JZ CAPITAL PARTNERS LIMITED (the "Company" or "JZCP")

(a closed-end investment company incorporated with limited liability under the laws of Guernsey with registered number 48761)
 

INTERIM RESULTS FOR THE SIX-MONTH PERIOD ENDED

31 AUGUST 2019


LEI: 549300TZCK08Q16HHU44

(Classified Regulated Information, under DTR 6 Annex 1 section 1.2)

27 November 2019

JZ Capital Partners, the London listed fund that invests in US and European micro-cap companies and US real estate, announces its interim results for the six-month period ended 31 August 2019.

Results and Portfolio Highlights

  • NAV of $748.2 million (FYE 28/02/19: $810.2 million)
  • NAV per share of $9.66 (FYE 28/02/19: $10.04)
  • Total realisations and refinancings of $121.2 million, including: the sale of JZCP’s 80% stake in Avante & Orizon for gross proceeds of approximately $65.5 million, and the sale of Waterline Renewal for gross proceeds of approximately $24.6 million (including escrows).
  • JZCP made one post-period realisation (October 2019), selling Priority Express for $18.8 million in gross proceeds (including escrows and a potential earn-out), a 60% uplift to NAV.
  • As of 31 August 2019, the portfolio comprised:
  • US micro-cap: 23 businesses, which includes four ‘verticals’ and 14 co-investments, across nine industries.
  • European micro-cap: 17 companies across six industries and seven countries.
  • US real estate: 61 properties across five major assemblages in New York and South Florida all in various stages of (re)/development.

Appraisal of Real Estate Portfolio

  • Further to the announcement of 30 October 2019, the Company asked its independent third-party appraiser to accelerate the annual appraisal process and update its valuations for the real estate portfolio.
  • The reports received indicate minimal differences from the appraiser’s year-end values as at 28 February 2019; however, the fair value of JZCP’s real estate investments at 31 August 2019 decreased to $422.7 million from $443.1 million at 28 February 2019. The net movement in unrealised losses between the fair value and cost of JZCP’s real estate investment between 28 February 2019 and 31 August 2019 totalled $64 million, largely due to the carrying costs of the portfolio.
  • The Board believes that significant uncertainty remains as to whether the real estate portfolio could be realised at these values. Due to financing constraints and the requirement to generate liquidity in line with the Company’s recently approved investment policy, this will likely require assets to be realised on an accelerated basis.

Strategic Initiatives

  • On 24 October 2019 (post-period), the Board received shareholder approval for the adoption of a revised investment policy, whereby JZCP will look to realise investments and materially reduce commitments to new investments in order to return a substantial amount of capital to shareholders and pay down a substantial amount of debt.
  • The Company’s focus continues to be its revised investment policy; however, potential impairment to the value of the real estate portfolio dictates that the Company must protect its balance sheet in the near term by prioritizing debt repayment over the return of capital to shareholders.
  • In the past eighteen months, the Company has returned approximately $50 million to shareholders in a combination of open market purchases and a tender offer at close to NAV.
  • JZCP is currently in the market with a portfolio of certain US microcap assets and expects to realise $150–170 million in gross proceeds from this transaction before 29 February 2020.

Outlook

  • Strong pipeline of realisations and refinancings in JZCP’s overall portfolio.
  • JZCP expects to pay down a significant amount of debt in the near term upon completion of the secondary sale of a portfolio of certain US microcap assets.

David Macfarlane, Chairman of JZCP, said: “The Board regrets the delay in publication of the Company’s results as well as the uncertainty regarding the value of the real estate portfolio.

The Company remains focused on implementing its revised investment policy; however, due to potential provisions against the real estate portfolio, the Company must protect its balance sheet in the near term by prioritizing debt repayment over the return of capital to shareholders. Consequently, new capital allocations will be largely limited to follow-on investments in existing portfolio companies as well as other existing obligations.

The Board is confident in the Investment Adviser’s ability to execute on the strategic initiatives announced today, which have been designed to maximise value for JZCP’s shareholders.”

Presentation details:

There will be an audiocast presentation for investors and analysts at 3.30pm London time / 10.30am New York time on 27 November 2019. The presentation can be accessed here and by dialing +44 (0)330 336 9411 (UK) or +1 323-994-2093 (US) with the participant access code 2869534.

__________________________________________________________________________________

The information contained within this announcement is considered by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain. The person responsible for arranging the release of this announcement on behalf of the Company is David Macfarlane, Chairman.

For further information:

Ed Berry / Kit Dunford                                                          +44 (0)20 3727 1143
FTI Consulting

David Zalaznick                                                                         +1 212 485 9410
Jordan/Zalaznick Advisers, Inc.

Sam Walden                                                                             +44 (0) 1481 745385
Northern Trust International Fund

Administration Services (Guernsey) Limited
 

About JZ Capital Partners

JZ Capital Partners (“JZCP”) is one of the oldest closed-end investment companies listed on the London Stock Exchange. It seeks to provide shareholders with a return by investing selectively in US and European microcap companies and US real estate. JZCP receives investment advice from Jordan/Zalaznick Advisers, Inc. (“JZAI”) which is led by David Zalaznick and Jay Jordan. They have worked together for more than 35 years and are supported by teams of investment professionals in New York, Chicago, London and Madrid. JZAI’s experts work with the existing management of micro-cap companies to help build better businesses, create value and deliver strong returns for investors. For more information please visit www.jzcp.com. 

About JZ Capital Partners

JZ Capital Partners (“JZCP”) is one of the oldest closed-end investment companies listed on the London Stock Exchange. It seeks to provide shareholders with a return by investing selectively in US and European microcap companies and US real estate. JZCP receives investment advice from Jordan/Zalaznick Advisers, Inc. (“JZAI”) which is led by David Zalaznick and Jay Jordan. They have worked together for more than 35 years and are supported by teams of investment professionals in New York, Chicago, London and Madrid. JZAI’s experts work with the existing management of micro-cap companies to help build better businesses, create value and deliver strong returns for investors. For more information please visit www.jzcp.com. 

Chairman’s Statement

I am now able to report the results of JZ Capital Partners ("JZCP" or the "Company") for the six-month period ended 31 August 2019. The Board regrets the delay in publication of JZCP’s results as well as the uncertainty created by the announcement of the delay made on 30 October 2019. As described further in that announcement, discussions in the ordinary course of business between the Company’s Investment Adviser and certain third-party real estate brokers gave rise to questions as to whether the Company’s real estate portfolio was overvalued. The Board therefore came to the view that a delay in publication of the results and an announcement to the market were necessary while the situation was further assessed.

Immediately, the Company asked its independent third-party appraiser to accelerate the annual appraisal process and update its valuations as at 31 August 2019. The reports received were in accordance with the Company’s accounting policies as per the financial statements at 28 February 2019 and indicate minimal differences from the appraiser’s year-end values at 28 February 2019; however, the fair value of JZCP’s real estate investments at 31 August 2019 decreased to $422.7 million from $443.1 million at 28 February 2019. The net movement in unrealised losses between the fair value and cost of JZCP’s real estate investment between 28 February 2019 and 31 August 2019 totalled $64 million. Notwithstanding the revised appraisals, the Board believes that significant uncertainty remains as to whether the real estate portfolio could be realised at these values. This uncertainty results from both financing constraints at the underlying property level and the requirement to generate liquidity in line with the Company’s recently approved investment policy, which will likely require assets to be realised on an accelerated basis. As disclosed in the Company’s published financial statements historically, due to the inherent uncertainties of real estate valuation, the values reflected in the financial statements may differ significantly from the values that would be determined by negotiation between parties in a sale transaction and those differences could be material.

Not publishing the Company’s interim results by 30 November 2019 would have resulted in the temporary suspension of the listing of JZCP’s securities (until the actual date of publication). In the short period between the availability of the appraiser’s report and the deadline for publication it would not have been possible for the Company’s auditors to have been able to complete their customary review of the interim results and related report. While best practice for the publication of interim results contemplates an interim auditor review, it is not a regulatory requirement; under these unusual circumstances, the Board has determined that shareholders would be better served by avoiding a temporary suspension and accordingly did not ask the auditors to review these interim results.

Strategic Initiatives

On 24 October 2019 (post-period), the Board received shareholder approval for the adoption of a revised investment policy, whereby JZCP will look to realise investments and materially reduce commitments to new investments in order to return a substantial amount of capital to shareholders and pay down a substantial amount of debt.

As part of this strategy, the Company announced that it planned to raise approximately $400-500 million in liquidity by the end of the fiscal year ending February 2023, through realisations, the secondary sale of certain asset portfolios, the formation of joint venture partnerships and the US Side-Car Fund, in which the Company would be an initial investor.

Return of capital
In the past eighteen months, the Company has returned approximately $50 million to shareholders in a combination of open market purchases and a tender offer at close to NAV. Subject to the achievement of liquidity objectives, the Company expects to continue to return capital to shareholders; however, the near term priority is debt repayment.

Realisations
In August 2019, JZCP finalized the sale of 80% of its interest in portfolio companies Orizon and Avante for $65.5 million in gross proceeds, a 23% uplift to the July 2019 NAV of those assets. In October 2019 (post-period), JZCP closed the sale of its portfolio company Priority Express for $18.8 million in gross proceeds (including escrows and a potential earn out), a 60% uplift to the July 2019 NAV.

These transactions, together with others, bring total gross proceeds realised this fiscal year through November 2019 to more than $135 million. A process is currently underway for the sale of a portfolio of US microcap assets, which is expected to generate between $150-170 million in gross proceeds to JZCP by 29 February 2020.

Alterations to the investment policy
The Company’s focus continues to be its revised investment policy; however, potential impairment to the value of the real estate portfolio dictates that the Company must protect its balance sheet in the near term by prioritizing debt repayment over the return of capital to shareholders. Consequently, new capital allocations will be largely limited to follow-on investments in existing portfolio companies as well as other existing obligations.

As part of curtailing new investments, the Company will not proceed to make a commitment to the recently announced US Side-Car Fund, which was approved by shareholders to be up to $25 million. Furthermore, JZCP’s commitment to JZI Fund IV, L.P. (“Fund IV”), which shareholders previously approved at up to €64 million, is intended to be limited to a maximum of €15 million. The Board expects this contribution to be made over a period of five years. Because of JZCP’s commitment reduction, Jay Jordan and David Zalaznick expect to increase their aggregate commitment to Fund IV by up to approximately €10 million.

Additionally, the Board has requested that the Investment Adviser relieve the Company of its future subscription obligations to certain managed funds where the Company has current and projected future commitments of approximately up to $44 million. In consultation with the Board, Jay Jordan and David Zalaznick have agreed in principle to provide for or replace these commitments to certain managed funds in an amount of up to approximately $50-60 million, including the increased commitment to Fund IV.

Over time, the Board believes that the above measures will conserve cash of up to approximately $100 million.

In addition, the Investment Adviser has volunteered to forego payment of the remainder of its currently earned capital incentive fee on the basis that (i) $3.9 million of it can be immediately paid to the members of the JZAI team other than Jay Jordan and David Zalaznick and (ii) the net gains underpinning the realised incentive fee are rolled forward and netted against future losses. Additionally, the Investment Adviser has volunteered to forego future capital incentive fees until the Company and the Investment Adviser mutually agree to reinstate such payments.

Following the implementation of the above strategic initiatives, the Board will consider the Company’s strategy in light of the circumstances prevailing at that time. The Board believes that a continuation of the aforementioned policy changes will likely be adopted, involving further realisations, limited investment activity, remaining debt repayments and the return of further capital to shareholders.

Shareholders owning more than 50% of the Company’s ordinary shares have confirmed to the Board that they support continuance based on the repayment of debt and capital detailed above.

Portfolio Update

At the end of the period, the Company’s portfolio consisted of 24 US microcap businesses (including four ‘verticals’ and 15 co-investments) across nine industries, 17 European microcap companies across six industries and seven countries, and five major real estate assemblages (61 properties in total) located across Brooklyn, New York and South Florida.

US and European Microcap

The US microcap portfolio performed very well during the period, delivering a net increase in NAV per share of 63 cents, primarily due to net accrued income of 11 cents per share and increased earnings at the Company’s co-investments Peaceable Street Capital (11 cents), New Vitality (3 cents) and K2 Towers II (3 cents) as well as writing the Orizon, Avante and Logistics investments up to their respective sale values (18, 7 and 6 cents per share, respectively).

The European microcap portfolio (via JZI Fund III, L.P. or “Fund III”) delivered a net increase of 9 cents per share during the period, due to write-ups at S.A.C, My Lender, Treee, Eliantus, Factor Energia, BlueSites, Luxida and Karium. However, these gains were offset by a write-down on the Company’s direct loan to Ombuds (16 cents).

As of 31 August 2019, Fund III held 12 investments: four in Spain, two in Scandinavia, two in Italy, two in the UK and one each in Portugal and Luxembourg. JZCP held direct loans to a further four companies in Spain: Ombuds, Docout, Xacom and Toro Finance.

 Real Estate

The real estate portfolio experienced a net decrease of 82 cents during the period, primarily due to operating expenses and debt service at the property level. As of 31 August 2019, the Company has approximately $416 million invested in a portfolio of retail, office and residential properties in Brooklyn, New York, and South Florida, alongside its real estate partner, RedSky Capital. The total portfolio is comprised of 61 properties, which, following the newly received appraisals mentioned above, is valued at $422.7 million, subject to the reservations of the Board and Investment Adviser regarding the realisable value of the portfolio as discussed above. During the period, JZCP made follow-on investments and paid expenses totalling approximately $43 million.

As part of its focus on liquidity, the Company does not expect to make any new investments in the real estate sector other than in its existing portfolio, primarily where additional capital is required for debt service payments, accretive pre-development expenditures or the acquisition of a remaining property to complete an assemblage. The Board, Investment Adviser and RedSky Capital are working closely to establish the best course of action (development, sale or joint venture) to maximise value and liquidity from each real estate asset. The Investment Adviser has taken a much more direct role in the day-to-day management of both Redsky Capital and the real estate portfolio.

Spruceview Capital Partners

Spruceview Capital Partners (“Spruceview”), the Company’s asset management business in the US, continues to make progress. Spruceview looks to address the growing demand from corporate pensions, endowments, family offices and foundations for fiduciary management services through an Outsourced Chief Investment Officer (“OCIO”) model as well as customized products/solutions per asset class.

After successfully deploying an initial committed amount of $300 million for a portfolio of alternative investments for a Mexican trust (or “CERPI”), Spruceview’s mandate was extended in August by an additional commitment of $400 million, with the potential remaining to increase the size of the CERPI to up to $1.0 billion over the coming years. Spruceview continues to have a healthy pipeline of potential client opportunities.

The Board

As previously announced, the Board intends to seek new appointments and this process has begun. I must report, however, that Chris Waldron has indicated his wish to step down. He does so with our thanks for his contribution and our best wishes for the future.

Outlook

The Board regrets the uncertainty regarding the realisable value of the real estate portfolio but can reaffirm that the Investment Adviser is committed to the strategy of maximising value for JZCP’s shareholders by realising assets, paying down a substantial amount of debt and continuing to return capital to shareholders.

David Macfarlane
Chairman
26 November 2019

 

Investment Adviser’s Report

Dear Fellow Shareholders,

On 24 October 2019, shareholders voted to approve a revised investment policy, whereby JZCP will look to realise investments and materially reduce commitments to new investments in order to return capital to shareholders and pay down debt. We have achieved several realisations and are making progress on many more.

In August 2019, JZCP finalized the sale of 80% of its interest in portfolio companies Orizon and Avante for $65.5 million in gross proceeds, a 23% uplift to the July 2019 NAV of those assets. In October 2019 (post- period), JZCP closed the sale of its portfolio company Priority Express for $18.8 million in gross proceeds (including escrows and a potential earn out), a 60% uplift to the July 2019 NAV of that asset. These transactions bring total gross proceeds realised this fiscal year through November 2019 to more than $135 million.

In addition to realisations, we plan to raise liquidity for JZCP from secondary sales of certain asset portfolios and joint venture partnerships. We are currently in the market with a portfolio of select US microcap assets and expect to realise between $150-170 million in gross proceeds prior to 29 February 2020 from these transactions.

As of 31 August 2019, our US micro-cap portfolio consisted of 23 businesses, which includes four ‘verticals’ and 14 co-investments, across nine industries; this portfolio was valued at 8.2x EBITDA, after applying an average 23% marketability discount to public comparables. The average underlying leverage senior to JZCP’s position in our US micro-cap portfolio is 4.4x EBITDA. Consistent with our value-oriented investment strategy, we have acquired our current US micro-cap portfolio at an average 6.0x EBITDA.

Our European micro-cap portfolio consisted of 17 companies across six industries and seven countries. The European micro-cap portfolio has low leverage senior to JZCP’s position, of under 2.0x EBITDA.

As of the same date, our US real estate portfolio consisted of 61 properties and can be grouped primarily into five major ‘assemblages’, located in the Williamsburg, Greenpoint and Downtown/Fulton Mall neighbourhoods of Brooklyn, New York, and the Wynwood and Design District neighbourhoods of Miami, Florida. Our assemblages are comprised of adjacent or concentrated groupings of properties that can be developed, financed and/or sold together at a higher valuation than on a stand-alone basis.

Net Asset Value (“NAV”)

JZCP’s NAV per share decreased 38 cents, or 3.8%, during the six-month period from 28 February 2019 to 31 August 2019.
 

NAV per Ordinary share as of 28 February 2019 $10.04
Change in NAV due to capital gains and accrued income
+ US Micro-cap          0.63
- European Micro-cap         (0.07)
- Real estate         (0.82)
Other increases/(decreases) in NAV
+ Net foreign exchange effect          0.08
- Finance costs         (0.13)
- Expenses and taxation         (0.09)
+ Appreciation from share buybacks          0.02
NAV per Ordinary share as of 31 August 2019 $9.66

The US micro-cap portfolio performed well during the period, delivering a net increase of 63 cents per share. This was primarily due to net accrued income of 11 cents, increased earnings at co-investments Peaceable Street Capital (11 cents), New Vitality (3 cents) and K2 Towers II (3 cents) as well as writing our Orizon, Avante and Logistics investments up to their respective sale values (18, 7 and 6 cents, respectively). We also received 4 cents of escrow payments during the period.

Our JZI Fund III, L.P. (“Fund III”) portfolio performed very well during the period, posting a net increase of 9 cents, primarily due to write-ups at Fund III portfolio companies S.A.C, My Lender, Treee, Eliantus, Factor Energia, BlueSites, Luxida and Karium. Gains at our Fund III portfolio companies were offset by a write-down on our direct loan to Ombuds (16 cents).

The real estate portfolio experienced a net decrease of 82 cents, primarily due to operating expenses and debt service at the property level.

Returns

The chart below summarises cumulative total shareholder returns and total NAV returns for the most recent six-month, one-year, three-year and five-year periods.
 

31.8.2019 28.2.2019 31.8.2018 31.8.2016 31.8.2014
Share price (in GBP) £4.82 £4.35 £4.44 £4.53 £4.34
NAV per share (in USD) $9.66 $10.04 $9.82 $10.40 $10.11
NAV to market price discount 39.2% 42.4% 41.2% 43.0% 28.7%
6 month return 1 year return 3 year return 5 year return
Dividends paid (in USD)             -              -   $0.155 $0.790
Total Shareholders' return (GBP)1 10.8% 8.6% 9.1% 25.8%
Total NAV return per share (USD)1 -3.8% -1.6% -5.7% 3.3%
Total Adjusted NAV return per share (USD)1,2 0.2% 1.3% -3.4% 16.7%


1 Total returns are cumulative and assume that dividends were reinvested.

2 Adjusted NAV returns reflect the return per share before (i) the dilution resulting from the issue of 18,888,909 ordinary shares at a discount to NAV on 30 September 2015 and (ii) subsequent appreciation from the buyback of ordinary shares at a discount.

Portfolio Summary

Our portfolio is well-diversified by asset type and geography, with 40 US and European micro-cap investments across eleven industries and five primary real estate ‘assemblages’ (61 total properties) located in Brooklyn, New York and South Florida. The portfolio continues to become more diversified geographically across Western Europe with investments in Spain, Italy, Portugal, Luxembourg, Scandinavia and the UK.

Below is a summary of JZCP’s assets and liabilities at 31 August 2019 as compared to 28 February 2019. An explanation of the changes in the portfolio follows:                                                                                                                                   
 

31.8.2019 28.2.2019
US$'000 US$'000
US microcap portfolio 424,913 478,970
European microcap portfolio 104,863 128,698
Real estate portfolio 422,656 443,044
Other investments 20,916 18,302
Total investments 973,348 1,069,014
Treasury bills 3,323 3,314
Cash 71,686 50,994
Total cash equivalents 75,009 54,308
Other assets 623 1,286
Total assets 1,048,980 1,124,608
Zero Dividend Preference shares 59,946 63,838
Convertible Unsecured Loan Stock 50,167 54,274
Loans payable 149,490 149,227
Other liabilities 41,151 47,007
Total liabilities 300,754 314,346
Net Asset Value 748,226 810,262

JZCP’s loan facility with Guggenheim Partners may be repaid, in whole or in part, at any time, without any prepayment penalties.

US microcap portfolio                                                                                                                                              
As you know from previous reports, our US portfolio is grouped into industry ‘verticals’ and co-investments. Our ‘verticals’ strategy focuses on consolidating businesses under industry executives who can add value via organic growth and cross company synergies. Our co-investments strategy allows for greater diversification of our portfolio  by investing in larger companies alongside well-known private equity groups.

The US micro-cap portfolio performed well during the period, delivering a net increase of 63 cents per share. This was primarily due to net accrued income of 11 cents, increased earnings at co-investments  Peaceable  Street Capital (11 cents), New Vitality (3 cents) and K2 Towers II (3 cents) as well as writing our Orizon, Avante and Logistics investments up to their respective sale values (18, 7 and 6 cents, respectively). We also received 4 cents   of escrow payments during the period.

European microcap portfolio                                                                                                                                   
Our Fund III portfolio performed very well during the period, posting a net increase of 9 cents, primarily due to write- ups at Fund III portfolio companies S.A.C, My Lender, Treee, Eliantus, Factor Energia, BlueSites, Luxida  and Karium. Gains at our Fund III portfolio companies were offset by a write-down on our direct loan to Ombuds (16 cents).

JZCP invests in the European micro-cap sector through its approximately 18.8% ownership of Fund III. As of 31 August 2019, Fund III held 12 investments: four in Spain, two in Scandinavia, two in Italy, two in the UK and one  each in Portugal and Luxembourg. JZCP held direct loans to a further four companies in Spain: Ombuds, Docout, Xacom and Toro Finance.

JZAI has offices in London and Madrid and an outstanding team with over fifteen years of experience investing together in European micro-cap deals.

During the period, JZCP received distributions totaling approximately €12.5 million (approximately $14.1 million)   from its investments in: (i) Petrocorner, a network of petrol stations throughout Spain; (ii) Collingwood, a niche auto insurance business in the UK; and (iii) Fincontinuo, a niche consumer lender in Italy.

The proceeds included above from Petrocorner represent the first tranche of proceeds from the sale of Petrocorner  by Fund III to British Petroleum. Headquartered in Madrid, Petrocorner is a strategic build-up in the Spanish retail petrol station market, comprised of 65 petrol stations located across Spain with annualized sales volume of approximately 250 million litres of petrol. JZCP expects to receive cumulative gross proceeds of €12.1 million from  the sale (including interim proceeds and escrows), which represents a gross multiple of invested capital (“MOIC”) of approximately 2.0x and a gross internal rate of return (“IRR”) of approximately 23.0%.

Real estate portfolio                                                                                                                                                
As discussed in the Chairman’s Statement and below in the Outlook section, we believe the valuations are high for several of our real estate sites and assemblages. Accordingly, we expect to see lower valuations for the fiscal year ending 29 February 2020 beyond the approximately $64 million that the NAV has been marked down to reflect the carrying costs for the six months ending 31 August 2019.

As of 31 August 2019, JZCP had approximately $416 million invested in a portfolio of retail, office and residential properties in Brooklyn, New York, and South Florida, which is valued at $422.7 million as of that date. We have  made these investments alongside our real estate partner, RedSky Capital.

Since we began investing in real estate in April 2012, we have acquired a total of 61 properties, all currently in  various stages of development and re-development.                                                                                                                                
 


Follow-on real estate investments
JZCP Investment
($ millions)
Follow-ons and expenses  43.6

Other investments                                                                                                                                                    
Our asset management business in the US, Spruceview Capital Partners, has continued to make encouraging progress since we last reported to you. Spruceview addresses the growing demand from corporate pensions, endowments, family offices and foundations for fiduciary management services through an Outsourced Chief Investment Officer (“OCIO”) model as well as customized products/solutions per asset class.

After the successful deployment during the period of an initial committed amount of $300 million for a portfolio of alternative investments for a Mexican trust (or “CERPI”), Spruceview’s mandate was extended in August by an additional commitment of $400 million, with the potential remaining to increase the size of the CERPI to up to $1.0 billion over the coming years.

During the period, Spruceview maintained a pipeline of potential client opportunities and continued to provide investment oversight to the pension funds of the Mexican and Canadian subsidiaries of an international packaged foods company, as well as a European private credit fund-of-funds, a US middle market private  equity fund-of-funds, and portfolios for family office clients.

As previously reported, Richard Sabo, former Chief Investment Officer of Global Pension and Retirement Plans at JPMorgan and a member of that firm’s executive committee, is leading a team of 14 investment, business development, legal and operations professionals.

Realisations

Asset Portfolio Proceeds ($millions)
Avante - Sale of 80% of JZCP's stake US microcap 37.5
Orizon - Sale of 80% of JZCP's stake US microcap 28.0
Waterine Renewal -Sale US microcap 23.3
Fund III – Proceeds from Sale of Petrocorner / Refinancing of Collingwood & Fincontinuo European microcap 14.5
Felix Storch - Refinancing US microcap 14.0
Receipt of Escrow Balances US microcap 3.9
121.2

Avante & Orizon                                                                                                                                                         
In August 2019, JZCP sold 80% of its stake in US micro-cap investments Avante and Orizon to Edgewater Growth Capital Partners for $65.5 million in gross proceeds, a 23% uplift to July 2019 NAV of those assets.

Avante is a single source provider of medical, surgical, diagnostic imaging and radiation oncology equipment, including sales, service, repair, parts, refurbishing and installation in over 150 countries. Orizon is a manufacturer of integral aerospace assemblies for original equipment manufacturers and tier one suppliers to original equipment manufacturers.

Waterline Renewal                                                                                                                                                      
In April 2019, Waterline Renewal was acquired by Behrman Capital, a private equity investment firm based in New York and San Francisco.

Waterline Renewal is a leading provider of engineered products used in the trenchless rehabilitation of wastewater infrastructure for municipal, commercial, industrial, and residential applications. The company's patented line of products and technologies allows its customers to deliver long-lasting solutions that repair sewer systems and wastewater lines without the need for excavation or property damage, and prevent overflow created by excess inflow and infiltration of ground water into the wastewater system.

JZCP expects to realise approximately $24.6 million in gross proceeds (including escrows) from the sale.

Felix Storch                                                                                                                                                               
In March 2019, JZCP refinanced Felix Storch, its manufacturer of small and custom refrigeration appliances. This refinancing resulted in gross proceeds to JZCP of approximately $14.0 million, which returned JZCP’s entire March 2017 investment in Felix Storch of $12.0 million. Felix Storch has continued to exhibit strong growth and we expect    it to return more capital in the future.

Priority Express                                                                                                                                                          
In October 2019 (post-period), Priority Express was acquired by Capstone Logistics, a leading North American supply chain solutions partner.

Priority Express was founded in 2005 and provides over 500 customers in the healthcare and e-commerce end markets with expedited freight and distribution services, scheduled routed delivery services and on-demand delivery services.

JZCP expects to realise approximately $18.8 million in gross proceeds (including escrows and a potential earn-out) from the sale, a 60% uplift to July 2019 NAV.

Outlook

As discussed in the Chairman’s Statement, we as the Investment Adviser have been working with the Board to alleviate many of JZCP’s commitments which would require considerable cash resources. We are taking on the responsibility to provide or procure these commitments, either through increased personal investment or other avenues. Most importantly, JZCP will have up to approximately $100 million less in cash requirements to fulfill these existing commitments, which will be money that can be dedicated to debt repayment and return of capital to shareholders.

Subject to achieving our liquidity objectives, our near and medium term priority is debt repayment, including the Zero Dividend Preference Shares and Convertible Unsecured Loan Stock. After that, we will endeavor  to continue   to return capital to shareholders.

One near term initiative to achieve liquidity is through the secondary sale of certain of our US micro-cap assets. Hopefully, this will yield prices at or above our NAV, similar to our realisations already achieved this year. At the same time, we are minimizing the amount of capital JZCP invests in new acquisitions to preserve cash for near and medium term debt repayment and, ultimately, return of capital to shareholders.

Realising liquidity for our real estate portfolio is also an objective. We are currently evaluating the best course of action (development, sale or joint venture) to maximize value. Toward that end, we will be putting several of our properties up for sale in the next 60-90 days. It is important to note that we must support the business plan for   certain of our respective assemblages and build-outs in order to complete the job and maximize value. These are the only new investments we will be making in real estate; we expect it will take 24 to 36 months to maximize the value of our current portfolio.

With regard to valuation of our real estate portfolio, we believe the valuations are high for several of the sites and assemblages. Accordingly, we expect to see lower valuations for the fiscal year ending  29 February 2020 beyond the approximately $64 million that the NAV has been marked down to reflect the carrying costs for the six months ending 31 August 2019.

We thank the Board and shareholders for their support of the revised investment strategy and we are confident that we can execute the strategy. In the coming months, we will be reporting to you how we are progressing with realisations to raise cash for debt repayment. We anticipate the next event will be the pay down of a significant amount of debt upon the successful completion of the secondary sale.

Yours faithfully,
Jordan/Zalaznick Advisers, Inc.
26 November 2019

Board of Directors

David Macfarlane (Chairman)1                                                                                                                                                                                                                                                                   
Mr Macfarlane was appointed to the Board of JZCP in 2008 as Chairman and a non-executive Director. Until 2002 he was a Senior Corporate Partner at Ashurst. He was a non-executive director of the Platinum Investment Trust Plc from 2002 until January 2007.

James Jordan                                                                                                                                                          
Mr Jordan is a private investor who was appointed to the Board of JZCP in 2008. He is a director of the First Eagle family of mutual funds, and of Alpha Andromeda Investment Trust Company, S.A. Until 30 June 2005, he was the managing director of Arnhold and S. Bleichroeder Advisers, LLC, a privately owned investment bank and asset management firm; and until 25 July 2013, he was a non-executive director of Leucadia National Corporation. He is an Overseer of the Gennadius Library of the American School of Classical Studies in Athens, and as Director of Pro Natura de Yucatan.

Sharon Parr2                                                                                                                                                                                                                                                                                                                         
Mrs Parr was appointed to the Board of JZCP in 2018. In 2003 she completed a private equity backed MBO of the trust and fund administration division of Deloitte and Touche, called Walbrook, selling it to Barclays Wealth in 2007. As a Managing Director of Barclays, she ultimately became global head of their trust and fund administration businesses, comprising over 450 staff in 10 countries. She stepped down from her executive roles in 2011 to focus on other areas and interests but has maintained directorships in several companies. She is a Fellow of the Institute of Chartered Accountants in England and Wales and a member of the Society of Trust and Estate Practitioners, and is a resident of Guernsey.

Tanja Tibaldi                                                                                                                                                           
Ms Tibaldi was appointed to the Board of JZCP in 2008. She was on the board of JZ Equity Partners Plc from January 2005 until the company's liquidation on 1 July 2008. She was managing director at Fairway Investment Partners, a Swiss asset management company where she was responsible for the Group's marketing and co- managed two fund of funds. Previously she was an executive at the Swiss Stock Exchange and currently serves on the board of several private companies.

Christopher Waldron3, 4                                                                                                                                                                                                                                                                                          
Mr Waldron was appointed to the Board of JZCP in 2013. He has more than thirty years’ experience as an asset manager and director of investment funds. He is Chairman of UK Mortgages Limited and Crystal Amber Fund Limited. He began his career with James Capel and subsequently held investment management positions with Bank of Bermuda, the Jardine Matheson Group and Fortis prior to joining the Edmond de Rothschild Group in Guernsey as Investment Director in 1999. He was appointed Managing Director of the Edmond de Rothschild companies in Guernsey in 2008, a position he held until 2013, when he stepped down to concentrate on non- executive work and investment consultancy. He is a member of the States of Guernsey’s Investment and Bond Management Sub-Committee and a Fellow of the Chartered Institute for Securities and Investment. He is a resident of Guernsey.

Patrick Firth
Mr Firth resigned from the Board and as Chairman of the Audit Committee in June 2019.

1Chairman of the nominations committee of which all Directors are members.
2Mrs Parr was appointed Chairman of the Audit Committee in June 2019. All Directors are members of the Audit Committee.
3Chairman of the management engagement committee of which all Directors are members. Mr Waldron was appointed as Senior Independent Director in May 2019.

4Mr Waldron proposed to resign from the Board on 26 November 2019.

Statement of Directors' Responsibilities
The Directors are responsible for preparing the Interim Report and Unaudited Condensed Interim Financial Statements (the "Interim Report and Financial Statements") in accordance with applicable law and regulations.

The Directors confirm that to the best of their knowledge:

- the Unaudited and Condensed Interim Financial Statements (the "Interim Financial Statements") have been prepared in accordance with IFRS and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

- the Chairman’s Statement and Investment Adviser’s Report include a fair review of the information required by:

(i) DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the Interim Financial Statements; and a description of the principal risks and uncertainties for the remaining six months of the year;  and

(ii) DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have  taken place in the first six months of the financial year and that have materially affected the financial position or the performance of the entity during that period; and any changes in the related party transactions described in the 2019 Annual Report and Financial Statements that could do so.

Going concern and principal risks and uncertainties                                                                                               
As an investment fund, the Company's principal risks are those that are associated with its investment portfolio. Given the nature of the portfolio, the principal risks are associated with the financial and operating performance of the underlying investments.

The Directors do not consider that the principal risks and uncertainties have changed since the publication of the Annual Report and Financial Statements for the year ended 28 February 2019 (as explained annual report). The Directors continue to monitor the risks to the Company.

The Directors consider the Company has adequate financial resources, in view of its holding in cash and cash equivalents and liquid investments, and the income streams deriving from its investments and believe that the Company is well placed to manage its business risks successfully to continue in operational existence for the foreseeable future and that it is appropriate to prepare the interim financial statements on the going concern basis.

Approved by the Board of Directors and agreed on behalf of the Board on 26 November 2019.

David Macfarlane
Chairman

Sharon Parr
Director

Investment Portfolio


Percentage of Portfolio
     31 August 2019
Cost1 Value
US$'000 US$'000 %
US Microcap portfolio
US Microcap (Verticals)
Industrial Services Solutions2
INDUSTRIAL SERVICES SOLUTIONS (“ISS”)    
Provider of aftermarket maintenance, repair, and field services for critical process equipment throughout the US
Total Industrial Services Solutions valuation 48,250 95,893 9.8
Testing Services Holdings2
TECHNICAL SOLUTIONS AND SERVICES
Provider of safety focused solutions for the industrial, environmental and life science related markets
CONTAMINATION CONTROL & CERTIFICATION
Provider of testing, certification and validation services for cleanroom, critical environments and containment systems
Total Technical Solutions and Services Vertical valuation 23,731 23,210 2.4
Flexible Packaging Vertical
ACW FLEX PACK, LLC
Provider of a variety of custom flexible packaging solutions to converters and end-users                    
Total Flexible Packaging Vertical valuation 10,033 11,064 1.1
Flow Controls
FLOW CONTROL, LLC
Manufacturer and distributor of high-performance, mission-critical flow handling products and components utilized to connect processing line equipment
Total Flow Control Vertical valuation 14,040 14,924 1.5
Total US Microcap (Verticals) 96,054 145,091 14.8
US Microcap (Co-investments)
ABTB                   
Acquirer of franchises within the fast-casual eateries and quick-service restaurants sector
8,760 8,760 0.9
DEFLECTO
Deflecto designs, manufactures and sells innovative plastic products to multiple industry segments
40,112 44,334 4.5
EXER URGENT CARE
Emergency Room alternative that combines clinical expertise, care & convenience
2,400 2,400 0.3
GEORGE INDUSTRIES
Manufacturer of highly engineered, complex and high tolerance products for the aerospace, transportation, military and other industrial markets
12,683 12,681 1.3
IGLOO2                   
Designer, manufacturer and marketer of coolers and outdoor products
6,572 6,450 0.7
K2 TOWERS II          
Acquirer of wireless communication towers            
8,463 10,963 1.1
NEW VITALITY2                  
Direct-toconsumer provider of nutritional supplements and personal care products
3,431 6,303 0.7
ORIZON
Manufacturer of high precision machine parts and tools for aerospace and defence industries
4,127 7,000 0.7
PEACEABLE STREET CAPITAL            
Specialty finance platform focused on commercial real estate
           
28,041 36,541 3.8
SALTER LABS2
Developer and manufacturer of respiratory medical products and equipment for the homecare, hospital, and sleep disorder markets
16,762 21,717 2.2
SLOAN LED2
Designer and manufacturer of LED lights and lighting systems
6,030 452 0.0
SUZO HAPP GROUP2                                                                                                                                                                                                    Designer, manufacturer and distributor of components for the global gaming, amusement and industrial markets 2,572 11,700 1.2
TIERPOINT2
Provider of cloud computing and collocation data centre services
44,313 46,813 4.8
VITALYST2                                                                                                            
Provider of outsourced IT support and training services
9,020 8,192 0.8
Total US Microcap (Co-investments) 193,286 224,306 23.0
US Microcap (Other)
AVANTE HEALTH SOLUTIONS
Provider of new and professionally refurbished healthcare equipment
7,178 9,375 1.0
FELIX STORCH
Supplier of specialty, professional, commercial, and medical refrigerators and freezers, and cooking appliances
50 24,500 2.5
HEALTHCARE PRODUCTS HOLDINGS
Designer and manufacturer of motorised vehicles
17,636 - 0.0
NATIONWIDE STUDIOS          
Processor of digital photos for pre-schoolers
26,324 5,000 0.5
PRIORITY EXPRESS2
Provider of same day express courier services to various companies located in north-eastern USA. Priority Express is a subsidiary of US Logistics
13,200 16,641 1.7
Total US Microcap (Other) 64,388 55,516 5.7
Total US Microcap portfolio 353,728 424,913 43.5

European Microcap portfolio
EUROMICROCAP FUND 2010, L.P.
Invested in European Microcap entities        
- 3,854 0.4
JZI FUND III, L.P.
At 31 August 2019, was invested in twelve companies in the European microcap sector: Fincontinuo, S.A.C, Collingwood, My Lender, Alianzas en Aceros, ERSI, Treee, Eliantus, Factor Energia, BlueSites, Luxida and Karium
35,200 57,010 5.8
Total European Microcap (measured at Fair Value) 35,200 60,864 6.2
Direct Investments
DOCOUT4                    
Provider of digitalisation, document processing and storage services
2,777 3,836 0.4
OMBUDS4                       
Provider of personal security, asset protection and facilities management services
17,198 13,650 1.4
TORO FINANCE4
Provides short term receivables finance to the suppliers of major Spanish companies
21,619 22,436 2.3
XACOM4                   
Supplier of telecom products and technologies
2,055 4,077 0.4
Total European Microcap (Direct Investments) 43,649 43,999 4.5
Total European Microcap portfolio 78,849 104,863 10.7
Real Estate portfolio
JZCP REALTY5
Facilitates JZCP's investment in US real estate
437,577 422,656 43.3
Total Real Estate portfolio 437,577 422,656 43.3
Other investments
BSM ENGENHARIA2
Brazilian-based provider of supply chain logistics, infrastructure services and equipment rental
6,115 459 0.0
CERPI
Spruceview managed investment product
619 619 0.1
JZ INTERNATIONAL3              
Fund of European LBO investments
- 750 0.1
SPRUCEVIEW CAPITAL
Asset management company focusing primarily on managing  endowments and pension funds
30,005 19,088 2.0
Total Other investments 36,739 20,916 2.2
Listed investments
U.S. Treasury Bill 0.00% Maturity 6th-February-2020 3,321 3,323 0.3
Total Listed investments 3,321 3,323 0.3
Total - portfolio 910,214 976,671 100.0


1Original book cost incurred by JZCP adjusted for subsequent transactions. The book cost represents cash outflows and excludes PIK investments.        
2Co-investment with Fund A, a Related Party (Note 19)      .
3Legacy Investments. Legacy investments are excluded from the calculation of capital and income incentive fees.    
4Classified as Loans at Amortised Cost   .
5JZCP invests in real estate indirectly through its investments in JZCP Realty Ltd. JZCP owns 100% of the shares and voting rights of JZCP Realty, Ltd
.

Statement of Comprehensive Income (Unaudited)
For the Period from 1 March 2019 to 31 August 2019

Six Month Period Ended Six Month Period Ended
31 August 2019 31 August 2018
 Note US$'000 US$'000
Income
Realisations from investments held in escrow accounts 21    3,923       2,085
Net foreign currency exchange gains      3,765      1,045
Gain on financial liabilities at fair value through profit or loss      4,107      5,925
Investment Income    8       19,984     14,300
Bank and deposit interest        225            289
     32,004         23,644
Expenses
Net loss on investments at fair value through profit or loss    6      (31,575)       (25,720)
Expected credit losses    7     (14,727)           -
Investment Adviser's base fee  10    (8,301)   (8,498)
Investment Adviser's incentive fee  10     2,895     3,843
Administrative expenses     (1,660)        (1,423)
Directors' remuneration         (230)         (219)
(53,598) (32,017)
Operating loss (21,594) (8,373)
Finance costs    9   (10,463) (9,126)
Loss for the period (32,057) (17,499)
Weighted average number of Ordinary shares in issue during the period  20 80,614,784 83,456,487
Basic loss per Ordinary share  20 (39.77)c (20.97)c
Diluted loss per Ordinary share  20 (39.84)c (24.27)c


The format of the Statement of Comprehensive Income (Unaudited) has changed from prior periods in that it now presents income in one column format rather than a split between capital and revenue.

The accompanying notes form an integral part of the Interim Financial Statements.

Statement of Financial Position (Unaudited)  
As at 31 August 2019

31 August 28 February
2019 2019
Note US$'000 US$'000
Assets
Investments at fair value through profit or loss  11 932,672 1,014,316
Loans at amortised cost  11 43,999 58,012
Other receivables  12 623 1,286
Cash at bank 71,686 50,994
Total assets 1,048,980 1,124,608
Liabilities
Zero Dividend Preference shares  13 59,946 63,838
Convertible Unsecured Loan Stock  14 50,167 54,274
Loan payable  15 149,490 149,227
Investment Adviser's incentive fee  10 36,876 42,771
Investment Adviser's base fee  10 2,079 2,102
Other payables  16 2,196 2,134
Total liabilities 300,754 314,346
Equity
Share capital 216,625 246,604
Other reserve 353,528 353,528
Retained earnings 178,073 210,130
Total equity 748,226 810,262
Total liabilities and equity 1,048,980 1,124,608
Number of Ordinary shares in issue at period/year end  17 77,474,175 80,666,838
Net asset value per Ordinary share $9.66 $10.04


These Interim Financial Statements were approved by the Board of Directors and authorised for issue on 26 November 2019. They were signed on its behalf by:

David Macfarlane          
Chairman        

Sharon Parr      
Director

The accompanying notes form an integral part of the interim financial statements.

Statement of Changes in Equity (Unaudited)  
For the Period from 1 March 2019 to 31 August 2019

Share Other Retained
Capital Reserve Earnings Total
Note US$'000 US$'000 US$'000 US$'000
Balance as at 1 March 2019 246,604   353,528  210,130 810,262
Loss for the period        -               - (32,057) (32,057)
Buy back of Ordinary shares 17 (29,979)             -             - (29,979)
Balance at 31 August 2019 216,625  353,528 178,073 748,226


Comparative for the period from 1 March 2018 to 31 August 2018  
 

Share Other Retained
Capital Reserve Earnings Total
US$'000 US$'000 US$'000 US$'000
Balance at 1 March 2018 265,685    353,528   218,360 837,573
Impact of adoption of IFRS 9 - -       (1,395) (1,395)
Adjusted Balance at 1 March 2018 265,685 353,528 216,965 836,178
Loss for the period             -               -  (17,499) (17,499)
Buy back of Ordinary shares  (6,707)               -               - (6,707)
Balance at 31 August 2018 258,978   353,528 199,466 811,972


The accompanying notes form an integral part of the Interim Financial Statements.

The format of the Statement of Changes in Equity has changed from prior periods in that it now reflects the one column income presentation in the Statement of Comprehensive Income format. The Company's profit/loss are now posted to retained earnings rather than individual revenue/capital reserves.

Statement of Cashflows (Unaudited)   
For the Period from 1 March 2019 to 31 August 2019

Six Month Six Month
Period Ended Period Ended
31 August 2019 31 August 2018
Note US$'000 US$'000
Cash flows from operating activities
Cash inflows
Realisation of investments1  11 117,341 159,385
Maturity of treasury bills2  11 3,350 49,845
Escrow receipts received  21 3,923 2,085
Interest received from unlisted investments 677 1,103
Income distributions received from investments 1,192 -
Bank Interest received 225 289
Cash outflows
Direct investments and capital calls3  11 (51,228) (131,482)
Purchase of treasury bills  11 (3,321) (3,267)
Investment Adviser's base fee paid  10 (8,324) (8,513)
Investment Adviser's incentive fee paid  10 (3,000) (996)
Other operating expenses paid (1,865) (1,641)
Foreign exchange (loss)/gain realised (306) 17
Net cash inflow before financing activities 58,664 66,825
Financing activities
Finance costs paid:
- Convertible Unsecured Loan Stock (1,515) (1,631)
- Loan Payable (6,453) (5,720)
Payments to buy back Company's Ordinary shares (29,979) (6,707)
Net cash outflow from financing activities (37,947) (14,058)
Increase in cash at bank 20,717 52,767
Reconciliation of net cash flow to movements in cash at bank
US$'000 US$'000
Cash and cash equivalents at 1 March          50,994             9,000
Increase in cash at bank          20,717           52,767
Unrealised foreign exchange movements on cash at bank               (25)               (213)
Cash and cash equivalents at period end          71,686           61,554


1Total realisations quoted in the interim report of $121.2 million, include escrow receipts of $3.9 million and income distributions received of $1.2 million and exclude a short term debt repayment of $1.2 million.
2Includes $38,000 of treasury bill interest received on maturity.     
3Total investments in period include $0.7 million of deposits held at 28 February 2019
.

The accompanying notes form an integral part of the Interim Financial Statements.

Notes to the Interim Financial Statements (Unaudited)

1. General Information           
JZ Capital Partners Limited ("JZCP" or the "Company") is a Guernsey domiciled closed-ended investment company which was incorporated in Guernsey on 14 April 2008 under the Companies (Guernsey) Law, 2008 (as amended). The Company is classed as an authorised fund under the Protection of Investors (Bailiwick of Guernsey) Law 1987. The Company's Capital consists of Ordinary shares, Zero Dividend Preference ("ZDP") shares and Convertible Unsecured Loan Stock ("CULS"). The Company's shares trade on the London Stock Exchange's Specialist Fund Segment.

The Company’s Investment Policy is to target predominantly private investments, seeking to back management teams to deliver on attractive investment propositions. In executing its strategy, the Company takes a long term view. The Company seeks to invest directly in its target investments, although it may also invest through other collective investment vehicles. The Company may also invest in listed investments, whether arising on the listing of its private investments or directly. The Investment Adviser is able to invest globally but with a particular focus on opportunities in the United States and Europe.

The Company is currently mainly focused on investing in the following areas:

(a) small or micro-cap buyouts in the form of debt and equity and preferred stock in both the US and Europe; and
(b) real estate.

Jordan/Zalaznick Advisers, Inc. (the "Investment Adviser") takes a dynamic approach to asset allocation and, though it doesn’t expect to, in the event that the Company were to invest 100% of gross assets in one area, the Company will, nevertheless, always seek to maintain a broad spread of investment risk. Exposures are monitored and managed by the Investment Adviser under the supervision of the Board.

The Company has no direct employees. For its services the Investment Adviser receives a management fee and is also entitled to performance related fees (Note 10). The Company has no ownership interest in the Investment Adviser. During the period under review the Company was administered by Northern Trust International Fund Administration Services (Guernsey) Limited.

The Unaudited Condensed Interim Financial Statements (the "Interim Financial Statements") are presented in US$'000 except where otherwise indicated.

2. Significant Accounting Policies

The accounting policies adopted in the preparation of these Interim Financial Statements have been consistently applied during the period, unless otherwise stated.

Statement of Compliance       
The Interim Financial Statements of the Company for the period 1 March 2019 to 31 August 2019 have been prepared in accordance with IAS 34, "Interim Financial Reporting" as adopted in the European Union, together with applicable legal and regulatory requirements of the Companies (Guernsey) Law, 2008 and the Disclosure Guidance and Transparency Rules. The Interim Financial Statements do not include all the information and disclosure required in the Annual Audited Financial Statements and should be read in conjunction with the Annual Report and Financial Statements for the year ended 28 February 2019.

Independent Review of Interim Financial Statements
These Interim Financial Statements and information in the accompanying Interim Report have not been audited or reviewed by the Company's Auditor.

Basis of Preparation   
The interim financial statements have been prepared under the historical cost basis, modified by the revaluation of financial instruments designated at fair value through profit or loss ("FVTPL") upon initial recognition. The principal accounting policies adopted in the preparation of these Interim Financial Statements are consistent with the accounting policies stated in Note 2 of the Annual Financial Statements for the year ended 28 February 2019. The preparation of these Interim Financial Statements are in conformity with IAS 34, "Interim Financial Reporting" as adopted in the European Union, and requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.

The Statement of Comprehensive Income is now presented in a one column format rather than AIC SORP recommended presentation which allocated profit/loss between capital and revenue.

New standards, interpretations and amendments adopted by the Company     
The accounting policies adopted in the preparation of the interim financial statements are consistent with those followed in the preparation of the Company’s annual financial statements for the year ended 28 February 2019. The has been no early adoption, by the Company, of any other standard, interpretation or amendment that has been issued but is not yet effective.

Several amendments and interpretations to standards apply for the first time in 2019, but do not have an impact on the interim financial statements of the Company.

3. Estimates and Judgements 
The estimates and judgements made by the Board of Directors are consistent with those made in the Audited Financial Statements for the year ended 28 February 2019.

4. Segment Information          
The Investment Manager is responsible for allocating resources available to the Company in accordance with the overall business strategies as set out in the Investment Guidelines of the Company. The Company is organised into the following segments:

• Portfolio of US micro-cap investments   
• Portfolio of European micro-cap investments     
• Portfolio of Real estate investments      
• Portfolio of Other investments - (not falling into above categories)

Investments in treasury bills are not considered as part of the investment strategy and are therefore excluded   from this segmental analysis.

The investment objective of each segment is to achieve consistent medium-term returns from the investments in each segment while safeguarding capital by investing in a diversified portfolio.

Segmental operating profit/(loss)       
For the period from 1 March 2019 to 31 August 2019

US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Interest revenue 15,980 2,742 32 - 18,754
Dividend revenue - 1,192 - - 1,192
Total segmental revenue 15,980 3,934 32 - 19,946
Net gain/(loss) on investments at FVTPL 29,331 3,097 (64,003) - (31,575)
Expected credit losses - (14,727) - - (14,727)
Realisations from investments held in Escrow 3,923 - - - 3,923
Investment Adviser's base fee (3,420) (827) (3,379) (147) (7,773)
Investment Adviser's capital incentive fee1 (10,074) 240 12,729 - 2,895
Total segmental operating profit/(loss) 35,740 (8,283) (54,621) (147) (27,311)


For the period from 1 March 2018 to 31 August 2018

US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Interest revenue 10,649 3,565 59 - 14,273
Total segmental revenue 10,649 3,565 59 - 14,273
Realisations from investments held in Escrow 2,085 - - - 2,085
Net gain/(loss) on investments at FVTPL 8,152 2,778 (36,650) - (25,720)
Investment Adviser's base fee (3,311) (859) (3,501) (122) (7,793)
Investment Adviser's capital incentive fee1 (3,922) 435 7,330 - 3,843
Total segmental operating profit/(loss) 13,653 5,919 32,762) (122) (13,312)


1The capital incentive fee is allocated across segments where a realised or unrealised gain or loss has occurred. Segments with realised or unrealised losses are allocated a credit pro rata to the size of the loss and segments with realised or unrealised gains are allocated a charge pro rata to the size of the gain.

Certain income and expenditure is not considered part of the performance of an individual  segment.  This includes net foreign exchange gains, interest on cash, finance costs, management fees, custodian and administration fees, directors’ fees and other general expenses.

The following table provides a reconciliation between total segmental operating profit/(loss) and operating profit/(loss):.

Period ended Period ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Total segmental operating loss   (27,311)    (13,312)
Gain on financial liabilities at fair value through profit or loss       4,107         5,925
Net foreign exchange gain       3,765         1,045
Bank and deposit interest          225            289
Expenses not attributable to segments      (1,890) (1,642)
Fees payable to investment adviser based on non-segmental assets         (528)        (705)
Interest on US treasury bills            38             27
Operating loss   (21,594)     (8,373)


The following table provides a reconciliation between total segmental revenue and Company revenue:

Period ended Period ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Total segmental revenue        19,946        14,273
Non-segmental revenue
Bank and deposit interest              225             289
Interest on US treasury bills                38               27
Total revenue    20,209       14,589


Segmental Net Assets 
At 31 August 2019

US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Segmental assets
Investments at FVTPL    424,913        60,864   422,656        20,916 929,349
Loans at amortised cost                  -        43,999              -                   -  43,999
Other receivables                  -                 -          495                   -      495
Total segmental assets    424,913      104,863  423,151        20,916 973,843
Segmental liabilities
Payables and accrued expenses     (45,805)           1,594     2,146          3,259 (38,806)
Total segmental liabilities     (45,805)           1,594       2,146          3,259   (38,806)
Total segmental net assets 379,108      106,457  425,297        24,175 935,037


At 28 February 2019

US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
Segmental assets
Investments at FVTPL 478,970    70,686   43,044        18,302 1,011,002
Loans at amortised cost            -   58,012             -                   -      58,012
Other receivables            -              -    1,275                   -        1,275
Total segmental assets 478,970  128,698 444,319        18,302 1,070,289
Segmental liabilities
Payables and accrued expenses (38,768)      1,321 (10,573)          1,850    (46,170)
Total segmental liabilities      (38,768)     1,321 (10,573)       1,850   (46,170)
Total segmental net assets 440,202  130,019 433,746        20,152 1,024,119


The following table provides a reconciliation between total segmental assets and total assets and total segmental liabilities and total liabilities:

31.8.2019 28.2.2019
US$ '000 US$ '000
Total segmental assets  973,843 1,070,289
Non segmental assets
Treasury Bills        3,323        3,314
Cash at bank      71,686      50,994
Other receivables           128            11
Total assets 1,048,980 1,124,608
Total segmental liabilities (38,806) (46,170)
Non segmental liabilities
Zero Dividend Preference shares (59,946)     (63,838)
Convertible Unsecured Loan Stock (50,167) (54,274)
Loans payable (149,490) (149,227)
Other payables    (2,345)          (837)
Total liabilities (300,754) (314,346)
Total net assets   748,226    810,262


5. Fair Value of Financial Instruments
The Company classifies fair value measurements of its financial instruments at FVTPL using a fair  value hierarchy that reflects the significance of the inputs used in making the measurements. The financial instruments valued at FVTPL are analysed in a fair value hierarchy based on the following levels:

Level 1
Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2
Those involving inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). For example, investments which are valued based on quotes from brokers (intermediary market participants) are generally indicative of Level 2 when the quotes are executable and do not contain any waiver notices indicating that they are not necessarily tradeable. Another example would be when assets/liabilities with quoted prices, that would normally meet the criteria of Level 1, do not meet the definition of being traded on an active market. At the period end, the Company had assessed that the liabilities valued at FVTPL being the CULS and valued using the quoted ask price, would be classified as level 2 within the valuation method as they are not regularly traded.

Level 3
Those involving inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). Investments in JZCP's portfolio valued using unobservable inputs such as multiples, capitalisation rates, discount rates fall within Level 3.

Differentiating between Level 2 and Level 3 fair value measurements i.e., assessing whether inputs are observable and whether the unobservable inputs are significant, may require judgement and a careful analysis of the inputs used to measure fair value including consideration of factors specific to the asset or liability.

The following table shows financial instruments recognised at fair value, analysed between those whose fair value is based on:

Financial assets at 31 August 2019
Level 1 Level 2 Level 3 Total
US$ '000 US$'000 US$ '000 US$ '000
US micro-cap                  -              - 424,913 424,913
European micro-cap                  -               - 60,864 60,864
Real estate                  -              - 422,656 422,656
Other investments                  -              - 20,916 20,916
Listed investments 3,323              -               - 3,323
3,323              - 929,349 932,672
Financial assets at 28 February 2019
Level 1 Level 2 Level 3 Total
US$ '000 US$'000 US$ '000 US$ '000
US micro-cap                  -             - 478,970 478,970
European micro-cap                  -              - 70,686 70,686
Real estate                  -              - 443,044 443,044
Other investments                  -              - 18,302 18,302
Listed investments 3,314              -               - 3,314
3,314              - 1,011,002 1,014,316
Financial liabilities designated at fair value through profit or loss at inception
Financial liabilities at 31 August 2019 Level 1 Level 2 Level 3 Total
US$ '000 US$'000 US$ '000 US$ '000
CULS                  -     50,167               -      50,167
                 -     50,167               -      50,167
Financial liabilities at 28 February 2019 Level 1 Level 2 Level 3 Total
US$ '000 US$'000 US$ '000 US$ '000
CULS       54,274              -               -      54,274
      54,274             -               -      54,274

Transfers between levels        
Transactions for the CULS do not take place with sufficient frequency and volume to provide adequate pricing information on an ongoing basis, as defined by IFRS. Therefore, it is considered the CULS' are not traded in an active market and are therefore categorised at level 2.

Valuation techniques  
The same valuation methodology and process was deployed as for the year ended 28 February 2019.

Quantitative information of significant unobservable inputs and sensitivity analysis to significant changes in unobservable inputs within Level 3 hierarchy
The significant unobservable inputs used in fair value measurement categorised within Level 3 of the fair value hierarchy together with a quantitative sensitivity as at 31 August 2019 and 28 February 2019 are shown below:

Range (weighted average)
Value
31.8.2019
Valuation Unobservable Sensitivity Approx. Impact on
Fair Value
US$'000 Technique input  used 1 US$'000
US micro-cap investments      424,913 EBITDA Multiple Average EBITDA Multiple of Peers 6.0x - 12.6x
 (8.4x)
-0.5x /+0.5x         (32,697)          34,114
Discount to Average Multiple 15% - 35%
(22.5%)
+5% / -5%         (43,856)          42,066
European micro-cap investments        60,864 EBITDA Multiple Average EBITDA Multiple of Peers 6.0x-13.8x
 (9.7x)
-0.5x /+0.5x           (4,143)            4,131
Discount to Average Multiple -31.4% - 33.9%
 (-0.7%)
+5% / -5%           (3,910)            3,910
Real estate2      273,538 Comparable Sales Market Value Per Square Foot $324 - $3,113 per sq ft($1,598) -5% / +5%         (30,902)          30,902
       42,313 DCF Model /Income Approach3 Discount Rate 5.5% - 6.5%
 (6.15%)
+25bps /-25bps              (3,544)            3,544
     106,805 Cap Rate/ Income Approach Capitalisation Rate 3.25 - 5.5% (3.9%) +25bps /-25bps           (20,292)           20,292
Other investments        19,088 AUM Approach AUM $3.0 Bn - $3.7 Bn +10%/-10%             4,503           (4,234)
% Applied to AUM 2.3% +10%/-10%             1,921           (1,921)
Range (weighted average)
Value 28.2.2019 Valuation Unobservable Sensitivity Approx. Impact on
Fair Value
US$'000 Technique input  used 1 US$'000
US micro-cap investments      478,970 EBITDA Multiple Average EBITDA Multiple of Peers 6.0x - 16.3x
(8.5x)
-0.5x /+0.5x         (37,624)          39,780
Discount to Average Multiple 15% - 35%
 (23%)
+5% / -5%         (47,352)          49,662
European micro-cap investments        70,686 EBITDA Multiple Average EBITDA Multiple of Peers 5.2x - 12.1x (8.7x) -0.5x /+0.5x           (8,934)            8,934
Discount to Average Multiple 0% - 29%
 (19%)
+5% / -5%           (7,316)            7,316
Real estate2      271,863 Comparable Sales Market Value Per Square Foot $324 - $3,113 ($1,441)per sq ft -5% / +5%         (30,902)          30,902
       43,954 DCF Model /Income Approach3 Discount Rate 5.5% - 6.5%
 (6.2%)
+25bps /-25bps           (3,544)            3,544
     127,226 Cap Rate/ Income Approach Capitalisation Rate 3.25 - 5.5% (4.5%) +25bps /-25bps         (20,292)          20,292
Other investments        17,093 AUM Approach AUM $2.0 Bn - $2.6 Bn +10%/-10%             3,294            3,112
% Applied to AUM 2.5% +10%/-10%             1,727           (1,727)

1The sensitivity analysis refers to a percentage amount added or deducted from the average input and the effect this has on the fair value.         
2The Fair Value of JZCP's investment in financial interests in real estate, is measured as JZCP's percentage interest in the value of the underlying properties.       
3Certain investments in the Roebling, Williamsburg and Wynwood real estate portfolios are valued using an  income  capitalisation  approach
.

The following table shows a reconciliation of all movements in the fair value of financial instruments categorised within Level 3 between the beginning and the end of the reporting period.

Period ended 31 August 2019    

US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2019      478,970     70,686 443,044    18,302 1,011,002
Investments in year including capital calls         5,305            394   43,615        2,614      51,928
Payment in kind ("PIK")      5,618                  -             -               -        5,618
Proceeds from investments realised (104,028)    (13,313)             -               -   (117,341)
Net gain/(loss) on investments       29,331        3,097 (64,003)               -     (31,575)
Movement in accrued interest        9,717                  -             -               -        9,717
At 31 August 2019    424,913       60,864 422,656      20,916    929,349


Post period end, the Company requested a full appraisal of its real estate portfolio. The net loss above of $64 million is mainly attributable to carrying costs of the properties.

Year ended 28 February 2019

US European Real Other
Micro-Cap Micro-Cap Estate Investments Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
At 1 March 2018    488,258    46,108 463,391   15,302 1,013,059
Investments in year including capital calls     106,540       18,388   57,965        3,000   185,893
Payment in kind ("PIK")       20,514                  -             -               -      20,514
Proceeds from investments realised  (153,371)          (863) (51,800)               -   (206,034)
Net gain/(loss) on investments      16,686         7,053 (26,512)               -       (2,773)
Movement in accrued interest            343                  -            -               -           343
At 28 February 2019     478,970       70,686  443,044      18,302  1,011,002


The fair value of the ZDP shares is deemed to be their quoted market price. As at 31 August 2019 the ask price for the ZDP (2022) shares was £4.46 (28 February 2019: £4.36 per share) the total fair value of the ZDP shares was $64,678,000 (28 February 2019: $69,056,000) which is $4,732,000 (28 February 2019: $5,218,000) higher than the liability recorded in the Statement of Financial Position.

ZDP shares are recorded at amortised cost and would fall in to the Level 2 hierarchy if valued at FVTPL.

6. Net loss on Investments at Fair Value Through Profit or Loss

Period ended Period ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Loss on investments held in investment portfolio at period end
Net movement in period end unrealised gain position     (55,727)     (91,838)
Unrealised gains in prior periods now realised      13,259      66,753
Net unrealised losses in the period     (42,468)     (25,085)
Net gains/(losses) on investments realised in the period
Proceeds from investments realised     120,691    172,523
Cost of investments realised (96,539) (106,405)
Unrealised gains in prior periods now realised     (13,259)     (66,753)
Total net gain/(loss) in the period on investments realised in the period      10,893          (635)
Net loss on investments in the period     (31,575)     (25,720)


7. Expected Credit Losses

Period ended Period ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Impairment on loans during period 14,727                       -

Total Expected Credit Losses ("ECL") at 31 August 2019 are $16,197,000 (28 February 2019: $1,470,000).
During the period, JZCP's portfolio company Ombuds entered administration. JZCP acting as lender, has a direct holding of debt in Ombuds. At 31 August 2019, JZCP's had invested a total of €12.4 million and had subsequently accumulated interest totalling. An ECL calculation for the investment in Ombuds, prepared in accordance with IFRS 9 has supported a total impairment of €14.0 ($15.4) million and is included in the portfolio's total ECL of €14.7 ($16.2) million.

8. Investment Income

Period ended Period ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Interest calculated using the effective interest rate method          2,742 3,565
Other interest and similar income           17,242 10,735
19,984 14,300


Income for the period ended 31 August 2019
 

Preferred Loan note Interest Other
Interest1 PIK Cash Dividend Interest Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap    15,231         104         645             -                 -      15,980
European micro-cap             -      2,742             -    1,192                 -       3,934
Real estate             -             -             -             -             32             32
Listed investments             -             -             -             -            38            38
   15,231      2,846         645  1,192            70    19,984

1Preferred accumulated interest recognised in the period includes $5,139,000 realised on the disposal of investments.


Income for the period ended 31 August 2018

Preferred Loan note Interest Other
Portfolio Interest PIK Cash Dividend Interest Total
US$ '000 US$ '000 US$ '000 US$ '000 US$ '000 US$ '000
US micro-cap      9,899         112         638             -                 -       10,649
European micro-cap             -      3,159         406             -                 -         3,565
Real estate             -             -             -             -              59              59
Listed investments             -             -             -             -              27              27
     9,899      3,271      1,044             -              86       14,300


9. Finance Costs         
 

Period ended Period ended
31.8.2019 31.8.2018
US$ '000 US$ '000
Interest expense calculated using the effective interest method
ZDP shares (Note 13)          1,563          1,572
Loan payable - (Note 15)          7,385          5,923
         8,948          7,495
Other interest and similar expense
CULS interest paid (Note 14)          1,515          1,631
       10,463          9,126


10. Fees Payable to the Investment Adviser   
Investment Advisory and Performance fees         
The Company entered into the amended and restated investment advisory and management agreement with Jordan/Zalaznick Advisers, Inc. (the "Investment Adviser") on 23 December 2010 (the ”Advisory Agreement”).

Pursuant to the Advisory Agreement, the Investment Adviser is entitled to a base management fee and to an incentive fee. The base management fee is an amount equal to 1.5 per cent per annum of the average total assets under management of the Company less those assets identified by the Company as being excluded from the base management fee, under the terms of the agreement. The base management fee is payable quarterly in arrears; the agreement provides that payments in advance on account of the base management fee will be made.

For the six-month period ended 31 August 2019, total investment advisory and management expenses, based on the  average  total  assets  of  the  Company,  were  included  in  the  Statement  of  Comprehensive  Income  of $8,301,000  (period  ended  31  August  2018:  $8,498,000).  Of this amount $2,079,000 (28 February 2019: $2,102,000) was due and payable at the period end.

The incentive fee has two parts. The first part is calculated by reference to the net investment income of the Company ("Income Incentive fee") and is payable quarterly in arrears provided that the net investment income for the quarter exceeds 2 per cent of the average of the net asset value of the Company for that quarter (the "hurdle") (8 per cent. annualised). The fee is an amount equal to (a) 100 per cent of that proportion of the net investment income for the quarter as exceeds the hurdle, up to an amount equal to a hurdle of 2.5%, and (b) 20 per cent of the net investment income of the Company above a hurdle of 2.5% in any quarter. Investments categorised as legacy investments and other assets identified by the Company as being excluded are excluded from the calculation of the fee. A true-up calculation is also prepared at the end of each financial year to determine if further fees are payable to the Investment Adviser or if any amounts are recoverable from future income incentive fees.

For the periods ended 31 August 2019 and 31 August 2018 there was no income incentive fee payable.

The second part of the incentive fee is calculated by reference to the net realised capital gains ("Capital Gains Incentive fee") of the Company and is equal to: (a) 20 per cent. of the realised capital gains of the Company for each financial year less all realised capital losses of the Company for the year less (b) the aggregate of all previous capital gains incentive fees paid by the Company to the Investment Adviser. The capital gains incentive is payable in arrears within 90 days of the fiscal year end. Investments categorised as legacy investments are excluded from the calculation of the fee. Assets of JZI Fund III and EuroMicrocap Fund 2010, L.P. are also excluded from the Capital Gains Incentive fee ("CGIF"). Carried interest, of an amount equivalent to the CGIF payable under the Advisory Agreement, is payable by the funds to an affiliate of JZAI.

For the purpose of calculating incentive fees cumulative preferred dividends received on the disposal of an investment are treated as a capital return rather than a receipt of income.

At 31 August 2019, a CGIF of $27,444,000 (28 February 2019: $21,429,000) based on net realised gains was payable. The Investment Adviser has agreed to defer the receipt of $23,544,000 of the total provision and also any further fee becoming payable for the current fiscal year. Any future realised gains/losses will be added/offset to/against the deferred net realised gains of $117,720,000 and the applicable incentive fee will be paid once the Company and Investment Advisor have mutually agreed to reinstate such payments.

The Company also provides for a CGIF based on unrealised gains, calculated on the same basis as that of the fee on realised gains/losses. For the period ended 31 August 2019 a provision of $9,432,000 (28 February 2019: $21,342,000) has been included.

Provision At Provision At Paid during period Expense for the period ended
31.8.2019 28.2.2019 31.8.2019 31.8.2019
US$ '000 US$ '000 US$ '000 US$ '000
CGIF on realised investments          27,444          21,429             (3,000)               9,015
Provision for CGIF on unrealised investments            9,432          21,342  n/a            (11,910)
         36,876          42,771             (3,000)              (2,895)
Provision At Provision At Paid during period Expense for the period ended
31.8.2018 28.2.2018 31.8.2018 31.8.2018
US$ '000 US$ '000 US$ '000 US$ '000
CGIF on realised investments          16,584               996                (996)              16,584
Provision for CGIF on unrealised investments          20,183          40,610  n/a           (20,427)
         36,767          41,606                (996)              (3,843)

11. Investments

Listed Unlisted Unlisted Carrying Value
FVTPL FVTPL Loans Total
31.8.2019 31.8.2019 31.8.2019 31.8.2019
US$ '000 US$ '000 US$ '000 US$ '000
Book cost at 1 March 2019         3,312    980,120         66,849           1,050,281
Investments in period including capital calls         3,321      51,928                   -                 55,249
Payment in kind ("PIK")                 -        5,618            2,294                   7,912
Proceeds from investments matured/realised      (3,350)  (117,341)                    -             (120,691)
Income received on maturity              38                -                   -                        38
Net realised gain                  -      24,152                   -                 24,152
Book cost at 31 August 2019         3,321   944,477         69,143           1,016,941
Unrealised investment and foreign exchange gain/(loss)                 -    (29,025)       (10,358)               (39,383)
Impairment on loans at amortised cost                -               -     (16,197)               (16,197)
Accrued interest                2      13,897           1,411                 15,310
Carrying value at 31 August 2019        3,323   929,349        43,999              976,671
Listed Unlisted Unlisted Carrying Value
FVTPL FVTPL Loans Total
28.2.2019 28.2.2019 28.2.2019 28.2.2019
US$ '000 US$ '000 US$ '000 US$ '000
Book cost at 1 March 2018       49,845    895,680         60,956           1,006,481
Investments in year including capital calls         6,579    183,722        12,304              202,605
Payment in kind ("PIK")                 -       20,514            5,893                 26,407
Proceeds from investments matured/realised (53,112) (203,862) (11,720)             (268,694)
Net realised gain/(loss)                 -       84,066            (584)                 83,482
Book cost at 28 February 2019         3,312   980,120        66,849           1,050,281
Unrealised investment and foreign exchange gain/(loss)                  -      26,702        (8,389)                 18,313
Impairment on loans at amortised cost                 -                -        (1,470)                 (1,470)
Accrued interest                 2        4,180 1022                   5,204
Carrying value at 28 February 2019         3,314 1,011,002         58,012           1,072,328


The cost of PIK investments is deemed to be interest not received in cash but settled by the issue of further securities when that interest has been recognised in the Statement of Comprehensive Income.

Loans at amortised cost          
Interest on the loans accrues at the following rates:

As at 31 August 2019 As At 28 February 2019
8% 8.9%1 14%2 Total 8% 10% 14%2 Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Loans at amortised cost          22,436      3,760     17,803     43,999     24,902      1,528      31,528      58,012


Maturity dates are as follows:

As at 31 August 2019 As At 28 February 2019
<1 year 1-2 years Past due Total 0-6 months 7-12 months 1-2 years Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
Loans at amortised cost            3,760     26,513     13,726     43,999     35,550  -     22,462      58,012

1Weighted average of interest accruing at 8% on the principal amount and 10% on the deferred interest amount.
2Throughout the duration of the loan the borrower can elect to pay interest when due at 12% or to add the amount to the principal and have interest accrue at the higher rate of 14%.

12. Other Receivables

31.8.2019 28.2.2019
US$ '000 US$ '000
Accrued interest due from JZCP Realty, Ltd             495               495
Other receivables and prepayments             128                  91
Deposits paid on behalf of JZCP Realty, Ltd                  -               700
            623            1,286


13. Zero Dividend Preference ("ZDP") shares

On 1 October 2015, the Company rolled over 11,907,720 existing ZDP (2016) shares into new ZDP shares with a 2022 maturity date. The new ZDP shares (ZDP 2022) have a gross redemption yield of 4.75% and a total redemption value of £57,598,000 (approximately $70,146,000 using the period end exchange rate).

ZDP shares are designed to provide a pre-determined final capital entitlement which ranks behind the Company's creditors but in priority to the capital entitlements of the Ordinary shares. The ZDP shares carry no entitlement to income and the whole of their return will therefore take the form of capital. In certain circumstances, ZDP shares carry the right to vote at general meetings of the Company as detailed in the Company's Memorandum and Articles of Incorporation. Issue costs are deducted from the cost of the liability and allocated to the Statement of Comprehensive Income over the life of the ZDP shares.

ZDP (2022) shares
31.8.2019 28.2.2019
US$ '000 US$ '000
Amortised cost at 1 March      63,838          62,843
Finance costs allocated to Statement of Comprehensive Income         1,563            3,148
Unrealised currency gain on translation       (5,455)           (2,153)
Amortised cost at period/year end       59,946          63,838
Total number of ZDP shares in issue 11,907,720    11,907,720


14. Convertible Subordinated Unsecured Loan Stock ("CULS")

On 30 July 2014, JZCP issued £38,861,140 6% CULS. Holders of CULS may convert the whole or part (being an integral multiple of £10 in nominal amount) of their CULS into Ordinary Shares. Conversion Rights may be exercised at any time during the period from 30 September 2014 to 10 business days prior to the Maturity date being the 30 July 2021. The initial conversion price is £6.0373 per Ordinary Share, which shall be subject to adjustment to deal with certain events which would otherwise dilute the conversion of the CULS. These events include consolidation of Ordinary Shares, dividend payments made by the Company, issues of shares, rights, share-related securities and other securities by the Company and other events as detailed in the Prospectus.

CULS bear interest on their nominal amount at the rate of 6.00 per cent. per annum, payable semi-annually in arrears. During the six-month period ended 31 August 2019: $1,515,000 (31 August 2018: $1,631,000) of interest was paid to holders of CULS and is shown as a finance cost in the Statement of Comprehensive Income.

31.8.2019 28.2.2019
US$ '000 US$ '000
Fair Value of CULS at 1 March       54,274          59,970
Unrealised movement in fair value of CULS             517           (3,748)
Unrealised currency gain on translation during the period/year       (4,624)           (1,948)
Total gain to the Company on movement in the fair value of CULS      (4,107)        (5,696)
Fair Value of CULS based on offer price       50,167          54,274


15. Loan Payable

Guggenheim Partners Limited

On 12 June 2015, JZCP entered into a loan agreement with Guggenheim Partners Limited. The agreement was structured so that part of the proceeds (€18 million) were received and will be repaid in Euros and the remainder of the facility was received in US dollars ($80 million). During April 2017, JZCP increased its credit facility with Guggenheim Partners by $50 million.

The loan matures on 12 June 2021 (6 year term) and interest is payable at 5.75% + LIBOR(1). There is an interest rate floor that stipulates LIBOR will not be lower than 1%. In this agreement, the presence of the floor does not significantly alter the amortised cost of the instrument, therefore separation is not required and the loan is valued at amortised cost using the effective interest rate method. The loan may be repaid, in full or in part, with no penalty.

At 31 August 2019, investments valued at $881,339,000 (28 February 2019: $951,164,000) were held as collateral for the loan. A covenant on the loan states the fair value of the collateral must be 4x the loan value and the cost of collateral must be at least 57.5% of total assets. The Company is also required to hold a minimum cash balance of $15 million plus 50% of interest on any new debt. At 31 August 2019 and throughout the period, the Company was in full compliance with covenant terms.

31.8.2019 28.2.2019
US$ '000 US$ '000
Amortised cost (US$ drawdown) - 1 March    128,838        128,407
Amortised cost (Euro drawdown) - 1 March       20,389         21,718
Finance costs charged to Statement of Comprehensive Income        7,385         12,684
Interest and finance costs paid      (6,453)       (12,142)
Unrealised currency gain on translation of Euro drawdown       (669)          (1,440)
Amortised cost at period/year end    149,490      149,227
Amortised cost (US$ drawdown)    129,679       128,838
Amortised cost (Euro drawdown)      19,811         20,389
   149,490       149,227


The carrying value of the loans approximates to fair value.

(1) LIBOR rates applied are the US dollar 3 month rate ($130 million) and the Euro 3-month rate (€18 million).

16. Other Payables

31.8.2019 28.2.2019
US$ '000 US$ '000
Provision for tax on dividends received not withheld at source        1,401           1,401
Audit fees             186              185
Legal fees provision             250              250
Directors' remuneration               70                  80
Other expenses             289           218
      2,196            2,134

17. Ordinary shares - Issued Capital

31.8.2019 28.2.2019
Number of shares Number of shares
Total Ordinary shares in issue 77,474,175 80,666,838


The Company's shares trade on the London Stock Exchange's Specialist Fund Segment.

During the period, the Company bought back 3,192,663 of its own Ordinary shares as part of a tender offer. The shares were purchased at a price of $9.39 (£7.67) per share being a 5% discount to the NAV at 31 July 2019, the total cost of the repurchase of the shares was $29.979 million. The shares have subsequently been cancelled.

18. Commitments

At 31 August 2019 and 28 February 2019, JZCP had the following financial commitments outstanding in relation to fund investments:

 Expected date of Call 31.8.2019 28.2.2019
US$ '000 US$ '000
JZI Fund III GP, L.P. €34,326,905 (28.2.2019: €31,936,400) < 2 years    37,803    36,366
JZI Fund IV GP, L.P. €15,000,000 Over 5 years    16,519            -
Suzo Happ Group Over 3 years     4,491     4,491
Spruceview Capital Partners, LLC1 < 1 year     1,470     1,990
Igloo Products Corp Over 3 years        240        771
   60,523    43,618


1During the period, JZCP increased its commitment by $1.475 million and $1.995 million was called.

19. Related Party Transactions                       
JZCP invests in European micro-cap companies through JZI Fund III, L.P. (“Fund III”).  Previously investments were made via the EuroMicrocap Fund 2010, L.P. ("EMC 2010") and EuroMicrocap Fund-C, L.P. ("EMCC"). Fund III, EMC 2010 and EMCC are managed by an affiliate of JZAI, JZCP's investment manager. JZAI was founded by David Zalaznick and John ("Jay") Jordan, II. At 31 August 2019, JZCP's investment in Fund III was valued at $57.0 million (28 February 2019: $66.8million). JZCP's investment in EMC 2010 was valued at $3.9 million (28 February 2019: $3.9 million). EMCC was liquidated in December 2018 and its remaining assets were transferred    to EMC 2010.

JZCP has invested in Spruceview Capital Partners, LLC on a 50:50 basis with Jay Jordan and David Zalaznick (or their respective affiliates). The total amount committed by JZCP to this investment at 31 August 2019, was $31.475 million (28 February 2019 $30.0 million), with $1.5 million (28 February 2019: $2.0 million) of commitments outstanding.

JZCP has co-invested with Fund A, Fund A Parallel I, II and III Limited Partnerships in a number of US micro-cap buyouts. These Limited Partnerships are managed by an affiliate of JZAI. JZCP invested in a ratio of 82%/18%   with the Fund A entities. At 31 August 2019, the total value of JZCP's investment in these co-investments was $233.0 million (28 February 2019: $251.5 million). Fund A, Fund A Parallel I, II and III Limited Partnerships are no longer making platform investments alongside JZCP.

JZAI is a US based company that provides advisory services to the Company in exchange for management fees, paid quarterly. Fees paid by the Company to the Investment Adviser are detailed in Note 10. JZAI and various affiliates provide services to certain JZCP portfolio companies and may receive fees for providing these services pursuant to the Advisory Agreement.

JZCP is able to invest up to $75 million in "New JI Platform Companies". The platform companies are being established to invest primarily in buyouts and build-ups of companies and in growth company platforms in the US micro-cap market, primarily healthcare equipment companies. At 31 August 2019 and 28 February 2019,  JZCP had invested (before returns of capital) $41.3 million in Avante (formerly named Jordan Health Products) and is therefore able to invest a further $33.7 million. JZCP co-invests 50/50 in the platform companies with other investors (“JI members”). David Zalaznick and an affiliated entity of Jay Jordan own approximately 33.7% of the JI members' ownership interests.

During the period, JZCP obtained shareholder approval for the sale of 80% of its holdings in both Avante and Orizon to Edgewater Growth Capital Partners ("Edgewater"). Edgewater is a substantial shareholder of JZCP and therefore a related party of the Company. JZCP received proceeds of $37.5 million for the Avante realisation and $28.0 million for Orizon.

Post period end, JZCP obtained shareholder approval for the merger of Priority Express with Capstone Logistics. The Merger has resulted in the Company realising its investment in Priority Express by disposing of its entire ownership interests as well as its debt investments therein. Capstone Logistics is a portfolio company of Resolute Fund III.

Total Directors' remuneration for the six-month period ended 31 August 2019 was $230,000 (31 August 2018:$219,000).

20. Basic and Diluted Earnings/(Loss) per Share

Basic loss per share are calculated by dividing the loss for the period by the weighted average number of Ordinary shares outstanding during the period.

For the period ended 31 August 2019 the weighted average number of Ordinary shares outstanding during the period was 80,614,784 (31 August 2018: 83,456,487).

The diluted earnings per share are calculated by considering adjustments required to the earnings and weighted average number of shares for the effects of potential dilutive Ordinary shares. The weighted average of the number of Ordinary shares is adjusted assuming the conversion of the CULS ("If-converted method"). Conversion  is assumed even though at 31 August 2019 and 31 August 2018 the exercise price of the CULS is higher than the market price of the Company's Ordinary shares and are therefore deemed 'out of the money'. Earnings are adjusted to remove the fair value gain recorded $4,107,000 (31 August 2018: $5,925,000) and finance cost attributable to CULS $1,515,000 (31 August 2018: $1,631,000).

21. Contingent Assets

Amounts held in escrow accounts      
When investments have been disposed of by the Company, proceeds may reflect contractual terms requiring that   a percentage is held in an escrow account pending resolution of any indemnifiable claims that may arise. At 31 August 2019 and 28 February 2019, the Company has assessed that the likelihood of the recovery of these escrow accounts cannot be determined and has therefore disclosed the escrow accounts as a contingent asset.

As at 31 August 2019 and 28 February 2019, the Company had the following contingent assets held in escrow accounts which had not been recognised as assets of the Company:

Amount in Escrow
31.8.2019 28.2.2019
US$'000 US$'000
Bolder Healthcare Solutions     2,164     3,090
Waterline Renewal Technologies        431            -
Water Treatment Systems        213     6,051
Water Filtration Systems            -        120
    2,808     9,261


During the period ended 31 August 2019, proceeds of $3,923,000 (31 August 2018: $2,085,000)  were realised  and recorded in the Statement of Comprehensive Income. Escrows of $431,000 became potentially payable on    the realisation of Waterline Renewal Technologies. Potential escrow proceeds recorded at 28 February 2019, totalling $2,961,000, from the future earnings of Water Treatment Systems are no longer receivable.

22. Reconciliation of Published NAV Per Share to NAV Per Share Per Financial Statements

31.8.2019 28.2.2019
US$ US$
Estimated NAV per share (published 23 September 2019)     10.03     10.04
Revaluation of Priority Express (net of fees)       0.05          -  
Revaluation of JZCP Realty, Ltd (net of fees)      (0.42)          -  
NAV per share per financial statements       9.66     10.04


23. Subsequent Events

These interim financial statements were approved by the Board on 26 November 2019. Events subsequent to the period end (31 August 2019) have been evaluated until this date.

Post period-end, the Board received shareholder approval for the adoption of a revised  investment  policy,  whereby JZCP will look to realise investments and materially reduce commitments to new investments in order to return capital to shareholders and pay down debt.

Post period-end, JZCP realised its investment in Priority Express and expects to receive approximately $18.5 million in gross proceeds (including escrows and a potential earn-out).

Post period-end, the Company accelerated the annual appraisal process of its real estate investments in order for updated valuations to be included within the Interim Financial Statements. These updated valuations are reflected in a reduction of value of $40.7 million as from what was reported in the Interim Financial Statements.

Company Advisers

Investment Adviser     
The Investment Adviser  to JZ  Capital Partners Limited (“JZCP”) is Jordan/Zalaznick Advisers, Inc., (“JZAI”) a  company  4 beneficially owned by John (Jay) W Jordan II and David W Zalaznick. The company offers investment advice to the Board   (   of JZCP. JZAI has offices in New York and Chicago.

Jordan/Zalaznick Advisers, Inc.          
9 West, 57th Street       
New York NY 10019

JZ Capital Partners Limited is registered in Guernsey -          
Number 48761  
Registered Office          
PO Box 255     
Trafalgar Court  
Les Banques    
St Peter Port    
Guernsey GY1 3QL

Administrator and Secretary   
Northern Trust International Fund Administration Services 
(Guernsey) Limited        
PO Box 255     
Trafalgar Court  
Les Banques    
St Peter Port    
Guernsey GY1 3QL

UK Transfer and Paying Agent           
Equiniti Limited 
Aspect House   
Spencer Road   
Lancing
West Sussex BN99 6DA

Independent Auditor   
Ernst & Young LLP       
PO Box 9         
Royal Chambers           
St Julian's Avenue         
St Peter Port    
Guernsey GY1 4AF

Financial Adviser and Broker 
JP Morgan Cazenove Limited     
25 Bank Street 
London E14 5JP

US Bankers     
HSBC Bank USA NA    
52 Fifth Avenue New York NY 10018       
(Also provides custodian services to JZ Capital Partners Limited under the terms of a Custody Agreement).

Guernsey Bankers      
Northern Trust (Guernsey) Limited          
PO Box 71       
Trafalgar Court  
Les Banques    
St Peter Port    
Guernsey GY1 3DA

UK Solicitors   
Ashurst LLP     
Broadwalk House          
5 Appold Street 
London EC2A 2HA

US Lawyers    
Monge Law Firm, PLLC 
333 West Trade Street  
Charlotte, NC 28202      

Mayer Brown LLP         
214 North Tryon Street  
Suite 3800        
Charlotte NC 28202

Winston & Strawn LLP  
35 West Wacker Drive   
Chicago IL 60601-9703

Guernsey Lawyers      
Mourant
Royal Chambers           
St Julian's Avenue         
St Peter Port    
Guernsey GY1 4HP

Useful Information for Shareholders

Internet Address

The Company: www.jzcp.com


Listing
JZCP Ordinary, Zero Dividend Preference ("ZDP") shares and Convertible Unsecured Loan Stock  ("CULS") are listed  on the  Official List of the Financial Services Authority of the UK, and are admitted to trading on the London Stock Exchange Specialist Fund Segment for listed securities.         

The price of the Ordinary shares are shown in the Financial Times under "Conventional Private Equity" and can also be found at https://markets.ft.com along with the prices of the ZDP shares and CULS.

ISIN/SEDOL numbers

Ticker Symbol ISIN Code Sedol Number
Ordinary shares JZCP  GG00B403HK58 B403HK5
ZDP (2022) shares JZCZ  GG00BZ0RY036 Z0RY03
CULS JZCC  GG00BP46PR08 BP46PR0


Key Information Documents   
JZCP produces Key Information Documents to assist investors' understanding of the Company's securities and to enable comparison with other investment products. These documents are found on the Company's website - www.jzcp.com/investor- relations/key-information-documents.


Alternative Performance Measures    
In accordance with ESMA Guidelines on Alternative Performance Measures ("APMs") the Board has considered what APMs are included in the annual report and financial statements which require further clarification. An  APM  is  defined  as  a  financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. APMs included in the annual report and financial statements, which are unaudited and outside the scope of IFRS, are deemed to be as follows:

Total NAV Return          
The Total NAV Return measures how the net asset value ("NAV") per share has performed over a period  of time, taking into  account both capital returns and dividends paid to shareholders. JZCP quotes NAV total return as a percentage change from the start of the period (one year) and also three-month, three-year, five-year and seven year periods. It assumes that dividends paid      to shareholders are reinvested back into the Company therefore future NAV gains are not diminished by the paying of dividends. JZCP also produces an adjusted Total NAV Return which excludes the effect of the appreciation/dilution per share caused by the  buy back/issue of shares at a discount to NAV, the result of  the adjusted  Total NAV  return is  to provide  a measurement  of how the Company's Investment portfolio contributed to NAV  growth adjusted  for the  Company's expenses  and finance  costs. The  Total NAV Return for the period ended 31 August 2019 was -3.8%, which only reflects the change in NAV as no dividends were paid during the period. The Total NAV Return for the year ended 28 February 2019 was 0.6%.

Total Shareholder Return           
A measure showing how the share price has performed over a period of time, taking into account  both  capital  returns  and dividends paid to shareholders. JZCP quotes the shareholder sterling price total return as a percentage change  from  the  start of  the period (one year) and also three-month, three-year, five-year and seven-year periods. It assumes that dividends paid to shareholders are reinvested in the shares at the time the shares are quoted ex dividend. The Shareholder Return for the six      month period ended 31 August 2019 was 10.8%, which only reflects the change in share price as no dividends were paid during    the period. The Shareholder Return for the year ended 28 February 2019 was -3.5%.

NAV to market price discount    
The NAV per share is the value of all the company’s assets, less any liabilities it has, divided by the number of shares. However, because JZCP shares are traded on the London Stock  Exchange's Specialist Fund Segment, the share price may be higher or  lower than the NAV. The difference is known as a discount or premium. JZCP's discount is  calculated  by  expressing  the  difference between the period end dollar equivalent share price and the period  end NAV  per share  as a  percentage of  the NAV per share.

At 31 August 2019, JZCP's Ordinary shares traded at £4.82 (28 February 2019: £4.35) or $5.87 (28 February 2019: $5.79) being  the dollar equivalent using the year end exchange rate of £1: $1.21785 (28 February 2019 £1:  $1.33). The shares traded  at a 39.2% (28 February 2019: 42.4%) discount to the NAV per share of $9.66 (28 February 2019: $10.04).

Criminal Facilitation of Tax Evasion   
The Board have approved a policy of zero tolerance towards the criminal facilitation of tax evasion,  in compliance  with the  Criminal Finances Act 2017.

Non-Mainstream Pooled Investments 
From 1 January 2014, the FCA rules relating to the restrictions on the retail distribution of unregulated collective investment  schemes and close substitutes came into effect. JZCP's Ordinary shares qualify as an ‘excluded security’ under these rules and     will therefore be excluded from the FCA’s restrictions which apply to non-mainstream investment products. Therefore Ordinary shares issued by JZ Capital Partners can continue to be recommended by financial advisors as an investment for UK retail investors.

Financial Diary           
 

Results for the year ended 29 February 2020 May 2020 (date to be confirmed)
Annual General Meeting June/July 2020 (date to be confirmed)
Interim report for the six months ended 31 August 2020 November 2020 (date to be confirmed)

JZCP does not plan to issue an Interim Management Statement for the quarter ended 30 November 2019 due to the late announcement of the 31 August 2019 Interim Report and Financial Statements. A statement for the quarter ending 31 May 2020 will be sent to the market via RNS within six weeks from the end of the quarter, and will be posted on JZCP's website at the same time, or soon thereafter.

Payment of Dividends 
In the event of a cash dividend being paid, the dividend will be sent by cheque to the first-named shareholder on the register of members at their registered address, together with a tax voucher. At shareholders' request, where they have elected to receive dividend proceeds in Sterling, the dividend may instead be paid direct into the shareholder's bank account through the Bankers' Automated Clearing System. Payments will be paid in US dollars unless the shareholder  elects  to  receive  the  dividend  in Sterling. Existing elections can be changed by contacting the Company's Transfer and Paying Agent, Equiniti Limited on +44 (0)   121 415 7047.

Share Dealing
Investors wishing to buy or sell shares in the Company may do so through a stockbroker. Most banks also offer this service.

Foreign Account Tax Compliance Act
The Company is registered (with a Global Intermediary Identification Number CAVBUD.999999.SL.831) under The  Foreign  Account Tax Compliance Act ("FATCA").

Share Register Enquiries        
The Company's UK Transfer and Paying Agent, Equiniti Limited, maintains the share registers. In event of queries regarding your holding, please contact the Registrar on 0871 384 2265, calls to this number cost 8p per minute from  a BT  landline, other  providers' costs may vary. Lines are open 8.30 a.m. to 5.30 p.m., Monday to Friday, If calling from overseas +44 (0) 121 415 7047 or access their website at www.equiniti.com. Changes of name or address must be notified in writing to the Transfer and Paying Agent.

Nominee Share Code 
Where notification has been provided in advance, the Company will arrange for copies of shareholder communications to be provided to the operators of nominee accounts. Nominee investors may attend general meetings and speak at meetings when invited to do so by the Chairman.

Documents Available for Inspection   
The following documents will be available at the registered office of the Company during usual business hours on any weekday  until the date of the Annual General Meeting and at the place of the meeting for a period of fifteen minutes prior to and during the meeting:           
(a) the Register of Directors' Interests in the stated capital of the Company;           
(b) the Articles of Incorporation of the Company; and        
(c) the terms of appointment of the Directors.

Warning to Shareholders – Boiler Room Scams        
In recent years, many companies have become aware that their shareholders  have been  targeted by unauthorised overseas-  based brokers selling what turn out to be non-existent or high risk shares, or expressing a wish to buy their shares. If you are offered, for example, unsolicited investment advice, discounted JZCP shares or a premium  price  for the  JZCP shares you own,  you should take these steps before handing over any money:

• Make sure you get the correct name of the person or organization          
•Check that they are properly authorised by the FCA before getting involved by visiting http://www.fca.org.uk/firms/systems-reporting/register
• Report the matter to the FCA by calling 0800 111 6768  
• If the calls persist, hang up      
• More detailed information on this can be found on the Money Advice Service website www.moneyadviceservice.org.uk


US Investors    
General
The Company's Articles contain provisions allowing the Directors to decline to register a person as a  holder  of  any  class of ordinary shares or other securities of the Company or to require the transfer of those securities (including by way of a disposal effected by the Company itself) if they believe that the person:      
(a) is a "US person" (as defined in Regulation S under the US Securities Act of 1933,  as  amended)  and  not  a  "qualified purchaser" (as defined in the US Investment Company Act of 1940, as amended, and the related rules thereunder);

(b) is a "Benefit Plan Investor" (as described under "Prohibition on Benefit Plan Investors and Restrictions on Non-ERISA Plans" below); or

(c) is, or is related to, a citizen or resident of the United States, a US partnership, a US corporation or a certain type of estate or   trust and that ownership of any class of ordinary shares or any other equity securities of the Company by the person would materially increase the risk that the Company could be or become a "controlled foreign corporation".as described under "US Tax Matters”).

In addition, the Directors may require  any holder of  any class of ordinary shares or other securities of the  Company to  show to  their satisfaction whether or not the holder is a person described in paragraphs (A), (B) or (C) above.

US Securities Laws      
The Company (a) is not subject to the reporting requirements of the US Securities Exchange Act of 1934, as amended (the "Exchange Act"), and does not intend to become subject to such reporting requirements and (b)  is  not  registered  as  an  investment company under the US Investment Company Act of 1940, as amended (the "1940 Act"), and investors in the Company are not entitled to the protections provided by the 1940 Act.

Prohibition on Benefit Plan Investors and Restrictions on Non-ERISA Plans     
Investment in the Company by "Benefit Plan Investors" is prohibited so that the assets of the Company will not be deemed to constitute "plan assets" of a "Benefit Plan Investor". The term "Benefit Plan Investor" shall have the meaning contained in 29 C.F.R. Section 2510.3-101, as modified by Section 3(42) of the US Employee Retirement Income Security Act  of  1974,  as amended ("ERISA"), and includes (a) an "employee benefit plan" as defined in Section 3(3) of ERISA that is subject  to Part  4 of Title I of ERISA; (b) a "plan" described in Section 4975(e)(1) of the  US  Internal Revenue  Code  of  1986, as  amended  (the "Code"), that is subject to Section 4975 of the Code; and (c) an entity whose underlying assets include "plan  assets" by reason of  an employee benefit plan's or a plan's investment in such entity. For purposes of the foregoing, a "Benefit Plan Investor" does       not include a governmental plan (as defined in Section 3(32) of ERISA), a non-US plan (as defined in Section 4(b)(4) of ERISA) or a church plan (as defined in Section 3(33) of ERISA) that has not elected to be subject to ERISA.

Each purchaser and subsequent transferee of any class of ordinary shares (or any other class of equity interest in the Company) will be required to represent, warrant and covenant, or will be deemed to have represented, warranted and covenanted, that it is   not, and is not acting on behalf of or with the assets of, a Benefit Plan Investor to acquire such ordinary shares (or any other  class of equity interest in the Company).

Under the Articles, the directors have the power to require the sale or transfer of the Company's securities in order to avoid the assets of the Company being treated as "plan assets" for the purposes of ERISA.

The fiduciary provisions of laws applicable to governmental plans, non-US plans or other employee benefit plans or retirement arrangements that are not subject to ERISA (collectively, "Non-ERISA Plans") may impose limitations on investment in  the Company. Fiduciaries of Non-ERISA Plans, in consultation with their advisors, should consider, to the extent applicable, the  impact of such fiduciary rules and regulations on an investment in the Company.

Among other considerations, the fiduciary of a Non-ERISA Plan should take into account  the  composition  of  the  Non-ERISA Plan's portfolio  with respect to diversification; the cash flow  needs of the Non-ERISA Plan and the effects thereon of the illiquidity   of the investment; the economic terms of the Non- ERISA Plan's investment in the Company; the Non-ERISA Plan’s funding objectives; the tax effects of the investment and the tax and other risks associated  with the  investment; the  fact that  the investors in the Company are expected to consist of a diverse group of investors (including taxable, tax-exempt, domestic  and  foreign entities) and the fact that the management of the Company will not take the particular objectives of any investors or  class of investors into account.

Non-ERISA Plan fiduciaries should also take into account the fact that, while the Company's board of directors and its investment advisor will have certain general fiduciary duties to the Company, the board and the investment advisor will not have any direct fiduciary relationship with or duty to any investor, either with respect to its investment in Shares or  with  respect  to  the  management and investment of the assets of the Company. Similarly, it is intended that the assets of the Company will not be considered plan assets of any Non-ERISA Plan or be subject to any fiduciary or investment restrictions that may exist under laws specifically applicable to such Non-ERISA Plans. Each Non-ERISA Plan will be required to acknowledge and agree in connection with its investment in any securities to the foregoing status of the Company, the board and  the investment  advisor that  there is     no rule, regulation  or requirement applicable  to such investor that is inconsistent with the foregoing description of the Company,   the board and the investment advisor.

Each purchaser or transferee that is a Non-ERISA Plan will be deemed to have represented, warranted and covenanted as follows:

(a) The Non-ERISA Plan is not a Benefit Plan Investor;

(b) The decision  to commit assets of the  Non-ERISA Plan  for investment  in the  Company was  made by fiduciaries independent  of the Company, the Board, the Investment Advisor and any of their respective agents, representatives or  affiliates,  which fiduciaries (i) are duly authorized to make such investment decision  and have  not relied  on any advice or recommendations of     the Company, the Board, the Investment Advisor or any of their respective agents, representatives or affiliates and (ii)  in  consultation with their advisers, have carefully considered the impact of any applicable federal, state  or  local  law  on  an  investment in the Company;

(c) The Non-ERISA Plan’s investment in the Company will not result in a non-exempt violation of any applicable federal, state or local law;

(d) None of the Company, the Board, the Investment Advisor or any of their respective agents, representatives or affiliates has exercised any discretionary authority or control with respect to the Non-ERISA Plan’s investment in the Company, nor has the Company, the Board, the Investment Advisor or any of their respective  agents,  representatives  or  affiliates  rendered  individualized investment advice to the Non-ERISA Plan based upon the Non-ERISA Plan’s investment policies or strategies,   overall portfolio composition or diversification with respect to its commitment to invest in  the  Company  and  the  investment program thereunder; and

(e) It acknowledges and agrees that it is intended  that the Company will not hold  plan assets of the Non-ERISA Plan and that    none of the Company, the Board, the Investment Advisor or any of their respective  agents,  representatives  or affiliates will be acting as a fiduciary to the Non-ERISA Plan under any applicable federal, state or local law governing the Non-ERISA Plan, with respect to either (i) the Non-ERISA Plan’s purchase or retention of its investment in the Company or (ii) the management or  operation of the business or assets of the Company. It also confirms that there is no rule, regulation, or requirement applicable to such purchaser or transferee that is inconsistent with the foregoing description of the Company, the Board and the Investment Advisor.

US Tax Matters
This discussion does not constitute tax advice and is not intended to be a substitute for tax advice and planning. Prospective holders of the Company's securities must consult their own tax advisers concerning the US federal, state  and local income tax  and estate tax consequences in their particular situations of the acquisition, ownership and disposition of any of the Company's securities, as well as any consequences under the laws of any other taxing jurisdiction.

The Board may decline to register a person as, or to require such person to cease to be, a holder of any class of ordinary shares     or other equity securities of the Company because of, among other reasons, certain US ownership and transfer restrictions that relate to “controlled foreign corporations” contained in the Articles of the Company. A  Shareholder of  the Company may be subject to forced sale provisions contained in the Articles in which case such shareholder could be forced to  dispose  of its  securities if the Company’s directors believe that such shareholder is, or is related to, a citizen or resident of  the United  States, a US partnership, a US corporation or a certain type of estate or trust and that ownership  of any class of  ordinary shares  or any  other equity securities of the Company by such shareholder would materially increase the risk that the Company could  be  or become a "controlled foreign corporation" within the meaning of the Code (a "CFC"). Shareholders of the Company may also be restricted by such provisions with respect to the persons to whom they are permitted to transfer their securities.

In general, a foreign corporation is treated as a CFC if, on any date of its taxable year, its "10% US Shareholders"collectively own (directly, indirectly or constructively within the meaning of Section 958 of the Code) more than 50%  of the  total combined  voting power or total value of the corporation's stock. For this purpose,  a  "10% US  Shareholder"  means any US  person  who  owns (directly, indirectly or constructively within the meaning of Section 958 of the  Code) 10%  or more  of the  total combined  voting power of all classes of stock of a foreign corporation or 10% or more of the total value of shares of all classes of stock of a foreign corporation. The Tax Cuts and Jobs Act (the “Tax Act”) eliminated the prohibition on “downward attribution” from non-US persons to US persons under Section 958(b)(4) of the Code for purposes of determining constructive stock ownership under the  CFC rules. As a result, the Company’s US subsidiary will be deemed to own all of the stock  of  the  Company’s  non-US  subsidiaries held by the Company for purposes of determining  such  foreign  subsidiaries’  CFC  status.  The  legislative history under the Tax Act indicates that this change was not intended to cause  the Company’s  non-US subsidiaries  to be  treated as  CFCs with respect to a 10% US Shareholder that is not related to the Company’s US subsidiary. However, the IRS has not yet issued any guidance confirming this intent and it is not clear whether the IRS or a court would interpret the change made by the Tax Act in a manner consistent with such indicated intent. The Company's treatment as a CFC as well as its foreign subsidiaries’ treatment as CFCs could have adverse tax consequences for 10% US Shareholders.

The Company has been advised that it is NOT a passive foreign investment company ("PFIC") for the fiscal years ended February 2018 and 2017. An analysis for the financial year ended February 2019 is currently being undertaken.  A classification as a PFIC would likely have adverse tax consequences for US taxpayers.

The taxation of a US taxpayer's investment in the Company's securities is highly complex. Prospective holders of the Company's securities must consult their own tax advisers concerning the US federal, state and local income tax and estate tax consequences in their particular situations of the acquisition, ownership and disposition of any of the Company's securities, as well as any consequences under the laws of any other taxing jurisdiction.

Investment Adviser's ADV Form          
Shareholders and state securities authorities wishing to view the Investment Adviser's ADV form can do so by following the link below:

https://adviserinfo.sec.gov/IAPD/IAPDFirmSummary.aspx?ORG_PK=160932

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