Glossary of terms

AIF
Alternative Investment Fund. Electra Private Equity PLC is an AIF.

AIFM
Alternative Investment Fund Manager. Epiris Managers LLP is the AIFM for Electra Private Equity PLC.

AIFMD
Alternative Investment Fund Managers Directive 2011/61/EU of the European Parliament.

Carried Interest
The incentive arrangements, which are similar to arrangements found elsewhere in the private equity industry, are designed to align Epiris’ interests with those of Electra’s shareholders. These arrangements are typically referred to as “carried interest”.

The carried interest payable to the members of Epiris is based on three year pools of investments. Under the terms of this arrangement all qualifying investments in a three year period are aggregated into a separate pool. Electra must first receive back the aggregate cost of all the investments in the pool, plus related priority profit share (see below) and an 8% compound return (this is often referred to as the “hurdle”). Once Electra has received sufficient cash to pay the amounts as described above the members of Epiris will be entitled to a carried interest of 18% of the profits. Consequently, they will receive the next 18/82 of the hurdle so that they will have an amount equal to 18% of the profits on the pool up to that point (this is referred to as a “catch up”). Thereafter, Electra and the members of Epiris will share future cash flows in the ratio of 82:18.

Below is an example to illustrate in principle how the above described arrangements work:

     
  £m     Assumptions
Amount invested 450     Amount invested
Priority profit share 50     Priority profit share paid back
Amount realised 1,000     Realised after year five
Pool hurdle 500  
Hurdle (210)     8% per annum compound
Catch-up 46     18/82 of the hurdle
Balance 44     The amount over the hurdle to get to an aggregate 18% of the pool profit
Total carried interest 90     18%
Electra 410     82%

At 31 May 2017, when the contract with Epiris terminates, any provision on post 2006 Pools, which is unpaid at that date and any future uplift to it will be reduced by 20% which will revert back to the Company.

CLO
A Collateralised Loan Obligation, or “CLO”, is a securitisation vehicle which invests in a portfolio of corporate loans and is funded with a number of tranches of rated debt and a small (typically around 10% of the capital structure) equity tranche. The equity tranche benefits from the yield arbitrage between the return on the loan portfolio and the cost of the capital structure.

Commitments
Legal obligation to provide capital for future investment in a private equity fund or in relation to a single investment.

Discount
Investment trust shares frequently trade at a discount to NAV. This occurs when the share price is less than the NAV. In this circumstance, the price that a shareholder would pay or receive for a share would be less than the value attributable to it by reference to the underlying assets. Traditionally expressed as a percentage.

Distributions to Paid-In Capital (DPI)
DPI, or realisation multiple, is defined by the Global Investment Performance Standards published by the CFA Institute and is the ratio of Distributions to Paid-In capital. It measures, since inception, the cash received by a fund’s investors relative to the amount contributed to the fund by those investors. DPI on below and on page 15 comprises cumulative realisations net of investment management fees (PPS and carried interest) in the numerator and original investment cost in the denominator in respect of each fund.

  2006 Pool 2009 Pool 2012 Pool
Amount distributed (£m) 763 380 809
Notional PPS (£m) (32) (24) (35)
Carried interest paid (£m) (53) -  -
  678 356 774
Amount invested (£m) 436 359 785
DPI 1.6x 1.0x 1.0x

Earnings Multiple
This is normally referred to as a price earnings (P/E) ratio. It is the ratio of a company’s valuation compared to its earnings.

EBITDA
Earnings Before Interest, Tax, Depreciation and Amortisation. Often used to compare the profitability of similar companies.

EBITDA Margin
EBITDA expressed as a percentage derived by dividing EBITDA by net sales.

Epiris LLP
On 5 December 2016 Electra Partners LLP announced that it had changed its name to Epiris Managers LLP.

EV (enterprise value)
This is the aggregate value of a company’s entire issued share capital and net debt.

Gearing
This is the level of a company’s debt related to its equity capital and is usually expressed in percentage form. It shows the extent to which a company is funded by lenders as opposed to shareholders.

Hedging
Hedging is an investment technique designed to offset a potential loss on one investment by purchasing a second investment that is expected to perform in the opposite way.

Investment Return
This is the aggregate of income and capital profits and losses from the Investment Portfolio. This is sometimes disclosed as portfolio return. This is a common measure used by investment companies.

IPO (initial public offering)
An offering by a company of its share capital to the public with a view to seeking an admission of its shares to a recognised stock exchange.

IRR (internal rate of return)
Is the annualised return on an investment calculated from the cash flows arising from that investment taking account of the timing of each cash flow. It is derived by computing the discount rate at which the present value of all subsequent cash flows arising from an investment are equal to the original amount invested. Where an IRR is stated to be net, this denotes that it has been calculated net of investment management fees (PPS and carried interest).

Listed Company
Any company where the shares are freely tradable and are listed or traded on a recognised stock exchange.

LTM
Last twelve months.

NAV
This is the value of all the Company’s assets minus current and long-term liabilities. Can also be referred to as ‘shareholders’ funds’.

NAV per share
This is the value of the Company’s assets attributable to one Ordinary share. It is calculated by dividing ‘shareholders’ funds’ by the total number of Ordinary shares in issue. This is a common measure used by investment companies.

NAV Total Return
The total return to shareholders is the aggregate of income and capital profits of the investment portfolio for the year less all costs. It can be expressed as a percentage of the opening position. This is a common measure used by investment companies.

  2016 2015
NAV at 30 September (pence) 5,149 3,914
Dividends paid in year ended 30 September (pence) 122  38
  5,271 3,952
Opening NAV (pence) 3,914 3,174
NAV total return 35% 25%

Calculation of NAV

At 30 September 2016
The issue of the Convertible Bonds in December 2010 necessitated the need to report a diluted NAV per share from the date of issue to the date of final conversion in December 2015. The calculation of the audited diluted NAV at 30 September 2015 was affected by the issue of the Bonds. Electra is required to prepare Financial Statements and report in accordance with the Companies Act 2006 and International Financial Reporting Standards (IFRS) as adopted by the European Union. Under IFRS, the Bonds were a compound financial instrument which contained both a liability and an equity component. Of the £100 million raised, £23 million of the Bonds was accounted for as an equity instrument with the balance accounted for as debt.

Diluted and Basic NAV
During the year to 30 September 2016, 85,369 Convertible Bonds (“Bonds”) were converted into 4,215,593 ordinary shares in the Company. Prior to this a total of 14,631 Bonds had been converted into 716,251 ordinary shares and, accordingly, the audited NAV per share at 30 September 2016 is calculated on the basis of the 40,270,531 ordinary shares in issue at 30 September 2016.

At 5 December 2016
The unaudited NAV per share at 5 December 2016 was calculated on the basis of the NAV at 30 September 2016 adjusted to reflect purchases and sales of investments, currency movements and bid values on that day in respect of listed investments.

Permanent Capital
An investment entity that manages capital for an unlimited time horizon.

Priority Profit Share
This is a share of profits equivalent to a management fee. It is calculated at 1.5% of the gross value of the Company’s core investment portfolio and 1% of the gross value of the Company’s Non-Core Listed and Primary Fund Investments, no fee is paid on cash. Following the Board’s decision to serve notice of termination of the management agreement in May 2016, the management fee reverts back to the structure in place prior to 1 April 2015, whereby the Company pays the Manager 1.5% on assets held in cash (rather than nil) and 1.5% is paid on non-core investments (rather than 1%) as well as 1.5% on core assets.

Return on Equity (ROE)
This is the total return divided by opening shareholder funds. Electra’s ROE has been calculated by taking the percentage change in NAV per share and adding back dividends paid per share. This is a common measure used by investment companies.

Share Price Total Return
This is expressed as a percentage and is calculated by dividing the sum of the closing share price and dividends paid in the year by the opening share price. This is a common measure used by investment companies.

  2016 2015
Share price at 30 September (pence) 4,310 3,265
Dividends paid in year ended 30 September (pence) 122  38
  4,432 3,303
Opening share price (pence) 3,265 2,650
Share price total return 36% 25%

Termination Payment
On 26 May 2016 the Company served notice of termination of the Management and Investment Guideline Agreement on Epiris. This termination becomes effective on 31 May 2017. Under the terms of their contract Epiris are entitled to compensation based on priority profit share received in the year to 31 May 2017.

Total Value to Paid-In Capital (TVPI)
TVPI, or investment multiple, is defined by the Global Investment Performance Standards published by the CFA Institute and is the ratio of Total Value to Paid-In capital. It measures, since inception, the aggregate of the cash received by and the residual value attributable to a fund’s investors relative to the amount contributed to the fund by those investors. TVPI below and on page 15 comprises cumulative realisations and fair value net of investment management fees (PPS and carried interest) in the numerator and original investment cost in the denominator in respect of each pool.

  2006 Pool 2009 Pool 2012 Pool
Amount distributed (£m) 763 380 809
Remaining valuation (£m) 46 461 795
Notional PPS (£m) (32) (24) (35)
Carried interest paid and provision (£m) (61) (82)  (141)
  716 735 1,428
Amount invested (£m) 436 359 785
TVPI 1.6x 2.0x 1.8x

Unlisted Company
Any company whose shares are not listed or traded on a recognised stock exchange.

© Electra Private Equity. Legal Notice. Issued by Epiris Managers LLP.
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Electra Private Equity PLC
Paternoster House
65 St Paul's Churchyard
London
EC4M 8AB

t +44 20 7214 4200
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