Final Results

RNS Number : 4870A

J.P. Morgan Private Equity Ltd

08 October 2009

 



Company      J.P. Morgan Private Equity Limited 

Headline       Final Results    

J.P. Morgan Private Equity Limited 

HSBC Private Bank Building, Rue du Pre, St Peter Port, Guernsey GY1 1LU

08 October 2009

Regulatory News Service

London Stock Exchange

London

EC4M 7LS

Dear Sir,

J.P. MORGAN PRIVATE EQUITY LIMITED

Preliminary Announcement of Results for the year ended 30 June 2009.

Dear Sir,

In reviewing the last twelve months leading up to the Company's fourth anniversary, I look back on a year marked by unparalleled challenges and volatility in the global equity and credit markets. From July 2008 through June 2009, almost every industry and asset class experienced rapid devaluations as equity markets fell, credit markets froze and governments were forced to intervene and provide extraordinary assistance to the private sector. These events shook the global markets and reshaped the Company's competitive landscape.  

In this year's statement, I would like to address how the Company has responded to the global financial crisis by strengthening its balance sheet and positioning itself to take advantage of the favourable private equity secondary market.  

Positioning JPEL's Balance Sheet

Although no one could have anticipated the full impact of the worldwide recession and credit crisis, over the past several quarters, JPEL's Manager has been actively working to strengthen the Company's balance sheet and position the portfolio for an economic downturn. The Manager has focused on building a portfolio of defensive interests that are designed to be well suited to withstand a market correction.  

In this regard, the Company has taken the following actions over the past twelve months:

• Limited new investment activity: During fiscal year 2009, the Company participated in seven new investments, preferring to be very selective in this market environment.  

• Reduced unfunded obligations:  JPEL has reduced its unfunded commitments by approximately 24% through the sale of selected investments since 31 December 2008.

• Raised $130mm of new capital:  The Company raised $111 million of new US$ Equity Shares to take advantage of the current opportunities in the secondary market and to bolster its balance sheet. The Company also raised $12 million through the creation of a new class of Zero Dividend Preference Shares due in 2015 ("2015 ZDP Shares"). I believe that the overwhelming support for these fundraisings demonstrates a tremendous vote of confidence for opportunities available in the secondary private equity market and for JPEL's strategy in general.    

• Issued Bonus Warrants in Lieu of June 2009 Redemption Facility:  Although the redemption facility was operated for the six-month period ended in December 2008, the Board of Directors elected to temporarily suspend the facility for the six months ended in June 2009. In order to provide shareholders with the opportunity to participate in future potential upside in the Company, JPEL issued 58 million warrants to US$ Equity shareholders on 20 August 2009. 

Going forward, JPEL remains focused on maintaining a strong balance sheet. As such, the operation of the Company's tender facility will be subject to positive net cash flows from the Company's underlying private equity investments and the health of the global economy. In addition, the Company will continue to cautiously invest in the private equity secondary market. 

Core Secondary Investment Strategy

Although fiscal year 2009 resulted in relatively few new investments, the Company has constructed a strong portfolio with defensive characteristics that the Manager believes will be well positioned for a market recovery. JPEL opportunistically made seven investments during fiscal year 2009, focusing on investments in counter-cyclical industries such as education, life sciences and pharmaceuticals.  

JPEL's core strategy of buying private equity fund interests in the secondary market and dynamic approach to portfolio management has allowed the Manager to shift the Company's portfolio to take advantage of various investment and market opportunities through the purchase and sale of private equity investments. This strategy has allowed the Manager to construct a portfolio that it believes may retain value in a recessionary environment and will remain poised to target positive performance once markets stabilize:  

• Defensive industries:  JPEL's Manager has focused on opportunities in counter-cyclical or defensive industries. Approximately 10.5% of the Company's private equity net asset value is invested in education services, with an emphasis on post-secondary education. Pharmaceuticals, Biotechnology and Life Sciences account for 10.8% of the Company's private equity net asset value at 30 June 2009.

• Highly diversified: JPEL's private equity portfolio contains exposure to 163 funds in approximately 40 countries with over 1,500 underlying portfolio companies.

• Majority of JPEL's portfolio was acquired "post-credit crunch":  Approximately 78% of current private equity NAV was purchased since May 2007 (46% since the beginning of 2008). 

• Small buyout focus:  Approximately 44% of JPEL's private equity portfolio is invested in small to medium-sized buyout funds, which tend to utilize lower leverage and purchase multiples.

• Special situations investments: Approximately 19% of JPEL's private equity portfolio is invested in special situation funds such as mezzanine, distressed debt and restructuring funds that often benefit from illiquid, contracting markets.

• Infrastructure investments:  Approximately 6% of JPEL's private equity portfolio is invested in infrastructure-oriented funds, with inherent defensive attributes that may be poised to benefit from increased stimulus packages and government spending.

• Deep discounted purchases:  JPEL has endeavored to acquire quality companies with "rational" debt levels at deep-discounts to intrinsic value.

Performance

Each of the Company's three classes of shares have enjoyed significant gains in recent months: US$ Equity shares increased 30.6% from 31 March to 30 June 2009, while the 2013 ZDPs and 2105 ZDPs increased by 6.8% and 10.38%, respectively.  

Despite recent share price improvements, the Company's performance has not been immune to difficult market conditions. JPEL's 30 June 2009 reported NAV per Equity share was $1.34, down from $1.85 at 30 June 2008 and from $1.44 at the quarter ended 31 March 2009. Approximately 6% of this decline can be attributed to currency fluctuations. It is also important to note that JPEL's 30 June 2009 NAV is based on 31 March 2009 financial reports received from the underlying sponsors. While the equity markets have appreciated in the months following March 2009, the potential benefit of this market rebound for JPEL's NAV has not been reflected in the Company's NAV. 

Much of the decline in private equity valuations can be attributed to a combination of accounting rules, global devaluation in the public equity markets and high usage of leverage in private equity transactions. The implementation of FAS 157, requiring private equity firms to estimate "fair value" based on public market comparables (amongst other factors), combined with the general increase in volatility of the public markets has contributed to the increase in volatility of private company valuations.  

JPEL's ZDP Shares continue to perform well. The NAV of 2013 ZDP Shares rose 7.3% during fiscal year 2009, from 51.31p to 55.06p per share. 2013 ZDP Share price has increased 36.6% since inception, closing at 58.75p on 30 June 2009. JPEL's 2015 ZDP Shares, launched on 18 December 2008 have performed well over the preceding 7 months. The NAV of 2015 ZDP Shares rose 4.5% since inception, from 48.75p to 50.93p per share. 2015 ZDP Share price has increased 17.0% since inception, from its offer price of 50p to 58.5p on 30 June 2009.  

Outlook  

Fiscal year 2009 was one of the most challenging years in history for the global markets and it is likely that 2010 will continue to bring new challenges. Although equity markets have rallied in recent months, the Manager remains generally cautious about the outlook for the global economy. In this vein, the Manager will continue to focus on maintaining a strong balance sheet and will selectively pursue investments with strong defensive characteristics that have the potential to drive net asset value growth. Despite the volatility in the global markets and unforeseen stresses, I remain confident that JPEL will continue to thrive in this environment and emerge as a strong, well capitalized, market innovator in the listed private equity asset class. 

In conclusion, I would like to thank shareholders for the support and the continued confidence that they have placed in the Company and in its ability to successfully execute its private equity investment strategy. The Company remains focused on seizing the current market opportunities at hand to create value for our shareholders.  

Trevor Ash

Chairman

6 October 2009

 Consolidated Income Statement

 

For the year ended 30 June 2009

		2009		2008
		£’000		£’000
Investment income
Interest and dividend income		4,234		4,091
Expenses
Investment management fee		(4,411)		(2,728)
Valuers' fees		-		(26)
Administrative fee		(257)		(190)
Audit fee		(106)		(76)
Directors' fees		(73)		(83)
Performance fee		-		(1,375)
Other expenses		(3,643)		(1,474)
Total Expenses		(8,490)		(5,952)
Net loss before finance costs		(4,256)		(1,861)
Finance costs
Loan interest payable		(7,304)		(94)
ZDP interest payable		(2,505)		(3,686)
Gains/(losses) from investments
Net (losses)/gains on investments		(105,450)		36,701
Realised foreign currency gain/(loss)		2,259		(678)
Unrealised foreign currency gain		4,656		3,710
(Loss)/profit for the year		(112,600)		34,092
Attributable to equity holders of the Company		(94,892)		28,112
Attributable to minority interests		(17,708)		5,980
		(112,600)		34,092
Basic and diluted (loss)/earnings per share		(34.0p)		10.0p

Consolidated Balance Sheet

 

As at 30 June 2009

		2009		2008
		£’000		£’000
Non-current assets
Financial assets at fair value through profit or loss		369,836		374,159
Current assets
Cash and cash equivalents		17,862		13,789
Receivables		552		2,092
		18,414		15,881
Current liabilities
Payables and accruals		(8,323)		(6,332)
Derivative financial instruments		(289)		(255)
Net current assets		9,802		9,294
Non-current liabilities
Loan		(101,973)		(59,875)
Zero dividend preference shares		(43,085)		(30,375)
		(145,058)		(90,250)
Net Assets		234,580		293,203
Represented by:
Share capital		188,049		29
Reserves		34,503		270,307
Total equity attributable to equity holders of the Company		222,552		270,336
Minority interest		12,028		22,867
Total equity		234,580		293,203
NAV per Equity share		£0.81		£0.92

 

 

Consolidated Cash Flow Statement

For the year ended 30 June 2009
Notes	2009		2008
	£'000		£'000
Operating activities
(Loss)/profit for the year	(112,600)		34,092
Adjustments for:
Interest and dividend income	(4,234)		(4,091)
Interest expense	9,809		3,780
Tax rebates/(payments)	99		(577)
Net derivative (gains)/losses	(10,699)		3,360
Net losses/(gains) on investments	111,046		(41,237)
Net losses on disposal of investments	5,104		-
Unrealised foreign currency gain	(4,656)		(3,371)
Operating cash flows before changes in working capital	(6,131)		(8,044)
Decrease/(increase) in receivables	1,502		(2,338)
Increase in payables	1,549		1,618
Net cash movement in derivative contracts	11,709		(1,980)
Cash flows from operating activities	8,629		(10,744)
Investing activities
Purchase of investments	(86,046)		(141,571)
Net proceeds from sale of non-current financial assets	54,593		35,356
Interest received	1,607		2,915
Other income distributions from investments	3,056		1,176
Acquisition of subsidiary net of cash received	-		(50,355)
Cash flows from investing activities	(26,790)		(152,479)
Financing activities
Proceeds on issue of equity shares	-		7,635
Equity shares buy back	(31,272)		(3,562)
Issue costs	(45)		(263)
Loans received	43,352		25,852
Loans paid	(7,847)		-
Interest paid	(7,635)		(1,619)
Issue of shares in subsidiary to minority interest	1,746		7,748
Acquisition of minority interest	(415)		-
Treasury purchases	-		(21,229)
Proceeds from treasury share sale	10,828		20,307
Cost of redemption of zero divided preference shares	(1,743)		(137)
Proceeds from issue of zero divided preference shares	11,720		-
Distributions to minority interest	(457)		-
Cash flows from financing activities	18,232		34,732
Net increase/(decrease) in cash and cash equivalents	71		(128,491)
Cash and cash equivalents at beginning of year	13,789		132,177
Effects of exchange difference arising from cash and cash equivalents	4,002		10,103
Cash and cash equivalents at end of the year	17,862		13,789

Consolidated Statement of Changes in Equity

For the year ended 30 June 2009

	Share Capital Account £'000	Share Premium £'000	Accumulated Losses £'000	Capital Reserve £'000	Currency Translation Reserve £'000	Capital Redemption Reserve £'000	Special Distributable Reserve £'000	Total £'000	Minority Interest £'000	Total £'000
At 1 July 2008	29	7,636	(4,829)	69,838	(3,211)	4	200,869	270,336	22,867	293,203
Transfer	208,509	(7,636)	-	-	-	(4)	(200,869)	-	-	-
Share buy backs	(31,272)	-	-	-	-	-	-	(31,272)	-	(31,272)
Treasury sale	10,828	-	-	-	-	-	-	10,828	-	10,828
Share issue costs	(45)	-	-	-	-	-	-	(45)	-	(45)
Loss for the year	-	-	(4,746)	(90,146)	-	-	-	(94,892)	(17,708)	(112,600)
Effect of translation of presentation currency	-	-	-	-	67,597	-	-	67,597	5,535	73,132
Issue of shares in subsidiary to minority interests	-	-	-	-	-	-	-	-	1,746	1,746
Minority interest ceded	-	-	-	-	-	-	-	-	(412)	(412)
At 30 June 2009	188,049	-	(9,575)	(20,308)	64,386	-	-	222,552	12,028	234,580

  Consolidated Statement of Changes in Equity

For the year ended 30 June 2008

	Share Capital Account £'000	Share Premium £'000	Accumulated Losses £'000	Capital Reserve £'000	Currency Translation Reserve £'000	Capital Redemption Reserve £'000	Special Distributable Reserve £'000	Total £'000	Minority Interest £'000	Total £'000
At 1 July 2007	29	154,329	(6,590)	43,487	(11,546)	1	51,291	231,001	6,059	237,060
Transfer to special distributable reserve	-	(154,329)	-	-	-	-	154,329	-	-	-
Issue of equity shares	1	7,634	-	-	-	-	-	7,635	-	7,635
Redemption of equity shares	-	-	-	-	-	-	(3,562)	(3,562)	-	(3,562)
Transfer to capital redemption reserve	-	-	-	-	-	3	(3)	-	-	-
Transfer to capital reserve	-	-	3,398	(3,398)	-	-	-	-	-	-
Issue Costs	-	(263)	-	-	-	-	-	(263)		(263)
	30	7,371	(3,192)	40,089	(11,546)	4	202,055	234,811	6,059	240,870
Share buy backs	(3)	-	-	-	-	-	(21,226)	(21,229)	-	(21,229)
Treasury share sale	2	265	-	-	-	-	20,040	20,307	-	20,307
Net movement in treasury shares	(1)	265	-	-	-	-	(1,186)	(922)	-	(922)
Profit for the period	-	-	(1,637)	29,749	-	-	-	28,112	5,980	34,092
Effect of translation of presentation currency	-	-	-	-	8,335	-	-	8,335	2,046	10,381
Issue of shares in subsidiary to minority interests	-	-	-	-	-	-	-	-	7,748	7,748
Minority interest acquired in Group combination	-	-	-	-	-	-	-	-	1,034	1,034
At 30 June 2008	29	7,636	(4,829)	69,838	(3,211)	4	200,869	270,336	22,867	293,203

The above financial information does not constitute statutory financial statements as defined in Section 262 of The Companies (Guernsey) Law, 2008. The comparative information is based on the statutory financial statements for the year ended 30 June 2008. Those financial statements, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. Statutory financial statements for the year ended 30 June 2009 will be delivered to the Registrar of Companies in due course.

Copies of the Annual Report will be sent to Members in the last week of October 2009 and will be available to members of the public from the Registered office at St Martins House, Le Bordage, St Peter Port, Guernsey GY1 1BP.

Trevor Ash

Chairman

06 October 2009

 

END

 

 

FR MPBITMMMMBRL