APEN Private Equity
Annual Report 2013 FACTS AND FIGURES
Company Profile APEN Ltd is a Swiss investment company with the objective of achieving long-term capital growth for shareholders, by actively managing a well balanced portfolio of private equity funds and privately held operating companies. APEN Ltd has over a decade of operating history and is managed by GP Advisors, part of GP Investments Group. APEN Ltd is listed on the SIX Swiss Exchange under the ticker symbol “APEN”.
Valuation as of 31 December 2013 Closing price per share CHF 20.40 Net asset value per share CHF 38.78 (applying fair values) Exchange rate USD/CHF 0.88935 Exchange rate EUR/CHF 1.2255 Number of shares outstanding 5 363 717 Market capitalization CHF 109.4 million
Swiss Security Number 915.331 ISIN: CH0009153310 Ticker: APEN
Trading Information Reuters: APEZn.S Bloomberg: APEN Telekurs: APEN www.apen.com
Rounding Numbers presented throughout this report may not add up precisely to the totals pro - vided in the tables and text. Percentages and percent changes are calculated based on rounded figures displayed in the tables and text and may not precisely reflect the per cen - tages and percent changes that would be derived based on figures that are not rounded. LIST OF CONTENTS
Chairman’s Statement 3
Management Report
Review 2013 and Outlook 4
Overview of 20 Largest Investments 8
30 25 Financial Report – APEN Group 20 20
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10 Consolidated Financial Statements 2013
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Corporate Governance 58
GP INVESTMENTS NEWBURY PARTNERS OTHER SHAREHOLDERS FORTRESS ENTITIES
100%
GP ADVISORS LTD, ZURICH 1 APEN LTD, A SHARES ZUG
C SHARES Financial Report – APEN Ltd 100% 72 APEN FAITH MEDIA APEN HOLDINGS, LLC HOLDINGS, LLC DELAWARE
C SHARES
100% 100% 99%
GP ADVISORS (BERMUDA) LTD 1% APEN BERMUDA APEN BERMUDA EM LTD 3 LEGACY LTD 2 Financial Statements 2013
APEN HOLDINGS APEN FMH, LLC (BERMUDA) LTD 2
Board of Directors of APEN Ltd. From left to right: DAVID EMERY, Member – EDUARDO LEEMANN, Chairman of the Board – DAVID PINKERTON, Member – ANTONIO BONCHRISTIANO, Vice Chairman – ALVARO LOPES, Member Chairman’s Statement 3
Dear Shareholders
For APEN, 2013 was a year linking the bination of fund and direct investments, years, did not stand for re-election at the past – represented by solid investment with an emphasis on secondary fund Annual General Meeting. The Board of portfolio performance – with the future – investments and on co-investments with Directors would like to thank Dr. Wenger represented by our new investment strategy local partners. The principal geographical for his great commitment and valuable con- focusing on private equity investments in regions targeted are Asia, Latin America and tributions in the interests of APEN Ltd. emerging markets. The organizational set-up sub-Saharan Africa, while investments in has been modified accordingly, with the Eastern Europe and the Middle East are The current members of the Board of appointment of an external manager in pursued on an opportunistic basis. Directors will stand for re-election at the charge of relaunching investment activities. 2014 Shareholders’ Meeting. APEN appointed GP Advisors (Bermuda) As in previous years, the private equity Ltd., a wholly owned subsidiary of GP We expect that the legacy portfolio will industry put on a good performance, with Investments Group (“GP Investments”), as continue to generate strong cash flows a strong exit track record particularly in its Investment Manager. As a result, the which should allow further reduction of North America. Accordingly, APEN’s mature corporate functions of CEO and CFO were existing indebtedness and the creation portfolio generated about USD 80 million cancelled, since the Board of Directors has of additional liquidity for new investments. in distributions. The strong associated cash itself assumed the relevant functions for The investment pipeline looks promising flow enabled reduction of indebtedness the Company. The Board of Directors has and we are confident that in 2014, initial during the initial part of the year followed assured administrative support through a investments under the new strategy will by a radical transformation of the financial service agreement with GP Advisors Ltd. be closed, thus setting in motion the situation of the Company, creating the (Switzerland). The management team under envisaged transformation of the portfolio foundation for solid future performance. the leadership of David Salim will continue and the repositioning of APEN. Together to support the Company as part of GP with a simplified financial structure, this In May 2013, APEN announced a restructur - Investments. Former CFO Conradin should increase the attractiveness of the ing of its balance sheet, comprising both Schneider left GP Investments in August Company; the large discount of the stock debt and equity components. Three new 2013; he has been replaced by Dr. Guido price to NAV is unsatisfactory and its main shareholders (GP Investments Group, Cornella as of 1 July 2013. reduction is another priority for the Board Newbury Partners and Fortress Investment and the Manager for the current year. Group) replaced the largest historical share- As a result of the refinancing and the holder, AIG, and underwrote a substantial subsequent changes in the Company’s capital increase. The cash raised through shareholder structure, changes in the com- this capital increase supports the new position of the Board of Directors became investment strategy approved at the Annual effective following the 2013 Annual General General Meeting in June 2013, permitting Meeting. Antonio Bonchristiano and Alvaro APEN to relaunch its investment activities Lopes both joined the Board of Directors as with a focus on private equity in emerging representatives of GP Investments, and Eduardo Leemann markets. Investments will consist of a com- David Emery was elected as an independent Chairman of the Board member of the Board of Directors. Eduardo Leemann and David Pinkerton, both long- standing Board members, were re-elected. Dr. Christian Wenger, who had been a member of the Board of Directors for many 4 Management Report
Review 2013 and Outlook
2013 was characterized by a substantial balance sheet refinancing as well as continued solid investment performance for APEN (“the Company”). In the refinancing, APEN was able to reduce its debt significantly and obtain much improved credit terms. Additionally, the Company increased its capital by issuing new shares (proceeds of CHF 27.0 million) and selling treasury shares (proceeds of CHF 4.3 million). These proceeds are available to make investments under the new investment strategy.
APEN generated investment income per share. The dif ference between the of USD 140 million and a USD 10 million (realized gains, dividends and interest published NAV per share (CHF 38.78) and revolving credit facility. The proceeds from income from non-current assets) amount ing the economic NAV per share relates to the these transactions, plus existing cash of to CHF 46.5 million (2012: CHF 58.0 mil- accounting treatment of the “derivative USD 17.8 million, USD 199.8 million in total, lion) for the period. Finance costs at financial liability”. Based on the put-call- were used by APEN to pay back debt with CHF 26.2 million were much reduced versus agreement between the Company and AIG (Class B Units) and Fortress (Borrow - 2012 (CHF 41.4 million) but the additional Fortress entities, the Fortress entities can ings). AIG was paid USD 142.7 million for loss on the Class A Units of CHF 3.8 million put their APEN shares from 12 June 2014 APEN’s obligations amounting to USD 191.6 (2012: nil) resulted in a net loss of CHF 3.6 through 12 June 2018 to the Company at a million, while Fortress was paid USD 57.1 million (2012: net profit of CHF 1.1 million) price of CHF 21.80 per share. In line with million. and a comprehensive loss for the period of IFRS accounting guide lines, the Company CHF 9.3 million (2012: loss of 9.9 million). presents the put option as a liability result - The remaining funds of the legacy port folio ing in a charge of CHF 2.92 per share. (i.e. portfolio held by the Company as of Due to the strong investment income end of December 2013) are mostly in performance, the Company also achieved In 2013 the Company’s share price divestment stage and will continue to solid net cash flows from investments in creased by 22% and ended the year at generate distributions to APEN. After pay- enabling it to repay USD 30 million of the CHF 20.40. As of 31 December 2013, the ment of Fortress’ 12.5% interest (“A” new debt acquired in the balance sheet shares traded at a discount of 47% to the shares), proceeds from the legacy portfolio refinancing in May 2013. The net asset value NAV (31 December 2012: 70%). will be used to repay the new loan pro vided (“NAV”) per share decreased to CHF 38.78 by Fortress, according to the follow ing as of 31 December 2013 (31 December waterfall: if the loan to value (“LTV”) is over 2012: CHF 56.73). This decrease is mainly Refinancing 30%, 12.5% of proceeds to “A” shares and due to the repayment of the 2009 loans and 87.5% to repay the loan; if the LTV is below the subsequent removal of the pre viously On 21 May 2013 the Company announced 30%, 12.5% of proceeds to “A” shares, required accounting treatment of those the refinancing of debt, the strengthening 70.0% to repay the loan and 17.5% to APEN; loans which in the management’s view of its capital base and its new investment if the LTV is below 25%, 12.5% of proceeds overstated the year-end 2012 NAV from an strategy with a focus on emerg ing markets. to “A” shares, 60.0% to repay the loan and economic perspective by approximately In a series of trans actions with GP Invest- 27.5% to APEN; and if the LTV is below 20%, CHF 15.70 per share. Compared to 30 June ments, Fortress Investment Group and 12.5% of proceeds to “A” shares, 45.0% to 2013 (first post restructuring publication) Newbury Partners, the Company raised repay the loan and 42.5% to APEN. As of the NAV per share remained largely un - USD 182 million. USD 42 million in net cash 31 December 2013 the LTV was 29.4%. changed even though the main investment was generated by selling certain assets to currencies weakened significantly against Newbury Partners. The Company disposed To further strengthen the capital base and the Swiss franc within that time period of the following portfolio funds: Altaris to support the future growth of APEN, GP (USD –6.0%; EUR –0.4%). The resulting Health Partners II, Ares Corporate Fund II, Investments, Fortress Investment Group, negative NAV/ share impact of CHF 2.47 The Fourth Cinven Fund, New Mountain and Newbury Partners have agreed to from these currency movements was Partners III, Thompson Street Capital Part- become major shareholders of the Com- compensated by the solid investment per- ners II, TowerBrook Capital Partners II, and pany. This was achieved through a series of formance of the legacy portfolio in the half of its commitment in SFW Capital Part- transactions, which involved buying the second half of 2013. The economic NAV as ners. At the same time, Fortress granted the 36.5% of the Company’s shares previously of 31 December 2013 amounted to CHF 41.70 Company a three-year loan in the amount held by AIG and increasing the Company’s Management Report 5
Management of GP Advisors. From left to right: DAVID SALIM, Chief Executive Officer DR. GUIDO CORNELLA, Chief Financial Officer
capital by CHF 31.3 million, including the divestments performed by the various fund Investment Portfolio sale of treasury shares. As a result, GP managers. Proceeds freely available to APEN Investments together with Newbury Partners will be used for investments alongside the During 2013, net realized gains of CHF 42.2 reported a holding of 40.1% of the Com - new investment strategy. New investments million were booked. This represented pany’s shares as of end of June 2013 while will be made by APEN Bermuda EM Ltd. and 10.7% of the portfolio investments at the Fortress reported a holding of 13.4% of the the existing investments (as per 31 Decem- beginning of the year. Overall, approxi mately Company’s shares. The remaining 46.6% ber 2013) will be held by APEN Bermuda two thirds of the net realized gain was were held by other shareholders. Legacy Ltd. recorded by funds held in the North Ameri- can Funds Portfolio. 19% was accounted for As part of the refinancing, the service Through the expertise of GP Investments in by the Western European Funds Portfolio, company (APEN Services GmbH), was con- the Latin American markets and by working 0.4% by the Other Regions Fund Portfolio verted into a stock company, sold to GP closely together with leading local invest- and 13% by the Direct Investments Portfolio. Investments and renamed GP Advisors Ltd. ment advisors throughout the emerging markets, APEN created a solid foundation for Four distributions in excess of CHF 2 million In parallel with the refinancing, the Com- build ing a highly attractive private equity and fourteen distributions between CHF 1 pany established its new investment stra- portfolio. million and CHF 2 million were recorded in tegy which was approved by shareholders 2013. The total amount of these eighteen at the annual shareholders’ meeting. The distributions was CHF 29.5 million. Approxi- investment objective of the Company con - New Organization mately 76.3% of these largest distributions tinues to be to realize long-term capital were recorded by funds held in the North appreciation by creating a portfolio of As part of the restructuring, APEN American Funds Portfolio and 9.8% were fund investments and direct co-investments appointed GP Advisors (Bermuda) Ltd., a accounted for by the Western European in the private equity sector, with the invest- wholly owned subsidiary of GP Investments Funds Portfolio. 13.9% of the distributions ments being diversified among fund Group (“GP Investments”) as its Investment were realized by the Direct Investments managers, geographical regions, economic Man ager. The Board of Directors has Portfolio. sectors and maturity stages. The principal assured administrative support through a geographical regions targeted are Asia, service agreement with GP Advisors Ltd. Portfolio fund valuations slightly increased Latin America and sub-Saharan Africa, while (Switzerland). or remained stable throughout the year. The investments in Eastern Europe and the Company continues to be satisfied with the Middle East are pursued on an opportunistic In return for the management of the port - development of the funds in the portfolio. basis. For primary and secondary fund folio, GP Investments receives management For the calculation of year-end valuations, investments, the diversification shall mainly fees in the total of CHF 5.1 million per year the Company generally used reports as of be achieved through different man agers in over the next five years and a performance 30 September 2013 and added/subtracted various countries. For direct co-investments, fee of 10% on the increase of the NAV (after fourth quarter cash flows to determine year- the diversification will mainly be achieved reaching the hurdle rate of 5% and includ - end 2013 fair values. The net asset value of through industry and maturity stage, as well ing customary catch-up). Starting from the the ten largest funds made up 54% of the as through geography. beginning of the 6th year the management portfolio. With an increasingly mature port - fee will be 1.5% of NAV. The initial term of folio, the Company has a number of funds The legacy portfolio is expected to be the management contract is of 7.5 years. focused on divestments or holding only a liquidated over the upcoming years prima- few investments which are expected to be rily following the natural evolution of divested in the short to mid-term. 6 Management Report
The performance of the Direct Investment The Company expects write-downs on non- shares putable, multiplied by the agreed Portfolio was positive. Two of the three current assets to remain at low levels in 2014. share price. At the same time, the Company publicly traded companies (Body Central, has a call option to purchase the shares at a Hertz) were sold completely in the first half Operating expenses (including management price of CHF 41.80. As a result, the Group has of 2013. The remaining listed company fees) amounted to CHF 10.1 million (2012: recognized a financial liability in the amount which was sold partially (NXP) saw its share CHF 5.2 million) or about 2.4% of average of CHF 15.6 million, which equals the present price grow strongly in 2013. Of the privately total assets for the year. Of the 2013 oper - value of the redemption amount. held companies, Advanstar Communications ating expenses CHF 4.4 million are linked and Falcon Farms saw their fair value to the refinancing and are therefore of a decrease as both companies did not per- non-recurring nature. No performance fee Top 20 Investments form as expected. The two largest Direct has been charged to the Group. Investments (Uplifting Entertainment, The Company’s list of Top 20 Investments has Knowledge Universe Education) showed six new entries as of year-end 2013, mainly solid results and their valuation increased Liabilities due to the outperformance of companies substantially. However both companies are which were not part of the Top 20 before and still valued below cost. The Borrowings and the Class B Units were two full divestments (Managed Healthcare replaced by a new term loan during 2013. Associates and Ladder). The Top 20 invest- The composition of the portfolio has The main liabilities are now the 2013 term ments portfolio accounted for 31.2% of total changed during 2013 due to the secondary loan, the Class A Units and the derivative invested assets (2012: 24.7%). Seven of sale (consisting mainly of North American liability related to the Fortress put option. the Top 20 investments (Kinder Morgan, Funds) which was part of the refinancing. Hilton, The Nielsen Company, Czerwona The North American Funds Portfolio how- The 2013 term loan carries a cash interest Torebka, Sprouts Farmers Market, Shinsei and ever continued to have the largest share rate of Libor +7% p.a. At year end the loan Norwegian Cruise Line) were publicly listed with 52.7%, with the Western European balance was USD 110 million. In January, as of year-end 2013. Overall the performance Funds Portfolio (32.1%), the Other Regions February and March of 2014, the Company of the Top 20 investments is satis factory. Fund Portfolio (8.5%), and Direct Invest- made further interest payments of USD 2 See page 10 for detailed information on the ments/Loans (6.6%) making up the balance. million and principal repayments in the Top 20 investment portfolio. The overall holding period of the underlying amount of USD 6 million, reducing the portfolio companies increased, as no new outstanding loan to USD 104 million. funds were added to the portfolio. Invest- Liquidity ments with a holding period of less than Class A Units are classified as financial three years amounted to 16.5% (2012: liability under IFRS (classified as financial Unfunded commitments decreased further 21.7%) of invested assets, investments liability at fair value through profit or loss). to CHF 47 million (2012: CHF 79 million). made three to five years ago 15.7% (2012: The fair value of the derivative liability is Distributions from portfolio investments 20.9%) and more than five years ago 67.8% determined as 12.5% of the distributable exceeded drawdowns by a factor of four. (2012: 57.4%). The port folio continued to value of the current investment portfolio Excess funds were used in the refinancing of be exposed mainly to buyout transactions. (i.e., the fair value of the portfolio minus the balance sheet and for loan repayments. 0.5% for management fees and minus 0.2% The credit agreement with Fortress states that During the second half of 2013, several for operating expenses of APEN Bermuda cash in excess of USD 13 million at APEN investment opportunities were reviewed, Legacy Ltd. and its subsidiaries). Conse- Bermuda Legacy Ltd. and its subsidiaries but so far none resulted in an investment. quently, changes in valuation of the current must be used to repay the 2013 term loan. These opportunities are in line with the new investment portfolio will result in correspond- strategy, which the Company an nounced ing adjustments to the financial liability. Cash on hand as of year-end 2013 stood at mid-year, to focus on both fund and direct CHF 39.4 million and unused available credit investments in emerging markets. In the share and purchase agreement with facilities amounted to CHF 10 million (repre- Fortress, the Company has granted a put sented by the Fortress revolving credit facility) Impairments of non-current assets in creased option to Fortress entities for the shares for a combined amount of CHF 49.4 million. slightly in 2013 and stood at about 2.8% Fortress has acquired in the capital increase. of invested assets at the beginning of the Fortress entities can put its shares to the Unfunded commitments are expected to year, amounting to CHF 11.1 million (2012: Company at a price of CHF 21.80 per share. decrease further at a reduced pace. As of the CHF 9.1 million). Impairments are booked The put option is exercisable from 12 June end of 2013, the investment period of all funds when the fair value of a fund or a direct 2014 through 12 June 2018. The Company but one (SFW) has expired. Going forward, investment is below cost for more than has recognized the present value of the funds will only have the ability to draw down twelve months or if the fair value of an redemption amount as a financial liability, monies for add-on investments to existing investment is more than 30% below cost. calculated as the maximum number of portfolio com panies and for management fees Management Report 7
and fund expenses. The Company believes Diversification by Investment Focus that a substantial part of the current unfunded Expressed as % of invested assets applying fair values commitments will not be drawn down at all. Mezzanine 1.1% Liquidity continues to be closely monitored to Venture 4.8% ensure that the repayment of outstand ing loans Growth 13.8% is made so as to maximize share holder value.
Buyout 80.3%
Outlook
Although distributions slowed down in the initial part of 2014 the Company anticipates to continue to generate solid cash flows and Diversification by Maturity investment income from the portfolio invest- Expressed as % of invested assets applying fair values ments for the whole of 2014 as the portfolio 57.8% is fairly mature. This view is also supported 60% by the regular discus sions with underlying 55% 50% fund managers. 45% 40% 35% Valuations of portfolio funds generally are 30% based on 30 September 2013 accounts and 25% 20% 11.8% in some instances on year-end valuations. 15% 8.5% 7.2% 10.0% 10% So far, the latter have been slightly positive 2.3% 2.4% 5% compared with the previous period and the 0% trend points in a similar direction for the rest 0–1 year 1–2 years 2–3 years 3–4 years 4–5 years 5–6 years > 6 years of the portfolio for the first quarter of 2014. The upward valuation trend is supported by the fact that most portfolio companies Diversification by Region are on track with their business plans and Expressed as % of invested assets applying fair values com parable publicly traded companies are showing solid stock performances. North America 57.0%
Liquidity continues to remain strong, resulting in a further repayment of the 2013 term loan in the amount of USD 6 million in Q1 2014. Based on current cash on hand, the Company Other regions 5.8% Europe 37.2% anticipates making a further repayment of the term loan in early April.
The investment pipeline is quite diversified and the Company expects to close on one or Diversification by Sector several transactions in the first semester of Expressed as % of invested assets applying fair values 2014. Investment opportunities are based in
40% Asia, Latin America and sub-Saharan Africa 37.0% and include co-investment, secondary and 35% primary fund investment opportunities. Total 30% commitments of investment opportunities 25% approved by or under review of the invest- 20% 13.8% ment committee are USD 17.5 million. 15% 11.9% 7.7% 10.2% 8.2% 10% 6.4% 4.0%
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Top 20 Investments
As of 31 December 2013, the total fair market value of the Group’s twenty largest holdings was CHF 101.1 million. This represents 31.2% of total invested assets (2012: 24.7%). Compared with the 2012 year-end the portfolio of Top 20 Invest- ments (“Top 20”) experienced six changes. Of the six companies that left the Top 20, two were exited completely (Managed Healthcare Associates and Ladder). Two of the Top 20 are newly listed (Sprouts Farmers Market and Norwegian Cruise Line) and saw their stock price increase substantially during 2013.
The maturity of the Top 20 has increased Top 20 companies (about 48%) are active Sprouts Farmers Market further to a fairly mature 60 months (2012: in services. The average holding period Sprouts Farmers Market is a high-growth, 55 months). The minimum fair value for amounts to 60 months. The two most differentiated, specialty retailer of natural inclusion in the Top 20 has increased mature investments were made in the and organic foods, focusing on health and slightly to approximately CHF 3.4 million summer of 2006 (The Nielsen Company and wellness, at great value. The company and the average fair value of a Top 20 Uplifting Entertainment formerly known as offers a complete shopping experience that reached about CHF 5.1 million. Gospel Music Channel). Scandi Standard, a includes fresh produce, bulk foods, vitamins new entry in the Top 20, is the least mature and supplements, packaged groceries, meat The highlights within the Top 20 were the investment, with an investment date of and seafood, baked goods, dairy products, sales of Managed Healthcare Associates summer 2013. Five general partners are frozen foods, natural body care and house- by Diamond Castle IV and the initial public represented with two or more portfolio hold items, catering to consumers’ growing offering of Sprouts Farmers Market by companies in the Top 20. Also two com - interest in eating and living healthier. Since Apollo VI. The sale of Managed Healthcare panies (Uplifting Entertainment and its founding in 2002, it has grown rapidly, Associates generated substantial proceeds Knowledge Universe Education) are direct significantly increas ing its sales, store count for the Company and returned a multiple investments. From a revenue standpoint, and profitability. With more than 160 stores of its costs. Additionally the stock exchange the Top 20 is skewed towards larger com- in eight states, and more than 13 000 listing of Sprouts Farmers Market generated panies: nine with revenues in excess of employees, it is one of the largest specialty more than a tenfold cost multiple in value CHF 1 billion, seven with revenues between retailers of natural and organic foods in for the Company. During 2013, the share CHF 1 billion and CHF 100 million, and four the United States. price of all listed investments increased with with revenues of less than CHF 100 million. some delivering an out standing perfor- Shinsei mance (Sprouts Farmers Market: +113.5%, Shinsei Bank Ltd. (TSE: 8303) is based in Norwegian Cruise Line: +86.7%, Shinsei: New Companies to the Top 20 Tokyo, Japan, and provides banking services +50.3%, The Nielsen Company: +50.0%). Portfolio including deposits, loans, foreign exchange transactions, as well as investment trust OYSTAR Group services and issuance of long-term bonds. Diversification The OYSTAR Group is one of the world’s leading providers of complete solutions for Valeo Foods All of the top 20 investments with the packaging machines. As a global company Valeo Foods has an excellent portfolio of exception of the Karnov Group (which is a with eight manufacturing plants and sales leading consumer brands and is focused on growth company) are buyouts representing and service companies worldwide, the the development of iconic food brands in mature companies with leading market OYSTAR Group develops, manufactures and the Irish and international grocery market. positions. Seven of the top 20 investments sells both individual machines as well as The Valeo Foods’ brand portfolio includes are listed. Geographically, the diversification complete packaging lines for the dairy and iconic Irish brands such as Batchelors, Chef, corresponds quite closely with the entire food industries. Erin, Jacobs, Odlums, Fruitfield, Old Time portfolio with about 60% of the fair value Irish, Sqeez and Shamrock. Valeo Foods being invested in North America. From a services a large and diverse number of sector point of view, the largest portion of customers in the retail, wholesale and food- service channels in Ireland. The Group operates a number of manufacturing and Top 20 Investments 9
Distribution of Value in Top 20 (2013 vs. 2012)
70% 63.2% 64.5% 60%
50% 38.4% 41.9% 40% 25.9% 28.9% 30%
20%
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warehousing facilities around the country, while the head office is located in Bally- Distribution of Maturity in Top 20 (2013 vs. 2012) mount, Dublin. 56.6% 60% 56.1% Norwegian Cruise Line 50%
Norwegian Cruise Line (“NCL”) is a lead- 40% ing contemporary cruise line operating 30% 12 ships on itineraries including the 20% Caribbean, Alaska, Europe, Hawaii, South 12.6% 12.1% 13.0% 8.5% 6.9% 8.8% 8.5% 6.6% 6.9% America, Bermuda, and Mexico. NCL 10% 3.3% 0.0% 0.0% offers a unique Freestyle Cruising product, 0% 0–1 1–2 2–3 3–4 4–5 5–6 >6 with a fleet of purpose-built ships that differentiates the company from its peers. Norwegian Cruise Line Holdings Ltd. was founded in 1966 and is headquartered in Miami, Florida. Distribution of Sectors in Top 20 (2013 vs. 2012)
60% Scandi Standard 54.0% 48.3% Scandinavian Standard AB was formed in 50%
June 2013 through the amalgamation of 40% Kronfågel Holding AB and Cardinal Foods 30% A/S. Kronfågel is the largest chicken pro - 16.5% 20% ducer in Sweden and Denmark, producing 15.5% 10.2% 10.5% 11.3% 10.5% 10.8% and marketing refrigerated, frozen and pro- 10% 5.4% 3.9% 3.3% cessed chicken through the strong brands r
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TOP 20 INVESTMENTS *
Fair Value Percentage of Investment Date Portfolio Company (CHF million) invested assets Type Sector 1 Geography
1 Nov. 2007 Ports America 9.7 3.0% Buyout Services North America
2 May 2007 Kinder Morgan* 9.5 2.9% Buyout Services North America
3 Oct. 2007 Hilton* 6.9 2.1% Buyout Leisure North America
4 June 2006 Uplifting Entertainment 6.9 2.1% Buyout Media North America
5 Jan. 2007 Knowledge Universe Education 5.7 1.8% Buyout Services North America
6 Dec. 2007 Mater Private Healthcare 5.4 1.7% Buyout Medical & Health Europe
7 Aug. 2010 Rubio’s 5.3 1.6% Buyout Leisure North America
8 June 2006 The Nielsen Company* 5.0 1.5% Buyout Media Europe
9 June 2011 Karnov Group 4.7 1.5% Growth Media Europe
10 Dec. 2009 Vision 7 4.6 1.4% Buyout Services North America
11 Aug. 2011 RenoNorden 4.2 1.3% Buyout Services Europe
12 March 2009 Czerwona Torebka* 4.0 1.2% Buyout Services Europe
13 June 2007 Asurion 4.0 1.2% Buyout Services North America
14 May 2007 Oystar Group 3.9 1.2% Buyout Industrial Europe
15 Apr. 2011 Sprouts Farmers Market* 3.8 1.2% Buyout Consumer North America
16 Jan. 2008 Shinsei* 3.6 1.1% Buyout Services Other Region
17 Sept. 2010 Franklin 3.5 1.1% Buyout Services North America
18 Oct. 2010 Valeo Foods 3.4 1.0% Buyout Consumer Europe
19 Jan. 2008 Norwegian Cruise Line* 3.4 1.0% Buyout Leisure Europe
20 May 2013 Scandi Standard 3.4 1.0% Buyout Consumer Europe
Total Fair Value Top 20 Holdings 101.1 31.2%
1 EVCA Definition * Presented on a look-through basis
Outlook listed companies (Kinder Morgan, Hilton, The Nielsen Company, Sprouts Farmers Based on the maturity of the investments Market, and Norwegian Cruise Line). it could be expected that there will be significant proceeds from the portfolio of Overall we continue to be pleased with Top 20 Investments. However, there are the operational performance of the top 20 numerous factors that need to be met for investments. Most investments are tracking a successful exit to happen. We anticipate the investment plan. that at least one or two of the Top 20 Investments will be sold at least partially during 2014. Additionally, we expect to receive proceeds from five of the seven Top 20 Investments 11
3 HILTON 1 PORTS AMERICA
2 KINDER MORGAN
www.portsamerica.com www.hilton.com
Ports America is the largest US terminal Hilton Worldwide (NYSE: HLT) is one of operator and stevedore, with operations the largest and fastest growing hospitality in every major port in the nation. With over companies in the world, with more than 85 years of experience through predecessor 4 000 hotels, resorts and timeshare pro - companies, Ports America possesses perties comprising more than 650 000 dedicated resources that only a company rooms in 90 countries and territories. In of such scale and scope can deliver. Other the nearly 100 years since founding, Hilton than container stevedoring and terminal has defined the hospitality industry and operating, Ports America’s operations established a portfolio of 10 world-class include bulk, breakbulk and project cargo brands, including the flagship full-service facilities, world-class cruise terminals, Hilton Hotels & Resorts brand, which is the intermodal facilities and Ro/Ro handling. www.kindermorgan.com most recognized hotel brand in the world.
Kinder Morgan, Inc. (NYSE: KMI) is one of the most diversified portfolio of energy infrastructure assets in North America. This portfolio includes more than 82 000 miles of pipeline that transport primarily
natural gas, gasoline, crude oil, CO2, and approximately 180 terminals that store, transfer and handle energy-related products such as gasoline and coal. Kinder Morgan Energy Partners is also the leading provider
of CO2 for enhanced oil recovery projects in North America. They are one of the largest publicly-traded pipeline master limited partnerships in North America. 12 Top 20 Investments
KNOWLEDGE UNIVERSE 5 EDUCATION
www.kueducation.com UPLIFTING RUBIO’S 4 ENTERTAINMENT Knowledge Universe is a leading global 7 education organization with a network of more than 3 000 locations worldwide, employing over 40 000 education pro - fessionals, operating early childhood education centers, international schools, colleges, large on-line schools and school management systems, which together touch over 300 000 students daily.
MATER PRIVATE 6 HEALTHCARE
www.rubios.com
www.uptv.com Rubio’s Restaurants owns and operates a regional chain of approximately 200 fast Uplifting Entertainment (formerly known casual Mexican restaurants in California, as Gospel Music Channel) is America’s Arizona, Colorado, Utah, and Nevada favorite TV network for uplifting entertain- with an extremely strong presence in San ment and provides high-quality, diverse, Diego and contiguous areas of Southern family-friendly programming, including California. The company is credited with original and premiere movies, theatricals, introducing fish tacos to Southern California drama and comedy series, music and in 1983 and starting a phenomenon. In holiday specials. UP TV also provides addition to its signature fish tacos, Rubio’s gMovies, the first faith-friendly streaming offers a wide variety of bold, distinctive, movie service. The UP TV brand is reflected www.materprivate.ie Baja-inspired food. in “Uplift Someone”, the network’s success - ful pro-social initiative. UP TV can be seen Mater is Ireland’s leading specialist in more than 65 million homes on various private hospital, located in Dublin. It has cable systems around the country, as well over 200 in-patient and day-patient beds, as DISH Network on channel 188, DIRECTV 7 operating theatres, over 190 specialist on channel 338 and Verizon FiOS on consultants and over 800 staff. Mater pro - channel 224. vides a vast range of medical specialty services; however, it focuses on the most high acuity and complex procedures. The ‘Heart Centre’ and ‘Cancer Centre’ are considered as centers of excellence for cardiac and cancer related procedures, with services being delivered by nationally and inter nationally renowned doctors. Today the Mater Private Hospital has facilities in Dublin, Cork, Limerick, Drogheda and Navan as well as a private patient unit at the Clatterbridge Cancer Centre marking the Mater’s entrance to the UK market and its first collaboration with the NHS. Top 20 Investments 13
10 VISION 7
8 NIELSEN
9 KARNOV GROUP
www.nielsen.com www.vision7international.com
Nielsen Holdings N.V. (NYSE: NLSN) is a Vision7 International is among the top 40 leading global information and measure- international marketing communications ment company that provides clients with a companies in the world, with some 1 100 comprehensive understanding of con sumers employees in Canada, the United Kingdom, and consumer behavior. They deliver and the United States. Vision7 International critical media and marketing information, has two operating divisions: Cossette, a fully analytics and industry expertise about what integrated agency which occupies a leader- consumers watch (consumer interaction www.karnovgroup.com ship position in Canada, and EdC, a group with television, online and mobile) and of discipline-specific marketing agencies. what consumers buy on a global and local Karnov Group is the leading provider of Cossette has offices in Quebec City, Mont- basis. Their information, insights and solu - legal and tax & accounting information to real, Toronto, Vancouver, and Halifax. EdC tions help clients maintain and strengthen businesses and professionals in Denmark is a global network of discipline specific their market positions and identify opportu- and the largest provider of online legal agencies, including award-winning inter - nities for profitable growth. Nielsen has professional information in Sweden. Karnov national agency brands Dare Digital, Dare a presence in approximately 100 countries, Group provides legislation, case law, regu - NCS, Elvis Communications, Citizen Paine, including many developing and emerging latory information, news and continuing Citizen Optimum, Citizen Brando, Jungle markets, and holds leading market positions legal education, and is renowned for its Media and Magnet Intell. In addition in many services and geographies. authority, industry expertise and innovative to its offices in New York, Los Angeles technology. The company employs approxi- and London, EDC also has Canadian mately 130 people across offices in Copen- operations. hagen, Stockholm and Aarhus. Key brands are KARNOV, PACTA, UfR and VJS, amongst others. 14 Top 20 Investments
12 CZERWONA TOREBKA
11 RENONORDEN www.czerwonatorebka.pl
Czerwona Torebka (WSE: CZT) is focused on becoming a diversified retail group, in addition to managing its existing com- mercial real estate business. Prior to CT’s current strategic refocus, the Company’s main activity was the development and leasing of strip malls. The strip mall concept offers small retail space with standardized units of 60 m2/unit, with each strip mall having a total surface area of 700–1 000 m2. The targeted anchor 14 OYSTAR GROUP tenants are the nationwide networks of convenience stores with the rest of the stores leased to local specialty retailers, such as butchers, bakeries, postal agencies, and florists. As part of this strategy, CT www.renonorden.no intends to develop its retail business by establishing new specialty retail formats RenoNorden is the largest domestic waste and through selected acquisitions. collector in the Nordic Region and the only one operating across the four countries (Norway, Denmark, Sweden and Finland). In Scandinavia the law provides that the 13 ASURION municipalities are responsible for the removal of household waste on behalf of local residents. While the municipalities retain legal ownership of domestic waste www.asurion.com material, they outsource the collection and transportation logistics to private com panies Based in Nashville, TN, NEW Asurion is the like RenoNorden. RenoNorden competes for worldwide leader in value-added technology www.oystar-group.com contracts put out to tender under legislation protection services with over 20 years of which are typically 5–7 years and benefit experience serving the communications The OYSTAR Group is one of the world’s from inflationary indexation. In 2013, the and retail industries. The company partners leading providers of complete solutions for business entered the Finnish market for the with top domestic and international wireless packaging machines. As a global company first time through the acquisition of HFT. carriers to provide mobile device protection with eight manufacturing plants and sales The transaction also saw RenoNorden add and technical support services to sub - and service companies worldwide, the commercial waste collection to its services. scribers. Principal offerings also include pro- OYSTAR Group develops, manufactures and duct replacement programs, retail support sells both individual machines as well as services and extended service and customer complete packaging lines for the dairy and care programs for various products includ- food industries. ing consumer electronics, appliances, home improvement products and sporting goods among others. NEW Asurion employs more than 13 000 associates worldwide and serves over 290 million customers across 9 countries. Top 20 Investments 15
17 FRANKLIN SPROUTS FARMERS 15 MARKET
16 SHINSEI
www.sprouts.com www.franklinenergy.com
Sprouts Farmers Market (“Sprouts”) (NYSE: Franklin is one of the largest energy SFM) is a high-growth, differ entiated, efficiency (“EE”) program management specialty retailer of natural and organic companies in the U.S., with a significant foods, focusing on health and wellness, at presence in the Midwest and a growing great value. The company offers a complete presence in other regions. Franklin is shopping experience that in cludes fresh engaged by electric and natural gas utilities produce, bulk foods, vitamins and supple- to design and implement ratepayer funded ments, packaged groceries, meat and sea- www.shinseibank.com EE programs that enable utilities to: food, baked goods, dairy products, frozen (i) comply with legislative and regulatory foods, natural body care and household Shinsei Bank Ltd. (TSE: 8303) is based mandates to reduce energy consumption; items, catering to con sumers’ growing in Tokyo, Japan, and provides banking (ii) avoid the cost of adding new gene rating interest in eating and living healthier. Since services including deposits, loans, foreign capacity by managing the growth of its founding in 2002, Sprouts has grown exchange transactions, as well as investment demand; and (iii) promote “green” environ- rapidly, significantly increasing its sales, trust services and issuance of long-term mental conservation measures. Founded store count and profitability. With more bonds. in 1994, Franklin Energy today has over than 160 stores in eight states, and more 380 employees and 25 offices in 14 states than 13 000 employees, Sprouts is the and is most active in the commercial, second largest specialty food retailer in industrial, agricultural and multi-family the high-growth, natural and organic, and residential market segments. healthy-living grocery segment in the United States. 16 Top 20 Investments
20 SCANDI STANDARD
18 VALEO FOODS
NORWEGIAN 19 CRUISE LINE
www.valeofoods.ie www.scandistandard.com
Valeo Foods has an excellent portfolio of Scandinavian Standard AB was formed in leading consumer brands and is focused on June 2013 through the amalgamation of the development of iconic food brands in Kronfågel Holding AB and Cardinal Foods the Irish and international grocery market. A/S. Kronfågel is the largest chicken pro - The Valeo Foods’ brand portfolio includes ducer in Sweden and Denmark, producing iconic Irish brands such as Batchelors, and marketing refrigerated, frozen and Chef, Erin, Jacobs, Odlums, Fruitfield, Old processed chicken through the strong Time Irish, Sqeez and Shamrock. Valeo www.ncl.de brands Kronfågel, Danpo, Ivars, Chicky Foods services a large and diverse number World and Kronfågel Stina. Cardinal is the of customers in the retail, wholesale and Norwegian Cruise Line (“NCL”) is a lead- number 2 player in Norway for poultry foodservice channels in Ireland. The Group ing contemporary cruise line operating under the brand name “Den Stolte Hane”. operates a number of manufacturing and 13 ships on itineraries including the The combined group has undisputed warehousing facilities around the country, Caribbean, Alaska, Europe, Hawaii, South market leadership in Scandinavia. while the head office is located in Bally- America, Bermuda, and Mexico. NCL mount, Dublin. offers a unique Freestyle Cruising product, with a fleet of purpose-built ships that differentiates the company from its peers. By providing a distinctive experience and combination of value and service, NCL straddles both the contemporary and premium segments. As a result, NCL has been recognized for its achievements as the recipient of multiple honorary awards with in Travel Weekly, Condé Nast Traveler, and Travel + Leisure, as well as was rated as the favorite cruise line by Budget Travel, and best for family cruises by Family Circle, Yahoo! Travel, and Today Travel. NCL was founded in 1966 and is head quartered in Miami, Florida.
Financial Report 2013 – APEN Group 20 APEN Group – Consolidated Financial Statements 2013
CONSOLIDATED BALANCE SHEET AS OF 31 DECEMBER 2013 AND 31 DECEMBER 2012 (AUDITED) in TCHF
Note 2013 2012 Assets Current assets 4 – Cash and cash equivalents 4.1 39 367 68 638 – Receivables and prepayments 4.2 311 330 Total current assets 39 678 68 968
Non-current assets – Loans 3 1 931 1 770 – Direct Investments 3 19 544 23 179 – Funds 3 302 174 370 932 Total non-current assets 323 649 395 881
Total Assets 363 327 464 849
Liabilities and Shareholders’ Equity Current Liabilities 5 – Payables and accrued charges 5.1 1 205 1 948 – Borrowings 5.2 526 31 099 – Derivative financial liability 5.3 15 636 – Total current liabilities 17 367 33 047
Non-Current Liabilities 6 – Borrowings 6.1 97 828 49 945 – Class A units 6.2 40 127 – – Class B units 6.3 – 130 347 – Post-employment benefits 6.4 – 417 Total non-current liabilities 137 955 180 709
Total liabilities 155 322 213 756
Shareholders’ Equity – Share capital 7 53 637 41 250 – Share capital premium 379 177 406 924 – Treasury stock (at cost) – (30 691) – Change in value of available-for-sale financial assets 118 678 109 694 – Currency translation differences (79 197) (69 888) – Retained earnings/(accumulated deficit) (260 501) (235 154) – Net profit/(loss) for the period (3 789) 776 Total Equity Attributable to the Owners of the Parent 208 005 222 911
Equity attributable to non-controlling interest 8 – 28 182 Total Shareholders’ Equity 208 005 251 093
Total Liabilities and Shareholders’ Equity 363 327 464 849
Net asset value per share Number of shares outstanding at reporting date 9 5 363 717 3 929 185 Net asset value per share (in CHF) attributable to the owners of the parent 38.78 56.73
The accompanying notes on pages 24 to 54 form an integral part of these consolidated financial statements. APEN Group – Consolidated Financial Statements 2013 21
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE PERIOD 1 JANUARY TO 31 DECEMBER 2013 AND 1 JANUARY TO 31 DECEMBER 2012 (AUDITED) in TCHF Note 2013 2012 Income 10 Interest income from non-current assets 10.1 1 399 3 686 Dividend income from non-current assets 10.2 2 948 5 360 Net realized gain on investments 10.3 42 167 48 940 Interest income from current assets 11 29 Net gain on foreign currency exchange 1 050 – Total Income 47 57558 015
Expenses Management fees (2 507) – Service fees (171) (157) Impairment of non-current assets 11 (11 101) (9 087) Other operating expenses 12 (7 416) (5 082) Finance cost 13 (26 158) (41 398) Net loss on financial liability (Class A units) (3 759) – Net loss on derivative instruments –(507) Net loss on foreign currency exchange –(574) Total Expenses (51 111) (56 805)
Tax expenses 14 (70) (107)
Net Profit/(Loss) for the Period (3 606) 1 103
Profit/(Loss) Attributable to: Owners of the parent (3 789) 776 Non-controlling interests 8 183 327 (3 606) 1 103 Other Comprehensive Income Items to be reclassified to profit/(loss) in subsequent periods: Change in value of available-for-sale financial assets 10.4 1 652 (7 737) Currency translation differences (7 356) (3 088) Net other comprehensive income to be reclassified to profit/(loss) in subsequent periods (5 704) (10 825)
Items not to be reclassified to profit or (loss) in subsequent periods: Actuarial gain/(loss) on pension fund 27 (148) Net other comprehensive income not being reclassified to profit/(loss) in subsequent periods 27 (148)
Other Comprehensive Income/(Loss) for the Period (5 677) (10 973)
Total Comprehensive Profit/(Loss) for the Period (9 283) (9 870) Net profit/(loss) attributable to: Owners of the parent (9 420) (8 706) Non-controlling interests 8 137 (1 164)
Earnings per Share Weighted average number of shares outstanding during the period 4 717 376 3 929 185 Net profit/(loss) per share (in CHF) – basic 15 (0.80) 0.20 Net profit/(loss) per share (in CHF) – diluted (0.80) 0.20
The accompanying notes on pages 24 to 54 form an integral part of these consolidated financial statements. 22 APEN Group – Consolidated Financial Statements 2013
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD 1 JANUARY TO 31 DECEMBER 2013 AND 1 JANUARY TO 31 DECEMBER 2012 (AUDITED) in TCHF
Note 2013 2012 Cash Flows from Operating Activities Purchase of non-current assets (18 112) (30 625) Proceeds from non-current assets 68 692 92 571 Interest income received from current assets 11 29 Net interest income from non-current assets 1 536 3 686 Dividends received from non-current assets 3 046 5 360 Operating costs (11 391) (5 209) Due from affliates –93 Total net cash generated from/(used) in operating activities 43 782 65 906
Cash Flows from Investing Activities Proceeds from sale of subsidiary, net of cash transferred 166 – Total net cash generated from/(used) in investing activities 166 –
Cash Flows from Financing Activities Repayment of borrowings (71 378) (24 645) Refinancing net payment 21.2 (19 525) – Interest paid on borrowings (7 883) (8 392) Borrowing costs (1 044) (1 415) Proceeds from share capital increase 26 998 – Payment to Class A Unit holders (4 643) – Treasury share sale 4 269 – Total net cash generated from/(used) in financing activities (73 206) (34 452)
Foreign exchange effect (13) (960)
Increase/(decrease) in cash and cash equivalents (29 271) 30 494
Cash and Cash Equivalents as of 1 January 68 638 38 144
Cash and Cash Equivalents as of 31 December 39 367 68 638
The accompanying notes on pages 24 to 54 form an integral part of these consolidated financial statements. APEN Group – Consolidated Financial Statements 2013 23
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY AS OF 31 DECEMBER 2013 AND 31 DECEMBER 2012 in TCHF
Attributable to Owners of the Parent
Share Share Less Revaluation Currency Retained Total Non- Total Capital Capital Treasury Reserves Translation Earnings/ controlling Equity Premium Stock Investments Adjustment Accumulated Interests (at Cost) AFS CTA (Deficit) Shareholders’ Equity Balance 1 January 2012 41 250 406 924 (30 691) 119 791 (69 105) (236 551) 231 618 23 127 254 745 Net profit – – – – – 776 776 327 1 103 Change in value of available-for-sale financial assets – – – (6 573) – – (6 573) (1 163) (7 737) Currency translation differences – – – – (2 761) – (2 761) (328) (3 088) Actuarial gain on pension fund (148) (148) (148) Total comprehensive income – – – (6 573) (2 761) 628 (8 706) (1 164) (9 870)
Transaction with non-controlling interest – – – (3 524) 1 978 1 546 – 6 218 6 218
Total Equity as of 31 December 2012 41 250 406 924 (30 691) 109 694 (69 888) (234 378) 222 911 28 182 251 093
Balance 1 January 2013 41 250 406 924 (30 691) 109 694 (69 888) (234 378) 222 911 28 182 251 093 Net loss – – – – – (3 789) (3 789) 183 (3 606) Change in value of available-for-sale financial assets – – – 2 472 – – 2 472 (819) 1 652 Currency translation differences – – – – (8 130) – (8 130) 773 (7 356) Actuarial gain on pension fund 27 27 – 27 Total comprehensive income – – – 2 472 (8 130) (3 762) (9 420) 137 (9 283)
Capital increase 12 387 14 312 – – – – 26 699 – 26 699 Sale of treasury shares – (26 423) 30 691 – – – 4 268 – 4 268 Contractual obligation to purchase own equity instruments – (15 636) – – – – (15 636) – (15 636) Contractual obligation related to Class A Unit holders – – – – – (49 137) (49 137) – (49 137) Transactions with non-controlling interests – – – 6 513 (1 180) 22 987 28 319 (28 319) –
Total Equity as of 31 December 2013 53 637 379 177 – 118 678 (79 197) (264 290) 208 005 – 208 005
The accompanying notes on pages 24 to 54 form an integral part of these consolidated financial statements. 24 APEN Group – Consolidated Financial Statements 2013
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. CORPORATE INFORMATION The Company’s Board of Directors is responsible for the policies and management of the Company as well as valuations. As APEN Ltd, Zug (“the Company”) is a Swiss stock corporation of 31 December 2013 the Group employed no employees established under the relevant provisions of the Swiss Code of (2012: four). Obligations and domiciled in Zug. The Company’s shares are listed on the SIX Swiss Exchange. The address of the registered office of As of 1 July 2013, responsibility for portfolio management of the the Company is Industriestrasse 13c, 6304 Zug, Switzerland. Group was delegated to GP Advisors (Bermuda) Ltd. (“Manager” or “Management”) through two separate investment management The Company, together with APEN Holdings LLC, APEN Bermuda agreements with APEN Bermuda Legacy Ltd. and APEN Bermuda Legacy Ltd., APEN Bermuda EM Ltd., APEN Holdings (Bermuda) EM Ltd. and responsibility for administrative services was dele - Ltd., APEN Faith Media Holdings LLC and APEN FMH LLC (“the gated to GP Advisors Ltd, Switzerland (“Administrator”) through a Subsidiaries”) comprise the APEN Group (“the Group”). The services agreement with APEN Ltd. group structure is displayed at the end of Note 2.1 for illustrative purposes. Changes in the composition of the Group are illustrated The consolidated financial statements were authorized for issue in Note 2.1. on 20 March 2014 by the Board of Directors. The consolidated financial statements will be issued for approval at the annual The investment objective of the company is to realize long term general meeting on 22 May 2014. capital appreciation by creating a portfolio of fund investments and direct investments in the private equity sector. The invest- ments will be diversified among fund managers, geographical regions, economic sectors and stages.
On 21 May 2013 the Company announced the refinancing of its debt, the strengthening of its capital base and a redefinition of its investment strategy with a focus on emerging markets. The Company sold certain assets to Newbury Partners and received a new three-year loan and revolving credit facility from Fortress. The proceeds from these transactions plus existing cash were used by the Company to pay back its existing debt with AIG (Class B Units) and Fortress (Borrowings). Class B Units were repurchased and cancelled by the Company. Additionally, the Company performed a capital increase and sold treasury shares.
The portfolio held by APEN Bermuda Legacy Ltd. (formerly APEN Bermuda Ltd.), APEN Holdings (Bermuda) Ltd. and APEN FMH LLC shall be liquidated over the upcoming years primarily following the natural evolution of divestments performed by the various fund managers. Inflows arising from liquidation of the current portfolio and the new funds from the capital increase conducted in June 2013 shall primarily be invested in emerging markets, covering various regions, in particular Asia, Latin America, Eastern Europe, Middle East and Africa. The allocation will be opportu- nistic. With primary and secondary fund investments the diversifi- cation will mainly be achieved through different managers in various countries. With direct investments the diversification will mainly be achieved through industry and stage, as well as through geography. Although the Company may invest directly in fund investments or companies, it is anticipated that investments will generally be made through the Subsidiaries. APEN Group – Consolidated Financial Statements 2013 25
NOTE 2. ACCOUNTING POLICIES Legal entity Change Effective date APEN Bermuda Two Ltd. Incorporated 6 May 2013 2.1. Basis of Preparation APEN Services GmbH Renamed to 3 June 2013 The accompanying consolidated financial statements of the Group APEN Services AG for the year ended 31 December 2013 have been prepared in APEN Services AG Sold to GP Investments 28 June 2013 accordance with International Financial Reporting Standards (IFRS) APEN Bermuda Ltd. Renamed to 16 July 2013 issued by the International Accounting Standards Board (IASB), APEN Bermuda Legacy Ltd. and comply with Swiss Law and the accounting provisions for APEN Bermuda Two Ltd. Renamed to 19 July 2013 investment companies of the SIX Swiss Exchange. APEN Bermuda EM Ltd.
The consolidated financial statements are prepared under the On 28 June 2013, APEN Services AG (formerly APEN Service historical cost convention, with the exception of available-for-sale GmbH) was sold to GP Investments Group. APEN Ltd therefore investments and derivative financial instruments which are stated lost control over its former subsidiary and thus deconsolidated it at their fair values as disclosed in the accounting policies here - from the Group financial statements. Consideration received in after. The consolidated financial statements are presented in Swiss exchange for loss of control over the subsidiary equaled approxi- francs and all values are rounded to the nearest thousand except mately the net assets given up. As a result, a gain of TCHF 392 when otherwise indicated. arose, primarily due to the transfer of the existing employee benefit plan. Basis of consolidation The consolidated financial statements of the Group comprise Due to the sale of the service company, the Company no longer APEN Ltd and the financial statements of its subsidiaries as of employs own personnel. As a consequence, there is no further 31 December 2013. Control is present when the Group has: obligation to provide employee benefits. The post-employment – Power over the investee (i.e. existing rights that give benefit plan was therefore eliminated from the consolidated it the current ability to direct the relevant activities of financial statements. the investee) – Exposure, or rights, to variable returns from its involve- The scope of consolidation as of 31 December 2013 includes: ment with the investee, and – APEN Holdings LLC – The ability to use its power over the investee to affect – APEN Bermuda Legacy Ltd. its returns – APEN Bermuda EM Ltd. – APEN Holdings (Bermuda) Ltd. Consolidated financial statements are prepared using uniform – APEN Faith Media Holdings LLC accounting policies for like transactions and other events in similar – APEN FMH LLC circumstances. Subsidiaries are consolidated from the date on which control is effectively transferred to the Group and are no The Group’s investment portfolio is held solely for the purpose of longer consolidated from the date that control ceases. All inter- realizing capital gains upon future sales. company transactions and balances are eliminated. All Group companies have a 31 December year end. As of 31 December 2013 the Group holds an ownership interest of 20% or more in PineBridge Horizon Partners, L.P. (36.57%; Change in scope of consolidation 2012: 36.57%). According to the limited partnership agreement of In connection with the refinance transaction, the following changes this fund, the Group does not have the power to participate in the to the Group structure/scope of consolidation have occurred financial and operating policy of the fund and as such does not have significant influence. Therefore, this investment is excluded from equity accounting. 26 APEN Group – Consolidated Financial Statements 2013
Organisational Structure
GP INVESTMENTS NEWBURY PARTNERS OTHER SHAREHOLDERS FORTRESS ENTITIES
100%
GP ADVISORS LTD, ZURICH 1 APEN LTD, A SHARES ZUG
C SHARES
100%
APEN FAITH MEDIA APEN HOLDINGS, LLC HOLDINGS, LLC DELAWARE
C SHARES
100% 100% 99%
GP ADVISORS (BERMUDA) LTD 1% APEN BERMUDA APEN BERMUDA EM LTD 3 LEGACY LTD 2
APEN companies Management agreement APEN HOLDINGS APEN FMH, LLC (BERMUDA) LTD Major shareholders Advisory agreement
GPI owned companies Administration agreement
1 Former APEN Services GmbH
2 Former APEN Bermuda Ltd.
3 Former APEN Bermuda Two Ltd.
Note: simplified chart
2.2. Significant Accounting Judgments and Estimates not always supported by observable market prices or rates. The preparation of financial statements requires management to The use of valuation techniques requires management to make make estimates and assumptions and exercise judgment that affect estimates. Changes in assumptions could affect the reported the reported amounts of assets and liabilities and disclosure of fair value of these investments. The carrying amounts of contingent assets and liabilities at the date of the financial state- investments for which fair values were determined using ments and the reported amounts of revenues and expenses during valuation techniques amounted to CHF 323.6 million (2012: the reporting period. Actual results could differ from those CHF 394.4 million). Refer to Note 17.5 for further details. estimates. • Impairment of financial assets The areas involving a higher degree of judgment or complexity, Management performs a quarterly impairment assessment to or areas where assumptions and estimates are significant to the assess significant or prolonged declines in fair value of finan- financial statements are the following: cial assets classified as available for sale. Management uses its judgement to determine which investments are considered to • Fair value of financial instruments be impaired. Changes in assumptions used could affect the The fair value measurements of financial instruments that are amount of impairments reported. not traded in an active market are determined by using valua- tion techniques (see also Note 2.4.6 “financial instruments – • Borrowings (2009 FCC facility, refer to Note 5.2 and 6.1) and determination of fair value”). The Group uses its judgment to Class B Units (refer to Note 6.3) select an appropriate method and make assumptions that are APEN Group – Consolidated Financial Statements 2013 27
The amortized cost calculations were based on inputs regard - • The Group has historically recorded actuarial gains or losses ing the timing of the repayment of loans outstanding. The in other comprehensive income in full when they occurred assumption was that the repayment would occur at the con- • Both, pension assets and defined benefit obligations are tractual maturity date as it was not possible to estimate future immaterial to the Group’s consolidated financial statements cash flows occurring significantly earlier to trigger early repay- in 2012 ment (as total cash if in excess of 30% of unfunded commit- • On 28 June 2013, the Group has sold its 100% subsidiary ments, measured each quarter end, would have resulted in APEN Services AG (formerly APEN Service GmbH) and from partial repayment of Borrowings (see Notes 5.2 and 6.1). that date, does no longer employ any employees. As a conse- A change in assumptions regarding timing of repayment of quence, the Group has ceased to operate pension plans and the loans could have had a significant impact on the Balance discontinued to apply IAS 19. Sheet and Statement of Comprehensive Income. The other new standards and amendments applied as of 1 January • Class A Units 2013 do not have a significant impact on amounts recognized in Class A Units are classified as financial liability under IFRS the Group’s financial statements but amended presentation and (classified as financial liability at fair value through profit or disclosure of items in the Group’s financial statements (including loss). The fair value of the derivative liability is determined as the application of IAS 1 – Presentation of financial statements, 12.5% of the distributable value of the current investment IFRS 12 – Disclosure of interest in other entities and IFRS 13 – portfolio (i.e., the fair value of the portfolio minus 0.5% for Fair Value Measurement). management fees and minus 0.2% for operating expenses of APEN Bermuda Legacy Ltd. and its subsidiaries) (refer to Note No other interpretations, new standards or amendments are rele- 6.2 for details). Consequently, changes in valuation of the vant to the Group’s operations. Refer to Note 2.5 for standards current investment portfolio will result in corresponding issued but not yet effective. adjustments to the financial liability. 2.4. Summary of Significant Accounting Policies 2.3. Change in Accounting Policies 2.4.1. Foreign currency transactions The IASB has published interpretations, new standards and – Functional and presentation currency amendments to existing standards that are effective for the 2013 The Group’s investments and proceeds from these investments financial statements. Apart from the changes described below, are held in currencies other than the presentation currency. Invest- the accounting policies remain the same as in the previous year. ments are held by APEN Bermuda Legacy Ltd., APEN Holdings As of 1 January 2013, the Group adopted the following new and (Bermuda) Ltd. and APEN FMH LLC which engage primarily in revised IFRS standards and IFRS interpretations: USD transactions. Further, performance management and cash flow projections are based on investment currencies (primarily • IAS 1: Presentation of Items in Other Comprehensive Income USD and EUR). Accordingly, the Board of Directors considers the (Amendment) USD as the currency that most faithfully represents the economic • IAS 12: Deferred Tax: Recovery of Underlying Assets effects of the underlying transactions, events and conditions, and (Amendment) the USD is considered to be the functional currency of these sub- • IFRS 7 – Disclosures – Offsetting Financial Assets and sidiaries. The functional currency of APEN Ltd is the CHF as this Financial Liabilities (Amendment) entity is primarily exposed to the CHF. The presentation currency • IFRS 10 – Consolidated Financial Statements of the financial statements of the Group is CHF since the parent • IFRS 11 – Joint Arrangements company is domiciled in Switzerland and its shares are traded on • IFRS 12 – Disclosure of Interests in Other Entities the SIX Swiss Exchange in CHF. All figures presented in this report, • IFRS 13 – Fair Value Measurement unless noted otherwise, are presented in CHF ‘000. • IAS 27 (Revised) – Separate Financial Statements • IAS 28 (Revised) – Investments in Associates and Joint – Transactions and balances Ventures Foreign currency transactions are translated into the functional • Annual Improvements to IFRSs (2009–2011) currency using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from The implications of the revised requirements of IAS 19 have been the settlement of such transactions and from the translation at assessed from a Group perspective. The Group has determined year-end exchange rates of monetary assets and liabilities denomi- that no restatement is required for the following reasons nated in foreign currencies are recognized in the statement of 28 APEN Group – Consolidated Financial Statements 2013
comprehensive income (“net gain or loss on foreign currency Financial assets are recognized initially at fair value plus, in the exchange”). Translation differences on monetary items, such as case of investments not at fair value through profit or loss, directly derivatives held at fair value through profit or loss, are reported attributable transaction costs. as part of the gain or loss on derivative instruments. Translation differences on non-monetary items, such as available-for-sale Purchases or sales of financial assets that require delivery of financial assets, are recognized in other comprehensive income. assets within a time frame established by regulation or convention in the marketplace (regular way purchases) are recognized on – Translation to presentation currency the settlement date, i.e., the date a financial asset is delivered to The results and financial positions of Group companies are trans- or by the Group. The Group’s financial assets include cash and lated from the functional currency into the presentation currency short-term deposits, trade and other receivables, loan and other as follows: receivables, quoted and unquoted financial instruments, and derivative financial instruments. • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; b) Financial assets – subsequent measurement • income and expenses for each statement of comprehensive The subsequent measurement of financial assets depends on their income are translated at rates applicable on the transaction classification as follows: date; • all resulting exchange differences are recognized in other b1) Loans and receivables comprehensive income. All loans and receivables are subsequently measured at amortized cost using the effective interest method. Gains and losses are 2.4.2. Foreign Exchange Rates recognized in the statement of comprehensive income when the The following exchange rates have been applied to translate the loans and receivables are derecognized or impaired, as well as foreign currencies of significance for the group: through the amortization process.
2013 2012 b2) Financial assets classified as available-for-sale financial Year-end rates: Unit CHF CHF assets (AFS) US dollar 1 USD 0.88935 0.91535 Available-for-sale financial assets are subsequently measured at Euro 1 EUR 1.2255 1.2068 fair value with unrealized gains or losses recognized in other Yen 100 Yen 0.84577 1.0581 comprehensive income until the investment is derecognized or determined to be impaired, at which time the cumulative gain or Average annual rates: loss recorded in other comprehensive income is recognized in the US dollar 1 USD 0.92733 0.9380 income statement under “net realized gain/loss on investments” or “impairment of non-current assets”, respectively. 2.4.3. Cash and cash equivalents Cash includes cash on hand and cash with banks. Cash equivalents – Direct Investments and Fund Investments are short-term, highly liquid investments that are readily converti- The Group has designated all its investments and securities as ble to known amounts of cash, with original maturities of three available-for-sale. This category was chosen as the most appro- months or less, and that are subject to an insignificant risk of priate for an investment company as the Group manages net asset change of value. Cash and cash equivalents are recorded at nomi- value. An investment is recognized where the Group deems it pro- nal value. bable that future economic benefits associated with an investment will flow to the entity and it has an initial recognition at FV that In order to mitigate concentration risk, cash is held at various banks. can be measured reliably. The future economic benefit of an investment is its potential to contribute, directly or indirectly, to 2.4.4. Financial instruments – initial recognition the flow of cash and cash equivalents to the entity. All purchases and subsequent measurement and sales of investments are recognized when the capital is called a) Financial assets – initial recognition or a distribution is received. Purchase cost includes directly Financial assets are classified as financial assets at fair value attributable transaction costs. Dividend income is recognized in through profit or loss, loans and receivables, held-to-maturity the income statement under profit or loss when the right to investments or as available for sale. The Group determines the receive payment is established. classification of its financial assets at initial recognition. APEN Group – Consolidated Financial Statements 2013 29
b3) Financial assets at fair value through profit or loss – Other financial liabilities Financial assets at fair value through profit or loss include financial Shareholders rights to request repurchase of APEN Ltd own assets held for trading and financial assets designated upon initial equity instruments (put options) are subsequently remeasured recognition at fair value through profit or loss. Financial assets are to match the present value of the redemption amount expected classified as held for trading if they are acquired for the purpose to be payable in case the investor exercises its rights. of selling in the near term. This category includes derivative finan- cial instruments entered into by the Group. Financial assets at fair Financial liabilities arising from contractual obligations in con- value through profit and loss are carried in the balance sheet at nection with the refinancing transaction and liquidation of the fair value. Changes in the fair value of financial instruments at Legacy Portfolio are carried at amortized cost using the effective fair value through profit or loss are recorded in the statement of interest rate method. Subsequent changes in the expected cash comprehensive income. flows result in an adjustment to the carrying amount of the financial liability through the consolidated income statement. c) Financial liabilities – initial recognition Financial liabilities within the scope of IAS 39 are classified as 2.4.5. Financial instruments – derecognition financial liabilities at fair value through profit or loss, as loans and A financial asset is derecognized if, and only if, the Group either borrowings, as derivatives designated as hedging instruments in transfers the contractual rights to receive the cash flows of the an effective hedge, or as other financial liabilities, as appropriate. financial asset, or it retains the contractual rights to receive the The Group determines the classification of its financial liabilities cash flows of the financial asset, but assumes a contractual obliga- at initial recognition. Financial liabilities are recognized initially tion to pay the cash flows to one or more recipients, and in doing at fair value and in the case of loans and borrowings, less directly so transfers substantially all of the risks and rewards of the asset. attributable transaction costs. A financial liability is derecognized when the obligation under The Group’s financial liabilities include payables and accrued the liability is discharged, is cancelled or has expired. When an charges, loans and borrowings, other financial liabilities, post- existing financial liability is replaced by another from the same employment benefits (until 30 June 2013) and derivative liabilities. lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modifi - d) Financial liabilities – subsequent measurement cation is treated as a derecognition of the original liability and the The measurement of financial liabilities depends on their recognition of a new liability, and the difference in the respective classification as follows: carrying amounts is recognized in the consolidated income statement. – Financial liabilities as at fair value through profit or loss Financial liabilities at fair value through profit or loss include 2.4.6. Financial instruments – determination of financial liabilities held for trading and financial liabilities desig - fair value nated upon initial recognition at fair value through profit or loss. The Group’s investments are primarily non-current financial assets This category includes derivative financial instruments entered and market quotations are not readily available, therefore these into by the Group. Gains or losses on liabilities held for trading investments are measured at their fair value using the most appro- are recognized in the income statement. priate valuation techniques as described in detail below. The responsibility for determining the fair values lies with the Board of – Loans and borrowings Directors. General partners of funds in which the Group invests, After initial recognition, interest bearing loans and borrowings the Manager and the Service Manager of the Group’s direct invest- are subsequently measured at amortized cost using the effective ments provide valuations of these investments. Due to inherent interest method. Gains and losses are recognized in the state- uncertainties, fair valuations may differ significantly from values ment of comprehensive income when the liabilities are derecog- that would have been used in actual market transactions. nized as well as through the amortization process. Borrowings, which are mandatorily redeemable on a specific date, are – Direct Investments classified as loans and borrowings carried at amortized cost In 2010 APEN Bermuda Legacy Ltd. entered into an investment using the effective interest rate method. management agreement with PineBridge Investments LLC (“Service Manager”). The Service Manager prepared the valuations for all direct investments at each reporting date (until 30 June 2013). Valuations for the other existing direct investments as of 30 APEN Group – Consolidated Financial Statements 2013
31 December 2013 are provided by third party sources, such as – Fund Investments General Partners of funds that are holding the same investment The valuation of fund investments is generally based on the latest and that the Company is invested in or the lead investor of the available net asset value (“NAV”") of the fund reported by the relevant direct investment. The Service Manager as well as the corresponding fund manager provided that the NAV has been Manager use valuations and valuation input provided by the lead appropriately determined by using proper fair value principles in fund manager of the respective direct investment. Financial and accordance with IFRS 13. The Board of Directors reviews and market performance is compared with budget information, data approves the NAV provided by the fund's manager unless the obtained from competitors and subsequent rounds of financing. Group is aware of reasons that such a valuation may not be the The Board of Directors reviews and discusses the valuations with best approximation of fair value. In general, NAV is adjusted by the Service Manager and may independently apply adjustments to capital calls and distributions falling between the date of the latest determine the investments’ fair value. In determining the fair NAV of the fund and the reporting date of the Group. value of an unquoted direct investment, all appropriate and appli- cable factors relevant to their value, including, but not limited to, Investment valuations are further generally based on 30 Septem- the following are considered in general: ber capital accounts. Adjustments to the valuation are considered when either of the following applies: • Transaction price paid for an identical or a similar instrument • The Group becoming aware of subsequent changes in the fair in an investment, including subsequent financing rounds; values of underlying companies, • Comparable company valuation multiples; • New/amended features of the fund agreement that might • Discounted cash flow method; affect distributions • Reference to the valuation of the lead investor or other • Changes to market or other economic conditions impacting investors provided that these were determined in accordance the value of the fund; with IFRS 13. • NAV reported by the fund has not been appropriately deter- mined by applying the valuation principles as per IFRS 13. For venture capital investments, the following is also considered: Further, when information is used based on data different from A new financing round that is material in size for the company the reporting date, capital drawdowns and capital distribution and having new, sophisticated institutional investors making up activity of the remaining period until year end is being added a significant piece of the financing round. An inside round of to and subtracted from the valuation as appropriate. In a few financing does not qualify. instances where more recent reporting is not available valuations are based on 30 June 2013 capital accounts provided by portfolio For buy-out/later stage investments for which subsequent rounds funds, with capital drawdowns and capital distribution activity of of finance are not anticipated the following is also considered: the second half of 2013 being added to and subtracted from the valuation. The Group monitors current market activity related to Once an investment has been held for one year, an analysis of these funds and the overall market developments to determine the fair market value of such investment will be performed. implications on the valuations and apply appropriate adjustments This analysis will typically be based on one of the following if necessary. The Group reviews the valuations of these funds and methods (depending on what is appropriate for that particular discusses portfolio company performance with the relevant port - company/industry): folio fund manager. The portfolio fund managers determine fair values of the underlying investments by using the same valuation – Result of multiple analysis; techniques as noted above for direct investments. Investments – Result of discounted cash flow analysis; in securities and in other financial instruments traded on recog - – Reference to transaction prices (including subsequent nized exchanges (including bonds, equities, futures contracts, financing rounds); options, and funds), are valued at the last price which is most – Reference to the valuation of other investors; representative of fair value on the reporting date. Investments in – Reference to comparable companies. securities and in other financial instruments traded in the over the counter market and listed securities for which no trade is Based on a composite assessment of all appropriate and reported on the valuation date are valued at the price within the applicable indicators of fair value, the Board of Directors bid-ask spread that is most representative of fair value in the determines the fair values as of the valuation date. circumstances. APEN Group – Consolidated Financial Statements 2013 31
– Derivative Financial Instruments projected unit credit method. Actuarial gains and losses were Fair values for derivative financial instruments are obtained from recognized in full in other comprehensive income in the period quoted market prices, discounted cash flow models, or option in which they occurred. Such actuarial gains and losses were pricing models as appropriate. also immediately recognized in retained earnings and were not reclassified to profit or loss in subsequent periods. 2.4.7. Financial instruments – impairment of financial assets Past service costs were recognized immediately for benefits that Financial instruments are reviewed for impairment at each report - had already vested. ing date. For available-for-sale financial assets, the cumulative gain or loss previously recognized in other comprehensive income As of 28 June 2013, APEN Services AG is no longer part of the is included in net profit or loss for the period when there is APEN Group. APEN further does no longer employ personnel objective evidence that the asset is impaired. (2012: four employees). Hence, the pension plan was discontinued as of 30 June 2013. An impairment is recorded when there is a significant (> 30%) or prolonged (> 1 year) decrease in the instrument’s fair value 2.4.9. Shareholders’ equity below cost. Impairments are reflected in total revaluation Ordinary shares are classified as equity. The transaction costs of deficit/surplus (equity) and in the impairment of non-current an equity transaction are accounted for as a deduction from assets (statement of comprehensive income). equity. Transaction costs for equity are comprised of only those incremental external costs directly attributable to the equity trans- The application of the impairment policy to the direct and fund action, which would otherwise have been avoided. Equity is investments is as follows: comprised of the following:
– Direct Investments • Share capital and Share capital premium Direct investment valuations are reviewed at each reporting date Refer to Note 7 for a description and further details on the by the Service Manager or the Manager (see Note 2.4.6). The share capital and share capital premium. Board of Directors then reviews the valuation and where neces- sary, discusses these with the Service Manager and the Manager • Treasury stock respectively. If a direct investment has had a fair market value Treasury shares are presented in the balance sheet as a deduc- below cost for at least one year or in excess of 30%, it is deemed tion from equity and are measured at cost. The acquisition of to be impaired and the cumulative gain/loss previously recognized treasury shares is presented as a change in equity. No gain or in other comprehensive income will be transferred to the income loss is recognized in the statement of comprehensive income statement. Subsequent changes to the fair value of such direct on the sale, issuance, or cancellation of treasury shares. The investments do not result in a subsequent reversal of the consideration received is presented in the financial statements impairment. as a change in equity.
– Fund Investments • Revaluation Reserve on Financial Assets held as AFS Funds where the Group is a direct limited partner will be reviewed The revaluation deficit/surplus includes the cumulative net at each reporting date. If a fund investment has had a fair market change in fair value of available-for-sale investments until the value below cost for at least one year or in excess of 30%, it will investment is disposed of or is determined to be impaired. be deemed to be impaired and the cumulative loss previously This includes FX differences on the translation from notional to recognized in other comprehensive income will be transferred to functional currency. the income statement. Subsequent changes to the fair value of such direct investments do not result in a subsequent reversal of • Currency translation adjustment the impairment. The currency translation adjustment includes differences due to the currency translation of the Subsidiaries between functio- 2.4.8. Post-employment benefits nal and presentation currencies. Until 28 June 2013, APEN Group operated a defined benefit pension scheme in Switzerland, which required contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit plan was determined using the 32 APEN Group – Consolidated Financial Statements 2013
2.4.10. Net asset value per share and earnings 2.4.13. Segment reporting per share IFRS 8 requires companies to define operating segments and seg- Basic earnings per share are calculated by dividing the net profit ment performance in the financial statements. The sole operating attributable to the owners of the Company by the weighted segment of the Group is investing in private equity. Therefore, average number of ordinary shares outstanding during the period. the results published in this report reflect the required operating Diluted earnings per share are calculated by adjusting the segment information provided to the Chief Operating Decision weighted average number of ordinary shares outstanding assum - Maker which are equivalent with the members of the Board of ing conversion of all dilutive potential ordinary shares. Directors. Additional disclosures required by IFRS 8 are presented in Note 20. The net asset value per share is calculated by dividing the net assets attributable to the owners of the parent included in the 2.4.14. Contingencies balance sheet by the number of ordinary shares outstanding at Contingent liabilities are not recognized in the balance sheet. They the reporting date. are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. 2.4.11. Taxes Tax provisions are based on reported income. Taxes are calculated A contingent asset is not recognized except for limited instances in accordance with the tax regulations enacted in each country where economic benefits are highly probable. If these are deemed where the Group has subsidiaries/participations. probable, they are disclosed in the financial statements. Refer to Note 19 for further details. Capital taxes charged to the Company are included in operating expenses on the income statement. 2.4.15. Share-based compensation plans – Share appreciation rights (SARs) – Switzerland The Group operates a cash settled, share-based compensation The company is taxed as a holding company in the Canton of plan. The corresponding liability is re-measured at each balance Zug. Income, including dividend income and capital gains sheet date to fair value, with changes recognized immediately in deriving from its participations are exempt from taxation at the statement of comprehensive income. Refer to Note 18 for the Zug cantonal/communal level. However, capital taxes are further details. levied on Zug cantonal/communal level.
For Swiss federal tax purposes, income tax at an effective tax rate of 8.5% is levied.
Provisions for taxes payable on profits earned in the Group companies are calculated and recorded based on the applicable tax rate in Switzerland.
–US APEN Holdings LLC is a partnership and hence financially trans - parent and not subject to income and capital gains tax in the US. APEN FMH LLC and APEN Faith Media Holdings LLC are corporations for US federal income tax purposes and are subject to income and capital gains taxes in the US.
2.4.12. Capital management The investment objective of the company is to realize long term capital appreciation by creating a portfolio of fund investments and direct investments in the private equity sector. The invest- ments will be diversified among fund managers, geographical regions, economic sectors and stages. Refer to Note 1 for further details. APEN Group – Consolidated Financial Statements 2013 33
2.5. Standards Issued but Not Yet Effective
New IFRS Expected to be applied Potential pronouncement Title first in financial year impact IFRS 9 Financial Instruments: Classification and Measurement – Financial Assets – 3) IFRS 9 Financial Instruments: Classification and Measurement – Financial Liabilities – 3) IFRS 9 Financial Instruments – Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39 – 3) IFRS 10 Consolidated Financial Statement – Investment Entities 2014 1) IAS 32 Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) 2014 1) IAS 36 Impairment of Assets – Recoverable Amount Disclosures for non-financial assets (Amendments to IAS 36) 2014 1) IAS 39 Financial Instruments – Novation of derivatives (Amendments to IAS 39) 2014 1) IFRIC 21 Levies 2014 1) Various Annual Improvements to IFRSs – 2010–2012 Cycle 2015 2) Various 2011–2013 Cycle – on 12 December 2013. 2015 1)
The following standards, amendments and interpretations to not fundamentally change the classification and measurement existing standards have been published but are not yet effective. requirements for financial liabilities. As of today and due to The group has yet to adopt those standards and plans to do so for the timing of the standard coming into effect, the implications the reporting period beginning after the effective date stated in of these changes have not yet been determined. the respective standard:
The Group is currently evaluating the impact of these changes. Based on the Board of Directors’ preliminary assessment, the Company expects the following implications for the above.
1) The changes arising from this new pronouncement are not expected to have any material impact on the Group’s consolidated financial statements.
2) The changes arising from this new pronouncement are not expected to have a material impact on either the financial position or financial performance of the Group, however, the changes will give rise to additional or amended disclosures.
3) The IASB has recently removed a binding effective date for IFRS 9. The Company is currently assessing the impact and timing of adopting the new or amended pronouncements. Based on the assessment, the Company might determine that the amendment has an impact on the statement of financial position or financial performance of the Group as noted below:
• IFRS 9 fundamentally changes the way to classify financial assets based on the business model of the Group and cash flows obtained from these investments. IFRS 9 will eventually also fundamentally change the requirements for impairment of financial assets and hedge accounting. However, IFRS 9 does 34 APEN Group – Consolidated Financial Statements 2013
NOTE 3. FINANCIAL ASSETS AVAILABLE FOR SALE
Opening Cumulative Opening Balance at Gain/Loss Balance at Cost Fair Market Value 31.12.12 Paid in Capital Returned Capital in TCHF in TCHF in TCHF in TCHF in TCHF Western European Funds Portfolio Astorg III – 1 343 1 343 – – Astorg IV 3 653 6 178 2 525 30 (1 140) CapVest Equity Partners, L.P. 2 233 999 (1 234) – – CapVest Equity Partners II, L.P. 13 613 13 580 (32) 2 643 – Carlyle Europe Partners II, L.P. 8 687 11 324 2 637 85 (1 892) EQT V, L.P. 4 128 4 713 586 238 (1 075) GMT Communications Partners III, L.P. 7 093 10 836 3 743 2 016 – Lexington Capital Partners IV, L.P. – 1 424 1 424 – – Lexington Capital Partners VI, L.P. 18 086 17 261 (825) 863 (2 266) Lion Capital Fund II, L.P. 10 080 9 117 (963) 413 (428) Motion Equity Partners I, L.P. (formerly Cognetas) – 127 127 10 – Odewald Private Equity Partners III, L.P. 7 918 7 358 (560) 561 – Palamon European Equity Fund, L.P. 2 516 3 110 594 – – Portobello Capital II, L.P. 11 862 9 592 (2 271) 312 (900) The Fourth Cinven Fund 2 288 5 875 3 587 – (2 288) Ventizz IV 4 084 4 814 730 257 (40) Subtotal Western European Funds 96 239 107 651 11 412 7 428 (10 029)
Other Regions Funds Portfolio CVC Capital Partners Asia Pacific II, L.P. 4 975 4 250 (726) 48 (25) PineBridge Global Emerging Markets Fund II, L.P. 4 327 5 584 1 258 133 (210) PineBridge Latin America Partners, L.P. 766 306 (460) – (545) PineBridge Latin America Partners II, L.P. 2 142 2 360 217 44 – PineBridge New Europe Partners II, L.P. 12 091 12 012 (79) 2 956 (60) Unison Capital Partners II 910 732 (178) 17 (523) Unison Standby Facility 265 359 94 – (235) Subtotal Other Regions Funds 25 477 25 603 126 3 198 (1 598)
North American Funds Portfolio Altaris Health Partners II, L.P. 9 359 13 070 3 711 – (9 359) Apollo IV, L.P. 12 63 51 – – Apollo VI, L.P. 9 957 22 470 12 513 1 452 (3 762) Ares Corporate Fund II, L.P. 3 194 3 663 469 – (3 194) Blackstone Capital Partners III, L.P. 20 20 – – (21) Blackstone Capital Partners V, L.P. 28 845 30 042 1 197 208 (5 115) CHS Private Equity V, L.P. 4 854 5 103 248 34 (89) Cortec Group Fund IV, L.P. 11 001 10 769 (232) 303 (40) Diamond Castle IV, L.P. 9 586 10 786 1 200 331 (1 294) HealthCare Ventures VIII, L.P. 4 178 3 618 (561) 708 – Highstar Capital, L.P. 123 34 (89) – – Highstar Capital III, L.P. 22 786 25 270 2 484 381 (1 855) J.C. Flowers Fund II, L.P. 6 066 6 423 357 250 (425) Madison Dearborn V, L.P. 14 396 16 288 1 892 75 (1 861) Mill Road Capital Partners, L.P. 11 302 14 209 2 906 488 (3 507) New Mountain Investments III 3 581 3 876 295 – (3 580) PineBridge Horizon Partners, L.P. 9 162 7 113 (2 049) 307 (3 637) PineBridge Private Equity Portfolio, L.P. 10 264 8 480 (1 784) 154 (2 829) PineBridge Sports & Entertainment Partners, L.P. 454 412 (42) – – Platinum Equity Capital Partners II 5 391 6 934 1 544 – (1 155) Polaris Partners V, L.P. 4 259 7 921 3 662 656 (778) SFW Capital Partners Fund, L.P. 6 916 7 620 705 1 142 (4 819) Technology Crossover Ventures IV, L.P. 313 179 (134) – (75) Thompson Street Capital Partners II, L.P. 5 980 6 981 1 000 – (5 981) TowerBrook Capital Partners II, L.P. 11 753 10 381 (1 372) – (11 754) VSS Communications Partners IV, L.P. 8 870 7 519 (1 351) 123 (252) Wellspring Capital Partners IV, L.P. 4 204 4 189 (15) – (73) WestView Capital Partners, L.P. 1 503 4 247 2 743 27 (1 007) Subtotal North American Funds 208 330 237 678 29 348 6 639 (66 460) APEN Group – Consolidated Financial Statements 2013 35
Total Cost Fair Value Unrealized Gain Unrealized Loss Realized Gain Realized Loss Outstanding Impairments 31.12.13 31.12.13 31.12.13 31.12.13 1.1.13–31.12.13 1.1.13–31.12.13 Commitments Original Vintage in TCHF in TCHF in TCHF in TCHF in TCHF in TCHF in TCHF in TCHF Currency Year
– – 1 986 1 986 – – – 245 EUR 2003 – 2 544 5 082 2 538 – 285 – 1 134 EUR 2007 – 2 233 1 101 – (1 132) – – 261 EUR 1999 – 16 256 15 727 – (528) – – 3 823 EUR 2007 – 6 880 9 823 2 943 – 1 523 – 1 795 EUR 2003 (230) 3 060 3 274 214 – 1 481 – 646 EUR 2006 – 9 109 15 497 6 388 – – – 2 707 EUR 2006 – – 887 887 – 491 – 338 USD 2000 – 16 682 15 418 – (1 264) 1 976 – 587 USD 2006 (1 015) 9 049 7 708 – (1 341) 378 – 1 083 EUR 2007 (10) – – – – 105 – – EUR 2001 – 8 479 8 533 54 – – – 667 EUR 2007 – 2 516 3 154 638 – – – – EUR 1999 (341) 10 934 10 882 – (52) – – 1 210 EUR 2006 – – – – – 1 674 – – EUR 2007 – 4 301 4 783 484 – – – – EUR 2007 (1 596) 92 042 103 856 16 132 (4 318) 7 913 – 14 496
(259) 4 740 4 263 – (477) 60 – 690 USD 2005 – 4 249 3 946 – (303) 92 – 326 USD 2005 – 221 274 53 – – – 520 USD 2000 (45) 2 141 1 797 – (344) – – 381 USD 2007 – 14 987 16 623 1 636 – – – 3 698 EUR 2007 (370) 34 237 204 – – (12) – JPY 2005 – 31 98 67 – 18 – 328 JPY 2007 (675) 26 402 27 237 1 959 (1 124) 170 (12) 5 943
– – – – – 2 880 – – USD 2007 – 12 35 23 – 8 – 9 USD 1998 – 7 646 19 159 11 514 – 7 946 – 934 USD 2006 – – – – – 980 – – USD 2006 – – – – – 7 – – USD 1997 – 23 938 31 842 7 905 – 3 052 – 3 442 USD 2006 – 4 799 5 604 804 – 46 – 953 USD 2005 (2 698) 8 567 7 705 – (862) 596 – 2 022 USD 2006 (2 215) 6 408 5 673 – (736) 3 247 – 1 599 USD 2006 (179) 4 708 4 421 – (287) – – 943 USD 2005 (40) 83 – – (83) 38 – 271 USD 2000 – 21 311 23 090 1 779 – – – 1 255 USD 2007 – 5 891 6 936 1 045 – 31 – 633 USD 2006 – 12 610 14 984 2 374 – 783 – 2 863 USD 2006 – 8 283 11 616 3 334 – 2 020 – 2 369 USD 2007 – – – – – 183 – – USD 2007 (1 257) 4 574 3 696 – (879) 666 – 15 USD 1999 (823) 6 765 5 630 – (1 136) 303 – 957 USD 2000 – 454 404 – (50) – – 44 USD 2000 – 4 235 6 006 1 771 – 1 351 – 1 640 USD 2008 – 4 137 7 702 3 566 – – – 623 USD 2006 – 3 239 3 771 532 – 264 – 4 116 USD 2007 – 239 10 – (229) 190 – 107 USD 2000 – – – – – 1 735 – – USD 2006 – – – – – – (523) – USD 2006 (1 182) 7 560 6 237 – (1 323) 75 – 317 USD 2006 – 4 131 4 021 – (110) 510 – 711 USD 2006 – 524 2 541 2 018 – 2 088 – 798 USD 2005 (8 394) 140 118 171 082 36 665 (5 697) 29 000 (523) 26 619 36 APEN Group – Consolidated Financial Statements 2013
NOTE 3. FINANCIAL ASSETS AVAILABLE FOR SALE (CONTINUED)
Opening Cumulative Opening Balance at Gain/Loss Balance at Cost Fair Market Value 31.12.12 Paid in Capital Returned Capital in TCHF in TCHF in TCHF in TCHF in TCHF Direct Investments Portfolio Advanstar Communications 133 101 (32) – – Body Central 26 1 485 1 459 – (26) Easton-Bell Sports Holdings (fka Bell-Riddell Holdings) 1 146 885 (261) – – Falcon Farms 304 271 (33) – – Hertz 750 1 811 1 061 – (751) Knowledge Universe Education 6 474 4 802 (1 672) – – MVLF – 2 022 2 022 – – NXP Semiconductors 27 2 283 2 256 – (27) Serta Simmons (fka National Bedding Company) 13 343 330 – – SunGard Data Systems 1 236 801 (435) – – United Surgical Partners International & Global Healthcare Partners 1 422 1 990 568 – – Uplifting Entertainment (fka Gospel Music Channel) 9 582 6 385 (3 197) – – Subtotal Direct Investments 21 112 23 179 2 066 – (804)
Loans Flint Group 1 544 1 770 226 – – Subtotal Loans 1 544 1 770 226 – –
Total of all Investments 352 703 395 881 43 177 17 265 (78 891)
In a secondary transaction the Company disposed of the following portfolio funds in 2013: Altaris Health Partners II, Ares Corporate Fund II, The Fourth Cinven Fund, New Mountain Investments III, Thompson Street Capital Partners II, TowerBrook Capital Partners II, and half of its commitment in SFW Capital Partners for CHF 42 million in net cash. APEN Group – Consolidated Financial Statements 2013 37
Total Cost Fair Value Unrealized Gain Unrealized Loss Realized Gain Realized Loss Outstanding Impairments 31.12.13 31.12.13 31.12.13 31.12.13 1.1.13–31.12.13 1.1.13–31.12.13 Commitments Original Vintage in TCHF in TCHF in TCHF in TCHF in TCHF in TCHF in TCHF in TCHF Currency Year
(92) 41 30 – (11) – – – USD 2007 – – – – – 1 481 – – USD 2006 – 1 146 873 – (273) – – – USD 2006 (163) 141 122 – (19) – – – USD 2007 – – – – – 1 941 – – USD 2005 – 6 474 5 703 – (771) – – – USD 2007 – – 1 623 1 623 – – – – EUR 2006 – – 1 096 1 096 – 2 188 – – EUR 2006 – 13 327 314 – 9 – – USD 2005 (132) 1 104 779 – (326) – – – USD 2005 – 1 422 2 070 648 – – – – USD 2007 (50) 9 532 6 921 – (2 611) – – – USD 2005 (436) 19 873 19 544 3 681 (4 010) 5 619 – –
– 1 544 1 931 387 – – – – EUR 2004 – 1 544 1 931 387 – – – –
(11 101) 279 979 323 649 58 825 (15 149) 42 702 (535) 47 058 38 APEN Group – Consolidated Financial Statements 2013
NOTE 4: CURRENT ASSETS
4.1. Cash and Cash Equivalents
in TCHF 2013 2012 Cash at banks 39 367 68 638 Total 39 367 68 638
Cash and cash equivalents comprise all cash, short-term deposits and other money market instruments, net of short-term overdrafts, with an original maturity of three months or less. Cash and cash equivalents are at the full disposal of the Company.
The carrying amounts of cash and cash equivalents approximate fair value.
4.2. Receivables and Prepayments
in TCHF 2013 2012 From third parties 311 330 Total 311 330
The carrying amounts of the accounts receivable and prepayments approximate fair value. The carrying amount of receivables reflects its maximum exposure to credit risk.
There were no related party transactions to be reported for 2013 (2012: nil).
NOTE 5: CURRENT LIABILITIES
5.1. Payables and Accrued Charges
in TCHF 2013 2012 Commitment fee payable Borrowings 22 232 Other payables and accrued charges 1 183 1 716 Total 1 205 1 948
The carrying amounts of accounts payable and accrued charges approximate fair value.
5.2. Borrowings
in TCHF 2013 2012 Fortress Credit Corp. – current Borrowings (2009 facility) – 31 099 Fortress Credit Corp. – current Borrowings (2013 term loan) 526 – Total 526 31 099
Borrowings listed here correspond to the current portion of the overall outstanding borrowings under the Fortress facilities. Details are to be found under Note 6.1.
5.3. Derivative Financial Liability (Put/Call on shares of APEN Ltd) In the share and purchase agreement with Fortress, the Company has granted a put option to Fortress entities for the shares Fortress has acquired in the capital increase. Fortress entities can put its shares to the Company at a price of CHF 21.80 per share. The put option APEN Group – Consolidated Financial Statements 2013 39
is exercisable from 12 June 2014 through 12 June 2018. The Company has recognized the present value of the redemption amount as a financial liability, calculated as the maximum number of shares put-able, multiplied by the agreed share price. At the same time, the Company has a call option to purchase the shares at a price of CHF 41.80. As a result, the Group has recognized a financial liability in the amount of CHF 15.6 million, which equals the present value of the redemption amount.
NOTE 6: NON-CURRENT LIABILITIES
6.1. Borrowings in TCHF 2013 2012 Fortress Credit Corp. – non-current Borrowings (2009 facility) – 49 945 Fortress Credit Corp. – non-current Borrowings (2013 term loan) 97 828 – Fortress Credit Corp. – Class A Units 40 127 – Total 137 955 49 945
Borrowings listed here correspond to the non-current portion of the overall outstanding borrowings under the Fortress facilities.
On 17 May 2013 the Group replaced the existing unsecured long term credit facility (“2009 facility”) of USD 200 million entered into initially as of 26 October 2009 with Fortress Credit Corp. (“FCC”) with a new term loan (“2013 term loan”) of USD 140 million and a revolving credit facility of USD 10 million with FCC. At year-end USD 110.0 million was outstanding on the FCC 2013 term loan (2012: USD 68.7 million on the FCC 2009 facility).
– Fortress Credit Corp. (“FCC”) 2009 facility The FCC 2009 facility had a five year commitment period (until 26 October 2014) and was going to mature seven years after closing (26 October 2016). The loan carried 8% cash pay interest rate (payable quarterly) and a 12% payment in kind interest rate. A commit- ment fee of 1.0% of the unused credit facility per annum was due on a quarterly basis. The Group also had an obligation to deliver 12.5% additional equity interest in APEN Holdings to FCC. The Group was additionally required to ensure FCC a return of 175% of the notional amount. Refer also to Note 2.2.
Due to the inherent uncertainty of the timing of cash flows the Group continued to believe that the Borrowings would be repaid at the contractual maturity date. The FCC 2009 facility was initially recognized at its estimated fair value less directly attributable transaction costs at the refinancing date and subsequently measured at amortized cost using the effective interest method. The effective interest rate was calculated at 30.08%. The amortized cost calculation assumed that the FCC facility was going to be repaid in full at the contractual maturity date. Interest expense from borrowings in the statement of comprehensive income included TCHF 582 (2012: TCHF 2 424) of accretion expense on the FCC facility. Refer also to Note 2.2.
On 2 January 2013 and 2 April 2013, the Group made repayments in the amount of USD 32 million and USD 15 million to FCC. These repayments and cash interest due on 2 January 2013 and 2 April 2013 were presented in the consolidated balance sheet as current liabili- ties (Borrowings). The Group was required to use any cash balance in excess of 30% of unfunded commitments to repay the FCC facility (including accrued interest). This requirement resulted in the repayment previously noted. The repayment represented a change in the timing of estimated cash flows and resulted in a catch-up adjustment in the Borrowings balance in Q2 2013. No change was made to the effective interest rate. The impact of the adjustment was CHF 12.0 million combining both the catch-up effect on early repayment and the settlement and was reflected in the statement of comprehensive income within interest expense.
– Fortress Credit Corp. 2013 term loan In the May refinancing, APEN Bermuda Legacy Ltd. significantly amended the existing credit agreement with Fortress to reflect the new loan in the amount of USD 140 million. Borrowings under the past credit agreement were repaid. The term credit facility matures three years after closing. The interest rate of the loan is calculated at LIBOR +7%. The interest rate of the loan is adjusted on a monthly basis. 40 APEN Group – Consolidated Financial Statements 2013
On a monthly basis the cash balances of APEN Holdings LLC and its subsidiaries are analyzed. APEN Holdings LLC and its subsidiaries have the right to retain up to USD 13 million of cash to cover operating expenses and capital drawdowns. Of any cash exceeding that amount, the Company is obliged to pay 12.5% to Fortress. The remaining excess cash is used to pay interest and commitment fees. The balance is used to repay the new borrowings. Refer also to ‘Subsequent Events’.
As soon as the loan to value (“LTV”) ratio drops below 30% a predefined amount of cash can be retained by the Company and used for new investments. Per 31 December 2013 the LTV was 29.4%.
APEN Bermuda Legacy Ltd. additionally has a revolving credit facility with Fortress in the amount of USD 10 million. The interest rate is calculated at LIBOR +7%. A commitment fee of 1% is charged on the unused amount. As of 31 December 2013 the revolving credit facility was unused.
The new Borrowings were recognized at face value (USD 140 million). Costs incurred out of the refinancing were charged to the income statement as an expense.
6.2. Class A Units As part of the refinancing transaction, the Company has renegotiated and amended its contracts with its Class A Unit holders. As a consequence, the Company has reassessed the nature of these instruments. Under the amended contract, Class A Units are to be treated as a financial liability at fair value through profit or loss under IFRS as there is now a contractual obligation to deliver 12.5% of any net cash received in payment of a distribution to it from any of its subsidiaries (minus operating expenses of APEN Bermuda Legacy Ltd. and its subsidiaries) to Class A Unit holders. Distributions to Class A Unit holders are no longer at the discretion of the Group and can no longer be controlled by the Board of Directors.
The fair value of the Class A units is determined as 12.5% of the distributable value of the current investment portfolio (i.e., the fair value of the portfolio minus 0.5% for management fees and minus 0.2% for operating expenses of APEN Bermuda Legacy Ltd. and its subsidiaries). This valuation methodology has been refined from the approach described in the Company’s interim reports of 30 June 2013 and 30 September 2013 respectively to make the resulting value more robust and less dependent on judgments and future cash flow estimates. Had the now applicable methodology already been used previously the valuation of Class A units would have been CHF 0.4m or 0.9% lower (for 30 June 2013) and CHF 0.6m or 1.4% lower (for 30 September 2013) than the published figures.
As a result of the amendments, Class A Units are no longer treated as Non-controlling interest (“NCI”), which were therefore removed against recognition of the financial liability. Any remaining difference between removing NCI and initial recognition of the financial liability was debited to Accumulated Deficit. Refer to Note 8 for further details.
The Group reported NCI in 2012 and in the first quarter of 2013 in connection with Class A Units held by Fortress Corp., in APEN Holdings LLC, a Delaware company, United States. Class A Unit holders had a 12.5% ownership interest in the net assets of APEN Holdings LLC and 1/3 of voting rights. Interest of non-controlling interest was deemed significant to the Group’s financial statements in 2012, when CHF 1.2 million of loss were allocated to NCI, resulting in an accumulated NCI at the end of 2012 of CHF 28.2 million (representing 10.1% of total equity).
The Group does not present summarized financial information of APEN Holdings LLC in the notes to its financial statements as APEN Holdings LLC together with APEN Holdings Bermuda LLC represents the overall majority of all assets and liabilities as presented in the consolidated financial statements and therefore, whilst reading the consolidated financial statements, the interest that non-controlling interests have in the Group’s activities and cashflows is validly disclosed. From 17 May 2013, NCI is no longer present in the group.
6.3. Class B Units Due to the inherent uncertainty of the timing of cash flows and until the restructuring was concluded, the Group continued to believe that the Class B Units would be repaid at the contractual maturity date due to the uncertainty of the timing of cash flows. APEN Group – Consolidated Financial Statements 2013 41
in TCHF 2013 2012 MIP PE Holdings, LLC* – 130 347
* formerly held by AIG Global Asset Management Holdings Corp. Both companies are AIG Inc.; group companies
The Class B Units were classified as debt as the Group had a contractual obligation to deliver cash in settlement by a specified maturity date. The Class B Units were recognized at their estimated fair value at the date of issuance (USD 114.8 million) and were subsequently measured at amortized cost using the effective interest method. The Class B Units were entitled to receive an amount equal to (i) the principal value USD 150 million, plus (ii) an additional amount of USD 14.2 million, plus (iii) simple interest of 5.25% on the principal amount from the date of issuance (24 October 2009) through the date of payment. Payments made to the holder of the Class B Units were to be allocated first to repayment of the additional amount under (ii) above, second to accrued interest under (iii) above, and third to reduction of the principal amount. Once the principal amount had been repaid in its entirety, the Class B Units would have been extinguished. The Class B Units were required to be redeemed on 26 October 2021 if not repaid and extinguished earlier.
The effective interest rate had been calculated as 7.01%. The amortized cost calculation assumed that the Class B Units would have been repaid in full at the contractual maturity date. Interest expense from the Class B Units in the statement of comprehensive income includes TCHF 654 (2012: TCHF 1 452) of accretion expense on the Class B Units.
As part of the restructuring on 17 May 2013, the Company repurchased and canceled the Class B Units.
6.4. Post-employment Benefits On 28 June 2013, the Group has sold its 100% subsidiary APEN Services AG (formerly APEN Service GmbH) and from that date, does no longer employ any employees. As a consequence, the Group has ceased to operate pension plans and discontinued to apply IAS 19. The Group’s net defined benefit obligation as of the date of settlement amounted to TCHF 392 (31.12.2012: TCHF 417) and is recorded as a credit to in the income statement.
NOTE 7: SHARE CAPITAL
On 12 June 2013 the Company increased its capital by issuing 1 238 717 new shares at a price of CHF 21.80 resulting in proceeds to the Company of CHF 27.0 million. The price equals the quoted share price as of 15 May 2013 (two days before signing of the transaction). The shares were fully paid in by GP Investments and Fortress entities.
At the same time the Company sold all of its 195 815 treasury shares to Fortress entities, also for CHF 21.80 resulting in cash proceeds to the Company of CHF 4.3 million. As a consequence, the Company reversed its deduction for treasury shares, resulting in a re classi- fication within equity and a reduction to share premium of CHF 26.4 million.
Following these transactions, the number of issued and outstanding shares both amount to 5 363 717.
Subsequent to the refinancing and the capital increase GP Investments Ltd and Newbury Equity Partners II, L.P. together owned 40.1% of the Company’s shares. Fortress entities owned 13.4% of the Company’s shares. AIG Group sold all of its shares in the refinancing. The ownership percentage of other shareholders declined due to the increased number of shares issued and outstanding.
On 31 December 2013 shareholders’ equity/net assets of CHF 208.0 million (2012: CHF 251.1 million) represent the capital available to the Group to implement and achieve its investment goals. Shareholders’ equity includes a revaluation surplus of CHF 118.7 million (2012: 109.7 million), which represents unrealized value increases on investments held as available-for-sale. Shareholders’ equity also includes currency translation adjustments representing differences due to the currency translation from functional to presentation currency.
The share capital of the Company as of 31 December 2013 amounts to CHF 53 637 170 (31 December 2012: CHF 41 250 000) consisting of 5 363 717 registered shares (31 December 2012: 4 125 000) with a par value of CHF 10 (2012: CHF 10) each. All issued shares are fully paid-in. 42 APEN Group – Consolidated Financial Statements 2013
As of 31 December 2013 the Company has CHF 26.8 million (2012: CHF 20.6 million) authorized share capital outstanding. This authorized share capital will expire per 24 June 2015. As of 31 December 2013 the Company has CHF 26.8 million (2012: CHF 20.6 mil- lion) conditional share capital outstanding. The Company raised CHF 31.3 million in capital in 2013 (including sale of treasury shares).
NOTE 8: EQUITY ATTRIBUTABLE TO NON-CONTROLLING INTERESTS
Prior to 17 May 2013, the Group has carried NCI in its books. The NCI arose from interest of an investor in APEN Holdings LLC. APEN Holdings LLC had issued three classes of units: Class A Units, which were issued to entities managed by affiliates of Fortress Investment Group LLC (the “Fortress Entities“), the Class B Units held by MIP PE Holdings LLC (formerly held by: AIG Global Asset Management Holdings Corp.), and the Class C Units issued to APEN Ltd and APEN Faith Media Holdings LLC. Following the repayment of the Fortress credit facility, APEN Bermuda Ltd. was going to distribute available cash as defined in the Limited Liability Company Agreement of APEN Holdings LLC to APEN Holdings LLC, which was going to then make payments to its members pursuant to the following waterfall: first (i) 12.5% to the Class A Units, (ii) 74.375% to the Class B Units, and (iii) 13.125% to the Class C Units until the Class B Units had been redeemed and extinguished (as described in Note 6.3); and second, following extinguishment of the Class B Units (i) 12.5% to the Class A Units and (ii) 87.5% to the Class C Units. Class A Units were classified as NCI. Profit attributed to NCI until 17 May 2013 amounts to TCHF 137 (2012: TCHF –1 164). Accumulated NCI as of 17 May 2013 amounted to CHF 28.3 million (2012: TCHF 28.2 million).
As part of the refinancing transaction, the Company has renegotiated and amended its contracts with its Class A Unit holders. As a consequence, the Company has reassessed the nature of the Class A Units. Under the amended contract, Class A Units are to be treated as financial liability under IFRS (classified as financial liability at fair value through profit or loss) as there is now a contractual obligation to deliver 12.5% of any net cash received in payment of a distribution to it from any of its subsidiaries (minus operating expenses of APEN Bermuda Legacy Ltd. and its subsidiaries) to Class A Members (refer also to Note 6.2 above).
The effect of changes in parent’s ownership interest in a subsidiary without a loss of control is reflected in the statement of changes in equity.
NOTE 9: NUMBER OF SHARES OUTSTANDING AT YEAR-END
Share capital is broken down as follows:
Share capital is broken down as follows: Number of Shares Outstanding 1 January 2012 3 929 185 – Treasury shares sold – – Treasury shares purchased – Outstanding 31 December 2012 3 929 185
Outstanding 1 January 2013 3 929 185 – Treasury shares sold 195 815 – Treasury shares purchased – – New shares from capital increase 1 238 717 Outstanding 31 December 2013 5 363 717
The Company can trade in treasury shares in accordance with the relevant guidelines (Company’s articles of association, Swiss company law, listing rules of the SIX Swiss Exchange). Treasury shares are treated as a deduction from the consolidated shareholder’s equity (2013: nil, 2012: TCHF 30 691). During 2013 the Company sold 195 815 (2012: nil) shares, and purchased nil shares (2012: nil).
Currently, the Group does not intend to pay any dividends to shareholders. APEN Group – Consolidated Financial Statements 2013 43
The following major shareholders held shares and voting rights of 3% and more as of 31 December 2013 (according to the public disclosures of shareholdings at SIX):
Number of Shares Participation in % Number of Shares Participation in % 2013 2013 2012 2012 GP Investments/Newbury Capital * 2 416 798 45.1% – – Drawbridge Special Opportunities Fund LP (Fortress) 717 266 13.4% – – OAM European Value Fund 217 104 4.0% – – Wellington Management Company, LLP 210 936 3.9% 208 451 5.1% AXA Life 167 000 3.1% 167 000 4.1% AIG Group ** – – 1 435 532 34.8% Ernst Göhner Stiftung – – 267 000 6.5% APEN Ltd *** – – 195 815 4.8%
* The shares are held by three entities, namely GP Swiss Ltd. (Switzerland) (formerly GP Secondaries Investment Company (Switzerland) Ltd.), GP Cash Management Ltd. (Bahamas) and Newbury Holdings A Ltd. (Cayman Islands). These three entities are connected through a shareholders agreement ** The shares are held by three group entities, namely AIG, Inc., Chartis Overseas Ltd. and AIG Global Asset Management Holdings Corp. *** Represents treasury shares held by the Company.
During 2013, the Company received a number of notifications from shareholders disclosing that they had fallen below or exceeded one of the thresholds that trigger a reporting requirement. The reports were subsequently published by the Company and are available under the following web link: http://www.six-exchange-regulation.com/obligations/disclosure/major_shareholders_en.html
NOTE 10: INCOME
10.1. Interest Income from Non-Current Assets Interest income from non-current assets was generated as follows: in TCHF 2013 2012 Interest income from non-current assets: Funds portfolio 1 257 3 544 Direct Investments/loan 141 142 Total interest income from non-current assets 1 399 3 686
10.2. Dividend income from Non-Current Assets Dividend income from non-current assets was generated as follows: in TCHF 2013 2012 Dividend income from non-current assets: Funds portfolio 2 625 4 698 Direct Investments/loan 324 662 Total dividend income from non-current assets 2 948 5 360 44 APEN Group – Consolidated Financial Statements 2013
10.3. Net realized gain on investments Net realized gain on investments was generated as follows:
in TCHF 2013 2012 Realized gains from non-current assets: Funds portfolio 37 082 47 129 Direct Investments/loan 5 619 1 995 Total realized gains from non-current assets 42 702 49 124
Realized losses from non-current assets: Funds portfolio (535) (765) Direct Investments/loan –– Total realized losses from non-current assets (535)(765)
Net realized gains/(losses) from non-current assets 42 167 48 940
10.4. Reclassification adjustments on AFS financial assets
in TCHF 2013 2012 Revaluation of AFS Financial assets 12 381 (7 737) Reclassification to the statement of comprehensive income (10 729) – Change in value of AFS financial assets 1 652 (7 737)
NOTE 11: IMPAIRMENT OF NON-CURRENT ASSETS
For the year ended 31 December impairments of non-current assets were recognized as follows:
in TCHF 2013 2012 Direct investments 436 2 489 Funds 10 665 6 598 Total 11 101 9 087
For details please see the investment table in Note 3.
NOTE 12: OTHER OPERATING EXPENSES
in TCHF 2013 2012 Personnel expenses 1 225 1 594 Board of Directors 383 258 Accounting 742 750 Consultants 1 316 754 Legal 2 689 215 Others 1 060 1 510 Total other operating expenses 7 416 5 082 APEN Group – Consolidated Financial Statements 2013 45
NOTE 13: FINANCE COST in TCHF 2013 2012 Interest expense 13 801 31 304 Commitment fees 835 1 415 Loan origination fee 1 459 – Net loss on settlement of Borrowings and Class B Units 10 062 8 679 Total finance cost 26 15841 398
NOTE 14: TAXES in TCHF 2013 2012 Current income tax 70 107
Reconciliation of income tax calculated with the applicable tax rate: Gain/loss before tax expense (3 536) 1 210 Applicable tax rate 8.5% 8.5% Income tax (301) 103 Effect from: – non-taxable profits (2 410) (879) – unrecognized tax losses 2 711 776 – non-refundable withholding tax paid, income tax expense 70 107 Total income tax expenses 70 107
In 2013, the Group paid TCHF 32 (2012: TCHF 57) non-refundable withholding taxes. The company did not recognize income tax assets in the form of losses that can be carried forward against future taxable income.
Expiry of unrecognized tax losses Amount Within 1 year – Within 2–4 years 201 399 Within 5–7 years 14 269 Total 215 667
No deferred tax assets are capitalized due to the uncertain refunding which depends on achieving taxable net incomes in Switzerland in the future.
NOTE 15: EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS
Earnings per Share 2013 2012 Net profit/(loss) per share outstanding (in CHF) – basic (0.80) 0.20 Net profit/(loss) per share outstanding (in CHF) – fully diluted (0.80) 0.20
Net profit/(loss) for the period (3 789) 776 Weighted average of total number of shares outstanding (in ’000) – basic 4 717 376 3 929 185 Weighted average of total number of shares outstanding (in ’000) – diluted 4 717 376 3 929 185 46 APEN Group – Consolidated Financial Statements 2013
NOTE 16: RELATED PARTY TRANSACTIONS The Group’s activities expose it to a variety of financial risks, namely market risk (including interest rate risk, currency risk and Related Parties are individuals and companies where the individual other price risks), liquidity risk and credit risk. Management or company has the ability, directly or indirectly, to control the observes and manages these risks. These risks could result in a other party or to exercise significant influence over the other party reduction of the Group’s net assets. in making financial and operating decisions. The Group seeks to minimize these risks and adverse effects by In 2013 related parties include: considering potential impacts from the financial markets. The • Board of Directors of APEN Ltd Group manages these risks, where necessary, via collaboration • GP Investments Group consisting of GP Investments Ltd. with service partners that are market leaders in their respective (Bermuda), GP Advisors (Bermuda) Ltd. and GP Advisors Ltd. area of expertise. Additionally, the Group has internal guidelines (Switzerland) and policies in place to ensure that transactions are effected in a consistent and diligent manner. Material transactions Total compensation paid to the Board of Directors in the reporting 17.2. Market risk period was TCHF 275 (2012: TCHF 274) and of the Management a.) Interest rate risk Board TCHF 1 790 (2012: TCHF 930). Please also refer to Note 6 – The Group is subject to cash flow interest rate risk due to fluctu - “Compensation, Shareholdings and Loans” of the statutory ations in the prevailing levels of market interest rates. This risk accounts for more detailed information on amounts paid during arises primarily from loan assets (higher/lower LIBOR rate at the reporting period. Fees paid to GP Advisors in the reporting refinancing date; see schedule below) and Borrowings. The loans period amounted to CHF 2.6 million (2012: nil) and Borrowings have a variable interest rate corresponding to the LIBOR rate plus a margin. The majority of the Group’s assets are non interest bearing. The Group has not applied an interest rate NOTE 17: FINANCIAL RISK MANAGEMENT hedge due to the short term maturity profile of the loans and because the Group has no long term visibility of its cash flows 17.1. Strategy in using financial instruments due to its business activity. The investment objective of the company is to realize long term capital appreciation by creating a portfolio of fund investments The table below summarizes the Group’s exposure to interest rate and direct investments in the private equity sector. The invest- risks. It includes the Group’s assets and liabilities categorized by ments will be diversified among fund managers, geographical the earlier of contractual re-pricing or maturity dates. regions, economic sectors and stages. As of 31 December 2013, should interest rates change by 6 basis The portfolio held by APEN Bermuda Legacy Ltd. (formerly APEN points (change for previous 12 month period) (2012: 28 basis Bermuda Ltd.), APEN Holdings (Bermuda) Ltd. and APEN FMH LLC points) with all other variables ceteris paribus, the increase/ shall be liquidated over the upcoming years primarily following decrease in profit and loss for the year would be approximately the natural evolution of divestments performed by the various TCHF 13 (2012: TCHF 98). fund managers. Inflows arising from liquidation of the current portfolio plus new funds from the capital increase in June 2013 The management monitors interest rates on a regular basis and shall primarily be invested in emerging markets. The principal geo- informs the Board of Directors accordingly at its quarterly graphical regions targeted are Asia, Latin America and sub-Saharan meetings. Africa, while investments in Eastern Europe and the Middle East are pursued on an opportunistic basis. The allocation will be opportunistic. With primary and secondary fund investments the diversification will mainly be achieved through different managers in various countries. With direct investments the diversification will mainly be achieved through industry and stage, as well as through geography. Although the Company may invest directly in fund investments or companies, it is anticipated that investments will generally be made through the Subsidiaries. APEN Group – Consolidated Financial Statements 2013 47
As of 31.12.13 in TCHF < 1 month 1–3 months 3 months–1 year >1 year Non-interest bearing Total Assets Cash and cash equivalents – – – – 39 367 39 367 Receivables and prepayments – – – – 311 311 Loans – 1 931 – – – 1 931 Financial assets available for sale – – – – 321 718 321 718 Total assets – 1 931 – – 361 396 363 327
Liabilities Payables and accrued charges – – – – 1 205 1 205 Borrowings 526 – – 97 828 – 98 354 Derivative liability – – – – 15 636 15 636 Class A units – – – – 40 127 40 127 Class B units – – – – – – Post-employment liabilities – – – – – – Total liabilities 526 – – 97 828 56 968 155 322
As of 31.12.12 in TCHF < 1 month 1–3 months 3 months–1 year >1 year Non-interest bearing Total Assets Cash and cash equivalents 68 638 – – – – 68 638 Receivables and prepayments – – – – 330 330 Loans – 1 770 – – – 1 770 Financial assets available for sale – – – – 394 111 394 111 Total assets 68 638 1 770 – – 394 441 464 849
Liabilities Payables and accrued charges – – – – 1 948 1 948 Borrowings 31 099 – – 49 945 – 81 044 Derivative liability – – – – – – Class A units – – – – – – Class B units – – – 130 347 – 130 347 Post-employment liabilities – – – – 417 417 Total liabilities 31 099 – – 180 292 2 365 213 756
b.) Currency risk The company has assessed currency risk against the Swiss franc The USD is the functional currency of the entities holding the as follows: if the USD were to change 1.5% (average monthly investments (see Note 2.4.1). The net asset value per share is fluctuation), with all other variables held constant, it would result calculated in CHF, the presentation currency of the Group. How - in a change in shareholders’ equity of CHF 1.3 million (2012: ever, as the Group’s investments are largely denominated in 1.9%; CHF 2.7 million). USD and EUR, the Group will be exposed to a certain degree of currency risk, which can adversely affect performance. Fluctuations If the EUR were to change 0.8% (average monthly fluctuation), in foreign currency exchange rates affect the net asset value of the with all other variables held constant, it would result in a change investments and therefore the Group. The Group can enter into in shareholders’ equity of CHF 0.9 million (2012: 0.2%; CHF 0.2 currency contracts to mitigate these currency risks. Additionally, million). the Group regards loans in the same currencies as its assets as a measure to mitigate the impact of currencies on the net asset The Group’s currency position is monitored on a regular basis value. and the FX exposure is reviewed by the Board of Directors at the quarterly meetings. 48 APEN Group – Consolidated Financial Statements 2013
As of 31.12.13 in TCHF USD EUR JPY CHF Total Assets Cash and cash equivalents 25 307 2 085 8 11 966 39 367 Receivables and prepayments 156 – – 155 311 Loans receivable – 1 931 – – 1 931 Financial assets available for sale 214 492 106 891 335 – 321 718 Total Assets 239 955 110 907 343 12 121 363 327
Liabilities and Equity Payables and accrued charges 985 – – 220 1 205 Borrowings 97 828 – – – 97 828 Derivative liability – – – 15 636 15 636 Class A units 40 127 – – – 40 127 Class B units – – – – – Post-employment liabilities – – – – – Total Liabilities 138 940 – – 15 856155 322 Total Equity – – – 208 005 208 005 Total Liabilities and Equity 138 940 – – 223 861 363 327
As of 31.12.12 in TCHF USD EUR JPY CHF Total Assets Cash and cash equivalents 62 312 5 271 8 1 047 68 638 Receivables and prepayments 233 – – 97 330 Loans receivable – 1 770 – – 1 770 Financial assets available for sale 287 737 105 283 1 091 – 394 111 Total Assets 350 282 112 324 1 099 1 144 464 849
Liabilities and Equity Payables and accrued charges 1 948 – – – 1 948 Borrowings 81 044 – – – 81 044 Derivative liability – – – – – Class A units – – – – – Class B units 130 347 – – – 130 347 Post-employment liabilities – – – 417 417 Total Liabilities 213 339 – – 417 213 756 Total Equity – – – 251 093 251 093 Total Liabilities and Equity 213 339 – – 251 510 464 849
c) Other price risks The Group’s former investment advisor has performed extensive Other price risks (i.e. changes in market prices other than from due diligence prior to recommending any fund or direct invest- interest rate risks or currency risk) may affect the value of the ment within the existing legacy portfolio, including an analysis of investments held as available-for-sale by the Group. Other price the potential risks of the investment. The Manager monitors risks arise mainly from the uncertainty about future valuations of investments by analyzing regular reports and through direct the investments held as available-for-sale by the Group. Invest- contact with general partners and company management. Invest- ments held available-for sale amounted to CHF 321.7 million ment recommendations were approved by the Board of Directors (2012: CHF 394.1 million). For these investments the Group (before 1 July 2013) and the Investment Committee of the calculates the corresponding fair value on a monthly basis. Please Manager (after 1 July 2013) prior to commitment. Investment see the “Accounting Policies” (Note 2) for more information on performance is reviewed regularly by the Manager and the Board the fair value process as well as Note 3. of Directors. Valuations are updated on a monthly basis by taking APEN Group – Consolidated Financial Statements 2013 49
new currency rates, stock price at the end of the month for complexity and limited transparency of the underlying invest- listed portfolio companies and new reports from portfolio funds ments. Therefore, a sensitivity analysis is deemed to be of limited available to the Manager into account. Furthermore the Manager explanatory value. discusses fund performance with the fund managers and may take part in the annual meetings of significant portfolio funds. Detailed 17.3. Liquidity risk valuations are established at year-end in collaboration with fund Due to the specific nature of private equity funds of the type in managers. The Board of Directors reviews and subsequently which the Group invests, immediate and full investment of assets approves the valuations. is not always possible. Commitments made by a private equity investor in a private equity fund typically result in actual invest- Changes in valuations can have an impact on shareholders’ equity. ments being made over a period of up to six years. Outstanding In order to demonstrate the sensitivity, the average change of the commitments amounted to CHF 47.1 million at year-end 2013 TR LPX50® index (one of the leading benchmarks for the listed (2012: CHF 79.1 million). Even though these commitments could private equity industry) of the past two years is calculated and be drawn down at any point in time, the Group expects the used as input to the sensitivity analysis. If the value of the invest- majority of the remaining outstanding commitments to be drawn ments (based on year-end values) had increased or decreased by over a three year period. 21.6% with all other variables held constant, the impact on the shareholders’ equity would have been CHF 70.0 million (2012: The Group had unused credit facilities of USD 10 million at year- 1.04%, CHF 4.1 million). A decrease of 21.6% of the value of the end 2013. The credit facilities and the cash at hand are in excess investments would impact the statement of comprehensive income of 100% of all unfunded commitments. Management monitors net of OCI by CHF –22.6 million (2012: CHF –0.3 million). The cash flows on a weekly basis by updating its cash flow report and Company is exposed to a variety of market risk factors which may reports at least on a quarterly basis to the Board of Directors. The change significantly over time. As a result, measurement of such table below summarizes the maturities of the Group’s liabilities exposure at any given point in time may be difficult given the (gross undiscounted cash-flows).
3 months– > 3 years/no As of 31.12.13 in TCHF < 1 month 1–3 months 1 year 1–3 years stated maturity Total Payables and accrued charges 1 205 – – – – 1 205 Borrowings 526 – – 97 828 – 98 354 Derivative liability – – 15 636 – – 15 636 Class A units – – – 40 127 – 40 127 Class B units – – – – – – Pension liabilities – – – – – – Total Liabilities 1 731 – 15 636 137 955 –155 322 Unfunded commitments 47 058 – – – – 47 058
3 months– > 3 years/no As of 31.12.12 in TCHF < 1 month 1–3 months 1 year 1–3 years stated maturity Total Payables and accrued charges 1 948 – – – – 1948 Borrowings 31 099 1 225 4 048 12 634 103 934 152 940 Derivative liability – – – – – – Class A units – – – – – – Class B units – – – – 236 929 236 929 Pension liabilities – – – – 417 417 Total Liabilities 33 047 1 225 4 048 12 634 341 280 392 234 Unfunded commitments 79 139 – – – – 79 139
The table for 31 December 2012 assumed that the Class B Units and the Borrowings were to be repaid at their respective maturity date. 50 APEN Group – Consolidated Financial Statements 2013
17.4. Credit risk The Group holds a loan in one direct investment (see Note 3). The The Group has credit exposure only to established, creditworthy Board of Directors of the Group monitors this loan on a regular third parties, so that no collateralization is required. Receivables basis by ensuring interest is paid and by reviewing monthly and are monitored continuously. quarterly reporting. The loan is current on interest payments.
Board of Directors monitors credit risk on a regular basis. The Group attempts to minimize investment risk through effective due diligence in advance of investments, conservative under - The Group holds cash with a number of internationally renowned writing, reviews of investment partners, and contractual provisions financial institutions for diversification reasons. The Group moni- that limit the Group’s downside risk (see also other price risk). On tors the standing of these institutions on a regular basis. The mini- a quarterly basis, the Group reviews all investments for potential mum credit rating of these institutions at year end 2013 was “A”. impairment losses.
2013 Neither past due Past due but Individually Less allowance Total As of 31.12.13 in TCHF nor impaired not impaired impaired for impairment carrying amount Cash and cash equivalents 39 367 – – – 39 367 Receivables and prepayments 311 – – – 311 Derivative instruments – – – – – Loans 1 931 – – – 1 931 Total financial assets (excl. investments) 41 609 – – – 41 609
2012 Neither past due Past due but Individually Less allowance Total As of 31.12.12 in TCHF nor impaired not impaired impaired for impairment carrying amount Cash and cash equivalents 68 638 – – – 68 638 Receivables and prepayments 330 – – – 330 Derivative instruments – – – – – Loans 1 770 – – – 1 770 Total financial assets (excl. investments) 70 738 – – – 70 738
17.5 Fair value estimation Level 3 – inputs to the valuation methodology are unobservable In addition to the fair value approach highlighted in Note 2.4.4, and significant to overall fair value measurement. The inputs into IFRS requires the Group to disclose fair value measurements by the determination of fair value require significant management level of the following fair value measurement hierarchy: judgment or estimation. Investments that are included in this category include investments in privately held entities. Level 1 – inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the In certain cases, the inputs used to measure fair value may fall reporting date. The type of investments listed under Level 1, into different levels of the fair value hierarchy. In such cases, an include unrestricted securities listed in active markets. investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measure- Level 2 – inputs to the valuation methodology are other than ment. Management’s assessment of the significance of a particular quoted prices in active markets, which are either directly or input to the fair value measurement in its entirety requires indirectly observable as of the reporting date. Investments which judgment, and considers factors specific to the investment. are included in this category include restricted securities listed in active markets, securities traded in other than active markets, The following table summarizes the Group’s investments derivatives, corporate bonds and loans. measured at fair value on a recurring basis by the above fair value hierarchy levels: APEN Group – Consolidated Financial Statements 2013 51
As of 31.12.13 in TCHF Level 1 Level 2 Level 3 Total Investments held as available for sale – – 321 718 321 718 Total assets measured at fair value – – 321 718 321 718 Class A units – – 40 127 40 127 Total liabilities measured at fair value – – 40 127 40 127
As of 31.12.12 in TCHF Level 1 Level 2 Level 3 Total Investments held as available for sale 1 485 – 392 627 394 112 Total assets measured at fair value 1 485 – 392 627 394 112 Class A units – – – – Total liabilities measured at fair value – – – –
Due to the nature of the business the Group is engaged in, there are no significant transfers between level 1, 2 and 3 assets.
Level 3 investments mainly comprise of investments in unquoted private equity funds. The fair values of these unquoted private equity funds are derived based on the net asset values (including adjustments that are calculated by the respective fund manager) as outlined in note 2.4.6. All inputs used to derive at the adjusted net asset value are unobservable.
The following table discloses the changes to the fair value of level 3 assets during the year: in TCHF 2013 2012 Level 3 assets fair value as of 1 January 394 397 428 552 Purchases of level 3 assets 17 265 31 000 Sales proceeds (distributions, sales) from level 3 assets (80 635) (53 672) Impairment of level 3 assets (11 101) (9 087) Unrealized gains/losses of level 3 assets 11 039 (2 396) Reclassified to the income statement (9 247) – Level 3 assets fair value as of 31 December 321 718 394 397
For year-end 2013 the Group used 30 September 2013, quarterly As outlined in Note 2.4.6, the Group does not utilize valuation reports (in a few cases 30 June) as well as 31 December 2013 models with model inputs to calculate the fair value for their Level report (audited and unaudited). In cases where 30 June 2013 or 3 investments. Rather, the Group utilizes a methodology that uses 30 September 2013 reports were used, the Company calculated NAV as the key input. Thus, the main “unobservable input” would the year-end fair value of a specific fund by adding (cash paid to be NAV itself. No reasonably possible change in the inputs used in the fund) and subtracting (cash received from the fund) second determining the fair value would cause the fair value of Level 3 half 2013 or fourth quarter activity to the Company’s 30 June 2013 financial instruments to significantly change. or 30 September 2013 capital account balance of the fund. See table below. Second half or fourth quarter 2013 activity is also reviewed for any significant developments that may have an impact on the year end valuation.
Source NAV 2013 Audited financial statements 2.6% Unaudited Q4 2013 reporting 10.8% Rollforward of Q3 2013 reporting 81.4% Rollforward of Q2 2013 reporting 5.2% 52 APEN Group – Consolidated Financial Statements 2013
Assets and liabilities not carried at fair value but for which fair value is disclosed
As of 31.12.13 in TCHF Level 1 Level 2 Level 3 Total Assets Cash and cash equivalents 39 367 – – 39 367 Receivables and prepayments – – 311 311 Loans – – 1 931 1 931 Total 39 367 – 2 242 41 609
Liabilities Payables and accrued charges – – 1 205 1 205 Borrowings (current) – – 526 526 Derivative financial liability – – 15 636 15 636 Borrowings (non-current) – – 97 828 97 828 Class A units – – 40 127 40 127 Class B units – – – – Post-employment benefits – – – – Total – – 155 322 155 322
As of 31.12.12 in TCHF Level 1 Level 2 Level 3 Total Cash and cash equivalents 68 638 – – 68 638 Receivables and prepayments – – 330 330 Loans – – 1 770 1 770 Total 68 638 – 2 100 70 738
Liabilities Payables and accrued charges – – 1 948 1 948 Borrowings (current) – – 31 099 31 099 Derivative financial liability – – – – Borrowings (non-current) – – 49 945 49 945 Class A units – – – – Class B units – – 130 347 130 347 Post-employment benefits – – 417 417 Total – – 213 756213 756
The assets and liabilities included in the above table are carried at amortised cost, and their carrying values are a reasonable approximation of fair value. APEN Group – Consolidated Financial Statements 2013 53
NOTE 18: SHARE-BASED COMPENSATION PLAN In the current year, TCHF 27 (2012: 82) was charged as an expense relating to SARs within other operating expenses in the Share Appreciation Rights (SARs) statement of comprehensive income. The carrying amount at the In 2011, 2012 and 2013 a total of 138 000 SARs were issued. Out- end of the period amounted to TCHF 224 (2012: 197). standing SARs as of 31 December 2013 are as follows: The following table lists the inputs in the models used for the plan Sub- for the year ended 31 December 2013: Number Year of scription Strike of SARs grant Vesting date Expiry ratio price 16 664 2011 Vested 12.1.2016 1:1 CHF 16.76 2013 2012 2011 16 666 2011 Vested 12.1.2016 1:1 CHF 16.76 SARs SARs SARs 16 670 2011 Vested 12.1.2016 1:1 CHF 16.76 Dividend yield 0% 0% 0% Expected volatility 24.7% 21.4% 18.7% 16 664 2012 Vested 12.1.2017 1:1 CHF 17.24 Risk-free interest rate 0.307% 0.055% 0.021% 16 666 2012 Vested 12.1.2017 1:1 CHF 17.24 Expected life of option/ 16 670 2012 Vested 12.1.2017 1:1 CHF 17.24 SARs 4.64 years 3.04 years 2.03 years Weighted average share price – – – 12 663 2013 21.8.2014 21.8.2018 1:1 CHF 23.19 Model used Hull-White Hull-White Hull-White 12 666 2013 21.8.2015 21.8.2018 1:1 CHF 23.19 Exercise multiple 2 2 2 12 671 2013 21.8.2016 21.8.2018 1:1 CHF 23.19
Since market implied volatilities for APEN Ltd are not available, The SARs were granted free of charge. Each SAR entitles the the average of the historical volatility of a peer group was deter- holder to receive in cash the difference between the strike price mined (for 2013 SARs: 21.8%; for 2012 SARs: 16.7% and for 2011 and the market price of one share of the Company at the exercise SARs: 14.6%). Additionally, a historical volatility estimate of the date. A third of the SARs are each exercisable after a vesting Company, using a time window of observations equal to 4 years period of one, two and three years. The SARs mature after five was calculated at 27.6% (for 2013 SARs), 3 years at 26.1% (for years. In case of a termination of the working contract during the 2012 SARs) and 2 years at 22.9% (for 2011 SARs). For calculation vesting period, the SARs are cancelled. The Company has agreed purposes the average of the two values was taken. to change of control clauses for the beneficiaries with respect to SARs, in that vesting may be immediate in a change of control situation (this policy has been applied to all SARs issued in 2011 NOTE 19: COMMITMENTS, CONTINGENCIES AND and 2012). OTHER OFF-BALANCE-SHEET TRANSACTIONS
Movements in the number of stock appreciation rights and their In addition to those commitments disclosed in the Investment related exercise prices are as follows: Schedule (see Note 3) the Company has nil off-balance-sheet transactions open as of 31 December 2013 (2012: nil off-balance- 2013 2012 sheet transactions). The operations of the Company may be Average exercise Average exercise price per share SARs price per share SARs affected by legislative, fiscal and regulatory developments for As of 1 January 17.00 100 000 16.76 50 000 which provisions are made where deemed necessary. Please Granted 23.19 38 000 17.24 50 000 refer to Note 17.3 – “liquidity risk” for additional information on Exercised – – – – commitments. As of 31 December 18.70 138 000 17.00 100 000
Of the 138 000 SARs (2012: 100 000), 100 000 SARs (2012: 16 664) were exercisable per 31 December 2013. In 2013, 83 336 SARs vested without being exercised (2012: 16 664). No SARs were exercised in 2013 (2012: nil). 54 APEN Group – Consolidated Financial Statements 2013
NOTE 20: SEGMENT REPORTING Cash sources Proceeds secondary sale 45 599 The Group operates in the sole operating segment of private New Borrowings 134 740 equity investments. The geographical analysis of total assets is Other 245 determined by specifying in which region the investment was Subtotal cash sources 180 584 made: Cash uses in TCHF 2013 2012 12.5% of secondary proceeds to Fortress 5 696 North America 218 629 341 367 Repayment Borrowings 55 571 Europe (excl. Switzerland) 125 190 96 464 Repayment Class B Units 138 842 Switzerland 8 772 – Subtotal cash uses 200 109 Rest of the World 10 736 27 018 Total 363 327 464 849 Net payment 19 525
The geographical analysis of total income is determined by speci- fying from which region the investment profits are generated: NOTE 22: SUBSEQUENT EVENTS
in TCHF 2013 2012 Between 1 January 2014 and 20 March 2014, the following aggre- North America 37 299 42 067 gate investment related cash flows have been recorded (by the Europe (excl. Switzerland) 9 785 12 404 partnerships under the commitments existing as of 31 December Switzerland 3 – 2013 and direct investments): Rest of the World 487 3 544 Total 47 575 58 015 Capital Calls (in 1 000) Amount USD 2 222 EUR 321 NOTE 21: SIGNIFICANT EVENTS AND TRANSACTIONS JPY – Total 2 543 21.1 Refinancing Transaction On 21 May 2013 the Company announced the refinancing of its Distributions (in 1 000) Amount debt, the strengthening of its capital base and a redefinition of its USD 7 377 investment strategy with a focus on emerging markets. In a series EUR 4 327 of transactions, the Company raised USD 182 million. USD 42 JPY 142 million in net cash were generated by selling certain assets to Total 11 846 Newbury Partners. At the same time, Fortress granted the Com- pany a three-year loan in the amount of USD 140 million and a USD 10 million revolving credit facility. The proceeds from these Since the balance sheet date of 31 December 2013, there have transactions plus existing cash of USD 17.8 million, USD 199.8 mil- been no further material subsequent events that could impair the lion in total, were used by the Company to pay back its existing integrity of the information presented in the financial statements. debt with AIG (Class B Units) and Fortress (Borrowings). Class B Units were repurchased and cancelled by the Company. To further strengthen the capital base and to support the future growth, the Company increased its capital by CHF 31.3 million, including the sale of treasury shares.
21.2. Details of Cash Flow of Restructuring At the date of the refinancing, 17 May 2013, the Company was required to make a payment of CHF 19.5 million, which repre- sented the net amount of various payments. The details are as follows: APEN Group – Consolidated Financial Statements 2013 55
REPORT OF THE STATUTORY AUDITOR ON THE CONSOLIDATED FINANCIAL STATEMENTS
As statutory auditor, we have audited the consolidated financial position, the results of operations and the cash flows in statements of APEN Ltd., which comprise the balance sheet, accordance with the International Financial Reporting Standards statement of comprehensive income, statements of cash flows, (IFRS) and comply with art. 14 of the Directive on Financial statement of changes in shareholders’ equity and notes (pages 20 Reporting (DFR) of SIX Swiss Exchange and Swiss law. to 54), for the year ended 31 December 2013. Emphasis of Matter Board of Directors’ Responsibility In accordance with art. 16 of the Directive on Financial Reporting The Board of Directors is responsible for the preparation and (DFR) of the SIX Swiss Exchange we draw your attention to fair presentation of the consolidated financial statements in notes 2.2, 2.4.6 and 17.5 of the consolidated financial statements. accordance with the International Financial Reporting Standards As indicated in note 17.5, the consolidated financial statements (IFRS), art. 14 of the Directive on Financial Reporting (DFR) of include unquoted investments stated at their fair value of SIX Swiss Exchange and the requirements of Swiss law. This CHF 321.7 million. Because of the inherent uncertainty associated responsibility includes designing, implementing and maintaining with the valuation of such investments and the absence of a liquid an internal control system relevant to the preparation and fair market, these fair values may differ from their realisable values, presentation of consolidated financial statements that are free and the difference could be material. The determination of the from material misstatement, whether due to fraud or error. The fair values of these investments is the responsibility of the Board Board of Directors is further responsible for selecting and applying of Directors. The valuation procedures used are disclosed in notes appropriate accounting policies and making accounting estimates 2.4.6 and 17.5 of the financial statements. We have reviewed the that are reasonable in the circumstances. procedures applied by the Board of Directors in valuing such investments and have viewed the underlying documentation. Auditor’s Responsibility While in the circumstances the procedures appear to be reason - Our responsibility is to express an opinion on these consolidated able and the documentation appropriate, the determination financial statements based on our audit. We conducted our audit of fair values involves subjective judgment which cannot be in accordance with Swiss law and Swiss Auditing Standards as independently verified. Our opinion is not qualified in respect well as the International Standards on Auditing. Those standards of this matter. require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free Report on Other Legal Requirements from material misstatement. We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence An audit involves performing procedures to obtain audit evidence (article 728 CO and article 11 AOA) and that there are no circum- about the amounts and disclosures in the consolidated financial stances incompatible with our independence. statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material mis - In accordance with article 728a paragraph 1 item 3 CO and statement of the consolidated financial statements, whether due Swiss Auditing Standard 890, we confirm that an internal control to fraud or error. In making those risk assessments, the auditor system exists which has been designed for the preparation of considers the internal control system relevant to the entity’s pre- consolidated financial statements according to the instructions paration and fair presentation of the consolidated financial state- of the Board of Directors. ments in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an We recommend that the consolidated financial statements sub - opinion on the effectiveness of the entity’s internal control system. mitted to you be approved. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting PricewaterhouseCoopers Ltd. estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit Daniel Pajer Martin Gubler evidence we have obtained is sufficient and appropriate to provide Audit expert Audit expert a basis for our audit opinion. Auditor in charge
Opinion Zürich, 21 March 2014 In our opinion, the consolidated financial statements for the year ended 31 December 2013 give a true and fair view of the financial
Corporate Governance 58 APEN Group – Corporate Governance
CORPORATE GOVERNANCE AT APEN LTD.
1. GROUP STRUCTURE AND SHAREHOLDERS See also Note 3 of the consolidated financial statements (participations). APEN Ltd and its subsidiaries APEN Ltd (the Company) is a holding company according to Swiss Significant shareholders law and has its registered office at Industriestrasse 13c, 6300 Zug, There are several shareholders with a reported participation Switzerland. exceeding the 3% threshold of the Company’s share capital. The number of shares and voting rights of the major shareholders are The Company owns shares or membership interests in the follow - disclosed in Note 9 of the consolidated financial statements. ing companies: – APEN Bermuda EM Ltd., Bermuda (100%); Disclosure notices relating to persons or groups with significant – APEN Faith Media Holdings LLC, Delaware, USA, (100%); shareholdings (more than three percent of voting rights) can be – APEN Holdings LLC, Delaware, USA. APEN Holdings LLC was found at: created in the restructuring in October 2009. The company http://www.six-exchange-regulation.com/ had issued three categories of membership interests: Class obligations/disclosure/major_shareholders_en.html A, Class B and Class C Shares. With the implementation of the new corporate structure in 2013, the Class B Shares were Cross shareholdings redeemed and extinguished with the main effect that the There are no cross-shareholdings with other companies. holders of the remaining shares are entitled to receive distributions from available cash flows as follows: first 12.5% to the Class A Shares and second 87.5% to the Class C Shares.
APEN Faith Media Holding LLC owns shares in the following companies: – APEN Bermuda Legacy Ltd., Bermuda (1%); – APEN Holdings LLC (Class C Shares).
APEN Holdings LLC owns shares in the following companies: – APEN Bermuda Legacy Ltd. (99%).
APEN Bermuda Legacy Ltd. owns shares in the following companies: – APEN FMH LLC (100%); – APEN Holdings (Bermuda) Ltd. (100%).
APEN Bermuda EM Ltd. and APEN Bermuda Legacy Ltd. hold the vast majority of the investments.
See also organizational structure in this chapter.
Investments are made through APEN Bermuda EM Ltd., predomi- nantly in emerging markets, covering various regions, in particular Asia, Latin America, Eastern Europe, Middle East and Africa. The portfolio held directly or indirectly by APEN Bermuda Legacy Ltd. shall be liquidated over time.
For further information please also refer to the principles of con- solidation section within the consolidated financial statements. APEN Group – Corporate Governance 59
Organisational Structure
GP INVESTMENTS NEWBURY PARTNERS OTHER SHAREHOLDERS FORTRESS ENTITIES
100%
GP ADVISORS LTD, ZURICH 1 APEN LTD, A SHARES ZUG
C SHARES
100%
APEN FAITH MEDIA APEN HOLDINGS, LLC HOLDINGS, LLC DELAWARE
C SHARES
100% 100% 99%
GP ADVISORS (BERMUDA) LTD 1% APEN BERMUDA APEN BERMUDA EM LTD 3 LEGACY LTD 2
APEN companies Management agreement APEN HOLDINGS APEN FMH, LLC (BERMUDA) LTD Major shareholders Advisory agreement
GPI owned companies Administration agreement
1 Former APEN Services GmbH
2 Former APEN Bermuda Ltd.
3 Former APEN Bermuda Two Ltd.
Note: simplified chart
2. CAPITAL STRUCTURE reserves). There were no further share capital increases or other changes to the share capital during the last three reporting years. Capital As of 31 December 2013 the issued share capital of the Company Shares and participation certificates was CHF 53 637 170, divided into 5 363 717 fully paid registered There are no shares with preferential rights or similar rights. shares with a nominal amount of CHF 10 each. As per the same Each share is entitled to one vote and has full dividend rights. date the Company held no shares as treasury shares. The reserves Voting rights may be exercised only after a shareholder has been from capital contributions (statutory reserves) amounted to registered in the Company’s share register. No shares and/or share CHF 384.5 million. The market capitalization of the Company per certificates will be physically issued to shareholders. Transfers of year-end amounted to CHF 109.4 million. shares are effected through a book-entry system maintained by SIX SIS Ltd. The shares are listed on the SIX Swiss Exchange (ISIN: CH0009153310). There are neither participation certificates nor profit sharing certificates. Changes of capital In June 2013 the share capital was increased by CHF 12 387 170 Authorized and conditional capital through the issuance of 1 238 717 new shares with a nominal value The Board of Directors is entitled to an increase in authorized of CHF 10 each by utilizing the authorized share capital. In June capital up to a maximum amount of CHF 26 818 580 by issuing no 2011 shareholders approved the reduction of the par value of more than 2 681 858 shares with a nominal value of CHF 10 each. each share from CHF 100 to CHF 10. The entire aggregate capital The authorization expires on 24 June 2015. Shares for which sub- reduction amount of CHF 371 250 000 had been allocated to the scription rights were granted but not executed are at the Board then created reserves from capital contributions (statutory of Director’s disposal. The pre-emptive rights of the shareholders 60 APEN Group – Corporate Governance
can be excluded in case of acquisitions of other companies or Right of first refusal of GP Swiss Ltd. additional listings to foreign stock exchanges. Pursuant to the subscription agreement dated 17 May 2013 between GP Swiss Ltd (formerly GP Secondaries Investment Com- The share capital may be increased from conditional capital in pany (Switzerland) Ltd.) and the Company, the Company grants connection with the exercise of conversion or option rights, which to GP Swiss, for as long as GP Swiss holds at least 10 percent of are granted in connection with bonds or similar debt instruments the share capital of the Company outstanding from time to time, up to a maximum amount of CHF 26 818 580 by issuing no more but in no event for longer than two years after the put and call than 2 681 858 shares with a nominal value of CHF 10 each. In arrangement (referred to above) shall have expired, a right of first connection therewith, the shareholders’ pre-emptive rights are refusal with respect to any shares acquired by the Company under excluded. Whenever options or conversion rights are issued, the the above mentioned put and call arrangement. The right of first Board of Directors shall be entitled to withdraw the preferential refusal entitles GP Swiss to purchase the relevant number of subscription rights of shareholders for valid reasons. shares previously transferred to the Company upon exercise of the put option or the call option, in the event that the Company were For further details see also Article 4b and 4c of the articles of to sell or otherwise directly or indirectly transfer, all or a part of association (available at www.apen.com). such shares to an independent third party. If GP Swiss exercises its right of first refusal, it will pay the same price as the third party Limitations of transferability and nominee registrations offered to pay for the relevant shares or, in the absence of such a The Company’s shares are freely transferable, without any limita - third party offer, the bona fide price and terms offered by the tions, provided that the buyers declare they are the beneficial Company. owners of the shares.
Nominees who act as fiduciaries of shareholders are entered without further inquiry in the Company’s share register as share - holders with voting rights up to a maximum of 3% of the out - standing capital available at the time.
See also Article 4 of the articles of association (available at www.apen.com).
Convertible bonds and warrants/put and call options/right of first refusal Put and call option of Drawbridge Special Opportunities Fund Pursuant to the subscription agreement dated 17 May 2013 between Drawbridge Special Opportunities Fund LP, New York, NY, USA (“Fortress-Drawbridge”) and the Company, Fortress- Drawbridge has the right to sell to the Company 717 266 shares acquired in connection with the implementation of the new corporate structure in 2013. This right to sell may be exercised for the first time on 12 June 2014 and not later than 12 June 2018 (provided that such exercise period shall be extended up to the date, when the Company may purchase such shares in compliance with the relevant rules of the Swiss Code of Obligations governing the acquisition of own shares). The exercise price is CHF 21.80 per share.
The subscription agreement also provides that the Company has the right to buy from Fortress-Drawbridge the 717 266 shares. This right to buy may be exercised for the first time on 12 June 2014 and not later than 12 June 2018. The exercise price shall be CHF 41.50 per share. APEN Group – Corporate Governance 61
3. BOARD OF DIRECTORS Members of the Board of Directors
Responsibilities Eduardo Leemann, born 1956, Swiss citizen, Chairman, executive The Board of Directors consists of one or more members. The member, term of office expires in 2014. Board of Directors is ultimately responsible for the policies and management of the Company. The Board of Directors establishes Eduardo Leemann joined AIG Investments in 1997 as Chief the strategic, accounting, organizational and financing policies of Executive Officer of AIG Private Bank (now Falcon Private Bank the Company. The Board of Directors further determines the Ltd.) in Zurich serving later as Chairman of the Board for AIG authorized signatories of the Company and their signing authority. Private Bank. He returned to the Executive Board of AIG Private The Board of Directors is entrusted with preparing meetings of Bank in September 2008 and is now appointed Chief Executive the shareholders and carrying out shareholders’ resolutions. Officer of Falcon Private Bank Ltd. He previously worked at Goldman, Sachs & Co Bank as Member of the Management Com- Meeting schedule mittee and Head of Private Banking. Prior to that, Mr. Leemann The Board of Directors usually meets four times per year in person was Deputy to the Head of Private Banking worldwide at Bank (minimum twice). The regular meetings are typically held in Julius Baer with direct responsibilities for the Western Hemi- March, May, August and November. Additional meetings are called sphere, Switzerland as well as the overall marketing effort in on short notice if and when required. In the year under review, Private Banking. Prior to that, he was responsible for building the five board meetings took place, in the first half of the year in private banking business of Bank Julius Baer in their New York particular related to the implementation of the new corporate branch. Eduardo Leemann is a graduate of the Swiss School of structure. Each of the regular board meetings has a special focus Economics and Business Administration (SEBA) and the Advanced which is basically connected to the Company’s reporting rhythm. Executive Program of the J.L. Kellogg Graduate School of Manage- Such focuses are the financial statements, interim results, the ment at Northwestern University in Chicago, USA. medium-term plan, foreign exchange exposure, the annual general meeting and corporate governance. The Board of Directors Mr. Leemann became Chairman of the Company’s Board of resolves by majority vote with the presence of a majority of Directors in September 1999. members. The average duration of a board meeting is ninety minutes. David Pinkerton, born 1961, US citizen, executive member, term of office expires in 2014. Principles of the election procedure The members of the Board of Directors are elected by the annual David B. Pinkerton joined Falcon Private Bank Ltd. in October general meeting according to Article 11 of the articles of asso - 2010 as Chief Investment Officer. Previously, he was a Managing ciation (available at www.apen.com). The members of the Board Director in the Alternative Investments Group at AIG Investments of Directors have been elected for a term of office of one year, in New York. Mr. Pinkerton also set up a successful external asset with the possibility of repeated re-election. management business in New York to provide consulting services and manage family investments. He has over 24 years of far- reaching experience and expertise in private equity and hedge funds. David B. Pinkerton holds a Bachelor’s Degree in Finance and Economics from the University of Delaware and is admitted to New York and New Jersey State Bar.
Mr. Pinkerton joined the Company’s Board of Directors in June 2010. 62 APEN Group – Corporate Governance
Antonio Carlos Augusto Ribeiro Bonchristiano, born 1967, Brazilian Mr. Lopes joined the Company’s Board of Directors in June 2013. citizen, Vice-Chairman, executive member, term of office expires See “Administrative services and investment management” below in 2014. for a description of the significant business connections between subsidiaries of the Company and the GP Investments group. Mr. Bonchristiano is a co-chairman and co-CEO of GP Investments Ltd and a member of the Investment Committees of APEN David Justinus Emery, born 1962, Swiss citizen, executive member, Bermuda Legacy Ltd. and APEN Bermuda EM Ltd., respectively. He term of office expires in 2014. joined GP Investments in 1993 and has been a managing director since 1995. Prior to joining GP Investments, Mr. Bonchristiano was Mr. Emery is the Founder and Chairman of Reciprocus Inter - a partner at Johnston Associates Inc., a finance consultancy based national Pte Ltd, a Global M&A Advisory Boutique based in in London, and worked for Salomon Brothers in London and New Singapore. Prior to setting up his own firm in October 2011, he York. He is board member of several non-profit entities, including: was with Dun & Bradstreet, Inc (D&B) for over 16 years, lastly as Fundação Estudar, Fundação Bienal de São Paulo and the John Member of the Group's Executive Board (GLT), President of Asia Carter Brown Library in Boston – USA. He currently serves as a Pacific and Head of International Business Development and M&A. member of the board of directors of Allis, San Antonio Internatio- David serves today as an Advisor to several organizations and nal, Lupatech and BRZ Investimentos. He previously served as a government agencies and sits on several boards. He is also an member of the board of directors of BHG, Estácio, BR Properties, Entre preneur in his own right, mainly as an early stage investor. San Antonio, LBR – Lácteos Brasil, LAHotels, Sé Supermercados, He holds a Swiss Federal Bachelor’s Degree in Commerce and ALL, Kuala, CEMAR, ABC Supermercados, Gafisa, Hopi Hari, Sub- General Management. marino, Equatorial, Geodex Commumication, Trio Assessoria (holding Sascar), BR Malls, Tempo, Magnesita Refratários and Mr. Emery joined the Company’s Board of Directors in June Playcenter. Mr. Bonchristiano was also previously the CFO of 2013. During the two years prior to his election to the Board of SuperMar Supermercados and founder and CEO of Submarino. Directors, Mr. Emery (through Reciprocus International Pte Ltd) He was further vice-chairman of the board of directors of BR Pro- served as advisor to the Company. In 2013, Reciprocus Inter - perties, director of Geodex Communication, Contax Participações national Pte Ltd, received fees in the total amount of TCHF 31. and IRO of ABC Supermarkets and GP Investments. He holds a bachelor’s degree in politics, philosophy and economics from the Neither Mr. Leemann nor Mr. Pinkerton, as former non-executive University of Oxford, in England. members of the Board of Directors, (i) were in the three financial years preceding the period under review (i.e. the financial year Mr. Bonchristiano joined the Company’s Board of Directors in 2013) a member of the management of the Company or one of June 2013. See “Administrative services and investment manage- the Company’s subsidiaries, nor (ii) had one of them significant ment” below for a description of the significant business business connections with the Company or one of the Company’s con nections between subsidiaries of the Company and the GP subsidiaries. Investments group. Internal organisation Alvaro Lopes da Silva Neto, born 1957, Brazilian citizen, executive In connection with the implementation of the new corporate member, term of office expires in 2014. structure as per 1 July 2013, the Board of Directors decided to discontinue the delegation to a management board of the day-to- Mr. Lopes joined GP Investments in May 2012 as chief financial day operations of the Company. Since 1 July 2013, the Board of and investor relations officer, having previously served as CFO of Directors carries out these functions by itself. Genesis Investments and as an advisor to Bac Florida Bank. He was also the CEO of Mercure Investments, senior vice-president In view of the lean structure of the Company, the Board of of Prudential/Wachovia Securities and CEO, COO and EVP of Directors did not constitute any committees. Banco Bozano, Simonsen SA and its affiliates. Mr. Lopes holds a bachelor´s degree in economics and business administration from Due to its relatively narrow business activities and the investment Faculdade de Ciências Políticas e Econômicas do Rio de Janeiro management arrangements with GP Advisors (Bermuda) Ltd., and an MBA from COPPEAD-UFRJ. the Company does not have dedicated internal audit personnel. Risks are managed via a variety of measures. These include various regulations that are reviewed by the Board of Directors on a regular basis. APEN Group – Corporate Governance 63
The Company is exposed to a variety of risks such as: (Bermuda) Ltd shall receive a management fee, payable at the – Liquidity risk (financing of unfunded commitments, loan beginning of each calendar quarter, which shall be equal to one- servicing etc.); fourth (¼) of one-half percent (0.5%) of APEN Bermuda Ltd.’s – Currency risk; Adjusted Net Asset Value on the last business day of the immedi - – Investment related risks; and ately preceding calendar quarter. “Adjusted Net Asset Value” shall – Financial reporting. mean, the excess, if any, of (x) the value of APEN Bermuda Legacy Ltd’s assets as determined in accordance with the methodology The Board of Directors discusses these risks on a quarterly basis at described in the then most recent audited financial accounts of the board meetings and develops measures where required. the Company, taking into consideration the reported value of such entity’s or such portfolio’s private equity funds and direct opera- The Company has set up its own internal control system, which is ting company investments as of such date, but before taking into updated and reviewed on an annual basis. consideration any paid or accrued management fee, over (y) the amount of APEN Bermuda Legacy Ltd’s liabilities as of such date, For the tasks and responsibilities of the Board of Directors see but excluding the total amount of APEN Bermuda Legacy Ltd’s internal regulations of the Board of Directors (available at obligations under that certain Credit Agreement, dated as of www.apen.com). 26 October 2009 (as amended, restated, supplemented or other- wise modified), by and among APEN Bermuda Legacy Ltd, Fortress Administrative services and investment management Credit Corp., as administrative agent and collateral agent and the APEN Bermuda Legacy Ltd. and APEN Bermuda EM Ltd. entered other parties named “Lenders” thereunder. into a services agreement with Codan Services Ltd. and Codan Management Ltd. in respect to administrative services to be Under the agreement with APEN Bermuda EM Ltd., GP Advisors provided in Bermuda. (Bermuda) Ltd shall receive a management fee, payable at the beginning of each calendar quarter, which shall be equal to (a), In 2013 the following agreements were concluded: for the first five years of the investment management agreement APEN Ltd and GP Advisors Ltd (formerly APEN Services GmbH) (initial period), the sum of (i) the excess, if any, of CHF 1 250 000 amended their agreement on administrative services to be pro - over the management fee payable by APEN Bermuda Legacy Ltd. vided to APEN Ltd. Under the agreement, APEN issued a power- for the corresponding calendar quarter, plus (ii) one-fourth (¼) of-attorney to GP Advisors Ltd staff to handle matters of a mere of one and one-half percent (1.5%) of the New Capital Amount administrative nature. Under this agreement, the Company shall on the last business day of the immediately preceding calendar pay to GP Advisors Ltd an annual fee of CHF 100 000 plus out- quarter and (b) after the initial period, the positive difference, if of-pocket expenses reasonably incurred. any, obtained by subtracting (i) the management fee payable by APEN Bermuda Legacy Ltd. for the calendar quarter with respect APEN Bermuda Legacy Ltd. (formerly APEN Bermuda Ltd.) and to which the management fee is being determined from (ii) an APEN Bermuda EM Ltd. entered each into an investment manage- amount equal to one-fourth (¼) of one and one-half percent ment agreement with GP Advisors (Bermuda) Ltd. in respect to (1.5%) of the Company’s NAV on the last business day of the services to be provided for their respective investment portfolio. immediately preceding calendar quarter. For the purposes hereof, The investment management agreements empower, inter alia, (a) “New Capital Amount” shall mean the total amount of capital GP Advisors (Bermuda) Ltd. to take investment decisions on raised by the Company from the issuance and sale of ordinary behalf of APEN Bermuda Legacy Ltd. and APEN Bermuda EM Ltd., registered shares or other securities of the Company after 1 July respectively. The agreements have an initial life of 7.5 years start- 2013 and (b) “APEN’s NAV” shall mean, as of any date, the excess, ing on 1 July 2013. if any, of (x) the value of the Company’s assets as determined in accordance with the methodology described in the then most In essence, APEN Bermuda Legacy Ltd. and APEN Bermuda recent audited financial account of the Company, taking into EM Ltd., pay to GP Advisors (Bermuda) Ltd. a management fee consideration the reported value of the private equity fund and of CHF 5 mio per annum and a performance fee of 10% of the direct operating company investments held by the Company’s increase, if any, in the Company’s NAV after a 5% hurdle and subsidiaries as of such date, but before taking into consideration subject to customary catch-up and high-watermark clauses. any paid or accrued management fee or performance fee payable by the Company or any such subsidiary, over (y) the amount In more detail, the fees are calculated as follows: of the Company’s liabilities as of such date. In addition, GP Under the agreement with APEN Bermuda Legacy Ltd, GP Advisors Advisors (Bermuda) Ltd shall be entitled to a performance fee 64 APEN Group – Corporate Governance
(“Performance Fee”) at the end of June and December of each 4. MANAGEMENT BOARD calendar year, commencing in 2013. The Performance Fee shall be equal to (a) 100% of the Excess Return (as defined below) until No Management Board since 1 July 2013 GP Advisors (Bermuda) Ltd has been allocated for such calendar In connection with the implementation of the new corporate semester an amount at least equal to 10% of the Excess NAV structure as per 1 July 2013, the Board of Directors decided to Amount (as defined below) and (b) 10% of the remaining amount discontinue the delegation to a management board of the day-to- of such Excess Return. “Excess Return” shall mean, with respect day operations of the Company. Since 1 July 2013, the Board of to any Calculation Date, the excess, if any, of (i) the Company’s Directors carries out these functions by itself. NAV as of the last business day of the relevant semester (such date, the “Calculation Date”), over (ii) the sum of (x) the Com - In light of this, APEN Ltd and GP Advisors Ltd (formerly APEN pany’s NAV as of the last business day of the last semester with Services GmbH) amended their agreement on administrative respect to which a Performance Fee was paid under the invest- services to be provided to APEN Ltd. The former Chief Executive ment management agreement (such date, the “Reference Date”) Officer of the Company, Mr. David Salim together with Dr. Guido increased at an annual rate of five percent (5%), compounded Cornella, assumed main responsibility for the administrative annually, from the Reference Date through the Calculation Date, services under the services agreement. Neither Mr Salim nor plus (y) the aggregate value of each transfer of cash or securities Dr Cornella has any managerial functions within the Company or into the Company, if any, during the period from the Reference its subsidiaries. Date through the Calculation Date, increased in each case at an annual rate of five percent (5%) from the date of such transfer To ensure transparency, the Company will nevertheless continue through the Calculation Date, less (z) the aggregate value of each to disclose in the corporate governance report all APEN relevant transfer of cash or securities from the Company and its consoli - information regarding Mr. Salim in the future and will do so also dated subsidiaries, if any, during the period from the Reference with respect to Dr. Cornella. Date through the Calculation Date, decreased in each case at an annual rate of five percent (5%) from the date of such transfer or Responsible employees of GP Advisors Ltd (since 1 July 2013) distribution through the Calculation Date. “Excess NAV Amount” shall mean, with respect to any Calculation Date, the excess, if David Salim, born 1965, Swiss citizen. any, of (i) the Company's NAV as of such Calculation Date over (ii) the sum of (x) the Company’s NAV as of the applicable David Salim was, before joining GP Advisors Ltd in July 2013, Chief Reference Date plus (y) the aggregate value of each transfer of Executive Officer of the Company from August 2010 until June cash or securities into the Company, if any, during the period from 2013. He has over 20 years of professional experience in invest- such Reference Date through such Calculation Date, less (z) the ment banking and investment management with international aggregate value of each transfer of cash or securities from the financial groups and as an independent advisor. Since 1999, he Company, if any, during the period from such Reference Date has been active in alternative investments and in particular deeply through such Calculation Date. involved in managing private equity funds and direct investments, first as founder and CEO of Swiss Life Private Equity Partners and GP Advisors (Bermuda) Ltd. entered into an investment advisory from 2004 as independent advisor to family offices and institutio- agreement with GP Advisors Ltd in respect of advisory services to nal investors. David Salim holds a Master of Arts degree from the be provided for the investment portfolio of the Company. School of Economics of the University of St. Gall (M.A. HSG).
On 20 September 2010 APEN Bermuda Ltd. entered into an invest- Dr. Guido Cornella, born 1969, Swiss citizen. ment management agreement with PineBridge Investments LLC in respect of services provided for the direct investments portfolio. Dr. Guido Cornella, also joined GP Advisors Ltd in July 2013. He This investment management agreement was amended to cover has 14 years of experience as a strategy consultant and finance only one direct investment (Knowledge Universe) as per 1 July executive. Initially he worked at McKinsey & Co. in Zurich for 4 2013. years and subsequently practiced as an independent strategy con- sultant with projects in private equity, banking, insurance, tele- coms, media, logistics and pharmaceuticals in Europe, USA, Latin America and Asia. Additionally he served as director of finance and marketing for a start-up for two years. Over the previous two years Dr. Cornella (through Cornella Industries) was involved in APEN Group – Corporate Governance 65
developing the Company’s new strategy and supporting the 5. COMPENSATION, SHAREHOLDINGS AND LOANS balance sheet restructuring transaction. In 2013, Cornella Industries received fees in the total amount of TCHF 310. Content and method of determining the compensations Dr. Cornella holds an engineering degree from the Swiss Federal The compensation of the Board of Directors lies in the responsibi- Institute of Technology in Zurich (Dipl. Ing. ETH) and M.S. and lity of the Chairman of the Board. The Board of Directors deter - Ph.D. degrees in Materials Science from Stanford University in mines the level of compensation at its own discretion, taking into California, USA. consideration the likely time involvement of each member of the Board of Directors and compensation paid to members of other Members of the Management Board until June 2013 listed investment companies. In addition to a base compensation which is paid in cash, a variable compensation in stock apprecia- David Salim, born 1965, Swiss citizen. tion rights (SARs) may be granted at the discretion of the Board of Directors on the basis of a stock option plan (Stock Option Plan). For further information see above. With respect to the Management Board existing until June 2013, Conradin Schneider, born 1962, Swiss citizen. the fixed compensation was determined and agreed on the basis of market comparables for similar functions and responsibilities. Mr. Schneider joined the AIG Companies in 1999. He was The variable compensation of the Management Board existing involved in establishing and listing the Company on the SIX Swiss until June 2013 was approved by the Board of Directors upon Exchange. With the Company Mr. Schneider was responsible for proposal of the Chairman and in line with the incentive plan operations until 30 June 2013. Prior to joining AIG, Mr. Schneider described hereinafter. was with Aventic Ltd., the private equity vehicle of UBS for small and medium sized companies in Switzerland. Prior to his assign- In addition to the fixed remuneration, the Board of Directors ment with UBS-Aventic, he worked 8 years as a corporate banker implemented in 2011 an incentive plan in favour of, amongst with UBS with a focus on Swiss multinationals. Mr. Schneider others, the members of the Management Board in order to ensure holds a Master of Arts degree from the School of Economics of a stabilization of the debt financing needs and to support the the University of St. Gall (M.A. HSG). future positive development of the Company. This incentive plan was designed to be market-oriented and had been originally formulated with the support of external advisors (Homburger AG, attorneys at law) for the period of 2011–2013. It contained three base elements: a performance related yearly cash bonus, a yearly grant of SARs (governed by the Stock Option Plan) and a special incentive bonus. The amount of these incentive payments was determined for each member of the Management Board at indivi- dual level and at the discretion of the Board of Directors. The per- formance related cash bonus and the grant of SARs were amongst other factors based on the achievement of predefined personal performance targets of the individual members of the Manage- ment Board. The amount of the special incentive bonus depended on the achievement of the overall company target particularly focusing on the financing and capitalization situation of the Company.
Under the described plans, SARs were granted to the Board of Directors and the Management Board in 2011 and 2012. In 2013, under the described plans, the Board of Directors approved SARs for its own members and among others for Messrs Salim and Cornella. 66 APEN Group – Corporate Governance
There is no pre-determined ratio between fixed and variable Since 1 July 2013, Messrs Salim and Cornella have been compen- compensation for members of the Board of Directors or of the sated by GP Advisors Ltd. Mr Schneider left GP Advisors Ltd as of Management Board. 31 August 2013.
Participations as of 31 Dec. 2013 * 2013 Base Variable Pension Other Total Share- All figures in TCHF Compensation Compensation Contributions Benefits 2013 holdings SARs Board of Directors Eduardo Leemann (Chairman) 100 3 – 7 110 200 12 000 Dr. Christian Wenger (Vice-Chairman), until 25 June 2013 75 2 – 5 82 – 8 000 Antonio Carlos Augusto Ribeiro Bonchristiano (Vice-Chairman), since 25 June 2013 – – – – – 1 702 482 4 000 David Pinkerton (Member) 75 3 - 5 83 – 12 000 Alvaro Lopes da Silva Neto (Member), since 25 June 2013 – – – – – – 4 000 David Justinus Emery (Member), since 25 June 2013 – – – – – – 4 000 Total Board of Directors 275 1 702 682 44 000
Management Board David Salim (until 30 June 2013) 149 1 000 88 135 1 372 – 48 000 Conradin Schneider (until 30 June 2013) 132 225 23 37 417 3 000 16 000
Certain Others David Salim (GP Advisors Ltd) – – – – – – 59 000** Dr. Guido Cornella (GP Advisors Ltd) – – – – – – 5 000
* For Management Board members as of 30 June 2013 ** Includes SARs received prior to 30 June 2013 as Management Board member
The compensation disclosures for the Board of Directors above Credits or loans have been presented according to the cash paid in the relevant No credits or loans have been granted during the financial year year as the Board of Directors considers this to be more precise 2013 to any members of the Board of Directors or the Manage- than presenting the accrual amounts. ment Board, or, since 1 July 2013, to Messrs Salim and Cornella, and no credits or loans (originating from previous financial years) Highest total compensation to any of them have been outstanding as of 31 December 2013. The highest compensation paid to a member of the Management Board was CHF 1 372 372 to David Salim, CEO (see above table). Share-based compensation plan This payment relates to the period until 30 June 2013. Since 1 July In addition to the incentive plan, the Company maintains a share 2013, Mr Salim is not an employee of the APEN group anymore. based compensation plan. Based thereon, the Board of Directors may grant, in its sole discretion, stock appreciation rights (SARs) The highest compensation in the previous year of CHF 594 563 to members of the Board of Directors and members of the was paid to David Salim (for the entire year). For remuneration, Management Board as well as other eligible persons. Based on see also Note 6 “Compensation, shareholdings and loans” of the the plan, the strike price is determined as the volume weighted financial statements of APEN AG. average of the market price of the APEN shares during the period of 30 days prior to the date of grant. SARs are subject to a three year vesting period; vesting may be immediate in certain cases of termination of employment or office (other than on a voluntary basis by the relevant plan participant) and in a change of control situation. APEN Group – Corporate Governance 67
For 2013 the members of the Board of Directors, the members 6. SHAREHOLDER’S PARTICIPATION RIGHTS of the Management Board (until 30 June 2013) and other eligible persons have been allocated 38 000 stock appreciation rights Voting-rights restrictions and representations (SARs) of the Company (2012: 50 000). Each registered share in the Company is entitled to one vote. See also Article 7 section 1 in the articles of association (available at Outstanding SARs as at 31 December 2013 are as follows: www.apen.com). Voting rights may be exercised only after a share- holder has been registered as shareholder with voting rights in Sub- the Company’s share register. Number Year of scription Strike of SARs grant Vesting date Expiry ratio price 16 664 2011 Vested 12.1.2016 1:1 CHF 16.76 Rules on participating in the general meeting if different 16 666 2011 Vested 12.1.2016 1:1 CHF 16.76 from law 16 670 2011 Vested 12.1.2016 1:1 CHF 16.76 No restrictions. See Article 7 section 2 in the articles of association (available at www.apen.com). 16 664 2012 Vested 12.1.2017 1:1 CHF 17.24 16 666 2012 Vested 12.1.2017 1:1 CHF 17.24 Statutory quora 16 670 2012 Vested 12.1.2017 1:1 CHF 17.24 The statutory quora comply with the applicable legal regulations. See Article 8 in the articles of association (available at 12 663 2013 21.8.2014 21.8.2018 1:1 CHF 23.19 www.apen.com). 12 666 2013 21.8.2015 21.8.2018 1:1 CHF 23.19 12 671 2013 21.8.2016 21.8.2018 1:1 CHF 23.19 Convocation of the Shareholders’ Meeting and proposal for agenda items The rules for the convocation of the Shareholders’ Meeting complies with the applicable legal regulations. The convocation may also be requested by one or several shareholders repre - senting together at least ten percent of the share capital. In accordance with the applicable legal regulations, one or several shareholders holding at least ten percent of the share capital or shares with an aggregate nominal value of CHF 1 000 000 are entitled to propose items for the agenda of the Shareholders’ Meeting. See also Articles 5 and 6 in the articles of association (available at www.apen.com).
Registration in the share register for Annual General Meeting 2014 In 2014, the Annual General Meeting is scheduled to be held on 22 May 2014; investors who wish to attend the Annual General Meeting 2014 must be registered in the share register of the Company no later than 29 April 2014. 68 APEN Group – Corporate Governance
7. CHANGES OF CONTROL AND DEFENCE MEASURES 9. INFORMATION POLICY
Duty to make an offer The Company aims to offer the shareholders a high degree of There is no duty to make an offer (opting-out; see also Article 23 transparency. In this respect the Company publishes an annual in the articles of association (available at www.apen.com)) report, a semi-annual report and three quarterly reports. pur suant to Article 32 of the Federal Stock Exchange Act (SESTA). In between the quarterly report publications relevant information Change of control clauses (including information subject to ad-hoc publicity according to The Company has agreed to change of control clauses for the section 53 of the SIX Listing Rules) is published in the form of benefit of the Board Members, Mr Salim and Dr Cornella with press releases and available at www.apen.com. respect to SARs, in that vesting may be immediate in a change of control situation.
8. AUDITORS
Date of assumption of the existing auditing mandate PricewaterhouseCoopers (PwC) is elected until the next Annual General Meeting which is scheduled to be held on 22 May 2014.
Responsible Partner: Daniel Pajer (since 2012).
Total of audit fees in 2013 TCHF 224.
Additional fees in 2013 Tax consulting TCHF 8
Supervisory and control instruments vis-à-vis the auditors, control instruments Since there is no Audit Committee and no separate internal audit function, the Auditors’ report is presented to the whole Board of Directors as a part of the annual report.
In addition, the responsible Auditor participates in the Annual General Meeting and is standing by for questions and detailed audit information.
Financial Report 2013 – APEN Ltd 72 APEN Ltd – Financial Statements 2013
BALANCE SHEET AS OF 31 DECEMBER 2013 AND 31 DECEMBER 2012 in TCHF
Note 2013 2012 Assets Current Assets – Cash and cash equivalents 8 619 1 042 – Receivables 58 6 – Prepayments 95 – – Own shares –3 280 8 772 4 328 Non-current Assets – Participations 207 384 215 498 – Loan to subsidiary 6 921 9 613 214 305 225 111 Total Assets 223 077 229 438
Liabilities and Shareholders’ Equity Current Liabilities – Payables and accrued charges 749 740 – Payables to subsidiary –1 175 749 1 915 Shareholders’ Equity – Share capital 53 637 41 250 – General reserve 31 777 – – Reserve from capital contributions 384 476 371 250 – Reserve for own shares – 30 691 – Accumulated deficit brought forward (215 667) (206 638) – Net profit/(loss) for the year (31 895) (9 030) Total Shareholders’ Equity 222 328 227 523 Total Liabilities and Shareholders’ Equity 223 077 229 438 APEN Ltd – Financial Statements 2013 73
INCOME STATEMENT FOR THE PERIOD 1 JANUARY TO 31 DECEMBER 2013 AND 1 JANUARY TO 31 DECEMBER 2012 in TCHF
2013 2012 Income Dividend income from non-current assets 1 664 2 231 Interest income from current assets 36 Realized gain on sale of own shares 989 – Realized gain on sale of participation 296 – Total Income 2 952 2 237
Expenses Service fees 1 591 1 986 Other operating expenses 2 520 1 333 Loss on participation 28 094 7 780 Value adjustment loan 2 695 – Loss on foreign currency exchange 234 Unrealized loss on own shares –127 Tax expenses (55) 7 Total Expenses 34 847 11 267
Net Profit/(Loss) for the Year (31 895) (9 030) 74 APEN Ltd – Financial Statements 2013
NOTES TO THE FINANCIAL STATEMENTS
1. PARTICIPATION
APEN Ltd., Zug (“the Company”) is a Swiss stock corporation established under the relevant provisions of the Swiss Code of Obligations and domiciled in Zug. The Company was established by AIG Private Bank Ltd. on 17 September 1999 for an indefinite period of time and was registered in the commercial register of the Canton of Zug on 20 September 1999. The Company, together with APEN Holdings LLC, APEN Bermuda Legacy Ltd., APEN Bermuda EM Ltd., APEN Holdings (Bermuda) Ltd., APEN Faith Media Holdings LLC and APEN FMH LLC (“the Subsidiaries”) comprise the APEN Group (“the Group”). The Company’s shares are listed on the SIX Swiss Exchange since 12 October 1999.
Participations in TCHF Company Domicile Function % held Currency Share Capital APEN Holdings LLC Wilmington, USA H 87.5 USD – APEN Faith Media Holdings, LLC Wilmington, USA H 100 USD – APEN Bermuda EM Ltd. Hamilton, Bermuda S 100 USD 1 USD
S: service company H: holding company
APEN Holdings LLC has seven members: APEN Ltd., APEN Faith Media Holdings LLC, Drawbridge DSO Securities LLC, FCOF UB Securities LLC, FCOF II UB Securities LLC, DBW APEN Holdco Ltd., and DBO MLP Holdco Ltd. Its objective is to achieve long-term capital growth by managing an existing portfolio of private equity funds and direct investments. The investments are held by its subsidiaries APEN Bermuda Legacy Ltd., APEN Holdings (Bermuda) Ltd. and APEN FMH LLC.
2. BALANCES AND TRANSACTIONS WITH OWN SHARES
Per year-end 2013 the Company held nil own shares (2012: 195 185). During 2013 the Company purchased nil shares (2012: nil) and sold 195 815 shares (2012: nil) to Fortress entities on 12 June 2013 for CHF 21.80 resulting in cash proceeds to the Company of CHF 4.3 million.
3. AUTHORIZED AND CONDITIONAL SHARE CAPITAL
As of 31 December 2013 the Company has CHF 26.819 million (2012: CHF 20.625 million) authorized share capital outstanding. This authorized share capital will expire per 24 June 2015.
As of 31 December 2013 the Company has CHF 26.819 million (2012: CHF 20.625 million) conditional share capital outstanding. The Company raised CHF 31.3 million in new capital in 2013 (including sale of treasury shares).
4. RISK ASSESSMENT
The risk management system of APEN Group comprises financial and operating risks. By definition a risk is a possible impact of a negative event that could harm the company’s goals. The risk management system is a part of the internal control system. There are mitigating controls in place at various levels to address the identified risks. These are monitored by the Manager, who reports any significant issues to the Board of Directors.
5. SUBSEQUENT EVENTS
Since the balance sheet date of 31 December 2013, there have been no material events that could impair the integrity of the information presented in the financial statements. APEN Ltd – Financial Statements 2013 75
6. COMPENSATION, SHAREHOLDINGS AND LOANS
The Chairman of the Board of Directors has the responsibility to approve the compensation for the Board of Directors. The Board of Directors approves compensation for the Management Board upon proposal of the Chairman. The compensation disclosures for the Board of Directors have been presented according to the cash paid in the relevant year as the Board of Directors consider this to be more precise than presenting the accrued amounts.
Participations as of 31 Dec. 2013 * Base Variable Pension Other Share- in TCHF Compensation Compensation Contributions Benefits Total holdings SARs Board of Directors 2013 To six members 250 8 – 17 275 1 702 682 44 000 2012 To three members 250 7 – 17 274 200 24 000
Management Board 2013 To two members (until 30 June 2013) 281 1 225 111 173 1 790 3 000 64 000 2012 To two members 446 325 76 83 930 3 000 64 000
2013 Base Variable Pension Other Total Share- All figures in TCHF Compensation Compensation Contributions Benefits 2013 holdings SARs Board of Directors Eduardo Leemann (Chairman) 100 3 – 7 110 200 12 000 Dr. Christian Wenger (Vice-Chairman), until 25 June 2013 75 2 – 5 82 – 8 000 Antonio Carlos Augusto Ribeiro Bonchristiano (Vice-Chairman), since 25 June 2013 – – – – – 1 702 482 4 000 David Pinkerton (Member) 75 3 – 5 83 – 12 000 Alvaro Lopes da Silva Neto (Member), since 25 June 2013 – – – – – – 4 000 David Justinus Emery (Member), since 25 June 2013 – – – – – – 4 000 Total Board of Directors 250 8 – 17 275 1 702 682 44 000
The highest remuneration paid to a member of the Management Board was TCHF 1 372 to David Salim, CEO.
Management Board (until 30 June 2013) David Salim (CEO) 149 1 000 88 135 1 372 – 48 000 Conradin Schneider (CFO) 132 225 23 37 417 3 000 16 000
* For Management Board members in 2013 as of 30 June 2013 76 APEN Ltd – Financial Statements 2013
2012 Base Variable Pension Other Total Share- All figures in TCHF Compensation Compensation Contributions Benefits 2012 holdings SARs Board of Directors Eduardo Leemann (Chairman) 100 3 – 7 110 200 8 000 Dr. Christian Wenger (Vice-Chairman) 75 2 – 5 82 – 8 000 David Pinkerton (Member) 75 2 – 5 82 – 8 000 Total Board of Directors 250 7 – 17 274 200 24 000
The highest remuneration paid to a member of the Management Board was TCHF 594 to David Salim, CEO.
Management Board David Salim (CEO) 248 250 42 54 594 – 48 000 Conradin Schneider (CFO) 198 75 34 29 336 3 000 16 000
Share-based compensation plans In August 2013 the members of the Board of Directors and other selected persons were issued stock appreciation rights of the Company. 100 000 of the stock appreciation rights issued in January 2011 and in January 2012 were exercisable per 31 December 2013.
Outstanding SARs per 31 December 2013 are as follows:
Number Year Subscription of options of grant Vesting date Expiry Date ratio Strike Price 16 664 2011 Vested 12.1.2016 1:1 CHF 16.76 16 666 2011 Vested 12.1.2016 1:1 CHF 16.76 16 670 2011 Vested 12.1.2016 1:1 CHF 16.76
16 664 2012 Vested 12.1.2017 1:1 CHF 17.24 16 666 2012 Vested 12.1.2017 1:1 CHF 17.24 16 670 2012 Vested 12.1.2017 1:1 CHF 17.24
12 663 2013 21.8.2014 21.8.2018 1:1 CHF 23.19 12 666 2013 21.8.2015 21.8.2018 1:1 CHF 23.19 12 671 2013 21.8.2016 21.8.2018 1:1 CHF 23.19
Credits or loans No credits or loans were granted to any members of executive bodies nor are any credits or loans outstanding. APEN Ltd – Financial Statements 2013 77
7. SHAREHOLDERS’ EQUITY
The following major shareholders held shares and voting rights of 3% and more as of 31 December 2013 (according to the public disclosures of shareholdings at SIX):
Number of Shares Participation in % Number of Shares Participation in % 2013 2013 2012 2012 GP Investments/Newbury Capital * 2 416 798 45.1% – – Drawbridge Special Opportunities Fund LP (Fortress) 717 266 13.4% – – OAM European Value Fund 217 104 4.0% – – Wellington Management Company, LLP 210 936 3.9% 208 451 5.1% AXA Life 167 000 3.1% 167 000 4.1% AIG Group ** – – 1 435 532 34.8% Ernst Göhner Stiftung – – 267 000 6.5% APEN Ltd *** – – 195 815 4.8%
* The shares are held by three entities, namely GP Swiss Ltd. (Switzerland) (formerly GP Secondaries Investment Company (Switzerland) Ltd.), GP Cash Management Ltd. (Bahamas) and Newbury Holdings A Ltd. (Cayman Islands). These three entities are connected through a shareholders agreement ** The shares are held by three group entities, namely AIG, Inc., Chartis Overseas Ltd. and AIG Global Asset Management Holdings Corp. *** Represents treasury shares held by the Company.
8. NEW ACCOUNTING LAW
Applying the transitional provisions of the new accounting law, these financial statements have been prepared in accordance with the provisions on accounting and financial reporting of the Swiss Code of Obligations effective until 31 December 2012. 78 APEN Ltd – Financial Statements 2013
REPORT OF THE STATUTORY AUDITOR ON THE FINANCIAL STATEMENTS
As statutory auditor, we have audited the financial statements of Opinion APEN Ltd., which comprise the balance sheet, income statement In our opinion, the financial statements for the year ended and notes (pages 72 to 77), for the year ended 31 December 2013. 31 December 2013 comply with Swiss law and the company’s articles of incorporation. Board of Directors’ Responsibility The Board of Directors is responsible for the preparation of the Report on Other Legal Requirements financial statements in accordance with the requirements of Swiss We confirm that we meet the legal requirements on licensing law and the company’s articles of incorporation. This responsibility according to the Auditor Oversight Act (AOA) and independence includes designing, implementing and maintaining an internal (article 728 CO and article 11 AOA) and that there are no circum- control system relevant to the preparation of financial statements stances incompatible with our independence. that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting In accordance with article 728a paragraph 1 item 3 CO and Swiss and applying appropriate accounting policies and making Auditing Standard 890, we confirm that an internal control system accounting estimates that are reasonable in the circumstances. exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. Auditor’s Responsibility Our responsibility is to express an opinion on these financial state- We recommend that the financial statements submitted to you ments based on our audit. We conducted our audit in accordance be approved. with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable Further, we draw attention to the fact that half of the share assurance whether the financial statements are free from material capital and the legal reserves are no longer covered (article 725 misstatement. para. 1 CO).
An audit involves performing procedures to obtain audit evidence PricewaterhouseCoopers Ltd. about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including Daniel Pajer Martin Gubler the assessment of the risks of material misstatement of the finan- Audit expert Audit expert cial statements, whether due to fraud or error. In making those Auditor in charge risk assessments, the auditor considers the internal control system relevant to the entity’s preparation of the financial statements Zürich, 21 March 2014 in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of the account- ing policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the finan- cial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
ADDRESSES AND CONTACTS
Registered Office APEN Ltd Industriestrasse 13c CH-6304 Zug Phone +41 (41) 710 70 60 Fax +41 (41) 710 70 64 E-mail [email protected]
Group Companies APEN Holdings LLC Corporation Trust Center 1209 Orange Street Wilmington, New Castle County Delaware 19808 USA
APEN Bermuda Legacy Ltd Clarendon House 2, Church Street Hamilton, HM 11 Bermuda
APEN Bermuda EM Ltd Clarendon House 2, Church Street Hamilton, HM 11 Bermuda
APEN Holdings (Bermuda) Ltd Clarendon House 2, Church Street Hamilton, HM 11 Bermuda
APEN Faith Media Holdings, LLC 2711 Centerville Road, Suite 400 Wilmington, New Castle County Delaware 19808 USA
APEN FMH LLC Corporation Trust Center 1209 Orange Street Wilmington, New Castle County Delaware 19801 USA
Investor Relations Dr. Guido Cornella GP Advisors Ltd. Löwenstrasse 29 CH-8001 Zurich Phone +41 (44) 578 50 50 www.gpadvisors.com www.apen.com APEN Ltd Industriestrasse 13c CH-6304 Zug APEN Switzerland Private Equity Phone +41 (41) 710 70 60 Fax +41 (41) 710 70 64 Email [email protected] www.apen.com