31 July 2009, 16:52
Private Equity Inv: Annual Financial Report - Part 3
<pre>- Part 3: For the preceeding part double click [ID:nPRrVBBE7b]
£'000 £'000 £'000 £'000 £'000
Company
Beginning of year 96,862 - 1 (777) (19,340) 586
Transfer between (96,862) 96,862 - - - -
reserves
Net gains on - - - 2,188 - -
realisation of
investments
Investment holding - - - - 12,920 -
gains
Exchange gains - - - 713 448 -
Shares purchased for - (17,790) 1 - - -
cancellation
Dividends paid - - - - - (470)
Net deficit for the - - - - - (367)
year
End of year - 79,072 2 2,124 (5,972) (251)
After receiving shareholder and court approval, in November 2008, to cancel the
Company's Share Premium Account a Special Reserve was created to allow Company
to make further distributions to shareholders.
15 RECONCILIATION OF NET CASH FLOWTO MOVEMENT IN CASH ANDCASH EQUIVALENTS
2009 2008
Group Company Group Company
£'000 £'000 £'000 £'000
Increase in cash in the 2,065 1,888 3,995 3,995
year
Effect of foreign exchange 359 359 (149) (151)
rate movements
Movement in cash and cash 2,424 2,247 3,846 3,804
equivalents
Cash and cash equivalents 4,611 4,527 765 723
at beginning of the year
Cash and cash equivalents 7,035 6,774 4,611 4,527
at end of the year
Cash and cash equivalents are comprised as follows:
2009 2008
Group Company Group Company
£'000 £'000 £'000 £'000
Cash in hand at bank 7,035 6,774 4,611 4,527
16 NET ASSET VALUE PER ORDINARY SHARE
The Group net asset value per Ordinary Share is based on net assets of £
74,721,000 (2008: £77,200,000) and on 34,953,675 (2008: 42,723,408) Ordinary
Shares, being the number of shares in issue at the year-end.
The Company net asset value per Ordinary Share is based on net assets of £
74,978,000 (2008: £77,336,000) and on 34,953,675 (2008: 42,723,408) Ordinary
Shares, being the number of shares in issue at the year-end.
17 COMMITMENTS AND CONTINGENT LIABILITIES
At 31 March 2009 there were financial commitments outstanding of $16.08 million
(£11.2 million) (2008: £12.5 million) in respect of outstanding call
commitments to limited partnerships.
18 CHANGES IN ACCOUNTING BASIS
In the prior period due to the relative stability of USD to GBP exchange rates
the income and expenses of Campton Group, Inc. were translated at a weighted
average exchange rate for the year. However due to the extreme volatility of
the exchange rate in the current period this method was inconsistent with
IAS21. As a result and expenditure of Campton Group, Inc. has been translated
at the exchange rates at the dates of the transactions.
This change in accounting basis reduced the net income of Campton Group, Inc.
by £37,000 for the period.
19 ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES
As detailed on the inside of the front cover, the investment objective of the
Company is to seek to achieve substantial long-term capital appreciation for
shareholders. This is principally achieved by investing in unquoted, specialist
US venture capital funds.
The Company and Group's financial instruments comprise securities and other
investments and bank deposits which are held to achieve its investment
objective as well as debtors and creditors that arise from its operations, for
example sales and purchases of securities awaiting settlement and debtors for
accrued income.
The principal risks the Company and Group face through the holding of financial
instruments are:
# liquidity/marketability risk, i.e. the risk that the Company or Group has
difficulty in realising assets or otherwise raising funds to meet commitments
associated with financial instruments;
# interest rate risk;
# credit risk:
# market price risk, i.e. movements in the value of investment holdings caused
by factors other than interest rate or currency movement; and
# foreign currency risk.
The Directors do not consider that the Company or Group has significant
exposure to credit risk. The Board monitors the financial risks affecting the
Company and Group on a regular basis. The Directors receive financial
information on a regular basis which is used to identify and monitor risk.
As required by IFRS 7: Financial Instruments: Disclosure and Presentation, an
analysis of financial assets and liabilities, which identifies the risk to the
Company of holding such items, is given below.
Financial assets
The method of valuing the fixed asset investments is discussed in the
accounting policies of the Company in Note 1. Cash and debtors arising from the
operations of the Company as at 31 March 2009 amounted to £6,774,000 (2008: £
4,527,000) and £40,000 (2008: £251,000) respectively*. There were no material
differences between the fair values of the investments as at 31 March 2009 and
31 March 2008 and the values attributable to those investments within the
accounts.
* Cash and debtors arising from operations of the Group as at 31 March 2009
amounted to £7,035,000 (2008: £4,611,000) and £28,000 (2008: £279,000)
respectively.
Maturity analysis
The Company does not have any assets or liabilities maturing in more than one
year.
Liquidity risk
The nature of the Company's investment policy of investing in specialist US
venture capital funds means that a large proportion of the securities which it
owns are less readily marketable than, for example, `blue-chip' UK equities.
The Company currently has outstanding commitments of $16,075,000 to these US
venture capital funds, which will be financed through future distributions
received and from cash and easily liquidated assets.
The Board manages liquidity risk by regularly reviewing its easily liquidated
assets, which mainly comprise open-ended investment funds. Commitments to fund
investments are reviewed and approved by the Board. In order to reduce risk,
research and due diligence work is performed before any commitment is made to a
fund manager.
Interest rate risk
The Company's revenue will be affected by changes in prevailing interest rates
since a large portion of its income ordinarily derives from money market
instruments and bank interest.
The Company's objective is to achieve capital returns from its investments and,
as such, the main exposure to interest rate risk is indirect, through its
impact on the valuation of the private equity funds, although it is not
possible to quantify such effects. Interest rates are one of the key
determinants of economic growth. At a more specific level, interest rates and
credit spreads also have an important role in the ability of private equity
funds to secure profitable deals, as many transactions are partly financed by
debt. The effect of interest rate changes on the valuation of investments and
debt forms part of valuation risk, which is considered separately.
At 31 March 2009, the Company held investments in AAA-rated money market funds
valued at £7.7 million (2008: £23.6 million), earning cash dividends at market
rates. The money market funds are redeemable on less than 24 hours notice.
Other floating rate financial assets comprised cash at bank.
As at 31 March 2009, the average interest rate profile of the Company's
financial assets was as follows:
Non Non
Fixed Floating interest Floating interest
rate rate bearing Fixed rate bearing
rate
Group Group Group Company Company Company
£'000 £'000 £'000 £'000 £'000 £'000
Open-ended - 7,674* - - 7,674* -
investment funds
Quoted equities - - 383 - - 383
Unlisted equities - - - - - -
Unlisted funds - - 59,705 - - 59,705
Cash - 7,035** - - 6,774** -
Other net current - - 4*** - - 28***
assets
- 14,709 60,092 - 14,448 60,116
As at 31 March 2008, the average interest rate profile of the Company's
financial assets was as follows:
Fixed Floating Non Fixed Floating Non
rate rate interest rate rate interest
Group bearing Company Company bearing
Group Group Company
£'000 £'000 £'000 £'000 £'000 £'000
Open-ended - 23,648* - - 23,648* -
investment funds
Quoted equities - - 511 - - 511
Unlisted equities - - 14 - - 14
Unlisted funds - - 48,293 - - 48,293
Cash - 4,611** - - 4,527** -
Other net current - - 222*** - - 237***
assets
- 28,259 49,040 - 28,175 49,055
* The objective of the funds is to achieve a wholesale money market rate of
return.
** Exposure to floating interest rate risk is based on an adjusted LIBOR rate.
***Other net current assets exclude prepayments which under IFRS7 are not
classified as
financial assets.
If interest rates had reduced by 1 % from those obtained at 31 March 2009, it
would have had the effect, with all other variables held constant, of reducing
the net revenue return before taxation and equity by £147,000 (2008: £283,000).
If there had been an increase in interest rates of 1% there would have been an
equal and opposite effect in the net revenue before taxation and equity. The
calculations are based on cash at bank and open-ended investment funds as at 31
March 2009 and these may not be representative of the year as a whole.
Credit risk
The Company is exposed to credit risk through its loan to Campton Group, Inc.
The loan notes issued under the terms of this loan are convertible to equity.
The risk is deemed to be low as the Company maintains a close working
relationship with Campton Group, Inc., its investment advisor and subsidiary.
Market price risk
Private equity investments are not immediately sensitive to market moves.
However, over the medium/long term, the valuation multiples applied to private
equity will be affected by significant changes in the listed equity markets.
The Company's portfolio consists of US dollar investments detailed below which
are affected by movements in the sterling/dollar exchange rate (refer to
foreign currency risk below).
At 31 March 2009, a 10% movement in the valuation of the Group's aggregate
investments designated as fair value through profit or loss would result in a
9.1% (£6,776,000) change in shareholders' funds.
The Review of investments in the full Report provides information in respect of
the investments. The method of valuing the investments is discussed in the
accounting policies note.
Foreign currency risk
The Company is exposed to currency risk directly since the majority of its
assets and liabilities are denominated in foreign currency and their sterling
value can be significantly affected by movements in foreign exchange rates. The
Company does not, nor does it intend to, hedge against foreign currency
movements affecting the value of its investments.
The Company settles its transactions from its bank accounts at an agreed rate
of exchange on the date on which any bargain was made. For the year ended 31
March 2009, realised exchange gains of £713,000 (2008: gains of £120,000) and
unrealised gains relating to currency and other capital items of £359,000
(2008: losses of £149,000), have been taken to the capital reserve.
Details of the foreign currency exposure are detailed in the table below.
At 31 March 2009 Other Other
Investment current Investment current
portfolio Cash assets portfolio* Cash assets
*
Group Group Group Company Company Company
£'000 £'000 £'000 £'000 £'000 £'000
USA 67,672 6,169 16 67,672 5,908 28
UK - 866 12 - 866 12
Canada - - - - - -
67,672 7,035 28 67,672 6,774 40
At 31 March 2008 Other Other
Investment current Investment current
portfolio Cash assets portfolio* Cash assets
*
Group Group Group Company Company Company
£'000 £'000 £'000 £'000 £'000 £'000
USA 72,451 4,569 150 72,451 4,485 122
UK - 42 129 - 42 129
Canada 15 - - 15 - -
72,466 4,611 279 72,466 4,527 251
* All portfolio stocks are US dollar denominated, with the exception of the
Canadian investment.
If the sterling/dollar exchange rate had reduced by 10% from that obtained at
31 March 2009, it would have the effect, with all other variables held
constant, of increasing the equity shareholders' funds by £7,529,000 (2008: £
8,052,000).
If there had been an increase in the sterling/dollar exchange rate of 10% it
would have the effect of decreasing the equity shareholders' funds by £
6,160,000 (2008: £6,588,000).
The calculations are based on the investments held at fair value through profit
or loss and the exchange rate of 1.43334 GBP:US$ as at 31 March 2009 and these
may not be representative of the year as a whole.
Financial liabilities
The Company finances its operations primarily through equity and retained
revenue although trade creditors and accruals arise from its operations. At 31
March 2009 and 31 March 2008, all financial liabilities were due within one
year. Other financial liabilities amounted to £74,000 (2008: £126,000)
resulting from operating activities, and £19,000 (2008: £8,000) from financing.
There were no borrowing facilities either drawn or undrawn at any time during
the year.
Managing Capital
Capital structure
The capital structure of the Group consists of cash held and shareholders'
equity. The Group's equity is analysed into its various components in note 13
and 14. Capital is managed so as to maximise the return to shareholders while
maintaining a capital base to allow the Company to operate effectively in the
marketplace and sustain future development of the business. Strong realisations
from the investment portfolio in recent years have led to the return of capital
to shareholders. This has been achieved through the buy back of shares.
Capital constraints
The Company operates so as to qualify as a UK Investment Trust for UK tax
purposes which requires that any investment does not exceed 15% of the
Company's portfolio at the point of investment.
The Group's capital requirement is reviewed regularly by the Board of the
Company.
20 RELATED PARTY TRANSACTIONS
There have been no related party transactions in the year to 31 March 2009,
other than the transactions between the Company and its subsidiary, Campton
Group, Inc. as disclosed in Note 10.
21 BUSINESS COMBINATION
Private Equity Investor PLC and Campton Group, Inc. have entered into three
separate agreements: a Secured Convertible Promissory Note Agreement dated
November 3, 2006; a Secured Convertible Promissory Note Agreement dated
December 11, 2006; and a Secured Promissory Note Agreement dated February 13,
2007. The Company currently has a total investment of £495,343 in Campton
Group, Inc. If the Company was to exercise its conversion rights then it would
hold a majority stake in Campton Group, Inc.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held at the offices of JP Morgan
Cazenove and co Limited at 20 Moorgate, London EC2R 6DA at 10.00 am on
Wednesday 16 September 2009.
The notice of this meeting can be found in the Annual Report and Accounts at
www.peiplc.com.
END
31 July 2009
(Source: MoneyTree Report by PricewaterhouseCoopers and the National Venture
Capital Association (NVCA), based on data from Thomson Reuters)
END</pre>
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