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Chairman’s StatementI am pleased to announce preliminary results for Private Equity Investor PLC (“PEI” or “the Company”) for the year ended 31 March 2005. ResultsThe Company’s year-end net asset value was 115.33p (217.92c) per share compared with 127.94p (235.13c) a year earlier, a decline of 9.9% in sterling terms. As I reported in December’s interim statement, much of this was due to the costs associated with changes to the capital structure approved at the EGM in October, totalling approximately £1.6 million, together with a fall in the value of quoted shares held by one of the underlying partnerships, TCV IV. The performance of the balance of the portfolio was generally satisfactory. During the year the discount to NAV at which the Company’s shares trade narrowed from 22.4% to 9.8%. Partly reflecting this, the Company’s share price improved from 99.25p to 104.00p. Over the period, the dollar/sterling exchange rate moved from $1.84 to $1.89. Distributions received during the year fell to $5.73 million (2004: $8.69 million A further $1.5m of distributions has been received in the first quarter to 30 June 2005 and additionally approximately $950k is due to be received by the end of July 2005. At the year-end the Company had outstanding capital call commitments to its underlying funds of $51.2 million compared with cash and liquid resources of $24.9 million. This “over-commitment” is to be funded from realisations, the timing and quantum of which is difficult to predict. Since the year-end, in order to manage the Company’s cash flow and to minimise the possibility of any shortfall between future distributions and drawdown commitments, two holdings purchased in 2003 and 2004, New Enterprise Associates 11 and TCV V have been sold, both at a premium to the original commitment of $5 million each. In addition, terms have been agreed for the sale of another 2004 fund, Oak XI. In total, through these sales the Company will have reduced its initial commitments by $15 million (of which $9.5 million remains to be drawn down) and, in addition, received a premium of $500,000. As a result, the Company’s investments will all be of year 2000 vintage. Drawdowns to several of these funds are now effectively complete and, in the case of the remainder, coming to a close as they conclude their investment programmes. In October 2004, shareholders approved the purchase and cancellation of the Company’s outstanding convertible unsecured loan notes. These were held by Chamelle Limited, a company owned by the founding directors of Private Equity Investor or trusts connected with them. The loan notes had a conversion right, subject to certain performance conditions, into new ordinary shares of the Company and were also entitled to compensation in the event of a takeover of the Company and its subsequent winding up. In order to remove the potential impact of the loan notes, negotiations were entered into which resulted in them being purchased by the Company (for subsequent cancellation) for a premium of £1,295,000. I am pleased to report that the anticipated savings in the operating costs of the Company following the capital restructuring and Board changes in October are being achieved. Market OverviewNew capital raised for US private equity investment continued the upward trend that has been evident since 2002. For 2004, funds raised by venture capital groups totalled $17.32 billion compared with $10.61 billion in 2003. In the twelve months to 31 March 2005 there were 90 venture backed IPOs, raising $9.0 billion, compared with 41 raising $4.7 billion in the previous year. Over half of the 63 companies that went public during the period are currently trading above their offering price. However, venture-backed companies are increasingly looking to the M&A market in preference to a public offering. The cost of implementing the requirements of Sarbanes-Oxley regulations are considerable, particularly for smaller companies, and in addition Boards generally, and more specifically executive directors, face greater scrutiny and exposure from compliance. As a result we may expect to see increasing numbers of realisations as the result of a merger or outright sale. In keeping with this, disclosed valuations for venture-backed mergers and acquisitions in the first quarter of 2005 showed the highest average deal size since 2001. Portfolio ReviewAs at 31 March 2005, the Company’s partnerships held investments in 516 private and 48 public companies, representing 77.6% of the Company’s Net Asset Value (2004: 60.7%). Of these 21 partnerships 6 reported a gain in value over the period. There were 172 new investments (2004: 124), and 226 follow-on investments (2004: 225) which resulted in draw downs by investee funds totalling $23.6 million (2004: $24.2 million). 56 investments were written off (2004: 47), 117 were written down (2004: 115) and 87 portfolio companies were written up (2004: 110). One small commitment of $400,000 was made to Zone Ventures II, a fully invested fund, in the form of a new “Annex” fund. These vehicles are used to raise additional funds in cases where an existing fund is fully invested but has a number of attractive portfolio companies needing further finance. The “Annex” fund will enable Zone to participate in funding rounds for these companies’, enabling Zone to maintain its equity position. The Annex fund involves no management fee and no profit share (“carry”) until both it and Zone Ventures II have been fully repaid. At the period end, commitments to venture funds which had not yet been drawn down totalled $51.2 million. Following the sale of NEA 11 and TCV V, the agreement to sell Oak XI, and after drawdowns in the current year, this figure now stands at $31.7 million. Currently the Company has total cash and liquid resources of approximately $25.7 million. The Company received cash and stock distributions during the period totalling $5.73 million compared with $8.69 million for 2004 and $1.46 million for 2003. Cash distributions totalled $4.31 million compared with $2.90 million for 2004 and less than $119,000 for 2003. The balance was in the form of stock distributions totalling $1.42 million compared with $5.78 million for 2004 and $1.34 million for 2003. Since the year-end, the Company has received or is due to receive a further $2.5 million, of which approximately 65% will be in cash. The twelve months under review saw the IPOs of nine (2004:four) investee companies: Inhibitex, SalesForce.com, Matabasis Therapeutics, Auxilium Pharmaceuticals, Khong Zhong, Mortgage IT, VNUS, Aspreva Pharmaceuticals and InPhonic. In most cases, these investments are still held by the underlying partnerships. In all cases, where it has received distributions of stock, PEI has sold its holding at or very close to the distribution price. It is not the Company’s policy to retain any stock distributions but to promptly realise them. Bond Portfolio and Hedge Fund InvestmentIn March 2005, the Company’s holdings in dollar denominated bonds were sold, realising $5.5 million, which is now held in interest bearing securities. Other funds awaiting draw down during the period were invested in notes issued by Deutsche Bank linked to a hedge fund of funds managed by FRM, and in cash. At 31 March 2005 the aggregate of these investments was $23.6 million compared with $43.4 million at 31 March 2004. The Company’s investment in the FRM Absolute Alpha Diversified US Dollar Fund (via the Deutsche Bank notes) will be redeemed, in due course, to meet future commitments, the timing of its redemption depending on the drawdown rate compared with the level of distributions. There is a penalty charge on early redemption of, originally, 10% declining in equal monthly amounts over three years. OutlookFive years have elapsed since the Company’s flotation in February 2000. Within a month of that date the US market, as measured by the NASDAQ index, began the sharp retreat from its high point. The Company’s underlying funds initially pursued an active investment policy but then slowed or suspended their investment programmes as the sharpness of the market decline became more apparent. Inevitably, there were losses and write-downs arising from investments in this period. However, the last two or three years have been more favourable and the funds have been investing in companies at much more attractive valuations. Although the peak of the dotcom boom can be seen as an inauspicious time for the Company to have started life, we believe that the Company’s portfolio has now stabilised and that the funds contain investments in growth enterprises including more recent investments made at what appear to be realistic and attractive prices. The timing and amount of distributions remains difficult to predict but undrawn commitments are continuing to fall and should soon come to an end. As a consequence, the Company should be approaching a period when it will begin to generate surplus cash. As the liquidity position becomes clearer, it will be appropriate to consider the direction that the Company should take and we will review the available options with shareholders and obtain their views as to the way forward. The Company’s Top 25 Underlying Investments
Peter Dicks Statement of Total Return(incorporating the Revenue Account*)
*The revenue column of this statement is the revenue account of the Company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. Balance Sheet
Summarised Statement of Cash Flows
The above financial information does not constitute statutory financial statements as defined in Section 240 of the Companies Act 1985. The comparative financial information is based on the statutory financial statements for the year ended 31 March 2004. Those financial statements, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. Statutory financial statements for the year ended 31 March 2005 will be delivered to the Registrar of Companies in due course. These results have been prepared on the same basis as set out in the previous year’s annual accounts. Copies of the Annual Report will be sent to Members in August and will be available to members of the public from the Registered Office at 23 Cathedral Yard, Exeter, EX1 1HB. Peter Dicks Notes to editors The Company seeks to achieve substantial capital appreciation by investing in emerging growth companies through specialised US venture capital funds focused on the information technology, biotechnology and healthcare sectors. Return to Press Release Index
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