FINAL RESULTS FOR THE YEAR ENDED 31 MARCH 2017

Notes to the consolidated financial statements for the year ended 31 March 2017

1. General information

Draper Esprit plc (the "Company") is a public limited company incorporated and domiciled in England and Wales. On 15 June 2016, the Company listed on the London Stock Exchange's AIM market and the Irish Stock exchange's ESM market (the "IPO"). This is the Company's first Annual Report as a public company. The Company's registered address is 20 Garrick Street, London WC2E 9BT.

 

The Company is the ultimate parent company in which results of all subsidiaries are consolidated. The consolidated financial statements ("the Group accounts") for the year ended 31 March 2017 comprise the financial statements of the Company and its subsidiaries (together, "the Group"). The comparative period presents the consolidated statement of comprehensive income, cash flows and statement of changes in equity for the period since 29th September 2015 (incorporation date of the Company) through to 31 March 2016. The comparative consolidated and Company balance sheets are presented as at 31 March 2016.

 

The consolidated financial statements are presented in Pounds Sterling (£) which is the currency of the primary economic environment the Group operates in. All amounts are rounded to the nearest thousand, unless otherwise stated.

 

2. Adoption of new and revised standards

 

In the current year, the following new and revised Standards and Interpretations have been adopted and have affected the amounts reported in these consolidated financial statements.

 

Standards affecting the reported results or financial position

 

In the current year, there were no new and revised standards and Interpretations that have been adopted which affected the amounts reported in these consolidated financial statements.

 

Standards not affecting the reported results or financial position

 

At the date of authorisation of these consolidated financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective:

 

·      IFRS 15 Revenue from Contracts with Customers is the only new Standard effective from 1 January 2017.  IFRS 15 establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. The Directors have not yet fully determined the impact on the Group's consolidated financial statements as a result of adopting this standard.

 

·      IFRS 16 Leases was issued in January 2016. It will result in almost all leases being recognised on the balance sheet, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low value leases. The accounting for lessors will not significantly change. The standard will affect primarily the accounting for the Group's operating leases. As at the reporting date, the Group has non-cancellable operating lease commitments. The Directors have not yet fully determined the impact on the Group's consolidated financial statements as a result of adopting this standard

 

·      IFRS 9 Financial Instruments: IFRS 9 will eventually replace IAS 39 in its entirety. The process has been divided into three main components, being classification and measurement; impairment; and hedge accounting. The Group provisionally assesses the potential effect to be immaterial given the majority of its financial assets will be held 'at fair value through profit or loss ("FVTPL"). IFRS 9 is expected to be implemented in 2018. The Directors have not yet fully determined the impact on the Group's consolidated financial statements as a result of adopting this standard.

 

 

 

 

 

 

 

3. Significant accounting policies 

 

 

Basis of accounting

The Group accounts have been prepared and approved by the Directors in accordance with all relevant IFRSs as issued by the International Accounting Standards Board ("IASB"), and interpretations issued by the IFRS Interpretations Committee, endorsed by the European Union ("EU").  The financial reporting framework that has been applied in the preparation of the Company financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practise). 

 

a)       Basis of consolidation

The consolidated financial statements comprise the Company and the results, cash flows and changes in equity of the following subsidiary undertakings:

Name of undertaking	Nature of business	Country of incorporation	% ownership
Esprit Capital Partners LLP	Investment Management	England	100%
Encore Ventures LLP	Investment management	England	71%
Esprit Capital I GP Limited	General partner	England	100%
DFJ Esprit III GP Limited	General partner	England	100%
Esprit Capital III Founder GP Limited	General partner	England	100%
Esprit Capital III GP LP	General partner	England	100%
Encore I GP Limited	General partner	England	100%
Encore I Founder GP Limited	General partner	England	100%
Esprit Capital Management Limited	Admin company	England	100%
Esprit Capital Holdings Limited	Dormant	England	100%
Esprit Nominees Limited	Dormant	England	100%
Esprit Capital I CIP Limited	Dormant	England	100%

Subsidiaries

Subsidiaries are entities controlled by the Group. Control, as defined by IFRS 10, is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Subsidiaries are fully consolidated from the date on which the Group effectively obtains control. They are de-consolidated from the date that control ceases. Control is reassessed whenever circumstances indicate that there may be a change in any of these elements of control. Refer to note 4(b) for further information. The Group has accounted for the acquisition of Esprit Capital Partners LLP on 15 June 2016 as an acquisition in accordance with IFRS 3 Business Combinations and not as a reverse acquisition having assessed the substance of the transaction, including control and changes of in ownership.

 

Associates 

Associates are all entities over which the Group has significant influence but not control or joint control. This is generally the case where the Group holds between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting, after initially being recognised at cost. Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group's share of the post-acquisition profits or losses of the investee in profit or loss, and the Group's share of movements in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment.

 

When the Group's share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the other entity. The carrying amount of equity-accounted investments is tested for impairment where there are indications that the carrying value may no longer be recoverable.

 

 

 

 

Investment company

In accordance with the provisions of IFRS 10, Draper Esprit plc considers itself to be an investment entity and its wholly-owned subsidiary, Draper Esprit (Ireland) Limited to be an investment company as its sole purpose is hold investments on behalf of the Group. Consequently, Draper Esprit (Ireland) Limited is not consolidated in accordance with IFRS 10, instead it is recognised as an investment held at fair value through the profit and loss on the consolidated balance sheet. Loans to investment vehicles are treated as net investments at fair value through the profit and loss.

 

The below is a list of entities that are controlled and not consolidated but held as investments at fair value through the profit and loss on the consolidated balance sheet.

Name of undertaking	Principal activity	Country of incorporation
Draper Esprit (Ireland) Limited	Investment company	Ireland
Esprit Capital III LP	Limited partnership	England
Esprit Capital IV LP	Limited partnership	England
Esprit Investments (1) LP	Limited partnership	England

Limited Partnerships (co-investment) 

The following limited partnerships that the Group's General Partners are members of are not considered to be controlled and therefore not consolidated in these financial statements:

Name of undertaking	Principal activity	Country of incorporation
Encore I GP LP	General partner	England
DFJ Esprit II Founder LP	Co-investment limited partnership	England
DFJ Esprit II Founder 2 LP	Co-investment limited partnership	England
Encore I Founder LP	Co-investment limited partnership	England
Encore I Founder 2014 LP	Co-investment limited partnership	England
Encore I Founder 2014-A LP	Co-investment limited partnership	England
Esprit Capital III Founder LP	Co-investment limited partnership	England

b)       Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for services provided in the normal course of business, net of discounts, VAT and other sales related taxes. All revenue from services is generated within the United Kingdom and is stated exclusive of value added

tax. Revenue from services comprises: 

 

 

·            Fund management services

 

Fund management fees are either earned at a fixed annual rate or are set at a fixed percentage of funds under management, measured either by commitments or invested cost, depending on the stage of the fund being managed. Revenues are recognised as the related services are provided.
 

·            Arrangement fees

 

Occasionally Draper Esprit plc may charge a fee as part of arranging an investment from one of the Funds it manages into a portfolio company. Such fees are charged at a rate determined on a case-by-case basis and are payable upon completion of the investment.

 

·            Portfolio directors' fees

 

Portfolio directors' fees are annual fees, charged in arrears, to an investee company and payable to Draper Esprit plc as the fund manager. Draper Esprit plc only charges directors' fees on a limited number of the investee companies.

 

c)       Deferred income

 

The Groups management fees are typically billed either quarterly of half-yearly in advance. Where fees have been billed for an advance period the amounts are credited to deferred income, and then subsequently released through the profit and loss accounting the period the fees relate to.

 

d)       Business combinations

 

The Group applies the acquisition method in accounting for business combinations. The consideration transferred by the Group to obtain control of a subsidiary is calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred and the equity interests issued by the Group, which includes the fair value of any asset or liability arising from a contingent consideration arrangement. Acquisition costs are expensed as incurred. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values.
 

The Group recognises identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognised in the acquiree's financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition-date fair values. Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets. If the fair values of identifiable net assets exceed the sum calculated above, the excess amount (ie gain on a bargain purchase) is recognised in profit or loss immediately.
 

e)       Goodwill and other intangible assets

 

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

 

When the consideration transferred by the Group in a business combination includes an asset or liability resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the 'measurement period' (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

 

Other intangible assets

 

Certain previously unrecognised assets acquired in a business combination that qualify for separate recognition are recognised as intangible assets at their fair values e.g. brand names, customer contracts and lists (see note 6). All finite-lived intangible assets, are accounted for using the cost model whereby capitalised costs are amortised on a straight-line basis over their estimated useful lives. Residual values and useful lives are reviewed at each reporting date. In addition, they are subject to impairment testing as described below. Customer contracts are amortised on a straight-line basis over their useful economic lives which is typically the duration of the underlying contracts. The following useful economic lives are applied:

 

• customer contracts: 8 years. 

  

f)        Impairment

 

For the purposes of assessing impairment, assets are grouped at the lowest level for which there are largely independent cash inflows ("cash generating units" or "CGU"). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. Goodwill is allocated to those cash generating units that are expected to benefit from synergies of the related business combination and represent the lowest level within the Group at which management monitors goodwill. All other individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

 

An impairment loss is recognised in the consolidated statement of total comprehensive income for the amount by which the assets or cash-generating units carrying amount exceeds its recoverable amount which is the higher of fair value less costs to sell and value-in-use. To determine value-in-use, management estimates expected future cashflows from each cash-generating unit and determine a suitable discount rate in order to calculate the present value of those cashflows. Discount factors are determined individually for each cash-generating unit and reflect their respective risk profile as assessed by management. Impairment losses for cash generating units reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any remaining impairment loss is charged pro-rata to the other assets in the cash -generating unit with the exception of goodwill, and all assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment charge is reversed if the cash-generating units recoverable amount exceeds its carrying amount.  

 

g)       Foreign currency

 

Transactions entered into by Group entities in a currency other than the functional currency in which they operate are recorded at the rates prevailing when the transactions occur.  Foreign currency monetary assets and liabilities are translated at the rates prevailing at the reporting date.  Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in the profit and loss. 

The individual financial statements of the Group's subsidiary undertakings are presented in their functional currency. For the purpose of these consolidated financial statements, the results and financial position of each subsidiary undertaking are expressed in pounds sterling, which is the presentation currency for these consolidated financial statements.

 

The assets and liabilities of the Group's undertakings whose functional currency is not pounds sterling are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period.

  

h)       Financial assets

 

All financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned and are initially measured at fair value, plus transaction costs, except for those financial assets classified at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified by the Group into the following specified categories: financial assets 'at fair value through profit or loss' (FVTPL) and 'loans and receivables'. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

 

Fair value through profit or loss

A financial asset may be designated as at FVTPL upon initial recognition if:

 

(a) such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

 

(b) the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Draper Esprit Group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

 

(c) it forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL.

 

The Group consider that the investment interests it holds in Esprit Capital III LP, Esprit Capital III Founder LP, DFJ Esprit II Founder LP, Esprit Capital IV LP and Esprit Investments(I) LP are appropriately designated as at FVTPL as they meet criteria (b) above.

 

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, these are measured at amortised cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Group's cash and cash equivalents, trade and most other receivables fall into this category of financial instruments.

 

Individually significant receivables are considered for impairment when they are past due or when other objective evidence is received that a specific counterparty will default.

 

The Groups loans and receivables comprise trade and other receivables and cash and cash equivalents in the consolidated statement of financial position.

 

i)              Financial liabilities

 

The Group's financial liabilities may include borrowings and trade and other payables.

 

All financial liabilities are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned and are initially measured at fair value, plus transaction costs.

 

Financial liabilities are measured subsequently at amortised cost using the effective interest Method. All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included within finance costs or finance income.

 

j)         Provisions

 

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the outflow of resources embodying the economics benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

 

k)       Share capital

 

Financial instruments issued by the Group are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset.

 

The Group's ordinary shares are classified as equity instruments.

 

l)         Defined contribution schemes

 

Contributions to defined contribution pension schemes are charged to the consolidated statement of comprehensive income in the year to which they relate.

m)     Share based payments

 

Where equity settled share options are awarded to employees, the fair value of the options at the date of grant is charged to the consolidated statement of comprehensive income over the vesting period.  Non-market vesting conditions are taken into account by adjusting the number of equity instruments expected to vest at each reporting date so that, ultimately, the cumulative amount recognised over the vesting period is based on the number of options that eventually vest.  Non-vesting conditions and market vesting conditions are factored into the fair value of the options granted.  As long as all other vesting conditions are satisfied, a charge is made irrespective of whether the market vesting conditions are satisfied.  The cumulative expense is not adjusted for failure to achieve a market vesting condition or where a non-vesting condition is not satisfied.

 

Where the terms and conditions of options are modified before they vest, the increase in the fair value of the options, measured immediately before and after the modification, is also charged to the consolidated statement of comprehensive income over the remaining vesting period. Where equity instruments are granted to persons other than employees, the consolidated statement of comprehensive income is charged with the fair value of goods and services received.

 

n)       Leased assets

 

Where substantially all of the risks and rewards incidental to ownership of a leased asset have been transferred to the Group (a "finance lease") the asset is treated as if it had been purchased outright.  The amount initially recognised as an asset is the lower of the fair value of the leased property and the present value of the minimum payments payable of the term of the lease.  The corresponding lease commitment is shown as a liability.  Lease payments are analysed between capital and interest.  The interest element is charged to the consolidated statement of comprehensive income over the period of the lease and is calculated so that it represents constant proportion of the lease liability.  The capital element reduces the balance owed to the lessor.

 

Where substantially all of the risks and rewards incidental to the ownership are not transferred to the Group (an "operating lease") the total rentals payable under the lease are charged to the consolidated statement of comprehensive income on a straight line basis over the lease term.  The aggregate benefit of lease incentives is recognised as a reduction of the rental expense over the lease term on a straight line basis.

 

o)       Dividends

Dividends are recognised when they become legally payable.  In the case of interim dividends to equity shareholders, this is when declared by directors.  In the case of final dividends, this is when approved by the shareholders at the AGM.

 

p)       Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

q)       Deferred tax

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax laws and rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

r)        Property, Plant and equipment

 

Fixtures and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method, on the following basis:

 

Leasehold improvements                  - over the term of the lease

Fixtures and equipment                     - 33% per annum straight line

Computer equipment                         - 33% per annum straight line

 

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

 

 

s)       Cash and cash equivalents

 

Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments maturing within 90 days from the date of acquisition that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

 

t)        Segmental reporting

 

IFRS8, 'Operating Segments' defines operating segments as those activities of an entity about which separate financial information is available and which are evaluated by the Chief Operating Decision Maker to assess performance and determine the allocation of resource.  The Chief Operating Decision Maker has been identified by the Board of Directors as the Chief Executive Officer.

u)       Financial instruments

 

Financial assets and financial liabilities are recognised on the consolidated balance sheet when the Group becomes a party to the contractual provisions of the instrument.

 

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

 

Fair value measurement

Management uses valuation techniques to determine the fair value of financial assets. This involves developing estimates and assumptions consistent with how market participants would price the assets. Management bases its assumptions on observable data as far as possible but this is not always available. In that case management uses the best information available. Estimated fair values may vary from the actual prices that would be achieved in an arm's length transaction at the reporting date (see Note 4(a))

 

4         Critical accounting estimates and judgements

 

The Directors have made the following judgements and estimate that have had the most significant effect on the carrying amounts of the assets and liabilities in the consolidated financial statement. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

 

a)       Valuation of unquoted equity investments at fair value through the profit and loss

 

The judgements and estimations required to determine the appropriate valuation methodology of unquoted equity investments means there is a risk of material adjustment to the carrying amounts of assets and liabilities. These judgements include whether to increase or decrease investment valuations or not and require the use of judgement, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily available or observable.

 

The fair value of unlisted securities is established with reference to the International Private Equity and Venture Capital Valuation Guidelines (IPEVCVG). In line with the IPEVCVG, the Group may base valuations on earnings or revenues where applicable, market comparables, price of recent investments in the investee companies, or on net asset values.

 

The Group invests in early stage and growth technology companies, through predominantly unlisted securities. Given the nature of these investments, there are often no current or short-term future earnings or positive cashflows. Consequently, the most appropriate approach to determine fair value is based on a methodology with reference to observable market data, that being the price of the most recent transaction. Fair value estimates that are based on observable market data will be of greater reliability than those based on estimates and assumptions and accordingly where there have been recent investments by third parties, the price of that investment will generally provide a basis of the valuation.

 

The length of period for which it remains appropriate to use the price of recent investment depends on the specific circumstances of the investment, and the Group will consider whether the basis remains appropriate each time valuations are reviewed. If the 'price of recent investment' methodology is no longer considered appropriate, the Group then considers alternative methodologies in the IPEVCVG guidelines, being principally price-revenue or price-earnings multiples, depending upon the stage of the asset, requiring management to make assumptions over the timing and nature of future revenues and earnings when calculating fair value.

 

Where a fair value cannot be estimated reliably, the investment is reported at the carrying value at the previous reporting date unless there is evidence that the investment has since been impaired.

 

In all cases, valuations are based on the judgement of the Directors after consideration of the above and upon available information believed to be reliable, which may be affected by conditions in the financial markets. Due to the inherent uncertainty of the investment valuations, the estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and the differences could be material. Due to this uncertainty, the Group may not be able to sell its investments at the carrying value in these financial statements when it desires to do so or to realise what it perceives to be fair value in the event of a sale.

 

b)       Control assessment

 

The Group has a number of entities within its corporate structure and consideration has been made of which should be consolidated in accordance with IFRS 10 and which should not. The Group consolidates all entities where it has control over the following: power over the investee to significantly direct the activities; exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect the amount of the investor's returns. The Company does not consolidate qualifying investment companies it controls in accordance with IFRS 10 and instead recognises them as investments held at fair value through the profit and loss. See note 3 (a) for further details.

 

c)   Business combinations

 

The directors have undertaken a detailed assessment of the substance of the transaction through which the Company acquired the underlying investment vehicles and Esprit Capital Partners LLP and its subsidiaries with reference to the requirements of IFRS 10 and IFRS 3. Following that assessment directors have determined that this transaction is appropriately accounted for as an acquisition.

 

d)       Carrying amount of goodwill

 

Determining whether goodwill is impaired requires an estimation of the recoverable amount of the cash-generating units ("CGUs") to which goodwill is allocated. The recoverable amount is based on 'value in use' calculations which requires estimates of future cashflows expected from the cash generation unit (CGU) and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at balance sheet date was £20.5 million (31 March 2016: £nil)

 

 

5. Earnings per share and net asset value

 

The calculation of basic earnings per share is based on the profit attributable to shareholders and the number of basic average shares. When calculating the diluted earnings per share, the weighted average number of shares in issue is adjusted for the effect of all dilutive share options and awards. There was no dilution during the year as arising from the issue of share options.

 

 

 

31 March 2017	Profit after tax £'000	Weighted average no. of shares ('000)	Pence per share
Basic earnings per ordinary share	32,915	40,748	80.8

Net asset value ("NAV") per share is based on the net asset attributable to shareholders and the number of basic average shares. When calculating the diluted earnings per share, the weighted average number of shares in issue is adjusted for the effect of all dilutive share options and awards. There was no dilution during the year as arising from the issue of share options.

 

		Weighted	Pence per
31 March 2017	Net assets £'000	average no. of shares (000)	share
Net asset value per ordinary share	150,694	40,748	370

 

 

6. Intangible assets

		Customer
	Goodwill^	Contracts~	Total
	£'000s	£'000s	£'000s
Cost
Cost carried forward as at 1 April 2016
Additions during the year	-	-	-
Acquired through business combinations (note 8)	20,476	818	21,294
Cost as at 31 March 2017	20,476	818	21,294
Accumulated amortisation & Impairment
Amortisation carried forward as at 1 April 2016	-	-	-
Charge for the year	-	(136)	(136)
Accumulated amortisation & Impairment as at 31 March 2017	-	(136)	(136)
Net Book value:
As at 31 March 2017	20,476 -	682 -	21,158 -

 

^Goodwill of £20.5 million arose on the acquisition of the entire issued share capital of Esprit Capital Partners LLP, a Venture Capital manager based in the UK, on 15 June 2016 and represents the value of the acquired expertise and knowledge of the fund managers. The directors have identified the fund managers as the cash-generating unit ("CGU") being the smallest group of assets that generates cash inflows independent of cash flows from other assets or groups of assets. The fund managers are responsible for generating deal flow and working closely with investee companies creating value maximising returns for the Group. The Group tests goodwill annually for impairment comparing the recoverable amount using value-in-use calculations and the carrying amount. Value-in-use calculations are based on future expected cash flows generated by the CGU from the realisation of investments for the next eight years with reference to the most recent financial budget and forecasts. The key assumptions for the value in use calculations are the discount rate using pre-tax rates that reflect the current market assessments of the time value of money and risks specific to the CGU. The internal rate of return ("IRR") used was based on past performance and experience. The discount rate used was 10% and the IRR used was 20%.

 

~ An intangible asset of £0.8 million was also recognised in respect of the anticipated profit from the participation in Encore Ventures LLP as a consequence of the acquisition of Esprit Capital Partners LLP.

  

7. Investments

 

The Group holds investments through investment vehicles of two of the Funds it manages.  The investments are predominantly unlisted securities and are carried at fair value through the profit and loss. The Groups valuation policies are set out in note 4(a). The table below sets out the movement of in the balance sheet value of investments from the start to the end of the year, showing investments made, cash receipts and fair value movements.

 

 

 

	Year ended 31 Mar 2017	Period ended 31 Mar  2016
	£'000s	£'000s
As at 1 April 2016	-	-
Initial portfolio acquired on 15th June 2016^ Carry and Co-invest acquired on 15th June 2016	63,940 2,822	- -
Investments made post IPO*	20,602	-
Loans repaid from underlying investment vehicles	(17,137)	-
Unrealised gains on the revaluation of investments	35,744	-
As at 31 March 2017	105,971	-

 

^The initial portfolio was acquired on 15th June 2016 as part of the IPO which was satisfied by a mixture of cash (£40.0 million) and shares of (£23.9 million) issued by the Company.

*Investments made post IPO on 15th June 2016 are amounts the Company has invested in underlying investment vehicles. This is not the equivalent to the total amount invested in portfolio companies as existing cash balances from the investment vehicles are reinvested.

 

8.    Acquisition of Esprit Capital Partners LLP

On 15 June 2016, the Company acquired 100% of the member's capital of Esprit Capital Partners LLP, a Venture Capital Manager based in the United Kingdom. The business was acquired in order for Draper Esprit plc to become a self-managed investment entity. The revenues and profits of the acquired group would have been £1.2 million and £32.9 million had the entity been acquired at the beginning of the accounting period being 1^st  April 2016. Details of the business combination are as follows:

	£'000
Fair value of equity shares issued	24,000
Total	24,000
Recognised amounts of identifiable net assets:
Property plant and equipment	5
Intangible assets	818
Investments	2,675
Trade and other receivables	1,165
Cash and cash equivalents	495
Deferred tax liabilities	(310)
Trade and other payables	(1,324)
Net identifiable assets and liabilities	3,524
Goodwill	20,476

 

Consideration transferred

The acquisition was settled by issuing 8,000,000 shares of Draper Esprit plc. The fair value of the equity shares issued was based on the market value of Draper Esprit plc's traded shares on the acquisition date. Certain directors each received 2,911,311 ordinary shares pursuant to the terms of the Esprit Capital Acquisition Agreement on 15 June 2016 and agreed to immediately sell 681,156 of ordinary shares.

 

9. Share capital and share premium

 

Ordinary share capital

 

Allotted and fully paid	Number	Pence
At the beginning of the year	50,000	100
Redeemed during the year	(50,000)	100
Issued of share capital during the year	40,747,576	1
At the end of the year	40,747,576	1

 

^On 15 June 2016, 50,000 management shares were redeemed by the Company at par for 100 pence each.

 

On 15 June 2016, 40,673,909 of new ordinary shares of 1 pence each were issued for trading on the AIM and ESM at a price of 300 pence per share as part of an IPO transaction to purchase Esprit Capital III LP and acquire the Esprit Capital Partners LLP Group. The shares were issued as follows:

 

·      23,829,017 shares (£69.3 million) were issued to investors for cash proceeds net of issuance costs;

·      8,844,892 shares (£23.9 million) were issued for the acquisition of investment interests held by Draper Esprit Ireland in Esprit Capital III LP as described in note 7; and

·      8,000,000 shares (£24.0 million) were issued for the acquisition of Esprit Capital Partners LLP as described in note 8.

 

On 26 November 2016, a further 73,667 of new ordinary shares of 1 pence each were issued at a price of 350 pence per share to purchase Elderstreet Holdings limited.

 

 

 

Allotted and fully paid	£'000
	Share premium
	reserve^
At the beginning of the year	-
Premium arising on issue of ordinary shares	95,972
Equity issuance costs	(2,724)
At the end of the year	93,248

 

^The premium on the issue of ordinary shares in the year arises from the issue of 32,747,576 new ordinary shares of 1 pence each issued on the 15 June 2016 and 26 November 2016.

 

Merger relief reserve

In accordance with the Companies Acts 2006, a Merger Relief Reserve of £23.9 million was created on the issue of 8,000,000 ordinary shares for 300 pence each in Draper Esprit plc as consideration for the acquisition of 100% of the capital interests in Esprit Capital Partners LLP on 15^th June 2016. The Merger Relief Reserve forms part of the Groups distributable reserves.

 

 

10. Fair value measurements

This section should be read with reference to note 4(a). The Group classifies financial instruments measured at fair value through the profit and loss according to the following fair value hierarchy:

 

·      Level 1: inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

·      Level 2: inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

·      Level 3:  inputs are unobservable inputs for the asset or liability.

 

All investments are held at fair value through the profit and loss are classified as level 3 in the fair value hierarchy. As a consequence, the values of investments at balance sheet date are considered to be entirely based on Level 3 inputs. There were no transfers between Levels 1, 2 and 3 during the year.

 

Significant unobservable inputs for Level 3 Valuations

The Group's investments are all classified as Level 3 investments. The Group may base valuations on earnings or revenues where applicable, market comparables, price of recent investments in the investee companies, or on net asset values. The Group mainly uses most recent investment price as a proxy for fair value where available. Where such data is not available or no longer appropriate a revenue multiple is used. See note 4(a) where valuation policies are discussed in more detail.

 

 

11. Related party transactions

Draper Esprit plc may require that one of its members is appointed to the board of an investee company in a non-executive role. In such circumstances Draper Esprit plc charges an administration fee to the investees for the provision of the Director services. These fees, which amounted to £29,825 (period ended March 2016: £nil) have been included in the turnover for the period. Draper Esprit does not exercise control or management through any of these Non-Executive positions.

 

On Admission, Simon Cook and Stuart Chapman assigned a portion of their personal entitlements in the carried interest in DFJ Esprit III(i) LP to the Group. The fair value of the DFJ Esprit IIIi LP interest assigned, calculated in accordance with the policies applied with the Group's financial statements was £656,000. A payment of £75,000 each was made in favour of Simon Cook and Stuart Chapman in recognition of the transfer. The members of the LLP also assigned a 61.5% interest in the gains of DFJE III FP LP for £nil consideration. The fair value of the DFJE III FP LP interest assigned, calculated in accordance with the policies applied with the Group's financial statements was £444,000. All amounts have been settled by the year end.

 

 

 

 

 

 

 

 

 

 

GLOSSARY

In this document, where the context permits, the expressions set out below shall bear the following meaning:

 

	'Admission" or "IPO"		the Admission of the Enlarged Share Capital to trading on AIM and ESM on 15 June 2016. The IPO included the acquisition of Esprit Capital Partners LLP and Draper Esprit (Ireland) Limited.
	"AIM"		AIM, the market of that name operated by the London Stock Exchange
	"Company" or "Draper Esprit" or "plc"		Draper Esprit plc, a company incorporated in England and Wales with registered number 9799594 and having its registered office at 20 Garrick Street, London WC2E 9BT.
	"Gross Portfolio Value" or "Gross Primary Portfolio"		Gross portfolio value is the value of the portfolio of investee companies held by funds controlled by the Company before accounting for deferred tax, external carried interest and amounts co-invested.
	"Esprit Capital"		Esprit Capital Partners LLP (previously Draper Esprit LLP), a limited liability partnership incorporated in England and Wales with registration number OC318087 whose registered office is at 20 Garrick Street, London WC2E 9BT, the holding vehicle of the Group immediately prior to Admission
	"ESM"		The Enterprise Securities Market operated and regulated by the Irish Stock Exchange
	"Group"		the Company and its subsidiaries from time to time and, for the purposes of this document, including Esprit Capital and its subsidiaries and subsidiary undertakings
	"IFRS" or "IFRSs"		International Financial Reporting Standards, as adopted for use in the European Union
	"Net Asset Value"		the value, as at any date, of the assets of the Company after deduction of all liabilities determined in accordance with the accounting policies adopted by the Company from time to time
	"Ordinary Shares"		ordinary shares of £0.01 pence each in the capital of the Company
	"International Private Equity and Venture Capital Valuation Guidelines"		the International Private Equity and Venture Capital Valuation Guidelines, as amended from time to time
	"VC"		venture capital