Princess Priv E Regulatory News (PEY)

RNS Number : 8233H

Princess Private Equity Holding Ltd

01 March 2010

 

Princess Private Equity Holding Limited

 

For Immediate Release

 

ANNUAL FINANCIAL RESULTS ANNOUNCEMENT

YEAR ENDED 31 DECEMBER 2009

 

The Board of Princess Private Equity Holding Limited ("Princess" or the "Company") announces the Audited Consolidated Annual Financial Results of the Company for the year ended 31 December 2009.

 

In accordance with DTR4.1, the full Annual Financial Report will be issued to Shareholders on or about 5 March 2010. The required announcement in accordance with DTR4.1 will be made on the day of issue of the Annual Financial Report.

 

 

CHAIRMAN'S REPORT

 

Dear valued investor

 

In my role as Chairman of the Board of Princess Private Equity Holding Limited ("Princess"), I am pleased to present this Annual Report to you. I continue to have great confidence in the Princess portfolio and in its Investment Manager. I believe the actions taken in 2009 have substantially strengthened Princess and enhanced the position of your Company. The quality of the portfolio is remarkable and offers investors the advantages of broad diversification across various sectors, industries, geographies and vintages.

 

Towards the end of 2009, Princess' underlying portfolio companies managed to benefit from the stabilizing global economy through being operationally active and creating further value in their business models. This resulted in a strong increase in the NAV in the second half of 2009. The recent valuation uplifts, however, were not able to offset fully the impact of the revaluation adjustments at the beginning of the year and currency movements, resulting in an overall NAV decline of 11.3% in 2009.

 

In order to decrease Princess' overcommitment ratio, the Investment Manager selectively reduced unfunded commitments by EUR 43 million with an overall negative impact on the NAV of less than 1%. The sale of the listed private equity investments and the new three-year credit facility, which is initially for EUR 40 million with the potential to be increased to EUR 90 million and is described in note 16 to the financial statements, strengthened Princess' liquidity position further.

 

The share price of Princess rebounded significantly in 2009 and closed the year up 9.4%. The decline in the share price at the beginning of the year was largely attributable to high levels of uncertainty in the global markets and, in particular, the sharp decline in the listed private equity universe.

 

Private equity investment and exit activity in the Princess portfolio and in the wider market gradually picked up during the second half of 2009. However, distributions from realized portfolio companies and drawdowns to fund new investments were below 2007 and 2008 levels. At the end of 2009, Princess was fully invested with an investment level of 100.5%.

 

Under the conservative assumptions of Princess' cash flow forecast for 2010, with only slowly increasing distributions and a pick-up in drawdowns, Princess' funding obligations are adequately covered by its new credit facility. Princess continues to be committed to pay its shareholders dividends out of distributions from realized portfolio companies. The next dividend payment will be made as soon as the liquidity position and the constraints imposed under the credit facility allow and as such the timing will depend on future market developments.

 

I and my fellow Directors would like to take this opportunity to thank investors for the confidence they have shown in Princess. With the new credit facility in place and unfunded commitments reduced, we believe Princess is well positioned to capitalize on attractive investment opportunities and to benefit from the re-opening of the exit window for its existing portfolio companies, thereby creating long-term shareholder value.

 

Brian Human

Chairman

 

Guernsey, February 2010

 

 

Audited consolidated statement of financial position

As at 31 December 2009

In thousands of EUR ASSETS Designated assets at fair value through profit or loss	Notes		31.12.2009		31.12.2008
Private equity	10	467'992		496'102
Private debt	10	40'912		49'167
Private real estate	10	6'095		5'113
Private infrastructure	10	1'929		-
Non-current assets			516'928		550'382
Financial assets at fair value through profit or loss held for trading	11	-		6'830
Other short-term receivables		1'615		784
Hedging assets		5'776		12'559
Cash and cash equivalents	12	15'251		13'707
Current assets			22'642		33'880
TOTAL ASSETS			539'570		584'262
LIABILITIES
Share capital	13	70		70
Reserves	13	668'882		668'882
Retained earnings		(154'655)		(89'293)
Total Equity			514'297		579'659
Short term credit facilities	16	20'000		-
Other short-term payables		5'273		4'603
Liabilities falling due within one year			25'273		4'603
TOTAL LIABILITIES			539'570		584'262

 

 

Audited consolidated statement of comprehensive income

for the period from 01 January 2009 to 31 December 2009

In thousands of EUR Net income from designated financial assets at fair value through profit or loss Private Equity Interest & dividend income	Notes	01.01.2009 31.12.2009 (37'912) (31'498) 1	01.01.2008 31.12.2008 (64'592) (63'270) 7
Revaluation	10	(25'858)	(77'355)
Net foreign exchange gains / (losses)	10	(5'641)	14'078
Private Debt		(7'314)	(843)
Interest income (including PIK)		1'207	2'208
Revaluation	10	(8'849)	(3'686)
Net foreign exchange gains / (losses)	10	328	635
Private Real Estate		482	111
Revaluation	10	476	16
Net foreign exchange gains / (losses)	10	6	95
Private Infrastructure		418	(590)
Revaluation	10	418	(590)
Net income from financial assets at fair value through profit or loss held for trading		493	(14'655)
Net income from opportunistic investments		493	(14'655)
Revaluation	11 & 22	493	(14'655)
Net income from cash & cash equivalents and other income		565	1'940
Interest income	20	30	2'108
Net foreign exchange gains / (losses)	21	535	(168)
Total Net Income		(36'854)	(77'307)
Operating expenses		(14'738)	(16'173)
Management fee		(12'535)	(14'214)
Incentive fee		(1'304)	(280)
Administration fee		(232)	(362)
Other operating expenses		(997)	(882)
Other net foreign exchange gains / (losses)	21	330	(435)
Other financial activities		(13'770)	17'962
Setup expenses - credit facility		(830)	-
Interest expense - credit facility		(505)	(139)
Other interest expense		(6)	-
Other finance cost		(7)	(4)
Net result from hedging activities		(12'422)	18'105
Surplus / (loss) for the financial period		(65'362)	(75'518)
Other comprehensive income for the period; net of tax		-	-
Total comprehensive income for the period		(65'362)	(75'518)
Earnings per share
Weighted average number of shares outstanding		70'100'000	70'100'000
Basic surplus / (loss) per share for the financial period		(0.93)	(1.08)
Diluted surplus / (loss) per share for the financial period		(0.93)	(1.08)

The earnings per share is calculated by dividing the surplus / (loss) for the financial period by the weighted average number of shares outstanding.

 

 

Audited consolidated statement of changes in equity

for the period from 01 January 2009 to 31 December 2009

In thousands of EUR	Share capital	Reserves	Retained Earnings	Total
Equity at beginning of reporting period	70	668'882	(89'293)	579'659
Other comprehensive income for the period; net of tax	-	-	-	-
Surplus / (loss) for the financial period	-	-	(65'362)	(65'362)
Equity at end of reporting period	70	668'882	(154'655)	514'297

for the period from 01 January 2008 to 31 December 2008

			Retained
In thousands of EUR	Share capital	Reserves	Earnings	Total
Equity at beginning of previous period	70	689'912	(13'775)	676'207
Dividend paid	-	(21'030)	-	(21'030)
Other comprehensive income for the period; net of tax	-	-	-	-
Surplus / (loss) for the financial period	-	-	(75'518)	(75'518)
Equity at end of previous period	70	668'882	(89'293)	579'659

 

 

Audited consolidated cash flow statement

for the period from 01 January 2009 to 31 December 2009

In thousands of EUR	Notes	01.01.2009	01.01.2008
		31.12.2009	31.12.2008
Operating activities
Surplus / (loss) for the financial period		(65'362)	(75'518)
Adjustments:
Foreign exchange result	21	4'442	(14'205)
Investment revaluation	22	33'320	96'270
Net gain / (loss) on interests & dividends	20	(727)	(4'184)
(Increase) / decrease in receivables		5'822	(7'067)
Increase / (decrease) in payables		775	(2'567)
Purchase of private equity investments	10	(43'204)	(111'832)
Purchase of private debt investments	10	(1'340)	(6'735)
Purchase of private real estate investments	10	(500)	(4'650)
Purchase of private infrastructure investments	10	(1'511)	(590)
Distributions from and sales of private equity investments	10	39'815	68'733
Distributions from and sales of private debt investments	10	1'742	4'705
Distributions from and sales of private real estate investments	10	-	518
Sale of opportunistic investments	11	7'323	9'799
Interest & dividends received		571	2'108
Net cash from / (used in) operating activities		(18'834)	(45'215)
Financing activities
Increase / (decrease) in credit facilities		20'354	-
Interest expense - credit facility		(505)	(139)
Interest expense on prepayments		(6)	-
Distribution of dividends		-	(21'030)
Net cash from / (used in) financing activities		19'843	(21'169)
Net increase / (decrease) in cash and cash equivalents		1'009	(66'384)
Cash and cash equivalents at beginning of reporting period	12	13'707	80'259
Movement in exchange rates		535	(168)
Cash and cash equivalents at end of reporting period	12	15'251	13'707

 

 

Investment Review:

Investment manager's report

 

Holding broadly diversified, high-quality portfolio companies, the Princess portfolio saw a recovery in the underlying valuations in the second half of 2009. The macroeconomic environment gradually improved after what had been a challenging start to the year due to the impact of the global financial crisis on private equity valuations. Similar to the trend in the global equity markets, the share price of Princess recorded sharp losses up until March 2009, then recovered significantly and closed in Frankfurt up 9.4% on the year.

 

NAV shows signs of recovery in second half of year

 

Based on year-end valuations, the audited NAV of Princess stood at EUR 514 million, or EUR 7.34 per share, as at the end of December 2009, down 11.3% from the EUR 580 million as at the end of December 2008. This decrease was largely incurred in the first half of the year when there was still much uncertainty about the global macroeconomic environment. The recovery in valuations in the second half of the year was mirrored in the 5.0% rise in the NAV of Princess in the fourth quarter of 2009.

 

The main contribution to the development of the NAV in 2009 came from revaluations of Princess' underlying investments. During the first half of the year, these revaluations mainly reflected the prevailing global recessionary macroeconomic environment, the deteriorating operating performance of some underlying portfolio companies and, particularly at the beginning of the year, falling public comparables. Towards the end of the year, however, Princess' underlying portfolio companies managed to benefit from the stabilizing global economy through being operationally active and creating additional value in their underlying businesses. The strong rebound in the public equity markets saw the value of comparable public companies rise, which in turn had a favourable influence on the NAV of Princess, partially offsetting the negative impact of the decline in comparable multiples at the beginning of the year. Overall, there was a 7.1% write-up in the NAV in the second half of 2009. These valuation uplifts, however, were not able to fully offset the impact of the revaluation adjustments at the beginning of the year. Over the twelve-month reporting period, valuation adjustments to the portfolio had an unfavorable impact on the NAV of 5.8%.

 

Princess completely divested its listed private equity investments in the summer of 2009 in order to profit from the rebound in share prices in the months before their sale, generating a further EUR 7 million in liquidity. Over the full reporting period, the development of the listed private equity investments had a positive impact on the NAV of 0.1%.

 

The positive effects from the appreciation of the US dollar against the Euro at the beginning of 2009 were negated by its subsequent depreciation. Princess uses options to limit the negative effects from currency movements between the US dollar and the Euro, which generally leads to increased NAV volatility in the short term while minimizing the effect on Princess' liquidity position. Over the twelve-month reporting period, currency movements had a negative impact on the NAV of 2.9%.

 

Princess share price up by 9.4% in 2009

 

The share price of Princess, after moving sharply lower in the first quarter of the year in tandem with the listed private equity market as a whole, subsequently rebounded and managed to close the year 9.4% higher at EUR 3.39 per share in Frankfurt. The first quarter decline in the share price of Princess resulted from the unprecedented levels of uncertainty and the loss of market confidence and, in particular, a sharp fall in the listed private equity universe.

 

Despite the discount to the NAV narrowing in 2009 it still stood at 53.8% as at the end of December. The Investment Manager believes that the current share price does not reflect the quality of the Princess portfolio, especially given that valuations rebounded considerably in the second half of the year and that the portfolio is broadly diversified with an overweighting in small- and mid-cap buyout investments.

 

Active portfolio management measures positioning Princess for the future

 

As part of its active portfolio management approach, the Investment Manager selectively decreased unfunded commitments by EUR 43 million in mid-2009 in order to reduce the overcommitment ratio and maintain a healthy position. Rather than selling mature fund interests at steep discounts in the secondary market, the Investment Manager carefully divested a minority of partnerships with high unfunded commitment levels. These transactions had an overall negative impact on the NAV of less than 1%. In this context and in view of the challenging market environment, the Investment Manager did not make any new commitments during the year. As at the end of 2009, the reduction in unfunded commitments, together with the divestment of listed private equity investments, strengthened Princess' portfolio and liquidity position. Unfunded commitments fell from EUR 375 million at the end of 2008 to EUR 284 million at the end of 2009 through a combination of the above-mentioned reduction in commitments and normal drawdowns for new investments. The overcommitment ratio fell from 60.8% to 55.6% in the same period.

 

New credit facility provides continued stability

 

The Board of Directors of Princess signed a new three-year credit facility on 25 September 2009 which is described in note 16 to the financial statements. The credit facility has initially been set at EUR 40 million with the potential to be increased to EUR 90 million. The purpose of the new credit facility is to meet the funding obligations under Princess' commitment strategy following the expiry of the previous credit facility on 31 December 2009. As at the end of December 2009, Princess had drawn down EUR 20 million under the credit facility, while cash and cash equivalents amounting to EUR 15 million, which resulted in Princess being fully invested with an investment level of 100.5%. With the new credit facility in place, the Investment Manager considers Princess to be in a comfortable liquidity position with sufficient headroom for future funding obligations.

 

Investment pace picks up towards end of 2009

 

In 2009, Princess funded a total of EUR 47 million in capital calls from its portfolio partnerships for new and follow-on investments. This compares with a total of EUR 124 million in capital calls in 2008, which was already below the level for 2007. Few traditional buyout transactions, especially in the large-cap and mega-large-cap buyout segment, could be completed in 2009 because of continued difficulty in securing debt financing. Princess' portfolio partnerships nevertheless made some selective investments in 2009, including follow-on investments to strengthen existing portfolio companies, investments in companies located in emerging markets and acquisitions of non-core businesses from large corporations.

 

Enara Group, a leading UK-based independent provider of private and social services-based home care, for instance, made a series of add-on acquisitions as part of its buy-and-build strategy in what is a strong non-cyclical growth industry. An example of an emerging markets investment is Navis Asia Fund V's acquisition of a controlling stake in Edutech, an Indian education company. It aims to increase the number of Edutech campuses and expand its range of courses. An example of the acquisition of a corporation's non-core business is the purchase of a majority stake in online phone company Skype Technologies from its corporate owner, eBay, by an investor group led by Silver Lake Partners III.

 

Exit environment improves in second half of year, giving rise to first quarterly cash inflow since 2007

 

In line with the increased investment pace, exit opportunities started to re-emerge in the second half of the year. Princess received EUR 42 million in distributions in 2009, down on the 2008 total of EUR 75 million. Small and medium-sized companies, however, continued to be successfully exited from the portfolio. For example, Dolphin Communications Fund sold Gomez, a leading application performance management software company, to Compuware, generating a 7.7x multiple. Other examples include 3i Eurofund Vb's exit of its residual stake in marine heavy lifting business Dockwise, earning a return of twice its original investment. And in the second quarter of 2009, MedServe, a US company specializing in medical and hazardous waste management services, was sold to Nasdaq-listed Stericycle for USD 185 million. Medserve had been acquired by private equity investors in 2006 for USD 70 million. The pick-up in exit activity particularly towards the end of the year led to a further narrowing of cash outflows (defined as drawdowns less distributions).

 

Although there was a net cash outflow of EUR 5 million in 2009 (defined as drawdowns less distributions), the Princess portfolio was actually generating EUR 4 million more distributions than drawdowns in the fourth quarter of the year, resulting in the first positive quarterly cash flow since 2007.

 

Outlook for Princess

 

In the second half of the year valuations were increasingly being driven by the high quality of Princess' portfolio companies. Provided there is no reversal of the current trend in the global macroeconomic environment, the Investment Manager believes that the bulk of portfolio company valuations should continue to develop positively in 2010.

 

The Investment Manager anticipates that private equity deal activity will gain further momentum over the coming year. Drawdowns and distributions from the portfolio partnerships and the direct investments should steadily increase, though capital called to fund new investment opportunities is likely to exceed distribution proceeds from realized investments. When it comes to new investments, the portfolio partnerships are expected to focus in 2010 on small and medium-sized transactions because debt financing is still likely to be relatively difficult to obtain for large buyout investments. Private equity investors will also seek to develop their existing portfolio companies further and enhance their value through add-on acquisitions.

 

Although the current market environment is not truly comparable to that of the last global recession, the experience of 2003 and 2004 shows that distributions from private equity investments can pick up quickly and substantially after a downturn. Although the Investment Manager does not rule out the possibility of such a development in the next few years, cash flow planning for Princess is based on conservative assumptions, including only slowly rising distributions. Even in this conservative scenario, Princess' future funding obligations are adequately covered by its new three-year extended credit facility. Princess continues to be commited to pay its shareholders dividends out of distributions from realized portfolio companies. The next dividend payment will be made as soon as the liquidity position and the constraints imposed under the credit facility allow, and as such the timing depends on the future market developments.

 

The Investment Manager has high confidence in the Princess portfolio with its broadly diversified, high-quality investments, which are managed by leading private equity investors. Princess is well positioned to be able to capitalize on attractive investment opportunities in the market, benefiting from the currently relatively low entry valuations for new investments and providing the portfolio with further high-quality deals.

 

Portfolio allocation

 

Increase in allocation to direct investments

 

The portfolio largely comprises primary investments, which constituted 83% of the portfolio (against 84% in 2008). The allocation to direct investments increased to 15% as at the end of 2009. Following the decision in 2008 to reduce significantly the allocation to the listed private equity asset class, Princess completely divested its listed private equity investments in mid-2009 and profited from the rebound in share prices in the months before their sale. The allocation to secondary investments remained unchanged at 2% of the portfolio.

 

Increase in special situations allocation

 

The allocation to special situations investments increased to 15% of the portfolio during the reporting period and reflects, in particular, the ramp-up of the distressed portfolio under the relative value investment approach.Under this approach, the most attractive opportunities at any given time are selected and thus several of the commitments that Princess made in 2008 were to funds that focus on distressed, turnaround and special situations investments. At 64% of the Princess portfolio, the allocation to the buyout segment slightly increased compared to the end of 2008, with the majority of investments in the small-cap to mid-cap space. The allocation to the large-cap and mega-large-cap buyout segment was only 29% of the portfolio as this segment has been underweighted by Princess early on. Finally, the share of venture capital investments in the portfolio decreased from 24% at the end of 2008 to 21% at the end of 2009.

 

Asia & rest of world allocation is increased

 

The geographical exposure of the Princess portfolio by value at the end of 2009 was split between North America (57% and unchanged from 2008), Europe (33% against 36% in 2008) and Asia & rest of world (10% against 7% in 2008).

 

Well-balanced industry allocation

 

The Princess portfolio is broadly diversified across a wide range of industries, with a relatively high allocation to more stable, non-cyclical industry sectors such as life sciences, healthcare and communication & media. These industry sectors, whose combined portfolio allocation increased to 34%, were less affected by 2009's challenging environment and lent stability to the Princess portfolio. Included here are healthcare companies such as Nycomed, a global pharmaceutical company, and Lantheus Medical Imaging, a worldwide leader in medical imaging, as well as TDC, a leading provider of communications solutions in Denmark, and German cable company Kabel Deutschland. The allocation to the financial services and retail industries remained virtually unchanged compared to the end of 2008, whereas the allocation to the industrial production and manufacturing sectors decreased by 4% and the IT & high-tech exposure increased by 2%.

 

Well-balanced split by investment year

 

The maturity of the Princess portfolio is further underpinned by a healthy level of diversification across investment years. Almost 40% of Princess' current investments were made before 2006 when prices for new investments started to increase significantly. These portfolio companies have subsequently been developed by their private equity owners in readiness for a future exit. Of the more recent investment years, a significant share of the investments made in 2007 reflects the ramp-up of the allocation to direct investments. An additional 20% of Princess' current investments were made in the last two years during a period which may become a very good vintage due to attractive entry valuations. Overall, almost 60% of Princess' current portfolio was invested in less expensive vintage years.

 

 

AUDITORS' REPORT - EMPHASIS OF MATTER

Without qualification of the Auditors' Report, an emphasis of matter is referred in respect of inherent uncertainty associated with the valuation of unquoted investments and the absence of a liquid market where fair values may differ from the realizable value and differences could be material.

 

 

About Princess

Princess is an investment holding company founded in 1999 and domiciled in Guernsey that invests in private equity and private debt investments. The Company is advised in its investment activities by Partners Group AG, a global private markets asset management firm with over CHF 25 billion in investment programs under management in private equity, private debt, private real estate and private infrastructure. Princess aims to provide shareholders with long-term capital growth and an attractive dividend yield. Princess is traded on the Frankfurt Stock Exchange (ticker symbol: PEY1) and on the London Stock Exchange (ticker symbol: PEY). Further information: www.princess-privateequity.net

 

Contacts

Princess Private Equity Holding Limited:

princess@princess-privateequity.net

www.princess-privateequity.net

 

Registered Number: 35241

 

Media enquiries:

Partners Group AG

Tamara Krebs

Communications

Tel.: +41 41 768 85 26

tamara.krebs@partnersgroup.com

www.partnersgroup.com

 

This document does not constitute an offer to sell or a solicitation of an offer to buy or subscribe for any securities and neither is it intended to be an investment advertisement or sales instrument of Princess Private Equity Holding Limited. The distribution of this document may be restricted by law in certain jurisdictions. Persons into whose possession this document comes must inform themselves about, and observe any such restrictions on the distribution of this document. In particular, this document and the information contained therein is not for distribution or publication, neither directly nor indirectly, in or into the United States of America, Canada, Australia or Japan.

 

This document may have been prepared using financial information contained in the books and records of the product described herein as of the reporting date. This information is believed to be accurate but has not been audited by any third party. This document may describe past performance, which may not be indicative of future results. No liability is accepted for any actions taken on the basis of the information provided in this document.

 

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