4 Jul 2013 07:00
ABERDEEN PRIVATE EQUITY FUND LIMITED
AUDITED ANNUAL FINANCIAL REPORT ANNOUNCEMENT
for the year ended 31 March 2013
1. CHAIRMAN'S STATEMENT
I am pleased to present to shareholders the Annual Report and financial statements of the Company for the financial year ended 31 March 2013.
Performance and Dividend
During the period under review, the net asset value ("NAV") per Share rose by 5.8% to 111.9p (2012 - 105.8p) representing a total return of 7.8% taking account of the dividend paid. A good performance from the underlying holdings was further assisted by currency gains as the portfolio continues to be largely USD denominated. The Company does not have a Benchmark with which to compare performance, but the Board regularly reviews the NAV performance both in absolute terms and in relative terms against the Company's peer group.
NAV performance was also given a small boost via the impact of Share buybacks in 2012 which produced an uplift to NAV of 0.1%. At the start of the financial year the Shares were trading at a discount to the underlying NAV of 47.4%. Over the course of the year this improved significantly to 20.5%.
As indicated in the 2012 Annual Report the Board has implemented a distribution policy whereby the Company returns a proportion of the distributions that it receives from its investments by way of dividend to shareholders. The Board stated then that it intended to distribute approximately 10% of the received distributions each year subject to a minimum of at least 1p per Share per annum, regardless of the distributions received. Accordingly, we are very pleased to be able to recommend to shareholders the payment of a dividend of 2.0p (2012 - 2.0p) per Share which, subject to approval of shareholders at the AGM on 25 September 2013, will be payable on 27 September 2013 to Shareholders on the register on 16 August 2013.
The Company's NAV performance this year was such that the high water mark and the performance fee hurdle, both as adjusted for shares repurchased and cancelled, were exceeded, resulting in a performance fee of US$1,482,000 becoming payable to the Manager (2012 - US$442,000).
Share Capital Management
During the period under review, 212,000 Shares were purchased in the market. The Board will continue to monitor the level of discount to NAV at which the shares trade. Accordingly, the Board is seeking to renew the shareholder authority to buy back up to 14.99% of the Company's Share capital at the forthcoming Annual General Meeting.
Gearing
As I reported last year, on 22 May 2012 the Company secured a £10 million committed revolving credit facility with The Royal Bank of Scotland plc which expires in May 2014. The facility is available for the purposes of bridging capital contribution commitments in accordance with the Company's investment policy and will provide the Company with increased flexibility if required in the future. At the year end there were no drawings under this facility.
Discount
Your Board and the Manager monitor closely the secondary market in the Company's Shares. The Company remains willing to buy back shares if it considers it to be in the best interests of shareholders to do so, but during the year the substantial marketing efforts of the Manager, plus a re-rating of the sector, have seen the discount at which the Company's Shares trade against their net asset value fall sharply. At the time of writing the shares are trading on a discount of approximately 22.5%. As a result of this secondary market support activity we are delighted to welcome many new investors of different types onto our register.
Continuation
At the time of the Company's tender offer conducted in June 2011 the Company's Articles of Incorporation were amended to introduce a three-yearly continuation vote with the first vote being in 2013. Accordingly, at the Annual General Meeting convened for 25 September 2013 Resolution 7 proposes that the Company continue as an investment company in accordance with Article 126.
Having taken soundings of our larger shareholders the Board believes that it has the support of the majority of shareholders for the continuation of the Company. We believe shareholders would be disadvantaged by voting to discontinue, especially at a time when listed private equity discounts have potential to close further. Accordingly, your Board firmly believes that it is in the best interests of shareholders to vote in favour of the Company's continuation.
Outlook
Your Board remains positive on the outlook for Private Equity ("PE") and notes the significant amount of Mergers & Acquisition ("M&A") activity and necessary corporate reorganisation that is still likely to come out of Europe, as that region continues to face fierce economic headwinds. Further afield, in the US, the macro environment is more promising and we should expect an increase in IPO activity, both from a demand-pull and supply-push perspective. Although never a major source of PE exits, even a small improvement in the IPO market can have a marked effect on PE sentiment.
Much work remains to be done by the industry and its participants in bringing in new investors to the listed PE sector and confidence in this sector hasn't yet fully returned. However, judging by the continuing discount reductions across many funds this sentiment at last appears to be moving firmly in the right direction.
Aberdeen SVG Management Joint Venture
As a final comment, I note that Aberdeen's Private Equity business and SVG Advisers have formed a joint venture called Aberdeen SVG Private Equity Managers Limited ("Aberdeen SVG"). Aberdeen Asset Management now owns a 50.1% stake in SVG Advisers with the option to acquire the remaining 49.9% at any time following the third anniversary of the transaction.
With effect from 4 June 2013 the Company novated its management arrangements to Aberdeen SVG. Although there will be no change in the day to day investment management of the Company this coming together of two investment teams will provide the existing management team with helpful extra resource in the on-going review of potential investments as well as critical mass. The Board sees this as a very positive development for the Company.
Jonathan Carr
Chairman
3 July 2013
2. MANAGER'S REVIEW
Introduction
As at 31 March 2013, 84.9% of the Company's NAV was invested in Private Equity investments and 15.1% held in cash. At the year end the Company held 23 positions in Limited Partnerships, and one co-investment.
Performance
We set out below a table of the monthly NAV and Share price performance over the year.
The point is made below that the Company is now seeing regular positive net cash flow. The aggregated TVPI1 of the private equity portfolio is also in positive territory at 1.22. On this basis the portfolio is firmly above the x axis on the aggregated portfolio's J-curve3.
We are pleased to report that the Company's NAV per Share rose 5.8% in the year to 111.9p. In addition, a 2p per Share dividend was paid in September 2012.
NAV | ||||
per Share | Monthly | Monthly | ||
(Sterling | NAV | Share | Share Price | |
equivalent) | Performance | Price | Performance | |
pence | % | pence | % | |
Mar-12 | 105.76 | 6.33% | 55.63 | -4.50% |
Apr-12 | 104.06 | -1.61% | 59.75 | 7.41% |
May-12 | 107.64 | 3.44% | 58.50 | -2.09% |
Jun-12 | 105.42 | -2.06% | 58.75 | 0.43% |
Jul-12 | 105.04 | -0.36% | 67.50 | 14.89% |
Aug-12 | 102.95 | -1.99% | 63.88 | -5.36% |
Sep-12 | 102.95 | 0.00% | 65.50 | 2.54% |
Oct-12 | 103.72 | 0.75% | 64.00 | -2.29% |
Nov-12 | 103.3 | -0.40% | 68.00 | 6.25% |
Dec-12 | 102.39 | -0.88% | 69.50 | 2.21% |
Jan-13 | 105.67 | 3.20% | 73.75 | 6.12% |
Feb-13 | 110.06 | 4.15% | 78.50 | 6.44% |
Mar-13 | 111.93 | 1.70% | 89.00 | 13.38% |
Private Equity Environment
With positive sentiment returning to global public equity markets, the broader investment community has also become more positively disposed to private equity. This reflects a number of factors including IPO markets (both on a volume and sentiment basis), debt issuance, secondary private equity deals and of course global M&A volumes.
In the US, post-2012 election stability is now in place, optimism has returned in housing and the unemployment rate has fallen from 8.5% as at April 2012 to 7.5% as at May 2013 although we note that the participation rate4 of the US workforce is at the lowest levels since the 1970s. There is a clear plan for cutting the US fiscal deficit and the Federal Reserve is continuing to undertake major monetary stimulus to help alleviate financial conditions and to boost the labour market recovery. We are positive about the broader US market and its continued move towards energy independence via shale exploitation. The considerable amount of cash that has been built up on US corporates' balance sheets we believe will continue to be partially used to buy businesses held by private equity firms. Against this backdrop we are positive on US Private Equity.
We saw a pick-up in Q4 2012 in M&A with $73bn of deals globally5, the third highest quarterly value since the onset of the global financial crisis. There is some corroboration on this pickup with all European M&A (not just buyout) up 5.4% by volume and 88.9% by value in Q4 6.
There is still a tail of negativity from the last few years that hasn't yet fully worked out of the data we see, for example, the median holding period for private equity assets in 2011 was 4.81 years compared to 3.84 years in 20087 and the number of deals bought has now outweighed exits for each of the last 10 years8.
On the flip side the number of dividend recapitalisations 9 executed has increased and by the end of October 2012, PE firms had raised $54bn to pay dividends, exceeding the previous yearly record of $40.5bn in 2010 10. In the VC space Q3 2012 saw a record number of exits to secondary PE buyers and there were 36 IPO exits in Q3, the highest number for a third quarter since 2000. These are also larger events than in the past with the average size at $354m compared to $100m in 199611.
Fund raising for Private Equity is a herculean task, and even in the best of times, can never be described as easy, though we note that 2012 saw a 10% increase to $264.9bn, the highest figure since the boom of $511.8bn in
200812. PE firms are also divesting to public companies at record rates. In January and February this year they sold $14.6bn, up from $8.9bn last year, a clear indication that corporate cash build up is slowly starting to be spent.
Hedging Activity
The Company's base currency is US Dollars13 and this matches most of the assets it holds, including cash, providing a physical hedge against moves against USD. Where we have made commitments in a fund where either the fund currency or the currency denomination of that fund's underlying investments is something other than US Dollars, we are potentially more exposed to the risk of translational losses. For this reason, from time to time we may hold cash in other currencies to provide a similar physical hedge as we do for USD.
Where we have strong conviction that a non-USD currency, to which we are exposed to a material extent, is likely to weaken versus Sterling we will take active currency risk and run either a partial or zero physical hedge. As with last year, we have again taken this approach with our Euro exposure. Some holdings provide multi-currency risk, for example Longreach I which has both Yen and Taiwanese Dollar exposure. Whilst Yen vs. Sterling weakening will have negatively impacted returns (from underlying Yen denominated investments), the fund could benefit in the longer term from the boost to exports that a weak Yen provides. With these more complicated risk exposures we believe that the unintended risk is that hedging could cause more harm than benefit.
Currency risk is actively monitored at our regular team investment meetings.
Portfolio Activity
We made a $5m commitment to the final close of Pangaea Two, managed by Cartesian Capital. The fund invests in global emerging market private companies across a wide range of sectors and because the commitment was made at final close, the fund was already drawn and called 15% in short order after our investment. This reduced the blind pool14 risk on the fund and because the initial investments, such as the Burger King franchise for China, have been successful, the investment is already carried at 1.1x, reducing the drag usually expected from new investments which tend to fall below 1x initially given fees and other costs associated with setting up a private equity fund.
We also invested $1m (€840k) via a co-invest transaction, into Alain Afflelou, a French optician. There is a good opportunity for the group to take market share and move from being the second largest chain in France, to the largest, overtaking a co-operative group in the process. The French eye correction market is also attractive with higher average selling prices for glasses than the rest of Europe, arising because of a favourable private health insurance market.
We also sold Terra Firma. Following the EMI failure, we had been watching closely to see how they invested the remainder of the fund. With the end of the investment period approaching, the fund made two quick acquisitions into asset backed businesses operating in the UK. We decided to sell the position, achieving what we believe was an attractive price.
Portfolio Review
Despite a relatively low weight to the mega buyout sector, the Company has been involved in some of the largest global PE buyout deals over the year. Notable ones were the TH Lee purchase of Party City ($2.7bn) in a secondary transaction from a consortium headed by Advent International, and SilverLake's purchase of Global Blue (€1bn) in another secondary transaction, this time from Equistone (the former Barclays fund). With a number of funds approaching the end of their investment periods, it is perhaps not surprising to see this level of activity.
Tenaya Capital made the last investment into Fund V and officially opened Fund VI, which the Company committed to last financial year. More encouragingly, Tenaya managed to exit two of their investments via IPO in Q4 2012. Ordinarily, this would be uneventful but given that the IPOs came after that of Facebook, which was widely criticised, they represent a good success for Tenaya. Once their share sale lock ups end, we expect sales of the remaining positions with subsequent cash distributions, taking it ever closer to being the second fund to return all of the Company's invested cash.
The first fund to reach this milestone was Oaktree, in August 2012, when they took advantage of improved credit markets to trade out of some of their small positions and distributed cash to their investors. There are still good prospects for the remainder of their control positions, not least Tribune Media, where the court has approved the restructuring plan proposed by Oaktree and their partners.
The Company now has approximately 15%15 of its portfolio (in terms of underlying LP investments) listed public equity (as a result of previous IPOs). We continue to see successful IPOs including West Corporation and Cyan Optics post the year end. With this small element of listed holdings within the portfolio, the Company may experience slightly higher NAV volatility going forward.
Another key theme we have seen from our managers is dividend recapping. With credit markets at levels even more favourable than before the credit crisis, we would expect to see this from our Private Equity managers. Whilst this may reduce the total multiple achieved on an exit, it increases the IRR and returns cash to investors earlier than would be the case if we were to wait for an exit. In some cases, the returns were in the region of 50% of the investment cost.
Longreach held a final close, at $400m, on their second fund which the Company committed to at the tail end of last year. They have had strong backing from Sovereign Wealth Funds ("SWFs") around Asia which could help their deal flow going forward. With the recent weakness in the Japanese Yen, it is fortunate that they are still conducting diligence for the first investments for the fund.
Portfolio Strategy
Net cash continues to flow into the portfolio, helping to maintain the healthy commitment cover ratio we have enjoyed for some time (45.9% cash / 69.6% cash plus debt facility) 16. In each of the individual four quarters of the Company's financial year we have seen cash flow in17outweigh cash flow out 18. As ever we have a full pipeline of potential investments under current evaluation. We are of course fully cognisant that the Company will undergo a continuation vote in September 2013 - our approach to managing the portfolio is business as normal given strong shareholder indications that they wish the Company to continue.
Our approach to investment has always been a combination of top down macro analysis and bottom up fund selection, a process which we describe as 'mutually informative'. We note the following observations taken from our annual macro assessment 19 which takes place in Q1 of every year.
From a strata perspective (i.e. Venture vs. Growth vs. Buyout et al) one of our more favoured areas remains Growth. We believe all strata, perhaps apart from Mezzanine, have become more favourable for investment over the past year. Secondary valuations across most strata have tightened and therefore perhaps offer less absolute value than they did at this point last year, however it entirely depends on what is contained within the fund, its vintage year and of course the pricing demands of the seller. We are currently evaluating positions in funds that we have met with and where we know the portfolios. As ever positions in funds we rate as most attractive are those which have less availability in the secondary market.
In terms of geography, North America remains our most favourable region for investment and Europe's attractiveness has increased from an operational change thesis, one best exploited by buyout and distressed managers. We have observed Africa's attractiveness increase over the years though the risk / reward play off is likely to be more in our favour by concentrating on more developed market investing. We don't rule this region out and we will always ultimately assess on the quality of the overall fund proposition. Likewise, South East Asia retains attractive investment characteristics, not least stable politics, and with a number of good managers coming to the market to raise new funds this year, we will pay particular attention to this region.
With regard to sectors we find Financials, Consumer and Technology score well, though we already have good exposure here. We would like to gain a greater exposure to healthcare, and continue to consider specific funds here that focus on several areas of the sector.
From the Manager's perspective share buybacks are now less attractive a proposition than they were at the start of the financial year given significant discount closure. The Share price momentum we have seen from the on-going investor relations programme has negated the need to deploy this tool beyond the repurchase and cancellation of 212,000 shares in summer 2012 20. The cessation of buyback activity after that point has helped prevent further contraction in the Company's market capitalisation; an action which we believe would have been to the longer term detriment of shareholders.
Alexander Barr
Aberdeen SVG Private Equity Managers Limited
3 July 2013
1 Total Value to Paid In. Also expressed as MOIC (Multiple on Invested Capital).
2 As at 31 March 2013. TVPI is in USD terms and is the weighted average (by Fair Market Value) of current portfolio constituents. It excludes previously sold or written down investments.
3 The line which plots a typical PE fund's returns over time: in the earlier years the line is negative due to management fees, costs and investments not yet turned around. Over time gains due to operational improvements, marked up valuations and successful divestitures above current marked value take the line into positive territory.
4 Participation rate is the percentage of working age persons who are employed, or are unemployed but looking for a job
5 http://www.preqin.com/docs/reports/Q4_2012_Buyout_Deals.pdf - published in January 2013.
6 Merrill Corporation 2012 Deal Drivers - 27 February 2013.
7 RCP Advisers InFront Issue 01 quoting Grant Thornton - 6 December 2012.
8 RCP Advisers InFront Issue 01 quoting Pitchbook - 6 December 2012
9 The mechanism via which private Equity GPs get cash returned to equity investors. i.e. taking out equity and replacing with debt.
10 Wall St Journal, 19 October 2012 "Debt fuels a dividend boom".
11 Wall St Journal, 18 October 2012 "Venture Capital - Another breeding ground for private equity".
12 Private Equity International
13 NAV is however translated to, and reported in, Sterling
14 A particular feature of Private Equity whereby money is traditionally committed to a fund that has yet to make any investments
15 Based on most recent figures available, as not all Q1 reports from our managers have been received at the time of writing. We note that some of our underlying holdings have since been fully exited.
16 As at end March 2013
17 The sum of distributions from funds, (including redrawable distributions) plus receipts from 'secondary' sales. The only case of the latter this financial year was the receipt of proceeds from the sale of Terra Firma in Q3 2012.
18 Gross capital calls from funds plus outflows from secondary purchases. There were no instances of the latter this financial year.
19 Given the long term nature of PE investing this process captures our views on what a varied set of macro influences could have on different PE strategies over a 3 to 5 year period from point of evaluation.
20 Over 11 tranches, last purchase 6 August 2012.
3. STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing financial statements for each financial year which give a true and fair view in accordance with applicable Guernsey law and International Financial Reporting Standards, of the state of affairs of the Company and of the profit or loss of the Company for that year. In preparing the financial statements, the Directors are required to:
·; select suitable accounting policies and apply them consistently;
·; make judgements and estimates that are reasonable and prudent;
·; state whether applicable accounting standards have been followed, subject to any material departures 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 confirm to the best of their knowledge that:
·; they have complied with the above requirements in preparing the financial statements;
·; there is no relevant audit information of which the Company's auditors are unaware.
In accordance with Disclosure and Transparency Rule 4.1.12:
The Directors confirm to the best of their knowledge that:
a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
b) the Directors' 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 they face.
The Directors are responsible for keeping proper accounting records which 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 (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Each Director confirms that, so far as he is aware, there is no relevant audit information of which the Company's auditors are unaware, and he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. Additionally, all important events since the year end are properly disclosed in the financial statements.
The maintenance and integrity of the Company's website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
For Aberdeen Private Equity Fund Limited
David Staples
Director
3 July 2013
4. SCHEDULE OF INVESTMENTS
Investment Portfolio | ||||
As at 31 March 2013 | ||||
Investment | 2012 | |||
Investments | called/cost{A} | 2013Fair Value | % of | Fair Value{B} |
Private Equity & Private Equity Like Funds portfolio | US$'000 | US$'000 | NAV | US$'000 |
Coller International Partners V L.P. | 4,976 | 9,365 | 5.1 | 9,839 |
DFJ Athena L.P. | 8,192 | 8,918 | 4.8 | 8,640 |
Goldman Sachs Capital Partners VI L.P. | 7,153 | 6,345 | 3.4 | 7,762 |
Gores Capital Partners III L.P. | 4,809 | 5,215 | 2.8 | 2,647 |
Greenpark International Investors III L.P. | 10,467 | 9,807 | 5.3 | 11,188 |
HIG Bayside Debt & LBO Fund II L.P. | 6,508 | 7,719 | 4.2 | 5,641 |
Lion Capital Fund III L.P. | 6,134 | 7,353 | 4.0 | 3,597 |
Lion/Seneca Cayman 3 L.P. | 988 | 1,027 | 0.6 | - |
Longreach Capital Partners Ireland 1, L.P. | 8,840 | 6,493 | 3.5 | 9,620 |
Longreach Capital Partners 2 - USD, L.P. | - | - | - | - |
MatlinPatterson Global Opportunities Partners III L.P. | 6,973 | 7,103 | 3.8 | 4,941 |
Northzone Ventures VI L.P. | 7,299 | 9,706 | 5.3 | 6,649 |
Oaktree OCM Opportunities Fund VIIb L.P. | - | 5,876 | 3.2 | 10,363 |
Pangaea Two Parallel L.P. | 999 | 1,050 | 0.6 | - |
Pine Brook Capital Partners L.P. | 5,312 | 7,781 | 4.2 | 6,203 |
PineBridge Latin America Partners II L.P. | 1,676 | 957 | 0.5 | 1,151 |
Resonant Music I L.P. | 5,208 | 4,908 | 2.7 | 4,915 |
Rho Ventures VI L.P. | 8,660 | 8,601 | 4.6 | 8,278 |
Silver Lake Partners III L.P. | 7,620 | 9,238 | 5.0 | 8,605 |
SVG Strategic Recovery Fund II L.P. | 5,113 | 4,235 | 2.3 | 9,760 |
Tenaya Capital V L.P. | 7,733 | 9,891 | 5.4 | 10,573 |
Tenaya Capital VI L.P. | 691 | 690 | 0.4 | - |
Thoma Bravo Fund IX L.P. | 6,393 | 11,287 | 6.1 | 13,882 |
Thomas H Lee Parallel Fund VI L.P. | 9,992 | 13,137 | 7.1 | 11,862 |
________ | ________ | ________ | ________ | |
131,736 | 156,702 | 84.9 | ||
________ | ________ | ________ | ________ | |
Fixed-term deposits | ||||
Barclays | 911 | 0.5 | ||
________ | ________ | |||
Aberdeen Liquidity Funds | ||||
Euro Fund Income | 1,387 | 0.7 | ||
Sterling Fund Income | 3,982 | 2.2 | ||
US Dollar Fund Income | 23,374 | 12.7 | ||
________ | ________ | |||
28,743 | 15.6 | |||
________ | ________ | |||
Cash and cash equivalents{C} | 29,654 | 16.1 | ||
________ | ________ | |||
Other liabilities less assets | (1,733) | (1.0) | ||
________ | ________ | |||
Net current assets | 27,921 | 15.1 | ||
________ | ________ | |||
Net assets | 184,623 | 100.0 | ||
________ | ________ | |||
{A} Investments called/cost represents capital calls for investments less return of capital from distributions. | ||||
{B} Drawdowns and/or distributions effected during the year will result in 2012 and 2013 values not being directly comparable. | ||||
{C} Represents sum of fixed term deposits and Aberdeen liquidity funds. | ||||
5. BUSINESS REVIEW
A review of the Company's activities is given in the Chairman's Statement and Manager's Review. This includes a review of the business of the Company and its principal activities, likely future developments of the business, and details of changes to the Company's Share capital during the year. The major risks associated with the Company are detailed below and in note 19 to the financial statements. The Key Performance Indicators for the Company including NAV performance and Share price performance are detailed under Financial Highlights below.
The Company does not make political donations or expenditures and has not made any donations for charitable purposes during the year and in common with most investment companies, the Company has no employees. Directors' & Officers' liability insurance cover has been maintained throughout the year at the expense of the Company.
Results and Dividend
Details of the Company's results are shown under Financial Highlights below. The Company's policy is to distribute approximately 10% of the received distributions each year subject to a minimum of at least 1p per Share per annum. For the year ended 31 March 2013 the Directors are recommending the payment of a dividend of 2.0p per Share which, subject to shareholder approval at the AGM on 25 September 2013, will be payable on 27 September 2013 to shareholders on the register on 16 August 2013.
Incorporation and Principal Activity
The Company is a Guernsey authorised closed-ended investment company listed on the London Stock Exchange. The Company was incorporated on 5 January 2007 in Guernsey, Channel Islands with registered number 46192. Trading in the Company's shares commenced on 9 July 2007.
The Company is a member of the Association of Investment Companies ("AIC").
The Company intends to manage its affairs so as to be a qualifying investment for inclusion in the stocks and shares component of an Individual Savings Account ('ISA') and it is the Directors' intention that the Company should continue to be a qualifying investment.
Going Concern
The Company's Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. Furthermore, the Directors are recommending shareholders to vote in favour of the continuation vote and, based upon initial discussions with the larger shareholders, they believe that the resolution to continue will be passed. Notwithstanding the resolution being proposed at the forthcoming Annual General Meeting to approve the continuation of the Company, the Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Nevertheless, the Directors are making full disclosure, as required by accounting standards, to indicate the existence of a material uncertainty, which may cast significant doubt about the Company's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
Note 19 to the financial statements includes the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit risk and liquidity risk. The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern including reviewing the level of the Company's assets and significant areas of financial risk including the level of liquidity, the estimated draw down of commitments and timing of realisations from the portfolio.
Principal Risk Factors
Shares
The market price and the realisable value of the Company's Shares, as well as being affected by their underlying net asset value, also reflect supply and demand for the Company's Shares, market conditions and general investor sentiment. As a result, the market value and the realisable value of the Shares may fluctuate and vary considerably from the net asset value of the Shares and investors may not be able to realise the value of their original investment.
Borrowings
The Company may borrow up to 25% of the NAV of the Company. Whilst the use of borrowings should enhance the total return on the Shares where the return on the Company's underlying assets is positive and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is less than the cost of borrowing, further reducing the total return on the Shares or increasing the scale of any losses.
Market Risks
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. Market risk comprises three elements; interest rate risk, currency risk and other price risk. Further details of these risks are disclosed in note 19 to the financial statements. Investment in private equity securities involves a greater degree of risk than that usually associated with investment in listed securities markets.
General
Shareholders have no right to redeem their Shares and in normal circumstances will only be able to realise their investment through the market. The Company has introduced a three-yearly continuation vote commencing at the Annual General Meeting in 2013 and if shareholders vote against the Ordinary Resolution to continue, the Company will be wound up or reconstructed.
Taxation and Exchange Controls
Any change in the Company's tax status or in taxation legislation and/or the imposition of exchange controls (including the tax treatment of dividends or other investment income received by the Company) could affect the value of the investments held by the Company, affect the Company's ability to provide returns to shareholders or alter the post-tax returns to shareholders.
Regulatory
The Alternative Investment Fund Managers Directive (the "Directive") will come into force in July 2013. The Directive may have significant consequences for the Company (and all similar investment companies) which may materially increase compliance and regulatory costs. The Directive is subject to further implementation measures, and the Board will continue to monitor the progress and likely implications of the Directive.
Investment Strategy and Performance
Inappropriate long-term investment strategies in terms of, inter alia, asset allocation, level of gearing or Manager selection may result in underperformance of the Company against the companies within the peer group. The Board regularly considers the Company's investment strategy and monitors performance at each Board meeting.
Portfolio Risks
Private equity investments are long-term in nature and they may take a considerable period to be realised. A substantial proportion of the Company's assets are invested in limited partnerships which invest in private companies. These unquoted investments are less readily realisable than quoted securities. Such investments may therefore carry a higher degree of risk than quoted securities. In valuing its investments in private equity funds or limited partnerships and in calculating its NAV, the Company relies to a significant extent on the accuracy of financial and other information provided by these funds to the Manager. Limited partnerships typically provide updated (unaudited) valuations on a quarterly or six-monthly basis.
6 STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2013
Year ended | Year ended | ||
31 March 2013 | 31 March 2012 | ||
Notes | US$'000 | US$'000 | |
Gains on investments | 12 | 9,927 | 19,777 |
Income | 4 | 84 | 234 |
Currency losses | (200) | (1,209) | |
Investment management fee | 5 | (2,724) | (2,616) |
Performance fee | 5 | (1,482) | (442) |
Other operating expenses | 6 | (1,539) | (1,038) |
Tax incurred on distribution income | 7 | (779) | (221) |
____________ | ____________ | ||
Profit attributable to equity shareholders | 3,287 | 14,485 | |
____________ | ____________ | ||
Earnings per share (pence) | 9 | 1.99 | 8.09 |
____________ | ____________ | ||
The Company does not have any income or expense that is not included in profit for the year, and therefore the "Profit attributable to equity shareholders" is also the "Total comprehensive income for the year", as defined in IAS 1 (revised). | |||
All of the profit and total comprehensive income is attributable to the equity holders of the Company. There are no minority interests. | |||
All items in the above statement derive from continuing operations. | |||
The accompanying notes are an integral part of the financial statements. | |||
7. BALANCE SHEET
As at 31 March 2013
As at | As at | ||
31 March 2013 | 31 March 2012 | ||
Notes | US$'000 | US$'000 | |
Non-current assets | |||
Financial assets held at fair value through profit or loss | 10 | 156,702 | 163,421 |
____________ | ____________ | ||
Current assets | |||
Cash and cash equivalents | 29,654 | 22,335 | |
Trade and other receivables | 13 | 312 | 89 |
____________ | ____________ | ||
29,966 | 22,424 | ||
____________ | ____________ | ||
Creditors: amounts falling due within one year | |||
Trade and other payables | 14 | (2,045) | (850) |
____________ | ____________ | ||
Net current assets | 27,921 | 21,574 | |
____________ | ____________ | ||
Net assets | 184,623 | 184,995 | |
____________ | ____________ | ||
Share capital and reserves | |||
Share capital | 15 | - | - |
Share premium | 15 | 229,199 | 229,405 |
Revenue reserves | 16 | (44,576) | (44,410) |
____________ | ____________ | ||
Equity shareholders' funds | 184,623 | 184,995 | |
____________ | ____________ | ||
Net asset value per share (pence) | 17 | 111.93 | 105.76 |
____________ | ____________ |
8. STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2013 | |||
Share capital & | Revenue | ||
Share premium | reserves | Total | |
US$'000 | US$'000 | US$'000 | |
Net assets at 31 March 2012 | 229,405 | (44,410) | 184,995 |
Repurchase of shares | (206) | - | (206) |
Dividend paid | - | (3,453) | (3,453) |
Profit from operations | - | 3,287 | 3,287 |
____________ | ____________ | ____________ | |
Net assets at 31 March 2013 | 229,199 | (44,576) | 184,623 |
____________ | ____________ | ____________ | |
For the year ended 31 March 2012 | |||
Share capital & | Revenue | ||
Share premium | reserves | Total | |
US$'000 | US$'000 | US$'000 | |
Net assets at 31 March 2011 | 247,229 | (58,895) | 188,334 |
Issue of shares | 1,818 | - | 1,818 |
Repurchase of shares | (18,654) | - | (18,654) |
Tender offer costs | (988) | - | (988) |
Profit from operations | - | 14,485 | 14,485 |
____________ | ____________ | ____________ | |
Net assets at 31 March 2012 | 229,405 | (44,410) | 184,995 |
____________ | ____________ | ____________ |
9 STATEMENT OF CASH FLOWS
Year ended | Year ended | |
31 March 2013 | 31 March 2012 | |
US$'000 | US$'000 | |
Cash flows from operating activities | ||
Profit for the year | 3,287 | 14,485 |
Net interest income from cash and cash equivalents | (84) | (234) |
Gains on investments | (9,927) | (19,777) |
Increase/(decrease) in trade and other payables | 1,195 | (17) |
(Increase)/decrease in trade and other receivables | (223) | 97 |
Net cash outflow from operating activities | _______ | _______ |
Cash flows from investing activities | ||
Net interest income from cash and cash equivalents | 84 | 234 |
Distribution income from investments | 2,886 | 2,109 |
Realised gains on investee distributions | 17,949 | 9,282 |
Capital call expenses | (3,863) | (3,717) |
Purchases of investments | (24,966) | (37,319) |
Sales of investments | 24,640 | 19,949 |
_______ | _______ | |
Net cash inflow/(outflow) from investing activities | 16,730 | (9,462) |
Cash flows from financing activities | ||
Repurchase of shares | (206) | (18,654) |
Tender offer costs | - | (988) |
Equity dividends paid | (3,453) | - |
_______ | _______ | |
Net cash outflow from financing activities | (3,659) | (19,642) |
_______ | _______ | |
Net change in cash and cash equivalents for the year | 7,319 | (34,550) |
Cash and cash equivalents at beginning of the year | 22,335 | 56,885 |
_______ | _______ | |
Cash and cash equivalents at the end of the year | 29,654 | 22,335 |
_______ | _______ |
10. NOTES TO THE FINANCIAL STATEMENTS:
For the year ended 31 March 2013
1. | General information |
Aberdeen Private Equity Fund Limited (the "Company") was incorporated with limited liability and registered in Guernsey on 5 January 2007. The Company's shares were listed on 9 July 2007 whereupon the Company became a closed-ended investment company, domiciled in Guernsey. The Company is authorised by the Guernsey Financial Services Commission. |
2. | Accounting policies | ||
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company's financial statements; | |||
(a) | Basis of preparation | ||
The financial statements are prepared on a going concern basis under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities at fair value through profit or loss. | |||
Notwithstanding a resolution being proposed at the forthcoming Annual General Meeting to approve the continuation of the Company, the Directors have, at the time of approving the financial statements, a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is included in the Directors' Report (unaudited). | |||
The financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB"), and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). | |||
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates which requires management to exercise its judgement in the process of applying the accounting policies. Actual results may differ from these estimates. It is in the area of valuation in investments where management are required to exercise judgement in the adoption of critical estimates and judgements which can impact the carrying values of investments. | |||
At the date of authorisation of these financial statements, various Standards, amendments to Standards and Interpretations which have not been applied to these financial statements, were in issue but were not yet effective. These have not been applied to these financial statements. The following are the Standards and amendments to existing Standards which may be relevant but not yet effective. Other Standards, Interpretations and amendments to Standards which are not yet effective and not relevant have not been included; | |||
- | IFRS 9 Financial Instruments (effective for accounting periods beginning on or after 1 January 2015) | ||
- | IFRS 10 Consolidated Financial Statements (effective for accounting periods beginning on or after 1 January 2013) | ||
- | IFRS 11 Joint Arrangements (effective for accounting periods beginning on or after 1 January 2013) | ||
- | IFRS 12 Disclosure of Interests in Other Entities (effective for accounting periods beginning on or after 1 January 2013) | ||
- | IFRS 13 Fair Value Measurement (effective for accounting periods beginning on or after 1 January 2013) | ||
- | IAS 28 (Revised) Investments in Associates and Joint Ventures (effective for accounting periods beginning on or after 1 January 2013) | ||
- | Amendments to IAS 1 Presentation of Items of Other Comprehensive Income (effective for accounting periods beginning on or after 1 July 2012) | ||
- | Amendments to IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities (effective for accounting periods beginning on or after 1 January 2013) | ||
- | Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities (effective for accounting periods beginning on or after 1 January 2014) | ||
- | Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date and Transition Disclosures (effective for accounting periods beginning on or after 1 January 2015) | ||
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Company. | |||
(b) | Financial instruments | ||
i) | Classification | ||
A financial asset or financial liability at fair value through profit or loss is a financial asset or liability that is classified as held-for-trading or designated at fair value through profit or loss on inception. Forward contracts in a receivable position (positive fair value) are reported as financial assets at fair value through profit or loss. Forward contracts in a payable position (negative fair value) are reported as financial liabilities at fair value through profit or loss. | |||
Financial assets that are not held at fair value through profit or loss include certain balances due from brokers and accounts receivable. Financial liabilities that are not at fair value through profit or loss include certain balances due to brokers and accounts payable. | |||
ii) | Recognition | ||
The Company recognises financial assets and financial liabilities on the date it becomes party to the contractual provisions of the investment. Purchases and sales of financial assets and financial liabilities are recognised using trade date accounting. From trade date, any gains and losses arising from changes in fair value of the financial assets or financial liabilities are recorded in the Statement of Comprehensive Income. | |||
iii) | Fair value measurement principles | ||
Financial assets and liabilities are initially recorded at their transaction price and then measured at fair value subsequent to initial recognition. Gains and losses arising from changes in the fair value of the 'financial assets or financial liabilities at fair value through profit or loss' category are presented in the Statement of Comprehensive Income for the period in which they arise. | |||
Financial assets classified as receivables are carried at cost less any impairment losses. Financial liabilities, other than those at fair value through profit or loss, are measured at amortised cost using the effective interest rate method. | |||
iv) | Investees | ||
The Company's investments in investees (that is, limited partnerships and companies in the investment portfolio) are subject to the terms and conditions of the respective investee's offering documentation. The investments in the investees are valued based on the reported Net Asset Value ("NAV") of such assets as determined by the administrator or general partner of the investee and adjusted by the Directors in consultation with the Manager to take account of concerns such as liquidity so as to ensure that investments held at fair value through profit or loss are carried at fair value. The reported NAV is net of applicable fees and expenses of the investees and the underlying investments held by each investee are accounted for, as defined in the respective investee's offering documentation. While the underlying fund managers may utilise various model-based approaches to value their investment portfolios, on which the Company's valuations are based, no such models are used directly in the preparation of fair values of the investments. The NAV of investees reported by the administrators may subsequently be adjusted when such results are subject to audit and audit adjustments may be material to the Company. | |||
v) | Cash and cash equivalents | ||
Cash and cash equivalents consist principally of cash on hand, demand deposits and short-term, highly liquid investments with maturities of three months or less. | |||
(c) | Interest income and dividend/distribution income | ||
Interest income on cash and cash equivalents is accrued using the effective interest method. Dividend income and income from investees is recognised in gains on investments when the right to receive payment is established. Dividend income and income from investees is recognised gross of tax deducted at source, which is recognised as an operating expense. | |||
(d) | Realised and unrealised gains and losses | ||
Realised gains and losses arising on the disposal of investments are calculated by reference to the proceeds received on disposal and the average cost attributable to those investments, and are recognised in the Statement of Comprehensive Income. Unrealised gains and losses on investments held at fair value through profit or loss are also recognised in the Statement of Comprehensive Income. | |||
(e) | Foreign currency | ||
i) | Functional and presentation currency | ||
The Company aims to make investments primarily denominated in US Dollars and to make returns in US Dollars. The Board of Directors considers US Dollars as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in US Dollars, which is the Company's functional and presentation currency. | |||
ii) | Transactions and balances | ||
Foreign currency transactions are translated into the functional and presentation currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies other than US Dollars are recognised in the Statement of Comprehensive Income. | |||
(f) | Expenses | ||
All expenses recognised in the Statement of Comprehensive Income are on an accruals basis. | |||
(g) | Share issue expenses | ||
Expenses which are directly incurred only on the issue of shares are written off against the share premium account. | |||
(h) | Statement of Cash Flows | ||
For the purpose of the Statement of Cash Flows, the Company considers balances due to and from banks as cash and cash equivalents. | |||
(i) | Dividends payable | ||
Dividends requiring shareholder approval are recognised upon shareholder approval being granted. Interim dividends which are declared by the Board and do not require shareholder approval are recognised upon their declaration. | |||
3. | Segment information |
The Company engaged in one segment of business during the year: Investment in the Private Equity & Private Equity Like Funds portfolio. A reconciliation of movements in value during the year can be found in notes 10 and 12. | |
The Company is domiciled in Guernsey. All of the Company's income from investments is from underlying investments that are incorporated in countries other than Guernsey. | |
The Company has a highly diversified portfolio of investments and no single investment accounts for more than 20% of the Company's gross assets at the date of investment. |
2013 | 2012 | ||
4. | Income | US$'000 | US$'000 |
Net interest income from cash and cash equivalents | 84 | 234 | |
_______ | _______ |
2013 | 2012 | ||
5. | Investment management fee | US$'000 | US$'000 |
Investment management fee | 2,724 | 2,616 | |
_______ | _______ | ||
For the duration of the year under review Aberdeen Asset Managers Limited ("Aberdeen") provided management services to the Company. On 4 June 2013 the agreement was novated and Aberdeen was replaced as manager by Aberdeen SVG Private Equity Managers Limited. No changes were made to the fee terms and further details are contained in the Annual Report. The Manager is paid by the Company a monthly fee equal to one-twelfth of 1.5% of the NAV of the Company (before deduction of any performance fee). The fee is calculated and accrued as at the last business day of each month and is paid monthly in arrears. At 31 March 2013 US$233,000 was outstanding (31 March 2012 - US$232,000). At the time of the launch of the Company the previous manager entered into agreements to share part of its management fee with shareholders that had subscribed to the original offer. These arrangements are continuing to the extent that original shareholders have remained continuously interested in the Company's shares. | |||
2013 | 2012 | ||
US$'000 | US$'000 | ||
Performance fee | 1,482 | 442 | |
_______ | _______ | ||
In addition, the Manager is entitled to a performance fee of 10% based on the total increase in the audited NAV - adjusted to remove the contribution to performance from share purchases for cancellation and to add back the value of any dividends that have been paid to shareholders from the date of the last period for which a performance fee was paid - of the shares at the end of each performance year (ending 31 March each year). For a performance fee to be paid, the Manager must achieve returns in excess of 8% (subject to a high watermark). At 31 March 2013 US$1,482,000 was outstanding (31 March 2012 - US$442,000). | |||
2013 | 2012 | ||
6. | Operating expenses | US$'000 | US$'000 |
Directors' fees | 247 | 286 | |
Auditor's fees: | |||
- audit | 69 | 51 | |
- for review of the interim report | 24 | 21 | |
- for taxation services{A} | 180 | - | |
Legal and professional fees{B} | 190 | 56 | |
Loan facility fees | 311 | - | |
Brokerage fees | 52 | 42 | |
Printing and communication costs{C} | 151 | 106 | |
Administration fees | 161 | 174 | |
Custody fees | - | 20 | |
Listing fees | 12 | 10 | |
Registrars fees | 30 | 20 | |
Regulatory fees | 11 | 21 | |
Subscription fees | 58 | 62 | |
Travel expenses | 9 | 16 | |
Directors' and officers' insurance | 24 | 45 | |
Interest expense | - | 52 | |
Bank charges | 5 | 42 | |
Other expenses | 5 | 14 | |
_______ | _______ | ||
1,539 | 1,038 | ||
_______ | _______ | ||
{A} Taxation services carried out during the year include tax planning and advice in respect of determining the Company's reporting obligations in the US as a result of taxes being incurred on distributions. These services have been approved by the Audit Committee and appropriate safeguards have been put in place to ensure the auditor's independence is not impacted | |||
{B} Included within the total for 2013 are costs of US$95,000 (2012 - nil) attributable to advisory fees incurred in relation to the disposal of the investment in Terra Firma Capital Partners III L.P. | |||
{C} Included in the total are costs attributable to the Company's agreement with Aberdeen Asset Managers Limited ('AAM') for the provision of marketing services in relation to the Company's participation in the Aberdeen Investment Trust Share Plan and ISA. The total fees paid and payable under the agreement were £86,000 (2012 - £84,000) and the sum due to AAM at the year end was £21,000 (2012 - £nil). | |||
The Administrator is paid by the Company a fee of £105,000 per annum plus disbursements. The contract notice period on their contract is 90 days. At 31 March 2013 US$41,000 was outstanding (31 March 2012 - US$41,000). | |||
The Custodian was paid by the Company a fee not greater than 0.03% per annum on cash and deposits and 0.05% per annum on investments, subject to a minimum annual fee of £10,000. This agreement for the provision of custody services was terminated on 30 June 2011. | |||
7. | Taxation |
The Company is subject to irrecoverable tax on income received from certain of its underlying portfolio holdings. The Company is otherwise exempt from paying income tax as it is domiciled and registered for taxation purposes in Guernsey where it pays an annual exempt status fee (which is currently £600) under The Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 (as amended). |
2013 | 2012 | ||
8. | Dividends | US$'000 | US$'000 |
Proposed dividend for 2013 - 2.00p (2012 - 2.00p) | 3,299 | 3,453 | |
_______ | _______ | ||
The proposed dividend for 2013 has not been included as a liability in these financial statements (2012 liability - US$nil). | |||
9. | Earnings per share |
The basic earnings per share is calculated by dividing the returns attributable to shareholders by the weighted average number of shares in that class in issue during the period. There were no potentially dilutive shares or other securities in issue at 31 March 2013 (31 March 2012 - nil). |
2013 | 2012 | |||
10. | Financial assets at fair value through profit or loss | US$'000 | US$'000 | |
Cost at beginning of year | 139,552 | 127,799 | ||
Additions | 24,966 | 39,137 | ||
Disposals | (24,640) | (19,949) | ||
Realised losses on investments | (8,142) | (7,435) | ||
_________ | _________ | |||
Cost at end of year | 131,736 | 139,552 | ||
Unrealised gains on investments | 24,966 | 23,869 | ||
_________ | _________ | |||
Fair value at end of year | 156,702 | 163,421 | ||
_________ | _________ | |||
There were no Strategic Hedge Funds portfolio holdings throughout the year ended 31 March 2013. The portfolio consisted wholly of Private Equity & Private Equity Like Funds portfolio holdings. | ||||
Private Equity | ||||
& Private Equity Like | Strategic | |||
Funds portfolio | Hedge Fundsportfolio | Total | ||
31 March 2012 | US$'000 | US$'000 | US$'000 | |
Cost at beginning of year | 127,224 | 575 | 127,799 | |
Additions | 39,137 | - | 39,137 | |
Disposals | (19,709) | (240) | (19,949) | |
Realised losses on investments | (7,100) | (335) | (7,435) | |
_________ | _________ | _________ | ||
Cost at end of year | 139,552 | - | 139,552 | |
Unrealised gains on investments | 23,869 | - | 23,869 | |
_________ | _________ | _________ | ||
Fair value at end of year | 163,421 | - | 163,421 | |
_________ | _________ | _________ | ||
11. | Fair value hierarchy | |||||
The three levels of the fair value hierarchy under the Amendment to IFRS 7 are described below: | ||||||
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities; | ||||||
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (as prices) or indirectly (derived from prices); and | ||||||
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs). | ||||||
The levels in the fair value hierarchy within which the fair value measurement is categorised in its entirety are determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. In evaluating the level at which the Company's investments have been classified; the Company has assessed factors including, but not limited to price transparency, the ability to redeem at NAV at the measurement date and the existence or absence of certain restrictions at the measurement date. | ||||||
The following tables summarises by level within the fair value hierarchy the Company's financial assets and liabilities at fair value as follows: | ||||||
Level 1 | Level 2 | Level 3 | Total | |||
31 March 2013 | US$'000 | US$'000 | US$'000 | US$'000 | ||
Financial assets at fair value through profit and loss | - | - | 156,702 | 156,702 | ||
_______ | _______ | _______ | _______ | |||
Level 1 | Level 2 | Level 3 | Total | |||
31 March 2012 | US$'000 | US$'000 | US$'000 | US$'000 | ||
Financial assets at fair value through profit and loss | - | - | 163,421 | 163,421 | ||
_______ | _______ | _______ | _______ | |||
A reconciliation of fair value measurements in Level 3 is set out in the following table: | ||||||
Private Equity | ||||||
& Private Equity like | ||||||
Funds portfolio | ||||||
Year ended 31 March 2013 | US$'000 | |||||
Opening balance | 163,421 | |||||
Purchases | 24,966 | |||||
Sales | (24,640) | |||||
Total gains or losses on investments included in Statement of Comprehensive Income: | ||||||
- on assets sold | (8,142) | |||||
- on assets held at the year end | 1,097 | |||||
_________ | ||||||
156,702 | ||||||
_________ | ||||||
Private Equity | ||||||
& Private Equity like | ||||||
Funds portfolio | ||||||
Year ended 31 March 2012 | US$'000 | |||||
Opening balance | 131,695 | |||||
Purchases | 39,137 | |||||
Sales | (19,709) | |||||
Total gains or losses on investments included in Statement of Comprehensive Income: | ||||||
- on assets sold | (7,100) | |||||
- on assets held at the year end | 19,398 | |||||
_________ | ||||||
163,421 | ||||||
_________ | ||||||
12. | Net changes in fair value of financial assets at fair value through profit or loss | ||
The net realised and unrealised investment gain or loss from financial assets at fair value through profit or loss shown in the Statement of Comprehensive Income is analysed as follows: | |||
2013 | 2012 | ||
US$'000 | US$'000 | ||
Unrealised gains on investments | 1,097 | 19,538 | |
Capital call expenses | (3,863) | (3,717) | |
Realised losses on disposal of investments | (8,142) | (7,435) | |
Realised gains on investee distributions | 17,949 | 9,282 | |
Distribution income from investments | 2,886 | 2,109 | |
_________ | _________ | ||
9,927 | 19,777 | ||
_________ | _________ | ||
Capital call expenses relate to management fees and other expenses paid to investees. | |||
2013 | 2012 | ||
13. | Trade and other receivables | US$'000 | US$'000 |
Prepayments | 167 | 78 | |
Accrued interest | 6 | 6 | |
Call prepaid | 139 | - | |
Due from brokers | - | 5 | |
_________ | _________ | ||
312 | 89 | ||
_________ | _________ |
2013 | 2012 | ||
14. | Trade and other payables | US$'000 | US$'000 |
Management fees | 233 | 232 | |
Performance fee | 1,482 | 442 | |
Other expenses | 330 | 176 | |
_________ | _________ | ||
2,045 | 850 | ||
_________ | _________ |
2013 | 2012 | ||
15. | Share capital and share premium | US$'000 | US$'000 |
Share capital | |||
Management shares | |||
Authorised: 10,000 shares of £1.00 each | |||
2 Management shares of £1.00 each | - | - | |
_________ | _________ | ||
2013 | 2012 | ||
US$'000 | US$'000 | ||
Ordinary shares | |||
Authorised: unlimited number of shares of no par value | |||
Share capital and share premium issued and fully paid | |||
Opening balance of 109,343,199 (2012 - 125,313,199) Sterling shares | 229,405 | 247,229 | |
Nil (2012 - 1,100,000) Sterling shares issued | - | 1,818 | |
212,000 (2012 - 17,070,000) Sterling shares repurchased | (206) | (18,654) | |
Tender offer costs | - | (988) | |
_________ | _________ | ||
Closing balance of 109,131,199 (2012 - 109,343,199) Sterling shares | 229,199 | 229,405 | |
_________ | _________ | ||
The authorised share capital of the Company on incorporation was £10,000 divided into 10,000 shares of £1.00 each. On 31 May 2007 a special resolution was passed by the Company to increase the share capital to an unlimited number of participating shares of no par value ("shares"), which upon issue, the Directors were able to designate as Sterling shares, US Dollar shares or otherwise as determined by the Directors at the time of issue, and 10,000 Management shares of £1.00 each. | |||
The shares were issued on 4 July 2007 as a result of the Company announcing the placing and offer for subscription of its shares on 6 June 2007. | |||
Following approval by shareholders of the Share Conversion Proposal on 3 June 2010, all the US Dollar shares were converted into new Sterling shares on 2 July 2010, on the basis of 0.5810 new Sterling shares for every US Dollar share held. | |||
2013 | 2012 | ||
16. | Revenue reserves | US'000 | US'000 |
Opening revenue reserves | (44,410) | (58,895) | |
Profit from operations | 3,287 | 14,485 | |
Dividend paid | (3,453) | - | |
_________ | _________ | ||
Closing revenue reserves | (44,576) | (44,410) | |
_________ | _________ | ||
Revenue reserves attributable to shareholders | (44,576) | (44,410) | |
_________ | _________ |
17. | Net asset value |
The net asset value of each share is determined by dividing the net assets of the Company attributable to the shares of £122,154,000 (US$184,623,000); (2012 - £115,644,000 (US$184,995,000)) by 109,131,199 (2012 - 109,343,199), being the number of shares in issue at the year end. |
18. | Commitments | ||||
The table below summarises commitments to the underlying investments of the Company at 31 March 2013: | |||||
Total | Outstanding | ||||
Currency | Commitments | Currency | Commitments | ||
'000 | US$'000 | '000 | US$'000 | ||
Coller International Partners V L.P. | 15,000 | 3,270 | |||
DFJ Athena L.P. | 10,000 | 455 | |||
Goldman Sachs Capital Partners VI L.P. | 15,000 | 3,984 | |||
Gores Capital Partners III L.P. | 10,000 | 4,196 | |||
Greenpark International Investors III L.P. | € 14,600 | 18,652 | € 1,093 | 1,396 | |
HIG Bayside Debt & LBO Fund II L.P. | 15,000 | 7,100 | |||
Lion Capital Fund III L.P. | € 10,000 | 12,775 | € 4,641 | 5,929 | |
Lion/Seneca Cayman 3 L.P. | € 810 | 1,035 | - | - | |
Longreach Capital Partners 2 - USD, L.P. | 7,500 | 7,400 | |||
Longreach Capital Partners Ireland 1, L.P | 7,425 | 280 | |||
MatlinPatterson Global Opportunities Partners III L.P. | 10,000 | 1,742 | |||
Northzone Ventures VI L.P. | € 10,000 | 12,775 | € 3,743 | 4,782 | |
Oaktree OCM Opportunities Fund VIIb L.P. | 15,000 | 1,500 | |||
Pangaea Two Parallel L.P. | 5,000 | 3,845 | |||
PineBridge Latin America Partners II L.P. | 2,611 | 344 | |||
Pine Brook Capital Partners L.P. | 10,000 | 2,662 | |||
Resonant Music I L.P. | 5,453 | - | |||
Rho Ventures VI L.P. | 10,000 | 1,025 | |||
Silver Lake Partners III L.P. | 15,000 | 4,181 | |||
SVG Strategic Recovery Fund II L.P. | £7,500 | 11,336 | £334 | 520 | |
Tenaya Capital V L.P. | 12,500 | 1,852 | |||
Tenaya Capital VI L.P. | 5,000 | 4,231 | |||
Thoma Bravo Fund IX L.P. | 10,000 | - | |||
Thomas H Lee Parallel Fund VI L.P. | 15,000 | 3,310 | |||
_________ | _________ | ||||
At 31 March 2013 | 252,062 | 64,004 | |||
_________ | _________ | ||||
19. | Financial risk management | ||||||||||
The Company maintains positions in a variety of investees and forward currency contracts as determined by its investment management strategy. | |||||||||||
The investees' own investing activities expose the Company to various types of risks that are associated with the financial investments and markets in which they invest. The significant types of financial risks, to which the Company is exposed are market risk, credit risk and liquidity risk. | |||||||||||
Asset allocation is determined by the Company's Manager which manages the allocation of assets to achieve the investment objectives. Achievement of the investment objectives involves taking risks. The Manager exercises judgement based on analysis, research and risk management techniques when making investment decisions. Adherence to target asset allocations and the composition of the portfolio is monitored by the Board. | |||||||||||
The significant types of risk that the Company is exposed to are detailed below: | |||||||||||
a) | Capital management risk | ||||||||||
- the Company may not be able to continue as a going concern; and | |||||||||||
- the balance between equity capital and debt may become inappropriate resulting in an adverse impact on shareholders returns. | |||||||||||
The capital of the Company is represented by the net assets attributable to the holders of the Company's shares. | |||||||||||
It is the Board's policy to monitor and review the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which any return of capital may be made to equity shareholders via dividends or share repurchases. The Board normally seeks to limit gearing to 25% of the net assets. Capital transactions undertaken during the year are disclosed in the Chairman's Statement. | |||||||||||
b) | Market risk | ||||||||||
The potential for adverse changes in the fair value of the Company's investment portfolio is referred to as market risk. Commonly used categories of market risk include currency risk, interest rate risk and other price risk. | |||||||||||
- Currency risk may result from exposure to changes in spot prices, forward prices and volatilities of currency exchange rates. | |||||||||||
- Interest rate risk may result from exposures to changes in the level, slope and curvature of the various yield curves, the volatility of interest rates, and credit spreads. | |||||||||||
- Other price risk is the risk that the value of an instrument will fluctuate as a result of changes in market prices other than those arising from currency risk or interest rate risk. | |||||||||||
i) Market risk management | |||||||||||
The Company's unlisted equity securities are susceptible to market risk arising from uncertainties about future values of the investment securities. The Manager provides the Company with investment recommendations that are consistent with the Company's objectives. | |||||||||||
The valuation method of these investments is described within the accounting policies. The nature of some of the Company's investments, which are unquoted investments in private equity funds, means that the investments are valued by the Manager on behalf of the Company after due consideration of the most recent available information from the underlying investments as adjusted where relevant by the Directors. While the underlying fund managers may utilise various model-based approaches to value their investment portfolios, on which the Company's valuations are based, no such models are used directly in the preparation of fair values of the investments. | |||||||||||
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The investments of the Company are subject to normal market fluctuations and the risks inherent with investment in financial markets. The maximum risk resulting from financial instruments held by the Company is determined by the fair value of the financial instruments. The Manager moderates this risk through careful selection of funds managed by experienced fund managers, which meet the investment objectives; the Company's market risk is managed through diversification of the investment portfolio. Through a variety of analytical techniques, the Manager monitors, on a daily basis, the Company's overall market positions, as well as its exposure to market risk. | |||||||||||
ii) Currency risk | |||||||||||
The Company has assets and liabilities denominated in currencies other than US Dollars, its functional currency. The Company is therefore exposed to currency risk, as the value of the assets and liabilities denominated in other currencies fluctuates due to changes in exchange rates. During the twelve months to 31 March 2013, the value of Sterling decreased by 5.52% (2012 - decreased 0.20%) against the US Dollar, resulting in a decrease of US$489,000 in the US$ NAV. At 31 March 2013, an opposite movement of a similar scale in the value of Sterling against the US Dollar would, with all other variables held constant, increase the NAV of the Company by approximately US$489,000 (2011 - US$20,000). | |||||||||||
During the twelve months to 31 March 2013, the value of the Euro decreased by 4.20% (2012 - decreased 6.03%) against the US Dollar, resulting in a decrease of US$1,295,000 in the US$ NAV. At 31 March 2013, an opposite movement of a similar scale in the value of the Euro against the US Dollar would, with all other variables held constant, increase the NAV of the Company by approximately US$1,295,000 (2012 - US$1,775,000). | |||||||||||
The table below summarises the Company's exposure in US Dollars to currency risks at the year end: | |||||||||||
US$ | Sterling | Euros | Total | ||||||||
As at 31 March 2013 | US$'000 | US$'000 | US$'000 | US$'000 | |||||||
Assets/(liabilities) | |||||||||||
Financial assets at fair value through profit or loss | 124,574 | 4,235 | 27,893 | 156,702 | |||||||
Cash and fixed deposits | 23,865 | 4,137 | 1,652 | 29,654 | |||||||
Other assets and liabilities | (1,733) | - | - | (1,733) | |||||||
_______ | _______ | _______ | _______ | ||||||||
Total at 31 March 2013 | 146,706 | 8,372 | 29,545 | 184,623 | |||||||
_______ | _______ | _______ | _______ | ||||||||
US$ | Sterling | Euros | Total | ||||||||
As at 31 March 2012 | US$'000 | US$'000 | US$'000 | US$'000 | |||||||
Assets/(liabilities) | |||||||||||
Financial assets at fair value through profit or loss | 124,929 | 9,760 | 28,732 | 163,421 | |||||||
Cash and fixed deposits | 21,363 | 268 | 704 | 22,335 | |||||||
Other assets and liabilities | (761) | - | - | (761) | |||||||
_______ | _______ | _______ | _______ | ||||||||
Total at 31 March 2012 | 145,531 | 10,028 | 29,436 | 184,995 | |||||||
_______ | _______ | _______ | _______ | ||||||||
iii) Interest rate risk | |||||||||||
The Company is exposed to interest rate risk. The Company invests primarily in private equity funds and private equity like funds that are non interest bearing investments, mainly subject to market risk. Interest receivable on bank deposits or payable on loan positions will be affected by fluctuations in interest rates. Changes to prevailing interest rates or changes in expectations of future rates may result in an increase or decrease in the value of the securities held. In general, if interest rates rise, the value of fixed income securities will decline. A decline in interest rates will, in general, have the opposite effect. | |||||||||||
Although the majority of the Company's financial assets and liabilities are non interest bearing, cash and cash equivalents represents 16% of the Company's NAV (31 March 2012 - 12%). As a result, the Company is subject to some risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates. | |||||||||||
As at 31 March 2013 the Company's interest bearing assets and liabilities, all of which receive or pay interest at a variable rate, were as follows: | |||||||||||
2013 | 2012 |
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US$'000 | US$'000 |
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Cash and cash equivalents | 29,654 | 22,335 |
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_______ | _______ |
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Based on the cash and cash equivalents held at 31 March 2013, a movement of 1% in market interest rates would impact the Company's annual income by approximately US$297,000 per annum (2012 - US$223,000 per annum). | |||||||||||
iv) Other price risk | |||||||||||
Other price risk is the risk that the value of the investees' financial investments will fluctuate as a result of changes in market prices, other than those arising from currency risk or interest rate risk whether caused by factors specific to an individual investment, its issuer or any factor affecting financial investments traded in the market. | |||||||||||
As the Company's investments are carried at fair value with fair value changes recognised in the Statement of Comprehensive Income, all changes in market conditions may indirectly affect the overall NAV. | |||||||||||
The investments are valued based on the latest available unaudited price of such shares or interests as determined by the administrator or general partner of each investee. Furthermore, valuations received from the administrators or general partners of the investees may be estimates and such values are generally used to calculate the net asset value of the Company. Such estimates provided by the administrators or general partner of the investees may be subject to subsequent revisions which may not be restated for the purpose of the Company's final month-end NAV. | |||||||||||
Currency, interest rate and other price risk are managed by the Company's Manager as part of the integrated market risk management processes. | |||||||||||
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c) | Credit risk |
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The Company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The Manager has adopted procedures to reduce credit risk related to the Company's dealings with counterparties. Before transacting with any counterparty, the Manager or its affiliates evaluate both creditworthiness and reputation by conducting a credit analysis of the party, its business and its reputation. The credit risk of approved counterparties is then monitored on an ongoing basis, including periodic reviews of financial statements and interim financial reports as needed. Impairment provisions are provided for losses, if any, that have been incurred by the Balance Sheet date. |
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At 31 March 2013 and 31 March 2012, the following financial assets were exposed to counterparty credit risk: cash and cash equivalents and other receivables. The carrying amounts of financial assets best represent the maximum credit risk exposure at the year end date. |
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The Company places cash deposits with counterparties whose credit ratings are all investment graded. Ratings for fixed deposits, as rated primarily by Moody's, that subject the Company to credit risk at 31 March 2013 and 31 March 2012 are noted below: |
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2013 | 2012 |
| |||||||||
Credit ratings for short-term notes | Rating | % of NAV | Rating | % of NAV |
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Santander | - | - | A2 | 3.8 |
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Barclays Bank | A2 | 0.5 | A1 | 0.2 |
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The Company has also placed funds within Aberdeen Liquidity Funds which are rated by S&P at 31 March 2013 and 31 March 2012 as noted below: |
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2013 | 2012 |
| |||||||||
Credit ratings for short-term funds | Rating | % of NAV | Rating | % of NAV |
| ||||||
Sterling Fund Income | A-1 | 2.2 | A-1 | 0.1 |
| ||||||
Euro Fund Income | A-1 | 0.7 | A-1 | 0.4 |
| ||||||
US Dollar Fund Income | A-1 | 12.7 | A-1 | 7.5 |
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d) | Liquidity risk |
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The Company's financial instruments include investments in unlisted securities, which are not traded in an organised public market and may generally be illiquid. Although this illiquidity is considered as part of the investment valuations, should the Company be required to dispose of such investments in a short time-frame, an action that is not consistent with the Company's investment objective, the Company may have difficulty liquidating quickly its investments in these instruments at an amount close to fair value in order to respond to its liquidity requirements or to specific events. |
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The financial liabilities of the Company comprise accrued expenses and creditors. The Company will generally retain sufficient cash and cash equivalent balances to satisfy accrued expenses and creditors as they fall due. |
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The Company's outstanding commitments are detailed in note 18. When an over-commitment approach is followed, the aggregate amount of capital committed by the Company to investments at any given time may exceed the aggregate amount of cash that the Company has available for immediate investment, so there is a risk that the Company might not be able to meet capital calls when they fall due. To manage this risk, the Company holds an appropriate amount of its assets in cash and cash equivalents together with a selection of readily realisable investments. |
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In planning the Company's commitments, the Manager takes into account expected cash flows to and from the portfolio of fund interests and, from time to time, may use borrowings to meet draw downs; these expected cash flows are monitored against actual draw downs and distributions on a monthly basis to assess the level of additional commitments that can be made and how much cash needs to be kept on hand. The Directors have resolved that the Company may borrow up to 25% of its NAV for short-term or long-term purposes. As at 31 March 2013, the Company had a revolving credit facility in place of £10 million (2012 - nil). |
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The table below sets forth the liquidity risk of the Company as at 31 March 2013 and 31 March 2012. All liabilities represent amounts falling due within one year and equal their carrying balances. |
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2013 | 2012 |
| |||||||||
Financial liabilities | US$'000 | US$'000 |
| ||||||||
Trade and other payables | 2,045 | 850 |
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_______ | _______ |
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Based on communications with General Partners and the Manager's best estimates, the outstanding commitments are expected to be drawn down with the following maturity profile: |
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2013 | 2012 |
| |||||||||
Maturity | US$ million | US$ million |
| ||||||||
Less than 3 months | 9 | 9 |
| ||||||||
3-6 months | 8 | 10 |
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6-12 months | 16 | 17 |
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1-2 years | 16 | 23 |
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Greater than 2 years | 15 | 26 |
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_______ | _______ |
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64 | 85 |
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_______ | _______ |
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As at 31 March 2013, an analysis of the financial instruments by category shows assets at fair value through profit or loss of US$156,702,000 (2012 - US$163,421,000), deposits and receivables of US$29,966,000 (2012 - US$22,424,000) and other financial liabilities totalling US$2,045,000 (2012 - US$850,000). |
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20. | Controlling party |
In the opinion of the Directors on the basis of shareholdings advised to them, the Company has no immediate or ultimate controlling party. |
21. | Exchange rates | ||
As at 31 March 2013 and 31 March 2012, the exchange rates used (against US$) in preparation of these financial statements are as follows: | |||
2013 | 2012 | ||
US$ | US$ | ||
Sterling | 1.5114 | 1.5997 | |
Euro | 1.2775 | 1.3335 | |
22. | Geographical analysis | ||
The geographical allocation of investments based on the location of the investee rather than its underlying holdings at the year end was as follows: | |||
2013 | 2012 | ||
US$m | US$m | ||
Global | 61.5 | 63.8 | |
North America | 56.5 | 52.9 | |
Europe | 22.3 | 27.3 | |
Asia & Other | 16.4 | 19.4 | |
11. FINANCIAL HIGHLIGHTS
| 31 March 2013 | 31 March 2012 | % change |
Total assets {A} (US$'000) | 184,623 | 184,995 | -0.2 |
Total equity shareholders' funds (net assets) (US$'000) | 184,623 | 184,995 | -0.2 |
Share price (mid market) (pence) | 89.00 | 55.63 | +60.0 |
Net asset value per Share (pence) | 111.93 | 105.76 | +5.8 |
Discount to net asset value | 20.5% | 47.4% | |
| | | |
Dividend and earnings | | | |
Return per Share {B} (pence) | 1.99 | 8.09 | |
Dividend per Share (pence) | 2.00 | 2.00 | |
| | | |
Ongoing charges {C} | | | |
Excluding performance fee | 2.0% | 2.1% | |
Including performance fee | 2.8% | 2.3% | |
{A} Total Assets less current liabilities (before deducting prior charges) | |||
{B} Measures the relevant earnings for the year divided by the weighted average number of shares in issue. | |||
{C} Ongoing charges ratio calculated in accordance with guidance issued by the AIC as the total of the investment management fee and administrative expenses divided by the average cum income net asset value throughout the year. | |||
Performance (total return {A})
| 1 year % return | 3 year % return | 5 year % return |
Share price | +64.9% | +69.9% | +13.9% |
Net asset value | +7.8% | +27.4% | +15.7% |
Source: Aberdeen Asset Management & Morningstar. | | | |
{A} total return represents capital return plus dividends reinvested. | | | |
Dividends
| Rate | Ex dividend date | Record date | Payment date |
Dividend 2013 | 2.00p | 14 August 2013 | 16 August 2013 | 27 September 2013 |
Dividend 2012 | 2.00p | 15 August 2012 | 17 August 2012 | 20 September 2012 |
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
The above financial information does not constitute statutory financial statements as defined in Section 262 of The Companies (Guernsey) Law, 2008. The comparative information is based on the statutory financial statements for the year ended 31 March 2012. Those financial statements, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. Statutory financial statements for the year ended 31 March 2013 will be filed in due course.
The Annual General Meeting of the Company will be held at 12.15 p.m. on 25 September 2013 at 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey GY1 2HL.
The audited Annual Report and Financial Statements incorporating the Notice of Annual General Meeting will be posted to shareholders during July. Copies may be obtained during normal business hours from the Company's Registered Office, 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey GY1 2HL Channel Islands or from the Manager, Bow Bells House, 1 Bread Street, London EC4M 9HH. Further copies will be available for download from the Company's website www.aberdeenprivateequity.co.uk.
Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.
By order of the Board
Ipes (Guernsey) Limited
Company Secretary
3 July 2013