Final Results
PANTHEON INTERNATIONAL PARTICIPATIONS PLC
FINAL RESULTS FOR THE YEAR ENDED 30 JUNE 2008
The full Annual Report and Accounts can be accessed via the Company's website
at www.pipplc.com or by contacting the Company Secretary on telephone 01392
412122.
Financial Summary
Highlights
30TH JUNE 2008 30TH JUNE 2007 CHANGE
Summary of results
NAV per share 1,108.7p 919.2p 20.6%
Total assets less current £736.1m £610.3m 20.6%
liabilities
Ordinary shares
Share price 750.0p 917.5p (18.3%)
Discount to NAV 32.4% 0.2% -
Redeemable shares
Share price 819.5p 897.5p (8.7%)
Discount to NAV 26.1% 2.4% -
Investment activity
Invested in private equity £272.5m £218.1m 24.9%
assets
Received from private equity £133.0m £146.7m (9.3%)
assets
1 YEAR 3 YEARS 5 YEARS 10 YEARS SINCE
INCEPTION
*
Performance % % P.A. % P.A. % P.A. % P.A.
NAV per share 20.6 19.0 15.2 12.1 14.5
Ordinary share price (18.3) 4.9 11.1 11.9 13.2
FTSE All Share (13.0) 7.2 11.3 3.5 8.1
MSCI World (9.4) 5.7 8.4 2.8 6.4
* PIP was launched on 18th September 1987
Capital Structure
Ordinary shares 37,521,013
Redeemable shares 28,871,255
Total 66,392,268
CHAIRMAN'S STATEMENT
I am pleased to report an increase of 20.6% in PIP's NAV per share in the
financial year to 30th June 2008. However, the ordinary share price fell by
18.3% as the discount widened to 32.4% from 0.2% at the beginning of the year.
In part, this was due to the market's increasing concerns over the effect of
recent equity market volatility on private equity valuations and the current
uncertain outlook for corporate profits.
Our net assets rose by £125.8 million to £736.1 million during the year, mainly
as a result of an uplift in the value of investments. This performance was
aided by currency movements, in particular, the strengthening of the euro which
appreciated 15.0% against sterling, resulting in a £31m increase in the
sterling value of the private equity portfolio.
Investment Activity
The lack of availability of debt and an increase in investor uncertainty has
resulted in reduced activity levels in the market. These conditions contributed
to a reduction in distributions and, to a lesser degree, a slower rate of new
investment achieved through our primary programme in the second half of the
year. In the year, PIP invested £272.5 million in underlying private equity
assets. Of this amount, £145.4m was paid to meet investment calls arising from
PIP's primary portfolio and £127.1m was applied to the secondary portfolio to
complete 13 new secondary purchases and to pay further calls. The total amount
of cash distributed to PIP as a result of investment realisations during the
year was £133.0 million. Of this amount, £51.3m came from the primary portfolio
with £81.7m arising from the secondary portfolio.
Primary Commitments
Despite the challenging market conditions, the fundraising environment remained
active. During tough economic periods, the dispersion of performance in private
equity funds tends to increase. Pantheon's relationships with top-tier private
equity fund managers helps to ensure that PIP gains access to top quality funds
worldwide - a factor that is critical to achieving good performance.
PIP committed a total of £237.0 million to primary funds, encompassing 13
Europe-focused funds (£161.0m), 22 US-focused funds (£72.5m) and one
Israeli-focused fund (£3.5m). In addition, PIP continued to invest in Asia via
Pantheon's Asian fund of funds, which committed to 15 new funds during the
year.
Secondary Commitments and Co-Investments
PIP committed £112.5 million to 13 secondary transactions to purchase existing
interests in private equity funds. More than half of the value of these
transactions was buyout-focused, with the remainder focused on venture capital
and special situations.
In recent times, changes in investor strategy and the rebalancing of portfolios
have been the most common reasons for sales. However, the debt market
correction is increasing deal flow from investors seeking liquidity. The large
flow of capital into the private equity market prior to the credit crisis
should increase the supply of attractive opportunities.
PIP committed £6.9m to 4 direct co-investments as part of its strategy to
deploy additional capital selectively alongside top tier managers.
Market Review and Prospects
Since August last year, the market has been increasingly characterised by the
lack of available debt financing following the "credit crunch" and a weaker
economic outlook. The inexpensive loans offered to buyout firms over the past
few years are no longer readily available, particularly at the larger end of
the market. As a result, in the second half of the financial year, we have seen
in the buyout market a reduction in large transactions, secondary buyout
activity and debt recapitalisations. Relatively speaking, the investment
activity of venture capital firms has been less affected due to their lesser
reliance on debt. However, both venture capital and buyout firms have been
impacted by the slowing of the IPO and M&A markets, reducing exit opportunities
and subsequent fund distributions.
As a result of the debt market correction, fears have mounted over possible
knock-on effects to the wider economy, and in particular corporate profits.
Early warning signs of recession and rising inflation rates have taken their
toll on investor sentiment, with falls of around 13% and 9% in the FTSE All
Share and MSCI World Indices respectively over PIP's reporting period. Most
buyout assets are valued by comparison to listed companies, and because of the
reporting time lag, the impact of falls in the valuation multiples of listed
companies on private equity valuations remains to be seen. It would not be
surprising if in certain circumstances some portfolio companies, especially
those acquired on higher purchase multiples, or with reduced earnings or high
levels of debt, experience pressure on valuations in the near term.
Consequently, the outlook for returns in the buyout market is lower than the
returns of the recent past. However, weak markets which may have a negative
impact on valuations in the short term, can also present attractive investment
opportunities. Lower valuations tend to provide circumstances where private
equity managers can purchase good quality assets at attractive prices.
The diversification of PIP's portfolio across buyout, venture and special
situations sectors, and across all major geographical regions of the private
equity industry, should help mitigate any difficulties experienced by specific
companies or sectors in the current economic conditions. As always, it is
important for investors in private equity to ensure that they select the
managers that are able to continue to deliver superior performance across the
market cycle. Pantheon's strategy is to focus on managers that can demonstrate
clear value creation. Much of this value creation is centred on greater
efficiency and building scale in middle market businesses. The ability of PIP
to benefit from Pantheon's truly global expertise and experience places it well
for superior performance over the long term.
Capital Structure and Financing
As planned, during the year PIP increased by £30m the total amount of "standby"
commitments under which institutional investors have agreed to subscribe, if
called upon by PIP to do so, for new redeemable shares. This brings the total
aggregate amount under these "standby" agreements to £150m.
As at 30th June 2008, PIP had utilised £70m of its £150m available bank loan
facility during the year to facilitate the execution of its investment
strategy. At the end of August, the Company had utilised a further £34m.
In the coming quarters it is likely that calls will exceed distributions. While
we have substantial facilities available to us, as referred to above, to meet
the calls, it remains a key objective to continue to secure resources to enable
PIP not only to fund outstanding commitments but also to commit to new
investments. Until there is a full recovery in the level of distributions, PIP
will suspend its new fund commitment programme to ensure that any cash
resources not needed to finance outstanding commitments can be applied to
prioritising secondary activity.
Annual General Meeting and Presentation
The Annual General Meeting of the Company will take place at 12 noon on 25th
November 2008 at Pantheon's office. Pantheon will give a presentation on the
progress of PIP's portfolio. Both the Directors and Pantheon look forward to
meeting shareholders informally after the meeting.
Tom Bartlam
Chairman
6th October 2008
THE MANAGER'S REVIEW
Market Review
The private equity industry was affected by the significant tightening in the
debt markets, resulting in a slowdown in investment activity in the second half
of the year, particularly at the larger end of the buyout market. Depressed IPO
and M&A markets resulted in a corresponding decrease in distributions. The
current conditions could provide opportunities for private equity managers to
acquire quality assets at attractive prices.
Buyout activity in the USA has been subdued, in large part, by the reduction in
the liquidity of the leveraged debt market. During the first quarter of 2008,
buyout volume was $46 billion, a 55% decrease over the first quarter of 2007.
The biggest impact was felt at the larger end of the buyout market, where the
supply of finance has almost completely disappeared, whereas activity levels at
the mid and small end of the buyout market have held up relatively well.
Current market conditions are likely to reduce the valuation multiples applied
to buyout transactions, providing more attractive entry opportunities in the
coming year. Vintages at the height of previous economic uncertainty, such as
1993 and 2003 have provided strong returns, and this current period of market
instability may prove to be no different.
The US venture capital market has not experienced as significant a slowdown in
fundraising or investment activity as the US buyout market, primarily due to
its lesser dependency on debt financing. However, the sector has been heavily
impacted by the slowing IPO and M&A markets. US venture-backed firms did not
launch a single IPO in the second quarter of 2008, a situation which has not
been seen since early 2003. Additionally, venture-backed M&A activity dropped by
42% year on year - its lowest level for at least 10 years. Notwithstanding
this, we believe that managers are able to continue to build value within PIP's
venture capital portfolio, and expect returns to pick up once the exit
environment improves.
The European buyout market has been subdued similarly to the US. In the first
half of 2008 the continental European buyout market was at its lowest level
since 2004 with deals totalling €22.7 billion, a 64% drop year-on-year. The
impact was felt most in the large end of the private equity market (defined as
deals greater than €1 billion), where the value of the combined deals plummeted
to €6.4 billion (as a reference, large deals for the full year 2007 totalled €86
billion). Additionally the number of exits in the first half of 2008 decreased
42% year-on-year. This reduced activity has had a knock-on effect on the prices
firms are willing to pay in European buyout transactions, which should provide
more attractive entry opportunities in the coming year.
Private equity firms continue to extend themselves internationally, with a
notable trend for US private equity funds to increase their focus on Europe and
Asia. Up to mid-August 2008, more than half of the takeovers announced by US
private equity firms involved foreign targets, up from 35% in all of 2007. This
highlights the importance of having a global perspective - a Pantheon
characteristic that has consistently, over many years, ensured access to top
class private equity opportunities worldwide.
The Asian market was not immune to the recent concerns of investors. Investment
activity in the region during the first half of 2008 was down 23% year on year,
while the value of private equity IPOs and M&A exits was down 41% and 21%
respectively. Asia is growing in importance as a private equity market. It is
currently a smaller opportunity than either the US or European markets but its
potential is expanding rapidly.
The secondaries market has continued to mature this year. We are seeing
increased deal flow as more investors are seeking liquidity in the tough
economic conditions. We also expect the re-balancing of portfolios between
buyout and venture and the desire of limited partners to manage their
portfolios to stimulate further activity in the secondary market. Pantheon's
reputation and skill as one of the best private equity fund secondary investors
enables PIP, subject to available financing, to benefit from the attractive opportunities
that we are seeing in the market place today. It remains a priority of the
Company to raise capital in order to finance such opportunities.
Portfolio Review
The underlying companies in the portfolio range from large and mature
industrial enterprises with multinational operations to early-stage ventures
operating at the leading edge of technological development. All the companies
have one factor in common: the influence of professional private equity
managers who are motivated to maximise the value of each underlying investment.
Geographic Spread
While the USA remains the most developed and largest private equity market, the
European market continues to mature and grow in relative size. The weighting to
the USA, at 53% is down from 59% at the start of the year. PIP's exposure to
Asia and other is 7%, up from 6% at 30th June 2007.
USA 53%
Europe 40%
Asia and other 7%
Stage Composition
The table below shows the breakdown of the portfolio by the stage focus of the
underlying funds. Buyouts made up 61% of the portfolio at 30th June 2008. PIP's
performance in the year has been mainly driven by the buyout sector, where PIP
has the majority of its assets. The weighting to venture capital funds
decreased from 29% to 27%.
Buyouts 61%
Venture 27%
Special Situations 5%
Generalist 5%
Directs 2%
Sector Composition
PIP's portfolio is well diversiï¬ed by the sectors in which the underlying
companies operate. This sectoral diversiï¬cation helps to minimise the effects
of cyclical trends or volatility within particular industry segments.
Other services & manufacturing 33%
Consumer-related 15%
Computer-related 13%
Medical / Health-related 11%
Communications 8%
Industrial products 8%
Biotechnology & pharmacology 4%
Energy-related 4%
Other electronics-related 4%
Maturity
PIP's portfolio contains a wide range of fund vintages (referring to the year
the fund was established), as shown in the table below. Private equity funds
typically take up to ï¬ve years of a fund's life to invest the majority of their
available capital into underlying companies. As a result, signiï¬cant flows of
realised proceeds tend not to be returned to investors until the middle and
later stages of a fund's life.
2007-08 13%
2006 14%
2005 13%
2004 11%
2003 3%
2002 3%
2001 7%
2000 19%
1999 6%
1998 and earlier 11%
Listed Company Exposure
PIP's portfolio of funds primarily comprises private equity assets. These funds
may also hold listed companies as a result of recent IPOs within fund
portfolios that may be held subject to selling restrictions or in some
instances due to private investments in public equity (PIPEs).
Underlying listed company interests represented 8% of PIP's investments at 30th
June 2008.
Hedging
Due to the uncertain timing of cash flows in and out of underlying private
equity assets, it is not possible to match currency movements perfectly with
hedging instruments. For this reason, the present policy of the PIP Board is
not to hedge the portfolio against currency movements except where there is a
signiï¬cant change in the geographic weighting that is expected to be of a
short-term nature. PIP did not hedge the portfolio against exchange rate
movements during the ï¬nancial year. The net effect of currency movements
resulted in a £31m increase in the sterling value of the private equity
portfolio. This compares to a £25.1m decrease in the previous year.
Activity
PIP has made commitments of £356.4 million to private equity funds during the
past year. Of this, £237.0m was committed to new funds, £112.5m was committed
to the purchases of secondary investments and £6.9m was committed to the
purchase of direct holdings in private companies.
New Investments
PIP committed a total of £237.0 million to 36 new funds in the year, of which £
18.7 million had been drawn down by 30th June 2008. 22 of the new funds are
US-based funds (total £72.5m), of which ten are focused on venture stage
investments (£21.5m), ten on buyouts (£45.9m) and two on special situations (£
5.1m). The remaining new fund commitments during the year were to nine European
buyout funds (£136.5m), three European venture funds (£11.3m), one European
special situations fund (£13.2m) and one Israeli venture fund (£3.5m). PIP
continues to invest in Asia via Pantheon's Asia fund of funds. During the year,
these funds committed to 15 new investments.
Secondary Acquisitions
PIP completed 13 secondary purchases during the year at a value of £112.5
million including unfunded commitments.
The 13 transactions comprised interests in approximately 65 underlying private
equity funds with more than half of the committed capital focused on buyout,
with the remainder focused on venture capital and special situations.
Distributions
PIP enjoyed another good year for distributions. In all, the Company received £
133.0 million in proceeds from the portfolio, equivalent to 25% of opening
private equity assets.
Secondary £81.7m
Primary £51.3m
TOTAL £133.0M
Calls
Cash calls increased during the year by 25% to £272.5 million.
Primary portfolio £145.4m
Secondary portfolio £127.1m
TOTAL £272.5M
Outstanding Commitments
PIP has had an active year, with signiï¬cant activity in both primary
commitments and secondary purchases. As a result, PIP's outstanding commitments
to investments rose to £641.2 million at 30th June 2008, compared with £528.0
million at 30th June 2007.
Finance
During the year PIP has drawn down £70 million of its £150 million loan
facility to allow the Company to carry out its investment strategy.
As planned, during the year PIP entered into new five-year `standby' agreements
with two institutional investors under which the investors have committed to
subscribe, if called upon by PIP to do so, a total of £20 million for new
redeemable shares. In addition, the commitment under an existing standby
agreement with another institutional investor was increased by £10 million.
This brings the total aggregate amount which institutional investors have
committed, if required, to subscribe for new redeemable shares under standby
agreements to £150 million.
PIP's ability to call on these commitments is subject to PIP retaining
sufficient unutilised redeemable share capital and shareholder authority to
allot on a non-preemptive basis the redeemable shares which would be required
to be issued and certain events of default (including a change of control, the
appointment of a receiver or a similar insolvency event in relation to PIP or
Pantheon, or a successor manager approved by the investors, ceasing to be PIP's
manager) not occurring.
PIP pays a fee of 0.5% per annum on these undrawn commitments. The purpose of
these agreements is to provide an additional level of assurance that PIP will
be in a position to meet portfolio calls, irrespective of market appetite for
issues of new shares and other sources of capital in the short term.
Pantheon Vehicles
Pantheon is not entitled to management and commitment fees in respect of PIP's
holdings in, and outstanding commitments to, the ï¬rm's managed fund-of-funds
vehicles. In addition, Pantheon has agreed that PIP will never be disadvantaged
in terms of fees compared with the position it would have been in had it made
investments directly into the underlying funds rather than indirectly through
such fund-of-funds vehicles.
Company Strategy
PIP's primary investment objective is to maximise capital growth by investing
in a diversified portfolio of private equity funds and, occasionally, directly
in private companies.
The spread of performance in private equity is much wider than in other asset
classes and the selection of managers has a signiï¬cant influence on investment
performance. As a specialist fund-of-funds manager monitoring and researching
the global private equity market, Pantheon, PIP's Manager, is well positioned
to identify fund managers who have the skills and strategies to deliver
superior performance within their particular market segments.
PIP's strategy is to invest with leading private equity managers whilst
reducing investment risk through diversiï¬cation of the underlying portfolio by
geography, manager, investment stage and sector. This strategy is implemented
through PIP's primary and secondary investment programmes. PIP has the
flexibility to vary the size of the primary and secondary investment programmes
depending on available financing at the point of commitment.
Primary Programme
The primary programme invests in private equity funds when they are ï¬rst
formed. Pantheon aims to secure access to superior managers whose funds are
frequently oversubscribed and to identify high-quality managers often
overlooked by the market. Investments are made on a pro-rata basis alongside
Pantheon's regional fund-of-funds.
Through the primary programme, PIP invests in fewer than 2% of the estimated
universe of private equity funds and thus is able to substantially outperform
the market averages, given the high dispersement of returns between managers.
The primary programme enables PIP to invest strategically in speciï¬c areas of
the market, put money to work steadily over time and gain access to the very
best funds.
Secondary Programme
The secondary programme purchases existing investments in private equity funds.
Typically these investments are acquired between three and six years after a
fund's inception. PIP beneï¬ts because the fees and expenses in the ï¬rst few
years have been paid and distributions from the fund will be returned over a
shorter time period.
In accordance with the terms of its management agreement with Pantheon, PIP is
entitled under Pantheon's allocation policy to the opportunity to co-invest in
a predetermined ratio alongside Pantheon's global secondary fund programme,
beneï¬ting from access to larger secondary opportunities that it would not have
had the capacity to complete alone. The secondary programme enables PIP to
acquire attractively priced secondary interests as and when these become
available and is thus able to outperform market averages through judicious
pricing and timing.
This dual approach of investment in the primary and secondary market is more
consistent and efï¬cient than investing solely through either the primary or
secondary market.
The 20 largest managers as at 30th June 2008
NUMBER MANAGER REGION STAGE % OF PIP'S TOTAL
PRIVATE EQUITY
ASSET VALUE
1 Safeguard USA BUYOUT 3.3%
International
2 Apax Partners EUROPE BUYOUT 3.0%
3 Nordic Capital EUROPE BUYOUT 2.8%
4 Argan Capital EUROPE BUYOUT 2.4%
5 Industri Kapital EUROPE BUYOUT 2.3%
6 BC Partners EUROPE BUYOUT 2.0%
7 Nova Capital EUROPE BUYOUT 1.7%
8 ABS Capital Partners USA GENERALIST 1.7%
9 Vision Capital EUROPE BUYOUT 1.6%
Partners
10 Barclays Private EUROPE BUYOUT 1.6%
Equity
11 Oaktree Capital GLOBAL GENERALIST 1.5%
Management
12 Doughty Hanson and EUROPE BUYOUT 1.5%
Co.
13 Altor Capital EUROPE BUYOUT 1.4%
14 Brentwood Associates USA BUYOUT 1.4%
15 Carlyle Group GLOBAL GENERALIST 1.4%
16 Avista Capital USA BUYOUT 1.4%
17 CVC EUROPE BUYOUT 1.4%
18 Permira Europe EUROPE BUYOUT 1.2%
19 Catalyst Investors GLOBAL GENERALIST 1.2%
20 Hutton Collins EUROPE MEZZANINE 1.2%
The 20 largest companies as at 30th June 2008
NUMBER COMPANY SECTOR % NAV
1 AMG Advanced INDUSTRIAL PRODUCTS 2.3%
Metallurgical Group *
2 ALD International INDUSTRIAL PRODUCTS 1.3%
3 SciLabware BIOTECHNOLOGY AND PHARMACOLOGY 1.3%
4 Nycomed MEDICAL/HEALTH-RELATED 1.1%
5 MessageLabs Group COMPUTER-RELATED 1.1%
6 Hortex CONSUMER-RELATED 0.8%
7 N & W Global Vending OTHER SERVICES AND MANUFACTURING 0.6%
8 LM Glasfiber OTHER SERVICES AND MANUFACTURING 0.5%
9 Cavium Networks * OTHER ELECTRONICS-RELATED 0.4%
10 GCE Gas Control Equipment INDUSTRIAL PRODUCTS 0.4%
11 Trident Components Group OTHER SERVICES AND MANUFACTURING 0.4%
12 American Public Education OTHER SERVICES AND MANUFACTURING 0.4%
13 Lindorff OTHER SERVICES AND MANUFACTURING 0.4%
14 AGR Group * ENERGY-RELATED 0.3%
15 TDC COMMUNICATIONS 0.3%
16 Capio MEDICAL/HEALTH-RELATED 0.3%
17 Spectrum Clubs CONSUMER-RELATED 0.3%
18 Amadeus COMPUTER-RELATED 0.3%
19 Tommy Hilfiger CONSUMER-RELATED 0.3%
20 GSI Commerce * COMMUNICATIONS 0.3%
* Quoted holding as at 30th June 2008
BUSINESS REVIEW
The Business Review which follows is designed to provide shareholders with
information about the Company's business and results in the year to 30th June
2008. It covers the following:
• Description of the Company's business and strategy
• Principal risks and uncertainties facing the Company
• Review of business and results
• Performance measured against key performance indicators
• The Manager's role in managing the Company's assets
Business and Strategy
PIP, a closed-ended investment trust, is the longest established private equity
fund of funds quoted on the London Stock Exchange. It enables investors to gain
access to a substantial portfolio of unquoted companies in the USA, Europe and
Asia, within funds managed by experienced private equity managers selected for
their ability to outperform.
PIP's primary investment objective is to maximise capital growth by investing
in a diversified portfolio of private equity funds and, occasionally, directly
in private companies.
The Company has received written approval from HM Revenue & Customs as an
authorised investment trust, under Section 842 of the Income and Corporation
Taxes Act 1988, up to the year ended 30th June 2006. It is the opinion of the
Directors that the Company has subsequently sought to direct its affairs so as
to enable it to continue to qualify for such approval and the Company will
continue to seek approval under Section 842 each year.
The Company's status as an investment trust allows it to obtain an exemption
from paying taxes on the proï¬ts made from the sale of its investments.
Investment trusts offer a number of advantages for investors, including access
to investment opportunities that might not be open to private investors and to
professional stock selection skills at low cost.
Principal Risks and Uncertainties Facing the Company
The Company invests principally in private equity funds. However, the Company's
strategy is to adopt a global fund-of-funds investment programme maximising
returns through selection of the best available funds and to mitigate
investment risk through diversiï¬cation of the underlying portfolio by
geography, investment stage and sector. The principal risks facing the Company
include the following:
Funding of investment commitments
In the normal course of its business, the Company typically has outstanding
commitments to private equity funds which are substantial relative to the
Company's assets. The Company's ability to meet these commitments is dependent
upon it receiving cash distributions (the timing and amount of which can be
unpredictable) from its private equity investments and, to the extent these are
insufï¬cient, on the availability of ï¬nancing facilities.
Risks relating to investment opportunities
There is no guarantee that the Company will ï¬nd sufï¬cient suitable investment
opportunities, or that private equity funds in which it invests will ï¬nd
suitable investment opportunities, to achieve the level of diversiï¬cation which
the Company seeks to achieve in relation to its investment portfolio.
Financial risk of private equity
The Company invests in private equity funds and unquoted companies which are
less readily marketable than quoted securities and may take a long time to
realise. In addition, such investments may carry a higher degree of risk than
investments in quoted securities. The Company may be adversely affected by
these risks notwithstanding the level of diversiï¬cation which it seeks to
achieve in relation to its investment portfolio.
Long-term nature of private equity investments
Private equity investments are long-term in nature and may take some years
before reaching a level of maturity at which they can be realised. Accordingly,
it is possible that the Company may not receive a return on investments made by
it for a number of years.
Liquidity risk
Due to the Company's investment policy, a large proportion of the Company's
portfolio comprises indirect participations in unquoted investments and direct
holdings in unquoted investments. Such investments are less readily marketable
than quoted securities and realisation of such investments may require a
lengthy time period or may result in distributions in kind to the Company.
Valuation uncertainty
In valuing its investments in private equity funds and unquoted companies and
in publishing its net asset value, the Company relies to a signiï¬cant extent on
the accuracy of ï¬nancial and other information provided by these funds and
companies to the Manager. There is potential for inconsistency in the valuation
methods adopted by these funds and companies. In addition, the information
provided is typically more than 90 days old at the time the net asset value of
the Company's shares is reported.
Gearing
As at 30th June 2008 the Company had borrowings of £72.2m. The use of gearing
can cause both gains and losses in the asset value of the Company to be magniï¬
ed. The Company may also invest in private equity funds or unquoted companies
which are geared by loan facilities that rank ahead of the Company's investment
both for payment of interest and capital. As a consequence, the Company may be
exposed to gearing through the borrowings from time to time of such private
equity funds and companies, therefore investment in such assets presents a
higher risk as to their capital return.
Foreign currency risk
The Company makes investments in US Dollars, Euros and other currencies as well
as Sterling. Accordingly, the Company is exposed to currency exchange rate
fluctuations.
Competition
The Company competes for investments with other investors. It is possible that
competition for appropriate investment opportunities may increase, thus
reducing the number of opportunities available and adversely affecting the
terms upon which such investments can be made.
Unregulated nature of underlying investments
The private equity funds and underlying unquoted investments that form the
basis of the majority of the Company's portfolio are not subject to regulation
by the Financial Services Authority or an equivalent regulatory body. Funds and
unquoted companies in which the Company invests (directly or indirectly) may be
domiciled in jurisdictions which do not have a regulatory regime which provides
an equivalent level of investor protection to that provided under the laws of
the United Kingdom.
Defaults on commitments
If, in consequence of any failure to meet a demand for payment of any
outstanding unpaid capital commitment of the Company to any private equity fund
in which the Company has invested, the Company is treated as a defaulting
investor by that fund, the Company may suffer a resultant dilution in its
interest in that fund and, possibly, the compulsory sale of that interest.
Taxation
Any change in the Company's tax status or in taxation legislation or practice
could affect the value of the investments held by and the performance of the
Company. In addition, the income and gains of the Company from its investments
may suffer withholding tax which may not be reclaimable in the countries where
such income and gains arise.
The Manager
The Company is dependent upon the services of Pantheon as manager and may be
adversely affected if the services of Pantheon cease to be available to the
Company.
REVIEW OF 2007/2008
Net Asset Value
The Company's total net assets attributable to shareholders increased during
the year to £736,105,000 (2007: £610,261,000). The net asset value per ordinary
share was 1,108.7p at 30th June 2008 (2007: 919.2p).
Results and Dividends
As set out in the Income Statement, the Company's net revenue deficit on
ordinary activities before taxation for the year was £8,080,000 (2007: £
2,649,000 ) and capital profits were £133,547,000 (2007: £74,688,000). The
Directors do not recommend the payment of a dividend in respect of the year
ended 30th June 2008 (2007: nil). The results for the year are as set out in
the Income Statement.
An analysis of financial assets and liabilities is included in note 19 to the
financial statements.
Performance Highlights
The Board and the Manager monitor the following Key Performance Indicators:
1. The net asset value over 1 year, 3 years, 5 years, 10 years and since
inception
2. The level of discount
3. The Total Expense Ratio of the Company
PIP's portfolio of investments in private equity funds has shown good
performance in the year to 30th June 2008, leading to an increase in PIP's net
asset value per share of 20.6% to 1,108.7p. Total assets increased by £125.8
million to £736.1 million.
The 20.6% increase in PIP's net asset value per share compares to decreases in
the MSCI World Index of 9.4% and the FTSE All Share Index of 13.0%
respectively. PIP's ordinary share price during the year decreased by 18.3% and
the discount widened to 32.4% by the year end (this compares to a discount of
0.2% at June 2007).
The net asset value per ordinary share and redemption value per redeemable
share at 30th June 2008 was 1,108.7p.
The net asset value returns over 1 year, 3 years, 5 years, 10 years and since
inception are set out in the financial summary. The total expense ratio of the
Company for the year ended 30th June 2008 was 1.45%.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
in respect of the financial statements
The directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have elected to prepare financial
statements in accordance with United Kingdom Accounting Standards (United
Kingdom Generally Accepted Accounting Practice. The financial statements are
required by law to give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
these financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK accounting standards have been followed, subject
to any material departure disclosed and explained in the financial statements;
and
• prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The directors, to the best of their knowledge, state that:
• the financial statements, prepared in accordance with UK Accounting
Standards, give a true and fair view of the assets, liabilities, financial
position and profit of the company; and
• the Directors' report includes a fair review of the development and
performance of the business and the position of the company together with a
description of the principal risks and uncertainties that it faces.
The directors are responsible for keeping proper accounting records that
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 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
In so far as the directors are aware:
• there is no relevant audit information of which the company's auditors are
unaware; and
• the directors have taken all steps that they ought to have taken to make
themselves aware of any relevant audit information and to establish that the
auditors are aware of that information.
The directors are responsible for the maintenance and integrity of the
corporate and financial information included on the company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
By order of the Board
Tom Bartlam
Chairman
6th October 2008
REPORT OF THE INDEPENDENT AUDITOR
The Company's financial statements for the year ended 30 June 2008 have been
audited by Grant Thornton UK LLP. The text of the Auditors Report can be found
in the Company's Annual Report and Accounts at www.pipplc.com.
The statutory accounts for the year ended 30 June 2008 have been prepared on
the basis of the financial information presented by the directors in this
announcement and will be delivered to the Registrar of Companies following the
company's annual general meeting. The financial information for the year ended
30 June 2007 is derived from the statutory accounts for that year which have
been delivered to the Registrar of Companies. The auditors reported on those
accounts; their report was unqualified and did not contain any emphasis of
matter or a statement under s237(2) or (3) Companies Act 1985.
INCOME STATEMENT
Year ended 30th June 2008
2008 2007
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
NOTE £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments at 9 b - 137,351 137,351 - 77,537 77,537
fair value through profit
or loss**
Currency gains / (losses) 17 - 310 310 - (625) (625)
on cash and borrowings
Investment income 2 4,787 - 4,787 7,179 - 7,179
Investment management fees 3 (9,768) (3,660) (13,428) (7,189) (1,607) (8,796)
Other expenses 4 (900) (454) (1,354) (1,152) (617) (1,769)
Return on ordinary (5,881) 133,547 127,666 (1,162) 74,688 73,526
activities before ï¬nancing
costs & tax
Interest payable and 6 (2,199) - (2,199) (1,487) - (1,487)
similar charges / finance
costs
Return on ordinary (8,080) 133,547 125,467 (2,649) 74,688 72,039
activities before tax
Tax on ordinary activities 7 609 (275) 334 - (1,297) (1,297)
Return on ordinary (7,471) 133,272 125,801 (2,649) 73,391 70,742
activities after tax for
the ï¬nancial year
RETURN PER ORDINARY AND 8 (11.25)p 200.73p 189.48p (4.76p) 131.89p 127.13p
REDEEMABLE SHARE
All revenue and capital items in the above statement derive from continuing
operations.
No operations were acquired or discontinued during the year.
* The total column of this statement represents the company's profit and loss
statement prepared in accordance with UK Accounting Standards. The
supplementary revenue return and capital columns are prepared under guidance
published by the Association of Investment Companies.
** Includes currency movements on investments.
There were no recognised gains or losses other than those passing through the
income statement.
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
CAPITAL CAPITAL CAPITAL
SHARE SHARE REDEMPTION RESERVE RESERVE SPECIAL REVENUE
CAPITAL PREMIUM RESERVE REALISED UNREALISED RESERVE RESERVE TOTAL
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Movement for the
year ended 30th
June 2008
OPENING EQUITY 25,428 183,139 26 187,543 131,745 99,861 (17,481) 610,261
SHAREHOLDERS'
FUNDS
Return for the - - - 39,961 93,311 - (7,471) 125,801
year
Expenses relating - 43 - - - - - 43
to issue of
Ordinary shares
written back
CLOSING EQUITY 25,428 183,182 26 227,504 225,056 99,861 (24,952) 736,105
SHAREHOLDERS'
FUNDS
Movement for the
year ended 30th
June 2007
OPENING EQUITY 18,024 91,971 26 151,664 94,233 99,897 (14,832) 440,983
SHAREHOLDERS'
FUNDS
Return for the - - - 35,879 37,512 - (2,649) 70,742
year
Issue of Ordinary 7,404 92,599 - - - - - 100,003
shares
Expenses relating - (1,431) - - - - - (1,431)
to issue of
Ordinary shares
Additional costs - - - - - (36) - (36)
of redemption of
Redeemable shares
CLOSING EQUITY 25,428 183,139 26 187,543 131,745 99,861 (17,481) 610,261
SHAREHOLDERS'
FUNDS
BALANCE SHEET
As at 30th June 2008
2008 2007
NOTE £'000 £'000
Fixed assets
Investments at fair value through profit or loss 9a 806,485 595,994*
Current assets
Debtors 10 927 2,018
Cash at bank 16 8,801 17,010
9,728 19,028
Creditors: Amounts falling due within one year
Other creditors 11 7,888 4,761
Bank loan 16 69,966 -
Bank overdraft 16 2,254 -
80,108 4,761
NET CURRENT ASSETS (70,380) 14,267
TOTAL ASSETS LESS CURRENT LIABILITIES 736,105 610,261
Capital and reserves
Called-up share capital 12 25,428 25,428
Share premium account 13 183,182 183,139
Capital redemption reserve 13 26 26
Capital reserve - realised gains 13 227,504 187,543
Capital reserve - unrealised gains 13 225,056 131,745
Special reserve 13 99,861 99,861
Revenue reserve 13 (24,952) (17,481)
Total equity shareholder's funds 736,105 610,261
Net asset value per share - ordinary and 14 1108.7p 919.2p
redeemable
* Includes fixed interest investments held for cash management purposes
The ï¬nancial statements were approved by the Board on 6th October 2008 and were
signed on its behalf by
Tom Bartlam
Chairman
CASH FLOW STATEMENT
Year ended 30th June 2008
2008 2007
NOTE £'000 £'000
Cash flow from operating activities
Investment income received 4,814 7,107
Deposit and other interest received 210 12
Investment management fees paid (9,198) (6,372)
Secretarial fees paid (102) (109)
Other cash payments (2,022) (2,169)
NET CASH (OUTFLOW) FROM OPERATING ACTIVITIES 17 (6,298) (1,531)
Returns on investment and servicing of ï¬nance
Revolving credit facility and overdraft interest (471) (571)
paid
Loan commitment and arrangement fees paid (552) (1,071)
Redeemable share commitment fees paid (654) (477)
NET CASH (OUTFLOW) FROM RETURNS ON INVESTMENT AND (1,677) (2,119)
SERVICING OF FINANCE
Taxation
Net taxation refund / (charge) 498 (1,230)
NET CASH INFLOW / (OUTFLOW) FROM TAXATION 498 (1,230)
Capital expenditure and ï¬nancial investment
Purchases of investments (280,170) (224,262)
Purchases of government securities (23,455) (251,677)
Disposals of investments 136,172 149,337
Disposals of government securities 94,152 243,503
Realised currency (losses) (94) (152)
NET CASH (OUTFLOW) FROM CAPITAL EXPENDITURE AND (73,395) (83,251)
FINANCIAL INVESTMENT
NET CASH (OUTFLOW) BEFORE FINANCING (80,872) (88,131)
Financing
Proceeds from issues of Ordinary shares - 100,003
Written back / costs of Ordinary shares issue 43 (968)
Costs to redeem Redeemable shares - (36)
Drawdown of loan 69,966 10,211
Repayment of loan - (10,211)
Realised currency (losses) / gains on repayment of (594) 75
revolving credit facility
NET CASH INFLOW FROM FINANCING 69,415 99,074
(DECREASE) / INCREASE IN CASH 15 (11,457) 10,943
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
A summary of the principal accounting policies, all of which have been applied
consistently throughout the year, is set out below.
(A) Basis of preparation
The ï¬nancial statements have been prepared on the historical cost basis of
accounting, except for the measurement at fair value of investments and ï¬
nancial instruments, and in accordance with applicable UK accounting standards
and on the basis that all activities are continuing.
(B) Statement of recommended pratctice
The accounts have been prepared in accordance with the Statement of Recommended
Practice (revised December 2005) issued by the Association of Investment
Companies.
(C) Valuation of investments
All investments held by the Company are classiï¬ed as `fair value through proï¬t
or loss'. As the entity's business is investing in ï¬nancial assets with a view
to proï¬ting from their total return in the form of interest, dividends or
increases in fair value, quoted equities and ï¬xed income securities are
designated as fair value through proï¬t or loss on initial recognition. The
entity manages and evaluates the performance of these investments on a fair
value basis in accordance with its investment strategy. For investments
actively traded in organised ï¬nancial markets, fair value is generally
determined by reference to Stock Exchange quoted market bid prices at the close
of business of the balance sheet date. For investments that are not actively
traded in organised ï¬nancial markets, fair value is determined using reliable
valuation techniques as described below
(i) Unquoted ï¬xed asset investments are stated at the estimated fair value.
In the case of investments in private equity funds, this is based on the net
asset value of those funds ascertained from periodic valuations provided by the
managers of the funds. Such valuations are necessarily dependent upon the
reasonableness of the valuations by the fund managers of the underlying
investments. In the absence of contrary information the values are assumed to
be reasonable. These valuations are reviewed periodically for reasonableness.
In the case of direct investments in unquoted companies, the initial valuation
is based on cost. Where better indications of fair value become available, such
as through subsequent issues of capital or dealings between third parties, the
valuation is adjusted to reflect the new evidence. This information may include
the valuations provided by private equity managers who are also invested in the
company. Valuations are reduced where the company's performance is not
considered satisfactory.
Private equity funds may contain a proportion of quoted shares from time to
time, for example, where the underlying company investments have been taken
public but the holdings have not yet been sold. The quoted market holdings at
the date of the latest fund accounts are reviewed and compared with the value
of those holdings at the year end. If there has been a material movement in the
value of these holdings, the valuation is adjusted to reflect this.
(ii) Quoted investments are valued at the bid price on the relevant stock
exchange.
(iii) The Company may acquire secondary interests at either a premium or a
discount to the fund manager's valuation. Within the Company's portfolio, those
fund holdings purchased at a premium are normally immediately revalued to their
stated net asset values irrespective of the purchase price. Those fund holdings
purchased at a discount are normally held at cost until the receipt of a
valuation from the fund manager in respect of a date after acquisition, when
they are revalued to their stated net asset values, unless an adjustment
against a speciï¬c investment is considered appropriate.
(D) Income
Dividends receivable on quoted equity shares are brought into account on the
ex-dividend date.
Dividends receivable on equity shares where no ex-dividend date is quoted are
brought into account when the Company's right to receive payment is
established. The ï¬xed return on a debt security is recognised on a time
apportionment basis so as to reflect the effective interest rate on the
security.
Other interest receivable is included on an accruals basis.
(E) Taxation
Corporation tax payable is based on the taxable proï¬t for the year. The charge
for taxation takes into account taxation deferred or accelerated because of
timing differences between the treatment of certain items for accounting and
taxation purposes. Full provision for deferred taxation is made under the
liability method, without discounting, on all timing differences that have
arisen but not reversed by the balance sheet date, unless such provision is not
permitted by Financial Reporting Standard No.19: Deferred Tax.
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue on the same basis as the particular item
to which it relates, using the Company's effective rate of tax for the
accounting period.
(F) Expenses
All expenses are accounted for on an accruals basis. Expenses, including
investment management fees, are charged through the revenue account except as
follows:
• expenses which are incidental to the acquisition or disposal of an investment
are treated as capital costs and separately identified and disclosed in note 9;
• expenses of a capital nature are accounted for through the capital account;
and
• investment performance fees.
(G) Foreign currency
The currency of the Primary Economic Environment in which the Company operates
(the functional currency) is pounds Sterling (Sterling), which is also the
presentation currency. Transactions denominated in foreign currencies are
recorded in the local currency at actual exchange rates as at the date of
transaction or, where applicable, at the rate of exchange in a related forward
exchange contract. Monetary assets and liabilities denominated in foreign
currencies at the year end are reported at the rates of exchange prevailing at
the year end or, where appropriate, at the rate of exchange in a related
forward exchange contract. Any gain or loss arising from a change in exchange
rates subsequent to the date of the transaction is included as an exchange gain
or loss in the Income Statement. For non-monetary assets these are covered by
fair value adjustments.
(H) Capital reserve (realised)
The following are accounted for in this reserve:
- investment performance fees;
- gains and losses on the realisation of investments;
- realised exchange differences of a capital nature; and
- expenses of a capital nature.
Capital distributions from investments are accounted for on a reducing cost
basis; cash received is ï¬rst applied to reducing the historical cost of an
investment; a realised gain will be recognised only when the cost has been
reduced to nil.
(I) Capital reserve (unrealised)
The following are accounted for in this reserve:
- increases and decreases in the value of investments held at the year end.
(J) Cash and cash equivalents
Cash and cash equivalents are held for the purpose of meeting short-term cash
commitments rather than for investment purposes. Assets are classified as cash
equivalents if they are readily convertible to cash and are not subject to
significant changes in value.
Cash and cash equivalents are defined as cash at bank.
(K) Investment performance fee
The manager is entitled to a performance fee from the Company in respect of an
initial calculation period of 18 months to 30th June 2008 and, thereafter, in
respect of each 12 calendar month period ending on 30th June in each year. The
fee payable in respect of each such period is 5% of any increase in the Net
Asset Value of the Company at the end of such period over the applicable `high
water mark' plus the hurdle rate of 10%.
The applicable `high water mark' in respect of any calculation period is the
Net Asset Value at the end of the previous calculation period in which a
performance fee was paid, compounded annually at the hurdle rate for each
subsequent completed calculation period up to the commencement of the
calculation period for which the performance fee is being calculated. If no
performance fee has previously been paid, the applicable `high water mark' is
the Net Asset Value at 31st December 2006 (multiplied by 1+(181/365x10%)),
compounded annually at the hurdle rate for each completed 12 calendar month
period after 30th June 2007 up to the commencement of the calculation period
for which the performance fee is being calculated.
2. Income
30TH JUNE 2008 30TH JUNE 2007
£'000 £'000
Income from investments
Unfranked dividends 3,037 6,312
Interest from US ï¬xed interest investments - 37
Interest from UK ï¬xed interest investments 1,540 763
Interest from European ï¬xed interest investments - 55
4,577 7,167
Other income
Deposit interest 210 10
Exchange differences on income - 2
210 12
TOTAL INCOME 4,787 7,179
Total income comprises:
Dividends 3,037 6,312
Interest 1,750 865
Exchange differences on income - 2
4,787 7,179
Analysis of income from investments
Listed overseas - 92
Listed UK 1,540 763
Unlisted 3,037 6,312
4,577 7,167
3. Investment Management Fees
30TH 30TH
JUNE JUNE
2008 2007
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Investment management 9,768 - 9,768 6,722 - 6,722
fees
Irrecoverable VAT - - - 467 - 467
thereon
Investment performance - 3,660 3,660 - 1,503 1,503
fee
Irrecoverable VAT - - - - 104 104
thereon
9,768 3,660 13,428 7,189 1,607 8,796
The investment management fee is payable monthly in arrears at the rate set out
in the Directors' Report in the Annual Report. At 30th June 2008 £1,885,000
(2007: £1,315,000 excluding VAT) was owed to the Manager (see note 18 for more
details on VAT reclaim). A performance fee of £5,163,000 is payable to the
Manager in respect of the initial 18 month performance fee calculation period
ended 30th June 2008, £1,503,000 of which has been accrued in respect of the 6
calendar month period to 30th June 2007 and the balance of £3,660,000 of which
has been accrued in respect of the 12 calendar month period to 30th June 2008.
The basis upon which the performance fee is calculated is explained in note 1
(K) and the Directors' Report in the Annual Report.
4. Other Expenses
30TH 30TH
JUNE JUNE
2008 2007
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Secretarial and 113 - 113 103 - 103
accountancy services
Fees payable to the 34 - 34 26 - 26
Company's auditor for the
audit of the annual
financial statement
Fees payable to the 20 - 20 30 50 80
Company's auditor for
other services: - All
other services
Directors' remuneration 135 - 135 135 - 135
(see note 5)
Fixed income management 41 - 41 49 - 49
Irrecoverable VAT (153) - (153) 51 - 51
Legal and professional 288 454 742 399 567 966
fees
Printing 87 - 87 61 - 61
Other 335 - 335 298 - 298
900 454 1,354 1,152 617 1,769
The directors do not consider that the provision of non-audit work to the
Company affects the independence of the auditors.
5. Directors' Remuneration
Directors' emoluments comprise wholly Directors' fees.
6. Interest Payable and Similar Charges
30TH JUNE 2008 30TH JUNE 2007
£'000 £'000
Bank loan and overdraft interest 885 571
Loan commitment and arrangement fees 725 315
Redeemable share commitment fee 589 601
2,199 1,487
7. Tax on Ordinary Activities
30TH 30TH
JUNE JUNE
2008 2007
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Income tax refund (609) - (609) - - -
Withholding tax deducted - 191 191 - 1,256 1,256
from distributions
Japanese tax charged on - 84 84 - 41 41
capital gains
(609) 275 (334) - 1,297 1,297
Current taxation
The current taxation for the year differs from the standard rate of corporation
tax in the UK (30%). The differences are explained below:
Net return on ordinary (8,080) 133,547 125,467 (2,649) 74,688 72,039
activities before tax
Theoretical tax at UK (2,424) 40,064 37,640 (795) 22,406 21,611
corporation tax rate of 30%
(2007: 30%)
Non-taxable investment and - (41,345) (41,345) - (23,073) (23,073)
currency gains
Effect of expenses in excess - 1,281 1,281 - 667 667
of taxable income
Unused management expenses 2,424 - 2,424 795 - 795
Withholding tax deducted - (191) (191) - (1,256) (1,256)
from distributions
Japanese tax charged on - (84) (84) - (41) (41)
capital gains
Income tax refund 609 - 609 - - -
TOTAL CURRENT TAX 609 (275) 334 - (1,297) (1,297)
Factors that may affect future tax charges
The Company is an investment trust and therefore is not subject to tax on
capital gains. Deferred tax is not provided on capital gains and losses arising
on the revaluation or disposal of investments because the Company meets (and
intends to meet for the foreseeable future) the conditions for approval as an
Investment Trust Company.
No deferred tax asset has been recognised in respect of excess management
expenses and expenses in excess of taxable income as they will only be
recoverable to the extent that there is sufï¬cient future taxable revenue.
The figure as at 30 June 2008 is estimated to be in excess of £25,000,000.
8. Return per Share
30TH 30TH
JUNE JUNE
2008 2007
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
Return per Ordinary and (11.25)p 200.73p 189.48p (4.76)p 131.89p 127.13p
Redeemable share
Ordinary and Redeemable Shares
Revenue return per share is based on the net deficit on ordinary activities
after taxation of £7,471,000 (2007: £2,649,000) and on 66,392,268 (2007:
55,645,008) ordinary shares and redeemable shares, being the weighted average
number of shares in issue during the year.
Capital return per share is based on the net return on ordinary activities
after taxation of £133,272,000 (2007: £73,391,000) and on 66,392,268 (2007:
55,645,008) ordinary shares and redeemable shares, being the weighted average
number of shares in issue during the year.
Total return per share is based on net return for the year of £125,801,000
(2007: £70,742,000) and on 66,392,268 (2007: 55,645,008) ordinary shares and
redeemable shares, being the weighted average number of shares in issue during
the year.
9a. Movements on Investments
30TH JUNE 30TH JUNE
2008 2007
£'000 £'000
Book cost brought forward 464,286 340,442
Acquisitions at cost 303,457 476,105
Capital distributions - proceeds (230,316) (391,735)
- realised gains on sales 45,038 39,474
BOOK COST AT 30TH JUNE 582,465 464,286
Unrealised appreciation / (depreciation) of investments
Listed investments - (21)
Unlisted investments 224,020 131,729
VALUATION OF INVESTMENTS AT 30TH JUNE 806,485 595,994
9b. Analysis of Investments
30TH JUNE 30TH JUNE
2008 2007
£'000 £'000
United Kingdom
Unlisted investments 56,516 23,023
Listed ï¬xed interest investments - 69,311
USA
Unlisted investments 522,181 365,330
Other
Unlisted investments 227,788 138,330
806,485 595,994
Realised proï¬ts on sales 45,038 39,474
Amounts previously recognised as unrealised 10,329 (775)
appreciation / (depreciation) on those sales
Increase in unrealised appreciation 81,984 38,838
GAINS ON INVESTMENTS 137,351 77,537
Further analysis of the investment portfolio is provided in the Manager's
Review.
Transaction costs incidental to the acquisition of investments totalled £nil
(2007: £nil) and to the disposals of investments totalled £6,000 (2007: £2,000)
for the year.
10. Debtors
30TH JUNE 30TH JUNE
2008 2007
£'000 £'000
Amounts owed by investment funds 221 457
Prepayments and accrued income 706 1,383
Taxation recoverable - 178
927 2,018
11. Creditors: Amounts falling due within one year
30TH JUNE 30TH JUNE
2008 2007
£'000 £'000
Amounts owed to investment funds - 168
Investment management fees 1,885 1,545
Investment performance fee 5,163 1,767
Other creditors and accruals 840 1,281
Other Creditors 7,888 4,761
Bank loan 69,966 -
Bank overdraft 2,254 -
80,108 4,761
The Company has facility agreements whereby participating banks have agreed to
make available to the Company a £150,000,000 ï¬ve-year committed revolving
credit facility, a £15,000,000 364-day committed revolving credit facility and
an overdraft facility of £5,000,000. Each individual drawdown bears interest at
a variable rate agreed in advance for the period of the drawdown. At 30th June
2008 the amount of £72,220,000 (30th June 2007: nil) was drawn down under the
facilities.
12. Called-up Share Capital
30TH JUNE 30TH JUNE
2008 2007
£'000 £'000
Authorised:
63,474,919 (2007: 63,474,619) Ordinary shares of 67p 42,528 42,528
each
100,000,000 (2007: 100,000,000) Redeemable shares of 1p 1,000 1,000
each
43,528 43,528
Allotted, called-up and fully paid:
37,521,013 (2007: 37,521,013) Ordinary shares of 67p 25,139 25,139
each
28,871,255 (2007: 28,871,255) Redeemable shares of 1p 289 289
each
25,428 25,428
Redeemable shares rank equally with ordinary shares regarding dividend rights
and rights on winding up or return of capital (other than a redemption or
purchase of shares). The holders of redeemable shares have the right to receive
notice and attend all general meetings of the Company but not to speak or vote.
The holders of ordinary shares are entitled to one vote for each ordinary share
held.
The redeemable shares are redeemable at the option of the Company, at the
prevailing net asset value per share, within 60 days following the end of each
quarterly NAV calculation date or within 60 days of any other business day
which is determined by the Directors to be a NAV calculation date.
13. Reserves
CAPITAL CAPITAL CAPITAL
SHARE REDEMPTION RESERVE RESERVE SPECIAL REVENUE
PREMIUM RESERVE REALISED UNREALISED RESERVE RESERVE
£'000 £'000 £'000 £'000 £'000 £'000
Beginning of year 183,139 26 187,543 131,745 99,861 (17,481)
Net gain on realisation of - - 55,367 _ - -
investments
Increase in unrealised - - - 81,984 - -
appreciation
Transfer on disposal of - - (10,329) 10,329 - -
investments
Exchange differences on - - (688) 994 - -
loan and currency
Exchange differences on - - - 4 - -
other capital items
Tax withheld from capital - - (191) - - -
distributions
Tax paid on Japanese - - (84) - - -
investments
Legal and professional - - (454) - - -
costs charged to capital
Performance fee charged to - - (3,660) - - -
capital
Costs of issue of Ordinary 43 - - - - -
shares written back
Revenue return for the year - - - - - (7,471)
END OF YEAR 183,182 26 227,504 225,056 99,861 (24,952)
14. Net Asset Value per Share
The net asset value per share and the net assets attributable at the year end
calculated in accordance with the Articles of Association were as follows:
NET ASSET VALUE NET ASSETS
PER SHARE ATTRIBUTABLE
2008 2007 2008 2007
£'000 £'000
Ordinary and Redeemable shares 1,108.7p 919.2p 736,105 610,261
Basic net asset value per share is based on net assets attributable to equity
shareholders of £736,105,000 (2007: £610,261,000) and on 66,392,268 (2007:
66,392,268) ordinary shares and redeemable shares, being the number of shares
in issue at the year end.
15. Reconciliation of Net Cash Flow to the Movement in Net Funds
30TH JUNE 2008 30TH JUNE 2007
£'000 £'000
Decrease in cash in year (11,457) 10,943
Non-cash movement
- Exchange gains / (losses) 994 (569)
CHANGE IN NET FUNDS (10,463) 10,374
NET FUNDS AT BEGINNING OF YEAR 17,010 6,636
Loans drawndown (69,966) -
NET (DEBT) / FUNDS AT END OF YEAR (63,419) 17,010
16. Analysis of Net Debt / Funds
AT 30TH JUNE AT 30TH JUNE
2008 2007
£'000 £'000
Cash at bank 8,801 17,010
Bank overdraft (2,254) -
Bank loan (69,966) -
(63,419) 17,010
17. Reconciliation of Return on Ordinary Activities Before Tax and Financing
Costs to Net Cash Flow From Operating Activities
30TH JUNE 30TH JUNE
2008 2007
£'000 £'000
Return on ordinary activities before ï¬nancing costs 127,667 73,526
and tax
Gains on investments (137,351) (77,537)
Currency (gains) / losses on cash and borrowings (310) 625
Increase in creditors 3,187 2,127
Decrease / (increase) in other debtors 509 (272)
NET CASH (OUTFLOW) FROM OPERATING ACTIVITIES (6,298) (1,531)
18. Contingencies, Guarantees and Financial Commitments
At 30th June 2008 there were ï¬nancial commitments outstanding of £641.4 million
(2007: £528.0 million) in respect of investments in partly paid shares and
interests in private equity funds.
As a result of the AIC/Claverhouse ruling the Company no longer pays VAT on its
investment management fees. The Company is in ongoing discussions with the manager
regarding the reclaim of VAT previously paid. The Company has been informed that a
claim by the manager is being considered by HM Revenue & Customs. The amount ultimately
recoverable by the Company is approximately £1.8m. Once the negotiations with the
manager and HM Revenue & Customs are resolved, the Company will be able to determine
as virtually certain an appropriate value to be recognised in the accounts.
There is the possibility that additional amounts of VAT may be recoverable in respect
of earlier years.
19. Analysis of Financial Assets and Liabilities
The primary investment objective of the Company is to seek to maximise
long-term capital growth for its shareholders by investing in funds
specialising in unquoted investments, acquiring unquoted portfolios and
participating directly in private placements. Investments are not restricted to
a single market but are made when the opportunity arises and on an
international basis.
The Company's financial instruments comprise securities and other investments,
cash balances and debtors and creditors that arise from its operations, for
example sales and purchases awaiting settlement and debtors for accrued income.
The principal risks the Company faces in its portfolio management activities
are:
- liquidity/marketability risk;
- interest rate risk;
- market price risk; and
- foreign currency risk.
The Company has little exposure to credit risk. The Manager monitors the
financial risks affecting the Company on a daily basis and the Directors
receive financial information monthly, which is used to identify and monitor
risk.
In accordance with Financial Reporting Standard No.29: Financial Instruments:
Disclosures, an analysis of financial assets and liabilities, which identifies
the risk to the Company of holding such items, is given below.
Liquidity Risk
Due to the nature of the Company's investment policy, the largest proportion of
the portfolio is invested in unquoted securities, many of which are less
readily marketable than, for example, `blue-chip' UK equities. The Directors
believe that the Company, as a closed-end fund with no fixed wind-up date, is
ideally suited to making long-term investments in instruments with limited
marketability. The investments in unquoted securities are monitored by the
Board on a monthly basis.
As discussed in the Manager's Review, there are limited opportunities for the
Company to acquire secondary unquoted portfolios due to the cyclical nature of
their occurrence. As a result, at times of low investment opportunity, some
funds may be invested in gilts and other fixed interest government bonds. It is
the nature of investment in private equity that a commitment to invest will be
made and that calls for payments will then be received from the unlisted
investee entity. These payments are usually on an ad-hoc basis and may be
called at any instance over a number of years. In order to cover such
commitments, the Company has entered into a £150,000,000 five-year committed
revolving credit facility and a £15,000,000 364-day committed revolving credit
facility with The Royal Bank of Scotland. At 30th June 2008 the amount drawn
down was £69,966,000 (30th June 2007: nil) (see note 11 for further
information). The Royal Bank of Scotland has a first charge over the assets of
the Company in respect of amounts owing under the facility.
Interest Rate Risk
Fair Value Interest Rate Exposure
The Company holds fixed interest rate securities and 0% government bonds for
cash management purposes. These securities are included as part of the
portfolio. These securities have a fixed life and at maturity the nominal value
of the security is received.
The effective interest rate (EIR) of the 0% government bonds is determined by
the discount to the nominal value on the purchase of the security and the
length of time remaining to maturity.
The Company has facility agreements in place to borrow funds on two revolving
credit facilities.
Interest is payable at variable rates determined subject to drawdown. The
interest rate is then fixed for the period that the loan is drawndown. At 30th
June 2008 there were £69,966,000 funds drawn down on the loan facilities. (30th
June 2007: nil). The loan is due to be repaid within one year and as such fair
value is considered to be the same as par value.
The Company's bank accounts do not earn interest. Should any balance go
overdrawn then interest will become payable at variable rates.
Non-Interest Rate Exposure
The remainder of the Company's portfolio and current assets are not subject to
interest rate risks.
As at 30th June 2008, the interest rate and maturity profile of the Company's
financial assets was as follows:
FIXED
INTEREST
WEIGHTED
NO MATURES AVERAGE
MATURITY WITHIN INTEREST
TOTAL DATE 1 YEAR RATE
30TH JUNE 2008 £'000 £'000 £'000 %
Fair value interest rate risk ï¬nancial assets
INVESTMENTS
UK - - - -
USA - - - -
Other European - - - -
No interest rate risk ï¬nancial assets
INVESTMENTS
UK 56,516 56,516 - -
USA 522,181 522,181 - -
Other European 227,788 227,788 - -
Other - - - -
806,485 806,485 - -
The interest rate and maturity profile of the Company's financial assets as at
30th June 2007 was as follows:
FIXED
INTEREST
WEIGHTED
NO MATURES AVERAGE
MATURITY WITHIN INTEREST
TOTAL DATE 1 YEAR RATE
30TH JUNE 2008 £'000 £'000 £'000 %
Fair value interest rate risk ï¬nancial assets
INVESTMENTS
UK 69,311 - 69,311 6.5
USA - - - -
Other European - - - -
No interest rate risk ï¬nancial assets
INVESTMENTS
UK 23,023 23,023 - -
USA 365,330 365,330 - -
Other European 138,289 138,289 - -
Other 41 41 - -
595,994 526,683 69,311 -
As at 30th June 2008, the interest rate and maturity profile of the Company's
financial liabilities was as follows:
NO MATURES
MATURITY WITHIN
TOTAL DATE 1 YEAR
30TH JUNE 2008 £'000 £'000 £'000
Overdraft 2,254 - 2,254
As at 30th June 2007, the interest rate and maturity profile of the Company's
financial liabilities was as follows:
NO MATURES
MATURITY WITHIN
TOTAL DATE 1 YEAR
30TH JUNE 2008 £'000 £'000 £'000
Overdraft - - -
Financial Liabilities
The Company primarily finances its operations through its issued capital, bank
borrowings and existing reserves. At 30th June 2008, the Company had £
69,966,000 (2007: nil) drawn down of its £150,000,000 committed 5-year
revolving credit facility or £15,000,000 364-day committed revolving credit
facility with The Royal Bank of Scotland. Tranches from this facility are
drawable in US dollars, Euros & Sterling. Interest is incurred at a variable
rate as agreed at the time of drawdown and is payable at the maturity date of
each advance. At the year end, interest of £414,000 (2007: nil) was accruing.
With the exception of the bank overdraft which at 30th June 2008 stood at £
2,254,000 (2007: nil), there was no interest rate risk associated with other
short-term creditors at 30th June 2008 or 30th June 2007.
At 30th June 2008 and 30th June 2007, with the exception of the bank revolving
credit facility referred to above, all other financial liabilities were due
within one year. The revolving credit facility is included in creditors falling
due within one year.
Market Price Risk
The method of valuation of the fixed asset investments is described in note 1
(C) to the financial statements. The nature of the Company's fixed asset
investments, with a high proportion of the portfolio invested in unquoted
securities, means that the investments are valued by the Directors after due
consideration of the most recent available information from the underlying
investments.
If the investment portfolio valuation fell by 5% from the 30th June 2008
valuation with all other variables held constant there would have been a
reduction of £40,324,000 (2007: £29,800,000) in the return before taxation. An
increase of 5% in the investment portfolio valuation would have had an equal
and opposite effect in the return before taxation.
Foreign Currency Risk
Since it is the Company's policy to invest in a diverse portfolio of
investments based in a number of countries, the Company is exposed to the risk
of movement in a number of foreign exchange rates. A geographical analysis of
the portfolio and hence its exposure to currency risk is given in the Manager's
Review. Although it is permitted to do so, the Company did not hedge the
portfolio against the movement in exchange rates during the financial year as
there was no significant increase in the perceived risk of exchange rate
movement.
The investment approach and the Manager's consideration of the associated risk
are discussed in further detail in the Manager's Review. The Company settles its
transactions from its bank accounts at an agreed rate of exchange at the date
on which the bargain was made. As at 30th June 2008, realised exchange losses
of £94,000 (2007: £152,000) and unrealised gains relating to currency of £
998,000 (2007: £551,000 losses) have been taken to the capital reserve.
An analysis of the Company's exposure to foreign currency, excluding private
equity investments, is given below:
30TH JUNE 30TH JUNE 30TH JUNE 30TH JUNE
2008 2008 2007 2007
ASSETS LIABILITIES ASSETS LIABILITIES
£'000 £'000 £'000 £'000
US Dollar 8,308 52,258 3,815 168
Euro 187 10,962 4,907 -
Japanese Yen 1 - 2 -
8,496 63,220 8,724 168
If the sterling/dollar and sterling/euro exchange rate had reduced by 10% from
that obtained at 30th June 2008, it would have the effect, with all other
variables held constant, of reducing the equity shareholders' funds by £
6,081,000 (2007: increase £950,000). If there had been an increase in the
sterling/dollar and sterling/euro exchange rate of 10% it would have the effect
of increasing the equity shareholders' funds by £4,975,000 (2007: decrease £
778,000). The calculations are based on the investments held at fair value
through profit or loss and the exchange rate of 1.99015 sterling/dollar and
1.26315 sterling/euro as at 30 June 2008.
Fair Value of Financial Assets and Financial Liabilities
All of the financial assets and liabilities of the Company are held at fair
value.
Managing Capital
The capital structure of the Company consists of cash held and shareholders'
equity. The Company's equity is analysed into its various components in note
12. Capital is managed so as to maximise the return to shareholders while
maintaining a capital base to allow the Company to operate effectively in the
marketplace and sustain future development of the business.
The Company's capital requirement is reviewed regularly by the Board of the
Company.
20. Related Party Transactions
The manager, Pantheon Ventures Limited, is regarded as a related party of the
Company. Mr R.M. Swire, a Director of the Company, is a director of Pantheon
Holdings Limited, the holding company of Pantheon Ventures Limited.
The amounts paid to the Manager are disclosed in the Directors' Report and in
note 3.
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