Electra Private Equity PLC
Annual Report and Accounts
30th September
2017
Contents
Strategic and Business Review
1 About Electra Private Equity PLC
2 Chairman’s Statement
5 Strategic Report
11 Portfolio Highlights
13 Portfolio Review
22 CFO Review
Financial Statements
25 Consolidated Income Statement
25 Consolidated Statement of Comprehensive Income
26 Consolidated Statement of Changes in Equity
27 Company Statement of Changes in Equity
28 Consolidated Balance Sheet
29 Company Balance Sheet
30 Consolidated Cash Flow Statement
31 Notes to the Financial Statements
66 Independent Auditor’s Report
Corporate Governance
75 Objective and Investment Policy
76 Directors’ Report
89 Directors’ Remuneration Report
91 Remuneration Policy
104 Report of the Audit and Risk Committee
106 Statement of Directors’ Responsibilities
Further Information
108 Board of Directors
1 10 Alternative Investment Fund Managers Directive
113 Information for Shareholders
116 Glossary
120 Contact Details
References in this Annual Report and Accounts to Electra Private Equity PLC
and its subsidiaries have been abbreviated to ‘Electra’ or the ‘Company’.
About Electra Private Equity PLC
Electra Private Equity PLC (“Electra” or the “Company”) is a private equity investment trust
which has been listed on the London Stock Exchange since 1976. As at 30th September
2017 its net assets were £758 million or 1,981p per share.
Electra’s objective is to achieve a return on equity of between 10% and 15% per year over
the long term by investing in a portfolio of private equity assets.
On 31st May 2017, the termination period of Electra’s contract with its former external
manager came to an end and from 1st June 2017 all investment portfolio and operational
responsibilities became the responsibility of the Company’s newly formed executive team.
The Company’s allocation policy prioritises the return of capital to shareholders when
prospective returns are low. Since 1st October 2016, including the recent December 2017
dividend, the Company has distributed £1.8 billion (approximately 4,796p per share).
Electra Private Equity PLC | Annual Report and Accounts 2017
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Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Chairman’s Statement
“I am pleased to report on a year that has seen the Company take great strides in defining and implementing its
future strategy whilst continuing to deliver excellent financial returns for our shareholders.
The transition from our former external manager is complete and we now have operating and governance
structures in place that give the executive team the ability to manage the delivery of our strategy, with full
accountability to the Board.
Following the second phase of our strategic review, we have been able to add more clarity around the future capital
deployment and corporate structure of the Company, focused on optimising investment returns. We will make
continued progress in the coming year and look forward with confidence to working with the management teams
of our portfolio companies to deliver continued shareholder value.
On behalf of the Board, I would like to thank Edward Bramson for his commitment and dedication during his tenure as
interim CEO and look forward to continuing to work with him in his Non-Executive role from March.”
Overview
The period since my first statement as Chairman in last year’s Annual Report has been
one of significant positive change for the Company, whilst we have continued to deliver
returns to shareholders well in excess of our FTSE 250 benchmark.
With the transition of management functions from the former third-party provider to our
executive team with effect from 1st June 2017, the Board now has an appropriate level of
control over the strategy and management of the Company.
Since gaining direct access to the Company’s investments for the first time in June 2017,
we have conducted the anticipated review of our portfolio and announced the
conclusions on 23rd October 2017.
The portfolio simplification is now virtually complete and will allow us to focus on our
existing corporate investments. The Company is also considering the migration from a
closed-ended investment trust to a corporate structure in due course.
Our Total Shareholder Return in the year was 21%, well ahead of the FTSE 250 at 14%, and
including the third Special Dividend announced on 23rd October 2017 we have returned
£1.8 billion to shareholders since 1st October 2016.
Strategic Review – Phase II
The outcome of the first phase of the strategic review, announced in October 2016,
confirmed the Board’s intention to proceed with the termination of the Management and
Investment Guideline Agreement (“MIG”) with Electra Partners (now renamed Epiris LLP
or “Epiris”). The Company’s executive team completed the internalisation of management
in June 2017. This transition to a cost-effective structure appropriate for the nature of the
business is already realising material cost savings, and has facilitated the implementation
of a robust corporate governance structure to support the Company’s future direction.
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Electra Private Equity PLC | Annual Report and Accounts 2017
On gaining access to our portfolio companies in June 2017, the Board conducted the
second phase of its strategic review comprising an evaluation of the investment portfolio,
the corporate structure and the capital allocation policy of the Company. The findings of
this process were announced on 23rd October 2017. The Board considered current
market conditions to be unsuitable for new investments and in line with its policy of
returning excess cash to shareholders, a third Special Dividend of £350 million, or 914p
per share, was announced. In prioritising existing corporate investments, the Company
expects to make further non-core realisations. The Board will consider the appropriate
utilisation of excess cash proceeds based on the circumstances at that time.
The strategic review also confirmed the Board’s view that a listed closed-ended fund
structure is not optimal for private equity investment and as such the Company is
engaging with the United Kingdom Listing Authority (“UKLA”) to consider reclassification
as a corporate group. Shareholders will be given the opportunity to vote on the
implementation of the Board’s recommendations in due course.
Further details are in the Strategic Report on pages 5 to 10.
Board Changes
In the year under review we completed the restructuring of the Non-Executive Board
with the appointment of Linda Wilding on 1st December 2016 and of John McAdam,
who joined on 1st January 2017 as Senior Independent Director. We also welcomed our
Chief Financial Officer, Gavin Manson to the Board with effect from 23rd March 2017.
With the Board having been in place for close to a year, I am delighted with the progress
that has been made. The executive team that has been established is proving to be highly
effective in meeting the needs of the Board and of the Company in a cost effective way.
With our strategic review complete, we are now in the implementation phase of our
strategy. As such with effect from our Annual General Meeting in March, and following
shareholder consultation, Edward Bramson will step back into his prior Non-Executive
role and I will assume the role of Executive Chairman. In addition, Gavin Manson will take
on certain executive activities previously conducted by Edward.
Investment Policy and Activity
Through the combination of historically high market multiples and the substantial
amount of private equity capital currently waiting to be deployed globally, the Board
considers that market conditions are not conducive to significant numbers of attractive
new investment opportunities. As such, investment activity in the short term is likely to
be focused on the existing portfolio, as reflected by a £35 million additional investment
made in TGI Fridays during the period.
Electra Private Equity PLC | Annual Report and Accounts 2017
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Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Remuneration Policy
At our Annual General Meeting in March 2017, shareholders approved our first
remuneration policy that allowed Executive Directors to be remunerated for their
services. This policy (pages 91 to 97) remains in force, however the Remuneration
Committee is reviewing the policy in light of the outcome of our strategic review and the
changes of responsibilities mentioned above. It is our intention to put an updated policy
to the Annual General Meeting in 2018.
Balance Sheet
The balance sheet of the Company continues to be strong and appropriate for its
activities. As at 30th September 2017 and before payment of a third Special Dividend of
£350 million, the Company held cash of £54 million and money market fund investments
of £380 million.
Dividends
Due to the exceptional level of special dividends paid to shareholders over the past
12 months, the Board has elected not to pay an ordinary dividend for the year ended
30th September 2017.
Outlook
With our strategy defined and the resources required for implementation in place, we can
look forward with confidence to working with the management teams of our portfolio
companies to deliver shareholder value.
Neil Johnson
Chairman
6th December 2017
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Electra Private Equity PLC | Annual Report and Accounts 2017
Strategic Report
The Strategic Report provides a review of the Company’s business, the operating
performance during the year to 30th September 2017, and its strategy going forward.
It also considers the principal risks and uncertainties facing the Company. References to
other sections of this Annual Report and Accounts are provided where appropriate.
Strategy in the year to 30th September 2017 and Strategic Review
Throughout the year under review the Company continued to operate as an approved
investment trust, following its investment strategy and policy which is intended to
achieve a rate of return on equity of between 10% and 15% per year over the long term,
by investing in a portfolio of private equity assets.
In the period to 31st May 2017, the business and affairs of the Company were managed
on an exclusive and fully discretionary basis by Epiris. From 1st June 2017, the Board and
a newly developed internal executive function assumed all strategic and administrative
activities, working closely with G10 Capital LLP (“G10”), who were appointed as the
Company’s Alternative Investment Fund Manager (“AIFM”) from 1st June 2017 to fulfil
relevant regulated activities such as risk management.
Throughout the period to 31st May 2017, a combination of favourable market conditions
and structural incentives for Epiris resulted in a significant number of asset realisations
and the accumulation of substantial cash balances. Subsequently, the Board initiated a
number of actions to return excess cash to shareholders. These comprised:
■■ £94 million tender offer initiated on 8th November 2016
■■ £1 billion Special Dividend announced on 24th March 2017
■■ £350 million second Special Dividend announced on 25th May 2017
■■ £350 million third Special Dividend announced on 23rd October 2017
On 23rd October 2017, the Company announced the key outcomes of activity
undertaken since Phase I of the review. The Company has:
■■ Completed the handover of the investment portfolio and operational responsibilities
from its former external manager
■■ Developed the requisite resources to pursue its new corporate strategy
■■ Reduced recurring annual management expenses from approximately £33 million to
approximately £5 million
■■ Agreed or completed the disposal of all of its Funds, Secondaries, Debt, and
Listed assets
■■ Created a focused corporate investment portfolio
■■ Implemented a robust and sustainable corporate governance structure with the
Board responsible for continued delivery for shareholders
Electra Private Equity PLC | Annual Report and Accounts 2017
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Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
At the same time the Company announced the key outcomes of Phase II of the strategic
review to be:
■■ Focus on the existing corporate portfolio, in the belief that current market conditions
do not support new investments outside the existing portfolio. However, should
conditions change, the Board will consider new investments
■■ In line with a capital allocation strategy that optimises returns on shareholder capital,
the Board declared a further Special Dividend of £350 million, or 914p per share.
This was paid on 1st December 2017
■■ Subject to shareholder and regulatory approval, the Company will in due course
update its investment policy to reflect a focus on shareholder returns
■■ Actions will be taken to further simplify the Group’s corporate and underlying
partnership structures, realising further cost and efficiency benefits
■■ The Company’s intention to change its name to remove the words “Private Equity”
to better reflect its revised strategic focus
Subsequent to the 23rd October 2017 announcement, the Company has engaged in
discussion with the UKLA in relation to reclassification of its listing category. Subject to
the necessary shareholder approvals, the Company intends seeking reclassification from
Listing Rule 15 (closed-ended investment funds) in due course. Until that time, the
Company will continue to operate as an investment trust company under its existing
Investment Policy.
The Board will convene a General Meeting of shareholders when appropriate in order to
consider the relevant proposed changes.
The Company continues to create value and optimise returns for shareholders through
maximising the benefits at each stage of the ‘buy, improve and sell’ model for investment
holdings. As announced, the Company will consider investments in new holdings when
market conditions are conducive.
Each of these steps drives improvements in the Company’s key performance metrics, which
are Return On Equity, Net Asset Value per share total return and Total Shareholder Return.
Principal Risks and Risk Management
The Board considers that the risks detailed below are the principal risks facing the
Company currently, along with the risks detailed in Note 19 of the Notes to the Financial
Statements. These are the risks that could affect the ability of the Company to deliver its
recently announced strategy.
The Board can confirm that the Principal Risks of the Company, including those which
would threaten its future performance, solvency or liquidity, have been robustly assessed
throughout the year ended 30th September 2017, and that processes are in place to
continue this assessment. Further detail of Risk Management processes that are in place
can be found in the Directors’ Report on pages 76 to 88.
Macroeconomic Risks
The performance of the Company’s investment portfolio is materially influenced by
economic conditions. These may affect demand for products or services supplied by
investee companies, foreign exchange rates, the price of commodities or other input
costs, interest rates, debt and equity capital markets and the number of active trade and
financial buyers. All of these factors could be influenced by the outcomes of the Brexit
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Electra Private Equity PLC | Annual Report and Accounts 2017
negotiations, and all have an impact on the Company’s ability to realise a return from its
investment portfolio and cannot be directly controlled by the Company. The Board does
not consider the level of these risks to be significantly higher or lower than at the same
time last year.
Strategy Implementation Risks
The Company is subject to the risk that its long-term strategy and its level of performance
fail to meet the expectations of its shareholders. The Board has undertaken a thorough
review of the Company’s investment strategy and policy and its structure, with the
objective of maximising long-term shareholder value. One of the aims of this review was
to mitigate this risk and put in place appropriate procedures.
A robust and sustainable corporate governance structure has been implemented with
the Board responsible for continued delivery for shareholders. An executive team and
operational infrastructure have been established in order to deliver the strategy.
The key outcomes of the second phase of the strategic review were announced on
23rd October 2017. The Board announced its intention to continue its strategy of
optimising return on shareholder capital. Options for reclassifying the current listing
category are being explored and, subject to shareholder and regulatory approval in due
course, the Investment Policy will then be updated to reflect a focus on shareholder returns.
The Board also considers that current market conditions do not support new investment.
If these conditions remain for a prolonged period or the Board does not see good
investment opportunities, the Company will be reliant upon the existing portfolio to
generate long-term shareholder value.
Investment Risks
The performance of the Company’s portfolio is influenced by a number of factors.
These include, but are not limited to: (i) the quality of the initial investment decision;
(ii) reliance on co-investment parties; (iii) the quality of the management team of each
underlying portfolio company and the ability of that team to successfully implement its
business strategy; (iv) the success of the executive team in building an effective working
relationship with each team in order to agree and implement value-creation strategies;
(v) changes in the market or competitive environment in which each portfolio company
operates; and (vi) the macroeconomic risks described above. Any one of these factors
could have an impact on the valuation of an investment and on the Company’s ability to
realise the investment in a profitable and timely manner.
The executive team has put in place a rigorous investment process which ensures
disciplined investment selection and portfolio management. This includes detailed
due diligence, regular portfolio reviews and in many cases an active engagement with
portfolio companies, by way of Board representation. This level of risk is considered
broadly similar year on year.
Portfolio Diversification Risk
The Company is subject to the risk that its portfolio may not be diversified, by being
heavily concentrated in any one sector or industry, particularly in relation to the UK
economy where the majority of its investments are located.
Electra attempts to mitigate this risk by making investments in accordance with the
Objective and Investment Policy. In addition, the Board has conducted a thorough review
of the portfolio companies as part of the strategic review to maximise long-term
shareholder value. This has sought to mitigate risk in this area.
Electra Private Equity PLC | Annual Report and Accounts 2017
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Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Cash Drag Risk
Returns to the Company through holding cash deposits are currently low. As investments
are realised and proceeds retained as cash deposits, there is increasing risk to future
achievement of the targeted rate of return on equity of between 10% and 15% per year.
This risk is managed through the return of capital to shareholders, in line with the
Investment Policy, and mitigated as much as possible through the investment of liquid
resources in money market funds. The distributions to shareholders over the course of
the year have reduced this risk.
Valuation Risk
The valuation of investments in accordance with IFRS 13 and International Private Equity
and Venture Capital Valuation (“IPEV”) guidelines requires considerable judgement and
is explained on pages 59 to 61. This risk has not materially changed in impact from the
prior year.
Operational Risk
The Company is exposed to a range of operational risks including those relating to
human resources, legal and regulatory matters, financial reporting, information
technology systems, business disruption or shortcomings in internal controls.
The Company’s investment management, custody of assets, control systems and
many administrative systems are overseen by the new executive management team.
Appropriately qualified and experienced staff have been recruited for this, and reviews
of the implemented controls were carried out by independent parties. Given the
recent transition from Epiris, the risk in this area remains more elevated than in other
similar businesses.
Gearing Risks
Gearing is used across the Company’s investment portfolio. One of the principal risks
of gearing is that it can cause both gains and losses in the asset value of portfolio
investments to be magnified. Another significant risk associated with gearing is the
potentially severe impact on portfolio investments of any breaches of their banking
covenants. Secondary risks relate to whether the cost of gearing is too high and whether
the contracted terms of the gearing, including those relating to the terms of borrowings,
is appropriate.
Gearing is actively monitored across the investment portfolio, including working closely
with management teams to ensure that the terms of any borrowing facilities are being
forecast, and through maintaining relationships with the lenders who make facilities
available. Given the smaller size of portfolio this year, the levels of cash held and the lack
of borrowing at the Company level, this risk is considered to be lower than in the past.
Foreign Currency Risks
A small proportion of the Company’s assets are denominated in currencies other than
Sterling. Movements in foreign exchange rates may therefore affect the Company’s net
assets, as detailed in Note 19 of the Financial Statements.
The Board regularly reviews the Company’s foreign exchange exposure together with
the most cost-effective approach to hedging such exposure. At the year end the risk is
considered lower than at the prior year end and the Company had no foreign exchange
hedges in place.
Foreign exchange exposures also exist across the Company’s investment portfolio as a
result of the denomination of revenues, costs, assets and liabilities in different currencies.
The executive team works with the Company’s investment portfolio to make use of
natural, financing and derivative hedges to mitigate these exposures.
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Electra Private Equity PLC | Annual Report and Accounts 2017
Viability Statement
The Directors have carefully assessed the Company’s current position and prospects as
well as the Principal Risks stated above and have formed a reasonable expectation that
the Company will be able to continue in operation and meet its liabilities as they fall
due over the next three financial years.
The particular factors the Directors have considered in assessing the prospects of the
Company and in selecting a suitable period in making this assessment are as follows:
■■ The Company presently invests primarily in long-term illiquid investments which are
not publicly traded. When making a new investment the anticipated holding period is
expected to be three years as a minimum
■■ The Board reviews the liquidity of the Company and regularly considers commitments
to private equity investments, long-term cash flow projections and the use of gearing
■■ As detailed in the Directors’ Report, the Valuations Committee oversees the valuation
process. Typically, the medium-term prospects of each portfolio company form an
important part of the valuation process
■■ A thorough review of the Company’s investment strategy, investment policy and
structure with the objective of maximising long-term shareholder return has recently
been undertaken
Taking account of the above factors of anticipated investment holding periods, the term
periods of gearing facilities of the portfolio companies, the liquidity of the Company and
the valuations and medium-term prospects of its portfolio companies, the Directors have
formed a reasonable expectation that the Company will be able to continue in operation
and meet its liabilities as they fall due over the next three financial years.
In making this assessment, the Directors have assumed that the threats to the Company’s
solvency or liquidity incorporated in the Principal Risks will be managed or mitigated as
outlined there.
Community, Social, Employee, Human Rights and
Environmental Issues
In carrying out its activities and in its relationships with the community, the Company
aims to conduct itself responsibly, ethically and fairly, including in relation to social and
human rights issues.
As an investment trust with limited internal resource, the Company has little impact on
the environment. However, the Company believes that high standards of corporate social
responsibility (“CSR”) make good business sense and have the potential to protect and
enhance investment returns. Consequently, the Group’s investment process ensures
that social, environmental and ethical issues are taken into account and best practice
is encouraged.
Diversity
There are currently eight male Directors and one female Director on the Board.
The Company aims to have a balance of relevant skills, experience and background
amongst the Directors on the Board and believes that all Board appointments should
be made on merit and with due regard to the benefits of diversity, including gender.
Not including Directors, the Company employs ten people, six women and four men.
The senior management team comprises one woman and two men, excluding Directors.
Electra Private Equity PLC | Annual Report and Accounts 2017
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Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Performance and Prospects
Performance
The summary of performance of results can be seen on the Income Statement on page 25.
A number of Key Performance Indicators (“KPIs”) are considered by the Board in assessing
the Company’s success in achieving its objectives. These KPIs are:
■■ Return On Equity (“ROE”) over the long term
ROE is calculated as the total return divided by opening shareholder funds. Electra’s
ROE has been calculated by taking the annualised percentage change in diluted NAV
per share after adding back dividends paid per share.
The Company’s objective is to achieve a Return On Equity of between 10% and 15%
per year over the long term. Over the 10 years to 30th September 2017 the Company’s
annualised ROE was 11%.
■■ The Net Asset Value (“NAV”) per ordinary share total return
This is the aggregate of income and capital profits of the investment portfolio for
the period less all costs. It is expressed as a percentage of the opening NAV. Electra
compares its NAV per ordinary share total return over 12 months and 10 years
to the Morningstar Private Equity Index.
The Company’s NAV per share total return was 9% over the 12 months and 190% over
the 10 years to 30th September 2017. These compared with 15% and 20% respectively
by the Morningstar Private Equity Index.
■■ The Total Shareholder Return (“TSR”)
This is expressed as a percentage and is calculated by dividing the sum of the closing
share price and adjusted for dividends paid in the period by the opening share price.
Electra compares its TSR to the FTSE 250 Index over 12 months and 10 years.
The Company’s share price total return was 21% over the 12 months and 230%
over the 10 years to 30th September 2017. These compared with 14% and 139%
respectively by the FTSE 250 Index.
A detailed reconciliation from IFRS values to ROE, the NAV per ordinary share total return
and the TSR can be found on pages 118 and 119 of the Glossary.
Prospects
The Company’s current position and prospects are described in the Chairman’s Statement
(pages 2 to 4), the Portfolio Highlights (pages 11 and 12), the Portfolio Review (pages 13 to
21) and the CFO Review (pages 22 and 23) sections of this Annual Report and Accounts.
This report was approved by the Board of Directors on 6th December 2017 and signed
on its behalf by:
Neil Johnson
Chairman
6th December 2017
10 Electra Private Equity PLC | Annual Report and Accounts 2017
Portfolio Highlights
Portfolio Overview
At 30th September 2017, Electra’s investment portfolio was valued at £358 million. The investment
portfolio consists of Buyouts and Co-investments, Secondaries, listed securities and funds.
These investments are held on the balance sheet as £321 million non-current investments and
£37 million assets held for sale.
Electra also holds money market funds of £380 million. These are short-term liquidity investments
held for cash management purposes and are therefore not included as part of the Portfolio Review.
Portfolio Breakdown
Investment Portfolio
Buyouts and Co-investments
Secondaries
Debt
Fund investments
Investment portfolio
2017
£m
321
2
–
35
358
2016
£m
1,461
82
51
102
1,696
2015
£m
1,418
92
17
103
1,630
2014
£m
1,052
105
7
108
1,272
2013
£m
620
126
97
125
968
2012
£m
600
34
80
154
868
Buyouts and Co-investments
Buyouts and Co-investments form the major part of Electra’s portfolio and consist of direct
equity investments in nine private companies with an aggregate value of £321 million. Three of
these are controlled by third parties; Photobox through co-investment with Exponent, and both
Knight Square and Sentinel through management by Epiris as a result of co-investment.
Secondaries
Secondary investments consist of limited partnership interests in third-party private equity funds
purchased from investors exiting their positions prior to the end of the fund’s life. As a result of
their relative maturity, secondary investments typically produce faster cash returns than Buyouts
and Co-investments. At 30th September 2017, Electra held investments in five secondary
portfolios with an aggregate value of £2 million.
Debt
Debt investments consisted of loans to UK or international borrowers acquired in either the
primary or the secondary market as either individual or portfolios of assets.
Fund Investments
Fund investments consist of limited partnership interests in third party private equity funds,
where Electra made a primary commitment to that fund. No new primary commitments have
been made since 2011. At 30th September 2017, Electra held investments in fifteen funds with
an aggregate value of £35 million. The sales have been agreed post year end on the majority of
these assets with only nominal value remaining.
New Investments and Realisations (£m) – Year to 30th September
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1,623
903
322
303
201
114
88
33
183 149
136 137
150
459
410
352
301
337
259
218
188
46
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
New investments
Realisations
Electra Private Equity PLC | Annual Report and Accounts 2017 11
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
■■ ■Buyouts and
Co-investments
■■ ■Non-core investment
portfolio
90%
10%
■■ 1–2 years
■■ 2–3 years
■■ 3–4 years
■■ Over 4 years
23%
46%
11%
20%
Investment Portfolio Breakdown
At 30th September
Buyouts and Co-investments
Secondaries
Debt
Non-core investment portfolio
The 2016 breakdown is based on the portfolio at the prior year end.
Investment Portfolio – Age Analysis
At 30th September
Less than 1 year old
1 - 2 years
2 - 3 years
3 - 4 years
Over 4 years
The 2016 breakdown is based on the portfolio at the prior year end.
2017
%
90
–
–
10
2017
%
–
23
46
11
20
Buyouts and Co-investments – Geographic Breakdown of Revenue
At 30th September
UK
Continental Europe
USA
Asia and elsewhere
2017
%
74
23
2
1
2016
%
86
5
3
6
2016
%
10
6
21
23
40
2016
%
75
22
2
1
■■ UK
■■ Continental Europe
■■ USA
■■ Asia and elsewhere
74%
23%
2%
1%
In the prior year the geographical split was based on location of investment. In the
current year it is based on revenue generated by the portfolio companies, as the
Directors feel this is a better representation of the risk within the portfolio. The 2016
numbers above are calculated as described for the current year, but based upon the
existing portfolio.
12 Electra Private Equity PLC | Annual Report and Accounts 2017
Portfolio Review
Portfolio Movement
Electra’s investment portfolio decreased from £1,696 million to £358 million during the 12 months to 30th September 2017.
The decrease resulted from net investments and realisations of £1,577 million in part offset by portfolio return of £239 million.
Year ended 30th September
Opening investment portfolio
Investments
Realisations
Investment return
Closing investment portfolio
2017
£m
1,696
46
(1,623)
239
358
2016
£m
1,630
218
(903)
751
1,696
2015
£m
1,272
188
(259)
429
1,630
2014
£m
968
410
(352)
246
1,272
2013
£m
868
337
(459)
222
968
2012
£m
883
150
(301)
136
868
Fair value of
holding at
30th September
2016
£m
Net
investments/
(realisations)
£m
Fair value of
holding at
30th September
2017
£m
Investment
return
£m
Buyouts and Co-investments
TGI Fridays
Photobox Group
Knight Square
Hotter Shoes
Sentinel Performance Solutions
Special Products
Other
Parkdean Resorts
Audiotonix
Innovia Security
Allflex Corporation
Davies Group
AXIO Data Group
Treetops Nurseries
Retirement Bridge Group
CALA Group
PINE
Hollywood Bowl
Premier Asset Management
90
102
25
31
2
–
5
255
380
141
80
69
43
220
49
47
47
40
44
46
37
1
–
1
–
(1)
–
38
(406)
(203)
(108)
(70)
(45)
(263)
(94)
(48)
(46)
(51)
(40)
(45)
35
(19)
3
6
1
3
(1)
28
26
62
28
1
2
43
45
1
(1)
11
(4)
(1)
Total Buyouts and Co-investments
1,461
(1,381)
241
Secondaries
EP1 Secondary Portfolio
Other
Total Secondaries
Debt
Cordatus VI
Tymon Park
Other
Total Debt
Fund Investments
Listed
Funds
Total Non-core Investments
TOTAL INVESTMENT PORTFOLIO
70
12
82
22
16
13
51
10
92
102
1,696
(57)
(10)
(67)
(27)
(18)
(16)
(61)
(3)
(65)
(68)
(13)
–
(13)
5
2
3
10
2
(1)
1
(1,577)
239
162
84
28
38
3
2
4
321
–
–
–
–
–
–
–
–
–
–
–
–
321
–
2
2
–
–
–
–
9
26
35
358
Electra Private Equity PLC | Annual Report and Accounts 2017 13
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Key Investments Background
TGI FRIDAYS
Date of initial investment: Dec 2014
Type of deal:
Equity ownership:
Cost:
Valuation:
Valuation:
Buyout
78%
£136m
£162m
Based on multiple
of earnings
Multiple of cost:
Location:
1.2x
UK
Website:
www.tgifridays.co.uk
Management: Karen Forrester, CEO;
Murray Hennessy,
Non-Executive Chairman
Year ended 31st December
Sales
Operating Profit
EBITDA
2016
£m
211.0
21.0
31.0
2015
£m
190.3
20.4
29.6
In December 2014, Electra invested £99 million in the management buyout of
the UK franchise of TGI Fridays (“TGIF”) from its American parent. In July 2017,
Epiris’s 1% interest in the investment was purchased for £2 million. In August,
Electra invested a further £35 million as part of a refinancing which reduced
third party debt and interest payments.
TGIF, which has the exclusive UK rights to operate under the TGI Fridays brand,
has 81 American-styled restaurants in a range of locations, including city
centres, shopping centres and leisure parks. This is an established brand which
works well across the country. It offers bold, distinctive American food as well
as an innovative cocktail list, and provides a high-energy, fun environment with
a wide demographic appeal. Key to the success of the customer experience
is the company’s focus on hiring and retaining enthusiastic front-of-house
staff to offer a high level of service. It demonstrates attractive financial
characteristics, outperforming its peers across a range of key performance
indicators and offering a high return on capital expenditure.
The company’s differentiated product, with wide consumer appeal and a focus on
experience rather than heavy discounting, leaves it in a strong position for growth.
The intention is to continue to grow through new restaurant openings as well as
improving yield management through pricing and marketing initiatives.
In the year ended December 2016, new stores led to good growth for the
business which flowed through to the EBITDA performance. In a difficult
market for casual dining where a number of competitors are struggling, the
company has maintained like-for-like sales and continued to grow through
carefully selected new restaurant locations.
14 Electra Private Equity PLC | Annual Report and Accounts 2017
HOTTER SHOES
Date of initial investment:
Jan 2014
Type of deal:
Equity ownership:
Cost:
Valuation:
Valuation:
Buyout
61%
£85m
£38m
Based on multiple
of earnings
Multiple of cost:
0.4x
Location:
International
Website:
www.hotter.com
Management:
Sara Prowse, CEO;
Alan White, Chairman
Year ended 31st January
Sales
Operating Profit
EBITDA
2017
£m
98.0
4.3
9.0
2016
£m
101.3
3.4
8.3
In January 2014, Electra invested £84 million in the management buyout of
Hotter Shoes from the company’s founder and Gresham LLP. In July 2017, as
part of a wider transaction to acquire their interest in a number of portfolio
companies, £1 million was paid to Epiris for their 1% interest in the company.
Established in 1959, Hotter is Britain’s largest shoe manufacturer and sells over
two million pairs of shoes each year in the UK and internationally in stores, in
catalogues and online. The company, with a strong focus on comfort and
service, serves customers whose age, health or lifestyle are such that they
require more cushioned and supportive footwear. Sales had more than
doubled in the four years prior to the buyout, driven by demographic change
(in particular population ageing), international growth and the rapid roll-out of
a retail store estate in the UK.
Since her appointment in 2016, after a difficult trading period for the company,
the new Chief Executive strengthened the leadership team and commenced
implementation of a turnaround plan focused on cash, inventory and cost
management as well as retail performance improvement. A large investment is
underway to improve IT systems across the business which will help to support
future growth.
In the financial year ending January 2017, Hotter reported a slight decrease in
sales but improved EBITDA due to lower discounting and tighter control of
overheads. The sales decline was driven by continued difficult consumer
conditions in UK retail, partially offset by strong growth in the US direct market.
These trends have continued into the new year.
Electra Private Equity PLC | Annual Report and Accounts 2017 15
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
KNIGHT SQUARE
Date of initial investment: Mar 2012
Type of deal:
Buyout
Equity ownership:
Cost:
Amount realised:
Valuation:
Valuation:
50%
£22m
£14m
£28m
Based on multiple
of earnings
Multiple of cost:
Location:
1.9x
UK
Website: www.knightsquare.com
Management:
Paul Lester CBE,
Chairman
Year ended 31st December
Sales
Operating Profit
EBITDA
2016
£m
75.4
5.6
11.3
2015
£m
74.4
9.5
14.3
In 2012, Electra made a £22 million investment in the £62 million acquisition
of Knight Square (formerly known as Peverel), the UK’s leading property
management services group, from its administrators. In October 2014, the
company completed a refinancing that allowed it to make loan repayments
of £14 million to Electra. In July 2017, Epiris’s 1% interest in Knight Square
was purchased.
The business has two divisions; FirstPort, which provides general management
services to almost 4,000 retirement and other residential developments across
the UK; and Appello, which provides telecare and telehealth installation and
monitoring services that allow people to live independently.
Since the initial investment, process and service improvement initiatives have
been undertaken. The company is now in a strong position to take advantage
of its nationwide coverage and economies of scale, and opportunities arising
from industry consolidation and continued demographic change.
Group revenue growth was 1% in the audited financial year to December 2016,
reflecting a number of positive developments during the year. FirstPort is
demonstrating greater success in its new business development activities as
well as increasing customer retention as a result of its improved service levels.
Appello is less advanced in its turnaround in comparison, but investment in
operational technology will provide growth opportunities as the market shifts
from analogue to digital systems.
16 Electra Private Equity PLC | Annual Report and Accounts 2017
PHOTOBOX GROUP
Date of initial investment: Jan 2016
Type of deal:
Equity ownership:
Cost:
Valuation:
Valuation:
Buyout
37%
£90m
£84m
Based on multiple
of earnings
Year ended 30th April
Sales
Operating Profit
EBITDA
2017
£m
326.0
40.5
47.9
2016
£m
295.9
41.6
47.4
In January 2016, Electra invested £89 million in the acquisition of Photobox
alongside Exponent Private Equity. In July 2017, the Epiris’s 1% interest in the
investment was purchased for £1 million.
Multiple of cost:
Location:
0.9x
Europe
Website: www.group.photobox.com
Management:
Jody Ford, CEO;
Douglas McCallum, Chairman
Photobox is Europe’s leading digital consumer service for personalised products
and gifts. It enables millions of customers to share memories by turning their
digital photographs into a range of personalised products and gifts, from
traditional prints and greetings cards to photobooks, calendars and canvases,
using the group’s websites, installed software and mobile applications. Products
are manufactured across five production facilities and sold across Europe
through the PhotoBox, Moonpig, Hofmann and posterXXL brands.
There has been significant investment in the management team over the last
12 months, following the appointment of a new CEO, Jody Ford in July 2016.
This has led to a number of product and pricing initiatives, which are designed
to improve the group’s operating margins. Combined with technology related
projects on both the front end, to improve customer experience, and
operationally on the back-end systems, these initiatives will fuel long-term
growth. Due to its scale, Photobox is well placed to capture a greater share of
a growing market as a result of the expansion in digital photography and the
increased propensity to purchase personalised products. The strategy is to
accelerate this through improving the rate and economics of customer
acquisition as well as through product innovation.
Photobox saw strong sales performance in the financial year to April 2017,
with 10% growth, but market conditions and the internal issues now being
addressed reduced the flow through to earnings.
Electra Private Equity PLC | Annual Report and Accounts 2017 17
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
SENTINEL PERFORMANCE SOLUTIONS
50%
£17m
£3m
Date of initial investment: Feb 2011
Type of deal:
Buyout
Equity ownership:
Cost:
Valuation:
Valuation:
Based on multiple
of earnings
Multiple of cost:
Location:
0.2x
Europe
Website: www.sentinelprotects.com
Management: Steve Goodwin, CEO;
Nick Brayshaw, Chairman
Year ended 31st March
Sales
Operating Profit
EBITDA
2017
£m
18.0
1.7
3.0
2016
£m
16.1
0.3
2.2
In February 2011, Electra invested £16 million in the buyout of Sentinel.
The business subsequently encountered difficult trading conditions, and
in December 2015, Sentinel agreed terms with its existing lender (HSBC) to
amend and extend its debt facilities until March 2020 on improved terms.
At this point Electra invested a further £1 million. In July 2017, the previous
manager’s 1% interest in the investment was purchased.
Sentinel is a leading manufacturer of chemicals and physical devices to
improve the performance and efficiency of residential heating and hot water
systems. Sentinel’s products achieve a premium price which reflects its strong
brand, quality products and well-established relationships with key influencers
in the sales process such as boiler manufacturers and RMI/construction
project specifiers.
The markets in which Sentinel operates have become increasingly competitive
in recent years, with a new entrant taking a significant share shortly after the
2011 transaction. Demand for Sentinel’s products is supported by legislation
(use is mandatory in the UK), energy efficiency targets and the resilience of the
underlying boiler market with consumers worried about increasing energy costs.
Revenue increased by 12% for the financial year ended March 2017, driven
by good performance internationally. Profits also grew as a direct result of
sales volumes.
18 Electra Private Equity PLC | Annual Report and Accounts 2017
Knight Square
Property management services group
Realisations
Total realisations for the year came to £1,623 million compared to £903 million in the previous year.
Realisations
Parkdean Resorts
AXIO Data Group
Audiotonix
Innovia Security
Treetops Nurseries
Allflex Corporation
PINE
Retirement Bridge Group
Cala Group
Davies Group
Hollywood Bowl
Premier Asset Management
Other buyouts and co-investments
Other Buyouts and Co-investments
Secondaries
Debt
Fund Investments
Total Realisations
Realisations
£1,623m
“Total realisations for the year
came to £1,623 million compared to
£903 million in the previous year.”
£m
406
265
203
108
94
70
51
48
46
45
40
45
2
1,423
68
61
71
1,623
■■ Parkdean Resorts
£406m
■■ ■Axio Data Group
£265m
■■ ■Audiotonix
£203m
■■ ■Innova Security
£108m
■■ Treetops Nurseries
£94m
■■ ■Allflex Corporation
£70m
■■ PINE
£51m
■■ Retirement Bridge Group
£48m
■■ Cala Group
£46m
■■ Davies Group
£45m
■■ Hollywood Bowl
£40m
■■ Premier Asset Management £45m
■■ ■Other Buyouts and
Co-investments
■■ Secondaries
■■ Debt
■■ Fund investments
£2m
£68m
£61m
£71m
The most significant realisations based on total cumulative proceeds are profiled below.
PARKDEAN RESORTS
Dates of investment:
Jan 2012 –
Mar 2017
Type of deal:
Original cost:
Cumulative proceeds:
Multiple of cost:
Buyout
£132m
£516m
3.9x
In 2012, Electra acquired senior debt in Park Resorts for £70 million and after a
number of transactions rebranded it as Parkdean Resorts. Parkdean Resorts is
now a leading UK operator of caravan holiday parks with 35,000 pitches across
73 sites nationwide with EBITDA in excess of £100 million. In March, Electra
received proceeds of £406 million as part of a £1.35 billion sale.
20 Electra Private Equity PLC | Annual Report and Accounts 2017
AXIO DATA GROUP
Dates of investment:
Type of deal:
Original cost:
Apr 2013 –
May 2017
Buyout
£91m
Cumulative proceeds:
£460m
Multiple of cost:
5.0x
AUDIOTONIX
Dates of investment:
Aug 2014 –
Mar 2017
Type of deal:
Original cost:
Cumulative proceeds:
Multiple of cost:
Buyout
£64m
£207m
3.2x
INNOVIA SECURITY
Dates of investment:
Apr 2014 –
Mar 2017
Type of deal:
Co-investment
Original cost:
Cumulative proceeds:
Multiple of cost:
£33m
£108m
3.3x
TREETOPS NURSERIES
Dates of investment:
Type of deal:
Original cost:
Cumulative proceeds:
Multiple of cost:
Feb 2012 –
Apr 2017
Buyout
£26m
£97m
4.1x
ALLFLEX CORPORATION
Dates of investment:
Jul 2013 –
Mar 2017
Type of deal:
Co-investment
Original cost:
Cumulative proceeds:
Multiple of cost:
£68m
£127m
1.9x
In 2013, Electra invested £91 million in debt and equity to finance the
£148 million acquisition of UBM plc’s Data Services division, since renamed
AXIO Group. AXIO originally comprised seven information businesses serving a
range of sectors in over 25 countries: healthcare, intellectual property licensing,
containerised trade and breakbulk services, aviation and forest products.
All seven divisions have now been disposed of resulting in a total realisation of
£460 million with £265 million falling in the year.
In 2013, Electra acquired Allen & Heath. In 2014, following a number of
transactions, a new group was created and re-branded as Audiotonix in which
Electra retained a 58% interest for a £64 million investment. Audiotonix’s
divisions design and manufacture audio mixing consoles used to manage live
sound in settings ranging from concert venues and houses of worship to live
television broadcasts. Electra’s investment in Audiotonix was sold to a financial
buyer with proceeds of £203 million.
In April 2014, Electra made a €40 million (£33 million) equity investment in the
€498 million buyout of Innovia Group. Innovia’s Security division produces
polymer banknote substrate for central banks. Its Films division manufactures
speciality films primarily used in packaging applications for the food and
tobacco industries. Growth and repositioning of the business enabled Innovia’s
sale with Electra receiving proceeds of £108 million.
In April 2012, Electra spun Treetops out of its PINE investment as part of a
refinancing exercise. Through acquisitions the group became the fourth largest
nursery school operator in the UK, providing childcare to over 6,000 children
and employing over 1,300 people. Electra agreed to sell Treetops to Busy Bees,
with the transaction completing in April 2017 for £94 million.
A legacy Allflex investment was sold to a private equity buyer in 2013 and at
the same time Electra made a new minority equity investment of £57 million.
In January 2015 Electra made a further investment of £11 million to support
Allflex’s $250 million acquisition of SCR (Engineers) Ltd. Allflex is the global
leader in animal intelligence and monitoring technologies for livestock, pets,
fish and other species. In 2015 the company acquired SCR, a manufacturer of
smart tags for monitoring cow fertility and health as well as electronic milk
metering equipment. Electra’s investment in Allflex was sold in two stages,
receiving £57 million in July 2016 and a further £70 million in March 2017.
Electra Private Equity PLC | Annual Report and Accounts 2017 21
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
CFO Review
“After returning £1.5 billion to shareholders in the year, the balance sheet and prospects for the Company remain
strong. We have a focused portfolio, no gearing, a low level of liabilities and further realised reserves after the
dividend paid on 1st December 2017. With the resources we require in place and a much reduced cost base, this
puts us on a stable footing to push forward with our recently announced strategy.”
Total Shareholder Return and Analysis of Movement in Net Asset Value per share
TSR for the year was 21%, representing a significant out-performance of the FTSE 250 TSR
of 14%. NAV per share total return was 9% for the year to 30th September 2017 (2016:
35%). The Consolidated Income Statement on page 25 of the Report shows the total
return for the year and, together with dividends of 3,636p per ordinary share paid during
the year, and a share buyback of £94 million, explains the movement in NAV per share for
the year to 30th September 2017.
The notable change in the investment portfolio this year is the high level of realisations
which generated a significant gain and contributed 629p per share, 12% of the opening
NAV per share. Deducted from this, as shown below, were exceptional costs (including
termination payments) relating to the change in strategy and manager of 19p per share,
operating costs and tax, which together totalled 45p per share; the priority profit share
paid to Epiris for managing the portfolio amounted to 60p per share; and the charge for
incentive schemes amounted to 69p per share (see further detail below). Dividends of
3,636p per share were paid in the year. This resulted in a net decrease in net assets of
3,168p per share and a total return (adding back the dividends paid) of 9% for the year.
1st October 2016 Opening diluted NAV per share
Capital gains and income
Expenses, FX and tax
Exceptional expenses
Priority profit share
Incentive provisions
Termination payment
Dividend paid
Adjustments resulting from share buyback
30th September 2017 Closing NAV per share
p
5,149
629
(26)
(19)
(60)
(69)
(4)
(3,636)
17
1,981
Next year, as announced in our strategy, the changes we have implemented will result in
a significant saving in operating costs.
Analysis of Movement in Net Asset Value per share (p)
6,000
5,000
4,000
3,000
2,000
1,000
0
1st Oct 2016
Opening diluted
NAV per share
5,149p
Capital
gains and
income
629
Expenses,
FX and tax
(26)
Exceptional
expenses
(19)
Priority profit
share
(60)
Incentive
provisions
(69)
Termination
payment
(4)
Dividend
paid
(3,636)
Adjustments
resulting
from share
buyback
17
30th Sept 2017
Closing NAV
per share
1,981p
22 Electra Private Equity PLC | Annual Report and Accounts 2017
Incentive Schemes
The carried interest provision relating to the former external manager Epiris decreased from
£243 million to £29 million in the year to 30th September 2017 principally due to the payment
to Epiris of £248 million. In addition, the provision remaining on termination of the Epiris
contract on 31st May 2017 was contractually reduced by 20% for all post 2006 asset Pools.
Following the termination of the Epiris contract, there are no new carried interest
schemes in operation. The impact of the Long Term Incentive Plan approved at the March
Annual General Meeting and described in the Remuneration Report is reflected in the
Statement of Changes in Equity on pages 26 and 27 and is charged through the Income
Statement in accordance with IFRS 2.
Net Liquid Resources
The Consolidated Cash Flow Statement on page 30 analyses the movement in the
Group’s cash for the year. Cash on the Balance Sheet has decreased by £605 million to
£54 million, reflecting our revised strategy regarding surplus cash. Where we have no
near-term requirement for funds, our variable capital model sees us returning cash to
shareholders (£1.4 billion in dividends and £94 million as a share buyback in the year) and
for other cash balances, we have invested in money market funds in the last four months
of the year to mitigate the cash drag effect.
Cash inflows were mainly related to sales of investments and investment income,
which yielded approximately £1,976 million in cash. After distributions, the next largest
constituent of the cash outflow related to cash paid for investments of £774 million,
of which £730 million was investing in money market funds. In addition, there were
incentive scheme costs of £248 million and operating and tax costs of approximately
£68 million in the year.
Post year end, Electra has committed to pay a third Special Dividend of 914p per ordinary
share (£350 million), as declared by the Board, and significant cash inflows were expected
relating to the proceeds (net of carried interests) from sales of non-core assets either
agreed but not completed or in a sales process.
Gearing
At 30th September 2017, Electra was ungeared at the Group level. Certain companies of
the portfolio are funded in part by third party debt. In line with our strategy to focus on
long-term shareholder value, where we see a benefit from reducing third party debt and
we have the capital, we will invest further in debt instruments in the portfolio companies.
Foreign Exchange
At 30th September 2017, the estimated foreign currency exposure in the balance sheet
was €52 million and $27 million based on the currency of underlying securities in the
investment portfolio. The Euro has strengthened against Sterling by 2% while the US
Dollar has weakened by 3% during the year, resulting in a small gain in respect of the
investment portfolio.
The geographical locations of revenue within the portfolio companies as at
30th September is reflected in the chart on page 12.
Gavin Manson
Chief Financial Officer
6th December 2017
Electra Private Equity PLC | Annual Report and Accounts 2017 23
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Hotter Shoes
Britain’s largest shoe manufacturer
Consolidated Income Statement
Note For the year ended 30th September
2, 13 Investment income/net gain
Loss on revaluation of foreign
currencies
17, 23 Incentive schemes
Priority profit share
23
Termination payment
23
Income reversal
3
Other expenses
4
8
9
Net Profit before Finance
Costs and Taxation
Finance costs
Profit on Ordinary Activities
before Taxation
Taxation expenses
Profit on Ordinary Activities
after Taxation attributable to
owners of the Group
11
Basic Earnings per Ordinary
Share (pence)
11 Diluted Earnings per Ordinary
Revenue
£m
54
–
–
(23)
(2)
(6)
(13)
10
–
10
(3)
Capital
£m
193
(1)
(26)
–
–
–
–
2017
Total
£m
247
(1)
(26)
(23)
(2)
(6)
(13)
166
–
176
–
166
(1)
176
(4)
Revenue
£m
91
–
–
(29)
(32)
(8)
(6)
16
(7)
9
(4)
Capital
£m
665
(12)
(122)
–
–
–
–
531
(4)
527
–
2016
Total
£m
756
(12)
(122)
(29)
(32)
(8)
(6)
547
(11)
536
(4)
7
165
172
5
527
532
18.80
427.03
445.83
13.12
1,341.03
1,354.15
Share (pence)
18.80
427.03
445.83
12.80
1,308.83
1,321.63
The ‘Total’ columns of this statement represent the Group’s Consolidated Income Statement prepared in accordance with
International Financial Reporting Standards adopted by the EU (“IFRS”). The supplementary Revenue and Capital columns
are both prepared under guidance published by the Association of Investment Companies. This is further explained in the
Basis of Accounting and Significant Accounting Policies in Note 24.
Consolidated Statement of Comprehensive Income
For the year ended 30th September
Profit for the year
Items that may be subsequently reclassified to profit or loss
Exchange differences arising on consolidation
Total Comprehensive Income attributable to owners of the Group
2017
£m
172
1
173
2016
£m
532
15
547
Electra Private Equity PLC | Annual Report and Accounts 2017 25
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Consolidated Statement of Changes in Equity
For the year ended 30th September 2017 for the Group
Note
Opening balance
at 1st October 2016
Net revenue profit added
to the reserves
13 Net profits on realisation of
investments during the year
13 Decrease in value of
17
13
non-current investments
Increase in incentive
provisions
Investments sold during
the year
Loss on foreign currencies
Other comprehensive income
– foreign currency translation
differences
Total comprehensive
income/(loss)
20 Ordinary shares held under
employee share option plan
Buyback of ordinary shares
20
10 Dividends
At 30th September 2017
Called up
share
capital
£m
Capital
Share redemption
reserve
£m
premium
£m
Own
Shares Translation
reserve
£m
Held
£m
Realised Unrealised
capital
reserve
£m
capital
reserve
£m
Revenue
reserves
£m
Total
Equity
£m
10
123
34
–
11 1,508
311
77
2,074
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7
7
–
–
–
214
–
–
214
–
–
–
–
(22)
–
(22)
–
–
–
–
(26)
–
(26)
–
–
–
–
–
–
383
(1)
(383)
–
–
–
–
(1)
–
–
–
–
1
–
–
–
1
–
–
–
–
–
–
(1)
–
9
–
–
1
596
(431)
7
173
–
1
–
(1)
–
–
(1)
–
–
–
(94)
– (1,394)
–
–
–
(1)
–
–
(94)
– (1,394)
12
616
(120)
84
758
123
35
For the year ended 30th September 2016 for the Group
Called up
share
capital
£m
Capital
Share redemption
reserve
£m
premium
£m
Other Translation
reserve
£m
reserves
£m
Realised Unrealised
capital
reserve
£m
capital
reserve
£m
Revenue
reserves
£m
Total
Equity
£m
Note
13
8
13
17
13
Opening balance at
1st October 2015
Net revenue profit added
to the reserves
Net profits on realisation of
investments during the year
Finance costs
Increase in value of
non-current investments
Increase in incentive
provisions
Investments sold during the year
Loss on foreign currencies
Other comprehensive income
– foreign currency translation
differences
Total comprehensive income/(loss)
Conversion of Convertible Bond
Dividends
20
10
9
39
34
20
(4)
1,029
312
64
1,503
–
–
–
–
–
–
–
5
5
–
–
–
–
–
–
–
–
–
–
162
(4)
–
–
–
–
162
(4)
–
–
–
–
–
–
503
–
503
–
–
–
–
–
1
–
–
–
–
–
–
84
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
382
(12)
(122)
(382)
–
–
–
–
(122)
–
(12)
–
–
(20)
–
15
15
–
–
–
528
–
(49)
–
(1)
–
–
–
5
8
–
15
547
73
(49)
At 30th September 2016
10
123
34
–
11
1,508
311
77
2,074
26 Electra Private Equity PLC | Annual Report and Accounts 2017
Company Statement of Changes in Equity
For the year ended 30th September 2017 for the Company
Called up
share
Note
Opening balance at
1st October 2016
Net revenue profit added
to the reserves
13
13 Net profits on realisation of
investments during the year
Increase in value of non-current
investments
Increase in incentive provisions
Loss on foreign currencies
Investments sold during the year
Revaluation of subsidiaries
13
17
20
Total comprehensive income
Issue of ordinary shares under
employee share option plan
Buyback of ordinary shares
20
10 Dividends
At 30th September 2017
For the year ended 30th September 2015 for the Company
Note
13
13
17
13
20
10
Opening balance at
1st October 2015
Net revenue profit added
to the reserves
Net profits on realisation
of investments during the year
Increase in value of non-current
investments
Increase in incentive provisions
Profit on foreign currencies
Investments sold during the year
Revaluation of subsidiaries
Total comprehensive loss
Conversion of Convertible Bond
Dividends
Capital
Share redemption
reserve
£m
capital premium
£m
£m
Own
Shares
Held
£m
Realised Unrealised
capital
reserves
£m
capital
reserves
£m
Revenue
reserves
£m
Total
Equity
£m
10
123
34
–
1,604
385
(82)
2,074
–
–
–
–
–
–
(20)
(20)
–
–
–
–
214
–
–
214
–
–
–
–
–
–
–
(1)
–
9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
–
–
(2)
383
–
(33)
(26)
–
(383)
40
–
–
–
–
–
(33)
(26)
(2)
–
40
595
(402)
(20)
173
–
(1)
–
(94)
– (1,394)
–
–
–
(1)
–
–
(94)
– (1,394)
123
35
(1)
711
(17)
(102)
758
Called up
share
capital
£m
Capital
Share redemption
reserve
£m
premium
£m
Other
reserves
£m
Realised Unrealised
capital
reserves
£m
capital
reserves
£m
Revenue
reserves
£m
Total
Equity
£m
9
39
34
20
1,103
358
(60)
1,503
–
–
–
–
–
–
(30)
(30)
–
–
–
–
166
–
–
166
–
–
–
–
–
–
1
–
–
–
–
–
–
–
84
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(20)
–
–
–
2
382
–
550
–
(49)
542
(122)
–
(382)
(11)
27
–
–
–
–
–
–
–
(30)
8
–
542
(122)
2
–
(11)
547
73
(49)
At 30th September 2016
10
123
34
–
1,604
385
(82)
2,074
Electra Private Equity PLC | Annual Report and Accounts 2017 27
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Consolidated Balance Sheet
Note As at 30th September
Non-Current Assets
Investments held at fair value
13
13
14
15
Current Assets
Investments held at fair value
Assets held for sale
Trade and other receivables
Current tax asset
Cash and cash equivalents
Current Liabilities
Trade and other payables
Termination payment
16
16
Total Current Liabilities
Total Assets less Current Liabilities
Non-Current Liabilities
Provisions for liabilities and charges
17
18 Deferred tax liability
Non-Current Liabilities
Net Assets
20
Capital and Reserves
Called up share capital
Share premium
Capital redemption reserve
20 Own shares held
Translation reserve
Realised capital reserve
Unrealised capital reserve
Revenue reserve
20
20
20
Total Equity
2017
£m
321
321
380
37
1
–
54
472
(4)
–
(4)
2016
£m
1,696
1,696
–
–
4
1
659
664
(11)
(32)
(43)
789
2,317
(29)
(2)
(31)
758
9
123
35
(1)
12
616
(120)
84
758
(243)
–
(243)
2,074
10
123
34
–
11
1,508
311
77
2,074
12
Basic NAV per Ordinary Share (pence)
12 Diluted NAV per Ordinary Share (pence)
12 Ordinary Shares in issue at 30th September
1,980.96
5,149.09
1,980.96
5,149.09
38,282,763
40,270,531
These Financial Statements were approved by the Directors on 6th December 2017 and were signed on their behalf by:
Neil Johnson, Chairman
Electra Private Equity PLC
Company Number: 00303062
28 Electra Private Equity PLC | Annual Report and Accounts 2017
Company Balance Sheet
Note As at 30th September
13
13
13
14
15
Non-Current Assets
Investments held at fair value
Investment in subsidiary undertakings
Current Assets
Investments held at fair value
Assets held for sale
Trade and other receivables
Cash and cash equivalents
Current Liabilities
Trade and other payables
16
Total Current Liabilities
Total Assets less Current Liabilities
Non-Current Liabilities
Provisions for liabilities and charges
17
18 Deferred tax liability
Non-Current Liabilities
Net Assets
20
Capital and Reserves
Called up share capital
Share premium
Capital redemption reserve
20 Own shares held
20
20
20
Realised capital reserve profits
Unrealised capital reserve (losses)/profits
Revenue reserve
Total Equity
2017
£m
3
142
145
380
11
208
54
653
(9)
(9)
2016
£m
118
1,075
1,193
–
–
480
659
1,139
(15)
(15)
789
2,317
(29)
(2)
(31)
758
9
123
35
(1)
711
(17)
(102)
758
(243)
–
(243)
2,074
10
123
34
–
1,604
385
(82)
2,074
The Company profit is £173 million (2016: £547 million).
These Financial Statements were approved by the Directors on 6th December 2017 and were signed on their behalf by:
Neil Johnson, Chairman
Electra Private Equity PLC
Company Number: 00303062
Electra Private Equity PLC | Annual Report and Accounts 2017 29
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Consolidated Cash Flow Statement
For the year ended 30th September
Operating activities
Purchase of trading investments
Amounts paid under incentive schemes
Sales of trading investments
Dividends and distributions received
Interest income received
Other income received
Expenses paid
Termination payment
Cash generated from operations
Taxation paid
Net cash inflow from operating activities
Financing activities
Dividends paid
Repayment of Zero Dividend Preference share
Repurchase of own shares
Purchase of shares held under incentive scheme
Finance costs
Interest paid
Net cash used in financing activities
Net (decrease)/increase cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
2017
£m
(774)
(248)
1,902
3
71
–
(34)
(34)
886
(1)
885
(1,394)
–
(94)
(1)
–
–
(1,489)
(604)
659
(1)
54
2016
£m
(218)
(3)
826
41
26
5
(37)
–
640
(3)
637
(49)
(73)
–
–
(2)
(2)
(126)
511
147
1
659
30 Electra Private Equity PLC | Annual Report and Accounts 2017
Notes to the Financial Statements
1 Segmental Analysis
The Group operates a single business segment for reporting purposes and is managed as a single investment company,
with multiple investment categories including Buyouts and Co-investments, Secondaries and Funds. Reporting provided
to the Board of Directors is on an aggregated basis. These investments are located across multiple geographic regions and
revenues are allocated as follows:
Geographic Information
Investment income/(loss) for the year ended 30th September
United Kingdom
Continental Europe
US
Asia and elsewhere
Total investment income/net gain
2 Investment Income
For the year ended 30th September
Interest income
Dividend income
Other investment income
Total investment income
3 Income Reversal
2017
£m
236
7
6
(2)
247
2016
£m
65
20
6
91
2017
£m
52
1
1
54
Accrued income is recognised when the value of investment is greater than the value of any loan note associated with the
investment. Income reversal is the reversal of accrued income recognised in previous periods arising from changes in
valuation of certain investments.
4 Other Expenses
For the year ended 30th September
Administrative expenses
Directors’ remuneration (see Note 5)
Exceptional expenses (see below)
Auditor’s remuneration (see below)
Total operating expenses
Exceptional expenses (included in the above)
For the year ended 30th September
Strategic review
Office establishment
Enterprise Resource Planning (“ERP”) systems implementation
Total exceptional expenses
2017
£m
2016
£m
5
1
7
–
13
4
–
1
1
6
2017
£m
2016
£m
5
1
1
7
1
–
–
1
Electra Private Equity PLC | Annual Report and Accounts 2017 31
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
4 Other Expenses (continued)
Exceptional expenses for 2017 relate to costs incurred on the strategic review, which includes completing the handover
of the investment portfolio and operational responsibilities from the former external manager and building a robust and
sustainable corporate governance structure, establishing a new office and implementing ERP systems appropriate
for reporting.
For the purpose of tax computation, £2 million of the total exceptional expenses are treated as disallowable. £6 million of
the total exceptional expenses have been settled in cash during the year.
Auditor’s Remuneration – Deloitte LLP
For the year ended 30th September
Audit of Group accounts pursuant to legislation
Audit of subsidiaries accounts pursuant to legislation
Sub total
Other assurance services*
Total auditor’s remuneration
2017
Group
£’000
204
60
264
126
390
2017
Company
£’000
2016
Group
£’000
2016
Company
£’000
204
–
204
126
330
–
–
–
–
–
–
–
–
–
–
* Of the other assurance services, £90,000 are transaction related services associated with the strategic review of the Company and these
costs are included in exceptional expenses. £36,000 of the other assurance services relate to the Half Year review.
Non-audit services
It is the Group’s practice to employ Deloitte LLP on assignments additional to their statutory audit duties only when their
expertise and experience with the Group are important or where they have been awarded assignments on a competitive
basis. Details of the Group’s process for safeguarding and supporting the independence and objectivity of the external
auditors are given in the Report of the Audit and Risk Committee on pages 104 and 105.
Auditor’s Remuneration – PricewaterhouseCoopers LLP
For the year ended 30th September
Audit of Group accounts pursuant to legislation
Audit of subsidiaries accounts pursuant to legislation
Sub total
Other assurance services**
Total audit fees and other assurance services
Other services
Other services relating to taxation
Total auditor’s remuneration
2017
Group
£’000
2017
Company
£’000
2016
Group
£’000
2016
Company
£’000
83
21
104
–
104
–
–
104
83
–
83
–
83
–
–
83
170
72
242
25
267
30
295
592
170
–
170
25
195
30
295
520
** These are professional services in relation to agreed upon procedures performed in respect of the Group’s Internal Controls
Monitoring Report.
The 2017 costs relate to the part of the prior year audit fees not recognised in the 2016 Financial Statements.
32 Electra Private Equity PLC | Annual Report and Accounts 2017
5 Directors’ Remuneration
For the year ended 30th September
Chairman’s remuneration (Neil Johnson)
Chairman’s remuneration (Roger Yates)
Chairman’s remuneration (Dame Kate Barker)
Other Directors
Emoluments
CFO and highest paid Director (2016:
Chairman and highest paid Director)
Salary
£’000
200
–
–
459
659
Taxable
benefits
£’000
3
–
–
267
270
2017
Total
£’000
203
–
–
726
929
Salary
£’000
103
10
62
162
337
Taxable
benefits
£’000
2
30
–
66
98
2016
Total
£’000
105
40
62
228
435
158
202
360
103
2
105
Taxable benefits relate to Directors’ expenses and the bonus of the first Executive Director appointed in the year.
Dame Kate Barker held the position of Chairman for the period from 5th November 2015 until she stepped down as
Chairman on 12th May 2016 at which date Neil Johnson was appointed Chairman.
During the year 1 Director (2016: 1) waived remuneration.
The Board of Directors are considered to be the Key Management Personnel. See further breakdown in the Directors’
Remuneration Report and Remuneration Policy on pages 89 to 103.
6 Employees Costs
The average number of employees for Group and Company during the year was 7 (2016: 2). All employees are within the
Head Office function.
Wages and salaries
2017
£m
1
1
2016
£m
–
–
Wages and salaries shown above include salaries, benefits and social security costs in the year for the Group and Company.
These costs are included in the other expenses.
Pension contributions of £70,351 were charged in the Consolidated Income Statement during the year (2016: £nil).
7 Operating Leases
The Company, on behalf of the Group, entered into an operating lease agreement for its Head Office property. Operating
lease expenses are included in other expenses in the Consolidated Income Statement.
The future minimum lease payments payable under operating leases are as follows:
As at 30th September
Within 1 year
Between 2 and 5 years
After 5 years
2017
Land and
Buildings
£m
2016
Land and
Buildings
£m
1
3
–
4
–
–
–
–
Electra Private Equity PLC | Annual Report and Accounts 2017 33
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
8 Finance Costs
For the year ended 30th September
Loans Repayable in Less Than One Year
Zero Dividend Preference Share costs
Loans Repayable After More Than One Year
Bank facility
Convertible Bond costs
Total
Revenue
£m
Capital
£m
2017
Total
£m
Revenue
£m
Capital
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
2
7
7
4
4
–
–
–
4
2016
Total
£m
4
4
5
2
7
11
On 14th June 2016 the Company’s multi-currency revolving credit facility was cancelled. The unamortised issue cost of
£4 million and non-utilisation fees of £2 million were charged to the Consolidated Income Statement for 2016.
The Final Capital Entitlement was paid in full on 19th August 2016 to the holders of the Zero Dividend Preference Shares,
which exhibited characteristics of debt. The unamortised cost of £4 million was charged to the Consolidated Income
Statement for 2016.
On 29th December 2015, all of the outstanding 5% Subordinated Convertible Bonds were mandatorily converted into new
ordinary shares.
9 Taxation Expenses
For the year ended 30th September
Current tax:
UK corporate tax on profits for the period
Deferred tax:
Origination and reversal of timing differences
Income tax expense
Revenue
£m
Capital
£m
3
–
3
(1)
2
1
2017
Total
£m
2
2
4
Revenue
£m
Capital
£m
4
–
4
–
–
–
2016
Total
£m
4
–
4
The difference between the income tax expense shown above and the amount calculated by applying the effective rate of
UK corporation tax, currently 19.5% pro-rata (2016: 20% pro-rata) to the profit before tax is as follows:
For the year ended 30th September
Revenue
£m
Profit on ordinary activities before taxation
10
Capital
£m
166
2017
Total
£m
176
Revenue
£m
9
Capital
£m
527
2016
Total
£m
536
Profit before tax multiplied by
the effective rate of:
UK corporation tax of 19.5% pro-rata
(2016: 20% pro-rata)
Effects of:
Dividend income
Priority profit share of partnership income
appropriated by General Partner
Capital profits not chargeable due
to Investment Trust status
Non-taxable income
Disallowed expense
Total Tax Charge
2
–
4
–
(4)
1
3
32
34
–
(4)
(27)
–
–
1
–
–
(27)
(4)
1
4
34 Electra Private Equity PLC | Annual Report and Accounts 2017
2
(4)
105
107
–
12
(12)
–
(6)
–
4
(93)
–
–
–
(4)
–
(93)
(6)
–
4
9 Taxation Expenses (continued)
The Finance Act 2015 received Royal Assent on 18th November 2015 and has reduced the standard rate of UK corporation
tax to 19% from 1st April 2017 and to 18% from 1st April 2020. A further reduction to the standard rate of UK corporation
tax to 17% from 1st April 2020 in the Finance Act 2016 received Royal Assent on 15th September 2016.
10 Dividends
For the year ended 30th September
Special Dividend (2,612p per share)
Second Special Dividend (914p per share)
Second 2016 Interim Dividend (110p per share)
First 2016 Interim Dividend (44p per share)
Final 2015 Dividend (78p per share)
2017
£m
1,000
350
44
–
–
1,394
2016
£m
–
–
–
18
31
49
A third Special Dividend of £350 million (914p per share) has been declared since 30th September 2017.
Distributable reserves
The distributable reserves approximate to the sum of the Realised Capital Reserve and the Revenue Reserve on the
Company Balance Sheet which net to £609 million at 30th September 2017 (as disclosed in the Company Balance Sheet on
page 29), or £259 million after allowing for the post year dividend paid. The Board does not consider the Unrealised Capital
Reserve to be distributable.
11 Earnings per share
For the year ended 30th September
Net revenue profit attributable to ordinary shareholders (£m)
Net capital return attributable to ordinary shareholders (£m)
Net revenue profit on which diluted earnings per share calculated with
finance charge net of taxation of £nil (2016: £nil) added back
Net capital return on which diluted earnings per share calculated (£m)
Total Diluted Return (£m)
Weighted average number of ordinary shares in issue during the year on which the
undiluted profit per ordinary share was calculated
Effect of dilutive potential ordinary shares:
Convertible Bond Shares Issues
Weighted average number of ordinary shares in issue during the year on which the
diluted profit per ordinary share was calculated
2017
7
165
7
165
172
2016
5
527
5
527
532
38,740,222
39,303,381
–
967,150
38,740,222
40,270,531
Net revenue profit was £7,281,438 (2016: profit of £5,154,998) and net capital return was £165,432,114 (2016: £527,071,329).
Revenue profit per ordinary share
Capital return per ordinary share
Earnings per ordinary share
Basic earnings per share
2016
p
2017
p
Diluted earnings per share
2016
p
2017
p
18.80
427.03
445.83
13.12
1,341.03
1,354.15
18.80
427.03
445.83
12.80
1,308.83
1,321.63
Electra Private Equity PLC | Annual Report and Accounts 2017 35
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
12 Net Asset Value per Ordinary Share
The basic NAV per share is calculated by dividing the NAV of £758,366,568 (2016: 2,073,564,000) by the number of ordinary
shares in issue amounting to 38,282,763 (2016: 40,270,531).
The diluted NAV per share is calculated by dividing the NAV of £758,366,568 (2016: £2,073,564,000) by the number of
ordinary shares amounting to 38,282,763 (2016: 40,270,531) after taking into account dilutive potential shares.
13 Investments Held at Fair Value
Non-current Investments Held at Fair Value
As at 30th September
Unlisted at fair value
Listed at fair value
Subsidiary undertakings at fair value
Current Investments Held at Fair Value
As at 30th September
Liquidity funds
2017
Group
£m
2017
Company
£m
321
–
–
321
3
–
142
145
2016
Group
£m
1,642
54
–
1,696
2016
Company
£m
118
–
1,075
1,193
2017
Group
£m
380
2017
Company
£m
2016
Group
£m
2016
Company
£m
380
–
–
Reconciliation of movements on investments held at fair value are as follows:
Valuation
Valuation at 1st October 2016
Purchases*
Disposals*
Increase in valuation
Transferred to held for sale
Valuation at 30th September 2017
Non-
Current
£m
1,696
46
(1,623)
239
(37)
321
Group
Total
£m
1,696
776
(1,973)
239
(37)
701
Current
£m
–
730
(350)
–
–
380
Non-
Current
£m
1,193
8
(1,296)
251
(11)
145
Company
Current
£m
Total
£m
–
730
(350)
–
–
380
1,193
738
(1,646)
251
(11)
525
* Purchases and disposals of current investments were made during the year in line with cash requirements and surplus funds.
Valuation
Valuation at 1st October 2015
Purchases
Disposals
Increase in valuation
Valuation at 30th September 2016
Non-
Current
£m
1,630
218
(903)
751
1,696
Current
£m
–
–
–
–
–
Group
Total
£m
1,630
218
(903)
751
1,696
Non-
Current
£m
1,132
108
(599)
552
1,193
Company
Total
£m
Current
£m
–
–
–
–
–
1,132
108
(599)
552
1,193
36 Electra Private Equity PLC | Annual Report and Accounts 2017
14 Assets Held for Sale
In October 2017, the Group entered into an agreement to dispose of a portfolio of secondary and fund investments,
consistent with previous strategy announcements. Fair values of the investments are based on sale prices less associated
costs. Disposal of secondary and fund investments are expected to complete by December 2017. In addition, the Group
has given notice to dispose of 1 remaining listed fund on 31st December 2017, and the sale is expected to complete in the
following month. The categories of investments held for sale are:
As at 30th September
Funds
Listed Funds
Secondaries
15 Trade and Other Receivables
As at 30th September
Amounts owed by subsidiary undertakings
Sales for future settlement
Other receivables
16 Trade and Other Payables
As at 30th September
Amounts owed to subsidiary undertakings
Carried interest payable (Note 23)
Other payables
Termination payment (Note 23)
Other payables include accrued expenses, including bonuses.
2017
Group
£m
2017
Company
£m
2016
Group
£m
2016
Company
£m
26
9
2
37
11
–
–
11
–
–
–
–
–
–
–
–
2017
Group
£m
2017
Company
£m
2016
Group
£m
2016
Company
£m
–
–
1
1
208
–
–
208
–
4
–
4
476
4
–
480
2017
Group
£m
2017
Company
£m
2016
Group
£m
2016
Company
£m
–
–
4
–
4
6
–
3
–
9
–
8
3
32
43
5
8
2
–
15
Electra Private Equity PLC | Annual Report and Accounts 2017 37
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
17 Provision for Liabilities and Charges
The incentive provision will be paid when sufficient proceeds are received from the disposal of investment included in the
Incentive pools. The cash is expected to be paid when investments are realised. The timing of this is uncertain but as at
30th September 2017 there was no existing condition suggesting this is a current liability.
Also included in the provision is the portion of Directors’ bonuses deferred into shares over the next 3 years. Details are
disclosed in the Directors’ Remuneration Report on pages 89 and 90.
Incentive Scheme
At 1st October 2016
Amounts paid
Amounts payable
Increase in provision
At 30th September 2017
18 Deferred Tax Liability
2017
Group
£m
243
(240)
–
3
26
29
2017
Company
£m
243
(240)
–
3
26
29
2016
Group
£m
132
(3)
(8)
121
122
243
2016
Company
£m
132
(3)
(8)
121
122
243
The following are the deferred tax liabilities recognised by the Group and Company and movements thereon during the
current and prior periods.
Deferred Tax
At 1st October
Charge during the period
At 30th September
19 Financial Instruments
2017
2017
2016
Revaluation of Revaluation of Revaluation of Revaluation of
financial
assets
Company
£m
financial
assets
Company
£m
financial
assets
Group
£m
financial
assets
Group
£m
2016
–
2
2
–
2
2
–
–
–
–
–
–
(i) Management of Risk
As an investment trust, the Group’s investment objective is to seek capital growth from a portfolio of securities drawn from
markets both within the UK and worldwide. The holding of these financial instruments to meet this objective results in
certain risks.
The Group’s financial instruments comprise securities in unlisted and listed companies, partnership interests, trade
receivables, trade payables, money market funds and cash.
The main risks arising from the Group’s and Company’s financial instruments are fluctuations in market price, interest rate,
credit, liquidity, capital and foreign currency exchange rate. The policies for managing each of these risks are summarised
below. These policies have remained constant throughout the year under review and the preceding year. The financial risks
of the Company are aligned to the Group’s financial risks.
Market Price Risk
Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Group’s operations.
It represents the potential loss the Group might suffer through holding market positions in the face of price movements,
mitigated by stock selection.
38 Electra Private Equity PLC | Annual Report and Accounts 2017
19 Financial Instruments (continued)
The Group is exposed to the risk of the change in value of its fund investments, listed and unlisted equity, non-equity shares,
fixed and floating rate securities. For listed investments, the market risk variable is deemed to be the price itself. The impact
on profit or loss after tax and on shareholders’ equity, in absolute and percentage terms of those figures, due to movements
in these prices, is set out in part (ii) of this Note. For unlisted equity and non-equity shares the market risk is deemed to be
the price/earnings ratio or other appropriate valuation methodology as set out in the accounting policy. The impact on
profit or loss after tax and on shareholders’ equity, in absolute and percentage terms of those figures, due to movements in
these variables, is set out in part (vi) of this note.
Foreign Currency Risk
The Group’s total return and net assets are affected by foreign exchange translation movements as a proportion of the
investments held are denominated in or impacted by currencies other than sterling. The foreign investments held are
principally held in the USA and Continental Europe. The Board monitors the Group’s exposure to foreign currencies on
a regular basis and assesses the risks by considering the effect of currency movements on the Group’s NAV and income.
The impact on profit after tax and on shareholders’ equity due to increases and decreases in the value of the US Dollar
and Euro, in absolute terms and as a percentage of those figures, are analysed in part (iii) of this note.
Interest Rate Risk
The Group finances its operations through retained profits including realised capital profits. These profits are held as
cash balances to the extent they have not been distributed. The Company had no gearing at 30th September 2017.
Interest rate risk profiles for financial assets and liabilities and the impact of the profit or loss after tax and on shareholders’
equity due to increases or decreases in interest rates, in absolute terms and as a percentage of those figures, are shown in
part (iv) of this note. These profiles exclude short-term receivables and payables.
Liquidity Risk
The Group’s assets comprise listed and unlisted equity and non-equity shares, fixed income securities, liquidity funds and
secondaries. Whilst unlisted equity is illiquid, short-term flexibility is achieved through cash which is available on demand
and liquidity funds which are available within 24 hours.
Credit Risk
The Group’s exposure to credit risk principally arises from its cash deposits. Only major banks (with market capitalisation
above £20 billion) are used when making cash deposits and the level of cash is reviewed on a regular basis. Cash was
principally held with two UK banks (see table below) and totalled £54 million (2016: £659 million).
Bank Credit Ratings at 30th September 2017
HSBC
Royal Bank of Scotland
Capital Risk Management
The Group’s capital comprised:
Equity
Equity share capital
Retained earnings and other reserves
Total capital
Moody’s
Aa3 (negative)
A3 (negative)
2017
£m
9
749
758
2016
£m
10
2,064
2,074
Electra Private Equity PLC | Annual Report and Accounts 2017 39
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
19 Financial Instruments (continued)
The Group’s objective in the management of capital risk is to safeguard its ability to continue as a going concern in order to
provide returns for shareholders and to maintain an optimal capital structure. In doing so the Group may adjust the amount
of dividends paid to shareholders (whilst remaining within the restrictions imposed by its investment trust status) or issue
new shares or debt. During the year the Group paid dividends totalling £1,394 million (2016: £49 million).
The Group manages the levels of cash deposits held whilst maintaining sufficient liquidity for investments. The Group has
an existing authority to implement an on-market share buy-back programme to generate shareholder value. During the
year £94 million, including transaction fees, (2016: £nil) were utilised to repurchase shares for cancellation.
(ii) Market Price Exposure
The table below shows the Group’s exposure to market price risks. In determining a reasonable possible price movement,
the Group observed historical price changes on a bi-annual frequency over the preceding 10-year period.
10% movement in price of listed investments
Impact on profit after tax
Impact as a percentage of profit after tax
Impact on shareholders’ equity
Impact as a percentage of shareholders’ equity
2017
Increase in
variable
£m
2017
Decrease in
variable
£m
2016
Increase in
variable
£m
2016
Decrease in
variable
£m
1
–
1
–
(1)
–
(1)
–
5
1%
5
–
(5)
(1)%
(5)
–
No financial assets held by the Company are subject to market price risks.
(iii) Foreign Currency Exposures
The table below shows the Group’s exposure to foreign currency risks. In determining reasonably possible currency
movements, the Group analysed observable market rates for Euro and US Dollar for the preceding ten-year period.
The 10% movement is determined using the historic average of absolute changes.
Currency
10% Movement in Euro
Impact on profit after tax
Impact as a percentage of profit after tax
Impact on shareholders’ equity
Impact as a percentage of shareholders’ equity
10% Movement in US Dollar
Impact on profit after tax
Impact as a percentage of profit after tax
Impact on shareholders’ equity
Impact as a percentage of shareholders’ equity
40 Electra Private Equity PLC | Annual Report and Accounts 2017
2017
Sterling
appreciation
£m
2017
Sterling
depreciation
£m
2016
Sterling
appreciation
£m
2016
Sterling
depreciation
£m
(7)
(4)%
(7)
(1)%
9
5%
9
1%
(18)
(3)%
(18)
(1)%
20
4%
20
1%
2017
Sterling
appreciation
£m
2017
Sterling
depreciation
£m
2016
Sterling
appreciation
£m
2016
Sterling
depreciation
£m
(3)
(2)%
(5)
(1)%
4
2%
6
1%
(10)
(2)%
(10)
(1)%
11
2%
11
1%
19 Financial Instruments (continued)
(iv) Interest Rate Risk Profile of Financial Assets and Liabilities
The financial instruments held by the Group include equity and non-equity shares as well as floating interest securities.
The financial instruments shown below are separated into the type of income they generated as at 30th September 2017.
Base interest rate in the UK has been close to 0% for a number of years and for the purpose of sensitivity analysis, the
Group analysed a 1% rate change scenario, which is considered to be a reasonable movement in light of the recent rise
in benchmark interest rate.
Interest on floating rate financial assets is at prevailing market rates.
Total
308
386
As at 30th September 2017
Financial Assets
Cash and cash equivalent
Investments held at
fair value through
profit and loss
Held for sale investments
Loans and receivables
Financial Liabilities
Held at amortised costs
As at 30th September 2016
Financial Assets
Cash and cash equivalent
Investments held at
fair value through
profit and loss
Loans and receivables
Financial Liabilities
Held at amortised costs
Fixed
rate
£m
Floating
rate
£m
Non-
interest
bearing
£m
Group
Total
£m
Fixed
rate
£m
Floating
rate
£m
Non-
interest
bearing
£m
Company
Total
£m
–
6
48
54
308
–
–
308
–
–
380
–
–
386
–
–
13
37
1
99
(4)
(4)
95
701
37
1
793
(4)
(4)
789
Group
Total
£m
Fixed
rate
£m
Floating
rate
£m
Non-
interest
bearing
£m
–
435
224
659
622
–
622
–
–
10
–
445
–
–
1,064
4
1,292
1,696
4
2,359
(43)
(43)
(43)
(43)
–
–
–
–
–
–
–
–
6
48
54
380
–
208
594
–
–
145
11
–
204
(9)
(9)
525
11
208
798
(9)
(9)
594
195
789
Fixed
rate
£m
Floating
rate
£m
Non-
interest
bearing
£m
Company
Total
£m
–
–
–
–
–
–
–
435
224
659
–
480
915
–
–
1,193
–
1,417
1,193
480
2,332
(15)
(15)
(15)
(15)
915
1,402
2,317
Total
622
445
1,249
2,316
Electra Private Equity PLC | Annual Report and Accounts 2017 41
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
19 Financial Instruments (continued)
Weighted average interest rate and period to maturity of the Group’s investments are as follows:
Currency
As at 30th September
Sterling
US Dollars
Euro
The Company held no fixed rate financial assets.
Fixed rate financial
assets weighted
average interest rate
2016
2017
%
%
Fixed rate financial
assets weighted average
period until maturity
2016
2017
years
years
11
–
5
5
7
7
3
–
1
3
2
2
Impacts of the Group’s results after tax and shareholders’ equity due to a 1% movement in interest rate are as follows:
1% movement in interest rates
Impact on interest income from cash
Total impact on profit/(loss) after tax and shareholders’ equity
Impact as a percentage of total profit/(loss) after tax
Impact as a percentage of shareholders’ equity
(v) Financial Assets and Liabilities
As at 30th September
Financial Assets
Equity shares
Non-equity shares
Fixed interest securities
Floating rate securities
Cash at bank and in hand
Other assets
Financial Liabilities
Other payables
2017
Increase
in variable
£m
2017
Decrease
in variable
£m
2016
Increase
in variable
£m
2016
Decrease
in variable
£m
4
4
2%
1%
(4)
(4)
(2)%
(1)%
6
6
1%
–
(6)
(6)
(1)%
–
Fair value
2017
£m
Group
Fair value
2016
£m
Fair value
2017
£m
Company
Fair value
2016
£m
46
1
308
383
54
1
1,029
36
622
9
659
4
97
59
–
588
54
–
43
1,150
–
480
659
–
4
43
9
15
Cash and other receivables and payables are measured at amortised cost and the rest of the financial assets in the table
above are held at fair value through profit or loss. The carrying values of the financial assets and liabilities measured at
amortised cost are equal to the fair value.
The unlisted financial assets held at fair value are valued in accordance with the Principles of Valuation of Unlisted Equity
Investments as detailed within the Basis of Accounting and Significant Accounting Policies (Note 24).
42 Electra Private Equity PLC | Annual Report and Accounts 2017
19 Financial Instruments (continued)
(vi) Fair Value Hierarchy
Fair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable willing parties
in an arm’s length transaction.
The Group complies with IFRS 13 in respect of disclosures about the degree of reliability of fair value measurements.
This requires the Group to classify, for disclosure purposes, fair value measurements using a fair value hierarchy that reflects
the significance of the inputs used in making the measurements.
The levels of fair value measurement bases are defined as follows:
Level 1: fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: fair values measured using valuation techniques for all inputs significant to the measurement other than quoted
prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e.
derived from prices).
Level 3: fair values measured using valuation techniques for which any significant input to the valuation is not based on
observable market data (unobservable inputs).
The determination of what constitutes ‘observable’ requires significant judgement by the Directors. The Group considers
observable data to be market data that is readily available, regularly distributed or updated, reliable and verifiable, not
proprietary and provided by independent sources that are actively involved in the relevant market.
The following tables represent the Group’s and Company’s assets by hierarchy levels, and all fair value measurements
disclosed are recurring fair value measurements.
Financial assets and liabilities at fair value through profit or loss
Group
As at 30th September 2017
Unlisted and listed investments
As at 30th September 2016
Unlisted and listed investments
Company
As at 30th September 2017
Unlisted and listed investments
As at 30th September 2016
Unlisted and listed investments
Total
£m
738
Total
£m
1,696
Total
£m
536
Total
£m
1,193
Level 1
£m
389
Level 1
£m
54
Level 1
£m
380
Level 1
£m
–
Level 2
£m
–
Level 2
£m
−
Level 2
£m
–
Level 2
£m
−
Level 3
£m
349
Level 3
£m
1,642
Level 3
£m
156
Level 3
£m
1,193
Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1,
include active listed equities. The Group does not adjust the quoted price for these instruments. Investments classified
within Level 1 are liquidity funds and a listed investment.
Financial instruments that trade in markets that are not considered to be active but are valued based on quoted market
prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2.
Electra Private Equity PLC | Annual Report and Accounts 2017 43
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
19 Financial Instruments (continued)
Investments classified within Level 3 make use of significant unobservable inputs in deriving fair value, as they trade
infrequently. As observable prices are not available for these securities, the Group has used valuation techniques to derive the
fair value. Investments classified within Level 3 consist of private equity direct investments and fund and secondary positions.
The main inputs into the Group’s valuation models for private equity investments are EBITDA multiples (based on the
budgeted EBITDA or most recent EBITDA achieved or a rolling 12 months basis of the issuer and equivalent corresponding
EBITDA multiples of comparable listed companies), quality of earnings assessments, assessments of third party external
debt, comparability difference adjustments, cost of capital adjustments and probabilities of default. The Group also
considers the original transaction prices, recent transactions in the same or similar instruments and completed third-party
transactions in comparable companies’ instruments and adjusts the model as deemed necessary.
In determining the valuation for the Group’s equity instruments, comparable trading multiples are used in arriving at the
valuation for private equity. In accordance with the Group’s policy, appropriate comparable public companies based on
industry, size, developmental stage, revenue generation and strategy are determined and a trading multiple for each
comparable company identified is then calculated. The multiple is calculated by dividing the enterprise value of the
comparable group by its EBITDA. The trading multiple is then adjusted for considerations such as illiquidity, marketability
and other differences, advantages and disadvantages between the Group’s portfolio company and the comparable public
companies based on company specific facts and circumstances.
The value of private equity funds is primarily based on the latest available financial/capital account statement of the private
equity fund. The Company may make adjustments to the value as set out in Note 24.
As at 30th September 2017, 8% (2016: 10%) of financial assets at fair value comprise of investments in private equity funds
that have been valued in accordance with the policies set out in Note 24. The private equity funds are not publicly traded
and prior to maturity an exit can only be made by the Company through a sale of its investment and commitment through
a secondary market. The carrying values of the private equity funds may be significantly different from the values ultimately
realised on an exit via a secondary market sale.
The following tables present the movement of assets measured at fair value, based on fair value measurement levels.
Opening balance
Purchases
Realisations
Transfer to Level 1
Increases in valuation
Closing balance as at 30th September
Opening balance
Purchases
Realisations
Transfer to Level 1
Increases in valuation
Closing balance as at 30th September
Level 1
2017
£m
54
730
(392)
–
(3)
389
Level 3
2017
£m
1,642
46
(1,581)
–
242
349
Group
Level 1
2016
£m
101
49
(239)
44
99
54
Group
Level 3
2016
£m
1,529
218
(805)
(44)
744
1,642
Level 1
2017
£m
–
730
(350)
–
–
380
Level 3
2017
£m
1,193
8
(1,296)
–
251
156
Company
Level 1
2016
£m
–
–
–
–
–
–
Company
Level 3
2016
£m
1,132
108
(599)
–
552
1,193
Total gains on assets measured at Level 3 are recognised as part of the investment income/net gain balance in the
Consolidated Income Statement, and no other comprehensive income has been recognised on these assets.
44 Electra Private Equity PLC | Annual Report and Accounts 2017
19 Financial Instruments (continued)
The tables below present those investments in portfolio companies whose fair values are recognised in whole or in part
using valuation techniques based on assumptions that are not supported by prices or other inputs from observable current
market transactions in the same instrument and the effect of changing 1 or more of those assumptions behind the
valuation techniques adopted based on reasonable possible alternative assumptions.
Group
Description
UK
Fair value
2017
£m
Valuation technique
Unobservable inputs
Weighted
average input
Reasonable
possible shift
+/- (absolute
value/%)
Change in
valuation
+/- £m
Consumer goods
286
Property
Business services
Continental Europe
Private equity funds
Property
USA
Private equity funds
Asia and elsewhere
Private equity funds
Total
2
31
15
2
2
11
349
Comparable trading
multiples
EBITDA multiple
Comparability
difference adjustment
Yield
Yield %
Comparable trading
multiples
EBITDA multiple
Comparability
difference adjustment
NAV valuation
NAV
Yield
Yield %
NAV valuation
NAV
NAV valuation
NAV
9.9x
33%
n/a
12.6x
48%
n/a
n/a
n/a
n/a
1x
5%
47/(47)
(31)/31
1%
1x
5%
5%
1%
5%
–
4/(4)
(5)5
3/(3)
–
–
5%
1/(1)
Electra Private Equity PLC | Annual Report and Accounts 2017 45
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
19 Financial Instruments (continued)
Group
Description
UK
Fair value
2016
£m
Valuation technique
Unobservable inputs
Reasonable
possible shift
+/- (absolute
value/%)
Weighted
average Input
Consumer goods
650
Comparable trading
multiples
EBITDA multiple
Comparability
difference
adjustment
Property
Private equity funds
Business services
Continental Europe
Private equity funds
Business services
Property
USA
Business services
44
69
662
86
41
2
69
Yield
Yield %
NAV valuation
NAV
Comparable trading
multiples
EBITDA multiple
Comparability
difference
adjustment
NAV valuation
NAV valuation
NAV
NAV
Yield
Yield %
Comparable trading
multiples
EBITDA multiple
Comparability
difference
adjustment
Private equity funds
7
NAV valuation
NAV
NAV valuation
NAV
Change in
valuation
+/- £m
110/(118)
61/(57)
6/(6)
3/(3)
83/(80)
53/(47)
4/(4)
2/(2)
–/–
7/(7)
6/(6)
1/(1)
1/(1)
9.4x
17.6%
7.5%
n/a
9.1x
23.6%
n/a
n/a
7.5%
17.8x
1.0%
n/a
n/a
1x
5%
1%
5%
1x
5%
5%
5%
1%
1x
5%
5%
5%
12
1,642
Fair value
2017
£m
Asia and elsewhere
Private equity funds
Total
Company
Description
UK
Investment in
subsidiaries
Property
Continental Europe
Private equity funds
USA
Investment in
subsidiaries
Private equity funds
Total
Valuation technique
Unobservable inputs
Weighted
average input
Reasonable
possible shift
+/- (absolute
value/%)
Change in
valuation
+/- £m
137
NAV valuation NAV
3
13
2
1
156
Yield
Yield %
NAV valuation NAV
NAV valuation NAV
NAV valuation NAV
n/a
n/a
n/a
n/a
n/a
5%
1%
5%
5%
5%
6/(6)
–
1/(1)
–
–
46 Electra Private Equity PLC | Annual Report and Accounts 2017
19 Financial Instruments (continued)
Company
Description
UK
Investment in
subsidiaries
Property
Private equity funds
Continental Europe
Private equity funds
USA
Investment in
subsidiaries
Private equity funds
Asia and elsewhere
Investment in
subsidiaries
Private equity funds
Fair value
2016
£m
Valuation technique
Unobservable inputs
Reasonable
possible shift
+/- (absolute
value/%)
Change in
valuation
+/- £m
Weighted
average input
1,047
NAV valuation
NAV
n/a
5% 52/(52)
4
69
42
15
2
2
12
Yield
Yield %
NAV valuation
NAV
7.5%
n/a
1%
5%
1/(1)
3/(3)
NAV valuation
NAV
NAV valuation
NAV
NAV valuation
NAV
NAV valuation
NAV
NAV valuation
NAV
n/a
n/a
n/a
n/a
n/a
5%
2/(2)
5%
1/(1)
5%
–
–
5%
5%
1/(1)
Total
1,193
For the purposes of the above tables:
■■ Consumer goods includes non-cyclical consumer goods, travel and leisure and house leisure and personal goods
■■ Business services includes media, construction and materials, industrial general and transportation, support services and
technology, hardware and equipment
■■ Private equity funds include private equity funds and secondaries
The changes in valuations disclosed in the above table show the relative increase or decrease in the input variables
deemed to be subject to the most judgement and the respective impact on the fair value presented in these Financial
Statements. Increases in the EBITDA multiple would each lead to an increase in estimated value. However, an increase in
the comparability difference adjustment would lead to a decrease in value.
No inter-relationships between unobservable inputs used in the Group’s or Company’s valuation of its Level 3 equity
investments have been identified.
There has been no transfer between levels for assets held by the Group during the year, and the following table presents the
transfers between levels for the year ended 30th September 2016.
Transfers between Level 1 and 3:
UK
Business services
Level 1
£m
Level 2
£m
Level 3
£m
44
–
(44)
No transfer between levels took place on assets held by the Company during the year ended 30th September 2017 (2016: £nil).
Electra Private Equity PLC | Annual Report and Accounts 2017 47
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
19 Financial Instruments (continued)
The following table presents the movement in Level 3 instruments by sector of financial instrument:
Opening balance at 1st October 2016
Purchases
Realisations
Transfers to Level 1
Increase in valuation
Closing balance at 30th September 2017
Opening balance at 1st October 2015
Purchases
Realisations
Transfers to Level 1
Increase in valuation
Closing balance at 30th September 2016
20 Called up Share Capital and Reserves
Share Capital
Consumer
goods
£m
Property
£m
Business
services
£m
Fund
positions
£m
650
39
(453)
–
50
286
46
–
(52)
–
10
4
772
3
(939)
–
195
31
174
4
(137)
–
(13)
28
Consumer
goods
£m
Property
£m
Business
services
£m
Fund
positions
£m
642
110
(329)
(44)
271
650
71
–
(31)
–
6
46
638
89
(377)
–
422
772
Total
£m
1,642
46
(1,581)
–
242
349
Total
£m
1,529
218
(805)
(44)
744
1,642
2016
£m
9
1
–
10
178
19
(68)
–
45
174
2017
£m
10
–
(1)
9
Opening allotted, called-up and fully paid 40,270,531 (2015: 36,054,938) ordinary shares of 25p each
Convertible bonds converted to ordinary shares nil (2016: 4,215,593)
Ordinary shares purchased by the Company 1,987,768 (2016: nil)
Closing allotted, called-up and fully paid 38,282,763 (2016: 40,270,531) ordinary shares of 25p each
During the year ended 30th September 2017, Electra repurchased 1,987,768 (5%) of its ordinary shares for £94 million or
4,650p per share. The expenses directly relating to the acquisition of £2 million have been charged against realised profit.
85,369 Subordinated Convertible Bonds were fully converted into 4,215,593 ordinary shares during 2016.
Own Shares Held
As a result of the new Long-Term Incentive Plan introduced by the Group (Note 21), 47,783 shares were purchased at a
market value of £795,102 by the Group’s Employee Benefit Trust, and held as Own Shares Held as at 30th September 2017.
Realised Capital Reserves
The realised capital reserve is the gains and losses on the realisation of investments.
Unrealised Capital Reserves
The unrealised capital reserve is the changes in the value of financial instruments measured at fair value which have been
taken through profit and loss.
Revenue Reserves
Revenue reserves is the net revenue profit and losses of the Group and Company.
Other Reserves
Other reserves included Subordinated Convertible Bonds that were converted into new ordinary shares of Electra. The share
based payment reserve of £44,482 was also included in the other reserve balance as at 30th September 2017 (see Note 21).
48 Electra Private Equity PLC | Annual Report and Accounts 2017
21 Share Based Payments
During the year, a new Long-Term Incentive Plan (“LTIP”) was introduced in compensation to the executives of the Group.
The LTIP is an equity settled share based payment scheme. However, awards can be settled in cash equivalents at the
discretion of the Group Remuneration Committee. For the purpose of classification, the share based payment scheme is
recognised as equity settled on the basis that the Group has no present obligation for settling awards in cash, contractually
or constructively i.e. past practices.
The cost of share based payment is recognised as an expense with a corresponding increase in share based payment
reserves. Expenses are borne by the Group and recognised over the period in which vesting conditions are fulfilled.
No expense is recognised for awards that do not ultimately vest. The total charge in the Consolidated Income Statement
for the year was £44,482 (2016: £nil).
Details of the share based payment scheme are as follows:
Grant Date
13th July 2017
Number of shares granted
Market Price on Grant Date
Performance period
47,783
£795,102
3 years
Vesting conditions
1. Continued services over the vesting period.
2. The Group’s TSR performance relative to that of a comparator group of
companies, comprised of the constituents of the FTSE 250 index (excluding
investment trusts) over the vesting period. Vesting percentage of the award
are as follows:
TSR against comparator group over
performance period
Below median
Median
Between median and upper quartile
Upper quartile or more
Percentage of award that vests
0%
20%
Between 20% and 100% straight-line
100%
Change in corporate control
and other corporate events
Settlement method
All unvested awards shall vest on date of such event.
Equity settled, with option of cash alternative determined by the Group
Remuneration Committee.
The Directors consider that the market value of shares at grant date materially reflects the variable inputs in the fair
valuation of the nil-cost options granted. Assumptions that may result in changes to the share based payment expense
and reserves in the Group Financial Statements will be reassessed at all future reporting dates.
Analysis of movements in the number of options is set out below:
Number of outstanding options
As at 30th September 2016
Granted
As at 30th September 2017
Group
–
47,783
47,783
2017
Company
–
47,783
47,783
Electra Private Equity PLC | Annual Report and Accounts 2017 49
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
22 Particulars of Holdings
Subsidiary Undertakings
The results and balances of the following subsidiaries are included in the Consolidated Financial Statements of the Group.
Electra Investments Limited (Investment Holding Company)
87,000 ordinary shares of £10 (par value). Paid-in capital £1,027,389.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 100% owned and held directly by the Company.
Electra Private Equity Investments PLC (Zero Dividend Preference Share Holding Company)
(in members’ voluntary liquidation)
50,000 ordinary shares of £1.00 (par value). Paid-in capital £50,000.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 100% owned and held directly by the Company.
Electra General Partner Number One Limited (General Partner to Kingsway Equity Partners LP)
100 ordinary shares of £1 per share. Paid-in capital £100.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 100% owned and held directly by the Company.
Albion (Electra) Limited (Non-Trading Company)
4,995 ordinary shares of US$1.00 (par value). Paid-in capital US$11,565,002.
Registered Office: Dehands House, 2nd Terrace West, Centreville Nassau, Bahamas
Incorporated in the Commonwealth of the Bahamas.
The subsidiary is 100% owned and held directly by the Company.
Electra E.B.T. Limited (Historic Employee Benefit Trust)
100 ordinary shares of £1 per share. Paid-in capital £100.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 100% owned and held directly by the Company.
The subsidiary’s individual accounts are exempt from audit requirements by virtue of
Section 479A of the Companies Act 2006.
Electra Investment Trust Limited (in liquidation)
250,000 ordinary shares of £1 per share. Paid-in capital £250,000.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 100% owned and held directly by the Company.
Electra Aviation (Spares) Limited (Non-Trading Company)
1 ‘A’ ordinary shares of £1 per share. Paid-in capital £1.
1 ‘B’ ordinary shares of £1 per share. Paid-in capital £1.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 100% owned and held directly by the Company.
50 Electra Private Equity PLC | Annual Report and Accounts 2017
22 Particulars of Holdings (continued)
Electra Securities Limited (Non-Trading Company)
100,000 ordinary shares of £1 per share. Paid-in capital £100,000
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 100% owned and held directly by the Company.
Electra Holdings Inc. (Non-Trading Company)
10,000 common stock of US$1.
Registered Office: 229 South State Street, Dover, Delaware, United States of America
Incorporated in Delaware (United States of America).
The subsidiary is 100% owned and held directly by the Company.
Electra Property Inc. (Non-Trading Company)
1,000 common stock of US$1.
Registered Office: 229 South State Street, Dover, Delaware, United States of America
Incorporated in Delaware (United States of America).
The subsidiary is 100% owned and held directly by the Company.
Electra Partners Advisers (Asia) Limited (Non-Trading Company)
1 ordinary share of £1 (par value). Paid-in capital £1.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 100% owned and held through Electra Far East LP.
Electra Partners Mauritius Limited (Investment Holding Company)
100,000 ordinary shares of $0.10. Paid-in capital $10,000.
Registered Office: 33, Edith Cavell Street, Port-Louis, Mauritius
Incorporated in Mauritius.
The subsidiary is 100% owned and held through Electra Far East LP.
Kingsway Nominees Limited (Nominee Company)
1,000 ordinary shares of £1 per share. Paid-in capital £1,000.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 100% owned and held through Kingsway Equity Partners LP.
New Kingsway Nominees Limited (Nominee Company)
2 ordinary shares of £1 per share. Paid-in capital £2.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 100% owned and held through Kingsway Equity Partners LP.
EPEP Syndications Limited (Non-Trading Company)
100,000 ordinary shares of £1 per share. Paid-in capital £100,000
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 76.1% owned and held through Kingsway Equity Partners LP and Electra Private Equity PLC.
The subsidiary’s individual accounts are exempt from audit requirements by virtue of
Section 479A of the Companies Act 2006.
Electra Private Equity PLC | Annual Report and Accounts 2017 51
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
22 Particulars of Holdings (continued)
EFPEP Syndications Limited (Non-Trading Company)
100 ordinary shares of £1 per share. Paid-in capital £100.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Incorporated in England and Wales.
The subsidiary is 100% owned and held through Kingsway Equity Partners LP.
Partnership Undertakings
The results and balances of the following partnerships are included in the Consolidated
Financial Statements of the Group. Each partnership is 100% owned by the Group, subject
to the other partners’ rights to participate in distributions.
Kingsway Equity Partners LP (Investment Holding Partnership)
Capital contributions of £10,705,000. Incorporated in Scotland.
Registered Office: 50 Lothian Road, Edinburgh, EH3 9BY
Electra Private Equity Partners 1995 LP (Investment Holding Partnership)
Capital contributions of £9,500. Incorporated in England and Wales.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Electra Quoted Partners 1995 LP (Investment Holding Partnership)
Capital contributions of £120,277,699. Incorporated in England and Wales.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
EF Private Equity Partners (Americas) LP (Investment Holding Partnership)
Capital contributions of $2,500. Incorporated in England and Wales.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Electra Far East LP (Investment Holding Partnership)
Capital contributions of $5,640. Incorporated in England and Wales.
Registered Office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT
Electra Private Equity Partners (Scotland) LP (Investment Holding Partnership)
Capital contributions of £17,500,000. Incorporated in Scotland.
Registered Office: Quartermile One, 15 Lauriston Place, Edinburgh, EH3 9EP
Electra Private Equity Partners 2001 - 2006 Scottish LP (Investment Holding Partnership)
Capital contributions of £20. Incorporated in Scotland.
Registered Office: 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ
Electra Private Equity Partners 2006 Scottish LP (Investment Holding Partnership)
Capital contributions of £20. Incorporated in Scotland.
Registered Office: 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ
Other Companies Held as Investments at Fair Value
All companies are incorporated in Great Britain and registered in England and Wales
unless otherwise stated. All companies operate in their country of incorporation.
52 Electra Private Equity PLC | Annual Report and Accounts 2017
22 Particulars of Holdings (continued)
Significant Interests in Investee Undertakings
The fair value of the undertakings shown below each represent by value more than 5% of the non-current asset
investments of the Group:
As at 30th September
HOTTER SHOES
A Ordinary shares 61.3%
10% Secured red PIK loan notes 2022 72.9%
KNIGHT SQUARE
Ordinary shares 50.8%
C Ordinary shares
Senior loan notes 66.7%
Junior loan notes 55.5%
PHOTOBOX GROUP
Ordinary A shares
Loan notes
TGI FRIDAYS
A Ordinary shares 78.7%
Unsecured Loan Notes 100%
2017
Carrying value
£m
2017
2016
Cost Carrying value
£m
£m
38
85
28
8
31
25
2016
Cost
£m
84
8
84
90
102
89
162
136
90
99
Electra Private Equity PLC | Annual Report and Accounts 2017 53
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
23 Related Party Transactions
Balances and transactions between the Company and its subsidiaries for Group are eliminated on consolidation.
Details of transactions between the Group and Company and other related parties are disclosed below.
Termination Payment
On 26th May 2016, the Company served notice of termination of the Management and Investment Guideline Agreement
on Epiris effective on 31st May 2017. Under the terms of their contract, Epiris were paid £34 million compensation based
on the Priority Profit Share received in the year to 31st May 2017. £32 million was recognised during the year ended
30th September 2016 with the remaining £2 million being recognised during the current year.
Carried interest schemes
Certain members of Epiris (the “participants”) are entitled to benefit from carried interest schemes under the terms of the
limited partnerships through which Electra invests. Details of these schemes are as follows:
Long Term Incentive Scheme (“LTI”)
Under this scheme participants invested in every new investment made by Electra between 1995 and March 2006.
In return, the participants are entitled to a percentage of the total capital and revenue profits made on each such
investment. The participants do not receive any profit until Electra has received back its initial investment.
1995 LTI
Participants are entitled to a percentage of the incremental value of unlisted investments held at 31st March 1995,
subject to Electra having received total proceeds equal to the valuation of those investments as at 31st March 1995
plus a preferred return.
The Initial Pool
This relates to a pool of investments valued at £160 million at 31st March 2006 (the “initial pool”). Under this arrangement
participants are entitled to 10% (the “carried interest”) of the aggregate realised profits of the initial pool. The realised profits
are calculated as being the aggregate of income and sale proceeds received by Electra less the £160 million opening value,
less any additional purchases and less Priority Profit Share. Carried interest is payable only once realised profits exceed
a preferred return of 15% compounded annually on the opening value of the initial pool plus the cost of further
investments less realisations. A full catch-up is payable once the realised profits of the initial pool exceed the preferred
return. This catch-up means that all proceeds above the cumulative preferred return accrue to participants until they have
been paid an amount equating to 10% of the total realised profits of the initial pool. Thereafter proceeds are split 90%:10%
between Electra and the participants.
2006, 2009, 2012 and 2015 Pools
In October 2006, new arrangements were entered into in respect of investments made over each consecutive 3 year period.
At the reporting date, such arrangements are in operation in relation to the 3 year periods from 2006 to 2009, 2009 to 2012,
2012 to 2015 and 2015 to 2018 (investments being made in each such period being referred to as a “pool”).
Under these arrangements participants are entitled to a carried interest of 18% of the aggregate realised profits in relation
to direct investments in each pool. The realised profits are calculated as being the aggregate of income and sale proceeds
received by Electra less the purchase costs of investments and less Priority Profit Share. Carried interest is payable only once
realised profits exceed a preferred return of 8% compounded annually on the cost of investments less realisations. A full
catch-up is payable once the realised profits exceed the preferred return. This catch-up means that all proceeds above the
cumulative preferred return accrue to participants until they have been paid an amount equating to 18% of the total
realised profits. Thereafter proceeds are split 82%:18% between Electra and the participants.
Similar arrangements are in place for indirect investments, the difference from the above arrangements being that the
carried interest is 9% over an 8% preferred return.
No Directors of Electra participate in the above schemes.
54 Electra Private Equity PLC | Annual Report and Accounts 2017
23 Related Party Transactions (continued)
Summary of carried interest pools
As at 30th September 2017
Amount invested
Amount realised
Valuation of remaining investments
Pool profit
Multiple of cost
Priority Profit Share
Net profit
As at 30th September 2017
Provisional Entitlement
Outstanding Entitlement
Total Amount Outstanding
Amount Paid in Year
As at 30th September 2016
Amount invested
Amount realised
Valuation of remaining investments
Pool profit
Multiple of cost
Priority Profit Share
Net profit
As at 30th September 2016
Provisional Entitlement
Outstanding Entitlement
Total Amount Outstanding
Amount Paid in Year
LTI
£m
–
–
–
17
Initial
Pool
£m
1
–
1
1
LTI
£m
7
7
14
1
1995
LTI
£m
Initial
Pool
£m
–
–
–
–
1
1
2
1
Initial
Pool
£m
(236)
688
6
458
2.9
(7)
451
2006
Pool
£m
–
–
–
8
Initial
Pool
£m
(236)
686
7
457
2.9
(7)
450
2006
Pool
£m
8
–
8
1
2006
Pool
£m
(436)
808
–
372
1.9
(32)
340
2009
Pool
£m
4
–
4
2009
Pool
£m
(359)
841
30
512
2.4
(26)
486
2012
Pool
£m
24
–
24
82
140
2006
Pool
£m
(436)
763
46
373
1.9
(32)
341
2009
Pool
£m
82
–
82
–
2009
Pool
£m
(359)
380
461
482
2.3
(24)
458
2012
Pool
£m
141
–
141
–
2012
Pool
£m
(785)
1,601
165
981
2.2
(41)
940
2015
Pool
£m
–
–
–
–
2012
Pool
£m
(785)
809
795
819
2.0
(35)
784
2015
Pool
£m
4
–
4
–
2015
Pool
£m
(176)
109
83
16
1.1
(4)
12
Total
£m
29
–
29
248
2015
Pool
£m
(175)
4
196
25
1.1
(2)
23
Total
£m
243
8
251
3
Participants Investment
During the year, the participants exercised their option to sell their remaining Participants Investments to the Group at a
cost of £4 million and therefore no investments are held by the participants at 30th September 2017.
Electra Private Equity PLC | Annual Report and Accounts 2017 55
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
23 Related Party Transactions (continued)
Electra Partners Club 2007 LP co-investment agreement
In November 2007, Electra entered into a co-investment agreement with Electra Partners Club 2007 LP (“Club”), a fund
managed by Epiris Managers LLP. The co-investment agreement required Electra to co-invest at the ratio of 2:1 in all Epiris
investments in private equity opportunities in Western Europe where the combined investment of Electra and the Club
would represent a controlling stake and where the combined equity investment is between £25 million to £75 million.
Both parties invested on the same terms and conditions. The agreement allowed for variations to these arrangements
in certain prescribed circumstances, for example, where investment would compromise Electra’s ability to qualify as an
Investment Trust or where the Club would exceed certain concentration ratios. Investments that arise from interests
that Electra already held prior to the establishment of the Club are unaffected by these sharing arrangements.
These arrangements expired in May 2013.
Priority Profit Share
Priority Profit Share for the year ended 30th September 2017 was £23 million (2016: £29 million).
Year to September
Fee at 1.5%
Fee at 1%
Adjustment for deal fees net of abort costs
Total
2017
£m
23
–
23
–
23
2016
£m
26
1
27
2
29
Priority Profit Share paid to Epiris was calculated at 1.5% per annum on the gross value of the Company’s investment
portfolio including cash (but excluding any amounts committed to funds established and managed by Epiris).
In the year to 30th September 2017 no deal fees (2016: £5 million) were charged in relation to new investments.
These fees are accounted for within the investment income line in the Financial Statements. Under the terms of the limited
partnership agreements, Epiris is entitled to receive 50% of the aggregate deal fees in excess of abort costs which were £nil
(2016: £2 million). This is achieved by increasing the Priority Profit Share for the year by the relevant amount. These amounts
are shown in the table above.
Sherborne
Sherborne Investors Management LP (“Sherborne”) was appointed as adviser to the Group on 22nd December 2015.
Their role was to advise the Group in connection with research and the formulation and making of proposals to the Board
of Directors of the Group, and, in particular the Board of Directors’ Management Engagement Committee, for the purpose
of monitoring and supervising the performance of Epiris. Under the terms of the contract Sherborne are not entitled to a
fee but are entitled to be reimbursed for all reasonable expenses. In the year ended 30th September 2017 the Group paid
Sherborne £127,981 (2016: £88,000) as reimbursement for travel and subsistence costs. Edward Bramson, a Director of
Electra, is the managing member of Sherborne Investors Management LP.
Remuneration Disclosure
Total remuneration of the Alternative Investment Fund Managers (“AIFM”) during the year were:
Remuneration paid by Epiris to its partners (to 31st May 2017)
Carried Interest paid to the partners of Epiris (to 31st May 2017)
Total
Year ended
30th September 2017
£m
4
103
107
The remuneration paid by Epiris in the year were fixed with no variable remuneration being paid and the number of
beneficiaries was 8 for the year ended 30th September 2017.
56 Electra Private Equity PLC | Annual Report and Accounts 2017
23 Related Party Transactions (continued)
Beneficiaries of remuneration paid by Epiris are its partners who are senior management. Following successful disposals
made during the year, the same individuals received aggregate profit distributions as set out above in respect of their
carried interest in partnerships through which the Group invests.
G10 Capital Ltd was appointed AIFM to manage the Company under an investment management agreement with
effect from 1st June 2017. G10 is a multi-asset investment manager platform and manages a number of different AIFs.
Electra remunerates G10 by way of a fixed monthly fee for providing full scope AIFM services, a further fixed monthly fee
for each subsidiary entity which requires manager and operator services and at agreed hourly rates for any other services
provided. The AIFM and its staff receive no remuneration through profit share, carried interest, co-investment or other
schemes related to Electra’s performance.
G10 has reviewed its remuneration policies and procedures to ensure incentives are aligned with the requirements of
AIFMD. It includes measures to avoid conflicts of interest such as providing staff with a fixed monthly salary and
determining discretionary payments by the performance of G10 as a whole and not linked to any one AIF in particular.
24 Basis of Accounting and Significant Accounting Policies
The Group Financial Statements for the year ended 30th September 2017 have been prepared in accordance with the
Companies Act 2006 and International Financial Reporting Standards (“IFRS”). IFRS comprises standards and interpretations
approved by the International Accounting Standards Board (“IASB”) and the IFRS Interpretations Committee (“IFRS IC”) as
adopted in the European Union as at 30th September 2017.
In order to reflect the activities of an investment trust company, supplementary information which analyses the
Consolidated Income Statement between items of a revenue and capital nature has been presented alongside the
Consolidated Income Statement. In analysing total income between capital and revenue returns, the Directors have
followed the guidance contained in the Statement of Recommended Practice for investment companies issued by the
Association of Investment Companies in November 2014 (the “SORP”).
The recommendations of the SORP which have been followed include:
■■ Realised and unrealised profits or losses arising on the revaluation or disposal of investments classified as held at fair
value through profit or loss should be shown in the capital column of the Consolidated Income Statement. Realised
gains are taken to the realised reserves in equity and unrealised gains are transferred to the unrealised reserves in equity
■■ Returns on any share or debt security (whether in respect of dividends, interest or otherwise) should be shown in the
revenue column of the Consolidated Income Statement. The total of the revenue column of the Consolidated Income
Statement is taken to the revenue reserve in equity
■■ The Board should determine whether the indirect costs of generating capital gains should also be shown in the capital
column of the Consolidated Income Statement. If the Board decides that this should be so, the management fee should
be allocated between revenue and capital in accordance with the Board’s expected long-term split of returns, and other
expenses should be charged to capital only to the extent that a clear connection with the maintenance or enhancement
of the value of investments can be demonstrated. The Board has decided that the Company should continue to charge
Priority Profit Share as revenue item for the year ended 30th September 2017
The separate Financial Statements of the Company have been prepared in accordance with Financial Reporting Standard
101 (FRS 101) and the Companies Act 2006. The Company has taken advantage of the exemption under section 408 of
the Companies Act 2006 and accordingly has not presented a separate Company Income Statement. In preparing these
Financial Statements, the Company applies recognition, measurement and disclosure requirements of FRS 101 and the
following exemptions have been applied:
■■ Cash Flow Statement and related notes
■■ Related party disclosures in respect of transactions with wholly owned subsidiaries
■■ The effects of new but not yet effective IFRSs
■■ IFRS 2 Share Based Payments in respect of Group settled share based payment schemes
Electra Private Equity PLC | Annual Report and Accounts 2017 57
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
24 Basis of Accounting and Significant Accounting Policies (continued)
The Financial Statements have been prepared on a going concern basis and under the historical cost basis of accounting,
modified to include the revaluation of certain assets at fair value, as disclosed in the Principles of Valuation of Investments.
Basis of Consolidation
The Consolidated Financial Statements include the Company and its subsidiary undertakings. Where subsidiaries are
acquired or sold during the year their results are included in the Consolidated Financial Statements from the date of
acquisition and up to the date of disposal respectively. 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.
The amendments to IFRS 10 and 12 define an investment entity and include an exception from the consolidation
requirements for investment entities.
The Company has been deemed to meet the definition of an investment entity per IFRS 10 as the following conditions exist:
■■ The Company has multiple unrelated investors which are not related parties, and holds multiple investments
■■ Ownership interests in the Company are exposed to variable returns from changes in the fair value of the Company’s
net assets
■■ The Company has obtained funds for the purpose of providing investors with investment management services
■■ The Company’s business purpose is investing solely for returns from capital appreciation and investment income
■■ The performance of investments is measured and evaluated on a fair value basis
Electra Private Equity PLC does not consolidate the portfolio companies it controls. The principal subsidiaries comprise
wholly owned companies and near wholly owned investment holding limited partnerships. They provide investment
related services through the provision of investment management or advice and hold investments in managed assets.
The primary purpose of these entities is to provide investment related services that relate to the Company’s investment
activities and therefore they are not considered to be investment entities. These subsidiaries continue to be consolidated.
Application of New Standards
The following new IFRSs have been issued by the IASB, effective for annual periods beginning on or after 1st January 2018.
The Group has not early adopted these standards for the year ended 30th September 2017, however full impact
assessments on IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers have been completed.
IFRS 9 Financial Instruments
Financial assets within the Group are measured either at fair value or amortised cost. Those measured at amortised cost are
held wholly for the purpose of collecting contractual cash flows and so will remain valued in this way. Therefore the new
requirements on initial recognition and subsequent measurement of financial assets under IFRS 9 are not expected to have
any impact on the Group.
There are currently no hedging arrangements in the Group. Therefore requirements on hedging and hedge accounting
under IFRS 9 is considered to be not applicable. Should hedging arrangements be put in place in future, the provisions of
IFRS 9 will be considered.
As at 30th September 2017, the Group held a loans and receivables balance of £1 million in total. The Group will implement
a 12-month expected credit loss model on adoption of IFRS 9. This is not expected to be materially different to the current
incurred credit loss model.
58 Electra Private Equity PLC | Annual Report and Accounts 2017
24 Basis of Accounting and Significant Accounting Policies (continued)
IFRS 15 Revenue from Contracts with Customers
The main revenue generating assets held by the Group are classified as financial assets within the scope of IAS 39 Financial
Instruments: Recognition and Measurement and will be within the scope of IFRS 9 Financial Instruments when it becomes
effective. On this basis, the Group’s main revenue stream will be outside the scope of IFRS 15. Sundry revenue generated by
the Group during 2017 amounted to less than £0.2million and is expected to stay at similar levels in future periods.
IFRS 16 Leases
An impact assessment of IFRS 16 is ongoing and the Group will publish the results of the assessment and details of
implementation in the Financial Statements for the year ending 30th September 2018. While there will be an impact of
implementing this standard, this is not expected to be material.
The following amended standards became effective for accounting period commencing on or after 1st January 2017
and will be adopted by the Group from 1st October 2017. No material impact is expected on the Consolidated Financial
Statements of the Group following the adoption.
■■ IFRS 2 (amendments) – Classification and Measurement of Share-based Payment Transactions
■■ IAS 7 (amendments) – Disclosure Initiative
■■ IAS 12 (amendments) – Recognition of Deferred Tax Assets for Unrealised Losses
■■ IFRS 10 and IAS 28 (amendments) – Sale or Contribution of Assets between an Investor and its Associate or
Joint Venture
Investments
Purchases and sales of listed investments are recognised on the trade date where a contract exists whose terms require
delivery within a time frame determined by the relevant market. Purchases and sales of unlisted investments are
recognised when the contract for acquisition or sale becomes unconditional. Investments are designated at fair value
through profit or loss (described in the Financial Statements as investments held at fair value) and are subsequently
measured at reporting dates at fair value. The fair value of direct unquoted investments is calculated in accordance with
the Principles of Valuation of Investments below.
Principles of Valuation of Investments
On 26th May 2016 the Company served notice of termination of the Management and Investment Guideline Agreement
on Epiris effective on 31st May 2017, and appointed G10 Capital Limited (“G10”) as its AIFM as at 1st June 2017.
(i) General
The Group estimates the fair value of each investment at the reporting date in accordance with IFRS 13 and the
International Private Equity and Venture Capital Valuation (“IPEV”) Guidelines.
Fair value is the price for which an asset could be exchanged between knowledgeable, willing parties in an arm’s length
transaction. In estimating fair value, the Manager applies a valuation technique which is appropriate in light of the nature,
facts and circumstances of the investment and uses reasonable current market data and inputs combined with judgement
and assumptions. Valuation techniques are applied consistently from one reporting date to another except where a change
in technique results in a better estimate of fair value.
The Group tests its valuation techniques using a tool known as “calibration”. This compares the inputs and assumptions used
in estimating fair value on the reporting date to those used on previous reporting dates and to those underlying the initial
entry price of an investment in order to ensure that the inputs and assumptions used on the reporting date are consistent
with those used previously.
Electra Private Equity PLC | Annual Report and Accounts 2017 59
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
24 Basis of Accounting and Significant Accounting Policies (continued)
In general, the Group will determine the enterprise value of the investee company in question using one of a range of
valuation techniques; adjust the enterprise value for factors that would normally be taken into account such as surplus
assets, excess liabilities or other contingencies or relevant factors; and apportion the resulting amount between the
investee company’s relevant financial instruments according to their ranking and taking into account the effect of any
instrument that may dilute the economic entitlement of a given instrument.
(ii) Unlisted Equity Investments
In respect of each unlisted investment the Group selects one or more of the following valuation techniques:
■■ A market approach, based on the price of the recent investment, earnings multiples or industry valuation benchmarks
■■ An income approach, employing a discounted cash flow technique
■■ A replacement cost approach valuing the net assets of the portfolio company
In assessing whether a methodology is appropriate the Group maximises the use of techniques that draw heavily on
observable market-based measures of risk and return.
Price of Recent Investment
Where the investment being valued was itself made recently, its cost may provide a good indication of fair value. Using the
Price of Recent Investment technique is not a default and at each reporting date the fair value of recent investments is
estimated to assess whether changes or events subsequent to the relevant transaction would imply a change in the
investment’s fair value.
Multiple
Typically the Group uses an earnings multiple technique. This involves the application of an appropriate and reasonable
multiple to the maintainable earnings of an investee company.
The Group usually derives a multiple by reference to current market-based multiples, reflected in the market valuations
of quoted comparable companies or the price at which comparable companies have changed ownership. Differences
between these market-based multiples and the investee company being valued are reflected by adjusting the multiple
for points of difference which might affect the risk and earnings growth prospects which underpin the earnings multiple.
Such points of difference might include the relative size and diversity of the entities, rate of earnings growth, reliance on
a small number of key employees, diversity of product ranges, diversity and quality of customer base, level of borrowing,
and any other reason the quality of earnings may differ.
In respect of maintainable earnings, the Group usually uses earnings for the most recent 12 month period adjusted if
necessary to represent a reasonable estimate of maintainable earnings. Such adjustments might include exceptional or
non-recurring items, the impact of discontinued activities and acquisitions, or forecast material changes in earnings.
In some circumstances the Group may apply a multiple to the net assets of a business, typically where the business’ value
derives mainly from the underlying fair value of its assets rather than its earnings, such as property holding companies.
Discounted Cash Flow
The Discounted Cash Flow technique involves deriving the value of a business or an investment by calculating the present
value of the estimated future cash flows from that business or investment using reasonable assumptions and estimations
of expected future cash flows, the terminal value or maturity amount and date, and the appropriate risk-adjusted rate that
captures the risk inherent to the business or investment. The Group usually uses the Discounted Cash Flow technique in
respect of certain debt investments or where the realisation of an investment is imminent with the pricing of the relevant
transaction being substantially agreed such that the technique is likely to be the most appropriate one.
60 Electra Private Equity PLC | Annual Report and Accounts 2017
24 Basis of Accounting and Significant Accounting Policies (continued)
(iii) Listed Investments
The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date.
A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry
group, pricing service or regulatory agency, and transactions for an asset take place with sufficient frequency and volume
to provide pricing information on an on-going basis. The quoted market price used for listed financial instruments held by
the Group is the bid price on the reporting date.
(iv) Fund Investments
In determining the fair value of investments in funds the NAV of the fund as reported by the manager is used as the
starting point. The Group may make adjustments to the reported NAV to reflect, for example, purchases and sales occurring
between the fund’s measurement date and the reporting date, or any other facts or circumstances which might impact the
fair value of the fund.
(v) Money Market
Liquidity funds are held at the current fair value of the note.
(vi) Subsidiary Undertakings
Investments in subsidiaries are stated in the Company Balance Sheet at the fair value of the subsidiary.
(vii) Accrued Income
Accrued income is included within investment valuations.
Cash and Cash Equivalents
Cash comprises cash at bank and short-term deposits with an original maturity of less than 3 months.
Foreign Currencies
The Group’s and Company’s presentational and functional currency is Pounds Sterling (“Sterling”), since that is the currency
of the primary economic environment in which the Group operates. Transactions in currencies other than Sterling are
recorded at the rates of exchange prevailing on the dates of the transactions. Foreign currency assets and liabilities are
translated into the functional currencies of the Group’s respective entities at rates prevailing at the balance sheet date.
Foreign currency revenue and expenses are translated into the functional currencies of the Group’s respective entities at
the month end rate for the period the transaction occurred. Exchange differences arising are recognised through the
Consolidated Income Statement. At each balance sheet date assets and liabilities of foreign operations are translated into
sterling at the rates prevailing on the balance sheet date. Foreign exchange differences arising on retranslation of the
equity and reserves of subsidiaries with functional currencies other than sterling, are recognised directly in the Translation
Reserve in equity. Foreign exchange differences arising on the retranslation of non-monetary items carried at fair value are
included in the Consolidated Income Statement for the year.
Investment Income
Dividends receivable from equity shares are accounted on the ex-dividend date or, where no ex-dividend date is quoted,
are accounted when the Group’s right to receive payment is established. Fixed returns on non-equity shares and debt
securities are recognised on a time apportionment basis so as to reflect the effective yield when it is probable that
economic benefit will flow to the Group. Where income accruals previously recognised, but not received, are no longer
considered to be reasonably expected to be received, either through investee company restructuring or doubt over its
receipt, then these amounts are reversed through expenses.
Income distributions from limited partnership funds are recognised when the right to distribution is established.
Other income
Interest income received from money market funds are accounted for as the interest is accrued on an effective interest
rate basis.
Electra Private Equity PLC | Annual Report and Accounts 2017 61
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24 Basis of Accounting and Significant Accounting Policies (continued)
Expenses
Expenses are charged through the revenue column of the Consolidated Income Statement.
Exceptional Expenses
Exceptional expenses are those items that are material either because of their size or their nature and are presented within
their relevant Consolidated Income Statement category, disclosed separately in the Notes to the Financial Statements.
Lease Expense
Payments made under operating leases are recognised in the Consolidated Income Statement on a straight-line basis over
the term of the lease. Lease incentives received are recognised in the Consolidated Income Statements as an integral part
of the total lease expense and are therefore also recognised on a straight-line basis over the term of the lease.
Defined Contribution Plan
The Group operates a defined contribution pension plan under which the Group pays fixed contributions. Pension
contributions are recognised as expenses in the Consolidated Income Statement, as incurred.
Finance Costs
Costs of borrowings are expensed as revenue items through the Consolidated Income Statement as they accrue on an
effective interest rate basis. Any costs incurred which were not directly related to the borrowing facility are expensed in
the revenue account.
Priority Profit Share
The majority of the investments are made by the Group and Company through investment holding limited partnerships.
Under the terms of the relevant limited partnership agreements the general partner is entitled to appropriate, as a first
charge on the net income or net capital gains of the limited partnerships, an amount equivalent to its Priority Profit Share.
In years in which the investment holding limited partnerships have not yet earned sufficient net income or net capital gain
to satisfy this Priority Profit Share the entitlement is carried forward to the following year. In all instances, the cash amount
paid to the general partner in each year is equivalent to the Priority Profit Share.
The Priority Profit Share is charged wholly to the revenue column of the Consolidated Income Statement.
Taxation
The tax effect of different items of income/gain and expense/loss is allocated between capital and revenue on the same
basis as the particular item to which it relates, using the Company’s effective rate of tax for the accounting year.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit before tax as reported in
the Consolidated 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.
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 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. Deferred tax is not recognised if the temporary difference
arises from the initial recognition of assets and liabilities in a transaction that affects neither the taxable profit nor the
accounting profit.
62 Electra Private Equity PLC | Annual Report and Accounts 2017
24 Basis of Accounting and Significant Accounting Policies (continued)
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates
except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences
associated with such investments and interests are only recognised to the extent that it is probable that there will be
sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse
in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the year 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 year, 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.
Zero Dividend Preference Shares
Zero Dividend Preference Shares which exhibit the characteristics of debt were recognised as liabilities in the Consolidated
Balance Sheet in accordance with IAS 32. After initial recognition, these liabilities were measured at amortised cost, which
represented the initial net proceeds from the issuance after issue costs plus the accrued entitlement to the balance sheet date.
The accrued entitlement was calculated as the difference between the proceeds on the issue of these shares and the
redemption amount at maturity and was charged as interest expense over the life of these shares using the effective
interest method. In accordance with the Association of Investment Companies (“AIC”) Statement of Recommended Practice
(“SORP”) this interest expense was allocated to the capital column of the Consolidated Income Statement.
Convertible Bonds
The Bond, in accordance with IFRS, was treated as a compound financial instrument that contained both a liability and an
equity component. The economic effect of issuing the instrument was substantially the same as issuing both a debt
instrument with an obligation to make payment of interest and principal (assuming it was not converted) and an equity
instrument (a written call option granting the holder the right for a specified period of time to convert into a fixed number
of ordinary shares). The proceeds from issuing Convertible Bonds were split on Electra’s Consolidated Balance Sheet into its
constituent parts of debt and equity in accordance with the requirement of IFRS.
Finance costs were taken to the Consolidated Income Statement and were calculated as the yield to maturity of the fair value
of the debt component of the Bond. On conversion, the value of the Bonds converted was debited to long-term liabilities.
The nominal value of the ordinary shares issued on conversion was credited to share capital and the balance representing the
excess of conversion proceeds over nominal value of the shares was credited to the share premium account. On conversion,
the fair value of the equity element was credited to the revenue reserve and debited to other reserves.
Electra Private Equity PLC | Annual Report and Accounts 2017 63
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
24 Basis of Accounting and Significant Accounting Policies (continued)
Provisions
Provisions are recognised when the Group has a present obligation of uncertain timing or amount as a result of past events
and it is probable that the Group will be required to settle that obligation and a reliable estimate of that obligation can be
made. The provisions are measured at the Directors’ best estimate of the amount to settle the obligation at the balance
sheet date. Changes in provisions are recognised in the Consolidated Income Statement.
The provision for the incentive schemes is based on the valuation of investments as at the balance sheet date. The incentive
scheme is charged to the capital column of the Consolidated Income Statement as a direct cost.
Revenue and Capital Reserves
Net Capital return is added to the Capital Reserve in the Consolidated Statement of Changes in Equity, while the net
revenue return is added to the Revenue Reserve.
Receivables and Payables
Receivables and payables are typically settled in a short time frame and are carried at the amount due to be settled.
As a result, the fair value of these balances is considered to be materially equal to the carrying value, after taking into
account potential impairment losses.
Share Capital
Ordinary shares issued by the Group are recognised at the proceeds or fair value received with the excess of the amount
received over nominal value being credited to the share premium account. Direct issue costs net of tax are deducted
from equity.
Share Based Payments
Some employees have been granted nil value options in the Company. In the Consolidated Financial Statements the fair
value of the shares acquired is recognised as an employee expense with corresponding increase in equity in accordance
with IFRS 2. The fair value is measured at grant date and spread over the period during which the employee becomes
unconditionally entitled to the fair value of the shares. Where vesting is conditional upon a market condition being met,
the scheme is treated as vesting irrespective of market conditions being met, provided that all other performance and/or
service conditions are satisfied.
Going Concern
The Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Financial
Statements.
Critical Accounting Judgements and Key Sources of Estimation Uncertainty
Critical accounting judgements and key sources of estimation uncertainty used in preparing the financial information
are continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable. The resulting judgements and estimates will, by definition, seldom equal the
related actual results.
In the course of preparing the Financial Statements, no judgements have been made in the process of applying the Group’s
accounting policies, other than those involving estimations that have had a significant effect on the amounts recognised in
the Financial Statements.
64 Electra Private Equity PLC | Annual Report and Accounts 2017
24 Basis of Accounting and Significant Accounting Policies (continued)
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources of estimation uncertainty in the reporting year, that may
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year, are discussed below. Sensitivity analysis on key sources of estimation has been disclosed in Note 19.
Fair value measurements and valuation processes
Unquoted assets are measured at fair value in accordance with IFRS 13 and the IPEV Guidelines for financial reporting
purposes. Judgement is required in order to determine the appropriate valuation methodology and subsequently in
determining the inputs into the valuation model used. These judgements include making assessments of the future
earnings potential of portfolio companies, appropriate earnings multiples to apply, and adjustments to comparable
multiples. The Board of Directors of the Company has set up a Valuations Committee, which is chaired by a Non-Executive
Director, to determine the appropriate valuation techniques and inputs for fair value measurements.
In estimating the fair value of an asset, the Group uses market-observable data to the extent it is available. Where Level 1
inputs are not available, the Group uses internal experts to perform the valuation. The Valuations Committee works closely
with the internal expert and G10 Capital Limited to establish the appropriate valuation techniques and inputs to the model.
The Chairman of the Valuations Committee reports its findings to the Board of Directors of the Group every 6 months to
explain the cause of fluctuations in the fair value of the assets and liabilities.
Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities
are disclosed on pages 59 to 61.
Electra Private Equity PLC | Annual Report and Accounts 2017 65
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Independent Auditor’s Report to the Members of
Electra Private Equity PLC
Report on the audit of the financial statements
Opinion
In our opinion:
■■ The Financial Statements give a true and fair view of the state of the Group’s and of the Company’s affairs as at
30th September 2017 and of the Group’s profit for the year then ended
■■ The Group Financial Statements have been properly prepared in accordance with International Financial Reporting
Standards (“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 including Financial Reporting Standard 101 “Reduced Disclosure Framework” and
■■ The Financial Statements have been prepared in accordance with the requirements of the Companies Act 2006 and,
as regards the Group Financial Statements, Article 4 of the IAS Regulation
We have audited the Financial Statements of Electra Private Equity PLC (the ‘Company’) and its subsidiaries (together the
‘Group’) which comprise:
■■ The Consolidated Income Statement
■■ The Consolidated Statement of Comprehensive Income
■■ The Consolidated and Company Statements of Changes in Equity
■■ The Consolidated and Company Balance Sheets
■■ The Consolidated Cash Flow Statement
■■ The related Notes 1 to 24
The financial reporting framework that has been applied in the preparation of the Group Financial Statements is applicable
law and IFRSs as adopted by the European Union. The financial reporting framework that has been applied in the
preparation of the Company Financial Statements is applicable law and United Kingdom Accounting Standards, including
FRS 101 “Reduced Disclosure Framework”.
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 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 public interest
entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that
the non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
66 Electra Private Equity PLC | Annual Report and Accounts 2017
Summary of our audit approach
Key audit matters
The key audit matters that we identified in the current year were:
Materiality
Scoping
■■ Valuation of unquoted investments
■■ Accuracy and occurrence of realised gains on disposal
■■ Accuracy, cut off and occurrence of incentive scheme expense and provisions
o
Within this report, any new key audit matters are identified with and any key
g
audit matters which are the same as the prior year identified with .
The materiality that we used in the current year was £7.6 million which was
determined on the basis of 1% of NAV.
Our Group audit was scoped by obtaining an understanding of the Group and its
environment, including Group-wide controls, and assessing risks of material
misstatement at the Group and subsidiary level.
Our Group audit scope included the audit of the Company and Electra Investments
Limited, an investment holding company that is 100% owned by Electra Private
Equity PLC. These were both subject to a full scope audit for the year ended
30th September 2017.
Significant changes in our
approach
This is the first year that the audit has been performed by Deloitte LLP for Electra
Private Equity PLC and its subsidiaries.
Through our risk assessment we identified that the key audit matters discussed
below are consistent with the previous auditor’s key areas of focus, except for the key
audit matter titled: Accuracy and occurrence of realised gains on disposal.
Conclusions relating to principal risks, going concern and viability statement
We have reviewed the Directors’ statement regarding the appropriateness of the going concern basis of accounting
contained within Note 24 to the Financial Statements and the report of the Directors on the longer-term viability of
the Group contained within the Strategic Report, on page 9.
We are required to state whether we have anything material to add or draw attention to in relation to:
■■ The disclosures on pages 6 to 8 that describe the principal risks and explain how they are
being managed or mitigated
■■ The Directors’ confirmation on page 6 that they have carried out a robust assessment
of the principal risks facing the Group, including those that would threaten its business
model, future performance, solvency or liquidity
■■ The Directors’ statement in Note 24 to the Financial Statements about whether they
considered it appropriate to adopt the going concern basis of accounting in preparing
them and their identification of any material uncertainties to the Group and the parent
company’s ability to continue to do so over a period of at least 12 months from the date
of approval of the Financial Statements
■■ The Directors’ explanation on page 9 as to how they have assessed the prospects of
the Group, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its liabilities as they fall due
over the period of their assessment, including any related disclosures drawing attention
to any necessary qualifications or assumptions; or
■■ Whether the Directors’ statements relating to going concern and the prospects of the
Company required in accordance with Listing Rule 9.8.6R(3) are materially inconsistent
with our knowledge obtained in the audit.
We confirm that we have
nothing material to add
or draw attention to in
respect of these matters.
We agreed with the
Directors’ adoption of the
going concern basis of
accounting and we did
not identify any such
material uncertainties.
However, because
not all future events or
conditions can be
predicted, this statement
is not a guarantee as to
the Group’s ability to
continue as a going
concern.
Electra Private Equity PLC | Annual Report and Accounts 2017 67
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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 which 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.
Valuation of unquoted investments
g
Key audit matter
description
The valuation of unquoted investments of £321 million (2016: £1,696 million) held by the
Group involves the use of a significant degree of judgement in estimating fair value and
applying the International Private Equity and Venture Capital Valuation (“IPEV”) guidelines,
including the judgement required in deciding on the valuation method. We have therefore
identified a potential risk of fraud in this key audit matter.
The valuation method used included an earnings multiple approach where an appropriate
and reasonable multiple is applied to earnings. It is often calculated by taking a discount to
the multiple of comparable, listed companies. The discount reflects points of difference
between the listed companies and the Company being valued. Such points of difference
discounts could reflect differences in size, geographical footprint or end markets, for
instance.
Key inputs to the valuation include the selection of comparable listed companies, the
maintainable earnings of the Company and the discounts applied to take account of points
of difference to the multiples of the comparable listed companies.
Determining both the valuation methodologies to be used and the key inputs to the
valuations are subjective judgements, and this along with the significance of the unquoted
investments to the balance sheet of the Group made this a key area of focus for our audit.
See pages 64 and 65 to the Financial Statements for the Directors’ disclosures of the related
accounting policies, judgements and estimates and the financial instruments Note 19 on
pages 45 to 47 for further information.
■■ We evaluated the design and implementation of key controls around the valuation of
unquoted investments at both Epiris Managers LLP (the previous investment manager)
in respect of the period up to 31st May 2017 and the Group for the period 1st June to
30th September 2017. The relevant control identified is the valuation committee
approval which includes a three stage review process with subsequent sign off and is
performed twice a year.
■■ We tested the valuations of the unquoted investments by critically assessing the
methodology applied and the reasonableness of the underlying assumptions and
judgements. We evaluated significant inputs to the valuations and agreed these to
supporting documentation such as earnings, revenue and capital structure information
provided by the underlying businesses, and the market multiples, comparable
companies and points of difference used by the Company in the valuations, analysing
year on year movements and testing their arithmetical accuracy.
How the scope of our
audit responded to
the key audit matter
68 Electra Private Equity PLC | Annual Report and Accounts 2017
How the scope of our
audit responded to the
key audit matter
continued
■■ Five of these unquoted investments were valued by applying a discounted multiple to
maintainable earnings and as such the key assumptions influencing the valuations are:
1. The basket of comparable listed companies selected. We examined management’s
choice of comparables and assessed them for reasonableness. In addition, we tested the
completeness of the basket by compiling an alternative list of potential comparable
companies and challenged management’s rationale for not including these.
2. We challenged management’s rationale for the points of difference discounts applied to
the multiple and assessed the discounts for reasonableness.
3. The earnings amounts to which the multiple is applied to arrive at the enterprise value
has been analysed for indications of bias and potential adjustable items that are not
considered maintainable in the future.
■■ We reviewed whether the valuations were carried out in accordance with the
IPEV guidelines.
Key observations
Based on the audit work performed no material misstatements or significant deficiencies
have been identified.
Accuracy and occurrence of realised gains on disposal
o
Key audit matter
description
Realised gains of £193 million (2016: £665 million) have been recognised in relation to
disposals of investments during the year.
There is a risk that the realised gains on disposal are not accurately recorded. We consider
this to be a key audit matter because these balances are used to calculate the investment
returns that have been made by the Group.
In addition, there is the theoretical incentive for management to overstate these balances
in order to improve the calculated investment returns.
See page 45 to 47 of the Financial Statements for the Directors’ disclosures of the related
accounting policies, judgements and estimates and the investments held at fair value
Note 13 on page 36 for further information.
■■ We assessed the design and implementation of the key controls over recognition of
realised gains on disposal and any allocation between the revenue and capital columns
in the Financial Statements.
■■ We tested 99% of the gains on disposal by agreeing the proceeds receivable on disposal
of investments to supporting documentation such as sale agreements and bank
statements and we recalculated the gain on disposal based on the carrying value of the
investment as at the date of disposal.
How the scope of our
audit responded to the
key audit matter
Key observations
Based on the audit work performed no material misstatements or significant deficiencies
have been identified.
Electra Private Equity PLC | Annual Report and Accounts 2017 69
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Accuracy and occurrence of incentive scheme expense and provisions
g
Key audit matter
description
Incentive scheme provisions comprise amounts payable to certain members of Epiris
Managers LLP by way of remuneration for investment management services provided.
They are recorded in the Financial Statements as follow:
■■ Carried interest – charge to the income statement for the year £26 million
(2016: £122 million), provision as at the year end £29 million (2016: £243 million); and
■■ Priority Profit Share (“PPS”) – charge to the income statement for the year £23 million
(2016: £29 million), provision as at year end £nil (2016: £nil).
The incentive scheme provisions are calculated based on:
■■ The gross value of investments held by the Group; and
■■ Total investment returns including realised gains on disposal and investment income.
In some instances, the percentages are variable based on when certain returns are
achieved. In addition, the amounts to be provided for these schemes rely, in part, on the
valuation of unlisted investments which is inherently judgemental.
As a result there is an increased risk of error in the calculation of the provision for incentive
scheme costs. The risk is also increased by the fact that the calculations are performed ‘in
house’ and also by the fact that the investment management and finance functions
transferred to Electra Private Equity from 1st June 2017.
See pages 62 to 64 of the Financial Statements for the Directors’ disclosures of the related
accounting policies and Note 23 for further information.
We have recalculated 100% of carried interest and priority profit share expense and accruals
(together “incentive schemes”) by performing the following tests:
■■ Assessed the design and implementation of key controls over the calculation of
incentive scheme costs and provisions.
■■ Recalculated the amounts due to Epiris and its representatives using the methodology
and fee rates set out in the underlying agreements.
■■ Agreed the key inputs to the calculations relating to gains on investments to our audit
work in relation to the disposal of and valuation of investments (both discussed above).
■■ Agreed the payments made under incentive schemes to bank statements.
How the scope of our
audit responded to the
key audit matter
Key observations
Based on the audit work performed no material misstatements or significant deficiencies
have been identified.
70 Electra Private Equity PLC | Annual Report and Accounts 2017
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 both
in planning the scope of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
Group materiality
£7.6 million (2016: £36 million)
Basis for determining
materiality
1% of NAV
The prior year materiality of £36 million was determined by the previous auditor on the
basis of 1.75% of NAV.
The Group materiality figure has reduced significantly in the current year due to the significant
reduction in the investments held by the Group as at year end following the return of capital
to Shareholders in the period. A benchmark percentage of 1% of NAV is standard for the audits
of investment trusts and is in line with Deloitte LLP methodology.
We used NAV as the basis for our materiality calculation because we consider that the net
asset position is a key consideration in the evaluation of the Group’s performance because
it is significantly impacted by the valuation of investments. In addition, the NAV is a
generally accepted benchmark used for the calculation of materiality by the auditors of
investment companies.
Group materiality £7.6m
EIL materiality £5.78m
Audit and Risk
Committee reporting
threshold £0.38m
Rationale for the
benchmark applied
Materiality
NAV £758m
NAV
Group materiality
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of
£0.38 million (2016 predecessor auditor: £1.8 million), as well as differences below that threshold that, in our view,
warranted reporting on qualitative grounds. This threshold is calculated at 5% of materiality by both Deloitte LLP and the
predecessor auditor, and therefore the decrease is a result of the reduction of materiality as noted above. We also report to
the Audit and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the
Financial Statements.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including Group-wide
controls, and assessing the risks of material misstatement at the Group level.
Our Group audit scope included the audit of the Company and Electra Investments Limited, an investment holding Company
that is 100% owned by Electra Private Equity PLC. These were both subject to a full scope audit for the year ended 30th
September 2017. Electra Investments Limited also requires an audit of its own statutory financial statements, which was
performed at the same time as the audit of the Group, and this was performed at a local materiality level of £5.78 million.
The audit work we have carried out includes the review of the Limited Partnerships and the audit of Electra Investments
Limited, along with our work auditing the consolidation, provided sufficient audit evidence for our opinion on the Group
Financial Statements as a whole.
Electra Private Equity PLC | Annual Report and Accounts 2017 71
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
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.
We have nothing
to report in respect
of these matters.
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.
In this context, matters that we are specifically required to report to you as uncorrected material
misstatements of the other information include where we conclude that:
■■ Fair, balanced and understandable – the statement given by the Directors that they consider the
Annual Report and Financial Statements taken as a whole is fair, balanced and understandable
and provides the information necessary for shareholders to assess the Group’s performance,
business model and strategy, is materially inconsistent with our knowledge obtained in the audit
or
■■ Audit and Risk Committee reporting – the section describing the work of the Audit and Risk
Committee does not appropriately address matters communicated by us to the Audit and Risk
Committee or
■■ Directors’ statement of compliance with the UK Corporate Governance Code – the parts of the
Directors’ statement required under the Listing Rules relating to the Company’s compliance with the
UK Corporate Governance Code containing provisions specified for review by the auditor in
accordance with Listing Rule 9.8.10R(2) do not properly disclose a departure from a relevant provision
of the UK Corporate Governance Code
Responsibilities of Directors
As explained more fully in the Statement of Directors’ Responsibilities 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 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 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.
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.
72 Electra Private Equity PLC | Annual Report and Accounts 2017
Use of our report
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.
Report on other legal and regulatory requirements
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with
the Companies Act 2006.
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
In the light of the knowledge and understanding of the Group and the Company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the Strategic Report or the Directors’ Report.
Matters on which we are required to report by exception
Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:
■■ We have not received all the information and explanations we require for our audit or
■■ Adequate accounting records have not been kept by the Company, or returns adequate for
our audit have not been received from branches not visited by us or
■■ The Company Financial Statements are not in agreement with the accounting records
and returns
We have nothing to
report in respect of
these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures
of Directors’ remuneration have not been made or the part of the Directors’ Remuneration Report
to be audited is not in agreement with the accounting records and returns.
We have nothing to
report in respect of
these matters.
Other matters
Auditor tenure
Following the recommendation of the Audit and Risk Committee, we were appointed by Audit and Risk Committee on
22nd January 2017 to audit the Financial Statements for the Group and Electra Investments Limited for the year ending
30th September 2017 and subsequent financial periods. The period of total uninterrupted engagement including previous
renewals and reappointments of the firm is 1 year, being the year from 1st October 2016 to 30th September 2017.
Consistency of the audit report with the additional report to the Audit and Risk Committee
Our audit opinion is consistent with the additional report to the Audit and Risk Committee we are required to provide
in accordance with ISAs (UK).
David Barnes (Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
6th December 2017
Electra Private Equity PLC | Annual Report and Accounts 2017 73
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Sentinel Performance Solutions
Improving the performance and efficiency of
residential heating and hot water systems
Objective and Investment Policy
Electra has been quoted on the London Stock Exchange since 1976. Electra is managed as an HM Revenue and Customs
approved investment trust and invests primarily in the private equity mid-market.
Electra’s objective is to achieve a rate of return on equity of between 10-15% per year over the long-term by investing in a
portfolio of private equity assets.
The investment focus is principally on Western Europe, with the majority of investments made in the United Kingdom.
The Company attempts to mitigate risk through portfolio diversification. Investments will therefore be made across a broad
range of sectors and industries. At the time of investment, not more than 15% of Electra’s total assets will typically be invested
in any single investment. If Electra acquires a portfolio of companies in a single transaction, this limitation shall be applied
individually to each of the underlying companies purchased and not to the portfolio as a whole.
Electra has a policy to maintain total gearing below 40% of its total assets.
Electra has a policy to return to shareholders a targeted 3% of NAV per annum, by way of cash dividend or share buybacks.
Any shares bought back under this policy will be cancelled.
Electra Private Equity PLC | Annual Report and Accounts 2017 75
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Directors’ Report
To the Members of Electra Private Equity PLC
The Directors present the audited Financial Statements of the Group for the year ended 30th September 2017 and their Report
on its affairs.
In accordance with the requirement for the Directors to prepare a Strategic Report and an enhanced Directors’ Remuneration
Report for the year ended 30th September 2017, the following information is set out in the Strategic Report on pages
5 to 10: a review of the business of the Company including details about its objective, strategy and business model, future
developments, details of the principal risks and uncertainties associated with the Company’s activities (including the
Company’s financial risk management objectives and policies), information regarding community, social, employee, human
rights and environmental issues and the Company’s policy regarding Board diversity. Information about Directors’ interests in
the Company’s ordinary shares is included within the Annual Report in the Remuneration section of the Directors’
Remuneration Report on pages 89 to 103.
Results and Dividends
A revenue profit attributable to shareholders of £7,281,438 (2016: profit of £5,154,998) was transferred to Revenue Reserves.
A second Interim Dividend of 110p per ordinary share in respect of the year ended 30th September 2016 (2015: nil), making
a total payment for the year ended 30th September 2016 of 154p per ordinary share (2015: 116p), was paid on 19th January
2017 to shareholders on the Register of Members at the close of business on 16th December 2016.
Three Special Dividends of 2,612p, 914p and 914p were paid on 5th May 2017, 14th July 2017 and 1st December 2017
respectively to shareholders on the Register of Members at the close of business on 7th April 2017, 9th June 2017 and
3rd November 2017 respectively. The 914p dividend paid on 1st December 2017 was declared post year end.
Given the high level of special dividends the Directors do not intend to declare a final dividend in respect of the year ended
30th September 2017.
Management Arrangements
Since 1st June 2017, the Company has been managed by an internal team of employees, led by Edward Bramson, the CEO,
and Gavin Manson, the CFO. G10 Capital Limited was appointed as the AIFM on 1st June 2017.
Under the terms of the Management Agreement with the Company, the AIFM is entitled to a fee of £20,000 per month for full
scope AIFM services to the Company, and a further £750 per month for management and operator’s services to investment
holding subsidiaries of the Company.
The terms of the Management Agreement between the Company and the AIFM are that the agreement may be terminated
by the Company giving 30 days’ notice to expire on the final date of any calendar quarter (being 31st March, 30th June,
30th September and 31st December in any year) and by the AIFM giving notice of not less than 6 months.
Epiris was previously appointed as the Manager of the Company under an agreement dated 12th October 2006 and amended
on 11th July 2014 to facilitate compliance with AIFMD regulations and as further amended to facilitate Electra’s review of its
capital structure, distribution policy and fee arrangements with Epiris on 10th February 2015 (Management and Investment
Guideline Agreement “MIG”). The agreement was terminated with effect from 31st May 2017 as explained below.
On 26th May 2016, the Board announced an interim update on the review of the Company’s investment strategy and policy
and its structure, which had been announced on 25th January 2016 with the objective of maximising long-term shareholder
value (the “Review”). As part of this, the Board announced that, in order to provide the Board with the flexibility to put in place
any potential changes as an outcome of the Review without any undue delay, it had served notice of termination of the MIG
and the related limited partnership agreement under which management of the Company’s operations and investments was
wholly outsourced to Epiris. The Board stated that it continued to explore a range of options including retaining the services of
Epiris as investment manager under a mutually acceptable agreement. The MIG provided for a notice period of 12 months (the
“Notice Period”) during which time Epiris continued to provide the same administrative and investment management services
as previously, although there were some constraints on the rate of new investments.
76 Electra Private Equity PLC | Annual Report and Accounts 2017
On 14th October 2016, the Board announced that termination of the contracts with Epiris would become effective on
31st May 2017 and that the Board would return control of all executive and investment functions to the Board with a future
migration to a corporate structure and related consolidated financial reporting.
Under the MIG, Epiris received a management fee equal to 1.5% per annum on the gross value of Electra’s investment portfolio,
except that there was no management fee payable on cash and the management fee on Non-Core Listed and Primary Fund
Investments was 1% per annum. In addition, members of Epiris received a carried interest of 18% of net profits on Direct
Investments and 9% on Primary Fund Investments, subject to Electra receiving a return of 8% per annum on the relevant
investment pool. Details of the carried interest and co-investment schemes for executives of Epiris are contained in Note 23
of the Financial Statements.
The terms of the agreement with Epiris were that the agreement could be terminated by either party giving notice of not less
than 12 months. Since the Company gave notice to terminate the MIG, Epiris was entitled to receive additional compensation
equivalent to 12 months’ priority profit share (determined by reference to the previous 12 months’ priority profit share).
As part of the Board Review which was announced in February 2015, it was agreed that by way of a transitional arrangement,
on 12 months’ notice being given up to and including 31st May 2017, compensation payable to Epiris under the termination
provisions would be calculated on the basis of the fee structure existing prior to 1st April 2015. These arrangements applied
up to the date of termination at 31st May 2017.
During the year, the Company continued to operate carried interest and co-investment schemes for executives of Epiris and
details of these schemes are contained in Note 23 of the Financial Statements.
Epiris was also responsible for the investment management of a number of limited partnership funds to which the Company
subscribed. Epiris managed the Company’s investments in accordance with guidelines determined by the Directors and as
specified in limited partnerships and the management and investment guideline agreements.
Share Capital
At 30th September 2017, there were 38,282,763 (2016: 40,270,531) ordinary shares of 25 pence each in issue. The shares are in
registered form.
On 8th November 2016, the Company announced its intention to return up to £200 million of capital to shareholders by way
of a tender offer, subject to shareholder approval to be sought at a General Meeting on 2nd December 2016. A circular was
sent to shareholders in November 2016 with full details of the tender offer and the General Meeting. The proposal was
approved by shareholders at the General Meeting on 2nd December 2016 and 1,987,768 ordinary shares were bought back
and cancelled on 28th December 2016.
During the year, the Company did not purchase any shares for cancellation, other than the shares bought back under the
tender offer referred to above.
Directors
The current Directors of the Company are listed on pages 108 and 109.
Neil Johnson, Edward Bramson, Ian Brindle, Paul Goodson, David Lis and Roger Perkin served as Directors throughout the year
ended 30th September 2017.
Linda Wilding was appointed as a Non-Executive Director of the Company with effect from 1st December 2016 and John
McAdam was appointed as a Non-Executive Director and the Senior Independent Director with effect from 1st January 2017.
Gavin Manson, who was appointed as Chief Financial Officer on 8th August 2016, was appointed as a Director of the Company
at the Annual General Meeting (“AGM”) on 23rd March 2017.
No other person was a Director of the Company during any part of the year to signing on 6th December 2017.
All of the Directors intend to retire at the AGM in 2018 and, being eligible, offer themselves for election or re-election
as appropriate.
Electra Private Equity PLC | Annual Report and Accounts 2017 77
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Directors’ Conflicts of Interest
Directors report on actual or potential conflicts of interest at each Board meeting. The Board has agreed that the Nominations
Committee is responsible for considering and reviewing conflicts of interest. Any Director or Directors with a potential conflict
would be excluded from such a review. After consideration, if required, the Nominations Committee would subsequently
make a recommendation to the Board of Directors.
Directors’ Indemnity
Directors’ and Officers’ qualifying third party liability insurance has been put in place. In addition, the Company provides,
subject to the provisions of applicable UK legislation, an indemnity for Directors in respect of costs incurred in the defence of
any proceedings brought against them and also liabilities owed to third parties, in either case arising out of their positions as
Directors. This was in place throughout the financial year under review, up to and including the date of the Financial
Statements.
Substantial Interests
At 30th September 2017, the Company had received the following notifications of interests of 3% or more in the voting rights
attached to the Company’s ordinary shares:
Sherborne Investors Management (Guernsey) LLP
and its associates
Prudential PLC Group of Companies
Fidelity International
Witan Investment Trust plc
Voting Rights Notified
Indirect No.
Direct No.
Percentage of Voting Rights*
Indirect %
Direct %
–
–
–
1,566,733
11,446,086
3,628,754
1,970,041
–
–
–
–
4.09
29.90
9.47
5.15
–
* Percentage shown as a percentage of 38,282,763 ordinary shares, being the number of shares in issue at 30th September 2017 and
6th December 2017.
As at 6th December 2017, the latest practicable date before the publication of this Directors’ Report, the following notifications
had been received.
Prudential PLC Group of Companies now holds 3,830,188 ordinary shares (10.00%) and 1,000 ordinary shares through a
financial instrument.
Witan Investment Trust plc now holds 1,928,429 ordinary shares (5.04%).
Global Greenhouse Gas Emissions for the Year Ended 30th September 2017
At the date of this report, Electra has a staff of 11 individuals, operating from small office premises. Accordingly, it does not
have any significant greenhouse gas emissions to report from the operations of the Company, nor does it have responsibility
for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors’ Reports)
Regulations 2013, including those within its underlying investment portfolio.
Statement of Disclosure of Information to Auditors
Each of the Directors confirms that so far as they are aware, there is no relevant audit information of which the Company’s
Auditors are unaware and they have taken all steps they ought to have taken to make themselves aware of any relevant audit
information and to establish that the Company’s Auditors are aware of that information.
Independent Auditors
As reported in the Report of the Audit and Risk Committee in the Annual Report for the year ended 30th September 2016,
the Company put the audit contract out to tender during 2016 and, on the recommendation of the Audit and Risk Committee,
the Board agreed to appoint Deloitte LLP as auditors of the Company with effect from the audit of the Company’s Financial
Statements for the year ended 30th September 2017. The appointment was approved by the members at the AGM held on
23rd March 2017.
Resolutions to reappoint Deloitte LLP as the Company’s Auditor and authorising the Directors to determine the remuneration
of the Auditors will be proposed at the AGM to be held on 1st March 2018.
78 Electra Private Equity PLC | Annual Report and Accounts 2017
Going Concern
The Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Financial Statements.
The Viability Statement of the Company is in the Strategic Report on page 9.
Risk Management and Internal Controls
Details of the Company’s risk management and internal control arrangements, including the Board’s annual review of the
effectiveness of the system of the Company’s risk management and internal control arrangements are contained in the
Corporate Governance Statement below.
Annual General Meeting
The AGM will be held on Thursday 1st March 2018 at 2.00pm. The formal notice of the AGM is set out in a separate circular,
which will be posted to shareholders with the Report and Financial Statements for the year ended 30th September 2017.
Authority to Purchase Own Shares
As at 30th September 2017, the Company had authority to purchase for cancellation up to 5,738,586 shares. This authority will
lapse at the 2018 AGM.
It is intended that a special resolution will be proposed to renew the Board’s authority to purchase its own shares, so as to
permit the purchase of up to 5,738,586 of the Company’s ordinary shares (or such other number of shares as is equal to 14.99%
of the total number of ordinary shares in issue at the date of the passing of the resolution) subject to the constraints set out in
the special resolution. The Directors would intend to use this authority to purchase shares only if this would result in an
increase in NAV per share and would be in the best interests of shareholders generally. Should any shares be purchased under
this authority, it is the intention of the Board that such shares be cancelled.
The Directors believe that the renewal of the Board’s authority to purchase shares, as detailed above, is in the best interests of
shareholders as a whole and therefore recommend shareholders to vote in favour of this resolution.
Listing Rule 9.8.4
Listing Rule 9.8.4 requires the Company to include certain information in a single identifiable section of the Annual Report and
Accounts or a cross reference table indicating where the information is set out. The following disclosures are made in
accordance with this requirement:
(i) details of the Company’s proposed Long-Term Incentive Plan are set out in the Directors’ Remuneration Report on pages
89 to 103.
(ii) details of Directors’ fees waived by Mr Bramson are set out in the Remuneration Policy on pages 89 to 103.
The Directors confirm that there are no further disclosures to be made in this regard.
Additional Information for Shareholders
Set out below is a summary of certain provisions of the Company’s current Articles of Association (the “Articles”) and applicable
English law concerning companies (the Companies Act 2006 (“Companies Act”)). This is a summary only and the relevant
provisions of the Articles or the Companies Act should be consulted if further information is required.
Alteration of Articles of Association
Any change to the Company’s Articles of Association needs to be approved by shareholders by means of a special resolution.
Dividends and Distributions
Subject to the provisions of the Companies Act, the Company may by ordinary resolution from time to time declare dividends
not exceeding the amount recommended by the Board. The Board may pay interim dividends whenever the financial position
of the Company, in the opinion of the Board, justifies such payment.
The Board may withhold payment of all or any part of any dividends payable in respect of the Company’s shares from a person
with a 0.25% interest of a class of shares if such a person has been served with a notice after failure to provide the Company
with information concerning interest in those shares required to be provided under the Companies Act.
Electra Private Equity PLC | Annual Report and Accounts 2017 79
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Voting Rights
Subject to any rights or restrictions attached to any shares, on a show of hands, every member who is present in person has
one vote and every proxy present who has been duly appointed has one vote. However, if the proxy has been duly appointed
by more than one member entitled to vote on the resolution, and is instructed by one or more of those members to vote for
the resolution and by one or more others to vote against it, or is instructed by one or more of those members to vote in one
way and is given discretion as to how to vote by one or more others (and wishes to use that discretion to vote in the other
way) he has one vote for and one vote against the resolution. Every corporate representative present who has been duly
authorised by a corporation has the same voting rights as the corporation would be entitled to. On a poll, every member
present in person or by duly appointed proxy or corporate representative has one vote for every share of which he is the
holder or in respect of which his appointment as proxy or corporate representative has been made.
A member, proxy or corporate representative entitled to more than one vote need not, if he votes, use all his votes or cast
all the votes he uses the same way.
In the case of joint holders the vote of the senior who tenders a vote shall be accepted to the exclusion of the votes of the
other joint holders, and seniority shall be determined by the order in which the names of the holders stand in the register
of members.
A member is entitled to appoint another person as his proxy to exercise all or any of his rights to attend and to speak and
vote at a meeting of the Company. The appointment of a proxy shall be deemed also to confer authority to demand or join
in demanding a poll. Delivery of an appointment of proxy shall not preclude a member from attending and voting at the
meeting or at any adjournment of it. A proxy need not be a member. A member may appoint more than one proxy in relation
to a meeting, provided that each proxy is appointed to exercise the rights attached to a different share or shares held by him.
Restrictions on Voting
No member shall have the right to vote at any general meeting or at any separate meeting of the holders of any class of
shares, either in person or by proxy, in respect of any share held by him unless all amounts presently payable by him in respect
of that share have been paid. In addition if a person with a 0.25% interest of a class of shares has been served with a notice
after failure to provide the Company with information concerning interest in those shares required to be provided under the
Companies Act 2006 the member shall not be entitled to vote.
Deadlines for Exercising Voting Rights
Votes are exercisable at a general meeting of the Company in respect of which the business being voted upon is being heard.
Votes may be exercised in person, by proxy, or in relation to corporate members, by corporate representative. The Articles
provide a deadline for submission of a proxy form in hard copy and electronic form of not less than 48 hours before the time
appointed for the holding of the meeting or adjourned meeting. In the case of a poll taken subsequently to the date of the
meeting or adjourned meeting, the proxy form must be received not less than 24 hours (or such shorter time as the Directors
may determine) before the time appointed for the taking of the poll.
Variation of Rights
The Articles specify that if the capital of the Company is divided into different classes of shares, rights attached to any class may
be varied, either in such manner (if any) as may be provided by those rights, or in the absence of any such provision, with the
consent in writing of the holders of three-quarters in nominal value of the issued shares of that class (excluding any shares of
that class held as Own Shares Held), or with the sanction of a special resolution passed at a separate meeting of the holders of
the shares of that class, but not otherwise. At every such separate meeting other than an adjourned meeting the quorum shall
be two persons together holding or representing by proxy at least one-third in nominal value of the issued shares of the class
in question (excluding any shares of that class held as Own Shares Held). At an adjourned meeting, the quorum shall be two
persons holding shares of the class in question (other than Own Shares Held) or his proxy.
80 Electra Private Equity PLC | Annual Report and Accounts 2017
Transfer of Shares
The instrument of transfer of a share in certificated form may be in any usual form or in any other form which the Directors
approve and shall be executed by or on behalf of the transferor and, where the share is not fully paid, by or on behalf of the
transferee. Where any class of shares is, for the time being, a participating security, title to shares of that class which are
recorded on an operator register of members as being held in uncertificated form may be transferred by means of the relevant
system. The transfer may not be in favour of more than four transferees. Transfers of shares in uncertificated form are effected
by means of the relevant system.
The Directors may, in their absolute discretion, refuse to register the transfer of a share in certificated form which is not fully
paid provided that if the share is listed on the Official List of the UK Listing Authority such refusal does not prevent dealings in
the shares from taking place on an open and proper basis.
The Directors may also refuse to register a transfer of a share in certificated form (whether fully paid or not) unless the
instrument of transfer:
(a)
(b)
(c)
is lodged, duly stamped, at the Office or at such other place as the Directors may appoint and (except in the case of a
transfer by a financial institution where a certificate has not been issued in respect of the share) is accompanied by the
certificate for the share to which it relates and such other evidence as the Directors may reasonably require to show the
right of the transferor to make the transfer;
is in respect of only one class of share; and
is in favour of not more than four transferees.
If the Directors refuse to register a transfer of a share, they shall as soon as practicable and in any event within two months
after the date on which the transfer was lodged with the Company (in the case of a transfer of a share in certificated form) or
the date on which the Operator-instruction was received by the Company (in the case of a transfer of a share in uncertificated
form to a person who is to hold it thereafter in certificated form) send to the transferee notice of the refusal together with
reasons for the refusal. The Directors shall send such further information about the reasons for the refusal to the transferee as
the transferee may reasonably request.
Nothing in the Articles shall preclude the Directors from recognising a renunciation of the allotment of any share by the
allottee in favour of some other person.
Appointment and Replacement of Directors
Unless otherwise determined by the Company by ordinary resolution the number of Directors (disregarding alternate
Directors) shall not be less than 3 nor more than 15.
At the AGM in every year all Directors who held office at the time of each of the two preceding AGMs and who did not retire
at either of them shall retire from office by rotation and such further Directors (if any) shall retire by rotation as would bring
the number retiring by rotation up to one-third of the number of Directors in office at the date of the notice of the meeting
(or, if their number is not a multiple of three, the number nearest to but not greater than one third). The additional Directors
to retire shall be those who have been longest in office since their last appointment or reappointment, but, as between
persons who became or were last reappointed Directors on the same day, those to retire shall (unless they otherwise agree
among themselves) be determined by lot. Any Non-Executive Director (other than the chairman) who has held office as a
Non-Executive Director for 9 years or more shall retire from office at each AGM and shall be eligible for reappointment.
A Director who retires at an AGM may be reappointed. If he is not reappointed or deemed to have been reappointed, he
shall retain office until the meeting elects someone in his place or, if it does not do so, until the close of the meeting.
If the Company, at the meeting at which a Director retires under any provision of the Articles, does not fill the vacancy the
retiring Director shall, if willing to act, be deemed to have been reappointed unless at the meeting it is resolved not to fill the
vacancy or a resolution for the reappointment of the Director is put to the meeting and lost.
Electra Private Equity PLC | Annual Report and Accounts 2017 81
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
The office of a Director shall be vacated if a Director:
(i) becomes bankrupt or compounds with his creditors generally;
(ii)
(iii) has a court order made in respect of his mental health which wholly or partly prevents him from exercising powers or
is prohibited by law from being a Director;
rights which he would otherwise have;
(iv) sends a notice to the Company that he is resigning or retiring from his office and such resignation or retirement has
taken effect;
(v) sees his appointment (at an executive office) terminated or expiring and the Directors resolve that he should cease to
(vi)
be Director;
is absent without permission of the Board from meetings of the Board for 6 consecutive months and the Board resolves
that the office is vacated; or
(vii) notice is served upon a Director in writing by all other co-Directors.
Powers of the Directors
Subject to the Articles, the Companies Act and any directions given by special resolution, the business of the Company will be
managed by the Board who may exercise all the powers of the Company.
The Directors shall restrict the borrowings of the Company and exercise all powers of control exercisable by the Company in
relation to its subsidiary undertakings so as to secure that the aggregate principal amount (including any premium payable on
final repayment) outstanding of all money borrowed by the Company and its subsidiaries shall not at any time, save with the
previous sanction of an ordinary resolution of the Company, exceed (i) the amount paid up or credited as paid up on the share
capital of the Company and (ii) the total of any credit balance on the distributable and undistributable reserves of the
Company and its subsidiaries, subject to certain adjustments.
The Company may by ordinary resolution declare dividends in accordance with the respective rights of the members, but no
dividend shall exceed the amount recommended by the Directors. Subject to the provisions of the Articles and to the rights
attaching to any shares, any dividends or other monies payable on or in respect of a share may be paid in such currency as the
Directors may determine. The Directors may deduct from any dividend payable to any member all sums of money (if any)
presently payable by him to the Company on account of calls or otherwise in relation to shares of the Company. The Directors
may retain any dividends payable on shares on which the Company has a lien, and may apply the same in or towards
satisfaction of the debts, liabilities or engagements in respect of which the lien exists.
Corporate Governance
The Board of the Company has considered the principles and recommendations of the AIC Code of Corporate Governance
(“AIC Code”) by reference to the AIC Corporate Governance Guide for Investment Companies (“AIC Guide”) both of which were
issued in July 2016. The AIC Code as explained by the AIC Guide, addresses all of the principles set out in the UK Corporate
Governance Code, which was issued in April 2016, as well as setting out additional principles and recommendations on issues
that are of specific relevance to the Company.
The Board considers that reporting against the principles and recommendations of the AIC Code and by reference to the AIC
Guide (which incorporates the UK Corporate Governance Code) will provide better information to shareholders.
The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Corporate
Governance Code during the year to 30th September 2017 except as set out below.
The UK Corporate Governance Code includes a provision relating to the need for an internal audit function. The Board has
considered and concluded that an internal audit function in not required given the size of the Company.
82 Electra Private Equity PLC | Annual Report and Accounts 2017
The Board of Directors
The Board comprised 9 Directors as at 30th September 2017, all of whom were Non-Executive apart from Gavin Manson, the
Chief Financial Officer, who was appointed as an Executive Director on 23rd March 2017.
Linda Wilding was appointed as a Non-Executive Director on 1st December 2016 and John McAdam was appointed as a
Non-Executive Director on 1st January 2017.
The other Directors were in office throughout the year.
Neil Johnson has been Chairman and Director of the Company since 12th May 2016.
Roger Perkin was nominated by the Board as the Senior Independent Director until 1st January 2017, when John McAdam was
appointed to the role.
The Directors’ terms of appointment are available for inspection on request from the Company Secretary.
It is the responsibility of the Board to ensure that there is effective stewardship of the Company’s affairs. The Board has agreed
a schedule of matters reserved for its specific approval, which includes a regular review of the Company’s management
arrangements with G10 Capital Limited with effect from 1st June 2017 (Epiris until 31st May 2017).
Management Agreements between the Company and G10 Capital Limited (formerly Epiris until 31st May 2017) set out the
matters for which the Manager is responsible and those over which the Manager has authority in accordance with the policies
and directions of the Board. Regular Board meetings are held to consider, as appropriate, such matters as overall strategy,
investment performance, gearing, share price performance, share price discount, the shareholder profile of the Company and
communication with shareholders. The Chairman is responsible for setting the Board’s agenda and ensuring that adequate
time is available for discussion on all agenda items, in particular strategic issues. The Board considers that it meets sufficiently
regularly to discharge its duties effectively.
The number of meetings of the Board and Committees of the Board held during the year and the attendance of the individual
Directors at those meetings is shown in the table below. All the Directors of the Company who were members of the Board at
the time attended the 2017 AGM.
Directors’ Attendance at Meetings of the Board and Committees of the Board
Number of meetings
N Johnson
E Bramson
I Brindle
D Lis
P Goodson
R Perkin
L Wilding
J McAdam
G Manson
Audit and
Risk
Committee
Board
Valuations
Committee
Remuneration
Committee
Nominations
Committee
*8
8
8
8
8
8
8
7/7
6/6
5/5
3
−
−
−
−
3
3
3
−
−
2
−
−
−
2
2
2
1/1
−
−
2
−
−
−
2
−
−
2
1/1
−
1
1
−
−
1
−
−
−
1
−
* In addition to its scheduled Board meetings, the Board met on a number of other occasions during the year to discuss a number of
exceptional matters, including the tender offer in December 2016.
The Board receives information that it considers to be sufficient and appropriate to enable it to discharge its duties. Directors
receive Board papers in advance of Board meetings and are able to consider in detail the Company’s performance and any
issues to be discussed at the relevant meeting.
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The Directors believe that the Board has an appropriate balance of skills and experience, independence and knowledge of the
Company to enable it to provide effective strategic leadership and proper governance of the Company. Information about the
Directors, including their relevant experience, can be found on pages 108 and 109.
Independence of the Board
Edward Bramson is a managing member of Sherborne Investors and Ian Brindle has held Non-Executive Directorships in a
number of companies in which Sherborne Investors has had an interest. Ian Brindle was appointed as a Non-Executive Director
of Sherborne Investors (Guernsey) C Limited, a Guernsey domiciled investment fund that is managed by Sherborne Investors,
on 12th July 2017. Both of these Directors were nominated to become Directors of the Company at the General Meeting
requisitioned by Pershing Nominees on behalf of Sherborne Investment Management (Guernsey) LLC and its associates in
September 2015. On the basis of these relationships to the Company’s largest shareholder neither of these Directors is
considered by the Board to be independent.
The Board has carefully considered the independence of each Director under the provisions of the AIC Code and has
concluded that, apart from Edward Bramson, Gavin Manson (Executive Director) and Ian Brindle, each Director is wholly
independent. Therefore, the majority of the Board are independent.
The Board carries out a formal appraisal process of its own operations and performance and those of its Committees each year.
The Board’s policy is that this review should be externally facilitated every 3 years, as required by the Code. During the year, the
Board commissioned Korn Ferry to carry out an externally-facilitated evaluation of its operations and performance and those
of its Committees and the results of that evaluation are set out below.
Korn Ferry advised the Board on the appointment of a number of Directors during the year. However separate teams within
Korn Ferry are responsible for Director recruitment and Board evaluation.
In the years in which there is not an externally-facilitated review, the Board carries out an annual evaluation of its operations
and performance and those of its Committees through questionnaires which are completed by Directors, the results of which
are discussed by the Board. The Board completed this process during the Autumn of 2017. In addition, the Chairman has
regular meetings with each Director individually which allows them to discuss any matters of concern. The Board also meets
informally on a number of occasions during the year, which facilitates more general discussions about the Company, the Board
and its effectiveness. Together, these processes are considered by the Board to be constructive in identifying areas for
improving the functioning and performance of the Board and its Committees.
Korn Ferry Report
In line with the provisions of the UK Corporate Governance Code, the Board conducted an external evaluation of its
performance during the year ended 30th September 2017. The services of Korn Ferry were retained for the purposes of
conducting the Board evaluation process.
Board Evaluation Process
Korn Ferry undertook a formal evaluation by:
■■ Having preliminary conversations with the Chairman as to the scope of the review and to the governance and strategic
context of Electra
■■ Defining six areas to be assessed throughout the process
■■ Preparing interview guidelines that were submitted to each member of the Board
■■ Discussing those six areas during in-person interviews with each Director and
■■ Recommending actions for continuous improvement to the Board.
The areas reviewed were: alignment with the strategy and near-to-medium term direction of the Company; alignment on
Board responsibilities and overall mandate; nature of the conversation and discussions; future competency gaps; effectiveness
of secretariat/paper flow; team dynamics. These topics were appropriately addressed and will be regularly reviewed as a matter
of good governance.
84 Electra Private Equity PLC | Annual Report and Accounts 2017
Outcomes
The Board, in its current membership, had been operating for less than a year at the time Korn Ferry commenced their review.
Nonetheless, their observations and the comments received from executive and Non-Executive Directors alike, point to an
effective Board with healthy interpersonal dynamics. The interactions among Non-Executives and between Non-Executives
and executives were deemed to be positive, and allowed for sufficient candour, with each Director able to exercise
independent judgement.
The Chairmanship of the Board was unanimously considered effective. Korn Ferry concluded from their conversations with
Board members that the Chairman facilitates contribution from all Directors and adequately interfaces with executives and
external shareholders.
The review also found that all of the Directors are aligned with the strategic course chosen by the Company; and the
aggregate set of Directors’ skills and experiences provide adequate support to strategy execution, particularly through the
appointment of two additional NEDs in John McAdam and Linda Wilding.
Overall, the Board is considered to be effective and working well with a high level of engagement by Board members.
As a result of the recent evaluation of the Board and his own discussions with each of the Directors during the year, the
Chairman has confirmed that all of the Directors, all of whom intend to retire and offer themselves for election or for re-
election at the AGM to be held in 2018, continue to be effective and that all of them continue to show commitment to their
role. The Senior Independent Director has also confirmed the continuing effectiveness and commitment of the Chairman.
Directors’ Terms of Appointment
The Company’s Articles of Association require that Directors shall retire and be subject to appointment by shareholders at the
first AGM following their appointment by the Board and be subject to re-election at least every third year thereafter. Directors
who have served for more than 9 years and who wish to continue in office are required to submit themselves for re-election
annually. The Board does not believe that length of service disqualifies a Director from seeking re-election.
In accordance with the AIC Code’s provisions on the re-election of Directors, which state that all Directors of FTSE 350
companies should be subject to annual re-election by shareholders, the Board’s policy is that Directors should be re-elected
annually. In accordance with this policy all the then Directors were elected or re-elected at the AGM held in March 2017.
Re-election of Directors
In accordance with the Board’s policy on Directors’ Terms of Appointment, all the Directors intend to retire at the AGM to be
held in 2018 and to offer themselves for election or for re-election. Biographical details of the Directors are set out on pages
108 and 109.
Independent Professional Advice
Individual Directors may seek independent professional advice in furtherance of their duties at the Company’s expense within
certain parameters. All Directors have access to the advice and services of the Company Secretary.
Company Secretary
Frostrow Capital LLP acted as the independent Company Secretary in addition to its role as Board Advisor during the year
under review.
The Audit and Risk Committee
The Board is supported by the Audit and Risk Committee, which was established on 1st June 2017 in place of the Audit
Committee, to reflect the increased responsibility of the Board for risk management following the termination of the agreement
with Epiris. The members of the Committee are Roger Perkin (Chairman), Paul Goodson and Linda Wilding. The Committee met
three times in the year under review and the report of its activities is contained in the Report of the Audit and Risk Committee
on pages 104 and 105. The Committee has written terms of reference which are available on the Company’s website.
Refer to Note 4 in the Notes to the Financial Statements for details of auditor’s remuneration.
Electra Private Equity PLC | Annual Report and Accounts 2017 85
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
The Remuneration and Nominations Committees
The Board agreed that separate Remuneration and Nominations Committees should be established with effect from
2nd December 2016.
Remuneration Committee
The Committee members are David Lis (Chairman), John McAdam (from 1st January 2017) and Linda Wilding. Roger Perkin, the
Chairman of the Audit and Risk Committee, attends once a year to discuss the possible clawback of bonuses. The Committee
has written terms of reference which are available on the Company’s website.
The Committee’s duties include determining and agreeing with the Board the policy for remuneration of the Directors.
Where appropriate, the Committee will consider both the need to judge the position of the Company relative to other
companies regarding the remuneration of Directors and the need to appoint external remuneration consultants.
The Committee met twice in the year, including meetings to determine the Company’s remuneration policy and to set
up the LTIP. A report on its activities is contained in the Directors’ Remuneration Report on pages 89 to 103.
Nominations Committee
The Committee members are Neil Johnson (Chairman), David Lis, John McAdam (from 1st January 2017) and Roger Perkin.
The Committee has written terms of reference which are available on the Company’s website.
The Committee’s duties include identifying and nominating, for the approval of the Board, candidates to fill Board vacancies
based on merit and against objective criteria and with due regard for the benefits of diversity on the Board including gender.
The Company’s policy on diversity is further detailed in the Strategic Report.
The Committee met once during the year. It reviewed the current composition of the Board and its Committees and
concluded that no changes were required at present, particularly given the fact that almost all the Directors were appointed
recently and in light of the Board’s discussions regarding the future of the Company.
The Valuations Committee
The Valuations Committee adds a further level of oversight to the valuation process carried out by G10 Capital Limited under
its contractual arrangements with the Company. With effect from 2nd December 2016, the members of the Committee have
been Paul Goodson (Chairman), David Lis, Roger Perkin and Linda Wilding. The Committee met twice to review the valuation
of investments as at 31st March 2017 and 30th September 2017.
Induction and Training
New Directors are provided with an induction programme which is tailored to the particular circumstances of the appointee
and which includes being briefed fully about the Company by the Chairman, CEO, CFO and the Company Secretary. Following
appointment, the Chairman regularly reviews and agrees with Directors their training and development needs as necessary to
enable them to discharge their duties.
The Company’s Relationship with its Shareholders
The Company places great importance on communication with its shareholders. The Company endeavours to provide the
fullest information on the Company to its shareholders, maintaining a regular dialogue with institutional shareholders and
City analysts, as well as making a number of presentations and visits throughout the year. Meetings are held with principal
shareholders to discuss relevant issues as they arise.
All shareholders are welcome to attend the AGM and have the opportunity to put questions to the Board.
The notice of the AGM and related papers are sent to shareholders at least 20 working days before the meeting. A separate
resolution is proposed on each substantially separate issue including receipt of the Annual Report and Financial Statements.
All proxy votes are counted and, except where a poll is called, the level of proxies lodged for each resolution is announced at
the Meeting and is published on the Company’s website. The Chairmen of the Audit, Remuneration, Nominations and
Valuations Committees are normally available to answer questions at the AGM each year.
86 Electra Private Equity PLC | Annual Report and Accounts 2017
The Chairman and the Senior Independent Director can be contacted either at the Company’s registered office, First Floor,
50 Grosvenor Hill, London, England, W1K 3QT or through the Company Secretary, Frostrow Capital LLP, at 25 Southampton
Buildings, London WC2A 1AL.
Risk Management and Internal Controls
The Board maintains responsibility for the Company’s risk management and internal control systems. It has established an
Audit and Risk Committee, to oversee risk management, monitoring and reporting. The Audit and Risk Committee is also
supported by the work of the executive management team.
From 1st June 2017, the Company has put in place an Investment Management Agreement with G10 Capital Limited (“G10” or
“the Manager”) for the provision of risk management services as required by the AIFMD rules. The Manager has oversight of risk
management and the ongoing process of identifying, evaluating, monitoring and managing the risks facing the Company in
accordance with AIFMD. Prior to 1st June 2017, the responsibility for risk management was delegated to Epiris, the former AIFM
of the Company, under the supervision of the Board.
The year under review has been one of transition from the arrangements which were in place with Epiris to the arrangements
which are now in place. For the year ended 30th September 2017 the processes which have been in place accord with the
FRC’s ‘Guidance on Risk Management, Internal Control and Related Financial and Business Reporting’ published in September
2014. The Board has kept the performance of these responsibilities under review as part of its overall responsibility for the
Company’s risk management and internal control processes.
Executive management commissioned an external review of the operating effectiveness of the internal controls related to the
financial reporting process and has reported the findings of this review to the Audit and Risk Committee, which has delegated
authority for oversight of the internal controls system.
The current risk management and internal control processes were developed as part of the transitional arrangements and
implemented with effect from 1st June 2017. Prior to 1st June 2017, Epiris was responsible for the majority of the internal
controls. The Board’s role was in respect of its oversight of the Manager, which included reviewing the performance of the
Manager and the effectiveness of the controls being operated. The Board received reports confirming the operating
effectiveness of documented controls in place under Epiris’s control.
Risk Appetite
During 2017, the Board has been undertaking a strategic review, the objectives of which are to maximise long-term
shareholder value by assessing the Company’s investment strategy and policy, as well as the structure of the Company.
On 23rd October 2017, the Board announced its intention to update the investment policy to reflect the Company’s focus on
shareholder returns.
The Board’s view is that the current market conditions do not support new investments. However, the Board and its
Investment Committee will continue to monitor the market and should conditions change then the Board will consider this
further. In addition, new opportunities and investment needs across the existing portfolio will also continue to be considered.
The strategy to optimise returns on shareholder capital will be a key consideration in any investment decisions made.
When investments are made, the risk of each investment is assessed before any commitment is made. New investments,
including additions to existing investments, in accordance with Company Investment Procedures, are reviewed and approved
by the Board.
Operation of Risk Management and Internal Controls
As detailed in the Strategic Report, the Principal Risks facing the Company are considered by the Board to be Macroeconomic Risks,
Strategy Implementation Risks, Investment Risks, Portfolio Diversification Risk, Cash Drag Risk, Valuation Risk, Operational Risk,
Gearing Risks, and Foreign Currency Risks and along with the risks detailed in Note 19 of the Notes to the Financial Statements.
The Board regularly reviews the Principal Risks faced by the Company. In particular, consideration is given to any changes in
the nature, likelihood and impact of the Principal Risks along with the Company’s ability to respond to changes in its business
and external environment. Mitigating actions and controls are in place to manage the Company’s exposure to risk.
Electra Private Equity PLC | Annual Report and Accounts 2017 87
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
The valuations of investments are carried out in accordance with the Company’s Principles of Valuation of Investments as
detailed on pages 59 to 61. The Valuations Committee of the Company provides oversight of the valuation process undertaken
by the Valuations Working Group and G10’s Electra Valuations Committee.
The Board considers the Company’s system of risk management and internal control to be integrated with the Company’s
Business Model and Investment Strategy.
During the year, G10 performed its initial review of compliance procedures and regulatory documentation as part of its
ongoing monitoring programme. The findings of this review were reported and noted by the Board.
Public Reporting
The Company’s consolidated annual Financial Statements, along with the half-yearly Financial Statements, and other RNS
releases are prepared in accordance with applicable regulatory requirements.
Voting Policy
Under the investment management agreements Electra has complete discretion in relation to all voting issues in respect of
the Company’s investments.
Electra has adopted the UK Stewardship Code and has made disclosures regarding its policies on stewardship on its website
www.electraequity.com. The Company’s policies on stewardship have been reviewed and endorsed by the Board.
By order of the Board of Directors
Frostrow Capital LLP, Company Secretary
6th December 2017
88 Electra Private Equity PLC | Annual Report and Accounts 2017
Directors’ Remuneration Report
Statement by Chairman of the Remuneration Committee
Dear Shareholders
On behalf of the Board, I am pleased to present my report as Chairman of the Remuneration Committee. This report sets out
Electra’s policy in relation to Directors’ remuneration, as approved by shareholders at the AGM in March 2017. This policy,
which is set out below on pages 91 to 97 currently remains in place. However, as noted in the Chairman’s Statement, the
Committee is reviewing this policy in light of the outcome of the strategic review and intends to submit an updated policy
for approval by shareholders at the forthcoming AGM on 1st March 2018. Details of the proposed revised policy will be sent
to shareholders with the notice of AGM in January 2018 and, if approved by shareholders, implemented with effect from
1st January 2018.
Changes to Company Structure
Prior to the current year, Electra Private Equity PLC (the Company) did not employ any Executive Directors and, as an
investment trust, the Board consisted of Non-Executive Directors only. As a result, payments to Directors in 2015/16 comprised
Non-Executive base fees and benefits only.
I reported last year on the Board’s intentions to appoint one or more Executive Directors to the Board in 2017, as a result of the
proposed changes to the corporate structure. In preparation for this, the Committee recruited Gavin Manson as Chief Financial
Officer in August 2016 and agreed a proposed Directors’ Remuneration Policy that was designed to ensure that Electra is
capable of attracting, rewarding and retaining high calibre candidates for the newly created roles. This is summarised below
and set out in full on pages 91 to 97 of this report. The Policy was approved by shareholders at the AGM in March 2017.
Following shareholder approval of the Remuneration Policy, Gavin Manson was appointed as a Director with effect from
23rd March 2017.
Remuneration Policy
As noted, a revised Remuneration Policy was approved by shareholders in March 2017. The Remuneration Policy is designed to
ensure that pay is aligned with the long-term creation of value to shareholders as well as being in line with best practice within
the industry. In summary, our policy comprises:
■■ Base salary pensions and benefits are benchmarked against similar sized companies
■■ An Annual bonus based on financial and strategic performance measures with at least 50% of pay-outs deferred into shares
for 3 years
■■ A Performance Share Plan measuring performance over 3 years with an additional 2 year holding period and
■■ Share ownership guidelines of 200% of salary
Implementation of the Policy in 2016/17
For much of 2016/17, the Company was in a transitional stage as it assumed all operating responsibilities from Epiris. This took
effect from 1st June 2017. As noted above, Gavin Manson was appointed as a Director with effect from 23rd March 2017.
Performance Measures for Annual Bonus Plan and Long-term Incentives
As 2016/17 was a transitional year, the Committee selected annual bonus plan measures which would capture performance
against our key objectives over this year while ensuring alignment with shareholders. Since it was not possible to set traditional
performance targets (such as profit or portfolio-oriented measures) the Committee determined that the 2016/17 bonus would
be based on:
■■ 50% TSR
■■ 40% strategic objectives and
■■ 10% cost control
Electra Private Equity PLC | Annual Report and Accounts 2017 89
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
We have employed a mixture of financial and non-financial measures to reflect the Company’s particular focus over the
coming year. The Committee has consulted with shareholders on the specific measures to be employed, to ensure a focus on
shareholder value while appropriately incentivising executives to deliver the changes needed to position the Group for future
growth. The Committee believed that this would ensure a focus on shareholder value while incentivising the executives to
deliver the changes needed in the year to position the Group for future growth.
The long-term incentive granted in 2016/17 were based on relative TSR verses the FTSE 250 Index.
The Committee agreed at its meeting on 1st December 2017 that Gavin Manson should receive a bonus of £299,687 in respect
of 2016/17 of which £171,249 will be paid in cash and £128,438 deferred into shares for a period of 3 years.
The Committee proposes that the annual bonus plan measures for the year ending 30th September 2018 will be addressed
following the Committee’s review of the Remuneration Policy.
Electra Private Equity PLC 2017 Long Term Incentive Plan (the “Long-Term Incentive Plan” or “LTIP”)
In accordance with the Remuneration Policy approved by shareholders, the Company has established a Long-Term Incentive
Plan, the terms of which are set out on page 49. On 14th July 2017, the Committee granted to Gavin Manson a nil cost option
award under the LTIP in respect of 35,671 ordinary shares. The award will ordinarily become exercisable 3 years from the date
of grant, subject to continued service and to the extent to which the TSR performance condition is met, and may be exercised
for a period of 10 years from the date of grant. Gavin Manson is required to hold the shares for at least 24 months from the
date of vesting.
Following the declaration of the third Special Dividend which was paid on 1st December 2017, the Committee agreed to
adjust the award by increasing the number of ordinary shares within the award by a factor representing the proportionate
increase in the awardholder’s holding which would have occurred if the special dividend had been invested in more shares
on the first day on which the shares were traded ex-dividend. This has resulted in the number of shares under the award being
increased by 34,211 shares.
I believe that our proposed policy as set out in the Notice of AGM creates a strong alignment between our current and future
executives and shareholders, and is relevant and aligned with market expectations for a company of this size. I hope that you
concur and that you will feel able to support our proposals at the 2018 AGM.
David Lis
Chairman of the Remuneration Committee
6th December 2017
90 Electra Private Equity PLC | Annual Report and Accounts 2017
Remuneration Policy
The Company’s current Remuneration Policy was approved by the Company’s members at the AGM in March 2017, in accordance
with the Large and Medium-sized Companies and Group (Accounts and Reports) (Amendment) Regulations 2013 (Regulations).
As noted above, the Committee intends to submit a revised Remuneration Policy for the approval of shareholders at the
forthcoming AGM in March 2018. If approved, the policy will be effective from 1st January 2018.
1. Key objectives of the Electra Remuneration Policy
The Remuneration Policy aims to deliver 2 core objectives:
■■ Enable Electra to attract, retain, and incentivise the best talent for its business and
■■ Create alignment with shareholders’ interests
To deliver these objectives the remuneration policy:
■■ Rewards the achievement of Electra’s strategic objectives
■■ Captures emerging corporate governance best practices, wherever feasible
■■ Delivers an appropriate balance between fixed and variable pay and reward both short- and longer-term performance
2. Executive Director Remuneration Policy table
Salary
Purpose and link to strategy
■■ To provide competitive fixed remuneration that will attract, retain and motivate
high calibre executives and reflect their experience, duties and location
Operation
■■ Salaries are reviewed annually, and any increases take account of a broad range
of factors including:
– The salary increases awarded across the organisation
– Inflation/cost of living
– Individual performance, skills and experience
– Financial performance of the Group
– Pay levels in comparative companies
■■ Salaries in respect of the year under review (and for the following year) are
disclosed in the Annual Report on Remuneration
Maximum opportunity
■■ There is no maximum salary under this policy, and therefore the Committee
retains discretion to increase salaries for the duration of this policy
■■ Increases beyond those linked to the workforce (in percentage of salary terms)
may be awarded in certain circumstances at the Board’s discretion (based on
the recommendation of the Committee) such as where there is a change in
responsibility, experience or a significant increase in the scale of the role and/or
size, value and/or complexity of the Group. Any increases beyond the
increments awarded across the broader workforce will be explained in the
relevant year’s Annual Report on Remuneration
Electra Private Equity PLC | Annual Report and Accounts 2017 91
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Benefits
Purpose and link to strategy
To provide competitive benefits in line with market practice
Operation
■■ The benefits provision will be reviewed annually
■■ The Company typically provides the following benefits:
– Car allowance
– Private health insurance
– Death-in-service cover
■■ Where Executive Directors are recruited from overseas, other ancillary benefits
may be provided, including relocation expenses / arrangements (as required)
■■ The cost of some of these benefits is not pre-determined and may vary from
year to year based on the overall cost to the Company in securing these
benefits for a population of employees (particularly health insurance and
death-in-service cover)
Maximum opportunity
Pension
Purpose and link to strategy
To provide a competitive, yet cost-effective, appropriate long-term retirement benefit
Operation
Executive Directors may receive a company contribution to a defined contribution
scheme or the provision of a cash supplement equivalent, or a combination thereof
Maximum opportunity
Company contributions of up to 10% of base salary
Annual Bonus
Purpose and link to strategy
To incentivise annual delivery of performance objectives relating to the short-term
goals of the Company, driving strong financial performance for investors balanced
with effective long-term decision making and prudence
Operation
■■ Annual performance measures and threshold, plan and maximum targets will
be set by the Committee at the start of the financial year
■■ Following year-end, performance against targets will be assessed to determine
pay-out levels at year-end under the bonus plan
■■ In normal circumstances, at least 50% of any actual bonus earned will be
deferred into shares for a period of 3 years
■■ Dividend equivalents (in cash or shares) may be added to deferred shares
Maximum opportunity
Maximum percentage of salary: 150% of salary
Performance measurement and
framework for the recovery of
sums paid
■■ In normal circumstances, the majority of the bonus will be based on financial
performance, with a portion also typically based on the achievement of
strategic objectives
■■ Up to 20% of maximum is earned at the threshold performance levels, 50% of
maximum is paid for on-target performance with a graduated scale operating
thereafter through to maximum bonuses being earned for out-performance of
the Company’s targets for the year
■■ Details of the performance targets will be disclosed (retrospectively) in the
respective Annual Report on Remuneration
■■ Payments under the annual bonus plan (both cash and share components)
may be subject to clawback in the event of a material misstatement of the
Company’s financial results, misconduct, or if an error is made in the calculation
of the bonus
■■ The clawback provisions will operate for a 3 year period following the
date on which the bonus is paid i.e. for the full deferral period until the share
component vests
92 Electra Private Equity PLC | Annual Report and Accounts 2017
Long-Term Incentive Plan Awards
Purpose and link to strategy
To drive superior long-term financial performance and shareholder returns, aid
retention, and align the interests of Executive Directors with shareholders
Operation
■■ The LTIP comprises annual awards of free shares (i.e. either conditional shares or
nil-cost options) based on a percentage of salary which vest after 3 years
subject to the achievement of performance conditions
■■ A holding period applies which requires Executive Directors to retain the
after-tax value of shares for 24 months from the vesting date
■■ Dividend equivalents (in cash or shares) may be added to shares that vest
Maximum opportunity
■■ Maximum percentage of salary: 200% of salary
■■ In exceptional circumstances (e.g. recruitment), awards can be made up to
300% of salary
Performance measurement and
framework for the recovery of
sums paid
■■ Granted subject to stretching targets related to the Group’s KPIs, tested over 3 years
■■ A maximum of 20% of awards will vest for threshold performance, with full
vesting taking place for equalling, or exceeding, the maximum performance
targets
■■ The Committee may scale back the level of vesting of an award if it considers
underlying financial performance over the performance period has been
significantly worse than the level of vesting would otherwise indicate
■■ Payments may be subject to clawback in the event of a material misstatement
of the Company’s financial results, misconduct, or if an error is made in the
calculation of the long-term incentive
■■ The clawback provisions will operate for a 2 year period following the date on
which awards vest
Share Ownership Guidelines
Purpose and link to strategy
To encourage a strong culture of ownership across the Executive team, and to create
strong alignment between Executive Directors and those of shareholders, while
helping encourage a prudent approach to risk-taking across the business
Operation
■■ Executive Directors are expected to build up a shareholding equivalent in value
to 200% of salary
■■ New joiners will be given 5 years to achieve these levels of ownership through
a combination of purchased shares and equity vesting from any other
programmes
■■ It is expected that executives will retain, as a minimum, at least 50% of any
vesting LTI awards each year until a time at which these ownership guidelines
are achieved
Electra Private Equity PLC | Annual Report and Accounts 2017 93
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
3. Illustration of the remuneration packages for each Executive Director under different performance scenarios
The Company currently has an interim Chief Executive (Edward Bramson) who does not receive any remuneration for
undertaking this role. For that reason, we have set out the potential remuneration only for the Chief Financial Officer in this
year’s report. The chart below illustrates the remuneration package, and shows potential pay-outs at different levels of
performance. The value of each element, and the percentage of total remuneration that each represents, has been included.
Remuneration packages
£000
1,500
1500
1,200
900
600
300
0
0
330
100%
Below target
705
21%
32%
47%
Target
Fixed pay
Short-term incentives
Long-term incentives
1,380
43%
33%
24%
Maximum
Level of performance
Below target
Target
Maximum
Fixed pay
100%
47%
24%
Short-term
incentives
Long-term
incentives
−
32%
33%
−
21%
43%
Total pay
£330,000
£705,000
£1,380,000
Notes:
■■ Short-term incentive includes deferred shares. Target performance assumes pay-out at 50% of maximum
■■ Long-term incentives are based on award (200% of salary). Target performance assumes pay-out at 25% (the payment for
median performance). No payment for dividends or share price growth is assumed
4. Other relevant policies relating to Executive Directors’ remuneration
Administrative Powers Under Incentive Plans and the Application of Discretion
It is important for the Committee to be able to exercise appropriate discretion to ensure that pay outcomes are fair and
represent underlying performance. The Committee is therefore able to amend performance outcomes (either in an upward or
downward manner) where it believes it is appropriate to do so. The detailed rationale behind any application of discretion will
be explained as transparently as possible in the subsequent annual Directors’ Remuneration Report.
In addition to the operational features described, the Committee retains standard administrative powers and has absolute
discretion to decide (but is not limited to) the following:
■■ To whom awards are allocated
■■ Determination of the result of any disputes relating to the interpretation of the rules
■■ The level of the awards under the incentive plans and the timing, within the parameters set in the rules and
■■ Alteration of the terms of the performance targets if it feels that they are no longer reflective of the Company’s
performance as long as the revised targets are no less challenging than those being replaced
The Committee also retains the discretion to forfeit or clawback deferred awards under the annual bonus plan if it determines
that prior performance which resulted in the annual bonus being awarded was discovered to be a misstatement of results or a
product of inappropriate management behaviour.
94 Electra Private Equity PLC | Annual Report and Accounts 2017
Approach to Recruitment Remuneration
The Committee is responsible for setting the package for any new Executive Director. On appointment of a new Executive
Director, the Committee would seek to offer a remuneration package which can secure an individual of the calibre and
skillset required to fulfil the role successfully to help drive long-term value for our shareholders.
In determining the appropriate remuneration package for a new Executive Director, the Committee will consider the calibre
of the candidate, the level of their existing remuneration, the jurisdiction from which the candidate is recruited from and their
skills and experience. Additionally, decisions will be informed by consideration of market data for companies of a similar size
and complexity and contextual information regarding remuneration paid to employees elsewhere in the organisation.
Any remuneration package would be in line with the parameters set out in the Directors’ Remuneration Policy. In the event of
recruitment of a new Executive Director, the rationale behind the package offered will be explained in the subsequent Annual
Report on Remuneration.
Where an individual forfeits outstanding incentive awards with a previous employer as a result of accepting the appointment
within the Company, the Committee may offer compensatory awards to facilitate recruitment in the form of a ‘buy-out’ award.
These awards would be in such form as the Committee considers appropriate taking into account all relevant factors including
the form, expected value, performance conditions, anticipated vesting and timing of the forfeited awards. The expected value
of any compensatory awards would be no higher than the value forfeited, and, where possible, the Committee would aim to
reflect the nature, timing, and value of awards forgone in any replacement, compensatory awards.
While cash may be included to reflect the forfeiture of cash-based incentive awards, the Committee does not envisage that
‘golden hello’ cash payments would be offered.
Any share awards referred to in this section will be granted as far as possible under the Company’s existing share and incentive
plans. If necessary, awards may be granted outside of these plans as currently permitted under the Listing Rules, but in
accordance with the principles set out in this section.
For internal promotions, any commitments made prior to appointment may continue to be honoured as the executive is
transitioned to the new remuneration arrangements.
Executive Director Service Contracts
It is the Company’s policy to enter into contracts of employment with Executive Directors which may be terminated at any
time by either the Company or the Executive Director upon 6 months’ notice. A summary of the way in which each element of
remuneration is treated on loss of office is included in the table on page 96.
Loss of Office Policy
In the event that the employment of an Executive Director is terminated, any compensation payable will be determined in
accordance with the terms of the employment contract as well as the rules of any relevant incentive plans. The Committee
carefully considers compensation commitments in the event of an executive’s termination. The aim is to avoid rewarding poor
performance and to reduce compensation to reflect the departing executive’s obligations and to mitigate losses.
Electra Private Equity PLC | Annual Report and Accounts 2017 95
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
The main elements of remuneration would typically be treated in the following ways:
Element
“Good leaver”*
All other leavers
Fixed pay during the
notice period
Save for summary dismissal, executives will receive base pay and other benefits over their notice
period including any period where they are not required to work. Alternatively, the Committee may
elect to make a payment in lieu of notice. Typically amounts will be paid in monthly instalments and
reduce, or cease, in the event that remuneration from new employment is received
Bonus for final year of
service
The Committee may award an executive an annual bonus payment
in respect of their final year of service (while they are under notice)
No bonus payment will
be made if the Director
is under notice
This payment will usually be pro-rated to reflect the portion of the
financial year for which they were in active employment. Pay-outs
will be calculated with reference to individual and financial
performance measures in the usual way
The Committee may determine that a portion of such a bonus must
be deferred.
Outstanding deferred
bonus awards**
Deferred bonus awards are retained by executives leaving the
Company and will vest on the original timetable
Outstanding
long-term incentive
awards**
Executives will retain their outstanding long-term incentive awards.
These awards will ordinarily be pro-rated based on time employed, will
vest on the original timescale and will remain subject to the original
performance conditions assessed over the entire performance period
as well as the holding period
Awards will lapse
Awards will lapse
* The Committee may determine that a Director is a good leaver if they leave the Company as a result of either death, retirement (with the
agreement of the Committee), ill health, redundancy, or for any other reason as determined by the Committee.
** Where an executive passes away in service the Committee may elect to bring-forward the vesting of awards.
Other payments may be made to compensate executives for the loss of employment rights on termination. Payments may
include amounts for agreeing to non-solicitation and confidentiality clauses, reimbursement of legal fees and/or for settlement
of any claim arising in connection with the termination of a Director’s employment.
In the event of a change of control, deferred bonus awards would continue in accordance with their terms, subject to the
Committee’s discretion to determine otherwise. The vesting of outstanding long-term incentive awards would normally be
accelerated, the percentage of each award which will vest would be determined by the Committee taking into account the
performance conditions and the proportion of the Vesting Period which has elapsed at the date control was obtained.
Pay and Employment Conditions Across the Group
When determining the Remuneration Policy, structures, and practices for Executive Directors, the Remuneration Committee
takes into consideration the pay and employment conditions applied across the organisation to ensure that pay structures are
suitably aligned and that absolute remuneration levels remain appropriate. The Committee reviews the pay ratios between the
Executive Directors and the broader workforce, and also takes into account the general basic salary increases for employees
across the organisation when determining Executive Director salary increases. Employees are not directly consulted on the
design, structure, or levels of Executive Directors.
Open Dialogue with Shareholders
The views of our shareholders on remuneration are extremely important to the Committee. As such, it is intended that an
ongoing and open dialogue with shareholders is maintained. It is the Committee’s policy to consult with major shareholders
and investor representative bodies prior to proposing any material changes to either this policy or any related remuneration
arrangements at an AGM.
External Appointments of Executives
It is the Company’s policy to allow each executive to accept and fulfil one Non-Executive Directorship of another company,
although the Board retains the discretion to adjust this policy on a needs-basis. The individual executive is permitted to
retain any fees received in respect of any such external appointment, the details of which will be set out in the Directors’
Remuneration Report each year.
96 Electra Private Equity PLC | Annual Report and Accounts 2017
5. Remuneration Policy for the Chairman of the Board and Non-Executive Directors
Electra’s policy on Non-Executive Board remuneration is to set both the structure and level of fees to reflect the need to attract
high-calibre Board members, and the scope of the responsibilities, time commitment, and market practice.
Terms of Appointment
The appointment of the Chairman and Non-Executive Directors are subject to letters of appointment. Service contracts are not
used for Non-Executive Board members. The letters of appointment are available for inspection at the Company’s registered
office during normal business hours and at the AGM. In line with the requirements of the 2016 UK Corporate Governance Code
for FTSE 350 companies, all Non-Executive Directors are subject to annual re-election by shareholders at the AGM.
Non-Executive Board Remuneration Policy
The table below sets out the Company’s policy for Non-Executive Director fees.
Fee element
Purpose and link
to strategy
Operation
Maximum
The maximum aggregate
fee for Non-Executive
Directors, including the
Chairman, are limited by
the Company’s articles of
association
Chairman’s and
Non-Executive
Directors’ basic fees
To attract and retain high
calibre individuals to
serve as Non-Executive
Directors
Fee levels are set to reflect the time
commitment, responsibility of the role,
and taking into account fees paid by
similarly sized companies in the market
The Chairman’s fee is determined by
the Committee and the Non-Executive
Directors’ fees are determined by the
Chairman and Executive Directors
Fees are reviewed from time to time to
ensure that they remain in line with
market practice
Fees are paid in equal monthly
instalments
The Chairman’s fee includes his
Chairmanship of the Nominations
Committee
Non-Executive Directors (other than the
Chairman) are paid an additional fee for
their Chairmanship of a Board
committee
The Company reimburses reasonable
travel and subsistence costs and any tax
liabilities from these
Additional fees
Benefits
To provide compensation
to Non-Executive
Directors taking on
additional Committee
responsibility
To facilitate the
execution of the role
Electra Private Equity PLC | Annual Report and Accounts 2017 97
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Annual Report on Remuneration
We are submitting this report in accordance with the requirements of the Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013 (Regulations). It will be subject to an advisory vote at the forthcoming
AGM in March 2018. While we have attempted to comply with the disclosure requirements, during the financial year the
Company had just 11 remunerated employees and an interim unpaid Chief Executive Officer. It has therefore not been
possible to comply with all elements in full (for example the comparison of percentage increase in the remuneration of the
Chief Executive Officer with that of all the employees of the Company as a whole). Where possible we have followed both the
spirit and requirements of the Regulations and provided as much information as possible to help shareholders understand the
Company’s pay arrangements.
The Law requires the Company’s Auditors to audit certain of the disclosures provided. Where disclosures have been audited,
they are indicated as such.
Remuneration and Nominations Committees
The Board established separate Remuneration and Nominations Committees with effect from 2nd December 2016, in place of
the joint Remuneration and Nominations Committee which had existed prior to that date.
The Remuneration Committee members are David Lis (Chairman), John McAdam (from 1st January 2017) and Linda Wilding.
Roger Perkin, the Chairman of the Audit and Risk Committee, attends once a year to discuss the possible clawback of bonuses.
The Remuneration Committee met twice during the year to determine the Company’s Remuneration Policy and to set up
the LTIP. It also met on 1st December 2017 to approve Gavin Manson’s bonus for 2016/17 and adjustments to the LTIP award
as a result of the Special Dividend paid on 1st December 2017.
The Remuneration Committee appointed Aon Hewitt to advise it during the year on the implementation of the Company’s
Remuneration Policy and the establishment of the LTIP. Aon Hewitt did not provide the Company with any other services
during the year and has no other connection with the Company, on which basis the Committee considered that their advice
would be objective and independent. Aon Hewitt received a fee of £140,612 for the provision of their advice.
Remuneration paid in 2016/17
Executive Directors
Gavin Manson was appointed as an Executive Director on 23rd March 2017, having been appointed as Chief Financial Officer
in August 2016. Gavin Manson receives a base salary of £300,000 with maximum annual bonus and long-term incentive
opportunities of 125% and 200% of salary respectively.
Single Total Figure Table for the Year (Audited)
Director
G M Manson
Salary
£000
158
Taxable
benefits
£000
13
Bonus
£000
135
Pension
contributions
£000
Long-term
incentives
£000
15
39
Total
£000
360
There were no other Executive Directors during the 2016/17 financial year; there are therefore no comparative figures to
disclose in relation to the remuneration of Executive Directors.
During the year, a new Long-Term Incentive Plan (“LTIP”) was introduced in compensation to the executives of the Group.
The total charge in the Consolidated Income Statement for the year was £44,482 (2016: £nil). Refer to Note 21 on page 49 for
further details.
During the year Gavin Manson achieved 90% of individual performance objectives and 47% of corporate performance
objectives. This resulted in an award of 68.5% of maximum bonus opportunity.
Executive Directors’ taxable benefits relate to medical insurance, gym membership and holiday cancellation. Annual bonus is
split by 57% cash and 43% deferred into shares over a 3 year period.
98 Electra Private Equity PLC | Annual Report and Accounts 2017
Gavin Manson is the only Director during the 2016/17 financial year to receive a pension contribution. Pension related benefits
include pension contributions and cash in lieu of retirement benefits. Gavin Manson is entitled to have pension contributions of
10% of salary (£30,000) paid into the Company pension scheme but due to HMRC limits on the amount of contributions that he
can make each year, the actual amount paid into the scheme is £12,000 and the balance is paid to him in cash.
The Company has a money purchase scheme through Aviva. There is no normal retirement date under the scheme and no
additional benefits that would be payable in the event that Gavin Manson retired early.
Scheme Interests
As reported above, on 14th July 2017, the Committee granted to Gavin Manson a nil cost option award under the LTIP in
respect of 35,671 ordinary shares, equivalent to 200% of salary at the date of grant. The award will ordinarily become
exercisable 3 years from the date of grant, subject to continued service and to the extent to which the total shareholder return
performance condition is met, and may be exercised for a period of 10 years from the date of grant. Gavin Manson is required
to hold the shares for at least 24 months from the date of vesting.
Non-Executive Director Fees
Directors’ fees were increased with effect from 1st January 2017 following shareholder approval at the AGM on 23rd March
2017 of an increase in the aggregate amount that may be paid to Directors. The fees are currently as follows:
Role
Chairman of the Company
Base fee for Non-Executive Directors
Additional fees:
Chairman of the Audit and Risk, Valuations or
Remuneration Committee
Chairman of the Nominations Committee
Chairman of the Remuneration and
Nominations Committee
Senior Independent Director fee
No fees are paid for membership of a committee.
2017 Fees
2016 Fees
£200,000
£50,000
£200,000
£35,000
£10,000
–
–
£10,000
£6,000
–
£3,000
£6,000
Benefits
The Company reimburses reasonable travel and subsistence costs together with any tax liabilities from these amounts.
Pension
The Non-Executive Directors were not entitled to any pension benefits in the year ended 30th September 2017 (2016: £nil).
Variable Pay
The Non-Executive Directors are not entitled to any variable pay.
Electra Private Equity PLC | Annual Report and Accounts 2017 99
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
This resulted in the following total remuneration:
Single Total Figure Table for the Year (Audited)
Director
N Johnson1 (appointed Chairman 12th May 2016)
E Bramson2 (appointed 5th November 2015)
I Brindle (appointed 5th November 2015)
P Goodson (appointed 26th May 2016)
D Lis (appointed 26th May 2016)
R Perkin3
L Wilding (appointed 1st December 2016)
J McAdam (appointed 1st January 2017)
R Yates4 (resigned 5th November 2015)
Dame Kate Barker5 (resigned 20th June 2016)
F Barnes (resigned 20th June 2016)
G Cullinan (resigned 23rd November 2015)
J Gold (resigned 2nd June 2016)
Total
Fees
2017
£000
200
−
46
57
55
58
40
45
−
−
−
−
−
501
Taxable
benefits
2017
£000
3
59
−
−
5
−
1
−
−
−
−
−
−
68
Total
2017
£000
203
59
46
57
60
58
41
45
−
−
−
−
−
569
Fees
2016
£000
103
−
32
11.75
12
45.5
−
−
10
62
29.75
7
24
337
Taxable
benefits
2016
£000
2
64
−
0.25
1
0.5
−
−
30
−
0.25
−
−
98
Total
2016
£000
105
64
32
12
13
46
−
−
40
62
30
7
24
435
1
In the case of Neil Johnson, the 2016 fee includes payments made of £26,000 to C1 International Consulting Ltd of which he is a Director
and shareholder.
2 Edward Bramson waived his fee for his role as Non-Executive Director of the Board. The Company reimbursed Edward Bramson for his travel
expenses, with no further benefits provided.
3 Roger Perkin served as Senior Independent Director during the period 5th November 2015 to 12th May 2016 and from 20th June 2016 to
31st December 2016.
4 Roger Yates received reimbursement for a cancelled holiday of £30,000 in 2016. This payment is gross of tax paid on his behalf.
5 Dame Kate Barker served as Chairman of the Board between 5th November 2015 and 12th May 2016 and as Senior Independent Director
between the periods 1st October 2015 and 5th November 2015 and from 12th May 2016 to 20th June 2016. She waived the £3,000 per
annum payable to her as Chairman of the Nominations Committee during the period 1st October 2015 to 5th November 2015.
Scheme Interests
The Company did not operate any schemes under which shares, or rights to acquire shares, were awarded to Non-Executive
Directors of the Company during the year ended 30th September 2017, and no Non-Executive Director was otherwise
awarded any interest in shares in the Company.
Payments for Loss of Office and Payments to Former Directors (Audited)
No loss of office payments was made to any person who served as a Director of the Company at any time during the year
ended 30th September 2017 (2016: £nil).
No payments were made to any person who was not a Director of the Company at the time the award was made but had
previously been a Director of the Company at any time during the year ended 30th September 2017 (2016: £nil).
100 Electra Private Equity PLC | Annual Report and Accounts 2017
Relative Importance of Spend on Pay
Spend
Total return
Dividends paid and payable
Share buybacks
Remuneration Paid to Employees
Overall expenditure on Directors’ Remuneration
2017
£000
172,714
1,743,287
94,296
675
929
2016
£000
532,226
62,207
–
56
435
Change
%
(68%)
2,702%
100%
1,105%
125%
Spend £m
2,000
1,750
1,500
1,000
750
500
250
0
1,743
173
94
2017
Total return
Dividends paid
and payable
532
0.7
0.9
Share buybacks
62
0.1
0.4
2016
Remuneration Paid
to Employees
Overall expenditure
on Directors’ Remuneration
We consider it appropriate to compare the overall expenditure on Directors’ remuneration, remuneration paid to employees,
dividends paid and payable and share buybacks with the total return to demonstrate the relative scale of these figures to
each other.
Total Shareholder Return
We consider that, since the Company invests in a broad range of commercial sectors, the FTSE 250 Index is the most
appropriate index against which to compare the Company’s performance. This is displayed in the graph below.
Electra Private Equity Total Shareholder Return versus FTSE 250 Index
%
350
300
250
200
150
100
50
0
30 Sept
2007
30 Sept
2008
30 Sept
2009
30 Sept
2010
30 Sept
2011
30 Sept
2012
30 Sept
2013
30 Sept
2014
30 Sept
2015
30 Sept
2016
30 Sept
2017
Electra
FTSE 250 Index
Electra Private Equity PLC | Annual Report and Accounts 2017 101
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Statement of Directors’ Shareholdings and Share Interests (Audited):
The interests of the Directors (including connected persons) in the ordinary shares are shown below. There is no requirement
for the Directors to own securities of the Company. No share options or other share scheme interests, with or without
performance conditions, are awarded to the Non-Executive Directors. Save as disclosed, no Director had any notifiable interest
in the securities of the Company or of any subsidiary of the Company. There have been no changes in the interests of any of
the Directors in the ordinary shares of the Company between 1st October 2016 and 6th December 2017.
30th Sept 2017 30th Sept 2016
Shares
Shares
N Johnson
E Bramson*
I Brindle
D Lis
P Goodson
G Manson**
J McAdam**
R Perkin
L Wilding**
2,500
–
11,446,086 11,426,086
697
4,700
–
–
–
2,074
–
797
18,500
–
764
–
2,074
–
* These shares are held by Sherborne Investors Management LP (Guernsey) of which Edward Bramson is the managing member.
** Upon appointment, none of Linda Wilding, John McAdam or Gavin Manson had an interest in the ordinary shares of the Company.
Statement of Shareholder Voting
At the AGM held on 23rd March 2017 Ordinary Resolutions to approve the Annual Report on Remuneration and the
Remuneration Policy were passed on a poll with the following votes cast:
To approve the Directors’
Remuneration Report
To approve the Directors’
Remuneration Policy
Votes for
Votes against
Votes withheld
28,693,164 (99.69%)
88,317 (0.31%)
187,239
27,703,041 (98.92%)
301,448 (1.08%)
964,231
The Directors did not consider that there were substantial shareholder votes against the resolutions.
Implementation of policy during 2017/18
Chief Financial Officer
Mr Manson’s salary for 2017/18 will be addressed as part of the Committee’s review of the Remuneration Policy, which will be
submitted to shareholders for approval at the AGM.
Performance Measures for Annual Bonus Plan
As reported last year, 2016/17 was a transitional year, and the Committee therefore looked to select annual bonus plan
measures which would capture performance against our key objectives over this year while ensuring alignment with
shareholders. Since it was not possible to set traditional performance targets (such as profit or portfolio-oriented measures) the
Committee determined that the 2016/17 bonus would be based on:
■■ 50% TSR
■■ 40% strategic objectives and
■■ 10% cost control
The Committee believed that this would ensure a focus on shareholder value while incentivising the executives to deliver the
changes needed in the year to position the Group for future growth.
These targets will be reviewed for 2017/18 in light of the emerging strategy.
102 Electra Private Equity PLC | Annual Report and Accounts 2017
Performance Measures for 2017/18 Long-term Incentive
The LTIP granted in 2017/18 will be based on TSR relative to the other constituents of the FTSE 250 over the financial years
2016/17, 2017/18 and 2018/19. Median performance will result in 25% of the shares vesting increasing to full vesting for upper
quartile performance. All shares (net of tax) will be subject to a 2 year holding period after they vest. Further detail is provided
in Note 21 of the Financial Statements.
Recruitment of a New Chief Executive
Edward Bramson is currently the interim Chief Executive of Electra Private Equity PLC. He does not receive any remuneration
for undertaking this role.
Should Electra appoint a new Chief Executive during 2017/18, their remuneration would be in line with the Remuneration
Policy and will be set out in the 2018/19 Annual Report on Remuneration.
Non-Executive Director Fees
Following shareholder approval of a resolution to increase the permitted upper limit on Non-Executive Directors’ fees from
£450,000 per annum to £750,000 per annum at the AGM held on 23rd March 2017, the base fee was increased, with effect
from 1st January 2017, to £50,000. Additional fees for chairing the Remuneration Committee, Audit Committee and Valuations
Committee were increased to £10,000 but with no additional fees for chairing the Nominations Committee. The Senior
Independent Director fee also increased to £10,000.
There are no plans to increase the fees paid to Non-Executive Directors during 2017/18.
David Lis
Chairman of the Remuneration Committee
6th December 2017
Electra Private Equity PLC | Annual Report and Accounts 2017 103
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Report of the Audit and Risk Committee
The Board is supported by the Audit and Risk Committee. The Committee was established on 1st June 2017 in place of the
Audit Committee to reflect the increased responsibility of the Board for risk management following the termination of the
agreement with Epiris.
I am Chairman of the Audit and Risk Committee and with effect from 2nd December 2016, the members of the Committee
have been Paul Goodson and Linda Wilding. The Board has taken note of the requirement that at least one member of the
Audit and Risk Committee should have recent and relevant financial experience and is satisfied that the Audit and Risk
Committee is properly constituted in this respect, as I am a former partner at Ernst & Young LLP and a Chartered Accountant.
The Audit and Risk Committee’s authority and duties are clearly defined in its written terms of reference which are available on
the Company’s website.
The Audit and Risk Committee’s responsibilities include:
■■ Monitoring and reviewing the integrity of the Financial Statements, the internal financial controls and the independence,
objectivity and effectiveness of the external auditors
■■ Making recommendations to the Board in relation to the appointment of external auditors and approving their
remuneration and the terms of their engagement
■■ Developing and implementing the Company’s policy on the provision of non-audit services by the external auditors
■■ Reviewing the arrangements in place whereby staff may, in confidence, raise concerns about possible improprieties in
matters of financial reporting or other matters insofar as they may affect the Company
■■ Considering annually whether there is a need for the Company to have its own internal audit function
■■ Providing advice to the Board on whether the annual Financial Statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for shareholders to assess the Company’s performance, business
model and strategy
■■ Advising the Board on the Company’s overall risk appetite, tolerance and strategy, and
■■ Overseeing and advising the Board on the current risk exposures of the Company and future risk strategy, including
reviewing the Company’s key risks and internal controls
I report to the Board after each Audit and Risk Committee meeting on the main matters discussed at the meeting.
The Audit and Risk Committee met 3 times during the year under review. The main matters discussed at those meetings were:
■■ Review and approval of the annual plan of the external auditors
■■ Discussion and approval of the fee for the external audit
■■ Detailed review of the Annual Report and Financial Statements and Half Year Report and recommendation for approval by
the Board
■■ Discussion of reports from the external auditors following their audit
■■ Assessment of the effectiveness of the external audit process as described below
■■ Review of the Company’s key risks and internal controls
■■ Consideration of the 2016 UK Corporate Governance Code, 2016 AIC Code of Corporate Governance, 2014 Guidance on
Risk Management, Internal Control and Related Financial and Business Reporting, 2016 Guidance on Audit Committees and
2012 UK Stewardship Code and impact of these on the Company
The most significant risk in the Company’s Financial Statements is whether its investments are fairly and consistently valued
(including the recognition of unrealised gains and interest income) and this issue is considered carefully when the Audit
and Risk Committee reviews the Company’s Annual and Half Year Accounts. The Valuations Committee considers detailed
explanations of the rationale for the valuation of each investment and these are discussed in detail with the auditors at a
meeting which is normally attended by all members of the Audit and Risk Committee. The key areas of focus in the review and
challenge by the Valuations Committee are the overall methodology and underlying business performance/EBITDA of investee
companies, multiples and discounts used where valuations derive from an earnings basis. The Auditors separately report on
their procedures and the conclusions from their work. This is more fully described in their report on pages 66 to 73. The Audit
and Risk Committee concluded that the year-end valuation process had been properly carried out and that the investments
have been fairly valued.
The Audit and Risk Committee was also keen to ensure that amounts due to Epiris in respect of priority profit share and incentive
scheme provisions payable in respect of the period to 31st May 2017 had been correctly provided for in the Financial Statements
104 Electra Private Equity PLC | Annual Report and Accounts 2017
due to the sensitive nature of these amounts. The Audit and Risk Committee ensured that the auditors had checked that the
amounts had been calculated on a basis which was consistent with the management agreement and properly attributable to the
underlying valuations. The auditors confirmed to the Audit and Risk Committee that they had not identified any issues related to
their work in this area and the Audit and Risk Committee concluded that the figures are fairly stated.
As reported in last year’s report, the Company put the audit contract out to tender during the year and, on the recommendation
of the Audit Committee, the Board agreed to appoint Deloitte LLP as auditors of the Company with effect from the audit of the
Company’s Financial Statements for the year ended 30th September 2017, subject to approval by the members, which was
granted at the AGM held on 23rd March 2017.
The Audit and Risk Committee would like to thank PricewaterhouseCoopers LLP for its work on the audit of the Company over
many years.
The Audit and Risk Committee annually reviews the performance of the Company’s external auditors. In doing so the Audit
and Risk Committee considers a range of factors, including the quality of service, the auditor’s specialist expertise and the level
of audit fee. The Audit and Risk Committee will carry out a formal review of Deloitte’s audit this year once all the work has been
completed but has been satisfied with their effectiveness so far and therefore does not consider it necessary to carry out a
further tender for the audit at this time.
The auditors are required to rotate the audit partner every 5 years; the current partner has been in place for 1 year. There are
no contractual obligations restricting the choice of external auditor. Under Company law, the reappointment of the external
auditors is subject to shareholder approval at the AGM.
EU Audit Regulation reforms in relation to non-audit services has become effective and applies to the Company under these
regulations as a Public Interest Entity for the preparation of the Company’s 2017 Report and Financial Statements. In light of
this, the Committee has approved a revised policy on non-audit services, which requires that non-audit fees must not exceed
70% of the average of the fees paid in the last three consecutive years for the statutory audit. The Audit and Risk Committee
confirms that the Company expects to comply with these requirements in future in respect of Deloitte LLP.
The Audit and Risk Committee has reviewed the provision of non-audit services provided during the course of the current year
and believes them to be cost-effective and not an impediment to the external auditor’s objectivity and independence. It has
been agreed that I must approve all non-audit work to be carried out by the external auditors for the Company and that any
special projects must be approved in advance. The non-audit services provided by Deloitte during the course of the year
under review included transaction-related services associated with the strategic review of the Company (see Note 4).
The Board has delegated oversight of risk management and monitoring of the Company’s control systems to the Audit and
Risk Committee, The Audit and Risk Committee is supported in this by the work of the executive management team.
G10 is responsible for the provision of risk management services as required by the AIFMD. G10 has oversight of risk
management and the ongoing process of identifying, evaluating, monitoring and managing the risks facing the Company in
accordance with AIFMD. Prior to 1st June 2017 the responsibility for risk management was delegated to Epiris, the former AIFM
of the Company, under the supervision of the Board.
Executive management commissioned an independent review of the operating effectiveness of the internal controls related
to the financial reporting process during the year and reported the findings of this review to the Audit and Risk Committee.
The Audit and Risk Committee has considered whether there is a need for the Company to have its own internal audit
function, but continues to believe that the Company’s internal control systems in place give sufficient assurance, given the size
of the Company, that a sound system of internal control, which safeguards shareholders’ investment and the Company’s assets
is maintained. This view is supported by the review of the effectiveness of internal controls referred to above. The Audit and
Risk Committee considers, therefore, that an internal audit function specific to the Company is unnecessary.
Roger Perkin
Chairman of the Audit and Risk Committee
6th December 2017
Electra Private Equity PLC | Annual Report and Accounts 2017 105
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration 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
prepared the Group Financial Statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted
by the European Union. The parent Company Financial Statements have been prepared in accordance with United Kingdom
Accounting Standards, including Financial Reporting Standard 101 “Reduced Disclosure Framework” (FRS 101). 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 of the Group and the Company and of the profit or loss of the Group for that year. In preparing those Financial
Statements, the Directors are required to:
■■ Select suitable accounting policies and then apply them consistently
■■ Make judgements and 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
The Financial Statements are published on the Company’s website, www.electraequity.com. The maintenance and integrity
of the website, so far as it relates to the Company, is the responsibility of the Directors. The work carried out by the Auditors
does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditors accept no
responsibility for any changes that have occurred to the Financial Statements since they were initially presented on the
website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and
dissemination of the Financial Statements may differ from legislation in other jurisdictions.
The Directors are responsible for keeping proper 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 the Group and
enable them to ensure that the Financial Statements and the Directors’ Remuneration Report comply with the Companies Act
2006 and as regards the Group Financial Statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding
the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and
other irregularities.
Each of the Directors, whose names and functions are listed in the Board of Directors section of the Annual Report, confirms
that, to the best of their knowledge:
■■ The Group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and profit of the Group
■■ The Strategic Report contained in the Annual Report includes a fair review of the development and performance of the
business and position of the Group, together with a description of the principal risks and uncertainties that it faces
■■ So far as each Director is aware, there is no relevant audit information of which the Company’s auditors are unaware;
■■ They have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant
audit information and to establish that the Company’s Auditors are aware of that information and
■■ The Group Financial Statements, taken as a whole, are fair, balanced and understandable, and provide the information
necessary for shareholders to assess the Company’s position, performance, business model and strategy
By order of the Board of Directors
Neil Johnson
Chairman
6th December 2017
106 Electra Private Equity PLC | Annual Report and Accounts 2017
TGI Fridays
Established brand of
American-styled restaurants
Board of Directors
Neil Anthony Johnson (Chairman)
Neil is currently Chairman of Synthomer plc and Motability Operations plc and Senior Independent
Director of Business Growth Fund. He was formerly CEO of the RAC. He chaired telematics company
Cybit PLC through IPO and ultimate sale to a US private equity house in 2010 and was chairman of
e2v PLC until its takeover by Teledyne in 2016. After directing the European automotive interests of
British Aerospace, he served a term as Director General of the Engineers Employers Federation and
later set up a transatlantic trade and business promotion body, British-American Business, Inc.
Following an early career in the Army, he began his business career with a series of roles within Lex
Service Group, British Leyland, Jaguar and Land Rover. He was, until 2012, an Independent Member
of the Metropolitan Policy Authority.
Neil was appointed as Non-Executive Chairman and Director of the Company on 12th May 2016.
He is Chairman of the Nominations Committee.
Edward John Michael Bramson
Edward is a managing member of Sherborne Investors, which he founded in 1986. Sherborne
Investors currently invests in publicly traded companies principally in the United States and United
Kingdom. Previously, he co-founded New York-based Hillside Capital in 1977, which was one of the
first specialist private equity firms in the United States. Edward has served as Chairman of F&C Asset
Management plc, Spirent Communications PLC, Nautilus, Inc., Elementis PLC, 4imprint Group PLC
and Ampex Corporation.
Edward was appointed a Director on 5th November 2015. He is a Director of a number of the
Company’s portfolio companies.
Ian Brindle
Ian was a Senior Partner of Price Waterhouse from 1991 to 1998 and Chairman of PricewaterhouseCoopers
until 2001. He was also a member of the Accounting Standards Board between 1992 and 2001 and
Deputy Chairman of the Financial Reporting Review Panel between 2001 and 2008. Ian Brindle is a
Non-Executive Director of Sherborne Investors (Guernsey) C Limited and has served as a Non-Executive
Director on the Boards of a number of other companies including Spirent Communications PLC,
Elementis PLC, F&C Asset Management plc and 4imprint Group PLC.
Ian was appointed a Director on 5th November 2015.
Paul Andrew Goodson
Paul was Executive Chairman of Great Bear Distribution, a leading independent third-party logistics
business which provides a range of warehousing, distribution and added value services to blue chip
organisations. He stood down in February 2016 after having successfully sold the business to Culina
to create a £400 million group. Prior to Great Bear, he spent 13 years with Barclays PE, latterly serving
as MD of the UK business. In this role, he had responsibility for the UK’s investment team and shared
responsibility for BPE Europe with the Heads of France and Germany. Prior to this, he held a number
of senior investment and general management roles both with BPE and 3i after beginning his career
with IBM as a Sales Representative. He is a Non-Executive Director of DX (Group) PLC.
Paul was appointed as a Director on 26th May 2016. He is Chairman of the Valuations Committee.
David George Lis
David retired from his role as CIO of Equities and Multi-Assets at Aviva Investors, the global asset
management business with £267 billion AUM, in 2016. Prior to this, he was Head of Equities at
Aviva Investors, with overall responsibility for £33 billion of active and passive funds across all
major markets and direct day to day responsibility for the active management of the £5.5 billion
Institutional UK Equity Fund, £1.1 billion Global Income Fund, £200 million Aviva Investors UK Growth
OEIC and £100 million UK Smaller Companies OEIC. Before joining Norwich Union (now Aviva) in
1997, David spent a number of years as Head of Investor Relations at Ludgate Communications,
advising a number of major UK and international companies on their financial communications.
Earlier in his career, he co-founded Windsor Investment Management, and also spent a number of
years as a fund manager at both Morgan Grenfell and J Rothschild Investment Management. He is a
Non-Executive Director of Melrose Industries PLC, BCA Marketplace PLC and The Investor Forum.
David was appointed as a Director on 26th May 2016. He is Chairman of the Remuneration Committee.
108 Electra Private Equity PLC | Annual Report and Accounts 2017
Gavin Maxwell Manson
Gavin first joined the Company as Chief Financial Officer in August 2016. Prior to joining the
Company, he was the Finance Director of Thomas Cook Group PLC’s tour operator and hotels and
resorts division. He joined Thomas Cook in 2013 from the FTSE 250 international electronic
component distribution and software business, Premier Farnell PLC, where he was the Finance
Director for 5 years. Before this, he worked at Merck GmbH group as the Finance Director for Seven
Seas Ltd before becoming Finance Director of the Merck Consumer Healthcare division in UK and
Ireland, and latterly leading the consolidation of the back-office activities of Merck’s four operating
divisions across the UK and Ireland. Prior to joining Merck, Gavin trained as a Chartered Accountant
with KPMG in Edinburgh and held Finance Director roles within Drambuie Group and Lees Group
where he focused on the delivery of operating improvement and strategic change.
Gavin was appointed as a Director on 23rd March 2017. He is a Director of a number of the
Company’s portfolio companies.
John David Gibson McAdam
John has extensive experience of senior leadership of global businesses in a wide range of industry
sectors gained from his career with ICI and Unilever over more than 30 years and his other Board and
advisor appointments. He joined Unilever PLC as a management trainee in 1974 and went on to
hold a number of senior positions in Birds Eye Walls, Quest and Unichema before joining ICI PLC,
where he was Chief Executive until 2007. He is Chairman of Rentokil Initial PLC and United Utilities
PLC and also a Non-Executive Director of Cobham PLC. He was a Senior Independent Director of
J Sainsbury PLC until July 2016 and a Non-Executive Director of Sara Lee Corp (2008-14), Severn Trent
PLC (2000-05) and Rolls-Royce Group PLC (2008-2017).
John was appointed a Director and the Senior Independent Director on 1st January 2017.
Roger Kitson Perkin
Roger is a former senior partner at Ernst & Young with extensive global accounting experience and
financial services expertise. He spent 40 years at Ernst & Young and its predecessor firms, including
over 30 years as a Partner, working with a wide range of clients before specialising in financial
services. He is a Non-Executive Director of AIB Group (UK) plc., TP ICAP p.l.c and Hargreaves
Lansdowne PLC, and previously served as a Director of Nationwide Building Society, Friends Life
Group PLC and Evolution Group PLC.
Roger was appointed a Director in 2009. He is Chairman of the Audit and Risk Committee.
Linda Wilding
Linda Wilding has extensive experience in the private equity investment and healthcare sectors.
Having qualified as a Chartered Accountant with Ernst & Young, she worked in the private equity
division of Mercury Asset Management from 1989 to 2001, rising to the position of Managing
Director. She has served as a Non-Executive director (including as Chairman) on the boards of a
number of companies. She is currently a Non-Executive Director of Touchstone Innovations PLC
and UDG Healthcare PLC. She was a Non-Executive Director and latterly Chair of Corin PLC from
2006 to 2012.
Linda was appointed a Director on 1st December 2016.
Electra Private Equity PLC | Annual Report and Accounts 2017 109
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Alternative Investment Fund Managers Directive
As the Company and the Investment Manager (which, inter alia, acts as the Company’s alternative investment fund manager or
AIFM) are each domiciled in the United Kingdom, the FCA Handbook rules require that, among other things, the AIFM makes
available the following information to shareholders of Electra under the AIFM Directive (as implemented in the UK) and to
notify them of any material change to information previously provided.
Investment Policy, Leverage and Liquidity (AIFMD 23(1)(a)(b)(h))
The investment strategy and objectives of Electra, the types of asset it may invest in and the investment techniques it may
employ, associated risks and any investment restrictions are laid out in the Objective and Investment Policy, Strategic Report
and other sections of the Annual Report.
For information about the circumstances in which the Company may use leverage, the types of sources permitted and the
associated risks and any restrictions on the use of leverage and any collateral and asset re-use arrangements, shareholders are
directed to the disclosures contained in the Objective and Investment Policy and the Strategic Report of the Annual Report as
well as specific AIFMD related disclosures further below.
Under the UK Listing Authority listing rules to which the Company is subject it needs the prior approval of its shareholders to
make a material change to its Investment Policy.
Since the Company is closed-ended without redemption rights, liquidity risk management is limited to the liquidity required
to meet the Company’s obligations in relation to its financing arrangements and on its ability to meet calls on unfunded
liabilities to third party funds and other investments. The Investment Manager utilises various risk assessment methods to
measure the risk of portfolio illiquidity to meet the Company’s obligations. This measurement enables the provision of
management information to the Investment Manager and the Board of the Company to enable these risks to be monitored
and managed.
Legal Relationship with Investors (AIFMD 23(1)(c))
The Company is a public limited company listed on the London Stock Exchange. The Company is incorporated under the laws
of England and Wales. The constitutional document of the Company is its articles of association (“Articles”) which may only be
amended by way of a special resolution of its shareholders. Upon the purchase of shares, an investor becomes a shareholder
of the Company. A shareholder’s liability to the Company will be limited to the amount uncalled on their shares. The Company
has one class of share, namely ordinary shares, with standard rights as to voting, dividends and payment on winding-up and
no special rights and obligations attaching to them. Transfers to US persons are restricted but otherwise, there are no material
restrictions on transfers of shares. No redemption rights attach to the ordinary shares in the Company.
As the Company is incorporated under the laws of England and Wales, it may not be possible for a shareholder located outside
that jurisdiction to effect service of process within the local jurisdiction in which that shareholder resides upon the Company.
All or a substantial portion of the assets of the Company may be located outside a local jurisdiction in which a shareholder
resides and as a result, it may not be possible to satisfy a judgement against the Company in such local jurisdiction or to
enforce a judgement obtained in the local jurisdiction’s courts against the Company.
AIFM and its Delegates (AIFMD 23(1)(d), (e) and (f ))
The Investment Manager is a limited company with its registered office at 136 Buckingham Palace Road, London SW1W 9SA
and which is authorised and regulated by the Financial Conduct Authority (FRN 648953). It has been appointed by the
Company to manage the Company under an Investment Management Agreement with effect from 1st June 2017 (the
“Investment Management Agreement”).
The Investment Manager is responsible for portfolio management and risk management and monitoring of the assets of
the Company and has discretionary authority over the acquisition and disposition of the Company’s assets, with power to
give guarantees and undertake other transactions on behalf of the Company subject to the provisions of the Investment
Management Agreement. The Investment Manager is also responsible for ensuring compliance with the AIFMD.
The Investment Manager’s duties under the Investment Management Agreement are owed to the Company as a whole
rather than directly to the shareholders, whether individually or in groups. The Board of Electra is responsible under the
Investment Management Agreement for representing the Company in its dealings with the Investment Manager.
110 Electra Private Equity PLC | Annual Report and Accounts 2017
In accordance with the Investment Management Agreement, the liability of the Investment Manager and its members, officers
and employees is limited and capped at £350,000 in aggregate, and subject to certain limitations they are entitled to be
indemnified out of the assets of the Company.
In order to comply with its regulatory obligations, the Investment Manager holds professional indemnity insurance.
Depositary and its Delegates (AIFMD 23(1)(d) and (f ))
Ipes Depositary (UK) Limited (the “Depositary”) has been appointed as the Depositary of the Company under a Depositary
Agreement agreed in accordance with AIFMD requirements. The Depositary is a company incorporated in England (registered
number 08749704) whose registered office is at 9th Floor, No 1 Minster Court, Mincing Lane, London EC3R 7AA. It is authorised
to act as a Depositary by the FCA (FRN 610203). The Depositary is responsible for safekeeping of the Company’s investments,
including holding in custody those investments which are required to be held in custody and verifying ownership (on the
basis of evidence provided by the AIFM) and keeping records of the Company’s other investments, and for cash monitoring.
The Depositary’s duties under the Depositary Agreement are owed to the Company as a whole and not directly to
shareholders, whether individually or in groups.
The investments of the Company are not of a kind required to be held in custody by the Depositary. The Depositary has
appointed a custodian, RBC Investor Services Trust, in respect of the holding of custody assets belonging to the Company.
The Depositary has contractually discharged itself of liability in respect of the assets held by RBC Investor Services Trust.
Independent Auditors (AIFMD 23(1)(d))
The independent auditors of the Company for the year ended 30 September 2017 were Deloitte LLP. The Auditors’ duties are
owed to the Company as a whole. They have a statutory responsibility to report to the members of the Company as a whole
in relation to the truth and fairness of the Company’s state of affairs and profit or loss.
Valuation (AIFMD 23(1)(g))
The assets of the Company are valued by the Investment Manager in accordance with the provisions set out in the Principles
of Valuation of Investments as set out in the Notes to the Financial Statements in the Annual Report. The Valuations Committee
which has been set up by the Investment Manager in respect of the Company adds a further level of oversight to the valuation
process as set out on in the Corporate Governance section of the Annual Report.
Fees and Expenses (AIFMD 23(1)(i))
The Investment Manager is paid a base fee of £20,000 per month by the Company in consideration for its provision of full
scope AIFM services to the Company. Such fee may be increased to the extent new investment holding subsidiary entities of
the Company are established or reduced to the extent any such existing subsidiary entities are wound up. In addition, a further
fee of £750 per month per entity is payable by the Company to the Investment Manager in respect of the provision by the
Investment Manager of management and operator services to investment holding subsidiary entities of the Company.
Additional services not included within the scope of the above may be payable based on the Investment Manager’s hourly
rates, and the Investment Manager is entitled to reimbursement for reasonable fees and expenses properly incurred by it in
connection with the services it provides to the Company and its subsidiaries. All fees are exclusive of any VAT.
In addition the Company operates carried interest and co-investment schemes for executives of the Company’s former
investment manager and details of these schemes are contained in the Notes to the Financial Statements in the Annual
Report. With effect from 31st May 2017, the amount payable under such schemes shall be reduced by 20%, which reduction
reflects the change of manager effective on such date.
In addition the Company incurs costs in the form of depositary fees, custodian fees, bank fees and charges, marketing fees,
auditors’ fees, lawyers’ fees and other fees.
Given the nature of all these fees and expenses it is not possible to provide a maximum fee payable.
Electra Private Equity PLC | Annual Report and Accounts 2017 111
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Fair Treatment of Investors and Preferential Treatment (AIFMD 23(1)(j))
No preferential rights have been granted to any existing shareholder.
The Company and the Investment Manager are committed to ensuring that all shareholders are treated fairly and in
accordance with UK company law. They have not and will not enter into any arrangement with one shareholder which could
result in any overall material disadvantage to the other shareholders.
Issue and Redemption of Shareholder Interests in the Company ((AIFMD 23(1)(l))
The Company is closed-ended and does not provide for redemption or repurchase of the interests of ordinary shareholders at
their request.
Reporting and Performance (AIFMD 23(1)(k), 23(1)(m) and 23(1)(n))
The historic performance of the Company, to the extent available, has been disclosed to shareholders in the Company’s
Annual and Half Yearly Reports, which will be sent to shareholders and are available from www.electraequity.com.
The latest NAV of the Company is published in the latest Annual or Half Yearly Report.
Prime Broker (AIFMD 23(1)(o))
The Company does not have a prime broker.
Method of Making Ongoing/Periodic Disclosures (AIFMD 23(1)(p),23(4),23(5))
Information about the Company’s risk profile and risk management, total leverage and any material change to the
arrangements for managing the Company’s liquidity, the proportion of assets (if any) subject to special arrangements arising
from liquidity, the maximum permitted leverage or the grant of rights of re-use of collateral or guarantees in relation to
leverage will be provided in the Company’s Annual Reports.
Risk Profile and Risk Management (AIFMD 23(4)(c))
The appointment of the Investment Manager as the AIFM of the Company under the AIFMD means that it is responsible for
risk management and the ongoing process of identifying, evaluating, monitoring and managing the risks facing the Company
in accordance with the requirements of the AIFMD. The Board keeps the Investment Manager’s performance of these
responsibilities under review as part of its overall responsibility for the Company’s risk management and internal controls.
The principal risks of the Company are set out in the Strategic Report and in the Notes to the Financial Statements in the
Annual Report. The Investment Manager’s risk management system incorporates regular review of these risks and the
establishment of appropriate risk limits and internal control processes to mitigate the risks. The sensitivity of the Company to
relevant risks is further detailed in the Notes to the Financial Statements in the Annual Report.
The risk limits currently put in place for the Company by the Investment Manager are in relation to the parameters for diversity
of investment set out in the Objective and Investment Policy, for Credit Risk set out in the Notes to the Financial Statements in
the Annual Report and the limits on the Company’s leverage set out below.
Restrictions on the Use of Leverage and Maximum Leverage (AIFMD 23(5))
As specified in the Objective and Investment Policy in the Annual Report, the Company has a policy to maintain total gearing
below 40% of its total assets and the Investment Manager oversees the use of leverage to ensure that the use of borrowing
and derivatives is consistent with this requirement. The Company does not have any asset re-use arrangements in relation to
collateral and has not granted any guarantees.
Under AIFMD, the Company is required to calculate leverage under the two methodologies specified by the Directive, the
‘Gross Method’ and the ‘Commitment Method,’ the difference being that the Commitment Method allows certain exposures to
be offset or netted.
Leverage is calculated using gross assets, with various adjustments, divided by net assets.
The Investment Manager has currently set a limit of 230% on the use of leverage based on the Gross Method and a limit of
230% on the use of leverage based on the Commitment Method which the Investment Manager considers consistent with the
gearing limit set out in the Objective and Investment Policy.
112 Electra Private Equity PLC | Annual Report and Accounts 2017
Information for Shareholders
Financial Calendar for 2017/18
Annual General Meeting
Half-year Results announced
Annual Results announced
1st March 2018
May 2018
December 2018
Website and Electra News via Email
For further information on share prices, regulatory news and other information, please visit www.electraequity.com.
If you would like to receive email notice of our announcements, please visit the Electra website at www.electraequity.com and
click on the “Subscribe to receive news alerts” logo on the Home page. Registering for email alerts will not stop you receiving
Annual Reports or any other documents you have selected to receive by post or electronically.
Shareholder Enquiries
In the event of queries regarding your ordinary shareholding, please contact the Company’s registrar, Equiniti Limited, who will be
able to assist you with:
■■ Registered holdings
■■ Balance queries
■■ Lost certificates
■■ Change of address notifications
Equiniti Limited’s full details are provided on page 120 or please visit www.equiniti.com.
If you are an existing shareholder and wish to buy more/sell your shares in Electra:
An internet and telephone dealing service has been arranged through Equiniti, which provides a simple way for UK shareholders
of Electra to buy or sell Electra’s shares. For full details and terms and conditions simply log onto www.shareview.co.uk/dealing or
call 0371 384 2351. Please note that lines are open 8.30am to 5.30pm (UK time) Monday to Friday (excluding public holidays in
England and Wales).
The service is only available to shareholders of Electra who hold shares in their own name, with a UK registered address, who are
aged 18 and over.
Shareview Dealing is provided by Equiniti Financial Services Limited. Equiniti Financial Services Limited is authorised and
regulated by the Financial Conduct Authority of 25 The North Colonnade, Canary Wharf, London E14 5HS (FCA reference 468631).
Equiniti Financial Services Limited is registered in England and Wales with number 6208699.
If you are not an existing shareholder:
We recommend you seek your own personal financial advice from an appropriately qualified independent adviser or alternatively
contact your own broker. Electra Private Equity PLC’s shares are listed on the London Stock Exchange as ELTA.
Please note: The above information is not a recommendation to buy or sell shares. The value of shares and any income from them
can fluctuate and you may get back less than the amount invested. If you have any doubt over what action you should take,
please contact an authorised financial adviser.
Electra Private Equity PLC | Annual Report and Accounts 2017 113
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Distribution policy
In February 2015, a distribution policy was announced whereby Electra proposes to return to shareholders a targeted 3% of NAV
per annum, by way of cash dividend or share buybacks. Any shares bought back under this policy will be cancelled.
Dividend Reinvestment Plan
A Dividend Reinvestment Plan (the “Plan”) has been arranged with Equiniti, the registrar, whereby existing shareholders have the
option of reinvesting any dividend payments to buy more fully paid ordinary shares in the Company. The DRIP option was not
available for any of the dividends paid in 2017.
For further details on the Plan please call the Equiniti helpline on 0371 384 2351* (or +44 121 415 7047 if calling from outside the
United Kingdom).
* Lines open 8.30am to 5.30pm (UK time), Monday to Friday, excluding public holidays in England and Wales.
Trading Information – Ordinary Shares
Listing
ISIN
SEDOL
Ticker/EPIC code
Bloomberg
Reuters
London Stock Exchange
GB0003085445
0308544
ELTA
ELTALN
ELTAL
Share Fraud Warning
We are aware that in the past a number of shareholders have received unsolicited phone calls or correspondence concerning
investment matters. These are typically from overseas based brokers who target UK shareholders, offering to sell them what often
turn out to be worthless or high-risk shares. These operations are commonly known as Boiler Room scams.
Please be very wary of any such calls or correspondence. Ask for the name and organisation of the person calling you and check
if they can be found on the FCA Register. If they are not listed, please report it directly to the FCA using their consumer helpline
(0800 111 6768). You may also wish to advise us by telephoning 020 3874 8300 or emailing IR@electrapeplc.com.
It is very unlikely that either the Company or the Company’s Registrars, Equiniti, would make unsolicited telephone calls to
shareholders. Such calls would only relate to official documentation already circulated to shareholders and never be in respect of
investment advice.
Please remember that if you use an unauthorised firm to buy or sell shares, you will not be eligible to receive payment under the
Financial Services Compensation Scheme if things go wrong.
114 Electra Private Equity PLC | Annual Report and Accounts 2017
Other Useful Websites
LPEQ
LPEQ is a group of private equity investment trusts and similar vehicles listed on the London Stock Exchange and other major
European stock markets, formed to raise awareness and increase understanding of listed private equity.
LPEQ provides information on private equity in general, and the listed sector in particular, undertaking and publishing research
and working to improve levels of knowledge about private equity among investors and their advisers.
For further information visit www.lpeq.com.
Association of Investment Companies (AIC)
AIC is the trade organisation for closed-ended investment companies. The AIC represents a broad range of closed-ended
investment companies, including investment trusts, offshore investment companies and venture capital trusts which are traded
on the London Stock Exchange, Alternative Investment Market, Special Financials Market, Euronext and the Channel Islands Stock
Exchange.
For further information visit www.theaic.co.uk.
British Private Equity & Venture Capital Association (BVCA)
BVCA is the industry body and public policy advocate for the private equity and venture capital industry in the UK. The BVCA’s
aim is to aid understanding around the activities of its members, promote the private equity and venture capital industry to
entrepreneurs and investors as well as to Government, the EU, trade unions, international media and the general public. They
communicate the industry’s impact and reinforce the crucial role its members play in the global economy as a catalyst for change
and growth.
For further information visit www.bvca.co.uk.
Ten Year Record
Ten Year Record of Net Assets, Share Price and Earnings
As at 30th Sept
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Net Assets
£’000
(2) 640,949
(3) 607,953
724,531
821,492
916,304
1,029,902
1,195,101
1,502,940
2,073,564
(4) 758,367
Diluted Net
Asset Value
per share
p
Diluted
earnings
per share
p
Basic
earnings
per share
p
1,800.64
1,720.36
2,050.25
2,224.78
2,473.10
2,763.61
3,174.34
3,913.84
5,149.09
1,980.96
–
–
–
23.00
(6.46)
(6.57)
66.42
84.18
12.80
445.83
(13.98)
34.05
4.41
11.90
(24.29)
(25.39)
56.55
79.96
13.12
445.83
Dividends
paid per
share
p
25.00
–
–
–
–
–
–
38.00
122.00
3,636.00
(1)Share price
as at 5 April
per share
p
(1)Share price
as at 30 Sept
per share
p
1,570.00
632.50
1,361.00
1,414.00
1,720.00
2,305.00
2,632.00
3,103.00
3,482.00
5,110.00
1,235.00
1,224.00
1,368.00
1,360.00
1,770.00
2,230.00
2,650.00
3,265.00
4,310.00
1,665.00
Notes
The NAV per share for 2008 to 2017 have been prepared on an IFRS basis as explained in the Basis of Accounting.
1. Middle market price at close of business on 5th April or 30th September or, if appropriate, previous business day in each case.
2. During the year ended 30th September 2008,1,657,000 shares were repurchased for cancellation (cost: £26,492,000).
3. During the year ended 30th September 2009 257,000 shares were repurchased for cancellation (cost: £2,096,000).
4. During the year ended 30th September 2017 1,987,768 shares were repurchased for cancellation (cost: £94,296,223).
Electra Private Equity PLC | Annual Report and Accounts 2017 115
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Glossary
AIF
Alternative Investment Fund. Electra Private Equity PLC is an AIF.
AIFM
Alternative Investment Fund Manager. Epiris Managers LLP was the AIFM for Electra Private Equity PLC until 31st May 2017.
From 1st June 2017, the AIFM for Electra Private equity PLC is G10.
AIFMD
Alternative Investment Fund Managers Directive 2011/61/EU of the European Parliament.
Carried Interest
The incentive arrangements, which are similar to arrangements found elsewhere in the private equity industry, were designed
to align previous managers interests with those of Electra’s shareholders. These arrangements are typically referred to as
“carried interest”.
The carried interest payable to previous managers is based on three year pools of investments. Under the terms of this
arrangement all qualifying investments in a three year period are aggregated into a separate pool. Electra must first receive
back the aggregate cost of all the investments in the pool, plus related priority profit share (see below) and an 8% compound
return (this is often referred to as the “hurdle”). Once Electra has received sufficient cash to pay the amounts as described
above, the previous managers will be entitled to a carried interest of 18% of the profits. Consequently, they will receive the
next 18/82 of the hurdle so that they will have an amount equal to 18% of the profits on the pool up to that point (this is
referred to as a “catch up”). Thereafter, Electra and previous managers will share future cash flows in the ratio of 82:18.
Below is an example to illustrate in principle how the above described arrangements work:
£m
Assumptions
Amount invested
Amount realised
Pool profit
Hurdle
Catch up
Balance
Total carry
Electra
500
1,000
500
(210)
46
44
90
410
Amount invested and priority profit share
Realised after year five
8% per annum compound
18/82 of the hurdle
The amount over the hurdle to get to an aggregate 18% of the pool profit
18%
82%
On 31st May 2017, when the contract with the previous managers terminated, any provision on post 2006 Pools, which was
unpaid at that date and any future uplift to it will be reduced by 20% which will revert back to the Company.
CLO
A Collateralised Loan Obligation, or “CLO”, is a securitisation vehicle which invests in a portfolio of corporate loans and is funded
with a number of tranches of rated debt and a small (typically around 10% of the capital structure) equity tranche. The equity
tranche benefits from the yield arbitrage between the return on the loan portfolio and the cost of the capital structure.
Commitments
Legal obligation to provide capital for future investment in a private equity fund or in relation to a single investment.
Discount
Investment trust shares frequently trade at a discount to NAV. This occurs when the share price is less than the NAV. In this
circumstance, the price that a shareholder would pay or receive for a share would be less than the value attributable to it by
reference to the underlying assets. Traditionally expressed as a percentage.
116 Electra Private Equity PLC | Annual Report and Accounts 2017
Distributions to Paid-In Capital (DPI)
DPI, or realisation multiple, is defined by the Global Investment Performance Standards published by the CFA Institute and is the
ratio of Distributions to Paid-In capital. It measures, since inception, the cash received by a fund’s investors relative to the amount
contributed to the fund by those investors. DPI below comprises cumulative realisations net of investment management fees
(PPS and carried interest) in the numerator and original investment cost in the denominator in respect of each fund.
Amount distributed (£m)
Notional PPS (£m)
Carried interest paid (£m)
Amount invested (£m)
DPI
2006 Pool
2009 Pool
2012 Pool
2015 Pool
808
(32)
(61)
715
436
1.6x
841
(26)
(82)
734
359
2.0x
1,601
(41)
(139)
1,420
785
1.8x
109
(4)
–
105
176
0.6x
Earnings Multiple
This is normally referred to as a price earnings (“P/E”) ratio. It is the ratio of a company’s valuation compared to its earnings.
EBITDA
Earnings Before Interest, Tax, Depreciation and Amortisation. Often used to compare the profitability of similar companies.
EBITDA Margin
EBITDA expressed as a percentage derived by dividing EBITDA by net sales.
EV (enterprise value)
This is the aggregate value of a company’s entire issued share capital and net debt.
Gearing
This is the level of a company’s debt related to its equity capital and is usually expressed in percentage form. It shows the
extent to which a company is funded by lenders as opposed to shareholders.
Hedging
Hedging is an investment technique designed to offset a potential loss on one investment by purchasing a second investment
that is expected to perform in the opposite way.
Investment Return
This is the aggregate of income and capital profits and losses from the Investment Portfolio. This is sometimes disclosed as
portfolio return. This is a common measure used by investment companies.
IPO (initial public offering)
An offering by a company of its share capital to the public with a view to seeking an admission of its shares to a recognised
stock exchange.
IRR (internal rate of return)
Is the annualised return on an investment calculated from the cash flows arising from that investment taking account of the
timing of each cash flow. It is derived by computing the discount rate at which the present value of all subsequent cash flows
arising from an investment are equal to the original amount invested. Where an IRR is stated to be net, this denotes that it has
been calculated net of investment management fees (PPS and carried interest).
Listed Company
Any company where the shares are freely tradable and are listed or traded on a recognised stock exchange.
LTM
Last 12 months.
Electra Private Equity PLC | Annual Report and Accounts 2017 117
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
NAV
This is the value of all the Company’s assets minus current and long-term liabilities. Can also be referred to as ‘shareholders’ funds’.
NAV per share
This is the value of the Company’s assets attributable to one ordinary share. It is calculated by dividing ‘shareholders’ funds’ by
the total number of ordinary shares in issue. This is a common measure used by investment companies.
NAV Total Return
The total return to shareholders is the aggregate of income and capital profits of the investment portfolio for the year less all
costs. It can be expressed as a percentage of the opening position. This is a common measure used by investment companies.
Reported under IFRS
Dividend per share (pence)
(Decrease)/increase in NAV per share (pence)
Total return (pence)
Opening NAV per share (pence)
NAV total return
Annual
2017
3,636
(3,168)
468
5,149
9%
Annual
2016
122
1,235
1,357
3,914
35%
10 Year to
2017
10 Year to
2016
3,821
(20)
3,801
2,001
190%
202
3,738
3,940
1,545
255%
Calculation of Diluted and Basic NAV
The audited NAV per share at 30th September 2017 is calculated on the basis of the 38,282,763 ordinary shares in issue at
30th September 2017.
The audited NAV per share at 30th September 2016 was calculated on the basis of the 40,270,531 ordinary shares in issue at
30th September 2016.
Permanent Capital
An investment entity that manages capital for an unlimited time horizon.
Priority Profit Share
This is a share of profits equivalent to a management fee. It is calculated at 1.5% of the gross value of the Company’s core
investment portfolio and 1% of the gross value of the Company’s Non-Core Listed and Primary Fund Investments, no fee is
paid on cash. Following the Board’s decision to serve notice of termination of the management agreement in May 2016, the
management fee reverts back to the structure in place prior to 1st April 2015, whereby the Company pays the Manager 1.5% on
assets held in cash (rather than nil) and 1.5% is paid on non-core investments (rather than 1%) as well as 1.5% on core assets.
Return on Equity (ROE)
This is the total return divided by opening shareholder funds. Electra’s ROE has been calculated by taking the percentage
change in NAV per share and adding back dividends paid per share. This is a common measure used by investment
companies.
Reported under IFRS
Closing NAV per share (pence)
Dividends per share during the period (pence)
Opening NAV per share (pence)
Return on Equity
10 Year
Annualised
2017
10 Year
Annualised
2016
1,981
3,821
2,001
11%
5,149
202
1,545
14%
118 Electra Private Equity PLC | Annual Report and Accounts 2017
Total Shareholder Return
Total shareholder return is the percentage increase in share price over the period, where the closing price is multiplied by an
adjustment factor for each dividend paid in the year (‘dividend adjusted closing price’).
To calculate the dividend adjusted closing price, the closing price is multiplied by an adjustment factor for each dividend paid
in the year. The adjustment factor is the share price on the day prior to the ex-div date divided by the amount of the dividend
subtracted from that prior day’s price. Where there are multiple dividends in the year, the cumulative adjustment factor is the
product of the adjustment factor for each dividend paid.
30/09/2016
30/09/2017
Total Shareholder Return (%)
15/12/2016
06/04/2017
08/06/2017
Cumulative Adjustment Factor
Share Price
(p)
4,310
1,665
Dividend Adjustment
Factor
Dividend Adjusted
Share Price (p)
3.13
4,310
5,211
21%
Dividend per Share
(p)
Share Price Prior to
Ex-Div Date (p)
Adjustment Factor
110
2,612
914
4,640
5,110
2,765
1.02
2.05
1.49
3.13
Termination Payment
On 26th May 2016 the Company served notice of termination of the Management and Investment Guideline Agreement on
Epiris. This termination becomes effective on 31th May 2017. Under the terms of the contract the previous manager is entitled
to compensation based on priority profit share received in the year to 31th May 2017.
Total Value to Paid-In Capital (TVPI)
TVPI, or investment multiple, is defined by the Global Investment Performance Standards published by the CFA Institute and is
the ratio of Total Value to Paid-In capital. It measures, since inception, the aggregate of the cash received by and the residual
value attributable to a fund’s investors relative to the amount contributed to the fund by those investors. TVPI below comprises
cumulative realisations and fair value net of investment management fees (PPS and carried interest) in the numerator and
original investment cost in the denominator in respect of each pool.
Amount distributed (£m)
Remaining valuation (£m)
Notional PPS (£m)
Carried interest paid and provision (£m)
Amount invested (£m)
TVPI
2006 Pool
2009 Pool
2012 Pool
2015 Pool
808
–
(32)
(61)
715
436
1.6x
841
30
(26)
(87)
760
359
2.1x
1,601
165
(41)
(163)
1,561
785
2.0x
109
83
(4)
–
188
176
1.1x
Unlisted Company
Any company whose shares are not listed or traded on a recognised stock exchange.
Electra Private Equity PLC | Annual Report and Accounts 2017 119
Strategic and Business ReviewFinancial Statements Corporate GovernanceFurther Information
Contact Details
Electra Private Equity PLC
Board of Directors
Neil Johnson (Chairman)
Edward Bramson (Chief Executive Officer)
Ian Brindle
Paul Goodson
David Lis
Gavin Manson (Chief Financial Officer)
John McAdam
Roger Perkin
Linda Wilding
Telephone +44 (0)20 3874 8300
www.electraequity.com
Company Secretary
Frostrow Capital LLP
25 Southampton Buildings,
London, England, WC2A 1AL
Telephone +44 (0)20 3008 4910
Registered Office
(Registered in England:
Company No. 00303062)
First Floor,
50 Grosvenor Hill,
London, England, W1K 3QT
Investor Relations
Gavin Manson
Telephone +44 (0)20 3874 8300
Email IR@electrapeplc.com
Registered Independent Auditors
Deloitte LLP
Statutory Auditor
Hill House,
1 Little New Street,
London, England, EC4A 3TR
Alternative Investment Fund Manager
G10 Capital Limited
136 Buckingham Palace Road,
London, England, SW1W 9SA
Joint Stockbrokers
HSBC
8 Canada Square, Canary Wharf,
London, England, E14 5HQ
Morgan Stanley Investment
Management Limited
25 Cabot Square, Canary Wharf,
London, England, E14 4QA
Depositary
Ipes Depositary (UK) Limited
9th Floor,
No 1 Minster Court,
Mincing Lane,
London, England, EC3R 7AA
Registrar and Transfer Office
Equiniti Limited
Aspect House,
Spencer Road, Lancing, West Sussex,
England, BN99 6DA
Telephone (UK) 0371 384 2351*
Textel/Hard of hearing line
(UK) 0371 384 2255*
Telephone (Overseas) +44 121 415 7047
* Lines open 8.30am to
5.30pm (UK time),
Monday to Friday
(excluding public holidays in
England and Wales).
120 Electra Private Equity PLC | Annual Report and Accounts 2017
Electra Private Equity PLC
50 Grosvenor Hill
London W1K 3QT
T: +44 (0)20 3874 8300
www.electraequity.com
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