Interim Report and Financial Statements
For the period from 1 March 2022 to 31 August 2022
Interim Report
Who We Are 1
Performance and Results Highlights 2
Chairman’s Statement 4
Investment Adviser’s Report 6
Board of Directors 10
Report of the Directors 11
Investment Portfolio 15
Independent Review Report 18
Unaudited Condensed Interim Financial Statements (the “Interim Financial Statements”)
Statement of Comprehensive Income (Unaudited) 19 Statement of Financial Position (Unaudited) 20
Statement of Changes in Equity (Unaudited) 21
Statement of Cash Flows (Unaudited) 22
Notes to the Interim Financial Statements (Unaudited) 23
Company Advisers 42
Useful Information for Shareholders 43
Numbers in the Interim Report and Financial Statements are quoted in US dollar (“$”) unless otherwise stated.
Corporate Objective
JZ Capital Partners Limited (“JZCP” or the “Company”) seeks to maximise the value of its investments in its US and European micro-cap companies and US real estate, to repay debt and to return capital to shareholders.
About Us
JZCP has investments in US and European micro-cap companies, as well as real estate properties in the US.
JZCP’s Investment Adviser is Jordan/Zalaznick Advisers, Inc. (“JZAI”) which was founded by David Zalaznick and Jay Jordan in 1986. JZAI has investment professionals in New York, Chicago, London and Madrid.
In August 2020, the Company’s shareholders approved changes to the Company’s investment policy. Under the new policy, the Company will make no further investments except in respect of which it has existing obligations and to continue selectively to support the existing portfolio. The intention is to realise the maximum value of the Company’s investments and, after repayment of all debt, to return capital
to shareholders.
JZCP is a Guernsey domiciled closed-ended investment company authorised by the Guernsey Financial Services Commission. JZCP’s shares trade on the Specialist Fund Segment of the London Stock Exchange.
During the period from 1 March 2022 to 31 August 2022, the Company received distributions and realisation proceeds in excess of $100 million.
JZHL Secondary Fund
Proceeds ($ millions)
Distributions following the successful realisations of Flow Control and Testing Services | 97.4 |
New Vitality | 7.4 |
Other including escrow receipts | 1.2 |
106.0 | |
Net Asset Value (“NAV”) per Share and Total NAV Returns |
NAV per share at 31 August 2022 was $4.71 (28 February 2022: $4.29). NAV returns below are presented in US Dollar terms and on a dividend reinvested basis and for periods ended 31 August 2022.
6 Months | 1 Year | 3 Year | 5 Year | 7 Year | 10 Year | |
Total NAV return | 9.8% | 15.4% | -51.2% | -52.3% | -53.8% | -42.2% |
Following table presents the Company’s year to date NAV performance by sector:
$5.00
$4.90
$4.80
$4.70
$4.60
$4.50
$4.40
$4.30
$4.20
$4.10
NAV at 1 March 2022
$4.00
- Real estate
$4.29
$0.66
$(0.03)
$(0.01)
$(0.01)
$(0.06)
$(0.07)
$(0.06)
$4.71
+ US micro-cap
- European micro-cap
- Other portfolio
- Finance costs
- Expenses and taxation
- Other foreign exchange
NAV at 31 August 2021
Increase Decrease Total
6 Months | 1 Year | 3 Year | 5 Year | 7 Year | 10 Year | |
Total Shareholder return | 62.9% | 42.5% | -64.5% | -66.0% | -57.4% | -40.0% |
31.8.2015 | 31.8.2017 3 | 1.8.2019 | 31.8.2021 | 31.8.2022 | ||||
Discount -37.4% | -32.8% | -39.2% | -59.5% | -57.8% | ||||
NAV per Share versus Share Price | ||||||||
$12.00 | ||||||||
$10.00 | $9. $9.38 | $10 | .11 $10.40 $9. | 88 | 82 $9.66 | |||
$8.00 | $7. | 35 $7. | 21 | |||||
$6.00 | $5.55 | $5.93 | 64 $5 | .77 $5. | 87 | |||
$4.00 | $4.60 $4.08 $4.71 | |||||||
$2.00 | $1.19 $1.65 $1.99 | |||||||
JZCP’s share price at 31 August 2022 was £1.71 (28 February 2022: £1.05).
The data below shows the theoretical discount of the period end share price and the period end NAV per share and does not factor in the timing delay in announcing the period end NAV to the market.
$10.67
87
$9.
$6.
$0.00
August August August August August August August August August August August 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
NAV per Share
Share price ($ equivalent of £ quoted price)
Total NAV return, Total Shareholder returns and NAV to Market Price discount are classified as Alternative Performance Measurements under European Securities and Market Authority guidelines and are further explained on pages 43 and 44 under Useful Information for Shareholders.
$6.67
David Macfarlane
The Directors are pleased to present the Interim Results of the Company for the six-month period ended 31 August 2022, which show that the NAV per share of the Company has increased approximately 10%, from $4.29 as of 28 February 2022 to $4.71 as of 31 August 2022.
This substantial increase is in large part due to write-ups and realisations above NAV in the JZHL Secondary Fund LP portfolio (the “Secondary Fund”), in which the Company holds a Special Limited Partnership interest.
The past year and a half have been transformational for the Company. Major realisations, notably those of Salter Labs, Flow Control and Testing Services (the latter two in the Secondary Fund), increased the Company’s NAV and generated substantial liquidity.
In addition to these realisations, affiliates of David Zalaznick and Jay Jordan provided the Company with a $31.5 million facility of Subordinated Notes, which maturity was recently extended to
30 September 2023.
The Company redeemed in full its £38.8 million of Convertible Unsecured Loan Stock and £57.6 million of Zero Dividend Preference Shares on their respective maturity dates. Consequently, the Company’s outstanding debt has been reduced to
a $45 million senior term loan facility (the “Senior Term Loan Facility”) due 26 January 2027 and the
$31.5 million of Subordinated Notes due
30 September 2023. The Senior Term Loan Facility may be repaid early without penalty once the senior lender has received an aggregate return of 15%. No early repayment charges apply to the Subordinated Notes. In addition, the Senior Credit Facility provides for up to an additional $25 million in first lien delayed draw term loan, none of which has been drawn
on so far. The Company’s cash and cash equivalents balance currently amounts to approximately
$64 million.
The Company remains focused on the implementation of its investment policy (the “New Investment Policy”), which was adopted by
shareholders in August 2020. This policy is to realise the maximum value from the Company’s investment portfolio and, after repaying the remainder of the Company’s debt, to return capital to shareholders. The Company is only making investments where it has existing obligations or to selectively support its existing portfolio to maximise value.
While the events of the past year represent tremendous progress in meeting the goals of the New Investment Policy, the timeline to begin
returning capital to shareholders remains uncertain. The climate for achieving realisations is substantially more challenging and time consuming than it was just several months ago. The Board would also like to note that in cases where the Company is a co- investor in a portfolio asset, decisions regarding realisations and their timing is not under the control of the Company. However, once the Company’s debt is paid off, it remains the Company’s intention to begin making interim distributions of capital as liquidity permits.
Our US and, in context of difficulties in Europe, our European micro-cap portfolios have generally performed well, and we continue to work towards several realisations in both portfolios. The Board looks forward to reporting on further potential realisations at the year-end period.
The Company has two remaining properties with equity value: Esperante, an office building in West Palm Beach, Florida, and 247 Bedford Avenue, a retail building with Apple as the primary tenant,
in Williamsburg, Brooklyn. The Board looks forward to reporting further on these properties when
there is an updated appraisal done for each at the year-end period.
Due to the transformational events of the past year, the Company has achieved financial stability; heading towards year-end, the Board believes the Company is well-positioned to weather the current economic headwinds. Although it may take more time than might have seemed possible prior to the economic downturn, the Directors are confident that the New Investment Policy will be implemented in an orderly manner and that in due course a significant amount of capital will be able to be returned to shareholders.
David Macfarlane
Chairman
9 November 2022
David Zalaznick and Jay Jordan
Dear Fellow Shareholders,
We are pleased to report that our Company has achieved some significant milestones recently, most notably the recent redemption of the Zero Dividend Preference Shares (“ZDPs”) at their stated maturity in early October. JZCP heads into its fiscal year-end (February 28, 2023) with a strong balance sheet, which will provide the foundation for completing the build- out of existing assets, realizing investments, paying down debt and returning capital to shareholders.
With regards to our efforts to fortify JZCP’s balance sheet over the past year and half, we successfully executed the following transactions, among others:
We agreed to provide through our affiliates a
$31.5 million liquidity facility at 6.0% interest to JZCP (i.e., at the same rate as the CULS), which was approved by shareholders.
JZCP paid off its CULS (£38.8 million) in full and on their stated due date while at the same time maintaining a cash cushion.
The Company repaid its previous senior facility (the “Previous Senior Facility”) with clients and funds managed by Cohanzick Management, LLC and CrossingBridge Advisors, LLC in an amount of approximately $52.9 million, prior to such facility’s maturity date of 12 June 2022.
On 26 January 2022, the Company entered into a new five-year term senior secured loan facility (the “New Senior Facility”) with WhiteHorse Capital Management LLC. The New Senior Facility consists of a $45.0 million first lien term loan (which was drawn at close) and up to an additional $25.0 million in first lien delayed draw term loan (which remains undrawn). The terms of the New Senior Facility represent a substantial improvement to those of the Previous Senior
Facility, including a lower interest cost and longer maturity – the New Senior Facility is due on
26 January 2027.
In June and August 2022, the JZHL Secondary Fund LP (the “Secondary Fund”) made two distributions to JZCP, totaling approximately
$97.4 million. Pursuant to the Secondary Fund’s waterfall, in which JZCP has a Special LP Interest, the Company expects to receive approximately 37.5% of all further distributions received by the Secondary Fund. As of 31 August 2022, JZCP still has approximately $74.5 million of remaining value in the Secondary Fund.
In October 2022, JZCP paid off its ZDPs (£57.6 million) in full and on their stated maturity while maintaining a significant cash cushion.
While our US micro-cap portfolio has overall performed well, our European portfolio has been challenged by the economic effects of the recession in Europe, including soaring energy prices, falling commodity prices and the impact of the war in
the Ukraine.
The Company’s two remaining real estate assets that have equity value are 247 Bedford Avenue in Brooklyn, New York (where Apple is the principal tenant), and the Esperante office building in West Palm Beach, Florida. We look forward to receiving new appraisals for both properties at the year-end.
As of 31 August 2022, our US micro-cap portfolio consisted of 12 businesses, which includes three ‘verticals’ and five co-investments, across nine industries. Our European micro-cap portfolio consisted of 17 companies across six industries and seven countries.
JZCP’s NAV per share increased 42 cents, or approximately 9.8%, during the six-month period.
NAV per Ordinary share as of
28 February 2022 $4.29
Change in NAV due to capital gains and accrued income
+ US micro-cap 0.66
European micro-cap (0.03)
Real estate (0.01)
Other investments (0.01)
Other decreases in NAV
Net foreign exchange effect (0.06)
Finance costs (0.06)
Expenses and taxation (0.07)
NAV per Ordinary share as of
31 August 2022 $4.71
The US micro-cap portfolio continued to perform well during the six-month period, delivering a net increase of 66 cents per share. This was primarily due to net accrued income of 4 cents and write-ups at co-investment Deflecto (3 cents) and the JZHL Secondary Fund portfolio (71 cents).
Offsetting these increases were decreases at co-investment New Vitality and another US micro-cap portfolio company Avante (5 cents and 7 cents respectively).
Our European portfolio decreased 3 cents during the six-month period, due to net write downs at European portfolio companies in our JZI Fund III, L.P. portfolio.
The real estate portfolio was mostly flat for the six-month period.
The chart below summarises cumulative total shareholder returns and total NAV returns for the most recent six-month, one-year, three-year and five-year periods.
31.8.2022 | 28.2.2022 | 31.8.2021 | 31.8.2019 | 31.8.2017 | |
Share price (in GBP) | £1.71 | £1.05 | £1.20 | £4.82 | £5.16 |
NAV per share (in USD) | $4.71 | $4.29 | $4.08 | $9.66 | $9.88 |
NAV to market price discount | 57.8% | 67.2% | 59.5% | 39.2% | 32.8% |
6 month | 1 year | 3 year | 5 year | ||
return | return | return | return | ||
Dividends paid (in USD) | – | – | – | $0.155 | |
Total Shareholders' return (GBP)1 | 62.9% | 42.5% | (64.5%) | (66.0%) | |
Total NAV return per share (USD)1 | 9.8% | 15.4% | (51.2%) | (52.3%) | |
1 Total returns are cumulative and assume that dividends were reinvested. |
Portfolio by Investment Type
US micro-cap
European micro-cap
Real estate
Other
investments
Cash and cash equivalents
45.0%
19.0%
4.5%
4.6%
26.9%
Portfolio by Industry
Industrial Financial services Healthcare Real estate Consumer Service
Telecom
Transportation/ Logistics
Energy
Other
Cash and cash equivalents
41.1%
14.6%
0.9%
5.6%
2.0%
1.3%
2.3%
3.4%
1.8%
0.1%
26.9%
Our portfolio is well-diversified by asset type and geography, with 29 US and European micro-cap investments across eleven industries. The European portfolio itself is well-diversified geographically across Spain, Italy, Portugal, Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP’s assets and liabilities at 31 August 2022 as compared to 28 February 2022. An explanation of the changes in the portfolio follows:
31.8.2022 US$’000 | 28.2.2022 US$’000 | |
US micro-cap portfolio | 228,386 | 284,162 |
European micro-cap portfolio | 96,624 | 105,475 |
Real estate portfolio | 23,075 | 23,597 |
Other investments | 23,279 | 23,533 |
Total Private Investments | 371,364 | 436,767 |
Treasury bills | 53,340 | 3,394 |
UK gilts | 67,105 | – |
Cash | 15,953 | 43,656 |
Total cash and cash equivalents | 136,398 | 47,050 |
Other assets | 310 | 70 |
Total Assets | 508,072 | 483,887 |
Senior Credit Facility | 42,804 | 42,573 |
Subordinated Notes | 32,296 | 32,293 |
Zero Dividend Preferred shares | 66,740 | 75,038 |
Other liabilities | 1,170 | 1,719 |
Total Liabilities | 143,010 | 151,623 |
Total Net Assets | 365,062 | 332,264 |
As you know from previous reports, our US portfolio is grouped into industry ‘verticals’ and co- investments. As of December 4, 2020, certain of
our verticals and co-investments are now grouped under JZHL Secondary Fund, LP (“JZHL” or the “Secondary Fund”). JZCP has a continuing interest in the Secondary Fund through a Special LP Interest, which entitles JZCP to certain distributions from
the Secondary Fund.
Our ‘verticals’ strategy focuses on consolidating businesses under industry executives who can add value via organic growth and cross company synergies. Our co-investments strategy allows for greater diversification of our portfolio by investing in larger companies alongside well-known private equity groups.
The US micro-cap portfolio continued to perform well during the six-month period, delivering a net increase of 66 cents per share. This was primarily due to net accrued income of (4) cents and write-ups at co-investment Deflecto (3 cents) and the JZHL Secondary Fund portfolio (71 cents).
Offsetting these increases were decreases at co-investment New Vitality and another
US micro-cap portfolio company Avante (5 cents and 7 cents respectively).
Our European portfolio decreased 3 cents during the six-month period, due to net write downs at European portfolio companies in our JZI Fund III,
L.P. portfolio. Given the ongoing challenges of the recession in Europe and the war in Ukraine, we expect there to be further write-downs in the European portfolio by our fiscal year-end.
JZCP invests in the European micro-cap sector through its approximately 18.8% ownership of JZI Fund III, L.P. As of 31 August 2022, Fund III held
13 investments: five in Spain, two in Scandinavia, two in Italy, two in the UK and one each in Portugal and Luxembourg. JZCP held direct loans to a further two companies in Spain: Docout and Toro Finance.
The Company’s two remaining real estate assets that have equity value are 247 Bedford Avenue in Brooklyn, New York (where Apple is the principal tenant), and the Esperante office building in West Palm Beach, Florida.
We look forward to reporting on our progress at both properties in the coming months.
Our asset management business in the US, Spruceview Capital Partners, has continued to make encouraging progress since our last report to you. Spruceview addresses the growing demand from corporate pensions, endowments, family offices and foundations for fiduciary management services through an Outsourced Chief Investment Officer (“OCIO”) model as well as customized products/ solutions per asset class.
During the period, Spruceview’s mandate for a portfolio of alternative investments for a Mexican trust (or “CERPI”) was increased by $200 million, bringing total assets to $1.2 billion, with the potential to further increase the size of the CERPI to $1.5 billion, pending regulatory approvals, over the coming year. In addition, Spruceview won a
$200 million advisory mandate for a portfolio of alternative investments sponsored by a Colombian public pension fund administrator. Further, the firm received over $31 million in additional contributions to the pension plans to which
it provides advisory services.
Spruceview also maintained a pipeline of potential client opportunities and continued to provide investment management oversight to the pension funds of the Mexican and Canadian subsidiaries of an international packaged foods company, as well as portfolios for family office clients, and a growing series of private market funds.
As previously reported, Richard Sabo, former Chief Investment Officer of Global Pension and Retirement Plans at JPMorgan and a member of that firm’s executive committee, is leading a team of 22 investment, business and product development, legal and operations professionals.
New Vitality
In July 2022, JZCP received a distribution from the sale of co-investment New Vitality totaling approximately $7.4 million.
JZHL Secondary Fund LP
In June and August 2022, the Secondary Fund made two distributions to JZCP, totaling approximately
$97.4 million. Pursuant to the Secondary Fund’s waterfall, in which JZCP has a Special LP Interest, the Company expects to receive approximately 37.5% of all further distributions received by the Secondary Fund.
We believe that 2022 has been a transformational year for JZCP. Having now paid off the CULS and ZDPs in full and at their stated maturities, the Company has the ability to continue to build-out and maximize the value of its remaining portfolio.
As a result of the payoff of the CULS and ZDPs, our current balance sheet is in a much stronger position than previously reported, with key outstanding debt obligations of just $45.0 million outstanding on
the New Senior Facility due 26 January 2027 and $31.5 million of Subordinated Notes due 30 September 2023.
Fortunately, we had significant realizations in the Secondary Fund portfolio in the past year which provided much needed liquidity to pay down debt. However, since the world has changed dramatically in the past six months – with rising interest rates and macroeconomic challenges – asset values cannot be realized as easily as in the recent past.
Furthermore, we may see asset values decline before they go up again.
We will take advantage of realization opportunities as market conditions permit. In the meantime,
we will continue to build our existing portfolio companies which we believe is the most effective way to return significant capital to our ordinary shareholders.
Thank you again for your continued support through a difficult period. We firmly believe that the Company is in a much stronger position than at any point in the past three years.
As always, we remain dedicated to maximizing value for our fellow shareholders.
Yours faithfully, Jordan/Zalaznick Advisers, Inc. 9 November 2022
David Macfarlane (Chairman) 1
Mr Macfarlane was appointed to the Board of JZCP in 2008 as Chairman and a non- executive Director. Until 2002 he was a Senior Corporate Partner at Ashurst. He was a non-executive director of the Platinum Investment Trust Plc from 2002 until January 2007.
James Jordan
Mr Jordan is a private investor who was appointed to the Board of JZCP in 2008. He is a director of the First Eagle family of mutual funds, and of Alpha Andromeda Investment Trust Company, S.A. Until 30 June 2005, he was the managing director of Arnhold and
S. Bleichroeder Advisers, LLC, a privately owned investment bank and asset management firm; and until 25 July 2013, he was a non-executive director of Leucadia National Corporation. He is an Overseer of the Gennadius Library of the American School of Classical Studies in Athens, and a Director of Pro Natura de Yucatan.
Sharon Parr 2
Mrs Parr was appointed to the Board of JZCP in June 2018. In 2003 she completed a private equity backed MBO of the trust and fund administration division of Deloitte and Touche, called Walbrook, selling it to Barclays Wealth in 2007. As a Managing Director of Barclays, she ultimately became global head of their trust and fund administration businesses, comprising over 450 staff in 10 countries. She stepped down from her executive roles in 2011 to focus on other areas and interests but has maintained directorships in several companies. She is a Fellow of the Institute of Chartered Accountants in England and Wales and a member of the Society of Trust and Estate Practitioners, and is a resident of Guernsey.
Ashley Paxton
Mr Paxton was appointed to the board in August 2020. He has more than 25 years of funds and financial services industry experience, with a demonstrable track record in advising closed-ended London listed boards and their audit committees on IPOs, capital market transactions, audit and other corporate governance matters. He was previously C.I. Head of Advisory for KPMG in the Channel Islands, a position he held from 2008 through to his retirement from the firm in 2019. He is a Fellow of the Institute of Chartered Accountants in
England and Wales and a resident of Guernsey. Amongst other appointments he is Chairman of the Youth Commission for Guernsey & Alderney, a locally based charity whose vision
is that all children and young people in the Guernsey Bailiwick are ambitious to reach their full potential.
Chairman of the nominations committee of which all Directors are members.
Chairman of the audit committee of which all Directors are members.
The Directors are responsible for preparing the Interim Report and Financial Statements comprising the
Half-yearly Interim Report (the “Interim Report”) and the Unaudited Condensed Interim Financial Statements (the “Interim Financial Statements”) in accordance with applicable law and regulations.
The Directors confirm that to the best of their knowledge:
the Interim Financial Statements have been prepared in accordance with IAS 34, “Interim Financial Reporting” as adopted in the European Union and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
the Chairman’s Statement and Investment Adviser’s Report include a fair review of the information required by:
DTR 4.2.7R of the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority, being an indication of important events that have occurred during the first six months of the financial year and their impact on the Interim Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
DTR 4.2.8R of the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority, being related party transactions that have taken place in the first six months of the financial year and that have materially affected the financial position or the performance of the entity during that period; and any changes in the related party transactions described in the 2022 Annual Report and Financial Statements that could do so.
The Company’s Board believes the principal risks and uncertainties that relate to an investment in JZCP are as follows:
Portfolio Liquidity
The Company invests predominantly in unquoted companies and real estate. Therefore, this potential illiquidity means there can be no assurance investments will be realised at their latest valuation or on the timing of such realisations. The Board considers this illiquidity when planning to meet its future obligations, whether committed investments or the repayment of the ZDP shares (redeemed post period-end), Senior Credit Facility and subordinated, second lien Subordinated Notes (the “Subordinated Notes”). On a quarterly basis, the Board reviews a working capital model produced by the Investment Adviser which highlights the Company’s projected liquidity and financial commitments.
Investment Performance and Impact on NAV
The Company is reliant on the Investment Adviser to support the Company’s investment portfolio by executing suitable investment decisions. The Investment Adviser provides the Board with an explanation of all investment decisions and also provides quarterly investment reports and valuation proposals of investee companies. The Board reviews investment performance quarterly and investment decisions are checked to ensure they are consistent with the agreed investment strategy.
Macroeconomic Risks and Impact on NAV
The Company’s performance, and underlying NAV, is influenced by economic factors that affect the demand for products or services supplied by investee companies and the valuation of Real Estate interests held.
Economic factors will also influence the Company’s ability to invest and realise investments and the level of realised returns. Approximately 20% (28 February 2022: 24%) of the Company’s investments are denominated in non-US dollar currencies, primarily the euro. Fluctuations to these exchange rates will affect the NAV of the Company.
Macroeconomic Risks and Impact on NAV continued
Uncertainties in today’s world that influence economic factors include:
Whilst the Company’s portfolio has performed robustly throughout the pandemic, the Board acknowledge world economies face lasting challenges as they emerge from the pandemic.
The Board strongly condemn the actions of the Russian government and the devastating events that have unfolded since Russia’s unprovoked invasion of Ukraine.
JZCP’s investments are predominantly focused in the U.S. and Western Europe, and as such, the portfolio has no direct exposure to the affected regions. However, certain portfolio companies have exposure to the rising energy costs resulting from the conflict. The Board continue to receive reports from the Investment Adviser on the impact of these increased costs. The Board is not aware that the Company has any Russian investors.
The Board considers the impact of climate change on the firm’s business strategy and risk profile and, where appropriate will make timely climate change related disclosures. Regular updates, given by the Investment Adviser on portfolio companies and properties will include potential risk factors pertaining to climate change and how/if these risks are to be mitigated.
The Board also has regard to the impact of the Company’s operations on the environment and other stakeholders. There are expectations that portfolio companies operate is a manner that contributes to sustainability by considering the social, environmental, and economic impacts of doing business. The Board requests the Investment Adviser report on any circumstances where expected standards are not met.
Share Price Trading at Discount to NAV
JZCP’s share price is subject to market sentiment and will also reflect any periods of illiquidity when it may be difficult for shareholders to realise shares without having a negative impact on share price. The Directors review the share price in relation to Net Asset Value on a regular basis and determine whether to take any action to manage the discount. The Directors, with the support of the Investment Adviser, work with brokers to maintain interest in the Company’s shares through market contact and research reports.
Operational and Personnel
Although the Company has no direct employees, the Company considers what dependence there is on key individuals within the Investment Adviser and service providers that are key to the Company meeting its operational and control requirements.
The Board considers the principal risks and uncertainties above are broadly consistent with those reported at the prior year end, but wish to note the following:
The Board recognises the Company will have an increased exposure to liquidity risk as future debt obligations near maturity.
The effect of the war in Ukraine on market conditions means that there are challenges to completing corporate transactions within the European micro-cap portfolio and planned realisations may be delayed.
The Board deems the risks posed by COVID-19 to the Company’s investment portfolio, in terms of valuation and ability to complete realisations continue to lessen as economies learn to live and adapt to the virus.
A fundamental principle of the preparation of financial statements in accordance with IFRS is the judgement that an entity will continue in existence as a going concern for a period of 12 months from signing of the Interim Financial Statements, which contemplates continuity of operations and the realisation of assets and settlement of liabilities occurring in the ordinary course of business.
In reaching its conclusion, the Board has considered the risks that could impact the Company’s liquidity over the period from 9 November 2022 to 30 November 2023 (the “Going Concern period”).
As part of their assessment, the Board considered whether there was a reasonable expectation that the Company has and will generate adequate liquidity to meet its debt obligations over the Going Concern period including the redemption of its Subordinated Notes payable 30 September 2023.
Recent events impacting liquidity
realisation proceeds during the interim period in excess of $100 million;
post period end, the extension of the maturity date of the Subordinated Notes to 30 September 2023; and
post period end, the redemption and cancellation of the Company’s ZDP shares.
Update on material liabilities due for settlement and the Company’s net debt position
The below table shows the Company’s improved net debt position as at 1 October 2022 (reflecting the post-period redemption of the ZDP shares) compared to previous period ends:
1.10.2022 | 31.8.2022 | 28.2.2022 | 31.8.2021 | 28.2.2021 | |
$’000 | $’000 | $’000 | $’000 | $’000 | |
Senior Credit Facility | 43,271 | 42,804 | 42,573 | 36,629 | 68,694 |
Subordinated Notes | 31,505 | 32,296 | 32,293 | 31,669 | – |
ZDP Shares | – | 66,740 | 77,281 | 75,014 | 80,527 |
CULS | – | – | – | – | 54,332 |
Total debt | 74,776 | 141,840 | 152,147 | 143,312 | 203,553 |
Cash and cash equivalents held1 | 65,672 | 136,398 | 47,050 | 44,582 | 63,178 |
Net debt position | 9,104 | 5,442 | 105,097 | 98,730 | 140,375 |
1 Includes investments in Treasury Bills and UK Gilts |
Realisations and refinancings during the interim period and previous two fiscal years
Period End 31.8.2022 $ million | Year End 28.2.2022 $ million | Year End 28.2.2021 $ million | ||||||
JZHL Secondary Fund | U.S. | 97.4 | Salter Labs | U.S. | 41.1 | Secondary Sale | U.S. | 87.7 |
New Vitality | U.S. | 7.4 | George Industries | U.S. | 9.5 | Real estate | 13.6 | |
Fund III | Euro | 0.2 | Orangewood Fund | U.S. | 6.2 | ABTA | U.S. | 9.4 |
Igloo | U.S. | 3.8 | Eliantus | Euro | 9.4 | |||
Vitalyst | U.S. | 1.9 | K2 Towers II | Euro | 9.2 | |||
EMC 2010 | Euro | 2.2 | Other | U.S. | 9.0 | |||
1.1 | Cerpi | Other | 1.2 | |||||
105.0 | 65.8 | 139.5 | ||||||
The Board takes account of the levels of realisation proceeds historically generated by the Company’s micro- cap portfolios as well as the accuracy of previous forecasts to assess the predicted accuracy of forecasts presented. The Company continues to work on the realisation of various investments within a timeframe that will enable the Company to maximise the value of its investment portfolio.
Considering the Company’s projected cash position, including the Company’s ongoing operating costs and the anticipated further investment required to support the Company’s portfolio, the Board is satisfied, as of today’s date, that it is appropriate to adopt the going concern basis in preparing the financial statements and they have a reasonable expectation that the Company will continue in existence as a going concern for the period to 30 November 2023.
Approved by the Board of Directors and agreed on behalf of the Board on 9 November 2022.
David Macfarlane Sharon Parr
Chairman Director
31 August 2022
Percentage
US Micro-cap portfolio
US Micro-cap Fund
JZHL SECONDARY FUND L.P.2
JZCP’s investment in the JZHL Secondary Fund is further detailed on page 17
Cost1 US$’000
Value US$’000
of Portfolio
%
Total JZHL Secondary Fund L.P. valuation 34,876 | 74,470 | 15.2 | |
US Micro-cap (Vertical) INDUSTRIAL SERVICES SOLUTIONS (“ISS”)3 Provider of aftermarket maintenance, repair, and field services for critical process equipment throughout the US Total Industrial Services Solutions valuation 48,250 | 95,944 | 19.5 | |
US Micro-cap (Co-investments) DEFLECTO Deflecto designs, manufactures and sells innovative plastic | |||
products to multiple industry segments | 45,010 | 45,384 | 9.2 |
ORIZON Manufacturer of high precision machine parts and tools for aerospace | |||
and defence industries | 3,899 | 7,000 | 1.4 |
Total US Micro-cap (Co-investments) | 48,909 | 52,384 | 10.6 |
US Micro-cap (Other) AVANTE HEALTH SOLUTIONS | |||
Provider of new and professionally refurbished healthcare equipment HEALTHCARE PRODUCTS HOLDINGS | 8,140 | 4,588 | 0.9 |
Designer and manufacturer of motorised vehicles NATIONWIDE STUDIOS | 17,636 | – | – |
Processor of digital photos for pre-schoolers | 26,324 | 1,000 | 0.2 |
Total US Micro-cap (Other) | 52,100 | 5,588 | 1.1 |
Total US Micro-cap portfolio | 184,135 | 228,386 | 46.4 |
31 August 2022
Percentage
European Micro-cap portfolio
Cost1 US$’000
Value US$’000
of Portfolio
%
EUROMICROCAP FUND 2010, L.P. | |||
Invested in European Micro-cap entities JZI FUND III, L.P. | 1 | 596 | 0.1 |
JZCP’s investment in JZI Fund III is further detailed on page 17 | 59,316 | 70,430 | 14.4 |
Total European Micro-cap (measured at Fair Value) | 59,317 | 71,026 | 14.5 |
Debt Investments DOCOUT | |||
Provider of digitalisation, document processing and storage services TORO FINANCE | 2,777 | 3,503 | 0.7 |
Provides short term receivables finance to the suppliers of major | |||
Spanish companies XACOM | 21,619 | 22,095 | 4.5 |
Supplier of telecom products and technologies | 2,055 | – | – |
Debt Investments (classified at amortised cost) | 26,451 | 25,598 | 5.2 |
Total European Micro-cap portfolio 85,768 | 96,624 | 19.7 | |
Real Estate portfolio 247 BEDFORD AVENUE | |||
Prime retail asset in northern Brooklyn, NY ESPERANTE | 17,717 | 8,832 | 1.8 |
An iconic building on the downtown, West Palm Beach skyline JZCP REALTY | 14,158 | 14,243 | 2.9 |
Other Properties held – no equity value | 8,409 | – | – |
Total Real Estate portfolio | 40,284 | 23,075 | 4.7 |
Other investments BSM ENGENHARIA | |||
Brazilian-based provider of supply chain logistics, infrastructure services | |||
and equipment rental JZ INTERNATIONAL | 6,115 | 459 | 0.1 |
Fund of European LBO investments SPRUCEVIEW CAPITAL | – | 750 | 0.1 |
Asset management company focusing primarily on managing endowments | |||
and pension funds | 32,605 | 22,070 | 4.5 |
Total Other investments | 38,720 | 23,279 | 4.7 |
Listed investments U.S. Treasury Bills – Maturity 16 February 2023 | 16,646 | 16,648 | 3.4 |
U.S. Treasury Bills – Maturity 17 November 2022 | 33,285 | 33,308 | 6.8 |
U.S. Treasury Bills – Maturity 20 October 2022 | 3,393 | 3,384 | 0.7 |
UK Gilts – Maturity 7 September 2022 | 69,824 | 67,105 | 13.6 |
Total Listed investments | 123,148 | 120,445 | 24.5 |
Total – portfolio | 472,055 | 491,809 | 100.0 |
Original book cost incurred by JZCP adjusted for subsequent transactions. Other than JZHL Secondary Fund (see foot note 2), the book cost represents cash outflows and excludes PIK investments.
Notional cost of the Company’s interest in JZHL Secondary Fund is calculated in accordance with IFRS, and represents the fair value of the Company’s LP interest on recognition adjusted for subsequent distributions.
Co-investment with Fund A, a Related Party (Note 19).
Summary of JZCP’s investments in JZHL Secondary Fund
US Micro-cap investments
ACW FLEX PACK, LLC
JZHL
Valuation1
As at 31.8.2022
$’000s
Provider of a variety of custom flexible packaging solutions to converters and end-users 5,568 FLOW CONTROL, LLC
Manufacturer and distributor of high-performance, mission-critical flow handling products
and components utilized to connect processing line equipment 17
SAFETY SOLUTIONS HOLDINGS
Provider of safety focused solutions for the industrial, environmental and life science
related markets. 3,051
FELIX STORCH
Supplier of specialty, professional, commercial, and medical refrigerators and freezers,
and cooking appliances 41,625
PEACEABLE STREET CAPITAL
Specialty finance platform focused on commercial real estate 13,703 TIERPOINT
Provider of cloud computing and colocation data centre services | 11,112 | |||
75,076 | ||||
Hurdle amount due to Secondary Investors | (606) | |||
JZCP’s interest in JZHL Secondary Fund | 74,470 | |||
1 JZCP’s valuation being the 37.5% Special L.P. interest in the underlying investment in JZHL Secondary Fund. | ||||
Summary of JZCP’s investments in JZI Fund III | ||||
JZCP Cost | JZCP Value | JZCP Value | ||
(EURO)1 | (EURO)1 | (USD) | ||
As at | As at | As at | ||
31.8.2022 | 31.8.2022 | 31.8.2022 | ||
Country | €’000s | €’000s | $’000s | |
ALIANZAS EN ACEROS – Steel service center | Spain | 4,354 | 4,652 | 4,678 |
BLUESITES – Build-up in cell tower land leases | Portugal | 3,615 | 5,512 | 5,543 |
COLLINGWOOD – Niche UK motor insurer | UK | 3,014 | 3,038 | 3,054 |
ERSI – Reinforced steel modules | Lux | 8,544 | 1,861 | 1,871 |
FACTOR ENERGIA – Electricity supplier | Spain | 3,281 | 8,063 | 8,107 |
FINCONTINUO – Niche consumer lender | Italy | 4,762 | 5,473 | 5,504 |
GUANCHE – Build-up of petrol stations | Spain | 4,590 | 4,983 | 5,011 |
KARIUM – Personal care consumer brands | UK | 4,321 | 9,712 | 9,767 |
LUXIDA – Build-up in electricity distribution | Spain | 3,315 | 4,969 | 4,996 |
MY LENDER – Niche consumer lender | Finland | 4,865 | 1,411 | 1,419 |
S.A.C – Operational van leasing | Denmark | 3,497 | 8,100 | 8,145 |
TREEE – e-waste recycling | Italy | 3,818 | 9,581 | 9,634 |
UFASA – Niche consumer lender | Spain | 5,119 | 6,810 | 6,847 |
Other net Liabilities | (4,146) | |||
Total valuation | 70,430 | |||
1 Represents JZCP’s 18.75% of Fund III’s investment portfolio. | ||||
We have been engaged by the Company to review the Unaudited Interim Financial Statements (“Interim Financial Statements”) for the six months ended
31 August 2022 which comprises the Statement of Comprehensive Income (Unaudited), Statement of Financial Position (Unaudited), Statement of Changes in Equity (Unaudited), Statement of Cash Flows (Unaudited) and related Notes 1 to 22. We have read the other information contained in the Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the Interim Financial Statements.
Based on our review, nothing has come to our attention that causes us to believe that the Unaudited Interim Financial Statements for the six months ended 31 August 2022 are not prepared, in all material respects, in accordance with International Accounting Standard 34, “Interim Financial Reporting”, as adopted by the European Union (“IAS 34”), and the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority (“DTR”).
We conducted our review in accordance with International Standard on Review Engagements 2410 (UK) “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Financial Reporting Council. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
As disclosed in Note 2, the annual financial statements of the Company are prepared in accordance with IFRS as adopted by the European Union. The Interim Financial Statements have been prepared in accordance with IAS 34.
Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis of Conclusion section of this report, nothing has come to our attention to suggest that management have inappropriately adopted the going concern basis of accounting or that management have identified material uncertainties relating to going concern that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with International Standard on Review Engagements 2410 (UK) “Review of
Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Financial Reporting Council, however future events or conditions may cause the entity to cease to continue as a going concern.
The Directors are responsible for preparing the Interim Report and Interim Financial Statements in accordance with Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority.
In preparing the Interim Report and Interim Financial Statements, the Directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.
In reviewing the Interim Report and Interim Financial Statements, we are responsible for expressing to the Company a conclusion on the Interim Financial Statements. Our conclusion, including our Conclusions relating to going concern, is based
on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.
This report is made solely to the Company in accordance with guidance contained in International Standard on Review Engagements 2410 (UK) “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Financial Reporting Council. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Ernst & Young LLP Guernsey, Channel Islands 9 November 2022
Notes
The Interim Report and Financial Statements are published on websites maintained by the Investment Adviser.
The maintenance and integrity of these websites are the responsibility of the Investment Adviser; the work carried out by the Auditors does not involve consideration of these matters and, accordingly, the Auditor accepts no responsibility for any changes that may have occurred to the Condensed Interim Financial Statements since they were initially presented on the website.
Legislation in Guernsey governing the preparation and dissemination of Condensed Interim Financial Statements may differ from legislation in other jurisdictions.
Six Month Period Ended 31 August | Six Month Period Ended 31 August | ||
2022 | 2021 | ||
Note | US$’000 | US$’000 | |
Income, investment and other gains Net gain on investments at fair value through profit or loss | 6 | 27,671 | – |
Investment income | 8 | 8,607 | 9,119 |
Bank and deposit interest | 85 | 75 | |
Realisations from investments held in escrow accounts | 21 | 999 | – |
Net foreign currency exchange gains | 6,108 | – | |
43,470 | 9,194 | ||
Expenses and losses Expected credit losses | 7 | (916) | (1,405) |
Investment Adviser’s base fee | 10 | (3,872) | (3,888) |
Administrative expenses | (1,331) | (2,154) | |
Directors’ remuneration | (145) | (145) | |
Net loss on investments at fair value through profit or loss | 6 | – | (4,809) |
Loss on financial liabilities at fair value through profit or loss | 15 | – | (1,869) |
Net foreign currency exchange losses | – | (202) | |
(6,264) | (14,472) | ||
Operating profit/(loss) | 37,206 | (5,278) | |
Finance costs | 9 | (4,806) | (6,981) |
Profit/(loss) before taxation | 32,400 | (12,259) | |
Withholding Tax | 398 | – | |
Profit/(loss) for the period | 32,798 | (12,259) | |
Other comprehensive loss that will not be reclassified | |||
to the Income Statement Loss on financial liabilities due to change in credit risk | 15 | – | (1,074) |
Total comprehensive profit/(loss) for the period | 32,798 | (13,333) | |
Weighted average number of Ordinary shares in issue during the period | 20 | 77,477,214 | 77,474,670 |
Basic and diluted earnings/(loss) per Ordinary share | 20 | 42.33c | (15.82)c |
The profits for the period all derive from continuing operations. | |||
The accompanying notes form an integral part of the Interim Financial Statements.
31 August | 28 February | ||
2022 | 2022 | ||
Note | US$’000 | US$’000 | |
Assets Investments at fair value through profit or loss | 11 | 466,211 | 411,568 |
Loans at amortised cost | 11 | 25,598 | 28,593 |
Other receivables | 310 | 70 | |
Cash at bank | 15,953 | 43,656 | |
Total assets | 508,072 | 483,887 | |
Liabilities Senior Credit Facility | 12 | 42,804 | 42,573 |
Zero Dividend Preference Shares | 13 | 66,740 | 75,038 |
Subordinated Notes | 14 | 32,296 | 32,293 |
Other payables | 16 | 713 | 1,443 |
Investment Adviser’s base fee | 10 | 457 | 276 |
Total liabilities | 143,010 | 151,623 | |
Equity Share capital | 216,650 | 216,650 | |
Other reserve | 353,528 | 353,528 | |
Retained deficit | (205,116) | (237,914) | |
Total equity | 365,062 | 332,264 | |
Total liabilities and equity | 508,072 | 483,887 | |
Number of Ordinary shares in issue at period/year end | 17 | 77,477,214 | 77,477,214 |
Net asset value per Ordinary share | $4.71 | $4.29 | |
These Interim Financial Statements on pages 19 to 41 were approved by the Board of Directors and authorised for issuance on 9 November 2022. They were signed on its behalf by:
David Macfarlane Sharon Parr
Chairman Director
The accompanying notes form an integral part of the Interim Financial Statements.
Share Capital | Other Reserve | Retained Deficit | Total | |
US$’000 | US$’000 | US$’000 | US$’000 | |
Balance as at 1 March 2022 | 216,650 | 353,528 | (237,914) | 332,264 |
Profit for the period | – | – | 32,798 | 32,798 |
Balance at 31 August 2022 | 216,650 | 353,528 | (205,116) | 365,062 |
Share Capital | Other Reserve | Retained Deficit | Total | |
US$’000 | US$’000 | US$’000 | US$’000 | |
Balance as at 1 March 2021 | 216,625 | 354,602 | (241,668) | 329,559 |
Loss for the period | – | – | (12,259) | (12,259) |
Loss on financial liabilities due to change in credit risk | – | (1,074) | – | (1,074) |
Issue of Ordinary shares | 25 | – | – | 25 |
Balance at 31 August 2021 | 216,650 | 353,528 | (253,927) | 316,251 |
The accompanying notes form an integral part of the Interim Financial Statements.
For the Period from 1 March 2022 to 31 August 2022 | ||
Six Month | Six Month | |
Period Ended | Period Ended | |
31 August | 31 August | |
2022 | 2021 | |
Note | US$’000 | US$’000 |
Cash flows from operating activities | ||
Cash inflows | ||
Realisation of investments 11 | 105,024 | 56,929 |
Maturity of treasury bills 11 | 3,395 | – |
Escrow receipts received 21 | 999 | – |
Income distributions received from investments | 372 | 234 |
Bank interest received | 85 | 75 |
Cash outflows | ||
Direct investments and capital calls 11 | (4,945) | (7,381) |
Purchase of Treasury Bills and UK Gilts 11 | (123,132) | – |
Investment Adviser’s base fee paid 10 | (3,691) | (4,652) |
Other operating expenses paid | (2,048) | (2,515) |
Net cash (outflow)/inflow before financing activities | (23,941) | 42,690 |
Financing activities | ||
Repayment of Senior Credit Facility | – | (33,264) |
Redemption of Convertible Unsecured Loan Stock | – | (54,005) |
Issue of Subordinated Notes | – | 31,500 |
Finance costs paid: | ||
| (1,834) | (2,385) |
| (945) | – |
| – | (2,679) |
Net cash outflow from financing activities | (2,779) | (60,833) |
Decrease in cash at bank | (26,720) | (18,143) |
Reconciliation of net cash flow to movements in cash at bank | US$’000 | US$’000 |
Cash and cash equivalents at 1 March | 43,656 | 59,784 |
Decrease in cash at bank | (26,720) | (18,143) |
Foreign exchange movements on cash at bank | (983) | (454) |
Cash and cash equivalents at period end | 15,953 | 41,187 |
The accompanying notes form an integral part of the Interim Financial Statements. | ||
JZ Capital Partners Limited (“JZCP” or the “Company”) is a Guernsey domiciled closed-ended investment company which was incorporated in Guernsey on 14 April 2008 under the Companies (Guernsey) Law, 1994. The Company is now subject to the Companies (Guernsey) Law, 2008. The Company is classified as an authorised fund under the Protection of Investors (Bailiwick of Guernsey) Law 1987. As at 31 August 2022,
the Company’s capital consisted of Ordinary shares and Zero Dividend Preference (“ZDP”) shares. Post period end, the Company redeemed and cancelled the ZDP shares. The Company’s shares trade on the London Stock Exchange’s Specialist Fund Segment (“SFS”).
The Company’s new investment policy, adopted in August 2020, is for the Company to make no further investments outside of its existing obligations or to the extent that investment may be made to support selected existing portfolio investments. The intention is to realise the maximum value of the Company’s investments and, after repayment of all debt, to return capital to shareholders. The Company’s previous Investment Policy was to target predominantly private investments and back management teams to deliver on attractive investment propositions. In executing this strategy, the Company took a long term view. The Company looked to invest directly in its target investments and was able to invest globally but with a particular focus on opportunities in the United States and Europe.
The Company is currently mainly focused on supporting its investments in the following areas:
small or micro-cap buyouts in the form of debt and equity and preferred stock in both the US and Europe; and
real estate interests.
The Company has no direct employees. For its services, the Investment Adviser receives a management fee as described in Note 10. The Company has no ownership interest in the Investment Adviser. During the period under review, the Company was administered by Northern Trust International Fund Administration Services (Guernsey) Limited.
The Unaudited Condensed Interim Financial Statements (the “Interim Financial Statements”) are presented in US$’000 except where otherwise indicated.
The accounting policies adopted in the preparation of these Interim Financial Statements have been consistently applied during the period, unless otherwise stated.
Statement of compliance
The Interim Financial Statements of the Company for the period 1 March 2022 to 31 August 2022 have been prepared in accordance with IAS 34, “Interim Financial Reporting” as adopted in the European Union, together with applicable legal and regulatory requirements of the Companies (Guernsey) Law, 2008 and the Disclosure Guidance and Transparency Rules of the United Kingdom’s Financial Conduct Authority. The Interim Financial Statements do not include all the information and disclosure required in the Annual Audited Financial Statements and should be read in conjunction with the Annual Report and Financial Statements for the year ended 28 February 2022.
Basis of preparation
The Interim Financial Statements have been prepared under the historical cost basis, except for financial assets and financial liabilities held at fair value through profit or loss (“FVTPL”). The principal accounting policies adopted in the preparation of these Interim Financial Statements are consistent with the accounting policies stated in Note 2 of the Annual Financial Statements for the year ended 28 February 2022. The preparation of these Interim Financial Statements is in conformity with IAS 34, “Interim Financial Reporting” as adopted in the European Union, and requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the Interim Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
New standards, interpretations and amendments adopted by the Company
The accounting policies adopted in the preparation of the Interim Financial Statements are consistent with those followed in the preparation of the Company’s Annual Financial Statements for the year ended
28 February 2022, which were prepared in accordance with IFRS as adopted by the European Union. There has been no early adoption, by the Company, of any other standard, interpretation or amendment that has been issued but is not yet effective.
The estimates and judgements made by the Board of Directors are consistent with those made in the Audited Financial Statements for the year ended 28 February 2022.
Directors’ assessment of going concern
A fundamental principle of the preparation of financial statements in accordance with IFRS is the judgement that an entity will continue in existence as a going concern for a period of 12 months from signing of the Interim Financial Statements, which contemplates continuity of operations and the realisation of assets and settlement of liabilities occurring in the ordinary course of business.
In reaching its conclusion, the Board has considered the risks that could impact the Company’s liquidity over the period from 9 November 2022 to 30 November 2023 (the “Going Concern Period”).
As part of their assessment, the Board considered whether there was a reasonable expectation that the Company has and will generate adequate liquidity to meet its debt obligations over the Going Concern Period including the redemption of its Subordinated Notes payable 30 September 2023.
Recent events impacting liquidity
realisation proceeds during the interim period in excess of $100 million;
post period end, the extension of the maturity date of the Subordinated Notes to 30 September 2023; and
post period end, the redemption and cancellation of the Company’s ZDP shares.
Update on material liabilities due for settlement and the Company’s net debt position
The below table shows the Company’s improved net debt position as at 1 October 2022 (reflecting the post-period redemption of the ZDP shares) compared to previous period ends:
1.10.2022 | 31.8.2022 | 28.2.2022 | 31.8.2021 | 28.2.2021 | |
$’000 | $’000 | $’000 | $’000 | $’000 | |
Senior Credit Facility | 43,271 | 42,804 | 42,573 | 36,629 | 68,694 |
Subordinated Notes | 31,505 | 32,296 | 32,293 | 31,669 | – |
ZDP Shares | – | 66,740 | 77,281 | 75,014 | 80,527 |
CULS | – | – | – | – | 54,332 |
Total debt | 74,776 | 141,840 | 152,147 | 143,312 | 203,553 |
Cash and cash equivalents held1 | 65,672 | 136,398 | 47,050 | 44,582 | 63,178 |
Net debt position | 9,104 | 5,442 | 105,097 | 98,730 | 140,375 |
1 Includes investments in Treasury Bills and UK Gilts |
Realisations and refinancings during the interim period and previous two fiscal years
Period End 31.8.2022 $ million | Year End 28.2.2022 $ million | Year End 28.2.2021 $ million | ||||||
JZHL Secondary Fund | U.S. | 97.4 | Salter Labs | U.S. | 41.1 | Secondary Sale | U.S. | 87.7 |
New Vitality | U.S. | 7.4 | George Industries | U.S. | 9.5 | Real estate | 13.6 | |
Fund III | Euro | 0.2 | Orangewood Fund | U.S. | 6.2 | ABTA | U.S. | 9.4 |
Igloo | U.S. | 3.8 | Eliantus | Euro | 9.4 | |||
Vitalyst | U.S. | 1.9 | K2 Towers II | Euro | 9.2 | |||
EMC 2010 | Euro | 2.2 | Other | U.S. | 9.0 | |||
1.1 | Cerpi | Other | 1.2 | |||||
105.0 | 65.8 | 139.5 | ||||||
The Board takes account of the levels of realisation proceeds historically generated by the Company’s micro-cap portfolios as well as the accuracy of previous forecasts to assess the predicted accuracy of forecasts presented. The Company continues to work on the realisation of various investments within a timeframe that will enable the Company to maximise the value of its investment portfolio.
Going concern conclusion
Considering the Company’s projected cash position, including the Company’s ongoing operating costs and the anticipated further investment required to support the Company’s portfolio, the Board is satisfied, as of today’s date, that it is appropriate to adopt the going concern basis in preparing the financial statements and they have a reasonable expectation that the Company will continue in existence as a going concern for the period to
30 November 2023.
The Investment Manager is responsible for allocating resources available to the Company in accordance with the overall business strategies as set out in the Investment Guidelines of the Company. The Company is organised into the following segments:
Portfolio of US Micro-cap investments
Portfolio of European Micro-cap investments
Portfolio of Real Estate investments
Portfolio of Other Investments – (not falling into above categories)
Investments in treasury bills and UK gilts are not considered as part of the investment strategy and are therefore excluded from this segmental analysis.
The investment objective of each segment is to achieve consistent medium-term returns from the investments in each segment while safeguarding capital by investing in a diversified portfolio.
Segmental operating profit/(loss)
US Micro-cap | European Micro-cap | Real Estate | Other Investments | Total | |
US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | |
Interest revenue | 7,081 | 916 | – | – | 7,997 |
Dividend revenue | 372 | – | – | – | 372 |
Total segmental revenue | 7,453 | 916 | – | – | 8,369 |
Net gain/(loss) on investments at FVTPL | 41,604 | (9,988) | (522) | (504) | 30,590 |
Expected credit losses | – | (916) | – | – | (916) |
Realisations from investments held in Escrow | 999 | – | – | – | 999 |
Investment Adviser’s base fee | (2,237) | (776) | (179) | (178) | (3,370) |
Total segmental operating profit/(loss) | 47,819 | (10,764) | (701) | (682) | 35,672 |
US Micro-cap | European Micro-cap | Real Estate | Other Investments | Total | |
US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | |
Interest revenue | 7,479 | 1,405 | – | – | 8,884 |
Dividend revenue | 234 | – | – | – | 234 |
Total segmental revenue | 7,713 | 1,405 | – | – | 9,118 |
Net (loss)/gain on investments at FVTPL | (570) | 349 | (4,588) | – | (4,809) |
Expected credit losses | – | (1,405) | – | – | (1,405) |
Investment Adviser’s base fee | (2,156) | (899) | (167) | (174) | (3,396) |
Total segmental operating profit/(loss) | 4,987 | (550) | (4,755) | (174) | (492) |
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 segmental allocation is consistent with that of the previous year end.
The following table provides a reconciliation between total segmental operating profit/(loss) and operating profit/(loss):
Period ended | Period ended | |
31.8.2022 | 31.8.2021 | |
US$ ‘000 | US$ ‘000 | |
Total segmental operating profit/(loss) | 35,672 | (492) |
Net loss on non-segmental investments at FVTPL | (2,919) | – |
Net foreign exchange gain/(loss) | 6,108 | (202) |
Bank and deposit interest | 85 | 75 |
Other interest | 238 | 1 |
Expenses not attributable to segments | (1,476) | (2,299) |
Fees payable to investment adviser based on non-segmental assets | (502) | (492) |
Loss on financial liabilities at fair value through profit or loss | – | (1,869) |
Operating profit/(loss) | 37,206 | (5,278) |
The following table provides a reconciliation between total segmental revenue and Company revenue:
Period ended 31.8.2022 US$ ‘000 | Period ended 31.8.2021 US$ ‘000 | ||||
Total segmental revenue Non-segmental revenue Bank and deposit interest | 8,369 85 | 9,118 75 | |||
Other interest | 238 | 1 | |||
Total revenue | 8,692 | 9,194 | |||
Segmental Net Assets | |||||
At 31 August 2022 | |||||
US | European | Other | |||
Micro-cap | Micro-cap | Real Estate | Investments | Total | |
US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | |
Segmental assets Investments at FVTPL | 228,386 | 71,026 | 23,075 | 23,279 | 345,766 |
Loans at amortised cost | – | 25,598 | – | – | 25,598 |
Total segmental assets | 228,386 | 96,624 | 23,075 | 23,279 | 371,364 |
Segmental liabilities Payables and accrued expenses | (205) | (87) | (21) | (21) | (334) |
Total segmental liabilities | (205) | (87) | (21) | (21) | (334) |
Total segmental net assets | 228,181 | 96,537 | 23,054 | 23,258 | 371,030 |
At 28 February 2022 | |||||
US | European | Other | |||
Micro-cap | Micro-cap | Real Estate | Investments | Total | |
US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | |
Segmental assets Investments at FVTPL | 284,162 | 76,882 | 23,597 | 23,533 | 408,174 |
Loans at amortised cost | – | 28,593 | – | – | 28,593 |
Total segmental assets | 284,162 | 105,475 | 23,597 | 23,533 | 436,767 |
Segmental liabilities Payables and accrued expenses | (551) | (72) | (11) | (14) | (648) |
Total segmental liabilities | (551) | (72) | (11) | (14) | (648) |
Total segmental net assets | 283,611 | 105,403 | 23,586 | 23,519 | 436,119 |
Segmental Net Assets continued
The following table provides a reconciliation between total segmental assets and total assets and total segmental liabilities and total liabilities:
31.8.2022 US$ ‘000 | 28.2.2022 US$ ‘000 | |
Total segmental assets | 371,364 | 436,767 |
Non segmental assets | ||
Cash at bank | 15,953 | 43,656 |
Listed investments – cash equivalents | 120,445 | 3,394 |
Other receivables | 310 | 70 |
Total assets | 508,072 | 483,887 |
Total segmental liabilities | (334) | (648) |
Non segmental liabilities | ||
Senior Credit Facility | (42,804) | (42,573) |
Zero Dividend Preference Shares | (66,740) | (75,038) |
Subordinated Notes | (32,296) | (32,293) |
Other payables | (836) | (1,071) |
Total liabilities | (143,010) | (151,623) |
Total net assets | 365,062 | 332,264 |
Other receivables 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 Company classifies fair value measurements of its financial instruments at FVTPL using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The financial instruments valued at FVTPL are analysed in a fair value hierarchy based on the following levels:
Level 1
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2
Those involving inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). For example, investments which are valued based on quotes from brokers (intermediary market participants) are generally indicative of Level 2 when the quotes are executable and do not contain any waiver notices indicating that they are not necessarily tradeable. Another example would be when assets/liabilities with quoted prices, that would normally meet the criteria of Level 1, do not meet the definition of being traded on an active market.
Level 3
Those involving inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). Investments in JZCP’s portfolio valued using unobservable inputs such as multiples, capitalisation rates, discount rates (see page 31) fall within Level 3.
Differentiating between Level 2 and Level 3 fair value measurements i.e., assessing whether inputs are observable and whether the unobservable inputs are significant, may require judgement and a careful analysis of the inputs used to measure fair value including consideration of factors specific to the asset or liability.
The following table shows financial instruments recognised at fair value, analysed by the fair value hierarchy level that the fair value is based on:
Financial assets at 31 August 2022 | ||||
Level 1 | Level 2 | Level 3 | Total | |
US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | |
US micro-cap | – | – | 228,386 | 228,386 |
European micro-cap | – | – | 71,026 | 71,026 |
Real estate | – | – | 23,075 | 23,075 |
Other investments | – | – | 23,279 | 23,279 |
Listed investments | 120,445 | – | – | 120,445 |
120,445 | – | 345,766 | 466,211 | |
Financial assets at 28 February 2022 | ||||
Level 1 | Level 2 | Level 3 | Total | |
US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | |
US micro–cap | – | – | 284,162 | 284,162 |
European micro–cap | – | – | 76,882 | 76,882 |
Real estate | – | – | 23,597 | 23,597 |
Other investments | – | – | 23,533 | 23,533 |
Listed investments | 3,394 | – | – | 3,394 |
3,394 | – | 408,174 | 411,568 | |
Valuation techniques
In valuing investments in accordance with IFRS, the Board follows the principles as detailed in the IPEVCA guidelines.
When fair values of listed equity and debt securities at the reporting date are based on quoted market prices or binding dealer price quotations (bid prices for long positions), without any deduction for transaction costs, the instruments are included within Level 1 of the hierarchy.
Investments for which there are no active markets are valued according to one of the following methods:
JZCP makes its real estate investments through a wholly-owned subsidiary, which in turn owns interests in various residential, commercial, and development real estate properties. The net asset value of the subsidiary is used for the measurement of fair value. The underlying fair value of JZCP’s Real Estate holdings, however, is represented by the properties themselves. The Company’s Investment Adviser and Board review the fair value methods and measurement of the underlying properties on a quarterly basis. Where available, the Company will use third party appraisals on the subject property, to assist the fair value measurement of the underlying property. Third-party appraisals are prepared in accordance with the Appraisal and Valuation Standards (6th edition) issued by the Royal Institution of Chartered Surveyors. Fair value techniques used in the underlying valuations are:
Use of comparable market values per square foot of properties in recent transactions in the vicinity in which the property is located, and in similar condition, of the relevant property, multiplied by the property’s square footage.
Discounted Cash Flow (“DCF”) analysis, using the relevant rental stream, less expenses, for future periods, discounted at a Market Capitalisation (“MC”) rate, or interest rate.
Relevant rental stream less expenses divided by the market capitalization rate; this method approximates the enterprise value construct used for non-real estate assets.
Income capital approach using the relevant sell out analysis, less expenses and costs.
Valuation techniques continued
For each of the techniques third party debt is deducted to arrive at fair value.
The valuations obtained in relation to the real estate portfolio are dated 31 December 2021. Subsequent discussions with appraisers indicate there would be no significant change in property values between
31 December 2021 and 31 August 2022. Due to the inherent uncertainties of real estate valuation, the values reflected in the financial statements may differ significantly from the values that would be determined by negotiation between parties in a sales transaction and those differences could be material.
Unquoted equities and equity related securities investments are classified in the Statement of Financial Position as Investments at fair value through profit or loss. These investments are typically valued by reference to their enterprise value, which is generally calculated by applying an appropriate multiple to the last twelve months’ earnings before interest, tax, depreciation and amortisation (“EBITDA”). In determining the multiple, the Board consider inter alia, where practical, the multiples used in recent transactions in comparable unquoted companies, previous valuation multiples used and where appropriate, multiples of comparable publicly traded companies. In accordance with IPEVCA guidelines, a marketability discount is applied which reflects the discount that in the opinion of the Board, market participants would apply in a transaction in the investment in question. The increase of the fair value of the aggregate investment is reflected through the unquoted equity component of the investment and a decrease in the fair value is reflected across all financial instruments invested in an underlying company.
In respect of unquoted preferred shares the Company values these investments at fair value 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 reduced by senior debt and marketability discount.
Investments in micro-cap debt are valued at fair value by reference to the attributable enterprise value when the Company also holds an equity position in the investee company.
When the Company invests in micro-cap loans and does not hold an equity position in the underlying investee company these loans are valued at amortised cost in accordance with IFRS 9 (Note 2). The carrying value at amortised cost is considered to approximate to fair value.
Other investments at year end, comprise of mainly the Company’s investment in the asset management business -Spruceview Capital Partners (“Spruceview”). Spruceview is valued using a valuation model which considers a forward looking revenue approach. Previously, Spruceview was valued using a valuation model which considered both assets under management (“AUM”) and the potential for new AUM. The Board considers the new approach to be more consistent with the valuation methods used by peer companies.
The significant unobservable inputs used in fair value measurement categorised within Level 3 of the fair value hierarchy together with a quantitative sensitivity as at 31 August 2022 and 28 February 2022 are shown below:
Value 31.8.2022 US$’000
Valuation Technique
Unobservable
input
Range (weighted average)
Sensitivity
used
Effect on Fair Value US$’000
Average EBITDA Multiple of Peers | 6.5x-13.5x (8.3x) | -0.5x/+0.5x | (21,959) | 20,354 | |
EBITDA Multiple | |||||
Discount to | 5%-30% | +5%/-5% | (27,223) | 25,731 | |
Average Multiple | (13%) | ||||
Average EBITDA Multiple of Peers | 5.0x-14.3x (8.8x) | -0.5x/+0.5x | (4,399) | 4,399 | |
EBITDA Multiple | |||||
Discount to | 1%-50% | +5%/-5% | (3,590) | 3,590 | |
Average Multiple | (18%) | ||||
Cap Rate/ | Capitalisation | 5.25%-6.255% | +50bps/ | (5,338) | 6,552 |
Income Approach | Rate | (5.9%) | -50bps | ||
Forward looking | Revenue | $8.3 million | -10%/+10% | (2,206) | 2,163 |
Revenue Approach | Multiple | 5.3x | -10%/+10% | (2,206) | 2,163 |
US micro-cap 228,386 investments
European | |
micro-cap | 71,026 |
investments | |
Real estate1,2 | 23,075 |
Other investments3
22,070
Value 28.2.2022 US$’000
Valuation Technique
Unobservable
input
Range (weighted average)
Sensitivity
used
Effect on Fair Value US$’000
Average EBITDA Multiple of Peers | 7.0x-13.5x (9.0x) | -0.5x/+0.5x | (23,876) | 23,998 | |
EBITDA Multiple | |||||
Discount to | 5%-30% | +5%/-5% | (32,217) | 31,887 | |
Average Multiple | (14.7%) | ||||
Average EBITDA Multiple of Peers | 5.5x-14.2x (9.4x) | -0.5x/+0.5x | (5,293) | 5,293 | |
EBITDA Multiple | |||||
Discount to Average Multiple | 2%-50% (23%) | +5%/-5% | (4,533) | 4,533 | |
Cap Rate/ | Capitalisation | 5.25%-5.75% | +50bps/ | (5,338) | 6,552 |
Income Approach | Rate | (5.56%) | -50bps | ||
Forward looking | Revenue | $8.3 million | -10%/+10% | (2,187) | 1,824 |
Revenue Approach | Multiple | 5.3x | -10%/+10% | (2,206) | 1,809 |
US micro-cap 284,162 investments
European | |
micro-cap | 76,286 |
investments | |
Real estate1,2 | 23,597 |
Other investments3
22,324
The Fair Value of JZCP’s investment in financial interests in Real Estate is measured as JZCP’s percentage interest in the value of the underlying properties.
Sensitivity is applied to the property value and then the debt associated to the property is deducted before the impact to JZCP’s equity value is calculated. Due to gearing levels in the property structures, an increase in the sensitivity of measurement metrics at property level will result in a significantly greater impact at JZCP’s equity level.
JZCP’s investment in Spruceview.
The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the reporting period/year.
Period ended 31 August 2022 | |||||
European | Other | ||||
US Micro-Cap | Micro-Cap | Real Estate | Investments | Total | |
US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | |
At 1 March 2022 | 284,162 | 76,882 | 23,597 | 23,533 | 408,174 |
Investments in year including capital calls | 317 | 4,378 | – | 250 | 4,945 |
Payment in kind (“PIK”) | 2,086 | – | – | – | 2,086 |
Proceeds from investments realised | (104,778) | (246) | – | – | (105,024) |
Net gains/(losses) on investments | 41,604 | (9,988) | (522) | (504) | 30,590 |
Movement in accrued interest | 4,995 | – | – | – | 4,995 |
At 31 August 2022 | 228,386 | 71,026 | 23,075 | 23,279 | 345,766 |
Year ended 28 February 2022 | |||||
European | Other | ||||
US Micro-Cap | Micro-Cap | Real Estate | Investments | Total | |
US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | |
At 1 March 2021 | 299,339 | 83,968 | 23,376 | 23,147 | 429,830 |
Investments in year including capital calls | 4,898 | 7,647 | – | 400 | 12,945 |
Payment in kind (“PIK”) | 14,190 | – | – | – | 14,190 |
Proceeds from investments realised | (62,466) | (3,333) | – | – | (65,799) |
Net gains/(losses) on investments | 28,723 | (11,400) | 221 | (14) | 17,530 |
Movement in accrued interest | (522) | – | – | – | (522) |
At 28 February 2022 | 284,162 | 76,882 | 23,597 | 23,533 | 408,174 |
Fair value of Zero Dividend Preference (“ZDP”) shares
The fair value of the ZDP shares is deemed to be their quoted market price. As at 31 August 2022, the ask price for the ZDP (2022) shares was £4.84 (28 February 2022: £4.74 per share) and the total fair value of the ZDP shares was $67,062,000 (28 February 2022: $75,732,000) which is $322,000 higher (28 February 2022: $694,000 higher) than the liability recorded in the Statement of Financial Position.
ZDP shares are recorded at amortised cost and would fall into the Level 2 hierarchy if valued at FVTPL.
Period ended | Period ended | |
31.8.2022 | 31.8.2021 | |
US$ ‘000 | US$ ‘000 | |
Loss on investments held in investment portfolio at period end Net movement in period end unrealised gain position | (31,737) | 18,315 |
Unrealised net loss in prior periods now realised | (15,265) | (24,765) |
Net unrealised loss in the period | (47,002) | (6,450) |
Net profit on investments realised in the period Proceeds from investments realised | 108,419 | 57,490 |
Cost of investments realised | (49,011) | (80,614) |
Unrealised net loss in prior periods now realised | 15,265 | 24,765 |
Total net profit in the period on investments realised in the period | 74,673 | 1,641 |
Net profit/(loss) on investments in the period | 27,671 | (4,809) |
Expected Credit Losses (“ECLs”) are recognised in three stages. Stage one being for credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). Stage two being for those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). Stage three being credit exposures which are considered credit-impaired, interest revenue is calculated based on the amortised cost (i.e. the gross carrying amount less the loss allowance). Financial assets in this stage will generally be assessed individually. Lifetime expected credit losses are recognised on these financial assets.
Period ended 31.8.2022 US$ ‘000 | Period ended 31.8.2021 US$ ‘000 | |||||
Impairment on loans classified as Stage 1 | 916 | 987 | ||||
Impairment on loans classified as Stage 2 | – | 418 | ||||
Impairment on loans classified as Stage 3 | – | – | ||||
Total impairment on loans during period | 916 | 1,405 | ||||
8. Investment Income | ||||||
Period ended | Period ended | |||||
31.8.2022 | 31.8.2021 | |||||
US$ ‘000 | US$ ‘000 | |||||
Interest calculated using the effective interest rate method | 916 | 1,405 | ||||
Other interest and similar income | 7,691 | 7,714 | ||||
8,607 | 9,119 | |||||
Income for the period ended 31 August 2022 Loan note Int | erest | |||||
Preferred | Other | |||||
Interest | PIK | Cash | Dividend | Interest | Total | |
US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | |
US micro–cap | 7,081 | – | – | 372 | – | 7,453 |
European micro–cap | – | 916 | – | – | – | 916 |
Listed investments | – | – | – | – | 238 | 238 |
7,081 | 916 | – | 372 | 238 | 8,607 | |
Loan note Interest
Preferred Interest | PIK | Cash | Dividend | Other Interest | Total | |
Portfolio | US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 |
US micro–cap | 7,479 | – | – | 234 | – | 7,713 |
European micro–cap | – | 1,405 | – | – | – | 1,405 |
Listed investments | – | – | – | – | 1 | 1 |
7,479 | 1,405 | – | 234 | 1 | 9,119 |
Period ended | Period ended | |
31.8.2022 | 31.8.2021 | |
US$ ‘000 | US$ ‘000 | |
Interest expense calculated using the effective interest method Senior Credit Facility (Note 12) | 2,065 | 3,584 |
ZDP shares (Note 13) | 1,793 | 1,892 |
Subordinated Notes (Note 14) | 948 | 169 |
4,806 | 5,645 | |
Other interest and similar expense CULS interest (Note 15) | – | 1,336 |
4,806 | 6,981 |
Investment Advisory and Performance fees
The Company entered into the amended and restated investment advisory and management agreement with Jordan/Zalaznick Advisers, Inc. (the “Investment Adviser”) on 23 December 2010 (the ”Advisory Agreement”).
Pursuant to the Advisory Agreement, the Investment Adviser is entitled to a base management fee and to an incentive fee. The base management fee is an amount equal to 1.5 per cent per annum of the average total assets under management of the Company less those assets identified by the Company as being excluded from the base management fee, under the terms of the agreement. The base management fee is payable quarterly in arrears; the agreement provides that payments in advance on account of the base management fee will be made.
For the six-month period ended 31 August 2022, total investment advisory and management expenses, based on the average total assets of the Company, were included in the Statement of Comprehensive Income of
$3,872,000 (period ended 31 August 2021: $3,888,000). Of this amount, $457,000 (28 February 2022: $276,000) was due and payable at the period end.
During the year ended 29 February 2020, the Investment Adviser agreed to waive incentive fees payable by the Company relating to realised gains in the years ended February 2019 and 2020. No further incentive fees will be paid to the Investment Adviser until the Company and Investment Adviser have mutually agreed to reinstate such payments.
11. Investments | ||||
Listed | Unlisted | Unlisted | Carrying Value | |
FVTPL | FVTPL | Loans | Total | |
31.8.2022 | 31.8.2022 | 31.8.2022 | 31.8.2022 | |
US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | |
Book cost at 1 March 2022 | 3,395 | 451,364 | 43,097 | 497,856 |
Investments in period including capital calls | 123,132 | 4,945 | – | 128,077 |
Payment in kind (“PIK”)1 | – | 2,086 | 219 | 2,305 |
Proceeds from investments matured/realised | (3,395) | (105,024) | – | (108,419) |
Net realised gain | – | 59,408 | – | 59,408 |
Book cost at 31 August 2022 | 123,132 | 412,779 | 43,316 | 579,227 |
Unrealised investment and foreign exchange loss | (2,919) | (74,010) | (7,586) | (84,515) |
Impairment on loans at amortised cost | – | – | (11,064) | (11,064) |
Accrued interest | 232 | 6,997 | 932 | 8,161 |
Carrying value at 31 August 2022 | 120,445 | 345,766 | 25,598 | 491,809 |
The cost of PIK investments is deemed to be interest not received in cash but settled by the issue of further securities when that interest has been recognised in the Statement of Comprehensive Income.
Listed | Unlisted | Unlisted | Carrying Value | |
FVTPL | FVTPL | Loans | Total | |
28.2.2022 | 28.2.2022 | 28.2.2022 | 28.2.2022 | |
US$ ‘000 | US$ ‘000 | US$ ‘000 | US$ ‘000 | |
Book cost at 1 March 2021 | 3,393 | 543,740 | 74,651 | 621,784 |
Investments in year including capital calls | 3,395 | 12,945 | – | 16,340 |
Payment in kind (“PIK”)1 | – | 14,190 | 2,877 | 17,067 |
Proceeds from investments matured/realised | (3,395) | (65,799) | – | (69,194) |
Interest received on maturity | 2 | – | – | 2 |
Net realised loss | – | (53,712) | – | (53,712) |
Realised impairment loss2 | – | – | (31,757) | (31,757) |
Realised currency loss2 | – | – | (2,674) | (2,674) |
Book cost at 28 February 2022 | 3,395 | 451,364 | 43,097 | 497,856 |
Unrealised investment and foreign exchange loss | – | (45,192) | (4,664) | (49,856) |
Impairment on loans at amortised cost | – | – | (10,148) | (10,148) |
Accrued interest | (1) | 2,002 | 308 | 2,309 |
Carrying value at 28 February 2022 | 3,394 | 408,174 | 28,593 | 440,161 |
The cost of PIK investments is deemed to be interest not received in cash but settled by the issue of further securities when that interest has been recognised in the Statement of Comprehensive Income.
Realised impairment loss and realised currency loss is due to the Company’s direct loan in Ombuds (European micro-cap). The loss was recognised in prior periods and was included within the comparative number for Impairment on loans at amortised cost.
Loans at amortised cost
Interest on the loans accrues at the following rates:
As At 31 August 2022 As At 28 February 2022
8% | 10% | Total | 8% | 10% | Total | |||
Loans at amortised cost | 23,530 | 2,068 | 25,598 | 26,357 | 2,236 | 28,593 |
The Company has extended the maturity date of all loans to European micro-cap companies to 31 December 2022.
On 26 January 2022, JZCP entered into an agreement with WhiteHorse Capital Management, LLC (the
“New Senior Lender”) providing for a new five year term senior secured loan facility (the “New Senior Credit Facility”). The New Senior Credit Facility matures on 26 January 2027 and replaced the Company’s Previous Senior Secured Loan Facility with clients and funds advised and sub-advised by Cohanzick Management, LLC and CrossingBridge Advisors, LLC (the “Previous Senior Lenders”).
The New Senior Credit Facility consists of a $45.0 million first lien term loan (the “Closing Date Term Loan”), fully funded as of the closing date (being 26 January 2022), and up to $25.0 million in first lien delayed draw term loans (the “DDT Loans”), which remain undrawn as of the closing date and the year end. The Company can draw down the DDT Loans from time to time in its discretion in the 24 month period following the closing date. Customary fees and expenses were payable upon the drawing of the Closing Date Term Loan. The proceeds of the Closing Date Term Loan, together with cash at hand, were used by the Company to repay the Previous Senior Secured Facility of approximately $52.9 million due 12 June 2022 and for the payment of fees and expenses related to the New Senior Facility.
The interest rate charged to The New Senior Credit Facility during the period, is the LIBOR Rate plus
7.001 per cent., or if the Company elects for a portion of the interest to be paid in kind, the LIBOR Rate plus
9.00 per cent., of which 4.00 per cent. would be charged as payment-in kind (PIK) interest. The Closing Date Term Loans are subject to a prepayment penalty if they are repaid before yielding an aggregate 15 per cent.
The New Senior Credit Facility Agreement includes covenants from the Company customary for an agreement of this nature, including (a) maintaining a minimum asset coverage ratio (calculated by reference to eligible assets, subject to customary ineligibility criteria and concentration limits, plus unrestricted cash) of not less than 4.00 to 1.00, and (b) ensuring the Company retains an aggregate amount of unrestricted cash and cash equivalents of not less than $12.5 million. As at 31 August 2022, eligible assets of $488.0 million adjusted to $393.1 million (28 February 2022: $471.0 million adjusted to $351.9 million) were held as collateral. The New Senior Credit Facility allows for the repayment of the Company’s other debt obligations assuming the above covenants are not breached as a result of repayment.
1 There is an interest rate floor that stipulates LIBOR will not be lower than 1%. In this agreement, the presence of the floor does not significantly alter the amortised cost of the instrument, therefore separation is not required and the loan is valued at amortised cost using the effective interest rate method. During the year, the relevant 3 month LIBOR rates were below 1%. LIBOR regulators (including the UK Financial Conduct Authority and the US Commodity Futures Trading Commission) have announced a transition away from LIBOR, however it is expected that the 3 month USD LIBOR which is relevant to the Company will continue to be available until the end of June 2023.
New Senior Term Loan Facility | ||
31.8.2022 | 28.2.2022 | |
US$ ‘000 | US$ ‘000 | |
Principal – drawdown 26 January 2022 | – | 45,000 |
Issue costs | – | (2,787) |
Amortised cost – 26 January 2022 | – | 42,213 |
Amortised cost at 1 March | 42,573 | – |
Finance costs charged to Statement of Comprehensive Income | 2,065 | 360 |
Interest and finance costs paid | (1,834) | – |
Amortised cost at period/year end | 42,804 | 42,573 |
Previous Senior Term Loan Facility | ||
31.8.2022 | 28.2.2022 | |
US$ ‘000 | US$ ‘000 | |
Amortised cost – 1 March | – | 68,694 |
Loan advance | – | 16,000 |
Loan repayments | – | (85,585) |
Finance costs charged to Statement of Comprehensive Income | – | 6,483 |
Interest and finance costs paid | – | (5,592) |
Amortised cost at period/year end | – | – |
The carrying value of the loans approximates to fair value. |
Post period end (3 October 2022), the Company redeemed the ZDP shares on their maturity date.
On 1 October 2015, the Company rolled over 11,907,720 existing ZDP (2016) shares into new ZDP shares with a 2022 maturity date. The new ZDP shares (ZDP 2022) have a gross redemption yield of 4.75% and a total redemption value of £57,597,000 (approximately $67,021,000 using the period end exchange rate).
ZDP shares are designed to provide a pre-determined final capital entitlement which ranks behind the Company’s creditors but in priority to the capital entitlements of the Ordinary shares. The ZDP shares carry no entitlement to income and the whole of their return will therefore take the form of capital. In certain circumstances, ZDP shares carry the right to vote at general meetings of the Company as detailed in the Company’s Memorandum and Articles of Incorporation. Issue costs are deducted from the cost of the liability and allocated to the Statement of Comprehensive Income over the life of the ZDP shares.
ZDP (2022) shares | ||
31.8.2022 | 28.2.2022 | |
US$ ‘000 | US$ ‘000 | |
Amortised cost at 1 March | 75,038 | 74,303 |
Finance costs allocated to Statement of Comprehensive Income | 1,793 | 3,807 |
Unrealised currency gain on translation | (10,091) | (3,072) |
Amortised cost at period/year end | 66,740 | 75,038 |
Total number of ZDP shares in issue | 11,907,720 | 11,907,720 |
In July 2021, the Company entered into a note purchase agreement with David Zalaznick and John (Jay) Jordan, the founders and principals of the Company’s investment adviser, Jordan/Zalaznick Advisers, Inc. (“JZAI”), pursuant to which they purchased directly or through their affiliates, subordinated, second lien Subordinated Notes totalling $31.5 million, with a maturity date of 11 September 2022 (the “Subordinated Notes”). In August 2022, the Company announced the extension of the maturity date of the Subordinated Notes through to 30 September 2023.
The interest rate on the Subordinated Notes is 6 per cent. per annum payable semi-annually on each of 31 March and 30 September of each year, commencing on the first such date to occur after the issuance of the Subordinated Notes.
31.8.2022 US$ ‘000 | 28.2.2022 US$ ‘000 | |
Subordinated Notes issued in period | – | 31,500 |
Amortised cost at 1 March | 32,293 | – |
Finance costs charged to Statement of Comprehensive Income | 948 | 1,108 |
Interest and finance costs paid | (945) | (315) |
Amortised cost at period/year end | 32,296 | 32,293 |
On 30 July 2021, JZCP redeemed 3,884,279 £10 CULS and converted on request, 1,835 £10 CULS into 3,039 Ordinary Shares at the agreed conversion price. CULS bore interest on their nominal amount at the rate of
6.00 per cent. per annum, payable semi-annually in arrears.
31.8.2022 US$ ‘000 | 28.2.2022 US$ ‘000 | |
Fair Value of CULS at 1 March | – | 52,430 |
Interest expense | – | 1,336 |
Coupon paid | – | (2,679) |
Unrealised movement in value of CULS due to change in Company’s Credit Risk Unrealised movement in the fair value of CULS allocated to change in observed | – | 1,074 |
(benchmark) interest rate | – | 2,170 |
Unrealised currency gain on translation during the period/year | – | (301) |
Loss to the Company on movement in the fair value of CULS | – | 1,869 |
Redemption of CULS | – | (54,005) |
Conversion of CULS into Ordinary Shares | – | (25) |
Fair Value of CULS based on offer price | – | – |
16. Other Payables | ||
31.8.2022 | 28.2.2022 | |
US$ ‘000 | US$ ‘000 | |
Audit fees | 150 | 325 |
Legal fees provision | 200 | 505 |
Directors’ remuneration | 48 | 47 |
Other expenses | 315 | 168 |
Provision for tax on dividends received not withheld at source | – | 398 |
713 | 1,443 |
17. Ordinary shares – Issued Capital | ||
31.8.2022 | 28.2.2022 | |
Number of | Number of | |
shares | shares | |
Balance at 1 March | 77,477,214 | 77,474,175 |
Ordinary shares issued during period/year | – | 3,039 |
Total Ordinary shares in issue | 77,477,214 | 77,477,214 |
The Company’s shares trade on the London Stock Exchange’s Specialist Fund Segment.
On 2 August 2021, the Company issued 3,039 Ordinary shares resulting from the conversion of 1,835 CULS. The conversion price was £6.0373 per Ordinary Share, resulting in a credit to the Share capital account of
£18k ($25k).
At 31 August 2022 and 28 February 2022, JZCP had the following financial commitments outstanding in relation to fund investments:
Expected date of Call | 31.8.2022 US$ ‘000 | 28.2.2022 US$ ‘000 | |
JZI Fund III GP, L.P. €10,160,906 (28.2.2022: €13,967,295) | over 3 years | 10,217 | 15,688 |
Spruceview Capital Partners, LLC1 | over 1 year | 250 | 500 |
10,467 | 16,188 |
1 As approved by a shareholder vote on 12 August 2020, JZCP has the ability to make up to approximately $4.1 million in further commitments to Spruceview, above the $0.25 million unfunded commitments as at 31 August 2022.
JZAI is a US based company founded by David Zalaznick and Jay Jordan, that provides advisory services to the Company in exchange for management fees, paid quarterly. Fees paid by the Company to the Investment Adviser are detailed in Note 10. JZAI and various affiliates provide services to certain JZCP portfolio companies and may receive fees for providing these services pursuant to the Advisory Agreement.
JZCP invests in European micro-cap companies through JZI Fund III, L.P. (“Fund III”). Previously investments were made via the EuroMicrocap Fund 2010, L.P. (“EMC 2010”). Fund III and EMC 2010 are managed by
an affiliate of JZAI. At 31 August 2022, JZCP’s investment in Fund III was valued at $70.4 million (28 February 2022: $76.3 million). JZCP’s investment in EMC 2010 was valued at $0.6 million
(28 February 2022: $0.6 million).
JZCP has invested in Spruceview Capital Partners, LLC on a 50:50 basis with Jay Jordan and David Zalaznick (or their respective affiliates). The total amount committed by JZCP to this investment at 31 August 2022, was $33.5 million with $0.25 million of this amount remaining unfunded and outstanding. As approved by a shareholder vote on 12 August 2020, JZCP has the ability to make up to approximately $4.1 million in further commitments to Spruceview, above the $33.5 million committed as of 31 August 2022. Should this approved capital be committed to Spruceview, it would be committed on the same 50:50 basis with Jay Jordan and David Zalaznick (or their respective affiliates).
During the year ended 28 February 2021, the Company sold its interests in certain US microcap portfolio companies (the “Secondary Sale”) to a secondary fund led by Hamilton Lane Advisors, L.L.C. The Secondary Sale was structured as a sale and contribution to a newly formed fund, JZHL Secondary Fund LP, managed by an affiliate of JZAI. At 31 August 2022, JZCP’s investment in JZHL Secondary Fund LP was valued at
$74.5 million (28 February 2022: $99.2 million).
JZCP has co-invested with Fund A, Fund A Parallel I, II and III Limited Partnerships in a number of US micro-cap buyouts. These Limited Partnerships are managed by an affiliate of JZAI. JZCP invested in a ratio of 82%/18% with the Fund A entities. At 31 August 2022, these co-investments, with Fund A, were
in the following portfolio companies: Industrial Services Solutions, Safety Solutions Holdings and Tierpoint. JZCP’s investments in Safety Solutions Holdings and Tierpoint have subsequently been transferred to JZHL Secondary Fund LP (mentioned above).
During the prior year, the Company entered into a note purchase agreement with David Zalaznick and Jay Jordan, pursuant to which they have purchased directly or through their affiliates, subordinated, second lien Subordinated Notes in the amount of $31.5 million, with an interest rate of 6 per cent. per annum and maturing on 11 September 2022 (the “Subordinated Notes”). The issuance of the Subordinated Notes was subject to a number of conditions, including shareholder approval. On 26 August 2022, the maturity date of
the Subordinated Notes was extended to 30 September 2022 and subsequently after certain criteria was met extended for a further 12 months to 30 September 2023.
Total Directors’ remuneration for the six-month period ended 31 August 2022 was $145,000 (31 August 2021: $145,000).
Basic earnings/(loss) per share is calculated by dividing the earnings/(loss) for the period by the weighted average number of Ordinary shares outstanding during the period.
For the period ended 31 August 2022, the weighted average number of Ordinary shares outstanding during the period was 77,477,214 (31 August 2021: 77,474,670).
The diluted earnings/(loss) per share is calculated by considering adjustments required to the earnings/(loss) and weighted average number of shares for the effects of potential dilutive Ordinary shares. Following the redemption of the Company’s CULS during the prior period, there are no longer any potential dilutive events to the Ordinary shares.
Amounts held in escrow accounts
When investments have been disposed of by the Company, proceeds may reflect contractual terms requiring that a percentage is held in an escrow account pending resolution of any indemnifiable claims that may arise. At 31 August 2022 and 28 February 2022, the Company has assessed that the likelihood of the recovery of these escrow accounts cannot be determined and has therefore disclosed the escrow accounts as a contingent asset.
As at 31 August 2022 and 28 February 2022, the Company had the following contingent assets held in escrow accounts which had not been recognised as assets of the Company:
Amount in Escrow
31.8.2022 US$’000 | 28.2.2022 US$’000 | ||
JZHL Secondary Fund (being 37.5% of the total amount held in escrow)1 | 411 | 202 | |
New Vitality – added on realisation of investment | 152 | – | |
Igloo | 49 | 49 | |
Salter Labs ($528,000 received) | – | 536 | |
Southern Petroleum Laboratories ($509,000 received) | – | 509 | |
612 | 1,296 |
During the period ended 31 August 2022, net proceeds including a minor refund of an escrow receipt, totalled
$999,000 (31 August 2021: $nil) were realised and recorded in the Statement of Comprehensive Income.
1 During the period, JZHL Secondary Fund received an Escrow of $723,000 which was distributed to its limited partners. On the closing of JZHL Secondary Fund’s realisation of Testing Services $1,096,000 was placed in Escrow.
These Interim Financial Statements were approved by the Board on 9 November 2022. Events subsequent to the period end 31 August 2022 have been evaluated until this date.
On 30 September 2022, the Company announced the further extension of the maturity date of the Subordinated Notes through to 30 September 2023.
On 3 October 2022, the Company announced the redemption and cancellation of its ZDP shares.
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 offers investment advice to the Board of JZCP.
JZAI has offices in New York and Chicago.
9 West, 57th Street New York NY 10019
PO Box 255
Trafalgar Court Les Banques St Peter Port
Guernsey GY1 3QL
JZ Capital Partners Limited is registered in Guernsey Number 48761
Northern Trust International Fund Administration Services (Guernsey) Limited
PO Box 255
Trafalgar Court Les Banques St Peter Port
Guernsey GY1 3QL
Equiniti Limited Aspect House Spencer Road Lancing
West Sussex BN99 6DA
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).
Northern Trust (Guernsey) Limited PO Box 71
Trafalgar Court Les Banques St Peter Port
Guernsey GY1 3DA
Ernst & Young LLP PO Box 9
Royal Chambers St Julian’s Avenue St Peter Port Guernsey GY1 4AF
Ashurst LLP
London Fruit & Wool Exchange 1 Duval Square
London E1 6PW
Monge Law Firm, PLLC
435 South Tyron Street, Suite 711
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
Mourant
Royal Chambers St Julian’s Avenue St Peter Port Guernsey GY1 4HP
JP Morgan Cazenove Limited 20 Moorgate
London EC2R 6DA
JZCP Ordinary shares are listed on the Official List of the Financial Services Authority of the UK, and are admitted to trading on the London Stock Exchange Specialist Fund Segment for listed securities.
The price of the Ordinary shares is shown in the Financial Times under “Conventional Private Equity” and can also be found at https://markets.ft.com along with the prices of the ZDP shares.
ISIN/SEDOL numbers | |||
Ticker Symbol | ISIN Code | Sedol Number | |
Ordinary shares | JZCP | GG00B403HK58 | B403HK5 |
JZCP produces a Key Information Documents to assist investors’ understanding of the Company’s securities and to enable comparison with other investment products. This document is found on the Company’s website – www.jzcp.com/investor-relations/key-information-documents.
Alternative Performance Measures
In accordance with ESMA Guidelines on Alternative Performance Measures (“APMs”), the Board has considered what APMs are included in the Interim Report and Financial Statements which require further clarification. An APM is defined as a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. APMs included in the Interim Report and Financial Statements, which are unaudited and outside the scope of IFRS, are deemed to be as follows:
The Total NAV Return measures how the net asset value (“NAV”) per share has performed over a period of time, taking into account both capital returns and dividends paid to shareholders. JZCP quotes NAV total return as a percentage change from the start of the period (one year) and also three-month, three-year, five-year and seven year periods. It assumes that dividends paid to shareholders are reinvested back into
the Company therefore future NAV gains are not diminished by the paying of dividends. JZCP also produces an adjusted Total NAV Return which excludes the effect of the appreciation/dilution per share caused by the buy back/issue of shares at a discount to NAV, the result of the adjusted Total NAV return is to provide a measurement of how the Company’s Investment portfolio contributed to NAV growth adjusted for the Company’s expenses and finance costs. The Total NAV Return for the period ended 31 August 2022 was 15.4%, which only reflects the change in NAV as no dividends were paid during the year. The Total NAV Return for the year ended 28 February 2022 was 0.9%.
A measure showing how the share price has performed over a period of time, taking into account both capital returns and dividends paid to shareholders. JZCP quotes shareholder price total return as a percentage change from the start of the period (one year) and also three-month, three-year, five-year and seven-year periods. It assumes that dividends paid to shareholders are reinvested in the shares at the time the shares
are quoted ex-dividend. The Shareholder Return for the period ended 31 August 2022 was 42.5%, which only reflects the change in share price as no dividends were paid during the year. The Shareholder Return for the year ended 28 February 2022 was 34.6%.
The NAV per share is the value of all the company’s assets, less any liabilities it has, divided by the number of shares. However, because JZCP shares are traded on the London Stock Exchange’s Specialist Fund Segment, the share price may be higher or lower than the NAV. The difference is known as a discount or premium.
JZCP’s discount is calculated by expressing the difference between the period end dollar equivalent share price and the period end NAV per share as a percentage of the NAV per share.
At 31 August 2022, JZCP’s Ordinary shares traded at £1.71 (28 February 2022: £1.05) or $1.99 (28 February 2022: $1.41) being the dollar equivalent using the period end exchange rate of £1:$1.16 (28 February 2022
£1: $1.34). The shares traded at a 57.8% (28 February 2022: 67.2%) discount to the NAV per share of $4.71 (28 February 2022: $4.29).
The Board has approved a policy of zero tolerance towards the criminal facilitation of tax evasion, in compliance with the Criminal Finances Act 2017.
From 1 January 2014, the FCA rules relating to the restrictions on the retail distribution of unregulated collective investment schemes and close substitutes came into effect. JZCP’s Ordinary shares qualify as an ‘excluded security’ under these rules and will therefore be excluded from the FCA’s restrictions which apply to non-mainstream investment products. Therefore, Ordinary shares issued by JZ Capital Partners can continue to be recommended by financial advisers as an investment for UK retail investors.
Results for the year ended 28 February 2023 May 2023 (date to be confirmed) Annual General Meeting June/July 2022 (date to be confirmed) Interim report for the six months ended 31 August 2023 November 2023 (date to be confirmed)
In the event of a cash dividend being paid, the dividend will be sent by cheque to the first-named shareholder on the register of members at their registered address, together with a tax voucher. At shareholders’ request, where they have elected to receive dividend proceeds in Sterling, the dividend may instead be paid direct into the shareholder’s bank account through the Bankers’ Automated Clearing System. Payments will be paid in US dollars unless the shareholder elects to receive the dividend in Sterling. Existing elections can be changed by contacting the Company’s Transfer and Paying Agent, Equiniti Limited on +44 (0) 121 415 7047.
Investors wishing to buy or sell shares in the Company may do so through a stockbroker. Most banks also offer this service.
The Company is registered (with a Global Intermediary Identification Number CAVBUD.999999.SL.831) under The Foreign Account Tax Compliance Act (“FATCA”).
The Company’s UK Transfer and Paying Agent, Equiniti Limited, maintains the share registers. In event of queries regarding your holding, please contact the Registrar on 0871 384 2265, calls to this number cost 8p per minute from a BT landline, other providers’ costs may vary. Lines are open 8.30 a.m. to 5.30 p.m., Monday to Friday, If calling from overseas +44 (0) 121 415 7047 or access their website at www.equiniti.com. Changes of name or address must be notified in writing to the Transfer and Paying Agent.
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.
The following documents will be available at the registered office of the Company during usual business hours on any weekday until the date of the Annual General Meeting and at the place of the meeting for a period of fifteen minutes prior to and during the meeting:
the Register of Directors’ Interests in the stated capital of the Company;
the Articles of Incorporation of the Company; and
the terms of appointment of the Directors.
In recent years, many companies have become aware that their shareholders have been targeted by unauthorised overseas-based brokers selling what turn out to be non-existent or high risk shares, or expressing a wish to buy their shares. If you are offered, for example, unsolicited investment advice, discounted JZCP shares or a premium price for the JZCP shares you own, you should take these steps before handing over any money:
Make sure you get the correct name of the person or organisation
Check that they are properly authorised by the FCA before getting involved by visiting http://www.fca.org. uk/firms/systems-reporting/register
Report the matter to the FCA by calling 0800 111 6768
If the calls persist, hang up
More detailed information on this can be found on the Money Advice Service website www.moneyadviceservice.org.uk
General
The Company’s Articles contain provisions allowing the Directors to decline to register a person as a holder of any class of ordinary shares or other securities of the Company or to require the transfer of those securities (including by way of a disposal effected by the Company itself) if they believe that the person:
is a “US person” (as defined in Regulation S under the US Securities Act of 1933, as amended) and not a “qualified purchaser” (as defined in the US Investment Company Act of 1940, as amended, and the related rules thereunder);
is a “Benefit Plan Investor” (as described under “Prohibition on Benefit Plan Investors and Restrictions on Non-ERISA Plans” below); or
is, or is related to, a citizen or resident of the United States, a US partnership, a US corporation or a certain type of estate or trust and that ownership of any class of ordinary shares or any other equity securities of the Company by the person would materially increase the risk that the Company could be or become a “controlled foreign corporation” (as described under “US Tax Matters” on page 48).
In addition, the Directors may require any holder of any class of ordinary shares or other securities of the Company to show to their satisfaction whether or not the holder is a person described in paragraphs (A),
(B) or (C) above.
The Company (a) is not subject to the reporting requirements of the US Securities Exchange Act of 1934, as amended (the “Exchange Act”), and does not intend to become subject to such reporting requirements and
(b) is not registered as an investment company under the US Investment Company Act of 1940, as amended (the “1940 Act”), and investors in the Company are not entitled to the protections provided by the 1940 Act.
Investment in the Company by “Benefit Plan Investors” is prohibited so that the assets of the Company will not be deemed to constitute “plan assets” of a “Benefit Plan Investor”. The term “Benefit Plan Investor” shall have the meaning contained in 29 C.F.R. Section 2510.3-101, as modified by Section 3(42) of the US Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and includes (a) an “employee benefit plan” as defined in Section 3(3) of ERISA that is subject to Part 4 of Title I of ERISA; (b) a “plan” described in Section 4975(e)(1) of the US Internal Revenue Code of 1986, as amended (the “Code”), that is subject to Section 4975 of the Code; and (c) an entity whose underlying assets include “plan assets” by reason of an employee benefit plan’s or a plan’s investment in such entity. For purposes of the foregoing, a “Benefit Plan Investor” does not include a governmental plan (as defined in Section 3(32) of ERISA), a non-US plan (as defined in Section 4(b)
(4) of ERISA) or a church plan (as defined in Section 3(33) of ERISA) that has not elected to be subject to ERISA.
Each purchaser and subsequent transferee of any class of ordinary shares (or any other class of equity interest in the Company) will be required to represent, warrant and covenant, or will be deemed to have represented, warranted and covenanted, that it is not, and is not acting on behalf of or with the assets of, a Benefit Plan Investor to acquire such ordinary shares (or any other class of equity interest in the Company).
Under the Articles, the directors have the power to require the sale or transfer of the Company’s securities in order to avoid the assets of the Company being treated as “plan assets” for the purposes of ERISA.
The fiduciary provisions of laws applicable to governmental plans, non-US plans or other employee benefit plans or retirement arrangements that are not subject to ERISA (collectively, “Non-ERISA Plans”) may impose limitations on investment in the Company. Fiduciaries of Non-ERISA Plans, in consultation with their advisers, should consider, to the extent applicable, the impact of such fiduciary rules and regulations on an investment in the Company.
Among other considerations, the fiduciary of a Non-ERISA Plan should take into account the composition of the Non-ERISA Plan’s portfolio with respect to diversification; the cash flow needs of the Non-ERISA Plan and the effects thereon of the illiquidity of the investment; the economic terms of the Non-ERISA Plan’s investment in the Company; the Non-ERISA Plan’s funding objectives; the tax effects of the investment
and the tax and other risks associated with the investment; the fact that the investors in the Company are expected to consist of a diverse group of investors (including taxable, tax-exempt, domestic and foreign entities) and the fact that the management of the Company will not take the particular objectives of any investors or class of investors into account.
Non-ERISA Plan fiduciaries should also take into account the fact that, while the Company’s board of directors and its investment adviser will have certain general fiduciary duties to the Company, the board and the investment adviser will not have any direct fiduciary relationship with or duty to any investor, either with respect to its investment in Shares or with respect to the management and investment of the assets of the Company. Similarly, it is intended that the assets of the Company will not be considered plan assets of any Non-ERISA Plan or be subject to any fiduciary or investment restrictions that may exist under laws specifically applicable to such Non-ERISA Plans. Each Non-ERISA Plan will be required to acknowledge and agree in connection with its investment in any securities to the foregoing status of the Company, the board and the investment adviser that there is no rule, regulation or requirement applicable to such investor that is inconsistent with the foregoing description of the Company, the board and the investment adviser.
Each purchaser or transferee that is a Non-ERISA Plan will be deemed to have represented, warranted and covenanted as follows:
The Non-ERISA Plan is not a Benefit Plan Investor;
The decision to commit assets of the Non-ERISA Plan for investment in the Company was made by fiduciaries independent of the Company, the Board, the Investment adviser and any of their respective agents, representatives or affiliates, which fiduciaries (i) are duly authorized to make such investment decision and have not relied on any advice or recommendations of the Company, the Board, the Investment adviser or any of their respective agents, representatives or affiliates and (ii) in consultation with their advisers, have carefully considered the impact of any applicable federal, state or local law on an investment in the Company;
The Non-ERISA Plan’s investment in the Company will not result in a non-exempt violation of any applicable federal, state or local law;
None of the Company, the Board, the Investment adviser or any of their respective agents, representatives or affiliates has exercised any discretionary authority or control with respect to the Non-ERISA Plan’s investment in the Company, nor has the Company, the Board, the Investment adviser or any of their respective agents, representatives or affiliates rendered individualized investment advice to the
Non-ERISA Plan based upon the Non-ERISA Plan’s investment policies or strategies, overall portfolio composition or diversification with respect to its commitment to invest in the Company and the investment program thereunder; and
It acknowledges and agrees that it is intended that the Company will not hold plan assets of the Non- ERISA Plan and that none of the Company, the Board, the Investment adviser or any of their respective agents, representatives or affiliates will be acting as a fiduciary to the Non-ERISA Plan under any applicable federal, state or local law governing the Non-ERISA Plan, with respect to either (i) the
Non-ERISA Plan’s purchase or retention of its investment in the Company or (ii) the management or operation of the business or assets of the Company. It also confirms that there is no rule, regulation, or requirement applicable to such purchaser or transferee that is inconsistent with the foregoing description of the Company, the Board and the Investment adviser.
This discussion does not constitute tax advice and is not intended to be a substitute for tax advice and planning. Prospective holders of the Company’s securities must consult their own tax advisers concerning the US federal, state and local income tax and estate tax consequences in their particular situations of the acquisition, ownership and disposition of any of the Company’s securities, as well as any consequences under the laws of any other taxing jurisdiction.
The Board may decline to register a person as, or to require such person to cease to be, a holder of any class of ordinary shares or other equity securities of the Company because of, among other reasons, certain US ownership and transfer restrictions that relate to “controlled foreign corporations” contained in the Articles of the Company. A Shareholder of the Company may be subject to forced sale provisions contained in the Articles in which case such shareholder could be forced to dispose of its securities if the Company’s directors believe that such shareholder is, or is related to, a citizen or resident of the United States, a US partnership,
a US corporation or a certain type of estate or trust and that ownership of any class of ordinary shares or any other equity securities of the Company by such shareholder would materially increase the risk that the Company could be or become a “controlled foreign corporation” within the meaning of the Code (a “CFC”).
Shareholders of the Company may also be restricted by such provisions with respect to the persons to whom they are permitted to transfer their securities.
In general, a foreign corporation is treated as a CFC if, on any date of its taxable year, its “10% US Shareholders” collectively own (directly, indirectly or constructively within the meaning of Section 958 of the Code) more than 50% of the total combined voting power or total value of the corporation’s stock. For this purpose, a “10% US Shareholder” means any US person who owns (directly, indirectly or constructively within the meaning of Section 958 of the Code) 10% or more of the total combined voting power of all classes of stock of a foreign corporation or 10% or more of the total value of shares of all classes of stock of a foreign corporation. The Tax Cuts and Jobs Act (the “Tax Act”) eliminated the prohibition on “downward attribution” from non-US persons to US persons under Section 958(b)(4) of the Code for purposes of determining constructive stock ownership under the CFC rules. As a result, the Company’s US subsidiary will be deemed to own all of the stock of the Company’s non-US subsidiaries held by the Company for purposes of determining such foreign subsidiaries’ CFC status. The legislative history under the Tax Act indicates that this change was not intended to cause the Company’s non-US subsidiaries to be treated as CFCs with respect to a 10% US Shareholder that is not related to the Company’s US subsidiary. However, the IRS has not yet issued any guidance confirming this intent and it is not clear whether the IRS or a court would interpret the change made by the Tax Act in a manner consistent with such indicated intent. The Company’s treatment as a CFC as well as its foreign subsidiaries’ treatment as CFCs could have adverse tax consequences for 10%
US Shareholders.
The Company has been advised that it is be treated as a “passive foreign investment company” (“PFIC”) for the fiscal year ended February 2021. The Company’s treatment as a PFIC is likely to have adverse tax
consequences for US taxpayers. Previously, for the fiscal year ended February 2020 the Company was found NOT to be a PFIC. An analysis for the financial year ended 28 February 2022 will be undertaken this year.
The taxation of a US taxpayer’s investment in the Company’s securities is highly complex. Prospective holders of the Company’s securities must consult their own tax advisers concerning the US federal, state and local income tax and estate tax consequences in their particular situations of the acquisition, ownership and disposition of any of the Company’s securities, as well as any consequences under the laws of any other taxing jurisdiction.
Shareholders and state securities authorities wishing to view the Investment Adviser’s ADV form can do so by following the link below:
https://adviserinfo.sec.gov/firm/summary/160932