EPE Special Opportunities Limited

("ESO" or the "Company")

Interim Review and Unaudited Financial Statements for the six months ended 31 July 2021

The Board of EPE Special Opportunities is pleased to announce the Company's Interim Review and Unaudited Financial Statements for the six months ended 31 July 2021.

Summary

·    The Company achieved a strong performance in the six months ended 31 July 2021. Overall progress has been made across the portfolio against the backdrop of headwinds caused by the ongoing COVID-19 pandemic. The Board was pleased to announce the Company's investment in Hamsard 3634 Limited, trading as The Rayware Group ("Rayware") in July 2021. The Board and Investment Advisor continue to monitor the improving outlook for the UK economy as social restrictions are relaxed and the vaccination programme nears completion.

·    The Net Asset Value ("NAV") per share of the Company as at 31 July 2021 was 542.30 pence per share, representing an increase of 23.9 per cent. on the NAV per share of 437.63 pence as at 31 January 2021.

·    The share price of the Company as at 31 July 2021 was 393.00 pence, representing an increase of 45.0 per cent. on the share price of 271.00 pence as at 31 January 2021.

·    Luceco plc's share price performed strongly, achieving a 49.2 per cent. increase in the six months ended 31 July 2021, with the share price as at 31 July 2021 being 388.00 pence. The business announced strong trading for the six months ended 30 June 2021, achieving profit growth underpinned by market share gains through the COVID period and the defence of margins against inflationary pressures. The business announced full year guidance ahead of market expectations, forecasting sales of at least £220.0 million and operating profit of at least £39.0 million. In June 2021, ESO sold 4.5 million shares in Luceco plc, returning £15.0 million in cash, whilst retaining a 22.1 per cent. holding in the business.

·    Whittard of Chelsea ("Whittard") continued to face disruption to trading as a result of COVID-19. In line with government restrictions, Whittard's retail stores remained closed until April 2021. Subsequent to the reopening of stores, trading was impacted by reduced tourist volumes and social distancing measures. The business' profitability in the period benefitted from further government support and the agreement of bilateral deals with landlords. Whittard made pleasing progress internationally, securing a new franchise partner in South Korea and new marketplace partners in the US and EU.

·    David Phillips achieved sales growth and sustained profitability in the period, in the context of a difficult macro trading environment. The business has secured a healthy pipeline of large-scale projects in the build-to-rent and institutional developer markets. Looking to the medium term, the business is monitoring the impact of inflationary cost pressures and working capital requirements.

·    Pharmacy2U continued to execute its growth plan, benefiting from the shift to online pharmacy in the COVID-19 period. The business has achieved EBITDA profitability, aided by the operational leverage of increased scale.

·    In July 2021, the Company acquired a majority interest in Rayware, a wholesaler of six heritage British homeware brands, including the iconic Kilner and Mason Cash marques, as well as Viners, Typhoon, Ravenhead and Price & Kensington. The business develops and distributes a wide product range including jars, mixing bowls, cutlery, glassware and tableware. Rayware has achieved significant growth in the last twelve months, driven by strong relationships with its long-standing customer base, and more recently benefitting from structural trends including home cooking, sustainability and premiumisation. The Company intends to support Rayware to achieve its future growth ambitions by supporting international expansion and the development of a digitally-led channel strategy.

·    The Company has liquidity of £19.7 million¹ as at 31 July 2021. The Company has £3.9 million of outstanding unsecured loan notes repayable in July 2022 and has no other third-party debt outstanding. The Company is considering raising debt financing of up to £25.0 million to provide additional capital for its strong pipeline of potential investments. Such debt financing options include an interest-bearing loan (listed or unlisted), zero dividend preference shares or a term debt facility and would bear market rate financing costs. Other forms of debt finance may also be contemplated.

·    As at 31 July 2021, the Company's unquoted portfolio was valued at a weighted average EBITDA to enterprise value multiple of 6.4x (excluding Pharmacy2U, which is valued on a sales multiple) and had a low level of third party leverage with net debt at 0.6x EBITDA in aggregate.

·    The Board would like to welcome Michael Gray, who joined the Board on 2 September 2021 as a non-executive Director. Mr Gray was at The Royal Bank of Scotland for over 30 years, latterly as Managing Director (Corporate) of RBS International, before retiring in 2015. The Board are confident his experience in private equity and the wider financial services sector will be a valuable addition to the Board.

Mr Clive Spears, Chairman, commented: "The performance of the Company in the six months ended 31 July 2021 was strong despite the ongoing disruption caused by the COVID-19 pandemic. The Company has continued to make progress in the existing portfolio and has successfully completed a new investment in the period. The Board would like to express its gratitude to the Investment Advisor for navigating this turbulent period. The Board looks forward to updating shareholders on further progress made by the Company at the year end."

The person responsible for releasing this information on behalf of the Company is Amanda Robinson of Langham Hall Fund Management (Jersey) Limited.

⁽¹⁾Company liquidity is stated inclusive of cash held by associates in which the Company is the sole investor.

Enquiries:

Chairman's Statement

The Company achieved a strong performance in the six months ended 31 July 2021. Overall progress has been made across the portfolio against the backdrop of headwinds caused by the ongoing COVID-19 pandemic. The Board was pleased to announce the Company's investment in Hamsard 3634 Limited, trading as The Rayware Group ("Rayware") in July 2021. The Board and Investment Advisor continue to monitor the improving outlook for the UK economy as social restrictions are relaxed and the vaccination programme nears completion.

The Net Asset Value ("NAV") per share of the Company as at 31 July 2021 was 542.30 pence per share, representing an increase of 23.9 per cent. on the NAV per share of 437.63 pence as at 31 January 2021. The share price of the Company as at 31 July 2021 was 393.00 pence, representing an increase of 45.0 per cent. on the share price of 271.00 pence as at 31 January 2021.

Luceco plc's share price performed strongly, achieving a 49.2 per cent. increase in the six months ended 31 July 2021, with the share price as at 31 July 2021 being 388.00 pence. The business announced strong trading for the six months ended 30 June 2021, achieving profit growth underpinned by market share gains through the COVID period and the defence of margins against inflationary pressures. The business announced full year guidance ahead of market expectations, forecasting sales of at least £220.0 million and operating profit of at least £39.0 million. In June 2021, ESO sold 4.5 million shares in Luceco plc, returning £15.0 million in cash, whilst retaining a 22.1 per cent. holding in the business.

Whittard of Chelsea ("Whittard") continued to face disruption to trading as a result of COVID-19. In line with government restrictions, Whittard's retail stores remained closed until April 2021. Subsequent to the reopening of stores, trading was impacted by reduced tourist volumes and social distancing measures. The business' profitability in the period benefitted from further government support and the agreement of bilateral deals with landlords. Whittard made pleasing progress internationally, securing a new franchise partner in South Korea and new marketplace partners in the US and EU.

David Phillips achieved sales growth and sustained profitability in the period, in the context of a difficult macro trading environment. The business secured a healthy pipeline of large-scale projects in the build-to-rent and institutional developer markets. Looking to the medium term, the business is monitoring the impact of inflationary cost pressures and working capital requirements.

Pharmacy2U continued to execute its growth plan, benefiting from the shift to online pharmacy in the COVID-19 period. The business has achieved EBITDA profitability, aided by the operational leverage of increased scale.

In July 2021, the Company acquired a majority interest in Rayware, a wholesaler of six heritage British homeware brands, including the iconic Kilner and Mason Cash marques, as well as Viners, Typhoon, Ravenhead and Price & Kensington. The business develops and distributes a wide product range including jars, mixing bowls, cutlery, glassware and tableware. Rayware has achieved significant growth, driven by strong relationships with its long-standing customer base, and more recently benefitting from structural trends including home cooking, sustainability and premiumisation. The Company intends to support Rayware to achieve its future growth ambitions by supporting international expansion and the development of a digitally-led channel strategy.

The Company has liquidity of £19.7 million¹ as at 31 July 2021. The Company has £3.9 million of outstanding unsecured loan notes repayable in July 2022 and has no other third-party debt outstanding. The Company is considering raising debt financing of up to £25.0 million to provide additional capital for its strong pipeline of potential investments. Such debt financing options include an interest-bearing loan (listed or unlisted), zero dividend preference shares or a term debt facility and would bear market rate financing costs. Other forms of debt finance may also be contemplated.

The Board would like to welcome Michael Gray, who joined the Board on 2 September 2021 as a non-executive Director. Mr Gray was at The Royal Bank of Scotland for over 30 years, latterly as Managing Director (Corporate) of RBS International, before retiring in 2015. The Board are confident his experience in private equity and the wider financial services sector will be a valuable addition to the Board.

I would like to express my gratitude to my fellow directors and the Investment Advisor for navigating this turbulent period. I look forward to updating shareholders on further progress made by the Company at the year end.

Clive Spears

Chairman

6 September 2021

⁽¹⁾Company liquidity is stated inclusive of cash held by associates in which the Company is the sole investor.

Investment Advisor's Report

The Company achieved pleasing momentum in the six months ended 31 July 2021, with the portfolio navigating the ongoing challenges of the COVID-19 pandemic. The Investment Advisor was pleased to announce the completion of the Company's investment in Rayware and looks forward to developing the attractive growth avenues available to the business. The Investment Advisor continues to review a healthy pipeline of investment opportunities in which to deploy further capital. The Investment Advisor and the Board will endeavour to build on the encouraging performance of the last six months and look forward to updating shareholders at the year end.

The Company

The Net Asset Value ("NAV") per share of the Company as at 31 July 2021 was 542.30 pence per share, representing an increase of 23.9 per cent. on the NAV per share of 437.63 pence as at 31 January 2021. The share price of the Company as at 31 July 2021 was 393.00 pence, representing an increase of 45.0 per cent. on the share price of 271.00 pence as at 31 January 2021.

The Company maintains strong liquidity and prudent levels of third-party leverage. The Company has cash balances of £19.7 million[1] as at 31 July 2021, which are available to support the existing portfolio, meet committed obligations and to deploy into attractive investment opportunities. Net debt in the underlying portfolio stands at 0.6x EBITDA in aggregate. In June 2021, the Company partially sold down its stake in Luceco plc, returning £15.0 million cash to ESO to maintain liquidity and finance new acquisitions.

The Portfolio

The Company's unquoted portfolio is valued at a weighted average enterprise value to EBITDA multiple of 6.4x for mature assets (excluding assets investing for growth). The valuation has been derived by reference to relevant quoted comparables, after the application of an appropriate discount to adjust for the portfolio's scale and unquoted nature (i.e. an illiquidity discount). Given the use of quoted comparables/actuals generally, the valuation reflects the fair value of assets as at the balance sheet date. The Investment Advisor notes that the fair market value of the portfolio remains exposed to a volatile macro environment and consequent equity valuations.

The share price of Luceco plc as at 31 July 2021 was 388.00 pence, representing an increase of 49.2 per cent. vs. 31 January 2021. On 16 July 2021, Luceco released a trading update for the six months ended 30 June 2021, announcing trading ahead of expectations, with sales of £108.0 million, a 51.0 per cent. increase vs. 2020 and 31.0 per cent. vs. 2019. In addition, the business achieved gross margin of 38.5 per cent. (a 0.1 per cent. increase vs. 2020) and operating profit of £19.0 million (a 115.9 per cent. increase vs. 2020), with profitability successfully defended against inflationary cost pressures. The business announced a full year forecast of at least £220.0 million sales and at least £39.0 million operating profit, ahead of market expectations. In June 2021, ESO sold down 11.2 per cent. of its investment in Luceco plc in the market, providing £15.0 million in funds for new investments.

Whittard of Chelsea ("Whittard") continued to experience challenging trading conditions as a result of the COVID-19 pandemic. Trading was impacted by the closure of the UK retail estate for much of the period, as well as social distancing restrictions subsequent to the reopening of stores. Whittard's online channel continued to perform well, maintaining the increased scale attained in the prior year. In the medium term, reduced tourist volumes are expected to continue to provide a headwind to trading performance. The business continued to make pleasing progress in developing its international presence, securing a new franchise partner in South Korea, and new marketplace partners in the US and EU.

David Phillips continued its positive trajectory in the period despite difficult trading conditions, with sales growth supported by resilience in the Company's high growth business lines, residential projects and fitted. Looking forward, the Investment Advisor and the management team are focused on ensuring successful execution through this high growth period, against a complex background of high input costs, tightness in operational capacity and structural working capital cycle shifts. The Investment Advisor is encouraged by the fact that the business realised considerable structural improvements through both the initial turnaround phase and through the COVID-19 crisis which should allow the Company to operate efficiently at this higher trading level.

Pharmacy2U continued to grow both sales and registered patients in the period, building on the significant gains made in the prior year. Pharmacy2U has achieved EBITDA profitability, benefitting from the business' significantly increased scale.

In July 2021, the Company acquired a majority interest in Rayware, a wholesaler of six heritage British homeware brands, including the iconic Kilner and Mason Cash marques, as well as Viners, Typhoon, Ravenhead and Price & Kensington. The business develops and distributes a wide product range including jars, mixing bowls, cutlery, glassware and tableware. The business has performed strongly over the recent period, growing sales and gaining market share by maintaining uninterrupted supply to customers through the period of COVID-19 disruption and benefitting from long term market drivers. Looking to the future, the business has a number of attractive growth avenues available, with the Investment Advisor seeking to support the development of an omni-channel strategy across domestic and international markets.

The Investment Advisor continues to monitor the Company's credit fund investments. European Capital Private Debt Fund has completed the deployment of the Company's committed capital in the fund and continues to distribute capital to the Company. Both Atlantic Credit Opportunities Fund and Prelude have achieved strong performance in the period, ahead of the high yield market and hedge fund peers, delivering an 18.4 per cent. return and 17.5 per cent. return respectively in the six months ended 30 June 2021.

The Investment Advisor would like to extend its gratitude to the management and employees of the portfolio for their continuing hard work and welcome the team at Rayware. The Investment Advisor would like to thank the Board and the Company's shareholders for their continued support.

EPIC Investment Partners LLP

Investment Advisor to the Company

6 September 2021

⁽¹⁾Company liquidity is stated inclusive of cash held by associates in which the Company is the sole investor.

Biographies of the Directors

Biographies of the Investment Advisor

Independent Review Report to EPE Special Opportunities Limited

Conclusion

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 2021 which comprises the Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity, Statement of Cash Flows and the related explanatory notes.  

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly report for the six months ended 31 July 2021 is not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting and the AIM Rules. 

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.  We read the other information contained in the half-yearly report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion. 

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. 

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards.  The Directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with IAS 34. 

Our responsibility 

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

The purpose of our review work and to whom we owe our responsibilities

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. 

KPMG Audit LLC

Chartered Accountants

Heritage Court

41 Athol Street

Douglas

Isle of Man IM1 1LA

6 September 2021

Statement of Comprehensive Income

For the six months ended 31 July 2021

The total column of this statement represents the Statement of Comprehensive Income, prepared in accordance with IFRS. The supplementary revenue return and capital return columns are prepared in accordance with the Board of Directors' agreed principles, which are that the net gain/loss on investments is allocated to the capital column and all other income and expenses are allocated to the revenue column. All items derive from continuing activities.

Statement of Financial Position

As at 31 July 2021

Statement of Changes in Equity

For the six months ended 31 July 2021

Statement of Cash Flows

For the six months ended 31 July 2021

Notes to the Financial Statements

For the six months ended 31 July 2021

1    The Company

The Company was incorporated with limited liability in the Isle of Man on 25 July 2003. The Company then re-registered under the Isle of Man Companies Act 2006, with registration number 008597V. On 11 September 2018, the Company re-registered under the Bermuda Companies Act 1981, with registration number 53954. The Company moved its operations to Jersey with immediate effect on 17 May 2017 and has subsequently operated from Jersey only.

The Company's ordinary shares are quoted on AIM, a market operated by the London Stock Exchange, and the Growth Market of the Aquis Stock Exchange (formerly the NEX Exchange).

The interim financial statements are as at and for the six months ended 31 July 2021, comprising the Company and its associates. The interim financial statements are unaudited.

The financial statements of the Company as at and for the year ended 31 January 2021 are available upon request from the Company's business office at Liberation House, Castle Street, St Helier, Jersey, JE1 2LH  and the registered office at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda, or at www.epespecialopportunities.com.

The Company's portfolio investments are held in three associates (ESO Investments 1 Limited, ESO Investments 2 Limited and ESO Alternative Investments LP). The remainder of the Company's subsidiary companies and associates are to be dissolved or are in the process of liquidation.

The principal activity of the Company and its associates is to arrange income yielding financing for growth, buyout and special situations and holding the investments and its associates with a view to exiting in due course at a profit.

The Company has no employees.

2    Statement of compliance

These interim financial statements for the six months ended 31 July 2021 have been prepared in accordance with IAS 34 Interim Financial Reporting and should be read in conjunction with Company's last annual financial statements as at and for the year ended 31 January 2021. They do not include all of the information required for a complete set of financial statements prepared in accordance with IFRS Standards. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Company's financial position and performance since the last annual financial statements.

The annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards. They were previously prepared in accordance with IFRS as adopted by the EU. This change has no impact on the financial statements.

These interim financial statements were authorised for issue by the Company's Board of Directors on 6 September 2021.

3    Significant accounting policies

COVID 19 Impact:

The COVID-19 pandemic has had a significant impact on the valuation multiples, derived from quoted comparables, used in the preparation of the fair market valuation of the Company's unquoted investments. These quoted comparables are subject to both market volatility and uncertainty due to the impact of the pandemic and their trading outlook. The performance and financial position forecasted for the Company's portfolio is subject to the wider market uncertainty caused by the COVID-19 pandemic. These inputs have been used in the preparation of the fair market valuation of the Company's unquoted investments.

4    Financial risk management

The financial risk management objectives and policies are consistent with those disclosed in the financial statements as at and for the year ended 31 January 2021.

5    Investment advisory, administration fees and profit share

Investment advisory fees

Company

The investment advisory fee payable to EPIC Investment Partners LLP, previously known as EPIC Private Equity LLP, is assessed and payable at the end of each fiscal quarter and is calculated as 2 per cent. of the Company's NAV where the Company's NAV is less than £100 million; otherwise the investment advisory fee shall be calculated as the greater of £2.0 million or the sum of 2 per cent. of the Company's NAV comprising Level 3 portfolio assets (i.e. unquoted assets), 1 per cent. of the Company's NAV comprising Level 1 assets (i.e. quoted assets), no fees on assets which are managed or advised by a third party-manager, 0.5 per cent. of the Company's net cash (if greater than nil), and 2 per cent. of the Company's net cash (if less than nil) (i.e. reducing fees for net debt positions).

The charge for the current period was £1,028,984 (for the period ended 31 July 2020: £937,976; year ended 31 January 2021: £1,937,207). The amount outstanding as at 31 July 2021 was £528,984 (for the period ended 31 July 2020: £500,000; year ended 31 January 2021: £500,000).

Administration fees

EPIC Administration Limited, trading as EPIC Investments Partners and previously known as EPE Administration Limited, provides accounting and financial administration services to the Company. The fee payable to EPIC Administration Limited is assessed and payable at the end of each fiscal quarter and is calculated as 0.15 per cent. of the Company's NAV where the Company's NAV is less than £100 million (subject to a minimum fee of £35,000); otherwise the administration fee shall be calculated as 0.15 per cent. of £100 million plus a fee of 0.1 per cent. of the excess of the Company's NAV above £100 million.

The charge for the current period was £108,424 (for the period ended 31 July 2020: £70,242; for the year ended 31 January 2021: £163,212).

Other administration fees during the period were £38,272 (for the period ended 31 July 2020: £27,441; for the year ended 31 January 2021: £66,234).

Profit share in ESO Investments 1 Limited

The distribution policy of ESO Investments 1 Limited includes an allocation of profits to the Investment Advisor such that, for each investment where a returns hurdle of 8 per cent per annum has been achieved, the Investment Advisor is entitled to receive 20 per cent of the increase in the base value of investment. For the period ended 31 July 2021, £400,872 (for the period ended 31 July 2020: £1,633,929; for the year ended 31 January 2021: £767,311) has been credited to the profit share account of the Investment Advisor in the records of ESO Investments 1 Limited.

Profit share in ESO Investments 2 Limited

The distribution policy of ESO Investments 2 Limited includes an allocation of profit to the Investment Advisor such that, for each investment where a returns hurdle of 8 per cent per annum has been achieved, the Investment Advisor is entitled to receive 20 per cent of the increase in the base value of investment. For the period ended 31 July 2021, £26,191,448 (for the period ended 31 July 2020: £4,736,542; for the year ended 31 January 2021: £16,125,708) has been credited to the profit share account of the Investment Advisor in the records of ESO Investments 2 Limited.

6    Share-based payment expense

Certain employees (including Directors) of the Company and the Investment Advisors receive remuneration in the form of equity settled share-based payment transactions, through a Joint Share Ownership Plan ("JSOP").

The cost of equity settled transactions with certain Directors of the Company and other participants (including employees, members and consultants of the Investment Advisor) ("Participants") is measured by reference to the fair value at the date on which they are granted. The fair value is determined based on the share price of the equity instrument at the grant date.

The Trust was created to award shares to Participants as part of the JSOP. Participants are awarded a certain number of shares ("Matching Shares") which are subject to a three-year service vesting condition from the grant date. In order to receive their Matching Share allocation Participants are required to purchase shares in the Company on the open market ("Bought Shares"). The Participant will then be entitled to acquire a joint ownership interest in the Matching Shares for the payment of a nominal amount, on the basis of one joint ownership interest in one Matching Share for every Bought Share they acquire in the relevant award period.

The Trust holds the Matching Shares jointly with the Participant until the award vests. These shares carry the same rights as rest of the ordinary shares.

The Trust held 1,748,193 (for the period ended 31 July 2020: 1,419,004; for the year ended 31 Jan 2021: 1,419,004) matching shares at the period end which have traditionally not voted.

During the period, 329,189 shares were acquired by the Trust for the JSOP scheme (2021: 462,435). No shares were vested during the period to the JSOP participants (2021: nil). 154,110 shares were awarded to the JSOP participants in the period (2021: 271,995).

The amount expensed in the income statement has been calculated by reference to the grant date at a fair value of the equity instrument and the estimated number of equity instruments to be issued after the vesting period, less the amount paid for the joint ownership interest in the Matching Shares. The total expense recognised on the share-based payments during the period amounts to £396,520 (for the period ended 31 July 2020: £217,715; for the year ended 31 Jan 2021: £682,525), of which £320,869 related to expenses incurred during the period ended 31 July 2021 and £75,651 related to expenses incurred in the year ended 31 January 2020. Of the total share-based payment expense during the period ended 31 July 2021, £23,386 related to the Directors (31 Jan 2021: £48,588) and the balance related to members, employees and consultants of the Investment Advisor.

7    Other expenses

The breakdown of other expenses presented in the statement of comprehensive income is as follows:

8    Investments at fair value through profit or loss

9    Fair value of financial instruments

The Company determines the fair value of financial instruments with reference to IPEV guidelines and the valuation principles of IFRS 13 (Fair Value Measurement). The Company measures fair value using the IFRS 13 fair value hierarchy, which reflects the significance and certainty of the inputs used in deriving the fair value of an asset:

·      Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments;

·      Level 2: Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active or other valuation techniques in which all significant inputs are directly or indirectly observable from market data;

·      Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument's valuation. This category includes instruments that are valued based on quoted prices for similar instruments but for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Valuation framework

The Company employs the valuation framework detailed below with respect to the measurement of fair values. A valuation of the Company's investments is prepared by the Investment Advisor with reference to IPEV guidelines and the valuation principles of IFRS 13 (Fair Value Measurement). The Investment Advisor recommends these valuations to the Board of Directors. The Board of Directors considers the valuations recommended by the Investment Advisor, determines any amendments required and thereafter adopts the fair values presented in the Company's financial statements.

Quoted equity investments

Quoted investments traded in an active market are classified as Level 1 in the IFRS 13 fair value hierarchy. The Company's investment in Luceco is a Level 1 asset. For Level 1 assets, the Company calculates the holding value from the latest market price (without adjustment).

Unquoted private equity investments and unquoted fund investments

Private equity investments and fund investments are classified as Level 3 in the IFRS 13 fair value hierarchy. The Company's investments in Whittard, David Phillips, Rayware, Pharmacy2U, Atlantic Credit Opportunities Fund Limited, Prelude and European Capital Private Debt Fund LP are considered to be Level 3 assets. Various valuation techniques may be applied in determining the fair value of investments held as Level 3 in the fair value hierarchy;

·      For recently acquired assets, the Company considers the investment cost, in conjunction with cross referencing of the valuation to quoted comparables multiples, as an applicable fair value for the asset;

·      For underperforming assets, the Company considers the net asset or recovery valuation more applicable, in particular where the business' performance be contingent on shareholder financial support;

·      For performing assets, the Company considers the market approach to be the most appropriate with a specific focus on trading comparables, applied on a forward basis. The Company will also consider transaction comparables, applied on a historic basis;

·      For assets managed and valued by third party managers, the Company reviews the valuation methodology of the third-party manager. If deemed appropriate and consistent with the Company's reporting standards, the Company will use the valuation prepared by the third-party manager.

The Investment Advisor believe that it is appropriate to apply an illiquidity discount to the multiples of comparable companies when using them to calculate valuations for small, private companies. This discount adjusts for the difference in size between generally larger comparable companies and the smaller assets being valued. The illiquidity discount also incorporates the premium the market gives to comparable companies for being freely traded or listed securities. The Investment Advisor has determined between 15 per cent. and 25 per cent. to be an appropriate illiquidity discount with reference to market data and transaction multiples seen in the market in which the Investment Advisor operates.

Where portfolio investments are held through subsidiary/associate holding companies, the net assets of the holding company are added to the value of the portfolio investment being assessed to derive the fair value of the holding company held by the Company.

Fair value hierarchy - Financial instruments measured at fair value

The table below analyses the underlying investments held by the associates measured at fair value at the reporting date by the level in the fair value hierarchy into which the fair value measurement is categorised. Debt securities are also included, as these are also stated at fair value with the Board assessing the fair value of the total investment, which includes debt and equity. The amounts are based on the values recognised in the statement of financial position of the associates.

The following table, detailing the value of portfolio investments only, shows a reconciliation of the opening balances to the closing balances for fair value measurements in level 3 of the fair value hierarchy for the underlying investments held by the associates.

Significant unobservable inputs used in measuring fair value

The table below sets out information about significant unobservable inputs used at 31 July 2021 in measuring financial instruments categorised as Level 3 in the fair value hierarchy.

Significant unobservable inputs are developed as follows:

·      Trading comparable multiple: valuation multiples used by other market participants when pricing comparable assets. Relevant comparable assets are selected from public companies determined to be proximate to the Company's investment based on similarity of sector, size, geography or other relevant factors. The valuation multiple for a comparable company is determined by calculating the enterprise value of the company implied by its market price as at the reporting date and dividing by the relevant financial metric (sales or EBITDA).

·      Reported net asset value: for assets managed and valued by a third party, the manager provides the Company with periodic valuations of the Company's investment. The Company reviews the valuation methodology of the third-party manager. Adjustments are made to third party valuations where considered necessary to arrive at the Director's estimate of fair value.

Although management believes that its estimates of fair value are appropriate, the use of different methodologies or assumptions could lead to different measurements of fair value. For fair value measurements of Level 3 assets, changing one or more of the assumptions used to reasonably possible alternative assumptions would have the following effects on the Level 3 investment valuations:

·      For the Company's investment in mature Level 3 assets, the valuations used in the preparation of the financial statements imply an average EV to EBITDA multiple of 6.4x (weighted by each asset's total valuation) (2021: 5.8x). The key unobservable inputs into the preparation of the valuation of mature Level 3 assets was the EV to EBITDA multiple applied to the asset's financial forecasts. If these inputs had been taken to be 25 per cent. higher, the value of the Level 3 assets and profit for the period would have been £11,074,537 higher. If these inputs had been taken to be 25 per cent. lower, the value of the Level 3 assets and profit for the period would have been £15,776,787 lower. A corresponding increase or decrease in the asset's financial forecasts would have a similar impact on the Company's assets and profit.

·      For the Company's investment in growth Level 3 assets, the valuations used in the preparation of the financial statements imply an average EV to sales multiple of 1.5x (weighted by each asset's total valuation) (2021: 1.6x). The key unobservable inputs into the preparation of the valuation of growth Level 3 assets were the EV to sales multiple applied to the asset's financial forecasts. If these inputs had been taken to be 25 per cent. higher, the value of the Level 3 assets and profit for the period would have been £878,792 higher. If these inputs had been taken to be 25 per cent. lower, the value of the Level 3 assets and profit for the period would have been £878,792 lower. A corresponding increase or decrease in the asset's financial forecasts would have a similar impact on the Company's assets and profit.

10  Share capital

11  Basic and diluted loss per share (pence)

Basic profit per share is calculated by dividing the profit of the Company for the period attributable to the ordinary shareholders of £34,309,688 (for the period ended 31 July 2020: loss of (£4,172,887); for the year ended 31 January 2021: profit of £38,253,046) divided by the weighted average number of shares outstanding during the period of 32,148,823 after excluding treasury shares (for the period ended 31 July 2020: 32,885,795; for the year ended 31 January 2021: 32,782,089).

Diluted profit per share is calculated by dividing the profit of the Company for the period attributable to ordinary shareholders of £34,309,688 (for the period ended 31 July 2020: loss of (£4,172,887); for the year ended 31 January 2021: profit of £38,253,046) divided by the weighted average number of ordinary shares outstanding during the period, as adjusted for the effects of all dilutive potential ordinary shares, of 32,148,823 after excluding treasury shares (for the period ended 31 July 2020: 32,885,795 ; for the year ended 31 January 2021: 32,782,089).

12  NAV per share (pence)

The Company's NAV per share of 542.30 pence (for the period ended 31 July 2020: 303.04 pence; for the year ended 31 January 2021: 437.63 pence) is based on the net assets of the Company at the period end of £174,341,891 (for the period ended 31 July 2020: £99,846,187; for the year ended 31 January 2021: £140,692,608) divided by the shares in issue at the end of the period of 32,148,823 after excluding treasury shares (for the period ended 31 July 2020: 32,948,303 ; for the year ended 31 January 2021: 32,148,823).

The Company's diluted NAV per share of 542.30 pence (for the period ended 31 July 2020: 303.04 pence; for the year ended 31 January 2021: 437.63 pence) is based on the net assets of the Company at the period end of £174,341,891 (for the period ended 31 July 2020: £99,846,187; for the year ended 31 January 2021: £140,692,608) divided by the shares in issue at the end of the period, as adjusted for the effects of dilutive potential ordinary shares of 32,148,823 after excluding treasury shares (for the period ended 31 July 2020: 32,948,303; for the year ended 31 January 2021: 32,148,823).

13  Unsecured loan note instruments

The Company has issued Unsecured Loan Notes ("ULN") which pay interest at 7.5 per cent. per annum and are redeemable on 23 July 2022 (subject to voluntary early redemption by the Company). At 31 July 2021, £3,987,729 of ULNs in principal amount were outstanding. Issue costs totalling £144,236 have been offset against the value of the loan note instrument and are being amortised over the life of the instrument. The total issue costs expensed in the period ended 31 July 2021 was £10,303 (for the period ended 31 July 2020: £10,303; for the year ended 31 Jan 2021: £20,605). The carrying value of the ULNs in issue at the period end was £3,967,124 (for the period ended 31 July 2020: £3,946,520; for the year ended 31 Jan 2021: £3,956,822). The total interest expense on the ULNs for the period is £159,843 (for the period ended 31 July 2020: £159,842; for the year ended 31 Jan 2021: £319,685). This includes the amortisation of the issue costs. The carrying value of ULN is presented under current liabilities in the current period (previously presented under non-current liabilities) as they are redeemable within 12-month period from the Statement of Financial Position date.

14  Related parties

Directors' fees expense during the period amounted to £74,498 (for the period ended 31 July 2020: £77,000; for the year ended 31 January 2021: £154,000) of which £10,333 is accrued as at 31 July 2021 (for the period ended 31 July 2020: £12,833; for the year ended 31 January 2021: £12,833).

Certain Directors of the Company and other participants are incentivised in the form of equity settled share-based payment transactions, through a Joint Share Ownership Plan (see note 6).

Four of the Directors have interests in the shares of the Company as at 31 July 2021 (31 July 2020: five). Nicholas Wilson holds 131,265 ordinary shares (31 July 2020: 131,265), Clive Spears holds 136,314 ordinary shares (31 July 2020:133,270), Heather Bestwick holds 22,307 ordinary shares (31 July 2020: 19,263) and David Pirouet holds 14,073 shares (31 July 2020: 11,162). Robert Quayle resigned during the period ended 31 July 2021. During the period of his directorship with the Company, he held 112,577 ordinary shares (31 July 2020: 112,577).

15  Subsequent events

On 2 September 2021, Michael Gray was appointed as a Director of the Company.

Company Information