Last checked at 
18 May 2010 07:00
JZ Capital Partners Limited ("JZCP")
Preliminary Results for the Year Ended 28 February 2010
Highlights
·; Net asset value of US$7.04 per share (2009: US$6.17)
·; Revenue return of 17.2c (47.0c including non-cash income)
·; Dividends of 15.5c per share paid during the period under review
·; Proposed €30m commitment to JZ Europe Fund, focused on Pan-European buy-outs
·; Significant liquidity to take advantage of investment opportunities following completion of refinancing and equity fund raising in June 2009
Commenting on the results, David Macfarlane, Chairman of JZCP, said:
"Following last year's financing, JZCP is in a strong position to take advantage of the investment opportunities available and, as the M&A market gradually opens up, look at investment realization options.
"JZCP's microcap investments are likely to help continue to narrow the gap between the company's NAV and share price and the Board is greatly encouraged by the investment adviser's plans and pipeline, as well as the opportunity to diversify part of the portfolio into Europe through the JZ Europe Fund."
For further information:
| JZCP | +44 (0)20 7360 4900 |
| David Macfarlane, Chairman |
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| Jordan/Zalaznick Advisers, Inc. | +1 212 572 0800 |
| David Zalaznick |
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| Smithfield | +44 (0)20 7360 4900 |
| Rupert Trefgarne / Louisa Leslie |
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JZ CAPITAL PARTNERS LIMITED
Annual Report & Accounts
For the year ended 28 February 2010
Chairman's Statement
At the beginning of the period under review the world's equity and credit markets experienced their weakest conditions in many years such that the trading values of JZCP's listed equity investments and quoted first and second lien debt investments were down dramatically; and that the market attributed to JZCP's microcap and other private unlisted investments a fraction of the value put upon them by the directors. Notwithstanding, the large majority of JZCP's investments were in businesses that withstood the rigours of the recession and even grew in some cases. In addition during this period and against that background, JZCP was faced with the task of refinancing or redeeming its then outstanding zero dividend preference shares ("the old ZDPs") which were due in June 2009.
The refinancing of the old ZDPs and equity fundraising was successfully completed in June 2009 and restored the strength of the balance sheet. Approximately US$229 million of new capital was raised for the repayment of the old ZDPs and for new investments, particularly in the microcap sector. The fund raising included the issue of 7 new Ordinary Shares for every 3 Ordinary Shares then already issued and also the consolidation of the resultant total on a 1 for 5 basis.
As is well known, the world's equity and credit markets have made a strong recovery since their low points reached in March 2009. The main effect of this on JZCP's results is evidenced in the values of its listed investments and quoted first and second lien debt investments. The overall performance of JZCP's microcap and other unlisted private investments has been firm. The directors are not yet persuaded that market comparable evidence exists to justify adjustment to multiples in valuing (in accordance with the IPEVCA guidelines to which we must adhere) these investments. However, shareholders will recall that in recognition of the virtual closure in 2008/2009 of the mergers and acquisitions market the directors then determined in respect of most private investments to increase the marketability discount by reference to the relevant enterprise value less senior debt (also required to be taken into account by those guidelines) from 10% to 20%. Although we have as yet made no adjustment, evidence for reversing that decision in whole or in part is becoming increasingly persuasive.
Investments and Realisations
Roofing Supply Group
In December 2009, Roofing Supply Group made a US$2.2m "catch up" payment to JZCP for a portion of interest that had previously been deferred under prior agreements. The funding source for the payment to JZCP was cash generated from operations during a much improved business environment for that company.
Wound Care Companies
Although an event after 28 February 2010, two of our wound care driven companies - Wound Care Solutions and Sechrist -- repaid their subordinated debt obligations to JZCP, via the 14 April 2010 funding of a new US$90MM bank facility. As a result, JZCP's investment in Wound Care decreased by US$12.3m and our investment in Sechrist decreased by US$3.4m.
JZ Europe Fund
Your company has been offered the opportunity to make a significant investment in a new fund being launched by JZ International Limited ("JZI"), the European private equity platform founded in 1999 by David Zalaznick, Jay Jordan and Jock Green-Armytage in which your company has a minor investment. JZI has built a stable and experienced investment team with six senior investment professionals based in London and Madrid. JZI's investment track record dates back to 2000; it has invested approximately €109m in 18 companies across 13 platform investments and has achieved €83m in realisations to date. As at 30 September 2009, total realised and unrealised values imply a gross 32% IRR and 2.5X multiple on invested capital. Realised capital on investments made since 2004 imply a gross 49% IRR and 3.0X multiple on invested capital. JZCP has been offered this opportunity on favourable terms: there will be no management or carried interest fees charged to JZCP on its investment in the new fund. Consequently, there will be no double fees.
JZ Europe Fund 2010 LP ("JZ Europe Fund") is targeting €250m to €300m; David Zalaznick, Jay Jordan and the JZI investment team will be investing approximately €12.0m in aggregate. The Directors propose that JZCP commits €30m, which would be drawable at the rate of €5m per annum over six years (on average). The JZ Europe Fund will be applied to Pan-European buy-out investing with a focus on the UK, the Netherlands, Germany, Spain and Italy. In all other respects the investment strategy and style of JZI is similar to that which JZAI follows in respect of JZCP's microcap investments in the US: lead and control investor; targeting 3X to 4X returns with modest leverage; targeting lower middle market companies with enterprise values in the range of €20m to €150m and EBITDA in the range of €5m to €20m; reasonable entry multiples in the 5 to 7X EBITDA range; non-competitive targets with no businesses bought at auction; operationally involved and concentrating on strategic build-ups; and strong focus on risk management and downside protection.
The Directors believe that the proposed investment in the JZ Europe Fund is an opportunity for JZCP to earn good returns as well as to diversify its portfolio by participating in the deals available from the wider JZ investment team. The timing of the JZ Europe Fund seems to be attractive, since history suggests that the three years following recession typically have been the best vintages for private equity and, in particular, it is the lower end of the middle market which has produced the best returns. Also it is possible that investment conditions are opening more quickly in Europe than in the US; JZI has a robust pipeline of proprietary-sourced non-competitive deal flow.
Material risks associated with the investment by JZCP in JZ Europe fund are detailed below*.
JZCP's proposed investment in JZ Europe Fund would constitute an indirect investment by JZCP in micro cap businesses across Europe, which does not fall within JZCP's published investment policy as it would be a significant investment outside the United States. Therefore, in order to permit JZCP's investment in JZ Europe Fund, JZCP's existing investment policy needs to be changed. Under the Listing Rules of the Financial Services Authority shareholder approval is required to approve a material change to JZCP's investment policy. It is proposed that JZCP's corporate objective be amended to permit investments outside the United States such that the new objective would be "To create a portfolio of investments that are based primarily in the United States and outside the United States providing a superior overall return comprised of a current yield and significant capital appreciation". Investments outside the United States would be restricted to 20% of the Company's gross assets. The proposed amendment to the investment policy is considered to be a material change and is therefore subject to shareholder approval pursuant to Resolution 8 to be proposed as an ordinary resolution at the Annual General Meeting.
The Board considers that the proposed investment in JZ Europe Fund, which would constitute a related party transaction and a material change to JZCP's investment policy, is in the best interests of JZCP and its shareholders as a whole. The Board believes that the proposed related party transaction set out in resolution 7 to be proposed at the Annual General Meeting is fair and reasonable so far as all the shareholders are concerned and the Directors have been so advised by J.P Morgan Securities Ltd. Accordingly, the Board unanimously recommends that you vote in favour of resolutions 7 (related party resolution) and 8 (change of investment policy resolution) to be proposed at the Annual General Meeting, as the Directors intend to do in respect of their own beneficial holdings, representing 0.20% of voting rights.
Net Asset Value
At the end of the year under review, 28 February 2010, the NAV of JZCP was US$457.5m (US$7.04 per share against US$401m (US$6.17 per share) on 28 February 2009 adjusted for the fundraising and other changes in share capital referred to above.
The main constituents of the increase in NAV per share come from our listed equity investments, US$0.34 in aggregate of which US$0.23 is attributable to TAL and US$0.10 to Safety Insurance. Investments in traded first and second lien loans account for a net US$0.11 increase.
Overall our microcap investments show a decline of US$0.04, increases of US$0.03 each coming from Dantom, Dental Services and GH Wire and of US$0.08 from Woundcare and decreases coming from Accutest, Nationwide and Sechrist of US$0.06, US$0.09 and US$0.06 respectively. The increase in value of our mezzanine investments of US$0.10 was contributed by Roofing Supply.
Income and Dividends
Revenue return for the year ended 28 February 2010 was 47.0c per share (based on an end of year 65 million outstanding Ordinary Shares) and adjusted for non-cash income, being paid in kind securities and preference dividends, was 17.2c per share. The directors declared and paid an interim dividend on 4 December 2009 of 9.0c per share and, anticipating the increase to 50% in the top rate of taxation on income in the UK that came into force in respect of the tax year commenced 6 April 2010, declared and on 1 April 2010 paid a second interim dividend of 6.5c per share. No final or further dividend will be recommended or paid in respect of the period under review, the year to 28 February 2010.
It is the policy of the board to return to shareholders substantially all of JZCP's net cash income. Further, the intention is not to make distributions in respect of non cash income, payment in kind securities and preference dividends, unless and until they are converted into cash, when it would be the intention of the directors to return substantially all of that cash to shareholders. Such conversion would occur upon the sale of an investee company or, in the case of paid in kind securities, upon their earlier redemption. The refinancings by Roofing Supply, Woundcare and Sechrist of JZCP's investment in their debt capital include examples of such occurrences and will be taken into account by the Directors in their determination of the interim dividend for the current financial year.
Share Buybacks
The Directors' attitude to share buybacks remains unchanged. They see little evidence that buying back the shares of a listed private equity company has anything other than a short term effect on the discount. However, they are alert to suitable opportunities to buy back shares on investment grounds.
Incentive Fee
It is the policy of the Directors to provide, where appropriate, for the capital and income incentive fees to which JZAI becomes entitled under the Advisory Agreement. At 28 February 2010 no provision was taken for either a capital or income incentive fee.
Directors
At the last Annual General Meeting, which was JZCP's first and took place immediately after the refinancing, none of the Directors retired by rotation. At the forthcoming Annual General Meeting we will commence the three year rotation cycle and I together with David Alison and James Jordan will each retire and we will each offer ourselves for re-election.
Outlook
The price of JZCP's shares has been moving in the right direction but they continue to trade at a substantial discount to NAV. The Directors expect that future performance, largely driven by JZCP's microcap investments will narrow the gap. Following last year's financing JZCP is in a strong financial position and is well placed to take advantage of investment opportunities and, as the M & A market gradually opens up, of investment realisation opportunities by way of refinancing of investments and sale. The Directors are greatly encouraged by JZAI's plans and pipeline in regard to the targeted industry "verticals" as well as the opportunity to diversify a part of our portfolio into Europe afforded by the investment in the JZ Europe Fund.
David Macfarlane
Chairman
17 May 2010
*Material risks associated with the investment by JZCP in JZ Europe Fund .
•Normal market fluctuations and the current global economic crisis may impact the business, operating results or financial condition of JZCP and JZ Europe Fund;
•JZCP's financial performance will be affected by JZ Europe Fund's financial performance which depends on the success of its investment strategy, the skill and judgement of JZI and its ability to retain key personnel;
•Investment in JZ Europe may not appreciate in value or generate investment income or gains, and the reported value of investments may not be realised;
•Financial results may be adversely affected by movements in foreign exchange rates;
•Private equity and venture capital investments are risky specialist investments;
•JZCP will not control the underlying investee companies invested in by JZ Europe Fund;
•JZCP's investment in JZ Europe Fund may be illiquid;
•Market values of publicly traded securities held as investments may be volatile; and
•Changes in JZCP's tax status, tax legislation or practice could adversely affect JZCP.
Company Advisers
Investment Adviser US Bankers
| The Investment Adviser to JZ Capital Partners Limited ("JZCP") is Jordan/Zalaznick Advisers, Inc., ("JZAI") a company beneficially owned by John (Jay) W Jordan II and David W Zalaznick. The company was formed for the purpose of advising the Board of JZCP on investments in leveraged securities, primarily related to private equity transactions. JZAI has its own staff and works closely with The Jordan Company LP, which specialises in negotiating acquisitions in the private sector.
Jordan/Zalaznick Advisers, Inc. 767 Fifth Avenue New York NY 10153
Registered Office 2nd Floor Regency Court Glategny Esplanade St Peter Port Guernsey GY1 3NQ
JZ Capital Partners Limited is registered in Guernsey Number 48761
Administrator, Registrar and Secretary Butterfield Fulcrum Group (Guernsey) Limited 2nd Floor Regency Court Glategny Esplanade St Peter Port Guernsey GY1 3NQ
Independent Auditor Ernst & Young LLP PO Box 9 Royal Chambers St Julian's Avenue St Peter Port Guernsey GY1 4AF
UK Transfer and Paying Agent Equiniti Limited Aspect House Spencer Road Lancing West Sussex BN99 6DA Tel: + 44 (0) 121 415 7047 |
| HSBC Bank USA NA 452 Fifth Avenue New York NY 10018
(Also provides custodian services to JZ Capital Partners Limited under the terms of a Custody Agreement).
Guernsey Bankers Butterfield Bank (Guernsey) Limited Regency Court Glategny Esplanade St Peter Port Guernsey, GY1 3AP
UK Solicitors Ashurst LLP Broadwalk House 5 Appold Street London EC2A 2HA
US Lawyers Monge Law Firm, PLLC 333 West Trade Street Charlotte, NC 28202
Mayer Brown LLP 214 North Tryon Street Suite 3800 Charlotte, NC 28202
Winston & Strawn LLP 35 West Wacker Drive Chicago, IL 60601-9703
Guernsey Lawyers Mourant de Feu & Jeune First Floor Dorey Court, Admiral Park St Peter Port Guernsey GY1 6HJ
Financial Adviser and Broker JP Morgan Cazenove Limited 20 Moorgate London EC2R 6DA
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Report of the Directors
The Directors present their annual report together with the audited financial statements of JZ Capital Partners Limited (the "Company") for the year ended 28 February 2010
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Principal activities
JZ Capital Partners is a closed-ended investment company with limited liability which was incorporated in Guernsey on 14 April 2008 under The Companies (Guernsey) Law, 1994. The Company is subject to the Companies (Guernsey) Law, 2008, which came into effect on 1 July 2008. The Company's Share Capital consists of Ordinary shares and Zero Dividend Preference ("ZDP") shares. The Ordinary and ZDP shares were admitted to the official list of the London Stock Exchange on 27 June 2008.
The Company was granted consent on 8 May 2008 by the Guernsey Financial Services Commission under The Control of Borrowing (Bailiwick of Guernsey) Ordinance,1959 to raise up to £300,000,000 by the issue of shares.
The Company was launched in connection with a scheme of reconstruction and voluntary winding up of JZ Equity Partners Plc ("JZEP") under section110 of the United Kingdom's Insolvency Act 1986. JZEP's assets, after providing for its liabilities were transferred in specie to the Company and the Company issued to JZEP shareholders (other than those who opted against the new scheme) one Ordinary share for each JZEP Ordinary share and ZDP share for each JZEP ZDP share that they held.
On 22 June 2009 a placing and open offer of Ordinary Shares resulted in 117,037,749 Ordinary and 110,527,388 Limited Voting Ordinary shares being issued at the price of 42 pence. The Ordinary shares were subsequently consolidated on the basis that all holders of Ordinary shares would hold one Ordinary share for every five Ordinary Shares held immediately prior to the share consolidation. New ZDP shares were also issued following the redemption of the old ZDP shares.
Limited Voting Ordinary ("LVO") Shares were issued so that certain of the Company's existing shareholders and certain new investors that are Qualifying US Persons* could participate in the Ordinary share Issue without causing the Company to be treated as a US domestic company for the purposes of US securities laws and/or a Controlled Foreign Company ("CFC") for US tax purposes. LVO shares are identical to, and rank pari passu in all respects with, the new Ordinary shares except that the LVO shares will only carry a limited entitlement to vote in respect of the appointment or removal of Directors and do not carry any entitlement to vote in respect of certain other matters. The LVO shares are not listed and are not admitted to trade on or through the facilities of the London Stock Exchange.
*A foreign corporation shall satisfy the "qualified U.S. person ownership test" if, for more than half the days of the corporation's taxable year: (i) it is a CFC, and (ii) more than 50 percent of the total value of all the outstanding stock of the CFC is owned by one or more "qualified U.S. persons."
Business Review
The total profit attributable to Ordinary shareholders for the year was US$56,959,000 (period ended 28 February 2009: loss of US$91,992,000). The revenue return for the year was US$30,569,000 (period ended 28 February 2009: US$19,588,000), after charging administrative expenses of US$2,398,000 (period ended 28 February 2009: US$1,524,000) and 65% of the Investment Adviser's fee US$4,866,000 (period ended 28 February 2009:US$3,235,000). The net asset value (NAV) of the Company at the year end was US$457,513,000 (28 February 2009: US$256,984,000) equal to US$7.04 (28 February 2009:US$13.18 (restated to reflect 1 for 5 consolidation on 22 June 2009)) per Ordinary share.
For the year ended 28 February 2010, the Company had US$10,047,000 (period ended 28 February 2009: US$3,385,000) of cash inflows resulting from operating activities.
A review of the Company's activities and performance is detailed in the Chairman's Statement and the Investment Adviser's. The Directors' valuation of the listed and unlisted investments is detailed in the investment review.
Dividends
An interim dividend of 9.0c per Ordinary share (total US$5,851,675) was declared by the Board on 29 October 2009 and paid on 4 December 2009.
A second interim dividend of 6.5c per Ordinary share (total US$4,226,210) was declared by the Board on 4 March 2010 and paid on 1 April 2010.
Directors
The Directors listed below are all non-executive and have served on the Board throughout the year and were in office at the end of the year and subsequent to the date of report. David Macfarlane (Chairman)
David Allison
Patrick Firth
James Jordan
Tanja Tibaldi
All Directors are independent at the year end. (Patrick Firth was the managing director of the Administrator, Registrar and Secretary until 30 June 2009.
Annual General Meeting
The Company's Annual General Meeting is due to be held on 21 June 2010.
Share capital and purchase of own shares
Details of the Zero Dividend Preference shares and the Ordinary shares can be found in Notes 17 and 18 respectively. During the year the Company did not buy back any of its own shares.
The beneficial interests of the Directors in the Ordinary shares of the Company are shown below:
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| Number of Ordinary shares 1 March 2009 | Ordinary shares purchased | Consolidation 1 for 5 | Number of Ordinary shares 28 February 2010 |
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| David Macfarlane | 60,000 | 140,000 | (160,000) | 40,000 |
| James Jordan | 150,000 | - | (120,000) | 30,000 |
| Tanja Tibaldi | 10,000 | - | (8,000) | 2,000 |
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| 220,000 | 140,000 | (288,000) | 72,000 |
David Allison and Patrick Firth did not hold an interest in Ordinary shares during the year. None of the Directors held any interest in the Zero Dividend Preference Shares during the period. There have been no changes in the Directors' interests between 28 February 2010 and the date of this report.
Directors' statement as to the disclosure of information to the auditors
All the present Directors were members of the Board at the time of approving this report, and each of the Directors confirms that:
• To the best of his/her knowledge and belief, there is no information relevant to the preparation of this report of which the Company's auditors are unaware; and
• He/she has taken all the steps a Director might reasonably be expected to have taken to be aware of relevant audit information and to establish that the Company's auditors are aware of that information.
Independent auditor
A resolution to re-appoint Ernst & Young LLP as auditor to the Company will be proposed at the next annual general meeting.
Substantial shareholders
As at 28 February 2010 the Company has been notified in accordance with applicable legislation of the following interests in the Ordinary share capital and Limited Voting Ordinary ("LVO") share capital of the Company:
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| Ordinary shares | LVO shares |
Total | % of shares |
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| Fairholme Capital Management LLC | 2,859,626 | 9,689,560 | 12,549,186 | 19.30% |
| Edgewater Growth Capital Partners II,LP | 3,683,579 | 4,208,180 | 7,891,759 | 12.14% |
| David W. Zalaznick | 3,299,531 | 2,060,941 | 5,360,472 | 8.24% |
| John W. Jordan | 3,276,293 | 2,060,941 | 5,337,234 | 8.21% |
| Leucadia Financial Corporation | 2,837,577 | 1,689,986 | 4,527,563 | 6.96% |
| National Financial Services | 3,613,031 | - | 3,613,031 | 5.56% |
| CIBC Wood Gundy | 3,333,333 | - | 3,333,333 | 5.13% |
| Massachusetts Mutual Life Insurance Company | 2,866,545 | - | 2,866,545 | 4.41% |
| Prudential Client HSBC GIS Nominee (UK) | 2,854,309 | - | 2,854,309 | 4.39% |
| Legal & General | 2,846,237 | - | 2,846,237 | 4.38% |
| Deutsche Bank AG London | 2,606,723 | - | 2,606,723 | 4.01% |
| Third Avenue Management | 2,074,000 | - | 2,074,000 | 3.19% |
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It is the responsibility of the shareholder to notify the Company of any change to their shareholdings when it reaches 3% of shares in issue and any change which moves up or down through any whole percentage figure above 3%.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Financial Statements in accordance with International Financial Reporting Standards ("IFRS") and the Companies (Guernsey) Law, 2008 for each financial period which give a true and fair view of the state of affairs of the Company and its profit or loss for that period. International Accounting Standard 1 requires that financial statements present fairly for each financial period the Company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's "Framework for the preparation and presentation of financial statements". In virtually all circumstances a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards.
In preparing Financial Statements the Directors are required to:
• Ensure that the Financial Statements comply with the Memorandum and Articles of Association and IFRS, as published by the International Accounting Standards Board;
• Select suitable accounting policies and apply them consistently;
• Present information including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• Make judgements and estimates that are reasonable and prudent;
• Prepare the Financial Statements on the going concern basis, unless it is inappropriate to presume that the Company will continue in business; and
• Provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance.
The Directors confirm that they have complied with these requirements in preparing the Financial Statements.
So far as the Directors are aware, there is no relevant information of which the Company's auditors are unaware, having taken all the steps the Directors ought to have taken to make themselves aware of any relevant audit information and to establish that the Company's auditors are aware of that information.
Responsibility statement of the Directors in respect of the financial statements
Each of the Directors confirms to the best of each person's knowledge and belief:
• The Financial Statements, prepared in accordance with the IFRS and in accordance with the requirements of the London Stock Exchange (LSE), give a true and fair view of the assets, liabilities, financial position and profit of the Company; and
• The Investment Advisers' report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties faced by the Company.
The Directors are also responsible for the keeping of proper accounting records which disclose with reasonable accuracy at any time, the financial position of the Company and to enable them to ensure that the Financial Statements comply with the Companies (Guernsey) Law, 2008 and the Listing Rules of the London Stock Exchange. They are also responsible for the system of internal controls, safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom and Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Approved by the Board of Directors and agreed on behalf of the Board on 17 May 2010.
David Macfarlane Patrick Firth
Chairman Director
Investment Adviser's Report
Dear Fellow Shareholders:
We are pleased to report that JZCP's financial condition at fiscal year-end, 28 February 2010, was excellent. Our NAV per share grew from US$6.17 at 1 March 2009 to US$7.04 at 28 February 2010, a 14% growth rate. The composition of our assets (summarised below) is highly liquid and our investment portfolio has performed very well. Since the fiscal year-end, JZCP's NAV per share has continued to grow and liquidity has increased with the successful refinancing of two of our portfolio companies.
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| 28/02/2010 US$'000 |
| 28/02/20091 US$'000 |
| Investments | 394,675 |
| 333,900 |
| Cash and cash equivalents | 134,867 |
| 138,739 |
| Other net (liabilities)/assets | (630) |
| 1,580 |
| Zero Dividend Preference shares | (71,399) |
| (72,838) |
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| Net asset value | 457,513 |
| 401,381 |
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| Number of Ordinary Shares (000's) | 65,019 |
| 65,019 |
| Net asset value per Ordinary Share | US$ 7.04 |
| US$ 6.17 |
| Market price per Share | US$ 4.16 |
| US$ 2.10 |
| NAV to market price discount | 41% |
| 66% |
1 Pro forma for the issuance of 227.6 million Ordinary Shares, the "rollover of 16.0 million ZDP shares, the issuance of 4.7 million new ZDP shares, the redemption of old ZDP shares, a 1 for 5 Ordinary share consolidation and a mark to market adjustment for a forward currency derivative contract.
All that being said, our shares are still trading at a 41% discount to NAV, albeit smaller than a year ago (66%). Given that 45% of our assets are cash and marketable securities, our private investments are trading on an implied 53% discount. To add some context, our Board conservatively values our private investments using a 20% marketability discount and historical earnings of the underlying portfolio companies still reflect the recent recession.
Portfolio Summary
Below is a summary of our portfolio by asset category:
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| 28/02/2010 US$'000 |
| 28/02/20091US$'000 |
| Variance US$'000 |
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| Micro-Cap portfolio | 171,903 |
| 158,263 |
| 13,640 |
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| Mezzanine investments | 85,696 |
| 70,978 |
| 14,718 |
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| Legacy portfolio | 31,845 |
| 29,180 |
| 2,665 |
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| Total private investments | 289,444 |
| 258,421 |
| 31,023 |
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| Listed equity | 69,642 |
| 47,264 |
| 22,378 |
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| Bank debt | 35,589 |
| 28,215 |
| 7,374 |
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| Cash | 134,867 |
| 138,739 |
| (3,872) |
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| Total listed investments (including cash) | 240,098 |
| 214,218 |
| 25,880 |
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| Total investments (including cash) | 529,542 |
| 472,639 |
| 56,903 |
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| Other current assets | 682 |
| 2,017 |
| (1,335) |
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| Total assets | 530,224 |
| 474,656 |
| 55,568 |
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1 Pro forma for the issuance of 227.6 million Ordinary Shares, the "rollover of 16.0 million ZDP shares, the issuance of 4.7 million new ZDP shares, the redemption of old ZDP shares, a 1 for 5 Ordinary share consolidation and a mark to market adjustment for a forward currency derivative contract.
Micro-cap Portfolio
Our micro-cap portfolio has been, and will continue to be, the growth engine of JZCP's NAV. Our current portfolio continues to be made up of eight platform investments across a wide variety of industries. This portfolio is under-levered, with debt senior to JZCP 1.0x the last 12 months trailing EBDITA. We have purposely kept leverage low in this portfolio, given the uncertainty in the economy and capital markets. We will be slowly adding additional leverage on these investments as the capital and the underlying businesses' perform well. This past month, (April 2010), we added US$75MM of bank debt to our two wound care companies - Wound Care Solutions and Sechrist Industries; JZCP received proceeds of US$15.7 million in full repayment of certain debt instruments and accrued interest.
We continue to be very reasonable on our valuations of our microcap portfolios. The effective EBTIDA multiple at which we value our micro-cap business has declined from 7.0x before the economic downturn, to 5.8x currently. We may be potentially reviewing those EBITDA multiples as capital markets free up and M&A activity begins to show some form of life.
We foresee no immediate refinancing risk on the micro-cap portfolio. The earliest maturity of the first party debt in this portfolio is in 2011; we have already begun discussions to extend that maturity.
Although we have reviewed several hundred investment opportunities during this fiscal year, we have been extremely cautious in putting money to work. However, we have recently made five "add-on" investments to our existing portfolio businesses. These investments were:
• On 27 March 2009, JZCP invested an additional US$1.8 million in Horsburg and Scott to fund continued expansion of its wind turbine capabilities.
• On 12 May 2009, JZCP invested an additional US$1.8 million in AC Tech. These funds were used to acquire interests of other unrelated investors.
• On 6 July 2009, JCZP invested an additional US$1.4 million into Group Dekko, to support working capital and pay down "unhappy" bankers.
• On 2 November 2009, JZCP invested US$5.2 million in Dantom, our collection letter service company. These funds were used to purchase existing customer contracts from a competitor.
• On 18 December 2009, JZCP invested an additional US$500,000 in Horsburg and Scott Company, in order to facilitate the continued purchase of new equipment to be used for its wind power cell.
Mezzanine Portfolio
Our mezzanine portfolio consists of six investments to which we have attributable value. The largest of these is Continental Cement which has a carrying value of US$28.4 million. These businesses have more leverage on them than our micro-cap investments, as they tend to be larger and therefore, more aggressively capitalized. Despite that, the debt senior to JZCP for these six investments is only 2.7x EBITDA.
We have made no new investments in this mezzanine portfolio, other than adding US$2.8 million of subordinated notes into Continental Cement Company, to support working capital. We are excited about Continental Cement prospects as the economy in the midwest United States begins to rebound, a positive for this low cost cement producer.
Legacy Investments
The Legacy investments are those that were in JZEP portfolio prior to 2002 and were transferred to JZCP upon the liquidation of JZEP in July 2008. Most of this segment's value is in two companies - Hoveround (US$13.7 million) and Apparel Ventures (US$12.1 million). Both companies are performing well; we are very comfortable that eventually these investments will be realized at their stated values. The remaining US$6.0 million is scattered amongst a variety of smaller investments.
Investment Adviser's Report
(continued)
Listed Equities
Listed Equities consist of three investments and transactions in which JZCP had a significant investment which were redeemed via an IPO. The largest piece of this portfolio is in Safety Insurance, contributing 62%. TAL, an international container company, makes up essentially all the remaining value. Both of these companies stock has rebounded since our interim report, they are up 26% (US$13.8 million) creating almost 50% of the total portfolio growth. We hope to exit both these stocks as the economy recovers.
Bank Debt
Of the ten investments in this portfolio, nine are publically traded; the tenth is a smaller bank facility. 53% of this portfolio is in first lien loans, with the remaining 47% in second lien loans. Despite the rebound in certain capital markets, secondary trading in the bank debt market continues to be challenged, although our portfolio as a percent of par has risen from 42% from the beginning of the year to 62% at the end of the year; we feel, absent any changes, we will hold them until higher values can be realized.
New opportunities
As many of you know, our investment strategy is relatively simple: we try to buy good quality, profitable businesses with managers we want as partners at reasonable prices employing modest leverage. We then add seasoned executives to help the respective management teams develop and execute growth plans and provide capital for acquisitions and product line extensions. We believe this is the safest way to ensure a superior return.
At the beginning of our investment process, we research industry sectors and subsectors to find enough businesses that meet our criteria; we like high margins, highly fragmented markets, pricing power, non-capital or technology intensive businesses that are scalable. These become our "verticals". If we're lucky we can fish in a stocked pond with expert fisherman.
We have five new verticals that we are pursuing aggressively. Two such verticals are Specialty Foods and Testing Services and we have two superb executives to lead the charge for us, Bob Aiken in Specialty Foods and Phil Rooney in Testing Services.
Bob recently joined us in February 2010 after serving as a CEO of U.S. food Services, a US$19 billion revenue business with 25,000 employees. Prior to U.S. Food Services, he ran Mets Bakery where in eighteen months he closed eight acquisitions and created a market leader with over 6000 employees.
In a few months, Bob has worked with JZAI team to refine the investment strategy and indentify attractive candidates utilizing two of our exclusive buy-side intermediaries. The deal team have attended trade shows and evaluated several dozen opportunities. As of April, we are in serious negotiations with five businesses that are in the Organic/Natural and Specialty/Gourmet food categories. We are very excited about this strategic build-up with Bob Aiken and expect to complete several transactions this year.
Phil Rooney was a significant contributor to JZCP's successful investment in Mid-American Recycling, Inc. Previously, Phil served as CEO of Waste Management for 14 years. Phil has signed onto lead a strategic build-up in Testing Services, companies that provide niche certification of verification services. We are focused on health, safety and environmental testing, metallurgy and materials testing, consumer product testing and other specialty testing. After evaluating many candidates, we are in serious negotiations with four companies and expect to close several deals in the coming months.
We are in the process of raising a private "sidecar" fund which can invest prorata with JZCP in our microcap buyouts. We anticipate committing approximately US$300 million to fund the strategic buildups in each of the future verticals, up to US$150 million from JZCP and up to US$150 from the new sidecar fund. This will provide JZCP with a much larger and more diversified portfolio than it could achieve on its own.
We are also raising JZ Europe Fund 2010 LP, a private equity fund built around the investment team at JZ International, the European private equity platform we founded in 1999 with Jock Green-Armytage, the former chairman of JZEP. The mandate was to build a team and make investments in the lower middle market/microcap space in Europe in a similar fashion to what we have done in the U.S. Jock has built a great team that has produced an outstanding track record over the past ten years - all detailed in the Chairman's Statement in this report. We are very excited about the opportunities ahead in the lower middle market space in Europe and look forward to having this further diversification to JZCP's portfolio at no additional cost to JZCP (no double fees).
Principle risks and uncertainties
As a fund, the Company's risks are those 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, along with some market risk associated with the publicly listed equities. The notes of the financial statements describe more about the Company's risk management processes.
Outlook
JZCP is poised for growth; we have the liquidity and a proven investment approach to strategic buildups. We know that coming out of recessionary years has always been a good time to be acquiring businesses. Our existing portfolio should continue to perform well. If our growth plans for the respective portfolio companies succeed, the portfolio will be realized in the coming years at attractive values that will drive the NAV growth.
As always, we appreciate your support. Please feel free to contact us if you have any questions and visit our website www.jzcp.com to see our monthly fact sheet.
Yours faithfully,
David W. Zalaznick John W. Jordan II 17 May 2010
Valuation Policy
Principles of valuation
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.
Investments are valued according to one of the following methods:
i) Mezzanine loans
Investments are generally valued at amortised cost except where there is deemed to be impairment in value which indicates that a provision should be made. Mezzanine loans are classified in the Statement of Financial Position as Loans and receivables and are accounted for at amortised cost using the effective interest method less accumulated impairment allowances in accordance with IFRS.
The Company assesses at each reporting date whether a financial asset or group of financial assets classified as loans and receivables is impaired. Evidence of impairment may include indications that the debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset's carrying amount and the net present value of expected cash flows discounted at original effective interest rate.
ii) 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 calculated by a multiple of EBITDA reduced by senior debt and marketability discount) covering the aggregate of the unquoted equity, unquoted preferred shares and debt instruments invested in the underlying company. The increase of the fair value of the aggregate investment is reflected through the unquoted equity component of the investment and a decrease in the fair value would be reflected across all financial instruments invested in an underlying company.
(iii) Traded loans
Traded loans including first and second lien term securities are valued by reference to the last indicative bid price from recognised market makers. These investments are classified in the Statement of Financial Position as Investments at fair value through profit or loss.
(iv) Listed investments
Listed investments are valued at the last quoted bid price. These investments are classified in the Statement of Financial Position as Investments at fair value through profit or loss.
Investment Review
| Company | Book cost* US$'000 |
| Original JZEP Historical cost** US$'000 |
| Directors Valuation at 28 February 2010 US$'000 |
| Carrying Value Including Accrued Interest 28 February 2010 US$'000 |
| Percentage of portfolio % |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Bank Debt |
|
|
|
|
|
|
|
|
|
| ||||
| First Lien Portfolio |
|
|
|
|
|
|
|
|
|
| ||||
| EMDEON BUSINESS SERVICES, LLC Healthcare service provider | 2,564 |
| 2,728 |
| 2,663 |
| 2,679 |
| 0.7 |
| ||||
| HARRINGTON HOLDINGS, INC.*** Distributor of healthcare products | 4,529 |
| 4,862 |
| 4,506 |
| 4,506 |
| 1.1 |
| ||||
| INFONXX INC. Worldwide provider of directory assistance | 2,777 |
| 2,910 |
| 2,764 |
| 2,781 |
| 0.7 |
| ||||
| INTERGRAPH CORPORATION Designer and provider of SIM software | 801 |
| 837 |
| 811 |
| 825 |
| 0.2 |
| ||||
| KINETEK, INC.*** Manufacturer of electric motors and gearboxes | 4,331 |
| 4,725 |
| 3,599 |
| 3,619 |
| 0.9 |
| ||||
| PETCO ANIMAL SUPPLIES, INC. Retailer of pet food, supplies and services | 1,784 |
| 1,941 |
| 1,888 |
| 1,893 |
| 0.5 |
| ||||
| SCS HOLDINGS II, INC. IT solutions provider | 876 |
| 1,063 |
| 1,034 |
| 1,040 |
| 0.3 |
| ||||
| TOTES ISOTONER CORPORATION Leading designer and retailer of cold weather and rain products | 584 |
| 781 |
| 647 |
| 647 |
| 0.2 |
| ||||
| WP EVENFLO HOLDINGS, INC. Manufacturer of children's products | 814 |
| 948 |
| 798 |
| 806 |
| 0.2 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Second Lien Portfolio |
|
|
|
|
|
|
|
|
|
| ||||
| DEKKO TECHNOLOGIES, LLC Distributor of electrical sub-components | 11,418 |
| 11,368 |
| 4,593 |
| 4,670 |
| 1.2 |
| ||||
| EMDEON BUSINESS SERVICES, LLC Healthcare service provider | 465 |
| 500 |
| 491 |
| 496 |
| 0.1 |
| ||||
| HARRINGTON HOLDINGS, INC. Distributor of healthcare products | 9,300 |
| 10,000 |
| 7,000 |
| 7,000 |
| 1.8 |
| ||||
| KINETEK, INC.*** Manufacturer of electric motors and gearboxes | 13,425 |
| 15,000 |
| 4,500 |
| 4,627 |
| 1.2 |
| ||||
|
| 53,668 |
| 57,663 |
| 35,294 |
| 35,589 |
| 9.1 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Company | Book cost* US$'000 |
| Original JZEP Historical cost** US$'000 |
| Directors Valuation at 28 February 2010 US$'000 |
| Carrying Value Including Accrued Interest 28 February 2010 US$'000 |
| Percentage of portfolio % |
| ||||
|
Mezzanine Portfolio |
|
|
|
|
|
|
|
|
| |||||
| BRAXTON-BRAGG CORPORATION Distributor of equipment to stone fabricators | 1,324 |
| 1,324 |
| 66 |
| 66 |
| - |
| ||||
| CONTINENTAL CEMENT COMPANY, LLC Mines and processes limestone | 27,586 |
| 27,586 |
| 27,586 |
| 28,419 |
| 7.2 |
| ||||
| GED HOLDINGS, INC. Manufacturer of windows | 3,285 |
| 9,385 |
| 305 |
| 324 |
| - |
| ||||
| HAAS TCM GROUP, INC. Speciality chemical distribution | 7,584 |
| 7,584 |
| 7,584 |
| 7,764 |
| 2.0 |
| ||||
| M/C COMMUNICATIONS, LLC Provision of marketing services to the medical profession | 800 |
| 800 |
| - |
| - |
| - |
| ||||
| METPAR INDUSTRIES, INC. Manufacturer of restroom partitions | 7,348 |
| 8,652 |
| 4,000 |
| 4,083 |
| 1.0 |
| ||||
| PETCO ANIMAL SUPPLIES, INC.**** Retailer of pet food, supplies and services | 17,508 |
| 17,508 |
| 17,508 |
| 17,938 |
| 4.5 |
| ||||
| ROOFING SUPPLY GROUP, INC. Distributor of roofing products | 12,656 |
| 18,775 |
| 18,200 |
| 18,623 |
| 4.7 |
| ||||
| TTS, LLC Provider of technical facilities for mechanical services | 8,496 |
| 8,336 |
| 8,336 |
| 8,479 |
| 2.1 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Total Mezzanine Porfolio | 86,587 |
| 99,950 |
| 83,585 |
| 85,696 |
| 21.5 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Micro Cap Portfolio |
|
|
|
|
|
|
|
|
|
| ||||
| ACCUTEST HOLDINGS, INC. Provision of environmental testing laboratories to the US market | 41,891 |
| 38,430 |
| 33,716 |
| 34,402 |
| 8.7 |
| ||||
| BG Holdings, INC. Manufacturer of industrial gears | 25,278 |
| 25,278 |
| 23,171 |
| 23,696 |
| 6.0 |
| ||||
| DANTOM SYSTEMS, INC. Outsourcing of debt collection | 22,149 |
| 24,198 |
| 24,149 |
| 25,135 |
| 6.4 |
| ||||
| DENTAL HOLDINGS CORPORATION Manufacturer of dental services | 30,035 |
| 24,273 |
| 26,935 |
| 27,434 |
| 7.0 |
| ||||
| GHW HOLDINGS, INC. Manufacturer and distributor of orthodontic products | 15,099 |
| 8,640 |
| 17,597 |
| 17,797 |
| 4.5 |
| ||||
| NATIONWIDE STUDIOS, INC. Processer of digital photos for preschoolers | 17,647 |
| 17,647 |
| 4,600 |
| 4,600 |
| 1.2 |
| ||||
| SECHRIST INDUSTRIES, INC.*** Manufacturer of oxygen chambers and other respiratory products | 16,066 |
| 6,589 |
| 10,965 |
| 11,110 |
| 2.8 |
| ||||
| WOUND CARE SOLUTIONS, LLC*** Chronic wound care treatment | 41,813 |
| 57,408 |
| 27,151 |
| 27,729 |
| 7.0 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Total Micro Cap Portfolio | 209,978 |
| 202,463 |
| 168,284 |
| 171,903 |
| 43.6 |
| ||||
|
Warrants |
|
|
|
|
|
|
|
|
|
| ||||
| BROOKE CREDIT CORPORATION | 72 |
| - |
| - |
| - |
| - |
|
| |||
| Total Warrants | 72 |
| - |
| - |
| - |
| - |
| ||||
|
|
|
|
|
|
|
|
|
|
| |||||
| Company | Book cost* US$'000 |
| Original JZEP Historical cost** US$'000 |
| Directors Valuation at 28 February 2010 US$'000 |
| Carrying Value Including Accrued Interest 28 February 2010 US$'000 |
| Percentage of portfolio % |
| ||||
| Legacy Portfolio: |
|
|
|
|
|
|
|
|
| |||||
| ADVANCED CHEMISTRY & TECHNOLOGY, INC. Manufacturer of aircraft sealants | 3,450 |
| 3,450 |
| 3,450 |
| 3,497 |
| 0.9 |
| ||||
| APPAREL VENTURES, INC. Swimwear designer, manufacturer and marketeer | 12,087 |
| 12,087 |
| 12,087 |
| 12,087 |
| 3.1 |
| ||||
| ETX HOLDINGS, INC. Provider of services to the auto after sales market | 462 |
| 462 |
| 463 |
| 476 |
| 0.1 |
| ||||
| GEAR FOR SPORTS, INC. Sports and active-wear designer and manufacturer | - |
| 1,495 |
| - |
| - |
| - |
| ||||
| GRAM TEL, LLCProvider of data back up and colocation services |
|
|
|
|
|
|
|
|
|
| ||||
| HEALTHCARE PRODUCTS HOLDINGS, INC. Designer and manufacturer of motorised vehicles | 21,523 |
| 29,718 |
| 12,981 |
| 13,743 |
| 3.5 |
| ||||
| JACKSON PRODUCTS, INC. Manufacturer and distributor of safety products |
|
|
|
|
|
|
|
|
|
| ||||
| JORDAN INDUSTRIES, INC. Conglomerate | - |
| 18 |
| - |
| - |
| - |
| ||||
| JZ INTERNATIONAL LLC Fund of European LBO investments | 1,684 |
| 724 |
| 1,684 |
| 1,690 |
| 0.4 |
| ||||
| NTT ACQUISITION CORP Technical education and training | 52 |
| 946 |
| 52 |
| 52 |
| - |
| ||||
| TIGER INFORMATION SYSTEMS, INC. Provider of temporary staff and computer training | 300 |
| 400 |
| 300 |
| 300 |
| 0.1 |
| ||||
|
Total Legacy Portfolio |
39,558 |
| 49,300 |
| 31,017 |
| 31,845 |
| 8.1 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Listed Investments |
|
|
|
|
|
|
|
|
|
| ||||
| SAFETY INSURANCE GROUP, INC. Provider of automobile insurance | 42,223 |
| 6,816 |
| 42,860 |
| 42,860 |
| 10.9 |
| ||||
| TAL INTERNATIONAL GROUP, INC.*** Lessor of intermodal shipping containers | 31,959 |
| 13,798 |
| 25,097 |
| 25,097 |
| 6.4 |
| ||||
| UNIVERSAL TECHNICAL INSTITUTE, INC. Vocational training in the automotive and marine fields | 835 |
| 15 |
| 1,685 |
| 1,685 |
| 0.4 |
| ||||
|
Total Listed Investments | 75,017 |
| 20,629 |
| 69,642 |
| 69,642 |
| 17.7 |
| ||||
|
Total - Portfolio | 464,880 |
| 430,005 |
| 387,822 |
| 394,675 |
| 100.0 |
| ||||
| Zero Dividend Preference shares |
|
|
|
|
|
| (71,399) |
|
| |||||
| Cash and other net assets |
|
|
|
|
|
| 134,237 |
|
|
| ||||
| Net assets attributable to Ordinary shares |
|
|
|
|
|
| 457,513 |
|
|
| ||||
| * Book cost to JZCP equating to transfer value as at 1 July 2008 upon the liquidation of JZEP and adjusted for subsequent transactions. | |||
|
|
|
|
|
| **Original book cost incurred by JZEP adjusted for transactions in the periods from 1 July 2008 to 28 February 2010. | |||
| ***Invested in deals with the Resolute Fund - see note 26. | |||
|
|
|
|
|
| Note: Directors consider that the investments in BHM Technologies Holdings, Inc, TransAmerica Auto Parts, Inc. and WIZA Industries, LLC are unlikely to return any future value and have therefore been removed from the Company's investment portfolio. | |||
|
| |||
| Note: Mezzanine Portfolio includes common stock with a carrying value of US$2,457,000, these investments are classified as Loans and Receivables. | |||
| Note: Legacy Portfolio - Investments not subject to incentive fees | |||
Directors Remuneration Report
The Directors' remuneration report has been prepared on behalf of the Board. Although as a Guernsey registered company JZCP is exempt from the requirements of the Combined Code ("the Code") as issued by the UK Listing Authority the Directors have carefully considered the recommendations of the Code whilst preparing this report.
The Company's policy in regard to Directors' remuneration is to ensure that the Company maintains a competitive fee structure in order to recruit, retain and motivate non-executive Directors of excellent quality in the overall interests of shareholders.
Remuneration policy
The Directors do not consider it necessary for the Company to establish a separate Remuneration Committee. All of the matters recommended by the Combined Code that would be delegated to such a committee are considered by the Board as a whole
It is the responsibility of the Board as a whole to determine and approve the Directors' fees, following a recommendation from the Chairman who will have given the matter proper consideration, having regard to the level of fees payable to non-executive Directors in the industry generally, the role that individual Directors fulfil in respect of Board and Committee responsibilities and the time committed to the Company's affairs. The Chairman's remuneration is decided separately and is approved by the Board as a whole.
The Company's Articles states that Directors' remuneration payable in any accounting year shall not exceed in the aggregate an annual sum of $650,000. Each director is also entitled to reimbursement of their reasonable expenses. There are no commission or profit sharing arrangements between the Company and the Directors. Similarly, none of the directors is entitled to pension, retirement or similar benefits.
No element of the Directors' remuneration is performance related, nor does any Director have any entitlement to pensions, share options or any long term incentive plans from the Company
The remuneration policy set out above is the one applied for the year ended 28 February 2010 and is not expected to change in the foreseeable future.
Directors' and Officers' liability insurance cover is maintained by the Company on behalf of the Directors
Directors' term of appointment
Each director shall retire from office at the third annual general meeting after his appointment or (as the case may be) the general meeting at which he was last reappointed and shall be eligible for reappointment.
In accordance with the Code the Company has established a Nomination Committee. The main role of the committee is to propose candidates for election to the Board of Directors, including the Chairman. The Nomination Committee takes into consideration the Codes rules on independence of the Board in relation to the Company, its senior management and major shareholders. The nomination committee is chaired by David Macfarlane, and each of the other directors is also a member. The members of the committee are independent of the Investment Adviser. The Nomination Committee which meets at least once a year, has responsibility for considering the size, structure and composition of the Board, retirements and appointments of additional and replacement Directors and making appropriate recommendations to the Board.
No Director has a service contract with the Company, nor are any such contracts proposed. The Directors were appointed as non-executive Directors by letters issued in April 2008 which state that their appointment and any subsequent termination or retirement shall be subject to three-months' notice from either party and otherwise to the Articles. Each Director's appointment letter provides that, upon the termination of his appointment, that he must resign in writing and all records remain the property of the Company. The Directors' appointments can be terminated in accordance with the Articles and without compensation. There is no notice period specified in the Articles for the removal of Directors. The Articles provide that the office of director shall be terminated by, among other things: (a) written resignation; (b) unauthorised absences from board meetings for six months or more; (c) unanimous written request of the other directors; and (d) an ordinary resolution of the Company.
Remuneration for qualifying services
|
| Fees for services to the Company for the year to 28 February 2010 US$ | Fees for services to the Company for the period from 14 April 2008 to 28 February 2009 US$ |
| David Macfarlane (Chairman) | 197,500 | 60,781 |
| David Allison | 60,000 | 43,225 |
| Patrick Firth | 60,000 | 42,904 |
| James Jordan | 60,000 | 42,904 |
| Tanja Tibaldi | 60,000 | 42,904 |
|
| 437,500 | 232,718 |
The amounts paid to Directors as shown above were for services as non-executive Directors, and no Director received a benefit, taxable in their own hands, during the year
The payment of Patrick Firth's Directors fees, for the period 1 March 2009 to 30 June 2009 amounting to US$30,000, were made to a related party, namely Butterfield Fulcrum Group (Guernsey) Limited
Includes an additional fee of US$112,500 within the year to 28 February 2010, for extra work on transitional matters and the financing proposals. This amount has been included in the issue costs of the new Ordinary, Limited Voting and ZDP shares.
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| * | |||||
Corporate Governance
Introduction
JZ Capital Partners Limited, being a company registered in Guernsey is exempt from the requirements of the Combined Code ("the Code") as issued by the UK Listing Authority. However, the directors recognise the importance of the Code and the AIC Code (which establishes a framework of best practice specifically for Boards of investment companies) and the Company does and will comply with the recommendations of the Combined Code, AIC Code and the Transparency Directive to the extent they consider appropriate and practicable. Outlines of the main principles are stated below:
The Board
Corporate Governance of JZCP is monitored by the Board which at the end of the year,comprised five Directors, all of whom are non-executive.
The Directors have overall responsibility for the Company's activities and the determination of its investment policy and strategy. The Company has entered into an investment advisory and management agreement with its investment adviser, JZAI, pursuant to which, subject to the overall supervision of the Directors, the investment adviser acts as the investment manager to the Company and manages the investment and reinvestment of the assets of the Company in pursuit of the investment objective of the Company and in accordance with the investment policies and investment guidelines from time to time of the Company and any investments limits and restrictions notified by the Directors (following consultation with the investment adviser). Within its strategic responsibilities the Board regularly consider corporate strategy as well as dividend policy, the policy on share buy backs and corporate governance issues.
The Directors meet at least quarterly to direct and supervise the Company's affairs. This includes reviewing the investment strategy, risk profile and performance of the Company and the performance of the Company's functionaries, and to monitor compliance with the Company's objectives. The Directors hold regular meetings to review the Investment Adviser's investment decisions and valuations and to decide if the levels of gearing within the investment portfolio are appropriate. The Directors currently deem it appropriate to review the valuations on a quarterly basis, given current market volatility, usually the valuations would be reviewed semi-annually.
Board balance and independence of Directors
The Board considers that all of the directors are independent of the Investment Adviser. In the opinion of the Directors, the continuing appointment of the Investment Adviser on the terms agreed continues to be in the interests of Shareholders. The Board considers the Directors are free from any business or other relationship that could materially interfere with the exercise of their independent judgement. The Board reviews the independence of the Directors at least annually.
Supply of information
The Chairman ensures that all Directors are properly briefed on issues arising at Board meetings. The Company's advisers provide the Board with appropriate and timely information in order that the Board may reach proper decisions. Directors can, if necessary, obtain independent professional advice at the Company's expense.
Directors' training
The Board is provided with information concerning changes to the regulatory or statutory regimes as they may affect the Company, and are offered the opportunity to attend courses or seminars on such changes, or other relevant matters.
Chairman and senior independent Director
The Chairman is a non-executive Director, together with the rest of the Board. There is no executive Director position within the Company. Day-to-day management of the Company's affairs has been delegated to the Administrator. The Board has considered whether a senior independent Director should be appointed. However, as the Board comprises entirely non-executive Directors, the appointment of a senior independent Director for the time being, is not considered necessary. Any of the non-executive Directors are available to shareholders if they have concerns which cannot be resolved through discussion with the Chairman.
Re-election of Directors
The principle set out in the Combined Code is that Directors should submit themselves for re-election at regular intervals and at least every three years, and in any event as soon as it is practical after their initial appointment to the Board. It is a further requirement that non-executive Directors are appointed for a specific period.
The letters of Appointment of the non-executive Directors suggest that it is appropriate for Directors to retire and be nominated for re-election after three years of service, subject to the recommendation of the Nominations Committee. The Nominations Committee met on 29 October 2009 and it was agreed that Mr Allison, Mr Jordan and Mr Macfarlane will put themselves forward for re-election at the 2010 Annual General Meeting. This would avoid having a situation where the entire Board would stand for re-election at the same time.
Board Committees
In accordance with the Combined Code, the Board has established an Audit Committee and a Nomination Committee, in each case with formally delegated duties and responsibilities within written terms of reference. As the Board has no executive Directors and is comprised solely of non-executive Directors a Remuneration Committee is deemed unnecessary. The process for agreeing the non-executive Directors' fees is set out in the Directors Remuneration. The identity of each of the chairmen of the committees referred to above are reviewed on an annual basis. The membership of these committees and their terms of reference are kept under review.
Nomination Committee
The Nomination Committee is chaired by David Macfarlane, and each of the other directors are also members. The members of the committee are independent of the Investment Adviser. The Nomination Committee meets at least once a year, and has responsibility for considering the size, structure and composition of the Board, retirements and appointments of additional and replacement directors and making appropriate recommendations to the Board. The Committee met once during the year ended 28 February 2010.
The final decision with regard to appointments always rests with the Board and all such appointments are subject to confirmation by shareholders.
Due to the nature of the Company being a listed investment company investing in private equity with an international shareholder base, the Company needs Directors with a broad range of financial experience. For this reason, Directors believe that it is more appropriate to use their own contacts as a source of suitable candidates as no one external consultancy or advertising source is likely to be in a position to identify suitable candidates.
Audit Committee
The Audit Committee is chaired by Patrick Firth, and each of the other directors are also members. Members of the Committee are independent of the Company's external auditors and the Investment Adviser. The Audit Committee meets at least twice a year and meets the external auditors at least twice a year. The Audit Committee is responsible for overseeing the Company's relationship with the external auditors, including making recommendations to the Board on the appointment of the external auditors and their remuneration. The Committee also considers the nature, scope and results of the auditors' work and reviews, and develop and implement policies on the supply of any non-audit services that are to be provided by the external auditors.
The Committee receives and reviews reports from the Investment Adviser and the Company's external auditors relating to the Company's annual report and accounts. The Committee also focuses particularly on compliance with legal requirements, accounting standards and the Listing Rules and ensuring that an effective system of internal financial and non-financial controls is maintained. The ultimate responsibility for reviewing and approving the annual report and accounts remain with the Board. The Committee met once during the year ended 28 February 2010 on 29 October 2009.
Furthermore the Board has reviewed the need for an internal audit function, as recommended by the Code. Due to the size of JZCP and its oursourced functions an internal audit function is not considered necessary, although this will be kept under review.
Board and Committee meeting attendance
The number of formal meetings of the Board and its committees held during the year and the attendance of individual Directors at these meetings is as follows:
|
| Board Main | Number of meetings Nominations |
Audit |
| Total number of meetings | 6 | 1 | 2 |
| David Macfarlane | 6 | 1 | 2 |
| David Allison | 5 | 1 | 2 |
| Patrick Firth | 6 | 1 | 2 |
| James Jordan | 5 | 1 | 2 |
| Tanja Tibaldi | 5 | 1 | 2 |
Going Concern
In the financial statements for the period ended 29 February 2009, we stated that as a result of our ZDP shares redeeming on 24 June 2009 and an associated forward foreign exchange contract which was due to be settled on 1 June 2009, there was a funding shortfall of at least US$77,799,000 before realising other assets. We also stated that the Company had substantial amounts of other assets but it was unlikely that it would be able to realise a large enough proportion of these in the normal course of business to meet the funding shortfall of US$77,799,000. Furthermore the Company did not have any borrowing facilities to meet its funding shortfall.
At the date of approval of those financial statements for the period ended 29 February 2009 the Company had put proposals to shareholders and others to raise additional equity and for Zero Dividend Preference shareholders to roll over existing ZDPs ("the Proposals"). In addition, the Company had obtained irrevocable commitments for US$86,000,000 which were sufficient to meet the funding shortfall. However, the success of the Proposals depended on shareholders voting in favour of them. Whilst the terms of the irrevocable commitments required those making them to vote in favour of the Proposals, and those represented approximately 37% of total votes, the Proposals required a 75% majority (of those voting). This gave rise to a material uncertainty that the Proposals would not be successful which may have cast significant doubt on the Company's ability to continue as a going concern.
Subsequent to 29 February 2009, the shareholders voted in favour of the proposals and the Company was successful in raising net proceeds from the issue of ordinary shares and new ZDP of US$149,269,000 and US$16,241,000. In addition the Company was successful in rolling over US$56,516,000 worth of old ZDP shares into new ZDP shares. Further details of these events are provided in Notes 10 and 11.
As a result the Directors consider the Company has adequate financial resources 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 financial statements on the going concern basis.
Relations with shareholders
The Directors believe that the maintenance of good relations with both institutional and retail shareholders is important for the long term prospects of the Company. It therefore seeks active engagement with investors, bearing in mind the duties regarding equal treatment of shareholders and the dissemination of inside information. The Board receives feedback on shareholder views from its Corporate Broker and Investment Adviser, and is circulated with Broker reports on the Company.
The Directors believe that the Annual General Meeting, a meeting for all shareholders, is the key point in the year when the Board of Directors accounts to all shareholders for the performance of the Company. It therefore encourages all shareholders to attend, and all Directors are present unless unusual circumstances prevail. However, the Directors recognise that a meeting in Guernsey is not easy for many shareholders to attend and therefore a seperate event in London was arranged for shareholders.
The Directors believe that the Company policy of reporting to shareholders as soon as possible after the Company's year end and the holding of the Annual General Meeting at the earliest opportunity is valuable.
The Company also provides Interim Management statements for the quarterly periods in line with the requirements of the Transparency Directive
Internal controls and the management of risk
Under the Code the Board has overall responsibility for the Company's systems of internal controls, including its financial, operational and compliance controls, risk management, and for reviewing their effectiveness.
Identification and evaluation of business risk
The key risk of the Company is the identification and evaluation of investments. As the principal objective of the Company is to invest in US businesses, the responsibility of identifying appropriate investments has been delegated to the Company's Investment Advisers, JZAI, who are highly regarded in the US and have many years of experience of making successful US investments. JZAI are able to identify potential investments through a wide network of contacts and review these investments in conjunction with US lawyers and accountants.
Other business risks identified by the Board include the risks associated with the various financial instruments issued by the investee companies such as market price, interest rate changes, foreign currency exchange rates and liquidity are explained more fully in Note 22..
Control procedures
The main controls which relate to investments have been delegated to JZAI, and the Audit Committee reviews their performance.
Financial controls are also in place in order to enable the Board to meet its responsibilities regarding the integrity and accuracy of the Company's accounting records. The Board delegates this responsibility to the Administrator who provides the Board with regular updates on the Company's net asset value, income statement and cash balances.
A control report is provided to the Audit Committee incorporating a key risk table that identifies the risks to which the Company is exposed, the controls in place to mitigate them and details of any known internal control concerns. The report is reviewed by the Audit Committee.
The Company's system of internal controls are designed to manage rather than eliminate the risk of failure to achieve business objectives, however , no system can provide absolute assurance against material misstatement or loss. The Company's system is designed to assist the Directors in obtaining reasonable, but not absolute, assurance that problems are being identified on a timely basis and are dealt with appropriately.
Independent Auditors' Report
Independent auditors' report to the members of JZ Capital Partners Limited
We have audited the accompanying financial statements of JZ Capital Partners Limited for the year ended 28 February 2010 which comprise the statement of comprehensive income, statement of financial position, statement of changes in equity, statement of cash flow and the related notes 1 to 32. These financial statements have been prepared on the basis of the accounting policies set out therein.
This report is made solely to the company's members as a body in accordance with section 262 of the Companies (Guernsey) Law 2008. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent required by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
As described in the Statement of Directors' Responsibilities the company's directors are responsible for the preparation of the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and the Companies (Guernsey) Law, 2008.
Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies (Guernsey) Law, 2008. We also report to you if, in our opinion, the company has not kept proper accounting records, the financial statements are not in agreement with accounting records or if we have not received all the information and explanations we require for our audit.
We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises the Corporate Objective, Chairman's Statement, Board of Directors, Company Advisers, Investment Adviser's Report, Valuation Policy, Investment Review, Major Holdings, Directors Remuneration Report, Corporate Governance and Report of the Directors. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union of the state of affairs of the company as at 28 February 2010 and of its profit for the year ended 28 February 2010, and have been properly prepared in accordance with the Companies (Guernsey) Law 2008.
Michael Bane
for and on behalf of
Ernst & Young LLP
Guernsey, Channel Islands
Date: 17 May 2010
Statement of Comprehensive Income
For the year ended 28 February 2010
|
|
|
Year ended 28 February 2010 |
| Period from incorporation 14 April 2008 to 28 February 2009 | ||||||||
|
|
| Revenue return |
| Capital return |
|
Total |
| Revenue return |
| Capital return |
|
Total |
|
| Notes | US$'000 |
| US$'000 |
| US$'000 |
| US$'000 |
| US$'000 |
| US$'000 |
| Income |
|
|
|
|
|
|
|
|
|
|
|
|
| Net gain/(loss) on investments at fair value through profit or loss |
5 |
- |
|
26,726 |
|
26,726 |
|
- |
|
(83,920) |
|
(83,920) |
| Net write back of impairments/(impairments) on loans and receivables |
6 |
- |
|
6,113 |
|
6,113 |
|
- |
|
(18,053) |
|
(18,053) |
| Realised gains on investments held in escrow accounts |
|
- |
|
- |
|
- |
|
- |
|
4,102 |
|
4,102 |
| Net foreign currency exchange gains/(losses) | 7 | - |
| 3,839 |
| 3,839 |
| - |
| (3,849) |
| (3,849) |
| Investment income | 8 | 37,614 |
| - |
| 37,614 |
| 24,236 |
| - |
| 24,236 |
| Bank and deposit interest | 9 | 450 |
| - |
| 450 |
| 869 |
| - |
| 869 |
|
|
| 38,064 |
| 36,678 |
| 74,742 |
| 25,105 |
| (101,720) |
| (76,615) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| Formation costs | 11 | - |
| - |
| - |
| - |
| (267) |
| (267) |
| Investment Adviser's base fee | 11 | (4,866) |
| (2,620) |
| (7,486) |
| (3,235) |
| (1,742) |
| (4,977) |
| Administrative expenses | 11 | (2,398) |
| - |
| (2,398) |
| (1,524) |
| - |
| (1,524) |
|
|
| (7,264) |
| (2,620) |
| (9,884) |
| (4,759) |
| (2,009) |
| (6,768) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating profit/(loss) |
| 30,800 |
| 34,058 |
| 64,858 |
| 20,346 |
| (103,729) |
| (83,383) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Finance costs |
|
|
|
|
|
|
|
|
|
|
|
|
| Finance costs in respect of Zero Dividend Preference shares |
10 |
- |
|
(7,668) |
|
(7,668) |
|
- |
|
(7,851) |
|
(7,851) |
| Profit/(loss) before taxation |
| 30,800 |
| 26,390 |
| 57,190 |
| 20,346 |
| (111,580) |
| (91,234) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Withholding Taxes | 12 | (231) |
| - |
| (231) |
| (758) |
| - |
| (758) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Profit/(loss) for the year/period |
| 30,569 |
| 26,390 |
| 56,959 |
| 19,588 |
| (111,580) |
| (91,992) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average number of Ordinary shares in issue during year/period* |
24 |
|
|
|
|
51,460,900 |
|
|
|
|
|
21,226,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Basic and diluted profit/(loss) per Ordinary share using the weighted average number of Ordinary shares in issue during the year/period |
|
59.40c |
|
51.28c |
|
110.68c |
|
92.28c |
|
(525.68)c |
|
(433.39)c |
*Comparative figures for weighted average number of Ordinary shares in issue during the period and basic and diluted gain/(loss) per Ordinary share have been restated to reflect the one share for five consolidation on 22 June 2009 and the bonus element of new shares issued on 22 June 2009.
All items in the above statement are derived from continuing operations.
The profit/(loss) for the year/period is attributable to the Ordinary shareholders of the Company.
The Company's investment activities commenced on 1 July 2008 upon transfer of investments following the liquidation of JZEP.
The format of the Income Statement follows the recommendations of the AIC Statement of Recommended Practice.
The accompanying notes form an integral part of the financial statements.
Statement of Financial Position
As at 28 February 2010
|
|
| 28 February 2010 |
| 28 February 2009 |
|
| Notes | US$'000 |
| US$'000 |
| Assets |
|
|
|
|
| Investments at fair value through profit or loss | 13 | 311,436 |
| 264,558 |
| Investments classified as loans and receivables | 13 | 83,239 |
| 69,342 |
| Other receivables | 15 | 682 |
| 2,017 |
| Cash and cash equivalents | 14 | 134,867 |
| 104,728 |
|
|
|
|
|
|
| Total assets |
| 530,224 |
| 440,645 |
|
|
|
|
|
|
| Liabilities |
|
|
|
|
| Zero Dividend Preference shares | 17 | 71,399 |
| 137,858 |
| Forward currency derivative contract |
| - |
| 45,366 |
| Other payables | 16 | 1,312 |
| 437 |
|
|
|
|
|
|
| Total liabilities |
| 72,711 |
| 183,661 |
|
|
|
|
|
|
| Equity | 20 |
|
|
|
| Share capital account |
| 149,269 |
| - |
| Share premium account |
| - |
| 353,365 |
| Distributable reserve |
| 353,517 |
| - |
| Capital reserve |
| (85,190) |
| (111,580) |
| Revenue reserve |
| 39,917 |
| 15,199 |
|
|
|
|
|
|
| Total equity |
| 457,513 |
| 256,984 |
|
|
|
|
|
|
| Total liabilities and equity |
| 530,224 |
| 440,645 |
|
|
|
|
|
|
| Number of Ordinary shares in issue at year/period end |
18 |
65,018,610 |
|
97,527,916 |
|
|
|
|
|
|
| Net asset value per Ordinary share | 25 | US$ 7.04 |
| US$ 13.18 |
*Restated to reflect 1 for 5 share consolidation on 22 June 2009.
These audited financial statements were approved by the Board of Directors and authorised for issue on 17 May 2010. They were signed on its behalf by:
David Macfarlane Patrick Firth
Chairman Director
The accompanying notes form an integral part of the financial statements.
Statement of changes in equity
For the year ended 28 February 2010
|
|
| Share |
| Share |
|
|
|
|
|
|
|
| ||
|
|
| Capital |
| Premium |
| Distributable |
| Capital Reserve |
| Revenue |
|
| ||
|
|
| Account |
| Account |
| Reserve |
| Realised |
| Unrealised |
| Reserve |
| Total |
|
| Notes | US$'000 |
| US$'000 |
| US$'000 |
| US$'000 |
| US$'000 |
| US$'000 |
| US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at 1 March 2009 |
| - |
| 353,365 |
| - |
| (5,758) |
| (105,822) |
| 15,199 |
| 256,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Profit/(Loss) for the year |
| - |
| - |
| - |
| (14,859) |
| 41,249 |
| 30,569 |
| 56,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Transfer of share premium to distributable reserve |
20 |
- |
|
(353,365) |
|
353,365 |
|
- |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issue of Ordinary shares | 18 | 77,008 |
| - |
| - |
| - |
| - |
| - |
| 77,008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issue of Limited Voting Ordinary shares |
18 |
72,261 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
72,261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Dividend paid | 31 | - |
| - |
| - |
| - |
| - |
| (5,851) |
| (5,851) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Increase in receivables relating to JZ Equity Partners Plc |
|
- |
|
- |
|
152 |
|
- |
|
- |
|
- |
|
152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at 28 February 2010 |
| 149,269 |
| - |
| 353,517 |
| (20,617) |
| (64,573) |
| 39,917 |
| 457,513 |
Comparative for the period from 14 April 2008 to 28 February 2009
|
|
| Share |
| Share |
|
|
|
|
|
|
|
| ||
|
|
| Capital |
| Premium |
| Distributable |
| Capital Reserve |
| Revenue |
|
| ||
|
|
| Account |
| Account |
| Reserve |
| Realised |
| Unrealised |
| Reserve |
| Total |
|
| Notes | US$'000 |
| US$'000 |
| US$'000 |
| US$'000 |
| US$'000 |
| US$'000 |
| US$'000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at 14 April 2008 |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Loss)/profit for the period |
| - |
| - |
| - |
| (5,758) |
| (105,822) |
| 19,588 |
| (91,992) |
| Issue of Ordinary shares | 18 | - |
| 353,376 |
| - |
| - |
| - |
| - |
| 353,376 |
| Dividend paid | 31 | - |
| - |
| - |
| - |
| - |
| (4,389) |
| (4,389) |
| Increase in receivables relating to JZ Equity Partners Plc |
|
- |
|
(11) |
|
- |
|
- |
|
- |
|
- |
|
(11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance at 28 February 2009 |
| - |
| 353,365 |
| - |
| (5,758) |
| (105,822) |
| 15,199 |
| 256,984 |
The accompanying notes form an integral part of the financial statements.
Cashflow Statement
For the year ended 28 February 2010
|
|
| 28 February 2010 |
| 28 February 2009 |
|
| Notes | US$'000 |
| US$'000 |
|
|
|
|
|
|
| Operating activities |
|
|
|
|
| Net cash inflow from operating activities | 26 | 10,047 |
| 3,385 |
| Cash outflow from purchase of investments |
| (13,484) |
| (10,234) |
| Cash inflow from repayment of investments |
| 3,594 |
| 1,472 |
| Cash inflow from realised prior year payment in kind (PIK) |
| 1,405 |
| - |
| Cash inflow from investments held in escrow accounts |
| - |
| 4,102 |
|
|
|
|
|
|
| Net cash inflow/(outflow) before financing activities |
| 1,562 |
| (1,275) |
|
|
|
|
|
|
| Financing activity |
|
|
|
|
| Proceeds from issue of Ordinary shares |
| 156,365 |
| 110,392 |
| Issue costs relating to the issue of Ordinary shares |
| (6,808) |
| - |
| Net proceeds from issue of new Zero Dividend Preference shares |
|
16,241 |
|
- |
| Redemption of old Zero Dividend Preference shares |
| (104,739) |
| - |
| Settlement of forward currency derivative contract |
| (26,923) |
| - |
| Receipt of liquidation funds from JZEP |
| 292 |
| - |
| Distributions paid to shareholders |
| (5,851) |
| (4,389) |
|
|
|
|
|
|
| Net cash inflow from financing activities |
| 28,577 |
| 106,003 |
|
|
|
|
|
|
| Increase in cash and cash equivalents |
| 30,139 |
| 104,728 |
|
|
|
|
|
|
| Reconciliation of net cash flow to movements in cash and cash equivalents |
|
|
|
|
| Cash and cash equivalents at 1 March 2009 / 14 April 2008 |
|
104,728 |
|
- |
|
|
|
|
|
|
| Increase in cash and cash equivalents as above |
| 30,139 |
| 104,728 |
|
|
|
|
|
|
| Cash and cash equivalents at year / period end | 14 | 134,867 |
| 104,728 |
* Comparative for the period from incorporation 14 April 2008 to 28 February 2009.
The accompanying notes form an integral part of the financial statements.
Notes to the Financial Statements
1. General Information
JZ Capital Partners Limited (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 subject to the Companies (Guernsey) Law, 2008, which came in to effect on 1 July 2008. The Company's Share Capital consists of Ordinary shares and Zero Dividend Redeemable Preference ("ZDP") shares. The Ordinary shares and ZDP shares were admitted to the official list of the London Stock Exchange on 1 July 2008.
The Company was granted consent on 8 May 2008 by the Guernsey Financial Services Commission under The Control of Borrowing (Bailiwick of Guernsey) Ordinance,1959 to raise up to £300,000,000 by the issue of shares.
The Company was launched in connection with a scheme of reconstruction and voluntary winding up of JZ Equity Partners Plc ("JZEP") under section 110 of the Insolvency Act 1986. JZEP's assets, after providing for its liabilities were transferred in specie to the Company on 1 July 2008 and the Company issued to JZEP Shareholders (other than those who opted against the new scheme) one Ordinary Share for each JZEP Ordinary Share and one Zero Dividend Preference ("ZDP") Share for each JZEP ZDP Share that they held.
On 22 June 2009 a Placing and open offer of Ordinary Shares resulted in 117,037,749 Ordinary and 110,527,388 Limited Voting Ordinary shares being issued at the price of 42 pence. The Ordinary shares were subsequently consolidated on the basis that all holders of Ordinary shares will hold one Ordinary share for every five Ordinary Shares held immediately prior to the share consolidation. New ZDP shares were also issued following the redemption of the old ZDP shares (note 17).
Limited Voting Ordinary Shares ("LVO") were issued so that certain of the Company's existing Shareholders and certain new investors that are Qualifying US Persons could participate in the Ordinary Share Issue without causing the Company to be treated as a US domestic company for the purposes of US securities laws and/or a CFC for US tax purposes. Limited Voting Ordinary Shares are identical to, and rank pari passu in all respects with, the New Ordinary shares except that the Limited Voting Ordinary Shares will only carry a limited entitlement to vote in respect of the appointment or removal of Directors and will not carry any entitlement to vote in respect of certain other matters. The LVO shares are not listed and are not admitted to trade on or through the facilities of the London Stock Exchange.
During the year, the Guernsey Financial Services Commission (GFSC) amended the rules in respect of closed ended funds formerly authorised under the Control of Borrowing (Bailiwick of Guernsey) Ordinances 1959 to 1989 to bring all such funds under the Protection of Investors (Bailiwick of Guernsey) Law 1987. This amendment requires the closed ended funds to elect to be either a registered or authorised fund. The Company has elected to remain an authorised fund.
The Company's corporate objective is to create a portfolio of investments in businesses primarily in the United States, providing a superior overall return comprised of a current yield and significant capital appreciation. The Company's present strategies include investments in micro-cap buyouts, mezzanine loans (sometimes with equity participations) and high yield securities, senior secured debt and second lien loans and other debt and equity opportunities, including distressed debt and structured financings, derivatives and opportunistic purchase of publicly traded securities.
The Company has no direct employees. For its services the Investment Adviser receives a management fee and may also be entitled to a performance-related fee (note 11). The Company has no ownership interest in the Investment Adviser. The Company is administered by Butterfield Fulcrum Group (Guernsey) Limited (note 11).
2. Significant Accounting Policies
The accounting policies adopted in the preparation of these financial statements have been consistently applied during the period, unless otherwise stated.
Statement of Compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS"), which comprise standards and interpretations approved by the International Accounting Standards Board ("IASB") and International Accounting Standards ("IAS") and Standing Interpretations approved by the International Accounting Standards Committee ("IASC") that remain in effect, together with applicable legal and regulatory requirements of Guernsey Law and the Listing Rules of the London Stock Exchange.
Basis of Preparation
The financial statements have been prepared under the historical cost or amortised cost basis, modified by the revaluation of derivative financial instruments and certain financial instruments designated at fair value through profit or loss upon initial recognition. The principal accounting policies adopted are set out below. The preparation of financial statements in conformity with IFRS requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The financial statements follow the Association of Investment Companies ("AIC") Statement of Recommended Practice ("SORP") issued on 21 January 2009.
Going Concern
A fundamental principle of the preparation of financial statements in accordance with IFRS is the assumption that an entity will continue in existence as a going concern, which contemplates continuity of operations and the realisation of assets and settlement of liabilities occurring in the ordinary course of business. In accordance with this requirement, the Company's policy is to prepare the financial statements on a going concern basis unless the Directors intend to liquidate the Company.
The Company successfully refinanced its ZDP shares (note 17) and completed its equity fund raising (note 18), in June 2009, restoring the strength of the balance sheet. As a result the Directors consider the Company has adequate financial resources 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 financial statements on the going concern basis.
Changes in accounting policy and disclosures
The accounting policies adopted are consistent with those of the previous financial period except as follows:
The Company has adopted the following standards and amendments as of 1 March 2009:
IFRS 8 Operating Segments
IAS 1 (Revised 2007) Presentation of Financial Statements
Amendments to IFRS 7 Financial Instruments: Disclosures - Improving Disclosures about Financial Instruments
The principal effect of these changes is as follows:
IFRS 8 Operating Segments
This standard is effective for accounting periods beginning on or after 1 January 2009, it requires disclosure of information about the Company's operating segments and replaced the requirement to determine primary (business) and secondary (geographical) reporting segments of the Company.
IAS 1 (Revised 2007) Presentation of Financial Statements
The standard replaces IAS 1 Presentation of Financial Statements (revised in 2003) as amended in 2005. The revised IAS 1 Presentation of Financial Statements was issued in September 2007 and is effective for accounting periods beginning on or after 1 January 2009 with early application permitted.
The standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with all non-owner changes in equity presented as a single line. In addition, the standard introduces the statement of comprehensive income: it presents all items of income and expense recognised in profit or loss, together with all other items of recognised income and expense, either in one single statement, or in two linked statements. The Company chose to present one single statement of comprehensive income. The grouping of several line items classified within expenses has been amended in order to reflect management reporting.
The Company does not have any components of other comprehensive income. Therefore, comprehensive income is equal to the net profit/(loss) reported for all periods presented.
Amendments to IFRS 7 Financial Instruments: Disclosures - Improving Disclosures about Financial Instruments
The amendments to IFRS 7 were issued in March 2009 and became effective for annual periods beginning on or after 1 January 2009, with early application permitted. The Company has adopted these amendments with effect from 1 March 2009. The amendment to IFRS 7 requires fair value measurements to be disclosed by the source of inputs, using a three-level hierarchy:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
• Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices) (Level 2)
• Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
In addition the amendment revises the specified minimum liquidity risk disclosures including amongst others the contractual maturity of non derivative and derivative financial liabilities, and a description of how this is managed.
In the first year of adoption comparative information is not required.
The following standards, amendments and interpretations are effective from 2009 but had no impact on the financial position or performance of the Company:
Amendment to IFRS 2 Share-based Payments - Vesting Conditions and Cancellations
Amendment to IAS 23 Borrowing Costs
IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments: Recognition and Measurement
Amendment to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements - Puttable Financial Instruments and Obligations Arising on Liquidation.
IFRS 9 Financial Instruments - Recognition and Measurement: Cash flow hedge accounting
IFRIC 16 Hedges of a Net Investment in a Foreign Operation - Amendment to the restriction on the entity that can hold hedging instrument
The following standards, amendments and interpretations are not effective and are not expected to have material impact on the financial position or performance of the Company:
IFRS 3 (Revised 2008) Business Combinations and IAS 27 (Revised 2008) Consolidated and Separate Financial Statements
Amendment to IAS 39 Financial Instruments: Recognition and Measurement - Eligible Hedged Items
IFRS 2 Share-based Payments - Group cash-settled share-based payment transactions
IFRIC Interpretation 17 Distributions of Non-Cash Assets to Owners
There are certain other current standards, amendments and interpretations that are not relevant to the Company's operations.
Functional and presentational currency
Items included in the financial statements of the Company are measured in the currency of the primary economic environment in which the Company operates ("the functional currency"). The functional currency of the Company as determined in accordance with IFRS is the US dollar because this is the currency that best reflects the economic substance of the underlying events and circumstances of the Company. The financial statements are presented in US dollars, as the Company has chosen the US dollar as its presentation currency, and all values were presented to the nearest thousand except where otherwise stated.
Foreign exchange
Monetary assets and liabilities denominated in foreign currency are translated into the functional currency at the rate of exchange ruling at the end of the reporting period date. Transactions in foreign currencies during the course of the period are translated at the rate of exchange ruling at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at reporting period end exchange rates of monetary assets and liabilities and non-monetary assets and liabilities that are denominated in foreign currencies are recognised in the statement of comprehensive income. Foreign exchange gains and losses on financial assets and financial liabilities at fair value through profit or loss are recognised together with other changes in the fair value. Net foreign exchange gains or losses on monetary financial assets and liabilities other than those classified as at fair value through profit or loss are included in the line item 'Net foreign currency exchange gains/(losses)'.
Derivatives
The Company may use derivatives for the purpose of efficient portfolio management, including for hedging purposes and potentially in order to take a synthetic exposure to an investment position in circumstances where the derivative contract is more efficient than a position would be in the underlying security. Open forward currency contracts are valued at the relevant exchange rate on that day.
Financial assets and financial liabilities
(a) Financial assets and liabilities at fair value through profit or loss
(i) Classification
The Company classifies its investments in listed investments, investments in first and second lien debt securities, other equity opportunities and other investments within its Micro Cap and Legacy portfolios as financial assets at fair value through profit or loss. These financial assets are designated by the Board of Directors as fair value through profit or loss at inception. Financial assets or financial liabilities held for trading are those acquired or incurred principally for the purposes of sale or repurchase in the short term. All derivatives are included in this category.
Financial assets and financial liabilities designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Company's investment strategy as documented in its prospectus. Information about these financial assets and financial liabilities are evaluated by the management of the Company on a fair value basis together with other relevant financial information.
(ii) Recognition / derecognition
Purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership. Financial liabilities at fair value through profit or loss are derecognised when the obligation specified in the contract is discharged, cancelled or expires.
Financial assets and liabilities at fair value through profit or loss are initially recognised at fair value. Transaction costs are expensed in the statement of comprehensive income. Subsequent to initial recognition, all financial assets and liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of the 'financial assets or financial liabilities at fair value through profit or loss' category are presented in the statement of comprehensive income in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in the statement of comprehensive income within investment income when the Company's right to receive payment is established.
(iii) Fair value estimation
The fair value of financial instruments traded in active markets (such as publicly traded securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Company is the bid price.
Realised surpluses and deficits on the partial sale of investments are arrived at by deducting the average cost of such investments from the sales proceeds.
Fair value estimation methods for the other classes of financial assets and liabilities at fair value through profit or loss are presented in the valuation policy.
(b) Loans and receivables
(i) Classification
The Company classifies unquoted senior subordinated debt within Mezzanine investments as loans and receivables. Investments are generally accounted for at amortised cost using the effective interest method except where there is deemed to be impairment in value which indicates that a provision should be made.
(ii) Recognition / derecognition
Purchases and sales of investments are recognised on the trade date - the date on which the Company commits to purchase or sell the investment. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.
(iii) Measurement
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
The Company assesses at each reporting date whether a financial asset or group of financial assets classified as loans and receivables are impaired. Evidence of impairment may include indications that the counterparty is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. If there is objective evidence that an impairment loss has occurred, the amount of the loss is measured as the difference between the asset's carrying amount and the net present value of expected cash flows discounted at the original effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the statement of comprehensive income as net impairments on loans and receivables.
Impaired debts together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a previous write-off is later recovered, the recovery is credited to net impairments/write back of impairments on loans and receivables.
Cash and cash equivalents
Cash and cash equivalents comprise bank balances and cash held by the Company including short-term bank deposits with an original maturity of three months or less. Cash also includes amounts held in interest bearing overnight accounts.
Other receivables
Other receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.
Other payables
Other payables are not interest-bearing and are stated at their nominal value.
Financial liabilities and equity
Financial liabilities and equity are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Financial liabilities and equity are recorded at the amount of proceeds received, net of issue costs.
Zero dividend preference ("ZDP") shares
In accordance with International Accounting Standard 32 - Financial Instruments: Presentation, ZDP shares have been disclosed as a financial liability as the shares are redeemable at a fixed date and holders are entitled to a fixed return. ZDP shares are recorded at amortised cost using the effective interest rate method.
Incentive fee provision
A provision is recognised where the Company has a legal obligation as a result of a past event and it is probable that an outflow of economic benefits will be required in the future. Under the advisory agreement, the Company has no obligation to pay an incentive fee to the Investment Adviser as at 28 February 2010.
Income
Investment income and other income receivable for all interest bearing financial instruments are included on an accruals basis using the effective interest method. Dividend income is recognised when the Company's right to receive payment is established. When there is reasonable doubt that income due to be received will actually be received, such income is not accrued until it is clear that its receipt is probable. Where following an accrual of income, receipt becomes doubtful, the accrual is either fully or partly written off until the reasonable doubt is removed.
Expenses
Investment Adviser's basic fees are allocated 65% to revenue and 35% to realised capital reserve. This represents the Director's expectations of the long term split between revenue and capital. The incentive fee is attributed to those parts to which it relates.
Expenses which are deemed to be incurred wholly in connection with the maintenance or enhancement of the value of the investments are charged to realised capital reserve. All other expenses are accounted for on an accruals basis and are presented as revenue items.
Formation costs
Expenses directly attributable to the set up of the Company or the issue of share capital are charged against capital.
Finance costs
Finance costs are interest expenses in respect of the ZDP shares and are recognised in the statement of comprehensive income using the effective interest method.
Escrow accounts
Where investments are disposed of, the consideration given may include contractual terms requiring that a percentage of the consideration is held in an escrow account pending resolution of any indemnifiable claims that may arise and as such the value of these escrow amounts is not immediately known. The Company records gains realised on investments held in escrow in the statement of comprehensive income following confirmation that any such idemnifiable claims have been resolved and none are expected in the future.
3. 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 has been organised into the following segments:
• Portfolio of Bank debt
• Portfolio of Mezzanine investments
• Portfolio of Micro Cap investments
• Portfolio of Legacy investments
• Portfolio of Listed 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 diversified portfolios.
There have been no changes in reportable segments during the course of the year. The segment information provided is also presented to the board of the Company.
For the year ended 28 February 2010
|
|
Bank Debt |
|
Mezzanine Portfolio |
| Micro Cap Portfolio |
|
Legacy Portfolio |
|
Listed Investments |
|
Total |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$'000 |
| Interest revenue | 2,942 |
| 12,641 |
| 15,709 |
| 2,387 |
| - |
| 33,679 |
| Dividend revenue | - |
| - |
| - |
| - |
| 1908 |
| 1,908 |
| Other revenue | 1 |
| 284 |
| 31 |
| 1711 |
| - |
| 2,027 |
| Net gain/(loss) on investments at fair value through profit or loss |
6,854 |
|
821 |
|
(2,337) |
|
(990) |
|
22,378 |
|
26,726 |
| Net write back of impairments on loans and receivables |
- |
|
6,113 |
|
- |
|
- |
|
- |
|
6,113 |
| Investment Adviser's base fee | (675) |
| (1,625) |
| (3,261) |
| (604) |
| (1,321) |
| (7,486) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total segmental operating profit/(loss) |
9,122 |
|
18,234 |
|
10,142 |
|
2,504 |
|
22,965 |
|
62,967 |
For the period from incorporation 14 April 2008 to 28 February 2009
|
|
Bank Debt |
|
Mezzanine Portfolio |
| Micro Cap Portfolio |
|
Legacy Portfolio |
|
Listed Investments |
|
Total |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$'000 |
| Interest revenue | 2,807 |
| 7,275 |
| 10,174 |
| 1,412 |
| - |
| 21,668 |
| Dividend revenue | - |
| - |
| - |
| - |
| 2527 |
| 2,527 |
| Other revenue | - |
| - |
| - |
| 41 |
| - |
| 41 |
| Net loss on investments at fair value through profit or loss |
(25,670) |
|
- |
|
(30,426) |
|
- |
|
(27,824) |
|
(83,920) |
| Impairments on loans and receivables |
- |
|
(18,053) |
|
- |
|
- |
|
- |
|
(18,053) |
| Realised gains on investments held in escrow accounts |
- |
|
- |
|
3,641 |
|
461 |
|
- |
|
4,102 |
| Investment Adviser's base fee | (449) |
| (1,081) |
| (2,168) |
| (402) |
| (878) |
| (4,977) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total segmental operating (loss)/profit |
(23,312) |
|
(11,859) |
|
(18,779) |
|
1,512 |
|
(26,175) |
|
(78,612) |
At 28 February 2010
|
|
Bank Debt |
|
Mezzanine Portfolio |
| Micro Cap Portfolio |
|
Legacy Portfolio |
|
Listed Investments |
|
Total |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$'000 |
| Investments at fair value through profit or loss |
35,589 |
|
2,457 |
|
171,903 |
|
31,845 |
|
69,642 |
|
311,436 |
| Investments classified as loans and receivables |
- |
|
83,239 |
|
- |
|
- |
|
- |
|
83,239 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total segmental assets | 35,589 |
| 85,696 |
| 171,903 |
| 31,845 |
| 69,642 |
| 394,675 |
At 28 February 2009
|
|
Bank Debt |
|
Mezzanine Portfolio |
| Micro Cap Portfolio |
|
Legacy Portfolio |
|
Listed Investments |
|
Total |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$'000 |
| Investments at fair value through profit or loss |
28,215 |
|
1,636 |
|
158,263 |
|
29,180 |
|
47,264 |
|
264,558 |
| Investments classified as loans and receivables |
- |
|
69,342 |
|
- |
|
- |
|
- |
|
69,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total segmental assets | 28,215 |
| 70,978 |
| 158,263 |
| 29,180 |
| 47,264 |
| 333,900 |
Certain income and expenditure is not considered part of the performance of an individual segment. This includes net foreign exchange gains, interest on cash, finance costs, management fees, custodian and administration fees, directors' fees and other general expenses.
The following table provides a reconciliation between net reportable segment income and operating profits.
|
|
| Year ending 28/02/2010 |
| Period ending 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Net reportable segment profit/(loss) | 62,967 |
| (78,612) | |
| Net foreign exchange gains/(losses) | 3,839 |
| (3,849) | |
| Interest on cash | 450 |
| 869 | |
| Expenses not attributable to segments | (2,398) |
| (1,791) | |
|
|
|
|
| |
| Operating profit/(loss) | 64,858 |
| (83,383) | |
Other receivables and prepayments are not considered to be part of individual segment assets. Certain liabilities are not considered to be part of the net assets of an individual segment, these include custodian and administration fees payable, directors' fees payable and Other payables and accrued expenses.
The following table provides a reconciliation between net total segment assets and liabilities and total assets and liabilities.
|
|
| 28/02/2010 |
| 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Total segmental assets | 394,675 |
| 333,900 | |
| Cash and cash equivalents | 134,867 |
| 104,728 | |
| Other receivables and prepayments | 682 |
| 2,017 | |
|
|
|
|
| |
| Total assets | 530,224 |
| 440,645 | |
|
|
|
|
| |
| Total segmental liabilities | - |
| - | |
| Other payables and accrued expenses | (72,711) |
| (183,661) | |
|
|
|
|
| |
| Total liabilities | (72,711) |
| (183,661) | |
Other Information
Geographical Segment
The Directors are of the opinion that the Company is engaged in a single geographical segment. All the investments are issued by companies operating and generating revenue in the United States and therefore no geographical segment analysis is provided.
4 Critical Accounting Judgements and Key Sources of Estimation Uncertainty
The following are the key assumptions and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:
Fair value of investments at fair value through profit or loss ("FVTPL")
Certain investments are classified as FVTPL, and valued accordingly, as disclosed in note 2 and the valuation policy. The key source of estimation uncertainty is on the valuation of unquoted equities and equity-related securities.
Loans and receivables
Certain investments are classified as Loans and Receivables, and valued accordingly, as disclosed in note 2 and the valuation policy. The key estimation is the impairment review and the key assumptions as disclosed in note 2.
5. Net gain/(loss) on investments at fair value through profit or loss
|
|
| Year ended 28/02/2010 |
| Period ended 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Net unrealised gain/(loss) in year/period | 25,958 |
| (83,920) | |
|
|
|
|
| |
| Proceeds from investments repaid | 3,509 |
| 1,472 | |
| Cost of investments repaid | (2,741) |
| (1,472) | |
| Cost of investments written off | (423) |
| - | |
| Unrealised loss in prior period now realised | 423 |
| - | |
|
|
|
|
| |
| Net realised gain in year/period | 768 |
| - | |
|
|
|
|
| |
| Net gain/(loss) on investments in year/period | 26,726 |
| (83,920) | |
6. Net write back of impairments/(impairments) on loans and receivables
|
|
| Year ended 28/02/2010 |
| Period ended 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Net write back of impairments/(impairments) on loans and receivables |
6,113 |
|
(18,053) | |
|
|
|
|
| |
| Proceeds from investments repaid | 85 |
| - | |
| Cost of investments repaid | (85) |
| - | |
| Cost of investments written off | (14,553) |
| - | |
| Unrealised loss in prior period now realised | 14,553 |
| - | |
|
|
|
|
| |
| Net realised gain | - |
| - | |
|
|
|
|
| |
| Net write back of impairments/(impairments) on loans and receivables |
6,113 |
|
(18,053) | |
7. Net foreign currency exchange gains/(losses)
|
|
| Year ended 28/02/2010 US$ '000 |
|
|
|
|
| |
| Net gains/(losses) on forward foreign exchange contract |
| 18,443 |
|
| Net (losses)/gains on foreign currency translations |
| (14,604) |
|
|
|
| 3,839 |
|
8. Investment income
|
|
| Year ended 28/02/2010 |
| Period ended 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Income from investments classified as FVTPL | 24,689 |
| 16,961 | |
| Income from investments classified as loans and receivables | 12,925 |
| 7,275 | |
|
|
|
|
| |
|
| 37,614 |
| 24,236 | |
Income for the year ended 28 February 2010
|
|
|
| Preference Dividend | Bank debt | Loan note |
|
|
|
| ||||||
|
| Dividends |
| PIK |
| Cash |
| Interest |
| PIK |
| Cash |
| Other |
| Total |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$'000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1st and 2nd Lien bank debt |
- |
|
- |
|
- |
|
2, 942 |
|
- |
|
- |
|
1 |
|
2,943 |
| Mezzanine portfolio | - |
| - |
| - |
| - |
| 6,194 |
| 6,447 |
| 284 |
| 12,925 |
| Micro Cap portfolio | - |
| 7,425 |
| - |
| - |
| 3,442 |
| 4,842 |
| 31 |
| 15,740 |
| Legacy portfolio | - |
| 65 |
| - |
| - |
| 2,220 |
| 102 |
| 1,711 |
| 4,098 |
| Listed investments | 1,908 |
| - |
| - |
| - |
| - |
| - |
| - |
| 1,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,908 |
| 7,490 |
| - |
| 2,942 |
| 11,856 |
| 11,391 |
| 2,027 |
| 37,614 |
Income for the period from incorporation 14 April 2008 to 28 February 2009*
|
|
|
| Preference Dividend | Bank debt | Loan note |
|
|
|
| ||||||
|
| Dividends |
| PIK |
| Cash |
| Interest |
| PIK |
| Cash |
| Other |
| Total |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$'000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1st and 2nd Lien bank debt |
- |
|
- |
|
- |
|
2, 807 |
|
- |
|
- |
|
- |
|
2,807 |
| Mezzanine portfolio | - |
| 79 |
| - |
| - |
| 3,578 |
| 3,618 |
| - |
| 7,275 |
| Micro Cap portfolio | - |
| 4,119 |
| - |
| - |
| 2,368 |
| 3,687 |
| - |
| 10,174 |
| Legacy portfolio | - |
| - |
| 40 |
| - |
| 1,372 |
| - |
| - |
| 1,412 |
| Listed investments | 2,527 |
| - |
| - |
| - |
| - |
| - |
| - |
| 2,527 |
| Other | - |
| - |
| - |
| - |
| - |
| - |
| 41 |
| 41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,527 |
| 4,198 |
| 40 |
| 2,807 |
| 7,318 |
| 7,305 |
| 41 |
| 24,236 |
Interest on investments is shown net of a US$6,543,000 (period ended 28 February 2009: US$5,468,000) write down calculated in accordance with the Company's accounting and valuation policy.
* Trading period for the eight months from 1 July 2008 (upon transfer of assets from JZEP) to 28 February 2009.
9. Bank and deposit interest
|
|
| Year ended 28/02/2010 |
| Period ended 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Other operating income arising on financial assets not at fair value through profit or loss: |
|
|
| |
| Interest on short term fixed deposits | 57 |
| 669 | |
| Bank interest | 393 |
| 200 | |
|
|
|
|
| |
|
| 450 |
| 869 | |
10. Finance costs
|
|
| Year ended 28/02/2010 |
| Period ended 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Finance costs arising on financial liabilities measured at amortised costs: |
|
| ||
| Finance costs on old Zero Dividend Preference shares redeemed on 22 June 2009 |
3,780 |
|
7,851 | |
| Finance costs on new Zero Dividend Preference shares issued on 22 June 2009 |
3,888 |
|
- | |
|
|
|
|
| |
|
| 7,668 |
| 7,851 | |
The ZDP Shares have no right to any of the income available for distribution but have an entitlement, on a predetermined growth basis, to the available assets at any winding-up date prior to 22 June 2016. The original ZDP shares were redeemed at 215.80 pence on 22 June 2009. The new ZDP shares were issued at 215.80 pence on 22 June 2009 and will have a pre-determined final capital entitlement of 369.84 pence on 22 June 2016. The new ZDP shares final capital entitlement is calculated using a rate equal to 8% return compounding on a monthly basis. Finance costs are allocated to the statement of comprehensive income using the effective interest rate method.
11. Expenses
|
|
| Year ended 28/02/2010 |
| Period ended 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Investment Adviser's base fee | 7,486 |
| 4,977 | |
|
|
|
|
| |
| Administrative expenses: |
|
|
| |
| Legal and professional fees | 906 |
| 451 | |
| Other expenses | 579 |
| 271 | |
| Directors' remuneration | 325 |
| 286 | |
| Accounting, secretarial and administration fees | 401 |
| 324 | |
| Auditors' remuneration | 184 |
| 187 | |
| Custodian fees | 3 |
| 5 | |
|
|
|
|
| |
|
| 2,398 |
| 1,524 | |
|
|
|
|
| |
| Formation costs | - |
| 267 | |
|
|
|
|
| |
| Total expenses | 9,884 |
| 6,768 | |
Directors fees
The Chairman is entitled to a fee of US$85,000 per annum. Each of the other Directors are entitled to a fee of US$60,000 per annum. For the year ended 28 February 2010 total Directors' fees included in the statement of comprehensive income were US$325,000 (period from incorporation 14 April 2008 to 28 February 2009: US$286,000), of this amount US$54,000 was outstanding at the year end (28 February 2009:US$53,450) and included within Other Payables.
The Chairman was paid an additional fee of US$112,500 within the year, for extra work on transitional matters and the financing proposals. This amount has been included in the issue costs of the new Ordinary, Limited Voting and ZDP shares.
Investment Advisory and Performance fees
The Company entered into an investment advisory and management agreement with Jordan/Zalaznick Advisers, Inc (the "Investment Adviser") in May 2009.
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, payable quarterly in arrears; the agreement provides that payments in advance on account of the base management fee will be made.
The incentive fee has two parts. The first part is calculated by reference to the net investment income of the Company and is equal to up to 20 per cent. of such income, 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 and the preceding 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 25 per cent. of the hurdle, and (b) 20 per cent. of the net investment income of the Company above 125 per cent. of the hurdle.
The second part of the incentive fee is calculated by reference to the net realised capital gains of the Company and is equal to: (a) 20 per cent. of (x) the realised capital gains of the Company for each financial year less (y) all realised capital losses on Investments for the year less (b) the excess (for prior years since the Effective Date) (if any) of (i) the aggregate of all previous capital gains incentive fees paid by the Company to the Investment Adviser over (ii) 20 per cent. of (x) all realised capital gains of the Company less (y) all realised capital losses of the Company, payable annually in arrears.
For the year ended 28 February 2010 total Investment advisory and management expenses were included in the statement of comprehensive income of US$7,486,000 (period from incorporation 14 April 2008 to 28 February 2009: US$4,977,000. At 28 February 2010 the Company had prepaid the Investment Adviser by US$484,022 (28 February 2009: US$364,000) and this amount was included within Other Receivables.
Administration fees
Butterfield Fund Services (Guernsey) Limited was appointed on 12 May 2008 under an Administration, Secretarial and Registrar Agreement. Butterfield Fund Services and Fulcrum Group merged during September 2008 forming Butterfield Fulcrum Group (Guernsey) Limited (the "Administrator").
The Administrator is entitled to a quarterly fee of US$100,000 payable in arrears. Fees payable are subject to an annual fee review. For the year ended 28 February 2010 total expenses payable to the Administrator of US$401,000 (period from incorporation 14 April 2008 to 28 February 2009: US$324,000) were included in the statement of comprehensive income, of this amount US$67,000 (28 February 2009: US$65,000) was outstanding at the year end and is included within Other Payables. Additional fees were payable to the Adminstrator of GBP60,000 within the year, for extra work on transitional matters and the financing proposals. This amount has been included in the issue costs of the new Ordinary, Limited Voting and ZDP shares.
Auditors' remuneration
Additional fees were payable to the Auditor of GBP245,000 within the year, for extra work on transitional matters and the financing proposals. This amount has been included in the issue costs of the new Ordinary, Limited Voting and ZDP shares.
Custodian fees
HSBC Bank (USA) N.A (the "Custodian") was appointed on 12 May 2008 under a custodian agreement. The Custodian is entitled to receive an annual fee of US$2,000 and a transaction fee of US$50 per transaction. For the year ended 28 February 2010 total expenses were included in the statement of comprehensive income of US$3,000 (period from incorporation 14 April 2008 to 28 February 2009 US$5,000) of which US$2,000 (28 February 2009:US$1,000) was outstanding at the year end and is included within Other Payables.
12. Taxation
With effect from 1 January 2008, the standard rate of income tax for companies in Guernsey moved from 20% to 0% under the Income Tax (Zero Ten) (Guernsey) Law, 2007 passed by the States of Guernsey on 26 September 2007. Close-ended investment vehicles such as the Company can continue to apply for exempt status for Guernsey tax purposes. Alternatively they may choose to automatically become tax resident, paying the nil rate. The Company elected for exempt status on incorporation.
For the year ended 28 February 2010 the Company suffered withholding tax of US$231,000 (period from incorporation 14 April 2008 to 28 February 2009: US$758,000) on income from listed investments,.
13. Investments
| Categories of financial instruments | Listed 28/02/10 |
| Unlisted 28/02/10 |
| Carrying Value 28/02/10 |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
| Fair value through profit or loss (FVTPL) | 69,642 |
| 241,794 |
| 311,436 |
| Loans and receivables | - |
| 83,239 |
| 83,239 |
|
|
|
|
|
|
|
|
| 69,642 |
| 325,033 |
| 394,675 |
| Categories of financial instruments | Listed 28/02/09 |
| Unlisted 28/02/09 |
| Carrying Value 28/02/09 |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
| Fair value through profit or loss (FVTPL) | 47,264 |
| 217,294 |
| 264,558 |
| Loans and receivables | - |
| 69,342 |
| 69,342 |
|
|
|
|
|
|
|
|
| 47,264 |
| 286,636 |
| 333,900 |
14. Cash and Cash Equivalents
|
|
| 28/02/2010 |
| 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Cash at bank | 134,867 |
| 74,909 | |
| Fixed deposits | - |
| 29,819 | |
|
|
|
|
| |
|
| 134,867 |
| 104,728 | |
Cash and cash equivalents comprise bank balances and cash held by the Company including short-term bank deposits with an original maturity of three months or less. The carrying value of these assets approximates to their fair value.
15. Other receivables
|
|
| 28/02/2010 |
| 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Accrued dividend income on listed investments | 324 |
| 1,121 | |
| Due from the liquidation of JZEP | 291 |
| 431 | |
| Bank and deposit interest | 38 |
| 13 | |
| Other prepayments | 29 |
| 88 | |
| Prepayment of Investment Adviser's fee | - |
| 364 | |
|
|
|
|
| |
|
| 682 |
| 2,017 | |
16. Other payables
|
|
| 28/02/2010 |
| 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Investment Adviser's fee | 484 |
| - | |
| Costs relating to issue of shares | 297 |
| - | |
| Legal fees | 240 |
| 94 | |
| Other expenses | 92 |
| 110 | |
| Auditors' remuneration | 78 |
| 115 | |
| Fees due to administrator | 67 |
| 65 | |
| Directors' remuneration | 54 |
| 53 | |
|
|
|
|
| |
|
|
|
|
| |
|
| 1,312 |
| 437 | |
17. Zero Dividend Preference ("ZDP") shares
Authorised Capital
Unlimited number of ZDP shares of no par value.
|
|
| 28/02/2010 |
| 28/02/2009 |
|
| US$'000 |
| US$'000 | |
| ZDP shares redeemed 22 June 2009 |
|
|
| |
| Amortised cost at 1 March 2009 and at 1 July 2008 | 137,858 |
| 182,214 | |
| Finance costs allocated to statement of comprehensive income | 3,780 |
| 7,851 | |
| Redemption of ZDP shares - cash | (104,739) |
| - | |
| Redemption of ZDP shares - rollover to new ZDP shares | (56,516) |
| - | |
| Currency loss on redemption of ZDP shares | 19,617 |
| - | |
| Unrealised currency gain on translation at year/period end | - |
| (52,207) | |
|
|
|
|
| |
| Attributable net assets at 28 February 2010 / 28 February 2009 | - |
| 137,858 | |
|
|
|
|
| |
| ZDP shares issued 22 June 2009 |
|
|
| |
| Issued during year - cash received | 16,590 |
| - | |
| Issued during year - rollover from old ZDP shares | 56,516 |
| - | |
| Issue costs | (348) |
| - | |
| Finance costs allocated to statement of comprehensive income | 3,888 |
| - | |
| Unrealised currency gain on translation at year/period end | (5,247) |
| - | |
|
|
|
|
| |
| Attributable net assets at 28 February 2010 / 28 February 2009 | 71,399 |
| - | |
|
|
|
|
| |
| Total number of ZDP shares in issue | 20,707,141 |
| 45,662,313 | |
|
|
|
|
| |
| Price per ZDP share US$ | US$ 3.4633 |
| US$ 3.0191 | |
|
|
|
|
| |
| Price per ZDP share GBP | GBP 2.2731 |
| GBP 2.1043 | |
On 1 July 2008, a total of 45,662,313 ZDP shares were issued on a one-to-one basis to holders of old JZ Equity Partners Plc ZDP shares under the terms of the reconstruction scheme. Of these shares 29,654,417 were redeemed on 22 June 2009 at a price of 215.80 pence and 16,007,896 which were rolled over in to new ZDP shares.
Further ZDP shares were issued on 22 June 2009 at a price of 215.80 pence and are designed to provide a pre-determined final capital entitlement of 369.84 pence on 22 June 2016 which ranks behind the Company's creditors but in priority to the capital entitlements of the Ordinary shares. The new ZDP shares issued comprised 16,007,896 shares from the rollover of old ZDP shares and 4,699,245 which were issued for cash. They carry no entitlement to income and the whole of their return will therefore take the form of capital. The capital appreciation of approximately 8% per annum is calculated monthly. In certain circumstances, ZDP shares will carry the right to vote at general meetings of the Company as detailed in the Company's Memorandum of Articles and Association. 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.
18. Share Capital
Authorised Capital
Unlimited number of ordinary shares of no par value.
| Ordinary shares - Issued Capital | 28/02/10 |
| 28/02/10 |
| 28/02/09 |
| 28/02/09 |
|
| Number of shares |
|
US$ '000 |
| Number of shares |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
| Balance brought forward | 97,527,916 |
| - |
| - |
| - |
| Issued during year/period | 117,037,749 |
| - |
| 97,527,916 |
| - |
| Share consolidation 1 for 5 | (171,652,533) |
| - |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Total ordinary shares in issue | 42,913,132 |
| - |
| 97,527,916 |
| - |
| Limited Voting Ordinary shares - Issued Capital | 28/02/10 |
| 28/02/10 |
| 28/02/09 |
| 28/02/09 |
|
| Number of shares |
|
US$ '000 |
| Number of shares |
|
US$ '000 |
|
|
|
|
|
|
|
|
|
| Issued during year | 110,527,388 |
| - |
| - |
| - |
| Share consolidation 1 for 5 | (88,421,910) |
| - |
| - |
| - |
|
|
|
|
|
|
|
|
|
| Total limited voting ordinary shares in issue |
22,105,478 |
|
- |
|
- |
|
- |
|
|
|
|
|
|
|
|
|
| Total shares in issue | 65,018,610 |
| - |
| 97,527,916 |
| - |
The Company's Ordinary shares were listed on the London Stock Exchange on 1 July 2008 in connection with a scheme of reconstruction and voluntary winding up of JZ Equity Partners Plc ("JZEP") under section 110 of the Insolvency Act 1986 (UK law). JZEP's assets, after providing for its liabilities were transferred in specie to the Company and the Company issued to JZEP shareholders (other than those who opted against the new scheme) one Ordinary share for each JZEP Ordinary share that they held.
On 22 June 2009 a Placing and open offer of Ordinary Shares resulted in 117,037,749 Ordinary and 110,527,388 Limited Voting Ordinary shares being issued at the price of 42 pence. Both Ordinary and Limited Voting Ordinary shares were subsequently consolidated on the basis all holders of shares will hold one share for every five shares held immediately prior to the share consolidation.
Limited Voting Ordinary Shares ("LVO") were issued so that certain of the Company's existing Shareholders and certain US new investors could participate in the Ordinary Share Issue without causing the Company to be treated as a US domestic company for the purposes of US securities laws and/or a CFC for US tax purposes. Limited Voting Ordinary Shares are identical to, and rank pari passu in all respects with, the New Ordinary shares except that the Limited Voting Ordinary Shares will only carry a limited entitlement to vote in respect of the appointment or removal of Directors and will not carry any entitlement to vote in respect of certain other matters. The LVO shares are not listed and are not admitted to trade on or through the facilities of the London Stock Exchange.
The Ordinary shares and LVO shares carry a right to receive the profits of the Company available for distribution by dividend and resolved to be distributed by way of dividend to be made at such time as determined by the Directors.
In addition to receiving the income distributed, the Ordinary shares and LVO shares are entitled to the net assets of the Company on a winding up, after all liabilities have been settled and the entitlement of the ZDP shares have been met. In addition, holders of Ordinary shares and LVO shares will be entitled on a winding up to receive any accumulated but unpaid Revenue reserves of the Company, subject to all creditors having been paid out in full but in priority to the entitlements of the ZDP shares. Any distribution of Revenue reserves on a winding up is currently expected to be made by way of a final special dividend prior to the Company's eventual liquidation.
Holders of Ordinary shares shall have the rights to receive notice of, to attend and to vote at all general meeting of the Company.
Further issue of shares
Under the Articles, the Directors have the power to issue new shares on a non pre-emptive basis. The Directors have resolved, however, that new shares will not be issued at a discount to the prevailing Net Asset Value per Ordinary share other than where shareholders are permitted to participate in the issue pro rata to their existing holding in the Company and, therefore, will not be disadvantageous to existing shareholders. Future issues of shares will be carried out in accordance with the Listing Rules.
The Directors will consider issuing new shares at not less than the prevailing Net Asset Value per Ordinary share where there is a significant demand for further shares.
Purchase of own shares by the Company
It is the intention of the Directors to seek authority from shareholders on a regular basis to allow the Company to repurchase shares in the market to prevent the emergence of a significant discount on the Company's market price to the Company's Net Asset Value.
19. Capital management
The Company's capital is represented by the Ordinary shares and Zero Dividend Preference ("ZDP") shares.
As a result of the ability to issue, repurchase and resell shares, the capital of the Company can vary. The Company is not subject to externally imposed capital requirements and has no restrictions on the issue, repurchase or resale of Ordinary and Zero Dividend Preference shares.
The Company's objectives for managing capital are:
To invest the capital in investments meeting the description, risk exposure and expected return indicated in its prospectus.
To achieve consistent returns while safeguarding capital by investing in a diversified portfolio.
To maintain sufficient liquidity to meet the expenses of the Company, and to meet redemption requests as they arise.
To maintain sufficient size to make the operation of the Company cost-efficient.
The Company continues to keep under review opportunities to buy back Ordinary or ZDP shares.
The Company monitors capital by analysing the NAV per share over time and tracking the discount to the Company's share price. It also monitors the performance of the existing investments to identify opportunities for exiting at a reasonable return to the shareholders.
20. Reserves
Capital raised on formation of Company
The Royal Court of Guernsey granted that on the admission of the Company's shares to the official list and to trading on the London Stock Exchange's market, the amount credited to the share premium account of the Company immediately following the admission of such shares be cancelled and any surplus thereby created accrue to the Company's distributable reserves to be used for all purposes permitted by the Companies Law, including the purchase of shares and the payment of dividends.
Capital raised on issue of new shares
Subsequent amounts raised by the issue of new shares, net of issue costs, are credited to a share capital account.
Distributable reserves
Subject to satisfaction of the solvency test, all of the company's capital and reserves are distributable in accordance with the Companies (Guernsey) Law, 2008.
| Share Capital Account |
| 28/02/2010 |
| 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| New Ordinary shares issued in year | 80,419 |
| - | |
| Limited Voting Shares issued in year | 75,946 |
| - | |
| Issue costs | (7,096) |
| - | |
|
|
|
|
| |
| At 28 February 2010 / 2009 | 149,269 |
| - | |
|
|
|
|
| |
| Share Premium Account | 28/02/10 |
| 28/02/09 | |
|
| US$ '000 |
| US$ '000 | |
| Share Premium |
|
|
| |
| Net assets received from the liquidation of JZEP in consideration for Ordinary Shares |
- |
|
353,376 | |
| At 1 March 2009 | 353,365 |
| - | |
| Increase in provisions/receivables relating to JZ Equity Partners Plc | - |
| (11) | |
| Transfer to distributable reserve | (353,365) |
| - | |
|
|
|
|
| |
| At 28 February 2010 / 2009 | - |
| 353,365 | |
|
|
|
|
| |
| Distributable Reserve | 28/02/10 |
| 28/02/09 | |
|
| US$ '000 |
| US$ '000 | |
|
|
|
|
| |
| Transfer from Share Premium | 353,365 |
| - | |
| Increase in provisions/receivables relating to JZ Equity Partners Plc | 152 |
|
| |
|
|
|
|
| |
| At 28 February 2010 / 2009 | 353,517 |
| - | |
Capital reserve
All surpluses arising from the realisation or revaluation of investments and all other capital profits and accretions of capital shall be credited to the Capital reserve. Any loss arising from the realisation or revaluation of investments or any expense, loss or liability classified as capital in nature may be debited to the Capital reserve.
|
| Capital reserve | ||||
|
| Realised |
| Unrealised |
| Total |
|
| 28/02/2010 |
| 28/02/2010 |
| 28/02/2010 |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
| At 1 March 2009 | (5,758) |
| (105,822) |
| (111,580) |
| Net gains on investments | - |
| 32,839 |
| 32,839 |
| Unrealised net foreign currency exchange losses | - |
| 9,178 |
| 9,178 |
| Realised net foreign currency exchange losses | (5,339) |
| - |
| (5,339) |
| Expenses charged to capital | (2,620) |
| - |
| (2,620) |
| Finance costs in respect of Zero Dividend Preference shares |
(7,668) |
|
- |
|
(7,668) |
|
|
|
|
|
|
|
| At 28 February 2010 | (21,385) |
| (63,805) |
| (85,190) |
|
| Capital reserve | ||||
|
| Realised |
| Unrealised |
| Total |
|
| 28/02/2009 |
| 28/02/2009 |
| 28/02/2009 |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
| At 14 April 2008 |
|
|
|
|
|
| Unrealised losses on investments | - |
| (101,973) |
| (101,973) |
| Unrealised loss on derivative financial instrument | - |
| (56,056) |
| (56,056) |
| Unrealised gain on translation of foreign currency | - |
| 52,207 |
| 52,207 |
| Realised gains on amounts received held in escrow accounts |
4,102 |
|
- |
|
4,102 |
| Expenses charged to capital | (2,009) |
| - |
| (2,009) |
| Finance costs in respect of Zero Dividend Preference shares |
(7,851) |
|
- |
|
(7,851) |
|
|
|
|
|
|
|
| At 28 February 2009 | (5,758) |
| (105,822) |
| (111,580) |
| Revenue reserve |
| 28/02/2010 |
| 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| At 1 March 2009 and 14 April 2008 | 15,199 |
| - | |
| Profit for the year/period attributable to revenue | 30,569 |
| 19,588 | |
| Dividend paid | (5,851) |
| (4,389) | |
|
|
|
|
| |
|
| 39,917 |
| 15,199 | |
|
|
|
|
| |
| Summary of reserves attributable to Ordinary shareholders | 28/02/2010 |
| 28/02/2009 | |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Share Premium Account | - |
| 353,365 | |
| Distributable reserve | 353,517 |
| - | |
| Share capital account | 149,269 |
| - | |
| Capital reserve | (85,190) |
| (111,580) | |
| Revenue reserve | 39,917 |
| 15,199 | |
|
|
|
|
| |
|
| 457,513 |
| 256,984 | |
21. Financial Instruments
Categories of financial instruments
| Revenue reserve |
| Carrying Value |
| Carrying Value |
|
| 28/02/2010 |
| 28/02/2009 | |
|
| US$ '000 |
| US$ '000 | |
| Financial assets |
|
|
| |
| Fair value through profit or loss (FVTPL) | 311,436 |
| 264,558 | |
| Loans and receivables | 83,239 |
| 69,342 | |
| Trade receivables | 682 |
| 2,017 | |
| Cash and cash equivalents | 134,867 |
| 104,728 | |
|
|
|
|
| |
| Total assets | 530,224 |
| 440,645 | |
|
|
|
|
| |
| Financial liabilities |
|
|
| |
| Valued at amortised cost |
|
|
| |
| - Zero Dividend Preference ("ZDP") shares issued 22 June 2009 | (71,399) |
| - | |
| - Zero Dividend Preference ("ZDP") shares redeemed 22 June 2009 | - |
| (137,858) | |
| Held for trading |
|
|
| |
| - Derivative Instruments | - |
| (45,366) | |
| Trade payables | (1,312) |
| (437) | |
|
|
|
|
| |
| Total liabilities | (72,711) |
| (183,661) | |
Derivative instruments in the above comparrative period represent a forward foreign exchange contracts to hedge exposure to movement in foreign exchange rates in respect of the liabilities on ZDP shares which were redeemed on 22 June 2009.
Loans and receivables presented above represent mezzanine loans.
Financial liabilities measured at amortised cost presented above represent ZDP shares, balances due to brokers and trade payables as detailed in the statement of financial position.
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the Financial Statements.
22. Financial risk and management objectives and policies
Introduction
The Company's objective in managing risk is the creation and protection of shareholder value. Risk is inherent in the Company's activities, but it is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. The process of risk management is critical to the Company's continuing profitability. The Company is exposed to market risk (which includes currency risk, interest rate risk and price risk), credit risk and liquidity risk arising from the financial instruments it holds.
Risk management structure
The Company's Investment Manager is responsible for identifying and controlling risks. The Directors supervise the Investment Manager and are ultimately responsible for the overall risk management approach within the Company.
Risk mitigation
The Company's prospectus set out it's overall business strategies, its tolerance for risk and its general risk management philosophy.
The Company may use derivatives and other instruments for trading purposes and in connection with its risk management activities.
Market risk
Market risk is defined as "the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in variables such as equity price, interest rate and foreign currency rate".
Market price risk
The Company's investments are subject to normal market fluctuations and there can be no assurance that no depreciation in the value of those investments will occur. There can be no guarantee that any realisation of an investment will be on a basis which necessarily reflects the Company's valuation of that investment for the purposes of calculating the Net Asset Value of the Shares.
Although the Company has no direct investments in mortgages or sub-prime debt, the current economic conditions has led to a general economic downturn in the United States where the Company is active and in which its portfolio investments are located. A general economic downturn in these markets could have an adverse effect on the Company's portfolio, which would impact interest income, gains on investments and the level of impairment provisions on loans and receivables.
Changes in industry conditions, competition, political and diplomatic events, tax, environmental and other laws and other factors, whether affecting the United States alone or other countries and regions more widely, can substantially and either adversely or favourably affect the value of the securities in which the Company invests and, therefore, the Company's performance and prospects.
The Company's market price risk is managed through diversification of the investment portfolio across various sectors. The Directors considers each investment purchase to ensure that an acquisition will enable the Company to continue to have an appropriate spread of market risk and that an appropriate risk/reward profile is maintained.
Equity price risk (listed investments)
Equity price risk is the risk of unfavourable changes in the fair values of equity investments as the result of changes in the value of individual shares. The equity price risk exposure arises from the Company's investments in equity securities. The company has three equity investments valued at US$69,642,000 (28 February 2009: US$47,264,000) which are listed on the NASDAQ, and NYSE.
The Company does not generally invest in liquid equity investments and the current portfolio of the listed equity investments result from the successful flotation of unlisted investments.
Management's best estimate of the effect on the net assets attributable to shareholders and on the profit for the year/period due to a reasonably possible change in equity indices, with all other variables held constant is indicated in the table below. In practice, the actual trading results may differ from the sensitivity analysis below and the difference could be material. An equivalent decrease in each of the indices shown below would have resulted in an equivalent, but opposite, impact.
Sensitivity analysis for change in value of listed equity resulting from increase/decrease in relevant indicies:
|
Markets | Change in Indice |
| Carrying Value of Listed Equities |
| Effect on the net assets attributable to shareholders | ||
|
|
|
| 28/02/10 |
| 28/02/10 | ||
|
|
|
| US$ '000 |
| US$ '000 | ||
|
|
|
|
|
|
| ||
| NYSE | 10% |
| 26,782 |
| 2,678 | ||
| NASDAQ | 10% |
| 42,860 |
| 4,286 | ||
|
|
|
| 69,642 |
|
| 6,965 | |
|
Markets | Change in Indice |
| Carrying Value of Listed Equities |
| Effect on the net assets attributable to shareholders | ||
|
|
|
| 28/02/09 |
| 28/02/09 | ||
|
|
|
| US$ '000 |
| US$ '000 | ||
|
|
|
|
|
|
| ||
| NYSE | 10% |
| 11,046 |
| 1,105 | ||
| NASDAQ | 10% |
| 36,218 |
| 3,622 | ||
|
|
|
| 47,264 |
|
| 4,727 | |
The table below analyses the Company's concentration of equity price risk by industrial distribution:
| Industry |
| Percentage of Equity Securities | ||
|
|
| 28/02/10 |
| 28/02/09 |
|
|
|
|
|
|
| Property and Casualty Insurance |
| 61.5% |
| 76.6% |
| Education and Training Services |
| 2.4% |
| 1.6% |
| Rental and Leasing Services |
| 36.1% |
| 21.8% |
|
|
| 100.0% |
| 100.0% |
The Company has certain financial instruments (common stock private investments) that are recorded at fair value using valuation techniques such as an EBITDA multiple model derived either from acquisition/purchase information or observable market data from comparable companies. In some cases an adjustment is made to the acquisition/purchase multiple to reflect the underlying growth of the investment. These are adjusted to reflect counter party credit risk and limitations in the model.
Equity price risk (unlisted investments)
For the financial instruments whose fair value is estimated using valuation techniques with no market observable inputs, the net unrealised amount recorded in the statement of comprehensive income in the year due to changes in the inputs amounts to gains of US$1,082,000 (period ended 28 February 2009:losses of US$10,346,000).
The table below analyses the Company's concentration of common stock private investments by industrial distribution and the Management's best estimate of the effect on the net assets attributable to shareholders and on the increase/(decrease) in profit for the year/period due to a reasonably possible change in the value of EBITDA. In practice, the actual trading results may differ from the sensitivity analysis below and the difference could be material.
| Industry | Carrying Value |
| Percentage of total common stock of private investments |
| Change in EBITDA |
| Effect on the net assets attributable to shareholders |
|
| 28/02/10 |
| 28/02/10 |
|
|
| 28/02/10 |
|
| US$ '000 |
| US$ '000 |
|
|
| US$ '000 |
|
|
|
|
|
|
|
|
|
| Dental Services and Products | 11,700 |
| 36% |
| 10% /-10% |
| 3,775 / (3,755) |
| Apparel | 12,088 |
| 37% |
| 10% /-10% |
| 1,387 / (1,387) |
| Specialized Equipment Manufacturers | 4,400 |
| 13% |
| 10% /-10% |
| 1,080 / (1,080) |
| Pet Supplies | 1,636 |
| 5% |
| 10% /-10% |
| N/A |
| Roofing Supplies | 700 |
| 2% |
| 10% /-10% |
| 268 / (268) |
| Industrial Investment Firms | 975 |
| 3% |
| 10% /-10% |
| N/A |
| Chemical | 1,107 |
| 3% |
| 10% /-10% |
| N/A |
| Other | 136 |
| 0% |
| 10% /-10% |
| N/A |
|
| 32,742 |
| 100% |
|
|
| 6,510 / (6,510) |
| Industry | Carrying Value |
| Percentage of total common stock of private investments |
| Change in EBITDA |
| Effect on the net assets attributable to shareholders |
|
| 28/02/09 |
| 28/02/09 |
|
|
| 28/02/09 |
|
| US$ '000 |
|
|
|
|
| US$ '000 |
|
|
|
|
|
|
|
|
|
| Dental Services and Products | 7,700 |
| 24% |
| 10% /-10% |
| 3,652 / (1,818) |
| Apparel | 12,085 |
| 39% |
| 10% /-10% |
| 1,845 / (1,845) |
| Specialized Equipment Manufacturers | 8,100 |
| 26% |
| 10% /-10% |
| 1,674 / (1,674) |
| Pet Supplies | 1,636 |
| 5% |
| 10% /-10% |
| N/A |
| Industrial Investment Firms | 975 |
| 3% |
| 10% /-10% |
| N/A |
| Chemical | 587 |
| 2% |
| 10% /-10% |
| N/A |
| Strategic Workforce Solutions | 300 |
| 1% |
| 10% /-10% |
| N/A |
| Other | 54 |
| 0% |
| 10% /-10% |
| 0 / (39) |
|
| 31,437 |
| 100% |
|
|
| 7,171 / (5,376) |
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. It has not been the Company's policy to use derivative instruments to mitigate interest rate risk, as the Directors believe that the effectiveness of such instruments does not justify the costs involved.
The table below summarises the Company's exposure to interest rate risks:
|
|
| Fixed rate |
| Floating rate |
| Non interest bearing |
| Total |
|
|
| 28/02/10 |
| 28/02/10 |
| 28/02/10 |
| 28/02/10 |
|
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
|
|
|
| Investments at fair value through profit or loss |
| 173,463 |
| 35,589 |
| 102,384 |
| 311,436 |
| Loans and receivables |
| 83,239 |
| - |
| - |
| 83,239 |
| Other receivables and prepayments |
| - |
| - |
| 682 |
| 682 |
| Cash and cash equivalents |
| - |
| 134,867 |
| - |
| 134,867 |
| Zero Dividend Preference shares |
| (71,399) |
| - |
| - |
| (71,399) |
| Other payables |
| - |
| - |
| (1,312) |
| (1,312) |
|
|
|
|
|
|
|
|
|
|
| Total net assets |
| 185,303 |
| 170,456 |
| 101,754 |
| 457,513 |
|
|
| Fixed rate |
| Floating rate |
| Non interest bearing |
| Total |
|
|
| 28/02/09 |
| 28/02/09 |
| 28/02/09 |
| 28/02/09 |
|
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
|
|
|
| Investments at fair value through profit or loss |
| 157,642 |
| 28,215 |
| 78,701 |
| 264,558 |
| Loans and receivables |
| 69,342 |
| - |
| - |
| 69,342 |
| Other receivables and prepayments |
| - |
| - |
| 2,017 |
| 2,017 |
| Cash and cash equivalents |
| 29,819 |
| 74,909 |
| - |
| 104,728 |
| Zero Dividend Preference shares |
| (137,858) |
| - |
| - |
| (137,858) |
| Forward currency derivative contract |
| (45,366) |
| - |
| - |
| (45,366) |
| Other payables |
| - |
| - |
| (437) |
| (437) |
|
|
|
|
|
|
|
|
|
|
| Total net assets |
| 73,579 |
| 103,124 |
| 80,281 |
| 256,984 |
The income receivable by the Company is not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. However, whilst the income received from fixed rates securities is unaffected by changes in interest rates, the investments are subject to risk in the movement of fair value. The investment adviser considers the risk in the movement of fair value as a result of changes in the market interest rate for fixed rate securities to be insignificant, hence no sensitivity analysis is provided.
Of the money held on deposit, US$134,687,000 (28 February 2009: US$74,909,000) earns interest at variable rates and the income may rise and fall depending on changes to interest rates. US$ nil (28 February 2009: US$29,819,000) is held on fixed deposit and whilst the return is guaranteed future fixed term interest rates may fluctuate. Fixed deposits have a maturity date of less than three months.
The sensitivity of the bank debt's market value is not influenced by a change in prevailing interest rates, because they are floating rate instruments. The market value of bank debt is influenced by factors such as the performance of the issuer and bank liquidity.
The data below demonstrates the sensitivity of the Company's profit/(loss) for the year to a reasonably possible change in interest rates, with all other variables held constant.
The sensitivity of the profit/(loss) on interest received on cash and cash equivalents is the effect of the assumed changes in the daily interest rates throughout the year to 28 February 2010 and eight month period to 28 February 2009, on accounts where cash is held:
The sensitivity of the profit/(loss) for the year on investment income received on bank debt is the effect of the assumed changes in the 3 month libor on which the interest paid was derived.
| Change in basis points Increase/(decrease) |
| Sensitivity of interest income Increase/(decrease) receivable on cash and cash equivalents |
| Sensitivity of investment income Increase/(decrease) receivable on bank debt | ||
|
|
| 28/02/10 | 28/02/09 |
| 28/02/10 | 28/02/09 |
|
|
| US$ '000 | US$ '000 |
| US$ '000 | US$ '000 |
|
|
|
|
|
|
| |
| +25 / -25 |
| 312 / (265) | 229 / (201) |
| 153 / (153) | 111 / (111) |
| +100 / -100 |
| 1,005 / (461) | 1,565 / (295) |
| 614 / (614) | 444 / (444) |
The following table analyses the Company's interest rate exposure in terms of the assets and liabilities maturity dates.
|
| 0-3 months |
| 4-12 months |
| 1-2 years |
| 2-5 years |
| More than 5 years |
| No maturity date |
| Non- interest bearing |
| Total | |||||
|
| 28/02/10 |
| 28/02/10 |
| 28/02/10 |
| 28/02/10 |
| 28/02/10 |
| 28/02/10 |
| 28/02/10 |
| 28/02/10 | |||||
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Cash and cash equivalents | 134,867 |
| - |
| - |
| - |
| - |
| - |
| - |
| - | |||||
| Financial asset at fair value through profit or loss | - |
| 13,743 |
| 16,464 |
| 76,473 |
| - |
| 102,539 |
| 102,217 |
| 311,436 | |||||
| Loans and receivables | - |
| 3,989 |
| - |
| 79,156 |
| - |
| 94 |
| - |
| 83,239 | |||||
| Zero Dividend Preference Shares | - |
| - |
| - |
| - |
| (71,399) |
| - |
| - |
| (71,399) | |||||
| Other receivables / payables | - |
| - |
| - |
| - |
| - |
| - |
| (630) |
| (630) | |||||
|
| 134,867 |
| 17,732 |
| 16,464 |
| 155,629 |
| (71,399) |
| 102,633 |
| 101,587 |
| 457,513 | |||||
|
|
| 0-3 months |
| 4-12 months |
| 1-2 years |
| 2-5 years |
| More than 5 years |
| No maturity date |
| Non- interest bearing |
| Total | ||||
|
|
| 28/02/09 |
| 28/02/09 |
| 28/02/09 |
| 28/02/09 |
| 28/02/09 |
| 28/02/09 |
| 28/02/09 |
| 28/02/09 | ||||
|
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Cash and cash equivalents | 104,728 |
| - |
| - |
| - |
| - |
| - |
| - |
| 104,728 | ||||
|
| Financial asset at fair value through profit or loss | - |
| - |
| 10,571 |
| 54,219 |
| 31,555 |
| 89,512 |
| 78,701 |
| 264,558 | ||||
|
| Loans and receivables | - |
| - |
| 4,083 |
| 41,193 |
| 24,066 |
| - |
| - |
| 69,342 | ||||
|
| Zero Dividend Preference Shares | - |
| (137,858) |
| - |
| - |
| - |
| - |
| - |
| (137,858) | ||||
|
| Forward currency deals awaiting settlement | - |
| - |
| - |
| - |
| - |
| - |
| (45,366) |
| (45,366) | ||||
|
| Other receivables / payables | - |
| - |
| - |
| - |
| - |
| - |
| 1,580 |
| 1,580 | ||||
|
|
| 104,728 |
| (137,858) |
| 14,654 |
| 95,412 |
| 55,621 |
| 89,512 |
| 34,915 |
| 256,984 | ||||
The Directors monitor the Company's overall interest sensitivity on a regular basis by reference to prevailing interest rates and the level of the Company's cash balances. The Company has not used derivatives to mitigate the impact of changes in interest rates.
Credit risk
The Company takes on exposure to credit risk, which is the risk that a counterparty to a financial instrument will cause a financial loss to the Company by failing to discharge an obligation. These credit exposures exist within AFVPL, debt investments, loans and receivables, cash & cash equivalents and derivatives.
They may arise, for example, from a decline in the financial condition of a counterparty, from entering into derivative contracts under which counterparties have obligations to make payments to the Company. As the Company's credit exposure increases, it could have an adverse effect on the Company's business and profitability if material unexpected credit losses were to occur.
In the event of any default on the Company's loan investments by a counterparty, the Company will bear a risk of loss of principal and accrued interest of the investment, which could have a material adverse effect on the Company's income and potential to pay dividends to Shareholders and to redeem the ZDP Shares.
In accordance with the Company's policy, the Directors monitor the Company's credit position on a regular basis, through the investment adviser by reviewing the financial statements, budgets and forecasts of underlying investee companies.
The table below analyses the Company's maximum exposure to credit risk. The maximum exposure is shown gross at the reporting date.
|
|
| Total |
| Total |
|
|
| 28/02/2010 |
| 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Bank Debt | 35,589 |
| 28,895 | |
| Legacy Portfolio Debt | 17,660 |
| 29,180 | |
| Mezzanine Debt | 83,239 |
| 70,978 | |
| Micro Cap Debt | 155,803 |
| 158,263 | |
| Cash and cash equivalents | 134,867 |
| 104,728 | |
| Accrued dividend income | 324 |
| 1,121 | |
|
|
|
|
| |
|
| 427,482 |
| 393,165 | |
A proportion of Micro Cap and Mezzanine debt held does not entitle the Company to interest payment in cash. This interest is capitalised (PIK) and as a result has substantial credit risk as there is no return to the Company until the loan plus all the interest, is repaid in full. Of the US$12,640,000 (period ended 28 February 2009:US$7,275,000) interest receivable on investments classified as loans and receivables US$6,193,000 (28 February 2008:US$3,657,000) was receivable in the form of PIK Investments. There is no collateral held in respect of Mezzanine debt forming the loans and receivables.
The Company restricts the exposure to credit losses on the derivative instrument it holds by entering into a master netting arrangements with the counterparty. Such an arrangement provides for a single net settlement of the financial instrument covered by the agreement in the event of default. No such derivative instrument was held at the year end (28 February 2009: US$45,366,000 loss on derivative).
An impairment review is performed on a bi-annual and/or quarterly basis and this impairment review is further considered by the Directors on an investment by investment basis.
The movement in the allowance for impairment in respect of loans and receivables during the year was as follows:
|
|
| 28/02/2010 |
| 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Balance at beginning of year /period | (29,035) |
| (10,982) | |
| Impairment on PIK valued at nil | (4,319) |
| - | |
| Impairment write back/(Impaired loss) recognised in SCI | 6,113 |
| (18,053) | |
|
|
|
|
| |
| Balance at year / period end | (27,241) |
| (29,035) | |
A provision of US$4,394,000 (period ended 28 February 2009:US$1,596,000) was offset against total interest of US17,034,000 (period ended 28 February 2009:$US$8,871,000) for the year on investments classified as loans and receivable.
The table below analyses the Company's investments that are either past due or impaired.
|
|
|
|
| Directors' valuation | Directors' valuation | |||||||||
|
|
|
|
| Impaired |
| Past due |
| Total |
| Impaired |
| Past due |
| Total |
|
|
|
|
| 28/02/10 |
| 28/02/10 |
| 28/02/10 |
| 28/02/09 |
| 28/02/09 |
| 28/02/09 |
|
|
|
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| Legacy portfolio |
|
|
| - |
| - |
| - |
| - |
| 1,674 |
| 1,674 |
| Mezzanine portfolio |
|
|
| 4,250 |
| - |
| 4,250 |
| 15,500 |
| - |
| 15,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
| 4,250 |
| - |
| 4,250 |
| 15,500 |
| 1,674 |
| 17,174 |
Mezzanine investments typically have no or a limited trading market and therefore such investments will be illiquid, therefore the Company's ability to sell them in the short term may be limited.
It is the Company's policy that the Investment Manager closely monitors the counterparty's creditworthiness of mezzanine debt and other loans and receivables and upon unfavourable change, may seek to terminate the agreement or to obtain collateral. The creditworthiness is monitored by the reviewing of quarterly covenant agreements and by the Investment Manager having board representation on a significant number of these investees. The Company has also diversified its portfolio across different industry sectors.
Bank debt designated at fair value through profit or loss
The Company has also invested in bank debt with investment grade credit ratings as rated by Moody's detailed below:
| Credit rating - Bank debt First and Second Lien |
| Percentage of debt instruments | ||
|
|
| 28/02/2010 |
| 28/02/2009 |
|
|
|
|
| |
| B | 10% |
| - | |
| B+ | 5% |
| 6% | |
| BB- | 20% |
| 25% | |
| B- | 3% |
| 3% | |
| CCC+ | 35% |
| 29% | |
| No rating | 27% |
| 37% | |
|
| 100% |
| 100% | |
The following table analyses the concentration of credit risk in the Company's debt portfolio by industrial distribution.
|
|
| 28/02/2010 |
| 28/02/2009 |
|
| US$'000 |
| US$'000 | |
|
|
|
|
| |
| Healthcare Services & Equipment | 27% |
| 32% | |
| House, Leisure & Personal Goods | 12% |
| 14% | |
| Construction & Materials | 26% |
| 20% | |
| Support Services | 25% |
| 24% | |
| Industrial Engineering | 8% |
| 5% | |
| Electronic & Electrical Equipment | 2% |
| 3% | |
| Tech - Software Services | 1% |
| 1% | |
|
| 100% |
| 100% | |
The table below analyses the Company's cash and cash equivalents by rating agency category.
|
| Credit ratings |
|
|
|
| ||
|
| Moody's Outlook |
| Fitch LT Issuer Default Rating |
| 28/02/10 |
| 28/02/09 |
|
|
|
|
|
| US$ '000 |
| US$ '000 |
| HSBC Bank USA NA | Negative |
| AA |
| 134,588 |
| 29,818 |
| Butterfield Bank (Guernsey) Limited | Stable |
| A- |
| 279 |
| 266 |
| JP Morgan Chase & Co | Negative |
| AA- |
| - |
| 74,644 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 134,867 |
| 104,728 |
Bankruptcy or insolvency of the Banks may cause the Company's rights with respect to these assets to be delayed or limited. The Directors monitor risk by reviewing the credit rating of the Bank. If credit quality deteriorates, the Investment Adviser may move the holdings to another bank.
Liquidity risk
Liquidity risk is defined as the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk arises because of the possibility that the Company could be required to pay its liabilities earlier than expected.
Many of the Company's investments are private equity, mezzanine loans and other unlisted investments. By their nature, these investments will generally be of a long term and illiquid nature and there may be no readily available market for sale of these investments.
There are partial restrictions on the saleability of the listed investments amounting to US$10,541,000 (28 February 2009: US$4,331,000) (being 42% of TAL International Group, Inc,) whilst the majority of the investment in Universal Technical Institute, Inc. has been sold, Jordan/Zalaznick Advisers, Inc. ("JZAI") is looking for the opportunity to realise, Safety Insurance and TAL International Group, Inc. subject to market conditions.
The table below and overleaf analyses the Company's financial liabilities into relevant maturity groups based on the remaining period at the reporting date to the contractual maturity date. The amounts in the table are not discounted to the net present value of the future cash outflows as it is not considered significant.
| At 28 February 2010 | Less than 1 month |
| 2-12 months |
| 1-5 years |
| >5 years |
| No stated maturity |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other payables | 1,312 |
| - |
| - |
| - |
| - |
| Zero Dividend Preference shares | - |
| - |
| - |
| 116,683 |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,312 |
| - |
| - |
| 116,683 |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At 28 February 2009 | Less than 1 month |
| 2-12 months |
| 1-5 years |
| >5 years |
| No stated maturity |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Forward currency derivative contract | - |
| 188,820 |
| - |
| - |
| - |
| Other payables | 119 |
| 318 |
| - |
| - |
| - |
| Zero Dividend Preference shares | - |
| 137,858 |
| - |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 119 |
| 326,996 |
| - |
| - |
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a capital requirement to pay ZDP shareholders a pre determined final capital entitlement of 365.28 pence on 22 June 2016. As at 28 February 2010 the liability to the ZDP shareholders amounted to US$71,399,000. The Company will manage the amounts of cash and cash equivalents held by the Company in order to meet its obligations at redemption date.
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates
Zero dividend preference shares are denominated in Sterling. The Company has an obligation to redeem the ZDP shareholders on 22 June 2016. The total liability on the redemption date, 22 June 2016, will be GBP76,583,969. The Company currently has no hedge to manage this risk to Sterling. At 28 February 2009 the exposure to the ZDP liability was managed by the Directors due to a forward currency contract in place at the time.
The following table sets out the Company's exposure to foreign currency risk.
| At 28 February 2010 |
|
|
|
| US dollar |
| GB sterling |
| Total |
|
|
|
|
|
| 28/02/10 |
| 28/02/10 |
| 28/02/10 |
|
|
|
|
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| Assets |
|
|
|
|
|
|
|
|
|
| Financial asset at fair value through profit or loss |
| 311,436 |
| - |
| 311,436 | |||
| Loans and receivables |
|
|
|
| 83,239 |
| - |
| 83,239 |
| Other receivables |
|
|
|
| 368 |
| 314 |
| 682 |
| Cash and cash equivalents |
|
|
|
| 134,867 |
| - |
| 134,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
|
|
| 529,910 |
| 314 |
| 530,224 |
|
|
|
|
|
|
|
|
|
|
|
| Liabilities |
|
|
|
|
|
|
|
|
|
| Zero Dividend Preference shares |
|
|
|
| - |
| 71,399 |
| 71,399 |
| Other payables |
|
|
|
| 974 |
| 338 |
| 1,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities |
|
|
|
| 974 |
| 71,737 |
| 72,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net currency exposure |
|
|
|
| 528,936 |
| (71,423) |
| 457,513 |
|
|
|
|
|
|
|
|
|
|
|
| At 28 February 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| US dollar |
| GB sterling |
| Total |
|
|
|
|
|
| 28/02/09 |
| 28/02/09 |
| 28/02/09 |
|
|
|
|
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| Assets |
|
|
|
|
|
|
|
|
|
| Financial asset at fair value through profit or loss |
| 264,558 |
| - |
| 264,558 | |||
| Loans and receivables |
|
|
|
| 69,342 |
| - |
| 69,342 |
| Other receivables |
|
|
|
| 1,498 |
| 519 |
| 2,017 |
| Cash and cash equivalents |
|
|
|
| 104,728 |
| - |
| 104,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total assets |
|
|
|
| 440,126 |
| 519 |
| 440,645 |
|
|
|
|
|
|
|
|
|
|
|
| Liabilities |
|
|
|
|
|
|
|
|
|
| Zero Dividend Preference shares |
|
| - |
| 137,858 |
| 137,858 | ||
| Forward currency derivative contract |
|
|
|
| 188,820 |
| (143,454) |
| 45,366 |
| Other payables |
|
|
|
| 249 |
| 188 |
| 437 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total liabilities |
|
|
|
| 189,069 |
| (5,408) |
| 183,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net currency exposure |
|
|
|
| 251,057 |
| 5,927 |
| 256,984 |
|
|
|
|
|
|
|
|
|
|
|
23. Fair value of financial instruments
The Company adopted the amendment to IFRS 7, effective 1 January 2009. This requires the Compamy to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The financial assets valued at fair value are analysed in a fair value hierarchy based on the following levels:
• Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).
• 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) (level 2).
• Those involving inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant judgement by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
The following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on:
| Financial assets at 28 February 2010 | Level 1 |
| Level 2 |
| Level 3 |
| Total |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| Financial assets designated at fair value through profit or loss at inception: |
|
|
|
|
|
|
|
| Listed Securities | 69,642 |
| - |
| - |
| 69,642 |
| Legacy portfolio | - |
| - |
| 31,845 |
| 31,845 |
| Bank debt | - |
| 23,919 |
| 11,670 |
| 35,589 |
| Mezzanine portfolio | - |
| - |
| 2,457 |
| 2,457 |
| Micro Cap portfolio | - |
| - |
| 171,903 |
| 171,903 |
|
|
|
|
|
|
|
|
|
|
| 69,642 |
| 23,919 |
| 217,875 |
| 311,436 |
When fair values of listed equity and debt securities at the reporting date are based on quoted market prices or binding dealer price quotations (bid prices for long positions) , without any deduction for transaction costs, the instruments are included within Level 1 of the hierarchy.
The fair values of Bank debt which is provided by a broker is classified as level 2. The fair value of bank debt which is derived from unobservable data is classified as level 3. JJKenny) or a vendor (e.g., Reuters/Bloomberg), or broker or custodian.
The fair values of investments in the Micro Cap, Legacy and Mezzanine portfolios for which there are no active market, are calculated using a valuation model which is accepted in the industry. The model calculates the fair value by applying an appropriate multiple (based on comparable quoted companies, recent acquisition prices and quotes) to the Company's last twelve months EBITDA and deducting a market liquidity discount. The multiples used and marketability discount are classified as unobservable inputs therefore investments are classified as level 3.
Transfers between levels
There were no transfers between the levels of hirearchy of financial assets recognised at fair value within the year ended 28 February 2010.
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.
At 28 Februay 2010
|
| Bank Debt |
| Mezzanine Portfolio |
| Micro Cap Portfolio |
| Legacy Portfolio |
| Total |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
| At 1 March 2009 | 11,900 |
| 1,636 |
| 158,263 |
| 29,180 |
| 200,979 |
| Purchases | 1,393 |
| - |
| 7,104 |
| 2,157 |
| 10,654 |
| PIK adjusted for fair value | - |
| - |
| 10,674 |
| 1,498 |
| 12,172 |
| Disposals | - |
| - |
| (1,801) |
| - |
| (1,801) |
| Net gains and losses recognised in statement of comprehensive income |
(1,623) |
|
821 |
|
(2,337) |
|
(990) |
|
(4,129) |
|
|
|
|
|
|
|
|
|
|
|
| At 28 February 2010 | 11,670 |
| 2,457 |
| 171,903 |
| 31,845 |
| 217,875 |
The following table details the revenues and net gains inluded within the the statement of comprehensive income for investments classified at Level 3 which were still held at the year end.
|
| Bank Debt |
| Mezzanine Portfolio |
| Micro Cap Portfolio |
| Legacy Portfolio |
| Total |
|
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
|
|
|
|
|
| Interest revenue | 2,942 |
| 12,641 |
| 15,709 |
| 2,387 |
| 33,679 |
| Net gain/(loss) on investments at fair value through profit or loss | (1,623) |
| 821 |
| (2,337) |
| (1,756) |
| (4,895) |
|
|
|
|
|
|
|
|
|
|
|
|
| 1,319 |
| 13,462 |
| 13,372 |
| 631 |
| 28,784 |
For the investments measured at Level 3 at the reporting date, the Company adjusted the default rate, and discount rate assumptions within a range of reasonably possible alternatives. The extent of the adjustment varied according to the characteristics of each security.
The potential effect of using reasonably possible alternative assumptions for valuing financial instruments classified as Level 3 at the reporting date would reduce the fair value by up to USD6,510,000 or increase the fair value by USD6,510,000.
The fair value of financial assets and financial liabilities measured at amortised cost are determined as follows:
- The fair value of the Zero Dividend Preference shares is deemed to be their quoted market price. As at 28 February 2010 the ask price was £2.5150 (28 February 2009: £2.035 per share the total fair value of the ZDP shares was US$79,346,741 (28 February 2009:US$133,321,000) which is US$7,632,010 higher (28 February 2009:US$4,537,000 lower) than the liability recorded in the statement of financial position.
The carrying amounts of loans and receivables are recorded at amortised cost using the effective interest method in the financial statements. The fair value of loans and receivables at 28 February 2010 was US$83,239,000 (28 February 2009: US$69,342,000).
The carrying amounts of trade receivables and trade payables are deemed to be their fair value due to their short term nature.
24. Basic and Diluted Earnings per share
Basic and diluted earnings per share are calculated by dividing the earnings/(loss) for the year by the weighted average number of Ordinary shares outstanding during the year.
The weighted average number of shares has been calculated as follows:
|
|
|
|
| Restated |
|
|
| 28/02/2010 |
| 28/02/2009 |
|
| Number of Ordinary shares | |||
|
|
|
|
| |
| Qualifying shares at beginning of the year before the 1 for 5 share consolidation (See Note 18) | 325,093,053 |
| 97,527,916 | |
| Qualifying shares at beginning of the year after the 1 for 5 share consolidation and after time apportionment | 50,928,276 |
| 19,505,583 | |
| Effect of the bonus element of the new shares issued | 532,624 |
| 1,720,424 | |
|
|
|
|
| |
| Weighted average number of Ordinary shares | 51,460,900 |
| 21,226,007 | |
The weighted average number of Ordinary shares is based on the average number of Ordinary shares in issue during that period. On 22 June 2009 a Placing and Open Offer of Ordinary Shares resulted in 117,037,749 Ordinary and 110,527,388 Limited Voting Ordinary shares being issued at the price of 42 pence. The Ordinary shares were subsequently consolidated on the basis all holders of Ordinary shares will hold one Ordinary share for every five Ordinary Shares held immediately prior to the share consolidation.
The weighted average of shares for the year ended 28 February 2010 has been computed assuming the shares in issue for the period 1 March 2009 to 22 June 2009 had also been subject to the 1 for 5 share consolidation and adjusted by a 1.09 adjustment factor in respect of the bonus element of new shares issued*.The weighted average of the number of Ordinary shares in issue during the period ended 28 February 2009 have been restated assuming they were also subject to the one share for five consolidation and the 1.09 adjustment factor representing the bonus element of the new shares being issued at a discount.
*Adjustment factor is calculated using the fair value (47.5 pence) per share at issue date as the numerator and the theoretical ex-right price (43.7 pence) per share as a denominator.
25. Net Asset Value Per Share
The net asset value per Ordinary share of US$7.04 is based on the net assets at the year end of US$457,513,000 and on 65,018,610 Ordinary shares, being the number of Ordinary shares in issue at the year end. The net asset value per share at 28 February 2009 of US$13.18 is based on the net assets at the year end of US$256,984,000 and on 19,505,583 Ordinary shares, being the number of Ordinary shares in issue at 28 February 2009 adjusted for the 1 for 5 share consolidation on 22 June 2009. The net asset value per Ordinary share previously reported at 28 February 2009 was US$2.63.
26. Notes to the Cash Flow Statement
Reconciliation of the profit/(loss) for the year/period to net cash from operating activities
|
|
| Year ended 28/02/2010 |
| Period ended 28/02/2009 |
|
|
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
| Profit/(loss) for the year/period |
| 56,959 |
| (91,992) |
| Cash inflow from investments held in escrow accounts |
| - |
| (4,102) |
| Increase in other payables |
| 578 |
| 437 |
| Decrease/(Increase) in receivables relating to operating activities | 1,195 |
| (1,538) | |
| Net unrealised gains/(losses) |
| (32,071) |
| 101,973 |
| Net foreign currency exchange gains/(losses) |
| (3,839) |
| 3,849 |
| Realised gain on investments - financing activity |
| (768) |
| - |
| Realised loss on foreign exchange translation |
| (317) |
| - |
| Interest on investments received as PIK adjusted for increase in accrued interest | (19,358) |
| (13,093) | |
| Finance costs in respect of Zero Dividend Preference shares | 7,668 |
| 7,851 | |
|
|
|
|
| |
| Net cash from operating activities | 10,047 |
| 3,385 | |
|
|
| Year ended 28/02/2010 |
| Period ended 28/02/2009 |
| Investment income received during the year |
| US$ '000 |
| US$ '000 |
|
|
|
|
|
|
| Interest on investments |
| 15,633 |
| 8,575 |
| Interest on short term fixed deposits |
| 70 |
| 669 |
| Dividends from listed investments |
| 2,705 |
| 648 |
| Bank interest |
| 355 |
| 188 |
| Other income |
| 2,027 |
| 41 |
|
|
|
|
|
|
|
|
| 20,790 |
| 10,121 |
Purchases and sales of investments are considered to be operating activities of the Company, given its purpose, rather than investing activities. The cash flows arising from these activities are shown in the Cash Flow Statement.
27. Commitments and Contingent Liabilities
The Company has no financial commitments or contingent liabilities as at 28 February 2010. At 28 February 2009 the Company had an outstanding forward foreign exchange contract to purchase £100,000,000 at the contracted rate of £1: US$1.8882 which was settled during the year realising a loss of US$26,923,000.
28. Related Party Transactions
The remuneration of the Directors is disclosed in Note 11.
In March 2004, JZEP invested US$17,500 in shares of JII Holdings LLC, a subsidiary of Jordan Industries, Inc (Transferred to JZCP on 1 July 2008). The Company did not receive any income from this investment during the year ended 28 February 2010.
In November 2001, JZEP invested US$15,279 in the Common Stock of JZ International LLC ("JZI") a company managed by affiliates Jordan/Zalaznick Advisers, Inc. In 2007, a further investment was made by JZEP in JZI of US$ 424,417 in Convertible Senior Preferred Units. The investment was subsequently transferred to JZCP as part of the in specie transfer dated 1 July 2008. At 28 February 2010 the investment was valued at US$1,684,000 (28 February 2009: US$1,400,000).
In July 1998, JZEP invested US$114,000 in the Common Stock of Gramtel, LLC., Jordan Industries, Inc., Jordan Speciality Plastics, Inc., Jordan Aftermarkets, Inc. and Motors & Gears Holdings, Inc., which are affiliates of Jordan/Zalanick Advisers, Inc. The investments were subsequently transferred to JZCP as part of the in specie transfer dated 1 July 2008. The Company has not received any income from these investments during the year and the investments in the portfolio were valued at US$ nil (28 February 2009: US$ nil).
In 2007, JZEP invested US$ 250,000 in ETX Holdings, Inc. which was a spin off of Jordan Auto Aftermarket Holdings, Inc., a former co-investment with The Jordan Company. The investment was subsequently transferred to JZCP as part of the in specie transfer dated 1 July 2008. A further investment of US$50,000 was made in ETX Holdings, Inc during the year ended 28 February 2010 the Company did not receive any income from this investment during the year. At 28 February 2010 the investment was valued at US$463,000 (28 February 2009: US$379,000).
Jordan/Zalaznick Advisers, Inc. (JZAI), a US based company, provides advisory services to the board of Directors of the Company in exchange for management fees, paid quarterly. Fees paid by the Company to the Investment Advisor are detailed in Note 11.
During the year ended 28 February 2010, the Company retained Ashurst LLP, a UK based law firm. David Macfarlane was a former Senior Corporate Partner at Ashurst until 2002.
The Company has invested in deals with The Resolute Fund, which is managed by Jordan Company, a company which is owned jointly by David Zalaznick and Jay Jordan. These investments include: Harrington Holdings, Inc.; Kinetek, Inc.; Sechrist Industries, Inc.; TAL International Group, Inc.; and Woundcare Services, Inc. and represent an aggregate value of US$76,688,000 at 28 February 2010 (28 February 2009: US$57,599,000).
Jay Jordan and David Zalaznick each purchased a further 9,020,099 Ordinary shares and 10,304,708 Limited Voting Ordinary shares on 22 June 2009. These shares were subsequently consolidated at 1 share for every 5. The share acquisition by David Zalaznick and Jay Jordan was approved by the Ordinary Shareholders at the EGM held on 18 June 2009.
Patrick Firth is a Director of the Company and was formerly Managing Director of Butterfield Fulcrum Group (Guernsey) Limited. Fees paid by the Company to the Administrator are detailed in Note 11.
29. Controlling Party
The issued shares of the Company are owned by a number of parties, and therefore, in the opinion of the Directors, there is no ultimate controlling party of the Company, as defined by IAS 24 - Related Party Disclosures.
30. Contingent assets
Investments had been disposed of by JZEP, of which the consideration given included contractual terms requiring that a percentage was held in an escrow account pending resolution of any indemnifiable claims that may arise. At 28 February 2010 the Company has assessed that the fair value of these investments is nil as it is not reasonably probable that these investments will be realised by the Company.
As at 28 February 2010, the Company had the following contingent assets held in Escrow accounts which had not been recognised as assets of the Company:
| Company |
| Amount in Escrow | ||
|
|
| 28/02/2010 |
| 28/02/2009 |
|
|
| US$'000 |
| US$'000 |
|
|
|
|
|
|
| Lincoln Holdings, Inc. |
| 995 |
| 995 |
| N&B Industries, Inc. |
| 776 |
| 776 |
| Recycled Holdings Corporation |
| 1,300 |
| 1,300 |
|
|
|
|
|
|
|
|
| 3,071 |
| 3,071 |
31. Dividends paid and proposed
In accordance with the Prospectus, it is the Directors' intention to distribute substantially all of the Company's net cash income (after expenses) in the form of dividends paid in US dollars (Shareholders can elect to receive dividends in Sterling).
An interim dividend of 9.0c per Ordinary share (total US$5,851,675) was declared by the Board on 29 October 2009 and paid on 4 December 2009.
A second interim dividend of 6.5c per Ordinary share (total US$4,226,210) was declared by the Board on 4 March 2010 and paid on 1 April 2010.
32. Subsequent events
A second interim dividend of 6.5c per Ordinary share (total US$4,226,210) was declared by the Board on 4 March 2010 and paid on 1 April 2010.
After the year end, two of the Company's investments repaid their subordinated debt obligations, resulting in a total repayment of US$15,700,000 which represented the fair value of the investments at 28 February 2010.
Useful Information for Shareholders
Listing
JZCP Ordinary and Zero Dividend Preference shares are listed on the Official List of the Financial Services Authority of the UK, and are admitted to trading on the London Stock Exchanges market for listed securities. The ticker symbols are "JZCP" and "JZCN" respectively.
The prices of the Ordinary and Zero Dividend Preference shares are shown in the Financial Times under "Investment Companies - Ordinary Income Shares" and "Investment Companies - Zero Dividend Preference Shares" as "JZ Capital" respectively.
Financial diary
Annual General Meeting June 2010
Interim report for the six months to 31 August 2010 October 2010
In accordance with the Transparency Directive JZCP will be issuing an Interim Management Statement for the quarters ended 31 May 2010 and 30 November 2010. These Statements will be sent to the market via RNS within six weeks from the end of the appropriate quarter, and will be posted on JZCP's website at the same time, or soon thereafter.
Payment of dividends
Cash dividends will be sent by cheque to the first-named shareholder on the register of members at their registered address, together with a tax voucher. At shareholders' request, where they have elected to receive dividend proceeds in GBP Sterling, the dividend may instead be paid direct into the shareholder's bank account through the Bankers' Automated Clearing System. Payments will be paid in US dollars unless the shareholder elects to receive the dividend in Sterling. Existing elections can be changed by contacting the Company's Transfer and Paying Agent, Equiniti Limited on +44 (0) 121 415 7047.
Share dealing
Investors wishing to buy or sell shares in the Company may do so through a stockbroker. Most banks also offer this service.
Internet address
The Company: www.jzcp.com
ISIN/SEDOL numbers
The ISIN code/SEDOL (Stock Exchange Daily Official List) numbers of the Company's Ordinary shares are GC00B2RK0R31/B2RK0R3 and the numbers of the Zero Dividend Preference shares are GC00B40D7X85/B40D7X8.
Share register enquiries
The Company's UK Transfer and Paying Agent, Equiniti Limited, maintains the share registers. In event of queries regarding your holding, please contact the Registrar on +44 (0) 121 415 7047 or access their website at www.equiniti.com. Changes of name or address must be notified in writing to the Transfer and Paying Agent.
Nominee share code
Where notification has been provided in advance, the Company will arrange for copies of shareholder communications to be provided to the operators of nominee accounts. Nominee investors may attend general meetings and speak at meetings when invited to do so by the Chairman.