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3i Quoted Private Eq (QPE)

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Monday 10 November, 2008

3i Quoted Private Eq

Interim Results

RNS Number : 7701H
3i Quoted Private Equity PLC
10 November 2008
 



3i Quoted Private Equity plc


10 November 2008



Results for the six months to 30 September 2008


for the period to / as at
30 Sept 2008
31 Mar 2008
 
Total return
£(37.2)m
£15.3m
Total return on opening shareholders’ equity
(9.0)%
3.9%
Net asset value per share
93.0p
102.3p
Total investment portfolio value
£129.8m
£103.8m
Cash available to invest
£244.1m
£307.8m


  • 3i QPEP continues to invest cautiously in volatile markets, with £174.4 million invested since inception, of which £70.7 million in the period;

  • The Company is in a robust financial position, with ample liquidity to invest and no leverage;

  • Market conditions are affecting portfolio valuation, but underlying operating performance remains stable;

  • Market dislocation has deepened the pool of opportunity for 3i QPEP, with new opportunities to be derived from falling valuations, deleveraging and increasingly scarce debt and equity capital for small and medium cap companies

  • With a strong balance sheet, 3i QPEP is well positioned to take advantage of the market opportunity


Commenting on the results, David Tyler, Chairman of 3i QPEP, said: 'We are long-term holders of our assets and, while we cannot protect our investments from broader market movements, we, and our Investment Adviser, believe we can manage and add value to our portfolio to deliver our target return across the cycle.'


Bruce Carnegie-Brown, Managing Partner of 3i Investments plc, Investment Adviser to 3i QPEP, added: 'Market conditions are likely to remain turbulent for the foreseeable future and we will remain cautious investorsWe continue to believe that market circumstances are increasing the number of opportunities for the Company.'


-ends-



For further information regarding the announcement of 3i QPEP's interim results for the six months to 30 September 2008, please see www.3iqpe.com.



For further information, please contact:


David Tyler, Chairman
+44 1534 711 445
Bruce Carnegie-Brown, Managing Partner, 3i Investments plc
+44 20 7975 3435
Silvia Santoro, investor enquiries
+44 20 7975 3258
Jennifer Letki, press enquiries
+44 20 7975 3190
Lydia Pretzlik, The Maitland Consultancy
+44 20 7379 5151



Notes to editors


3i Quoted Private Equity plc ('3i QPEP') is a Jersey incorporated, public closed-end investment company. 3i QPEP was admitted to the Official List and to trading on the London Stock Exchange on 29 June 2007. 3i Investments plc ('3i Investments'), which is regulated in the UK by the Financial Services Authority, has been appointed by 3i QPEP to act as its investment adviser.  


3i QPEP aims to deliver private equity value creation techniques to public companies, leveraging the international network of its investment adviser to source attractive opportunities and execute its value creation plan. 3i QPEP is building a portfolio of influential stakes (typically between 25% and 75%) in selected companies in the UK and continental Europe and across a broad spectrum of sectors to attain the level of influence necessary to generate significant improvements in operating performance. 



The half-yearly results of 3i Quoted Private Equity plc for the six months to 30 September 2008 has been drawn up and presented in accordance with and in reliance upon applicable English and Jersey law and the liabilities of the Company in connection with that report shall be subject to the limitations and restrictions provided by such law. 


This statement may contain certain statements about the future outlook for 3i Quoted Private Equity plc. Although we believe our expectations are based on reasonable assumptions, any statements about the future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.



The half-yearly report of 3i Quoted Private Equity plc for the period to 30 September 2008 has been drawn up and presented in accordance with and in reliance upon applicable English and Jersey law and the liabilities of the Company in connection with that report shall be subject to the limitations and restrictions provided by such law. The half-yearly report for the period to 30 September 2008 is unaudited.


This report may contain certain statements about the future outlook for 3i Quoted Private Equity plc. Although we believe our expectations are based on reasonable assumptions, any statements about the future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.



Chairman's statement


The first half of this year has posed major challenges for all investors in listed equities. Equity markets worldwide have suffered very heavy losses in the wake of difficult macroeconomic conditions and a near freezing up of the credit markets. The FTSE All-Share index and the FTSE Small Cap index lost 17% and 21% of their value respectively between 1 April and 30 September 2008.


In light of market conditions, the Board and the Investment Adviser have adopted a cautious approach to investment. This has so far proved to have been wise, allowing us to conserve capital for investment until a later date when better terms are likely to be available for us. We believe that there will be significant opportunities for investors such as 3i QPEP which have cash to invest. 


While the net asset value of 3i QPEP over the last six months declined a good deal less than that of the stock market as a whole, its performance has, nonetheless, still been disappointing. The net asset value at 30 September 2008 was 93.0 pence per share, declining by 9% compared to the net asset value at 31 March 2008. 


The share price performance of the majority of our portfolio has been adversely affected by broader market movements, despite the stable operating performance of the underlying companies. We are long-term holders of our assets and, while we cannot protect our investments from broader market movements, we, and our Investment Adviser, believe we can manage and add value to our portfolio to deliver our target return across the cycle. 


The availability of credit has continued to decline over the past few months, in particular for small- to medium-sized enterprises. While economic growth is likely to slow down very significantly, particularly in the developed economies of Europe and the US, we believe that there are many healthy companies with ambitious management teams and credible plans to grow their operations, which are experiencing difficulties in accessing capital in the current environment. 3i QPEP, with £244 million in uninvested cash on the balance sheet, can provide a solution to such companies seeking expansion capital. 


In summary, with funds ready to be deployed against a backdrop of increasingly scarce and expensive capital, and with valuations becoming more attractive, we believe that our target returns are achievable across the cycle. 


David Tyler

Chairman

9 November 2008



Investment Adviser's review


About the Investment Adviser

3i Investments acts as Investment Adviser to the Company through its quoted private equity investment team ('the QPE investment team'). The Investment Adviser provides the Company with advice on the origination and completion of new investments and on funding requirements, as well as on the management of the existing investment portfolio.


The QPE investment team operates as a separate investment team within 3i Group and, as at 30 September 2008, was staffed by 11 dedicated investment professionals, including six partners, who have significant experience as senior executives in private equity, in investment banking and in the executive management of commercial enterprises. The team can also draw on 3i Group's network of investment professionals, based in 14 countries, to source suitable investments.


3i Group was the largest subscriber to 3i QPEP's initial public offering and owns approximately 45% of the equity in the Company.


Investment activity

As shown in table 1, investment activity since inception to 30 September 2008 totalled £174.4 million, representing 44.5% of the net proceeds raised by 3i QPEP at its flotation. Of this amount, £70.7 million was invested between 1 April 2008 to 30 September 2008.


Table 1
Summary of investment activity

for the period from 21 March 2007 to 30 September 2008



Equity

Total



holding

investment

Portfolio asset

Sector

(%)

(£m)

Strategic Recovery Fund II LP ('SRF II')(1)

Investment Fund

n/a

6.5

The Character Group plc ('Character')

Media

27.8

19.3

Jelf Group plc ('Jelf')

Financial Services

27.9

29.8

Phibro Animal Health Corporation ('Phibro')

Animal Healthcare

29.9

48.9

Salamander Energy plc ('Salamander')

Oil and gas 

15.5

69.9

Total



174.4

(1) The Company committed a total of £14.1 million to SRF II, of which £6.5 million had been drawn down 
at 30 September 2008. SRF II had final commitments at close of £70.8 million


The balance of flotation proceeds, plus income received and net of costs paid, is currently held in cash or cash equivalents.


An asset-by-asset review of the Company's portfolio, including a strategic update and developments in the period, can be found in the Portfolio review.


The most significant investment during the period was the purchase of a 15.5% holding in Salamander for a total cost of £69.9 million. This holding was built through: (i) the purchase of 17.2 million new Salamander shares in a placing and open offer announced by the company in July, at a price of 300 pence per share; (ii) a purchase, announced in July, of 4.5 million Salamander shares from 3i Group, at a price of 300 pence per share; and (iii) subsequent on-market purchases of 2.1 million Salamander shares, executed between August and September at an average price of 237 pence per share. 


Salamander, a London-listed independent oil and gas exploration and production company, has built a portfolio of production, development and exploration assets with interests in IndonesiaThailandVietnam, Lao PDR and the Philippines. The business has proven and probable reserves of 64 million barrels of oil equivalent and currently produces 10,000 barrels of oil equivalent per day.


Mike Sibson, a Director in 3i Group's oil and gas team, based in Aberdeen, was appointed to the Salamander board of directors in October 2008. 


This investment demonstrates clearly the advantages of 3i QPEP's relationship with 3i Group. In completing this transaction, the QPE investment team was able to leverage the significant knowledge of the oil industry built by 3i Group's Aberdeen-based team. Mike Sibson, an oil and gas expert with eight years of experience of investing in the sector, will add great value to 3i QPEP's investment in Salamander. 


The remainder of the investment during the period was accounted for by a further drawdown of £0.8 million by SRF II. The Company made a £14.1 million commitment to invest in SRF II, of which £6.5 million had been drawn down at 30 September 2008. 


Portfolio performance

The value of 3i QPEP's portfolio as at 30 September 2008 was £129.8 million. The return by asset, before the deduction of any costs, is shown in table 2. The Company generates returns from the assets principally through unrealised capital movements on the revaluation of the asset portfolio, the negotiation of underwriting and advisory fees on investment transactions, from the yield earned from the assets through dividends or interest income, or from any realised capital profits from the sale or partial sale of the asset. 


The value of all assets, with the exception of Phibro, declined significantly during the period, reflecting broader market movements. 


As outlined in more detail in our Portfolio review section, however, the operating performance of our portfolio companies remains stable, despite adverse market conditions. 


Portfolio composition

3i QPEP has no top-down sector or geographical allocation targets but aims to build, upon full investment of the flotation proceeds, a portfolio of eight to 12 investments, well diversified by sector and geography. Diversification of the portfolio across sectors and geographies aims to balance the portfolio's risk profile.



Returns

3i QPEP delivered a total return of £(37.2) million in the period from 1 April 2008 to 30 September 2008. The net asset value as of 30 September 2008 was 93.0 pence per share. 


Table 2
Gross portfolio return by asset

for the six months to 30 September 2008 (£m)


Value 


Value (at 





(at 31 March

Investment

30 September

Value 

Portfolio

Asset

Portfolio asset

2008)

in the period

2008)

movement

income (1)

return

SRF II

4.6

0.8

3.4

(2.0)

-

(2.0)

Character(2)

12.7

-

5.3

(5.2)

0.2

(5.0)

Jelf

34.7

-

21.8

(12.9)

-

(12.9)

Phibro

51.8

-

58.1

6.3

-

6.3

Salamander

-

69.9

41.2

(28.7)

0.2

(28.5)

Total

103.8

70.7

129.8

(42.5)

0.4

(42.1)

(1) Underwriting/advisory fees and dividend income.

(2) Includes the release of a provision taken in relation to the Company's investment in Character of £2.2 million.



Investment return

The value movement was £(42.5) million, net of a £2.2 million gain attributable to the release of a provision in relation to the Company's investment in Character. 


Dividends and fees of £0.4 million were received during the period, to generate a gross portfolio return of £(42.1) million.


Deal costs of £(1.4) million were incurred for the completion of the acquisition of the stake in Salamander, as well as on other aborted deals. 


Interest income

Interest income on financial assets totalled £8.1 million over the period. The Company's liquid assets are held in the form of bank deposits with counterparties rated AA- or above, that have yielded interest at a blended average rate of 5.7% per annum over the six-month period. 


Operating expenses and advisory fees

Operating expenses of £0.5 million include Board and service provider costs.


An advisory fee of £(1.3) million, payable to 3i Investments, was accrued during the six-month period. This is calculated as 2% per annum of the Gross Investment Value, excluding cash holdings (further detail on the calculation of the advisory fee is provided in note 5). No performance fee was accrued during the period, as the Company did not achieve the cumulative growth of 8% per annum since incorporation that is required for the payment of a performance fee to the Investment Adviser. 


Table 3
Summary total return (£m)



For the

For the



period from

period from


For the

21 March

21 March


six months to

2007 to

2007 to


30 September

30 September

31 March


2008

2007

2008

Unrealised (losses)/profits on the revaluation of investments(1)


(42.5)


(0.3)


3.0

Dividend income

0.2

-

0.3

Fee income

0.2

-

1.2

Deal costs

(1.4)

(0.7)

(2.3)

Investment (loss)/return

(43.5)

(1.0)

2.2

Interest income

8.1

5.7

16.9

Advisory fee 

(1.3)

(0.1)

(1.1)

Operating expenses

(0.5)

(2.3)

(2.7)

(Loss)/profit for the period 'Total return'

(37.2)

2.3

15.3

(1) Includes the movement in the provision associated with Character.


Balance sheet and net asset value

As at 30 September 2008, the cash and deposits balance stood at £244.1 million. The liquid funds of the Company are invested in short-term cash deposits and on-demand liquidity funds. These funds invest in a range of instruments, including certificates of deposit, commercial paper, floating-rate notes and Treasury Bills. The counterparties all have long-term credit ratings of AA- or higher. 


The net asset value as at 30 September 2008 was £372.0 million, or 93.0 pence per share. Table 4 shows the reconciliation of the movements in the net asset value for the period to 30 September 2008.



Table 4

Reconciliation of movement in net asset value per share

for the six months to 30 September 2008 (pence per share)

Opening net asset value at start of the period

102.3 


Value movement in investment portfolio

(10.6)

Operating expenses and advisory fees 

(0.3)

Deal costs

(0.5)

Interest income

2.1 

Closing net asset value 

93.0 



Portfolio review


Salamander


Location

UK

Sector

Oil and Gas

Market

London main market

Bid price at 30 September 2008

174p

Market cap at 30 September 2008

£267.4m

Website

www.salamander-energy.com


Description

Salamander is an independent upstream oil and gas exploration and production company focused on Asia. Salamander, which became a constituent of the FTSE 250 index within three years of inception, has built a portfolio of production, development and exploration assets with interests in IndonesiaThailandVietnam, Lao PDR and the Philippines. The business has proven and probable reserves of 64 million barrels of oil equivalent and currently produces 10,000 barrels of oil equivalent per day.


Portfolio detail

Equity interest

15.5%

Date invested

July - September 2008

Cost

£69.9m

Valuation

£41.2m


Developments

Salamander is in a very solid financial position, having completed a US$200 million syndicated refinancing of its debt in June and a US$200 million equity raising in August, in which 3i QPEP participated. Salamander announced strong interim results to 30 June 2008, which showed revenues, operating cash flow and production increasing by 46%, 84% and 7%, respectively. With development drilling completed in newly discovered fields, the management expects production to increase substantially in the second half of the year, with the Bualuang oil field now being on-stream. On 29 September 2008, Salamander announced a proposed all-share offer for Serica Energy plc, an exploration and production company operating principally in the UK and Indonesia, which was withdrawn in October, in light of the continued uncertainty in the capital markets and volatility in the price of crude oil.


Active partnership

3i QPEP has acquired a 15.5% equity stake in Salamander and intends to work closely with the executive management team. With its strong balance sheet, Salamander has a wide range of options around development capex and asset acquisitions. Leveraging the 3i Group industry network has the potential to enhance the management team's ability to balance reserve growth, cash flow generation and downside protection for shareholders. 


Mike Sibson, a Director in 3i Investments' oil and gas team, was appointed to the Salamander board of directors in October 2008. 



Phibro


Location

US

Sector

Animal Healthcare

Market

AIM

Bid price at 30 September 2008

US$5.10

Market cap at 30 September 2008

US$360.9m

Website

www.pahc.com


Description

Phibro is a leading diversified global manufacturer and marketer of a broad range of animal health and nutrition products, specifically medicated feed additives and nutritional feed additives, which it sells globally to the poultry, swine and cattle markets. Phibro believes it is currently the third largest marketer of medicated feed additives. Phibro was admitted to trading on AIM on 4 April 2008. 


Portfolio detail

Equity interest

29.9%

Date invested

March 2008

Cost

£48.9m

Valuation

£58.1m


Developments

In recent years, Phibro has consistently reported steady revenue growth and operating cash generation. Phibro's full-year results for the year to June 2008 were positive, with sales and EBITDA up 13% and 7%, respectively. The company is actively expanding its business in the fast-growing BRIC economies, leveraging its strong domestic position in the US, and expanding the breadth of its animal health offering. On 16 October 2008, Phibro agreed to buy Abic, the veterinary products business unit of Teva Pharmaceuticals, for US$47 million. Abic develops, manufactures and markets 60 products for poultry and large farm animals in Israel (where it is based), South East Asia and Africa. This acquisition was financed through a combination of new and existing credit facilities, with no further investment on the part of 3i QPEP. The outlook for the future is stable: in its recent statement, Phibro stated that its expectations are for its business to continue at similar or improving levels for the new fiscal year. 


Active partnership

The shape of Phibro's board of directors was changed to reflect the increasingly global nature of the company's operations, with the QPE investment team playing an active role in recruiting an additional board member. Alan MacKay, a Partner in the Investment Adviser and lead Partner in 3i Group's Healthcare sector group, chairs the remuneration committee of Phibro's board, and in that capacity, put in place a long-term incentive plan which will align management and shareholder interests. Alan has also played an active role in recruiting a new divisional manager and in optimising the management structure to reflect the company's strategy. The Investment Adviser has also supported Phibro in the acquisition of Abic and in the review and implementation of other organic growth initiatives. 



Jelf


Location

UK

Sector

Financial Services

Market

AIM

Bid price at 30 September 2008

157p

Market cap at 30 September 2008

£80.2m

Website

www.jelfgroup.com


Description

Jelf is a leading UK-based independent intermediary, offering advice-led, co-ordinated solutions to companies and individuals across general insurance, employee benefits (including private medical products) and commercial finance (including asset finance). Jelf controls around £400 million of gross written premiums (across general insurance, healthcare lines and group risk). The company has grown significantly through organic growth and acquisitions, having completed 16 acquisitions in the last two years.


Portfolio detail

Equity interest

27.9%

Date invested

January 2008

Cost

£29.8m

Valuation

£21.8m


Developments

Jelf has implemented an aggressive, acquisition-led growth strategy over the last few years, completing seven acquisitions since January (three significant acquisitions, three smaller Devon-based businesses and a small Reading-based book of business), the consolidation of which is proceeding to plan. The company issued a trading update in mid-October, in which it confirmed that it had traded strongly in the year to the end of September 2008, with profits set to grow by approximately 40% compared to the previous year, despite challenging market conditions, and with operating cash flow generation remaining strong. The company, however, warned that conditions are likely to be challenging for the year ahead, with premium rates remaining flat and lapse rates increasing, due to an expected rise in business failures. Jelf's wealth management advisory business is also likely to be negatively affected by market declines. 


Active partnership

Bruce Carnegie-Brown (previously head of European operations at Marsh & McLennan) is on Jelf's board of directors, and has significant experience in the insurance sector which he can contribute at Jelf. The QPE investment team has been involved in many initiatives, such as the integration of the recent acquisitions, budget planning for the new financial year and introducing a new management incentive programme to align management incentives with shareholder returns. The Investment Adviser has also contributed to the development of new strategic initiatives, such as the screening of potential new acquisitions and the development of Jelf's relationships with insurers and investors. 



Character


Location

UK

Sector

Media

Market

AIM

Bid price at 30 September 2008

46p

Market cap at 30 September 2008

£19.7m

Website

www.thecharacter.com


Description

Character is engaged in the design, development and international distribution of toys, games and giftware. The group's products are manufactured almost entirely in China, and it sells mainly in the UK to high street, catalogue, online and independent retail channels. The head office is in the London suburbs and its UK logistics centre is in Oldham. It also has offices in Hong Kong and Shenzhen. Character directly employs around 160 people worldwide. 


Portfolio detail

Equity interest

27.8%

Date invested

August 2007

Cost

£19.3m

Valuation

£5.3m


Developments

Character is experiencing tough trading conditions. The company's latest trading statement, issued at the end of July, indicated that the company expects its orders for the forthcoming Christmas season to be slower than originally anticipated, despite the strong product portfolio, which has been enhanced by the addition of licences for Hannah Montana and other selected High School Musical products, as well as for the new TV series of Postman Pat. Character's balance sheet is well positioned to weather the adverse conditions, with net cash at bank and substantial undrawn banking facilities, as well as a prudent inventory management policy. 

 

Active partnership

The Investment Adviser continues to work closely with Character in order to identify potential areas of strategic and operational improvement and to implement actions required to deliver future benefits. In addition, the Investment Adviser will continue to help the company to review potential acquisition opportunities.

Alan Mackay, a Partner in the Investment Adviser, is a member of Character's board of directors.



SRFII


Location

UK

Sector

Investment Fund

Market

Limited Partnership Fund

Bid price at 30 September 2008

n/a

Market cap at 30 September 2008

n/a

Website

www.svgcapital.com


Description

SRF II's portfolio consists of companies that it believes are undervalued and could benefit from specific strategic, operational and management change. SRF II holds between 5% and 20% of the equity of its portfolio companies, with the intention of working collaboratively with management to support the underlying companies in effecting change. Investments will typically be held for two to five years. The fund targets a net 15% IRR over the fund life. The fund is managed by SVG Investment Managers ('SVGIM') at SVG Capital plc. 


Portfolio detail

Equity interest

n/a

Date invested

June 2007

Cost

£6.5m

Valuation

£3.4m


Developments

SRF II was 46.9% invested as at 30 June 2008. The underlying NAV fell 11.6% over the six-month period. While the majority of portfolio companies continued to demonstrate robust operating performance over the period, the portfolio was negatively impacted by adverse market movements. In the interim report, SVGIM confirmed their belief that the long-term value of the investment portfolio remained significantly above current market value. It is likely that the NAV of SRF II's portfolio in December 2008 will decline further, due to significant market losses during the intervening period. 3i QPEP's total commitment to the fund is £14.1 million of which £6.5 million has been drawn down to September 2008.


Active partnership

This is a strategic investment for 3i QPEP that provides valuable access to a 'market price driven' investment specialist in the UK and European public company mid market. The QPE investment team and SVGIM have worked informally together on a number of opportunities. 



Income statement

for the six months to 30 September 2008





Period from

Period from




21 March

21 March



6 months to

2007 to 

2007 to



30 September

30 September

31 March 



2008

2007

2008



(unaudited)

(unaudited)

(audited)


Notes

£'000

£'000

£'000

Unrealised movements on the revaluation of investments and similar items


1


(42,566)


(343)


3,066

Deal related costs


(1,405)

(655)

(2,307)

Dividend income


254

-

277

Fee income


182

-

1,235

Gross portfolio (loss)/return


(43,535)

(998)

2,271

Advisory fees


(1,322)

(116)

(1,146)

Operating expenses

2

(533)

(2,326)

(2,724)

Net portfolio (loss)/return


(45,390)

(3,440)

(1,599)

Interest income


8,147

5,786

16,864

(Loss)/profit before tax


(37,243)

2,346

15,265

Income taxes


-

-

-

(Loss)/profit before tax and (loss)/profit for the period



(37,243)


2,346


15,265

(Loss)/earnings per share

Basic and diluted (pence)


(9.3)

0.6

3.8



Reconciliation of movement in equity

for the six months to 30 September 2008





Period from

Period from




21 March

21 March



6 months to

2007 to 

2007 to



30 September

30 September

31 March 



2008

2007

2008



(unaudited)

(unaudited)

(audited)


Notes

£'000

£'000

£'000

Total equity at start of period


409,288

-

-

Issues of shares

4

-

400,000

400,000

Total (loss)/profit for the period


(37,243)

2,346

15,265

Transaction costs on issue of share capital

4

-

(5,977)

(5,977)

Total equity at end of period


372,045

396,369

409,288



Balance sheet

as at 30 September 2008




30 September

30 September

31 March



2008

2007

2008



(unaudited)

(unaudited)

(audited)


Notes

£'000

£'000

£'000

Assets

Quoted equity investments


126,488

19,825

99,188

Unquoted portfolio


3,355

4,983

4,571

Investment portfolio


129,843

24,808

103,759

Other loans and receivables


292

458

375

Total non-current assets


130,135

25,266

104,134

Current assets

Other current assets


-

465

2,273

Deposit


-

-

45,000

Cash and cash equivalents


244,145

377,331

285,198

Total current assets


244,145

377,796

332,471

Total assets


374,280

403,062

436,605

Current liabilities

Trade and other payables


(2,235)

(933)

(25,058)

Provisions


-

(5,760)

(2,259)

Total liabilities


(2,235)

(6,693)

(27,317)

Net assets


372,045

396,369

409,288

Equity

Issued capital

4

4,000

4,000

4,000

Share premium

4

390,023

390,023

390,023

Profit and loss reserve

4

(21,978)

2,346

15,265

Total equity


372,045

396,369

409,288



Cash flow statement

for the six months to 30 September 2008




For the period

Period from



from 21 March

21 March


6 months to

2007 to

2007 to


30 September

30 September

31 March


2008

2007

2008


(unaudited)

(unaudited)

(audited)


£'000

£'000

£'000

Cash flow from operating activities

Purchase of investments

(93,266)

(19,390)

(76,031)

Advisory fee paid

(1,146)

-

-

Deal related costs

(1,992)

-

(837)

Dividend income

254

-

277

Fee income

898

(22)

520

Operating expenses

(491)

(2,101)

(2,574)

Net cash flow from operations

(95,743)

(21,513)

(78,645)


Cash flow from financing activities

Proceeds from issue of share capital

-

400,000

400,000

Transaction costs on issue of share capital

-

(5,977)

(5,977)

Interest received

9,690

5,321

15,320

Director's loan

-

(500)

(500)

Net cash flow from deposits

45,000

-

(45,000)

Net cash flow from financing activities

54,690

399,344

363,843


Change in cash and cash equivalents


(41,053)


377,331


285,198

Cash and cash equivalents at start of period

285,198

-

-

Cash and cash equivalents at the end of period

244,145

377,331

285,198



Notes to the accounts

for the six months to 30 September 2008


1 Unrealised movements on the revaluation of investments and similar items



Period from

Period from



21 March

21 March


Six months to 

2007 to

2007 to


30 September

30 September

31 March


2008

2007

2008


(unaudited)

(unaudited)

(audited)


£'000

£'000

£'000

Movement in fair value of investment portfolio

(44,825)

504

412

Movement in provisions

2,259

(847)

2,654


(42,566)

(343)

3,066


2 Operating expenses (unaudited)



Period from

Period from



21 March

21 March


Six months to 

2007 to

2007 to


30 September

30 September

30 September


2008

2007

2008


(unaudited)

(unaudited)

(audited)


£'000

£'000

£'000

Set-up costs

-

1,904

1,904

Directors' fees

158

158

316

Auditors' fees

22

30

52

Other operating costs

353

234

450


533

2,326

2,722


3 Share capital (unaudited)(1)

Authorised

Number

£'000

Ordinary shares of £0.01 each

2,000,000,000

20,000


Issued and fully paid

Number

£'000

Ordinary shares of £0.01 each

400,000,000

4,000

(1) There has been no change in the authorised, issued and fully-paid share capital of 3i QPEP since its inception on 21 March 2007, or any change in the nominal value of shares.



4 Equity

for the six months to 30 September 2008 (unaudited)


Share capital

Share premium

Reserves

Total equity


£'000

£'000

£'000

£'000

Opening balance

4,000

390,023

15,265

409,288

Total profit for the period

-

-

(37,243)

(37,243)

Closing balance

4,000

390,023

(21,978)

372,045


for the period from 21 March 2007 to 30 September 2007 (unaudited)


Share capital

Share premium

Reserves

Total equity


£'000

£'000

£'000

£'000

Opening balance

-

-

-

-

Total profit for the period

-

-

2,346

2,346

Issue of shares

4,000

396,000

-

400,000

Transaction costs on issue of share capital

-

(5,977)

-

(5,977)

Closing balance

4,000

390,023

2,346

396,369


for the period from 21 March 2007 to 31 March 2008 (audited)


Share capital

Share premium

Reserves

Total equity


£'000

£'000

£'000

£'000

Opening balance

-

-

-

-

Total profit for the period

-

-

15,265

15,265

Issue of shares

4,000

396,000

-

396,000

Transaction costs on issue of share capital

-

(5,977)

-

(5,977)

Closing balance

4,000

390,023

15,265

409,288



5 Related party transactions (unaudited)

3i Group plc ('3i Group') holds 44.9% of the ordinary share capital of the Company. 


Transactions between 3i QPEP and 3i Group On 6 August 2008, 3i QPEP acquired 4,462,000 shares, or 4.99% of the called-up share capital of Salamander Energy plc from 3i Group and subsidiaries as part of the larger transaction. The consideration paid by 3i QPEP was £13.4 million.


Transactions between 3i QPEP and Directors 3i QPEP and the Chairman entered into a loan agreement on 26 June 2007, whereby, subject to certain conditions, the Company agreed to provide the Chairman with a loan of £500,000 for investment in shares of the Company. The loan becomes repayable if the Chairman ceases to serve as a Director before the third anniversary of the date on which the loan was advanced to the Chairman (the 'Third Anniversary Date'). An amount equal to one thirty-sixth of the loan will be waived monthly on a pro-rata basis up until the Third Anniversary Date if he remains a Director at the end of each such monthly period. If the Chairman remains a Director for the three years up to the Third Anniversary Date, the entire loan (together with any accrued but unpaid interest) will be waived. Any shares purchased by the Chairman while serving as a Director remain under the ownership of the Chairman and are not repayable to the Company. A total of £83k was charged to the income statement in relation to amortisation of the loan during the period.


Transactions between 3i QPEP and 3i Investments plc 3i Investments plc, a subsidiary of 3i Group, acts as the exclusive Investment Adviser and support services provider to the Company.


For the provision of the support services pursuant to the Support Services Agreement, the Company is contracted to pay 3i Investments plc a fee of £450,000 per annum, such remuneration being payable half-yearly in arrears. The costs incurred in the six months to 30 September 2008 and the outstanding balance as at that date was £250,616.


Under the Investment Advisory Agreement, an annual advisory fee is payable to 3i Investments plc based on the Gross Investment Value (the total aggregate value of the investments of the Company excluding cash and cash equivalents) of 3i QPEP at the end of each financial period. The applicable annual rate is 2.0%. The advisory fee accrues throughout the year and semi-annual instalments are payable in arrears on account of the advisory fee for that period. The advisory fee is not payable in respect of cash or cash equivalent liquid temporary investments held by the Company throughout a financial period. In the six months to 30 September 2008, an advisory fee of £1.3 million has been generated. The advisory fee is only payable to the extent the advisory fee exceeds the support services fee for the period, therefore £1.1 million is payable under the 

Investment Advisory Agreement. This balance remains outstanding at the period end.


The Investment Advisory Agreement entitles a performance fee to be payable to 3i Investments plc. This becomes payable when the net asset value per share at the end of the relevant performance period (the period commencing 29 June 2007 and ending on 30 September 2007 and each subsequent six month period thereafter) exceeds the performance trigger (the opening NAV per share increased at 8% over the relevant performance period) with the performance fee payable being 20% of the entire growth in the net asset value. This 8% trigger was not achieved for the period to 30 September 2008. Hence, no performance fee is payable.



Statement of Directors' responsibilities


The Directors confirm to the best of their knowledge that:


(a)

the condensed set of financial statements have been prepared in accordance with IAS 34; and

(b)

the Investment Adviser's review includes a fair review of the information as required by the FSA's Disclosure and Transparency Rules (4.2.7 R and 4.2.8 R).


The Directors of 3i Quoted Private Equity plc and their functions are listed below.


By order of the Board:


David Tyler, Non-executive Chairman

Duncan Baxter, Non-executive Director

Antoine Clauzel, Non-executive Director

Richard Harwood, Non-executive Director



Portfolio valuation methodology


A description of the methodology used to value the Company's investment portfolio is set out below in order to provide more detailed information than is included each period in the accounting policies for the valuation of the portfolio. The methodology complies in all material aspects with the 'International private equity and venture capital valuation guidelines' endorsed by both the British Private Equity and Venture Capital Association and European Private Equity and Venture Capital Association.


Basis of valuation Investments are reported at the Directors' estimate of fair value at the reporting date. Fair value represents the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm's length transaction.


General In estimating fair value, the Company seeks to use a methodology that is appropriate in light of the nature, facts and circumstances of the investment and its materiality in the context of the total portfolio. Methodologies are applied consistently from period to period, except where a change would result in a better estimation of fair value. Given the uncertainties inherent in estimating fair value, a degree of caution is applied in exercising judgments and making necessary estimates.


Quoted investments Quoted investments are valued at the closing bid price at the reporting date. In accordance with International Financial Reporting Standards, no discount is applied for liquidity of the stock or any dealing restrictions.


Unquoted investments Most unquoted investments will be valued using one of the methodologies adopted by the Investment Adviser.


Investment funds The fair value of non-equity investment funds is generally estimated from the latest net asset value provided by the fund manager adjusted for other net assets or liabilities, or contingent assets or liabilities, of the fund.



Risks and uncertainties


The principal risks and uncertainties faced by the Company are set out in the Risks and Uncertainties section of the Company's Annual Report. The main risks and uncertainties facing the Company in the next period relate to the persisting volatility in the equity and credit markets and to the vulnerability of certain of the Company's portfolio assets to a slowdown in economic activity. Market volatility and a slowdown in economic activity are likely to affect both the market performance and the underlying operating performance of the Company's investments.



Accounting policies


Basis of preparation 

These financial statements are the unaudited half-yearly financial statements (the 'Half-yearly Financial Statements') of 3i Quoted Private Equity plc, a company incorporated and registered in Jersey, for the six-month period ended 30 September 2008. The Half-yearly Financial Statements have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting ('IAS 34') and should be read in conjunction with the financial statements for the period to 31 March 2008 ('Report and accounts 2008'), as they provide an update of previously reported information. The Half-yearly Financial Statements were authorised for issue by the Directors on 9 November 2008.


The Half-yearly Financial Statements have been prepared in accordance with the accounting policies set out in the Report and accounts 2008 as the new and revised International Financial Reporting Standards ('IFRS') and interpretations effective in the period have had no impact on the accounting policies of the Company. The presentation of the Half-yearly Financial Statements is consistent with the Report and accounts 2008. Where necessary, comparative information has been reclassified or expanded from the previously reported Half-yearly Financial Statements to take into account any presentational changes made in the Report and accounts 2008. The Half-yearly Financial Statements do not constitute statutory accounts. The statutory accounts for the period to 31 March 2008, prepared under IFRS, have been filed with the Jersey Financial Services Commission Companies Registry on which the auditors issued a report, which was unqualified.


The preparation of the Half-yearly Financial Statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.


The most significant techniques for estimation are described in the accounting policies and in the 'Portfolio valuation methodology' above.


Income taxes 

The Company currently has exempt company status in Jersey and is exempt from Jersey income tax on non-Jersey source income. Exempt company status will cease on the introduction of a general zero rate of corporate tax which is being introduced from 1 January 2009. 



Auditor's independent review report to 3i Quoted Private Equity plc


Introduction 

We have been engaged by 3i Quoted Private Equity plc to review the condensed set of financial statements in the Half-yearly report for the six months to 30 September 2008, which comprises the Income statement, Reconciliation of movements in equity, Balance sheet, Cash flow statement, the related notes 1 to 5 and the Accounting policies. We have read the other information contained in the Half-yearly report which includes the Financial highlights, Chairman's statement, Investment Adviser's review, Portfolio review, Statement of Directors' responsibilities, Portfolio valuation methodology, Risk and uncertainties and Investments and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.


This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.


Directors' responsibilities 

The Half-yearly report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the Half-yearly report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.


As disclosed in the basis of preparation note, the endorsed set of financial statements of the Company are prepared in accordance with IFRS. The condensed set of financial statements included in this Half-yearly report has been prepared in accordance with International Accounting Standard 34, '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 report based on our review.


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 United Kingdom. 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. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) 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.


Conclusion 

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 report for the six months to 30 September 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.


Ernst & Young LLP

Jersey

9 November 2008



Investments


 
 
First
 
Proportion of
Directors’
 
 
invested
Cost
equity shares
valuation
Investment
Geography
in
£’000
held %
£’000
Salamander Energy plc
UK oil and gas company, with significant assets in South-east Asia
UK
2008
 
 
 
Equity shares
 
 
69,933
15.5
41,265
 
 
 
69,933
 
41,265
Phibro Animal Health Corporation
Manufacturer and distributor of animal health pharmaceuticals and nutritional additives
US
2008
 
 
 
Equity shares
 
 
48,879
29.9
58,101
 
 
 
48,879
 
58,101
Jelf Group plc
Insurance broker and wealth adviser
UK
2008
 
 
 
Equity shares
 
 
29,846
27.9
21,820
 
 
 
29,846
 
21,820
The Character Group plc
Designer, developer and international distributor of toys and games
UK
2007
 
 
 
Equity shares
 
 
19,320
27.8
5,302
 
 
 
19,320
 
5,302
Strategic Recovery Fund II LP
Limited Partnership investing primarily in UK-listed companies
UK
2007
 
 
 
Capital commitments(1)
 
 
-
 
-
Limited partnership interest
 
 
6,516
 
3,355
 
 
 
6,516
 
3,355

Notes

(1) The cost of the capital commitment held in Strategic Recovery Fund II LP is £283.



This information is provided by RNS
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