31 July 2008, 15:47
Private Equity Inv: Final Results - Part 2
<pre>- Part 2: For the preceeding part double click [ID:nPRrVD437a]
operating activities
Consolidated net return before tax 3,917 1,174
Adjustments to reconcile net return
before tax to net cash flows from
operating activities:
Gains on investments (3,356) (608)
Exchange losses/(gains) 121 (115)
(Decrease)/increase in trade and (19) 58
other payables
(Decrease)/increase in trade and 81 (57)
other receivables
Purchases of investments (24,750) (20,775)
Sales of investments 41,283 20,634
Net cash flows generated from 17,277 311
operating activities
Investing activities
Purchase of property, plant and - (7)
equipment
Net cash used in investing activities - (7)
Financing
Ordinary shares purchased (12,732) -
Dividends paid (550) -
Net cash used in financing activities (13,282) -
Net increase in cash and cash 3,995 304
equivalents
Cash and cash equivalents at 765 937
beginning of year
Effect of foreign exchange rates on (149) (476)
cash and cash equivalents
Cash and cash equivalents at end of 15 4,611 765
year
The notes below form part of these accounts.
COMPANY CASH FLOW STATEMENT
for the year ended 31 March 2008
Year ended Year ended
31 March 2008 31 March 2007
Notes £'000 £'000
Cash flows from operating activities
Company net return before tax 3,919 1,317
Adjustments to reconcile net return
before tax to net cash flows from
operating activities:
Gains on investments (3,356) (608)
Exchange losses/(gains) 120 (116)
(Decrease)/increase in trade and (31) 44
other payables
Increase/(decrease) in trade and 103 (51)
other receivables
Purchases of investments (24,750) (20,775)
Sales of investments 41,283 20,634
Net cash flows generated from 17,288 445
operating activities
Investing activities
Investment in subsidiary (51) (181)
Net cash used in investing activities (51) (181)
Financing
Ordinary shares purchased (12,732) -
Dividends paid (550) -
Net cash used in financing activities (13,282) -
Net increase in cash and cash 3,955 264
equivalents
Cash and cash equivalents at 723 937
beginning of year
Effect of foreign exchange rates on (151) (478)
cash and cash equivalents
Cash and cash equivalents at end of 15 4,527 723
year
The notes below form part of these accounts.
NOTES TO THE ACCOUNTS
at 31 March 2008
1 ACCOUNTING POLICIES
Accounting convention
Private Equity Investor plc is a Company incorporated in Great Britain and
registered in England and Wales under the Companies Act 1985. The consolidated
Annual Report for the Group for the year ended 31 March 2008 comprises the
results of the Company and its Subsidiary, Campton Group Inc (together referred
to as the "Group") For further details see Basis of Consolidation below . The
Company is registered as a public limited company and is an investment company
as defined by section 833 of the Companies Act 2006. Campton Group Inc is a
private equity fund-of-funds management and advisory business based in San
Francisco, California.
Basis of Accounting
The consolidated annual financial statements of the Group have been prepared
under International Financial Reporting Standards ("IFRS"), which comprise
standards and interpretations approved by the International Accounting
Standards Board ("IASB"). The annual financial statements of the Company have
been prepared in accordance with IFRS as adopted by the European Union, and as
applied in accordance with provisions of the Companies Act 1985. The financial
statements have also been prepared in accordance with the Statement of
Recommended Practice ("SORP") (as amended December 2005) for investment trust
companies except to any extent where it conflicts with IFRS.
This is the first year in which the group has prepared its financial statements
under IFRS and the comparatives have been restated from UK Generally Accepted
Accounting Practice ('UK GAAP') to comply with IFRS. As a result of the group's
transition to IFRS there are no reconciling items from the previously published
UK GAAP financial statements.
The accounting policies which follow set out those policies which apply in
preparing the financial statements for the year ended 31 March 2008. There are
no differences between the accounting policies applied to the Group and the
Company.
The Group and Company financial statements are presented in Sterling and all
values are rounded to the nearest thousand pounds (£'000) except when indicated
otherwise.
Basis of Consolidation
The consolidated financial statements incorporate the financial statements of
the Company and its principal subsidiary Campton Group, Inc,.
Campton Group, Inc, is consolidated from the date of its acquisition, being the
date on which the Group obtained control, and will continue to be consolidated
until the date that such control ceases. Control comprises the power to govern
the financial and operating policies of the investee so as to obtain benefit
from its activities and is achieved through direct or indirect ownership of
voting rights. The Company currently has an investment of £226,000 in Campton
Group Inc by way of a secured promissory note agreement and a secured
convertible promissory note agreement. If the Company were to exercise its
conversion rights then it would hold a majority stake in Campton Group Inc. As
the convertible loan notes are convertible at any time, PEI has the power to
exercise control over Campton. Therefore in preparing the financial statements
for the current year, the Company has treated its investment in Campton Group
Inc as a subsidiary and therefore produced consolidated financial statements.
The comparative figures have been restated to conform with the current year
accounting policies.
Private Equity International Limited is incorporated with share capital of £1
issued and fully paid. It was incorporated to register the business name of
Private Equity International. It has not traded during the year and has not
been consolidated as it is, in the Directors' opinion, immaterial to the
accounts.
The interest of minority holdings is stated at the minority's proportion of the
fair values of the assets and liabilities recognised. Minority interests
represent the portion of profit or loss and net assets in subsidiaries that is
not held by the Group and are presented separately in the income statement and
within equity in the consolidated balance sheet, separately from parent
shareholders' equity. However, any losses applicable to the minority interest
in excess of the minority interest are allocated against the interests of the
parent.
The financial statements of the subsidiary are prepared for the same reporting
year as the Parent Company, using consistent accounting policies. All
intercompany balances and transactions, including unrealised profits arising
from them, are eliminated.
As permitted by Section 230 of the Companies Act 1985, the Company has not
presented its own income statement. The amount of the Company's return for the
financial year dealt within in the accounts of the Group is £3,919,000 (2007: £
1,317,000).
Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business, being investment business. The results of Campton Group Inc are
immaterial for segmental reporting purposes.
Income recognition
Dividends receivable on quoted equity shares and debt securities are included
in the accounts when the investments concerned are quoted `ex-dividend'.
Dividends receivable on equity shares and debt securities where no ex-dividend
date is quoted are brought into account when the Group's right to receive
payment is established. The fixed return on a debt security is recognised on a
time apportionment basis so as to reflect the effective yield on the debt
security. Interest receivable is included on an accruals basis.
Expenses
All expenses are accounted for on an accruals basis and are charged through the
revenue column of the income statement, except for expenses which are
incidental to the sale or purchase of an investment, which are charged through
the capital column of the income statement.
Investments at fair value through profit or loss
Investments are recognised and derecognised on the trade date where a purchase
or sale is under a contract whose terms require delivery within the time frame
established by the market concerned, and are initially measured at cost.
All investments held by the Company are designated upon initial recognition as
held at fair value through profit or loss. Investments are measured at fair
value, with unrealised gains and losses on investments and impairment of
investments recognised in the income statement and allocated to capital.
Realised gains and losses on investments sold are calculated as the difference
between sales proceeds and cost.
The 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. Valuations of the Funds are reported to the Company
quarterly and are incorporated in the Company's accounts when received. The
valuation methodology used by these funds is that the underlying investments
are valued at fair value determined in accordance with the relevant limited
partnership agreement. Loan notes to Campton Group Inc are valued at amortised
cost.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to Stock Exchange quoted market bid prices at
the close of business on the balance sheet date, without any deduction for
transaction costs necessary to realise the asset.
Capital distributions received from investments are accounted for on a reducing
cost basis; cash and stock distributions received are first applied to reducing
the base cost of an investment; a realised gain will be recognised only when
the cost has been reduced to nil.
Foreign currency translation
The functional and presentational currency of the Company is pounds sterling.
Transactions in currencies other than pounds sterling are recorded at the rates
of exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign
currencies are re-translated at the rates prevailing on the balance sheet date.
Gains and losses arising on re-translation are included in the income statement
and are allocated either to revenue or capital, as appropriate.
The assets and liabilities of foreign operations are translated into sterling
at the rate of exchange ruling at the balance sheet date. Income and expenses
are translated at weighted average exchange rates for the year. The resulting
exchange differences are taken directly to a separate component of equity. On
disposal of a foreign entity, the deferred cumulative amount recognised in
equity relating to that particular foreign operation is recognised in the
income statement.
Taxation
Deferred tax is recognised in respect of all temporary differences at the
balance sheet date where transactions or events have occurred that result in an
obligation to pay more, or the right to pay less tax in the future. This is
subject to deferred tax assets being recognised only if it is considered more
likely than not that there will be suitable profits from which the future
reversal of the temporary differences can be deducted.
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue on the same basis as the particular item
to which it relates, using the marginal method.
Dividends payable to shareholders
Dividends to shareholders are recognised as a liability in the period in which
they have been declared and paid.
The final dividend is proposed by the Board and is not declared until approved
by the shareholders at the Annual General Meeting following the year end.
Cash and cash equivalents
Cash and cash equivalents are held for the purpose of meeting short-term cash
commitments rather than for investment purposes. Assets are classified as cash
equivalents if they are readily convertible to cash and are not subject to
significant changes in value. The Company has classified short-term bank
deposits as cash equivalents.
Leases
Leases where the lessor retains substantially all the risks and benefits of
ownership of the assets are classified as operating leases.
Operating lease payments are recognised as an expense in the income statement
on a straight-line basis over the lease term.
New standards and interpretations not applied
IASB have issued the following standards and interpretations which are not yet
effective for the year ended 31 March 2008 and have not been applied in
preparing these financial statements.
Effective date
International Accounting Standards (IAS/IFRS)
IAS 1 (revised) Presentation of Financial Statements: 1 January 2009
a revised presentation
Puttable financial instruments and 1 January 2009
Obligations existing on Liquidation
IAS 23 (revised) Borrowing Costs 1 January 2009
IAS 32 (revised) Puttable financial instruments and 1 January 2009
Obligations existing on Liquidation
IFRS 2 Share based payments: vesting 1 January 2009
conditions and cancellations
IFRS 8 (revised) Operating Segments 1 January 2009
The Directors do not anticipate that the initial adoption of the above
standards, amendments and interpretations will have a material impact in the
future periods.
2 INCOME
2008 2007
Group Company Group Company
£'000 £'000 £'000 £'000
Income from investments:
Interest from open-ended 1,337 1,337 1,098 1,098
investment funds
Loan interest from subsidiary - 15 - -
Other income from unquoted 4 4 - -
venture capital fund
1,341 1,356 1,098 1,098
Other income:
Deposit interest 167 160 204 203
Total income 1,508 1,516 1,302 1,301
Total income comprises:
Interest 1,508 1,516 1,302 1,301
3 EXPENSES
2008 2007
Group Company Group Company
£'000 £'000 £'000 £'000
Secretarial services 92 91 88 88
Investment adviser's fees and - 442 - -
expenses
Auditor's remuneration for:
- audit* 24 24 23 23
Directors' remuneration 129 129 155 155
Other expenses:
- irrecoverable VAT (1) (1) 10 10
- operating lease of land and 39 27 39 35
buildings
- public relations and 18 15 17 16
advertising
- legal and professional fees 94 63 40 29
- office expenditure 46 22 41 14
- staff costs (see note 4) 251 61 139 67
- banking and custody charges 6 6 4 4
- other expenses 249 74 180 151
947 953 736 592
*In addition £9,000 was paid to the auditors in connection with the tender
offer.
Of the total expenses above £436,000 (2007: £144,000) relate to Campton Group
Inc.
4 STAFF COSTS
2008 2007
Group Company Group Company
£'000 £'000 £'000 £'000
Salaries and other payments 245 55 132 60
Social security costs 6 6 7 7
251 61 139 67
With the exception of the Directors, whose remuneration is shown in the
Directors' remuneration report, the Group employed four members of staff during
the year (2007: four members of staff).
5.TAXATION ON ORDINARY ACTIVITIES
2008 2007
Revenue Capital Total Revenue Capital Total
Return Return Return Return
£'000 £'000 £'000 £'000 £'000 £'000
UK corporation tax at - - - - - -
30%
The Company is subject to corporation tax at 30% (2007: 30%). As at 31 March
2008
the total current taxation charge in the Company's revenue account is lower
than the standard rate of corporation tax in the UK (30%). The differences are
explained below:
2008 2007
restated
Revenue Capital Total Revenue Capital Total
Return Return Return Return Return Return
£'000 £'000 £'000 £'000 £'000 £'000
Net return before 561 3,356 3,917 566 608 1,174
finance costs and
taxation
Theoretical tax at UK 168 1,007 1,175 170 182 352
corporation tax rate
of 30%
Effects of:
- utilisation of (172) - (172) (173) - (173)
brought forward losses
- expenses disallowed 4 - 4 3 - 3
for taxation purpose
- gains on investments - (1,007) (1,007) - (182) (182)
and exchange losses on
capital items
- - - - - -
At 31 March 2008, the Company had no unprovided deferred tax liabilities (2007:
£nil). At that date, based on current estimates and including the accumulation
of net allowable management expenses deriving from its partnership interests in
its Venture Capital Funds, the Company had surplus management expenses of
approximately £10,388,000 (2007: £9,648,000) which have not been recognised as
a deferred tax asset. This is because the Company is not expected to generate
sufficient taxable income in future periods in excess of the available
deductible expenses and accordingly, the Company is unlikely to be able to
reduce future tax liabilities through the use of existing surplus expenses.
Due to the Company's status as an investment trust, and the intention to
continue meeting the conditions required to obtain approval in the foreseeable
future, the Company has not provided deferred tax on any capital gains and
losses arising on the revaluation or disposal of investments.
6 DIVIDENDS
2008 2007
£'000 £'000
Amounts recognised as distributions to equity
holders within the period
Dividend for the year ended 31 March 2007 of 550 -
1.1p (2006: Nil) per share
Proposed distribution for the year ended 31 March 2008 is 1.1p per share,
amounting to £469,957.
The requirements of Section 842 of the Income and Corporation Taxes act 1988
are considered on the basis of dividends declared in respect of the financial
year as shown below.
2008 2007
£'000 £'000
Net return after taxation per Company 563 709
accounts
Final dividend proposed of 1.1p (2007: 1.1p (470) (550)
per share
Revenue retained for s842 purpose 93 159
7 PROFIT OF PARENT COMPANY
As permitted by Section 230 of the Companies Act 1985, the Profit and Loss
Account of the Company is not presented as part of these financial statements.
The consolidated net return after taxation for the financial year includes £
3,919,000 (2007: £1,317,000) which is dealt with in the financial statements of
the Company.
8 RETURN PER ORDINARY SHARE
2008 2007
Revenue Capital Total Revenue Capital Total
return return return return
pence pence pence pence pence pence
Return per ordinary 1.17 7.02 8.19 1.13 1.22 2.35
share
Revenue return per ordinary share is based on the net return on ordinary
activities after taxation of £561,000 (2007: net return of £566,000), and on
47,807,054 (2007: 50,000,000) ordinary shares, being the weighted average
number of ordinary shares in issue during the year.
Capital return per ordinary share is based on net capital gains for the year of
£3,356,000 (2007: net capital gains of £608,000), and on 47,807,054 (2007:
50,000,000) ordinary shares, being the weighted average number of ordinary
shares in issue during the year.
Total return per ordinary share is based on net return for the year of £
3,917,000 (2007: £1,174,000), and on 47,807,054 (2007: 50,000,000) ordinary
shares, being the weighted average number of ordinary shares in issue during
the year.
9 INVESTMENTS
2008 2007
£'000 £'000
Group and Company
a) Investment portfolio summary
USA
Listed investments
- common stock 511 394
Unlisted Venture Capital funds 48,293 53,090
Other investments
- open-ended investment funds 23,648 31,611
- unlisted common stock 14 13
72,466 85,108
A full listing of the investment portfolio is provided in the annual report.
Unlisted Listed Listed Unlisted Total
equities equities open-ended Venture
investment Capital
funds funds
£'000 £'000 £'000 £'000 £'000
b) Analysis of investment
portfolio movements
Opening book cost 58 469 34,052 74,300 108,879
Opening unrealised (45) (75) (2,441) (21,210) (23,771)
depreciation
Opening valuation 13 394 31,611 53,090 85,108
Movements in the year:
Purchases at cost - - 20,043 22 20,065
Calls at cost - - - 4,706 4,706
Sales
- proceeds - (3,022) (27,122) - (30,144)
- realised gains/(losses) - 760 (2,059) - (1,299)
on sales
Book cost adjustments from
capital distributions
- cash distributions - - - (10,657) (10,657)
- stock distributions - 2,927 - (2,927) -
Unrealised appreciation/ 1 (548) 1,175 4,059 4,687
(depreciation)
Closing valuation 14 511 23,648 48,293 72,466
Closing book cost 58 1,134 24,914 65,444 91,550
Closing unrealised (44) (623) (1,266) (17,151) (19,084)
depreciation
14 511 23,648 48,293 72,466
2008 2007
£'000 £'000
c) Analysis of capital gains and losses
Realised (losses)/gains on sales (1,299) 4,828
Increase/(decrease) in unrealised capital 4,687 (3,603)
appreciation
Gains on investments 3,388 1,225
Realised exchange gains/(losses) on capital 120 (116)
items
Unrealised exchange losses on capital items (152) (501)
Exchange losses on capital items (32) (617)
d) Significant holdings
The Company owns 14.9% and 9.4% of the total value of the called capital of the
Venture Capital Funds in Dawntreader Fund II and Zone Ventures Fund II
respectively.
e) Transaction costs
During the year the Company incurred no transaction costs (2007: £nil) in
relation to purchases of investments and £6,000 (2007: £8,000) in relation to
sales of investments. These amounts are included within gains and losses on
investments at fair value within the income statement.
10 INVESTMENT IN SUBSIDIARY
The Company has an investment of £226,000 (2007: £178,000) in Campton Group
Inc. a company registered in the United States providing private equity
investment products and services. As at 31 March 2008, loan interest of £15,000
(2007: Nil) was due to the Company from its subsidiary.
The subsidiary acts as investment adviser for the Company. Fees amounting to £
442,000 have been charged to the Company by its subsidiary during the year
(2007: Nil).
11 TRADE AND OTHER RECEIVABLES
2008 2007
Group Company Group Company
£'000 £'000 £'000 £'000
Amounts owed to subsidiary - 15 - -
Sales for future 107 107 609 609
settlement
Prepayments and other 57 14 59 53
debtors
Accrued income 115 115 194 194
279 251 862 856
12 TRADE AND OTHER PAYABLES
2008 2007
Group Company Group Company
£'000 £'000 £'000 £'000
Other payables 151 125 170 156
Other taxation and social 1 1 1 1
security
Tender offer costs 8 8 - -
160 134 171 157
13 SHARE CAPITAL
2008 2007
£'000 £'000
Authorised:
100,000,000 ordinary shares of 0.01p each 10 10
50,000 redeemable preference shares of £1.00 50 50
each
60 60
Allotted, called up and fully paid:
42,723,408 (2007: 50,000,000) ordinary shares 4 5
of 0.01p each
During the year the Company purchased for cancellation 7,276,592 Ordinary
shares under a tender offer for a total consideration of £12,563,000 plus
expenses of £178,000. The full cost of the tender offer has been taken to the
capital reserve.
14 RESERVES
Share Capital Capital Capital Currency Retained
premium redemption reserve reserve translation earnings
reserve realised unrealised reserve
£'000 £'000 £'000 £'000 £'000 £'000
Group
Beginning of year 96,862 - 13,143 (23,875) 4 430
Net losses on - - (1,299) - - -
realisation on
investments
Unrealised - - - 4,687 - -
appreciation of
investments
Exchange gains/ - - 120 (152) - -
(losses)
Exchange - - - - 5 -
differences on
retranslation of
net assets of
subsidiary
Shares purchased - 1 (12,741) - - -
for cancellation
Dividends paid - - - - - (550)
Net surplus for - - - - - 561
the year
End of year 96,862 1 (777) (19,340) 9 441
Share Capital Capital Capital Retained
premium redemption reserve earnings
reserve realised reserve
unrealised
£'000 £'000 £'000 £'000 £'000
Company
Beginning of year 96,862 - 13,143 (23,875) 573
Net losses on - - (1,299) - -
realisation of
investments
Unrealised appreciation - - - 4,687 -
of investments
Exchange gains/(losses) - - 120 (152) -
Shares purchased for - 1 (12,741) - -
cancellation
Dividends paid - - - - (550)
Net surplus for the year - - - - 563
End of year 96,862 1 (777) (19,340) 586
15 RECONCILIATION OF NET CASH FLOWTO MOVEMENT IN CASH ANDCASH EQUIVALENTS
2008 2007
Group Company Group Company
£'000 £'000 £'000 £'000
Increase in cash in the 3,995 3,995 304 264
year
Effect of foreign exchange (149) (149) (476) (478)
rate movements
Movement in cash and cash 3,846 3,804 (172) (214)
equivalents
Cash and cash equivalents 765 723 937 937
at beginning of the year
Cash and cash equivalents 4,611 4,527 765 723
at end of the year
Cash and cash equivalents are comprised as follows:
2008 2007
Group Company Group Company
£'000 £'000 £'000 £'000
Cash in hand at bank 4,611 4,527 765 723
16 NET ASSET VALUE PER ORDINARY SHARE
The Group net asset value per Ordinary share is based on net assets of £
77,200,000 (2007: £86,569,000) and on 42,723,408 (2007: 50,000,000) 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 £
77,336,000 (2007: £86,708,000) and on 42,723,408 (2007: 50,000,000) Ordinary
shares, being the number of shares in issue at the year-end.
17 COMMITMENTS AND CONTINGENT LIABILITIES
At 31 March 2008 there were financial commitments outstanding of $24.7 million
(£12.5 million) (2007: £12.8 million) in respect of outstanding call
commitments to limited partnerships, full details of which can be found on page
7 of the full report.
18 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'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 faces through the holding of financial
instruments are:
# liquidity/marketability risk, i.e. the risk that the Company 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 has significant exposure to
credit risk. The Board monitors the financial risks affecting the Company 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
Full analysis of the Company's investment portfolio is given on page 12 of the
full report. 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 2008 amounted to £4,527,000 (2007:
£723,000) and £251,000 (2007: £856,000) respectively. There were no material
differences between the fair values of the investments as at 31 March 2008 and
31 March 2007 and the values attributable to those investments within the
accounts.
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
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