REG-JZ Capital Partners Ltd: Half-year Report
09/11/2023 07:15
JZ CAPITAL PARTNERS LIMITED (the "Company" or "JZCP")
(a closed-end investment company incorporated with limited liability under the
laws of Guernsey with registered number 48761)
INTERIM RESULTS FOR THE SIX-MONTH PERIOD ENDED
31 AUGUST 2023
LEI: 549300TZCK08Q16HHU44
(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET
ABUSE REGULATION (EU) NO. 596/2014 WHICH FORMS PART OF UK LAW BY VIRTUE OF THE
EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("MAR").
9 November 2023
JZ Capital Partners Limited, the London listed fund that has investments in US
and European micro-cap companies and US real estate, announces its interim
results for the period ended 31 August 2023.
Financial and Operational Highlights
* NAV per share of $4.04 (FYE 28/02/23: $4.06).
* NAV of $312.7 million (FYE 28/02/22: $314.5 million).
* Total realisation and distribution proceeds of $9.9 million.
* The US micro-cap portfolio has overall performed well, delivering a net
increase of 7 cents per share, while the European portfolio remained flat for
the six-month period and continues to be challenged by the economic headwinds
in Europe and war in Ukraine. However, both portfolios are working towards
several realisations.
* 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.
Investment Policy and Liquidity
* The Company remains focused on the implementation of its New Investment
Policy. This policy focuses on realising the maximum value from the
Company’s investment portfolio and, after repaying its debt obligations,
returning capital to shareholders.
* Since the Company adopted its New Investment Policy in August 2020, the
Company has achieved realisations in excess of $395 million and repaid
approximately $225 million of debt.
* The Company’s outstanding debt is limited to its $45 million Senior Credit
Facility due 26 January 2027.
* Although no significant realisations have been achieved in the period under
review, the Board anticipates potential near-term realisations that would
enable the Company to repay its Senior Credit Facility and, subject to
retaining sufficient funds to cover existing obligations and support certain
existing investments to maximise their value, to plan to commence to make
distributions to shareholders.
David Macfarlane, Chairman of JZCP, said: “Our view of the outlook for the
Company remains substantially unchanged to that reported at year-end. The
Company is committed to delivering on the New Investment Policy and is
well-positioned to weather potential financial pressures from an economic
downturn or period of volatility in financial markets.
The stability of the Company’s balance sheet should allow the Investment
Adviser the time needed to maximise the value of the portfolio and implement
the policy in an orderly manner. The Board continues to expect that in due
course a significant amount of capital will be returned to shareholders.”
Market Abuse Regulation:
The information contained within this announcement is inside information as
stipulated under MAR. Upon the publication of this announcement, this inside
information is now considered to be in the public domain. The person
responsible for arranging the release of this announcement on behalf of the
Company is David Macfarlane, Chairman.
For further information:
Kit Dunford +44 (0)7717 417 038
FTI Consulting
David Zalaznick
+1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Matt Smart
+44 (0) 1481 745 228
Northern Trust International Fund
Administration Services (Guernsey) Limited
About JZ Capital Partners
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 to selectively supporting 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.
For more information please visit www.jzcp.com.
The Directors present the results for the Company for the six-month period
ended 31 August 2023. The NAV per share of the Company has declined from $4.06
as at 28 February 2023 to $4.04 as at 31 August 2023.
This decline results mainly from a modest excess of finance and administrative
costs over net write-ups of some investments during the period.
Investment Policy and Liquidity
The financial position of the Company is stable and strong as at 31 August
2023; cash and treasuries were approximately $103.7 million while the
Company’s outstanding debt is limited to its $45 million senior credit
facility (the “Senior Credit Facility”) due 26 January 2027 (which may be
repaid early without penalty at any time).
The Board and the Investment Adviser remain focused on the implementation of
the new investment policy (the “New Investment Policy”) to realise maximum
value from the Company’s investments and, after the repayment of all debt,
to return capital to shareholders. Under the New Investment Policy, the
Company will limit further investment to where it has existing obligations or
selectively to support the existing portfolio.
As we said upon the publication of the results for the year-end, although the
Investment Adviser had achieved several significant realisations in the
portfolio over the previous two years, the Board believed that in the current
climate, it might be difficult to maintain that pace. So in the period under
review it has proved to be the case, no significant new realisations having
been achieved. However, the Board anticipates potential near-term realisations
that would enable the Company to repay its Senior Credit Facility and, subject
to retaining sufficient funds to cover existing obligations and support
certain existing investments to maximise their value, to plan to commence to
make distributions to shareholders.
US and European Micro-cap Portfolios
While our US micro-cap portfolio has overall performed well, with several
material realisations in the US portfolio over the past 18 months, our
European portfolio continues to be challenged by the economic headwinds in
Europe and wars in Ukraine and the Middle East. We continue to work towards
several realisations in both portfolios.
Real Estate Portfolio
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.
Outlook
Our view of the outlook for the Company remains substantially unchanged to
that reported at year-end. The Company is committed to delivering on the New
Investment Policy and is well-positioned to weather potential financial
pressures from an economic downturn or period of volatility in the financial
markets. The stability of the Company’s balance sheet should allow the
Investment Adviser the time needed to maximise the value of the portfolio and
implement the New Investment Policy in an orderly manner. The Board continues
to expect that in due course a significant amount of capital will be returned
to shareholders.
David Macfarlane
Chairman
8 November 2023
Investment Adviser's Report
Dear Fellow Shareholders,
JZCP is in a strong financial position, having achieved several successful
realizations over the past eighteen months. The proceeds from the realizations
were used to repay the ZDPs, CULS and Subordinated Notes, leaving the Company
with a healthy cash balance. We need a significant amount of cash to support
our existing portfolio – as all our investments are illiquid assets, it is
crucial to have a strong cash position, especially after the Senior Credit
Facility is repaid. As we have further realizations, we will prioritize
repaying remaining debt and returning capital to shareholders.
While our remaining US micro-cap portfolio showed a gain for the past six
months, our European portfolio continues to be challenged by high interest
rates and a gathering recession in Europe. Notwithstanding these challenges,
we are pursuing several significant realizations in our European portfolio
which, if consummated, will return capital to JZCP.
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.
As of 31 August 2023, 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.
Net Asset Value (“NAV”)
JZCP’s NAV per share decreased 2 cents, or approximately 0.5%, during the
six-month period.
NAV per Ordinary share as of 28 February 2023 $4.06
Change in NAV due to capital gains and accrued income
+ US micro-cap 0.07
+ European micro-cap -
- Real estate (0.02)
- Other investments (0.03)
+ Income from treasuries 0.03
Other decreases in NAV
+ Net foreign exchange effect 0.02
- Finance costs (0.04)
- Expenses and taxation (0.05)
NAV per Ordinary share as of 31 August 2023 $4.04
The US micro-cap portfolio continued to perform well during the six-month
period, delivering a net increase of 7 cents per share. This was primarily due
to net accrued income of 2 cents and write-ups at ISS (4 cents) and
co-investment Deflecto (3 cents). Offsetting these increases was a decrease at
US micro-cap portfolio company Avante (2 cents).
Our European portfolio was flat for the six-month period.
Our real estate portfolio experienced a net write-down of 2 cents per share.
Returns
The chart below summarises cumulative total shareholder returns and total NAV
returns for the most recent six-month, one-year, three-year and five-year
periods.
31.8.2023 28.2.2023 31.8.20221 31.8.2020 31.8.2018
Share price (in GBP) £1.63 £1.58 £1.71 £0.89 £4.44
NAV per share (in USD) $4.04 $4.06 $4.45 $4.60 $9.82
NAV to market price discount 49.0% 53.0% 55.3% 74.1% 41.2%
6 month return 1 year return 3 year return 5 year return
Total Shareholders' return (GBP) 3.2% -5.0% 82.6% -63.4%
Total NAV return per share (USD) -0.5% -9.2% -12.2% -58.9%
1 The NAV per share at 31 August 2022, after a prior period adjustment was
restated from $4.71 per share to $4.45 per share and the respective total NAV
return per share for the 12-month period ended 31 August 2023 from -14.2% to
-9.2%.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography, with 29 US and
European micro-cap investments across eleven industries. The European
portfolio itself is well-diversified geographically across Spain, Italy,
Portugal, Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP’s assets and liabilities at 31 August 2023 as
compared to 28 February 2023. An explanation of the changes in the portfolio
follows:
31.8.2023 US$'000 28.2.2023 US$'000
US micro-cap portfolio 125,881 127,811
European micro-cap portfolio 73,472 71,966
Real estate portfolio 29,865 31,156
Other investments 24,403 25,683
Total Private Investments 253,621 256,616
Treasury bills 58,540 90,600
Cash 45,193 11,059
Total cash and cash equivalents 103,733 101,659
Other assets 24 168
Total Assets 357,378 358,443
Senior Credit Facility 43,539 43,181
Other liabilities 1,179 764
Total Liabilities 44,718 43,945
Total Net Assets 312,660 314,498
US microcap portfolio
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 has allowed 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 7 cents per share. This was primarily due
to net accrued income of 2 cents and write-ups at ISS (4 cents) and
co-investment Deflecto (3 cents). Offsetting these increases was a decrease at
US micro-cap portfolio company Avante (2 cents).
European microcap portfolio
Our European portfolio remained flat for the six-month period ended 31 August
2023. As stated in the Investment Adviser’s Report as of 28 February 2023,
our European portfolio continues to be challenged by the ongoing economic
difficulties in Europe. We expect further write downs in the European
portfolio if the current trend continues.
JZCP invests in the European micro-cap sector through its approximately 18.8%
ownership of JZI Fund III, L.P. As of 28 February 2023, 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.
Real estate portfolio
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.
The real estate portfolio experienced a net write-down of 2 cents per share,
largely due to small balance sheet changes at the two properties from the
year-end. Consistent with prior years, the Company will be engaging an
appraisal firm to value the two properties again at the year-end. Discussions
with appraisers indicate there would be no significant change in property
values between 31 December 2022 and 31 August 2023.
Other investments
Our asset management business in the US, Spruceview Capital Partners, has
continued to grow since we last reported to you. Spruceview addresses the
growing demand from corporate pensions, endowments, family offices and
foundations for fiduciary management services through an Outsourced Chief
Investment Officer (“OCIO”) model as well as customized products/solutions
per asset class.
During the period, Spruceview undertook the development of its fifth private
markets fund, which is focused on growth buyout co-investments in the U.S. The
fund is expected to begin receiving commitments in the fourth quarter of 2023.
We expect Spruceview assets under management to continue to grow with
increasing indications of investor interest.
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 23 investment, business and product
development, legal and operations professionals.
Outlook
Our priority now is to realize current investments and finish building the
portfolio that is not yet ready for sale. Our goal is to repay the Company’s
remaining debt and then return capital to shareholders.
Thank you for your continued support.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
8 November 2023
Board of Directors
David Macfarlane (Chairman)1
Mr Macfarlane was appointed to the Board of JZCP in 2008 as Chairman and a
non-executive Director. Until 2002, he was a Senior Corporate Partner at
Ashurst. He was a non-executive director of the Platinum Investment Trust Plc
from 2002 until January 2007.
James Jordan
Mr Jordan is a private investor who was appointed to the Board of JZCP in
2008. He is a director of the First Eagle family of mutual funds. 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.
Sharon Parr2
Ms Parr was appointed to the Board of JZCP in June 2018. She has over 35 years
in the finance industry and spent a significant portion of her professional
career with Deloitte and Touche in a number of different countries. After a
number of years in the audit department, on relocating to Guernsey in 1999 she
transferred into their fiduciary and fund management business and, after
completing a management buyout and subsequently selling to Barclays Wealth in
2007, she ultimately retired from her role there as Global Head of Wealth
Structuring in 2011. Ms Parr holds a number of Non-Executive Directorships
across the financial services sector including in other listed funds. Ms Parr
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.
1Chairman of the nominations committee of which all Directors are members.
2Chairman of the audit committee of which all Directors are members.Report of
the Directors Statement of Directors' Responsibilities
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:
(i) 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
(ii) 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 2023 Annual Report and Financial
Statements that could do so.
Principal Risks and Uncertainties
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
Senior Credit Facility. 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.
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.
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.
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 24% (28 February 2023: 21%)
of the Company's investments are denominated in non-US dollar currencies,
primarily the euro and also sterling. Fluctuations to these exchange rates
will affect the NAV of the Company.
Uncertainties in today's world that influence economic factors include:
(i) War in Ukraine and resulting energy crisis
The Board strongly condemns 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 volatility in 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.
(ii) Conflict in the Middle East
The Board does not consider the Israel-Hamas conflict will directly impact its
investment portfolio. However, the Board notes an escalation of the conflict
in the Middle East could further increase volatility in energy cost and
financial markets.
(iii) Climate Change
JZCP does not have a sustainability-driven investment strategy, nor is its
intention to do so, but the Board believes that considering the principle of
being environmentally responsible is important in realising the maximum value
of the Company's investments.
JZCP only invests where it has existing obligations or to continue selectively
to support the existing portfolio. JZAI where possible plans to use its
influence as an investor to ensure investee businesses and funds have a
cautious and responsible approach to environmental management of their
business operations. JZCP invests across a wide range of businesses but has
limited exposure to those that create high levels of emissions.
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 receives a report from the Investment Adviser categorising the Company's
investments according to their level of exposure to climate-related risks.
These climate-related risks can be categorised as either physical (impact of
extreme weather, rising sea levels) or transitional (impact of the transition
to a lower-carbon economy).
The Board also has regard to the impact of the Company’s own operations on
the environment and other stakeholders. There are expectations that portfolio
companies operate in 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.
The Board has assessed the impact of climate change and has judged that the
Company's immediate exposure to the associated risks are low and therefore
there is no material impact on the fair value of investments and the financial
performance reported in these Interim Financial Statements.
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 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 effect of the uncertainty, primarily as a result 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 take longer than initially anticipated. The potential escalation of the
conflict in the Middle East could further increase volatility in financial
markets.
* The World Health Organization has now declared that COVID-19 no longer
represents a "global health emergency". The Board no longer considers COVID-19
a principal risk.
Going Concern
A fundamental principle of the preparation of financial statements in
accordance with IFRS is the judgement that an entity will continue in
existence as a going concern for a period of at least 12 months from signing
of the 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 8 November 2023 to 30
November 2024 (the "Going Concern Period"). There were no events or conditions
identified beyond this period which may cast significant doubt on the
company's ability to continue as a going concern.
Going Concern Assessment
In June 2023, the Company reported on its much-improved liquidity following a
period of material realisations and the subsequent repayment of the
Company’s Subordinated Notes and ZDP shares.
During the six-month period ended 31 August 2023, the Company received
approximately $9.9 million from realisations and distributions and had cash
outflows relating to follow-on investments, expenses and finance costs of
$10.1 million. Therefore, there has been no material change to the Company’s
liquidity position since 28 February 2023 of approximately $100 million,
comprising cash of $45 million (28 February 2023: $11 million) and treasuries
of $58 million (28 February 2023: $91 million). There has been no material
change in liquidity subsequent to 31 August 2023. The Company's remaining
material debt obligation is its $45 million Senior Credit Facility (28
February 2023: $45 million) which matures in January 2027. The Company
continues to comply with the covenants attached to the Senior Credit Facility
and the Board expect full compliance throughout the going concern period.
As reported in the Chairman's Statement and the Investment Advisors report,
the Company anticipates potential near-term realisations that would enable the
Company to repay its Senior Credit Facility.
The Board takes account of the levels of realisation proceeds historically
generated by the Company’s micro-cap portfolios, the level of funding
obligations the Company could be called on through capital calls on existing
investments, as well as the accuracy of previous forecasts to assess the
predicted accuracy of forecasts presented. The Company continues to work on
the realisation of various investments within a timeframe that will enable the
Company to maximise the value of its investment portfolio. Due to the
Company's strong liquidity, the timeframe to realise investments is not
determined by the need to repay debt and the Company is able to mitigate any
downturn in the wider economy which might influence the ability to exit
investments.
Going Concern Conclusion
After careful consideration and based on the reasons outlined above, the Board
have not identified any material uncertainties which may cast significant
doubt on the Company's ability to continue as a going concern for the duration
of the going concern period. As such the Board is satisfied that it is
appropriate to adopt the going concern basis in preparing the Interim
Financial Statements and they have a reasonable expectation that the Company
will continue in existence as a going concern for the period to 30 November
2024.
Approved by the Board of Directors and agreed on behalf of the Board on 8
November 2023.
David Macfarlane Sharon Parr
Investment Portfolio
Percentage of Portfolio
31 August 2023
Cost 1 Value
US$'000 US$'000 %
US Micro-cap portfolio
US Micro-cap Fund
JZHL Secondary Fund L.P. 2
JZHL Secondary Fund L.P.
JZCP's investment in the JZHL Secondary Fund is further detailed on Summary of JZCP’s Investments.
Total JZHL Secondary Fund L.P. valuation 34,876 80,548 25.8
US Micro-cap (Vertical)
Industrial Services Solutions 3
INDUSTRIAL SERVICES SOLUTIONS (“ISS”)
Provider of aftermarket maintenance, repair, and field services for critical process equipment throughout the US
Total Industrial Services Solutions valuation 21,139 22,348 7.2
US Micro-cap (Co-investments)
DEFLECTO 12,174 14,777 4.7
Deflecto designs, manufactures and sells innovative plastic products to multiple industry segments
ORIZON 3,899 3,840 1.2
Manufacturer of high precision machine parts and tools for aerospace and defence industries
Total US Micro-cap (Co-investments) 16,073 18,617 5.9
US Micro-cap (Other)
AVANTE HEALTH SOLUTIONS 8,750 3,368 1.1
Provider of new and professionally refurbished healthcare equipment
NATIONWIDE STUDIOS 26,324 1,000 0.3
Processor of digital photos for pre-schoolers
Total US Micro-cap (Other) 35,074 4,368 1.4
Total US Micro-cap portfolio 107,162 125,881 40.3
European Micro-cap portfolio
EUROMICROCAP FUND 2010, L.P. 825 - -
Invested in European Micro-cap entities
JZI FUND III, L.P. 63,854 70,120 22.4
JZCP's investment in JZI Fund III is further detailed on Summary of JZCP’s investment.
Total European Micro-cap 64,679 70,120 22.4
Debt Investments
DOCOUT 4 2,777 1,833 0.6
Provider of digitalisation, document processing and storage services
TORO FINANCE 21,619 1,519 0.5
Provides short term receivables finance to the suppliers of major Spanish companies
XACOM 4 2,055 - -
Supplier of telecom products and technologies
Debt Investments (loans to European micro-cap companies) 26,451 3,352 1.1
Total European Micro-cap portfolio 91,130 73,472 23.5
Real Estate portfolio
247 BEDFORD AVENUE 17,717 6,298 2.0
Prime retail asset in northern Brooklyn, NY
ESPERANTE 14,983 23,567 7.6
An iconic building on the downtown, West Palm Beach skyline
Total Real Estate portfolio 32,700 29,865 9.6
Other investments
BSM ENGENHARIA 6,115 50 -
Brazilian-based provider of supply chain logistics, infrastructure services and equipment rental
JZ INTERNATIONAL - 750 0.2
Fund of European LBO investments
SPRUCEVIEW CAPITAL 34,255 23,603 7.6
Asset management company focusing primarily on managing endowments and pension funds
Total Other investments 40,370 24,403 7.8
Listed investments
U.S. Treasury Bills - Maturity 21 September 2023 23,691 23,930 7.7
U.S. Treasury Bills - Maturity 16 November 2023 34,537 34,610 11.1
Total Listed investments 58,228 58,540 18.8
Total - portfolio 329,590 312,161 100.0
1 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.
2Notional 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.
3Co-investment with Fund A, a Related Party (Note 18).
4 Classified as loan at amortised cost.
Summary of JZCP's investments in JZHL Secondary Fund
JZHL Valuation 1
As at 31.8.2023 $’000s
US Micro-cap investments
ACW FLEX PACK, LLC Provider of a variety of custom flexible packaging solutions to converters and end- users 4,483
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 3,305
FELIX STORCH Supplier of specialty, professional, commercial, and medical refrigerators and freezers, and cooking appliances 48,000
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
80,620
Hurdle amount due to Secondary Investors (72)
JZCP's interest in JZHL Secondary Fund 80,548
1JZCP'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 (EURO) 1 JZCP Value (EURO) 1 JZCP Value (USD)
Country As at As at As at
31.8.2023 31.8.2023 31.8.2023
€'000s €'000s $'000s
ALIANZAS EN ACEROS Steel service center Spain 4,468 3,472 3,768
BLUESITES Build-up in cell tower land leases Portugal 1,372 4,802 5,212
COLLINGWOOD Niche UK motor insurer UK 3,015 2,513 2,727
ERSI Reinforced steel modules Lux 8,482 1,675 1,818
FACTOR ENERGIA Electricity supplier Spain 3,989 9,263 10,053
FINCONTINUO Niche consumer lender Italy 4,859 426 462
GUANCHE Build-up of petrol stations Spain 7,486 10,571 11,474
KARIUM Personal care consumer brands UK 4,879 9,731 10,562
LUXIDA Build-up in electricity distribution Spain 3,315 4,969 5,393
MY LENDER Niche consumer lender Finland 4,321 192 209
S.A.C Operational van leasing Denmark 3,392 9,000 9,768
TREEE e-waste recycling Italy 6,141 4,313 4,681
UFASA Niche consumer lender Spain 6,318 8,122 8,816
Other net Liabilities (4,823)
Total valuation 70,120
1Represents JZCP's 18.75% of Fund III's investment portfolio.
Independent Review Report to JZ Capital Partners Limited
Conclusion
We have been engaged by the Company to review the condensed set of financial
statements in the half-yearly financial report for the six months ended 31
August 2023 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 23. We
have read the other information contained in the half-yearly financial report
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the condensed set of financial
statements.
Based on our review, nothing has come to our attention that causes us to
believe that the condensed set of financial statements in the half-yearly
financial report for the six months ended 31 August 2023 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.
Basis for conclusion
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" (ISRE) 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
condensed set of financial statements included in this half-yearly financial
report have been prepared in accordance with IAS 34 “Interim Financial
Reporting” as adopted by the European Union.
Conclusion relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for 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
the ISRE, however future events or conditions may cause the entity to cease to
continue as a going concern.
Responsibilities of the Directors
The Directors are responsible for preparing the half-yearly financial report
in accordance with Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor’s responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statements in the
half-yearly financial report. Our conclusion, including our Conclusions
relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
Use of our 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
8 November 2023
Notes
1. The Interim Report and Financial Statements are published on websites
maintained by the Investment Adviser.
2. 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.
3. Legislation in Guernsey governing the preparation and dissemination of
Condensed Interim Financial Statements may differ from legislation in other
jurisdictions.
Statement of Comprehensive Income (Unaudited)
For the Period from 1 March 2023 to 31 August 2023
Six Month
Six Month Period Ended
Period Ended 31 August 2022
31 August 2023 (Restated)
Note US$'000 US$'000
Income, investment and other gains
Net profit on investments at fair value through profit or loss 6 1,630 24,911
Investment income 8 3,967 7,920
Bank and deposit interest 42 85
Net foreign currency exchange gains 109 8,693
Realisations from investments held in escrow accounts 21 - 999
5,748 42,608
Expenses and losses
Expected credit losses 7 (259) (229)
Investment Adviser's base fee 10 (2,696) (3,872)
Administrative expenses (1,280) (1,331)
Directors' remuneration (145) (145)
(4,380) (5,577)
Operating profit 1,368 37,031
Finance costs 9 (3,206) (4,806)
Other income - 398
(Loss)/profit before taxation (1,838) 32,623
Taxation 22 - -
(Loss)/profit for the period (1,838) 32,623
Weighted average number of Ordinary shares in issue during the period 20 77,477,214 77,477,214
Basic and diluted (loss)/earnings per Ordinary share 20 (2.37)c 42.10c
The (loss)/profit for the period all derive from continuing operations.
The accompanying notes form an integral part of the Interim Financial
Statements.
Prior period balances have been restated to present an investment which has
been reclassified to fair value through profit or loss from amortised cost as
at 31 August 2022 and 1 March 2022, leading to the loan being remeasured on
these dates (see Note 2 to the Financial Statements).
Statement of Financial Position (Unaudited)
As at 31 August 2023
31 August 28 February
2023 2023
Note US$'000 US$'000
Assets
Investments at fair value through profit or loss 11 310,328 343,521
Loans at amortised cost 11 1,833 3,695
Other receivables 24 168
Cash at bank 45,193 11,059
Total assets 357,378 358,443
Liabilities
Senior Credit Facility 12 43,539 43,181
Other payables 15 829 764
Investment Adviser's base fee 10 350 -
Total liabilities 44,718 43,945
Equity
Share capital 216,650 216,650
Other reserve 353,528 353,528
Retained deficit (257,518) (255,680)
Total equity 312,660 314,498
Total liabilities and equity 357,378 358,443
Number of Ordinary shares in issue at period/year end 16 77,477,214 77,477,214
Net asset value per Ordinary share $4.04 $4.06
These Interim Financial Statements were approved by the Board of Directors and
authorised on 8 November 2023. They were signed on its behalf by:
David Macfarlane Sharon Parr
Chairman Director
The accompanying notes form an integral part of the Interim Financial
Statements.
Statement of Changes in Equity (Unaudited)
For the Period from 1 March 2023 to 31 August 2023
Share Other Retained
Capital Reserve Deficit Total
US$'000 US$'000 US$'000 US$'000
Balance as at 1 March 2023 216,650 353,528 (255,680) 314,498
Loss for the period - - (1,838) (1,838)
Balance at 31 August 2023 216,650 353,528 (257,518) 312,660
Restated comparative for the period from 1 March 2022 to 31 August 2022
Share Other Retained
Capital Reserve Deficit Total
Note US$'000 US$'000 US$'000 US$'000
Balance as at 1 March 2022 216,650 353,528 (237,914) 332,264
Restatement to correct historical error 1 2 - - (20,412) (20,412)
Balance as at 1 March 2022 (restated) 216,650 353,528 (258,326) 311,852
Profit for the period (restated) - - 32,623 32,623
Balance at 31 August 2022 (restated) 216,650 353,528 (225,703) 344,475
1Prior period balances have been restated to present an investment which has
been reclassified to fair value through profit or loss from amortised cost as
at 31 August 2022 and 1 March 2022, leading to the loan being remeasured on
these dates (see Note 2 to the Financial Statements).
The accompanying notes form an integral part of the Interim Financial
Statements.
Statement of Cash Flows (Unaudited)
For the Period from 1 March 2023 to 31 August 2023
Six Month Six Month
Period Ended Period Ended
31 August 2023 31 August 2022
Note US$'000 US$'000
Cash flows from operating activities
Cash inflows
Realisation of investments 11 9,880 105,024
Maturity of treasury bills 11 215,850 3,395
Bank interest received 42 85
Escrow receipts received 21 - 999
Income distributions received from investments - 372
Cash outflows
Direct investments and capital calls 11 (3,659) (4,945)
Purchase of Treasury Bills and UK Gilts 11 (181,566) (123,132)
Investment Adviser's base fee paid 10 (2,281) (3,691)
Other operating expenses paid (1,281) (2,048)
Net cash inflow/(outflow) before financing activities 36,985 (23,941)
Financing activities
Finance costs paid:
• Senior Credit Facility 12 (2,848) (1,834)
• Subordinated Notes 14 - (945)
Net cash outflow from financing activities (2,848) (2,779)
Increase/(decrease) in cash at bank 34,137 (26,720)
Reconciliation of net cash flow to movements in cash at bank
US$'000 US$'000
Cash and cash equivalents at 1 March 11,059 43,656
Increase/(decrease) in cash at bank 34,137 (26,720)
Foreign exchange movements on cash at bank (3) (983)
Cash and cash equivalents at period end 45,193 15,953
The accompanying notes form an integral part of the Interim Financial
Statements.
Notes to the Interim Financial Statements (Unaudited)
1. General Information
JZ Capital Partners Limited ("JZCP" or the "Company") is a Guernsey domiciled
closed-ended investment company which was incorporated in Guernsey on 14 April
2008 under the Companies (Guernsey) Law, 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 2020. As at
31 August 2023, the Company's capital consisted of Ordinary shares which are
traded 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:
(a) small or micro-cap buyouts in the form of debt and equity and
preferred stock in both the US and Europe; and
(b) real estate interests.
The 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.
1. Basis of Accounting and Significant Accounting Policies
Statement of compliance
The Unaudited Condensed Interim Financial Statements (the "Interim Financial
Statements") of the Company for the period 1 March 2023 to 31 August 2023 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 2023.
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 2023. 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.
The Unaudited Condensed Interim Financial Statements (the "Interim Financial
Statements") are presented in US$'000 except where otherwise indicated.
New standards, interpretations and amendments adopted by the Company
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.
Several amendments apply for the first time in 2023, but do not have material
impact on the Company's interim financial position or on the presentation of
the Company's statements.
Changes in accounting policy and disclosure
The accounting policies adopted in the preparation of these Interim Financial
Statements have been consistently applied during the period, unless otherwise
stated.
Climate Change
The Board has assessed the impact of climate change and has judged that the
Company's immediate exposure to the associated risks are low and therefore
there is no material impact on the fair value of investments and the financial
performance reported in these Interim Financial Statements.
Restatement to correct historical error in classification and associated
measurement of asset
In reporting the Company's results for the year ended 28 February 2023, a
restatement was made to correct a historical error in classification and
associated measurement of an investment. These Interim Financial Statements
have also been restated to reflect the correction of the same historical error
(detailed below), which has impacted the prior period's statement of
comprehensive income and statement of changes in equity. This restatement has
not impacted the Company's previously reported statement of financial position
as at 28 February 2023.
An investment in a direct loan to a European micro-cap company has been
reclassified to fair value through profit or loss from amortised cost as at 31
August 2022 and 1 March 2022 to reflect its contractual terms, leading to the
loan being remeasured on these dates. The reclassification is required as the
contractual terms of the loan do not give rise, on specified dates, to cash
flows that are solely payments of principal and interest on the principal
amount of the loan outstanding and are therefore not consistent with an
amortised cost classification. The affected financial statement line items for
the prior periods have been restated, as follows:
Impact on the statement of changes in equity
Reclassification Reclassification
and 1.3.2022 and 31.8.2022
1.3.2022 1 remeasurement (restated) 31.8.2022 1 remeasurement 2 (restated)
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Retained deficit (237,914) (20,412) (258,326) (205,116) (20,587) (225,703)
1The retained deficit as recorded in the prior year financial statements
before restatement.
2Assumes the reclassification and remeasurement occurred on 31 August 2022
rather than 1 March 2022. The effect of the remeasurement for the six month
period ended 31 August 2022 is a reduction in profits of $0.175 million (see
below), being the decrease in value at this date being $20.587 million less
the decrease in value recognised at 1 March 2022 of $20.412 million.
NAV per share as at 31.8.2022 of $4.71 per share has been restated to $4.45.
Impact on statement of comprehensive income
31.8.2022
US$ '000
Investment income (687)
Net foreign currency exchange gains 2,585
Net gain on investments at fair value through profit or loss (2,760)
Expected credit losses 687
Net impact on profit for the period (175)
Impact on basic and diluted earnings (Cents per Ordinary share)
31.8.2022
Basic and diluted earnings per Ordinary share (cents per share) 42.33c
Impact from correction (0.23)c
Basic and diluted earnings per Ordinary share (restated) 42.10c
1. Estimates and Judgements
The estimates and judgements made by the Board of Directors are consistent
with those made in the Audited Financial Statements for the year ended 28
February 2023.
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 at least 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 8 November 2023 to 30
November 2024 (the "Going Concern Period"). There were no events or conditions
identified beyond this period which may cast significant doubt on the
company's ability to continue as a going concern.
In June 2023, the Company reported on its much-improved liquidity following a
period of material realisations and the subsequent repayment of the
Company’s Subordinated Notes and ZDP shares.
During the six-month period ended 31 August 2023, the Company received
approximately $9.9 million from realisations and distributions and had cash
outflows relating to follow-on investments, expenses and finance costs of
$10.1million. Therefore, there has been no material change to the Company’s
liquidity position since 28 February 2023 of approximately $100 million,
comprising cash of $45 million (28 February 2023: $11 million) and treasuries
of $58 million (28 February 2023: $91 million). There has been no material
change in liquidity subsequent to 31 August 2023.
The Company's remaining material debt obligation is its $45 million Senior
Credit Facility (28 February 2023: $45 million) which matures in January 2027.
The Company continues to comply with the covenants attached to the Senior
Credit Facility and the Board expect full compliance throughout the going
concern period.
As reported in the Chairman's Statement and the Investment Advisors report,
the Company anticipates potential near-term realisations that would enable the
Company to repay its Senior Credit Facility.
The Board takes account of the levels of realisation proceeds historically
generated by the Company’s micro-cap portfolios, the level of funding
obligations the Company could be called on through capital calls on existing
investments, 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. Due to the
Company's strong liquidity, the timeframe to realise investments is not
determined by the need to repay debt and the Company is able to mitigate any
downturn in the wider economy which might influence the ability to exit
investments.
Going concern conclusion
After careful consideration and based on the reasons outlined above, the Board
have not identified any material uncertainties which may cast significant
doubt on the Company's ability to continue as a going concern for the duration
of the going concern period. As such the Board is satisfied that it is
appropriate to adopt the going concern basis in preparing the interim
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
2024.
1. Segment Information
The Investment Manager is responsible for allocating resources available to
the Company in accordance with the overall business strategies as set out in
the Investment Guidelines of the Company. The Company is organised into the
following segments:
* Portfolio of US Micro-cap investments
* Portfolio of European Micro-cap investments
* Portfolio of Real Estate investments
* Portfolio of Other Investments - (not falling into above categories)
Investments in treasury bills are not considered as part of the investment
strategy and are therefore excluded from this segmental analysis.
The investment objective of each segment is to achieve consistent medium-term
returns from the investments in each segment while safeguarding capital by
investing in a diversified portfolio.
US European Real Other
Micro-cap Micro-cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Interest revenue 1,484 259 - - 1,743
Dividend revenue - - - - -
Total segmental revenue 1,484 259 - - 1,743
Net gain/(loss) on investments at FVTPL 3,415 1,586 (1,291) (2,080) 1,630
Expected credit losses - (259) - - (259)
Realisations from investments held in Escrow - - - - -
Investment Adviser's base fee (959) (548) (234) (192) (1,933)
Total segmental operating profit/(loss) 3,940 1,038 (1,525) (2,272) 1,181
For the period from 1 March 2022 to 31 August 2022 (restated1)
US European Real Other
Micro-cap Micro-cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Interest revenue 7,081 229 - - 7,310
Dividend revenue 372 - - - 372
Total segmental revenue 7,453 229 - - 7,682
Net gain/(loss) on investments at FVTPL 41,604 (12,748) (522) (504) 27,830
Expected credit losses - (229) - - (229)
Realisations from investments held in Escrow 999 - - - 999
Other income - 398 - - 398
Investment Adviser's base fee (2,237) (776) (179) (178) (3,370)
Total segmental operating profit/(loss) 47,819 (13,126) (701) (682) 33,310
Certain income and expenditure are 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 and operating (loss)/profit:
31.8.2022
31.8.2023 (restated 1 )
US$ '000 US$ '000
Total segmental operating profit 1,181 33,310
Net foreign exchange gain/(loss) 109 8,693
Bank and deposit interest 42 85
Other interest 2,224 238
Expenses not attributable to segments (1,425) (1,476)
Fees payable to investment adviser based on non-segmental assets (763) (502)
Finance costs (3,206) (4,806)
Net loss on non-segmental investments at FVTPL - (2,919)
(Loss)/profit for the period (1,838) 32,623
1See Note 2
The following table provides a reconciliation between total segmental revenue
and Company revenue:
31.8.2022
31.8.2023 (restated 1 )
US$ '000 US$ '000
Total segmental revenue 1,743 7,682
Non-segmental revenue
Bank and deposit interest 42 85
Other interest 2,224 238
Total revenue 4,009 8,005
1See Note 2
Segmental Net Assets
At 31 August 2023
US European Real Other
Micro-cap Micro-cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Segmental assets
Investments at FVTPL 125,881 71,639 29,865 24,403 251,788
Loans at amortised cost - 1,833 - - 1,833
Total segmental assets 125,881 73,472 29,865 24,403 253,621
Segmental liabilities
Payables and accrued expenses (123) (72) (29) (24) (248)
Total segmental liabilities (123) (72) (29) (24) (248)
Total segmental net assets 125,758 73,400 29,836 24,379 253,373
At 28 February
US European Real Other
Micro-cap Micro-cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Segmental assets
Investments at FVTPL 127,811 68,271 31,156 25,683 252,921
Loans at amortised cost - 3,695 - - 3,695
Prepaid expenses 29 12 3 3 47
Total segmental assets 127,840 71,978 31,159 25,686 256,663
Segmental liabilities
Total segmental liabilities - - - - -
Total segmental net assets 127,840 71,978 31,159 25,686 256,663
The following table provides a reconciliation between total segmental assets
and total assets and total segmental liabilities and total liabilities:
31.8.2023 28.2.2023
US$ '000 US$ '000
Total segmental assets 253,621 256,663
Non segmental assets
Cash at bank 45,193 11,059
Treasury bills 58,540 90,600
Other receivables 24 121
Total assets 357,378 358,443
Total segmental liabilities (248) -
Non segmental liabilities
Senior Credit Facility (43,539) (43,181)
Other payables (931) (764)
Total liabilities (44,718) (43,945)
Total net assets 312,660 314,498
Other receivables (other than the Investment Adviser fee prepayment) 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.
1. Fair Value of Financial Instruments
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 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 hierarchy level that the fair value is based on:
Financial assets at 31 August 2023
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap - - 125,881 125,881
European micro-cap - - 71,639 71,639
Real estate - - 29,865 29,865
Other investments - - 24,403 24,403
Treasury bills 58,540 - - 58,540
58,540 - 251,788 310,328
Financial assets at 28 February 2023
Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap - - 127,811 127,811
European micro-cap - - 68,271 68,271
Real estate - - 31,156 31,156
Other investments - - 25,683 25,683
Treasury bills 90,600 - - 90,600
90,600 - 252,921 343,521
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:
Real estate
JZCP owns its real estate investments through a wholly-owned subsidiary, which
in turn owns interests in 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.
- Income capitalisation approach using the property's net operating income and
a capitalization rate.
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 2022. Subsequent discussions with appraisers indicate there would be
no significant change in property values between 31 December 2022 and 31
August 2023. Due to the inherent uncertainties of real estate valuation, the
values reflected in the financial statements may differ significantly from the
values that would be determined by negotiation between parties in a sales
transaction and those differences could be material.
Unquoted preferred shares, unquoted equities and equity related securities
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.
Micro-cap loans
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
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 which the Board considers to be consistent with the valuation
methods used by peer companies.
Quantitative information of significant unobservable inputs and sensitivity
analysis to significant changes in unobservable inputs within Level 3
hierarchy
The significant unobservable inputs used in fair value measurement categorised
within Level 3 of the fair value hierarchy together with a quantitative
sensitivity as at 31 August 2023 and 28 February 2023 are shown below:
Value 31.8.2023 US$'000 Valuation Technique Unobservable input Range (weighted average) Sensitivity used Effect on Fair Value US$'000
US micro- cap investments 125,881 EBITDA Multiple Average EBITDA Multiple of Peers 5.0x -14.0x (8.5x) -0.5x /+0.5x (11,456) 11,434
Discount to Average Multiple 5% - 35% (14%) +5% /-5% (13,569) 13,521
European micro-cap investments 1 70,120 EBITDA Multiple Average EBITDA Multiple of Peers 4.8x - 17.2x (9.3x) -0.5x /+0.5x (4,844) 4,844
Discount to Average Multiple 4% - 64% (34%) +5% /-5% (3,875) 3,875
Real estate 2,3 29,865 Cap Rate/ Income Approach Capitalisation Rate 5.25%-6. 255 % (5.9%) +50bps/ -50bps (6,918) 8,061
Other investments 4 23,603 Forward looking Revenue Approach Revenue Multiple $8.8 million 5.3x -10%/+10% -10%/+10% (2,342) (2,342) 2,342 2,342
Value 28.2.2023 US$’000 Valuation Technique Unobservable input Range (weighted average) Sensitivity used Effect on Fair Value US$'000
US micro- cap investments 127,811 EBITDA Multiple Average EBITDA Multiple of Peers 7.0x - 13 .5x (8.3x) -0.5x /+0.5x (10,326) 10,092
Discount to Average Multiple 5% - 35% (14.3%) +5% /-5% (12,303) 11,955
European micro- cap investments 1 66,786 EBITDA Multiple Average EBITDA Multiple of Peers 5.0x - 15.7x (8.6x) -0.5x /+0.5x (4,693) 4,705
Discount to Average Multiple 4% - 61% (26%) +5% /-5% (3,542) 3,554
Real estate 2,3 31,156 Cap Rate/ Income Approach Capitalisation Rate 5.25%-5.75% (5.65%) +50bps/ -50bps (6,918) 8,061
Other investments 4 24,474 Forward looking Revenue Approach Revenue Multiple $9.5 million 5.3x -10%/+10% -10%/+10% (1,722) (1,722) 2,613 2,613
1Excludes the Company's investment in Toro Finance. The fair value of the loan
is impaired and is therefore assessed based on the balance that is recoverable
from the ongoing sale of Toro Finance.
2The Fair Value of JZCP's investment in financial interests in Real Estate is
measured as JZCP's percentage interest in the value of the underlying
properties.
3Sensitivity is applied to the property value and then the debt associated to
the property is deducted before the impact to JZCP's equity value is
calculated. Due to gearing levels in the property structures, an increase in
the sensitivity of measurement metrics at property level will result in a
significantly greater impact at JZCP's equity level.
4JZCP's investment in Spruceview.
The following table shows a reconciliation of all movements in the fair value
of financial instruments categorised within Level 3 between the beginning and
the end of the reporting period/year.
Period ended 31 August 2023
US Micro-Cap European Micro-Cap Real Estate Other Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2023 127,811 68,271 31,156 25,683 252,921
Investments including capital calls 610 2,249 - 800 3,659
Payment in kind ("PIK") 431 - - - 431
Proceeds from investments realised (7,439) (467) - - (7,906)
Net gains/(losses) on investments 3,415 1,586 (1,291) (2,080) 1,630
Movement in accrued interest 1,053 - - - 1,053
At 31 August 2023 125,881 71,639 29,865 24,403 251,788
Year ended 28 February 2023
US Micro-Cap European Micro-Cap Real Estate Other Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2022 284,162 81,150 23,597 23,533 412,442
Investments including capital calls 317 8,628 825 1,100 10,870
Payment in kind ("PIK") 11,810 - - - 11,810
Proceeds from investments realised (181,629) (911) - - (182,540)
Net gains/(losses) on investments 14,626 (20,596) 6,734 1,050 1,814
Movement in accrued interest (1,475) - - - (1,475)
At 28 February 2023 127,811 68,271 31,156 25,683 252,921
1. Net Profit on Investments at Fair Value Through Profit or Loss
Period ended Period ended 31.8.2022
31.8.2023 (restated 1 )
US$ '000 US$ '000
Loss on investments held in investment portfolio at period end
Net movement in period end unrealised gain position 2,606 (34,497)
Unrealised net loss in prior periods now realised (4,247) (15,265)
Net unrealised loss in the period (1,641) (49,762)
Net profit on investments realised in the period
Proceeds from investments realised 7,906 108,419
Cost of investments realised (8,882) (49,011)
Unrealised net loss in prior periods now realised 4,247 15,265
Total net profit in the period on investments realised in the period 3,271 74,673
Net profit on investments in the period 1,630 24,911
1See Note 2
1. Expected Credit Losses
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
Period ended 31.8.2022
31.8.2023 (restated 1 )
US$ '000 US$ '000
Impairment on loans classified as Stage 1 - 229
Impairment on loans classified as Stage 3 259 -
Total impairment on loans during period 259 229
1See Note 2
1. Investment Income
Period ended
Period ended 31.8.2022
31.8.2023 (restated 1 )
US$ '000 US$ '000
Interest calculated using the effective interest rate method 259 229
Other interest and similar income 3,708 7,691
3,967 7,920
Income for the period ended 31 August 2023
Preferred Loan note Interest Other
Interest PIK Cash Dividend Interest Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap 1,484 - - - - 1,484
European micro-cap - 259 - - - 259
Treasury bills - - - - 2,224 2,224
1,484 259 - - 2,224 3,967
Income for the period ended 31 August 2022 (restated1)
Preferred Loan note Interest Other
Portfolio 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 - 229 - - - 229
Listed investments - - - - 238 238
7,081 229 - 372 238 7,920
1See Note 2
1. Finance Costs
Period ended Period ended
31.8.2023 31.8.2022
US$ '000 US$ '000
Interest expense calculated using the effective interest method
Senior Credit Facility (Note 12) 3,206 2,065
ZDP shares (Note 13) - 1,793
Subordinated Notes (Note 14) - 948
3,206 4,806
1. Fees Payable to the Investment Adviser
Investment Advisory and Performance fees
The Company entered into the amended and restated investment advisory and
management agreement with Jordan/Zalaznick Advisers, Inc. (the "Investment
Adviser") on 23 December 2010 (the “Advisory Agreement”).
Pursuant to the Advisory Agreement, the Investment Adviser is entitled to a
base management fee and to an incentive fee. The base management fee is an
amount equal to 1.5 per cent per annum of the average total assets under
management of the Company less those assets identified by the Company as being
excluded from the base management fee, under the terms of the agreement. The
base management fee is payable quarterly in arrears; the agreement provides
that payments in advance on account of the base management fee will be made.
For the six-month period ended 31 August 2023, total investment advisory and
management expenses, based on the average total assets of the Company, were
included in the Statement of Comprehensive Income of $2,696,000 (period ended
31 August 2022: $3,872,000). Of this amount, $350,000 was due and payable at
the period end (28 February 2023: $65,000 was prepaid to the Investment
Adviser).
No incentive fees will be paid to the Investment Adviser until the Company and
Investment Adviser have mutually agreed to reinstate such payments.
1. Investments
Listed Unlisted Unlisted Carrying Value
FVTPL FVTPL Loans Total
31.8.2023 31.8.2023 31.8.2023 31.8.2023
US$ '000 US$ '000 US$ '000 US$ '000
Book cost at 1 March 2023 90,032 280,766 13,283 384,081
Investments in period including capital calls 181,566 3,659 - 185,225
Payment in kind ("PIK") 1 - 431 253 684
Proceeds from investments matured/realised (215,850) (7,906) (1,974) (225,730)
Interest received on maturity 2,480 - - 2,480
Net realised loss - (976) - (976)
Book cost at 31 August 2023 58,228 275,974 11,562 345,764
Unrealised investment and foreign exchange loss - (25,766) (783) (26,549)
Impairment on loans at amortised cost - - (9,034) (9,034)
Accrued interest 312 1,580 88 1,980
Carrying value at 31 August 2023 58,540 251,788 1,833 312,161
1The 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
28.2.2023 28.2.2023 28.2.2023 28.2.2023
US$ '000 US$ '000 US$ '000 US$ '000
Book cost at 1 March 2022 3,395 472,983 12,828 489,206
Investments in year including capital calls 213,164 32,009 - 245,173
Payment in kind ("PIK") 1 - 11,810 455 12,265
Proceeds from investments matured/realised (123,357) (203,679) - (327,036)
Interest received on maturity 689 - - 689
Net realised loss - 32,357) - (32,357)
Realised currency loss (3,859) - - (3,859)
Book cost at 28 February 2023 90,032 280,766 13,283 384,081
Unrealised investment and foreign exchange loss - (28,372) (895) (29,267)
Impairment on loans at amortised cost - - (8,775) (8,775)
Accrued interest 568 527 82 1,177
Carrying value at 28 February 2023 90,600 252,921 3,695 347,216
1The cost of PIK investments is deemed to be interest not received in cash but
settled by the issue of further securities when that interest has been
recognised in the Statement of Comprehensive Income.
Loans at amortised cost
Loans to European micro-cap companies are classified and measured as Loans at
amortised cost under IFRS 9.
The repayment of the loans will occur when the underlying investee company
issuing the debt redeems on ownership change or due date.
Interest on the loans accrues at the following rates:
As At 31 August 2023 As at 28 February 2023
8% 10% Total 8% 10% Total
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Loans at amortised cost 1,833 - 1,833 1,447 2,248 3,695
The Company has not recognised interest on the loans classified as being
credit impaired (Stage 3 see Note 7).
Maturity dates are as follows:
As At 31 August 2023 As At 28 February 2023
Past due Total 0-6 months Total
$'000 US$’000 $'000 US$’000
Loans at amortised cost 1,833 1,833 3,695 3,695
During the period, the maturity date of a loan with a carrying value of $1.833
million (28 February 2023: $3.695 million) became past due. The Company still
anticipates the repayment of the loan when the underlying investee company
exits the investment. In April 2023, JZCP received $1.974 million as part-
repayment of the loan.
1. Senior Credit Facility
On 26 January 2022, JZCP entered into an agreement with WhiteHorse Capital
Management, LLC (the "Senior Lender") providing for a new five year term
senior secured loan facility (the "Senior Credit Facility").
The 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 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 period
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.
During the period, no election was made for a portion of the interest to be
paid in kind. The average interest rate paid by the Company was 12.2 per cent
being the applicable LIBOR/SOFR1 rate plus 7.0 per cent. The rate payable at
the year end was 12.5 per cent (28 February 2023: 11.8 per cent).
The 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. At 31 August 2023, investments and cash valued at $351.4
million (28 February 2023: $352.0 million) were held as collateral on the
senior debt facility. The collateral value used in the asset coverage ratio of
$255.1 million (28 February 2023: $252.1 million) is after adjustments to the
collateral value including a ceiling value on any one investment. The Senior
Credit Facility allowed for the repayment of the Company's other debt
obligations assuming the above covenants were not breached as a result of
repayment.
There is an interest rate floor that stipulates LIBOR/SOFR will not be lower
than 1%. In this agreement, the presence of the floor is considered to be
clearly and closely related to the facility, therefore separation is not
required and the loan is valued at amortised cost using the effective interest
rate method.
1In June 2023, Secured Overnight Financing Rate (SOFR) replaced LIBOR as the
benchmark interest rate for the Senior Credit Facility.
Senior Credit Facility
31.8.2023 28.2.2023
US$ '000 US$ '000
Amortised cost at 1 March 43,181 42,573
Finance costs charged to Statement of Comprehensive Income 3,206 5,163
Interest and finance costs paid (2,848) (4,555)
Amortised cost at period/year end 43,539 43,181
The carrying value of the Senior Credit Facility approximates to fair value.
1. Zero Dividend Preference ("ZDP") shares
On 3 October 2022, the Company redeemed and cancelled its 11,907,720 ZDP
shares on their maturity date. The ZDP shares had a gross redemption yield of
4.75% and a total redemption value of £57,597,000 ($64,296,000 using the
exchange rate on the redemption date).
31.8.2023 28.2.2023
US$ '000 US$ '000
Amortised cost at 1 March - 75,038
Finance costs allocated to Statement of Comprehensive Income - 2,067
Unrealised currency gain on translation - (12,809)
Redemption - (64,296)
Amortised cost at period/year end - -
1. Subordinated Notes
On 14 February 2023, the Company undertook an early voluntary redemption in
full of the Subordinated Notes.
31.8.2023 28.2.2023
US$ '000 US$ '000
Amortised cost at 1 March - 32,293
Finance costs charged to Statement of Comprehensive Income - 1,800
Interest and finance costs paid - (2,593)
Redemption - (31,500)
Amortised cost at period/year end - -
1. Other Payables
31.8.2023 28.2.2023
US$ '000 US$ '000
Audit fees 211 268
Legal fees provision 200 200
Directors' remuneration 49 47
Other expenses 369 249
829 764
1. Ordinary Shares – Issued Capital
31.8.2023 28.2.2023
Number of shares Number of shares
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.
1. Commitments
At 31 August 2023 and 28 February 2023, JZCP had the following financial
commitments outstanding in relation to fund investments:
Expected date 31.8.2023 28.2.2023
of Call US$ '000 US$ '000
JZI Fund III GP, L.P. €10,160,906 (28.2.2023: €6,661,066) over 3 years 5,687 7,064
Spruceview Capital Partners, LLC 1 over 1 year - -
5,687 7,064
1Following a capital call of $0.8 million in April 2023, JZCP has the option
to increase further commitments to Spruceview up to approximately $2.7
million.
1. Related Party Transactions
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 2023, JZCP's investment in Fund III was valued at $70.1
million (28 February 2023: $67.6 million). JZCP's investment in EMC 2010 was
valued at $nil (28 February 2023: $nil).
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 and funded by JZCP to this investment at 31 August 2023, was
$34.9 million (28 February 2023: $34.1 million). 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 original $33.5 million
committed. Further commitments made would be on the same 50:50 basis with Jay
Jordan and David Zalaznick (or their respective affiliates). Following
subsequent capital calls, JZCP has a remaining option to increase further
commitments to Spruceview up to approximately $2.7 million.
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 2023, JZCP's investment in JZHL
Secondary Fund LP was valued at $80.5 million (28 February 2023: $80.4
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 2023, these co-investments, with the Fund A
entities, were in the following portfolio companies: Industrial Service
Solutions WC, L.P. and BSM Engenharia. Pursuant to a merger agreement, dated
December 14, 2022, JZCP and all of the Fund A Entities transferred their prior
investments in ISS #2, LLC rateably in exchange for cash, a rollover
investment (Industrial Service Solutions WC, L.P.) and contingent escrow
amounts. JZCP previously co-invested with Fund A in Safety Solutions Holdings
and Tierpoint which were included in the transfer to JZHL Secondary Fund LP
(mentioned above).
Total Directors' remuneration for the six-month period ended 31 August 2023
was $145,000 (31 August 2022: $145,000).
1. Net Asset Value Per Share
The net asset value per Ordinary share of $4.04 (28 February 2023: $4.06) is
based on the net assets at the period end of $312,660,000 (28 February 2023:
$314,498,000) and on 77,477,214 (28 February 2023: 77,477,214) Ordinary
shares, being the number of Ordinary shares in issue at the period end. The
below table reconciles the estimated NAV per share as announced on 22
September 2023 to the final reported NAV.
31.8.2023
US$
Estimated NAV per share - per Stock Exchange announcement on 22 September 2023 4.05
Valuation change (0.01)
Reported NAV per share 4.04
1. Basic and Diluted (Loss)/Earnings per Share
Basic (loss)/earnings per share is calculated by dividing the loss for the
period by the weighted average number of Ordinary shares outstanding during
the period.
For the period ended 31 August 2023, the weighted average number of Ordinary
shares outstanding during the period was 77,477,214 (31 August 2022:
77,477,214).
The diluted loss per share is calculated by considering adjustments required
to the loss and weighted average number of shares for the effects of potential
dilutive Ordinary shares. There were no dilutive Ordinary shares during the
period.
1. Contingent Assets
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
2023 and 28 February 2023, 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 2023 and 28 February 2023, the Company had the following
contingent assets held in escrow accounts which had not been recognised as
assets of the Company:
Amount in Escrow
31.8.2023 28.2.2023
US$'000 US$'000
Industrial Services Solutions (ISS) 1 2,090 3,044
Deflecto Holdings 553 -
Igloo 49 49
2,692 3,093
During the period ended 31 August 2023, escrow proceeds of $nil (31 August
2022: $999,000) were realised and recorded in the Statement of Comprehensive
Income.
1In December 2022, following the partial sale of the Company's interest in
Industrial Services Solutions (ISS), approximately $8.3 million was placed in
an escrow account payable to the Company post-closing pursuant to an escrow
arrangement that is subject to customary final closing adjustments. Included
in this escrow amount was approximately $5.3 million held back for the
scenario of the estimated net working capital on closing exceeding the final
agreed amount. This amount was included within the year end valuation of
Industrial Service Solutions WC, L.P. rather than as an contingent asset, due
to the likelihood that this portion of the total escrow would be released
imminently (received June 2023). The Company received further proceeds in the
period of $2.0 million from the closing of the ISS partial sale based on the
agreed final working capital of ISS. The Company still has the potential to
receive further proceeds from the closing of the ISS partial sale based on the
final working capital of ISS, as well as the other standard escrows
highlighted in table.
1. Taxation
The Company had been granted Guernsey tax exempt status in accordance with The
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 (as amended).
1. Subsequent Events
These Interim Financial Statements were approved by the Board on 8 November
2023. Events subsequent to the period end 31 August 2023 have been evaluated
until this date.
There are no subsequent events to report.
Company Advisers
Investment Adviser Independent Auditor
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. Ernst & Young LLP
PO Box 9
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
Jordan/Zalaznick Advisers, Inc. UK Solicitor
9 West 57th Street Ashurst LLP
New York NY 10019 London Fruit & Wool Exchange
1 Duval Square
Registered Office London E1 6PW
PO Box 255
Trafalgar Court US Lawyers
Les Banques Monge Law Firm, PLLC
St Peter Port 435 South Tryon Street
Guernsey GY1 3QL Charlotte, NC 28202
JZ Capital Partners Limited is registered in Guernsey Winston & Strawn LLP
Number 48761 35 West Wacker Drive
Chicago IL 60601-9703
Administrator, Registrar and Secretary
Northern Trust International Fund Administration Guernsey Lawyer
Services (Guernsey) Limited Mourant
PO Box 255 Royal Chambers
Trafalgar Court St Julian's Avenue
Les Banques St Peter Port
St Peter Port Guernsey GY1 4HP
Guernsey GY1 3QL
Financial Adviser and Broker
UK Transfer and Paying Agent J.P. Morgan Cazenove Limited
Equiniti Limited 20 Moorgate
Aspect House London EC2R 6DA
Spencer Road
Lancing
West Sussex BN99 6DA
US Bankers
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).
City National Bank
100 SE 2nd Street, 13th Floor
Miami, FL 33131
Guernsey Banker
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA
Useful Information for Shareholders
Listing
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 Symbo l ISIN Code Sedol Number
Ordinary shares JZCP GG00B403HK58 B403HK5
Key Information Documents
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:
Total NAV Return
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 six-month period ended 31 August 2023 was -0.5%, 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
2023 was 0.7%.
Total Shareholder Return (Ordinary shares)
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 2023, in Sterling terms, was
3.2%, 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 2023
was 50.0%.
NAV to market price discount
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 2023, JZCP's Ordinary shares traded at £1.625 (28 February 2023:
£1.575) or $2.06 (28 February 2023: $1.91) being the dollar equivalent using
the period end exchange rate of £1:$1.27 (28 February 2023 £1: $1.21). The
shares traded at a 49.0% (28 February 2023: 53.0%) discount to the NAV per
share of $4.04 (28 February 2023: $4.06).
Criminal Facilitation of Tax Evasion
The Board has approved a policy of zero tolerance towards the criminal
facilitation of tax evasion, in compliance with the Criminal Finances Act
2017.
Non-Mainstream Pooled Investments
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.
Internet Address
The Company: www.jzcp.com
Financial Diary
Results for the year ended 29 February 2024 May/June 2024 (date to be confirmed)
Annual General Meeting June/July 2024 (date to be confirmed)
Interim report for the six months ended 31 August 2024 November 2024 (date to be confirmed)
Payment of Dividends
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)371-384-2265.
Share Dealing
Investors wishing to buy or sell shares in the Company may do so through a
stockbroker. Most banks also offer this service.
Foreign Account Tax Compliance Act
The Company is registered (with a Global Intermediary Identification Number
CAVBUD.999999.SL.831) under The Foreign Account Tax Compliance Act ("FATCA").
Share Register Enquiries
The Company's UK Transfer and Paying Agent, Equiniti Limited, maintains the
share registers. In event of queries regarding your holding, please contact
the Registrar on +44 (0)371-384-2265, 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 outside of the UK, please
ensure the country code is used or access their website at www.equiniti.com.
Changes of name or address must be notified in writing to the Transfer and
Paying Agent.
Nominee Share Code
Where notification has been provided in advance, the Company will arrange for
copies of shareholder communications to be provided to the operators of
nominee accounts. Nominee investors may attend general meetings and speak at
meetings when invited to do so by the Chairman.
Documents Available for Inspection
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:
(a) the Register of Directors' Interests in the stated capital of the Company;
(b) the Articles of Incorporation of the Company; and
(c) the terms of appointment of the Directors.
Warning to Shareholders – Boiler Room Scams
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
US Investors
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:
(a) 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);
(b) is a "Benefit Plan Investor" (as described under "Prohibition on Benefit
Plan Investors and Restrictions on
Non-ERISA Plans" below); or
(c) 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 Useful Information for Shareholders).
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.
US Securities Laws
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.
Prohibition on Benefit Plan Investors and Restrictions on Non-ERISA Plans
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:
(a) The Non-ERISA Plan is not a Benefit Plan Investor;
(b) 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;
(c) 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;
(d) 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
(e) 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.
US Tax Matters
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 years ended February 2022 and
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 2023 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.
Investment Adviser's ADV Form
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
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