Half Yearly Report

RNS Number : 4498M

EPE Special Opportunities PLC

18 September 2012

 

18 September 2012

EPE Special Opportunities plc

Interim Results for the six months ended 31 July 2012

The Board of EPE Special Opportunities plc are pleased to announce the Company's Interim Results for the six months ended 31 July 2012.

Highlights:

·      Net asset value per share as at 31 July 2012 of 89.20p.

·      The portfolio has performed satisfactorily despite the economic backdrop, with the majority of portfolio companies trading in line with or ahead of budget.

·      Pharmacy2U appointed Andy Hornby, former CEO of Alliance Boots and HBOS plc, as its new Chairman in June 2012.

·      Whittard of Chelsea has seen significant improvements in gross margin levels and positive sales growth in the first half of 2012 in the online (+59%) and wholesale and franchise channels (+18%).

·      In February, company repurchased 1,009,871 ordinary shares at a price of 46.0 pence per share corresponding in NAV uplift as a result of this transaction of 1.4p per share.

·      Current economic conditions are expected to yield opportunities for new special situations, growth buy out and PIPE (Private Investment in Public Equity) investment at attractive pricing over the forthcoming six months.

·      The Board do not believe it appropriate to pay a dividend and intend to conserve liquidity in order to protect against uncertainty in the broader economic environment and to take advantage of well priced investment opportunities as they arise.

Geoffrey Vero, Chairman, commented: "We are pleased with the performance of the existing portfolio companies and the progress of the Company as a whole in the first six months of the year.  Although the Board remains cautious in the current economic conditions, nonetheless there are opportunities to acquire assets with high intrinsic valuations at low market prices and the Company remains in a strong position to take advantage of these deals." 

Enquiries:

Numis Securities Ltd                                                        

[phone]             Nominated Advisor             Stuart Skinner

Corporate Broker                  Charles Farquhar 

EPIC Private Equity LLP                                                  

[phone]                                                             James Henderson

IoMA                                                                                       

[phone]                                                             Philip Scales

Cardew Group                                                                     

[phone]                                                             Richard Spiegelberg / Alexandra Stoneham

Chairman's Statement

The Company experienced a challenging economic backdrop for the six months to July 2012. The UK officially entered a double dip recession and significant issues persist which are unresolved in the markets and wider economy. Credit remains in limited supply and consumer spending continues to be constrained. Fiscal tightening places a reliance on net trade to drive growth. However, progress towards rebalancing the economy has been mixed and the global economy shows few signs of assisting UK economic growth. Indeed, on-going difficulties with the euro zone's debt obligations have contributed to significant volatility throughout the period. Although some positive signs have been provided by growing employment levels throughout 2012 and falling inflation, your Board remains cautious over the prospects for the UK economy for the remainder of 2012 and the Investment Advisor will accordingly continue to monitor closely the progress of the portfolio companies in these difficult economic conditions. The on-going economic uncertainty is, however, expected to yield opportunities for new special situations, growth, buyout and PIPE (Private Investment in Public Equity) investments at attractive pricing over the forthcoming six months.

The investment portfolio has performed satisfactorily, despite the economic environment, with the majority of businesses trading in line with or ahead of budget. Whittard of Chelsea has seen significant improvements in gross margin levels and positive sales growth in the first half of 2012, having benefited from an increased focus on premium brand positioning. Nexus has traded ahead of budget for the half year, driven by strong retail and international performance. Palatinate also finished ahead of budget for the full year ended August 2012, whilst Process Components finished on budget for the full year to June 2012. Indicia continues to benefit from significant new client wins and Pharmacy2U successfully acquired Private Meds, a private GP business during the period. Pharmacy2U has also appointed Andy Hornby, former CEO of Alliance Boots and HBOS plc, as its new Chairman.

In February 2012 the Company repurchased 1,009,871 Ordinary Shares at a price of 46.0 pence per share. The corresponding uplift in NAV as a result of this transaction was 1.4 pence per share. The Directors view the repurchase and resultant NAV uplift as a positive event. Following approval at the AGM, the Company retains authorisation to repurchase up to 25% of the Ordinary Shares.

For the period ended 31 July 2012, the Group reported gross income of £12,660 at Company level, with the majority of income from the underlying portfolio companies being received at the Fund level. The total capital decrease in net assets was £0.97 million, which translated to a net asset value per share as at 31 July 2012 for the Group of 89.20 pence, an increase of 0.01 per cent. on the net asset value of per share of 89.19 pence as at  31 January 2012.

The Board do not believe it is appropriate to pay a dividend at this point in time and instead intend to conserve liquidity in order to protect against uncertainty in the broader economic environment and to take advantage of well-priced investment opportunities as they arise. The need to service an annual interest payment on the Convertible Loan Notes and the desire to consider both share repurchases in order to manage the discount to Net Asset Value and attractive bolt-on and platform acquisition opportunities, all combine to make the preservation of healthy cash balances at the Company a primary objective of the Directors.

I would like to thank the Investment Advisor, EPIC Private Equity LLP ("EPE"), as well as my fellow Directors and the Company's professional advisors, for their concerted efforts in continuing to develop the Company over the last six months. I look forward to once again updating you on progress at the year-end point.

Geoffrey Vero

Chairman

17 September2012

Investment Advisor's Report

In the six month period since 31 January 2012, the Investment Advisor has focused on maintaining and creating value from within the existing portfolios held by the Company and the Fund. These initiatives remain important given the challenging current economic climate. At the same time, the Investment Advisor has sought out new opportunities by way of platform or bolt-on investment opportunities. All new investments will be made via ESO Investments 2 LP, in which the Company is the sole investor.

The underlying investment portfolio has performed satisfactorily since January 2012, with a number of companies trading ahead of budget. Nexus has had a strong first half year ahead of budget, with significant performance gains over 2011 driven by the retail and international divisions. Palatinate Schools completed the financial year to 31 August 2012 on budget and is forecasting good growth in 2013, driven by growth in both capacity and pupil numbers. Process Components has delivered broadly on budget trading figures in the most recent completed financial year to 30 June 2012 and is investing for growth in the short-to-medium term. Bighead has traded above budget in the seven months to the end of July. Indicia has built on its success in 2011 with further blue chip client wins and a strong new business pipeline. Pharmacy2U continues to develop its product offering both organically and via acquisition and in August 2012 completed the acquisition of a private GP business, Private Meds. The Investment Advisor is also pleased to announce the recent appointment of Andy Hornby, former CEO of Alliance Boots and HBOS plc, as the new Chairman of Pharmacy2U.

Whittard of Chelsea continues to make good progress, seeing the benefit of a cessation of discounting and a focus on the premium positioning of the brand with a substantial improvement in gross margins. The business has delivered positive sales growth for the first half of 2012 versus the same period in 2011 in the online (59%) and wholesale and franchise channels (18%). Moving forward, the business will continue to diversify its focus on UK retail with planned expansion of international web, wholesale and franchise operations.

The net asset value per share as at 31 July 2012 for the Company was 89.20 pence, calculated on the basis of 29.4 million ordinary shares. Investment highlights from the inception of the Company (16 September 2003) to date include:

·      deployed £64 million of capital and returned over £39 million to the Company in capital and income;

·      generated gross income of £22 million;

·      paid dividends of £5 million;

·      the underlying portfolio, as at 31 July 2012, is valued at a gross 1.6x money multiple.

The UK economy has entered a double dip recession. As a result, credit remains in limited supply and consumer spending constrained. However, prospects for further fiscal tightening remain and progress towards rebalancing the economy has been mixed. Contagion from Euro-zone debt obligations continues to be a significant risk. Nevertheless, progress has been made in the form of decreasing inflation and unemployment rates. Given these difficult economic conditions, the Investment Advisor continues to monitor closely the progress of its portfolio companies.

Current economic conditions nonetheless provide opportunities to acquire assets with high intrinsic valuations at low market prices and the Company remains in a strong position to take advantage of these pipeline deals where they can be secured at good value given expectations of sellers are yet to adjust to some extent in current markets.

As well as developing the portfolio and considering new opportunities the Investment Advisor remains focussed on growing shareholder value by optimising the capital structure of the Company and continues to work with the Directors to repurchase Ordinary Shares and Convertible Loan Notes where pricing is attractive. This was most recently evidenced by the repurchase of 1,009,871 Ordinary Shares at a price of 46.0 pence per share in February 2012. The corresponding uplift in NAV as a result of this transaction was 1.4 pence per share.

Investment Strategy

The Investment Advisor believes that the current economic environment continues to create a wide range of investment opportunities. As a result, the Investment Advisor intends to use its proprietary deal sourcing approaches to source these opportunities, as well as engaging actively with the wider restructuring and advisory community to communicate the Company's investment strategy. The Company seeks to target growth and buyout opportunities, as well as special situations and distressed transactions, making investments where it believes pricing to be attractive and the potential for value creation strong. The Company will continue to target the following types of investments:

·      Growth, Buyout and Pre-IPO opportunities: leveraging the Investment Advisor's investment experience, contacts and ability. The Company is particularly focussed on making investments in sectors where the opportunity exists to create a unique asset via the consolidation of a number of smaller companies, taking advantage of the lack of liquidity in the SME market and the attraction to secondary buyers of larger operations.

·      Special Situations: investment opportunities where the Investment Advisor believes that assets are undervalued due to specific, event-driven circumstances. Target companies may or may not be distressed as a result of the situation. The Investment Advisor will aim to use its restructuring and refinancing expertise to resolve the situation and achieve a controlling position in the target company.

·      Distressed Companies: investment opportunities where asset-backing may be available and the opportunity exists for recovery and significant upside. These transactions may involve target companies with a substantial asset base, providing the Company with considerable downside protection. The Company seeks to acquire distressed debt, undervalued equity or the assets of target businesses in solvent or insolvent situations.

·      Private Investment in Public Equities (PIPEs): the Company may consider making investments in a number of smaller quoted companies, primarily ones whose shares are admitted to AIM. The Company will either seek to acquire and de-list the target company or make an investment in the ordinary equity of a quoted target company. The Company may offer ordinary shares in the Company as all or part of the consideration for such investments.

·      Secondary Portfolios / EPE Funds: the Company has access to opportunities to invest directly in larger deals and other funds as a limited partner and in situations that do not compete with the Company's investment strategy.

The Company will consider most industry sectors, including consumer, retail, manufacturing, financial services, healthcare, support services and media industries. The Company partners with management and entrepreneurs to maximise value by combining financial and operational expertise in each investment.

The Company will seek to invest between £2 million and £10 million in a range of debt and equity instruments with a view to generating returns through both yield and capital gain. Whilst in general the Company aims to take controlling equity positions, it may seek to develop companies as a minority investor. Occasionally the Board may authorise investments of less than £2 million. For investments larger than £5 million, the Company may seek co-investment from third parties. 

Current Portfolio: ESO Investments (PC) LLP

Process Components

Process Components is an engineering parts and equipment supplier to the powder processing industries, primarily food, agriculture and pharmaceuticals. The business was formed in June 2009 and since then has demonstrated substantial year on year growth, doubling EBITDA in that time The business finished the financial year to 30 June 2012 in line with budget and is trading on budget in the new financial year. A programme of investment in new product development, sales and marketing is expected to drive further growth over the short to medium term. Customers are blue chip global manufacturers, and the business has been growing its international supply operations,  seeking to expand its infrastructure from the US and Europe into Asia with the opening of a new office in the region. The business is also seeking to grow via acquisition, targeting suppliers of adjacent products.

Current Portfolio: ESO Investments 1 LP

Nexus Industries

Nexus Industries ("Nexus") is a manufacturer and distributor of electrical accessories in the UK, operating under the brand names Masterplug and British General, and supplies to both the retail and wholesale markets. The business has had a strong start to 2012 ahead of budget despite the current market conditions, with substantial year-on-year growth driven by the retail and international divisions. Organic sales growth and margin improvements are expected to be driven by the wholly-owned production facility located in mainland China. International expansion is a major focus for the business, with penetration growing in the US, China and Australasia. Nexus is also working on acquiring complementary businesses in both adjacent product categories and new geographies.

Palatinate Schools

Palatinate Schools ("Palatinate") operates a group of private preparatory, pre-preparatory and nursery schools based in Central London. The schools have good prestige value and pupil growth is anticipated to remain robust, which is expected to drive sales growth. The Investment Advisor manages Palatinate alongside other private equity investors. The business completed the financial year to 31 August 2012 on budget, and is forecasting good growth in 2013. The focus remains to drive organic growth via improved branding and advertising, and to retain pupils up to the age of 13.

Indicia

Indicia is a direct marketing business focussed on database and multi-channel analytics. Indicia was formed through the acquisition and consolidation of three separate businesses and is currently initiating a partnership with a larger US agency. Following a successful year in 2011 with several new client wins and the "Grand Prix" award at the Direct Marketing Awards, Indicia has won two further blue chip clients in the broadcast and FMCG space and has a strong new business pipeline helping to support forecast growth on 2011. The business continues to target acquisitions with strong cross-selling potential.

Whittard of Chelsea

Whittard of Chelsea, a specialist retailer of tea and coffee, was acquired in December 2008. Since the acquisition, the Investment Advisor has focussed on developing the Whittard of Chelsea brand by growing the online, wholesale and franchise channels. These channels have demonstrated good growth on 2011 in the first half of 2012, with a 59% increase in online sales and an 18% increase in wholesale and franchise sales. This strategy has driven a consolidation in profitability since the date of investment and with the cessation of discounting and focus on the premium positioning of the brand this year the business has achieved an improvement in gross margins.

Bighead Bonding Fasteners

Bighead Bonding Fasteners ("Bighead") is a specialist engineering business, manufacturing specialist load-spreading fasteners and fixings for composites, plastics and traditional materials. Trading in the first half of 2012 has been ahead of budget. Over the long-term the management team aim to replicate Bighead's local success in high-end niche applications by establishing an international network of distributors for its products.

Pharmacy2U

Pharmacy2U is an online pharmacy business, delivering National Health Service and private prescriptions direct to the home using an innovative, in-house developed technology, Electronic Prescription Service ("EPSr2") which enables prescriptions to be electronically signed and delivered direct to patients. The business has experienced significant sales growth since inception, and both sales and EBITDA performance remained strong in the full year to 31 March 2012. Long term performance remains reliant on the expected roll-out of EPSr2.

Other Assets

ESO 1 LP holds investments in three smaller assets: Past Times Web, Evolving Media and Driver Require. The Past Times Web business was acquired in February 2012 from the administrators of Past Times Trading Limited. Past Times has considerable brand awareness in the UK as a result of a 25 year presence on the high street and the product offering has a proven demand online. The business has invested in a refined product range and extended online marketing in order to scale revenues. The business will focus on monetising the current database of 300,000 customers in the short term whilst acquiring new customers to underpin growth. Evolving is a young and growing integrated digital marketing agency, with a focus on clients in the leisure and hospitality sector. The business has expanded its core offering beyond website development to include the management of online marketing programmes, most notably in CRM, Mobile and Search. The business is trading well and continues to win new accounts, with business development being supported by the new London office. Driver Require is a recruitment company for commercial drivers across all major vehicle categories, based in Stevenage. The recession had a significant impact on the transport sector and Driver Require's target market was particularly affected. Operational costs continue to be minimised and further expansion of branches to new locations has been placed on hold while the market remains weak. The Company exited Morada by way of an administration in May 2012 with no recovery expected, the impact of which has been reflected in the financial statements.

Valuation Methodology

The Company values its investments with reference to the BVCA guidelines which state that portfolio companies should be valued on an EBITDA multiple basis using publicly quoted comparables and/or transaction comparables, then discounting the equity value by an appropriate percentage to account for marketability considerations. Cost may be considered as fair value in some cases but assets will always be held at fair value, whether this is at, above or below cost, and the value of such assets will be reviewed periodically to ensure that such is the case.

The Investment Advisor intends to announce an estimated net asset value per ordinary share on a monthly basis following a review of the valuation of the Company's investments. The Company has always endeavoured to comply with industry-standard guidelines and, as the Fund will be applying the International Private Equity and Venture Capital Valuation Guidelines, for consistency the Board will consider adopting these guidelines going forward. The Company believes that there is unlikely to be any material effect on the valuation process as a result of such a change. The Investment Advisor adopts a conservative approach to valuation with reference to the aforementioned methodology but also having regard for on-going volatile market conditions, particularly in the UK retail sector, and credit restraints.

Review report by KPMG Audit LLC to EPE Special Opportunities plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly report for the six months ended 31 July 2012, which comprises the consolidated statement  of comprehensive income, the consolidated  statement  of assets and liabilities, the consolidated  statement  of changes in equity, the consolidated statement of cash flows and the related explanatory notes. We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly report in accordance with the AIM Rules.

The annual financial statements of the Group are prepared in accordance with IFRSs. The condensed set of financial statements included in this half-yearly report has been prepared in accordance with IAS 34 Interim Financial Reporting.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of consolidated financial statements in the half-yearly report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of consolidated financial statements in the half-yearly report for the six months ended 31 July 2012 is not prepared, in all material respects, in accordance with IAS 34 and the AIM Rules.

KPMG Audit LLC

Chartered Accountants

Heritage Court

41 Athol Street

Douglas

Isle of Man IM99 1HN

17 September 2012

Consolidated Statement of Comprehensive Income

For the six months ended 31 July 2012

			1 Feb 2012 to 31 Jul 2012				1 Feb 2011 to 31 Jul 2011		1 Feb 2011 to 31 Jan 2012
			Revenue (unaudited)	Capital (unaudited)	Total (unaudited)		Total (unaudited)		Total (audited)
Note			£	£	£
	Income
	Rental income		11,979	-	11,979		31,900		63,800
	Interest income		681	-	681		38,340		-
	Total income		12,660	-	12,660		70,240		63,800
	Expenses								-
	Administration fees		(21,596)	-	(21,596)		(22,224)		(40,628)
	Directors' fees		(53,918)	-	(53,918)		(50,000)		(102,500)
	Directors' and Officers' insurance		(2,000)	-	(2,000)		(5,118)		(7,590)
	Professional fees		(58,793)	-	(58,793)		(37,314)		(62,990)
	Board meeting and travel expenses		(3,976)	-	(3,976)		(5,432)		(10,136)
	Auditors' remuneration		(18,002)	-	(18,002)		(17,218)		(27,730)
	Bank charges		(252)	-	(252)		(67)		(347)
	Irrecoverable VAT		(39,639)	-	(39,639)		(101,034)		(124,288)
	Sundry expenses		(11,171)	-	(11,171)		(34,155)		(40,232)
	Nominated advisor and broker fees		(15,000)	-	(15,000)		(4,759)		(26,257)
	Total expenses		(224,347)	-	(224,347)		(277,321)		(442,698)
	Net income/(expense)		(211,687)	-	(211,687)		(207,081)		(378,898)
	Gains on investments
5	Share of profit of equity accounted investees		-	201,558	201,558		1,818,513		3,398,565
	Amounts due from equity accounted investees written off		-	(167,750)	(167,750)		-		-
	Revaluation of investment property		-	(7,840)	(7,840)		(7,678)		(15,302)
	Gain on buy-back of convertible loan notes		-	-	-		-		638,779
	Gain for the period/year on investments		-	25,968	25,968		1,810,835		4,022,042
	Finance charges								-
10	Interest on mortgage loan		(13,395)	-	(13,395)		(13,206)		(26,595)
10	Interest on convertible loan note instruments		(265,294)	-	(265,294)		(389,872)		(704,566)
	(Loss)/profit for the period/year  before taxation		(490,376)	25,968	(464,408)		1,200,676		2,911,983
	Taxation		-	-	-		-		(8,453)
	(Loss)/profit for the period/year		(490,376)	25,968	(464,408)		1,200,676		2,903,530
	Other comprehensive income		-	-	-		-		-
	Total comprehensive income for the period/year		(490,376)	25,968	(464,408)		1,200,676		2,903,530
8	Basic and diluted earnings per ordinary share (pence)		(1.67)	0.10	(1.57)		3.90		9.44

The total column of this statement represents the Group's Consolidated Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are both prepared under Board approved guidelines in relation to the allocation between revenue and capital. All items in the above statement derive from continuing activities.

The notes form an integral part of these financial statements

 

Consolidated Statement of Assets and Liabilities

As at 31 July 2012

			31 July 2012 (unaudited)		31 July 2011 (unaudited)		31 January 2012 (audited)
Note			£
	Non-current assets
5	Investment property		447,575		463,040		455,416
5	Investment in equity accounted investees		27,209,829		30,605,348		28,405,400
5,6	Loans to equity accounted investees and related companies		1,834,406		2,457,952		2,117,929
			29,491,810		33,526,340		30,978,745
	Current assets
	Cash and cash equivalents		4,275,247		3,033,236		5,894,547
	Trade and other receivables		212,046		36,991		97,028
			4,487,293		3,070,227		5,991,575
	Current liabilities
	Trade and other payables		(22,485)		(640,081)		(2,019,308)
			(22,485)		(640,081)		(2,019,308)
	Net current assets		4,464,808		2,430,146		3,972,267
	Non-current liabilities
10	Convertible loan note instruments		(7,322,889)		(9,892,421)		(7,335,342)
10	Bank loan		(447,575)		(463,040)		(455,416)
			(7,770,464)		(10,355,461)		(7,790,758)
	Net assets		26,186,154		25,601,025		27,160,254
	Equity
7	Share capital		1,540,146		1,540,146		1,540,146
	Share premium		1,815,385		1,815,385		1,815,385
	Capital reserve		(8,361,066)		(10,626,110)		(8,387,034)
	Revenue reserve		31,187,252		32,867,167		32,187,320
	Capital redemption reserve		4,437		4,437		4,437
	Total equity		26,186,154		25,601,025		27,160,254
9	Net asset value per share (pence)		89.20		83.11		89.19

The notes form an integral part of these financial statements

Consolidated Statement of Changes in Equity

For the six months ended 31 July 2012

		Six months ended 31 July 2012 (Unaudited)
		Share capital	Share premium	Capital redemption reserve	Capital reserve	Revenue reserve	Total
		£	£	£	£	£	£
Balance at 1 February 2012		1,540,146	1,815,385	4,437	(8,387,034)	32,187,320	27,160,254
Total comprehensive income for the period		-	-	-	25,968	(490,376)	(464,408)
Contributions by and distributions to owners
Share buy back		-	-	-	-	(509,692)	(509,692)
Total transactions with owners		-	-	-	-	(509,692)	(509,692)
Balance at 31 July 2012		1,540,146	1,815,385	4,437	(8,361,066)	31,187,252	26,186,154

		Six months ended 31 July 2011 (Unaudited)
		Share capital	Share premium	Capital redemption reserve	Capital reserve	Revenue reserve	Total
		£	£	£	£	£	£
Balance at 1 February 2011		1,544,583	1,815,385	-	(12,436,945)	33,477,326	24,400,349
Total comprehensive income for the period		-	-	-	1,810,835	(610,159)	1,200,676
Contributions by and distributions to owners
Cancellation of treasury shares		(4,437)	-	4,437	-	-	-
Total transactions with owners		(4,437)	-	4,437	-	-	-
Balance at 31 July 2011		1,540,146	1,815,385	4,437	(10,626,110)	32,867,167	25,601,025

The notes form an integral part of these financial statements

		Year ended 31 January 2012 (Audited)
		Share capital	Share premium	Capital redemption reserve	Capital reserve	Revenue reserve	Total
		£	£	£	£	£	£
Balance at 1 February 2011		1,544,583	1,815,385	-	(12,409,076)	33,449,457	24,400,349
Total comprehensive income for the year		-	-	-	4,022,042	(1,118,512)	2,903,530
Contributions by and distributions to owners
Cancellation of treasury shares		(4,437)	-	4,437	-	-	-
Purchase of treasury shares		-	-	-	-	(143,625)	(143,625)
Total transactions with owners		(4,437)	-	4,437	-	(143,625)	(143,625)
Balance at 31 January 2012		1,540,146	1,815,385	4,437	(8,387,034)	32,187,320	27,160,254

The notes form an integral part of these financial statements

Consolidated Statement of Cash Flows

For the six months ended 31 July 2012

		1 Feb 2012 to 31 July 2012 (unaudited)		1 Feb 2011 to 31 July 2011 (unaudited)		1 Feb 2011 to 31 Jan 2012 (audited)
		£		£		£
Operating activities
Rental income received		-		31,900		53,167
Interest income received		681		-		-
Expenses paid		(271,712)		(419,179)		(620,981)
Net cash used in operating activities		(271,031)		(387,279)		(567,814)
Investing activities
Receipts on disposal of equipment		-		20,000		20,000
Portfolio acquisition costs paid		-		(197,570)		(443,265)
Net receipts from associate and related companies		1,512,904		426,833		751,759
Net cash generated from investing activities		1,512,904		249,263		4,108,494
Financing activities
Loan interest paid		(13,395)		(13,206)		(26,595)
Part payment of mortgage loan		(7,840)		(7,678)		(15,302)
Convertible loan note interest paid		(375,000)		(310,675)		(963,422)
Repurchase of convertible loan notes		(1,955,246)		-		-
Purchase of treasury shares		(509,692)		-		(143,625)
Net cash used in financing activities		(2,861,173)		(331,559)		(1,148,944)
(Decrease)/increase in cash and cash equivalents		(1,619,300)		(469,575)		2,391,736
Cash and cash equivalents at start of period/year		5,894,547		3,502,811		3,502,811
Cash and cash equivalents at end of period/year		4,275,247		3,033,236		5,894,547

Reconciliation of net investment expense to net cash used in operating activities:

		1 Feb 2012 to 31 July 2012 (unaudited)		1 Feb 2011 to 31 July 2011 (unaudited)		1 Feb 2011 to 31 Jan 2012 (audited)
		£		£		£
Net investment expense		(211,687)		(207,081)		(378,898)
Adjustment for interest income from investee company		-		(38,340)		-
Movement in trade and other receivables		(17,765)		5,754		(66,895)
Movement in trade and other payables		(41,579)		(147,612)		(122,021)
Net cash used in operating activities		(271,031)		(387,279)		(567,814)

The notes form an integral part of these financial statements

Notes to the Unaudited Interim Financial Statements

For the six months ended 31 July 2012

1 The Company

The Company was incorporated with limited liability in the Isle of Man with the registered number 108834C on 25 July 2003. The Company's ordinary shares are listed on the Alternative Investment Market ("AIM") and the Plus Stock Exchange ("PLUS").

The interim consolidated financial statements as at and for the six months ended 31 July 2012 comprise the Company and its subsidiaries (together "the Group"). The interim consolidated financial statements are unaudited.

The consolidated financial statements of the Group as at and for the year ended 31 January 2012 are available upon request from the Company's registered office at IOMA House, Hope Street, Douglas, Isle of Man, IM1 1AP, or at www.epicpe.com.

The Company has two wholly owned subsidiary companies, EPIC Reconstruction Property Company II Limited, a company incorporated on 30 December 2004 in England and Wales and EPIC Reconstruction Property Company (IOM) Limited, a company incorporated on 29 October 2005 in the Isle of Man.

The Company also has interests in two partnerships that are accounted for as associates. The partnerships comprise one limited liability partnership, ESO Investments (PC) LLP, and one limited partnership, ESO Investments 1 LP. The Company also has an interest in a third partnership, ESO Investments 2 LP, through which new investments will be made. As at 31 July 2012, ESO Investments 2 LP had made no investments.

Following the approval of the Share Matching Plan at the Annual General Meeting on 20 July 2012, the Company has established an employee benefit trust located in the Isle of Man to administer the scheme.

2 Statement of compliance

These interim consolidated and company financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting.

The Company holds interests in ESO Investments 1 LP, ESO Investments 2 LP and ESO Investments (PC) LLP, which are managed and controlled by EPIC Private Equity LLP for the benefit of the Company and the other members. The Company has the power to appoint members to the investment committee of ESO Investments 1 LP, ESO Investments 2 LP and ESO Investments (PC) LLP but does not have the ability to direct the activities of ESO Investments 1 LP, ESO Investments 2 LP and ESO Investments (PC) LLP. The Directors consider that ESO Investments 1 LP, ESO Investments 2 LP and ESO Investments (PC) LLP do not meet the definition of subsidiaries.

The interim consolidated financial statements do not include all of the information required for full annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 January 2012.

The interim consolidated financial statements were approved by the Board of Directors on 17 September 2012.

3 Significant accounting policies

The accounting policies applied by the Group in these interim consolidated financial statements are the same as those applied by the Group as at and for the year ended 31 January 2012.

4 Financial risk management

The Group financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the year ended 31 January 2012.

5 Non-current assets

		31 July 2012	31 July 2011	31 January 2012
		Group	Group	Group
		£	£	£
Investment property		447,575	463,040	455,416
Financial assets
Investments in equity accounted investee/associate		27,209,829	30,605,348	28,405,400
Loans to equity accounted investees and related companies		1,834,406	2,457,952	2,117,929
		29,491,810	33,526,340	30,978,745

Investment property is stated at the Directors' considered valuation (see Note 10).

The Investment Advisor has applied appropriate valuation methods with reference to BVCA guidelines and the valuation principles of IAS 39 Financial Instruments: Recognition and Measurement. Underlying investments in the equity accounted investees are valued using these principles.

Investment in equity accounted investees/associates

Investments in equity accounted investees comprise the investment in ESO Investments 1 LP and ESO Investments (PC) LLP (formerly ESO Investments 2 LLP) which are stated at cost plus the share of profit and loss to date. The equity accounted investees have accounted for their equity investments at fair value.

During the period, the Company received £1,397,131 (year ended 31 January 2012: £3,780,000) from ESO Investments 1 LP.

Summary of financial information of equity accounted investees as at 31 July 2012 is as follows:

		31 July 2012				31 January 2012
		ESO Investments (PC) LLP	ESO Investments 1 LP	Total		ESO Investments (PC) LLP	ESO Investments 1 LP	Total
		£	£	£		£	£	£
Non-current assets		4,500,000	35,786,052	40,286,052		4,500,000	35,522,074	40,022,074
Current assets		100	6,244,456	6,244,556		100	7,648,418	7,648,518
Total assets		4,500,100	42,030,508	46,530,608		4,500,100	43,170,492	47,670,592
Current liabilities		(541,214)	(2,956,662)	(3,497,876)		(621,007)	(2,104,093)	(2,725,100)
Total liabilities		(541,214)	(2,956,662)	(3,497,876)		(621,007)	(2,104,093)	(2,725,100)
Group's share of net assets		3,198,366	24,011,464	27,209,830		3,129,890	25,275,510	28,405,400
Income		26,149	1,349,692	1,375,841		225,493	3,247,728	3,473,221
Gains/(losses) on investments		55,144	(605,773)	(550,629)		2,528,750	105,484	2,634,234
Expenses		(1,500)	(141,220)	(142,720)		(2,484)	(226,560)	(229,044)
Profit		79,793	602,699	682,492		2,751,759	3,126,652	5,878,411
Group's share of profit		68,475	133,083	201,558		2,002,656	1,395,909	3,398,565

Key terms of LP Agreement

Profits or losses are credited or debited to each Member's account to reflect the distributions payable to each Member were the LP to be liquidated at its statement of financial position value.

Prior to the First Hurdle Point (being the point at which each member has received repayment of the loans advanced and a Hurdle amount being 8% per annum on the loan balances) distributions shall be made as:

·      37% to DES Holdings IV(A) LLC

·      63% to EPE Special Opportunities plc

At the First Hurdle Point for an investor an amount equal to 25% of the Hurdle shall be credited from that investor to EPE Carry LP. After the First Hurdle Point distributions shall be as stated above less 20% which shall be credited to EPE Carry LP until the Second Hurdle Point.

At the Second Hurdle Point, (being the point at which DES Holdings IV(A) LLC has received 1.5 times its loans advanced) distributions shall be made as;

·      25% to DES Holdings IV(A) LLC

·      75% to EPE Special Opportunities plc

Subject to a 20% allocation to EPE Carry LP in the event that the First Hurdle Point has been reached.

At the Third Hurdle Point, (being the point at which DES Holdings IV(A) LLC has received 2 times its loans advanced) distributions shall be made as;

·      18% to DES Holdings IV(A) LLC

·      82% to EPE Special Opportunities plc

Subject to a 20% allocation to EPE Carry LP in the event that the Second Hurdle Point has been reached.

6 Loans to equity accounted investees and related companies

		31 July 2012	31 July 2011	31 January 2012
		Group	Group	Group
		£	£	£
ESO Investments 1 LP		793,192	944,713	938,381
EPIC Structured Finance Limited		500,000	596,881	558,541
ESO Investments (PC) LLP		541,214	916,358	621,007
		1,834,406	2,457,952	2,117,929

The loans to equity accounted investees and related companies are unsecured, interest free and not subject to any fixed repayment terms.

7 Share capital

		31 July 2012		31 July 2011		31 January 2012
		Number	£	Number	£	Number	£
Authorised share capital
Ordinary shares of 5p each		33,000,000	1,650,000	33,000,000	1,650,000	33,000,000	1,650,000
Called up, allotted and fully paid
Ordinary shares of 5p each		30,802,911	1,540,146	30,802,911	1,540,146	30,802,911	1,540,146
Ordinary shares of 5p each held in treasury		(1,446,142)	-	-	-	(351,271)	-
		29,356,769	1,540,146	30,802,911	1,540,146	30,451,640	1,540,146

8 Basic and diluted earnings per ordinary share

The basic earnings per share is calculated by dividing the loss for the period attributable to ordinary shareholders by the weighted average number of shares outstanding during the period of 29,581,304 (six month period ended 31 July 2011: 30,802,911 after share consolidation, year ended 31 January 2012: 30,451,640).

Fully diluted earnings per share is the same as the basic earnings per share.

9 Net asset value per share (pence)

The net asset value per share is based on the net assets at the period end of £26,186,154 divided by 29,356,769 ordinary shares in issue at the end of the period (31 July 2011: £25,601,025 and 30,802,911 ordinary shares, 31 January 2012: £27,160,254 and 30,451,640 ordinary shares).

10 Non-current liabilities

		31 July 2012	31 July 2011	31 January 2012
		Group	Group	Group
		£	£	£
Convertible loan note instruments		7,322,889	9,892,421	7,335,342
Mortgage loan		447,575	463,040	455,416
		7,770,464	10,355,461	7,790,758

The mortgage bank loan bears interest at LIBOR plus 4.5% margin per annum, calculated on a daily basis subject to a maximum 12.9%. The loan is secured on investment property valued in the financial statements at £447,575 (31 July 2011: £463,186 and 31 January 2012 £455,416). The loan expiration date is May 2029. The tenant of the investment property, AGB Steel Products Limited, went into administration during the period. The Company has secured the property which is being marketed for sale at a considered price within current valuation criteria.

Convertible loan note instruments were issued on 31 August 2010 to The Equity Partnership Investment Company plc. The notes carry interest at 7.5% per annum and are convertible at the option of the holder at a price of 170 pence per ordinary share. The convertible shares fall under the definition of compound financial instruments within IAS 32 Financial Instruments: Presentation. The Directors are required to assess the element of liability contained with the compound instrument. The Directors consider that the instrument has no equity element.

Issue costs of £129,696 have been offset against the value of the convertible loan note instruments and are being amortised over the life of the instrument at an effective interest rate of 0.24% per annum.

The convertible loan notes are repayable on 31 December 2015 unless the shareholders of the Company pass a resolution on or before 30 September 2015 for the continuation of the Company beyond 31 December 2016, in which case the final repayment date shall be 31 December 2016, but each noteholder has the right to require the redemption of some or all of their notes on 31 December 2015 by providing the Company with written notice up to the close of business on 30 November 2015.

11 Financial commitments and guarantees

Under the terms of the limited partnership agreement the Company is committed to provide a maximum of £2.0 million additional investment to ESO Investments 1 LP. To date no draw downs have been made.

The Company historically provided certain guarantees to Lloyds TSB Bank plc ("Lloyds") on the facilities that Lloyds provided to Past Times Trading Limited. In July of this year the administrators received the final balance of funds retained by Lloyds together with a confirmation that all such guarantees provided by the Company to Lloyds had been released. The administration is in its final stages and surplus funds received by the administrators from the administration process to date have been paid across to the Company.

12 Subsequent events

There were no significant subsequent events.

Company Information

Directors			Bankers
GO Vero (Chairman)			Barclays Bank plc
RBM Quayle			1 Churchill Place
CL Spears			Canary Wharf
NV Wilson			London E14 5HP
Secretary			Investment Advisor
P.P. Scales			EPIC Private Equity LLP
Registrar and Registered			Audrey House
			16-20 Ely Place
Office			London  EC1N 6SN
IOMA Fund and Investment Management Limited			Auditors and Reporting Accountants
IOMA House			KPMG Audit LLC
Hope Street			Heritage Court
Douglas			41 Athol Street
Isle of Man IM1 1AP			Douglas
			Isle of Man IM99 1HN
Nominated Advisor and Broker
Numis Securities Limited
10 Paternoster Square
London EC4M 7LT

 

END

 

 

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