Interim Results
PANTHEON INTERNATIONAL PARTICIPATIONS PLC
CHAIRMAN'S STATEMENT
In the six months to 31 December 2003, the Company's Net Asset Value (NAV) per
share declined by 0.9% to 542.0p (30 June 2003: 546.8p) as a result of the
decline in the US Dollar. The Adjusted Redemption Value of Participating Loan
Notes (PLNs) in the Company decreased by 1.0% over the period to 531.3p (30
June 2003: 536.5p).
Over the six months to 31 December 2003, the Dollar declined by 8.5% against
Sterling, while the Euro rose 1.2% against Sterling in the same period. Since
around two thirds of the Company's portfolio is Dollar denominated, a decrease
in value of approximately £12.5 million resulted from movement in the Dollar.
This reduction was offset by substantial uplifts in value achieved on some
realisations during the period and also by increases in the valuations of
portfolio assets, reflecting improvements in operating conditions and market
sentiment.
The Company's policy is to base the valuation for private equity funds on the
latest accounts produced by the underlying fund managers. In the case of the
valuation at 31 December 2003, more than 80% of portfolio assets were valued on
the basis of accounts dated September 2003, and only 4.2% were valued on the
basis of accounts dated prior to June 2003.
ACTIVITY IN THE PERIOD
During the six months to December, the Company made commitments totalling £9.8
million. This slower activity reflected the Board's decision, pending an upturn
in realisation activity, temporarily to suspend the new fund programme during
the latter part of the period, because it wanted to maintain sufficient
resources to be able to invest in the good secondary investment opportunities
currently available. After the end of the period, in the light of the
satisfactory pace of realisations, the new fund programme has been resumed at a
lower pace in order to ensure adequate capital for secondaries.
During the period, the Company received proceeds totalling £32.9 million from
realisation of underlying investments, generally at a significant uplift to
their previous valuations. Some £24.2 million of these realisations were
generated by assets acquired by the Company in secondary purchases. In all, £
22.9 million of private equity assets were added to the portfolio during the
half year. Total outstanding commitments in respect of portfolio investments
stood at £137.2 million at 31 December 2003.
CAPITAL STRUCTURE
The Company raised £13.8 million through a further issue of PLNs during the
period, the proceeds of which were applied in reducing the Company's
outstanding debt.
On 2 December 2003 the Company made an announcement regarding the tax status of
Participating Loan Notes, identifying concerns arising in connection with
Jupiter Global Green Investment Trust PLC, which had a similar capital
structure to the Company's. PLNs have had a high utility for the Company to
date and the Board believes that any tax risks this instrument currently poses
are low. However, the Board also recognises that a point could be reached where
the ratio between PLNs and ordinary shares could give rise to a higher tax
risk. The Board is therefore exploring ways of evolving the Company's capital
structure in order to balance the tax risks and the Company's particular
financing requirements.
The Board has also considered the effect of currency movements on the Company's
NAV performance. Although the Dollar's decline against Sterling in recent
months has had a negative impact on NAV in the short term, the Board continues
to hold the view that, while the Company's assets remain within the published
strategic asset allocation, it is not appropriate to hedge the currency risk.
THE MANAGER
In December 2003, the Company's Manager, Pantheon Ventures Ltd, announced the
agreement, subject to regulatory approvals, of its acquisition by Russell
Investment Group (Russell). A subsidiary of The Northwestern Mutual Life
Insurance Company, Russell is a global leader in multi-manager investing, with
more than 1,300 staff worldwide. Russell manages more than $100 billion in
assets and advises clients worldwide representing more than US$1.8 trillion.
Pantheon Ventures Ltd, under the existing management team, will assume
responsibility for Russell's private equity fund-of-funds business. Your Board
is satisfied with the change of ownership arrangements and has accordingly
consented to the change, which has been granted regulatory approval.
THE BOARD
My first statement as Chairman provides me with the opportunity to express
thanks on behalf of the Board and shareholders to my predecessor, Lionel
Stopford Sackville, for the consistent support and wise counsel he gave the
Company as a member of the Board since its inception in 1987 and, during the
past five years, as its Chairman.
CONCLUSION
The pace of private equity investment showed some recovery during the latter
part of 2003 in step with improving market conditions. Following a slow year
for private equity fund raising, an increase in availability of new fund
investment opportunities is expected this year. This should offer the Company
excellent opportunities to pursue its selective programme of new fund
investment, subject to capital availability.
The Directors believe that the outlook for the Company is encouraging, thanks
to the combination of rises in the public markets, signs of a strengthening
recovery in the US economy and improving corporate performance. There are
already indications that these factors are being reflected in an increased
corporate appetite for M&A activity. There are also tentative signs that a
market for IPOs may re-emerge during the course of 2004, which means that the
flow of realisations within the portfolio should be relatively favourable in
the coming period.
Meanwhile, the market in secondary private equity interests continues to offer
opportunities for the Company to enhance its asset base through secondary
purchases. In the near term, the Board expects that a significant number of
opportunities to participate in secondary acquisitions will be available to the
Company via the global secondary programme implemented by the Manager on behalf
of a number of clients.
Ewen Macpherson
10 March 2004
MANAGER'S REVIEW OF THE MARKET
For much of 2003, private equity activity - fund raising, investment and exits
- remained largely suppressed. However, during the second half of the year,
significant improvements in key economic indicators in the USA were accompanied
more generally by a revival of corporate profitability and continuing rises in
public markets.
Increased market confidence resulting from these developments was reflected
during the closing months of the year in upturns in the pace both of investment
and of realisations. Improving profitability and the public market recovery
have also been reflected in some instances by modest write-ups in interim
valuations within private equity portfolios.
With corporate valuations generally on a better footing, more businesses are in
a position to consider returning to the acquisition trail. Although the volume
and value of completed merger and acquisition activity worldwide fell for 2003
as a whole, the autumn saw a strong upturn in deals in the pipeline. Another
indication of returning confidence in the M&A market can be found in the more
recent upsurge in unsolicited bid activity.
Any increase in corporate strategic acquisition activity increases the
competition private equity houses face for deals. However, this concern is
offset by the earlier benefits that an increase in exit opportunities should
confer for investors.
In late 2003, there were tentative signs of life returning to the IPO markets,
particularly in the USA, where the number of venture-backed companies filing
with the Securities and Exchange Commission is continuing to rise; anecdotal
evidence suggests that this trend is being mirrored in Europe, albeit largely
among buyout funds, with several substantial portfolio companies being groomed
for possible flotation during 2004.
Levels of private equity fund raising continued to diminish in 2003 but the
number of funds in the market looks set to rise steeply in the coming year.
Fund managers typically raise new funds every three to four years, and many
established and proven groups are scheduled to launch new offerings in 2004.
However, a raft of managers who have deferred new fund raising efforts for as
long as possible, hoping to achieve successful exits, will also be forced to
begin fund raising this year. A demonstrated ability to return realised
proceeds to investors will be a key differentiating factor, and it is therefore
likely that the long-heralded shake-out of private equity managers will begin
to take effect in 2004.
The Company's portfolio is diversified across a full range of industrial and
commercial sectors. Any increase in strategic acquisition activity can
therefore be expected to result in a continued flow of realisation proceeds
from the underlying portfolio.
In parallel, as institutional investors continue to revise their asset
allocation strategies and to rebalance their private equity portfolios, they
are increasingly having recourse to the expanding private equity secondaries
market.
PIP valuation movement in the six months to 31 December 2003
£'000
Net asset value at 30 June 2003 241.0
Paid-in during the period 22.9
Distributions received in the period (32.9)
Sub-total 231.0
Change in value 11.9
Foreign exchange losses (11.9)
Net asset value at 31 December 2003 231.0
PIP investment activity in the six months to 31 December
2003 2002
£m £m
Purchase of secondary interests 5.3 73.8
Commitments to new funds 4.5 23.6
Investment activity 9.8 97.4
Less: amounts purchased but not paid for (6.9) (40.4)
Add: amounts paid out relating to previous commitments 20.0 13.0
Net investment in the period 22.9 70.0
Less: amounts received from investments (32.9) (21.7)
Investment cash (inflow)/outflow in the period (10.0) 48.3
STATEMENT OF TOTAL RETURN OF THE COMPANY (unaudited)
(incorporating the revenue account*)
for the six months to 31 December
2003 2002
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Losses on investments - - - - (3,740) (3,740)
Currency gains on cash - 331 331 - 377 377
and borrowings
Dividends and interest 79 - 79 377 - 377
Investment management (1,846) - (1,846) (1,744) - (1,744)
fee
Other expenses (365) (117) (482) (356) (111) (467)
Return on ordinary (2,132) 214 (1,918) (1,723) (3,474) (5,197)
activities before
financing costs and tax
Interest payable and (535) - (535) (401) - (401)
similar charges
Revaluation of - 1,602 1,602 - 2,976 2,976
participating loan
notes **
Return on ordinary (2,667) 1,816 (851) (2,124) (498) (2,622)
activities before tax
Tax on ordinary - (28) (28) - (55) (55)
activities
Return on ordinary (2,667) 1,788 (879) (2,124) (553) (2,677)
activities after tax
Return per ordinary
share
- Basic (12.35p) 8.28p (4.07p) (9.84p) (2.56p) (12.40p)
The comparative figures for the six months ended 31 December 2002 have been
reclassified in respect of loan commitment and arrangement fees and PLN
commitment fees totalling £368,000, which in the prior year interim report were
included within `Other expenses'. In the financial statements for the year
ended 30 June 2003 these were reclassified as Interest payable and similar
charges.
* The revenue column of this statement is the revenue account of the Company.
** The revaluation of the PLNs in the six months ended 31 December 2003 of £
1,602,000 (31 December 2002: £2,976,000) comprised a reduction in the value of
the PLNs relating to the movement in the Company's assets.
All revenue and capital items in the above statement derive from continuing
activities.
SUMMARISED BALANCE SHEET OF THE COMPANY (unaudited)
As at 31 As at 30 As at 31
Dec 2003 June 2003 Dec 2002
£'000 £'000 £'000
Investments 230,954 240,992 222,967
Investment in subsidiary undertaking 1 1 1
Net current assets/(liabilities) 1,168 (20,049) (10,065)
TOTAL ASSETS LESS CURRENT LIABILITIES 232,123 220,944 212,903
CREDITORS: AMOUNTS FALLING DUE AFTER
ONE YEAR
Participating loan notes 115,081 102,883 99,138
CAPITAL AND RESERVES 117,042 118,061 113,765
Amounts attributable to shareholders
and
participating loan note holders 232,123 220,944 212,903
Total net assets for the purposes of
calculating
the net asset value per ordinary 117,042 118,061 113,765
share
Net asset value per ordinary share 542.0p 546.8p 526.9p
Adjusted redemption value per
participating loan note 531.3p 536.5p 517.0p
Number of ordinary shares in issue 21,592,356 21,592,356 21,592,356
Number of participating loan notes in 21,660,589 19,175,179 19,175,179
issue *
* On 10 November 2003, 2,485,410 new PLNs were issued at an initial price of
555.24p per PLN, being the adjusted redemption value as at 30 September 2003.
SUMMARISED STATEMENT OF CASHFLOWS (unaudited)
For the six For the six
months to months to
31 December 2003 31 December 2002
£'000 £'000
Net cash outflow from operating (2,177) (1,729)
activities
Servicing of finance
Interest paid (215) (29)
Loan commitment and arrangement fees (78) (24)
paid
PLN commitment fees paid (124) (89)
Net cash outflow from servicing of (417) (142)
finance
Taxation
Tax withheld from capital distributions (28) (55)
Taxation recovered - 408
Net taxation (paid)/recovered (28) 353
Capital expenditure and financial
investment
Purchases of investments (22,863) (93,351)
Sales of investments 32,973 63,714
Realised currency (losses)/gains (47) 7
Net cash inflow/(outflow) from capital 10,063 (29,630)
expenditure and financial investment
Financing
Proceeds from issue of participating 13,803 22,708
loan notes
Cost of issue of PLNs (70) (507)
(Repayment)/drawdown of bank credit (19,078) 10,433
facility
Realised currency gain on loan 413 -
repayments
Net cash (outflow)/inflow from financing (4,932) 32,634
Increase in cash 2,509 1,486
These accounts have been prepared using accounting standards and policies
adopted at the year end, save that the Company has adopted the 2003 Statement
of Recommended Practice, regarding the Financial Statements of Investment Trust
Companies.
The above financial information does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985. The comparative financial
information for the year ended 30 June 2003 has been taken from the full
accounts, which contained an unqualified audit report, and have been delivered
to the Registrar of Companies. These accounts did not contain a statement
required under Section 237 (2) or (3) of the Companies Act 1985.
The results for the six months to 31 December 2003 have been reviewed by the
Company's auditors and their report is attached.
Signed on behalf of the Board
E C S Macpherson
Chairman
INDEPENDENT REVIEW REPORT TO PANTHEON INTERNATIONAL PARTICIPATIONS PLC
Introduction
We have been instructed by the Company to review the financial information set
out in this interim report. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the Company. Our review work has been undertaken
so that we might report to the Company in accordance with bulletin 1999/4
issued by the Auditing Practices Board and for no other purpose. 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 opinions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority, which require that the accounting
policies and presentation applied to the interim figures would be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed.
We conducted our review in accordance with guidance contained in bulletin 1999/
4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of management and applying
analytical procedures to the financial information and underlying financial
data and, based thereon, assessing whether the accounting policies and
presentation have been consistently applied, unless otherwise disclosed. A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than an
audit performed in accordance with United Kingdom Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review, we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 December 2003.
RSM Robson Rhodes LLP
Chartered Accountants
London, England
10 March 2004
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