31 Mar 2010 16:36
| To: Stock Exchange | For immediate release: |
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| 31 March 2010 |
F&C Private Equity Trust plc
Audited final results for the year to 31 December 2009·; Finances on a sound footing; the Company is well positioned for future growth;
·; NAV total return for the year of -6.4 per cent for the ordinary shares, with recovery in the second half of the year;
·; Net cash inflow of £14.2 million over the course of the year;
·; NAV total return for the year of +1.2 per cent for the restricted voting shares;
Chairman's Statement
This last year was a challenging one for most businesses and your Company was no exception. The combination of the banking sector crisis, recession and stockmarket volatility considerably influenced the asset value and share price of the Company during the year. The asset value of the Company declined for the first half of the year, but I am pleased to report that the second half has seen a partial recovery. The share price, which has been extraordinarily volatile, has also recovered very well and has continued to make progress into 2010. The positioning of the Company's portfolio, in the mid market of international private equity, has been of benefit. The strengths of the portfolio have been borne out by a strong net inflow of funds rather contrary to experience elsewhere in the market.
At 31 December the Company had net assets of £154.6 million, a decrease over the year of 6.6%. The net assets of the ordinary share pool stood at £149.5 million, giving a fully diluted net asset value per share of 204.81p, a decrease of 6.4% over the year. The net assets of the restricted voting share pool stood at £5.1 million, giving a net asset value per share of 7.56p, a decrease over the year of 11.4%. The Directors have declared an interim dividend per ordinary share of 0.8p payable on 7 May 2010 to shareholders on the register on 16 April 2010. A special dividend of 1.0p per restricted voting share will be paid on 7 May 2010 to shareholders on the register on 16 April 2010.
During the course of the year your Board considered a number of ways of improving the Company's ability to fund commitments to private equity funds as these are drawn down over the next several years. In December the Company issued, through a new subsidiary, £30 million of zero dividend preference shares. These have a 5 year life and an initial yield to redemption of 8.75%. The capital raised through this issue combined with the Company's £40 million revolving credit facility should allow us to fund any draw downs from private equity funds that are not funded by realisations from the current portfolio. The Board is satisfied that this route of financing was the best available and that it was more beneficial to the interests of shareholders than the alternatives such as selling substantial parcels of assets at large discounts to NAV or a deeply discounted and potentially dilutive rights issue. The Company has kept its portfolio substantially intact providing a strong platform for future growth.
At 31 December the ordinary share pool of the Company had outstanding undrawn commitments to private equity funds of £115 million. The ordinary share pool had cash of £12.8 million and taking into account the accrued liability of the Zero Dividend Preference shares of £30.1 million the ordinary share pool's gearing was 9.6%. The Company significantly reduced its gearing through the year as realisations exceeded draw downs by a considerable margin. At the end of the year the Company had immediately available resources of £53 million with which to meet commitments over and above the proceeds of realisations. I am pleased that the recovery in the share price has continued following the successful completion of the ZDP issue; however, the discount to asset value, which at the time of writing is 35%, does not in my view reflect the strengths of the portfolio nor the Company's long term record of value creation and NAV progression.
Robert Legget retired from the Board at last year's AGM, while we have welcomed Mark Tennant and David Shaw to it. We have benefited from the experience of both of them already.
I have been Chairman of the Company since its inception in 1999 and I shall retire at the AGM in May. I expected to serve for only 4 or 5 years as the assets were realised and distributed to shareholders in line with the original prospectus. However, it soon became clear that there was demand from shareholders for a continuing involvement in private equity and two classes of capital were created. Thereafter we merged with Discovery Trust and changed management company to F & C Asset Management. In the last twelve months we have spent considerable time ensuring that the Company had appropriate financing for its future requirements. I have, therefore, been more involved than I might have expected, and for longer. In all of this I have been very well supported by the whole Board with whom it has been a pleasure to work. I am delighted to announce that Mark Tennant will succeed me as Chairman. His wealth of experience in the financial world will, I am sure, prove beneficial to the Company in the coming years.
I believe I leave the Company with a well regarded and successful management team, with an excellent portfolio of investments and with its finances on a firm footing. I am confident that the Company is well placed to see a resumption of the strong growth in net asset value which characterised the first nine years of the Company's life.
David Simpson
30 March 2010
Manager's Review
Investment Strategy
The Company's investment strategy has been to maintain an internationally diversified exposure to private equity funds and co-investments with a strong emphasis on the mid-market European buy-out and mezzanine sectors. We have also favoured emerging managers. The original thesis behind the mid-market focus was that it is a very broad and inately inefficient market where skilled private equity managers could source and execute investments in relatively undiscovered but promising companies. The expansion in the use of private equity across Europe has made this tier of companies accessible to international investors for the first time. This thesis remains intact, but an additional advantage is that the banking crisis has, through the absence of credit, made the mid-market relatively more important to the private equity sector as a whole. With the bank finance available to management buy-outs currently running at a small fraction of its peak, it is generally only possible for smaller or medium sized deals to be done. The 'hold' level for most banks appears to be around £25m which means that deals with enterprise value above £100m require a number of banks in a syndicate or club. In the European mid market many of our investment partners are accustomed to operating in this size bracket and accordingly have a well-established deal flow and relationships with banks at the appropriate level. These factors have meant that activity levels in the mid-market are holding up well relative to the overall private equity market.
Our emphasis on emerging managers has been based upon the relatively strong motivation of newer groups who often have much at stake and tend in general to have a drive and energy that is less common in the longer established and larger groups. In the current market conditions, where there are many challenges for investee companies, this motivation and alignment of interest is proving vital in maintaining and preserving value for investors. Our portfolio of fund investments also includes funds which focus on the US private equity market and on certain emerging markets. These funds give exposure to different economic and business trends which in some cases are more secular than cyclical in nature.
Over the course of 2009 these features of our investment strategy have worked to our advantage and have been a strong contributory factor to the Company's relatively strong cashflows and modest decrease in asset value.
New Investments
No new commitments to funds or co-investments were made during 2009. The portfolio has funds managed by 40 different management groups and with each of them prospecting for new investment opportunities during the recession it is not surprising that there has been considerable ongoing investment activity. New investment was however very significantly lower than previous years. Drawdowns in 2009 amounted to £20.6m, a reduction of over 70% compared to 2008. The larger investments made during the year give a good impression of the diverse range of companies and industries that our investment partners are targeting.
In the UK the largest individual new investment was Funeral Services Partnership (FSP) where August Equity II called £1.1m for this platform investment for a buy-and-build strategy in the fragmented funeral services market. August also called £0.7m for an add-on acquisition for specialist publisher Boat International, who has acquired its US counterpart Showboats International.
In the healthcare sector, where investment activity has held up well, Mezzanine Management Fund IV has invested £0.4m for us in Vanguard Medical, an operator of 36 mobile operating theatres and diagnostic vehicles. We also made new healthcare investments in France with Chequers XV investing £0.5m in Artois Sante, a group of medical laboratories in the Paris area.
Other disparate sectors and geographies have been covered by some new investments. In the Nordic region Procuritas IV invested £0.5m in Dackia, a tyre service station chain and, in Poland, AIG New Europe Fund invested £0.5m for us in Sowiniec, a provider of roll-out services to the retail sector. Gilde Buy-out Fund III, a Benelux specialist, invested £0.4m in electricity company Powerlines. Further afield AIF Capital Asia III called £0.4m for investment in Tat Hong, a Singapore based crane rental company that expects to triple its tower crane fleet in China within two years.
Realisations
Contrary to popular belief it has been possible to achieve exits during 2009. Again the mid-market exposure of our portfolio has proved an advantage. Total realisations amounted to £34.8m. This included the sale of four fund positions for an aggregate £7m. These were sold to raise funds and reduce commitments. The discount to NAV of these sales was 23% and the cost to shareholders approximately £2.0m. These secondary sales have reduced our outstanding undrawn commitments by £11m. Excluding these sales realisations in the ordinary course of business amounted to £27.8m. This was coincidentally exactly the same as the total for realisations in 2008. It is worth noting that the received wisdom at the beginning of 2009 was that there would be an increase in drawdowns and a decrease in realisations. For this portfolio this has not proven to be the case and, indeed, the Company has recorded a net cash build-up from conventional investment activities of £7.2m. Including the proceeds of secondary sales this rises to £14.2m.
The largest individual realisation, accounting for £11.8m or approximately a third of the total, was from the Inflexion-led investment in Viking Moorings. This was an exceptionally good investment with an investment multiple of 11x and an IRR of 106%. Viking was sold to HSBC Private Equity and we have rolled over £2.6m alongside Inflexion into the 'new' deal. The greater part of the return generated by the Viking investment was from profits growth during the three and a half year holding period. Relatively little was added through multiple arbitrage and the company's gearing played no part in the return. With smaller amounts of debt available, and without an obvious opportunity to benefit from rising markets, investments of this type, where management action can accelerate profits in an attractive niche market, may point the way forward.
There were several other good exits in the portfolio during the year. Dunedin Buy-Out Fund II returned £0.4m from the sale of avionics company Fernau, making a multiple of 3x and an IRR of 92%. Inflexion achieved a further creditable exit in two stages for healthcare data company HKI returning £0.4m, a multiple of 2.7x and IRR of 24%. August Equity exited one of their more challenging investments, television production company Hat Trick, yielding £1.1m to make a 1.6x investment multiple and 9.5% IRR. Our longstanding investment partners Candover yielded £0.4m from their 2001 Fund with the sale of energy consultants Wood Mackenzie. Again this was a creditable outcome with a multiple of 2.7x and IRR of 46 %. Towards the end of the year we received proceeds of £2.8m from German fund DBAG V for the sale of Austrian industrial services company MCE which has been sold to Bilfinger Berger. This was a first class exit with an investment multiple of 3.8x. These exits evidence that a broadly based portfolio with a range of motivated managers will achieve realisations even during economically challenging conditions.
Valuations
There were many movements in valuation during the year, but by the year-end the overall valuation of investments was largely unchanged. The great majority of the decrease in asset value was accounted for by exchange rate movements with the principal differences being a decrease in the Euro versus sterling of 8% and a decrease in the dollar versus sterling of 11% from a very high level at the end of 2008. As the Company held its debt through most of the year in Euros, thus providing a partial hedge, the adverse impact was limited to approximately £7.2m or some 30% below the level had the Company borrowed in sterling.
Notable significant movements over the year include strong performances from co-investments, ICS (+£2.5m), Viking Moorings (+£1.2m), Blues Clothing (+£1.0m) and Lifeways (+£1.0m). There were some excellent movements in the funds as well, with Alchemy Special Opportunities Fund (+£2.2m), Stirling Square Capital Partners II (+£1.6m) and AIF Capital Asia III (+£1.2m) all making good progress. Inevitably given the economic background there were downgrades. In the co-investments we have written down Whittan (- £2.3m), 3Si (-£1.8m) and Equidebt (-£1.2m), but in each case the private equity lead managers are working with management to restore value and there is every chance that these writedowns will be reversed in due course. Amongst the funds the larger write downs reflect the influence of individual company trading problems and in some cases cautious approaches to valuation by the lead managers. In general our portfolio remains very conservatively valued with an aggregate enterprise value to EBITDA ratio of approximately 6.6x. It is also not excessively geared at the level of the underlying investee company, with aggregate debt to EBITDA ratio of approximately 2.9x. This valuation provides substantial scope for building equity value. This could be simply through debt retiral from cash flow or from sale to trade buyers, the stockmarket or other private equity funds. There is little evidence that our investment partners were guilty of overpaying for companies or encumbering them with too much debt during the pre-crash period, and this should give us a good chance of delivering good growth in asset value once economic recovery becomes firmly established.
Outlook
There is some evidence that the low point of asset value may have been passed; however there remain very significant challenges for businesses across our portfolio. One major problem is that it is not obvious where the global engine of economic growth is at present. There are, however, many industries and companies that can achieve profits growth and therefore build the value of their companies even without overall growth. These businesses are disproportionately found in the private equity arena. It is also true that the private equity business model, which seeks to empower and incentivise managers directly alongside investors, remains efficacious and gives as good a chance as any investment model of delivering strong returns in future. When this value is based on genuine profits growth through improving actions of management and skilled investors it is of high quality and should be rated accordingly.
Hamish Mair
30 March 2010
For more information, please contact:
| Hamish Mair | 0131 718 1184 |
| Martin Cassels | 0131 718 1095 |
| hamish.mair@fandc.com / martin.cassels@fandc.com | |
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F&C PRIVATE EQUITY TRUST PLC
Consolidated Statement of Comprehensive Income for the
year ended 31 December 2009
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| Audited
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| Revenue £'000 | Capital £'000 | Total £'000
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| Capital (losses)/gains on investments |
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| Losses on investments held at fair value | - | (12,896) | (12,896) |
| Currency gains | - | 3,767 | 3,767 |
|
| - | (9,129) | (9,129) |
| Revenue |
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|
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| Investment income | 1,813 | - | 1,813 |
| Other income | 42 | - | 42 |
| Total income | 1,855 | (9,129) | (7,274) |
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| Expenditure |
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| Investment management fee | (356) | (1,067) | (1,423) |
| Other expenses | (720) | - | (720) |
| Total expenditure | (1,076) | (1,067) | (2,143) |
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| Profit/(loss) before finance costs and taxation | 779 | (10,196) | (9,417) |
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| Finance costs | (195) | (709) | (904) |
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| Profit/(loss) before taxation | 584 | (10,905) | (10,321) |
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| Taxation | (164) | 164 | - |
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| Total comprehensive income | 420 | (10,741) | (10,321) |
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| Return/(loss) per ordinary share - Basic | 0.58p | (14.89)p | (14.31)p |
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| Return/(loss) per ordinary share - Fully diluted | 0.56p | (14.49)p | (13.93)p |
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| Return/(loss) per restricted voting share - Basic | 0.00p | 0.03p | 0.03p |
F&C PRIVATE EQUITY TRUST PLC
Statement of Comprehensive Income for the
year ended 31 December 2008
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| Audited
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| Revenue £'000 | Capital £'000 | Total £'000
|
| Capital losses on investments |
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| Losses on investments held at fair value | - | (2,825) | (2,825) |
| Currency losses | - | (4,903) | (4,903) |
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| - | (7,728) | (7,728) |
| Revenue |
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|
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| Investment income | 1,844 | - | 1,844 |
| Other income | 199 | - | 199 |
| Total income | 2,043 | (7,728) | (5,685) |
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| Expenditure |
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| Investment management fee | (202) | 216 | 14 |
| Other expenses | (669) | - | (669) |
| Total expenditure | (871) | 216 | (655) |
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| Profit/(loss) before finance costs and taxation | 1,172 | (7,512) | (6,340) |
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| Finance costs | (159) | (477) | (636) |
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| Profit/(loss) before taxation | 1,013 | (7,989) | (6,976) |
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| Taxation | (265) | 74 | (191) |
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| Total comprehensive income | 748 | (7,915) | (7,167) |
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| Return/(loss) per ordinary share - Basic | 0.66p | (11.98)p | (11.32)p |
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| Return/(loss) per ordinary share - Fully diluted | 0.64p | (11.66)p | (11.02)p |
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| Return/(loss) per restricted voting share - Basic | 0.41p | 1.11p | 1.52p |
F&C PRIVATE EQUITY TRUST PLC
Balance Sheets
| | As at 31 December 2009 (audited) | As at 31 December 2008 (audited) | |
| | Group | Company | Company |
| | £’000 | £’000 | £’000 |
| Non-current assets | | | |
| Investments at fair value through profit or loss | 171,011 | 170,961 | 195,338 |
| Subsidiary undertaking | - | 50 | - |
| | 171,011 | 171,011 | 195,338 |
| | | | |
| Current assets | | | |
| Other receivables | 157 | 195 | 740 |
| Cash and cash equivalents | 13,509 | 13,471 | 4,436 |
| | 13,666 | 13,666 | 5,176 |
| | | | |
| Current liabilities | | | |
| Other payables | (1,106) | (1,106) | (34,943) |
| Amounts due to subsidiary | - | (28,992) | - |
| Net current assets/(liabilities) | 12,560 | (16,432) | (29,767) |
| Total assets less current liabilities | 183,571 | 154,579 | 165,571 |
| Non-current liabilities | | | |
| Zero dividend preference shares | (28,992) | - | - |
| Net assets | 154,579 | 154,579 | 165,571 |
| | | | |
| Equity | | | |
| Called-up ordinary share capital | 1,394 | 1,394 | 1,394 |
| Special distributable capital reserve | 15,679 | 15,679 | 15,679 |
| Special distributable revenue reserve | 37,357 | 37,357 | 37,692 |
| Capital redemption reserve | 664 | 664 | 664 |
| Capital reserve | 98,814 | 98,813 | 109,555 |
| Revenue reserve | 671 | 672 | 587 |
| Shareholders’ funds | 154,579 | 154,579 | 165,571 |
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| Net asset value per ordinary share – Basic | | 206.84p | 221.15p |
| Net asset value per ordinary share – Fully diluted | | 204.81p | 218.74p |
| Net asset value per restricted voting share – Basic | | 7.56p | 8.53p |
F&C PRIVATE EQUITY TRUST PLC
Statements of Changes in Equity
For the year ended 31 December 2009
Group| | Share Capital | Special Distributable Capital Reserve | Special Distributable Revenue Reserve | Capital Redemption Reserve | Capital Reserve | Revenue Reserve | Total |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
For the year ended 31 December 2009 (audited) | |||||||
Net assets at 1 January 2009 | 1,394 | 15,679 | 37,692 | 664 | 109,555 | 587 | 165,571 |
Total comprehensive income | - | - | - | - | (10,741) | 420 | (10,321) |
Dividends paid | - | - | (335) | - | - | (336) | (671) |
Net assets at 31 December 2009 | 1,394 | 15,679 | 37,357 | 664 | 98,814 | 671 | 154,579 |
Company
| | Share Capital | Special Distributable Capital Reserve | Special Distributable Revenue Reserve | Capital Redemption Reserve | Capital Reserve | Revenue Reserve | Total | |
| | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
For the year ended 31 December 2009 (audited) | ||||||||
Net assets at 1 January 2009 | 1,394 | 15,679 | 37,692 | 664 | 109,555 | 587 | 165,571 | |
Total comprehensive income | - | - | - | - | (10,742) | 421 | (10,321) | |
Dividends paid | - | - | (335) | - | - | (336) | (671) | |
Net assets at 31 December 2009 | 1,394 | 15,679 | 37,357 | 664 | 98,813 | 672 | 154,579 | |
| | | | | | | | | |
For the year ended 31 December 2008 (audited) | ||||||||
Net assets at 1 January 2008 | 1,394 | 40,000 | 38,363 | 664 | 117,470 | 1,017 | 198,908 | |
Total comprehensive income | - | - | - | - | (7,915) | 748 | (7,167) | |
Return of capital paid | - | (24,321) | - | - | - | - | (24,321) | |
Dividends paid | - | - | (671) | - | - | (1,178) | (1,849) | |
Net assets at 31 December 2008 | 1,394 | 15,679 | 37,692 | 664 | 109,555 | 587 | 165,571 | |
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F&C PRIVATE EQUITY TRUST PLC
Cash Flow Statement
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| Year ended 31 December 2009 (audited) | Year ended 31 December 2008 (audited) | |
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| Group | Company | Company |
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| £000 | £000 | £000 |
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| Operating activities |
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| Loss before finance costs and taxation | (9,417) | (9,416) | (6,340) |
| Losses on investments | 12,896 | 12,896 | 2,825 |
| Exchange differences | (3,767) | (3,767) | 4,903 |
| Corporation tax paid | (72) | (72) | (134) |
| Increase in other receivables | 493 | 455 | 183 |
| Decrease in other payables | (366) | 366 | (1,351) |
| Net cash (outflow)/inflow from operating activities | (233) | (270) | 86 |
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| Investing activities |
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| Purchases of investments | (20,652) | (20,653) | (81,261) |
| Sales of investments | 32,083 | 32,083 | 77,679 |
| Net cash inflow/(outflow) from investing activities |
11,431 |
11,430 |
(3,582) |
| Financing Activities |
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| Repayment of bank loans | (32,898) | (32,898) | - |
| Draw down of bank loans | 1,800 | 1,800 | 27,644 |
| Interest paid | (769) | (769) | (655) |
| Proceeds from ZDP share issue | 30,000 | - | - |
| Loan proceeds from subsidiary | - | 30,000 | - |
| Issue costs paid | (614) | (614) | - |
| Equity dividends paid | (671) | (671) | (26,170) |
| Net cash (outflow)/inflow from financing activities | (3,152) | (3,152) | 819 |
| Net increase/(decrease) in cash and cash equivalents |
8,046 |
8,008 |
(2,677) |
| Currency gains | 1,027 | 1,027 | 1,291 |
| Net increase/(decrease) in cash and cash equivalents |
9,073 |
9,035 |
(1,386) |
| Opening cash and cash equivalents | 4,436 | 4,436 | 5,822 |
| Closing cash and cash equivalents | 13,509 | 13,471 | 4,436 |
Principal Risks and Risk Management (audited)
The Board believes that the principal risks faced by the Company are:
·; Investment and strategic - incorrect strategy (including the deployment of and managing the repayment of gearing), asset allocation and stock selection could all lead to poor returns for shareholders.
·; External - events such as terrorism, disease, protectionism, inflation or deflation, economic recessions, the availability of credit and movement in interest rates could affect share prices.
·; Regulatory - breach of regulatory rules could lead to suspension of the Company's Stock Exchange listing, financial penalties or a qualified audit report. Breach of Section 842 of the Income and Corporation Taxes Act 1988 could lead to the Company being subject to tax on capital gains.
·; Operational - failure of the Manager's accounting systems or disruption to the Manager's business, or that of third party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders' confidence.
·; Financial - inadequate controls by the Manager or third party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations.
·; Funding - failure by the Company to meet its outstanding undrawn commitments.
The assets of the restricted voting shares are highly concentrated. This is a consequence of the advanced stage of the realisation process.
The Company is also exposed to currency risks in respect of the overseas markets in which it invests.
More detailed explanations of these risks and the way which they are managed are contained in note 2.
The Board seeks to mitigate and manage these risks through continual review, policy setting, shareholder communication and enforcement of contractual obligations. It also regularly monitors the investment environment, the management of the Company's investment portfolio, the level of undrawn commitments and the Company's gearing policy.
Statement of Directors' Responsibilities in Respect of the Annual Financial Report
In accordance with Chapter 4 of the Disclosure and Transparency Rules, we confirm that to the best of our knowledge, in respect of the Annual Report for the year ended 31 January 2009, of which this statement of results is an extract:
·; The financial statements have been prepared in accordance with applicable International Financial Reporting Standards, on a going concern basis, and give a true and fair view of the assets, liabilities, financial position and return of the Company;
·; The Annual Report includes a fair review of the important events that have occurred during the financial year and their impact on the financial statements;
·; The Annual Report includes a description of the Company's principal risks and uncertainties; and
·; The Annual Report includes details of related party transactions that have taken place during the financial year.
On behalf of the Board
David Simpson
Director
Notes (audited)
1. The Board has declared an interim ordinary share dividend of 0.80p per share to be paid on 7 May 2010 to shareholders on the register on 16 April 2010.
The Board has declared an special restricted voting share dividend of 1.00p per share to be paid on 7 May 2010 to shareholders on the register on 16 April 2010.
2. The results, which were approved by the Board on 30 March 2010, have been prepared in accordance with applicable accounting standards and the AIC's Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" issued in January 2009.
3. Financial instruments
The Group's financial instruments comprise equity and fixed interest investments, ZDPs, cash balances, bank loans and liquid resources including debtors and creditors. As an investment trust the Group holds a portfolio of financial assets in pursuit of its investment objective. From time to time the Group may make use of borrowings to fund outstanding commitments and achieve improved performance in rising markets. The downside risk of borrowings may be reduced by raising the level of cash balances held.
Quoted fixed asset investments held are valued at bid prices which equate to their fair values. Unquoted investments are valued by the Directors on the basis of all the information available to them at the time of valuation. The fair values of all other financial assets and liabilities are not materially different from their carrying value in the balance sheet.
The Group's investing activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The most important types of financial risk to which the Group is exposed are market risk, liquidity and funding risk, credit risk and foreign currency risk.
The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Group are discussed below.
Market risk
Market risk embodies the potential for both losses and gains and includes interest rate risk and price risk.
The management of market risk is part of the investment management process and is typical of private equity investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis with an objective of maximising overall returns to shareholders. Investments in unquoted stocks, by their nature, involve a higher degree of risk than investments in the listed market. Some of that risk can be mitigated by diversifying the portfolio across business sectors and asset classes, and by having a variety of underlying private equity managers. New private equity managers are only chosen following a rigorous due diligence process. The Group's overall market positions are monitored by the Board on a quarterly basis.
Interest rate risk
Some of the Group's financial assets are interest bearing, some of which are at fixed rates and some at variable. As a result the Group is subject to exposure to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates.
When the Group retains cash balances the majority of the cash is held in deposit accounts. The benchmark rate which determines the interest payments received on cash balances is the bank base rate for the relevant currency.
Liquidity risk
The Group's financial instruments include investments in unlisted equity investments which are not traded in an organised public market and which generally may be illiquid. As a result, the Group may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements, including the need to meet outstanding undrawn commitments, or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.
The Group's listed securities are considered to be readily realisable.
Flexibility is achieved where necessary through the use of the revolving credit facility.
The Group's liquidity risk is managed on an ongoing basis by the Manager in accordance with policies and procedures in place. The Group's overall liquidity risks are currently monitored on a quarterly basis by the Board.
The Group maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Group. The Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets best represents the maximum credit risk exposure at the balance sheet date.
Credit risk on unlisted investments is considered to be part of market risk disclosed previously.
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Manager monitors the quality of service provided by the brokers used to further mitigate this risk.
All the listed assets of the Group (which are traded on a recognised exchange) are held by Northern Trust ('NT'), the Group's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed or limited. The Board monitors the Company's risk by reviewing the custodian's internal control reports.
The Group's cash balances are held by a number of counterparties. Bankruptcy or insolvency of these counterparties may cause the Group's rights with respect to the cash balances to be delayed or limited. The Manager monitors the credit quality of the relevant counterparties and should the credit quality or the financial position of these counterparties deteriorate significantly the Manager would move the cash to another bank.
There were no significant concentrations of credit risk to counterparties at 31 December 2009 or 31 December 2008.
Foreign currency risk
The Group invests in overseas securities and holds foreign currency cash balances which give rise to currency risks. It is not the Group's policy to hedge this risk on a continuing basis but it may do so from time to time.
4. Returns per ordinary share are based on the following number of shares in issue during the period:
Basic 72,282,273
Fully diluted 74,241,429
Returns per restricted voting share are based on the average number of shares in issue during the period of 67,084,807.
Basic net asset value per ordinary share is based on 72,282,273 shares in issue at the end of the period.
Fully diluted net asset value per ordinary share is based on 74,241,429 shares in issue at the end of the period.
Basic net asset value per restricted voting share is based on 67,084,807 shares in issue at the end of the period.
5. This results announcement is based on the Group's unaudited financial statements for the year ended 31 December 2009 which have been prepared for the first time in accordance with International Financial Reporting Standards as adopted by the EU ('IFRS'). The transition date from UK GAAP to IFRS was 1 January 2008. The Group's accounting policies have been amended accordingly and have not resulted in any changes in accounting treatment.
6. This announcement is not the Group's statutory accounts. The full audited accounts for the year ended 31 December 2008, which were unqualified, have been lodged with the Registrar of Companies. The statutory accounts for the year to 31 December 2009 (on which the audit report has not been signed) will be delivered to the Registrar of Companies following the Company's Annual General Meeting which will be held at the offices of F&C Asset Management plc, 80 George Street, Edinburgh, EH2 3BU on 24 May 2010 at 12 noon.
7. The report and accounts for the year will be sent to shareholders and will be available for inspection at the Company's registered office, 80 George Street, Edinburgh EH2 3BU and the Company's website www.fcpet.co.uk