14 Jan 2010 11:30
STANDARD LIFE EUROPEAN PRIVATE EQUITY TRUST PLC
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2009
Further to the voluntary disclosure of the Company's annual results for the year ended 30 September 2009 by way of a preliminary announcement dated 3 December 2009, in accordance with the Disclosure and Transparency Rules ('the Rules') 4.1.3 and 6.3.5(2) this announcement contains the text of the preliminary announcement dated 3 December 2009 together with the additional text in compliance with the Rules.
The Company's annual report and financial statements for the year ended 30 September 2009, which have been filed with the UK Listing Authority Document Disclosure team, are attached at the end of this announcement, and are available on the website at http://slcapitalpartners.com.
Financial Summary
| Performance (capital only) | As at 30 September 2009 | As at 30 September 2008 | % Change |
| Net asset value per ordinary share ("NAV") (undiluted) | 164.9p | 234.8p | (29.8) |
| Net asset value per ordinary share (diluted) | 163.4p | 231.4p | (29.4) |
| Share price | 112.25p | 161.0p | (30.3) |
| FTSE All-Share Index(1) | 2,634.8 | 2,483.7 | 6.1 |
| MSCI Europe Index (in euros)(1) | 84.3 | 89.5 | (5.8) |
| Discount (difference between share price and diluted net asset value) | 31.3% | 30.4% | |
| Gearing (ratio of borrowing to shareholders' funds) | 11.2% | 10.6% |
(1) The Company has no defined benchmark; the indices above are solely for comparative purposes.
| Performance (total return) | 1 year % | 5 year % | Since launch % |
| Share Price | (29.5) | 26.2 | 23.0 |
| Net asset value per ordinary share (diluted) | (29.2) | 64.0 | 80.4 |
| FTSE All-Share Index (1) | 10.8 | 38.4 | 23.1 |
| MSCI Europe Index (in euros) (1) | (1.7) | 18.9 | (10.6) |
| Highs/Lows | High | Low |
| Share price (mid) | 166.5p | 30.0p |
Historical Record
Summary financial information since the Company's listing.
| NAV and share price | Net assets £m | NAV (undiluted) p | NAV (diluted) p | Share price p | Premium/ (discount) to diluted NAV % |
| As at 30 September 2001 | 151.0 | 94.3 | 94.3 | 96.50 | 2.3 |
| As at 30 September 2002 | 143.8 | 90.3 | 90.3 | 82.00 | (9.2) |
| As at 30 September 2003 | 148.9 | 93.6 | 93.6 | 82.00 | (12.4) |
| As at 30 September 2004 | 168.6 | 105.9 | 105.9 | 94.50 | (10.8) |
| As at 30 September 2005 | 228.3 | 143.5 | 143.5 | 156.25 | 8.9 |
| As at 30 September 2006 | 289.8 | 182.1 | 179.6 | 183.50 | 2.1 |
| As at 30 September 2007 | 385.7 | 241.3 | 237.7 | 226.50 | (4.7) |
| As at 30 September 2008 | 375.5 | 234.8 | 231.4 | 161.00 | (30.4) |
| As at 30 September 2009 | 265.6 | 164.9 | 163.4 | 112.25 | (31.3) |
| Performance and Dividends | NAV total return % | Share Price total return1 % | Dividend paid2 £m | Dividend paid per ordinary share p | Expense ratio % |
| Period to 30 September 2001 | (4.3) | (10.2) | - | - | 0.703 |
| Year to 30 September 2002 | (3.8) | (14.6) | 0.7 | 0.45 | 0.763 |
| Year to 30 September 2003 | 5.0 | 1.6 | 1.9 | 1.20 | 1.07 |
| Year to 30 September 2004 | 13.8 | 16.0 | 0.9 | 0.55 | 1.04 |
| Year to 30 September 2005 | 36.9 | 67.3 | 1.9 | 1.20 | 1.03 |
| Year to 30 September 2006 | 26.6 | 18.7 | 2.9 | 1.80 | 1.01 |
| Year to 30 September 2007 | 35.4 | 24.8 | 3.8 | 2.40 | 0.97 |
| Year to 30 September 2008 | (1.3) | (27.8) | 5.6 | 3.50 | 0.99 |
| Year to 30 September 2009 | (29.2) | (29.5) | 0.6 | 0.70 | 0.87 |
1 Data supplied by Fundamental Data.
2 Represents the cash dividend paid during the year, declared for the previous financial year.
3 For the period from the Company's listing until 1 July 2002, no management fee was charged on the Company's cash or money market holdings.
| Fund Manager as a % of net assets | Fund Investments as a % of net assets | ||||
| Investment Exposure | Top 5 % | Top 10 % | Top 10 % | Top 20 % | Top 30 % |
| As at 30 September 2001 | 36.0 | 45.7 | 39.2 | 47.1 | 47.4 |
| As at 30 September 2002 | 36.6 | 51.8 | 42.0 | 55.5 | 60.3 |
| As at 30 September 2003 | 49.1 | 72.3 | 61.3 | 81.9 | 85.2 |
| As at 30 September 2004 | 48.6 | 76.1 | 64.9 | 86.7 | 89.1 |
| As at 30 September 2005 | 44.9 | 75.5 | 60.7 | 78.3 | 81.4 |
| As at 30 September 2006 | 40.9 | 67.4 | 50.3 | 74.0 | 81.4 |
| As at 30 September 2007 | 41.0 | 66.5 | 42.5 | 64.8 | 80.4 |
| As at 30 September 2008 | 54.5 | 84.6 | 55.1 | 84.0 | 102.4 |
| As at 30 September 2009 | 55.5 | 87.2 | 61.1 | 93.8 | 109.0 |
Chairman's Statement
The year to 30 September 2009 was an extremely challenging one for listed private equity companies.
During the year private equity asset values were affected by volatility in the comparable listed multiples used for valuation purposes, share price discounts to net asset values fluctuated, often wildly, according to changing investor sentiment, and cash flow uncertainties were generated by currency movements and a significant decline in realisation activity. Against such a background, the Manager took prompt steps to reduce the Company's market exposure by selling some fund interests and releasing outstanding commitments, at prices which, in aggregate, the Board believes were higher than could subsequently have been obtained. Your Company has, in the view of the Board, ended the financial year in a much stronger position than it was at the start.
For the year ended 30 September 2009 the Company's net asset value per ordinary share ("NAV") fell by 29.8% to 164.9p (diluted NAV - 163.4p), from 234.8p as at 30 September 2008 (diluted NAV - 231.4p). Once again the result conceals different underlying performance in each half of the financial year. The significant fall in listed markets in late 2008 and early 2009 had a material impact on the value of the Company's portfolio and NAV in the first half, while, excluding the losses on the sale of private equity fund interests, the NAV declined marginally in the second half.
The closing mid-market price of the Company's ordinary shares on 30 September 2009 was 112.25p, compared to 161.0p a year earlier. The Company's share price fell markedly during the year resulting in a widening of the discount to NAV, however, by the end of the financial year the share price had risen and the discount to NAV had narrowed. These movements were similar to those experienced by many of the Company's peers.
The Company's practice has been to pay a dividend marginally in excess of the minimum required to maintain investment trust status. As a result of the significant decline in private equity realisations, and thus a lack of distributions and income received by the Company, the Board is recommending a final dividend of 0.1p per ordinary share for the financial year. Subject to shareholder approval at the forthcoming annual general meeting, this dividend will be paid on 29 January 2010 to shareholders on the Company's share register as at 4 January 2010. In line with the practice adopted last year, shareholders will have the opportunity to elect to receive the final dividend in the form of ordinary shares. A circular and an election form are enclosed with the Company's annual report and accounts.
Private equity is a long-term asset class and the Board continues to believe that performance must be assessed over appropriate time periods. For the five years ended 30 September 2009 the Company's NAV total return and share price total return have generated strong performance, increasing by 64.0% and 26.2% respectively, compared to increases of 38.4% in the FTSE All-Share Index and 18.9% in the MSCI Europe Index (in euros) on a total return basis. The Company's NAV total return and share price total return have also performed in line with or better than these indices over the period from the Company's listing in May 2001.
Valuation
As at 30 September 2009 the Company's portfolio had reduced to 41 private equity fund interests from 49 fund interests a year earlier. Against a background of the upheaval in financial markets and the recessionary economic environment, the portfolio fell in value during the year. As at 30 September 2009 the value of the portfolio was £293.1 million, of which net unrealised losses during the year were £70.8 million. The net unrealised losses comprised £112.7 million of unrealised losses on a constant exchange rate basis, partially offset by £41.9 million of favourable exchange rate movements.
As for the net unrealised losses on a constant exchange rate basis, a majority of the movement arose from the fall in comparable listed valuation multiples in the period to March 2009. Since then the rise in comparable listed valuation multiples has been partially offset by earnings weakness at some underlying investee companies. The unrealised foreign exchange gain was as a result of sterling depreciating by 13.8% relative to the euro and by 10.3% relative to the US dollar during the year. Of the Company's gross assets of £295.6 million as at 30 September 2009, £212.3 million (sterling equivalent) comprised euro denominated assets and £55.4 million (sterling equivalent) dollar denominated assets.
Given the current macro-economic and trading environment, particular care has been taken to ensure that the 30 September 2009 valuation is timely. Around 84.1% by value of the private equity funds held by the Company were valued by the relevant fund manager as at 30 September 2009. In undertaking their valuations the fund managers of the relevant funds have followed the International Private Equity and Venture Capital Valuation Guidelines. These guidelines have been in place for nearly five years and the primary valuation methodology for valuing underlying investments is to use comparable listed valuation multiples. As a consequence, market volatility is an important element in any private equity valuation.
As at 30 September 2009 the Company's net indebtedness was £27.3 million, which compares to £36.4 million as at 30 September 2008. The fall over the year largely reflected the proceeds received from the sale of some private equity fund interests, reduced by a net cash outflow of £28.8 million from draw downs paid less distributions received.
Investment activity and the disposal of fund interests
The last year has seen a fall in the value of private equity transactions concluded in Europe, as the impact of the recessionary economic environment, declining financial markets and a limited availability of debt has constrained the completion of transactions. The value of buy-out transactions completed in the European private equity market during the year ended 30 September 2009 was €20.0 billion (2007 and 2008 - €214.0 billion and €92.0 billion respectively). Where transactions were concluded, the quantum and proportion of debt provided was smaller and debt packages were negotiated with single or small groups of banks, rather than large banking syndicates.
The decline in financial markets and mergers and acquisitions activity resulted in a low for distributions received by the Company of £19.5 million; of the distributions received, £13.6 million represented net realised gains and £1.3 million income. Similarly, the Company funded only £48.3 million of draw downs during the year, a reduction of £106.9 million from the previous financial year.
During the year the Company made no new fund commitments. This reflected the Board's and the Manager's cautious outlook on the European private equity market and the Company's liquidity position. As previously announced, to improve the Company's liquidity position and to better balance the quantum and profile of its outstanding commitments, the Company disposed of all or part of 11 private equity fund interests and made an election to cap its exposure to one fund interest. The disposals and election were undertaken on a selective basis and against the background of agreed objectives. The Company received net proceeds of £48.3 million from the disposals and election, incurred an aggregate loss on disposal to the last relevant valuations of £43.6 million and was released from £169.7 million of outstanding commitments. The Board and the Manager believe that the decisive action undertaken has improved substantially the Company's liquidity position.
The Company's aggregate outstanding commitments were £227.8 million as at 30 September 2009. The majority of these commitments can be expected to be drawn down over the next 3-4 years and, in the first instance, will be funded from the Company's existing cash, distributions received from the portfolio of fund investments and the use of the Company's £100 million revolving credit term facility, which was increased and renewed in November 2008. A number of the private equity funds held by the Company, however, have completed their respective investment periods and any future draw downs are likely to be limited. Accordingly, the Manager believes that between £15 - 25 million of the Company's existing outstanding commitments are unlikely to be drawn
Outlook
The last few months have shown signs of recovery in the major continental European economies which are the focus of much of the Company's activities. Private equity managers are indicating a slight uplift in new investment activity, notwithstanding continuing difficulty in obtaining debt finance, and increased attention to preparing investments for exit over the next 12-18 months. Against this background, the Board believes that the Company, with its financial position strengthened during the past year and its exposure to proven private equity expertise, is strongly positioned to benefit from any upturn.
Scott Dobbie CBE
Chairman
2 December 2009
Investment Policy
Objective
The objective of the Company is to achieve long-term capital gains through holding a diversified portfolio of private equity funds investing predominantly in Europe.
Investment strategy
The principal focus of the Company is to invest in the leading European private equity funds investing in mid to large sized buy-outs, typically transactions with an enterprise value of between €200 million and €1.65 billion.
The Company invests in private equity funds which themselves invest principally in countries in Europe, which the Manager defines as EU Member States, EU Associate Member States and other western European countries. However, the Company has the flexibility to invest up to 20% of its gross assets, at the time of purchase, in private equity funds which invest principally outside Europe.
The Company's policy is to maintain a broadly diversified portfolio by country, industry sector, maturity and number of underlying investments. The objective is for the portfolio to comprise around 35 - 40 "active" private equity fund investments; this excludes funds that have recently been raised, but have not yet started investing, and funds that are close to or being wound up.
The Company invests only in private equity funds, but occasionally may hold direct private equity investments or quoted securities as a result of distributions in specie from its portfolio of fund investments. The Company's policy is normally to dispose of such assets where they are held on an unrestricted basis.
To maximise the proportion of invested assets it is the Company's policy to follow an over-commitment strategy by making fund commitments which exceed its uninvested capital. In making such commitments, the Manager, together with the Board, will take into account the uninvested capital, the quantum and timing of expected and projected cashflows to and from the portfolio of fund investments and, from time to time, may use borrowings to meet draw downs.
The Company's non-sterling currency exposure is principally to the euro. The Company does not seek to hedge this exposure into sterling, although any borrowings in euros and other currencies in which the Company is invested would have such a hedging effect.
Cash held pending investment is invested in short dated government bonds, money market instruments, bank deposits or other similar investments.
Borrowings
The Company's maximum borrowing capacity is defined in its Articles of Association, and, unless otherwise sanctioned by an ordinary resolution of the Company, is an amount equal to the aggregate of the amount paid up on the issued share capital of the Company and the amount standing to the credit of the consolidated reserves of the Company, all based on the latest audited consolidated balance sheet. It is expected that bank borrowings would not exceed more than 30% of the Company's net assets.
Investment trust approval
To comply with one of the conditions for approval as an investment trust, the Company will ensure that when all of its holdings in private equity funds are aggregated, no one underlying investment will represent, at the time of purchase, more than 15% by value of all of the Company's investments. The Company will not invest more than 15% of its total assets in other listed investment companies or listed investment trusts.
Benchmark
The Board has concluded, after careful consideration, that there is no currently available benchmark which is an appropriate measure of the investment performance of the Company. It has, however, resolved to review this issue at least annually.
Information on how the Company has invested its assets with a view to spreading investment risk in accordance with its investment policy during the year under review is set out in the Portfolio Review section of the Manager's Review.
Manager's Review
The Manager
The Manager, SL Capital Partners LLP ("SL Capital"), is based in Edinburgh and comprises a team of 16 investment professionals with over 200 years of combined private equity experience. This team manages approximately £5.0 billion of private equity investments on behalf of over 150 clients worldwide.
SL Capital is a limited liability partnership and is 60% owned by Standard Life plc ("Standard Life") and 40% by its nine senior private equity managers. SL Capital has acted as Manager to the Company since its inception in 2001.
With the exception of the Company, all of the Manager's funds under management are held through limited partnership vehicles, which are structured as either pooled or segregated vehicles for clients. SL Capital's clients range from leading institutional investors in the UK, US, Canada and Europe, to family offices and high net worth individuals globally. The largest clients include Standard Life, the California Public Employees' Retirement System, a large number of UK local authorities and some significant North American pension funds. The Manager is also recommended by many institutional investment and pension fund consultants.
In addition to its Edinburgh investment office, the Manager has four investment professionals that are based in Boston, United States. This team selects and oversees private equity investments in North America.
SL Capital is one of the largest investors in private equity funds and co-investments in Europe. One of the key strengths of the investment team is their extensive fund and direct deal experience, which gives the Manager greater insight into the strategies, processes and disciplines of the funds invested in and allows better qualitative judgements to be made.
The Manager has a detailed and rigorous screening and due diligence process to identify and then evaluate the best private equity fund offerings. The Manager concentrates on opportunities in the buy-out segment of the European private equity market, but, where it is relevant to a particular investment mandate, it also considers funds targeted on the secondaries, venture, growth and mezzanine segments, as well as funds focused on particular sectors or geographies.
The private equity asset class has exhibited historically a wide dispersion of returns generated by fund investments and the Manager believes that appropriate portfolio construction and manager selection is vital to optimising investment performance. In that regard, the objective is for the Company's portfolio to comprise around 35-40 "active" private equity fund investments at any one time, with portfolio diversification being controlled through percentage concentration limits applied at an individual fund and manager level.
In addition, the Manager believes that as one of the largest and most experienced private equity investors in Europe, it is able to find and invest in Europe's premier private equity funds, where access is sometimes restricted to investors that have long-term relationships with the underlying manager.
Market Review
The global macro-economic environment deteriorated significantly in the first six months of the Company's financial year, with most of the world's advanced economies experiencing the most significant economic contraction since the 1930s. However, since spring 2009 there have been the first tentative signs of economic improvement, albeit from a low base, as exceptional levels of fiscal and monetary stimuli have started to feed through into the global economy.
It is already apparent that the extent and pace of the economic recovery will differ by country and sector, although for the Company the improving position of the core Euro-zone economies is encouraging. As the Company moves into 2010, the timing of any withdrawal of fiscal stimuli and any monetary tightening will be key, but against a background of reduced inflationary expectations it is hoped that interest rates will remain low over the short-term. As for listed financial markets, these have rebounded significantly since March 2009 and a degree of volatility is now being encountered as investors look for more definitive signs of economic and corporate improvement.
The impact of the above on the European private equity market has been severe in terms of transactional activity, both for new investments and realisations. During the financial year ended 30 September 2009 the number and value of buy-out transactions completed in the European private equity market fell to 257 and €20.0 billion respectively; this is consistent with levels last seen in the European private equity market in the mid 1990s. This contrasts with 713 and 807 transactions and €92.0 billion and €214.0 billion of transactions by value in the financial years ended 30 September 2008 and 2007 respectively. However, the third quarter of 2009 saw the first tangible signs of improvement in activity and the completion of the first buy-out in Europe in 2009 with an enterprise value in excess of €1 billion.
European private equity fund managers are also starting to report a pick up in the number of investment opportunities being tracked and reviewed. While traditional private owners of companies remain reluctant to sell against a background of lower earnings and multiples, distressed opportunities and corporate spin-offs are becoming more prevalent and this is likely to increase in the coming months.
Where transactions have been concluded, the quantum and proportion of new debt provided has been lower than in recent years and debt packages have tended to be negotiated with single or small groups of banks, rather than on a syndicated basis. Any new debt facilities offered have been at considerably increased margins and on more stringent terms and conditions. As a result, private equity houses have tried to be innovative through the use of vendor finance and the rolling-over of existing debt facilities within target companies.
Private equity managers have focused much of their time in the last eighteen months on their portfolio companies, with the aim of protecting and enhancing value. Most private equity managers reduced costs quickly at their investee companies in late 2008 and early 2009 as the fall in global demand impacted sales and inventory levels. This appears to have allowed many private equity backed companies to experience less pronounced falls in operating profit than their listed comparables, however, the existence of high levels of indebtedness has put strain on individual company cashflows. Where debt covenant issues have arisen, or are likely to arise, the relevant private equity managers have sought to engage with debt providers at an early stage and the valuations of such investments have been adjusted downwards.
Market conditions for realisations have been similarly unfavourable and distributions across the industry have been remarkably low. It is expected, however, that as corporate profits stabilise and hopefully start to grow in 2010, that exit opportunities will arise. In this regard the rise in listed financial markets has encouraged many private equity managers to consider initial public offerings for some of their investee companies, or to at least start that process in conjunction with more traditional trade sales.
Finally, very few European private equity managers have raised new funds in the last year, particularly in the mid to large sized buy-out segments. With the turmoil in the macro-economic environment and financial markets many traditional private equity investors have found themselves over-committed and/or constrained in making new commitments to the asset class. Other investors have sought to adjust their focus away from the large and mega sized buy-out segments of the private equity market. With new investment activity expected to pick up in 2010, it is expected that some European private equity managers will start raising new funds from late 2010 onwards.
Investment Activity
A decline in realisations resulted in distributions received by the Company falling to £19.5 million. Draw downs paid during the year were £48.3 million.
No new fund commitments were made during the year.
Commitments
As reported in the Chairman's Statement, the Company made no new fund commitments during the year ended 30 September 2009. This represents a continuation of the cautious approach adopted in the previous financial year, when £138.1 million was committed to three funds.
As at 30 September 2009 the Company had £227.8 million of outstanding fund commitments, down from £389.2 million as at 30 September 2008. The decline is the result of the Company having made no new commitments, having funded £48.3 million of draw downs and, most significantly, having sold all or part of 11 fund interests with outstanding commitments of £153.7 million and made an election to release a further £16.0 million.
| New commitments £m | Draw downs £m | Closing outstanding commitments £m | |
| Year to 30 September 2009 | - | 48.3 | 227.8 |
| Year to 30 September 2008 | 138.1 | 155.2 | 389.2 |
| Year to 30 September 2007 | 191.7 | 137.6 | 366.0 |
| Year to 30 September 2006 | 200.5 | 75.3 | 307.7 |
| Year to 30 September 2005 | 148.7 | 59.1 | 184.8 |
| Year to 30 September 2004 | - | 39.9 | 92.1 |
| Year to 30 September 2003 | - | 52.6 | 141.6 |
| Year to 30 September 2002 | 113.3 | 36.0 | 191.0 |
| Period to 30 September 2001 | 104.4 | 5.3 | 117.4 |
Over the period since listing the Company has made £896.7 million of new fund commitments and has funded draw downs of £609.3 million, (see table above).
The Company has implemented an over-commitment strategy since late 2001, in line with the Manager's objective of maximising the invested assets. Over time this strategy has helped enhance overall returns generated by the Company.
Over the past five years the Company's outstanding fund commitments, less its liquid resources, expressed as a percentage of the Company's disclosed net asset value has varied between 63.1% and 102.7%. The bar chart on page 9 of the attached document* shows the relevant percentages at each annual reporting date, from listing to 30 September 2009. The percentages have varied over time according to the quantum of liquid resources held by the Company, the rate of draw downs made and distributions received and, importantly, the fund raising cycle of the leading private equity managers in Europe. Given current market conditions and the Company's cash flows, the Manager remains cautious and will consider carefully the making and timing of any new commitments. Furthermore, the Manger has reduced the level of total outstanding commitments through targeted secondary sales of fund interests during the year.
Draw downs
As previously reported, the Company funded £48.3 million of draw downs during the year. This figure represents a significant decline in the quantum of draw downs, as a result of the low level of new investment activity in the European private equity market and the impact of the reduction in the Company's outstanding fund commitments. The Manager expects the quantum of draw downs to marginally increase during the remainder of 2009 and into 2010 as a result of higher activity levels within the European private equity market. The private equity funds to which the Company funded the largest draw downs during the year are set out in the table below.
| Largest fund draw downs during the year | Type of fund | Aggregate draw downs £m |
| Barclays European Fund III | Buy-out | 10.9 |
| Coller International Partners V | Secondary | 4.9 |
| Cinven Fourth Fund | Buy-out | 4.2 |
| Advent Global Private Equity VI | Buy-out | 3.9 |
| Apax Europe VII | Buy-out | 3.7 |
| Terra Firma Capital Partners III | Buy-out | 2.4 |
| 3i Eurofund V | Buy-out | 2.2 |
| BC European Capital VIII | Buy-out | 2.2 |
| Total of largest draw downs | 34.4 | |
| Total of all draw downs during the year | 48.3 |
Distributions, gains and income
During the year the Company's portfolio of private equity fund interests generated aggregate distributions of £19.5 million, comprising net realised gains of £13.6 million and income of £1.3 million. The significant fall in the quantum of distributions also reflected the decline in European private equity activity during the financial year. It is encouraging to note, however, that many of the individual company realisations were at a significant premium to their last reported valuation.
Private equity managers continue to use a number of different exit routes for investments and the distributions received by the Company included proceeds from trade sales and, to a lesser extent, refinancings and secondary buyouts. The average return during the year on the Company's acquisition cost of realised investments was 0.7 times. It is worth noting, that excluding the proceeds received from the secondary sales of private equity fund interests, the average return on the Company's acquisition cost of realised investments was 4.3 times.
The average return for realised investments, excluding secondary sales, since the Company's listing has varied from 1.19 times in the period to 30 September 2001 to in excess of 2.0 times for the last five financial years. A bar chart showing the average return multiple in each financial year is set out on page 10 of the attached document*. The rise in the average return multiple since 2003 can be attributed largely to the previous strength of the European private equity, debt and mergers and acquisitions markets and historic profit growth at underlying investee companies. The recent falls in listed financial markets and weaker macro-economic environment are likely to result in a reduction in the average return for realised investments. In particular, investments made during 2006 and 2007, at generally higher prices, will be most affected.
The largest distributions, gains and income, broken down by fund, received during the year are set out in the table below.
| Largest fund distributions during the year | Aggregate distributions £m | Aggregate realised gains £m | Aggregate income received £m |
| Barclays European Fund II | 6.4 | 5.8 | - |
| Alchemy Investment Plan | 5.1 | 3.4 | 0.9 |
| MUST 4 | 2.2 | 1.8 | - |
| CVC European Equity Partners III | 2.0 | 1.3 | 0.1 |
| Candover 2001 Fund | 1.6 | 0.8 | 0.1 |
| Total of largest distributions | 17.3 | 13.1 | 1.1 |
| Total of all distributions during the year | 19.5 | 13.6 | 1.3 |
Portfolio Review
As at 30 September 2009 the Company's net assets were £265.6 million. The Company had interests in 41 private equity funds with a value of £293.1 million.
The effect of the changing drawdown/distribution profile and secondary sales during the year was to reduce net indebtedness. As at 30 September 2009 net indebtedness was £27.3 million; this compares with £36.4 million as at 30 September 2008.
Portfolio composition and performance
As at 30 September 2009 the Company's portfolio comprised 41 private equity fund interests with a value of £293.1 million which, together with its current assets less liabilities, resulted in the Company having net assets of £265.6 million. This represented an undiluted NAV of 164.9 p (diluted NAV - 163.4p). A breakdown of the £119.0 million movement in the Company's portfolio valuation during the year is detailed in the valuation bridge on page 11 of the attached document*.
The split of the Company's portfolio by type of private equity fund is set out in the pie chart on page 11 of the attached document*. Details of all of the Company's private equity fund investments, and more detailed information on the ten largest fund investments and thirty largest underlying portfolio companies, can be found below.
The valuation of the Company's private equity fund interests at the year end was carried out by the Manager and has been approved by the Board in accordance with the accounting policies set out below. In undertaking the valuation, the most recent valuation of each fund prepared by the relevant fund manager has been used, adjusted where necessary for subsequent cash flows. The fund valuations are prepared in accordance with the International Private Equity and Venture Capital Valuation guidelines. These guidelines require investments to be valued at "fair value", which is the price at which an orderly transaction would take place between Market Participants at the Reporting date.
Of the 41 private equity funds in which the Company is invested, 34 of the funds, or 84.1% of the portfolio by value, were valued by their fund managers as at 30 September 2009. The Manager continues to believe that the use of such timely valuation information is important.
The value of the Company's portfolio of private equity fund interests declined during the year from £412.1 million as at 30 September 2008 to £293.1 million as at 30 September 2009. The decline in the valuation was driven by an unrealised loss on the investment portfolio, at constant foreign exchange rates, of £112.7 million, reflecting the fall in fund managers valuations of underlying investments, together with £66.6 million of proceeds and £29.9 million of net realised losses from the secondary sales of private equity fund interests and fund distributions. These declines were partially offset by £48.3 million of new investments and a £41.9 million positive foreign exchange impact.
Information on the valuation movements for the Company's portfolio for each of the financial years since the Company's listing is set out below. This table provides a useful summary of the individual movements and the underlying trends in the Company's portfolio over time.
| Valuation movements on unquoted investments | ||||
| Period/ year to | Draw downs £m | Return of cost £m | Unrealised movement £m | Closing valuation £m |
| September 2009 | 48.3 | (96.5) | (70.8) | 293.1 |
| September 2008 | 155.2 | (22.9) | (42.8) | 412.1 |
| September 2007 | 137.6 | (59.4) | 5.1 | 322.6 |
| September 2006 | 75.3 | (39.2) | 16.6 | 239.3 |
| September 2005 | 59.1 | (39.4) | 16.6 | 186.6 |
| September 2004 | 39.9 | (26.5) | 10.0 | 150.3 |
| September 2003 | 52.6 | (10.2) | (2.2) | 126.9 |
| September 2002 | 36.0 | (10.4) | (10.5) | 86.7 |
| September 2001 | 5.3 | (6.3) | (8.1) | 71.6 |
During the year sterling depreciated against the euro by 13.8% and against the US dollar by 10.3%. This had a positive impact on the Company's NAV. The closing sterling/euro foreign exchange rate was £1/€1.0942 and the closing sterling/dollar foreign exchange rate was £1/$1.5993. The combined effect of foreign exchange movements on the valuation of the portfolio over the year was a 12.2p uplift in NAV. The Manager and Board do not believe it is appropriate for the Company to undertake any financial hedging of its foreign exchange exposure given the irregularity in size and timing of individual cashflows to and from its fund interests. Any cash balances and bank indebtedness are generally held in sterling, euro and US dollars so as to be in proportion to the currency of the Company's outstanding commitments.
As at 30 September 2009 the Company's net indebtedness was £27.3 million. The Company has a £100 million committed, multi-currency syndicated revolving credit facility, led by The Royal Bank of Scotland plc. As at 30 November 2009 the Company's net indebtedness was £35.9m.
Diversification
The Board has agreed, and regularly reviews, diversification limits with the Manager regarding the Company's net asset and commitment exposure to both individual private equity funds and their managers. The Manager also monitors the Company's exposure to the underlying investments held by the different private equity funds in which the Company is invested. As at 30 September 2009, the Company was invested in 41 different private equity funds, which collectively had interests in a total of 527 underlying investments.
Analysis of the underlying investments held by the different private equity funds allows the Manager to track the Company's exposure by geography, industrial sector, maturity of investment and value relative to original cost. Such information is used by the Manager in reviewing the exposure of the Company's portfolio, in assisting it to make new investment decisions and in having a better understanding of the timing of prospective cashflows.
The diversification of the Company's private equity fund interests, as at 30 September 2009 and 2008, is set out in the four bar charts on pages 12 and 13 of the attached document*.
The charts demonstrate the broad diversification that applies by geography and by sector within the Company's underlying portfolio of investments. The UK still remains the single largest geographic exposure, although it has fallen from 64.0% at the time of the Company's listing to 25.9% as at 30 September 2009, as other European private equity markets continue to grow. As at that date, the Company had five fund investments - Pomona Capital V, Pomona Capital VI, Coller International Partners IV, Coller International Partners V and Towerbrook Investors II - which are likely to invest a significant proportion of their capital outside Europe. In total these funds represent 14.2% of the Company's gross assets. The broad sectoral diversification across a wide range of industries including industrial, consumer services and financials helps to mitigate the effect of volatility in any individual sector.
The chart showing the maturity exposure of underlying investments highlights the increasing maturity of the portfolio, as a result of the reduced levels of private equity activity over the last year. The chart showing value relative to the original cost of underlying investments illustrates that, despite an increase in the percentage of investments valued below original investment cost, the portfolio remains healthy with 67.9% of the portfolio valued at or above cost.
SL Capital Partners LLP
2 December 2009
(* Please note that the references are provided in the 2009 Annual Report and Accounts attached to this announcement).
Fund Investments as at 30 September 2009
The private equity funds in which the Company invests usually take the form of limited partnerships. Contractual commitments are made to the funds and these are drawn down by the managers of the funds as required for investment over time. Details of all of the Company's fund investments, by valuation, and a description of the ten largest fund investments follow:
| Year of commitment | Fund | Type | Number of investments | Valuation date* | Outstanding commitments £000 | Cost £000 | Valuation £000 | % of net assets |
| 2007 | Barclays European Fund III | Buy-out | 27 | 30.09.2009 | 16,233 | 33,675 | 29,089 | 10.9 |
| 2006 | Charterhouse Capital Partners VIII | Buy-out | 11 | 30.09.2009 | 12,373 | 32,747 | 23,750 | 8.9 |
| 2007 | Apax Europe VII | Buy-out | 15 | 30.09.2009 | 28,789 | 21,633 | 18,848 | 7.1 |
| 2005 | Candover 2005 Fund | Buy-out | 9 | 30.06.2009 | 10,325 | 33,042 | 16,868 | 6.4 |
| 2005 | Advent Global Private Equity V | Buy-out | 17 | 30.09.2009 | 2,468 | 11,809 | 16,220 | 6.1 |
| 2001 | Alchemy Investment Plan | Buy-out | 7 | 30.06.2009 | - | 11,714 | 12,771 | 4.8 |
| 2007 | Industri Kapital 2007 | Buy-out | 3 | 30.09.2009 | 32,874 | 10,657 | 12,505 | 4.7 |
| 2001 | CVC European Equity Partners III | Buy-out | 11 | 30.09.2009 | 872 | 5,901 | 11,050 | 4.2 |
| 2005 | Pomona Capital VI Fund | Secondary | 40 | 30.09.2009 | 1,707 | 10,668 | 10,736 | 4.0 |
| 2006 | 3i Eurofund V | Buy-out | 23 | 30.09.2009 | 15,171 | 16,434 | 10,600 | 4.0 |
| 2005 | CVC European Equity Partners IV | Buy-out | 16 | 30.09.2009 | 2,003 | 8,307 | 10,583 | 4.0 |
| 2006 | Towerbrook Investors II | Buy-out | 12 | 30.06.2009 | 3,239 | 10,284 | 10,328 | 3.9 |
| 2006 | HgCapital 5 | Buy-out | 14 | 30.09.2009 | 4,723 | 14,207 | 10,296 | 3.9 |
| 2006 | Coller International Partners V | Secondary | 36 | 30.09.2009 | 12,818 | 9,795 | 10,237 | 3.9 |
| 2006 | Cinven Fourth Fund | Buy-out | 10 | 30.09.2009 | 7,392 | 9,397 | 9,537 | 3.6 |
| 2001 | Cinven Third Fund | Buy-out | 9 | 30.09.2009 | 1,657 | 9,331 | 8,069 | 3.0 |
| 2004 | Industri Kapital 2004 | Buy-out | 8 | 30.09.2009 | 15 | 8,332 | 7,553 | 2.8 |
| 2005 | Barclays European Fund II | Buy-out | 25 | 30.09.2009 | 2,845 | 11,416 | 7,044 | 2.7 |
| 2002 | Coller International Partners IV | Secondary | 37 | 30.09.2009 | 3,001 | 1,685 | 6,638 | 2.5 |
| 2002 | Barclays European Fund | Buy-out | 11 | 30.09.2009 | 1,132 | 5,085 | 6,518 | 2.4 |
| 2006 | CVC Tandem Fund | Buy-out | 10 | 30.09.2009 | 6,739 | 7,415 | 6,309 | 2.4 |
| 2002 | Charterhouse Capital Partners VII | Buy-out | 6 | 30.09.2009 | 3,564 | 8,546 | 5,458 | 2.1 |
| 2006 | Permira IV | Buy-out | 11 | 30.09.2009 | 3,455 | 16,783 | 4,927 | 1.8 |
| 2006 | Terra Firma Capital Partners III | Buy-out | 4 | 30.09.2009 | 13,969 | 13,721 | 4,632 | 1.7 |
| 2001 | Candover 2001 Fund | Buy-out | 8 | 30.06.2009 | - | 10,437 | 4,001 | 1.5 |
| 2002 | Pomona Capital V Fund | Secondary | 75 | 30.09.2009 | 106 | 6,928 | 3,886 | 1.5 |
| 2008 | CVC European Equity Partners V | Buy-out | 3 | 30.09.2009 | 27,207 | 4,155 | 3,862 | 1.4 |
| 1999 | Apax Europe IV | Balanced | 12 | 30.09.2009 | - | 7,879 | 2,549 | 1.0 |
| 2001 | Scottish Equity Partners II | Venture capital | 19 | 30.06.2009 | - | 4,271 | 2,547 | 1.0 |
| 2008 | Advent Global Private Equity VI | Buy-out | 7 | 30.09.2009 | 9,139 | 2,042 | 2,029 | 0.8 |
| 1999 | CVC European Equity Partners II | Buy-out | 8 | 30.09.2009 | 1,050 | 2,788 | 1,966 | 0.7 |
| 2001 | MUST 4 | Buy-out | 9 | 30.09.2009 | 1,851 | 4,434 | 1,339 | 0.5 |
| 1997 | Apax UK VI | Balanced | 2 | 30.09.2009 | - | 3,190 | 208 | 0.1 |
| 1992 | M.M. Investissement | Buy-out | 1 | 30.09.2009 | - | 430 | 62 | - |
| 1995 | Phildrew Fourth | Buy-out | 2 | 30.09.2009 | - | 501 | 39 | - |
| 1998 | Candover 1997 Fund | Buy-out | - | 30.06.2009 | 568 | 535 | 20 | - |
| 1996 | Scottish Equity Partnership | Venture capital | 6 | 30.09.2009 | 14 | 686 | 20 | - |
| 1998 | Phildrew Fifth | Buy-out | - | 30.09.2009 | 193 | 5,864 | 12 | - |
| 1995 | Granville Private Equity V | Buy-out | - | 30.09.2008 | 93 | - | - | - |
| 1997 | Global Rights Development Fund | Development | 1 | 30.09.2009 | - | 861 | - | - |
| 1997 | Charterhouse Capital Partners VI | Buy-out | 2 | 30.09.2009 | 173 | 1,668 | - | - |
| Total portfolio investments† | 527 | 227,758 | 379,253 | 293,106 | 110.3 | |||
| Current assets less current liabilities | (27,465) | (10.3) | ||||||
| Shareholders' funds | 265,641 | 100.0 |
* valuation date refers to the date of the last valuation prepared by the manager of the relevant fund.
† the 527 underlying investments represent holdings in 506 separate companies.
Ten Largest Fund Investments as at 30 September 2009
| Barclays European Fund III | 30 September 2009 | 30 September 2008 | |
| Barclays Private Equity European Fund III is a €1.8 billion private equity fund focused on European middle market buy-outs. The fund is managed, alongside €800 million from Barclays Bank, by Barclays Private Equity Limited, the private equity arm of Barclays PLC. The manager operates from offices in London, Paris, Munich, Zurich, Milan, Birmingham, Manchester and Reading with just under half of the investments sourced in the UK. | Value (£'000) | 29,089 | 22,381 |
| Cost (£'000) | 33,675 | 22,802 | |
| Commitment (€'000) | 60,000 | 60,000 | |
| Amount Funded | 70.4% | 50.6% | |
| Holding in Fund | 3.3% | 3.3% | |
| Income (£'000) | - | - |
| Charterhouse Capital Partners VIII | 30 September 2009 | 30 September 2008 | |
| Charterhouse Capital Partners VIII is a €4.0 billion private equity fund focused on European buy-outs. The fund is managed by Charterhouse Capital Partners, one of the oldest private equity firms in the UK. The manager operates across western Europe from its London office and has a long track record of delivering superior returns for investors. The investment strategy is to target large corporate buy-outs with an equity requirement of €200 million to €450 million per transaction. | Value (£'000) | 23,750 | 26,604 |
| Cost (£'000) | 32,747 | 31,194 | |
| Commitment (€'000) | 60,000 | 60,000 | |
| Amount Funded | 77.4% | 74.4% | |
| Holding in Fund | 1.5% | 1.5% | |
| Income (£'000) | - | - |
| Apax Europe VII | 30 September 2009 | 30 September 2008 | |
| Apax Europe VII is a €11.1 billion private equity fund focused on the European market. The fund is managed by Apax Partners, one of the leading and most experienced private equity managers in Europe, where it operates from offices in London, Munich, Milan, Stockholm, Tel Aviv and Madrid. Apax Europe VII focuses on buy-outs and targets Apax Partners' six chosen sectors of information technology, telecommunications, healthcare, media, financial services and retail. | Value (£'000) | 18,848 | 15,966 |
| Cost (£'000) | 21,633 | 17,899 | |
| Commitment (€'000) | 60,000 | 60,000 | |
| Amount Funded | 47.5% | 40.5% | |
| Holding in Fund | 0.5% | 0.5% | |
| Income (£'000) | - | - |
| Candover 2005 Fund | 30 September 2009 | 30 September 2008 | |
| The Candover 2005 Fund is a €3.5 billion private equity fund focused on European buy-outs. The fund is managed by Candover Partners Limited, a subsidiary of Candover Investments plc. In June 2009 Candover Investments plc announced that it had ended discussions regarding a possible sale of the company and re-affirmed its decision to withdraw its commitment to the Candover 2008 Fund. Historically, Candover has concentrated on larger buy-outs in the UK market, however, investments in continental Europe are a significant part of the manager's strategy. | Value (£'000) | 16,868 | 30,664 |
| Cost (£'000) | 33,042 | 33,078 | |
| Commitment (€'000) | 60,000 | 60,000 | |
| Amount Funded | 81.2% | 81.3% | |
| Holding in Fund | 1.7% | 1.7% | |
| Income (£'000) | 23 | 22 |
| Advent Global Private Equity V | 30 September 2009 | 30 September 2008 | |
| Advent Global Private Equity V is a €2.5 billion private equity fund focused on global buy-outs. The Company's commitment is in the Euro denominated partnership that only invests in European transactions. The fund is managed by Advent International which has a strong track record in Europe where it operates from offices in London, Paris, Frankfurt, Milan, Madrid and Amsterdam. Advent target middle market buyout transactions across a wide range of business sectors. | Value (£'000) | 16,220 | 12,680 |
| Cost (£'000) | 11,809 | 11,524 | |
| Commitment (€'000) | 22,500 | 22,500 | |
| Amount Funded | 88.0% | 86.5% | |
| Holding in Fund | 8.0% | 8.0% | |
| Income (£'000) | - | - |
| Alchemy Investment Plan | 30 September 2009 | 30 September 2008 | |
| The Alchemy Investment Plan is a £300 million annual rolling private equity fund. The fund is managed by Alchemy Partners, based in London, and is structured as a rolling investment where investors build their portfolio from the date of commitment. The manager, which was established in 1997, follows a strategy of investing in complex transactions and turnaround situations in the UK and Ireland. The Company ceased its annual commitment to the fund in June 2004. | Value (£'000) | 12,771 | 21,092 |
| Cost (£'000) | 11,714 | 12,471 | |
| Commitment (€'000) | 22,900 | 22,900 | |
| Amount Funded | 100.0% | 100.0% | |
| Holding in Fund | N/A | N/A | |
| Income (£'000) | 862 | 339 |
| Industri Kapital 2007 | 30 September 2009 | 30 September 2008 | |
| Industri Kapital 2007 is a €1.7 billion private equity fund focused on northern European buy-outs. The fund is managed by IK Investment Partners which is headquartered in Stockholm, Sweden with further offices in the UK, Norway, France and Germany. IK target the buy out of businesses with enterprise values of between €100 million and €500 million. Since its formation in 1989, IK has consistently generated strong performance across several funds and built a strong and experienced team of professionals. | Value (£'000) | 12,505 | 9,444 |
| Cost (£'000) | 10,657 | 8,861 | |
| Commitment (€'000) | 50,000 | 50,000 | |
| Amount Funded | 28.1% | 23.9% | |
| Holding in Fund | 3.0% | 3.0% | |
| Income (£'000) | - | - |
| CVC European Equity Partners III | 30 September 2009 | 30 September 2008 | |
| CVC European Equity Partners III is a €3.5 billion private equity fund focused on European buy-outs. The fund is managed by CVC Capital Partners Europe Limited, a leading Global manager of buy-outs with a long track record and operates across Europe from offices in London, Paris, Frankfurt, Amsterdam, Brussels, Copenhagen, Madrid, Stockholm, Zurich and Milan. CVC targets medium and large sized buy-out transactions. | Value (£'000) | 11,050 | 8,798 |
| Cost (£'000) | 5,901 | 5,728 | |
| Commitment (€'000) | 35,000 | 35,000 | |
| Amount Funded | 96.0% | 92.8% | |
| Holding in Fund | 1.0% | 1.0% | |
| Income (£'000) | 64 | 39 |
| Pomona Capital VI Fund | 30 September 2009 | 30 September 2008 | |
| Pomona Capital VI Fund is a €600 million private equity fund focused on European and US secondary opportunities. The fund is managed by Pomona which is based in New York and London and was established in 1994 as a specialist secondary manager. Pomona target high quality buy-out and venture partnership interests, at the point where the private equity funds are towards the end of their investment phase and portfolio companies are creating value. They pro-actively source less competitive transactions, utilising a bottom up approach to valuation focusing on the quality of the assets. | Value (£'000) | 10,736 | 11,423 |
| Cost (£'000) | 10,668 | 9,648 | |
| Commitment (€'000) | 25,000 | 25,000 | |
| Amount Funded | 89.1% | 81.6% | |
| Holding in Fund | 3.0% | 3.0% | |
| Income (£'000) | - | - |
| 3i Eurofund V | 30 September 2009 | 30 September 2008 | |
| 3i Eurofund V is a €5.0 billion private equity fund, including a commitment of €2.8 billion from 3i plc, focused on mid to large market European buy-outs. The fund is managed by 3i Buyouts, a division of 3i Group plc, an investment company listed on the London Stock Exchange. 3i is one of the oldest and most experienced private equity managers in Europe and operates from a network of 12 offices including Amsterdam, London, Madrid, Paris and Stockholm. 3i target buyout transactions with enterprise values in the range €50 million to €500 million, across a wide range of business sectors. | Value (£'000) | 10,600 | 13,869 |
| Cost (£'000) | 16,434 | 14,235 | |
| Commitment (€'000) | 40,000 | 40,000 | |
| Amount Funded | 58.5% | 52.0% | |
| Holding in Fund | 0.8% | 0.8% | |
| Income (£'000) | - | - |
Top 30 Underlying Investments as at 30 September 2009
The table below summarises the top 30 underlying investments, by value, in the Company's portfolio of private equity funds. The valuations are gross, before any carry provision.
| Entity | Description | Fund | % of net assets |
| Acromas | Provider of financial, insurance, travel and road side assistance services | Charterhouse Capital Partners VII & VIII, CVC European Equity Partners IV & CVC Tandem Fund | 4.3 |
| Amadeus | Travel distribution services | Cinven Third Fund | 2.2 |
| Parques Reunidos | Amusement parks | Candover 2005 Fund | 2.2 |
| Stork | Manufacturing and engineering conglomerate | Candover 2005 Fund | 2.0 |
| De Post-La Poste | Belgium postal services | CVC European Equity Partners III, V & CVC Tandem | 1.9 |
| Converteam | Manufacturer of power conversion machinery | Barclays European Fund III | 1.7 |
| Redac | IT services and systems integration | Alchemy Investment Plan | 1.7 |
| Kestrel Holdings | Specialist mortgage lending | Alchemy Investment Plan | 1.6 |
| Not disclosed | Chemicals supplier | Advent Global Private Equity V | 1.5 |
| Alma Consulting | Operational consulting | Candover 2005 Fund | 1.4 |
| Evonik Industries | Speciality chemicals, power generation and real estate | CVC European Equity Partners V & CVC Tandem | 1.4 |
| Flabeg | Manufacturer of industrial mirror glass components | Industri Kapital 2007 | 1.4 |
| ista | Heat and water metering | Charterhouse Capital Partners VIII | 1.3 |
| Flint (Xsys/BASF) | Manufacturer of printing inks | CVC European Equity Partners III | 1.2 |
| Weather Investments | Portfolio of telecom operators | Apax Europe VII | 1.2 |
| Univar | Chemicals distributor | CVC European Equity Partners IV & CVC Tandem | 1.2 |
| Schenck Process | Provider of industrial weighing and measuring solutions | Industri Kapital 2007 | 1.1 |
| Cengage Learning | Publisher of books for the higher education sector | Apax Europe VII | 1.1 |
| Global Refund | Travel related payment services | Barclays European Fund III | 1.1 |
| Vivarte | Footwear and apparel retailer | Charterhouse Capital Partners VIII | 1.0 |
| TDF | French operator of broadcast towers | Charterhouse Capital Partners VIII | 1.0 |
| Visma | Provider of accounting software and services | HgCapital 5 | 1.0 |
| CedarCrestone Group | PeopleSoft implementation consulting services | Alchemy Investment Plan | 1.0 |
| AWAS/Pegasus | Aircraft lessor | Terra Firma Capital Partners III | 1.0 |
| Elster | Manufacturer of utility meters | CVC European Equity Partners IV | 1.0 |
| A-Plan Holdings | Retail insurance broking | Barclays European Fund III | 0.9 |
| Jack Wolfskin | Outdoor equipment retailer | Barclays European Fund | 0.9 |
| TriZetto Group | Provider of software and services to the healthcare insurance industry | Apax Europe VII | 0.9 |
| Etanco | Producer of building fastener and fixing systems | Industri Kapital 2007 | 0.8 |
| PHS | UK business services | Charterhouse Capital Partners VII | 0.8 |
| Total of top 30 underlying investments | 41.8 | ||
Directors' Report
The Directors present their report and the audited financial statements for the year ended 30 September 2009.
Business Review
Business and Status
The Company carries on business as an investment trust and has been approved as such by HM Revenue & Customs for the year ended 30 September 2008, subject to their rights to further enquiry under the Finance Act 1998. The Company has subsequently conducted its affairs so as to enable it to continue to seek such approval. The Company is an investment company within the terms of section 833 of the Companies Act 2006.
The Manager of the Company is SL Capital Partners LLP. The Board is independent of the Manager and Standard Life.
Investment Objective
The investment objective is to achieve long-term capital gains through holding a diversified portfolio of private equity funds investing predominantly in Europe. The full text of the Company's investment policy can be found above and the Portfolio Review section of the Manager's Review explains how the Company has invested its assets with a view to spreading investment risk in accordance with the Company's investment policy during the year under review.
Review of performance over one year and five years
An outline of the performance, market background, investment activity and portfolio during the year under review and the performance over the last five years, as well as the investment outlook, are provided in the Chairman's Statement and the Manager's Review.
Monitoring performance - Key Performance Indicators
At each Board meeting the Directors consider a number of performance indicators to assess the Company's success in achieving its objectives, which include both absolute and relative performance compared to market indices and peer group. The key performance indicators ("KPIs") are established industry measures, covering both the Company and its fund investments, and include:
• Net asset value capital return
• Projected and actual portfolio cashflows
• Discount and discount volatility
• Share price capital return
• Expenses and expense ratio
The net asset value and share price performance for the year and five years ended 30 September 2009 and since listing are provided in the Financial Summary above. The Company's expense ratio and discount levels are also provided. An analysis of the portfolio cashflows, including drawdowns, distributions and fund commitments is provided in the Investment Activity section of the Manager's Review.
Principal Risks and Uncertainties
The major focus of the Company is to invest in European private equity funds, which themselves invest in unquoted companies. The Company has the ability to invest up to 20% of its gross assets in funds that operate outside Europe. The aim is to build a portfolio of private equity fund interests diversified by country, industry sector, maturity and number of underlying investments. The financial risk management objectives and policies of the Company are contained in note 19 to the accounts. 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
• operating and control environment risk
An explanation of these risks and how they are managed is contained in note 19 to the accounts.
Social, Community, Employee Responsibilities and Environmental Policy
As an investment trust, the Company has no direct social, community, employee or environmental responsibilities. Its principal responsibility to shareholders is to ensure that the investment portfolio is properly invested and managed. The Company has no employees and no requirement to report separately on this area, as the management of the portfolio has been delegated to the Manager, SL Capital Partners LLP. Details of the Investment Management Agreement are provided on page 20 of the attached document.*
Statement of Directors' Responsibilities
Company law requires the Directors to prepare financial statements for each financial period which 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 those financial statements, the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable and prudent;
- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
- prepare the financial statements on a going concern basis, unless it is inappropriate to presume that the Company will continue in business.
The Directors confirm that they comply with all the above requirements.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. The Directors have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and to detect fraud and other irregularities.
The maintenance and integrity of the Manager's website,
privateequity.standardlifeinvestments.com/products/slepet/index.html, upon which these financial statements may be presented, is the responsibility of the Manager. The work carried out by the Independent Auditors does not involve consideration of these matters and, accordingly, the Independent Auditors accept no responsibility for any changes that may occur to the financial statements once they are presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors confirm that to the best of their knowledge:
- the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
- the Annual 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 the Company faces.
For Standard Life European Private Equity Trust PLC
Scott Dobbie CBE
Chairman
Edinburgh, 2 December 2009
INCOME STATEMENT (audited)
For the year ended 30 September 2009
| Notes | Revenue | Capital | Total | |
|
| £000 | £000 | £000 | |
|
| ||||
| Losses on investments | 9 | - | (100,733) | (100,733) |
| Currency (losses)/gains | 14 | - | (4,938) | (4,938) |
| Income from investments | 2 | 1,363 | - | 1,363 |
| Interest receivable and other income | 2 | 86 | - | 86 |
| Investment management fee | 3 | (220) | (1,984) | (2,204) |
| Administrative expenses | 4 | (580) | (7) | (587) |
|
| _________ | _________ | _________ | |
|
| ||||
| NET RETURN ON ORDINARY ACTIVITIES BEFORE FINANCE COSTS AND TAXATION | 649 | (107,662) | (107,013) | |
| Finance costs | 5 | (250) | (2,247) | (2,497) |
|
| _________ | _________ | _________ | |
| NET RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION | 399 | (109,909) | (109,510) | |
| Taxation | 6 | (88) | 21 | (67) |
|
| _________ | _________ | _________ | |
| NET RETURN ON ORDINARY ACTIVITIES AFTER TAXATION | 311 | (109,888) | (109,577) | |
| _________ | _________ | _________ | ||
| NET RETURN PER ORDINARY SHARE | 8 | 0.19p | (68.43p) | (68.24p) |
|
| _________ | _________ | _________ | |
| DILUTED NET RETURN PER ORDINARY SHARE | 8 | 0.19p | (68.43p) | (68.24p) |
| _________ | _________ | _________ |
| The "Total" column of this statement represents the profit and loss account of the Company. All revenue and capital items in the above statement derive from continuing operations. No operations were acquired or discontinued in the period. A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement. The dividend which has been recommended based on this Income Statement is 0.10p (2008 - 0.70p) per ordinary share. |
For the year ended 30 September 2008
| Notes | Revenue | Capital | Total | |
|
| £000 | £000 | £000 | |
|
| ||||
| Losses on investments | 9 | - | (3,774) | (3,774) |
| Currency (losses)/gains | 14 | - | 448 | 448 |
| Income from investments | 2 | 2,676 | - | 2,676 |
| Interest receivable and other income | 2 | 243 | 243 | |
| Investment management fee | 3 | (325) | (2,929) | (3,254) |
| Administrative expenses | 4 | (526) | - | (526) |
|
| _________ | _________ | _________ | |
| NET RETURN ON ORDINARY ACTIVITIES BEFORE FINANCE COSTS AND TAXATION | 2,070 | (6,255) | (4,185) | |
| Finance costs | 5 | (50) | (449) | (499) |
|
| _________ | _________ | _________ | |
| NET RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION | 2,020 | (6,704) | (4,684) | |
| Taxation | 6 | (594) | 586 | (8) |
|
| _________ | _________ | _________ | |
| NET RETURN ON ORDINARY ACTIVITIES AFTER TAXATION | 1,426 | (6,118) | (4,692) | |
|
| _________ | _________ | _________ | |
| NET RETURN PER ORDINARY SHARE | 8 | 0.89p | (3.82)p | (2.93)p |
|
| _________ | _________ | _________ | |
| DILUTED NET RETURN PER ORDINARY SHARE | 8 | 0.88p | (3.78)p | (2.90)p |
| _________ | _________ | _________ |
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (audited)
For the year ended 30 September 2009
| Capital |
| |||||||
|
| Share | Share | Special | redemption | Capital | Revenue |
| |
|
| capital | premium | reserve | reserve | reserves | reserve | Total | |
|
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Balance at 30 September 2008 | 354 | 78,535 | 79,148 | 2 | 211,386 | 6,088 | 375,513 | |
| Total recognised (losses)/gains | - | - | - | - | (109,888) | 311 | (109,577) | |
| Conversion of founder A shares | - | 256 | - | 1 | - | - | 257 | |
| Scrip Issue of ordinary shares | 2 | 565 | - | - | - | - | 567 | |
| Dividends paid | 7 | - | - | - | - | - | (1,119) | (1,119) |
|
| ______ | _______ | ______ | _______ | ________ | _______ | _______ | |
| Balance at 30 September 2009 | 13,14 | 356 | 79,356 | 79,148 | 3 | 101,498 | 5,280 | 265,641 |
|
| ______ | _______ | ______ | _______ | ________ | _______ | _______ |
For the year ended 30 September 2008
| Capital |
| |||||||
|
| Share | Share | Special | redemption | Capital | Revenue |
| |
|
| capital | premium | reserve | reserve | reserves | reserve | Total | |
|
| Notes | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
| Balance at 30 September 2007 | 354 | 78,440 | 79,148 | 2 | 217,504 | 10,259 | 385,707 | |
| Total recognised gains/(losses) | - | - | - | - | (6,118) | 1,426 | (4,692) | |
| Conversion of founder A shares | - | 95 | - | - | - | - | 95 | |
| Dividends paid | 7 | - | - | - | - | - | (5,597) | (5,597) |
|
| ______ | _______ | ______ | _______ | ________ | _______ | _______ | |
| Balance at 30 September 2008 | 13,14 | 354 | 78,535 | 79,148 | 2 | 211,386 | 6,088 | 375,513 |
|
| _____ | ______ | _____ | _______ | ______ | ______ | _____ |
BALANCE SHEET (audited)
| As at | As at | ||||
| 30 September | 30 September | ||||
| 2009 | 2008 | ||||
|
| Notes | £000 | £000 | £000 | £000 |
| NON-CURRENT ASSETS |
| ||||
| Investments at fair value through profit or loss | 9 | 293,106 | 412,084 | ||
|
| |||||
| CURRENT ASSETS | |||||
| Debtors | 10 | 161 | 288 | ||
| Cash and short term deposits | 2,378 | 3,289 | |||
| _________ | _________ | ||||
|
| 2,539 | 3,577 | |||
|
| |||||
| CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR | 11 | (30,004) | (40,148) | ||
| _________ | _________ | ||||
| NET CURRENT LIABILITIES | (27,465) | (36,571) | |||
|
| _________ | ______ | |||
| TOTAL ASSETS LESS CURRENT LIABILITIES | 265,641 | 375,513 | |||
|
| _________ | _________ | |||
|
| |||||
| CAPITAL AND RESERVES | |||||
| Called up share capital | 13 | 356 | 354 | ||
| Share premium | 14 | 79,356 | 78,535 | ||
| Special reserve | 14 | 79,148 | 79,148 | ||
| Capital redemption reserve | 14 | 3 | 2 | ||
| Capital reserves | 14 | 101,498 | 211,386 | ||
| Revenue reserve | 14 | 5,280 | 6,088 | ||
|
| _________ | _________ | |||
| TOTAL SHAREHOLDERS' FUNDS | 265,641 | 375,513 | |||
|
| _________ | _________ | |||
| ANALYSIS OF SHAREHOLDERS' FUNDS | |||||
| Equity interests (ordinary shares) | 265,607 | 375,478 | |||
| Non-equity interests (founder shares) | 13 | 34 | 35 | ||
|
| _________ | _________ | |||
|
| 265,641 | 375,513 | |||
|
| _________ | _________ | |||
| NET ASSET VALUE PER EQUITY SHARE | 16 | 164.9p | 234.8p | ||
| _________ | _________ | ||||
CASHFLOW STATEMENT (audited)
| For the year | For the year | ||||
| ended 30 September | ended 30 September | ||||
| 2009 | 2008 | ||||
| Notes | £'000 | £'000 | £'000 | £'000 | |
|
| |||||
| NET CASH OUTFLOW FROM OPERATING ACTIVITIES | 15 | (1,521) | (1,344) | ||
| NET CASH OUTFLOW FROM SERVICING OF FINANCE | (2,656) | (282) | |||
| NET CASH INFLOW/(OUTFLOW) FROM TAXATION | 274 | (772) | |||
| FINANCIAL INVESTMENT | |||||
| Purchase of investments | 9 | (48,296) | (180,763) | ||
| Disposal of underlying investments by funds | 9 | 18,193 | 144,183 | ||
| Disposal of fund investments by way of secondary sales | 48,348 | - | |||
| _________ | _________ | ||||
| NET CASH INFLOW/(OUTFLOW) FROM FINANCIAL INVESTMENTS | 18,245 | (36,580) | |||
| ORDINARY DIVIDENDS PAID | (547) | (5,597) | |||
| _________ | _________ | ||||
| NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING | 13,795 | (44,575) | |||
| Net proceeds on issue of ordinary shares | 252 | 95 | |||
| Bank loans (repaid)/drawn down | (10,020) | 40,000 | |||
| _________ | _________ | ||||
| NET CASH (OUTFLOW)/INFLOW FROM FINANCING | (9,768) | 40,095 | |||
| _________ | _________ | ||||
| INCREASE/(DECREASE) IN CASH | 4,027 | (4,480) | |||
| _________ | _________ | ||||
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
| Increase/(decrease) in cash as above | 4,027 | (4,480) | |||
| Repayment/(drawdown) of loan | 10,020 | (40,000) | |||
| Currency movements | (4,938) | 448 | |||
| _________ | _________ | ||||
| MOVEMENT IN NET DEBT IN THE PERIOD | 9,109 | (44,032) | |||
| Opening net funds | (36,433) | 7,599 | |||
| _________ | _________ | ||||
| CLOSING NET DEBT | (27,324) | (36,433) | |||
| _________ | _________ | ||||
| REPRESENTED BY: | |||||
| Cash and short term deposits | 2,378 | 3,289 | |||
| Loans | (29,702) | (39,722) | |||
| _________ | _________ | ||||
| (27,324) | (36,433) | ||||
| _________ | _________ |
NOTES TO THE ACCOUNTS
1. Accounting policies
(a) Basis of preparation and going concern
The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments, and in accordance with applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' (issued January 2009). 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. The financial statements, and the net asset value per equity share figures, have been prepared in accordance with UK Generally Accepted Accounting Principles ("UK GAAP"). The Directors consider the Company's functional currency to be sterling, as the Company is registered in Scotland, the Company's shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory environment.
(b) Revenue, expenses and finance cost
Dividends from quoted investments are included in revenue by reference to the date on which the price is marked ex-dividend. Interest on quoted investments and other interest receivable are dealt with on an effective interest rate basis. Dividends and income from unquoted investments are included when the right to receipt is established. All expenses are accounted for on an accruals basis. Expenses are charged through the revenue account of the Income Statement except as follows:
- transaction costs incurred on the purchase and disposal of investments are recognised as a capital item in the Income Statement; and
- 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.
(c) Investments
Investments have been designated upon initial recognition as fair value through the profit or loss. Investments are recognised as at the date of the commitment to the fund and removed when 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 Income Statement and are ultimately recognised in the unrealised reserve.
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 balance sheet date. The valuation policies used by the manager in undertaking that valuation will generally be in line with the joint publication from the BVCA and the EVCA, 'International Private Equity and Venture Capital Valuation guidelines'. Where formal valuations are not completed as at the balance sheet date the valuation from the fund manager is adjusted for any subsequent cash flows occurring between the valuation date and the balance sheet date. The Company's Manager may further adjust such valuations to reflect any changes in circumstances from the last managers formal valuation date to arrive at the estimate of fair value.
(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 - Gains or losses on investments realised in the year that have been recognised in the Income Statement 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 Income Statement and are then transferred to the "capital reserve - revaluation".
(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.
ii) Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the balance sheet 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 balance sheet 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 temporary differences can be deducted. Temporary 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.
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.
(g) Overseas currencies - Overseas assets and liabilities are translated at the exchange rate prevailing at the Company's balance sheet date. Gains or losses on the translation of investments held at the year end are accounted for through the unrealised capital reserve. Gains or losses on the translation of overseas currency balances held at the year end are accounted for through the realised capital reserve.
| Rates of exchange to sterling as at 30 September were: | ||
|
|
| |
|
| 2009 | 2008 |
| Euro | 1.0942 | 1.2690 |
| US dollar | 1.5993 | 1.7825 |
|
|
| |
| Transactions in overseas currency are translated at the exchange rate prevailing on the date of transaction. | ||
|
| Year to | Year to | |
|
| 30 September 2009 | 30 September 2008 | |
| 2 | Income | £'000 | £'000 |
|
|
|
|
|
|
| Income from investments |
| |
|
| Income from unquoted investments | 1,363 | 1,690 |
|
| Income from 'AAA' rated money market funds | - | 988 |
|
| ____________ | ____________ | |
|
| 1,363 | 2,678 | |
|
| ____________ | ____________ | |
|
| Interest receivable and other income |
| |
|
| Interest receivable on cash | 71 | 243 |
|
| Other income | 15 | - |
|
| ____________ | ____________ | |
|
| Total income | 1,449 | 2,921 |
|
| ____________ | ____________ |
|
| Year to 30 September 2009 | Year to 30 September 2008 | |||||
|
|
| Revenue | Capital | Total | Revenue | Capital | Total |
| 3 | Investment management fee | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
| Investment management fee | 220 | 1,984 | 2,204 | 325 | 2,929 | 3,254 |
|
|
| ||||||
|
| 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 one year's notice. | ||||||
|
| Year to 30 September 2009 | Year to 30 September 2008 | |||||
|
| Revenue | Capital | Total | Total | |||
| 4 | Administrative expenses | £'000 | £'000 | £'000 | £'000 | ||
|
|
| ||||||
|
| Secretarial and administration fee | 172 | - | 172 | 176 | ||
|
| Directors' fees | 151 | - | 151 | 140 | ||
|
| Auditors' remuneration - statutory audit | 26 | - | 26 | 19 | ||
|
| - interim review | 13 | - | 13 | 13 | ||
| - other assurance | 1 | - | 1 | - | |||
|
| Legal fees | 40 | - | 40 | 34 | ||
|
| Fees and subscriptions | 45 | - | 45 | 35 | ||
|
| Professional and consultancy fees | 53 | 7 | 60 | 27 | ||
|
| Other expenses | 79 | - | 79 | 82 | ||
| _______ | _______ | _______ | _______ | ||||
|
| 580 | 7 | 587 | 526 | |||
|
| _______ | _______ | _______ | _______ | |||
|
| Irrecoverable VAT has been shown under the relevant expense line above. All administrative expenses in the year to 30 September 2008 were charged to revenue. The secretarial and administration fee is payable to Aberdeen Asset Managers Limited and is adjusted in line with the retail prices index on 1 July each year. The secretarial and administration agreement is terminable by either party on three months' notice. |
|
| |
|
| The emoluments of the Chairman, who was the highest paid Director, were £38,500 (2008 - £38,500) per annum. The emoluments of each of the other directors were £22,000 (2008 - £22,000) per annum, except for H Buchan who received an additional £5,500 (2008 - £5,500) as Senior Independent Director and Chairman of the Audit Committee. |
|
|
|
| Year to 30 September 2009 | Year to 30 September 2008 | |||||
| Revenue | Capital | Total | Revenue | Capital | Total | ||
| 5 | Finance costs | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 |
|
| Bank loans | 250 | 2,247 | 2,497 | 50 | 449 | 499 |
| 6 | Taxation | |||||||||
|
|
| |||||||||
|
| Year to 30 September 2009 | Year to 30 September 2008 | ||||||||
|
| Revenue | Capital | Total | Revenue | Capital | Total | ||||
|
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||
|
|
| |||||||||
| (a) | Factors affecting the current tax charge for year | |||||||||
|
| Return on ordinary activities before taxation | 399 | (109,909) | (109,510) | 2,020 | (6,704) | (4,684) | |||
|
| _______ | _______ | _______ | _______ | _______ | _______ | ||||
|
| The tax assessed for the year is different from the standard rate of corporation tax in the UK. The differences are explained below. | |||||||||
|
|
| |||||||||
|
| Return on ordinary activities multiplied by the effective rate of corporation tax in the UK (28%) | 112 | (30,775) | (30,663) | 586 | (1,944) | (1,358) | |||
|
| Capital losses* | - | 30,775 | 30,775 | - | 1,944 | 1,944 | |||
|
| Overseas withholding tax | 91 | - | 91 | 8 | - | 8 | |||
|
| Overprovision from previous period | (24) | - | (24) | - | - | - | |||
|
| Double tax relief | (91) | - | (91) | - | - | - | |||
|
| Tax relief for expenses taken to capital | - | (21) | (21) | - | (586) | (586) | |||
|
| _______ | _______ | _______ | _______ | _______ | _______ | ||||
|
| Current tax charge for year | 88 | (21) | 67 | 594 | (586) | 8 | |||
|
| _______ | _______ | _______ | _______ | _______ | _______ | ||||
|
|
| |||||||||
| \* The Company carries on business as an investment trust company with respect to section 842 of the Income and Corporation Taxes Act 1988. As such any capital gains are exempt from UK taxation. | ||||||||||
|
| Year to | Year to | ||||||||
|
| 30 September 2009 | 30 September 2008 | ||||||||
|
| £'000 | £'000 | ||||||||
| (b) | Analysis of charge throughout the year |
| ||||||||
|
| Current Tax |
| ||||||||
|
| UK corporation tax on return on ordinary activities | - | - | |||||||
|
| Overseas withholding tax | 91 | 8 | |||||||
|
| Overprovision from previous period | (24) | - | |||||||
|
| _________ | __________ | ||||||||
|
| 67 | 8 | ||||||||
|
| _________ | __________ | ||||||||
| (c) | Factors that may upset future tax charges |
| At the year end there is a potential deferred tax asset of £1,164,000 (2008: £1,357,000) in relation to excess management expenses carried forward. The deferred tax asset is unrecognised at the year end in line with the stated accounting policy. |
|
| Year to | Year to | |
|
| 30 September 2009 | 30 September 2008 | |
|
| £'000 | £'000 | |
| 7 | Dividend on ordinary shares |
| |
|
| Amount recognised as a distribution to equity holders in the year: |
| |
|
| Dividend paid in the year ended 30 September 2009 of 0.70p (2008 - 3.50p) per ordinary share paid on 30 January 2009 (2008 - paid on 1 February 2008). | 547 | 5,597 |
|
|
| ||
|
| Scrip dividend issue of 881,040 shares, in lieu of cash dividend, in the year ended 30 September 2009 (2008 - nil). | 572 | - |
|
| _________ | _________ | |
|
| 1,119 | 5,597 | |
|
| _________ | _________ | |
|
| During the period the company issued 881,040 ordinary shares of 0.2p as a result of elections received following a scrip dividend offer in respect of the 2008 final dividend. One new ordinary share was issued for every 64.9p otherwise payable as a cash dividend. | ||
|
| |||
|
| Set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Section 842 of the Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution by way of a dividend for the year is £311,000 (2008 - £1,426,000). | ||
|
| |||
|
| Proposed final dividend of 0.10p per ordinary share (dividend proposed at 30 September 2008 - 0.70p) per ordinary shares due to be paid on 29 January 2010 (2008 - paid 30 January 2009) | 161 | 1,119 |
|
| _________ | __________ | |
|
| Year to 30 September 2009 | Year to 30 September 2008 | |||
|
| p | £'000 | p | £'000 | |
| 8 | Return per ordinary share | ||||
|
| The return per ordinary share is based on the following figures: | ||||
|
| Revenue return | 0.19 | 311 | 0.89 | 1,426 |
|
| Capital return | (68.43) | (109,888) | (3.82) | (6,118) |
| _________ | __________ | _________ | __________ | ||
|
| Total return | (68.24) | (109,577) | (2.93) | (4,692) |
|
| _________ | __________ | _________ | __________ | |
|
| Weighted average number of ordinary shares in issue: | 160,583,224 | 159,901,256 | ||
|
| The fully diluted return per ordinary share is based on the following figures: | ||||
|
| Revenue return (fully diluted) | 0.19 | 311 | 0.88 | 1,426 |
|
| Capital return (fully diluted) | (68.43) | (109,888) | (3.78) | (6,118) |
| _________ | __________ | _________ | __________ | ||
|
| Total return (fully diluted) | (68.24) | (109,577) | (2.90) | (4,692) |
|
| _________ | __________ | _________ | __________ | |
|
| |||||
|
| Fully diluted returns have been calculated on the basis set out in Financial Reporting Standard 14 'Earnings per share' ('FRS 14'). For the year ended 30 September 2009, this is based on the weighted average of 160,583,224 ordinary shares, as the founder A shares do not have a dilutive effect in this period as the conversion price is greater than the average share price. For the year ended 30 September 2008, this is based on 162,053,535 shares, comprising the weighted average 159,901,256 ordinary shares and 2,152,279 founder A shares capable of conversion. | ||||
|
| 30 September 2009 | 30 September 2008 | |
| 9 | Investments | £'000 | £'000 |
|
| Fair value through profit or loss: |
| |
|
| Opening market value | 412,084 | 379,278 |
|
| Opening investment holding losses/(gains) | 15,351 | (27,907) |
| ___________ | ___________ | ||
|
| Opening book cost | 427,435 | 351,371 |
|
| Movements in the year: |
| |
|
| Additions at cost | 48,296 | 180,763 |
|
| Disposal of underlying investments by funds | (18,193) | (144,183) |
|
| Disposal of fund investments by way of secondary sales | (48,348) | - |
| ___________ | ___________ | ||
|
| 409,190 | 387,951 | |
|
| Gains on disposal of underlying investments | 13,635 | 39,484 |
|
| Losses on disposal of fund investments | (43,556) | - |
| ___________ | ___________ | ||
|
| Closing book cost | 379,269 | 427,435 |
|
| Closing investment holding losses | (86,163) | (15,351) |
| ___________ | ___________ | ||
|
| Closing market value | 293,106 | 412,084 |
|
| ___________ | ___________ | |
|
|
| ||
|
| Year to | Year to | |
|
| 30 September 2009 | 30 September 2008 | |
|
| £'000 | £'000 | |
|
| (Losses)/Gains on investments: |
| |
|
| Net (losses)/gains on disposal of unquoted investments | (29,921) | 39,484 |
|
| Net revaluation of unquoted investments | (70,812) | (43,258) |
| ___________ | ___________ | ||
|
| (100,733) | (3,774) | |
|
| ___________ | ___________ | |
|
| Transaction costs | ||
|
| During the year expenses were incurred in acquiring or disposing of investments. These have been expensed through capital and are included within losses on investments in the Income Statement. The total costs were as follows: | ||
|
| Secondary sales | 1,122 | - |
| Purchases in respect of new unquoted fund investments | 27 | 26 | |
| ___________ | ___________ | ||
|
| 1,149 | 26 | |
|
|
| ___________ | ___________ |
|
| 30 September 2009 | 30 September 2008 | |
| 10 | Debtors | £'000 | £'000 |
|
| Amounts falling due within one year: |
| |
|
| Prepayments | 161 | 18 |
|
| Accrued income | - | 20 |
|
| Corporation tax recoverable | - | 250 |
|
| ___________ | ___________ | |
|
| 161 | 288 | |
|
| ___________ | ___________ |
|
|
| Year to | Year to |
|
| 30 September 2009 | 30 September 2008 | |
| 11 | Creditors: amounts falling due within one year | £'000 | £'000 |
| Bank loans (see note 12) | 29,702 | 39,722 | |
|
| Management fee | 86 | 8 |
|
| Secretarial fee | 86 | 88 |
|
| Other accruals | 46 | 87 |
|
| Loan interest and commitment fee | 84 | 243 |
| ___________ | ___________ | ||
|
| 30,004 | 40,148 | |
|
| ___________ | ___________ |
|
| 30 September 2009 | 30 September 2008 | |
| 12. | Bank loans | £'000 | £'000 |
| Unsecured bank loans repayable within one year: |
| ||
| €5,000,000 at 2.949% repayable 23 October 2009 | 4,570 | - | |
| €27,500,000 at 2.938% repayable 30 October 2009 | 25,132 | - | |
| €6,347,500 at 5.925% repayable 4 November 2008 | - | 5,002 | |
| €18,885,000 at 5.915% repayable 17 November 2008 | - | 14,882 | |
| €12,542,000 at 5.939% repayable 28 November 2008 | - | 9,883 | |
| €12,633,000 at 5.965% repayable 22 December 2008 | - | 9,955 | |
| ___________ | ___________ | ||
| 29,702 | 39,722 | ||
| ___________ | ___________ | ||
| As at 30 September 2009, the Company had a £100 million committed, multi currency syndicated revolving credit facility led by The Royal Bank of Scotland plc of which £29.7m has been drawn down in euros. The facility expires on 18 November 2011. The interest rate on this facility is LIBOR plus 2.5% and the commitment fee payable on non-utilisation is 1.0% per annum. | |||
|
| 30 September 2009 | 30 September 2008 | |
| 13 | Called up share capital | £ | £ |
|
| Authorised: |
| |
|
| 201,034,977 ordinary shares of 0.2p | 402,070 | 401,545 |
|
| 16,465,023 founder A shares of 0.2p | 32,930 | 33,455 |
|
| 17,500,000 founder B shares of 0.2p | 35,000 | 35,000 |
|
| ___________ | ___________ | |
|
| 470,000 | 470,000 | |
|
| ___________ | ___________ | |
|
| Issued: |
| |
|
| 161,066,017 (2008 - 159,922,567) ordinary shares of 0.2p - fully paid | 322,132 | 319,845 |
|
| 16,465,023 (2008 - 16,727,433) founder A shares of 0.2p - partly paid | 16,651 | 16,914 |
|
| 17,500,000 (2008 - 17,500,000) founder B shares of 0.2p - partly paid | 17,687 | 17,687 |
|
| ___________ | ___________ | |
|
| 356,470 | 354,446 | |
|
| ___________ | ___________ | |
|
|
| ||
|
| On 2 May 2001, 14,835,625 founder A shares and 14,835,625 founder B shares were allotted each partly paid up at 0.1p per share and 2,664,375 founder A shares and 2,664,375 founder B shares were allotted each partly paid up at 0.11p per share. The founder shares are entitled to a fixed non-cumulative dividend of 0.05% per annum on the nominal amount per share paid up. The founder shares do not carry any right to vote, except in the case of changes to class rights. | ||
|
| |||
|
| During the year 262,410 founder A shares were converted into ordinary shares of 0.2p at a cost of £262,100 before deduction of conversion costs of £5,500. The company also issued 881,040 ordinary shares of 0.2p as a result of elections received following a scrip dividend offer in respect of the 2008 final dividend. One new ordinary share was issued for every 64.9p otherwise payable as a cash dividend. | ||
|
| |||
|
| Following the end of the founder A shares performance period on 30 September 2006, as of 30 September 2009, 3,820,002 founder A shares (2008: 4,082,412) have a right to convert into an equivalent number of ordinary shares at a conversion price of £1 per ordinary share up to 31 December 2013. | ||
|
| Capital reserves | ||||||||||||
|
| Share Premium account | Special reserve | Capital Redemption reserve | -gains /(losses) on disposal | -revaluation | Revenue reserve | |||||||
| 14 | Reserves | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||||||
|
| Opening balances at 1 October 2008 | 78,535 | 79,148 | 2 | 226,737 | (15,351) | 6,088 | ||||||
|
| Gains/( losses) on disposal of unquoted investments | - | - | - | (29,921) | - | - | ||||||
|
| Management fee charged to capital | - | - | - | (1,984) | - | - | ||||||
|
| Finance costs charged to capital | - | - | - | (2,247) | - | - | ||||||
|
| Professional fees charged to capital | - | - | - | (7) | - | - | ||||||
|
| Tax relief on management fees and finance costs above | - | - | - | 21 | - | - | ||||||
|
| Currency losses | - | - | - | (4,938) | - | - | ||||||
|
| Revaluation of unquoted investments | - | - | - | - | (70,812) | - | ||||||
|
| Conversion of founder A shares | 262 | - | 1 | - | - | - | ||||||
|
| Expenses of conversion of founder A shares | (6) | - | - | - | - | - | ||||||
|
| Scrip issue of ordinary shares | 570 | - | - | - | - | - | ||||||
|
| Expenses of conversion of scrip issue | (5) | - | - | - | - | - | ||||||
|
| Return on ordinary activities after taxation | - | - | - | - | - | 311 | ||||||
|
| Dividends during the period | - | - | - | - | - | (1,119) | ||||||
| _______ | _______ | _______ | _______ | _______ | _______ | ||||||||
|
| Closing balances at 30 September 2009 | 79,356 | 79,148 | 3 | 187,661 | (86,163) | 5,280 | ||||||
|
| _______ | ______ | _______ | _______ | _______ | _______ | |||||||
|
| 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. | ||||||||||||
|
| Year to | Year to | |
|
| 30 September 2009 | 30 September 2008 | |
| 15 | Reconciliation of net return on ordinary activities before taxation to net cash outflow from operating activities | £'000 | £'000 |
|
| Net total return before finance costs and taxation | (107,013) | (4,185) |
|
| Adjustment for: |
| |
|
| Gains/(losses) on disposal of unquoted investments | 29,921 | (39,484) |
|
| Revaluation of unquoted investments | 70,812 | 43,258 |
|
| Currency losses/(gains) on cash balances | 4,938 | (448) |
|
| (Increase)/decrease in debtors | (123) | 254 |
|
| Increase/(decrease) in creditors | 35 | (731) |
|
| Tax deducted from non - UK income | (91) | (8) |
|
| __________ | __________ | |
|
| (1,521) | (1,344) | |
|
| __________ | __________ |
| 16 | Net asset value per ordinary share | 30 September 2009 | 30 September 2008 |
|
| Basic |
| |
|
| Ordinary shareholders' funds | £265,607,000 | £375,478,000 |
|
| Number of ordinary shares in issue | 161,066,017 | 159,922,567 |
|
| Net asset value per ordinary share | 164.9p | 234.8p |
|
|
| ||
|
| Diluted |
| |
|
| Ordinary shareholders' funds | £269,427,002 | £379,560,412 |
|
| Number of ordinary shares in issue | 164,886,019 | 164,004,979 |
|
| Net asset value per ordinary share | 163.4p | 231.4p |
|
|
| ||
|
| The net asset value per ordinary share and ordinary shareholders' funds are calculated in accordance with the Company's articles of association. | ||
|
| Year to | Year to | |
|
| 30 September 2009 | 30 September 2008 | |
| 17 | Commitments and contingent liabilities | £'000 | £'000 |
|
| Outstanding calls on investments | 227,758 | 389,204 |
|
| __________ | __________ | |
|
|
| ||
|
| This represents commitments made to fund investments remaining undrawn. | ||
18 Parent undertaking and related party transactions
The Manager during the year was SL Capital Partners LLP which is 60% owned by Standard Life Investments Limited and 40% by its nine senior private equity managers. Standard Life Investments Limited is a wholly owned subsidiary of Standard Life PLC, the ultimate parent undertaking of the Company. The accounts of the ultimate parent undertaking are the only group accounts incorporating the accounts of the Company. Copies of the accounts of the ultimate parent undertaking can be obtained at Standard Life House, 30 Lothian Road, Edinburgh EH1 2DH.
Standard Life PLC and the Company have entered into a relationship agreement which provides that, for so long as Standard Life PLC and its subsidiaries exercise, or control the exercise, of 30% or more of the voting rights of the Company, Standard Life PLC will not seek to nominate to the Board Directors who are not independent of Standard Life PLC and will not take, in its capacity as a beneficial holder of any ordinary shares, any action which would be detrimental to the general body of shareholders. For this purpose any action which has the support or recommendation of a majority of the Directors shall be deemed not to be detrimental. A more detailed summary of the terms of the relationship agreement are set out in the Directors' Report.
During the year ended 30 September 2009 the Manager charged management fees totalling £2,204,000 (2008 - £3,254,000) to the Company in the normal course of business. The balance of management fees outstanding at 30 September 2009 was £86,000 (2008 - £8,000).
As at 30 September 2009, the Company had a £100 million committed, multi-currency syndicated revolving credit facility led by The Royal Bank of Scotland plc ("RBS"). Standard Life Assurance Limited ("SLAL"), a subsidiary of Standard Life PLC, participates in the syndicated facility on an arm's length basis and has a commitment of £40 million. Under the terms of the agreement, SLAL received £826,000 during the year ended 30 September 2009. Donald Workman, who is director of the Company and an investment director within the Corporate Markets division of RBS, took no part in the Board's deliberations concerning, or its approval of, the existing credit facility. Within parameters agreed with the Board, it is Standard Life Investment's treasury team which determines the funds in which the Company's surplus cash is invested from time to time.
No other related party transactions were undertaken during the year ended 30 September 2009.
19 Risk management, financial assets and liabilities
Financial assets and liabilities
The Company's financial instruments comprise fund and other investments, cash balances, loans and debtors and creditors that arise from its operations. The assets and liabilities are managed with the overall objective of achieving long-term capital gains for shareholders.
Summary of Financial Assets and Financial Liabilities by category
The carrying amounts of the Company's financial assets and financial liabilities, as recognised at the balance sheet date of the reporting periods under review, are categorised as follows:
| 30 September | 30 September | |
| 2009 | 2008 | |
| £000 | £000 | |
| Financial Assets |
| |
| Financial assets at fair value through profit or loss: |
| |
| Fixed asset investments - designated as such on initial recognition | 293,106 | 412,084 |
| Loans and receivables: |
| |
| Current assets: |
| |
| Debtors (accrued income and other debtors) | 161 | 38 |
| Corporation tax recoverable | - | 250 |
| Cash and short-term deposits | 2,378 | 3,289 |
| ___________ | ___________ | |
| 295,645 | 415,661 | |
| Financial Liabilities | ___________ | ___________ |
| Measured at amortised cost: |
| |
| Creditors: amounts falling due within one year |
| |
| Bank loans | 29,702 | 39,722 |
| Accruals | 302 | 426 |
| ___________ | ___________ | |
| 30,004 | 40,148 | |
| ___________ | ___________ |
Fair values of financial assets and financial liabilities
The carrying value of the current assets and liabilities is deemed to be fair value due to the short term nature of the instruments and/or the instruments bearing interest at market rates.
Risk management
The Directors manage investment risk principally through setting an investment policy and by contracting management of the Company's investments to an investment manager under a contract which incorporates appropriate duties and restrictions and by monitoring performance in relation to these. The Company's investments are in private equity funds, typically unquoted limited partnerships. These are valued by their managers generally in line with the EVCA and the BVCA guidelines, which provide for a fair value basis of valuation. The funds may hold investments that have become quoted and these will be valued at the appropriate listed price, subject to any discount for marketability restrictions.
As explained in the Company's investment policy, risk is spread by investing across a range of countries and industrial sectors, thereby reducing excessive exposure to particular areas. The Manager's investment review and monitoring process is used to identify and, where possible, reduce risk of loss of value in the Company's investments. Any surplus funds are invested in 'AAA' rated money market funds, which generate securities income rather than interest in order to meet the income requirements of investment trust status. The money market fund investments are monitored by the treasury team of Standard Life Investments for credit risk and interest rate risk.
The Company's investing activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The most important types of financial risk to which the Company is exposed are market risk, currency risk, over-commitment risk, liquidity risk, credit risk and interest rate risk.
The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Company are discussed below.
Market risk
The Company is at risk of the economic cycle impacting the quoted markets and hence potentially affecting the pricing of new underlying investments, the valuation of existing underlying investments and the price and timing of exits. By having a diversified and rolling portfolio of fund investments the Company is well placed to take advantage of economic cycles.
100% of the Company's investments are in unquoted funds held at fair value. The valuation methodology employed by the managers of these funds may include the application of EBITDA ratios derived from listed companies with similar characteristics. Therefore, the value of the Company's portfolio is indirectly affected by price movements on listed exchanges. A 10% increase in the valuation of unquoted investments at 30 September 2009 would have increased the net assets attributable to the Company's shareholders and the total profit for the year by £29,311,000 (2008: £41,208,000); a 10% change in the opposite direction would have decreased the net assets attributable to the Company's shareholders and the total profit for the year by an equivalent amount.
Currency risk
The Company makes fund commitments in currencies other than sterling and accordingly a significant proportion of its investments and cash balances are in currencies other than sterling. In addition, the Company's syndicated revolving credit facility is a multi currency facility. Therefore, the Company's balance sheet is sensitive to movements in foreign exchange rates. The Manager monitors the Company's exposure to foreign currencies and reports to the Board on a regular basis. It is not the Company's policy to hedge this foreign currency risk. Over time, it is expected that the majority of the Company's commitments and investments will be denominated in euros. Accordingly, the majority of the Company's liquidity and any indebtedness is usually held in that currency. No currency swaps or forwards were used during the year.
The table below sets out the Company's currency exposure.
| 30 September 2009 | 30 September 2008 | |||
| Local | Sterling | Local | Sterling | |
| Currency | Equivalent | Currency | Equivalent | |
| 000s | £'000 | 000s | £'000 | |
| Fixed asset investments: unquoted |
| |||
| Sterling | 27,252 | 42,837 | 42,837 | 42,837 |
| Euro | 230,892 | 319,422 | 405,346 | 319,422 |
| US Dollar | 87,708 | 49,825 | 88,811 | 49,825 |
| Cash and short term deposits: | ||||
| Sterling | 478 | 478 | 159 | 159 |
| Euro | 1,425 | 1,303 | 3,269 | 2,577 |
| US Dollar | 955 | 597 | 986 | 553 |
| Other debtors and creditors: | ||||
| Sterling | 138 | 138 | (138) | (138) |
| Euro | (32,505) | (29,705) | (50,407) | (39,722) |
| ___________ | ___________ | |||
| Total | 265,641 | 375,513 | ||
| ___________ | ___________ | |||
| Outstanding Commitments: |
| |||
| Sterling | 7,616 | 7,616 | 8,322 | 8,322 |
| Euro | 215,939 | 197,349 | 408,357 | 321,804 |
| US Dollar | 36,453 | 22,793 | 105,303 | 59,078 |
| _________ | _________ | |||
| Total | 227,758 | 389,204 | ||
| _________ | _________ | |||
The revenue account is subject to currency fluctuations arising on overseas income. The Company does not hedge this currency risk.
Currency sensitivity
During the year ended 30 September 2009 sterling depreciated by 13.8% relative to the euro (2008: depreciated 11.4%) and by 10.3% relative to the US dollar (2008: depreciated 12.5%).
To highlight the sensitivity to currency movements, if the value of sterling had weakened against both of the above currencies by a further 10%, the capital loss would have decreased for the year by £21,639,000 (2008: decrease of £30,222,000 in capital loss); a 10% change in the opposite direction would have increased the capital loss for the year by an equivalent amount.
The calculations are based on the portfolio valuation and cash and loan balances as at the respective balance sheet dates and are not necessarily representative of the year as a whole.
Based on similar assumptions, the amount of outstanding commitments would have increased by 20,013,000 at the year end (2008: £34,636,000), a 10% change in the opposite direction would have decreased the amount of outstanding commitments by an equivalent amount.
Over-commitment risk
The Board has taken the decision to make commitments to new fund investments which are greater than the current cash and committed credit facilities. As private equity funds generally call monies over a five year period whilst they are making investments, the draw downs for funds which are investing should be offset by the more mature funds which are realising their investments and distributing cash back to the Company. The Manager monitors the Company's ongoing cash requirements by the use of cash flow modelling and reports to the Board on a regular basis. To minimise the risk of having an obligation to pay out more cash than is in the bank or on short-term deposit on any particular day, a £100 million multi-currency revolving credit facility has been set up with the Royal Bank of Scotland plc. As at 30 September 2009, £29.7 million of this loan facility has been drawn down (2008: £40.0 million). To minimise this risk, during the year ended 30 September 2009, the Company disposed of all or part of 11 private equity fund interests and made an election to cap its exposure to one fund interest. This released the Company from £169.7m of outstanding commitments.
Liquidity risk
The Company has significant investments in unquoted fund investments which are relatively illiquid. As a result, the Company may not be able to quickly liquidate its investments in these funds at an amount close to their fair value in order to meet its liquidity requirements, including the need to meet outstanding undrawn commitments. The Company manages its liquid investments to ensure sufficient cash is available to meet contractual commitments and also seeks to have cash available to meet other short term financial needs. Short term flexibility is achieved, where necessary, through the use of the syndicated revolving multi currency loan facility. Liquidity risk is monitored by the Manager on an ongoing basis and by the Board on
a regular basis. A maturity analysis of all financial liabilities is included in notes 11 and 12.
Credit risk
Credit risk is the exposure to loss from failure of a counterparty to deliver securities or cash for acquisitions or disposals of investments or to repay deposits. The Company places funds with authorised deposit takers from time to time and, therefore, is potentially at risk from the failure of any such institution. At the period end, the Company's financial assets exposed to credit risk amounted to the following:
| 30 September 2009 | 30 September 2008 | |
| £'000 | £'000 | |
| Cash and short term deposits | 2,378 | 3,289 |
| Accrued income | - | 20 |
| _________ | _________ | |
| 2,378 | 3,309 | |
| _________ | _________ |
As at 30 September 2009, all of the Company's cash was held by JP Morgan Chase Bank ("JP Morgan") which was rated 'AA-' by Standard and Poors. The Board monitors the risk by reviewing the internal control report of JP Morgan annually. Should the credit quality or the financial position of JP
Morgan deteriorate significantly the Manager would move the cash balances to another institution.
Interest rate risk
The Company will be affected by interest rate changes as it holds some interest bearing financial assets and liabilities which are shown in the table below, however, the majority of its financial assets are investments in private equity funds which are non-interest bearing. Interest rate movements may affect the level of income receivable on cash deposits and interest payable on the Company's variable rate borrowings. The possible effects on the cashflows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions. Derivative contracts are not used to hedge against any exposure to interest rate risk.
Interest risk profile
The interest rate risk profile of the portfolio of financial assets and liabilities at the balance sheet date was as follows:
| 30 September 2009 | 30 September 2008 | |||
| Weighted average | Weighted average | |||
| interest rate | interest rate | |||
| Floating rate | % | £000 | % | £000 |
| Financial Assets: Cash and short term deposits | - | 2,378 | 3.48 | 3,289 |
| _________ | _________ | _________ | _________ | |
| Total assets | - | 2,378 | 3.48 | 3,289 |
| _________ | _________ | _________ | _________ | |
| Fixed rate | ||||
| Financial Liabilities: Bank Loans | 2.94 | (29,702) | 5.93 | (39,722) |
| _________ | _________ | _________ | _________ | |
| Total liabilities | 2.94 | (29,702) | 5.93 | (39,722) |
| _________ | _________ | _________ | _________ | |
The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on the bank loans is based on the interest rate payable, weighted by the total value of the loans. The weighted average period for which rates are fixed on the bank loans is 30 days (2008 - 58.9 days). The maturity dates of the bank loans are shown in note 12 to the financial statements.
Interest rate sensitivity
An increase of 1% in interest rates would have decreased the net assets attributable to the Company's shareholders and increased the total loss for the year ended 30 September 2009 by £24,000. A decrease of 1% would have increased the net assets attributable to the Company's shareholders and decreased the total loss for the year ended 30 September 2009 by an equivalent amount (2008: £8,000). The calculations are based on the interest paid and received during the year.
Operating and control environment risk
The Board is responsible for the Company's system of internal controls. The Manager and the Administrator have in place control systems which include the custody and safeguard of the Company's assets, compliance with regulations (mainly Section 842 of the Income and Corporation Taxes Act 1988, Companies Act and Listing Rules) and the provision of accurate financial reporting. There is a risk that the Manager and Administrator fail to ensure that their controls are performed in a satisfactory manner. The Board monitors the services and systems provided by the Manager and Administrator and reviews their internal control reports to ensure that an effective system of internal controls is maintained.
Additional Note to Annual Financial Report
The Annual General Meeting will be held on 27 January 2010 at 12.30 noon at The Balmoral Hotel, 1 Princes Street Edinburgh.
The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 30 September 2009 are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2008 and 2009 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under s.498 of the Companies Act 2006. The financial information for 2008 is derived from the statutory accounts for 2008 which have been delivered to the Registrar of Companies. The 2009 accounts will be filed with the Registrar of Companies in due course.
The Annual Report was posted to shareholders in December 2009 and additional copies are available from the registered office of the Company and on the website http://slcapitalpartners.com.
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
For Standard Life European Private Equity Trust PLC
Aberdeen Asset Management PLC, Secretary
http://www.rns-pdf.londonstockexchange.com/rns/5531F_-2010-1-14.pdf