31 July 2009, 16:52
Private Equity Inv: Annual Financial Report - Part 1
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PRIVATE EQUITY INVESTOR PLC
Final Results for the year ended 31 March 2009
The full Annual Report and Accounts can be accessed via the Company's website
at www.peiplc.com or by contacting the Company Secretary on telephone 01392
412122. The auditors have reported on the 2009 accounts; their report was
unqualified and did not contain a statement under section 237 (2) or (3) of the
Companies Act 1985. A copy of this report is included in the full Annual Report
and Accounts in the Company's website.
INVESTMENT OBJECTIVE AND POLICY
Investment Objective
The Company was launched in February 2000 and provides both private and
institutional investors with a means to participate in specialised venture
capital funds in the USA, a category of funds that is not otherwise accessible
to many investors. The Company's objective is to achieve substantial capital
appreciation for shareholders over its intended life.
Investment Policy
Risk Diversification
The Company has invested in high quality venture capital funds, managed by
several different management groups, focused on various stages of growth from
early stage to pre-IPO, so as to obtain exposure to a diversified underlying
portfolio of investments in unlisted companies in the IT and other technology
sectors. Such funds have been selected with regard to the experience and track
record of the managers, their investment strategy and the strength and quality
of their deal flow.
As an Investment Trust, it is the Company's policy that no single investment
will represent more than 15% by value of the Company's investments at the time
of investment.
The Company's policy is that it will invest no more than 15% of its gross
assets in other closed-end listed investment companies (including investment
trusts). The Company currently has made no such investments and the Directors
do not envisage circumstances in which it is likely to do so.
Asset Allocation
The Company's investments are in funds based in the USA ("the Funds"). The
Managers of the Funds invest principally in the USA and in unlisted companies.
As a result of the flotation or sale of their investments, the Funds may hold
listed securities and these may be distributed to the Company so that the
Company may from time to time hold listed securities which, however, are
unlikely to represent a significant part of the Company's investments.
The Company continues to invest in the Funds to meet existing commitments but
is not making commitments to new investments. The Company proposes to make
periodic returns of capital to shareholders from the return cash flows from the
Funds.
Gearing
In normal circumstances the Company does not expect to borrow. The Company's
Articles of Association limit borrowing to an amount broadly equal to its
capital and reserves. Some investments made by the Funds may be geared but the
Company does not review the level of gearing of these underlying investments.
Liquidity
Because of distributions from the Funds, the Company may hold substantial
balances of liquid funds. These are held principally in open-ended investment
funds pending investment in the Funds or distribution to shareholders.
Derivatives
The Company does not make use of financial derivatives and does not hedge
against currency fluctuations.
Distributions
The Funds provide little income. Income may be generated from liquid funds and
the Company may be required to pay dividends to continue to qualify as an
Investment Trust. Such dividends are, however, likely to be small and
irregular. In 2007, the Company made a Tender Offer to shareholders with a
value of up to £12.5 million, which was fully taken up. After receiving
shareholder and court approval to cancel the Company's Share Premium Account in
November 2008 a special reserve, which is distributable, was created and the
Company made a further tender offer, of up to £17.5 million, in December 2008,
which was also fully taken up.
Benchmark
NASDAQ Composite Index.
Continuation Vote
Shareholders will have the opportunity to vote at the Annual General Meeting in
2014 whether to continue the Company and at five yearly intervals thereafter.
Management
The Company is self-managed. The Company has appointed Campton Group, Inc.
("Campton"), which is based in San Francisco, as its investment advisor. The
Company has previously provided Campton with finance with a view to developing
Campton's private equity fund-of-funds management and advisory business.
Campton
As reported previously, Campton advises the Company on its existing portfolio
and has been developing a fund-of-funds management and advisory business.
Campton's efforts to develop its business have been hindered as a result of the
global financial crisis. While Campton continues its efforts, the Company and
Campton are also exploring strategic alternatives for Campton's business.
SUMMARY OF RESULTS AND FINANCIAL HIGHLIGHTS
31 March 2009 31 March 2008 % change
Group Group
Net assets and shareholders' funds $107,101,000 $153,435,000 (30.20)
in US$
Net assets per Ordinary Share in US$ 306.41c 359.14c (14.68)
("NAV")
Net assets and shareholders' funds £74,721,000 £77,200,000 (3.21)
Net assets per Ordinary Share 213.77p 180.70p 18.30
("NAV")
Benchmark - NASDAQ Composite Index 1,528.59 2279.10 (32.93)
Mid-market price per Ordinary Share 110.50p 144.50p (23.53)
Discount to NAV 48.31% 20.03%
Net revenue return (loss)/ after £(466,000) £561,000
taxation
Net total return £15,803,000 £3,917,000
Total return per Ordinary Share 39.04p 8.19p
Total expense ratio 1.43% 1.23%
Exchange rate at year end(US$/£) $1.43334 $1.9875
Number of Ordinary Shares in issue 34,953,675 42,723,408
CHAIRMAN'S STATEMENT
I am pleased to present the results for Private Equity Investor PLC ("PEI" or
"the Company") for the year ended 31 March 2009.
Results
The Company's Net Asset Value ("NAV") at 31 March 2009 was 213.8p, compared
with 180.7p a year earlier, an increase of 18.3%. This increase was principally
attributable to a 28% favourable movement in the US dollar/sterling exchange
rate, from $1.99 to $1.43, which was partly offset by a fall in the US dollar
value of the Company's investments.
During the year, the NASDAQ Composite Index, which is a benchmark for the
Company's portfolio, fell by almost a third, from 2279.1 to 1528.6. However,
the Company's NAV per share in dollars, the currency in which investments are
made, fell by only 14.7% from 359.1c to 306.4c, the fall in NAV being reduced
because the Company holds sterling and dollar cash deposits, as well as
investments.
Despite the increase in sterling NAV, the Company's share price fell by 23.5%
during the year, from 144.5p to 110.5p, reflecting generally weak markets and
investor sentiment. The discount also rose significantly, from 20.0% to 48.3%.
During the year, as a result of reduced cash balances and lower interest rates,
the Company received less income from the surplus undrawn cash that had been
invested in open-ended investment companies. The Directors are not therefore
recommending the payment of a dividend for the year ended 31 March 2009.
Distributions from Fund Investments
As at 31 March 2009 the Company was invested in 23 venture funds valued at
$85.6 million. PEI's year-end cash and readily realisable assets totalled $21.1
million, compared with outstanding commitments of $16.1 million. Of this figure
approximately $4.0 million is due to be called from the original portfolio and
$12.1 million from the five funds purchased in 2006/2007.
In the twelve months under review the Company continued to receive
distributions in cash and securities from its venture capital funds ("Funds"),
although at a considerably lower level than in the previous two years. The
total value of distributions received during the year was $5.5 million compared
with $28.9 million the previous year and $32.5 million in 2007. Of the $5.5
million, cash distributions amounted to $2.9 million and stock to $2.6 million.
The largest cash distribution was $618,720 which came from the Company's
holding in Oak Investment Partners. This was received as a result of the sale
of The CBORD Group, Inc., in which Oak held approximately 39% and which
resulted in an approximate return for Oak of four times. The second largest
cash distribution came from Francisco Partners II, with $588,959 received as a
result of the sale of Metrologic Instruments, Inc., which resulted in just over
a two and a half times return on an investment held for a period of
approximately two years.
In July, after the year end, a final distribution of $1.1 million was received
from the sale of Data Domain shares held by NEA 10, which represented a 28
times gain.
Tender Offer
On 21 November 2008 shareholders were sent a circular informing them that the
Company proposed making a Tender Offer to purchase shares having an aggregate
value at the Tender Price of up to £17,500,000. The offer was completed on 15
December 2008 with 7,769,733 shares being purchased for cancellation at a price
of 225.2295 pence per share. Following this offer and the previous tender offer
made in November 2007 (when a total of 7,276,592 shares were purchased for £
12.5 million), there are now 34,953,675 shares in issue.
The Company will continue to buy back shares or make distributions as and when
cash resources reach an appropriate level. The Board also monitors the market
in secondary participations and if suitable terms become available would
consider taking advantage of these to realise holdings and increase cash held
by the Company earlier than would otherwise be possible.
Portfolio Review
As at 31 March 2009 the Funds held underlying investments in 504 private and 64
public companies together representing approximately 80% of the Company's net
asset value (2008: 63%). During the year, the Funds made 65 new investments
(2008: 137) and 198 follow-on investments (2008: 234) which resulted in draw
downs totalling $8.7 million (2008: $9.5 million). A total of 93 underlying
investments were written up (2008: 145), 259 were written down (2008: 206) and
31 underlying investments were written off (2008: 43). Of the 18 Funds that
make up the original portfolio, none reported a gain in value over the period
(2008: 10).
Of the five 2006/2007 Funds, 4 reported a gain in value over the period (2008:
2). These Funds made 55 new investments (2008: 90), which resulted in draw
downs totalling $4.4 million (2008: $4.0 million). A total of 29 underlying
investments were written up (2008: 12), 33 were written down (2008: 11) and 5
were written off (2008: none).
Distributions from the original portfolio during the year totalled $4.7
million. Of this, cash distributions amounted to $2.1 million compared with
$21.5 million in 2008 and $13.1 million in 2007. The balance of $2.6 million
was received in the form of stock distributions compared with $6.0 million in
2008 and $19.4 million in 2007. The 2006/2007 Funds returned a total of $0.8
million in cash distributions, all of which came from Francisco Partners II.
During the period under review there were no IPO's of PEI's underlying
portfolio companies.
Campton Group, Inc.
As reported previously, Campton advises the Company on its existing portfolio
and has been developing a fund-of-funds management and advisory business.
Campton's efforts to develop its business have been hindered as a result of the
global financial crisis, but it continues with these efforts.
Market Overview
In 2008, venture capital fundraising totalled $28.0 billion from 211 funds,
compared with $35.5 billion raised by 247 funds in 2007 - a decline of 21.4%.
In the first quarter of 2009, 40 venture capital funds raised $4.3 billion,
which represents the smallest number of venture funds raising money in a single
quarter since the third quarter of 2003, although the amount raised was higher
than the previous quarter, the fourth quarter of 2008, when $3.5 billion was
raised by 47 funds.
Venture capitalists invested $28.3 billion in 3,808 deals in 2008, marking the
first yearly decline of total investments since 2003. Venture investments in
2008 fell 8% in dollars and 4% in deal volume from 2007. The Clean Technology
sector, which includes alternative energy, pollution and recycling, power
supplies and conservation, represented seven of the ten largest deals of the
year, experiencing significant growth in 2008 with $4.1 billion invested in 277
deals. Clean Technology has become a rapidly growing area of interest for
venture capitalists and accounted for 15% of all venture capital investment in
2008 compared to 9% in 2007.
The table below sets out the amounts invested and deals completed for four
broad areas of venture capital investment in the years 2007 and 2008.
Sector Amount Amount % increase No. of No. of % increase
Invested Invested / decrease deals done deals done / decrease
in $ in $
billions billions
2008 2007 2008 2007
Life 8.0 9.3 -14% 853 883 -3%
Science
Software 4.9 5.4 -9% 881 942 -6%
Clean 4.1 2.7 52% 277 238 16%
Technology
Internet 4.9 5.0 -2% 851 825 3%
Specific
Investment into seed stage companies increased substantially in 2008, jumping
19% from the prior year to $1.5 billion (440 companies), compared to $1.3
billion (450 companies) during 2007. This marks the highest annual total of
dollars captured by seed stage companies since 2000.
In the first quarter of 2009, a total of $3.0 billion was invested in 549
deals, down 47% in dollar terms and 37% in numbers of deals from the fourth
quarter of 2008 when $5.7 billion was invested in 866 deals. The quarter saw
double digit declines in every major industry sector and marked the lowest
level of venture investment since 1997.
The poor state of public markets is sharply illustrated by the fact that there
were only six venture-backed Initial Public Offerings ("IPOs") in 2008, raising
$470.2 million, compared with 86 IPOs raising $10.3 billion in 2007. The
venture-backed merger and acquisition market also saw a significant slowdown in
activity with 56 deals completed in the first quarter of 2009 for a disclosed
deal size of $645.3 million, compared with 106 deals in the first quarter of
2008 for a disclosed deal size of $4.5 billion.
Outlook
According to the NVCA, there were no venture-backed IPOs in the first quarter
of 2009, marking the second consecutive quarter in which this was the case.
With a virtually non-existent IPO market, corporate acquirers are in a position
to be more selective and to take more time when considering acquisitions. Until
these circumstances change, the Company's receipt of distributions is likely to
be limited.
Despite a sluggish exit market, low valuations and an uncertain outlook, all is
not gloomy. We remain encouraged by the quality of many of PEI's underlying
portfolio companies. For instance, Cisco Systems announced in March that it
planned to acquire Pure Digital Technologies for $590 million in Cisco stock.
Pure Digital develops the popular and simple Flip cameras that are targeted
towards the mass consumer market and is an underlying portfolio company in
three of PEI's funds. Total proceeds from this acquisition approximate $2.3
million based on the current Cisco share price. BrightSource Energy, in which
VantagePoint Venture Partners has a 24% stake, recently executed a series of
contracts whereby it will construct and provide Southern California Edison with
1,300 megawatts of electricity generated through solar thermal power. This is
the largest solar power purchase agreement in history and represents more solar
power than currently exists, from all sources, in the United States today.
Although the current lack of exits will delay returns from existing investments
held by the Funds, we believe they contain many companies with significant
potential from which we expect to see substantial returns in due course. For
new investments, which will principally be made by the 2006/2007 Funds, entry
prices are attractive and investors can be highly selective. We believe that
these conditions are conducive to producing above average returns for
investors.
Peter Dicks
Chairman
31 July 2009
DIRECTORS AND SECRETARY
The following are the Directors of the Company:
Peter Dicks (appointed to the Board on 20 June 2002 and appointed Chairman on
28 July 2004) (Non-Executive Director) is aged 66. He was co-founder of
Abingworth Plc in 1974, having previously pursued a career in stockbroking. He
specialised in the selection and management of North American unquoted
securities. He is chairman of Daniel Stewart Securities PLC, Foresight
Technology VCT, SVM UK Emerging Fund PLC, Foresight 2 VCT PLC, Foresight 3 VCT
PLC, Foresight 4 VCT PLC, SportingBet Plc and Unicorn AIM VCT and a director of
Polar Capital Technology Trust PLC, Graphite Enterprise Trust Plc, Mears Group
Plc, Standard MicroSystems Corporation (a US Nasdaq listed company), Gartmore
Fledgling Trust PLC and a number of other companies.
Colin Kingsnorth (appointed 22 October 2004), (Non-Executive Director) is aged
45. He has, since October 1999, been director and fund manager of Laxey
Partners Limited. He holds a BSc in Economics and is an associate member of the
Institute of Investment Management and Research. Laxey Partners Limited are
managers of funds which own 27.72% of the Company.
Rory Macnamara (appointed 22 October 2004), (Non-Executive Director) is aged
54. Having qualified as an accountant with PriceWaterhouse, Mr Macnamara began
a seventeen year career in corporate finance at Morgan Grenfell & Co Limited in
1981 during which he rose to become head of advisory and deputy chairman.
During his time at Morgan Grenfell he advised on a large range of public and
private M&A transactions, fund raisings and flotation's as well as gaining
fixed income experience working with debt advisory teams, most notably during
his secondment to Eurotunnel. He joined Lehman Brothers as Head of UK Coverage
in 1999 and has been an independent consultant since 2002. Mr Macnamara is
chairman of Izodia Plc and Carpathian Plc and a director of Dunedin Income
Growth Investment Trust PLC, Augean PLC and Essenden PLC, and holds various
other company directorships.
Lady Barbara Judge (appointed 25 January 2000), (Non-Executive Director; was
formerly the Executive Chairman of the Company until 28 July 2004) is aged 62.
She is a lawyer, an international banker and entrepreneur. Lady Judge was
formerly a Commissioner of the US Securities & Exchange Commission and an
executive director of Samuel Montagu and News International, among others. Lady
Judge is currently a non-executive director of Portmeirion Group Plc,
Nationwide Accident Repair Services Plc, Robert Walters Group Plc, Planet
Payment Inc, Magna International, Massey Energy Company, Bakaert NV, Forte
energy NL and ATP Oil and Gas Corporation.
David Quysner CBE (appointed 22 October 2004), (Non-Executive Director) is aged
62. He has spent more than 35 years in venture capital with 3i and subsequently
with Abingworth, of which he is currently non-executive chairman and has wide
experience of making and managing investments in technology companies in both
the USA and the UK. He was chairman of the British Venture Capital Association
in 1996/97. He is non-executive chairman of Capital for Enterprise Limited,
which manages investment programmes focused on SMEs principally on behalf of
the Department of Business Innovation and Skills. He is also chairman of RCM
Technology Trust Plc and a director of ANGLE Plc, Foresight 2 VCT Plc and
Medical Research Council Technology Limited.
Secretary
Capita Sinclair Henderson Limited provides company secretarial and
administrative services for the Company. It provides similar services for a
number of other investment trusts. Capita Sinclair Henderson Limited is the
trading name of Capita Financial Group - Specialist Fund Services and is a
subsidiary of The Capita Group Plc.
DIRECTORS' REPORT AND BUSINESS REVIEW
The Directors of Private Equity Investor PLC ("PEI" or "the Company") present
their Report and Business Review for the year ended 31 March 2009.
Business Review
Introduction
The Directors' Report includes a Business Review intended to present a balanced
and comprehensive analysis of the development and performance of the business
of the Company during the financial year and the position of the Company at the
year end, together with a description of the principal risks and uncertainties
facing the Company and an indication of the likely future developments in its
business. The Directors also include an analysis using key performance
indicators to aid understanding of the above.
Business of the Company
The principal activity of the Company is to carry on business as an investment
trust in accordance with its investment objective and policy. The Directors do
not envisage any change to this activity in the future.
The Company has a portfolio of Venture and Development Capital Funds to which
it has made capital commitments, some of which remain to be drawn down. The
Company will honour these commitments and will continue to receive
distributions in cash and in specie - from the Funds. It does not, however,
currently intend to enter into any new commitments and it is the Company's
intention to make periodic returns of capital to shareholders when monies are
received from the Funds. As noted below, Campton Group, in which the Company
has conversion rights that would allow it to hold a majority stake, is
developing a fund-of-funds management and advisory business that, if
successful, would continue beyond the liquidation of the portfolio.
A review of the Company's activities is given in the Chairman's statement and
in the review of investments.
Results and dividends
The results for the year are set out in the consolidated income statement.
During the year, as a result of reduced cash balances and lower interest rates,
the Company received less income from the surplus undrawn cash that had been
invested in open-ended investment companies. The Directors are therefore not
recommending the payment of a dividend for the year ended 31 March 2009.
Status
The Group comprises Private Equity Investor PLC and its subsidiary, Campton
Group, Inc., a company registered in the United States providing private equity
advisory services. Campton acts as investment advisor to the Company.
The Company is an investment company as defined under Section 833 of the
Companies Act 2006, and was incorporated and registered in England and Wales on
19 January 2000. Its shares are listed on the London Stock Exchange.
The Company has received written approval from HM Revenue and Customs as an
authorised investment trust under Section 842 of the Income and Corporation
Taxes Act 1988 ("ICTA") for the accounting year ended 31 March 2008. This
approval is subject to there being no subsequent enquiry under corporation tax
self-assessment. In the opinion of the Directors, the Company has subsequently
directed its affairs so as to enable it to continue to qualify for and seek
such approval. The Articles of Association provide for shareholders to consider
the continuation of the Company as an investment trust at the Annual General
Meeting to be held in 2014 and at every fifth subsequent Annual General Meeting
thereafter.
The Company's shares qualify as investments in Individual Savings Accounts
("ISAs").
Investment objective
The Company was launched in February 2000 and provides both private and
institutional investors with a means to participate in specialised venture
capital funds in the USA, a category of funds that is not otherwise accessible
to many investors. The Company's objective is to achieve substantial capital
appreciation for shareholders over its intended life.
Investment policy
The Company's policy has been to invest in high quality venture capital funds,
managed by several different management groups, focused on various stages of
growth from early stage to pre-IPO, so as to obtain exposure to a diversified
underlying portfolio of investments in unlisted companies in the IT and other
technology sectors. Such funds have been selected with regard to the experience
and track record of the managers, their investment strategy and the strength
and quality of their deal flow.
Further details of the Investment Policy are provided above.
Net asset valuation
The net asset value per Ordinary Share at 31 March 2009 was 213.77p (2008:
180.70p) Venture Capital Funds are stated at Directors' valuation with
reference to IPEVC guidelines which is in accordance with the valuations
provided by the managers of those funds which are received by the Company at
least quarterly. The valuation methodology normally used by these funds is that
the underlying investments are valued at fair value determined in accordance
with the relevant limited partnership agreement. In the case of marketable
securities, the valuations are typically based on a mark to market basis. In
the case of non-listed securities, the valuations are at fair value after
applying a discount to reflect liquidity and market conditions. Venture Capital
Funds value portfolios in accordance with Financial Accounting Standards
Board's FAS 157 which defines fair value, establishes a framework for measuring
fair value and expands disclosures about fair value-measurements. This accords
with the Company's accounting policy for valuations.
Key performance indicators
Benchmark
The Company's underlying portfolio consists of quoted and unquoted stocks
primarily in the United States and Asia, but also in Europe and an appropriate
benchmark is not available for direct comparison. The Company has selected the
NASDAQ Composite Index as the most appropriate index against which to monitor
the Company's performance. This index is a reliable, publicly available and
consistently updated measure of the share performance of a broad spread of
companies (albeit quoted) representative of the businesses in which PEI has
invested. The Company's performance against its selected benchmark is referred
to in the Chairman's Statement.
Total expense ratio
The Directors maintain an objective to run the Company efficiently and monitor
its operational expenses on an ongoing basis. The total expense ratio for the
year ended 31 March 2009 was 1.43% (2008: 1.23%). As the Company returns cash
to shareholders the percentage of expenses to net assets will increase.
Discount
The Directors regularly monitor the level of discount at which the Group's
shares are trading. On 31 March 2009 the Group's share price stood at a
discount of 48.31% to net asset value, a significant increase compared to
20.03% 12 months earlier.
The Directors have considered the introduction of a discount protection
mechanism, whereby the Company might purchase shares in the market at a stated
minimum discount to NAV. However, unlike many other investment trusts, the
Company does not hold readily marketable investments from which such purchases
might be funded; moreover, it has already indicated that it will periodically
distribute to shareholders the proceeds of distributions from its portfolio. In
these circumstances, the Directors do not consider that a formal discount
protection mechanism is appropriate but they reserve the ability to buy in
shares from time to time.
Principal risks and uncertainties and their mitigation
Risk assessment and the review of internal controls are undertaken by the Board
in the context of the Company's overall investment objective. The review covers
the key business, operational, compliance and financial risks facing the
Company.
The principal risks and uncertainties identified by the Board are discussed
below, together with an outline of how the Board recognises and seeks to
control these risks. Mitigation of the principal risks is sought and achieved
as far as possible. Further information regarding financial risks is set out in
Note 19 to the accounts.
Stock market performance risk
The Funds in which the Company is invested seek to realise their own investment
objectives by selling or floating their investee companies. Consequently a
proportion of the Company's underlying investments is in publicly quoted stocks
(listed primarily on the NASDAQ) - either as a result of IPOs or as a result of
trade sales in which the consideration has been by way of equity in the
acquirer.
When such shareholdings are distributed it is the Company's normal policy to
sell them, ideally close to the distribution price, as soon as possible. There
may be instances where the Company determines to hold distributed shares in an
effort to obtain a more advantageous selling price. However, this practice will
also expose the Company to market risk. The details of the Company's investment
portfolio given on page # show that directly held publicly quoted investments
amounted to 0.5% of the Company's net assets as at 31 March 2009.
Company and fund performance risk
By their nature, investments in new and unlisted companies often present
greater risk than those in more established enterprises. In addition, the
venture capital funds themselves may be subject to variable performance or
investment selection. The Company seeks to mitigate this risk through the
diversification of its investment across a range of LP venture funds (currently
23) which are themselves invested in over 500 underlying companies.
Regulatory Breach risk
Relevant legislation and regulations which apply to the Company include the
Companies Act 1985 and the Companies Act 2006 (as enacted) ("the Companies
Acts"), the ICTA and the Listing Rules of the Financial Services Authority
("FSA"). The Company has noted the recommendations of the Combined Code on
Corporate Governance and the AIC Code of Corporate Governance and the relevant
AIC Guide for Investment Companies. Its statement of compliance appears on
below. A breach of ICTA could result in the Company losing its status as an
investment trust company and becoming subject to capital gains tax, whilst a
breach of the Listing Rules might result in censure by the FSA. At each Board
meeting the status of the Company is considered and discussed, so as to ensure
that all regulations are being adhered to by the Company and its service
providers.
There have been no breaches of laws or regulations during the period under
review and up to the date of this report.
Valuation risk
The Directors are to a significant extent reliant on the accuracy and
timeliness of the financial information provided to them by the General
Partners of the Venture Capital Funds in which the Company invests. US Venture
Capital Funds are in a transitional phase from GAAP to IFRS accounting.
Valuation basis may therefore differ between funds and could result in
inconsistencies between Funds. The Company receives valuations on a quarterly
basis therefore there can be a time delay in the valuations being reported to
the Company and reflected in its net asset value.
Market operation risk
The Company is reliant on the efficient operation of the markets to provide an
exit route from its investments held within its Venture Capital Funds. Exits
are achieved through trade sales and sale of stocks following an IPO of an
underlying company. In periods of uncertain markets, these exit routes can be
delayed and the Company may see a decrease in distributions received.
Over-commitment risk
To optimise its capital returns to shareholders, the Company's policy during
its initial investment period was to make commitments to the Venture Capital
Funds in which it invested that were in excess of the funds at its disposal, in
the expectation that realisations during the life of the Company would fund
this over-commitment. As at 31 March 2009 the Company was not over-committed.
Exchange rate risk
The majority of the Company's assets are held in US dollar denominated
securities and, therefore, shareholders investing in the Company's shares
quoted in sterling are exposed to currency fluctuations between these
currencies. It is not the Company's policy to hedge against currency
fluctuations.
Future outlook
Despite difficult economic circumstances, the Company's portfolio has continued
to deliver a flow of distributions and this is expected to continue, albeit at
a low level in current markets. It is the Company's stated policy that it
continues to meet existing commitments to the Funds in which it has invested
but that it is not making new commitments. Instead, the Company proposes to
make periodic returns of capital to shareholders and this will be financed out
of distributions from the Funds or by the sale of holdings in individual Funds
(as was the case in 2005 when the Company's over-commitment was eliminated in
this way).
In addition to the value of its portfolio, the Company has valuable expertise
in Venture Capital fund-of-funds management. It is seeking to build on this
through the development of Campton, in which it has the right to acquire a
majority holding. As previously reported to shareholders, Campton is looking to
raise and thereafter manage a new fund-of-funds vehicle.
Buyback of shares
In May 2008, shareholders approved the cancellation of the Company's Share
Premium Account which, subject to the necessary court approval obtained on 29
October 2008, permitted the creation of a special distribution reserve. This
enabled the Company to make further returns of capital to shareholders.
The Company tendered for and repurchased for cancellation 7,769,733 shares on
15 December 2008 representing 18.19% of the then issued share capital. The
total cost of the tender offer was £17,500,000 plus £290,000 costs.
At the year-end and date of this report the Company had issued share capital of
34,953,675 Ordinary Shares of 0.01p each. Holders of Ordinary Shares have
unrestricted voting rights at all general meetings of the Company.
The Campton Group, Inc.
The Company has appointed Campton Group, Inc. ("Campton") which is based in San
Francisco as its investment advisor. The Company has previously provided
Campton with finance with a view to developing Campton's private equity
fund-of-funds management and advisory business. The Company has conversion
rights on exercise of which it would hold a majority stake in Campton with the
balance being held by Campton's management team. As reported previously,
Campton advises the Company on its existing portfolio and has been developing a
fund-of-funds management and advisory business. Campton's efforts to develop
its business have been hindered as a result of the global financial crisis.
While Campton continues its efforts, the Company and Campton are also exploring
strategic alternatives for Campton's business.
Environmental, employmentand socially responsible investment
The Company is fully aware of each General Partner's investment policy at the
time it commits to a new Fund. Limited Partners such as the Company, however,
are not consulted on individual investments made by the General Partner in
their particular funds. Subject to this, the Company attempts to conform to
best practice on environmental and other social responsibility issues. The
Company has one employee, the office manager of its London office.
Financial instruments
The policy and practice of the Company with regard to financial instruments is
set out in note 19 of the Notes to the Accounts.
Management arrangements
The Board currently comprises five Non-Executive Directors who are collectively
responsible, inter alia, for implementing the investment policy of the Company
and for monitoring its investments. With effect from 1 April 2007 the Company
has entered into a non-discretionary investment advisory agreement with the
Campton Group, Inc., a Californian registered corporation. A fee of up to 0.7%
per annum of the net asset value is payable, plus expenses, to Campton which is
invoiced monthly. The notice period to be given by either party is six months
and no compensation is payable in the event of termination. The Company will
remain self-managed and the Board will collectively make all investment and
management decisions. The Board receives regular and ad-hoc reports from
Campton, reviews the quarterly reports received from the LPs and discusses
performance with the General Partners. Pending investment in suitable venture
capital funds, the cash resources of the Company have been invested in
open-ended investment funds.
Under an agreement dated 31 January 2000 company secretarial and administrative
services are provided by Capita Sinclair Henderson Limited. It provides similar
services for a number of other investment trusts. The administration agreement
may be terminated by either party giving not less than 12 months' notice. VAT
was charged on this contract until October 2008, details of the fees paid are
disclosed in Note 3 to the accounts.
Contractual arrangements essential to the business of the Company
Other than the investment advisor, Campton Group, Inc., and the Company
Secretarial and administrative Agreement described above, there are no
contractual arrangements that are considered essential to the business of the
Company.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF
THE ACCOUNTS
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable United Kingdom law and those
International Financial Reporting Standards ("IFRS") adopted by the European
Union.
Company law requires the Directors to prepare financial statements for each
financial year which present fairly the financial position of the Company and
of the Group and the financial performance and cash flows of the Company and of
the Group for that period. In preparing these financial statements, the
Directors are required to:
# select suitable accounting policies and then apply them consistently;
# make judgments and estimates that are reasonable and prudent;
# present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
# state whether applicable International Financial Reporting Standards have
been followed, subject to any material departures disclosed and explained in
the financial statements; and
# provide additional disclosures when compliance with the specific requirements
in IFRS is insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity's financial position
and financial performance.
The Directors are responsible for keeping proper accounting records that
disclose with reasonable accuracy, at any time, the financial position of the
Company and of the Group and enable them to ensure that the financial
statements comply with the Companies Act 1985 and Article 4 of the IAS
Regulations. They are also responsible for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website. The work
carried out by the Auditor does not include consideration of the maintenance
and integrity of the website and accordingly the Auditor accepts no
responsibility for any changes that have occurred to the financial statements
when they are presented on the website. Visitors to the website need to be
aware that legislation in the United Kingdom governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
The Directors, to the best of their knowledge, state that:
# the financial statements, prepared in accordance with International Financial
Reporting Standards as adopted by the European Union, give a true and fair view
of the assets, liabilities, financial position and profit/(loss) of the Company
and the Group; and
# the Chairman's Statement and Report of the Directors include a fair review of
the development and performance of the business and the position of the Company
and the Group together with a description of the principal risks and
uncertainties that it faces.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2009
Year ended 31 March 2009 Year ended 31 March
2008
Revenue Capital Revenue Capital
return return Total return return Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments 9 - 15,108 15,108 - 3,388 3,388
at fair value through
profit and loss
Exchange gains/(loss) 9 - 1,161 1,161 - (32) (32)
on other items
- 16,269 16,269 - 3,356 3,356
Operating income
Investment income 580 - 580 1,341 - 1,341
Other operating income 22 - 22 167 - 167
Total operating income 2 602 - 602 1,508 - 1,508
Operating expenses
Administrative 3 (1,068) - (1,068) (947) - (947)
expenses
Total expenses (1,068) - (1,068) (947) - (947)
Operating (loss)/ (466) 16,269 15,803 561 3,356 3,917
profit
(Loss)/profit before (466) 16,269 15,803 561 3,356 3,917
tax
Tax 5 - - - - - -
(Loss)/profit for the (466) 16,269 15,803 561 3,356 3,917
period
Attributable to:
Equity holders of the (466) 16,269 15,803 561 3,356 3,917
parent
Minority interest - - - - - -
Earning per share
From continuing
activities
Basic 8 (1.15)p 40.19p 39.04p 1.17p 7.02p 8.19p
The total column of this statement represents the Group's income statement,
prepared in accordance with IFRS. The supplementary revenue return and capital
return columns are both prepared under guidance published by the Association of
Investment Companies. All items in the above statement derive from continuing
operations.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2009
Share Capital Currency
Share premium Special redemption Capital translation Retained
capital account reserve reserve reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Year ended 31
March 2009
As at 1 April 4 96,862 - 1 (20,117) 9 441 77,200
2008
Profit/(loss) - - - - 16,269 (22) (466) 15,781
for the year
Dividends paid - - - - - - (470) (470)
Transfer - (96,862) 96,862 - - - - -
between
reserves
Tender offer (1) - (17,790) 1 - - - (17,790)
As at 31 March 3 - 79,072 2 (3,848) (13) (495) 74,721
2009
Year ended 31
March 2008
As at 1 April 5 96,862 - - (10,732) 4 430 86,569
2007
Profit for the - - - - 3,356 5 561 3,922
year
Dividends paid - - - - - - (550) (550)
Tender offer (1) - - 1 (12,741) - - (12,741)
-
As at 31 March 4 96,862 - 1 (20,117) 9 441 77,200
2008
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2009
Share Capital
Share premium Special redemption Capital Retained
capital account reserve reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
Year ended 31
March 2009
As at 1 April 4 96,862 - 1 (20,117) 586 77,336
2008
Profit/(loss) - - - - 16,269 (367) 15,902
for the year
Dividends paid - - - - - (470) (470)
Transfer between - (96,862 96,862 - - - -
reserves
Tender offer (1) - (17,790) 1 - - (17,790)
As at 31 March 3 - 79,072 2 (3,848) (251) 74,978
2009
Year ended 31
March 2008
As at 1 April 5 96,862 - (10,732) 573 86,708
2007
Profit for the - - - 3,356 563 3,919
year
Dividends paid - - - - (550) (550)
Tender offer (1) - 1 (12,741) - (12,741)
As at 31 March 4 96,862 1 (20,117) 586 77,336
2008
CONSOLIDATED BALANCE SHEET
as at 31 March 2009
31 March 31 March
2009 2008
Notes £'000 £'000
Non-current assets
Investments at fair value through profit 9 67,762 72,466
or loss
Property, plant and equipment 6 4
Current assets
Trade and other receivables 11 28 279
Cash and cash equivalents 15 7,035 4,611
7,063 4,890
Total assets 74,831 77,360
Current liabilities
Trade and other payables 12 110 160
Net assets 74,721 77,200
Capital and reserves
Share capital 13 3 4
Share premium account 14 - 96,862
Special reserve 14 79,072 -
Capital redemption reserve 14 2 1
Capital reserve 14 (3,848) (20,117)
Currency translation reserve 14 (13) 9
Retained earnings 14 (495) 441
Shareholders funds 74,721 77,200
Minority Interest
- More to follow, for following part double click [ID:nPRrVBBE7b]</pre>
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