Preliminary Results for year

RNS Number : 3642X

Standard Life Euro Pri Eqty Tst PLC

06 December 2010

 



6 December 2010

STANDARD LIFE EUROPEAN PRIVATE EQUITY TRUST PLC

RESULTS FOR THE YEAR ENDED 30 SEPTEMBER 2010

Highlights

·     For the financial year ended 30 September 2010 the Company's undiluted net asset value per ordinary share ("NAV") rose by 18.4% to 195.3p (diluted NAV - 193.3p).

·     The 30.4p rise in NAV during the year comprised 3.4p of net realised gains and income from the Company's portfolio of 39 private equity fund interests, 37.5p of net unrealised gains on the portfolio on a constant exchange rate basis, 7.8p of negative foreign exchange rate movements on the portfolio and 2.7p of costs and other movements.

·     The closing mid-market price of the Company's ordinary shares on 30 September 2010 was 113.75p, a rise of 1.3% over the year and a discount of 41.2% to the diluted NAV.

·     The Board is recommending a final dividend of 0.2p per ordinary share for the financial year.

·     At 30 September 2010 the Company's net assets were £315.2 million. The Company had interests in 39 private equity funds with a value of £369.6 million. In preparing the Company's year end valuation, 89.8% by value of the portfolio was valued at 30 September 2010.

·     Reflecting the gradual improvement in the European private equity market, draw downs during the year increased to £48.0 million and distributions to £23.0 million. At 30 September 2010 the Company's net indebtedness was £54.2 million.

·     On 29 November 2010 the Company entered into a new £120 million syndicated revolving credit facility, led by The Royal Bank of Scotland plc. This facility expires on 31 December 2013.

·     The Company made no new fund commitments during the year and had £150.3 million of outstanding commitments at 30 September 2010.

·     During the period from 30 September 2010 to 2 December 2010 the Company funded £13.7 million of draw downs and received £10.8 million of distributions. At 2 December 2010 the Company's total outstanding commitments and net indebtedness were £134.5 million and £57.5 million respectively.

Quote from Scott Dobbie, Chairman:-

"The last year has seen a continuing recovery in the European private equity market, with an increasing number and value of new investments and realisations. Positive earnings growth at the underlying investee companies also gives confidence in our investment portfolio. With the Company's funding position and outstanding commitments now in better balance, the Board believes that the building blocks for future growth are in place."

For further information please contact:-

Peter McKellar of SL Capital Partners LLP (on 0131 245 0055)

Chairman's Statement

Results and performance

The year ended 30 September 2010 was more positive for the Company, following the challenges experienced in the aftermath of the financial crisis in late 2008. During the financial year there was a gradual improvement in the level of activity in the European private equity market, while valuations across the Company's portfolio rose, driven by earnings growth at underlying investee companies. For the year ended 30 September 2010 the Company's NAV increased by 18.4% to 195.3p (diluted NAV - 193.3p), from 164.9p at 30 September 2009 (diluted NAV - 163.4p). Accordingly, the Company can now report five consecutive quarterly increases in NAV. At 30 September 2010 the Company's net assets were £315.2 million.

The closing mid-market price of the Company's ordinary shares on 30 September 2010 was 113.75p, compared to 112.25p a year earlier. The Company's share price was trading at a 41.2% discount to the Company's diluted NAV at the year end. The share price to NAV discount remained wide throughout the financial year, in line with most of the Company's listed European peer group.

The Company's practice is one of reinvestment and to pay a dividend marginally in excess of the minimum required to maintain investment trust status. The Board is recommending a final dividend of 0.2p per ordinary share for the financial year. Subject to shareholder approval at the forthcoming Annual General Meeting, this dividend will be paid on 28 January 2011 to shareholders on the Company's share register at 31 December 2010. Shareholders will have the opportunity to elect to receive the final dividend in the form of ordinary shares. A circular and an election form are enclosed with the Company's annual report and accounts.

Private equity is a long-term asset class. For the five years ended 30 September 2010 the Company's share price total return fell 23.5%, compared to positive returns of 24.7% in the FTSE All-Share Index and 2.1% in the MSCI Europe Index (in euros) on a total return basis. The fall in the Company's share price total return over the five year period reflects, in particular, the fall in the Company's share price in 2008-2009 and the continued wide discount to NAV. Over the same five year period, the Company's NAV total return was 41.9%.

Valuation

At 30 September 2010 the Company's portfolio comprised 39 private equity fund interests. During the financial year the value of the investment portfolio rose by 26.1%.  At 30 September 2010 the value of the portfolio was £369.6 million, of which unrealised gains arising during the year were £47.9 million. This latter amount was net of £12.6 million of unrealised foreign exchange losses.

The unrealised gains before foreign exchange rate movements arose from increased profits at the underlying investee companies, enhanced by the impact of gearing within those companies. In contrast, listed comparable valuation multiples, embodied in the Company's valuation process, declined during the year. The unrealised foreign exchange losses were as a result of sterling appreciating by 5.5% relative to the euro. Of the Company's gross assets of £376.1 million at 30 September 2010, £283.8 million comprised euro denominated assets and £65.3 million dollar denominated assets.

Around 89.8% by value of the private equity funds held by the Company were valued by the relevant fund manager at 30 September 2010.  In undertaking the valuations the fund managers have followed the International Private Equity and Venture Capital Valuation Guidelines. In so doing, the primary valuation methodology is to use listed comparable valuation multiples.

Investment activity

The last eighteen months has seen a rise in the number and value of new private equity investments and realisations completed in Europe. The value of all buy-out transactions completed in the European private equity market during the year ended 30 September 2010 was €51.1 billion (year ended 30 September 2008 and 2009 - €92.0 billion and €21.3 billion respectively). In particular, the mid-market segment of the European buy-out market has been active, albeit a significant number of the transactions have arisen from one private equity owner selling to another. It is expected that this trend will reverse over the coming year, as more buy and sell-side transactions are undertaken by corporate owners. 

Reflecting the gradual improvement in the European private equity market, the Company's draw downs during the year increased to £48.0 million and distributions to £23.0 million. The distributions received generated net realised gains and income of £10.1 million, equivalent to an average return on the Company's acquisition cost of the realised investments of 1.8 times. Most of the distributions received came from investments made between 2003 and 2006. It is still too early to expect significant distributions from investments made in the peak years of 2007 and 2008.

The Company's aggregate outstanding commitments were £150.3 million at 30 September 2010.  Where drawn they will be funded from the Company's cash resources, distributions received from the portfolio of fund investments and the use of the Company's borrowing facility. A number of the private equity funds held by the Company have, however, completed their respective investment periods and any future draw downs are likely to be limited. Accordingly, the Manager believes that up to £30 million of the Company's existing outstanding commitments are unlikely to be drawn. At 30 September 2010 the Company's net indebtedness was £54.2 million.

The European private equity market is starting to see a number of the more experienced mid and large buy-out managers attempting to raise new funds. This is against a background of very few such funds having been raised since 2008. It is the Board's hope that, as distributions to the Company increase and the Company's net indebtedness starts to decline, the Company will be able to make new fund commitments.

During the period from 30 September 2010 to 2 December 2010 the Company funded £13.7 million of draw downs and received £10.8 million of distributions. At 2 December 2010 the Company's total outstanding commitments and net indebtedness were £134.5 million and £57.5 million respectively.

New debt facility

On 29 November 2010 the Company entered into a new £120 million syndicated revolving credit facility, led by The Royal Bank of Scotland plc. This facility expires on 31 December 2013 and is an increase on the existing £100 million facility.

The Board

Clive Sherling, who has served on the Board since December 2006, and who has subsequently increased his range of business interests, intimated some time ago, to the regret of his colleagues, that he wished to step down from the Board after the Annual General Meeting in January 2011.     Clive has made a significant contribution to the Board, where his expertise was particularly valuable on private equity related matters.  Clive carries with him the best wishes of the Board and the Manager for continued success in the future.

The Company has announced that Jonathan Taylor has been co-opted to the Board and will stand for election at the Annual General Meeting.  Jo Taylor, who was selected with the help of recruitment consultants, worked for almost 25 years in 3i Group, where before retirement in 2008 he headed the Ventures Division and was a member of the Group management and investment committees.  Jo has deep practical knowledge of the European private equity and ventures businesses and his new colleagues believe he will provide a material addition to the expertise available to the Company.

Outlook

The last year has seen a continuing recovery in the European private equity market, with an increasing number and value of new investments and realisations. Positive earnings growth at the underlying investee companies gives confidence in our investment portfolio. With the Company's funding position and outstanding commitments now in better balance, the Board believes that the building blocks for future growth are in place.

Scott Dobbie CBE

Chairman

INCOME STATEMENT (audited)

for the year ended 30 September 2010

	Revenue	Capital	Total
	£'000	£'000	£'000
Gains on investments	-	51,693	51,693
Currency gains	-	944	944
Income from investments	1,713	-	1,713
Interest receivable and other income	1	-	1
Investment management fee	(238)	(2,138)	(2,376)
Administrative expenses	(581)	-	(581)
	_________	_________	_________
NET RETURN ON ORDINARY ACTIVITIES
BEFORE FINANCE COSTS AND TAXATION	895	50,499	51,394
Finance costs	(191)	(1,716)	(1,907)
	_________	_________	_________
NET RETURN ON ORDINARY ACTIVITIES
BEFORE TAXATION	704	48,783	49,487
Taxation	(161)	141	(20)
	_________	_________	_________
NET RETURN ON ORDINARY ACTIVITIES
AFTER TAXATION	543	48,924	49,467
	_________	_________	_________
NET RETURN PER ORDINARY SHARE	0.34p	30.36p	30.70p
	_________	_________	_________
DILUTED NET RETURN PER ORDINARY SHARE	0.34p	30.30p	30.64p
	_________	_________	_________

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

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

No operations were acquired or discontinued in the year.

A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.

The dividend which has been recommended based on this Income Statement is 0.2p (2009 - 0.1p) per ordinary share.

INCOME STATEMENT (audited)

for the year ended 30 September 2009

	Revenue	Capital	Total
	£'000	£'000	£'000
Losses on investments	-	(100,733)	(100,733)
Currency losses	-	(4,938)	(4,938)
Income from investments	1,363	-	1,363
Interest receivable and other income	86	-	86
Investment management fee	(220)	(1,984)	(2,204)
Administrative expenses	(580)	(7)	(587)
	_________	_________	_________
NET RETURN ON ORDINARY ACTIVITIES
BEFORE FINANCE COSTS AND TAXATION	649	(107,662)	(107,013)
Finance costs	(250)	(2,247)	(2,497)
	_________	_________	_________
NET RETURN ON ORDINARY ACTIVITIES
BEFORE TAXATION	399	(109,909)	(109,510)
Taxation	(88)	21	(67)
	_________	_________	_________
NET RETURN ON ORDINARY ACTIVITIES
AFTER TAXATION	311	(109,888)	(109,577)
	_________	_________	_________
NET RETURN PER ORDINARY SHARE	0.19p	(68.43p)	(68.24p)
	_________	_________	_________
DILUTED NET RETURN PER ORDINARY SHARE	0.19p	(68.43p)	(68.24p)
	_________	_________	_________

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (audited)

For the year ended 30 September 2010				Capital
	Share	Share	Special	redemption	Capital	Revenue
	capital	premium	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2009	356	79,356	79,148	3	101,498	5,280	265,641
Total recognised gains	-	-	-	-	48,924	543	49,467
Conversion of founder A shares	-	217	-	-	-	-	217
Scrip Issue of ordinary shares	1	77	-	-	-	-	78
Dividends paid	-	-	-	-	-	(161)	(161)
	______	_______	______	_______	________	_______	_______
Balance at 30 September 2010	357	79,650	79,148	3	150,422	5,662	315,242
	______	_______	______	_______	________	_______	_______
For the year ended 30 September 2009				Capital
	Share	Share	Special	redemption	Capital	Revenue
	capital	premium	reserve	reserve	reserves	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 30 September 2008	354	78,535	79,148	2	211,386	6,088	375,513
Total recognised (losses)/gains	-	-	-	-	(109,888)	311	(109,577)
Conversion of founder A shares	-	256	-	1	-	-	257
Scrip Issue of ordinary shares	2	565	-	-	-	-	567
Dividends paid	-	-	-	-	-	(1,119)	(1,119)
	______	_______	______	_______	________	_______	_______
Balance at 30 September 2009	356	79,356	79,148	3	101,498	5,280	265,641
	______	_______	______	_______	________	_______	_______

BALANCE SHEET (audited)

		As at		As at
		30 September		30 September
		2010		2009
		£000	£000	£000	£000
NON-CURRENT ASSETS
Investments at fair value through profit or loss			369,630		293,106
CURRENT ASSETS
Debtors		108		161
Cash and short term deposits		6,403		2,378
		_________		_________
		6,511		2,539
CREDITORS: AMOUNTS FALLING
DUE WITHIN ONE YEAR		(60,899)		(30,004)
		_________		_________
NET CURRENT LIABILITIES			(54,388)		(27,465)
			_________		_________
TOTAL ASSETS LESS CURRENT LIABILITIES			315,242		265,641
			_________		_________
CAPITAL AND RESERVES
Called up share capital			357		356
Share premium			79,650		79,356
Special reserve			79,148		79,148
Capital redemption reserve			3		3
Capital reserves			150,422		101,498
Revenue reserve			5,662		5,280
			_________		_________
TOTAL SHAREHOLDERS' FUNDS			315,242		265,641
			_________		_________
ANALYSIS OF SHAREHOLDERS' FUNDS
Equity interests (ordinary shares)			315,208		265,607
Non-equity interests (founder shares)			34		34
			_________		_________
			315,242		265,641
			_________		_________
NET ASSET VALUE PER EQUITY SHARE			195.3p		164.9p
			_________		_________

CASHFLOW STATEMENT (audited)

		For the year		For the year
		ended 30 September		ended 30 September
		2010		2009
		£'000	£'000	£'000	£'000
NET CASH OUTFLOW FROM OPERATING ACTIVITIES			(1,252)		(1,521)
NET CASH OUTFLOW FROM SERVICING OF FINANCE			(1,921)		(2,656)
NET CASH INFLOW FROM TAXATION			8		274
FINANCIAL INVESTMENT
Purchase of investments		(47,994)		(48,296)
Disposal of underlying investments by funds		21,273		18,193
Disposal of fund investments by way of secondary sales		1,890		48,348
		_________		_________
NET CASH (OUTFLOW)/INFLOW FROM FINANCIAL INVESTMENTS			(24,831)		18,245
ORDINARY DIVIDENDS PAID			(78)		(547)
			_________		_________
NET CASH (OUTFLOW)/INFLOW BEFORE FINANCING			(28,074)		13,795
Net proceeds on issue of ordinary shares		212		252
Bank loans drawn down/(repaid)		30,943		(10,020)
		_________		_________
NET CASH INFLOW/(OUTFLOW)FROM FINANCING			31,155		(9,768)
			_________		_________
INCREASE IN CASH			3,081		4,027
			_________		_________
RECONCILIATION  OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Increase in cash as above			3,081		4,027
(Drawdown)/repayment of loan			(30,943)		10,020
Currency movements			944		(4,938)
			_________		_________
MOVEMENT IN NET DEBT IN THE PERIOD			(26,918)		9,109
Opening net debt			(27,324)		(36,433)
			_________		_________
CLOSING NET DEBT			(54,242)		(27,324)
			_________		_________
REPRESENTED BY:
Cash and short term deposits			6,403		2,378
Loans			(60,645)		(29,702)
			_________		_________
			(54,242)		(27,324)
			_________		_________

Notes:

1.   Standard Life European Private Equity Trust PLC is an investment company managed by SL Capital Partners LLP, 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 1158-1165 of the Corporation Taxes Act 2010.  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 2009). 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 equity share figures, have been prepared in accordance with UK Generally Accepted Accounting Principles ("UK GAAP"). The Directors consider the Company's functional currency to be sterling, as the Company is registered in Scotland, the Company's shareholders are predominantly based in the UK and the Company is subject to the UK's regulatory environment.
(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 interest rate basis. Dividends and income from unquoted investments are included when the right to receipt is established. All expenses are accounted for on an accruals basis. Expenses are charged through the revenue account of the Income Statement except as follows:
-   transaction costs incurred on the purchase and disposal of investments are recognised as a capital      item in the Income Statement; and
-   the Company charges 90% of 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
Investments have been designated upon initial recognition as fair value through the profit or loss. Investments are recognised as at the date of the 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 investments are stated at the Directors' estimate of fair value and follow the recommendations of the EVCA and the BVCA. The estimate of fair value is normally the latest valuation placed on a fund by its manager as at the balance sheet date. The valuation policies used by the manager in undertaking that valuation will generally be in line with the joint publication from the BVCA and the EVCA, 'International Private Equity and Venture Capital Valuation guidelines'. Where formal valuations are not completed as at the balance sheet date the valuation from the fund manager is adjusted for any subsequent cash flows occurring between the valuation date and the balance sheet date. The Company's Manager may further adjust such valuations to reflect any changes in circumstances from the last managers formal valuation date to arrive at the estimate of fair value.
(d) Dividends payable - Interim and final dividends are recognised in the period in which they are paid. Scrip dividends are recognised in the period in which shares are issued.
(e) Capital reserves - Gains or losses on investments realised in the year that have been recognised in the Income Statement are transferred to the "capital reserve - gains/(losses) on disposal". In addition, any prior unrealised gains or losses on such investments are transferred from the "capital reserve - revaluation" to the "capital reserve - gains/(losses) on disposal" on the disposal of the investment. Increases and decreases in the fair value of investments are recognised in the Income Statement and are then transferred to the "capital reserve - revaluation".
(f) Taxation
i)     Current taxation - Provision for corporation tax is made at the current rate on the excess of taxable income net of any allowable deductions.
ii)     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.
(g)  Overseas currencies - Overseas assets and liabilities are translated at the exchange rate prevailing at the Company's balance sheet date.  Gains or losses on translation of investments held at the year end are accounted for through the unrealised capital reserve.  Gains or losses on the translation of overseas currency balances held at the year end are accounted for through the realised capital reserve.
Rates of exchange to sterling as at 30 September were:
	2010	2009
Euro	1.1543	1.0942
US dollar	1.5758	1.5993
Transactions in overseas currency are translated at the exchange rate prevailing on the date of transaction.

		Year to	Year to
		30 September 2010	30 September 2009
3.	Income	£'000	£'000
	Income from unquoted investments	1,713	1,363
	Interest receivable on cash	-	71
	Other income	1	15
		______________	______________
	Total income	1,714	1,449
		______________	______________

4.      The number of ordinary shares in issue as at 30 September 2010 was 161,372,793 (30 September 2008 - 161,066,017).  The return per ordinary share is based on the weighted average number of ordinary shares in issue.

5.      The Directors recommend that a final dividend of 0.20p (2009 - 0.10p) per ordinary share be paid on 28 January 2011 to shareholders on the Company's share register as at the close of business on 31 December 2010.  The ex-dividend date for the final dividend is 29 December 2010.

6.      The financial information for the year ended 30 September 2010 comprises non-statutory accounts as defined in sections 434-436 of the Companies Act 2006.  The financial information for the year ended 30 September 2009 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 statutory accounts for the year ended 30 September 2010 contain an unqualified audit report and will be delivered to the Registrar of Companies following the Company's Annual General Meeting, which will be held at The Balmoral Hotel, 1 Princes Street, Edinburgh EH2 2EQ on 25 January 2011 at 12.30pm.

7.      The report and accounts for the year ended 30 September 2010 will be posted to shareholders in mid-December 2010 and copies will be available from the Company Secretary - Aberdeen Asset Management PLC, 40 Princes Street, Edinburgh EH2 2BY.

for Standard Life European Private Equity Trust PLC,

Aberdeen Asset Management PLC Company Secretary

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