31 July 2008, 15:47
Private Equity Inv: Final Results - Part 1
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PRIVATE EQUITY INVESTOR PLC
Final Results for the year ended 31 March 2008
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 2008 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 their 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.
Distribution
The Funds provide little, if any, 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. In May 2008,
shareholders approved the cancellation of the Company's Share Premium Account
which, subject to the necessary court approval, will permit the creation of a
special distribution reserve. This will enable the Company to make returns of
capital to shareholders from time to time.
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 adviser and has
provided it with finance, with a view to developing Campton's private equity
fund-of-funds management and advisory business. The Company has the right to
acquire a majority stake in Campton.
SUMMARY OF RESULTS AND FINANCIAL HIGHLIGHTS
31 March 2008 31 March 2007 % change
Group Group
Net assets and shareholders' funds in $153,435,000 $169,792,000 (9.63)
US$
Net assets per ordinary share in US$ 359.14c 339.59c 5.76
"NAV"
Net assets and shareholders' funds £77,200,000 £86,569,000 (10.82)
Net assets per ordinary share "NAV" 180.70p 173.14p 4.37
Benchmark - NASDAQ Composite Index 2279.10 2421.64 (5.89)
Mid-market price per ordinary share 144.50p 167.00p (13.47)
Discount to NAV 20.03% 3.55%
Net revenue return after taxation £561,000 £566,000
Net total return £3,917,000 £1,174,000
Total return per ordinary share 8.19p 2.35p
Total expense ratio 1.23% 0.85%
Exchange rate at year end (US$/£) $1.9875 $1.96135
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 2008.
Results and dividend
The Group's Net Asset Value ("NAV") at 31 March 2008 was 180.70p, compared with
173.14p a year earlier, an increase of 4.37%. The NAV per share in dollars, the
currency in which the Group's investments are made, rose from 339.59c per share
to 359.14c per share, an increase of 5.76%. By comparison the NASDAQ Composite
Index fell by 5.89% (from 2421.64 to 2279.10). The dollar exchange rate moved
from $1.96 at 1 April 2007 to $1.99 at 31 March 2008.
During the year, the Company generated investment income and a final dividend
of final 1.1p per Ordinary share will be paid on 2 October 2008 to shareholders
on the Register on 8 August 2008.
Distributions from fund investments
As at 31 March 2008 the Company was invested in 23 venture funds valued at
$96.0 million. PEI's year-end cash and readily realisable assets totalled $56.1
million, compared with outstanding commitments of $24.7 million. Of this figure
approximately $8.3 million is due to be called from the original portfolio and
$16.4 million from the five "warehoused" funds.
In the twelve months under review the Company continued to receive a high level
of distributions in cash and securities from its venture capital funds
("Funds"), although at a slightly lower level than the previous two years. The
total value of distributions received was $28.9 million compared with $32.5
million in the previous year and $31.4 million in 2006. Of the $28.9 million,
cash distributions amounted to $21.5 million and stock to $7.4 million. The two
largest cash distributions came from the Company's holding in Focus Ventures
II. Some $7.2 million was received as a result of the purchase for $1.4 billion
in cash of Equal Logic a company in which Focus held just under 8%. According
to Venture Source, this transaction represented the largest all cash M&A exit
for a venture backed technology company and resulted in a return on investment
for Focus of over thirteen times. A further $2.2 million came from Focus's sale
of half their holding in Starent Networks. These shares were sold in a
secondary offering for approximately nine times original cost.
During the year under review, PEI received stock distributions in DivX, a Zone
Ventures II holding, totalling 210,781 shares with a further 38,512 shares
received after the year end in May. These shares had a total value at the
distribution price of $2,490,188 compared with the original investment cost of
$188,312.
Tender Offer
On 12 November 2007, shareholders were sent a circular informing them that the
Company proposed making a Tender Offer to purchase shares with a value of up to
£12.5 million. The Offer was completed in full on 13 December with 7,276,592
shares being purchased for cancellation at a price of 171.7818 pence per share.
Following the Offer, there are now 42,723,408 shares in issue. In May 2008,
shareholders approved the cancellation of the Company's Share Premium Account
which, subject to the necessary court approval, will permit the creation of a
special distributable reserve. This will enable the Company to make further
returns of capital to shareholders.
Portfolio Review
As at 31 March 2008, the Funds held underlying investments in over 495 private
and over 60 public companies together representing approximately 63% of the
Company's net asset value (2007: 61%). The Funds made 137 new investments
(2007: 116), and 234 follow-on investments (2007: 202) which resulted in draw
downs totalling $9.5 million (2007: $11.6 million). A total of 145 underlying
investments were written up (2007: 145) by the Funds, 206 were written down
(2007: 112), and 43 underlying investments were written off (2007: 74). Of the
18 Funds that make up the original portfolio, 10 reported a gain in value over
the period. Of the five Funds that make up the warehoused portfolio, 2 reported
a gain in value over the period. These Funds made 90 new investments, which
resulted in draw downs by the warehoused portfolio Funds totalling $4 million.
A total of 12 underlying investments were written up by these Funds, 11 were
written down and none were written off.
Distributions from the original portfolio during the year totalled $27.5
million. Of this, cash distributions amounted to $21.5 million compared with
$13.1 million in 2007 and $20.3 million in 2006. The balance of $6 million was
received in the form of stock distributions compared with $19.4 million
received in 2007 and $11.1 million in 2006. The warehoused portfolio returned a
total of $0.4 million in distributions, largely from Francisco Partners II.
During the period under review, eleven of PEI's underlying portfolio companies
undertook IPO's:
Amicus Therapeutics (NEA 9); develops drugs that treat rare genetic diseases
known as lysosomal storage disorders. The Company's enzyme replacement
therapies are designed to target defective proteins and restore their
functions.
Athenahealth (DFJ VII); provides health care organisations with Web-based
software and services that streamline practice management, workflow routing,
revenue management, patient information management, billing and collection and
other health care management tasks. Athenahealth was the largest IPO in the
Technology sector in the third quarter of 2007 ($113.2 million issue).
Compellent Technologies (Crescendo IV); Storage Centre, the company's main
product, is a storage area network (SAN) that enables users to deposit, recover
and manage large amounts of data.
Data Domain (NEA 10); develops disk-based storage appliances for data backup
and disaster recovery. Based on proprietary compression technology, its systems
are compatible with backup software from providers such as CommVault Systems,
EMC Corporation, IBM and Symantec.
EnerNOC (DFJ VI); EnerNOC's Network Operations Centre (NOC) remotely monitors
customers' energy assets and has the capability to adjust their electrical use
(whether its dimming the lights, adjusting the AC or turning on emergency
generators). It caters to commercial, industrial and institutional
organisations, as well as electric power grid operators and utilities.
Entropic Communications (Focus II); a fabless semiconductor company that
designs specialised chipsets for video and broadband multimedia applications.
The company's c.LINK technology enables networking among high-definition TVs,
digital video recorders and set-top boxes.
Infinera (Sprout IX); a manufacturer of high capacity optical transmission
equipment for the service provider market. Infinera's chips are made from
indium phosphide, a specialised compound semiconductor material that offers
faster performance than standard silicon.
Neutral Tandem (NEA 10); provides third-party interconnection services to
competitive carriers via tandem switches, which allow wireline, wireless and
broadband phone providers to exchange traffic between networks without direct
connections.
Spreadtrum Communications (DFJ ePlanet); designs and markets baseband
communications chips for the wireless telecom market. Its semiconductors, which
are compatible with a range of international wireless standards, are sold to
manufacturers of cell phones who incorporate them into their products.
Starent Networks (Focus II); makes infrastructure equipment used by wireless
carriers to offer enhanced voice and data services such as video, multimedia
messaging and internet service. Its ST16 Intelligent Mobile Gateway helps
cellular companies as they move from second to third-generation networks.
Virtusa (Focus II); believes that virtually any business can improve its
technology and provides a variety of software development and information
technology services, including software engineering, application development,
training, maintenance, systems design and legacy migration.
Campton Group
As previously reported to Shareholders, Campton advises the Company on its
existing portfolio and intends to develop a fund-of-funds management and
advisory business that may provide services to both the Company and third
parties. The Board has allocated up to $40 million to assist Campton in
developing its business and with part of these funds commitments have been made
to five highly regarded venture capital funds. It is intended to transfer these
investments to a new fund-of-funds vehicle which Campton is currently engaged
in raising. Providing that Campton is successful in its fund raising
activities, PEI will be reimbursed for its contribution to the fund launch
costs as well as the costs of these recently committed "warehoused" funds. The
Company will benefit from this arrangement through the development of Campton's
fund management business in which it will have a significant equity interest.
Market Overview
In 2007, some 235 US venture capital funds raised $34.7 billion. This level of
fundraising compares with $106.6 billion (635 funds) reached in the year 2000
at the height of the dotcom boom. Thereafter, there was a sharp decline to $3.9
billion (179 funds) in 2002, rising steadily each year after that to $28.2
billion (228 funds) in 2005 and $31.7 billion (229 funds) in 2006. In the first
quarter of 2008, 57 venture capital firms raised $6.3 billion compared with 83
funds raising a similar amount in the first quarter of 2007.
Venture capitalists invested $29.4 billion in 3,813 deals in 2007, marking the
highest yearly investment total since 2001 according to the Money Tree Report
from PricewaterhouseCoopers and the National Venture Capital Association, based
on data from Thomson Financial. The total invested in 2007 represents a 10.8%
increase in dollars and a 5% increase in deal volume over 2006. Much of the
increase in investments over the prior year can be attributed to record
investment levels in the Clean Technology and Life Sciences sectors as well as
strong investment levels in internet-specific companies. Investments into later
stage companies increased substantially with $12.2 billion invested in 1,168
later stage deals during the year, compared to $9.8 billion in 1,006 deals in
2006. In the first quarter of 2008, $7.1 billion was invested in 922 deals,
down from the fourth quarter of 2007 when $7.8 billion was invested in 1,045
deals. Despite this decline, the first quarter was the fifth highest investment
quarter since 2001.
In 2007 there were 86 venture-backed Initial Public Offerings ("IPOs"), raising
$10.3 billion, compared with 57 IPOs raising $5.1 billion in the previous year.
The venture-backed merger and acquisition market saw 56 deals completed in the
first quarter of 2008 with a disclosed deal size of $2.5 billion, compared with
82 deals in the first quarter of 2007 with a disclosed deal size of $4.5
billion.
Outlook
In common with many other investment trusts, the difference between the Group's
NAV and share price (the "discount") has widened and at 31 March 2008 stood at
20.03% compared with 3.55% a year earlier. The Directors consider that the
increased discount does not appropriately reflect the performance and prospects
of the Group, which remain strong.
It is clear that the sub-prime debacle and subsequent credit crunch, and the
rising price of oil are having an adverse impact on the US and other economies
and that financial markets are currently volatile and nervous. There are,
however, companies in the various Funds that continue to make solid progress
and, although timing is always difficult to predict, a number of these should
be M&A candidates in the reasonably near term or IPO candidates when the market
returns. We have been pleased by the continuing level of distributions during
the past year and expect to see further distributions in the current year
albeit, perhaps at a lower level. We also expect, during the current year, to
make a further return of capital to shareholders.
On 29 May 2008 shareholders approved the application to the Courts to cancel
the share premium account. If approved this will enable the Company to make
further returns of capital to shareholders.
New Articles of Association
We are asking shareholders to approve a number of amendments to our articles of
association primarily to reflect the provisions of the Companies Act 2006. An
explanation of the main changes between the proposed and the existing articles
of association is set out in the appendix of the full annual report.
The Directors consider that all the resolutions to be put to the meeting are in
the best interests of the Company and its shareholders as a whole. Your Board
will be voting in favour of them and unanimously recommends that you do so as
well.
Peter Dicks
Chairman
31 July 2008
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 65. 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 Ofex
Fund PLC, Foresight 2 VCT PLC, Foresight 3 VCT PLC, Foresight 4 VCT PLC,
Waterline Group Plc, Sporting Bet Plc and Unicorn AIM VCT and a director of
Polar Capital Technology Trust PLC, Graphite Enterprise Trust Plc, Mears Group
Plc and Standard MicroSystems Corporation (a US Nasdaq listed company),
Gartmore Fledgling Trust PLC, SVM UK Emerging Fund PLC and a number of other
companies.
Colin Kingsnorth(appointed 22 October 2004), (Non-Executive Director) is aged
44. He has, since October 1999, been director and fund manager of Laxey
Partners Limited and is a non-executive director of the Laxey Investment Trust
PLC. 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
53. 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 flotations 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 GoshawK Insurance Holdings Plc and a director of
Raven Mount Plc, Dunedin Income Growth Investment Trust PLC and Augean 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 61.
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 chairman of the UK Atomic Energy Authority and deputy
chairman of Friends Provident Plc and a non-executive director of Quintain
Estates and Development Plc, Portmeirion Group Plc, Hardy Underwriting Group
Plc, Nationwide Accident Repair Services Plc, Robert Walters Group Plc and
Planet Group Inc.
David Quysner CBE (appointed 22 October 2004), (Non-Executive Director) is aged
61. 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 on behalf the Department
for Business Enterprise and Regulatory reform. 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 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 2008.
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. The Directors do not envisage any change to this activity in the future.
A review of the Company's activities is given in the Chairman's Statement above
and in the Review of Investments contained in the full Annual Report.
Results and dividends
The results for the year are set out in the Consolidated Income statement
below. During the year the Company received increased income from the surplus
un-drawn cash that had been invested in open-ended investment companies. To
meet the requirements of Section 842 of the Income and Corporation taxes Act
1988 the Company may not retain more than 15% of its income from shares and
securities. The Directors are therefore recommending the payment of a final
dividend of 1.1p per Ordinary share, payable on 2 October 2008, to shareholders
on the register on 8 August 2008.
Status
The Group comprises of Private Equity Investor Plc ("the Company") and Campton
Group Inc. a company registered in the United States providing private equity
investment products and services. Campton acts as investment adviser 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 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 for the accounting year ended 31 March 2007. 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
Investment objective
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 their 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 2008 was 180.70p (2007:
173.14p)
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.
Investment trust status
The Directors seek to meet the requirements of Section 842 of the Income and
Corporation Taxes Act 1988 which has been achieved in each year from launch up
to 31 March 2007. The Directors are of the opinion that the requirements will
continue to be met in full for the year ended 31 March 2008.
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 its 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 above.
Total expense ratio
The Directors maintain an objective to run the Company efficiently and monitor
its operational expenses on an ongoing basis.
Discount
The Directors regularly monitor the level of discount at which the Group's
shares are trading. On 31 March 2008 the Group's share price stood at a
discount of 20.03% to net asset value, compared to 3.55% twelve months earlier.
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 risks is set out in note 18.
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 12 show that directly held publicly quoted investments
amounted to 0.7% of the Company's net assets as at 31 March 2008.
Company and fund performance risk
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 450 underlying companies.
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 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 2008 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
As previously reported to shareholders, Campton advises the Company on its
existing portfolio and intends to develop a fund-of-funds management and
advisory business that may provide services to both the Company and third
parties. The Board has allocated up to $40 million to assist Campton in
developing its business and with part of these funds commitments have been made
to five highly regarded venture capital funds. It is intended to transfer these
to a new fund-of-funds vehicle which Campton is currently engaged in raising.
Providing that Campton is successful in its fund raising activities, PEI will
be reimbursed for its contribution to the fund launch costs as well as the
costs of these recently committed "warehoused" funds. The Company will benefit
from this arrangement through the development of Campton's fund management
business in which it will have a significant equity interest.
Buyback of shares
The Company tendered for and repurchased 7,276,592 shares on 13 December 2007.
On 29 May 2008 shareholders approved the application to the Courts to cancel
the share premium account. If approved this will enable the Company to make
further returns of capital to shareholders.
At the year-end and date of this report the Company had issued share capital of
42,723,408 Ordinary shares of 0.01p each carrying one vote.
The Campton Group, Inc.
The Company has financed the formation of the Campton Group, Inc.
(www.camptongroup.com) with a view to developing a private equity fund-of-funds
management and advisory business. Campton is based in San Francisco,
California, which together with Silicon Valley forms the hub of venture capital
activity in the United States. Personal relationships are an important aspect
of the venture capital industry and Campton's location in San Francisco
provides a strategic advantage in maintaining and developing these
relationships. The Company has financed Campton to date and has conversion
rights, on exercise of which it will have a majority stake in Campton with the
balance being held by Campton's management team.
Environmental and 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.
Financial instruments
The policy and practice of the Company with regard to financial instruments is
set out in note 18 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 0.35%
(0.7% annually) 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 twelve months' notice.
Substantial share interests
At 31 July 2008 the holdings representing 3% or more of the total voting
rights, notified to the Company, were:
Shares %
Fund under discretionary management of Laxey 11,711,304 27.41
Partners Limited
Deutsche Bank AG Tilney Group Limited 7,645,245 17.89
QVT Fund LP 5,012,444 11.73
Aviva Plc and its subsidiaries 1,652,641 3.87
The Carrousel Fund 1,450,000 3.39
Advance UK Trust Plc 1,350,000 3.16
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 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, 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.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 March 2008
Year ended 31 March 2008 Year ended 31 March 2007
restated restated restated
* * *
Revenue Capital Total Revenue Capital Total
return return return return
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments 9 - 3,388 3,388 - 1,225 1,225
at fair value through
profit and loss
Exchange losses on 9 - (32) (32) - (617) (617)
other items
- 3,356 3,356 - 608 608
Operating income
Investment income 1,341 - 1,341 1,098 - 1,098
Other operating income 167 - 167 204 - 204
Total operating income 2 1,508 - 1,508 1,302 - 1,302
Operating expenses
Administrative 3 (947) - (947) (736) - (736)
expenses
Total expenses (947) - (947) (736) - (736)
Operating profit 561 3,356 3,917 566 608 1,174
Profit before tax 561 3,356 3,917 566 608 1,174
Tax 5 - - - - - -
Profit for the period 561 3,356 3,917 566 608 1,174
Attributable to:
Equity holders of the 561 3,356 3,917 566 608 1,174
parent
Minority interest - - - - - -
Earning per share
From continuing
activities
Basic 8 1.17p 7.02p 8.19p 1.13p 1.22p 2.35p
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.
* These values have been adjusted for the adoption of IFRS from those presented
in the statutory accounts for the year ended 31 March 2007. An explanation of
the prior year adjustment is shown in the notes to the accounts.
The notes below form part of these accounts.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2008
Share Share Capital Capital Currency Retained Total
capital premium redemption reserve translation earnings
account reserve reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
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)
costs
As at 31 March 4 96,862 1 (20,117) 9 441 77,200
2008
Year ended 31
March 2007
As at 1 April 5 96,862 - (11,340) - (136) 85,391
2006
Profit for the - - - 608 4 566 1,178
year
As at 31 March 5 96,862 - (10,732) 4 430 86,569
2007
The notes below form part of these accounts.
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2008
Share Share Capital Capital Retained Total
capital premium redemption reserve earnings
account reserve
£'000 £'000 £'000 £'000 £'000 £'000
Year ended 31 March
2008
As at 1 April 2007 5 96,862 - (10,732) 573 86,708
Profit for the year - - - 3,356 563 3,919
Dividends paid - - - - (550) (550)
Tender offer costs (1) - 1 (12,741) - (12,741)
As at 31 March 2008 4 96,862 1 (20,117) 586 77,336
Year ended 31 March
2007
As at 1 April 2006 5 96,862 - (11,340) (136) 85,391
Profit for the year - - - 608 709 1,317
As at 31 March 2007 5 96,862 - (10,732) 573 86,708
The notes below form part of these accounts.
CONSOLIDATED BALANCE SHEET
as at 31 March 2008
31 March 31 March
2008 2007
Notes £'000 £'000
Non-current assets
Investments at fair value through profit 9 72,466 85,108
or loss
Property, plant and equipment 4 5
Current assets
Trade and other receivables 11 279 862
Cash and cash equivalents 15 4,611 765
4,890 1,627
Total assets 77,360 86,740
Current liabilities
Trade and other payables 12 160 171
Net assets 77,200 86,569
Capital and reserves
Share capital 13 4 5
Share premium account 14 96,862 96,862
Capital redemption reserve 14 1 -
Capital reserve 14 (20,117) (10,732)
Currency translation reserve 14 9 4
Retained earnings 14 441 430
Shareholders funds 77,200 86,569
Minority Interest - -
Total equity 77,200 86,569
Net asset value per ordinary share 16 180.70p 173.14p
The Group's financial statements were approved by the Board of Directors and
were authorised for issue on 31 July 2008 and were signed on its behalf by:
Peter dicks
Chairman
The notes below form part of these accounts.
COMPANY BALANCE SHEET
as at 31 March 2008
31 March 31 March
2008 2007
Notes £'000 £'000
Non-current assets
Investments at fair value through profit 9 72,466 85,108
or loss
Investment in subsidiary undertaking 10 226 178
Current assets
Trade and other receivables 11 236 856
Amount due from Subsidiary 11 15 -
Cash and cash equivalents 15 4,527 723
4,778 1,579
Total assets 77,470 86,865
Current liabilities
Trade and other payables 12 134 157
Net assets 77,336 86,708
Capital and reserves
Share capital 13 4 5
Share premium account 14 96,862 96,862
Capital redemption reserve 14 1 -
Capital reserve 14 (20,117) (10,732)
Retained earnings 14 586 573
Total equity 77,336 86,708
Net asset value per ordinary share 16 181.02p 173.42p
The Company's financial statements were approved by the Board of Directors and
were authorised for issue on 31 July 2008 and were signed on its behalf by:
Peter Dicks
Chairman
The notes below form part of these accounts.
CONSOLIDATED 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
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