PANTHEON INTERNATIONAL PARTICIPATIONS PLC - Annual Financial Report
PR Newswire
London, September 28
PANTHEON INTERNATIONAL PARTICIPATIONS PLC (the "Company" or "PIP")
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30TH JUNE 2012
The full Annual Report and Accounts can be accessed via the Company's website at www.pipplc.com or by contacting the Company Secretary by telephone on 01392 412122.
PIP will be holding a webcast today at 2.00 pm BST to discuss the release of the 2012 Annual Report and Accounts.
The presentation can be viewed on www.meetingzone.com/presenter/?partCEC=1846788&hostCEC=7031868 with Access Pin 1846788. Please use the dial in details below and ensure that you give your name, company name and the password PIP when dialling in for the webcast. 0808 109 0701 UK Toll Free
+44 (0) 20 3003 2666 Standard International Access
FINANCIAL SUMMARY
HIGHLIGHTS 30TH JUNE 2012 30TH JUNE 2011 CHANGE
Summary of results
NAV per share 1,193.5p 1,104.1p 8.1%
Net assets £845.4m £733.1m 15.3%
Ordinary shares
Share price 725.5p 714.0p 1.6%
Discount to NAV per share 39.2% 35.3%
Redeemable shares
Share price 760.0p 710.0p 7.0%
Discount to NAV per share 36.3% 35.7%
Portfolio activity
Distributions £139.2m £165.2m (15.7)%
Investments called £53.8m £84.1m (36.0)%
Net portfolio inflows £85.4m £81.1m
The NAV and NAV per share for 30th June 2011 above are adjusted to exclude a
derivative asset relating to the Company's standby subscription agreements in
place at that time with certain institutions under which those institutions
were obliged, on being called upon to do so by the Company, to subscribe for
new redeemable shares in the Company ("Standby Commitments"). These agreements
were required to be included as an asset in the Company's 30th June 2011
accounts to comply with FRS 26. The Board considered that the adjusted NAV per
share was the best measure of the Company's economic value to shareholders as
it is directly comparable to previously published NAV per share. In August 2011
the Company utilised £100.5m of the Standby Commitments, and cancelled the
remaining £49.5m in September 2011. These actions lead to the reversal of
the
asset in the accounts.
SINCE
PERFORMANCE 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
AT 30TH JUNE 2012 % % P.A. % P.A. % P.A. % P.A.
NAV per share 8.1 15.5 5.4 8.2 11.4
Ordinary share price 1.6 34.9 (4.6) 4.1 9.7
FTSE All-Share Total (3.1) 13.8 0.4 6.1 7.5
Return
MSCI World Total (2.1) 13.4 2.5 5.5 6.3
Return (sterling)
PIP was launched on 18th September 1987. The figures since inception assume
reinvestment of dividends, capital repayments and cash flows from the exercise
of warrants.
CAPITAL STRUCTURE
AT 30TH JUNE 2012
Ordinary shares 36,121,013
Redeemable shares 34,713,534
Total 70,834,547
CHAIRMAN'S STATEMENT
I am pleased to report an increase in PIP's NAV per share of 8.1% to 1,193.5p
for the financial year to 30th June 2012. This is a good result against a
difficult economic backdrop, and we are confident in the prospects for our
portfolio. With its global reach and flexible investment approach, PIP is well
positioned to achieve the robust long-term capital growth that is our mission,
even if volatile markets persist. This year, I would like to highlight:
● Strong cash flows - we received distributions of £139m compared with calls of £54m.
● Amongst our investee companies we continued to see evidence of strong sales and earnings growth, exceeding that of the MSCI World and FTSE All-Share indices.
● The Company's shares outperformed both the FTSE All-Share and the MSCI World Index for the year to 30th June 2012 .
● A strong balance sheet, with an unutilised loan facility of £98m and undrawn commitment cover of 5.0 times.
● Market conditions favour secondaries and co-investments, where our Manager has a strong track record and sees attractive return opportunities.
● Our commitment to enhance investment performance through share buybacks, with a 2.5% uplift to NAV this year.
● The introduction of monthly NAV reporting and other initiatives to improve transparency for investors.
Whilst the Board has been disappointed by the discount (39% for ordinary shares and 36% for redeemable shares at 30th June 2012), our actions in buying back shares reflect our belief in the fundamental value of the portfolio. PIP continues to be an attractive vehicle for investors to gain cost-effective, diversified access to many leading private equity managers in the world. This is an important asset class that can play a beneficial role in portfolios. A share in PIP provides immediate ownership in a diversified portfolio developed over many years alongside sophisticated institutional investors and actively managed by Pantheon. This year PIP celebrates its 25th anniversary as a public company. Throughout our history, consistently strong investment performance has resulted in our NAV per share outperforming both the FTSE All-Share and MSCI World indices over 1, 3, 5 and 10 years and indeed since inception. The outlook remains promising: our existing portfolio has shown signs of good relative earnings growth; our new investment pipeline is demonstrating the benefits of being able to invest as others with shorter-term horizons are retreating; and our favourable cash flow outlook gives us the opportunity to enhance our investment performance
through share buybacks. PERFORMANCE Strong Relative Performance In the face of continuing difficult macroeconomic conditions and public market volatility, the portfolio continued to perform well, generating a gross underlying investment return of 8.8%(1) in the financial year. To put this performance into context, the FTSE All-Share and MSCI World indices both posted negative returns over the same period, at -3.1% and -2.1% respectively. Returns were strong across all stages of the portfolio, but particularly amongst our buyout assets, which achieved an investment return of 10.0% in the context of strong revenue and earnings growth in the portfolio as well as a number of key realisations in the first half of the financial year including Nycomed, Converteam and Orchid Orthopedics. Underlying performance strength is illustrated in a sample of our largest buyout funds and direct investments, which generated revenue and earnings growth of 16.3% and 15.1%(2) respectively. Venture and growth's investment return of 6.7% for the year, whilst below that of buyouts, marks satisfactory progress given the challenging exit environment, particularly in the IPO market. We remain confident that there is latent value in our mature venture and growth assets, which should be well placed to benefit from any future improvements in the IPO and M&A markets. The US assets, which represent 54% of our portfolio, performed in line with overall performance. Perhaps more notable was that despite the ongoing challenges in the Eurozone, our European portfolio had the strongest performance, achieving an investment return of 10% during the period due to a number of realisations at uplifts to holding value as well as good underlying earnings growth. This in part reflects the portfolio's focus on the stronger, Northern economies of Europe, where economic growth and financial markets have been less impacted by the debt crisis in the Eurozone. The Asian portfolio, while contributing positively, underperformed relative to the other regions, following the weakness in Asian public markets. With the majority of its portfolio companies operating in markets outside Europe, such as the USA, which will be less affected by the sovereign debt crisis, the Company is well positioned to continue its record of outperformance.
Share Buybacks Enhanced NAV per Share
As I wrote in February at the time of our half-yearly financial report, the Board believes share buybacks are a compelling investment alternative while discounts remain wide. In the year to 30th June 2012 PIP bought back and cancelled a total value of £32m of shares, resulting in an uplift to NAV per share of approximately 28p, or 2.5% of PIP's NAV per share at 30th June 2011. The Company will continue to use the investment opportunity of historically wide discount levels to buy back its shares in order to enhance NAV per share performance. ACTIVITY AND BALANCE SHEET
Substantial Cash Flow Generation
The Company continued to generate substantial cash flows, despite the uncertainty affecting financial markets. Overall, net portfolio cash flows(3) were £85m, up from £81m in the previous year.
Total calls from underlying private equity funds fell by £30m to £54m in the year to 30th June 2012, mainly reflecting the lower level of undrawn commitments in our portfolio, along with a small reduction in the rate of investment activity. Investment activity was impeded initially by a decline in debt financing in the second half of 2011, although there was evidence of an improvement in the USA in the first quarter of 2012 as companies turned to the high-yield bond market, which saw a significant increase in issuance. Distributions received in the year were £139m, down 16% from the previous year. This reduction reflects a drop in the rate of realisation activity, particularly stemming from weakness in the IPO and M&A markets. While economic uncertainty remains high, many potential acquirers are likely to hold back from completing transactions as they maintain a cautious view of the financial markets. Notwithstanding this, the quality and maturity of PIP's portfolio, with a weighted average fund age of 7.2 years, should mean that the Company continues to generate significant levels of cash even if persistent economic concerns suppress activity somewhat.
Balance Sheet
Following the exchange of the bridging loan notes for new redeemable shares in August 2011 and the continued improvement in net cash inflows, the Company's financial position has been further strengthened. The Company's loan facility, which expires in June 2015, remained unutilised at 30th June 2012 and undrawn investment commitments of £191m as at 30th June 2012 were covered by assets and loan facilities by a factor of 5.0 times, up from 3.9 times at the start of
the financial year. Investment Commitments The Board expects PIP's portfolio to remain self-financing, and with its emphasis on secondaries and through participation in co-investments, the Company will be able to maintain its undrawn commitment cover at a high level. PIP has made new commitments during the year of £27m to four secondaries and one co-investment at the same time as purchasing £32m of its own shares at
an average discount of 38%. OUTLOOK Existing portfolio The Company is well positioned to prosper. The portfolio's proven growth potential and the near-term liquidity outlook for our mature assets underpin the prospects for further value growth and liquidity this year. While your Board remains cautious given the difficult economic and market outlook, well managed private equity funds have demonstrated their ability to outperform broader markets through the application of aligned incentives in executing disciplined shareholder value creation plans. Our underlying sampled earnings growth rates for the year to 31st December 2011 substantially exceeded broader market growth rates (15.1% vs. 2.8% for the MSCI World Index), repeating a pattern of outperformance seen in each year since the onset of the financial crisis. While investment and realisation activity have not yet quite returned to the healthy levels seen in the first half of 2011, the credit markets continue to function, especially in the USA, and transactions are getting done. If conditions remain stable, realisation levels may increase in the coming year, reflecting the continued health of the North American credit markets as the majority of the Company's mature assets are domiciled in the USA. However, the M&A market is likely to remain bound by the risk aversion of cash-rich corporate buyers while equity investors remain wary of markets that are vulnerable to economic shocks. This will remain the case until clearer resolution of the Euro crisis is in sight.
New Investments and Buybacks
The Company will continue to take advantage of this uncertain climate by investing in secondaries and co-investments where our Manager believes it has identified attractively priced defensively positioned assets that have the potential to grow and outperform in their sector. The extent of the Company's investment activity will be determined by cash flow over the financial year - which has had a strong start with the distributions of Global Blue and Carbolite helping to generate £22m of net distributions in the July and August months alone. We expect the market for private equity investments to continue to be favourable in the coming year. Your Board intends to reserve sufficient financial flexibility to take advantage of these opportunities. The Company will continue to buy back shares when our view is that they represent compelling value. 1 Investment return defined as movement in portfolio adjusted for the effect of new investments, calls and distributions/opening portfolio value. This figure excludes gains and losses from foreign exchange movements.
2 Sample based on the underlying companies within PIP's largest 50 buyout funds and direct investments for the year to 31st December 2011 .
3 Net portfolio cash flows = distributions received less investments called. Tom Bartlam Chairman 28th September 2012 THE MANAGER'S REVIEW MARKET REVIEW
The economic uncertainty and public market volatility in the summer of 2011 led to a slowdown in private equity activity globally as IPO markets were effectively closed, debt availability fell and corporates took a cautious view on M&A activity. The first half of 2012 has seen some improvement in conditions with stability in public markets but economic headwinds continue to subdue
activity. US Buyouts
The US private equity market has progressed at a cautious pace in 2012. For the first half of 2012, buyout volume in the US declined by 28% compared to the same period in 2011(1). Consistent with the trend since the beginning of the credit crisis in 2008, the majority of deal activity has been in the mid-market segment. Sectors such as business products and services, IT and healthcare have become increasingly popular as managers seek areas of stability and growth in a deleveraging economy with restricted consumer spending. By contrast, new deal activity in the consumer space has remained flat over the past year at 22% of deals(2). In this phase of the cycle, private equity managers continue to find value in the market dislocation through opportunistic investments such as take-privates of undervalued public companies, carve-outs in the financial services sector resulting from Dodd-Frank and taking advantage of record level high-yield and leveraged loan markets. It is possible that we will see an increase in activity during the remainder of 2012 as owners seek to sell their businesses ahead of tax increases in 2013.
Exits
US exit activity has moderated slightly in the first half of 2012 as IPO markets have favoured only the most promising companies and concern about the global economic outlook has resulted in diverging M&A valuation expectations. The first half of 2012 saw 70 IPOs compared to 78 for the comparable period in 2011. The technology, energy and financial sectors were the three most active for IPOs over the past year, accounting for 67% of public offerings(3). Despite the high-profile share price declines in Facebook and Groupon, IPOs of a number of other companies such as LinkedIn and Zillow have performed well. The M&A market was also somewhat slower, with thefirst half of 2012 value down over 60% compared to the same period in 2011, although still up more than 50% from the latter part of 2011(4). Over half of exits came from sales to trade buyers but secondary buyouts also provided an important source of liquidity(2).
Venture Capital
In the venture capital segment, market activity also slowed down slightly. Following an 18% increase in investment in 2011 compared to 2010, new investments in the first half of 2012 were 7% lower than the comparable period in 2011(5). Consumer-facing sectors such as internet, social media and mobile continue to attract capital and headlines, although enterprise-facing businesses also remained a key focus of many leading venture capital firms. Biotech and clean energy investments, on the other hand, have been particularly challenged by regulations and market viability, and there has been a general pullback in some of the more capital intensive investments in these sectors. Despite the slowdown in new deal and exit activity, private equity firms have focused intensely on creating value in their portfolios through activities such as add-on acquisitions, which accounted for 48% of buyout deals in the first half of 2012(5). Furthermore, taking advantage of an attractive refinancing environment, portfolio companies have been actively refinancing their debt at lower interest rates. Additionally, while growth has recently moderated in the softening economy, operating leverage and margins have improved as a result of cost-cutting initiatives undertaken during the global financial crisis. These productivity gains should make many companies more profitable and competitive over time. EUROPE In Europe new buyout deal activity has continued to drop over the year, with deal values falling by 23%. Although the small-cap segment of the market (covering deals worth less than €100m) has seen quarter on quarter declines in the value and volume of deals, the mid-market segment (deals worth between €100m to €1bn) saw an increase in the number and value of deals in the second quarter of 2012, a reversal of the declining trend(6). Credit markets in Europe have been constrained over the past year, negatively impacting bank lending. Debt has nevertheless continued to be available for higher quality private equity sponsors and companies, mainly in northern Europe, as reflected in deal volumes. The UK has continued to be the most active private equity market, accounting for approximately a third of European activity, followed by France, Germany and Sweden, altogether accounting for 66% of the value of deals done in Europe. Perhaps reflecting the tighter credit markets, activity levels in the expansion stage segment in Europe actually increased to 204 deals in 2012(6). This did not extend to the venture market, which saw only 74 deals completed in the first half of 2012, the lowest total since the second half of 2005. In value terms, the decline is starker still, with the total for the six months to June of just €470m representing a fall even from the second half of 2011 and the lowest level since the second half of 2004. Germany dominated the early-stage segment during the year, having been home to close to 35% of the completed transactions(6).
PIP's European portfolio outperformed public markets, driven by uplifts to NAV on realisations and also better than expected earnings and revenue growth.
ASIA
Asian market activity also declined during the first half of 2012, a function of both falling economic growth levels in China and South East Asia and weak IPO markets. However, M&A activity was relatively buoyant. Western companies continued to seek out growth in Asia, and from Asia, mainly Chinese companies continued to explore acquisitions in the US and Europe. Overall private equity investment in Asia declined approximately 18% compared to a year earlier(7). This drop is explained mostly by lower activity in China, which continues to maintain its position as the largest market for private equity capital in the region, followed by Australia and India. Perhaps this represented a return to normal after a particularly exuberant period of investment in China in the first half of 2011. By contrast, the number of deals in India and Australia fluctuated only modestly, up by 4% in India and down around 8% in Australia(7). Unsurprisingly, given a 43% decline in IPO volumes, realisations fell in the first half of 2012 compared to the first half of 2011(7). In contrast to IPO markets, M&A markets have remained relatively stable, allowing for a slight increase in trade sales, continuing the promise of M&A markets as a source of liquidity for private equity investors. The amount of trade sales remained relatively buoyant in the first half of 2012, increasing 9% versus the same period in 2011. Overall, M&A transactions declined 14%(7). However, these levels show markedly less volatility than the IPO market. While the pace of liquidity has slowed, managers continue to successfully turn to the M&A and secondary private equity markets to book exits or partial realisations.
SECONDARY MARKET
The global market for secondary fund interests saw record activity levels in 2011, with a transaction volume of approximately $25 billion. As in 2010, sales volume was primarily driven by two factors: North American public pension plans that were rebalancing portfolios, and Europe-based financial institutions that continued to bear the impact of the financial crisis. While deal volume did not quite match the records set in the prior year, the first half of 2012 still saw $13 billion worth of secondary transactions completed, with public pension plans and financial institutions comprising two-thirds of deal volume in the first six months of 2012(8). The pricing of transactions was relatively unchanged, with average high first round bids at 80% of NAV, hardly changed over the past year(8). The market saw a growing number of mostly European insurance companies come to market, driven by the need to sell before Solvency II rules come into effect in January 2014. There were relatively few portfolio sales by US-based financial institutions: this is particularly surprising considering the number of banks and insurance companies that hold private equity assets and the potential for significant impact from regulatory changes, including the Volcker Rule. Many of these institutions are either strategically focused on other concerns or in the midst of preparations for impending regulation: we expect further sales to come in the next 18 months from this group of investors. Pantheon's long-term value investing approach targets secondary fund investments that demonstrate latent value. The investment team is currently focused on originating portfolios of resilient companies that have weathered the recession with stable free cash flows to finance growth plans and is actively seeking portfolios of companies operating in consolidating markets with high barriers to entry. This long-term value investing approach is the foundation for Pantheon's successful purchase of secondary portfolios of private equity assets. We expect the trend towards an increasing volume of larger secondary transactions to continue for the foreseeable future. The Company will continue to benefit from Pantheon's network within the private equity market to gain advantageous access to transactions targeted. Pantheon's origination strategy and long-term value investing approach provide the springboard for our continued success in secondary investments. Notes: 1 S&P M&A stats 2 PitchBook 3 Renaissance Capital 4 Capital IQ 5 Venture Source 6 PE Insight/Unquote
7 Asian Venture Capital Journal
8 Cogent Partners
COMPANY STRATEGY
The spread of performance in private equity is much wider than in other asset classes and the selection of managers has a significant influence on investment performance. As a specialist fund-of-funds manager monitoring and researching the global private equity market, Pantheon, PIP's Manager, is well positioned to identify fund managers who have the skills and strategies to deliver superior performance within their particular market segments. PIP's strategy is to invest with leading private equity managers whilst reducing investment risk through diversification of the underlying portfolio by geography, investment stage and sector. This strategy is implemented through PIP's access to Pantheon's primary, secondary and co-investment activities. PIP has the flexibility to vary the size and emphasis of its investments depending on its available financing.
The current portfolio reflects PIP's prolonged access to Pantheon's highly successful primary and secondary investments over the past 25 years. Only funds that have passed rigorous due diligence and research are selected for investment.
Secondary Programme Emphasis
It is the Board's current intention to emphasise secondary investment as the Company makes new commitments.
Secondary purchases of existing interests in private equity funds are typically acquired between three and six years after a fund's inception, when such funds are substantially invested. As a result they tend to have relatively low levels of undrawn commitments. PIP benefits from secondaries because the fees and expenses in the first few years have been paid and distributions from the fund will be returned over a shorter time period. This helps to reduce the drag to performance from young and immature funds, known as the "J-curve effect". In addition, secondary assets can be purchased at a discount, especially in cases where the seller has a need for liquidity, increasing the opportunity for outperformance. More details on secondary investments can be found below.
As the Company continues to build its financial resources through net portfolio realisations, the shorter duration of secondary investments and lower associated undrawn commitments will enable the Company to maintain its financial strength.
In accordance with the terms of its management agreement with Pantheon, PIP is entitled under Pantheon's allocation policy to the opportunity to co-invest in a predetermined ratio alongside Pantheon's latest global secondary fund, Pantheon Global Secondary Fund IV, benefiting from access to larger secondary opportunities that it would not have had the capacity to complete alone. The secondary programme enables PIP to acquire attractively priced secondary interests as they become available, and aims to outperform market averages through judicious pricing and timing.
Co-investments
Whilst the intention is to emphasise secondary investment, the Company will also participate in co-investments alongside established private equity managers. The breadth and depth of Pantheon's General Partner relationships provide a significant advantage for the sourcing and evaluation of co-investments. As with secondary investing, co-investments allow the Company to put money to work at the time it is committed. In addition, as there are lower or no management fees charged on co-investments by the underlying private equity manager, co-investing can represent a cost-efficient way of investing.
It is the Board's current intention that co-investments will not, on average, account for more than 20% of PIP's new commitments.
Primary Commitments
Investing in private equity through a primary commitment strategy (e.g. commitments to new private equity funds), by increasing the proportion of immature assets in its portfolio and by increasing its undrawn commitments relative to its assets, can reduce the Company's financial flexibility. New primary investments have longer payback periods requiring the Company to maintain higher levels of standby financing against undrawn commitments. For these reasons and because the current outlook for secondary investment and co-investment is so favourable, the Board intends to de-emphasise primary commitments for the foreseeable future. Although the Company will consider making primary commitments on a targeted basis for portfolio construction purposes, the Board intends to limit any such commitments.
The investment rationale for any new primary commitments will always be weighed against their effects on the Company's financial flexibility so as to keep the undrawn commitments to a level that can be comfortably expected to be financed from internally generated cash flows.
Share Buybacks
In certain circumstances, usually where the Company's shares are quoted at a significant discount to NAV, the Board may view the shares as presenting an attractive investment opportunity relative to other uses of cash, such as new investment commitments. In such circumstances, the Board will consider targeted buybacks of ordinary and redeemable shares instead of, or in addition to, new investments as a means of utilising cash generated from the Company's portfolio.
CURRENT OUTLOOK FOR SECONDARY INVESTMENTS
WHAT IS A SECONDARY?
A secondary transaction generally consists of purchasing an interest in a private equity fund, or portfolio of multiple funds (consisting of invested capital and remaining capital commitments) from an existing investor seeking liquidity prior to the termination of these funds. A secondary transaction can also consist of purchasing direct company interests which are either privately held or in which the trading of shares is restricted.
WHY INVEST IN SECONDARIES?
A secondary investment exhibits several features that differentiate it from other private equity assets, including the potential for timely deployment and earlier return of capital, portfolio transparency and the ability from time to time to acquire assets at a discount to Pantheon's assessment of the fair market value. Pantheon believes that these characteristics have the potential to reduce the risks typically associated with private equity fund investing.
Timely Deployment of Capital
Investing in secondaries can be a particularly helpful strategy for investors seeking to boost the proportion of their allocation to private equity actually at work "in the ground". Whereas a primary fund at inception has no assets, and will draw down capital at an unpredictable rate over a period of years as it invests into underlying companies, a fund acquired as a secondary is at least partially invested at the time of purchase.
Earlier Return on Investment
Investing later in a fund's life reduces the impact of the "J-curve" normally associated with private equity fund investments. The visibility of assets makes it easier to identify outperforming funds and likely exit horizons. Furthermore, the write down of early, unsuccessful investments, the reduced impact of early management fees and the shorter time horizon to liquidity provides a number of benefits to the investor. Investors may expect an earlier return of capital on their investments, relatively fewer capital calls and a shorter investment holding period.
Reduced Investor Risk
Unlike investing in a fund at inception, when it represents a blind pool of capital, secondary investing allows detailed analysis of a fund's assets. Using a rigorous due diligence process, Pantheon evaluates funds on a company-by-company basis. This bottom-up analysis allows Pantheon to determine which companies are critical to a portfolio's success and evaluate their potential value at the time of exit. This transparency may decrease investment risk. Embedded knowledge of portfolios also enhances Pantheon's ability to assess and value portfolios accurately. Pantheon frequently has performance and operational information on the assets for sale in the secondary market due to its position as an adviser or manager to existing investors in the fund, investment in a portfolio company through another fund or previous contact
with the fund manager. Discount to Fair Market Value Pantheon undertakes detailed analysis on underlying assets in a portfolio to establish value. Discounts to assessed fair market value may be applied to reflect the quality of the assets, the seller's motivation to divest, market conditions and the illiquid nature of the asset class. In certain circumstances a fund interest may be acquired at a premium to NAV, depending on asset quality and fund manager valuation policy among other factors.
Time and Vintage Diversification
Secondary investment is a tool which enables investors in private equity to add an element of retrospective vintage diversification to their portfolios by buying into a range of mature funds, typically three to six years into their lives. This additional diversification serves to mitigate private equity investment risk at the portfolio level.
CURRENT OUTLOOK
The Manager believes that an oversupply of capital to the private equity market from 2006 to 2008 and regulatory changes will continue to provide a stimulus for an attractive market opportunity for secondaries. Furthermore, an emphasis on secondary investing in the coming year will enable the Company to continue to enhance its financial strength by focusing on investments that have a shorter duration than new funds invested through the primary market.
INVESTMENTS CALLED IN THE YEAR TO 30TH JUNE 2012
Investments called during the year ranged across many sectors and regions, from pharmaceutical firms to hospital operators, internet companies to highly specialised manufacturers and from energy companies to firms operating in the telecommunications industry.
Calls by Region and Stage
PIP paid £54m of fund calls in the year to 30th June 2012 , equivalent to approximately 22% of opening undrawn commitments. This is marginally lower than the rate last year, which was 25%.
The majority of calls were split relatively evenly between US and European funds, with the remainder focused on funds based in Asia and other regions. Small/Mid buyouts accounted for the largest portion of calls, followed by the venture and growth and large/mega buyout stages.
Calls by Region
Europe 46%
USA 44%
Asia and other 10%
Total 100%
Calls by Stage
Small/Mid Buyout 42%
Venture and 30%
Growth
Large/Mega Buyout 25%
Special 3%
Situations
Total 100%
DISTRIBUTIONS IN THE YEAR TO 30TH JUNE 2012
PIP received more than 800(1) distributions in the year, with many at significant uplifts to carrying value. The Company's mature and diversified portfolio should continue to generate significant distributions in the coming quarters.
1 This figure looks through feeders and funds-of-funds.
Distributions by Region and Stage
PIP received £139m in proceeds from the portfolio in the 12 months to 30th June 2012, equivalent to approximately 17% of opening private equity assets, down from 22% on the previous financial year. The majority of distributions were from funds based in the USA, although PIP also received a number of significant distributions from its European portfolio such as Nycomed, Converteam and Phadia. Overall distribution activity was stronger in our buyout funds relative to our venture and growth funds.
Distributions by Region
USA 54%
Europe 34%
Asia and other 12%
Total 100%
Distributions by Stage
Small/Mid Buyout 41%
Large/Mega Buyout 24%
Venture and Growth 21%
Special Situations 8%
Generalist 6%
Total 100%
Cost Multiples on a Sample of the Largest Distributions in the Year to 30th June 2012 (1)
On a sample of the largest 50 distributions, the value-weighted average cost multiple was 3.4 times. This highlights the continued ability of private equity managers to create significant value over the course of an investment. 1 The available data in the sample represented approximately 39% of PIP's total distributions for the year to 30th June 2012. This data is based upon cost mutiples (gross or net) available at the time of the distribution.
Uplifts to Previous Valuations on a Sample of the Largest Distributions in the Year to 30th June 2012 (2)
On a sample of the largest 50 distributions, the value-weighted average uplift was 36%. This is consistent with our view that realisations tend to be significantly incremental to returns. PIP's mature portfolio is well placed to continue to generate a good level of distributions in the coming year.
2 The available data in the sample represented approximately 34% of PIP's total distributions for the year to 30th June 2012 .
PORTFOLIO OVERVIEW
The diversification of PIP's portfolio, with assets spread across different investment styles and stages including buyout, venture and growth, and special situations, helps to reduce volatility of both returns and cash flows. The maturity profile of the portfolio ensures that PIP is not overly exposed to any one vintage. Furthermore, PIP's geographical diversification extends its exposure beyond the USA and Europe, to regions with higher rates of economic growth such as Asia. As such, the Company offers a comprehensively global, diversified selection of private equity assets, carefully selected by Pantheon for their quality.
Portfolio Analysis by Value as at 30th June 2012 (1)
Fund Geography
The majority of PIP's geographical exposure is focused on the USA and Europe,
reflecting the fact that these regions have the most developed private equity
markets. PIP's assets based in Asia and other regions provide access to
faster-growing economies.
USA 54%
Europe 35%
Asia and other 11%
Total 100%
Fund Stage
PIP's portfolio is well diversified across different private equity investment
styles and stages. The majority of the Company's buyout exposure is focused on
smaller- and mid-cap funds, which have tended to utilise lower levels of
leverage in their acquisition structures than the very largest funds. In
addition, PIP has a significant exposure to venture and growth-focused funds,
many of which were acquired through the secondary market.
Small/Mid Buyout 35%
Venture and 31%
Growth
Large/Mega Buyout 23%
Special 6%
Situations
Generalist 3%
Directs 2%
Total 100%
Fund Maturity
PIP's portfolio is well diversified by fund vintage (referring to the year the fund made its first drawdown). Only 18% of the portfolio relates to large/mega buyouts from fund vintages 2005 to 2007, indicating that the Company has a relatively low exposure to the higher levels of leverage experienced during
the
peak of the buyout market.
2000 and earlier 15%
2001 5%
2002 1%
2003 3%
2004 5%
2005 14%
2006 22%
2007 25%
2008 9%
2009 1%
Total 100%
Primary/Secondary
65% of the portfolio is derived from primary transactions and 35% from secondary transactions.
Because PIP acquires many of its investments in the secondary market, it is able to acquire relatively mature assets having good visibility of underlying company quality and prospects.
Primary 65%
Secondary 35%
Total 100%
Company Sectors
PIP's portfolio is well diversified by the sectors in which the underlying
companies operate. This sectoral diversification helps to minimise the effects
of cyclical trends within particular industry segments. Relative to the FTSE
All-Share and MSCI World indices, PIP is underweight in many of the segments
that were associated with high levels of market volatility during the global
financial crisis, such as energy and financials.
Information Technology 24%
Consumer Discretionary 20%
Industrials 15%
Healthcare 13%
Financials 8%
Energy 6%
Consumer Staples 5%
Materials 4%
Telecom Services 4%
Utilities 1%
Total 100%
Company Geography
Half of PIP's portfolio is with funds focusing on the USA which has, in our
view, better growth prospects than many other areas of the developed world.
PIP's European exposure, which represents just over a third of the portfolio,
is concentrated in funds focusing on the UK and the stronger Northern Europe
economies, with Germany and Scandinavia making up significant segments of the
portfolio. Just over a tenth of PIP's portfolio is based in Asia and other
regions, providing access to faster growing economies such as China and India.
North America 50%
UK 14%
Asia and other 12%
Germany 5%
Scandinavia 5%
Benelux 4%
Central and Eastern 3%
Europe
France 2%
Italy 2%
Iberia 2%
Other Europe 1%
Total 100%
1 Fund geography, stage,maturity and primary/secondary tablesare based upon underlying fund valuations and account for 100% of PIP's overall portfolio value. Company Sector and Company Geography tablesare based upon underlying company valuations at 31st December 2011 and account for approximately 90% of PIP's overall portfolio value.
PORTFOLIO ANALYSIS
Portfolio Performance by Stage for the Year to 30th June 2012 (1)
> The portfolio performed well during the financial year, generating an investment return of 8.8%, in comparison with the FTSE All-Share Total Return and MSCI World Total Return (sterling) indices which returned -3.1% and -2.1% respectively over the same period.
> Returns were strong across all stages, particularly in PIP's buyout portfolio, which benefited from a number of significant realisations and good earnings growth at the company level (see below for more details on sample growth rates).
> The venture and growth funds experienced investment returns of 6.7% for the year. Although below that of buyouts, it marks satisfactory progress given the challenging exit environment, particularly in view of the weak IPO market.
Debt Multiples(2)
Venture and growth, small/mid-size buyouts and large/mega buyouts account for 89% of the portfolio value, and have differing leverage characteristics:
> The venture and growth portfolio accounts for 31% of portfolio value and has very little or no reliance on debt.
> The small/mid-size buyout portfolio sampled contains a moderate level of debt, with net debt/EBITDA of 3.0 times at 31st December 2011 .
> The large/mega buyout portfolio sampled contains higher levels of debt with net debt/EBITDA of 4.2 times at 31st December 2011 .
Valuation Multiple(2)
> Accounting standards require private equity managers to value their portfolio at fair value. This leads to volatility in valuations reflecting movements in the broader markets. However, valuations of private equity assets can often leave some room for value enhancement when liquidity is released through a sale.
> Sample weighted average enterprise value/EBITDA for the year to 31st December 2011 was 9.4 times.
Revenue and EBITDA Growth(2)
> Weighted average revenue and EBITDA growth for the sampled buyout companies was +16.3% and +15.1% respectively in the year to 31st December 2011 , suggesting strong top-line performance and efficient cost controls at the companies within our largest buyout funds.
> Including information disclosed in previous Annual Reports, we have now disclosed underlying revenue and EBITDA growth for PIP's largest buyout funds for the years to 31st December 2009, 2010 and 2011. In all three years PIP's sample growth data has exceeded the growth rates of the FTSE All-Share and MSCI World indices.
> We believe that this is the natural consequence of selecting high quality funds focusing on mid market opportunities where the scale of such opportunities provides scope for ample outperformance under the private equity ownership model.
(1)Portfolio returns include income, exclude gains and losses from foreign exchange movements, and look through feeders and funds-of-funds.
(2)Buyout Sample Methodology
The sample buyout figures for the year to 31st December 2011 were calculated from the companies, where information was available, within the largest 50 buyout funds and direct investments at 30th June 2011. This sample provides coverage of approximately 50% of the value of PIP's buyout and direct portfolio. The figures are based upon unaudited data. The revenue and EBITDA figures were based upon the year to 31st December 2011, or where not available the closest annual period disclosed. The net debt and enterprise value figures were based upon 31st December 2011 underlying valuations, or the closest period end disclosed. The underlying company data was weighted by NAV to calculate an average. Individual company revenue and EBITDA growth figures were capped between +1000% and -1000% to avoid large distortions from excessive outliers.
Venture and Growth Performance
> PIP's venture and growth assets with fund vintages from 2002 to 2006 performed strongly, generating a return of 11.5% in the financial year.
> PIP's older venture and growth assets, with fund vintages of 2001 and earlier, generated a return of 3.7% during a year when exit markets, particularly for IPOs, have been markedly subdued. As with the previous financial year, these assets continue to generate the highest level of realisations within our venture and growth portfolio.
> Many of the funds within PIP's venture and growth portfolio, which has a weighted average age of 8.2 years, contain companies that are now mature and cash-generative, having survived the bursting of the technology bubble and the latest downturn. These assets can have an increased likelihood of returning cash to investors as their managers seek to prepare them for exit.
> It is our view that PIP's mature venture and growth assets can continue to produce a good level of distributions.
FINANCE
Cash and Available Bank Facility
At 30th June 2012 PIP had cash balances of £51m.
As well as these cash balances, PIP can also finance any cash requirements out
of its multi-currency revolving credit facility agreement ("Loan Facility").
The Loan Facility is due to expire in June 2015 and comprises facilities of
$82m and €57m which, using exchange rates at 30th June 2012, amount to a
sterling equivalent of £98m. At 30th June 2012 the Loan Facility remained fully
undrawn.
Exchange of Loan Notes for Shares
Between 2005 and 2008 PIP entered into a number of standby agreements (the "Standby Commitments") with certain institutions under which the Company could require the institutions to subscribe up to £150m for new redeemable shares, at a price equal to the prevailing NAV per share at the time of subscription. The purpose of these Standby Commitments was to provide an additional level of assurance that PIP would be in a position at all times to meet its financial obligations. Furthermore, in December 2008 and September/October 2010, PIP issued to these institutions a total of £100.5m in unsecured subordinated loan notes which were due to mature on 15th November 2011 (the "Loan Notes") in order to bridge calls under the Standby Commitments. On 24th August 2011, PIP drew down £100.5m under the Standby Commitments, resulting in the issue of 9.1m new redeemable shares (based on the prevailing adjusted NAV per share at 30th June 2011 of 1,104.12p). Simultaneously, the Company repaid £100.5m of Loan Notes, effectively exchanging the full balance of the Loan Notes for new redeemable shares. At the end of September 2011 the Board terminated the remaining £49.5m of Standby Commitments.
These actions have simplified the Company's capital structure by removing the Loan Notes from the balance sheet.
Share Buybacks
PIP bought back 6%(1) of its shares during the financial year, taking advantage of the investment opportunity offered by its shares continuing to trade at historically high discounts. In total 1.4m ordinary shares and 3.3m redeemable shares were bought back at a weighted discount of 38% and 39% respectively, resulting in a total uplift to NAV per share of approximately 28p, or 2.5% of opening NAV per share.
Since the year end, the Company has bought back a further 0.3m redeemable shares at an average discount of 39%. Whilst PIP's shares trade at such historically high discounts, the Board will continue to consider further share buybacks for investment purposes.
1 6% is the number of shares bought back in the year divided by the number of shares outstanding prior to any share buybacks.
Undrawn Commitment Cover
At 30th June 2012, the Company had £150m of available financing, comprised of its cash balances and Loan Facility. The sum of PIP's available financing and private equity portfolio provide a coverage of 5.0 times relative to undrawn commitments, up from 3.9 times at 30th June 2011. It should be noted that a portion of the Company's undrawn commitments might not be called by the underlying managers. When a fund is past its investment period, which is typically between five and six years, it generally cannot make any new investments (only drawing capital to fund existing follow-on investments or pay expenses). As a result, the rate of capital calls in these funds tends to slow dramatically. 33% of the Company's undrawn commitments are in fund vintages that are greater than six years old.
OUTSTANDING COMMITMENTS
PIP's outstanding commitments to fund investments, 65% of which relate to primary funds and 35% of which relate to secondary funds, are well diversified by stage and geography and will enable the Company to participate in future investments with many of the highest quality fund managers in the private equity industry.
Portfolio Analysis by Outstanding Commitments as at 30th June 2012
PIP's outstanding commitments to investments decreased to £191m at 30th June 2012 compared with £243m at 30th June 2011. The Company paid calls of £54m and acquired £8m of outstanding commitments via four secondary transactions. The remaining movements were caused by fluctuations in exchange rates and cancellations of outstanding commitments by general partners.
Geography
The USA and Europe have the largest outstanding commitments, reflecting the fact that they have the most developed private equity markets. Commitments to Asia and other regions provide access to faster-growing economies.
USA 52%
Europe 36%
Asia and other 12%
Total 100%
Stage
PIP's undrawn commitments are well diversified across all major stages of
private equity. The majority of the buyout exposure is with smaller and mid-cap
funds. Venture and growth forms a significant portion of the Company's undrawn
commitments.
Small/Mid Buyout 40%
Venture and Growth 25%
Large/Mega Buyout 23%
Special Situations 8%
Generalist 4%
Total 100%
Maturity
33% of PIP's undrawn commitments are in the 2005 fund vintage or older. Most
relate to funds that are outside their investment periods and, as such, should
have slower call rates. It is likely that a portion of these commitments will
not be drawn.
2005 and earlier 33%
2006 14%
2007 27%
2008 21%
2009 4%
2010 1%
2011 0%
Total 100%
Pantheon Vehicles
Pantheon is not entitled to management and commitment fees in respect of PIP's
holdings in, and outstanding commitments to, the firm's managed fund-of-funds
vehicles. In addition, Pantheon has agreed that PIP will never be disadvantaged
in terms of fees compared with the position it would have been in had it made
investments directly into the underlying funds rather than indirectly through
such fund-of-fund vehicles. At 30th June 2012, 8% of PIP's portfolio value and
13% of PIP's outstanding commitments were comprised of fund-of-funds directly
managed by Pantheon.
New Commitments
By region:
USA 92%
Europe 8%
100%
By stage:
Large/Mega Buyout 86%
Co-investments 8%
Small/Mid Buyout 6%
100%
> PIP made £27m of new commitments during the financial year.
> 92% of the new commitments were made to four secondary transactions, with the majority of these relating to large/mega buyout funds based in the USA. On an aggregate basis these transactions were approximately 70% funded.
> 8% of the new commitments were invested in a new co-investment into a US-based oil and gas company.
> No new primary commitments were made during the financial year.
> Within PIP's current portfolio, European assets are less mature than US-based assets, and are therefore distributing at a slower rate which may, if left unchecked, lead to the European portfolio growing disproportionately in size. We expect that PIP's new investments in the coming financial year will be more focused outside Europe. > Furthermore, the majority of new secondary commitments will likely be focused on buyout assets, reflecting the mix of funds raised at the peak of the fundraising cycle between 2005 and 2008. Buyout funds also tend to have shorter payback periods relative to venture and growth assets, which can be a beneficial characteristic for cash flow purposes.
LARGEST 20 MANAGERS BY VALUE AS AT 30TH JUNE 2012
% OF PIP'S
TOTAL
PRIVATE
NUMBER MANAGER REGION STAGE BIAS EQUITY ASSET
VALUE
1 Equistone EUROPE BUYOUT 2.6%
2 CVC Capital Partners GLOBAL BUYOUT 2.2%
3 Apax Partners EUROPE BUYOUT 2.2%
4 Nova Capital Management EUROPE BUYOUT 2.1%
5 Carlyle Group GLOBAL GENERALIST 2.0%
6 Golden Gate Capital USA BUYOUT 1.9%
7 Vision Capital EUROPE BUYOUT 1.8%
8 Blackstone Capital USA BUYOUT 1.7%
Partners
9 Baring Vostok Capital EUROPE BUYOUT 1.6%
Partners
10 Doughty Hanson & Co EUROPE BUYOUT 1.6%
11 Bain Capital USA BUYOUT 1.5%
12 Brentwood Associates USA BUYOUT 1.5%
13 IK Investment Partners EUROPE BUYOUT 1.5%
14 Providence Equity USA BUYOUT 1.4%
Partners
15 Hutton Collins EUROPE SPECIAL SITUATIONS 1.3%
16 Oak Investment Partners USA VENTURE AND GROWTH 1.3%
17 Riverstone Holdings USA SPECIAL SITUATIONS 1.3%
18 Genstar Capital USA BUYOUT 1.3%
Partners
19 Texas Pacific Group GLOBAL BUYOUT 1.3%
20 Apollo Management USA BUYOUT 1.3%
LARGEST 20 MANAGERS BY OUTSTANDING COMMITMENTS AS AT 30TH JUNE 2012
% OF
OUTSTANDING
COMMITMENTS
NUMBER MANAGER REGION STAGE BIAS
1 Carlyle Group GLOBAL GENERALIST 4.3%
2 Hutton Collins EUROPE SPECIAL SITUATIONS 3.8%
3 CVC Capital Partners GLOBAL BUYOUT 3.4%
4 Texas Pacific Group GLOBAL BUYOUT 2.8%
5 GrandBanks Capital USA VENTURE AND GROWTH 2.7%
6 ABS Capital Partners USA VENTURE AND GROWTH 2.5%
7 Clessidra Capital EUROPE BUYOUT 2.5%
Partners
8 Summit Partners GLOBAL VENTURE AND GROWTH 2.3%
9 Unison ASIA AND BUYOUT 2.1%
OTHER
10 Mid-Europa Partners EUROPE BUYOUT 1.6%
11 Equistone EUROPE BUYOUT 1.6%
12 Vision Capital EUROPE BUYOUT 1.5%
13 Private Equity Partners EUROPE BUYOUT 1.5%
14 Gemini Israel Funds EUROPE VENTURE AND GROWTH 1.4%
15 Unitas Capital ASIA AND BUYOUT 1.2%
OTHER
16 Herkules Capital EUROPE BUYOUT 1.1%
17 Baring Vostok Capital EUROPE BUYOUT 1.1%
Partners
18 Golden Gate Capital USA BUYOUT 1.0%
19 Canaan Partners USA VENTURE AND GROWTH 1.0%
20 Castle Harlan Partners GLOBAL BUYOUT 1.0%
The largest 20 mangers by value and outstanding commitments are based upon underlying fund valuations.
LARGEST 20 COMPANIES BY VALUE AS AT 30TH JUNE 2012
% OF PIP'S
TOTAL PRIVATE
EQUITY ASSET
NUMBER COMPANY COUNTRY SECTOR VALUE
1 Carbolite† UK INDUSTRIALS 1.4%
2 Attendo SWEDEN HEALTHCARE 1.1%
3 Bibby Scientific UK INFORMATION 1.0%
TECHNOLOGY
4 Global Blue† UK FINANCIALS 0.8%
5 VBrick Systems USA INFORMATION 0.7%
TECHNOLOGY
6 Splunk*† USA INFORMATION 0.6%
TECHNOLOGY
7 BrightHouse UK CONSUMER 0.5%
DISCRETIONARY
8 Groupon* USA INFORMATION 0.5%
TECHNOLOGY
9 TDC* DENMARK TELECOMMUNICATION 0.5%
SERVICES
10 Evonik GERMANY MATERIALS 0.4%
11 Siltron SOUTH KOREA INFORMATION 0.4%
TECHNOLOGY
12 The Teaching Company USA CONSUMER 0.4%
DISCRETIONARY
13 Yandex* RUSSIA INFORMATION 0.4%
TECHNOLOGY
14 Fairway Market USA CONSUMER STAPLES 0.4%
15 InterXion* NETHERLANDS INFORMATION 0.3%
TECHNOLOGY
16 Alarm.com† USA INDUSTRIALS 0.3%
17 2e2 UK INFORMATION 0.3%
TECHNOLOGY
18 CPL Industries UK ENERGY 0.3%
19 Spotify SWEDEN INFORMATION 0.3%
TECHNOLOGY
20 JDR USA ENERGY 0.3%
* Quoted holding as at 30th June 2012.
† Known liquidity event after 30th June 2012.
The largest 20 companies table is based upon underlying company valuations at
31st December 2011, adjusted for known calls, distributions and new investment
commitments.
THE MANAGER (PANTHEON)
Pantheon, one of the world's foremost private equity specialists, has acted as Manager to PIP since its inception in 1987, evaluating and managing investments on PIP's behalf in line with the strategy agreed by the Board. Pantheon is also one of the largest and most experienced secondary managers, having committed more than $7 billion to secondaries over more than 20 years.
Strong Private Equity Track Record
Pantheon is one of the leading private equity fund investors in the world, with global assets under management of $23.9 billion¹, and over 400 institutional investors. Pantheon has a strong and consistent private equity investment track record. For 30 years Pantheon has made investments in over 1,000 private equity funds, gaining exceptional insight and access to the most attractive funds in all
the major private equity markets. Risk Management
Pantheon has substantial experience of investing in private equity through various economic cycles and in different regional markets. The firm's asset allocation, diversification strategies and disciplined investment process are structured with the objective of producing the best possible risk-adjusted returns. Pantheon's diversification strategy limits portfolio risk by including a multi-strategy approach, targeting funds with a variety of different return characteristics and deploying capital over a number of vintage years, generally ensuring that the most attractive segments of the market are represented in the portfolio. When applying this approach, the Board works closely with Pantheon to ensure that the management of the Company is in line with its agreed strategy.
Reputation as a Preferred Investor
Pantheon has been investing in private equity for 30 years and has an enviable reputation in the industry. Pantheon is often considered a preferred investor due to its reputation, active approach and scale of commitments. In addition, Pantheon generally seeks advisory board seats to contribute actively to governance during the life of the fund. As such Pantheon is represented on over 250 advisory boards worldwide. Long-standing partnerships with managers on a global basis can also enhance the firm's deal flow in the secondary market.
Team-based Culture
Pantheon draws upon a deep pool of resources that contributes to a unique team-based culture. With teams operating in London, San Francisco, Hong Kong and New York, Pantheon adopts a collegiate approach to investment decision-making, globally leveraging the collective experience and expertise of all investment professionals. The team's experience is also brought to bear on the evaluation, selection and ongoing monitoring of fund investments. Pantheon's team of 69 investment professionals, supported by 116 other professionalS(2), work together with the ultimate aim of producing strong and consistent results. Secondary Investing
Pantheon is one of the largest and longest established secondary investors in the world, with more than 20 years' experience of successful secondary investing and a team of 17 senior investment professionals who focus on secondary transactions(2). This size and experience means Pantheon can focus on large and complex deals in which many other, lower resourced, investors cannot participate.
Pantheon has committed more than $7 billion in the secondary market globally across more than 290 transactions, including more than 90 portfolio transactions and more than 190 single fund secondaries.
Pantheon always aims to leverage the knowledge and due diligence information of its primary fund teams and global offices. Long-standing partnerships with general partners on a global basis help to enhance the firm's deal flow.
While the increase in scale of the secondary market has been paralleled by growth in the number of would-be acquirers of secondary assets, Pantheon believes it has an advantage in having wide experience and coverage. As a result, the differentiation between experienced and well-resourced global specialists and the rest is becoming increasingly apparent as the market evolves.
1 As at 31st March 2012 .
2 All staff figures as at 1st August 2012 .
OBJECTIVE AND INVESTMENT POLICY
The Company's primary investment objective is to maximise capital growth by investing in a diversified portfolio of private equity funds and, occasionally, directly in private companies.
The Company's policy is to make unquoted investments, in general by subscribing for investments in new private equity funds and buying secondary interests in existing private equity funds and, occasionally, by acquiring direct holdings in unquoted companies, usually either where a vendor is seeking to sell a combined portfolio of fund interests and direct holdings or where there is a private equity manager, well known to the Company's Manager, investing on substantially the same terms. The Company may invest in private equity funds which are quoted. In addition, the Company may from time to time hold quoted investments in consequence of such investments being distributed to the Company from its fund investments or in consequence of an investment in an unquoted company becoming quoted. The Company will not otherwise normally invest in quoted securities, although the Company reserves the right to do so should this be deemed to be in the interests of the Company. The Company may invest in any type of financial instrument, including equity and non-equity shares, debt securities, subscription and conversion rights and options in relation to such shares and securities and interests in partnerships and limited partnerships and other forms of collective investment scheme. Investments in funds and companies may be made either directly or indirectly, through one or more holding, special purpose or investment vehicles in which one or more co-investors may also have an interest. The Company employs a policy of over-commitment. This means that the Company may commit more than its available uninvested assets to investments in private equity funds on the basis that such commitments can be met from anticipated future cash flows to the Company and through the use of borrowings and capital raisings where necessary. The Company's policy is to adopt a global investment approach. The Company's strategy is to mitigate investment risk through diversification of its underlying portfolio by geography, sector and investment stage. Since the Company's assets are invested globally on the basis, primarily, of the merits of individual investment opportunities, the Company does not adopt maximum or minimum exposures to specific geographic regions, industry sectors or the investment stage of underlying investments.
In addition, the Company adopts the following limitations for the purpose of diversifying investment risk:
> the requirement for approval as an investment trust applying to the Company in relation to its accounting period ended on 30th June 2012 that no holding in a company will represent more than 15% by value of the Company's investments at the time of investment; > the aggregate of all the amounts invested by the Company in (including commitments to or in respect of) funds managed by a single management group may not, in consequence of any such investment being made, form more than 20% of the aggregate of the most recently determined gross asset value of the Company and the Company's aggregate outstanding commitments in respect of investments at the time such investment is made;
> the Company will invest no more than 15% of its total assets in other UK-listed closed-ended investment funds (including UK-listed investment trusts).
The Company may invest in funds and other vehicles established and managed or advised by Pantheon or any Pantheon affiliate. In determining the diversification of its portfolio and applying the manager diversification requirement referred to above, the Company looks through vehicles established and managed or advised by Pantheon or any Pantheon affiliate.
The Company may enter into derivatives transactions for the purposes of efficient portfolio management and hedging (for example, hedging interest rate, currency or market exposures).
Surplus cash of the Company may be invested in fixed interest securities, bank deposits or other similar securities.
The Company may borrow to make investments and typically uses its borrowing facilities to manage its cash flows flexibly, enabling the Company to make investments as and when suitable opportunities arise and to meet calls in relation to existing investments without having to retain significant cash balances for such purposes. Under the Company's articles of association, the Company's borrowings may not at any time exceed 100% of the Company's net asset value. Typically, the Company does not expect its gearing to exceed 30% of gross assets. However, gearing may exceed this in the event that, for example, the Company's pipeline of future cash flows alters. The Company may invest in private equity funds, unquoted companies or special purpose or investment holding vehicles which are geared by loan facilities that rank ahead of the Company's investment. The Company does not adopt restrictions on the extent to which it is exposed to gearing in funds or companies in which it invests. THE DIRECTORS
The Directors in office at the date of this report are:
Tom Bartlam (Chairman) Ian Barby (Audit Committee Chairman) Richard Crowder Sir Laurie Magnus Susannah Nicklin Peter Readman (Senior Independent Director) Rhoddy Swire
EXTRACTS FROM THE DIRECTORS' REPORT
BUSINESS REVIEW
The Business Review is designed to provide shareholders with information about the Company's business and results in the year to 30th June 2012. It should be read in conjunction with the Chairman's Statement and Manager's Review.
Business and Strategy
Pantheon International Participations PLC (the "Company" or "PIP"), a closed-ended investment trust, is the longest established private equity fund-of-funds quoted on the London Stock Exchange. It enables investors to gain access to a substantial portfolio of unquoted companies in the USA, Europe and Asia, within funds managed by experienced private equity managers selected for their ability to outperform. PIP's primary investment objective is to maximise capital growth by investing in a diversified portfolio of private equity funds and, occasionally, directly in private companies. The Company's full Objective and Investment Policy are set out above.
The Company was incorporated and registered in England and Wales on 16 July 1987 . It is registered as a public limited company and is an investment company as defined by Section 833 of the Companies Act 2006. It is a member of The Association of Investment Companies ("AIC").
The Company has received written approval from HM Revenue & Customs ("HMRC") as
an authorised investment trust under Sections 1158/59 of the Corporation Tax
Act 2010 for the year ended 30th June 2011. This approval is subject to there
being no subsequent enquiry under corporation tax self-assessment. The Company
has been approved as an investment trust for all previous years. It is the
opinion of the Directors that the Company has subsequently directed its affairs
so as to enable it to continue to qualify for such approval.
New regulations for obtaining and retaining investment trust status apply to
the Company with effect from 1 July 2012. An application for approval as an
investment trust under the new regime must be made not later than 90 days after
30th June 2013. If the application is accepted, the Company will be treated as
an investment trust company for the accounting period ending on 30th June 2013
and for each subsequent accounting period (subject to any subsequent serious
breaches of the regulations). The other significant changes are to remove the
maximum holding in any one company of 15% by value of total investment and
replace this with a risk diversification approach, to remove the requirement
for the Company's income to be derived wholly or mainly from shares or
securities (thereby broadening the range of possible investments) and to remove
the restriction on the distribution of capital profits as dividend. The 15%
maximum holding limitation is replicated as an investment restriction in the
Company's investment policy and there are no current plans to amend this.
The Company's status as an investment trust allows it to obtain an exemption
from paying capital gains tax on the profits made from the sale of its
investments. Investment trusts offer a number of advantages for investors,
including access to investment opportunities that might not be open to private
investors and to professional stock selection skills at low cost.
Principal Risks and Uncertainties Facing the Company
The Company invests principally in private equity funds. However, the Company's strategy is to adopt a global fund-of funds investment programme, maximising returns through selection of the best available funds, and to mitigate investment risk through diversification of the underlying portfolio by geography, investment stage and sector. The principal risks facing the Company include the following:
Funding of investment commitments
In the normal course of its business, the Company typically has outstanding commitments to private equity funds which are substantial relative to the Company's assets and may be drawn down at any time. The Company's ability to meet these commitments is dependent upon it receiving cash distributions (the timing and amount of which can be unpredictable) from its private equity investments and, to the extent these are insufficient, on the availability of financing facilities.
Risks relating to investment opportunities
There is no guarantee that the Company will find sufficient suitable investment opportunities, or that the private equity funds in which it invests will find suitable investment opportunities, to achieve the level of diversification which the Company seeks to achieve in relation to its investment portfolio.
Financial risk of private equity
The Company invests in private equity funds and unquoted companies which are less readily marketable than quoted securities and may take a long time to realise. In addition, such investments may carry a higher degree of risk than investments in quoted securities. The Company may be adversely affected by these risks notwithstanding the level of diversification which it seeks to achieve in relation to its investment portfolio.
Long-term nature of private equity investments
Private equity investments are long-term in nature and may take some years before reaching a level of maturity at which they can be realised. Accordingly, it is possible that the Company may not receive a return on investments made by it for a number of years. Liquidity risk
Due to the Company's investment policy, a large proportion of the Company's portfolio comprises indirect participations in unquoted investments and direct holdings in unquoted investments. Such investments are less readily marketable than quoted securities and realisation of these investments may require a lengthy time period or may result in distributions in kind to the Company.
Valuation uncertainty
In valuing its investments in private equity funds and unquoted companies and
in publishing its net asset value ("NAV"), the Company relies to a significant
extent on the accuracy of financial and other information provided by these
funds and companies to the Manager. There is potential for inconsistency in the
valuation methods adopted by these funds and companies. In addition, the
information provided is typically more than 90 days old at the time the NAV of
the Company's shares is reported.
Gearing
The Company has four-year committed revolving dollar and euro credit facilities with The Royal Bank of Scotland plc and Lloyds TSB Bank plc, which expire in June 2015. As at 30th June 2012 these facilities were undrawn (2011: undrawn). At 30th June 2011 the Company had borrowings of £100.5m in the form of unsecured subordinated loan notes. These loan notes were exchanged for new redeemable shares on 24th August 2011. The use of gearing can cause both gains and losses in the asset value of the Company to be magnified. The Company may also invest in private equity funds or unquoted companies which are geared by loan facilities that rank ahead of the Company's investment both for payment of interest and capital. As a consequence, the Company may be exposed to gearing through the borrowings from time to time of such private equity funds and companies, therefore investment in such assets presents a higher risk as to their capital return.
Foreign currency risk
The Company makes investments in US dollars, euros and other currencies as well as sterling. Accordingly, the Company is exposed to currency exchange rate fluctuations.
Competition
The Company competes for investments with other investors. It is possible that competition for appropriate investment opportunities may increase, thus reducing the number of opportunities available and adversely affecting the terms upon which such investments can be made.
Unregulated nature of underlying investments
The private equity funds and underlying unquoted investments that form the basis of the majority of the Company's portfolio are not subject to regulation by the Financial Services Authority or an equivalent regulatory body. Funds and unquoted companies in which the Company invests (directly or indirectly) may be domiciled in jurisdictions which do not have a regulatory regime which provides an equivalent level of investor protection to that provided under the laws
of the United Kingdom. Defaults on commitments
If, in consequence of any failure to meet a demand for payment of any outstanding unpaid capital commitment of the Company to any private equity fund in which the Company has invested, the Company is treated as a defaulting investor by that fund, the Company may suffer a resultant dilution in its interest in that fund and, possibly, the compulsory sale of that interest.
Taxation
Any change in the Company's tax status or in taxation legislation or practice could affect the value of the investments held by and the performance of the Company. In addition, the income and gains of the Company from its investments may suffer withholding tax which may not be reclaimable in the countries where such income and gains arise.
The Manager and other third party advisers
Like most investment trust companies, the Company has no employees and the Directors are all non-executive. The Company is dependent upon the services of Pantheon as Manager and may be adversely affected if the services of Pantheon cease to be available to the Company. Details of the terms of the Management Agreement are set out in the full Annual Report and Accounts.
Other third party service providers on whom the Company relies include Capita Sinclair Henderson Limited, which provides administrative, accounting and company secretarial services, and HSBC Bank plc, which acts as Custodian in respect of the Company's quoted equities and bonds.
The Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act ("FATCA") is United States anti-avoidance legislation. Foreign Financial Institutions ("FFIs"), a term that may include UK investment trust companies, need to have registered with the IRS by 30th June 2013 . Consultation is continuing and the impact on UK investment trust companies remains uncertain.
Further information on risks
Further information on the principal risks the Company faces in its portfolio management activities and the policies for managing these risks and the policy and practice with regard to financial instruments are summarised in Note 21
to
the financial statements.
Review of 2011/2012
Net asset value
The Company's total net assets attributable to shareholders increased during
the year to £845.4m (2011: £733.1m excluding the derivative asset). The NAV per
share and redemption value per redeemable share was 1,193.50p at 30th June 2012
(2011: 1,104.12p).
The net assets and NAV per share at 30th June 2011 have been adjusted to
exclude the derivative asset relating to the Company's standby subscription
agreements in place at that time with certain institutions under which those
institutions were obliged, on being called upon to do so by the Company, to
subscribe for new redeemable shares in the Company ("Standby Commitments"). The
Board considered that the best measure of the Company's economic value to
shareholders was the adjusted net asset value per share (see Notes 13 and 16 to
the financial statements for details of the adjustment).
The utilisation that took place on 24th August 2011 in respect of £100.5m of
the £150m Standby Commitments and the termination of the remaining £49.5m
Standby Commitments on 30th September 2011 led to a reversal of the derivative
asset in the financial statements.
Results and dividends
The results for the year are as set out in the Income Statement. This shows that the Company's net revenue profit on ordinary activities before taxation for the year was £0.3m (2011: deficit of £3.4m) and adjusted capital returns were £44.9m (2011: £101.9m), excluding the loss on the derivative asset at fair value through profit or loss.
The Directors do not recommend the payment of a dividend in respect of the year ended 30th June 2012 (2011: nil).
Key performance indicators
The Board and the Manager monitor the following Key Performance Indicators:
1. The NAV performance
PIP's NAV per share increased by 8.1% from the prior year adjusted NAV per share to 1,193.50p in the year to 30th June 2012. The NAV returns over 1 year, 3 years, 5 years and 10 years and since inception are set out above. The 8.1% increase in PIP's NAV per share compares with falls in the MSCI World Total Return (sterling) Index of 2.1% and the FTSE All-Share Total Return Index of 3.1% respectively. 2. The level of discount
PIP's ordinary share price increased by 1.6% to 725.50p at 30th June 2012 (2011: 714.00p) and the discount to NAV increased to 39.2% at the year end (2011: discount of 35.3%).
PIP's redeemable share price increased by 7.0% to 760.00p at 30th June 2012
(2011: 710.00p) and the discount to NAV increased to 36.3% at the year end
(2011: discount of 35.7%).
3. The ongoing charges
2012 2011
Ongoing charges 1.20% 1.45%
Performance fees 0.00% 0.00%
Finance costs 0.22% 0.50%
Total ongoing charges plus
performance
fees and finance costs 1.42% 1.95%
Future Developments
A review of the year to 30th June 2012 and the outlook for the coming year can be found in the Chairman's Statement and the Manager's Review.
Share Capital
On 24th August 2011 the Company drew down £100,500,082.88 under commitments
given to the Company to subscribe for new redeemable shares in the capital of
the Company from the institutions with whom the Company had entered into
Standby Commitments. Simultaneously the Company repaid £100.5m of outstanding
unsecured subordinated loan notes ("Loan Notes") held by the same institutions.
These actions effectively exchanged the full balance of the Loan Notes for new
redeemable shares, and 9,102,279 new redeemable shares (with an aggregate
nominal value of £91,022.79) were issued at a price of 1,104.12p per share,
being the adjusted NAV per share as at 30th June 2011.
During the year, 940,000 redeemable shares (with an aggregate nominal value of
£9,400 and representing 3.3% of redeemable share capital as at 30th June 2011)
were bought back for treasury and subsequently cancelled. A further 1,400,000
ordinary shares (with an aggregate nominal value of £938,000) and 2,320,000
redeemable shares (with an aggregate nominal value of £23,200) were purchased
by the Company for cancellation. These purchases represented 3.7% of ordinary
share capital and 11.3% of redeemable share capital in issue on 30th June 2011.
The total consideration for these purchases was £31.9m.
As at 30th June 2012, the Company had 36,121,013 ordinary shares of £0.67 each
and 34,713,534 redeemable shares of £0.01 each in issue. No shares were held in
treasury at the year end.
Since the year end, 255,000 redeemable shares (with an aggregate nominal value
of £2,550 and representing 0.7% of the redeemable share capital in issue on
30th June 2012) have been purchased in the market for cancellation for a total
consideration of £1.9m.
As at the date of this report, the Company had shares in issue as shown in the
table below, all of which are admitted to the official list maintained by the
Financial Services Authority and admitted to trading on the London Stock
Exchange:
SHARE CAPITAL NUMBER OF % OF TOTAL
AND VOTING NUMBER OF VOTING RIGHTS SHARES VOTING RIGHTS
RIGHTS AT SHARES ATTACHED TO HELD IN REPRESENTED
28TH SEPTEMBER IN ISSUE EACH SHARE TREASURY BY EACH CLASS
2012
ORDINARY SHARES OF 36,121,013 1 - 100
£0.67 EACH
REDEEMABLE SHARES 34,458,534 - - -
OF £0.01 EACH
TOTAL VOTING 36,121,013
RIGHTS
The redeemable shares do not carry any right to speak or vote at general
meetings of the Company, including on resolutions authorising the issue or
buyback of shares, although holders of redeemable shares are entitled to
receive notice of general meetings of the Company and to attend such meetings.
Redeemable shares do carry the right to vote at separate class meetings of the
holders of redeemable shares. The sanction of holders of redeemable shares is
required to various corporate actions as set out in the Articles of
Association.
There are: no restrictions concerning the transfer of securities in the
Company; no special rights with regard to control attached to securities; no
agreements between holders of securities regarding their transfer known to the
Company; and no agreements which the Company is party to that might affect its
control following a successful takeover bid.
Further details of the rights attaching to each of the Company's classes of share are included in Note 14 to the financial statements.
Amendment of the Company's Articles of Association and the giving of authority to issue or buy back the Company's shares require an appropriate resolution to be passed by shareholders. Proposals for the renewal of the Board's current authorities to issue and buy back shares are detailed in the full Annual Report and Accounts.
Social, Environmental, Community and Employee Issues
The Company has no employees and the Board consists entirely of non-executive Directors. As an investment trust, the Company has no direct impact on the community or the environment. The Manager is committed to the Principles for Responsible Investing and its policies are set out in the full Annual Report and Accounts. These Principles are integrated into Pantheon's investment analysis and decision-making process, as well as during post-investment monitoring.
Going Concern
The Company's business activities, together with the factors likely to affect its future development, performance and position, including its financial position, are set out in the Chairman's Statement and Manager's Review.
At each Board meeting, the Directors review the Company's latest management accounts and other financial information. Its commitments to private equity investments are reviewed, together with its financial resources, including cash held and the Company's borrowing capability. One-year cash flow scenarios are also presented to each meeting and discussed. After due consideration of the balance sheet and activities of the Company and the Company's assets, liabilities, commitments and financial resources, the Directors have concluded that the Company has adequate resources to continue in operation for the foreseeable future. For this reason, they consider it appropriate to continue to adopt the going concern basis in preparing the financial statements.
The full Annual Report contains the following statements regarding responsibility for the Annual Report and financial statements (references in the following statements are to pages in the Annual Report).
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare financial statements in accordance with United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK accounting standards have been followed, subject to any material departure disclosed and explained in the financial statements; 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 adequate accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. The Directors are responsible for ensuring that the Directors' Report and other information in the Annual 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 Services Authority. They also have responsibility for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors, to the best of their knowledge, state that:
• the financial statements, prepared in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, financial position and return of the Company; and
• this Annual Report includes 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 that it faces.
On behalf of the Board
Tom Bartlam
Chairman
28th September 2012
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 30th June 2012 and 2011 but is derived
from those accounts. Statutory accounts for 2011 have been delivered to the
Registrar of Companies, and those for 2012 will be delivered in due course. The
Auditors have reported on those accounts; their report was (i) unqualified,
(ii) did not include a reference to any matters to which the Auditors drew
attention by way of emphasis without qualifying their report and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The
text of the Auditors' report can be found in the Company's full Annual Report
and Accounts at www.pipplc.com.
INCOME STATEMENT
YEAR ENDED 30th JUNE 2012
2012 2011
REVENUE CAPITAL TOTAL* REVENUE CAPITAL TOTAL*
NOTE £'000 £'000 £'000 £'000 £'000 £'000
Gains on 9b - 46,146 46,146 - 100,976 100,976
investments at fair
value through
profit or loss**
Loss on derivatives - (14,938)(14,938) - (10,404) (10,404)
contained in
standby agreements
at fair value
through profit or
loss***
Currency (losses)/ 19 - (1,104) (1,104) - 911 911
gains on cash and
borrowings
Investment income 2 12,065 - 12,065 9,986 - 9,986
Investment 3 (8,867) - (8,867) (8,836) - (8,836)
management fees
Other expenses 4 (1,062) (160) (1,222) (1,115) (37) (1,152)
RETURN ON ORDINARY 2,136 29,944 32,080 35 91,446 91,481
ACTIVITIES BEFORE
FINANCING COSTS AND
TAX
Interest payable 6 (1,831) - (1,831) (3,427) - (3,427)
and similar charges
/finance costs
RETURN ON ORDINARY 305 29,944 30,249 (3,392) 91,446 88,054
ACTIVITIES BEFORE
TAX
Tax on ordinary 7 (1,363) - (1,363) (1,920) - (1,920)
activities
RETURN ON ORDINARY (1,058) 29,944 28,886 (5,312) 91,446 86,134
ACTIVITIES AFTER
TAX FOR THE
FINANCIAL YEAR
RETURN PER ORDINARY 8 (1.48)p 41.77p 40.29p (8.00)p 137.73p 129.73p
AND REDEEMABLE
SHARE
ADJUSTED RETURN PER 8 (1.48)p 62.62p 61.14p (8.00)p 153.41p 145.41p
ORDINARY AND
REDEEMABLE SHARE
DILUTED RETURN PER 8 N/A N/A N/A (6.64)p 114.34p 107.70p
ORDINARY AND
REDEEMABLE SHARE
* The total column of the statement represents the Company's profit and loss
statement prepared in accordance with UK Accounting Standards. The
supplementary revenue and capital columns are prepared under guidance published
by the Association of Investment Companies.
** Includes currency gains on investments.
*** The loss on the derivative was an accounting entry only and has no effect on the net cash balances of the Company.
All revenue and capital items in the above statement relate to continuing operations.
No operations were acquired or discontinued during the year.
There were no recognised gains or losses other than those passing through the Income Statement.
The Notes form part of these financial statements.
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
CAPITAL
CAPITAL OTHER RESERVE ON
SHARE SHARE REDEMPTION CAPITAL INVESTMENTS SPECIAL REVENUE
CAPITAL PREMIUM RESERVE RESERVE HELD
RESERVE RESERVE TOTAL
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Movement for the year
ended 30th June 2012
OPENING EQUITY 25,428 183,184 26 288,790 244,850 99,861 (55,546) 786,593
SHAREHOLDERS' FUNDS
Return for the year - - - 15,539 14,405 - (1,058) 28,886
Derecognition of - - - (38,605) - - - (38,605)
derivative asset
Issue of new 91 100,409 - - - - - 100,500
redeemable shares
Expenses relating to - (38) - - - - - (38)
the issue of new
redeemable shares
Ordinary shares bought (938) - 938 - - (9,685) - (9,685)
back for cancellation
Redeemable shares (23) - 23 - - (15,770) - (15,770)
bought back for
cancellation
Redeemable shares - - - - - (6,467) - (6,467)
bought back and held
in treasury*
Redeemable shares (9) - 9 - - - - -
cancelled from
treasury
CLOSING EQUITY 24,549 283,555 996 265,724 259,255 67,939 (56,604) 845,414
SHAREHOLDERS' FUNDS
Movement for the year
ended 30th June 2011
OPENING EQUITY 25,428 183,184 26 249,366 192,828 99,861 (50,234) 700,459
SHAREHOLDERS' FUNDS
Return for the year - - - 39,424 52,022 - (5,312) 86,134
CLOSING EQUITY 25,428 183,184 26 288,790 244,850 99,861 (55,546) 786,593 SHAREHOLDERS' FUNDS
*Shares bought back and held in treasury were subsequently cancelled on 28th October 2011 .
The Notes form part of these financial statements.
BALANCE SHEET
as at 30th JUNE 2012
2012 2011
NOTE £'000 £'000
Fixed assets
Investments designated at 9a/b 799,853 815,868
fair value through profit or
loss
Current assets
Debtors 11 1,512 2,440
Derivatives contained in 13 - 53,543
standby agreements at fair
value through profit or loss
Cash at bank 18 51,143 27,645
52,655 83,628
Creditors: Amounts falling
due within one year
Other creditors 12 7,094 12,403
Loan notes 12 - 100,500
7,094 112,903
NET CURRENT ASSETS/ 45,561 (29,275)
(LIABILITIES)
NET ASSETS 845,414 786,593
Capital and reserves
Called-up share capital 14 24,549 25,428
Share premium 15 283,555 183,184
Capital redemption reserve 15 996 26
Other capital reserve 15 265,724 288,790
Capital reserve on 15 259,255 244,850
investments held
Special reserve 15 67,939 99,861
Revenue reserve 15 (56,604) (55,546)
TOTAL EQUITY SHAREHOLDERS' 845,414 786,593
FUNDS
NET ASSET VALUE PER SHARE - 16 1,193.50p 1,184.77p
ORDINARY AND REDEEMABLE
ADJUSTED NET ASSET VALUE PER 16 1,193.50p 1,104.12p
SHARE - ORDINARY AND
REDEEMABLE
DILUTED NET ASSET VALUE PER 16 N/A 1,104.12p
SHARE - ORDINARY AND
REDEEMABLE
The Notes form part of these financial statements.
The financial statements were approved by the Board on 28th September 2012 and were signed on its behalf by
TOM Bartlam
Chairman
Company No: 2147984
CASH FLOW STATEMENT
YEAR ENDED 30TH JUNE 2012
2012 2011
NOTE £'000 £'000
Cash flow from operating activities
Investment income received 12,052 9,848
Deposit and other interest received 13 2
Investment management fees paid (8,869) (8,873)
Secretarial fees paid (172) (186)
Other cash payments (951) (808)
NET CASH INFLOW/(OUTFLOW) FROM 19 2,073 (17)
OPERATING ACTIVITIES
Servicing of finance
Revolving credit facility and - (501)
overdraft interest paid
Loan commitment and arrangement fees (1,160) (1,752) paid
Redeemable share commitment fees paid (63) (312)
Interest on loan notes paid (322) (1,831)
NET CASH OUTFLOW FROM SERVICING OF (1,545) (4,396)
FINANCE
Tax
Net tax paid (1,363) (1,920)
NET CASH OUTFLOW FROM TAX (1,363) (1,920)
Capital expenditure and financial
investment
Purchases of investments (77,126) (113,761)
Purchases of government securities (15,901) (10,874)
Disposals of investments 134,632 167,053
Disposals of government securities 15,743 10,874
NET CASH INFLOW FROM CAPITAL 57,348 53,292
EXPENDITURE AND FINANCIAL INVESTMENT
NET CASH INFLOW BEFORE FINANCING 56,513 46,959
Financing
Drawdown of loan - 3,755
Repayment of loan - (80,839)
Issue of loan notes - 51,000
Expenses relating to issue of new (38) -
redeemable shares
Ordinary shares purchased for (9,685) -
cancellation
Redeemable shares purchased for (15,770) -
cancellation
Redeemable shares purchased to be (6,467) -
held in treasury
NET CASH OUTFLOW FROM FINANCING (31,960) (26,084)
INCREASE IN CASH 17 24,553 20,875
The Notes form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
A summary of the principal accounting policies, all of which have been applied consistently throughout the year, is set out below.
(A) Basis of Preparation
The financial statements have been prepared on the historical cost basis of accounting, except for the measurement at fair value of investments and derivative financial instruments, and in accordance with applicable UK accounting standards and on the basis that all activities are continuing. The Company's financial statements are presented in sterling and all values are rounded to the nearest thousand pounds (£'000) except when indicated otherwise.
(B) Statement of Recommended Practice
The financial statements have been prepared in accordance with the Statement of Recommended Practice (as amended in January 2009) for the financial statements of investment trust companies and venture capital trusts issued by the Association of Investment Companies.
(C) Segmental Reporting
The Directors are of the opinion that the Company is engaged in a single segment of business, being investment business.
(D) Valuation of Investments
All investments held by the Company are classified as "fair value through profit or loss". As the Company's business is investing in financial assets with a view to profiting from their total return in the form of interest, dividends or increases in fair value, quoted equities and fixed income securities are designated as fair value through profit or loss on initial recognition. The Company manages and evaluates the performance of these investments on a fair value basis in accordance with its investment strategy. 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 at the balance sheet date. For investments that are not actively traded in organised financial markets, fair value is determined using reliable valuation techniques as described below:
(i) Unquoted fixed asset investments are stated at the estimated fair value.
In the case of investments in private equity funds, this is based on the net asset value of those funds ascertained from periodic valuations provided by the managers of the funds. Such valuations are necessarily dependent upon the reasonableness of the valuations by the fund managers of the underlying investments. In the absence of contrary information the values are assumed to be reasonable. These valuations are reviewed periodically for reasonableness. In the case of direct investments in unquoted companies, the initial valuation is based on the transaction price. Where better indications of fair value become available, such as through subsequent issues of capital or dealings between third parties, the valuation is adjusted to reflect the new evidence. This information may include the valuations provided by private equity managers who are also invested in the company. Valuations are reduced where the company's performance is not considered satisfactory. Private equity funds may contain a proportion of quoted shares from time to time, for example, where the underlying company investments have been taken public but the holdings have not yet been sold. The quoted market holdings at the date of the latest fund accounts are reviewed and compared with the value of those holdings at the year end. If there has been a material movement in the value of these holdings, the valuation is adjusted to reflect this.
(ii) Quoted investments are valued at the bid price on the relevant stock exchange.
(iii) The Company may acquire secondary interests at either a premium or a discount to the fund manager's valuation. Within the Company's portfolio, those fund holdings purchased at a premium are normally revalued to their stated net asset values at the next reporting date. Those fund holdings purchased at a discount are normally held at cost until the receipt of a valuation from the fund manager in respect of a date after acquisition, when they are revalued to their stated net asset values, unless an adjustment against a specific investment is considered appropriate.
As at 30th June 2012 there was no aggregate difference to be recognised in the profit or loss at the start or end of the period.
(E) Income
Dividends receivable on quoted equity shares are brought into account on the ex-dividend date.
Dividends receivable on equity shares where no ex-dividend date is quoted are brought into account when the Company'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 interest rate on the security.
Other interest receivable is included on an accruals basis.
(F) Taxation
Corporation tax payable is based on the taxable profit for the year. The charge for taxation takes into account taxation deferred or accelerated because of timing differences between the treatment of certain items for accounting and taxation purposes. Full provision for deferred taxation is made under the liability method, without discounting, on all timing differences that have arisen but not reversed by the balance sheet date, unless such provision is not permitted by FRS 19 Deferred Tax.
The tax effect of different items of income/gain and expenditure/loss is allocated between capital and revenue on the same basis as the particular item to which it relates, using the marginal method.
(G) Expenses
All expenses are accounted for on an accruals basis. Expenses, including investment management fees, are charged through the revenue account except as follows:
• expenses which are incidental to the acquisition or disposal of an investment are treated as capital costs and separately identified and disclosed in Note 9;
• expenses of a capital nature are accounted for through the capital account; and
• investment performance fees.
(H) Foreign Currency
The currency of the Primary Economic Environment in which the Company operates
("the functional currency") is pounds sterling ("sterling"), which is also the
presentation currency. Transactions denominated in foreign currencies are
recorded in the local currency at actual exchange rates as at the date of
transaction or, where applicable, at the rate of exchange in a related forward
exchange contract. Monetary assets and liabilities denominated in foreign
currencies at the year end are reported at the rates of exchange prevailing at
the year end or, where appropriate, at the rate of exchange in a related
forward exchange contract. Any gain or loss arising from a change in exchange
rates subsequent to the date of the transaction is included as an exchange gain
or loss in the Income Statement. For non-monetary assets these are covered
by fair value adjustments. (I) Other Capital Reserve
The following are accounted for in this reserve:
• investment performance fees;
• gains and losses on the realisation of investments;
• realised exchange differences of a capital nature; and
• expenses of a capital nature.
Capital distributions from investments are accounted for on a reducing cost basis; cash received is first applied to reducing the historical cost of an investment; any gain will be recognised as realised only when the cost has been reduced to nil.
(J) Capital Reserve on Investments Held
The following are accounted for in this reserve:
• increases and decreases in the value of investments held at the year end.
(K) Investment Performance Fee
The Manager is entitled to a performance fee from the Company in respect of each 12 calendar month period ending on 30th June in each year. The fee payable in respect of each such period is 5% of any increase in the adjusted net asset value of the Company at the end of such period over the applicable "high-water mark" plus the hurdle rate of 10%. The applicable "high-water mark" in respect of any calculation period is the adjusted net asset value at the end of the previous calculation period in which a performance fee was payable, compounded annually at the hurdle rate for each subsequent completed calculation period up to the commencement of the calculation period for which the performance fee is being calculated. For the calculation period ended 30th June 2012 the applicable performance fee hurdle is a net asset value per share of 1,627.98p.
(L) Derivatives
The derivative at 30th June 2011 comprised standby commitments allowing the Company to call upon certain institutions to subscribe for new redeemable shares (see Note 13). It was accounted for as a financial asset at fair value through profit or loss and any gains or losses are analysed within the Income Statement as a capital return. The derivative value represented the difference between the quoted price of the redeemable shares and the adjusted net asset value per share multiplied by the number of redeemable shares that would be issued (at adjusted net asset value per share) assuming a full drawdown of £150m under the standby commitments. The time value was not considered in valuing the asset as its effect was deemed
immaterial.
2. Income
30TH JUNE 30TH JUNE
2012 2011
£'000 £'000
Income from investments
Unfranked investment 12,047 9,984
income
12,047 9,984
Other income
Interest on VAT refund 13 -
on secretarial and
accountancy services
Exchange difference on 5 2
income
18 2
TOTAL INCOME 12,065 9,986
Total income comprises:
Dividends 12,041 9,982
Interest 19 2
Exchange difference on 5 2
income
12,065 9,986
Analysis of income from
investments
Unlisted 12,041 9,982
Listed 6 2
12,047 9,984
3. Investment Management Fees
30TH JUNE 2012 30TH JUNE 2011
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Investment management 8,867 - 8,867 8,836 - 8,836
fees
8,867 - 8,867 8,836 - 8,836
The investment management fee is payable monthly in arrears at the rate set out
in the Directors' Report in the full Annual Report and Accounts. At 30th June
2012 £1,504,000 (2011: £1,506,000) was owed for investment management fees. A
performance fee of £5,057,000 is payable to the Manager at the year end (see
Note 12) in respect of the initial 18-month performance fee calculation period
ended 30th June 2008. Of this amount £3,660,000 was charged in the year to 30th
June 2008 with the remaining balance charged in the year to 30th June 2007. No
performance fee is payable in respect of the 12 calendar month period to 30th
June 2012. The basis upon which the performance fee is calculated is explained
in Note 1(K) and in the Directors' Report in the full Annual Report and
Accounts.
4. Other Expenses
30TH JUNE 30TH JUNE
2012 2011
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Secretarial and 194 - 194 185 - 185
accountancy services
VAT refund on (68) - (68) - - -
secretarial and
accountancy services
Fees payable to the 31 - 31 38 - 38
Company's auditor for
the audit of the annual
financial statements
Fees payable to the
Company's auditor for
other services:
- all other services 32 - 32 27 - 27
Directors' remuneration 157 - 157 145 - 145
(see Note 5)
Irrecoverable VAT 27 - 27 74 - 74
Legal and professional 409 160 569 328 37 365
fees
Printing 40 - 40 65 - 65
Other 240 - 240 253 - 253
1,062 160 1,222 1,115 37 1,152
The Directors do not consider that the provision of non-audit work to the Company affects the independence of the Auditor.
5. Directors' Remuneration
Directors' emoluments comprise wholly Directors' fees. A breakdown is provided in the Directors' Remuneration Report in the full Annual Report and Accounts.
6. Interest Payable and Similar Charges
30TH JUNE 2012 30TH JUNE 2011
£'000 £'000
Bank loan and overdraft 1 477
interest
Loan commitment and 1,445 807
arrangement fees
Redeemable share commitment 63 312
fee
Loan notes interest 322 1,831
1,831 3,427
In June 2011 the Company entered into a new loan agreement with The Royal Bank
of Scotland plc and Lloyds TSB Bank plc. Under the agreement, which will expire
June 2015, four-year committed revolving dollar and euro credit facilities of
$82m and €57m have been made available. Each individual drawdown bears interest
at a variable rate agreed for the period of the drawdown and a commitment fee
of 1.10% per annum is payable in respect of the amounts available for drawdown
in each facility. In addition, the Company has an overdraft facility of £5m
with The Royal Bank of Scotland plc. At 30th June 2012 the sterling equivalent
amount of £nil (30th June 2011: £nil) was drawn down under the facilities.
7. Tax on Ordinary Activities
30TH JUNE 2012 30TH JUNE 2011
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Withholding tax deducted 1,363 - 1,363 1,920 - 1,920
from distributions
Current tax
The current tax for the year differs from the standard rate of corporation tax in the UK (24%). The differences are explained below:
Net return on ordinary 305 (8,661)(8,356) (3,392) 91,446 88,054
activities before tax
Theoretical tax at UK 78 (2,209)(2,131) (933) 25,148 24,215
corporation tax rate of
25.5% (2011: 27.5%)*
Non-taxable investment, - 2,168 2,168 - (25,159) (25,159)
derivative and currency
losses/(gains)
Effect of expenses in - 41 41 - 11 11
excess of taxable income
Utilised management (78) - (78) - - -
expenses
Unused management expenses - - - 933 - 933
Withholding tax deducted (1,363) - (1,363) (1,920) - (1,920)
from distributions
TOTAL CURRENT TAX (1,363) - (1,363) (1,920) - (1,920)
* The corporation tax rate applied is based on the average tax rates for the financial years ended 30th June 2012 and 30th June 2011 .
Factors that may Affect Future Tax Charges
The Company is an investment trust and therefore is not subject to tax on capital gains. Deferred tax is not provided on capital gains and losses arising on the revaluation or disposal of investments because the Company meets (and intends to meet for the foreseeable future) the conditions for approval as an investment trust company. No deferred tax asset has been recognised in respect of excess management expenses and expenses in excess of taxable income as they will only be recoverable to the extent that there is sufficient future taxable revenue. As at 30th June 2012 excess management expenses are estimated to be in excess
of
£104m (2011: £106m).
8. Return per Share
30TH JUNE 2012 30TH JUNE 2011
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
Return on ordinary (1,058) 29,944 28,886 (5,312) 91,446 86,134
activities after tax
for the financial year
in £'000
Loss on derivatives - 14,938 14,938 - 10,404 10,404
contained in standby
agreements in £'000
Adjusted return on (1,058) 44,882 43,824 (5,312)101,850 96,538
ordinary activities
after tax for the
financial year in £'000
*
Weighted average 71,680,727 66,392,268
ordinary and redeemable
shares
Diluted weighted N/A 79,977,748
average ordinary and
redeemable shares**
Return per ordinary and (1.48)p 41.77p 40.29p (8.00)p 137.73p 129.73p
redeemable share
Adjusted return per (1.48)p 62.62p 61.14p (8.00)p 153.41p 145.41p
ordinary and redeemable
share*
Diluted return per N/A N/A N/A (6.64)p 114.34p 107.70p
ordinary and redeemable
share**
* The adjusted return excludes the loss on the derivative (see Note 13) of £14,938,000 (2011: £10,404,000).
** The diluted return for the prior period has been calculated on the basis of
the total drawdown of standby commitments of £150m. Using the 30th June 2011
adjusted net asset value per share, the Company would have issued 13,585,480
new redeemable shares and reversed the loss on the derivative asset included in
the return on ordinary activities.
9a. Movements on Investments
30TH JUNE 30TH JUNE
2012 2011
£'000 £'000
Book cost brought forward 572,112 571,599
Acquisitions at cost 87,649 130,023
Capital distributions - proceeds (149,810) (178,435)
Capital distributions - realised gains on 31,770 48,925 sales
BOOK COST AT 30TH JUNE 541,721 572,112
Unrealised appreciation of investments
Unlisted investments 258,043 243,265
Listed investments 89 491
VALUATION OF INVESTMENTS AT 30TH JUNE 799,853 815,868
9b. Analysis of Investments
30TH JUNE 30TH JUNE
2012 2011
£'000 £'000
Sterling
Unlisted investments 44,237 44,741
Listed investments - -
44,237 44,741
US dollar
Unlisted investments 560,142 553,359
Listed investments 531 544
560,673 553,903
Euro
Unlisted investments 184,037 200,979
Listed investments - 5,419
184,037 206,398
Other
Unlisted investments 10,906 10,826
Listed investments - -
10,906 10,826
799,853 815,868
Realised profits on sales 31,770 48,925
Amounts previously recognised as unrealised 545 (306) appreciation on those sales
Increase in unrealised appreciation 13,831 52,357
GAINS ON INVESTMENTS 46,146 100,976
Further analysis of the investment portfolio is provided in the Manager's Review above.
Transaction costs incidental to the acquisition of investments totalled £nil (2011: £nil) and to the disposals of investments totalled £3,000 (2011: £23,000) for the year.
10. Fair Value Hierarchy
Financial Assets at Fair Value through Profit or Loss at 30th June 2012
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
£'000 £'000 £'000 £'000
Unlisted holdings - - 799,322 799,322
Derivative asset - - - -
Listed holdings 531 - - 531
531 - 799,322 799,853
Financial Assets at Fair Value through Profit or Loss at 30th June 2011
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
£'000 £'000 £'000 £'000
Unlisted holdings - - 809,905 809,905
Derivative asset - - 53,543 53,543
Listed holdings 5,963 - - 5,963
5,963 - 863,448 869,411
Level 3 Financial Assets at Fair Value through Profit or Loss at 30th June 2012
PRIVATE EQUITY TOTAL
INVESTMENTS AND
DERIVATIVE ASSET
£'000 £'000
Opening balance 863,448 863,448
Purchase at cost 77,164 77,164
Transfer of book cost to level 1* (1,100) (1,100)
Sales proceeds (132,457)(132,457)
Total gains or losses included in
"Gains on investments" in the
Income Statement
- on assets sold 31,032 31,032
- on assets held as at 30th June 14,778 14,778
2012
Realised loss on derivatives (14,938) (14,938)
Derivative asset derecognised(see (38,605) (38,605) Note 13)
CLOSING BALANCE 799,322 799,322
* The transfer of book cost to level 1 is due to stock distributions received from private equity investments.
11. Debtors
30TH JUNE 30TH JUNE
2012 2011
£'000 £'000
Amounts owed by investment funds 472 1,086
Prepayments and accrued income 1,040 1,354
1,512 2,440
12. Creditors: Amounts Falling Due within One Year
30TH JUNE 30TH JUNE
2012 2011
£'000 £'000
Investment management fees 1,504 1,506
Investment performance fee 5,057 5,057
Amounts owed to brokers 38 5,416
Other creditors and accruals 495 424
Other creditors 7,094 12,403
Loan notes - 100,500
7,094 112,903
Terms and Debt Repayment Schedule
At the year end the carrying amount of outstanding loan notes was £nil (2011: £100.5m).
On 22nd July 2011 the Company announced its intention to draw down commitments
to subscribe for £100.5m of new redeemable shares in the capital of the
Company, which would require an equivalent amount of the loan notes to be
repaid under the terms of the loan note subscription agreements. The issue of
the 9,102,279 new redeemable shares and the repayment of the loan notes was
completed on 24th August 2011 and with effect from 30th September 2011 the
remaining standby commitments of £49.5m were terminated.
13. Derivatives
30TH JUNE 30TH JUNE
2012 2011
£'000 £'000
Beginning of year 53,543 63,947
Unrealised loss on derivatives - (10,404)
Realised loss on derivatives (14,938) -
Derecognition of derivatives (38,605) -
END OF YEAR - 53,543
Between the years 2005 and 2008 PIP entered into standby commitments under which certain institutions agreed to subscribe up to an aggregate amount of
£150m for new redeemable shares in the Company when called upon by the Company at a subscription price equal to the prevailing net asset value per share at the time of subscription. In order to comply with FRS 26 the standby commitments were treated as a derivative and valued as an asset accordingly (see Note 1(L) for more information on the valuation of derivatives). On 24th August 2011 the Company drew down £100.5m of the standby commitments and issued 9,102,279 new redeemable shares based on a net asset value per share of 1,104.12p.
The Company terminated the remaining standby commitments of £49.5m with effect from 30th September 2011 .
14. Called-up Share Capital
30TH JUNE 30TH JUNE
2012 2011
£'000 £'000
Allotted, called-up and fully
paid:
36,121,013 (2011: 37,521,013) 24,202 25,139
ordinary shares of 67p each
34,713,534 (2011: 28,871,255) 347 289
redeemable shares of 1p each
24,549 25,428
On 22nd July 2011 the Company announced its intention to draw down commitments
to subscribe for £100.5m of new redeemable shares of £0.01 each. Based on the
adjusted net asset value per share of 1,104.12p as at 30th June 2011 (see Note
16) 9,102,279 new redeemable shares were issued and admitted to trading on 24th
August 2011.
During the year 940,000 redeemable shares were bought back to be held in treasury for a total consideration, including commission and stamp duty, of
£6,467,000. These shares were subsequently cancelled on 28th October 2011. In addition, during the year 2,320,000 redeemable shares and 1,400,000 ordinary shares were bought back in the market for cancellation. The total consideration paid, including commission and stamp duty, was £15,770,000 and £9,685,000 respectively. Redeemable shares rank equally with ordinary shares regarding dividend rights and rights on winding up or return of capital (other than a redemption or purchase of shares). The holders of redeemable shares have the right to receive notice of and attend all general meetings of the Company but not to speak or vote. The holders of ordinary shares are entitled to one vote for each ordinary share held.
The redeemable shares are redeemable at the option of the Company, at the prevailing net asset value per share, within 60 days following the end of each quarterly net asset value calculation date or within 60 days of any other business day which is determined by the Directors to be a net asset value calculation date.
15. Reserves
CAPITAL
CAPITAL OTHER RESERVE ON
SHARE REDEMPTION CAPITAL INVESTMENTS SPECIAL REVENUE
PREMIUM RESERVE RESERVE HELD RESERVE RESERVE
£'000 £'000 £'000 £'000 £'000 £'000
Beginning of year 183,184 26 288,790 244,850 99,861 (55,546)
Net gain on - - 31,770 - - -
realisation of
investments
Increase in - - - 13,831 - -
unrealised
appreciation
Transfer on - - - 545 - -
disposal of
investments
Loss on derivative - - (14,938) - - -
Derecognition of - - (38,605) - - -
derivative asset
Exchange - - 1,055) - - -
differences on
currency
Exchange - - (78) 29 - -
differences on
other capital
items
Legal and - - (160) - - -
professional costs
charged to capital
Share - 970 - - - -
cancellations
Share buybacks - - - - (31,922) -
Share issues 100,371 - - - - -
Revenue return for - - - - - (1,058)
the year
END OF YEAR 283,555 996 265,724 259,255 67,939 (56,604)
16. Net Asset Value per Share
30TH JUNE 30TH JUNE
2012 2011
Net assets attributable in £'000 845,414 786,593
Derivative asset contained in - (53,543) standby agreements in £'000
Adjusted net assets attributable in 845,414 733,050 £'000*
Ordinary and redeemable shares 70,834,547 66,392,268
Net asset value per share - ordinary 1,193.50p 1,184.77p and redeemable
Adjusted net asset value per share - 1,193.50p 1,104.12p ordinary and redeemable*
Diluted net assets attributable in N/A 883,050 £'000**
Ordinary and redeemable shares N/A 79,977,748 following issue of new redeemable
shares**
Diluted net asset value per share - N/A 1,104.12p
ordinary and redeemable**
* The adjusted net asset value per share at 30th June 2011 excludes the
derivative asset (see Note 13) relating to the Company's standby subscription
commitments. The utilisation that took place on 24th August 2011 in respect of
£100.5m of the £150m standby facility and the termination of the remaining £
49.5m of standby commitments on 30th September 2011 led to a reversal of the
asset in the financial statements. The Directors considered that the best
measure of the Company's economic value to shareholders was the adjusted net
asset value per share which is directly comparable to previously published net
asset values per share.
** The diluted net asset value per share has been calculated on the basis of
the total drawdown of standby commitments of £150m. Using the 30th June 2011
adjusted net asset value per share, the Company would have issued 13,585,480
new redeemable shares (see Note 13) and the derivative would no longer have
been held on the balance sheet.
17. Reconciliation of Net Cash Flow to the Movement in Net Funds
30TH JUNE 30TH JUNE
2012 2011
£'000 £'000
Increase in cash in year 24,553 20,875
Non-cash movement
- foreign exchange (1,055) 339
(losses)/gains
- loan notes repaid by 100,500 -
issue of redeemable
shares
CHANGE IN NET FUNDS 123,998 21,214
Net debt at beginning of (72,855) (120,793)
year
Loans drawn down - (3,755)
Loans repaid - 81,479
Loan notes - (51,000)
NET FUNDS AT END OF YEAR 51,143 (72,855)
18. Analysis of Net Funds
30TH JUNE 30TH JUNE
2012 2011
£'000 £'000
Cash at bank 51,143 27,645
Loan notes - (100,500)
51,143 (72,855)
19. Reconciliation of Return on Ordinary Activities before Financing Costs and Tax to Net Cash Flow from Operating Activities
30TH JUNE 30TH JUNE
2012 2011
£'000 £'000
Return on ordinary (6,525) 91,481
activities before
financing costs and
tax
Gains on investments (46,146) (100,976)
Loss on derivative 53,543 10,404
Currency losses/ 1,104 (911)
(gains) on cash and
borrowings
Increase in creditors 96 124
(Decrease)/increase in 1 (139)
debtors
NET CASH INFLOW/ 2,073 (17)
(OUTFLOW) FROM
OPERATING ACTIVITIES
20. Contingencies, Guarantees and Financial Commitments
At 30th June 2012 there were financial commitments outstanding of £190.9m (2011: £242.8m) in respect of investments in partly paid shares and interests in private equity funds.
21. Analysis of Financial Assets and Liabilities The primary investment objective of the Company is to seek to maximise long-term capital growth for its shareholders by investing in funds specialising in unquoted investments, acquiring unquoted portfolios and participating directly in private placements. Investments are not restricted to a single market but are made when the opportunity arises and on an international basis.
The Company's financial instruments comprise securities and other investments, cash balances and debtors and creditors that arise from its operations, for example sales and purchases awaiting settlement and debtors for accrued income.
The principal risks the Company faces in its portfolio management activities are:
> liquidity/marketability risk;
> interest rate risk; > market price risk; and > foreign currency risk.
The Company has little exposure to credit risk. The Manager monitors the financial risks affecting the Company on a daily basis and the Directors regularly receive financial information, which is used to identify and monitor risk.
In accordance with FRS 29 an analysis of financial assets and liabilities, which identifies the risk to the Company of holding such items, is given below.
Liquidity Risk
Due to the nature of the Company's investment policy, the largest proportion of the portfolio is invested in unquoted securities, many of which are less readily marketable than, for example, "blue-chip" UK equities. The Directors believe that the Company, as a closed-end fund with no fixed wind-up date, is ideally suited to making long-term investments in instruments with limited marketability. The investments in unquoted securities are monitored by the Board on a regular basis. There are limited opportunities for the Company to acquire secondary unquoted portfolios due to the cyclical nature of their occurrence. As a result, at times of low investment opportunity, some funds may be invested in gilts and other fixed interest government bonds. It is the nature of investment in private equity that a commitment (see Note 20 for outstanding commitments as at 30th June 2012) to invest will be made and that calls for payments will then be received from the unlisted investee entity. These payments are usually on an ad-hoc basis and may be called at any instance over a number of years. The Company's ability to meet these commitments is dependent upon it receiving cash distributions from its private equity investments and, to the extent these are insufficient, on the availability of financing facilities. In order to cover any shortfalls, the Company has entered into a multi-currency revolving credit facility with The Royal Bank of Scotland plc and Lloyds TSB Bank plc, due to expire in June 2015, and comprising facilities of $82m and €57m of which at 30th June 2012 the sterling equivalent of £nil (30th June 2011: £nil) was drawn down (see Note 6 for further information).
The principal covenant that applies to the loan facility is that gross borrowings do not exceed 30% of adjusted gross asset value. All amounts payable under the unsecured subordinated loan notes will be excluded from the calculation of the Company's total gross borrowings for the purposes of determining whether the financial covenant has been met.
Total available financing as at 30th June 2012 stood at £149.5m (2011: £130.1m), comprising £51.1m (2011: £27.6m) in cash balances and £98.4m (2011: £102.5m) (sterling equivalent) in undrawn bank facilities. The available financing along with the private equity portfolio exceeded the outstanding commitments by 5.0 times (2011: 3.9 times).
Interest Rate Risk
The Company may use gearing to achieve its investment objectives and manage cash flows and uses a multi-currency revolving credit facility for this purpose.
Interest on the revolving credit facility is payable at variable rates determined subject to drawdown. Variable rates are defined as LIBOR or EURIBOR + 2.75%, dependent on the currency drawn. The interest rate is then fixed for the duration that the loan is drawn down. At 30th June 2012 there was the sterling equivalent of £nil funds drawn down on the loan facilities (30th June 2011: £nil). A commitment fee of 1.10% per annum is payable in respect of the amounts available for drawdown in each facility.
Non-interest rate exposure
The remainder of the Company's portfolio and current assets are not subject to interest rate risks.
Financial assets for 2012 and 2011 consisted of investments, cash and debtors (excluding prepayments). As at 30th June 2012 , the interest rate risk and maturity profile of the Company's financial assets was as follows:
FIXED
INTEREST
NO MATURES MATURES AVERAGE
MATURITY WITHIN AFTER INTEREST
TOTAL DATE 1 YEAR 1 YEAR RATE
30TH JUNE 2012 £'000 £'000 £'000 £'000 %
Fair value interest
rate risk financial
assets
Sterling - - - - -
US dollar - - - - -
Euro - - - - -
Other - - - - -
- - - - -
Fair value no interest
rate risk financial
assets
Sterling 50,595 50,595 - - -
US dollar 602,149 602,149 - - -
Euro 187,818 187,818 - - -
Other 10,906 10,906 - - -
851,468 851,468 - - -
The interest rate risk and maturity profile of the Company's financial assets as at 30th June 2011 was as follows:
FIXED
INTEREST
NO MATURES MATURES AVERAGE
MATURITY WITHIN AFTER INTEREST
TOTAL DATE 1 YEAR 1 YEAR RATE
30TH JUNE 2011 £'000 £'000 £'000 £'000 %
Fair value interest
rate risk financial
assets
Sterling - - - - -
US dollar - - - - -
Euro - - - - -
Other - - - - -
- - - - -
Fair value no interest
rate risk financial
assets
Sterling 100,062 46,519 53,543 - -
US dollar 569,063 569,063 - - -
Euro 218,092 212,673 5,419 - -
Other 10,923 10,923 - - -
898,140 839,178 58,962 - -
As at 30th June 2012 , the maturity profile of the Company's financial liabilities was as follows:
NO MATURES MATURES
MATURITY WITHIN AFTER
TOTAL DATE 1 YEAR 1 YEAR
30TH JUNE 2012 £'000 £'000 £'000 £'000
Loan notes - - - -
- - - -
As at 30th June 2011 , the maturity profile of the Company's financial liabilities was as follows:
NO MATURES MATURES
MATURITY WITHIN AFTER
TOTAL DATE 1 YEAR 1 YEAR
30TH JUNE 2011 £'000 £'000 £'000 £'000
Loan notes 100,500 - 100,500 -
100,500 - 100,500 -
Financial Liabilities
At 30th June 2012 the Company had drawn the sterling equivalent of £nil (2011: £nil) of its four-year committed revolving dollar and euro credit facilities, expiring June 2015, of $82m and €57m respectively with The Royal Bank of Scotland plc and Lloyds TSB Bank plc. Interest is incurred at a variable rate as agreed at the time of drawdown and is payable at the maturity date of each advance. At the year end, interest of £nil (2011: £nil) was accruing.
At 30th June 2012 the Company had £nil (2011: £100.5m) unsecured subordinated loan notes in issue.
With the exception of the loan notes at 30th June 2011there was no interest risk associated with other short-term creditors. At 30th June 2012 and at 30th June 2011 , all financial liabilities were due within one year.
Market Price Risk
The method of valuation of the fixed asset investments is described in Note 1 (D). The nature of the Company's fixed asset investments, with a high proportion of the portfolio invested in unquoted securities, means that the investments are valued by the Directors after due consideration of the most recent available information from the underlying investments.
PIP's portfolio is well diversified by the sectors in which the underlying companies operate. This sectoral diversification helps to minimise the effects of cyclical trends within particular industry segments.
The method of valuation of the derivative in the prior year included in the standby commitments is described in Note 13 and Note 1(L).
If the investment portfolio fell by 20% from the 30th June 2012 valuation, with all other variables held constant, there would have been a reduction of £161,570,000 (2011 based on a fall of 20%: £164,805,000) in the return before taxation. An increase of 20% would have increased the return before taxation by £158,371,000 (2011 based on a 20% increase: £161,542,000). In relation to the derivative, if the share price of the Company's redeemable shares fell by 20% from the 30th June 2012 closing price, with all other variables held constant, there would have been an increase of £nil (2011 based on a 20% fall: £19,291,000) in the return before taxation. Similarly, an increase of 20% would have had an equal and opposite effect.
Foreign Currency Risk
Since it is the Company's policy to invest in a diverse portfolio of investments based in a number of countries, the Company is exposed to the risk of movement in a number of foreign exchange rates. A geographical analysis of the portfolio and hence its exposure to currency risk is given above. Although it is permitted to do so, the Company did not hedge the portfolio against the movement in exchange rates during the financial year. The investment approach and the Manager's consideration of the associated risk are discussed in further detail in the Manager's Review. The Company settles its transactions from its bank accounts at an agreed rate of exchange at the date on which the bargain was made. As at 30th June 2012, realised exchange losses of £78,000 (2011: £38,000) and realised losses relating to currency of £1,055,000 (2011: unrealised gains of £339,000) have been taken to the capital reserve. The Company's exposure to foreign currency excluding private equity investments is shown below. In relation to this exposure, if the sterling/dollar and sterling/euro exchange rate had reduced by 10% from that obtained at 30th June 2012, it would have the effect, with all other variables held constant, of increasing equity shareholders' funds by £5,029,000 (2011: decreasing by £2,382,000). If there had been an increase in the sterling/dollar and sterling/ euro exchange rate of 10% it would have the effect of decreasing equity shareholders' funds by £4,114,000 (2011: £1,949,000). The calculations are based on the financial assets and liabilities and the exchange rate of 1.56845 (2011: 1.60545) sterling/dollar and 1.23595 (2011: 1.1073) sterling/euro as at 30th June 2012.
An analysis of the Company's exposure to foreign currency excluding private equity investments is given below:
30TH JUNE 30TH JUNE 30TH JUNE 30TH JUNE
2012 2012 2011 2011
ASSETS LIABILITIES ASSETS LIABILITIES
£'000 £'000 £'000 £'000
US dollar 41,476 - 15,163 -
Euro 3,782 - 11,694 5,416
Norwegian - - 98 -
krona
45,258 - 26,955 5,416
Fair Value of Financial Assets and Financial Liabilities
The financial assets of the Company are held at fair value. Financial liabilities are held at amortised cost, which is not materially different from fair value.
Managing Capital
The Company's equity comprises ordinary shares and redeemable shares as described in Note 14. Capital is managed so as to maximise the return to shareholders while maintaining a capital base that allows the Company to operate effectively in the marketplace and sustain future development of the business.
As at 30th June 2012 the Company had bank debt facilities to increase the Company's liquidity. Details of available borrowings at the year end can be found earlier in this Note and in the extracts from the Directors' Report above and details of the standby commitments can be seen in the Manager's Report above. On 24th August 2011 the Company drew down commitments to subscribe for £100.5m new redeemable shares and repaid the outstanding subordinated loan notes (see Notes 13 and 14). Subsequently, the remaining standby commitments of £49.5m were terminated with effect from 30th September 2011.
The Company's assets and borrowing levels are reviewed regularly by the Board of Directors with reference to the loan covenants.
The Company's capital requirement is reviewed regularly by the Board of Directors.
22. Related Party Transactions
The Manager, Pantheon Ventures (UK) LLP, is regarded as a related party of the Company. Mr R.M. Swire, a Director of the Company, was until 12th October 2011 a director of Pantheon Ventures Limited, a parent undertaking of the Manager.
The amounts paid to the Manager are disclosed in Note 3.
The Company is entitled to invest in funds managed by Pantheon. The Manager is not entitled to management and commitment fees in respect of PIP's holdings in, and outstanding commitments to, these funds.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held on 21st November 2012 at 10.30 am at the offices of Pantheon, Norfolk House, 31 St James's Square, London SW1Y 4JR.
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.hemscott.com/nsm.do
ENDS
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.
