Pantheon International Regulatory News (PIN)

8 Mar 2005 15:24

PANTHEON INTERNATIONAL PARTICIPATIONS PLCCHAIRMAN'S STATEMENTAt 31 December 2004 the Company's NAV stood at ‚£247.9 million, representing a1.1 per cent. increase in NAV per share to 579.0p over the half year (30 June2004: 572.5p). Positive movements due to realisations and upward valuations ofinvestments of ‚£12.7 million were partially offset by negative movements due toexchange rate variance of ‚£6.6 million. This variance principally reflects thefall of the dollar against sterling during the period, which was only partiallycompensated for by the rise of the euro against sterling.Basis of valuationsPIP's policy is to base the valuations of private equity funds on the mostrecent accounts from the underlying fund managers. In the case of the valuationat 31 December 2004, more than 72 per cent. of portfolio assets were valued onthe basis of accounts dated September 2004.The Company generally records secondary assets at cost from completion untilthe receipt of subsequent accounts from the underlying managers. However, wherea premium has been paid, the asset is written down at completion to thevaluation recorded in the most recent set of accounts; these downwardadjustments therefore normally take effect before any uplift in valuation onassets acquired at a discount are recorded.Activity in the periodPIP was very active during the period under review, making new commitments toinvestments of ‚£145.6 million. The greater part of this total, ‚£97.2 million,related to secondary purchases, including the two largest portfoliotransactions undertaken by Pantheon to date. The larger of the two portfolios,where 61 per cent. of the transfers had been completed at 31 December 2004,comprises 37 private equity funds focused principally on the US and Europe,together with a small number of direct investments. The second portfoliocontains interests in more than 20 funds and is predominantly focused on USbuyouts. The fund interests in both portfolios are relatively mature.The transfers are expected to be almost fully completed during the firstquarter of 2005. As at 31 December 2004, transfers had been executed in respectof 44 funds out of a total of 59 across both portfolios. When fully complete,the two portfolio purchases will have increased the Company's investment assetssignificantly without either materially altering PIP's maturity profile ormeaningfully reweighting the geographic, stage or industry distribution withinthe Company's portfolio.PIP also recorded its highest half-yearly level of commitments to newinvestments during the period under review, committing ‚£48.4 million to 20funds against the background of a re-energised private equity fundraisingmarket. Twelve US funds received commitments totalling ‚£24.9 million, witheight European vehicles accounting for the balance. Ten of the funds, whichtogether received ‚£28.8 million of commitments, will focus on buyouts and tenwill pursue venture or generalist strategies. Reflecting the volume of new fundcommitments in recent months, PIP's outstanding commitments to investmentsstood at ‚£202.3 million at 31 December 2004 compared with ‚£136.8 million at 30June 2004.The Company received realisation proceeds totalling ‚£37.3 million in the sixmonths to 31 December 2004. Following on from the record level ofdistributions, ‚£72.2 million, seen in the year to 30 June 2004, thisperformance provides further confirmation of the underlying maturity of PIP'sportfolio. Although the majority of realisations during the period, some ‚£22million, were generated by assets acquired by PIP as secondaries, the healthyproportion arising from funds invested in at inception reflects the increasingmaturity within PIP's primary portfolio.PIP met calls of ‚£77.5 million in the half year, of which ‚£59.7 million relatedto secondary investments.Capital structureThe Company's proposals for a reorganisation of the Company's capital structureinvolving the conversion of all its PLNs into a new class of redeemable sharesand/or new ordinary shares, were accepted by PLN holders and shareholders andthe conversion took place in September. Post conversion, PIP's issued capitalcomprises 26,471,013 ordinary and 16,353,199 redeemable shares, representing aslight reduction in the redeemable portion of PIP's capital in comparison withits structure immediately prior to the reorganisation.In view of the significant capital calls relating to the two major secondaryportfolio purchases agreed during the period, PIP has extended its loanfacility from The Royal Bank of Scotland to ‚£80 million to ensure adequatefinancing. The Company's net debt stood at ‚£30.4 million as at 31 December2004. The Board anticipates issues of redeemable shares in the short to mediumterm will be made so as to ensure PIP has continuing capacity to completefuture transactions.OutlookCalendar year 2004 marked the return to a more active private equity fundraising environment. The resurgence in new fund offerings throughout thedeveloped private equity markets was closely linked to an acceleration in thepace of portfolio realisations as M&A and IPO activity showed modestrecoveries. A record volume of new fund offerings is forecast for 2005. Inconsequence, PIP expects to be able to select from a broad range ofopportunities to add to its new fund investment programme and has alreadyidentified a pipeline of attractive prospective investments for the comingphase.The market for secondary interests in private equity is cyclical and has beenparticularly active in the past two years. PIP is continuing to see a flow ofpotential secondary acquisitions and will continue to bid selectively on themost attractive of these opportunities. As the two major portfolio purchasesoutlined earlier demonstrate, the Company benefits from participation in theglobal secondary programme its Manager operates on behalf of a number ofclients, which enables it to access even very large acquisition opportunities.Corporate buyers have been showing signs of a renewed appetite for strategicacquisitions in recent months. Their return to the M&A arena is expected tointensify the competition private equity funds face for new deals. Greatercompetition from corporations may eventually slow the pace of buyoutinvestments by underlying funds. The same factors, however, suggest that ahealthy flow of realisations from the existing portfolio should be sustained inthe coming period in the context of a market environment where valuations aretrending upwards.Thomas H. Bartlam8 March 2005MANAGER'S REVIEW OF THE MARKETAgainst a background of strengthening confidence and improving corporateprofitability, private equity activity worldwide underwent a revival in 2004.Although the public markets largely lacked clear direction, uplift in mergersand acquisitions was accompanied by a moderate IPO revival, particularly in theUS. This more benign climate provided opportunities to exit private equityinvestments, easing the log-jam that had built up in portfolios over the pastthree to four years, and this more liquid environment has been reflected in theflow of realisation proceeds back to PIP during the period.Although US corporations demonstrated increasing appetite for strategicacquisitions as 2004 progressed, their European counterparts for the most partremained absent from the M&A arena. In this context, it should also be notedthat secondary buyouts made a significant contribution during the period toprivate equity liquidity.Ready availability of debt and low interest rates have acted to promote buyoutsduring the past year, which also saw rises in both entry price multiples andthe proportion of debt within average buyout structures. In the US, upwardpressure on pricing is now being compounded by the return of corporate buyers,and it is unlikely that the pace of buyout activity seen in 2004 will besustained in the coming year. Should European corporate buyers return to the M&A arena during 2005, a parallel decline in the pace of European buyoutinvestment can be anticipated. In both cases, there is also a possibility thatany reaction in the debt market to adverse credit events could provide afurther brake on buyout activity.There was a resurgence in both fund raising and investment in the US venturesector during the past year, with investor interest being buoyed by a markedupturn in liquidity within venture portfolios. In Europe's smaller, less matureand highly fragmented venture market, however, investment and fund raisingcontinued to dwindle. In the absence of indigenous interest, it is possiblethat US venture funds may step up their activities in Europe, where competitionfor deal flow is less rigorous than in their domestic market.Reduced investment rates in recent years have extended fund raising cycles, andthe effects of this have been intensified by many managers deferring new fundraising efforts until they are in a position to demonstrate successful exitsfrom existing vehicles. Following improvement in the liquidity environment, arecord global volume of new private equity fund offerings is anticipated in2005.Notwithstanding strengthening institutional demand for private equity, theflight to quality that has followed the technology boom suggests both that manyforthcoming fund offerings will struggle to reach their targets and that accessto funds from proven managers will be at a premium. The best General Partnersare in a position to choose their investors, with a key criterion being aLimited Partner's potential as a participant for subsequent funds. In thisrespect, PIP benefits from its Manager's position as one of the world's longestestablished private equity fund-of-funds investors.The Manager expects a pipeline of attractive opportunities for PIP's new fundinvestment programme in the coming period. At the same time, the Company iscontinuing to see a flow of opportunities to acquire private equity interestsin the secondary market. While further increases in corporate competition mayresult in a slower pace of investment by buyout funds, the same trends shouldalso tend to enhance prospects for a continued flow of realisations fromexisting private equity portfolios.PIP investment portfolio valuation movement in the six months to 31 December2004 ‚£'000 Value at 30 June 2004 233.2 Payable in the period 77.5 Receivable in the period (37.3) Sub-total 273.4 Change in value 12.7 Foreign exchange losses (6.6) Value at 31 December 2004 279.5 PIP investment activity in the six months to 31 December 2004 2003 ‚£m ‚£m Purchase of secondary interests 97.2 5.3 Commitments to new funds 48.4 4.5 Investment activity 145.6 9.8 Less: amounts purchased but not paid for (91.8) (6.9) Add: amounts paid out relating to previous commitments 23.7 20.0 Net investment in the period 77.5 22.9 Less: amounts received from investments (37.3) (32.9) Investment cash outflow/(inflow) in the period 40.2 (10.0)STATEMENT OF TOTAL RETURN OF THE COMPANY (unaudited)(incorporating the revenue account*) for the six months to 31 December 2004 2003 Revenue Capital Total Revenue Capital Total ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 ‚£'000 Gains on investments - 5,210 5,210 - - - Currency gains on - 421 421 - 331 331 capital items Dividends and interest 864 - 864 79 - 79 Investment management (1,829) - (1,829) (1,846) - (1,846)fee Other expenses (503) - (503) (365) (117) (482) Return on ordinary (1,468) 5,631 4,163 (2,132) 214 (1,918)activities before financing costs and tax Interest payable and (560) - (560) (535) - (535)similar charges Revaluation of - (1,839) (1,839) - 1,602 1,602 participating loan notes Return on ordinary (2,028) 3,792 1,764 (2,667) 1,816 (851)activities before tax Tax on ordinary (2) (44) (46) - (28) (28)activities Return on ordinary (2,030) 3,748 1,718 (2,667) 1,788 (879)activities after tax Return per share (6.08p) 11.23p 5.15p (12.35p) 8.28p (4.07p)* The revenue column of this statement is the revenue account of the Company.All revenue and capital items in the above statement derive from continuingactivities.SUMMARISED BALANCE SHEET OF THE COMPANY (unaudited) As at 31 As at 30 As at 31 Dec 2004 June 2004 Dec 2003 ‚£'000 ‚£'000 ‚£'000 Investments 279,571 233,246 230,954 Investment in subsidiary undertaking 1 1 1 Net current (liabilities)/assets (31,642) 11,937 1,168 TOTAL ASSETS LESS CURRENT LIABILITIES 247,930 245,184 232,123 CREDITORS: AMOUNTS FALLING DUE AFTER ONE YEAR Participating loan notes - 121,555 115,081 CAPITAL AND RESERVES 247,930 123,629 117,042 Amounts attributable to shareholders and participating loan note holders 247,930 245,184 232,123 Total net assets for the purposes of calculating the net asset value per share 247,930 123,629 117,042 Net asset value per share 579.0p 572.5p 542.0p Adjusted redemption value per participating loan note n/a 561.2p 531.3p Number of ordinary shares in issue 26,471,013 21,592,964 21,592,356 Number of participating loan notes in - 21,660,589 21,660,589 issue * Number of redeemable shares in issue 16,353,199 - - * On 20 September 2004, following a capital restructuring, the Company's PLNswere converted into 16,353,199 new redeemable shares and 4,878,046 new ordinaryshares.SUMMARISED STATEMENT OF CASHFLOWS (unaudited) For the six For the six months to months to 31 December 2004 31 December 2003 ‚£'000 ‚£'000 Net cash outflow from operating (791) (2,177)activities Servicing of finance Interest paid (50) (215) Loan commitment and arrangement fees (177) (78)paid Redeemable shares/PLN commitment fees (500) (124)paid Net cash outflow from servicing of (727) (417)finance Taxation Tax withheld from capital distributions (2) (28) Net taxation paid (2) (28) Capital expenditure and financial investment Purchases of investments (77,549) (22,863) Sales of investments 36,799 32,973 Realised currency losses (26) (47) Net cash (outflow)/inflow from capital (40,776) 10,063 expenditure and financial investment Financing Proceeds from issue of participating - 13,803 loan notes Cost of issue of PLNs (500) (70) Drawdown/(repayment) of bank credit 35,488 (19,078)facility Realised currency gain on loan - 413 repayments Net cash inflow/(outflow) from financing 34,988 (4,932) (Decrease)/increase in cash (7,308) 2,509 These accounts have been prepared using accounting standards and policiesadopted at the year end.The above financial information does not constitute statutory accounts asdefined in Section 240 of the Companies Act 1985. The comparative financialinformation for the year ended 30 June 2004 has been taken from the fullaccounts, which contained an unqualified audit report, and have been deliveredto the Registrar of Companies. These accounts did not contain a statementrequired under Section 237 (2) or (3) of the Companies Act 1985.The results for the six months to 31 December 2004 have been reviewed by theCompany's auditors and their report is attached.Signed on behalf of the BoardThomas H. BartlamChairmanINDEPENDENT REVIEW REPORT TO PANTHEON INTERNATIONAL PARTICIPATIONS PLCIntroductionWe have been instructed by the Company to review the financial informationwhich comprises the Statement of Total Return, the Summarised Balance Sheet andthe Summarised Statement of Cashflows. We have read the other informationcontained in the interim report and considered whether it contains any apparentmisstatements or material inconsistencies with the financial information.This report is made solely to the Company. Our review work has been undertakenso that we might report to the Company in accordance with bulletin 1999/4issued by the Auditing Practices Board and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the Company, for our work, for this report, or for the opinions wehave formed.Directors' responsibilitiesThe interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority, which require that the accountingpolicies and presentation applied to the interim figures would be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed.Review work performed.We conducted our review in accordance with guidance contained in bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of management and applyinganalytical procedures to the financial information and underlying financialdata and, based thereon, assessing whether the accounting policies andpresentation have been consistently applied, unless otherwise disclosed. Areview excludes audit procedures such as tests of controls and verification ofassets, liabilities and transactions. It is substantially less in scope than anaudit performed in accordance with United Kingdom Auditing Standards andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information.Review conclusionOn the basis of our review, we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 31 December 2004.RSM Robson Rhodes LLPChartered AccountantsLondon, England8 March 2005 ENDPANTHEON INTERNATIONAL PARTICIPATIONS PLC