3 Dec 2009 07:00
3 December 2009
STANDARD LIFE EUROPEAN PRIVATE EQUITY TRUST PLC
RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2009
Highlights
For the financial year ended 30 September 2009 the Company's undiluted net asset value per ordinary share ("NAV") fell 29.8% to 164.9p (diluted NAV - 163.4p).
The Company can report a better performance for the second half of the Company's financial year, with pro-forma NAV, adjusted for the sale of fund interests, falling 1.5% from 167.5p (diluted - 167.5p) as at 31 March 2009 to 164.9p (diluted - 163.4p) as at 30 September 2009.
The closing mid-market price of the Company's ordinary shares on 30 September 2009 was 112.25p, a fall of 30.3% over the year and a discount of 31.3% to the diluted NAV.
As a result of the decline in distributions and income received by the Company, the Board is recommending a final dividend of 0.1p per ordinary share for the financial year.
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 during the year. The Company received net proceeds of £48.3 million from the disposal of these private equity fund interests and was released from £169.7 million of outstanding commitments.
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. In preparing the Company's year end valuation, 84.1% by value of the portfolio was valued as at 30 September 2009.
Reflecting the slow down in the private equity market, distributions totalled £19.5 million and the Company funded £48.3 million of draw downs during the year. As at 30 September 2009 the Company's net indebtedness was £27.3 million.
The Company made no new fund commitments during the year and had £227.8 million of outstanding commitments as at 30 September 2009.
Quote from Scott Dobbie, Chairman:-
" 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 is strongly positioned to benefit from any upturn."
For further information please contact:-
Peter McKellar of SL Capital Partners LLP (on 0131 245 0055)
Chairman's Statement
Results and performance
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
INCOME STATEMENT (audited)
for the year ended 30 September 2009
| Revenue | Capital | Total | |
|
| £000 | £000 | £000 |
|
| |||
| Losses on investments | - | (100,733) | (100,733) |
| Currency losses | - | (4,938) | (4,938) |
| Income from investments | 1,363 | - | 1,363 |
| Interest receivable and other income | 86 | - | 86 |
| Investment management fee | (220) | (1,984) | (2,204) |
| Administrative expenses | (580) | (7) | (587) |
|
| _________ | _________ | _________ |
|
| |||
| NET RETURN ON ORDINARY ACTIVITIES BEFORE FINANCE COSTS AND TAXATION | 649 | (107,662) | (107,013) |
| Finance costs | (250) | (2,247) | (2,497) |
|
| _________ | _________ | _________ |
|
| |||
| NET RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION | 399 | (109,909) | (109,510) |
| Taxation | (88) | 21 | (67) |
|
| _________ | _________ | _________ |
|
| |||
| NET RETURN ON ORDINARY ACTIVITIES AFTER TAXATION | 311 | (109,888) | (109,577) |
|
| _________ | _________ | _________ |
| NET RETURN PER ORDINARY SHARE | 0.19p | (68.43p) | (68.24p) |
|
| _________ | _________ | _________ |
| DILUTED NET RETURN PER ORDINARY SHARE | 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 year.
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.
INCOME STATEMENT (audited)
for the year ended 30 September 2008
| Revenue | Capital | Total | ||
|
| £000 | £000 | £000 | |
|
| ||||
| Losses on investments | - | (3,774) | (3,774) | |
| Currency gains | - | 448 | 448 | |
| Income from investments | 2,676 | - | 2,676 | |
| Interest receivable and other income | 243 | - | 243 | |
| Investment management fee | (325) | (2,929) | (3,254) | |
| Administrative expenses | (526) | - | (526) | |
|
| _________ | _________ | _________ | |
|
| ||||
|
|
|
| ||
| NET RETURN ON ORDINARY ACTIVITIES BEFORE FINANCE COSTS AND TAXATION | 2,070 | (6,255) | (4,185) | |
| Finance costs | (50) | (449) | (499) | |
|
| _________ | _________ | _________ | |
|
| ||||
| NET RETURN ON ORDINARY ACTIVITIES BEFORE TAXATION | 2,020 | (6,704) | (4,684) | |
| Taxation | (594) | 586 | (8) | |
|
| _________ | _________ | _________ | |
|
| ||||
| NET RETURN ON ORDINARY ACTIVITIES | ||||
| 1,426 | (6,118) | (4,692) | ||
|
| _________ | _________ | _________ | |
| NET RETURN PER ORDINARY SHARE AFTER TAXATION | 0.89p | (3.82p) | (2.93p) | |
|
| _________ | _________ | _________ | |
| DILUTED NET RETURN PER ORDINARY SHARE | 0.88p | (3.78p) | (2.90p) | |
| _________ | _________ | _________ |
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 | reserve | reserve | Total | ||
|
| £'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 | - | - | - | - | - | (1,119) | (1,119) | |
|
| ______ | _______ | ______ | _______ | ________ | _______ | _______ | |
| Balance at 30 September 2009 | 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 | reserve | reserve | Total | |
|
| £'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 (losses)/gains | - | - | - | - | (6,118) | 1,426 | (4,692) | |
| Conversion of founder A shares | - | 95 | - | - | - | - | 95 | |
| Dividends paid | - | - | - | - | - | (5,597) | (5,597) | |
|
| ______ | _______ | ______ | _______ | ________ | _______ | _______ | |
| Balance at 30 September 2008 | 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 | |||
|
| £000 | £000 | £000 | £000 | |
|
|
| ||||
|
|
| ||||
| NON-CURRENT ASSETS |
| ||||
| Investments at fair value through profit or loss | 293,106 | 412,084 | |||
|
|
| ||||
| CURRENT ASSETS |
| ||||
| Debtors | 161 | 288 |
| ||
| Cash and short term deposits | 2,378 | 3,289 |
| ||
| _________ | _________ | ||||
|
| 2,539 | 3,577 |
| ||
|
|
| ||||
| CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR | (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 | 356 | 354 | |||
| Share premium | 79,356 | 78,535 | |||
| Special reserve | 79,148 | 79,148 | |||
| Capital redemption reserve | 3 | 2 | |||
| Capital reserve | 101,498 | 211,386 | |||
| Revenue reserve | 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) | 34 | 35 | |||
|
| _________ | _________ | |||
|
| 265,641 | 375,513 | |||
|
| _________ | _________ | |||
| NET ASSET VALUE PER EQUITY SHARE | 164.9p | 234.8p | |||
CASHFLOW STATEMENT (audited)
| | | | For the year | For the year | ||
| | | | ended 30 September | ended 30 September | ||
| | | | 2009 | 2008 | ||
| | | £'000 | £'000 | £'000 | £'000 | |
| | | | | | | |
| NET CASH OUTFLOW FROM OPERATING ACTIVITIES | | | (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 | | (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 | | - | | |
| | | | | | | |
| 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 debt | | | (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) | |
| | | |
| | 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 |
| | | £'000 | £'000 |
| 3. | Income | | |
| | | | |
| | 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 |
| | | ____________ | ____________ |
| | | | |