5 Dec 2016 07:00
5 December 2016
STANDARD LIFE EUROPEAN PRIVATE EQUITY TRUST PLC
RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2016
Highlights
· The Company's net asset value total return for the year ended 30 September 2016 was 24.8%. Following a strategic review the Board is proposing changes to the investment policy, the dividend policy and fee arrangements, details of which are provided below.
· Net asset value per ordinary share ("NAV") at 30 September 2016 rose 23.0% to 346.4p (30 September 2015 - 281.6p). The increase in NAV during the period included 14.9% of net realised gains and income from the Company's portfolio of 49 private equity fund interests, 3.8% of unrealised losses on a constant exchange rate basis, 13.1% of positive exchange rate movements on the portfolio, and the payment of dividends during the year ended 30 September 2016.
· Actual NAV of 346.4p compares to a previously estimated NAV at 30 September 2016 of 338.9p announced on 14 October 2016. Closing mid-market price of the Company's ordinary shares on 30 September 2016 was 267.3p, an increase of 24.9% over the year and a discount of 22.8% to NAV.
· Recommended final dividend of 3.6p per ordinary share, which together with the interim dividend of 1.8p paid in July 2016, makes a total for the year of 5.4p (year ended 30 September 2015 - 5.25p). The Board intends to increase the annual dividend, for the year ending 30 September 2017, to 12.0p per share. The Board is committed to maintaining the real value of this new enhanced dividend and growing it at least in line with inflation, in the absence of unforeseen circumstances.
· At the year end the Company's net assets were £532.6 million. In preparing the Company's year end valuation, 98.7% by value of the portfolio was valued by the relevant fund manager at 30 September 2016.
· Distributions received by, and draw downs from, the portfolio during the year were £126.9 million and £66.2 million respectively. In addition, the Company acquired through the secondary market one private equity fund interest for £19.1 million.
· During the year the Company acquired a total of 2,030,000 ordinary shares through a series of share buy-back transactions for £4.5 million. The ordinary shares were acquired at an average price of 221.6p and at an average discount to the prevailing NAV of 29.4%. The ordinary shares acquired have been cancelled.
· The Company had liquid resources of £105.9 million at 30 September 2016. In addition, the Company has an undrawn £80 million syndicated revolving credit facility, provided by Citibank and Societe Generale that expires in December 2020.
· The Company made three new fund commitments during the year, with commitments of €45.0 million to Advent International GPE VIII, €28.1 million to the Sixth Cinven Fund and €23.0 million to Astorg VI. In addition, the Company assumed outstanding commitments of £10.4 million on the secondary acquisition of TowerBrook Investors III.
· The Company had £305.9 million of outstanding commitments at 30 September 2016. After undertaking a detailed review, the Manager continues to believe that up to £55 million of the Company's existing outstanding commitments are unlikely to be drawn.
· During the period from 30 September 2016 to 1 December 2016 the Company received distributions of £14.4 million and funded £7.4 million of draw downs.
· At 1 December 2016 the Company had a cash balance of £111.0 million and outstanding commitments of £325.1 million.
· A new commitment of €34.0 million was made to IK VIII in October 2016.
· Although the returns generated by the Company have been strong, its shares have persistently traded at a discount to its net asset value. As detailed in the Company's circular and the Chairman's Statement, the Board is proposing changes to the Company's investment policy to remove the current size and geographic restrictions on private equity investments. Notwithstanding, the majority of the portfolio will retain a European focus.
· In addition, to maximise the returns on cash held pending investment in private equity funds, a product of the Company's over-commitment strategy, the Board is also proposing to broaden the investment policy in regard to cash management to incorporate listed direct private equity investments, to be utilised opportunistically in suitably liquid investment companies.
· To reflect the proposed changes, to be voted on by shareholders at the Company's Annual General Meeting on 24 January 2017, the Board is recommending to shareholders that they approve a change in the name of the Company to Standard Life Private Equity Trust PLC.
· The Company's Manager has been incentivised by a success-based performance fee. The performance fee had a set five-year life which expired at the end of the last financial year. The strong growth in the Company's value meant that the Manager exceeded the agreed performance hurdle and triggered a payment under the performance fee scheme of £6.4 million.
· The Board is in the process of finalising new fee arrangements with the Manager and has negotiated the adoption of a single annual management fee of 0.95% of the net asset value of the Company, to replace the previous management fee and incentive fee arrangement. The Board believe the new fee structure delivers value for shareholders.
For further information please contact:-
Roger Pim and Peter McKellar of SL Capital Partners LLP (on 0131 245 0055)
CHAIRMAN'S STATEMENT
This has been a year of strong growth for the Company. Buoyant company valuations driven by strong underlying trading and a fall in the value of sterling have combined to outweigh any immediate effect of the UK referendum vote to exit the European Union ("Brexit"). Your Company's net asset value produced a total return of 24.8% during the year to the end of September and its share price delivered a total return including dividends of 27.9%. By contrast, the MSCI Europe Index delivered a total return of 20.2% over the same period.
Much of the past year has been dominated by the Brexit process. The pound has fallen by 14.8% against the euro as investors have faced up to the prospect of prolonged uncertainty about the economic, industrial and political implications of the referendum, not only in Britain but across Europe. Although equity markets have proven resilient, which has had a positive impact on the comparative valuations of the unlisted companies in the Company's portfolio, there have already been some indications that the uncertainty is affecting corporate activity.
Although political and economic uncertainty persists, making predictions as to the future prospects of the corporate sector especially hard at present, your Board continues to believe that the best private equity managers will continue to generate strong positive returns for investors over the long term and that the Company is uniquely well positioned to capture these returns for investors.
It is reassuring, in these circumstances, that the Company's portfolio has continued to benefit from strong underlying trading and a positive flow of realisations as companies it is invested in are sold by the managers of the funds that make up the portfolio. In the year to September, these realisations totalled £126.9 million compared to £106.7 million in the prior year. Against this, £66.2 million was drawn down from the Company's resources to fund investee companies. This compares to £63.1 million in the previous year.
As a result of the strong net cash flow from the portfolio, the Manager, SL Capital Partners, has worked hard to ensure that the Company's resources are deployed efficiently. The Manager has continued to make new commitments to high quality funds which will deploy cash over the coming years and build value for the future and has increased the Company's focus on acquiring fund positions in the secondary market. At times, the Manager has deployed a proportion of the Company's cash pending investment in private equity funds in equity index tracker funds. While the capability is maintained, given the current market uncertainties the Company currently holds no such investments. The net effect is that, as at the end of September, the Company had net liquid resources of £105.9 million, up from £69.4 million a year before, and total outstanding commitments to make future investments of £305.9 million, compared to £245.8 million previously.
SL Capital Partners has been incentivised by a success-based incentive fee. The incentive fee had a set five year life which expired at the end of the financial year. The strong growth in the Company's value meant that the Manager exceeded the agreed performance hurdle, and triggered a payment under the incentive fee scheme of £6.4 million.
The Board is in the process of finalising new fee arrangements with the Manager and has negotiated the adoption of a single management fee of 0.95% of net asset value to replace the previous management fee and incentive fee. The Board believes the new fee structure delivers value for shareholders.
Although the returns generated by the Company have been strong, its shares have persistently traded at a discount to its net asset value. As at the end of September this discount was 22.8%, and it averaged 26.7% through the year. Although this phenomenon is consistent with the Company's private equity investment trust peer group, it is a frustration to the Board and we regularly assess opportunities to address the scale of the discount. We have used the opportunity afforded by a high discount to buy back 2,030,000 of the Company's shares for cancellation during the year. The average discount on these buybacks was 29.4%.
Furthermore, the Board believes that providing a strong, stable dividend is attractive to shareholders. To that end, the decision has been taken to increase the annual dividend to 12.0 pence per share, for the year ending 30 September 2017, equating to a yield of approximately 3.5% on net asset value per ordinary share. The Board is committed to maintaining the real value of this new enhanced dividend and growing it at least in line with inflation, in the absence of unforeseen circumstances. In line with the current dividend policy, the Board has proposed a final dividend, for the year ended 30 September 2016, of 3.6 pence per share equating to an annual dividend of 5.4 pence per share.
Following an in depth strategic review, the Board has also concluded that it would be beneficial to increase the private equity opportunity set available to the Manager, by removing the current size restrictions and broadening the geographic reach on private equity investments in the Company's investment policy. In addition, to maximise the returns on cash held pending investment in private equity funds, a product of the Company's over-commitment strategy, the Board recommends broadening the investment policy in regard to cash management to incorporate listed direct private equity investments, to be utilised opportunistically in suitably liquid investment companies. The Board is proposing at the Annual General Meeting that shareholders approve the requisite amendments to the investment policy to action these changes.
The key outcome of these changes is that the Manager will be able to invest in the leading private equity buyout funds regardless of size and with additional geographic freedom, thereby enhancing the overall exposure to the private equity asset class. The intention is to increase the private equity opportunity set without diluting the strategy and focus. Shareholders should not expect a radical shift in the composition of the Company's portfolio, which will remain conviction oriented with a European focus.
The Board believes that the combination of changes outlined above should, over time, help deliver strong returns to shareholders and enhance the attractiveness of the Company to new investors. Finally, to reflect this and the broader investment universe available to the Manager, the Board is recommending a change in the Company's name to Standard Life Private Equity Trust PLC.
Details of these proposed changes will be included in the circular distributed with the Report and Financial Statements.
Edmond Warner, OBE
Chairman
2 December 2016
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks facing the Company relate to the Company's investment activities and include the following:
• market risk;
• currency risk;
• over-commitment risk;
• liquidity risk;
• credit risk;
• interest rate risk; and
• operating and control environment risk
Information on each of these risks, and an explanation of how they are managed, is contained in the Company's Annual Report.
DIRECTORS' RESPONSIBILITY STATEMENT
The directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the financial statements in accordance with applicable law and regulations
Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Generally Accepted Accounting Practice), including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:
· select suitable accounting policies and then apply them consistently;
· make judgements and accounting estimates that are reasonable and prudent;
· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements respectively; and
· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business .
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. In reaching this conclusion the directors have assumed that the reader of the annual report and accounts has a reasonable level of knowledge of the investment industry.
The directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the directors confirm that, to the best of their knowledge:
· the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Generally Accepted Accounting Practice), including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland" and applicable law, give a true and fair view of the assets, liabilities, financial position and profit of the Company as at 30 September 2016;
· the directors' report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces; and
· the Annual Report and Financial Statements, taken as a whole is fair, balanced and understandable and provides the information necessary to assess the Company's position and performance, business model and strategy.
For Standard Life European Private Equity Trust PLC
Edmond Warner OBE
Chairman
2 December 2016
STATEMENT OF COMPREHENSIVE INCOME (audited)
for the year ended 30 September 2016
Revenue | Capital | Total | |
£'000 | £'000 | £'000 | |
Total capital gains on investments | - | 100,041 | 100,041 |
Currency gains | - | 8,727 | 8,727 |
Income | 10,655 | - | 10,655 |
Investment management fee | (396) | (3,563) | (3,959) |
Incentive fee | - | (6,447) | (6,447) |
Administrative expenses | (806) | - | (806) |
_________ | _________ | _________ | |
Profit on ordinary activities | |||
before finance costs and taxation | 9,453 | 98,758 | 108,211 |
Finance costs | (130) | (657) | (787) |
_________ | _________ | _________ | |
Profit on ordinary activities | |||
before taxation | 9,323 | 98,101 | 107,424 |
Taxation | (2,207) | 1,434 | (773) |
_________ | _________ | _________ | |
Net profit on ordinary activities | |||
after taxation | 7,116 | 99,535 | 106,651 |
_________ | _________ | _________ | |
Net profit per ordinary share | 4.59p | 64.15p | 68.74p |
_________ | _________ | _________ |
The Total column of this statement represents the profit and loss account of the Company.
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There are no items of other comprehensive income, therefore this statement is the single statement of comprehensive income of the Company. |
All revenue and capital items in the above statement are derived from continuing operations.
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No operations were acquired or discontinued in the year.
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The dividend which has been recommended based on this Income Statement is 5.4p (2015 - 5.25p) per ordinary share. |
STATEMENT OF COMPREHENSIVE INCOME (audited)
for the year ended 30 September 2015
Revenue | Capital | Total | |
£'000 | £'000 | £'000 | |
Total capital gains on investments | - | 40,346 | 40,346 |
Currency gains | - | 495 | 495 |
Income | 11,917 | - | 11,917 |
Investment management fee | (342) | (3,082) | (3,424) |
Incentive fee | - | - | - |
Administrative expenses | (715) | - | (715) |
_________ | _________ | _________ | |
Profit on ordinary activities | |||
before finance costs and taxation | 10,860 | 37,759 | 48,619 |
Finance costs | (127) | (1,141) | (1,268) |
_________ | _________ | _________ | |
Profit on ordinary activities | |||
before taxation | 10,733 | 36,618 | 47,351 |
Taxation | (1,784) | 1,627 | (157) |
_________ | _________ | _________ | |
Net profit on ordinary activities | |||
after taxation | 8,949 | 38,245 | 47,194 |
_________ | _________ | _________ | |
Net profit per ordinary share | 5.69p | 24.35p | 30.04p |
_________ | _________ | _________ | |
STATEMENT OF CHANGES IN EQUITY (audited)
For the year ended30 September 2016 |
Share | Capital | |||||
Share | premium | Special | redemption | Capital | Revenue | ||
capital | account | reserve | reserve | reserves | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 1 October 2015 | 312 | 86,485 | 56,024 | 89 | 280,380 | 15,450 | 438,740 |
Profit on ordinary activities after taxation | - | - | - | - | 99,535 | 7,116 | 106,651 |
Buy back of ordinary shares | (5) | - | (4,521) | 5 | - | - | (4,521) |
Dividends paid | - | - | - | - | - | (8,238) | (8,238) |
______ | _______ | ______ | _______ | ________ | _______ | _______ | |
Balance at 30 September 2016 | 307 | 86,485 | 51,503 | 94 | 379,915 | 14,328 | 532,632 |
______ | _______ | ______ | _______ | ________ | _______ | _______ | |
For the year ended30 September 2015 |
Share | Capital | |||||
Share | premium | Special | redemption | Capital | Revenue | ||
capital | account | reserve | reserve | reserves | reserve | Total | |
£'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | |
Balance at 1 October 2014 | 318 | 86,485 | 62,947 | 83 | 242,135 | 17,134 | 409,102 |
Profit on ordinary activities after taxation | - | - | - | - | 38,245 | 8,949 | 47,194 |
Buy back of ordinary shares | (6) | - | (6,923) | 6 | - | - | (6,923) |
Dividends paid | - | - | - | - | - | (10,633) | (10,633) |
______ | _______ | ______ | _______ | ________ | _______ | _______ | |
Balance at 30 September 2015 | 312 | 86,485 | 56,024 | 89 | 280,380 | 15,450 | 438,740 |
______ | _______ | ______ | _______ | ________ | _______ | _______ |
STATEMENT OF FINANCIAL POSITION (audited)
As at | As at | ||||
30 September | 30 September | ||||
2016 | 2015 | ||||
£'000 | £'000 | £'000 | £'000 | ||
Non-current assets | |||||
Investments | 433,392 | 406,332 | |||
Current assets | |||||
Receivables | 774 | 729 | |||
Cash and cash equivalents | 105,883 | 32,099 | |||
_________ | _________ | ||||
106,657 | 32,828 | ||||
Creditors: amounts falling | |||||
due within one year | |||||
Payables | (7,417) | (420) | |||
_________ | _________ | ||||
Net current assets | 99,240 | 32,408 | |||
_________ | _________ | ||||
Total assets less current liabilities | 532,632 | 438,740 | |||
_________ | _________ | ||||
Capital and reserves | |||||
Called up share capital | 307 | 312 | |||
Share premium | 86,485 | 86,485 | |||
Special reserve | 51,503 | 56,024 | |||
Capital redemption reserve | 94 | 89 | |||
Capital reserves | 379,915 | 280,380 | |||
Revenue reserve | 14,328 | 15,450 | |||
_________ | _________ | ||||
Total shareholders' funds | 532,632 | 438,740 | |||
_________ | _________ | ||||
Net asset value per equity share | 346.4p | 281.6p | |||
_________ | _________ | ||||
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STATEMENT OF CASHFLOWS (audited)
For the year | For the year | ||||
ended 30 September | ended 30 September | ||||
as re-stated | |||||
2016 | 2015 | ||||
£'000 | £'000 | £'000 | £'000 | ||
Cash flows from operating activities | |||||
Net profit on ordinary activities after taxation | 106,651 | 47,194 | |||
Adjusted for: | |||||
Finance costs | 787 | 1,268 | |||
Taxation | 773 | 157 | |||
Gains on disposal of investments | (57,595) | (29,636) | |||
Revaluation of investments | (42,446) | (10,710) | |||
Currency gains on cash balances and money market funds | (8,727) | (495) | |||
Loan interest receivable | (9,107) | (10,160) | |||
Dividends receivable | (2,155) | (2,797) | |||
Loan interest received | 9,107 | 10,160 | |||
Dividends received | 2,155 | 2,797 | |||
(Increase)/decrease in debtors | (15) | 4 | |||
Increase in creditors | 7,000 | 235 | |||
Tax deducted from non - UK income | (773) | (157) | |||
UK Corporation Tax paid | (200) | - | |||
Interest paid | (620) | (822) | |||
Loan arrangement fee paid | - | (690) | |||
_________ | _________
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Net cash inflow from operating activities | 4,835 | 6,348 | |||
_________ | _________ | ||||
Investing activities | |||||
Purchase of investments | (85,540) | (106,307) | |||
Disposal of underlying investments by funds | 158,521 |
| 106,283 | ||
Disposal of fund investments by way of secondary sales | - | 21,661 | |||
_________ | _________ | ||||
Net cash inflow from investing activities | 72,981 | 21,637 | |||
Financing activities | |||||
Buy back of ordinary shares | (4,521) | (7,323) | |||
Ordinary dividends paid | (8,238) | (10,633) | |||
_________ | _________ |
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Net cash outflow from financing activities |
(12,759) |
(17,956) | |||
_________ | _________ | ||||
Cash and cash equivalents at the end of the year |
65,057 |
10,029 | |||
Cash and cash equivalents at the beginning of the year |
32,099 |
21,575 | |||
Currency gains on cash and cash equivalents | 8,727 | 495 | |||
_________ | _________ | ||||
Cash and cash equivalents at the end of the year |
105,883 |
32,099 | |||
_________ | _________ | ||||
Cash and cash equivalent consists of: | |||||
Money market funds | 45,934 | - | |||
Cash and short term deposits | 59,949 | 32,099 | |||
_________ | _________ | ||||
Cash and cash equivalents |
105,883 |
32,099 | |||
_________ | _________ | ||||
Notes:
1. Standard Life European Private Equity Trust PLC is an investment company managed by SL Capital Partners LLP, the ordinary shares of which are admitted to listing by the UK Listing Authority and to trading on the London Stock Exchange. It seeks to conduct its affairs so as to continue to qualify as an investment trust under section 1158-1165 of the Corporation Taxes Act 2010. The Board is wholly independent of the Manager and Standard Life plc.
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2. Accounting Policies | ||||||
(a) Basis of accounting | ||||||
The financial statements have been prepared in accordance with the Companies Act 2006, Financial Reporting Standard 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on the assumption that approval as an investment trust will continue to be granted. The financial statements have been prepared on a going concern basis.
These financial statements are the first since FRS 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland) came into effect for accounting periods beginning on or after 1 January 2015. The impact of adopting FRS 102 did not require any restatement of balances as at the transition date, 1 October 2014, or comparative figures in the Statement of Financial Position or the Statement of Comprehensive Income. The Company has chosen to early adopt the Amendments to FRS 102, paragraph 34.22 which revise the disclosure requirements for financial institutions, specifically in relation to the fair value hierarchy. These amendments were approved for issue on 3 March 2016 and are effective for accounting periods beginning on or after 1 January 2017. | ||||||
(b) Revenue, expenses and finance costs | ||||||
| Dividends from quoted investments are included in revenue by reference to the date on which the price is marked ex-dividend. Income on quoted investments and other interest receivable are dealt with on an accruals basis. Dividends and income from unquoted investments are included when the right to receipt is established. Dividends are accounted for as Income from investments in the Statement of Comprehensive Income. All expenses are accounted for on an accruals basis. Incentive fees are recognised in the Statement of Comprehensive Income as they are earned and when the return exceeds the specified hurdle rate.
All expenses are accounted for on an accruals basis. Expenses are charged through the revenue account of the Statement of Comprehensive Income except as follows: |
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| - transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Statement of Comprehensive Income; |
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| - the Company charges 90% of investment management fees and finance costs to capital, in accordance with the Board's expected long- term split of returns between capital gains and income from the Company's investment portfolio. Bank interest paid has arisen as a consequence of negative interest rates on Euro cash balances and has been charged wholly to revenue; and |
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| - any incentive fees payable are allocated wholly to capital, as they are expected to be attributable largely, if not wholly, to capital performance. |
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(c) Investments | ||||||
| Investments have been designated upon initial recognition as fair value through profit or loss. On the date of making a legal commitment to invest in a fund, such commitment is recorded and disclosed. When funds are drawn in respect of such fund commitment the resulting investment is recognised in the financial statements. The investment is removed when it is realised or the fund is wound up. Subsequent to initial recognition, investments are valued at fair value as detailed below. Gains and losses arising from changes in fair value are included in net profit or loss for the period as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserves. |
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| Unquoted investments are stated at the directors' estimate of fair value and follow the recommendations of the EVCA and the BVCA. The estimate of fair value is normally the latest valuation placed on a fund by its manager as at the Statement of Financial Position date. The valuation policies used by the manager in undertaking that valuation will generally be in line with the joint publication from the EVCA and the BVCA, 'International Private Equity and Venture Capital Valuation guidelines'. Where formal valuations are not completed as at the Statement of Financial Position date the last available valuation from the fund manager is adjusted for any subsequent cash flows occurring between the valuation date and the Statement of Financial Position date. The Company's Manager may further adjust such valuations to reflect any changes in circumstances from the last manager's formal valuation date to arrive at the estimate of fair value. For listed investments, fair value is deemed to be bid market prices or closing prices for SETS stocks sourced from the London Stock Exchange. SETS is the London Stock Exchange electronic trading service. |
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(d) Dividends payable Interim and final dividends are recognised in the period in which they are paid. Scrip dividends are recognised in the period in which shares are issued. | ||||||
(e) Capital reserves Share premium - The share premium account represents the premium above nominal value received by the Company on issuing shares net of issue costs. Special reserve - Court approval was given on 27 September 2001 for 50% of the initial premium arising on the issue of the ordinary share capital to be cancelled and transferred to a special reserve. The reserve is a distributable reserve and may be applied in any manner as a distribution, other than by way of a dividend. Capital reserves - Gains or losses on investments realised in the year that have been recognised in the Statement of Comprehensive Income are transferred to the "capital reserve - gains/(losses) on disposal". In addition, any prior unrealised gains or losses on such investments are transferred from the "capital reserve - revaluation" to the "capital reserve - gains/(losses) on disposal" on the disposal of the investment. Increases and decreases in the fair value of investments are recognised in the Statement of Comprehensive Income and are then transferred to the "capital reserve - revaluation". Revenue reserve - The revenue reserve represents accumulated revenue profits retained by the Company that have not currently been distributed to shareholders as a dividend. | ||||||
(f) Taxation | ||||||
| i) Current taxation - Provision for corporation tax is made at the current rate on the excess of taxable income net of any allowable deductions. |
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| ii) Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the Statement of Financial Position date, where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Statement of Financial Position date, measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. |
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| Due to the Company's status as an investment trust company, and the intention to continue meeting the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments. |
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(g) Overseas currencies Overseas assets and liabilities are translated at the exchange rate prevailing at the Company's Statement of Financial Position date. Gains or losses on translation of investments held at the year end are accounted for through the Statement of Comprehensive Income and transferred to capital reserves. Gains or losses on the translation of overseas currency balances held at the year end are also accounted for through the Statement of Comprehensive Income and transferred to capital reserves. |
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| Rates of exchange to sterling as at 30 September were: |
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| 2016 | 2015 |
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| Euro | 1.1559 | 1.3570 |
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| US dollar | 1.2990 | 1.5148 |
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| Transactions in overseas currency are translated at the exchange rate prevailing on the date of transaction. |
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(h) Judgements and key sources of estimation uncertainty The preparation of financial statements requires the Company to make estimates and assumptions and exercise judgements in applying the accounting policies that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses arising during the year. Estimates and judgements are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The area where estimates and assumptions have the most significant effect on the amounts recognised in the financial statements is the determination of fair value of unquoted investments, as disclosed in note 1(c). | ||||||||
(i) Cash and cash equivalents Cash comprises bank balances and cash held by the Company. Cash equivalents comprise AAA money market funds which are used by the Company to provide additional short-term liquidity. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. | ||||||||
Year to | Year to | |||||||
30 September 2016 | 30 September 2015 | |||||||
3. | Income | £'000 | £'000 | |||||
Income from fund investments | 10,338 | 11,065 | ||||||
Income from index tracker funds | 306 | 836 | ||||||
Income from cash balances and money market funds |
11 |
16 | ||||||
______________ | ______________ | |||||||
Total income | 10,655 | 11,917 | ||||||
______________ | ______________ | |||||||
4. | Investment management and incentive fees | |||||||
Year to 30 September 2016 | Year to 30 September 2015 | |||||||
Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | |||
Investment management fee | 396 | 3,563 | 3,959 | 342 | 3,082 | 3,424 | ||
Incentive fee | - | 6,447 | 6,447 | - | - | |||
______ | _______ | ______ | _______ | ________ | _______ | |||
396 | 10,010 | 10,406 | 342 | 3,082 | 3,424 | |||
______ | _______ | ______ | _______ | ________ | _______ | |||
The investment management fee payable to the Manager is 0.8% per annum of the investments and other assets of the Company and any subsidiaries less the aggregate of the liabilities of the Company and any subsidiaries. The investment management fee is allocated 90% to the realised capital reserve and 10% to the revenue account. The management agreement between the Company and the Manager is terminable by either party on twelve months written notice.
The Manager is also entitled to an incentive fee at 30 September 2016. For an incentive fee to be payable, the Company's net asset value total return must grow by more than 8% compound per annum (before any accrual for the incentive fee) over the five year period to 30 September 2016. The Manager is entitled to an incentive fee of 10% of the growth in NAV (before any accrual for the incentive fee) in excess of the hurdle rate, multiplied by the number of ordinary shares in issue on 1 October 2011 (adjusted in certain circumstances to reflect subsequent share issuance and/or a material reduction in the Company's issued share capital). At 30 September 2016 the net asset value total return was 371.0p and had exceeded the 8% per annum compound growth hurdle at the same date of 331.9p. |
5. | Investments | |||||||||
30 September 2016 | 30 September 2015 | |||||||||
Index tracker funds £'000 | Fund Investments £'000 | Total £'000 | Index tracker funds £'000 | Index tracker funds £'000 | Total £'000 | |||||
Fair value through profit or loss: | ||||||||||
Opening market value | 37,339 | 368,993 | 403,332 | 39,161 | 348,462 | 387,623 | ||||
Opening investment holding losses | 1,817 | 32,258 | 37,075 | 395 | 47,390 | 47,785 | ||||
______ | _______ | ______ | _______ | ________ | _______ | |||||
Opening book cost | 39,156 | 404,251 | 443,407 | 39,556 | 395,852 | 435,408 | ||||
Movements in the year: | ||||||||||
Additions at cost | - | 66,193 | 66,193 | 9,000 | 96,522 | 105,522 | ||||
Secondary purchases | - | 19,099 | 19,099 | - | - | - | ||||
Dividends reinvested | 248 | - | 248 | 785 | - | 785 | ||||
Disposal of underlying investments by funds | (41,384) | (117,137) | (158,521) | (10,500) | (95,783) | (106,283) | ||||
Disposal of fund investments by way of secondary sales | - | - | - | - | (21,661) | (21,661) | ||||
______ | _______ | ______ | _______ | ________ | _______ | |||||
(1,980) | 372,406 | 370,426 | 38,841 | 374,930 | 413,771 | |||||
Gains on disposal of underlying investments | 1,980 | 56,172 | 58,152 | 315 | 40,725 | 41,040 | ||||
Losses on liquidation of fund investments | - | (557) | (557) | - | (11,966) | (11,966) | ||||
Gains on disposal of fund investments by way of secondary sales | - | - | - | - | 562 | 562 | ||||
______ | _______ | ______ | _______ | ________ | _______ | |||||
Closing book cost | - | 428,021 | 428,021 | 39,156 | 404,251 | 443,407 | ||||
Closing investment holding gains/(losses) | - | 5,371 | 5,371 | (1,817) | (35,258) | (37,075) | ||||
______ | _______ | ______ | _______ | ________ | _______ | |||||
Closing market value | - | 433,392 | 433,392 | 37,339 | 368,993 | 406,332 | ||||
30 September 2016 | 30 September 2015 | |||||||||
Index tracker funds £'000 | Fund Investments £'000 | Total £'000 | Index tracker funds £'000 | Index tracker funds £'000 | Total £'000 | |||||
Gains on investments: | ||||||||||
Net gains on disposal of investments | 1,980 | 55,615 | 57,595 | 315 | 29,321 | 29,636 | ||||
Net revaluation of investments | 1,817 | 40,629 | 42,446 | (1,422) | 12,132 | 10,710 | ||||
______ | _______ | ______ | _______ | ________ | _______ | |||||
3,797 | 96,244 | 100,041 | (1,107) | 41,453 | 40,436 | |||||
Transaction costs During the year expenses were incurred in acquiring or disposing of investments. These have been expensed through capital and are included within gains on investments in the Statement of Comprehensive Income. The total costs were as follows: | ||||||||||
30 September 2016 | 30 September 2016 | |||||||||
£'000 | £'000 | |||||||||
Purchases in respect of unquoted fund investments | 30 | 147 | ||||||||
Secondary sales | - | 30 | ||||||||
________ | _______ | |||||||||
30 | 177 | |||||||||
5. The return per ordinary share figure is based on the net profit for the year ended 30 September 2016 of £105,115,000 (year ended 30 September 2015: net profit of £47,194,000) and on 155,155,447 (year ended 30 September 2015: 157,081,338) ordinary shares, being the weighted average number of Ordinary shares in issue during the respective periods.
6. The number of ordinary shares in issue as at 30 September 2016 was 153,746,294 (30 September 2015 - 155,776,294).
7. An interim dividend of 1.80p (2015 - 1.75p) per ordinary share was paid on 15 July 2016. The Directors recommend that a final dividend of 3.6p (2015 - 3.5p) per ordinary share be paid on 27 January 2017 to shareholders on the Company's share register as at the close of business on 23 December 2016.
8. The financial information set out in this announcement does not constitute statutory financial statements within the meaning of Section 435 of the Companies Act 2006 in respect of the financial statements for the year ended 30 September 2016. The statutory financial statements for the year ended 30 September 2015, upon which the Company's auditors have given a report that was unqualified and did not contain a statement under either section 498(2) or section 498(3) of the Companies Act 2006, have been delivered to the Registrar of Companies.
The financial information in this announcement is consistent with that in the audited statutory financial statements for the year ended 30 September 2016. The contents of the announcement have been extracted from the audited financial statements that have been approved and signed by the directors and upon which the auditor has signed an unqualified auditor's report. The audited financial statements for the year ended 30 September 2016 will be delivered to the Registrar of Companies following the Company's Annual General Meeting, which will be held at The Balmoral Hotel, 1 Princes Street, Edinburgh EH2 2EQ on 24 January 2017 at 12.30pm.
9. The report and accounts for the year ended 30 September 2016 will be posted to shareholders in mid-December 2016 and copies will be available from the Company Secretary - Maven Capital Partners UK LLP, Kintyre House, 205 West George Street, Glasgow, G2 2LW.
for Standard Life European Private Equity Trust PLC,
Maven Capital Partners UK LLP, Company Secretary
END