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Chairman’s StatementI am pleased to present the results for Private Equity Investor PLC (“PEI” or “the Company”) for the year ended 31 March 2006. ResultsThe Company’s year-end net asset value was 170.78p (296.23c) per share compared with 115.33p (217.92c) a year earlier, an increase of 48.1% in sterling terms. This increase was principally due to the performance of investments made by DFJ ePlanet in Baidu, Skype and Focus Media as well as an increase in the value of investments held by other Limited Partnerships in which the Company has invested. Over the same period the NASDAQ composite index rose by 16.9% (from 2001.57 to 2339.79). During the year under review the Company saw a significant increase in the value of distributions, which amounted to $31.4 million. Of this sum, $13.8 million was received as a result of the sale of Skype, a DFJ ePlanet holding, to eBay. Following the Initial Public Offering of Baidu, also a DFJ ePlanet holding, PEI received a stock distribution in March 2006 which it subsequently sold, realising $4.9 million. The acquisition of Wily Technologies, a Focus Ventures II holding, by Computer Associates resulted in a cash distribution to PEI of $1.6 million. The sale by DFJ ePlanet of 50% of its holding in Focus Media resulted in a further distribution of $1.4 million to PEI. Subsequent to year end, the remaining shares held in Focus Media (DFJ ePlanet) were distributed to the Company and have been sold, realising proceeds of $1.6 million. These four distributions totalled $21.7 million out of the year’s total of $31.4 million with the balance of $9.7 million being received from a number of smaller realisations during the year. In the case of the Skype sale, a small number of shares remain in escrow for a period of up to three years and subject to certain targets. The Baidu distribution represented 35% of the total amount held by DFJ ePlanet with the balance of the shares becoming unblocked in three separate amounts every 180 days from 1 February 2006. Both these remaining holdings are reflected in the current valuation of DFJ ePlanet. As reported previously, the Company’s sale of its holdings in NEA 11, TCV V and Oak XI raised a total of $6.48 million and reduced the Company’s commitment to future drawdowns by $9.0 million. The sale of the holding in the FRM Absolute Alpha Diversified US Dollar Hedge Fund raised a further $17.54 million. As a result of these distributions and sales, the Company’s year-end cash and readily realisable assets totalled $43.8 million, compared with outstanding commitments of $23.8 million and the Company’s year-end realisable assets exceeded its commitments by $20.0 million. During the year the Company’s share price increased from £1.04 to £1.65, or 58.4%, and the discount to NAV at which the Company’s shares trade narrowed from 9.8% to 3.5%. Over the period, the Company benefited from a favourable movement in the dollar/sterling exchange rate from $1.89 to $1.73. I am pleased to report that the Company’s administrative expenses showed a significant decrease to £555,000, being just over 50% lower than the previous year’s figure of £1,155,000. Market overviewUS private equity fundraising maintained its strong momentum with venture capital groups raising $26.1 billion in 2005 compared with $17.9 billion in 2004 and $10.7 billion in 2003. In the twelve months to 31 March 2006 there were 56 venture backed Initial Public Offerings (IPOs), raising $4.3 billion, compared with 90 IPOs raising $9.0 billion in the previous year. Only ten venture-backed companies undertook IPOs in the first quarter of 2006, raising $540.8 million. Whilst the first quarter is typically the lowest of the year for IPOs, the first quarter’s average offer amount of $54.1 million is the lowest average since the third quarter of 2002. The M&A market for venture backed companies continued to perform strongly with 95 companies being acquired during the first quarter of 2006 with a disclosed value of $4.8 billion, the highest disclosed value in five years. Portfolio reviewAs at 31 March 2006, the Company’s partnerships held investments in 459 private and 62 public companies, representing 70.4% of the Company’s net asset value (2005: 77.5%). Of the 19 partnerships that make up the portfolio, 14 reported a gain in value over the period. There were 82 new investments (2005: 172), and 247 follow-on investments (2005: 226) which resulted in draw downs by investee funds totalling $18.4 million (2005: $23.6 million). A total of 62 investments were written off (2005: 56), 83 were written down (2005: 117) and 116 portfolio companies were written up (2005: 87). Distributions of $31.4 million were received during the period compared with $5.7 million for 2005 and $8.7 million for 2004. Cash distributions accounted for $20.3 million compared with $4.3 million for 2005 and $2.9 million for 2004. The balance was in the form of stock distributions amounting to $11.1 million compared with $1.4 million for 2005 and $5.8 million for 2004. It is not the Company’s policy to retain stock distributions but to realise them promptly. Accordingly, all the stock distributions received by the Company in the year were sold at or very close to the distribution price. The twelve months under review saw the IPOs of seven (2005: nine) investee companies. These were:
OutlookI believe that 2006 will be seen as the year in which PEI turned the corner. We expect that the Company’s portfolio will continue to deliver a steady flow of distributions as the remaining companies in its portfolio of partnerships mature. As anticipated last year there has been a trend for smaller companies to be bought rather than to undertake IPOs. Given the lacklustre IPO market and burdensome requirements of the Sarbanes Oxley regulations we expect that this trend will continue. This should strengthen the Company’s cash position as many of these acquisitions are made for cash. The improvement in the Company’s cash position means the Board is now able to consider options for the Company’s future. Once we have completed this process I will be in touch with shareholders to review our conclusions. Peter Dicks The Company’s Top 25 Underlying Investments
INCOME STATEMENTfor the year ended 31 March 2006
The total column of this statement is the profit and loss 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. For details of the changes to the accounting standards and policies adopted please refer below. No statement of total recognised gains and losses is shown separately, since all such gains are included within the income statement above. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDSfor the year ended 31 March 2006
BALANCE SHEETas at 31 March 2006
SUMMARISED STATEMENT OF CASH FLOWSfor the year ended 31 March 2006
Change in accounting policyThe accounts have been prepared using new UK accounting standards which have been issued as part of the process of converging UK standards with International Financial Reporting Standards. With effect from 1 April 2005 the Company has adopted the following new Financial Reporting Standards and considered the impact on the comparative figures, if applicable:
All investments held by the Company are designated as ‘fair value through profit or loss’. All investments other than the Venture Capital Funds are listed. For such investments traded in active 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. Previously all listed investments were valued using closing mid market prices at the balance sheet date. The Venture Capital Funds are valued at Directors’ valuation with reference to IPEVC guidelines. The Directors consider these valuations represent the fair value of such funds. There is no financial effect on the comparative figures calculated as a result of adopting these new accounting standards. Accordingly, the comparative figures have not been restated. The financial information set out above does not constitute the Company’s statutory accounts for the years ended 31 March 2005 or 2006, and has been based on the accounting policies used in the statutory accounts for the year ended 31 March 2005, except as noted above. Statutory accounts for 2005 have been delivered to the Registrar of Companies, whereas those for 2006 will be delivered following the Company’s Annual General Meeting. The auditors have reported on the 2005 accounts; their report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. 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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