Eight Capital Ptnrs. - Final Results for the year ended 31 December 2022

EIGHT CAPITAL PARTNERS PLC

("Eight Capital", "ECP" or "the Company")

 Annual Report and Financial Statements

For the year ended 31 December 2022

Eight Capital (AQSE: ECP), the financial services operating company that aims to grow revenue through businesses engaged in "Fintech" operations including in the digital banking and lending sectors, is pleased to announce its final results for the year ended 31 December 2022. An extract from the  Company's audited report and accounts can be found below. The complete annual report and accounts  will shortly be available from the Company's website and will be sent to all shareholders.

A separate announcement providing details of the 2023 Annual General Meeting will be made in the next days.

Following publication of these results, the Company's shares will be restored to trading on the AQSE Growth Market shortly.

The Directors of the Company accept responsibility for the content of this announcement.

For further information, please visit www.eight.capital or contact:

About Eight Capital Partners:

Eight Capital partners plc is a financial services operating company that aims to grow revenue through businesses engaged in "Fintech" operations including in the digital banking and lending sectors.

ECP seeks to grow its group revenue in these high growth fintech sub-sectors, which it expects to also increase in value, such that they generate an attractive rate of return for shareholders, predominantly through capital appreciation.

www.eight.capital

Eight Capital Partners operates two subsidiary businesses:

Epsion Capital:

Epsion Capital is an independent corporate advisory firm based in London with an extensive experience in UK and European capital markets. The team of senior and experienced ECM and M&A professionals is specialised across multiple markets, sectors and geographies and it prides itself on a commercial approach that allows the clients to achieve their growth ambitions. www.epsioncapital.com

Innovative Finance:

Innovative Finance is a corporate finance advisory business that develops mergers and acquisitions and financing solutions across multiple sectors, primarily in Europe, with access to international transactions. It focuses on investments in Europe which are linked to technological developments in the financial services industry. www.innovfinance.com

Chairman's Statement

Dear Shareholder,

I am pleased to report on the Company's financial results for the year ended 31 December 2022 and on a number of far reaching corporate developments that have occurred during the year and since year end.

2022 Results

Through its two subsidiaries, the Group recorded revenues for the year under review of £895,000 (2021: £444,000) with a gross margin of over 98% (2021: 70%). This income was further supplemented by Eight Capital Partners Plc ("ECP") itself providing management services to certain investees and thereby recovering £84,000 (2021: £128,000) of overhead costs.  Interest income less expense was a net surplus of £1,979,000 (2021: loss £1,733,000).  The net movement in fair value of both realised and unrealised gains and losses on investments at fair value (explained further below) was a gain of £2,799,000 (2021: £9,522,000 loss). Overheads increased to £1,111,000 from £734,000 in 2021; and the Group result for the year was a profit before taxation of £4,638,000 (2021: loss before tax of £11,544,000).  The significant swings in the trading for the year are primarily due to the partial reversal of the IFRS fair value adjustments made in the prior year and it should also be noted that 2021 only represented six months of trading at a consolidated level.

Rule 9 Waiver process ("Whitewash") and Conversion into equity of EUR 33.77 million of private and listed debt

In the last quarter of the year the Group took significant steps to strengthen its balance sheet.  On 17 October 2022, the Group announced that shareholders had approved a Rule 9 Waiver to allow the major shareholder IWEP Ltd to convert €3.15 million of a vendor loan of €20 million owed to it without having to make a formal offer to acquire the Company.

On 24 November 2022 the Group announced that it had successfully entered into conversion agreements with existing bondholders to convert €3.85 million of existing bonds into equity.  In addition at the same time it was announced that IWEP Ltd had completed the transfer of its shareholding and receivables in the Company to Trumar Capital LLC ("Trumar"), a company with the same beneficial owner. Trumar, as the Company's largest shareholder and debt holder, converted a further €29.92 million of debt alongside the other converting bondholders.  The Company remains involved in a placing process to institutional and high net worth investors and will update shareholders further as any equity placings and further debt conversions are completed.

The successful Whitewash and debt to equity conversion represent major progress in the Group's stated strategy of growing the Company's market capitalisation towards and beyond £50 million.

Subsidiary activities

Epsion Capital Ltd ("Epsion"), our wholly owned UK Corporate Finance subsidiary, primarily advised on the Initial Public Offering and related transactions for Zamaz Plc in September 2022, generating £440,000 intra group revenue and £265,000 external revenue.  Innovative Finance S.r.l ("InnFin") our wholly owned Italian Corporate Finance subsidiary also generated fees totalling circa £763,000 in relation to the Zamaz transaction, of which circa £630,000 was to external clients. 

Eight Capital: update on prior year's investments

ECP's investment portfolio now and as at 31 December 2022 is comprised exclusively of quoted companies.

1AF2 Bond

During the prior year, the Company invested €40 million into a bond held with 1AF2, yielding 2.5% per annum.  One of the main adjustments made in the prior year's replacement accounts was to undertake a discounted cashflow ("DCF") valuation of the 1AF2 bond.  The result of the DCF in the prior year was a fair value adjustment loss of €9.8m.  In the current year, the same exercise has been carried out which has partially reversed the prior year fair value loss.  In the current year, the same DCF methodology has valued the bond at €31.6m, a fair value gain of €3.4m.  The Company's share of the underlying security package relating to the 1AF2 bond exceeds that value, supporting the Board's fair value assessment of the bond which is repayable on 30 June 2024.

Supply@ME Capital Plc ("SYME): Inventory securitisation

SYME is an inventory monetisation business based on a novel asset securitisation concept, enabled by an innovative software platform. SYME is listed on the Standard List of the London Stock Exchange. SYME's share price has not performed well in the year and ECP's £38,000 investment at 31 December 2021 at a share price of £0.0017 has seen a drop to £0.00083 at the year end, with a total fall in value of over £18,000 in the year. Although the share price reduction has been a source of concern, the Board recognises that the concept and possibilities for SYME were, and still are, interesting once a critical mass of investment capital to support securitisations can be delivered by SYME's management.

Evrima Plc ("EVA"): Mining and exploration investment

Evrima is now a mining and associated exploration investment company which is non core to the Company.  The investment in 2018 was made with the intention, in agreement with Evrima's management, of repurposing and funding the vehicle for investment in other sectors.  This did not proceed and Evrima now focuses on its original investment mandate.  The Company's investment was approximately £131,000 at 31 December 2021 and is currently £119,000, based on its quote on AQSE Growth Market. We intend to dispose of this investment in due course.

MaxRets Ventures Formerly Greencare Capital Plc ("GRE")

Investment in technology sectors, comprising life sciences, fintech businesses and assets that use fintech, impact investing (environmental and renewables) and retail.

At 31 December 2021 the shares were trading at 30.5p and were valued at £780,000. As at this year end the share price had dropped to 25.0p, recognising a £140,000 fair value loss in the year and a closing valuation of £640,000. The original investment was £280,000 and the average price paid per share was 10.94p, therefore the investment performance remains positive.

Fair value adjustment on contingent liability

The terms of the acquisition of InnFin included an earn out formula contingent upon the attainment of certain levels of profitability in future years, creating a contingent liability towards the vendor at the date of acquisition in May 2022. The fair valuing of this liability at 31 December 2022 has resulted in a positive adjustment in the income statement of £1,311,000.

Changes in Management Team

During the year under review, the Group has seen a number of changes to its Senior team.  In August 2022 David Bull stepped down after a 14 month period where he led the transformation of the Group into an operating business.

Following David's departure Luciano Maranzana joined the board of Eight Capital in August 2022 as a Non executive Director having become Managing Director of Innovative Finance in July 2022. Mr. Maranzana, was subsequently appointed Group CEO in January 2023.

Mr Maranzana has enjoyed a successful professional career spanning nearly 30 years, primarily in asset management. He was previously Managing Director, Italy and Spain for UK investment group Hammerson plc and Managing Director of Valore Reale Sgr Spa, a closed end fund management company, where under his leadership, the company grew from 5 to over 30 employees with combined assets under management of more than €1.8 billion.

Also post year end, in January 2023, Gemma Godfrey was appointed to the board as an independent Non Executive Director. Ms Godfrey is an experienced non executive director and independent consultant, having founded two digital businesses.  As a former founder and CEO of an FCA regulated digital investing business that was acquired by a global insurer, she went on to launch a digital media service on behalf of News UK.

Reissue of 2021 results

Further to a review of the Group's results for the year ended 31.12.2021 by the Financial Reporting Council (FRC), the Board has recognised that certain balance sheet items needed to be re classified and or further explained. At the time, working closely with its advisors and auditor, the Company believed that the treatment of these items was appropriate; however, on review of the FRC's report, it became clear that changes relating to IFRS9 needed to be made.  It was therefore decided to re issue the 2021 accounts in accordance with section 454 of the Companies Act. The main items to be adjusted are the fair value of the 1AF2 Bond and the cost differential between the two funding structures used to fund the bond's acquisition. Full details appear in the revised 2021 Annual Report, which includes a statement on the scope and limitations of the FRC's review of the original 2021 Annual Report and Accounts.

Strategy and outlook

2022 was another watershed year for Eight Capital. Having successfully transitioned into a financial services operating group the previous year, it completed a thorough reorganisation of its debt, converting the major part into equity and thereby strengthening its Balance Sheet considerably. It has a clear strategy in place for the transformation of the business in terms of its size, market value and influence within the fintech sector of financial services, both as a player in its own right and through its wholly owned subsidiaries, Epsion and Innovative Finance.

Strategy Implementation

The strategy centres around the following model focussing on our view that there is an inadequate provision of SME lending, to which we intend to add a digital dimension. At the core is the acquisition of a European digital bank and, around it, fintech operators that together form an integrated ecosystem of capital sourcing, product manufacturing and distribution:

ECP is building a fintech operating ecosystem that aims to grow revenue through the use of efficient fintech solutions for SME digital lending in Europe and eventually also the UK.

It believes that SMEs continue to be under served by the traditional financial services sector and are sometimes overlooked by larger funding institutions, or, when managed through a traditional banking process, are perceived as difficult to underwrite and therefore expensive to fund.  There are significant benefits for SMEs using "fintech" systems and innovatively structured capital solutions to better access capital, either for direct investment or to assist with their working capital management.

ECP is targeting the acquisition of a European licensed digital bank which will be at the core of its fintech ecosystem.  To this it intends to bolt on strategically acquired fintech operators to deliver financial products to its customers.

The objective is to own and integrate product manufacturing (digital bank) with product manufacturing and distribution (fintech operators and originators) to deliver to customers faster, cheaper and more efficient capital solutions through the use of technology, and fast growth for the Company.

The Company has a pipeline of opportunities in fintech banking with European SME loan books and fintech working capital providers, that are synergistically very well matched.

Fintech Product Manufacturing & Fintech Distribution

The Company believes that there is a significant value creation opportunity in holding a digital banking licence at the core of its growing fintech ecosystem.

a)             Acquired Fintech operators, that have a strong product distribution capability and proven low risk deployment processes with minimal losses, will benefit from privileged access to an in house core banking service, a route to well priced capital through the bank (and through in house bank led securitisations of loan books, at significantly reduced capital cost)  which is well below the cost of capital for fintech competitors without the backing of a bank.

b)            The digital bank benefits from the growth of the Group's fintech distribution e channels by providing banking and funding to an increasing number of customers and markets. It enables more financial products to be offered to more customers in a shorter amount of time than in a standalone banking organic growth model, and it is quicker and far less risky than a bank to bank M&A growth model.  Revenue per customer multiplies across the ecosystem as customers are shared.

c)             The digital bank and acquired fintech bolt ons form an ecosystem of product manufacturing and distribution, getting the most out of every customer wherever they are in the group.  Digital lending, invoice factoring, and banking deposits are examples of potential Core and Bolt on acquisitions.

d)            ECP owns corporate finance boutiques. Their services can be made available, under the bank's umbrella, to SMEs looking to grow to the next level, providing strategic advice, capital raising services and capital markets expertise, including public markets activity to IPO.

e)            With the strategic utilisation of ECP's growing in house capital resources, provided by the bank and equity investment, ECP would be able to provide significant support to the transactions managed by the operating subsidiaries through the provision of early stage and growth co investment capital to growing companies seeking finance for expansion, development, consolidation or acquisition, or as pre IPO/RTO funding.

The competitive advantage

The competitive advantage of the e business park approach as we intend to develop it includes:

1.             Structure

Being an integrated system with a bank at its core, there will be an increase in availability of cheaper, longer term and scalable capital within the ecosystem. The competitive advantage of ECP's new operating structure is its flexibility in terms of where it invests in the "capital stack", being equally comfortable with private or public debt and/or equity positions, convertibles and structured equity or debt facilities. Much of the financial services advisory market only delivers third party capital and advice, without direct access to supportive in house capital, or only access to in house capital lines with a less flexible mandate.

2.             Tech

The ecosystem will be able to use / acquire the latest technologies, and will be fast and nimble as it has no legacy systems.  Technology will be at the forefront compared to others who cannot move as quickly.

3.             Customers

Customers will instinctively gravitate to the faster and more flexible route to capital. There is also a natural stimulus, in that traditional routes for SME borrowers are drying up as main banks move away from SME working capital lending, or are raising the minimum revenue and balance sheet thresholds to qualify.  The funding gap is widening and ECP intends to step in to fill that gap. 

4.             Timing

The integrated ecosystem can use tech to be faster than the high street banks and cheaper than the non bank alternative lenders.  This puts it competitively ahead of many of its peers.

Dominic White

Chairman