20th Jun 2012 07:00
ABERDEEN PRIVATE EQUITY FUND LIMITED
AUDITED ANNUAL FINANCIAL REPORT
for the year ended 31 March 2012
1. CHAIRMAN'S STATEMENT
I am pleased to present to shareholders the Annual Report and financial statements of the Company for the financial year ended 31 March 2012.
It has been another busy year for the Company, the most notable event being the successful Tender Offer and Placing of Shares in June 2011. A total of 41,691,918 Shares were validly tendered and, of these, 24,691,918 Shares were placed with new and existing investors with the balance being repurchased by the Company. During the year we also repurchased 70,000 of the Company's Shares in the market. The Company has continued to make new investments and has also experienced some significant distributions via exits of underlying portfolio companies, the most notable of which was the sale of Skype from the Company's holding in SilverLake Partners III.
Performance and Dividend
During the period under review the net asset value ("NAV") per Share rose by 12.8% to 105.8p (2011 - 93.8p). The portfolio continues to be largely USD denominated and was helped by a slight strengthening in the Dollar over the period. The Company does not have a Benchmark with which to compare performance, however, the Board regularly reviews the NAV performance both in absolute terms and in relative terms against the Company's peer group.
We should also note that the NAV performance has been helped by the cancellation of Shares subsequent to the tender offer and market Share repurchases, which represented an uplift to NAV of 3.9p per Share. At the start of the financial year the Shares were trading at a discount to the underlying NAV of 27.2%. Over the course of the year this widened to 47.4%, in a move widely replicated by most of the Company's peers in the sector. At the time of writing this has tightened to 44.3%.
The Board has decided to put in place a distribution policy whereby the Company returns a proportion of the distributions that it receives from its investments by way of dividend to shareholders. The Board intends to distribute approximately 10% of the received distributions each year. As the level of these will vary from year to year the Board has decided that it will pay at least 1p per annum, regardless of the distributions received. Accordingly, for the first time, your Board is very pleased to be able to declare an interim dividend of 2.0p per Share which will be payable on 20 September 2012 to Shareholders on the register on 17 August 2012.
The Company's NAV performance this year was such that the high water mark and the performance fee hurdle, both as adjusted for shares repurchased and cancelled, were exceeded resulting in a performance fee of $442,000 becoming payable to the Manager. The Board is taking the opportunity to clarify the terms of the investment management agreement to ensure that (i) performance fees are only payable in respect of the audited year end NAV as adjusted; (ii) performance fee payments are not crystallised upon the purchase by the Company of its own shares, in the market, for cancellation; and, (iii) future audited NAVs used in performance fee calculations will be adjusted to add back the value of any dividends that have been paid during the period to shareholders.
Share Capital Management
As I have already reported the Company completed a successful Placing and Tender Offer during the year and was active in buying back Shares in the market. The Board is very aware of the current discount at which the Company's shares are trading to their asset value and, subsequent to the period end, a further 140,000 Shares have been purchased in the market, up to the date of this report. Accordingly, the Board is seeking to renew the shareholder authority to buy back up to 14.99% of the Company's Share capital at the forthcoming Annual General Meeting.
Just before the Company's year end, in March 2012, we successfully placed 1.1 million new Shares at a premium to the prevailing NAV per Share as part of the consideration for the purchase of a limited partnership interest in Longreach Capital Partners Ireland 1 L.P. The Board is seeking to renew the shareholder authority to issue new Shares up to 10% of the Company's Share capital at the Annual General Meeting to be held on 17 September 2012 at 2.00 p.m.
RBS Bank Facility
We were pleased to announce on 22 May 2012 that the Company has entered into a new secured £10,000,000 two year committed revolving credit facility with The Royal Bank of Scotland plc. The new facility will be available for the purposes of bridging capital contribution commitments in accordance with the Company's investment policy and will provide the Company with increased flexibility if required in the future.
Directorate
Mark Tucker is due to retire by rotation at the forthcoming Annual General Meeting and has indicated that he does not intend to seek re-election to the Board. I would like to take this opportunity to thank Mark for his support, diligence and dedication to the Company over what has been an eventful period since his appointment in 2009 and I would like to take this opportunity on behalf of the Board to wish him well for the future.
Portfolio Commentary/Liquidity/Commitments
The Company made new investments in Lion Capital Fund III (European focused consumer buyout), Tenaya Capital VI (US and international venture - investment made post year-end), Pangaea Two (emerging markets growth - investment made post year-end) and Longreach Capital Partners 2. This last acquisition was in addition to the purchase of Longreach Capital Partners Ireland 1, referred to above.
Distributions continue from exits of underlying investments. Funds, such as Terra Firma Capital Partners III who were nearing the end of their investment periods, made a number of closing acquisitions, resulting in anticipated calls on the Company which in this particular case have matched more recent distributions. The Company's portfolio is however continuing to mature and the Manager expects future positive cash flow characteristics to be the norm.
The Manager's Report covers their work during the year in more detail.
At the end of March, the Company had outstanding commitments of $85.4 million and liquidity of $22.3 million.
Outlook
Following the completion of the Placing and Tender Offer the Board and Manager have been able to focus more upon investment management and monitoring of the portfolio. We remain committed to supporting the secondary market in the Company's Shares and are actively supporting the Manager's Investor Relations programme to a wide audience including UK and European investors.
The prospects for the wider private equity market continue to remain positive and, with high levels of cash having been built up on major US corporates' balance sheets, the support for high quality deal flow is in place. Many large global corporates built up over the last thirty years are, in some cases, suffering from core product lines that have some degree of obsolescence. Tactical and strategic acquisitions from the private equity market are often the most effective way of dealing with this growth conundrum. We expect the IPO exit route for private equity to remain lacklustre.
I look forward to meeting those of you who can attend the Annual General Meeting and to reporting to you again in November in respect of the six months ending 30 September 2012. In the meantime, shareholders will find regular monthly updates on the Company's portfolio on the Company's website, www.aberdeenprivateequity.co.uk.
Jonathan Carr
Chairman
19 June 2012
2. MANAGER'S REVIEW
Introduction
As at 31 March 2012, 88.4% of the Company's NAV was invested in Private Equity and Private Equity like funds, and 11.6% in cash. The Company held 23 funds in its portfolio at 31 March 2012 (excludes fully written down legacy Hedge Fund positions).
Whilst the substantial economic turmoil experienced in the last year has been well covered by market commentators the impact on the Private Equity market is perhaps less clear. We aim to give some insight on this within the context of discussing the performance of the Company.
In our Manager's Report of 2011 we discussed the strength of the recovery in investor sentiment and indeed, for a very short time this year, that continued, exemplified by the European Central Bank (ECB) raising interest rates by 0.25% in April and again (by the same amount) in August. At the time, inflation was above target and economists were explaining away slowdowns in surveys as a result of the Tohoku Earthquake in March. Likewise, although Greece and its debt problems were firmly in the spotlight, optimism was high that an "extend and pretend" solution, coupled with aid from the EU and IMF, would lead to a soft landing for Greek bondholders.
Sentiment then turned. Over the remainder of the year, central banks announced unprecedented stimulus packages in an effort to keep economies growing and prevent the service cost of debt becoming too great a burden for companies and nations. The ECB quickly backtracked on their rate rise with two 0.25% cuts in November and December. This was followed in December by a refinancing operation for European banks (LTRO - Long Term Refinancing Operations) amounting to €489 billion. Meanwhile, the UK resumed quantitative easing (QE), creating capacity to add another £125 billion to the programme, taking it to £325 billion in total, and in the US, the Fed, deciding against further QE, opted to sell short-dated treasuries on its balance sheet and buy longer dated ones, in an effort to flatten the yield curve and reduce long term borrowing rates.
In some cases, this appears to have worked, in others it doesn't. The UK slipped back into recession in the fourth quarter whilst the US managed to maintain growth of around 2% for the year. The emerging economies did not escape unscathed as growth predictions for China and Emerging Nations were both reduced by the IMF to 8.2% and 5.4% respectively.
Private Equity Environment
That early optimism fed into the private equity market with Q211 seeing a record (since the Lehman's collapse) in the number of funds and private equity deals closed at 201 and 674 respectively. This latter number represented a 33% increase from the same quarter a year earlier.
Indeed, despite the "dry powder" (uncalled capital from funds still in their investment period. The measure is normally used in the context of describing disproportionately high levels of uncalled capital in a fund as it nears the end of its investment period) overhang we reported on last year, a survey by Preqin suggested that 46% of respondents were planning to increase the amount of capital committed to private equity in 2011 compared to 13% who said they were planning to reduce it.
As a result, valuations were high and it was reported that Carlyle had bought RAC from Aviva for a purchase price of £1bn, equivalent to 17x 2010 EBITDA.
S1 registrations ('Form S-1' is a US SEC filing used to, amongst other things, make available, some basic financial information to investors ahead of an IPO (Initial Public Offering)) began to creep higher again but, unfortunately for sellers, due to the length of the process, IPO windows came and went quickly. Venture investors managed to float a few high profile names with Groupon and Zynga being two. However, many less high profile names, particularly in the clean technology space, had to abandon plans to list, finding better funding from private markets.
Public companies suffered mixed fortunes when trying to acquire peers and competitors. Microsoft announced one of the "marquee" deals of the year when they said they would buy Skype (an underlying Aberdeen Private Equity Fund holding) from SilverLake Partners for $8.5 billion. Likewise, albeit on a much smaller scale, Oracle announced that they would spend $1.5 billion on listed RightNow Technologies, taking them private. S&P500 (excludes financials, source Factset) companies have on aggregate dramatically increased their cash levels since Q4 2008 and, with interest rates at close to zero it is little surprise that M&A is a tactic employed by these large businesses.
However, it is not always plain sailing as G4S (formerly known as Group 4 Securicor) found out. They proposed a transformational deal which would have seen them combine with privately held ISS to become the second largest private sector employer globally after Walmart. However, their shareholders disagreed about the synergies between security and catering / cleaning and forced G4S to abandon their plans.
In general the message is that it is a good time to be invested in growing and cash flow generating businesses that are attractive to corporate buyers and Aberdeen Private Equity Fund Limited is well positioned to achieve this. With 21% of the portfolio in venture funds, we look forward to taking advantage of the trends described above. Indeed, over the Company's financial year, we have seen a record level of distributions at $31.3 million, up 63% on the previous year. Part of this is the natural maturation of the Company's portfolio and going forward it is well positioned to benefit from the continued allocation to distressed debt.
The market for pre-owned limited partner interests, known as "Secondaries", remained buoyant though with pricing varying widely and, with one or two exceptions, invariably secondary transactions traded at an attractive discount to Fair Market Value. Buoyed by the stronger than expected cash flows, the Company completed its first secondary transaction at the end of March, acquiring an interest in Longreach Capital Partners Ireland 1 LP where the original commitment was $7.4 million.
From time to time we are approached by opportunistic potential buyers or brokers of Secondaries with a view to buying the Company's assets. Over the year we have been bid at par on at least one holding although others were at considerably wider discounts. Invariably it is always the case that the most attractive unsolicited offers are on those assets one is least inclined to sell. There are different types of buyers in the market and a variety of different factors influence pricing, not least how drawn a fund is. We continue to evaluate offers the Company receives and key to this is weighing up the benefits of a sure payment now versus relying on GPs to execute a successful exit strategy for underlying holdings in the future.
Performance
We set out below a table of the monthly NAV and Share price performance over the year. As we have commented on previously the Company is still relatively young and investment periods for many funds still remain active. The Company's holdings continue to progress up their aggregated Private Equity J Curve, as underlying companies mature, are exited or are operationally enhanced. For much of the year under review the level of distributions received was close to that of capital calls, which is a result of the increasing maturity of the portfolio.
Net Asset Value | ||||
per share | Monthly | |||
(Sterling | Monthly performance | performance | ||
equivalent) | Shares | Share price | Share price | |
pence | % | pence | % | |
March 2011 | 93.76 | +6.93% | 68.25 | -2.85% |
April 2011 | 90.27 | -3.72% | 64.00 | -6.23% |
May 2011 | 92.08 | +2.01% | 66.25 | +3.52% |
June 2011 | 96.63 | +4.94% | 68.75 | +3.77% |
July 2011 | 97.78 | +1.19% | 69.00 | +0.36% |
August 2011 | 98.89 | +1.14% | 65.50 | -5.07% |
September 2011 | 100.34 | +1.47% | 60.00 | -8.40% |
October 2011 | 97.75 | -2.58% | 53.50 | -10.83% |
November 2011 | 99.15 | +1.43% | 53.00 | -0.93% |
December 2011 | 98.81 | -0.34% | 52.25 | -1.42% |
January 2012 | 98.88 | +0.07% | 49.25 | -5.74% |
February 2012 | 99.46 | +0.59% | 58.25 | +18.72% |
March 2012 | 105.76 | +6.33% | 55.63 | -4.50% |
Hedging Activity
The Company's base currency is US Dollars and this matches the majority of the assets it holds, including cash, providing a physical hedge against moves in the forex markets. Where we have made commitments in currencies other than US Dollars, we are mindful of transactional losses. For this reason, from time to time we hold cash in other currencies, such as Euros. However, we are also acutely aware of the impact on NAV of the translation of these currencies back to US Dollars and have run down our physical Euro balance over the course of the year reflecting continued uncertainty in the Eurozone.
We do not hedge the translation of the NAV from US Dollars to Sterling in which the Company's Shares are priced. Given the nature of the long term assets of the Company, this would prove to be very expensive and ultimately detrimental to shareholder returns.
Portfolio Review
Legacy Non Private Equity Investments
The Company's positions in legacy hedge fund positions, King Street Capital and Deephaven Global Multi Strategy Fund, were fully written down during the year. The latter from time to time continues to pay back very small amounts. The zero value ascribed within the Company's books remains appropriate given the small unit size and lack of demand for purchasing these positions. Importantly this has also allowed the Company to move on from its previous multi alternative mandate and present the Company to potential new shareholders as a pure play Private Equity proposition.
Private Equity Investments
The Company made commitments to four new limited partnerships over the financial year. Longreach Capital Partners is a secondary transaction. This is an Asia based fund which primarily invests in Japan, buying orphan businesses from Japanese corporates and nurturing them in private ownership before selling on to other Asian buyers. Despite the relatively recent entry into the partnership, we have had our first distribution from this investment already, though in the 2012/13 financial year.
We simultaneously made an identically sized commitment to the successor fund Longreach Capital Partners II. With the same team and strategy in place, they are well positioned to take advantage of turmoil in the corporate Japanese market in the coming years.
Another successor vehicle to which the Company made a commitment was Tenaya Capital VI. Again, with the same team and process in place, we expect to see more success along the lines of Green Dot, Contendo and Lashou. It should be noted that we carried out investment and operational due diligence on this investment to the same level as we do on any primary commitment to a new team, a standard feature of our investment process.
The last new commitment we made was to Lion Capital III, a buyout manager which invests in consumer goods principally in Europe but with an opportunistic allocation to North America. The dislocation in consumer markets should allow Lion to invest in consumer businesses with good prospects at attractive valuations before adding their considerable experience to the management of the companies. The fund's bias toward Europe and the consumer should position it well for what we believe will be an eventual recovery in three to five years in what, in some segments, is clearly a tough market. The long term nature of Private Equity is ideally suited to this type of portfolio positioning.
Looking at activity in some of the other investments owned by the Company, Coller International Partners were part of the consortium who exited Nycomed when it was purchased by Takeda for $9.1 billion. As part of the transaction, Coller and their partners retained a small part of the business so there may be further news for the Company from this investment. Coller was also one of the four managers, alongside Goldman Sachs Capital Partners VI, SVG Strategic Recovery Fund II and Greenpark International Investors III to come to the end of their investment periods over the year.
Despite a distribution at the end of the Company's financial year, Oaktree OCM Opportunities Fund VIIb just failed to be the first of the Company's investments to return all the cash paid out. Given the significant remaining value in the fund, we are confident that next year we will be reporting that this has happened.
Northzone Ventures VI, a commitment we made last financial year has got off to a good start, with it already being marked above cost. The fund is young and still has a significant amount to draw down so we expect a likely return to a typical venture pattern in as much as the TVPI (Total Value to Paid In Capital or Multiple on Invested Capital to date) will fall below par as management fees are drawn and immature new investments dilute the earlier success. This fund has seen strong success to date with their Avito investment, a Russian online classified business, perhaps best described as a local version of the US site 'Craig's List'.
Performance has been disappointing in the Company's investment in Pinebridge Latin America Partners II and we are exploring ways of disposing of this asset. Concentration risk in this particular legacy fund remains high.
Looking Forward
We will continue to take an active approach to portfolio management both in terms of disposing of positions and in acquiring secondary positions. With direct secondary purchases such as the Longreach deal we do not expect this to become the core tenet of the Company's strategy, but rather we will execute on secondary deals opportunistically.
We have also seen an increase in co-investment proposals, and we will continue to evaluate these opportunities. Co-investments have the advantage of concentrating the portfolio as well as reducing the fee burden because GPs (General Partner, the legal nomenclature for the management team of the 'fund') do not charge fees on co-investments.
Cash still makes up 11.6% of the portfolio and remains the single largest investment in the Company. We monitor the Company's cash commitment cover closely and have entered into the new secured two year £10 million committed revolving credit facility with The Royal Bank of Scotland plc to provide increased flexibility if required in the future.
With regard to primary investments our direct research and evaluation programme continues. We remain focused on building relationships with private equity managers who exhibit outstanding leadership in their own field coupled with high levels of proprietary insights and compelling investment strategies. For the most part we believe that these qualities continue to be found away from the large fund end of the private equity spectrum, but as one should do with all aspects of investment we approach every fund evaluation from a neutral view. Occasionally we are positively surprised by what we hear (and see) and it is for that reason we retain that flexibility to invest in all opportunities whether by stage, geography or sector.
Alexander Barr
Aberdeen Asset Managers Limited
19 June 2012
3. STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing financial statements for each financial year which give a true and fair view in accordance with applicable Guernsey law and International Financial Reporting Standards, of the state of affairs of the Company and of the profit or loss of the Company for that year. In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors confirm to the best of their knowledge that:
• they have complied with the above requirements in preparing the financial statements;
• there is no relevant audit information of which the Company's auditors are unaware.
In accordance with Disclosure and Transparency Rule 4.1.12:
The Directors confirm to the best of their knowledge that:
a) the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and
b) the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that they face.
The Directors are responsible for keeping proper accounting records which 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 (Guernsey) Law, 2008. 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.
Each Director confirms that, so far as he is aware, there is no relevant audit information of which the Company's auditors are unaware, and he has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company's auditors are aware of that information. Additionally, all important events since the year end are properly disclosed in the financial statements.
The maintenance and integrity of the Company's website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
For Aberdeen Private Equity Fund Limited
David Staples
Director,
19 June 2012
4. SCHEDULE OF INVESTMENTS
As at 31 March 2012
2011 | ||||
Investments | Investmentcalled/cost{A} | Fair Value | % of | Fair value{B} |
Private Equity & Private Equity Like Funds portfolio | US$'000 | US$'000 | NAV | US$'000 |
Coller International Partners V L.P. | 5,934 | 9,839 | 5.3 | 10,034 |
DFJ Athena L.P. | 7,683 | 8,640 | 4.7 | 5,232 |
Goldman Sachs Capital Partners VI L.P. | 7,988 | 7,762 | 4.2 | 6,372 |
Gores Capital Partners III LP | 2,799 | 2,647 | 1.4 | 478 |
Greenpark International Investors III L.P. | 11,462 | 11,188 | 6.0 | 12,639 |
HIG Bayside Debt & LBO Fund II L.P. | 4,783 | 5,641 | 3.0 | 5,363 |
Lion Capital Fund III L.P. | 3,429 | 3,597 | 1.9 | - |
Longreach Capital Partners Ireland 1, L.P | 9,828 | 9,620 | 5.2 | - |
MatlinPatterson Global Opportunities Partners III L.P. | 6,851 | 4,941 | 2.7 | 5,828 |
Northzone Ventures VI LP | 4,779 | 6,649 | 3.6 | 2,969 |
Oaktree OCM Opportunities Fund VIIb L.P. | 2,025 | 10,363 | 5.6 | 17,374 |
Pine Brook Capital Partners L.P. | 4,787 | 6,203 | 3.4 | 3,489 |
PineBridge Latin America Partners II LP | 1,668 | 1,151 | 0.6 | 1,653 |
Resonant Music I L.P. | 5,064 | 4,915 | 2.7 | 4,552 |
Rho Ventures VI L.P. | 7,261 | 8,278 | 4.5 | 4,840 |
Silver Lake Partners III L.P. | 6,426 | 8,605 | 4.8 | 9,331 |
SVG Strategic Recovery Fund II L.P. | 7,483 | 9,760 | 5.3 | 9,399 |
Tenaya Capital V L.P. | 7,804 | 10,573 | 5.7 | 8,916 |
Terra Firma Capital Partners III L.P. | 13,609 | 7,305 | 3.9 | 5,775 |
Thoma Bravo Fund IX L.P. | 7,991 | 13,882 | 7.5 | 6,517 |
Thomas H Lee Parallel Fund VI L.P. | 9,898 | 11,862 | 6.4 | 10,934 |
________ | ________ | ________ | ________ | |
139,552 | 163,421 | 88.4 | 131,695 | |
________ | ________ | ________ | ________ | |
Fixed-term deposits | | | | |
Santander | | 7,098 | 3.8 | |
| | 7,098 | 3.8 | |
| | | | |
Aberdeen Liquidity Funds | | | | |
Euro Fund Income | | 700 | 0.4 | |
Sterling Fund Income | | 259 | 0.1 | |
US Dollar Fund Income | | 13,900 | 7.5 | |
| | 14,859 | 8.0 | |
| | | | |
Cash | | 378 | 0.2 | |
Other liabilities less assets | | (761) | (0.4) | |
| | (383) | (0.2) | |
Net assets | | 184,995 | 100.0 | |
{A} Investments called/cost represents commitments drawdown less net distributions. | ||||
{B} Drawdowns and/or distributions effected during the year will result in 2011 and 2012 values not being directly comparable. | ||||
5. BUSINESS REVIEW
A review of the Company's activities is given in the Chairman's Statement and the Manager's Review. This includes a review of the business of the Company and its principal activities, likely future developments of the business, and details of changes to the Company's Share capital during the year. The major risks associated with the Company are detailed in the below and in note 19 to the financial statements. The Key Performance Indicators for the Company including NAV performance and Share price performance are detailed in the Annual Report.
The Company does not make political donations or expenditures and has not made any donations for charitable purposes during the year and in common with most investment companies, the Company has no employees. Directors' & Officers' liability insurance cover has been maintained throughout the year at the expense of the Company.
Results and Dividend
For the year ended 31 March 2012 the Directors have declared an interim dividend of 2.0p per Share which will be payable on 20 September 2012 to Shareholders on the register on 17 August 2012.
Incorporation and Principal Activity
The Company is a Guernsey authorised closed-ended investment company listed on the London Stock Exchange. The Company was incorporated on 5 January 2007 in Guernsey, Channel Islands with registered number 46192. Trading in the Company's shares commenced on 9 July 2007.
Going Concern
The Directors are not aware of any factors at the date of approving these financial statements that may suggest that the Company will not continue as a going concern for the foreseeable future. Note 19 to the financial statements includes the Company's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and its exposure to credit risk and liquidity risk. The Directors have undertaken a rigorous review of the Company's ability to continue as a going concern including reviewing the level of the Company's assets and significant areas of financial risk including the level of liquidity, the draw down pattern of commitments and timing of realisations from the portfolio.
After making enquiries of the Manager and the Administrator, the Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt a going concern basis in preparing the financial statements.
Principal Risks
Shares
The market price and the realisable value of the Company's Shares, as well as being affected by their underlying net asset value, also take into account supply and demand for the Company's Shares, market conditions and general investor sentiment. As such, the market value and the realisable value of the Shares may fluctuate and vary considerably from the net asset value of the Shares and investors may not be able to realise the value of their original investment.
Borrowings
The Company may borrow up to 25% of the NAV of the Company. Whilst the use of borrowings should enhance the total return on the Shares where the return on the Company's underlying assets is positive and exceeds the cost of borrowing, it will have the opposite effect where the underlying return is less than the cost of borrowing, further reducing the total return on the Shares.
Market Risks
The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. Market risk comprises three elements, interest rate risk, currency risk and other price risk. Further details of these risks are disclosed in note 19 to the financial statements. Investment in private equity securities involves a greater degree of risk than that usually associated with investment in listed securities markets.
General
Shareholders have no right to redeem their Shares and in normal circumstances will only be able to realise their investment through the market. The Company has introduced a three-yearly continuation vote commencing at the Annual General Meeting in 2013 and if shareholders vote against the Ordinary Resolution to continue, the Company will be wound up or reconstructed.
Taxation and Exchange Controls
Any change in the Company's tax status or in taxation legislation and/or the imposition of exchange controls (including the tax treatment of dividends or other investment income received by the Company) could affect the value of the investments held by the Company, affect the Company's ability to provide returns to shareholders or alter the post-tax returns to shareholders.
Investment Strategy and Performance
Inappropriate long-term investment strategies in terms of, inter alia, asset allocation, level of gearing or Manager selection may result in underperformance of the Company against the companies within the peer group. The Board regularly considers the Company's investment strategy and monitors performance at each Board meeting.
Portfolio Risks
Private equity investments are long-term in nature and they may take a considerable period to be realised. A substantial proportion of the Company's assets are invested in limited partnerships which invest in private companies. These unquoted investments are less readily realisable than quoted securities. Such investments may therefore carry a higher degree of risk than quoted securities. In valuing its investments in private equity funds or limited partnerships and in calculating its NAV, the Company relies to a significant extent on the accuracy of financial and other information provided by these funds to the Manager. Limited partnerships typically provide updated (unaudited) valuations on a quarterly or six-monthly basis.
6. STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 March 2012
Year ended | Year ended | ||
31 March 2012 | 31 March 2011 | ||
Notes | US$'000 | US$'000 | |
Gains on investments | 12 | 19,777 | 16,445 |
Income | 4 | 234 | 415 |
Currency (losses)/gains | (1,209) | 1,447 | |
Investment management fee | 5 | (2,616) | (2,752) |
Performance fee | 5 | (442) | - |
Other operating expenses | 6 | (1,038) | (925) |
Tax incurred on distribution income | 7 | (221) | - |
____________ | ____________ | ||
Profit attributable to equity shareholders | 14,485 | 14,630 | |
____________ | ____________ | ||
Earnings per share (pence) | 9 | 8.09 | 7.51 |
____________ | ____________ | ||
The Company does not have any income or expense that is not included in profit for the year, and therefore the "Profit attributable to equity shareholders" is also the "Total comprehensive income for the year", as defined in IAS 1 (revised). | |||
All of the profit and total comprehensive income is attributable to the equity holders of the Company. There are no minority interests. | |||
All items in the above statement derive from continuing operations. | |||
The accompanying notes are an integral part of the financial statements. | |||
7. BALANCE SHEET
As at 31 March 2012
As at | As at | ||
31 March 2012 | 31 March 2011 | ||
Notes | US$'000 | US$'000 | |
Non-current assets | |||
Financial assets at fair value through profit or loss | 10 | 163,421 | 132,130 |
____________ | ____________ | ||
Current assets | |||
Cash and cash equivalents | 22,335 | 56,885 | |
Trade and other receivables | 13 | 89 | 186 |
____________ | ____________ | ||
22,424 | 57,071 | ||
____________ | ____________ | ||
Creditors: amounts falling due within one year | |||
Trade and other payables | 14 | (850) | (867) |
____________ | ____________ | ||
Net current assets | 21,574 | 56,204 | |
____________ | ____________ | ||
Net assets | 184,995 | 188,334 | |
____________ | ____________ | ||
Share capital and reserves | |||
Share capital | 15 | - | - |
Share premium | 15 | 229,405 | 247,229 |
Revenue reserves | 16 | (44,410) | (58,895) |
____________ | ____________ | ||
Equity shareholders' funds | 184,995 | 188,334 | |
____________ | ____________ | ||
Net asset value per share (pence) | 17 | 105.76 | 93.76 |
____________ | ____________ | ||
8. STATEMENT OF CHANGES IN EQUITY
For the year ended 31 March 2012 | |||
Share capital & | Revenue | ||
Share premium | reserves | Total | |
US$'000 | US$'000 | US$'000 | |
Net assets at 31 March 2011 | 247,229 | (58,895) | 188,334 |
Issue of shares | 1,818 | - | 1,818 |
Repurchase of shares | (18,654) | - | (18,654) |
Tender offer costs | (988) | - | (988) |
Profit from operations | - | 14,485 | 14,485 |
____________ | ____________ | ____________ | |
Net assets at 31 March 2012 | 229,405 | (44,410) | 184,995 |
____________ | ____________ | ____________ | |
For the year ended 31 March 2011 | |||
Share capital & | Revenue | ||
Share premium | reserves | Total | |
US$'000 | US$'000 | US$'000 | |
Net assets at 31 March 2010 | 258,759 | (73,525) | 185,234 |
Repurchase of shares | (11,530) | - | (11,530) |
Profit from operations | - | 14,630 | 14,630 |
____________ | ____________ | ____________ | |
Net assets at 31 March 2011 | 247,229 | (58,895) | 188,334 |
____________ | ____________ | ____________ | |
The accompanying notes are an integral part of the financial statements. | |||
9. STATEMENT OF CASH FLOWS
| Year ended | Year ended |
| 31 March 2012 | 31 March 2011 |
| US$'000 | US$'000 |
Cash flows from operating activities | | |
Profit for the year | 14,485 | 14,630 |
Net interest income from cash and cash equivalents | (234) | (365) |
Gains on investments | (19,777) | (18,988) |
(Decrease)/increase in trade and other payables | (17) | 408 |
Decrease/(increase) in trade and other receivables | 97 | (46) |
_______ | _______ | |
Net cash outflow from operating activities | (5,446) | (4,361) |
| | |
Cash flows from investing activities | | |
Net interest income from cash and cash equivalents | 234 | 365 |
Distribution income from investments | 2,109 | - |
Realised gains on investee distributions | 9,282 | - |
Capital call expenses | (3,717) | (2,302) |
Purchases of investments | (37,319) | (27,071) |
Sales of investments | 19,949 | 21,223 |
_______ | _______ | |
Net cash outflow from investing activities | (9,462) | (7,785) |
| | |
Cash flows from financing activities | | |
Repurchase of shares | (18,654) | (11,530) |
Tender offer costs | (988) | - |
_______ | _______ | |
Net cash outflow from financing activities | (19,642) | (11,530) |
_______ | _______ | |
Net change in cash and cash equivalents for the year | (34,550) | (23,676) |
| | |
Cash and cash equivalents at beginning of the year | 56,885 | 80,561 |
_______ | _______ | |
Cash and cash equivalents at the end of the year | 22,335 | 56,885 |
_______ | _______ |
10. NOTES TO THE FINANCIAL STATEMENTS:
For the year ended 31 March 2012
1. | General information |
Aberdeen Private Equity Fund Limited (the "Company") was incorporated with limited liability and registered in Guernsey on 5 January 2007. The Company's shares were listed on 9 July 2007 whereupon the Company became a closed-ended investment company, domiciled in Guernsey. The Company is authorised by the Guernsey Financial Services Commission. |
2. | Accounting policies | |||
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company's financial statements; | ||||
(a) | Basis of preparation | |||
The financial statements are prepared on a going concern basis under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities at fair value through profit or loss. | ||||
The financial statements are prepared in accordance with International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB"), and interpretations issued by the International Financial Reporting Interpretations Committee ("IFRIC"). | ||||
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates which requires management to exercise its judgement in the process of applying the accounting policies. Actual results may differ from these estimates. It is in the area of valuation in investments where management are required to exercise judgement in the adoption of critical estimates and judgements which can impact the carrying values of investments. | ||||
At the date of authorisation of these financial statements, various Standards, amendments to Standards and Interpretations which have not been applied to these financial statements, were in issue but were not yet effective. These have not been applied to these financial statements. The following are the Standards and amendments to existing Standards which may be relevant but not yet effective. Other Standards, Interpretations and amendments to Standards which are not yet effective and not relevant have not been included. | ||||
- | IFRS 9 Financial Instruments (effective 1 January 2015) | |||
- | IFRS 10 Consolidated Financial Statements (effective 1 January 2013) | |||
- | IFRS 11 Joint Arrangements (effective 1 January 2013) | |||
- | IFRS 12 Disclosure of Interests in Other Entities (effective 1 January 2013) | |||
- | IFRS 13 Fair Value Measurement (effective 1 January 2013) | |||
- | IAS 28 (Revised), Investments in Associates and Joint Ventures (effective 1 January 2013) | |||
- | Presentation of Items of Other Comprehensive Income - Amendments to IAS 1 (effective 1 July 2012) | |||
- | Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7 (effective 1 January 2013) | |||
- | Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 (effective 1 January 2014) | |||
- | Mandatory Effective Date and Transition Disclosures - Amendments to IFRS 9 and IFRS 7 (effective 1 January 2015) | |||
The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Company. | ||||
(b) | Financial instruments | |||
i) | Classification | |||
A financial asset or financial liability at fair value through profit or loss is a financial asset or liability that is classified as held-for-trading or designated at fair value through profit or loss on inception. Forward contracts in a receivable position (positive fair value) are reported as financial assets at fair value through profit or loss. Forward contracts in a payable position (negative fair value) are reported as financial liabilities at fair value through profit or loss. | ||||
Financial assets that are not held at fair value through profit or loss include certain balances due from brokers and accounts receivable. Financial liabilities that are not at fair value through profit or loss include certain balances due to brokers and accounts payable. | ||||
ii) | Recognition | |||
The Company recognises financial assets and financial liabilities on the date it becomes party to the contractual provisions of the investment. Purchases and sales of financial assets and financial liabilities are recognised using trade date accounting. From trade date, any gains and losses arising from changes in fair value of the financial assets or financial liabilities are recorded in the Statement of Comprehensive Income. | ||||
iii) | Fair value measurement principles | |||
Financial assets and liabilities are initially recorded at their transaction price and then measured at fair value subsequent to initial recognition. Gains and losses arising from changes in the fair value of the 'financial assets or financial liabilities at fair value through profit or loss' category are presented in the Statement of Comprehensive Income for the period in which they arise. | ||||
Financial assets classified as receivables are carried at cost less any impairment losses. Financial liabilities, other than those at fair value through profit or loss, are measured at amortised cost using the effective interest rate method. | ||||
iv) | Investees | |||
The Company's investments in investees (that is, limited partnerships and companies in the investment portfolio) are subject to the terms and conditions of the respective investee's offering documentation. The investments in the investees are valued based on the reported Net Asset Value ("NAV") of such assets as determined by the administrator or general partner of the investee and adjusted by the Manager to take account of concerns such as liquidity so as to ensure that investments held at fair value through profit or loss are carried at fair value. The reported NAV is net of applicable fees and expenses of the investees and the underlying investments held by each investee are accounted for, as defined in the respective investee's offering documentation. While the underlying fund managers may utilise various model-based approaches to value their investment portfolios, on which the Company's valuations are based, no such models are used directly in the preparation of fair values of the investments. The NAV of investees reported by the administrators may subsequently be adjusted when such results are subject to audit and audit adjustments may be material to the Company. | ||||
v) | Cash and cash equivalents | |||
Cash and cash equivalents consist principally of cash on hand, demand deposits and short-term, highly liquid investments with maturities of three months or less. Cash and cash equivalents are valued at amortised cost, which approximates fair value. | ||||
(c) | Interest income and dividend/distribution income | |||
Interest income on cash and cash equivalents is accrued using the effective interest method. Dividend income and income from investees is recognised in gains on investments when the right to receive payment is established. Dividend income and income from investees is recognised gross of tax deducted at source, which is recognised as an operating expense. | ||||
(d) | Realised and unrealised gains and losses | |||
Realised gains and losses arising on the disposal of investments are calculated by reference to the proceeds received on disposal and the average cost attributable to those investments, and are recognised in the Statement of Comprehensive Income. Unrealised gains and losses on investments held at fair value through profit or loss are also recognised in the Statement of Comprehensive Income. | ||||
(e) | Foreign currency | |||
i) | Functional and presentation currency | |||
The Company aims to make investments primarily denominated in US Dollars and to make returns to investors in US Dollars. The Board of Directors considers US Dollars as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. The financial statements are presented in US Dollars, which is the Company's functional and presentation currency. | ||||
ii) | Transactions and balances | |||
Foreign currency transactions are translated into the functional and presentation currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies other than US Dollars are recognised in the Statement of Comprehensive Income. | ||||
(f) | Expenses | |||
All expenses recognised in the Statement of Comprehensive Income are on an accruals basis. | ||||
(g) | Share issue expenses | |||
The expenses which are directly incurred only on the issue of shares are written off against the share premium account. | ||||
(h) | Statement of Cash Flows | |||
For the purpose of the Statement of Cash Flows, the Company considers balances due to and from banks as cash and cash equivalents. | ||||
(i) | Dividends payable | |||
Dividends are recognised on the date on which they are paid. | ||||
3. | Segment information |
The Company engaged in two segments of business during the year: Investment in the Private Equity & Private Equity Like Funds portfolio and the Strategic Hedge Funds portfolio. The Investment Portfolio has been rebalanced and there is now one operating segment; the Private Equity & Private Equity Like Funds portfolio. Information on the movement in value of the investments held in each portfolio is disclosed in note 9 - Financial assets at fair value through profit or loss. | |
The Company is domiciled in Guernsey. All of the Company's income from investments is from underlying investments that are incorporated in countries other than Guernsey. | |
The Company has a highly diversified portfolio of investments and no single investment accounts for more than 20% of the Company's gross assets at the date of investment. |
2012 | 2011 | ||
4. | Income | US'000 | US'000 |
Net interest income from cash and cash equivalents | 234 | 415 | |
______________ | ____________ |
2012 | 2011 | ||
5. | Investment management fee | US'000 | US'000 |
Investment management fee | 2,616 | 2,752 | |
______________ | ____________ | ||
The Company has an agreement with Aberdeen Asset Managers Limited for the provision of management services. The Manager is paid by the Company a monthly fee equal to one-twelfth of 1.5% of the NAV of the Company (before deduction of any performance fee). The fee is calculated and accrued as at the last business day of each month and is paid monthly in arrears. At 31 March 2012 US$232,000 was outstanding (31 March 2011 - US$469,000). | |||
2012 | 2011 | ||
US$'000 | US$'000 | ||
Performance fee | 442 | - | |
______________ | ____________ | ||
In addition, the Manager is entitled to a performance fee of 10% based on the total increase in the audited NAV - adjusted to remove the contribution to performance from all share purchases for cancellation from launch and to add back the value of any dividends that have been paid to shareholders during the period - of the shares at the end of each performance year (ending 31 March each year). For a performance fee to be paid, the Manager must achieve returns in excess of 8% (subject to a high watermark). | |||
2012 | 2011 | ||
6. | Operating expenses | US'000 | US'000 |
Directors' fees | 286 | 294 | |
Auditor's fees: | |||
- audit | 51 | 58 | |
- for review of the interim report | 21 | 21 | |
Legal and professional fees | 169 | 28 | |
Brokerage fees | 42 | 122 | |
Printing and communication costs {A} | 106 | 139 | |
Administration fees | 174 | 156 | |
Custody fees | 20 | 78 | |
Travel expenses | 16 | (9) | |
Directors' and officers' insurance | 45 | 29 | |
Interest expense | 52 | - | |
Bank charges | 42 | 9 | |
Other expenses | 14 | - | |
______________ | ____________ | ||
1,038 | 925 | ||
______________ | ____________ | ||
{A} Included in the total are costs attributable to the Company's agreement with Aberdeen Asset Managers Limited ('AAM') for the provision of marketing services in relation to the Company's participation in the Aberdeen Investment Trust Share Plan and ISA. The total fees paid and payable under the agreement were £84,000 (2011 - £75,000) and the sum due to AAM at the year end was £Nil (2011 - £22,000). | |||
The Administrator is paid by the Company a fee of £90,000 per annum plus disbursements. The notice period on their contract is 90 days. At 31 March 2012 US$41,000 was outstanding (31 March 2011 - US$13,000). | |||
The Custodian was paid by the Company a fee not greater than 0.03% per annum on cash and deposits and 0.05% per annum on investments, subject to a minimum annual fee of £10,000. This agreement for the provision of custody services was terminated on 30 June 2011. | |||
7. | Taxation |
The Company is exempt from paying tax as it is domiciled and registered for taxation purposes in Guernsey where it pays an annual exempt status fee (which is currently £600) under The Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989 (as amended). Whilst the States of Guernsey has announced that it is reviewing the system of company taxation in Guernsey, it is not anticipated that the tax status of the Company will be changed. The Company is however subject to irrecoverable tax on distribution income from certain of its underlying portfolio holdings. |
2012 | 2011 | ||
8. | Dividends | US$'000 | US$'000 |
Interim dividend for 2012 - 2.00p (2011 - nil) | 3,391 | - | |
___________ | ___________ | ||
The proposed interim dividend for 2012 has not been included as a liability in these financial statements. | |||
9. | Earnings per share |
The basic earnings per share is calculated by dividing the returns attributable to shareholders by the weighted average number of shares in that class in issue during the period. There were no potentially dilutive shares in issue at 31 March 2012 (31 March 2011 - nil). |
2012 | 2011 | ||||
10. | Financial assets at fair value through profit or loss | US'000 | US'000 | ||
Cost at beginning of the year | 127,799 | 134,918 | |||
Additions | 39,137 | 32,283 | |||
Disposals | (19,949) | (24,133) | |||
Realised losses on investments | (7,435) | (15,269) | |||
_________ | ________ | ||||
Cost at end of the year | 139,552 | 127,799 | |||
Unrealised gains on investments | 23,869 | 4,331 | |||
_________ | ________ | ||||
Fair value at end of the year | 163,421 | 132,130 | |||
_________ | ________ | ||||
Private Equity | Strategic | ||||
& Private Equity like | Hedge Funds | Transitional | |||
Funds portfolio | portfolio | portfolio | Total | ||
31 March 2012 | US'000 | US'000 | US'000 | US'000 | |
Cost at beginning of the year | 127,224 | 575 | - | 127,799 | |
Additions | 39,137 | - | - | 39,137 | |
Disposals | (19,709) | (240) | - | (19,949) | |
Realised losses on investments | (7,100) | (335) | - | (7,435) | |
_________ | ________ | _________ | ________ | ||
Cost at end of the year | 139,552 | - | - | 139,552 | |
Unrealised gains on investments | 23,869 | - | - | 23,869 | |
_________ | ________ | _________ | ________ | ||
Fair value at end of the year | 163,421 | - | - | 163,421 | |
_________ | ________ | _________ | ________ | ||
Private Equity | Strategic | ||||
& Private Equity like | Hedge Funds | Transitional | |||
Funds portfolio | portfolio | portfolio | Total | ||
31 March 2011 | US'000 | US'000 | US'000 | US'000 | |
Cost at beginning of the year | 111,947 | 12,771 | 10,200 | 134,918 | |
Additions | 32,283 | - | - | 32,283 | |
Disposals | (16,154) | (6,941) | (1,038) | (24,133) | |
Realised losses on investments | (852) | (5,255) | (9,162) | (15,269) | |
_________ | ________ | _________ | ________ | ||
Cost at end of the year | 127,224 | 575 | - | 127,799 | |
Unrealised gains/(losses) on investments | 4,471 | (140) | - | 4,331 | |
_________ | ________ | _________ | ________ | ||
Fair value at end of the year | 131,695 | 435 | - | 132,130 | |
_________ | ________ | _________ | ________ | ||
11. | Fair value hierarchy | ||||
The three levels of the fair value hierarchy under the Amendment to IFRS 7 are described below: | |||||
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities; | |||||
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (as prices) or indirectly (derived from prices); and | |||||
Level 3 - Inputs for the asset or liability that are not based on observable market data (unobservable inputs). | |||||
The levels in the fair value hierarchy within which the fair value measurement is categorised in its entirety are determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. In evaluating the level at which the Company's investments have been classified; the Company has assessed factors including, but not limited to price transparency, the ability to redeem at NAV at the measurement date and the existence or absence of certain restrictions at the measurement date. | |||||
The following tables summarises by level within the fair value hierarchy the Company's financial assets and liabilities at fair value as follows: | |||||
Level 1 | Level 2 | Level 3 | Total | ||
31 March 2012 | US'000 | US'000 | US'000 | US'000 | |
Financial assets at fair value through profit and loss | - | - | 163,421 | 163,421 | |
_________ | ________ | _________ | ________ | ||
Level 1 | Level 2 | Level 3 | Total | ||
31 March 2011 | US'000 | US'000 | US'000 | US'000 | |
Financial assets at fair value through profit and loss | - | 435 | 131,695 | 132,130 | |
_________ | ________ | _________ | ________ | ||
A reconciliation of fair value measurements in Level 3 is set out in the following table: | |||||
Private Equity | ||||
& Private Equity like | ||||
Funds portfolio | Transitionalportfolio | Total | ||
Year ended 31 March 2012 | US'000 | US'000 | US'000 | |
Opening balance | 131,695 | - | 131,695 | |
Purchases | 39,137 | - | 39,137 | |
Sales | (19,709) | - | (19,709) | |
Total gains or losses on investments included in Statement of Comprehensive Income: | ||||
- on assets sold | (7,100) | - | (7,100) | |
- on assets held at the year end | 19,398 | - | 19,398 | |
_________ | ________ | _________ | ||
163,421 | - | 163,421 | ||
_________ | ________ | _________ | ||
Private Equity | ||||
& Private Equity like | ||||
Funds portfolio | Transitionalportfolio | Total | ||
Year ended 31 March 2011 | US'000 | US'000 | US'000 | |
Opening balance | 98,921 | - | 98,921 | |
Purchases | 32,283 | - | 32,283 | |
Sales | (16,154) | 1,038 | (15,116) | |
Total gains or losses on investments included in Statement of Comprehensive Income: | ||||
- on assets sold | (852) | (1,038) | (1,890) | |
- on assets held at the year end | 17,497 | - | 17,497 | |
_________ | ________ | _________ | ||
131,695 | - | 131,695 | ||
_________ | ________ | _________ |
12. | Net changes in fair value of financial assets at fair value through profit or loss | ||
The net realised and unrealised investment gain or loss from investment in financial assets and financial liabilities shown in the Statement of Comprehensive Income is analysed as follows: | |||
2012 | 2011 | ||
£'000 | £'000 | ||
Unrealised gains on investments | 19,538 | 34,016 | |
Capital call expenses | (3,717) | (2,302) | |
Realised losses on disposal of investments | (7,435) | (15,269) | |
Realised gains on investee distributions | 9,282 | - | |
Distribution income from investments | 2,109 | - | |
_________ | ________ | ||
19,777 | 16,445 | ||
_________ | ________ | ||
Capital call expenses relate to management fees and other expenses paid to investees. | |||
2012 | 2011 | ||
13. | Trade and other receivables | US'000 | US'000 |
Prepayments | 78 | 184 | |
Accrued interest | 6 | 2 | |
Due from brokers | 5 | - | |
_________ | ________ | ||
89 | 186 | ||
_________ | ________ |
2012 | 2011 | ||
14. | Trade and other payables | US'000 | US'000 |
Management fees | 232 | 469 | |
Performance fee | 442 | - | |
Other expenses | 176 | 398 | |
_________ | ________ | ||
850 | 867 | ||
_________ | ________ |
2012 | 2011 | ||
15. | Share capital and share premium | US'000 | US'000 |
Share capital | |||
Management shares | |||
Authorised: 10,000 shares of £1.00 each | |||
2 Management shares of £1.00 each | - | - | |
_________ | ________ | ||
- | - | ||
_________ | ________ | ||
2012 | 2011 | ||
US'000 | US'000 | ||
Ordinary shares | |||
Authorised: unlimited number of shares of no par value | |||
Share capital and share premium issued and fully paid | |||
Opening balance | |||
125,313,199 (2011 - 90,825,779) Sterling shares | 247,229 | 182,704 | |
Nil (2011 - 78,383,753) US Dollar shares | - | 76,055 | |
_________ | ________ | ||
247,229 | 258,759 | ||
Conversion of 78,383,753 US Dollar shares into 45,540,957 Sterling shares | - | - | |
1,100,000 (2011 - Nil) Sterling shares issued | 1,818 | - | |
17,070,000 (2011 - 11,053,537) Sterling shares repurchased | (18,654) | (11,530) | |
Tender offer costs | (988) | - | |
_________ | ________ | ||
Closing balance of 109,343,199 Sterling shares | 229,405 | 247,229 | |
_________ | ________ | ||
The authorised share capital of the Company on incorporation was £10,000 divided into 10,000 shares of £1.00 each. On 31 May 2007 a special resolution was passed by the Company to increase the share capital to an unlimited number of participating shares of no par value ("shares"), which upon issue, the Directors were able to designate as Sterling shares, US Dollar shares or otherwise as determined by the Directors at the time of issue, and 10,000 Management shares of £1.00 each. | |||
The shares were issued on 4 July 2007 as a result of the Company announcing the placing and offer for subscription of its shares on 6 June 2007. | |||
Following approval by shareholders of the Share Conversion Proposal on 3 June 2010, all the US Dollar shares were converted into new Sterling shares on 2 July 2010, on the basis of 0.5810 new Sterling shares for every US Dollar share held. | |||
2012 | 2011 | ||
16. | Revenue reserves | US'000 | US'000 |
Opening revenue reserves | (58,895) | (73,525) | |
Profit from operations | 14,485 | 14,630 | |
_________ | ________ | ||
Closing revenue reserves | (44,410) | (58,895) | |
_________ | ________ | ||
Revenue reserves attributable to shareholders | (44,410) | (58,895) | |
_________ | ________ |
17. | Net asset value |
The net asset value of each share is determined by dividing the net assets of the Company attributable to the shares of £115,644,000 (US$184,995,000); (2011 - £117,492,000 (US$188,334,000)) by 109,343,199 (2011 - 125,313,199), being the number of shares in issue at the year end. |
18. | Commitments | ||||
The table below summarises commitments to the underlying investments of the Company at 31 March 2012: | |||||
Total | Outstanding | ||||
Currency | Commitments | Currency | Commitments | ||
'000 | US$'000 | '000 | US$'000 | ||
Coller International Partners V L.P. | 15,000 | 3,383 | |||
DFJ Athena L.P. | 10,000 | 1,085 | |||
Goldman Sachs Capital Partners VI L.P. | 15,000 | 5,147 | |||
Gores Capital Partners III L.P. | 10,000 | 6,630 | |||
Greenpark International Investors III L.P. | € 14,600 | 19,469 | € 1,583 | 2,111 | |
HIG Bayside Debt & LBO Fund II L.P. | 15,000 | 9,225 | |||
Lion Capital Fund III L.P. | € 10,000 | 13,335 | € 7,023 | 9,365 | |
Longreach Capital Partners 2 - USD, L.P. | 7,500 | 7,500 | |||
Longreach Capital Partners Ireland 1, L.P | 7,425 | 280 | |||
MatlinPatterson Global Opportunities Partners III L.P. | 10,000 | 1,925 | |||
Northzone Ventures VI L.P. | € 10,000 | 13,335 | € 5,927 | 7,904 | |
Oaktree OCM Opportunities Fund VIIb L.P. | 15,000 | 1,500 | |||
PineBridge Latin America Partners II L.P. | 2,611 | 362 | |||
Pine Brook Capital Partners L.P. | 10,000 | 3,402 | |||
Resonant Music I L.P. | 5,453 | 144 | |||
Rho Ventures VI L.P. | 10,000 | 2,575 | |||
Silver Lake Partners III L.P. | 15,000 | 5,520 | |||
SVG Strategic Recovery Fund II L.P. | £7,500 | 11,998 | £344 | 550 | |
Tenaya Capital V L.P. | 12,500 | 2,694 | |||
Tenaya Capital VI L.P. | 5,000 | 5,000 | |||
Terra Firma Capital Partners III L.P. | € 15,000 | 20,003 | € 3,283 | 4,378 | |
Thoma Bravo Fund IX L.P. | 10,000 | - | |||
Thomas H Lee Parallel Fund VI L.P. | 15,000 | 4,674 | |||
_________ | ________ | ||||
At 31 March 2012 | 268,629 | 85,354 | |||
_________ | ________ | ||||
19. | Financial risk management | ||||||||||||
The Company maintains positions in a variety of investees and forward currency contracts as determined by its investment management strategy. | |||||||||||||
The investees' own investing activities expose the Company to various types of risks that are associated with the financial investments and markets in which they invest. The significant types of financial risks, to which the Company is exposed are market risk, credit risk and liquidity risk. | |||||||||||||
Asset allocation is determined by the Company's Manager which manages the allocation of assets to achieve the investment objectives as detailed in the Annual Report. Achievement of the investment objectives involves taking risks. The Manager exercises judgement based on analysis, research and risk management techniques when making investment decisions. Divergence from target asset allocations and the composition of the portfolio is monitored by the Board. | |||||||||||||
| |||||||||||||
The significant types of risk that the Company is exposed to are detailed below: | |||||||||||||
a) | Capital management risk | ||||||||||||
- the Company may not be able to continue as a going concern, and | |||||||||||||
- the balance between equity capital and debt may become inappropriate resulting in an adverse impact on shareholders returns. | |||||||||||||
The capital of the Company is represented by the net assets attributable to the holders of the Company's shares. | |||||||||||||
It is the Board's policy to monitor and review the broad structure of the Company's capital on an ongoing basis. This review includes the nature and planned level of gearing, which takes account of the Manager's views on the market and the extent to which any return of capital may be made to equity shareholders via dividends or share repurchases. The Board normally seeks to limit gearing to 25% of the net assets. Capital transactions undertaken during the year are disclosed in the Chairman's Statement. | |||||||||||||
b) | Market risk | ||||||||||||
- Currency risk may result from exposure to changes in spot prices, forward prices and volatilities of currency exchange rates. | |||||||||||||
- Interest rate risk may result from exposures to changes in the level, slope and curvature of the various yield curves, the volatility of interest rates, and credit spreads. | |||||||||||||
- Other price risk is the risk that the value of an instrument will fluctuate as a result of changes in market prices other than those arising from currency risk or interest rate risk. | |||||||||||||
i) Market risk management | |||||||||||||
The Company's unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Manager provides the Company with investment recommendations that are consistent with the Company's objectives. | |||||||||||||
The valuation method of these investments is described within the accounting policies. The nature of some of the Company's investments, which are unquoted investments in private equity funds, means that the investments are valued by the Manager on behalf of the Company after due consideration of the most recent available information from the underlying investments as adjusted where relevant by the Directors. While the underlying fund managers may utilise various model-based approaches to value their investment portfolios, on which the Company's valuations are based, no such models are used directly in the preparation of fair values of the investments. | |||||||||||||
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The investments of the Company are subject to normal market fluctuations and the risks inherent with investment in financial markets. The maximum risk resulting from financial instruments held by the Company is determined by the fair value of the financial instruments. The Manager moderates this risk through careful selection of funds managed by experienced fund managers, which meet the investment objectives; the Company's market risk is managed through diversification of the investment portfolio. Through a variety of analytical techniques, the Manager monitors, on a daily basis, the Company's overall market positions, as well as its exposure to market risk. | |||||||||||||
ii) Currency risk | |||||||||||||
The Company has assets and liabilities denominated in currencies other than US Dollars, its functional currency. The Company is therefore exposed to currency risk, as the value of the assets and liabilities denominated in other currencies fluctuates due to changes in exchange rates. During the twelve months to 31 March 2012, the value of Sterling decreased by 0.20% (2011 - increased 5.67%) against the US Dollar. At 31 March 2012, an opposite movement of a similar scale in the value of Sterling against the US Dollar would, with all other variables held constant, increase the NAV of the Company by approximately US$20,000 (2011 - US$533,000). | |||||||||||||
During the twelve months to 31 March 2012, the value of the Euro decreased by 6.03% (2011 - increased 4.88%) against the US Dollar. At 31 March 2012, an opposite movement of a similar scale in the value of the Euro against the US Dollar would, with all other variables held constant, increase the NAV of the Company by approximately US$1,775,000 (2011 - US$1,817,000). | |||||||||||||
The table below summarises the Company's exposure in US Dollars to currency risks at the year end: | |||||||||||||
As at 31 March 2012 | US'000 | £'000 | €'000 | Total | |||||||||
Assets/(liabilities) | |||||||||||||
Financial assets at fair value through profit or loss | 124,929 | 9,760 | 28,732 | 163,421 | |||||||||
Cash and fixed deposits | 21,363 | 268 | 704 | 22,335 | |||||||||
Other assets and liabilities | (761) | - | - | (761) | |||||||||
_______ | ______ | _______ | _______ | ||||||||||
Total at 31 March 2012 | 145,531 | 10,028 | 29,436 | 184,995 | |||||||||
_______ | ______ | _______ | _______ | ||||||||||
As at 31 March 2011 | US'000 | £'000 | €'000 | Total | |||||||||
Assets/(liabilities) | |||||||||||||
Financial assets at fair value through profit or loss | 101,348 | 9,399 | 21,383 | 132,130 | |||||||||
Cash and fixed deposits | 41,165 | 2 | 15,718 | 56,885 | |||||||||
Other assets and liabilities | (681) | - | - | (681) | |||||||||
_______ | ______ | _______ | _______ | ||||||||||
Total at 31 March 2011 | 141,832 | 9,401 | 37,101 | 188,334 | |||||||||
_______ | ______ | _______ | _______ | ||||||||||
iii) Interest rate risk | |||||||||||||
The Company is exposed to interest rate risk. The Company invests primarily in private equity and hedge funds that are non interest bearing investments, primarily subject to market price risk. Interest receivable on bank deposits or payable on loan positions will be affected by fluctuations in interest rates. Changes to prevailing interest rates or changes in expectations of future rates may result in an increase or decrease in the value of the securities held. In general, if interest rates rise, the value of fixed income securities will decline. A decline in interest rates will, in general, have the opposite effect. | |||||||||||||
Although the majority of the Company's financial assets and liabilities are non interest bearing, cash and cash equivalents represents 12% of the Company's NAV (31 March 2011 - 30%). As a result, the Company is subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. Any excess cash and cash equivalents are invested at short-term market interest rates. | |||||||||||||
As at 31 March 2012 the Company's interest bearing assets and liabilities, all of which receive or pay interest at a variable rate, were as follows: | |||||||||||||
2012 | 2011 | ||||||||||||
US'000 | US'000 | ||||||||||||
Cash and cash equivalents | 22,335 | 56,885 | |||||||||||
_______ | _______ | ||||||||||||
|
| ||||||||||||
Based on the cash and cash equivalents held at 31 March 2012, a movement of 1% in market interest rates would impact the Company's annual income by approximately US$223,000 per annum (2011 - US$569,000 per annum). | |||||||||||||
iv) Other price risk | |||||||||||||
Other price risk is the risk that the value of the investees' financial investments will fluctuate as a result of changes in market prices, other than those arising from currency risk or interest rate risk whether caused by factors specific to an individual investment, its issuer or any factor affecting financial investments traded in the market. | |||||||||||||
As the Company's investments are carried at fair value with fair value changes recognised in the Statement of Comprehensive Income, all changes in market conditions will directly affect the overall NAV. | |||||||||||||
The investments are valued based on the latest available unaudited price of such shares or interests as determined by the administrator or general partner of each investee. Furthermore, valuations received from the administrators or general partners of the investees may be estimates and such values are generally used to calculate the net asset value of the Company. Such estimates provided by the administrators or general partner of the investees may be subject to subsequent revisions which may not be restated for the purpose of the Company's final month-end NAV. | |||||||||||||
Currency, interest rate and other price risk are managed by the Company's Manager as part of the integrated market risk management processes. | |||||||||||||
c) | Credit risk | ||||||||||||
The Company takes on exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due. The Manager has adopted procedures to reduce credit risk related to the Company's dealings with counterparties. Before transacting with any counterparty, the Manager or its affiliates evaluate both creditworthiness and reputation by conducting a credit analysis of the party, its business and its reputation. The credit risk of approved counterparties is then monitored on an ongoing basis, including periodic reviews of financial statements and interim financial reports as needed. Impairment provisions are provided for losses, if any, that have been incurred by the Balance Sheet date. | |||||||||||||
At 31 March 2012 and 31 March 2011, the following financial assets were exposed to counterparty credit risk: cash and cash equivalents and other receivables. The carrying amounts of financial assets best represent the maximum credit risk exposure at the year end date. | |||||||||||||
The Company places cash deposits with counterparties whose credit ratings are all investment graded. Ratings for fixed deposits, as rated primarily by Moody's that subject the Company to credit risk at 31 March 2012 and 31 March 2011 are noted below: | |||||||||||||
2012 | 2011 | ||||||||||||
Credit ratings for short-term notes | Rating | % of NAV | Rating | % of NAV | |||||||||
Santander | A2 | 3.8 | Aa2 | 3.7 | |||||||||
Barclays Bank | A1 | 0.2 | - | - | |||||||||
KBC | - | - | Aa3 | 13.5 | |||||||||
Royal Bank of Scotland International | - | - | A1 | 12.3 | |||||||||
The Company has also placed funds within Aberdeen Liquidity Funds which are rated by S&P at 31 March 2012 and 31 March 2011 as noted below: | |||||||||||||
2012 | 2011 | ||||||||||||
Credit ratings for short-term funds | Rating | % of NAV | Rating | % of NAV | |||||||||
Sterling Fund Income | A-1 | 0.1 | - | - | |||||||||
Euro Fund Income | A-1 | 0.4 | - | - | |||||||||
US Dollar Fund Income | A-1 | 7.5 | - | - | |||||||||
d) | Liquidity risk | ||||||||||||
The Company's financial instruments include investments in unlisted securities, which are not traded in an organised public market and may generally be illiquid. Although this illiquidity is considered as part of the investment valuations, should the Company be required to dispose of such investments in a short time-frame, an action that is not consistent with the Company's investment objective, the Company may have difficulty liquidating quickly its investments in these instruments at an amount close to fair value in order to respond to its liquidity requirements or to specific events. | |||||||||||||
The financial liabilities of the Company comprise accrued expenses and creditors. The Company will generally retain sufficient cash and cash equivalent balances to satisfy accrued expenses and creditors as they fall due. | |||||||||||||
The Company's outstanding commitments are detailed in note 18. When an over-commitment approach is followed, the aggregate amount of capital committed by the Company to investments at any given time may exceed the aggregate amount of cash that the Company has available for immediate investment, so there is a risk that the Company might not be able to meet capital calls when they fall due. To manage this risk, the Company holds an appropriate amount of its assets in cash and cash equivalents together with a selection of readily realisable investments. | |||||||||||||
In planning the Company's commitments, the Manager takes into account expected cash flows to and from the portfolio of fund interests and, from time to time, may use borrowings to meet draw downs; these expected cash flows are monitored against actual draw downs and distributions on a monthly basis to assess the level of additional commitments that can be made and how much cash needs to be kept on hand. The Directors have resolved that the Company may borrow up to 25% of its NAV for short-term or long-term purposes. As at 31 March 2012, the Company did not have a loan facility in place (2011 - Nil) but subsequent to the year end entered into a two year £10 million revolving credit facility, greater details of which can be found in note 23. | |||||||||||||
The table below sets forth the liquidity risk of the Company as at 31 March 2012 and 31 March 2011. All liabilities represent amounts falling due within 12 months. Amounts due within 12 months equal their carrying balances. | |||||||||||||
Less than one year | Less than one year | ||||||||||||
2012 | 2011 | ||||||||||||
Financial liabilities | US'000 | US'000 | |||||||||||
Trade and other payables | 850 | 867 | |||||||||||
_______ | _______ | ||||||||||||
Based on communications with General Partners and the Manager's best estimates, the outstanding commitments are expected to be drawn down with the following maturity profile: | |||||||||||||
2012 | 2011 | ||||||||||||
Maturity | US$ million | US$ million | |||||||||||
Less than 3 months | 9 | 12 | |||||||||||
3-6 months | 10 | 12 | |||||||||||
6-12 months | 17 | 22 | |||||||||||
1-2 years | 23 | 22 | |||||||||||
Greater than 2 years | 26 | 22 | |||||||||||
_______ | _______ | ||||||||||||
85 | 90 | ||||||||||||
_______ | _______ | ||||||||||||
As at 31 March 2012, an analysis of the financial instruments by category shows assets at fair value through profit or loss of US$163,421,000 (2011 - US$132,130,000), deposits and receivables of US$22,424,000 (2011 - US$57,071,000) and other financial liabilities totalling US$850,000 (2011 - US$867,000). | |||||||||||||
20. | Controlling party |
In the opinion of the Directors on the basis of shareholdings advised to them, the Company has no immediate or ultimate controlling party. |
21. | Exchange rate | ||
As at 31 March 2012 and 31 March 2011, the exchange rates used (against US$) in preparation of these financial statements are as follows: | |||
2012 | 2011 | ||
US$ | US$ | ||
Sterling | 1.5997 | 1.6029 | |
Euro | 1.3335 | 1.4191 | |
22. | Geographical analysis | ||
The geographical allocation of investments based on the location of the investee rather than its underlying holdings at the year end was as follows: | |||
2012 | 2011 | ||
US$m | US$m | ||
North America | 52.9 | 78.2 | |
Europe | 27.3 | 33.2 | |
Global | 63.8 | 70.1 | |
Asia & Other | 19.4 | 6.9 | |
23. | Subsequent events |
After the year end, the Company made a US$5,000,000 commitment to Pangaea Two Parallel and a US$5,000,000 to Tenaya Capital VI. | |
On 22 May 2012 the Company entered into a two year £10 million committed revolving credit facility with The Royal Bank of Scotland secured against cash held with Barclays Bank. Margin of 300 basis points per annum will be chargeable on drawings and there is a non-utilisation fee of 150 basis points per annum on undrawn amounts. Terms of the credit facility provide, inter alia, that total debt shall not exceed 20% of net asset value; that the total liquidity amount shall exceed the forecast call amount; total fund commitments less the total liquidity amount shall not exceed 45% of net asset value and that the net asset value shall exceed £75 million. | |
To the date of this report, the Company has repurchased 140,000 shares since the year end at a total cost of US$130,000. | |
Subsequent to the year end the Company eliminated its direct exposure to Santander by transferring the cash held on deposit there to the Aberdeen Liquidity Funds. |
24. | Related party disclosure |
The Company has an agreement with Aberdeen Asset Managers Limited for the provision of management services. Details of the fee arrangements can be found in note 5. | |
There is also a performance fee payable upon the satisfaction of certain criteria and details of the arrangements can also be found in note 5. |
Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.
The above financial information does not constitute statutory financial statements as defined in Section 262 of The Companies (Guernsey) Law, 2008. The comparative information is based on the statutory financial statements for the year ended 31 March 2011. Those financial statements, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. Statutory financial statements for the year ended 31 March 2012 will be filed in due course.
The Annual General Meeting of the Company will be held at 2.00 p.m. on 17 September 2012 at 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey GY1 2HL.
The audited Annual Report and Financial Statements incorporating the Notice of Annual General Meeting will be posted to shareholders during July. Copies may be obtained during normal business hours from the Company's Registered Office, 1 Royal Plaza, Royal Avenue, St Peter Port, Guernsey GY1 2HL Channel Islands or from the Manager, Bow Bells House, 1 Bread Street, London EC4M 9HH. Further copies will be available for download from the Company's website www.aberdeenprivateequity.co.uk.
Neither the content of the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.
By order of the Board
Ipes (Guernsey) Limited
Company Secretary
19 June 2012
Related Shares:
APEF.L