Sapphire European Private Equity L.P. Interim Report and Unaudited Financial Statements For the six months ended 31 December 2015

Size: px

Start display at page:

Download "Sapphire European Private Equity L.P. Interim Report and Unaudited Financial Statements For the six months ended 31 December 2015"

Rodney Johnston
5 years ago
Views:

1 Sapphire European Private Equity L.P. Interim Report and Unaudited Financial Statements For the six months ended 31 December

2 Management and Administration General Partner Sapphire Managers (Europe) Limited Regency Court, Glategny Esplanade, St Peter Port, Guernsey GY1 3UF Directors of the General Partner R. Corbin M. Haenel J. Winser D. Douglas Registered Office 1 st Floor, Les Echelons Court, Les Echelons, South Esplanade, St Peter Port, Guernsey GY1 1AR Administrator J.P. Morgan Administration Services (Guernsey) Limited 1 st Floor, Les Echelons Court, Les Echelons, South Esplanade, St Peter Port, Guernsey GY1 1AR Independent Auditors PricewaterhouseCoopers CI LLP Royal Bank Place, 1 Glategny Esplanade, St Peter Port, Guernsey GY1 4ND

5 Unaudited Profit and Loss Account for the six months ended 31 December Income Six months to 31 December Year to 30 June Bank interest - - Expenses - - Administration fees 53,738 80,429 Auditors remuneration: - Audit services 8,822 19,406 - Non-audit services 12,215 28,374 General expenses 2,516 4,821 Bank charges 2, Professional membership fees 1,325 2,332 Legal Fees 7,697 - Gains on foreign exchange (68) (747) Total Expenses 89, ,959 Loss and comprehensive expenses for the period/ year (89,107) (134,959) There is no difference between the net loss for the period as stated above and its historical cost equivalent. The Notes on pages 8 24 form an integral part of these unaudited Financial Statements 4

6 Unaudited Statement of Total Recognised Gains and Losses for the six months ended 31 December Six months to 31 December Year to 30 June Notes Net loss for the period/ year before priority profit share (89,107) (134,959) Movement in unrealised value of investment in Permira Europe II L.P. I 4 117,803 (3,644,879) Movement in realised gains on Permira Europe II L.P. I - 7,916,955 Total recognised gain for the period/ year 28,696 4,137,117 The Notes on pages 8 24 form an integral part of these unaudited Financial Statements 5

7 Unaudited Statement of Movements in Partners Funds for the six months ended 31 December Six months to 31 December Year to 30 June Notes Net assets attributable to Partners at 1 July 9,030,117 4,903,682 Total gain and comprehensive expenses for the period/ year 28,696 4,137,117 Distributions 11 (7,500,000) - Movement in loan to General Partner 3 (4,927) (10,682) Net assets attributable to Partners at period/ year end 1,553,886 9,030,117 The Notes on pages 8 24 form an integral part of these unaudited Financial Statements 6

8 Unaudited Statement of Cash Flows for the six months ended 31 December Six months to 31 December Year to 30 June Notes Operating activities Net cash outflow from operating activities 7 (46,340) (120,874) Investing activities Distributions received from Permira Europe II L.P. 1-7,916,955 Net cash inflow from investing activities - 7,916,955 Financing activities Distributions paid to Limited Partners (7,500,000) - Interest free loan to General Partner (4,927) (10,682) Net cash (outflows) from financing activities (7,504,927) (10,682) (Decrease)/increase in cash and cash equivalents (7,551,267) 7,785,399 Cash and cash equivalents at beginning of period/ year 8,356, ,949 (Decrease)/ increase in cash and cash equivalents (7,551,267) 7,785,399 Cash and cash equivalents at the end of the period/ year 805,081 8,356,348 The Notes on pages 8 24 form an integral part of these unaudited Financial Statements 7

9 Notes to the Unaudited Financial Statements for the six months ended 31 December 1. The Partnership Sapphire European Private Equity L.P. (the Partnership ) is a Guernsey Limited Partnership which invests in L.P. I of Permira Europe II ( PEII ). The Partnership owns 1,000 Limited Partnership Interests of PEII out of 33,000 Limited Partnership Interests in issue. PEII raised 3.3 billion for investment in buy-outs and buy-ins and, to a lesser extent, growth capital deals in Europe. Particular industry groups targeted included technology, chemical, healthcare, consumer products and services and industrial products. Investors participate in the Partnership through Participation Certificates issued by Schroder Investment Company Limited ( Schrovest ). The Participation Certificates represent participation in Schrovest s investment in the Partnership and are listed on the Channel Islands Stock Exchange. 7,500 Participation Certificates were issued at 10,000 per certificate. 2. Summary of significant accounting policies (i) Statement of compliance The financial statements have been prepared in accordance with FRS 102, the Financial Reporting Standard applicable in the UK and Republic of Ireland (FRS 102) as it applies to the financial statements of the Partnership for the period ended 31 December and year ended 30 June. FRS 102 is applicable for accounting periods on or after 1 January. The Partnership transitioned from the previous extant UKGAAP to FRS 102 as at 1 July The transition to FRS 102 has not affected the reported financial position and financial performance of the Partnership and therefore there is no reconciliation of reserves before and after the transition. (ii) Basis of preparation The directors of the General Partner explored the possibility of selling the interest in PE II and concluded that a sale would be in the best interests of the investors in Sapphire. Post period end, PE II was sold to a third party and the directors of the General Partner therefore, do not consider the going concern basis to be appropriate and these financial statements have therefore not been prepared on that basis. 8

10 Notes to the Unaudited Financial Statements for the six months ended 31 December 2. Summary of significant accounting policies (continued) (ii) Basis of preparation (continued) The preparation of financial statements in conformity with FRS 102 requires the use of certain critical accounting estimates. It also requires the General Partner to exercise its judgment in the process of applying the Partnership s accounting policies. Changes in assumptions may have a significant impact on the financial statements in the period in which the assumptions changed. Management believes that the underlying assumptions are appropriate and that the Partnership s financial statements therefore present the financial position and results fairly. The accounting policies below have been consistently applied to all periods presented. (a) (b) (c) Income (i) Income is accounted for on an accruals basis. (ii) Capital distributions from investments are credited against the cost of the investment with any excess over cost being credited to the Partner s capital account via the statement of total recognised gains and losses. Expenses Expenses are accounted for on an accruals basis. Foreign Currency Foreign currency monetary assets and liabilities are translated into Euro at the rate of exchange ruling at the statement of net assets date. Transactions in currencies other than the Euro are translated into the reporting currency at the rate of exchange ruling at the date of the transaction. Realised and unrealised foreign exchange differences have been recognized in the profit and loss account. 9

11 for the six months ended 31 December 2. Summary of significant accounting policies (continued) (d) Investments The Partnership s investment in L.P. I of Permira Europe II ( PEII ) is an unquoted investment and as such is stated at a valuation determined by the Directors of the Partnership s General Partner. The valuation is based on the net asset value of PEII ascertained by valuations and audited financial information provided by the General Partner to PEII. Such valuations are necessarily dependent upon the reasonableness of the valuations by the General Partner of the underlying investments in PEII. The General Partner to PEII values the portfolio in accordance with the Limited Partnership Agreements and follows the British Venture Capital Association ( BVCA ) Guidelines. The BVCA endorses the use of International Private Equity and Venture Capital Valuation ( IPEV ) Guidelines, which supersede the previous BVCA Guidelines. A summary of the relevant investment valuation policies adopted by PEII are described below: Quoted Equity Investments Investments listed on a recognised active stock exchange are valued at their quoted market price less an appropriate discount only where there is some legal restriction preventing realisation at the reporting date. Unquoted Equity Investments Unquoted equity investments are valued either at the price of a recent transaction or on the basis of maintainable earnings capitalised at an appropriate multiple which may be subject to an appropriate discount. The General Partner has apportioned the net attributable enterprise value appropriately across each financial instrument taking account of amounts accruing on each respective instrument and less any appropriate impairment provisions. The eventual realisation proceeds will inevitably differ from the valuation and the differences could be significant. 10

12 for the six months ended 31 December 3. Priority Profit Share ( PPS ) The detailed provisions relating to the PPS can be found in paragraph 3.4 of the Limited Partnership Agreement. The following is a summary of the main provisions in those paragraphs: (a) (b) (c) The General Partner is entitled to a priority profit share which shall be an amount equal to 0.75 per cent. per annum of the total commitments of the Limited Partners (irrespective of whether the Limited Partners have made capital contributions in respect of these amounts) until 30 June From 1 July 2010 until the date upon which the Partnership is dissolved, an annual sum representing 0.75 per cent. of the cost of PEII s remaining investments. In the event that, in any period the net income and capital gains less capital losses shall be less than the General Partner s priority profit share, the short-fall shall be paid to the General Partner as an interest free loan. The loan is only to be satisfied by an allocation of subsequent Net Income or Capital Gains and is not recoverable from the General Partner. 11

13 for the six months ended 31 December 3. Priority Profit Share ( PPS ) (continued) Loan to General Partner 31 December 30 June PPS paid to date: Balance brought forward 5,669,049 5,658,367 Loan advanced during the year 4,927 10,682 5,673,976 5,669,049 Allocation of cash income: Balance brought forward (672,308) (672,308) Allocation during the year - - (672,308) (672,308) Allocation against realised gains: Balance brought forward (98,384) (98,384) Allocation during the year - - (98,384) (98,384) Realised gains on PEII: Balance brought forward (3,210,857) (3,200,175) Allocation during the year (4,927) (10,682) (3,215,784) (3,210,857) Written off to the Statement of Total Recognised Gains and Losses: Balance brought forward (1,687,500) (1,687,500) Written off during the year - - (1,687,500) (1,687,500) Balance carried forward

14 for the six months ended 31 December 4. Investments Permira Europe II L.P. I ( PEII ) 31 December 30 June Cost 1,000 Limited Partnership Interests Capital called (100.0%) 100,000, ,000,000 Capital distributions received (169.5%) (169,456,590) (169,456,590) Capitalised interest: Interest on late calls paid to PEII 296, ,000 Loan interest paid to Schroder Investment Company Ltd. 380, ,077 (68,780,513) (68,780,513) Surplus of distributions received over cost: Realised gains on investment 68,780,513 68,780,513 Total Cost - - Valuation 860, ,122 Unrealised gains on investment 860, ,122 Unrealised gains on investment brought forward 743,122 4,388,001 Unrealised gains on investment carried forward 860, ,122 Movement in unrealised gain for the year 117,803 (3,644,879) 13

15 for the six months ended 31 December 4. Investments (continued) The movement in unrealised gains on investments comprises the following movements in partner funds in PEII: 31 December 30 June Revaluation reserve 140,943 (4,086,104) PEII Founder Partner reserve/distributions (29,426) (1,068,040) Realised gain on investments 2,647 9,430,521 Priority profit share to General Partner of PEII 9,595 8,685 Loan to the General Partner - - Net loss for the year (5,956) (12,986) Surplus of distributions above initial cost - (7,916,955) 117,803 (3,644,879) The Partnership committed to invest a total of 100 million in PEII which, at 31 December, has been fully called. 14

16 for the six months ended 31 December 4. Investments (continued) Investments held by PE II Original date of Acquisition Cost Valuation Cortefiel Sep ,193,636 - Marazzi Dec ,152 9,394 TDC Dec , ,939 1,290, ,333 Provision for estimate of PEII Founder Partner distributions on unrealised portfolio (215,225) Other net assets 592, ,925 15

17 for the six months ended 31 December 5. Debtors and Prepaid Expenses 31 December 30 June Prepayments 2,820 3, Creditors and Accruals 31 December 30 June Auditors remuneration: - Non-audit fees 37,717 25,502 - Audit fees Administration fees 27,241 29,169 18,418 18,160 Distributions payable 18,350 8,350 Other creditors 2,463 2, ,940 73,093 The financial liabilities listed above are non-interest bearing. The carrying amount of the non-interest bearing trade and other payables approximates their fair value. 16

18 for the six months ended 31 December 7. Reconciliation of Comprehensive Income to Net Cash Outflow from Operating Activities Six months to Year to 31 December 30 June Comprehensive expenses for the period before priority (89,107) (134,959) profit share Decrease/ (increase) in debtors & prepaid expenses 920 (812) Increase in creditors and accruals 41,847 14,897 Net cash outflow from operating activities (46,340) (120,874) 8. Capital Committed On 22 December 2000, 7,500 Limited Partnership interests were allotted. The subscription price of each interest was 10,000. The General Partner holds no interest in the Partnership. In accordance with the Limited Partnership agreement, 60% of the commitment was called on issue of the Participation Certificates and the final 40% was called on 28 June % 31 December 30 June Committed ,000,000 75,000,000 Funds drawn ,000,000 75,000,000 17

19 for the six months ended 31 December 9. Partner s Capital Account 30 June Movement 31 December Funds drawn (Note 8) 75,000,000-75,000,000 Funds distributed (Note 11) (126,037,500) (7,500,000) (133,537,500) Profit and loss account (4,512,846) (89,107) (4,601,953) Realised gains on investments 68,735,698-68,735,698 Allocated against loan to General Partner (Note 3) (4,898,357) (4,927) (4,903,284) 10. Revaluation Reserve 8,286,995 (7,594,034) 692, June Movement 31 December Permira Europe II L.P. I (Note 4) 743, , ,925 18

20 for the six months ended 31 December 11. Allocations and Distributions The detailed provisions relating to allocations and distributions can be found in paragraph 11.1 of the Limited Partnership Agreement. In summary, the net income and capital gains arising in respect of the Partnership assets shall be allocated to the Limited Partners in proportion to their capital commitments until such time as the aggregate Euro amount of such allocations equals their aggregate contributions and a compound annual 12 per cent. internal rate of return thereon is achieved. Thereafter the General Partner s right to a carried interest gives it a share of 5 per cent. of distributions in excess of committed capital. The following distributions have been made during the period from 19 July 2004 to 31 December : Date Year Number Amount per Limited Total Distribution Partnership Interest 19 July ,000 7,500, October ,625, November ,750, January ,750, February ,750, March ,128 8,460, June ,665, August ,200, October ,475, November ,625, March ,300 9,750, March ,125, June ,975, September ,380 17,850, November ,562, February ,375, March ,930 14,475, April 23 December ,487,500 3,375, March ,550, February ,350, March ,500, May , November , July 25 1,000 7,500, ,537,500 19

21 for the six months ended 31 December 12. Risk The Partnership s principal investment objective is to achieve capital appreciation by investing in PEII which is managed and advised by Permira Europe II Managers L.P. The Partnership s financial instruments comprise the investment in PEII, as well as the cash balances, debtors and creditors that arise from its operations. The principal risks which the Partnership faces are: - Market price risk (movements in the value of the Partnership s investment in PE II caused by factors other than interest rate movements), - Liquidity risk; - Interest rate risk; and - Foreign currency risk. - Credit risk Market Price Risk Due to the nature of the investment policy, the investment held by the Partnership in PEII is an unquoted partnership interest and as such this investment is less readily marketable. It is the nature of private equity investment that a commitment to invest will be made, as disclosed in Note 4, and that these commitments will be drawn down from the Limited Partners over time. As per Note 2(d) to the Financial Statements, the Partnership s investment in PEII, which is unquoted, is stated at a valuation determined by the Directors of the General Partner. The valuation is based on the net asset value of PEII ascertained by valuations and financial information provided by the general partner of PEII. At 31 December, a 10% movement in the valuation of the Partnership s investment would result in a 5% change in net assets attributable to the Partnership. (30 June : 1%). The percentage movement has been applied to the investment valuation as a whole. PEII reached the end of its ten-year term on 20 October This term may be extended by up to three one-year periods. The Permira II Advisory Committee agreed to a second oneyear extension until 20 October 2012 and a third one-year extension until 20 October The directors of the General Partner have explored the possibility of selling the interest in PE II and have now concluded that a sale would be in the best interests of the investors in Sapphire. 20

22 for the six months ended 31 December 12. Risk (continued) Liquidity Risk Liquidity risk is the risk that the Partnership may not be able to meet its liabilities as and when they fall due. The interest held in PEII is, by its nature, fairly illiquid. As a result, the Partnership may not be able to liquidate quickly its investment in PEII at an amount close to their carrying value. Interest Rate Risk The Partnership has no exposure to interest rate risk from its investment in PEII which is non interest bearing. A cash balance is held on a call account at floating interest rates. The interest rate profile of the Partnership s financial assets and liabilities are set out below: Assets 31 December 30 June Fixed Floating rate rate Total Total Call account - 805, ,081 8,356, , ,081 8,356,348 Foreign Currency Risk As the Partnership has invested in a Euro denominated asset and all cash balances are held in Euro, there is an insignificant exposure to foreign currency risk at the level of the Partnership. 21

23 for the six months ended 31 December 12. Risk (continued) Credit Risk Credit risk represents the potential loss that the Partnership would incur if counter parties fail to perform pursuant to the terms of their obligations to the Partnership. The Partnership has no significant concentration of credit risk. The Partnership is exposed to credit risk on its cash at bank balances held with third parties. The Partnership manages its exposure to credit risk on cash at bank balances by banking with reputable financial institutions and reviewing their credit ratings on a regular basis. At the year end cash at bank was primarily held with the Royal Bank of Scotland Plc which has a credit rating of A3 for long term debt from the credit agency Moody s. Fair Value Estimation The following table presents the Fund s financial assets that are measured at fair value at 31 December. At 31 December Level 1 Assets: Level 2 Level 3 Total Investments , , , ,925 The following table presents the Fund s financial assets that are measured at fair value at 30 June. At 30 June Level 1 Assets: Level 2 Level 3 Total Investments , , , ,122 The Partnership s investment is not traded in an active market and its fair value is determined by using valuation techniques with significant inputs not based on observable market data, therefore the investment is included in Level 3. 22

24 for the six months ended 31 December 12. Risk (continued) Fair Value Estimation (continued) The following table presents the changes in Level 3 instruments for the year ended 31 December. At 31 December Investments Opening balance 743,122 Gains and losses recognised in the statement of total recognised gains and losses 117,803 Closing Balance 860,925 The following table presents the changes in Level 3 instruments for the year ended 30 June. At 30 June Investments Opening balance 4,388,001 Gains and losses recognised in the statement of total recognised gains and losses (3,644,879) Closing Balance 743,122 23

25 for the six months ended 31 December 13. Net Assets Per Interest Calculation Net Assets Number of Interests Net Assets per Interest Adjusted Net Assets per Interest 31 December 1,553,886 7, June 9,030,117 7,500 1,204 1,204 The Partnership is no longer in an implied carry position. Therefore, no estimate for implied carry has been calculated as at 31 December. There is, therefore, no difference between the net assets per interest and the adjusted net assets per interest. 14. Related Party Transactions Sapphire Managers (Europe) Limited and Schroder & Co. Limited both have the same ultimate parent company, Schroders plc. On 1 July 2010 the basis of the priority profit share changed from a fixed basis equal to 0.75 percent of the total commitment of the Limited Partners, to an annual sum representing 0.75 per cent of the cost of PEII s remaining investments. The amount payable quarterly in advance to Sapphire Managers (Europe) Limited, was 4,927 (30 June : 10,682). 15. Subsequent Events On 10 March 2016, the directors of the general partner sold Sapphire s interests in LP1 of PE II to an interested party. 24

Schroder Offshore Cash Fund. Interim Report and Accounts. 30 June 2017

Schroder Offshore Cash Fund. Interim Report and Accounts. 30 June 2017 Schroder Offshore Cash Fund Interim Report and Accounts 30 June 2017 Contents Schroder Offshore Cash Fund Fund Information 1 3 Investment objective and policy 3 Alternative Investment Fund Managers Directive