Last checked at 
8 Oct 2009 15:19
Company J.P. Morgan Private Equity Limited
Headline Final Results
J.P. Morgan Private Equity Limited
HSBC Private Bank Building, Rue du Pre, St Peter Port, Guernsey GY1 1LU
08 October 2009
Regulatory News Service
London Stock Exchange
London
EC4M 7LS
Dear Sir,
J.P. MORGAN PRIVATE EQUITY LIMITED
Preliminary Announcement of Results for the year ended 30 June 2009.
Dear Sir,
In reviewing the last twelve months leading up to the Company's fourth anniversary, I look back on a year marked by unparalleled challenges and volatility in the global equity and credit markets. From July 2008 through June 2009, almost every industry and asset class experienced rapid devaluations as equity markets fell, credit markets froze and governments were forced to intervene and provide extraordinary assistance to the private sector. These events shook the global markets and reshaped the Company's competitive landscape.
In this year's statement, I would like to address how the Company has responded to the global financial crisis by strengthening its balance sheet and positioning itself to take advantage of the favourable private equity secondary market.
Positioning JPEL's Balance Sheet
Although no one could have anticipated the full impact of the worldwide recession and credit crisis, over the past several quarters, JPEL's Manager has been actively working to strengthen the Company's balance sheet and position the portfolio for an economic downturn. The Manager has focused on building a portfolio of defensive interests that are designed to be well suited to withstand a market correction.
In this regard, the Company has taken the following actions over the past twelve months:
Limited new investment activity: During fiscal year 2009, the Company participated in seven new investments, preferring to be very selective in this market environment.
Reduced unfunded obligations: JPEL has reduced its unfunded commitments by approximately 24% through the sale of selected investments since 31 December 2008.
Raised $130mm of new capital: The Company raised $111 million of new US$ Equity Shares to take advantage of the current opportunities in the secondary market and to bolster its balance sheet. The Company also raised $12 million through the creation of a new class of Zero Dividend Preference Shares due in 2015 ("2015 ZDP Shares"). I believe that the overwhelming support for these fundraisings demonstrates a tremendous vote of confidence for opportunities available in the secondary private equity market and for JPEL's strategy in general.
Issued Bonus Warrants in Lieu of June 2009 Redemption Facility: Although the redemption facility was operated for the six-month period ended in December 2008, the Board of Directors elected to temporarily suspend the facility for the six months ended in June 2009. In order to provide shareholders with the opportunity to participate in future potential upside in the Company, JPEL issued 58 million warrants to US$ Equity shareholders on 20 August 2009.
Going forward, JPEL remains focused on maintaining a strong balance sheet. As such, the operation of the Company's tender facility will be subject to positive net cash flows from the Company's underlying private equity investments and the health of the global economy. In addition, the Company will continue to cautiously invest in the private equity secondary market.
Core Secondary Investment Strategy
Although fiscal year 2009 resulted in relatively few new investments, the Company has constructed a strong portfolio with defensive characteristics that the Manager believes will be well positioned for a market recovery. JPEL opportunistically made seven investments during fiscal year 2009, focusing on investments in counter-cyclical industries such as education, life sciences and pharmaceuticals.
JPEL's core strategy of buying private equity fund interests in the secondary market and dynamic approach to portfolio management has allowed the Manager to shift the Company's portfolio to take advantage of various investment and market opportunities through the purchase and sale of private equity investments. This strategy has allowed the Manager to construct a portfolio that it believes may retain value in a recessionary environment and will remain poised to target positive performance once markets stabilize:
Defensive industries: JPEL's Manager has focused on opportunities in counter-cyclical or defensive industries. Approximately 10.5% of the Company's private equity net asset value is invested in education services, with an emphasis on post-secondary education. Pharmaceuticals, Biotechnology and Life Sciences account for 10.8% of the Company's private equity net asset value at 30 June 2009.
Highly diversified: JPEL's private equity portfolio contains exposure to 163 funds in approximately 40 countries with over 1,500 underlying portfolio companies.
Majority of JPEL's portfolio was acquired "post-credit crunch": Approximately 78% of current private equity NAV was purchased since May 2007 (46% since the beginning of 2008).
Small buyout focus: Approximately 44% of JPEL's private equity portfolio is invested in small to medium-sized buyout funds, which tend to utilize lower leverage and purchase multiples.
Special situations investments: Approximately 19% of JPEL's private equity portfolio is invested in special situation funds such as mezzanine, distressed debt and restructuring funds that often benefit from illiquid, contracting markets.
Infrastructure investments: Approximately 6% of JPEL's private equity portfolio is invested in infrastructure-oriented funds, with inherent defensive attributes that may be poised to benefit from increased stimulus packages and government spending.
Deep discounted purchases: JPEL has endeavored to acquire quality companies with "rational" debt levels at deep-discounts to intrinsic value.
Performance
Each of the Company's three classes of shares have enjoyed significant gains in recent months: US$ Equity shares increased 30.6% from 31 March to 30 June 2009, while the 2013 ZDPs and 2105 ZDPs increased by 6.8% and 10.38%, respectively.
Despite recent share price improvements, the Company's performance has not been immune to difficult market conditions. JPEL's 30 June 2009 reported NAV per Equity share was $1.34, down from $1.85 at 30 June 2008 and from $1.44 at the quarter ended 31 March 2009. Approximately 6% of this decline can be attributed to currency fluctuations. It is also important to note that JPEL's 30 June 2009 NAV is based on 31 March 2009 financial reports received from the underlying sponsors. While the equity markets have appreciated in the months following March 2009, the potential benefit of this market rebound for JPEL's NAV has not been reflected in the Company's NAV.
Much of the decline in private equity valuations can be attributed to a combination of accounting rules, global devaluation in the public equity markets and high usage of leverage in private equity transactions. The implementation of FAS 157, requiring private equity firms to estimate "fair value" based on public market comparables (amongst other factors), combined with the general increase in volatility of the public markets has contributed to the increase in volatility of private company valuations.
JPEL's ZDP Shares continue to perform well. The NAV of 2013 ZDP Shares rose 7.3% during fiscal year 2009, from 51.31p to 55.06p per share. 2013 ZDP Share price has increased 36.6% since inception, closing at 58.75p on 30 June 2009. JPEL's 2015 ZDP Shares, launched on 18 December 2008 have performed well over the preceding 7 months. The NAV of 2015 ZDP Shares rose 4.5% since inception, from 48.75p to 50.93p per share. 2015 ZDP Share price has increased 17.0% since inception, from its offer price of 50p to 58.5p on 30 June 2009.
Outlook
Fiscal year 2009 was one of the most challenging years in history for the global markets and it is likely that 2010 will continue to bring new challenges. Although equity markets have rallied in recent months, the Manager remains generally cautious about the outlook for the global economy. In this vein, the Manager will continue to focus on maintaining a strong balance sheet and will selectively pursue investments with strong defensive characteristics that have the potential to drive net asset value growth. Despite the volatility in the global markets and unforeseen stresses, I remain confident that JPEL will continue to thrive in this environment and emerge as a strong, well capitalized, market innovator in the listed private equity asset class.
In conclusion, I would like to thank shareholders for the support and the continued confidence that they have placed in the Company and in its ability to successfully execute its private equity investment strategy. The Company remains focused on seizing the current market opportunities at hand to create value for our shareholders.
Trevor Ash
Chairman
6 October 2009
| | | 2009 | | 2008 |
| | | £’000 | | £’000 |
| Investment income | | | | |
| Interest and dividend income | | 4,234 | | 4,091 |
| | | | | |
| Expenses | | | | |
| | | | | |
| Investment management fee | | (4,411) | | (2,728) |
| Valuers' fees | | - | | (26) |
| Administrative fee | | (257) | | (190) |
| Audit fee | | (106) | | (76) |
| Directors' fees | | (73) | | (83) |
| Performance fee | | - | | (1,375) |
| Other expenses | | (3,643) | | (1,474) |
| | | | | |
| Total Expenses | | (8,490) | | (5,952) |
| | | | | |
| Net loss before finance costs | | (4,256) | | (1,861) |
| | | | | |
| Finance costs | | | | |
| Loan interest payable | | (7,304) | | (94) |
| ZDP interest payable | | (2,505) | | (3,686) |
| | | | | |
| Gains/(losses) from investments | | | | |
| Net (losses)/gains on investments | | (105,450) | | 36,701 |
| Realised foreign currency gain/(loss) | | 2,259 | | (678) |
| Unrealised foreign currency gain | | 4,656 | | 3,710 |
| | | | | |
| (Loss)/profit for the year | | (112,600) | | 34,092 |
| | | | | |
| Attributable to equity holders of the Company | | (94,892) | | 28,112 |
| Attributable to minority interests | | (17,708) | | 5,980 |
| | | | | |
| | | (112,600) | | 34,092 |
| | | | | |
| Basic and diluted (loss)/earnings per share | | (34.0p) | | 10.0p |
| | | 2009 | | 2008 |
| | | £’000 | | £’000 |
| Non-current assets | | | | |
| Financial assets at fair value through profit or loss | | 369,836 | | 374,159 |
| | | | | |
| | | | | |
| Current assets | | | | |
| Cash and cash equivalents | | 17,862 | | 13,789 |
| Receivables | | 552 | | 2,092 |
| | | | | |
| | | 18,414 | | 15,881 |
| Current liabilities | | | | |
| Payables and accruals | | (8,323) | | (6,332) |
| Derivative financial instruments | | (289) | | (255) |
| | | | | |
| Net current assets | | 9,802 | | 9,294 |
| | | | | |
| Non-current liabilities | | | | |
| Loan | | (101,973) | | (59,875) |
| Zero dividend preference shares | | (43,085) | | (30,375) |
| | | (145,058) | | (90,250) |
| | | | | |
| Net Assets | | 234,580 | | 293,203 |
| | | | | |
| | | | | |
| Represented by: | | | | |
| | | | | |
| Share capital | | 188,049 | | 29 |
| Reserves | | 34,503 | | 270,307 |
| | | | | |
| Total equity attributable to equity holders of the Company | | 222,552 | | 270,336 |
| | | | | |
| Minority interest | | 12,028 | | 22,867 |
| | | | | |
| Total equity | | 234,580 | | 293,203 |
| | | | | |
| NAV per Equity share | | £0.81 | | £0.92 |
Consolidated Cash Flow Statement
| For the year ended 30 June 2009 | |||
|
| |||
| Notes | 2009 | 2008 | |
|
| £'000 | £'000 | |
|
| |||
| Operating activities | |||
| (Loss)/profit for the year | (112,600) | 34,092 | |
| Adjustments for: | |||
| Interest and dividend income | (4,234) | (4,091) | |
| Interest expense | 9,809 | 3,780 | |
| Tax rebates/(payments) | 99 | (577) | |
| Net derivative (gains)/losses | (10,699) | 3,360 | |
| Net losses/(gains) on investments | 111,046 | (41,237) | |
| Net losses on disposal of investments | 5,104 | - | |
| Unrealised foreign currency gain | (4,656) | (3,371) | |
| Operating cash flows before changes in working capital | (6,131) | (8,044) | |
|
| |||
| Decrease/(increase) in receivables | 1,502 | (2,338) | |
| Increase in payables | 1,549 | 1,618 | |
| Net cash movement in derivative contracts | 11,709 | (1,980) | |
| Cash flows from operating activities | 8,629 | (10,744) | |
|
| |||
| Investing activities | |||
| Purchase of investments | (86,046) | (141,571) | |
| Net proceeds from sale of non-current financial assets | 54,593 | 35,356 | |
| Interest received | 1,607 | 2,915 | |
| Other income distributions from investments | 3,056 | 1,176 | |
| Acquisition of subsidiary net of cash received | - | (50,355) | |
| Cash flows from investing activities | (26,790) | (152,479) | |
|
| |||
| Financing activities | |||
| Proceeds on issue of equity shares | - | 7,635 | |
| Equity shares buy back | (31,272) | (3,562) | |
| Issue costs | (45) | (263) | |
| Loans received | 43,352 | 25,852 | |
| Loans paid | (7,847) | - | |
| Interest paid | (7,635) | (1,619) | |
| Issue of shares in subsidiary to minority interest | 1,746 | 7,748 | |
| Acquisition of minority interest | (415) | - | |
| Treasury purchases | - | (21,229) | |
| Proceeds from treasury share sale | 10,828 | 20,307 | |
| Cost of redemption of zero divided preference shares | (1,743) | (137) | |
| Proceeds from issue of zero divided preference shares | 11,720 | - | |
| Distributions to minority interest | (457) | - | |
| Cash flows from financing activities | 18,232 | 34,732 | |
|
| |||
| Net increase/(decrease) in cash and cash equivalents | 71 | (128,491) | |
| Cash and cash equivalents at beginning of year | 13,789 | 132,177 | |
| Effects of exchange difference arising from cash and cash equivalents | 4,002 | 10,103 | |
| Cash and cash equivalents at end of the year | 17,862 | 13,789 | |
Consolidated Statement of Changes in Equity
For the year ended 30 June 2009
|
| Share Capital Account £'000 | Share Premium £'000 | Accumulated Losses £'000 | Capital Reserve £'000 | Currency Translation Reserve £'000 | Capital Redemption Reserve £'000 | Special Distributable Reserve £'000 | Total £'000 | Minority Interest £'000 | Total £'000 |
| At 1 July 2008 | 29 | 7,636 | (4,829) | 69,838 | (3,211) | 4 | 200,869 | 270,336 | 22,867 | 293,203 |
| Transfer | 208,509 | (7,636) | - | - | - | (4) | (200,869) | - | - | - |
| Share buy backs | (31,272) | - | - | - | - | - | - | (31,272) | - | (31,272) |
| Treasury sale | 10,828 | - | - | - | - | - | - | 10,828 | - | 10,828 |
| Share issue costs | (45) | - | - | - | - | - | - | (45) | - | (45) |
| Loss for the year | - | - | (4,746) | (90,146) | - | - | - | (94,892) | (17,708) | (112,600) |
| Effect of translation of presentation currency | - | - | - | - | 67,597 | - | - | 67,597 | 5,535 | 73,132 |
| Issue of shares in subsidiary to minority interests | - | - | - | - | - | - | - | - | 1,746 | 1,746 |
| Minority interest ceded | - | - | - | - | - | - | - | - | (412) | (412) |
| At 30 June 2009 | 188,049 | - | (9,575) | (20,308) | 64,386 | - | - | 222,552 | 12,028 | 234,580 |
Consolidated Statement of Changes in Equity
For the year ended 30 June 2008
|
| Share Capital Account £'000 | Share Premium £'000 | Accumulated Losses £'000 | Capital Reserve £'000 | Currency Translation Reserve £'000 | Capital Redemption Reserve £'000 | Special Distributable Reserve £'000 | Total £'000 | Minority Interest £'000 | Total £'000 |
| At 1 July 2007 | 29 | 154,329 | (6,590) | 43,487 | (11,546) | 1 | 51,291 | 231,001 | 6,059 | 237,060 |
| Transfer to special distributable reserve | - | (154,329) | - | - | - | - | 154,329 | - | - | - |
| Issue of equity shares | 1 | 7,634 | - | - | - | - | - | 7,635 | - | 7,635 |
| Redemption of equity shares | - | - | - | - | - | - | (3,562) | (3,562) | - | (3,562) |
| Transfer to capital redemption reserve | - | - | - | - | - | 3 | (3) | - | - | - |
| Transfer to capital reserve | - | - | 3,398 | (3,398) | - | - | - | - | - | - |
| Issue Costs | - | (263) | - | - | - | - | - | (263) | (263) | |
| 30 | 7,371 | (3,192) | 40,089 | (11,546) | 4 | 202,055 | 234,811 | 6,059 | 240,870 | |
| Share buy backs | (3) | - | - | - | - | - | (21,226) | (21,229) | - | (21,229) |
| Treasury share sale | 2 | 265 | - | - | - | - | 20,040 | 20,307 | - | 20,307 |
| Net movement in treasury shares | (1) | 265 | - | - | - | - | (1,186) | (922) | - | (922) |
| Profit for the period | - | - | (1,637) | 29,749 | - | - | - | 28,112 | 5,980 | 34,092 |
| Effect of translation of presentation currency | - | - | - | - | 8,335 | - | - | 8,335 | 2,046 | 10,381 |
| Issue of shares in subsidiary to minority interests | - | - | - | - | - | - | - | - | 7,748 | 7,748 |
| Minority interest acquired in Group combination | - | - | - | - | - | - | - | - | 1,034 | 1,034 |
| At 30 June 2008 | 29 | 7,636 | (4,829) | 69,838 | (3,211) | 4 | 200,869 | 270,336 | 22,867 | 293,203 |
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 30 June 2008. 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 30 June 2009 will be delivered to the Registrar of Companies in due course.
Copies of the Annual Report will be sent to Members in the last week of October 2009 and will be available to members of the public from the Registered office at St Martins House, Le Bordage, St Peter Port, Guernsey GY1 1BP.
Trevor Ash
Chairman
06 October 2009