Preliminary Results for Year ended 30 September 20
10 DECEMBER 2003
ELECTRA INVESTMENT TRUST PLC
Preliminary Results for Year ended 30 September 2003
* Net asset value per share of 760p as at 30 September 2003, an increase of
8.27% since 31 March 2003 (NAV per share: 764p 30 September 2002; 702p 31
March 2003)
* Share price increase of 37% over year to 30 September 2003
* Strong cash generation prospects over next 12 months from Electra's
portfolio - realisations of £51m since year end
* Unaudited net asset value per share at 30 November 2003 of 781p
Commenting on the results, Sir Brian Williamson, Chairman of Electra Investment
Trust, said:
'The weaker economic outlook reported for the first six months of the year
continued to have an impact upon investment business for the balance of the
year. However, prospects for realising a number of portfolio companies over the
next 12 months have increased and portfolio sales of £51m have already been
achieved since the year end. If business confidence continues to grow and
realisations are concluded at values currently projected there is likely to be
a significant improvement in Electra's financial position by 30 September 2004.
The Board's continuing priority is to ensure that further returns of capital to
shareholders are achieved as quickly as market conditions permit.'
For further information:
Sir Brian Williamson, Chairman, Electra Investment Trust PLC 020 7831 6464
Hugh Mumford, Chief Executive, Electra Partners Limited 020 7831 6464
Nick Miles, M: Communications Limited 020 7153 1535
Notes to Editors:
Electra - Background to Recent Changes
Since the listing of Electra in 1976, the Company has specialised in investing
in the private equity market. This arose from the belief that superior returns
could be generated from investing in private equity through the structure of an
investment trust.
Between 1976 and 2003 Electra invested over £3,000 million in private equity
investments. Inclusive of a capital injection of £32 million, Electra's assets
grew from £58 million in February 1976 to £1,145 million by 30 September 1998,
the financial year end immediately preceding the hostile takeover bid for
Electra in 1999. This bid failed when shareholders voted in favour of a scheme
which involved the controlled realisation of the portfolio over a five year
period. New investment was restricted to existing portfolio companies.
Since the start of the realisation programme in March 1999, Electra has
returned £945 million to shareholders leaving a residual portfolio valued at £
680 million at 30 September 2003. This compares with the stock market value of
Electra of £975 million immediately before the announcement of the takeover
bid. Over the four and a half year period to 30 September 2003, £440 million
has been invested and £1.3 billion has been realised from the portfolio.
Shareholders approved proposals in June 2001 which retained the emphasis on
realising investments but made provision for Electra to continue as an
investment vehicle. This achieved the objective of catering for those
shareholders who wished to retain an exposure to private equity through a
shareholding in Electra.
This more flexible investment strategy provided for at least two-thirds of
future cashflow to be returned to shareholders with the balance to be invested
in private equity investments. In June 2001 the Board anticipated, subject to
market conditions, that not less than £500 million would be returned over the
next three years of which £150 million has already been returned through the
Tender Offer in 2001.
Under the existing strategy the continuing priority is to ensure that further
returns of capital are achieved as quickly as market conditions permit.
In 2001 shareholders were advised that it would be the Board's intention to
review Electra's investment strategy in 2004.
Net Asset Value Per Share
30 September 30 September 30 November
2003 2002 2003
Net asset value per share 759.60p 763.94p 781.36p
Decrease since 30 September 2002 0.6%
Increase since 31 March 2003 8.27%
Increase in FTSE All-Share Index 12.56%
since
30 September 2002
The unaudited net asset value per share at 30 November 2003 was calculated on
the basis of the net asset value at 30 September 2003 adjusted to reflect the
purchases and sales of investments, currency movements and mid market values on
that day in respect of listed investments and unlisted investments where these
are valued by reference to quoted prices.
A copy of the Chairman's Statement, Investment Manager's Review and the
Preliminary Announcement are attached.
CHAIRMAN'S STATEMENT
Results
At 30 September 2003 Electra's net asset value was 760p per share. Having
fallen by 8.2% in the first six months of the year, the net asset value
increased in the second half and was virtually unchanged at the year end. By
comparison, the FTSE All-Share Index increased strongly following the end of
the Iraq war and ended the year 12.6% higher. During a period of rapid upturn
in the stock market it is unlikely that a portfolio of mainly unquoted
companies, especially in a realisation phase, will match the performance of the
FTSE All-Share Index.
It is encouraging to note the 37% increase in Electra's share price over the
year. Significant amounts have been invested in private equity through
specialist institutional funds in recent years and there are few investment
vehicles such as Electra through which smaller institutional and private
investors are able to have an exposure to this distinct asset class.
Portfolio
The year to 30 September 2003 was one of relatively low activity in terms of
both purchases and realisations of investments. The weaker economic outlook
reported for the first half of the year continued to have an impact upon
investment business for the balance of the year. The Board's requirement to
achieve maximum value for shareholders when realising investments has meant
that the number of portfolio sales achieved over the last year were relatively
low. Realisations totalled £54 million over the year by comparison with £137
million for the year ended 30 September 2002. The amount available for new
investment was limited by the lower level of realisation proceeds and
investment over the year amounted to £39 million compared to £116 million in
the previous year. £28 million of the £39 million was invested in existing
portfolio companies with £11 million invested under previous commitments to
private equity funds.
Encouragingly, most of the larger investments in the portfolio continued to
make good progress over the year particularly Baxi, Vendcrown, Safetykleen
Europe, Leiner Health Products, Freightliner and Inchcape Shipping Services,
which all performed ahead of budget. Full details of these and other
investments are included in the Investment Manager's Review.
Prospects for realising a number of portfolio investments over the next twelve
months have increased as a result of improved operating results and a more
buoyant economic outlook. However, the successful realisation of unquoted
investments depends upon the level of interest in the bidding process from
trade and financial buyers. Portfolio sales amounting to £51 million have
already been achieved since the year end.
Valuation of Investments
Electra's unlisted investments are valued by Directors on a basis which is
consistent with BVCA guidelines. This year the portfolio has been valued using
the new guidelines for the valuation and disclosure of venture capital
portfolios which require that investments should be reported at fair value.
In the opinion of the Directors the calculation of Electra's net asset value on
this new basis did not result in a material impact on the valuation at 30
September 2003.
Borrowing Facilities
In 2001 a £350 million multi-currency banking facility was arranged to finance
further returns of capital to shareholders and to provide funding for further
investments. During the year the terms of this facility were favourably
improved. As at 30 September 2003 the outstanding loan had been reduced to £193
million.
Corporate Governance
The Board has established a sub-committee to consider the implications of the
new Combined Code on Corporate Governance which will first apply to Electra for
the accounting year commencing 1 October 2004.
Re-election of Directors
At the Annual General Meeting to be held on 4 March 2004, Mr RA Armstrong, Mr
MED'A Walton and Lord King of Bridgwater will retire and offer themselves for
re-election. Mr RA Armstrong is Chairman of the Audit Committee, Mr MED'A
Walton undertakes additional responsibilities in relation to the valuation of
the portfolio and Lord King brings a wealth of experience to Board discussions.
The Future
If business confidence continues to grow and realisations are concluded at the
values currently projected by the Investment Manager, there is likely to be a
significant improvement in Electra's financial position by 30 September 2004.
Although the timing of further realisations is difficult to predict with
certainty, the Board expects to apply the bulk of future realisation proceeds
to the reduction of borrowings and to fund further returns of capital to
shareholders. Consistent with existing strategy, the Board's priority is to
ensure that further returns of capital to shareholders are achieved as quickly
as market conditions permit.
Shareholders were advised in June 2001 that it would be the Board's intention
to review Electra's investment strategy in 2004. I look forward to giving
shareholders the results of this review in the months ahead.
Sir Brian Williamson
9 December 2003
INVESTMENT MANAGER'S REVIEW
Portfolio Analysis
In the year to 30 September 2003 Electra's net asset value per share decreased
from 764p per share to 760p per share. The second half of the year saw a strong
recovery in performance which offset most of the decline in the first half of
the year, when the net asset value fell to 702p. Over the period the investment
portfolio showed a slight reduction in value from £692 million to £680 million
as a result of a net disinvestment from the portfolio of £15 million offset by
net gains of £3 million.
New investments in the year amounted to £39 million. This represented a
significant reduction from the previous year when £116 million was invested
primarily to support existing portfolio companies. The reduced rate of
investment was anticipated and reflected greater stability in the underlying
investment portfolio.
Summary of Changes to Overall Portfolio
Year ended 30 September 2003 2002
£'000 £'000
Opening Valuation 691,727 759,891
Investments 39,182 116,421
Realisations (53,804) (137,208)
Change in valuation 2,506 (47,377)
Closing valuation 679,611 691,727
The above valuations exclude accrued income (2003 - £31,619,000; 2002 - £
22,633,000)
Realisations continued to be impacted by uncertain market conditions throughout
the period and total cash proceeds of £54 million compared to £137 million in
the previous year. However, because of the reduced level of new investment,
this lower level of realisation still resulted in a net disinvestment from
Electra's portfolio during the period of £15 million, only slightly below the
previous year.
At 30 September 2003 Electra's investment portfolio comprised direct
investments in 82 companies with an aggregate value of £607 million together
with investments in 27 private equity funds with an aggregate value of £73
million. Of the direct portfolio, investments with a value of £86 million were
quoted on a recognised stock exchange but were subject to restrictions on sale.
The top ten and top twenty investments accounted for 53% and 71% of the total
portfolio respectively.
Geographically, 76% of the total portfolio is in the UK and Europe, 16% in
North America, 7% in Asia and 1% in South America.
Outlook
The last two years has been a period of economic uncertainty and difficult
stock markets. This has resulted in a relatively high level of support for the
existing portfolio and a declining trend of realisations. Despite the economic
situation many of Electra's portfolio companies particularly amongst the larger
holdings have continued to make good progress in terms of enhancing operating
earnings and in the continued repayment of acquisition debt. Looking forward,
there remains considerable scope to increase the value of Electra's portfolio
companies through both further earnings growth and debt reduction. It is also
the case that the maturity of the portfolio is such that, given reasonable
market conditions, considerable cashflow could be generated from the
realisation of certain of the portfolio investments.
Currently there appear to be signs of stronger economic activity. Stock markets
have risen sharply and the level of mergers and acquisitions, a significant
factor in Electra's markets, appears to be increasing. We believe these factors
could lead to greater activity amongst financial buyers who over the past four
years have been the major purchaser of Electra's investments. In short, market
conditions appear to be more favourable for realisations and this fact,
together with the maturing profile of the portfolio, could lead to a
significant increase in the amount of cash generated from Electra's portfolio.
Portfolio Review
New Investments
Under Electra's current investment policy, investments can be made to enhance
or protect the value of existing portfolio companies and also in new
investments to the extent that cash is available. Under the existing policy one
third of the proceeds from realisations can be invested subject to maintaining
appropriate levels of bank borrowings. During the year investments were
effectively restricted to existing portfolio companies and prior commitments.
Over the year to 30 September 2003, total investment amounted to £39 million
compared to £116 million in the previous year. This reduction in investment was
primarily due to an increase in the health and stability of the existing
portfolio resulting from an improvement in the operating environment and from
the financial restructuring of investments which were completed during 2002.
Of the £39 million invested, £28 million was invested in the existing portfolio
and £11 million was invested in private equity funds as a result of commitments
made in prior periods.
By far the most significant investment in the period related to Vendcrown,
where £14.3 million was invested to purchase further shares in the company and
to provide support to a business experiencing rapid growth. In addition £4.8
million was invested in Energy Power Resources to enable the company's
investment in Fibrowatt to be restructured.
Realisations
Realisations from the portfolio amounted to £54 million during the year, equal
to 8% of the opening portfolio. This represented a significant decrease from
the previous year and reflected the fact that conditions for realisation were
difficult for most of the period. An important factor was the decline in
activity of financial buyers who have provided most of the exit opportunities
for Electra's portfolio companies.
Realisations included £23 million from the sale of a number of smaller unlisted
investments, £12 million from the partial sale of listed securities, £9 million
from private equity funds and £10 million from the refinancing of and
redemption of loans by portfolio companies.
The most significant realisation related to Allflex where refinancing of the
company provided cash proceeds to Electra of £10.4 million. Of this amount £5.4
million represented repayment of capital while the balance, being payment of
accrued interest, was accounted for through the income account.
Shortly after the year end, Electra sold a portion of its holding in Moser Baer
following a strong rise in the company's share price. The placing of 40% of
Electra's holding gave rise to net proceeds of £14.6 million. This brings total
proceeds from the investment in Moser Baer to £33 million compared to the
original cost of the investment in 1999 of £5 million. Following this disposal
Electra's holding in Moser Baer was valued by the market at £25 million.
Performance
The performance for the year fell into two distinct periods. The first half of
the year saw a 5% decline in the value of the portfolio while the second half
of the year saw a strong recovery reflecting a rise in stock markets combined
with the improving operating results of several portfolio companies. Overall,
the value of the portfolio increased by 0.4% in the year. The performance of
the year was negatively impacted by the provision of £30 million made against
Electra's investment in HLF Group and to a lesser extent by those provisions
made against Agricola Group and Esporta.
Electra's portfolio of restricted listed securities performed particularly well
over the year and increased in value by £30 million giving rise to a percentage
increase in excess of 44%. Revaluation of the unlisted securities reduced the
value of the portfolio by £17 million including a £14 million reduction in the
overall exposure to private equity funds. Realised profits on the sale of
investments during the year was £5 million.
In terms of individual investments there were some significant increases which
were made primarily to reflect strong operating performances. The largest
increase related to Safety-Kleen Europe whose value was increased by 56% or £17
million. Other significant increases were made to Baxi, Inchcape Shipping
Services, Charco Ninety-Nine (Gower) and Leiner Health Products. Baxi in
particular has continued to trade well above budget and the prior year enabling
an upward revaluation to be made. The increases in Inchcape Shipping Services,
and Leiner Health Products reflect, in part, the success of the restructurings
of those companies which took place in the previous year. Useful increases in
value were also recorded in respect of Electra's investments in Vendcrown and
Freightliner.
Largest Valuation Increases
Company £'000 %
Safety-Kleen Europe 17,170 56
Inchcape Shipping Services 14,639 102
Moser Baer 14,620 103
Baxi 13,027 27
Charco Ninety-Nine (Gower) 9,206 100
Leiner Health Products 9,177 41
Vendcrown 5,525 15
Freightliner 3,526 48
Largest Valuation Decreases
Company £'000 %
HLF Group (Heath Lambert) (30,080) 100
Private equity funds (14,329) 16
Esporta (10,549) 41
Agricola Group (9,710) 66
Deutsche Woolworth (6,476) 32
UGC (Unipart) (6,406) 61
The performance of the portfolio was adversely affected by some significant
provisions made against individual investments. The largest of these related to
HLF Group where a full provision of £30 million was made against Electra's
investment. This provision alone represented a 6% reduction in the net asset
value of Electra for the year. The reason for the provision is complex and
arose from a combination of factors. An attempt was made to list the company in
July 2002, which was withdrawn in the light of market conditions. Subsequent
discussions with potential trade buyers and provisions made to reflect pension
fund and other liabilities led to an erosion of the equity value of the
company. The provisions against Agricola Group, a business involved in animal
feeds and Esporta, an operator of fitness clubs reflected difficult trading
conditions in these particular sectors.
Consolidated Statement of Total Return
(incorporating the Revenue Account)
For the year ended 30 September 2003 2002
Revenue Capital Total Revenue Capital Total
£'000 £'000 £'000 £'000 £'000 £'000
Gains/(losses) on
investments:
Realised - 4,949 4,949 - 13,014 13,014
Unrealised - (2,585) (2,585) - (52,269) (52,269)
Gains/(losses) on
revaluation of foreign
currencies:
Realised - (705) (705) - 237 237
Unrealised - 2,742 2,742 - 9,104 9,104
- 4,401 4,401 - (29,914) (29,914)
Income of the 18,181 - 18,181 20,134 - 20,134
investment trust
Net (expenses) of (327) - (327) (629) - (629)
subsidiary undertakings
Expenses:
Priority profit share (9,840) - (9,840) (11,088) - (11,088)
paid to general
partners
Other expenses (3,346) - (3,346) (2,513) - (2,513)
Reversal of income (276) - (276) (3,579) - (3,579)
accruals
Net Return before 4,392 4,401 8,793 2,325 (29,914) (27,589)
Finance Costs and
Taxation
Interest payable and (5,649) - (5,649) (7,668) - (7,668)
similar charges
Return on Ordinary (1,257) 4,401 3,144 (5,343) (29,914) (35,257)
Activities before
Taxation
Taxation on ordinary - - - - - -
activities
Return on Ordinary (1,257) 4,401 3,144 (5,343) (29,914) (35,257)
Activities after
Taxation and Transfers
from Reserves for the
Year
Exchange differences (403) (5,573) (5,976) (493) (7,030) (7,523)
arising on
consolidation
Net Transfers from (1,660) (1,172) (2,832) (5,836) (36,944) (42,780)
Reserves for the Year
Return to Shareholders (2.54p) (1.80p) (4.34p) (8.95p) (56.63p) (65.58p)
per Ordinary Share
The amounts dealt with in the Consolidated Statement of Total Return are all
derived from continuing activities.
2003 2002
Number of Ordinary Shares in issue at 30 September 65,231,533 65,231,533
Consolidated Balance Sheet
As at 30 Sept 2003 As at 30 Sept 2002
£`000 £'000 £'000 £'000
Fixed Assets
Investments:
Unlisted 659,376 674,362
Listed 20,235 17,365
679,611 691,727
Current Assets
Debtors 36,585 28,426
Investments - 1,168
Cash at bank and in hand 6,055 16,179
42,640 45,773
Current Liabilities
Creditors: amounts falling due within one 6,497 9,022
year
Net Current Assets 36,143 36,751
Total Assets less Current Liabilities 715,754 728,478
Creditors: amounts falling due after more 193,271 209,106
than one year
522,483 519,372
Provision for liabilities and charges 26,985 21,042
Net Assets 495,498 498,330
Capital & Reserves
Called-up share capital 16,308 16,308
Share premium 24,147 24,147
Capital redemption reserve 26,967 26,967
Realised capital profits 538,914 609,612
Unrealised capital losses (101,561) (171,087)
Revenue reserve (9,277) (7,617)
479,190 482,022
Total Equity Shareholders' Funds 495,498 498,330
Net Asset Value per Ordinary Share 759.60p 763.94p
Reconciliation of Total Shareholders' Funds
Year to 30 Year to
Sept 2003 30 Sept
2002
£'000
£'000
Total Return 3,144 (35,257)
Exchange differences arising on consolidation (5,976) (7,523)
Movements in Total Equity Shareholders' Funds (2,832) (42,780)
Total Equity Shareholders' Funds at 1 October 498,330 541,110
Total Equity Shareholders' Funds at 30 September 495,498 498,330
Consolidated Cash Flow Statement
For the year ended 30 September £'000 2003 £'000 2002
£'000 £'000
Operating Activities
UK dividend income 914 2,131
Unfranked investment income 7,762 14,496
Interest income 184 318
Other income 296 295
Proceeds from sale of current 838 -
asset investment
Expenses (12,850) (11,598)
Net Cash (Outflow)/Inflow from (2,856) 5,642
Operating Activities
Returns on Investments and (6,103) (7,388)
Servicing of Finance
Interest paid
Net Cash Outflow from Returns on (6,103) (7,388)
Investments and Servicing of
Finance
Taxation Paid - -
Corporation tax repaid
Total Taxation Repaid - -
Capital Expenditure and Financial
Investment
Purchases of investments (39,182) (116,421)
Sales of investments 53,804 143,068
Net Cash Inflow from Capital 14,622 26,647
Expenditure and Financial
Investment
Net Cash Inflow before Management 5,663 24,901
of Liquid Resources and Financing
Management of Liquid Resources 32,000 9,900 54,000 (10,500)
Financing (45,801) (74,246)
Bank loans drawn (1,936) 7,004
Bank loans repaid
Loans advanced
Net Cash Outflow from Financing (15,737) (13,242)
Decrease in Cash in the Year (174) 1,159
Reconciliation of Net Cash Flow
to Movement in Net Debt
(Decrease)/Increase in cash in (174) 1,159
the year
Cash outflow from debt financing 13,748 20,246
Cash (inflow)/outflow from change (9,900) 10,500
in liquid resources
3,848 30,746
Change in Net Debt Resulting from 3,674 31,905
Cash Flows
Translations difference 2,037 9,341
Movement in Net Debt 5,711 41,246
Net debt brought forward (192,927) (234,173)
Net Debt carried forward (187,216) (192,927)
The figures and financial information for the year ended 30 September 2003 do
not constitute the statutory financial statements for that year. Those
financial statements have not yet been delivered to the Registrar, nor have the
Auditors yet reported on them. The figures and financial information for the
year ended 30 September 2002 do not constitute the statutory financial
statements for that year. Those financial statements have been delivered to the
Registrar and included the Auditors' Report which was unqualified and did not
contain a statement under either section 237(2) or section 237(3) of the
Companies Act 1985.
The Report and Accounts will be sent to shareholders in late January 2004 and
will thereafter be available from the Company's registered office at 65
Kingsway, London WC2B 6QT. The Annual General Meeting will be held on Thursday
4 March 2004 in the Keats and Milton Meeting Rooms at the Kingsway Hall Hotel,
Great Queen Street, London WC2B 5BX at 12 Noon.
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