EPE Special Opportunities
Limited
("ESO" or the
"Company")
Reports and Accounts for the
year ended 31 January 2024
The Board of EPE Special
Opportunities is pleased to announce the Company's Report and
Accounts for the year ended 31 January 2024.
Summary
·
The macro-economic environment has continued to
be complex throughout the year ended 31 January 2024, creating
headwinds for the Company and its portfolio. Economic uncertainty
has underpinned an adverse environment for new investments or
disposals within the portfolio at acceptable pricing. As a result,
the Board and Investment Advisor have prioritised positioning the
portfolio to navigate turbulent market conditions, focussing on
operating improvements and liquidity, alongside progressing longer
term growth strategies which will allow the Company to capitalise
as the trading environment begins to stabilise. The Board and
Investment Advisor are encouraged by early signs of stabilisation
in key indicators and are cautiously optimistic of further
improvement over the coming period.
·
The Net Asset Value ("NAV") per share of the
Company as at 31 January 2024 was 324 pence, representing a
decrease of 1 per cent. on the NAV per share of 328 pence as at 31
January 2023.
·
The share price of the Company as at 31 January
2024 was 165 pence, representing a decrease of 3 per cent. on the
share price of 170 pence as at 31 January 2023.
·
In March 2024, Luceco released its results for
the year ended 31 December 2023, announcing trading ahead of market
expectations. The group announced sales of £209 million, with Q4
trading 9.5 per cent. ahead of the prior year. The business
generated operating profit of £24 million, ahead of expectations.
The business achieved strong cash generation driven by higher
operating profit and improved working capital efficiency which
supported further deleveraging, with net debt of 0.6x LTM EBITDA as
at 31 December 2023. An excellent achievement and well below
Luceco's target range of 1.0-2.0x net debt to EBITDA.
·
Whittard of Chelsea ("Whittard") delivered a
strong performance in the period led by growth in its UK retail
channel, due to strengthening domestic and tourist footfall,
further enhanced by a new pop-up store in London Paddington station
over the Christmas period. Whittard has continued to progress its
international strategy, with the business entering a strategic
partnership with Rayware to develop its overseas presence and with
its South Korean franchise partner opening a new store in Samsung
Town in April 2023. The business made two senior appointments in
January 2024, including a new Chief Financial Officer and Chief
Marketing Officer.
·
The Rayware Group ("Rayware") has experienced
challenging trading conditions throughout the period. Financial
performance was impacted by customer destocking, acute supply chain
costs, depressed consumer confidence and well publicised
inflationary cost pressures. Rayware's capital structure has
therefore remained under pressure due to depressed EBITDA, interest
exposure and mezzanine finance raised at acquisition. ESO invested
£3.35 million in the period to reduce external debt and has a
contingent guarantee of £1.75 million outstanding. More
positively, in support of the international growth strategy, a new
Head of US Sales and Marketing was appointed in June 2023 and a new
Head of Export was appointed in February 2024.
·
David Phillips has continued to develop its
built-to-rent and project-based divisions, delivering year-on-year
sales growth. Profitability has improved from better product
sourcing, pricing and a focus on recurring sales channels.
Efficiency has been further enhanced through prudent actions taken
to reduce the cost base.
·
Pharmacy2U ("P2U") demonstrated an increased rate
of organic growth in its core NHS online prescription division in
the period. In October 2023, P2U announced the acquisition of
LloydsDirect, the UK's second largest online pharmacy, from
McKesson UK. In March 2024, the UK Competition and Markets
Authority provided clearance for the transaction.
·
Denzel's has focussed on developing its team and
infrastructure in the period to support its ambitious growth plans,
whilst at the same time achieving strong year-on-year sales growth.
The business relaunched its website and has seen a significant
increase in online marketing and transactional activity to support
its early successes in offline retail channels.
·
In January 2024, EPIC Acquisition Corp ("EAC")
announced that it will return all residual capital to third parties
and wind up. A perfect storm of Ukraine, global divestment from
China, economic flux from energy prices, subsequent inflation and
inevitable stock market volatility made 2022 and 2023 difficult
years with regards to a high conviction, high risk, capital markets
product. Over the 24 month investment period, the EAC team reviewed
over 250 opportunities, engaged actively with 12 targets and held
over 100 investor meetings. Interesting transaction opportunities
arose but could not be completed given the lack of appetite for
public market transactions during the period. A disappointing end
to an interesting investment product and opportunity for ESO. ESO's
holding in EAC was realised at par after the year end, while the
value realised from EAC Sponsor will be determined following the
completion of the liquidation.
·
In July 2023, the Company completed the
realisation of its holdings in Atlantic Credit Opportunities Fund
and in August 2023 completed the realisation of its holdings in
Prelude Structured Alternatives Master Fund LP, both realised at
carrying value.
·
The Company had cash balances of £15.3 million1
as at 31 January 2024. The Board continues to focus on maintaining
satisfactory liquidity during the ongoing period of market
uncertainty. In July 2023, the Company exercised its right to
extend the maturity of its £4.0 million unsecured loan notes to 23
July 2024. In July 2023, the Company also repurchased 7.5 million
zero dividend preference ("ZDP") shares for a total consideration
of £7.9 million. Following this buyback, the Company has 12.5
million ZDP shares remaining in issue, maturing in December 2026.
The Company has no other third-party debt outstanding.
·
As at 31 January 2024, the Company's unquoted
portfolio was valued at a weighted average EBITDA to enterprise
value multiple of 7.2x (excluding assets investing for growth) and
the portfolio continues with a low level of third party leverage,
which is commensurate with current market conditions, with net
third party debt at 1.4x EBITDA in aggregate.
Mr Clive Spears, Chairman,
commented: "The Company has faced a complicated operating
environment in the period, but the Board and Investment Advisor
have prudently managed its positioning of the portfolio and the
Company with particular focus on maintaining liquidity and
structural or operational support as required at company and
portfolio level. The Board would like to thank Mr Wilson, who
retired in September 2023, for his long period of service and
express their gratitude for his dedication and support throughout
his appointment to the Company over the last 20 years. The Board
would like to express its gratitude to the Investment Advisor and
the portfolio management teams for their diligence during another
turbulent year which has been particularly demanding to ensure
investee companies remain on track. The Board will continue to
monitor developments and looks forward to updating shareholders at
the half year."
The person responsible for
releasing this information on behalf of the Company is Amanda
Robinson of Langham Hall Fund Management (Jersey)
Limited.
Note 1: Company liquidity is stated inclusive of cash held by
subsidiaries in which the Company is the sole
investor
Enquiries:
EPIC Investment Partners LLP
|
+44 (0) 207 269 8865
Alex Leslie
|
Langham Hall Fund Management (Jersey)
Limited
|
+44 (0) 15 3488 5200
Amanda Robinson
|
Cardew Group Limited
|
+44 (0) 207 930 0777
Richard Spiegelberg
|
Numis Securities Limited
|
+44 (0) 207 260 1000
|
Nominated Advisor:
|
Stuart Skinner
|
Corporate Broker:
|
Charles Farquhar
|
Chairman's Statement
The macro-economic environment has
continued to be complex throughout the year ended 31 January 2024,
creating headwinds for the Company and its portfolio. Economic
uncertainty has underpinned an adverse environment for new
investments or disposals within the portfolio at acceptable
pricing. As a result, the Board and Investment Advisor have
prioritised positioning the portfolio to navigate turbulent market
conditions, focussing on operating improvements and liquidity
alongside progressing longer term growth strategies which will
allow the Company to capitalise as the trading environment begins
to stabilise. The Board and Investment Advisor are encouraged by
early signs of stabilisation in key indicators and are cautiously
optimistic of further improvement over the coming
period.
The Net Asset Value ("NAV") per
share* of the Company as at 31 January 2024 was 324 pence,
representing a decrease of 1 per cent. on the NAV per share* of 328
pence as at 31 January 2023. The share price of the Company as at
31 January 2024 was 165 pence, representing a decrease of 3 per
cent. on the share price of 170 pence as at 31 January 2023.
The share price of the Company represents a discount* of
49% to the NAV per share of the Company as at 31 January 2024. The
Company seeks to manage the discount to NAV via capital management,
including ordinary share buyback programs, as well as achieving
further diversification of the investment portfolio and scale in
the Company.
The Company has prudently managed
its positioning of the portfolio, whilst maintaining momentum
within overarching strategic initiatives to drive
growth;
·
Luceco plc ("Luceco") released its results for
the year ended 31 December 2023 announcing sales of £209 million
and an operating profit of £24 million, ahead of
expectations.
·
The Rayware Group ("Rayware") trading was
impacted by customer destocking, supply chain, consumer confidence
and inflationary pressures. A new Head of US Sales and Marketing
was appointed in June 2023 and Head of Export in February
2024.
·
Whittard of Chelsea ("Whittard") delivered its
highest revenue under EPIC ownership, with notable gains in its UK
retail channel. A new CMO and CFO were appointed in January
2024.
·
David Phillips has grown sales year-on-year,
driven by notable gains across the build-to-rent and project-based
divisions.
·
Pharmacy2U ("P2U") delivered sustained growth in
its core NHS online prescription division. The acquisition of
LloydsDirect promises to materially increase the scale of the
platform.
·
Denzel's has grown sales year-on-year and built a
strong foundation to support its future growth plans. In January
2024, the business appointed an experienced Chairman to the
board.
·
EPIC Acquisition Corp ("EAC") announced that it
will return all residual capital to third parties and wind up.
ESO's holding in EAC was realised at par after the year end, while
the value realised from EAC Sponsor will be determined following
the completion of the liquidation.
The Company successfully completed
the following investments and realisations in the
period;
· In
the year ended 31 January 2024, the Company, through its subsidiary
ESO Investments 1 Limited, invested £3.35 million in Rayware,
reducing the business' senior debt, and provided a contingent
guarantee to Rayware's third party lenders with a balance of £1.75m
outstanding as at 31 January 2024, following a £0.75 million
drawdown in the period.
· In
July 2023, the Company completed the realisation of its holdings in
Atlantic Credit Opportunities Fund and in August 2023 completed the
realisation of its holdings in Prelude Structured Alternatives
Master Fund LP, both realised at carrying value.
The performance of the investment
portfolio is a key driver of the Net Asset Value performance of the
Company.
The Company had cash balances of
£15.3 million*1 as at 31 January 2024. Maintaining
liquidity has existed as a core focus for the Board, whilst the
macroeconomic environment remains turbulent. In July 2023, the
Company exercised its right to extend the maturity of its £4.0
million unsecured loan notes to 23 July 2024. In July 2023, the
Company also repurchased 7.5 million zero dividend preference
("ZDP") shares for a total consideration of £7.9 million. Following
this buyback, the Company has 12.5 million ZDP shares remaining in
issue, maturing in December 2026. The Company has no other
third-party debt outstanding.
The Board would like to thank Mr
Wilson, who retired in September 2023, for his long period of
service and express their gratitude for his dedication and support
throughout his appointment to the Company over the last 20 years.
The Board would like to note its appreciation of the Investment
Advisor and the portfolio management teams for their efforts
through a complicated period. The Board will monitor the progress
of the portfolio over the coming months and looks forward to
updating shareholders at the half year.
Clive Spears
Chairman
27 March 2024
*See
Alternative Performance Measures of this Report and
Accounts.
[1] Company liquidity is stated inclusive of cash held in
subsidiaries in which the Company is the sole investor.
Investment Advisor's
Report
The macroeconomic backdrop
remained volatile, presenting challenges for both the Company and
its portfolio. A complex global economic landscape has generated a
market environment inconducive to new investments or divestments.
As a result, the Board and Investment Advisor have remained focused
on providing support to the portfolio and their management teams,
ensuring they are well-positioned from a strategic, operational and
liquidity standpoint. The Company has taken action to de-risk its
capital structure and improved liquidity by electing to extend the
maturity of its £4.0 million unsecured loan notes to July 2024.
This supported the repurchase of 7.5 million of its ZDP shares,
decreasing the redemption amount payable at maturity in December
2026.
The NAV per share* of the Company
as at 31 January 2024 was 324 pence, representing a decrease of 1
per cent. on the NAV per share* of 328 pence as at 31 January 2023.
The share price of the Company as at 31 January 2024 was 165 pence,
representing a decrease of 3 per cent. on the share price of 170
pence as at 31 January 2023.
The Company maintains satisfactory
liquidity during the ongoing period of market uncertainty. The
Company had cash balances of £15.3 million*1 as at 31
January 2024, which are available to support the portfolio, meet
committed obligations and deploy into attractive investment
opportunities. Net third party debt* in the underlying
portfolio stands at 1.4x EBITDA* in
aggregate.
The Company's unquoted private
investments portfolio is valued at a weighted average enterprise
value to EBITDA multiple* of 7.2x for mature assets (excluding
assets investing for growth). The valuation has been derived by
reference to quoted comparables, after the application of a
liquidity discount to adjust for the portfolio's scale and unquoted
nature. The Investment Advisor notes that the fair market value of
the portfolio remains exposed to a volatile macro environment and
equity market valuations.
In July 2023, the Company
completed the repurchase of 7.5 million of its ZDP shares in the
market (or 38 per cent. of the Company's issued ZDP share capital)
at a weighted average share price of 105 pence for a total
consideration of £7.9 million.
Luceco released its results for
the year ended 31 December 2023 in March 2024. The business
announced trading ahead of market expectations, with sales of £209
million and Q4 trading 9.5 per cent. ahead of the prior year. The
business generated operating profit of £24 million, ahead of
expectations. The business achieved strong cash generation driven
by higher operating profit and improved working capital efficiency
which supported further deleveraging, with net debt* of
0.6x LTM EBITDA* as at 31 December 2023. An excellent
achievement and well below Luceco's target range of 1.0-2.0x net
debt* to EBITDA*.
Rayware experienced challenging
trading conditions throughout the period. Financial performance was
impacted by customer destocking, acute supply chain costs,
depressed consumer confidence and well publicised inflationary cost
pressures. Rayware's capital structure has therefore
remained under pressure
due to depressed EBITDA*, interest
exposure and mezzanine finance raised at acquisition. ESO invested
£3.35 million in the period to reduce external debt and has a
contingent guarantee of £1.75 million outstanding. More positively,
in support of the international growth strategy, a new Head of US
Sales and Marketing was appointed in June 2023 and a new Head of
Export was appointed in February 2024.
Whittard of Chelsea delivered a
strong performance in the period led by growth in its UK retail
channel, due to strengthening domestic and tourist footfall,
further enhanced by a new pop-up store in London Paddington station
over the Christmas period. Whittard has continued to progress its
international strategy, with the business entering a strategic
partnership with Rayware to develop its overseas presence and with
its South Korean franchise partner opening a new store in Samsung
Town in April 2023. The business made two senior appointments in
January 2024, including a new Chief Financial Officer and Chief
Marketing Officer.
David Phillips has continued to
develop its built-to-rent and project-based divisions, delivering
year-on-year sales growth. Profitability has improved from better
product sourcing, pricing and a focus on recurring sales channels.
Efficiency has been further enhanced through prudent actions taken
to reduce the cost base.
Pharmacy2U demonstrated an
increased rate of organic growth in its core NHS online
prescription division in the period. In October 2023, P2U announced
the acquisition of LloydsDirect, the UK's second largest online
pharmacy, from McKesson UK. In March 2024,
the UK Competition and Markets Authority provided clearance for the
transaction.
Denzel's has focussed on
developing its team and infrastructure in the period to support its
ambitious growth plans, whilst at the same time achieving strong
year-on-year sales growth. The business relaunched its website and
has seen a significant increase in online marketing and
transactional activity to support its early successes in offline
retail channels. In January 2024, the business appointed an
experienced Chairman to the board.
In January 2024, EPIC Acquisition
Corp announced that it will return all residual capital to third
parties and wind up. A perfect storm of Ukraine, global divestment
from China, economic flux from energy prices, subsequent inflation
and inevitable stock market volatility made 2022 and 2023 difficult
years with regards to a high conviction, high risk, capital markets
product. Over the 24 month investment period, the EAC team reviewed
over 250 opportunities, engaged actively with 12 targets and held
over 100 investor meetings. Interesting transaction opportunities
arose but could not be completed given the lack of appetite for
public market transactions during the period. A disappointing end
to an interesting investment product and opportunity for ESO. ESO's
holding in EAC was realised at par after
the year end, while the value realised
from EAC Sponsor will be determined following the completion of the
liquidation.
The Investment Advisor continues
to monitor the Company's credit fund investments. European Capital
Private Debt Fund has completed its investment period and is
distributing capital to the Company. In July 2023, the Company
completed the realisation of its holdings in Atlantic Credit
Opportunities Fund and in August 2023 completed the realisation of
its holdings in Prelude Structured Alternatives Master Fund LP,
both realised at carrying value.
The Investment Advisor would like
to convey its thanks to all of the management teams across the
portfolio for their continued commitment during a difficult period,
and to the Board and the Company's shareholders for their counsel
and support.
EPIC Investment Partners
LLP
Investment Advisor to the
Company
27 March 2024
*See
Alternative Performance Measures of this Report and
Accounts.
[1] Company liquidity is stated inclusive of cash held in
subsidiaries in which the Company is the sole investor.
Audit and Risk Committee
Report
The Audit and Risk Committee is
chaired by David Pirouet and comprises all other Directors. Mr
Pirouet was appointed as Chairman of the Committee on 28 June
2019.
The Audit and Risk Committee's
main duties are:
·
To review and monitor the integrity of the
interim and annual financial statements, interim statements,
announcements and matters relating to accounting policy, laws and
regulations of the Company;
·
To evaluate the risks to the quality and
effectiveness of the financial reporting process;
·
To review the effectiveness and robustness of the
internal control systems and the risk management policies and
procedures of the Company;
·
To review the valuation of portfolio
investments;
·
To review corporate governance compliance,
including the Company's compliance with the QCA Corporate
Governance Code and Disclosure Guidance and Transparency Rules
("DTR") reporting requirements;
·
To review the nature and scope of the work to be
performed by the Auditors, and their independence and objectivity;
and
·
To make recommendations to the Board as to the
appointment and remuneration of the external auditors.
The Audit and Risk Committee has a
calendar which sets out its work programme for the year to ensure
it covers all areas within its remit appropriately. It met four
times during the period under review to carry out its
responsibilities and senior representatives of the Investment
Advisor attended the meetings as required by the Audit and Risk
Committee. In between meetings, the Audit and Risk Committee
chairman maintains ongoing dialogue with the Investment Advisor and
the lead audit partner via regular calls and physical
meetings.
During the past year the Audit and
Risk Committee carried out an ongoing review of its own
effectiveness. These concluded that the Audit and Risk Committee is
satisfactorily fulfilling its terms of reference and is operating
effectively. In addition, the Audit and Risk Committee undertook a
review of the Company's corporate governance and compliance with
the QCA Corporate Governance Code and DTR reporting
requirements.
Significant accounting
matters
The primary risk considered by the
Audit and Risk Committee during the period under review in relation
to the financial statements of the Company is the valuation of
unquoted investments.
The Company's accounting policy
for valuing investments is set out in notes 3i and 12. The Audit
and Risk Committee examined and challenged the valuations prepared
by the Investment Advisor, taking into account the latest available
information on the Company's investments and the Investment
Advisor's knowledge of the underlying portfolio companies through
their ongoing monitoring. The Audit and Risk Committee satisfied
itself that the valuation of investments had been carried out
consistently with prior accounting periods, or that any change in
valuation basis was appropriate, and was conducted in accordance
with published industry guidelines.
The Auditors explained the results
of their review of the procedures undertaken by the Investment
Advisor in preparation of valuation recommendations for the Audit
and Risk Committee. On the basis of their audit work, no material
adjustments were identified by the Auditor.
External audit
The Audit and Risk Committee
reviewed the audit plan and fees presented by the auditors,
PricewaterhouseCoopers CI LLP ("PwC"), and considered their report
on the financial statements. The fee for the audit of the annual
report and financial statements of the Company (and subsidiaries)
for the year ended 31 January 2024 is £81,200 (2023:
£61,350).
The Audit and Risk Committee
reviews the scope and nature of all proposed non-audit services
before engagement, with a view to ensuring that none of these
services have the potential to impair or appear to impair the
independence of their audit role. The Audit and Risk Committee
receives an annual assurance from the auditors that their
independence is not compromised by the provision of such services,
if applicable. During the period under review, the auditors
provided non-audit services to the Company in relation to the
Interim Review representing total fees of £26,350 (2023:
£17,000).
On 22 April 2022, PwC were
appointed as auditors to the Company from the 31 July 2023 Interim
review and the 31 January 2023 audit. The Audit and Risk Committee
regularly considers the need to put the audit out to tender, the
auditors' fees and independence, alongside matters raised during
each audit.
PwC, being eligible, have
expressed their willingness to continue in office for the current
financial year.
Other service providers
The Board will review the
performance and services offered by Langham Hall, as fund
administrator and EPIC Administration as fund sub-administrator on
an ongoing basis. EPIC Administration completed its last triennial
agreed upon procedures review during the year ended 31 January
2021. The agreed upon procedures review for 2024 is currently
ongoing.
Risk management and internal
control
The Company does not have an
internal audit function. The Audit and Risk Committee believes this
is appropriate as all of the Company's operational functions are
delegated to third party service providers who have their own
internal control and risk monitoring arrangements. A report on
these arrangements is prepared by each third party service provider
and submitted to the Audit and Risk Committee which it reviews on
behalf of the Board to support the Directors' responsibility for
overall internal control. The Company does not have a
whistleblowing policy and procedure in place. The Company delegates
this function to the Investment Advisor who is regulated by the FCA
and has such policies in place. The Audit and Risk Committee has
been informed by the Investment Advisor that these policies meet
the industry standard and no whistleblowing took place during the
year.
Corporate Governance
Statement
The Board of EPE Special
Opportunities is pleased to update shareholders of the Company's
compliance with the 2018 Quoted Companies Alliance Corporate
Governance Code (the "QCA Code").
The Company is committed to the
highest standards of corporate governance, ethical practices and
regulatory compliance. The Board believe that these standards are
vital to generate long-term, sustainable value for the Company's
shareholders. In particular the Board is concerned that the Company
is governed in a manner to allow efficient and effective decision
making, with robust risk management procedures.
As an investment vehicle, the
Company is reliant upon its service providers for many of its
operations. The Board maintains ongoing and rigorous review of
these providers. Specifically the Board reviews the governance and
compliance of these entities to ensure they meet the high standards
of the Company.
The Board is dedicated to
upholding these high standards and will look to strengthen the
Company's governance on an ongoing basis.
The Company's compliance with the
QCA Code is included in this report and on the Company's website
(www.epespecialopportunities.com). The Board deems the QCA Code
sufficient and any additional listing rules and DTR disclosures are
covered in this Corporate Governance report. The Company will
provide annual updates on changes to compliance with the QCA
Code.
The Quoted Companies Alliance has
announced that a revised version of the QCA Code will apply to
accounting periods commencing on or after 1 April 2024. The Company
will update its corporate governance disclosures to reflect the
revised code in the Report and Accounts released in the relevant
future accounting period.
The FCA also progresses on
changing the UK Listing Rules. The key changes include creating a
single segment for listed equity securities, replacing the current
premium and standard distinctions and placing additional
obligations on standard listed issuers, including related party
transactions as well as bringing them within scope of the UK
Governance Code. The Board will monitor and make an assessment of
how these changes impact the Company.
The Board has reviewed the
analysis below and confirms in its view that the Company has
complied with the applicable requirements of the 2018 QCA
Code.
Clive Spears
Chairman
27 March 2024
Report of the Directors
Principal activity and
incorporation
EPE Special Opportunities Limited
(the "Company") was incorporated in the Isle of Man as a company
limited by shares under the Laws with registered number 108834C on
25 July 2003. On 23 July 2012, the Company re-registered under the
Isle of Man Companies Act 2006, with registration number 008597V.
On 11 September 2018, the Company re-registered under the Bermuda
Companies Act 1981, with registration number 53954. The Company's
ordinary shares are quoted on AIM, a market operated by the London
Stock Exchange, and the Growth Market of the Aquis Stock Exchange
(formerly the NEX Exchange). The Company's Unsecured Loan Notes
("ULN") are quoted on the Aquis Stock Exchange.
The Company's Zero Dividend
Preference Shares ("ZDP") are admitted to trade on the main market
of the London Stock Exchange (standard listed). It was identified
that the 31 January 2023 accounts did not fully include certain
disclosures and requirements necessitated by the main market
listing of the ZDP shares. Detailed review has been performed by
management to consider obligations and reporting requirements in
accordance with the Listing Rules and DTR for the standard listed
segment (shares) on the London Stock Exchange. The format of the
annual report has been updated to include the required
disclosures.
The principal activity of the
Company and its subsidiaries holding vehicles (together the
"Subsidiaries") is to provide long- term return on equity for its
shareholders by investing between £2m and £30m in small and medium
sized companies. The Company targets growth capital and buy-out
opportunities, special situations and distressed transactions,
deploying capital where it believes the potential for shareholder
value creation to be compelling. The Company has the flexibility to
invest in public as well as private companies and is also able to
invest in Special Purpose Acquisition Companies ("SPACs") and third
party funds. The Company will consider most industry sectors
including business services, consumer and retail, financial
services and the industrials sector. The portfolio is likely to be
concentrated, numbering between two and ten assets at any one time,
which allows the Company to allocate the necessary resource to form
genuinely engaged and supportive partnerships with management
teams. This active approach facilitates the delivery of truly
transformational initiatives in underlying investments during the
Company's period of ownership.
The Subsidiary investment holding
vehicles are not consolidated in the group's financial statements
in accordance with IFRS 10. The Company also controls an employee
benefit trust ("EBT") established to operate the jointly owned
share plan and share based payment scheme for the Company's
Directors and certain employees of the Investment Advisor. The
financial statements presented in this Report and Accounts are the
consolidated financial statements of the Company and the EBT
subsidiary. The Company and the EBT subsidiary are collectively
referred to as the "Group" hereinafter.
Registered office
The Company's registered office
is:
Clarendon House, 2 Church Street,
Hamilton HM11, Bermuda.
Place of business
Prior to 15 May 2023, the Company
operated out of and was controlled from:
Liberation House, Castle Street,
St Helier, Jersey JE1 2LH.
On 15 May 2023, the Company's
place of business was amended to:
Gaspe House, 66-72 Esplanade, St
Helier, Jersey, Channel Islands, JE1 2LH.
Results of the financial
year
Results for the year are set out
in the Consolidated Statement of Comprehensive Income and in the
Consolidated Statement of Changes in Equity.
Dividends
The Board does not recommend a
dividend in relation to the current year (2023: nil) (see note 10
for further details).
Corporate governance
principles
Please refer to the Corporate
Governance Statement of this Report & Accounts. The Directors,
place a high degree of importance on ensuring that the Company
maintains high standards of Corporate Governance and have therefore
adopted the Quoted Companies Alliance 2018 Corporate Governance
Code (the "QCA Code").
The Board holds at least four
meetings annually and has established an Audit and Risk Committee.
The Investment Committee was agreed to be disbanded by the Board,
given that the Subsidiary investment holding vehicles have their
own Boards and governance structure in place. The Subsidiary
investment holding vehicles' Boards review and approve the direct
investments, and as such a separate Investment Committee at the
Company level is not required. The Board does not intend to
establish remuneration and nomination committees given the current
composition of the Board and the nature of the Company's
operations. The Board reviews annually the remuneration of the
Directors and agrees on the level of Directors' fees.
Composition of the
Board
The Board currently comprises four
non-executive directors, all of whom are independent. Clive Spears
is Chairman of the Board, David Pirouet is Chairman of the Audit
and Risk Committee.
Nicholas Wilson stepped down from
the Board on 30 September 2023.
Audit and Risk
Committee
The Audit and Risk Committee
comprises David Pirouet (Chairman of the Committee) and all other
Directors. The Audit and Risk Committee provides a forum through
which the Company's external auditors report to the
Board.
The Audit and Risk Committee meets
twice a year, at a minimum, and is responsible for considering the
appointment and fee of the external auditors and for agreeing the
scope of the audit and reviewing its findings. It is responsible
for monitoring compliance with accounting and legal requirements,
ensuring that an effective system of internal controls is
maintained and for reviewing the annual and interim financial
statements of the Company before their submission for approval by
the Board. The Audit and Risk Committee has adopted and complied
with the extended terms of reference implemented on the Company's
readmission to AIM in August 2010, as reviewed by the Board from
time to time.
The Board is satisfied that the
Audit and Risk Committee contains members with sufficient recent
and relevant financial experience.
Principal risks and
uncertainties
The Group has a robust approach to
risk management that involves ongoing risk assessments,
communication with our Board of Directors and Investment Advisor,
and the development and implementation of a risk management
framework along with reports, policies and procedures. We continue
to monitor relevant emerging risks and consider the market and
macro impacts on our key risks.
Risk
|
Description
|
Mitigation
|
Performance Risk
|
In the event the Company's
investment portfolio underperforms the market, the Company may
underperform vs. the market and peer benchmarks.
|
The Board independently reviews
any investment recommendation made by the Investment Advisor in
light of the investment objectives of the Company and the
expectations of shareholders.
The Investment Advisor maintains
board representation on all majority owned portfolio investments
and maintains ongoing discussions with management and other key
stakeholders in investments to ensure that there are controls in
place to ensure the success of the investment.
|
Portfolio Concentration Risk
|
The Company's investment policy is
to hold a concentrated portfolio of 2-10 assets. In a concentrated
portfolio, if the valuation of any asset decreases it may have a
material impact on the Company's NAV.
|
The Directors and Investment
Advisor keep the portfolio under review and focus closely on those
holdings which represent the largest proportion of total
value.
|
Liquidity Management
|
Liquidity risk is the risk that
the Company will encounter difficulty in meeting the obligations
associated with its financial liabilities that are settled by
delivering cash or another financial asset.
|
The Board and Investment Advisor
closely monitors cash flow forecasts in conjunction with liability
maturity. Liquidity forecasts are carefully considered before
capital deployment decisions are made.
|
Credit Risk
|
Credit risk is the risk that an
issuer or counterparty will be unable or unwilling to meet a
commitment that it has entered into with the Company. The Company,
through its interests in subsidiaries, has advanced loans to a
number of private companies which exposes the Company to credit
risk. The loans are advanced to unquoted private companies, which
have no credit risk rating.
|
Loan investments are entered into
as part of the investment strategy of the Company and its
subsidiaries, and credit risk is managed by taking security where
available (typically a floating charge) and the Investment Advisor
taking an active role in the management of the borrowing companies.
In addition to the repayment of loans advanced, the Company and
subsidiaries will often arrange additional preference share
structures and take significant equity stakes so as to create
shareholder value. It is the performance of the combination of all
securities including third party debt that determines the Company's
view of each investment.
|
Operational Risk
|
The Company outsources investment
advisory and administrative functions to service providers.
Inadequate or failed internal processes could lead to operational
performance risk and regulatory risk.
|
The primary responsibility for the
development and implementation of controls over operational risk
rests with the Board of Directors. This responsibility is supported
by the development of overall standards for the management of
operational risk, which encompasses the controls and processes at
the service providers and the establishment of service levels with
the service providers. The Directors' assessment of the adequacy of
the controls and processes in place at the service providers with
respect to operational risk is carried out via regular discussions
with the service providers as well as site visits to their offices.
The Company also undertakes periodic third-party reviews of service
providers' activities.
|
Significant holdings
Significant shareholdings are
analysed in the unaudited schedule of shareholders holding over 3%
of issued shares. The Directors are not aware of any other holdings
greater than 3 per cent. of issued shares.
Directors
The Directors of the Company
holding office during the financial year and to date
are:
Mr. C.L. Spears
(Chairman)
Mr. N.V. Wilson (resigned on 30
September 2023)
Ms. H. Bestwick
Mr. D.R. Pirouet
Mr. M.M Gray
Related Party Transactions
Details in respect of the Group's
related party transactions during the period are included in note
22 to the financial statements.
Staff and Secretary
At 31 January 2024 the Group
employed no staff (2023: none).
Independent Auditors
The current year is the second
year in which PricewaterhouseCoopers CI LLP are undertaking the
audit for the Group. PricewaterhouseCoopers CI LLP have indicated
willingness to continue in office.
On behalf of the Board
Heather Bestwick
Director
27 March 2024
Statement of Directors'
Responsibilities
in respect of the Annual Report
and the Financial Statements
The Directors are responsible for
preparing the Annual Report and the financial statements in
accordance with applicable law and regulations.
The Directors are required to
prepare financial statements for each financial year. The Group is
required to prepare the financial statement in accordance with IFRS
Accounting Standards as issued by the International Accounting
Standards Board (hereinafter "IFRS Accounting Standards") and
applicable legal and regulatory requirements of Bermuda Companies
Act 1981.
The Directors must not approve the
financial statements unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and of its
profit or loss for that period. In preparing the Group's financial
statements, the Directors are required to:
·
select suitable accounting policies and then
apply them consistently;
·
make judgements and estimates that are
reasonable, relevant and reliable;
·
state whether they have been prepared in
accordance with IFRS Accounting Standards; and
·
assess the Group's ability to continue as a going
concern, disclosing, as applicable, matters related to going
concern and use the going concern basis of accounting unless they
either intend to liquidate the Group or to cease operations, or
have no realistic alternative but to do so.
The Directors confirm that they
have complied with the above requirements in preparing the
financial statements.
The Directors are responsible for
keeping adequate accounting records that are sufficient to show and
explain the Group's transactions and disclose with reasonable
accuracy at any time the financial position of the Group and enable
them to ensure that its financial statements comply with the
Bermuda Companies Act 1981. They are responsible for such internal
control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error, and have general responsibility for
taking such steps as are reasonably open to them to safeguard the
assets of the Group and to prevent and detect fraud and other
irregularities.
The maintenance and integrity of
the Company's website is the responsibility of the Directors; the
work carried out by the auditors does not involve consideration of
these matters and, accordingly, the auditors accept no
responsibility for any changes that might have occurred to the
annual financial statements since they were initially presented on
the website. Legislation in Bermuda governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Each of the Directors confirm
that, to the best of their knowledge:
·
The financial statements, prepared in accordance
with IFRS Accounting Standards, give a true and fair view of the
assets, liabilities, financial position and profit or loss of the
Company and the undertakings included in the consolidation taken as
a whole; and
·
the Investment Advisor's report includes a fair
review of the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
In the case of each Director in
office at the date the Directors' report is approved:
·
so far as the Director is aware, there is no
relevant audit information of which the Group's auditors are
unaware; and
·
they have taken all the steps that they ought to
have taken as a Director in order to make themselves aware of any
relevant audit information and to establish that the Group's
auditors are aware of that information.
This annual report was approved by
the Board and the above Director's Responsibility Statement was
signed on behalf of the Board by:
Heather Bestwick
Director
27 March 2024
Consolidated Statement of Comprehensive
Income
For the year ended 31 January 2024
|
|
|
31 January
2024
|
|
31 January
2023
|
|
|
|
Total
|
|
Total
|
Note
|
|
|
£
|
|
£
|
|
Income
|
|
|
|
|
4
|
Interest income
|
|
366,660
|
|
79,899
|
11
|
Net fair value movement on
investments*
|
|
3,384,604
|
|
(39,438,551)
|
|
Total income / (loss)
|
|
3,751,264
|
|
(39,358,652)
|
|
Expenses
|
|
|
|
|
5
|
Investment advisor's
fees
|
|
(1,832,745)
|
|
(1,755,442)
|
6
|
Directors' fees
|
|
(162,474)
|
|
(172,000)
|
7
|
Share based payment
expense
|
|
(339,593)
|
|
(555,225)
|
8
|
Other expenses
|
|
(635,675)
|
|
(557,416)
|
|
Total expense
|
|
(2,970,487)
|
|
(3,040,083)
|
|
Profit / (loss) before finance costs and
tax
|
|
780,777
|
|
(42,398,735)
|
|
Finance charges
|
|
|
|
|
15
|
Interest on unsecured loan note
instruments
|
|
(309,049)
|
|
(309,382)
|
15
|
Zero dividend preference shares
finance charge
|
|
(868,190)
|
|
(1,128,093)
|
|
Loss for the year before taxation
|
|
(396,462)
|
|
(43,836,210)
|
9
|
Taxation
|
|
-
|
|
-
|
|
Loss for the year
|
|
(396,462)
|
|
(43,836,210)
|
|
Other comprehensive
income
|
|
-
|
|
-
|
|
Total comprehensive loss
|
|
(396,462)
|
|
(43,836,210)
|
17
|
Basic loss per ordinary share (pence)
|
|
(1.39)
|
|
(147.95)
|
17
|
Diluted loss per ordinary share (pence)
|
|
(1.33)
|
|
(141.77)
|
* The net fair value movements on
investments is allocated to the capital reserve and all other
income and expenses are allocated to the revenue reserve in the
Consolidated Statement of Changes in Equity. All items derive from
continuing activities.
Consolidated Statement of Assets
and Liabilities
At 31 January 2024
|
|
|
31 January
2024
|
|
31 January
2023
|
Note
|
|
|
£
|
|
£
|
|
Non-current assets
|
|
|
|
|
11
|
Investments at fair value through
profit or loss
|
|
95,459,612
|
|
100,412,977
|
|
|
|
95,459,612
|
|
100,412,977
|
|
Current assets
|
|
|
|
|
11
|
Investments at fair value through
profit or loss
|
|
5,262,427
|
|
-
|
13
|
Cash and cash
equivalents
|
|
14,462,495
|
|
22,226,008
|
|
Trade and other receivables and
prepayments
|
|
73,646
|
|
87,899
|
|
|
|
19,798,568
|
|
22,313,907
|
|
Current liabilities
|
|
|
|
|
14
|
Trade and other
payables
|
|
(676,284)
|
|
(596,790)
|
15
|
Unsecured loan note
instruments
|
|
(3,987,729)
|
|
(3,987,729)
|
|
|
|
(4,664,013)
|
|
(4,584,519)
|
|
Net current assets
|
|
15,134,555
|
|
17,729,388
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
15
|
Zero dividend preference
shares
|
|
(13,714,191)
|
|
(20,721,001)
|
|
|
|
(13,714,191)
|
|
(20,721,001)
|
|
Net assets
|
|
96,879,976
|
|
97,421,364
|
|
Equity
|
|
|
|
|
16
|
Share capital
|
|
1,730,828
|
|
1,730,828
|
16
|
Share premium
|
|
13,619,627
|
|
13,619,627
|
24
|
Capital reserve
|
|
100,523,993
|
|
97,139,389
|
24
|
Revenue reserve and other
equity
|
|
(18,994,472)
|
|
(15,068,480)
|
|
Total equity
|
|
96,879,976
|
|
97,421,364
|
18
|
Net asset value per share (pence)
|
|
324.26
|
|
328.41
|
The financial statements were
approved by the Board of Directors on 27 March 2024
and signed on its behalf by:
Clive
Spears
David Pirouet
Director
Director
Consolidated Statement of Changes
in Equity
For the year ended 31 January 2024
|
|
|
Year ended 31 January
2024
|
|
|
|
Share
capital
|
Share
premium
|
Capital
reserve
|
Revenue
reserve and other
equity
|
Total
|
Note
|
|
|
£
|
£
|
£
|
£
|
£
|
|
Balance at 1 February 2023
|
|
1,730,828
|
13,619,627
|
97,139,389
|
(15,068,480)
|
97,421,364
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the
year
|
|
-
|
-
|
3,384,604
|
(3,781,066)
|
(396,462)
|
|
|
|
|
|
|
|
|
|
Contributions by and distributions to
owners
|
|
|
|
|
|
|
7
|
Share-based payment
charge
|
|
-
|
-
|
-
|
339,593
|
339,593
|
|
Share ownership scheme
participation
|
|
-
|
-
|
-
|
41,401
|
41,401
|
16
|
Share acquisition for JOSP
scheme
|
|
-
|
-
|
-
|
(525,920)
|
(525,920)
|
|
Total transactions with owners
|
|
-
|
-
|
-
|
(144,926)
|
(144,926)
|
|
Balance at 31 January 2024
|
|
1,730,828
|
13,619,627
|
100,523,993
|
(18,994,472)
|
96,879,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 31 January
2023
|
|
|
Share
capital
|
Share
premium
|
Capital
reserve
|
Revenue
reserve
and
other
equity
|
Total
|
Note
|
|
£
|
£
|
£
|
£
|
£
|
|
Balance at 1 February 2022
|
1,730,828
|
13,619,627
|
136,577,940
|
(8,303,418)
|
143,624,977
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the
year
|
-
|
-
|
(39,438,551)
|
(4,397,659)
|
(43,836,210)
|
|
|
|
|
|
|
|
|
Contributions by and distributions to
owners
|
|
|
|
|
|
7
|
Share-based payment
charge
|
-
|
-
|
-
|
555,225
|
555,225
|
|
Share ownership scheme
participation
|
-
|
-
|
-
|
149,568
|
149,568
|
16
|
Purchase of shares
|
-
|
-
|
-
|
(2,587,375)
|
(2,587,375)
|
16
|
Share acquisition for JOSP
scheme
|
-
|
-
|
-
|
(484,821)
|
(484,821)
|
|
Total transactions with owners
|
-
|
-
|
-
|
(2,367,403)
|
(2,367,403)
|
|
Balance at 31 January 2023
|
1,730,828
|
13,619,627
|
97,139,389
|
(15,068,480)
|
97,421,364
|
Consolidated Statement of Cash
Flows
For the year ended 31 January 2024
|
|
|
31 January
2024
|
|
31 January
2023
|
Note
|
|
|
£
|
|
£
|
|
Operating activities
|
|
|
|
|
|
Interest income
received
|
|
366,660
|
|
79,899
|
|
Expenses paid
|
|
(2,535,853)
|
|
(2,853,467)
|
11
|
Purchase of investments
|
|
(3,350,000)
|
|
(3,174,948)
|
11
|
Proceeds from
investments
|
|
6,425,542
|
|
3,848,880
|
19
|
Net cash generated from / (used in) operating
activities
|
|
906,349
|
|
(2,099,636)
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
15
|
Unsecured loan note interest
paid
|
|
(309,049)
|
|
(299,080)
|
|
Purchase of shares
|
|
(525,920)
|
|
(3,072,196)
|
15
|
Buyback of zero dividend
preference shares
|
|
(7,875,000)
|
|
-
|
|
Share ownership scheme
participation
|
|
41,401
|
|
149,568
|
|
Net cash used in financing activities
|
|
(8,668,568)
|
|
(3,221,708)
|
|
Decrease in cash and cash equivalents
|
|
(7,762,219)
|
|
(5,321,344)
|
|
Effect of exchange rate
fluctuations on cash and cash equivalents
|
|
(1,294)
|
|
2,310
|
|
Cash and cash equivalents at start of year
|
|
22,226,008
|
|
27,545,042
|
13
|
Cash and cash equivalents at end of year
|
|
14,462,495
|
|
22,226,008
|
Reconciliation of net debt
Cash and cash equivalents
|
On 31 January
2023
|
Cash flows
|
Other non-cash
charge
|
On 31 January
2024
|
|
£
|
£
|
£
|
£
|
Cash at bank
|
22,226,008
|
(7,762,219)
|
(1,294)
|
14,462,495
|
Unsecured loan note
instruments
|
(3,987,729)
|
309,049
|
(309,049)
|
(3,987,729)
|
Zero dividend preference
shares
|
(20,721,001)
|
7,875,000
|
(868,190)
|
(13,714,191)
|
Net debt
|
(2,482,722)
|
421,830
|
(1,178,533)
|
(3,239,425)
|
Notes to the Consolidated
Financial Statements
For the year ended 31 January 2024
1 General information
On 25 July 2003, the Company was
incorporated with limited liability in the Isle of Man. On 23 July
2012, the Company then re-registered in the Isle of Man in order to
bring the Company within the Isle of Man Companies Act 2006, with
registration number 008597V. On 11 September 2018, the Company
re-registered under the Bermuda Companies Act 1981, with
registration number 53954. The Company moved its operations to
Jersey with immediate effect on 17 May 2017 and has subsequently
operated from Jersey only.
The Company's ordinary shares are
quoted on AIM, a market operated by the London Stock Exchange, and
the Growth Market of the Aquis Stock Exchange (formerly the NEX
Exchange). The Company's zero dividend preference shares are
admitted to trade on the main market of the London Stock Exchange
(standard listed). The Company's unsecured loan notes are quoted on
the Aquis Stock Exchange.
The Company's portfolio
investments are held in two majority owned subsidiary entities, ESO
Investments 1 Limited and ESO Investments 2 Limited and one wholly
owned subsidiary entity, ESO Alternative Investments LP (together
the "Subsidiaries"). ESO Investments 1 Limited and ESO Investments
2 Limited operate out of Jersey and ESO Alternative Investments LP
operates out of the United Kingdom.
Direct interests in the individual
portfolio investments are held by the following
Subsidiaries;
·
ESO Investment 1 Limited: Rayware, Whittard,
David Phillips and Denzel's
·
ESO Investments 2 Limited: Luceco and
Pharmacy2U
·
ESO Alternative Investments LP: European Capital
Private Debt Fund LP, Atlantic Credit Opportunities DAC, EPIC
Acquisition Corp and EAC Sponsor Limited
The above Subsidiaries are
subsidiary holding vehicles and are not consolidated in accordance
with IFRS 10 as detailed in Notes 3a and 3b.
The Company also controls the EPIC
Private Equity Employee Benefit Trust (referred herein as the "EBT
subsidiary"), an employee benefit trust, which financial position
and results are consolidated in these financial statements (refer
to Notes 3a and 7 for details). These financial statements are
consolidated financial statements of the Company and the EBT
subsidiary. The Company and the EBT subsidiary are collectively
referred to as the "Group" hereinafter.
The Group's primary objective is
to provide long-term return on equity for its shareholders by
investing between £2m and £30m in small and medium sized
companies.
The Group targets growth capital
and buy-out opportunities, special situations and distressed
transactions, deploying capital where it believes the potential for
shareholder value creation to be compelling. ESO has the
flexibility to invest in public as well as private companies and is
also able to invest in Special Purpose Acquisition Companies
("SPACs") and third party funds.
ESO will consider most industry
sectors including business services, consumer and retail, financial
services and the industrials sector.
The portfolio is likely to be
concentrated, numbering between two and ten assets at any one time,
which allows the Group to allocate the necessary resource to form
genuinely engaged and supportive partnerships with management
teams. This active approach facilitates the delivery of truly
transformational initiatives in underlying investments during the
Group's period of ownership.
The Group has no
employees.
The following significant changes
occurred during the year ended 31 January 2024:
·
In July 2023, the Company completed the
realisation of its holdings in Atlantic Credit Opportunities Fund
and in August 2023 completed the realisation of its holdings in
Prelude Structured Alternatives Master Fund LP, with both realised
at carrying value.
·
In January 2024, EPIC Acquisition Corp. announced
that it will return all residual capital to third parties and wind
up. The valuation methodology for EPIC Acquisition Corp. and EAC
Sponsor Limited was amended to a liquidation valuation, implying a
reduction in the aggregate value of the holdings. As a result, the
designation of the level of fair value hierarchy of EPIC
Acquisition Corp was amended to Level 3 from Level 2 as at 31
January 2023 (see note 12).
·
In July 2023, the Company completed the buyback
of 7.5 million zero dividend preference shares ("ZDP"). Following
this buyback, the Company has 12.5 million ZDP shares remaining in
issue, maturing in December 2026 for a value of £7,875,000 (see
note 15).
·
The movement in the value of investments and fair
value movement are deemed as significant changes during the period
(see note 12).
The financial information is
derived from the Group's consolidated financial statements for the
year ended 31 January 2024. The financial information set out above
does not constitute the Group's statutory accounts for the years
ended 31 January 2023 and 31 January 2024 but is derived from those
accounts. The Auditors have reported on the statutory accounts and
their report was unqualified and did not draw attention to any
matters by way of emphasis. The full text of the
auditors' report can be found in the Company's full 2024 Report and
Accounts on pages 48 to 53.
The 2024 Report and Accounts will
be published on the Company's website
at https://www.epespecialopportunities.com/ as
soon as practicable. They will also be submitted to the National
Storage Mechanism where they will be available for inspection
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
2 Basis of preparation
a. Statement of compliance
The financial statements have been
prepared in accordance with IFRS Accounting Standards as issued by
the International Accounting Standards Board ("IFRS Accounting
Standards") and applicable legal and regulatory requirements of
Bermuda Companies Act 1981. The following accounting policies have
been adopted and applied consistently. The financial statements
comply with IFRS Accounting Standards as issued by the
International Accounting Standards Board (IASB).
b. Basis of measurement
The financial statements have been
prepared on the historical cost convention except for financial
instruments at fair value through profit or loss which are measured
at fair value (note 12). The following are amendments that the
Group has decided not to adopt early:
· Standards and amendments to
existing standards effective 1 January 2023
There are no standards, amendments
to standards or interpretations that are effective for annual
periods beginning on 1 January 2023 that have a material effect on
the financial statements of the Group.
· New standards, amendments
and interpretations effective after 1 January 2023 and have not
been early adopted
A number of new standards,
amendments to standards and interpretations are effective for
annual periods beginning after 1 January 2023, and have not been
early adopted in preparing these financial statements. None of
these are expected to have a material effect on the financial
statements of the Group.
c. Functional and presentation
currency
These financial statements are
presented in Sterling, which is the Group's functional and
presentation currency. All financial information presented in
Sterling has been rounded to the nearest pound.
'Functional currency' is the
currency of the primary economic environment in which the Group
operates. The expenses (including investment advisory and
administration fees) and investments are denominated and paid in
Sterling. Accordingly, management has determined that the
functional currency of the Group is Sterling.
A foreign currency transaction is
recorded initially at the rate of exchange at the date of the
transaction. Assets and liabilities are translated from foreign
currency to the functional currency at the closing rate at the end
of the reporting period. The resulting gains or losses are included
in the Consolidated Statement of Comprehensive Income.
d. Use of estimates and
judgements
The preparation of financial
statements in conformity with IFRS Accounting Standard requires the
Directors and the Investment Advisor to make judgements, estimates
and assumptions that affect the application of policies and the
reported amounts of assets and liabilities, income and expense. The
estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. The
Directors have, to the best of their ability, provided as true and
fair a view as is possible. Actual results may differ from these
estimates.
The estimates and underlying
assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in
the period of the revision and future periods if the revision
affects both current and future periods.
Critical accounting estimates and
assumptions made by Directors and the Investment Advisor in the
application of IFRS Accounting Standards that have a significant
effect on the financial statements and estimates with a significant
risk of material adjustments in the year relate to the
determination of fair value of financial instruments with
significant unobservable inputs (see note 12).
The critical judgements made by
the Directors and the Investment Advisor in preparing these
financial statements are:
·
Classification of the zero dividend preference
share as a non-current liability in the Consolidated Statement of
Assets and Liabilities. The zero dividend preference shares meet
the definition of a non-current liability as detailed in note 3(l).
Please refer to note 15 for further details.
·
Categorisation of ESO Alternative Investments LP,
ESO Investments 1 Limited and ESO Investments 2 Limited as
Subsidiaries. The Company is deemed to have control over these
Subsidiaries. Please refer to note 3(a) for details.
e. Unconsolidated structured
entities
The Company invests in portfolio
investments through its Subsidiaries. See note 3(a) for an
explanation of why these entities are considered controlled
subsidiary investments. The purpose of the Subsidiaries is to hold
investments. The Subsidiaries meet the definition of unconsolidated
structured entities under IFRS 12. There are letters of support in
place between the Company and ESO Investments 1 Limited and ESO
Investments 2 Limited for the payment of expenses. ESO Alternative
Investments LP pays its own expenses.
The total fair value of the
Subsidiaries, and the amount recognised in the Company's financial
statements (as investments at fair value) is £100,722,039 (2023:
£100,412,977).
In respect of ESO Alternative
Investments LP, the Company has 100% beneficial ownership of the
entity. In respect of ESO Investments 1 Limited, the Company has
80% beneficial ownership of the entity.
In respect of ESO Investments 2
Limited, the Company has 80% beneficial ownership of the
entity.
There are no restrictions on the
ability of the above Subsidiaries to transfer funds to the Company
in the form of cash dividends or loan repayments.
The Company's maximum exposure to
loss from its interest in its Subsidiaries is equal to the total
fair value of its investment in its Subsidiaries.
The Company's Subsidiaries invest
in quoted and unquoted securities, in line with the Company's
investment policy. The value of these investments may be impacted
by market price risk arising from uncertainty about the future
market value of these holdings as well as the risk of
underperformance of the underlying portfolio companies.
The exposure to investments in
Subsidiaries measured at fair value is disclosed in the following
table :
|
|
31 January
2024
£
|
31 January
2023
£
|
ESO Investments 1
Limited
|
|
52,200,243
|
43,217,307
|
ESO Investments 2
Limited
|
|
42,722,072
|
44,330,483
|
ESO Alternative Investments
LP
|
|
5,799,724
|
12,865,187
|
|
|
100,722,039
|
100,412,977
|
During the year ended 31 January
2024 total net profit incurred on the fair value movement on
investments in Subsidiaries was £3,384,604 (2023: loss of
£39,438,551) (as set out in note 11).
f. Going concern
The Group's management has
assessed the Group's ability to continue as a going concern and is
satisfied that the Group has adequate resources to continue in
business for at least twelve months from the date of approval of
financial statements. Furthermore, the management is not aware of
any material uncertainties that may cast significant doubt upon the
Group's ability to continue as a going concern. Therefore, the
financial statements continue to be prepared on the going concern
basis.
3 Material accounting policy
information
a. Subsidiaries and
consolidation
The Company has subsidiaries which
have been determined to be controlled subsidiary investments.
Controlled subsidiary investments are measured at fair value
through profit or loss and are not consolidated in accordance with
IFRS 10. The fair value of controlled subsidiary investments is
determined on a consistent basis to all other investments measured
at fair value through profit or loss, and as described in note
3.i.
A controlled subsidiary investment
involves holding companies over which the Company has the power to
govern the financial and operating policies. These holding
companies are subsidiaries that have been incorporated for the
purpose of holding underlying investments on behalf of the Company.
Such holding companies have no operations other than providing a
vehicle for the acquisition, holding and onward sale of certain
portfolio investment companies. The holding companies are also
reflected at its fair value, with the key fair value driver thereof
being the investment in the underlying portfolio company
investments that the holding company holds on behalf of the
Company. The holding companies require no consolidation, because
the holding companies are not deemed to be providing investment
related services, as defined by IFRS 10.
Where the Company is deemed to
have control over an underlying portfolio company, either directly
or indirectly, and whether the control is via voting rights or
through the ability to direct the relevant activities in return for
access to a significant portion of the variable gains and losses
derived from those relevant activities, the Company does not
consolidate the underlying portfolio company; instead, the Company
reflects its investment at fair value through profit or
loss.
The EPIC Private Equity Employee
Benefit Trust ("EBT Subsidiary or Trust") is treated as a
subsidiary and consolidated in the financial statements. The impact
on the financial statements is immaterial. All transactions and
balances between the Company and EBT Subsidiary are eliminated on
consolidation. Amounts reported in the financial statements have
been adjusted where necessary to ensure consistency with the
accounting policies adopted by the Company. Please refer to note 7
for more details.
b. Investment entity
IFRS 10: "Consolidated Financial
Statements", provides an exception to the consolidation requirement
for entities that meet the definition of an investment
entity.
The Directors believe the Company
meets the definition of an investment entity as the following
conditions exist:
·
The Company obtains funds from its members for
the purpose of providing those members with investment management
services;
·
The Company commits to its members that its
business purpose is to invest funds solely for returns from capital
appreciation, investment income, or both; and
·
The Company measures and evaluates the
performance of substantially all of its investments on a fair value
basis.
The exception to consolidation
requires investment entities to account for subsidiaries at fair
value through profit or loss.
c. Segmental reporting
The Directors are of the opinion
that the Company is engaged in a single segment of business and
geographic area, being arranging financing for growth, buyout and
special situations investments in the United Kingdom. Information
presented to the Board of Directors for the purpose of decision
making is based on this single segment. All significant operating
decisions are based upon the analysis of the Company's investments
as a single operating segment. The financial information from this
segment are equivalent to the financial information of the Company
as a whole, which are evaluated on a regular basis by the Board of
Directors.
d. Income
Interest income is recognised as
it accrues in profit or loss, using the effective interest method.
Dividend income is accounted for when the right to receive such
income is established.
e. Expenses
All expenses are accounted for on
an accrual basis.
f. Cash and cash
equivalents
Cash and cash equivalents comprise
of current cash deposits with banks only. Cash equivalents are
short-term, highly liquid investments that are readily convertible
to known amounts of cash and which are subject to insignificant
risk of changes in value.
g. Finance charges
Other finance charges are
recognised as an expense.
h. Trade and other payables
Trade and other payables are
stated at amortised cost in accordance with IFRS 9.
i. Unsecured loan note
instruments
Unsecured loan note instruments
are stated at amortised cost in accordance with IFRS 9.
j. Financial assets and financial
liabilities
A. Classification
Financial assets
When the Group first recognises a
financial asset, it classifies it based on the business model for
managing the
asset and the asset's contractual
cash flow characteristics, as follows:
· Amortised cost: a financial asset is measured at amortised
cost if both of the following conditions are met:
- the
asset is held within a business model whose objective is to hold
assets in order to collect contractual cash flows; and
- the
contractual terms of the financial asset give rise on specified
dates to cash flows that are solely payments of principal and
interest on the principal amount outstanding.
·
Fair value through other comprehensive income:
financial assets are classified and measured at fair value through
other comprehensive income if they are held in a business model
whose objective is achieved by both collecting contractual cash
flows and selling financial assets.
·
Fair value through profit or loss: any financial
assets that are not held in one of the two business models
mentioned are measured at fair value through profit or
loss.
When, and only when, the Group
changes its business model for managing financial assets it must
reclassify all affected assets
Financial liabilities
All financial liabilities are
measured at amortised cost, except for financial liabilities at
fair value through profit or loss. Such liabilities include
derivatives (other than derivatives that are financial guarantee
contracts or are designated and effective hedging instruments),
other liabilities held for trading, and liabilities that an entity
designates to be measured at fair value through profit or
loss.
B. Recognition
The Group recognises financial
assets and financial liabilities on the date it becomes a party to
the contractual provisions of the instrument.
C. Measurement
Equity and debt investments,
including those held by Subsidiaries, are stated at fair value.
Loans and Receivables are stated at amortised cost less any
impairment losses.
The Investment Advisor determines
asset values using the valuation principles of IFRS 13.
'Fair value' is the price that
would be received to sell an asset or paid to transfer a liability
in an orderly transaction between market participants at the
measurement date in the principal or, in its absence, the most
advantages market to which the Group has access at that date. The
fair value of a liability reflects its non-performance
risk.
When available, the Company
measures the fair value of an instrument using the quoted price in
an active market for that instrument. A market is regarded as
'active' if transactions for the asset or liability take place with
sufficient frequency and volume to provide pricing information on
an ongoing basis. The Company measures instruments quoted in an
active market at closing price on the relevant exchange at the
measurement date.
If there is no quoted price in an
active market, then the Company uses valuation techniques that
maximise the use of relevant observable inputs and minimise the use
of unobservable inputs. The chosen valuation technique incorporates
all of the factors that market participants would take into account
in pricing a transaction.
The Company recognises transfers
between levels of the fair value hierarchy as at the end of the
reporting period during which the change has occurred.
The amortised cost of a financial
asset or financial liability is the amount at which the financial
asset or financial liability is measured at initial recognition,
minus principal repayments, plus or minus the cumulative
amortisation using the effective interest method of any difference
between the initial amount recognised and the maturity amount,
minus any reduction for impairment. Financial assets that are not
carried at fair value though profit and loss are subject to an
impairment test. For loans to portfolio companies the impairment
test is undertaken as part of the assessment of the fair value of
the enterprise value of the related business, as described above.
If expected life cannot be determined reliably, then the
contractual life is used.
D. Impairment
12-month expected credit losses
12-month expected credit losses
are calculated by multiplying the probability of a default
occurring in the next 12 months with the total (lifetime) expected
credit losses that would result from that default, regardless of
when those losses occur. Therefore, 12-month expected credit losses
represent a financial asset's lifetime expected credit losses that
are expected to arise from default events that are possible within
the 12 month period following origination of an asset, or from each
reporting date for those assets in initial recognition
stage.
Lifetime expected credit losses
Lifetime expected credit losses
are the present value of expected credit losses that arise if a
borrower defaults on its obligation at any point throughout the
term of a lender's financial asset (that is, all possible default
events during the term of the financial asset are included in the
analysis). Lifetime expected credit losses are calculated based on
a weighted average of expected credit losses, with the weightings
being based on the respective probabilities of default.
E. Derecognition
The Company derecognises a
financial asset when the contractual rights to the cash flows from
the financial asset expire or it transfers the financial asset and
the transfer qualifies for derecognition in accordance with IFRS
9.
The Company uses the weighted
average method to determine realised gains and losses on
derecognition. A financial liability is derecognised when the
obligation specified in the contract is discharged, cancelled or
expired.
k. Share capital
Ordinary share capital
Ordinary shares are classified as
equity. Incremental costs directly attributable to the issue of
ordinary shares and share options are recognised as a deduction
from equity, net of any tax effects.
Repurchase of share capital
(treasury shares)
When share capital recognised as
equity is repurchased, the amount of the consideration paid, which
includes directly attributable costs, net of any tax effects, is
recognised as a deduction from equity. Repurchased shares are
classified as treasury shares and are presented as a deduction from
total equity. When treasury shares are sold or reissued
subsequently, the amount received is recognised as an increase in
equity, and the resulting surplus or deficit on the transaction is
transferred to / from revenue reserves.
Capital Reserve and Revenue Reserve and other
equity
The capital reserve comprises net
gains and losses on investments. The revenue reserve and other
equity comprise other income and expenses plus other items recorded
directly in equity (excluding items recorded as share capital /
share premium).
l. Jointly owned share plan ("JOSP") and
share-based payments
Directors of the Company and
certain employees of the Investment Advisor (together
"Participants") receive remuneration in the form of equity-settled
share-based payment transactions, through a JOSP Scheme.
Equity-settled share-based
payments are measured at fair value at the date of grant. The fair
value is determined based on the share price of the equity
instrument at the grant date. The fair value determined at the
grant date of the equity-settled share-based payment is expensed on
a straight-line basis over the vesting period, based on the
Company's estimate of the number of shares that will eventually
vest. The instruments are subject to a three-year service vesting
condition from the grant date, and their fair value is recognised
as a share-based expense with a corresponding increase in revenue
reserves within equity over the vesting period. Contributions
received from employees as part of the JOSP arrangement are
recognised directly in equity in the line share ownership scheme
participation.
The assets (other than investments
in the Company's shares), liabilities, income and expenses of the
Trust established to operate the JOSP scheme are consolidated in
these financial statements. Any expense incurred by the Trust are
borne by the Company. The Trust's investment in the Company's
shares is deducted from shareholders' funds in the Consolidated
Statement of Asset and Liabilities as if they were treasury shares
(see note 7).
m. Zero dividend preference shares
("ZDP")
Under IAS 32 - Financial
Instruments: Presentation, the ZDP Shares are classified as
financial liabilities and are held at amortised cost. An accrual
for the final capital entitlement of the ZDP Shares is included in
the Consolidated Statement of Comprehensive Income as a finance
cost and is calculated using the effective interest rate method
("EIR"). The costs of issue of the ZDP Shares are amortised over
the period to the ZDP Share redemption date.
n. Future changes in accounting policies
Several new standards and
interpretations have been published that are not mandatory for 31
January 2024 reporting periods and earlier application is
permitted; however, the Group has not adopted early the new or
amended standards in preparing these financial
statements.
The Directors do not expect the
adoption of the standards and interpretations to have a material
impact on the Group's financial statements in the period of initial
application.
o. Change in categorisation of holding
companies
During the year ended 31 January
2023, the Directors reassessed its categorisation of ESO
Alternative Investments LP, ESO Investments 1 Limited and ESO
Investments 2 Limited from Associates to Subsidiaries. These
entities were set up by the Company as holding vehicles for
investments acquired for the benefit of the Company. The holding
companies are structured entities and as such voting rights or
similar rights are not the dominant factor in decision-making power
over them. As a result, the Directors deem the classification of
these entities as Subsidiaries to be more appropriate.
4 Interest
income
|
|
2024
|
2023
|
|
|
Group
|
Group
|
|
|
£
|
£
|
Interest earned on cash
balances
|
|
366,660
|
79,899
|
Total
|
|
366,660
|
79,899
|
5 Investment advisory, administration and
performance fees
Investment advisory fees
The investment advisory fee
payable to EPIC Investment Partners LLP ("EPIC") is assessed and
payable at the end of each fiscal quarter and is calculated as 2
per cent. of the Group's NAV where the Group's NAV is less than
£100 million; otherwise the investment advisory fee is calculated
as the greater of £2.0 million or the sum of 2 per cent. of the
Group's NAV comprising Level 2 and Level 3 portfolio assets, 1 per
cent. of the Group's NAV comprising Level 1 assets, no fees on
assets which are managed or advised by a third-party manager, 0.5
per cent. of the Group's net cash (if greater than nil), and 2 per
cent. of the Group's net cash (if less than nil) (i.e. reducing
fees for net debt positions).
The charge for the current year
was £1,832,745 (2023: £1,755,442). The amount outstanding as at 31
January 2024 was £484,400 (2023: £487,107 ) (see note
14).
Administration fees
EPIC Administration Limited
provides accounting and financial administration services to the
Group. The fee payable to EPIC Administration Limited is assessed
and payable at the end of each fiscal quarter and is calculated as
0.15 per cent. of the Group's NAV where the Group's NAV is less
than £100 million (subject to a minimum fee of £35,000); otherwise
the advisory fee shall be calculated as 0.15 per cent. of £100
million plus a fee of 0.1 per cent.
of the excess of the Group's NAV
above £100 million.
The charge for the current year
was £141,330 (2023: £147,043).
Other administration fees during
the year were £82,406 (2023: £76,302).
Performance fees paid by Subsidiaries
The Subsidiaries are stated at
fair value. Performance fees are paid to the Investment Advisor
based on the performance of the Subsidiaries and deducted in
calculating the fair value of Subsidiaries.
Performance fee in ESO Investments 1
Limited
The distribution policy of ESO Investments 1
Limited includes an allocation of profits to the Investment Advisor
such that, for each investment where a returns hurdle of 8 per
cent. per annum has been achieved, the Investment Advisor is
entitled to receive 20 per cent. of the increase above the base
value of investment. As at 31 January 2024, £4,983,792 has been
accrued in the profit share account of the Investment Advisor in
the records of ESO Investments 1 Limited (2023: £nil
accrued).
Performance fee in ESO Investments 2
Limited
The distribution policy of ESO Investments 2
Limited includes an allocation of profit to the Investment Advisor
such that, for each investment where a returns hurdle of 8 per
cent. per annum has been achieved, the Investment Advisor is
entitled to receive 20 per cent. of the increase above the base
value of investment. As at 31 January 2024, £9,104,320 has been
accrued in the profit share account of the Investment Advisor in
the records of ESO Investments 2 Limited (2023: £9,112,002
accrued).
Joint Owned Share Plan ("JOSP")
and share-based payments
Directors of the Company and
certain employees of the Investment Advisor (together
"Participants") receive remuneration in the form of equity-settled
share-based payment transactions, through a JOSP Scheme (see note
7).
6 Directors'
fees
|
|
2024
|
2024
|
2023
|
2023
|
|
|
Company
|
Share-based
payment
|
Company
|
Share-based
payment
|
|
|
£
|
£
|
£
|
£
|
C.L. Spears (Chairman)
|
|
42,000
|
6,393
|
42,000
|
9,388
|
N.V. Wilson (resigned on 30
September 2023)
|
|
22,474
|
5,972
|
32,000
|
9,216
|
H. Bestwick
|
|
32,000
|
6,393
|
32,000
|
9,388
|
D.R. Pirouet
|
|
34,000
|
8,298
|
34,000
|
6,132
|
M.M. Gray
|
|
32,000
|
4,296
|
32,000
|
2,093
|
Total
|
|
162,474
|
31,352
|
172,000
|
36,217
|
In addition to the fees noted
above, C.L. Spears, H. Bestwick and M.M Gray received during the
year;
· £3,750 each as Directors' fees for their directorship of ESO
Investments 1 Limited; and
· £3,750 each as Directors' fees for their directorship of ESO
Investments 2 Limited.
Aggregate Directors' fees for ESO
Investments 1 Limited and ESO Investments 2 Limited for the year
ended 31 January 2024 amounted to £22,500 (2023 :
£22,500).
Nicholas Wilson resigned on 30
September 2023. The share-based payment expense is calculated as
set out in note 7.
7 Share-based payment
expense
The cost of equity-settled
transactions to Participants in the JOSP Scheme are measured at
fair value at the grant date. The fair value is determined based on
the share price of the equity instrument at the grant
date.
The Trust was created to award
shares to Participants as part of the JOSP. The Trust is
consolidated in these financial statements in accordance with Note
3a. Participants are awarded a certain number of shares ("Matching
Shares") which are subject to a three-year service vesting
condition from the grant date. In order to receive their Matching
Share allocation Participants are required to purchase shares in
the Company on the open market ("Bought Shares"). The Participant
will then be entitled to acquire a joint ownership interest in the
Matching Shares for the payment of a nominal amount, on the basis
of one joint ownership interest in one Matching Share for every
Bought Share they acquire in the relevant award period.
The Trust holds the Matching
Shares jointly with the Participant until the award vests. These
shares carry the same rights as the rest of the ordinary
shares.
The Trust held 1,546,693 (2023:
1,290,202) matching shares at the year-end which have historically
not voted (see note 16).
257,061 shares vested to
Participants in the year ended 31 January 2024 (2023: 862,290).
305,082 shares were awarded to Participants in the year ended 31
January 2024 (2023: 156,173). The weighted average fair value of
the shares awarded during the period is 146.33 pence per
share.
The fair value of awards granted
under the JOSP is recognised as an employee benefits expense, with
a corresponding increase in equity. This has been calculated on the
basis of the fair value of the equity instruments, which is the
share price of the equity instrument on the AIM market of the
London Stock Exchange at the grant date and the estimated number of
equity instruments to be issued after the vesting period, less the
amount paid for the joint ownership interest in the Matching Shares
from the Participants. As the Company does not pay dividends, no
expected dividends were incorporated into the measurement value. No
other features other than the share price of the equity instrument
is incorporated into the measurement of the fair value of the
awards.
The impact of revision to original
estimates, if any, is recognised in profit or loss, with a
corresponding adjustment to equity.
The total share-based payment
expense in the year ended 31 January 2024 was £339,593 (2023:
£555,225). Of the total share-based payment expense in the year
ended 31 January 2024, £31,352 related to the Directors (2023:
£36,217) and the balance related to members, employees and
consultants of the Investment Advisor.
8 Other expenses
The breakdown of other expenses
presented in the Consolidated Statement of Comprehensive Income is
as follows:
|
|
31 January
2024
|
31 January
2023
|
|
|
Total
|
Total
|
|
|
£
|
£
|
Administration
fees
|
|
(223,806)
|
(223,345)
|
Directors' and officers'
insurance
|
|
(27,993)
|
(27,464)
|
Professional fees
|
|
(145,363)
|
(94,442)
|
Board meeting and travel
expenses
|
|
(1,639)
|
(1,085)
|
Auditors' remuneration
|
|
(81,200)
|
(61,350)
|
Interim review
remuneration*
|
|
(26,350)
|
(17,000)
|
Bank charges
|
|
(1,404)
|
(1,705)
|
Foreign exchange
movement
|
|
(1,137)
|
2,687
|
Nominated advisor and broker
fees
|
|
(55,001)
|
(62,322)
|
Listing fees
|
|
(53,472)
|
(52,769)
|
Sundry expenses
|
|
(18,310)
|
(18,621)
|
Other expenses
|
|
(635,675)
|
(557,416)
|
*This relates to the interim review of the half yearly
financial report which was performed by the auditors.
9 Taxation
The Company is a tax resident of
Jersey and is subject to 0 per cent. corporation tax (2023: 0 per
cent.).
ESO Alternative Investments LP is
transparent for tax purposes.
ESO Investments 1 Limited and ESO
Investments 2 Limited are tax resident in Jersey and are subject to
0 per cent. (2023: 0 per cent.) corporation tax.
10 Dividends paid and proposed
No dividends were paid or proposed
for the year ended 31 January 2024 (2023: £nil).
11 Investments at fair value
through profit or loss
|
|
31 January
2024
|
31 January
2023
|
|
|
£
|
£
|
Investments at fair value through
profit and loss*
|
|
100,722,039
|
100,412,977
|
|
|
100,722,039
|
100,412,997
|
Investments roll forward schedule
|
|
|
|
|
|
31 January
2024
|
31 January
2023
|
|
|
£
|
£
|
Investments at fair value at 1
February
|
|
100,412,977
|
140,525,060
|
Purchase of investments
|
|
3,350,000
|
3,174,948
|
Proceeds from
investments
|
|
(6,425,542)
|
(3,848,880)
|
Net fair value
movements
|
|
3,384,604
|
(39,438,551)
|
Reclassification of debtor balance
to investee
|
|
-
|
400
|
Investments at fair value
|
|
100,722,039
|
100,412,977
|
*
Comprises Subsidiaries stated at fair value in accordance with
accounting policy set out in note 3(a) (ESO Investments 1 Limited,
ESO Investments 2 Limited and ESO Alternative Investments
LP).
Discussion of the performance of
individual investments is presented in the Chairman's Statement and
the Investments Advisor's Report.
12 Fair value of financial
instruments
The Company determines the fair value of
financial instruments with reference to IPEV guidelines and the
valuation principles of IFRS 13 (Fair Value Measurement). The
Company measures fair value using the IFRS 13 fair value hierarchy,
which reflects the significance and certainty of the inputs used in
deriving the fair value of an asset:
· Level 1: Inputs that are quoted market prices (unadjusted) in
active markets for identical instruments;
· Level 2: Inputs other than quoted prices included within
Level 1 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category includes
instruments valued using quoted market prices in active markets for
similar instruments, quoted prices for identical or similar
instruments in markets that are considered less than active or
other valuation techniques in which all significant inputs are
directly or indirectly observable from market data;
· Level 3: Inputs that are unobservable. This category includes
all instruments for which the valuation technique includes inputs
not based on observable data and the unobservable inputs have a
significant effect on the instrument's valuation. This category
includes instruments that are valued based on quoted prices for
similar instruments but for which significant unobservable
adjustments or assumptions are required to reflect differences
between the instruments.
The Investment Advisor undertakes
the valuation of financial instruments required for financial
reporting purposes. Recommended valuations are reviewed and
approved by the Investment's Advisor's Valuation Committee for
circulation to the Company's Board. The Audit and Risk Committee of
the Company's Board meets at least once every six months, in line
with the Company's semi-annual reporting periods, to review the
recommended valuations and approve final valuations for adoption in
the Company's financial statements.
The Company recognises transfers
between levels of the fair value hierarchy at the end of the
reporting period during which the change has occurred.
Valuation framework
The Company employs the valuation framework
detailed below with respect to the measurement of fair values. A
valuation of the Company's investments held via its Subsidiaries
are prepared by the Investment Advisor with reference to IPEV
guidelines and the valuation principles of IFRS 13 (Fair Value
Measurement). The Investment Advisor recommends these valuations to
the Board of Directors. The Audit and Risk Committee of the
Company's Board considers the valuations recommended by the
Investment Advisor, determines any amendments required and
thereafter adopts the fair values presented in the Company's
financial statements. Changes in the fair value of financial
instruments are recorded in the Consolidated Statement of
Comprehensive Income in the line item "Net fair value movement on
investments".
Quoted
investments
Quoted investments traded in an active market
are classified as Level 1 in the IFRS 13 fair value hierarchy. The
investment in Luceco is a Level 1 asset. For Level 1 assets, the
holding value is calculated from the closing price on the relevant
exchange at the measurement date.
Quoted investments traded in markets that are
considered less than active are classified as Level 2 in the IFRS
13 fair value hierarchy. The investment in EPIC Acquisition Corp
was considered to be a Level 2 asset in the year ended 31 January
2023. For the year ended 31 January 2024, the investment in EPIC
Acquisition Corp is considered to be a Level 3 asset, and therefore
no assets are considered to be Level 2.
Unquoted
private equity investments and unquoted fund
investments
Private equity investments and fund
investments are classified as Level 3 in the IFRS 13 fair value
hierarchy. The investments in Whittard, David Phillips, Rayware,
Denzel's, Pharmacy2U, European Capital Private Debt Fund LP, EPIC
Acquisition Corp and EAC Sponsor Limited are considered to be Level
3 assets. Various valuation techniques may be applied in
determining the fair value of investments held as Level 3 in the
fair value hierarchy;
·
For underperforming assets, net asset or
liquidation valuation is considered more applicable, in particular
where the business' performance be contingent on shareholder
financial support;
·
For performing assets, market approach is
considered to be the most appropriate with a specific focus on
trading comparables, applied on a forward basis. Transaction
comparables, applied on a historic basis may also be considered.
The financial metric to which the multiple is applied will depend
on the stage of the company and the sector in which it operates.
Typically, mature companies will be valued on the basis of the
basis of an EBITDA multiple, while growth companies will be valued
on the basis of a sales multiple;
·
For assets managed and valued by third party
managers, the valuation methodology of the third party manager is
reviewed. If deemed appropriate and consistent with reporting
standards, the valuation prepared by the third-party manager will
be used.
For the year ended 31 January
2024, a public comparable sales multiple valuation is employed for
the investment in Denzel's. The valuation methodology has been
amended from investment cost given the elapsed time since
investment, with changes in market conditions and trading outlook
in the intervening period.
The Investment Advisor believe
that it is appropriate to apply an illiquidity discount to the
multiples of comparable companies when using them to calculate
valuations for small, private companies. This discount adjusts for
the difference in size between generally larger comparable
companies and the smaller assets being valued. The illiquidity
discount also considers the premium the market gives to comparable
companies for being freely traded or listed securities. The
Investment Advisor has determined between 15 per cent. and 25 per
cent. to be an appropriate illiquidity discount with reference to
market data and transaction multiples seen in the market in which
the Investment Advisor operates.
Where portfolio investments are
held through subsidiary holding companies, the net assets of the
holding company are added to the value of the portfolio investment
being assessed to derive the fair value of the holding company held
by the Company.
EPIC
Acquisition Corp and EAC Sponsor Limited
EPIC Acquisition Corp ("EAC") is a special
purpose acquisition company ("SPAC"). For the year ended 31 January
2024, a liquidation valuation is employed for the holdings in EPIC
Acquisition Corp and EAC Sponsor Limited, calculated on the basis
of the value of ESO Alternative Investments LP's holding in a
liquidation scenario. The investments are considered as Level 3
assets. For the year ended 31 January 2023, EPIC Acquisition Corp
was valued on a marked to market basis and considered a Level 2
asset and EAC Sponsor Limited was valued on the basis of a
probability weighted range of implied values under potential
realisation scenarios and considered a Level 3 asset. The valuation
methodology has been amended to a liquidation value to reflect the
announcement in January 2024 that EPIC Acquisition Corp. will
return all residual capital to third parties and wind up. The
liquidation valuation approach implies both assets are considered
Level 3 assets.
Although management believes that its
estimates of fair value are appropriate, the use of different
methodologies or assumptions could lead to different measurements
of fair value. For fair value measurements of EPIC Acquisition Corp
and EAC Sponsor Limited's assets, changing one or more of the
assumptions used to reasonably possible alternative assumptions
would have the following effects on the investment valuations. The
key inputs into the preparation of the valuations of EPIC
Acquisition Corp and EAC Sponsor Limited were the distributions
available in a liquidation scenario to EAC Sponsor Limited. If
these inputs had been taken at the higher end of the range of
expected realisations, the value of these assets and profit for the
year would have been £33,299 higher. If these inputs had been taken
at the lower end of the range, their would be nil change to the
value of these assets and profit for the year, given the valuation
is prepared on a nil realisation basis. This sensitivity excludes
amounts held by EPIC Acquisition Corp. in escrow, which will
deliver a fixed distribution in the event of a liquidation
scenario.
Fair value hierarchy - Financial instruments measured at fair
value
The Company's investments in the
Subsidiaries at 31 January 2024 are classified as Level 3 (in line
with 31 January 2023), given the variation in classification of the
underlying assets. The Company values these investments on the
basis of the net asset value of these holdings.
The table below analyses the
underlying investments held by the Subsidiaries measured at fair
value at the reporting date by the level in the fair value
hierarchy into which the fair value measurement is categorised. The
Board assesses the fair value of the total investment, which
includes debt and equity.
The tables below show the gross
amount and the net amount of all investments held via the
Subsidiaries per the fair value hierarchy. The net amount is a
result of the application of profit share adjustments relating to
the performance fees discussed in Note 5.
|
|
Level 1
|
Level 3
|
Total
|
31 January 2024
|
|
£
|
£
|
£
|
Financial assets at fair value through profit or
loss
|
|
|
|
|
Unquoted private equity
investments
(including debt)
|
|
-
|
59,103,536
|
59,103,536
|
Fund investments
|
|
-
|
451,348
|
451,348
|
Quoted investments*
|
|
48,865,293
|
5,262,427
|
54,127,720
|
Investments at fair value through profit or
loss
|
|
48,865,293
|
64,817,311
|
113,682,604
|
Other asset and liabilities (held
at cost)
|
|
-
|
-
|
1,127,547
|
Performance fee
adjustment
|
|
(8,732,750)
|
(5,355,362)
|
(14,088,112)
|
Total
|
|
40,132,543
|
59,461,949
|
100,722,039
|
|
|
|
|
|
|
|
|
Level 1
|
Level 2
|
Level 3
|
Total
|
31 January 2023
|
|
£
|
£
|
£
|
£
|
Financial assets at fair value through profit or
loss
|
|
|
|
|
|
Unquoted private equity
investments
(including debt)
|
|
-
|
-
|
47,752,184
|
47,752,184
|
Unquoted fund
investments
|
|
-
|
-
|
3,184,749
|
3,184,749
|
Quoted investments
|
|
50,501,249
|
5,495,557
|
-
|
55,996,806
|
Investments at fair value through profit or
loss
|
|
50,501,249
|
5,495,557
|
50,936,933
|
106,933,739
|
Other asset and liabilities (held
at cost)
|
|
-
|
-
|
-
|
2,591,240
|
Performance fee
adjustment
|
|
(8,743,708)
|
-
|
(368,294)
|
(9,112,002)
|
Total
|
|
41,757,541
|
5,495,557
|
50,568,639
|
100,412,977
|
* There
has been a change in the designation of the level of fair value
hierarchy of EPIC Acquisition Corp from Level 2 to Level 3 during
the current year, with the valuation methodology amended to a
liquidation value approach.
The following table, detailing the
value of portfolio investments only, shows a reconciliation of the
opening balances to the closing balances for fair value
measurements in Level 3 of the fair value hierarchy for the
underlying investments held by the Subsidiaries.
|
|
|
|
31 January
2024
|
31 January
2023
|
Unquoted investments (including debt)
|
|
£
|
£
|
Balance as at 1
February
|
|
|
|
50,568,639
|
47,886,854
|
Additional investments
|
|
|
|
3,350,912
|
2,086,948
|
Capital distributions from
investments
|
|
|
|
(2,694,993)
|
(2,235,136)
|
Transfer to Level 3
investments
|
|
|
|
5,495,557
|
-
|
Change in fair value through
profit & loss
|
|
|
|
2,741,834
|
2,829,973
|
Balance as at 31 January
|
|
|
|
59,461,949
|
50,568,639
|
Significant
unobservable inputs used in measuring fair value
The table below sets out
information about significant unobservable inputs used at 31
January 2024 in measuring financial instruments categorised as
Level 3 in the fair value hierarchy.
Description
|
Fair value
at
31 January
2024
|
Significant
unobservable inputs
|
£
|
Unquoted private equity
investments (including debt)
|
53,748,174
|
Sales / EBITDA multiple
|
Fund investments
|
5,713,775
|
Reported net asset value or
liquidation value
|
Significant unobservable inputs
are developed as follows:
·
Trading comparable multiple: valuation multiples
used by other market participants when pricing comparable assets.
Relevant comparable assets are selected from public companies
determined to be proximate to the investment based on similarity of
sector, size, geography or other relevant factors. The valuation
multiple for a comparable company is determined by calculating the
enterprise value of the company implied by its market price as at
the reporting date and dividing by the relevant financial metric
(sales or EBITDA).
·
Reported net asset value: for assets managed and
valued by a third party, the manager provides periodic valuations
of the investment. The valuation methodology of the third-party
manager is reviewed. If deemed appropriate and consistent with
reporting standards, the Board will adopt the valuation prepared by
the third-party manager. Adjustments are made to third party
valuations where considered necessary to arrive at the Director's
estimate of fair value.
·
Investment cost: for recently acquired assets
(typically completed in the last twelve months), the Investment
Advisor considers the investment cost an appropriate fair value for
the asset. No asset was valued using investment cost as at 31
January 2024.
·
Liquidation value: for underperforming assets,
the Investment Advisor considers the value recovered in the event
of a liquidation of the asset an appropriate fair value for the
asset.
Although management believes that
its estimates of fair value are appropriate, the use of different
methodologies or assumptions could lead to different measurements
of fair value. For fair value measurements of Level 3 assets,
changing one or more of the assumptions used to reasonably possible
alternative assumptions would have the following effects on the
Level 3 investment valuations:
·
For the Company's investment in mature Level 3
assets, the valuations used in the preparation of the financial
statements imply an average EV to EBITDA multiple of 7.2x (weighted
by each asset's total valuation) (2023: 6.7x). The key unobservable
inputs into the preparation of the valuation of mature Level 3
assets was the EBITDA multiple applied to the asset's financial
forecasts. A sensitivity of 25 per cent. has been applied to these
multiples, in line with the maximum liquidity discount employed in
the valuations. If these inputs had been taken to be 25 per cent.
higher, the value of the Level 3 assets and profit for the year
would have been £15,161,561 higher. If these inputs had been taken
to be 25 per cent. lower, the value of the Level 3 assets and
profit for the year would have been £17,786,484 lower. A
corresponding increase or decrease in the asset's financial
forecasts would have a similar impact on the Company's assets and
profit.
·
For the Company's investment in growth Level 3
assets, the valuations used in the preparation of the financial
statements imply an average EV to sales multiple of 1.5x (weighted
by each asset's total valuation) (2023: 1.4x). The key unobservable
inputs into the preparation of the valuation of growth Level 3
assets were the sales multiple applied to the asset's financial
forecasts. A sensitivity of 25 per cent. has been applied to these
multiples, in line with the maximum liquidity discount employed in
the valuations. If these inputs had been taken to be 25 per cent.
higher, the value of the Level 3 assets and profit for the year
would have been £860,072 higher. If these inputs had been taken to
be 25 per cent. lower, the value of the Level 3 assets and profit
for the year would have been £707,743 lower. A corresponding
increase or decrease in the asset's financial forecasts would have
a similar impact on the Company's assets and profit.
Classification of financial assets and
liabilities
The table below sets out the
classifications of the carrying amounts of the Company's financial
assets and liabilities into categories of financial
instruments.
31 January 2024
|
|
|
|
|
Financial assets
|
|
At fair
value
£
|
At
amortised
cost
£
|
Total
£
|
Investments at fair value through
profit or loss
|
|
100,722,039
|
-
|
100,722,039
|
Cash and cash
equivalents
|
|
-
|
14,462,495
|
14,462,495
|
|
|
100,722,039
|
14,462,495
|
115,184,534
|
Financial liabilities
|
|
|
|
|
Trade and other
payables
|
|
-
|
676,284
|
676,284
|
Unsecured loan note
instruments*
|
|
-
|
3,987,729
|
3,987,729
|
Zero dividend preference
shares**
|
|
-
|
13,714,191
|
13,714,191
|
|
|
-
|
18,378,204
|
18,378,204
|
|
|
|
|
|
|
|
|
|
|
31 January 2023
|
|
|
|
|
Financial assets
|
|
At fair
value
£
|
At
amortised
cost
£
|
Total
£
|
Investments at fair value through
profit or loss
|
|
100,412,977
|
-
|
100,412,977
|
Cash and cash
equivalents
|
|
-
|
22,226,008
|
22,226,008
|
|
|
100,412,977
|
22,226,008
|
122,638,985
|
Financial liabilities
|
|
|
|
|
Trade and other
payables
|
|
-
|
596,790
|
596,790
|
Unsecured loan note
instruments*
|
|
-
|
3,987,729
|
3,987,729
|
Zero dividend preference
shares**
|
|
-
|
20,721,001
|
20,721,001
|
|
|
-
|
25,305,520
|
25,305,520
|
* The Directors
consider that the fair value of the unsecured loan note instruments
is the same as its carrying value.
** The Directors consider that the
fair value of the zero dividend preference shares is £12,812,500
(2023: £19,100,000) calculated on the basis of the quoted price of
the instrument on the London Stock Exchange of 102.50 pence as at
31 January 2024 (2023: 95.50 pence).
13 Cash and cash
equivalents
|
2024
|
2023
|
|
£
|
£
|
Current and call
accounts
|
14,462,495
|
22,226,008
|
|
14,462,495
|
22,226,008
|
The current and call accounts have
been classified as cash and cash equivalents in the Consolidated
Statement of Cash Flows.
14 Trade and other
payables
|
|
2024
|
2023
|
|
|
£
|
£
|
Trade payables
|
|
91,297
|
1,008
|
Accrued administration
fee
|
|
36,330
|
36,533
|
Accrued audit fee
|
|
20,918
|
9,920
|
Accrued professional
fee
|
|
29,272
|
45,489
|
Accrued investment advisor
fees
|
|
484,400
|
487,107
|
Accrued Directors' fees
|
|
11,667
|
14,333
|
Other payables
|
|
2,400
|
2,400
|
Total
|
|
676,284
|
596,790
|
15 Liabilities
Unsecured Loan Notes ("ULN")
The Company has issued ULN's that
are redeemable on 24 July 2024, following the extension of their
maturity in July 2023. The Company's ULN's are quoted on the Aquis
Stock Exchange. The interest rate for the period up to 23 July 2023
was 7.5 per cent per annum. The interest rate was increased to 8.0
per cent per annum for the period subsequent to 23 July 2023. At 31
January 2024, £3,987,729 (2023: £3,987,729) of ULNs in principal
amount were outstanding. Issue costs totalling £144,236 have been
offset against the value of the loan note instrument and have been
amortised over the period to 24 July 2022. The total issue costs
expensed in the year ended 31 January 2024 was £nil (2023:
£10,303). The carrying value of the ULNs in issue at the year end
was £3,987,729 (2023: £3,987,729). The total interest expense for
the ULNs for the year is £309,049 (2023: £309,382). The
comparatives for interest expense includes the amortisation of the
issue costs. The carrying value of the ULN is presented under
current liabilities in the current period as they are redeemable
within 12-month period from the Consolidated Statement of Assets
and Liabilities date. The ULN has in place Financial Covenants
including an Interest Coverage Test (that the ratio of cash and
cash equivalents to interest payable is greater than or equal to
6:1) and a Gross Asset Test (that the ratio of gross asset value to
financial indebtedness of the Company is greater than or equal to
2:1). The Covenants have been met for the years ended 31 January
2024 and 31 January 2023.
Zero Dividend Preference Shares
("ZDP Shares")
On 17 December 2021 the Company
issued 20,000,000 ZDP Shares at a price of £1 per share, raising
£20,000,000. The Company's ZDP shares are admitted to trade on the
main market of the London Stock Exchange (standard listed). The ZDP
Shares will not pay dividends but have a final capital entitlement
at maturity on 16 December 2026 of 129.14 pence per ZDP Share. It
should be noted that the predetermined capital entitlement of a ZDP
Share is not guaranteed and is dependent upon the Company's gross
assets being sufficient on 16 December 2026 to meet the final
capital entitlement. Under IAS 32 - Financial Instruments:
Presentation, the ZDP Shares are classified as financial
liabilities and are held at amortised cost. Issue costs totalling
£573,796 have been offset against the value of the ZDP Shares and
are being amortised over the life of the instrument. In July 2023,
the Company completed the repurchase of 7,500,000 ZDP shares, which
are held in treasury. Following this buyback, the Company has
12,500,000 ZDP shares remaining in issue. The total issue costs
expensed in the year ended 31 January 2024 was £115,359 (2023:
£115,359). The carrying value of the ZDP Shares in issue at the
year-end was £13,714,191 (2023: £20,721,001). The total finance
charge for the ZDP Shares for the year is £868,190 (2023:
£1,128,093). This includes the ZDP Share finance charge and the
amortisation of the Issue costs.
|
|
31 January
2024
|
31 January
2023
|
|
|
£
|
£
|
Balance as at 1
February
|
|
20,721,001
|
19,580,190
|
ZDP non cash charge
|
|
945,348
|
1,140,811
|
Buyback of ZDP shares
|
|
(7,952,158)
|
-
|
Total
|
|
13,714,191
|
20,721,001
|
16 Share capital
|
|
2024
|
2024
|
2023
|
2023
|
|
|
Number
|
£
|
Number
|
£
|
Authorised share capital
|
|
|
|
|
|
Ordinary shares of 5p
each
|
|
45,000,000
|
2,250,000
|
45,000,000
|
2,250,000
|
Called up, allotted and fully paid
|
|
|
|
|
|
Ordinary shares of 5p
each
|
|
34,616,554
|
1,730,828
|
34,616,554
|
1,730,828
|
Ordinary shares of 5p each held in
treasury
|
|
(4,739,707)
|
-
|
(4,951,575)
|
-
|
|
|
29,876,847
|
1,730,828
|
29,664,979
|
1,730,828
|
Share Premium
|
|
-
|
13,619,627
|
-
|
13,619,627
|
No shares were issued during the
year ended 31 January 2024 and year ended 31 January
2023.
During the year ended 31 January
2024, the Company transferred 211,868 out of treasury to the Trust
(2023: repurchase of 1,855,000 shares into treasury) with a total
value of £350,006 (2023: £2,587,375). These shares are held as
treasury shares.
During the year ended 31 January
2024, the Trust purchased 301,684 shares (2023: 280,739 shares)
with a total value of £525,920 (2023: £484,821). 257,061 shares
vested to Participants in the year ended 31 January 2024 (2023:
862,290). At 31 January 2024 1,546,693 shares were held by the
Trust (2023: 1,290,202) (see note 7).
17 Basic and diluted loss per share
(pence)
Basic loss per share for the year
ended 31 January 2024 is 1.39 pence (2023: basic loss per share of
147.95 pence). This is calculated by dividing the loss of the Group
for the year attributable to the ordinary shareholders of £396,462
(2023: loss of £43,836,210) divided by the weighted average number
of shares outstanding, excluding the shares of the EBT subsidiary,
during the year of 28,469,486 (2023: 29,628,992 shares). The basic
loss per share for the year ended 31 January 2023 has been restated
to exclude the shares of the EBT subsidiary from the weighted
average number of outstanding shares so that it is consistent with
the calculation for the year ended 31 January 2024.
Diluted loss per share for the
year ended 31 January 2024 is 1.33 pence (2023: diluted profit per
share of 141.77 pence). This is calculated by dividing the loss of
the Group for the year attributable to ordinary shareholders of
£396,462 (2023: loss of £43,836,210) divided by the weighted
average number of shares outstanding, including the shares of the
EBT subsidiary,
during the year of 29,832,732 (2023: 30,921,130 shares).
18 NAV per share (pence)
The Group's NAV per share of
324.26 pence (2023: 328.41 pence) is based on the net assets of the
Group at the year-end of £96,879,976 (2023: £97,421,364) divided by
the outstanding shares of 29,876,847 (2023: 29,664,979).
The shares of the EBT subsidiary
are included in the outstanding shares when calculating the
Company's NAV per share to ensure that the NAV per share is stable
in the event of share purchases made by the EBT subsidiary or the
vesting of shares of the EBT subsidiary.
19 Net cash used in
operating activities
Reconciliation of profit before
finance cost and tax to net cash used in operating
activities:
|
2024
|
2023
|
|
Group
|
Group
|
|
£
|
£
|
Loss for the year before
taxation
|
(396,462)
|
(43,836,210)
|
|
|
|
Adjustments for non-cash income /
expense
|
|
|
Net fair value movement on
investments
|
(3,384,604)
|
39,438,551
|
Interest on unsecured loan note
instruments
|
309,049
|
309,382
|
Zero dividend preference shares
finance charge
|
868,190
|
1,128,093
|
|
|
|
Loss before finance
cost
|
(2,603,827)
|
(2,960,184)
|
|
|
|
Adjustments:
|
|
|
Share-based payment
expense
|
339,593
|
555,225
|
Purchase of investments
|
(3,350,000)
|
(3,174,948)
|
Proceeds from
investments
|
6,425,542
|
3,848,880
|
|
811,308
|
(1,731,027)
|
Working capital changes
|
|
|
Movement in trade and other
receivables and prepayments
|
14,253
|
6,848
|
Movement in trade and other
payables
|
79,494
|
(373,147)
|
|
|
|
Non-cash items
|
|
|
Effect of exchange rate
fluctuations on cash and cash equivalents
|
1,294
|
(2,310)
|
Net cash generated from / (used in) operating
activities
|
906,349
|
(2,099,636)
|
20 Financial
instruments
The Company's financial
instruments comprise:
· Investments in listed and unlisted companies held by
Subsidiaries, comprising equity and loans
· Cash
and cash equivalents, ZDP shares and unsecured loan note
instruments; and
· Accrued interest and trade and other receivables, accrued
expenses and trade and other payables.
Financial risk management objectives and
policies
The main risks arising from the
Company's financial instruments are liquidity risk, credit risk,
market price risk and interest rate risk. None of those risks are
hedged. These risks arise through directly held financial
instruments and through the indirect exposures created by the
underlying financial instruments in the Subsidiaries. These risks
are managed by the Directors in conjunction with the Investment
Advisor. The Investment Advisor is responsible for day to day
management of financial instruments in the Subsidiaries.
Capital management
The Company's capital comprises
share capital, share premium and reserves and is not subject to
externally imposed capital requirements.
Liquidity risk
Liquidity risk is the risk that
the Company will encounter difficulty in meeting the obligations
associated with its financial liabilities that are settled by
delivering cash or another financial asset. The Company's liquid
assets comprise cash and cash equivalents and trade and other
receivables, which are readily realisable.
Residual contractual maturities of financial
assets
31 January 2024
|
|
|
Less than 1 Month
£
|
1 - 3 Months
£
|
3 months to 1 year
£
|
1 - 5 years
£
|
Over
5 years
£
|
No stated maturity
£
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
14,462,495
|
-
|
-
|
-
|
-
|
-
|
Total
|
|
|
14,462,495
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
31 January 2023
|
|
|
Less than 1 Month
£
|
1 - 3 Months
£
|
3 months to 1 year
£
|
1 - 5 years
£
|
Over 5 years
£
|
No stated maturity
£
|
Financial assets
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
|
|
22,226,008
|
-
|
-
|
-
|
-
|
-
|
Total
|
|
|
22,226,008
|
-
|
-
|
-
|
-
|
-
|
Residual contractual maturities of financial
liabilities
31 January 2024
|
|
|
Less than 1 Month
£
|
1 - 3 Months
£
|
3 months to 1 year
£
|
1 - 5 years
£
|
Over
5 years
£
|
No stated maturity
£
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Trade and other
payables
|
|
|
676,284
|
-
|
-
|
-
|
-
|
-
|
Loan note instruments
|
|
|
-
|
-
|
3,987,729
|
-
|
-
|
-
|
Zero dividend preference
shares
|
|
|
-
|
-
|
-
|
16,142,500
|
-
|
-
|
Total
|
|
|
676,284
|
-
|
3,987,729
|
16,142,500
|
-
|
-
|
|
|
|
|
|
|
|
|
|
31 January 2023
|
|
|
Less than 1 Month
£
|
1 - 3 Months
£
|
3 months to 1 year
£
|
1 - 5 years
£
|
Over 5 years
£
|
No stated maturity
£
|
Financial liabilities
|
|
|
|
|
|
|
|
|
Trade and other
payables
|
|
|
596,790
|
-
|
-
|
-
|
-
|
-
|
Loan note instruments
|
|
|
-
|
-
|
3,987,729
|
-
|
-
|
-
|
Zero dividend preference
shares
|
|
|
-
|
-
|
-
|
25,827,284
|
-
|
-
|
Total
|
|
|
596,790
|
-
|
3,987,729
|
25,827,284
|
-
|
-
|
Credit risk
Credit risk is the risk that an
issuer or counterparty will be unable or unwilling to meet a
commitment that it has entered into with the Company.
The Company, through its interests
in Subsidiaries, has advanced loans to a number of private
companies which exposes the Company to significant credit risk. The
loans are advanced to unquoted private companies, which have no
credit risk rating. They are entered into as part of the investment
strategy of the Company and its Subsidiaries, and credit risk is
managed by taking security where available (typically a floating
charge) and the Investment Advisor taking an active role in the
management of the borrowing companies.
Although the Investment Advisor
looks to set realistic repayment schedules, it does not necessarily
view a portfolio company not repaying on time and in full as
'underperforming' and seeks to monitor each portfolio company on a
case-by-case basis. However, in all cases the Investment Advisor
reserves the right to exercise step in rights. In addition to the
repayment of loans advanced, the Company and Subsidiaries will
often arrange additional preference share structures and take
significant equity stakes so as to create shareholder value. It is
the performance of the combination of all securities including
third party debt that determines the Company's view of each
investment.
At the reporting date, the
Company's financial assets exposed to credit risk amounted to the
following (excluding exposure in the underlying
Subsidiaries):
|
|
2024
|
2023
|
|
|
£
|
£
|
Cash and cash
equivalents
|
|
14,462,495
|
22,226,008
|
Total
|
|
14,462,495
|
22,226,008
|
Cash balances are placed with HSBC
Bank plc, Barclays Bank plc and Santander Financial Services plc,
all of which have the credit rating of A1 Stable
(Moody's).
Market price risk
Market price risk is the risk that
the value of a financial instrument will fluctuate as a result of
changes in market prices (other than those arising from interest
rate risk or currency risk). The Company is exposed to a market
price risk via its equity investments held through its interests in
Subsidiaries, which are stated at fair value.
Market price risk sensitivity
The Company is exposed to market
price risk with regard to its underlying equity interests in a
number of quoted and unquoted companies which are stated at fair
value. Luceco plc was quoted on the Main Market of the London Stock
Exchange at 31 January 2024. EPIC Acquisition Corp's shares and
warrants were quoted on the Euronext Amsterdam Stock Exchange at 31
January 2024.
If Luceco plc's share price had
been 5.0 per cent. higher than actual close of market on 31 January
2024, EPE Special Opportunities Limited's NAV per share would have
been 2.0 per cent. (2023: 2.03 per cent.) higher than reported. If
Luceco's share price had been 5.0 per cent. lower than actual close
of market on 31 January 2024, EPE Special Opportunities Limited's
NAV per share would have been 2.0 per cent. (2023: 2.03 per cent.)
lower than reported. These movements would have had a corresponding
effect on the profit for the year.
A sensitivity is not prepared for
EPIC Acquisition Corp. given that the vehicle is in
liquidation.
Interest rate risk
The Company is exposed to interest
rate risk through its unsecured loan note instruments and on its
cash balances. Most of the loans are at fixed rates. Cash balances
earn interest at variable rates. The unsecured loan note
instruments carry fixed interest rates.
The table below summarises the
Company's exposure to interest rate risks. It includes the
Company's financial assets and liabilities at the earlier of
contractual re-pricing or maturity date, measured by the carrying
values of assets and liabilities:
31 January 2024
|
|
Less than 1
month
|
1 month
to 1 year
|
1 - 5
years
|
Over
5 years
|
Non- interest
bearing
|
Total
|
Assets
|
|
£
|
£
|
£
|
£
|
£
|
£
|
Receivables and cash
|
|
|
|
|
|
|
|
Trade and other
receivables
|
|
-
|
-
|
-
|
-
|
-
|
-
|
Cash and cash
equivalents
|
|
14,462,495
|
-
|
-
|
-
|
-
|
14,462,495
|
Total financial assets
|
|
14,462,495
|
-
|
-
|
-
|
-
|
14,462,495
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Financial liabilities measured
at amortised cost
|
|
|
|
|
|
|
|
Trade and other
payables
|
|
-
|
-
|
-
|
-
|
(676,284)
|
(676,284)
|
Unsecured loan note
instruments
|
|
-
|
(3,987,729)
|
-
|
-
|
-
|
(3,987,729)
|
Total financial liabilities
|
|
-
|
(3,987,729)
|
-
|
-
|
(676,284)
|
(4,664,013)
|
31 January 2023
|
Less than 1
month
|
1 month
to 1 year
|
1 - 5
years
|
Over
5 years
|
Non- interest
bearing
|
Total
|
Assets
|
£
|
£
|
£
|
£
|
£
|
£
|
Receivables and cash
|
|
|
|
|
|
|
Trade and other
receivables
|
-
|
-
|
-
|
-
|
-
|
-
|
Cash and cash
equivalents
|
22,226,008
|
-
|
-
|
-
|
-
|
22,226,008
|
Total financial assets
|
22,226,008
|
-
|
-
|
-
|
-
|
22,226,008
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Financial liabilities measured
at amortised cost
|
|
|
|
|
|
|
Trade and other
payables
|
-
|
-
|
-
|
-
|
(596,790)
|
(596,790)
|
Unsecured loan note
instruments
|
-
|
(3,987,729)
|
-
|
-
|
-
|
(3,987,729)
|
Total financial liabilities
|
-
|
(3,987,729)
|
-
|
-
|
(596,790)
|
(4,584,519)
|
Interest rate sensitivity
The Company is exposed to market
interest rate risk via its cash balances and unsecured loan note
instruments. A sensitivity analysis has not been provided as it is
not considered significant to Company performance.
Currency risk
The Group has no significant
exposure to foreign currency risk.
Exposure to other market price risk
The Investment Advisor monitors
the concentration of risk for equity and debt securities based on
counterparties and industries (and geographical location). The
Company's underlying investments including bank deposits held
through its Subsidiaries are concentrated in the following
industries.
|
2024
|
2023
|
|
%
|
%
|
Consumer and Retail
|
49
|
41
|
Engineering, Manufacturing and
Distribution
|
35
|
34
|
Healthcare
|
2
|
2
|
Credit Funds
|
<1
|
3
|
Bank Deposits
|
13
|
20
|
|
100
|
100
|
The Group notes that there was a
concentration on the Consumer and Retail sector, representing 49
per cent. of investments for the year ended 31 January 2024 (2023:
Consumer and Retail sector representing 41 per cent.). The Company
monitors carefully the sector concentration risk across the
portfolio.
Operational risk
'Operational risk' is the risk of
direct or indirect loss arising from a wide variety of causes
associated with the processes, technology and infrastructure
supporting the Company's activities (both at the Company and at its
service providers) and from external factors (other than credit,
market and liquidity risks) such as those arising from legal and
regulatory requirements and generally accepted standards of
investment management behaviour.
The Company's objective is to
manage operational risk so as to balance the limitation of
financial losses and damage to its reputation with achieving its
investment objective of generating returns to investors.
The primary responsibility for the
development and implementation of controls over operational risk
rests with the Board of Directors. This responsibility is supported
by the development of overall standards for the management of
operational risk, which encompasses the controls and processes at
the service providers and the establishment of service levels with
the service providers, in the following areas:
· documentation of controls and procedures;
· requirements for:
-
appropriate segregation of duties between various functions, roles
and responsibilities;
-
reconciliation and monitoring of transactions; and
-
periodic assessment of operational risk faced;
· the
adequacy of controls and procedures to address the risks
identified;
· compliance with regulatory and other legal
requirements;
· development of contingency plans;
· training and professional development;
· ethical and business standards; and
· risk
mitigation, including insurance if this is effective.
The Company's key service
providers include the following:
· Administrator: Langham Hall Fund Management (Jersey)
Limited
· Investment Advisor: EPIC Investment Partners LLP
· Financial Administrator: EPIC Administration
Limited
· Nominated Advisor and Broker: Numis Securities
Limited
· Registrar and CREST Providers: Computershare Investor
Services (Jersey) Limited
The Directors' assessment of the
adequacy of the controls and processes in place at the service
providers with respect to operational risk is carried out via
regular discussions with the service providers as well as site
visits to their offices. The Company also undertakes periodic
third-party reviews of service providers' activities.
21 Directors'
interests
Four of the Directors have
interests in the shares of the Company as at 31 January 2024 (2023:
five). Clive Spears holds 63,010 ordinary shares (2023: 51,841).
Heather Bestwick holds 50,600 ordinary shares (2023: 39,431).
David
Pirouet holds 33,635 ordinary
shares (2023: 17,309). Michael Gray holds 11,627 ordinary shares
(2023: 5,614).
22 Related parties
The Company has no ultimate
controlling party.
Directors' fees expenses during
the year amounted to £162,474 (2023: £172,000) of which £11,667 is
accrued as at 31 January 2024 (2023: £14,333).
There were no shares re-acquired
from related parties during the year ended 31 January 2024 (2023:
nil). Certain Directors of the Company and other participants are
incentivised in the form of equity settled share-based payment
transactions, through a Jointly Owned Share Plan (see note
7).
Details of remuneration payable to
key service providers are included in note 5 to the financial
statements.
Performance fees are paid to the
Investment Advisor based on the performance of the Subsidiaries and
deducted in calculating the fair value of Subsidiaries (see note
5).
In December 2021, ESO Alternative
Investments LP invested €10 million into EPIC Acquisition Corp
("EAC"), a special purpose acquisition company ("SPAC") and EAC's
sponsor, EAC Sponsor Limited (the "Sponsor"). The Sponsor was
jointly led by the Investment Advisor and TT Bond Partners (an
independent party). In January 2024, EPIC Acquisition Corp
announced that it will return all residual capital to the Company
and to third parties and wind up. In February 2024, the realisation
of the investment in EPIC Acquistion Corp was completed, returning
€6.2 million. The realisation from EAC Sponsor Limited remains
subject to the completion of the liquidation.
In July 2023, the Company agreed
the extension of the maturity of £4.0 million unsecured loan notes
to 24 July 2024. Delphine Brand, a Managing Partner of EPIC and a
connected party of Giles Brand (a person discharging managerial
responsibilities ("PDMR") for the Company), is a minority holder of
the unsecured loan notes.
Giles Brand, Managing Partner of
the Investment Advisor, is a director of certain portfolio holding
vehicles, including Luceco plc and Hamsard 3145 Limited (trading as
Whittard of Chelsea).
23 Commitments and
Contingencies
As at 31 January 2024, ESO
Investments 1 Limited has a contingent guarantee of £1.75 million
outstanding (2023: £nil) in favour of Rayware Limited and its third
party debt providers (a £2.50 million guarantee was provided in
July 2023 of which £0.75 million was drawn down in the subsequent
period).
24 Other
information
The revenue and capital reserves
are presented in accordance with the Board of Directors' agreed
principles, which are that the net gain / loss on investments is
allocated to the capital reserve and all other income and expenses
are allocated to the revenue reserve and other equity. The total
reserve of the Company for the year ended 31 January 2024 is
£81,529,521 (2023: £82,070,909).
25 Subsequent
events
In February 2024, the Company
received €6.2 million as proceeds from the realisation of its
holding in EPIC Acquisition Corp.
Alternative Performance
Measures
An Alternative Performance Measure
is a numerical measure of the Group's historical or current
performance.
Measures
|
Definition
|
Premium / Discount to
NAV
|
The amount by which the share price
of the Company is either higher (premium) or lower (discount) than
the NAV per share, expressed as a percentage of the NAV
per share.
Please find a reconciliation to the
NAV per share of the Company below
|
31 January
|
31 January
|
|
2024
|
2023
|
Share price (pence)
|
165
|
170
|
NAV per share (pence)
|
324
|
328
|
Discount to NAV
(%)
|
49%
|
48%
|
|
EBITDA
|
Earnings before interest,
taxation, depreciation and amortisation.
This measure is calculated at the
level of the underlying portfolio and therefore is not directly
reconcilable to GAAP metrics in the financial
statements.
|
EV / EBITDA multiple
|
The EV / EBITDA multiple is
calculated by dividing a company's Enterprise Value ('EV') by its
annual EBITDA. The mature unquoted asset valuation EV / EBITDA
multiple quoted in the report is weighted by the Fair Value of the
underlying investments, and excludes assets at a pre-profitability
growth stage.
This measure is calculated at the
level of the underlying portfolio and therefore is not directly
reconcilable to GAAP metrics in the financial
statements.
|
31 January
|
31 January
|
|
2024
|
2023
|
Mature unquoted asset
valuation
|
7.2x
|
6.7x
|
|
EV / Sales multiple
|
The EV / Sales multiple is
calculated by dividing a company's EV by its annual
Sales.
This measure is calculated at the
level of the underlying portfolio and therefore is not directly
reconcilable to GAAP metrics in the financial
statements.
|
IRR
|
The gross Internal Rate of Return
("IRR") of an investment or set of investments, calculated as the
annual compound rate of return on the investment cashflows. Gross
IRR does not reflect expenses to be borne by the relevant fund or
its investors, including performance fees, management fees, taxes
and organisational or transaction expenses.
This measure is calculated at the
level of the underlying portfolio and therefore is not
directly reconcilable to GAAP metrics in the financial
statements.
|
31 January
|
31 January
|
|
2024
|
2023
|
Portfolio IRR
|
22%
|
23%
|
EPIC IRR
|
15%
|
16%
|
|
Liquidity
|
Company liquidity is calculated as
cash balances held by the Company, inclusive of
cash held by Subsidiaries in which
the Company is the sole investor.
Please find a reconciliation to
the cash balances held by the Company below.
|
31 January
|
31 January
|
|
2024
|
2023
|
Cash held by the
Company
|
14,462,495
|
22,226,008
|
Cash held by the
Subsidiaries
|
868,510
|
2,284,081
|
Total liquidity
|
15,331,005
|
24,510,089
|
|
Portfolio Sales CAGR
|
The portfolio sales compound annual
growth rate ("CAGR") is calculated on the basis of the CAGR implied
by the sum of the annual sales for the portfolio companies' latest
completed financial year vs. the prior three year
period.
This measure is calculated at the
level of the underlying portfolio and therefore is not directly
reconcilable to GAAP metrics in the financial
statements.
|
31 January
|
31 January
|
|
2024
|
2023
|
Portfolio Sales CAGR
|
8%
|
12%
|
|
MM
|
The Money Multiple ("MM") is
calculated as the total gross realisations from an investment or
set of investments, divided by the total cost of the investment.
Gross money multiple does not reflect expenses to be borne by the
relevant fund or its investors, including performance fees,
management fees, taxes and organisational or transaction
expenses.
This measure is calculated at the
level of the underlying portfolio and therefore is not directly
reconcilable to GAAP metrics in the financial
statements.
|
31 January
|
31 January
|
|
2024
|
2023
|
Portfolio MM
|
3.1x
|
3.1x
|
EPIC MM
|
2.3x
|
2.3x
|
|
NAV per share
|
The Group's NAV per share is
calculated as the net assets of the Group at the year-end divided
by the outstanding shares.
The shares of the EBT subsidiary
are included in the outstanding shares when calculating the
Company's NAV per share to ensure that the NAV per share is stable
in the event of share purchases made by the EBT subsidiary or the
vesting of shares of the EBT subsidiary.
|
31 January
|
31 January
|
|
2024
|
2023
|
Net asset value (£)
|
96,879,976
|
97,421,364
|
Outstanding shares
|
29,876,847
|
29,664,979
|
NAV per share (pence)
|
324.26
|
328.41
|
|
Net Debt
|
Net Debt is calculated as the total
third party debt of a portfolio company, less
cash balances.
This measure is calculated at the
level of the underlying portfolio and therefore is not directly
reconcilable to GAAP metrics in the financial
statements.
|
Portfolio Leverage
|
Portfolio Leverage is calculated as
the aggregate Net Debt of the portfolio, divided by the aggregate
annual EBITDA of the portfolio.
This measure is calculated at the
level of the underlying portfolio and therefore is not directly
reconcilable to GAAP metrics in the financial
statements.
|
31 January
|
31 January
|
|
2024
|
2023
|
Portfolio Leverage
|
1.4x
|
1.3x
|
|
Annualised share price
return
|
The annualised share price return
is calculated as the CAGR implied by the Company's share price vs.
the share price 10 years prior.
Please find a reconciliation to the
share price of the Company below:
|
31 January
|
31 January
|
|
2024
|
2023
|
Company's share price 10 years
prior to the year end (pence)
|
87
|
56
|
Company's share price at the year
end (pence)
|
165
|
170
|
Annualised share price return (%)
|
7%
|
12%
|
|
|
| |
Unaudited schedule of
shareholders holding over 3% of issued shares
As at 31 January 2024
|
Percentage holding
|
Giles Brand
|
35.5%
|
Corporation of Lloyds
|
9.9%
|
Asset Value Investors
|
5.1%
|
First Equity
|
4.8%
|
|
Boston Trust Company Limited
(Trustee to the ESO JOSP Scheme)
|
4.5%
|
Lombard Odier Darier
Hentsch
|
|
3.5%
|
Total over 3% holding
|
63.3%
|
|
|
| |
Company Information
Directors
|
Administrator and Company Address
|
C.L. Spears (Chairman)
|
Langham Hall Fund Management (Jersey)
Limited
|
H. Bestwick
|
Gaspe House
|
D. Pirouet
|
66-72 Esplanade, St
Helier
|
M.M. Gray
|
Jersey JE1 2LH
|
|
|
|
|
Investment Advisor
|
Financial Administrator
|
EPIC Investment Partners LLP
|
EPIC Administration Limited
|
Audrey House
|
Audrey House
|
16-20 Ely Place
|
16-20 Ely Place
|
London EC1N 6SN
|
London EC1N 6SN
|
|
|
|
|
Auditors and Reporting Accountants
|
Nominated Advisor and Broker
|
PricewaterhouseCoopers CI LLP
|
Numis Securities Limited
|
37 Esplanade
|
45 Gresham Street
|
St Helier, Jersey
|
London EC2V 7BF
|
Channel Islands JE1 4XA
|
|
|
|
|
|
Bankers
|
Registered Agent (Bermuda)
|
Barclays Bank plc
|
Conyers Dill & Pearman
|
1 Churchill Place
|
Clarendon House, 2 Church
Street
|
Canary Wharf
|
Hamilton HM 11
|
London E14 5HP
|
Bermuda
|
|
|
|
|
HSBC Bank plc
|
Registrar and CREST Providers
|
1st Floor
|
Computershare Investor Services (Jersey)
Limited
|
60 Queen Victoria
Street
|
Queensway House
|
London EC4N 4TR
|
Hilgrove Street
|
|
St. Helier JE1 1ES
|
|
|
|
|
Santander International
|
Investor Relations
|
PO Box 545
|
Richard Spiegelberg
|
19-21 Commercial Street
|
Cardew Company
|
St Helier, Jersey, JE4
8XG
|
29 Lincoln's Inn Fields
|
|
London WC2A 3EG
|