Quarterly Investment Update – March 2017
Capital for Colleagues, the investment vehicle focused on opportunities in the Employee Owned Business (‘EOB’) sector, is pleased to announce an investment update in respect of the quarter ended 28 February 2017.
Key Statistics for the quarter:
- Portfolio comprised of 15 unquoted EOBs at the end of the quarter
- Net Asset Value (‘NAV’) of GBP 4,190,852 (30 November 2016: GBP 5,205,581)
- NAV per share of 43.54 pence (30 November 2016: 54.09 pence per share)
Material developments in the quarter:
As we register the third anniversary of the Company’s admission to trading on the NEX Exchange Growth Market, recent events have made it appropriate for the Directors to re-examine (and indeed to re-confirm) our belief in the fundamental merits of investing in EOBs.
The main development in the quarter ended 28 February 2017 was the placing into administration of FJ Holdings Limited (‘FJH’) and FJH’s wholly owned subsidiary, Ham Baker Adams Limited (‘HBA’). At the time of the administration, the Company’s loans to and investments in FJH and HBA were valued at approximately GBP 1.3 million in aggregate. As announced at the Company’s Annual General Meeting on 28 February 2017, the Administrators have confirmed that the unsecured creditors of FJH and HBA, including Capital for Colleagues, are unlikely to receive any distribution in respect of amounts due to them. Accordingly, the Company’s loans to and investments in FJH and HBA have been written down to zero. The extent of the continuing increase in value of other portfolio investments over the quarter was insufficient to offset the impact of this write down in value and the Company’s net asset value therefore fell from 54.09p per share at 30 November 2016 to 43.54p per share as at 28 February 2017. Investment in smaller, unquoted companies always carries with it a risk that some investments will fail. The Board is committed to minimising this risk and the Company will continue to invest in a diversified range of EOBs with the intention that the majority will become successful and sustainable, delivering meaningful returns to the Company and its shareholders.
The Board has reflected on the circumstances in which FJH became part of the Company’s portfolio and examined whether or not this led to a greater chance of failure than might otherwise have been the case. FJH was one of three investments acquired, immediately prior to the Company’s IPO, from the members of a pre-existing limited liability partnership. Since the IPO, it had become apparent that FJH’s commitment to employee ownership (‘EO’) was not as deeply embedded as the Company would typically expect to see in its investee companies. Moreover, FJH’s management was not always receptive to ideas as to how to improve that company’s financial management and performance, despite considerable input being provided to FJH’s management by members of the Capital for Colleagues team. Accordingly, a decision to exit the holding was taken by the Company some months prior to the administration referred to above. Regrettably, before an exit could be achieved, in the light of the predictable impact of increasingly tough trading conditions, FJH’s management and its secured finance providers engineered a sale of the group’s key businesses and assets to a third party private equity firm, leaving existing equity investors and unsecured finance providers with nothing of value.
Over the last three years, Capital for Colleagues has sourced and executed its investments through a process which delivers a detailed understanding of prospective investee companies (and the people who run them) prior to any investment being made. We are also pleased to report that the remaining two investments acquired by the Company pre-IPO are positively embracing EO and we continue to provide active help with their respective EO ‘journeys’. Without wishing to deny the significant impact of the failure of FJH and HBA, it has not dimmed the Directors’ enthusiasm for seeing through the Company’s strategy.