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DJ Capital for Colleagues plc Final Results

 
TIDMCFCP 
 
Capital for Colleagues plc / EPIC: CFCP / Market: NEX / Sector: Investment 
 
18 January 2018 
 
                          CAPITAL FOR COLLEAGUES PLC 
                  ('Capital for Colleagues' or the 'Company') 
 
               Audited Results for the year ended 31 August 2017 
 
Capital for Colleagues, the investment vehicle focused on opportunities in the 
Employee Owned Business ('EOB') sector, is pleased to announce its audited 
results for the year ended 31 August 2017. 
 
CHIEF EXECUTIVE'S STATEMENT 
 
Employee ownership is acknowledged to improve productivity and create wealth as 
well as having the potential for attractive commercial returns for investors. 
Capital for Colleagues PLC (C4C) provides capital to existing and aspiring 
employee-owned businesses (EOBs) and helps them to become effective and 
profitable organisations driven by the ethos of employee ownership. 
 
C4C tends to be agnostic in terms of business sector and structures its 
investments to reflect the individual requirements and prospects of each 
investee company. As a result, the funding we provide is very flexible and can 
take the form of debt, equity or both. The premise underlying all our 
investments is that they should facilitate the full engagement of employees in 
a business. A range of loans and equity investments have been made in unquoted 
businesses, generating income from dividends, interest and fees. Ultimately, 
the Board and investors will measure success based on a long-term increase in 
net asset value expressed as NAV per share. Although we are patient investors, 
all our investments need to offer an eventual opportunity to exit or be 
expected to return capital while still providing an attractive dividend or 
profit stream. 
 
The financial year ended 31 August 2017, our third full year as a public 
company and as a member of what is now called NEX Exchange (formerly ISDX), 
brought challenges as well as opportunities.  At the end of the year, our 
portfolio of private EOBs numbered sixteen. We believe that these businesses 
generate total annual turnover of around GBP 63 million and support around 520 
jobs. Over the course of the year, the Company made level 3 investments 
totalling GBP 1.365 million in new and existing investee companies and now has 
investments across a range of business areas, from civil engineering to 
exhibition centres to technology, reflecting the diversity of EOBs and the 
breadth of investment opportunities available to us. 
 
We were pleased to be nominated in two categories at the fifth annual Small Cap 
Awards.  Firstly, as the NEX Exchange Company of the Year and, secondly, as the 
Social Stock Exchange Impact Company of the Year. 
 
One new addition to the portfolio during the financial year was the holding 
company of Carpenter Oak Ltd (www.carpenteroak.com). Established in 1987 and 
with offices in Devon, Wiltshire and Scotland, Carpenter Oak is an 
award-winning specialist in the design, construction and raising of 
timber-framed structures. The company is our most recent new investment and 
fits with another of our main investment criteria of sustainable construction. 
Carpenter Oak craftsmen have created numerous hand-finished, oak-framed houses, 
oak conservatories and timber frame extensions around the world and their work 
has featured on the Channel 4 TV programmes "Grand Designs" and "Building the 
Dream". Carpenter Oak designs and raises around 90 frames a year. 
 
The directors were disappointed to note that, in early 2017, the largest 
investment in our portfolio at that time, FJ Holdings Ltd (FJH) and its 
subsidiary Ham Baker Adams Ltd (HBA), were placed into administration. We 
invested a total of GBP 1.3 million into these two businesses but this amount 
ended up being written down to zero, with the expected negative effect on our 
NAV and on these financial results. The events surrounding the demise of FJH 
are extremely disappointing, particularly as they stand in contrast to those in 
general of our other investee companies. 
 
We reflected on the circumstances in which FJH became part of our portfolio and 
examined whether this led to a greater chance of failure than might otherwise 
have been the case. FJH was one of three early investments acquired, 
immediately prior to the company's flotation, from the members of an existing 
Limited Liability Partnership. Since our IPO, it became apparent to us that 
FJH's commitment to employee ownership was not as sincere as we would have 
liked. Moreover, FJH's management was not always receptive to ideas as to how 
to improve that company's financial management and performance, despite 
considerable input from the C4C team. Accordingly, a decision was taken to exit 
the holding some months prior to the administration. Regrettably for C4C 
investors, before an exit could be achieved and against a backdrop of 
increasingly tough trading conditions, FJH's management and its secured finance 
providers engineered a sale of the group's key businesses and assets to a 
third-party private equity firm, leaving existing equity investors and 
unsecured finance providers with nothing of value. 
 
This unfortunate episode gave us cause for deep reflection on our philosophy 
and our approach to investees. Over the last three years, we have sourced and 
executed our investments through a process which delivers a detailed 
understanding of prospective investee companies and the people who run them, 
prior to any investment being made. We must recognise that it is in the nature 
of any portfolio, however well diversified, to have an investment fail and 
smaller, unquoted companies can be particularly sensitive to the risk of 
failure. Although no investment is without risk, we are committed to minimising 
it and we will continue to invest in a diversified range of EOBs with the 
intention that the majority will become successful and sustainable, delivering 
meaningful returns to shareholders. The remaining two investments acquired at 
the same time as FJH are embracing EO and performing to expectation. Without 
wishing to deny the significant impact of the failure of FJH and HBA, which 
represented 21% of the value of the portfolio last year, it has not dimmed our 
enthusiasm for seeing through our strategy albeit with greater wisdom painfully 
gained. We responded to this setback by taking three positive actions. 
 
1.  We raised new capital. In April 2017, we completed a fundraising via an 
Open Offer and Subscription. Net proceeds were approximately GBP 2.38m, an 
amount which was ahead of our expectations. More details of this corporate 
action can be found in the Business Review. As with previous capital raises, 
new funds are being used to make further investments into employee-owned 
businesses and for general working capital purposes. 
 
2.  We reassessed our fixed costs to ensure that our overall costs remain in 
line with our asset base. Consequently, in May 2017, the executive directors 
and some key employees agreed that, for a period of at least a year, a 
proportion of their monthly earnings will be paid in new C4C ordinary shares, 
through a Share Incentive Plan. 
 
3. We changed the structure of the group so that we can focus solely on 
managing our portfolio. After the year-end, we set up a new joint venture 
company, Castlefield Corporate Advisory Partners Limited ("CCAP"), which is now 
responsible for the non-investment EOB activities previously undertaken by C4C. 
In particular, CCAP educates businesses about the benefits of Employee 
Ownership, including succession planning and it also identifies potential 
investees and advises companies on the structure and presentation of their 
investment case to C4C. CCAP also monitors and advises our existing investee 
companies and identifies potential new investors for us.More details of this 
initiative can be found below (see "Post Year-End Event"). 
 
Whilst securing investment in unquoted companies, we sometimes invest in quoted 
businesses that demonstrate employee engagement. To date, good returns have 
been achieved on this portion of the company's assets. The benefit of investing 
in quoted companies is that C4C can deploy its capital quickly and efficiently 
and the investment team can afford to bide its time when it comes to investing 
in unquoted businesses. With no shortage at present of good opportunities among 
private companies, our exposure to listed investments was nil at the end of the 
period. 
 
Shareholders will be aware that we are active members of the Employee Ownership 
Association (www.employeeownership.co.uk) and we believe that we are their only 
current equity funding partner. The Employee Ownership Association (EOA) 
represents organisations which are employee-owned or transitioning to employee 
ownership. Membership has grown from significantly less than 100 three years 
ago, to around 320 members today. As a sign of our commitment to leadership in 
the sector, we sponsor the EOA's two-day annual conference which takes place in 
November each year. Under the terms of our agreement, the EOA refers us any 
members or other suitable prospects who are considering an employee buyout, who 
have begun the transition to employee ownership or who are seeking funding to 
develop an existing EOB. 
 
Social Impact 
 
We have always been convinced of the positive social impact of employee 
ownership and we measure this every year with our annual impact report. During 
the summer, we published our third such report which is available to download 
from our website. Our next impact report will be published in summer 2018. 
 
On 1 January 2016, the seventeen Sustainable Development Goals (SDGs) of the 
United Nations' 2030 Agenda for Sustainable Development - adopted by world 
leaders in September 2015 at an historic Summit - officially came into force 
(see www.un.org).  Over the next fifteen years and in pursuit of these new 
goals, countries, companies and individuals can mobilise efforts to end all 
forms of poverty, fight inequalities and tackle climate change while ensuring 

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DJ Capital for Colleagues plc Final Results -2-

that no one is left behind. We believe that through our commitment to employee 
ownership and the activities of some of the companies in which we invest, C4C 
addresses four of the UN's Sustainable Development Goals. 
 
Goal 3 - Good Health and Wellbeing. 
 
Ensuring healthy lives and promoting well-being for all at all ages which is 
essential to sustainable development. There is evidence to suggest that 
employee-owned businesses generate higher levels of well-being among their 
staff compared with conventionally-owned businesses. 
 
Goal 8 - Decent Work and Economic Growth. 
 
A continued lack of decent work opportunities contributes to an erosion of the 
basic social contract underlying democratic societies. The creation of quality 
jobs remains a major challenge for all economies. Employee-owned businesses 
offer meaningful and sustainable work to their employees. 
 
Goal 12 - Responsible Consumption and Production. 
 
Sustainable consumption and production is about promoting resource and energy 
efficiency. C4C supports several businesses which are committed to 
sustainability and social responsibility. Ecomerchant and Carpenter Oak, for 
example, are specialist suppliers of environmentally-friendly building 
materials. 
 
Goal 13 - Climate Action 
 
Climate change is now affecting every country on every continent. It is 
disrupting national economies and affecting lives, costing people, communities 
and countries dearly. C4C investee companies Anthesis and Office for Public 
Management both advise clients on sustainability and reducing carbon emissions. 
 
This is the first year where we have identified the UN Sustainable Development 
Goals which we seek to address. In next year's annual report and accounts, we 
plan to report back to shareholders on our progress in addressing these four 
goals. 
 
Post Year-End Event 
 
As mentioned above, so that we can further refine the way we do business we 
announced, in November 2017, the formation of a joint venture company which 
will allow C4C to concentrate solely on its core business of investing in EOBs. 
 
Since the formation of the company, we have been a committed advocate for the 
wider EOB sector, raising public awareness of employee ownership and actively 
promoting the benefits of it through education programmes and by identifying, 
advising and structuring potential EOBs. We are proud of our achievements in 
this area, but we believe it has been a distraction from the Company's core 
business of investing in EOBs. 
 
Therefore, we decided to establish a new joint venture company, CCAP, which 
will assume responsibility for the non-investment EOB activities previously 
undertaken by C4C. In particular, CCAP will be responsible for educating 
businesses about the benefits of Employee Ownership (including succession 
planning), identifying potential investee companies for C4C and for advising 
those companies on the structure and presentation of their investment case to 
C4C. CCAP will also monitor and advise our existing investee companies and 
source potential new investors for us. 
 
C4C owns 34 per cent of CCAP, with Castlefield Partners Limited ("Castlefield") 
owning 51 per cent; the balance of 15 per cent is to be held by CCAP's current 
and future executives, including Jeremy Burden and Peter Matthews, who have 
transferred their employment from Capital for Colleagues to CCAP. Castlefield 
is the employee-owned holding company of a range of FCA regulated financial 
services businesses, focused on responsible, sustainable investing. John 
Eckersley and Alistair Currie, executive Directors of Capital for Colleagues, 
are also partners of Castlefield. 
 
The establishment of CCAP frees C4C to focus on its core activity of providing 
capital to EOBs. We will use this capital to drive future growth in the EOB 
sector and to benefit from that growth. Streamlining our operations in this way 
is also in line with C4C's previously stated intention of reducing its central, 
largely fixed overheads. 
 
Financial Results 
 
In the twelve months ended 31 August 2017, the Group invested GBP 1.37 million 
across a portfolio of sixteen unquoted EOBs. The company generated revenue of 
GBP 372,000 in the year and at the year end, had net assets of GBP 6.6 million, 
equivalent to 42.69p per share. This year's results are dominated by the 
impairment of the investment and loans attributable to the demise of FJ 
Holdings mentioned elsewhere in this report. The impairment of GBP 1.32 
million, as seen in the Consolidated Statement of Comprehensive Income, pushed 
the company from making an operating profit of GBP 154,000 into a loss of GBP 
1.04 million. Looking past this, the results reflect our transition from high 
yielding loans towards putting in place the foundations of a portfolio offering 
equity-linked returns. Shareholders will be aware from my statement last year 
that at that time we had already begun to sacrifice shorter-term income for a 
bigger share of the potential capital growth from our investments. The main 
impact of this move has been felt under the year now being reviewed. 
 
The Directors do not recommend the payment of a dividend. 
 
Outlook 
 
As we build on our leading position in the EOB sector, we remain committed to 
the continued expansion of our portfolio so that we can generate attractive 
returns for our shareholders. Despite the setback mentioned above, we continue 
to move forward with our strategy, most notably where we convert certain 
existing loans into equity. As a well-established presence in the market, we 
enjoy good access to numerous potential investee companies in varying sectors 
and of various sizes, which we believe can deliver the returns we require. The 
Directors are confident that the EOB sector will keep expanding and that EOBs 
will continue to deliver strong performance. Having raised new funds during the 
year, we expect to continue to make investments into EOBs. A broad strategic 
objective is to make larger investments into bigger businesses so that more 
workers can enjoy the benefits of employee ownership. With the steps we have 
taken, we believe that we are well placed to capitalise on the significant 
growth potential of the EOB sector. Statistics demonstrate that the EOB sector 
is becoming increasingly important to our economy, with an increasing 
proportion of UK GDP expected to be generated by EOBs year-by-year. As a 
result, we are still confident in our ability to create value for our 
shareholders and we would like to thank them for their continued support. We 
are still proud to be in the vanguard of this exciting sector and I look 
forward to a year of progress. 
 
John Eckersley 
 
Chief Executive 
 
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 AUGUST 
2017 
 
                                                         2017            2016 
 
                                                       GBP 000's       GBP 000's 
 
Revenue                                                   372             560 
 
Realised (loss) / gains on investments                    (5)             157 
 
Unrealised revaluation gains on investments               317             71 
 
                                                     -------------   ------------- 
 
                                                          684             788 
 
Administrative expenses                                  (530)           (630) 
 
                                                     -------------   ------------- 
 
OPERATING PROFIT                                          154             158 
 
Impairment of investments and loans                     (1,321)            - 
 
Finance income                                             -               - 
 
                                                     -------------   ------------- 
 
(LOSS) / PROFIT BEFORE TAX                              (1,167)           158 
 
Tax credit / (charge)                                     120            (130) 
 
                                                     -------------   ------------- 
 
RETAINED (LOSS) / PROFIT AFTER TAX FOR THE YEAR         (1,047)           28 
 
                                                        ======          ====== 
 
RETAINED (LOSS) / PROFIT ATTRIBUTABLE TO 
 
Owners of the company for the year                      (1,047)           28 
 
                                                        ======          ====== 
 
TOTAL COMPREHENSIVE INCOME 
ATTRIBUTABLE TO: 
 
Owners of the company for the year                      (1,047)           28 
 
                                                        =======         ======= 
 
(Loss)/ profit per share 
 
Basic and diluted                                       (9.02)p          0.32p 
 
                                                        =======         ====== 
 
GROUP AND COMPANY STATEMENT OF FINANCIAL POSITION AT 31 AUGUST 2017 
 
                                                 Group                           Company 
 
                                         2017             2016            2017            2016 
 
                                      GBP 000's        GBP 000's        GBP 000's       GBP 000's 
 
ASSETS 
 
NON-CURRENT ASSETS 
 
Investments held at fair value 
through profit or loss                  4,592            3,427            4,592           3,427 
 
Loans and receivables                    535             1,081             535            1,081 
 
                                   ---------------- ----------------  -------------   ------------- 
 
                                        5,127            4,508            5,127           4,508 
 
                                   ---------------  ---------------  --------------  -------------- 
 
CURRENT ASSETS 
 
Trade and other receivables              276              654              280             658 
 
Cash and cash equivalents               1,283             279             1,283            279 
 
                                   ---------------  ---------------  --------------  -------------- 
 

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DJ Capital for Colleagues plc Final Results -3-

                                        1,559             933             1,563            937 
 
                                    --------------   --------------  --------------- --------------- 
 
TOTAL ASSETS                            6,686            5,441            6,690           5,445 
 
                                       =======          =======          ======          ====== 
 
EQUITY AND LIABILITIES 
 
EQUITY 
 
Called up share capital                 6,154            3,850            6,154           3,850 
 
Share premium                           1,097            1,036            1,097           1,036 
 
Retained (loss) / profit                (683)             364             (678)            369 
 
                                   ---------------  ---------------   ------------    ------------ 
 
TOTAL EQUITY                            6,568            5,250            6,573           5,255 
 
                                    --------------   --------------   -------------   ------------- 
 
CURRENT LIABILITIES 
 
Trade and other payables                 110               89              109             88 
 
                                    --------------   --------------   -------------   ------------- 
 
                                         110               89              109             88 
 
                                        ======          =======          =======         ======= 
 
CREDITORS: AMOUNTS FALLING DUE IN 
MORE THAN ONE YEAR 
 
Provisions for liabilities                8               102               8              102 
 
                                    --------------   -------------    -------------   ------------- 
 
TOTAL EQUITY AND LIABILITIES            6,686            5,441            6,690           5,445 
 
                                        ======          =======          =======         ======= 
 
 
The financial statements were approved and authorised for issue by the Board of 
Directors on 17 January 2018, and were signed below on its behalf by: 
 
The Directors of the Company are responsible for the contents of this 
announcement. 
 
For further information, please visit www.capitalforcolleagues.com or contact: 
 
 
CAPITAL FOR COLLEAGUES PLC                                      0161 464 3260 
Richard Bailey, Chairman 
John Eckersley, Chief Executive 
 
PETERHOUSE CORPORATE FINANCE LIMITED                            020 7469 0930 
Mark Anwyl 
Duncan Vasey 
 
Capital for Colleagues 
 
Capital for Colleagues is an investment company focused on the UK EOB sector. 
The Company has a proven management team, with a wide network of contacts and 
affiliates, as well as established access to investment opportunities, enabling 
the Company to execute its strategy and capitalise on EOB-focused investment 
opportunities. 
 
The Company's joint venture, Castlefield Corporate Advisory Partners, educates 
and assists companies which are looking to launch employee ownership schemes, 
advising them, amongst other things, on how to secure investment and achieve 
their objectives. 
 
Market Abuse Regulation (MAR) Disclosure 
 
The information contained within this announcement is deemed by the Company to 
constitute inside information as stipulated under the Market Abuse Regulation 
(EU) No. 596/2014. Upon the publication of this announcement via a Regulatory 
Information Service, this inside information is now considered to be in the 
public domain. 
 
 
 
END 
 

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