PANTHEON INTERNATIONAL PARTICIPATIONS PLC - Annual Financial Report
PR Newswire
London, September 30
PANTHEON INTERNATIONAL PARTICIPATIONS PLC (the "Company" or "PIP")
ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30TH JUNE 2013
The full Annual Report and Accounts can be accessed via the Company's website
at www.pipplc.com or by contacting the Company Secretary by telephone on 01392
412122.
PIP will be holding a webcast today at 2.30 pm BST to discuss the 2013 Annual
Report and Accounts.
The presentation can be viewed on
www.meetingzone.com/en-GB/presenter/default.aspx?partCEC=7406221 with Access
Pin 7406221. Please use the dial in details below and ensure that you give your
name, company name and the password PIP when dialling in for the webcast.
0808 109 07000 UK Toll Free
+44 (0) 20 3003 2666 Standard International Access
FINANCIAL SUMMARY
+11.6% NAV per share increase
+43.6% Ordinary share price increase
+38.2% Redeemable share price increase
£150m Net cash flow generated from PIP's portfolio
£129m New investment commitments, mainly focused on secondaries and co-investments in the USA
£27m Invested in share buybacks in the year, generating a 1.2% uplift to NAV per share
£903m Net asset value at 30th June 2013
5.2x Ratio of assets and available financing to undrawn commitments
+4.6% PIP's NAV per share outperformance per annum versus the MSCI World Index since inception
SINCE
PERFORMANCE AT 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION
30TH JUNE 2013 % % P.A. % P.A. % P.A. % P.A.
NAV per share 11.6 11.6 3.7 9.3 11.5
Ordinary share price 43.6 28.9 6.8 8.8 11.0
FTSE All-Share Total Return 17.9 12.8 6.7 9.0 7.9
MSCI World Total Return (sterling) 23.2 13.8 9.0 8.7 6.9
PIP was launched on 18th September 1987. The figures since inception assume reinvestment of
dividends, capital repayments and cash flows from the exercise of warrants.
CAPITAL STRUCTURE AT 30TH JUNE 2013
Ordinary shares 34,507,013
Redeemable shares 33,312,534
Total 67,819,547
Since 30th June 2013 the Company has bought back for cancellation 225,000 ordinary shares.
CHAIRMAN'S STATEMENT
I am pleased to report another year of progress as the NAV per share grew by
11.6% to 1,331.9p. Most importantly, shareholders have seen the discount narrow
significantly, as the price of their ordinary and redeemable shares gained
43.6% and 38.2% respectively in the period, well ahead of the rises in the FTSE
and MSCI indices. We would hope to see the discount narrow further as the
market more fully recognises the Company's distinctive characteristics:
- Cash generative portfolio: realisations in the year amounted to almost a
quarter of PIP's opening portfolio value as managers took advantage of the
improved exit environment.
- Good growth potential: we continued to see evidence of strong sales and
earnings growth in portfolio companies exceeding that of the MSCI World and
FTSE All-Share indices.
- Uplifts on exit: we have seen consistent evidence of the largest realisations
occurring on average at an uplift to the previous holding value. Realisations
are a key driver of NAV performance.
- Investing actively: this year we have committed £129m to 20 new investments,
mainly in secondary interests. Pantheon's global investment platform and team
puts the Company in a strong position as the outlook for secondaries and
co-investment remains good.
- Strategic global access: 68% of the portfolio is invested outside Europe,
with the majority invested in the USA.
- Strong balance sheet: PIP has no debt, an undrawn loan facility, and positive
cash flows.
PERFORMANCE
Since my last statement, the economic indicators have pointed more convincingly
towards sustainable recovery, signs of which have been clearest in the USA.
While structural problems in Europe persist, growth has at least returned to
many parts, even if at a low rate. With this background, PIP's portfolio has
posted solid NAV growth. The underlying assets generated a return of +8.4%.
Foreign exchange effects (+3.6%) and share buybacks (+1.2%) also enhanced NAV
per share.
Looking ahead, it remains unclear how changes to quantitative easing on both
sides of the Atlantic will impact asset values, but even though we anticipate
it will increase market volatility, we believe PIP's portfolio can continue to
prosper. The buyout portfolio produced the best rates of growth in the year,
particularly at the larger end, which rose by 13.4%. The Asian portfolio,
having underperformed last year, rose by 11.6% helped by the rally in public
markets in China. European buyouts and global venture performed relatively less
well this year in contrast to the prior year.
Underlying Earnings Growth
Our portfolio's investment potential is based at least in part on the better
than public market revenue and EBITDA growth exhibited in a sample of over 55%
of PIP's buyout portfolio, where aggregated revenue grew by 11.6% and EBITDA by
14.4%, compared with 2.2% and -1.1% respectively for the MSCI World.
Share Buybacks
Your Board is encouraged that the discount has continued to narrow to close at
year end at 22% for the ordinary shares and 21% for the redeemable shares.
However, in our view this still does not reflect the strong balance sheet,
fundamental value of the portfolio, and the relatively low risk associated with
our diversified investment approach focused on high-quality opportunities
worldwide. Frustrating though this persistent discount has been, it has
provided an opportunity to enhance NAV per share performance through share
buybacks. The Company began buying back shares in August 2011 and so far has
invested £61m in buying back 10.5% of the Company's shares. Whilst the discount
remains wide, the Board believes share buybacks are a compelling investment
opportunity. In the full year to 30th June 2013, PIP invested £27m to buy back
and cancel 1.6m ordinary shares and 1.4m redeemable shares, resulting in an
uplift to NAV per share of approximately 13.8p, or 1.2% of PIP's NAV per share
at 30th June 2012.
ACTIVITY AND BALANCE SHEET
Net portfolio cash flows were £150m as distributions received in the year were
£190m (2012: £139m), equivalent to 24% of the opening portfolio value, whilst
calls from underlying private equity funds amounted to £40m (2012: £54m).
Increased net cash flows are a consequence of PIP's portfolio maturity, which
has a weighted average fund age of 7.5 years. Distribution rates increased
across all regions and stages but were particularly strong from the USA.
Exits often occur at an uplift to their previous holding value as managers are
able to realise a premium on sale. PIP's largest 100 distributions,
representing 46% by value of total distributions, were at an average uplift of
26%. This was a key contributor to PIP's NAV performance in the period and
remains an important factor for future performance given the maturity of our
portfolio.
Balance Sheet
The Company's flexibility in making new investments is a consequence of our
financial and balance sheet strength. The Company's loan facility, which
expires in June 2015, was unutilised at 30th June 2013 and cash stood at £78m,
meaning the Company had total liquid resources of £181m. Undrawn commitments of
£195m as at 30th June 2013 were covered by assets and loan facilities by a
factor of 5.2 times.
New Investments
This has been an active year for the Company as our strong positive cash flow
enabled us to substantially increase our new investments. PIP made 20 new
investments in the year with total commitments of £129m. This included nine
secondary and two late primary commitments (commitments already partially
funded) to funds totalling £113m, bucking the trend of a broader reported
market decline in secondary deal volume. PIP also made nine co-investments,
committing £16m. The majority of new secondary commitments were in 2006-2008
fund vintages whereas PIP's co-investments increased our exposure to the
current vintages.
The first half of 2013 saw a slowdown in reported secondary transactions as
sellers temporarily postponed sale processes following the rise in public
markets and regulatory uncertainty affecting banks in the USA. Our principal
focus has been on the US market but Pantheon has sourced good opportunities in
Asia and the rest of the world, where 36% of our new investments were made.
Despite being very early in their investment period we have already seen good
performance from these investments both on discount reversal and, pleasingly,
on underlying valuation gains.
OUTLOOK
Existing Portfolio
The relative underlying revenue and EBITDA growth in the sample I referred to
earlier adds to our confidence in our portfolio. Given the maturity of PIP's
portfolio, provided that conditions for exits remain supportive, we expect
distribution rates to continue at a healthy pace.
New Investments
The secondary market deceleration referred to earlier appears to be easing with
a number of potential transactions now filling the deal pipeline. Banks will
need to continue to divest private equity portfolios, and pension funds and
endowments will continue to rebalance their portfolios by selling in the
secondary market.
The pipeline is likely to remain dominated by 2006-2008 vintage fund interests
given the volume of funds raised during this period. We will continue to
selectively purchase additional 2006-2008 fund vintage exposure, targeting
those funds containing attractive companies with strong business models and
lower-risk capital structures.
Expecting the USA to emerge first and fastest from the global financial crisis,
during the financial year PIP made the majority of its new investments in the
USA, where Pantheon continues to find a favourable outlook. We have invested
selectively in Europe and other markets and will continue to buy assets that
have demonstrated the resilience to find growth in and outside weaker markets.
Asia and other emerging markets selectively represent an attractive though
smaller opportunity.
The Company's recent commitments to two new late primary investments provided
an opportunity to increase investments in current vintages in funds that had
already been partially invested. We envisage that there may be opportunities to
advantageously target further selective primary investments to enhance our
portfolio profile. Commitments to such opportunistic primaries would be limited
so as not to reduce the Company's financial flexibility to acquire secondary
interests and co-investments. A continued emphasis on secondary interests will
allow us to maintain an attractively mature portfolio profile and ensure that
our undrawn commitments continue to be at a level relative to our assets that
can be comfortably financed from internally generated cash flows.
In summary, the Company will use net cash generated by the portfolio to make
new investments focusing on secondary interests and making co-investments and,
on a limited basis, primary commitments where to do so complements the
portfolio without significantly affecting the Company's financing ratios. We
will continue to carry out share buybacks when they represent an attractive
investment opportunity whilst the shares trade at a discount to NAV.
BOARD CHANGE
Richard Crowder, who has been a Director for the past 13 years, will be
retiring at the Annual General Meeting. I would like to take this opportunity
to thank Richard for his valuable contribution to the Company as a Director
over these years.
While no other changes to Board membership are currently contemplated, the
Board is aware that it still has a number of long-serving Directors. It is
committed to ensuring that the pace of retirement and addition of new Directors
in the coming years preserves a healthy balance between longer established and
newer members.
TOM BARTLAM
Chairman
30th September 2013
COMPANY STRATEGY
PIP's strategy is to invest with leading private equity managers whilst
reducing investment risk through diversification of the underlying portfolio by
geography, investment stage and sector. This strategy is implemented through
PIP's access to Pantheon's primary, secondary and co-investment activities. PIP
has the flexibility to vary the size and emphasis of its investments depending
on its available financing.
The spread of performance in private equity is much wider than in other asset
classes and the selection of managers has a significant influence on investment
performance. As a specialist fund-of-funds manager monitoring and researching
the global private equity market, Pantheon, PIP's Manager, is well positioned
to identify fund managers who have the skills and strategies to deliver
superior performance within their particular market segments.
The current portfolio reflects PIP's prolonged access to Pantheon's highly
successful primary and secondary investments over the past 25 years. Only funds
that have passed through rigorous research and analysis can be selected for
investment.
Secondary Programme Emphasis
It is the Board's current intention to emphasise secondary investment as the
Company makes new commitments.
Secondary purchases of existing interests in private equity funds are typically
acquired between three and six years after a fund's inception, when such funds
are substantially invested. As a result, they tend to have relatively low
levels of undrawn commitments. PIP benefits from secondaries because the fees
and expenses in the first few years have been paid and distributions from the
fund will be returned over a shorter time period. This helps to reduce the drag
to performance from young and immature funds, known as the "J-curve effect". In
addition, secondary assets can be purchased at a discount, especially in cases
where the seller has a need for liquidity, increasing the opportunity for
outperformance.
As the Company continues to build its financial resources through net portfolio
realisations, the shorter duration of secondary investments and lower
associated undrawn commitments will enable the Company to maintain its
financial strength. In accordance with the terms of its management agreement
with Pantheon, PIP is entitled under Pantheon's allocation policy to the
opportunity to co-invest in a predetermined ratio alongside Pantheon's latest
global secondary fund, Pantheon Global Secondary Fund IV, benefiting from
access to larger secondary opportunities that it would not have had the
capacity to complete alone. The secondary programme enables PIP to acquire
attractively priced secondary interests as they become available, and aims to
outperform market averages through judicious selection, pricing and timing.
Co-investments
Whilst the intention is to emphasise secondary investment, the Company will
also participate in co-investments alongside established private equity
managers. The breadth and depth of Pantheon's General Partner relationships
provide a significant advantage for the sourcing and evaluation of
co-investments. As with secondary investing, co-investments allow the Company
to put money to work at the time it is committed. In addition, as there are
lower or no management fees charged on co-investments by the underlying private
equity manager, co-investing can represent a cost-efficient way of investing,
whilst providing PIP with exposure to current vintages.
It is the Board's current intention that co-investments will not, on average,
account for more than 20% of PIP's new commitments.
Primary Commitments
Investing in private equity through a primary commitment strategy (e.g.
commitments to new private equity funds), by increasing the proportion of
immature assets in its portfolio and by increasing its undrawn commitments
relative to its assets, can reduce the Company's financial flexibility. New
primary investments have longer payback periods, requiring the Company to
maintain higher levels of standby financing against undrawn commitments. For
these reasons and because the current outlook for secondary investment and
co-investment is so favourable, the Board de-emphasises primary commitments.
However, the Company will consider making primary commitments on a targeted
basis for portfolio construction purposes.
The investment rationale for any new primary commitments will always be weighed
against their effects on the Company's financial flexibility so as to keep the
undrawn commitments to a level that can comfortably be expected to be financed
from internally generated cash flows.
Share Buybacks
In certain circumstances, usually where the Company's shares are quoted at a
significant discount to NAV, the Board may view the shares as presenting an
attractive investment opportunity relative to other uses of cash, such as new
investment commitments. In such circumstances, the Board will consider targeted
buybacks of ordinary and redeemable shares instead of, or in addition to, new
investments as a means of utilising cash generated from the Company's
portfolio.
THE MANAGER'S REVIEW
MARKET REVIEW
Over the year we have seen continued signs of strengthening economic recovery
in the USA and Europe. However, there remain potential obstacles to recovery,
particularly in Europe. Despite this we feel more optimistic that the economic
environment is likely to remain stable.
Public market performance over the year reflected this growing confidence as US
and European markets posted strong rallies. Market volatility in the second
quarter followed the Federal Reserve's announcement of its plans to taper
quantitative easing. Uncertainty over timing is likely to remain a feature
affecting the financial markets whilst recovery continues. This background has
provided a supportive environment for private equity investors, evidence of
which can be seen in the high rates of distributions from the portfolio.
Emerging markets, particularly the BRICs, have fared less well over the past
year as country-specific concerns dampened the performance of public markets
impacting both investment and exit activity. That being said, growth rates
remain significantly above those of developed markets and the continuing
development of these economies presents opportunities for private equity
managers.
USA
The US has shown signs of moderate recovery over the last year, with GDP
estimated to have grown by 1.7% in the second quarter of 2013(1). The housing
market recovery has started and there has been modest growth in consumption. US
manufacturing is benefiting from higher productivity levels, competitive labour
costs as the wage gap has narrowed particularly between the US and China, and
inexpensive energy.
Private equity deal volume surged 44% over the first half of 2012, reaching
$211bn, the highest amount since 2007(1), as uncertainty abated around the
Presidential election and tax-motivated sellers sought to realise gains by the
end of 2012, particularly in the middle market. Subsequently, in the first half
of 2013, new investment activity slowed, the result of a more limited supply of
deals in the market following the year end surge and high pricing expectations
of vendors persisting in spite of market volatility. Many of our managers have
expressed optimism that deal flow will increase in the second half of 2013.
Our managers have generally sought investments in higher growth segments of the
market in companies that have demonstrated strong growth potential. Sectors
such as energy, chemicals, automotive, building products and technology have
each benefited from tailwinds and trends in certain subsectors, creating
opportunities for new investments and exits in certain cases.
Exit activity generally mirrored the trend in investment activity, with a
strong second half of 2012 followed by a weak first half of 2013. Overall exit
volume for the year ended 30th June 2013 was $122bn, a decline of 14% compared
with the prior year(1). An exception to the slowdown in early 2013 was the
strong IPO market, which has provided an exit route for a number of private
equity-backed companies. In the first half of 2013, 23 private equity-backed
companies were listed in the US compared to 38 for all of 2012, which is on
trend to be the highest annual total since 2007(1).
Private equity fundraising has continued to improve since the trough in 2010.
$109bn was raised in 2012 and 2013 is poised to exceed that amount, with $73bn
raised through the first half of the year(1). Notably in 2013, the US market
has seen an increase in fundraising amongst the largest buyout firms, many of
whom have been well received after successfully navigating the global financial
crisis with their very large funds raised during the peak years.
In venture capital, the volume and number of deals has fallen over the past
year as investors have pulled back, particularly from seed stage investments
following a significant increase in these from 2009 to early 2012. In total,
investment volume declined 16% from $29bn(1). Software has remained the most
prominent sector for investment, although this year saw a move from consumer
focused applications to enterprise and commercial services. While venture
capital exits also remain subdued overall, the IPO market has been receptive
for both technology and life sciences companies. There were 30 venture-backed
IPOs in the first half of 2013, the best start to a year since 2007.
EUROPE
Economic uncertainty in the Eurozone continued to cast a shadow over the
private equity markets in the year to 30th June 2013 resulting in subdued
levels of M&A activity and tough operating conditions for many private
equity-backed companies. GDP growth of EU members over the period was flat.
However, the second quarter of 2013 did see the EU move out of recession, with
quarterly growth of 0.4%(2).
The biggest disappointment for private equity in Europe has been the decline in
the number of transactions over the year. Fewer than 80 buyout transactions
were completed in the second quarter of 2013 compared with over 100 in the same
quarter in 2012(3). This has been offset by an increase in average transaction
sizes, supported by fairly buoyant debt markets, resulting in the total value
of deals being struck remaining fairly steady with a run rate of around €70bn
per annum(3). The main obstacle has been the frequent failure of buyers and
sellers of businesses to agree on fundamental value given volatility in
earnings in the current economic environment. However, entry pricing for
transactions has remained steady in the last few years, with EV/EBITDA
multiples averaging at around 8.5-9.0x, well below the peak of 10.6x reached in
2007(4).
A cause for optimism has been private equity firms' ability to generate
liquidity with an improving trend in the value of exits being generated. PIP
has benefited from a number of IPOs including Countrywide and Hellerman Tyton,
as well as a raft of trade sales and exits to trade buyers and other private
equity firms, most notably Global Blue, Carbolite and Norit. Refinancings
permitted by improved debt market conditions have also been a source of
liquidity.
The fundraising market for new funds continues to be challenging, with
investors demonstrating a high degree of selectivity coupled with the advantage
of being able to observe managers' performances through the crisis and the
suitability of their strategies in a post-crisis environment. The flight to
quality was reflected in successful fund-raisings for CVC (€10.5bn) and Advent
International (€8.5bn), both of which were oversubscribed and closed quickly. A
number of other managers have fared less well and it is anticipated that this
will lay the foundations for less competitive market conditions going forward
as the manager shakeout continues.
DEVELOPING MARKETS
The slowdown in most developing markets has provoked questions about the
sustainability of high growth rates in some of the larger of these economies.
Large structural changes are needed to shift economic activity further towards
consumption-led growth. Doubts are most visible in the currency markets where
freely traded currencies from some of the largest developing economies have
weakened significantly. Together with the declines seen in domestic stock
markets in many of these countries, the consequent reduction in entry prices
continues to make these markets compelling for investment.
In China, the private equity fund landscape is in the process of contracting
following the explosive growth in the local currency investment market over the
past five years. In the face of a slowing IPO environment, a number of managers
are experiencing extended holding periods for their assets leading to pressure
from investors to generate liquidity. For many, prospects for a successful
subsequent fundraising will remain challenging. At the same time, access to
bank financing for companies which are not state-owned remains limited, an
environment which continues to create opportunity for well-funded and stable
private equity franchises. Selecting the right managers whose strategic focus
and stable platforms position them well in the current environment remains
critically important.
In India, where Pantheon has adopted a more underweight position due to the
greater ease with which companies there can raise capital on India's quoted
equity markets, concerns over the reduction of foreign capital inflows, in
particular following the initial signs of a withdrawal of quantitative easing
globally, has exposed concerns regarding India's fiscal position. This has
resulted in steep declines in stock markets and the currency, taking pricing
down to a level which better compensates international investors for these
risks. In the rest of Asia, the private equity market continues to develop
well. This is most evident in some of the smaller markets which now have much
more developed domestic manager universes. These include markets in Southeast
Asia like Indonesia, Malaysia, and the Philippines, as well as the more
developed markets such as South Korea. In part these new centres of
single-country fund activity are responding to increasing levels of
intra-regional trade buoyed by improving cross-border trading dynamics. For
example, in Southeast Asia, trading terms are set to be relaxed within the
ASEAN region. In Northeast Asia, markets such as South Korea now trade more
with China than any other global partner.
In such an environment, we expect to see improving investment conditions both
for primary and secondary investors.
Outside Asia, Pantheon continues to invest capital predominately in primary
fund investment as the markets, generally more recently established, have a
less developed secondary market. While mostly focused on Eastern Europe and
Latin America, Pantheon has also been increasingly active in Africa. As PIP is
focused on buying secondary interests, it will take longer to see exposure to
all these markets in the Company's portfolio, although PIP was active in buying
secondaries in Asia and Latin America during the course of the year.
SECONDARY MARKET REVIEW
The past financial year was a tale of two halves for secondary market deal
volume. Momentum continued from earlier in the year into the second half of
2012, with $12bn of secondary deals(5) transacted. Financial institutions'
selling slowed down, partially offset by an increase in selling by endowments
and foundations. This was followed by a more subdued market in the first half
of 2013 with $7bn of secondary deal volume(5), principally as a result of a
lull in bank selling activity, but also lower pension plan sales.
Banks continue to hold significant private equity portfolios on their balance
sheets ($75bn according to a recent market estimate(6)) but delays in the
implementation of regulatory constraints, in the USA in particular, have
resulted in a postponement of bank sale decisions. Nevertheless, we expect
banks to return actively to selling again in the coming year to 18 months to
meet regulatory deadlines. Given portfolio value increases from rising public
equity markets and the subsequent reverse denominator effect, pension plans
reduced selling activity. However, pension plans are expected to add to
secondary market volume in the near term as they continue to rebalance
portfolios and concentrate manager positions.
The overall market saw $19bn of secondary deals(5) transacted during the past
year, slightly lower than in the prior period. Despite the market slowdown in
the second half of the year, Pantheon screened over $40bn of deals across
approximately 300 sellers during the year to 30th June 2013. Furthermore,
Pantheon continued to invest at a robust pace, committing $1.3bn on behalf of
all clients to transactions representing nearly 7% of all deals reportedly done
in the year to 30th June 2013.
(1) PitchBook.
(2) Eurostat.
(3) Bureau of Economic Analysis.
(4) Pantheon Analysis.
(5) Cogent Partners estimate.
(6) Cogent Partners estimate July 2013.
SECONDARIES EXPLAINED
WHAT IS A SECONDARY?
A secondary transaction generally consists of purchasing an interest in a
private equity fund, or portfolio of multiple funds (consisting of invested
capital and remaining capital commitments) from an existing investor seeking
liquidity prior to the termination of these funds. A secondary transaction can
also consist of purchasing direct company interests which are either privately
held or in which the trading of shares is restricted.
WHY INVEST IN SECONDARIES?
A secondary investment exhibits several features that differentiate it from
other private equity assets, including the potential for timely deployment and
earlier return of capital, portfolio transparency and the ability from time to
time to acquire assets at a discount to Pantheon's assessment of the fair
market value. Pantheon believes that these characteristics have the potential
to reduce some of the risks typically associated with private equity fund
investing.
Timely Deployment of Capital
Investing in secondaries can be a particularly helpful strategy for investors
seeking to boost the proportion of their allocation to private equity actually
at work "in the ground". Whereas a primary fund at inception has no assets, and
will draw down capital at an unpredictable rate over a period of years as it
invests into underlying companies, a fund acquired as a secondary is at least
partially invested at the time of purchase.
Earlier Return on Investment
Investing later in a fund's life reduces the impact of the "J-curve" normally
associated with private equity fund investments. The visibility of assets makes
it easier to identify outperforming funds and likely exit horizons.
Furthermore, the write down of early, unsuccessful investments, the reduced
impact of early management fees and the shorter time horizon to liquidity
provide a number of benefits to the investor. Investors may expect an earlier
return of capital on their investments, relatively fewer capital calls and a
shorter investment holding period.
Reduced Investor Risk
Unlike investing in a fund at inception, when it represents a blind pool of
capital, secondary investing allows detailed analysis of a fund's assets. Using
a rigorous due diligence process, Pantheon evaluates funds on a
company-by-company basis. This bottom-up analysis allows Pantheon to determine
which companies are critical to a portfolio's success and evaluate their
potential value at the time of exit. This transparency may decrease investment
risk.
Embedded knowledge of portfolios also enhances Pantheon's ability to assess and
value portfolios accurately. Pantheon frequently has performance and
operational information on the assets for sale in the secondary market due to
its position as an adviser or manager to existing investors in the fund,
investment in a portfolio company through another fund or previous contact with
the fund manager.
Discount to Fair Market Value
Pantheon undertakes detailed analysis on underlying assets in a portfolio to
establish value. Discounts to assessed fair market value may be applied to
reflect the quality of the assets, the seller's motivation to divest, market
conditions and the illiquid nature of the asset class. In certain circumstances
a fund interest may be acquired at a premium to NAV, depending on asset quality
and fund manager valuation policy among other factors.
Time and Vintage Diversification
Secondary investment is a tool which enables investors in private equity to add
an element of retrospective vintage diversification to their portfolios by
buying into a range of mature funds, typically three to six years into their
lives. This additional diversification serves to mitigate private equity
investment risk at the portfolio level.
PORTFOLIO OVERVIEW
£190m Distributions from PIP's mature portfolio
24% Distributions as a percentage of opening portfolio
26% Average uplift on PIP's top 100 distributions
£40m Calls made on existing commitments
£113m New commitments made to private equity funds
£16m Committed to nine co-investments
£150m Net cash flow generated
8.4% Return on underlying assets
7.5 years Weighted average age of portfolio
DISTRIBUTIONS IN THE YEAR TO 30TH JUNE 2013
PIP received more than 1,700(*) distributions in the year, with many at
significant uplifts to carrying value. The Company's mature and diversified
portfolio should continue to generate significant distributions in the coming
quarters.
(*) This figure looks through feeders and funds-of-funds.
Distributions by Region and Stage
PIP received £190m in proceeds from the portfolio in the 12 months to 30th June
2013, equivalent to approximately 24% of the opening private equity assets, up
from 17% for the prior year.
The USA accounted for the majority of PIP's distributions, where stronger
economic performance enabled a good level of exits. Despite a challenging
economic climate, PIP's European investments continued to distribute robustly.
Distribution rates were consistent across all stages of the portfolio.
Distributions by Region = £190m
USA 59%
Europe 32%
Asia and other 9%
Total 100%
Distributions by Stage = £190m
Small/Mid Buyout 39%
Venture and Growth 29%
Large/Mega Buyout 23%
Special Situations 6%
Generalist 3%
Total 100%
Cost Multiples on a Sample of the Largest Distributions in the Financial Year
to 30th June 2013(1)
On a sample of the largest 100 distributions, the value-weighted average cost
multiple was 3.3 times. This highlights the continued ability of private equity
managers to create significant value over the course of an investment.
(1) The available data in the sample represented approximately 47% by value of
PIP's total distributions for the financial year to 30th June 2013. This data
is based upon gross cost multiples available at the time of the distribution.
Uplifts on Liquidity Event on a Sample of the Largest Distributions in the
Financial Year to 30th June 2013(2).
On a sample of the largest 100 distributions, the value-weighted average uplift
on liquidity event was 26%. This is consistent with PIP's view that
realisations tend to be significantly incremental to returns. PIP's mature
portfolio is well placed to continue to generate a good level of distributions
in the coming year.
(2) Uplift on liquidity event compares the value received upon realisation
against the investment's carrying value prior to the transaction taking place.
In the event of an IPO the uplift is the difference between the carrying value
prior to the IPO and the value at the close of the first day of trading. The
available data in the sample represented approximately 46% by value of PIP's
total distributions for the financial year to 30th June 2013.
INVESTMENTS CALLED IN THE YEAR TO 30TH JUNE 2013
Investments called during the year ranged across many sectors and regions, from
retail firms to restaurant chains, IT companies to specialised manufacturers
and from financial services companies to firms operating in the multimedia
industry.
Calls by Region and Stage
PIP paid £40m of fund calls in the year to 30th June 2013, equivalent to
approximately 21% of opening undrawn commitments. This is marginally lower than
the rate for the prior financial year, which was 22%.
Calls by Region = £40m
USA 50%
Europe 35%
Asia and other 15%
Total 100%
Calls by Stage = £40m
Small/Mid Buyout 39%
Venture and Growth 28%
Large/Mega Buyout 26%
Special Situations 7%
Total 100%
NEW COMMITMENTS
PIP committed £129m to new investments during the financial year, concentrated
on buyout funds in the attractive USA and Asian markets. These commitments were
on average approximately 65% funded at the time of purchase. The investments
were often proprietary, taking advantage of Pantheon's global network of
contacts within the private equity industry.
New Commitments by Region
In line with our preferred geographic focus, PIP concentrated its new
commitments in the USA, the most attractive market based upon growth prospects
and depth of opportunity. We also added significant exposure to higher growth,
strong operating companies in the emerging markets, principally in developing
Asia but also in Latin America.
USA 57%
Europe 36%
Asia and other 7%
Total 100%
New Commitments by Stage
A significant majority of investments were made in the large buyout and
mid-market buyout space. This is consistent with PIP's strategy of focusing on
mid and large cap companies that have high barriers to entry, strong cash
generation and multiple exit routes. In addition, we continue to emphasise
later stage growth managers within the venture and growth subset. PIP's
co-investments were in the buyout and growth stages.
Large/Mega Buyout 50%
Small/Mid Buyout 33%
Co-investments 12%
Venture and Growth 5%
Total 100%
New Commitments by Deal Type
In line with our investment strategy, the majority of new commitments were
across nine secondary transactions. PIP also invested in nine co-investments,
and two primaries that were already partially invested, taking advantage of
attractive opportunities. The commitments made to co-investments and primaries
also offer PIP exposure to more recent vintages which are less frequently seen
in secondary deals.
Secondaries 79%
Co-investments 12%
Primaries 9%
Total 100%
Secondary Origination
Pantheon's outbound origination approach has enabled PIP to secure early access
to highly attractive deal flow in the year, with 80% of deals purchased in
processes that were either proprietary or involved restricted competition(*).
Pantheon's platform allows PIP to access differentiated opportunities from
other secondary players at attractive prices.
Proprietary 46%
Restricted Process 34%
Auction 20%
Total 100%
(*) A proprietary deal is where Pantheon was in exclusive discussions with the seller.
A restricted process deal is where there are three bidders or fewer.
Pantheon Vehicles
At 30th June 2013, 8% of PIP's portfolio value and 10% of PIP's outstanding
commitments were comprised of funds-of-funds directly managed by Pantheon.
Pantheon is not entitled to management and commitment fees in respect of PIP's
holdings in, and outstanding commitments to, the firm's managed fund-of-funds
vehicles. In addition, Pantheon has agreed that PIP will never be disadvantaged
in terms of fees compared with the position it would have been in had it made
investments directly into the underlying funds rather than indirectly through
such fund-of-funds vehicles.
PORTFOLIO OVERVIEW
The Company offers a global, diversified selection of private equity assets,
carefully selected by Pantheon for their quality. The diversification of PIP's
portfolio, with assets spread across different investment styles and stages
including buyout, venture and growth, and special situations, helps to reduce
volatility both of returns and cash flows. The maturity profile of the
portfolio ensures that PIP is not overly exposed to any one vintage. PIP's
geographical diversification extends its exposure beyond the USA and Europe, to
regions with higher rates of economic growth such as Asia.
PORTFOLIO ANALYSIS BY VALUE AS AT 30TH JUNE 2013 (*)
(*) Fund geography, stage, maturity and primary/secondary tables are based upon
underlying fund valuations and account for 100% of PIP's overall portfolio
value. Company sector and company geography tables are based upon underlying
company valuations at 31st December 2012 and account for approximately 90% of
PIP's overall portfolio value.
Fund Geography
The majority of PIP's geographical exposure is focused on the USA and Europe,
reflecting the fact that these regions have the most developed private equity
markets.
PIP's assets based in Asia and other regions provide access to faster-growing
economies. The Company's exposure to these areas has increased in the past
financial year (from 11% to 14%) driven by new investments made during the
financial year.
USA 54%
Europe 32%
Asia and other 14%
Total 100%
Fund Stage
PIP's portfolio is well diversified across different private equity investment
styles and stages.
The majority of PIP's portfolio consists of buyout funds. Exposure to these
funds increased in 2013 driven by a combination of strong returns and new
investments.
PIP has a significant exposure to venture and growth-focused funds, many of
which were acquired through the secondary market. The size of PIP's venture and
growth portfolio declined in 2013 as a result of distributions and the
Company's emphasis on buyouts when making new investments.
Small/Mid Buyout 35%
Venture and Growth 29%
Large Buyout 23%
Special Situations 5%
Directs 3%
Mega Buyout 3%
Generalist 2%
Total 100%
Fund Maturity
PIP's portfolio is well diversified by fund vintage (referring to the year the
fund made its first investment). In the last year the NAV of funds with a
vintage of 2000 and earlier declined as a percentage of PIP's portfolio, from
15% to 10%, driven by significant distributions in this segment of the
portfolio. PIP's secondary focus is expected to lead to continued high exposure
to the high fundraising years of 2006-2008.
2000 and earlier 10%
2001 3%
2002 1%
2003 2%
2004 4%
2005 13%
2006 24%
2007 27%
2008 13%
2009-2013 3%
Total 100%
Primary/Secondary
60% of the portfolio is derived from primary transactions. However, PIP's
strategic emphasis means that secondaries are becoming a larger proportion of
the portfolio at 40%, up from 35% at the end of the last financial year.
Primary 60%
Secondary 40%
Total 100%
Company Sectors
PIP's sectoral diversification helps to minimise the effects of cyclical trends
within particular industry segments. Relative to the FTSE All-Share and MSCI
World indices PIP has high exposure to information technology, and low exposure
to the banking, mining and utilities sectors.
Consumer 28%
Information Technology 23%
Healthcare 14%
Industrials 12%
Financials 8%
Energy 8%
Materials 4%
Telecom Services 3%
Total 100%
Company Geography
Half of PIP's portfolio is with companies based in North America which has, in
our view, better growth prospects than many other areas of the developed world.
PIP's European exposure, which represents just over a third of the portfolio,
is predominantly in companies based in the stronger Northern European
economies, including the UK, Scandinavia and Germany. 14% of PIP's portfolio is
based in Asia and other regions, providing access to faster growing economies
such as China and India.
North America 50%
Asia and other 14%
UK 12%
Scandinavia 6%
Germany 4%
Benelux 4%
Central and Eastern Europe 3%
France 2%
Italy 2%
Iberia 2%
Other Europe 1%
Total 100%
PORTFOLIO ANALYSIS
Portfolio Performance by Stage for the Year to 30th June 2013(1)
● The portfolio performed solidly during the year, generating an investment return of 8.4%.
● Returns were highest in the buyout portfolios which benefited from
significant distributions and strong earnings growth from the underlying
companies. The new investments PIP made during 2013 showed strong early
performance which contributed to the impressive buyout returns.
Stage Return (%) NAV (%)
Large/Mega Buyout 13.4% 26%
Small/Mid Buyout 9.8% 35%
Venture & Growth 5.6% 29%
Directs/Co-investments 3.7% 3%
Generalist 2.7% 2%
Special Situations 0.4% 5%
PIP 8.4% 100%
Debt Multiples(2)
Venture and growth and buyout investments have differing leverage characteristics.
● The venture and growth portfolio accounts for 29% of portfolio value and has
very little or no reliance on leverage.
● The small/mid buyout portfolio sampled contains a moderate level of debt,
with net debt/EBITDA of 3.3 times at 31st December 2012.
● The large/mega buyout portfolio sampled contains higher levels of debt, with
net debt/EBITDA of 4.1 times at 31st December 2012. Investments made between
2006-2008, a time period associated with high debt levels, had an average net
debt/EBITDA of 4.3 times, only marginally higher than the overall average.
PORTFOLIO ANALYSIS - BUYOUT
Valuation Multiple(2)
● Accounting standards require private equity managers to value their portfolio
at fair value. As public markets move this can be reflected in valuations.
● Sample-weighted average enterprise value/EBITDA for the year to 31st December
2012 was 9.1 times, broadly in line with public market benchmarks.
Revenue and EBITDA Growth(2)
● Weighted average revenue and EBITDA growth for the sample buyout companies
was +11.6% and +14.4% respectively in the year to 31st December 2012.
● In each of the past four calendar years PIP's sample growth data has exceeded
the equivalent growth rates of the FTSE All-Share and MSCI World indices.
● This strong top-line performance and efficient cost control of companies is a
principal objective of PIP's mid-market focus, where opportunities for managers
to add value provides scope for outperformance under the private equity model.
(1) Portfolio returns include income, exclude gains and losses from foreign
exchange movements, and look through feeders and funds-of-funds.
(2) Buyout Sample Methodology. The sample buyout figures for the 12 months to
31st December 2012 were calculated from the companies, where information was
available, in PIP's buyout funds at 31st December 2012. The figures are based
on unaudited data. The revenue and EBITDA figures were based upon the last 12
months to 31st December 2012 or, where not available, the closest annual period
disclosed, and provide coverage of 58% and 60% respectively of PIP's buyout
portfolio. Individual company revenue and EBITDA growth figures were capped
between +100% and -100% to avoid large distortions from excessive outliers.
Sample data for 2009-2011 is based on the same methodology and provides
coverage of greater than 60% of the portfolio in each year. Enterprise value is
defined as carrying value + net debt. The net debt and enterprise value figures
were based upon 31st December 2012 underlying valuations, or the closest period
end disclosed. The valuation multiple sample covers approximately 75% of PIP's
buyout portfolio. The debt multiple sample covers 67% of PIP's buyout
portfolio.
PORTFOLIO ANALYSIS - VENTURE AND GROWTH
Venture and Growth Performance
● PIP's venture and growth funds generated a return of 5.6% in the year to 30th
June 2013.
● 2002 and later vintage funds performed solidly and in line with PIP's overall
portfolio. However, performance of the venture and growth portfolio was
impacted by low returns from 2001 and earlier vintage funds. This adverse
performance was caused by a number of material write-downs within the segment,
partially offset by the gains on the IPO of Splunk.
● The venture and growth portfolio generated significant cash flow during 2013,
particularly the older vintage funds. This has resulted in the stronger
performing venture and growth funds with vintage from 2002 to 2006 now
constituting almost 50% of the overall venture and growth portfolio.
FINANCE AND SHARE BUYBACKS
Cash and Available Bank Facility
At 30th June 2013 PIP had cash balances of £78m.
As well as these cash balances, PIP can also finance investments out of its
multi-currency revolving credit facility agreement ("Loan Facility"). The Loan
Facility is due to expire in June 2015 and comprises facilities of $82m and
€57m which, using exchange rates at 30th June 2013, amount to a sterling
equivalent of £103m. At 30th June 2013 the Loan Facility remained fully
undrawn.
Undrawn Commitment Cover
At 30th June 2013, the Company had £181m of available financing, comprised of
its cash balances and Loan Facility. The sum of PIP's available financing and
private equity portfolio provide 5.2 times cover relative to undrawn
commitments.
It should be noted that a portion of the Company's undrawn commitments of £195m
are unlikely to be called in full by the underlying managers. When a fund is
past its investment period, which is typically between five and six years, it
generally cannot make any new investments (only drawing capital to fund
existing follow-on investments or pay expenses). As a result, the rate of
capital calls in these funds tends to slow dramatically. Approximately 40% of
the Company's undrawn commitments are in fund vintages that are greater than
six years old.
Share Buybacks
PIP bought back 4.3%(1) of its shares in the financial year, taking advantage
of the investment opportunity offered by its shares continuing to trade at high
discounts. In total, 1.6m ordinary shares and 1.4m redeemable shares were
bought back at a weighted discount of 23% and 29% respectively, resulting in a
total uplift to NAV per share of 13.8p, or 1.2% of opening NAV per share.
Since the financial year end, the Company has bought back a further 0.2m
ordinary shares at a discount of 22%. Whilst PIP's shares trade at high
discounts the Board will continue to consider further share buybacks for
investment purposes.
(1) 4.3% is calculated using the number of shares bought back in the financial
year divided by the number of shares outstanding at 30th June 2012.
OUTSTANDING COMMITMENTS
PIP's outstanding commitments to fund investments, 60% of which relate to
primary investments and 40% of which relate to secondary investments, are well
diversified by stage and geography and will enable the Company to participate
in future investments with many of the highest quality fund managers in the
private equity industry worldwide.
ANALYSIS OF OUTSTANDING COMMITMENTS AS AT 30TH JUNE 2013
PIP's outstanding commitments to investments increased to £195m at 30th June
2013 compared with £191m at 30th June 2012. The Company paid calls of £40m and
acquired an additional £44m of outstanding commitments associated with all new
investments made in the year.
Geography
The USA and Europe have the largest outstanding commitments, reflecting the
Company's investment emphasis. Commitments to Asia and other regions provide
access to faster-growing economies.
USA 50%
Europe 32%
Asia and other 18%
Total 100%
Stage
PIP's undrawn commitments are well diversified across all major stages of
private equity.
Small/Mid Buyout 37%
Large/Mega Buyout 34%
Venture and Growth 20%
Special Situations 7%
Directs/Co-investments 1%
Generalist 1%
Total 100%
Maturity
40% of PIP's undrawn commitments are in the 2006 vintage or older. Most relate
to funds that are outside their investment periods and, as such, should have
slower call rates. It is likely that a portion of these commitments will not be
drawn.
2005 and earlier 27%
2006 13%
2007 24%
2008 24%
2009 4%
2010 1%
2011 0%
2012 0%
2013 7%
Total 100%
LARGEST 50 MANAGERS BY VALUE AS AT 30TH JUNE 2013
% OF PIP'S TOTAL
PRIVATE EQUITY
NUMBER MANAGER REGION(1) STAGE BIAS ASSET VALUE
1 Texas Pacific GLOBAL BUYOUT 3.3%
Group
2 CVC Capital GLOBAL BUYOUT 2.4%
Partners
3 Providence Equity USA BUYOUT 2.4%
Partners
4 Carlyle Group GLOBAL GENERALIST 2.3%
5 Vision Capital EUROPE BUYOUT 2.2%
6 Apax Partners EUROPE BUYOUT 2.1%
7 Apollo Management USA BUYOUT 2.0%
8 Brentwood USA BUYOUT 1.7%
Associates
9 Golden Gate USA BUYOUT 1.7%
Capital
10 Blackstone USA BUYOUT 1.6%
Capital Partners
11 Equistone EUROPE BUYOUT 1.5%
12 Baring Private ASIA VENTURE AND GROWTH 1.5%
Equity
13 Baring Vostok RUSSIA BUYOUT 1.4%
Capital Partners
14 Nova Capital EUROPE BUYOUT 1.4%
Management
15 IK Investment EUROPE BUYOUT 1.3%
Partners
16 EQT GLOBAL BUYOUT 1.3%
17 Bain Capital USA BUYOUT 1.3%
18 Oak Investment USA VENTURE AND GROWTH 1.3%
Partners
19 Doughty Hanson & EUROPE BUYOUT 1.2%
Co.
20 Hutton Collins EUROPE SPECIAL SITUATIONS 1.2%
21 Genstar Capital USA BUYOUT 1.1%
Partners
22 Permira EUROPE BUYOUT 1.1%
23 Riverstone USA SPECIAL SITUATIONS 1.0%
Holdings
24 Gavea BRAZIL BUYOUT 1.0%
Investimentos
25 KRG USA BUYOUT 1.0%
26 Avista Capital USA BUYOUT 1.0%
Partners
27 Summit Partners GLOBAL GENERALIST 1.0%
28 ABS Capital USA VENTURE AND GROWTH 0.9%
Partners
29 Polaris Venture USA VENTURE AND GROWTH 0.9%
Partners
30 Francisco Partners USA BUYOUT 0.9%
31 Mercapital EUROPE BUYOUT 0.9%
32 Nordic Capital EUROPE BUYOUT 0.9%
33 Cinven Partners EUROPE BUYOUT 0.9%
34 Mid-Europa EUROPE BUYOUT 0.9%
Partners
35 Altor Capital EUROPE BUYOUT 0.9%
36 New Enterprise USA VENTURE AND GROWTH 0.8%
Associates
37 Catalyst Investors USA VENTURE AND GROWTH 0.7%
38 Technology USA VENTURE AND GROWTH 0.7%
Crossover Ventures
39 Canaan Partners USA VENTURE AND GROWTH 0.7%
40 Tricor US USA BUYOUT 0.7%
Management
41 BC Partners EUROPE BUYOUT 0.7%
42 Weston Presidio USA VENTURE AND GROWTH 0.7%
Capital
43 KKR GLOBAL BUYOUT 0.7%
44 Sterling USA BUYOUT 0.7%
Investment
Partners
45 Baker Capital USA VENTURE AND GROWTH 0.7%
Ventures
46 Index Ventures EUROPE VENTURE AND GROWTH 0.7%
47 Pacven Walden ASIA VENTURE AND GROWTH 0.6%
Ventures
48 Northzone Partners EUROPE VENTURE AND GROWTH 0.6%
49 Wellington EUROPE VENTURE AND GROWTH 0.6%
Partners
50 Hony Capital ASIA BUYOUT 0.6%
COVERAGE OF PIP'S TOTAL PRIVATE EQUITY ASSET VALUE 59.7%
(1) Refers to the regional exposure of the funds in which PIP is invested.
LARGEST 50 COMPANIES BY VALUE AS AT 30TH JUNE 2013
% OF PIP'S TOTAL
PRIVATE EQUITY
NUMBER COMPANY COUNTRY SECTOR ASSET VALUE
1 Attendo SWEDEN HEALTHCARE 1.2%
2 Bibby UK INDUSTRIALS 1.1%
Scientific
3 JDR USA ENERGY 1.1%
4 Spotify SWEDEN INFORMATION 0.8%
TECHNOLOGY
5 Applied Medical USA HEALTHCARE 0.7%
Resources
6 InterXion NETHERLANDS INFORMATION 0.6%
TECHNOLOGY
7 Oriental SOUTH CONSUMER 0.4% Brewery Company KOREA
8 Convatec USA HEALTHCARE 0.4%
9 SoftBrands USA INFORMATION 0.4%
TECHNOLOGY
10 The Teaching USA CONSUMER 0.4%
Company
11 Evonik GERMANY MATERIALS 0.4%
12 China Yongda CHINA CONSUMER 0.4%
Automobiles
13 McGraw-Hill USA CONSUMER 0.4%
Education
14 CPI Card Group USA INDUSTRIALS 0.4%
15 Fairway Market USA CONSUMER 0.3%
16 Cobalt USA ENERGY 0.3%
International
Energy
17 Mindbody USA INFORMATION 0.3%
TECHNOLOGY
18 CPL Industries UK ENERGY 0.3%
19 Michaels Stores USA CONSUMER 0.3%
20 GGC Credit Opps USA FINANCIALS 0.3%
21 Standard USA CONSUMER 0.3%
Pacific
Corporation
22 Nord Anglia Hong Kong CONSUMER 0.3%
23 Property UK FINANCIALS 0.3%
Portfolio
24 The Nielsen Netherlands INDUSTRIALS 0.3%
Company
25 Wrist Denmark INDUSTRIALS 0.3%
26 Standard USA FINANCIALS 0.3%
Bancshares
27 BrightHouse UK CONSUMER 0.3%
28 Siltron South INFORMATION 0.3%
Korea TECHNOLOGY
29 Hugo Boss & Italy CONSUMER 0.3%
Valentino
Fashion
30 Zoe's Kitchen USA CONSUMER 0.3%
31 Aquafil Italy CONSUMER 0.3%
32 Yandex RUSSIA INFORMATION 0.3%
TECHNOLOGY
33 Allison USA INDUSTRIALS 0.3%
Transmission
34 Visma Norway INFORMATION 0.2%
TECHNOLOGY
35 EP Energy USA ENERGY 0.2%
36 Caffè Nero UK CONSUMER 0.2%
37 Sapphire Energy USA ENERGY 0.2%
38 GENBAND USA INFORMATION 0.2%
TECHNOLOGY
39 Portman UK CONSUMER 0.2%
40 Syniverse USA TELECOMMUNICATION 0.2%
Technologies SERVICES
41 TMF Netherlands FINANCIALS 0.2%
42 NXP Netherlands INFORMATION 0.2%
TECHNOLOGY
43 VBrick Systems USA INFORMATION 0.2%
TECHNOLOGY
44 Wagamama UK CONSUMER 0.2%
45 Lindorff Norway FINANCIALS 0.2%
46 Booz Allen USA INDUSTRIALS 0.2%
Hamilton
47 Sequa USA INDUSTRIALS 0.2%
Corporation
48 Orient Express Russia FINANCIALS 0.2%
Bank
49 K-Mac USA CONSUMER 0.2%
Enterprises
50 USI USA FINANCIALS 0.2%
TOTAL 17.8%
The largest 50 companies table is based upon underlying company valuations at
31st December 2012, adjusted for known calls, distributions and new investment
commitments and post-valuation information.
THE MANAGER (PANTHEON)
Pantheon, one of the world's foremost private equity specialists, has acted as
Manager to PIP since its inception in 1987, evaluating and managing investments
on PIP's behalf in line with the strategy agreed by the Board. Pantheon is also
one of the largest and most experienced secondary managers, having committed
more than $8bn to secondaries over the last 25 years.
Strong Private Equity Track Record
Pantheon is one of the leading private equity fund investors in the world, with
global assets under management of $24.1bn, and over 400 institutional
investors.
Pantheon has a strong and consistent private equity investment track record.
For over 30 years Pantheon has made investments in over 1,300 private equity
funds, gaining exceptional insight and access to the most attractive funds in
all the major private equity markets.
Diversification
Pantheon has substantial experience of investing in private equity through
various economic cycles and in different regional markets. The firm's asset
allocation, diversification strategies and disciplined investment process are
structured with the objective of producing the best possible risk-adjusted
returns. Pantheon's diversification strategy limits portfolio risk by including
a multi-strategy approach, targeting funds with a variety of different return
characteristics and deploying capital over a number of vintage years, generally
ensuring that the most attractive segments of the market are represented in the
portfolio. When applying this approach, the Board works closely with Pantheon
to ensure that the management of the Company is in line with its agreed
strategy.
Reputation as a Preferred Investor
Pantheon has been investing in private equity for over 30 years and has an
enviable reputation in the industry. Pantheon is often considered a preferred
investor due to its reputation, active approach and scale of commitments. In
addition, Pantheon generally seeks advisory board seats to contribute actively
to governance during the life of the fund. As such Pantheon is represented on
over 280 advisory boards worldwide. Long-standing partnerships with managers on
a global basis can also enhance the firm's deal flow in the secondary market.
Team-based Culture
Pantheon draws upon a deep pool of resources that contributes to a unique
team-based culture. With teams operating in London, San Francisco, Hong Kong
and New York, Pantheon adopts a collegiate approach to investment
decision-making, globally leveraging the collective experience and expertise of
its investment professionals. The team's experience is also brought to bear on
the evaluation, selection and ongoing monitoring of fund investments.
Pantheon's team of 68 investment professionals, supported by 117 other
professionals, work together with the ultimate aim of producing strong and
consistent results.
Secondary Investing
Pantheon is one of the largest and longest established secondary investors in
the world, with more than 20 years' experience of successful secondary
investing and a team of 68 investment professionals. This size and experience
means Pantheon can focus on large and complex transactions in which many other
lessor resourced investors cannot participate.
Pantheon has committed more than $8bn in the secondary market globally across
more than 310 transactions, including more than 100 portfolio transactions and
more than 200 single fund secondaries.
Pantheon consistently utilises the knowledge and due diligence information of
its primary fund teams and global offices. Long-standing partnerships with
private equity managers around the world help to enhance the firm's deal flow.
While the increase in scale of the secondary market has been paralleled by
growth in the number of would-be acquirers of secondary assets, Pantheon
believes it has an advantage in having wide experience and coverage. As a
result, the differentiation between experienced and well-resourced global
specialists and the rest is becoming increasingly apparent as the market
evolves.
OBJECTIVE AND INVESTMENT POLICY
The Company's primary investment objective is to maximise capital growth by
investing in a diversified portfolio of private equity funds and, occasionally,
directly in private companies.
The Company's policy is to make unquoted investments, in general by subscribing
for investments in new private equity funds and buying secondary interests in
existing private equity funds and, occasionally, by acquiring direct holdings
in unquoted companies, usually either where a vendor is seeking to sell a
combined portfolio of fund interests and direct holdings or where there is a
private equity manager, well known to the Company's Manager, investing on
substantially the same terms.
The Company may invest in private equity funds which are quoted. In addition,
the Company may from time to time hold quoted investments in consequence of
such investments being distributed to the Company from its fund investments or
in consequence of an investment in an unquoted company becoming quoted. The
Company will not otherwise normally invest in quoted securities, although the
Company reserves the right to do so should this be deemed to be in the
interests of the Company.
The Company may invest in any type of financial instrument, including equity
and non-equity shares, debt securities, subscription and conversion rights and
options in relation to such shares and securities and interests in partnerships
and limited partnerships and other forms of collective investment scheme.
Investments in funds and companies may be made either directly or indirectly,
through one or more holding, special purpose or investment vehicles in which
one or more co-investors may also have an interest.
The Company employs a policy of over-commitment. This means that the Company
may commit more than its available uninvested assets to investments in private
equity funds on the basis that such commitments can be met from anticipated
future cash flows to the Company and through the use of borrowings and capital
raisings where necessary.
The Company's policy is to adopt a global investment approach. The Company's
strategy is to mitigate investment risk through diversification of its
underlying portfolio by geography, sector and investment stage. Since the
Company's assets are invested globally on the basis, primarily, of the merits
of individual investment opportunities, the Company does not adopt maximum or
minimum exposures to specific geographic regions, industry sectors or the
investment stage of underlying investments.
In addition, the Company adopts the following limitations for the purpose of
diversifying investment risk:
- that no holding in a company will represent more than 15% by value of the
Company's investments at the time of investment (in accordance with the
requirement for approval as an investment trust which applied to the Company in
relation to its accounting periods ended on and before 30th June 2012);
- the aggregate of all the amounts invested by the Company in (including
commitments to or in respect of) funds managed by a single management group may
not, in consequence of any such investment being made, form more than 20% of
the aggregate of the most recently determined gross asset value of the Company
and the Company's aggregate outstanding commitments in respect of investments
at the time such investment is made;
- the Company will invest no more than 15% of its total assets in other
UK-listed closed-ended investment funds (including UK-listed investment
trusts).
The Company may invest in funds and other vehicles established and managed or
advised by Pantheon or any Pantheon affiliate. In determining the
diversification of its portfolio and applying the manager diversification
requirement referred to above, the Company looks through vehicles established
and managed or advised by Pantheon or any Pantheon affiliate.
The Company may enter into derivatives transactions for the purposes of
efficient portfolio management and hedging (for example, hedging interest rate,
currency or market exposures).
Surplus cash of the Company may be invested in fixed interest securities, bank
deposits or other similar securities.
The Company may borrow to make investments and typically uses its borrowing
facilities to manage its cash flows flexibly, enabling the Company to make
investments as and when suitable opportunities arise and to meet calls in
relation to existing investments without having to retain significant cash
balances for such purposes. Under the Company's articles of association, the
Company's borrowings may not at any time exceed 100% of the Company's net asset
value. Typically, the Company does not expect its gearing to exceed 30% of
gross assets. However, gearing may exceed this in the event that, for example,
the Company's pipeline of future cash flows alters.
The Company may invest in private equity funds, unquoted companies or special
purpose or investment holding vehicles which are geared by loan facilities that
rank ahead of the Company's investment. The Company does not adopt restrictions
on the extent to which it is exposed to gearing in funds or companies in which
it invests.
THE DIRECTORS
The Directors in office at the date of this report are:
Tom Bartlam* (Chairman)
Ian Barby* (Audit Committee Chairman)
Richard Crowder
Sir Laurie Magnus*
Susannah Nicklin*
Peter Readman* (Senior Independent Director)
Rhoddy Swire
* Independent of the Manager
EXTRACTS FROM THE DIRECTORS' REPORT
BUSINESS REVIEW
The Business Review is designed to provide shareholders with information about
the Company's business and results in the year to 30th June 2013. It should be
read in conjunction with the Chairman's Statement and Manager's Review.
Business and Strategy
Pantheon International Participations PLC (the "Company" or "PIP"), a
closed-ended investment trust, is the longest established private equity
fund-of-funds quoted on the London Stock Exchange. It enables investors to gain
access to a substantial portfolio of unquoted companies in the USA, Europe and
Asia, within funds managed by experienced private equity managers selected for
their ability to outperform.
PIP's primary investment objective is to maximise capital growth by investing
in a diversified portfolio of private equity funds and, occasionally, directly
in private companies. The Company's full Objective and Investment Policy are
set out above.
The Company was incorporated and registered in England and Wales on 16th July
1987. It is registered as a public limited company and is an investment company
as defined by Section 833 of the Companies Act 2006. It is a member of The
Association of Investment Companies ("AIC").
The Company has received written approval from HM Revenue & Customs ("HMRC") as
an authorised investment trust under Sections 1158/59 of the Corporation Tax
Act 2010 for the year ended 30th June 2012. The Company has been approved as an
investment trust for all previous years.
New regulations for obtaining and retaining investment trust status applied to
the Company with effect from 1st July 2012. The Company has applied for, and
been granted, approval as an investment trust under the new regulations for the
year ended 30th June 2013. The Company will be treated as an investment trust
company for each subsequent accounting period, subject to there being no
serious breaches of the conditions for approval. It is the opinion of the
Directors that the Company has subsequently directed its affairs so as to
enable it to continue to qualify for such approval.
The principal conditions that must be met for approval by HMRC for any given
accounting period as an investment trust are that all, or substantially all, of
the Company's business should consist of "investing in shares, land or other
assets with the aim of spreading investment risk and giving members of the
company the benefit of the results of the management of its funds" and the
Company must not retain more than 15% of all its income. In addition, the
Company must not be a close company and its shares must be admitted to trading
on a regulated market.
The Company's status as an investment trust allows it to obtain an exemption
from paying capital gains tax on the profits made from the sale of its
investments. Investment trusts offer a number of advantages for investors,
including access to investment opportunities that might not be open to private
investors and to professional stock selection skills at low cost.
Principal Risks and Uncertainties Facing the Company
The Company invests principally in private equity funds. However, the Company's
strategy is to adopt a global fund-of funds investment programme, maximising
returns through selection of the best available funds, and to mitigate
investment risk through diversification of the underlying portfolio by
geography, investment stage and sector. The principal risks facing the Company
include the following:
Funding of investment commitments
In the normal course of its business, the Company typically has outstanding
commitments to private equity funds which are substantial relative to the
Company's assets and may be drawn down at any time. The Company's ability to
meet these commitments is dependent upon it receiving cash distributions (the
timing and amount of which can be unpredictable) from its private equity
investments and, to the extent these are insufficient, on the availability of
financing facilities.
Risks relating to investment opportunities
There is no guarantee that the Company will find sufficient suitable investment
opportunities, or that the private equity funds in which it invests will find
suitable investment opportunities, to achieve the level of diversification
which the Company seeks to achieve in relation to its investment portfolio.
Financial risk of private equity
The Company invests in private equity funds and unquoted companies which are
less readily marketable than quoted securities and may take a long time to
realise. In addition, such investments may carry a higher degree of risk than
investments in quoted securities. The Company may be adversely affected by
these risks notwithstanding the level of diversification which it seeks to
achieve in relation to its investment portfolio.
Long-term nature of private equity investments
Private equity investments are long-term in nature and may take some years
before reaching a level of maturity at which they can be realised. Accordingly,
it is possible that the Company may not receive a return on investments made by
it for a number of years.
Liquidity risk
Due to the Company's investment policy, a large proportion of the Company's
portfolio comprises indirect participations in unquoted investments and direct
holdings in unquoted investments. Such investments are less readily marketable
than quoted securities and realisation of these investments may require a
lengthy time period or may result in distributions in kind to the Company.
Valuation uncertainty
In valuing its investments in private equity funds and unquoted companies and
in publishing its net asset value ("NAV"), the Company relies to a significant
extent on the accuracy of financial and other information provided by these
funds and companies to the Manager. There is potential for inconsistency in the
valuation methods adopted by these funds and companies. In addition, the
information provided is typically more than 60 days old at the time the NAV of
the Company's shares is reported.
Gearing
The Company has committed revolving dollar and euro credit facilities with The
Royal Bank of Scotland plc and Lloyds TSB Bank plc, which expire in June 2015.
As at 30th June 2013 these facilities were undrawn (2012: undrawn).
The use of gearing can cause both gains and losses in the asset value of the
Company to be magnified. The Company may also invest in private equity funds or
unquoted companies which are geared by loan facilities that rank ahead of the
Company's investment both for payment of interest and capital. As a
consequence, the Company may be exposed to gearing through the borrowings from
time to time of such private equity funds and companies, therefore investment
in such assets presents a higher risk as to their capital return.
Foreign currency risk
The Company makes investments in US dollars, euros and other currencies as well
as sterling. Accordingly, the Company is exposed to currency exchange rate
fluctuations.
Competition
The Company competes for investments with other investors. It is possible that
competition for appropriate investment opportunities may increase, thus
reducing the number of opportunities available and adversely affecting the
terms upon which such investments can be made.
Unregulated nature of underlying investments
The private equity funds and underlying unquoted investments that form the
basis of the majority of the Company's portfolio are not necessarily subject to
regulation by the Financial Conduct Authority ("FCA") or an equivalent
regulatory body. Funds and unquoted companies in which the Company invests
(directly or indirectly) may be domiciled in jurisdictions which do not have a
regulatory regime which provides an equivalent level of investor protection to
that provided under the laws of the United Kingdom.
Defaults on commitments
If, in consequence of any failure to meet a demand for payment of any
outstanding unpaid capital commitment of the Company to any private equity fund
in which the Company has invested, the Company is treated as a defaulting
investor by that fund, the Company may suffer a resultant dilution in its
interest in that fund and, possibly, the compulsory sale of that interest.
Taxation
Any change in the Company's tax status or in taxation legislation or practice
could affect the value of the investments held by and the performance of the
Company. In addition, the income and gains of the Company from its investments
may suffer withholding tax which may not be reclaimable in the countries where
such income and gains arise.
The Manager and other third party advisers
Like most investment trust companies, the Company has no employees and the
Directors are all non-executive. The Company is dependent upon the services of
Pantheon as Manager and may be adversely affected if the services of Pantheon
cease to be available to the Company. Details of the terms of the Management
Agreement are set out in the full Annual Report and Accounts.
Other third party service providers on whom the Company relies include Capita
Sinclair Henderson Limited, which provides administrative, accounting and
company secretarial services, and HSBC Bank plc, which acts as Custodian in
respect of the Company's quoted equities and bonds.
The Foreign Account Tax Compliance Act ("FATCA")
FATCA is United States anti-tax avoidance legislation that forces Foreign
Financial Institutions ("FFIs") to identify and report on investments by "US
Persons". The regime will be implemented in the UK by primary British
legislation and reporting will be to HMRC. UK investment trust companies are
included in the FFI definition and need to have registered with the IRS by 30th
June 2014. An investment trust company, however, will not have to make any
reports where its shares and securities are regularly traded on an established
stock exchange. If registration is required, PIP intends to register by 25th
April 2014 to ensure that the Company is published on the first list of
compliant FFIs.
Alternative Investment Fund Managers' Directive
The Alternative Investment Fund Managers' Directive ("AIFMD") was implemented
by EU member states, including the UK, on 22nd July 2013, with existing
investment companies, such as PIP, having until 22nd July 2014 to comply with
the requirements. It seems likely that there will be an increase, potentially a
material increase, in the Company's governance, administration and depositary
expenses as a result of the implementation of AIFMD. The Board is in the
process of discussing the requirements and the implications with its advisers
to ensure compliance by 22nd July 2014.
Further information on risks
Further information on the principal risks the Company faces in its portfolio
management activities and the policies for managing these risks and the policy
and practice with regard to financial instruments are summarised in Note 21 to
the financial statements.
Review of 2012/2013
Net asset value
The Company's total net assets attributable to shareholders increased during
the year to £903.3m (2012: £845.4m). The NAV per share was 1,331.9p at 30th
June 2013 (2012: 1,193.50p).
Results and dividends
The results for the year are as set out in the Income Statement. This shows
that the Company's net revenue profit on ordinary activities before taxation
for the year was £1.0m (2012: £0.3m) and capital returns were £85.9m (2012:
£44.9m excluding the loss on the derivative asset at fair value through profit
or loss).
The Directors do not recommend the payment of a dividend in respect of the year
ended 30th June 2013 (2012: nil).
Key performance indicators
The Board and the Manager monitor the following Key Performance Indicators:
1. The NAV performance
PIP's NAV per share increased by 11.6% from the prior year NAV per share to
1,331.9p in the year to 30th June 2013. The NAV returns over 1 year, 3 years, 5
years and 10 years and since inception are set out above. The 11.6% increase in
PIP's NAV per share compares with increases in the MSCI World Total Return
(sterling) Index of 23.2% and the FTSE All-Share Total Return Index of 17.9%
respectively.
2. The level of discount
PIP's ordinary share price increased by 43.6% to 1,042.00p at 30th June 2013
(2012: 725.50p) and the discount to NAV decreased to 21.8% at the year end
(2012: discount of 39.2%).
PIP's redeemable share price increased by 38.2% to 1,050.00p at 30th June 2013
(2012: 760.00p) and the discount to NAV decreased to 21.2% at the year end
(2012: discount of 36.3%).
3. The ongoing charges
2013 2012
Ongoing charges 1.16% 1.20%
Look-through ongoing charges* 0.07% 0.08%
Performance fees 0.00% 0.00%
Finance costs 0.17% 0.22%
Total ongoing charges, look-through ongoing
charges*, performance fees and finance costs 1.40% 1.50%
* Look-through ongoing charges includes management fees paid directly to PIP's
Pantheon-managed fund investments.
Future Developments
A review of the year to 30th June 2013 and the outlook for the coming year can
be found in the Chairman's Statement and the Manager's Review.
Share Capital
As at 30th June 2013, the Company had 34,507,013 ordinary shares of £0.67 each
and 33,312,534 redeemable shares of £0.01 each in issue. No shares were held in
treasury at the year end.
During the year, 1,614,000 ordinary shares (with an aggregate nominal value of
£1,081,380 and representing 4.5% of the ordinary share capital in issue on
30th June 2012) were purchased in the market for cancellation for a total
consideration of £14.8m.
During the year, 1,401,000 redeemable shares (with an aggregate nominal value
of £14,010 and representing 4.0% of the redeemable share capital in issue on
30th June 2012) were also purchased in the market for cancellation for a total
consideration of £11.9m.
Since the year end, 225,000 ordinary shares (with an aggregate nominal value of
£150,750 and representing 0.7% of the ordinary share capital in issue on
30th June 2013) have been purchased in the market for cancellation for a total
consideration of £2.3m.
As at the date of this report, the Company had shares in issue as shown in the
table below, all of which are admitted to the official list maintained by the
FCA and admitted to trading on the London Stock Exchange:
SHARE CAPITAL NUMBER OF % OF TOTAL
AND VOTING NUMBER OF VOTING RIGHTS SHARES VOTING RIGHTS
RIGHTS AT SHARES ATTACHED TO HELD IN REPRESENTED
30TH SEPTEMBER 2013 IN ISSUE EACH SHARE TREASURY BY EACH CLASS
ORDINARY SHARES OF 34,282,013 1 - 100
£0.67 EACH
REDEEMABLE SHARES 33,312,534 - - -
OF £0.01 EACH
TOTAL VOTING RIGHTS 34,282,013
The rights attaching to each of the Company's classes of share are set out in
the Company's Articles of Association. Further details are included in Note 14
to the financial statements.
The redeemable shares do not carry any right to speak or vote at general
meetings of the Company, including on resolutions authorising the issue or
buyback of shares, although holders of redeemable shares are entitled to
receive notice of general meetings of the Company and to attend such meetings.
Redeemable shares do carry the right to vote at separate class meetings of the
holders of redeemable shares. The sanction of holders of redeemable shares is
required to various corporate actions as set out in the Articles of
Association.
The Company's ordinary shares and redeemable shares are freely transferable.
However, the Directors may refuse to register a transfer of shares held in
certificated form which are not fully paid and unless the instrument of
transfer is (i) lodged, duly stamped, at the Company's registered office,
accompanied by the relevant share certificate(s) and such other evidence (if
any) as the Directors may reasonably require to show the right of the
transferor to make the transfer; (ii) in respect of only one class of share;
and (iii) not in favour of more than four persons jointly. The Directors may
decline to register a transfer of an uncertificated share in the circumstances
set out in the Uncertified Securities Regulations 2001 and where, in the case
of a transfer to joint holders, the number of joint holders to whom the
uncertificated share is to be transferred exceeds four. If the Directors
decline to register a transfer, they are required to send notice of the refusal
to the transferee within two months, giving reasons for their decision.
Unless the Directors otherwise determine, a holder of ordinary shares will
cease to be entitled to attend or vote at general meetings of the Company or at
class meetings or on any poll if he/she fails to comply with a request by the
Company to provide details of any interest held by any person in his/her
ordinary shares within 14 days of the request being made. Additionally, if the
shares represent at least 0.25% of their class, any dividends payable in
respect of the shares will be withheld by the Company and no transfers of any
of the shares held in certified form will be registered unless the shareholder
is not him/herself in default as regards supplying the information required
(and the Directors are satisfied that no person in default as regards supplying
such information is interested in any of the shares the subject of the
transfer) or unless the transfer arises as a result of the acceptance of a
takeover offer or a sale made through a recognised investment exchange (or any
other stock exchange outside the United Kingdom on which the Company's shares
are normally traded) or is a transfer which the Directors are satisfied is made
in consequence of a sale of the entire beneficial interest in the shares to a
person who is unconnected with the shareholder and with any other person
appearing interested in the shares.
Save as described above there are: no restrictions concerning the transfer of
securities in the Company or on voting rights; no special rights with regard to
control attached to securities; no agreements between holders of securities
regarding their transfer known to the Company; and no agreements which the
Company is party to that might affect its control following a successful
takeover bid.
Amendment of the Company's Articles of Association and the giving of authority
to issue or buy back the Company's shares require an appropriate resolution to
be passed by shareholders. Proposals for the renewal of the Board's current
authorities to issue and buy back shares are detailed in the full Annual Report
and Accounts.
Social, Environmental, Community and Employee Issues
The Company has no employees and the Board consists entirely of non-executive
Directors. As an investment trust, the Company has no direct impact on the
community or the environment. The Manager is committed to the Principles for
Responsible Investing and its policies are set out in the full Annual Report
and Accounts. These Principles are integrated into Pantheon's investment
analysis and decision-making process, as well as during post-investment
monitoring.
Going Concern
The Company's business activities, together with the factors likely to affect
its future development, performance and position, including its financial
position, are set out in the Chairman's Statement and Manager's Review.
At each Board meeting, the Directors review the Company's latest management
accounts and other financial information. Its commitments to private equity
investments are reviewed, together with its financial resources, including cash
held and the Company's borrowing capability. One-year cash flow scenarios are
also presented to each meeting and discussed.
After due consideration of the balance sheet and activities of the Company and
the Company's assets, liabilities, commitments and financial resources, the
Directors have concluded that the Company has adequate resources to continue in
operation for the foreseeable future. For this reason, they consider it
appropriate to continue to adopt the going concern basis in preparing the
financial statements.
The full Annual Report contains the following statements regarding
responsibility for the Annual Report and financial statements (references in
the following statements are to pages in the Annual Report).
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL
STATEMENTS
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare financial
statements in accordance with United Kingdom Generally Accepted Accounting
Practice ("UK GAAP"). Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Company and of the profit or loss of the
Company for that period. In preparing these financial statements, the Directors
are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable UK accounting standards have been followed, subject
to any material departure 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 are responsible for keeping adequate accounting records that
disclose with reasonable accuracy at any time the financial position of the
Company and enable them to ensure that the financial statements comply with the
Companies Act 2006. The Directors are responsible for ensuring that the
Directors' Report and other information in the Annual Report is prepared in
accordance with company law in the United Kingdom, and that the Annual Report
includes information required by the Listing Rules of the Financial Conduct
Authority. They also have responsibility for safeguarding the assets of the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
The Directors, to the best of their knowledge, state that:
• the financial statements, prepared in accordance with UK GAAP, give a true
and fair view of the assets, liabilities, financial position and return of the
Company; and
• this Annual 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 it faces.
On behalf of the Board
TOM BARTLAM
Chairman
30th September 2013
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's
statutory accounts for the years ended 30th June 2013 and 2012 but is derived
from those accounts. Statutory accounts for 2012 have been delivered to the
Registrar of Companies, and those for 2013 will be delivered in due course. The
Auditors have reported on those accounts; their report was (i) unqualified,
(ii) did not include a reference to any matters to which the Auditors drew
attention by way of emphasis without qualifying their report and (iii) did not
contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The
text of the Auditors' report can be found in the Company's full Annual Report
and Accounts at www.pipplc.com.
INCOME STATEMENT
YEAR ENDED 30th JUNE 2013
2013 2012
REVENUE CAPITAL TOTAL* REVENUE CAPITAL TOTAL*
NOTE £'000 £'000 £'000 £'000 £'000 £'000
Gains on investments
designated at fair
value through profit
or loss** 9b - 82,202 82,202 - 46,146 46,146
Loss on derivatives
contained in standby
agreements at fair
value through profit
or loss*** - - - - (14,938) (14,938)
Currency gains/
(losses) on cash and
borrowings 19 - 3,720 3,720 - (1,104) (1,104)
Investment income 2 12,410 - 12,410 12,065 - 12,065
Investment management
fees 3 (8,839) - (8,839) (8,867) - (8,867)
Other expenses 4 (1,134) - (1,134) (1,062) (160) (1,222)
RETURN ON ORDINARY
ACTIVITIES BEFORE
FINANCING COSTS AND TAX 2,437 85,922 88,359 2,136 29,944 32,080
Interest payable and
similar charges/
finance costs 6 (1,453) - (1,453) (1,831) - (1,831)
RETURN ON ORDINARY
ACTIVITIES BEFORE TAX 984 85,922 86,906 305 29,944 30,249
Tax on ordinary
activities 7 (2,401) - (2,401) (1,363) - (1,363)
RETURN ON ORDINARY
ACTIVITIES AFTER TAX
FOR THE FINANCIAL YEAR (1,417) 85,922 84,505 (1,058) 29,944 28,886
RETURN PER ORDINARY
AND REDEEMABLE SHARE 8 (2.04)p 123.99p 121.95p (1.48)p 41.77p 40.29p
ADJUSTED RETURN PER
ORDINARY AND
REDEEMABLE SHARE 8 (2.04)p 123.99p 121.95p (1.48)p 62.62p 61.14p
* The total column of the statement represents the Company's profit and loss
statement prepared in accordance with UK GAAP. The supplementary revenue return
and capital columns are prepared under guidance published by the Association of
Investment Companies.
** Includes currency gains on investments.
*** The loss on the derivative was an accounting entry only and had no effect
on the cash balances of the Company.
All revenue and capital items in the above statement relate to continuing
operations.
No operations were acquired or discontinued during the year.
There were no recognised gains or losses other than those passing through the
Income Statement.
The notes form part of these financial statements.
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
CAPITAL
CAPITAL OTHER RESERVE ON
SHARE SHARE REDEMPTION CAPITAL INVESTMENTS SPECIAL REVENUE
CAPITAL PREMIUM RESERVE RESERVE HELD RESERVE RESERVE TOTAL
£'000 £'000 £'000 £'000 £'000 £'000 £'000 £'000
Movement for the year
ended 30th June 2013
OPENING EQUITY
SHAREHOLDERS' FUNDS 24,549 283,555 996 265,724 259,255 67,939 (56,604) 845,414
Return for the year - - - 48,414 37,508 - (1,417) 84,505
Ordinary shares
bought back for
cancellation (1,081) - 1,081 - - (14,764) - (14,764)
Redeemable shares
bought back for
cancellation (14) - 14 - - (11,871) - (11,871)
CLOSING EQUITY
SHAREHOLDERS' FUNDS 23,454 2 83,555 2,091 314,138 296,763 41,304 (58,021) 903,284
Movement for the year
ended 30th June 2012
OPENING EQUITY
SHAREHOLDERS' FUNDS 25,428 183,184 26 288,790 244,850 99,861 (55,546) 786,593
Return for the year - - - 15,539 14,405 - (1,058) 28,886
Derecognition of
derivative asset - - - (38,605) - - - (38,605)
Issue of new
redeemable shares 91 100,409 - - - - - 100,500
Expenses relating to
the issue of
new redeemable shares - (38) - - - - - (38)
Ordinary shares
bought back for
cancellation (938) - 938 - - (9,685) - (9,685)
Redeemable shares
bought back for
cancellation (23) - 23 - - (15,770) - (15,770)
Redeemable shares
bought back and
held in treasury* - - - - - (6,467) - (6,467)
Redeemable shares
cancelled from
treasury (9) - 9 - - - - -
CLOSING EQUITY
SHAREHOLDERS' FUNDS 24,549 283,555 996 265,724 259,255 67,939 (56,604) 845,414
* Shares bought back and held in treasury were subsequently cancelled on 28th
October 2011.
The notes form part of these financial statements.
BALANCE SHEET
as at 30th JUNE 2013
2013 2012
Note £'000 £'000
Fixed assets
Investments designated at fair value
through profit or loss 9a/b 826,423 799,853
Current assets
Debtors 11 1,051 1,512
Cash at bank 18 78,387 51,143
79,438 52,655
Creditors: Amounts falling due within one year
Other creditors 12 2,577 7,094
2,577 7,094
NET CURRENT ASSETS 76,861 45,561
NET ASSETS 903,284 845,414
Capital and reserves
Called-up share capital 14 23,454 24,549
Share premium 15 283,555 283,555
Capital redemption reserve 15 2,091 996
Other capital reserve 15 314,138 265,724
Capital reserve on investments held 15 296,763 259,255
Special reserve 15 41,304 67,939
Revenue reserve 15 58,021) (56,604)
TOTAL EQUITY SHAREHOLDERS' FUNDS 903,284 845,414
NET ASSET VALUE PER SHARE - ORDINARY AND
REDEEMABLE 16 1,331.89p 1,193.50p
The notes form part of these financial statements.
The financial statements were approved by the Board of Pantheon International
Participations PLC on 30th September 2013 and were signed on its behalf by
TOM BARTLAM
Chairman
Company No. 2147984
CASH FLOW STATEMENT
YEAR ENDED 30TH JUNE 2013
2013 2012
NOTE £'000 £'000
Cash flow from operating activities
Investment income received 12,357 12,052
Deposit and other interest received 53 13
Investment management fees paid (9,574) (8,869)
Performance fee paid (5,057) -
Secretarial fees paid (211) (172)
Other cash payments (1,077) (951)
Withholding tax deducted (2,401) (1,363)
NET CASH (OUTFLOW)/INFLOW FROM
OPERATING ACTIVITIES 19 (5,910) 710
Servicing of finance
Loan commitment and arrangement fees paid (1,138) (1,160)
Redeemable shares commitment fees paid - (63)
Interest on loan notes paid - (322)
NET CASH OUTFLOW FROM RETURNS ON
INVESTMENT AND SERVICING OF FINANCE (1,138) (1,545)
Capital expenditure and financial
investment
Purchases of investments (128,198) (77,126)
Purchases of government securities - (15,901)
Disposals of investments 183, 995 134,632
Disposals of government securities - 15,743
NET CASH INFLOW FROM CAPITAL EXPENDITURE
AND FINANCIAL INVESTMENT 55,797 57,348
NET CASH INFLOW BEFORE FINANCING 48,749 56,513
Financing
Expenses relating to issue of new
redeemable shares - (38)
Ordinary shares purchased for
cancellation (13,324) (9,685)
Redeemable shares purchased for
cancellation (11,871) (15,770)
Redeemable shares purchased to be held in
treasury - (6,467)
NET CASH OUTFLOW FROM FINANCING (25,195) (31,960)
INCREASE IN CASH 17 23,554 24,553
The notes form part of these financial statements.
NOTES TO THE FINANCIAL STATEMENTS
1. Accounting Policies
A summary of the principal accounting policies, all of which have been applied
consistently throughout the year, is set out below.
(A) Basis of Preparation
The financial statements have been prepared on the historical cost basis of
accounting, except for the measurement at fair value of investments, and in
accordance with applicable UK GAAP and on the basis that all activities are
continuing. The Company's financial statements are presented in sterling and
all values are rounded to the nearest thousand pounds (£'000) except when
indicated otherwise.
(B) Statement of Recommended Practice
The financial statements have been prepared in accordance with the Statement of
Recommended Practice (as amended in January 2009) for the financial statements
of investment trust companies and venture capital trusts issued by the
Association of Investment Companies.
(C) Segmental Reporting
The Directors are of the opinion that the Company is engaged in a single
segment of business, being investment business.
(D) Valuation of Investments
All investments held by the Company are classified as "fair value through
profit or loss". As the Company's business is investing in financial assets
with a view to profiting from their total return in the form of interest,
dividends or increases in fair value, quoted equities and fixed income
securities are designated as fair value through profit or loss on initial
recognition. The Company manages and evaluates the performance of these
investments on a fair value basis in accordance with its investment strategy.
For investments actively traded in organised financial markets, fair value is
generally determined by reference to Stock Exchange quoted market bid prices at
the close of business at the Balance Sheet date. For investments that are not
actively traded in organised financial markets, fair value is determined using
reliable valuation techniques as described below:
(i) Unquoted fixed asset investments are stated at the estimated fair value.
In the case of investments in private equity funds, this is based on the net
asset value of those funds ascertained from periodic valuations provided by the
managers of the funds. Such valuations are necessarily dependent upon the
reasonableness of the valuations by the fund managers of the underlying
investments. In the absence of contrary information the values are assumed to
be reasonable. These valuations are reviewed periodically for reasonableness.
The Company may acquire secondary interests at either a premium or a discount
to the fund manager's valuation. Within the Company's portfolio, those fund
holdings purchased at a premium are normally revalued to their stated net asset
values at the next reporting date. Those fund holdings purchased at a discount
are normally held at cost until the receipt of a valuation from the fund
manager in respect of a date after acquisition, when they are revalued to their
stated net asset values, unless an adjustment against a specific investment is
considered appropriate.
In the case of direct investments in unquoted companies, the initial valuation
is based on the transaction price. Where better indications of fair value
become available, such as through subsequent issues of capital or dealings
between third parties, the valuation is adjusted to reflect the new evidence.
This information may include the valuations provided by private equity managers
who are also invested in the company. Valuations are reduced where the
company's performance is not considered satisfactory.
Private equity funds may contain a proportion of quoted shares from time to
time, for example, where the underlying company investments have been taken
public but the holdings have not yet been sold. The quoted market holdings at
the date of the latest fund accounts are reviewed and compared with the value
of those holdings at the year end. If there has been a material movement in the
value of these holdings, the valuation is adjusted to reflect this.
As at 30th June 2013 there was no aggregate difference on underlying
investments to be recognised in profit or loss at the start or end of the
period.
(ii) Quoted investments are valued at the bid price on the relevant stock
exchange.
(E) Income
Dividends receivable on quoted equity shares are brought into account on the
ex-dividend date.
Dividends receivable on equity shares where no ex-dividend date is quoted are
brought into account when the Company's right to receive payment is
established. The fixed return on a debt security is recognised on a time
apportionment basis so as to reflect the effective interest rate on the
security.
Other interest receivable is included on an accruals basis.
(F) Taxation
Corporation tax payable is based on the taxable profit for the year. The charge
for taxation takes into account taxation deferred or accelerated because of
timing differences between the treatment of certain items for accounting and
taxation purposes. Full provision for deferred taxation is made under the
liability method, without discounting, on all timing differences that have
arisen but not reversed by the Balance Sheet date, unless such provision is not
permitted by FRS 19 Deferred Tax.
The tax effect of different items of income/gain and expenditure/loss is
allocated between capital and revenue on the same basis as the particular item
to which it relates, using the marginal method.
(G) Expenses
All expenses are accounted for on an accruals basis. Expenses, including
investment management fees, are charged through the revenue account except as
follows:
• expenses which are incidental to the acquisition or disposal of an investment
are treated as capital costs and separately identified and disclosed in Note 9;
• expenses of a capital nature are accounted for through the capital account;
and
• investment performance fees.
(H) Foreign Currency
The currency of the Primary Economic Environment in which the Company operates
("the functional currency") is pounds sterling ("sterling"), which is also the
presentation currency. Transactions denominated in foreign currencies are
recorded in the local currency at actual exchange rates as at the date of
transaction. Monetary assets and liabilities denominated in foreign currencies
at the year end are reported at the rates of exchange prevailing at the year
end. Any gain or loss arising from a change in exchange rates subsequent to the
date of the transaction is included as an exchange gain or loss in the Income
Statement. For non-monetary assets these are covered by fair value adjustments.
(I) Other Capital Reserve
The following are accounted for in this reserve:
• investment performance fees;
• gains and losses on the realisation of investments;
• realised exchange differences of a capital nature; and
• expenses of a capital nature.
Capital distributions from investments are accounted for on a reducing cost
basis; cash received is first applied to reducing the historical cost of an
investment; any gain will be recognised as realised only when the cost has been
reduced to nil.
(J) Capital Reserve on Investments Held
The following are accounted for in this reserve:
• increases and decreases in the value of investments held at the year end.
(K) Investment Performance Fee
The Manager is entitled to a performance fee from the Company in respect of
each 12 calendar month period ending on 30th June in each year. The performance
fee payable in respect of each such calculation period is 5% of the amount by
which the net asset value at the end of such period exceeds 110% of the
applicable "high-water mark", i.e. the net asset value at the end of the
previous calculation period in respect of which a performance fee was payable,
compounded annually at 10% for each subsequent completed calculation period up
to the start of the calculation period for which the fee is being calculated.
For the calculation period ended 30th June 2013, the notional performance fee
hurdle is a net asset value per share of 1,828.19p. The performance fee is
calculated using the adjusted net asset value. In previous periods this was
adjusted to exclude the derivative asset.
The performance fee is calculated so as to ignore the effect on performance of
any performance fee payable in respect of the period for which the fee is being
calculated or of any increase or decrease in the net assets of the Company
resulting from any issue, redemption or purchase of any shares or other
securities, the sale of any treasury shares or the issue or cancellation of any
subscription or conversion rights for any shares or other securities and any
other reduction in the Company's share capital or any distribution to
shareholders.
2. Income
30TH JUNE 2013 30TH JUNE 2012
£'000 £'000
Income from investments
Unfranked investment income 12,357 12,047
12,357 12,047
Other income
Interest 55 13
Exchange difference on income (2) 5
53 18
TOTAL INCOME 12,410 12,065
Total income comprises
Dividends 12,357 12,041
Interest 55 19
Exchange difference on income (2) 5
12,410 12,065
Analysis of income from
investments
Unlisted 12,357 12,041
Listed - 6
12,357 12,047
3. Investment Management Fees
30TH JUNE 2013 30TH JUNE 2012
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Investment management fees 8,839 - 8,839 8,867 - 8,867
8,839 - 8,839 8,867 - 8,867
The investment management fee is payable monthly in arrears at the rate set out
in the Directors' Report in the full Annual Report and Accounts.
During the year, services with a total value of £9,454,000 (2012: £9,511,000),
being £8,839,000 (2012: £8,867,000) directly from Pantheon Ventures (UK) LLP
and £615,000 (2012: £644,000) via Pantheon managed fund investments, were
purchased by the Company.
At 30th June 2013 £769,000 (2012: £1,504,000) was owed for investment
management fees. A performance fee of £5,057,000 was paid to the Manager during
the year (see Note 12) in respect of the initial 18 month performance fee
calculation period ended 30th June 2008. Of this amount, £3,660,000 was charged
in the year to 30th June 2008 with the remaining balance charged in the year to
30th June 2007. No performance fee is payable in respect of the 12 calendar
month period to 30th June 2013. The basis upon which the performance fee is
calculated is explained in Note 1(K) and in the Directors' Report in the full
Annual Report and Accounts.
4. Other Expenses
30TH JUNE 2013 30TH JUNE 2012
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Secretarial and accountancy
services 202 - 202 194 - 194
VAT refund on secretarial
and accountancy services - - - (68) - (68)
Fees payable to the
Company's Auditor for
the audit of the annual
financial statements 33 - 33 31 - 31
Fees payable to the
Company's Auditor for
- audit-related assurance
services - half-yearly report 6 - 6 6 - 6
- other assurance
services - net asset value
calculations 11 - 11 26 - 26
Directors' remuneration
(see Note 5) 235 - 235 157 - 157
Irrecoverable VAT 29 - 29 27 - 27
Legal and professional fees 366 - 366 409 160 569
Printing 27 - 27 40 - 40
Other 225 - 225 240 - 240
1,134 - 1,134 1,062 160 1,222
The Directors do not consider that the provision of non-audit work to the
Company affects the independence of the Auditor.
5. Directors' Remuneration
Directors' emoluments comprise wholly Directors' fees. A breakdown is provided
in the Directors' Remuneration Report in the full Annual Report and Accounts.
6. Interest Payable and Similar Charges
30TH JUNE 2013 30TH JUNE 2012
£'000 £'000
Bank loan and overdraft interest - 1
Loan commitment and arrangement fees 1,453 1,445
Redeemable share commitment fee - 63
Loan notes interest - 322
1,453 1,831
In June 2011 the Company entered into a new loan agreement with The Royal Bank
of Scotland plc and Lloyds TSB Bank plc. Under the agreement, which will expire
in June 2015, committed revolving dollar and euro credit facilities of $82m and
€57m have been made available. Each individual drawdown bears interest at a
variable rate agreed for the period of the drawdown and a commitment fee of
1.10% per annum is payable in respect of the amounts available for drawdown in
each facility. In addition, the Company has an overdraft facility of £5m with
The Royal Bank of Scotland plc. At 30th June 2013, the sterling equivalent
amount of £nil (2012: £nil) was drawn down under the facilities.
7. Tax on Ordinary Activities
30TH JUNE 2013 30TH JUNE 2012
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
£'000 £'000 £'000 £'000 £'000 £'000
Withholding tax deducted
from distributions 2,401 - 2,401 1,363 - 1,363
Current tax
The current tax for the year differs from the standard rate of corporation tax
in the UK (23%). The differences are explained below:
Net return on ordinary
activities before tax 984 85,922 86,906 305 29,944 30,249
Theoretical tax at UK
corporation tax rate of
23.75% (2012: 25.5%)* 234 20,406 20,640 78 7,636 7,714
Non-taxable investment,
derivative and currency
(gains)/losses - (20,406) (20,406) - (7,677) (7,677)
Effect of expenses in excess
of taxable income - - - - 41 41
Unutilised management
expenses (234) - (234) (78) - (78)
Withholding tax deducted from
distributions (2,401) - (2,401) (1,363) - (1,363)
(2,401) - (2,401) (1,363) - (1,363)
* The corporation tax rate applied is based on the average tax rates for the
financial years ended 30th June 2013 and 30th June 2012.
Factors that May Affect Future Tax Charges
The Company is an investment trust and therefore is not subject to tax on
capital gains. Deferred tax is not provided on capital gains and losses arising
on the revaluation or disposal of investments because the Company meets (and
intends to meet for the foreseeable future) the conditions for approval as an
investment trust company.
No deferred tax asset has been recognised in respect of excess management
expenses and expenses in excess of taxable income as they will only be
recoverable to the extent that there is sufficient future taxable revenue. As
at 30th June 2013, excess management expenses are estimated to be in excess of
£121m (2012: £122m).
8. Return per Share
30TH JUNE 2013 30TH JUNE 2012
REVENUE CAPITAL TOTAL REVENUE CAPITAL TOTAL
Return on ordinary
activities after tax
for the financial year
in £'000 (1,417) 85,922 84,505 (1,058) 29,944 28,886
Loss on derivatives
contained in standby
agreements in £'000 - - - - 14,938 14,938
Adjusted return on
ordinary activities after
tax for the financial
year in £'000* (1,417) 85,922 84,505 (1,058) 44,882 43,824
Weighted average ordinary
and redeemable shares 69,296,879 71,680,727
Return per ordinary and
redeemable share (2.04)p 123.99p 121.95p (1.48)p 41.77p 40.29p
Adjusted return per
ordinary and redeemable
share* (2.04)p 123.99p 121.95p (1.48)p 62.62p 61.14p
* The adjusted return excludes the realised loss on the derivative (see Note
13) of £nil (2012: £14,938,000).
9a. Movements on Investments
30TH JUNE 2013 30TH JUNE 2012
£'000 £'000
Book cost brought forward 541,721 572,112
Acquisitions at cost 128,160 87,649
Capital distributions - proceeds (183,792) (149,810)
Capital distributions - realised
gains on sales 44,695 31,770
BOOK COST AT 30TH JUNE 530,784 541,721
Unrealised appreciation of investments
Unlisted investments 295,509 258,043
Listed investments 130 89
VALUATION OF INVESTMENTS AT 30TH JUNE 826,423 799,853
9b. Analysis of Investments
30TH JUNE 2013 30TH JUNE 2012
£'000 £'000
Sterling
Unlisted investments 57,226 44,237
Listed investments - -
57,226 44,237
US dollar
Unlisted investments 587,617 560,142
Listed investments 199 531
587,816 560,673
Euro
Unlisted investments 170,232 184,037
Listed investments - -
170,232 184,037
Other
Unlisted investments 11,149 10,906
Listed investments - -
11,149 10,906
826,423 799,853
Realised profits on sales 44,695 31,770
Amounts previously recognised as unrealised
depreciation on those sales 89 545
Increase in unrealised appreciation 37,418 13,831
GAINS ON INVESTMENTS 82,202 46,146
Further analysis of the investment portfolio is provided in the Manager's
Review above.
Transaction costs incidental to the acquisition of investments totalled £nil
(2012: £nil) and to the disposals of investments totalled £15,000 (2012:
£3,000) for the year.
10. Fair Value Hierarchy
Financial Assets at Fair Value Through Profit or Loss at 30th June 2013
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
£'000 £'000 £'000 £'000
Unlisted holdings - - 826,224 826,224
Listed holdings 199 - - 199
199 - 826,224 826,423
Financial Assets at Fair Value Through Profit or Loss at 30th June 2012
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
£'000 £'000 £'000 £'000
Unlisted holdings - - 799,322 799,322
Listed holdings 531 - - 531
531 - 799,322 799,853
Level 3 Financial Assets at Fair Value Through Profit or Loss at 30th June 2013
PRIVATE EQUITY INVESTMENTS
£'000
Opening balance 799,322
Purchases at cost 128,160
Transfer of book cost to level 1* (4,857)
Sales proceeds (172,352)
Total gains or losses included in
"Gains on investments" in the Income
Statement
- on assets sold 38,485
- on assets held as at 30th June 2013 37,466
CLOSING BALANCE 826,224
Level 3 Financial Assets at Fair Value Through Profit or Loss at 30th June 2012
PRIVATE EQUITY INVESTMENTS
AND DERIVATIVE ASSET
£'000
Opening balance 863,448
Purchases at cost 77,164
Transfer of book cost to level 1* (1,100)
Sales proceeds (132,457)
Total gains or losses included in
"Gains on investments" in the Income
Statement
- on assets sold 31,032
- on assets held as at 30th June 2012 14,778
Realised loss on derivatives (14,938)
Derivative asset derecognised (38,605)
CLOSING BALANCE 799,322
* The transfer of book cost to level 1 is due to stock distributions received
from private equity investments.
11. Debtors
30TH JUNE 2013 30TH JUNE 2012
£'000 £'000
Amounts owed by investment funds 299 472
Prepayments and accrued income 752 1,040
1,051 1,512
12. Creditors: Amounts Falling Due Within One Year
30TH JUNE 2013 30TH JUNE 2012
£'000 £'000
Investment management fees 769 1,504
Investment performance fee - 5,057
Amounts owed to brokers - 38
Amounts owing for share buybacks 1,440 -
Other creditors and accruals 368 495
2,577 7,094
13. Derivatives
30TH JUNE 2013 30TH JUNE 2012
£'000 £'000
Beginning of year - 53,543
Realised loss on derivatives - (14,938)
Derecognition of derivatives - (38,605)
END OF YEAR - -
Between the years 2005 and 2008 PIP entered into standby commitments under
which certain institutions agreed to subscribe an aggregate amount of £150m for
new redeemable shares in the Company when called upon by the Company at a
subscription price per new redeemable share equal to the prevailing net asset
value per share at the time of subscription. In order to comply with FRS 26 the
standby commitments were treated as a derivative and valued as an asset
accordingly.
On 24th August 2011, the Company drew down on the standby commitments and
issued £100.5m of new redeemable shares.
The Company terminated the remaining standby commitments of £49.5m with effect
from 30th September 2011.
14. Called-up Share Capital
30TH JUNE 2013 30TH JUNE 2012
£'000 £'000
Allotted, called-up and fully paid:
34,507,013 (2012: 36,121,013) ordinary shares
of 67p each 23,121 24,202
33,312,534 (2012: 34,713,534) redeemable shares 333 347
of 1p each
23,454 24,549
During the year, 1,401,000 redeemable shares and 1,614,000 ordinary shares were
bought back in the market for cancellation. The total consideration paid,
including commission and stamp duty, was £11,871,000 and £14,764,000
respectively.
Redeemable shares rank equally with ordinary shares regarding dividend rights
and rights on winding up or return of capital (other than a redemption or
purchase of shares). The holders of redeemable shares have the right to receive
notice of and attend all general meetings of the Company but not to speak or
vote. Each holder of ordinary shares is entitled, on a show of hands, to one
vote and, on a poll, to one vote for each ordinary share held.
The redeemable shares are redeemable at the option of the Company, at the
prevailing net asset value per share, within 60 days following the end of each
monthly NAV calculation date or within 60 days of any other business day which
is determined by the Directors to be a NAV calculation date.
15. Reserves
CAPITAL
CAPITAL OTHER RESERVE ON
SHARE REDEMPTION CAPITAL INVESTMENTS SPECIAL REVENUE
PREMIUM RESERVE RESERVE HELD RESERVE RESERVE
£'000 £'000 £'000 £'000 £'000 £'000
Beginning of year 283,555 996 265,724 259,255 67,939 (56,604)
Net gain on
realisation of
investments - - 44,695 - - -
Increase in
unrealised
appreciation - - - 37,418 - -
Transfer on disposal
of investments - - - 89 - -
Exchange differences
on currency - - 3,690 - - -
Exchange differences
on other capital
items - - 29 1 - -
Share cancellations - 1,095 - - - -
Share buybacks - - - - (26,635) -
Revenue return for
the year - - - - - (1,417)
END OF YEAR 283,555 2,091 314,138 296,763 41,304 (58,021)
Under the Company's Articles of Association, the Company is prohibited from
distributing capital profits by way of dividend.
16. Net Asset Value per Share
30TH JUNE 2013 30TH JUNE 2012
Net assets attributable in £'000 903,284 845,414
Ordinary and redeemable shares 67,819,547 70,834,547
Net asset value per share - ordinary and
redeemable 1,331.89p 1,193.50p
17. Reconciliation of Net Cash Flow to the Movement in Net Funds
30TH JUNE 2013 30TH JUNE 2012
£'000 £'000
Increase in cash in the year 23,554 24,553
Non-cash movement
- foreign exchange gains/(losses) 3,690 (1,055)
- loan notes repaid by issue
of redeemable shares - 100,500
CHANGE IN NET FUNDS 27,244 123,998
Net cash/(debt) at beginning of year 51,143 (72,855)
NET FUNDS AT END OF YEAR 78,387 51,143
18. Analysis of Net Funds
30TH JUNE 2013 30TH JUNE 2012
£'000 £'000
Cash at bank 78,387 51,143
78,387 51,143
19. Reconciliation of Return on Ordinary Activities Before Financing Costs and
Tax to Net Cash Flow from Operating Activities
30TH JUNE 2013 30TH JUNE 2012
£'000 £'000
Return on ordinary activities before
financing costs and tax 88,359 32,080
Withholding tax deducted (2,401) (1,363)
Gains on investments (82,202) (46,146)
Loss on derivative - 14,938
Currency (gains)/losses on cash and
borrowings (3,720) 1,104
(Decrease)/increase in creditors (5,921) 96
(Increase)/decrease in other debtors (25) 1
(5,910) 710
20. Contingencies, Guarantees and Financial Commitments
At 30th June 2013, there were financial commitments outstanding of £195.1m
(2012: £190.9m) in respect of investments in partly paid shares and interests
in private equity funds.
21. Analysis of Financial Assets and Liabilities
The primary investment objective of the Company is to seek to maximise
long-term capital growth for its shareholders by investing in funds
specialising in unquoted investments, acquiring unquoted portfolios and
participating directly in private placements. Investments are not restricted to
a single market but are made when the opportunity arises and on an
international basis.
The Company's financial instruments comprise securities and other investments,
cash balances and debtors and creditors that arise from its operations, for
example, sales and purchases awaiting settlement and debtors for accrued
income.
The principal risks the Company faces in its portfolio management activities
are:
• liquidity/marketability risk;
• interest rate risk;
• market price risk; and
• foreign currency risk.
The Company has little exposure to credit risk. The Manager monitors the
financial risks affecting the Company on a daily basis and the Directors
regularly receive financial information, which is used to identify and monitor
risk.
In accordance with FRS 29, an analysis of financial assets and liabilities,
which identifies the risk to the Company of holding such items, is given below.
Liquidity Risk
Due to the nature of the Company's investment policy, the largest proportion of
the portfolio is invested in unquoted securities, many of which are less
readily marketable than, for example, "blue-chip" UK equities. The Directors
believe that the Company, as a closed-end fund with no fixed wind-up date, is
ideally suited to making long-term investments in instruments with limited
marketability. The investments in unquoted securities are monitored by the
Board on a regular basis.
There are limited opportunities for the Company to acquire secondary unquoted
portfolios due to the cyclical nature of their occurrence. As a result, at
times of low investment opportunity, some funds may be invested in gilts and
other fixed interest government bonds. It is the nature of investment in
private equity that a commitment (see Note 20 for outstanding commitments as at
30th June 2013) to invest will be made and that calls for payments will then be
received from the unlisted investee entity. These payments are usually on an
ad-hoc basis and may be called at any instance over a number of years. The
Company's ability to meet these commitments is dependent upon it receiving cash
distributions from its private equity investments and, to the extent these are
insufficient, on the availability of financing facilities. In order to cover
any shortfalls, the Company has entered into a multi-currency revolving credit
facility with The Royal Bank of Scotland plc and Lloyds TSB Bank plc, due to
expire in June 2015, and comprising facilities of $82m and €57m of which at
30th June 2013 the sterling equivalent of £nil (30th June 2012: £nil) was drawn
down (see Note 6 for further information).
The principal covenant that applies to the loan facility is that gross
borrowings do not exceed 30% of adjusted gross asset value.
Total available financing as at 30th June 2013 stood at £181.3m (2012:
£149.5m), comprising £78.4m (2012: £51.1m) in cash balances and £102.9m
(2012: £98.4m) (sterling equivalent) in undrawn bank facilities. The available
financing along with the private equity portfolio exceeded the outstanding
commitments by 5.2 times (2012: 5.0 times).
Interest Rate Risk
The Company may use gearing to achieve its investment objectives and manage
cash flows and uses a multi-currency revolving credit facility for this
purpose.
Interest on the revolving credit facility is payable at variable rates
determined subject to drawdown. Variable rates are defined as LIBOR or EURIBOR
+ 2.75%, dependent on the currency drawn. The interest rate is then fixed for
the duration that the loan is drawn down. At 30th June 2013 there was the
sterling equivalent of £nil funds drawn down on the loan facilities
(30th June 2012: £nil). A commitment fee of 1.10% per annum is payable
in respect of the amounts available for drawdown in each facility.
Non-interest rate exposure
The remainder of the Company's portfolio and current assets are not subject to
interest rate risks.
Financial assets for 2013 and 2012 consisted of investments, cash and debtors
(excluding prepayments). As at 30th June 2013, the interest rate risk and
maturity profile of the Company's financial assets was as follows:
FIXED
INTEREST
NO MATURES MATURES AVERAGE
MATURITY WITHIN AFTER INTEREST
TOTAL DATE 1 YEAR 1 YEAR RATE
30TH JUNE 2013 £'000 £'000 £'000 £'000 %
Fair value no interest
rate risk financial
assets
Sterling 58,676 58,676 - - -
US dollar 661,480 661,480 - - -
Euro 172,464 172,464 - - -
Other 12,525 12,525 - - -
905,145 905,145 - - -
The interest rate risk and maturity profile of the Company's financial assets
as at 30th June 2012 was as follows:
FIXED
INTEREST
NO MATURES MATURES AVERAGE
MATURITY WITHIN AFTER INTEREST
TOTAL DATE 1 YEAR 1 YEAR RATE
30TH JUNE 2012 £'000 £'000 £'000 £'000 %
Fair value no interest
rate risk financial
assets
Sterling 50,595 50,595 - - -
US dollar 602,149 602,149 - - -
Euro 187,818 187,818 - - -
Other 10,906 10,906 - - -
851,468 851,468 - - -
Financial Liabilities
At 30th June 2013, the Company had drawn the sterling equivalent of £nil (2012:
£nil) of its committed revolving dollar and euro credit facilities, expiring
June 2015, of $82m and €57m respectively with The Royal Bank of Scotland plc
and Lloyds TSB Bank plc. Interest is incurred at a variable rate as agreed at
the time of drawdown and is payable at the maturity date of each advance. At
the year end, interest of £nil (2012: £nil) was accruing. A commitment fee of
1.10% per annum is payable in respect of the amounts available for drawdown in
each facility.
At 30th June 2013 and at 30th June 2012, all financial liabilities were due
within one year and comprised short-term creditors.
Market Price Risk
The method of valuation of the fixed asset investments is described in Note 1
(D) above. The nature of the Company's fixed asset investments, with a high
proportion of the portfolio invested in unquoted securities, means that the
investments are valued by the Directors after due consideration of the most
recent available information from the underlying investments.
PIP's portfolio is well diversified by the sectors in which the underlying
companies operate. This sectoral diversification helps to minimise the effects
of cyclical trends within particular industry segments.
If the investment portfolio fell by 20% from the 30th June 2013 valuation, with
all other variables held constant, there would have been a reduction of
£166,937,000 (2012 based on a fall of 20%: £161,570,000) in the return before
taxation. An increase of 20% would have increased the return before taxation by
£163,632,000 (2012 based on a 20% increase: £158,371,000).
Foreign Currency Risk
Since it is the Company's policy to invest in a diverse portfolio of
investments based in a number of countries, the Company is exposed to the risk
of movement in a number of foreign exchange rates. A geographical analysis of
the portfolio and hence its exposure to currency risk is given above. Although
it is permitted to do so, the Company did not hedge the portfolio against the
movement in exchange rates during the financial year.
The investment approach and the Manager's consideration of the associated risk
are discussed in further detail in the Manager's Review above. The Company
settles its transactions from its bank accounts at an agreed rate of exchange
at the date on which the bargain was made. As at 30th June 2013, realised
exchange gains of £29,000 (2012: realised exchange losses of £78,000) and
realised gains relating to currency of £3,690,000 (2012: realised losses of
£1,055,000) have been taken to the capital reserve.
The Company's exposure to foreign currency excluding private equity investments
is shown below. In relation to this exposure, if the sterling/dollar and
sterling/euro exchange rates had reduced by 10% from that obtained at 30th June
2013, it would have the effect, with all other variables held constant, of
increasing equity shareholders' funds by £8,433,000 (2012: £5,029,000). If
there had been an increase in the sterling/dollar and sterling/euro exchange
rates of 10%, it would have the effect of decreasing equity shareholders' funds
by £6,900,000 (2012: £4,114,000). The calculations are based on the financial
assets and liabilities and the exchange rate as at 30th June 2013 of 1.51670
(2012: 1.56845) sterling/dollar and 1.16880 (2012: 1.23595) sterling/euro.
An analysis of the Company's exposure to foreign currency excluding private
equity investments is given below:
30TH JUNE 30TH JUNE 30TH JUNE 30TH JUNE
2013 2013 2012 2012
ASSETS LIABILITIES ASSETS LIABILITIES
£'000 £'000 £'000 £'000
US dollar 73,664 - 41,476 -
Euro 2,232 - 3,782 -
Swedish krona 66 - - -
Norwegian krona 1,310 - - -
77,272 - 45,258 -
Fair Value of Financial Assets and Financial Liabilities
The financial assets of the Company are held at fair value. Financial
liabilities are held at amortised cost, which is not materially different from
fair value.
Managing Capital
The Company's equity comprises ordinary shares and redeemable shares as
described in Note 14. Capital is managed so as to maximise the return to
shareholders while maintaining a capital base that allows the Company to
operate effectively in the marketplace and sustain future development of the
business.
As at 30th June 2013, the Company had bank debt facilities to increase the
Company's liquidity. Details of available borrowings at the year end can be
found earlier in this Note.
The Company's assets and borrowing levels are reviewed regularly by the Board
of Directors with reference to the loan covenants.
The Company's capital requirement is reviewed regularly by the Board of
Directors.
22. Related Party Transactions
Under the FCA Listing Rules, the Manager, Pantheon Ventures (UK) LLP, is
regarded as a related party of the Company
The amounts paid to the Manager are disclosed in Note 3.
The Company is entitled to invest in funds managed by Pantheon. The Manager is
not entitled to management and commitment fees in respect of PIP's holdings in,
and outstanding commitments to, these funds.
ANNUAL GENERAL MEETING
The Company's Annual General Meeting will be held on 25th November 2013 at 2.30
pm at the offices of Pantheon Ventures (UK) LLP, Norfolk House, 31 St James's
Square, London SW1Y 4JR.
NATIONAL STORAGE MECHANISM
A copy of the Annual Report and Financial Statements will be submitted shortly
to the National Storage Mechanism ("NSM") and will be available for inspection
at the NSM, which is situated at: www.morningstar.co.uk/uk/nsm
ENDS
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on this announcement (or any other website) is
incorporated into, or forms part of, this announcement.
