PRIVATE EQUITY INVESTOR PLC
PRIVATE EQUITY INVESTOR PLC
ANNUAL FINANCIAL REPORT
FOR THE YEAR ENDED 31 MARCH 2015
INVESTMENT OBJECTIVE AND POLICY
Investment Objective
The objective of the Company has been to provide shareholders with long-term
capital growth. The Company is not making investments in new private equity
funds but is managing its existing investments with a view to making periodic
returns of capital to shareholders.
Investment Policy
Risk Diversification
The Company has invested in and maintains a broad portfolio of US-based venture
capital and buyout funds (the "Funds"), managed by a number of different
management groups, and focused on various stages of growth so as to obtain
exposure to a diversified underlying portfolio of investments primarily in
private companies in the technology sector. Through the Funds, the Company has
exposure to a diverse portfolio of underlying companies.
No New Fund Investments
It is the policy of the Company not to make new fund investments. However, the
Company will continue to meet existing capital commitments to the Funds and may
on occasion support follow-on commitments in existing Funds or affiliated annex
funds.
No Overcommitment; Ring-fenced Accounts
Overcommitment is the practice of making commitments to funds which exceed the
cash available for investment. The Company has a policy not to be
overcommitted. All amounts required to fund existing capital commitments to the
Funds are held in ring-fenced accounts.
Distributions Received From the Funds
The managers of the Funds invest principally in unlisted technology companies
based in the US. After the flotation or sale of their investments, the Funds
may distribute cash or securities to the Company. As a result, the Company may
from time to time hold listed securities. It is the policy of the Company to
sell listed securities received as distributions from the Funds within a short
period of time unless the stock price has decreased meaningfully, in which case
the Company may hold these securities for a longer period of time until
favourable selling conditions exist. The listed securities received as
distributions from the Funds typically do not represent a significant part of
the Company's overall investments.
Liquidity
The Company may hold substantial cash balances due to existing capital
commitments to the Funds, due to the receipt of cash distributions from the
Funds, or due to cash realised upon the sale of listed securities received from
the Funds as distributions. These cash balances are principally in open-ended
investment funds pending capital call requests from the Funds used for
corporate purposes or for distribution to shareholders.
Return of Capital to Shareholders
The Company proposes to make periodic returns of capital to shareholders from
the proceeds of distributions received from the Funds. As the timing and amount
of distributions from the Funds fluctuates and is not known, the Company cannot
predict when a return of capital to shareholders may be made, or the amount.
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.
Derivatives
The Company does not make use of financial derivatives and does not hedge
against currency fluctuations.
Dividends
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.
SUMMARY OF RESULTS AND FINANCIAL HIGHLIGHTS
31 March 2015 31 March 2014 % change
Group Group
Net assets and shareholders' funds £35,339,000* £42,699,000 (17.2)
Net assets per Ordinary Share 238.7p 228.4p 4.5
Net assets and shareholders' funds in $52,461,000* $71,186,000 (26.3)
US$
Net assets per Ordinary Share in US$ 354.4c 380.8c (6.9)
Mid-market price per Ordinary Share 194.5p 182.5p 6.6
Discount to NAV 18.5% 20.1%
Net revenue loss after taxation £(532,000) £(781,000)
Net total return/(loss) £1,188,000 £(367,000)
Total return/(loss) per Ordinary Share 7.7p (1.9)p
Exchange rate at year end (US$/£) 1.48450 1.66715 11.0
Number of Ordinary Shares in issue 14,805,508 18,694,757
Ongoing charges (Company only)** 1.4% 1.7%
Ongoing charges (Group)** 1.6% 2.0%
Cumulative cash returned to
shareholders through tender offers*** £70,150,000 £61,650,000
* Following the tender offer completed in May 2014 when £8.5 million was
returned to Shareholders.
** Ongoing charges at both the Company and Group level are included. The
Company's ongoing charges are calculated excluding subsidiary expenses. Group
ongoing charges include subsidiary expenses.
*** A tender offer for £6.7 million took place after the year end on 22 April
2015. This brings the cumulative cash returned to shareholders through tender
offers to £76,850,000.
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 2015.
Results
The Company's Net Asset Value ("NAV") per share at 31 March 2015 was 238.7p,
compared with 228.4p a year earlier, an increase of 4.5%. The NAV per share in
dollars decreased by 6.9% from 380.8c per share to 354.4c per share, reflecting
a decrease in the valuation of the Company's fund investments (individually a
"Fund" and collectively the "Funds"). However, the fall in Dollar value of the
portfolio was more than offset by the strengthening of the Dollar against
Sterling from $1.67 to $1.48.
The Company's share price increased by 6.6% during the year, from 182.5p to
194.5p. The discount at 31 March 2015 was 18.5%, compared with 20.1% a year
earlier.
No dividend is proposed for the period (2014: nil).
Tender Offers
During the year, on 29th May 2014, the Company completed a tender offer to
shareholders of £8.5 million, with 3,889,249 shares being purchased for
cancellation at a price of 218.5455p per share. After the year end, on 22 April
2015, the Company completed a further tender offer to shareholders of £6.7
million, with 2,859,989 shares being purchased for cancellation at a price of
234.2590p per share.
The Company has now made seven Tender Offers since December 2007, returning a
total of £76.85 million to shareholders. Following the latest tender offer,
there are now 11,945,519 shares in issue. The Company will continue its policy
of returning capital as and when cash resources reach an appropriate level. The
Company also retains the right to buy back shares in the market.
Distributions and Calls from Fund Investments
In the twelve months ended 31 March 2015, the Company received cash and stock
distributions from the Funds totalling $11.4 million, compared with $13.5
million in the twelve months ended 31 March 2014 and $14.0 million in the
twelve months ended 31 March 2013. Of the $11.4 million received during the
period, cash distributions amounted to $7.5 million and stock distributions
amounted to $3.9 million. The largest distribution received by the Company was
a distribution of Twitter stock with a value of $1.9 million from Institutional
Venture Partners XII.
During the period, two Funds called capital from the Company in the amount of
$1.1 million (2014: $0.7 million). Ten of the original commitments have been
fully drawn down but an aggregate of $4.2 million (£2.8m) in uncalled
commitments remains outstanding in ten partnerships. These funds are held in
ring-fenced accounts in accordance with an obligation given to the Court during
the conversion of the Company's Share Premium Account.
Portfolio Review
The Company's Investments have all been in limited life funds, with initial
fund terms that ranged from five to thirteen years. After the expiration of the
initial fund terms, funds typically have, or are granted, the right to extend
their terms by two to three years and most funds seek further extensions. After
a fund's initial term and when all extensions have expired, the fund will
typically enter a winding-down period. During this period the fund will seek to
realise its remaining investments and distribute the remaining cash and assets.
Once a fund has been fully liquidated, any uncalled commitment to that fund
will be released and credited to the Company. At 31 March 2015, of PEI's twenty
Funds, five were still in their initial fund terms, nine were in term
extensions and six were in the process of winding-down.
As at 31 March 2015, the Company held investments, through the Funds, in 281
private and 42 public companies. At that date, 25 underlying portfolio
investments (22 private, 3 public), with a value of $16.3 million, accounted
for 48% of the Funds' total value. The twelve months under review saw the
Initial Public Offerings ("IPOs") of six underlying portfolio companies (2014:
seven).
On 9 December 2014, the Company sold its interest in Crescendo IV for net
proceeds (after transaction expenses) of $1.27 million. The Company's capital
account interest in Crescendo IV was valued at $1.48 million as of 30 June
2014. The net proceeds to the Company represented a discount of 13.9% to the
Company's capital account interest in the Fund as of 30 June 2014. This
discount compared favourably to the discount to Net Asset Value at which the
Company's shares were trading at the time of the sale.
On 30 June 2014, APV Technology Partners III ("APV III") was wound-up. The
Company received a final distribution from APV III of $209,747 on 15 May 2014.
The Company has made regular efforts to increase the pace of distributions from
the Funds to the Company. For example, several of the 1999/2000 vintage Funds
continue to have uncalled capital commitments. The Company, through its
investment advisor, has requested certain of these Funds to release the Company
from its uncalled capital commitments. These requests have been denied by the
Funds typically on the basis that the Fund may need to call additional capital
to participate in future portfolio company financings or for Fund expenses. In
cases where a Fund continues to hold shares of technology companies long after
a portfolio company has held its initial public offering, the Company has
encouraged the Funds to distribute these shares to the Fund's limited partners.
The Funds may be reluctant to distribute these public securities on the basis
that the Fund believes that the stock price will appreciate or that the stock
is restricted by the Fund's ownership position. The Company will continue to
encourage Funds to make distributions to limited partners as soon as
practicable.
US Venture Capital Industry Update
The following is an update of US initial public offering ("IPO") and mergers &
acquisition ("M&A") activity of venture capital-backed companies in calendar
2014 and the first quarter of 2015.
Liquidity - Venture-Backed Mergers & Acquisitions
Venture-backed M&A activity in the US picked up substantially in 2014. During
the year, there were 479 M&A deals with a reported aggregate value of $47.6
billion, compared with 393 M&A deals with a reported aggregate value of $16.9
billion in 2013, according to Thomson Reuters and the National Venture Capital
Association ("NVCA")1. This level marks a 22% increase by number of M&A deals
and an impressive 182% increase by reported aggregate value compared to 2013.
Venture-backed M&A activity, however, slowed in the first quarter of 2015.
During the quarter, 86 M&A deals had an aggregate transaction value of $2.1
billion, compared with 115 M&A deals with a reported aggregate value of $7.6
billion in the first quarter of 2014. This represents a 25% decrease by number
of deals and a 73% decrease by reported aggregate value in the first quarter of
2014. This was the slowest quarter by disclosed transaction value since the
first quarter of 2013. The largest venture-backed M&A transaction in the first
quarter of 2015 was the acquisition of Myfitnesspal by Under Armour for $475
million. Myfitnesspal has developed a health and fitness mobile application.
1Thomson Reuters and NVCA press release dated 6 April 2015. Aggregate
transaction value reflects disclosed values only.
Liquidity - Venture Backed IPOs
In 2014, 116 venture-backed companies raised a total of $15.4 billion through
IPOs, compared with 81 venture-backed companies raising $11.1 billion through
IPOs in 2013, according to Thomson Reuters and the National Venture Capital
Association ("NVCA")2. The IPO activity in 2014 represents a 43% increase in
the number of completed IPOs and a 39% increase in amount raised from 2013.
In the first quarter of 2015, there were 17 IPOs of venture-backed companies
raising $1.4 billion, compared with 37 IPOs raising $3.4 billion in the first
quarter of 2014. This represents a 58% decrease by amount raised and a 54%
decrease in numbers of IPOs compared to the first quarter of 2014. The largest
IPO of the first quarter of 2015 was that of Box, Inc. (NYSE: BOX), which
raised $201 million in its IPO. Box, Inc. is a Los Altos, CA-based provider of
cloud platform services.
2 Thomson Reuters and NVCA press release dated 6 April 2015.
Board Changes
David Quysner, who joined the Board in 2004, retired at the 2014 Annual General
Meeting ("AGM"). He was replaced by Julian Cazalet as Chairman of the Audit,
Remuneration, Nomination and Management Engagement Committees.
Ongoing Charges Ratio
The ongoing charges ratio for the Company for the year ended 31 March 2015 was
1.4% (2014: 1.7%). As the Company returns cash to shareholders and the
Company's NAV decreases, the percentage of expenses to net assets is likely to
increase. During the period the Company has worked to reduce the Group's costs,
these efforts have included:
* Key suppliers' fees have been, and continue to be, negotiated down.
* The number of Directors on the PEI Board has been reduced from four to
three and their salaries reduced by 10% from 1 April 2015.
* Not renewing the Company's membership of the AIC in October 2014.
Continuation Vote
Last year the Board amended its Articles of Association in order for
shareholders to consider the continuation of the Company as an investment trust
annually rather than every five years. The Board believes strongly that
continuation of the Company as an investment trust is in the best interests of
shareholders. The alternative to a continuation of the Company would be to seek
an immediate sale of the assets or to appoint a liquidator to realise the
assets over time. The Board has considered and continues to explore ways to
realise the Fund investments through "secondary sales" but the discounts to NAV
at which such proposals have so far been priced, other than that achieved
through the sale of Crescendo IV, have been unattractive. The appointment of a
liquidator would place the assets at the disposal of someone without deep
knowledge, of or experience with, the assets and might result in selling Funds
at a substantial discount to NAV and in the loss of quotation of the Company's
shares.
The Board believes that an annual continuation vote is in the best interests of
shareholders, but notes that several Funds are still in their initial terms,
which expire from 2016 to 2018. It is probable that it will take some time
after the expiration of these initial terms for these Funds to be fully wound
down. As a result, the Board believes that an orderly winding down of the
Company could take some time but will pursue all attractive opportunities to
accelerate this process while maximising shareholder value.
Outlook
The Funds and their underlying investments continue to mature. The 1999/2000
vintage Funds are mostly in extension or in a wind-down phase, whilst the
2004-2007 vintage Funds have mainly completed the investment stage and have
entered the realisation phase of their initial fund term.
As the Company's Fund portfolio matures, the Funds themselves may experience a
reduction in net asset values, but will continue to have ongoing expenses,
including in many cases management fees. As these Funds age, particularly the
Funds of the 1999/2000 vintage, the proportion of expenses to net asset value
is likely to increase. This could have a negative impact on the performance of
the Funds, which in turn could have a negative impact on the Company's
performance.
The Company believes that the Funds of the 1999/2000 vintage portfolios are
generally seeking ways to obtain liquidity for their underlying investments.
There are, however, a number of underlying portfolio companies that may have
diminished prospects going forward. If the Funds are forced or decide to sell
these under-performing companies, they may receive a consideration that is less
than their carrying value. As a result, some Funds may elect to continue to
support some of these companies for a period of time rather than liquidate
their investments at a reduced price. Some of the 1999/2000 vintage Funds may
seek additional term extensions.
The timing of realisations by the Funds will continue to depend on factors that
include underlying portfolio company performance, the IPO and M&A environment
as well as on more general market and economic conditions, while the timing of
distributions to the Company will depend on the practices and policies of
individual Funds. Given the age profile of the portfolio, we expect that the
overall pace of realisations, and hence distributions received by the Company,
will slow, but it remains our policy to seek to make periodic returns of
capital to shareholders in a cost-effective way.
PETER DICKS
Chairman
29 July 2015
PORTFOLIO OF FUNDS
Investment portfolio as at 31 March 2015
% of % of
Total Fair* Fair* net net
commitment value value assets assets
US$'000 US$'000 £'000 2014 2013
Unquoted Funds
Dawntreader Fund II 30,000 1,934 1,303 3.7 3.9
Draper Fisher Jurvetson 30,000 6,043 4,071 11.5 12.5
ePlanet Ventures
Draper Fisher Jurvetson Fund 2,000 688 464 1.3 1.2
VI
Draper Fisher Jurvetson Fund 5,000 2,827 1,904 5.4 5.3
VII
Draper Fisher Jurvetson 3,300 873 588 1.7 1.1
Gotham Venture Fund
Focus Ventures II 30,000 1,175 791 2.2 2.7
Francisco Partners II 5,000 2,562 1,725 4.9 4.8
Institutional Venture 5,000 2,666 1,796 5.1 9.6
Partners XII
New Enterprise Associates 9 5,000 743 501 1.4 1.2
New Enterprise Associates 10 10,000 3,229 2,175 6.1 4.5
New Enterprise Associates 12 3,000 1,988 1,339 3.8 3.4
Oak Investment Partners X 10,000 3,309 2,229 6.3 5.6
Sprout Capital IX 3,750 102 69 0.2 0.3
TCV IV 25,000 96 65 0.2 0.5
Vanguard VII 3,000 564 380 1.1 0.9
VantagePoint Venture Partners 5,000 2,281 1,536 4.3 3.6
2006
VantagePoint Venture Partners 10,000 1,838 1,238 3.5 4.4
IV
Vector Capital IV 4,000 3,515 2,368 6.7 3.4
Zone Venture Fund II 10,000 616 415 1.2 0.7
Zone Venture Fund II Annex 400 45 30 0.1 0.1
Total Unquoted Funds 199,450 37,094 24,987 70.7 69.7
Open-ended Investment Funds
USD - 2,000 1,347 3.8 3.4
BlackRock ICS Institutional
USD Liquidity Fund
JP Morgan USD Liquidity - 2,100 1,415 4.0 3.7
Premier Distribution Fund
RBS Global Treasury Funds Plc - 100 67 0.2 0.6
USD Money Fund Distributing
GBP
RBS Global Treasury Funds Plc - 150 101 0.3 13.9
GBP Money Fund Distributing
Total Open-ended Investment - 4,350 2,930 8.3 21.6
Funds
Other Investments held
directly by the Company
Common Stock
Marketo Inc - - - - 0.3
Total Other Investments - - - - 0.3
Total Investments 199,450 41,444 27,917 79.0 91.6
Net current assets 11,018 7,422 21.0 5.9
Net assets 52,462 35,339 100.0 97.5**
* Of remaining investment.
**During the year APV Technology Partners III was liquidated and the Company
sold its interest in Crescendo IV.
Portfolio Funds - by Fair Value as at 31 March 2015
Fair % of Fund
Fund Sectors Stages value Portfolio
US$'000
Draper Fisher Jurvetson Tech Early, 6,043 16.3
ePlanet Ventures Growth
Vector Capital IV Tech Buyout 3,515 9.5
Oak Investment Partners X Tech, Early, 3,309 8.9
Life Growth
Science,
Consumer
New Enterprise Associates 10 Tech, Early, 3,229 8.7
Life Growth
Science
Draper Fisher Jurvetson Fund Tech Early, 2,827 7.6
VII Growth
Institutional Venture Tech Growth, 2,666 7.2
Partners XII Late
Francisco Partners II Tech Buyout 2,562 6.9
VantagePoint Venture Partners Tech, Early, 2,281 6.1
2006 Life Growth
Science,
Energy
New Enterprise Associates 12 Tech, Early, 1,988 5.4
Life Growth
Science
Dawntreader Fund II Tech Early 1,934 5.2
VantagePoint Venture Partners Tech, Early, 1,838 4.9
IV Life Growth
Science,
Energy
Focus Ventures II Tech Early 1,175 3.2
Draper Fisher Jurvetson Tech Early 873 2.4
Gotham Venture Fund
New Enterprise Associates 9 Tech, Early, 743 2.0
Life Growth
Science
Draper Fisher Jurvetson Fund Tech Early, 688 1.8
VI Growth
Zone Venture Fund II Tech Early 616 1.7
Vanguard VII Tech Early 564 1.5
Sprout Capital IX Tech, Early 102 0.3
Life
Science
TCV IV Tech Growth 96 0.3
Zone Venture Fund II Annex Tech Early 45 0.1
37,094 100.0
Summary of Individual Funds Investments:
31 March
2015
Total
Fund PEI called
Vintage size commitment capital
Name US$(m) US$ US$
Dawntreader Fund II 2000 204 30,000,000 30,000,000
Draper Fisher Jurvetson ePlanet 1999 646 30,000,000 29,550,000
Ventures
Draper Fisher Jurvetson Fund VI 1999 379 2,000,000 2,000,000
Draper Fisher Jurvetson Fund 2000 643 5,000,000 5,000,000
VII
Draper Fisher Jurvetson Gotham 1999 94 3,300,000 3,112,200
Venture Fund
Focus Ventures II 2000 425 30,000,000 28,650,000
Francisco Partners II 2006 2,300 5,000,000 4,655,000
Institutional Venture Partners 2007 606 5,000,000 5,000,000
XII
New Enterprise Associates 9 1999 880 5,000,000 4,900,000
New Enterprise Associates 10 2000 2,323 10,000,000 9,850,000
New Enterprise Associates 12 2006 2,525 3,000,000 2,955,000
Oak Investment Partners X 2000 1,616 10,000,000 10,000,000
Sprout Capital IX 2000 1,082 3,750,000 3,750,000
TCV IV 2000 1,625 25,000,000 24,400,000
Vanguard VII 2000 210 3,000,000 3,000,000
VantagePoint Venture Partners 2006 1,003 5,000,000 4,750,000
2006
VantagePoint Venture Partners 2000 1,399 10,000,000 10,000,000
IV
Vector Capital IV 2007 1,224 4,000,000 3,271,421
Zone Venture Fund II 1999 99 10,000,000 10,000,000
Zone Venture Fund II Annex 2004 4 400,000 400,000
Total Unquoted Funds 199,450,000 195,243,621
APV Technology Partners III was liquidated on 30 June 2014.
Crescendo IV was sold on 9 December 2014 for proceeds of $1,284,000 (£818,000).
Other Information
Company Activities and Status
The Group comprises the Company and its wholly-owned subsidiary, Campton Group,
Inc. ("Campton"), a California corporation. Campton acts as a non-discretionary
investment adviser to the Company.
The Company is an investment company as defined under Section 833 of the
Companies Act 2006 ("the Companies Act"), and was incorporated and registered
in England and Wales on 19 January 2000 with Company Number 3912487. Its shares
are listed on the London Stock Exchange under the ticker PEQ.
The Company has received written approval from HM Revenue and Customs as an
authorised investment trust under Section 1158 of the Corporation Tax Act 2010
("CTA"). The Company will be treated as an investment trust company for each
subsequent accounting period, subject to there being no serious breaches of the
conditions. In the opinion of the Directors, the Company has directed its
affairs so as to enable it to continue to qualify for such approval. The
Articles of Association provide for shareholders to consider the continuation
of the Company as an investment trust at the AGM to be held on 28 September
2015.
The Company's shares qualify as investments in ISAs.
Company Objectives and Business Model
The principal activity of the Company is to carry on business as an investment
trust in accordance with its Investment Objective and Policy. The Company has a
portfolio of Funds to which it has made capital commitments, some of which
remain to be drawn down. The Company will honour these remaining commitments
and expects to continue to receive distributions in cash and in shares from its
portfolio of Funds. The Company does not, however, intend to enter into any new
commitments and expects to continue making periodic returns of capital to
shareholders when sufficient monies are received from the Funds.
Investment Objective
The objective of the Company has been to provide shareholders with long-term
capital growth. The Company is not making investments in new private equity
funds but is managing its existing investments with a view to making periodic
returns of capital to shareholders.
Investment Policy
The Company has invested in the Funds, which are managed by a number of
different management groups, and focused on various stages of growth so as to
obtain exposure to a diversified underlying portfolio of investments primarily
in private companies in the technology sector. Through the Funds, the Company
has exposure to a diverse portfolio of underlying companies.
It is the policy of the Company not to make new fund investments. However, the
Company will continue to meet existing capital commitments to the Funds and may
on occasion support follow-on commitments in existing Funds or affiliated annex
funds.
The full Investment Policy is set out on the inside front cover of the full
Annual Report.
Net Asset Valuation
The NAV per Ordinary Share at 31 March 2015 was 238.7p (2014: 228.4p).
The Funds are stated at Directors' valuation, which is normally based on the
valuations provided by the managers of those Funds, which are received by the
Company quarterly. The valuation methodology normally used by these Funds is
that the underlying investments are valued at fair value, which is in
accordance with IFRS 13.
In the case of marketable securities, funds in the US typically value on a mark
to market basis. In the case of these securities, funds in the US typically
value these securities in accordance with the Financial Accounting Standards
Board's Statement No.157, which is broadly comparable to the International
Private Equity and Venture Capital ("IPEVC") guidelines.
Results and Dividends
The results for the year are set out in the consolidated statement of
comprehensive income below. The Directors are not recommending the payment of a
dividend for the year ended 31 March 2015.
Key Performance Indicators ("KPIs")
The Board reviews the performance of the Funds at its meetings by reference to
a number of KPIs and receives monthly update reports from Campton, its
investment advisor. The Board considers that the most relevant KPIs are those
that communicate the financial performance and strength of the Company as a
whole, being:
• the NAV performance;
• discount to NAV; and
• ongoing charges ratio.
The financial performance of the Company is set out below:
Year Ended Year Ended
31 March 2015 31 March 2014
Net assets and £35,339,000* £42,699,000
shareholders' funds
Net assets per Ordinary 238.7p 228.4p
Share
Discount to NAV 18.5% 20.1%
Ongoing charges 1.4% 1.7%
(Company only)**
Ongoing charges (Group) 1.6% 2.0%
**
*Following the tender offer completed in May 2014 when £8.5 million was
returned to shareholders.
** Ongoing charges at both the Company and Group level are shown. The Company's
ongoing charges are calculated according to the AIC guidance and, as such,
exclude subsidiary expenses. Group ongoing charges are calculated on the same
basis, but include subsidiary expenses.
Ongoing Charges Ratio
The Directors endeavour to run the Company efficiently and monitor its
operational expenses on an ongoing basis. The ongoing charges ratio for the
Company for the year ended 31 March 2015 was 1.4% (2014: 1.7%) and was 1.6% for
the Group (2014: 2.0%). As the Company returns cash to shareholders and the
Company's NAV decreases, the percentage of expenses to net assets is likely to
increase. Efforts have been made to reduce costs, for example not renewing the
Company's membership of the Association of Investment Companies ("AIC"),
negotiating down key supplier's fees, reducing the number of Directors and
their fees.
Due to these efforts, the ongoing charges ratio has decreased slightly during
the year despite the reduction in overall net assets of the Company following
the tender offers.
Principal Risks and Uncertainties and their Mitigation
A risk assessment and a review of internal controls are undertaken annually 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. Full details of how the Board fulfils this role are shown
in the Corporate Governance statement in the full Annual Report.
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 18 to the Financial Statements below.
Stock Market Performance Risk
The Funds in which the Company is invested typically seek to realise their own
investment objectives by selling, recapitalising or floating their investee
companies. Consequently a proportion of the Company's underlying investments is
in publicly quoted stocks (listed primarily on the NASDAQ Stock Market and
NYSE) - typically as a result of IPOs or as a result of trade sales in which
the consideration has been by way of listed equity in the acquirer.
When such shareholdings are distributed, it is the Company's normal policy to
sell them, ideally close to or above the distribution price, as soon as
possible. There may be instances where the Company continues to hold
distributed shares, in an effort to obtain a higher price. However, this
practice exposes the Company to market risk. The Company did not directly hold
any publicly quoted investments at 31 March 2015.
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 Funds
may make poor investments. The Company has sought to mitigate this risk through
the diversification of its investment across a range of Funds (currently 20),
which are themselves invested in 323 underlying investments.
As PEI's portfolio of Funds matures and winds down, the Company's investment
portfolio will experience greater concentration risk.
Regulatory Breach Risk
Relevant legislation and regulations which apply to the Company include the
Companies Act 2006, the CTA and the Listing Rules of the Financial Conduct
Authority ("FCA"). The Company has noted the recommendations of the UK
Corporate Governance Code. Its statement of compliance appears below. A breach
of CTA 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 and/or a fine by the FCA. 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.
To the knowledge of the Directors there have been no breaches of laws or
regulations during the period under review and up to the date of this
announcement.
Discount
The Directors regularly monitor the level of discount at which the Group's
shares are trading. On 31 March 2015 the Group's share price stood at a
discount of 18.5% to NAV, compared to 20.1% 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. Unlike many other investment trusts, however, the
Company does not hold readily marketable investments from which such purchases
might be funded. Moreover, it has already indicated that it will make periodic
tender offers to return the proceeds of distributions from its portfolio to
shareholders. In these circumstances, the Directors do not consider that a
formal discount protection mechanism is appropriate, however, they continue to
seek authority annually to exercise their ability to buy back shares.
Investment Trust Status
The Board also regularly reviews the share register to confirm that the Company
is not a close company (as defined in the CTA), however, the Board acknowledges
that it has no control over shareholders purchasing shares nor their
concentration on the share register. Being a close company would breach the CTA
rules and the Company would be likely to lose its investment trust
qualification, as further discussed under "Regulatory Breach Risk" above.
The Company monitors the significant shareholder positions on an on-going basis
and where the Company receives or is made aware of information from significant
shareholders in relation to their shareholdings and voting rights, the Company
investigates as appropriate the disclosures that have been made and considers
their impact so as to ascertain whether or not there is any impact on the
Company's close company status for the relevant financial period.
Fund Term Risk
When a venture capital or buyout firm reaches the end of its term (including
extensions), the fund manager typically engages in an orderly winding-down of
the Fund. During this winding-down period, which can last several years, the
manager of the Fund attempts to exit the remaining investments while maximising
value for the Fund's investors. There is a risk, however, that a Fund in
wind-down may realise proceeds on the sale of investments at less than reported
fair value. If this happens, it could adversely impact the value of interests
in the Fund held by investors. In addition, a Fund in wind-down will incur
expenses (and possibly management fees) during this period, which could also
adversely impact the value of investors' interests in the Fund. Nine of the
Company's twenty funds are in term extensions and six are in the process of
winding down.
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 Funds in which the Company has invested. The Company receives
valuations on a quarterly basis and there is typically a time delay in the
valuations being reported to the Company and reflected in its NAV. The
valuation of investments held in the Funds is undertaken by the General Partner
on a quarterly basis and is reviewed annually by the Funds' auditors during the
annual audit. Annual accounts and quarterly reports are reviewed by PEI and
discussed by the Board.
Market Operation Risk
The Company is reliant on the efficient operation of markets to provide an exit
route from investments held within the Funds. Exits are typically achieved
through trade sales, recapitalisations or the sale of stocks following an IPO
of an underlying company. In periods of uncertain markets, exits can be delayed
and the Company may see a decrease in distributions received.
Exchange Rate Risk
The majority of the Company's assets are held in US dollar denominated
securities and, since the Company's shares are quoted in sterling, shareholders
are exposed to currency fluctuations between these currencies. It is not the
Company's policy to hedge against currency fluctuations.
Alternative Investment Fund Managers' Directive ("AIFMD")
AIFMD was conceived by European Union legislators to address a perceived
regulatory gap to protect investors and is intended to provide a harmonised
regulatory and supervisory framework throughout the European Union for
regulating Alternative Investment Funds.
AIFMD was implemented by the UK on 22 July 2013, and existing companies had
until 22 July 2014 to register their manager and comply with the Directive. The
Board has been appointed as the Alternative Investment Fund Manager of the
Company.
Future Outlook
The Company's portfolio of Funds has delivered periodic cash and stock
distributions to the Company, and this is expected to continue. As the
underlying portfolio matures, it is expected that the pace and amount of
distributions from the Funds will slow. The timing and level of distributions
will also depend on the state of capital markets as well as economic and other
factors. It is the Company's stated policy not to make new fund investments,
however, the Company will continue to meet existing capital commitments to the
Funds and may on occasion support follow-on commitments in existing Funds or
affiliated annex funds.
Campton
Campton, the Company's wholly-owned subsidiary, provides the Company with
non-discretionary investment advice and portfolio monitoring services relating
to the Company's investment portfolio.
Employees, Environmental, Human Rights and Community Issues
The Company has one employee, the office manager of its London office, and
Campton has one part-time employee based in San Francisco.
The Board is composed entirely of non-executive Directors. The Company was
fully aware of each General Partner's investment policy at the time it
committed to each new Fund. Limited Partners such as the Company, however, are
not consulted on individual investments made by the General Partner in their
particular funds. In light of this, the Company attempts to conform to best
practice on environmental and other social responsibility issues. The Company
itself has no environmental, human rights, or community policies. In carrying
out its activities and in relationships with suppliers, the Company aims to
conduct itself responsibly, ethically and fairly.
Stewardship
The Company has noted the principles of the UK Stewardship Code. As a result of
its investment objectives it does not often hold stocks directly other than for
short periods and therefore does not normally have opportunities to vote at
general meetings. In conjunction with its investment adviser, Campton, the
Company maintains an open dialogue with the Funds and typically participates in
any investor actions when it is appropriate to do so.
Contractual Arrangements Essential to the Business of the Company
Other than the administration agreement described below, there are no
contractual arrangements that are considered essential to the business of the
Company.
Gender Diversity
During the year, the Board of Directors comprised four male directors (three
male directors following the resignation of David Quysner). Appointments to the
Board are made according to a person's existing knowledge and expertise taking
into account the Company's strategic priorities. The Company has one female
employee and Campton has one part-time male employee.
On behalf of the Board
PETER DICKS
Chairman
29 July 2015
EXTRACTS FROM THE DIRECTORS' REPORT
Capital Structure
In May 2008, shareholders approved the cancellation of the Company's Share
Premium Account which, following 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. Since
that time, the Company has made six tender offers, returning a total of £70.15
million to shareholders and has made selected open market purchases of its
shares. On 22 April 2015, the Company made a further tender offer of £6.7
million, bringing the total returned to £76.85 million. No further shares were
purchased in the market during the year. No shares were held in, or issued
from, Treasury during the year.
At the year-end, the Company had an issued share capital of 14,805,508 Ordinary
Shares of 0.01p each. Following the seventh tender offer of £6.7 million
completed on 22 April 2015 and at the date of this announcement, the Company
has an issued share capital of 11,945,519 Ordinary Shares of 0.01p each. Each
share is entitled to one vote on a poll at general meetings.
Going Concern
The Company's Articles of Association currently require a continuation vote to
be proposed at this year's AGM and at every AGM thereafter. In the event that
any continuation vote is not passed, the Directors shall be required to bring
forward proposals for the voluntary liquidation, unitisation or other
reorganisation or reconstruction of the Company.
The Directors have considered the application of the Statement of Recommended
Practice for Financial Statements of Investment Trust Companies and Venture
Capital Trusts, which states that, even if an investment company is approaching
a wind-up and shareholders have yet to vote on the issue and provided that the
Board has not concluded that there is no realistic alternative to winding up
the company, it will usually be more appropriate for the financial statements
to be prepared on a going (rather than non-going) concern basis.
In assessing the Company's ability to continue as a going concern, the
Directors have had regard to the Company's Investment Objective and Policy and
they have reviewed the principal risks and uncertainties facing the Company (as
stated above) together with the Company's commitments and contingent
liabilities (note 17 below) and the Company's cash and readily realisable
investments required to meet its investment obligations and expenditure. In
addition, the Directors have considered the Company's investment performance
and the ongoing interest of investors in the continuation of the Company,
including feedback from conversations with shareholders.
Based on their assessment and considerations, the Directors have concluded that
they should continue to prepare the financial statements on a going concern
basis and the financial statements have been prepared accordingly.
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the Group and
Company financial statements in accordance with applicable United Kingdom law
and those International Financial Reporting Standards ("IFRS") adopted by the
European Union.
Under Company law, the Directors must not approve the Group and Company
financial statements unless they are satisfied that they present fairly the
financial position, financial performance and cash flows of the Group for that
period. In preparing the Group and Company financial statements, the Directors
are required to:
• select suitable accounting policies in accordance with IAS 8: Accounting
Policies, Changes in Accounting Estimates and Errors and then apply them
consistently;
• present information, including accounting policies, in a manner that provides
relevant, reliable, comparable and understandable information;
• 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 Group's and Company's
financial position and financial performance;
• state that the Group and Company have complied with International Financial
Reporting Standards subject to any material departures disclosed and explained
in the financial statements;
• make judgements and estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records that are
sufficient to show and explain the Group's and Company's transactions and
disclose with reasonable accuracy, at any time, the financial position of the
Group and Company and enable them to ensure that the Group and Company
financial statements comply with the Companies Act 2006 and Article 4 of the
IAS Regulations. The Directors are also responsible for ensuring that the
Strategic Report and Directors' Report is prepared in accordance with Company
Law in the United Kingdom and that the Annual Report includes information
required by the Listing Rules of the Financial Conduct Authority. They are also
responsible for safeguarding the assets of the Group and 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 confirm that, to the best of their knowledge:
• the financial statements, which have been prepared in accordance with UK
Generally Accepted Accounting Practice, give a true and fair view of the
assets, liabilities, financial position and net return of the Company;
• the Strategic Report and the Directors' Report include a fair review of the
development and performance of the business and the position of the Company,
together with a description of the principal risks and uncertainties it faces;
and
• the Annual Report and financial statements, taken as a whole, are fair,
balanced and understandable and provide the information necessary for
shareholders to assess the Company's performance, business model and strategy.
For and on behalf of the Board
PETER DICKS
Chairman
29 July 2015
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the year ended 31 March 2015 and the year ended 31 March
2014 but is derived from those accounts. Statutory accounts for 2014 have been
delivered to the Registrar of Companies, and those for 2015 will be delivered
in due course. The Auditor has reported on those accounts; their report was (i)
unqualified, (ii) did not include a reference to any matters to which the
Auditor drew attention by way of emphasis without qualifying their report and
(ii) did not contain a statement under Section 498 (2) or (3) of the Companies
Act 2006. The text of the Auditor's report can be found in the Company's full
Annual Report and Accounts at www.peiplc.com.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 March 2015
Year ended 31 March 2015 Year ended 31 March 2014
Revenue Capital Revenue Capital
return return Total return return Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Gains on 9 - 1,793 1,793 - 659 659
investments at
fair value
through profit
and loss
Exchange gains/ 9 - 35 35 - (141) (141)
(losses) on
other items
- 1,828 1,828 - 518 518
Operating
income
Investment 11 - 11 12 - 12
income
Other operating 4 - 4 3 - 3
income
Total operating 2 15 - 15 15 - 15
income
Operating
expenses
Administrative 3 (547) (108) (655) (796) (104) (900)
expenses
Operating (532) 1,720 1,188 (781) 414 (367)
return/(loss)
Return/(loss) (532) 1,720 1,188 (781) 414 (367)
before tax
Tax 5 - - - - - -
Return/(loss) (532) 1,720 1,188 (781) 414 (367)
after tax
Other
comprehensive
income
- exchange - 11 11 - (34) (34)
differences on
translation of
foreign
operations
Total (532) 1,731 1,199 (781) 380 (401)
comprehensive
income/(loss)
for the year
Attributable
to:
Equity holders (532) 1,731 1,199 (781) 380 (401)
of the parent
Earnings/(loss)
per share
Basic 8 (3.5)p 11.2p 7.7p (4.0)p 2.1p (1.9)p
The total column of this statement represents the Group's Statement of
Comprehensive Income, prepared in accordance with IFRS. The supplementary
revenue return and capital return columns are both prepared under guidance
published by the AIC. All items in the above statement derive from continuing
operations. The Company has elected to take the exemption in Section 408 of the
Companies Act 2006, not to present the Company's Statement of Comprehensive
Income.
The notes form part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2015
Capital Currency
Share Special redemption Capital translation Retained
capital reserve reserve reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Year ended 31 March
2015
As at 1 April 2014 2 44,062 3 4,541 2 (5,911) 42,699
Total comprehensive - - - 1,720 11 (532) 1,199
income for the year
Tender offer (1) (8,500) 1 - - - (8,500)
Tender offer expenses - (59) - - - - (59)
As at 31 March 2015 1 35,503 4 6,261 13 (6,443) 35,339
Year ended 31 March
2014
As at 1 April 2013 2 52,772 3 4,127 36 (5,130) 51,810
Total comprehensive - - - 414 (34) (781) (401)
income for the year
Tender offer - (8,650) - - (8,650)
- -
Tender offer expenses - (60) - (60)
- - -
As at 31 March 2014 2 44,062 3 4,541 2 (5,911) 42,699
The notes form part of these financial statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 31 March 2015
Capital
Share Special redemption Capital Retained
capital reserve reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
Year ended 31 March
2015
As at 1 April 2014 2 44,062 3 4,489 (5,857) 42,699
Total comprehensive - - - 1,728 (529) 1,199
income for the year
Tender offer (1) (8,500) 1 - - (8,500)
Tender offer expenses - (59) - - - (59)
As at 31 March 2015 1 35,503 4 6,217 (6,386) 35,339
Year ended 31 March
2014
As at 1 April 2013 2 52,772 3 4,168 (5,135) 51,810
Total comprehensive - - - 321 (722) (401)
income for the year
Tender offer - (8,650) - - - (8,650)
Tender offer - (60) - - - (60)
expenses
As at 31 March 2014 2 44,062 3 4,489 (5,857) 42,699
The notes form part of these financial statements.
CONSOLIDATED BALANCE SHEET
as at 31 March 2015
31 March 31 March
2015 2014
Notes £'000 £'000
Non-current assets
Investments at fair value through 9 27,917 40,171
profit or loss
Current assets
Trade and other receivables 11 71 404
Cash and cash equivalents 15 7,425 2,212
7,496 2,616
Total assets 35,413 42,787
Current liabilities
Trade and other payables 12 74 88
Net assets 35,339 42,699
Capital and reserves
Share capital 13 1 2
Special reserve 14 35,503 44,062
Capital redemption reserve 14 4 3
Capital reserve 14 6,261 4,541
Currency translation reserve 14 13 2
Retained earnings 14 (6,443) (5,911)
Shareholders' funds 35,339 42,699
Total equity 35,339 42,699
Net asset value per ordinary share 16 238.7p 228.4p
The Group's financial statements were approved by the Board of Directors on 29
July 2015 and were signed on its behalf by:
PETER DICKS
Chairman
Company Registered Number: 3912487
The notes form part of these financial statements.
COMPANY BALANCE SHEET
as at 31 March 2015
31 March 31 March
2015 2014
Notes £'000 £'000
Non-current assets
Investments at fair value through 9 27,917 40,171
profit or loss
Investment in subsidiary 10 26 65
Current assets
Trade and other receivables 11 61 395
Cash and cash equivalents 15 7,407 2,147
7,468 2,542
Total assets 35,411 42,778
Current liabilities
Trade and other payables 12 72 79
Net assets 35,339 42,699
Capital and reserves
Share capital 13 1 2
Special reserve 14 35,503 44,062
Capital redemption reserve 14 4 3
Capital reserve 14 6,217 4,489
Retained earnings 14 (6,386) (5,857)
Shareholders' funds 35,339 42,699
Total equity 35,339 42,699
Net asset value per ordinary share 16 238.7p 228.4p
The Company's financial statements were approved by the Board of Directors on
29 July 2015 and were signed on its behalf by:
PETER DICKS
Chairman
The notes form part of these financial statements.
CONSOLIDATED CASH FLOW STATEMENT
for the year ended 31 March 2015
Year ended Year ended
31 March 2015 31 March 2014
Notes £'000 £'000
Cash flows from operating
activities
Consolidated net return/(loss) 1,188 (367)
before tax
Adjustments to reconcile net return
/(loss) before tax to net cash
flows from operating activities:
Gains on investments (1,793) (659)
Exchange (gains)/losses (19) 128
Costs related to tender offer 102 104
Decrease in trade and other (14) (277)
payables
Decrease/(increase) in trade and 7 (7)
other receivables
Purchase of investments (5,503) (5,781)
Sale of investments 15,263 9,981
Cash distributions 4,613 6,534
Net cash flows generated from 13,844 9,656
operating activities
Financing
Ordinary Shares purchased (8,559) (8,710)
Costs related to tender offer (102) (104)
Net cash used in financing (8,661) (8,814)
activities
Net increase in cash and cash 5,183 842
equivalents
Cash and cash equivalents at 2,212 1,532
beginning of year
Effect of foreign exchange rates on 30 (162)
cash and cash equivalents
Cash and cash equivalents at end of 15 7,425 2,212
year
The notes form part of these financial statements.
COMPANY CASH FLOW STATEMENT
for the year ended 31 March 2015
Year ended Year ended
31 March 2015 31 March 2014
Notes £'000 £'000
Cash flows from operating
activities
Company net return/(loss) before 1,199 (401)
tax
Adjustments to reconcile net return
/(loss) before tax to net cash
flows from operating activities:
Gains on investments (1,793) (659)
Exchange (gains)/losses (27) 221
Costs related to tender offer 102 104
Impairment of Campton 47 284
Receipt of written down receivable -
401
Decrease in trade and other (6) (278)
payables
Decrease/(increase) in trade and 7 (5)
other receivables
Purchase of investments (5,503) (5,781)
Sale of investments 15,263 9,981
Cash distributions 4,613 6,534
Net cash flows generated from 13,902 10,401
operating activities
Investing activities
Investment in subsidiary - (1,019)
Redemption of loan notes -
598
Net cash used in investing - (421)
activities
Financing
Ordinary Shares purchased (8,559) (8,710)
Costs related to tender offer (102) (104)
Net cash used in financing (8,661) (8,814)
activities
Net decrease in cash and cash
equivalents 5,241 1,166
Cash and cash equivalents at 2,147 1,109
beginning of year
Effect of foreign exchange rates on 19 (128)
cash and cash equivalents
Cash and cash equivalents at end of 15 7,407 2,147
year
The notes below form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
at 31 March 2015
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 2006. The consolidated
financial statements for the Group for the year ended 31 March 2015 comprised
the results of the Company and its wholly-owned subsidiary, Campton (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
acts as a non-discretionary investment adviser to the Company.
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 the provisions of the Companies Act 2006. The
financial statements have also been prepared in accordance with the Statement
of Recommended Practice ("SORP") (issued January 2009) for Investment Trust
Companies and Venture Capital Trusts except to any extent that it conflicts
with IFRS.
The accounting policies that follow set out those policies which apply in
preparing the financial statements for the year ended 31 March 2015. 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 Campton, its wholly-owned subsidiary.
All profits and losses of Campton are attributable to the Company.
The financial statements of Campton 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.
Segmental Reporting
The Directors are of the opinion that the Group is engaged in a single segment
of business, being investment business. Accordingly a segmental reporting note
is not presented. The results of Campton are immaterial for segmental reporting
purposes.
Income Recognition
Dividends receivable on quoted equity shares and debt securities are included
in the financial statements when the investments concerned are quoted
'ex-dividend'. Dividends receivable on equity shares 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 Statement of Comprehensive Income, except for expenses
which are incidental to the sale or purchase of an investment or related to
tender offers, which are charged through the capital column of the Statement of
Comprehensive Income. Stamp duty and commission related to tender offers are
charged to the special reserve.
Investments at Fair Value Through Profit or Loss
Investments where a purchase or sale is under a contract whose terms require
delivery within the timeframe established by the market concerned are
recognised and derecognised on the trade date.
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 Statement of Comprehensive Income and allocated
to capital. Realised gains and losses on investments sold are calculated as the
difference between sales proceeds and cost.
The Funds are stated at Directors' valuation, which is normally based on
valuations provided by the managers of those funds which are received by the
Company at least quarterly. The valuation methodology used by these Funds is
that the underlying investments are valued at fair value in accordance with
Financial Accounting Standard 157 ("FAS 157") which is broadly comparable to
International Private Equity and Venture Capital (IPEVC) guidelines.
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.
Judgements and Estimates
The preparation of financial statements requires management to make judgements,
estimates and assumptions that affect the amounts reported in the financial
statements. However, the nature of estimation means that actual outcomes could
differ from those estimates. The Directors consider the available observable
inputs when making these judgements. The Group primarily invests in private
equity via limited partnerships or other fund structures. Such vehicles are
typically unquoted and in turn invest in unquoted securities. The Group's
investment portfolio is recognised in the Balance Sheet at fair value, in
accordance with IPEV Valuation Guidelines and IFRS.
Fair value is based on the Company's share of the net asset value of the Fund,
as determined by the general partner of such funds.
Updated net asset values are received for each Fund on a quarterly basis. The
net asset value of a Fund is calculated after determining the fair value of a
Fund's investment in any investee companies.
Adjustments to net asset value may be considered, for example, where:
* There has been significant elapsed time between the net asset value
calculation date and the Company's Balance Sheet date.
* There have been material movements in quoted prices between the net asset
value calculation date and the Company's Balance Sheet date.
* The Company has agreed a sale of its holding in a fund interest at a price
other than net asset value.
* net asset value is not derived from the fair value of underlying portfolio
companies.
The valuations of publicly traded securities held by these Funds are also
affected by discounts, estimated for any legal or contractual restrictions on
sale.
Foreign Currency Translation
The functional and presentational currency of the Company is Sterling.
Transactions in currencies other than 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 Statement of
Comprehensive Income 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
derived from foreign operations have been translated at the rates of exchange
prevailing on the date of transaction. The resulting exchange differences are
recognised in Other Comprehensive Income and shown in the Currency Translation
Reserve. On disposal of a foreign investment, the cumulative amount recognised
in Other Comprehensive Income relating to that particular foreign operation is
recycled through the Income Statement.
Investments in Subsidiary
The investment in Campton is stated in the Company's Balance Sheet at cost less
a provision for impairment. Impairment is recognised when the carrying amount
of an asset exceeds its recoverable amount. The recoverable amount is the
higher of the asset's fair value less cost of disposal and its value in use.
The Company bases the recoverable amount of Campton on the fair value less cost
of disposal. The Directors consider that the best estimate of fair value of
Campton is its net assets attributable to the Group and the cost of disposal is
considered to be negligible.
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.
Current tax is expected tax payable on the taxable income for the period, using
tax rules at the Balance Sheet date and any adjustment to tax payable in
respect of previous years. The tax effect of different items of income/gain and
expenditure/loss is allocated between revenue and capital 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.
Any final dividend proposed by the Board 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 in the Statement of Financial Position comprise cash
in hand and short-term deposits in banks that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in
value, with original maturities of three months or less.
Leases
Leases where the lessor retains substantially all the risks and benefits of
ownership of the assets are classified as operating leases.
New Standards and Interpretations Not Applied
The IASB have issued the following relevant standards and interpretations which
are not effective for the year ended 31 March 2015 and have not been applied in
preparing these financial statements.
New/Revised International Financial Issued Effective Date
Reporting Standards
IFRS 7 Financial Instruments: December 2011 1 January 2015
Disclosures - Amendments (or otherwise
requiring disclosures when IFRS 9 is
about the initial first applied)
application of IFRS 9
IFRS 9 Financial Instruments July 2014 1 January 2018
The Directors do not anticipate that the initial adoption of the above
standards will have a material impact in the period of initial application.
The Group applies, for the first time;
IFRS 10 Consolidated Financial Statements.
The Board considers PEI to qualify as an investment entity in accordance with
IFRS 10 paragraph 27 as the Company obtains funds for the purpose of providing
investors with investment management services, invests funds solely for returns
from capital appreciation and/or investment income; and measures and evaluates
the performance of substantially all of its investments on a fair value basis.
Under adoption of IFRS 10 the Board has concluded that as Campton provides
non-discretionary investment advisory services, it falls under the key
exception to the mandatory requirement to account for Subsidiaries at fair
value through profit or loss, and therefore continues to produce consolidated
financial statements.
IFRS 12 Disclosure of Interests in Other Entities
This includes the disclosure requirements for all forms of interests in other
entities. This standard builds on existing principles by identifying the
concept of control as the determining factor in whether an entity should be
included within the consolidated financial statements. The standard provides
additional guidance to assist in determining control where this is difficult to
assess.
2 OPERATING INCOME
2015 2014
Group Group
£'000 £'000
Income from investments:
Interest from open-ended investment 11 12
funds
11 12
Other income:
Deposit interest 4 3
Total operating income 15 15
Total income comprises:
Interest 15 15
3 OPERATING EXPENSES
2015 2014
Revenue Capital Revenue Capital
return return Total return return Total
£'000 £'000 £'000 £'000 £'000 £'000
Secretarial services 114 - 114 113 - 113
Investment advisor employee retention - - - (42) - (42)
fee
Auditor's remuneration for:
- audit 25 - 25 29 - 29
- other services* - 10 10 - 11 11
Directors' remuneration 89 - 89 100 - 100
Other expenses:
- fundraising services - - - 18 - 18
- legal and professional fees** 27 6 33 80 - 80
- office expenditure 16 - 16 39 - 39
- rent and rates 23 - 23 32 - 32
- staff costs (see note 4) 184 - 184 234 - 234
- subscriptions 10 - 10 19 - 19
- travel - - - 24 - 24
- health insurance 2 - 2 11 - 11
- tender offer expenses*** - 92 92 - 93 93
- other expenses 57 - 57 139 - 139
547 108 655 796 104 900
*Relating to the tender offer.
**Capital expense relating to the sale of Crescendo IV.
***Stamp duty and commission have been charged against the special reserve.
4 STAFF COSTS
2015 2014
Group Group
£'000 £'000
Salaries and other payments 168 213
Social security costs 16 21
184 234
With the exception of the Directors, whose remuneration is shown in the
Directors' Remuneration Report in the full Annual Report, the Group employed
two members of staff during the year (2014: two members of staff).
5 TAXATION ON ORDINARY ACTIVITIES
2015 2014
Revenue Capital Revenue Capital
return return Total return return Total
£'000 £'000 £'000 £'000 £'000 £'000
UK corporation tax - - - - - -
at 21% (2014: 23%)
The Group is subject to corporation tax at 21% (2014: 23%). As at 31 March 2015
the total taxation charge in the Group's revenue account is lower than the
standard rate of corporation tax in the UK (21%). The differences are explained
below:
2015 2014
Revenue Capital Revenue Capital
return return Total return return Total
£'000 £'000 £'000 £'000 £'000 £'000
Net return (532) 1,720 1,188 (781) 414 (367)
before finance
costs and
taxation
Theoretical tax (112) 361 249 (180) 95 (85)
at UK
corporation tax
rate of 21%
(2014: 23%)
Effects of:
- expenses - 23 23 3 24 27
disallowed for
taxation
purposes
- losses in 11 - 11 79 - 79
Campton not
carried forward
as excess
management
expenses
- gains on - (384) (384) - (119) (119)
investments and
exchange losses
on capital items
- excess 101 - 101 98 - 98
management
expenses
- - - - - -
At 31 March 2015, the Group had no unprovided deferred tax liabilities (2014: £
nil). At that date, based on current estimates and including the accumulation
of net allowable management expenses deriving from its partnership interests in
its Funds, the Group had surplus management expenses of approximately £
20,694,000 (2014: £19,754,000). A deferred tax asset of £4,139,000 has not been
recognised because the Group is not expected to generate sufficient taxable
income in future periods in excess of the available deductible expenses and
accordingly, the Group is unlikely to be able to reduce future tax liabilities
through the use of existing surplus expenses.
Due to the Group's status as an investment trust, and the intention to continue
meeting the conditions required to obtain approval in the foreseeable future,
the Group has not provided deferred tax on any capital gains and losses arising
on the revaluation or disposal of investments.
6 DIVIDENDS
No distribution is proposed for the year ended 31 March 2015.
7 PROFIT
As permitted by Section 408 of the Companies Act 2006, the Statement of
Comprehensive Income of the Company is not presented as part of these financial
statements. The consolidated net profit after taxation for the financial year
includes £1,199,000 (2014: £401,000 loss) which is dealt with in the financial
statements of the Company.
8 RETURN PER ORDINARY SHARE
2015 2014
Revenue Capital Revenue Capital
return return Total return return Total
pence pence pence pence pence pence
Return per (3.5)p 11.2p 7.7p (4.0)p 2.1p (1.9)p
Ordinary Share
Revenue return per Ordinary Share is based on the net loss on ordinary
activities after taxation of £532,000 (2014: net loss of £781,000), and on
15,423,526 (2014: 19,302,241) Ordinary Shares, being the weighted average
number of Ordinary Shares in issue during the year.
Capital return per Ordinary Share is based on the net capital gain for the year
of £1,720,000 (2014: net gain of £414,000), and on 15,423,526 (2014:
19,302,241) Ordinary Shares, being the weighted average number of Ordinary
Shares in issue during the year.
Total return per Ordinary Share is based on the net profit for the year of £
1,188,000 (2014: net loss of £367,000), and on 15,423,526 (2014: 19,302,241)
Ordinary Shares, being the weighted average number of Ordinary Shares in issue
during the year.
9 INVESTMENTS
2015 2014
£'000 £'000
Group and Company
a) Investment portfolio summary
USA
Listed investments
- common stock - 135
Unlisted Funds 24,987 30,807
Other investments
- open-ended Investment Funds 2,930 9,229
27,917 40,171
A full listing of the investment portfolio is provided above.
Quoted
open-ended
Listed investment Unlisted
equities funds Funds Total
£'000 £'000 £'000 £'000
b) Analysis of
investment portfolio
movements
Opening book cost 19 8,924 34,908 43,851
Opening unrealised
appreciation/ 116 305 (4,101) (3,680)
(depreciation)
Opening valuation 135 9,229 30,807 40,171
Movement in the year:
Purchases at cost - 4,817 - 4,817
Calls from Funds at cost - - 686 686
Sales
- proceeds (2,665) (11,454) (818) (14,937)
- realised gains / 1,934 80 (133) 1,881
(losses) on sales
Book cost adjustments
from capital
distributions
- cash distributions - - (4,613) (4,613)
- cash distributions
realised gains - - 2,105 2,105
- stock distributions 596 - (596) -
Unrealised appreciation/ - 258 (2,451) (2,193)
(depreciation)
Closing valuation - 2,930 24,987 27,917
Closing book cost - 2,367 25,747 28,114
Closing unrealised
appreciation/ - 563 (760) (197)
(depreciation)
- 2,930 24,987 27,917
The Company is required to classify fair value measurements using a fair value
hierarchy that
reflects the significance of the inputs used in making the measurements. The
fair value hierarchy has the following levels:
• Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1).
• Inputs other than quoted prices included within level 1 that are observable
for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) (level 2).
• Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (level 3).
The level in the fair value hierarchy, within which the fair value measurement
is categorised, is determined on the basis of the lowest level input that is
significant to the fair value of the investment.
The Company considers observable data for investments actively traded in
organised financial markets, with fair value determined by reference to Stock
Exchange quoted market bid prices at the close of business on the balance sheet
date, without adjustment for transaction costs necessary to realise the asset.
The following table analyses within the fair value hierarchy the Fund's
financial assets and liabilities (by class) measured at fair value at 31 March.
Financial instruments at fair value through profit and loss
2015 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Open-ended investment funds 2,930 - - 2,930
Unlisted Funds - - 24,987 24,987
2,930 - 24,987 27,917
2014 Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Open-ended investment funds 9,229 - - 9,229
Listed equities 135 - - 135
Unlisted Funds - - 30,807 30,807
9,364 - 30,807 40,171
Financial instruments that trade in markets that are not considered to be
active but are valued based on quoted market prices, dealer quotations or
alternative pricing sources supported by observable inputs are classified
within level 2. As level 2 investments include positions that are not traded in
active markets and/or are subject to transfer restrictions, valuations may be
adjusted to reflect illiquidity and/or non-transferability, which are based on
available market information.
Investments classified within level 3 have significant unobservable inputs.
Level 3 instruments include private equity and corporate debt securities. As
observable prices are not available for these securities, the Company has used
valuation techniques to derive the fair value. In respect of unquoted
instruments, or where the market for a financial instrument is not active,
Funds based in the United States typically value portfolios in accordance with
FAS 157 which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. FAS 157 is broadly
comparable to IPEVC guidelines.
The following table presents the movement in level 3 instruments for the period
ended 31 March 2015 by class of financial instrument.
Group
Unlisted
Funds
£'000
Opening balance 30,807
Calls 686
Distributions (4,613)
Sales (818)
Transfers from level 3 to level 1* (596)
Total losses for the year included in the statement of (479)
comprehensive income
Closing balance 24,987
* Following flotation of an investee company, shares in such a company may be
directly distributed to PEI. The book cost associated to these shares is
transferred out of level 3 investments and transferred to level 1. It is the
Company's normal policy to sell these shares within a short period of time
unless the stock price has decreased meaningfully, in which case the Company
may hold these securities for a longer period of time until favourable selling
conditions exist.
Significant unobservable inputs for level 3 valuations
The Funds are stated at Directors' valuation, which is normally based on
valuations provided by the managers of those Funds which are received by the
Company at least quarterly.
Fair value is based on the Company's share of the net asset value of the Fund,
as determined by the general partner of such Funds.
Further information with regards to level 3 valuations is set out in the
accounting policies above.
The range of net asset values for the 10 largest Funds, which have an aggregate
valuation of 81.8% of the Unlisted Funds portfolio, can be seen in the table
below.
Top 10 Largest Portfolio Funds
As of 31 March Total Net asset Net asset % of net
2015 commitment value US$'000 value £'000 assets 2015
US$'000
Draper Fisher
Jurvetson
ePlanet Ventures 30,000 6,043 4,071 11.5
Vector Capital 4,000 3,515 2,368 6.7
IV
Oak Investment
Partners X 10,000 3,309 2,229 6.3
New Enterprise
Associates 10 10,000 3,229 2,175 6.1
Draper Fisher
Jurvetson Fund 5,000 2,827 1,904 5.4
VII
Institutional
Venture Partners 5,000 2,666 1,796 5.1
XII
Francisco 5,000 2,562 1,725 4.9
Partners II
VantagePoint
Venture Partners
2006 5,000 2,281 1,536 4.3
New Enterprise
Associates 12 3,000 1,988 1,339 3.8
Dawntreader Fund 30,000 1,934 1,303 3.7
II
Largest 10 20,446 57.8
unlisted funds
It is recognised that the valuations of these Funds are sensitive to movements
in the values of the underlying investments. The 10 largest underlying
investments of the Funds include both quoted and unquoted investments and
represented 24.2% of the value of the total Fund portfolio. At 31 March 2015,
8.3% of aggregate value of the 10 largest underlying investments was derived
from quoted prices and 91.7% represented unquoted valuations.
For unquoted underlying investments, significant judgement is applied by the
Fund Managers when calculating fair value. For the purpose of sensitivity
analysis, a 10% adjustment to those unquoted investments that are in the 10
largest underlying investments would result in a 1.6% movement in the value of
the Company's total net assets.
2015 2014
£'000 £'000
c) Analysis of capital gains and losses
Gains on sales 1,881 1,111
Decrease in unrealised capital (2,193) (2,691)
appreciation
Gains on unlisted Funds realisations 2,105 2,239
Gains on investments 1,793 659
Realised exchange gains/(losses) on sales 16 (13)
Exchange gains/(losses) on investment 19 (128)
holding gains
Exchange gains/(losses) on capital items 35 (141)
d) Significant holdings
The Company holds 15% and 10% of the total capital account balances of the
Funds in Dawntreader Fund II and Zone Ventures Fund II respectively.
e) Transaction costs
During the year the Company incurred no transaction costs (2013: £nil) in
relation to purchases of investments and £4,000 (2014: £9,000) in relation to
sales of investments. These amounts are included within gains and losses on
investments at fair value within the statement of comprehensive income.
$10,000 (£6,000) legal costs were incurred in relation to the sale of Crescendo
IV, this amount is included within the capital administrative expense within
the statement of comprehensive income.
10 INVESTMENT IN SUBSIDIARY
2015 2014
Company Company
£'000 £'000
Investment in Campton, opening balance 65 423
Investment in year - 1,019
Repayment of inter-company debt - (1,094)
Foreign currency movements 8 1
Impairment (47) (284)
26 65
11 TRADE AND OTHER RECEIVABLES
2015 2014
Group Company Group Company
£'000 £'000 £'000 £'000
Sales for future 46 46 372 372
settlement
Prepayments and other 22 12 30 21
debtors
Accrued income 3 3 2 2
71 61 404 395
12 TRADE AND OTHER PAYABLES
2015 2014
Group Company Group Company
£'000 £'000 £'000 £'000
Other payables 74 72 88 79
74 72 88 79
13 SHARE CAPITAL
2015 2014
£'000 £'000
Allotted, called up and fully paid:
14,805,508 (2014: 18,694,757)
Ordinary Shares of 0.01p each 1 2
14 RESERVES
Capital
reserve
Capital Capital investment Currency
Special redemption reserve holding translation Retained
reserve reserve realised losses reserve earnings
£'000 £'000 £'000 £'000 £'000 £'000
Group
At 1 April 44,062 3 8,826 (4,285) 2 (5,911)
2014
Net gains on - - 3,986 - - -
sale of
investments
Holding - - - (2,193) - -
losses on
investments
Exchange - - 16 19 - -
gains
Exchange - - - - 11 -
gains on
retranslation
of net assets
of subsidiary
Shares (8,559) 1 (102) - - -
purchased for
cancellation
Legal fees - - (6) - - -
paid in
relation to
sale of LP
Net loss for - - - - - (532)
the year
At 31 March
2015 35,503 4 12,720 (6,459) 13 (6,443)
Capital
reserve
Capital Capital investment
Special redemption reserve holding Retained
reserve reserve realised losses earnings
£'000 £'000 £'000 £'000 £'000
Company
At 1 April 44,062 3 8,732 (4,243) (5,857)
2014
Net gains on - - 3,986 - -
sale of
investments
Holding losses - - - (2,193) -
on investments
Exchange gains - - 16 27 -
Shares (8,559) 1 (102) - -
purchased for
cancellation
Legal fees - - (6) - -
paid in
relation to
sale of LP
Net loss for - - - - (529)
the year
As at 31 March
2015 35,503 4 12,626 (6,409) (6,386)
15 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN CASH AND CASH EQUIVALENTS
2015 2014
Group Company Group Company
£'000 £'000 £'000 £'000
Increase in cash in the 5,183 5,241 842 1,166
year
Effect of foreign 30 19 (162) (128)
exchange rate movements
Movement in cash and cash 5,213 5,260 680 1,038
equivalents
Cash and cash equivalents 2,212 2,147 1,532 1,109
at beginning of the year
Cash and cash equivalents 7,425 7,407 2,212 2,147
at end of the year
Cash and cash equivalents are comprised as follows:
2015 2014
Group Company Group Company
£'000 £'000 £'000 £'000
Cash in hand at bank 7,425 7,407 2,212 2,147
16 NET ASSET VALUE PER ORDINARY SHARE
The Group net asset value per Ordinary Share is based on net assets of £
35,339,000 (2014: £42,699,000) and on 14,805,508 (2014: 18,694,757) 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 £
35,339,000 (2014: £42,699,000) and on 14,805,508 (2014: 18,694,757) Ordinary
Shares, being the number of shares in issue at the year end.
17 COMMITMENTS AND CONTINGENT LIABILITIES
At 31 March 2015 there were financial commitments outstanding of $4.2 million
(£2.8 million) (2014: $5.3 million) (£3.2 million) in respect of outstanding
call commitments to funds. These calls, if made, will be financed through cash
and easily liquidated assets, which are currently held in ring-fenced accounts.
18 ANALYSIS OF FINANCIAL ASSETS AND LIABILITIES
As detailed above, the investment objective of the Company has been to provide
shareholders with long-term capital growth. The Company is generally not making
investments in new private equity funds but is managing its existing
investments with a view to making periodic returns of capital to shareholders.
The Company and Group'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 and Group face through the holding of financial
instruments are:
• liquidity/marketability risk, i.e. the risk that the Company or Group 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.
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
A summary of the Company's investment portfolio is given on page 10 of the
Annual Report and Accounts. The method of valuing the fixed asset investments
is discussed in the accounting policies of the Company in Note 1 above. Cash
and debtors arising from the operations of the Company as at 31 March 2015
amounted to £7,407,000 (2014: £2,147,000) and £61,000 (2014: £395,000)
respectively. Cash and debtors arising from operations of the Group as at 31
March 2015 amounted to £7,425,000 (2014: £2,212,000) and £71,000 (2014: £
404,000) respectively. There were no material differences between the fair
values of the investments and cash and debtors as at 31 March 2015 and 31 March
2014 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
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 commitments of $4,206,000 (£2,833,000)
(2014: $5,324,000 (£3,193,000)) to the Funds, which will be financed through
cash and easily liquidated assets, which are currently held in ring-fenced
accounts.
The Board manages liquidity risk by regularly reviewing its easily liquidated
assets, which mainly comprise open-ended investment funds. Commitments to such
fund investments are reviewed and approved by the Board. In order to reduce
risk, research and due diligence work is performed before any commitment is
made to such a fund manager.
Interest rate risk
The Company's revenue may be affected by changes in prevailing interest rates
since a large portion of its income ordinarily derives from money market funds
and bank interest.
The Company's objective is to achieve capital returns from its investments and,
as such, the main exposure to interest rate risk is indirect, through its
impact on the valuation of the private equity funds, although it is not
possible to quantify such effects. Interest rates are one of the key
determinants of economic growth. At a more specific level, interest rates and
credit spreads also have an important role in the ability of private equity
funds to secure profitable deals, as some transactions are partly financed by
debt. The effect of interest rate changes on the valuation of investments and
debt forms part of valuation risk, which is considered separately.
At 31 March 2015, the Company held investments in AAA-rated money market funds
valued at £2,930,000 (2014: £9,229,000), earning cash dividends at market
rates. The money market funds are redeemable on less than 24 hours' notice.
Other floating rate financial assets comprised cash at bank.
As at 31 March 2015, the average interest rate profile of the Company's
financial assets was as follows:
Non Non
Fixed Floating interest Fixed Floating interest
rate rate bearing rate rate bearing
Group Group Group Company Company Company
£'000 £'000 £'000 £'000 £'000 £'000
Open-ended - 2,930 - - 2,930 -
investment
funds
Quoted - - - - - -
equities
Unlisted - - 24,987 - - 24,987
funds
Cash - 7,425* - - 7,407* -
Other current - - 61** - - 51**
assets
As at 31
March 2015 - 10,355 25,048 - 10,337 25,038
* Exposure to floating interest rate risk is based on an adjusted London
Interbank Offered Rate ("LIBOR").
** Other current assets exclude prepayments which under IFRS7 are not
classified as financial assets.
The Board manages interest rate risk by placing cash deposits in short-term
maturity investments such as money-market funds, but does not consider that the
Company or Group has material exposure to interest rate risk.
Credit risk
The Company is exposed to credit risk in the following areas:
* Failure by counterparties to return cash deposits
Cash deposits (money market funds and cash at bank) are placed with
counterparties with a minimum credit rating of AA or equivalent. In addition, a
range of counterparties is used to further diversify the risk.
* Failure by counterparties to deliver cash or securities through trading
activities
Transactions in listed securities are settled against delivery using approved
brokers. The risk of default is considered minimal.
The maximum exposure to credit risk at 31 March 2015 is £10,355,000 (2014: £
11,813,000).
Market price risk
Private equity investments are not immediately sensitive to market movements.
However, over the medium/long term, the valuation multiples applied to private
equity will be affected by significant changes in the listed equity markets.
The Company's portfolio consists of US dollar investments, which are affected
by movements in the sterling/dollar exchange rate (refer to foreign currency
risk below).
At 31 March 2015, a 10% movement in the valuation of the Group's aggregate
investments designated as fair value through profit or loss, would result in a
7.9% (£2,792,000) change in shareholders' funds.
The method of valuing the investments is discussed in the accounting policies
note above.
Foreign currency risk
The Company is exposed to currency risk directly since the majority of its
assets and commitments are denominated in US dollars and their sterling value
can be significantly affected by movements in foreign exchange rates. The
Company does not, nor does it intend to, hedge against foreign currency
movements affecting the value of its investments.
The Company settles its transactions from its bank accounts at an agreed rate
of exchange on the date on which any bargain was made. For the year ended 31
March 2015, realised exchange losses of £76,000 (2014: gain of £272,000) and
unrealised gains relating to currency of £19,000 (2014: losses of £128,000),
have been taken to the capital reserve.
Details of the foreign currency exposure are detailed in the table below.
At 31 March 2015
Other Other
Investment current Investment current
portfolio Cash assets portfolio Cash assets
Group Group Group Company Company Company
£'000 £'000 £'000 £'000 £'000 £'000
USA 27,816 413 56 27,816 395 46
UK 101 7,012 5 101 7,012 5
27,917 7,425 61 27,917 7,407 51
At 31 March 2014
Other Other
Investment current Investment current
portfolio Cash assets portfolio Cash assets
Group Group Group Company Company Company
£'000 £'000 £'000 £'000 £'000 £'000
USA 34,241 1,733 381 34,241 1,668 372
UK 5,930 479 3 5,930 479 3
40,171 2,212 384 40,171 2,147 375
If the US$/£ exchange rate had strengthened by 10% from the rate at 31 March
2015, it would have had the effect, with all other variables held constant, of
increasing the equity shareholders' funds by £3,142,000 (2014: £4,031,000).
If the US$/£ exchange rate had weakened by 10% it would have had the effect of
decreasing the equity shareholders' funds by £2,571,000 (2014: £3,298,000).
The calculations are based on the investments held at fair value through profit
or loss and the exchange rate of 1.4845 US$: £ as at 31 March 2015 and these
may not be representative of the year as a whole.
Financial liabilities
The Company finances its operations primarily through equity and retained
revenue although trade creditors and accruals arise from its operations. At 31
March 2015 and 31 March 2014, all financial liabilities were due within one
year. Other financial liabilities amounted to £74,000 (2014: £88,000) resulting
from operating activities.
There were no borrowing facilities either drawn or undrawn at any time during
the year.
Managing Capital
The Group's equity is analysed into its various components in notes 13 and 14.
The Company manages its investments so as to maximise the return to
shareholders while maintaining a capital base to allow the Company to operate
effectively. Strong realisations from the investment portfolio in recent years
have facilitated the return of capital to shareholders. This has been achieved
through the buy back of shares through tender offers.
The Group's capital requirement is reviewed regularly by the Board of the
Company.
19 RELATED PARTY TRANSACTIONS
During the year Peter Dicks, Chairman of the Company, rented office space from
the Company, for a consideration of £10,000, which has been accounted for
against the rent expense. (2014: £10,000).
In the year ended 31 March 2015, total fees and expenses of £49,000 (2014: £
225,000) were paid to Campton by the Company.
The remuneration of the Directors, who are the key management personnel of the
Company, is set out in the Directors' Remuneration Report in the full Annual
Report. Full details of Directors' interests in the ordinary shares of the
Company are also set out the Directors' Remuneration Report. At 31 March 2015,
£7,000 was due to the Directors from the Company.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held on 28 September 2015 at
10.30am at the offices of the SGH Martineau, One America Square, Crosswall,
London, EC3N 2SG.
The notice of this meeting can be found in the Annual Report and Financial
Statements at http://www.peiplc.com/.
National Storage Mechanism
A copy of the Annual Report and Financial Statements will be submitted shortly
to the National Storage Mechanism ("NSM") and will be available for inspection
at the NSM, which is situated at www.morningstar.co.uk/uk/NSM
29 July 2015
END
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.
PRIVATE EQUITY INVESTOR : Annual Financial Report
July 30, 2015 at 04:40 am EDT
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© PRNewswire - 2015
