Interim Results
Standard Life Euro Pri Eqty Tst PLC
05 June 2007
5 June 2007
STANDARD LIFE EUROPEAN PRIVATE EQUITY TRUST PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 MARCH 2007
Highlights
• The Company's net asset value per ordinary share ('NAV') rose by 12.7% to
205.3p (30 September 2006 - 182.1p).
• The closing mid-market price of the Company's ordinary shares on 31 March
2007 was 240.8p (30 September 2006 - 183.5p), a rise of 31.2% over the six
month period.
• In line with the Company's dividend policy, the Board has not declared an
interim dividend.
• Private equity is a long term asset class. Over the five year period from
1 April 2002 the Company's NAV and share price have materially out-performed
the two most relevant stock market indices, rising by 118.4% and 183.3%
respectively, while the FTSE All-Share Index and the MSCI Europe Index
(sterling adjusted) have risen by 28.4% and 32.8% respectively.
• As at 31 March 2007 the Company's net assets were £326.7 million (30
September 2006 - £289.8 million). The Company had interests in 47 private
equity funds with a value of £279.9 million (30 September 2006 - 43 funds
and £239.3 million) and held £48.9 million in cash and money market balances
(30 September 2006 - £52.1 million).
• Distributions received during the period totalled £69.3 million (six
months ended 30 September 2006 - £46.7 million), including £39.5 million of
realised gains and income (six months ended 30 September 2006 - £27.9
million). The average return on the Company's acquisition cost of realised
investments was 2.3 times (six months ended 30 September 2006 - 2.5 times).
• The valuation of the Company's private equity fund interests reflected a
positive performance, with unrealised gains during the period of £3.7
million (six months ended 30 September 2006 - £11.6 million).
• In light of the continuing growth in the European private equity market
the Company funded a record £66.8 million of draw downs (six months ended 30
September 2006 - £37.7 million).
• The Company made four new fund commitments totalling £113.0 million during
the period, to Apax Europe VII, Coller International Partners V, CVC Tandem
and Terra Firma Capital Partners III.
Quote from Scott Dobbie, Chairman:-
'Against a background of increasing competition in the European private equity
asset class and rising deal and fund sizes, the skills of portfolio
construction, selection and the ability to access the best managers and funds
are at a premium: in this the Manager has an enviable track record.'
CHAIRMAN'S STATEMENT
Results and performance
The Company performed well in the six months ended 31 March 2007, with its net
asset value per ordinary share ('NAV') rising by 12.7% to 205.3p. The strong
portfolio of assets benefited from rising financial markets, positive
macro-economic fundamentals across most of Europe and a robust European private
equity market. As at 31 March 2007 the Company's net assets were £326.7 million
(30 September 2006 - £289.8 million). On a fully diluted basis, assuming
conversion of the relevant outstanding founder A shares, the Company's NAV at 31
March 2007 was 202.1p.
Despite some recent public expressions to the contrary, the Company's Board and
Manager believe that private equity returns should properly be viewed over a
long time horizon. The Company was listed in May 2001. Over the five year period
from 1 April 2002 the Company's NAV and share price have materially
out-performed the two most relevant stock market indices, increasing by 118.4%
and 183.3% respectively, compared to rises of 28.4% in the FTSE All-Share Index
and 32.8% in the MSCI Europe index (sterling adjusted).
The closing mid-market price of the Company's ordinary shares on 31 March 2007
was 240.8p (30 September 2006 - 183.5p), a rise of 31.2% over the six month
period. Throughout the period the Company's shares continued to trade at a
premium to the published NAV.
In line with the Company's dividend policy, the Board has not declared an
interim dividend.
Valuation
As at 31 March 2007 the Company's portfolio comprised 47 private equity fund
interests, of which 20 fund interests represented 84.3% by value of the
portfolio. The Board believes that this pattern of exposure provides an optimum
balance between diversification and concentration in an asset class that
traditionally has demonstrated a high dispersion of return between different
managers and funds.
During the six month period the portfolio continued to rise in value through a
combination of net new investment activity and unrealised gains. As at 31 March
2007 the value of portfolio was £279.9 million (30 September 2006 - £239.3
million), of which unrealised gains arising during the period were £3.7 million
(six months ended 30 September 2006 - £11.6 million). This reflected a positive
performance, attributable principally to good trading and cashflow generation at
many of the underlying investee companies and rising comparable valuation
multiples.
Aggregate cash and money market balances fell marginally over the period to
£48.9 million at 31 March 2007 (30 September 2006 - £52.1 million). This was the
result of a healthy flow of distributions, offset by record draw downs and the
payment of the final dividend for the last financial year. At the period end,
the percentage of the Company's gross assets invested in private equity assets
had risen to 85.1% (30 September 2006 - 82.1%); this remains one of the highest
proportions within the private equity investment trust asset class.
Exchange rates had a slightly negative impact on NAV over the period, as
sterling appreciated by 5.0% relative to the US dollar and depreciated by 0.1%
relative to the euro. As at 31 March 2007 the Company had £329.1 million of
gross assets, of which £200.7 million (sterling equivalent) comprised euro
denominated assets and £52.1 million (sterling equivalent) dollar denominated
assets (30 September 2006 - £291.6 million, £166.0 million and £46.5 million
respectively).
Investment activity
The level of European private equity investment rose again, with a total of
€107.8 billion of transactions completed in the six month period to 31 March
2007, compared to €68.5 billion in the comparable six month period last year and
€156.7 billion in the year ended 30 September 2006. Buy-out activity now
dominates the market and average deal sizes continue to increase. In light of
this the Company funded a record £66.8 million of draw downs in the six month
period to 31 March 2007 (six months ended 30 September 2006 - £37.7 million).
As for cash inflow, the six month period saw the Company receive £69.3 million
of distributions (six months ended 30 September 2006 - £46.7 million). The
Company benefited from significant realisations across the portfolio, with both
large and small investments being fully or partially realised. This was again
driven by the strong mergers and acquisitions market and the attractive maturity
profile of the Company's portfolio. Over 33% of the Company's underlying
portfolio of investments at 31 March 2007 were made in the years 2001-04,
against a background of relatively weaker corporate earnings, lower multiples
and less competition.
Of the distributions received, £34.5 million were realised gains and £5.0
million were income (six months ended 30 September 2006 - £24.6 million and £3.3
million respectively). The average return on the Company's acquisition cost of
realised investments again exceeded two times, being 2.3 times (six months ended
30 September 2006 - 2.5 times).
Early 2007 saw the beginning of a new fund raising cycle, with some of the
managers who last raised funds in 2004 returning to the market. During the six
month period the Company made four new fund commitments totalling £113.0
million. These were £40.7 million to Apax Europe VII, £20.4 million to Coller
International Partners V, £28.8 million to CVC Tandem and £23.1 million to Terra
Firma Capital Partners III. All of these funds are buy-out funds and are focused
on Europe, save for Coller International Partners V which specialises in
secondary private equity investments in Europe and North America. The Company
has existing investments with the managers of all of these funds, with the
exception of Terra Firma Capital Partners III, although, in this case, the
Manager has been monitoring and reviewing Terra Firma's progress for a number of
years.
In light of the new fund commitments made and draw downs funded, the Company's
aggregate outstanding commitments to its private equity fund interests increased
to £353.3 million as at 31 March 2007 (30 September 2006 - £307.7 million).
These commitments can be expected to be drawn down over the next 3-4 years and
will be funded from the Company's existing cash and money market holdings,
distributions received from the Company's private equity fund interests and, if
necessary, the use of bank borrowings. During the period the Company entered
into a new five year £60 million revolving credit facility with The Royal Bank
of Scotland plc and at the period end this facility was undrawn.
Profile of private equity industry
Recent years have seen a significant increase in the number and size of private
equity transactions undertaken in Europe. This has prompted much public debate
about the European private equity market, its role in the capital markets and
more generally in society. Arising from this there have been calls for greater
disclosure and governance by private equity funds and managers.
There has been little debate about broadening the access to the asset class.
With the experience of six years in the Company, the Board believes that the
benefits, particularly of corporate structure, reporting and governance,
provided by private equity investment trusts listed on the London Stock Exchange
have not been fully recognised and that they offer appropriate vehicles for
retail and small institutional investors to obtain exposure to, and information
on, the private equity market.
Outlook
The Company delivered a good performance in the six months to 31 March 2007 and
this has continued post the period end. Against a background of increasing
competition in the European private equity asset class and rising deal and fund
sizes, the skills of portfolio construction, selection and the ability to access
the best managers and funds are at a premium: in this the Manager has an
enviable track record. Further, in the current pricing and debt environment the
Manager is aware of the balance between over-committing the Company and
maximising investment returns.
Scott Dobbie CBE
Chairman
INCOME STATEMENT
(unaudited)
Six months to 31 March 2007
Revenue Capital Total
£'000 £'000 £'000
Total capital gains on investments - 37,596 37,596
Currency gains - 4 4
Income 6,186 - 6,186
Investment management fee (128) (1,154) (1,282)
Administrative expenses (295) - (295)
________ ________ ________
Return before finance costs and taxation 5,763 36,446 42,209
Interest payable and similar charges (11) (100) (111)
________ ________ ________
Return on ordinary activities before taxation 5,752 36,346 42,098
Taxation on ordinary activities (1,746) 377 (1,369)
________ ________ ________
Return on ordinary activities after taxation 4,006 36,723 40,729
________ ________ ________
Return per ordinary share 2.52p 23.07p 25.59p
________ ________ ________
Diluted return per ordinary share 2.48p 22.74p 25.22p
________ ________ ________
_________________________________________________________________________________
(unaudited)
Six months to 31 March 2006
Revenue Capital Total
£'000 £'000 £'000
Total capital gains on investments - 26,195 26,195
Currency gains - 20 20
Income 3,270 - 3,270
Investment management fee (101) (911) (1,012)
Administrative expenses (237) - (237)
________ ________ ________
Return before finance costs and taxation 2,932 25,304 28,236
Interest payable and similar charges (10) (85) (95)
________ ________ ________
Return on ordinary activities before taxation 2,922 25,219 28,141
Taxation on ordinary activities (863) 298 (565)
________ ________ ________
Return on ordinary activities after taxation 2,059 25,517 27,576
________ ________ ________
Diluted return per ordinary share 1.30p* 16.03p* 17.33p*
________ ________ ________
_________________________________________________________________________________
(audited)
Year ended 30 September 2006
Revenue Capital Total
£'000 £'000 £'000
Total capital gains on investments - 61,117 61,117
Currency losses - (172) (172)
Income 7,636 - 7,636
Investment management fee (215) (1,934) (2,149)
Administrative expenses (476) - (476)
________ ________ ________
Return before finance costs and taxation 6,945 59,011 65,956
Interest payable and similar charges (19) (171) (190)
________ ________ ________
Return on ordinary activities before taxation 6,926 58,840 65,766
Taxation on ordinary activities (2,078) 631 (1,447)
________ ________ ________
Return on ordinary activities after taxation 4,848 59,471 64,319
________ ________ ________
Return per ordinary share 3.05p 37.36p 40.41p
________ ________ ________
Diluted return per ordinary share 3.01p 36.90p 39.91p
________ ________ ________
The total column of this statement represents the profit and loss account of the
Company.
The Company has no recognised gains or losses other than those recognised in the
income statement above.
All revenue and capital items in the above statement derive from continuing
operations.
* Earnings per share - undiluted and diluted.
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
For the period ended 31 March 2007 Share Capital Capital Capital
Share premium Special redemption reserve reserve Revenue
capital reserve reserve reserve realised unrealised reserve Total
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Balance at 30 September 2006 354 77,775 79,148 1 103,234 22,185 7,105 289,802
Total recognised gains and losses - - - - 33,055 3,668 4,006 40,729
Dividends paid - - - - - - (3,820) (3,820)
______ ______ ______ ______ ______ ______ ______ ______
Balance at 31 March 2007 354 77,775 79,148 1 136,289 25,853 7,921 326,711
______ ______ ______ ______ ______ ______ ______ ______
For the period ended 31 March
2006
Balance at 30 September 2005 354 77,775 79,148 1 60,107 5,841 5,122 228,348
Total recognised gains and losses - - - - 19,987 5,530 2,059 27,576
Dividends paid - - - - - - (2,865) (2,865)
______ ______ ______ ______ ______ ______ ______ ______
Balance at 31 March 2006 354 77,775 79,148 1 80,094 11,371 4,316 253,059
______ ______ ______ ______ ______ ______ ______ ______
For the year ended 30 September 2006
Balance at 30 September 2005 354 77,775 79,148 1 60,107 5,841 5,122 228,348
Total recognised gains and losses - - - - 43,127 16,344 4,848 64,319
Dividends paid - - - - - - (2,865) (2,865)
______ ______ ______ ______ ______ ______ ______ ______
Balance at 30 September 2006 354 77,775 79,148 1 103,234 22,185 7,105 289,802
______ ______ ______ ______ ______ ______ ______ ______
BALANCE SHEET
(unaudited) (unaudited) (audited)
As at As at As at
31 March 2007 31 March 2006 30 September 2006
£'000 £'000 £'000
Non-current assets
Investments at fair value through profit or loss 279,909 208,784 239,288
Current assets
Investments at fair value through profit or loss 40,935 36,989 44,387
Debtors 224 126 189
Cash and short term deposits 8,011 8,400 7,700
________ ________ ________
49,170 45,515 52,276
Creditors: amounts falling due within one year (2,368) (1,240) (1,762)
________ ________ ________
Net current assets 46,802 44,275 50,514
________ ________ ________
Net assets 326,711 253,059 289,802
________ ________ ________
Capital and reserves
Called up share capital 354 354 354
Share premium 77,775 77,775 77,775
Special reserve 79,148 79,148 79,148
Capital redemption reserve 1 1 1
Capital reserve - realised 136,289 80,094 103,234
Capital reserve - unrealised 25,853 11,371 22,185
Revenue reserve 7,291 4,316 7,105
________ ________ ________
Total shareholders' funds 326,711 253,059 289,802
________ ________ ________
Analysis of shareholders' funds
Equity interests (ordinary shares) 326,676 253,024 289,767
Non-equity interests (founder shares) 35 35 35
________ ________ ________
326,711 253,059 289,802
________ ________ ________
Net asset value per equity share 205.3p 159.0p 182.1p
________ ________ ________
Net asset value per equity share - diluted 202.1p 159.0p 179.6p
________ ________ ________
CASHFLOW STATEMENT
(unaudited) (unaudited) (audited)
Six months to Six months to Year to
31 March 2007 31 March 2006 30 September 2006
£'000 £'000 £'000
Revenue before finance costs and taxation 42,209 28,236 65,956
Adjusted for:
Realised gains on investments (33,928) (20,665) (44,801)
Fund investments wound up - - 28
Unrealised gains on investments (3,668) (5,530) (16,344)
Currency losses/(gains) (4) (20) 172
Increase in accrued income (50) (47) (89)
Decrease/(increase) in other debtors 15 8 (13)
Increase in creditors 129 154 275
Tax deducted from non - UK income (29) (140) (155)
NET CASH INFLOW FROM OPERATING ACTIVITIES 4,674 1,996 5,029
NET CASH OUTFLOW FROM SERVICING OF FINANCE (152) (95) (142)
NET CASH OUTFLOW FROM TAXATION (860) (244) (758)
FINANCIAL INVESTMENT
Purchase of investments (114,149) (53,416) (127,697)
Disposal of investments 114,614 60,852 132,153
NET CASH INFLOW FROM FINANCIAL INVESTMENT 465 7,436 4,456
ORDINARY DIVIDEND PAID (3,820) (2,865) (2,865)
________ ________ ________
NET CASH INFLOW BEFORE FINANCING 307 6,228 5,720
NET CASH OUTFLOW FROM FINANCING - - -
________ ________ ________
INCREASE IN CASH AND CASH EQUIVALENTS 307 6,228 5,720
________ ________ ________
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Increase in cash as above 307 6,228 5,720
Currency gains/(losses) 4 20 (172)
________ ________ ________
MOVEMENT IN NET FUNDS IN THE PERIOD 311 6,248 5,548
Opening net funds 7,700 2,152 2,152
________ ________ ________
CLOSING NET FUNDS 8,011 8,400 7,700
________ ________ ________
REPRESENTED BY:
Cash and short term deposits 8,011 8,400 7,700
________ ________ ________
Notes:
1. Standard Life European Private Equity Trust PLC is an investment company
managed by Standard Life Investments (Private Equity) Limited, the ordinary
shares of which are admitted to listing by the UK Listing Authority and to
trading on the London Stock Exchange. It seeks to conduct its affairs so as to
continue to qualify as an investment trust under section 842 of the Income and
Corporation Taxes Act 1988. The Board is wholly independent of the Manager and
Standard Life plc.
2. Accounting policies
(a) Basis of preparation and going concern - The financial statements have been
prepared under the historical cost convention as modified to include the
revaluation of investments and in accordance with applicable UK Accounting
Standards and with the Statement of Recommended Practice 'Financial Statements
of Investment Trust Companies' (issued January 2003 and revised in December
2005). They have also been prepared on the assumption that approval as an
investment trust will continue to be granted. The financial statements have been
prepared on a going concern basis.
The financial statements, and the net asset value per share figures, have been
prepared in accordance with UK Generally Accepted Accounting Principles ('UK
GAAP').
(b) Revenue, expenses and finance cost - Dividends from quoted investments are
included in revenue by reference to the date on which the price is marked
ex-dividend. Interest on quoted investments and other interest receivable are
dealt with on an effective yield basis. Income from unquoted investments is
included when the right to receipt is established. All expenses are accounted
for on an accruals basis. Expenses are charged through the Income Statement,
except as follows: (i) transaction costs incurred on the purchase and disposal
of investments are recognised as a capital item in the Income Statement; and
(ii) the Company charges 90% of the investment management fees and finance costs
to capital, in accordance with the Board's expected long-term split of returns
between capital gains and income from the Company's investment portfolio.
(c) Investments at fair value through profit or loss - Investments have been
designated upon initial recognition as fair value through the profit or loss.
Investments are recognised as at the date of commitment to the fund and removed
when the fund is wound up. Subsequent to initial recognition, investments are
valued at fair value as detailed below. Gains and losses arising from changes
in fair value are included in net profit or loss for the period as a capital
item in the Income Statement and are ultimately recognised in the unrealised
reserve.
Unquoted - Unquoted investments are stated at the Directors' estimate
of fair value and follow the recommendations of the EVCA and BVCA. This is
normally the latest valuation placed on a fund by its manager, adjusted if
necessary for cashflows between the Company and the fund occurring between the
fund manager's valuation date and the Company's balance sheet date. The
valuation policies used by the manager in undertaking that valuation will
generally be in line with the recommendations of the joint publication from the
BVCA and the EVCA, 'International Private Equity and Venture Capital Valuation
Guidelines' ('the Guidelines').
However, the valuation adopted by the Company may depart from the
valuation prepared by the manager of the fund if, in the opinion of the
Company's Manager, an upward adjustment is not prudent. A downward adjustment
may also be made if the Company's Manager receives relevant information which
has not been notified to it by the manager of the fund or if the Company's
Manager forms a more cautious view than that held by the manager of the fund.
The Income Statement reflects the total capital gains, both realised and
unrealised. Due to the valuation of the private equity fund interests held by
the Company being performed at the fund level, and not at the underlying
investment level, and net realised gains only being recognised following
transactions advised by the underlying fund manager, the amounts which are
accounted for in the movement in unrealised appreciation/depreciation on
unquoted investments relate to the difference between the book cost and
valuation of the fund investments.
Quoted - Quoted investments are valued at bid prices, discounted, where
applicable, to recognise any restriction on sale or lack of liquidity.
(d) Dividends payable - Interim and final dividends are recognised in the
period in which they are paid.
(e) Realised capital reserve - Gains or losses on investments realised in
the year that have been recognised in the Income Statement are transferred to
the realised capital reserve. In addition, any prior unrealised gains or losses
on such investments are transferred from the unrealised capital reserve to the
realised capital reserve on disposal of the investment.
(f) Unrealised capital reserve - Increases and decreases in the fair value
of investments are recognised in the Income Statement and are then transferred
to the unrealised capital reserve.
(g) Deferred taxation - Deferred taxation is recognised in respect of
all temporary differences that have originated but not reversed at the balance
sheet date where transactions or events that result in an obligation to pay more
or a right to pay less tax in future have occurred at the balance sheet date
measured on an undiscounted basis and based on enacted tax rates. This is
subject to deferred tax assets only being recognised if it is considered more
likely than not that there will be suitable profits from which the future
reversal of the underlying temporary differences can be deducted. Temporary
differences are differences arising between the Company's taxable profits and
its results as stated in the accounts which are capable of reversal in one or
more subsequent periods.
Due to the Company's status as an investment trust company, and the intention to
continue meeting the conditions required to obtain approval in the foreseeable
future, the Company has not provided deferred tax on any capital gains and
losses arising on the revaluation or disposal of investments.
(h) Overseas currencies - Overseas assets and liabilities are
translated at the exchange rates prevailing at the Company's balance sheet date.
Gains or losses on the re-translation of investments held at the period/year
end are accounted for through the unrealised capital reserve. Gains and losses
on the translation of overseas currency balances held at the period/year end are
accounted for through the realised capital reserve.
Rates of exchange to sterling were:
As at As at As at
31 March 2007 31 March 2006 30 September 2006
Euro 1.4735 1.4334 1.4746
US dollar 1.9614 1.7346 1.8680
Transactions in overseas currencies are translated at the exchange rate
prevailing on the date of the transaction.
3. Income
Six months ended Six months ended Year ended
31 March 31 March 30 September
2007 2006 2006
£'000 £'000 £'000
Income from unquoted investments 4,992 2,567 5,896
_______ _______ _______
Other income
Interest from AAA rated money market funds 1,126 672 1,550
Deposit interest 62 27 186
Other income 6 4 4
_______ _______ _______
1,194 703 1,740
_______ _______ _______
Total income 6,186 3,270 7,636
_______ _______ _______
4. The number of ordinary shares in issue as at 31 March 2007 was
159,150,000 (30 September 2006 - 159,150,000). The return per ordinary share is
based on the weighted average number of ordinary shares in issue.
5. There will be no interim dividend for the six months ended 31 March 2007.
6. The financial information for the six months ended 31 March 2007 and 31
March 2006 comprises non-statutory accounts within the meaning of Section 240 of
the Companies Act 1985. The financial information for the year ended 30
September 2006 has been extracted from published accounts that have been
delivered to the Registrar of Companies and on which the report of the auditors
was unqualified. The interim accounts have been prepared on the same basis as
the annual accounts.
7. The interim report and accounts will be posted to shareholders and
copies will be available from the Manager - Standard Life Investments (Private
Equity) Limited, 1 George Street, Edinburgh EH2 2LL.
for Standard Life European Private Equity Trust PLC,
Edinburgh Fund Managers plc, SECRETARY
END
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