Final Results

RNS Number : 5862W

Electra Private Equity PLC

12 December 2019

Electra Private Equity PLC
Announcement of the results for the Full Year ended 30 September 2019

Neil Johnson, Chairman of Electra Private Equity PLC commented:

"Our results demonstrate the progress made at Electra over the last year, reflected in a significant NAV uplift on retained assets, as we actively manage our remaining portfolio of investments. We have made tangible progress in both of our two larger businesses, TGI Fridays ("TGI") and Hotter Shoes ("Hotter"). At TGI the new management's focus both on improving customer experience and on operational excellence gives confidence that it is on the right track to further develop the business and deliver profitable growth. The changes at Hotter are now progressing, with improved trading, under a much-strengthened management team.

"The recent sale of Special Product Company ("SPC") reflects the transformation of that business since we internalised management of our portfolio in 2017 and demonstrates our commitment to the timely realisation and distribution of cash to shareholders. I look, with confidence, to more progress from our key portfolio investments in 2020 and further delivery of our strategy."

Group highlights

· Net asset value ("NAV") at 30 September 2019 of £210.0 million (548.4p per share);

· Valuation of the four largest controlled investments increased by 30.6% on prior year to £186.6 million, comprising 88.9% of NAV (97.1% excluding cash);

· The Company's objective is to optimise and realise value in remaining portfolio over a two-year period and distribute to shareholders, and opportunities to accelerate distribution of value will be explored;

· Special Product Company ("SPC") and two smaller investments realised post year end at a £1 million uplift to NAV with £12 million cash received;

· Remaining fully controlled assets (TGI Fridays ("TGI"), Hotter Shoes ("Hotter") and Sentinel Performance Solutions ("Sentinel")) have combined LTM maintainable EBITDA of £35.5 million with net debt of £55.3 million (including cash held centrally);

· Cash operating costs will be reduced to less than £3 million p.a. from January 2020;

· First Special Dividend of FY20 of £12 million (31p per share) declared and to be paid on 24 January 2020 to shareholders on the register at close on 27 December 2019.

Portfolio highlights

TGI Fridays

· TGI achieved growth over last twelve months in each of: LFL sales (+1.5%), absolute sales (+2.4%) and EBITDA (+0.5%). LTM EBITDA of £26.9 million with net debt of £47.4 million;

· Significantly strengthened TGI's management team in place, led by Robert Cook, who joined as the CEO in December 2019 to deliver the next phase of TGI development;

Hotter

· Hotter started recovery from a difficult 2018 with new management team led by Ian Watson, built during 2019. Strategic initiatives implemented in 2019 are expected to improve sustainable performance from mid-2020 with real progress having already been made - over 70% of channel profits are from direct channels and 20% from markets outside the UK;

Sentinel

· Sentinel came under Electra control in July 2019. Since then, the management structure has been simplified and strengthened under the new CEO, David Barrett. Running costs reduced by £0.9 million p.a. with focused business plan in place;

SPC

· SPC investment realised through post year end asset sale. £9 million cash proceeds received with potential for further £1.5m at the end of escrow period;

Other assets

· Two tail assets realised post year end for £3 million, at a £1 million uplift to NAV. Work underway to realise the remaining tail assets.

Composition of NAV as at 30 September 2019

	Reported		Proforma*
	£m	p/share	£m	p/share
TGI	141.4	369.2	141.4	369.2
Hotter	33.0	86.2	33.0	86.2
SPC	9.0	23.6	-	-
Sentinel	3.2	8.3	3.2	8.3
Other	5.8	15.2	4.2	11.0
Cash & cash equivalents	17.9	46.6	17.9	46.6
Other net liabilities	(0.3)	(0.7)	(0.3)	(0.7)
Total NAV	210.0	548.4	199.4	520.6
*proforma after announced disposals and dividend.

For further information:
Gavin Manson, Chief Financial and Operating Officer, Electra Private Equity PLC 020 3874 8300

The audited Annual Report and Financial Statements for the year ended 30 September 2019 have not yet been delivered to the Registrar of Companies but are expected to be published in January 2020. The financial information set out below does not constitute the Company's statutory accounts but is derived from those accounts. The auditors have reported on those accounts and their reports (i) were unqualified, (ii) included a reference to matters to which the auditors drew attention by way of emphasis in relation to the basis of preparation other than going concern, without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for the year to 30 September 2019 or 30 September 2018.

The information contained in this announcement is restricted and is not for release, publication or distribution, directly or indirectly, nor does it constitute an offer of securities for sale, in the United States, Canada, Japan, Australia, New Zealand or South Africa.

Chairman's Statement

Following the successful exit from our larger non-controlling investments early in the year, at the General Meeting in October 2018 over 99% of our shareholders endorsed the Board's proposal to adopt a strategy to optimise value through a managed wind-down of our portfolio and the return of cash to shareholders. That decision was taken in the context of us having doubled shareholder value over the prior three years, and it is our firm intent to target similar levels of return for shareholders over the two to three years that we believe it will take to optimise the value of our remaining portfolio, although we are vigilant for opportunities to accelerate this time frame. Following consultation with shareholders the Remuneration Committee intends to seek shareholder support at our Annual General Meeting ("AGM") to align our existing executive incentive arrangements with this timeframe for targeted realisation.

After a challenging year in 2018 for the markets in which our larger investments, TGI Fridays ("TGI") and Hotter Shoes ("Hotter") operate, we have been active in working to ensure that the performance of these businesses recovers and in implementing our plans to deliver stronger, more profitable, resilient and desirable businesses. A key element of this work has been to put in place strengthened leadership and management at both businesses.

Ian Watson joined Hotter as CEO in March 2019 and, whilst market conditions continue to be challenging, excellent progress has been made in strengthening management and implementing the key strategic changes to the business and its products, necessary to significantly improve the performance and resilience of the business. The immediate actions taken by the new management improved trading performance which is reflected in Hotter's improved valuation. We anticipate that the sustainable benefits of longer-term initiatives will be increasingly apparent from the third quarter of 2020.

Whilst the changes being made at Hotter are structural and transformational, the management changes we have implemented at TGI are intended to take what is already a good business to the next level. Robert Cook joined TGI as CEO at the beginning of December 2019 with a remit to focus on growth through improved customer experience, operational excellence and accelerated evolution of the business, with profitable growth, to adapt to evolving market conditions and customer expectations. We are confident that Robert and the strengthened team that he has assembled will revitalise and grow the TGI brand and business. I would thank Karen Forrester, the outgoing CEO of TGI, for her long and significant contribution to the business, and wish her well.

Whilst TGI and Hotter will provide the majority of our targeted value growth and cash returns, we are also encouraged by progress at Special Product Company ("SPC") and Sentinel Performance Solutions ("Sentinel"). Both were distressed investments when we internalised our portfolio management in 2017. Through focus and support for management, the performance, business and prospects of SPC have improved significantly and I am pleased to confirm that we have very recently completed an exit that realised our increased valuation of £9 million in cash at close, with a further £1.5 million due on expiry of an escrow period. Sentinel continued to be controlled by a third party until we obtained control in July this year. We have moved quickly to strengthen the management team, simplify and focus the business and have agreed renewed banking facilities with £1.5 million to be invested to support restructuring and growth. With these actions implemented and with continued focus, Sentinel provides an opportunity to build a strong and sustainable business and to realise good value growth within out targeted time frame.

Post year end we have also completed the disposal of two of our smaller investments, bringing in £3 million of cash at a small uplift to carrying value.

To allow future focus on value creation within our portfolio, we have taken action to materially reduce our internal cost base early in 2019. With a head office relocation later in December 2019, we will have successfully reduced our cash overheads from over £26 million p.a. as recently as early 2017 to under £3 million p.a. going forward. Even with costs at this reduced level, we remain conscious of the need both to continue to manage our costs and to ensure that we conclude the delivery of our strategy within the targeted timeframe.

As indicated at the half year, in reflection of the reduced scale of our business, we have also reduced the size of our Board. Roger Perkins and Ian Brindle both stepped down at our AGM in February 2019 following many years of much valued service. With Sherborne Investors Management LP ("Sherborne Investors") having first become a shareholder in 2014, Edward Bramson joined the Board in 2015 and initiated the changes that transformed the Board and strategy and led to the delivery of the shareholder returns referred to above. Whilst continuing to be supportive, Mr Bramson stepped down as a Non-Executive Director in July 2019. On behalf of our shareholders I would thank him for his contribution and support of the recent Board. Stephen Welker, a fellow Partner of Mr Bramson in Sherborne Investors, joined the Board in July 2019 and we welcome him.

I should like to thank all my Board colleagues for their support and advice throughout the year, and particularly to thank our former staff who so positively assisted with the downsizing programme. Gavin Manson's continued importance in delivering our strategic intent was recognised by his being appointed Chief Operating Officer ("COO") in addition to his previous role as Chief Financial Officer ("CFO"). I thank Gavin for his continuing loyalty and energetic professionalism.

Subsequent to the disposal of our non-controlling investments in October and December 2018, we distributed a further £161 million to shareholders in the period, bringing our total distributions to shareholders over the last three years to £2.0 billion. Consistent with our strategy of returning realised cash to shareholders and reflecting the realisations noted above, I am pleased to announce that we will pay a further Special Dividend of £12 million or 31p per share on 24 January 2020 to shareholders on the register at close on 27 December 2019. In light of this Special Dividend, the Board has elected not to declare ordinary dividends for the year ended 30 September 2019.

2019 has been a positive year for Electra and for each of our portfolio companies. We are well placed to deliver value creation and realisation within our targeted time frame and look forward to delivery through continued focus on execution.

Neil Johnson

Chairman

11 December 2019

Strategic Report

The Strategic Report provides a review of the Company's business, the operating performance during the year to 30 September 2019, and its strategy going forward. It also considers the principal risks and uncertainties facing the Company.

Outcome of Strategic Review

In the third quarter of 2018, the Board concluded its strategic review covering all options for the future direction of the Company. This resulted in the announcement on 4 October 2018 that:

· The Board considered that each of the remaining controlled corporate investments represented an opportunity for value creation within an acceptable time frame. However, the concentration of the portfolio and the structural inefficiency in reinvesting in a listed private equity vehicle with a significant market discount to net asset value made it inappropriate to seek to do this within the existing investment objective and policy of the Company at that time;

· The Board concluded and recommended that it was in the best interests of shareholders to conduct a managed wind-down of the portfolio over a period of time, allowing optimisation of returns, return of cash to shareholders, and ultimately the winding-up of the Company. The Board intends that until it is finally wound up, the Company will continue to be listed on the London Stock Exchange in its existing listing category and will pay annual dividends funded by cash generated from the portfolio.

At the same time, the outcome of the third phase of our strategic review was announced, which was that an agreement had been reached for the sale of the larger non-controlled assets, Photobox and Knight Square, for a total consideration of £117 million.

Adoption of Revised Strategy

At the General Meeting on 30 October 2018, the shareholders approved the adoption of a revised investment objective and policy with over 99% voting in favour.

Investment Objective and Policy

With effect from 30 October 2018, Electra's investment objective is to follow a realisation strategy, which aims to crystallise value for shareholders, through balancing the timing of returning cash to shareholders with maximisation of value.

The Company will not make any new investments but will continue to support its existing investments to the extent required in order to optimise returns.

The Company will retain sufficient cash to meet its obligations and to support its portfolio assets, with cash from realisations being invested in AAA-rated money market funds, pending utilisation or return to shareholders.

Should it be appropriate to utilise gearing in order to optimise the balance between timing of returning cash to shareholders and maximisation of value, the Company will maintain gearing below 40% of its total assets.

Implementation of Investment Objective and Policy

Following the adoption of the Company's revised strategy, Electra is continuing to actively manage its remaining portfolio of investments to maximise value for shareholders through the delivery of well-managed, resilient and desirable portfolio companies, delivering strong results whatever the market conditions. During the period the Company has continued to support each of its controlled corporate investments through:

· investing where required;

· preparing plans to optimise performance and value;

· implementing required management changes; and

· commencing delivery focused execution.

Through these actions, the Board confidently expects to deliver optimised value to shareholders within a targeted time frame of two to three years. We continue to manage our operating costs with rigour and by the end of 2019 will have reduced cash operating costs to below £3 million p.a. from £6 million p.a. in 2018 and £26 million p.a. in 2017.

Principal Risks and Risk Management

The Board considers that the risks detailed below are the principal risks currently facing the Company, along with the risks detailed in Note 16 of the Notes to the Financial Statements ("Notes"). These are the risks that could affect the ability of the Company to deliver its strategy. The Board of Directors 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 30 September 2019, and that processes are in place to continue this assessment.

Portfolio Diversification Risk

At the General Meeting on 30 October 2018, shareholders overwhelmingly voted in favour of the new investment objective and policy. With the switch towards a strategy of realisation without new investments, the Company is increasingly exposed to the performance, favourable or unfavourable, of the remaining individual investments which may lead to greater volatility in fair value or in extreme conditions may impact on the Company's ability to realise a significant proportion of its portfolio value in the planned timeframe.

Solvency and Liquidity Risk

The strategy adopted in October 2018 is for the phased wind-down of the portfolio and the return of cash to shareholders as investments are sold. In doing this, we recognise that the remaining portfolio investments operate in challenging markets and balancing the desire to optimise distributions to shareholders with the need to retain sufficient cash to be able to support the portfolio companies in optimising value is key.

Strategy Implementation Risk

The Company is subject to the risk that implementation of its 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 shareholder value.

Given the overwhelming support for adoption of the revised strategy in October 2018, the implementation risk is now focused on balancing the timing of returning cash to shareholders with achieving maximisation of value. The Directors consider that clear alignment between executive incentives and shareholder value optimisation, with ongoing close oversight from the Non-Executive Board, is the optimal way to manage this.

Macroeconomic Risk

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. There remains significant uncertainty around the likely terms of the post-Brexit arrangements between the UK and the EU, as well as possible transitional arrangements. All of these factors may have an impact on the Company's ability to realise a return from its investment portfolio and cannot be directly controlled by the Company. This risk has not materially changed in impact from the previous year, and the Board of Directors does not believe there will be a significant impact on the valuations or operations of its portfolio companies.

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 in the Notes. This risk has not materially changed in impact from the prior year.

Gearing Risk

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 the lenders' 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, are 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 levels of cash held and the lack of borrowing at the Company level, this risk is considered to be in line with previous years.

Foreign Currency Risk

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 Directors work with the Company's investment portfolio to make use of natural and derivative hedges, if required, to mitigate these exposures.

Cash Drag Risk

Returns to the Company through holding cash deposits are currently low. Due to the Board's recommendation of a managed wind-down of the portfolio, the revised investment object and policy and the distribution policy, announced in October 2018, this level of risk is considered to be broadly similar year on year.

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, irrespective of the timing of portfolio wind-down events. In making this assessment, the Directors have assumed that the threats to the Company's solvency and liquidity incorporated in the principal risks will be managed or mitigated as outlined above.

Should appropriate conditions exist the Directors may recommend the winding-up of the Company sooner than three 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 is presently invested primarily in long-term illiquid investments which are not publicly traded; The Company will not make any new investments although it has committed to support its existing portfolio to the extent required to optimise returns;

· the Board considers that each of the remaining corporate investments represents an opportunity for value creation within a medium-term time frame;

· the Board reviews the liquidity of the Company and regularly considers any commitments it has, 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;

· the new investment objective and policy with the objective of optimising returns and distributing cash to shareholders.

It is important to note that the fact that the Company is no longer considered to be a going concern has no impact on the Directors' expectations on the Company's viability, as further explained in the CFO Review.

Community, Social, Employee, Human Rights, Environmental Issues, Anti-bribery and Anti-corruption

The Company is committed to carrying out business in an honest and fair manner with a zero-tolerance approach to bribery and corruption. As such, policies and procedures are in place to prevent bribery and corruption. 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 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 five 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 and believes that all Board appointments should be made on merit and with due regard to the benefits of diversity, including gender.

There are no non-Director employees at the Company as at 30 September 2019.

Performance Review

Performance

The summary of performance of results can be seen on the Consolidated Income Statement.

Various key performance indicators ("KPIs"), also referred to as alternative performance measures ("APMs"), are considered by the Board in assessing the Company's success in achieving its objectives. Following adoption of the realisation strategy, net asset value per share total return and total shareholder return are considered to be the most appropriate KPIs to monitor the Company's performance and return on equity ("RoE") is no longer classified as a KPI.

Net Asset Value ("NAV") per Share Total Return

This is the aggregate of income and capital profits per ordinary share of the investment portfolio for the period less all costs. It is expressed as a percentage of the opening NAV.

The Company's NAV per share total return for the year ended 30 September 2019 is 8% (2018: negative 8%) and 8% (2018: 48%) over the three years to 30 September 2019.

Total Shareholder Return ("TSR")

This is the total returns delivered by the Company through a combination of dividends distributed to shareholders and share price performance. This is expressed as a percentage, calculated by dividing the dividend adjusted closing share price by the opening share price. Electra compares its TSR with the returns from the FTSE 250 Index over twelve months and three years.

The Company's TSR for the year ended 30 September 2019 is negative 15% (2018: 9%) and 24% (2018: 71%) over the three years to 30 September 2019. These compared with returns of 1% (2018: 5%) and 19% (2018: 32%) respectively from the FTSE 250 Index.

This report was approved by the Board of Directors and signed on its behalf by:

Neil Johnson

Chairman

11 December 2019

Portfolio Review

Portfolio Overview

As at 30 September 2019, Electra's investment portfolio is valued at £193 million (2018: £267 million). The investment portfolio consists of buyouts, secondaries and debt investments, which are held on the balance sheet as £182 million of non-current investments (2018: £150 million) and £11 million of held for sale assets (2018: £117 million).

Electra also held £17 million (2018: £72 million) in money market funds, which are short-term liquidity investments for the purpose of cash management and are not included as part of the Portfolio Review.

Investment portfolio	2019 £m	2018 £m	2017 £m	2016 £m
Buyouts and co-investments	190	264	321	1,461
Secondaries	1	1	2	82
Debt	2	1	-	51
Fund investments	-	1	35	102
Investment portfolio	193	267	358	1,696

Buyouts

Buyouts consist of direct equity investments in seven private companies (2018: nine) with an aggregate value of £190 million (2018: £264 million). These include TGI, Hotter, SPC and Sentinel, which together represent 98% (2018: 95%) of the value of buyouts.

Secondaries

At 30 September 2019, Electra held investments in one secondary portfolio with a value of £1 million (2018: £1 million).

Debt

Debt investments consist of loans to UK or international borrowers acquired in the primary or the secondary market as either individual or portfolios of assets. As at 30 September 2019, the Company held one debt investment, which has subsequently been disposed of in November 2019. Refer to Note 11 for more details.

Portfolio Movement

The value of Electra's investment portfolio decreased from £267 million at 30 September 2018 to £193 million at 30 September 2019. The decrease resulted from net realisations of £110 million (2018: £18 million) and a portfolio gain of £36 million (2018: loss of £73 million).

Year ended 30 September	2019 £m	2018 £m	2017 £m	2016 £m
Opening portfolio value	267	358	1,696	1,630
Investments	9	45	46	218
Realisations	(119)	(63)	(1,623)	(903)
Increase/(decrease) in valuation	36	(73)	239	751
Closing portfolio value	193	267	358	1,696

	Investment fair value as at 30 September 2018	Net investments/ (realisations)	Increase / (decrease) in fair value	Investment fair value as at 30 September 2019
	£m	£m	£m	£m
Buyouts
TGI Fridays	125	1	16	142
Hotter Shoes	7	8	18	33
Special Product Company	7	-	2	9
Sentinel Performance Solutions	4	-	(1)	3
Photobox Group	96	(96)	-	-
Knight Square	21	(21)	-	-
Other	4	(1)	-	3
Total buyouts	264	(109)	35	190

Secondaries	1	-	-	1
Debt	1	-	1	2
Fund investments	1	(1)	-	-
Total non-core investments	3	(1)	1	3

Total investment portfolio	267	(110)	36	193

Realisations

Total realisations for the year was £119 million (2018: £63 million) which consisted of the following assets:

Realisations	2019 £m	2018 £m
Photobox Group	96	-
Knight Square	21	13
Special Product Company	-	1
Other buyouts and co-investments	1	6
Total Buyouts and co-investments	118	20
Secondaries	-	2
Fund investments	1	41
Total realisations	119	63

Key Investments Background

TGI Fridays

The UK franchise of an American-themed restaurant chain providing a high energy and fun environment, with a wide demographic appeal.

Investment valuations

	2019	2018	2017	2016
For the year ended 30 September	£m	£m	£m	£m
Investment valuations	141	126*	168*	127*

*Adjusted for additional investments made post year end

Portfolio company performance

	LTM**	2018	2017
For the year ended 31 December	£m	£m	£m
Sales (£m)	214.0	208.8	216.0
Operating profit (£m)	16.1	14.2	22.3
EBITDA (£m)	26.9	25.3	33.3
Return on capital employed (%)	14.3%	13.1%	11.0%

**Based on last twelve months ("LTM") unaudited management accounts.

In the 12 months to 30 September 2019, TGI Fridays achieved growth in revenue and EBITDA on both an overall and a "like-for-like" basis from the prior period. This reflects both the sustainable new restaurant roll-out plan maintained by TGI Fridays and the resilience of maintaining gross margins during the challenging prior year of 2018. The business continues to be strongly cash generative and provides increasingly attractive returns on capital despite challenging market conditions and uncertainties around Brexit.

Whilst underlying market demand continues to grow modestly, market conditions remain challenging with continued oversupply in the casual dining market being compounded by rising costs across a number of areas. In response to these conditions TGI Fridays continually seeks to improve its proposition, updating its menus, refreshing its restaurants and developing its staff, as it aims to provide an experience that is valued by its customers.

TGI Fridays consistently performs strongly in UK brand perception surveys, consistently outperforms its market from a financial perspective and has an enviable reputation in the industry for operating processes and efficiency. We intend to build on this strong base by ensuring the business continues to evolve in meeting changing customer needs and expectations whilst retaining and building on its strong brand heritage and values.

In early December 2019, Robert Cook succeeded Karen Forrester as CEO. Robert brings experience of leading growth and profitable development within the multi-site food and beverage industry and also of successfully managing businesses through challenging times in adjacent sectors. We are also strengthening the wider TGI leadership team with a blend of sector-specific and adjacent skills and experience in key areas. Through these changes we confidently believe that we can build on the strong position and heritage of TGI to match evolving customer expectations and develop profitability in a strong, growing and sustainable business.

Key Investments Background

Hotter Shoes

The UK's largest shoe manufacturer with a strong focus on comfort and service.

Investment valuations

	2019	2018	2017	2016
For the year ended 30 September	£m	£m	£m	£m
Investment valuations	33	15*	71*	32*

*Adjusted for additional investments made post year end

Portfolio company performance

	LTM**	2019	2018
For the year ended 31 January	£m	£m	£m
Sales (£m)	88.9	93.0	100.8
Operating Profit (£m)	3.4	0.6	5.0
EBITDA (£m)	6.2	3.5	9.5
Return on Capital Employed (%)	5.9%	3.4%	5.9%

**Based on last twelve months ("LTM") unaudited management accounts.

Hotter Shoes operates in the comfort footwear market primarily in the UK and US through direct consumer marketing, where demographic changes offer significant opportunities for growth over the long-term. Currently 71% of channel profitability comes through direct consumer marketing and delivery with 20% of channel profitability coming from direct marketing and delivery to customers outside the UK. Further strategic digitisation will increase growth in the direct channels both in the UK and internationally and lead to the realisation of significant cost and marketing efficiency opportunities.

The development of UK retail estate between 2010 and 2016 contributed to a very challenging year in 2018, in which the resilience of the direct business was undermined by retail losses. Electra remains committed to Hotter and, despite the challenging performance of 2018, has taken action to accelerate the change required to deliver a profitable and resilient international business. This included changing key members of the management team to bring in a blend of sector-specific and implementation focused turnaround skills and investing £7.5 million in early 2019 to support transformation.

Hotter already sells over 60% of its product through direct to consumer channels. It has a clear strategy to further improve the profitability and resilience of its direct business through increased digitisation whilst continuing the evolution of its UK retail portfolio in objective and scale to support overall multichannel profitability. Whilst the relatively short average lease term of the UK retail estate reduced Hotter's ability to seek an immediate solution to retail performance in 2018, it provides an opportunity to manage channel transition whilst maintaining the benefit and flexibility of its UK manufacturing facility.

Following the appointment of Ian Watson as CEO in March 2019 and with other key hires that followed, Hotter has made real progress both in optimising short-term trading performance and in commencing the implementation of strategic initiatives that will influence financial performance in the longer term. Whilst Hotter will continue to be significantly susceptible to challenging market conditions for the next six to twelve months, the key changes necessary to deliver an increasingly profitable and resilient international business focused on the direct to consumer segment are being implemented together with a cultural change to one of accountability with a focus on results - building on Hotter's traditional values of comfort, quality and customer service. The Board considered the implications of Brexit on Hotter's operations and future earnings, and at this stage do not believe there are any material impacts.

Key Investments Background

Special Product Company

A US-based manufacturer of industrial cabinets, serving the telecom and cabling sectors.

Investment Valuations

	2019	2018	2017	2016
For the year ended 30 September	£m	£m	£m	£m
Investment valuations	9	7	2	-

Despite Electra's initial investment in 1999, SPC has been troubled in recent years. The initial cost of investment was written off several years ago following difficulty in implementing its strategy of diversification of customers and products which had led to recurring trading issues. Following the internalisation of Electra's management in 2017, SPC has been given renewed focus. Working with the SPC management team, led by CEO Jerry Garrett, real progress has been made in reducing reliance on core customers and in addressing the product lifecycle. As a result, a stronger and more resilient business has been developed that should be attractive to future buyers.

Since the year end, an agreement for the sale of the business has been reached, with cash settled at close of £9 million and a further £1.5 million due on expiry of an escrow period.

Key Investments Background

Sentinel Performance Solutions

A leading UK manufacturer of products to improve the performance of residential heating and hot water systems.

Investment valuations

	2019	2018	2017	2016
For the year ended 30 September	£m	£m	£m	£m
Investment valuations	3	4	3	2

Electra initially invested in Sentinel in 2011, but despite being the majority shareholder Electra management was not in management control until July 2019, when we bought out a minority shareholder with retained control rights. We identified that the business lacked focus and had become over complicated and quickly implemented changes in the management team and structure. David Barrett, a highly experienced industry professional, has been appointed CEO and we have implemented other key changes to simplify the management structure and wider organisation and to develop a culture of accountability and delivery.

The business operates in a mature UK market in which focus, agility and cost and operational efficiency are paramount, as well as in a number of international markets with the opportunity for growth, in which organisational structure and methodical planning and delivery are required. Recent changes have addressed both market groups and initial indications of progress are encouraging.

Electra is committed to investing £1.5 million into Sentinel to fund restructuring costs that will support future profitability and growth. This commitment is reflected in our valuation as at 30 September 2019.

In taking control of Sentinel and committing to further investment in 2019, we are conscious of the need to deliver value to shareholders through an exit co-ordinated with our other remaining investments.

CFO Review

"Following challenging trading conditions in 2018 for each of our remaining UK businesses, our focus in 2019 has been on managing short-term trading recovery whilst ensuring that each business has management and plans in place that will optimise performance and the value achieved in exits within the time frame envisaged for implementation of Electra's strategy.

Whilst we have made progress in developing value from the low point of early 2019, we believe that further significant value can be achieved at portfolio level, which on successful realisation will provide a good return to our shareholders."

Investing Activities

Consistent with the revised investment objective and policy approved by shareholders in October 2018, the investing activities of the Company going forward will be limited to supporting the optimisation of value from the existing portfolio.

An investment of £7.5 million was made in Hotter in early 2019 to support working capital and strategic delivery. The need for this investment was known in advance and was reflected in our September 2018 valuation. Similarly, a planned investment of £1.5 million in Sentinel is reflected in our September 2019 valuation.

Significant management changes have been implemented in each of TGI, Hotter and Sentinel in order to ensure these businesses and their values are optimised within the time frame envisaged for implementation of Electra's strategy. These management changes resulted in the implementation of updated management incentives at each portfolio company level that are consistent in objective and timing with those being proposed at Electra level by the Electra Remuneration Committee for shareholder approval at the AGM. Implementation of the portfolio company management changes and aligned incentives for new management incurred recruitment and advisory costs as well as investment to buy out prior management, costing less than £3 million in total.

Going Concern and Viability

As reported at the end of 2018, the Board concluded that it was in the best interests of shareholders to conduct a managed wind-down of the portfolio over a period of time, return of cash to shareholders, and ultimately the winding-up of the Company. The Board decided last year that the Company was no longer a going concern and has continued its reporting on this basis for the year ended 30 September 2019. It is important to note that this has no impact on the reported results for the year (for reasons described in Note 23) and that, as set out in the Strategic Report, the Directors have assessed and continue to have 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 Directors believe that if they recommend the winding-up of the Company earlier than September 2022, the Company will be able to continue in operation and meet its liabilities as they fall due over this shortened period.

Analysis of Movement in Net Asset Value ("NAV") per Share

The Special Dividends of 365p and 54p per share paid on 14 December 2018 and 12 April 2019 respectively, offset by investment returns of 90p, are the most significant factors in the reduction of NAV per share from 892p to 548p.

NAV per share	p
As at 1 October 2018	892
Capital gains and income	90
Expenses, FX and tax	(10)
Exceptional expenses	(5)
Dividends paid	(419)
As at 30 September 2019	548

Distributions

During the year, the Company distributed two Special Dividends of 365p and 54p per share respectively. These reflected the distribution of the proceeds of the sale of Photobox (251p per share) and Knight Square (54p per share), and excess cash (114p per share). Post year end, the Board has declared a further Special Dividend of £12 million or 31p per share payable on 24 January 2020 to shareholders on the register at close on 27 December 2019.

Operating Costs

Following adoption of our realisation strategy, the Company undertook action to reduce its recurring cash operating costs by 50%, to approximately £3 million p.a. These costs will be reduced further following the relocation of the Company's head office to smaller premises in December 2019. The organisational changes implemented to reduce costs resulted in exceptional redundancy and related costs of £1 million and a further £1 million was incurred in the corporate rationalisation activity, which is now well advanced.

CFO Review (continued)

Operating Costs (continued)

The adoption of the revised investment objective and policy triggered a "Corporate Event" in respect of the 2017 Long-Term Incentive Plan ("LTIP"). The resultant share awards were fully hedged; however, the Corporate Event resulted in a £0.7 million non-cash expense in the income statement due to the acceleration of charges under IFRS 2. The Share of Value Plan ("SoVP") was unaffected by the Corporate Event. In light of the adoption of a wind-down strategy, we have considered the need for the provision of closure/wind-up costs under IAS 37, and have concluded that any such costs are unlikely to be material and that, as we anticipate continuing to generate shareholder value, operating costs should be reported normally until the targeted medium-term realisation of the portfolio investments is complete.

Net Liquid Resources

As at 30 September 2019, the Company held £1 million (2018: £3 million) of cash and £17 million (2018: £72 million) of money market fund investments.

Gearing

At 30 September 2019, Electra was ungeared at the Group level. Certain of the portfolio companies are funded in part by third-party debt.

Foreign Exchange

At 30 September 2019, the estimated foreign currency exposure in the balance sheet was €1 million (2018: €5 million) and $12 million (2018: $9 million) based on the currency of underlying securities in the investment portfolio. The US dollar has strengthened against sterling by 5.7% (2018: 2.7%) during the year, while the euro has weakened slightly by 0.5% (2018: strengthened by 1.0%), resulting in a small gain in respect of the investment portfolio.

Also included in the Consolidated Income Statement is a £6 million (2018: £8 million) credit representing the reclassification of foreign exchange gains previously recognised in the translation reserve. This item has been moved to the Consolidated Income Statement as a result of the liquidation of three overseas subsidiaries during the year and has no impact on NAV.

Gavin Manson

Chief Financial and Operating Officer

11 December 2019

Consolidated Income Statement

				2019			2018
		Revenue	Capital	Total	Revenue	Capital	Total
Note	During the year ended 30 September	£m	£m	£m	£m	£m	£m
2,16	Investment income	1	-	1	7	-	7
16	Investment gains/(losses)	-	33	33	-	(54)	(54)
3	Other expenses	(7)	-	(7)	(9)	-	(9)
	Reclassification of gains on foreign exchange previously recognised in equity reserves	-	6	6	-	8	8
	Loss on revaluation of foreign currencies	-	(1)	(1)	-	(1)	(1)
4	Income reversal	-	-	-	(26)	-	(26)
14	Incentive schemes	-	-	-	-	23	23
	Net (loss)/profit before tax	(6)	38	32	(28)	(24)	(52)
7	Tax	-	-	-	4	(2)	2
	(Loss)/profit on ordinary activities after tax attributable to owners of the Group	(6)	38	32	(24)	(26)	(50)
9	Basic and diluted (loss)/earnings per share (p)	(15.48)	99.20	83.72	(63.08)	(67.93)	(131.01)
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 ("AIC"). This is further explained in the Basis of Accounting and Significant Accounting Policies.

Consolidated Statement of Comprehensive Income

	2019	2018
During the year ended 30 September	£m	£m
Profit/(loss) for the year	32	(50)

Items that may be subsequently reclassified to profit or loss
Exchange differences arising on consolidation	1	1

Items that are reclassified to profit or loss
Reclassification adjustments on foreign operations	(6)	(8)
Total other comprehensive loss	(5)	(7)
Total comprehensive income/(loss) attributable to owners of the Group	27	(57)
All activities represent continuing operations. The accompanying Notes are an integral part of these financial statements.

Consolidated Statement of Changes in Equity

Note	For the year ended 30 September 2019 for the Group	Called up share capital	Share premium	Capital redemption reserve	Own shares held	Translation reserve	Capital reserve	Revenue reserve	Total equity
Note	For the year ended 30 September 2019 for the Group	£m	£m	£m	£m	£m	£m	£m	£m
	As at 1 October 2018	9	123	35	(1)	5	111	60	342
	Net profit/(loss) during the year	-	-	-	-	-	38	(6)	32
	Other comprehensive loss - foreign currency translation differences	-	-	-	-	(5)	-	-	(5)
	Total comprehensive (loss)/income during the year	-	-	-	-	(5)	38	(6)	27
17	Ordinary shares held under employee share option plan	-	-	-	1	-	-	-	1
18	Share-based payments	-	-	-	-	-	-	1	1
8	Dividends	-	-	-	-	-	(161)	-	(161)
	As at 30 September 2019	9	123	35	-	-	(12)	55	210

Note	For the year ended 30 September 2018 for the Group	Called up share capital	Share premium	Capital redemption reserve	Own shares held	Translation reserve	Capital reserve	Revenue reserve	Total equity
Note	For the year ended 30 September 2018 for the Group	£m	£m	£m	£m	£m	£m	£m	£m
	As at 1 October 2017	9	123	35	(1)	12	496	84	758
	Net loss during the year	-	-	-	-	-	(26)	(24)	(50)
	Other comprehensive loss - foreign currency translation differences	-	-	-	-	(7)	-	-	(7)
	Total comprehensive loss during the year	-	-	-	-	(7)	(26)	(24)	(57)
8	Dividends	-	-	-	-	-	(359)	-	(359)
	As at 30 September 2018	9	123	35	(1)	5	111	60	342

The accompanying Notes are an integral part of these financial statements.

Company Statement of Changes in Equity

Note	For the year ended 30 September 2019 for the Company	Called up share capital	Share premium	Capital redemption reserve	Own shares held	Capital reserve	Revenue reserve	Total equity
Note	For the year ended 30 September 2019 for the Company	£m	£m	£m	£m	£m	£m	£m
	As at 1 October 2018	9	123	35	(1)	279	(103)	342
	Net profit during the year	-	-	-	-	21	6	27
	Total comprehensive income during the year	-	-	-	-	21	6	27
17	Ordinary shares held under employee share option plan	-	-	-	1	-	-	1
18	Share-based payments	-	-	-	-	-	1	1
8	Dividends	-	-	-	-	(161)	-	(161)
	As at 30 September 2019	9	123	35	-	139	(96)	210

Note	For the year ended 30 September 2018 for the Company	Called up share capital	Share premium	Capital redemption reserve	Own shares held	Capital reserve	Revenue reserve	Total equity
Note	For the year ended 30 September 2018 for the Company	£m	£m	£m	£m	£m	£m	£m
	As at 1 October 2017	9	123	35	(1)	694	(102)	758
	Net loss during the year	-	-	-	-	(56)	(1)	(57)
	Total comprehensive loss during the year	-	-	-	-	(56)	(1)	(57)
8	Dividends	-	-	-	-	(359)	-	(359)
	As at 30 September 2018	9	123	35	(1)	279	(103)	342

The accompanying Notes are an integral part of these financial statements.

Consolidated Balance Sheet

		2019	2018
Note	As at 30 September	£m	£m
	Non-current assets
16	Investments held at fair value	182	150
		182	150
	Current assets
16	Investments held at fair value	17	72
11	Assets held for sale	11	117
12	Trade and other receivables	-	1
	Current tax asset	1	2
	Cash and cash equivalents	1	3
		30	195
	Current liabilities
13	Trade and other payables	(1)	(2)
		(1)	(2)
	Total assets less current liabilities	211	343
	Non-current liabilities
14	Provisions for liabilities and charges	(1)	(1)
		(1)	(1)
	Net assets	210	342
	Capital and reserves
17	Called up share capital	9	9
	Share premium	123	123
	Capital redemption reserve	35	35
17	Own shares held	-	(1)
17	Translation reserve	-	5
17	Capital reserve	(12)	111
17	Revenue reserve	55	60
	Total equity	210	342
10	Basic and diluted net asset value per share (p)	548.43	892.40
17	Number of ordinary shares in issue at 30 September	38,282,763	38,282,763

The accompanying Notes are an integral part of these financial statements.

These financial statements were approved by the Board of Directors and signed on their behalf by:

Neil Johnson Gavin Manson

Chairman Chief Financial and Operating Officer

11 December 2019 11 December 2019

Electra Private Equity PLC

Company Number: 00303062

Company Balance Sheet

Note	As at 30 September	2019	2018
Note	As at 30 September	£m	£m
	Non-current assets
16	Investments held at fair value	13	23
16	Investment in subsidiary undertakings	21	23
		34	46
	Current assets
16	Investments held at fair value	17	72
11	Assets held for sale	11	11
12	Trade and other receivables	149	231
	Cash and cash equivalents	1	3
		178	317
	Current liabilities
13	Trade and other payables	(1)	(20)
		(1)	(20)
	Total assets less current liabilities	211	343
	Non-current liabilities
14	Provisions for liabilities and charges	(1)	(1)
		(1)	(1)
	Net assets	210	342
	Capital and reserves
17	Called up share capital	9	9
	Share premium	123	123
	Capital redemption reserve	35	35
17	Own shares held	-	(1)
17	Capital reserve	139	279
17	Revenue reserve	(96)	(103)
	Total equity	210	342

The Company's profit for the year was £27 million in 2019 (2018: loss of £57 million).

The accompanying Notes are an integral part of these financial statements.

These financial statements were approved by the Board of Directors and signed on their behalf by:

Neil Johnson Gavin Manson

Chairman Chief Financial and Operating Officer

11 December 2019 11 December 2019

Electra Private Equity PLC

Company Number: 00303062

Consolidated Cash Flow Statement

For the year ended 30 September	2019	2018
For the year ended 30 September	£m	£m
Operating activities
Purchase of trading investments	(123)	(110)
Sales of trading investments	279	422
Dividends and distributions received	2	1
Interest income received	8	14
Expenses paid	(8)	(9)
Amounts paid under incentive schemes	-	(6)
Cash generated from operations	158	312
Tax refunded/(paid)	1	(2)
Net cash inflow from operating activities	159	310
Financing activities
Dividends paid	(161)	(359)
Purchase of shares held under incentive schemes	-	(1)
Net cash used in financing activities	(161)	(360)
Net decrease in cash and cash equivalents	(2)	(50)
Cash and cash equivalents at beginning of year	3	54
Effect of foreign exchange rate changes	-	(1)
Cash and cash equivalents at end of year	1	3

The accompanying Notes are an integral part of these financial statements.

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, secondaries and debt. Reporting is provided to the Board of Directors on an aggregated basis. These investments are located across multiple geographic regions and total investment returns are allocated as follows:

Investment returns for the year ended 30 September	2019 £m	2018 £m
United Kingdom	31	(59)
Continental Europe	1	5
US	2	7
Total investment returns	34	(47)

2 Revenue Investment Income

	2019	2018
For the year ended 30 September	£m	£m
Interest income	1	5
Dividend income	-	1
Other investment income	-	1
Total revenue investment income	1	7

3 Other Expenses

	2019	2018
For the year ended 30 September	£m	£m
Administrative expenses	5	6
Exceptional expenses (see below)	2	3
Total other expenses	7	9

Exceptional expenses	2019	2018
for the year ended 30 September	£m	£m
Strategic review	1	2
Corporate rationalisation	1	1
Total exceptional expenses	2	3
Corporate rationalisation for the year ended 30 September 2019 includes redundancy costs incurred on downsizing the Company's head office. Strategic review relates to costs incurred on completion of phase three of the Company's strategic reviews. For the purpose of tax computation, £1 million (2018: £1 million) of the exceptional expenses are treated as disallowable. All (2018: all) of the total exceptional expenses have been settled in cash during the year.

Auditor's Remuneration - Deloitte LLP

	2019		2018
	Group	Company	Group	Company
For the year ended 30 September	£000	£000	£000	£000
Audit of Group financial statements pursuant to legislation	108	108	141	141
Audit of subsidiaries financial statements pursuant to legislation	43	-	53	-
Sub total	151	108	194	141
Other assurance services*	32	32	84	84
Total auditor's remuneration	183	140	278	225
* The other assurance services include £32,400 related to the half year review (2018: £48,000 related to services associated with the strategic review and £36,000 related to the half year review).

3 Other Expenses (continued)

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 auditor are given in the Audit and Risk Committee Report.

4 Income Reversal

Income reversal is the reversal of accrued interest on investments recognised in previous periods. There were no income reversals during the year. The amount recorded in the year ended 30 September 2018 related to accrued interest reversed on the Group's loan investment in TGI.

5 Employee Costs

The average number of employees, excluding Directors, for the Group and Company during the year was 5 (2018: 10). As at 30 September 2019, there were no non-Director employees in the Company (2018: 10).

	2019	2018
	£m	£m
Wages and salaries	1	1
Total employee costs	1	1

Wages and salaries shown above include salaries, benefits and social security costs of £0.3 million (2018: £0.3 million), as well as pension contributions of £0.1 million (2018: £0.1 million) in the year for the Group and Company. These costs are included in other expenses in the Consolidated Income Statement.

6 Operating Leases

The Company leases the property for its head office. Operating lease expenses of £0.6 million (2018: £0.6 million) are included in other expenses in the Consolidated Income Statement.

The future minimum lease payments payable under operating leases are as follows:

As at 30 September	2019	2018
	Land and buildings	Land and buildings
	£m	£m
Within one year	1	1
Between two and five years	1	2
After five years	-	-
	2	3

7 Tax

Income tax expenses

For the year ended 30 September			2019			2018
	Revenue	Capital	Total	Revenue	Capital	Total
	£m	£m	£m	£m	£m	£m
Current tax
UK corporate tax on profits for the period	-	-	-	(4)	4	-
Deferred tax
Origination and reversal of timing differences	-	-	-	-	(2)	(2)
Total tax (credit)/expense	-	-	-	(4)	2	(2)

7 Tax (continued)

The difference between the income tax expense shown above and the amount calculated by applying the effective rate of UK corporation tax, currently 19% pro-rata (2018: 19% pro-rata), to the (loss)/profit before tax is as follows:

For the year ended 30 September			2019			2018
	Revenue	Capital	Total	Revenue	Capital		Total
	£m	£m	£m	£m	£m		£m
(Loss)/profit on ordinary activities before tax	(6)	38	32	(28)	(24)		(52)
(Loss)/profit before tax multiplied by the effective rate of:
UK corporation tax of 19% pro-rata (2018: 19% pro-rata)	(1)	7	6	(5)	(5)			(10)
Effects of:
Capital profits not taxable	-	(7)	(7)	-	7		7
Non-taxable income	-	-	-	1	-		1
Disallowed expense	1	-	1	-	-		-
Total tax (credit)/expense	-	-	-	(4)	2		(2)

The Finance Act 2016 included legislation to reduce the standard rate of UK corporation tax to 19% from 1 April 2017 to 17% from 1 April 2020.

8 Dividends

	2019	2018
For the year ended 30 September	£m	£m
Third Special Dividend (914p per share)	-	350
Special Dividend FY18 (25p per share)	-	9
First Special Dividend FY19 (365p per share)	140	-
Second Special Dividend FY19 (54p per share)	21	-
Total Dividends	161	359

As at 30 September 2019, the Company had distributable reserves of £77 million (2018: £220 million), being the sum of the realised capital reserve and the revenue reserve. The Board does not consider the unrealised capital reserve of negative £34 million (2018: negative £44 million) to be distributable, and therefore the Company's net distributable reserves as at 30 September 2019 were £33 million (2018: £176 million).

Post year end, the Board has declared a first Special Dividend FY20 of £12 million or 31p per share payable on 24 January 2020 to shareholders on the register at close on 27 December 2019.

9 Earnings per Share

	Basic and diluted
For the year ended 30 September	2019	2018
Net revenue losses (£m)	(6)	(24)
Net capital earnings/(losses) (£m)	38	(26)
Total earnings/(losses) (£m)	32	(50)
Revenue loss per share (p)	(15.48)	(63.08)
Capital earnings/(losses) per share (p)	99.20	(67.93)
Total earnings/(loss) per share (p)	83.72	(131.01)

The weighted average number of undiluted ordinary shares in issue as at 30 September 2019 was 38,282,763 (2018: 38,282,763). There were no dilutive shares in the Company during the current and comparative financial years.

10 Net Asset Value ("NAV") per Share

The basic NAV per share is calculated by dividing the NAV of £210 million (2018: £342 million) by the number of ordinary shares in issue, as at 30 September 2019, of 38,282,763 (2018: 38,282,763). There were no dilutive shares in the Company during the current and comparative financial years.

11 Assets Held for Sale

Post yearend, an agreement for the sale of Special Product Company ("SPC") has been reached, with cash settled at close of £9 million and a further £1.5 million due on expiry of an escrow period. The Company also completed the disposal of its investment in HC Starck, the remaining one debt investment in the portfolio for €1.8 million (£1.6 million) in December 2019. Both investments are recognised as held for sale assets as at 30 September 2019. The amount recognised in 2018 related to Photobox and Knight Square, on which sale transactions were completed shortly after the financial year ended 30 September 2018.

As at 30 September		2019		2018
	Group	Company	Group	Company
	£m	£m	£m	£m
Buyouts	9	9	117	11
Debt	2	2	-	-
	11	11	117	11

12 Trade and Other Receivables

As at 30 September		2019		2018
	Group	Company	Group	Company
	£m	£m	£m	£m
Amounts owed by subsidiary undertakings	-	149	-	229
Other receivables	-	-	1	2
	-	149	1	231

13 Trade and Other Payables

		2019		2018
As at 30 September	Group	Company	Group	Company
As at 30 September	£m	£m	£m	£m
Amounts owed to subsidiary undertakings	-	-	-	19
Other payables	1	1	2	1
	1	1	2	20

Other payables include accrued expenses.

14 Provisions for Liabilities and Charges

		2019		2018
	Group	Company	Group	Company
	£m	£m	£m	£m
Opening balance	1	1	29	29
Amounts paid	-	-	(6)	(6)
Change in provision	-	-	(22)	(22)
Closing balance	1	1	1	1

The provisions as at 30 September 2019 relate to National Insurance contributions provided on the incentive schemes operated by the Company and other liabilities such as rental incentives received upfront which are recognised as deferred income. Details of the incentive schemes are shown in the Remuneration Report. The actual timing and costs of future cash flows are dependent on future events and therefore are uncertain. During the year ended 30 September 2018, incentive provisions of £23 million relating to carried interest to the former investment manager were released to the income statement.

15 Deferred Tax Liability

The following are the deferred tax liabilities recognised by the Group and Company and movements thereon during the current and prior periods.

		2019		2018
	Revaluation of financial assets	Revaluation of financial assets	Revaluation of financial assets	Revaluation of financial assets
	Group	Company	Group	Company
Deferred tax	£m	£m	£m	£m
Opening balance as at 1 October	-	-	2	2
Charge during the period	-	-	(2)	(2)
Closing balance as at 30 September	-	-	-	-

16 Financial Instruments

(i) Management of Risk

The Group's financial instruments comprise securities in unlisted 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. 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.

The Group is exposed to the risk of the change in value of its investments in unlisted equity, non-equity shares, fixed and floating rate securities, and funds. 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 (v) of this note.

Foreign Currency Risk

The Group's total return and net assets are affected by foreign exchange translation movements on investments that are denominated in currencies other than sterling. As at 30 September 2019, the Company held two investments denominated in currencies other than sterling: one in the USA valued at £10 million ($12 million) and the other in Continental Europe valued at £2 million (€2 million).

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, is analysed in part (ii) 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 30 September 2019 (2018: no gearing).

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 (iii) of this note. These profiles exclude short-term receivables and payables.

Liquidity Risk

The Group's assets comprise 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. The Group's financial liabilities are expected to be settled in less than a year.

16 Financial Instruments (continued)

Credit Risk

The Group's exposure to credit risk principally arises from its cash deposits. Only major banks are used when making cash deposits and the level of cash is reviewed on a regular basis. In total, cash balance of £1 million (2018: £3 million) was principally held with two UK banks, whose credit ratings are listed in the table below.

Bank credit ratings at 30 September 2019	Moody's
HSBC	A2 (stable)
Royal Bank of Scotland International	Baa1 (positive)

Capital Risk Management

The Group's capital comprised:

	2019	2018
	£m	£m
Equity
Equity share capital	9	9
Retained earnings and other reserves	201	333
Total capital	210	342

The Group's objective in the management of capital risk is to safeguard its liquidity 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 the investment trust status) or issue new shares or debt. During the year the Group paid £161 million (2018: £359 million) in dividends.

The Group has an existing authority to implement an on-market share buy-back programme to generate shareholder value. There are no externally imposed requirements on the Company's capital.

(ii) Foreign Currency Exposures

As at 30 September 2019, the Group and Company had €2 million euro-denominated investments remaining in the portfolio, and foreign currency exposure on these investments is minimal. The table below shows the Group and Company's exposure to US dollar fluctuations.

In determining reasonable currency movements in the US dollar, the Group analysed observable market rates on the currency for the preceding 10-year period and the 10% movement is determined using the historical average of absolute changes.

		2019		2018
	Sterling appreciation	Sterling depreciation	Sterling appreciation	Sterling depreciation
10% movement in US dollar
Impact on (loss)/profit after tax (£m)	(1)	1	(2)	1
Impact as a percentage of (loss)/profit after tax (%)	(3)	4	(3)	3
Impact on shareholders' equity (£m)	(1)	1	(2)	1
Impact as a percentage of shareholders' equity (%)	(2)	1	(1)	1

(iii) Interest Rate Risk Exposures

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 those instruments generated. Base interest rate in the UK has been less than 1% 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.

Interest on floating rate financial assets is at prevailing market rates.

16 Financial Instruments (continued)

(iii) Interest Rate Risk Exposures

	Fixed rate	Floating rate	Non-interest bearing	Group Total	Fixed rate	Floating rate	Non-interest bearing	Company Total
As at 30 September 2019	£m	£m	£m	£m	£m	£m	£m	£m
Financial assets
Cash and cash equivalents	-	-	1	1	-	-	1	1
Investments held at fair value through profit and loss	176	17	6	199	7	17	27	51
Held for sale investments	2	2	7	11	2	2	7	11
Loans and receivables	-	-	-	-	-	-	149	149
	178	19	14	211	9	19	184	212
Financial liabilities
Held at amortised cost	-	-	(1)	(1)	-	-	(1)	(1)
	-	-	(1)	(1)	-	-	(1)	(1)
Total	178	19	13	210	9	19	183	211

	Fixed rate	Floating rate	Non-interest bearing	Group Total	Fixed rate	Floating rate	Non-interest bearing	Company Total
As at 30 September 2018	£m	£m	£m	£m	£m	£m	£m	£m
Financial assets
Cash and cash equivalents	-	-	3	3	-	-	3	3
Investments held at fair value through profit and loss	134	75	13	222	7	75	36	118
Held for sale investments	108	-	9	117	11	-	-	11
Loans and receivables	-	-	3	3	-	-	231	231
	242	75	28	345	18	75	270	363
Financial liabilities
Held at amortised cost	-	-	(2)	(2)	-	-	(20)	(20)
	-	-	(2)	(2)	-	-	(20)	(20)
Total	242	75	26	343	18	75	250	343

The weighted average interest rate and period to maturity of the Group's and Company's investments are as follows:

Group	Fixed rate financial assets weighted average interest rate		Fixed rate financial assets weighted average period until maturity
As at 30 September	2019	2018	2019	2018
	%	%	Years	Years
Sterling	11	11	3	2
Euro	-	2	-	-

Company	Fixed rate financial assets weighted average interest rate		Fixed rate financial assets weighted average period until maturity
As at 30 September	2019	2018	2019	2018
	%	%	Years	Years
Sterling	12	12	3	1
Euro	-	2	-	-

16 Financial Instruments (continued)

(iii) Interest Rate Risk Exposures (continued)

Impacts on the Group's results after tax and shareholders' equity due to a 1% movement in interest rates are as follows:

		2019		2018
	Increase in variable	Decrease in variable	Increase in variable	Decrease in variable
1% movement in interest rates
Impact on profit/(loss) after tax (£m)	-	-	1	(1)
Impact as a percentage of profit/(loss) after tax (%)	-	-	1	(1)
Impact on shareholders' equity (£m)	-	-	1	(1)
Impact as a percentage of shareholders' equity (%)	-	-	-	-

(iv) Financial Assets and Liabilities

	Fair value	Group Fair value	Fair value	Company Fair value
	2019	2018	2019	2018
As at 30 September	£m	£m	£m	£m
Financial assets
Equity shares	4	17	26	31
Non-equity shares	9	5	8	5
Fixed interest securities	178	242	9	18
Floating rate securities	19	75	19	75
Cash at bank	1	3	1	3
Other assets	-	3	149	231
Financial liabilities
Other payables	1	2	1	20

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 in accordance with the principles of valuation of unlisted equity investments as detailed within Note 23. The carrying values of the financial assets and liabilities measured at amortised cost are equal to the fair value.

(v) 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 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.

16 Financial Instruments (continued)

(v) Fair Value Hierarchy (continued)

Financial Assets and Liabilities at Fair Value through Profit or Loss

Group

	Level 1	Level 2	Level 3	Total
As at 30 September 2019	£m	£m	£m	£m
Unlisted and listed investments	17	-	193	210

	Level 1	Level 2	Level 3	Total
As at 30 September 2018	£m	£m	£m	£m
Unlisted and listed investments	72	-	267	339

Company

	Level 1	Level 2	Level 3	Total
As at 30 September 2019	£m	£m	£m	£m
Unlisted and listed investments	17	-	55	72

	Level 1	Level 2	Level 3	Total
As at 30 September 2018	£m	£m	£m	£m
Unlisted and listed investments	72	-	57	129

Investments classified within Level 1 consist only of money market funds, whose values are based on quoted market prices in active markets. The Group does not adjust the quoted price for these instruments.

No financial instruments held by the Group or Company are classified within Level 2.

Investments classified within Level 3 consist of private equity direct investments, secondary and debt investments, on which observable prices are not available and the Group uses valuation techniques to derive the fair value.

The main inputs into the Group's valuation models for private equity investments are EBITDA multiples (based on the rolling 12-month EBITDA and 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 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, 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. As at 30 September 2019, 1% (2018: 1%) of financial assets at fair value comprise investments in private equity funds. These investments 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.

		Group		Company
	2019	2018	2019	2018
Financial assets measured at Level 1	£m	£m	£m	£m
As at 1 October	72	389	72	380
Purchases	115	66	115	66
Realisations	(170)	(383)	(170)	(374)
As at 30 September	17	72	17	72

16 Financial Instruments (continued)

(v) Fair Value Hierarchy (continued)

		Group		Company
	2019	2018	2019	2018
Financial assets measured at Level 3	£m	£m	£m	£m
As at 1 October	267	349	57	156
Purchases	9	44	2	31
Realisations	(119)	(53)	(21)	(62)
Increase/(decrease) in valuation	36	(73)	17	(68)
As at 30 September	193	267	55	57

Realisations in the tables above include interest and distributions received from investments. During the year, the Company incurred £2 million of costs in supporting portfolio companies to improve performance. Total gains and losses on assets measured at Level 3 are recognised as part of the investment gains and losses balance in the Consolidated Income Statement and no other comprehensive income has been recognised on these assets. Total unrealised gain for the year was £38 million (2018: loss of: £58 million).

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 one or more of those assumptions behind the valuation techniques adopted based on reasonable possible alternative assumptions. The sensitivity thresholds have been determined based on the average of historical changes in each type of unobservable input. The fair value of investments in the tables below excludes any assets recognised as held for sale as at the reporting date.

Group 2019	Fair value £m	Valuation technique	Unobservable inputs	Weighted average input	Reasonable possible shift +/- (absolute value/%)	Change in valuation +/- £m
UK
Consumer goods, leisure and hospitality	174	Comparable trading multiples	EBITDA multiple	10.6x	1x	20/(20)
Consumer goods, leisure and hospitality		Comparable trading multiples	Comparability difference adjustment	32%	5%	(15)/15
Property	3	Yield	Yield %	8%	1%	-
Business services	4	Comparable trading multiples	EBITDA multiple	11.6x	1x	1/(1)
Business services		Comparable trading multiples	Comparability difference adjustment	35%	5%	(1)/1
US
Private equity funds	1	NAV valuation	NAV	n/a	5%	-
Total	182

Group 2018	Fair value £m	Valuation technique	Unobservable inputs	Weighted average input	Reasonable possible shift +/- (absolute value/%)	Change in valuation +/- £m
UK
Consumer goods, leisure and hospitality	228	Comparable trading multiples	EBITDA multiple	10.3x	1x	21/(21)
Consumer goods, leisure and hospitality		Comparable trading multiples	Comparability difference adjustment	32%	5%	(16)/16
Property	3	Yield	Yield %	8%	1%	-
Business services	25	Comparable trading multiples	EBITDA multiple	13.4x	1x	1/(1)
Business services		Comparable trading multiples	Comparability difference adjustment	45%	5%	(1)/1
Private equity funds	1	NAV valuation	NAV	n/a	5%	-/-
Continental Europe
Private equity funds	1	NAV valuation	NAV	n/a	5%	-/-
Property	1	Yield	Yield %	8%	1%	-
US
Business services	7	Comparable trading multiples	EBITDA multiple	12.9x	1x	1/(1)
Business services		Comparable trading multiples	Comparability difference adjustment	50%	5%	(1)/1
Private equity funds	1	NAV valuation	NAV	n/a	5%	-
Total	267

16 Financial Instruments (continued)

(v) Fair Value Hierarchy (continued)

Company 2019	Fair value £m	Valuation technique	Unobservable inputs	Weighted average input	Reasonable possible shift +/- (absolute value/%)	Change in valuation +/- £m
UK
Investment in subsidiaries	31	NAV valuation	NAV	n/a	5%	2/(2)
Consumer goods, leisure and hospitality	5	Comparable trading multiples	EBITDA multiple	10.4x	1x	1/(1)
Consumer goods, leisure and hospitality		Comparable trading multiples	Comparability difference adjustment	32%	5%	(1)/1
Business services	4	Comparable trading multiples	EBITDA multiple	11.6x	1x	1/(1)
Business services		Comparable trading multiples	Comparability difference adjustment	35%	5%	(1)/1
Property	3	Yield	Yield %	n/a	1%	-
US
Private equity funds	1	NAV valuation	NAV	n/a	5%	-
Total	44

Company 2018	Fair value £m	Valuation technique	Unobservable inputs	Weighted average input	Reasonable possible shift +/- (absolute value/%)	Change in valuation +/- £m
UK
Investment in subsidiaries	8	NAV valuation	NAV	n/a	5%	-/-
Consumer goods, leisure and hospitality	4	Comparable trading multiples	EBITDA multiple	10.2x	1x	1/(1)
Consumer goods, leisure and hospitality		Comparable trading multiples	Comparability difference adjustment	33%	5%	(1)/1
Business services	17	Comparable trading multiples	EBITDA multiple	13.4x	1x	1/(1)
Business services		Comparable trading multiples	Comparability difference adjustment	45%	5%	(1)/1
Property	3	Yield	Yield %	n/a	1%	-/-
Continental Europe
Property	1	Yield	Yield %	n/a	1%	-/-
US
Investment in subsidiaries	16	NAV valuation	NAV	n/a	5%	-
Consumer goods	7	Comparable trading multiples	EBITDA multiple	12.9x	1x	1/(1)
			Comparability difference adjustment	50%	5%	(1)/1
Private equity funds	1	NAV valuation	NAV	n/a	5%	-
Total	57

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 significant and the respective impact on the fair value of the financial assets. 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 of assets held by the Group or Company during the year ended 30 September 2019 (2018: £nil).

16 Financial Instruments (continued)

(v) Fair Value Hierarchy (continued)

The following table presents the movement in Level 3 instruments by sector of financial instrument:

Group 2019	Consumer goods, leisure and hospitality	Property	Business services	Funds	Total
	£m	£m	£m	£m	£m
Opening balance as at 1 October 2018	228	4	32	3	267
Purchases	9	-	-	-	9
Realisations	(96)	(1)	(21)	(1)	(119)
Transfer to held for sale	-	-	(9)	(2)	(11)
Increase in valuation	34	-	1	1	36
Closing balance as at 30 September 2019	175	3	3	1	182

Group 2018	Consumer goods, leisure and hospitality	Property	Business services	Funds	Total
	£m	£m	£m	£m	£m
Opening balance as at 1 October 2017	286	4	31	27	349
Purchases	42	-	-	3	45
Realisations	(1)	(1)	(19)	(33)	(54)
(Decrease)/increase in valuation	(99)	1	20	5	(73)
Closing balance as at 30 September 2018	228	4	32	3	267

For the purposes of the above tables:

· consumer goods include non-cyclical consumer goods, leisure and personal goods;

· business services include media, construction and materials, industrial general and transportation, support services and technology, hardware and equipment; and

· funds include private equity funds and secondaries.

17 Called up Share Capital and Reserves

Share Capital

	2019	2018
	£m	£m
Opening allotted, called up and fully paid 38,282,763 (2018: 38,282,763) ordinary shares of 25p each	9	9
Closing allotted, called up and fully paid 38,282,763 (2018: 38,282,763) ordinary shares of 25p each	9	9

Own Shares Held

Own shares held are shares purchased by the Company's Employee Benefit Trust (the "Trust") in relation to incentive schemes operated by the Company. 90,481 shares (2018: 135,167) were held by the Trust as at 30 September 2019 at a value of £0.4 million (2018: £1.6 million). During the year, 44,686 shares, after deduction of tax payable, were transferred to the CFO and COO upon early vesting of the 2017 LTIP. Further details are shown in the Directors' Remuneration Report.

Translation Reserve

The translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

Capital Reserve

Capital reserve includes both realised capital reserve, which is the accumulated gains and losses on the realisation of investments and unrealised capital reserve, which is the accumulated changes in the value of financial instruments measured at fair value which have been charged through profit and loss.

Revenue Reserve

The revenue reserve is the accumulated net revenue profits and losses of the Group and Company. Revenue reserve also includes share-based payment reserve of £0.7 million (2018: 0.2 million), see Note 18.

18 Share-Based Payments

The Group operates two long-term incentive plans, the Long-Term Incentive Plan ("LTIP") and Share of Value Plan ("SOVP"). The schemes are designed to provide long-term incentives for senior management and Executive Directors of the Group to deliver long-term shareholder returns.

The LTIP was introduced in July 2017. The SOVP scheme was introduced in April 2018 to be a one-off award and, in respect of its participants, has replaced the LTIP and the Annual Bonus Plan for future awards for the duration of the performance period. Both plans are recognised as equity settled share-based payments in accordance with IFRS 2. However, awards can be settled in cash equivalents at the discretion of the Remuneration Committee. The share-based payment schemes are recognised as equity settled on the basis that the Company has no present obligation for settling awards in cash, contractually or constructively, i.e. as a result of past practices.

The cost of share-based payments is recognised as an expense with a corresponding increase in the share-based payment reserve. Expenses are recognised over the period in which vesting conditions are fulfilled. No expense is recognised for awards that do not ultimately vest.

The Remuneration Committee determined that the approval of the Group's new investment objective and policy by shareholders at the General Meeting on 30 October 2018, and the consequent payment of the first Special Dividend of FY19 in December 2018 were a "Corporate Event", as defined in the rules of the LTIP. This Corporate Event triggered the early vesting of all outstanding nil-cost options under the LTIP to all participants, including Gavin Manson, the Chief Financial and Operating Officer, who has agreed to be bound by the 24-month holding period for the shares from the vesting date. Vesting of the LTIP resulted in an accelerated charge of £0.7 million in the Consolidated Income Statement for the year ended 30 September 2019 and the total share-based payment charge for the period was £1.4 million, recognised in "Other expenses" in the Consolidated Income Statement (2018: £0.6 million). There were no share options outstanding under the LTIP as at 30 September 2019.

Details of the SOVP scheme are as follows:

Grant date	12 April 2018
Number of unit awards granted	100,000
Fair value on grant date	£1,999,000
Performance period	3 years
Vesting conditions	1. Continued services over the vesting period. 2. NAV growth in excess of NAV threshold plus cumulative distributions over a normal measurement period of 1 January 2018 to 31 December 2020.
Change in corporate control and other corporate events	All unvested awards shall vest on date of such event, at the discretion of the Group Remuneration Committee.
Settlement method	Equity settled, with option of cash alternative determined by the Group Remuneration Committee.

The Remuneration Committee, at a meeting in December 2019, reviewed the suitability of the SoVP in its current format, in light of the material change in the Company's strategy. As a result of the review, the Committee proposed that the SoVP should be amended so that the reward payable to executives is clearly aligned to and dependent on the optimisation of investment realisation and return of value to shareholders. The new Policy will be included in the AGM notice.

In determining the fair value of the SOVP scheme on grant date, the Group employed the Stochastic model, with five identified key variables which underpin the valuation of the Group investment portfolio. The key variables are volatilities of EBITDA and EBITDA multiples, net debt, book value and ownership percentages. The probability of achieving the performance condition is calculated based on the average of 100,000 simulations produced by the model as a percentage of the maximum value that can be delivered under the SOVP.

Analysis of movements in the number of options is set out below:

Number of outstanding options	2019	2018
Opening balance	120,486	47,783
Granted during the period	-	72,703
Vested during the period	(120,486)	-
Closing balance	-	120,486

There were no outstanding share options as at 30 September 2019 and the average contractual life for the share options outstanding as at 30 September 2018 was two years.

19 Particulars of Holdings

Subsidiary Undertakings

The results and balances of the following subsidiaries are included in the consolidated financial statements of the Group.

Electra Group Limited (non-trading company)

Company number: 02301720

Registered office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT

Place of incorporation: United Kingdom

Ownership: 100%

Electra Investments Limited (investment holding company)

Company number: 00021895

Registered office: First Floor, 50 Grosvenor Hill, London, United Kingdom, W1K 3QT

Place of incorporation: United Kingdom

Ownership: 100%

Significant interests in investee undertakings

The fair value of the following undertakings each represent more than 5% of the Group's portfolio value:

Galaxy Topco Limited (Hotter Shoes)

Company number: 08812566

Registered office: 2 Peel Road, Skelmersdale, Lancashire, WN8 9PT

Place of incorporation: United Kingdom

Ownership: 98.7% in ordinary shares and 97.3% in secured PIK loan notes

Loss for the period ended 27 January 2019: £108 million

Net assets as at 27 January 2019: negative £156 million

Mondays Topco Limited (TGI Fridays)

Company number: 09347876

Registered office: Wey House, Farnham Road, Guildford, Surrey, GU1 4YD

Place of incorporation: United Kingdom

Ownership: 88.0% in ordinary shares and 99.56% in unsecured loan notes

Loss for the period ended 30 December 2018: £31 million

Net assets as at 30 December 2018: negative £75 million

20 Related Party Transactions

Balances and transactions between the Company and its subsidiaries are eliminated on consolidation. Details of transactions between the Group and Company and other related parties are disclosed below.

Sherborne

Sherborne Investors Management LP ("Sherborne") serves as an adviser to the Group on research and formulation as well as making proposals to the Board of Directors. Edward Bramson was a Director of the Company until his resignation on 17 July 2019. He is the managing member of Sherborne. On 18 July 2019, Stephen Welker, who is also a Partner in Sherborne, joined the Company as a Non-Executive Director. Under the terms of its contract with the Company, Directors appointed by Sherborne have waived their fees but are entitled to be reimbursed for all reasonable expenses. In the year ended 30 September 2019, the Group paid Sherborne £76,691 (2018: £63,342) as reimbursement for Mr Bramson's and Mr Welker's travel and subsistence costs. The outstanding amount payable by the Group to Sherborne as at 30 September 2019 was £nil (2018: £nil).

21 Capital Commitments and Contingencies

There are no outstanding capital commitments or contingent liabilities as at 30 September 2019.

22 Post Balance Sheet Events

There have been no other events with material impact on the Company since the balance sheet date, other than those disclosed in this Annual Report and Financial Statements.

23 Basis of Accounting and Significant Accounting Policies

The Group financial statements for the year ended 30 September 2019 have been prepared in accordance with the Companies Act 2006 and International Financial Reporting Standards ("IFRSs"). IFRSs comprise standards and interpretations approved by the International Accounting Standards Board ("IASB") and the IFRS Interpretations Committee ("IFRS IC") as adopted in the European Union.

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 (the "SORP") for investment companies issued by the Association of Investment Companies in November 2014 and updated in February 2018.

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 income 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; and

· 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 expenses 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 management expenses as a revenue item for the year ended 30 September 2019.

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; and

· IFRS 2 Share-Based Payments in respect of Group settled share-based payment schemes.

Going Concern

Following the Company's announcement in October 2018 to conduct a managed wind-down of the investment portfolio, and consistent with basis of preparation for the financial statements for the year ended 30 September 2018, the financial statements for the year ended 30 September 2019 have been prepared on a basis other than that of a going concern. However, there have been no changes to the basis of recognition, which remains as 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. The Group continues to value its financial assets on the basis disclosed in this Note. The time frame envisaged for the managed wind-down of the portfolio does not affect the valuation of assets or liabilities on the Company's balance sheet. As at 30 September 2019, no contractual commitments had become onerous and therefore no provisions for wind-down costs have been made. Any future costs relating to terminating the business of the Company will be provided for when the Company becomes obligated to make such payments.

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 IFRS 12 define an investment entity and include an exception from the consolidation requirements for investment entities.

23 Basis of Accounting and Significant Accounting Policies (continued)

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; and

· the performance of investments is measured and evaluated on a fair value basis.

The Company does not consolidate the portfolio companies it controls. The principal subsidiaries are wholly-owned companies, which 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 and amendments to IFRSs became effective for the accounting period commencing on or after 1 January 2018 and have now been adopted by the Group with no material impacts.

IFRS 9 Financial Instruments

There have been no changes to the measurement and classification of the Group's investment assets and non-investment assets and liabilities, which continue to be measured, respectively at fair value through profit and loss and amortised cost. The Group does not undertake any hedge accounting activities. In relation to the non-investment assets, an expected credit loss method has been implemented by the Group. As at 30 September 2019, the Group's non-investment assets consist of only £0.2 million prepaid expenses and no impairment provisions have been provided.

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 IFRS 9 Financial Instruments. On this basis, the Group's main revenue stream will be outside the scope of IFRS 15. Sundry income generated by the Group during the year ended 30 September 2019 amounted to less than £0.1 million and is expected to stay at similar levels in future periods.

Amendments

· IFRIC 22 (interpretations): Foreign Currency Transactions and Advance Consideration;

· IFRS 2 (amendments): Classification and Measurement of Share-Based Payment Transactions;

· IFRS 4 (amendments): Applying IFRS 9 "Financial Instruments" with IFRS 4 "Insurance Contracts";

· IFRS 15 (amendments): Clarification to IFRS 15 "Revenue from Contracts with Customers";

· IAS 40 (amendments): Transfers of Investment Property; and

· Annual Improvements to IFRS Standards 2014-2016 Cycle: Amendments to IFRS 1 and IFRS 28.

The following new IFRS has been issued by the IASB, effective for annual periods beginning on or after 1 January 2019, which the Group plans to adopt from its accounting period beginning on 1 October 2019.

IFRS 16 Leases

The Group has one leased property which serves as its head office, which will have three years left until the end of the lease agreement from the Company's adoption date for IFRS 16. A full impact assessment, including all transitional options, has been performed by the Group as detailed in the previous Annual Report and Financial Statements for the year ended 30 September 2018 and no material impacts are expected as a result of the adoption.

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 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.

23 Basis of Accounting and Significant Accounting Policies (continued)

Principles of Valuation of Investments

(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 and willing parties in an arm's length transaction. In estimating fair value, the Group 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.

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; and

· 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.

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, or any other reason why 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.

(iii) Fund Investments

In determining the fair value of investments in funds, the net asset value of the fund as reported by the manager is used as the starting point. The Group may adjust the reported net asset value 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.

23 Basis of Accounting and Significant Accounting Policies (continued)

(iv) Money Market Fund Investments

Investments in money market funds are held at the current fair value of the units invested.

(v) Subsidiary Undertakings

Investments in subsidiaries are stated in the Company Balance Sheet at the fair value of the subsidiary.

(vi) Accrued Income

Accrued income is included within investment valuations.

Cash and Cash Equivalents

Cash comprises cash at bank and is measured at amortised cost.

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 for on the ex-dividend date or, where no ex-dividend date is quoted, are accounted for 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.

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.

Operating 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.

23 Basis of Accounting and Significant Accounting Policies (continued)

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.

Tax

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.

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 tax authority and the Group intends to settle its current tax assets and liabilities on a net basis.

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.

Revenue and Capital Reserves

Net capital return is added to the capital reserve in the Consolidated Statement of Changes in Equity, while 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 considering 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 is deducted from equity.

23 Basis of Accounting and Significant Accounting Policies (continued)

Share-Based Payments

The Company operates two long-term incentive schemes, both of which meet the definition of share-based payments under IFRS 2. Where appropriate, share-based payments are measured at fair value on grant date, which is estimated using commonly used and accepted models. The cost of share-based payments is spread over the period until the awards vest and is recognised as an expense in the income statement with a corresponding increase in the equity reserves. Where share-based payments have market vesting conditions, the full charge is recognised irrespective of the conditions being met, provided all other performance and/or service conditions are satisfied.

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 preparing the financial statements for the year ended 30 September 2019, the Directors concluded that the Company continues to meet the definition of an investment entity based on reassessment of the conditions listed under the basis of consolidation above.

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.

Financial assets fair value measurements

Unquoted assets are measured at fair value in accordance with IFRS 13 and the IPEV guidelines for financial reporting purposes.

In estimating the fair value of an asset, the Company uses market-observable data to the extent it is available. Where Level 1 inputs are not available, the Company applies internal valuation techniques and methodologies to perform the valuation. Determining the appropriate valuation methodology and the inputs into the valuation models involves judgements, which include making assessments of the future earnings potential of portfolio companies, appropriate earnings multiples to apply, and adjustments to comparable multiples.

The Board has set up a Valuations Committee, which is chaired by a Non-Executive Director. The Valuations Committee works closely with G10 Capital Limited, the Company's Alternative Investment Fund Manager ("AIFM"), in establishing the appropriate valuation techniques and inputs for fair value measurement and the Chairman of the Valuations Committee reports its findings to the Board every six months to explain the cause of fluctuations in the fair value of the investments.

Sensitivity analysis on key sources of estimation has been disclosed in Note 16. Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed above in this Note.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.

END

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