Half-year Report

RNS Number : 6292R

Standard Life Private Eqty Trst PLC

18 June 2018

 

15 June 2018

STANDARD LIFE PRIVATE EQUITY TRUST PLC

INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2018

INVESTMENT OBJECTIVE

The investment objective is to achieve long-term total returns through holding a diversified portfolio of private equity funds, a majority of which will have a European focus.

HIGHLIGHTS

At 31 March 2018:

£600.2 million	Net Asset Value ("NAV")
390.4 pence	NAV per ordinary share
£499.7 million	Market capitalisation
325.0 pence	Share price
£360.0 million	Outstanding commitments to 54 private equity funds
£81.3 million	Liquid resources
66.4% of NAV	Top 10 private equity managers*
16.7%	Discount to net asset value
3.1 pence	2018 second quarter dividend (pay date: 27 July 2018, ex-date: 28 June 2018)

For the six months ended 31 March 2018:

(2.3)%	Share price total return
+1.5%	NAV total return
£79.4 million	Primary commitments to three private equity funds
£21.9 million	Invested through two secondary transactions
£75.5 million	Cash realisations / 2.3x cost on realised investments
£51.1 million	Cash invested in new private companies

*              66.4% represents the percentage of the Company's NAV invested with the 10 largest private equity fund managers in the portfolio.

CHAIRMAN'S STATEMENT

During the six months to the end of March 2018, Standard Life Private Equity Trust's net asset value ("NAV") produced a total return of 1.5% and its share price total return was -2.3%.

At 31 March 2018, the Company's net assets were £600.2 million (30 September 2017: £599.0 million). The NAV per ordinary share rose 0.2% over the period to 390.4 pence (30 September 2017: 389.6 pence). This increase in NAV during the period comprised 7.2% of net realised gains and income from the Company's portfolio of 54 private equity fund interests, partially offset by 3.9% of unrealised losses on a constant exchange rate basis, 0.7% of negative exchange rate movements on the private equity portfolio, 0.9% of other items, fees and costs as well as by 1.5% of dividends paid during the period. For comparison, the MSCI Europe Index total return was -4.0% over the same period.

The Company's performance has been driven by trading in the underlying investee companies, as well as a positive flow of realisations as businesses are sold by the managers of the funds that make up the portfolio. In the period to 31 March 2018, these realisations totalled £75.5 million compared to £130.7 million in the full year to 30 September 2017. Against this, £73.0 million was drawn down from the Company's resources to fund investee companies and secondary investments. This compares to £114.2 million for the full year to 30 September 2017.

The net effect of these cash flows was that, as at the end of March, the Company had net liquid resources of £81.3 million (30 September 2017: £93.6 million). In support of the investment strategy, the Manager made three new fund commitments during the period, comprising €30.0 million each to PAI Europe VII, Equistone Partners Europe Fund VI and Bridgepoint Europe VI. Furthermore, the Manager undertook two secondary fund purchases, acquiring original commitments of $20.0 million and €15.2 million to North-American based Onex Partners IV and Nordic Capital Fund VIII respectively. As a result of these investment activities, at 31 March 2018, the Company had total outstanding commitments of £360.0 million, compared to £325.6 million at 30 September 2017, while the portfolio of 54 private equity fund interests was valued at £518.6 million (30 September 2017: 51 funds valued at £505.1 million).

In line with the Company's new policy of quarterly dividend payments, the Board has proposed a second quarter dividend for the year ended 30 September 2018 of 3.1 pence per share (2017: interim dividend of 6.0 pence per share). The second quarter dividend, together with the first quarter dividend of 3.1 pence per share, totals 6.2 pence per share (2017: interim dividend of 6.0 pence per share) for the first six months of the year. The proposed dividend will be paid on 27 July 2018 to shareholders on the Company's share register at 29 June 2018. The Board is committed to maintaining the real value of this enhanced dividend, in the absence of unforeseen circumstances. The Board believes that providing a strong, stable dividend is attractive to shareholders.

The Standard Life Private Equity Trust portfolio remains predominantly focused on buy-out managers who have been able historically to generate value through operational improvements and strategic repositioning, and who the Manager believes are well-placed to do so going forward. Consistent with the Company's investment strategy, and with Europe continuing to be an attractive region for private equity investment, the majority of the Company's portfolio has a European focus. Nonetheless, the broadening of the Company's investment policy agreed at the 2017 Annual General Meeting has allowed the Manager to consider a number of opportunities further afield. In line with this broadening of the investment policy, the Company had acquired a position in Onex in the secondary market as described in the previous page. The Company is undertaking due diligence on a number of US-focused managers.

Overall, the global private equity market remains competitive, with significant amounts of funds having been raised. The managers of many funds the Company is invested in continue to report positive earnings growth across their investee companies. In addition, the Company continues to benefit from strong levels of exit activity across the portfolio and, in the absence of any major shocks, the Manager expects this to continue over the course of the next year. Such exit activity should result in further realised and unrealised gains being generated, helping the Company to build on the robust performance of recent years.

The Company's underlying portfolio has broad geographic diversification with UK-based underlying portfolio companies making up 14.9% of the Company's portfolio. In general, the UK-based businesses continue to perform well despite the major political events, such as Brexit. It is not possible to predict the ultimate impact of Brexit with certainty. However, your Board and the Manager continue to monitor ongoing developments and their potential effects on the Company and its portfolio.

The Board remains committed to maintaining capital discipline. Cash inflows will be invested in a mix of new fund commitments, secondary fund purchases and, when appropriate, share buy-backs.

Edmond Warner, OBE

Chairman

15 June 2018

Directorate Changes

Appointment of Directors

The Board was pleased to announce the appointment of Jonathon Bond as an independent non-executive Director with effect from 15 June 2018.

Jonathon has over 30 years' experience in the private equity industry with a particular focus on raising standards of governance and performance. He has extensive international and general management experience, having founded and served on the board of several significant businesses.

Jonathon's current external appointments include Senior Independent Director and Member of the Audit, Remuneration and Nomination Committees of Jupiter Fund Management PLC. Jonathon is also Executive Chairman, based in London, of the Skagen Group Limited, a family-owned group of companies operating in the UK, Europe and the USA. Other appointments include Non-Executive Director of The Farncombe Group; Non-Executive Director of Ruths Hotel; Director of Chalke Valley History Festivals Ltd and Trustee of the Cecil King Memorial Foundation.

MANAGER'S REVIEW

Investment objective

The investment objective is to achieve long-term total returns through holding a diversified portfolio of private equity funds, a majority of which will have a European focus.

Investment policy

The principal focus of the Company is to invest in leading private equity funds and to manage exposure through the primary and secondary funds markets. The Company's policy is to maintain a broadly diversified portfolio by country, industry sector, maturity and number of underlying investments. In terms of geographic exposure, a majority of the Company's portfolio will have a European focus. The objective is for the portfolio to comprise around 35 to 40 ''active'' private equity fund investments; this excludes funds that have recently been raised, but have not yet started investing, and funds that are close to or being wound up.

The Company invests only in private equity funds, but occasionally may hold direct private equity investments or quoted securities as a result of distributions in specie from its portfolio of fund investments. The Company's policy is normally to dispose of such assets where they are held on an unrestricted basis.

To maximise the proportion of invested assets it is the Company's policy to follow an over-commitment strategy by making fund commitments which exceed its uninvested capital. In making such commitments, the Manager, together with the Board, will take into account the uninvested capital, the quantum and timing of expected and projected cash flows to and from the portfolio of fund investments and, from time to time, may use borrowings to meet  drawdowns.

The Company's non-sterling currency exposure is principally to the euro and US dollar. The Company does not seek to hedge this exposure into sterling, although any borrowings in euros and other currencies in which the Company is invested would have such a hedging effect.

Cash held pending investment in private equity funds is invested in short-dated government bonds, money market instruments, bank deposits or other similar investments. Cash held pending investment in private equity funds may also be invested in funds whose principal investment focus is listed equities or in listed direct private equity investment companies or trusts. These investments may be in sterling or such other currencies to which the Company has exposure.

The Company will not invest more than 15% of its total assets in other listed investment companies or trusts.

Performance to 31 March 2018

Net asset value of £600.2 million

The portfolio value together with its current assets less liabilities, resulted in net assets of £600.2 million, representing a NAV of 390.4 pence per ordinary share.

Fund investment portfolio valued at £518.6 million

The value of the Company's portfolio of 54 private equity fund interests increased from £505.1 million at 30 September 2017 to £518.6 million at 31 March 2018. The increase in value was a result of new private company investments funded through drawdowns of £51.1 million from the Company's private equity funds, two secondary purchases of £21.9 million and realised gains of £40.5 million from full and partial exits. This was offset by realised proceeds of £73.0 million and unrealised losses of £27.0 million (net of foreign exchange).   

The largest 10 fund investments, representing 49.7% of the net asset value are highlighted in the "Largest  10 Funds" section of the interim report.

The valuation of the private equity fund interests at 31 March 2018 was carried out by the Manager and has been approved by the Board in accordance with the accounting policies. In undertaking the valuation, the most recent valuation of each fund prepared by the relevant fund manager has been used, adjusted where necessary for subsequent cash flows. The fund valuations are prepared in accordance with the International Private Equity and Venture Capital Valuation guidelines. These guidelines require investments to be valued at ''fair value''.

Of the 54 private equity funds, 34 funds, or 83.8% of the portfolio by value, were valued by their fund managers at 31 March 2018. The Manager continues to believe that the use of such timely valuation information is important.  11 funds, or 15.8% of the portfolio by value, were valued by their fund managers at 31 December 2017 and adjusted for any subsequent cash flows occurring between that date and 31 March 2018.

The Company invested £51.1 million in new private companies

New investment pace was ahead of prior year in terms of quantum invested as our private equity fund managers deployed capital, purchasing businesses in an active private equity market.

£21.9 million was invested to acquire secondary positions in two funds

During the period, two private equity fund interests were acquired: a $20.0 million commitment to Onex Partners IV and a €15.2 million original commitment to Nordic Capital Fund VIII. Combined, these funds had outstanding commitments of £4.2 million at 31 March 2018. The Manager continues to be disciplined and highly selective in a competitively priced secondary market.

The Company received £75.5 million of distributions (including net income of £2.5 million) through the exit of private company and other partial realisations

Exit activity from the funds was driven by the continued strong appetite for high quality private equity companies and the majority of realisations were at a premium to the last relevant valuation.

Average multiple on realised investments was 2.3 times invested cost

In the six months to 31 March 2018, the private equity funds generated strong returns from their portfolio of private companies, consistent with prior years. This long-term performance is underpinned by the quality of the assets and the value-add delivered by our private equity managers.

Net unrealised losses from the portfolio was £27.0 million

The movement over the period represented an unrealised valuation loss on constant currency basis of £23.0 million and a foreign exchange loss of £4.0 million.

Total outstanding commitments of £360.0 million to 54 private equity funds

The total new commitments of £88.3 million comprise new primary fund commitments of £79.4 million and commitments of £8.9 million acquired in secondary transactions, offset by fund drawdowns of £51.1 million during the period.  

A £26.4 (€30.0) million commitment was made to PAI Europe VII in December 2017. Managed by PAI, the €5.0 billion fund will invest in buyouts in Western Europe. A £26.7 (€30.0) million commitment was made to Equistone Partners Europe Fund VI in March 2018. Managed by Equistone Partners Europe, the €2.8 billion fund focusses on France, Germany, Switzerland and the UK. A £26.3 (€30.0) million commitment was made to Bridgepoint Europe VI in March 2018. Managed by Bridgepoint Capital, the €5.0 billion fund focusses on middle market acquisitions in Europe with enterprise values between €200 - €600 million.

In addition, secondary investments in Onex Partners IV and Nordic Capital Fund VIII added £8.9 million to the total outstanding commitments during the period.

The Manager continues to estimate that £60.0 million of outstanding commitments will not be drawn by the private equity funds portfolio.

The outstanding commitments in excess of available liquid resources, including cash and the undrawn debt facility, as a percentage of the net asset value was 33.1%, within the long-term target range of 30%-75%, highlighting the prudent approach to over-commitments adopted by the Manager in the current market environment.

Liquid resources

Over the period, the portfolio generated cash inflows of £75.5 million from realised investments, partially offset by new investment activity of £51.1 million and secondary purchases of £21.9 million, resulting in net investment inflows of £2.6 million.  Including dividends paid and FX movements, net liquid resources were £81.3 million at 31 March 2018, down from £93.6 million at 30 September 2017.

Analysis of the underlying private company investments

At 31 March 2018, the 54 private equity fund interests were collectively invested in a total of 454 underlying investments. The diversification of the underlying investments is set out in the "Portfolio Review" section of the interim report. Further information on the ten largest underlying private company investments, representing 17.1% of the net asset value are shown in the "Largest 10 Underlying Private Companies" section of the interim report.

Portfolio construction: investments in buyout funds through primary commitments and buyout funds acquired via the secondary transactions represents 99% of the portfolio and demonstrates the core focus on buyouts as the prime investment strategy for investing in private companies.  17% of the portfolio was acquired through secondary purchases and it is expected that this will increase over time.

Geographic exposure: 82% of the portfolio at 31 March 2018 is invested in Europe and this will likely continue to be the majority of exposure over the short to medium term, with 15% invested in North America. Investments in Europe are weighted towards Northern Europe, with a focus on the Scandinavian, French, Benelux, German and UK markets. The portfolio has historically been deliberately underweight Southern Europe due to the relative immaturity and underperformance of its private equity market compared to other European regions. However, the Manager will consider making commitments to Southern Europe going forward where attractive opportunities arise. At present, the North American exposure relates primarily to investments in companies made by the European-based managers through their allocation to global deals. However, following the broadening of the investment policy, the Manager is also considering making commitments to domestic US managers where attractive. In line with this change, a secondary position has been acquired in Onex Partners IV and the Company is undertaking due diligence on a number of other US funds.

Sector exposure: The Company's sector diversification is a product of the underlying investment strategy of the private equity funds, built around their specific sector expertise. The portfolio is invested in fast growth sub-sectors within the broad sector strategies. In recent years, healthcare, financials and technology (mature software businesses) have increased in significance with consumer-focused and industrial companies retaining their importance. The portfolio is light in the cyclical sectors of oil and gas, utilities and mining.

Maturity exposure and portfolio value growth: The maturity exposure highlights the balanced nature of the portfolio. The typical hold period prior to exit of a private equity backed company is four to six years. With 33% of the portfolio in the five years or older category, cash generation is therefore expected to remain positive. Portfolio maturity is managed through both primary commitments and secondary transactions with the objective of achieving balanced exposures over vintage years. 0.5% of the portfolio is exposed to the pre-2007 period and 8% of the portfolio is valued below cost.

Portfolio valuation and leverage multiple analysis: The top 50 private companies that represent 40.9% of the net asset value at 31 December 2017 (being the most recent data) had a median valuation multiple, based on the Enterprise Value (EV) / Earnings Before Interest Tax Depreciation and Amortisation (EBITDA), of 11-12x. Those valued at a multiple greater than 15x are generally highly rated private companies that command strategic premiums. Median Net Debt / EBITDA in the portfolio at 4-5x was consistent with the prior period. The private equity fund managers are prudent in the levels of leverage applied to their portfolio companies and debt markets remain open for both new transactions and refinancing on attractive terms.

Both metrics are in line with the private equity market for similar sized deals and vintages. However, the portfolio of private companies typically does have higher levels of leverage compared to public markets.

Primary investment market

The US and European private equity market continued to exhibit high levels of activity in 2017, representing an ongoing trend that has occurred since the financial crisis of 2007-8. While year-over-year activity may fluctuate, the overall trend is one of increasing activity and momentum in terms of fundraising, new investments, and exits.

The European private equity fundraising market, in common with the US, is at its most buoyant since 2008. The best small, mid and large cap managers are raising new funds rapidly (and being frequently oversubscribed), whilst many second-tier and new managers are also finding success in reaching fundraising targets.

Valuation within the US has crept upwards in recent years following the 2007-8 financial crisis, but is still well below pre-recession levels. In addition to higher levels and attractive terms available on debt, also contributing to the increase in valuation are high levels of distributions, which have outstripped capital calls, causing high investor liquidity and increased investor appetite for private equity investments. These in turn create competition among managers, thus leading to higher valuations.

Average purchase prices for European buyouts of 9.0x-9.5x EBITDA have increased moderately over the last five years, but remain around 1.0x lower than the US market. Debt multiples have also edged higher due to improving debt availability. Nonetheless, funding structures remain relatively conservative from a debt/equity perspective.

Investment performance has been quite strong with all post-recession vintages generating median returns greater than 13.0%. Importantly, in the US, first quartile funds for the same vintage years have all generated gross returns in excess of 20%, while third quartile funds experienced a range of gross returns from as low as 2.5% to 12%. The disparity between first and third quartile returns is clearly large and demonstrates the importance of manager selection.

Overall, the Company has seen a steady pace of activity over the past few years and it is expected that the levels of new investment and realisation activity will remain robust over the coming months.

Secondary transaction market*

After record volumes in the first half of 2017, at $22 billion worth of secondary transactions, the second half of the year proved even stronger, such that secondary market volume for the full year reached an all-time high of $58 billion. This was 58% ahead of 2016, and 38% beyond the previous annual record. This was driven by a more favourable macro environment which provided both buyers and sellers with more confidence to transact in the secondary market. Notably, there was a significant increase in the number of larger transactions (greater than $1 billion in size), of which there were nine that traded in 2017 versus five in 2016.

The average pricing for all secondary transactions increased to 93% of NAV from 89% in 2016, while average pricing for buyout interests was even stronger at 99% of NAV, up from 95% in 2016. This is likely to be a result of a combination of factors, with secondary buyers anticipating further positive value accretion in private equity portfolios, a better quality, and maturity, mix of assets being transacted, and increasing pressure on secondary buyers to deploy capital in a buoyant fund-raising market.

Beyond the maturity mix, another important factor pushing up pricing levels is the buy-side perspective, with secondary players having increasing levels of capital to deploy both through their own fund-raising efforts and with the availability of more leverage. Pressure to deploy capital and competition for deals, particularly at the larger end of the market, have anecdotally pushed buyers into underwriting deals at ever lower returns. Buyers then compensate for these lower returns by using leverage to boost performance for their investors.

Activity levels have remained high in the early part of 2018 and it is anticipated that the first half of 2018 will record another period of strong transaction volumes.  Sellers are clearly seeking to take advantage of elevated pricing in the secondary market to re-balance their portfolios or liquidate more mature positions.

While the Company has continued to acquire high quality private equity funds in the secondary market during the period, a number of transactions were declined due to high price levels. The Manager continues to originate and analyse a variety of secondary opportunities that could fit with the Company's portfolio, but remains highly selective given the current macro and secondary pricing environment.

* Source: Greenhill (January 2018).

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks faced by the Company relate to the Company's investment activities and these are set out below:

•              market risk;

•              currency risk;

•              over-commitment risk;

•              liquidity risk;

•              credit risk;

•              interest rate risk;

•              operating and control environment risk;

Information on each of these risks, and an explanation of how they are managed, is contained in the Company's Annual Report for the year ended 30 September 2017.

The Company's principal risks and uncertainties have not changed materially since the date of that Annual Report and are not expected to change materially for the remaining six months of the Company's financial year.

DIRECTORS' RESPONSIBILITY STATEMENT

The Directors are responsible for preparing the half-yearly financial report, in accordance with applicable law and regulations. The Directors confirm that, to the best of our knowledge:

·     the condensed set of financial statements has been prepared in accordance with FRS 104 Interim Financial Reporting

·     the interim management report includes a fair review of the information required by:

a)    DTR 4.2.7R of the Disclosure Guidance and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

b)    DTR 4.2.8R of the Disclosure Guidance and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

On behalf of the Board,

Edmond Warner, OBE

Chairman

15 June 2018

FINANCIAL HIGHLIGHTS

Performance (capital only)	As at 31 March 2018	As at 30 September 2017	% Change
SLPET NAV	390.4p	389.6p	0.2%
SLPET share price	325.0p	341.5p	(4.8)%
FTSE All-Share Index(1)	3,894.2	4,049.9	(3.8)%
MSCI Europe Index(1)	2,994.9	3,154.4	(5.1)%
LPX Europe Index(1)	456.0	461.3	(1.1)%
Discount (difference between share price and net asset value)	16.7%	12.3%

Performance (total return)(2)			Annualised
	6 months %	1 year %	3 years %	5 years %	10 years %	Since inception %(3)
SLPET NAV	+1.5	+8.6	+15.4	+12.1	+5.2	+9.7
SLPET share price	(2.3)	+10.8	+17.0	+15.0	+5.8	+8.9
FTSE All-Share Index (£)(1)	(2.3)	+1.2	+5.9	+6.6	+6.7	+5.5
MSCI Europe Index (£)(1)	(4.0)	+2.6	+7.4	+8.7	+6.3	+5.8
LPX Europe Index (£)(1)	(0.8)	+15.8	+17.3	+15.4	+7.7	+6.9

Highs/lows for the six months ended 31 March 2018	High	Low
Share price (mid)	352.0p	320.0p

(1) The Company has no defined benchmark; the indices above are solely for comparative purposes.

(2) Includes dividends reinvested.

(3) The Company was listed on the London Stock Exchange in May 2001.

CONDENSED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)

		For the six months to 31 March 2018
	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Total capital gains on investments		-	12,681	12,681
Currency losses		-	(1,061)	(1,061)
Income	4	4,033	-	4,033
Investment management fee	5	(288)	(2,596)	(2,884)
Administrative expenses		(527)	-	(527)
Profit before finance costs and taxation		3,218	9,024	12,242
Finance costs		(161)	(315)	(476)
Profit before taxation		3,057	8,709	11,766
Taxation		(1,503)	155	(1,348)
Profit after taxation		1,554	8,864	10,418
Profit per ordinary share	7	1.01p	5.77p	6.78p
		For the six months to 31 March 2017
	Notes	Revenue	Capital	Total
		£'000	£'000	£'000
Total capital gains on investments		-	34,612	34,612
Currency losses		-	(168)	(168)
Income	4	9,590	-	9,590
Investment management fee	5	(265)	(2,387)	(2,652)
Administrative expenses		(550)	-	(550)
Profit before finance costs and taxation		8,775	32,057	40,832
Finance costs		(135)	(315)	(450)
Profit before taxation		8,640	31,742	40,382
Taxation		(1,635)	1,328	(307)
Profit after taxation		7,005	33,070	40,075
Profit per ordinary share	7	4.56p	21.51p	26.07p

The Total column of this statement represents the profit and loss account of the Company.

There are no items of other comprehensive income, therefore this statement is the single statement of comprehensive income of the Company.

All revenue and capital items in the above statement are derived from continuing operations.

No operations were acquired or discontinued in the period.

CONDENSED STATEMENT OF FINANCIAL POSITION (UNAUDITED)

		As at	As at
		31 March 2018	30 September 2017
	Notes	£'000	£'000
Non-current assets
Investments	8	531,636	505,107
Current assets
Receivables		894	808
Cash and cash equivalents		68,256	93,648
		69,150	94,456
Creditors: amounts falling due within one year
Payables		(601)	(571)
Net current assets		68,549	93,885
Total assets less current liabilities		600,185	598,992
Capital and reserves
Called-up share capital		307	307
Share premium account		86,485	86,485
Special reserve		51,503	51,503
Capital redemption reserve		94	94
Capital reserves		457,615	448,751
Revenue reserve		4,181	11,852
Total shareholders' funds		600,185	598,992
Net asset value per equity share	9	390.4p	389.6p

CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)

For the six months ended 31 March 2018

	Called-up	Share		Capital
	share	premium	Special	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 October 2017	307	86,485	51,503	94	448,751	11,852	598,992
Profit after taxation	-	-	-	-	8,864	1,554	10,418
Dividends paid	-	-	-	-	-	(9,225)	(9,225)
Balance at 31 March 2018	307	86,485	51,503	94	457,615	4,181	600,185

For the six months ended 31 March 2017

	Called-up	Share		Capital
	share	premium	Special	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 1 October 2016	307	86,485	51,503	94	379,915	14,328	532,632
Profit after taxation	-	-	-	-	33,070	7,005	40,075
Dividends paid	-	-	-	-	-	(5,535)	(5,535)
Balance at 31 March 2017	307	86,485	51,503	94	412,985	15,798	567,172

CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)

	Six months ended		Six months ended
	31 March 2018		31 March 2017
	£'000		£'000
Cashflows from operating activities
Net profit before taxation	11,766		40,382
Adjusted for:
Finance costs	476		450
Gains on disposal of investments	(40,487)		(30,035)
Revaluation of investments	27,806		(4,576)
Currency losses	1,061		168
Increase in debtors	(156)		(15)
Increase/(decrease) in creditors	36		(6,086)
Tax deducted from non-UK income	(1,348)		(307)
Interest paid	(412)		(242)
Net cash outflow from operating activities	(1,258)		(261)
Investing activities
Purchase of investments	(87,826)		(66,214)
Disposal of underlying investments by funds	73,978		64,018
Net cash outflow from investing activities	(13,848)		(2,196)
Financing activities
Ordinary dividends paid	(9,225)		(5,535)
Net cash outflow from financing activities	(9,225)		(5,535)
Net decrease in cash and cash equivalents	(24,331)		(7,992)
Cash and cash equivalents at the beginning of the period	93,648		105,883
Currency losses on cash and cash equivalents	(1,061)		(168)
Cash and cash equivalents at the end of the period	68,256		97,723
Cash and cash equivalents consist of:
Money market funds	53,163		77,349
Cash and short-term deposits	15,093		20,374
Cash and cash equivalents	68,256		97,723

NOTES TO THE FINANCIAL STATEMENTS (UNAUDITED)

1              Financial Information

The financial information in this report comprises non-statutory financial statements as defined in sections 434-436 of the Companies Act 2006. The financial information for the year ended 30 September 2017 has been extracted from the published financial statements that have been delivered to the Registrar of Companies and on which the report of the auditor was unqualified under section 498 of the Companies Act 2006.

The auditor has reviewed the financial information for the six months ended 31 March 2018 in accordance with the applicable standards issued by the Auditing Practices Board for use in the United Kingdom. The independent auditor review report is included below.

2              Basis of preparation and going concern

The condensed financial statements have been prepared in accordance with Financial Reporting Standard 104 (Interim Financial Reporting) and with the Statement of Recommended Practice for 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'.

In assessing the appropriateness of the adoption of the going concern assumption as a basis for preparing the financial statements, the Directors took account of the £80 million committed, syndicated revolving credit facility with a maturity date in December 2020; the future cashflow projections; the Company's cashflows during the period; and the Company's net liquid resources at the period end.

The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they have adopted the going concern basis in preparing the accounts.

The financial statements for the six months ended 31 March 2018 have been prepared using the same accounting policies as the preceding annual financial statements.

3              Exchange rates

Rates of exchange to sterling were:

	As at	As at
	31 March 2018	30 September 2017
Canadian Dollar	1.8061	1.6779
Euro	1.1396	1.1349
US Dollar	1.4018	1.3417

4              Income

	Six months ended	Six months ended
	31 March 2018	31 March 2017
	£'000	£'000
Income from fund investments	3,875	9,546
Interest from cash balances and money market funds	158	44
Total income	4,033	9,590

5              Transactions with the Manager

	Six months ended 31 March 2018			Six months ended 31 March 2017
	Revenue	Capital	Total	Revenue	Capital	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Investment management fee	288	2,596	2,884	265	2,387	2,652

The Manager to the Company is SL Capital Partners LLP. In order to comply with the Alternative Investment Fund Managers Directive, the Company appointed SL Capital Partners LLP as its Alternative Investment Fund Manager from 1 July 2014.

The investment management fee payable to the Manager is 0.95% per annum of the NAV of the Company. The investment management fee is allocated 90% to the realised capital reserve and 10% to the revenue account.  The management agreement between the Company and the Manager is terminable by either party on twelve months' written notice.

Investment management fees due to the Manager as at 31 March 2018 amounted to £334,000 (31 March 2017 - £880,000).

6              Dividend on ordinary shares

A dividend of 6.0p per ordinary share, declared as a final dividend, was paid on 31 January 2018 in respect of the year ended 30 September 2017 (2016: dividend of 3.6p per ordinary share paid on 27 January 2017).

For the financial year ending 30 September 2018, the payment frequency of the Company's dividend changed from semi-annual to quarterly. The first quarter dividend of 3.1p per ordinary share was paid on 27 April 2018 (2017: none). A proposed second quarter dividend of 3.1p per share is due to be paid on 27 July 2018 (2017: interim dividend of 6.0p was paid on 21 July 2017).

7              Net return per ordinary share

	Six months ended		Six months ended
	31 March 2018		31 March 2017
	p	£'000	p	£'000
The net return per ordinary share is based on the following figures:
Revenue net return	1.01	1,554	4.56	7,005
Capital net return	5.77	8,864	21.51	33,070
Total net return	6.78	10,418	26.07	40,075
Weighted average number of ordinary shares in issue		153,746,294		153,746,294

8              Investments

	Six months ended	Year ended
	31 March 2018	30 September 2017
Investments	£'000	£'000
Fair value through profit or loss:
Opening market value	505,107	433,392
Opening investment holding gains	(27,841)	(5,371)
Opening book cost	477,266	428,021
Movements in the period/year:
Additions at cost	65,941	93,987
Secondary purchases	21,885	20,150
Disposal of underlying investments by funds	(73,978)	(114,959)
	491,114	427,199
Gains on disposal of underlying investments	40,470	52,010
Gains/(losses) on liquidation of fund investments	17	(1,943)
Closing book cost	531,601	477,266
Closing investment holding gains	35	27,841
Closing market value	531,636	505,107

The Company invests in two quoted equities as part of its liquidity management strategy. The figures above relate to both the Company's unquoted investments in private equity funds and in quoted investments. The earlier Manager's Review section presents the performance of the Company's principal activity of investing in private equity funds. As a result, the differences between the figures within the Manager's Review and the note above relate to quoted investments.

9              Net asset value per ordinary share

	As at 31 March 2018	As at 30 September 2017
Basic and diluted:
Ordinary shareholders' funds	£600,185,312	£598,991,912
Number of ordinary shares in issue	153,746,294	153,746,294
Net asset value per ordinary share	390.4p	389.6p

The net asset value per ordinary share and the ordinary shareholders' funds are calculated in accordance with the Company's Articles of Association.

10           Bank loans

At 31 March 2018, the Company had an £80 million (30 September 2017: £80 million) committed, multi currency syndicated revolving credit facility provided by Citibank and Societe Generale of which £nil (30 September 2017 : £nil) had been drawn down. The facility expires on 31 December 2020. The interest rate on this facility is LIBOR plus 1.50%, rising to 1.70% depending on utilisation, and the commitment fee payable on non-utilisation is 0.7% per annum.

11           Fair value hierarchy

FRS 104 requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy shall have the following classifications:

- Level 1:              The unadjusted quoted price in an active market for identical assets or liabilities that the entity can access at the measurement date.

- Level 2:              Inputs other than quoted prices included within Level 1 that are observable (i.e., developed using market data) for the asset or liability, either directly or indirectly.

- Level 3:              Inputs are unobservable (i.e., for which market data is unavailable) for the asset or liability.

The Company's financial assets and liabilities, measured at fair value in the Statement of Financial Position, are grouped into the following fair value hierarchy at 31 March 2018:

	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Financial assets at fair value through profit or loss
Unquoted investments	-	-	518,602	518,602
Quoted investments	13,034	-	-	13,034
Net fair value	13,034	-	518,602	531,636
As at 30 September 2017
	Level 1	Level 2	Level 3	Total
	£'000	£'000	£'000	£'000
Financial assets at fair value through profit or loss
Unquoted investments	-	-	503,708	503,708
Quoted investments	1,399	-	-	1,399
Net fair value	1,399	-	503,708	505,107

Unquoted investments

Unquoted investments are stated at the Directors' estimate of fair value and follow the recommendations of the EVCA and the BVCA (European Private Equity & Venture Capital Association and British Private Equity & Venture Capital Association respectively). The estimate of fair value is normally the latest valuation placed on a fund by its manager as at the Statement of Financial Position date. The valuation policies used by the manager in undertaking that valuation will generally be in accordance with the joint publication from the EVCA and the BVCA, 'International Private Equity and Venture Capital Valuation guidelines'. Where formal valuations are not completed as at the Statement of Financial Position date, the last available valuation from the fund manager is adjusted for any subsequent cashflows occurring between the valuation date and the Statement of Financial Position date. The Company's Manager may further adjust such valuations to reflect any changes in circumstances from the last manager's formal valuation date to arrive at the estimate of fair value.

12           Parent undertaking and related party transactions

The ultimate parent undertaking of the Company is Standard Life Aberdeen plc. The financial statements of the ultimate parent undertaking are the only group financial statements incorporating the financial statements of the Company.                                                                                           

Details of the related party transactions with the Manager can be found in note 5.

The Company invests in the Standard Life Investments Liquidity Funds which are managed by Standard Life Investments Limited. As at 31 March 2018, the Company had invested £18,471,000 in the Standard Life Investments Liquidity Funds (30 September 2017: £27,291,000) which are included within cash and cash equivalents in the Condensed Statement of Financial Position. During the period, the Company received interest amounting to £1,000 (six months ended 31 March 2017: £33,000) on sterling denominated positions. The Company incurred £56,000 (six months ended 31 March 2017: £46,000) interest on Euro denominated positions as a result of negative interest rates. As at 31 March 2018 and 30 September 2017, no interest was due to the Company on sterling and Euro denominated positions. No additional fees are payable to Standard Life Investments Limited as a result of this investment.

There were no new related party transactions in the six months to 31 March 2018 over and above those already disclosed in the Annual Report and Financial Statements.

INDEPENDENT REVIEW REPORT TO STANDARD LIFE PRIVATE EQUITY TRUST PLC 

Conclusion

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2018 which comprises the Condensed Statement of Comprehensive Income, Condensed Statement of Financial Position, Condensed Statement of Changes in Equity, Condensed Statement of Cash Flows and the related explanatory notes.

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 31 March 2018 is not prepared, in all material respects, in accordance with FRS 104 Interim Financial Reporting and the Disclosure Guidance and Transparency Rules ("the DTR") of the UK's Financial Conduct Authority ("the UK FCA"). 

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  We read the other information contained in the half-yearly financial report and consider whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors.  The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FCA. 

As disclosed in note 2, the annual financial statements of the company are prepared in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice), including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.  The Directors are responsible for preparing the condensed set of financial statements included in the half-yearly financial report in accordance with FRS 104 Interim Financial Reporting.  

Our responsibility 

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. 

The purpose of our review work and to whom we owe our responsibilities 

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the DTR of the UK FCA.  Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose.  To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached. 

Philip Merchant

for and on behalf of KPMG LLP 

Chartered Accountants 

Saltire Court 

20 Castle Terrace

Edinburgh EH1 2EG

15 June 2018

 

END

 

 

IR LLFEDRRIELIT