RNS Number:0210E
F&C Private Equity Trust PLC
18 September 2007
To: Stock Exchange For immediate release: 18 September 2007
F&C Private Equity Trust plc
Interim results for the six months to 30 June 2007
* NAV total return for the six months of 42.8 per cent for the A shares;
* NAV total return for the six months of 17.4 per cent for the B shares;
* Realisation of private equity assets of #22.1 million;
* New investment in private equity assets of # 26.3 million;
* A share revenue dividends of 0.30 pence declared;
* B share revenue dividends of 0.50 pence declared;
Chairman's Statement
The year has begun well for your Company with considerable portfolio activity
and excellent growth in the net asset values ("NAV") of both classes of share.
This growth was broadly based, and has been driven by a combination of
realisations and valuation uplifts. During the period the Company has announced
sales of Academy Music Group, Global Design Technologies and, most recently, the
Dakota, Minnesota and Eastern Railroad ("DM&E"). The portfolio, which consists
of 57 fund investments and 9 co-investments directly in private companies, has
increased in value by over #30m in the year to date.
The NAV per A share at the 30th June was 34.88p, an increase of 37.2% since the
start of the year. The NAV total return for the six month period was 42.8% and
the share price total return 39.2 %.
The net assets of the A pool now stand at #23.4m, of which #1.8m was in cash at
the 30th June. Since this date there have been some significant realisations,
most notably the sale of the Company's longstanding holding in DM&E, and once
the proceeds of these are received the cash proportion of the A pool will rise
considerably. The remaining non cash element of the A pool will be small and
undiversified. The Board therefore plan to bring forward proposals to merge the
A pool with the B pool and to allow A shareholders to receive cash if they wish.
Your Board believes that the move to one class of shares will improve the
market's understanding of the Company and should have a beneficial effect on the
share price rating.
The NAV per B share, after full dilution for management warrants, was 206.21p,
an increase of 15.8% since 31st December 2006. The NAV and share price total
returns were 17.4% and 12.7% respectively. The B pool at 30th June 2007 had net
assets of #150.5m and, with its well diversified international portfolio of
private equity assets, should prove attractive to a wide range of investors.
The Board is declaring interim dividends of 0.3 per A share and 0.5p per B share
to be paid on the 19th October.
Whilst this report records another highly successful period for the Company, the
influence of current uncertainty in financial markets on its portfolio cannot be
ignored. Our portfolio is not insulated from events in the wider financial
markets, but it is well diversified and is not obviously vulnerable to the
direct or indirect consequences of the difficulties in the US sub-prime mortgage
market, nor the associated difficulties in the short term interbank market.
Potential consequences of the change in the banking environment might be that
banks are more reluctant to advance debt to private equity backed companies for
the purposes of refinancing or recapitalisations or that banks will lend a
smaller proportion of the transaction value to new MBOs. Through discussions
with our investment partners we are still assessing the impact of the summer's
events. At the level of the individual private equity funds and underlying
portfolio companies there are many encouraging developments and we would expect
these to continue to build value for our shareholders over the medium and longer
term. Apart from the strengths inherent in its portfolio your Company has
substantial resources available to it which we may use to benefit from the
current situation. The B pool currently has cash or near cash resources of
#12.0 million, and the gross proceeds of DM&E and GDT are expected to add a
further #18 million. In addition the Company entered into a five year #40
million revolving credit facility with The Royal Bank of Scotland on 30 April
2007 and may borrow up to 30 per cent of total assets. With total outstanding
commitments in excess of #150 million, which may be drawn down over periods of
up to five years, the Company, through its investment partners, is well
positioned to take advantage of buying opportunities should these arise.
Elizabeth Kennedy joined the Board on 1 July 2007. Elizabeth is a corporate
finance director with Brewin Dolphin Securities and her considerable experience
will be valuable to the Board.
I am pleased to report that June's final judgement from the European Court of
Justice was supportive of the Association of Investment Companies' contention
that VAT has been wrongly claimed from investment trusts domiciled in the UK.
We remain some way from the resolution of this issue, but it appears
increasingly likely that your Company will benefit from a reduction in its
running costs as well as receiving a one off benefit from the recovery of VAT
already paid.
Private Equity is essentially a long term asset class which, if professionally
managed, has the potential to deliver excellent returns to investors. The
diversified international fund of funds structure is increasingly seen as an
attractive and appropriate way for investors to access these high returns. Our
structure as an investment trust combines the benefits of liquidity, strong
corporate governance and low costs and distinguishes us from many other private
equity fund of funds. In uncertain times we believe these well established
strengths should prove reassuring to investors.
David Simpson
Chairman
Manager's Review
Investment Strategy
The portfolio has performed strongly in the first half of the year. This
reflects a benign economic environment which has enabled many of our investee
companies to successfully advance business plans. There has also been continuing
strong demand for growing private companies leading to a number of good exits.
The private equity sector has shown growth in assets invested and funds raised
of 10 - 20% pa over recent years and many categories of investor now have some
exposure to the asset class. Much of this growth has been stimulated by strong
historic returns and the reinvestment of gains. The increased size of the sector
and the consequent additional reach of the larger private equity funds, which
has been augmented by a highly liquid banking sector, has raised the profile of
the sector. Amongst experienced investors the value creating techniques of
private equity are well known, but in recent years these have come to be more
widely recognized and appreciated. It still remains the case that private
equity holds considerable risks as well as opportunities and consequently the
range of returns between the best and the worst practitioners is exceptionally
wide when compared with almost any other widely investable asset class. Our
approach is to seek to invest with the strongest private equity managers who
have a proven ability to make excellent absolute returns over the medium and
longer term and who have the necessary disciplines and processes to replicate
this strong performance going forward. This requires us to assess a wide range
of factors, including but not limited to the track record, the skills,
experience and motivation of the investment teams as well as the opportunities
within the particular geographic or sectoral markets being targeted. We have
invested most of the Company's capital in mid market buy outs or mezzanine funds
investing in Europe and North America. The remainder of the portfolio has been
invested in venture capital funds and generalist private equity funds focusing
on a small number of attractive new markets.
We have backed many established groups but retain a willingness to back
promising private equity managers who are at an earlier stage in their
development. At this point the alignment of interest between us and them is
especially close and experience suggests that there are numerous positive
feedbacks which act to improve our decision-making. Our principal objectives
remain to make excellent returns for our shareholders whilst effectively
managing risk through diversification.
New Investments
The portfolio has continued to broaden with #26.3m of new investments completed
in the first half. These have been into a very wide range of companies,
predominantly in Europe. We regard the mid market of European private equity as
a highly attractive area for investment. It comprises thousands of companies.
Whilst there are more private equity funds focusing on this area, private equity
is rapidly becoming an accepted means of financing smaller growth companies in
Europe. Consequently there remains a favourable balance between the supply of
companies and the number of funds. Reflecting this market inefficiency prices
are generally lower in the mid market.
Examples of new investments made by our investment partners include #0.7m in
Spanish IT consultancy, Everis (Hutton Collins), #0.7m in French travel luggage
company Delsey (Argan Capital), #0.6m in French clothes and shoes retailer
Vivarte (Chequers Capital), #0.4m in Austrian industrial services company MCE
(DBAG) and #0.4m in Spanish civil explosives company Maxam (Ibersuizas). In the
UK #0.3m was invested in the manufacturer of fall arrest equipment Capital
Safety Group (Candover) , #0.3m in elderflower cordials producer Bottlegreen
(Piper) and #0.3m in insurance broker Ostrakan (Hutton Collins). Most of the
funds in which we invest are generalists with some preferred sectors. This leads
us to have a broadly diversified underlying portfolio. We have completed two
co-investments in the period. #1.2m in Blues Clothing, a market leading
supplier of character licensed clothing. This was in a #23m deal led by Penta
Capital. #2.5m was invested in Lifeways Community Care, one of the leading
providers of care for disabled adults. This was a #52m deal led by August Equity
Partners.
Realisations
The portfolio has seen considerable exit activity with distributions received
totaling #22.1m. In January #6.8m came in from the sale of our holding in
Gondola , the holding company of Pizza Express, when the company was taken
private by Cinven. This concluded a highly successful investment led by TDR
Capital where we achieved 4.2x our original investment and an IRR of 65%. In
March #2.5m came from Academy Music Group which was acquired by LN - Gaiety.
This investment was led by RJD Partners and achieved an investment multiple of
2.5x and an IRR of 53%. In May Stirling Square Capital Partners announced the
sale of aerospace components company Global Design Technologies to Bridgepoint
for $343m. As a co-investor we will receive #10m, over 4x our original
investment and an IRR of over 100%.
After the half year end our largest and longest standing direct investment,
Dakota, Minnesota and Eastern Railroad ("DM&E") was sold to Canadian Pacific
Railway for US $1.48bn with a deferred contingent consideration of up to
another US $1.0bn. The initial gross proceeds, expected to be received in
October, will total $68m (#34m). Beyond that there are potential further
proceeds of a similar amount payable over several years dependent on the
successful development by Canadian Pacific of the Powder River Basin extension
project. This investment was made by our predecessor company, Scottish Eastern,
in 1986 and despite the exceptionally long holding period has achieved, on the
initial gross consideration alone, over 35x the original investment and an IRR
of 28%. This investment spectacularly demonstrates the benefits of patience.
In our wide range of funds there were many realisations. Of these the most
individually significant were #1.2m from Tragus (restaurants LGV), #0.9m from
Intermed (medical equipment August Equity), #0.7m from GAM (machinery Nmas1),
#0.7m from Wellstream (Oil services Candover), and #0.7m from Kingfield Heath
(office supplies wholesaler LGV).
New Commitments
The longer term growth in asset value can only be maintained if new commitments
are made for the future. Two secondary investments have been made; Close
Brothers Growth Capital II B (#4m) and Pentech (#2.5m). We have backed a number
of successful teams again with new commitments ; Euro7m to Mezzanine Management IV
and Euro7m to Accession Mezzanine Capital II. Also in Eastern Europe Euro7m to AIG
New Europe II. After the end of the period we backed August Equity II with
#10m. Using our flexibility to invest outside Europe or North America we once
again backed the accomplished AIG emerging markets team in their Brazil Special
Situations fund with a $5m commitment.
Valuation Changes
Given the strength of the portfolio and the supportive environment most of the
valuation changes in the first half were uplifts. These came from premiums
achieved on exit as well as uplifts reflecting strong progress in underlying
profits and balance sheets. Collectively the net gain to the portfolio was #30m.
Of this #25m was for the benefit of the B pool. Large uplifts were attributed to
the following holdings; DM&E #10.8m, Global Design Technologies #5.2m, Viking
Moorings #2.5m, Argan Capital #2.0m, Candover 2001 #1.7m and Academy Music
Group #1.1m.
Outlook
Given the excellent progress made in the first half of the year and the
volatility occurring in financial markets since August, it is sensible to
approach the second half with some caution. Much will depend on the degree of
contagion and whether there is a loss of confidence which spreads to the real
economy. The investments in our portfolio are made and managed by experienced
professionals deploying money carefully to make returns over years and not
months. Importantly they have the ability to change the plans of their
underlying companies should market conditions change. We keep closely in touch
with our investment partners and to date there is no sense of unease and in some
cases we would expect the current volatility to provide opportunity rather than
hazard.
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
Gordon Neilly, Intelli Corporate Finance 0207 653 6300
F&C PRIVATE EQUITY TRUST plc
Income Statement for the
six months ended 30 June 2007
Unaudited
Revenue Capital Total
#'000 #'000 #'000
Gains on investments - 30,316 30,316
Currency losses - (243) (243)
Income - franked 108 - 108
- unfranked 1,217 - 1,217
Investment management fee (176) (529) (705)
Other expenses (445) - (445)
_______ _______ _______
Net return before finance costs and taxation 704 29,544 30,248
Interest payable and similar charges (1) (4) (5)
_______ _______ _______
Return on ordinary activities before taxation 703 29,540 30,243
Taxation on ordinary activities (135) 81 (54)
_______ _______ _______
Return on ordinary activities after taxation 568 29,621 30,189
_______ _______ _______
Returns per A share - Basic 0.29p 10.16p 10.45p
_______ _______ _______
Returns per B share - Basic 0.51p 31.55p 32.06p
_______ _______ _______
Returns per B share - Fully diluted 0.50p 30.72p 31.22p
_______ _______ _______
F&C PRIVATE EQUITY TRUST plc
Income Statement for
six months ended 31 January 2006
Unaudited
Revenue Capital Total
#'000 #'000 #'000
Gains on investments - 11,708 11,708
Currency gains - 37 37
Income - franked 324 - 324
- unfranked 871 - 871
Investment management fee (187) (561) (748)
Other expenses (198) (655) (853)
_______ _______ _______
Net return before finance costs and taxation 810 10,529 11,339
Interest payable and similar charges (17) (51) (68)
_______ _______ _______
Return on ordinary activities before taxation 793 10,478 11,271
Taxation on ordinary activities (148) 117 (31)
_______ _______ _______
Return on ordinary activities after taxation 645 10,595 11,240
_______ _______ _______
Returns per A share 0.23p 1.12p 1.35p
_______ _______ _______
Returns per B share 0.42p 24.77p 25.19p
_______ _______ _______
Returns per C share 0.71p (1.76p) (1.05p)
_______ _______ _______
F&C PRIVATE EQUITY TRUST plc
Income Statement for
seventeen months ended 31 December 2006
Audited
Revenue Capital Total
#'000 #'000 #'000
Gains on investments - 34,622 34,622
Currency losses - (58) (58)
Income - franked 527 - 527
- unfranked 4,344 - 4,344
Investment management fee (509) (1,532) (2,041)
Other expenses (857) (505) (1,362)
_______ _______ _______
Net return before finance costs and taxation 3,505 32,527 36,032
Interest payable and similar charges (31) (93) (124)
_______ _______ _______
Return on ordinary activities before taxation 3,474 32,434 35,908
Taxation on ordinary activities (941) 483 (458)
_______ _______ _______
Return on ordinary activities after taxation 2,533 32,917 35,450
_______ _______ _______
Returns per A share - Basic 1.05p 9.31p 10.36p
_______ _______ _______
Returns per B share - Basic 3.21p 46.85p 50.06p
_______ _______ _______
Returns per B share - Fully diluted 3.20p 46.70p 49.90p
_______ _______ _______
F&C PRIVATE EQUITY TRUST plc
BALANCE SHEET
As at 30 June 2007 As at 31 January 2006 As at 31 December 2006
(unaudited) (unaudited) (audited)
#000 #000 #000 #000 #000
Investments at market value
Listed on recognised 3,553 53,167 23,922
exchanges
Unlisted at directors' 157,466 76,801 116,354
valuation
_______ _______ _______
161,019 129,968 140,276
Current assets
Debtors 450 2,454 416
Cash at bank 13,744 5,797 6,764
_______ _______ _______
14,194 8,251 7,180
Creditors
Amounts falling due within (1,269) (767) (1,223)
one year
_______ _______ _______
Net current assets 12,925 7,484 5,957
_______ _______ _______
Net assets 173,944 137,452 146,233
_______ _______ _______
Capital and reserves
Called up ordinary capital 1,394 1,821 1,394
Share premium account - 48,763 -
Special distributable 40,000 40,000 40,000
capital reserve
Special distributable 38,363 5,030 38,363
revenue reserve
Capital redemption reserve 664 664
Capital reserve 92,767 41,060 63,146
Revenue reserve 756 778 2,666
_______ _______ _______
Total shareholders' funds 173,944 137,452 146,233
_______ _______ _______
Net asset value per A share
- Basic
34.88p 39.41p 25.43p
Net asset value per B share
- Basic
208.27p 153.77p 178.71p
Net asset value per B share
- Fully diluted
206.21p - 178.06p
Net asset value per C share
- Basic
- 99.41p -
F&C PRIVATE EQUITY TRUST plc
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
Six months ended Six months ended Seventeen months ended
30 June 2007 31 January 2006 31 December 2006
(unaudited) (unaudited) (audited)
Opening equity shareholders' funds 146,233 82,839 82,839
Return on ordinary activities after 30,189 35,450
taxation
11,240
Dividends paid (2,478) (6,384) (21,813)
Issue of C shares - 49,757 49,757
_______ _______ _______
Closing equity shareholders' funds 173,944 137,452 146,233
_______ _______ _______
F&C PRIVATE EQUITY TRUST plc
STATEMENT OF CASH FLOW
Six months to Six months to Seventeen months to
30 June 2007 31 January 2006 31 December 2006
(unaudited) (unaudited) (audited)
#000 #000 #000 #000 #000 #000
Operating activities
Net dividends and interest
received from investments
1,058 260 3,919
Interest received from 354 376 819
deposits
Investment management fee (498) (478) (1,507)
Other cash payments (468) (884) (1,402)
_______ _______ _______
Net cash inflow from 446 (726) 1,829
operating activities
Servicing of finance
Interest paid - (69) (124)
_______ _______ _______
Net cash outflow from - (69) (124)
servicing of finance
Taxation
Corporation tax paid (423) (298) (312)
_______ _______ _______
Net cash outflow from (423) (298) (312)
taxation
Capital expenditure and
financial investment
Payments to acquire (42,045) (37,836) (135,888)
investments
Receipts from disposal of 51,480 38,342 150,304
investments
Cash transferred from
acquisition of Discovery
Trust - 3,558 3,558
_______ _______ _______
Net cash inflow from capital 9,435 4,064 17,974
expenditure and financial
investment
Equity dividends paid (2,478) (6,384) (21,813)
_______ _______ _______
Net cash inflow/(outflow) 6,980 (3,413) (2,446)
before financing
_______ _______ _______
Increase/(decrease) in cash 6,980 (3,413) (2,446)
_______ _______ _______
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
seventeen month period ended 31 December 2006.
2. These are not full statutory accounts in terms of Section 240 of the
Companies Act 1985. The full audited accounts for the seventeen month period to
31 December 2006, which were unqualified, have been lodged with the Registrar of
Companies. A full interim report will be sent to shareholders in September
2007, and will be available for inspection at 80 George Street, Edinburgh, the
registered office of the Company.
3. The Board has proposed an interim A dividend of 0.30 pence and an
interim B dividend of 0.50 pence payable on 19 October 2007 to shareholders on
the Register on 28 September 2007. The ex dividend date is 26 September 2007.
4. Returns per A share are based on the average number of shares in issue
during the period of 67,084,807.
Returns per B share are based on the following number of shares in issue during
the period:-
Basic 72,282,273
Fully diluted 74,241,429
Basic net asset value per A share is based on 67,084,807 shares in issue at the
end of the period.
Basic net asset value per B share is based on 72,282,273 shares in issue at the
end of the period.
Fully diluted net asset value per B share is based on 74,241,429 shares in issue
at the end of the period.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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