PANTHEON INTERNATIONAL PARTICIPATIONS PLC
CHAIRMAN'S STATEMENT
The six months to 31 December 2002 were characterised worldwide by continuing
economic and geopolitical uncertainty. The Company's fully diluted Net Asset
Value (NAV) per share decreased by 2.7% to 526.9p (30 June 2002: 541.6p). The
Adjusted Redemption Value of Participating Loan Notes (PLNs) in the Company
declined by 2.9% to 517.0p (30 June 2002: 532.5p).
Listed markets fell substantially in the first three months of the period, with
the FTSE All-Share Total Return index declining by 19.6% over the quarter; this
fall was partially offset by a modest rally during the closing months of 2002,
resulting in an overall fall of 15.1% in the index for the half year.
However, the impact of these market movements on the Company was confined
chiefly to the listed component of its portfolio, which accounted for less than
10% of assets at the start of the period. Most unquoted fund managers had
already grasped the nettle of portfolio write downs during the early part of
2002 in response to the broad decline in markets during the latter part of 2001
and had therefore arrived at valuations within a more conservative framework
before the beginning of the period under review.
Some two thirds of the Company's portfolio is US Dollar denominated; the
decrease in value across the portfolio attributable to the 5.6% fall of the US
Dollar against Sterling during the period was approximately �6.3 million. The
effects of this currency movement were partially offset by realisations
achieved at encouraging valuations.
The Company's policy is to base the valuation for private equity funds on the
latest accounts produced by the underlying fund managers. In the case of the
valuation at 31 December 2002, more than 80% of portfolio assets were valued on
the basis of accounts dated September 2002. Moreover, only 3%were valued on the
basis of accounts dated prior to June 2002.
ACTIVITY IN THE PERIOD
During the period, the Company received proceeds totalling �21.7 million from
realisation of underlying investments at a significant uplift to their previous
valuations. Indeed, the four most significant realisations achieved an uplift
in the period of �8 million. This level of distributions is particularly
gratifying in view of the generally poor environment for achieving liquidity
and is a further testament to the ability of the Company's underlying managers
to achieve liquidity in a challenging exit environment. It is interesting to
note that two of the largest company sales during the period, Elifin and Coral
Eurobet, themselves took the form of buyouts.
The half year was an active investment period for the Company, which made new
commitments totalling �97.4 million. Of this total, �23.6 million was in
respect of commitments to new private equity funds, under the Company's ongoing
strategic primary fund programme. This programme, instituted in 2000 in the
interest of maintaining optimal diversification within the portfolio, allows up
to �225 million to be committed to new private equity funds in each three-year
investment phase.
The Company's primary commitments in the six months to 31 December 2002 were to
a selection of funds investing in the USA and in Western European markets and
focusing on mid-market buyouts or special situations, including Alchemy
Partners, Barclays Private Equity European Fund, Green Equity Investors IV,
Indigo Capital IV, Nordic Capital V, OCM Opportunities Fund IVb and The
Resolute Fund.
The bulk of new commitments made by the Company during the half year, however,
were for the acquisition of secondary interests. The purchases of two
substantial portfolios consisting principally of USA and European buyout funds
were agreed last year and announced in my statement in the June 2002 accounts.
These purchases were transacted during the period for a combined commitment of
�59.4 million and involved 34 fund interests in total. The Company also
completed secondary purchases of a number of smaller portfolios and single fund
interests in the half year, adding secondary holdings in a total of 39 funds to
its portfolio during the period at a cost, including unfunded commitments, of �
73.8 million.
Of the Company's new commitments during the half year, �56.9 million had been
drawn down by the year end, while total outstanding commitments in respect of
portfolio investments stood at �160.2 million at 31 December 2002.
The Company continues to benefit from its capacity periodically to issue PLNs,
which enable it to pursue attractive opportunities as they become available
while maintaining cash efficiency. Against a background of public market
turbulence, a new issue of PLNs in August 2002 succeeded in attracting �22.7
million of institutional commitments. The Company used the proceeds of this
issue as part of the funding for the two major secondary portfolio purchases
completed during the period.
MARKET COMMENTARY AND OUTLOOK
Following the drastic public market correction of 2001, the major global
private equity markets entered a period of readjustment, with the pace of
investment falling back to more normal historic levels and with rates of new
private equity fund raising greatly reduced in comparison with the `bubble'
phase of 1999-2001. The volume and value of private equity investments in 2002
were lower than in 2001, but an encouraging uplift in transactions,
particularly in the buyout sector, became apparent during the latter part of
the period under review.
Both M&A and flotation activity remained sluggish during the period. However,
the increase in private equity transactions during the closing months of 2002
was paralleled by indications of a more general recovery in corporate M&A,
giving rise to hopes of a more benign climate for realisations as 2003
progresses. Meanwhile, secondary buyouts - i.e., the purchase of an existing
buyout by a second private equity acquirer - represent an increasingly
important engine for both the buy and the sell sides of the private equity
market.
Following the return to more typical investment holding periods, venture
managers are currently concentrating increased resources on their existing
portfolio companies in anticipation of an expected upturn in technology
investment and M&A on the part of corporations. The one constant in the
technology arena being change, such an upturn is ultimately inevitable;
however, it is not expected to occur before late 2003 at the earliest.
Investors meanwhile are continuing to rebalance their portfolios in response to
the changed market environment. The flow of secondary acquisition opportunities
from both traditional and non-traditional sources is therefore expected to
persist during the coming months. However, in view of the variable quality and
pricing of the deals, the Company is maintaining a highly conservative and
selective approach to secondary investment.
FSA REVIEW
The Directors have been evaluating the recent proposals made by the FSA under
CP164.
They intend to seek amendments to the current proposals to ensure that
sufficient account is taken of the way funds are structured in the private
equity and venture capital industries, which are the Company's principal areas
of activity.
CONCLUSION
The Company's attitude to current market conditions continues to be one of
cautious optimism. Prevailing pricing levels are more realistic than in the
recent past. Furthermore, as many fund managers continue to focus their
attentions primarily on existing portfolio companies, competition between
companies for funding, rather than between fund managers for deals, has
re-emerged as a governing force in the unquoted companies market. From an
investor's point of view, this represents a healthy and welcome development
which offers the potential for the foundations of superior future performance
to be laid during the coming phase.
It is also encouraging to note the closer attention being paid by managers in a
challenging exit environment to finding non-traditional routes such as
recapitalisations or secondary buyouts for crystallising value and returning
capital to investors.
The broadly diversified nature of the Company's portfolio, which today
comprises holdings in more than 300 private equity funds worldwide investing
across both traditional and technology sectors, ensure that it is well
positioned to capitalise on opportunities for value growth wherever these
arise.
Lionel Stopford Sackville
28 February 2003
STATEMENT OF TOTAL RETURN OF THE COMPANY (unaudited)
(*incorporating the revenue account)
for the six months to 31 December
2002 2001
Revenue Capital Total Revenue Capital Total
�'000 �'000 �'000 �'000 �'000 �'000
Losses on investments - (3,740) (3,740) - (21,612) (21,612)
Currency gains/ - 377 377 - (56) (56)
(losses) on cash and
borrowings
Dividends and interest 377 - 377 369 - 369
Investment management (1,744) - (1,744) (1,523) - (1,523)
fee
Other expenses (724) (111) (835) (345) (17) (362)
Return on ordinary (2,091) (3,474) (5,565) (1,499) (21,685) (23,184)
activities before
financing costs and tax
Interest payable (33) - (33) - - -
Revaluation of - 2,976 2,976 - 2,958 2,958
participating loan
notes **
Return on ordinary (2,124) (498) (2,622) (1,499) (18,727) (20,226)
activities before tax
Tax on ordinary - (55) (55) - (26) (26)
activities
Return on ordinary (2,124) (553) (2,677) (1,499) (18,753) (20,252)
activities after tax
Return per ordinary
share
- Basic (9.84p) (2.56p) (12.40p) (7.96p) (99.62p) (107.58p)
* The revenue column of this statement is the revenue account of the Company.
** The revaluation of the PLNs in the six months ended 31 December 2002 of �
2,976,000 comprised a reduction in the value of the PLNs relating to the
movement in the Company's assets. The revaluation of the PLNs in the six months
to 31 December 2001 comprised a reduction in the value of the PLNs of �
7,452,000 relating to the movement in value of the Company's assets, offset by
the effect of a warrant conversion which led to a reduction in this movement of
�4,494,000.
All revenue and capital items in the above statement derive from continuing
activities.
SUMMARISED BALANCE SHEET OF THE COMPANY (unaudited)
As at 31 As at 30 As at 31
Dec 2002 June 2002 Dec 2001
�'000 �'000 �'000
Investments 222,967 194,619 196,340
Investment in subsidiary undertaking 1 1 1
Net current (liabilities)/ assets (10,065) 1,735 1,481
TOTAL ASSETS LESS CURRENT LIABILITIES 212,903 196,355 197,822
CREDITORS: AMOUNTS FALLING DUE AFTER
ONE YEAR
Participating loan notes 99,138 79,406 68,552
CAPITAL AND RESERVES 113,765 116,949 129,270
Amounts attributable to shareholders
and
participating loan note holders 212,903 196,355 197,822
Total net assets for the purposes of
calculating
the net asset value per ordinary 113,765 116,949 129,270
share
Net asset value per ordinary share 526.9p 541.6p 598.7p
Adjusted redemption value per
participating loan note 517.0p 532.5p 589.5p
Number of ordinary shares in issue 21,592,356 21,592,356 21,592,356
Number of participating loan notes in 19,175,179 14,910,981 11,628,229
issue *
* On 8 August 2002, 4,264,198 new PLNs were issued at an initial issue price of
532.53p per PLN, being the adjusted redemption value as at 28 June 2002.
SUMMARISED STATEMENT OF CASHFLOWS (unaudited)
For the six For the six
months to months to
31 December 2002 31 December 2001
�'000 �'000
Net cash outflow from operating (2,349) (1,448)
activities
Servicing of finance
Interest paid (29) -
Net cash outflow from servicing of (29) -
finance
Taxation
Tax withheld from capital distributions (55) (26)
Taxation recovered 408 894
Net taxation recovered 353 868
Capital expenditure and financial
investment
Purchases of investments (93,351) (60,750)
Sales of investments 63,714 46,082
Realised currency gains/(losses) 7 (37)
Net cash outflow from capital (29,630) (14,705)
expenditure and financial investment
Financing
Proceeds from issue of participating 22,708 7,940
loan notes
Proceeds of warrant conversion - 11,969
Payments to redeem participating loan - (5,000)
notes
Drawdown of bank credit facility 10,433 -
Net cash inflow from financing 33,141 14,909
Increase/ (decrease) in cash 1,486 (376)
These accounts have been prepared using accounting standards and policies
adopted at the year end.
The above financial information does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985. The comparative financial
information for the year ended 30 June 2002 has been taken from the full
accounts, which have been delivered to the Registrar of Companies and contained
an unqualified audit report.
The results for the six months to 31 December 2002 have been reviewed by the
Company's auditors and their report is attached.
Signed on behalf of the Board
L.G. Stopford Sackville
Chairman
INDEPENDENT REVIEW REPORT TO PANTHEON INTERNATIONAL PARTICIPATIONS PLC
Introduction
We have been instructed by the Company to review the financial information set
out in this interim report. We have read the other information contained in the
interim report and considered whether it contains any apparent misstatements or
material inconsistencies with the financial information.
This report is made solely to the Company. Our audit work has been undertaken
so that we might report to the Company in accordance with bulletin 1999/4
issued by the Auditing Practices Board and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company, for our work, for this report, or for the opinions we
have formed.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the Directors. The Directors
are responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority, which require that the accounting
policies and presentation applied to the interim figures would be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review work performed.
We conducted our review in accordance with guidance contained in bulletin 1999/
4 issued by the Auditing Practices Board for use in the United Kingdom. A
review consists principally of making enquiries of management and applying
analytical procedures to the financial information and underlying financial
data and, based thereon, assessing whether the accounting policies and
presentation have been consistently applied, unless otherwise disclosed. A
review excludes audit procedures such as tests of controls and verification of
assets, liabilities and transactions. It is substantially less in scope than an
audit performed in accordance with United Kingdom Auditing Standards and
therefore provides a lower level or assurance than an audit. Accordingly, we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review, we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 31 December 2002.
RSM Robson Rhodes
Chartered Accountants
London, England
28 February 2003
END