RNS Number:1707J
F&C Private Equity Trust PLC
19 September 2006
To: Stock Exchange For immediate release:
19 September 2006
F&C Private Equity Trust plc
Interim results for the twelve months to 31 July 2006
* NAV total return for the twelve months of 15.1 per cent for the A shares;
* NAV total return for the twelve months of 27.7 per cent for the B shares;
* #49.8 million added to net assets by the acquisition of the assets of
Discovery Trust plc in August 2005;
* Conversion of #42.5 million from C to B shares;
* Realisation of private equity assets of #24.3 million;
* New investment in private equity assets of #35.2 million;
Chairman's Statement
The last twelve months have seen further substantial progress for your Company
and I am once again delighted to be able to report strong returns for
shareholders.
Earlier this year the Board decided to change the Company's year end from the
31st July to 31st December. This brings us more closely into line with the
reporting dates of our underlying investments and our competitors who generally
have calendar year ends. This report is therefore a second interim rather than
an annual report, although it covers a full year, while the Annual General
Meeting is being held in December for the last time. From 2007 I expect it to
be held in May.
The NAV per A share at 31st July was 36.47p. The Company has recently increased
its distributable reserves through cancelling the share premium account and this
enables us to declare a further substantial special dividend for A shareholders
of 15.5p per share. This will be paid on the 20 October. The net assets of the
A pool now stand at #24.5m prior to the special dividend, which will return
#10.4m. The NAV total return of the A shares over the twelve months to 31st July
was 15.1 per cent. The A portfolio, although increasingly concentrated, still
contains some promising investments and it is our intention to realise as many
of these as practical.
The NAV per B share at 31st July was 166.30p. The B pool, which has been
augmented by conversions from the C pool each quarter, had net assets of #112.1m
at the 31st July. The NAV total return of the B shares over the twelve months to
31st July was 27.7 per cent.
It is our intention to declare interim dividends for the A and B shares for the
17 month accounting period ended 31st December 2006 as soon as practicable after
the final conversion takes place.
The C share NAV at 31st July was 94.08p. The C pool has been largely liquidated
and at 31st July had net assets of #7.9m of which #4.1m was cash or gilts. Each
C shareholder has been progressively converting into B shares. The blended NAV
total return for each C shareholder from inception to 31st July was 10.3 per
cent. The final conversion of remaining C shares into B shares will take place
on 26th September. We will then have a B pool of approximately #120m and an A
pool of approximately #14m following the payment of the special dividend.
The period under review has once more been a strong one for private equity
investments. This has been a function of the demand for capital by growing
private companies internationally and the ability of private equity funds and
the banking sector to meet this demand. The volume of transactions involving
private equity is increasing and this has been reflected in our portfolio where
there has been considerable activity with a flow of realisations from the
maturing funds being balanced by our steady programme of investment in new funds
and direct holdings. The considerable additional resources which the C pool has
provided are being deployed through a combination of the drawdowns of primary
funds, the acquisition of selected secondary positions in funds, and in
co-investments directly in private companies. At the Annual General Meeting we
are asking shareholders to approve an increase in the proportion of the
Company's assets that can be invested in direct equity investments from 25 per
cent to 33 per cent. We are also reviewing the listed private equity funds
internationally and would expect to invest some of the liquid resources of the
trust in this area when valuations are right.
The increased scale of the B pool is proving helpful to your manager in
constructing and maintaining a well balanced high quality portfolio of private
equity investments and it has also had a beneficial effect on the rating of the
share price. The future progress of the Company depends on the success of the
underlying companies in our portfolio, a product not only of manager selection
but of the health of the global economy. The investment managers and company
managements with whom we interact are generally confident, despite the potential
pressures which oil prices or international affairs can exert on the business
environment.
Sir James McKinnon joined the Board at the time of the merger with Discovery
Trust in August 2005 and, as planned will be standing down at the AGM. I would
like to thank him for his contribution to all the deliberations of the Board.
He brought a fresh approach to our affairs and we will miss his wise counsel.
David Simpson
Manager's Review
The portfolio of the Company has evolved and strengthened over the year. We have
been aided by a supportive private equity environment where realisations have
been achieved and new dealflow is strong. There are, of course, competitive
pressures and in certain sub sectors of the international private equity market
there can be many investors trying to acquire good quality fast growing or cash
generative private companies. The degree to which this might threaten future
returns varies, but it is our experience that with the larger deal sizes there
are more bidders and higher prices. In the mid market, which we define as
consisting of private equity deals where the enterprise value lies between Euro50
and Euro500m, there tend to be fewer participants in auctions and whilst every
worthwhile deal is at least partially intermediated, the term 'proprietary
dealflow' has some meaning.
The mid market is very broad internationally and remains generally inefficient
and therefore continues to offer good opportunities to skilled investors. There
is a large quantum of private equity capital focusing on the mid market and in
certain markets competition is such that securing deals on price alone is
unwise. Increasingly private equity investors are looking to acquire companies
where they have an edge over the other bidders. This may derive from prior
experience in the sector, an ability to make synergistic acquisitions and a
practical ability to grow the business. Additionally it helps if management can
have confidence that the deal will succeed and a proven track record of
successful deals with clear added value is normally useful evidence of this. It
is observable that the best private equity investors have such characteristics
and it is this resulting 'franchise' which allows them to buy companies well,
grow them and make excellent returns.
In current market conditions it is not enough for private equity investors to
rely on high leverage and rising markets and those with additional skills are
likely to outperform. The private equity investor has many advantages over an
investor in publicly quoted companies. These often relate to access to
information and rights to make changes in the management and strategy of
companies, but these advantages can only be fully exploited by those with
appropriate skills and experience. It is our objective to identify these private
equity investment managers who are operating in the mid market, to invest with
them and alongside them. In this way we will sustain the best returns for our
shareholders.
Not only is the mid market inefficient and broad but it is where many of the
emerging managers are found. Our experience is that identifying future
successful managers early is particularly rewarding as the alignment of interest
between investors and private equity manager is unusually close during the
formative phase of a private equity firm's development. The exchange of
information is usually stronger and consequently our understanding of how they
achieve their returns is closer. This provides positive feedback into our
decision making process for future fund and direct investments.
Over twelve months total investment in private equity assets, either funds or
co-investments, was #35.2m. #22.4m of this was drawn down by funds, #6.2m was
invested in acquiring secondary positions in funds and #6.6m in co-investments.
We have made new commitments to 16 funds over the period. All of these new
investments were for the B pool.
The underlying portfolio of companies continues to broaden. With the
international funds we have been able to gain exposure to a wide variety of
private companies with diverse economic drivers and covering many different
growth trends. Examples of recent investments which illustrate this range
include #0.5m invested by Candover 2005 in UPC Norway, a cable company serving
Oslo and the major cities of Southern Norway, #0.3m by Montagu III into BSN a
Germany based medical products company, #0.5m by LGV 4 in South Lakeland
Caravans, #1.3m by August Equity IV into Rixonway Kitchens, and #0.4m by Primary
Capital III into Haines Watts Business Recovery and Insolvency.
We have been actively making co-investments with 4 completed during the year.
There are certain principles underlying our co-investment portfolio, which may
account for up to 33 per of the overall B pool portfolio, namely that the deals
are led by private equity groups whom we know well, that the companies must have
strong proven management, that our investment should be significant to the
company and that the resulting portfolio of co-investments is heterogeneous.
With these principles in mind we invested #1.5m into Equidebt, a debt collection
agency and purchaser of charged off consumer debt based in Stratford upon Avon
(RJD Partners lead), #1.1m into Viking Moorings, the market leader in oil rig
moorings in the North Sea (Inflexion lead), #2m into Whittan, a manufacturer of
pallet racking systems (Stirling Square lead), and #2m into LMS Holdings, market
leading provider of remortgage conveyancing services (RJD Partners lead).
A very effective way of investing in private equity is to acquire secondary
positions in funds which are already partially or substantially invested and
where the management group is well known. The advantages are that it is possible
to assess the investments as well as the management and often the holding period
before realisations is relatively short. We have bought three such secondary
positions. We acquired a #15m commitment in the well known UK mid market fund,
August Equity IV. The acquisition cost for this partially drawn fund was #3m and
we also assumed an undrawn commitment of #8m. In the USA we acquired a $5m
position in Brown Brothers Harriman's 1818 Mezzanine Fund II. This involved a
consideration of $2m and an undrawn commitment of $1.3m. We also bought a
position in the specially formed fund HFP which comprises Inflexion led
investments, for #2m with a further commitment of #1m. In each case we had good
visibility on the portfolios and we were well acquainted with the management
groups. It is likely that we will selectively acquire further fund positions
which are complementary to the rest of the portfolio and which can enhance
returns.
Over the twelve month period the portfolio has had realisations totalling
#24.3m. From our longstanding fund holdings major realisations have included
#4.6m from Acertec (Candover 1997 Fund) which was recently listed on AIM, #2.8m
from JJI Lighting (International Mezzanine), #1.2m from EurotaxGlass (Hicks Muse
Fund IV), bought by Candover 2005 Fund, #1.75m from Clear Channel (formerly
Hicks Muse IV) and a total #1.2m from Third Private Equity Fund, now managed by
Nova Capital. There is now a robust flow of realisations and recapitalisations
from the more recent funds. Examples include #0.6m from the listing of GAM,
machinery rental business on the Madrid stock exchange (Nmas1), #0.3m from tax
consultancy Alma (Chequers Capital), #0.5m from Celtic Inns ( Equity Harvest
Fund - Dunedin) and #0.4m from, Polish bus builder, Solaris (Accession
Mezzanine). In addition we have sold our holding in Candover investments for the
A pool yielding #4.9m. The most notable realisation of the year was from the
listing of our co-investment with TDR Capital in Gondola Holdings, the holding
company of Pizza Express. Gondola is now listed on the stock exchange and so far
we have received #3.2m back. The company is currently subject to a bid approach
which may allow us to exit the remaining position.
The largest valuation uplifts over the period have related to the funds and
direct investments where there have been realisations and fundamental progress
on the underlying investments. The biggest uplift was #6.2m for Gondola
Holdings.The Dakota, Minnesota and Eastern Railroad has been trading well and
this has been uplifted by #3.2m over the year. TDR Capital has shown a gain of
#3.2m and Candover 1997 Fund #2.6m. Other substantial uplifts include August
Equity IV (+#1.4m), Candover 2001 Fund (+#1.2m), Nmas1 (+#1.1m), Chequers
Capital (+#0.8m) and Warburg Pincus VIII (+#0.6m). Of our other direct holdings
there were uplifts for Academy Music Group of #0.7m and Global Design
Technologies of #0.3m.
A total of 16 new fund commitments were made during the year. In the UK we have
backed a number of mid market buy out funds with #8m to Primary Capital III, #5m
to LGV 5, #10m to Inflexion 2006 Buy-out fund, #8m to RJD Partners II, #5m to
Dunedin Buyout Fund II and #4m to Piper Private Equity IV. We have added to our
European country fund portfolio with commitments to Chequers Capital XV (Euro7.5m,
France), Ibersuizas (Euro5m, Spain) and DBAG V (Euro8m, Germany). Funds which cover
all of Europe include Candover 2005 (Euro15m), TDR Capital II (Euro10m) and Hutton
Collins Capital Partners II (Euro10m). In the USA we have backed Blue Point Capital
II ($10m) and Camden Partners Strategic III ($5m). We have backed two venture
capital funds; SEP III (#7.5m) and Life Science Partners III (Euro5m). The total
outstanding undrawn commitments of the B pool are currently #126m. These will be
drawn down over the next several years. Given the maturing portfolio and
significant liquid resources of the Company and the unutilised borrowing
facilities this level of commitments is well within the Company's capacity.
These new commitments will combine with the existing portfolio to form the
foundations of future growth.
Hamish Mair
For more information, please contact:
Hamish Mair 0131 465 1184
Martin Cassels 0131 465 1095
hamish.mair@fandc.com / martin.cassels@fandc.com
Alastair Moreton, Arbuthnot Securities Ltd 0207 012 2000
Sue Inglis, Intelli Corporate Finance 0207 653 6300
F&C PRIVATE EQUITY TRUST plc
Income Statement for the
twelve months ended 31 July 2006
Unaudited
Revenue Capital Total
#'000 #'000 #'000
Gains on investments - realised - 11,437 11,437
- unrealised - 13,351 13,351
Currency losses - (2,029) (2,029)
Income - franked 482 - 482
- unfranked 3,084 - 3,084
Investment management fee (338) (1,016) (1,354)
Other expenses (740) (490) (1,230)
_______ _______ _______
Net return before finance costs and taxation 2,488 21,253 23,741
Interest payable and similar charges (25) (74) (99)
_______ _______ _______
Return on ordinary activities before taxation 2,463 21,179 23,642
Taxation on ordinary activities (657) 331 (326)
_______ _______ _______
Return on ordinary activities after taxation 1,806 21,510 23,316
_______ _______ _______
Returns per A share 0.87p 5.04p 5.91p
_______ _______ _______
Returns per B share 1.48p 34.77p 36.25p
_______ _______ _______
Returns per C share 1.49p 1.02p 2.51p
F&C PRIVATE EQUITY TRUST plc
Income Statement for
year ended 31 July 2005
Audited
Revenue Capital Total
#'000 #'000 #'000
Gains on investments - realised - 2,991 2,991
- unrealised - 16,544 16,544
Currency gains - 56 56
Income - franked 182 - 182
- unfranked 2,870 - 2,870
Investment management fee (170) (510) (680)
Other expenses (334) - (334)
_______ _______ _______
Net return before finance costs and taxation 2,548 19,081 21,629
Interest payable and similar charges (17) (49) (66)
_______ _______ _______
Return on ordinary activities before taxation 2,531 19,032 21,563
Taxation on ordinary activities (707) 168 (539)
_______ _______ _______
Return on ordinary activities after taxation 1,824 19,200 21,024
_______ _______ _______
Returns per A share 1.58p 12.83p 14.41p
_______ _______ _______
Returns per B share 1.96p 27.05p 29.01p
_______ _______ _______
Returns per C share - - -
F&C PRIVATE EQUITY TRUST plc
BALANCE SHEET
As at 31 July 2006 As at 31 July 2005
(audited)
(unaudited)
#000 #000 #000 #000
Investments at market value
Listed on recognised exchanges 36,275 9,210
Unlisted at directors' valuation 94,924 65,434
_______ _______
131,199 74,644
Current assets
Debtors 1,416 108
Cash at bank 13,556 9,210
_______ _______
14,972 9,318
Creditors
Amounts falling due within one year (1,674) (1,123)
_______ _______
Net current assets 13,298 8,195
_______ _______
Net assets 144,497 82,839
_______ _______
Capital and reserves
Called up ordinary capital 1,514 1,063
Share premium account 48,763 -
Special distributable capital reserve 40,000 40,000
Special distributable revenue reserve - 10,061
Capital redemption reserve 544 -
Capital reserve 51,739 30,229
Revenue reserve 1,937 1,486
_______ _______
Total shareholders' funds 144,497 82,839
_______ _______
Net asset value per A share 36.47p 46.76p
Net asset value per B share 166.30p 131.37p
Net asset value per C share 94.08p -
F&C PRIVATE EQUITY TRUST plc
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Year ended Year ended
31 July 2006 31 July 2005
Equity shareholders' funds at 1 August (as 76,641 66,928
previously reported)
Less revaluation of investments from mid to bid (186) -
prices
Add dividends accrued 6,384 7,575
_______ _______
Equity shareholders' funds at 1 August (as 82,839 74,503
restated)
Return on ordinary activities after taxation 23,316 21,024
Dividends paid (11,415) (12,688)
Issue of C shares 49,757 -
_______ _______
Equity shareholders' funds at 31 July 144,497 82,839
_______ _______
F&C PRIVATE EQUITY TRUST plc
STATEMENT OF CASH FLOW
Year to Year to
31 July 2006 31 July 2005
(unaudited) (audited)
#000 #000 #000 #000
Operating activities
Net dividends and interest received from 2,450 3,233
investments
Interest received from deposits 635 348
Investment management fee (1,071) (765)
Cash paid to and on behalf of directors (116) (72)
Bank charges (4) (4)
Other cash payments (1,212) (167)
_______ _______
Net cash inflow from operating activities 682 2,573
Servicing of finance
Interest paid (99) (68)
_______ _______
Net cash outflow from servicing of finance (99) (68)
Taxation
Corporation tax paid (298) (1,528)
_______ _______
Net cash outflow from taxation (298) (1,528)
Capital expenditure and financial
investment
Payments to acquire investments (82,949) (18,243)
Receipts from disposal of investments 94,867 25,471
Cash transferred from acquisition of 3,558 -
Discovery Trust
_______ _______
Net cash inflow from capital expenditure 15,476 7,228
and financial investment
Equity dividends paid (11,415) (12,688)
_______ _______
Net cash inflow/(outflow) before financing 4,346 (4,483)
_______ _______
Increase/(decrease) in cash 4,346 (4,483)
_______ _______
Notes
1. The unaudited interim results have been prepared on the basis of the
accounting policies set out in the statutory accounts of the Company for the
year ended 31 July 2005 apart from the following in accordance with FRS 21 and
FRS 26 effective for accounting periods commencing 1 January 2005.
* Dividends payable by the Company are recognised in the period in which they
are paid.
As a result of this change the Company's shareholders' funds as at 31 July
2005 have increased by #6,384,000 (being the special dividend of 7.5 pence
per share paid on 26 August 2005 and the revenue dividends of 1.20 pence
per share paid by the A Pool and 1.40 pence per share paid by the B Pool on
9 December 2005).
* Quoted investments are now valued at bid prices. This has the effect of
reducing the valuation of the investment portfolio by #186,000 as at 31
July 2005.
2. The Directors have declared a special dividend of 15.5 pence per A
share to be paid on 20 October 2006 to shareholders on the register on 29
September 2006, having an ex-dividend date of 27 September 2006.
3. These are not full statutory accounts in terms of Section 240 of the
Companies Act 1985. The full audited accounts for the year to 31 July 2005,
which were unqualified, have been lodged with the Registrar of Companies. A
full interim report will be sent to shareholders in September 2006, and will be
available for inspection at 80 George Street, Edinburgh, the registered office
of the Company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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