JZCC.L Regulatory News (JZCC)

JZ Capital Partners Ltd - Half-year Report

PR Newswire

London, November 7

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 ENDED31 AUGUST 2017

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

8 November 2017

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 2017.

Results and Portfolio Highlights

· NAV of $829.4 million (FYE 28/02/17: $848.8 million)

· NAV per share of $9.88 (FYE 28/02/17: $10.12)

· Total investments of $56.3 million, including: Felix Storch, Jordan Health Products, Peaceable Street Capital and properties in Brooklyn, New York and South Florida.

· Realisation proceeds of $27.7 million, primarily through the sale of Fidor Bank and the recapitalisation of Jordan Health Products.

· As of 31 August 2017, the portfolio comprised:

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

o European micro-cap: 15 companies across five industries and six 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 three significant post-period realisations (October and November 2017), all at or above net asset value: Nielsen-Kellerman, K2 Towers and Factor Energia.

Operational Highlights

· In May 2017, JZCP received shareholder approval for initiatives designed to maximise shareholder returns, including the discontinuation of the Company’s current dividend policy and inception of a new strategy to allow for the repurchase of shares.

· In April 2017, JZCP increased its loan facility with Guggenheim Partners from approximately $100 million to $150 million, in order to bridge certain planned realisations.

David Zalaznick, JZCP’s Founder and Investment Adviser, said: “It has been a steady six months for the Company. Whilst the underlying assets in our US, European and real estate portfolios continued to perform well, the overall NAV was impacted by pre-development real estate costs at the US real estate portfolio.

However, we remain positive about our future prospects and have made a promising start to the second half of the year, with three significant realisations, all at or above NAV.

Looking forward, the Company remains focused on returning further value from the portfolio and investing opportunistically in high-quality assets in the US and Europe.”

David Macfarlane, Chairman of JZCP, said: “The Board remains confident in and continues to support the Investment Manager’s focus on growing the Company’s NAV and following shareholder approval during the first half of the year, we look forward to initiating a share repurchase programme as market conditions permit. We carry great momentum into the second half of the year, as the Company builds towards a more secure, long-term future.”

Presentation details:

There will be an audiocast presentation for investors and analysts at 2pm UK (GMT) / 9am US (EDT) on 8 November 2017. The presentation can be accessed via http://bit.ly/2lTkDSG and by dialing +44 (0)330 336 9105 (UK) or +1 323-794-2423 (US) with the participant access code 2568566.

A playback facility will be available two hours after the conference call concludes. This facility may be accessed via the following dial in details, using the same participant access code as above: +44 (0)207 984 7568 (UK) or +1 719-457-0820 (US).

For further information:

Ed Berry / Kit Dunford +44 (0) 20 3727 1046 / 1143FTI Consulting

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

Rebecca Booth +44 (0) 1481 745 189JZ 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 six-month period ended 31 August 2017.

Performance

The Company’s performance over the last six months has been set against a backdrop of short-term political and economic uncertainty, driven by US policy and Brexit nervousness, and separatist fears across the EU.

Despite this, the US economy remains in a solid and robust expansion that is now the third longest in US history. The expansion gathered pace in the second quarter of 2017, with GDP growing 3.1% from April to June, driven primarily by household spending and firmer investment by business1. In Europe, economic growth has continued to gain momentum, supported by favourable monetary conditions, a weaker euro and better than expected export growth.

Within this market environment, it has been a steady six months for the Company, with the underlying assets in our US, European and real estate portfolios continuing to perform satisfactorily. For the six-month period ended 31 August 2017, JZCP’s net asset value ("NAV") per share declined 2.4% from $10.12 to $9.88; primarily due to operating and debt service expenses at the US real estate portfolio, offsetting the positive performance of the US and European micro-cap portfolio.

Strategy

The Investment Adviser continues to pursue its value-added investment strategy in the US and European micro-cap sectors and the US real estate market, providing investors with access to a diversified and balanced portfolio of alternative investment opportunities.

Portfolio update

It has been an active investment period for the Company, putting $56.3 million2 to work across the US micro-cap and real estate portfolios - whilst realising $27.7 million3, primarily through the sale of Fidor Bank, an internet-based bank licensed in Germany, and the recapitalisation of Jordan Health Products, a build-up of healthcare equipment sales, service and installation companies.

At the end of the period, the Company’s portfolio consisted of 21 US micro-cap businesses, including four ‘verticals’ and 12 co-investments, across nine industries, 15 European micro-cap companies across five industries and six countries, and five major real estate assemblages (59 properties in total) located across Brooklyn, New York and South Florida. The portfolio continues to become more balanced by asset type and geography.

US and European Micro-cap

The Board is pleased with the resilient performance of the US micro-cap portfolio during the period, which has seen a net valuation increase of 4 cents per share, primarily due to net accrued income of 8 cents and increased earnings at our Healthcare Revenue Cycle Management vertical (2 cents).

The US micro-cap portfolio was valued at 8.2x EBITDA, after applying an average 26% marketability discount to public comparables. The Company paid 4.8x EBITDA on average for US micro-cap acquisitions made during the period, consistent with the Investment Adviser’s value-oriented investment strategy.

The European micro-cap sector remains a strategically important segment of the business. JZCP invests in the European micro-cap sector through its 75% ownership of the EuroMicrocap Fund 2010, L.P. (“EMC”)4 and its approximately 18.8% ownership of JZI Fund III, L.P. (“Fund III”). This was demonstrated during the period when JZCP acquired stakes in two new businesses via its ownership in Fund III: Treee, Italy’s first nationwide recycler of electric and electronic goods, and Eliantus, a build-up of solar plants in Spain.

As of 31 August 2017, EMC held two investments in Spain: Factor Energia and Oro. Fund III held nine investments: three in Spain, two in Scandinavia, two in Italy and one each in the UK and Luxembourg. JZCP held direct loans to a further four companies in Spain: Ombuds, Docout, Xacom and Toro Finance.

Real Estate

The Company’s long-term partnership with Redsky Capital continues to lead to attractive investment opportunities in Brooklyn, New York, and South Florida. During the period, JZCP made investments of $23.2 million in properties in Brooklyn, New York, and South Florida. The portfolio experienced a valuation decrease of 17 cents per share, primarily due to operating expenses and debt service at the property level.

As of August 2017, JZCP has approximately $366 million invested in five major real estate assemblages (59 properties in total) with an approximate valuation of $477 million. All properties are currently in various stages of development and re-development.

Realisations

The Company generated realisations totalling $27.7 million during the period, primarily through the sale of Fidor Bank (“Fidor”) and the recapitalisation of Jordan Health Products. The Company received its first tranche of proceeds totalling $12.5 million from the sale of Fidor, and is expected to receive total gross proceeds of approximately $25 million from the sale.

The Board is delighted with three significant post-period realisations (October 2017), all approximately at or above net asset value: Nielsen-Kellerman, K2 Towers and Factor Energia. JZCP received proceeds of $8.6 million from the sale of NK and expects to receive total cash proceeds of $27.1 million from the sale of K2, with further proceeds of approximately $4.2 million being rolled into a new vehicle which is being used to fund a new portfolio of cell tower assets with the same management partners. JZCP expects to have received total gross proceeds (before carry) of approximately €69.7 million ($82.3 million) from the sale of Factor Energia.

Outlook

I am encouraged by the level of realisation activity, post-period, which we expect will continue to feed through to positive NAV growth in the year ahead.

The Board continues to believe that generating positive NAV growth is the most effective driver to narrow the Company's persistent discount to NAV. In addition, the Board continues to evaluate its option of exercising the share buy-back programme, following shareholder approval during the first half of the year. The timing and level of the buyback is dependent on a range of factors, including the Company’s liquidity from realisations, market conditions and whether or not it would be accretive to shareholder value. Subject to that, however, the Board expects to dedicate a portion of funds from realisations to a share buyback programme in 2018.

The Company’s robust balance sheet and access to a wide range of quality investment opportunities means we are well positioned for the year ahead.

David MacfarlaneChairman7 November 2017

1 Bureau of Economic Analysis, US Department of Commerce – 28 September 2017.

2 Total investments in the period, as quoted in the Chairman’s Statement and Investment Advisers’ report have been adjusted to exclude short-term direct loans to investee companies ($6.6 million) which were advanced and repaid in the period.

3 Total realisations in the period, as quoted in the Chairman’s Statement and Investment Advisers’ report have been adjusted to exclude short-term direct loans to investee companies ($7.1 million) which were advanced and repaid in the period and to include Escrow receipts ($1.2 million).

4 EuroMicrocap Fund 2010, L.P. and EuroMicrocap Fund-C, L.P. are defined throughout the Condensed Interim Report and Financial Statements as "EMC", both L.P.s are held by the same limited partners and in the same ownership percentages.

Investment Adviser’s Report

Dear Fellow Shareholders,

We are very pleased to report three significant post-period realisations, all approximately at or above net asset value: Nielsen-Kellerman Co., K2 Towers and Factor Energia for which more details are provided later in this report.

JZCP’s NAV per share fell 2.4% during the period, from $10.12 at 28 February 2017 to $9.88 at 31 August 2017, primarily due to pre-development real estate costs. Unless otherwise stated, figures included in this report refer to the six-month period ended 31 August 2017.

During the period, JZCP invested a total of $56.3 million, including investments in Felix Storch, Jordan Health Products, Peaceable Street Capital and properties in Brooklyn, New York and South Florida. We realised $27.7 million primarily through the sale of Fidor Bank and the recapitalisation of Jordan Health Products.

As of 31 August 2017, 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 8.2x EBITDA, after applying an average 26% marketability discount to public comparables. The average underlying leverage senior to JZCP's position in our US micro-cap portfolio is 3.5x 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 4.8x EBITDA on average for US micro-cap acquisitions made during the period.

Our European micro-cap portfolio consisted of 15 companies across five industries and six 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 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.

Net Asset Value ("NAV")

JZCP’s NAV per share fell 2.4% during the period, from $10.12 at 28 February 2017 to $9.88 at 31 August 2017.

1 Net foreign exchange gains includes 20 cents relating to translation of investments, foreign exchange losses of 3 cents on the translation of the CULS and foreign exchange losses of 2 cents as recorded in the Statement of Comprehensive Income.

The US micro-cap portfolio performed steadily, delivering a net increase of 4 cents, primarily due to net accrued income of 8 cents and increased earnings at our Healthcare Revenue Cycle Management vertical (2 cents). Also contributing to the positive portfolio performance were increases at our Logistics vertical (1 cent) and at Jordan Health Products (1 cent). We also received 1 cent of escrow payments during the period.

Offsetting these increases were declines at our Industrial Services Solutions (“ISS”) vertical (8 cents) and Nationwide, our school photography business (1 cent).

The European micro-cap portfolio continued its positive trajectory, posting a net increase of 2 cents, primarily due to accrued income of 5 cents and a positive carried interest adjustment of 3 cents, offset by a write-down of Factor Energia, our energy supply business in Spain, of 6 cents.

The real estate portfolio experienced a net decrease of 17 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, four-year and five-year periods.

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

Portfolio Summary

Our portfolio is well-diversified by asset type and geography, with 36 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, Luxembourg, Scandinavia and the UK.

Below is a summary of JZCP’s assets and liabilities at 31 August 2017 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 purpose of this increase in borrowings is to provide additional liquidity to JZCP in order to bridge certain planned realisations. The entire $150 million facility may be repaid, in whole or in part, at any time, without any prepayment penalties.

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.

New US investments – verticals

New US investments – co-investments

1Jordan Health Products is classified as an "Other" US Micro-cap investment in the Investment Portfolio.

European micro-cap portfolio

JZCP invests in the European micro-cap sector through its 75% ownership of EMC and its 18.8% ownership of JZI Fund III, L.P. (“Fund III”). JZAI has offices in London and Madrid and an outstanding team with over fifteen years of experience investing together in European micro-cap deals.

As of 31 August 2017, EMC held two investments in Spain: Factor Energia and Oro. Fund III held nine investments: three in Spain, two in Scandinavia, two in Italy and one each in the UK and Luxembourg. JZCP held direct loans to a further four companies in Spain: Ombuds, Docout, Xacom and Toro Finance.

In November 2017 (post-period), JZCP sold its interest in Factor Energia for expected total gross proceeds (before carry) of approximately €69.7 million ($82.3 million) (including deferred payments and interim distributions received over the course of the investment), which represents an approximate gross multiple of invested capital of 9.2x and an approximate gross IRR of 42.3% in euro-denominated terms. See below for further information.

Recent events

During the period, JZCP acquired stakes in two new businesses via its ownership in Fund III: Treee, Italy’s first nationwide recycler of electric and electronic goods, and Eliantus, a build-up of solar plants in Spain.

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 2017, JZCP received its first tranche of proceeds totalling $12.5 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 and is expected to receive total gross proceeds of approximately $25 million from the sale.

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

As of 31 August 2017, JZCP had approximately $366 million invested in a portfolio of retail, office and residential properties in Brooklyn, New York, and South Florida which is valued at $477 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 17 cents, primarily due to operating expenses and debt service at the property level.

New real estate investments

Other Investments

Our asset management business in the US, Spruceview Capital Partners, addresses the growing demand from corporate pensions, endowments, family offices and foundations for fiduciary management services through an Outsourced Chief Investment Officer (“OCIO”) model. Spruceview has a robust pipeline of opportunities and continues to provide investment oversight to a European private credit fund-of-funds tailored to the clients of an international multi-family office as well as to the pension fund of a Canadian subsidiary of an international confectionary company. Spruceview recently increased its assets under management as the Canadian pension fund incorporated the assets of another recently acquired business.

As previously reported, Richard Sabo, former Chief Investment Officer of Global Pension and Retirement Plans at JPMorgan and a member of that firm’s executive committee, is leading a team of 12 senior investment, business development, legal and operations professionals.

Realisations

As previously mentioned, JZCP made three significant post-period realisations (October and November 2017), all at or above net asset value: Nielsen-Kellerman Co. (“NK”), K2 Towers (“K2”) and Factor Energia (“Factor”).

Nielsen-Kellerman

JZCP received proceeds of $8.6 million from the sale of NK, a designer, manufacturer and distributer of rugged, waterproof environmental and sports performance instruments for active lifestyles and technical applications.

NK’s sale represents a 3.3x realised gross multiple on invested capital and a 19.2% realized gross IRR. JZCP first invested in NK in March 2010.

K2 Towers

JZCP expects to receive total proceeds of $31.3 million from the sale of K2 to one of the largest publicly traded cell tower companies, representing an overall gross multiple of invested capital of 1.5x and a gross internal rate of return of 17.6% in just over two years. Approximately $4.2 million of these proceeds are being re-invested into a new vehicle which is being used to fund a new portfolio of cell tower assets with the same management partners. This transaction provides liquidity to JZCP at an attractive valuation while continuing to build a great cell tower portfolio with further upside.

Factor Energia

Finally, JZCP realised, at approximately net asset value, its majority equity interest in Factor held through EMC.

Post-sale, Factor will be majority owned by an affiliate of a major North American public pension fund. As part of this transaction, Fund III, in which JZCP is an approximately 18.8% limited partner, has agreed to invest €20 million alongside the majority owner and Factor management, representing approximately 25% of the business’ fully diluted equity ownership.

JZCP invested a total of approximately €7.6 million ($9.6 million) in Factor and is expected to receive total gross proceeds, (before carry) of approximately €69.7 million ($82.3 million) from the sale (including deferred payments and interim distributions received over the course of the investment), representing an approximate gross multiple of invested capital of 9.2x and an approximate gross IRR of 42.3% in euro-denominated terms.

Outlook

We are very pleased with how the second half of the year has started, with three outstanding post-period realisations (NK, K2 and Factor). All of these transactions validate JZCP’s solid, if not conservative, net asset value.

Heading into the year-end, 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.

We anticipate further exciting realisations over the next six months, which will in turn provide more liquidity for us to invest in our growing pipeline of attractive investment opportunities, repay debt and buy back our stock.

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.7 November 2017

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 Fund, Ltd.

(3) Legacy Investments. Legacy investments are excluded from the calculation of capital and income incentive fees.

(4) Co-investment with Fund A, a Related Party (Note 20).

Unaudited Statement of Comprehensive IncomeFor the Period from 1 March 2017 to 31 August 2017

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

The (loss)/profit for the period is attributable to the Ordinary shareholders of the Company.

The format of the Unaudited 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 IFRS.

There was no comprehensive income other than the (loss)/profit for the period.

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

Statement of Financial PositionAs at 31 August 2017

These unaudited condensed interim financial statements were approved by the Board of Directors and authorised for issue on 7 November 2017. They were signed on its behalf by:

David MacfarlaneChairman

Patrick FirthDirector

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

Unaudited Statement of Changes in EquityFor the period from 1 March 2017 to 31 August 2017

Comparative for the period from 1 March 2016 to 31 August 2016

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

Unaudited Statement of Cash FlowsFor the Period from 1 March 2017 to 31 August 2017

The accompanying notes form an integral part of the condensed interim 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 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 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 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 2017 to 31 August 2017 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 Listing Rules of the London Stock Exchange's Specialist Fund Segment. The interim financial statements do not include all the information and disclosure required in the annual financial statements and should be read in conjunction with the annual report and audited financial statements at 28 February 2017.

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 2017. The preparation of these interim financial statements are in conformity with IAS 34, "Interim Financial Reporting" as adopted in the European Union, requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

Standards, amendments and interpretations that are not effective and are not 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.

IFRS 9 introduces a new approach to the classification of financial assets, which is driven by the business model in which the asset is held and their cash flow characteristics. A new business model was introduced which does allow certain financial assets to be categorised as “fair value through other comprehensive income” in certain circumstances. The requirements for financial liabilities are mostly carried forward unchanged from IAS 39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk.

The new model introduces a single impairment model being applied to all financial instruments, as well as an “expected credit loss” model for the measurement of financial assets. IFRS 9, also contains a new model for hedge accounting that aligns the accounting treatment with the risk management activities of an entity, in addition enhanced disclosures will provide better information about risk management and the effect of hedge accounting on the financial statements.

IFRS 9 carries forward the derecognition requirements of financial assets and liabilities from IAS 39.

Effect on the financial statements

The standard is effective on or after 1 January 2018 and will be adopted for the year ending 28 February 2019.

The Company’s financial instruments consist of equity instruments and debt instruments. The Company’s financial assets under equity and debt instruments will continue to be valued at fair value through profit or loss. Due to the cash flow characteristics of such financial instruments, on application of IFRS 9, they will continue to be classified as fair value through the profit or loss.

Although early adoption is permitted the Company has established that the impact will be minimal. In addition, the Company does not apply hedge accounting and the valuation model is consistent with the Company’s current methodology. It is anticipated that this application of IFRS 9 will not change the measurement and presentation of the current financial instruments.

There are certain other current standards, amendments and interpretations that are not relevant to the Company's operations.

3. Estimates and Judgements

Estimates

The following are the key judgements and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the financial year:

Fair Value of Investments at Fair Value Through Profit or Loss ("FVTPL")

Investments are classified as FVTPL, and valued accordingly, as disclosed in Note 2 of the annual financial statements for the year ended 28 February 2017. 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 judgements and 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

Investment in Associates

The Board will evaluate whether investee companies meet the definition of an Associate. An Associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. Full details are disclosed in Note 3 of the annual financial statements for the year ended 28 February 2017.

Assessment as an Investment Entity

Entities that are judged to 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, being listed on the London Stock Exchange the Company obtains funding from a diverse group of external shareholders. Through its Investment Adviser's expertise it enables investors to access private equity, real estate and similar investments.

The Company’s objective 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.

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 and meet its obligations as when they fall due 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:

· Portfolio of US micro-cap investments

· Portfolio of European micro-cap investments

· Portfolio of Real estate investments

· Portfolio of Other investments

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 2017 to 31 August 2017

For the period from 1 March 2016 to 31 August 2016

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.

(1) The 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.

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

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

Segmental Net Assets

At 31 August 2017

At 28 February 2017

Other receivables and prepayments are not considered to be part of individual segment assets. Certain liabilities are not considered to be part of the net assets of an individual segment. These include custodian and administration fees payable, directors’ fees payable and other payables and accrued expenses.

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

5. Fair Value of Financial Instruments

The Company classifies fair value measurements of its financial instruments at fair value through profit or loss ("FVTPL") using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The financial assets valued at FVTPL are analysed in a fair value hierarchy based on the following levels:

Level 1

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

Level 2

Those involving inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). For example, investments which are valued based on quotes from brokers (intermediary market participants) are generally indicative of Level 2 when the quotes are executable and do not contain any waiver notices indicating that they are not necessarily tradeable. Another example would be derivatives such as interest rate swaps or forward currency contracts where inputs are mostly observable and therefore may also fall into Level 2. At the period end, the Company had assessed it held no assets or liabilities valued at FVTPL that were using inputs that would be classified as level 2 within the valuation method.

Level 3

Those involving inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). Investments in JZCP's portfolio valued using unobservable inputs such as multiples, capitalisation rates, discount rates (see Note 5) fall within Level 3.

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

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

Financial assets at 31 August 2017

Financial assets at 28 February 2017

Financial liabilities designated at fair value through profit or loss at inception

Financial liabilities at 31 August 2017

Financial liabilities at 28 February 2017

Transfers between levels

There were no transfers between the levels of hierarchy of financial assets and liabilities recognised at fair value through profit or loss within the period ended 31 August 2017 and the year ended 28 February 2017.

Valuation techniques

In valuing investments in accordance with International Financial Reporting Standards, the Directors follow a number of general principles as detailed in the International Private Equity and Venture Capital Association ("IPEVCA") guidelines.

When fair values of listed equity and debt securities at the reporting date are based on quoted market prices or binding dealer price quotations (bid prices for long positions), without any deduction for transaction costs, the instruments are included within Level 1 of the hierarchy.

Investments for which there are no active markets are valued according to one of the following methods:

Real estate

JZCP makes its Real Estate investments through a wholly-owned subsidiary, which in turn owns interests in various residential, commercial, and development real estate properties. The net asset value of the subsidiary is used for the measurement of fair value. The underlying fair value of JZCP’s Real Estate holdings, however, is represented by the properties themselves. The Company's Investment Adviser and Board review the fair value methods and measurement of the underlying properties on a quarterly basis. Where available, the Company will use third party appraisals on the subject property, to assist the fair value measurement of the underlying property. Third-party appraisals are prepared in accordance with the Appraisal and Valuation Standards (6th edition) issued by the Royal Institution of Chartered Surveyors. Fair value techniques used in the underlying valuations are:

- Use of comparable market values per square foot of properties in recent transactions in the vicinity in which the property is located, and in similar condition, of the relevant property, multiplied by the property’s square footage.

- Discounted Cash Flow ("DCF") analysis, using the relevant rental stream, less expenses, for future periods, discounted at a Market Capitalisation ("MC") rate, or interest rate.

- Relevant rental stream less expenses divided by the MC rate; this method approximates the enterprise value construct used for non-real estate assets.

For each of the above techniques third party debt is deducted to arrive at fair value.

Due to the inherent uncertainties of real estate valuation, the values reflected in the financial statements may differ significantly from the values that would be determined by negotiation between parties in a sales transaction and those differences could be material.

Unquoted preferred shares, micro-cap loans, unquoted equities and equity related securities

Unquoted preferred shares, micro-cap loans, unquoted equities and equity related securities investments are classified in the Statement of Financial Position as Investments at fair value through profit or loss. These investments are typically valued by reference to their enterprise value, which is generally calculated by applying an appropriate multiple to the last twelve months' earnings before interest, tax, depreciation and amortisation ("EBITDA"). In determining the multiple, the 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 IPEVCA 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.

In respect of unquoted preferred shares and micro-cap loans, the Company values these investments by reference to the attributable enterprise value as the exit strategy in respect to these investments would be a one tranche disposal together with the equity component. The fair value of the investment is determined by reference to the attributable enterprise value (this is generally calculated by a multiple of EBITDA reduced by senior debt and a marketability discount) covering the aggregate of the unquoted equity, unquoted preferred shares and debt instruments invested in the underlying company. The increase of the fair value of the aggregate investment is reflected through the unquoted equity component of the investment and a decrease in the fair value is reflected across all financial instruments invested in an underlying company.

New Investments

The fair value of a new investment, classified at Level 3, is deemed to approximate to cost for the first year the investment is held, unless there is an event or evidence which indicates a requirement for an adjustment.

Quantitative information of significant unobservable inputs and sensitivity analysis to significant changes in unobservable inputs within Level 3 hierarchy

The significant unobservable inputs used in fair value measurement categorised within Level 3 of the fair value hierarchy together with a quantitative sensitivity as at 31 August 2017 and 28 February 2017 are shown below:

1 The sensitivity analysis refers to a percentage amount added or deducted from the average input and the effect this has on the fair value.

2 The Fair Value of JZCP's investment in financial interests in real estate, is measured as JZCP's percentage interest in the value of the underlying properties. The Directors consider the discount rate used, applied to the DCF, when valuing the properties as the most significant unobservable input affecting the measurement of fair value.

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

Period ended 31 August 2017

Year ended 28 February 2017

Fair value of Zero Dividend Preference ("ZDP") shares

The fair value of the ZDP shares is deemed to be their quoted market price. As at 31 August 2017 the ask price for the ZDP (2022) shares was £4.24 (28 February 2017: £4.22 per share) the total fair value of the ZDP shares was $65,057,000 (28 February 2017: $65,532,000) which is $7,779,000 (28 February 2017: $8,597,000) higher than the liability recorded in the Statement of Financial Position.

ZDP shares are recorded at amortised cost and would fall in to the Level 1 hierarchy if valued at FVTPL.

6. Net (loss)/gain on Investments at Fair Value Through Profit or Loss

7. Net Write Back of Impairments on Loans and Receivables

8. Investment Income

Income for the period ended 31 August 2017

Income for the period ended 31 August 2016

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 2017, total investment advisory and management expenses, based on the average total assets of the Company, were included in the Statement of Comprehensive Income of US$8,458,000 (period ended 31 August 2016: US$8,724,000). Of this amount US$2,264,000 (28 February 2017: US$2,026,000) 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 2017 and 31 August 2016 there was no income incentive fee payable to the Investment Adviser.

The second part of the incentive fee is calculated by reference to the net realised capital gains ("Capital Gains Incentive fee") of the Company and is equal to: (a) 20 per cent. of the realised capital gains of the Company for each financial year less all realised capital losses of the Company for the year less (b) the aggregate of all previous capital gains incentive fees paid by the Company to the Investment Adviser. The capital gains incentive is payable in arrears within 90 days of the fiscal year end. Investments categorised as legacy investments and assets of the Euro Microcap Fund 2010, L.P., EuroMicrocap Fund-C, L.P. and JZI Fund III, L.P. are excluded from the calculation of the fee.

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

At 31 August 2017 and 28 February 2017, due to accumulative realised capital losses in prior periods, there was no provision for an incentive fee based on realised gains. At 31 August 2017, for the purpose of the capital gains incentive fee ("CGIF") calculation JZCP had cumulative net realised capital losses of $8,079,000(28 February 2017: $9,572,000), an amount which the Investment Adviser must cover through realised gains before being able to earn an incentive fee going forward.

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 2017, a provision of $35,481,000(28 February 2017: $37,293,000) has been included.

The Advisory Agreement may be terminated by the Company or the Investment Adviser upon not less than two and one-half years’ (i.e. 913 days’) prior notice (or such lesser period as may be agreed by the Company and Investment Adviser).

11. Taxation

The Company has been granted Guernsey tax exempt status in accordance with The Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended) in exchange for a £1,200 annual fee (31 August 2016: £1,200).

During the period ended 31 August 2017, the Company was refunded $233,000 relating to tax withheld in the prior year.

12. Investments

Categories of financial instruments

The above book cost is the cost to JZCP equating to the transfer value as at 1 July 2008 upon the liquidation of JZEP and adjusted for subsequent transactions.

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

13. Other Receivables

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 2017: $1,454,000 (31 August 2016: $1,676,000) of interest was paid to holders of CULS and is shown as a finance cost in the Statement of Comprehensive Income.

15. Zero Dividend Preference (“ZDP”) shares

ZDP (2016) shares were issued on 22 June 2009 at a price of 215.80 pence and provided a pre-determined final capital entitlement of 369.84 pence on 22 June 2016. The shares had a gross redemption yield of 8%.

On 1 October 2015, the Company rolled over 11,907,720 existing ZDP (2016) shares in to new ZDP shares with a 2022 maturity date. The new ZDP (2022) shares have a gross redemption yield of 4.75% and a total redemption value of £57,598,000 (approximately $75,400,000 using the period end exchange rate). The remaining 8,799,421 ZDP (2016) shares were redeemed on 22 June 2016 the total redemption value being £32,870,000 ($48,342,000) or 373.54 pence per share. The redemption value included a 1% premium ($479,000) agreed as part of the terms of the rollover.

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 of Articles and Incorporation. Issue costs are deducted from the cost of the liability and allocated to the Statement of Comprehensive Income over the life of the ZDP shares.

ZDP (2022) Shares

ZDP (2016) Shares

16. Loans 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 dollar ($80 million).

The loan matures on 12 June 2021 (6 year term) and interest is payable at 5.75% + LIBOR(1). There is an interest rate floor that stipulates LIBOR will not be lower than 1%.

At 31 August 2017, investments valued at $954,107,000 (28 February 2017: $918,140,000) were held as collateral on the loan. A covenant in the loan agreement 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 2017 and 28 February 2017, the Company was in full compliance with covenant terms.

During April 2017, JZCP increased its credit facility with Guggenheim Partners by $50 million. The purpose of this increase in borrowings is to provide additional liquidity to JZCP in order to bridge certain planned realisations. The entire facility may be repaid, in whole or in part, with no penalty.