19 20
APEO Annual Report and Accounts 2023
abrdnpeot.co.uk
Overview
Strategic Report
Investment Strategy 15
Chair’s Statement 17
Key Performance Indicators
and Ten-Year Financial Record 24
Introduction to the Manager 25
Responsible Investment
and Sustainability 27
Investment Manager’s Review 31
Ten Largest Investments 45
Ten Largest Underlying
Private Companies 47
Investment Portfolio 49
Top 30 Underlying Private
Company Investments 52
Stakeholder Engagement and
Responsible Management 53
Principal Risks and Uncertainties 57
Corporate Governance
Financial Statements
Corporate Information
Overview Strategic Report Corporate Governance
Financial Statements
Corporate Information
Chair’s Statement continued
I take particular satisfaction in watching
the evolution of the Company’s direct
portfolio of co-investments and
single-asset secondaries, which we
introduced at the start of 2019. The
direct portfolio grew by 21.1% during
the year and now equates to 19.4% of
the overall portfolio. I would encourage
shareholders to read the Investment
Manager’s Report on pages 31 to 44,
where the Manager outlines the
portfolio in detail and the drivers of
performance.
Private equity market activity has fallen
during the year; how has that impacted
upon APEO’s cash flows, balance sheet,
new investment deployment and
outstanding commitments?
The decrease in private equity market
activity during the year has had an
impact on APEO but I believe that
the Company remains well positioned.
A key focus of the Board’s interactions
with the Manager over the last 12
months has been around cash flows,
with the Board challenging the
Manager to provide detailed scenario
analysis to ensure that APEO remains
in a strong liquidity position in this more
difficult environment and can remain so
if the current market conditions persist.
In the year to 30 September 2023,
drawdowns totalled £193.2million
(30 September 2022: £253.6million)
and distributions totalled £202.9million
(30 September 2022: £210.2million).
I feel that APEO has weathered the
sharp decline in private equity activity
during the period well. I would highlight
that part of the distribution figure
includes partial sales relating to APEO’s
co-investment in Action, the European
discount retailer. The Manager decided
to take advantage of a liquidity window
to reduce APEO’s position for portfolio
construction reasons. These trades
generated £53.0million of proceeds
and were priced at 100% of the most
recent valuation of Action in each case.
Following these sales, Action remains
the largest underlying portfolio
company in APEO.
a fulsome Valuation Committee,
as well as APEO’s external auditors
on an annual basis.
Whilst I could discuss the valuation
merits of APEO’s portfolio in a lot of
detail, including the defensive and
profitable nature of APEO’s underlying
private companies and the strong
earnings growth the portfolio has seen
over the period, ultimately I believe that
the test of any private equity valuation
is evidenced by the sale price at exit of
each investment. As mentioned earlier,
APEO has undertaken a number of
partial secondary sales with respect
to its position in Action, a European
discount retailer, and all of these
disposals have been achieved at 100%
of the most recent quarterly valuation
of that asset. Furthermore, while the
volume of private equity exits has
been lower over the course of 2023,
distributions from fund investments
during the year to 30 September 2023
were at an average uplift of 18% when
compared to the unrealised valuation
two quarters prior.
The Boards conviction on the current
valuation of the portfolio was a key
factor in progressing with a buyback
programme, as announced earlier
this month.
What is the Board’s view on share
buybacks, and could you explain
the rationale around the announced
buyback programme?
The Board does not have a stated
discount management policy. That
said, the Board and Manager closely
monitor the discount on a regular basis
From a balance sheet perspective,
we upsized the Company’s revolving
credit facility during the year, from
£200 million to £300 million, and
extended the maturity by a year
to December 2025.
At 30 September 2023, APEO
had £9.4million of cash and cash
equivalents (30 September 2022:
£30.3million) and £197.7million
remaining undrawn on the revolving
credit facility (30 September 2022:
£138.0million). Therefore, should
markets result in a period of a relatively
low private equity activity, I believe that
APEO has a sufficiently strong balance
sheet to weather the storm.
In APEO the Manager does not try
to time the market, rather it aims to
deploy consistently through the cycle
so that its underlying managers can
capture the best buying opportunities
in the market. Therefore, the year to
30 September 2023 was another active
year of new investment deployment,
with £174.8million committed to 13
new investments (30 September 2022:
£340.3million to 24 new investments).
Whilst new investment deployment
was materially behind levels in 2021
and 2022, which were especially
active years, I feel excited by the new
investments made in 2023, all of which
are very much “on strategy” for APEO.
The Manager runs an overcommitment
strategy for APEO and has done so
since the Company’s inception in 2001.
This ensures that APEO’s resources
are efficiently deployed, given it
makes primary fund investments –
this involves committing an amount
of equity capital which is then typically
drawn over a three- to five-year
period. Outstanding commitments
at 30 September 2023 were
£652.0million (30 September 2022:
£678.9 million) and this equates to
an overcommitment ratio of 35.2%,
at the lower end of our target range
of 30-75%.
The Investment Manager’s Report
on pages 31 to 44 provides further
information on cash flows, balance
sheet, new investments and
outstanding commitments.
What is the Board’s view on
the valuation of the portfolio?
The Board and Audit Committee
continually monitor and challenge
the Manager on the valuation of the
underlying portfolio, and the Board
has gained insight and reassurances
on the strong governance around
the valuation of APEO’s portfolio
through this ongoing oversight
process. It should be noted that the
vast majority of APEO’s investments
are, at an underlying level: (i) revalued
on a quarterly basis; (ii) audited
independently at least annually;
(iii) valued in line with International
Private Equity and Venture Capital
Valuation (“IPEV”) Guidelines; and (iv)
audited either in line with International
Financial Reporting Standards (“IFRS”)
or US generally accepted accounting
principles (“GAAP”) accounting
standards. Once the valuations reach
APEO, they are scrutinised by the
Manager on a quarterly basis under a
diligent Valuation Policy, including
From a balance sheet perspective, we upsized
the Company’s revolving credit facility during
the year, from £200 million to £300 million,
and extended the maturity by a year to
December 2025.
APEO has undertaken a number of partial
secondary sales with respect to its position
in Action and all of these disposals have
been achieved at 100% of the most recent
quarterly valuation.
to ensure that APEO is not an outlier
when compared to other investment
companies with a similar investment
approach and shareholder structure.
Suffice to say there is a balance to
consider in terms of buying-back
shares, right now that centres on the
ability to provide NAV accretion for our
shareholders versus preserving cash
liquidity during this period of lower
private equity exit activity.
Also, the Board considers the quarterly
enhanced dividend effectively a
regular return of capital to shareholders
at NAV and has prioritised this over
share buybacks in recent years.
However, in light of the persistently
wide share price discount to NAV,
coupled with both the Manager and
the Board’s strong conviction in the
valuation of the portfolio, the Board
announced in January 2024 that it will
use a portion of the €34.6 million of
proceeds realised from its most recent
partial sale of APEO’s co-investment
in Action to commence a buyback
programme. The ability to recycle a
significant portion of the Action sale
proceeds, realised at 100% of NAV,
into buying APEO shares at a discount
to NAV, is a compelling use of the
Company’s capital and provides
NAV accretion to shareholders. It also
highlights in the clearest terms the
disconnect between APEO’s current
share price and the valuation of its
underlying portfolio.
Going forward, the Board will continue
to monitor the evolution of the share
price and, in the event of further
sizeable distributions from the portfolio,
may look to extend the programme.
Does the Board plan to make any
changes regarding the Company’s
dividend policy?
Since 2016, the Company has
paid shareholders an enhanced
dividend on a quarterly basis, which is
effectively an ongoing return of capital
to shareholders at NAV. The Board
intends to continue this policy going
forward, with the aim of maintaining
the value of the dividend in real terms.