Interim Results
PANTHEON INTERNATIONAL PARTICIPATIONS PLC
CHAIRMAN'S STATEMENT
At 31 December 2004 the Company's NAV stood at £247.9 million, representing a
1.1 per cent. increase in NAV per share to 579.0p over the half year (30 June
2004: 572.5p). Positive movements due to realisations and upward valuations of
investments of £12.7 million were partially offset by negative movements due to
exchange rate variance of £6.6 million. This variance principally reflects the
fall of the dollar against sterling during the period, which was only partially
compensated for by the rise of the euro against sterling.
Basis of valuations
PIP's policy is to base the valuations of private equity funds on the most
recent accounts from the underlying fund managers. In the case of the valuation
at 31 December 2004, more than 72 per cent. of portfolio assets were valued on
the basis of accounts dated September 2004.
The Company generally records secondary assets at cost from completion until
the receipt of subsequent accounts from the underlying managers. However, where
a premium has been paid, the asset is written down at completion to the
valuation recorded in the most recent set of accounts; these downward
adjustments therefore normally take effect before any uplift in valuation on
assets acquired at a discount are recorded.
Activity in the period
PIP was very active during the period under review, making new commitments to
investments of £145.6 million. The greater part of this total, £97.2 million,
related to secondary purchases, including the two largest portfolio
transactions undertaken by Pantheon to date. The larger of the two portfolios,
where 61 per cent. of the transfers had been completed at 31 December 2004,
comprises 37 private equity funds focused principally on the US and Europe,
together with a small number of direct investments. The second portfolio
contains interests in more than 20 funds and is predominantly focused on US
buyouts. The fund interests in both portfolios are relatively mature.
The transfers are expected to be almost fully completed during the first
quarter of 2005. As at 31 December 2004, transfers had been executed in respect
of 44 funds out of a total of 59 across both portfolios. When fully complete,
the two portfolio purchases will have increased the Company's investment assets
significantly without either materially altering PIP's maturity profile or
meaningfully reweighting the geographic, stage or industry distribution within
the Company's portfolio.
PIP also recorded its highest half-yearly level of commitments to new
investments during the period under review, committing £48.4 million to 20
funds against the background of a re-energised private equity fundraising
market. Twelve US funds received commitments totalling £24.9 million, with
eight European vehicles accounting for the balance. Ten of the funds, which
together received £28.8 million of commitments, will focus on buyouts and ten
will pursue venture or generalist strategies. Reflecting the volume of new fund
commitments in recent months, PIP's outstanding commitments to investments
stood at £202.3 million at 31 December 2004 compared with £136.8 million at 30
June 2004.
The Company received realisation proceeds totalling £37.3 million in the six
months to 31 December 2004. Following on from the record level of
distributions, £72.2 million, seen in the year to 30 June 2004, this
performance provides further confirmation of the underlying maturity of PIP's
portfolio. Although the majority of realisations during the period, some £22
million, were generated by assets acquired by PIP as secondaries, the healthy
proportion arising from funds invested in at inception reflects the increasing
maturity within PIP's primary portfolio.
PIP met calls of £77.5 million in the half year, of which £59.7 million related
to secondary investments.
Capital structure
The Company's proposals for a reorganisation of the Company's capital structure
involving the conversion of all its PLNs into a new class of redeemable shares
and/or new ordinary shares, were accepted by PLN holders and shareholders and
the conversion took place in September. Post conversion, PIP's issued capital
comprises 26,471,013 ordinary and 16,353,199 redeemable shares, representing a
slight reduction in the redeemable portion of PIP's capital in comparison with
its structure immediately prior to the reorganisation.
In view of the significant capital calls relating to the two major secondary
portfolio purchases agreed during the period, PIP has extended its loan
facility from The Royal Bank of Scotland to £80 million to ensure adequate
financing. The Company's net debt stood at £30.4 million as at 31 December
2004. The Board anticipates issues of redeemable shares in the short to medium
term will be made so as to ensure PIP has continuing capacity to complete
future transactions.
Outlook
Calendar year 2004 marked the return to a more active private equity fund
raising environment. The resurgence in new fund offerings throughout the
developed private equity markets was closely linked to an acceleration in the
pace of portfolio realisations as M&A and IPO activity showed modest
recoveries. A record volume of new fund offerings is forecast for 2005. In
consequence, PIP expects to be able to select from a broad range of
opportunities to add to its new fund investment programme and has already
identified a pipeline of attractive prospective investments for the coming
phase.
The market for secondary interests in private equity is cyclical and has been
particularly active in the past two years. PIP is continuing to see a flow of
potential secondary acquisitions and will continue to bid selectively on the
most attractive of these opportunities. As the two major portfolio purchases
outlined earlier demonstrate, the Company benefits from participation in the
global secondary programme its Manager operates on behalf of a number of
clients, which enables it to access even very large acquisition opportunities.
Corporate buyers have been showing signs of a renewed appetite for strategic
acquisitions in recent months. Their return to the M&A arena is expected to
intensify the competition private equity funds face for new deals. Greater
competition from corporations may eventually slow the pace of buyout
investments by underlying funds. The same factors, however, suggest that a
healthy flow of realisations from the existing portfolio should be sustained in
the coming period in the context of a market environment where valuations are
trending upwards.
Thomas H. Bartlam
8 March 2005
MANAGER'S REVIEW OF THE MARKET
Against a background of strengthening confidence and improving corporate
profitability, private equity activity worldwide underwent a revival in 2004.
Although the public markets largely lacked clear direction, uplift in mergers
and acquisitions was accompanied by a moderate IPO revival, particularly in the
US. This more benign climate provided opportunities to exit private equity
investments, easing the log-jam that had built up in portfolios over the past
three to four years, and this more liquid environment has been reflected in the
flow of realisation proceeds back to PIP during the period.
Although US corporations demonstrated increasing appetite for strategic
acquisitions as 2004 progressed, their European counterparts for the most part
remained absent from the M&A arena. In this context, it should also be noted
that secondary buyouts made a significant contribution during the period to
private equity liquidity.
Ready availability of debt and low interest rates have acted to promote buyouts
during the past year, which also saw rises in both entry price multiples and
the proportion of debt within average buyout structures. In the US, upward
pressure on pricing is now being compounded by the return of corporate buyers,
and it is unlikely that the pace of buyout activity seen in 2004 will be
sustained in the coming year. Should European corporate buyers return to the M&
A arena during 2005, a parallel decline in the pace of European buyout
investment can be anticipated. In both cases, there is also a possibility that
any reaction in the debt market to adverse credit events could provide a
further brake on buyout activity.
There was a resurgence in both fund raising and investment in the US venture
sector during the past year, with investor interest being buoyed by a marked
upturn in liquidity within venture portfolios. In Europe's smaller, less mature
and highly fragmented venture market, however, investment and fund raising
continued to dwindle. In the absence of indigenous interest, it is possible
that US venture funds may step up their activities in Europe, where competition
for deal flow is less rigorous than in their domestic market.
Reduced investment rates in recent years have extended fund raising cycles, and
the effects of this have been intensified by many managers deferring new fund
raising efforts until they are in a position to demonstrate successful exits
from existing vehicles. Following improvement in the liquidity environment, a
record global volume of new private equity fund offerings is anticipated in
2005.
Notwithstanding strengthening institutional demand for private equity, the
flight to quality that has followed the technology boom suggests both that many
forthcoming fund offerings will struggle to reach their targets and that access
to funds from proven managers will be at a premium. The best General Partners
are in a position to choose their investors, with a key criterion being a
Limited Partner's potential as a participant for subsequent funds. In this
respect, PIP benefits from its Manager's position as one of the world's longest
established private equity fund-of-funds investors.
The Manager expects a pipeline of attractive opportunities for PIP's new fund
investment programme in the coming period. At the same time, the Company is
continuing to see a flow of opportunities to acquire private equity interests
in the secondary market. While further increases in corporate competition may
result in a slower pace of investment by buyout funds, the same trends should
also tend to enhance prospects for a continued flow of realisations from
existing private equity portfolios.
PIP investment portfolio valuation movement in the six months to 31 December
2004
£'000
Value at 30 June 2004 233.2
Payable in the period 77.5
Receivable in the period (37.3)
Sub-total 273.4
Change in value 12.7
Foreign exchange losses (6.6)
Value at 31 December 2004 279.5
PIP investment activity in the six months to 31 December
2004 2003
£m £m
Purchase of secondary interests 97.2 5.3
Commitments to new funds 48.4 4.5
Investment activity 145.6 9.8
Less: amounts purchased but not paid for (91.8) (6.9)
Add: amounts paid out relating to previous commitments 23.7 20.0
Net investment in the period 77.5 22.9
Less: amounts received from investments (37.3) (32.9)
Investment cash outflow/(inflow) in the period 40.2 (10.0)
STATEMENT OF TOTAL RETURN OF THE COMPANY (unaudited)
(incorporating the revenue account*)
for the six months to 31 December
2004 2003
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains on investments - 5,210 5,210 - - -
Currency gains on - 421 421 - 331 331
capital items
Dividends and interest 864 - 864 79 - 79
Investment management (1,829) - (1,829) (1,846) - (1,846)
fee
Other expenses (503) - (503) (365) (117) (482)
Return on ordinary (1,468) 5,631 4,163 (2,132) 214 (1,918)
activities before
financing costs and tax
Interest payable and (560) - (560) (535) - (535)
similar charges
Revaluation of - (1,839) (1,839) - 1,602 1,602
participating loan
notes
Return on ordinary (2,028) 3,792 1,764 (2,667) 1,816 (851)
activities before tax
Tax on ordinary (2) (44) (46) - (28) (28)
activities
Return on ordinary (2,030) 3,748 1,718 (2,667) 1,788 (879)
activities after tax
Return per share (6.08p) 11.23p 5.15p (12.35p) 8.28p (4.07p)
* The revenue column of this statement is the revenue account of the Company.
All revenue and capital items in the above statement derive from continuing
activities.
SUMMARISED BALANCE SHEET OF THE COMPANY (unaudited)
As at 31 As at 30 As at 31
Dec 2004 June 2004 Dec 2003
£'000 £'000 £'000
Investments 279,571 233,246 230,954
Investment in subsidiary undertaking 1 1 1
Net current (liabilities)/assets (31,642) 11,937 1,168
TOTAL ASSETS LESS CURRENT LIABILITIES 247,930 245,184 232,123
CREDITORS: AMOUNTS FALLING DUE AFTER
ONE YEAR
Participating loan notes - 121,555 115,081
CAPITAL AND RESERVES 247,930 123,629 117,042
Amounts attributable to shareholders
and
participating loan note holders 247,930 245,184 232,123
Total net assets for the purposes of
calculating
the net asset value per share 247,930 123,629 117,042
Net asset value per share 579.0p 572.5p 542.0p
Adjusted redemption value per
participating loan note n/a 561.2p 531.3p
Number of ordinary shares in issue 26,471,013 21,592,964 21,592,356
Number of participating loan notes in - 21,660,589 21,660,589
issue *
Number of redeemable shares in issue 16,353,199 - -
* On 20 September 2004, following a capital restructuring, the Company's PLNs
were converted into 16,353,199 new redeemable shares and 4,878,046 new ordinary
shares.
SUMMARISED STATEMENT OF CASHFLOWS (unaudited)
For the six For the six
months to months to
31 December 2004 31 December 2003
£'000 £'000
Net cash outflow from operating (791) (2,177)
activities
Servicing of finance
Interest paid (50) (215)
Loan commitment and arrangement fees (177) (78)
paid
Redeemable shares/PLN commitment fees (500) (124)
paid
Net cash outflow from servicing of (727) (417)
finance
Taxation
Tax withheld from capital distributions (2) (28)
Net taxation paid (2) (28)
Capital expenditure and financial
investment
Purchases of investments (77,549) (22,863)
Sales of investments 36,799 32,973
Realised currency losses (26) (47)
Net cash (outflow)/inflow from capital (40,776) 10,063
expenditure and financial investment
Financing
Proceeds from issue of participating - 13,803
loan notes
Cost of issue of PLNs (500) (70)
Drawdown/(repayment) of bank credit 35,488 (19,078)
facility
Realised currency gain on loan - 413
repayments
Net cash inflow/(outflow) from financing 34,988 (4,932)
(Decrease)/increase in cash (7,308) 2,509
These accounts have been prepared using accounting standards and policies
adopted at the year end.
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 2004 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 2004 have been reviewed by the
Company's auditors and their report is attached.
Signed on behalf of the Board
Thomas H. Bartlam
Chairman
INDEPENDENT REVIEW REPORT TO PANTHEON INTERNATIONAL PARTICIPATIONS PLC
Introduction
We have been instructed by the Company to review the financial information
which comprises the Statement of Total Return, the Summarised Balance Sheet and
the Summarised Statement of Cashflows. 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 2004.
RSM Robson Rhodes LLP
Chartered Accountants
London, England
8 March 2005
Friday, 17th May 2024
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