SPPC.L Regulatory News (SPPC)

9 Jul 2008 07:00



Preliminary Results for the Year Ended 31 March 2008

St Peter Port Capital Limited ("the Company" or "St Peter Port"), the AIM listed investment company whose aim is to generate value by investing in growth companies shortly before an initial public offering ("IPO") ("pre-IPO companies"), announces its preliminary results for its first year of investment following its own successful IPO on AIM on 16 April 2007 which raised £75m in new money.

Highlights

invested in 32 pre-IPO companies at year end

subsequently, a further £4.3m invested in two pre-IPO companies

NAV of 102.5p per share, up 5.1% since flotation 

Profit of £3.7m, eps of 4.9p pence

realised more than £11m in cash from pre-IPO investments in 2008/9, generating a gain on investment of 56%

further liquidity events expected in 2008 H2

£25m currently available to invest in pre-IPO opportunities

Bob Morton, Chairman of St Peter Port, said: "The Board believes that the Company's strategy is beginning to bear fruit and that the performance is creditable given the difficult market conditions. The Investment Manager's focus on sectors where profitable exits remain a good prospect and on seeking down round protection wherever possible should hold the Company in good stead. The Board views the outlook with confidence."

Tim Childs, Chief Executive of St Peter Port Investment Management Limited, said: "The Company has, over the last 3 months, made disposals of more than £11m, realising a gain of £4m and generating a return on investment cost of 56%. In addition, there are ten or more companies in the portfolio where IPOs, fund-raisings at a significant premium or other similar "liquidity" events are expected by their directors in the second half of 2008. Three of these are expected in the next few weeks."

For further information: 

St Peter Port Capital Limited

Peter Griffin - 01481 751000

St Peter Port Investment Management Limited

Tim Childs - 020 7877 5064 / Graham Shore - 020 7408 4090 

Citigate Dewe Rogerson 

Angharad Couch/ Lindsay Noton - 020 7638 9571

Deloitte & Touche LLP- Nominated Adviser 

Jonathan Hinton / James Lewis - 020 7936 3000 

Shore Capital Stockbrokers Limited - Broker

Dru Danford - 020 7408 4090 

Notes for Editors

St Peter Port Capital Limited floated on AIM on 16 April 2007, raising £75m in new equity. The Company is a Guernsey registered closed-ended investment company. The Company's objective is to achieve returns from the uplift on or shortly after IPO, but the exit from the investment could also be a trade sale.  The universe for investment is principally companies across a broad range of sectors and geography expecting to conduct an IPO in the months after the Company's investment.  The initial focus is on companies targeting UK, US and Commonwealth stock markets although pre-IPO companies looking to float on other exchanges will also be considered.  The Company appointed St Peter Port Investment Management Limited, a joint venture between Broughton Investments Group Limited ("Broughton"), a company in which Tim Childs is interested, and Shore Capital Limited ("Shore Capital"), the absolute return fund management specialist which currently manages approximately US $3 billion, to act as its investment manager ("the Investment Manager").

The Investment Manager is mandated to manage the Company's portfolio actively with the aim of achieving its investment objective. Initially, whilst suitable investments are being identified, the Investment Manager is seeking to minimise cash drag by investing a significant proportion of the net proceeds of the placing in absolute return products intended to generate a positive return, principally hedge funds and funds of hedge funds.  Chairman's Statement

Introduction

I am pleased to report upon our first year of investment. The Company was incorporated on 6 March 2007 and was admitted to AIM on 16 April 2007 when it completed its fund raising of £75m before expenses. It made its first pre-IPO investments in May and these results therefore represent the outcome of about 11 months of investing.

Investment strategy

The Company's investment strategy is to build a diversified portfolio of growing small to mid-sized companies which are seeking to achieve an IPO within a reasonably short time horizon. It is intended that investments are opportunistic and not sector or regionally focused and that they are typically passive in nature. The Company may also invest in quoted companies (for example, where a company becomes a shell and is about to make a major acquisition).

Over the first year, the Company has weighted its investments principally towards three sectors: oil and gas exploration and production; mining and resources and renewable energy/ clean technology. This focus reflects two factors: the thrust of pre-IPO opportunities identified by the Investment Manager from introducers in the investment industry; and the Investment Manager's perception of what kinds of company could be expected to make it to a successful IPO when sentiment was adverse and becoming progressively more adverse.

The intention set out in the Company's admission document was to build a portfolio of investments of in the region of forty companies over twelve to eighteen months. The Investment Manager is mandated to manage the Company's portfolio actively in order to enhance returns, with an emphasis on realising gains in the medium term. The intention is to re-invest the proceeds of realisations into new pre-IPO investments. In the period before the cash is fully deployed in pre-IPO investments, the Investment Manager has been seeking to minimise cash drag by investing a significant proportion of the net proceeds of the placing in a range of absolute return products intended to generate a positive return, principally hedge funds and funds of hedge funds.

Progress to Date

In this first period, the Company has made a strong start, making investments during the period of over £52.5m in 32 pre-IPO companies. The average size of investment per company was £1.6m. The balance of its funds was invested in hedge funds (directly or in a fund of funds) or held in cash.

The investments made follow the stated strategy and represent a promising portfolio of companies, some of which have come to market and others of which are planning imminent IPOs.  The Company has, over the last 3 months, made disposals of more than £11m, realising a net gain of £4m and generating a return on investment cost of 56%. In addition, there are more than ten companies in the portfolio where IPOs, fund-raisings at a significant premium or other similar "liquidity" events are expected by their directors in the second half of 2008. Three of these are expected in the next few weeks. Since the period end, the Company has invested a further £4.3m in two additional pre-IPO companies. The portfolio and its prospects are discussed in the Investment Manager's Report below.

Financial Results

The Company is a Guernsey domiciled closed-ended investment company whose shares are traded on AIM. As such, it reports its results under IFRS and in particular under IPEVC, an international guideline for valuing unquoted investments. This, in contrast to BVCA guidelines which used to be commonly adopted by companies holding unquoted investments, requires the Board to attempt to determine the fair market value of each investment held and to revalue the Company's holdings to that value, whether this requires an increased or decreased valuation and irrespective of whether there has been any investment or sale by a third party which would help validate that change in the holding value. The Company is reporting using this new set of principles.

In most of the portfolio (unsurprisingly as its holdings were recently acquired) there had not by the year end been any event which would provide a fresh external indication of value. In such cases the Board decided that cost was a fair guide to market value. However, in the case of those investments made in foreign currency, their value has been adjusted to reflect differences in exchange rates between the date of investment and the year end. Where companies are already quoted, their shares have been valued at the bid price. In the case of a small number of unquoted companies, the value was increased to reflect known re-pricing (e.g. from a grey market).

The income statement for the period shows that the Company made a profit of £3.7m for the year. This reflects increased valuations as well as the small excess of finance income over operating expenses of the Company. The foreign exchange movements in relation to pre-IPO investments and changes in hedge fund values ended up more or less cancelling each other out.

The balance sheet shows pre-IPO investments (including those which at that point had a listing) of £55.9m. This represented a large reduction in the holdings of the hedge funds which were £32.0m at 30 September 2007. At the year end, £8.7m was held in hedge funds and £12.5m was represented by cash, bank commercial paper and amounts due in settlement. Total assets were £77.1m, giving a net asset value of 102.5p per share.

As at 30 June, as a result of realisations, the Company held approximately £25m in cash and other liquid

assets (including hedge funds) which is available for investment into suitable pre-IPO opportunities.

Outlook

The Board believes that the Company's strategy is beginning to bear fruit and that the performance is creditable given the difficult market conditions. The Investment Manager's focus on sectors where profitable exits remain a good prospect and on seeking down round protection wherever possible should hold the Company in good stead. The Board views the outlook with confidence.

Bob Morton

Chairman

  Investment Manager's Report

As stated in the Company's investment strategy at admission, the investments we have sought to make have been opportunistic rather than sectorally or regionally focused. Our principal criterion has been whether we believe that the potential investee company is a credible candidate for a successful IPO in the near future, taking into account our assessment of likely market conditions and development of the company. In this process, we are conditioned by the views of the brokerage community who bring us deals in which to invest. If they believe that, for example, oil and gas companies with exciting prospects can still successfully float in current market conditions whilst the prospects for retailers to float are currently much cloudier, then they will not bring focused retailers as pre-IPO deals and we cannot therefore select them. But we can pick and choose amongst those deals which they do bring forward and select those which we think have the best prospects.

It is for this reason that our portfolio of investments made to date is heavily weighted towards three sectors: oil and gas (including two investments in companies using novel techniques to improve recovery rates); minerals including copper, gold, nickel, uranium, iodine and rarer elements; and environmentally friendly technologies including cleaner/more efficient ways of burning conventional fuels, second generation bio fuels and hydrogen technologies. These sectors account for the great majority of investments.

Many of the investments in these sectors are outside of the UK, and a significant proportion are sourced from

brokers whose main business is outside the UK. We expect many of them to list in North America

(particularly Canada) or other markets rather than the UK. We have provided details of most of these

investments in earlier announcements.

Since the last announcement, we have made two further investments. The first is in Celadon Mining, a

company which has Chinese Government support to consolidate the coking coal sector in the principal

producing area of China, in which we have invested £3.75m in two rounds the second at a 50% premium to

the first. The company plans to list in Hong Kong. The other is Jordan Energy, a company with rights to extract

large shale oil deposits in Jordan, in which we invested US$1.05m.

Table 1 shows the breakdown of the pre-IPO investments by sector as at 31 March 2008:

Table 1

Investments by Sector as at 31 March 2008 (at cost) 

Table 2 shows the same information at the date of this report.

Table 2

Investments by Sector at cost as at 30 June 2008 

Pre IPO Investments- Detail

The following is a list of the pre-IPO Investments held at the year end.

Investment Structuring- Down- Round Protection and Investment Size

In structuring investments, we have been very aware of the difficult stock market conditions affecting smaller companies since we began investing. For this reason, we have given strong emphasis to protections as a condition of our investment, principally by investing in convertible loans whose pricing is at a pre-set discount to the IPO price, often with a ratchet to increase the discount if the IPO is delayed. In some cases, we have also obtained fuller down-round protections. In others, particularly where the pre-IPO placing is in strong demand we have not obtained such protections, but we believed in those cases that a successful IPO at a substantial uplift was a highly likely event.

In general, we have also sought to ensure that our size of investment was tailored to the size of the company in which we invested, the size of the pre-IPO placing and the likely size of the IPO.

Hedge Funds Our strategy has been to hold a large proportion of the Company's assets not yet committed to pre-IPO investments in hedge funds. The aim was to enhance return and avoid cash drag. However, as a result of turbulent markets and underperformance from equity market neutral funds, the funds have performed below expectations and during the period generated a small loss. Since the period end performance has improved and since the Company launched, these holdings have approximately broken even. As the portfolio of pre-IPO investments has grown we have reduced our holdings of hedge funds. 

Pipeline

We continue to benefit from a strong flow of pre-IPO deals being offered to us. In the light of the difficult markets we have raised our threshold for approving an investment. We expect to continue to invest over the next few months, both follow-on investments and in new companies.

Pre IPO to IPO - Investment Progress

The Company has, over the last 3 months, made disposals of more than £11m, realising a gain of £4m and generating a return on investment cost of 56%. In addition, there are ten or more companies in the portfolio where IPOs, fund-raisings at a significant premium or other similar "liquidity" events are expected by their directors in the second half of 2008. Three of these are expected in the next few weeks.

Tim Childs

St Peter Port Investment Management Limited

  St Peter Port Capital Limited 

Balance Sheet 

As at 31 March 2008 

.

  St Peter Port Capital Limited 

Income Statement 

For the period from 6 March 2007 to 31 March 2008

  St Peter Port Capital Limited

Statement of Changes in Equity

For the period from 6 March 2007 to 31 March 2008

  St Peter Port Capital Limited 

Cash Flow Statement

For the period from 6 March 2007 to 31 March 2008 

  1. General Information

St Peter Port Capital Limited (the "Company") is a Guernsey registered, closed ended investment company. The Company has been established with the aim of generating value for Shareholders by investing in growth companies, which are seeking to achieve an initial public offering ("IPO") within a reasonably short time horizon. Investments will be made across a broad range of sectors and geography. 

The company's website is www.stpeterportcapital.gg. 

The Fund is listed on the London Stock Exchange, Alternative Investment Market (AIM).

2.  Financial Information

The report on the full financial statements for the period ended 31 March 2008 is yet to be signed and accordingly the information presented in this preliminary announcement is unaudited. In addition, whilst the financial information included in this preliminary announcement has been computed in accordance with IFRS, this announcement does not itself contain sufficient information to comply with IFRS. The Company expects to publish full financial statements that comply with IFRS within the next 30 days. The accounting policies used in arriving at the

preliminary figures are consistent with those which will be published in the full financial statements.

3. Earnings Per Share

The calculation of basic earnings per share is based on the net profit from continuing operations for the period and on 75,000,000 shares being the weighted average number of shares in issue during the period. There is no difference between basic earnings per share and diluted earnings per share.

4.  Net Asset Value per Share 

5. Taxation

The income tax rate applicable to the Company in Guernsey is nil (0%). With effect from 1 January 2008 the

standard rate of income tax of Guernsey companies has changed. Previously, the Company in Guernsey held a tax

exempt status under the provision of The Income Tax (Exempt Bodies)(Guernsey) Ordinance 1989.

6. 2008 Report and Accounts

Copies of the 2008 accounts will be posted to shareholders in due course. Copies of this announcement are

available from the Company at PO Box 119, Martello Court, Admiral Park, St Peter Port, Guernsey, GY1 3HB.