TIDMEQPI TIDMEQPC
RNS Number : 0007X
Equity Partnership Inv Co PLC
30 November 2010
The Equity Partnership Investment Company PLC (EPIC PLC)
Annual Report and Financial Statements 2010
Chairman's Statement
The market's recovery mentioned in my previous report has
continued through the current year with the FTSE All Share Index
rising a further 19.5%. The Small Cap Index lagged slightly with
the UK Small Cap rising by 16.34% over the same period. Due to some
outstanding stock picking the Fund's UK Equity portfolio has
outperformed the Index over the period rising by 86%. This has been
down to a number of very successful investments including Lupus
Capital, Diploma, Dialight and Encore Oil. The performance of the
UK Equity portfolio was partly offset by the write-off of the
Baltic Property Fund where, in the light of substantial falls in
capital values and the evaporation of liquidity, banks were not
prepared to continue their support, and Avare Global Coins where
our lawyers have been unable to retrieve shares from the Icelandic
owned custodians' administrators. During the year the Company has
paid four quarterly dividends of 647k to Income Shareholders
amounting to a total of GBP2,589k for the year.
Despite the improved returns from the underlying assets, the
cost of servicing the Income Shares, the Zero Dividend Preference
Share accretion and the cost of running the Company themselves
provide a substantial performance hurdle. Moreover the cost of
realising some of the Fund's less liquid investments and the
growing proportion of our assets in cash and short dated
instruments at low interest rates place an additional performance
burden on the remainder of the portfolio, and it is therefore
important that despite the need to raise liquidity, we continue to
seek investment returns in excess of cash in the months ahead.
As mentioned in the quarterly Managers' reports, our focus has
been on increasing the portfolio's liquidity as we move into the
final year of the Company's life. Shareholder feedback and the
stock market's heavily discounted valuations of both Income and
Capital Shares highlighted concerns that a proportion of the
Company's assets remaining in illiquid investments were likely to
be both difficult and expensive to realise. As a result, Income
Shareholders (who rank behind Zeros for repayment at the end of
July 2011) expressed concern that their redemption remained heavily
reliant on the sale of our Private Equity investments. As a result,
our strategy has been focused on addressing these liquidity
concerns while bearing in mind the concerns of Capital Shareholders
whose residual value could be significantly impaired if wide
discounts were required in order to sell the Fund's illiquid
investments, where the geared effect of discounted sales on Capital
Shares would be profound. Bearing this all in mind, we announced on
31 August 2010 the sale of the Company's Private Equity investments
to EPE Special Opportunities Plc, a transaction which satisfies the
Company's twin objectives of increasing the liquidity and
transparency of the portfolio whilst retaining some exposure to
what the Board and its advisors still believe to be a potentially
valuable portfolio of unquoted investments. Our intention is at the
end of the Company's life next July to offer the opportunity to
those Capital Shareholders who wish to retain an exposure to the
performance of these assets on realisation, to receive their
entitlements in the form of EPE Special Opportunities Plc Shares
and Convertible Loan Stock.
As we move into the final year of the Company's life, the
Managers' aim will be to realise the Company's remaining illiquid
fund investments and will look to sell the Fund's remaining
equities as the market strengthens. Given the Fund's cost
structure, performance hurdle rate and the low interest rate
environment, significant cash positions cannot provide the
performance returns required to prevent further erosion of the NAV.
As a result, the Board is keen to effect share buy-backs which have
the potential to decrease the "drag" on the Capital Share's NAV. As
the senior security within the EPIC structure, Zero Shareholders'
opinions were sought and the previous proposal to repurchase shares
in proportion with the split structure have been replaced by
proposals which allow the repurchase of Income Shares only when
sufficient cash resources remain within the Company to satisfy the
final redemption rights of the Zero Shareholders. Likewise, no
Capital Shares can be repurchased unless or until sufficient cash
resources remain within the portfolio to redeem both Zeros and
Income Shares at the end of the Company's life in July 2011.
Securities markets seem torn between concerns that Government
measures aimed at curbing budget deficits will be deflationary -
and the alternative scenario where inflation continues to run
significantly above policy targets and interest rates are forced up
despite a weak economic background. In the short-term we believe
that UK corporate profits will continue to benefit from an
investment led economic recovery, with the bulk of the "pain" being
taken by the labour force through high unemployment and below
inflation wage rises. To see such a large proportion of the FTSE
100 Index shares trading at yields in excess of those available
from long-dated gilt edged securities seems to indicate the
market's concern that the UK economy risks entering a period of
deflation. However, on balance we believe that equities still
provide good value at current levels and that there will be
opportunities to invest in sound, cash generative companies with
sustainable earnings yields that justify higher ratings. We
therefore believe that it would not be in Shareholders' interests
to raise more liquidity in the short term than is required to
effect share buy-backs, although despite the Managers' highly
successful UK Equity stock picking record, the Company will
inevitably be forced to realise the remaining equity investments on
opportunity over the coming year. However, as I mentioned earlier,
in order to mitigate the difference between the Fund's performance
hurdle rate and the returns available from cash investments, the
Managers will continue to seek opportunities to retain investments
that are both liquid and likely to enhance performance over the
coming months.
Asset Allocation 31 July Asset Allocation 31 July
2010 2009
% %
Quoted UK Equities 29.33% Quoted UK Equities 19.63%
Unquoted Investments/ Unquoted Investments/Private
Private Equities 33.41% Equities 39.75%
Specialist Funds 13.19% Specialist Funds 16.58%
Cash & Sterling CD's 15.42% Cash & Sterling CD's 10.38%
Bonds & Structured Income Bonds & Structured Income
Products 8.56% Products 8.08%
Strategic Investments* 0.09% Strategic Investments* 5.58%
*Syndicate Asset Management
PLC
Note: figures do not include the *Syndicate Asset Management PLC,
exposure to EPIC Securities PLC Strand Partners Limited,
and do not reflect the sale of the
private equity investments that
completed after the year end
Cameron McPhail
29 November 2010
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2010
2010 2009
Note GBP000s GBP000s
------------------------------------------------ --------- ---------
Income
Dividend income 602 923
5 Bond interest income (2,580) 2,544
Bank interest income 28 133
Other income 5 40
Total income (1,945) 3,640
------------------------------------------------ --------- ---------
Expenses
6 Management and investment advisory fees 1,100 1,077
Professional fees 1,288 363
Other expenses 313 375
6 Administration fees 128 139
7 Directors' fees 75 75
Custodian fees 12 22
Audit fees 43 68
14 Provisions (650) 650
Total expenses 2,309 2,769
------------------------------------------------ --------- ---------
Net investment (expense)/income (4,254) 871
------------------------------------------------ --------- ---------
(Losses)/gains on investments
Realised (losses)/gains on sale of investments
at fair value through profit or loss (7,178) 2,757
Net realised gains/(losses) on settlement
of forward foreign exchange contracts 207 (3,428)
Net unrealised (losses)/gains on forward
foreign currency contracts (382) 827
Foreign exchange differences (29) 376
Fair value movement on revaluation of
investments at fair value through profit or
loss 10,819 (11,939)
Profit/(Loss) for the year on investments
at fair value through profit or loss 3,437 (11,407)
------------------------------------------------ --------- ---------
8 Dividends on Income Shares (2,589) (2,589)
15(b) Debt finance costs (1,594) (1,497)
------------------------------------------------ --------- ---------
Loss for the year (5,000) (14,622)
------------------------------------------------ --------- ---------
Other comprehensive income - -
------------------------------------------------ --------- ---------
Total comprehensive expense (5,000) (14,622)
------------------------------------------------ --------- ---------
9 Basic and diluted loss per capital share (12.41)p (36.28)p
(pence)
------------------------------------------------ --------- ---------
The accompanying notes are an integral part of the financial
statements
Consolidated Statement of Financial Position
As at 31 July 2010
2010 2009
Note GBP000s GBP000s
----------------------------------------- --------- ---------
Financial assets at fair value through
10 profit or loss 61,587 59,786
Current assets
Cash and cash equivalents 1,274 2,139
12 Trade debtors and other receivables 1,168 5,257
Total assets 64,029 67,182
----------------------------------------- --------- ---------
Current liabilities
13 Trade creditors and other payables 1,844 1,749
14 Provisions - 60
Non-current liabilities
15(b) Zero Dividend Preference Shares 25,973 24,213
15(a) Income Shares 20,683 20,631
Total liabilities 48,500 46,653
----------------------------------------- --------- ---------
Net assets 15,529 20,529
----------------------------------------- --------- ---------
Shareholders' Equity
16 Share capital 4,030 4,030
Share premium 35,410 35,410
17 Reserves (23,911) (18,911)
Shareholders' Equity 15,529 20,529
----------------------------------------- --------- ---------
18 Net asset value per Capital Share (basic 38.53p 50.93p
and diluted, pence)
----------------------------------------- --------- ---------
The accompanying notes are an integral part of the financial
statements
Company Statement of Financial Position
As at 31 July 2010
2010 2009
Note GBP000s GBP000s
--------------------------------------- --------- ---------
Financial assets at fair value through
10 profit or loss 40,585 36,019
11 Investment in subsidiaries - -
Current assets
Cash and cash equivalents 935 1,504
12 Trade debtors and other receivables 22,170 23,863
Total assets 63,690 61,386
--------------------------------------- --------- ---------
Current liabilities
13 Trade creditors and other payables 1,808 1,716
14 Provisions - 60
Non-current liabilities
15(b) Zero Dividend Preference Shares 25,973 24,213
15(a) Income Shares 20,683 20,631
Total liabilities 48,464 46,620
--------------------------------------- --------- ---------
Net assets 15,226 14,766
--------------------------------------- --------- ---------
Shareholders' Equity
16 Share capital 4,030 4,030
Share premium 35,410 35,410
17 Reserves (24,214) (24,674)
Shareholders' Equity 15,226 14,766
--------------------------------------- --------- ---------
The accompanying notes are an integral part of the financial
statements
Consolidated Statement of Changes in Equity
For the year ended 31 July 2010
Share Share Retained 2010
capital premium reserves Total
GBP000s GBP000s GBP000s GBP000s
------------------------------ --------- --------- ---------- ---------
Balance at 1 August 2009 4,030 35,410 (18,911) 20,529
Total comprehensive loss for
the year - - (5,000) (5,000)
Balance at 31 July 2010 4,030 35,410 (23,911) 15,529
------------------------------ --------- --------- ---------- ---------
Share Share Retained 2010
capital premium reserves Total
GBP000s GBP000s GBP000s GBP000s
------------------------------ --------- --------- ---------- ---------
Balance at 1 August 2008 4,030 35,410 (4,289) 35,151
Total comprehensive loss for
the year - - (14,622) (14,622)
Balance at 31 July 2009 4,030 35,410 (18,911) 20,529
------------------------------ --------- --------- ---------- ---------
The accompanying notes are an integral part of the financial
statements
Consolidated Statement of Cash Flows
For the year ended 31 July 2010
2010 2009
Note GBP000s GBP000s
--------- ---------
Operating activities
Dividends received 469 892
Bond interest received 479 1,506
Bank interest received 26 394
Other income received 5 40
Expenses paid (2,040) (1,920)
Net cash (outflow)/inflow from operating
20 activities (1,061) 912
-------------------------------------------- --------- ---------
Investing activities
Purchase of investments (41,936) (40,671)
Proceeds on sale of investments 44,543 42,401
Foreign exchange differences on deposits (35) (99)
Settlement of forward foreign exchange
contracts 207 (3,429)
Net cash inflow/(outflow) from investing
activities 2,779 (1,798)
--------------------------------------------------- --------- ---------
Financing activities
Dividends paid on Income Shares (2,589) (2,558)
--------------------------------------------------- ---------
Net cash outflow from financing activities (2,589) (2,558)
---------
Decrease in cash and cash equivalents (871) (3,444)
Retranslation of foreign cash balances 6 474
Cash and cash equivalents at start of year 2,139 5,109
--------------------------------------------------- --------- ---------
Cash and cash equivalents at 31 July 1,274 2,139
--------------------------------------------------- --------- ---------
Notes to the Financial Statements
For the year ended 31 July 2010
1 The Company
The Equity Partnership Investment Company Plc ("EPIC Plc") was
incorporated in the Isle of Man on 6 July 2001. The Company is a
closed ended investment company and was formed primarily for
investment in quoted equities, bonds and structured income
products, unquoted equities and specialist funds. The aim of the
Group is to provide long-term capital growth together with a high
level of income. The Group has no employees.
2 Basis of preparation
a) Statement of compliance
The financial statements have been prepared in conformity with
International Financial Reporting Standards ("IFRS") and
Interpretations adopted by the International Accounting Standards
Board ("IASB") and applicable requirements of Isle of Man law.
The consolidated financial statements were authorised for issued
by the Board of Directors on 29 November 2010.
b) Basis of measurement
The financial statements have been prepared on a historical cost
basis except for the measurement at fair value of derivatives and
financial assets at fair value through profit or loss in the
statement of financial position.
The Company is due to be wound up on or close to 31 July 2011
following the redemption of the Income Shares and ZDP shares. All
investments are stated at fair value in these financial statements,
which is deemed to be equivalent to realisable value.
c) Functional and presentation currency
These financial statements are presented in Sterling, which is
the Company's functional currency. All financial information
presented in Sterling has been rounded to the nearest thousand
pounds.
d) Use of estimates and judgements
The preparation of financial statements in conformity with IFRSs
requires Directors and the Investment Advisor to make judgements,
estimates and assumptions that affect the application of policies
and the reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on
historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of which form
the basis of making the judgements about the carrying values of
assets and liabilities that are not readily apparent from other
sources. The Directors have to the best of their ability given the
continuing uncertainty in the global economy, provided as true and
fair a view as is possible in the circumstances. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both current and future
periods.
Judgements made by Directors and the Investment Advisor in the
application of IFRS that have a significant effect on the financial
statements and estimates with a significant risk of material
adjustments in the next year relate to impairment provisioning in
connection with secured loans and valuations of specialist and
unquoted equity investments.
e) Changes in accounting policies
The Group has applied revised IAS 1 Presentation of Financial
Statements (2007), which became effective as of 1 January 2009. As
a result, the Group presents in the consolidated statement of
changes in equity all owner changes in equity, whereas all
non-owner changes in equity are presented in the consolidated
statement of comprehensive income. Comparative information has been
re-presented so that it also is in conformity with the revised
standard. Since the change in accounting policy only impacts
presentation aspects there is no impact on earnings per share.
As of 1 January 2009 the Group determines and presents operating
segments based on the information that internally is provided to
the Board, who are the Group's chief operating decision makers.
This change in accounting policy is due to the adoption of IFRS 8
Operating Segments (2006), which became effective as of 1 January
2009. Previously operating segments were determined and presented
in accordance with IAS 14 Segmental Reporting. The adoption of the
standard had no impact on presentation and disclosure of segment
information.
3 Significant accounting policies
a) Segmental reporting
The Directors are of the opinion that the Group is engaged in a
single geographic segment in the United Kingdom and single economic
segment being investment business. The segment is managed through
analysis of various sub segments, as shown in the table on page
3.
b) Income
Dividends arising on equity investments are credited to income
when the right to receive the dividend is established. Bond
interest and short-term deposit interest income is accounted for on
an effective interest basis.
c) Expenses
All expenses are accounted for on an accruals basis. Issue costs
incurred in respect of the Income Shares have been deferred and are
amortised on a straight-line basis over eight years. The issue
costs in respect of the Zero Dividend Preference Shares are charged
as interest expense in the profit or loss over the term of the life
of these shares using the effective interest method.
d) Taxation
The Company is liable to Isle Of Man taxation at 0% (2009:
0%).
e) Cash and cash equivalents
Cash in hand and at bank and short-term deposits which are held
to maturity are carried at cost.
Cash and cash equivalents are defined as cash in hand, demand
deposits and short-term, highly liquid investments readily
convertible to known amounts of cash and subject to insignificant
risk of changes in value. For the purposes of the Statement of Cash
flows, cash and cash equivalents consist of cash in hand and
deposits in banks.
f) Investments
All investments are classified as "at fair value through profit
or loss". Investments are initially recognised at fair value.
After initial recognition, investments are measured at fair
value, with unrealised gains and losses on investments recognised
in the profit or loss. Realised gains and losses on investments
sold are calculated as the difference between sales proceeds and
cost. The Group applies the First-In First-Out basis for the
purposes of determining the historical cost in calculating all
realised gains and losses arising throughout the year.
For investments actively traded in organised financial markets,
fair value is generally determined by reference to Stock Exchange
quoted market bid prices at the close of business on the reporting
date.
Unlisted investments are valued at the Directors' estimate of
their fair value in accordance with the requirements of IAS 39
Financial Instruments: Recognition and Measurement and guidelines
issued by the International Private Equity and Venture Capital
Association.
Where it proves impossible to obtain a market price the
Directors will use their discretion and awareness of market
conditions to evaluate the fair value of such investments.
g) Financial Instruments
Amendments to IFRS 7 were issued by the IASB in March 2009 and
became effective for annual periods beginning on or after 1 January
2009. These amendments require disclosures of financial instruments
measured at fair value to be based on a three-level fair value
hierarchy that reflects the significance of the inputs in such fair
value measurements.
The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level
1 measurements) and the lowest priority to unobservable inputs
(Level 3 measurements). The three levels of the fair value
hierarchy are as follows:
Level Inputs that reflect unadjusted quoted prices in
1 active markets for identical assets or liabilities
that the Company has the ability to access at
the measurement date;
Level Inputs other than quoted prices that are observable
2 for the asset or liability either directly or
indirectly, including inputs in markets that are
not considered to be active;
Level Inputs that are unobservable.
3
Inputs are used in applying the various valuation techniques and
broadly refer to the assumptions that market participants use to
make valuation decisions, including assumptions about risk. Inputs
may include price information, volatility statistics, specific and
broad credit data, liquidity statistics, and other factors. A
financial instrument's level within the fair value hierarchy is
based on the lowest level of any input that is significant to the
fair value measurement. However, the determination of what
constitutes "observable" requires significant judgement by the
Directors.
The Directors consider observable data to be that market data
which is readily available, regularly distributed and updated,
reliable and verifiable, not proprietary, and provided by
independent sources that are actively involved in the relevant
market. The categorisation of a financial instrument within the
hierarchy is based upon the pricing transparency of the instrument
and does not necessarily correspond to the Directors' perceived
risk of that instrument.
The adoption of these amendments has resulted in enhanced
disclosures in the notes to the consolidated financial
statements.
h) Trade date accounting
All 'regular way' purchases and sales of financial assets are
recognised on the 'trade date', i.e. the day that the entity
commits to purchase or sell the asset. Regular way purchases or
sales are purchases or sales of financial assets that require
delivery of the asset within the time frame generally established
by regulation or convention in the market place.
i) Foreign currency translation
Transactions denominated in foreign currencies are translated
into Sterling at the rate of exchange ruling on the date of the
transaction. Foreign currency monetary assets and liabilities are
translated into Sterling at the rate ruling at the reporting date.
Gains and losses arising on revaluation of foreign currency assets
and liabilities are recognised in the profit or loss. All gains and
losses arising to date on the revaluation of monetary assets have
been included within the unrealised gains arising on
investments.
j) Non-current liabilities
Loans and borrowings
All loans and borrowings are initially recognised at cost, being
the fair value of the consideration received less issue costs where
applicable. After initial recognition, all interest-bearing loans
and borrowings are subsequently measured at amortised cost.
Amortised cost is calculated by taking into account any discount or
premium on settlement.
Income Shares
Income Shares which exhibit characteristics of liabilities are
recognised as liabilities in the Statement of Financial Position.
The corresponding dividends on these shares and the difference
between the net proceeds on the issue of these shares and the final
liability are charged to the profit or loss, amortised on a
straight-line basis over eight years.
Zero Dividend Preference Shares
Zero Dividend Preference Shares, which exhibit the
characteristics of liabilities, are recognised as liabilities in
the Statement of Financial Position in accordance with
International Accounting Standard 39 ("IAS 39"), Financial
Instruments: Recognition and Measurement. After initial
recognition, these liabilities are measured at amortised cost,
which represents the initial proceeds of the issuance plus the
accrued entitlement to the date of the financial statements. The
accrued entitlement is calculated as the difference between the
proceeds on the issue of these shares and the final liability and
is charged as interest expense in the profit or loss over the term
of the life of these shares using the effective interest
method.
k) Derivative financial instruments
The Group uses derivative financial instruments to hedge its
risks associated primarily with interest rate and foreign currency
fluctuations. It is the Group's policy not to trade in derivative
financial instruments. Details of the Group's financial risk
management objectives and policies are set out in Note 22.
Derivative financial instruments are stated at fair value, with
gains and losses included in the profit or loss.
l) Consolidation
Subsidiaries are those entities, including limited liability
partnerships, controlled by the Group. Control exists when the
Company has the power, directly or indirectly, to govern the
financial and operating policies of an entity so as to obtain
economic benefits from its activities. The financial statements of
subsidiaries are included in the consolidated financial statements
from the date that control commences until the date control
ceases.
m) Subsidiaries
Investments in subsidiaries are stated at cost less any
permanent diminution in value in the Company Statement of Financial
Position.
n) Associates
Investments in Associates are those entities over which the
Company has significant influence. By virtue of the exemption
provided by IAS 28 for investment funds and similar entities,
investments in such entities are designated upon initial
recognition to be accounted for at fair value through profit or
loss.
o) Company Statement of Comprehensive Income
In accordance with section 3(5) (b) (ii) of the Companies Act
1982, the Company is exempt from the requirement to present its own
Statement of Comprehensive Income. Of the loss on ordinary
activities of GBP4,999,533 a profit of GBP459,503 (2009: loss of
GBP15,786,751) has been made by EPIC Plc.
p) Future changes in accounting policies
IASB (International Accounting Standards Board) and IFRIC
(International Financial Reporting Interpretations Committee) have
issued the following standards and interpretations with an
effective date after the date of these financial statements:
New/Revised International Financial Reporting Effective date
Standards (IAS/IFRS) (accounting periods
commencing on
or after)
------------------------------------------------------- ---------------------
IAS 1 Presentation of Financial Statements (Revised 1 January 2011
May 2010)**
IAS 7 Statement of Cash Flows (Revised April 2009)* 1 January 2010
IAS 17 Leases (Revised April 2009)* 1 January 2010
IAS 24 Related Party Disclosures - Revised definition 1 January 2011
of related parties
IAS 27 Consolidated and Separate Financial Statements 1 July 2010
(Revised May 2010)**
IAS 32 Financial Instruments: Presentation - 1 February 2010
Amendments relating to classification of rights
issues
IAS 34 Interim Financial Reporting (Revised May 1 January 2011
2010)
IAS 36 Impairment of Assets (Revised April 2009)* 1 January 2010
IAS 39 Financial Instruments: Recognition and 1 January 2010
Measurement (Revised April 2009)*
IFRS 2 Share-based Payment - Amendments relating to 1 January 2010
group cash-settled share-based payment transactions
IFRS 3 Business Combinations - (Revised May 2010)** 1 July 2010
IFRS 5 Non-current Assets Held for Sale and 1 January 2010
Discontinued Operations (Revised April 2009)*
IFRS 7 Financial Instruments: Disclosures (Revised 1 January 2011
May 2010)**
IFRS 7 Financial Instruments: Disclosures - Amendments 1 July 2011
enhancing disclosures about transfers of financial
assets (October 2010)
IFRS 8 Operating Segments (Revised April 2009)* 1 January 2010
IFRS 9 Financial Instruments - Classification 1 January 2013
and Measurement
------------------------------------------------------- ---------------------
IFRIC Interpretation
IFRIC 19 Extinguishing Financial Liabilities with 1 July 2010
Equity Instruments
------------------------------------------------------- ---------------------
*Amendments resulting from April 2009 Annual Improvements to
IFRSs
**Amendments resulting from May 2010 Annual Improvements to
IFRSs
The Directors do not expect the adoption of the standards and
interpretations to have a material impact on the Group's financial
statements in the period of initial application.
4 Significant estimates and judgements
Unlisted investments are valued at the Directors' estimate of
their fair value in accordance with the requirements of IAS 39
'Financial Instruments: Recognition and Measurement' and guidelines
issued by the International Private Equity and Venture Capital
Association. Fair values of such instruments are determined by
using valuation techniques and Directors make assumptions based on
market conditions. Where valuation techniques are used to determine
fair values, they are validated and periodically reviewed. However,
changes in assumptions could affect the reported fair value of
financial instruments.
In 2007, the Group's interest in EPIC Investment Partners
Limited ("EIP") was disposed of, and a provision of 50% was made
for contingent consideration receivable. The deferred consideration
was GBP1.30 for every GBP1 of pre tax profit per annum for 2007,
2008 and 2009 over GBP1.142m. The maximum payout required pre tax
profits of an average GBP1.857m per annum. To be cautious, the
Board of Directors agreed to assume that EIP would generate GBP1.5m
per annum and therefore EPIC Plc would earn 50% of the maximum
payout. The Directors decided to make a provision of 50% of the
deferred consideration, of which GBP89,142 was received in the year
ended 31 July 2009, the balance has been written off in these
financial statements.
5 Bond Interest Income
Included within bond interest income are the reversals of
previous interest accruals which the Directors no longer consider
recoverable.
2010 2009
GBP000s GBP000s
Bond Interest Income
Bond and other interest accrued during
the period 1,495 2,544
Interest on debt securities included in EPIC Investments
LLP and EPIC Investments II LLP written off (3,242) -
Other interest written
off (833) -
---------------------------------------------------------- -------- --------
Net bond interest
expense (2,580) 2,544
---------------------------------------------------------- -------- --------
6 Management, investments advisory, administration and
performance fees
2010 2009
GBP000s GBP000s
Management and investment advisory
fee 1,100 1,077
Administration
fee 128 139
------------------------------------ -------- --------
1,228 1,216
-------- --------
EPIC Plc
On 14 August 2001 the Group entered into an agreement with EPIC
Investment Partners Limited for the provision of investment
management services. EPE Limited (formerly EPIC Specialist
Investment Limited) provided investment management services between
January 2007 and September 2007. On 21 September 2007 EPIC Asset
Management Limited was appointed the Investment Manager. Investment
management fees are paid quarterly in arrears at the rate of 1.00%
per annum of the Total Assets valued at the close of business on
the last business day of each quarter. The Investment Management
Agreement is fixed for an initial period of 2 years and thereafter
is terminable by either of the parties giving not less than 12
months notice.
Under the Investment Management Agreement arrangements are in
place to ensure that where investments are made by the Group in a
vehicle managed or advised by EPIC Asset Management Limited
adjustments will be made to avoid double charging. The Directors
will continue to review investments made by the Group in vehicles
managed or advised by EPIC Asset Management Limited for the
forthcoming year.
Investment management fees of GBP694,217 (2009: GBP680,249) were
payable to EPIC Asset Management Limited, of which GBP174,064
(2009: GBP167,639) was outstanding as at 31 July 2010.
EPIC INVESTMENTS LLP
Under the terms of the Limited Liability Partnership Member's
Agreement for the investment in EPIC Investments Limited Liability
Partnership (EPIC Investments LLP) dated 27 April 2006 EPIC Private
Equity LLP was appointed as investment advisor to the
Partnership.
The investment advisor of EPIC Investments LLP is entitled to
receive a fee which shall be an amount equal to 1.5% (2009: 1.5%)
per annum of the net assets (and, for these purposes, the amount of
any loans made to the partnership by its members shall not be taken
into account in calculating the net assets), subject to an annual
minimum of GBP200,000 (2009: GBP200,000).
Investment advisory fees of GBP371,566 (2009: GBP362,678 were
payable to EPIC Private Equity LLP of which GBP30,381 (2009:
GBP 31,557) remains outstanding at the year end.
EPIC INVESTMENTS 2 LLP
Under the terms of the Limited Liability Partnership Member's
Agreement for the investment in EPIC Investments 2 Limited
Liability Partnership "EPIC Investments 2 LLP" dated 30 January
2007 EPIC Private Equity LLP was appointed as investment advisor to
the Partnership.
The investment advisor of EPIC Investments 2 LLP is entitled to
receive a fee which shall be an amount equal to 1.5% (2009: 1.5%)
per annum of the net assets (and, for these purposes, the amount of
any loans made to the partnership by its members shall not be taken
into account in calculating the net assets). During the year ended
31 July 2010, GBP34 186 (2009: GBP 34,115) has been expensed, of
which GBP2,561 (2009: GBP3 201) was outstanding at 31 July
2010.
Performance fees
EPIC Plc
The agreement above also provides for the provision of a
performance-related fee in respect of any financial year where the
growth in the NAV of the Group exceeds a benchmark annual return of
12 month Libor plus 3%. The performance fee is payable at 10% of
any out-performance of the benchmark, and is only provided when the
NAV of the Group at the year-end in question exceeds the highest
NAV at the end of the previous year or the NAV immediately
following completion of the placement. In the current year a
performance fee of GBPnil (2009: GBPnil) has been expensed.
EPIC INVESTMENTS LLP
As disclosed in the Members' Agreement the Net Income, Net
Losses, the Capital Gains and the Capital Losses shall be allocated
between the Members' respective Profit Accounts as follows:
(a) Prior to the Hurdle Payment Date, being the date when the
loan from EPIC Plc has been repaid, all Relevant Sums shall be
allocated to the Equity Members in the following Proportions:
(i) as to Non-Mezzanine Relevant Sums:
EPIC Plc 99.999%
EPIC Carry LLP 0.001%
(ii) as to Mezzanine Relevant Sums:
EPIC Plc 100%
(b) On the Hurdle Payment Date 19.999% of the Non-Mezzanine
Relevant Sums previously allocated to EPIC Plc will be transferred
to EPIC Carry LLP.
(c) After the Hurdle Payment Date, Relevant Sums shall be
allocated to the Equity Members in the following proportions:
1 as to Non-Mezzanine Relevant Sums:
EPIC Plc 80%
EPIC Carry LLP 20%
2 as to Mezzanine Relevant Sums:
EPIC Plc 100%
EPIC INVESTMENTS 2 LLP
As disclosed in the Members' Agreement the Net Income, Net
Losses, the Capital Gains and the Capital Losses shall be allocated
between the Members' respective Profit Accounts as follows:
(d) Prior to the Hurdle Payment Date, being the date when the
loan from EPIC Plc has been repaid, all Relevant Sums shall be
allocated to the Equity Members in the following Proportions:
(iii) as to Non-Mezzanine Relevant Sums:
EPIC Plc 99.999%
EPIC Carry 2 LLP 0.001%
(iv) as to Mezzanine Relevant Sums:
EPIC Plc 100%
(e) On the Hurdle Payment Date 19.999% of the Non-Mezzanine
Relevant Sums previously allocated to EPIC Plc will be transferred
to EPIC Carry LLP.
(f) After the Hurdle Payment Date, Relevant Sums shall be
allocated to the Equity Members in the following proportions:
3 as to Non-Mezzanine Relevant Sums:
EPIC Plc 80%
EPIC Carry 2 LLP 20%
4 as to Mezzanine Relevant Sums:
EPIC Plc 100%
Distributions shall be allocated in accordance with the Members'
Agreement in the following order of priority:
(a) A payment of the Priority Profit Share.
(b) In repaying member loans.
(c) In paying the members a return, (the hurdle) being 7%
compounded annually on the balance of their loans.
(d) Following the repayment of the hurdle, various other
distribution priorities are contained within the Members'
Agreement.
No performance fees were due for the year ended 31 July 2010 or
31 July 2009.
Administration fee
On 30 November 2007 the Group entered into an agreement with
IOMA Fund and Investment Management Limited ("IOMA"), for the
provision of administration, registration and secretarial services.
IOMA delegated the provision of accounting services to EHM
International Limited (formerly EHM Service Providers Limited). The
fee is payable at a rate of 0.20% per annum on the first
GBP50,000,000 of the average of the monthly Net Asset Value ("NAV")
(as defined in the Administration Agreement) of the Group and 0.15%
on any excess of such average NAV of the Group over GBP50,000,000
subject to a maximum fee of GBP150,000 per annum or pro-rata for
any period less than one year.
7 Directors' fees
Directors' fees amount to GBP75,000 (2009: GBP75,000) and are
comprised as follows:
2010 2009
GBP000s GBP000s
Dr Cameron McPhail
(Chairman) 25 25
Mr Donald McCrickard 20 20
Mr Martin Richardson 20 20
Mr Philip Scales 10 10
----------------------
75 75
-------- --------
8 Dividend on Income Shares
2010 2009
Rate (pence) GBP000s GBP000s
1 interim dividend paid on 27 November 3.1217 (2009:
2009 3.1217) 647 647
2 interim dividend paid on 26 February 3.1217 (2009:
2010 3.1217) 647 647
3 interim dividend paid on 21 May 3.1217 (2009:
2010 3.1217) 648 647
Declared 4 interim dividend paid 3.1217 (2009:
on 27 August 2010 3.1217) 647 648
--------------------------------------- --------------- -------- --------
2,589 2,589
-------- --------
The 4th interim dividend of GBP647,326 was payable on 27 August
2010 to shareholders on the register as at 30 July 2010. The
ex-dividend date was 28 July 2010.
9 Basic and diluted loss per capital share
2010 2009
Loss for the year
(GBP000s) (5,000) (14,622)
Weighted average number of Capital
Shares for basic earnings per share 40,304,312 40,304,312
-------------------------------------- ----------- -----------
Basic and diluted loss per capital
share (pence) (12.41) (36.28)
-------------------------------------- ----------- -----------
Capital Shares
Basic loss per capital share is calculated by dividing the loss
for the year attributable to Capital Shares by the weighted average
number of Capital Shares outstanding during the year.
For the years ended 31 July 2010 and 2009 there is no difference
between basic and fully diluted loss per capital share.
10 Financial assets at fair value through profit or loss
a) Group Financial assets at fair value through profit or
loss
Cash
Based *Strategic *Unquoted Quoted Specialist Structured
Funds Investments Investments Equities Funds Products Others Totals
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
Closing book
cost at 31
July 2010 8,418 542 26,543 18,288 18,365 5,719 500 78,375
------------- -------- ------------ ------------ --------- ----------- ----------- -------- ---------
Unrealised
(loss)/gain
on
revaluation - (486) (5,541) 151 (10,074) (338) (500) (16,788)
------------- -------- ------------ ------------ --------- ----------- ----------- -------- ---------
Fair Value
at 31 July
2010 8,418 56 21,002 18,439 8,291 5,381 - 61,587
------------- -------- ------------ ------------ --------- ----------- ----------- -------- ---------
As at 31
July 2009 6,205 3,334 23,767 11,735 9,914 4,831 - 59,786
------------- -------- ------------ ------------ --------- ----------- ----------- -------- ---------
*Unlisted investments at Directors' valuation.
Included in Specialist Funds and Structured Products are
unquoted holdings at Directors' valuation of GBP2,667,513 and
GBP5,381,198 respectively (2009: 4,151,778 and GBP4,813,538).
b) Company Financial assets at fair value through profit or
loss
Cash
Based *Strategic *Unquoted Quoted Specialist Structured
Funds Investments Investments Equities Funds Products Others Totals
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
Closing book
cost at 31
July 2010 8,418 542 - 18,288 18,365 5,719 500 51,832
------------- -------- ------------ ------------ --------- ----------- ----------- -------- ---------
Unrealised
(loss)/gain
on
revaluation - (486) - 151 (10,074) (338) (500) (11,247)
------------- -------- ------------ ------------ --------- ----------- ----------- -------- ---------
Fair Value
at 31 July
2010 8,418 56 - 18,439 8,291 5,381 - 40,585
------------- -------- ------------ ------------ --------- ----------- ----------- -------- ---------
As at 31
July 2009 6,205 3,334 - 11,735 9,914 4,831 - 36,019
------------- -------- ------------ ------------ --------- ----------- ----------- -------- ---------
*Unlisted investments at Directors' valuation.
Included in Specialist Funds and Structured Products are
unquoted holdings at Directors' valuation of GBP2,667,513 and
GBP5,381,198 respectively (2009: 4,151,778 and GBP4,813,538).
The valuation of unquoted investments by the Directors is
carried out with the advice of the Investment Advisor using BVCA
guidelines which state that portfolio companies should be valued on
an EBIT/EBITDA multiple basis using publicly quoted comparables
and/or transaction comparables, then discounting the equity value
by an appropriate percentage to account for marketability
considerations. It is then possible to determine on a case by case
basis whether it makes more sense to value the investment at "cost"
or "fair value".
For the private equity portfolio (which comprises all unquoted
investments), the valuation of GBP21m is based on the post year end
sales price, see note 28.
11 Investment in subsidiaries
Name Holding Type Held Country Activity
of Incorporation/
formation
-------------------- -------- ------------ ------------------- -----------
EPIC Finance 100% Ordinary Isle of Financing
Company Limited Shares Man
EPIC Securities 100% Ordinary Isle of Financing
Plc Shares Man
EPIC Investments 99.999% Partnership United Investment
LLP Interest Kingdom Holding
EPIC Investments 99.999% Partnership United Investment
2 LLP Interest Kingdom Holding
-------------------- -------- ------------ ------------------- -----------
The Partnerships are controlled entities of EPIC Plc. The
Partnerships' principal purpose is to make private equity
investments. Following the year end the Company disposed of its
entire interest in the Partnerships for a total consideration of
GBP21m as disclosed in note 27.
12 Trade debtors and other receivables
Group Company Group Company
2010 2010 2009 2009
Amounts due within 1 year GBP000s GBP000s GBP000s GBP000s
--------------------------------
Amounts due from
brokers - - 670 670
Interest and dividends
receivable 200 200 1,406 526
Unrealised gain on outstanding
forward exchange contracts 159 159 541 541
Other debtors 809 809 396 396
-------------------------------- -------- -------- -------- --------
1,168 1,168 3,013 2,133
-------- -------- -------- --------
Amounts due after
1 year
-------- -------- -------- --------
Interest and dividends
receivable - - 2,244 -
Loan due from EPIC Investments
LLP - 18,884 - 18,980
Loan due from EPIC Investments
2 LLP - 2,118 - 2,750
--------------------------------
- 21,002 2,244 21,730
1,168 22,170 5,257 23,863
-------- -------- -------- --------
Loans due from subsidiaries are unsecured, interest free loans
and will be payable by EPIC Investments LLP and EPIC Investments 2
LLP to EPIC Plc out of the proceeds of disposals.
Amounts due from brokers are payable by brokers within the
normal market settlement terms.
13 Trade creditors and other payables
Group Company Group Company
2010 2010 2009 2009
GBP000s GBP000s GBP000s GBP000s
Amounts due to brokers 230 230 556 557
Accrued expenses 967 931 545 511
Dividends payable on Income
Shares 647 647 648 648
-----------------------------
1,844 1,808 1,749 1,716
-------- -------- -------- --------
Amounts due to brokers are payable by EPIC Plc within normal
market settlement terms.
Accrued expenses are payable by EPIC Plc within 30 days of
approval of invoice.
14 Provisions
In January 2008 one of the companies in which the Group holds an
investment became involved in a legal dispute, as a result of which
the Company was required to deposit with the court certain funds
and to provide for the costs of the dispute.
In addition the Company may have been held liable for the legal
costs incurred by the other party.
During the year the dispute was resolved and the funds deposited
are due to be returned to the Company. All provisions for legal
expenses have been reversed during the current period.
15 Non-current liabilities
Group Company Group Company
2010 2010 2009 2009
Maturity Rate
Date % GBP000s GBP000s GBP000s GBP000s
-----------------
Zero Dividend
Preference
Shares 31-Jul-11 6.50 25,973 - 24,213 -
Loan note of
EPIC Securities
Plc - - 25,973 - 24,213
Income Shares 31-Jul-11 10.00 20,683 20,683 20,631 20,631
----------------- ----------- ------
46,656 46,656 44,844 44,844
-------- -------- -------- --------
a) Income Shares
2010 2009
Income Shares Shares GBP000s Shares GBP000s
----------- -----------
Authorised
Income Shares of
10p each 45,000,000 4,500 45,000,000 4,500
------------------------------- ----------- -------- ----------- --------
Issued and fully
paid 20,736,333 2,074 20,736,333 2,074
Income Shares of
10p each
------------------------------- ----------- -------- ----------- --------
2010 2009
GBP000s GBP000s
At start of year 20,631 20,671
Amortisation of Income Shares
issue costs 52 52
Over amortisation
in prior years - (92)
------------------------------- ----------- -------- ----------- --------
At close of year 20,683 20,631
------------------------------- ----------- -------- ----------- --------
On 17 August 2001, the Group issued 20,736,333 Income Shares at
100p each. Each share has a par value of 10p and is redeemable on
31 July 2011 for 100p provided that the assets of the Group provide
sufficient cover. The fair value of the income shares at 31 July
2010 was GBP16,769 430 (2009: GBP16,485,385) based on the quoted
offer price of 81.00 p (2009: 79.50p) per income share.
Voting and other rights
Holders of Income Shares are not entitled to vote at general
meetings unless either at the date of the notice convening the
meeting any dividend payable on such shares is in arrears and/or
the business of the meeting includes the consideration of a
resolution for winding up the Group, the reduction of the Group's
capital or any resolution directly abrogating or varying any of the
special rights or privileges attached to Income Shares. Under these
circumstances the Income Shareholders are entitled to one vote for
each share held.
Dividends
The Income Shares carried the right to a cumulative preferential
dividend at an initial rate of 10p per share for the year ending 31
July 2003 but shall have no further right to participate in the
profits of the Group. The Dividends payable in respect of each
financial year thereafter will be increased in proportion to the
increase (if any) in the RPI over the preceding year, capped at a
5% increase in any year.
Winding up
On a winding up, the holders of the Income Shares shall be
entitled pro rata to their holdings, out of the assets available
for distribution to shareholders, to payment of any arrears of the
preferential dividend entitlement and to repayment of the original
issue price of GBP1 per share.
b) Zero Dividend Preference Shares
EPIC Securities issued 20,000,000 ZDP shares of 10p each at a
price of 100p. These shares had an initial capital entitlement of
100p per share, increasing at a daily compound rate equivalent to
an annual compound rate of 6.5% so as to reach a final capital
entitlement of 139.3p per share on 31 July 2011. Issue costs
totalled GBP751,214 which have been set off against the issued ZDP
share capital and will be amortised over the term of the ZDP issue.
The fair value of the ZDP shares at 31 July 2010 was GBP26,100,000
(2009: GBP24,500,000) based on the quoted offer price of 130.50p
(2009: 122.50p) per ZDP share.
After taking account of issue costs the annual compound rate to
reach the final capital entitlement of 139.3p per share on 31 July
2011 is 7.27% (2009: 7.27%).
In accordance with the articles of association of EPIC
Securities Plc, the holders of the 20,000,000 Zero Dividend
Preference Shares ("ZDP"), are entitled on a winding up to an
amount equal to 100p per ZDP share as increased daily at the
compound rate as would give a final capital entitlement of 139.3p
on the ZDP repayment date. At 31 July 2010 the accrued value was
GBP25,972,758 (2009: GBP24,213,358). The entitlement accrued under
the contribution of assets agreement (Deed of Undertaking) is
equivalent to the annual compound rate of 6.5%.
Rights attaching to ZDP Shares
ZDP shareholders are not entitled to receive, and cannot
participate in, any dividends or other distributions out of the
profits of the Company available for dividend and resolved to be
distributed in respect of any accounting period or any other income
or right to participate therein.
The ZDP Shares do not carry any entitlement to receive
income.
On a return of assets on liquidation, after payment of all debts
and satisfaction of all creditors there shall be paid to ZDP
shareholders from the surplus assets an amount equal to 100p per
ZDP Share as increased daily at such compound rate as will give
entitlement to 139.3p on the ZDP redemption date, the first
increase occurring on the date the ZDP Shares are first admitted to
the Official List of the United Kingdom Listing Authority and the
last on the actual date of payment. The redemption entitlements due
to holders of the ZDP Shares will be satisfied by an allocation to
the redemption reserve. The daily compound rate applied to the ZDP
Shares represents an annual compound rate of 7.29% (2009:
7.27%).
Although the Zero Dividend Preference Shares are entitled to a
pre-determined capital repayment on the repayment date, this is not
guaranteed and, based on the Principal Bases and Assumptions,
following the placing a fall at a rate greater than 15% per annum
(compound) in the value of the Total Assets of EPIC Plc would
result in a lower payment than the pre-determined entitlement of
139.3p per Zero Dividend Preference Share, which could potentially
be zero.
ZDP shareholders will not have the right to receive notice of
any general meeting of the Company nor to attend or vote at any
such meeting except in respect of any resolution altering,
modifying or abrogating any of the special rights and privileges
attaching to the ZDP Shares or to wind up the Company.
The carrying amount of ZDPs has been determined by deducting the
issue cost from the 20 million ZDP shares and adding the interest
due and finance cost due from EPIC Plc.
GBP000s GBP000s
-------------------------------- -------- --------
Liability at beginning of year 24,213 22,562
Finance cost of
ZDP Shares 1,594 1,497
Amortisation of
issue costs 166 154
-------------------------------- -------- --------
Liability at end
of year 25,973 24,213
-------------------------------- -------- --------
16 Share capital - Capital shares
Number of 2010 Number of 2009
shares GBP000s shares GBP000s
------------------ ----------- -------- ----------- --------
Authorised
Capital shares 75,000,000 7,500 75,000,000 7,500
Warrants 15,000,000 1,500 15,000,000 1,500
90,000,000 9,000 90,000,000 9,000
----------- -------- ----------- --------
Issued and fully
paid
Capital shares 40,304,312 4,030 40,304,312 4,030
40,304,312 4,030 40,304,312 4,030
----------- -------- ----------- --------
Voting and other rights
Holders of Capital Shares are entitled to one vote for each
share held.
Dividends
Dividends are payable only to Income shareholders.
Winding up
On a winding up, the holders of the Capital Shares shall be
entitled, pro rata to their holdings, to all the assets of the
Group available for distribution to shareholders after satisfaction
of the entitlement of the holders of the Income Shares and Zero
Dividend Preference Shares.
Capital History
In accordance with International Financial Reporting Standards,
the Income Shares and ZDP Shares are treated as liabilities as
described under accounting policies in note 3 above.
Capital management
The Board's policy is to maintain a strong capital base so as to
maintain investor, creditor and market confidence and to sustain
future development of the business. The Board manages the Company's
affairs to achieve shareholder returns through capital growth
rather than income, and monitors the achievement of this through
growth in net asset value per share.
Company capital comprises share capital, share premium and
reserves. The Company is not subject to externally imposed capital
requirements.
17 Group and Company reserves - Capital Shares
Profit and loss Profit and loss
Group Reserves reserve reserve
2010 2009
GBP000s GBP000s
Reserves at start
of year (18,911) (4,289)
(Loss) for the year (5,000) (14,622)
---------------------- ---------------- ----------------
Reserves at 31 July (23,911) (18,911)
---------------------- ---------------- ----------------
Profit and loss Profit and loss
Company Reserves reserve reserve
2010 2009
GBP000s GBP000s
Reserves at start
of year (24,674) (8,887)
Profit/(loss) for
the year 460 (15,787)
---------------------- ---------------- ----------------
Reserves at 31 July (24,214) (24,674)
---------------------- ---------------- ----------------
Per the Group's Prospectus, dividends can be paid up to the
cumulative total of gross income. As at 31 July 2010 GBP3,487,000
(2009: GBP8,073 000) of undistributed gross income was included in
reserves.
An analysis of the profit and loss reserve detailing the split
of the retained profit and loss reserve between Revenue and Capital
is detailed in note 22.
18 Net asset value per share - Capital Share (Basic and
Diluted)
The basic net asset value per Capital Share is based on the net
assets attributable to Capital shareholders of GBP15,529k (2009:
GBP20,528,637) on 40,304,312 (2009: 40,304,312) capital shares in
issue at the end of the year.
19 Published Net Asset Value
Pence
per
As at 31 July 2009 GBP000s share
Published net asset value of capital
shares 20,571 51.04
Adjustments for
Financial assets market value adjustments (3,611) (8.96)
Over estimation of interest receivable (2,287) (5.67)
Over estimation
of expenses 856 2.12
------------------------------------------- -------- -------
Consolidated net asset value per
financial statements 15,529 38.53
------------------------------------------- -------- -------
20 Note to the Consolidated Statement of Cash Flows
Reconciliation of net investment expense/income to net cash
outflow/inflow) from operating activities:
2010 2009
GBP000s GBP000s
Net investment (expense)/income (4,254) 871
------------------------------------------ -------- --------
Adjustment for:
Amortisation of Zero Dividend Preference
Shares issue costs 165 154
Amortisation of Income Shares issue
costs 52 (40)
Provisions (650) 590
Decrease/(increase) in trade debtors
and other receivables 3,204 (1,024)
Increase in trade and other payables 422 361
Net cash (outflow)/inflow from operating
activities (1,061) 912
------------------------------------------ -------- --------
21 Investments in securities at fair value
The following table shows an analysis of financial assets and
liabilities recorded at fair value though profit or loss, between
those fair values based on quoted market prices (Level 1), those
involving valuation techniques where model inputs are observable in
the market (Level 2) and those where the valuation technique
involves the use of non-market observable inputs (Level 3).
Fair value measurements at 31 July 2010
Investments in securities at fair value
Quoted prices in Significant Significant
other other
active
markets
for observable unobservable
identical
Total assets inputs inputs
(Level 1) (Level 2) (Level 3)
GBP000s GBP000s GBP000s GBP000s
Description
Assets
Cash based
funds 8,418 8,418 - -
Strategic
investments 56 - - 56
Unquoted
investments 21,002 - - 21,002
Quoted
equities 18,439 18,439 - -
Specialist
funds 8,291 - 5,624 2,667
Structured
products 5,381 - - 5,381
------------ ----------------- ------------------- --------------------
Total 61,587 26,857 5,624 29,106
------------ ----------------- ------------------- --------------------
The following table includes a roll forward of the amounts for
the year ended 31 July 2010 for investments classified within Level
3. The classification of investments within Level 3 is based upon
the significance of the unobservable inputs to the overall fair
value measurement. Total gains and losses relating to Level 3
investments are recognised in the statement of comprehensive
income.
Total
GBP000s
-------------------- --------
Opening Balance 36,067
Purchases 3,085
Sales (3,947)
Realised losses (2,058)
Fair vale movement (4,041)
-------------------- --------
Closing Balance 29,106
-------------------- --------
22 Financial instruments
The Group's financial instruments comprise:
Equity shares, fixed interest securities, cash funds and
unquoted securities that are held in accordance with the Group's
investment objectives, which are set out on page 2 of this report
and financial statements;
Cash and cash equivalents that arise directly from the Group's
operations;
s Forward exchange contracts; and
s Zero Dividend Preference Shares and Income Shares.
The analysis of investments is provided in note 10b.
Financial risk management objectives and policies
The main risks arising from the Group's financial instruments
are market price risk, credit risk, liquidity risk, foreign
currency risk and interest rate risk. The Board regularly reviews
and agrees policies for managing each of these risks and these are
summarised below.
Estimation of fair values
For investments actively traded in organised financial markets,
fair value is generally determined by reference to Stock Exchange
quoted market bid prices at the close of business on the balance
sheet date.
Unlisted investments are valued at the Directors' estimate of
their fair value in accordance with the requirements of IAS 39
'Financial Instruments: Recognition and Measurement' and guidelines
issued by the International Private Equity and Venture Capital
Association.
Forward exchange contracts are marked to market using listed
market prices by discounting the contractual forward price and
deducting the current spot rate.
For receivables/payables with a remaining life of less than one
year, the notional amount is deemed to reflect the fair value. All
other receivables/payables are discounted to determine the fair
value.
Market price risk
Market price risk arises mainly from uncertainty about future
prices of financial instruments held. It represents the potential
loss the Group might suffer through holding market positions in the
face of price movements. All financial assets and liabilities are
carried at fair value except for ZDP shares and Income shares.
To mitigate the risk the Board's investment strategy is to
select investments for their fundamental value. Stock selection is
therefore based on disciplined accounting, market and sector
analysis, with the emphasis on long term investments. An
appropriate spread of investments is held in the portfolio in order
to reduce both the statistical risk and the risk arising from
factors specific to a country or sector. The Investment Manager
actively monitors market prices throughout the year and reports to
the Board, which meets regularly in order to consider investment
strategy.
A list of the 15 largest investments held by the Group is shown
in the Portfolio Analysis (unaudited) on page 14.
If the value of the Group's investment portfolio declined by 5%
the net assets would decrease by GBP3,274,377 (2009: GBP3,053,542).
An increase in value of 5% would have an equal but opposite
effect.
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Group.
The investment manager assesses the risk associated with fixed
interest investments by performing financial analysis on the
issuing companies as part of its normal scrutiny of prospective
investments. The Group invests in a combination of high yield and
investment grade bonds.
At the reporting date, the Group's financial assets exposed to
credit risk amounted to the following:
2010 2009
GBP000s GBP000s
Cash based funds 8,418 6,205
Debt securities 26,383 28,598
Cash and cash equivalents 1,274 2,139
Trade debtors and other receivables 1,168 5,257
37,243 42,199
------------------------------------- -------- --------
Liquidity risk
Liquidity risk is the risk that the Group will encounter in
realising assets or otherwise raising funds to meet financial
commitments. The Group's investments include marketable securities
in which there is active trade and the investments are readily
realisable. In addition there are strategic and unquoted
investments in which there are no ready markets and as such, these
investments may not be readily realisable. The Company is due to be
wound up on or before 31 July 2011 and the Group's focus is
therefore to ensure adequate liquidity to repay the liabilities as
shown.
Residual contractual maturities of financial liabilities:
Less 3 months No
than 1-3 to 1 1-5 Over stated
31 July 2010 1 month months year years 5 years maturity
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
Financial
liabilities
Trade
creditors
and other
payables 1,844 - - - - -
Zero
Dividend
Preference
Shares - - 25,973 - - -
Income
Shares - 20,683 - - -
------------- --------- -------- --------- --------- --------- ---------
1,844 - 46,656 - - -
------------- --------- -------- --------- --------- --------- ---------
Less 3 months No
than 1-3 to 1 1-5 Over stated
31 July 2009 1 month months year years 5 years maturity
GBP000s GBP000s GBP000s GBP000s GBP000s GBP000s
Financial
liabilities
Trade
creditors
and other
payables 1,749 - - - - -
Provisions 60 - - - - -
Zero
Dividend
Preference
Shares - - - 24,213 - -
Income
Shares - ` 20,631 - -
------------- --------- -------- --------- --------- --------- ---------
1,809 - - 44,844 - -
------------- --------- -------- --------- --------- --------- ---------
The obligations of EPIC Plc to repay the Loan Note and discharge
its obligations pursuant to the undertakings, will be subordinated
to the claims of EPIC Plc 's other creditors on a winding up. If at
the repayment date (or any earlier redemption of the Zero Dividend
Preference Shares) EPIC Plc has insufficient assets, then its
obligations to repay the Loan Notes and make payment under the
undertakings may be satisfied only in part or not at all.
Accordingly the Company may have insufficient assets to satisfy the
then current or final capital entitlement of the Zero Dividend
Preference Shares.
Foreign currency risk
Foreign currency risk is the risk that the value of a financial
instrument will fluctuate because of changes in foreign exchange
rates. The Group has exposure to foreign exchange movements in Euro
and US Dollar. The Group's foreign exchange exposure arises from
its investment in securities and cash balances denominated in
currencies other than sterling.
A breakdown of the financial assets and liabilities of the Group
denominated in currencies other than sterling is as follows:
2010 2009
Denominated Denominated
in foreign currency in foreign currency
US $000s US $000s
-------------------------------------------------- ---------------------
Financial assets at fair
value through profit or
loss 8,864 9,029
Cash balances 291 36
Forward foreign
exchange contracts (9,500) (8,000)
---------------------------- --------------------- ---------------------
Total: US Dollar (345) 1,065
---------------------------- --------------------- ---------------------
Total: Sterling (221) 642
---------------------------- --------------------- ---------------------
EUR000s EUR000s
Financial assets at fair
value through profit or
loss 5,355 7,032
Cash balances 1 1
Forward foreign
exchange contracts (5,300) (9,000)
---------------------------- --------------------- ---------------------
Total: Euros 56 (1,967)
---------------------------- --------------------- ---------------------
Total: Sterling 47 (1,682)
---------------------------- --------------------- ---------------------
The Group has entered into forward exchange contracts to hedge
certain anticipated Euro foreign currency revenues and investment
in foreign entities.
As at 31 July 2010 the Group held open forward exchange
contracts in sterling against the currencies as follows:
Settlement Date Contractual Market Unrealised
of contract Amount Cost Value Gains
GBP000s GBP000s GBP000s
23 Aug 2010 EUR 1,150,000 (968) (956) 12
31 Aug 2010 EUR 4,150,000 (3,461) (3,453) 8
19 Aug 2010 $ 9,500,000 (6,205) (6,066) 139
---------------------- ----------------- ---------- ---------- -----------
(10,634) (10,475) 159
---------- ---------- -----------
As at 31 July 2009 the Group held open forward exchange
contracts in sterling against the currencies as follows:
Settlement Date Contractual Market Unrealised
of contract Amount Cost Value Gains
GBP000s GBP000s GBP000s
26 August 2009 EUR 2,500,000 (2,229) (2,138) 91
23 September 2009 EUR 2,500,000 (2,229) (2,138) 91
25 September 2009 EUR 1,500,000 (1,388) (1,283) 105
21 October 2009 EUR 2,500,000 (2,229) (2,138) 91
15 October 2009 $ 3,000,000 (1,833) (1,810) 23
17 December 2009 $ 3,000,000 (1,836) (1,810) 26
15 September 2009 $ 2,000,000 (1,321) (1,207) 114
---------------------- ----------------- ----------
(13,065) (12,524) 541
---------- ---------- -----------
Interest rate risk
The Group's exposure to market risk for changes in interest
rates relates primarily to debt securities in the Group's
investment portfolio and obligations regarding ZDP shares and
Income Shares. The portfolio includes only debt securities with
active secondary or resale markets to ensure portfolio
liquidity.
Bond and preference share yields, and as a consequence their
prices, are determined by market perception as to the appropriate
level of yields given the economic background. Key determinants
include economic growth prospects, inflation, the government's
fiscal position, short-term interest rates and international market
comparisons. The Investment Manager takes all these factors into
account when making any investment decisions as well as considering
the financial standing of the potential investee Company.
Returns from bonds and preference shares are fixed at the time
of purchase, as the fixed coupon payments are known, as are the
final redemption proceeds. Consequently, if a bond is held until
its redemption date, the total return achieved is unaltered from
its purchase date. However, over the life of a bond the market
price at any given time will depend on the market environment at
that time.
The Group's policy is to manage its interest cost using a mix of
fixed and variable rate debt. The interest rate profile of the
Group at 31 July 2010 is as follows:
Total
as per Assets
Statement on which
of Financial Variable Fixed no interest
Financial assets Position rate Rate is received
GBP000s GBP000s GBP000s GBP000s
Type:
Cash Based Funds 8,418 8,418 - -
Strategic Investments 56 - - 56
Unquoted Investments 21,002 - 17,912 3,090
Quoted Equities 18,439 - - 18,439
Specialist Funds 8,291 - 1,962 6,329
Structured Products 5,381 - 5,381 -
Financial assets measured
at fair value through
profit or loss 61,587 8,418 25,255 27,914
-------------------------- -------------- --------- -------- -------------
Cash and cash equivalents 1,274 1,274 - -
Trade debtors and
other receivables 1,168 - - 1,168
-------------------------- -------------- --------- --------
64,029 9,692 25,255 29,082
-------------- --------- -------- -------------
Total
as per Assets
Statement on which
of Financial Variable Fixed no interest
Financial liabilities Position rate Rate is paid
GBP000s GBP000s GBP000s GBP000s
Type:
Trade creditors and other
payables 1,844 - - 1,844
Income Shares 20,683 20,683 - -
Zero Dividend Preference
Shares 25,973 - 25,973 -
--------------------------
48,500 20,683 25,973 1,844
-------------- --------- -------- -------------
The interest rate profile of the Group at 31 July 2009 was as
follows:
Total
as per Assets
Statement on which
of Financial Variable Fixed no interest
Financial assets Position rate Rate is received
GBP000s GBP000s GBP000s GBP000s
Type:
Cash Based Funds 6,205 6,205 - -
Unquoted Investments 23,767 - 17,250 6,517
Quoted Equities 11,735 - - 11,735
Specialist Funds 9,914 - 1,135 8,779
Strategic Investments 3,334 - 2,502 832
Structured Products 4,831 - 4,831 -
Financial assets measured
at fair value through
profit or loss 59,786 6,205 25,718 27,863
-------------------------- -------------- --------- -------- -------------
Cash and cash equivalents 2,139 2,139 - -
Trade debtors and
other receivables 5,257 - 3,124 2,133
-------------------------- -------------- --------- --------
67,182 8,344 28,842 29,996
-------------- --------- -------- -------------
Total
as per Assets
Statement on which
of Financial Variable Fixed no interest
Position rate Rate is paid
Financial liabilities GBP000s GBP000s GBP000s GBP000s
Type:
Trade creditors and other
payables 1,749 - - 1,749
Provisions 60 - - 60
Income Shares 20,631 20,631 - -
Zero Dividend Preference
Shares 24,213 - 24,213 -
--------------------------
46,653 20,631 24,213 1,809
-------------- --------- -------- -------------
23 Split of profit and loss reserve between Revenue and Capital
Shares
2010 2010 2009 2009
Revenue Capital Revenue Capital
GBP000s GBP000s GBP000s GBP000s
Total income (1,945) 3,640
Total expenses (including debt
finance costs) (52) (3,851) 40 (4,306)
------------------------------------ -------- --------- -------- ---------
Net investment (loss)/income (1,997) (3,851) 3,680 (4,306)
------------------------------------ -------- --------- -------- ---------
(Loss)/gains on
investments
Realised (losses) on sale of
investments - (7,178) - (671)
Net unrealised (losses)/gains
on forward foreign currency
contracts - (382) - 827
Foreign exchange
differences - 178 - 376
Fair value movement on revaluation
of investments at fair value
through profit or loss - 10,819 - (11,939)
Dividends in respect of Income
Shares (2,589) - (2,589) -
(2,589) 3,437 (2,589) (11,407)
(Loss) /profit for
the year (4,586) (414) 1,091 (15,713)
------------------------------------ -------- --------- -------- ---------
Reserves brought
forward 8,073 (26,984) 6,982 (11,271)
------------------------------------ -------- --------- -------- ---------
Reserves carried
forward 3,487 (27,398) 8,073 (26,984)
------------------------------------ -------- --------- -------- ---------
24 Directors' interests
No Directors had interests in the shares of the Group as at 31
July 2010 or 31 July 2009.
25 Related parties
(i) Philip Scales is a director of the Company and of the
Administrator, IOMA Fund and Investment Management Limited. IOMA
has delegated the provision of accounting services to EHM
International Limited. Administration fees amounting to GBP128,477
(2009: GBP139,072) were paid to EHM International Ltd, calculated
in accordance with the Administration Agreement, dated 30 November
2007, of which GBP32,105 (2009: GBP31,321) was outstanding as at 31
July 2010.
(ii) On 14 August 2001 the Group entered into an agreement with
EPIC Investment Partners for the provision of investment management
services, terms of which are disclosed in note 6. EPE Limited
(formerly EPIC Specialist Investment Limited) provided investment
management services between January 2007 and September 2007. On 21
of September 2007 EPIC Asset Management Limited was appointed the
Investment Manager.
Investment management fees of GBP694,217 (2009: GBP680,318) were
payable to EPIC Asset Management Limited, of which GBP174,064
(2009: GBP162,639) was outstanding as at 31 July 2010.
Performance fees of GBPnil (2009: GBPnil) were paid to EPIC
Asset Management Limited, of which GBPnil was outstanding at 31
July 2010 (2009: GBPnil).
(iii) Under the terms of the Limited Liability Partnership
Members` agreement for the investment in EPIC Investment Limited
Liability Partnership (EPIC LLP) dated 27 April 2006 EPIC Private
Equity LLP was appointed as investment advisor to the Partnership,
terms of which are disclosed in note 6.
(iv) Under the terms of the Limited Liability Partnership
Members` agreement for the investment in EPIC Investment 2 Limited
Liability Partnership (EPIC 2 LLP) dated 30 January 2007, EPIC
Private Equity LLP was appointed as investment advisor to the
Partnership, terms of which are disclosed in note 6.
Investment advisory fees of GBP371,566 (2009: GBP362,68) were
payable to EPIC Private Equity LLP of which GBP30,381 (2009:
GBP31,567) remains outstanding at the year end.
The Limited Liability Partnership Members` agreement also
provides for the provision of a performance-related fee to its
members EPIC Plc and EPIC Carry LLP, terms of which are disclosed
in note 6.
There were no performance fees payable for the year ended 31
July 2010 (2009: GBPNil).
(v) The Group invested
(vi) in certain companies which are considered to be related
parties, as follows:
EPE Special Opportunities Plc (formerly EPIC Reconstruction
Plc).
(vi) During the year the Company accepted an offer by Syndicate
Asset Management Plc to repay loans held by the Company with a
principal cost totalling GBP2,502,450 for a consideration of
GBP2,402,352. As a condition of the repayment the Company also
wrote off accrued interest of GBP150,147. Syndicate Asset
Management Plc is the ultimate parent company of Epic Asset
Management Limited, the Investment Advisor.
(vii) The principals of EPIC Private Equity LLP co-invest in
certain portfolio companies invested by the Group companies.
(viii) As disclosed in note 25, following the year end the
company disposed of its private equity portfolio to EPE Special
Opportunities Plc at a discount to market value. EPIC Plc and EPE
Special Opportunities Plc are both advised by EPE LLP and both EPE
LLP and the principals of EPE LLP hold equity positions in EPE
Special Opportunities Plc.
26 Contingent asset
As part of the sale of the investment in EPIC Investment
Partners, deferred consideration of GBP938,000 was receivable if
certain performance conditions were achieved during the period from
1 January 2007 and 31 March 2010. The directors considered that it
was more probable than not that 50% of the performance condition
would be achieved and had accrued GBP469,000 accordingly, of which
GBP89,142 had been received during the year ended 31 July 2009. The
remaining balance was written off in the period.
27 Commitments
As 31 July 2009, EPIC Plc had no formal obligations to fund the
working capital requirements of its portfolio companies. It has
committed $1,300 000 (GBP784,148 (2009: $1,300,000, GBP784,148)) of
capital investments to UK Film Partners LLC, of which $65,000
(GBP41,561 $585,000 (GBP352 857) was uncalled at the year end.
28 Subsequent events
The Board of Directors declared a final dividend of 3.127 pence
per Income Share, payable to all eligible Income Shareholders at
record date 30 July 2010. The ex-dividend date was 28 July 2010.
The dividend was paid on 27 August 2010.
On 31 August 2010, the Company completed the disposal of its
interest in EPIC Investments LLP and EPIC Investments 2 LLP (the
LLPs) to EPE Special Opportunities Plc("ESO Plc") for a
consideration with a nominal value of GBP22 million (fair value
GBP21m). The consideration for the acquisition comprised the issue
of GBP10 million of Convertible Loan Notes, GBP2 million of
Consideration Shares and payment of GBP10 million in cash .
The Convertible Loan Notes bear interest at a rate of 7.5% per
annum payable semi-annually and are convertible at an initial price
of 170 pence per Ordinary Share and are repayable on 31 December
2015 subject to a continuation vote by the ordinary shareholders of
ESO Plc. The Convertible Loan Notes are unsecured and can be
converted at any time on or after 31 December 2011.
The GBP2m Consideration Shares were issued at a price of 55.86p
resulting in a total of 3,580,379 shares being issued. The fair
value of the consideration shares at 31 August 2010 was
GBP1,002,506 based on a mid market price of EPE Special
Opportunities Plc ordinary shares of 28.00p. The Company is subject
to a lock in on all ESO Plcshares until 31 July 2011. Following the
transaction the Company has a total investment in ESO Plc of
6,193,097 shares which comprises 20.05% of ESO Plc's total issued
share capital of 30,891,661.
The LLPs have been included in these financial statements with
gross assets of GBP21,002,506; prior to the disposal they were
included in the unaudited interim financial statements at 31
January 2010 with gross assets of GBP26,773,606.
Shareholder Information - significant holdings at 31 July
2010
Schedule of shareholders holding over 3% of issued shares
Capital Shares
Holdings % of Class
------------------------------------ ----------- -----------
Sg Option Europe S A 10,455,000 25.94%
Nortrust Nominees Limited 8,550,000 21.21%
Bny (Ocs) Nominees Limited 4,808,000 11.93%
Nortrust Nominees Limited 3,975,000 9.86%
Nortrust Nominees Limited 3,000,000 7.44%
Corporate Services (Td Waterhouse) 1,500,000 3.72%
------------------------------------ ----------- -----------
32,288,000 80.10%
------------------------------------ ----------- -----------
Income Shares
Holdings % of Class
------------------------------ ----------- -----------
Nortrust Nominees Limited 4,230,050 20.40%
Chaucer Syndicates Limited 2,500,000 12.06%
The Corporation Of Lloyds 2,500,000 12.06%
Pershing Nominees Limited 1,650,000 7.96%
Securities Services Nominees 1,015,250 4.90%
Ferlim Nominees Limited 988,500 4.77%
The Corporation Of Lloyds 900,000 4.34%
------------------------------ ----------- -----------
13,783,800 66.49%
------------------------------ ----------- -----------
Zero Dividend Preference Shares
Holdings % of Class
---------------------------------- ----------- -----------
Giltspur Nominees Limited 3,074,312 15.37%
Nortrust Nominees Limited 2,547,116 12.74%
Ferlim Nominees Limited 1,691,255 8.46%
Pershing Nominees Limited 1,470,340 7.35%
Nortrust Nominees Limited 1,340,000 6.70%
Rathbone Nominees Limited 1,076,350 5.38%
Smith & Williamson Nominees 1,018,300 5.09%
Hsbc Global Custody Nominee (UK) 818,210 4.09%
N W Brown Nominees Limited 798,000 3.99%
Chase Nominees Limited 620,000 3.10%
---------------------------------- ----------- -----------
14,453,883 72.27%
---------------------------------- ----------- -----------
EPIC Plc
Directors Dr C McPhail, Auditors KPMG Audit LLC
Chairman DC Heritage Court
McCrickard M 41 Athol Street
Richardson PP Douglas
Scales Isle of Man IM99
1HN
Secretary John Middleton Investment EPIC Asset
Manager Management 22
Billiter Street
London EC3M 2RY
Registered IOMA House Stockbroker Numis Securities
Office Hope Street Limited
Douglas 10 Paternoster
Isle of Man IM1 1AP Square
London EC4M 7LT
UK Solicitors Latham and Watkins
99 Bishopsgate
London EC2M 3XF
Administrator IOMA Fund and Isle of Cains Advocates
and Registrar Investment Man Advocates Limited
Management Limited 15-19 Athol Street
IOMA House Hope Douglas
Street Douglas Isle Isle of Man
of Man IM1 1AP IM1 1LB
Custodian BNP Paribas Security Bankers Barclays Bank
Services Plc
Royal Bank House 54 Lombard Street
Victoria Street London EC3 9EX
Douglas
Isle of Man
IM99 2PG
This information is provided by RNS
The company news service from the London Stock Exchange
END
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