Final Results
PANTHEON INTERNATIONAL PARTICIPATIONS PLC
PRELIMINARY ANNOUNCEMENT OF RESULTS
CHAIRMAN'S STATEMENT
PERFORMANCE
The Net Asset Value per share of Pantheon International Participations (PIP)
increased by 4.7% to 572.5p in the year to 30th June 2004. The private equity
investment portfolio generated gains of £31.7m in local currencies in the year,
equivalent to an increase in underlying value of 11.0% per share. However, this
was offset by adverse currency movements in the dollar, which declined 9.9%
against sterling over the year, and the euro which fell 3.7% against sterling,
resulting in a £16m reduction in the sterling value of the portfolio.
PIP's average returns from private equity investment since inception stood at
21.3% per annum at the year end. The promising revival in underlying portfolio
performance during the past year has been largely undone by movement in the US
dollar. It is not possible perfectly to match potential currency movements in
and out of private equity funds with hedging instruments. For this reason, it
has not been Board policy to date to hedge the portfolio against currency
movements except where a currency exposure lies significantly outside PIP's
strategic geographic allocations.
There is no listed index that is directly comparable to the Company's
portfolio. The NAV increase in the year compares to a 16.9% rise in the FTSE
All-Share Total Return index and an 11.4% gain in the sterling MSCI AC World
index over the same period.
As shown in the table below, for most of its history PIP has outperformed the
FTSE All-Share and sterling MSCI AC World indices and, currency movements
notwithstanding, the Board believes that fundamental investment returns will
continue to be the dominant influence on performance over the long term.
LONG-TERM PERFORMANCE
1-year 3-year 5-year 10-year Since
Inception
(Sep 87)
PIP 4.7% -18.1% 41.2% 141.3% 497.3%
FTSE ASTR 16.9% 0.2% -12.8% 110.0% 246.4%
MSCI AC WORLD 11.4% -22.8% -25.1 41.5% 167.0%*
(STERLING)
*MSCI AC World index initiated at start of 1988
PIP's share price stood at 463.0p at 30th June 2004, an increase of 3.6%
compared with the previous year end. The price of participating loan notes
(PLNs) declined 1.4% to 456.0p. As is usual, no dividend has been recommended
for the year, in line with the Company's aim of maximising long-term capital
growth.
The Board remains concerned about the discount at which PIP's ordinary shares
continue to trade. The Board regards it as a strategic priority properly to
communicate the Company's strengths to a broader constituency of potential
investors in the expectation that an enhanced profile should act progressively
to reduce the discount.
INVESTMENT ACTIVITY
Proceeds from investments
The level of realisations and distributions from PIP's portfolio during the
year was high. Although a modest recovery in global M&A activity failed to
maintain its momentum during the first half of 2004, PIP received £72.2 million
in proceeds from the portfolio in the year to 30th June 2004, a 79% increase
from last year and an annual total unsurpassed in the Company's history.
As well as demonstrating once again the ability of the Company's underlying
managers to provide liquidity for their investors in testing market conditions,
the level of distributions during the year reflects the maturity of PIP's
underlying portfolio. At the year end, private equity funds of 1999 vintage or
older constituted some 60% of underlying assets. This provides grounds for
expecting a healthy flow of realisation proceeds to continue during coming
years.
Secondary investment activity
In the year to 30th June 2004, the Company made commitments to secondary
purchases totalling £20.5 million, compared with £88.6 million in the preceding
year. This reduced pace of investment does not reflect any diminution in the
overall volume and quality of secondary opportunities available to the Manager,
but rather the unpredictable timing of secondary deal flow. The recent $909
million closing of Pantheon Global Secondary Fund II, with which the Company
has co-investment arrangements, ensures PIP's continuing ability to access a
full spectrum of secondary portfolio transactions. A number of significant
opportunities are currently in the pipeline.
New fund investments
One of the Board's objectives is to maintain an appropriate balance between the
primary and secondary programmes and particularly to avoid short-term cash
constraints that could impair PIP's ability to pursue secondary opportunities.
To ensure adequate capital availability for secondaries, PIP's new funds
programme was restricted for a period during the year to 30th June 2004.
PIP nevertheless continued its strategic primary fund programme selectively,
committing £15.9 million to seven new US and European funds in the year. These
commitments were to funds in high demand, highlighting the Manager's ability,
as in previous years, to secure entry for PIP to limited access opportunities
from proven managers. The reduced pace of new commitments notwithstanding, PIP
added significantly to its investment assets during the year. Calls from the
opening portfolio totalled £34.8 million, up more than 30% on the preceding
year. In addition, £13.3 million of the £20.5 million committed to secondaries
in the year was drawn down at 30th June 2004, and calls from new primary fund
investments amounted to £0.7 million.
STRUCTURE AND FINANCING
At the year end, the Company's net assets of £245.2 million were represented by
long-term capital in the form of £123.6 million of ordinary shareholders' funds
and £121.6 million of PLNs. None of the £50 million loan facilities available
to the Company were drawn at 30th June 2004.
Substantial secondary purchases have been an effective means of driving the
Company's asset growth to date. Furthermore, the opportunity to capitalise on
the potential offered by the secondary market at this point in the cycle
remains attractive. Mindful of the likely funding requirements for future
purchases, the Board in August proposed a capital restructuring which was
completed on 20th September. Under this restructuring, all of the outstanding
PLNs were converted into redeemable shares and ordinary shares. The redeemable
shares are a new class of non-voting equity share capital and are redeemable,
at the Company's option, at NAV. Otherwise, redeemable shares have economic
rights substantially similar to PLNs. The restructuring has eliminated the
potentially adverse tax consequences for the Company associated with PLNs,
while allowing the Company to retain flexibility in raising capital and
returning excess cash generated by its investments.
MARKET PROSPECTS
Following an exceptional recovery in 2003, global stock markets underwent a
period of consolidation during the first half of 2004, recording only modest
returns. Continuing concerns about global security allied with rising oil
prices and the prospect of increases in interest rates have tempered the
confidence arising from economic growth indicators. Similarly, the recovery in
global M&A levels that became apparent during the latter part of 2003 has not
carried over into 2004.
We nevertheless believe the outlook for the Company in the coming year to be
encouraging. M&A activity in the US mid-market has held up well, and IPO
markets in both the US and Europe, while still uncertain, have nevertheless
been more receptive to new issues in 2004 than in the recent past. As evidenced
by the level of distributions PIP has enjoyed during the year, the managers of
the private equity funds in its portfolio are capitalising on the opportunities
offered by this more benign exit environment. Furthermore, in addition to the
traditional exit routes of trade sale and flotation, managers are continuing to
focus on alternative routes to liquidity such as secondary buyouts and
recapitalisations. In view of the substantial proportion of mature assets in
PIP's underlying portfolio, prospects for a continued flow of realisations in
the short to medium term are encouraging.
The secondary market is now a firmly established feature of the private equity
landscape. Despite an increase in the number of purchasers of secondaries, the
scale of cumulative global commitments to private equity funds allied to
investors' increasing acceptance of secondary sales as a portfolio management
tool suggest that the volume of purchase opportunities for PIP will be
maintained or increased over the medium term. Exceptionally, the co-investment
allocation arrangements PIP enjoys with other Pantheon-managed funds enable the
Company to participate in transactions that it could not undertake alone. The
Board believes that PIP will have excellent opportunities to fulfil its
objective of putting significant capital to work in this area over the coming
period. The Company currently has an active pipeline of secondary
opportunities, and in October PIP announced an agreement to acquire a
significant portfolio of private equity fund and direct investments from Swiss
Life for approximately £60 million. This deal ranks as PIP's largest secondary
portfolio acquisition to date.
Meanwhile, primary investment activity has accelerated and looks set to
continue at a greater pace than in recent years. A ready supply of debt funding
is helping to stimulate buyout activity in both the US and in Europe. The
corollary of this, however, is greater competition between private equity
houses for deals, which inevitably exerts upwards pressure on pricing. In the
US, levels of venture capital investment have also picked up sharply,
reflecting both growing economic confidence and a new crop of venture funds
after a protracted adjustment. Private equity activity in Asia has been boosted
by economic growth and is continuing against a background of ongoing industrial
restructuring.
New private equity fund raising relative to investment activity is now showing
a much healthier balance. However, some increase in new fund offerings is
expected in 2004/5, and investor interest in private equity, particularly from
European groups, is continuing to increase. At the same time, high quality
general partners are responding to limited partner requirements for caps on
fund sizes. This means that access to funds may be restricted for some
newcomers to the asset class.
As a long-standing, high quality investor, PIP is well positioned to capitalise
on the opportunities, both primary and secondary, presented by the current
phase of the private equity market. Meanwhile, prospects in the short to medium
term for the profitable realisation of existing investments are promising, and
the Board looks forward to the coming year with confidence.
THE BOARD
This is my first statement as Chairman, and I would like to take this
opportunity to thank my predecessor, Ewen Macpherson, on behalf of all the
Board for his valuable contribution to the Company during the past six years.
Mr Macpherson, who became Chairman in November 2003, resigned this July when an
unexpected change in family circumstances took place that would have prevented
him from devoting as much time as he would have wished to his responsibilities
at PIP.
ANNUAL GENERAL MEETING AND PRESENTATION
The Annual General Meeting of the Company will take place at 12 noon on 25th
November 2004 at the Manager's offices in Norfolk House. As in previous years,
the Board has arranged for the Manager to give a presentation to explain the
progress of the Company in more detail. The Directors and Managers look forward
to meeting shareholders informally after the presentation.
Thomas H. Bartlam
Chairman
11th October 2004
STATEMENT OF TOTAL RETURN (unaudited)
(*incorporating the revenue account)
1 July 2003 to 1 July 2002 to
30 June 2004 30 June 2003
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 15,415 15,415 - 6,758 6,758
Currency gains - 463 463 - 770 770
Income (Note) 635 - 635 512 - 512
Investment management (3,596) - (3,596) (3,608) - (3,608)
fee
Other expenses (805) (192) (997) (641) (264) (905)
Return on ordinary (3,766) 15,686 11,920 (3,737) 7,264 3,527
activities before
financing costs and tax
Interest payable and (965) - (965) (993) - (993)
similar charges
Revaluation of - (4,872) (4,872) - (769) (769)
participating loan notes
Return on ordinary (4,731) 10,814 6,083 (4,730) 6,495 1,765
activities before tax
Tax on ordinary - (271) (271) - (146) (146)
activities
Return on ordinary (4,731) 10,543 5,812 (4,730) 6,349 1,619
activities after tax for
the financial year
transferred (from)/to
reserves
1 July 2003 to 1 July 2002 to
30 June 2004 30 June 2003
pence pence pence pence pence pence
Return per ordinary
share
- basic and diluted (21.91) 48.83 26.92 (21.91) 29.40 7.49
* The revenue column of this statement is the revenue 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.
These accounts have been prepared using the accounting standards and policies
adopted at the previous year end, save that the Company has adopted the 2003
Statement of Recommended Practice regarding the Financial Statements of
Investment Trust Companies.
Note: Income for the year ended 30 June 2004 was made up of dividends and
interest received from shares and securities of £628,000 (2003: £463,000), and
other income of £7,000 (2003: £49,000).
BALANCE SHEET (unaudited)
As at 30 As at 30
June 2004 June 2003
£'000 £'000
Fixed assets
Investments 233,246 240,992
Investment in subsidiary undertaking 1 1
233,247 240,993
Current assets
Debtors 1,540 1,240
Cash at bank 11,968 416
13,508 1,656
Creditors - amounts falling due within one 1,571 21,705
year
Net current assets/(liabilities) 11,937 (20,049)
Total assets less current liabilities 245,184 220,944
Creditors - amounts falling due after more
than one year
Participating Loan Notes 121,555 102,883
Capital and reserves
Called-up share capital 14,467 14,467
Share premium account 6,034 6,278
Capital reserve - realised 105,369 101,037
Capital reserve - unrealised 11,425 5,214
Revenue reserve (13,666) (8,935)
Total equity shareholders' funds 123,629 118,061
Amounts attributable to shareholders and 245,184 220,944
participating loan note holders
As at As at
30 June 2004 30 June
2003
Number of ordinary 67p 21,592,964 21,592,356
shares in issue
Number of participating 21,660,589 19,175,179
loan notes (PLNs) in
issue
Net asset value per
share:
- basic and diluted 572.5p 546.8p
Adjusted redemption 561.2p 536.5p
value of participating
loan notes
CASHFLOW STATEMENT (unaudited)
Year ended Year ended
30 June 2004 30 June 2003
£'000 £'000
Cash flow from operating activities
Investment income received 628 462
Deposit interest received 8 61
Investment management fees paid (3,627) (3,470)
Secretarial fees paid (81) (120)
Other cash payments (671) (936)
Net cash outflow from operating (3,743) (4,003)
activities
Returns on investments and servicing of
finance
Revolving credit facility and overdraft (230) (218)
interest paid
Loan commitment and arrangement fees paid (257) (202)
PLN commitment fees paid (373) (525)
Net cash outflow from returns on (860) (945)
investment and servicing of finance
Taxation
Withholding tax suffered on limited (271) (146)
partnership distributions
Tax recovered - 486
Net cash (outflow)/inflow from taxation (271) 340
Capital expenditure and financial
investment
Purchases of investments (48,810) (95,889)
Purchases of government securities - (27,340)
Disposals of investments 71,580 40,063
Disposals of government securities - 43,705
Realised currency losses (53) (51)
Net cash inflow/(outflow) from capital 22,717 (39,512)
expenditure and financial investment
Net cash inflow/(outflow) before 17,843 (44,120)
financing
Financing
Proceeds from issue of shares 3 -
Proceeds from issue of PLNs 13,800 22,708
Costs of issue of PLNs (247) (507)
(Repayment)/drawdown of bank revolving (20,362) 20,798
credit facility
Realised currency gains on repayment of 587 51
revolving credit facility
Net cash (outflow)/inflow from financing (6,219) 43,050
Increase/(decrease) in cash 11,624 (1,070)
The above financial information does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985. The comparative financial
information for the year ended 30 June 2003 is taken from the full accounts,
which have been delivered to the Registrar of Companies and contained an
unqualified audit report and did not contain statements under S.237(2) or (3)
of the Companies Act 1985. Statutory financial statements for the year ended 30
June 2004 have not yet been approved, audited or filed and will be delivered to
the Registrar of Companies following the Annual General Meeting.
For further information please contact:
Rhoddy Swire, Director of Pantheon International Participations PLC - 020 7484
6200
Email: contactus@pipplc.com
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