31 August 2018

9. Finance Costs  

10. Fees Payable to the Investment Adviser Investment Advisory and Performance fees The Company entered into the amended and restated investment advisory and management agreement with Jordan/Zalaznick Advisers, Inc. (the "Investment Adviser") on 23 December 2010 (the ”Advisory Agreement”).

Pursuant to the Advisory Agreement, the Investment Adviser is entitled to a base management fee and to an incentive fee. The base management fee is an amount equal to 1.5 per cent per annum of the average total assets under management of the Company less those assets identified by the Company as being excluded from the base management fee, under the terms of the agreement. The base management fee is payable quarterly in arrears; the agreement provides that payments in advance on account of the base management fee will be made.

For the six-month period ended 31 August 2019, total investment advisory and management expenses, based on the average total assets of the Company, were included in the Statement of Comprehensive Income of $8,301,000 (period ended 31 August 2018: $8,498,000). Of this amount $2,079,000 (28 February 2019: $2,102,000) was due and payable at the period end.

The incentive fee has two parts. The first part is calculated by reference to the net investment income of the Company ("Income Incentive fee") and is payable quarterly in arrears provided that the net investment income for the quarter exceeds 2 per cent of the average of the net asset value of the Company for that quarter (the "hurdle") (8 per cent. annualised). The fee is an amount equal to (a) 100 per cent of that proportion of the net investment income for the quarter as exceeds the hurdle, up to an amount equal to a hurdle of 2.5%, and (b) 20 per cent of the net investment income of the Company above a hurdle of 2.5% in any quarter. Investments categorised as legacy investments and other assets identified by the Company as being excluded are excluded from the calculation of the fee. A true-up calculation is also prepared at the end of each financial year to determine if further fees are payable to the Investment Adviser or if any amounts are recoverable from future income incentive fees.

For the periods ended 31 August 2019 and 31 August 2018 there was no income incentive fee payable.

The second part of the incentive fee is calculated by reference to the net realised capital gains ("Capital Gains Incentive fee") of the Company and is equal to: (a) 20 per cent. of the realised capital gains of the Company for each financial year less all realised capital losses of the Company for the year less (b) the aggregate of all previous capital gains incentive fees paid by the Company to the Investment Adviser. The capital gains incentive is payable in arrears within 90 days of the fiscal year end. Investments categorised as legacy investments are excluded from the calculation of the fee. Assets of JZI Fund III and EuroMicrocap Fund 2010, L.P. are also excluded from the Capital Gains Incentive fee ("CGIF"). Carried interest, of an amount equivalent to the CGIF payable under the Advisory Agreement, is payable by the funds to an affiliate of JZAI.

For the purpose of calculating incentive fees cumulative preferred dividends received on the disposal of an investment are treated as a capital return rather than a receipt of income.

At 31 August 2019, a CGIF of $27,444,000 (28 February 2019: $21,429,000) based on net realised gains was payable. The Investment Adviser has agreed to defer the receipt of $23,544,000 of the total provision and also any further fee becoming payable for the current fiscal year. Any future realised gains/losses will be added/offset to/against the deferred net realised gains of $117,720,000 and the applicable incentive fee will be paid once the Company and Investment Advisor have mutually agreed to reinstate such payments.

The Company also provides for a CGIF based on unrealised gains, calculated on the same basis as that of the fee on realised gains/losses. For the period ended 31 August 2019 a provision of $9,432,000 (28 February 2019: $21,342,000) has been included.

11. Investments

The cost of PIK investments is deemed to be interest not received in cash but settled by the issue of further securities when that interest has been recognised in the Statement of Comprehensive Income.

Loans at amortised cost Interest on the loans accrues at the following rates:

Maturity dates are as follows:

1Weighted average of interest accruing at 8% on the principal amount and 10% on the deferred interest amount.2Throughout the duration of the loan the borrower can elect to pay interest when due at 12% or to add the amount to the principal and have interest accrue at the higher rate of 14%.

12. Other Receivables

13. Zero Dividend Preference ("ZDP") shares

On 1 October 2015, the Company rolled over 11,907,720 existing ZDP (2016) shares into new ZDP shares with a 2022 maturity date. The new ZDP shares (ZDP 2022) have a gross redemption yield of 4.75% and a total redemption value of £57,598,000 (approximately $70,146,000 using the period end exchange rate).

ZDP shares are designed to provide a pre-determined final capital entitlement which ranks behind the Company's creditors but in priority to the capital entitlements of the Ordinary shares. The ZDP shares carry no entitlement to income and the whole of their return will therefore take the form of capital. In certain circumstances, ZDP shares carry the right to vote at general meetings of the Company as detailed in the Company's Memorandum and Articles of Incorporation. Issue costs are deducted from the cost of the liability and allocated to the Statement of Comprehensive Income over the life of the ZDP shares.

14. Convertible Subordinated Unsecured Loan Stock ("CULS")

On 30 July 2014, JZCP issued £38,861,140 6% CULS. Holders of CULS may convert the whole or part (being an integral multiple of £10 in nominal amount) of their CULS into Ordinary Shares. Conversion Rights may be exercised at any time during the period from 30 September 2014 to 10 business days prior to the Maturity date being the 30 July 2021. The initial conversion price is £6.0373 per Ordinary Share, which shall be subject to adjustment to deal with certain events which would otherwise dilute the conversion of the CULS. These events include consolidation of Ordinary Shares, dividend payments made by the Company, issues of shares, rights, share-related securities and other securities by the Company and other events as detailed in the Prospectus.

CULS bear interest on their nominal amount at the rate of 6.00 per cent. per annum, payable semi-annually in arrears. During the six-month period ended 31 August 2019: $1,515,000 (31 August 2018: $1,631,000) of interest was paid to holders of CULS and is shown as a finance cost in the Statement of Comprehensive Income.

15. Loan Payable

Guggenheim Partners Limited

On 12 June 2015, JZCP entered into a loan agreement with Guggenheim Partners Limited. The agreement was structured so that part of the proceeds (€18 million) were received and will be repaid in Euros and the remainder of the facility was received in US dollars ($80 million). During April 2017, JZCP increased its credit facility with Guggenheim Partners by $50 million.

The loan matures on 12 June 2021 (6 year term) and interest is payable at 5.75% + LIBOR(1). There is an interest rate floor that stipulates LIBOR will not be lower than 1%. In this agreement, the presence of the floor does not significantly alter the amortised cost of the instrument, therefore separation is not required and the loan is valued at amortised cost using the effective interest rate method. The loan may be repaid, in full or in part, with no penalty.

At 31 August 2019, investments valued at $881,339,000 (28 February 2019: $951,164,000) were held as collateral for the loan. A covenant on the loan states the fair value of the collateral must be 4x the loan value and the cost of collateral must be at least 57.5% of total assets. The Company is also required to hold a minimum cash balance of $15 million plus 50% of interest on any new debt. At 31 August 2019 and throughout the period, the Company was in full compliance with covenant terms.

The carrying value of the loans approximates to fair value.

(1) LIBOR rates applied are the US dollar 3 month rate ($130 million) and the Euro 3-month rate (€18 million).

16. Other Payables