Annual Financial Report

RNS Number : 5600U

F&C Private Equity Trust PLC

08 April 2016

To: Stock Exchange	For immediate release:
	8 April 2016

F&C Private Equity Trust plc

Annual Financial Report for the Year to 31 December 2015

Following the release on 24 March 2016 of the Company's preliminary results announcement for the year ended 31 December 2015 (the "Preliminary Announcement"), the Company announces that its annual report and financial statements for the year ended 31 December 2015 (the "Annual Report and Financial Statements") will be published today.

A copy of the Annual Report and Financial Statements will be submitted to the National Storage Mechanism and will shortly be available for inspection at www.Hemscott.com/nsm.do

The information below, which is extracted in unedited full text from the Annual Report and Financial Statements, is included in this announcement solely for the purposes of compliance with Disclosure and Transparency Rule 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with the Preliminary Announcement. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full Annual Report and Financial Statements.

Principal Risks and Uncertainties and Risk Management

Detailed explanations of the risks associated with the Company's financial instruments are contained in note 1 and relate to market price, interest rate, liquidity and funding, credit and foreign currency risks. Other risks faced by the Company include the following:

· Investment and strategic - incorrect strategy (including the deployment of, and managing the repayment of, gearing), asset allocation, and investment selection could all lead to poor returns for shareholders.

· External - events such as terrorism, disease, protectionism, inflation or deflation, economic shocks or recessions, the availability of credit and movements in interest rates and exchange rates could affect share prices and the valuation of investments.

· Regulatory - breaches of law or regulation could lead to suspension of the Company's stock exchange listing, financial penalties or a qualified audit report. Breach of Section 1158 of the Corporation Tax Act 2010 could lead to the Company being subject to tax on capital gains.

· Operational - failure of the Manager's accounting systems or disruption to the Manager's business, or that of other third-party service providers, could lead to an inability to provide accurate reporting and monitoring, leading to a loss of shareholders' confidence.

· Financial - inadequate controls by the Manager or other third-party service providers could lead to misappropriation of assets. Inappropriate accounting policies or failure to comply with accounting standards could lead to misreporting or breaches of regulations. Breaching loan covenants or being unable to replace maturing borrowing facilities could lead to a loss of shareholders' confidence and financial loss for shareholders.

· Funding - failure by the Company to meet its outstanding undrawn commitments could lead to financial loss for shareholders.

The Board seeks to mitigate and manage these risks through continual review, policy setting, shareholder communication and enforcement of contractual obligations. It also regularly monitors the investment and economic environment, the management of the Company's investment portfolio, the level of undrawn commitments and the Company's gearing policy.

Viability assessment and statement

The 2014 UK Corporate Governance Code requires a Board to assess the future prospects for the Company, and report on the assessment within the Annual Report.

The Board considered that a number of characteristics of the Company's business model and strategy were relevant to this assessment:

· The Board looks to long-term performance rather than short term opportunities.

· The Company's investment objective, strategy and policy, which are subject to regular Board monitoring, mean that the Company is invested in a well-diversified portfolio of funds and direct investments and that the level of borrowings is restricted.

· The Company has a single class of Ordinary Shares.

· The Company's business model and strategy is not time limited.

Also relevant were a number of aspects of the Company's operational arrangements:

· The Company has title to all assets held.

· The Company's borrowing facility which was entered into on 30 June 2014 will not expire until 30 June 2019. It is composed of a €30 million term loan and a £45 million multicurrency revolving credit facility. The interest rate payable is variable.

· The Company aims to pay semi-annual dividends with an annual yield equivalent to not less than four per cent of the average of the published net asset values per ordinary share for the previous four financial quarters, or if higher in pence per share the highest semi-annual dividend previously paid. Dividends can be funded from the capital reserves of the Company.

· Revenue and expenditure forecasts and projected cash requirements are reviewed by the Directors at each Board Meeting.

In addition, the Directors carried out a robust assessment of the principal risks which could threaten the Company's objective, strategy, future performance, liquidity and solvency.

The principal risks identified as relevant to the viability assessment were those relating to incorrect strategy, asset allocation and investment selection resulting in poor returns for shareholders and the failure of the Company to manage financial resources to allow it to meet its outstanding undrawn commitments.

The Board took into account the forecasted cash requirements of the Company, the existence of the borrowing facility, the effects of any significant future falls in investment values on the ability to repay and re-negotiate borrowings, maintain dividend payments and retain investors.

These matters were assessed over a three year period to April 2019, and the Board will continue to assess viability over three year rolling periods, taking account of foreseeable severe but plausible scenarios. A rolling three year period represents the horizon over which the Directors believe they can form a reasonable expectation of the Company's prospects, balancing the Company's financial flexibility and scope with the current uncertain outlook for longer-term economic conditions affecting the Company and its shareholders.

Based on their assessment, and in the context of the Company's business model, strategy and operational arrangements set out above, the Board has a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period to April 2019. For this reason, the Board also considers it appropriate to continue adopting the going concern basis in preparing the Report and Accounts.

Statement of Directors' Responsibilities in Respect of the Annual Report and Financial Statements

The Directors are responsible for preparing the financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards ('IFRS') as adopted by the European Union. The Directors are also required to prepare a Strategic Report, Directors' Report, Directors' Remuneration Report and Corporate Governance Statement.

Under company law the Directors must not approve the financial statements unless they are satisfied that they present a fair, balanced and understandable report and provide the information necessary for shareholders to assess the Company's performance, business model and strategy. In preparing the financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with the specific requirements of IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the financial position and financial performance;

· state that the Company has complied with IFRS, subject to any material departures disclosed and explained in the financial statements; and

· make judgements and estimates that are reasonable and prudent.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the transactions of the Company and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for ensuring that the Company complies with the provisions of the Listing Rules, Disclosure Rules and Transparency Rules of the UK Listing Authority and the safeguarding of assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Each of the Directors confirms that to the best of his or her knowledge:

· the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

· the Strategic 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.

On behalf of the Board

Mark Tennant

Director

Notes

1. Financial instruments

The Company's financial instruments comprise equity investments, cash balances, bank loan and liquid resources including debtors and creditors. As an investment trust the Company holds a portfolio of financial assets in pursuit of its investment objective. From time to time the Company may make use of borrowings to fund outstanding commitments and achieve improved performance in rising markets. The downside risk of borrowings may be reduced by raising the level of cash balances held.

The Company's investing activities expose it to various types of risk that are associated with the financial instruments and markets in which it invests. The most important types of financial risk to which the Company is exposed are market price risk, interest rate risk, liquidity and funding risk, credit risk and foreign currency risk.

The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management policies employed by the Company are discussed below.

Market price risk

The Company's strategy for the management of market price risk is driven by the Company's investment policy. The management of market price risk is part of the investment management process and is typical of private equity investment. The portfolio is managed with an awareness of the effects of adverse price movements through detailed and continuing analysis, with an objective of maximising overall returns to shareholders. Investments in unquoted stocks, by their nature, involve a higher degree of risk than investments in the listed market. Some of that risk can be, and is, mitigated by diversifying the portfolio across business sectors and asset classes, and by having a variety of underlying private equity managers. New private equity managers are only chosen following a rigorous due diligence process. The Company's overall market positions are monitored by the Board on a quarterly basis.

Interest rate risk

Some of the Company's financial assets are interest bearing and, as a result, the Company is subject to exposure to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates.

When the Company retains cash balances the majority of the cash is held in deposit accounts. The benchmark rate which determines the interest payments received on cash balances is the bank base rate for the relevant currency.

Liquidity and funding risk

The Company's financial instruments include investments in unlisted equity investments which are not traded in an organised public market and which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements, including the need to meet outstanding undrawn commitments or to respond to specific events such as deterioration in the creditworthiness of any particular issuer.

The Company's listed securities are considered to be readily realisable.

The Company's liquidity risk is managed on an ongoing basis by the Manager in accordance with policies and procedures in place. The Company's overall liquidity risks are currently monitored on a quarterly basis by the Board.

The Company maintains sufficient investments in cash and readily realisable securities to pay accounts payable and accrued expenses.

Credit risk

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company. The Manager has in place a monitoring procedure in respect of counterparty risk which is reviewed on an ongoing basis. The carrying amounts of financial assets best represents the maximum credit risk exposure at the balance sheet date, hence no separate disclosure is required.

Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered to be small due to the short settlement period involved and the high credit quality of the brokers used. The Manager monitors the quality of service provided by the brokers used to further mitigate this risk.

All the listed assets of the Company (which are traded on a recognised exchange) are held by JPMorgan Chase Bank, the Company's custodian. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed or limited. The Board monitors the Company's risk by reviewing the custodian's internal control reports.

The Company's cash balances are held by a number of counterparties. Bankruptcy or insolvency of these counterparties may cause the Company's rights with respect to the cash balances to be delayed or limited. The Manager monitors the credit quality of the relevant counterparties and should the credit quality or the financial position of these counterparties deteriorate significantly the Manager would move the cash holdings to another bank.

Foreign currency risk

The Company invests in overseas securities and holds foreign currency cash balances which give rise to currency risks. It is not the Company's policy to hedge this risk on a continuing basis but it may do so from time to time.

2. The Annual General Meeting of the Company will be held on Wednesday 25 May 2016 at 12 noon at the offices of BMO Global Asset Management (EMEA), Exchange House, Primrose Street, London EC2A 2NY.

3. Copies of the Annual Report and Financial Statements will be sent to shareholders and will be available at the Company's registered office, 80 George Street, Edinburgh EH2 3BU and on its website www.fcpet.co.uk

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