8 Jun 2011 07:00
8th June 2011
China Private Equity Investments Holdings Limited (AIM: CPEH)
("CPE" or the "Company" or "Group")
The Company's principal activity is to invest in growth companies operating in Greater China.
Final Results for the year ended 31 December 2010
Highlights
·; Consolidated net asset value rises to US$29.3 million (2009: US$27.4 million)
·; Consolidated net asset value per share increases to US$0.46 (2009: US$0.43)
·; Advances reflect positioning within China's rapidly-growing TMT sector
·; Post-event partial share sale-back to Fortel raises US$3.8 million for new investment
·; 33.6% stake retained in Fortel, on course for Hong Kong listing this year
Duncan Chui, CPE's CEO commented:
"The Group plans to make further investments in due course. It is our intention not only to invest in businesses which operate solely in China but also those operating outside China which seek to leverage off our experience to enter the Chinese market and/or to develop strategic partnerships involving Chinese business entities.
"The 12th five-year plan of the China government will offer investors great opportunities. CPE is identifying opportunities across a number of sectors, including TMT and financial services, where China is becoming one of the world's most attractive investment markets."
For further information, please visit www.cpe-invest.com or contact:
China Private Equity Investments Holdings Limited | +852 2801 6770 |
Duncan Chui, CEO / Ernest Wong, CFO | |
Shore Capital and Corporate Limited (Nominated Adviser) | +44 (0)20 7408 4090 |
Stephane Auton | |
Tavistock / First City Public Relations | |
Allan Piper | +852 2854 2666 |
Simon Hudson / Lydia Eades | +44 (0) 20 7920 3150 |
Chairman's Statement
I am delighted to have the opportunity to present my statement to you in connection with the Financial Results for China Private Equity Investment Holdings Limited for the year ended 31 December 2010.
To give shareholders a feel for China's rapidly developing private equity market, I asked Hanson Cheah, a non-executive director in CPE and an experienced private equity investor in China, to give us an overview of recent developments and likely trends in this area, which is summarised below. Whilst this report focuses on the higher end of the market and the companies concerned are longer established and larger than CPE or our portfolio companies, it confirms our belief that this is an exciting time to be involved in this sector, and that there are plenty of opportunities for CPE, which is well positioned with the right executive team to take advantage of the current situation in China. In particular, as the size of the new fund-raisings increases substantially, they flow more and more into buy-out funds, and companies in the start-up and small cap growth category are finding it more and more difficult to get funding. We believe that young technology companies will be an area of attractive returns because of the lack of competition and the skill-sets needed by the investment professional to groom and grow such companies. We believe we possess the necessary skills and abilities.
Against this general background, I am pleased to report that your Company's consolidated net assets at 31 December 2010 increased to US$29.3 million (2009: US$27.4 million), with consolidated net asset value per share at that date rising in line to US$0.46 (2009: US$0.43, adjusted for the four for one bonus issue). The consolidated profit after tax for the year, at US$1.9 million (2009: US$2.5 million), reflected a smaller relative increase in fair value of our stake of 37% in Fortel Technology Holdings Limited ("Fortel") compared to 2009. As we reported in our Trading Update of 23rd May, the Board anticipates such fluctuations will even out as our portfolio mix continues to expand in line with the steady progress made over the course of the past 16 months.
It is also pleasing to be able to report that the early advances by the Company reflect our deliberate initial positioning within China's rapidly growing TMT sector, where many of the private equity investment successes of the past year have been achieved. Our investments in Fortel, a digital media and technology services company operating in mainland China, and in the online education group China iEducation, the latter completed towards the end of the reporting period, reflect our recognition of the growth potential in the country's booming online sector.
Following the year-end, CPE expanded its portfolio further through an investment in what the Board views as another key sector of China's still-developing economy - financial services. In signing an agreement to take a significant stake in Enfinium, a Hong Kong-based online financial broking and trading platform, CPE has now established a presence in a sector set to benefit from the Chinese Government's objective of shifting the country towards a consumer-based economy. Disposable income is rising rapidly, and a continuing population shift into urban areas is foreseen in the Five Year Plan for 2011-2016, unveiled last March. The Board believes that CPE's early positioning in this emerging online sector offers the prospect of strong returns.
We completed a sale-back to Fortel of part of the Company's shareholding during April 2011. That sale valued Fortel at US$72 million, and raised US$3.8 million for CPE, which we will use to support investment in new opportunities. We still currently retain a 33.6% stake in Fortel, whose plans for a listing on the Hong Kong Stock Exchange later this year remain on course.
The Board remains confident that CPE will continue to benefit from the opportunities within China's TMT and financial services sectors. Following our recent China iEducation and Enfinium acquisitions, we look forward to further strengthening CPE's portfolio over the coming months.
Patrick Macdougall
Chairman of the Board
7th June 2011
An Overview of the Private Equity Market in China
The past twelve months has been an exciting time for the Chinese private equity industry. Funds that were raised in the aftermath of the Internet bubble of 2000 are now starting to pay back their investors. Funds from the vintage years of 2002-2004 have seen several significant liquidation events both on the public markets as well as via various acquisitions. Many of the private equity funds in China have investors who have continued to invest in one generation of fund after another without anything as a promise for returns. These investors are now being rewarded for their patience and perseverance.
The most significant IPO in 2011 has been that of Renren. Renren started off as what could be described as a Facebook "look-alike" known as Xiaonei (which means inside the school campus). Xiaonei is one of the leading social networking sites with over 160 million members. Softbank, which is a significant investor, acquired the rights to the name of Renren and promptly rebranded the company. Renren raised over US$ 740 million in its IPO on the NYSE. The PE multiple of over 70 times for Renren at IPO was double that of Facebook. Youku (NYSE: YOKU) was listed on NYSE in late 2010 and raised over US$ 150 million. Youku is a video sharing site based in China much like YouTube. Its investors include Sutter Hill Ventures, Chengwei and Farallon. Chinese online bookstore Dangdang has also had a successful IPO and returned the original investment and more for investor DCM Doll Capital.
Since popular international websites like Facebook, YouTube, Blogspot, Wikipedia and Twitter are all blocked in China, local copycats have emerged in recent years mimicking their business models while complying with the government regulations on self censorship of contents. These companies are now enjoying great success and emerging on the public market one by one. The New York Stock Exchange reported that over 20 Chinese companies have listed on the exchange in 2010 versus only 9 in 2009.
The near term prospects of the newly listed companies remain uncertain at this moment. Jiayuan, a Chinese dating website; NetQin, a mobile phone service provider; as well as Renren have all fallen below their IPO price after their debuts. But it is important to note that the private equity investors have all but recovered their capital in the recent run-up, lockups notwithstanding.
The second trend in China is the proliferation of Yuan denominated funds, fueled by the significant liquidity from local government and private fund sources, as well as the increase in red tape for foreign funds wishing to invest in Chinese companies. Local governments, in a bid to boost the creative industry in their jurisdictions, have been opening their coffers to fund technology start-ups, as well as providing incentives for fund managers to invest locally. Carlyle group has completed the second closing of their RMB fund with a target size of RMB 5 billion. Morgan Stanley has partnered with the Hangzhou Government to raise its first RMB fund with a target size of RMB 1.5 billion.
Many pundits have stated that in contrast to Silicon Valley Chinese technology companies do not have a culture of growth through acquisitions. This trend is also changing. Tencent has recently announced the purchase of 11 million shares of online travel site eLong. Tencent is a leader in both gaming and social networking (and a competitor of Renren) and this will be their first foray into the travel industry. It is conceivable that the newly minted public technology companies in China helped by the significant cash raised during their public listings, will aggressively expand their service offering and revenues through acquisitions.
The new funds have also fueled a flight of human capital. The talent pool in the private equity industry has always been limited and the recent growth in funds has made the shortage worse. Many senior managers and even founders have left private equity management companies to start their own funds.
Extract from the Directors' Report
The board ("the Board") of directors ("the Directors") are pleased to present their report on the affairs of the Company and its subsidiaries (collectively referred to as "the Group"), together with the audited financial statements for the year ended 31 December 2010.
Principal Activities
The Company was incorporated with limited liability under the laws of the British Virgin Islands. The Company's shares were admitted to the AIM Market ("AIM") of the London Stock Exchange on 19 October 2009.
The principal activity of the Company is investment holding. The Group is principally engaged in investing primarily in unlisted assets in the areas of telecommunications, media and technology ("TMT") as well as financial services or listed assets driven by corporate events such as mergers and acquisitions, pre-IPO, or re-structuring of state-owned assets.
Results and Dividends
The profit on ordinary activities of the Group for the year ended 31 December 2010 after taxation was US$1.89 million (2009: US$2.53 million).
The Directors are not recommending the payment of a dividend for the year.
Review of the Business
2010 was a year of stabilization after the strong rebound in the Group's investment markets in 2009.
Fortel Technology Holdings Limited ("Fortel"), a technology and digital media services provider operating in the People's Republic of China, remained the main asset and an anchor investment of the Company during the year. The Company held an approximate 37% equity interest in Fortel. Fortel is now actively seeking its own independent listing on the Hong Kong Stock Exchange during the second half of 2011.
In addition to Fortel, during the year the Company entered into an agreement to acquire a 40% interest in Beijing based China iEducation Group for a total consideration of US$2 million. The management team of China iEducation Group has worked in close partnership with the Ministry of Education for the past 10 years. During this period they have developed and distributed digital education content to elementary and middle schools, and built up a network of approximately 30 million student users and 3 million teachers, within a market that receives substantial annual funding from the Chinese Government to upgrade education resources.
The Group has also reviewed and considered other investment opportunities and plans to make further investments in due course. It is our intention not only to invest in businesses which operate solely in China but also those operating outside China which seek to leverage off our experience to enter the Chinese market and/or to develop strategic partnerships involving Chinese business entities.
Future Developments
The 12th five-year plan of the China government will offer investors great opportunities. CPE is identifying investment opportunities across a number of sectors, including TMT, where China is growing as one of the world's investment markets.
In a bid to broaden the Company's exposure to online opportunities and provide direct access to the global network of private equity investors, the Company has made a strategic investment in Hong Kong-based Enfinium International Holdings Limited ("Enfinium"), a leading online financial services business, which provides its clients with a global online trading platform that allows them to trade stocks on most of the world's stock exchanges, together with forex, futures and other transactions. This consolidates the Company's core strategic presence in the online, TMT and financial services sectors. The details of the investment are set out in the "Post Balance Sheet Events" section below. In order to broaden the investment opportunities further, the Company's investing policy was amended. The details of the investment policy are set out in the "Amendments to the Company's Investing Policy" Section below.
Amendments to the Company's Investing Policy
At an Extraordinary General Meeting held on 12 April 2011, it was resolved that the Company's investing policy be changed as follows:
The Company's investing strategy is to provide shareholders with an attractive return on their investment through capital appreciation, by investing in businesses which:
i) operate solely in China;
ii) operate in other countries as well as China but have significant exposure to the Chinese market; or
iii) operate outside China and are seeking to leverage off CPE's experience and/or portfolio companies to enter the Chinese market and/or to develop strategic partnerships involving Chinese business entities.
In each case the Directors will seek to invest in businesses which they believe are likely to achieve a trade sale or an IPO, predominantly within a medium to long term time horizon.
Post Balance Sheet Events
The Company has entered into an Agreement with Furuya Consultants Limited ("FCL") to acquire a 30% interest in Enfinium for a total consideration of US$6 million. The Company has financed the acquisition by issuing 10 million new ordinary shares of no par value, representing 13.6% of the Company's enlarged issued share capital of 73,784,645 shares.
In April 2011 CPE completed a sale-back to Fortel of 5,503 shares, representing 3.5% of Fortel's share capital. The sale valued Fortel at US$72 million, and raised US$3.8 million for the Company.
Duncan Chui Tak Keung
Executive Director and Chief Executive Officer
7th June 2011
Consolidated Statement of Comprehensive Income for the year ended 31 December 2010
2010 | 2009 | ||
US$'000 | US$'000 | ||
Gross portfolio return | 2,869 | 4,813 | |
Administrative expenses | (1,056) | (2,422) | |
Operating profit | 1,813 | 2,391 | |
Finance income | 140 | 141 | |
Profit before taxation | 1,953 | 2,532 | |
Taxation | - | - | |
Profit for the year | 1,953 | 2,532 | |
Other comprehensive expense | |||
Currency translation differences | (68) | - | |
Total comprehensive income for the year | 1,885 | 2,532 | |
Earnings per share | |||
Basic | 3.06 cents | 4.12 cents | |
Diluted | 2.98 cents | 4.11 cents | |
Consolidated Statement of Changes in Equity for the year ended 31 December 2010
Share capital | Share based payment reserve | Foreign translation reserve | Retained earning / (accumulated losses) | Total | |
US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | |
Group balance at 1 January 2009 | 20,347 | - | - | (480) | 19,867 |
Issue of shares | 5,000 | - | - | - | 5,000 |
Issue costs | (874) | - | - | - | (874) |
Exchange difference arising from share issue | 99 | - | - | - | 99 |
Issue of share options | - | 799 | - | - | 799 |
Profit for the year | - | - | - | 2,532 | 2,532 |
Group balance at 31 December 2009 and 1 January 2010 | 24,572 | 799 | - | 2,052 | 27,423 |
Profit for the year | - | - | - | 1,953 | 1,953 |
Other comprehensive expense | |||||
Currency translation differences | - | - | (68) | - | (68) |
Total comprehensive income for the year | - | - | (68) | 1,953 | 1,885 |
Group balance at 31 December 2010 | 24,572 | 799 | (68) | 4,005 | 29,308 |
Consolidated Statement of Financial Position as at 31 December 2010
2010 | 2009 | ||
US$'000 | US$'000 | ||
Non-current assets | |||
Fixtures, fittings and equipment | 8 | 1 | |
Investment at fair value through profit or loss | 28,718 | 23,911 | |
Deposit | 8 | 8 | |
Total non-current assets | 28,734 | 23,920 | |
Current assets | |||
Loans and other receivables | 45 | 1,111 | |
Quoted financial assets at fair value through profit or loss | - | 860 | |
Cash and cash equivalents | 851 | 1,717 | |
Total current assets | 896 | 3,688 | |
Total assets | 29,630 | 27,608 | |
Current liabilities | |||
Trade and other payables | 308 | 176 | |
Shareholder's loan | 14 | 9 | |
Total liabilities | 322 | 185 | |
Net current assets | 574 | 3,503 | |
Net assets | 29,308 | 27,423 | |
Equity and reserves | |||
Share capital | 24,572 | 24,572 | |
Share based payment reserve | 799 | 799 | |
Foreign translation reserve | (68) | - | |
Retained earnings | 4,005 | 2,052 | |
Total equity and reserves attributable to owners of the parent | 29,308 | 27,423 | |
Consolidated Cash Flow Statement for the year ended 31 December 2010
2010 | 2009 | ||
US$'000 | US$'000 | ||
Cash generated from operating activities | |||
Profit before taxation | 1,953 | 2,532 | |
Adjustments for: | |||
Depreciation | 1 | 1 | |
Financing income | (142) | (131) | |
Loss / (gain) on disposal of quoted securities | 2 | (10) | |
Gross portfolio return | (2,869) | (4,813) | |
Share option costs | - | 799 | |
(Increase) / decrease in receivables | (14) | 533 | |
Increase / (decrease) in payables | 133 | (300) | |
Net cash used in operating activities | (936) | (1,389) | |
Cash flows from investing activities | |||
Acquisition of property, plant and equipment | (7) | - | |
Finance income | 142 | 131 | |
Sale proceeds / (purchase) of financial assets | 179 | (850) | |
Realised quoted financial assets at fair value through Profit or loss | 679 | - | |
Loans granted | - | (1,095) | |
Purchase of convertible bonds | (1,502) | - | |
Proceeds from repayment of loan granted | 578 | 818 | |
Net cash generated from / (used in) investing activities | 69 | (996) | |
Cash flows from financing activities | |||
Net proceeds from issue of shares | - | 4,225 | |
(Repayment of) / loan from shareholders | 5 | (256) | |
Net cash generated from financing activities | 5 | 3,969 | |
Net (decrease) / increase in cash and cash equivalents | (862) | 1,584 | |
Cash and cash equivalent at the beginning of the year | 1,717 | 133 | |
Effect of foreign exchange | (4) | - | |
Cash and cash equivalent at the end of the year | 851 | 1,717 | |
Notes to the Financial Information for the year ended 31 December 2010
1. Board Approval and 2010 Annual Report and Financial Statements
The financial information included in this report has been extracted from the Group Financial Statements for the year ended 31 December 2010 which were both approved by the Board of Directors on 7th June 2011. These Group Financial Statements have been prepared in accordance with the accounting policies set out therein and in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
The auditors have reported on the 2010 Financial Statements, their report is unqualified. The information included does not constitute the Company's statutory accounts. The full financial statements will be included in the Group's annual report.
2. Earnings per Share - continuing operations
The calculation of the basic and diluted loss per share attributable to the ordinary equity holders of the Group is based on the following:
2010 | 2009 | ||
US$'000 | US$'000 | ||
Numerator | |||
Basic/Diluted : | Net Profit | US$1,953 | US$2,532 |
Denominator | |||
Basic: | Weighted average shares | 12,757 | 10,460 |
Effect of bonus issue on 4 June 2010 | 51,028 | 51,028 | |
63,785 | 61,488 | ||
Effect of diluted securities: | |||
Share options | 1,718 | 178 | |
Diluted: | Adjusted weighted average shares | 65,503 | 61,666 |
3. Investment at Fair Value through Profit or Loss
Group 2010 | |
US$'000 | |
Balance as at 1 January 2009 | 19,122 |
Fair value through profit and loss | 4,813 |
Effect of foreign exchange | (24) |
Balance as at 31 December 2009 and 1 January 2010 | 23,911 |
Fair value through profit and loss | 2,869 |
Additions | 2,000 |
Effect of foreign exchange | (62) |
Balance as at 31 December 2010 | 28,718 |
The Group adopted price of recent investment methodology prescribed in the IPEVCV guidelines to value its investments at fair value through profit and loss. Applying the methodology, the Group has used the purchase consideration paid by third parties in the acquisition of new shares in Fortel as the basis to estimate the fair value of the investment in Fortel. There has been no further transaction occurring since the sale of Fortel shares, which occurred on 30 December 2010, which is in the opinion of the directors to provide evidence for the year end valuation.
As at 31 December 2010, based on the price of recent investments in Fortel, the Group's investment has increased from US$23.9 million to US$26.7 million.
During the year ended 31 December 2010, the Company entered into a subscription agreement with China iEducation Holdings Limited ("iEducation") to subscribe its guaranteed convertible note (the "Note") at a consideration of US$2,000,000. The major shareholder of iEducation is the guarantor of the Note. As the directors are not aware of any adverse elements that would materially affect the value of the Note, they consider the original cost is an appropriate valuation as at 31 December 2010.
4. Posting of Accounts
The Company will post the Annual Report and Accounts for the year ended 31st December 2010 to shareholders shortly. The Annual Report and Accounts will also be made available on the Company's website at www.cpe-invest.com.