Venture Capital
Reinvented.
Draper Esprit plc Annual Report 2018
The future of tech,
made in Europe
Draper Esprit is one of the most active venture capital firms
in Europe, investing in high-growth technology companies
with global ambitions.
We believe the best entrepreneurs in Europe can build the businesses
of the future. We fuel their growth with long-term capital, access
to international networks and decades of experience building
businesses.
As the European arm of the Draper Network, we have a global
presence with a network of over 22 independent funds. We have
collectively backed businesses such as Baidu, Space X, Tesla,
Cambridge Silicon Radio and Lovefilm.
In 2016 we reinvented the traditional venture capital model by
going public. It allows us to provide entrepreneurs with a more
flexible approach to funding, to back the best teams for longer,
and give investors access to a new asset class.
Highlights 2018
Financial highlights
£65m
116%
£311m
Profit after tax of £65.3 million
(2017: £33.2 million)
Growth in Gross Primary Portfolio
(2017: 72%)
Net Assets including goodwill of £311.3
million (2017: £150.7 million)
431p
£72m
£100m
NAV per share of 431.0 pence
(2017: 370.0 pence)
Invested £71.5 million by plc and a further
£24.8m by EIS/ VCT and managed funds
£244m
£16m
Gross Primary Portfolio value increased
by 116% to £243.5 million
(2017: £112.7 million)
Cash realisations of £15.9 million including
amounts held in escrow
Additional capital raised of £100.0 million
(£95.3 million net) by plc and £55.0 million
across EIS and VCT funds)
Operational highlights
– The Company has invested in 9 new and
11 existing portfolio companies
– The Group has made commitments in
excess of £10.0 million in 4 new fund of
funds vehicles
– The value of the Core Holdings has
increased by 119%
Contents
Strategic Report
01
02
03
04
06
07
08
10
12
15
16
20
25
26
Content and Highlights
About Draper Esprit
What’s in a Share?
Strategic Report
Chairman’s Introduction
Ledger Case Study
Our Investment Strategy
How We Support Businesses
CEO’s Statement
Clavis Insight Case Study
Portfolio Review
Core Portfolio Companies
Emerging Portfolio Companies
Financial Review
Governance
34
36
Board of Directors
Chairman’s Corporate
Governance Introduction
39
40
43
45
Audit Committee Report
Directors’ Remuneration Report
Directors’ Report
Directors’ Responsibilities
Statement
Financials
48
54
55
56
57
58
81
Independent Auditor’s Report
Consolidated Statement of
Comprehensive Income
Consolidated Statement of
Financial Position
Consolidated Statement of
Cash Flows
Consolidated Statement of
Changes in Equity
Notes to the Consolidated
Financial Statements
Statement of Company
Financial Position
82
83
89
90
Company Statement of
Changes in Equity
Notes to the Company
Financial Statements
Directors, Secretary and
Advisers
Glossary
The Strategic Report comprising the inside
cover to page 31 has been approved by the
Board and signed on its behalf by
S. M. Chapman
24 May 2018
1
Welcome Annual Report 2018draperesprit.com
About Draper Esprit
Annual Report 2018
About Draper Esprit
We’re guided by years of experience in scaling high-growth technology companies.
We invest incrementally, with a long-term outlook, to build value over time.
Sustainable investment
We find the most promising private
technology companies in Europe, with the
potential to become global leaders. We
screen roughly 2,500 companies a year and
invest in approximately 20 including follow-
on investments. As part of our strategy for
sustainable growth, we invest small amounts
early, and reserve more capital for later stage
rounds. This type of investment is not a ‘win or
lose’ game: we invest incrementally, building
value over time.
The Company is dual listed on AIM (LSE:
GROW), operated by the London Stock
Exchange, and ESM (LSE: GRW), operated by
the Irish Stock Exchange.
Experience drives our success
Our team is highly experienced: we have been
investing in technology for over 20 years. Our
team works hard to generate deal flow, and
we often take a seat on the board of our
portfolio companies, with significant investor
rights.
As a Group, we have a track record of
delivering 20% annual portfolio returns, driven
by the revenue growth of the underlying
portfolio companies since 2008 –
in which time the Group has generated cash
returns in excess of its invested capital.
Three pools of capital
The Company has three pools of capital to
invest: the plc balance sheet; tax-efficient
investing in EIS/VCT; and secondary funds
backed by institutional capital focused on
this space.
Co-investing across these three vehicles
allows us to build a more material stake in
our portfolio companies. The management
and performance fees we receive from
the EIS, VCT and secondary funds offset
management costs for plc shareholders.
The Group fixes the percentage allocated to
co-investment funds alongside the plc on
a periodic basis, according to the available
resources for that period.
EIS co-investment funds
The Company owns 70% of Encore Ventures,
an FCA-regulated management vehicle.
With six EIS co-investment funds, it has over
£70.0 million under management.
The Encore funds have been independently
reviewed for four years in a row as the highest
ranked growth EIS fund. They scored 89/100,
the highest of any EIS fund as of May 2018.
VCT co-investment funds
In 2016, we acquired a 30.77% stake in a
leading VCT manager, Elderstreet Holdings
Limited, which manages Elderstreet Draper
Esprit VCT plc (LSE: EDV). At the last publicly
released NAV, it had AUM in excess of £37.0
million.
Secondary investments
The Group also acquires venture capital
portfolios through Draper Esprit Secondaries.
Previous acquisitions in Europe include
3i, Prelude, Top Technology and this year
Seedcamp Fund I and Fund II. The portfolios
we invest in consist of companies that meet
our primary investment criteria.
~52%
2
draperesprit.com~8%~22%Goodwill &net assets What’s In A Share?
Annual Report 2018
What’s in a share?
~52%
“A share in Draper Esprit gives
investors access to Europe’s
technology innovators, years
of investor expertise, and a
sustainable investment model.”
As our companies grow, we provide follow-on capital to build
our stakes. 52% of our net asset value is distributed in the top 10
companies, representing our core holdings. By doubling down on
the winners in our portfolio, we manage the risk exposure of the
portfolio and generate improved upside.
Equally, the more flexible approach to capital enables the
companies themselves to grow over a longer period, creating
value to the benefit of our shareholders. When the companies
exit, the cash is returned to the balance sheet- so we can re-invest
it in new opportunities.
~52%
~22%
~18%
~8%
Core Holdings
The top 10 companies in
the portfolio representing
52% of the Net Asset
Values (NAV). Draper
Esprit provides follow-on
capital, developing a
more significant stake in
the business once it has
proven its business model.
Emerging
Companies
The Company invests
in entrepreneurial, fast
growing tech businesses.
Cash
When companies exit,
the cash generated is
returned to the balance
sheet and re-invested into
new opportunities in the
market.
Exits
Businesses exit either to a
strategic buyer or by going
public through IPO.
Goodwill:
Management
Company
The value of our vast
networks, 20 years of
experience as investors,
and sector expertise
enabling us to choose the
best teams to back.
Benefits of this approach:
It’s not a blind pool
Investors can see the assets upfront and
gain exposure to a range of companies
across a range of maturities.
Gain access to high-growth businesses
As companies stay private for longer,
gaining access to their high-growth
phase demands a change in strategy.
The listed evergreen vehicles provide
investors with ongoing liquidity which
private limited partnership models
don’t allow.
Build stakes
The permanent capital model of a listed
vehicle provides the flexibility to build stakes
in the top performing investments over
time, as opportunities arise.
draperesprit.com
3
~8%~22%Goodwill &net assets
Strategic Report
Annual Report 2018
Strategic
Report
4
draperesprit.com
Welcome Annual Report 2018draperesprit.com Strategic Report
Annual Report 2018
“Our capital, expertise, global networks and
strategic advice make us ideal partners for
high-growth companies.”
Karen Slatford,
Chairman
draperesprit.com
5
Welcome Annual Report 2018draperesprit.com Chairman’s Introduction
Annual Report 2018
Chairman’s Introduction
We meet thousands of fast growing
companies a year. We use our experience
to invest in those companies where we can
use our expertise to help them achieve their
ambitions. In addition, by taking a board
seat, we can apply our expertise beyond the
original investment decision, to supporting
our investments to fulfil their potential for
growth and market leadership.
Over the twelve months to the end of
March 2018, we have continued to deploy
our increased pool of capital, secured
through the £100m placing of new shares
completed in June 2017. This fund raising
demonstrates the benefit of our public
listing and the flexibility it gives our balance
sheet. It has enabled us to undertake a
wide variety of transactions, which we
might not otherwise have been able to
contemplate, including the Seedcamp
acquisition (and the resulting stake
acquired in TransferWise). In addition, it
has enabled us to develop a fund of funds
strategy and the building of an exciting
ecosystem of investment opportunities.
In summary, this has resulted in the
addition of further impressive new
companies to our portfolio across a broad
spectrum of technology subsectors, ranging
from blockchain and cyber security to gene
synthesis and peer-to-peer banking.
We remain passionate advocates for the role
that these technology companies and others
we invest in can play in improving how we
as a society work together, learn from one
another, communicate with each other
and live longer, healthier and more
productive lives.
We are continually focused on, and have
again delivered, significant returns to
our shareholders through the continued
growth of our Net Asset Value, targeting a
portfolio return of 20% per annum, which
is underpinned by an average of over 40%
revenue growth across our Core Portfolio
Companies.
The European technology market is
experiencing an unprecedented period of
growth and, with the continued support of
our team, Board colleagues, Shareholders,
advisers and our wider network of contacts,
I am very confident that Draper Esprit can
continue to maintain our position as a
leading player.
Karen Slatford
Non-Executive Chair
See more at:
draperesprit.com
The last twelve months have been a
transformational period for our business.
In what has been our first full trading year
as an AIM company we have built on the
momentum we generated following our
successful IPO in 2016 and have made
significant progress, growing all aspects of
the business.
Through our provision of long-term patient
capital to innovative technology companies
across Europe, we have continued to
demonstrate that the public venture
capital (VC) model is working effectively.
For companies looking to scale up, growth
capital is still relatively scarce in Europe
and we believe much needed - to finance
companies on the journey from start up to
scale up, enabling them to pursue global
rather than national ambitions. Our capital,
expertise, international networks and
strategic advice make us ideal partners for
businesses at this stage in their life cycle.
6
draperesprit.com Case Study: Ledger
Annual Report 2018
Securing crypto-assets and
blockchain applications: our
investment in Ledger
Case Study
Ledger
£17.7m
Total invested
Despite the market volatility of
cryptocurrencies, the crypto space,
and the blockchain technology it is
based upon, is set for huge growth over
the next decade. One of the primary
concerns will be the security of crypto
assets – and that’s the problem that
French company, Ledger, has set out
to solve.
The company has achieved exceptional
growth over the last year, having sold over
1 million hardware wallets from across 165
countries – helping users keep their keys safe,
offline, and out of reach of easily hacked
computers and phones. Ledger’s operating
system, designed to run on any secure
hardware, and support any crypto asset,
has clear potential to be a global leader.
We led a global syndicate, via the Draper
Network, in a highly competitive series B
round - raising US$75.0 million. We were
joined by top funds FirstMark Capital (New
York), Cathay Capital (China) and Korelya
Capital (France and South Korea). Our CEO,
Simon Cook, has joined Ledger’s board to
support them as they scale rapidly.
draperesprit.com
7
Welcome Annual Report 2018 Investment Strategy
Annual Report 2018
Our Investment Strategy
How we back businesses
We invest in growing technology companies from across Europe. We source the best deals from thousands of
companies and provide them with the capital, expertise and networks to fuel their growth.
Growth investing is our core business, but we are dynamic in finding the best capital solutions to fit the growth needs of companies.
Our plc balance sheet means we have a more flexible approach to backing technology businesses.
Early Stage
As businesses scale up
and raise their series
A; usually at the point
that companies have
found product/market fit
and need to scale their
operations quickly.
Growth
As businesses look to
expand internationally
and dominate globally,
we invest as part of
the Series B+ stage of a
funding cycle.
Follow on
We can back businesses
at all stages of their
growth until exit - often
right up to acquisition
or IPO.
Fund of funds
While we don’t make
direct seed investments,
we support companies
from their inception. By
partnering with funds
from across Europe
investing in earlier stage
businesses, we can
support as they scale.
Secondary
Whether it’s helping
companies find liquidity
for their early backers,
or a fund that is looking
to sell a whole portfolio,
we look at the best
opportunities in the
market. We look for the
same characteristics as
our primary investment
operations: ambitious
tech businesses looking
to grow.
8
draperesprit.com Annual Report 2018
Our investment criteria
The investment process
1. We invest in high-growth technology companies
We screen thousands of businesses every year in order to
find the best opportunities.
We look for high-growth companies with strong
technology and business models, experienced and
visionary management teams and the ability to be a
category leader. They operate in new markets, with
serious potential for global expansion. Significantly,
they have strong gross margins and capital-efficient
business models to enable sustainable growth and
future profitability. We look for businesses that will
be attractive candidates for acquisition or IPO, with
valuations from US$50.0 million to US$1.0 billion and
beyond.
2. We invest in companies as they grow
Companies are staying private for longer – so public
market investors have reduced access to the value
generated by early-stage growth companies.
Private equity and mutual funds are becoming an
increasingly attractive option for late-stage funding,
over the time-consuming and costly process of going
public. And because many startups are prioritising
growth over profits in an effort to gain market share,
they may not prosper in a public market environment
which values profitability. Draper Esprit enables
investors to access such companies, which are
increasingly taking longer to go public.
3. We invest across four sectors
Consumer Technology
New consumer-facing products,
innovative business models, and proven
execution capabilities that bring
exceptional growth opportunities.
Enterprise Technology
The software infrastructure, applications
and services that make enterprises more
productive, cost-efficient and smoother
to run.
Hardware and Deep Tech
The deeper technologies that will spark
advances in computing, consumer
electronics and other industries.
Digital Health and Wellness
Using digital and genomic technologies
to create new products and services for
the health and wellness markets.
Screen 2,500
We look at 2,500 businesses a year – searching for the
brightest opportunities, and the clearest visions. We don’t
start from nothing: our fund of funds strategy helps us
spot the best ideas to back.
Meet 1,000
We meet around half of the businesses we screen,
getting to know the teams, their ways of thinking,
and their ambitions.
Invest in up to 20
We make up to 20 new investments a year,
bringing the most ambitious tech companies
into our portfolio.
Build stakes and
facilitate growth
We put cash in for rapid
scale-ups, to help bring a
team’s vision to life. We
make introductions, and
fuel global ambitions.
Exit
We’re not confined to five-
year cycles. Whether to a
strategic buyer or as an IPO,
companies exit when they
reach maturity or when they
have established a strategic
position in their ecosystem.
draperesprit.com
9
Company Support
Annual Report 2018
“To enable growth, we actively
manage the businesses we back,
take a board seat and provide
hands on advice through our
global networks and decades of
experiences building businesses.”
Supporting companies for growth
Global firepower
Long term capital
Hands on support
We’re the only growth focused technology
venture capital firm listed on the stock
market. As we’re no longer tied to 5+5-year
funding rounds, we have the flexibility to
find the best opportunities for entrepreneurs
– and to back companies from scale-up
all the way to IPO or acquisition. With a
plc balance sheet, we can take a longer
view, allowing investors to capture value as
companies reach their full potential.
When we invest, we offer a lot more than
money. We often take a seat on the board
of the company, to offer support and
guidance as it grows and scales. It means
we can actively manage our investments,
and put valuable experience to good use,
right where it matters.
We also run events and offer specific
training for portfolio companies: including
trend-spotting, panel discussions, and
focused networking to help our companies
get ahead.
As the European arm of the Draper Venture
Network, we help companies with rapid,
international growth. Founded by Tim Draper,
the network spans from Silicon Valley to
China, and from Brazil to Japan. As our
recent success with Ledger demonstrates,
the network allows us to gather like-minded
funds from around the world to invest in the
brightest companies.
The network helps us support companies as
they grow – providing the sort of international
introductions that can spark years of growth,
or put companies in touch with potential
acquirers.
It’s also a chance to share expertise on
markets and hear from the world’s brightest
entrepreneurs and investors in the world. Each
year, we host our annual CEO day in Silicon
Valley, where CEOs from across the globe
gather to gain fresh insight, speed date with
corporates and get a grasp of technology
trends shaping the globe.
10
draperesprit.com
Annual Report 2018
“Draper Esprit
provided strategic
guidance and
hands-on support
for scaling the
team, fast.”
Antony Fletcher
CEO, Graze
draperesprit.com
11
CEO’s Statement
Annual Report 2018
CEO’s Statement
Overview
I am pleased to report a year of particularly
strong growth across our portfolio,
combined with a number of successful
reinvestments into new and high-growth
portfolio companies. The Company also
completed several realisations at attractive
valuations.
As we outlined at the time of our IPO, by
providing early-stage and growth-stage
technology businesses with capital, networks
and management support, we are uniquely
well placed to offer investors access to
private high-growth technology companies
that they wouldn’t otherwise be able to
source or invest in.
Our experience of investing over the past 20
years, combined with our unique and flexible
approach to deploying long-term capital
means that we have continued to execute
against our strategy over the past twelve
months, delivering the growth and scale
in our portfolio that will drive sustainable
growth for our shareholders.
Operating review
Although the wider technology sector has
made headlines for the wrong reasons
in recent months, we remain passionate
advocates for the role technology can
play across the various subsectors in
which we invest. At the same time, while
Europe’s venture capital industry has long
been considered a poor relation to its US
counterpart, there are growing signs that
Europe is building a sustainable and vibrant
VC industry of its own; indeed, KPMG
recently valued the European VC industry at
US$19.1 billion representing more than 25%
growth on the previous year.
Despite this, Europe still lags behind the US,
particularly when it comes to the provision
of growth capital, but this gap is slowly
closing and, by selecting, building and
growing the very best technology businesses
from around Europe, we are confident that
we can play a prominent role in reducing
this disparity.
Over the course of financial year 2018, we
made significant strides in this regard,
investing £71.5 million in 9 new and 11
existing portfolio companies as well as
£24.8 million co-invested from EIS/ VCT and
managed funds. In addition, we exited 3
companies, realising cash of £15.9 million
(including amounts held in escrows).
As a result, we have exceeded our core
strategic aim of targeting a portfolio return
of 20% per annum.
Successful exits
During the year, the Company has
announced three disposals.
In December 2017, we announced the sale
of Clavis Insight, the leading eCommerce
insights company, to Ascential plc a global
business-to-business information company,
for an initial cash consideration of US$119.0
million. Draper Esprit originally invested
£8.1 million in Clavis in December 2016 and
will receive total proceeds of £15.3 million
including amounts held in escrow.
The exit followed the sales of Moviepilot
and Aveillant earlier in the same month to
the Paris-based publishing group Webedia
and multi-national defence business Thales
respectively.
Of the original 24 companies in the portfolio
at IPO in June 2016, we have now exited
10 companies, realising over £57.0 million in
cash.
Continued investment in high-
growth technology companies
In June 2017, we raised £100.0 million from
new and existing investments to scale our
capital deployment.
There are a number of routes by which
we invest our capital – and during the
year we significantly expanded this by
developing our new fund of funds strategy
and also investing in a secondary portfolio
transaction. These types of investment
complement and fuel our core investment
strategy which is to invest at the point of
growth in primary portfolio businesses.
“Since the IPO in 2016,
we have grown our
team, invested in 22
new high growth
companies, realised
over £57.0 million in
cash and raised in
excess of £100 million
on the public market.
We look forward to
the next financial year
with confidence and
optimism.”
Simon Cook
CEO
12
draperesprit.com Annual Report 2018
£15.9m
£71.5m
£100.0m
Cash realisations of £15.9 million including
amounts held in escrow
Invested £71.5 million by plc and a further
£24.8m by EIS/ VCT and managed funds
Additional capital raised of £100.0 million
(£95.3 million net) by plc and £55.0 million
across EIS and VCT funds)
At the time of our fundraising, we outlined
our strategy to invest up to approximately
£100.0m (US$130.0 million) a year in
technology businesses at series A, B,
and C+ rounds across the Group’s funds
(the plc balance sheet, EIS, VCT and
secondary funds), with investment from
the Company’s balance sheet representing
approximately £60.0 million per annum.
New investments in primary
portfolio businesses
Our hands-on approach in working with our
portfolio companies, via our active role in
board management, our global network and
the support we provide to entrepreneurs,
continues to be an attractive proposition for
the businesses we seek to partner with.
enterprise, digital health & wellness, hardware
and consumer technology.
Examples included Evonetix, Ieso Digital
Health, Ledger, PremFina, Droplet and
Verve. Ledger is a Paris headquartered
cryptocurrency and blockchain security
company in which we made a £17.7 million
investment in January 2018. The investment
will enable Ledger to significantly scale
up its operations as demand for its
products increases. As cryptocurrency
participation has increased, so have the
security challenges associated with it.
Against this backdrop, there are substantial
opportunities to develop trust for
participants in this area, a key driver behind
Ledger’s business model.
All of our investments are innovative
technology businesses that are capable of
becoming much larger, global businesses. We
continue to focus on the four key subsectors of
Fund of funds strategy
In October 2017, we announced a strategy to
target up to £75.0 million (US$100.0 million)
of investment in the top seed funds across
Europe over a five-year period. We have
committed to invest in seven funds including
Seedcamp (www.seedcamp.com), Episode 1
Ventures (www.episode1.com), Join Capital
(www.join.capital) and Icebreaker
(www.icebreaker.vc), widely recognised
as some of Europe’s leading seed fund
platforms. Draper Esprit was already
an investor in the leading crowdfunding
companies, Crowdcube and Seedrs.
By closely aligning Draper Esprit with
the seed fund ecosystem, we believe
we can provide growth capital to the
best companies and unlock the strong
performance of Europe’s highest quality seed
funds to the benefit of the plc shareholders.
Secondary portfolio acquisition
In October 2017, we announced the
acquisition of Seedcamp Funds I and II for
£17.9 million, through which we acquired
stakes in high profile growing technology
companies including TransferWise, a leading
UK based Fintech business as well as a
13
draperesprit.com CEO’s Statement continued
Annual Report 2018
“We remain very confident in the growth
potential of our underlying portfolio
companies with all our top holdings
continuing to make progress... providing
strong value creation for our shareholders.”
Simon Cook
CEO
Lastly, I would like to place on record my
thanks to our management team, who
continue to leverage their experience,
vision and capabilities on behalf of our
talented array of portfolio companies, as
well as the management teams of these
portfolio companies who remain the very
essence of our business.
We enter the new financial year well
positioned to capitalise further on
opportunities in 2018/19 and remain
focused on executing our strategy for the
benefit of our shareholders.
Simon Cook
CEO
number of promising companies including
Codacy, Edited, Erply, Fishbrain, Codility,
Winnow, Codeship and Try.com.
Continued momentum –
outlook and summary
Follow on investments
As well as new investments, during the
year we also invested in our core portfolio
by adding to our existing investments,
delivering on our strategy of building larger
stakes in businesses we passionately believe
in (having earmarked 70% of our capital to
be reserved for scaling-up and increasing
our stakes in portfolio companies through
later rounds of funding).
During the period, we deployed £23.0m in
this way through follow-on investments in
the semiconductor specialist Graphcore;
the employee engagement platform,
Perkbox; the leading electric vehicle
charging company, Pod Point; and Push
Doctor, Europe’s largest digital health
provider.
We remain confident in the growth
potential of our underlying portfolio
companies with all of our top holdings
continuing to make strong commercial
progress, growing sales significantly and
reporting positive news flow, thereby
providing strong value creation for our
shareholders.
We have entered the new financial year
in a strong position, and our model of
offering investors, who otherwise wouldn’t
have access to, or the capacity to actively
manage, investments in high-growth
private technology businesses, continues
to bear fruit.
Post period end, we have invested
US$14.0m in Aircall in May, a leading
provider of cloud-based call centre
software and have committed to US$16.5
million in the more recent investment
round in Revolut, the leading fintech
business. We have also announced the sale
of our portfolio company, Tails.com, to
Nestlé Purina Petcare.
We remain grateful for the support
we have received from our existing
shareholder base and welcome our new
investors. Our ambition remains to deliver
at least 20% year on year growth in
portfolio value while building on our ability
to hold and grow our portfolio companies
for longer, increasing our investment in
later rounds in order to maximise the
opportunity to build large and successful
European technology businesses that are
able to become the global businesses of
the future.
14
draperesprit.com Case Study: Clavis Insight
Annual Report 2018
Portfolio
Case Study
Clavis
Insight
Analytics of online
consumer goods
companies.
clavisinsight.com
£8.1m
Total invested
Our investment in Clavis Insight is a good
example of the benefits of having a flexible
funding platform. In 2016, we were able
to acquire a significant minority stake in
Clavis for £8.1 million. A year later, Clavis
sold to Ascential plc, generating a 90%
return for Draper Esprit.
But what lies behind their success? We invested
in Clavis Insight because we saw the potential
of its service to be used across the world. It
gives consumer goods companies analytics
on how their products are sold online – with
detail on everything from how the product
is presented to how it’s being reviewed. The
product monitors online retailers across more
than 20 countries, and is growing in the US,
Europe and China.
It’s exactly the kind of technology that
catches the eye of acquirers, as companies
look to combine their own sales force with
cutting-edge technology. And for a company
like Ascential, which deals in insight and
information to help businesses make better
decisions, Clavis Insight is a natural, valuable
fit.
draperesprit.com
15
Portfolio Review
Annual Report 2018
Portfolio Review
Backing Europe’s most
innovative businesses
Overview
This year has seen an increase in the
investment rate, taking advantage of
the opportunities in the market that are
afforded by our flexible model. Our Core
Portfolio Companies have performed
strongly, driven by revenue growth and
from financing rounds and exits at higher
valuations being achieved.
At the year ended 31 March 2018 the fair
value of the Company’s Gross Primary
Portfolio had increased to £243.5 million
(2017: £112.7 million from £78.7 million
since the IPO in June 2016). Excluding new
investments and realisations across our
portfolio of companies, the gross portfolio
value has increased 66% (2017: 39%).
During the year, the Group has realised
the investment holdings in Clavis, Aveillant
and Moviepilot with £15.9 million (2017:
£42.0 million) of cash generated (including
amounts held in escrow). The Company
has invested £71.5m (2017: £37.1 million) in
the year, with a further £24.8 million (2017:
£6.0 million) co-invested from EIS/VCT and
managed funds, into the next generation of
high-growth digital technology companies
and to further support our existing portfolio.
The increase in fair value in the period
has been driven by continued strong
performance across the portfolio with
notable uplifts in the value of the core
portfolio companies, in particular
Graphcore, Lyst, Trustpilot, Perkbox, M-Files,
PodPoint and TransferWise (acquired as part
of the Seedcamp Fund I and II acquisition in
the year).
At year end, the portfolio held by the plc
consists of significant minority interests in
31 companies (2017: 29 companies). The
fair value of the Gross Primary Portfolio is
underpinned by ten core holdings which
account for approximately 70% of the total
portfolio value, with the remaining value
spread across 21 investments which have
the potential to grow into the core holdings
of the future. Further investments post
year end bring the current portfolio to 33
companies (see note 30).
As we scale the business the fair value of
the core portfolio holdings is increasing.
New investments in the year (Ledger and
TransferWise) and realisations (Clavis
Insight) have been reflected such that
the core companies now comprise of:
Trustpilot, Graphcore, Lyst, Perkbox, Ledger,
TransferWise, Pod Point, Graze, M-Files, and
SportPursuit. These portfolio companies
now have an average turnover in excess
of US$77.0 million, growing in aggregate
over 46% annually from 2017. The gross
profit margin of the core holdings average
65% and demonstrate the ability of the
companies to reinvest for future revenue
growth and also the opportunity for future
profitability at the appropriate time in
the company’s life cycle. Post year-end
investments in Revolut and Aircall are
expected to form part of the core portfolio
going forward.
The fair value growth in the period reflects
the strong revenue growth of the portfolio
companies, the flexible model of the plc to
be able to acquire positions at a discount
by providing liquidity to private markets and
the upside impact of portfolio companies
achieving financing rounds at higher
valuations.
16
draperesprit.com
Annual Report 2018
Capital Deployed — Split by
Stage of Investment
(Core Portfolio)
Early Stage
33%
67%
Core Holdings % of GPV —
March 2018
Average Revenue —
Core
Remaining
Portfolio
30%
80
70
60
50
40
30
20
10
0
+46%
$77m
$53m
70%
Core
Portfolio
Average 2017
Revenue
Average 2018
Revenue
Late Stage
Number of Companies — Split by Sector
(Total plc)
Gross Portfolio Value
(£ millions)
Enterprise
Tech
33%
Consumer
Tech
30%
+50%
£244m
+44%
£163m
£250m
£200m
£150m
£100m
£113m
£50m
£0m
Hardware &
Deeptech
22%
Digital Health
& Wellness
15%
31 March
2017
30 September
2017
31 March
2018
draperesprit.com
17
Portfolio Review continued
Annual Report 2018
Portfolio Review continued
Investments
The target rate of capital deployment from the plc is £60.0 million
with a further £40.0 million from co-investment funds. During
the financial year a total of £71.5 million (2017: £37.1 million) was
deployed by the plc and a further £24.8 million (2017: £6.0 million)
across the Group in 20 companies (9 new and 11 existing) and 4 FOF.
Since the year end, the Group has invested a further £21.5 million
post year end (see note 30). The Group continues to balance the
portfolio by deploying approximately 30% of the Group’s investment
capital towards smaller rounds in early stage companies with
approximately 70% being invested in larger later-stage growth
rounds. The intention is to increase the size of the equity interest
held in the portfolio companies over time in line with the available
capital of the Group.
New investments made during the financial year include:
Some of the notable new investments made in financial year to 31
March 2018 include:
– £18 million into Ledger, the Paris headquartered cryptocurrency
and blockchain security company.
– £18 million to acquire Seedcamp Fund I and II, 2007 and 2010
vintage funds which include stakes in high profile growing
technology companies including TransferWise (a leading
international Fintech money transfer business), Codacy, Edited,
Erply, Fishbrain, Codility, Winnow, Codeship and Try.com
and which provides strong follow-on potential.
– £21.0 million across the Group (£12.0 million plc, £9.0 million EIS/
VCT) into Ieso Digital Health (online mental health platform),
Verve (word-of-mouth sales software), Evonetix (DNA synthesis
platform), Kaptivo (SaaS-based digital collaboration solutions
for enterprise using computer vision), Droplet (software allowing
unmodified applications to run on any device) and PremFina
(insure-tech business providing premium finance).
The Company also made further investments of £17.0 million
alongside a further £3.1 million from EIS/VCT to increase its
holdings in:
– Trustpilot, the global online review community.
– Perkbox, digital employee engagement platform.
– Pod Point, the UK’s leading provider of electric car charging
solutions for home, workplace and public charging.
– Resolver, the customer support and complaints resolution
software business.
– Realeyes, machine learning technology measuring emotions
through facial recognition.
Alongside this, the Company has continued to expand its fund of
fund strategy with further commitments to a number of Europe’s
top seed funds: Episode 1 (UK), Seedcamp Fund IV (UK), Join Capital
(Germany), Icebreaker (Finland). Commitments have also been
made to three other funds based in London, Cambridge and Ireland.
A further £21.5 million has been committed for investment in new
companies post year end as follows:
– A further £10.0 million invested by the Company in Aircall.
– Up to £11.5 million committed by the Company in Revolut.
18
draperesprit.com
Annual Report 2018
Realisations
The Company announced the following significant disposals since IPO:
– December 2017 – The sale of Clavis Insight, a leading eCommerce
insights company to Ascential Plc. The sale was for an initial
cash consideration of US$119.0 million resulting in cash to the
Company, including escrows of £15.3 million. This represented a
cash exit multiple on funds invested of 1.9x.
– September 2016 – the sale of Movidius to Intel Corporation.
Movidius is a leader in high performance, ultra-low power
computer vision technology for connected devices. This sale
brings an estimated total gross cash return to the Company of
approximately £27.4 million, including amounts held in escrow.
This represented a cash exit multiple on funds invested by the
Company of 7.6x;
– October 2016 – the sale of Qosmos to ENEA. Qosmos is a supplier
of network intelligence software based on Deep Packet Inspection
and commands a dominating share of its market. The sale was
for a total gross cash consideration of approximately €52.7 million
resulting in cash to the Company, including escrows, of £8.0
million. This represented a cash exit multiple on funds invested by
the Company of 1.9x; and
– November 2016 – the sale of Datahug, a sales forecasting
software company, to Callidus Software Inc for a cash
consideration of approximately US$13.0 million, resulting in a
gross cash return to the Company of approximately £3.6 million,
including funds held in escrow. This represented a cash exit
multiple on funds invested by the Company of 1.6x.
– Since September 2016, interim results the Group has disposed
of its remaining holding in Horizon Discovery. The Company
realised a gross cash return on investment of £2.9 million
which represented a cash exit multiple of 2.6x. In addition, the
Company also exited its investment in WorldStores which realised
a gross cash loss of £4.3 million.
Gross Portfolio Progression — by Portfolio Company
(£ millions)
£260m
£240m
£220m
£200m
£180m
£160m
£140m
£120m
£100m
£80m
£60m
£40m
£20m
£0m
£10m
£12m
£10m
£13m
£14m
£18m
£18m
£18m
£24m
£34m
Trustpilot
Graphcore
Lyst
Ledger
Perkbox
M-Files
SportPursuit
Transferwise
Graze
Podpoint
March 2017
Invested
FV movement
draperesprit.com
£73m
£244m
Remaining
Portfolio
Total Gross
Portfolio
Value
19
Portfolio continued
Annual Report 2018
Core Portfolio Companies
The Group first backed Graphcore in 2016 and has now invested
£4.2 million in total, with the most recent investment in 2017 of
£1.9 million, part of a wider US$30.0 million Series B funding round.
Since then, US fund Sequoia Capital, led a further US$50.0 million
round in the company.
Graphcore is a machine intelligence semiconductor company, changing
the way that developers can build AI and machine learning applications
through its cutting-edge processing capabilities. Its technology will be
indispensable for advancements in artificial intelligence and machine
learning across diverse industries – from autonomous vehicles to
personalised healthcare, intelligent mobile devices and collaborative
robots. The appetite for an easier and more powerful way to develop
such applications is growing rapidly.
The business is a spin-out of XMOS, a semiconductor business based
near Bristol, UK, which is backed by other funds managed by Draper
Esprit. Nigel Toon, the CEO and Simon Knowles, the CTO, were
previously founders of Icera, a Draper Esprit management backed
semiconductor business which was sold to NVIDIA for US$360 million
in 2011. The company plans to bring its intelligent processing system to
market I this year, which is anticipated to enable material performance
increases (from 10-100x) for machine learning computation.
Alongside Draper Esprit, investors include: Sequoia Capital, Atomico,
Amadeus Capital, Robert Bosch Ventures, C4 Ventures, Dell
Technologies Capital, Foundation Capital, Pitango Venture Capital,
the Samsung Catalyst Fund and AI experts such as Demis Hassabis
(DeepMind), as angel investors.
Draper Esprit Funds first invested in Trustpilot in 2013, with follow-
on investment in 2015 and 2017 bringing the total investment by
the Company to £18.1 million, including £6.7 million invested in the
financial year.
Founded in 2007, Trustpilot is a global, multi-language review
community. Trustpilot has customers in 65 countries including
Denmark, Sweden, the UK, France, Italy, Germany and the
Netherlands, as well as the US. The company’s aim is to build the
world’s single most trusted review company.
It is rapidly becoming an essential part of customer service for
consumer-facing companies. Consumers visit the Trustpilot website
to leave positive or negative reviews about an online merchant
where they purchased a product. Once a merchant has a paid
subscription to use Trustpilot, they are able to respond directly and
openly with consumers who have left reviews.
Trustpilot has built a strong SaaS revenue model with excellent
growth over the last 3 years. They have successfully expanded
from Europe into the US, with over 42 million reviews and 210,000
reviewed companies in that market.
Alongside Draper Esprit, investors include: Vitruvian Partners, Index
Ventures, Northzone and SEED Capital Denmark.
£4.2m
Invested
£23.4m
£18.1m
Net Asset Value
Invested
£34.3m
Net Asset Value
20
draperesprit.com Annual Report 2018
Perkbox, a digital employee engagement platform, received £2.5
million (plc £1.7 million) from the Group in 2016. In 2017, the plc built
its stake in the business further by investing £6.6 million.
Ledger, a cryptocurrency and blockchain security company, received
£17.7 million from the plc in January 2018.
Perkbox enables companies of all sizes to incentivise, motivate
and attract staff with over 200 perks and benefits. Its platform
includes a sophisticated rewards and recognition infrastructure.
Launched in 2015, the company already has over 650,000 paying
members ranging from SMEs to large corporations such as British
Gas and BUPA. The company has now developed a white-labelled
platform called “Perkbox for customers”, which helps businesses
acquire, connect, and retain loyal customers. The company has
doubled year-on-year and now has over 165 employees. Forbes
magazine recently ranked Perkbox as one of Britain’s fastest growing
companies.
Draper Esprit first invested in Perkbox alongside the crowd on the
Seedrs platform.
The company have developed two main hardware products: the
Ledger Nano S and the Ledger Blue, both of which enable users
to store their keys offline. They will also launch a new product: the
Ledger Vault, enabling hedge funds, banks and family offices to
manage their crypto assets, due to high demand. All these products
are underpinned by a unique technology: an Operating System (OS)
specifically designed to run on any secure hardware and to support
any crypto asset.
By building a cold storage solution, the company offers users the
most secure option in the market, enabling crypto owners to keep
full ownership of their digital assets, without the need for third party
intervention. The hardware wallets isolate the private keys from
computers or smartphones, which are easily hackable.
Already profitable, it has sold over a million of cryptocurrency
hardware wallets to customers in 165 countries. The team, now
over 80 employees across France and the US, has managed to
recruit some of the best engineering talent from organisations
such as Gemalto and French smart card experts, such as Oberthur
Technologies.
Other investors include Draper Network funds, Draper Associates
(US), Draper Dragon (China) and Boost VC (US), as well as
FirstMark Capital, Cathay Capital and Korelya Capital.
£8.3m
Invested
£17.5m
Net Asset Value
£17.7m
Invested
£17.7m
Net Asset Value
21
draperesprit.com
Portfolio continued
Annual Report 2018
Core Portfolio Companies continued
SportPursuit was founded in 2011 as a UK-based sport-specific
ecommerce website where members receive access to sales from brand
partners targeting the technical sportswear and outdoor clothing and
equipment space. The company offers up to 70% discounts on sports
and outdoor brands. SportPursuit has customers in the UK, Australia,
Germany, France and Scandinavia. It aims to be the world’s largest
private shopping club for sports enthusiasts.
Currently sales are focused across the following niches: outdoor,
running, skiing & snowboarding, health & wellbeing, athletics,
swimwear, cycling, golf, tennis and experiences (gyms, clubs). The
vision of the team is to utilise the power of the online channel, the
SportPursuit brand and the community they build up around it to
realise a greater value opportunity.
Alongside Draper Esprit Funds, investors include CIT Growth Capital
and Scottish Equity Partners.
M-Files is a software company which provides enterprise information
management (EIM) solutions to eliminate information silos and to
provide access to content from core business systems and devices.
By using software based on the meta-data contained within the
document, it is not constrained by where the document is stored or
resides.
The M-Files solution is built on three pillars: it’s metadata based,
repository neutral, and intelligent. That means that you can find
data based on what it is, not where it’s stored. See information in
context automatically, regardless of its system of origin. M-Files
therefore enables users to access data easily, with a faster and more
intuitive data migration system.
Alongside Draper Esprit, other investors include Partech Ventures
and Tesi.
£3.6m
Invested
£13.4m
Net Asset Value
£2.5m
Invested
£14.4m
Net Asset Value
22
draperesprit.com Annual Report 2018
Lyst is a global fashion search platform used by 65 million people
every year. Lyst is one of the world’s largest e-commerce websites,
offering over 4.2 million fashion products from 12,000 of the world’s
leading fashion brands and stores. The company aims to empower
customers to find the fashion that’s perfect for them,whatever their
style.
With over a million orders, the company reached profitability this
year and has grown 70% year on year. It now has offices in New York
and London. Draper Esprit invested £2.6 million in 2012.
Alongside Draper Esprit, investors include Balderton Capital, Accel
Partners and Susa Ventures.
Graze is a multichannel manufacturer of health snacks, operating
in the UK and the US. Founded in 2009, it developed a subscription
model based on experiences of founder Graham Bosher at Lovefilm,
the DVD rental business. The company has developed logistics
technology that allows it to deliver cost-effectively across the UK
and the US. It utilises data generated from user reviews to innovate
and develop new products for evolving taste preferences and
growing consumer demand for wholesome on-the-go snack options.
The company has launched its own retail product with wide
availability in the UK across 11,000 stores including retailers such
as Boots, Tesco, WH Smith and Sainsbury’s. This will drive further
UK growth together with new online ecommerce sales through a
subscription-based model. The company launched in the US in 2016
and their products are now available in over 20,000 retail stores in
this market, and further online growth is forecast. Graze remains
profitable with strong gross margins.
Graze’s vision is to become the number one health snack brand in
the world.
Alongside Draper Esprit, investors in Graze include The Carlyle Group
and Octopus Investments.
£3.7m
Invested
£10.0m
Net Asset Value
£2.6m
Invested
£18.3m
Net Asset Value
23
draperesprit.com
Portfolio continued
Annual Report 2018
Core Portfolio Companies continued
Pod Point, the electric charge point supplier, received £3.4 million in
2017 and a further £2.0 million in 2018 from plc. Pod Point is a well-
established, leading player in the UK’s electric vehicle sector, having
manufactured and sold over 50,000 charging points since it was
founded in 2009.
TransferWise is an international money transfer platform – using
real exchange rates and has no hidden fees. Co-founded by Taavet
Hinrikus and Kristo Kaarmann, TransferWise was launched in 2011. It
is now one of Europe’s most successful fintech startups and over two
million people use the service to transfer US$1.2 billion each month.
The market for electric vehicles is going from strength to strength,
driven by advances in technology, infrastructure developments and
cost efficiencies. In the UK, Pod Point has in excess of a 40% market
share of the home charge market, having sold over 50,000 charging
points. The team is also expanding rapidly and now comprises over
140 employees. Following recent partnerships with Barratt Homes,
Holiday Extra and Hyundai, Pod Point intends to have one of its
stations installed everywhere people park for an hour or more by
2020.
Alongside Draper Esprit, investors include Barclay’s Capital and
QVentures.
In April 2018, the company became the first non-bank to join the
Bank of England’s payment system, enabling it to process payments
in the UK without going through commercial banks.
Draper Esprit acquired a stake in TransferWise through the
acquisition of Seedcamp Fund I and II as a Secondary portfolio.
Alongside Draper Esprit, other investors include Andreessen
Horowitz, Valar Ventures, Baillie Gifford, Sir Richard Branson and
Max Levchin of PayPal. In 2017, the company announced a further
US$280.0 million in a funding round led by Old Mutual Global
Investors and IVP.
.
£5.4m
Invested
£9.9m
Net Asset Value
£7.1m
Invested
£12.2m
Net Asset Value
24
draperesprit.com
Annual Report 2018
Emerging Portfolio Companies
Draper Esprit co-led a £9.0 million funding round in Evonetix, helping
it to scale technology that opens up new possibilities for synthetic
biology. The company is pioneering a new approach to scalable and
high-fidelity gene synthesis and received £1.8 million funding from
the plc and a further £1.8 million from the Group in January 2018.
The ability to synthesise fragments of DNA without the limitation of
sequences and with no fundamental errors is a challenge. All existing
DNA manufacturing methods can only produce short sequences
because longer sequences have a higher rate of error. Evonetix was
founded in 2016 to address this very problem. Their platform uses an
addressable silicon array to direct the synthesis of DNA at many sites
in parallel, followed by an error-detection process to enable DNA
production at scale.
The US$12.3 million financing was co-led by DCVC (Data Collective)
of Palo Alto, CA and Draper Esprit, and included the Morningside
group, alongside existing investors Providence Investment Company
(Jersey), Cambridge Consultants Ltd (Cambridge, UK), Rising Tide
Fund (San Francisco, CA) and Civilization Ventures (San Francisco,
CA).
Draper co-led an £18.0 million funding round, the largest amount
raised by a digital behavioural health business in Europe. Draper
Esprit invested £7.5 million across the Group (£3.8 million from
plc) alongside existing investor Touchstone Innovations. This was
part of a round to accelerate growth in Ieso’s home market and
commercialise its transformative technology platform in the US.
Based in Cambridge, UK, Ieso Digital Health’s breakthrough
technology, is transforming the way mental health is delivered. Ieso
provides patients with access to secure, one-on-one, real-time,
evidence-based cognitive behavioural therapy (CBT) programmes,
delivered by accredited therapists, at a time that is convenient for
patients. Ieso’s intelligent technology platform is both cost effective
and removes many of the significant barriers preventing treatment,
including stigma and accessibility. It also gives its therapist network
guides and insights to enhance their performance and clinical
outcomes.
More than 16,700 patients have been treated to date and Ieso now
leads the way in digital therapy as the number one provider of online
CBT in the UK and has also recently expanded into the USA. Unlike
many other online or digital services, Ieso’s method was validated in
a randomised clinical trial published in The Lancet in 2009.
£1.8m
Invested
£1.8m
Net Asset Value
£3.8m
Invested
£3.8m
Net Asset Value
25
draperesprit.com
Financial Review
Annual Report 2018
Financial Review
The year to 31 March 2018 has been an
active period for the Group highlighted by
the June 2017 equity raise of £100.0 million
(£95.3 million net of fees) which has led to an
increased investment target of £60.0 million
per annum by the plc (alongside a further
£40.0 million from EIS and VCT co-investment
funds). Accordingly, further investment
activity has been demonstrated with £71.5
million deployed in the financial year (2017:
£37.1 million). Portfolio performance,
particularly in the core portfolio (as further
described in the Portfolio Review) has driven
strong fair value returns and further exits
have returned additional cash back to the
plc. The benefits of the plc model have been
further demonstrated through the secondary
acquisition of Seedcamp Fund I and II and
the building of secondary stakes in existing
portfolio companies. The flexibility to invest
outside of primary funding rounds enhances
the investment opportunity set the plc is able
to take advantage of.
The Gross Primary Portfolio, the gross value
of the Company’s investment holdings before
deductions for carry and any deferred tax,
has more than doubled to £243.5 million
(2017: £112.7 million), an increase of £130.8
million (2017: £34.0 million). The increase
in the value of the Gross Primary Portfolio
reflects investments made during the
year of £71.5 million, a fair value increase
of £74.6 million (2017: £43.8 million) and
realisations of £15.3 million (2017: £35.1
million). The increase in fair value has been
driven by the strong performance across
the portfolio and in particular across the
core holdings (ten portfolio companies with
a fair value greater than £8.0 million that
combine to represent more than 70% of the
Gross Portfolio Value). Notable uplifts in the
value of Graphcore, Trustpilot, Lyst, Perkbox,
Pod Point and TransferWise (acquired as part
of the Seedcamp Fund I and II acquisition in
the period). Graphcore (reflecting the uplift
in value from the US$50.0 million Series C
investment by Sequoia), Trustpilot (driven by
growth in revenue and continued secondary
acquisitions to build the equity holding), Lyst
(revenue growth and turning profitable),
Perkbox (continued strong revenue growth
and secondary stake acquisition), Pod Point
(continued revenue growth) and TransferWise
(acquired as part of the Seedcamp Fund I and
II acquisition in the period - raised equity at
$1.6 billion led by IVP).
In the financial year the Group has realised
successful exits from the investments in
Clavis, Aveillant and Moviepilot generating
£15.9 million (2017: £42.0 million) of cash
proceeds (including amounts held in escrow).
Of the original 24 companies in the portfolio
at IPO in June 2016, Draper Esprit has now
exited 10 companies (including Tails.com post
period end, see note 30).
The Group’s portfolio is valued in accordance
with the International Private Equity and
Venture Capital Valuation Guidelines (“IPEV”).
Following the initial investment in a portfolio
company the value of the investment is held
at cost in the Group’s books. The mechanism
for growth in the portfolio companies to
be translated into increased fair values in
the accounts of the Group is triggered by
the portfolio company achieving either
financing rounds at higher valuations (with
external investors as well as the Group) or
revenue growth in the portfolio company
being reflected against listed comparable
companies price-sales ratio multiples.
The gross primary portfolio of £243.5 million
(2017: £112.7 million) is subject to deductions
for the fair value of the carry liabilities and
deferred tax to generate the net investment
value of £231.9 million (2017: £106.0 million)
which is reflected on the consolidated
statement of financial position as financial
assets held at fair value through the profit or
loss. The table opposite has been generated to
reflect the movement in value of the portfolio
during the period.
A deferred tax provision of £1.8 million (2017:
£3.4 million) has been recognised in the year
against the gains in the portfolio to reflect
holdings of less than 5% equity interest or
for a period of less than 12 months in the
underlying portfolio companies. Tax was paid
in the period of £1.9 million against realisations
made where the holding period was less than
12 months (Movidius, Qosmos, Datahug).
Carry balances due to previous and current
employees of the Group are accrued on the
basis of the current fair value at the year-
“As a successful first
full year as a listed
entity, the Company
is scaling and
taking advantage
of the broad range
of opportunities
available to it.”
Ben Wilkinson
CFO
26
draperesprit.com Annual Report 2018
Gross Portfolio Value Table
Investments
Trustpilot
Graphcore
Lyst
Perkbox
Ledger
M-Files
SportPursuit
Transferwise
Graze
Podpoint
Remaining Portfolio
Total
Co-invest assigned to plc
Gross Portfolio Value
Carry external
Portfolio deferred tax
Trading carry & co-invest
Net portfolio value
Fair Value of
Investments 31st
March 2017
£’000
Investments
£’000
Realisations*
£’000
Movement in Fair
Value
£’000
Draper Esprit
(Ireland) Limited
£’000
Fair Value of
Investments 31st
March 2018
£’000
Interest FD
category ** at
reporting date
18,226
2,307
8,052
1,650
-
9,789
10,070
-
9,683
3,350
47,667
110,794
1,935
112,729
(5,621)
(3,413)
2,276
105,971
6,700
1,853
-
6,616
17,703
-
206
10,501
-
2,010
25,934
-
-
-
-
-
-
-
-
-
-
(15,338)
9,407
19,228
10,289
9,229
-
4,570
3,091
1,688
365
4,524
10,869
71,523
(15,338)
73,260
–
–
71,523
(15,338)
–
–
–
–
–
–
71,523
(15,338)
385
73,645
(5,858)
(331)
(853)
66,603
-
-
-
-
-
-
-
-
-
-
953
953
–
953
302
1,896
-
3,151
34,333
23,388
18,341
17,495
17,703
14,359
13,367
12,189
10,048
9,884
70,085
241,192
2,320
243,512
(11,177)
(1,848)
1,423
231,910
C
B
C
C
B
B
D
A
B
C
*
Realisations do not include amounts held in escrow. Total cash realisations including amounts held in escrow was £15.9 million (2017: £42.0 million)
**
Fully diluted interest categorised as follows: Cat A: 0-5%, Cat B: 6-10%, Cat C: 11-15%, Cat D: 16-25%, Cat E: >25%
end and deducted against the Gross Primary
Portfolio, the Carried Interest Plan is further
described in the Directors’ Remuneration
Report (page 40). Trading carry and co-
investment of £1.4 million (2017: £2.3 million)
reflects the carry accrued to plc on the fair
value of the portfolio companies held within
legacy funds that are in run-off and continued
to be managed by the Group. The net position
of £231.9 million (2017: £106.0 million) is
reflected on the balance sheet as financial
assets held at fair value through the profit or
loss.
On 5 June 2017, the Company announced a
placing and subscription for £100.0 million.
29,012,346 new shares were issued on 20
June 2017 to trading on AIM and ESM with
a further 1,851,851 new shares issued on 4th
August 2017 following FCA approval relating
to Invesco Perpetual. The equity raise has
broadened the Company shareholder base,
with support from new as well as existing
institutional shareholders, and provides a
platform to further grow our investments into
portfolio companies. We are grateful for the
support of all our shareholders who share the
Board’s vision to support high-growth private
technology investing in Europe.
Balance sheet net assets have increased
by 107% to £311.3 million (2017: 17% to
£150.7 million) in the period while net assets
excluding goodwill have grown by 123% to
£290.9 million (2017: 22% to £130.2 million)
reflecting the growth in the fair value of the
portfolio and the funds raised in June 2017.
The increase in trade and other receivables to
£4.8 million (2017: £0.5 million) is reflective of
£3.5 million of accrued income relating to an
EIS performance fee which is attributable from
the sale of Grapeshot to Oracle. Grapeshot
was an investment held in the EIS funds and
generated a gross 20% performance fee
on gains above 1.25x following the recent
successful sale to Oracle. Encore Ventures
is 70% owned by plc and the balances are
therefore consolidated gross with a non-
controlling interest balance reflecting the
amounts not accruing to the plc. £1.0 million
of the accrued income is directly attributable
to the plc. This balance demonstrates the
benefit of the co-investment funds in reducing
the plc cost base and the upside potential
from successful exits. The £3.5 million accrued
income is also reflected as revenue on the
income statement.
Year-end cash balances of £56.6 million (2017:
£24.9 million) reflect the cash proceeds from
the equity raise of £100.0 million (net of £5.0
million of directly attributable costs, which are
reflected in the share premium account on
the statement of financial position), amounts
invested of £71.5 million, £15.3 million of
investments realised and the administrative
costs of the Company.
Goodwill of £20.5 million was generated from
the acquisition of Esprit Capital Partners LLP
(“ECP”) and is held on the balance sheet as an
intangible asset. The goodwill was recognised
as the difference between the consideration
and the fair value of the assets acquired in the
accounts of ECP.
27
draperesprit.com Financial Review continued
Annual Report 2018
Consolidated statement of
comprehensive income
Investment income for the year comprises the
£66.6 million (2017: £35.7 million) of unrealised
investment gains (gains are unrealised as they
are held within Draper Esprit (Ireland) Limited,
which is accounted for as an investment
company) and fee income of £7.2 million
(2017: £1.7 million) which is generated from
management fees, performance fees and
director fees.
Fee income has increased in the period as
investment amounts increase and EIS and VCT
funds have continued to increase the size of
their funds raised. Fee income has increased
in the period due to 1) the £3.5 million EIS
performance fee, described above, of which
£1.0 million is directly attributable to the
plc (balance is reflected in non-controlling
interests), 2) £3.5 million of management fees
(2017: £1.6 million), which have increased in
line with the assets under management of the
Group.
Total operating costs of £7.1 million (2017:
£4.0 million in the nine month period)
consists of administrative costs of £5.8 million
(2017: £3.7 million), predominantly relating
to employment costs and other operating
expenses, non-cash share-based payments
of £0.5 million (2017: £0.1 million), which have
increased in the year following the issuance
of further options in November 2017 and the
charge taken relating to lapsed options (note
13), direct investment costs of £0.4 million and
exceptional items of £0.2 million for personnel
changes. Administrative costs are in line with
expectations and reflect the growth in the
investment team and level of deal activity.
Post balance sheet events
The Group has made further investments
totalling £21.5 million (see note 30) and
realised £2.5 million cash from the sale of Tails.
com to Nestlé Purina Petcare.
After a successful first full year as a listed
entity, the Company is scaling and taking
advantage of the broad range of opportunities
available to it.
Ben Wilkinson
CFO
Key Performance Indicators
KPI
How measured
Progress
1. Growth in value of
the portfolio
Fair value determined using International Private Equity and Venture
Capital Valuation Guidelines for the year-end and interim reporting
periods.
Gross Portfolio Value has
increased to £243.5 million (2017:
£112.7 million).
2. Realising cash
Cash generated from portfolio company exits against original cost.
3. New investments
Deploying funds for investments into new portfolio companies, follow-
on investments into existing companies, stake building into existing
companies and secondary investments.
£15.9 million (2017: £42.0 million)
realised in the period, including
amounts held in escrow.
£71.5 million (2017: £37.1 million)
invested in the period from plc,
with a further £24.8 million across
the Group.
4. Deal flow
Tracking the private company financing rounds across Europe and
analysing against the Group’s internal CRM database to determine if
we saw the opportunity.
Through our brand and network
we continue to access high
quality deal flow across Europe.
5. Cash balances
Maintaining sufficient liquidity to meet operational requirements and
to take advantage of investment opportunities and support the growth
of portfolio companies.
£56.6 million (2017: £24.9 million)
at year end.
28
draperesprit.com Principal Risks
Principal risks
Annual Report 2018
The Board considers the following to be
the principal key business risks faced by the
Group. The Group’s strategy is aligned to
mitigating these risks as outlined below.
The Board regularly reviews the risks faced
by the Group and ensures the mitigation
strategies in place are the most effective
and appropriate to the Group. There may
be additional risks and uncertainties which
are not known to the Board and there are
risks and uncertainties which are currently
deemed to be less material, which may also
adversely impact performance. It is possible
that several adverse events could occur
and that the overall impact of these events
would compound the possible impact on the
Group. Any number of the below risks could
materially adversely affect the Company’s
business, financial condition, results of
operations and/or the market price of the
ordinary shares.
Risk
Possible consequences
Mitigation strategies
1.
2.
3.
4.
The investment
portfolio businesses
are at an early
stage and carry
inherent risk
The technology and offering developed by these businesses
may fail and/or these businesses may not be able to
develop their offering or technology into commercially
viable products or technologies.
Portfolio value
may be dominated
by single or
limited number of
companies
There is a risk that if one or more such investee companies
experience difficulties or suffer from poor market
conditions and if, as a result, their value were to be
adversely affected, this would have a material adverse
impact on the overall value of the Group’s portfolio of
investee companies.
The Company
will hold non-
controlling
interests in the
investment
portfolio businesses
Proceeds from the
sale of investments
may vary
substantially from
year to year
Non-controlling interests may lead to a limited ability to
protect the Company’s position in such investments.
The timing of portfolio company realisations is uncertain
and cash returns to the Group are therefore not
predictable.
The Investment team, comprised of experts in
their sector, undertakes rigorous due-diligence
prior to any investment. The team provides
active management, secures a significant
minority stake with board participation and
rights in portfolio companies.
The financial structure of the investment
provides downside protection.
The Group adopts a broad sector approach
with a focus on four core sectors. Risk is
diversified within the portfolio by not focusing
on any one sector and by deploying capital
across growth stages.
The Board expects to allocate approximately
30% of the Group’s investment capital
towards smaller rounds of seed and series A
investments with approximately 70% being
invested in larger follow-on series B+ and
series C+ investments to scale technology
companies to fund later stage growth.
The Group is an active manager of its
investments and usually takes a board
position on the investee company.
Investments are made with suitable
minority protections, including veto rights
on key decisions. Investments are often
made in investee companies in which other
institutional investors are also shareholders.
Collectively a greater degree of protection can
be afforded.
The Group maintains sufficient cash resources
to manage its ongoing operational and
investment commitments. Regular working
capital reviews are undertaken using cash flow
projections.
29
draperesprit.com Principal risks continued
Annual Report 2018
5.
Fluctuations in
foreign exchange
rates may
adversely affect
the performance
of the Company’s
portfolio
Certain investments of the Group are made or operate in
currencies other than Sterling and the Group may make
certain future investments in other currencies and in
companies that use other currencies as their functional
currency. Accordingly, changes in exchange rates may
have an adverse effect on the valuations and/or revenues
of the Group’s investments, and on its investments’ ability
to make debt payments, pay dividends or make other
distributions to investors such as the Group.
6.
Portfolio company
valuations subject
to change
The valuations of the Group’s underlying portfolio of
investments are substantially based on the revenue
generated by these businesses.
The Board regularly reviews and considers the
possible impacts of currency movements on
the Group’s portfolio.
The portfolio companies generate revenues
across a range of currencies, predominantly
US Dollars, Sterling and Euro, and a degree of
natural hedge therefore exists.
The Company does not currently intend
to enter into any hedging arrangements
to mitigate its exposure to fluctuations in
exchange rates.
The Group invests in market leaders, across a
spread of geographies and sub-sectors which
provide diversification in revenue sources,
macroeconomic risks and peer groups.
7.
The Group is
dependent on
a small number
of shareholders
who hold a large
proportion of the
total share capital
of the Group
8.
The Group and its
portfolio companies
are subject to
competition risk
Each of these businesses, and therefore their ability to
generate revenue, are subject to the macroeconomic
environment in the countries in which the businesses
operate.
Similarly, where comparable peer groups are used as a
benchmark to determine valuations based on revenue
multiples, the performance of the peer group will impact
portfolio valuations.
The decision by one of these shareholders to dispose of
their holding in the Group might have an adverse effect on
the Group’s operations.
The execution of the Company’s investment strategy
depends primarily on the ability of the Company to
identify opportunities to make investments and to
capitalise on these opportunities. A number of entities
compete with the Company for investment opportunities,
including public and private investment funds, commercial
and investment banks, commercial finance companies,
business development companies and operating
companies acting as strategic buyers.
The competitive pressures faced by the Company
may prevent it from identifying investments that are
consistent with its investment objectives or that generate
attractive returns for shareholders. The Company may
lose investment opportunities in the future if it does not
match investment prices, structures and terms offered by
competitors. Alternatively, the Company may experience
decreased rates of return and increased risks of loss if it
matches investment prices, structures and terms offered
by competitors.
The Directors seek to build a mutual
understanding of objectives between
the Group and its shareholders. Regular
communication is maintained with
all shareholders through the Group’s
announcements and its annual and half-
yearly reports. The Directors maintain regular
contact with institutional shareholders
through presentations and meetings held
throughout the year.
Competition for investment opportunities
is based primarily on pricing, terms and
structure of a proposed investment, certainty
of execution and, in some cases, brand or
reputational presence.
The Group seeks to mitigate competition risks
by having diversified sources of opportunities,
by creating a strong brand based on a
reputation of successful experiences with
entrepreneurs and by demonstrating ongoing
financial discipline in its investment decision
process.
30
draperesprit.com 9.
The Group may not
be able to retain and
attract investment
team members and
support staff with
the right skills and
experience
The industry in which the Group operates is a specialised
area and the Group requires highly qualified and
experienced management and personnel. If the Group
does not succeed in retaining skilled personnel or is unable
to continue to attract all personnel necessary for the
development and operation of its business, it may not
be able to grow its business as anticipated or meet its
financial objectives.
10.
Esprit Capital
Partners or Encore
Ventures cease to be
authorised by FCA
Should either Esprit Capital and/or Encore Ventures
cease to be authorised and regulated by the FCA as
small authorised UK AIFMs then they would no longer
be authorised to act as the investment manager of the
Company or the Encore Funds respectively or as the UK
AIFM to the Group.
Annual Report 2018
The Group carries out regular market
comparisons for staff and Executive
remuneration. Senior Executives are
shareholders in the business and the Group
operates appropriate incentive programmes
to align individuals with the Group’s strategy
over the long term.
The Group encourages staff development and
inclusion through coaching and mentoring.
The Group ensures that Esprit Capital
and Encore Ventures fulfil their ongoing
requirements under FCA rules.
11. UK future exit from
the EU may impact
on the Group
The ability to make investments into Europe may be
reduced.
The Company is dual listed on AIM in London
and ESM in Dublin, thereby providing flexibility
to participate in European investments going
forward.
If the Group’s arrangements with the Draper Venture
Network were terminated for any reason, the Company
would lose the advantages of that membership.
The Group is an active member of the Draper
Venture Network and participates as a Board
member.
12.
The termination
of the Group’s
arrangements with
the Draper Venture
Network may reduce
the opportunities
available for
investment
31
draperesprit.com Governance
Annual Report 2018
32
32
draperesprit.com
www.draperesprit.comGovernance Annual Report 2018 Governance
Annual Report 2018
Governance
“The Directors share the view that
good governance is fundamental to the
successful growth of the business.”
Karen Slatford
Chairman
draperesprit.com
33
33
www.draperesprit.comGovernance Annual Report 2018 Board of Directors
Karen Slatford
(age 61)
Non-Executive Chair
Simon Christopher Cook
(age 49)
Chief Executive Officer
Stuart Malcolm Chapman
(age 48)
Chief Operating Officer
Between 1983 and 2001 Karen was at
Hewlett Packard, where in 2000 she became
Vice President and General Manager
of Worldwide Sales & Marketing for the
Business Customer Organisation. She was
responsible for sales of all Hewlett Packard’s
products, services and software to business
customers globally.
Since 2001, Karen has held various roles
at board level at a range of technology
companies, including PortWise AB, Via
Networks, Inc, Compel Group plc, HAL
Knowledge Systems, and StepStone ASA. She
is currently chair of The Foundry, a leading
special effects software company, the senior
independent non-executive director and
chair of the nominations committee of Micro
Focus International, non-executive director
and chair of the remuneration committee
of Alfa Financial Software Holdings plc, and
Accesso Technology Group plc. Karen holds a
BA honours degree in European Studies from
Bath University and a Diploma in Marketing.
Simon has been active in the UK venture
capital industry since 1995. Previously, Simon
was a partner with Cazenove and with
Elderstreet Investments and a director at 3i
in Cambridge.
Prior to establishing the Group, with Simon
in 2006, Stuart was a Director of 3i Ventures
in London. Having joined 3i in 1992, he has
25 years of venture capital experience in
Europe and the US.
He was a founding partner of 3i US, based in
Menlo Park, CA from 1999 until 2003. Stuart
was responsible for Esprit’s investments
in Lagan Technology (sold to Verint),
Redkite (sold to Nice) and Kiadis (IPO).
Stuart currently serves as a director with
Netronome, Kiadis, Resolver, Realeyes and
Conversocial and observer with Metalysis
and Crate.
Stuart is a member of the British Venture
Capital Association Venture Committee.
Prior to 3i, Stuart was involved in software
and systems implementations for Midland
Bank. He is a graduate of Loughborough
University and currently serves on
the Strategic Advisory Board for the
Loughborough School of Business.
In 2006, he led the management buy-out
of Cazenove Private Equity and acquisition
of Prelude Ventures and he negotiated the
Group’s partnership with the Draper Venture
Network. Simon has invested in a number
of successful technology startups, including
Cambridge Silicon Radio (IPO), Virata (IPO),
Horizon Discovery (IPO), nCipher (IPO),
Lovefilm (sold to Amazon), Zeus (sold to
Riverbed) and KVS (sold to Veritas). Simon
currently works as a director or observer with
Graze, Lyst, SportPursuit, Crowdcube and
Trustpilot.
Prior to venture capital, Simon worked as
a strategy and IT consultant at KPMG,
where he established the Digital Media
strategy consulting practice, and as a
computer games developer, running his
own development company started at age
19. Simon is a graduate of the University
of Manchester Institute of Science and
Technology (“UMIST”) with a BSc in
Computation. He is a former member of the
EVCA Venture Platform group and was voted
VC Personality of the Year 2008.
34
www.draperesprit.comGovernance Annual Report 2018
Grahame David Cook
(age 59)
Non-Executive Director
Richard Fowler Pelly OBE
(age 62)
Non-Executive Director
Grahame Cook is an experienced FTSE
and AIM non-executive, with extensive
experience as an audit committee chairman.
With a background in banking, where he has
specialised in the life sciences, pharma and
biotech sectors, Grahame has over 20 years’
experience of M&A, equity capital markets
and investor relations.
Grahame started his career at Arthur
Andersen, where he qualified as a chartered
accountant and worked within audit and
corporate investigations. Subsequent
positions include at UBS, where he was a
member of the global investment banking
management committee and global head
of equity advisory, and at WestLB Panmure,
where he was joint chief executive officer.
Grahame is currently chair of Sinclair
Pharma Plc, and a Non-Executive Director
of Horizon Discovery Plc, Morphogenesis Inc,
and Minoan Group plc where he chairs the
Audit and Remuneration Committees.
Up until April 2014, Richard was the chief
executive of the European Investment Fund
(‘‘EIF’’), Europe’s largest investor in venture
capital funds.
Before joining EIF in April 2008, Richard
was managing director of structured asset
finance at Lloyds TSB Bank in London from
2005 to 2007. From 1998 to 2005, he worked
for GE Capital, first as chairman and CEO
of Budapest Bank in Hungary and then
as CEO of UK Business Finance within GE
Commercial Finance.
Prior to his career at GE, Richard worked for
Barclays Bank in various functions in the UK
and in France from 1977 to 1997, including
business development, corporate finance,
structured finance and retail banking.
Richard holds an honours degree in
psychology from Durham University, a
diploma from the Institute of Bankers and
obtained an MBA with distinction from
INSEAD Fontainebleau. In 2003, he was
awarded an OBE in the Queen’s Honours List
for Services to the community in Hungary.
35
www.draperesprit.comGovernance Annual Report 2018 Chairman’s Corporate Governance
Introduction
I am pleased to introduce our Corporate
Governance Statement, which sets out
our approach to corporate governance
and summarises both how our Board and
Committees operate and their key activities
during the year.
The Directors share the view that good
governance is fundamental to the successful
growth of the business and we are
committed to following the principles of the
corporate governance code for small and
mid-size quoted companies published by
the Quoted Companies Alliance (the “QCA
Code”). We have therefore sought to ensure
that appropriate systems and procedures
are maintained which are both effective and
appropriate for the size and nature of the
Company and its operations. We will publish
a comply and explain statement against the
QCA Code in September 2018 in accordance
with revised AIM Rule 26.
Our governance structure, described in this
report, provides a framework of established
and clearly articulated roles, authority limits
and controls which allows the executive
team to focus on delivering the investment
strategy of the Group. These systems are
designed to support our compliance with
the AIM rules and other legal, regulatory and
compliance requirements which apply to us.
We believe that the governance structure
we have implemented is appropriate and
effective, and the Board keeps the relevant
systems and procedures under regular review
to ensure that they develop in line with the
growth and strategic progress of the Group.
During the year, we have conducted our
first formal Board performance evaluation
process which is described later in this
report. I am pleased to confirm that the
evaluation process concluded that the
Board comprises an appropriate balance of
skills and experience and that it is operating
effectively. We have identified a number
of areas for further development, mainly
around our Board process, and will work to
address these during the coming year.
Karen Slatford
Chairman
36
www.draperesprit.comGovernance Annual Report 2018 Composition of the Board
Including the Chairman, the Board
comprises five Directors, of which two are
Executive Directors and three are Non-
Executive Directors, and the Company
therefore complies with the principles of the
QCA Code with respect to the independence
of the Board. The skills and experience of
the Board are set out in their biographies on
pages 34 and 35.
Collectively, the Non-Executive Directors
bring an appropriate balance of functional
and sector skills and experience such that
they are able to provide constructive support
and challenge to the Executive Directors.
How the Board operates
The Directors are responsible for the
determination of the Company’s investment
policy and strategy and have overall
responsibility for the Company’s activities,
including the review of investment activity
and performance. The operation of the
Board is documented in a formal schedule
of matters reserved for its approval. This
is reviewed annually, and includes matters
relating to:
– the Group’s strategic aims, objectives
and investment strategy.
– the approval of any single investment
greater than £10.0 million or the sale
of any assets where the proceeds
will be greater than 10% of market
capitalisation.
– the approval of any investment decision
where a conflict of interest exists.
– structure and capital of the Group.
– financial reporting, financial controls and
dividend policy and approving annual
budgets.
– internal control and risk management
(including the Group’s appetite for risk).
– the approval of significant contracts and
expenditure.
– appointments to the Board and its
Committees.
Day-to-day management of the Group is
the responsibility of the CEO, COO and the
Executive Management team.
Board meetings
The Board met formally ten times during the
year, and will continue to meet at least ten
times per year in future.
The Directors are expected to attend all
meetings of the Board and the Committees
on which they sit, and the Non-Executive
Directors are expected to devote sufficient
time to the Company to enable them to
fulfil their duties as Directors. The Board
is satisfied that the Chairman and each
of the Non-Executive Directors is able to
devote sufficient time to the business, and
they each maintain open communication
with the Executive Directors and senior
management between the formal Board
meetings.
The table below shows Directors’ attendance
at scheduled Board meetings during the
year.
Director
Karen Slatford
Simon Cook
Stuart Chapman
Grahame Cook
Richard Pelly
No. of meetings
attended
31– Mar–18
No. of meetings
attended
31–Mar–17
10
10
10
7
10
8
8
8
6
8
Board activity during the year
The Board has an agreed schedule of activity
covering regular business updates, financial,
operational and governance matters. Each
Board Committee has also compiled a
schedule of work to ensure that all areas for
which the Board has overall responsibility are
addressed and reviewed during the course
of the year. These schedules of activity are
reviewed at least annually to ensure that key
matters and developments are discussed at
the appropriate time.
Board and Committee papers are
distributed to Directors in advance of the
meetings, and each meeting is minuted
by the Company Secretary. Every Director
is aware of the right to have any concerns
minuted.
Board Committees
The Board has delegated specific
responsibilities to the Audit Committee
and the combined Remuneration and
Nomination Committee, details of which are
set out below.
Each Committee has written terms of
reference setting out its duties, authority
and reporting responsibilities. The terms of
reference of each Committee were reviewed
by the Committees and the Board during
the year, and these will be reviewed on an
annual basis going forward to ensure they
remain appropriate and reflect any changes
in legislation, regulation or best practice.
Audit Committee
The Audit Committee is chaired by Grahame
Cook, who is an experienced Main Market
and AIM listed company audit committee
chairman with significant financial
experience. Its other members are Karen
Slatford and Richard Pelly. All members of
the Audit Committee are independent Non-
Executive Directors.
The Audit Committee is responsible for
monitoring the integrity of the Group’s
financial statements, reviewing significant
financial reporting issues and monitoring the
adequacy and effectiveness of the Group’s
internal control and risk management
systems. It also oversees the relationship
with the external auditor, advises the Board
on the appointment of the auditor and
reviews their fees and the nature, scope and
results of the audit.
The Audit Committee meets at least three
times per year, and met on three occasions
during the financial year.
The Committee has unrestricted access to
the Group’s external auditor. The CFO is
invited to attend each meeting of the Audit
Committee, and other Executive Directors
and senior management may also attend by
invitation.
37
www.draperesprit.comGovernance Annual Report 2018 Chairman’s Corporate Governance
Introduction continued
to the Board at its meeting in March 2018.
In general, the responses found the Board
to be operating effectively. Some minor
improvements around Board process and
engagement between Non-Executives and
shareholders, were identified and steps will
be taken to address these during the coming
year.
Relations with shareholders
Regular communication with institutional
shareholders is maintained through
individual meetings with the Executive
Directors and CFO, particularly following the
publication of interim and full-year results.
Investor relations is a standing item on the
Board’s agenda, and the executive team
routinely updates the Board as to outcomes
of their meetings with shareholders and
potential investors.
General information about the Company,
the management team and the Group’s
investments is also available on the
Company’s website www.draperesprit.
com, the investor section of which contains
details of all recent announcements and all
information required to be maintained under
AIM Rule 26.
Shareholders will have an opportunity
to raise questions with the Board at the
Group’s Annual General Meeting.
Annual General Meeting
The Annual General Meeting will take place
on 23 July 2018. The Notice of the Annual
General Meeting and the ordinary and
special resolutions to be put to the meeting
are included at the end of this Annual
Report.
Remuneration and Nomination
Committee
The Remuneration and Nomination
Committee is chaired by Richard Pelly and
its other members are Karen Slatford and
Grahame Cook. The Remuneration and
Nomination Committee’s responsibilities
include agreeing with the Board the
remuneration policy for the Executive
Directors, reviewing and approving
corporate goals and objectives for the
Executive Directors and monitoring
performance against those objectives.
The Remuneration and Nomination
Committee is also responsible for making
recommendations relating to appointments
to the Board or changes to the constitution
of the Board and its Committees.
The Executive Directors and CFO are invited
to attend meetings of the Committee where
their input is required, but they do not take
part in any discussion on their own benefits
and remuneration.
The Remuneration Report on pages 40
to 42 contains more information on the
Committee’s role and the remuneration and
fees of the Executive and Non-Executive
Directors.
Conflicts of interest
At each meeting of the Board or its
Committees, the Directors are required to
declare any interests in the matters to be
discussed and are regularly reminded of
their duty to notify any actual or potential
conflicts of interest. The Company’s Articles
of Association provide for the Board to
authorise any actual or potential conflicts of
interest if deemed appropriate to do so.
The Group also has a long established
conflicts of interest policy, under which
employees and Executive Directors are
prohibited from investing in companies that
fall within the target investment focus of the
Group, and which requires Non-Executive
Directors to seek approval from the Group
Compliance Officer if they wish to invest in
companies falling within the mandate of the
Group.
Internal controls
The Board has ultimate responsibility for the
Group’s system of internal controls and for
the ongoing review of their effectiveness.
Systems of internal control can only identify
and manage risks and not eliminate them
entirely. As a result, such controls cannot
provide an absolute assurance against
misstatement or loss. The Board considers
that the internal controls which have
been established and implemented are
appropriate for the size, complexity and risk
profile of the Group.
The main elements of the Group’s internal
control system include:
– Close management of the day-to-day
activities of the Group by the Executive
Directors.
– An organisational structure with defined
levels of responsibility.
– Specified investment approval levels and
financial authority limits.
– An annual budgeting process which is
approved by the Board.
– Monthly management reporting against
agreed KPIs (KPIs are further outlined on
page 28 of the Strategic Report).
– Financial controls to ensure that the
assets of the Group are safeguarded and
that appropriate accounting records are
maintained.
The Board continues to review the system of
internal controls to ensure it is fit for purpose
and appropriate for the size and nature of
the Company’s operations and resources.
Board evaluation
The Board and Committees conducted a
formal performance evaluation process
during the year. The process was carried
out by way of tailored questionnaires
completed by each member of the Board
and Committees. With respect to the Board,
the questions covered a variety of topics
including the composition of the board,
the quality and timeliness of information
provided to the Board, succession planning,
and shareholder engagement. Responses
were collated by the Chairman and fed back
38
www.draperesprit.comGovernance Annual Report 2018 Audit Committee Report
On behalf of the Board, I am pleased to
present the Audit Committee Report for the
year ended 31 March 2018.
The main items of business considered
by the Audit Committee during the year
included:
The Audit Committee is responsible for
ensuring that the financial performance
of the Group is properly reported on and
monitored. Its role includes monitoring
the integrity of the Group’s financial
statements, reviewing significant financial
reporting issues, reviewing the effectiveness
of the Company’s internal control and
risk management systems and overseeing
the relationship with the external auditors
(including advising on their appointment,
agreeing the scope of the audit and
reviewing the audit findings). It is also
responsible for establishing, monitoring
and reviewing procedures and controls for
ensuring compliance with the AIM Rules.
Members of the Audit
Committee
The Committee consists of three
independent Non-Executive Directors:
Grahame Cook (as Chairman of the
Committee), Karen Slatford and Richard
Pelly. The Board is satisfied that Grahame
Cook, who is a qualified Chartered
Accountant and an experienced Non-
Executive Director and audit committee
chair, has recent and relevant financial
experience.
The Audit Committee met three times
during the year (on one occasion since
the year-end) and will meet at least three
times per year going forward at appropriate
times in the reporting and audit cycle and
otherwise as required. The Audit Committee
also meets frequently with the Company’s
external auditors.
Duties
The duties of the Audit Committee are
set out in its terms of reference, which are
available on request from the Company
Secretary. The terms of reference were
reviewed by the Committee during the year,
with no changes proposed.
– Review of terms of reference.
– Review of the risk management and
internal control systems.
– Review and approval of the interim
financial statements and the external
auditor’s report thereon.
– Review of the year-end audit plan, and
consideration of the scope of the audit
and the external auditor’s fees.
– Review of the Annual Report and financial
statements, including consideration of
the significant accounting issues relating
to the financial statements and the going
concern review.
– Consideration of the external audit report
and management representation letter.
– Meeting with the external auditor without
management present.
– Assessment of the need for an internal
audit function.
– Review of whistleblowing arrangements.
Role of the external auditor
The Audit Committee is responsible for
monitoring the relationship with the external
auditor, Grant Thornton LLP, in order to
ensure that the auditor’s independence and
objectivity are maintained. As part of this
responsibility, the Audit Committee reviews
the provision of non-audit services by the
external auditor and the Audit Committee
Chairman is consulted by management
prior to the external auditor being engaged
to provide any such non-audit services. The
breakdown of fees between audit and non-
audit services is provided in note 8.
Having reviewed the auditor’s independence
and performance, the Audit Committee
has recommended to the Board that a
resolution to reappoint Grant Thornton LLP
as the Company’s auditor be proposed at
the forthcoming Annual General Meeting.
Audit process
The external auditor prepares an audit
plan for its review of the full-year
financial statements, and the audit plan
is reviewed and agreed in advance by
the Audit Committee. Prior to approval
of the financial statements, the external
auditor presents its findings to the Audit
Committee, highlighting areas of significant
financial judgement for discussion.
Internal Audit
The Audit Committee has again considered
the need for an internal audit function
during the year and continues to be of the
view that, given the size and nature of the
Group’s operations and finance team, there
is no current requirement to establish a
separate internal audit function.
Risk management and internal
controls
As described in the Corporate Governance
Report on page 38, the Group has
established a system of risk management
and internal controls. The Audit Committee
is responsible for reviewing the systems of
risk management and internal control and
has reviewed both the risk register and
management’s progress in implementing
and maintaining such control systems
during the year. The Committee is satisfied
that the internal control systems which have
been established are operating effectively.
Share dealing, anti-bribery and
whistleblowing
The Group has adopted a share dealing code
in conformity with the requirements of Rule
21 of the AIM Rules. All employees, including
new joiners, are required to agree to comply
with the code. The Group has also adopted
anti-bribery and whistleblowing policies,
which are included in every employee’s
staff handbook. The Group operates an
open and inclusive culture and employees
are encouraged to speak up if they have
any concerns. The aim of such policies is
to ensure that all employees bring matters
which cause them concern to the attention
of either the Executive or Non-Executive
Directors.
Grahame Cook
Audit Committee Chairman
39
www.draperesprit.comGovernance Annual Report 2018
Directors’ Remunertion Report
I am pleased to present our Remuneration
Report which sets out the remuneration
policy and remuneration paid to Directors
during the year. As an AIM listed
company, Draper Esprit is not required
by the Companies Act 2006 to prepare
a remuneration report and therefore the
following disclosures are presented on a
voluntary basis.
Remuneration and Nomination
Committee
The members of the combined
Remuneration and Nomination Committee
(the “Committee”) are Richard Pelly
(Chairman of the Committee), Grahame
Cook and Karen Slatford, all of whom are
independent Non-Executive Directors of the
Company.
The Committee operates under terms of
reference, which are reviewed annually and
approved by the Board. The Committee’s
core responsibilities include:
– determining the policy for the
remuneration of the Chairman, Executive
Directors and Chief Financial Officer and
recommending the total remuneration
packages (including bonuses, incentive
payments and share options or other
awards) for those individuals; and
– identifying and nominating members
of the Board and recommending the
composition of each Committee of
the Board (including the Chair of each
Committee).
The Committee met on four occasions
during the year under review and has met
once since the year end. The Committee will
meet at least twice per year going forward.
The activity of the Committee during the
year was focused on remuneration matters,
including approving awards of options under
the Company Share Option Plan, approving
bonus payments to the Executive Directors
following the assessment of performance
against agreed financial KPIs, and approving
the performance measures for the 2018/19
annual bonus. The bonus amounts paid in
respect of the year ended 31 March 2018 are
set out in the table on page 42.
The Committee also approved a 3% salary
increase for both the CEO and the COO,
in line with general increases across the
Company. In addition, the Committee also
approved a further increase of £20,000 per
annum to the COO’s salary to bring it in
line with the market. As a result of these
changes, effective from 1 April 2018, the
CEO’s annual salary will be £278,100 and the
COO’s annual salary will be £231,150.
Remuneration policy
The objective of the Company’s
remuneration policy is to attract, motivate
and retain high calibre, qualified, executives
with the necessary skills and experience
in order for the Company to achieve its
strategic objectives. The Directors also
recognise the importance of ensuring that
employees are incentivised and identify
closely with the success of the Company.
Accordingly, the Committee’s aim is to
provide a framework for remuneration which
creates an appropriate balance between
fixed and performance-related elements.
It is the Committee’s intention that
performance-related remuneration is linked
to the achievement of objectives which are
aligned with shareholders’ interests over the
medium term.
The main elements of the remuneration
package for Executive Directors are:
– Base salary.
– Performance-related annual bonus.
– Other benefits (including life and health
insurance).
– Participation in the Company’s carried
interest plans.
– Participation in the Company’s Share
Option Plan.
Executive Directors’ service
contracts
The Executive Directors are appointed
under service contracts which are not for a
fixed duration and are terminable upon six
months’ notice by either party.
Non-Executive Directors
Each of the Non-Executive Directors is
appointed under a letter of appointment
with the Company. Subject to their re-
election by shareholders, the initial term
of appointment for each Non-Executive
Director is three years from Admission to
AIM, and their appointments are terminable
upon three months’ notice by either party.
The Non-Executive Directors’ fees are
determined by the Board, subject to the
limit set out in the Company’s Articles of
Association. There have been no changes
to Non-Executive Directors’ fees during the
year.
The Draper Esprit plc Share
Option Plan (“CSOP”)
The Committee is responsible for granting
awards of options under the CSOP, which
was adopted by the Company on 1 August
2016. All Executive Directors and employees
are eligible to participate in the CSOP.
The CSOP comprises two parts. Options
granted under the first part are intended to
be qualifying CSOP Options under the CSOP
Code set out in Schedule 4 to the Income
Tax (Earnings and Pensions) Act 2003. This
means that options granted under that part
are subject to capital gains tax treatment.
Options granted under the second part are
not tax-favoured options. The CSOP Rules
specify that no options may be granted
more than ten years after its adoption,
and that the number of ordinary shares in
the Company over which options may be
granted on any date is limited so that the
total number of ordinary shares issued and
issuable in respect of options granted in
any ten-year period under the CSOP and
any other employees’ share scheme of the
Company will be restricted to 5% of the
issued ordinary shares from time to time.
On 28 November 2017, the Committee
approved the grant to the Executive
Directors of options under the CSOP over
a total of 469,670 ordinary shares at an
exercise price of 387 pence per share. The
options are not subject to any performance
conditions and will be exercisable after three
40
www.draperesprit.comGovernance Annual Report 2018
years, and within ten years of the date of
grant, subject to continued employment.
Carried interest plan
The Company has established carried
interest plans for the Executive Directors,
other members of the investment team
and certain other employees (together,
the ‘‘Plan Participants’’) in respect of any
investments and follow-on investments
made from Admission. Each carried interest
plan operates in respect of investments
made during a 24-month period and related
follow-on investments made for a further
36-month period.
Subject to certain exceptions, Plan
Participants will receive, in aggregate, 15%
of the net realised cash profits from the
investments and follow-on investments
made over the relevant period once the
Company has received an aggregate
annualised 10% realised return on
investments and follow-on investments
made during the relevant period. The Plan
Participants’ return is subject to a ‘‘catch-
up’’ in their favour. Plan Participants’ carried
interests vest over five years for each carried
interest plan and are subject to good and
bad leaver provisions. Any unvested carried
interest resulting from a Plan Participant
becoming a leaver can be reallocated by the
Remuneration Committee.
The remuneration policy for 2018/19 will operate as follows:
Executive
Simon Cook
Stuart Chapman
Non-Executive
Karen Slatford
Grahame Cook
Richard Pelly
Role
Chief Executive Officer
Chief Operations Officer
Chairman
Chairman of Audit Committee
Chairman of Remuneration and Nomination
Committee
Basic salary/fee
£’000s
Maximum bonus
potential
278
231
80
40
40
60%
60%
–
–
–
Statutory information
The following information includes
disclosures required by the AIM Rules and UK
company law.
Annual bonus
The 2018/19 annual bonus for Executive
Directors will be assessed against financial
KPIs. Challenging targets have been set,
with 50% of the annual bonus potential (i.e.
30% of base salary) earned for achieving
threshold performance, increasing on a
straight-line basis to 80% (48% of base
salary) for achieving target performance
then increasing on a straight-line basis
to 120% of bonus potential (72% of base
salary) for achieving stretch levels of
performance. Actual performance targets
are not disclosed as they are considered to
be commercially sensitive at this time.
41
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Directors’ remuneration
The following table summarises the gross aggregate remuneration of the Directors who served during the year to 31 March 2018:
Executive Directors
Simon Cook
Stuart Chapman
Non-Executive Directors
Karen Slatford
Grahame Cook
Richard Pelly
Total
Basic salary/fees
£’000s
Pension
contributions
£’000s
Taxable benefits
£’000s
Performance–
related bonus
£’000s
Year end 2017/18
Total
£’000s
Period ended
2016/17 Total
£’000s
270
205
80
40
40
635
41
31
–
–
–
72
11
1
–
–
–
12
144
110
–
–
–
254
466
347
80
40
40
973
373
275
67
33
33
781
Share options
The individual interests of the Executive Directors under the CSOP are as follows:
Simon Cook
Stuart Chapman
Date of grant
Number of CSOP
options
28/11/16
28/11/17
28/11/16
28/11/17
8,450
–
8,450
–
Number of
unapproved
options
226,385
234,835
226,385
234,835
First exercise
date
Exercise price
28/11/19
28/11/20
28/11/19
28/11/20
£3.55
£3.87
£3.55
£3.87
The details of the CSOP are set out in note 13 to the consolidated financial statements.
Directors’ share interests
The interests of the Directors who served in the year and who held an interest in the ordinary shares of the Company were as follows:
Number of
ordinary shares
as at 31 March
2018
Number of
ordinary shares
as at 31 March
2017
2,119,306
2,119,306
2,230,214
2,230,214
Simon Cook
Stuart Chapman
None of the Non-Executive Directors currently hold shares in the Company.
Richard Pelly
Chairman of the Remuneration Committee
24 May 2018
42
www.draperesprit.comGovernance Annual Report 2018
Directors’ Report
The Directors present their report together
with the audited financial statements for
the year ended 31 March 2018.
Brief biographical details for each of the
Directors are given on pages 34 and 35.
Results and dividends
The Group’s profit for the year was £65.3
million (year ended 31 March 2017: £33.2
million). In accordance with our stated
dividend policy, the Directors do not
recommend the payment of a dividend.
Future developments
Details of future developments and events
that have occurred after the balance sheet
date can be found in the Strategic Report on
page 14.
Review of business
The Chairman’s Statement on page 36
and the Strategic Report on pages 1 to 31
provide a review of the business, the Group’s
performance for the year ended 31 March
2018, key performance indicators and an
indication of future developments and risks,
and form part of this Directors’ Report.
Directors
The Directors of the Company who held
office during the year were:
Stuart Chapman
Grahame Cook
Simon Cook
Richard Pelly
Karen Slatford
Directors’ interests
A table showing the interests of the Directors
in the share capital of Draper Esprit plc is set
out in the Directors’ Remuneration Report
on page 42.
Directors’ indemnity provisions
As permitted by the Articles of Association,
the Directors have the benefit of an
indemnity which is a qualifying third party
indemnity provision as defined by Section
236 of the Companies Act 2006. The
indemnity was in force throughout the
financial period and at the date of approval
of the financial statements.
The Company has purchased and
maintained throughout the financial period
Directors’ and Officers’ liability insurance in
respect of itself and its Directors.
Political donations
The Company made no political donations
during the year to 31 March 2018.
Financial instruments
The financial risk management objectives of
the Group, including details of the exposure
of the Company and its subsidiaries to
financial risks including credit risk, interest
rate risk and currency risk, are provided in
note 27 of the financial statements.
Share capital structure
At 31 March 2018, the Company’s issued
share capital was £716,117.73 (2017:
£407,475.76) divided into 71,611,773 (2017:
40,747,576) ordinary shares of £0.01 each.
Details of the movements in issued share
capital in the year are set out in note 22 to
the financial statements.
The holders of ordinary shares are entitled
to one vote per share at meetings of the
Company. There are no restrictions on the
transfer of shares.
Pursuant to the lock-in and vesting deed
executed in connection with the IPO, the
Executive Directors have undertaken to
Numis (the Company’s Nominated Adviser)
not to dispose of any interest in any of the
ordinary shares in the Company held by
them at Admission for a period of two years
from Admission except in certain limited
circumstances. The Executive Directors have
also undertaken not to dispose of 37%, 25%
and 12.5% of the ordinary shares held by
each of them at Admission (on the same
basis as described above) for the third,
fourth and fifth years following Admission
respectively.
Substantial shareholdings
As at 31 March 2018, the Group had been
notified, in accordance with Chapter 5 of
the Disclosure and Transparency Rules, of
the following voting rights of shareholders of
the Group:
Invesco Ltd
Ireland Strategic Investment Fund
Woodford Investment Management
Cannacord Genuity Group Inc
China Huarong International Holdings Limited
Number of
ordinary shares
% of total
voting rights
15,963,098
14,004,502
11,361,000
3,700,750
3,333,333
22.29
19.56
15.86
5.17
4.65
43
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Directors’ Report continued
Disclosure of information to
auditors
As far as the Directors are aware, there
is no relevant audit information of which
the Group’s auditor is unaware, and each
Director has taken all reasonable steps that
he or she ought to have taken as a Director
in order to make himself or herself aware of
any relevant audit information to establish
that the Group’s auditors are aware of that
information.
and a resolution to re-appoint them will
be proposed at the forthcoming Annual
General Meeting.
Annual General Meeting
The Annual General Meeting will be held
on 23 July 2018. The Notice of the Annual
General Meeting and the ordinary and
special resolutions to be put to the meeting
are included at the end of this Annual
Report and financial statements.
Going concern
After making enquiries, the Directors have
a reasonable expectation that the Group
has adequate resources to continue in
operational existence for the foreseeable
future. For this reason, they continue to
adopt the going concern basis in preparing
the financial statements.
Employees
Employees are encouraged to be involved
in decision-making processes and are
provided with information on the financial
and economic factors affecting the Group’s
performance, through team meetings,
updates from the Chief Executive Officer
and via an open and inclusive culture.
Auditor
Grant Thornton LLP has indicated its
willingness to continue in office as auditor
Applications for employment by disabled
persons are always fully considered, bearing
in mind the aptitudes of the applicant
concerned. In the event of a member of
staff becoming disabled, every effort is
made to ensure that their employment
within the Group continues and that
workspace and other modifications are
made as appropriate. It is the policy of the
Group that the training, career development
and promotion of a disabled person should,
as far as possible, be identical to that of a
person who does not suffer from a disability.
The Directors’ Report was approved by the
Board on 23 July 2018 and is signed on its
behalf by:
Stuart Chapman
Chief Operating Officer
24 May 2018
44
www.draperesprit.comGovernance Annual Report 2018 Directors’ Responsibilities Statement
The directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulations.
Company law requires the directors to
prepare financial statements for each
financial year. Under that law the directors
have to prepare the financial statements
in accordance with International Financial
Reporting Standards (IFRSs) as adopted by
the European Union and have also elected
to prepare the Parent Company Financial
Statements in accordance with United
Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting
Standards and applicable law, including
FRS 101 ‘Reduced Disclosure Framework’.
Under company law the directors must not
approve the financial statements unless they
are satisfied that they give a true and fair
view of the state of affairs and profit or loss
of the company and group for that period.
In preparing the Group financial statements,
the directors are required to:
– select suitable accounting policies and
then apply them consistently;
– make judgements and accounting
estimates that are reasonable and
prudent;
– state whether applicable IFRSs as
adopted by the European Union have
been followed, subject to any material
departures disclosed and explained in the
financial statements;
– prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
company will continue in business.
In preparing the Company financial
statements, the directors are required to:
establish that the company’s auditor is
aware of that information.
– select suitable accounting policies and
To the best of our knowledge:
– the group financial statements, prepared
in accordance with IFRSs as adopted by
the European Union, give a true and fair
view of the assets, liabilities, financial
position and profit or loss of the company
and the undertakings included in the
consolidation taken as a whole; and
– the Strategic Report and Directors’
Report include a fair review of the
development and performance of the
business and the position of the company
and the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks
and uncertainties that they face.
This responsibility statement was approved
by the Board on 24 May 2018 and signed on
its behalf by:
Stuart Chapman
Chief Operating Officer
24 May 2018
then apply them consistently;
– make judgements and accounting
estimates that are reasonable and
prudent;
– state whether applicable UK Accounting
Standards/ have been followed, subject
to any material departures disclosed and
explained in the financial statements;
– prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
company will continue in business.
The directors are responsible for keeping
adequate accounting records that
are sufficient to show and explain the
company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the company and
enable them to ensure that the financial
statements comply with the Companies
Act 2006. They are also responsible for
safeguarding the assets of the company and
hence for taking reasonable steps for the
prevention and detection of fraud and other
irregularities.
The directors confirm that:
– so far as each director is aware, there is
no relevant audit information of which
the company’s auditor is unaware; and
– the directors have taken all the steps that
they ought to have taken as directors
in order to make themselves aware of
any relevant audit information and to
45
www.draperesprit.comGovernance Annual Report 2018
Financials
Annual Report 2018
“The first full year as a public company has
been a successful one with strong growth
demonstrated alongside the flexibility to
invest creatively across the plc model.”
Ben Wilkinson
CFO
46
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draperesprit.com
Financial Statements Annual Report 2018www.draperesprit.com Financials
Annual Report 2018
Financials
draperesprit.com
47
47
Financial Statements Annual Report 2018www.draperesprit.com Independent Auditor’s Report to the Shareholders of Draper Esprit Plc
Opinion
Our opinion on the financial statements is unmodified
We have audited the financial statements of Draper Esprit Plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended
31 March 2018, which comprise the consolidated statement of comprehensive income, the consolidated statement of financial position, the
statement of company financial position, the consolidated statement of cash flows, the consolidated statement of changes in equity, the
company statement of changes in equity and notes to the financial statements, including a summary of significant accounting policies. The
financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial reporting framework that has been applied in the
preparation of the parent company financial statements is applicable law and United Kingdom Accounting Standards, including Financial
Reporting Standard 101 ‘Reduced Disclosures Framework’ (United Kingdom Generally Accepted Accounting Practice).
In our opinion:
· the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 March 2018 and
of the group’s profit for the year then ended;
· the group financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union;
· the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted
Accounting Practice; and
· the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities
under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Who we are reporting to
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our
audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an
auditor’s 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 and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Conclusions relating to going concern
We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:
· the directors’ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or
· the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about
the group’s or the parent company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve
months from the date when the financial statements are authorised for issue.
Overview of our audit approach
· Overall materiality: £6,227,000, which represents 2% of the group’s net assets;
· Key audit matters were identified as
· Valuation of investments ;
· Improper revenue recognition; and
· Goodwill impairment.
· Our audit was substantive in nature and was risk based focusing on the areas identified as Key audit matters.
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Financial Statements Annual Report 2018www.draperesprit.com
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those that had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matter – Group
How the matter was addressed in the audit – Group
Risk 1 Valuation of investments
The group’s business is investing in high growth companies with a
view to realising fair value increases for the investors
The group’s investment policy is to invest in early stage and growth
stage companies; these investments are predominantly in unlisted
equity instruments. Accordingly, the value of the investment
portfolio is a significant, material item in the financial statements.
The valuation of unlisted investments in the investment portfolio
includes significant assumptions and judgements made by
management, and we therefore identified valuation of investments
as a significant risk, which was one of the most significant
assessed risks of material misstatement.
Our audit work included, but was not restricted to:
· Assessing whether the accounting policy for valuing the
investment is in accordance with the financial reporting
framework;
· Considering whether the valuation workbook prepared and
methodologies used by the investment manager were in
accordance with the International Private Equity and Venture
Capital (IPEVC); Confirmed that information contained in the
investee companies’ latest management accounts and board
packs was consistent with the data used by the investment
manager in estimating the fair value;
· Discussed directly with the investment manager each unlisted
investment’s performance and prospects and how this
information had been reflected in the valuation workbook;
· For unlisted investments valued using comparable company
models, we confirmed the consistency and relevance of the
companies used and tested the data obtained to third party
sources. We performed sensitivity analysis on any adjustments
applied to the comparator company multiples in the calculation
of value;
· We used our internal valuation team to inform our challenge of
the investment manager on the appropriateness of the basket of
comparable companies used in the investment model;
· Where alternative assumptions could reasonably be applied we
developed our own estimates and considered the overall impact
of a change in these assumptions had on the valuation of the
unlisted investment;
· For unlisted investments held at cost, we obtained
documentation supporting the price paid and considered any
assumptions made by the investment manager in using cost as
a valuation method.
The group’s accounting policy on the valuation of investments
is shown in note 3 (Fair value measurement), to the financial
statements and related disclosures are included in note 16
(Investments).
Key observations
Our audit work did not identify any material misstatements
concerning the valuation of investments.
49
Financial Statements Annual Report 2018www.draperesprit.com
Independent Auditor’s Report to the Shareholders of
Draper Esprit Plc continued
Key Audit Matter – Group
How the matter was addressed in the audit – Group
Risk 2 Revenue recognition
Under ISA (UK) 240, The Auditor’s Responsibilities Relating to
Fraud in an Audit of Financial Statements, there is a presumed risk
that income recognised in the year may be materially misstated
through fraudulent transactions.
Revenue for the group comprises investment management fees,
performance fees and portfolio director’s fees.
We therefore identified revenue recognition as a significant risk,
which was one of the most significant assessed risks of material
misstatement.
Risk 3 Goodwill impairment
There is a risk that the carrying value of the goodwill that was
generated on formation of the group has not been adequately
assessed for impairment in-line with IAS 36 Impairment of assets.
The goodwill impairment calculation includes management’s
judgements and assumptions regarding the growth rate, the
expected realisations and discount rates.
We therefore identified goodwill impairment as a significant risk,
which was one of the most significant assessed risks of material
misstatement.
Our audit work included, but was not restricted to:
· Assessing the design and implementation of controls in relation
to revenue recognition by walking through the controls and
processes in place;
· Assessing whether the group’s accounting policies in relation
to revenue recognition comply with the financial reporting
framework; and
· Recalculating the revenue recognised in accordance with the
underlying agreements
The group’s accounting policy on revenue recognition is shown
in note 3 (revenue recognition) to the financial statements and
related disclosures are included in note 6 (Revenues).
Key observations
Our audit work did not identify any material misstatements
concerning revenue recognition.
Our audit work included, but was not restricted to:
· Considering management’s impairment review of the Goodwill
for consistency with the financial reporting framework; and
· Assessing the key judgements and assumptions made in the
impairment review. The key assumptions were the growth
rate, realisation rate and discount rate. Our testing included
comparing the assumptions used to the group’s current year
performance (actual and budgeted). We also re-performed the
calculation of the discount rate used and compared to industry
standards;
· Where alternative assumptions could reasonably be applied we
developed our own estimates and considered the overall impact
of a change in these assumptions had on the impairment
assessment
The group’s accounting policy on goodwill impairment is shown
in note 3 (Impairment), to the financial statements and related
disclosures are included in note 4 (Critical accounting estimates
and judgements) and note 14 (Intangible assets).
Key observations
Our audit work did not identify any material misstatements
concerning goodwill impairment.
50
Financial Statements Annual Report 2018www.draperesprit.com
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of
a reasonably knowledgeable person would be changed or influenced. We use materiality in determining the nature, timing and extent of our
audit work and in evaluating the results of that work.
Materiality was determined as follows:
Materiality measure
Group
Parent
Financial statements as a whole
Performance materiality used to drive the
extent of our testing
Specific materiality
Communication of misstatements to the
audit committee
£6,227,000 which is 2% of net assets.
This benchmark is considered the
most appropriate because net
assets are considered the key metric
for management’s and the user’s
understanding of the financial statements,
and is used by management as a key
performance indicator. The value of net
assets is principally driven by the net asset
value of the investment portfolio.
£5,820,000 which is 2% of the company’s
net assets. This benchmark is considered
the most appropriate because net
assets are considered the key metric
for management’s and the user’s
understanding of the financial statements,
and is used by management as a key
performance indicator. The value of net
assets is principally driven by the net asset
value of the investment portfolio.
Materiality percentage taken for the
current year is higher than the percentage
that we used for the year ended 31 March
2017. This was done to reflect what those
charged with governance and users of the
financial statements would consider to be
material to the financial statements in the
current year.
Materiality percentage taken for the
current year is higher than the percentage
that we used for the year ended 31 March
2017. This was done to reflect what those
charged with governance and users of the
financial statements would consider to be
material to the financial statements in the
current year.
75% of financial statement materiality.
75% of financial statement materiality.
We determined a lower level of specific
materiality for certain areas, such as
£355,000 for operating expenses, and
£nil for related party transactions and
directors’ remuneration.
We determined a lower level of specific
materiality for certain areas, such as
£338,000 for operating expenses, and
£nil for related party transactions and
directors’ remuneration.
£311,000 and misstatements below that
threshold that, in our view, warrant
reporting on qualitative grounds.
£291,000 and misstatements below
that threshold that, in our view, warrant
reporting on qualitative grounds.
An overview of the scope of our audit
Our audit approach was based on a thorough understanding of the group’s business and was risk based. Our procedures at planning stage
included attending an investment valuation meeting in order to gain an understanding of the valuation and client’s review process. We
undertook substantive testing on significant transactions, balances and disclosures, the extent of which was based on various factors such
as our overall assessment of the control environment and the management of specific risks.
51
Financial Statements Annual Report 2018www.draperesprit.com Independent Auditor’s Report to the Shareholders of
Draper Esprit Plc continued
Other information
The directors are responsible for the other information. The other information comprises the information included in the annual report,
other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
Our opinion on other matters prescribed by the Companies Act 2006 is unmodified
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the strategic report and the directors’ report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
· the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report under the Companies Act 2006
In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or the directors’ report.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in
our opinion:
· adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
· the parent company financial statements are not in agreement with the accounting records and returns; or
· certain disclosures of directors’ remuneration specified by law are not made; or
· we have not received all the information and explanations we require for our audit
Responsibilities of directors for the financial statements
As explained more fully in the directors’ responsibilities statement set out on page 45, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,
but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.
52
Financial Statements Annual Report 2018www.draperesprit.com A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website
at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Paul Flatley
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
24 May 2018
53
Financial Statements Annual Report 2018www.draperesprit.com Consolidated Statement of Comprehensive Income
for the year ended 31 March 2018
Unrealised gains on investments held at fair value through the profit and loss
Fee income
Total investment income
Operating expenses
General administrative expenses
Depreciation and amortisation
Share based payments
Investment and acquisition costs
Exceptional items
Total operating costs
Operating profit from operations
Finance (expense)/income
Operating profit/(loss) before tax
Income taxes
Profit/(loss) for the year
Share of profit/(loss) attributable to non-controlling interests
Profit/(loss) from continuing operations
Other comprehensive income/(expense):
Other comprehensive expense
Total comprehensive income/(loss) for the year
Earnings per share attributable to:
Equity holders of parent (pence)
Diluted earnings per share (pence)
The notes on pages 58 to 80 are an integral part of these consolidated financial statements.
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
Notes
5
6
7
8
10
11, 21
66,603
7,163
73,766
(5,785)
(160)
(490)
(424)
(229)
(7,088)
66,678
(1,418)
65,260
43
65,303
(3,131)
62,172
35,744
1,673
37,417
(3,705)
(127)
(123)
–
–
(3,955)
33,462
221
33,683
(438)
33,245
(330)
32,915
–
62,172
–
32,915
12
12
86.8
83.3
80.8
–
54
Financial Statements Annual Report 2018www.draperesprit.com Consolidated Statement of Financial Position
for the year ended 31 March 2018
Non-current assets
Non-current assets
Intangible assets
Investments in associates
Financial assets held at fair value through the profit or loss
Property, plant and equipment
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Current liabilities
Trade and other payables
Total current liabilities
Non-current liabilities
Deferred tax
Total non-current liabilities
Net assets
Equity
Share capital
Share premium account
Merger relief reserve
Share-based payments reserve
Retained earnings
Equity attributable to owners of parent
Non-controlling interests
Total equity
Net assets per share (pence)
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
Notes
14
15
16
17
19
20
21
22
22
22
13
21,055
258
231,910
229
253,452
4,840
56,641
61,481
(2,948)
(2,948)
(651)
(651)
21,158
258
105,971
152
127,539
527
24,892
25,419
(1,548)
(1,548)
(716)
(716)
311,334
150,694
716
188,229
23,920
613
95,064
308,542
2,792
311,334
407
93,248
23,920
123
32,892
150,590
104
150,694
12
431
370
The financial statements were approved by the Board of Directors and authorised for issue on 24 May 2018.
S. M. Chapman
Chief Operating Officer
The notes on pages 58 to 80 are an integral part of these consolidated financial statements.
55
Financial Statements Annual Report 2018www.draperesprit.com Consolidated Statement of Cash Flows
for the year ended 31 March 2018
Cash flows from operating activities
Operating profit/(loss) after tax
Adjustments to reconcile operating profit to net cash flows used in operating activities:
Revaluation of investments held at fair value through the profit and loss
Depreciation and amortisation
Share-based payments
Bad debt provision
Foreign exchange movements
(Increase)/ decrease in trade and other receivables
Increase in trade and other payables
Net cash used in operating activities
Tax paid
Net cash outflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Interest received
Cash acquired on purchase of subsidiary
Loans repaid from underlying investment vehicles
Purchase of initial portfolio
Purchase of investments
Net cash outflow investing activities
Cash flows from financing activities
Cash paid to non-controlling interests
Proceeds from issue of share capital
Equity issuance costs
Net cash inflow from financing activities
Net increase in cash & cash equivalents
Cash and cash equivalents at beginning of year
Exchange differences on cash and cash equivalents
Cash and cash equivalents at end of year
The notes on pages 58 to 80 are an integral part of these consolidated financial statements.
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
Notes
65,303
33,245
5
(66,603)
(35,744)
160
490
–
1,530
(4,314)
1,401
(2,033)
(107)
(2,140)
(204)
112
–
15,338
–
(74,674)
(59,428)
(443)
100,000
(4,710)
94,847
33,279
24,892
(1,530)
56,641
155
123
37
(221)
681
441
(1,283)
–
(1,283)
(166)
495
17,137
(40,000)
(20,602)
(43,136)
(246)
72,060
(2,724)
69,090
24,671
–
221
24,892
10
16
16
16
22
22
10
56
Financial Statements Annual Report 2018www.draperesprit.com
Share
premium
£’000s
Merger
relief
reserve
£’000s
Share-based
payments
reserve
£’000s
Retained
earnings
£’000s
Total
attributable
to equity
holders of
the parent
£’000s
Attributable
to non-
controlling
interests
£’000s
(3)
47
–
Total
equity
£’000s
47
Consolidated Statement of Changes in Equity
for the year ended 31 March 2018
Balance at 31 March 2016
Total comprehensive Income for the year
Profit for the year
Acquired reserves due to non-controlling interest
Amounts withdrawn by non-controlling interest
Total comprehensive income/(loss) for the year
Contributions by and distributions to the
owners:
Issue of share capital (note 22)
Share premium (note 22)
Merger relief reserve (note 22)
Share based payment (note 13)
Balance at 31 March 2017
Comprehensive Income for the year
Profit for the year
Amounts withdrawn by non-controlling interest
Total comprehensive income for the year
Contributions by and distributions to the
owners:
Issue of share capital (note 22)
Share premium (note 22)
Merger relief reserve (note 22)
Share based payment (note 13)
Balance at 31 March 2018
Share
capital
£’000s
50
–
–
–
–
357
–
–
–
407
–
–
–
309
–
–
–
716
–
–
–
–
–
–
–
–
–
–
–
93,248
–
–
93,248
–
–
23,920
–
23,920
–
–
–
–
–
–
–
94,981
–
–
188,229
–
–
–
–
23,920
–
–
–
–
–
–
–
–
123
123
–
–
–
–
–
–
490
613
The notes on pages 58 to 80 are an integral part of these consolidated financial statements.
32,915
(20)
–
32,895
32,915
(20)
–
32,895
330
20
(246)
104
33,245
–
(246)
32,999
–
–
–
–
32,892
62,172
–
62,172
357
93,248
23,920
123
150,590
–
–
–
–
104
357
93,248
23,920
123
150,694
62,172
–
62,172
3,131
(443)
2,688
65,303
(443)
64,860
–
–
–
–
95,064
309
94,981
–
490
308,542
–
–
–
–
2,792
309
94,981
–
490
311,334
57
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements
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”).
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 2018 comprise the financial statements of the Company and its subsidiaries (together,
“the Group”).
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
Information on the Draper Esprit Group’s structure is given in note 3(a). Information on other related party relationships of the Draper Esprit
Group is provided in note 28.
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 2018. 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 effective from 1 January 2018. 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, see note 23. The Directors have determined that commitments of £1.9
million with respect to the Company’s registered office (note 23) are recognised on the balance sheet as a liability for the financial year
commencing 1 April 2018.
· IFRS 9 Financial Instruments: IFRS 9, effective from 1 January 2018, will 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’). The
Directors have not yet fully determined the impact on the Group’s consolidated financial statements as a result of adopting this Standard.
58
Financial Statements Annual Report 2018www.draperesprit.com
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 Practice). The Company has taken advantage
of disclosure exemptions available under FRS 101 as explained further in note 1 of the Company’s accounts. The financial statements are
prepared on a going concern basis as disclosed in the Directors’ Report.
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
Esprit Capital Partners LLP
Encore Ventures LLP
Esprit Capital I GP Limited
DFJ Esprit II GP Limited
Esprit Capital III Founder GP Limited
Esprit Capital III GP LP
Encore I GP Limited
Encore I Founder GP Limited
Esprit Capital Management Limited
Esprit Capital Holdings Limited
Esprit Nominees Limited
Esprit Capital I CIP Limited
Investment Management
Investment Management
General Partner
General Partner
General Partner
General Partner
General Partner
General Partner
Admin company
Dormant
Dormant
Dormant
Country of
incorporation
% ownership
England
England
England
England
England
England
England
England
England
England
England
England
100%
71%
100%
100%
100%
100%
100%
100%
100%
100%
100%
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 deconsolidated 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 in ownership. All transactions and balances between Group subsidiaries are eliminated on
consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group
asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported
in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted
by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the
effective date of acquisition, or up to the effective date of disposal, as applicable. The Group attributes total comprehensive income or loss
of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests. The Group
attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on
their respective ownership interests.
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
59
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements continued
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 IFRS10, 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
Draper Esprit (Ireland) Limited
Esprit Capital III LP
Esprit Capital IV LP
Esprit Investments (1) LP
Esprit Investments (1) (B) LP^
Esprit Investments (2) LP^
Esprit Investments (2) (B) LP^
Investment company
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Limited partnership
Country of
incorporation
Ireland
England
England
England
England
England
England
^ Esprit Investments (1) (B) LP, Esprit Investments (2) (B) LP and Esprit Investments (2) LP were newly registered UK limited partnerships during the year.
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, they
are not consolidated in these financial statements:
Name of undertaking
Principal activity
Encore I GP LP
DFJ Esprit II Founder LP
DFJ Esprit II Founder 2 LP
Encore I Founder LP
Encore I Founder 2014 LP
Encore I Founder 2014-A LP
Esprit Capital III Founder LP
General partner
Co–investment limited partnership
Co–investment limited partnership
Co–investment limited partnership
Co–investment limited partnership
Co–investment limited partnership
Co–investment limited partnership
Country of
incorporation
England
England
England
England
England
England
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 UK and
is stated exclusive of value added tax.
60
Financial Statements Annual Report 2018www.draperesprit.com 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 that 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.
· Performance fees
Performance fees are earned on a percentage basis on returns over a hurdle rate in the statement of comprehensive income. Amounts are
recognised as revenue when it can be reliably measured and probable funds will flow to the Group.
c) Deferred income
The Group’s management fees are typically billed either quarterly or 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 (i.e. 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.
61
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements continued
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 14). 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: eight years.
Impairment
f)
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.
62
Financial Statements Annual Report 2018www.draperesprit.com 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 considers 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 Group’s loans and receivables comprise trade and other receivables, and cash and cash equivalents in the consolidated statement of
financial position.
Financial liabilities
i)
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 economic 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.
63
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements continued
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.
64
Financial Statements Annual Report 2018www.draperesprit.com 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% p.a. straight line
Computer equipment – 33% p.a. 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
IFRS 8, “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.
v) Exceptional items
The Group classifies items of income and expenditure as exceptional when the nature of the item or its size is likely to be material, so as to
assist the reader of the financial statements to better understand the results of the operations of the Group. Such items by their nature are
not expected to recur and are shown separately on the face of the consolidated statement of comprehensive income. The exceptional item
in the current year of £0.23k (2017: £nil) relates to costs associated with a change in personnel.
Interest income
w)
Interest income earned on cash and deposits and short-term liquidity investments is recognised when it is probable that the economic
benefits will flow to the Group and the amount of income recognised can be measured reliably. Interest income is accrued in a time basis,
with reference to the principal outstanding and at the effective interest rate applicable.
65
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements continued
x) Carried interest
The Company has established carried interest plans for the Executive Directors, other members of the investment team and certain other
employees (together, the ‘‘Plan Participants’’) in respect of any investments and follow-on investments made from Admission. Each carried
interest plan operates in respect of investments made during a 24-month period and related follow-on investments made for a further
36-month period.
Subject to certain exceptions, Plan Participants will receive, in aggregate, 15% of the net realised cash profits from the investments
and follow-on investments made over the relevant period once the Company has received an aggregate annualised 10% realised return
on investments and follow-on investments made during the relevant period. The Plan Participants’ return is subject to a ‘‘catch-up’’ in
their favour. Plan Participants’ carried interests vest over five years for each carried interest plan and are subject to good and bad leaver
provisions. Any unvested carried interest resulting from a Plan Participant becoming a leaver can be reallocated by the Remuneration
Committee.
The Groups interest in carried interest is measured at fair value through the profit and loss (FVTPL) with reference to the performance
conditions described above.
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 estimates 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. There have been no changes to the
accounting estimates and judgements in the financial year ended 31 March 2018.
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 cash flows. Consequently, the most appropriate approach
to determine fair value is based on a methodology with reference to observable market data, 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.
66
Financial Statements Annual Report 2018www.draperesprit.com 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. See note 26
and note 27 for information on unobservable inputs used and sensitivity analysis on investments held at fair value through the profit and
loss.
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) Carrying amount of goodwill
Determining whether goodwill is impaired requires an estimation of the recoverable amount of the cash-generating units to which goodwill
is allocated. The CGU was determined to be the fund managers, which is a critical management judgement as they are responsible for
generating deal flow and working with investee companies creating value and maximising returns for the Group. 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 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%. The
carrying amount of goodwill at balance sheet date was £20.5m (2017: £20.5 million). The Group has conducted a sensitivity analysis on the
impairment test of the CGU and the carrying value. A higher discount rate in the range of 15%-20% together with a lower IRR of 10% does
not reduce the carrying value of goodwill to less than its recoverable amount.
d) 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.
5. Fair value movement in investments
Unrealised gains on investments held at fair value through the profit and loss (note 16)
Year ended
31 Mar 2018
£’000s
66,603
Year ended
31 Mar 2017
£’000s
35,744
6. Revenue
Revenue is derived solely within the UK, from continuing operations for all years. An analysis of the Group’s revenue is as follows:
Management fees
Performance fees attributable to the Group
Performance fees attributable to non-controlling interests
Portfolio Directors’ fees
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
3,546
1,072
2,502
43
7,163
1,632
–
–
41
1,673
67
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements continued
7. Administration expenses
Administration expenses comprise:
Employee benefit expenses (note 9)
Operating lease rentals
Legal and professional
Irrecoverable VAT
Travel expenses
Other administration costs
8. Profit for the year
The profit for the year has been arrived at after charging:
Audit fees payable to the Company’s auditors
Audit of the accounts of any associate of the company
Audit-related assurance services
Other assurance services
Taxation compliance services
Other taxation advisory services
Total fees payable to the Company’s auditor
Bad debt provision
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
3,765
246
1,096
85
280
313
5,785
2,349
115
666
130
122
323
3,705
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
47
41
22
15
78
27
230
–
47
32
22
15
58
3
177
37
The total for all services relating to corporate finance transactions (either proposed or entered into) by or on behalf of the Company or any
of its associates with the Auditors was £nil (period ended 31 March 2017: £564,000) and has been debited to share premium as part of equity
issuance costs (note 22).
9. Employee benefit expenses
Employee benefit expenses (including directors) comprise:
Wages and salaries
Defined contribution pension costs
Benefits (Healthcare and Life Assurance)
Recruitment Costs
Social security contributions and similar taxes
68
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
2,884
342
111
24
404
3,765
1,858
167
16
63
246
2,350
Financial Statements Annual Report 2018www.draperesprit.com The average number of persons (including Executive and Non-executive Directors) employed by the Group during the year was:
Technology Investment
Corporate functions
Year ended
31 Mar 2018
Number
Year ended
31 Mar 2017
Number
13
7
20
10
7
17
Corporate functions comprise non-executive directors, finance, marketing, human resources and administration.
Key management personnel compensation
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the
Group, including the Directors of the Company listed on page 43, and the CFO of the Company.
Wages and salaries
Short-term non-monetary benefits
Defined contribution pension costs
Share-based payment expense (note 13)
Social security contributions and similar taxes
10. Finance Income
Net foreign exchange gain
Interest income on cash and cash equivalents
Net finance expense
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
840
12
102
196
145
1,295
730
39
90
63
89
1,011
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
(1,530)
112
(1,418)
221
–
221
11. Tax expense
The charge to tax, which arises in the Group and the corporate subsidiaries included within these financial statements, is:
Current tax expense
Current tax on profits for the year
Adjustments for under/(over) provision in prior years
Total current tax
Deferred tax expense
Arising on business combinations (note 21)
Reversal of amounts previously recognised
Total deferred tax
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
–
–
–
(64)
21
(43)
–
–
–
578
(140)
438
The UK standard rate of corporation tax is 19% (2017: 19%). There is no current tax charge in the year (2017: £nil).
The reasons for the difference between the actual tax charge for the year and the standard rate of corporation tax in the United Kingdom
applied to profits for the year are as follows:
69
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements continued
Profit/(loss) for the year before tax
Profit/(loss) on ordinary activities of Group companies before tax
Tax using the Company’s domestic tax rate of 19% (2017: 19%)
Expenses not deductible for tax purposes
Unrealised revaluation of investments
Other tax adjustments
Total tax (credit)/charge for the year
Year ended
31 Mar 2018
Year ended
31 Mar 2017
65,260
33,683
12,399
–
(12,654)
212
(43)
6,400
–
(6,791)
829
438
12. 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 impact in the prior year.
Basic earnings per ordinary share
31 March 2018
31 March 2017
Diluted earnings per ordinary share
31 March 2018
31 March 2017
Profit after tax
£’000s
Weighted
average no. of
shares ‘000
62,172
32,915
71,612
40,748
Profit after tax
£’000s
Weighted
average no. of
shares ‘000
62,172
–
74,636
–
Pence
per share
86.8
80.8
Pence
per share
83.3
–
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 impact in the prior year.
Net
assets
£’000s
Weighted
average no. of
shares ‘000
308,542
150,590
71,612
40,748
Net
assets
£’000s
Weighted
average no. of
shares ‘000
308,542
–
74,636
–
Pence
per share
431
370
Pence
per share
413
–
Net asset value per ordinary share
31 March 2018
31 March 2017
Diluted net asset value per ordinary share
31 March 2018
31 March 2017
70
Financial Statements Annual Report 2018www.draperesprit.com 13. Share-based payments
31 March 2018
Date of Grant
Number of CSOP
Options 1 Apr
2017
Number
of Options
(lapsed) /granted
in the period
Number of
CSOP Options 31
March 2018
Number of
approved
Options
Vesting period
Exercise Price
(pence)
Draper Esprit plc 2016
Company Share Option
Scheme (CSOP)
28–Nov–16
28–Nov–16
11–Nov–17
28–Nov–17
28–Nov–17
1,618,967
152,528
–
–
–
(234,835)
–
180,000
–
–
1,384,132
152,528
180,000
1,191,913
116,016
101,400
–
–
48,926
–
3 Years
5 Years
3 Years
3 Years
5 Years
355
355
354
387
387
Fair value
per granted
instrument
(pence)
64.1
89.3
89.8
70.9
97.9
On 11 and 28 November 2017, 180,000 and 1,307,929 shares under option were granted to employees of the company, Directors and Trusts.
The share price at grant dates was 354 and 387 pence respectively.
On 31 March 2018, 234,835 options lapsed which had an exercise price of 355 pence on the grant date.
The Black Scholes Option Pricing Model has been used for valuation purposes. All options are settled in shares and volatility is expected
to be in the range of 20-30% based on an analysis of the Company’s and peer groups’ share price. The risk-free rate used was 0.73% and
1.57% and was taken from zero coupon United Kingdom government bonds on a term consistent with the vesting period. There are no
performance conditions attached to these share options. The share-based payment charge for the year is £490,234 (period ended 31 March
2016: £122,940).
31 March 2017
Draper Esprit plc 2016 Company Share Option Scheme
(CSOP)
Date of Grant
28–Nov–16
28–Nov–16
Number of CSOP
Options
1,618,967
152,528
Number of
approved
Options
101,400
–
Vesting period
3 Years
5 Years
Exercise Price
(pence)
355
355
Fair value
per granted
instrument
(pence)
64.1
89.3
The Draper Esprit plc 2016 Company Share Option Plan (CSOP) was launched on 28 November 2016 and made available to certain
employees, Directors and Trusts. The Options have an exercise price of 355 pence per share and are exercisable at the end of a three and
five-year period ending on 28 November 2019 and 28 November 2021 respectively. A total of 1,771,495 shares under option were granted in
the year. The share-based payment charge for the year is £122,940 (period ended 31 March 2016: £nil). The share price at grant date was 355
pence. The Black Scholes Option Pricing Model has been used for valuation purposes. All options are settled in shares. Volatility is expected
to be in the range of 20-30% based on an analysis of the Company’s and peer groups’ share price. The risk-free rate used was 0.73% and
1.57% and was taken from zero coupon United Kingdom government bonds on a term consistent with the vesting period. There are no
performance conditions attached to these share options.
71
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements continued
14. Intangible assets
31 March 2018
Cost
Cost carried forward as at 1 April 2017
Additions during the year
Cost as at 31 March 2018
Accumulated amortisation
Amortisation carried forward as at 1 April 2017
Charge for the year
Accumulated amortisation as at 31 March 2018
Net book value:
As at 31 March 2018
As at 31 March 2017
31 March 2017
Cost
Cost carried forward as at 1 April 2016
Additions during the year
Acquired through business combinations (note 18)
Cost as at 31 March 2017
Accumulated amortisation
Amortisation carried forward as at 1 April 2016
Charge for the year
Accumulated amortisation as at 31 March 2017
Net book value:
As at 31 March 2017
Goodwill1
£’000s
20,476
–
20,476
–
–
–
20,476
20,476
Customer
contracts2
£’000s
818
–
818
(136)
(103)
(239)
579
682
Goodwill1
£’000s
Customer
contracts2
£’000s
–
20,476
20,476
–
–
–
–
818
818
–
(136)
(136)
Total
£’000s
21,294
–
21,294
(136)
(103)
(239)
21,055
21,158
Total
£’000s
–
21,294
21,294
–
(136)
(136)
20,476
682
21,158
1
Goodwill of £20.5 million arose on the acquisition of all the capital interests in 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 and 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. An eight-year cashflows period was deemed appropriate for the value in use calculation given the patient capital model adopted by the Group. 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%.
2 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.
15. Investments in associates
On 24 November 2016, Draper Esprit acquired a 30.77% stake in Elderstreet Holdings Limited, the holding company of Elderstreet
Investments Limited with an option to acquire the balance of the Elderstreet shares. The initial consideration of £0.26 million has been
satisfied by the issue of 73,667 new ordinary shares of 1 pence each in the capital of the Company. The Groups share of profits in the year
was not material and there were no indications of impairment at balance sheet date.
72
Financial Statements Annual Report 2018www.draperesprit.com 16. Investments
The Group holds investments through investment vehicles it manages. The investments are predominantly in unlisted securities and are
carried at fair value through the profit and loss. The Group’s valuation policies are set out in note 4(a) and note 26. The table below sets out
the movement 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.
As at 1 April
Initial portfolio acquired on 15 June 20161
Carry and Co-invest acquired on 15 June 2016
Investments made in the year2
Loans repaid from underlying investment vehicles
Unrealised gains on the revaluation of investments
As at 31 March
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
105,971
–
–
74,674
(15,338)
66,603
231,910
–
63,940
2,822
20,602
(17,137)
35,744
105,971
1
The initial portfolio was acquired on 15 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.
2 Investments made in the year 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.
17. Property, plant and equipment
31 March 2018
Cost
Cost carried forward as at 1 April 2017
Additions during the year
Cost as at 31 March 2018
Accumulated depreciation
Depreciation carried forward as at 1 April 2017
Charge for the year
Accumulated depreciation as at 31 March 2018
Net book value:
As at 31 March 2018
As at 31 March 2017
31 March 2018
Cost
Cost carried forward as at 1 April 2016
Additions during the year
Acquired through business combinations (note 18)
Cost as at 31 March 2017
Accumulated depreciation
Depreciation carried forward as at 1 April 2016
Charge for the year
Accumulated depreciation as at 31 March 2017
Net book value:
As at 31 March 2017
Leasehold
Improvements
£’000s
Computer
Equipment
£’000s
Total
£’000s
138
147
285
(13)
(67)
(80)
205
125
33
8
41
(6)
(11)
(17)
24
27
171
155
326
(19)
(78)
(97)
229
152
Leasehold
Improvements
£’000s
Computer
Equipment
£’000s
Total
£’000s
–
138
–
138
–
(13)
(13)
125
–
28
5
33
–
(6)
(6)
27
–
166
5
171
–
(19)
(19)
152
73
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements continued
18. 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
UK. 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 year, being
1 April 2016. Details of the business combination are as follows:
Fair value of equity shares issued
Total
Recognised amounts of identifiable net assets:
Property, plant and equipment
Intangible assets
Investments
Trade and other receivables
Cash and cash equivalents
Deferred tax liabilities
Trade and other payables
Net identifiable assets and liabilities
Goodwill
£’000s
24,000
24,000
5
818
2,675
1,165
495
(310)
(1,324)
3,524
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 of the Esprit Capital Acquisition Agreement on 15 June 2016 and agreed to immediately sell 681,156 ordinary shares.
19. Trade and other receivables due within one year
Trade receivables
Bad debt provision
Accrued performance fees
Other receivables and prepayments
The ageing of trade receivables at reporting date is as follows:
Not past due
Past due 1-30 days
Past due 31-60 days
More than 60 days
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
324
–
3,574
942
4,840
272
(37)
–
292
527
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
78
92
–
154
324
59
43
97
73
272
The maximum exposure to credit risk of the receivables at the reporting date is the fair value of each class of receivable mentioned above.
The Group does not hold any collateral as security.
74
Financial Statements Annual Report 2018www.draperesprit.com 20. Trade and other payables due within one year
Trade payables
Other taxation and social security
Other payables
Accruals and deferred income
All trade and other payables are short-term.
Year ended
31 Mar 2018
£’000s
Year ended 31
Mar 2017
£’000s
(292)
(619)
(93)
(1,944)
(2,948)
(36)
(208)
(82)
(1,222)
(1,548)
21. Deferred tax
Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 19% (2016: 20%). The movement on
the deferred tax account is shown below:
Arising on business combination
Arising on co-invest and carried interest
Other timing differences
At 31 March
22. Share capital and share premium
Ordinary share capital
31 March 2018 - Allotted and fully paid
At the beginning of the year
Issue of share capital during the year
At the end of the year
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
(100)
(578)
27
(651)
(164)
(578)
26
(716)
Number
Pence
40,747,576
30,864,197
71,611,773
1
1
1
On 5 June 2017 the Company announced a placing and subscription for £100.0 million. 29,012,346 new shares were issued on 20 June 2017 to
trading on AIM and ESM with a further 1,851,851 new shares issued for 324 pence each on 4th August 2017.
31 March 2017 - Allotted and fully paid
At the beginning of the year
Redeemed during the year1
Issue of share capital during the year
At the end of the year
1 During the year, 50,000 management shares were redeemed by the Company at par for 100 pence each.
Number
Pence
50,000
(50,000)
40,747,576
40,747,576
100
100
1
1
75
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements continued
On 15 June 2016, 40,673,909 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 16;
· 8,000,000 shares (£24.0 million) were issued for the acquisition of Esprit Capital Partners LLP, as described in note 18.
On 26 November 2016, a further 73,667 new ordinary shares of 1 pence each were issued at a price of 350 pence per share to purchase
Elderstreet Holdings limited as described in note 15.
Share premium
Allotted and fully paid
At the beginning of the year
Premium arising on the issue of ordinary shares
Equity issuance costs
At the end of the year
Year ended
31 Mar 2018^
£’000s
Period ended
31 Mar 2017^^
£’000s
93,248
100,000
(5,019)
188,229
–
95,972
(2,724)
93,248
^ The premium on ordinary shares in the period arises from the issue of 30,864,197 new ordinary shares of 1 pence each on 20 June 2017 and 4 August 2017.
^^ The premium on ordinary shares arises from the issue of 32,747,576 new ordinary shares of 1 pence each on 15 June 2016 and 26 November 2016.
Merger relief reserve
In accordance with the Companies Act 2006, a Merger Relief Reserve of £23.9 million (net of the cost of share capital issued of £80k) 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 June 2016. The Merger Relief Reserve forms part of the Groups distributable reserves.
23. Leases
Operating leases – lessee
The total future value of minimum lease payments is due as follows:
Not later than one year
Later than one year but not later than five years
Later than five years
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
333
1,332
278
1,943
333
1,332
611
2,276
24. Retirement benefits
The Draper Esprit Group makes contributions to personal pension schemes set up to benefit its employees. The Group has no interest in
the assets of these schemes and there are no liabilities arising from them beyond the agreed monthly contribution for each employee or
member that is included in employment costs in the profit and loss account as appropriate.
76
Financial Statements Annual Report 2018www.draperesprit.com 25. Financial assets and liabilities
The description of each category of financial asset and financial liability and the related accounting policies are shown below. The carrying
amounts of financial assets and financial liabilities in each category are as follows:
31 March 2018
Financial assets
Investments held by Plc
Investments held by other group vehicles
Long-term financial assets
Trade and other receivables
Cash and cash equivalents
Short-term financial assets
Total financial assets
Financial Liabilities
Trade and other payables
Total financial liabilities
31 March 2017
Financial assets
Investments held by plc
Investments held by other group vehicles
Long-term financial assets
Trade and other receivables
Cash and cash equivalents
Short-term financial assets
Total financial assets
Financial Liabilities
Trade and other payables
Total financial liabilities
Designated
FVTPL
£’000s
Amortised cost
£’000s
Total
£’000s
213,625
18,285
231,910
–
–
231,910
–
–
–
4,840
56,641
61,481
61,481
213,625
18,285
231,910
4,840
56,641
61,481
293,391
–
–
(2,949)
(2,949)
(2,949)
(2,949)
Designated
FVTPL
£’000s
Amortised cost
£’000s
Total
£’000s
93,877
12,094
105,971
–
–
–
105,971
–
–
–
527
24,892
25,419
25,419
93,877
12,094
105,971
527
24,892
25,419
131,390
–
–
(1,548)
(1,548)
(1,548)
(1,548)
77
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements continued
26. Fair value measurements
This section should be read with reference to note 4(a) and note 16. 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.
27. Financial instruments risk
Financial risk management
Financial risks are usually grouped by risk type: market, liquidity and credit risk. These risks are discussed in turn below.
Market risk – Foreign currency
A significant portion of the Group’s investments and cash deposits are denominated in a currency other than sterling. The principal currency
exposure risk is due to changes in the exchange rate between GBP and USD/EUR. Presented below is an analysis of the theoretical impact of
10% volatility in the exchange rate on shareholder equity.
Theoretical impact of a change in the exchange rate of +/-10% between GBP and USD/EUR would be as follows:
Foreign currency exposures – Investments
Investments
10% decrease in GBP
10% increase in GBP
31 March 2018
£’000s
31 March 2017
£’000s
231,910
241,304
224,224
105,971
110,573
101,369
Certain cash deposits held by the Group are denominated in Euros. The theoretical impact of a change in the exchange rate of +/-10%
between GBP and USD/EUR would be as follows:
Foreign currency exposures – Cash
Cash denominated in EUR
10% decrease in EUR:GBP
10% increase in EUR:GBP
Cash denominated in USD
10% decrease in USD:GBP
10% increase in USD:GBP 10% increase in EUR:GBP
78
31 March 2018
£’000s
31 March 2017
£’000s
9,355
8,419
10,290
9,116
8,205
10,032
3,081
2,773
3,389
3,225
2,902
3,547
Financial Statements Annual Report 2018www.draperesprit.com The combined theoretical impact on shareholders’ equity of the changes to revenues, investments and cash and cash equivalents of a
change in the exchange rate of +/-10% between GBP and USD/EUR would be as follows:
Foreign currency exposures – Equity
Shareholders’ Equity
10% decrease in EUR:GBP/USD:GBP
10% increase in EUR:GBP/USD:GBP
31 March 2018
£’000s
31 March 2017
£’000s
308,542
299,024
319,803
150,590
144,056
156,864
Market risk – Price risk
Market price risk arises from the uncertainty about the future prices of financial instruments held in accordance with the Group’s investment
objectives. It represents the potential loss that the Group might suffer through holding market positions in the face of market movements.
The Group is exposed to equity price risk in respect of equity rights and investments held by the Group and classified on the balance sheet
as financial assets at fair value through the profit and loss (note 16). These equity rights are held in unquoted high growth technology
companies and are valued by reference to revenue or earnings multiples of quoted comparable companies where applicable as discussed
more fully in note 4(a). Revenue or earnings multiples of quoted comparable companies are subject to market movements. Consequently,
a 10% increase in market prices with all other variables held constant would result in a £10.8 million increase in shareholder value and
conversely and 10% decline in market prices would result in a £10.8 million reduction in shareholder value.
The Group seeks to manage this risk by routinely monitoring the performance of these investments, employing stringent investment
appraisal processes.
Liquidity risk
Cash and cash equivalents comprise cash and short-term bank deposits with an original maturity of three months or less, held in readily
accessible bank accounts. The carrying amount of these assets is approximately equal to their fair value. Responsibility for liquidity risk
management rests with the Board of Draper Esprit plc, which has established a framework for the management of the Group’s funding and
liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves and by continuously monitoring
forecast and actual cash flows.
All Group payable balances as at 31 March 2017 and 31 March 2016 fall due for payment within one year.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss. The Group is exposed
to this risk for various financial instruments; for example, by granting receivables to customers, placing deposits, investment in unlisted
securities through its co-investments The Group’s trade receivables are amounts due from the investment funds under management,
or underlying portfolio companies. The Group’s maximum exposure to credit risk is limited to the carrying amount of financial assets at
31 March, as summarised below;
Classes of financial assets, carrying amounts
Investments
Trade and other receivables
Cash at bank and on hand
31 March 2018
£’000s
31 March 2017
£’000s
231,910
324
56,641
288,875
105,971
272
24,892
131,135
The Directors consider that all the above financial assets, which are not impaired or past due for each of the reporting dates under review
are of good credit quality. In respect of trade and other receivables the Group is not exposed to significant risk as the principal customers are
the investment funds managed by the Group, and in these the Group has control of the banking as part of its management responsibilities.
Investments in unlisted securities are held within limited partnerships for which the Group acts as manager, and consequently the Group
has responsibility itself for collecting and distributing cash associated with these investments. The credit risk of amounts held on deposit is
limited by the use of reputable banks with high quality external credit ratings and as such is considered negligible.
79
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Consolidated Financial Statements continued
Capital management
The Group’s objectives when managing capital are to
· safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other
stakeholders, and
· maintain an optimal capital structure.
The Group is wholly equity funded and has no debt at balance sheet date.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets to manage cash.
28. 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 Director services. These fees which
amounted to £9,527 (year ended March 2017: £29,825) have been included in the turnover for the year. 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 III(i) 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.
29. Ultimate controlling party
The Directors of Draper Esprit plc do not consider there to be a single ultimate controlling party of the group.
30. Post balance sheet events
A further £21.5 million has been committed for investment in new companies post year end as follows:
· £10.0 million invested by the Company in Aircall’s Series B investment round led by Draper Esprit; and
· Up to £11.5 million committed by the Company in Revolut’s Series C round.
On 2 May 2018, the Company realised £2.5 million cash from the sale of Tails.com, a direct-to-consumer tailor-made dog nutrition business,
to Purina Petcare, a subsidiary of Nestlé SA.
80
Financial Statements Annual Report 2018www.draperesprit.com Statement of Company Financial Position
as at 31 March 2018
Assets
Non-current assets
Financial assets held at fair value through the profit and loss
Investments in subsidiary undertaking
Investments in associates
Property, plant and equipment
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Current liabilities
Trade and other payables
Total current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium account
Merger relief reserve
Share-based payments reserve
Retained earnings
Total equity
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
Note
6
7
7
8
9
10
11
11
11
12
213,625
24,000
258
227
238,110
1,064
53,587
54,651
(2,007)
(2,007)
(2,007)
93,877
24,000
258
146
118,281
227
24,122
24,349
(932)
(932)
(932)
290,754
141,698
716
188,229
23,920
613
77,276
290,754
407
93,248
23,920
123
24,000
141,698
The Directors have taken advantage of the exemption available under Section 408 of the Companies Act 2006 and have not presented a
statement of comprehensive income for the Company.
The Company’s result for the year was a profit of £53.3 million (Year ended 31 March 2017: £24.0 million).
These financial statements were approved by the Board on 24 May 2018.
Signed on behalf of the Board
S. M. Chapman
Chief Operating Officer
Company registration number: 09799594
81
Financial Statements Annual Report 2018www.draperesprit.com Company Statement of Changes in Equity
for the year ended 31 March 2018
Share capital
£’000s
Share premium
£’000s
Merger relief
reserve £’000s
Share-based
payments
reserve £’000s
Retained
earnings £’000s
Total equity
£’000s
–
–
–
–
–
–
–
–
123
123
–
(3)
24,003
–
24,000
–
–
–
–
–
47
24,003
–
24,050
357
93,248
23,920
123
24,000
141,698
–
53,276
53,276
–
–
–
490
613
–
–
–
–
309
94,981
–
490
77,276
290,754
Balance at 29 September 20151
Balance at 31 March 2016
Comprehensive Income for the year
Profit for the year
Share-based payments
Total comprehensive income for the year
Contributions by and distributions to the owners:
Issue of share capital (note 11)
Share premium (note 11)
Merger relief reserve (note 11)
Share-based payment (note 12)
Balance at 31 March 2017
–
50
–
–
–
357
–
–
–
407
–
–
–
–
–
–
–
–
–
–
–
93,248
–
–
93,248
–
–
23,920
–
23,920
Comprehensive Income for the year
Profit for the year
–
–
–
–
–
–
–
–
94,981
–
–
188,229
23,920
Total comprehensive income for the year
Contributions by and distributions to the owners:
Issue of share capital (note 11)
Share premium (note 11)
Merger relief reserve (note 11)
Share-based payment (note 12)
Balance at 31 March 2018
309
–
–
–
716
82
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Company Financial Statements
for the year ended 31 March 2018
1. Basis of preparation
These financial statements have been prepared in accordance with Financial Reporting Standard 101, Reduced Disclosure Framework and
the Companies Act 2006 as applicable to companies using FRS 101. FRS 101 sets out a reduced disclosure framework for a “qualifying entity”
as defined in the standard which addresses the financial reporting requirements and disclosure exemptions in the individual financial
statements of qualifying entities that otherwise apply the recognition, measurement and disclosure requirements of EU-adopted IFRS.
The financial statements have been prepared on a going concern basis and under the historical cost convention. A summary of the more
important Company accounting policies, which have been consistently applied except where noted, is set out below.
The following exemptions from the requirements of IFRS have been applied in the preparation of these financial statements, in accordance
with FRS 101:
· paragraphs 45(b) and 46 to 52 of IFRS 2 Share-based Payment (details of the number and weighted average exercise prices of share
options, and how the fair value of goods or services received was determined);
· IAS 7 Statement of Cash Flows;
· the requirements in IAS 24 Related Party Disclosures to disclose related party transactions entered into between two or more members of
a group;
· IAS 1 Presentation of Financial Statements and the following paragraphs of IAS 1: (d) (statement of cash flows), 16 (statement of
compliance with all IFRS), 111 (cash flow statement information), and 134-136 (capital management disclosures).
Investments in subsidiary undertakings
2.
Unlisted investments are held at cost less any provision for impairment.
3. 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.
4. 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
Fixtures and equipment
Computer equipment
– over the term of the lease
– 33% p.a. straight line
– 33% p.a. straight line
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting Year, with the effect of any
changes in estimate accounted for on a prospective basis.
5. Results for the Parent Company
The auditor’s remuneration for audit services and other services is disclosed in note 8 to the consolidated financial statements.
83
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Company Financial Statements continued
6.
Investments held at fair value through the profit and loss
Name of subsidiary undertaking
Registered office
Activity
Holding
Country
Draper Esprit (Ireland) Limited
Esprit Investments (1) (B) LP
32 Molesworth Street, Dublin 2, Ireland.
20 Garrick Street, London, WC2E 9BT
Investment company
Limited Partnership
100%
100%
Ireland
England
Totals
As at 1 April
Initial investment in Draper Esprit (Ireland) Limited on 15 June 20161
Investments made in the year2
Loans repaid from underlying investment vehicles
Unrealised gains on the revaluation of investments
As at 31 March
31 March
2018
Fair value
£’000
194,399
19,226
213,625
31 March
2017
Fair value
£’000
93,877
–
93,877
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
93,877
–
74,674
(15,338)
60,412
213,625
–
63,940
20,602
(16,273)
25,608
93,877
1
The initial investment made in Draper Esprit (Ireland) limited on 15 June 2016 as part of the IPO to acquire the initial portfolio satisfied by a mixture of cash (£40.0
million) and shares of (£23.9 million) issued by the Company.
2 Investments made in the year 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.
See note 3 and 4 in the consolidated financial statements for the accounting policies in respect of investments held at fair value through the
profit and loss.
Investments in subsidiary undertakings and associates
7.
On 15 June 2016, the Company acquired the entire capital interests of Esprit Capital Partners LLP for £24.0 million which was satisfied in
shares as explained in note 18 of the consolidated financial statements and is held at cost on the Company’s balance sheet.
On 26 of November 2016, the Company acquired 30.77% of the capital interests in Elderstreet Holdings Limited for £0.26 million as explained
in note 15 of the consolidated financial statements, which is held at cost on the Company’s balance sheet.
84
Financial Statements Annual Report 2018www.draperesprit.com
8. Property, plant and equipment
31 March 2018
Cost
Cost carried forward as at 1 April 2017
Additions during the year
Cost as at 31 March 2018
Accumulated depreciation
Depreciation carried forward as at 1 April 2017
Charge for the year
Accumulated depreciation as at 31 March 2018
Net book value
As at 31 March 2018
As at 31 March 2017
31 March 2017
Cost
Cost carried forward as at 1 April 2016
Additions during the year
Cost as at 31 March 2017
Accumulated depreciation
Depreciation carried forward as at 1 April 2016
Charge for the year
Accumulated depreciation as at 31 March 2017
Net book value
As at 31 March 2017
9. Trade and other receivables due within one year
Trade receivables
Other debtors
Intercompany debtors
Total
Leasehold
improvements
£’000s
Computer
equipment
£’000s
Total
£’000s
138
147
285
(13)
(67)
(80)
–
205
125
24
7
31
(3)
(6)
(9)
–
22
21
162
154
316
(16)
(73)
(89)
–
227
146
Leasehold
improvements
£’000s
Computer
equipment
£’000s
Total
£’000s
–
138
138
–
–
(13)
(13)
–
125
–
24
24
–
–
(3)
(3)
–
21
–
162
162
–
–
(16)
(16)
–
146
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
93
661
310
1,064
227
–
–
227
All amounts are short-term. The net carrying value of all financial liabilities is considered a reasonable approximation of fair value.
85
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Company Financial Statements continued
10. Trade and other payables due within one year
Accruals and trade creditors
Total
Year ended
31 Mar 2018
£’000s
Year ended
31 Mar 2017
£’000s
(2,007)
(2,007)
(932)
(932)
All amounts are short-term. The net carrying value of all financial liabilities is considered a reasonable approximation of fair value.
11. Share Capital and other reserves
31 March 2018 – Allotted and fully paid
At the beginning of the year
Issue of share capital during the year
At the end of the year
Number
Pence
40,747,576
30,864,197
71,611,773
1
1
1
On 5 June 2017 the Company announced a placing and subscription for £100.0 million. 29,012,346 new shares were issued on 20 June 2017 to
trading on AIM and ESM with a further 1,851,851 new shares issued for 324 pence each on 4th August 2017.
31 March 2017 – Allotted and fully paid
At the beginning of the year
Redeemed during the year1
Issue of share capital during the year
At the end of the year
Number
Pence
50,000
(50,000)
40,747,576
40,747,576
100
100
1
1
Share capital and other reserves are explained in note 22 of the consolidated financial statements.
12. Share-based payments
The Company operates a share option scheme which is explained in note 13 of the consolidated financial statements.
13. Directors’ emoluments and employee information
Full details of Directors’ and employee remuneration can be found in note 9 of the consolidated financial statements. For further details on
Directors’ compensation refer to the Directors’ Remuneration Report on page 40.
14. List of subsidiary undertakings
Name of subsidiary undertaking
Activity
Holding
Registered office
Draper Esprit (Ireland) Limited
Esprit Capital Partners LLP
Esprit Investments (1) (B) LP^
Esprit Investments (2) (B) LP^
Draper Esprit (Nominee) Limited1
Investment company
Investment management
Limited partnership
Limited partnership
Dormant
100%
100%
100%
100%
100%
(note 6)
32 Molesworth Street, Dublin 2, Ireland
20 Garrick Street, London WC2E 9BT, United Kingdom (note 7)
20 Garrick Street, London WC2E 9BT, United Kingdom (note 6)
20 Garrick Street, London WC2E 9BT, United Kingdom
20 Garrick Street, London WC2E 9BT, United Kingdom
1
Draper Esprit Nominee Limited is held at cost £nil (2016: £nil) on the Company’s balance sheet
^ Esprit Investments (1) (B) LP and Esprit Investments (2) (B) LP were newly registered UK limited partnerships during the year on 17 September 2017 and on 29 March
2018 respectively.
86
Financial Statements Annual Report 2018www.draperesprit.com 15. Critical accounting estimates and judgements
The Directors have made judgements and estimates with respect to those items that have made the most significant effect on the carrying
amounts of the assets and liabilities in the financial statements. These are described in note 4 of the consolidated financial statements.
16. Financial assets and liabilities
The description of each category of financial asset and financial liability and the related accounting policies are shown below. The carrying
amounts of financial assets and financial liabilities in each category are as follows:
31 March 2018
Financial Assets
Investments
Long-term financial assets
Trade and other receivables
Cash and cash equivalents
Short-term financial assets
Total financial assets
Financial Liabilities
Total financial liabilities
31 March 2017
Financial Assets
Investments
Long-term financial assets
Trade and other receivables
Cash and cash equivalents
Short-term financial assets
Total financial assets
Financial Liabilities
Total financial liabilities
Designated
FVTPL
£’000s
Amortised
cost
£’000s
213,625
213,625
–
–
–
213,625
–
–
–
–
1,064
53,587
54,651
54,651
(2,007)
(2,007)
Designated
FVTPL
£’000s
Amortised
cost
£’000s
93,877
93,877
–
–
–
93,877
–
–
–
–
227
24,122
24,349
24,349
(932)
(932)
Total
£’000s
213,625
213,625
1,064
53,587
54,651
268,276
(2,007)
(2,007)
Total
£’000s
93,877
93,877
227
24,122
24,349
118,226
(932)
(932)
17. Fair value measurements
The Company holds investments at fair value through the profit and loss. Refer to note 26 for the Group’s policies with respect to fair value
measurements and note 6 of the Company financial statements.
18. Financial instruments risk
In the normal course of business, the Company uses certain financial instruments including cash, trade and other receivables and
investments. The Company is exposed to a number of risks through the performance of its normal operations. Refer to note 27 of the
consolidated financial statements.
87
Financial Statements Annual Report 2018www.draperesprit.com Notes to the Company Financial Statements continued
19. Post balance sheet events
A further £21.5 million has been committed for investment in new companies post year end as follows:
· £10.0 million invested by the Company in Aircall’s Series B investment round led by Draper Esprit; and
· Up to £11.5 million committed by the Company in Revolut’s Series C round.
On 2 May 2018, the Company realised £2.5 million cash from the sale of Tails.com, a direct-to-consumer tailor-made dog nutrition business,
to Purina Petcare, a subsidiary of Nestlé SA.
20. Related party transactions
During the year the Company recharged Encore Ventures LLP £208,800 administration costs of which £17,400 remains unpaid at balance
sheet date.
88
Financial Statements Annual Report 2018www.draperesprit.com Directors, Secretary and Advisers
Directors
Karen Slatford (Non-executive Chair)
Simon Cook (Chief Executive Officer)
Stuart Chapman (Chief Operating Officer)
Grahame Cook (Non-executive Director)
Richard Pelly (Non-executive Director)
Registered office
20 Garrick Street, London WC2E 9BT, United Kingdom
Website
www.draperesprit.com
Broker and Nominated Adviser
Numis Securities Limited
10 Paternoster Row
London EC2M 7LT
United Kingdom
Broker and ESM Adviser
Goodbody Stockbrokers
Ballsbridge Park
Ballsbridge
Dublin 4
Ireland
Legal Advisers to the Company
(as to English law)
Gowling WLG (UK) LLP
4 More London Riverside
London SE1 2AU
United Kingdom
Legal Advisers to the Company
(as to Irish law)
Maples and Calder
75 St. Stephen’s Green
Dublin 2
Ireland
Independent auditor
Grant Thornton UK LLP
30 Finsbury Square
London EC2A 2YU
United Kingdom
Public relations adviser
Belvedere Communications (PR)
Enterprise House
1-2 Hatfields, London SE1 9PG
United Kingdom
Principal Bankers
Barclays Bank Plc,
9-11 St Andrews St,
Cambridge, CB2 3AA
United Kingdom
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
United Kingdom
Company Secretary
Prism Cosec Limited
42-50 Hersham Road
Walton-On-Thames
Surrey
KT12 1RZ
89
Financial Statements Annual Report 2018www.draperesprit.com
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 and such
admission becoming effective in accordance with the AIM Rules and the ESM Rules respectively. The IPO
included the acquisition of Esprit Capital Partners LLP and Draper Esprit (Ireland) Limited.
“Act”
“AIM”
the UK Companies Act 2006.
AIM, the market of that name operated by the London Stock Exchange.
“Audit Committee”
the audit committee of the Board.
“ Company” or “Draper
Esprit” or “plc”
Draper Esprit plc, a company incorporated in England and Wales with registration number 09799594 and
having its registered office at 20 Garrick Street, London, WC2E 9BT.
“Core Portfolio Companies” Top 10 portfolio companies by value.
“Directors” or “Board”
the directors of the Company from time to time, but whose names as at the date of this document
appear on page 43 of this document.
“Draper Esprit Funds”
the Esprit Funds and the Encore Funds.
“Draper Venture Network”
the self-governed network of ten independent growth and venture funds, of which Esprit Capital is a
member.
“EIS”
Enterprise Investment Scheme under the provisions of Part 5 of the Income Tax Act 2007.
“Encore Funds”
“Encore Ventures”
DFJ Esprit Angels’ EIS Co-Investment Fund, DFJ Esprit Angels’ EIS Co-Investment II, DFJ Esprit EIS III and DFJ
Esprit EIS IV and each an “Encore Fund”.
Encore Ventures LLP, a limited liability partnership incorporated in England and Wales with registration
number OC347590 whose registered office is at 20 Garrick Street, London, WC2E 9BT.
“ESM”
the Enterprise Securities Market operated and regulated by the Irish Stock Exchange.
“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.
“Esprit Ireland”
Draper Esprit (Ireland) Limited, a wholly owned subsidiary of the Company incorporated in Ireland with
registration number 572006 and having its registered office at 32 Molesworth Street, Dublin 2, Ireland.
“FCA”
the UK Financial Conduct Authority.
“FOF” or “FoF”
Fund of Funds.
“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.
“Grant Thornton”
Grant Thornton UK LLP, a limited liability partnership registered in England and Wales with registration
number OC307742 and having its registered office at 30 Finsbury Square, London EC2A 1AG.
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.
HM Revenue & Customs.
“Group”
“HMRC”
90
Financial Statements Annual Report 2018www.draperesprit.com
“IFRS” or “IFRSs”
International Financial Reporting Standards, as adopted for use in the European Union.
“Irish Stock Exchange”
Irish Stock Exchange Plc.
“IRR”
the internal rate of return.
“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.
“EIS”
enterprise investment scheme.
“ International Private
the International Private Equity and Venture Capital Valuation Guidelines, as amended from time to time.
venture capital.
A VCT (venture capital trust) is a UK closed-ended collective investment scheme.
Equity and Venture Capital
Valuation Guidelines”
“VC”
“VCT”
London | HQ
20 Garrick Street
London, WC2E 9BT
Tel: +44 (0)20 7931 8800
draperesprit.com
91
Financial Statements Annual Report 2018www.draperesprit.com Draper Esprit London HQ
20 Garrick Street
London, WC2E 9BT
Tel: +44 (0)20 7931 8800
draperesprit.com