Annual Financial Report (F&C Private Equity Zeros)

RNS Number : 5370B

F&C Private Equity Trust PLC

17 April 2012

To: Stock Exchange	For immediate release:
	17 April 2012

F&C Private Equity Zeros plc

Audited results for the year to 31 December 2011

Chairman's Statement

I am pleased to present the Company's Annual Report and Accounts for the year ended 31 December 2011.

The Company is a wholly owned subsidiary of F&C Private Equity Trust plc ('F&C PET') and was established solely for the purpose of issuing and redeeming Zero Dividend Preference Shares ('ZDP Shares'). 30,000,000 ZDP Shares were issued on 14 December 2009 at 100 pence per share and will redeem on 15 December 2014 at a price of 152.14 pence per ZDP Share, giving a redemption yield of 8.75 per cent per annum. The net proceeds of the ZDP Shares issue were lent to F&C PET for use in future investment opportunities.

As at 31 December 2011 the ZDP Share price was 131.13 pence, representing a premium of 12.9 per cent over the net asset value per ZDP Share of 116.10 pence.

Mark Tennant

Chairman

F&C Private Equity Zeros plc Audited Statement of Comprehensive Income Year ended 31 December 2011

	Year ended 31 December 2011	Period from 9 October 2009 to 31 December 2010
		(Restated)
	£'000	£'000

Revenue
Interest Income	561	575
Total income	561	575

Expenditure
Expenses	-	-
Total expenditure	-	-
Profit before finance costs and taxation	561	575
Finance costs	(3,048)	(2,906)
Loss before taxation	(2,487)	(2,331)
Taxation	-	-
Loss for the year	(2,487)	(2,331)


Loss per Ordinary Share	(4,974.0)p	(4,662.0)p

F&C Private Equity Zeros plc Audited Balance Sheet
At 31 December 2011

		2011		2010
				(Restated)
	£'000	£'000	£'000	£'000

Non current assets
Investments	50		50
Inter-company receivable	5,954		2,906
Subordinated Unsecured Loan Note	27,149		26,591
		33,153		29,547
Current assets
Other receivables	1		1
Cash at bank	5		2
Net current assets		6		3
Total assets less current liabilities		33,159		29,550
Creditors: amounts falling due after one year
Zero Dividend Preference Shares		(34,822)		(31,774)
Net liabilities		(1,663)		(2,224)

Equity
Ordinary share capital		50		50
Capital contribution reserve		5,954		2,906
Other reserve		(1,719)		(2,277)
Revenue reserve		(5,948)		(2,903)
Shareholders' funds		(1,663)		(2,224)
Net liabilities per Ordinary Share		(3,326.0)p		(4,448.0)p
Net asset value per ZDP Share		116.1p		105.9p

F&C Private Equity Zeros plc Audited Statement of Changes in Equity Year ended 31 December 2011

	Share Capital	Capital Contribution Reserve	Other Reserve	Revenue Reserve	Total
	£'000	£'000	£'000	£'000	£'000
Net assets at start of period as previously stated	50	-	-	3	53
Prior year adjustment	-	2,906	(2,277)	(2,906)	(2,277)
Net liabilities at start of period re-stated	50	2,906	(2,277)	(2,903)	(2,224)
Loss for the period	-	-	-	(2,487)	(2,487)
Capital contribution during the year	-	3,048	-	-	3,048
Transfer to other reserve	-	-	558	(558)	-
Net liabilities at 31 December 2011	50	5,954	(1,719)	(5,948)	(1,663)

Period from 9 October 2009 to 31 December 2010 (Restated)

	Share Capital	Capital Contribution Reserve	Other Reserve	Revenue Reserve	Total
		(Restated)	(Restated)	(Restated)	(Restated)
	£'000	£'000	£'000	£'000	£'000
Net assets at start of period	-	-	-	-	-
Share Capital proceeds	50	-	-	-	50
Loss for the period	-	-	-	(2,331)	(2,331)
Capital contribution during the period	-	2,906		-	2,906
Provision of interest free loan to parent			(2,849)		(2,849)
Transfer to other reserve	-	-	572	(572)	-
Net liabilities at 31 December 2010	50	2,906	(2,277)	(2,903)	(2,224)

F&C Private Equity Zeros plc Audited Cash Flow Statement
Year ended 31 December 2011
	Year ended 31 December 2011	Period from 9 October 2009 to 31 December 2010
		(Restated)
	£'000	£'000

Cash flows from operating activities
Loss before taxation	(2,487)	(2,331)
Increase in other receivables	-	(1)
Non-cash adjustment to reconcile loss before taxation to net cash flow:
Interest on Subordinated Unsecured Loan Note	(558)	(572)
Working capital adjustment:
Change in inter-company receivable Subordinated Unsecured Loan Note	3,048	2,906
Net cash inflow from operating activities	3	2

Cash flows from investing activities
Purchase of investments	-	(50)
Net cash outflow from investing activities	-	(50)

Cash flows from financing activities
Proceeds from issue of share capital	-	50
Proceeds from issue of ZDP Shares	-	30,000
Loan to parent company	-	(30,000)
Net cash inflow from financing activities	-	50

Increase in cash and cash equivalents	3	2
Cash and cash equivalents at beginning of period	2	-
Cash and cash equivalents at end of period	5	2

Principal Risks and Uncertainties and Risk Management

The Board believes that the principal risks faced by the Company are:

Final Capital Entitlement

The ZDP Shares offer a pre-determined rate of growth in capital entitlement up to 152.14 pence per share on the repayment date of 15 December 2014, but no right of income.

F&C PET's debt to the Company is pursuant to the loan agreement which ranks behind any secured creditors of F&C PET. Therefore it is not guaranteed that the final capital entitlement will be paid. On a return of assets, including a winding up of F&C PET, the Company will only receive payment if there are sufficient assets attributable to the Ordinary Shares of F&C PET, having first taken account of prior ranked liabilities and having regard to all other unsecured liabilities of F&C PET. ZDP shares are not a secured, protected or guaranteed investment.

Liquid Market for ZDP Shares

The market price and realisable value of the ZDP Shares, as well as being affected by the underlying value of F&C PET's net assets, will be affected by interest rates, supply and demand for the ZDP Shares, market conditions and general investor sentiment. As such, the market value and realisable value of a ZDP Share can fluctuate and may not always reflect its accrued capital entitlement. In addition, given the Company's size and type, there is no guarantee that an active market will be sustained for the ZDP Shares. If an active trading market is not maintained, the liquidity and trading price of the ZDP Shares could be adversely affected.

Macroeconomic and Investment Risks

The Company's obligation to pay the ZDP shareholders the final capital entitlement is dependent upon F&C PET's ability to comply with its obligations to the Company. This in turn is impacted by F&C PET's performance and its ability to manage macroeconomic and investment risk. A material fall in the value of assets in the investment portfolio of F&C PET may lead to a winding up of F&C PET in the longer term.

The performance of F&C PET's underlying investment portfolio is principally influenced by a combination of economic growth, the availability of appropriately priced debt finance, interest rates and the number of active trade and financial buyers. All of these factors have an impact on F&C PET's ability to invest, and its ability to exit from its underlying portfolio or on the levels of profitability achieved on exit. Financial results may be adversely affected by movements in foreign exchange rates.

F&C PET operates in a very competitive market. Changes in the number of market participants, the availability of funds within the market, the pricing of assets, or in the ability of its investment manager, F&C Investment Business Limited, to access deals could have a significant effect of F&C PET's competitive position and on sustainability of returns.

In order to source and execute good quality investments, F&C PET is primarily dependent upon F&C Investment Business Limited having the ability to attract and retain executives with the requisite investment experience.

Once invested, the performance of the F&C PET's portfolio is dependent on a range of factors. These include, but are not limited to: (i) the quality of the initial investment decision; (ii) the ability of the portfolio company to execute successfully its business strategy; and (iii) actual outcomes against key assumptions underlying the portfolio company's financial projections. Any one of these factors could have an impact on the valuation of a portfolio company and upon F&C PET's ability to make a profitable exit from the investment within the desired timeframe. Future F&C PET share issues, share buy backs or raising new debt facilities in the longer term could dilute the interests of the holders of ZDP Shares and lower the price of the ZDP Shares.

Government Policy and Regulation Risk

F&C PET carries on business as an investment trust under section 1158 of the Corporation Tax Act 2010. Continued status as an investment trust is subject to F&C PET conducting its affairs in a manner which will satisfy HM Revenue and Customs' conditions for continued approval as an investment trust. Any change in F&C PET's tax status, or in taxation legislation of practice in the UK or elsewhere, could affect the value of investments in F&C PET's investment portfolio and F&C PET's ability to achieve its investment objective and could also affect the tax treatment of the ZDP Shares and the tax treatment of the final capital entitlement.

The Company is also exposed to risks in relation to its financial instruments. Further details of these risks and the way they are managed are contained in note 2.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom law and those International Financial Reporting Standards ('IFRS') as adopted by the European Union.

Under company law the Directors must not approve the financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Company for that period. In preparing the financial statements the Directors are required to:

· select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and apply them consistently;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company's financial position and financial performance;

· state that the Company has complied with IFRSs, subject to any material departures disclosed and explained in the financial statements; and

· make judgements and estimates that are reasonable and prudent.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Responsibility Statements under the Disclosure and Transparency Rules

Each of the Directors confirms that to the best of his or her knowledge:

· the financial statements, prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

· the Report of the Directors includes a fair review of the development and performance of the business and the position of the Company together with a description of principal risks and uncertainties that it faces.

On behalf of the Board

Mark Tennant

Director

Notes

1. The results have been prepared in accordance with the Companies Act 2006 and International Financial Reporting Standards ('IFRS') as adopted by the European Union.

2. Financial Instruments

The Company's financial instruments comprise fixed interest investments, cash balances and liquid resources including debtors and creditors.

Quoted non-current asset investments held are valued at bid prices which equate to their fair values.

The main risks arising from the Company's financial instruments are market risk, interest rate risk, liquidity risk and credit risk.

Market Risk

Market risk embodies the potential for both losses and gains and includes interest rate risk and price risk. The Company's investment is listed on a recognised stock exchange.

Interest Rate Risk

The Company's financial assets are interest bearing, some of which are at fixed rates and some at variable. As a result the Company is subject to exposure to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates.

Liquidity and Funding Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Liquidity risk is considered to be significant as the Company is reliant upon the sale of assets within its parent undertaking, which mainly comprises unlisted investments. Details of how this risk is managed are contained within the financial statements of the parent company.

Credit Risk

This is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered with the Company.

3. Prior Year Restatement

The parent company issued to the Company a non interest bearing subordinated unsecured loan note 2014 equal to the net proceeds of the ZDP Shares issued which were lent by the Company to its parent company under an agreement dated 1 December 2009. The loan is non interest bearing. However, IAS 39 requires that the fair value of the loan be calculated and the difference to the amount received treated as interest over the life of loan. The 2010 figures have been restated to reflect the deemed interest received on the loan to the parent of £572,000 for the period ended 31 December 2010. An amount of £558,000 has been recognised in respect of the deemed interest for the year ended 31 December 2011.

In addition, the parent company also entered into a subsidiary capital contribution agreement whereby the parent company will undertake to contribute such funds to the Company as will ensure that the Company has, after repayment of the loan note by the parent company, sufficient assets to satisfy the final capital entitlement of the ZDP Shares. The contribution from the parent company of £2,906,000 should have been recorded directly in equity and not as income in the statement of comprehensive income. The 2010 figures have been restated to reflect this error.

The effect of the restatements is summarised below:

	Period ended 31 December 2010	At 31 December 2010
	£'000	£'000
Decrease in carrying value of Subordinated Unsecured Loan Note	-	(2,277)
Decrease in income	(2,334)	-

Increase in loss after taxation	(2,334)	-

Movement in reserves
Increase in retained losses	-	(2,906)
Increase in capital contribution reserve	-	2,906
Decrease in other reserve	-	(2,277)

4. The loss per Ordinary Share is based on 50,000 Ordinary Shares in issue during the year (period from 9 October 2009 to 31 December 2010: 50,000 Ordinary Shares).

The net liabilities per Ordinary Share is based on 50,000 Ordinary Shares in issue at the end of the year (2010: 50,000 Ordinary Shares).

Net asset value per ZDP Share is based on 30,000,000 ZDP Shares in issue at the end of the year (2010: 30,000,000 ZDP Shares).

5. This announcement is not the Company's statutory accounts. The statutory accounts for the year ended 31 December 2011 (on which the audit report has been signed) will be delivered to the Registrar of Companies.

6. A copy of the Annual Report and Accounts has been submitted to the National Storage Mechanism and will shortly be available for inspection at www.Hemscott.com/nsm.do

7. The Annual Report and Accounts for the year will be sent to shareholders and are available for inspection at the Company's registered office, 80 George Street, Edinburgh EH2 3BU and the parent company's website www.fcpet.co.uk

For more information, please contact: