TIDMJZCP TIDMJZCN TIDMJZCC
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 PERIODED
31 AUGUST 2021
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").
11 November 2021
JZ Capital Partners, the London listed fund that has investments in US and
European micro-cap companies and US real estate, announces its interim results
for the six-month period ended 31 August 2021.
Investment Policy and Liquidity
* The Company continues to focus on implementing its New Investment Policy
whereby the Company will make no further investments outside of its
existing obligations or to the extent which an investment may be made to
support an existing portfolio company.
* The Company's objective continues to be realizing the maximum value from
its investment portfolio and, after repaying its debt obligations
(including the approx. $79.3 million of Zero Dividend Preference Shares
("ZDPs") due 1 October 2022), returning capital to shareholders.
* The US and European micro-cap portfolios have continued to perform solidly,
delivering a net increase of 10 and 3 cents per share, respectively, and
both portfolios are working towards several realizations.
* To meet this challenge and afford the Company more time to maximise the
value of its portfolio and bring these businesses to market, the following
transactions have taken place in regard to the Company's indebtedness:
* The Company realized its investment in Salter Labs for net proceeds
of approx. $41 million, of which approx.$33 million was applied in
reduction of the Senior Debt;
* In consequence, the amount outstanding in respect of the Senior Debt (owned
by clients and funds advised and sub-advised by Cohanzick Management, LLC
and CrossingBridge Advisors, LLC ("Cohanzick") was reduced from $68.7
million to $36.6 million during the period. The remaining balance of the
Senior Debt is currently due on 12 June 2022;
* The Company has drawn down $31.5 million of subordinated notes maturing on
11 September 2022 under the Note Purchase Agreement Facility ("NPA") made
available by affiliates of Jay Jordan and David Zalaznick, as approved by
shareholders; and
* £38.8 million of Convertible Unsecured Loan Stock ("CULS") was redeemed on
their maturity date of 30 July 2021.
* In addition, on 7 October 2021 (post-period end), the Company agreed with
Cohanzick to borrow a further $16 million under the Senior Debt facility to
provide additional liquidity to help the Company deliver on its New
Investment Policy.
Outlook
* The Board believes that the restructuring of JZCP's Senior Debt and
liquidity facility agreed with the JZAI Founders will significantly
increase the Company's ability to execute its New Investment Policy.
* However, JZCP's Senior Debt and the new liquidity facility mature prior to
the 1 October 2022 redemption date of the Company's zero dividend
preference shares. Unless these instruments are refinanced, extended, or,
as realisations permit, paid off, continued uncertainty will exist with
regards to their redemption. Several realisations are being worked on, but
there is no certainty as to their likely result or timing.
* As a result of JZCP's continued potential inability to redeem its debt on
its stated maturities, the Directors' report accompanying these results
disclose a material uncertainty as to the Company's ability to continue as
a going concern.
David Macfarlane, Chairman of JZCP, said: "We have worked hard during the
period to execute the New Investment Policy, intending to realise the maximum
value of the Company's investments and, after repaying its debt obligations,
returning capital to shareholders.
The realisation of our investment in Salter Labs above NAV was a good result
for the Company, and we continue to see good underlying performance from our US
and European micro-cap portfolios, which are both working towards several
realisations. However, the successful execution of the New Investment Policy
remains dependent upon the timing, quantum and ultimate success of future
realisations. As a result, additional time is needed to maximise the value of
these realisations, which contributes to continued uncertainty regarding the
Company's ability to meet its debt maturities.
However, the Board firmly believes that the combination of the restructuring of
the Company's Senior Debt, the new facility from the JZAI Founders, the
repayment of the CULS, and the successful realisation of Salter Labs, represent
a step forward in enabling the Company to maximise the value of its portfolio.
The Board continues to be optimistic that all the Company's obligations will be
repaid in full and that ultimately 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:
Ed Berry / Kit Dunford +44 (0)7703 330 199 / +44 (0)7717 417
038
FTI Consulting
David Zalaznick +1 212 485 9410
Jordan/Zalaznick Advisers, Inc.
Sam Walden +44 (0) 1481 745385
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 selectively to support the existing portfolio. The intention is to
realise the maximum value of the Company's investments and, after repayment of
all debt, to return capital to shareholders.
JZCP is a Guernsey domiciled closed-ended investment company authorised by the
Guernsey Financial Services Commission. JZCP's shares trade on the Specialist
Fund Segment of the London Stock Exchange.
For more information please visit www.jzcp.com.
Important Notice:
This announcement includes statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "anticipates", "expects", "intends", "may", "will" or
"should" or, in each case, their negative or other variations or comparable
terminology. These forward-looking statements relate to matters that are not
historical facts. By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on circumstances that
may or may not occur in the future. Forward-looking statements are not
guarantees of future performance. The Company's actual investment performance,
results of operations, financial condition, liquidity, policies and the
development of its strategies may differ materially from the impression created
by the forward-looking statements contained in this announcement. In addition,
even if the investment performance, result of operations, financial condition,
liquidity and policies of the Company and development of its strategies, are
consistent with the forward-looking statements contained in this announcement,
those results or developments may not be indicative of results or developments
in subsequent periods. These forward-looking statements speak only as at the
date of this announcement. Subject to their legal and regulatory obligations,
each of the Company, the Investment Adviser and their respective affiliates
expressly disclaims any obligations to update, review or revise any
forward-looking statement contained herein whether to reflect any change in
expectations with regard thereto or any change in events, conditions or
circumstances on which any statement is based or as a result of new
information, future developments or otherwise.
Chairman's Statement
We present the results of the Company for the six-month period ended 31 August
2021, which show that the Company's NAV fell from $4.25 at year-end 28 February
2021 to $4.08 at 31 August 2021 ($4.60 at 31 August 2020). After finance and
administration costs, this decrease is primarily attributable to a loss on our
Esperante property, following the joint venture purchase price negotiated with
affiliates of The Related Companies ("Related"). This write-down at Esperante
and write-downs at two US micro-cap investments, Deflecto and New Vitality,
were offset by the realisation of Salter Labs above NAV and continuing strong
performance from the underlying portfolio investments in the JZHL Secondary
Fund.
Investment Policy and Liquidity
The Company continues to focus on implementing its New Investment Policy, which
is to say that the Company will make no further investments outside its
existing obligations or to the extent that investments may be made to support
certain selected portfolio companies. The Company's objective continues to be
the realisation of the maximum value from its investment portfolio and, after
repaying its debt obligations (including the £57.6 million (approximately $79.3
million) of Zero Dividend Preference Shares ("ZDPs") due 1 October 2022), the
return of capital to its shareholders.
Following the arrangements described in my statement dated 18 May 2021
accompanying the year-end results, the following transactions have taken place
in regard to the Company's indebtedness:
* The Company realised its investment in Salter Labs for net proceeds of
approximately $41 million, of which approximately $33 million was applied
in reduction of the Senior Debt;
* In consequence, the amount outstanding in respect of the Senior Debt (owned
by clients and funds advised and sub-advised by Cohanzick Management LLC
and CrossingBridge Advisors LLC ("Cohanzick")) was reduced from $68.7
million at 28 February 2021 to $36.6 million at 31 August 2021. The
remaining balance of the Senior Debt is currently due on 12 June 2022;
* The Company has drawn down $31.5 million of subordinated notes payable on
11 September 2022 under the Note Purchase Agreement ("NPA") facility made
available by affiliates of Jay Jordan and David Zalaznick, as approved by
shareholders; and
* £38.8 million (appx. $54.1 million) of Convertible Unsecured Loan Stock
("CULS") was redeemed on their maturity date of 30 July 2021
In addition, as announced on 7 October 2021, the Company agreed with Cohanzick
to borrow a further amount of $16 million under the Senior Debt facility.
Whilst the Company's intention remains as being to realise the maximum value of
its investments and, after repaying its debt obligations, to return capital to
shareholders, the Company acknowledges that this is likely to be contingent on
its ability to implement an alternative debt restructuring plan over an
appropriate timeframe and, as a result, considers it prudent given the
potential relative illiquidity of its investments to maintain sufficient cash
liquidity to support its existing portfolio investments and obligations as they
fall due, including the Senior Debt which remains as maturing on 12 June 2022,
the subordinated loan notes which mature on 11 September 2022 and the
redemption of its ZDPs which fall due on 1 October 2022.
Accordingly, the increase in the amount of the Senior Debt is intended to
provide such liquidity to help enable the Company to maximise the value of its
investments and to meet its obligations as they fall due. The Company remains
committed to the delivery of its investment policy and has confirmed that the
increase in the loan amount will be used in a manner consistent with that
policy.
However, at this time, the Senior Debt and the subordinated notes payable under
the NPA facility mature prior to the redemption date of the ZDPs. Unless these
three instruments are refinanced, extended, or, as realisations permit, paid
off, continued uncertainty will exist with regards to their redemption. Several
potential realisations are being worked on, but there is no certainty as to
their likely result or timing. As a result of the Company's continued potential
inability to redeem its debt securities on their respective maturity dates, the
Report of the Directors accompanying these results discloses a material
uncertainty as to the Company's ability to continue as a going concern.
US and European Micro-cap Portfolios
Our US and European micro-cap portfolios continue to perform solidly and we are
working towards several realizations in both portfolios. During the period, the
Company realised its investment in Salter Labs well above NAV, netting the
Company $41 million in proceeds. Also during the period, JZCP received
approximately $6.2 million in proceeds from selling down the "funded portion"
of its commitment to the Orangewood Fund as well as from investor
re-allocations from the final close of the Orangewood Fund. JZCP has now sold
down its entire commitment to the Orangewood Fund.
Real Estate Portfolio
As previously discussed, 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.
With regards to Esperante, we are pleased to have closed a joint venture
agreement with Related, led by Stephen Ross; we continue to believe that a
partnership with Related will create significant additional value for JZCP at
Esperante going forward. As part of the joint venture, Related purchased 49.9%
of the equity of Esperante, while the current ownership (which includes JZCP)
retained 50.1% of the equity. In the context of this transaction, JZCP realised
a loss based on the joint venture purchase price negotiated with Related. We
will be commissioning a new appraisal for Esperante at year-end (28 February
2022), which we expect will reflect the continuously improving market
environment in West Palm Beach, Florida, and look forward to reporting on our
progress with Related in the coming months.
Outlook
The outlook remains similar, albeit improved, to when we reported at the time
of the annual results. The realisation of our investment in Salter Labs was a
very successful result; however, the execution of the New Investment Policy
depends upon the timing and quantum of further realisations. The Board believes
that the arrangements described above represent a step forward in enabling the
Company to maximise the value of and to realise its investment portfolio. The
Board continues to be optimistic that all the Company's obligations will be
repaid in full and that ultimately a significant amount of capital will be
returned to shareholders.
David Macfarlane
Chairman
10 November 2021
Investment Adviser's Report
Dear Fellow Shareholders,
We continue to make substantial progress towards our stated goal of realizing
investments to generate cash to pay debt, relieving JZCP of unfunded
commitments and supporting our existing portfolio to maximize returns to
shareholders.
Specifically, we agreed the extension of JZCP's remaining senior debt through
June 2022. Furthermore, we agreed to personally provide a $31.5 million
liquidity facility at 6.0% interest to JZCP (i.e., at the same rate as the
CULS), which was approved by shareholders. Along with $41 million in net
proceeds from the successful Salter realization in June 2021, these two
transactions enabled JZCP to pay off its CULS in full and on their stated due
date while at the same time maintaining a cash cushion. Most recently, in
October 2021, we increased our credit facility with clients and funds advised
and sub-advised by Cohanzick Management LLC and CrossingBridge Advisors LLC
("Cohanzick") by an additional $16 million. Taken together, these transactions
will help afford us further time to maximize the value of our portfolio as we
approach the extended maturity of the balance of our senior debt as well as the
stated maturities of our subordinated notes and ZDPs.
Our US and European micro-cap portfolios continue to perform solidly and we are
working towards several realizations in both portfolios.
With regards to our West Palm Beach office tower, Esperante, we are pleased to
have closed a joint venture agreement with affiliates of The Related Companies
("Related"); we continue to believe that a partnership with Related will create
significant additional value for JZCP at Esperante going forward.
As of 31 August 2021, our US micro-cap portfolio consisted of 15 businesses,
which includes four 'verticals' and eight 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 by 17 cents. or 4%, during the six-month period.
NAV per Ordinary share as of 28 February 2021 $4.25
Change in NAV due to capital gains and accrued income
+ US Micro-cap 0.10
+ European Micro-cap 0.03
- Real estate (0.06)
Other decreases in NAV
- Change in fair value of CULS (0.03)
- Net foreign exchange effect (0.03)
- Finance costs (0.10)
- Expenses and taxation (0.08)
NAV per Ordinary share as of 31 August 2021 $4.08
The US micro-cap portfolio continued to perform well during the six-month
period, delivering a net increase of 10 cents per share. This was primarily due
to net accrued income of 4 cents and write-ups at co-investment Salter Labs (3
cents) and the JZHL Secondary Fund portfolio (11 cents). Offsetting these
increases were decreases at co-investments George Industries, New Vitality and
Deflecto (1 cent, 1 cent and 6 cents, respectively).
Our European portfolio also performed well during the period, posting an
increase of 3 cents, due to net write-ups at European portfolio companies.
The real estate portfolio experienced a decrease of 6 cents, primarily due to a
one-time write-down occasioned by the difference between the Esperante
property's last appraised value (August 31, 2020) and the implied joint venture
purchase price negotiated with Related. We will be commissioning a new
appraisal for Esperante at year- end (February 28, 2022), which we expect will
reflect the continuously improving market environment in West Palm Beach,
Florida.
Returns
31.8.2021 28.2.2021 31.8.2020 31.8.2018 31.8.2016
Share price (in GBP) £1.20 £0.78 £0.89 £4.44 £4.53
NAV per share (in USD) $4.08 $4.25 $4.60 $9.82 $10.40
NAV to market price 59.5% 74.3% 74.1% 41.2% 43.0%
discount
6 month 1 year 3 year 5 year
return return return return
Dividends paid (in USD) - - - $0.155
Total Shareholders' return 53.8% 34.8% (73.0%) (72.8%)
(GBP)1
Total NAV return per share (4.0%) (11.3%) (58.5%) (60.2%)
(USD)1
Total Adjusted NAV return per share (4.0%) (11.3%) (59.0%) (60.9%)
(USD)1
1 Total returns are cumulative and assume that dividends were reinvested.
Portfolio Summary
Our portfolio is well-diversified by asset type and geography, with 32 US and
European micro-cap investments across eleven industries. The European portfolio
itself is well-diversified geographically across Spain, Italy, Portugal,
Luxembourg, Scandinavia and the UK.
Below is a summary of JZCP's assets and liabilities at 31 August 2021 as
compared to 28 February 2021. An explanation of the changes in the portfolio
follows:
US microcap portfolio 31.08.2021 28.02.2021
US$'000 US$'000
254,356 299,339
European microcap portfolio 119,545 117,781
Real estate portfolio 18,788 23,376
Other investments 23,147 23,147
Total investments 415,836 463,643
Treasury bills 3,395 3,394
Cash 41,187 59,784
Total cash equivalents 44,852 63,178
Other assets 389 22
Total assets 460,807 526,843
Zero Dividend Preference shares 75,014 74,303
Senior debt facility 36,629 68,694
Loans Notes 31,669 -
Convertible Unsecured Loan Stock - 52,430
Other liabilities 1,244 1,857
Total liabilities 144,556 197,284
Net Asset Value 316,251 329,559
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 limited partnership interest, which entitles
JZCP to certain distributions from the Secondary Fund.
Our 'verticals' strategy focuses on consolidating businesses under industry
executives who can add value via organic growth and cross company synergies.
Our co-investments strategy allows for greater diversification of our portfolio
by investing in larger companies alongside well-known private equity groups.
The US micro-cap portfolio continued to perform well during the six-month
period, delivering a net increase of 10 cents per share. This was primarily due
to net accrued income of 4 cents and write-ups at co-investment Salter Labs (3
cents) and the JZHL Secondary Fund portfolio (11 cents).
Offsetting these increases were decreases at co-investments George Industries,
New Vitality and Deflecto (1 cent, 1 cent and 6 cents, respectively).
European microcap portfolio
Our European portfolio also performed well during the period, posting an
increase of 3 cents, due to net write-ups at European portfolio companies.
JZCP invests in the European micro-cap sector through its approximately 18.8%
ownership of Fund III. As of 31 August 2021, 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 three companies in
Spain: Docout, Xacom and Toro Finance.
JZAI has offices in London and Madrid and an outstanding team with over fifteen
years of experience investing together in European micro-cap deals.
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.
With regards to our real estate property, Esperante, we are pleased to have
closed a joint venture agreement with affiliates of Related, led by Stephen
Ross; we continue to believe that a partnership with Related will create
significant additional value for JZCP at Esperante going forward.
As part of the joint venture, Related purchased 49.9% of the equity of
Esperante, while the current ownership (which includes JZCP) retained 50.1% of
the equity. In the context of this transaction, JZCP experienced a one- time
write-down occasioned by the difference between the property's last appraised
value (August 31, 2020) and the implied joint venture purchase price negotiated
with Related. We will be commissioning a new appraisal for Esperante at
year-end (February 28, 2022), which we expect will reflect the continuously
improving market environment in West Palm Beach, Florida, and look forward to
reporting on our progress with Related in the coming months.
Other investments
Our asset management business in the US, Spruceview Capital Partners, has
continued to make encouraging progress since our last report to you. Spruceview
addresses the growing demand from corporate pensions, endowments, family
offices and foundations for fiduciary management services through an Outsourced
Chief Investment Officer ("OCIO") model as well as customized products/
solutions per asset class.
Spruceview's third private markets fund, focused on co-investment opportunities
in the US, ended the period with commitments of over $70 million. The firm also
received additional commitments to its second private markets fund, bringing
total commitments to $85 million, as well as additional contributions to the
pension plans to which it provides advisory services.
During the period, 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 17 investment, business and product
development, legal and operations professionals.
Realisations
Orangewood Fund
During the six-month period, JZCP received approximately $6.2 million in
proceeds from selling down the "funded portion" of its commitment to the
Orangewood Fund as well as from investor re-allocations from the final close of
the Orangewood Fund. JZCP has now sold down its entire commitment to the
Orangewood Fund.
Salter Labs
In June 2021, JZCP received a $41 million distribution from the sale of Salter.
George
In April 2021, JZCP sold its investment in George, receiving approximately $9.5
million in sale proceeds.
Outlook
We believe that JZCP's outlook continues to improve significantly. The US and
European microcap portfolios have performed well and our expectation remains
that they will contribute to future NAV growth of the Company.
We have restructured JZCP's senior debt to allow for the repayment of the CULS.
This was accomplished by extending the maturity of our senior loan by one year
and by affiliates of the Investment Adviser making available a $31.5 million
credit facility at 6.0% interest (i.e., the same rate as the CULS) to the
Company. This facility matures behind the extended senior debt and in front of
the ZDPs.
We see significant value to be realized from our US and European microcap
portfolios and will continue to selectively invest in these portfolios, in
accordance with the new investment policy, to maximize their values. We believe
this is the most effective way for us to be able to return significant capital
to our ordinary shareholders. We continue to pursue several realizations and
look forward to making announcements regarding these potentially significant
liquidity events in the near future.
Thank you again for your continued support through a difficult period. We
remain dedicated to maximizing value for our fellow shareholders.
Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
10 November 2021
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, and of Alpha
Andromeda Investment Trust Company, S.A. Until 30 June 2005, he was the
managing director of Arnhold and S. Bleichroeder Advisers, LLC, a privately
owned investment bank and asset management firm; and until 25 July 2013, he was
a non-executive director of Leucadia National Corporation. He is an Overseer of
the Gennadius Library of the American School of Classical Studies in Athens,
and a Director of Pro Natura de Yucatan.
Sharon Parr2
Mrs Parr was appointed to the Board of JZCP in June 2018. In 2003 she completed
a private equity backed MBO of the trust and fund administration division of
Deloitte and Touche, called Walbrook, selling it to Barclays Wealth in 2007. As
a Managing Director of Barclays, she ultimately became global head of their
trust and fund administration businesses, comprising over 450 staff in 10
countries. She stepped down from her executive roles in 2011 to focus on other
areas and interests but has maintained directorships in several companies. She
is a Fellow of the Institute of Chartered Accountants in England and Wales and
a member of the Society of Trust and Estate Practitioners, and is a resident of
Guernsey.
Ashley Paxton
Mr Paxton was appointed to the board in August 2020. He has more than 25 years
of funds and financial services industry experience, with a demonstrable track
record in advising closed-ended London listed boards and their audit committees
on IPOs, capital market transactions, audit and other corporate governance
matters. He was previously C.I. Head of Advisory for KPMG in the Channel
Islands, a position he held from 2008 through to his retirement from the firm
in 2019. He is a Fellow of the Institute of Chartered Accountants in England
and Wales and a resident of Guernsey. Amongst other appointments he is Chairman
of the Youth Commission for Guernsey & Alderney, a locally based charity whose
vision is that all children and young people in the Guernsey Bailiwick are
ambitious to reach their full potential.
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 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 2021 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 Debt Facility, Loan Notes and Zero Dividend Preference ("ZDP") shares.
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.
COVID-19
Whilst reporting its annual results for the year ended 28 February 2021, the
Board disclosed in its Going Concern Assessment, that the encouraging
performance of the micro-cap portfolios in the face of unprecedented
circumstances gave the Board confidence in the valuation of the portfolios and
the potential for growth and future valuation uplifts. The Board has confidence
that the micro-cap portfolios are continuing to perform robustly but are
mindful that market conditions mean that realisations may be delayed or become
more difficult.
NAV Factors
(i) Macroeconomic Risks
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 realise investments and the level
of realised returns. As at 31 August 2021, 28.5% (28 February 2021: 25.2%) of
the Company's investments are denominated in non- US dollar currencies,
primarily the Euro. Also, the Company's ZDP shares are denominated in Sterling.
Fluctuations to these exchange rates will affect the NAV of the Company.
(ii) Underlying Investment Performance
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.
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.
Gearing and Financing Costs in the Real Estate Portfolio
The cost of servicing debt in the underlying real estate structures may impact
the net valuation of the real estate portfolio and subsequently the Company's
NAV. Gearing in the underlying real estate structures will increase any losses
arising from a downturn in property valuations.
Operational and Personnel
Although the Company has no direct employees, the Company considers what
dependence there is on key individuals within the Investment Adviser and
service providers that are key to the Company meeting its operational and
control requirements.
The Board considers the principal risks and uncertainties above are broadly
consistent with those reported at the prior year end, but wish to note the
following:
* The Board recognises the Company will have an increased exposure to
liquidity risk as future debt obligations near maturity.
* Gearing and the finance costs within the real estate portfolio have become
less of a future risk to the Company as the current valuation of $18.8
million (28 February 2021: $23.4 million) now reflects the majority of
write downs that could be attributed by the gearing structure and costs
incurred.
* The effect of COVID-19 on market conditions means that there are challenges
to completing corporate transactions and planned realisations may be
delayed. This uncertainty is considered when the Board assesses the
Company's ability to generate sufficient realisation proceeds to meet its
financial obligations.
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.
Due to the uncertainties that the Company will not have sufficient liquidity to
repay its Senior Debt Facility (due 12 June 2022), Loan Notes (due 11 September
2022) and redeem its ZDP shares (due 1 October 2022) there are material
uncertainties which cast significant doubt on the ability of the Company to
continue as a going concern. However, the Interim Financial Statements for the
period ended 31 August 2021 have been prepared on a going concern basis given
the Board's assessment of future realisations and the Company's expected
ability to restructure and extend the maturity of debt obligations in line with
forecasted cash flows. The Board, with recommendation from the Audit Committee,
has a reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future.
In reaching its conclusion, the Board has considered the risks that could
impact the Company's liquidity over the period from 10 November 2021 to 10
November 2022 (the "going concern period") being 12 months from the signing of
the Interim Financial Statements.
As part of their assessment, the Audit Committee highlighted the following key
consideration:
Whether if required, the Company can implement an alternative debt
restructuring plan that will enable the Company to repay its debt obligations,
including the redemption of its ZDP shares, over an extended timeframe. The
extent of the debt restructuring will be dependent on the cash amounts
generated through realisations of its underlying investments throughout the
going concern period.
Recent events impacting liquidity
* The repayment of $33.3 million of the Senior Debt Facility following a
material realisation and the lenders also agreed to the extension of the
maturity date of the Senior Debt Facility to 12 June 2022.
* The issue of Loan Notes totalling $31.5 million repayable 11 September
2022.
* The redemption of the Company's CULS (£38.8 million) on 30 July 2021.
* Post period end, the Company agreed with its existing senior lenders to
borrow a further amount of $16.0 million under its Senior Debt Facility.
Following the increase, the total amount outstanding under the Senior Debt
Facility is approx.$52.6 million.
Update on material liabilities due for settlement
The below table shows the Company's net debt position at 31 October 2021 versus
the prior year end and interim reporting date.
31.10.2021 28.2.2021 31.8.2020
$'000 $'000 $'000
ZDP Shares - maturity date 1 October 2022 - redemption 78,951 80,527 76,610
amount of £57.6 million1
Loan Notes - maturity date 11 September 20222 31,673 - -
Senior Debt Facility - extended maturity date 12 June 52,563 68,694 150,355
2022
CULS - maturity date 30 July 2021 - redemption amount of - 54,332 52,033
£38.8 million
Total debt 163,187 203,553 278,998
Cash and cash equivalents held 62,553 63,178 39,051
Net debt position 100,634 140,375 239,947
1ZDP and CULS maturity dollar amount translated using the relevant period end
exchange rate.
2Includes accrued interest
Realisations
The below table shows the Company's realisations over the twelve month period
ending 31 August 2021:
Asset Portfolio Proceeds ($
millions)
Secondary Sale US 87.7
Salter Labs (includes $4.4 million from refinancing in US 45.5
September 2020)
Greenpoint Real estate 13.6
George Industries US 9.5
Orangewood Fund US 6.2
Fund III distributions European 0.7
Total 163.2
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. If it becomes apparent during quarter 1 of 2022 that
realisation amounts, over the going concern period, will be insufficient to
meet the Company's debt obligations, then the Company will look at
opportunities to restructure its debt, to enable returns to be maximised and
for debt obligations to be met over an extended timeframe.
The Board continues to consider the levels of realisation proceeds historically
generated by the Company's micro- cap portfolios as well as the accuracy of
previous forecasts whilst concluding on the predicted accuracy of forecasts
presented.
The Board acknowledges that the new maturity date of the Senior Debt Facility
and the Loan Notes still fall within the going concern period and therefore the
Company will still need to generate sufficient realisation proceeds, within the
period, to repay its debt obligations or make alternative debt arrangements
with lenders.
Considering the Company's projected cash position, ongoing operating costs, and
the anticipated further investment required to support the Company's portfolio,
the Board anticipates further proceeds of approx. $150 million are required to
enable the Company to settle its debts as they fall due.
Going Concern Conclusion
After careful consideration and based on an assessment of future realisations,
the Board is satisfied, as of today's date, that it is appropriate to adopt the
going concern basis in preparing the financial statements and they have a
reasonable expectation that the Company will continue in existence as a going
concern for the period to 10 November 2022.
However, the Board has determined that there is a material uncertainty
surrounding the Company's ability to generate sufficient liquidity to repay its
Senior Debt Facility (due 12 June 2022), Loan Notes (due 11 September 2022) and
repay its ZDP shares (due 1 October 2022) which casts significant doubt over
the ability of the Company to continue as a Going Concern, based on the
following key consideration:
Whether if required, the Company can implement an alternative debt
restructuring plan that will enable the Company to repay its debt obligations,
including the redemption of its ZDP shares, over an extended timeframe. The
extent of the debt restructuring will be dependent on the cash amounts
generated through realisations of its underlying investments throughout the
going concern period.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
Approved by the Board of Directors and agreed on behalf of the Board on 10
November 2021.
David Macfarlane
Chairman
Sharon Parr
Director
Investment Portfolio
31 August 2021 Percentage
Cost1 Value of Portfolio
US$'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 below.
Total JZHL Secondary Fund L.P. valuation 40,965 80,839 19.3
US Micro-cap (Vertical)
Industrial Services Solutions3
INDUSTRIAL SERVICES SOLUTIONS ("ISS")
Provider of aftermarket maintenance,
repair, and field services for critical
process equipment throughout the US
Total Industrial Services Solutions 48,250 95,889 22.9
valuation
US Micro-cap (Co-investments)
DEFLECTO 45,010 40,923 9.7
Deflecto designs, manufactures and sells
innovative plastic products to multiple
industry segments
IGLOO3 6,040 329 0.1
Designer, manufacturer and marketer of
coolers and outdoor products
NEW VITALITY3 3,354 10,958 2.6
Direct-to-consumer provider of
nutritional supplements and personal
care products
ORIZON 3,899 7,000 1.7
Manufacturer of high precision machine
parts and tools for aerospace and
defence industries
VITALYST3 9,020 6,192 1.5
Provider of outsourced IT support and
training services
Total US Micro-cap (Co-investments) 67,323 65,402 15.6
US Micro-cap (Other)
AVANTE HEALTH SOLUTIONS 7,823 11,226 2.7
Provider of new and professionally
refurbished healthcare equipment
HEALTHCARE PRODUCTS HOLDINGS 17,636 - -
Designer and manufacturer of motorised
vehicles
NATIONWIDE STUDIOS 26,324 1,000 0.2
Processor of digital photos for
pre-schoolers
Total US Micro-cap (Other) 51,783 12,226 2.9
Total US Micro-cap portfolio 208,321 254,356 60.7
European Micro-cap portfolio
EUROMICROCAP FUND 2010, L.P. 169 3,279 0.8
Invested in European Micro-cap entities
JZI FUND III, L.P. 51,006 83,382 19.9
JZCP's investment in JZI Fund III is further
detailed below.
Total European Micro-cap (measured at 51,175 86,661 20.7
Fair Value)
Debt Investments
DOCOUT 2,777 4,113 1.0
Provider of digitalisation, document
processing and storage services
TORO FINANCE 21,619 25,938 6.2
Provides short term receivables finance
to the suppliers of major Spanish
companies
XACOM 2,055 2,833 0.6
Supplier of telecom products and
technologies
Debt Investments (classified at 26,451 32,884 7.8
amortised cost)
Total European Micro-cap portfolio 77,626 119,545 28.5
Real Estate portfolio
247 BEDFORD AVENUE 17,717 6,973 1.7
Prime retail asset in northern Brooklyn,
NY
ESPERANTE 14,158 11,815 2.8
An iconic building on the downtown, West
Palm Beach skyline
JZCP REALTY 53,266 - -
Other Properties held - no equity value
Total Real Estate portfolio 85,141 18,788 4.5
Other investments
BSM ENGENHARIA 6,115 459 0.1
Brazilian-based provider of supply chain
logistics, infrastructure services and
equipment rental
JZ INTERNATIONAL - 750 0.2
Fund of European LBO investments
SPRUCEVIEW CAPITAL 31,955 21,938 5.2
Asset management company focusing
primarily on managing endowments and
pension funds
Total Other investments 38,070 23,147 5.5
Listed investments
U.S. Treasury Bill - Maturity 7 October 3,393 3,395 0.8
2021
Total Listed investments 3,393 3,395 0.8
Total - portfolio 412,551 419,231 100.0
¹Original 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.
2 Notional cost of the Company's interest in JZHL Secondary Fund being $40.965
million which is calculated in accordance with IFRS, and represents the fair
value of the Company's LP interest on recognition.
3 Co-investment with Fund A, a Related Party (Note 19).
Summary of JZCP's investments in JZHL Secondary Fund
JZHL Cost1 JZHL
As at 31.8.2021 Valuation
$'000s As at
31.8.2021
$'000s
US Micro-cap (Verticals)
ACW FLEX PACK, LLC 11,205 10,000
Provider of a variety of custom flexible packaging
solutions to converters and end-users
FLOW CONTROL, LLC 15,115 25,839
Manufacturer and distributor of high-performance,
mission-critical flow handling
TESTING SERVICES HOLDINGS 23,426 35,000
Provider of safety focused solutions for the
industrial, environmental and life science related
markets, and testing, certification and validation
services for cleanroom, critical environments and
containment systems
US Micro-cap (Co-investments)
FELIX STORCH 24,500 81,000
Supplier of specialty, professional, commercial,
and medical refrigerators and freezers,and cooking
appliances
PEACEABLE STREET CAPITAL 36,541 36,541
Specialty finance platform focused on commercial
real estate
TIERPOINT 46,813 46,813
Provider of cloud computing and colocation data
centre services
157,600 235,193
Less interest of Hamilton Lane and other secondary (154,354)
investments
JZCP's interest in JZHL Secondary Fund 80,839
1The cost of the JZHL's investments represent the agreed transfer value from
JZCP to JZHL.
Summary of JZCP's investments in JZI Fund III
Country JZCP Cost JZCP Value JZCP Value
(EURO) (EURO) (USD)
As at As at As at
31.8.2021 31.8.2021 31.8.2021
?'000s ?'000s ?'000s
ALIANZAS EN ACEROS Spain 4,388 4,538 5,357
Steel service center
BLUESITES Portugal 3,140 4,594 5,423
Build-up in cell tower land leases
COLLINGWOOD UK 3,014 3,038 3,586
Niche UK motor insurer
ERSI Lux 8,503 2,456 2,899
Reinforced steel modules
FACTOR ENERGIA Spain 3,653 10,162 11,996
Electricity supplier
FINCONTINUO Italy 5,075 8,287 9,782
Niche consumer lender
GUANCHE Spain 3,625 3,627 4,282
Build-up of petrol stations
KARIUM UK 4,321 11,006 12,992
Personal care consumer brands
LUXIDA Spain 3,315 4,781 5,644
Build-up in electricity
distribution
MY LER Finland 4,861 4,500 5,312
Niche consumer lender
S.A.C Denmark 3,487 7,725 9,119
Operational van leasing
TREEE Italy 3,159 9,544 11,266
e-waste recycling
UFASA Spain 5,108 6,574 7,760
Niche consumer lender
Other net Liabilities (12,036)
Total valuation 83,382
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 Unaudited Condensed Interim
Financial Statements ("Interim Financial Statements") for the six months ended
31 August 2021 which comprises the Statement of Comprehensive Income
(Unaudited), Statement of Financial Position (Unaudited), Statement of Changes
in Equity (Unaudited), Statement of Cash Flows (Unaudited) and related Notes 1
to 22. We have read the other information contained in the Interim Report and
considered whether it contains any apparent misstatements or material
inconsistencies with the information in the Interim Financial Statements.
Based on our review, nothing has come to our attention that causes us to
believe that the Interim Financial Statements for the six months ended 31
August 2021 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 and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the Auditing
Practices Board. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and accounting
matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK) and consequently does not enable us to
obtain assurance that we would become aware of all significant matters that
might be identified in an audit. Accordingly, we do not express an audit
opinion.
As disclosed in Note 2, the annual financial statements of the Company are
prepared in accordance with IFRS as adopted by the European Union. The Interim
Financial Statements have been prepared in accordance with IAS 34.
Material Uncertainty Related to Going Concern
We draw your attention to Note 3 in the Interim Financial Statements, which
states that there is material uncertainty surrounding the Company's ability to
generate sufficient liquidity to repay its Senior Debt Facility (due 12 June
2022) and Loan Notes (due 11 September 2022) and to redeem its ZDP shares (due
1 October 2022) based on the following key considerations: i.) Whether the
Company can generate sufficient cash through realisations of its underlying
investments to discharge its liabilities over the period to 10 November 2022
and ii.) Whether, in the event that sufficient realisation proceeds referenced
above are not generated by the Company before the maturity dates of the debt
obligations, including the redemption of the ZDP shares, the Company is able to
implement an alternative debt restructuring plan to repay its debt obligations,
including the redemption of the ZDP shares, over an extended timeframe.
Our conclusion on the Interim Financial Statements based on our review is not
modified in respect of this matter.
Responsibilities of the Directors
The Directors are responsible for preparing the Interim Report and Interim
Financial Statements in accordance with the Disclosure Guidance and
Transparency Rules of the United Kingdom's Financial Conduct Authority.
Auditor's responsibilities for the review of the financial information
In reviewing the Interim Report and Interim Financial Statements, we are
responsible for expressing to the Company a conclusion on the Interim Financial
Statements. Our conclusion is 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 and Ireland) "Review
of Interim Financial Information Performed by the Independent Auditor of the
Entity" issued by the Auditing Practices Board. 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
10 November 2021
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 2021 to 31 August 2021
Six Month Six Month
Period Ended Period Ended
31 August 31 August
2021 2020
Note US$'000 US$'000
Income and investment and other gains
Investment Income 8 9,119 12,697
Bank and deposit interest 75 124
Realisations from investments held in escrow 21 - 801
accounts
9,194 13,622
Expenses and losses
Net loss on investments at fair value through 6 (4,809) (114,089)
profit or loss
Expected credit losses 7 (1,405) (560)
Loss on financial liabilities at fair value 15 (1,869) (2,836)
through profit or loss
Net foreign currency exchange losses (202) (2,035)
Investment Adviser's base fee 10 (3,888) (5,359)
Administrative expenses (2,154) (2,151)
Directors' remuneration (145) (150)
(14,472) (127,180)
Operating loss (5,278) (113,558)
Finance costs 9 (6,981) (9,190)
Loss for the period (12,259) (122,748)
Other comprehensive (loss)/income that will not be reclassified to the
Income Statement
(Loss)/gain on financial liabilities due to 15 (1,074) 3,290
change in credit risk
Total comprehensive loss for the period (13,333) (119,458)
Weighted average number of Ordinary shares in 20 77,474,670 77,474,175
issue during the period
Basic loss per Ordinary share 20 (15.82)c (158.44)c
Diluted loss per Ordinary share 20 (15.82)c (158.44)c
The accompanying notes form an integral part of the Interim Financial
Statements.
Statement of Financial Position (Unaudited)
As at 31 August 2021
31 August 28 February
2021 2021
Note US$'000 US$'000
Assets
Investments at fair value through profit or 11 386,347 433,224
loss
Loans at amortised cost 11 32,884 33,813
Other receivables 389 22
Cash at bank 41,187 59,784
Total assets 460,807 526,843
Liabilities
Zero Dividend Preference shares 12 75,014 74,303
Loan notes 13 31,669 -
Senior debt facility 14 36,629 68,694
Other payables 16 1,244 1,284
Investment Adviser's base fee 10 - 573
Convertible Unsecured Loan Stock 15 - 52,430
Total liabilities 144,556 197,284
Equity
Share capital 216,650 216,625
Other reserve 353,528 354,602
Retained deficit (253,927) (241,668)
Total equity 316,251 329,559
Total liabilities and equity 460,807 526,843
Number of Ordinary shares in issue at period/ 17 77,477,214 77,474,175
year end
Net asset value per Ordinary share $4.08 $4.25
These Interim Financial Statements were approved by the Board of Directors and
authorised for issuance on 10 November 2021. They were signed on its behalf by:
David Macfarlane
Chairman
Sharon Parr
Director
The accompanying notes form an integral part of the Interim Financial
Statements.
Statement of Changes in Equity (Unaudited)
For the Period from 1 March 2021 to 31 August 2021
Share Other Retained
Capital Reserve Deficit Total
Note US$'000 US$'000 US$'000 US$'000
Balance as at 1 March 2021 216,625 354,602 (241,668) 329,559
Loss for the period - - (12,259) (12,259)
Loss on financial liabilities due to 15 - (1,074) - (1,074)
change in credit risk
Issue of Ordinary shares 17 25 - - 25
Balance at 31 August 2021 216,650 353,528 (253,927) 316,251
Comparative for the Period from 1 March 2020 to 31 August 2020
Share Other Retained
Capital Reserve Deficit Total
US$'000 US$'000 US$'000 US$'000
Balance at 1 March 2020 216,625 353,528 (94,419) 475,734
Loss for the period - - (122,748) (122,748)
Gain on financial liabilities due to change in credit - 3,290 - 3,290
risk
Balance at 31 August 2020 216,625 356,818 (217,167) 356,276
The accompanying notes form an integral part of the Interim Financial
Statements.
Statement of Cash Flows (Unaudited)
For the Period from 1 March 2021 to 31 August 2021
Six Month Six Month
Period Ended Period Ended
31 August 31 August
2021 2020
Note US$'000 US$'000
Cash flows from operating activities
Cash inflows
Realisation of investments1 11 56,929 3,016
Maturity of treasury bills 11 - 3,395
Escrow receipts received 21 - 801
Interest received from unlisted investments - 249
Income distributions received from investments 234 -
Bank interest received 75 124
Cash outflows
Direct investments and capital calls1 11 (7,381) (5,714)
Purchase of treasury bills 11 - (3,394)
Investment Adviser's base fee paid 10 (4,652) (2,000)
Investment Adviser's incentive fee paid 10 - (2,307)
Other operating expenses paid (2,515) (2,204)
Net cash inflow/(outflow) before financing 42,690 (8,034)
activities
Financing activities
Repayment of Senior Debt Facility (33,264) -
Redemption of Convertible Unsecured Loan Stock (54,005) -
Issue of Loan Notes 31,500 -
Finance costs paid:
. Convertible Unsecured Loan Stock (2,679) (1,445)
. Senior Debt Facility (2,385) (7,863)
Net cash outflow from financing activities (60,833) (9,308)
Decrease in cash at bank (18,143) (17,342)
Reconciliation of net cash flow to movements in
cash at bank
US$'000 US$'000
Cash and cash equivalents at 1 March 59,784 52,912
Decrease in cash at bank (18,143) (17,342)
Foreign exchange movements on cash at bank (454) 86
Cash and cash equivalents at period end 41,187 35,656
¹Proceeds from realisations and cash outflows from investments and capital
calls exclude $0.6 million being distributions from JZI Fund III netted off
capital calls.
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 1987. The
Company's Capital consists of Ordinary shares and Zero Dividend Preference
("ZDP") shares. The Company had issued Convertible Unsecured Loan Stock
("CULS"), which were redeemed on 30 July 2021. The Company's shares trade on
the London Stock Exchange's Specialist Fund Segment ("SFS").
The Company's new investment policy, adopted in August 2020, is for the Company
to make no further investments outside of its existing obligations or to the
extent that investment may be made to support selected existing portfolio
investments. The intention is to realise the maximum value of the Company's
investments and, after repayment of all debt, to return capital to
shareholders. The Company's previous Investment Policy was to target
predominantly private investments and back management teams to deliver on
attractive investment propositions. In executing this strategy, the Company
took a long term view. The Company looked to invest directly in its target
investments and was able to invest globally but with a particular focus on
opportunities in the United States and Europe.
The Company is currently mainly focused on supporting its investments in the
following areas:
(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.
The Unaudited Condensed Interim Financial Statements (the "Interim Financial
Statements") are presented in US$'000 except where otherwise indicated.
2. Significant Accounting Policies
The accounting policies adopted in the preparation of these Interim Financial
Statements have been consistently applied during the period, unless otherwise
stated.
Statement of Compliance
The Interim Financial Statements of the Company for the period 1 March 2021 to
31 August 2021 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 2021.
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 2021. The preparation of these Interim Financial
Statements are in conformity with IAS 34, "Interim Financial Reporting" as
adopted in the European Union, and requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the Interim Financial Statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could materially
differ from those estimates.
New standards, interpretations and amendments adopted by the Company
The accounting policies adopted in the preparation of the Interim Financial
Statements are consistent with those followed in the preparation of the
Company's Annual Financial Statements for the year ended 28 February 2021,
which were prepared in accordance with IFRS as adopted by the European Union.
There has been no early adoption, by the Company, of any other standard,
interpretation or amendment that has been issued but is not yet effective.
3. 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
2021.
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.
Due to the uncertainties that the Company will not have sufficient liquidity to
repay its Senior Debt Facility (due 12 June 2022), Loan Notes (due 11 September
2022) and redeem its ZDP shares (due 1 October 2022) there are material
uncertainties which cast significant doubt on the ability of the Company to
continue as a going concern. However, the Interim Financial Statements for the
period ended 31 August 2021 have been prepared on a going concern basis given
the Board's assessment of future realisations and the Company's expected
ability to restructure and extend the maturity of debt obligations in line with
forecasted cash flows. The Board, with recommendation from the Audit Committee,
has a reasonable expectation that the Company has adequate resources to
continue in operational existence for the foreseeable future.
In reaching its conclusion, the Board has considered the risks that could
impact the Company's liquidity over the period from 10 November 2021 to 10
November 2022 (the "going concern period") being 12 months from the signing of
the Interim Financial Statements.
As part of their assessment, the Audit Committee highlighted the following key
consideration:
Whether if required, the Company can implement an alternative debt
restructuring plan that will enable the Company to repay its debt obligations,
including the redemption of its ZDP shares, over an extended timeframe. The
extent of the debt restructuring will be dependent on the cash amounts
generated through realisations of its underlying investments throughout the
going concern period.
Recent events impacting liquidity
· The repayment of $33.3 million of the Senior Debt Facility following a
material realisation and the lenders also agreed to the extension of the
maturity date of the Senior Debt Facility to 12 June 2022.
· The issue of Loan Notes totalling $31.5 million repayable 11 September
2022.
· The redemption of the Company's CULS (£38.8 million) on 30 July 2021.
· Post period end, the Company agreed with its existing senior lenders to
borrow a further amount of $16.0 million under its Senior Debt Facility.
Following the increase, the total amount outstanding under the Senior Debt
Facility is approx. $52.6 million.
Update on material liabilities due for settlement
The below table shows the Company's net debt position at 31 October 2021 versus
the prior year end and interim reporting date:
31.10.2021 28.2.2021 31.8.2020
$'000 $'000 $'000
ZDP Shares - maturity date 1 October 2022 - dollar 78,951 80,527 76,610
equivalent of £57.6 million¹
Loan Notes - maturity date 11 September 2022² 31,673 - -
Senior Debt Facility - extended maturity date 12 52,563 68,694 150,355
June 2022²
CULS - maturity date 30 July 2021 - redemption - 54,332 52,033
amount of £38.8 million¹
Total debt 163,187 203,553 278,998
Cash and cash equivalents held 62,553 63,178 39,051
Net debt position 100,634 140,375 239,947
¹ZDP and CULS maturity dollar amount translated using the relevant period end
exchange rate.
²Includes accrued interest
Realisations
The below table shows the Company's realisations over the twelve month period
ending 31 August 2021:
Asset Portfolio Proceeds
($ millions)
Secondary Sale US 87.7
Salter Labs (includes $4.4 million from refinancing in US 45.5
September 2020)
Greenpoint Real estate 13.6
George Industries US 9.5
Orangewood Fund US 6.2
Fund III distributions European 0.7
Total 163.2
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. If it becomes apparent during quarter 1 of 2022 that
realisation amounts, over the going concern period, will be insufficient to
meet the Company's debt obligations, then the Company will look at
opportunities to restructure its debt, to enable returns to be maximised and
for debt obligations to be met over an extended timeframe.
The Board continues to consider the levels of realisation proceeds historically
generated by the Company's micro-cap portfolios as well as the accuracy of
previous forecasts whilst concluding on the predicted accuracy of forecasts
presented.
The Board acknowledges that the new maturity date of the Senior Debt Facility
and the Loan Notes still fall within the going concern period and therefore the
Company will still need to generate sufficient realisation proceeds, within the
period, to repay its debt obligations or make alternative debt arrangements
with lenders post relevant maturity dates.
Considering the Company's projected cash position, ongoing operating costs, and
the anticipated further investment required to support the Company's portfolio,
the Board anticipates further proceeds of approx. $150 million are required to
enable the Company to settle its debts as they fall due.
Going Concern Conclusion
After careful consideration and based on an assessment of future realisations,
the Board is satisfied, as of today's date, that it is appropriate to adopt the
going concern basis in preparing the financial statements and they have a
reasonable expectation that the Company will continue in existence as a going
concern for the period to 10 November 2022.
However, the Board has determined that there is a material uncertainty
surrounding the Company's ability to generate sufficient liquidity to repay its
Senior Debt Facility (due 12 June 2022), Loan Notes (due 11 September 2022) and
repay its ZDP shares (due 1 October 2022) which casts significant doubt over
the ability of the Company to continue as a Going Concern, based on the
following key consideration:
Whether if required, the Company can implement an alternative debt
restructuring plan that will enable the Company to repay its debt obligations,
including the redemption of its ZDP shares, over an extended timeframe. The
extent of the debt restructuring will be dependent on the cash amounts
generated through realisations of its underlying investments throughout the
going concern period.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
4. Segment Information
The Investment Manager is responsible for allocating resources available to the
Company in accordance with the overall business strategies as set out in the
Investment Guidelines of the Company. The Company is organised into the
following segments:
· Portfolio of US Micro-cap investments
· Portfolio of European Micro-cap investments
· Portfolio of Real Estate investments
· Portfolio of Other Investments - (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.
Segmental operating profit/(loss)
For the period from 1 March 2021 to 31 August 2021
US European Real Other
Micro-cap Micro-cap Estate Investments
Total
US$ '000 US$ '000 US$ US$ '000 US$ '000
'000
Interest revenue 7,479 1,405 - - 8,884
Dividend revenue 234 - - - 234
Total segmental revenue 7,713 1,405 - - 9,118
Net (loss)/gain on investments at (570) 349 (4,588) - (4,809)
FVTPL
Expected credit losses - (1,405) - - (1,405)
Investment Adviser's base (2,156) (899) (167) (174) (3,396)
fee
Total segmental operating 4,987 (550) (4,755) (174) (492)
profit/(loss)
For the period from 1 March 2020 to 31 August 2020
US European Real Other Total
Micro-Cap Micro-Cap Estate Investments
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Interest 11,443 1,245 - - 12,688
revenue
Total segmental revenue 11,443 1,245 - - 12,688
Net (loss)/gain on investments at (8,074) 7,034 (113,049) -
FVTPL (114,089)
Expected credit losses - (560) - - (560)
Realisations from investments held 801 - - - 801
in Escrow
Investment Adviser's base (3,087) (785) (968) (175) (5,015)
fee
Total segmental operating profit 1,083 6,934 (114,017) (175)
/(loss) (106,175)
Certain income and expenditure is not considered part of the performance of an
individual segment. This includes net foreign exchange gains, interest on cash,
finance costs, management fees, custodian and administration fees, directors'
fees and other general expenses.
The following table provides a reconciliation between total segmental operating
loss and operating loss:
Period Period
ended ended
31.8.2021 31.8.2020
US$ '000 US$ '000
Total segmental operating loss (492) (106,175)
Loss on financial liabilities at fair value through profit (1,869) (2,836)
or loss
Net foreign exchange loss (202) (2,035)
Bank and deposit interest 75 124
Expenses not attributable to segments (2,299) (2,301)
Fees payable to investment adviser based on non-segmental assets (492) (344)
Interest on US treasury bills 1 9
Operating loss (5,278) (113,558)
The following table provides a reconciliation between total segmental revenue
and Company revenue:
Period Period
ended ended
31.8.2021 31.8.2020
US$ '000 US$ '000
Total segmental revenue 9,118 12,688
Non-segmental revenue
Bank and deposit interest 75 124
Interest on US treasury bills 1 9
Total revenue 9,194 12,821
Segmental Net Assets
At 31 August 2021
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 254,356 86,661 18,788 23,147 382,952
Loans at amortised cost - 32,884 - - 32,884
Prepaid Investment Advisor 106 19 8 9 142
fees
Total segmental assets 254,462 119,564 18,796 23,156 415,978
Segmental liabilities
Payables and accrued expenses (398) - - - (398)
Total segmental liabilities (398) - - - (398)
Total segmental net assets 254,064 119,564 18,796 23,156 415,580
At 28 February 2021
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 299,339 83,968 23,376 23,147 429,830
Loans at amortised cost - 33,813 - - 33,813
Total segmental assets 299,339 117,781 23,376 23,147 463,643
Segmental liabilities
Payables and accrued expenses (771) (101) (43) (21) (936)
Total segmental liabilities (771) (101) (43) (21) (936)
Total segmental net assets 298,568 117,680 23,333 23,126 462,707
The following table provides a reconciliation between total segmental assets
and total assets and total segmental liabilities and total liabilities:
31.8.2021 28.2.2021
US$ '000 US$ '000
Total segmental assets 415,978 463,643
Non segmental assets
Cash at bank 41,187 59,784
Treasury Bills 3,395 3,394
Other receivables 247 22
Total assets 460,807 526,843
Total segmental (398) (936)
liabilities
Non segmental liabilities
Zero Dividend Preference shares (75,014) (74,303)
Loan notes (31,669) -
Senior debt facility (36,629) (68,694)
Convertible Unsecured Loan Stock - (52,430)
Other payables (846) (921)
Total liabilities (144,556) (197,284)
Total net assets 316,251 329,559
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.
5. 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 between those whose fair value is based on:
Financial assets at 31 August 2021
Level 1 Level 2 Level 3 Total
US$ '000 US$ US$ US$
'000 '000 '000
US micro-cap - - 254,356 254,356
European micro-cap - - 86,661 86,661
Real estate - - 18,788 18,788
Other investments - - 23,147 23,147
Listed investments 3,395 - - 3,395
3,395 - 382,952 386,347
Financial assets at 28 February 2021
Level 1 Level 2 Level 3 Total
US$ '000 US$ US$ US$
'000 '000 '000
US micro-cap - - 299,339 299,339
European micro-cap - - 83,968 83,968
Real estate - - 23,376 23,376
Other investments - - 23,147 23,147
Listed investments 3,394 - - 3,394
3,394 - 429,830 433,224
Valuation techniques
The same valuation methodology and process was deployed as for the year ended
28 February 2021.
Financial liabilities designated at fair value through profit or loss at
inception
Financial liabilities at 31 August 2021 Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Convertible Unsecured Loan Stock - Redeemed - - - -
30.7.2021
- - - -
Financial liabilities at 28 February 2021 Level 1 Level 2 Level 3 Total
US$ '000 US$ '000 US$ '000 US$ '000
Convertible Unsecured Loan Stock - 52,430 - 52,430
- 52,430 - 52,430
Market transactions for the CULS did not take place with sufficient frequency
and volume to provide adequate pricing information on an ongoing basis and
therefore it was considered the CULS were not traded in an active market and
were therefore categorised at Level 2 as defined by IFRS.
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 2021 and 28 February 2021 are shown below:
Value Valuation Unobservable Range Sensitivity Effect on Fair
31.8.2021 (weighted Value
US$'000 Technique input average) used US$'000
US micro-cap 254,356 EBITDA Multiple Average EBITDA 7.0x - -0.5x / (22,387) 22,141
investments Multiple of 13.5x +0.5x
Peers (9.0x)
Discount to 10% - 30% +5% / -5% (31,506) 30,503
Average (17%)
Multiple
European 119,545 EBITDA Multiple Average EBITDA 6.6x - -0.5x / (4,813) 4,813
micro-cap Multiple of 13.9x +0.5x
investments Peers (10.4x)
Discount to 12% - 57% +5% / -5% (4,507) 4,507
Average (22%)
Multiple
Real 18,788 Cap Rate/ Capitalisation 5.25% - +50bps/ (4,822) 5,885
estate1,2 Income Approach Rate 6.25% -50bps
(5.9%)
Other 21,938 Forward Revenue $8.3 -10%/+10% (2,194) 1,558
investments3 looking Multiple million
Revenue 5.3x -10%/+10% (2,194) 1,558
Approach
Value Valuation Unobservable Range Sensitivity Effect on Fair
28.2.2021 (weighted Value
US$'000 Technique input average) used US$'000
US micro-cap 299,339 EBITDA Multiple Average EBITDA 7.5% - -0.5x/+0.5x (26,888) 22,859
investments Multiple of 13.5%
Peers (9.6x) +5%/-5% (36,420) 35,604
Discount to 10% - 30%
Average (17%)
Multiple
European 80,689 EBITDA Multiple Average EBITDA 7.4x - -0.5x/+0.5x (4,615) 4,597
micro-cap Multiple of 14.0x
investments Peers (10.0x)
Discount to
Average
Multiple
11% - 69% +5%/-5% (4,225) 4,205
Real 23,376 Cap Rate/Income (29%)
estate1,2 Approach
Capitalisation 5.25% - +50bps/ (7,925) 9,834
Rate 6.25% -50bps
(5.94%)
Other 21,938 AUM Approach AUM $3.8Bn -10%/+10% (4,989) 4,989
investments3
% Applied to 2.3% -10%/+10% (2,194) 2,194
AUM
¹The Fair Value of JZCP's investment in financial interests in Real Estate is
measured as JZCP's percentage interest in the value of the underlying
properties.
²Sensitivity is applied to the property value and then the debt associated to
the property is deducted before the impact to JZCP's equity value is
calculated. Due to gearing levels in the property structures, an increase in
the sensitivity of measurement metrics at property level will result in a
significantly greater impact at JZCP's equity level.
3 JZCP's investment in Spruceview.
The following table shows a reconciliation of all movements in the fair value
of financial instruments categorised within Level 3 between the beginning and
the end of the reporting period/year.
Period ended 31 August 2021
US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2021 299,339 83,968 23,376 23,147 429,830
Investments in year including 4,898 3,044 - - 7,942
capital calls
Payment in kind ("PIK") 3,163 - - - 3,163
Proceeds from investments (56,790) (700) - -
realised (57,490)
Net (loss)/gain on investments (570) 349 (4,588) - (4,809)
Movement in accrued interest 4,316 - - - 4,316
At 31 August 2021 254,356 86,661 18,788 23,147 382,952
Year ended 28 February 2021
US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2020 404,880 71,619 158,712 22,603 657,814
Investments in year including 3,629 9,858 2,639 1,840 17,966
capital calls
Payment in kind ("PIK") 20,027 - - - 20,027
Proceeds from investments realised (114,170) (9,328) (13,555) (1,283) (138,336)
Net (loss)/gain on investments (13,772) 11,819 (13) (126,386)
(124,420)
Movement in accrued interest (1,255) - - - (1,255)
At 28 February 2021 299,339 83,968 23,376 23,147 429,830
Fair value of Zero Dividend Preference ("ZDP") shares
The fair value of the ZDP shares is deemed to be their quoted market price. As
at 31 August 2021, the ask price for the ZDP (2022) shares was £4.40 (28
February 2021: £3.80 per share) and the total fair value of the ZDP shares was
$72,107,000 (28 February 2021: $63,263,000) which is $2,907,000 lower (28
February 2021: $11,040,000 lower) than the liability recorded in the Statement
of Financial Position.
ZDP shares are recorded at amortised cost and would fall in to the Level 2
hierarchy if valued at FVTPL.
6. Net Loss on Investments at Fair Value Through Profit or Loss
Period Period
ended ended
31.8.2021 31.8.2020
US$ '000 US$ '000
Loss on investments held in investment portfolio at period end
Net movement in period end unrealised gain position 18,315 (111,517)
Unrealised net (loss)/gain in prior periods now (24,765) 9,128
realised
Net unrealised loss in the period (6,450)
(102,389)
Net gain/(loss) on investments realised in the period
Proceeds from investments realised 57,490 6,411
Cost of investments realised (80,614) (8,983)
Unrealised net loss/(gain) in prior periods now 24,765 (9,128)
realised
Total net gain/(loss) in the period on investments realised in 1,641 (11,700)
the period
Net loss on investments in the period (4,809) (114,089)
7. 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
31.8.2021 31.8.2020
US$ '000 US$ '000
Impairment on loans classified as Stage 1 987 560
Impairment on loans classified as 418 -
Stage 2
Impairment on loans classified as - -
Stage 3
Total impairment on 1,405 560
loans during the
period
8. Investment Income
Period ended Period ended
31.8.2021 31.8.2020
US$ '000 US$ '000
Interest calculated using the effective interest rate 1,405 1,245
method
Other interest and similar income 7,714 11,452
9,119 12,697
Income for the period ended 31 August 2021
Preferred Loan note Other
Interest
Interest PIK Cash Dividend Interest Total
US$ '000 US$ US$ US$ '000 US$ '000 US$ '000
'000 '000
US micro-cap 7,479 - - 234 - 7,713
European micro-cap - 1,405 - - - 1,405
Listed investments - - - - 1 1
7,479 1,405 - 234 1 9,119
Income for the period ended 31 August 2020
Preferred Loan note Other
Interest
Portfolio Interest PIK Cash Dividend Interest Total
US$ '000 US$ US$ US$ '000 US$ '000 US$ '000
'000 '000
US micro-cap 11,035 154 254 - - 11,443
European micro-cap - 1,245 - - - 1,245
Listed investments - - - - 9 9
11,035 1,399 254 - 9 12,697
9. Finance Costs
Period Period
ended ended
31.8.2021 31.8.2020
US$ '000 US$ '000
Interest expense calculated using the effective interest
method
ZDP shares (Note 12) 1,892 1,636
Loan Notes (Note 13) 169 -
Senior Debt Facility (Note 14) 3,584 6,109
5,645 7,745
Other interest and similar expense
CULS interest paid1 (Note 15) 2,679 1,445
8,324 9,190
10. Fees Payable to the Investment Adviser
Investment Advisory and Performance fees
The Company entered into the amended and restated investment advisory and
management agreement with Jordan/Zalaznick Advisers, Inc. (the "Investment
Adviser") on 23 December 2010 (the "Advisory Agreement").
Pursuant to the Advisory Agreement, the Investment Adviser is entitled to a
base management fee and to an incentive fee. The base management fee is an
amount equal to 1.5 per cent per annum of the average total assets under
management of the Company less those assets identified by the Company as being
excluded from the base management fee, under the terms of the agreement. The
base management fee is payable quarterly in arrears; the agreement provides
that payments in advance on account of the base management fee will be made.
For the six-month period ended 31 August 2021, total investment advisory and
management expenses, based on the average total assets of the Company, were
included in the Statement of Comprehensive Income of $3,888,000 (period ended
31 August 2020: $5,359,000). Of this amount, $191,000 was prepaid (28 February
2021: $573,000 was due and payable) at the period end.
During the year ended 29 February 2020, the Investment Adviser agreed to waive
incentive fees payable by the Company relating to realised gains in the years
ended February 2019 and 2020. No further incentive fees will be paid to the
Investment Adviser until the Company and Investment Adviser have mutually
agreed to reinstate such payments.
11. Investments
Listed Unlisted Unlisted Carrying Value
FVTPL FVTPL Loans Total
31.8.2021 31.8.2021 31.8.2021 31.8.2021
US$ '000 US$ '000 US$ '000 US$ '000
Book cost at 1 March 2021 3,393 543,740 74,651 621,784
Investments in period including capital - 7,942 - 7,942
calls
Payment in kind ("PIK")1 - 3,163 633 3,796
Proceeds from investments - (57,490) - (57,490)
realised
Net realised loss - (23,124) - (23,124)
Realised impairment loss² - - (31,757) (31,757)
Realised currency loss² - - (2,674) (2,674)
Book cost at 31 August 2021 3,393 474,231 40,853 518,477
Unrealised investment and foreign - (98,119) (3,364) (101,483)
exchange loss
Impairment on loans at amortised - - (5,835) (5,835)
cost
Accrued interest 2 6,840 1,230 8,072
Carrying value at 31 August 2021 3,395 382,952 32,884 419,231
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.
2Realised impairment loss is due to the Company's direct loan in Ombuds
(European micro-cap). The loss was recognised in prior periods and was included
within the comparative number for Impairment on loans at amortised cost.
Listed Unlisted Unlisted Carrying
Value
FVTPL FVTPL Loans Total
28.2.2021 28.2.2021 28.2.2021 28.2.2021
US$ '000 US$ '000 US$ '000 US$ '000
Book cost at 1 March 2020 3,385 970,184 71,939 1,045,508
Investments in year including capital 6,787 58,931 - 65,718
calls
Payment in kind ("PIK")1 - 20,027 2,712 22,739
Proceeds from investments matured/ (6,790) (179,301) - (186,091)
realised
Interest received on maturity 11 - - 11
Net realised investment and foreign - (326,101) - (326,101)
exchange loss
Book cost at 28 February 2021 3,393 543,740 74,651 621,784
Unrealised investment and foreign - (116,434) (7,973) (124,407)
exchange loss
Impairment on loans at amortised - - (33,323) (33,323)
cost²
Accrued interest 1 2,524 458 2,983
Carrying value at 28 February 3,394 429,830 33,813 467,037
2021
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.
2Includes unrealised impairment loss of the Company's direct loan in Ombuds
(European micro-cap) which has been realised during the current interim period.
Loans at amortised cost
Interest on the loans accrues at the following rates:
As at 31 August 2021 As at 28 February 2021
8% 10% 14% Total 8% 10% 14% Total
Loans at 27,780 2,271 2,833 32,884 28,652 2,247 2,914 33,813
amortised cost
Maturity dates are as follows:
As at 31 August 2021 As at 28 February 2021
0-6 7-12 1-2 Total 0-6 7-12 1-2 Total
months months years months months years
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Loans at - - 32,884 32,884 - - 33,813 33,813
amortised cost
12. Zero Dividend Preference ("ZDP") shares
On 1 October 2015, the Company rolled over 11,907,720 existing ZDP (2016)
shares into new ZDP shares with a 2022 maturity date. The new ZDP shares (ZDP
2022) have a gross redemption yield of 4.75% and a total redemption value of £
57,597,000 (approximately $77,121,000 using the period end exchange rate).
ZDP shares are designed to provide a pre-determined final capital entitlement
which ranks behind the Company's creditors but in priority to the capital
entitlements of the Ordinary shares. The ZDP shares carry no entitlement to
income and the whole of their return will therefore take the form of capital.
In certain circumstances, ZDP shares carry the right to vote at general
meetings of the Company as detailed in the Company's Memorandum and Articles of
Incorporation. Issue costs are deducted from the cost of the liability and
allocated to the Statement of Comprehensive Income over the life of the ZDP
shares.
ZDP (2022) shares
31.8.2021 28.2.2021
US$ '000 US$ '000
Amortised cost at 1 March 74,303 64,510
Finance costs allocated to Statement of Comprehensive Income 1,892 3,441
Unrealised currency (gain)/loss on translation (1,181) 6,352
Amortised cost at period/year end 75,014 74,303
Total number of ZDP shares in issue 11,907,720 11,907,720
13. Loan Notes
During the period, the Company entered into a note purchase agreement with
David Zalaznick and John (Jay) Jordan, the founders and principals of the
Company's investment adviser, Jordan/Zalaznick Advisers, Inc. ("JZAI"),
pursuant to which they have agreed to purchase directly or through their
affiliates, subordinated, second lien loan notes totalling $31.5 million, with
a maturity date of 11 September 2022 (the "Loan Notes").
The interest rate on the Loan Notes will be 6 per cent. per annum payable
semi-annually on each of 31 March and 30 September of each year, commencing on
the first such date to occur after the issuance of the Loan Notes.
31.8.2021 28.2.2021
US$ '000 US$ '000
Loan notes issued in period 31,500 -
Finance costs charged to Statement of Comprehensive Income 169 -
Amortised cost at period/year end 31,669 -
14. Senior Debt Facility
On 12 June 2015, JZCP entered into a Senior Secured Debt Facility agreement
with Guggenheim Partners Limited (the "Original Lenders"). The original
facility was structured as $80 million and ?18 million and increased by a
further $50 million in April 2017. The original maturity date of the facility
being on 12 June 2021 (6 year term).
On 23 October 2020, the Company announced that it has agreed amended terms of
the Senior Debt Facility. Under the terms of the Amended Senior Facility, $40
million of the outstanding principal amount was assigned from the original
lenders to clients and funds advised by Cohanzick Management, LLC and
CrossingBridge Advisors, LLC (the "Replacement Lenders"). Subsequent to
entering into the amended agreement and following investment realisations, the
Company repaid a total of $82.9 million of the outstanding principal amount.
On 23 February 2021, the Company announced that Guggenheim Partners Europe
Limited had sold its remaining interest in the Company's senior debt facility
(the "First Out Loan") to the Replacement Lenders. There were no further
changes to the quantum or terms of the existing First Out Loan as a result of
this transaction.
On 14 May 2021, the Company entered into an amendment agreement with its senior
lenders to further amend the terms of its senior debt facility which will,
among other things, extend the maturity date of the senior debt facility by one
year until 12 June 2022. The interest rate charges under the amended agreement
for the First Out Loans will be amended from a rate of LIBOR¹ + 5.75 per cent.
to a rate of LIBOR + 9.75 per cent. (with a 1 per cent. floor). The interest
rate charges under the amended agreement for the Last Out Loans will be amended
from a rate of LIBOR + 11 per cent. to a rate of LIBOR + 15 per cent. (with a 1
per cent. floor), of which 4 per cent. shall be charged as payment-in-kind
interest.
The modified terms of the loan are not deemed to be substantially different
from the original terms. Therefore, as per IFRS 9, the senior debt facility is
accounted for as a continuation of the original facility rather than an
extinguishment of the original facility and the recognition of a new facility.
On 18 June 2021, the Company repaid a further $33.3 million of the outstanding
principal amount following a material investment realisation.
At 31 August 2021, investments and cash valued at $438,480,000² (28 February
2021: $504,883,000) were held as collateral on the loan. A covenant on the loan
states the fair value of the collateral must be 3.5.x the loan value. The
Company is also required to hold a minimum cash balance of $15 million. At 31
August 2021 and during the six-month interim period, the Company was in full
compliance with covenant terms.
¹There is an interest rate floor that stipulates LIBOR will not be lower than
1%. In this agreement, the presence of the floor does not significantly alter
the amortised cost of the instrument, therefore separation is not required and
the loan is valued at amortised cost using the effective interest rate method.
During the year the relevant 3 month LIBOR rates were below 1%. LIBOR
regulators (including the UK Financial Conduct Authority and the US Commodity
Futures Trading Commission) have announced a transition away from LIBOR,
however it is expected that the 3 month USD LIBOR which is relevant to the
Company will continue to be available until the end of June 2023.
²Investments held as collateral exclude the Company's investment in Spruceview
Capital.
31.8.2021 28.2.2021
US$ '000 US$ '000
Amortised cost (US$ drawdown) - 1 March 68,694 130,523
Amortised cost (Euro drawdown) - 1 March - 19,839
Loan repayments (33,264) (82,912)
Finance costs charged to Statement of Comprehensive Income 3,584 11,797
Interest and finance costs (2,385) (12,331)
paid
Unrealised currency gain on translation of Euro drawdown - 1,778
Amortised cost at period/year end 36,629 68,694
The carrying value of the loans approximates to fair value.
On 7 October 2021, the Company announced that it had agreed with its existing
senior lenders to borrow a further amount of $16.0 million under its Senior
Debt Facility. Following the increase, the total amount outstanding under the
Senior Debt Facility at 31 October 2021, is $52.6 million, of which $16.1
million will be 'First Out loans' and $36.5 million will be 'Last Out loans'.
15. Convertible Subordinated Unsecured Loan Stock ("CULS")
On 30 July 2021, JZCP redeemed 3,884,279 £10 CULS and converted on request,
1,835 £10 CULS into 3,039 Ordinary Shares at the agreed conversion price.
JZCP issued £38,861,140 6% CULS on 30 July 2014. The holders of the CULS had
the option to convert the whole or part (being an integral multiple of £10 in
nominal amount) of their CULS into Ordinary Shares at the agreed conversion
price of £6.0373 per Ordinary Share, which was subject to adjustment to deal
with certain events which would otherwise dilute the conversion of the CULS.
CULS bore interest on their nominal amount at the rate of 6.00 per cent. per
annum, payable semi-annually in arrears. During the six-month period ended 31
August 2021: $2,679,000 (31 August 2020: $1,445,000) of interest was paid to
holders of CULS and $1,336,000 (31 August 2020: $1,445,000) is shown as a
finance cost in the Statement of Comprehensive Income.
In accordance with IFRS, the Company has calculated the movement in fair value
due to the change in the credit risk of the CULS which is allocated as Other
Comprehensive Income in the Statement of Comprehensive Income. The loss on
financial liabilities at fair value through profit or loss comprises the
movement in the fair value attributable to the change in the benchmark interest
rate and the movement attributable to foreign exchange gain/loss on
translation.
31.8.2021 28.2.2021
US$ '000 US$ '000
Fair Value of CULS at 1 March 52,430 49,886
Interest expense 1,336 2,953
Coupon paid (2,679) (2,953)
Unrealised movement in value of CULS due to change in Company's 1,074 (1,074)
Credit Risk
Unrealised movement in the fair value of CULS allocated to change 2,170 (912)
in observed (benchmark) interest rate
Unrealised currency (gain)/loss on translation during the period (301) 4,530
/year
Loss to the Company on movement in the fair value of 1,869 3,618
CULS
Redemption of CULS (54,005) -
Conversion of CULS into Ordinary Shares (25) -
Fair Value of CULS based on offer price - 52,430
16. Other Payables
31.8.2021 28.2.2021
US$ '000 US$ '000
Provision for tax on dividends received not 398 398
withheld at source
Audit fees 292 363
Legal fees provision 250 250
Directors' remuneration 47 48
Other expenses 257 225
1,244 1,284
17. Ordinary shares - Issued Capital
31.8.2021 28.2.2021
Number of Number of
shares shares
Balance at 1 March 77,474,175 77,474,175
Ordinary shares issued during period 3,039 -
/year
Total Ordinary shares in 77,477,214 77,474,175
issue
The Company's shares trade on the London Stock Exchange's Specialist Fund
Segment.
On 2 August 2021, the Company issued 3,039 Ordinary shares resulting from the
conversion of 1,835 CULS. The conversion price was £6.0373 per Ordinary Share,
resulting in a credit to the Share capital account of £18k ($25k).
18. Commitments
At 31 August 2021 and 28 February 2021, JZCP had the following financial
commitments outstanding in relation to fund investments:
Expected date 31.8.2021 28.2.2021
of Call US$ '000 US$ '000
JZI Fund III GP, L.P. ?17,660,911 (28.2.2021: ? over 3 years 20,848 23,825
19,628,404)
Spruceview Capital Partners, over 1 year 900 900
LLC1
Orangewood Partners II-A LP2 see footnote - 6,932
Igloo Products Corp - 240
21,748 31,897
1As approved by a shareholder vote on 12 August 2020, JZCP has the ability to
make up to approximately $4.1 million in further commitments to Spruceview,
above the $0.9 million unfunded commitments as at 31 August 2021.
2During the period, the Company received shareholder approval for Jay Jordan
and David Zalaznick to relieve the Company of all of its remaining commitments
to the Orangewood Fund being $12.35 million, of which approximately $3 million
of this commitment was "funded" and $9.35 million "unfunded" (following the
Orangewood Fund's final close in April 2021 which resulted in a reallocation of
unfunded commitments).
19. Related Party Transactions
JZAI is a US based company founded by David Zalaznick and John ("Jay") Jordan
II, 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 2021, JZCP's investment in Fund III was valued at $83.4 million (28
February 2021: $80.7 million). JZCP's investment in EMC 2010 was valued at $3.3
million (28 February 2021: $3.3 million).
JZCP has invested in Spruceview Capital Partners, LLC on a 50:50 basis with Jay
Jordan and David Zalaznick (or their respective affiliates). The total amount
committed by JZCP to this investment at 31 August 2021, was $33.5 million with
$0.9 million of this amount remaining unfunded and outstanding. As approved by
a shareholder vote on 12 August 2020, JZCP has the ability to make up to
approximately $4.1 million in further commitments to Spruceview, above the
$33.5 million committed as of 31 August 2021. Should this approved capital be
committed to Spruceview, it would be committed on the same 50:50 basis with Jay
Jordan and David Zalaznick (or their respective affiliates).
During the year ended 28 February 2021, the Company announced that it had
agreed and received shareholder approval to sell 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 2021, JZCP's investment in Fund III was valued
at $80.8 million (28 February 2021: $72.2 million).
JZCP has co-invested with Fund A, Fund A Parallel I, II and III Limited
Partnerships in a number of US micro-cap buyouts. These Limited Partnerships
are managed by an affiliate of JZAI. JZCP invested in a ratio of 82%/18% with
the Fund A entities. At 31 August 2021, these co-investments, with Fund A, were
in the following portfolio companies: Igloo, Industrial Services Solutions, New
Vitality, Testing Services Holdings, Tierpoint and Vitalyst. JZCP's investments
in Testing Services Holdings and Tierpoint have subsequently been transferred
to JZHL Secondary Fund LP (mentioned above).
During the period, following shareholder approval, JZAI Founders Jay Jordan and
David Zalaznick relieved the Company of $12.35 million of its remaining
commitments to the Orangewood Fund (approximately $3 million of this commitment
being "funded" and $9.35 million "unfunded").
During the period, the Company entered into a note purchase agreement with
David Zalaznick and Jay Jordan, pursuant to which they have purchased directly
or through their affiliates, subordinated, second lien loan notes in the amount
of $31.5 million, with an interest rate of 6 per cent. per annum and maturing
on 11 September 2022 (the "Loan Notes"). The issuance of the Loan Notes was
subject to a number of conditions, including shareholder approval.
Total Directors' remuneration for the six-month period ended 31 August 2021 was
$145,000 (31 August 2020: $150,000). During the period, the Company was
notified that Sharon Parr acquired 10,000 of the Company's Ordinary shares and
also Ashley Paxton acquired 12,250 Ordinary shares and 4,250 Zero Dividend
Preference shares.
20. Basic and Diluted Loss per Share
Basic loss 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 2021, the weighted average number of Ordinary
shares outstanding during the period was 77,474,670 (31 August 2020:
77,474,175).
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. Following the redemption of the Company's CULS during
the period, there are no longer any potential dilutive events to the Ordinary
shares.
The comparative diluted earnings per share considered the impact of adjusting
the weighted average of the number of Ordinary shares for the conversion of the
CULS ("If-converted method"). Conversion was assumed even though at 31 August
2020 the exercise price of the CULS was higher than the market price of the
Company's Ordinary shares and are therefore deemed 'out of the money'. Earnings
were adjusted to remove the fair value loss recorded of $2,836,000 and finance
cost attributable to CULS $1,445,000. For the period ended 31 August 2020, the
potential conversion of the CULS would have been anti-dilutive to the total
loss per share, therefore the diluted loss per share is presented as per the
basic loss per share calculation.
21. Contingent Assets
Amounts held in escrow accounts
When investments have been disposed of by the Company, proceeds may reflect
contractual terms requiring that a percentage is held in an escrow account
pending resolution of any indemnifiable claims that may arise.
At 31 August 2021 and 28 February 2021, the Company has assessed that the
likelihood of the recovery of these escrow accounts cannot be determined and
has therefore disclosed the escrow accounts as a contingent asset.
As at 31 August 2021 and 28 February 2021, the Company had the following
contingent assets held in escrow accounts which had not been recognised as
assets of the Company:
Amount in Escrow
31.8.2021 28.2.2021
US$'000 US$'000
Triwater Holdings 309 309
Xpress Logistics (AKA Priority 19 19
Express)
328 328
During the period ended 31 August 2021, proceeds of $nil (31 August 2020:
$801,000) were realised and recorded in the Statement of Comprehensive Income.
22. Subsequent Events
These Interim Financial Statements were approved by the Board on 10 November
2021. Events subsequent to the period end 31 August 2021 have been evaluated
until this date.
On 7 October 2021, the Company announced that it had agreed with its existing
senior lenders to borrow a further amount of $16.0 million under its Senior
Debt Facility. Following the increase, the total amount outstanding under the
Senior Debt Facility as at 31 October 2021 is approx. $52.6 million (including
accrued interest).
Post period-end, the Company received $3.7 million from the realisation of its
portfolio company Igloo. The proceeds represent an approx. $3.4 million write
up on the $0.3 million valuation at period end. The Directors have assessed
that this is a non-adjusting post balance sheet event.
Post period-end, the Company received a $2.2 million distribution from
EuroMicrocap Fund 2010, L.P. ("EMC 2010"), relating to deferred income from the
realisation, in 2017, of EMC 2010's investment in Factor Energia. The Company
continues to hold an interest in Factor Energia through its investment in JZI
Fund III.
Company Advisers
Investment Adviser
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.
Jordan/Zalaznick Advisers, Inc.
9 West, 57th Street
New York NY 10019
Registered Office
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
JZ Capital Partners Limited is registered in Guernsey Number 48761
Administrator, Registrar and Secretary
Northern Trust International Fund Administration
Services (Guernsey) Limited
PO Box 255
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3QL
UK Transfer and Paying Agent
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
US Banker
HSBC Bank USA NA
452 Fifth Avenue
New York NY 10018
(Also provides custodian services to JZ Capital Partners
Limited under the terms of a Custody Agreement).
Guernsey Banker
Northern Trust (Guernsey) Limited
PO Box 71
Trafalgar Court
Les Banques
St Peter Port
Guernsey GY1 3DA
Independent Auditor
Ernst & Young LLP
PO Box 9
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4AF
UK Solicitor
Ashurst LLP
London Fruit & Wool Exchange
1 Duval Square
London E1 6PW
US Lawyers
Monge Law Firm, PLLC
435 South Tryon Street, Suite 711
Charlotte, NC 28202
Mayer Brown LLP
214 North Tryon Street
Suite 3800
Charlotte NC 28202
Winston & Strawn LLP
35 West Wacker Drive
Chicago IL 60601-9703
Guernsey Lawyer
Mourant
Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey GY1 4HP
Financial Adviser and Broker
JP Morgan Cazenove Limited
20 Moorgate
London EC2R 6DA
Useful Information for Shareholders
Listing
JZCP Ordinary and Zero Dividend Preference ("ZDP") 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 are shown in the Financial Times under
"Conventional Private Equity" and can also be found at https://markets.ft.com
along with the prices of the ZDP shares.
ISIN/SEDOL numbers
Ticker Symbol ISIN Code Sedol Number
Ordinary shares JZCP GG00B403HK58 B403HK5
ZDP (2022) shares JZCZ GG00BZ0RY036 BZ0RY03
Key Information Documents
JZCP produces Key Information Documents to assist investors' understanding of
the Company's securities and to enable comparison with other investment
products. These documents are 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 period ended
31 August 2021 was -4%, which only reflects the change in NAV as no dividends
were paid during the year. The Total NAV Return for the year ended 28 February
2021 was -30.8%.
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 2021 was +53.8%, 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 2021 was -69.8%.
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 2021, JZCP's Ordinary shares traded at £1.20 (28 February 2021: £
0.78) or $1.65 (28 February 2021: $1.09) being the dollar equivalent using the
period end exchange rate of £1:1.38 (28 February 2021 £1: $1.40). The shares
traded at a 60% (28 February 2021: 74%) discount to the NAV per share of $4.08
(28 February 2021: $4.25).
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 28 February 2022 May 2022 (date to be confirmed)
Annual General Meeting June/July 2022 (date to be
confirmed)
Interim report for the six months ended 31 August November 2022 (date to be
2022 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) 121 415 7047.
Share Dealing
Investors wishing to buy or sell shares in the Company may do so through a
stockbroker. Most banks also offer this service.
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 0871 384 2265, calls to this number cost 8p per minute from a BT
landline, other providers' costs may vary. Lines are open 8.30 a.m. to 5.30
p.m., Monday to Friday, If calling from overseas +44 (0) 121 415 7047 or access
their website at www.equiniti.com. Changes of name or address must be notified
in writing to the Transfer and Paying Agent.
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").
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 NOT a passive foreign investment
company ("PFIC") for the fiscal years ended February 2020 and 2019. An analysis
for the financial year ended 28 February 2021 is currently being undertaken. A
classification as a PFIC would likely have adverse tax consequences for US
taxpayers.
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
END
(END) Dow Jones Newswires
November 11, 2021 02:00 ET (07:00 GMT)
Jz Capital Partners (LSE:JZCP)
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Jz Capital Partners (LSE:JZCP)
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